AFH Wealth Management - discretionary fund management info
Discussion
Hi all, not sure if this is a bit too specific.
My IFA is now part of AFH Wealth Management - a midlands based conglomerate that seems to take on IFA and FA firms.
I have a pension with Aegon that has performed quite well over the past 6 years but hasn't been touched since set up. Called up my IFA to review some of the funds and he is now try to upsell the AFH discretionary managed fund saying it will give much better returns and it is a waste of my money paying him to review my existing Aegon pension funds (which I can self-manage via the Aegon portal).
I do not put any new money in to my Aegon pension and have seen growth of about 10% in the past year.
Cost to me to transfer to the discretionary managed fund is 4% of my pot (no direct fee to IFA) and on-going 1% fund cost (in addition to any specific fund fees).
I have used my IFA for years, though more recently my folks have fallen out with him due to some investment advice that they didn't feel was right.
Issue I have is I don't know whether to stick with my Aegon pension and self-manage, pay for his fund advice, or move to the new discretionary fund and buy in to my IFA's hype.
I understand how discretionary funds work (or at least I think I do), but how do I decide if it is a good move? In theory it removes my need to have any formal pension review if I trust the discretionary fund works as it should and I can just put my feet up and watch my pot grow. Do they really work like that?
My IFA is now part of AFH Wealth Management - a midlands based conglomerate that seems to take on IFA and FA firms.
I have a pension with Aegon that has performed quite well over the past 6 years but hasn't been touched since set up. Called up my IFA to review some of the funds and he is now try to upsell the AFH discretionary managed fund saying it will give much better returns and it is a waste of my money paying him to review my existing Aegon pension funds (which I can self-manage via the Aegon portal).
I do not put any new money in to my Aegon pension and have seen growth of about 10% in the past year.
Cost to me to transfer to the discretionary managed fund is 4% of my pot (no direct fee to IFA) and on-going 1% fund cost (in addition to any specific fund fees).
I have used my IFA for years, though more recently my folks have fallen out with him due to some investment advice that they didn't feel was right.
Issue I have is I don't know whether to stick with my Aegon pension and self-manage, pay for his fund advice, or move to the new discretionary fund and buy in to my IFA's hype.
I understand how discretionary funds work (or at least I think I do), but how do I decide if it is a good move? In theory it removes my need to have any formal pension review if I trust the discretionary fund works as it should and I can just put my feet up and watch my pot grow. Do they really work like that?
Very few IFA are authorised to carry out Discretionary Fund Management, with good reason. It's not *automatically* a bad thing, but when a declared independent business funnels you all of a sudden into its own in-house proposition, you probably don't need anyone to point out the potential conflict of interests issues. Are you having your interests aligned with their's?
Apart from that beefy 4% upfront cost, you refer to it as hype.. you've answered your own question?!
Apart from that beefy 4% upfront cost, you refer to it as hype.. you've answered your own question?!
I have to say I agree with Al above.
The new charges are horrendous (4% initial plus 1% annual plus fund costs and, no doubt, plus advice).
It also technically isn't the case that you can sit back and relax with no further reviews unless the DFM portfolio is being managed down in terms or volatility the closer you get to wanting to do something with the money.
I wouldn't just walk away, I would run!
The new charges are horrendous (4% initial plus 1% annual plus fund costs and, no doubt, plus advice).
It also technically isn't the case that you can sit back and relax with no further reviews unless the DFM portfolio is being managed down in terms or volatility the closer you get to wanting to do something with the money.
I wouldn't just walk away, I would run!
Thanks all, that's what I needed to hear. Both my family and I have a long history with the IFA in question, but he is now part of a larger company and things seem to have changed. Shame really as you build up trust in people and expect that to continue.
TBH I have been thinking of self managing for a while - my portfolio is spread across multiple funds with varying risk ratings that suit my profile. I think I'm prepared to read the fact sheets and self manage myself until I find another IFA (where to look?!). I have managed most of my other finances myself for much of my life so am clued up more than your average punter (but not as much as some of you guys!).
TBH I have been thinking of self managing for a while - my portfolio is spread across multiple funds with varying risk ratings that suit my profile. I think I'm prepared to read the fact sheets and self manage myself until I find another IFA (where to look?!). I have managed most of my other finances myself for much of my life so am clued up more than your average punter (but not as much as some of you guys!).
sidicks said:
In my opinion, few IFAs have the right experience or expertise to do discretionary fund management.
They could use a white label DFM provider.Either way 4%, or indeed any fee (other than normal consultancy fee) upfront is bonkers.
If they're an IFA then surely they should be providing you with DFM solutions from the whole market.
sidicks said:
In my opinion, few IFAs have the right experience or expertise to do discretionary fund management.
Very few IFAs have the required regulatory permissions as a result of this, and the associated additional capital and PI requirements. AFH may well be one of the few that does.As you have an established relationship you might go back to your IFA and ask him to set out why this particular DFM service is the most suitable one for you. You could also ask outright for the one-off fee to be waived - this is far from unknown although not widely publicised for obvious reasons.
I work in Private Banking, to give you some context on fees our discretionary service has no set up costs at all, no dealing and 1.25% on funds under £1m. Most other players in the market are in a similar kind of space, give or take, fees wise.
4% up front is excessive.
4% up front is excessive.
Edited by ellroy on Monday 26th September 19:29
ellroy said:
I work in Private Banking, to give you some context on fees our discretionary service has no set up costs at all, no dealing and 1.25% on funds under £1m. Most other players in the market are in a similar kind of space, give or take, fees wise.
4% up front is excessive.
Agree that's about right for the big wealth managers but you can access the products cheaper if you just buy the funds that they will wrap you in anyway unless you are so large they will manage directly rather than unitise (generally >£5m).. Eg the funds that underly the UBS discretionary account is available execution only via the TM UBS funds for about 80bps. You don't get the added services that go with the full service for that price (e.g. lending or a thorough needs assessment) but a fair bit cheaper in the long term. Of course the Vanguard LifeStrategy funds would be cheaper still and have performed very well. One of the biggest challenges with discretionary management, IMHO, is even if they are good its very unlikely they are good enough to outperform enough to compensate for the fee drag.4% up front is excessive.
Edited by ellroy on Monday 26th September 19:29
4% is so bats
t crazy that there is a part of me that wonders if he has no choice but to push you into some in-house fund which has absolutely no guarantee of being better than your current set up and is using the hideous fee to encourage you to run a mile from his new umbrella.
However, the reality is that if the IFA who bought out your chap can get/force a 4% bonus out of funds under management then it'll go a long way towards paying for the business purchase.
Long and short, 4% just comes across as 'run a mile' alert.
t crazy that there is a part of me that wonders if he has no choice but to push you into some in-house fund which has absolutely no guarantee of being better than your current set up and is using the hideous fee to encourage you to run a mile from his new umbrella. However, the reality is that if the IFA who bought out your chap can get/force a 4% bonus out of funds under management then it'll go a long way towards paying for the business purchase.
Long and short, 4% just comes across as 'run a mile' alert.
Thanks all, your responses have brought some reflection to the discussion.
The 4% covers the transfer of value of my aegon pension into the new vehicle and gets it all up and running. But yeah, 4% is a considerable set up cost. Apparently this is 'better for me' as I don't have to find the fees up front.
I was concerned that I would also be tied into their proprietary investment platform, Where as anyone can ascertain my risk and advice on appropriate aegon funds going forwards.
The 4% covers the transfer of value of my aegon pension into the new vehicle and gets it all up and running. But yeah, 4% is a considerable set up cost. Apparently this is 'better for me' as I don't have to find the fees up front.
I was concerned that I would also be tied into their proprietary investment platform, Where as anyone can ascertain my risk and advice on appropriate aegon funds going forwards.
Something that is always good to ask when an investment advisor tells you their new fund is better than their old is to underwrite the performance difference. How long they hesitate will generally inform you how much they know what they are saying to be total bks. 
. Always ask them to underwrite your risk that they are proposing you take. They won't do it, obviously, but the point is to see their reaction.
As for the 4% you should ask for an absolute breakdown of what they are asking you to pay for and how it compares to their peers. Again, you're just looking for the reaction as that normally tells your head what your heart is suspecting.
ks. . Always ask them to underwrite your risk that they are proposing you take. They won't do it, obviously, but the point is to see their reaction. As for the 4% you should ask for an absolute breakdown of what they are asking you to pay for and how it compares to their peers. Again, you're just looking for the reaction as that normally tells your head what your heart is suspecting.
A DFM will undertake asset allocation, fund research and implementation (incl. rebalancing). What does this mean in practice? It means that an investment professional is thinking actively about whether to be more heavily weighted towards bonds, whether european equity valuations are favourable vs US, whether to sell out of a fund because the manager has left etc. They will be making decisions and implementing them in the portfolios for which they are responsible.
Is there a way to avoid the costs typically associated with a DFM without having to take all of this on yourself?
If you don't need a bespoke portfolio (eg one that holds no oil companies because you are a senior/highly-paid employee of one) then there are other potentially lower-cost ways to access the same - or similar - services:
A) Robo is one, but there aren't (yet) many established propositions with transparent long term-track records and satisfied long-term clients. On a portfolio of £50k Nutmeg will charge you 0.75% for its services, and you'll pay an average of 0.19% for the underlying funds so a total of 0.94% annually. Fiver-a-Day around 0.82% annually. Some of these do have initial charges also, so be careful when making comparisons.
B) Multi-manager funds have been popular, but can be higher cost because of the way in which fees are layered. You pay for the asset allocation, fund research and implementation (often 0.5% to 1.0%) AND you pay for the underlying funds (typically somewhere between 0% and 1.5%). In many cases - step forward Henderson MM, Fidelity Moneybuilder and Schroders ISF - total annual charges can exceed 2.25%. But there are exceptions: Jupiter Merlin Balanced has a share class with a total annual cost of around 1.7% for example. This is fund run by an experienced team with a decent long-term track record and many satisfied long-term clients.
C) Vanguard's Life Strategy funds are often mentioned. They are a little different because there is no active management of asset allocation and only passive funds are used. Annual costs for this run at 0.24%, but it is important to understand that you are paying less in large part because less work is being performed on your behalf.
D) Directly invested multi-asset funds offer another option. These are typically run by fully-featured investment management businesses with credible/proven investment expertise and capabilities. Examples would be Invesco Perpetual's Global Distribution fund (annual costs of around 0.78%) or Newton Real Return (annual costs 0.79%). Many of these funds have been around for years.
E) Volatility-targeted and absolute return funds aiming to deliver a return of LIBOR+5% or similar are a newer part of this picture; perhaps yet to be proven through a full investment cycle (whatever that is!). These funds (Standard Life GARS, Aviva AIMS etc) are typically available with total annual charges in the region of 0.75% - 1.0%.
What would I do? Of the options set out above my current preference is to build an equally-weighted portfolio of a small number (maybe 4 or 5) of the higher profile funds in categories D & E, held on one of the major self-directed platforms. Rebalance to equal weights annually when you take a look at what has been delivered. This should be achievable for an all-in annual cost of 0.9% - 1.3%. Using a platform you will be able to completely avoid initial charges or transaction fees which are an artefact of the past! You'll get professional active management at both the asset allocation and underlying security levels, alongside the required monitoring and rebalancing.
Note that I have deliberately not addressed questions relating to the assessment of risk appetite, the setting of financial objectives, capacity for loss, usage of tax-wrappers, IHT planning etc. These areas are not typically the province of the DFM in this context. If you need advice on these topics, see a fee-based financial planner / adviser - the good ones really are well worth their fees despite popular contrary rhetoric!
As always DYOR, YMMV etc.
Is there a way to avoid the costs typically associated with a DFM without having to take all of this on yourself?
If you don't need a bespoke portfolio (eg one that holds no oil companies because you are a senior/highly-paid employee of one) then there are other potentially lower-cost ways to access the same - or similar - services:
A) Robo is one, but there aren't (yet) many established propositions with transparent long term-track records and satisfied long-term clients. On a portfolio of £50k Nutmeg will charge you 0.75% for its services, and you'll pay an average of 0.19% for the underlying funds so a total of 0.94% annually. Fiver-a-Day around 0.82% annually. Some of these do have initial charges also, so be careful when making comparisons.
B) Multi-manager funds have been popular, but can be higher cost because of the way in which fees are layered. You pay for the asset allocation, fund research and implementation (often 0.5% to 1.0%) AND you pay for the underlying funds (typically somewhere between 0% and 1.5%). In many cases - step forward Henderson MM, Fidelity Moneybuilder and Schroders ISF - total annual charges can exceed 2.25%. But there are exceptions: Jupiter Merlin Balanced has a share class with a total annual cost of around 1.7% for example. This is fund run by an experienced team with a decent long-term track record and many satisfied long-term clients.
C) Vanguard's Life Strategy funds are often mentioned. They are a little different because there is no active management of asset allocation and only passive funds are used. Annual costs for this run at 0.24%, but it is important to understand that you are paying less in large part because less work is being performed on your behalf.
D) Directly invested multi-asset funds offer another option. These are typically run by fully-featured investment management businesses with credible/proven investment expertise and capabilities. Examples would be Invesco Perpetual's Global Distribution fund (annual costs of around 0.78%) or Newton Real Return (annual costs 0.79%). Many of these funds have been around for years.
E) Volatility-targeted and absolute return funds aiming to deliver a return of LIBOR+5% or similar are a newer part of this picture; perhaps yet to be proven through a full investment cycle (whatever that is!). These funds (Standard Life GARS, Aviva AIMS etc) are typically available with total annual charges in the region of 0.75% - 1.0%.
What would I do? Of the options set out above my current preference is to build an equally-weighted portfolio of a small number (maybe 4 or 5) of the higher profile funds in categories D & E, held on one of the major self-directed platforms. Rebalance to equal weights annually when you take a look at what has been delivered. This should be achievable for an all-in annual cost of 0.9% - 1.3%. Using a platform you will be able to completely avoid initial charges or transaction fees which are an artefact of the past! You'll get professional active management at both the asset allocation and underlying security levels, alongside the required monitoring and rebalancing.
Note that I have deliberately not addressed questions relating to the assessment of risk appetite, the setting of financial objectives, capacity for loss, usage of tax-wrappers, IHT planning etc. These areas are not typically the province of the DFM in this context. If you need advice on these topics, see a fee-based financial planner / adviser - the good ones really are well worth their fees despite popular contrary rhetoric!
As always DYOR, YMMV etc.
Edited by iantr on Monday 26th September 22:14
So stick with my Aegon pension and self manage for 12 month and see how it performs? That was my thought. Thinking of moving 50% of my UK Smaller Companies fund in to something with a higher risk rating and see how it performs.
Can anyone recommend a good source where I can read up about some of the funds that I am interested in?
Can anyone recommend a good source where I can read up about some of the funds that I am interested in?
Some good info posted above. I would avoid any IFA's discretionary fund management service like the plague. And a 4% upfront charge is taking the p!55 to say the least.
The Aegon platform should give you access to some of the multi asset funds mentioned under D and E a few posts above. I doubt whether that would extend to L&G funds like their Multi Asset Fund (MAF) though, given they are direct competitors in this space.
I've got pension money with L&G because our firm's GPP is with them and the MAF has done extremely well of late, particularly following the referendum, chiefly because it's overseas equity allocation was not currency hedged, whereas the like of Newton RRF tend to hedge currency risk.
Be wary about over self-managing too. Unless you are confident/experienced in investment matters, a decent multi asset fund has a lot going for it. It's a tricky time out there at the moment too, with major equity markets arguably looking fully valued and the risk of economic and political shocks feels quite high to me.
Good luck whatever you decide to do. Pay attention to charges - because they are for certain, whereas returns are not.
The Aegon platform should give you access to some of the multi asset funds mentioned under D and E a few posts above. I doubt whether that would extend to L&G funds like their Multi Asset Fund (MAF) though, given they are direct competitors in this space.
I've got pension money with L&G because our firm's GPP is with them and the MAF has done extremely well of late, particularly following the referendum, chiefly because it's overseas equity allocation was not currency hedged, whereas the like of Newton RRF tend to hedge currency risk.
Be wary about over self-managing too. Unless you are confident/experienced in investment matters, a decent multi asset fund has a lot going for it. It's a tricky time out there at the moment too, with major equity markets arguably looking fully valued and the risk of economic and political shocks feels quite high to me.
Good luck whatever you decide to do. Pay attention to charges - because they are for certain, whereas returns are not.
I see AFH are mentioned. I have nothing specific to say, but in general as they are one of a handful of quite ambitious "consolidators" in the industry.
In simple terms, one firm taking over another tends to happen for one of several core reasons, but undoubtedly the objective of the takeover is for the subsequent business to continue to make or increase income to repay, almost invariably, the borrowing which allowed the acquisition.
So, in simple terms, the business model is shifting. That's not necessarily a bad thing, however that leaves no room for any nostalgia or "loyalty" for continuing patronage from the customer's perspective. Ruthlessly review what qualities the "new" firm has to offer....
In simple terms, one firm taking over another tends to happen for one of several core reasons, but undoubtedly the objective of the takeover is for the subsequent business to continue to make or increase income to repay, almost invariably, the borrowing which allowed the acquisition.
So, in simple terms, the business model is shifting. That's not necessarily a bad thing, however that leaves no room for any nostalgia or "loyalty" for continuing patronage from the customer's perspective. Ruthlessly review what qualities the "new" firm has to offer....
mickv said:
Be wary about over self-managing too. Unless you are confident/experienced in investment matters, a decent multi asset fund has a lot going for it. It's a tricky time out there at the moment too, with major equity markets arguably looking fully valued and the risk of economic and political shocks feels quite high to me.
Good luck whatever you decide to do. Pay attention to charges - because they are for certain, whereas returns are not.
Thanks - sound advice. Can I use this place as a sound board for my Aegon funds. I've seen some decent growth in the past 12 months (20% in some cases). It is naïve to presume this will continue but would be good to get the views of others. Do we have a thread here for that?Good luck whatever you decide to do. Pay attention to charges - because they are for certain, whereas returns are not.
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