Independent Financial Advisors - all a bunch of con artists?

PJ2015 wrote: »

Indeed. I'm used to music industry fees - paying 20% of net is fine by me (and that used to be considered a rip-off), but paying, even a small amount, regardless of the performance of the investment? Not so much. I seem to be some way to answering the question posed in the title of this thread - if you're not willing to risk your livelihood on the quality of your advice, why should I?

But what do I know? Time will tell.

You can always learn about investing and do it yourself, the ifa isn't a magician or have unique insight, he's just someone who can be objective and use his experience to provide you with a good chance of meeting your goals.

For that then baseline fees might run from 1-3% for setting things up, and 0.5-1% for ongoing advice. Platform fees and fund fees will then be on top, the former might run 0.25-0.45%, and the funds can be from less than 0.1% to 1% or more.

If you diy then the fund and platform fees would be similar. It will take a little time and effort to learn enough to diy but the savings can be huge.

Like any form of diy if you do it well it can save you money, if you do it badly it can turn into a mess, as a former poster might have said.

PJ2015 wrote: »

Indeed. I'm used to music industry fees - paying 20% of net is fine by me (and that used to be considered a rip-off), but paying, even a small amount, regardless of the performance of the investment? Not so much.

I am well acquainted with the difference between net and gross - if I don't get paid, neither do you. A 0.5% net management fee sounds fine to me.

Unfortunately in the world of regulated investment advice it can't work that way.

If you receive the service of investment advice - assessing your needs, making recommendations, implementing solutions - because you don't have the knowledge, experience, confidence or time on your hands to do it for yourself, then you need to pay for that service. And recognise that when the markets go up and down - sometimes severely down - on their own whim, which is entirely out of the control of the advisor and *will* happen like it or not... that doesn't mean that you should get a refund of the fees. You still got the service.

You don't pay an independent advisor to give you advice and then decide your net for the year was zero so you only want to pay zero. Perhaps what he did was to help you lose only 30% instead of the 40% lost by the wider market, but he didn't beat cash so with 20/20 hindsight you would have been better to be in cash. That's not his fault - presumably you were happy to accept the advice to buy investments rather than stay in cash because you know it is the right long run solution supported by a century of data. 30% loss vs 40% loss is maybe a great result anyway, in context.

But really in that situation, even if he lost 45%, you shouldn't compare his returns to the '40% of the wider market' either, because presumably if you know you would like to get the return of some broad market and not a particular portfolio tailored for your needs, you wouldn't even be in his office buying the advice. You would just go and buy that volatile return yourself, perhaps through index funds or a bunch of self-selected funds slapped together which you hope to be representative of the market, and accept the results as being beyond your control.

The fact you are willing to see and work with and pay an adviser implies you don't want a random number generator but instead want a structured portfolio, with some assessment and management of risk, and what you will find is that comes with an inevitable cost of advice but no guarantee of performance in any specific year.

seem to be some way to answering the question posed in the title of this thread - if you're not willing to risk your livelihood on the quality of your advice, why should I?

If the market is negative and you lose money, the adviser can't afford to close down the office because he was working for "a cut" and nobody has anything positive to cut because of a market downturn that lasts a few years. Great, so his whole staff are now made redundant. It would be a massively high risk business to be on a performance kicker rather than a fee income that keeps the lights on and rent and salaries paid and the training and research and regulatory compliance ongoing, even in the inevitable weak periods.

The major reason you should *not* want a performance based fee when buying impartial advice is that it will encourage the adviser - -who is supposed to be unbiased and dispassionate - to take excessive risk with your capital in the knowledge that greater returns are available from greater risks and the fees will be small if he takes only low risks for you.

For example, you have a million and you say he can have 10% of the gains over the long run average returns. So instead of targeting a "good enough" return for "tolerable" risk, he decides to try to double your money in five years instead of ten so he can buy a new Porsche if it works out. Great, it worked out and he gets one. Next five years he tries again, this time you lose 80% and you are tearing your hair out that the million pound pot went to two million, deduct the cost of the Porsche, lose 80%, and your pot is now down to £400k. Sorry buddy it didn't work out. Shall we go again? Don't worry I won't charge you for that last investment choice I made because it didn't come off.