I’m on a train to the Lake District. A return ticket from London has cost me £88 and for that I get to go somewhere fairly near my final destination with a bunch of people I don’t know. It’s a bit hot in the carriage, I’m not massively keen on changing at Warrington Bank Quay and I had to leave work an hour early, but hey it’s good enough and more importantly, it’s not costing me that much to visit my mum for Easter.

Imagine, for a minute, that I am a pension fund investor and I’m in a passive or index tracking fund – It’s the same hypothesis. We’re all going the same way, the route is not the most direct for any of us and I’m not going to get to my exact destination. I can’t get there any more quickly than anyone else on the train and if I decide to get off at Crewe (and it’s a very big ‘if’) there’s likely to be someone at the station who’ll take my place.

Compare this to an actively managed fund or, for the purpose of this illustration, a chauffeur driven car. I’d have the back seat to myself, I’d pick a really good driver who knew some sneaky shortcuts through Birmingham in rush hour – or even take the toll road – and it would deliver me to my mum’s front door in time for hot cross buns. Chances are this option would cost me a darn sight more than taking the train.

So, as for the investor, it’s a choice.

There are very few of us who’d prefer to stand all the way to Oxenholme, only to be told that there’s been a signal failure and we’re being held outside the station, but often that is the only option we have. We get on the train and go.

The alternative (and I don’t mean hedge funds, or at least not exclusively) is for special occasions or to get us somewhere exactly when we need it, to the airport or a business meeting for example.

We don’t mind paying for it, or at least we accept it, as long as we are getting what has been promised. When we see the train sail past us as we sit in traffic after our chauffeur, or active manager, has promised us – and taken the money – to get us somewhere on time, it’s annoying. It’s more than annoying, it’s infuriating.

The active vs passive debate has raged for years and will continue to rage with each side saying that they, actually, are best placed to offer the most bang for your buck. But is it up to the investor, or traveller, to make the decision on how each specific journey should be made.

Even more importantly, is for the investor to complain if they are dissatisfied with the service. Even Virgin Trains issue refunds and how will the chauffeur know I’m not actually pleased to be drifting into a sweet, relaxing reverie in the back seat if I don’t tell him?

We are just pulling in to Oxenholme now and my mum is waiting in the car to drive me the 7 miles home. Of course I would have loved to take a chauffeur up north and sipped a g&t as the Merc purred up the M6 to have me there for the start of Eastenders, but I don’t have that kind of money.  And even if I did, some journeys don’t need that kind of special treatment – sorry mum – but when they do, I demand value. And so should you.

[Please note that all opinions expressed in this blog are the author’s own and do not constitute investment advice.  Click here for full disclaimer]

Author: Liz Pfeuti

Liz started writing about retirement provision and finance in 2006 at Global Pensions and was instantly hooked. After a previous career in tourism that had taken her around the French, Italian and Swiss Alps, she swapped her passport and carry-on luggage for an asset allocation handbook and idiots guide to LDI.