Robin Powell`s “Sensible Investing TV” – A Documentary Worth Viewing

Published on: September 3, 2014
CategoriesDIY Investment, Financial Advice

The new documentary from Sensible Investing TV sets out to de-bunk the notion that, when it comes to investing, you get what you pay for.

Robin Powell`s new documentary – to be shown in ten short weekly instalments, is a must-view for anyone who takes long term investing seriously.

The  link to the first video follows:

http://www.sensibleinvesting.tv/how-to-win-the-losers-game-part-1

… while those who might also appreciate additional background may be interested in the company`s News Release below:

How to Win the Loser’s Game


Part 1 of a new landmark documentary series from
Sensible Investing.tv is now online MEDIA RELEASE 3 September 2014

For immediate release

Most of what we see and hear about how to invest comes from
either the fund industry or the financial media – both of which
have their own agendas. This landmark documentary is an
attempt to redress the balance.

Nine months in the making, How to Win the Loser’s Game aims to
provide ordinary investors with the information they need to
achieve their investment goals. It explores the relative merits
of active and passive investing, as well as so-called “smart” beta
- a “middle way” approach that is gaining in popularity.

Among the contributors are some of the biggest names and
brightest minds in the investing world, from Vanguard founder
John Bogle to MoneyWeek editor Merryn Somerset Webb,

authors Charles Ellis and Larry Swedroe and Nobel Prize-

winning economists Eugene Fama and William Sharpe.

 

How to Win the Loser’s Game is being released in ten weekly,
stand-alone parts, on SensibleInvesting.tv, followed – on
November 5th 2014 – by the full-length, 80-minute film.

Notes to editors: Sensible Investing does not sell or endorse any
particular investment products. Its aim is to promote the benefits of a
long-term, low-cost, low-maintenance and highly diversified
investment strategy. Based in Birmingham, England, it serves a
worldwide audience of investors, journalists, bloggers, academics and
investment professionals.

 

“The fund management industry as it stands is failing the
consumer. There are too many managers delivering consistently

poor returns while taking huge amounts out of people`s long-

term savings in charges. Investors need to wise up.
“We do recommend that investors use an adviser. But this
documentary will help them get started on the road to a
successful investment experience.”
Richard Wood, founder, Sensible Investing.tv

“We keep hearing from active fund managers that they can
beat the market. But only about 1% of them do so consistently,
and they’re almost impossible to identify in advance.
“How to Win the Loser’s Game presents hard evidence – tried,
tested and peer-reviewed – that there are better and far cheaper
ways to invest.”
Igors Alferovs, Barnett Ravenscroft Wealth Management

“As well as investors, this documentary is compulsory viewing
for journalists and politicians.
“It’s well known that we face a pensions crisis. The emphasis so
far has been on the need to put more more money into our
pensions. It’s true that most of us have to. But we also need to
wake up to how much the industry is taking out of our savings -
and how little value it’s adding in return.
“Investors – and the wider economy – would be better served by
a fund management industry 20% its current size.”
Robin Powell, producer, How to Win the Loser’s Game

Contact
More information is available from:
Robin Powell +44 (0)121 771 3382,
robin@sensibleinvesting.tv

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Michael Johnson at the Centre for Policy Studies: The Need for Actively-managed Funds (?)

Published on: May 12, 2014
CategoriesUncategorized

Some revealing insights have been recently produced at the Centre for Policy Studies, the author of which, Michael Johnson, has kindly consented to be reproduced here:

 

We do not need 80% of active management

 

Michael Johnson draws some conclusions following DCLG’s review of the Local Government Pension Scheme. This article originally appeared in the Financial Times on Monday 12 May 2014. 

Share the article here: http://bit.ly/1laYjqO

Recently, robust, independent and damning evidence emerged that skewers any justification that active fund management of listed assets is worth the candle. For dispassionate observers, it has been long overdue, but the source was unexpected: the UK’s Department for Communities and Local Government (DCLG).

The catalyst was a growing concern for the sustainability of the Local Government Pension Scheme (LGPS), a disparate collection of 89, predominately sub-scale, funds in England and Wales, with total assets of roughly £180bn. It is one of the world’s largest occupational pension schemes.

DCLG issued a consultation paper proposing that all of the £85bn of externally actively managed listed assets should be moved to passive fund management, to reduce costs. In addition, all “fund of funds” arrangements should be replaced by one investment vehicle for alternative assets. Total cost savings of £660m per year are expected, and £6.6bn over the next 20 years – monies that would no longer reach asset managers’ pockets; a saving for taxpayers.

But even more important than this, the underlying research report, independently produced by Hymans Robertson, has been put into the public domain. Sponsors, trustees and members of private sector schemes are now free to digest evidence derived from both the huge LGPS data sample (the LGPS dwarfs any other UK pension scheme), and internationally. They will find that, on average, any additional performance generated by active management (relative to the benchmark indices) is insufficient to overcome the additional costs. It is better to invest passively, tracking the appropriate index.

Active fund management has finally been revealed for what it is: a web of meaningless terminology, pseudoscience and sales patter. For too long, active managers have been allowed to shelter behind their standard disclaimer concerning the long-term nature of investing. But the long term never arrives. It merely shuffles forward; there is never a day of reckoning. In the meantime, ludicrously expensive talent is deployed in the pointless pursuit of continually trying to outperform one another. Worse, it is a giant negative-sum game in which the savers pay the price, their hard-won capital persistently eroded by recurring charges and fees.

Data shows us that the dominant contributor to total returns is the asset-class mix, not individual stock selection. In practice, some so-called active managers are actually “closet trackers”. Once their high costs are deducted, the outcome of sub-index performance is no surprise. To misquote Sir Winston Churchill: never is so much being taken by so few from so many, and for so little in return.

But what of the so-called “star” managers? Every quarter, F&C Fund Watch publishes consistency ratios measuring the proportion of funds in the 12 main IMA sectors in the UK that produced top-quartile returns each year, over the prior three years. In the first quarter of 2014, of 1,069 funds, only 46 consistently produced top-quartile returns (ie 4.3 per cent). Using blind luck, one would expect 17 funds to achieve this, which leaves 29 fund managers out of a universe of 1,069, roughly 2.7 per cent, who could legitimately claim that their success was down to skill. Over the same period, only 188 funds (17.6 per cent) consistently produced above-average returns; 881 funds did not.

In addition, the last quarter’s results are towards the top end of historic ranges. A stunningly small number of funds beat their peers on a regular basis, but the crucial point is that at the start of any three year period, no one knows which funds they will be. Hindsight being useless, this is active fund management’s Achilles heel, and the crux of the debate.

Costs are controllable but, by and large, investment performance is not. This is not a recent revelation. Warren Buffett said: “By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

Meanwhile, by publishing the underlying research, DCLG has introduced a degree of transparency hitherto unseen in public service pensions. But more significantly, it has acted on the evidence that lays bare the nonsense that is the active fund management of listed assets. If private sector schemes were to follow DCLG’s leadership and common sense, the implications would be profound. Millions of scheme members would benefit, and it would become apparent that we do not need 80 per cent of the industry. The remaining 20 per cent should focus on adding value in the unlisted asset arena that lacks the indices required by (passive) tracker funds to replicate investment performance, principally “alternative” assets, property and emerging markets and smaller companies funds.

Indeed, DCLG’s actions mark a seminal moment for all occupational pension schemes. Activity in the Twitter sphere would appear to corroborate this view. Jeremy Cooper, who chaired 2012’s review of Australia’s private pensions system, said: “What an astounding result. It will be a global litmus test.” DCLG should be congratulated.

 

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MMR – The Mortgage Market Review or Money-Making Ruse?

Published on: April 18, 2014
CategoriesUncategorized

Good news to report at last for discredited high street banks. It seems they have discovered a simple method to repair the hole in their balance sheets.

The not-so-good news is that they have found a way for their borrowers to pay for this. Let me explain.

In just over one week`s time, prudent measures are being introduced for lenders, following a regulatory review aimed at constraining high risk borrowing.  The FCA is understandably concerned that mortgage affordability should not become an issue as, if or when interest rates start to rise.

A number of lending institutions have already implemented these Mortgage Market Review (MMR) changes ahead of the official April 26 date.  So far so good.

The problem is that, in practice, certain banks are choosing to over-interpret the regulator`s requirements to their own potential advantage – which does not sit too well with their statutory requirement for, “Treating Customers Fairly”.

Money Guidance has been made aware that existing fixed rate borrowers who have requested to “port” their mortgages are being presented with all sorts of obstacles, inappropriately citing the MMR as the reason.  One semi-retired couple in their mid-50s, with eight months left on their 2 year fixed rate mortgage, recently asked to move a 10% loan-to-value mortgage from their £1.7 million property to another costing nearly £900,000. Unfortunately, they have been told that they “no longer meet the criteria” and applications will therefore have to be made for “exceptions” before they can make any progress with their request.  Even if they are eventually successful, the delays involved will probably result in their missing out on the home they wish to purchase.

At this point, it may be worth looking at what the regulatory framework actually states:

“The transitional arrangements come into play only where there is a regulatory requirement to undertake an affordability assessment – i.e. a new regulated mortgage contract or a further advance. An affordability assessment is not triggered by a variation to a contract where there is no additional borrowing. Therefore the transitional arrangements are not relevant.”

However, this week alone the couple in question has been subjected to three different affordability tests – two by telephone and one at branch office – without being able to report any tangible progress.  Arrangements have had to be cancelled and over eleven hours have been wasted in an effort to accommodate the bank`s requirements.

One bank official was heard to utter: “We always thought that MMR was a disease: now we know it is”

So what could be the possible motivation for high street banks to behave in such an unhelpful manner towards their customers?  Well, we might want to take a look at the maths in search of one possible answer. According to the Council of Mortgage Lenders, gross mortgage lending hit £177 billion in 2013 and, in the first quarter, as many as 83% of borrowers elected to have a fixed rate mortgage - “the highest proportion since the industry started gathering figures” (more than 20 years ago). That`s a lot of money (nearly £147 billion) potentially waiting to be “ported” when you consider that one in eight householders will be moving every year. HMRC reports that 930,000 homes were sold last year and, at long last, that figure is on an upward trend.

A cynic might observe that this presents the potential for tens of millions of pounds to be paid by borrowers to lenders in the form of Early Redemption Charges (ERCs) in the near future.  Based on last year`s data, if only 5% of borrowers with fixed rate mortgages were forced to pay ERCs (based on 3% of their outstanding balances), it looks as though upwards of £220 million could be dropping into lenders` laps by default.

Rationally, they just wouldn`t be that stupid, would they?  It was only last year that the FCA warned lenders to be careful about massaging their Standard Variable Rates upwards, for fear of transgressing Treating Customers Fairly regulations.  Well, Money Guidance believes that a combination of obfuscation, stonewalling and ineptitude on the lenders` part might just encourage enough borrowers to throw up their hands in despair and pay the ERC in order to avoid losing house sales and purchases.  The following accurate representation of a telephone call between our hapless couple and Nat West may lead to you draw the same conclusion:

(Porting Hopefuls):  ”Hello, we`ve sold our house and wish to take advantage of your facility to port our mortgage which costs £347 per month to our new home.”

(Nat West): “We`ll need to do a check on your income to make sure you can still afford to do this”.

(PH): “That`s a surprise: our financial circumstances have improved since 2010 and, once we sell the house, we`ll have over two million pounds in realisable investments and assets. The only thing that is changing is the property, not the borrowers”

(NW) “That`s not really relevant, we need to do an income check for you both.”

(PH) “Well, for a start, we receive rental income of £27,000 per annum from two apartments we own and manage.”

(NW) “Have you got three years` accounts for this?”

(PH) “They were only purchased a couple of years ago”.

(NW) “We can`t count it then”

(PH) “My wife takes dividends from her Property Development Company – about £10,000 in each of 2011 and 2012. She didn`t develop any property last year, but has purchased more land and will be doing so again in 2014.

(NW) “We can`t really include those either”

(PH) “We tend to maximise our CGT allowances each year and have taken more than £30,000 from our investments over the last two years.

(NW) “No, that doesn`t count”

(PH) “We have SIPPs totalling more than £600,000, but we don`t particularly want to exacerbate our tax positions by taking the income at that moment.”

(NW) “Well, that won`t be relevant either.”

(PH) “I formed a limited company in 2013 and have taken repeat fees of more than £7,000 in the last four months.

(NW) “Have you got three years` accounts?”

(PH) “Er…. no”

(NW) “Then that can`t be taken into account either.”

(PH) “Look, once we`ve moved, we`ll have £1.5 million in the bank, and assets exceeding £3 million. Your bank seems to be concerned that we can`t afford a mortgage equivalent to two Starbucks and a couple of buns a day over the next eight months.  We don`t feel too inclined to pay you nearly £5,500 as a penalty when you claim to offer a mortgage that`s portable in all your literature”.

(NW) “I`m sorry, that`s the system. As you have failed the income test, the computer can`t go any further and we will have to book a further telephone appointment next week.  In the meantime, I shall have to apply for official exemptions based on your income shortfall and your eventual inability to repay this interest-only loan.

(PH) ” What happens if we don`t pass?”

(NW) “Then the mortgage will have to be repaid, along with the Early Redemption Charge, on completion.”

 

All of which makes you wonder what is going to happen to those borrowers who are not in such a fortunate position, and who may be relying on the words of “The Observer” back in February this year:

 ”The good news for borrowers unable to re-mortgage because they have an interest-only deal or self-certification loan is that lenders have been told to treat existing customers fairly, and to offer them competitive rates even if they would no longer qualify for a loan.”

Well, that`s okay then.

 

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Guest Post Contribution

Published on: February 26, 2014
CategoriesLife Planning

A Financially Ideal Retirement

Working hard for the majority of your adult life is supposed to lead into a peaceful, enjoyable retirement. At least, that’s what most of us strive for. The harsh reality is, though, that many people never get to enjoy their so-called golden years due to financial instability. Because of that, either many retirees experience a less than ideal retirement life, or worse, never get to retire at all.  Because of that, it’s best to make it a point to work towards achieving that ideal retirement life now, while you still have the time to significantly alter the course of your current financial situation.  Here are a few ideas on how to do so:

Save.

Plainly and simply, it’s time to start saving right away. Learn all the money-saving tips you can follow, reduce your use of your credit cards, and basically set aside all the money you can. Remember that the more you save, the more financially comfortable you’ll be once your retirement comes. Develop a habit of saving by budgeting your money consistently with a specific amount going towards your intention of retiring with a healthy nest egg waiting for you at the end of your employment life. All the sacrifices you’ll make now are going to be worth it once you end up with a sizeable savings account when you’re no longer physically able or even emotionally willing to earn a paycheck.

Look into retirement savings plans.

Inquire about retirement savings plans from your employer. If you’re a regular employee, then chances are, you work for a company that has this particular benefit. Try to find out as much as you can about this benefit, including what you need to do and how you need to start on this. One good thing about this is that a retirement savings plan would not affect your other financial expenses. It’s tax deductible, and is completely separate from your own personal savings. Once you finally retire, you would end up with a hefty retirement savings to go along with your personal savings.

 Get rid of your debts ASAP.

If you have credit card debts or other kinds of debts, it would be best to pay them off as soon as possible. Even if that means you paying them off regularly in small amounts, do it. The focus here is that these debts should be out of the way by the time you retire. Debts have a tendency to wreck your financial plans, and dealing with those debts early on would lessen the probability of damage.

 Visualise your retirement.

 A great motivator in cleaning up your finances is by visualizing what kind of retirement you want to have. Plan where you want to live, and how. Establish specific financial goals that would make your ideal retirement financially possible. By having specific details about what you want your retirement to be, you make this aim all the more real—and much easier to attain.

Do not touch your retirement savings.

Considering the unpredictability of most people’s financial needs, there are certain occasions wherein we’ll need to dip into our savings. One key thing to keep in mind here is that you should always keep your retirement savings apart from all your other finances. This is money you shouldn’t be touching until you’re retired. Avoid this by establishing an emergency fund that would address emergency financial needs.

There are several reasons that contribute to a person not enjoying the kind of retirement lifestyle they want. It boils down to basic financial attitude. Keep an eye on the future at all times and use the present to shape your future. Start early and stay consistent, and you’ll definitely find yourself living comfortably come retirement time.

 

Author’s Bio      

Ryan Del Villar is a writer for Money Max, Philippines’ leading online comparison portal and Philippine market news provider. You can check the website here. Ryan is also a freelance writer at Helm Word, an Online Reputation Management company. He worked as an online video editor before he started his writing career.

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A Response To “10 Reasons To Invest In Face-to-Face Advice Over Online” (Bryce Sanders – “Financial Adviser”)

Published on: February 6, 2014
CategoriesDIY Investment, Financial Advice

“Financial Adviser” today carried a piece by the President of Perceptive Business Solutions (below), to which Money Guidance felt compelled to respond.

In times when investment returns are low, reducing expenses can sometimes make the difference between profit and loss. A popular strategy to reduce costs is to eliminate the middleman, which is what makes online investing so appealing. But this approach will not eliminate the need for financial advisers, because investing big money involves face-to-face relationships.

Trading, investing and banking online offers convenience – people can access their account 24 hours a day. If a client has a question that requires a response from a live person, that is no problem – tiered service can reduce waiting times for an advisory firm’s best clients. Virtual investing might require upfront investment in technology, but it saves the expense of high street offices along with salaries and commissions for advisers based there.

Interacting online also has its drawbacks. Online dating is a good example where things are not what they seem, and few people would go online to get medical, legal or accounting advice. Online investing makes sense for people who know and understand what they are doing. It is an excellent vehicle for investors who want someone to follow instructions and execute trades.

But the role of the financial adviser is far from dead. When people part with large sums of money or make important decisions, they prefer to do so face-to-face – it is easier when the advice comes from someone who knows and cares about you. Consider the following 10 reasons why a face-to-face advisory relationship is superior to online investing:

1. People make judgments. Before accepting advice most investors want to size up the other party. In politics, countries’ leaders meet at summits and look one other in the eye. Former UK prime minister Margaret Thatcher famously said of her Soviet counterpart, Mikhail Gorbachev: “This is a person I can do business with.”

Why it is important: many people need to determine informally whether the adviser is knowledgeable and has their best interests at heart. You will need to meet them.

2. Bricks and mortar. Buildings imply stability and a commitment to the community. Investors like to see hard assets such as property. It makes them feel their assets are “secured”.

Why it is important: investors want to see a parent firm with deep pockets before they entrust their money to an adviser.

3. Longevity. Established firms in familiar surroundings communicate stability. Knowing that the adviser across the table has a long-term career with the firm puts clients at ease.

Why it is important: the adviser is the face of the firm in the community. They assume a long, successful career is built on doing the right thing for their clients year after year.

4. Referrals. People often refer their friends to a firm because they have had a good experience or got a good deal. Something might be on sale, but it is more likely people are referred to individuals who made a process go smoothly.

Why it is important: in property transactions, once a contract is signed the estate agent’s job is to keep the sale on track until it is completed. This is a people skill – estate agents often build their business on personal referrals.

5. Accountability. It is human nature to apportion blame when things go wrong. If someone has made a mistake, few investors want to say: “It’s my fault I lost money. I wasn’t paying attention.” In politics, world events and sport, we hold individuals accountable, rather than organisations.

Why it is important: clients are accepting advice from a person they expect to hold accountable for the results, based on the advice given.

6. Confidentiality.Many people feel data they enter on their computer might as well be displayed in lights in Piccadilly Circus for all to see. Regardless of a firm’s best efforts, systems get hacked and data gets stolen.

Why it is important: like the confessional, people assume details they tell their adviser in confidence stay that way. Although advisers maintain client contact records, they use some discretion in which details to include.

7. Avoiding misunderstandings. Meeting face-to-face allows investors to ask questions they might find difficult to word or are too embarrassed to ask online. The adviser can look for visual clues – is the client following what the adviser is saying? Advisers can read back an order so that a client understands what they are agreeing to.

Why it is important: each party can read the other’s facial expressions and probe with questions. Many marriages fail because of breakdowns in communication.

8. Relationships. Trust means a client being confident an adviser is working in the client’s best interests. Trust is the foundation of many personal relationships. Many clients befriend their advisers because of traits displayed during the investing relationship.

Why it is important: social people surround themselves with people they trust, often with skills that make their lives easier.

9. Consider the alternative. Investing online might save money in the short run, but what if the investor makes a mistake? The financial consequences of choosing bad investments or holding others for too long outweigh the savings from lower fees.

Why it is important: as people age, their number of peak earning years declines. The older the investor the less time they have to earn back losses from a poorly chosen investment. That is why they need advice.

10. Negotiation. Online investing is cheaper in the prospective investor’s eyes. Everyone still makes money, so it is important be aware of what you get and what you pay for each approach. The adviser’s fee structure is not fixed like train fares.

Why it is important: neither the online nor the face-to-face approach is a perfect fit for everyone. Working with an adviser has advantages. Discuss the cost in terms of the difference between the two alternatives – advisers are often open to compromise.

When stock markets are soaring, some investors might think anyone can do an adviser’s job. When markets plunge, people might assume advisers sit on the sidelines while clients’ assets evaporate. These investors do not understand how advisers add value or bring other benefits to the table. The following four key areas are where advisers can prove their worth.

Asset allocation

Studies show that most of an investor’s return over time comes from proper asset allocation. Graphically speaking, if a client is standing in the road and a speeding lorry is heading towards him, the adviser is the person who picks him up just in time and puts him back on the kerb – that has value. This is important because the index fund investor is standing in the road because they are fully invested 100 per cent of the time.

Investment expertise

In terms of sectors and industries, an index fund’s return should match approximately the performance of the index it tracks. Indices usually comprise sectors. Some will outperform, others will underperform. The broad index investor holds them all, while the adviser adds value by suggesting sectors to over- or underweight.

Emotional control

A stock market rises like an escalator and goes down like a lift. Few investors can be detached when the news predicts the end of the world. The return for mutual fund investors over time is often far lower than the return of mutual funds as a class – investors often buy at tops and sell at bottoms. Advisers help get clients “off the window ledge” when news is bad and encourage them into the market before all the good news is apparent.

Forward thinking

Finally, there is the question of yesterday’s winners. An adviser based in Pennsylvania in the US remarked that an investor might enjoy good investment results because they owned a portfolio superbly designed for the previous market cycle. Advisers help with forward thinking to position clients for anticipated changes in the economy.

So, while it is tempting to cut out the middleman by investing online rather than working with a financial adviser, choosing the former route means considering a portfolio or retirement savings as a do-it-yourself project. Some investors are skilled, others less so. That is where a face-to-face relationship with an adviser truly adds value.

Bryce Sanders is president of US financial services consultancy Perceptive Business Solutions

 

 THE MONEY GUIDANCE RESPONSE

Another way of looking at things may be:-

People make judgments: some prefer to do so dispassionately by evaluating hard data, without “noise” from whoever may be presenting it.

Bricks and mortar: some may see fountains in the foyer as an unnecessary cost which is reflected in their investment returns.

Longevity: Being around a long time may not be tantamount to proficiency. Some consumers may well think that the adviser has been “…doing the right thing (isn`t that what Gordon Brown used to say?) year after year”. Others may think the fact that this young person has recently achieved Chartered/Certified status may mean they have topical knowledge.

Referrals: I believe that Hargreaves, Bestinvest, et al, may have had a few of these as well.

Accountability: A good FCA-authorised online adviser has to be equally accountable.

Avoid misunderstandings: It might be argued that misunderstandings are less likely if systematically documented as part of an online process. Human intervention can sometimes skew outcomes (e.g. risk-profiling scores are often higher when a male is being asked the questions by a female adviser).  Marriages can also fail because people have spent too much time face-to-face!

Relationships: Friendship with clients often comes a poor second when money has been lost. Trust is important, but don`t let`s get too sentimental, as clients tend not to be – a recent CFA survey found that only 7% of investors felt that financial firms “do the right thing.”

Negotiation: Train fares aren`t fixed when you go online.

Emotional  arguments: Those who get their overweight and underweight arguments right are rare. Humans (if Freud is to be believed) have an instinct to preserve – often translating into over-caution and missing out on market rises due to a herd mentality.

Incidentally, the IOD`s legal helpline is excellent and widely-used by its members.  And, I think the FCA may subject firms and their advisers to more stringent tests than E-Harmony does with its  potential dating suitors.

Clients really are too diverse to generalise about this much.

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