Charges

Bostonerimus1

Mr.Generous said:

Surely a big consideration is the return the FA gets from the managed funds. My funds made a huge return in year 1 - covid bounce back - can't really compare to any normal market condition, then an 8% gain the next year, and then dropping to 7% and maintaining that. Fee's are about 1.6% - a lot of cash, but then I wouldn't know how to manage the fund or where to invest. I draw down 2% so my fund is growing.

The FA will get a fee, but that comes from the client...not the funds...and FAs might not be doing much portfolio management themselves as many subcontract that to other firms. It was not difficult to get the level of gains you describe over the past couple of years and asset allocation and risk is important in assessing a portfolio's performance, but I would not want to pay 1.6% in fees myself as at 2% they are doing almost as well from your retirement pot as you are. But if it works for you the that's what matters.

RogerPensionGuy

Below is link sent to me from a friend who is currently with an IFA set up and is paying platform and DFM fees also. 

He has reviewed his net pension performance over the last 5 years since he CETV'd out via the IFA. 

He can easily see just doing a DIY low cost Sipp with middle of the road index or maybe a few index units would of left his net position much more positive. 

He indeed likes the warm feelings from his current arrangements, but thinking to possibly go low cost and thinking it will beef up his SIPP pot going forwards. 

I've told him the link looks sensible to me, but it's his decision. 

Others on this thread may find the link interesting to read, nothing rocket science, but it's well laid out. 
***

https://www.money.co.uk/pensions/sipps/v1?track=885118&inset-cookie-banner&utm_accountid=3115971200&utm_source=google&utm_medium=cpc&utm_term=sipps&utm_cmpid=12126378915&utm_adgid=117363650792&utm_tgtid=aud-940199291216:kwd-12594837&utm_mt=b&utm_adid=492967933565&utm_dvc=m&utm_ntwk=g&utm_plcmnt=&utm_locphysid=1007080&utm_locintid=&utm_feeditemid=&utm_devicemdl=&utm_plcmnttgt=&gclid=CjwKCAjwrvyxBhAbEiwAEg_KgsObQHtE7q9fNkzGCUgn8ZRpjd9XKGZE5PodYY0WWO8Ueo2A4f7VZhoC9S8QAvD_BwE

JohnWinder

'It may or may not reduce returns but if you are "cost focused" rather than "returns focused" then passive is the way to go.'

The good thing is you can be focussed on both, which might be a 'win win'. How so?

It's been well demonstrated that higher fund charges bring with them lower fund returns, so choosing lower cost funds, if they're suitable for you, could be expected to bring higher returns. 

Morningstar research concludes: 'Price is one of the best predictors of a fund's future returns. That's because a fund's costs come right off the top of its total return.' https://www.morningstar.com/personal-finance/key-factors-evaluating-mutual-funds 

https://www.evidenceinvestor.com/bond-fund-fees-are-a-good-predictor-of-performance-morningstar/ 

The EU securities regulator's report from 2019 says the same thing: ' costs are higher for actively managed equity funds compared to passively managed equity funds, which leads to lower performance net of costs for active compared to passive funds;'

https://www.esma.europa.eu/sites/default/files/library/esma50-165-731-asr-performance_and_costs_of_retail_investments_products_in_the_eu.pdf 

And there is simple arithmetic: all the investors like you and me, put together, can only get the returns of the markets they're invested in, some more or less than other folk, but the higher the fees overall the lower the returns available to us. https://web.stanford.edu/~wfsharpe/art/active/active.htm

JohnWinder

johnnyren said:

dunstonh said:

That explains their charges.   It also suggests you are very defensive (possibly too defensive for drawdown)

My annual meeting with my ifa is approaching , I’ll discuss this with him ,   Thank you 

The choices of a trained, highly regulated professional who presumably has taken the time to assess your risk appetite versus the opinion of someone on the internet who barely knows you. I wouldn't mind being a fly on the wall at that meeting.

johnnyren

JohnWinder said:

johnnyren said:

dunstonh said:

That explains their charges.   It also suggests you are very defensive (possibly too defensive for drawdown)

My annual meeting with my ifa is approaching , I’ll discuss this with him ,   Thank you 

The choices of a trained, highly regulated professional who presumably has taken the time to assess your risk appetite versus the opinion of someone on the internet who barely knows you. I wouldn't mind being a fly on the wall at that meeting.

Lol come on now ,  I’m only going to discuss with my ifa if maybe reviewing if  my attitude to risk is worth looking at ,     I’ve no intention of mentioning the opinion of anyone on the internet 

Mr.Generous

Bostonerimus1 said:

Mr.Generous said:

Surely a big consideration is the return the FA gets from the managed funds. My funds made a huge return in year 1 - covid bounce back - can't really compare to any normal market condition, then an 8% gain the next year, and then dropping to 7% and maintaining that. Fee's are about 1.6% - a lot of cash, but then I wouldn't know how to manage the fund or where to invest. I draw down 2% so my fund is growing.

The FA will get a fee, but that comes from the client...not the funds...and FAs might not be doing much portfolio management themselves as many subcontract that to other firms. It was not difficult to get the level of gains you describe over the past couple of years and asset allocation and risk is important in assessing a portfolio's performance, but I would not want to pay 1.6% in fees myself as at 2% they are doing almost as well from your retirement pot as you are. But if it works for you the that's what matters.

I'm choosing to draw down a sum that keeps me just below the higher rate tax threshold, not because my pension is that vast I might add ... the rental income makes up the majority. The fees are split between Transax and the advisor, I don't see them doing nearly as well as me at 1.6% from a 7% gain when my pot is getting bigger it's still mine.

JohnWinder

With lower fees you might be able to invest with less risk, and still get the same nett return. Less risk is a good thing.

RogerPensionGuy

Below is just an item that popped up today and of interest in this thread.

Apart from charges, it says managed funds tend to swoop/trade units more than low cost trackers and this process can up the costs.

My friends who use IFAs/FAs or similar do notice lots of swooping of units that occur pretty often and when they backtrack these units they cannot see any great advantage normally, at the bottom of this post I will put on a link from Pension Craft I watched last night, a great(like always) insight of churning units and showing the overall costs especially when units have big splits between the buying and selling prices.

I am very much in the camp of low lost index/indexes and try avoiding churning units unless a person knows better than what the markets will do.

 ***

https://www.fool.co.uk/investing-basics/isas-and-investment-funds/index-trackers-vs-managed-funds/#heading_1

***

https://www.youtube.com/watch?v=yx9htZg-vGU

Bostonerimus1

Mr.Generous said:

Bostonerimus1 said:

Mr.Generous said:

Surely a big consideration is the return the FA gets from the managed funds. My funds made a huge return in year 1 - covid bounce back - can't really compare to any normal market condition, then an 8% gain the next year, and then dropping to 7% and maintaining that. Fee's are about 1.6% - a lot of cash, but then I wouldn't know how to manage the fund or where to invest. I draw down 2% so my fund is growing.

The FA will get a fee, but that comes from the client...not the funds...and FAs might not be doing much portfolio management themselves as many subcontract that to other firms. It was not difficult to get the level of gains you describe over the past couple of years and asset allocation and risk is important in assessing a portfolio's performance, but I would not want to pay 1.6% in fees myself as at 2% they are doing almost as well from your retirement pot as you are. But if it works for you the that's what matters.

I'm choosing to draw down a sum that keeps me just below the higher rate tax threshold, not because my pension is that vast I might add ... the rental income makes up the majority. The fees are split between Transax and the advisor, I don't see them doing nearly as well as me at 1.6% from a 7% gain when my pot is getting bigger it's still mine.

Well, it works for you then. Of course you'll still be paying those fees when you lose money so it will always be working for the funds, the platform and the advisor.

booneruk

RogerPensionGuy said:

a link from Pension Craft I watched last night, a great(like always) insight of churning units and showing the overall costs especially when units have big splits between the buying and selling prices.

I watched this too, and it backed up what I've been thinking lately after I've started investing in a range of ETFs this year. I noticed wide bid/offer spreads on some of those, and have trained myself to not make market trades but limit orders instead (I have Freetrade or T212 for this). If you're not desperate to buy or sell this gives you certainty over price, but less certainty that your trade will actually get filled