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  • FIRST POST
    • HarryFlatters
    • By HarryFlatters 8th Oct 16, 12:12 PM
    • 19Posts
    • 5Thanks
    HarryFlatters
    IFA advice...good, bad or indifferent
    • #1
    • 8th Oct 16, 12:12 PM
    IFA advice...good, bad or indifferent 8th Oct 16 at 12:12 PM
    My first post here so please be gentle with me

    Really don't want this to be another I have £....... but this is inevitably going to involve asking for advice on top of your thoughts on the IFAs recommendations, I have tried to read through previous threads but am still not clear in my head how to proceed.
    If I could give a brief financial summary, Mr & Mrs, mid 50s, no mortgage or loans, no dependents, £130k in pension pot (not currently adding to this) and 500k currently in easy access assets, approx 100k of this within ISA wrappers, this is primarily as a result of a recent downsize in property size.

    Both in manual roles and aiming to only work part time for approx 5 years then stop manual work, no point getting to retirement with a body not fit to enjoy it !!

    Aiming for approx 10-15k pa from current investments from now if possible, then add pension income from age 60.

    IFA advice is to make one off payment of £50k into pension to cover last 3 years allowances.
    Invest £440k in OIECS, all multi manager funds with annual charges of 1-1.7% on Elevate platform. For this we pay the IFA 8k

    I have been researching and reading various sites, primarily HL & II, are there others good for newbie investors.

    We have our own thoughts on the IFA advice but would welcome yours, the daunting aspect for us are the long term ramifications for our financial health of our hard earned but previously unavailable wealth.

    Over to you, many thanks in advance.
Page 1
    • dunstonh
    • By dunstonh 8th Oct 16, 12:43 PM
    • 85,148 Posts
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    dunstonh
    • #2
    • 8th Oct 16, 12:43 PM
    • #2
    • 8th Oct 16, 12:43 PM
    I have been researching and reading various sites, primarily HL & II, are there others good for newbie investors.
    They are not newbie investors. They are for DIY investors. Elevate is cheaper than HL.

    We have our own thoughts on the IFA advice but would welcome yours, the daunting aspect for us are the long term ramifications for our financial health of our hard earned but previously unavailable wealth.
    The advice seems to be perfectly fine based on the very limited info going. Only thing I would take issue with is the size of the fee.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • EdGasket
    • By EdGasket 8th Oct 16, 1:08 PM
    • 3,030 Posts
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    EdGasket
    • #3
    • 8th Oct 16, 1:08 PM
    • #3
    • 8th Oct 16, 1:08 PM
    Why buy funds with 1 to 1.7% annual charge? That's a huge hit to returns over the years. You can buy a range of ETFs instead with annual charges well below 0.5%; some as low as 0.1% e.g Vanguard or iShares core series.

    Pay me £8K and I'll recommend some !
    • enthusiasticsaver
    • By enthusiasticsaver 8th Oct 16, 1:26 PM
    • 2,571 Posts
    • 4,383 Thanks
    enthusiasticsaver
    • #4
    • 8th Oct 16, 1:26 PM
    • #4
    • 8th Oct 16, 1:26 PM
    Steep fee and yes I would have issue with the 1-1.7% ongoing fee. I do my own investing in Vanguard lifestrategy funds.
    Debt and mortgage free and saving for early retirement
    • dunstonh
    • By dunstonh 8th Oct 16, 1:46 PM
    • 85,148 Posts
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    dunstonh
    • #5
    • 8th Oct 16, 1:46 PM
    • #5
    • 8th Oct 16, 1:46 PM
    Do remember that some people have a complete blinker to managed funds and will only use tracker. Some are pro managed and dont consider passive. The use of tracker or managed or combination is opinion. Personally, my view is a combination is usually best. Others will go fully managed or fully passive but all are opinions. No right or wrong.

    If you do have a preference then let the adviser know. They will take into account preferences in their advice.

    it should also be noted that if your adviser was to recommend the use of ETFs to you and you then complained, the FOS would almost certainly uphold the complaint calling the advice unsuitable.

    Steep fee and yes I would have issue with the 1-1.7% ongoing fee. I do my own investing in Vanguard lifestrategy funds.
    I use the vanguard LS funds on smaller investors. However, on larger model ones I use a bespoke portfolio where the total ongoing charge is around 1.2% (fund, platform and adviser). They consistently outperform VLS on a like for like volatility rating. There is no guarantee that will continue and there would have been discrete periods when they did not. But who is to say which is best in the future until that time happens and we look back. VLS is good but it is not the solution for everything and paying less does not mean you will get more. Just as paying more does not mean you will get more. The primary concern is suitability. Cost is secondary. Important yes but not more important that suitability.
    Last edited by dunstonh; 08-10-2016 at 1:49 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Jackthedog
    • By Jackthedog 8th Oct 16, 3:36 PM
    • 38 Posts
    • 17 Thanks
    Jackthedog
    • #6
    • 8th Oct 16, 3:36 PM
    • #6
    • 8th Oct 16, 3:36 PM
    IFA fee is huge so their advice better be good!

    The funds costs seem high imho.. To get 15K pa they will have to yield about 3 and a half percent net of costs so in effect will need to yield about 5% pa including costs. Possible I guess but remember stuff outside of an isa above 5K will be attracting tax at your marginal rate and if things go well potentially capital gains.

    Does the fee include platform costs or just fund costs? Either way there are much cheaper options including using investment trusts to achieve the same result and grow the income effectively. These small charges become hugely costly over time.

    Putting a lump in your pension seems sensible.. There is quite a tax advantage in doing this.

    Mind you the markets seem expensive presently...if it falls back from this high stage you may take a significant capital hit in the short to medium term.
    • BLB53
    • By BLB53 8th Oct 16, 4:56 PM
    • 918 Posts
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    BLB53
    • #7
    • 8th Oct 16, 4:56 PM
    • #7
    • 8th Oct 16, 4:56 PM
    Invest £440k in OIECS, all multi manager funds with annual charges of 1-1.7% on Elevate platform. For this we pay the IFA 8k
    Before you go any further, get hold of Tim Hale's 'Smarter Investor' and get up to speed on a diy approach..it could save you many £000 over time. The fund fees of over 1% are too high and the adviser fees are unnecessary.

    You will do a better job with low cost Vanguard Lifestrategy - charges 0.24% and a low cost platform - lump sum with Halifax Share Dealing is £12.50 p.a.

    Read some of the articles on diy investor uk and monevator etc.
    "A low-cost index tracker is going to beat a majority of the amateur-managed money or professionally managed money" Warren Buffett
    • LHW99
    • By LHW99 8th Oct 16, 5:27 PM
    • 520 Posts
    • 354 Thanks
    LHW99
    • #8
    • 8th Oct 16, 5:27 PM
    • #8
    • 8th Oct 16, 5:27 PM
    Have you spoken to several advisors, or only one?
    Most will give an introductory half hour, at which you should be able to get them to explain their fees, and check whether you think you will get on with / trust them. Many people here are DIY, and will recommend that, but if you are not confident, using an IFA is fine BUT you want to be happy that you will trust their advice / them.
    Make sure they are registered IFA's and have suitable qualifications (https://www.unbiased.co.uk/) and if you decide to stay with this one you have already spoken to, make sure he/she explains absolutely everything, and the reasons for suggesting it and what you get for the fees paid.
    • bigfreddiel
    • By bigfreddiel 8th Oct 16, 7:28 PM
    • 4,071 Posts
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    bigfreddiel
    • #9
    • 8th Oct 16, 7:28 PM
    • #9
    • 8th Oct 16, 7:28 PM
    You must talk to an advisor they know what you need. Pay them at least 1%, probably more like 5% of the sum you're investing.

    They will find you the best deals and look after it all for you so you don't have to.

    You cannot do it yourself, advisors have access to information and investment vehicles that us newbies do not have.

    You can't go wrong, and don't forget that advisors have extensive training and qualifications equivalent to a first class degree. They also have insurance shoulda tying go wrong and you de ide to seek recompense.

    Just make sure you explain your objectives and expectations very clearly and that the advisor understands.

    Good luck fj
    • DrSyn
    • By DrSyn 8th Oct 16, 10:49 PM
    • 423 Posts
    • 192 Thanks
    DrSyn
    1. If you are not confident in making your own decisions when handling large sums of money or in making investments seeing an IFA makes sense.

    2. I would suggest seeing maybe 2 or 3, instead of just one as you have. What LHW99 #8, writes is reasonable. Have you looked at the following either before or after seeing your IFA? Its worth your while.

    www.citizensadvice.org.uk/debt-and-money/savings/getting-financial-advice/

    3. I understand that some IFA's only recommend passive investing.

    4. For the long term placing your money into cash ISA's, Low cost Socks & shares ISA's and Low cost Pensions seems to me a good idea.

    5. If you are confident in your own ability to handle money, you can save money by doing it yourself.

    6. Did the IFA you saw only suggest multi manager funds with those high charges? Where low cost passive investments or investment trusts such as below mentioned at all? If not why not? Look them up.

    (a) Vanguard LifeStratergy Fund.
    (b) Vanguard FTSE All World ETF (VWRL)
    (c) Witan Investment Trust (WTAN)
    (d) Foreign & Colonial Investment Trust (FRCL)

    7. Whatever you intend to do, use an IFA or do-it-yourself, I suggest you do more research. Have a look at the following sites:-

    http://monevator.com/highlights/

    http://www.candidmoney.com/

    http://www.comparefundplatforms.com/compare.aspx

    http://meaningfulmoney.tv/getting-started/

    I hope it will be of some help to you.
    Last edited by DrSyn; 08-10-2016 at 10:56 PM.
    • dunstonh
    • By dunstonh 9th Oct 16, 12:22 AM
    • 85,148 Posts
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    dunstonh
    3. I understand that some IFA's only recommend passive investing.
    They shouldnt do. That would be a restriction and they would not be allowed to call themselves Independent.

    6. Did the IFA you saw only suggest multi manager funds with those high charges? Where low cost passive investments or investment trusts such as below mentioned at all? If not why not? Look them up.
    The use of investment trusts would likely be considered a mis-sale in this case.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 9:51 AM
    • 4,210 Posts
    • 4,224 Thanks
    AnotherJoe
    They shouldnt do. That would be a restriction and they would not be allowed to call themselves Independent.

    They might not be restricted as such, to passive trackers but always recommend them in practice.

    The use of investment trusts would likely be considered a mis-sale in this case.
    Originally posted by dunstonh
    Can you explain why ? Since I have quite a few, I'm interested !
    • EnglishMohican
    • By EnglishMohican 9th Oct 16, 10:06 AM
    • 148 Posts
    • 84 Thanks
    EnglishMohican
    @dunstonh. And also can you expand on/explain why ETFs could be considered a mis-sale as you stated further up the thread. I accept that some ETFs are very high risk and specialist but so are some funds. So if an IFA considered the situation properly and then recommended VWRL for example, how could that be a mis-sale or poor advice?
    • fireblade28
    • By fireblade28 9th Oct 16, 10:16 AM
    • 85 Posts
    • 57 Thanks
    fireblade28
    Psudo experts. Waste of money! Save it and invest it yourself. Theres nothing that they know that you couldn't learn in a couple of months of good research yourself.
    • Linton
    • By Linton 9th Oct 16, 10:40 AM
    • 6,957 Posts
    • 6,550 Thanks
    Linton
    .......


    6. Did the IFA you saw only suggest multi manager funds with those high charges? Where low cost passive investments or investment trusts such as below mentioned at all? If not why not? Look them up.

    (a) Vanguard LifeStratergy Fund.
    (b) Vanguard FTSE All World ETF (VWRL)
    (c) Witan Investment Trust (WTAN)
    (d) Foreign & Colonial Investment Trust (FRCL)


    ...
    Originally posted by DrSyn
    These days ITs are not particularly low cost. Trustnet tells me that FRCL has a TER of 0.5% and Witan's own Investor Disclosure document quotes charges of 0.72% excluding performance fees and 0.99% including them. The idea that ITs are cheaper dates from the days when platform and advisor costs were bundled into UT/OEIC charges but not into IT charges, which is no longer the case. Compare with L&G Multiasset funds (OEICs) which are neither ITs nor passive and yet have OCF charges below 0.5%. (Performance fees and some other items are included in OCF but not TER).
    • DrSyn
    • By DrSyn 9th Oct 16, 11:38 AM
    • 423 Posts
    • 192 Thanks
    DrSyn
    These days ITs are not particularly low cost. Trustnet tells me that FRCL has a TER of 0.5% and Witan's own Investor Disclosure document quotes charges of 0.72% excluding performance fees and 0.99% including them. The idea that ITs are cheaper dates from the days when platform and advisor costs were bundled into UT/OEIC charges but not into IT charges, which is no longer the case. Compare with L&G Multiasset funds (OEICs) which are neither ITs nor passive and yet have OCF charges below 0.5%. (Performance fees and some other items are included in OCF but not TER).
    Originally posted by Linton

    1.What you write is correct. Also there is the complication of the premium and discount that investment trusts can have.

    2. Both have a long history, are well thought of and cost less than that quoted by the original post for the managed funds.

    3. From Morningstar.co.uk

    (a) Foreign & Colonial Investment Trust (FRCL).

    Discount -10.59%
    12M Avg Disc -9.27%

    Morningstar Analyst Rating= Bronze

    Morningstar Rating= 5 star

    Ongoing Charge (2015) is 0.69%

    Investment Objective
    To secure long-term growth in capital and income through a policy of investing primarily in an internationally diversified portfolio of publicly listed equities, unlisted securities and private equity, with the use of gearing.



    (b) Witan Investment Trust (WTAN)

    Discount -7.90%
    12M Avg Disc -4%.

    Morningstar Analyst Rating= Silver

    Morningstar Rating= 4 star

    Ongoing Charge (2015) is 0.79%

    Investment Objective
    To achieve long-term growth in income and capital through active multi-manager investment in global equities.
    • dunstonh
    • By dunstonh 9th Oct 16, 12:03 PM
    • 85,148 Posts
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    dunstonh
    @dunstonh. And also can you expand on/explain why ETFs could be considered a mis-sale as you stated further up the thread. I accept that some ETFs are very high risk and specialist but so are some funds. So if an IFA considered the situation properly and then recommended VWRL for example, how could that be a mis-sale or poor advice?
    Originally posted by EnglishMohican
    and...

    Can you explain why ? Since I have quite a few, I'm interested !
    I was waiting for someone to pick up on it.

    ETFs and ITs are considered more advanced investment options. There are more things to consider and understand than UT/OEICs and those things typically involve more risk (investment risk obviously but risk of getting it wrong due to lack of understanding - such as gearing or synthetic replication.)

    It is a requirement under advice that you recommend products and investments that are within the knowledge and understanding of the person being advised.

    The OP is a new investor. Occupations are manual. So, knowledge and experience on investing is going to be limited to non-existent. So, if you start building a portfolio of single sector funds, then you are introducing greater risks. Personally I do not agree that it introduces a greater risk are as long as it is maintained but the FOS have upheld complaints where inexperienced investors have been recommended single sector funds. There was one earlier in the year where the person was a company director and had investment properties and it decided they didnt have the knowledge or ability to understand what was being done for them and it ordered redress (it was built to a defined model and not a random selection. So, there was little wrong with it in most peoples eyes). And that was with mainstream single sector OEICS. ETFs would be single sector, not necessarily as cheap as the OEICs and they are treated as a more advanced option over OEICS. There is also no FSCS protection unlike OEICs/UTs. Investment trusts are typically rated around one risk level higher than the equivalent UT/OEIC on a like for like basis. Gearing, premium/discount and no FSCS protection push them up the risk scale in terms of knowledge and understanding.

    So, it isnt that there is anything wrong with ETFs or ITs. Far from it. It is that they are considered unsuitable for inexperienced investors due to being more complex and lower consumer protection.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • bowlhead99
    • By bowlhead99 9th Oct 16, 12:18 PM
    • 5,146 Posts
    • 9,076 Thanks
    bowlhead99
    The use of investment trusts would likely be considered a mis-sale in this case.
    by dunstonh
    Can you explain why ? Since I have quite a few, I'm interested !
    Originally posted by AnotherJoe
    The OP describes themselves as newbie investors involved in manual work.

    Generalising, investment trusts are a more complicated product than an OEIC.

    Examples:

    1) The amount you have to pay to buy an investment trust or the amount you may receive on sale of an investment trust may differ significantly from the fair value of the underlying assets which the trust holds - due to market discounts and premiums which can be unpredictable, driven by supply and demand. Effectively what you can get when you want to liquidate part of your investment may not reflect its inherent 'worth', because of the overlay of discount or premium on top of the underlying assets.

    2) Investments trusts or similar investment companies may also typically employ more complex techniques in pursuit of their corporate objectives - for example, using leverage to 'gear up' or amplify the return on the underlying assets, whether that is a positive return in the good times or a negative return in the bad times. This changes the risk profile of the product, especially as the level of gearing is not static.

    As a concept, it is relatively straightforward to understand if you have a smart head on your shoulders - it is the same mathematical principle as what people experience when they buy a mortgaged house and later try to sell it in an up market or a down market. But it is yet another thing for a newbie investor to 'get their head around' when understanding the inherent extra risk and volatility created by the technique.

    3) The product charges in an investment trust can also out-complicate the charges of an OEIC. Some of them (both of the two that were mentioned by DrSyn) expose you to performance fees where the return that you will get compared to the underlying return of the assets will vary, depending on the what the underlying return of the assets actually is, versus some benchmark which you might not even consider to be a 'fair' comparator for the portfolio that has been constructed.

    Again this is not particularly difficult to get your head around when you read the prospectus or financial accounts in detail. If you did that, you would understand that the reason the expense ratio for Witan in the first half of 2016 was half of that in 2015 was because performance fees went negative due to having been overaccrued in the prior year ; the underlying investee managers within the Trust's fund-of-funds portfolio did not end up performing as well as had been projected when receiving the unrealised valuations at the prior year end. But that sounds quite complicated for a self-confessed 'newbie investor'.

    4) The types of assets held can also differ between ITs and OEICs. They can of course hold the exact same assets. But a closed-ended vehicle such as an investment trust is more suitable for certain illiquid holdings such as private equity, infrastructure etc where they do not have to worry about the fund's investors redeeming and needing their money back. Instead, investors exit a holding in an IT by selling their shares on the stockmarket to someone else who is willing to buy it.

    So the trust can make investments which it thinks meet its long term strategy - and in the case of the Witan and F&C ones mentioned, this can include making funding commitments to unlisted illiquid private equity partnerships whose assets are inherently difficult to value. The discounts which the market might apply applied to an IT in a significant bear market where the IT's holdings include unlisted illiquid assets last valued six months ago and for which outstanding commitments exist which might exceed the IT's cash or borrowing capacity... can be quite large.

    There are probably some other features of ITs which makes them more complicated for a newbie investor, but this post is long enough.

    So - generalising - ITs as a product range can be more complex than OEICs, due to less-than-transparent pricing, less-than-transparent fees, gearing, and type of assets held. This would apply to both of the examples given by DrSyn. Clearly, some ITs do not have performance fees, do not hold exotic illiquid assets and do not employ gearing. However, if they were just holding plain vanilla liquid listed equity shares or bonds, there is not a great deal of advantage for the manager to use an IT structure, and if they do, the overlay of the fuzzy-factor market discount or premium is something that could deliver an unexpected result for a newbie investor.

    I can well believe that the use of investment trusts, especially the ones mentioned in the thread, could be considered a mis-sale if they are prescribed for newbie investors. That's because the product has to be suitable for the customer both in terms of their attitude to and capacity to risk, but also their understanding.

    So, even though the returns from Witan or F&C might be decent historically, you could imagine a scenario where a newbie investor is advised to get one, and it loses 45% from 2007 to 2009 as they both did, and the investor says they had only really wanted a 'normal' exposure to international equities which seem to have been more like 30-35% and did not understand why the IFA was explaining their losses as partially due to 'gearing' or why the percentage fees for the last few years had been all over the place, or why they could not cash in at NAV.

    The investor could of course perfectly understand these issues but happily lie about it in the hope of recovering money through a mis-sale complaint, and the FOS who is supposed to be on the side of consumer protection, would probably back him up.

    I do hold a bunch of specialist investment trusts, not the two mentioned but some that expose me to niche investment sectors, discounts/premiums, performance fees and/or gearing etc. They form a useful part of my portfolio, delivering decent returns and sometimes a low correlation to plain vanilla equity indices. Of course, I am not a newbie investor and did not have an advisor selling them to me.

    Edit - I see Dunstonh has already done his response while I was taking a break from typing the above to go and get a sandwich!
    Last edited by bowlhead99; 09-10-2016 at 12:25 PM.
    • Eco Miser
    • By Eco Miser 9th Oct 16, 2:43 PM
    • 2,446 Posts
    • 2,265 Thanks
    Eco Miser
    I have been researching and reading various sites, primarily HL & II, are there others good for newbie investors.
    Originally posted by HarryFlatters
    There are various financial blogs by and for amateur investors - Monevator is often recommended for explaining the principles of investing.
    Eco Miser
    Saving money for well over half a century
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 3:56 PM
    • 4,210 Posts
    • 4,224 Thanks
    AnotherJoe
    Dunstonh & Bowlhead99, thanks for your comprehensive replies.
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