IFA Fees - benchmarks
Comments
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That's interesting as I had thought that was probably the most important aspect - I am learning all the time on this forum.
In fact, a significant and growing proportion of IFA firms outsource the fund selection or portfolio construction.I didn't realise you could get an IFA to just provide you with a recommended asset allocation. I would have thought that part would be fairly straightforward, depending on your risk level and amount of investment.
Yes, it is straightforward. You wouldn't be buying the asset allocation, you'd be buying all the advice and guidance that goes along with it. Nuanced risk assessment given your personal circumstances. Lifetime financial planning taken into account. Consideration of all the other inputs and outputs of money you have right now and might expect into the future. More a financial 'coach' than the scout for players.Would someone with say £200k to invest long term at medium risk level, not be advised of roughly the same asset allocation as that in a VLS60, maybe with a small percentage added for property and a few other alternative assets? I know it's probably not that simple, but just trying to understand what would be involved, and what would be the approximate cost of getting an IFA to recommend an asset allocation in that example.
These are questions equally as pertinent if you go down a DIY or IFA path. You have to find the answers yourself if you DIY. But it's not rocket science.So if you were not to 'handicap' your portfolio in this way, and agreed to let the IFA select the best asset allocation and funds (trackers and managed), how likely is it that the returns you would get from your investments (in rising and in falling markets) would cover all the IFA fees, and add extra value when compared to a portfolio of the same value comprising of only tracker funds?
My parochial view is to test that assertion by having an IFA sign a written statement to its truth. None will. And part of the insurance they pay is to protect themselves during any eventuality that you might claim that they have given that impression. They'll use emotional terms like "handicap" to describe the fact that, naturally, passive investors have less funds to pick from.0 -
In fact, a significant and growing proportion of IFA firms outsource the fund selection or portfolio construction.
Nearly all outsource some of it. The most common bit is the sector allocations. However, fund selections remain the choice of the IFA. There are some IFAs that use discretionary fund managers. I personally dislike this as it introduces a higher level of charges. Whilst IFAs that do this say it allows them to focus on planning, they tend not to reduce their charges to reflect the fact they are working less. And DFMs tend to have pretty poor returns too.My parochial view is to test that assertion by having an IFA sign a written statement to its truth. None will. And part of the insurance they pay is to protect themselves during any eventuality that you might claim that they have given that impression. They'll use emotional terms like "handicap" to describe the fact that, naturally, passive investors have less funds to pick from.
An IFA has to operate no restrictions to enable them to use the term IFA. Any restriction on service cannot be made by the IFA. The client can restrict the service and is free to say to the IFA that they only want trackers used. It is a handicap because trackers are not the best solution in every area.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.0 -
I am trying to find an IFA via unbiased.co.uk.The investment at this stage will be £40k. When a will legacy comes through that will rise to around £60k.
I know you posted in another thread but without checking that, is there a particular reason you're not willing or able to DIY this money?'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB0 -
Because if we aren't willing to learn how to look after our own money, wire a plug, tie our own shoelaces, etc. then we have to pay someone else to do it for us. That's life.I know you posted in another thread but without checking that, is there a particular reason you're not willing or able to DIY this money?0 -
Check the FCA register and they should have control function CF30.
The FCA register doesnt differentiate between tied/restricted and independent but all have to have CF30.
Most IFAs do not hold discretionary powers. So, they cannot do that anyway. They require your permission to fund switch or rebalance. It makes no difference to an IFA if the fund charge is 0.x% or 0.y%. An IFA doesnt have any interest in increasing fund charges.
Plus, the work level is high. I have been working on a portfolio rebalance this morning calculating switches to use the CGT allowance and bed & ISA and bed & pension. I will still be working on it tonight. An IFA is not going to switch nilly willy as it is far too much work.
Also, an interesting point for you, this portfolio has a mixture of passive and managed and in one sector we utilised a passive fund and a managed fund at the same time. The passive fund is up 83.6% and the managed fund is up 162.5% (after charges). The portfolio has beaten the closest matched VLS as as well (net of charges). So, remember charges are important but secondary.
Thanks again, dunst.
It's reassuring to know that they won't 're-jig'. I think the only instruction I'd give (if applicable) is to reinvest any dividends/proceeds whilst maintaining the mix I've chosen/we've agreed upon.
Had a bite from another IFA. They are keen to meet. Free first meeting to fact-find but no advice given at that stage (fair enough, they aren't a charity). No mention of any implementation fees, ongoing management charge of 'up to 1%'. ad hoc meetings thereafter priced at £150; ad hoc 'review meetings' priced at £500 because of the prep involved in a review.
Seems reasonably fair.0 -
I'm no expert, but these fees seem a high price to pay for a £40k investment. I would think the fees would eat into a lot of your annual return if you have a review meeting and a few adhoc meetings each year.Thanks again, dunst.
It's reassuring to know that they won't 're-jig'. I think the only instruction I'd give (if applicable) is to reinvest any dividends/proceeds whilst maintaining the mix I've chosen/we've agreed upon.
Had a bite from another IFA. They are keen to meet. Free first meeting to fact-find but no advice given at that stage (fair enough, they aren't a charity). No mention of any implementation fees, ongoing management charge of 'up to 1%'. ad hoc meetings thereafter priced at £150; ad hoc 'review meetings' priced at £500 because of the prep involved in a review.
Seems reasonably fair.0 -
I'm no expert, but these fees seem a high price to pay for a £40k investment. I would think the fees would eat into a lot of your annual return if you have a review meeting and a few adhoc meetings each year.
Again, you really pay for advice given, not some literal function of the size of your portfolio. It's a sad fact that IFAs construct rate cards on portfolio size. That's a poor proxy of the amount of work in giving advice, but there are few alternatives besides the hourly rates, which aren't always as marketable.
As the sage ermine has opined, amongst others, 40k isn't enough to interest IFAs. The actual work required, with overheads, makes it an expense that doesn't pay dividends for you or them.0 -
Thanks again, dunst.
It's reassuring to know that they won't 're-jig'. I think the only instruction I'd give (if applicable) is to reinvest any dividends/proceeds whilst maintaining the mix I've chosen/we've agreed upon.
Had a bite from another IFA. They are keen to meet. Free first meeting to fact-find but no advice given at that stage (fair enough, they aren't a charity). No mention of any implementation fees, ongoing management charge of 'up to 1%'. ad hoc meetings thereafter priced at £150; ad hoc 'review meetings' priced at £500 because of the prep involved in a review.
Seems reasonably fair.
I've got an update on this offer:
a) Implementation fee is up to 5%. Am I right in thinking that if an IFA coordinates the portfolio, if I get more £ to put in in future, I have to go through the IFA so he gets the fee? Again, seems fair, as he/she did the work to design the portfolio, after all
b) The £500 for a review is a review of what I hold, not of the full market offerings as well.
I have ruled one reply out. He replied in semi-text speak, no paragraphs, from a generic Yahoo email.
I will ask the ones I meet:
1. Is your fee structure transparent so I know exactly what every transaction will cost and what the ongoing costs are?
2. Are there any 'exit fees' if I decide to withdraw my portfolio from your coordination? What are they?
3. I appreciate that my investment is almost de minimis compared to others but will you always be available for simple queries via a quick call or email?
4. How often will you update me about my portfolio's progress or (regression)?
5. If any of the investments you make on behalf are in ETFs or other income funds, do you charge a % of any income which is reinvested?0 -
This money is screaming for a relatively low risk, single, multi asset fund selection of your choosing. The usual suspects as suggested numerous times are more than adequate surely?
Why are you so keen to burn hundreds using an IFA?'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB0 -
This money is screaming for a relatively low risk, single, multi asset fund selection of your choosing. The usual suspects as suggested numerous times are more than adequate surely?
Why are you so keen to burn hundreds using an IFA?
Because I want to know that the funds are convergent with my (albeit nebulous) goals (providing for retirement whilst retaining some liquidity) and advice on the various tax wrappers.0
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