Monday, 4 May 2009

You're On Your Own: Pay Less, Diversify More, Be Contrarian

Heeding John Kay's timely warning, I've been paying a lot more attention to what's happening to my meager store of pension and ISA money and how much is being left in the hands of so-called "managers" who merely track an Index and their peers.

News on that front is getting worse. According to the FT, fund managers are finding it tougher to gain distribution through European retail banks, who are the dominant sales channel in continental Europe. The banks are cutting the number of fund managers whose products they distribute, and the fund managers are "scrambling" to be included. "Some fund managers are likely to have to pay higher charges to distributors...," the head of UK sales at JPMorgan Asset Management is quoted as saying. And the head of international retail business at BlackRock says, "Investors feel let down by what has happened in the financial sector as the industry has been focusing more on its own needs than those of clients."

In the same article, Lipper estimates that UK retail banks only distribute about 4% of investment products sold in the UK, and IFA-advised sales remain dominant at about 53%. But we all know that IFAs get a decent whack for the service they provide, so we're probably only seeing European banks playing catch up.

This news again signals the need to get more active, and use discount and execution-only providers to invest in cheaper products like Exchange Traded Funds. Doing the opposite of what the mainstream investment advertising suggests is also worth a shot, according to Mr Kay. This is not easy in the context of a full-time job and family commitments. While I've previously used a discount investment broker and began a stakeholder-friendly pension, only recently have I woken up to the "DIY ISA" and a low cost Self-invested personal pension (SIPP) that allows me to get off piste. But that's where I need to go. Next stop: ETF's in out-of-favour, non-correlated sectors.

I feel like this guy:

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