Fund Management Charges
Discussion
Just thourhg I'd share some snippets from an FT article at the weekend, Matthew Vincent wrote about some firms submissions to the Kay Review of the UK Equity Markets, this is something Vince Cable set up earlier this year to determine how well financial markets are serving companies, savers and pensioners.
John Kay (FT columnist/ economist) who is leading the review did the maths for Warren Buffet's $62bn fortune to see what he'd have if a fund manager had been investing for him. Using standard hedge fund type rates of 2% p/a as a management charge + a 20% success fee, Buffet would have $5bn, the fund managaer, the remaining $57bn.....................................
vinvent reports David Norman, the head of TCF Investments gave a presentation to the Treasury last week using a real-life example of a private UK investor who put £70,000 in to a pension fund in 1994.
Over the next 15 years the FTSE 100 rose by 66%, in 2009 the investor asked for a va;luation- not even 70k. The £46k gain had been more than eaten by "financial service value chain costs".
He also did the maths on a £100k investment in an "average" UK equity mutual fund. Over 20 years the gain (assuming a ridiculous 7%) would be £227,695, of which £159,272 would go in charges.
Quite amazing to think just how much growth you have to get in any retail investment to get ANY return!
John Kay (FT columnist/ economist) who is leading the review did the maths for Warren Buffet's $62bn fortune to see what he'd have if a fund manager had been investing for him. Using standard hedge fund type rates of 2% p/a as a management charge + a 20% success fee, Buffet would have $5bn, the fund managaer, the remaining $57bn.....................................
vinvent reports David Norman, the head of TCF Investments gave a presentation to the Treasury last week using a real-life example of a private UK investor who put £70,000 in to a pension fund in 1994.
Over the next 15 years the FTSE 100 rose by 66%, in 2009 the investor asked for a va;luation- not even 70k. The £46k gain had been more than eaten by "financial service value chain costs".
He also did the maths on a £100k investment in an "average" UK equity mutual fund. Over 20 years the gain (assuming a ridiculous 7%) would be £227,695, of which £159,272 would go in charges.
Quite amazing to think just how much growth you have to get in any retail investment to get ANY return!
Will only get worse as most IFA's are now taking 1%+ trail instead of 0.5% because of RDR!! I don't think the FSA realise that if you stop the initial 3-8% which is 'hidden' and recouped over the first 3-5 years then the client ends up paying double in trail for the rest of the products life. There are figures that suggest average trail commissions are creeping up at the moment whilst IFA's do the last and final 'churn'!! IFA's can keep the agreed trail set up prior to RDR and can set up an agreed 'advisor fee' after it so it will not really go away!!!
At the end of the day the IFA is providing a service and its up to the individual to decide whether the service is worth the charge. If you have £100,000 invested and the trail is £1,000 a year but the IFA gives you monthly valuations, quarterly reviews and full access to his services 24/7 by phone and email and his fund selection is good then in my opinion the price is about right and you will be in a position financially where the 1%+ trail will not matter as you would have done better with him rather than without him!! However there are many IFA's who still charge that trail but don't do any of the above and therefore probably don't rebalance your portfolio or assess your attitude to risk on an ongoing basis now those are the ones who turn a £70k pot in to a £46k pot!!
As for the fund charges then yes there are many bad eggs and some very well known ones who are trading on a previous reputation thats long gone. With this you really need a good IFA to steer you in the right direction so we are back to the point above!! But nobody can predict the future!! However due to all the ups and downs since September 2008 there seems to be a trend towards picking steady plodder funds rather than funds which are up 20% in the good times but then down 25% in the bad!! People are coming round to the way of thinking of well actually I would prefer 12% in a really good year knowing that I will be at worst -2% in a bad year!!
Its horses for courses but one things for certain if you want 'advice' there will always be a rake no matter where you go!!
At the end of the day the IFA is providing a service and its up to the individual to decide whether the service is worth the charge. If you have £100,000 invested and the trail is £1,000 a year but the IFA gives you monthly valuations, quarterly reviews and full access to his services 24/7 by phone and email and his fund selection is good then in my opinion the price is about right and you will be in a position financially where the 1%+ trail will not matter as you would have done better with him rather than without him!! However there are many IFA's who still charge that trail but don't do any of the above and therefore probably don't rebalance your portfolio or assess your attitude to risk on an ongoing basis now those are the ones who turn a £70k pot in to a £46k pot!!
As for the fund charges then yes there are many bad eggs and some very well known ones who are trading on a previous reputation thats long gone. With this you really need a good IFA to steer you in the right direction so we are back to the point above!! But nobody can predict the future!! However due to all the ups and downs since September 2008 there seems to be a trend towards picking steady plodder funds rather than funds which are up 20% in the good times but then down 25% in the bad!! People are coming round to the way of thinking of well actually I would prefer 12% in a really good year knowing that I will be at worst -2% in a bad year!!
Its horses for courses but one things for certain if you want 'advice' there will always be a rake no matter where you go!!
DS3R said:
Just thourhg I'd share some snippets from an FT article at the weekend, Matthew Vincent wrote about some firms submissions to the Kay Review of the UK Equity Markets, this is something Vince Cable set up earlier this year to determine how well financial markets are serving companies, savers and pensioners.
John Kay (FT columnist/ economist) who is leading the review did the maths for Warren Buffet's $62bn fortune to see what he'd have if a fund manager had been investing for him. Using standard hedge fund type rates of 2% p/a as a management charge + a 20% success fee, Buffet would have $5bn, the fund managaer, the remaining $57bn.....................................
I think the technical term for that 'analysis' is b*ll*cks...John Kay (FT columnist/ economist) who is leading the review did the maths for Warren Buffet's $62bn fortune to see what he'd have if a fund manager had been investing for him. Using standard hedge fund type rates of 2% p/a as a management charge + a 20% success fee, Buffet would have $5bn, the fund managaer, the remaining $57bn.....................................
DS3R said:
vinvent reports David Norman, the head of TCF Investments gave a presentation to the Treasury last week using a real-life example of a private UK investor who put £70,000 in to a pension fund in 1994.
Over the next 15 years the FTSE 100 rose by 66%, in 2009 the investor asked for a va;luation- not even 70k. The £46k gain had been more than eaten by "financial service value chain costs".
So the FTSE rose by 66% - was the money invested in the FTSE 100 or something totally different?Over the next 15 years the FTSE 100 rose by 66%, in 2009 the investor asked for a va;luation- not even 70k. The £46k gain had been more than eaten by "financial service value chain costs".
Pension fund investment would instantly be increased due to tax relief
So making a simple allowance for tax relief at 25%, means that a 5.5% growth was achieved on assets and the claim is that costs were more than 5.5% per annum?
Seems unlikley....
DS3R said:
He also did the maths on a £100k investment in an "average" UK equity mutual fund. Over 20 years the gain (assuming a ridiculous 7%) would be £227,695, of which £159,272 would go in charges.
Well £100k @ 7% over 20 years gives you £387k, a gain of £287k.A gain of just £68,423 would imply an annual charges of 4.4% per annum.
I just don't believe it.
The way that the FS sector is remunerated annoys me so I refuse to pay annual fees based on the value of the fund. It is wrong that a manager can take a slice of an investors money for losing some of it.
I want to pay an hourly rate for truly independent advice &/or a performance fee for risk-weighted outperformance of funds invested.
Not much scope for either at the moment but the industry is changing and I can see it moving away from annual management fees.
The hedge funds are closest but even they often charge for performance over a ludicrously low hurdle - why pay them for matching the index?
I want to pay an hourly rate for truly independent advice &/or a performance fee for risk-weighted outperformance of funds invested.
Not much scope for either at the moment but the industry is changing and I can see it moving away from annual management fees.
The hedge funds are closest but even they often charge for performance over a ludicrously low hurdle - why pay them for matching the index?
sidicks said:
DS3R said:
John Kay (FT columnist/ economist) who is leading the review did the maths for Warren Buffet's $62bn fortune to see what he'd have if a fund manager had been investing for him. Using standard hedge fund type rates of 2% p/a as a management charge + a 20% success fee, Buffet would have $5bn, the fund managaer, the remaining $57bn.....................................
I think the technical term for that 'analysis' is b*ll*cks...If you take out 2+20 every year you end up with...55bn. (And 15bn in total fees!). So yes, John Kay needs to brush up on his Excel (which is unusual, because he's normally spot on).
sideways sid said:
The way that the FS sector is remunerated annoys me so I refuse to pay annual fees based on the value of the fund. It is wrong that a manager can take a slice of an investors money for losing some of it.
I want to pay an hourly rate for truly independent advice &/or a performance fee for risk-weighted outperformance of funds invested.
Not much scope for either at the moment but the industry is changing and I can see it moving away from annual management fees.
The hedge funds are closest but even they often charge for performance over a ludicrously low hurdle - why pay them for matching the index?
Do a bespoke structered deposit over a 5 year period. Upside around 84% - downside you get your initial capital back and you need £1M+ to cut out all the other fee takers.I want to pay an hourly rate for truly independent advice &/or a performance fee for risk-weighted outperformance of funds invested.
Not much scope for either at the moment but the industry is changing and I can see it moving away from annual management fees.
The hedge funds are closest but even they often charge for performance over a ludicrously low hurdle - why pay them for matching the index?
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