Comments on: The problem with passives http://www.icl-ifa.co.uk/2010/05/problem-passives/?utm_source=rss&utm_medium=rss&utm_campaign=problem-passives Mon, 30 Jan 2012 15:56:00 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Informed Choice http://www.icl-ifa.co.uk/2010/05/problem-passives/#comment-60 Informed Choice Mon, 17 May 2010 08:41:23 +0000 http://www.icl-ifa.co.uk/?p=2107#comment-60 Thank you for your comments, Andrew. I was careful to point out in this blog that the TER numbers used were averages and that it is always possible to find cheaper passive investment options than the averages. The main reason for highlighting this issue is that tracker fund AMCs and/or TERs are often quoted net of platform and adviser fees, whilst active fund charges are usually quoted inclusive of both. In the interests of transparency and fairness, a like for like comparison should always be made, particularly when cost is a big argument (although not the only argument) behind the passive position. As an investment adviser, we do not have an axe to grind when it comes to passive or active management. Both style of investment approach can play a role within a client portfolio. Thank you for your comments, Andrew. I was careful to point out in this blog that the TER numbers used were averages and that it is always possible to find cheaper passive investment options than the averages.

The main reason for highlighting this issue is that tracker fund AMCs and/or TERs are often quoted net of platform and adviser fees, whilst active fund charges are usually quoted inclusive of both. In the interests of transparency and fairness, a like for like comparison should always be made, particularly when cost is a big argument (although not the only argument) behind the passive position.

As an investment adviser, we do not have an axe to grind when it comes to passive or active management. Both style of investment approach can play a role within a client portfolio.

]]> By: Andrew Lee http://www.icl-ifa.co.uk/2010/05/problem-passives/#comment-59 Andrew Lee Mon, 17 May 2010 08:19:54 +0000 http://www.icl-ifa.co.uk/?p=2107#comment-59 Sorry but your numbers are flawed - a passive portfolio can be purchased on a platform for no more than 0.5% (eg Vanguard UK Equity tracker at 0.15% and platform charge of 0.35%). Adding an advice fee 0f 0.5% still ensures a guaranteed cost saving of 0.5% every year in comparison with an active AMC. However the AMC is only part of the story and you will find that TERS wil usually push the figure up to around 2.4% and then PTR costs of easily another 1% for most funds - so total costs of active withe advice are over 3% v Passive with advice of 1% hmmm . Do the math as they say... Sorry but your numbers are flawed – a passive portfolio can be purchased on a platform for no more than 0.5% (eg Vanguard UK Equity tracker at 0.15% and platform charge of 0.35%). Adding an advice fee 0f 0.5% still ensures a guaranteed cost saving of 0.5% every year in comparison with an active AMC.

However the AMC is only part of the story and you will find that TERS wil usually push the figure up to around 2.4% and then PTR costs of easily another 1% for most funds – so total costs of active withe advice are over 3% v Passive with advice of 1% hmmm .
Do the math as they say…

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