Should we be worried about our investment?

[pinky13]

My partner and I have an investment through financial advisors that were recommended to us by friends. However, we're not sure if we should stick with them or not.

We invested £90,000 with them at the start. We have had £1,800 taken off in fees to them and the company that holds our portfolio. We have about £40,000 in cash and the rest is invested in 15 different stocks/shares although even the cash is included in the wrap portfolio. So far our investment has gone down to approx £86,500 most of it just on fees. Our portfolio is doing very badly and at least 5 of the investments are down by 15-20%. We have to pay 2% annually in fees to our FA and the portfolio holding company. So far they have been very bad at getting back to us when we have questions. We are worried that they are not monitoring our portfolio closely enough and that they will not advise us to sell shares which are doing really badly. Most of the shares with the worst performance are in property.

The question is, does this sound like a normal FA or does it sound like we should leave. We are worried that any money we do make is going to be eaten up by their yearly fees and that they should be monitoring the market and advising us much more closely. At present we speak to them about once per 6 months and we pay them 1% of our investment yearly, even if it makes a loss and 1% to the wrap holding company.

We are new to investing and we do not own any property so this £90,000 is all our savings which we have accumulated over the years and obviously want to protect as well as possible.

Would be grateful to hear any advice regarding what we should expect from financial advisors and whether their fees seem reasonable.

Thank you!

[LongTermLurker]

If I paid someone to give advice I'd want them to co-respond with me and answer my questions. Equally, if I was giving an investment company £90k I'd want them to be nice to me. It doesn't sound like you're getting that. You deserve to expect better service.

Without knowing who or what you're invested in, 2% seems quite high as an annual fee. You don't say how long you've been invested; all property investments have gone downhill so it's no surprise you've taken a bit of a hit. You also don't say if it's actively managed (ie, will they monitor and switch your shares depending on market conditions or are the original choices static?). So far you've lost about 4%, including fees, which realistically isn't a lot, but there's a lot more information needed.

I'd be tempted to suggest maybe speaking to another IFA for a second opinion, but I don't know if they would be willing to discuss another IFA's business, from an ethical point of view.

[earlgrey]

Pinky, do they call themselves financial advisors or asset managers or stock brokers?

One problem with personal asset management companies is that it's often hard to learn how good their track record is to justify their fees. The management charges on unit trust is ridiculously high but at least you can see some sort of history and you can divide your money between different managers and different markets. If half get it wrong, with luck, the other lot get it about right.

Are the whole of the invested funds in individual UK shares?

[purch]

at least 5 of the investments are down by 15-20%

Which means if the whole portfolio is valued at £ 86.5k that most of the rest have appreciated in value, or the portfolio would be worth a lot less.

It does sound like this Investment is beyond your risk level, mainly because you don't appear to understand the vehicle or the products it is invested in. This could be the fault of the FA for not explaining correctly what he/she has set up for you.

[kazwookie]

I don't really understand all about these large investments and the fees you have been charged.

BUT

If I had £90k spare to invest, I would want to see by now at least £90,001 ie the money going UP not down by about £4K.

Personally I would be moving it into accounts of £35K each that got interest.

But like I say I don't not full understand these things, but I do understand £4k going!! I could do a lot with £4k

What ever you do good luck.

[pinky13]

Thanks for your replies so far;

LongTimeLurker: We have been invested since September 2007. The FA are supposed to be actively advising us on things like when to sell shares or invest in different accounts. They are very lax at replying to emails or answering the phones and last time we were told our email had gone into their spam filter so we had to wait 3 weeks for a reply.

earlgrey:Yes, they call themselves Financial Advisors. They work with a company who hold our portfolio and we pay not less than 1% annually to both them and the portfolio holding company. We were recommended this system by them as it is easier to view and move money and shares around. Some of the stocks/shares have been transfered to ISA's so we do not pay tax on that but the bulk of our investment is not in ISA's so we also have to pay tax on top of the fees and market losses.

Purch: As of today's date only 3 of the investments are in the postive. All the rest are making losses. The only other interest we have made is on the cash amount which we would have made interest on if we had invested privately in a savings account anyway. The cash is just invested in a savings account which makes about the same amount as any high street bank savings account.

Our investment was low risk according to the FA.

[purch]

Our investment was low risk according to the FA

Unfortunately the term 'Low Risk' usually means quite different things to the general public than it does to those in the Financial Advice Industry and even worse to those who regulate them

Most people, when they say 'Low Risk' mean they don't want any risk of the investment losing money, which cuts out any type of Equity investment.

I know that doesn't help your situation

Are there any charges or penalties for liquidating this investment ? Before you make any decisions that needs to be considered, and I would think any FA who has the cheek to charge 1% pa and then not answer your emails or phone calls would probably also have the cheek to charge you to end the agreement too !!

[LongTermLurker]

Thanks for your replies so far;

LongTimeLurker: We have been invested since September 2007. The FA are supposed to be actively advising us on things like when to sell shares or invest in different accounts. They are very lax at replying to emails or answering the phones and last time we were told our email had gone into their spam filter so we had to wait 3 weeks for a reply.

earlgrey:Yes, they call themselves Financial Advisors. They work with a company who hold our portfolio and we pay not less than 1% annually to both them and the portfolio holding company. We were recommended this system by them as it is easier to view and move money and shares around. Some of the stocks/shares have been transfered to ISA's so we do not pay tax on that but the bulk of our investment is not in ISA's so we also have to pay tax on top of the fees and market losses.

Purch: As of today's date only 3 of the investments are in the postive. All the rest are making losses. The only other interest we have made is on the cash amount which we would have made interest on if we had invested privately in a savings account anyway. The cash is just invested in a savings account which makes about the same amount as any high street bank savings account.

Our investment was low risk according to the FA.
Hi Pinky

I think a few months - especially the last few months - is too short a timescale to judge the portfolio on. In order to make any money from the stockmarkets you need to be able to take a long term view; sorry if this sounds off-hand (it's not meant to be) but "you win some and lose some" - the hard bit is seeing your shares drop in value immediately. The trouble is that to many, "low risk" is translated as "no risk" and that's not the case. In 8 years (not a long time really) I've made good money in investments without risking life and limb, but the last few months have seen drops on some of my investments and rises on others, so I'm happy(ish).

I'd expect the IFA to explain things to you but - and don't take this the wrong way - if you were "always on their back" then many companies would reduce their responsiveness. I'm not saying that's the case, but bear it in mind. Taking the numbers, you've started with £90k and I guess they've taken their cut up front (I would have thought they would take it at the end though). This means your £88200 initial "investment" has been reduced to £86500 in 8 months, a loss of 2% excluding charges - to be honest, if mine had lost only 2% in the last 8 months I'd be happy.

You seem to have paid a year's charges already, so I would certainly sit tight until next August.

[purch]

to be honest, if mine had lost only 2% in the last 8 months I'd be happy

You must have low expectations then !!!! :eek:

[pinky13]

LongtermLurker: Thanks for your reply. I know we should wait as the markets are so volatile at the moment. We are just worried as in 3 months time we are going to have to pay another 2% so approx £1,500 just in fees again. Our FA has told us that there is no guarantee that stocks will always make a gain and that there will always be gains and losses. However, I think the suggestion from our FA to just wait until the market picks up again is quite simplistic advice considering we are paying them just shy of £1000 per year for a few phone conversations and a meeting once every 6 months.

Our other concerns are that we are not really sure if it was worth investing as after we have paid fees and tax even if we do make a gain on the investments it will be either the same or not much more than if we had just kept it in a cash savings accounts. That is the main worry. Our FA has told us that a 6% (pre-tax) gain is 'very good' but factor in tax and fees and we would get a little more than a high street savings account. Considering all the paperwork we have since investing we are wondering whether it is worth the time and effort in the long run.:confused:

[LongTermLurker]

quote: "and we pay NOT LESS THAN 1%... (to each of them" - er, do you mean you pay a performance fee? i.e if things go really well you would pay a higher fee?

[LongTermLurker]

Purch - last few months haven't been overly good. I hold funds rather than shares and don't juggle them too much, but I've a feeling they'll bounce back. I think many would agree that a 2% loss this year is good going overall.

Pinky - I wouldn't class a 6% pre-tax gain as very good - as you say, you can do better than that (certainly at the moment) in savings. I see where you're coming from with the new fees in 3 months time. I must have lost track of time because when I said "wait while August" I didn't realise it was so close - must be still waiting for summer to set my body clock!

[debbie42]

You must have low expectations then !!!!

My investments overall have lost more than 2%, so I'd be happy if they'd only lost 2%. That's not an "expectation" at all, low or otherwise, it's just a fact based on the past eight months perfomance.

My long term expectations of my portfolio are not that they will lose, or I might as well cash them all in now.

[pinky13]

quote: "and we pay NOT LESS THAN 1%... (to each of them" - er, do you mean you pay a performance fee? i.e if things go really well you would pay a higher fee?

No. We pay them 1% regardless of whether our shares do really badly or really well.

[jem16]

Thanks for your replies so far;

LongTimeLurker: We have been invested since September 2007. The FA are supposed to be actively advising us on things like when to sell shares or invest in different accounts. They are very lax at replying to emails or answering the phones and last time we were told our email had gone into their spam filter so we had to wait 3 weeks for a reply.


September 2007 is only 9 months ago and it was a bad time to start investing. However you need to view this as long term and forget what it is doing at the moment. If it worries you now then perhaps you have invested above your risk profile or things have not been explained properly. In a 5 year cycle you would expect a bad year, a not-much-happens year and 3 good years. Your bad year has come at the start of this 5 year cycle.

Rebalancing your portfolio would be more than likely yearly so it's probably too soon to see any changes happening. However you should be able to get replies from them.

earlgrey:Yes, they call themselves Financial Advisors. They work with a company who hold our portfolio and we pay not less than 1% annually to both them and the portfolio holding company. We were recommended this system by them as it is easier to view and move money and shares around. Some of the stocks/shares have been transfered to ISA's so we do not pay tax on that but the bulk of our investment is not in ISA's so we also have to pay tax on top of the fees and market losses.

That sounds fairly normal. My IFA has just moved some of my investments into an ISA for this year. He will do that each year.

Purch: As of today's date only 3 of the investments are in the postive. All the rest are making losses. The only other interest we have made is on the cash amount which we would have made interest on if we had invested privately in a savings account anyway. The cash is just invested in a savings account which makes about the same amount as any high street bank savings account.

Fairly similar to my portfolio started in February 2006 but added to in May 2007.

Our investment was low risk according to the FA.

The fact that it has gone down around 1% by the time you allow for fees would suggest it is low risk.

If your £1800 was your initial fee then you have only paid 2% which isn't too bad - average is around 1.8%. Annual management fees of any funds are usually 1.5% of which 0.5% usually goes to the adviser. You seem to be paying 2% overall which is a little higher than normal but not too much. Are you sure you are understanding the fees?

Who is the portfolio holding company that you talk about? Cofunds or Transact perhaps?

Is your FA an Independent Financial Adviser?

To be honest there seems nothing much wrong with this investment other than you not understanding what is happening. That is where a good IFA to explain what is happening is good to have.

[pinky13]

Who is the portfolio holding company that you talk about? Cofunds or Transact perhaps?

Is your FA an Independent Financial Adviser?



Thanks for your reply. It is Transact. Yes, they are an IFA.

[earlgrey]

Pinky, one of the ironies about getting financial advice is that you need to have a little knowledge to know how good the advice you get is. It's boring but it might be worth getting hold of one of the basic financial advice books published either by Which? or by the Financial Times. I'm told "Which? How to be Your Own Financial Adviser" is good as is "The Financial Times Guide to Investing" - £11 on Amazon.

If all your investments are in shares you can compare how they've done overall, after buying costs, by looking at the FTSE Allshare chart for exactly the same period at http://finance.google.co.uk/finance?cid=9721590. If your shares have done less well than that then you need an explanation of the reason.

If they've put all your investments in UK shares then it sounds, as Purch has pointed out, as if they may have exposed you to more risk than you'd like or expected. Investing in shares should give better returns in the long term but it's unpredictable and there could be some big bumps on the way. It's not normally a good idea to put all your investments into a single stock market though they may have used Investment Trusts to diversify - in which case you'll be paying three layers of fees instead of those two.

If you are paying high fees you need to be 100% certain they're justified. You may need to talk to someone, perhaps another adviser, to give you a view on that. They may exist, but I've never met anyone whose advice is worth 2% p.a. on top of trading costs.

[payless]

they still took their 2% upfront and ongoing fees on the cash element ! - could you have got better in a normal account for that element

[jem16]

Thanks for your reply. It is Transact. Yes, they are an IFA.

Transact is a wrap platform usually most suited to portfolios with larger values. However it does do the job very well albeit at a higher charge. The same kind of portfolio could be built usinga funds supermarket like Fidelity or Cofunds which are the two commonly used by IFAs.

What you need to clarify are your yearly fees. The natural yearly fees of funds are usually 1.5%. Out of that 1.5% your IFA gets normal trail commission of 0.5% paid to him by the provider.

Now are you being charged 2% altogether or 2% on top of that 1.5%? If it's 2% on top of the normal 1.5% then yes it's more expensive than an IFA using a funds supermarket and taking the natural 0.5% trail commission from the fund provider's annual management charge.

What funds are inside your portfolio?

[pinky13]

What you need to clarify are your yearly fees. The natural yearly fees of funds are usually 1.5%. Out of that 1.5% your IFA gets normal trail commission of 0.5% paid to him by the provider.

Now are you being charged 2% altogether or 2% on top of that 1.5%? If it's 2% on top of the normal 1.5% then yes it's more expensive than an IFA using a funds supermarket and taking the natural 0.5% trail commission from the fund provider's annual management charge.

What funds are inside your portfolio?

Transact charge for our portfolio is:

0.60 % annual charge on investment +
0.45 % annual charge on cash
so overall annual charge of 1.05%

Our IFA is charging us 1% yearly on our whole portfolio (including cash) so we are paying 1.05% + 1.00 % yearly.

[LongTermLurker]

Transact charge for our portfolio is:

0.60 % annual charge on investment +
0.45 % annual charge on cash
so overall annual charge of 1.05%

Our IFA is charging us 1% yearly on our whole portfolio (including cash) so we are paying 1.05% + 1.00 % yearly.
That's not right: 1.05% of £90k would be £945, but you said you had £40k in cash.

Therefore, cash fee = £180pa and shares fee = £300pa = £480 fee = 0.5333'% of the original £90k.

Then your IFA charges 1% of the £90k, so that is £900.00
£900 + £480 = £1380 = 1.5333'% combined fee.

[chesky369]

I think part of your problem is that your IFA isn't explaining fully what he's doing and why he's doing it. For instance, most investing is for the long term, particularly at the moment. Next time you meet (and I think it should be fairly soon), you must really put your cards on the table and ask him to talk to you in a non-jargon way, so that you completely understand where he's coming from and, in return, that he understands that you aren't entirely happy with what he's done so far. He must explain his actions clearly. Look on him as a hairdresser - if he wasn't doing your hair right, you'd soon tell him what was wrong. There's no difference - you're paying and you expect a good service, explained properly.

Lastly, I'm afraid you couldn't have joined the investment process at a worse time - heard the term 'credit crunch'? It means ALL of us are having a very dodgy time, we just hope (with justification) that it'll be OK in the long run.

[pinky13]

That's not right: 1.05% of £90k would be £945, but you said you had £40k in cash.

Therefore, cash fee = £180pa and shares fee = £300pa = £480 fee = 0.5333'% of the original £90k.

Then your IFA charges 1% of the £90k, so that is £900.00
£900 + £480 = £1380 = 1.5333'% combined fee.

Transact also charged us:

Initial charge= 0.5% +
New purchase charge=0.2% (obviously the first charge is a one-off and the second is dependant on whether we do any new purchases).

So in the first year with Transact we have paid 0.5+0.2+0.60+0.45 = 1.75% so that is quite a bit more (sorry just had to look through the reams of paperwork to find those figures).

[jamesd]

pinky13,

Please explain this in more detail:

0.60 % annual charge on investment +
0.45 % annual charge on cash
so overall annual charge of 1.05%

How do you get charging on the investment part at 0.6% or charging 0.45% on the cash part to add together? Surely the money is in investments or in cash, not in both at the same time?

Is the 0.5% cost to buy the stamp duty/stamp duty reserve tax or something else? If it's stamp duty it's standard and paid to the government.

0.2% paid on buying, plus stamp duty, is fairly reasonable - it's probably a mixture of 0.25% on some and 0% on others that works out to 0.2 overall.

It sounds as though you're paying 1% a year and may be getting the funds with no annual commission paid to the companies involved, just the basic annual management charge that the funds make, typically in the 1% range once trail commission is eliminated.

[jem16]

Our IFA is charging us 1% yearly on our whole portfolio (including cash) so we are paying 1.05% + 1.00 % yearly.

Your IFA is taking twice the normal trail commission for IFAs - Transact allow the IFA to set his/her own commission. There is a good thread here where Dunstonh explains what Transact does.

http://forums.moneysavingexpert.com/showthread.html?t=897879&highlight=transact

If you are happy that the IFA is doing something to justify this extra commission then it is money well spent. However you seem to be having communication problems.

Have you asked the IFA for more clarification of exactly what is happening with your investment - perhaps you would feel happier if it was explained better.

[jem16]

Is the 0.5% cost to buy the stamp duty/stamp duty reserve tax or something else? If it's stamp duty it's standard and paid to the government.

The 0.5% charge is the amount Transact charge to put the investment onto their platform. Once on their platform it can be used to buy pensions, unit trusts ISAs etc. It's like a fund supermarket but allows more.

0.2% paid on buying, plus stamp duty, is fairly reasonable - it's probably a mixture of 0.25% on some and 0% on others that works out to 0.2 overall.

The 0.2% is for switches within the fund. Fidelity Funds Supermarket charge 0.25% for switches.

It sounds as though you're paying 1% a year and may be getting the funds with no annual commission paid to the companies involved, just the basic annual management charge that the funds make, typically in the 1% range once trail commission is eliminated.

The annual management charge is discounted according to the amount placed with Transact. Up to £50k no discount, on the next £100k 15% discount, on the next £100k 25% and on the rest 35%. So the higher your investment the better value transact becomes.

So from that I would assume that the OP is getting a discount of 15% on £40k of the portfolio. So amc would be 1% plus Transact's charges of 0.6% on the first £50k and 0.85% plus 0.6% on the next £40k.

[pinky13]

pinky13,

Please explain this in more detail:

0.60 % annual charge on investment +
0.45 % annual charge on cash
so overall annual charge of 1.05%

How do you get charging on the investment part at 0.6% or charging 0.45% on the cash part to add together? Surely the money is in investments or in cash, not in both at the same time?



The 'wrap' is made up of a cash element and investments. We are charged for the whole wrap with a 0.60% applied to the investment element and the 0.45% applied to the cash element so we are charged on both.


Is the 0.5% cost to buy the stamp duty/stamp duty reserve tax or something else? If it's stamp duty it's standard and paid to the government.

0.2% paid on buying, plus stamp duty, is fairly reasonable - it's probably a mixture of 0.25% on some and 0% on others that works out to 0.2 overall.




Stamp duty? I think you are confused. We do not own any property. The investment element of our wrap has some shares in property. We are not paying any stamp duty. We are paying tax on our earnings from stocks and shares although we have some in an ISA so this is tax sheltered.

It sounds as though you're paying 1% a year and may be getting the funds with no annual commission paid to the companies involved, just the basic annual management charge that the funds make, typically in the 1% range once trail commission is eliminated.

Last night I went through all the paperwork and I still can't understand it. Our FA has sent us a list of applied fees but has yet to get back to us regarding the breakdown. It just seems to me and my partner that the FA is very badly organised. The problem is that after paying so much in fees do we pull out now or just wait and see what happens? Our friend who recommended them to us has done rather well with them and says that is just the impact of the credit crunch and that our shares are actually not doing badly considering how bad the market is and that they are actually a very good FA but can be a little disorganised which is what we also beleive. So we are not sure what to do.We do trust our friend very much on this.

[purch]

Stamp duty? I think you are confused. We do not own any property

Stamp Duty is not just charged on residential property purchases

Stamp Duty is also charged on Equity/Share purchases.

You will have paid Stamp Duty when the Shares were bought for your portfolio, and then again for any subsequent Share purchases.

Who made the Investment choice of the individual company's that you bought Shares in, and who makes any subsequent investment decisions ?

[jem16]

The 0.5% and 0.2% are fees to use the Transact wrap platform - nothing to do with Stamp Duty.

Pinky13 - can you clarify what is inside your Transact wrap - i.e. what are the actual funds that your IFA has chosen for you?

[purch]

the rest is invested in 15 different stocks/shares

I thought it was in individual stocks not Funds :confused:

[chesky369]

Careful - I think there's a danger of confusing the OP even more.

[pinky13]

The 0.5% and 0.2% are fees to use the Transact wrap platform - nothing to do with Stamp Duty.

Pinky13 - can you clarify what is inside your Transact wrap - i.e. what are the actual funds that your IFA has chosen for you?

They are:

Aberdeen Emerging Markets
First State Asia Pacific Leaders
Invesco Perpetual High Income
Invesco Perpetual Monthly Income
M & G Global Basics
New Star European Growth
New Star Sterling Bond
New Star UK Property
Norwich Property Trust
Old Mutual Japanese Select
Rensburg UK Select Growth
Standard Life Select Property
UBS US Equity

Purch: I am not sure if these are classed as 'funds' as I do not know enough about the difference between stocks/shares/funds, its all financial jargon to me.

[Etccarmageddon]

looks like your money has been put into a bunch of unit trusts which you could have done yourself.

[purch]

They are:

That is not a particularly bad spread of Investments, but also not particularly inspired either........definately not a choice worth paying a FA over the odds for

In my view there are too many property funds, but overall there is a decent spread.

The Rensburg UK Select has been a particularly poor performer within the UK All Share over the previous 9 months, which won't help the overall performance.

To hold funds like these you would expect to pay in the 1.5 to 1.7 % range in AMC's if the FA takes the trail commission.

2% still sounds a lot especially if you are receiving a poor level of service.

[pinky13]

Purch:

Thanks for your advice. Is there anywhere where we can get an independent review of the services we have received from our FA and what we should be expecting for the fees we pay? Obviously we are new to this and we do not have any kind of meter to measure the performance of our FA or Transact by.

[jem16]

The 'wrap' is made up of a cash element and investments. We are charged for the whole wrap with a 0.60% applied to the investment element and the 0.45% applied to the cash element so we are charged on both.

Yes you are charged on both but you don't add the percentages together to make 1.05%.

For example;

£1000 invested - £900 in investments and £100 in cash.

You would pay 0.6% times £900 which is £5.40 and 0.45% times £100 which is £0.45. Total fee is £5.85

If you did it your way by adding 0.6% to 0.45% to get 1.05% you would then pay £10.50 on a total investment of £1000.

Aberdeen Emerging Markets
First State Asia Pacific Leaders
Invesco Perpetual High Income
Invesco Perpetual Monthly Income
M & G Global Basics
New Star European Growth
New Star Sterling Bond
New Star UK Property
Norwich Property Trust
Old Mutual Japanese Select
Rensburg UK Select Growth
Standard Life Select Property
UBS US Equity

Yes these are funds.

Shares are invested in one single company. Funds are run by a fund manager who may invest in 10 different companies - the fund manager may change the companies within his fund anytime he sees fit.

An IFA is not authorised to recommend shares.

These funds could have been invested through Cofunds or Fidelity (which are Funds Supermarkets) by your IFA. They do the same type of job that your IFA is using Transact for without the extra charges.

To hold funds like these you would expect to pay in the 1.5 to 1.7 % range in AMC's if the FA takes the trail commission.

2% still sounds a lot especially if you are receiving a poor level of service.

With Fidelity or Cofunds you could do exactly the same type of investment (perhaps without the cash) and it would just be the normal AMC (annual management charge) of 1.5% approx. The IFA would be paid the normal trail commission of 0.5% from that 1.5%

From what I can work ( and I may be wrong) out pinky13 is paying fees of;

IFA = 1%
Transact wrap = 0.6% (for the funds)
AMC = 1% (the normal AMC of 1.5% minus normal IFA commission of 0.5%) - with an AMC discount of 0.15% according to amount invested making it 0.85%. That discount only seems to apply to amounts over £50k, so only £40k discounted.

So altogether 2.45% instead of 1.5%.

Questions to consider;

1. Is your IFA earning that extra commission of 0.5% above the normal trail commission? If he is great, if not he is being greedy.

2. Is Transact necessary as a platform? If all you are going to put into it is funds then the answer is probably not. Your portfolio isn't large enough to benefit from the larger discounts that would help negate the extra 0.6% annual fee for being in Transact.


Thanks for your advice. Is there anywhere where we can get an independent review of the services we have received from our FA and what we should be expecting for the fees we pay? Obviously we are new to this and we do not have any kind of meter to measure the performance of our FA or Transact by.

If you are not happy that the IFA is giving you the extra service to justify his double the normal fee, then ask another IFA to take over the business and move your funds into Fidelity or Cofunds.

I pay my IFA initial commission of 1% and annual trail commission of 0.5%. He uses Fidelity as the Funds Supermarket.

Rebalancing of the portfolio has been yearly with an extra rebalance last December when Property Funds were doing badly.

Transact is a good platform but with the advent of Funds Supermarkets, it's maybe just a more costly way of doing something if you are not utilising all its benefits.

[dunstonh]

The IFA in question is taking far too much commission. Any IFA doing this and not able to justify the extra charges they are taking are running the risk of getting into trouble with the FSA.

I know 3 firms locally now who have had FSA inspections in the last 2 months and all of them are getting a rebuke for using platforms that had higher charges and higher commissions but nothing to show how the client benefited from those higher charges. I am expecting the FSA to issue a public "telling off" of IFAs that do this in Sept/Oct time as they have given enough warnings about it. Plus the FSA are visiting around 1/2 of all IFAs and if its a trend then some are going to get into trouble.

The fund supermarkets of Cofunds, Selestia/Skandia and Fidelity (and others) are cheaper. They may not have the web access ability and trading ability that transact has but unless you have £500k or more with transact then it it likely you are paying more than necessary.

Transact is the daddy of platforms but its variable charging structure means that some could abuse this whilst others could benefit (abusing it looks the case here). Its ability to purchase investments of all sorts is almost unique within all tax wrappers and its fine to pay a bit more if you use that service but if you are only using unit trusts (which most do) then why pay more?

[jem16]

Transact is the daddy of platforms but its variable charging structure means that some could abuse this whilst others could benefit (abusing it looks the case here).

How does the Transact charging structure work?

For example if the AMC is 1.5% and the normal IFA commission paid through that is 0.5%, that would leave 1%. The Transact discounts seem to range from 15% to 35% bringing it down to between 0.85% and 0.65%. However you then have Transact's own annual fee of 0.6% which makes it dearer again. Even more so when the IFA takes more than the normal trail commission.

Is there scope for further reductions that are not so apparent?

[dunstonh]

How does the Transact charging structure work?

For example if the AMC is 1.5% and the normal IFA commission paid through that is 0.5%, that would leave 1%. The Transact discounts seem to range from 15% to 35% bringing it down to between 0.85% and 0.65%. However you then have Transact's own annual fee of 0.6% which makes it dearer again. Even more so when the IFA takes more than the normal trail commission.

Is there scope for further reductions that are not so apparent?

Transact largely uses "factory gate pricing" (pension forum regulars would recognise that term as well as those following the FSA's retail distribution review). Basically Transact strip out the trail commissions and retail the funds cheaper than most of the fund supermarkets. However, they add on top of that their own charge (which reduces based on portfolio value). Then the IFA can add on their fees. If the IFA adds on the typical 0.5% that is the normal natural trail amount and the portfolio isnt large then the annual management charge will be higher than fund supermarkets as you have the transact charge (which isnt a lot but its still a charge).

The problem is when you get an adviser adding in more than the typical 0.5% as is too often the case. 1% is often the figure seen and unless the IFA can justify the 1% they are taking the P. Some of the discounts that Transact negotiate for larger portfolios (running in high hundreds of thousands) can make it a very attractive option then if the IFA is taking standard trail or less. So, it is important to note that it isnt so much the transact platform that is the issue here as much as the fees you agree with the IFA and the amount you have to invest.

[jem16]

So, it is important to note that it isnt so much the transact platform that is the issue here as much as the fees you agree with the IFA and the amount you have to invest.

Wasn't trying to knock the Transact platform, just trying to understand its charging structure as the discounts appeared to be less than the charges. However it appears that there are extra discounts for higher wealth portfolios.

Like anything else if you use all the features it's worth paying for but perhaps not so good if you don't want/need them.

[pinky13]

Firstly, thank you to all who have replied with helpful information.

Judging by the replies to this thread, we do not have a very good deal afterall with our IFA. The question then is, what to do next. Do we instist that they transfer us to one of the cheaper Funds Supermarkets seeing as we are not in the big league - moneywise and can we make a complaint to any kind of watchdog regarding this? Would it be worth trying to renegotiate the IFA fee if we decide to stick with them?

If we decide to go no further with these specific IFA, how do we go about finding a good IFA who isn't going to do the same? We both feel very let down as the IFA was recommended by a good friend who we trust. However, it must be said that said friend has a lot more to invest and is perhaps receiving better treatment due to being a big fish moneywise. Is there anywhere where we can seek reviews of IFA's or anything like that?

Thanks, Pinky :beer:

[jem16]

Firstly, thank you to all who have replied with helpful information.

Judging by the replies to this thread, we do not have a very good deal afterall with our IFA. The question then is, what to do next. Do we instist that they transfer us to one of the cheaper Funds Supermarkets seeing as we are not in the big league - moneywise

If you can contact them, which you seem to be having difficulty with, there is no harm in asking.

and can we make a complaint to any kind of watchdog regarding this?

I doubt any complaint would be upheld. There does not seem to have been anything wrong with their advice and their charges would have been documented to you.

Would it be worth trying to renegotiate the IFA fee if we decide to stick with them?

Again you can only ask. Perhaps if you tell them you intend moving your business away they might renegotiate.

If we decide to go no further with these specific IFA, how do we go about finding a good IFA who isn't going to do the same?

Speak to a few IFAs and find out what their charges are. Avoid the large salesforces (often using 0870 and 0845 numbers) and try to find a smaller firm where you can deal directly with the owner/partner. Use www.unbiased.co.uk to find an IFA although you may need to look closely as they seem to be making entries for those who pay bigger and those who don't smaller. It may be the smaller entries you actually want to look at.

We both feel very let down as the IFA was recommended by a good friend who we trust. However, it must be said that said friend has a lot more to invest and is perhaps receiving better treatment due to being a big fish moneywise.

That could be the case.

Is there anywhere where we can seek reviews of IFA's or anything like that?

I'm not aware of anything like that. Usually recommendations can be best but you can't always rely on that as what suits one person may not suit another.

It is important, though, to find a good IFA whom you can trust and who will make your investment work for you. You need a servicing IFA who will look after your investment and not just set it up and never look at it so you need to ask if rebalancing will be done yearly.

Charges are not as important as a good IFA and it would be money well spent if are getting good advice and service.

[dunstonh]

Transact is not bad advice so you cannot complain about that. However, charges are something you could potentially complain about if they were not disclosed to you. The fact they are more than alternatives doesnt really matter. Tesco may be cheaper than Marks and Spencer etc etc but it doesnt make it wrong. In reality, the product you have is top of the range and is priced as such for you. Plus the adviser has been a bit on the greedy side. If you are not using the features and options of this product then you can get the same investment options for cheaper.

A new IFA could reappoint your transact account to their agency and either amend the charging structure or re-register the holdings with a fund supermarket. (re-reg is normally free of charge). Whether you use a new IFA or use the exisitng one will depend on the conversation you have with them.

[pinky13]

Thanks dunstonh and jem16.

Our main complaint is, like you say, that we cannot get hold of them. I sent them an email asking them to confirm the exact fees a while ago but they have not got back to me. Last time they said it had gone into their junk mail folder. It just doesn't seem very professional. They seem very stretched, have no website and their office arrangements are very simplistic, with no admin person, they do it all themselves, hence I wonder if they have time to even manage our portfolio when they are busy typing letters to clients etc. They are personally very nice people but the whole outfit just seems really ramshackle.

We feel like we are stuck in a bit of a catch-22 situation as we need to know the exact breakdown of things like fees, percentage paid to Transact, whether the sum they give us includes the Transact fee, but when we write to them or call (if we can get hold of them) they just say eventually that they will get back to us with an answer but it either takes months or our precise question is never answered satisfactory. How can we argue their terms/fees if we don't know them exactly (their contract is all in financial jargon and has a very confusing fees section which makes their fees level unclear, hence why we don't know exactly how much our fees actually are :rolleyes:.

They have also sent us someone else's portoflio value by mistake (it didn't have the clients name on it but had their portfolio amount).

[dunstonh]

They seem very stretched, have no website and their office arrangements are very simplistic, with no admin person, they do it all themselves, hence I wonder if they have time to even manage our portfolio when they are busy typing letters to clients etc. They are personally very nice people but the whole outfit just seems really ramshackle.

Part of what you wrote there applies to most IFA firms out there. IFAs are typically small businesses, often run from home with one or two advisers. Its often referred to as a cottage industry. The larger ones tend to be run more like salesforces and that brings a whole load of different issues.

The problem is that the more professional you run it the more the costs go up. Office and PA costs you £20-25k a year for a simple set up. Who is going to pay that? That doesnt excuse ignoring you but dont look at the lack of website or office as a negative (btw websites bring their own set of problems and costs).

Your problem isnt so much the set up of the firm but the fact they are not keeping in contact and fullfilling their requirements to you. Simple thing is to appoint a new IFA.

[jem16]

Thanks dunstonh and jem16.

Our main complaint is, like you say, that we cannot get hold of them. I sent them an email asking them to confirm the exact fees a while ago but they have not got back to me. Last time they said it had gone into their junk mail folder. It just doesn't seem very professional. They seem very stretched, have no website and their office arrangements are very simplistic, with no admin person, they do it all themselves, hence I wonder if they have time to even manage our portfolio when they are busy typing letters to clients etc. They are personally very nice people but the whole outfit just seems really ramshackle.

As Dunstonh says the smaller firms are usually set up like this and there should be no problem.

The larger firms are usually run like a salesforce with high staff turnover and the likelihood that you never see or speak to the same adviser twice. These are usually the ones looking to have high initial charges and never look at your investment again.

I'd rather go with the small firm where I know I will speak to the same person each time and build up a relationship with that person.

We feel like we are stuck in a bit of a catch-22 situation as we need to know the exact breakdown of things like fees, percentage paid to Transact, whether the sum they give us includes the Transact fee, but when we write to them or call (if we can get hold of them) they just say eventually that they will get back to us with an answer but it either takes months or our precise question is never answered satisfactory.

This is the part I would find unsatisfactory and the reason why you may be better off changing your IFA.