Shold I use Bestinvest Select SIPP or other?

Question
I've got ISA (FundsNetwork/Cofunds) and a SIPP (FundsNetwork/Std Life - £100k) through BestInvest and a SIPP (ex Prot Rights - £50k) with HL. Didn't want to put everything in one pot! I've received a letter from BI saying that from 15/04 following RDR, Std Life has decided not to deal execution only or with self directed clients such as BI.

BI has been making me aware of their Select SIPP / ISA offerings - it looks too good to be true - and there must be some negatives to balance the positives when comparing FN with the Select products - possibly some of the charges outlined here: http://www.candidmoney.com/articles/268/beware-fund-platform-exit-charges

I've been with BI for many years and do like their approach /research. HL is OK, but I've had to move out of trackers to avoid platform charges. I only hold funds.

What do I do with my SIPPs? Just stay with FN without BI? Merge them both in the BI Select SIPP? Move one or more to another provider and forgo the research and guidance BI provides to build a balanced portfolio? It would be great if there was a website that allowed asset allocation, geo split etc to be defined and then from a list of user specified funds it would say "You can achieve this by X% of fund Y " but I've not found any. Answer
In general the Bestinvest Select SIPP costs less overall than Hargreaves Lansdown (HL) Vantage SIPP for a typical portfolio, although this does obviously depend on the specific funds held and amounts involved. This is thanks to Bestinvest giving, on average, slightly higher trail commission rebates than HL (as well as lower share dealing charges)..

Unfortunately, I can't include HL on my comparefundplatforms website as they refuse to send me the required data (including rebate percentages for each fund), otherwise it would be very easy for you run a quick comparison based on the investments you hold.

The main difference between the Bestinvest Select SIPP and FundsNetwork SIPP via Bestinvest is trail commission rebates, Bestinvest pays them on its SIPP but not FudnssNetwork's. But you're right to point out that exit charges on the Bestinvest SIPP are usually higher than FundsNetwork's if you want to transfer funds 'as is' to another platform in future.

If there's a flaw with the Bestinvest Select SIPP it's simply that there are lower cost SIPPs in the marketplace, especially if you hold funds. For example, Interactive Investor, Sippdeal and Alliance Trust Savings should all likely prove cheaper in your scenario. However, none of these companies has independent research or tools to match Bestinvest's, so it's a case of judging whether such factors are worth the extra cost.

The usual rationale for splitting a SIPP between more than one provider is to ensure greater coverage under the Financial Services Compensation Scheme (FSCS), which only provides up to £50,000 cover per provider (although underlying investments might be separately covered). However, given your SIPP monies are ring-fenced from the provider itself the main risk is fraud, which is unlikely. So I wouldn't lose too much sleep over combining both pots with one reputable provider.

Your asset allocation website is a good idea and certainly possible. I hope one day to put something together along those lines, but since it requires buying in a lot of expensive data (i.e. fund holdings) and would take a considerable amount of my time to build I'm afraid it'll likely remain on the backburner for some time yet.

Read this Q and A at http://www.candidmoney.com/askjustin/870/shold-i-use-bestinvest-select-sipp-or-other

Guide to IFAs?

Question
Do you have a guide to IFAs, and do you rank them by performance/fees/any other criteria? Answer
I'm afraid not, for the simple reason it would be incredibly difficult to compile.

The first hurdle is that most IFAs don't publicly publish their fees. Most proclaim they offer good value for money, but don't disclose fees on their website - which I think is telling in itself.

The second hurdle is that it's nigh on impossible to compare IFA investment performance. Firstly, I don't know of any IFAs that publish such data and secondly it would be very hard to compare like for like in any case, as portfolios can vary widely depending on client needs.

Quality of advice is a very important factor, but again hard to measure unless an impartial observer carries out a 'mystery' shop by going through the advice process with a large number of IFAs, which would prove very time consuming.

And the other main hurdle is measuring on going service which, in most cases, is very important.

Existing clients tend to be the best source of feedback about an IFA, but even this can be haphazard. I've lost count of the individuals I've encountered who think their adviser is great (usually because he/she appears a nice/friendly person) but have been ruthlessly taken for a ride with poor quality/expensive advice that's immediately apparent to a trained eye.

A website called vouchedfor is trying to make finding a good IFA easier by acting as a portal for client reviews. However, the number of advisers participating is currently small and since I couldn't find any negative reviews it all seems a bit one-sided. But then maybe that's not surprising, vouchedfor makes money by selling leads to IFAs, so it's in neither the site's nor IFAs' interests to publish negative reviews. Plus, as mentioned above, clients (with respect) are not always the best judge of the quality of advice they've received.

Sorry for the negative answer - but trying to find a decent IFA is sadly still something of a lottery...

Read this Q and A at http://www.candidmoney.com/askjustin/869/guide-to-ifas

Should I wait before moving to a cheaper plaform?

Question
I'm thinking of moving from my existing fund supermarket due to high charges (as discovered on your excellent comparefundplatforms web site) but I would like clarification on the impact of the RDR on trail commissions.

Most fund supermarket rebates appear to come from refunds of part of the trail commission, but if these are being phased out, are the results of your comparison service still applicable for both new and existing investments?

I had understood that trail commission could only now be paid on existing holdings. What happens if I switch fund supermarket and/or the actual investments (Unit Trusts OEICS etc) will I still benefit from refunds of trail commission if no new money is involved?

I understand that all trail commissions could be banned from next year (2014) Could this mean that the fund supermarkets will have to start charging for their services instead of paying rebates? or move everyone to "clean" versions of funds?

I'm concerned that if I switch fund supermarkets now and incur exit charges, the market could change considerably within a year with the end of trail commissions and today's "best buy" supermarket could be tomorrow's dog and cost me switching charges yet again.

Am I correct in my understanding of the impact of the RDR?Answer
You're right to be concerned as a lot could change over the next year. A simple commission ban timeline is as follows:

31 December 2012 - commission banned for new investments where financial advice given.

6 April 2014 - commission will be banned for new investments where no advice given (i.e. execution-only).

6 April 2016 - commission will be banned for existing (pre 6 April 2014) investments where no advice given, although switching funds meanwhile will immediately trigger the ban.

So all those fund platforms/supermarkets/discount brokers who currently receive trail commission will have to 'come clean' by next April and charge explicit fees while using 'clean' funds without commission or platform fees built in.

A few platforms already offer 'clean' charging, namely Alliance Trust Savings, Charles Stanley Direct and TD Direct Investing, which gives a reasonable idea of what others may end up looking like - although there's no guarantee these three won't change their charges (for better or worse) in future.

If you face significant exit charges and the platform you wish to move to has yet to offer clean charging then yes, it could make sense to wait until more platforms have announced their new charging structure. Although in general if a platform is uncompetitive now I doubt much will change under the new regime - they're unlikely to want to reduce their profit margin by much, if anything.

What might confuse things in a 'clean' world is if some platforms can negotiate cheaper 'clean' funds than others, as you'll need to look at specific funds as well as platform charges much like at present.

My fund platform comparison website will continue to show costs for new investments. At the moment this obviously includes most existing investments too. As you point out we could go through a period where platforms offer different prices for new versus existing investments. It might prove too complex to build this into the comparison, but rest assured I'll certainly be analysing and writing about the new charges when introduced by each platform - with a view on whether you're generally better off under old or new.

Read this Q and A at http://www.candidmoney.com/askjustin/868/should-i-wait-before-moving-to-a-cheaper-plaform

Troy Trojan fund or Personal Assets investment trust?

Question
I have £20,000 invested in the Troy Trojan fund and am considering switching my holdings to the Personal Assets investment trust, which is run by the same fund manager. What would the advantages or disadvantages of doing this?Answer
The fundamental difference between unit and investment trusts is that the latter are 'closed funds' listed on the stock market which can borrow money to invest.

If you invest in a unit trust the manager can create extra units to satisfy demand. But if you invest in an investment trust the manager can't create new shares, so you have to buy them on the open market at a price which might be higher or lower than the actual value of the underlying investments held. If the price paid is higher than the true value the trust is said to be trading at a 'premium' and if lower trading at a 'discount'. In simple terms a trust might trade at a premium when there are more buyers than sellers and a discount when the reverse is true. This may work for or against you over time, but arguably increases risk versus a unit trust

If an investment trust borrows money to invest (often called 'gearing') you'd generally expect it to do better than otherwise in rising markets and worse in falling - i.e. it again increases risk.

So back to your question:

Troy Trojan is a unit trust and Personal Assets an investment trust. The manager, Sebastian Lyon runs both funds in a similar way (he was appointed manager of Personal Assets in March 2009), so let's assume there's no advantage to using one or the other in this respect. Since Personal Assets doesn't borrow money to invest there's no gearing, so again no difference to Troy Trojan. Personal Assets is, at the time of writing, trading at a 1.5% premium - so you're arguably paying 1.5% more than Troy Trojan, but this is relatively minor in the scheme of things.

Moving onto charges, Personal Assets annual charges total 1.01% (total expense ratio) while the same figure for Troy Trojan is 1.09% - there's very little in it.

Looking at past performance Personal Assets has returned +8.3% over 1 year and +29.7% over 3 years, Troy Trojan is +6.2% and +24.1% over the same periods.

Personal Assets has likely delivered higher returns due to a combination of slightly different portfolios and movements in share price relative to true underlying value (i.e. the premium/discount stuff outlined above).

I really wouldn't have a strong preference to use one over the other.

On a practical level the investment trust will incur share dealing costs, so maybe less appealing if you subsequently wanted to make regular investments.

But then the investment trust might be more liquid in a worst case scenario. If the fund bombs and most investors want to sell, the unit trust might suspend redemptions until it can shift underlying investments to meet those redemptions - whereas you can sell the investment trust shares on the open market, albeit the price you're offered might be very low (i.e. a big discount to underlying value).

Maybe the more realistic risk with the investment trust is that a period of poor performance could push the share price to a discount (potentially losing you money versus the unit trust if you sell), although the reverse may be true if performance is strong.

Read this Q and A at http://www.candidmoney.com/askjustin/867/troy-trojan-fund-or-personal-assets-investment-trust

Better deal on Henderson Cirillium fund I've been sold?

Question
I have invested in two ISA's this financial year (£22,280 x 2) and a SIPP (£32000). All went into the Henderson Cirilium Balanced I Acc, on advise from my IFA. I was a bit alarmed at the costs (ISA .75% on going annual charge in addition to a £564 initial charge!!) I've yet to discover the charges on the SIPP. I have a further £120k to invest next financial year.

I'd like to keep the money spent to date in the Cirilum fund, at this stage, given he's now told me about a further 3% exit charge! Can I move these to another platform (iii / Alliance / R Plan?) where all subsequent charges can be rebated? I can do my own research and intend to move the additional £120k into more ISA's in subsequent financial years.Answer
Henderson Cirillium funds are sold through a company called Intrinsic Financial Services, which is effectively a network of financial advisers. Performance of the balanced fund has actually been quite good to date, but I'm always wary when independent advisers have arrangements like this, as it arguably jeopardises independence.

I would also be concerned that your IFA has recommended putting your (fairly significant amount of) money into a single fund of funds. It smacks of laziness and/or lack of investment expertise.

Since the Henderson Cirilliun Balanced fund invests in a range of other funds, you're paying two sets of annual charges, the 0.75% charged by Henderson and whatever the underlying funds charge - the net result being a 1.24% total annual charge (according to Henderson's prospectus). Add on any annual fees charged by your adviser and fund platform (if used) and it wouldn't surprise me if the total annual cost tops 2%, which is steep.

As for the 3% exit charge, that's very surprising. It doesn't relate to the Henderson fund itself, so I can only assume it's levied by the adviser or investment platform (if used) - either way it's a rip-off!

Because Henderson Cirilliun funds are sold via Intrinsic, they're not available on mainstream direct to public fund platforms (e.g. iii/ATS/rPlan etc), so sadly I think you'll struggle to move the Henderson fund 'as is' elsewhere. In any case, I suspect the 3% exit charge would still apply even if you could since it's levied by the adviser/platform, not Henderson.

Before you do anything else, I'd suggest getting a clear breakdown of how much you're paying and to whom. If the adviser didn't disclose this to you in writing pre-sale then you'll have grounds for complaint - which potentially might help you negotiate getting out without an exit penalty. If the costs were fully disclosed before you invested and the advice appropriate then you're probably stuck, unless you pay the 3% fee.

A timely reminder that it always pays to check exactly how much you'll be charged in total before proceeding with financial advice.

Read this Q and A at http://www.candidmoney.com/askjustin/865/better-deal-on-henderson-cirillium-fund-ive-been-sold

Good financial dictionary?

Question
Can you please recommend any books that act as financial dictionaries, with definitions of the various terms used in investments, pensions, etc? I'm new to learning about this whole area, and would like a print (rather than web-based) glossary so that every time I meet a word or phrase I don't fully understand, I can simply look it up, and also browse through it during spare time.

I did a search online but wasn't sure which publication would be best, and I know from my own field of psychology that the quality of these kinds of books can vary wildly, so hope you might have some tips.Answer
I'm afraid I'm probably not the best person to ask as I haven't used such books. I just tended to have picked up things as I've gone along, supplemented by web searches when stuck on a particular piece of jargon!

However, having looked at what's available (there isn't much) the Oxford Dictionary of Finance and Banking seems a good choice. While it falls a little short in some aspects of personal finance, it should give you a good overall grounding in the immense about of jargon used in the financial world.

I know you specifically requested a print reference, but you might find the jargon section on this site a handy backup.

Read this Q and A at http://www.candidmoney.com/askjustin/866/good-financial-dictionary

Soaring stock markets in the face of stagnant economies

You'd expect stock markets to reflect the relatively troubled economic outlook, so why are they flying high?.

I covered the same issue over 2 years ago here and in most respects my answer is unchanged. But with the US S&P 500 stock market index hitting an all-time last week and the FTSE 100 breaking 6,600 for the first time since 2007, now seems an appropriate time to revisit.

Of course, we should be happy that stock markets are rising. But with dark clouds and the threat of recession still hanging over many Western economies, you're not alone if wondering why stock markets are so buoyant. Are markets being overly optimistic? Do they know something we don't? Or do they just not care about economies?

Let's look at the reasons I gave last time for being positive or negative about the big picture:

Reasons to be optimistic

Most economies are out of recession - this remains true, although Western economic growth remains far from convincing. And the Eurozone is still arguably in a very fragile state (with Germany effectively bankrolling weaker states).

Corporate profits are generally positive - again still true, largely thanks to a combination of leaner companies (due to belt tightening during recessions) and reasonable demand as some economies post modest growth. Nevertheless, there are still companies going to the wall - especially those with outdated business models (e.g. some retailers).

Central banks may boost economies - this has happened on a massive scale and is arguably the single biggest factor driving markets upwards - as much of the money Banks have pumped into economies has been invested in markets rather than being spent by consumers. The amounts that central banks have pumped (or have pledged to pump) into economies since the onset of the credit crunch (c2008) are colossal - US $2.34 trillion, UK £375 billion, Japan $816 billion.

Dividend yields attractive - is still very much the case. The FTSE 100 average yield is around 3.3% net of basic rate tax (with some companies yielding well over 5%), which compares favourably to gilts at around 1-3% before deduction of tax. Some argue that shares are therefore undervalued, although you could also argue that gilts are overvalued (partly resulting from the Bank of England driving up gilt prices by pumping money into the economy via gilt purchases).

Interest rates look set to remain low - yet again, still true. This is generally good news for stock markets as it makes it cheaper for companies and consumers to borrow, which leads to more spending. Low interest rates on savings also encourages more people to buy shares rather than save.

Reasons to be worried

The impact from tax rises and spending cuts has yet to be felt - while they've started to filter through to the real world, spending cuts and tax rises could still have some way to go yet. The key is the impact this has on consumer spending, hence company results and stock markets.

Economies are still struggling - still true. While most developed economies are now out of recession, they're far from firing on all cylinders. Things are finely poised and it won't take much bad news to send some economies straight back into recession.

Unemployment troubles - have generally eased, for now at least. In fact falling US unemployment appears to be a key driver behind the recent S&P 500 surge.

Emerging markets still depend on developed - again still true. Growing prosperity in emerging markets means companies in these markets increasingly benefit from domestic demand, but they still rely on exports. If Western consumers are hurting from higher taxes and unemployment they'll probably buy less, hurting emerging stock markets in turn.

Will the upturn will last?

Although my pessimism last time proved right for a while, stock markets have subsequently risen overall which I guess proves me wrong - to date at least.

However, I remain nervous and unconvinced the recent upturn is here to stay. I believe the key remains whether the massive amounts of money central banks have injected into economies prove the catalyst for sustained economic recovery and not just a short term blip. There have recently been a few encouraging signs (e.g. falling US unemployment), but not enough to be confident we've finally turned the corner.

So while I think stock markets remain a good long term home for investments, I won't be placing any bets short term.

However, the pertinent question remains:

Are stock markets divorced from economies?

There have been a lot of contrasting views on this of late. The most sensible I've read is from an economist called Roger Farmer, who describes the stock market and economy as like "two staggering drunks connected by a long rope. Sometimes the stock market and the economy go in the same direction, sometimes not. But tied together as they are, they can never get too far apart".

Read this article at http://www.candidmoney.com/articles/271/soaring-stock-markets-in-the-face-of-stagnant-economies