IFA Fees - benchmarks

Aaaaand it's my stupid question hour, again! :o

I am trying to find an IFA via unbiased.co.uk. I've sent about 12 emails so far. Only had had a 4 replies, 3 aren't taking new clients on (though I bet they would if I had a few million to invest! :D). One has replied saying they charge:

3% implementation fee (by which I assume they mean designing and executing the portfolio)
1% ongoing management charge

I have absolutely nothing to act as a comparison. Are these fees unduly excessive? Because I don't seem to be getting much interest in taking me on or meeting me for a fee-paid appointment. :( So I am hoping that these are reasonable as I don't think I'm gonna have too many options!
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Comments

  • george4064
    george4064 Posts: 2,802
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    How much is your investment pot worth/how much have you got to invest?

    The answer to that question will be a big factor in the response you get from IFAs, not out of greed but more out of "is it worth it for client and/or the IFA?"
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

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  • dunstonh
    dunstonh Posts: 116,040
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    Its often worth looking at the initial fee in monetary terms. 3% on £10,000 is cheap. 3% on £100k is getting expensive. As amounts being invested get larger, you would expect some tapering and a cap.

    1% p.a. is frequently used on small to medium investments but for larger investments, 0.5% is by far the dominant figure.

    This time of the year is the busiest for an IFA. Many will not be interested in looking at smaller amounts.
    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.
  • Jon_W
    Jon_W Posts: 108 Forumite
    Thanks, guys. The investment at this stage will be £40k. When a will legacy comes through that will rise to around £60k.

    Don't get me wrong George, I am not criticising them, I understand why many might not feel it worthwhile to meet. It's all fair enough.
  • A percentage fee is a percentage fee regardless of the pot of money. If you have £3 to invest 1% fee is 3p. If you have £3,000,000 the fee is £30,000. It's all in the mind - to the person with £3 the £30,000 fee is a fortune. To the person with £3,000,000 the £30,000 fee is peanuts. Both portfolios just need a 1% increase and the fee is covered (ignoring VAT of course). And any IFA worth his fee will obviously get a better return that 1%.
  • bigadaj
    bigadaj Posts: 11,531
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    dachs wrote: »
    A percentage fee is a percentage fee regardless of the pot of money. If you have £3 to invest 1% fee is 3p. If you have £3,000,000 the fee is £30,000. It's all in the mind - to the person with £3 the £30,000 fee is a fortune. To the person with £3,000,000 the £30,000 fee is peanuts. Both portfolios just need a 1% increase and the fee is covered (ignoring VAT of course). And any IFA worth his fee will obviously get a better return that 1%.

    Yes, but there is a minimum fee that the ifa wants for commencing any work, and there isn't a linear relationship between the amount of work that is needed for a very large pot as opposed to a small one. There is a small amount of additional work and a risk premium relate to professional insurance.

    So you may well find that an ifa would have a minimum amount needed before commencing work, say £1-2k, but there would be a cap so that even the £3million might only cost between £5-£10k. Similar case for ongoing fee as initial too.
  • bigadaj
    bigadaj Posts: 11,531
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    Jon_W wrote: »
    Thanks, guys. The investment at this stage will be £40k. When a will legacy comes through that will rise to around £60k.

    Don't get me wrong George, I am not criticising them, I understand why many might not feel it worthwhile to meet. It's all fair enough.

    You are at the very low end of an ifAs interest there, certainly with your initial amount, even at 3% then that's only £1200 to do all the initial work and £400 per year for ongoing.

    I'd wait until the additional sum comes through and then take things further, alternatively do some reading and diy is an option for most people. Certainly on the sums you quote.
  • Audaxer
    Audaxer Posts: 3,506
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    dachs wrote: »
    A percentage fee is a percentage fee regardless of the pot of money. If you have £3 to invest 1% fee is 3p. If you have £3,000,000 the fee is £30,000. It's all in the mind - to the person with £3 the £30,000 fee is a fortune. To the person with £3,000,000 the £30,000 fee is peanuts. Both portfolios just need a 1% increase and the fee is covered (ignoring VAT of course). And any IFA worth his fee will obviously get a better return that 1%.
    But I understand that 1% IFA annual fee would be on top of any platform fees and fund fees. While I am sure you would expect advice to give you a better return than total fees, if the market has a downturn you would presumably be paying more in fees, without any guaranteed return.

    With the amount I have to invest, in some ways I'd like to instruct an IFA to construct the best portfolio for me, but I'm concerned that I'd pay thousands for an initial fee and then fairly large annual fees, but if there was then a market downturn my total investment would still lose value. That is what makes me think I should stick to DIY with diversified low cost trackers like a VLS40 or VLS60, and maybe venturing in to Investment Trusts or income-focused managed funds as I learn more?
  • TheTracker
    TheTracker Posts: 1,223
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    Audaxer wrote: »
    But I understand that 1% IFA annual fee would be on top of any platform fees and fund fees. While I am sure you would expect advice to give you a better return than total fees, if the market has a downturn you would presumably be paying more in fees, without any guaranteed return.

    With the amount I have to invest, in some ways I'd like to instruct an IFA to construct the best portfolio for me, but I'm concerned that I'd pay thousands for an initial fee and then fairly large annual fees, but if there was then a market downturn my total investment would still lose value. That is what makes me think I should stick to DIY with diversified low cost trackers like a VLS40 or VLS60, and maybe venturing in to Investment Trusts or income-focused managed funds as I learn more?

    So find an IFA to provide you with a recommended asset allocation, agnostic of fund, and not fund selection and portfolio management. . You can then use trackers to fulfil the assets against the advised allocation.
  • Malthusian
    Malthusian Posts: 10,898
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    Audaxer wrote: »
    While I am sure you would expect advice to give you a better return than total fees, if the market has a downturn you would presumably be paying more in fees, without any guaranteed return.

    If the market has a downturn you would be paying less in fees, which is one reason why people like percentages, much to the frustration of the progressive voices in the industry.
    With the amount I have to invest, in some ways I'd like to instruct an IFA to construct the best portfolio for me, but I'm concerned that I'd pay thousands for an initial fee and then fairly large annual fees, but if there was then a market downturn my total investment would still lose value. That is what makes me think I should stick to DIY with diversified low cost trackers like a VLS40 or VLS60, and maybe venturing in to Investment Trusts or income-focused managed funds as I learn more?

    Fund selection is one of the least important aspects of an IFA's job. If you are happy that Vanguard's particular mix of global equities and bonds is right for you, and you are confident that you are investing in the most tax-efficient way possible, and that you don't need someone to talk you through the downturns and stop you from panicking, then you are unlikely to go too far wrong by DIYing.

    Of course you should expect your investment to lose value during a market downturn. The fact that it goes down sometimes is why you get superior returns to cash over the long term. If there was no risk there would be no reward.
  • dunstonh
    dunstonh Posts: 116,040
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    But I understand that 1% IFA annual fee would be on top of any platform fees and fund fees. While I am sure you would expect advice to give you a better return than total fees, if the market has a downturn you would presumably be paying more in fees, without any guaranteed return.

    When, not if, the market has a downturn, your investments will fall in value whether there is an adviser or not. 1% of a reduced value results in reduced fees to the adviser. Not more.
    So find an IFA to provide you with a recommended asset allocation, agnostic of fund, and not fund selection and portfolio management. . You can then use trackers to fulfil the assets against the advised allocation.

    Or if you wish to restrict your portfolio to have it solely made up trackers then instruct the IFA that is what you want and they will comply. Some people like to handicap their portfolio this way. Others do not. It is personal preference.
    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.
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