Comments on IFA Fund Selection Please

jamesd

Neptune Global Alpha seems a waste of time for customers but a good deal for Neptune. Neptune Global Equity has outperformed it so it seems to be Neptune that is taking all and more of the benefit of the extra concentration risk of Global Alpha. I wouldn't (and didn't) go for Global Alpha until there's some sign that investors rather than Neptune are benefiting.

dunstonh

So at 100k invested the adviser is going to be charging 500 a year for rebalancing, plus whatever growth does to that. Unless there's more work there than looking at the percentages and doing some buying and selling to match the original percentages that seems like a significant ongoing cost for modest ongoing work.

They way I read that, the 0.5% is the natural trail commission. Remember that HL and the other DIY SIPP providers still take that 0.5% and do nothing for it. If the IFA is reviewing, rebalancing and re-assing risk profile then at least something is being done for that 0.5%. Unlike HL where it goes into their pot.

At this size of investment it's worth comparing the costs with the Hargreaves Lansdown SIPP, since it'll be close to break even between the two (HL would probably be cheaper below 100k).

The only cost difference is the initial charge.

We need to remember that when it comes to choosing how you invest then you will always get a difference of opinions. Would I choose those funds ? No. I prefer a sector allocated strategy or a high yield strategy. If everyone posted what they would do then you would get no two portfolios the same.

jamesd

It's certainly possible that I've misread or misinterpreted the Scottish Widows documentation. Here are their documented charges as I understand them:

Iniital charge of 0% for investment purchase for both this and HL (assumed, didn't check HL, could be 0.25% for some funds, maybe more)

plus

SIPP annual service charge, 0.5% for 100k-150k (0.55% above 50k, 0.6% above 10k; 0.45% above 150k, 0.4% above 200k, 0.35% above 250k, 0.3% above 300k ...).

plus

Adviser Payment Charge (several options, one of them is the scaled 0.5% charge on the fund value, can vary between 0% and 1% of fund value)

plus

Investment charge (AMC) varies per fund, Scottish Widows Invesco Perpetual High Income is 0.95%.

That appears to come to 0.5% + 0.5% for rebalancing + 0.95% = 1.95% while the same fund is available without rebalancing service from Hargreaves Lansdown for 1.5% in their SIPP.

Of course someone has to pay for the rebalancing advice but it doesn't seem to be part of any natural trail commission for a product that appears to use factory gate pricing. Rather, it's quite explicit that the adviser and customer agree the amount and would cost the poster 0.45% more than getting the fund without advice from Hargreaves Lansdown.

And that's an opportunity for the client to consider the service being purchased and whether fee, commission or DIY is the best route for them or should be negotiated.

dunstonh wrote: »

The only cost difference is the initial charge.

AMC	Weightd	H-L	Weightd	
Jupiter Corporate Bond		5.0%	0.95%	0.06	1.00%	0.06	
Invesco Perpetual Corp (SW?)	10.0%	0.80%	0.10	1.00%	0.13	
Jupiter Income (SW?)		5.0%	0.95%	0.06	1.50%	0.10	
Invesco Perpetual Euro High Yld	10.0%	0.70%	0.09	1.25%	0.16	
Neptune Global Alpha		5.0%	1.45%	0.09	2.00%	0.13	
Midas Income & Growth(blnced?)	15.0%	0.85%	0.16	1.40%	0.27	
L&G UK 100 Index Tracker 7	7.5%	0.45%	0.04	0.75%	0.07	
Neptune European Opps		10.0%	1.20%	0.15	1.75%	0.23	
L&G Property			5.0%	0.70%	0.05	1.25%	0.08	
Jupiter Ecology			5.0%	1.45%	0.09	1.50%	0.10	
WEIGHTED TOTAL			77.5%		0.91		1.33	
plus 0.5% SIPP service charge			1.41			
plus 0.5% Adviser Payment charge		1.91			

M&G Gilt & Fixed Int		10.0%	na?				
SW Cash 2 (SW)			2.5%	0.20%		0.00%		
The fund list appears to total 90%, not 100%.

It appears that before adding an Adviser Service Charge the costs for the funds for which I could find information would have a weighted average annual charge of 1.41% compared to 1.33% from Hargreaves Lansdown and after the Adviser Service Charge of 0.5% is added the charge would be 1.91%.

Of course, that 1.41% to 1.33% difference is just eighty Pounds a year for a 100k fund. Maybe the adviser prefers this choice enough to pay from the 0.5% to use it. Or maybe the clients are happy to pay it. It's easy to focus too much on small differences...

It appears that if they are happy with DIY the posters may be better asking the adviser for the amount of time spent so far and paying a fee for that time, then using the DIY platform. Or, perhaps better, asking the adviser if this is really the best choice of pension wrapper for their fund size and investment choices, since HL is less costly on AMCs than this until the pension fund size exceeds and stays above 200k. I assume that the adviser has alternatives to HL available that would fit this size and investment mix better.

Alternatively, please tell me what I've missed in this.

dunstonh

Of course, that 1.41% to 1.33% difference is just eighty Pounds a year for a 100k fund. Maybe the adviser prefers this choice enough to pay from the 0.5% to use it. Or maybe the clients are happy to pay it. It's easy to focus too much on small differences...

The adviser could be (should be) looking at reduction in yield on an illustration over the term rather than in year 1. So, whilst its 100k now, the pot growing over time would take it into the next bands and its there where it becomes cheaper than HL. So, it may be a fraction more expensive now but cheaper later. The reduction in yield would be an average over the term.

I havent used the Scot Wid Ret a/c yet personally (still like the SW PPP or NU SHP/PPP for smaller fund values and Selestia for higher) but have illustrated on it a few times to compare and its come out close on a few occassions. With a few more years or slighly more fund value it would have been a much cheaper option.

Its also a very good execution only product where you could approach an adviser to do use it and the adviser does it for a fixed fee with no trail or perhaps no fee but with 0.2% trail.

jamesd

I can see where this fits in the SW range but I don't really see where this product fits for the adviser or customer unless they haven't shopped around.

Pay the adviser 0.5% for servicing and it's cheaper until the fund size is 200k to use HL and let HL take their trail as well. Do it execution only and HL is still cheaper for the customer until 200k fund size, starts to be more interesting at that point.

For the adviser, I don't see a way at any fund size to squeeze in 0.5% trail for servicing and still beat HL. Even at a million Pounds fund size and bumping up against the lifetime limit the 0.15% Service Charge only leaves 0.25% for the adviser trail-equivalent for servicing while still matching HL on cost for this fund selection. 0.25% on a million isn't bad but 2,500 a year may not seem like a lot to the IFA who has to worry about liability issues for that large a sum.

Does do better if derivatives, direct commercial property ownership or traded endowment policies are desired, since HL doesn't offer those.

Maybe what this really does is illustrate that if you want a broad range of non-insurance funds HL is not that easy to beat.