Model Portfolios
Discussion
Family member has money with an IFA who runs model portfolios from Asset Intelligence...
In this case, it's an Income portfolio [Dynamic Planner level 4] and I was suprised to see that since he bought in circa 3 years ago, when the portfolio was comprised of 6 funds, it currently is comprised of approx 20 funds and 10 of these were switched into in 2020.
A total of 40 different funds have been held over the course of the three years.
Is this level of switching normal where approx 1/3 of the value held is subject to switching in any given year?
I guess 2020 was an exceptional year in so many ways but there have been material rebalances carried out every year and I would assume that each component fund is also subject to its own dynamic rebalancing in real time...
In this case, it's an Income portfolio [Dynamic Planner level 4] and I was suprised to see that since he bought in circa 3 years ago, when the portfolio was comprised of 6 funds, it currently is comprised of approx 20 funds and 10 of these were switched into in 2020.
A total of 40 different funds have been held over the course of the three years.
Is this level of switching normal where approx 1/3 of the value held is subject to switching in any given year?
I guess 2020 was an exceptional year in so many ways but there have been material rebalances carried out every year and I would assume that each component fund is also subject to its own dynamic rebalancing in real time...
Sounds excessive.
There may be client specific reasons such as:
- Has your family member changed their investment objectives during this time or changed their resident country?
- Are we talking of a high value portfolio eg. £1m+?
- Do they have any special tax circumstances to take into account eg. avoiding CGT on sales.
This is really a question for the IFA along with others like:
- How does my portfolio performance compare to the benchmark
- What alternative portfolios / funds are available that could achieve the same investment objective
- What is the breakdown of charges on the portfolio and how does it compare to other funds / portfolios
- What costs were associated with the fund reallocations
I'd also want to know the reason for holding (and switching between) so many funds when there are many funds out there that offer a complete portfolio at low cost where all the trading happens on the funds, not on the client portfolio.
There may be client specific reasons such as:
- Has your family member changed their investment objectives during this time or changed their resident country?
- Are we talking of a high value portfolio eg. £1m+?
- Do they have any special tax circumstances to take into account eg. avoiding CGT on sales.
This is really a question for the IFA along with others like:
- How does my portfolio performance compare to the benchmark
- What alternative portfolios / funds are available that could achieve the same investment objective
- What is the breakdown of charges on the portfolio and how does it compare to other funds / portfolios
- What costs were associated with the fund reallocations
I'd also want to know the reason for holding (and switching between) so many funds when there are many funds out there that offer a complete portfolio at low cost where all the trading happens on the funds, not on the client portfolio.
£0.6m, all held in an ISA. No other special circumstances to note.
Not aware of the cost implications of all this switching, it must be hidden...
Not obvious what the benchmark is - the IFA sounded nervous when I suggested the FTSE UK Private Investor Income (as that one appears to hold a fair bit of cash and equivalent held up well a year ago during the sell off).
I’ve spotted another ‘level 4’ income model (7IM Succession Income) which is benchmarked against the ‘IA Mixed Investment 20-60% Shares’ .
Overall, I’m not impressed with the current yield on his portfolio (around 2%) nor the gross return of 10% over 3 years (Mar-18 > Mar-21).
Overall, I feel he’s been sold a pup and shouldn’t have even been in an income fund (current account well into surplus) and should have been happy with a higher risk profile...
Not aware of the cost implications of all this switching, it must be hidden...
Not obvious what the benchmark is - the IFA sounded nervous when I suggested the FTSE UK Private Investor Income (as that one appears to hold a fair bit of cash and equivalent held up well a year ago during the sell off).
I’ve spotted another ‘level 4’ income model (7IM Succession Income) which is benchmarked against the ‘IA Mixed Investment 20-60% Shares’ .
Overall, I’m not impressed with the current yield on his portfolio (around 2%) nor the gross return of 10% over 3 years (Mar-18 > Mar-21).
Overall, I feel he’s been sold a pup and shouldn’t have even been in an income fund (current account well into surplus) and should have been happy with a higher risk profile...
Edited by Mogul on Tuesday 18th May 18:39
Mogul said:
Overall, I feel he’s been sold a pup and shouldn’t have even been in an income fund (current account well into surplus) and should have been happy with a higher risk profile...
The IFA will presumably have documentation demonstrating this is what met the needs presented by the client.Is the possibility of priming someone's decision making considered in the governance of this kind of thing?
Risk was consistently profiled as a 6, but they still recommended a 4 portfolio - I believe for no other reason than the client was approaching 80 (still in reasonable health) so should reduce his overall risk - although capacity for loss was solid..
I believe that an income strategy was proposed as perceived to be compatible with this old school / lower risk approach - although with no stated financial objectives, there was no real need to boost income as lifestyle was adequately covered by secured pension income.
No income/expenditure analysis done, no cash flow.
Still in accumulation and currently looking at a six-figure IHT bill as precious little has been proposed/implemented to mitigate this.
All very odd.
I believe that an income strategy was proposed as perceived to be compatible with this old school / lower risk approach - although with no stated financial objectives, there was no real need to boost income as lifestyle was adequately covered by secured pension income.
No income/expenditure analysis done, no cash flow.
Still in accumulation and currently looking at a six-figure IHT bill as precious little has been proposed/implemented to mitigate this.
All very odd.
I’ve seen the advice given in 2018.
Client was not a sophisticated investor and should be treated as potentially ‘vulnerable’ now.
Starting point was an existing Cofunds portfolio which had evolved over many years.
Recommendation was simply to move 100% into this new income model portfolio on Aegon (I see that Aegon acquired Cofunds around this time).
Do nothing was not presented as an option.
No comparison with any available alternatives were presented (ie. the IFA had three income models and half a dozen growth models available but only illustrated that the recommendation might be expected produce a yield of 3% vs the circa 2% recently observed with slightly lower overall costs (although as the proposed investment had only a 30-40% equity exposure at outset vs 60-80% previously, the total return would likely be less than that achieved to date).
Basically trading total return for more income and theoretically less volatility.
Client was not a sophisticated investor and should be treated as potentially ‘vulnerable’ now.
Starting point was an existing Cofunds portfolio which had evolved over many years.
Recommendation was simply to move 100% into this new income model portfolio on Aegon (I see that Aegon acquired Cofunds around this time).
Do nothing was not presented as an option.
No comparison with any available alternatives were presented (ie. the IFA had three income models and half a dozen growth models available but only illustrated that the recommendation might be expected produce a yield of 3% vs the circa 2% recently observed with slightly lower overall costs (although as the proposed investment had only a 30-40% equity exposure at outset vs 60-80% previously, the total return would likely be less than that achieved to date).
Basically trading total return for more income and theoretically less volatility.
Edited by Mogul on Wednesday 19th May 08:01
Yes to PoA.
Wrestling with how much of a stink to kick-up over all of this.
The relationship with the firm has been in place for decades.
Some estate planning (will trusts) were set up over a decade ago (before the transferrable NRB came in) but there has been no obvious follow-up despite cursory annual reviews (for which 0.5% pa has been taken for the advice
).
In the past decade, an MBO and change of personnel have seen virtually nothing proactively achieved...
The client also has also accumulated another £0.25m since 1990 in a couple of mining / energy equites outside of any tax wrappers(!) with the consequent CGT trap.
This is known to the adviser but has not been advised upon and has not been factored into any overall portfolio risk assessment...
The bigger picture is clearly the prospect of a six-figure IHT bill at some point.
Focussing in on the 2018 switch into a level 4 income model portfolio... it does not appear to me to have been entirely suitable as the additional income was not explicitly required and total return has been sacrificed to achieve it. Capacity for loss has always been strong but somewhat ironically, it would appear that many income strategies suffered huge losses during the pandemic although mercifully they are back above where they entered the pandemic.
Then we have the 0.5% pa charge for advice when patently, there has been a distinct lack of proactive advice - and seemingly excessive rebalancing of the model (for which direct responsibility surely lies with the model provider - Asset Intelligence).
To quantify all of this, just focussing on the past 3 years, advice will have cost £10k and total returns on the £600k have been around 10% whereas 20% might have been realistically achievable.
Harder to quantify is the three years' worth of estate planning opportunities have been missed, 3 years' worth of CGT crystallisation/Bed & ISA/diversification opportunities on those equites have been missed etc. etc.
Wrestling with how much of a stink to kick-up over all of this.
The relationship with the firm has been in place for decades.
Some estate planning (will trusts) were set up over a decade ago (before the transferrable NRB came in) but there has been no obvious follow-up despite cursory annual reviews (for which 0.5% pa has been taken for the advice
).In the past decade, an MBO and change of personnel have seen virtually nothing proactively achieved...
The client also has also accumulated another £0.25m since 1990 in a couple of mining / energy equites outside of any tax wrappers(!) with the consequent CGT trap.
This is known to the adviser but has not been advised upon and has not been factored into any overall portfolio risk assessment...
The bigger picture is clearly the prospect of a six-figure IHT bill at some point.
Focussing in on the 2018 switch into a level 4 income model portfolio... it does not appear to me to have been entirely suitable as the additional income was not explicitly required and total return has been sacrificed to achieve it. Capacity for loss has always been strong but somewhat ironically, it would appear that many income strategies suffered huge losses during the pandemic although mercifully they are back above where they entered the pandemic.
Then we have the 0.5% pa charge for advice when patently, there has been a distinct lack of proactive advice - and seemingly excessive rebalancing of the model (for which direct responsibility surely lies with the model provider - Asset Intelligence).
To quantify all of this, just focussing on the past 3 years, advice will have cost £10k and total returns on the £600k have been around 10% whereas 20% might have been realistically achievable.
Harder to quantify is the three years' worth of estate planning opportunities have been missed, 3 years' worth of CGT crystallisation/Bed & ISA/diversification opportunities on those equites have been missed etc. etc.
I think that it's time to end the relationship as there is simply no value being added at this point.
Total costs are not a particular problem 1.45% pa (0.5% Advice, 0.7% OCF, 0.25% Aegon) but when there is no true value added, what's the point?
I'm frustrated because I believe that good financial planner will invariably deliver significant value over and above the intangible value of peace of mind.
Legally, he may been paying for the advice, but it might as well have been trail commission as the (I)FA would appear to have done sweet FA, other than make his life easier with the switch into the model portfolio.
I certainly don't want to create any additional work/stress for him and it's for that reason I have held off elevating any of this to the status of a formal complaint, so far.
Clearly, one option would be to do this and see what the response is. If unsatisfactory, we could seek out a new adviser, or self-manage.
How common is it for people to deposit large six-figure sums into lets's say the LifeStrategy® 60% Equity Fund - Accumulation fund?
Presumably the risk of default is very low but in a worst case scenario, there would just be the one FSCS
compensation limit to play with. I would imagine that it would be easy enough to split the total into several similar funds with different institutions to mitigate this but the risk is so small, not sure it would be truly worth it.
I don't anticipate any strife with family members. Later life care costs will sadly soon become a factor (spouse). This will certainly help to reduce that six-figure potential IHT bill, and I am aware of a number of other more joyful alternatives...
Total costs are not a particular problem 1.45% pa (0.5% Advice, 0.7% OCF, 0.25% Aegon) but when there is no true value added, what's the point?
I'm frustrated because I believe that good financial planner will invariably deliver significant value over and above the intangible value of peace of mind.
Legally, he may been paying for the advice, but it might as well have been trail commission as the (I)FA would appear to have done sweet FA, other than make his life easier with the switch into the model portfolio.
I certainly don't want to create any additional work/stress for him and it's for that reason I have held off elevating any of this to the status of a formal complaint, so far.
Clearly, one option would be to do this and see what the response is. If unsatisfactory, we could seek out a new adviser, or self-manage.
How common is it for people to deposit large six-figure sums into lets's say the LifeStrategy® 60% Equity Fund - Accumulation fund?
Presumably the risk of default is very low but in a worst case scenario, there would just be the one FSCS
compensation limit to play with. I would imagine that it would be easy enough to split the total into several similar funds with different institutions to mitigate this but the risk is so small, not sure it would be truly worth it.
I don't anticipate any strife with family members. Later life care costs will sadly soon become a factor (spouse). This will certainly help to reduce that six-figure potential IHT bill, and I am aware of a number of other more joyful alternatives...
Mogul said:
Legally, he may been paying for the advice, but it might as well have been trail commission as the (I)FA would appear to have done sweet FA, other than make his life easier with the switch into the model portfolio.
Been there. The blunt question is 'What am I getting for £x and is it actually worth it?'Mogul said:
How common is it for people to deposit large six-figure sums into lets's say the LifeStrategy® 60% Equity Fund - Accumulation fund? Presumably the risk of default is very low but in a worst case scenario, there would just be the one FSCS
Been there too. I asked: 'My last IFA plonked considerably more than £85K of the Simpo Stash into a single Vanguard fund (currently in a GIA with Fidelity). Apart from fund performance, what can go wrong?' Rockin replied 'It seems to me you’re not “invested” in your ISA, SIPP or GIA platform. Your “investments” are in the underlying stocks/funds.' But as to whether anything over £85K at, say, Vanguard, is protected if they suddenly discover a Baring/Maxwell-sized hole in their accounts remains unclear to me.Simpo Two said:
But as to whether anything over £85K at, say, Vanguard, is protected if they suddenly discover a Baring/Maxwell-sized hole in their accounts remains unclear to me.
The answer is "no", but you have to hope that given their AuM of something like $7 trillion (!) it is unlikely that any hole would be big enough to cause serious problems once shared across all investors.Mogul said:
I'm frustrated because I believe that good financial planner will invariably deliver significant value over and above the intangible value of peace of mind.
I had a "beauty parade" sizing up various IFA's for a piece of work few years back, and out of 8 recommendations from friends and colleagues, I actually felt only 2 / 3 was actually up suitable. I should have known, as some of the recommendation came from friends who wasn't financially aware, and they just bought x product from their IFA whom they saw once a year...Anyway, my point is, there are decent IFA/Financial Planners out there, just takes a little time to find them!Mogul said:
I certainly don't want to create any additional work/stress for him and it's for that reason I have held off elevating any of this to the status of a formal complaint, so far.
Clearly, one option would be to do this and see what the response is. If unsatisfactory, we could seek out a new adviser, or self-manage.
If the advisor's response is unsatisfactory + evidence of negligence etc.., you have every right to address this with the advisor, raise any complaints and seek compensation accordingly. This is one of the benefit to paying and using a regulated advisor (assume advisor is regulated!). Clearly, one option would be to do this and see what the response is. If unsatisfactory, we could seek out a new adviser, or self-manage.
Mogul said:
How common is it for people to deposit large six-figure sums into lets's say the LifeStrategy® 60% Equity Fund - Accumulation fund?
I re-balance in-frequently, but I sold up my last active fund (6 figures) holding last month, and piled it all onto another Vanguard index fund tilted towards a specific sector.NickCQ said:
Mogul said:
How common is it for people to deposit large six-figure sums into lets's say the LifeStrategy® 60% Equity Fund - Accumulation fund?
Very common (have done similar myself), but I suspect most 80 year olds go for a lower equity allocation than 60%.
Complains about dodgy advice and then wants to switch from a fixed income portfolio to 60% equity….
btdk5 said:
NickCQ said:
Mogul said:
How common is it for people to deposit large six-figure sums into lets's say the LifeStrategy® 60% Equity Fund - Accumulation fund?
Very common (have done similar myself), but I suspect most 80 year olds go for a lower equity allocation than 60%.Complains about dodgy advice and then wants to switch from a fixed income portfolio to 60% equity….
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