IFA Fees / Charges - Reasonable

gmgohara · 18 April 2014 at 8:21PM

To set the scene currently have circa £145K (mix of ISA / SIPP) in a platform wrap but current adviser has ceased.

Have seen a few IFA's and been quoted the following :

IFA1
Initial 1%
Ongoing Adviser Charge 1% (Yearly Review)
IFA Chooses Funds Themselves

IFA2
Initial 1%
Ongoing Adviser Charge 0.75% (6 monthly reviews)
Ongoing Investment Mgt Charge 0.4% (This IFA uses Risk Based Model Portfolios Run By Another Party With Quarterly Notification Of Whether Changes / Rebalancing Needed)

IFA3
Initial 2%
Ongoing Adviser Charge 0.5% (Yearly Review)
Discretionary Fund Mgr Charge 0.9% inc vat

For the sake of trying to perform a comparison I have "assumed" that the wrap/platform charge for all of the above is 0.43% and the average fund AMC is 0.66%

Do these charges seem in the ball park / excessive
Anything else I should be considering or asking

Thanks

jem16 · 18 April 2014 at 9:36PM

gmgohara wrote: »

To set the scene currently have circa £145K (mix of ISA / SIPP) in a platform wrap but current adviser has ceased.

Have seen a few IFA's and been quoted the following :

Perhaps it would have been better to keep this all on one thread rather than 3 (or more) different threads as it would help to have all of the relevant info.

http://forums.moneysavingexpert.com/showthread.php?t=4949811

http://forums.moneysavingexpert.com/showthread.php?p=65029746&highlight=#post65029746

http://forums.moneysavingexpert.com/showthread.php?t=4931151&highlight=

IFA1
Initial 1%
Ongoing Adviser Charge 1% (Yearly Review)
IFA Chooses Funds Themselves

Initial seems fine but ongoing adviser charge seems a bit on the high side. Over £100k should see 0.5%.

IFA2
Initial 1%
Ongoing Adviser Charge 0.75% (6 monthly reviews)
Ongoing Investment Mgt Charge 0.4% (This IFA uses Risk Based Model Portfolios Run By Another Party With Quarterly Notification Of Whether Changes / Rebalancing Needed)

Better adviser charge but another 0.4% seems excessive as this would be 1.15%. I wouldn't have thought that quarterly reviews would be necessary with £145k.

IFA3
Initial 2%
Ongoing Adviser Charge 0.5% (Yearly Review)
Discretionary Fund Mgr Charge 0.9% inc vat

Much too expensive in my opinion and rather an overkill for the amount you have invested.

For the sake of trying to perform a comparison I have "assumed" that the wrap/platform charge for all of the above is 0.43% and the average fund AMC is 0.66%

0.43% is quite high for a platform charge.

hornmeister · 19 April 2014 at 3:35PM

Avoid all three. An Independent financial adviser should take stock of your situation, your attitude to risk and then offer up alternatives wher you make the ultimate choice, based upon their advice. Anything else is not independent or not advice.

Option 1 is ok but you need to give them a percentage of profit rather than valuation. There is no incentive for them to do a good job.

Option 2 they are taking a cut for using someone else's expertise. Go direct and save their fees.

Option 3 again looks like someone else is doing the hard work, not them.

up to a 3% initial & 1% per annum is acceptable if they are working for you with a good annual review, not if someone else is doing the hard work or they are just picking portfolios.

To be honest if you're happy with the performance of the current set-up the platform should be able to give you an idea of risk. If this broadly matches your situation why pay anyone else to research it for you?

jem16 · 19 April 2014 at 4:08PM

hornmeister wrote: »

Option 1 is ok but you need to give them a percentage of profit rather than valuation. There is no incentive for them to do a good job.

No IFA will offer terms like that as it would not make good business sense. How would they survive in years when the markets are down? There would also be the temptation to use riskier funds to increase the profit and thus their fee when times were good to make up for times when bad.

For the client it would probably also end up more costly as usually the better times outweigh the bad.

dunstonh · 19 April 2014 at 4:40PM

Option 1 is ok but you need to give them a percentage of profit rather than valuation. There is no incentive for them to do a good job.

That method of remuneration has little to do with the role of an IFA and would be frowned upon by the regulator. The IFA is not an investment manager but an adviser. Statistically, the IFA would earn more by that method as growth periods outnumber loss periods. It would also encourage risk taking which creates bias and unsuitability.

cgzz · 19 April 2014 at 4:58PM

jem16 wrote: »

No IFA will offer terms like that as it would not make good business sense. How would they survive in years when the markets are down?

This is what's wrong with Financial Services and IFAs. If IFAs are so knowledgeable about the finance industry then when markets are down they should be able to survive this no problem. The market isn't the "be all and end all" of financial success. I would insist on a penalty clause with any IFA I was paying to look after MY money such that if they lost money they should not get their annual percentage cut. If an IFA loses money but still takes their annual percentage then they are rewarding themselves for failure. The client is out of pocket but why should an IFA care if he gets paid regardless? Everyone should be very careful when dealing with IFAs.

masonic · 19 April 2014 at 5:09PM

cgzz wrote: »

This is what's wrong with Financial Services and IFAs. If IFAs are so knowledgeable about the finance industry then when markets are down they should be able to survive this no problem. The market isn't the "be all and end all" of financial success.

I don't think any IFAs claim to know how to generate positive returns when the markets are tanking. If you do, I put it to you that you'll never need any financial advice.

Edit: Well, actually, they probably do - invest it all in cash!

jem16 · 19 April 2014 at 5:19PM

cgzz wrote: »

I would insist on a penalty clause with any IFA I was paying to look after MY money such that if they lost money they should not get their annual percentage cut.

You won't find anyone who will do that so I think you're quite safe there.

Strangely enough you don't actually seem to have been insisting on that according to your previous posts.

If an IFA loses money but still takes their annual percentage then they are rewarding themselves for failure.

An IFA is not an investment manager nor does he have a crystal ball.

The client is out of pocket but why should an IFA care if he gets paid regardless? Everyone should be very careful when dealing with IFAs.

Yes we know you have an issue with IFAs - it's quite clear from your previous posts. However ranting uninformed nonsense like this doesn't really help the OP.

dunstonh · 19 April 2014 at 5:28PM

This is what's wrong with Financial Services and IFAs. If IFAs are so knowledgeable about the finance industry then when markets are down they should be able to survive this no problem.

Sounds like you want mystic meg. not an IFA.

I would insist on a penalty clause with any IFA I was paying to look after MY money such that if they lost money they should not get their annual percentage cut.

And no IFA would take you on that because of the reasons I have already mentioned.

If an IFA loses money but still takes their annual percentage then they are rewarding themselves for failure.

The IFA is paid for advice. The advice will include telling you that investments will go down as well as up. A period of loss is not failure. It is inevitable.

Everyone should be very careful when dealing with IFAs.

And everyone should be very careful following your advice. It appears to stem from a lack of knowledge and understanding of the markets and also what an IFA is there to do. Perhaps that explains your negativity in past posts. It comes from a lack of knowledge and unwilling to learn and understand.

cgzz · 19 April 2014 at 6:40PM

There are some on this forum who paint a very rosey picture about Financial Services and IFAs. As soon as someone highlights that there is a murky side they go into "attack" mode and make out the person is speaking nonsense. If I've had bad experiences with IFAs then the probability is others will so that's why I give advice - from experience and not ill informed! What's nonsense about advising people to be very careful when dealing with IFAs? There is something fundamentally wrong where an IFA can earn his cut after the client has lost money. Maybe certain people on this forum think it good to make money from other people's loss? If people are blindly going to hand over tens of thousands of pounds of their own hard earned cash to someone who will supposedly look after it without having a penalty clause to prevent rewarding loss then they really should think twice about using an IFA.

jem16 · 19 April 2014 at 7:09PM

cgzz wrote: »

If I've had bad experiences with IFAs then the probability is others will so that's why I give advice - from experience and not ill informed!

It's ill-informed when your expectation of the job that an IFA does is wrong, whether it's from experience or not.

What's nonsense about advising people to be very careful when dealing with IFAs?

Absolutely nothing. Just as you should be wary when hiring a plumber, electrician or private health consultant or anybody else. There are good and bad in all walks of life.

There is something fundamentally wrong where an IFA can earn his cut after the client has lost money.

Over the full term of an investment, a client is much more likely to gain money then lose it. However this is not to say that in some years, you will not lose money. That is the nature of investment - there will always be ups and downs and IFAs make that abundantly clear. If, after learning this, a client does not wish to accept that there will be ups and downs, then they should not be investing.

Maybe certain people on this forum think it good to make money from other people's loss?

Sensible investors on this forum realise that in some years there will be losses but accept those losses in the expectation that overall there will be gain. This is no different to taking advice from an IFA. If their role was to guarantee that you would never make a loss any year, they probably wouldn't ever need to work.

If people are blindly going to hand over tens of thousands of pounds of their own hard earned cash to someone who will supposedly look after it without having a penalty clause to prevent rewarding loss then they really should think twice about using an IFA.

This paragraph shows that you totally misunderstand the role of an adviser and why your posts are ill-informed.

IFA Fees / Charges - Reasonable

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