Fund performance with Financial Advisor only gained 5.74% in five and a half years.

masonic

boingy said:

dunstonh said:.

BTW, some of the comments in earlier posts reflect poor knowledge or bias.  So, be on guard.

So as an Independent Financial Advisor you don't think you might be biased towards Independent Financial Advisors then? On this board I've seen you defend some shockingly bad advice from other IFA's. The OP's advisor has taken half the profits. Do you think that is reasonable?

Everyone has a bias, even you. It's what makes us human.  

When someone pays an adviser, or buys an expensive managed fund, they do not strike up a bargain based on the advisor or fund manager taking a share of profits. It is usually based on the value of assets they wish to be managed. Had the OP had zero returns over 5 years, then the adviser could be considered to have taken 100% of the profits, whereas if they made a loss, a meaningful percentage could not be stated. When they enter into such an arrangement, it is for a service, and that service is choosing appropriate underlying investments based either on the investors objectives and risk tolerance, or a stated fund mandate. Most do it because they cannot choose themselves or do not want to, and are (or should be) willing to see some drag on returns as a result. When such returns are low, then the drag is more significant. It's reasonable for an investor to assess what impact the manager is having for the fee they are being paid, and to do so one must make comparisons with appropriate alternatives, and/or explore whether the asset allocation was justifiable. Based on the description of the portfolio at the top of the previous page, there are certainly some questions to be asked about the latter. If the full portfolio composition was posted, it would enable a more conclusive critique.

My sense is that someone who has tolerated their portfolio falling 20% in a week is fully justified in not wishing to stick with this portfolio after enjoying annualised returns of about 1% per year over the same period where a FTSE All share tracker returned >3% and global funds would have achieved north of 6%, but it is good to understand the reasons behind the outcome. The underperformance goes well beyond what could be attributed to fees. Most of it is probably the result of the choice of underlying funds. So what are those funds and why were they chosen?

gm0

People are making the point about what you told the adviser again and again.  And this is a proxy for the "why" of  these investments.  

Clearly you can can have a "long term perspective" and observations about long term average asset class returns and looking through volatility at the 5-to-10 year level are then reasonable.  i.e. that 5 years is too short to draw firm conclusions. 

And yet if "income" regularly or upon demand in retirement along the way was and is a significant factor and objective for you then the portfolio design could well have been different to a pure growth story and the access approach aligned to prevent selling (a lot) in a sharp dip and damaging the long term prospects of the portfolio to provide what is needed as a mixture of capital and income.

As an example there could have been cash or high quality gilts/bonds in the mixture.  Which at the time would be a better than cash (but not much) component which could be sold preferentially to income in a short term dip but supporting the income.  What was sold to get the 10k and when is the question there. 

And bonds in the mix were regarded as not too high a risk because (arm waving assumptions are also now informed by hindsight - people thought the unwinding would be gradual not sudden.  There was not particular evidence based reason that proved that it would be - or indeed that it would not be.  But people were not (in general) acting as though what has happened was imminent and going to be quick.

Equity and bond correlation when examined over the longer term has provided the expected negative correlation and buffering sometimes.  And occasionally it has not.  The most recent example being added to the "not" column.

Questions to address are:

- Does this portfolio provide what you want in terms of overall risk level (equities and other growth assets)

- Has it supported the taking of income without pound cost ravaging your unit holdings i.e. is this thought about and baked into how it was setup and accessed e.g. the sales for the 10k.

- Costs.

Also many of us who are learning to DIY here are looking at the problem not just from a pure growth maximisation perspective but from an income adequacy and risk management perspective.  We want our private pensions to deliver what we need (reliably - bar very extreme conditions for capitalism more generally and internationally).  We are prepared to take the risk of drawdown (vs buying a full annuity) to leave the residual to heirs

So we choose a posture on overall risk which has the potential (based on market general history) to deliver returns to add to income alongside gradual depletion of initial capital to a an assumed (planned) level. 

It may deliver capital losses and little return over long periods like 5-7 years or even a decade. 
But if the 20 or 40 year view still delivers based on predicted average asset class returns and the mixture then that is OK. 

On the many paths the sequence of return and withdrawals can take we can end up "just making it" or dying with a 2x or 3x pot to leave to grateful heirs or Battersea Dogs Home.

I have found that looking at my guaranteed income sources (cash savings, state pension (making an assumption that it will be there when I get there) and then teasing apart what I need from the plan and what I desire from the plan.

The risk management element is then applied - more strictly over need.  And then as boldly as you like (we are all different when it comes to volatility and loss aversion) for the desired part.

Bernstein book - Rational Expectations - takes a fairly strict line on this subject - which is also referred to as Liability Matched Portfolios in other writings. 

In a strict view - the "essential" to keep the lights on element would be  planned out using planned capital withdrawals and low risk / cash like assets - bond ladders/TIPS held to term etc. A locked in cashflow.  With ladders rather than bond funds of maintained duration mix the interest rates yield impact/capital value issue goes away as the bond cashflow is known at purchase and never alters. Very few scenarios where it can fail.  But growth asset potential returns are foregone as well as the risk of them. 

The rest ("desired part") being equities and similar growth assets of whatever sort takes your fancy.  Lots of China.  No China.  Other Asia and other emerging markets.  Over/underweight UK.  Or just Global Developed index trackers at the cheapest possible cost.

Whether or not you create a full LMP for essential income (using state pension and a portion of your investible assets is a choice you make.  But knowing what that is - and how much more or less risky what you are doing is than that can still be a useful way to bring the discussion about risk and returns and income back to specifics.

callum9999

InvesterJones said:

Did your advisor really tell you that shares were a good idea if you wanted to look at a 5.5yr time frame?!

If you are considering a longer term, why are you interested in how they perform in any given intervening period?

To suggest that you should ignore the performance of investments after 5 years is absolutely ridiculous. Have you just heard the often quoted "invest for 10 years minimum" and assumed that's a hard and fast rule?

Unless you're a financial genius, trying to time the market by day trading etc is not going to work. Reassessing your strategy after 5 years however is clearly sensible. That's not as simple as "I earnt X, they earnt Y - sell everything and buy Y instead", but by questioning why you've earnt less and assessing the likelihood that you'll earn more in the future.

Depending on what funds they're invested in, there could be very good reasons for selling them and buying something else instead (if they've worked it out correctly, paying over £1k/yr in advisor fees alone seems a good reason). Blindly assuming funds that underperform for 5 years will magically overperform for the next 5 to "average out" is not a sensible way to invest. 

GazzaBloom

Paying someone £6K to select and “manage” 18 funds for a £100K pot over 5 years doesn't sound like good value and appears overly complex to me.

Stories like this don't help with the financial advisor industry reputation or promote confidence. I don't read stories of index beating returns from expertly curated portfolios having saved the clients thousands in taxes or fees along the way as the portfolio is adjusted to avoid the worst of market drawdowns and capitalise on market upswings. Why is that?

The unwinding of the low interest rate bond market was obvious when US inflation started to rise rapidly in late 2021, as it was obvious that interest rate rises would follow, why didn't active fund managers derisk portfolios and move their clients out of bonds on this signal?

JohnWinder

As already suggested, the fund(s) perfectly suited to you, which you may have, could simply have had a disappointing 5 years. Or you may have unsuitable fund(s). I doubt you could give us enough information about yourself for us to give some ‘bankable’ advice about your fund(s). The consequences are: you trust your advisor, or you get sufficiently up to speed on personal investing to answer the questions you posed, yourself. It’s not that hard if you can be bothered, and the landscape has changed considerably since your earlier agonies along the same lines 18 years ago. Then it would have been hard to become your own expert; now there are ready resources to get you there, and investment products the answer to a maiden's prayer.

GeoffTF

cleverdic said:

Yes I did believe over 5 years was a fair time to make an assessment. Clearly I need to think longer term. I've looked at my fund portfolio and I see 18 funds made up of 35% identified as UK funds,  22% identified as Global and the remaining funds spread around the world including the UK and the US.

Funds that have performed well over one five year period are no more likely to do well over the next five year period and vice versa. Ditto for ten years periods, or periods of any length. A poor return over your first five years tells us only that you have been unlucky in your first five years, it does not tell us whether you will be lucky in the future. You are mistaking a game of chance for a game of skill.

You have not given us any useful information about your portfolio. You could save money by rolling the dice yourself, but you need to learn more before doing that.

Aminatidi

Dazed_and_C0nfused said:

Aminatidi said:

You've paid your IFA more than you've made?

This is why fees matter.

I don't think we know the op has an IFA 🤔

They only seem to have referred to a Financial Advisor, being independent hasn't been mentioned.

Respectfully I think picking up on whether the word "independent" applies here is a little wood for the trees isn't it?

The point is the high fees won't have helped one little bit here.

Bostonerimus1

GazzaBloom said:

Paying someone £6K to select and “manage” 18 funds for a £100K pot over 5 years doesn't sound like good value and appears overly complex to me.

Stories like this don't help with the financial advisor industry reputation or promote confidence. I don't read stories of index beating returns from expertly curated portfolios having saved the clients thousands in taxes or fees along the way as the portfolio is adjusted to avoid the worst of market drawdowns and capitalise on market upswings. Why is that?

The unwinding of the low interest rate bond market was obvious when US inflation started to rise rapidly in late 2021, as it was obvious that interest rate rises would follow, why didn't active fund managers derisk portfolios and move their clients out of bonds on this signal?

There is probably some self selection in the financial advisor horror stories we hear, as people don't often post to say that they are satisfied with their service and have done ok. The righteous indignation that results from lower than expected gains or poor service are far more likely to induce a forum post. As a DIYer I'm not a massive fan of financial advisors, but I accept that some people will want or simply need them and I'm sure many people get service that is just fine. However, using portfolios of 18 funds that perform poorly and charging for it should be called out.

cleverdic

Albermarle said:

I could ask the question another way. Would anyone commenting here be comfortable in a 5.74% return over 5.5 years and is that a realistic return over that period considering the impact of certain world events.

The key question here is what you told the IFA when the portfolio was set up. Did you say for example that you wanted low risk funds as you have a low risk tolerance. Or did you say you were looking for growth even if that came with some risks. If it was the former, than the low return over 5 years would be more understandable. 

Yes, it is an IFA that is dealing with my investment.  I originally stated that I would be looking for medium growth even if that came with risks. I was fully aware and under no illusion that investments could go down as well as up. From that point, I had no concern when I started off over 5 years ago. The fund initially performed to expectation and even after the severe impact of covid in March 2020 where I lost 20% of the fund, after 2.5 years, the fund was up 20% overall. It's fallen back significantly since then and never recovered close to these highs.

The reason for this post is to gauge that, after 5.5 years, is a 5.74% return on a product sold as medium growth with risk standing up to other average, similar funds and sold to me as someone approaching retirement age (and now arrived!) So far, I am getting the sense that something has gone wrong that should have been brought to my attention sooner.

On the actual investment, I am not in any position to judge the different types of funds although of course I could look at the historical performance of each. That is why I engaged an IFA to manage this. I do see that four of the funds have the word "bond" in the title. I would have to go into each fund in turn to see the spread.

If I do withdraw the fund completely, then I do feel the balance of my overall investments will not be rounded in that I would only then have property and cash of which I manage myself reasonably well. For that reason, I should probably want to re-enter the fund market with some of this existing fund and reinvest but I am very conscious of my lack of knowledge in this area so will need to investigate.  

Mothman

You will get a far better response if you post up the names of the 18 funds and the percentage of the portfolio that is allocated to each fund. Without this information it is hard for people to comment properly on your level of return