Dumping IFA portfolio to go DIY

JohnWinder

'Opinion amongst respected posters who have kindly offered suggestions seems to be split'

I think we can reconcile those two positions. Firstly, it probably doesn't matter than much in terms of end results; and secondly, we don't know which approach will deliver better results. To illustrate: Americans agonise over holding the whole US stock market or just the SP500 which is 80% of the market roughly. When you look at the returns and the volatility of each over many years you see that it just doesn't matter much which you chose. So get yourself onto portfoliovisualizer and do some backtesting of different mixes of emerging market and small cap etc over different periods, and I think you'll discover why people move to the KISS approach. And it's one of the reasons Ferri describes a cute four stages in the education of an index investor: born in darkness; finds indexing enlightenment; over complicates everything; embraces simplicity.

'with possibly just  a couple of additional funds for a bit of oomph.' 

Before you do that, define for yourself what you mean by oomph, how you measure it and what the evidence is that it will benefit you. If it still makes sense and is not just idle dreaming, write it down in your investment policy statement for future reference to keep you on track.

'I moved to quality stocks and infrastructure and my clients have done very well." So if you go your own way either have a strong core with few tilts, or be confident in how you construct your portfolio.'

I'm not convinced one needs a core with tilts, but you do need some confidence and conviction so you don't go chopping and changing and performance chasing along the way. And a third position, recognise that there'll always be better returning portfolios than yours, so don't do anything silly after meeting your advisor in the pub.

'IFAs will include transaction charges in their disclosures.  DIY investors disregard these.   So, you would need to strip out the TC' 

Or just ignore it is the usual advice.

'Most people ignore the transaction costs figure as it is not an explicit charge but a synthetic calculation that can use multiple methods that result in different outcomes.  https://forums.moneysavingexpert.com/discussion/6491247/royal-london-fees-sanity-check-my-understanding-please/p1

'Are you including the transaction charges figure in that 0.75%?  If so, disregard that column as its not a real charge but a synthetic one. '  https://forums.moneysavingexpert.com/discussion/6483640/opinions-please-are-these-pension-charges-typical-or-am-i-being-ripped-off/p2

'the key to it is to remember that it is not an explicit charge but a synthetic interpretation  https://forums.moneysavingexpert.com/discussion/6506847/ifa-ongoing-charges

It is a synthetic figure using a variety of calculations that can result in different outcomes.   Including a negative figure in some cases as an element of profit and loss finds its way into it.    Most people ignore it ' https://forums.moneysavingexpert.com/discussion/6465075/fund-transactional-charges 

dunstonh

nick1234 said:

I really don’t think you need to be paying an 8k per year IFA fee on top of other fund charges for those random funds, just stick is in Vangard global equity tracker or VLS 60/80 etc and save a small fortune

a) the op doesn't say they are paying the IFA 8k on top of the fund charges.  Its 8k in total.   
b) If you think they are random funds, then perhaps you do need to pay for an IFA. The funds and weightings clearly indicate a structure and are not random.
c) here is your recommendation to go with VLS60 or VLS80 - VLS has no adviser charge applied and I have used the OEIC version of VLS.  The MSE portfolio is taken from post 1 and includes 0.5% p.a. adviser charge.

%


and £300k as the starting point:



So, yes, the VLS60 & 80 would have cost less, but the portfolio, as stated in post #1 returned more net of adviser charge. You would have saved a "small fortune" in adviser fees (around £15,292.79), but you would be over £100,000 worse off with VLS80 and nearly £180k worse off with VLS60.

Who do you think is the happier, the one who paid the adviser charges and has over £100k more than the one who didn't pay the adviser charges?

The OP can build something similar and get it cheaper.   However, throwing VLS60 or VLS 80 around as a possible solution just to save money is not helpful.   I don't think the OP would do something silly like that from what they have posted so far but other lurkers reading your post might and it is for them that I wrote this.

JohnWinder

A couple of thoughts for lurkers who are just reading on. Firstly, there were three throw-away suggestions as one-fund alternatives, so if you want to appraise them it's better to appraise all three than only the two with lower returns.

Secondly, comparing returns can be meaningless if we don't consider risk in the comparison, because getting better returns usually requires more risk taking. No point holding out the prospect of better returns if the portfolio takes folk beyond their risk tolerance. The original portfolio had no bonds, while the VLS comparators have bonds; that's a big difference when it's a lot of bonds.

Thirdly, in any comparison always ask yourself 'why were the start and end dates chosen?', because months (or days sometimes if there's a crash) can make a big difference when measuring returns.

Fourthly, home bias is a feature of the VLS series, but not of the original portfolio. There are good arguments both for and agin, ignoring predictions about the future which is sensible without a crystal ball.

Fifthly, concluding a particular portfolio choice was better at the time the choice had to be made, because the results some years later were better, would be flawed logic. 

thunderroad88

Can I at this point just say that having lurked myself for a few years I do fully realise that there have been similar posts like mine over the years and I’ve probably read most of them, so I appreciate that many of you who have been kind enough to reply are probably thinking “not again” and repeating what you may have said before to other posters. All I can say is that I’m glad I’ve asked the question as I’ve found the discussion extremely useful…when it’s your own money earned over many years it suddenly all becomes much more pertinent so thank you all again.

thunderroad88

dunstonh said:

nick1234 said:

I really don’t think you need to be paying an 8k per year IFA fee on top of other fund charges for those random funds, just stick is in Vangard global equity tracker or VLS 60/80 etc and save a small fortune

a) the op doesn't say they are paying the IFA 8k on top of the fund charges.  Its 8k in total.   
b) If you think they are random funds, then perhaps you do need to pay for an IFA. The funds and weightings clearly indicate a structure and are not random.
c) here is your recommendation to go with VLS60 or VLS80 - VLS has no adviser charge applied and I have used the OEIC version of VLS.  The MSE portfolio is taken from post 1 and includes 0.5% p.a. adviser charge.

%


and £300k as the starting point:



So, yes, the VLS60 & 80 would have cost less, but the portfolio, as stated in post #1, is yellow. You would have saved a small fortune in adviser fees (around £15,292.79), but you would be over £100,000 worse off with VLS80 and nearly £180k worse off with VLS60.

Who do you think is the happier, the one who paid the adviser charges and has over £100k more than the one who didn't pay the adviser charges?

The OP can build something similar and get it cheaper.   However, throwing VLS60 or VLS 80 around as a possible solution just to save money is not helpful.   I don't think the OP would do something silly like that from what they have posted so far but other lurkers reading your post might and it is for them that I wrote this.

Thanks dunstonh, that’s an interesting analysis. So is that MSE pf my actual equity pf? Never seen it presented like that, very interesting. You’re right, I wouldn’t consider vls60 or vls80 for this particular issue as I’m solely focussed on the equity portion of my total pf. Only my equities are under management by my ifa (didn’t start off that way at first but that’s where I am now) and this equity pf accounts for 65% of my total pf. The other 35% is safely harboured and does not need to be a consideration here. VLS100 would have been the better suggestion and comparison I suppose. As you pointed out to Nick, my total charges are about £8k, and my adviser charge is 0.75% which in the next year will be about £5k. I know I can also save considerably on the other charges, especially if I could transfer to iWeb, ii or AJ bell. Transaction charges will not be a big factor as I don’t intend transacting after initial transfers are complete.

I don’t really want to get involved in rebalancing my final choice(s) if I can help it, ideally I just want to set this up and let it run to hopefully provide 9-10% annualised returns over the next 5 or 6 years. After that time, my safely harboured 35% will have reduced by about half as we’ve taken out income but state pensions and db pension then kick in to take over. At that time I’ll have a good rethink and take ad hoc advice if necessary.  I have the time to research rebalancing in the interim if needed, I think I could do it with my relatively limited knowledge but I’d probably prefer not to have multiple allocations to consider which possibly rules out a straight replication of my existing pf. I think I do favour a strong core of a global index tracker for 90%, possibly VWRP, with a couple of tilts. 

Another possible scenario which as an ifa you might know the likely answer to…I keep my existing pf with my ifa on the Nucleus platform and and he removes his ongoing fees to be replaced by an annual review with say a £500 adhoc fee which I know other wealth managers like TP offer. Now I’m not saying I’m even thinking of going there, but might he throw a suggestion like that back at me to keep a link with me?

JG1A

dunstonh said:

JG1A said:

Looks like you are paying about 1.34% of your portfolio value every year, about 1% to your IFA and about 0.34% to cover fund and platform costs. If you ditch your IFA you save the 1% and its easy to replicate your portfolio on any platform such as Vanguard, Interactive Investor, with similar fund/platform costs.

IFAs will include transaction charges in their disclosures.  DIY investors disregard these.   So, you would need to strip out the TC for a like for like comparison.       

I would be possible to build the same portfolio on a platform for about 0.34% including the platform costs and fund/trans. costs.

thunderroad88

JohnWinder said:

'Opinion amongst respected posters who have kindly offered suggestions seems to be split'

I think we can reconcile those two positions. Firstly, it probably doesn't matter than much in terms of end results; and secondly, we don't know which approach will deliver better results. To illustrate: Americans agonise over holding the whole US stock market or just the SP500 which is 80% of the market roughly. When you look at the returns and the volatility of each over many years you see that it just doesn't matter much which you chose. So get yourself onto portfoliovisualizer and do some backtesting of different mixes of emerging market and small cap etc over different periods, and I think you'll discover why people move to the KISS approach. And it's one of the reasons Ferri describes a cute four stages in the education of an index investor: born in darkness; finds indexing enlightenment; over complicates everything; embraces simplicity

Thanks John, I’ll look at that…I’m thinking I’m all for simplicity and you’re right, any number of the main all world or developed world trackers would have given me the 9-10% annual returns I want so maybe not overthink it. I hear what you say about tilts…in my existing pf I’ve always had a tilt of my own which my ifa has accomodated, only ever accounting for 5% though for my own personal “dabbling” satisfaction. I had Fundsmith Equity originally which did well and then had my ifa move it into L&G Tech Index with the covid crash. Not sure I can completely remove my desire to have a small dabble but I’m certainly not one to jealously eye up other funds and go chopping and changing. 

thunderroad88

JG1A said:

dunstonh said:

JG1A said:

Looks like you are paying about 1.34% of your portfolio value every year, about 1% to your IFA and about 0.34% to cover fund and platform costs. If you ditch your IFA you save the 1% and its easy to replicate your portfolio on any platform such as Vanguard, Interactive Investor, with similar fund/platform costs.

IFAs will include transaction charges in their disclosures.  DIY investors disregard these.   So, you would need to strip out the TC for a like for like comparison.       

I would be possible to build the same portfolio on a platform for about 0.34% including the platform costs and fund/trans. costs.

It absolutely would JG but I’m asking myself why I might do that when a single global tracker like Vwrp or HSBC all world would have provided the same return. Sure there are a few tilts in my 7 fund pf but if there’s a crash it’ll probably drop the same amount as a global tracker. The only reason I can see to replicate it myself on a low cost platform would be for some reassurance that it was ifa designed but the stats say I shouldn’t worry too much about that. Doing away with my adviser will save me at least £5k in the next year i think…during the last year I’ve had three conversations about families and holidays and how well the pf was going no need to change anything, a 26 page analytic report full of pie charts showing different ways of breaking down my pf but no analysis per se, and the customary annual investment suitability review (no change vs last year). Not even any isa b&b’s for him to do this year as we’re now fully within isa wrappers. For that I paid £4.5k which is what finally kicked my backside enough to stop lurking and do something. 

Bostonerimus1

thunderroad88 said:

JG1A said:

dunstonh said:

JG1A said:

Looks like you are paying about 1.34% of your portfolio value every year, about 1% to your IFA and about 0.34% to cover fund and platform costs. If you ditch your IFA you save the 1% and its easy to replicate your portfolio on any platform such as Vanguard, Interactive Investor, with similar fund/platform costs.

IFAs will include transaction charges in their disclosures.  DIY investors disregard these.   So, you would need to strip out the TC for a like for like comparison.       

I would be possible to build the same portfolio on a platform for about 0.34% including the platform costs and fund/trans. costs.

It absolutely would JG but I’m asking myself why I might do that when a single global tracker like Vwrp or HSBC all world would have provided the same return. Sure there are a few tilts in my 7 fund pf but if there’s a crash it’ll probably drop the same amount as a global tracker. The only reason I can see to replicate it myself on a low cost platform would be for some reassurance that it was ifa designed but the stats say I shouldn’t worry too much about that. Doing away with my adviser will save me at least £5k in the next year i think…during the last year I’ve had three conversations about families and holidays and how well the pf was going no need to change anything, a 26 page analytic report full of pie charts showing different ways of breaking down my pf but no analysis per se, and the customary annual investment suitability review (no change vs last year). Not even any isa b&b’s for him to do this year as we’re now fully within isa wrappers. For that I paid £4.5k which is what finally kicked my backside enough to stop lurking and do something. 

I'm in retirement and my attitude is that I don't want the bother of a complicated portfolio or the volatility of an EM tilted portfolio. I get all the analysis I need using the tools provided on my investment platform. I have good guaranteed retirement income sources so I can take the risk of a 85% to 90% equity portfolio that is basically similar to a global tracker, maybe with a slight US tilt because that's where I live. This has meant that my portfolio has grown nicely over 1 year, 5 years,10 years etc., but when a crash comes I will probably lose more than a more defensive portfolio with a similar composition to VLS60 say. So your portfolio is a tool that you hone to your particular circumstances, objectives and comfort.

thunderroad88

Bostonerimus1 said:

thunderroad88 said:

JG1A said:

dunstonh said:

JG1A said:

Looks like you are paying about 1.34% of your portfolio value every year, about 1% to your IFA and about 0.34% to cover fund and platform costs. If you ditch your IFA you save the 1% and its easy to replicate your portfolio on any platform such as Vanguard, Interactive Investor, with similar fund/platform costs.

IFAs will include transaction charges in their disclosures.  DIY investors disregard these.   So, you would need to strip out the TC for a like for like comparison.       

I would be possible to build the same portfolio on a platform for about 0.34% including the platform costs and fund/trans. costs.

It absolutely would JG but I’m asking myself why I might do that when a single global tracker like Vwrp or HSBC all world would have provided the same return. Sure there are a few tilts in my 7 fund pf but if there’s a crash it’ll probably drop the same amount as a global tracker. The only reason I can see to replicate it myself on a low cost platform would be for some reassurance that it was ifa designed but the stats say I shouldn’t worry too much about that. Doing away with my adviser will save me at least £5k in the next year i think…during the last year I’ve had three conversations about families and holidays and how well the pf was going no need to change anything, a 26 page analytic report full of pie charts showing different ways of breaking down my pf but no analysis per se, and the customary annual investment suitability review (no change vs last year). Not even any isa b&b’s for him to do this year as we’re now fully within isa wrappers. For that I paid £4.5k which is what finally kicked my backside enough to stop lurking and do something. 

I'm in retirement and my attitude is that I don't want the bother of a complicated portfolio or the volatility of an EM tilted portfolio. I get all the analysis I need using the tools provided on my investment platform. I have good guaranteed retirement income sources so I can take the risk of a 85% to 90% equity portfolio that is basically similar to a global tracker, maybe with a slight US tilt because that's where I live. This has meant that my portfolio has grown nicely over 1 year, 5 years,10 years etc., but when a crash comes I will probably lose more than a more defensive portfolio with a similar composition to VLS60 say. So your portfolio is a tool that you hone to your particular circumstances, objectives and comfort.

I noticed you said that you have a US investment and a non US investment in your pf… mind me asking why you didn’t just choose a global tracker? Did you want even more US exposure than they provide?