Transfer from management of investments in active Wealth Manager to Vanguard passive funds

bostonerimus

Richard1212 said:

bostonerimus said:

Richard1212 said:

bostonerimus said:

 

Complexity doesn't necessarily lead to greater gains. There is still a perception that the inefficiencies of the UK market can be exploited by folks calling themselves wealth managers to out perform. That is highly debatable on average particularly on a risk adjusted basis. IMO it's best to know where you have every penny and why and be able to perform what little management is required for a simple portfolio yourself.

"Folks calling themselves Wealth Managers" need , in order to be a "Chartered WM", need a university degree ( a 2:1 or higher) gaining a BA or BSc, after 3 or 4 years, in economics or a financial management subject. They then have to work in the financial sector for 3-4 years whilst studying for and gaining the CISI Level 4-7 ( average required is 6); only then do they gain the coveted Chartered Wealth Manager qualification. Chartered Financial Planners follow a similar gruelling path.

Folks calling themselves Independent Financial Advisers come in all shapes and sizes but one factual example to provide food for thought is :  the London Institute of Banking and Finance give away a Diploma for Financial Advisers ( DipFA) after a course lasting as low as 6 months.

Hairdressers serve an 18 months apprenticeship in a salon and then have to obtain an NVQ Level 2 to qualify as a junior stylist and continue for 5 years and more qualifications before being eligible to be called a "senior stylist".

While I'm sure these financial professionals work hard to get their "trade qualifications" by doing lots of future value calculations and studying MPT efficient frontiers, letters after the name do not allowed you to consistently outperform a benchmark. The vast majority of retail investors will be best served by using simple personal finance principles of frugality, avoidance of debt, maximizing tax efficiency with pensions and ISAs and using inexpensive multi-asset and tracker funds to get market returns rather than chasing alpha.

I have no doubt that most wealth managers believe they are providing a useful service, but more often than not I think they trade on FOMO to keep themselves employed. The OP has identified their wealth manager as an unnecessary expense and I agree with them. 

Quote>"The vast majority of retail investors will be best served by using simple personal finance principles of frugality, avoidance of debt, maximizing tax efficiency with pensions and ISAs and using inexpensive multi-asset and tracker funds to get market returns rather than chasing alpha.">Unquote
Personally I do not presume to know what the vast majority of retail investors would be best served to do , and neither should you nor anyone. 
Unless you employ a Wealth Manager with a Masters Degree in Economics and Financial Management from Cambridge and a long history in the City, I doubt you would understand their worth for anyone with a sizeable portfolio. I can only assume you do not have a sufficient portfolio.
And, as for letters after names, I value my own BA ( Hons) ---and I take great care in looking at the letters after the names of all people I employ, such as consultant physicians or surgeons whom I consult. And I expect they find comfort in those letters after the name and do not ever regard them as "trade qualifications".

I stated that most people would not benefit from a wealth manager for two reasons: 1) they don't have enough money to risk the effects of the extra fees or even be of interest to a wealth manager; 2) degrees from rural universities like Cambridge or City experience are no alpha magic wand. As net worth increases then tax planning does become more important and that has real benefits that can be assessed. The OP might have substantial assets in GIAs and so tax is a factor there and also in drawdown planning. If assets are to be passed on then trusts and inheritance planning could be important. These services can be purchased as and when required.

Any "chartered" qualification administered by a professional body is a "trade qualification" as opposed to an academic one, but I was being a bit pedantic and maybe I can continue that and call surgeons "trades people" after all they qualify through their professional organization (Royal College of Surgeons) and don't call themselves Dr. but Mr. or Mrs. etc. 

Bobajobbob

As the OP I can confirm that my questions were not i) whether it is better to use an active manager or ii) to look after passive funds myself. I was simply asking about the practicalities of making the migration. Everyone can make their own decision on the previous question and it will of course be related to financial acumen, time, size of investments, trust in third parties, the performance and service of the manager, fees etc etc.

Personally active was the right decision for me for the past decade but having lived and invested through a number of major financial crises, bull and bear markets I have reached the conclusion that the active management is not worth the fee differential around a simpler passive strategy going forward. The fees of my manager are simply too high relative to the performance. If these fees were to drop my view would change. For what it is worth I do work in finance so I do have a good understanding of investments and economics.

What I am discovering is that once you go the active route, which is by definition more complicated, there is a barrier to exit.

Linton

Bobajobbob said:

As the OP I can confirm that my questions were not i) whether it is better to use an active manager or ii) to look after passive funds myself. I was simply asking about the practicalities of making the migration. Everyone can make their own decision on the previous question and it will of course be related to financial acumen, time, size of investments, trust in third parties, the performance and service of the manager, fees etc etc.

Personally active was the right decision for me for the past decade but having lived and invested through a number of major financial crises, bull and bear markets I have reached the conclusion that the active management is not worth the fee differential around a simpler passive strategy going forward. The fees of my manager are simply too high relative to the performance. If these fees were to drop my view would change. For what it is worth I do work in finance so I do have a good understanding of investments and economics.

What I am discovering is that once you go the active route, which is by definition more complicated, there is a barrier to exit.

To answer your original question - setting up a passive portfolio is exactly the same as setting up an active one, whether a particular fund is active or passive is irrelevent to the process. Many people including myself use both active and passive funds. 
So a quick overview.....

1) Define objectives/timerscales
2) Define high level investment strategy to meet the objectives
3) Define what areas you want to invest in to follow your strategy
4) Identify a set of funds that together cover those areas
5) Choose the most appropriate platform to hold those investments.

Note that choice of funds is the next to last thing you should do.  Deciding in advance on a particular provider and then adjusting everything else to correspond with what hat provider happens to supply is making life more difficult for yourself and could well end up with a sub-optimal solution.

To transfer your holdings to a passive portfolio I suggest you start the process from scratch, sell all the funds you no longer need and buy the funds you do.

There is no barrier to moving between active and passive other than in your head. Just spend the necessary time to do the whole analysis in a logical way and then implement.  And be flexible, if you cant find a passive fund that meets some specific need research an active one.

Bobajobbob

Linton said:

Bobajobbob said:

As the OP I can confirm that my questions were not i) whether it is better to use an active manager or ii) to look after passive funds myself. I was simply asking about the practicalities of making the migration. Everyone can make their own decision on the previous question and it will of course be related to financial acumen, time, size of investments, trust in third parties, the performance and service of the manager, fees etc etc.

Personally active was the right decision for me for the past decade but having lived and invested through a number of major financial crises, bull and bear markets I have reached the conclusion that the active management is not worth the fee differential around a simpler passive strategy going forward. The fees of my manager are simply too high relative to the performance. If these fees were to drop my view would change. For what it is worth I do work in finance so I do have a good understanding of investments and economics.

What I am discovering is that once you go the active route, which is by definition more complicated, there is a barrier to exit.

To answer your original question - setting up a passive portfolio is exactly the same as setting up an active one, whether a particular fund is active or passive is irrelevent to the process. Many people including myself use both active and passive funds. 
So a quick overview.....

1) Define objectives/timerscales
2) Define high level investment strategy to meet the objectives
3) Define what areas you want to invest in to follow your strategy
4) Identify a set of funds that together cover those areas
5) Choose the most appropriate platform to hold those investments.

Note that choice of funds is the next to last thing you should do.  Deciding in advance on a particular provider and then adjusting everything else to correspond with what hat provider happens to supply is making life more difficult for yourself and could well end up with a sub-optimal solution.

To transfer your holdings to a passive portfolio I suggest you start the process from scratch, sell all the funds you no longer need and buy the funds you do.

There is no barrier to moving between active and passive other than in your head. Just spend the necessary time to do the whole analysis in a logical way and then implement.  And be flexible, if you cant find a passive fund that meets some specific need research an active one.

I've probably been using the term "actively" inaccurately. Active/passive is more appropriate when talking about funds but I think it was clear enough that I was talking about a discretionary management service vs self managed portfolio of funds. I am not looking to move from active funds to passive funds but from an active discretionary investment service to self managed investments in the form of tracking funds.

The discretionary investment management service I use invests in individual stocks, shares, bonds, active and tracking funds, options etc where I would look to consolidate that entire portfolio into a small number of cheap to run funds (could be passive trackers or actively managed but I'll probably go for the passive trackers for fee reasons). 

As you say the provider is largely irrelevant, except for cost and access to products reasons,  however I mentioned Vanguard as I use them today and am happy with their ethos, fund choice, service, fees and analytics. I hold a number of other funds and investments in other providers that I am also looking to simplify and consolidate as much as possible because it has become clear that complexity leads to lack of transparency leads to higher costs.

Linton

Bobajobbob said:

Linton said:

Bobajobbob said:

As the OP I can confirm that my questions were not i) whether it is better to use an active manager or ii) to look after passive funds myself. I was simply asking about the practicalities of making the migration. Everyone can make their own decision on the previous question and it will of course be related to financial acumen, time, size of investments, trust in third parties, the performance and service of the manager, fees etc etc.

Personally active was the right decision for me for the past decade but having lived and invested through a number of major financial crises, bull and bear markets I have reached the conclusion that the active management is not worth the fee differential around a simpler passive strategy going forward. The fees of my manager are simply too high relative to the performance. If these fees were to drop my view would change. For what it is worth I do work in finance so I do have a good understanding of investments and economics.

What I am discovering is that once you go the active route, which is by definition more complicated, there is a barrier to exit.

To answer your original question - setting up a passive portfolio is exactly the same as setting up an active one, whether a particular fund is active or passive is irrelevent to the process. Many people including myself use both active and passive funds. 
So a quick overview.....

1) Define objectives/timerscales
2) Define high level investment strategy to meet the objectives
3) Define what areas you want to invest in to follow your strategy
4) Identify a set of funds that together cover those areas
5) Choose the most appropriate platform to hold those investments.

Note that choice of funds is the next to last thing you should do.  Deciding in advance on a particular provider and then adjusting everything else to correspond with what hat provider happens to supply is making life more difficult for yourself and could well end up with a sub-optimal solution.

To transfer your holdings to a passive portfolio I suggest you start the process from scratch, sell all the funds you no longer need and buy the funds you do.

There is no barrier to moving between active and passive other than in your head. Just spend the necessary time to do the whole analysis in a logical way and then implement.  And be flexible, if you cant find a passive fund that meets some specific need research an active one.

I've probably been using the term "actively" inaccurately. Active/passive is more appropriate when talking about funds but I think it was clear enough that I was talking about a discretionary management service vs self managed portfolio of funds. I am not looking to move from active funds to passive funds but from an active discretionary investment service to self managed investments in the form of tracking funds.

The discretionary investment management service I use invests in individual stocks, shares, bonds, active and tracking funds, options etc where I would look to consolidate that entire portfolio into a small number of cheap to run funds (could be passive trackers or actively managed but I'll probably go for the passive trackers for fee reasons). 

As you say the provider is largely irrelevant, except for cost and access to products reasons,  however I mentioned Vanguard as I use them today and am happy with their ethos, fund choice, service, fees and analytics. I hold a number of other funds and investments in other providers that I am also looking to simplify and consolidate as much as possible because it has become clear that complexity leads to lack of transparency leads to higher costs.

There are active porttfolio management strategies and passive portfolio management strategies.  Either can be implemented with active or passive (eg index tracker) funds.  .  Active strategies change the portfolio in line with economic conditions or the manager's perception of investment opportunities  which perhasps is what your investment management service does.  Passive portfolio strategies would keep to a predefined allocation and only change the portfolio to maintain that allocation as prices vary over time.

Deciding how you want to manage your investments would come under stage  (2) in my list of tasks.

But I see you are already jumping to stage(4) in choosing a provider and focussing on charges.  Sure charges are important but not until you know what strategy you will be using and what you want a particular fund to do.  That is the time to consider the cheapest way of implementation.


Perhaps you can explain further what your problem is.  To me looking at it from the highest level in principle it all seems pretty straightforward.

Bobajobbob

Linton said:

Bobajobbob said:

Linton said:

Bobajobbob said:

As the OP I can confirm that my questions were not i) whether it is better to use an active manager or ii) to look after passive funds myself. I was simply asking about the practicalities of making the migration. Everyone can make their own decision on the previous question and it will of course be related to financial acumen, time, size of investments, trust in third parties, the performance and service of the manager, fees etc etc.

Personally active was the right decision for me for the past decade but having lived and invested through a number of major financial crises, bull and bear markets I have reached the conclusion that the active management is not worth the fee differential around a simpler passive strategy going forward. The fees of my manager are simply too high relative to the performance. If these fees were to drop my view would change. For what it is worth I do work in finance so I do have a good understanding of investments and economics.

What I am discovering is that once you go the active route, which is by definition more complicated, there is a barrier to exit.

To answer your original question - setting up a passive portfolio is exactly the same as setting up an active one, whether a particular fund is active or passive is irrelevent to the process. Many people including myself use both active and passive funds. 
So a quick overview.....

1) Define objectives/timerscales
2) Define high level investment strategy to meet the objectives
3) Define what areas you want to invest in to follow your strategy
4) Identify a set of funds that together cover those areas
5) Choose the most appropriate platform to hold those investments.

Note that choice of funds is the next to last thing you should do.  Deciding in advance on a particular provider and then adjusting everything else to correspond with what hat provider happens to supply is making life more difficult for yourself and could well end up with a sub-optimal solution.

To transfer your holdings to a passive portfolio I suggest you start the process from scratch, sell all the funds you no longer need and buy the funds you do.

There is no barrier to moving between active and passive other than in your head. Just spend the necessary time to do the whole analysis in a logical way and then implement.  And be flexible, if you cant find a passive fund that meets some specific need research an active one.

I've probably been using the term "actively" inaccurately. Active/passive is more appropriate when talking about funds but I think it was clear enough that I was talking about a discretionary management service vs self managed portfolio of funds. I am not looking to move from active funds to passive funds but from an active discretionary investment service to self managed investments in the form of tracking funds.

The discretionary investment management service I use invests in individual stocks, shares, bonds, active and tracking funds, options etc where I would look to consolidate that entire portfolio into a small number of cheap to run funds (could be passive trackers or actively managed but I'll probably go for the passive trackers for fee reasons). 

As you say the provider is largely irrelevant, except for cost and access to products reasons,  however I mentioned Vanguard as I use them today and am happy with their ethos, fund choice, service, fees and analytics. I hold a number of other funds and investments in other providers that I am also looking to simplify and consolidate as much as possible because it has become clear that complexity leads to lack of transparency leads to higher costs.

There are active porttfolio management strategies and passive portfolio management strategies.  Either can be implemented with active or passive (eg index tracker) funds.  .  Active strategies change the portfolio in line with economic conditions or the manager's perception of investment opportunities  which perhasps is what your investment management service does.  Passive portfolio strategies would keep to a predefined allocation and only change the portfolio to maintain that allocation as prices vary over time.

Deciding how you want to manage your investments would come under stage  (2) in my list of tasks.

But I see you are already jumping to stage(4) in choosing a provider and focussing on charges.  Sure charges are important but not until you know what strategy you will be using and what you want a particular fund to do.  That is the time to consider the cheapest way of implementation.


Perhaps you can explain further what your problem is.  To me looking at it from the highest level in principle it all seems pretty straightforward.

Current discretionary service is "active" in so much as the manager has discretion to manage the portfolio in line with pre agreed appetite for risk. I have no input in individual investments or sales or the timing thereof. Trades are not frequent however the manager will on occasion identify individual opportunities and or rebalance based on macro picture.

In terms of your list
1) Grow portfolios, maximise tax efficiencies with reinvestment of all income. I have no need to access these portfolios in the immediate future. May looks to pivot towards more income over capital gain in 5-10 year horizon.
2) Not sure what you mean by this.
3) Heavy equity focus currently and happy to maintain this however FI becoming more interesting and viable give rate movement and steepening of bond curves.
4) I can cover my requirement today in 2 or 3 passive accumulation trackers I believe.
5) Relatively easy decision.

Maybe I am overly sensitive to charges but when they can be 2% + p.a. when combining transaction and management costs they are as important as investment strategy  in my view.

Re what is my problem? I don't have a problem per se, but am cautious about how to exit discretionary manager and bring funds under my control without too much bureaucracy, tax, time out of the market, ISA impacts, costs etc. I'm sure its not rocket science however having never done it I am slightly trepidatious. 

Richard1212

bostonerimus said:

Quote>"The vast majority of retail investors will be best served by using simple personal finance principles of frugality, avoidance of debt, maximizing tax efficiency with pensions and ISAs and using inexpensive multi-asset and tracker funds to get market returns rather than chasing alpha.">Unquote
Personally I do not presume to know what the vast majority of retail investors would be best served to do , and neither should you nor anyone. 
Unless you employ a Wealth Manager with a Masters Degree in Economics and Financial Management from Cambridge and a long history in the City, I doubt you would understand their worth for anyone with a sizeable portfolio. I can only assume you do not have a sufficient portfolio.
And, as for letters after names, I value my own BA ( Hons) ---and I take great care in looking at the letters after the names of all people I employ, such as consultant physicians or surgeons whom I consult. And I expect they find comfort in those letters after the name and do not ever regard them as "trade qualifications".

I stated that most people would not benefit from a wealth manager for two reasons: 1) they don't have enough money to risk the effects of the extra fees or even be of interest to a wealth manager; 2) degrees from rural universities like Cambridge or City experience are no alpha magic wand. As net worth increases then tax planning does become more important and that has real benefits that can be assessed. The OP might have substantial assets in GIAs and so tax is a factor there and also in drawdown planning. If assets are to be passed on then trusts and inheritance planning could be important. These services can be purchased as and when required.

Any "chartered" qualification administered by a professional body is a "trade qualification" as opposed to an academic one, but I was being a bit pedantic and maybe I can continue that and call surgeons "trades people" after all they qualify through their professional organization (Royal College of Surgeons) and don't call themselves Dr. but Mr. or Mrs. etc. 

I accept that you have valid reasons in your 1) and 2) for your own view but it may not be the view of the "vast majority" as you stated----you may be surprised at the different sorts of client my Wealth Manager is approached by : he tells me that if he thinks they meet your criteria in your 1) and 2) he tells them that they do not need him and gives them advice as to how to proceed ( free of charge).However there are apparently quite a few complex cases, as well as the obvious very large portfolios, that he feels require his skills. BTW, he limits his number of clients to a figure whereby he and his small team of researchers and specialists in various market sectors can provide a fast and highly personalised service.

I'm sure you're just being jocular ( to bring some ALPHA humour to this dull subject) so you will be amused to know that I am still laughing at Cambridge being called a "rural" university  or that City experience means very little 

Yes, let me join in your "tongue-in-cheek" post and agree that members of the Royal College of Surgeons should be called "tradesmen"-----God knows, some of them definitely fit the description

I am glad that O/P cleared up the full meaning of his post and that it looks very much as though his questions have been answered in spite of his remaining "trepidation" about the transition. I think this thread has run its course and I wish Bob a happy transition and continuing good fortune.

Linton

mmm I think giving a full answer is going to be too much for a thread on this forum. Generallyr you can be far more specific.  As an over-simple example of what I mean....

for step (1)
Objective - a pot of £300K at current prices to be available by the end of 2035. 

For (2) which was not clear to you
Strategy - invest in a highly diversified portfolio of equity funds.  Non-equity investments will not be held until 2030 when they will be used to protect against a crash.

You would need to check that the strategy is reasonably capable of meeting (1)

(3) areas of investment
Initially global equity including smaller companies and emerging markets.  After 2030 an increasing % of cash and short duration bonds to be defined in 2029.

(4) Initially one very broad global index fund on an all-market mainstream platform.

(5) 100% Vanguard FTSE Global All-Cap Index fund held on AJ Bell


Some of the advantages of planning your portfolio in this way  are
  -  you can measure progress towards achieving your aims and adjust your risk/return balance accordingly.  If you are on track
    do you want to risk the amount or date by taking more risk than necessary?  If you are well short of where you want to be
    perhaps you should lower your ambitions or make extra contribution..
  - Every fund has a clear justification   If your objectives, circumstances or ideas change you have a logical baseline against 
    which the implementation of the change can be followed through.
 - discourages meddling unless there is a clear justification

On charges - yes 2% per year, which these days would be an extreme difference between funds (<1% is common) , could be very significant but choosing inappropriate funds for your objectives could make differences much greater than that.

Hopefully approaching the problem steadily and logically will help reduce trepidation compared with leaping in and buying a collection of "good" cheap funds.

Richard1212

mmm---I think it's all pretty clear after Bob's post of 25 January around 3.30pm that everything has been made simple and the matter cleared up.

Bobajobbob

Thanks again for all responses. Much appreciated. Just to clarify I am not trepidatious of changing my investment philosophy or giving up the 3rd party. It's just the ballache of making the change and messing something up to my detriment.

I always struggle with specific answers to some of the 5 questions above because nothing is ever black and white in finance or in life. I'm also fortunate above to have some spare capacity in my investments so I'm not targeting specific values but simply looking to maximise what I have. I'm also able to potentially run less conservative strategies as crash avoidance doesn't need to be primary objective. The end goal is to be able to step back from work in the next few years and comfortably live off investment income in ISAs and GIAs with the backup of pension funds that can be tapped on in the future.