Is Your SIPP Pension Making Any Money?

Bostonerimus1

dunstonh said:

Dunstonh, so you would defend that portfolio would you?

I haven't analysed the structure closely and was not defending it but there is certainly nothing wrong with the number of funds.   That is what I was defending.

but you have a habit of trying to defend the indefensible when IFA's are criticised.

How is it indefensible?
Hopefully, the OP will tell us who the DFM is and what portfolio it is.    It looks like an income portfolio but income portfolios have been out for fashion for a while but that cycle will change at some point. 

Also, as an observation, given that it is heavily in income, the returns being declared on the platform screen may just refer to unit price and not the income generated.   There is not enough platform cash for yield not to be reinvested.   So, either it is being withdrawn or it is buying new units.   If it is buying new units, this can artificially lower the investment return figure shown by the platform as it treats the cash being invested as nerw money.  So, the op could be understating the actual return.     

Going by the amount invested on day 1 and current value would probably be a safer measure.  The date would be useful as well as February 2023 had a fairly large drop (by monthly standards).  So, if it was before the drop, that would have held it back. If it was after the drop, then it makes the figures worse.

 There are plenty of DIY investors who have done very well using a handful of low cost trackers, certainly most have outperformed this poor gentleman's portfolio by a country mile.

Short term performance is no indication of long term performance.   Recent years have favoured trackers.  Especially those that bias their portfolio to US or tech in general.    The first decade of this millennium saw US equities as one of the worst areas to invest and was negative over a decade.    This cycle has been the opposite.     Care needs to be taken that the handful of trackers do not have a bias to recent trends without understanding that things will change.

Since Nov 2021, bonds have been dire.  Some more than others.   Going too light on diversification on bonds just to keep the fund count down is not a good idea.

I'm a sample of one, but I've used a few index trackers since the early 1990s and have an long term annual average return of almost 9%. I've been through what feels like a few cycles and the spin cycle that was 2008. While investment return is a factor in the growth of a portfolio so are keeping costs down, making regular contributions and not running to cash when you see the markets fall. I feel that part of my success has been to not think too deeply and convince myself that I can see trends or predict the future. I bought the global market in equities and the US market in bonds (I'm in the US), did some rebalancing and held my nerve. I didn't try to win big in Emerging Markets or Gold. Maybe I was lucky, but remember that when someone else tells you they've had success it could also just be luck...at least my success was simple and inexpensive luck.

JohnWinder

'It's definitely 'fully managed'. The investments are made by the IFA and I access the performance via Quilter.'

I think the earlier use of 'fully managed' had a different meaning, being the funds are not tracking indexes (ie are not 'passive' funds) but rather the fund managers try to pick the securities they think will do best and buy those for the funds. It is very likely, and has been demonstrated many times over many years that 'fully managed' will be a poorer choice for investors. Very uncommonly over the longer term those funds do better than just 'buying the whole market' in the proportions of the market, but it's likely luck not just skill that achieves a better result and no one can tell in advance which 'fully managed' funds will be the ones for the next two decades.

A decent portfolio will have a mix of shares and bonds, the proportions depending on your circumstances and nature. It's the adviser's job to assess you and invest accordingly; there's no precision in it the way you might fit a pair of walking shoes, and one can do it oneself. A decent  portfolio will also spread the shares amongst different countries, and the bonds need to be on the safe side rather than the riskiest. 

I can't untangle your portfolio confidently. Discrepancies include EM stocks at 0.4% in your early post, but ~8% in a later post. However, your portfolio probably meets the 'decent' standard quite well: it's about 50/50 stocks/bonds; the stocks are from all over, but not in market proportions; the bonds are currency hedge hopefully.

'Their response has to been to shrug their shoulders and say 'we hear 

you' and to cite the macro economic events I've mentioned earlier as 

factors in my pension making no growth during this time period.

That 'we hear you' response is good as far as it goes, but every other possible investment option was exposed to the same macro factors, so macro factors is not a complete explanation. Others here have mentioned likely contributors: under-weight US stocks, strengthening UK pound etc. So, I repeat, I think your result compared to 10% for VLS60 is largely due to the rub of the green. 

There's a lot at stake if an adviser gives you a stupid portfolio - their job. This makes it likely that whatever they offer you can be defended with a shrug.

'20 (funds) is not a lot.     Its similar to the DIY favourites Vanguard Lifestrategy and other multi-asset funds.   Unless yo consider those complex too?'

Perhaps it's time to move on from that argument, oft repeated but flawed. Someone choosing, buying and looking after a portfolio of 20 funds has a very much more complex job than someone doing only a VLS-type portfolio. With VLS Vanguard deals with the complexity for ~0.2%/year; with 20 funds you do it yourself or pay someone unnecessarily to do it. Let's be done with this line of argument before someone suggests it's equally complex to hold a global tracker with 7000 stocks as it is to hold 7000 individual stocks.

'You cannot build a structured portfolio with a handful of low-cost trackers.'

Whatever 'structured' means. But you can build a decent, sensible, low cost, proven effective, suitable, defensible with more than a shrug portfolio with a child's handful of trackers. It's easy to argue the case for more if you want currency hedging, home bias and some linkers, but it wouldn't come close to 21.

'I haven't analysed the structure closely and was not defending it but there is certainly nothing wrong with the number of funds.   That is what I was defending.'

I agree. Inherently 21 funds isn't beyond the pale, just unnecessary and if it costs more, wasteful.

'My core question, is why has my pension made under 1% of growth during the period I have mentioned?'

Putting aside fraud etc, that question can be defensively answered, and no change justified. I can't think of a question that would put the adviser on the spot, and justify making a change. I invite suggestions, and I'll offer a rebuttal. 

Stepping back for an overview...

Your costs aren't terrible. £2000/year for an adviser means about 10 hours work/year; that's an average hourly rate and not an inflated number of hours I'd guess. Your fund management fees took about 0.4% you didn't need to pay with cheaper funds, and the platform fee another small amount. Over one or two years it barely counts, and some is unavoidable unless you DIY.

Your problem is long term, not short. 0.4%/year doesn't sound much, but over 20 years it'll mount up (not add up, compound up) to a lot pounds. And the overwhelming evidence is you'll likely do better with passive not active investments. That's the line to take with your adviser, but you won't get past step one in your discussion as you've already acknowledged unless you've some understanding of personal investing - hence my book recommendation.

Some choices: get educated (yourself); or get lucky (with having a good advisor); or get screwed over (by a flawed system).

penners324

Higher risk and up 20%

mad1_2

JohnWinder said:

'It's definitely 'fully managed'. The investments are made by the IFA and I access the performance via Quilter.'

I think the earlier use of 'fully managed' had a different meaning, being the funds are not tracking indexes (ie are not 'passive' funds) but rather the fund managers try to pick the securities they think will do best and buy those for the funds. It is very likely, and has been demonstrated many times over many years that 'fully managed' will be a poorer choice for investors. Very uncommonly over the longer term those funds do better than just 'buying the whole market' in the proportions of the market, but it's likely luck not just skill that achieves a better result and no one can tell in advance which 'fully managed' funds will be the ones for the next two decades.

A decent portfolio will have a mix of shares and bonds, the proportions depending on your circumstances and nature. It's the adviser's job to assess you and invest accordingly; there's no precision in it the way you might fit a pair of walking shoes, and one can do it oneself. A decent  portfolio will also spread the shares amongst different countries, and the bonds need to be on the safe side rather than the riskiest. 

I can't untangle your portfolio confidently. Discrepancies include EM stocks at 0.4% in your early post, but ~8% in a later post. However, your portfolio probably meets the 'decent' standard quite well: it's about 50/50 stocks/bonds; the stocks are from all over, but not in market proportions; the bonds are currency hedge hopefully.

'Their response has to been to shrug their shoulders and say 'we hear 

you' and to cite the macro economic events I've mentioned earlier as 

factors in my pension making no growth during this time period.

That 'we hear you' response is good as far as it goes, but every other possible investment option was exposed to the same macro factors, so macro factors is not a complete explanation. Others here have mentioned likely contributors: under-weight US stocks, strengthening UK pound etc. So, I repeat, I think your result compared to 10% for VLS60 is largely due to the rub of the green. 

There's a lot at stake if an adviser gives you a stupid portfolio - their job. This makes it likely that whatever they offer you can be defended with a shrug.

'20 (funds) is not a lot.     Its similar to the DIY favourites Vanguard Lifestrategy and other multi-asset funds.   Unless yo consider those complex too?'

Perhaps it's time to move on from that argument, oft repeated but flawed. Someone choosing, buying and looking after a portfolio of 20 funds has a very much more complex job than someone doing only a VLS-type portfolio. With VLS Vanguard deals with the complexity for ~0.2%/year; with 20 funds you do it yourself or pay someone unnecessarily to do it. Let's be done with this line of argument before someone suggests it's equally complex to hold a global tracker with 7000 stocks as it is to hold 7000 individual stocks.

'You cannot build a structured portfolio with a handful of low-cost trackers.'

Whatever 'structured' means. But you can build a decent, sensible, low cost, proven effective, suitable, defensible with more than a shrug portfolio with a child's handful of trackers. It's easy to argue the case for more if you want currency hedging, home bias and some linkers, but it wouldn't come close to 21.

'I haven't analysed the structure closely and was not defending it but there is certainly nothing wrong with the number of funds.   That is what I was defending.'

I agree. Inherently 21 funds isn't beyond the pale, just unnecessary and if it costs more, wasteful.

'My core question, is why has my pension made under 1% of growth during the period I have mentioned?'

Putting aside fraud etc, that question can be defensively answered, and no change justified. I can't think of a question that would put the adviser on the spot, and justify making a change. I invite suggestions, and I'll offer a rebuttal. 

Stepping back for an overview...

Your costs aren't terrible. £2000/year for an adviser means about 10 hours work/year; that's an average hourly rate and not an inflated number of hours I'd guess. Your fund management fees took about 0.4% you didn't need to pay with cheaper funds, and the platform fee another small amount. Over one or two years it barely counts, and some is unavoidable unless you DIY.

Your problem is long term, not short. 0.4%/year doesn't sound much, but over 20 years it'll mount up (not add up, compound up) to a lot pounds. And the overwhelming evidence is you'll likely do better with passive not active investments. That's the line to take with your adviser, but you won't get past step one in your discussion as you've already acknowledged unless you've some understanding of personal investing - hence my book recommendation.

Some choices: get educated (yourself); or get lucky (with having a good advisor); or get screwed over (by a flawed system).

Thanks JohnWinder

Thanks for your comments - as always they are extremely inciteful and I wish my IFA offered this level of analysis and insight. 

More generally, I think there must be hundreds of thousands (millions?) of people like me who neither have the time, aptitude or nerve to get involved directly in managing their pension investments. I don't think it unreasonable to expect or hope that for people like me the industry of financial advisers can invest my money for me and grow my pension in line with my objectives for retirement and risk profiles etc. without me taking direct control of my pension. 

'More fool you' you might say, but I think this is the reality for many people for whom the pension industry is set up to serve. Therefore I can't imagine many IFA's or the pension industry quoting the three options of 'educate, get lucky or get screwed...' when pitching to me to invest my money in a pension. I would like to expect more from them or the whole system need to be more honest if these really are the only options.
For me, this is the equivalent of the motor industry saying you must be able to diagnose and do your own mechanical maintenance if you want to own a car, or the technology industry saying you have to be a hardware and software engineer if you use a PC in your work. Even in these scenarios, I accept that some knowledge is always a good thing.

I take on board that 0.4% may mount up over 20 years, but by this time I will be 81 (if I am still around to benefit from the pension). Apart from leaving something to my dependants, I would like to be able to use my pension to provide an income whilst I'm still reasonably fit to use it . So I would hope for better growth than this over the next few years. This doesn't prevent me from having a good look at myself, my expectations, the level of risk I am comfortable with and taking appropriate action.

I do understand I must seem massively naive to the majority of posters here - and I am. I would like to say that your posts, and the majority of posts in response to my original questions, have already been an education for me and I'd like to thank you and everybody else for their time in making them. 

leosayer

dunstonh said:

Not much wonder you think investing is complex looking at that portfolio.  The illusion of complexity is perhaps intentional?

Nothing complex about that MPS.

 I quickly counted 20 in your list.  As I say, no wonder you perceive it as complex.  Perhaps I don't know what I don't know?

20 is not a lot.     Its similar to the DIY favourites Vanguard Lifestrategy and other multi-asset funds.   Unless yo consider those complex too?

That's just bonkers, what is this, a competition to see how many different fund providers one can possibly get into a client's portfolio before they start asking questions (I'm not joking, that looks like a !!!!!! take). You should be asking your FA to explain his strategy. Quite clearly it isn't working, it actually looks just like the pot-luck random picking approach that I was referring to earlier in this thread. I would be looking to ditch the FA and rationalise that lot back to a small handful of low cost trackers.

You cannot build a structured portfolio with a handful of low-cost trackers. You can get the number down a bit, but it's usually cheaper to stick to single-sector funds than to use a global tracker. Plus, with bonds and fixed interest, there isn't a single bond fund that gives diversification across all types.   So, you normally have to diversify across multiple bond funds to get all types covered.

Do you think funds like Vanguard lifestrategy or HSBC global strategy are bonkers?

The funds held by Vanguard Lifestrategy will be partly driven by compliance with UCITS rules preventing funds holding more than 20% in another fund. 

dunstonh

Perhaps it's time to move on from that argument, oft repeated but flawed. Someone choosing, buying and looking after a portfolio of 20 funds has a very much more complex job than someone doing only a VLS-type portfolio. With VLS Vanguard deals with the complexity for ~0.2%/year; with 20 funds you do it yourself or pay someone unnecessarily to do it. Let's be done with this line of argument before someone suggests it's equally complex to hold a global tracker with 7000 stocks as it is to hold 7000 individual stocks.

A multi-asset fund like VLS is a DFM portfolio within an OEIC structure. 
An MPS is a DFM portfolio using platform software.
A number of fund houses offer their portfolios in both OEIC structure and MPS structure.
Vanguard offer VLS in an MPS structure and OEIC structure.   As do HSBC.

There are slight differences.    With the OEIC, they use inflows and outflows to rebalance the weightings.  This can lead effectively to daily rebalancing.    MPS will rebalance less frequently. Quarterly, yearly or after x% drift are common.     This is partly why MPS versions of the portfolios do better than the OEIC versions, as they allow a little drift on the equities.

For example, the HSBC GS Balanced OEIC has an annualised return of 5.26% over 5 years vs the MPS version at 5.67%.   That is 0.41% pa better with the MPS.  If the adviser is charging 0.50%, that has almost paid for them in the difference.  

There is no complexity to the end investor, whether it's MPS or OEIC.  It's just that with the OEIC, the underlying funds are shown on the fund factsheet, but with the MPS, the underlying funds are held by the investor.

Whatever 'structured' means. But you can build a decent, sensible, low cost, proven effective, suitable, defensible with more than a shrug portfolio with a child's handful of trackers. It's easy to argue the case for more if you want currency hedging, home bias and some linkers, but it wouldn't come close to 21.

In the UK, portfolios have to be built with a structure.  They cannot be built with a few percent here and there or with unqualified opinion.   Each fund needs justification.  Each weighting needs justification.  There needs to an investment committee and governance carried out and documented.   Hence structure.

I agree. Inherently 21 funds isn't beyond the pale, just unnecessary and if it costs more, wasteful.

Cost is irrelevant when it comes to number of funds.   For example, single sector funds are cheaper than global trackers.   So, you can build global exposure using single sector sector funds cheaper than sticking a single global tracker.

Also, if you have one fund at 0.2% or 100 funds at 0.2%, the cost to the consumer is still 0.2%.      The cost to the DFM running the OEIC or MPS obviously can change and running 100 funds on the portfolio would cost them more than running 2.   

'More fool you' you might say, but I think this is the reality for many people for whom the pension industry is set up to serve. Therefore I can't imagine many IFA's or the pension industry quoting the three options of 'educate, get lucky or get screwed...' when pitching to me to invest my money in a pension. I would like to expect more from them or the whole system need to be more honest if these really are the only options.

A relationship with an IFA is largely what you want it to be.   The most important thing is communication.   You need this discussion with the IFA.      Going to the internet to ask questions but not to the IFA is counterproductive.    The IFA will have all the information to give you about the portfolio and the reasons why.   Remember that an IFA is whole of market and can place investments anywhere based on your conversations.     If you don't have those conversations, then they will never know what you are thinking or what support you need.

gm0

Curiousity piqued.

@dunstonh said:  

In the UK, portfolios have to be built with a structure.  They cannot be built with a few percent here and there or with unqualified opinion.   Each fund needs justification.  Each weighting needs justification.  There needs to an investment committee and governance carried out and documented.   Hence structure.

Does this statement come from FCA conduct of business or something else. 

Which pertains to "by a regulated for pensions by FCA adviser build out".  As clearly any unqualified yahoo like me can do their own % asset allocation across funds and tilts.  And there are no market access issues with doing it.  Our choices. Our consequences.

I assume it arose to address prior bad practice of a whimsical - bit here - bit there - playing with other people's money experimentally in the less ethical end of the market ?

MK62

Well, there's no free lunch.......the bottom line is that if you want/need an IFA and a managed portfolio service, you have to pay for it......these people have to make a living and also have regulatory expenses - they won't work for free (and nor should they be expected to).

In the end though, it's not a competition of DIY vs IFA (even though it sometimes seems that way on here).......those confident enough in their ability to DIY are likely to do so, but that will certainly not extend to everyone (even though it probably will to a high proportion on here). Many will probably make a good job of it too, but unfortunately it's likely some won't, and would likely have been better off engaging the latter approach.......only time will tell which of us will fall into which camp though...

dunstonh

Does this statement come from FCA conduct of business or something else. 

Its progressive over multiple changes.  Consumer Duty nailed it in the most though.    It has seen a large exodus away from advisory portfolios to DFM MPS because the requirements are quite onerous now.     That is not necessarily a bad thing as there are some very good MPS out there and the vast majority of IFAs don't have the resources to be fund picking or building portfolios without using external sources that they can rely on.   However, it can cause problems with unwrapped holdings which are subject to CGT as targetted disposals are needed to minimise CGT and you cannot do that with a DFM MPS.  

And yes, regulation applies to those regulated.  Not those who are not.  

I assume it arose to address prior bad practice of a whimsical - bit here - bit there - playing with other people's money experimentally in the less ethical end of the market ?

If you go back to the late 80s, all you had was a monthly pink paper publication showing fund performance tables.   There was virtually no due diligence materials available back then.  You trusted that the fund house used was doing the right thing.       So, if you consider that the starting point of where we were and where we are today, that is a big difference.     Some progress faster than others when it comes to stepping up standards.

Bostonerimus1

dunstonh said:

Does this statement come from FCA conduct of business or something else. 

Its progressive over multiple changes.  Consumer Duty nailed it in the most though.    It has seen a large exodus away from advisory portfolios to DFM MPS because the requirements are quite onerous now.     That is not necessarily a bad thing as there are some very good MPS out there and the vast majority of IFAs don't have the resources to be fund picking or building portfolios without using external sources that they can rely on.   However, it can cause problems with unwrapped holdings which are subject to CGT as targetted disposals are needed to minimise CGT and you cannot do that with a DFM MPS.  

And yes, regulation applies to those regulated.  Not those who are not.  

I assume it arose to address prior bad practice of a whimsical - bit here - bit there - playing with other people's money experimentally in the less ethical end of the market ?

If you go back to the late 80s, all you had was a monthly pink paper publication showing fund performance tables.   There was virtually no due diligence materials available back then.  You trusted that the fund house used was doing the right thing.       So, if you consider that the starting point of where we were and where we are today, that is a big difference.     Some progress faster than others when it comes to stepping up standards.

I think this is a big problem. The industry and regulation seems to have made portfolio building and management too complicated. Extreme Modern Portfolio Theory, button pushing and algorithms, the ego that to be "best" it must be complicated and "Consumer Duty" all compound to produce portfolios like the OP's. - although I don't think the OP is being well served by their financial advisor so the concept of "Consumer Duty" seems to be more to protect the advisor than the client. There's a couple of generations in the US  of successful "couch potato" investors using a small number of indexes to adequately cover the markets. They'll miss the variances in the tail of the distribution, but they capture more than enough. DIY investing should be simple, it's an advantage that it has over many professional approaches, not a problem.