Question
I read in Money Mail an article on "funds of funds". I have seven Standard Life funds invested with Skandia
on the advice of my Financial Adviser
.
Could these be thought of as "funds of funds"?Answer
Standard Life offers 25 funds (at the time of writing) via the Skandia fund platform, but none of these are funds of funds.
The simplest way to think of Skandia is as a company providing a 'wrapper' around funds from numerous different fund managers (of which Standard Life is one). This wrapper makes it straightforward to switch investments from one fund group to another and mix lots of different funds within an ISA or pension. Skandia charges for the privilege, charging customers £68.50 a year for use of the wrapper and charging the fund providers around 0.25% a year.
This is not the same thing as a fund of funds, which is when a fund manager invests their fund into a number of other funds, rather than directly into shares or corporate bonds etc.
In effect, the aim of a fund of funds is to try and offer a ready-made fund portfolio, saving you (or your financial adviser) from having to select and monitor a range of funds yourself. In this respect, they're not necessarily a bad idea.
However, customers end up paying for the privilege, as they have to pay management charges levied by both the fund of funds manager and the underlying funds held. Typically this means an annual fee of 1.5% to the fund of funds manager plus around 0.75 - 1% to the underlying funds (which tend to be charged at cheaper 'institutional' rates), so total annual charges will usually be between 2-3%, which is steep.
My other gripe is that some financial advisers use these funds because it makes their lives easier, not because it's best for their customers. Researching and recommending funds of funds is far easier than building bespoke portfolios of conventional funds. Yet financial advisers generally receive the same amount of sales commission whichever route they choose. It's not surprising some take the easier option.
Anyway, Skandia is a decent wrapper/platform on which to hold your funds and it doesn't look like you own any funds of funds. But I'm a bit surprised your adviser has recommended seven Standard Life funds. Yes, they have a few good funds, but a key benefit of using a wrapper is the ease with which you can spread money across different fund providers, i.e. pick the best funds for the job rather than being shackled to just one company. So it's strange your adviser seems so loyal to Standard Life. I'd ask him/her to justify their advice.
I read in Money Mail an article on "funds of funds". I have seven Standard Life funds invested with Skandia
on the advice of my Financial Adviser
.
Could these be thought of as "funds of funds"?Answer
Standard Life offers 25 funds (at the time of writing) via the Skandia fund platform, but none of these are funds of funds.
The simplest way to think of Skandia is as a company providing a 'wrapper' around funds from numerous different fund managers (of which Standard Life is one). This wrapper makes it straightforward to switch investments from one fund group to another and mix lots of different funds within an ISA or pension. Skandia charges for the privilege, charging customers £68.50 a year for use of the wrapper and charging the fund providers around 0.25% a year.
This is not the same thing as a fund of funds, which is when a fund manager invests their fund into a number of other funds, rather than directly into shares or corporate bonds etc.
In effect, the aim of a fund of funds is to try and offer a ready-made fund portfolio, saving you (or your financial adviser) from having to select and monitor a range of funds yourself. In this respect, they're not necessarily a bad idea.
However, customers end up paying for the privilege, as they have to pay management charges levied by both the fund of funds manager and the underlying funds held. Typically this means an annual fee of 1.5% to the fund of funds manager plus around 0.75 - 1% to the underlying funds (which tend to be charged at cheaper 'institutional' rates), so total annual charges will usually be between 2-3%, which is steep.
My other gripe is that some financial advisers use these funds because it makes their lives easier, not because it's best for their customers. Researching and recommending funds of funds is far easier than building bespoke portfolios of conventional funds. Yet financial advisers generally receive the same amount of sales commission whichever route they choose. It's not surprising some take the easier option.
Anyway, Skandia is a decent wrapper/platform on which to hold your funds and it doesn't look like you own any funds of funds. But I'm a bit surprised your adviser has recommended seven Standard Life funds. Yes, they have a few good funds, but a key benefit of using a wrapper is the ease with which you can spread money across different fund providers, i.e. pick the best funds for the job rather than being shackled to just one company. So it's strange your adviser seems so loyal to Standard Life. I'd ask him/her to justify their advice.
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