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  • FIRST POST
    • Jon_W
    • By Jon_W 14th Mar 17, 7:42 PM
    • 108Posts
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    Jon_W
    IFA Fees - benchmarks
    • #1
    • 14th Mar 17, 7:42 PM
    IFA Fees - benchmarks 14th Mar 17 at 7:42 PM
    Aaaaand it's my stupid question hour, again!

    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! ). 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!
Page 1
    • george4064
    • By george4064 14th Mar 17, 7:54 PM
    • 746 Posts
    • 790 Thanks
    george4064
    • #2
    • 14th Mar 17, 7:54 PM
    • #2
    • 14th Mar 17, 7:54 PM
    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 arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

    Save £12k in 2016 - #045 £10,358.81/£12,000 (86%)
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    • dunstonh
    • By dunstonh 14th Mar 17, 7:57 PM
    • 87,732 Posts
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    dunstonh
    • #3
    • 14th Mar 17, 7:57 PM
    • #3
    • 14th Mar 17, 7:57 PM
    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). 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.
    • Jon_W
    • By Jon_W 14th Mar 17, 10:25 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    • #4
    • 14th Mar 17, 10:25 PM
    • #4
    • 14th Mar 17, 10:25 PM
    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.
    • dachs
    • By dachs 14th Mar 17, 11:41 PM
    • 2 Posts
    • 0 Thanks
    dachs
    • #5
    • 14th Mar 17, 11:41 PM
    • #5
    • 14th Mar 17, 11:41 PM
    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
    • By bigadaj 15th Mar 17, 6:42 AM
    • 8,978 Posts
    • 5,714 Thanks
    bigadaj
    • #6
    • 15th Mar 17, 6:42 AM
    • #6
    • 15th Mar 17, 6:42 AM
    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%.
    Originally posted by dachs
    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
    • By bigadaj 15th Mar 17, 6:45 AM
    • 8,978 Posts
    • 5,714 Thanks
    bigadaj
    • #7
    • 15th Mar 17, 6:45 AM
    • #7
    • 15th Mar 17, 6:45 AM
    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.
    Originally posted by Jon_W
    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
    • By Audaxer 15th Mar 17, 8:49 AM
    • 162 Posts
    • 36 Thanks
    Audaxer
    • #8
    • 15th Mar 17, 8:49 AM
    • #8
    • 15th Mar 17, 8:49 AM
    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%.
    Originally posted by dachs
    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
    • By TheTracker 15th Mar 17, 10:09 AM
    • 1,049 Posts
    • 1,044 Thanks
    TheTracker
    • #9
    • 15th Mar 17, 10:09 AM
    • #9
    • 15th Mar 17, 10:09 AM
    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?
    Originally posted by Audaxer
    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
    • By Malthusian 15th Mar 17, 10:23 AM
    • 2,001 Posts
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    Malthusian
    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.
    Originally posted by Audaxer
    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
    • By dunstonh 15th Mar 17, 10:44 AM
    • 87,732 Posts
    • 52,980 Thanks
    dunstonh
    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). 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.
    • Jon_W
    • By Jon_W 15th Mar 17, 12:05 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    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.
    Originally posted by bigadaj
    But I have been sitting on it for nearly 3 years already and the other amount won't come through until, God this sounds awful, a relation dies. Not that I want this and I'd have them live forever if I could.

    As for going DIY I am not really sure how to do that. I've opened a cash ISA before the end of the financial year (to transfer to a LISA and/or S & S ISA) and that's as far as I've got.

    I was hoping that someone would meet me on a fee-for-time basis to help me construct the portfolio and tell me how to go about it, but I guess even that wouldn't be in their interests as they'd prefer to do all that for a charge and ongoing % management fee.
    • ermine
    • By ermine 15th Mar 17, 12:37 PM
    • 537 Posts
    • 754 Thanks
    ermine
    As for going DIY I am not really sure how to do that. I've opened a cash ISA before the end of the financial year (to transfer to a LISA and/or S & S ISA) and that's as far as I've got.
    Originally posted by Jon_W
    You're too poor to be able to afford an IFA. So am I, and I have a fair bit more than you in my ISA, so it isn't personal.

    First you need to ask yourself what you want your money to do for you. Is it to give you more in retirement, is it to splurge on a round-the-world trip, is it to give your children an unfair advantage on everyone else. Etc etc

    That gives you some idea of the time horizon. There are twin forces in the economy trying to kill the value of your money. One, inflation, is insidious and chips away at the value of your cash over years, it starts to significantly hurt you over the >5 year time horizon.

    The other force acts upon stock-market investments that historically can preserve value over the long time period, but makes big short-term variations in the value. Unfortunately that makes people who have bought shares panic and sell when the price falls 50%. What they should do is rush in and buy more at that time, and if they can't do that, at the very least not sell. It's hard to do the first time, gets easier after you have survived the first time - if you do. That sort of hissy fit comes along every five to ten years but it unpredictable. So far it's always come good if you just sweat it out.

    As a rough approximation, less than five years, stay away from the stock market. More than five years, then the effect of inflation starts to kill you.

    Since you don't really have enough money to afford (or even get interest from) an IFA you will have to learn yourself. The theory is not hard, though the practice takes self-discipline. Start with this fellow

    http://monevator.com/category/investing/passive-investing-investing/

    The whole site is good, but that's a good place to start. There is more to the subject than just cash and stock market investments, but they get you most of the way there.

    Presumably you are not carrying any debt, possibly other than a mortgage at a low interest rate.

    The problem with an IFA is that the real return (after inflation) on diversified stocks is about 4-5%. Go pay an IFA 1% pa and you are eating an elective 20% income tax. You have to really believe either that you will hurt yourself more than that by buying high and selling low - perfectly possible and a lot of people do that through panicking in market downturns - or that the IFA has an edge of more than his fees. IFAs probably do more good on stopping people self-harming by investing above their risk tolerance rather than having an edge over the average market return - after all, in the latter case why the hell aren't they making themselves rich.

    You can learn this stuff. You just need to want to hard enough. If you have debt the easy win is to pay that off first. If you are saving for retirement, pensions are usually the way, because of the tax breaks. Read the pensions part of this site for why.
    Last edited by ermine; 15-03-2017 at 12:40 PM.
    • Malthusian
    • By Malthusian 15th Mar 17, 12:50 PM
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    Malthusian
    I was hoping that someone would meet me on a fee-for-time basis to help me construct the portfolio and tell me how to go about it, but I guess even that wouldn't be in their interests as they'd prefer to do all that for a charge and ongoing % management fee.
    Originally posted by Jon_W
    Based on your previous thread I strongly advise you not to agree to pay on a fee-for-time basis. I can see you paying a four figure sum and still being no closer to investing your money.
    • Jon_W
    • By Jon_W 15th Mar 17, 1:14 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    @ermine - the aim is to provide for later life and retirement whilst keeping some of my investments liquid in case of emergencies, via a mix of ISAs and SIPPs. There will be about £60k. I am aware that the markets are subject to volatility and risk but I am in this for the long haul so want to put the £ into passive funds and just leave it there.

    I am also not sure I can go this alone as I don't know the mix of tax wrappers, let alone which bonds funds and equities funds that will move me towards my (nebulous) goal.?

    @Mathusian, okay, cheers.

    So, on this thread one poster thinks the fees are too high, is that the consensus or not
    • dunstonh
    • By dunstonh 15th Mar 17, 1:47 PM
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    • 52,980 Thanks
    dunstonh
    The problem with an IFA is that the real return (after inflation) on diversified stocks is about 4-5%. Go pay an IFA 1% pa and you are eating an elective 20% income tax. You have to really believe either that you will hurt yourself more than that by buying high and selling low - perfectly possible and a lot of people do that through panicking in market downturns - or that the IFA has an edge of more than his fees. IFAs probably do more good on stopping people self-harming by investing above their risk tolerance rather than having an edge over the average market return - after all, in the latter case why the hell aren't they making themselves rich.
    you have to have capital to invest to make money. So, you have to work to build that capital. If the work is financially rewarding, you continue to work. You can work and invest at the same time.

    An IFA is there to prevent mistakes and ensure suitability to go with their forward planning. To act as a source of information and do the work for you. I have seen a number of successful DIY investors and have seen plenty who have made a right pigs ear of it. Including one this week who has made decisions that have cost nearly a £100k in bad decision making just to avoid paying £1500 a year to an adviser. Even now, he still doesnt want to pay adviser charges. His knowledge is pure Daily Mail level.

    So, it is not a case that IFA is better than DIY or vice versa. It is about what is best for you.

    So, on this thread one poster thinks the fees are too high, is that the consensus or not
    On £40k its not that high.
    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.
    • racey
    • By racey 15th Mar 17, 3:41 PM
    • 120 Posts
    • 43 Thanks
    racey
    How can I check if an advisor is a qualified IFA?
    I looked up someone on the Financial Services Register and it says
    This is an individual (and some firms) that can perform some tasks in an authorised firm. These individuals and firms are known as 'approved persons' and the tasks as 'controlled functions'.
    This suggests to me that the person is not a qualified IFA. Is that correct?
    • Jon_W
    • By Jon_W 15th Mar 17, 3:44 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    you have to have capital to invest to make money. So, you have to work to build that capital. If the work is financially rewarding, you continue to work. You can work and invest at the same time.

    An IFA is there to prevent mistakes and ensure suitability to go with their forward planning. To act as a source of information and do the work for you. I have seen a number of successful DIY investors and have seen plenty who have made a right pigs ear of it. Including one this week who has made decisions that have cost nearly a £100k in bad decision making just to avoid paying £1500 a year to an adviser. Even now, he still doesnt want to pay adviser charges. His knowledge is pure Daily Mail level.

    So, it is not a case that IFA is better than DIY or vice versa. It is about what is best for you.



    On £40k its not that high.
    Originally posted by dunstonh
    As ever, thanks Dunst. That's one HELL of a hit he's taken!!! Flip me.

    An initial fee of £1200 doesn't seem that bad to me, nor an ongoing one of £400-600 (or whatever 1% works out to if the holdings hopefully increase).

    For peace of mind and being able to just let things be, in particular.

    One thing I will make clear before I meet the IFA is to ensure he does not go chasing higher returns by chopping and changing to increase the management fee due. (Though on such a small fund he will have much more lucrative portfolios he can do this with.)

    It also opens-up the funds available because I may well have tended to avoid ETFs due to the 'reinvest the income yoursen' structure.

    I'll arrange to meet him.
    • ermine
    • By ermine 15th Mar 17, 4:11 PM
    • 537 Posts
    • 754 Thanks
    ermine
    @ermine - the aim is to provide for later life and retirement whilst keeping some of my investments liquid in case of emergencies, via a mix of ISAs and SIPPs.
    Originally posted by Jon_W
    You have to work out the split between these somewhat mutually exclusive goals. For retirement it also depends on how old you are

    For emergencies people seem to favour three to six month's spending, although I favour more. Depends how good you feel about your job and prospects of getting another as to how big your emergency fund should be. You tend to slowly lose to inflation carrying an emergency fund, but all insurance has its price.

    There will be about £60k. I am aware that the markets are subject to volatility and risk but I am in this for the long haul so want to put the £ into passive funds and just leave it there.
    Hopefully for your retirement savings rather than emergency fund? Emergencies tend to be correlated with market downturns, so the having your EF in the market isn't a great idea.

    It's easy to say you are chilled with risk but an IFA will try and bottom out how you really are with that, using a test like this one. Not everyone who says they are chilled turns out to be so under pressure, that sort of thing can inform you. People tend to overestimate their ability to regard setbacks with equanimity.

    I am also not sure I can go this alone as I don't know the mix of tax wrappers, let alone which bonds funds and equities funds that will move me towards my (nebulous) goal.?
    You can bottom out your goal before going to an IFA (or going DIY). Until you know what you would like to do, you can't get there and wouldn't be using an IFA's time effectively if you went that way.

    Make a call on the split of emergency fund to retirement savings. For retirement as a rule of thumb take a safe withdrawal rate of ~4% p.a. so you need capital of ~25 times your desired annual retirement income (added to your state pension and any existing pensions) so if you took 50k of your amount you'd get roughly 2k of extra taxable income from that. If you invested it all at the start, for a working life of 30 years and got 4% real return on average you could hope to increase your capital by 2.5 to 3 times at the end of the period. Use a compound interest calculator to see why. That assumes you won't add any more to the pension for those 30 years, which would be a vaguely nutty thing to do. You get a tax bump up putting into a pension because the tax you paid can be reclaim by the SIPP, but you can only contribute up to your gross annual salary, so you might need to spend a couple of years getting it into a SIPP.
    • Audaxer
    • By Audaxer 15th Mar 17, 4:15 PM
    • 162 Posts
    • 36 Thanks
    Audaxer
    Fund selection is one of the least important aspects of an IFA's job.
    That's interesting as I had thought that was probably the most important aspect - I am learning all the time on this forum.
    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.
    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. 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.
    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.
    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?
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