UnaVida |Investment Research and Fund Selection

Investment Research and Fund Selection

There is a lot of “noise” in the financial world, over the years we have witnessed a number of companies promoting their services to financial advisers. Their promotions are often supported by glossy brochures, or highly persuasive advertising. Advisers want the best for their clients and often get taken in by promises of a better tomorrow for their clients.

If we are contacted by any such company, we ask our wide circle of professional contacts for their opinion. This has saved us from getting involved in many scandals such as Arch Cru and Key Data. We are also not tempted by structural products, as their literature is often incomprehensible. If I can’t understand the basis of the investment proposition, why would I consider offering it to our clients?

The research or due diligence that we carry out is not only undertaken with new firms, but also on existing well established companies.

I was approached many years ago by a potential client, who had already transferred the bulk of his pensions to Equitable Life. One of the reasons he said was that the sales staff at Equitable were not paid commission, that’s correct they get paid bonuses depending on how much they sell (in other words a commission).

I carried out a considerable amount of research for him the initial research for him, on meeting him again, I informed him that in my opinion it would be a mistake to transfer his remaining pension to Equitable, as I believed they were “technically bankrupt”. To this day I remember the client bursting out laughing and saying “Mr Best – if you think a firm the size of Equitable Life could go bankrupt, then I will say good day to you sir!”.

That was the last I saw of that potential client, although I have always remembered the incident, which occurred two years before the collapse and well published financial demise of Equitable Life became public, so I thought I had done a pretty good job.

All Independent Financial Advisers are subject to scrutiny, this involves having our record keeping and research and files checked for good practice by a Compliance Officer. One of the paths that we are supposed to follow is to have a projection of pension benefits from the company that the client has a pension with, and to rely upon this, in order to make any comparisons.

I am sure you agree that it is essential good practice to obtain an accurate understanding of the existing pension or investment, before proceeding with advice.

So on a Compliance visit, on checking our files, I was asked why I had annotated figures on the margin of the official statement of benefits by the insurance company.

You may be surprised I informed him that we check all projections by insurance and pension companies as 90% of the statements receive are inaccurate, if you look further on in the file, you will find our full calculations.

It’s always wise for clients to diversify their investments, many clients misunderstand how to achieve like the client who had five different pension pots with five different companies but all had identical funds!

I understand that many clients have been persuaded and opted for portfolios comprised of passive or tracker funds, these are mainly linked to stock market indices, you need to take care which of these passive funds you select, as charges of them vary. Not only do the charges vary but often they fail to properly track the market indices they are supposed to mirror and have tracking errors.

I wonder however if selecting a range of tracking funds is a sensible way forward. We are about to go through a period of considerable technological and economic change. It has been forecast that up to 65% of the companies currently trading on the stock market will not be able to keep up with the pace of technical advance and competition from global companies who do not pay their full share of tax. That is an awful lot of companies and this is likely to have a significant investment impact – these companies will go to the wall or get taken over. So having your investments in an index fund which represents a broad range of investment funds may not be the answer.

Selecting a range of defensive funds and funds with top stock pickers is likely to have far more chance of investment success. The difficulty is that fund managers move around,and when they leave a fund house, the story given out by the fund house is always the same “the fund is run on a team basis and so we do not believe the performance will be affected”.

We prefer to follow top performing fund managers rather than funds, the likelihood is that if they were running an investment team before at their fund house their management of the fund would have been constrained by the mandates of the fund house. So one of the reasons fund managers leave to set up “shop” on their own is so they can now exercise their skills in a more unconstrained way. We make a point of following the manager and have recently identified a number of excellent fund managers who have established new funds that are likely to do well.

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A pension is a long-term investment that typically cannot be accessed until age 55 (57 from April 2028). The level of pension benefits offered could change depending on the value of your investments (and any income they may generate).

The interest rates in effect at the time you begin receiving benefits may also have an impact on your pension income. The tax consequences of pension withdrawals will depend on your unique situation. In later Finance Acts, tax rates, tax bases, and tax relief may change.

The opinions expressed by Ray Best are meant to inform and educate. Before making any investment decisions always take advice that is pertinent to your investment personality and financial situation.

You are aware that past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.

The value of an investment and the income from it could go down as well as up.

The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

UnaVida Wealth Management Ltd. is directly authorised and regulated by the Financial Conduct Authority (440577).

The guidance in this website is primarily aimed at a UK audience and is subject to regulation by the Financial Conduct Authority (FCA).

The Financial Conduct Authority does not regulate tax planning, estate planning, or wills and any form of legal documentation.