SSAS Pension Active or Passive?
Discussion
As regards the passive vs active argument I’d be mindful that a lot of the data has been researched by passive managers, so not necessarily absolutely objective. There are also passive and passive, costs have an impact, but also the type of replication used and as a result the absolute relative risk and tracking errors.
To my mind there are areas where passive makes some sense, US large cap for example where the added value of active managers is going to be marginal at best given the relatively freely available information on the constituents. On the other side some markets will benefit from an active disciplined approach e.g. small cap, tech, bonds, especially at present (!).
It may make more sense to try and evaluate the discretionary manager and the value they add in terms of asset allocation, fund/stock selection and cost etc vs their fees. Asset Risk Consulting (ARC) do a lot of independent research in the sector, so a good starting point for evaluation.
Hope that’s of some use in forming your views.
To my mind there are areas where passive makes some sense, US large cap for example where the added value of active managers is going to be marginal at best given the relatively freely available information on the constituents. On the other side some markets will benefit from an active disciplined approach e.g. small cap, tech, bonds, especially at present (!).
It may make more sense to try and evaluate the discretionary manager and the value they add in terms of asset allocation, fund/stock selection and cost etc vs their fees. Asset Risk Consulting (ARC) do a lot of independent research in the sector, so a good starting point for evaluation.
Hope that’s of some use in forming your views.
ellroy said:
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To my mind there are areas where passive makes some sense, US large cap for example where the added value of active managers is going to be marginal at best given the relatively freely available information on the constituents. On the other side some markets will benefit from an active disciplined approach e.g. small cap, tech, bonds, especially at present (!).
It may make more sense to try and evaluate the discretionary manager and the value they add in terms of asset allocation, fund/stock selection and cost etc vs their fees. Asset Risk Consulting (ARC) do a lot of independent research in the sector, so a good starting point for evaluation.
Hope that’s of some use in forming your views.
I've not seen evidence that an active approach works better/worse in different markets. To my mind there are areas where passive makes some sense, US large cap for example where the added value of active managers is going to be marginal at best given the relatively freely available information on the constituents. On the other side some markets will benefit from an active disciplined approach e.g. small cap, tech, bonds, especially at present (!).
It may make more sense to try and evaluate the discretionary manager and the value they add in terms of asset allocation, fund/stock selection and cost etc vs their fees. Asset Risk Consulting (ARC) do a lot of independent research in the sector, so a good starting point for evaluation.
Hope that’s of some use in forming your views.
I was just looking at ARC data this morning and probably more accurate to say "value they don't add"
It’s out there, certainly had it at the Private Bank I worked at until recently, it’s not across the board, so you do need to be shopping for the right managers as ever of course.
Of course, that can be the case, but to what are you comparing the data to? Most are running to a risk budget for their clients as that is for most HNW the defining criteria rather than a % point of outperformance here or there.
Certainly, the top 30% or so and where you can see consistency of performance are worthy of note. Many clients of this type of service do not have the time, knowledge or inclination to be overtly active themselves and so a return after costs in the region of 7-10% or so is perfectly acceptable knowing that risk side is being managed.
That said there’s also some expensive crappy inconsistent players out there!
Of course, that can be the case, but to what are you comparing the data to? Most are running to a risk budget for their clients as that is for most HNW the defining criteria rather than a % point of outperformance here or there.
Certainly, the top 30% or so and where you can see consistency of performance are worthy of note. Many clients of this type of service do not have the time, knowledge or inclination to be overtly active themselves and so a return after costs in the region of 7-10% or so is perfectly acceptable knowing that risk side is being managed.
That said there’s also some expensive crappy inconsistent players out there!
Edited by ellroy on Monday 5th November 13:12
Sorry Julian I meant the DFM provide a tax pack each year which the administrator (separate company more fees) then complete for us.
They invest in different funds and various individual stocks that have built up over the years so it's well diversified but what I'm asking perhaps naively is can we not just lump it all or some directly into a passive fund where the fees are a lot lower.
Hope this makes a bit more sense.
They invest in different funds and various individual stocks that have built up over the years so it's well diversified but what I'm asking perhaps naively is can we not just lump it all or some directly into a passive fund where the fees are a lot lower.
Hope this makes a bit more sense.
Joscal said:
Sorry Julian I meant the DFM provide a tax pack each year which the administrator (separate company more fees) then complete for us.
They invest in different funds and various individual stocks that have built up over the years so it's well diversified but what I'm asking perhaps naively is can we not just lump it all or some directly into a passive fund where the fees are a lot lower.
Hope this makes a bit more sense.
Thanks for clearing that up!They invest in different funds and various individual stocks that have built up over the years so it's well diversified but what I'm asking perhaps naively is can we not just lump it all or some directly into a passive fund where the fees are a lot lower.
Hope this makes a bit more sense.
I have no understanding why they provide a 'tax pack' each year for your SSAS administrator. There is no tax for your administrator to pay!
Are you happy with the returns (after charges) the DFM has provided? You can of course just lump it all together into a passive fund and save a lot of money in fees, but if your DFM is providing a better return (after all charges - ask for the last 12 months dealing fees, these are on top of the 1% annual fee and can often be higher than the 1% annual fee).
I think what you need to do is request a full schedule of all fees payable over the last years so you are in a position to make an objective decision on how to move forward. These fees include:
The SSAS fees
The DFM fee
The DFM dealing fees
The Ongoing Charges Figure (OCF) for the funds held
All fees should include VAT where relevant.
With this info you will have a clearer picture from which to make what is a very important decision. You probably would be better off, but it would be madness to not check properly before committing!
PurpleMoonlight said:
JulianPH said:
I have no understanding why they provide a 'tax pack' each year for your SSAS administrator. There is no tax for your administrator to pay!
Maybe tax to reclaim though.PurpleMoonlight said:
JulianPH said:
I could understand that, but shouldn't they be providing a gross roll up account for pensions? It is common industry practise...
Likely due to unit trusts within the portfolio.How could they therefore generate a tax liability for a pension provider?
JulianPH said:
But there is no CGT on Unit Trusts and any income tax on dividends is paid personally, rather at source...
How could they therefore generate a tax liability for a pension provider?
They don't, they can create a tax reclaim though.How could they therefore generate a tax liability for a pension provider?
Any interest on cash within a unit trust has tax deducted. The SSAS can reclaim it if they wish.
PurpleMoonlight said:
JulianPH said:
But there is no CGT on Unit Trusts and any income tax on dividends is paid personally, rather at source...
How could they therefore generate a tax liability for a pension provider?
They don't, they can create a tax reclaim though.How could they therefore generate a tax liability for a pension provider?
Any interest on cash within a unit trust has tax deducted. The SSAS can reclaim it if they wish.
Do any Unit Trusts actually pay interest on cash holdings?!!!
If someone had £1m in unit trusts that in turn had an average of 2% in cash earning 1% a year the tax reclaim would be £40!
So for most people that cost of reclaiming such tax would be greater than the benefit.
Any cash in our portfolios has no tax deduction, but it doesn't surprise me that there are still instances where this happens.
Regarding the OP, there should be no responsibility on him to calculate tax on the SSAS other than any additional personal tax created by drawings. The provider should be ensuring everything else.
This was the point I was trying to make.
Folks thanks for your input. I've got the "tax pack and statement of chargeable gains" in front of me and it's says in the letter that it is "to assist you when making your annual tax return." It includes a "Consolidated Tax Certificate which has received HMRC approval." We then send this to the administrator. Hopefully this explains it?
Julian, I'm going to ask them the questions you suggested as we could be getting good a good service as you say but I'd rather be sure as my experience with big firms is not always good and 1% of fund value doesn't half add up over the years. I must admit they have made some defensive moves recently that have been absolutely the right thing to do with hindsight so maybe they are worth every penny..!
Julian, I'm going to ask them the questions you suggested as we could be getting good a good service as you say but I'd rather be sure as my experience with big firms is not always good and 1% of fund value doesn't half add up over the years. I must admit they have made some defensive moves recently that have been absolutely the right thing to do with hindsight so maybe they are worth every penny..!
A thought occurs, maybe check that the paperwork, in terms of the valuation you've received, isn't just a standard template for all their client accounts?
If it is although it says tax/consolidated CGT etc it actually may not apply in real tax terms to your particular situation? A phone call to them would probbaly clarify that one.
If it is although it says tax/consolidated CGT etc it actually may not apply in real tax terms to your particular situation? A phone call to them would probbaly clarify that one.
Joscal said:
Folks thanks for your input. I've got the "tax pack and statement of chargeable gains" in front of me and it's says in the letter that it is "to assist you when making your annual tax return." It includes a "Consolidated Tax Certificate which has received HMRC approval." We then send this to the administrator. Hopefully this explains it?
That is exactly what my DFM did, when I had one. A platform does the same. The accountant takes these numbers and puts them in the boxes in the tax return.ellroy said:
It’s out there, certainly had it at the Private Bank I worked at until recently, it’s not across the board, so you do need to be shopping for the right managers as ever of course.
Of course, that can be the case, but to what are you comparing the data to? Most are running to a risk budget for their clients as that is for most HNW the defining criteria rather than a % point of outperformance here or there.
Certainly, the top 30% or so and where you can see consistency of performance are worthy of note. Many clients of this type of service do not have the time, knowledge or inclination to be overtly active themselves and so a return after costs in the region of 7-10% or so is perfectly acceptable knowing that risk side is being managed.
That said there’s also some expensive crappy inconsistent players out there!
I think it's very difficult to discover which managers are going to add "alpha" (genuine alpha, not just them picking an inappropriate benchmark and taking lots of factor exposure and getting lucky).Of course, that can be the case, but to what are you comparing the data to? Most are running to a risk budget for their clients as that is for most HNW the defining criteria rather than a % point of outperformance here or there.
Certainly, the top 30% or so and where you can see consistency of performance are worthy of note. Many clients of this type of service do not have the time, knowledge or inclination to be overtly active themselves and so a return after costs in the region of 7-10% or so is perfectly acceptable knowing that risk side is being managed.
That said there’s also some expensive crappy inconsistent players out there!
Edited by ellroy on Monday 5th November 13:12
ARC compare the risk adjusted returns of ARC submissions vs world equity. Appreciate that equity as an asset class has had a cracking few years, especially U.S. and that most DFMs probably have a domestic tilt which hasn't performed as well as global IIRC, but even so, the difference was pretty large in most cases.
For those that had done well (i.e. not as bad as the rest), I'm sure if you investigated their portfolio construction you'd find large factor tilts that they'd been lucky enough to tilt their portfolios towards that had outperformed the (non-factor tilted) market (gross of costs)
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