Discretionary fund management

bostonerimus · 14 September 2018 at 5:03AM

dunstonh wrote: »

But we know you are cost focused and not returns focused. You would rather earn less knowing you have paid less. That is the choice you make.

Ahh we disagree, I am costs and return focussed. I think you can save money and do just as well as an IFA or DFM yourself, so the idea of adding a DFM to an IFA is just compounding an error IMHO....that's if you have the desire and the little bit of knowledge required to DIY.

tacpot12 · 14 September 2018 at 7:43AM

Imnoexpert wrote: »

What irks me is that I was told that for 0.75 I was getting a portfolio chosen by experts and suitable for my needs. Now after several years I am told that this wasn’t quite the case, but for an extra 0.25% I can have what I was told I was getting before. Actually I’m just getting a different person managing the (already managed) unit trust funds. My wedge is so small and insignificant to this big firm that I’m not going to get anything specific to me am I.

I’m waiting to read the documentation so no decision made yet.

I can see why you would be irked. But sometimes we don't know the right questions to ask when we need to make a decision. The good IFAs should be there to guide us, but if an opportinity has been missed, please don't make the wrong decision now just because you are irked. Look at whether the service you are now being offered is right for you, and if it is, take it. You might try negotiating with the IFA for a discount on the first year fees. As a large IFA they might not regard you as a 'big fish', but I bet they have a tier of charges for their big customers; you might be allowed onto this tier for a year if you claim that you were missold the service originally. Giving you a discount might be a good way of recovering some lost goodwill in the the relationship.

I am a fan of DFM, providing the charges are reasonable. Some people just want to hand everything over to an expert. Just make sure they are an expert before you handover control, and as in all contracts, make sure you can get out of them and that you understand how to get out of them.

dunstonh · 14 September 2018 at 9:07AM

The IFA firm I am talking to is a large one.

At the risk of more generalisations......

The larger a firm gets, the more the systems and controls have to be put on the advisers to cater for the lowest common denominator. This is why networks have been moving away from IFA status and forcing their own in-house investment options on to their advisers.

Most IFA firms fall under the 4 or less advisers. The systems and controls on a handful of advisers is less than say 30 advisers. The more advisers you have, the tighter the reins will be and more decisions made centrally. This can include telling their advisers they want everything to go with the DFM service where possible and if it cant then the case must be reviewed by compliance (often at a cost to the adviser). By doing that, the firm know exactly where everything is going to be invested and it reduces it's risks and ticks boxes on the systems and controls criteria to keep the FCA happy.

There are advantages and disadvantages to going to large firms compared to small firms.

This thread has been useful as I revisited the DFM yesterday afternoon and checked again and they are beating VLS after charges by a good margin on their hybrid portfolios (mix active/passive). So, I am softening where it is a low cost DFM doing a good job.

Imnoexpert_2 · 14 September 2018 at 1:01PM

Some quite thought provoking things here. My goal is highest net return within the risk band selected (in this case 3 out of 7). The issue is that the cost is explicit and the future gain an act of faith. So I take a chance. If my risk band is 3 then by definition I am relatively risk averse so taking chances is contradictory especially if this comes with a higher price tag.

I take the point about regulation/paperwork etc. It seems it is working against my interest in that I have had a worse service from my IFA in the last year and higher charges. For example for my several thousand pounds of (percentage fee) I have had one two hour meeting in the last year and 1 hour of this (I kid you not) was about compliance, and I'm not even a new customer so the advisor knows all about me.

The daftest example is that I invest in an ISA in a bundle of funds to diversify away from holding cash - and in that portfolio is a percentage in a cash fund which must attract less interest than a cash ISA! I'm told that as part of the standard portfolio it can't be changed.

So currently inflexible, not specially tailored to my needs and getting less advisor attention for more money.

My IFA is a nice guy and I think in defending himself he gave the game away. As an existing client my needs haven't changed much, they have me in a portfolio they think meets my needs, and the pressure from a big firm is to spend advisor time driving new business and spending time with those people. I'm grown up, and that makes perfect sense (for them).

I think what I need is an annual strategic chat where I produce all the figures about our wealth and it's whereabouts and my risk rating -internet does it better (IMHO) than my advisors crass form - from which I can pick ideas about how to self-invest my money. I would save fees if I paid £1000 for 2 hours of this and I think
it would suit me better. This is probably not allowed though.

Rationally changing to a local IFA on 0.5% who would take a fresh view on me as a new client and put in a lot of front end work to get and keep my business seems a good bet. Seeing several initially for a free chat might be good too. And perhaps do this every few years. Sorry IFAs.

What do you think?

dunstonh · 14 September 2018 at 1:54PM

Compliance has gone crazy. The compliance documentation can be dozens of pages yet the advice could be under one side of A4.

I think what I need is an annual strategic chat where I produce all the figures about our wealth and it's whereabouts and my risk rating -internet does it better (IMHO) than my advisors crass form - from which I can pick ideas about how to self-invest my money. I would save fees if I paid £1000 for 2 hours of this and I think
it would suit me better. This is probably not allowed though.

The adviser should be able to do that as part of their normal servicing.

Generally, an IFA will have clients that leave virtually everything to them. Including how much they can spend on holidays or purchases. They will have clients that like a bit of DIY and a bit of advice. They have clients that really only use the IFA for the investment side. As long as the IFA knows what you want, they should provide the service you are after.

Compliance should never get in the way of the service. Although do expect the level of documentation to be getting silly.

If the IFA knows what you want and isnt delivering that, then change. Although make sure they know what you want first because it could be they think you want something different. Its all about communication in both directions.

Joey_Soap · 14 September 2018 at 1:54PM

A DFM? Just another parasite in the industry. Why on earth do you need an IFA to put your money with a DFM? Go direct to the DFM maybe? Even better, go to directly someone like Fundsmith or Lindsell train who will effectively "DFM" for you, investing your money in twenty or thirty of the world's most successful companies. No need for IFA's or DFM's if you do that.

Audaxer · 15 September 2018 at 6:43PM

dunstonh wrote: »

This thread has been useful as I revisited the DFM yesterday afternoon and checked again and they are beating VLS after charges by a good margin on their hybrid portfolios (mix active/passive). So, I am softening where it is a low cost DFM doing a good job.

I presume a lot of active portfolios will be out-performing VLS and passive portfolios at present. If I was paying for an IFA and DFM, I would hope they would also be able to minimise losses during crashes and have better long-term performance. It would be interesting to know whether the long term performance was still better after the extra costs.

dunstonh · 16 September 2018 at 11:25AM

I presume a lot of active portfolios will be out-performing VLS and passive portfolios at present.

I believe the general trends are that hybrids are doing the best.

If I was paying for an IFA and DFM, I would hope they would also be able to minimise losses during crashes and have better long-term performance.

That would only be possible if the risk profile was changed. It is a bit of a myth that managed will do better than passive during negative periods. If you are in a higher risk managed fund then you would expect it to go down more during a negative period. If you were in a higher risk index tracker, you would expect it to go down more during a negative period. It is where it is invested that matters. Not the style.

Certain fund houses will have funds that can move around the risk profile but there is no evidence to suggest that timing the markets will result in better returns. It usually doesn't over the long term.

bowlhead99 · 16 September 2018 at 1:13PM

Joey_Soap wrote: »

Even better, go to directly someone like Fundsmith or Lindsell train who will effectively "DFM" for you, investing your money in twenty or thirty of the world's most successful companies. No need for IFA's or DFM's if you do that.

Lindsell Train or Fundsmith won't effectively DFM for you. They have no discretion to manage your overall portfolio. All they can do is manage the portion of your money that you chose to put into their specific fund, within the investment parameters they published in their prospectus for that particular fund.

But first you would have to decide what portion of your money you would like to allocate to their relatively high risk concentrated portfolio of (e.g.) equities with particular characteristics listed in the developed world. You would also need to decide how much to allocate to more diversified strategies within developed world equities, and within emerging markets equities, within high yield corporate bonds, investment-grade corporate bonds, developed world and emerging market government bonds, index-linked bonds, other alternative credit strategies, property, infrastructure, private equity, commodities, etc, and within those areas, decide which managers or strategies you would use or pursue when building your portfolio to match your goals and risk profile.

So, to me it doesn't seem that going direct to Lindsell, Train or Smith and hoping that they will take the role of discretionary fund manager or independent investment adviser - when they only have a relatively limited scope of discretion within the money you allocate to one of their specific investment funds - is going to have a satisfactory outcome.

FWIW, some of my Mum and Dad's ISAs are allocated to LT's funds (one using the UK equities fund, the other Global equities) but I don't pretend to them that it could substitute for all their equities, can let alone any other asset class.

Linton · 16 September 2018 at 1:34PM

AS Bowlhead says + neither Lindsell Train nor Fundsmith have any idea of your financial objectives, timescales and attitude to risks. How likely is it that their funds are, on their own, optimal for you? What process led you to believe that they were?

Discretionary fund management

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