Going it alone....right thing to do?

Sanxxx

I posted a few weeks ago about how my IFA had increased charges and was it reasonable. After some thought I have almost decided to go it alone, the IFA has essentially outsourced the growth of my fund to the DFM and is managing my lifestyle needs/future plans, that part I have come to the conclusion I can do myself.

This post it to gather opinions on my proposed approach and whether it has fundamental flaws e.g. my level of knowledge is insufficient to make a go of 'going it alone'.

So, I have a DC pot of c£850k currently with an IFA who uses a DFM, with other income (DB/SP) sufficient to cover basics.

The working parameters are;

1. I don't have sufficient knowledge to rebalance/fully manage a portfolio and am happy to pay 'experts' to do this i.e. a DFM. It appears, as far as I can tell, that you can't use a DFM as a private investor.

2. I am looking for a 'safer' option on a 'riskier' portfolio. In other words I'm happy with 80:20<->100:0 equities but would rather be invested in 'S&P 500' than 'African Smaller Companies'

3. I will likely utilise a diverse portfolio across geographic regions , mainly UK/US, but global overall. 

4. I want to keep charges low but they don't have to be the lowest, just competitive.

My first thoughts are to move the funds to either something like Vanguard Lifestrategy/Fidility Open World, or something like an AJ Bell/HL recommended portfolio. The latter however requires more management on my part and whilst I would like to tinker I a)lack sufficient knowledge and/or a crystal ball and b)would tinker far to much. At this stage I'm thinking that an actively managed portfolio, albeit not by me, is my preferred option.

I could do some further research and personally pick a range of popular funds that match my chosen portfolio but I'm not sure what advantage, or improved outcome, that gives me unless I actively manage/swap. 

My other thought/opinion on managing it myself is that this is very much an art rather than science and that if it was easy we'd all be multi-millionaires, in other words I think I can get 80% of the benefit (growth) straightforwardly i.e. pick well managed global fund, and that the remaining 20% requires disproportionate effort and relies in some part on luck. What I'm trying to say here is given that equities have by and large outperformed other investments over the years and if the best managed equity funds went up for example x% in the last x years then picking a well managed fund in that sector would likely get you 80-90% of that return without the need for 'active management' on my part.

(Someone may well tear that last paragraph apart!)

Questions;

1. Is there something that sits between, as examples, 'Vanguard Lifestrategy' and 'AJ Bell portfolio' meaning actively managed across multiple funds i.e. what a DFM does that a private investor can use?

2. Is something like VLS100 not diverse enough i.e. is one fund not usually recommended?

3. Is there any benefit e.g. reduced risk, to splitting the pot across say 'Company1 Lifestrategy' and 'Company2 Lifestrategy' or 'Global Fund A and 'Global Fund B'?

4. If I picked an advised fund portfolio, say 5-10 actively managed funds, could I essentially 'fire and forget' or is active management on my part really considered mandatory in this scenario?

5. Am I miles out and completely missing something here?

Thanks in advance.

Albermarle

Have you considered using an IFA that does not delegate investment decisions to a DFM? This would almost certainly reduce the charges and give you what you want.
Normally the advice is to steer away from advisors linked to an investment company. However in your case the advice services offered by Aj Bell- Fidelity may be a possibility. They tend to be a bit cheaper than an IFA but they tend to concentrate just on the investment portfolio, and not have the more holistic approach you might expect from an IFA ( on family finances, taxes etc ) PLus it is mainly done over the phone.

Not sure where Cavendish comes into this. They were bought out by Fidelity some time ago.

JohnWinder

Uncommonly clearly written and insightful, which makes it easier to offer some thoughts.
Portfolio management is what you’re talking about with fund choice, rebalancing, active or passive etc. What makes this so much easier than it ever was is that it has all been commodified in the last few years; portfolios now are lined up on shelves like laundry detergent in a supermarket with Which? or ‘productreviews’ to guide you to a suitable one for you (and probably several will be as good as one another). We no longer need experts to deal with the complexities of investing, it’s all done and packaged by Vanguard, L&G or HSBC et al.

These days an advisor can help with tax, estate planning, insurance, reassurance in crises and whatever else none of which your first para suggests you want from them. We no longer need them for portfolio management, save on fees for that, and probably get better returns. The game has changed.

‘I could do some further research and personally pick a range of popular funds that match my chosen portfolio but not sure what advantage, or improved outcome, that gives me unless I actively manage/swap.’

Well, it would save you lots in fees surely? And you ought not ‘actively manage/swap’ them because even the professionals find it hard to beat the markets by doing that; why would you even both trying except for entertainment or to have a bit of a flutter? Maybe that's your gig.

What I'm trying to say here is given that equities have by and large outperformed other investments over the years and if the best managed equity funds went up for example x% in the last x years then picking a well managed fund in that sector would likely get you 80-90% of that return without the need for 'active management' on my part.’

Yes, that’s a cogent case for you choosing some 'well managed (active, am I right?) funds’ and then not fiddling with them. Cogent until you get down to the practicalities.
How do you choose your ‘well managed active fund’ that will achieve 85% of the returns of the top 2 or 3 funds in that sector? And don’t say it will be based on past performance. How will you monitor and respond to changes in the management team of your chosen funds without any ‘active management on my part’, as these changes might change how well managed they are? How will you respond to your fund’s planned change of management strategy? Forget it, you’re making a rod for your back.

‘At this stage I'm thinking that an actively managed portfolio, albeit not by me, is my preferred option.’

That choice is not invalid, but it makes it hard to reconcile ‘I don’t have sufficient knowledge’ and ‘i want to go it alone’. They’re reconcilable if you choose as active fund like the HSBC Global Strategies which are largely index trackers; but they aren’t reconcilable if you’re going to get half a dozen funds and mess with them yourself.

AlanP_2

Why go 80%+ on the equities side?

It sounds to me like you have "won" and don't need to push for higher and higher returns.

One of the LS range and one of the HSBC Global Strategy range on different platforms to safeguard against IT issues causing access delays would suit you.

VLS60 and HSBC GS Balanced possibly for a roughly 60/40 portfolio at low cost.

Linton

Sanxxx said:

I posted a few weeks ago about how my IFA had increased charges and was it reasonable. After some thought I have almost decided to go it alone, the IFA has essentially outsourced the growth of my fund to the DFM and is managing my lifestyle needs/future plans, that part I have come to the conclusion I can do myself.

This post it to gather opinions on my proposed approach and whether it has fundamental flaws e.g. my level of knowledge is insufficient to make a go of 'going it alone'.

So, I have a DC pot of c£850k currently with an IFA who uses a DFM, with other income (DB/SP) sufficient to cover basics.

The working parameters are;

1. I don't have sufficient knowledge to rebalance/fully manage a portfolio and am happy to pay 'experts' to do this i.e. a DFM. It appears, as far as I can tell, that you can't use a DFM as a private investor.

2. I am looking for a 'safer' option on a 'riskier' portfolio. In other words I'm happy with 80:20<->100:0 equities but would rather be invested in 'S&P 500' than 'African Smaller Companies'

3. I will likely utilise a diverse portfolio across geographic regions , mainly UK/US, but global overall. 

4. I want to keep charges low but they don't have to be the lowest, just competitive.

My first thoughts are to move the funds to either something like Vanguard Lifestrategy/Fidility Open World, or something like an AJ Bell/HL recommended portfolio. The latter however requires more management on my part and whilst I would like to tinker I a)lack sufficient knowledge and/or a crystal ball and b)would tinker far to much. At this stage I'm thinking that an actively managed portfolio, albeit not by me, is my preferred option.

I could do some further research and personally pick a range of popular funds that match my chosen portfolio but I'm not sure what advantage, or improved outcome, that gives me unless I actively manage/swap. 

My other thought/opinion on managing it myself is that this is very much an art rather than science and that if it was easy we'd all be multi-millionaires, in other words I think I can get 80% of the benefit (growth) straightforwardly i.e. pick well managed global fund, and that the remaining 20% requires disproportionate effort and relies in some part on luck. What I'm trying to say here is given that equities have by and large outperformed other investments over the years and if the best managed equity funds went up for example x% in the last x years then picking a well managed fund in that sector would likely get you 80-90% of that return without the need for 'active management' on my part.

(Someone may well tear that last paragraph apart!)

Questions;

1. Is there something that sits between, as examples, 'Vanguard Lifestrategy' and 'AJ Bell portfolio' meaning actively managed across multiple funds i.e. what a DFM does that a private investor can use?

2. Is something like VLS100 not diverse enough i.e. is one fund not usually recommended?

3. Is there any benefit e.g. reduced risk, to splitting the pot across say 'Company1 Lifestrategy' and 'Company2 Lifestrategy' or 'Global Fund A and 'Global Fund B'?

4. If I picked an advised fund portfolio, say 5-10 actively managed funds, could I essentially 'fire and forget' or is active management on my part really considered mandatory in this scenario?

5. Am I miles out and completely missing something here?

Thanks in advance.

You have not told us anything about your circumstances, in particular are you a long way from retirement, close to retirement or actually retired?

In my view choosing specific funds and managing them over time is about the easiest and least important aspect of investing, provided you have sufficient knowledge not to do something seriously foolish. Perhaps that is why many IFAs outsource that part of their business.  If that is all you may want help with I suggest you buy a single  multi-asset fund set to your desired level of risk and leave it alone to do its job. Investment nerds can and do argue about the finer details of particular funds but whichever you choose to buy is very unlikely to make a life-changing difference.

If you are a long way from retirement and have determined the level of contributions you should be making that is all you need to do.  An IFA can help you decide how much is sensible to contribute to meet your retirement income needs and what multi-asset funds match your risk acceptance, but beyond that there is little to be done until you become seriously rich or your circumstances change significantly.

Where investments start to get more difficult is when retirement looms.  There are major issues of how you intend to use your pension to provide sufficient day to day income to match your needs and what sort of portfolio is appropriate.  Now risk becomes a far more important factor - previously when employed the ups and downs of the market may have been of of only passing concern.  The question in retirement  becomes - will you be able to finance your day-to-day living next year, in 5-10 years time, and in extreme old age.  With your £850K perhaps inheitance planning could be a significant factor as could tax.  It is in tackling these broader issues that working with an IFA can change your life.

To answer your questions...

1) A private investor can set up a portfolio honed to their specific needs/wants.

That is what I do, but I am retired and have specific requirements.  Why, in your circumstances, do you want to.something other than a straight mutlti-asset fund?  In my view "performance" is the wrong answer.

What would a fund that is intermediate between VLS100 and an AJ Bell portfolio look like?

2) In my view VLS100, or a lower risk VLS fund, is diversified enough though as an investment nerd I would say that other options are better. 

3) Assuming you keep to the mainstream, there is only an extremely unlikely risk that a fund manager or platform will run onto problems  that could have a serious impact on you.  In almost all cases this would be covered by the fund manager/platform companies themselves, their insurers or the £85K from the FSCS.  However once you have sorted everything else out you may wish to spread the risk - no need to go so far as to cause you any real inconvenience.  In my case I hold my S&S ISA and SIPP on different platforms as there is no benefit from using the same platform.  They also tend to hold different investments from different fund managers.

4) An advised portfolio will consist of specificed %s of specified funds.  If the %s change over time because of different levels of return it would be rational to rebalance - if the %s were chosen to achieve some objective why allow them to change?  Rebalancing is imply a matter of selling the ones that are at too high a % and buuying more of the funds below their initial allocation.  If you do this once a year it is perhaps a hour or two's work and no particular skill is required.

5) You are starting fine and should carry on asking questions, learning and thinking about the issues. Even if you use an IFA it would be extremely helpful if you can fully uiderstand what they are saying and why they ae making their recommendations.  I believe it would be helpful if you thought more than you have said here at the higher level - what are your life plans, and hence the financial needs to achieve those plans.  Then what is your strategy to provide those needs.  Some of the details you are chasing are really secondary.

dunstonh

1. I don't have sufficient knowledge to rebalance/fully manage a portfolio and am happy to pay 'experts' to do this i.e. a DFM. It appears, as far as I can tell, that you can't use a DFM as a private investor.

Or use an IFA that works on advisory basis rather than discretionary (or outsources to discretionary).   However, there are now some low cost discretionary options.

For example, an IFA on advisory basis with your value could cost around 0.20% for platform, 0.09% for funds and 0.50% for adviser = 0.79% p.a.    If using a low cost DFM, then that would add about 0.11%.

My first thoughts are to move the funds to either something like Vanguard Lifestrategy/Fidility Open World, or something like an AJ Bell/HL recommended portfolio. 

The latter options make it more expensive than using an IFA on advisory or low cost discretionary.   Which appears to defeat your objective.  

4. If I picked an advised fund portfolio, say 5-10 actively managed funds, could I essentially 'fire and forget' or is active management on my part really considered mandatory in this scenario?

If you build a portfolio of single sector funds then you have management decisions and the need to rebalance/adjust weightings (at least once a year).  If you use multi-asset funds then you do not.

gm0

There are plenty of globally invested diversified choices which vary in how much of an active portfolio they are. 

Available in risk tiers along the 20/40/60/80% equities line or as cautious/balanced/aggressive and such.

From essentialy fixed allocation such as Vanguard VLS/20/40/60/80

To somewhat volatility managed such as HSBC Global Strategy range

To other risk tiered funds of funds - such as the Aegon range  (these last are adviser introduced products which a pension consolidator will do (regulated deliverables and introduction step) for a low fee if you shop around.

Bostonerimus1

Going it alone was definitely the right thing for me, but only you can answer the question as to whether it's right for you.

Why are your bothered about "active" management? Get your asset allocation right and let your portfolio do the work. VLSxx is a very diverse and simple way to achieve that.

I'm in a similar situation to you, but I've always DIYed. I have a portfolio that is roughly 85/15 with a couple of year's spending cash in the bank and in high interest saving accounts and also a DB pension and rent than cover the basics. My portfolio is 50% US equity index, 25% Global ex-US equity index and a 25% a multi-asset fund a bit like VLS40 for my bond allocation. I haven't touched or "managed" the portfolio in any way except to do some rebalancing, although I've stopped doing that now, and to buy more shares when I have spare money. My costs are low as all I pay are the fund fees, but platform fees should also be taken into account. I've been retired for 9 years and have averaged an annual gain of 8%. In fact this is the approach I've taken all my working life and when you keep costs down, make regular contributions, and get 8% average growth it's difficult not to become a multi-millionaire.

I've been investing through some good markets, but have also been through some nasty crashes and while my approach to investing has been very simple and mostly hands off it hasn't been easy ie rebalancing through the events of 2008.

Sanxxx

Thanks for the replies, my responses as follows;

@Albermarle I will look at further at those advice services. Have edited Cavendish out and replaced with HL, they were examples only.

@JohnWinder "How do you choose your ‘well managed active fund’ that will achieve 85% of the returns of the top 2 or 3 funds in that sector? And don’t say it will be based on past performance. How will you monitor and respond to changes in the management team of your chosen funds without any ‘active management on my part’, as these changes might change how well managed they are? How will you respond to your fund’s planned change of management strategy? Forget it, you’re making a rod for your back."

I agree, because I would base it on past performance as I have little or no other useful input/knowledge. Similarly, a change in the management team would mean nothing to me, I have no idea if the team will be better or worse. 

"They’re reconcilable if you choose as active fund like the HSBC Global Strategies which are largely index trackers; but they aren’t reconcilable if you’re going to get half a dozen funds and mess with them yourself."

I'm not going to pick half a dozen and mess with them, I would want someone else to mess with them on my behalf.

@AlanP_2 "Why go 80%+ on the equities side?". That's my risk choice I've settled on and where I've decided to be invested.

@Linton Fair questions. I've been retired nearly two years and been largely living off 'unwrapped' investments/savings to avoid dipping into the pot given the turbulent times. I anticipate needing to dip into the point in c9 months time. I'm building a larger cash reserve to cater for sizable troughs in a 80-100 equities investment.

"Why, in your circumstances, do you want  something other than a straight multi-asset fund?"
 This I need to consider further in regards to level of diversification and 'single points of failure'.

"In my view VLS100, or a lower risk VLS fund, is diversified enough though as an investment nerd I would say that other options are better."
Could you provide an example?

"An advised portfolio will consist of specified %s of specified funds.  If the %s change over time because of different levels of return it would be rational to rebalance - if the %s were chosen to achieve some objective why allow them to change?  Rebalancing is imply a matter of selling the ones that are at too high a % and buying more of the funds below their initial allocation.  If you do this once a year it is perhaps a hour or two's work and no particular skill is required."
I agree that the admin is trivial and if the only consideration was a variation of 'sell high buy low' then I could consider that however it doesn't seem that easy to judge and there must be a host of other factors for which I come back to my 'insufficient knowledge'

"I believe it would be helpful if you thought more than you have said here at the higher level - what are your life plans, and hence the financial needs to achieve those plans.  Then what is your strategy to provide those needs.  Some of the details you are chasing are really secondary."
Those I largely have sorted, at least in my own mind This is purely about satisfying myself that I can manage, to some degree, my DC pot and then executing.

@Dunstonh "Or use an IFA that works on advisory basis rather than discretionary (or outsources to discretionary)."
I'm not against IFAs full stop , it's just that any service has a price value, I will consider that as a possibility.

"The latter options make it more expensive than using an IFA on advisory or low cost discretionary.   Which appears to defeat your objective."
That does seem to be the case. What is the closest thing a private investor can get to a DFM service?

"If you build a portfolio of single sector funds then you have management decisions and the need to rebalance/adjust weightings (at least once a year).  If you use multi-asset funds then you do not."
A readjustment to % weightings is straightforward admin. My question here is what therefore is the advantage of a portfolio of single sector funds over multi-asset?

JohnWinder

‘My question here is what therefore is the advantage of a portfolio of single sector funds over multi-asset? ‘

Few funds would have a large slug of inflation protected government bonds (linkers), and there’s a lot to be said for linkers since retirees face four major risks: living too long for their money; market risk (it collapses); inflation (linkers cure that). I’ve forgotten the fourth, but confiscation by government will do.
Secondly, the Vanguard funds have too much home bias for some folk while the HSBC cohort are actively managed putting others off. We don’t seem to hear about a fund that most agree is perfect for most people but there may be one.
Thirdly, with several funds you can withdraw from the ones that haven’t recently crashed without reducing your holding in the ones that crashed, at such a bad time. But with a multi asset fund you withdraw from every sector, although remember, while those sectors have been crashing the fund managers have been rebalancing every day or so by selling the sectors not crashing and buying into the crashed ones. So when you come to sell, some of the crashed parts you’re selling are actually from the sectors that didn’t crash.

Bostonerimus1

Sanxxx said:

I'm not going to pick half a dozen and mess with them, I would want someone else to mess with them on my behalf.

Nobody needs to "mess" with anything. Don't get drawn into the navel gazing of portfolio construction, management or performance as that can lead to paralysis. People love to make things more complicated than necessary and remember you don't have to have the perfect portfolio or beat the results in some league table - good enough will work perfectly well. True financial independence is when you stop worrying about money.