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  • FIRST POST
    • Imnoexpert
    • By Imnoexpert 13th Sep 18, 12:23 AM
    • 314Posts
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    Imnoexpert
    Discretionary fund management
    • #1
    • 13th Sep 18, 12:23 AM
    Discretionary fund management 13th Sep 18 at 12:23 AM
    IFA firm now has a discretionary fm option. We can stay with our Ďbalanced portfolioí which will only be re-assessed and changed once a year (annual charge 0.75%) or go to discretionary where the portfolio of funds may be changed regularly and without our input. Sales pitch is that with brexit etc. Flexibility and speed and an expert in charge will be good. This comes at a cost (1%).

    Is this a good idea?

    Wonít each individual fund manager be doing this anyway? Will it be better than a balanced fund? Isnít this just going to be a fund of funds.? Just an extra layer of cost which may or may not be 0.25% better than the balanced portfolio.

    Thoughts welcome. My gut feeling is not to do it. Wifeís is to go for it. We are paying an advisor so we ought to take his advice is her thinking.
Page 1
    • AnotherJoe
    • By AnotherJoe 13th Sep 18, 12:41 AM
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    AnotherJoe
    • #2
    • 13th Sep 18, 12:41 AM
    • #2
    • 13th Sep 18, 12:41 AM
    Just after the Brexit vote there were a ton of so-called expert fund managers selling out of shares that had fallen. Very few buying in which would have been the better plan. Few would call me an expert but i was buying builders after mainline fund managers had sold/were selling. The only speed I saw then was panic, with few fund managers I recall reading about doing anythuing otehr than following the herd and selling up.


    So yes I agree with you, indeed Id go further, not just the extra 0.25% but the cost of churn will likely lead to worse performance.



    Why not split your funds 50/50 and see how it goes. But take it one step further. Take your 50% away away to a low cost SIPP reducing your costs to south of 0.5% and then see how the two compare. After all if you have a balanced portfolio you rebalance once a year you can do that yourself, no IFA needed.


    Id bet big that over a decent timescale, say 5 years, that extra 0.5% is a big drag on performance.
    • Malthusian
    • By Malthusian 13th Sep 18, 9:25 AM
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    Malthusian
    • #3
    • 13th Sep 18, 9:25 AM
    • #3
    • 13th Sep 18, 9:25 AM
    Sales pitch is that with brexit etc. Flexibility and speed and an expert in charge will be good.
    Originally posted by Imnoexpert
    Total rubbish. If that's the sales pitch then I would tell them to forget it.

    There is no evidence whatsoever that any discretionary fund manager can beat the market. Rapidly and flexibly churning the portfolio is more likely to add cost with no benefit.
    • dunstonh
    • By dunstonh 13th Sep 18, 9:40 AM
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    dunstonh
    • #4
    • 13th Sep 18, 9:40 AM
    • #4
    • 13th Sep 18, 9:40 AM
    I am not a fan of DFMs. They add an extra layer of cost the investor whilst allowing the adviser to do less work. The returns on DFMs tends to be pretty naff.

    In a nutshell, you are paying more for the adviser to do less work and you get lower returns.

    You often find that IFA firms that start promoting DFMs usually follow up by dropping their IFA status and becoming FAs (or adding the dreaded Wealth managers to their tagline). it is the start of the slippery slope.

    Having a portfolio on an advisory basis with a yearly review rather than DFM basis is perfectly fine.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • HappyHarry
    • By HappyHarry 13th Sep 18, 10:12 AM
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    HappyHarry
    • #5
    • 13th Sep 18, 10:12 AM
    • #5
    • 13th Sep 18, 10:12 AM
    Whilst usually in agreement with dunstonh, on this point I have an alternative view. I am a fan of DFMs in the right circumstances.

    As an IFA, my main role is planning, cashflow modelling, looking for the correct products to mitigate taxation and hence improve long-term growth, balancing and reviewing client objectives and ensuring clients remain on track for their long-term goals. The underlying investment strategy comes secondary to all of that. None of my clients are choosing me as an adviser because of my fund-picking skills.

    Although they are far from suitable for every client, I do use three DFMs reasonably regularly, which one depending on client objectives and attitude to risk. All three have consistently outperformed trackers, mixed asset funds and other DFMs in their respective areas. I have found their performance is strongest, when compared to their peers, in volatile and falling markets.

    Yes, there is an additional cost. However, as always, it is the consistent net returns for a given risk level that is a deciding factor, not just the underlying cost.

    I have respect for IFAs that run their own model portfolios, and do well with them, and it is something I have done in the past. However, I found that focusing a lot of time on these model portfolios took my time away from my key objective of financial planning for my clients.

    In a nutshell, I find my clients using DFMs paying a little more, and in return they have more relevant work done for them, and they tend to see stronger net returns.

    Each IFA will have different processes, investment strategies and planning techniques. What suits my clients may not suit another adviser's clients and vice versa.

    As to which client would do best, those in DFMs or those not? I would expect if they are both using a decent IFA, then they will do better over the long-term than the vast majority of those not using a decent IFA, and they can argue about any minor differences in their happy and wealthy retirement.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • dunstonh
    • By dunstonh 13th Sep 18, 10:58 AM
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    dunstonh
    • #6
    • 13th Sep 18, 10:58 AM
    • #6
    • 13th Sep 18, 10:58 AM
    I am a fan of DFMs in the right circumstances.
    That is the problem when generalisations are made. There are always exceptions to the rule. I did start to add a caveat on my last post but then removed it. I should have kept it.

    Last year, a DFM approached us offering 0.25% as the DFM cost. Their returns were better than VLS (which i consider as a benchmark nowadays). I gave them consideration but their returns were a bit lower than our model. So, we stuck with that.

    My views on DFMs are perhaps tainted by the "Wealth managers" who put all their clients with the same DFM on the same platform with no off platform stuff or alternatives and still call themselves IFAs whilst charging large amounts themselves and using naff expensive DFMs (1% or thereabouts plus VAT on top) and gives lower performance. None of it done for any client benefit but done for their own laziness.

    So, if you have researched the DFMs and can see they add value then my earlier response would be unfair in that scenario
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • HappyHarry
    • By HappyHarry 13th Sep 18, 11:14 AM
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    HappyHarry
    • #7
    • 13th Sep 18, 11:14 AM
    • #7
    • 13th Sep 18, 11:14 AM
    with that.

    My views on DFMs are perhaps tainted by the "Wealth managers" who put all their clients with the same DFM on the same platform with no off platform stuff or alternatives and still call themselves IFAs whilst charging large amounts themselves and using naff expensive DFMs (1% or thereabouts plus VAT on top) and gives lower performance. None of it done for any client benefit but done for their own laziness.
    Originally posted by dunstonh
    Those IFAs are the ones the OP, and others, need to be avoiding. They are not much more than appointed reps for the DFMs, and add very little value to clients.

    Hopefully the FCA, who are constantly looking at whether individual IFA business are worthy of the title, will pull up those that aren't adequately fulfilling the "independent" part of their role.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • bostonerimus
    • By bostonerimus 13th Sep 18, 8:10 PM
    • 2,423 Posts
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    bostonerimus
    • #8
    • 13th Sep 18, 8:10 PM
    • #8
    • 13th Sep 18, 8:10 PM
    What dunstonh thinks about DFMs is the same as I think about IFAs.....so that makes me a power of two more dubious about DFMs than dunstonh.....multiple levels of outsourcing is a great way to shift responsibilities and increase costs.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 13th Sep 18, 8:33 PM
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    dunstonh
    • #9
    • 13th Sep 18, 8:33 PM
    • #9
    • 13th Sep 18, 8:33 PM
    What dunstonh thinks about DFMs is the same as I think about IFAs.....so that makes me a power of two more dubious about DFMs than dunstonh.....multiple levels of outsourcing is a great way to shift responsibilities and increase costs.
    Originally posted by bostonerimus
    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.

    HL published their top 10 selling funds today. Two of them are HL own brand funds which cost more alone (so platform cost to go on top) than the total ongoing charges of an IFA (fund, platform, adviser).

    Taking an IFA out of the equation doesn't mean you will save money if you go and stick it in unsuitable investments or expensive, low-quality investments.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Audaxer
    • By Audaxer 13th Sep 18, 10:04 PM
    • 1,428 Posts
    • 863 Thanks
    Audaxer
    As an IFA, my main role is planning, cashflow modelling, looking for the correct products to mitigate taxation and hence improve long-term growth, balancing and reviewing client objectives and ensuring clients remain on track for their long-term goals. The underlying investment strategy comes secondary to all of that. None of my clients are choosing me as an adviser because of my fund-picking skills.
    Originally posted by HappyHarry
    I have not used an IFA, but it amazes me that the IFA role does not normally include picking funds. If I did go to an IFA it would be because I wanted him/her to create a structured and balanced portfolio for me. It makes me wonder what chance have us DIYers got of doing a good job of creating a balanced portfolio with the right percentages in sectors and funds, if even IFAs are not experts in that field.
    • Imnoexpert
    • By Imnoexpert 14th Sep 18, 1:06 AM
    • 314 Posts
    • 133 Thanks
    Imnoexpert
    Thanks for your replies.

    The IFA firm I am talking to is a large one. I suppose I would need to have confidence that the dfm would outperform the fixed portfolio, as well as say a vanguard fund of the same risk band, or some of the mixed asset funds. Iím not sure how measurable that would be. Fund performance is published but are IFA and dfm fund of funds? Can I compare Dunstone with Bowlhead

    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 wasnít quite the case, but for an extra 0.25% I can have what I was told I was getting before. Actually Iím just getting a different person managing the (already managed) unit trust funds. My wedge is so small and insignificant to this big firm that Iím not going to get anything specific to me am I.

    Iím waiting to read the documentation so no decision made yet.
    • bostonerimus
    • By bostonerimus 14th Sep 18, 5:03 AM
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    bostonerimus
    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.
    Originally posted by dunstonh
    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.
    Misanthrope in search of similar for mutual loathing
    • tacpot12
    • By tacpot12 14th Sep 18, 7:43 AM
    • 1,478 Posts
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    tacpot12
    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 wasnít quite the case, but for an extra 0.25% I can have what I was told I was getting before. Actually Iím just getting a different person managing the (already managed) unit trust funds. My wedge is so small and insignificant to this big firm that Iím not going to get anything specific to me am I.

    Iím waiting to read the documentation so no decision made yet.
    Originally posted by Imnoexpert

    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.
    Last edited by tacpot12; 14-09-2018 at 7:46 AM.
    • dunstonh
    • By dunstonh 14th Sep 18, 9:07 AM
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    dunstonh
    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Imnoexpert
    • By Imnoexpert 14th Sep 18, 1:01 PM
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    Imnoexpert
    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
    • By dunstonh 14th Sep 18, 1:54 PM
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    dunstonh
    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Joey Soap
    • By Joey Soap 14th Sep 18, 1:54 PM
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    Joey Soap
    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
    • By Audaxer 15th Sep 18, 6:43 PM
    • 1,428 Posts
    • 863 Thanks
    Audaxer
    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.
    Originally posted by dunstonh
    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
    • By dunstonh 16th Sep 18, 11:25 AM
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    dunstonh
    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • bowlhead99
    • By bowlhead99 16th Sep 18, 1:13 PM
    • 8,292 Posts
    • 15,175 Thanks
    bowlhead99
    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.
    Originally posted by Joey Soap
    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.
    Last edited by bowlhead99; 16-09-2018 at 1:55 PM. Reason: grammar
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