Apparently, about 90% of wealth managers can claim the ability to outperform.
Not because they do consistently outperform. That would be too simple. It is because they can usually choose from a range of portfolios and, even more importantly, timeframes. Running figures over one, three, five or ten years offers four opportunities to find one that looks good. Changing the month, or day within a month, gives more scope to find a period of outperformance.
And most portfolios are a collection of individual funds and holdings anyway so trying to piece them all together and compare performance is nigh on impossible. And that is before you even think about throwing in platform and financial advice costs.
It is just another small part of why investing is so often described as ‘simple not easy’. The challenges are numerous but surely being in the dark about how you fare against others is one of them. It is also perhaps another reason why so many firms get away with mercilessly high charges.
High charges or not, the last 2 or 3 years of indifferent returns has tested the mettle of investors. The skill is often in the waiting and a common reason people fail is by giving up too soon. Our clients are generally an experienced bunch and I suspect we have an easy ride versus many advisers. Indeed, many review calls are a demonstration of mutual empathy, where we all feel a little sorry for each other.
But that doesn’t mean we don’t have clients who worry or start to lose faith. Mostly it is just a little wobble, perhaps seeing or hearing the wrong thing on the wrong day and a chance to talk things through alongside some gentle reassurance does the job.
But what about those stubborn worries that won’t go away. We never underestimate the behavioural and emotional challenges of investing, and we are sometimes faced with an investor who, probably without even recognising it within themselves, is quietly determined to only see the worst possible outcome.
It puts us in an unenviable position because, when markets act as we warned they could at times, and we react exactly as we said we would, they then expect us to do all the things we never said we would! Congratulations if you followed that because it is about as clear as most firms charging structures!
And whilst it may be frustrating, and perhaps not even 100% fair or rational, that does not make the worry for them any less real. And most of the frustration is with ourselves for not being able to find a way to communicate better and make the worry go away.
We know we can’t control markets, and we are not suddenly going to try just because activity appeases people. The best approach is always to build sensibly diversified portfolios, control costs and keep the faith. But during the tough times, it is invariably the actively managed funds that catch the eye. Everyone wants to know why we are not buying whichever fund or sector is currently flavour of the month and continually question any fund that is having a hard time.
Understandably, Baillie Gifford is the prime suspect now, but in the past, it has been Lindsell Train, Troy, Utilico, Chelverton, First State, even Fundsmith … in fact, every active fund we have ever held. Too many allegedly active funds get outed as closet trackers, and you want your manager to be contrarian and make decisions. The trouble is that few people can live with the repercussions of that because it certainly does not translate into an armchair ride of unrelenting outperformance.
We have always used them, alongside tracker funds, believing a blend of the two makes a portfolio more robust. But as the saying goes ‘keep things as simple as possible, but no simpler’ and this year has marked a time for thought and reflection. And the outcome is that we have decided to indulge in some passive aggressive behaviour of our own.
The passive comes in the form of a range of new passively managed portfolios consisting entirely of tracker funds. The overarching investment philosophy remains the same with exposure to shares, bonds, property, and infrastructure, spread right across the globe via a wide range of funds and fund groups.
Portfolio values will still go up, down and sideways, but the messaging could not now be any simpler. You get the market less costs. All you need to do is accept that owning the stock market has always been the most reliable way to protect and grow your money over time.
Now we come to the aggressive. These new portfolios give most of our clients the option of full service financial advice and investing with total costs around 0.5 and 0.75% a year. The fact that charges in financial services can be opaque cuts both ways but just because those savings are hard to see does not make them any less real. Allowing for the lack of reliable benchmarking, it is still reasonable to suggest they equate to annual outperformance of around 1 to 1.5% a year versus most similar services. Or put more simply still, thousands of pounds a year in your pocket and not your adviser, platform, or fund managers.
We think the new portfolios are a very welcome addition and based on discussions so far, a lot of our clients agree. But this is where passive aggression ends and passive cautious, balanced, or adventurous begins. There is a now whole new range of portfolios to choose from allowing us to revert to being straightforward, open, and direct.