Meeting with my IFA and Wealth Manager

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  • chiang_mai
    chiang_mai Posts: 156 Forumite
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    If those IFA fees did amount to 821k, surely that means the OP has generated wealth of almost 81 million, using the same percentages etc. hence 821k is a nothingness by comparison. Regardless, who, when they are going to buy a home looks at the probable cost over the next 40 years, it would be equally silly to do so.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    chiang_mai wrote: »
    If those IFA fees did amount to 821k, surely that means the OP has generated wealth of almost 81 million, using the same percentages etc. hence 821k is a nothingness by comparison. Regardless, who, when they are going to buy a home looks at the probable cost over the next 40 years, it would be equally silly to do so.

    It's simply the compounding of the fees. If you get identical returns, but have to pay 2% in additional fees, then each year you have 98% of what you'd have without the fees.....98^40=0.4457, for 1% 0.99^40 = 0.669 and for 0.5% 0.995^40 = 0.818
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Malthusian
    Malthusian Posts: 10,921 Forumite
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    Audaxer wrote: »
    I agree, but surely if the IFA someone selects turns out to be bad (as I am sure you get good and bad IFAs) it could also be a costly error.

    Costly for the IFA. The IFA would be required to make good any loss from such errors, which should in turn be covered by their PI insurance.

    Of course if the IFA you use is not just bad but downright dodgy they are unlikely to have PI cover and will probably liquidate the company rather than make good your loss, leaving you to claim from the Financial Services Compensation Scheme (which is capped at £50,000). But that is really quite unlikely if you a) don't invest with people who cold call b) don't invest in things you don't understand or that are too good to be true.
  • dunstonh
    dunstonh Posts: 116,252 Forumite
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    bostonerimus wrote: »
    It's simply the compounding of the fees. If you get identical returns, but have to pay 2% in additional fees, then each year you have 98% of what you'd have without the fees.....98^40=0.4457, for 1% 0.99^40 = 0.669 and for 0.5% 0.995^40 = 0.818

    You are assuming identical returns. That assumption cannot be made. I have seen plenty of rubbish DIY investments over the years. And to be fair, I have seen some poor quality advised recommendations too. Although that is less likely today than it was 10 or 20 years ago due to the level of research and due diligence and increased knowledge that exists.

    Our hybrid portfolios have been outperforming VLS over 1, 3 and 5 year periods after charges. Many DIY investors using a mix of active and passive will say the same. It's not as simple to say that paying less in charges means you will get more.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 15 September 2017 at 1:30PM
    dunstonh wrote: »
    You are assuming identical returns. That assumption cannot be made. I have seen plenty of rubbish DIY investments over the years. And to be fair, I have seen some poor quality advised recommendations too. Although that is less likely today than it was 10 or 20 years ago due to the level of research and due diligence and increased knowledge that exists.

    Our hybrid portfolios have been outperforming VLS over 1, 3 and 5 year periods after charges. Many DIY investors using a mix of active and passive will say the same. It's not as simple to say that paying less in charges means you will get more.

    I was giving active funds the benefit of the doubt...........Sure there are winners, but there will also be losers, could you disclose your losers? Do any of your IFA colleagues ever have portfolios that underperform the market or are they all above average? And of course VLS is a particular fund with a high UK exposure and a bond component, we'll need to be comparing similar asset allocations.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    Malthusian wrote: »
    Costly for the IFA. The IFA would be required to make good any loss from such errors, which should in turn be covered by their PI insurance.

    Of course if the IFA you use is not just bad but downright dodgy they are unlikely to have PI cover and will probably liquidate the company rather than make good your loss, leaving you to claim from the Financial Services Compensation Scheme (which is capped at £50,000). But that is really quite unlikely if you a) don't invest with people who cold call b) don't invest in things you don't understand or that are too good to be true.

    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation. That way the investor would be sure to get value and as all IFAs seem to beat the market it should not be a problem.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Malthusian
    Malthusian Posts: 10,921 Forumite
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    bostonerimus wrote: »
    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation.

    Which passive index portfolio invested in which asset allocation?
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 15 September 2017 at 4:15PM
    Malthusian wrote: »
    Which passive index portfolio invested in which asset allocation?

    Use the accepted benchmarks from folks like Barclays and MSCI and create a passive portfolio with a similar asset allocation to the active portfolio. IFAs are always anxious to say they provide value and advertise that they beat passive indexing so they should sign up to do that. If they can't then why would you use them.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • dunstonh
    dunstonh Posts: 116,252 Forumite
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    Sure there are winners, but there will also be losers, could you disclose your losers?

    There is one quartile 4 fund and that is a Vanguard tracker. There is a quartile 3 fund which is bricks and mortar property. I ignore that because the sector is flawed as bricks and mortar is mixed in with property share. The rest are quartile 1 and 2.
    Do any of your IFA colleagues ever have portfolios that underperform the market or are they all above average?

    I buy my data in from a company that supplies IFAs. Everybody has an investment that underperforms for a discrete period. Doesnt matter if its an IFA or a mutli-asset fund or your beloved Vanguard.

    For example, VLS60 is quartile 4 over the last 12 months ranked 236 out of 274. It is quartile 4 over 5 years ranked 162/208.
    And of course VLS is a particular fund with a high UK exposure and a bond component, we'll need to be comparing similar asset allocations.

    That goes without saying. In fact it is a regulatory requirement.
    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation.

    What happens if the IFA recommends a passive portfolio that underperforms?
    IFAs are always anxious to say they provide value and advertise that they beat passive indexing so they should sign up to do that. If they can't then why would you use them.

    It is not the primary job of an IFA to be an investment manager. Indeed we are not investment managers. However, the role requires selection of investments and nowadays, IFAs buy in the data, analysis and due diligence as the requirements are so much higher than they used to be and its not practical for firms to do most of this in-house.

    Also, IFAs use passives. It is not unique to DIY.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • HappyHarry
    HappyHarry Posts: 1,568 Forumite
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    edited 15 September 2017 at 5:01PM
    bostonerimus wrote: »
    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation. That way the investor would be sure to get value and as all IFAs seem to beat the market it should not be a problem.

    You are being unnecessarily flippant.

    You do, however, still seem to be struggling with a couple of concepts;
    (i) What an IFA does. (You seem to think they are predominately fund pickers).
    (ii) The fact that many people do not want to risk getting their investment decisions completely wrong and hence put their futures at risk.

    Very few, if any, of my clients are interested in maximising their returns regardless of anything else. They pay me for the security they get with the knowledge that their long-term financial future is being cared for.

    Many people don't have the skills, the knowledge, or the desire to DIY their long-term finances. Those people find the use of an IFA invaluable.

    In the same way, if I knew how to fully service my car, build an extension or tailor a suit, then I could save money. However, I don't, and neither do I have any desire to do so. Many people have the same view when it comes to their long-term financial planning; they would rather pay an expert to help them.

    I'm now wondering if there is a forum somewhere where posters ask about suit fitting and repair, and rogue posters pop up with comments like "you could learn how to sew yourself" or "it would only take five year's practice to know how to tailor a really good suit, it's not rocket science you know".
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
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