What proportion of equity funds managed by your IFA are active/passive?

aroominyork

I am surprised by the complexity of some portfolios managed by IFAs which are posted on this forum. This poll on the percentage of your equities which are in active/passive funds might be interesting. Please count VLS/MyMap/HSBC Global Strategy etc. as passive.

Eyeful

The following sayings spring to mind 
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
"Never argue with a man whose job depends on not being convinced."

Eyeful

Or there is this:-
"It can be very hard to understand something, when misunderstanding it is essential to your pay check."

dunstonh

100% passive/0% active

What proportion of equity funds managed by your IFA are active/passive?

Wouldn't it depend on the objectives and scenarios?
For example, many IFA portfolios utilised Royal London Short Term money market into their portfolios over recent years.  Even the 100% previously passive ones.  So, they cannot be 100% passive by default.

Yielding portfolios tend to need active decisions and active funds.
Ethical tends to need active decisions and active funds.

Also worth noting that over half of people using an FA think they are using an IFA.   FA portfolios are more likely to be active.  So, those replies will taint a poll.   Many don't know the difference between an IFA and FA.

aroominyork

But money market funds are not equities which is what the poll is about. 

And I realise some FA users will think they use IFAs but luckily this is not a scientifically controlled poll... not that it makes much difference since it looks like no-one will respond. 

More useful, dunstonh, would be if you give some insight into your active/passive approach.

boingy

Eyeful said:

Or there is this:-
"It can be very hard to understand something, when misunderstanding it is essential to your pay check."

Also applies to accountants!

dunstonh

100% passive/0% active

More useful, dunstonh, would be if you give some insight into your active/passive approach.

Passive is the default unless client instruction or a specific objective is required otherwise.  IFAs are required to take instruction from their clients.  So, if a client says they want a particular investment style, the IFA has to take that into account.

Going back in time, I used to use hybrid (core and satellite) but with US equity now taking up such a large chunk of the overall equity content, US managed equity funds are notorious for not adding value without adding risk.  So, passive only on US makes sense.   And what is left is not worth splitting between active and passive.   So, passive only makes more sense.   

Back in the day, UK equity had a larger weighting, and there used to be some very good UK equity income funds. pre-Brexit, the UK mid-cap was a fantastic place to be.  Core and satellite was more useful back in those days.  

If I needed to build a yield portfolio where natural yield was being used to cover the draws, then its very difficult to do that fully with passives.  Probably would need to revert to hybrid.

But money market funds are not equities which is what the poll is about. 

I was caught out by the reference to the multi-asset funds which are not 100% equities (yes, VLS has a 100% option but its a managed global growth fund and the others, like HSBC don't have a 100% equities version).

aroominyork

dunstonh said:

More useful, dunstonh, would be if you give some insight into your active/passive approach.

Passive is the default unless client instruction or a specific objective is required otherwise.  IFAs are required to take instruction from their clients.  So, if a client says they want a particular investment style, the IFA has to take that into account.

Yes, but how many IFAs explain the relationship to their clients in that way? None out of the three I have used and others I have met. Their bread and butter seems to be taking fees not for providing advice but for managing their clients' portfolios, and those portfolios need to be in active funds to make it seem they are 'doing something' they can charge for. Many people who go to an IFA need their hands held throughout the process and will not challenge the advice they are given; if that advice is to let the person they are trusting their money to choose the best active funds for them, they will accept that advice. They are sitting ducks.

We see plenty of overly complex IFA-managed portfolios on this forum and, dunstonh, you temper how far you comment on them. But I think you could do a great service by writing a detailed post about how people should approach the relationship with an IFA, their options and the potential pitfalls. Some years back bowlhead wrote this piece; food for thought?

dunstonh

100% passive/0% active

Yes, but how many IFAs explain the relationship to their clients in that way? None out of the three I have used and others I have met. Their bread and butter seems to be taking fees not for providing advice but for managing their clients' portfolios, and those portfolios need to be in active funds to make it seem they are 'doing something' they can charge for. 

That sounds more like wealth managers  or IFAs that probably shouldn't be using the IFA tag any more (i.e. single platform for everyone and the same DFM being used for everyone).  The FCA and compliance companies have challenged a number of those in recent years and they have switched to FA.  There is still more work to do there.

Many people who go to an IFA need their hands held throughout the process and will not challenge the advice they are given; if that advice is to let the person they are trusting their money to choose the best active funds for them, they will accept that advice. They are sitting ducks.

And there is no reason to say that they are not getting that with managed funds.    If you look at the top MPS portfolios, only a single 100% tracker based portfolio made the top 10.   

There are plenty of posters on this site that choose to use managed funds.  The tracker crowd is louder but selective use of managed funds is not a bad thing.  Even Vanguard say so and they are offering solutions that include some managed funds.

We see plenty of overly complex IFA-managed portfolios on this forum and, dunstonh, you temper how far you comment on them. 

Some appear more complex than they are or contain more funds than you would expect because of liquidity reasons.    Fund houses will restrict how much can go into a fund.  So, a DFM with billions of pounds on the portfolios will but hit fund house limits.  So, you very often see multiple similar funds used.  Suddenly, a portfolio that could be built using 7-15 funds (which is the sensible range for most) could run into 30-50 funds. Not by choice but limits and concentration risk avoidance.

yes, I sometimes see portfolios that make me despair but when you look at the changes that have been happening post MIFIDII and Consumer Duty, there is trend underway. IFA in-house portfolios are in decline.  DFM MPS use is rising significantly and tracker or hybrid is the main growth area.  Bespoke DFM is in decline and becoming more the domain of firms that position themselves as prestige.   

Aegis

aroominyork said:

I am surprised by the complexity of some portfolios managed by IFAs which are posted on this forum. This poll on the percentage of your equities which are in active/passive funds might be interesting. Please count VLS/MyMap/HSBC Global Strategy etc. as passive.

For my clients there's a definite split between active and passive based on what part of the portfolio we're talking  about.  The core growth portfolio is 100% passive, the much smaller satellite growth portfolio is generally active but might be reduced to zero if the client isn't suited to that style of investing.  The income focus is almost wholly active using investment trusts with a strong history of dividend payment and decent dividend cover, and the "near cash" uses direct short-dated gilts, so it's neither active nor passive as it's usually understood (arguably it's not really an investment at all but a means of holding cash in a slightly unusual way).

For a typical growth client where income really isn't a consideration, I would estimate around 80% passive. Of that 80%, there might be anywhere between 3 and 10 funds depending on the size of the client's portfolio, i.e. whether it's cost effective to hold individual sectors rather than just buying into a single multi-asset passive fund.

wjr4

aroominyork said:

dunstonh said:

More useful, dunstonh, would be if you give some insight into your active/passive approach.

Passive is the default unless client instruction or a specific objective is required otherwise.  IFAs are required to take instruction from their clients.  So, if a client says they want a particular investment style, the IFA has to take that into account.

Yes, but how many IFAs explain the relationship to their clients in that way? None out of the three I have used and others I have met. Their bread and butter seems to be taking fees not for providing advice but for managing their clients' portfolios, and those portfolios need to be in active funds to make it seem they are 'doing something' they can charge for. Many people who go to an IFA need their hands held throughout the process and will not challenge the advice they are given; if that advice is to let the person they are trusting their money to choose the best active funds for them, they will accept that advice. They are sitting ducks.

We see plenty of overly complex IFA-managed portfolios on this forum and, dunstonh, you temper how far you comment on them. But I think you could do a great service by writing a detailed post about how people should approach the relationship with an IFA, their options and the potential pitfalls. Some years back bowlhead wrote this piece; food for thought?

You’re finding the wrong IFAs then, unfortunately there’s still a lot of bad advisers out there but luckily they seem to be retiring now (not in an ageist way, but set in their old ways way). 

An IFA is not a portfolio manager as such, you need a financial planner, which is where I’m hoping financial advisers/planners all end up in the end. There’s no point taking financial advice if you don’t have a plan. It isn’t all about returns and charges, many people still think it is.