The value to me of “set and hold”!

ready set hold 2

Michelle McGrade – Kiwi Mum and CIO


The FT is masterful with understatement.

A 2% charge can take quite a chunk out of the overall portfolio return

If your predicted investment return is (say) inflation +3%, having to earn 2% to pay your investment manager, custodian and adviser, is a big ask.

The average all-in fee charged by the UK’s wealth managers is approximately 2.24 per cent, according to stockbroker Numis Securities. That’s what they’re charging you for custody, advice and for asset management and it doesn’t include the cost of investing.

Which may be why Kiwi Michelle McGrade, CIO at TD Direct says

“As an adviser, the best thing may be to say, ‘Stay as you are.’ ”

Which , by and large, everyone from Warren Buffett and Terry Smith to your humble actuary would say “hear hear” to!

The trouble is that everyone from your institutional risk manager to your IFA wealth manager is a tinker man!

It became an article of faith among the investment consultants 10 years ago that investments needed constant attention. One of my first blogs in 2009 was a report of a debate between Cardano and Redington on why it was inadvisable to “set and go”, the only thing that both sides agreed on was that the client’s money could not be left alone.

LDI demanded the ceaseless trimming and triggering of transactions designed to “maximise the fuel economy” of the investments. I understand that the OECD are currently looking into what this cost asset owners – preliminary results are pretty shocking.

Meanwhile, organisations and individuals who purchased units in long-term investment funds and sat back, have enjoyed a pretty good run of it. This is not to say we should be complacent, but with the VIX at an all time low, now is a time to ask some big questions about long-term investment strategy.

Running your investments like your business

You can run a business for growth or for efficiency. The first strategy involves new investment and the second means keeping costs down.

We hear that the “new normal” is a low-growth investment climate. It does not seem the time to expect salvation from double digit real returns.

So it makes sense for us to look at our costs. If you are paying 2.24% + transaction costs – then you may be losing half of your anticipated return simply trying to get there. That is not efficient and it won’t help you achieve what you are after, whether that’s to grow your wealth or to provide yourself with income. I very much doubt that were another 2008 storm to blow over, your portfolio would be much better protected than it was through the financial crisis.

The reality is that about the only risk that you can take off your table without it creeping back on the table behind you….. is cost. That 2.24% is dead money and while the transaction costs may be earning you out-performance, they may not…in which case you may be paying 3%pa or more – all of which is ending up in other people’s pockets.

Value for money?

The FT concludes at the end of its article that

“Short of a move towards performance-based fees, expect more focus on what is known as “value-add” — which could mean parallel services such as retirement or inheritance planning”.

Like I said, the FT is a master of understatement!

Nature abhors a vacuum and wealth managers cannot – it seems – live with the idea that investors might want their money back.

Instead of cutting out all the costs associated with platforms, active management and discretionary fund management, wealth managers are considering getting into financial planning as a value add!

This is the classic response of the funds industry, who live with revenue assumptions that create eye-watering profit margins, typically of 30% or so. If Wealth Managers aren’t managing inheritance and retirement plans, what the hell are they doing?

These costs  really are frightening. How are they justified?

For we know that for every extra 1% pa of costs, we will lose over a quarter (27%) of our lifetime return on our money. These were the figures supplied to John Denham , then Pensions Minister in 1997 and quoted in the original stakeholder pension consultation and they have “set and gone” ever since. In the intervening 20 years we have consistently paid well over twice stakeholder pension charges and for what?

I have great difficulty getting hold of numbers from any wealth manager that shows how a portfolio fared against any benchmark over 20 years. These numbers just don’t get published!

Show me I’m wrong and I’ll promote you!

If any wealth managers can demonstrate that they have, net of charges delivered from 2017 to this day to the expectations of their customers, I promise to publish their numbers. I will publish them, as I recently published Tideway Investment’s apology for conditional fees, without prejudice.

But if you can’t show me results, I’ll stay set and hold!

But until I see a wealth manager who has through his or her endeavours outperformed a set and hold strategy investing directly into the market, I will be following Michelle’s advice and doing nothing with my money.

I set my strategy back then and have held that strategy for almost 20 years. I have not touched my investments which are directly held without platforms, advisers or wealth managers.

I see the wealth management industry and – Michelle and a few like her apart – I see a lot of willy waggling but very little action!

My money is too important to me for vain bluster – 2017 is another year when – as Terry Smith advises – I’m doing nothing.

Ready set hold

it gives you time to read those books!



In case you are wondering why I’m gabbing on about Michelle, it’s because I used to work with her. That was a decade ago and she talked mostly b*llocks then. Now I listen to her on the radio and she’s making a bit more sense.

But it wasn’t until I read her statement in the FT, that I ever fundamentally agreed with something she said!

And if you want a rather more assertive view on the same issue, perhaps you could indulge in a little “Miller Time“. (link only available to FT subscribers).

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to The value to me of “set and hold”!

  1. John Mather says:

    The argument is an old one and starts at the wrong question which is why there is never a conclusion. The funds might consider employing the share dealing, investment specialists, economists and actuary directly cutting out the fund and consultant fee fest habit

  2. henry tapper says:

    John, the argument is old but it remains relevant, the total cost of ownership seems to remain stable at around 2.5% whatever the economic conditions. I appreciate that some guys like you are adding a ton of value but you can look after yourselves and your clients. For most investors, less is more!

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