Active vs Passive investment

dbrookf

Our Financial advisor has offered us a change from an active investment we have via them (2.32% cost) to one that they have set up themselves but passive (1.38% cost). Thinking it is a no brainer to change to this, but anyone advise pros and cons? We are in our late 60s and this is our pension fund.

Marcon

No brainers generally tend to benefit from a bit of thought!

What have the respective fund performances been like in recent years, albeit with the usual caveat 'past performance is no guarantee...'

You say you have been 'offered' this, but was it actually 'recommended'? If so, why? Have the differences other than cost been fully explained in a way you can understand?

As you using an Independent Financial Adviser, who has access to the whole of the market, or a 'tied' (restricted) adviser who can only use funds from within a much narrower spectrum?

dbrookf

Marcon said:

No brainers generally tend to benefit from a bit of thought!

What have the respective fund performances been like in recent years, albeit with the usual caveat 'past performance is no guarantee...'

You say you have been 'offered' this, but was it actually 'recommended'? If so, why? Have the differences other than cost been fully explained in a way you can understand?

As you using an Independent Financial Adviser, who has access to the whole of the market, or a 'tied' (restricted) adviser who can only use funds from within a much narrower spectrum?

We have gone back to them and got performance data from them & strengths and weaknesses etc, They have been very forthcoming with providing lots of information, But as you say, performance past is no guarantee. I can only see that there will be a reduction in fees at the end of the day!

valueman1

Vanguard have passive global index funds with much lower fees, less than 0.25% pa. Why isn’t your FA recommending these.

tacpot12

valueman1 said:

Vanguard have passive global index funds with much lower fees, less than 0.25% pa. Why isn’t your FA recommending these.

May be they are, but are loading them with 1.13% of additional costs to pay for their Christmas party!

Marcon

valueman1 said:

Vanguard have passive global index funds with much lower fees, less than 0.25% pa. Why isn’t your FA recommending these.

OP hasn't answered my question about whether they are using an IFA...I suspect they may not be, which would probably answer your question.

dunstonh

Our Financial advisor has offered us a change from an active investment we have via them (2.32% cost) to one that they have set up themselves but passive (1.38% cost). Thinking it is a no brainer to change to this, but anyone advise pros and cons? We are in our late 60s and this is our pension fund.

FA or IFA?

Cost level at 2.32% is enormous.  That is very early millennium pricing levels.   1.38% is better but only really if you have a small fund.     The more you have, the lower the charge can be.     1.38% using passives would see the adviser earning 1%.  That is the ball park for small funds but advisers often taper their charge down towards 0.50% with the more you have.   

Sam_666

Original post says it all, in way it is phrased.
Those without basic pension knowledge are usualy taken for a nice ride.

Juno_Moneta

Frankly it’s shocking that an IFA would dump your pension into a passive tracker and have the cheek to charge you 1.38% a year for the privilege. 

The tracker they choose could literally just be a basic FTSE100 vehicle, or hopefully a global tracker instead. 

They are using barely any knowledge or experience to do this and you’d be better off dismissing them and self investing with a SIPP on a platform like Hargreaves Lansdown or Vanguard. 

Don’t let fear of managing this yourself force you down the easy route of unnecessary commissions. 

dbrookf

Juno_Moneta said:

Frankly it’s shocking that an IFA would dump your pension into a passive tracker and have the cheek to charge you 1.38% a year for the privilege. 

The tracker they choose could literally just be a basic FTSE100 vehicle, or hopefully a global tracker instead. 

They are using barely any knowledge or experience to do this and you’d be better off dismissing them and self investing with a SIPP on a platform like Hargreaves Lansdown or Vanguard. 

Don’t let fear of managing this yourself force you down the easy route of unnecessary commissions. 

It is broken down like this:

1. Portfolio Fee - 0.25%
2. Aggregated Fund Cost - 0.16%
3. Financial Planning Fee - 0.75%
4. Platform Cost - 0.22%

ie 1.38%

Does this sound more reasonable?

IvanOpinion

If you are moving to index trackers why not just do it yourself.
There are various index trackers available that you could easily select yourself - most people have their own favourites. You would then only need to pay the fund costs and platform costs.

Do you use your FA/IFA for any additional advice? Using an advisor to just set up a tracker is not good value.