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  • FIRST POST
    • Matt002
    • By Matt002 11th Aug 17, 5:21 PM
    • 59Posts
    • 9Thanks
    Matt002
    Finding an IFA you can trust...
    • #1
    • 11th Aug 17, 5:21 PM
    Finding an IFA you can trust... 11th Aug 17 at 5:21 PM
    Over the last 6 months or so I have met two IFAs from unbiased / vouched for. Sadly they both reminded me of shiny suited second hand car sales men that are purely driven by their own profit rather than whats right for me. Or at least thats the impression I get, I certainly don't trust them with the 150k I have to invest. An opening gambit where you say how massive your house is and expensive your car is doesn't work for me.

    They both said they were whole of market and independent but then start talking about things from some other company that their advice comes from. One of which was called 2plan which had various funds based on different risk levels. What is the IFA doing in this situation apart from taking 3pc of my investment up front and 1pc a year to talk to 2plan?

    I get the feeling I'm missing something so don't flame me, I really would just like to know what they do as the explanation I got from them was more than vague.
Page 3
    • charoniv
    • By charoniv 13th Aug 17, 5:50 PM
    • 86 Posts
    • 25 Thanks
    charoniv
    You're right that generally, everything about investing / wealth management and asset allocations is about having proportionality rather than binary either /or.

    However, deciding to employ an IFA is something that gets more efficient with more pounds invested.

    If you decide you will do your own thing for all of your money except £50k, the IFA is going to have to spend a couple of hours of discussing your goals for that £50k and considering solutions and presenting them to you, as well as a couple of hours documenting the rationale for the solution and implementing it. So he spends 4 hours and the cost of running his business including a profit margin might be £250 per chargeable hour, so it costs you £1000 which is a hefty 2% on your £50k

    However, if instead you give him £250k to manage, it doesn't take him 5x as long to discuss with you and consider and evaluate and propose and implement the solution. Maybe the solution is more complex, so it takes him 8 hours instead of 4, and the liability insurance and FCA fees are 5x higher, but overall it does not warrant a 5x fee to the customer. Perhaps you end up paying 1% on the £250k instead of 2% on the £50k. Which is a much more affordable implementation cost. Likewise the ongoing monitoring and servicing cost would be lower.

    So if you want to have a bit of everything and do a proportion IFA and a proportion DIY, that's going to be relatively expensive for the IFA bit. Also, you might expect the IFA to be relatively less effective if he is not responsible for, or in control of, the whole set of assets you have.

    For example, say you want an overall "medium" amount of risk for your wealth as a whole. You tell him you are going to invest £200k in index trackers (60:40 equity index: bond index) yourself, in ISAs, and want him to advise on just the remaining £50k with the goal of creating an overall medium level of volatility. So, he builds a small £50k portfolio to do that.

    However, when you meet up after a year you mention that actually you read something on a forum that encouraged you to change to a higher equity concentration so you did that part-way through the year on "your" £200k DIY piece but didn't go back to him to give him extra instructions on the £50k bit - because you thought it would cost you more - so you just went extra risky on your bit to average it out. Then after a good year in global equity markets you think your portfolio (in high risk assets and wrapped in ISAs and unencumbered by the 2% implementation fee) did much better than the IFA portfolio so you are going to dump the IFA - even though he came up with s sensible solution for the original remit.

    Or maybe you don't max out your pension and ISA allowances and dividend allowances like the IFA assumed you would, so the IFA solution misses out on taking advantage of using them; and the IFA is buying medium assets all the way but you change your own DIY piece once a quarter on a whim based on your personal convictions -so whatever the IFA portfolio plus DIY mix produces overall, it ain't "medium". So, asking an IFA to take account of certain allocations but not actively monitor or advise on or manage them, seems like a poor compromise.

    Personally I can't imagine feeling confident about dealing with a big portion of my portfolio handled on a DIY basis but then giving the IFA a small isolated piece just to see what he does, as part of my overall wealth. Either I can DIY the lot (which at the moment, I can) - or I need help - at which point I would seek help on my personal financial affairs, to make sure I'm not missing a trick; not merely engage him on some residual bit of my wealth while assuming I know best for a big chunk of it and accepting a really inefficient fee scale.
    Originally posted by bowlhead99
    In that situation it sounds like you don't believe the IFA advice so it's not cost effective to use one and you should be all DIY which you would end up with anyway - a more likely option is to rebalance so the IFA gets more. The idea of the IFA is that you are more comfortable paying for someone else to handle your affairs - if that ends up as a small proportions of your available funds then it's a bit pointless - unless you are expecting to transfer a larger proportion in the future and the IFA understands that.
    DIY doing better than the IFA in the short term (or vice versa) would be expected and is probably fashion investing. That same person could put it all with the IFA and then realise he could have done better and so withdraw it all - probably a worse option.

    Not saying this is how people would act but it seems sensible - have a plan an stick to it. Short term gains in an area probably means that area increases in risk.
    • HappyHarry
    • By HappyHarry 13th Aug 17, 8:29 PM
    • 438 Posts
    • 687 Thanks
    HappyHarry
    Is the 4% pa income after your IFA fees and platform fees are deducted? I looked at an IFA website which showed income portfolios with about a 3.8% yield, but that was before their platform fee of 1.2% and it said other additional portfolio charges were not taken into account, which I assumed it meant IFA ongoing fees for annual reviews etc.

    If your clients are receiving 4% pa after all charges, is the capital value of their portfolios also expected to continue to grow over the long term?
    Originally posted by Audaxer
    If I tell my clients to expect an average of a 4% return, that is what they expect to receive. It would be pretty stupid to set a client expectations at 4% and tell them further down the road that they should expect 4% less all sorts of costs.

    A 4% average net return is completely realistic over the long term. This would typically be a lower risk portfolio, ideal for a client that perhaps hadn't invested outside of cash before, or had a minimal exposure to higher risk assets. Or a client that doesn't require much growth to meet their objectives , and can therefore be happy in the knowledge that their portfolio is avoiding significant risk.

    Higher risk portfolios are available that would expect to return higher amounts on average over the long term. However, they come with periods of larger losses, that would not be suitable for all clients.

    The return would normally be a mix of yield and growth. It matters not to most clients which it is, unless there are tax issues around one aspect or another. Then, of course, these will be addressed.

    All clients and their objectives are different. There is no investment strategy that fits all clients. An IFA should be working with clients on an individual basis, and planning to meet each different clients needs, in whatever way is most appropriate.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • Audaxer
    • By Audaxer 13th Aug 17, 8:50 PM
    • 559 Posts
    • 244 Thanks
    Audaxer
    The return would normally be a mix of yield and growth.
    Originally posted by HappyHarry
    Sorry, when you mentioned getting your clients a good level of sustainable income in retirement I assumed you were just talking about dividend income. Whether DIY or going through an IFA I would certainly hope for at least an average 4% total return over the long term.
    • HappyHarry
    • By HappyHarry 13th Aug 17, 9:04 PM
    • 438 Posts
    • 687 Thanks
    HappyHarry
    Sorry, when you mentioned getting your clients a good level of sustainable income in retirement I assumed you were just talking about dividend income. Whether DIY or going through an IFA I would certainly hope for at least an average 4% total return over the long term.
    Originally posted by Audaxer
    Which is perfectly reasonable.

    You probably have a higher tolerances to risk than those who would be happy with 4%, and so would be suited to a very different investment strategy.

    There is nothing wrong with having a higher or lower attitude to risk. What is important to every client is having an investment strategy that is clear and unambiguous, and is appropriate to their own circumstances.

    I have many clients, similar to yourself, who would be incredibly disappointed with a strategy targeting 4% net. However, I also have clients for whom that type of strategy is entirely appropriate.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • jimjames
    • By jimjames 13th Aug 17, 9:27 PM
    • 12,180 Posts
    • 10,695 Thanks
    jimjames

    That is incorrect. IFAs are not allowed to have any restrictions. FAs are. It sounds like yours were not IFAs.
    Originally posted by dunstonh
    I read that quote as being that IFAs cannot advise on other things than investments so can't give advice on property. Is that not the case anymore if they are an IFA?
    Last edited by jimjames; 13-08-2017 at 9:32 PM.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • bowlhead99
    • By bowlhead99 13th Aug 17, 10:00 PM
    • 6,873 Posts
    • 12,378 Thanks
    bowlhead99
    I read that quote as being that IFAs cannot advise on other things than investments so can't give advice on property. Is that not the case anymore if they are an IFA?
    Originally posted by jimjames
    FCA says that if you want to advise 'independently' on investments and say you're doing so without restrictions on any type of regulated retail financial product, you need to be able to do that on everything under the banner of retail financial products:

    The definition 'retail investment products' covers:
    life policies
    units
    stakeholder pension schemes
    personal pension schemes
    an interest in an investment trust savings scheme
    a security in an investment trust
    any other designated investment that offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in a financial asset, or a structured capital-at-risk product
    As buying direct ownership of land and buildings is not a retail financial product, an IFA doesn't have to be able to provide advice on whether buying a specific property as part of a property lettings business (or just to live in) is in your best interests, even though he might have some sort of opinion about whether it's generally risky or not. Not providing that advice (because he's advising on regulated retail investments and is not a home ownership consultant) does not mean he's "restricted" ; he can still say he's independent in relation to the broad market of retail packaged financial investments.

    Similarly if he won't tell you whether now is a good time to specifically buy a directly-held share in Barclays, or sell a share in HSBC, that doesn't make him 'restricted' - it's just something outside of his remit as an IFA. He can offer you comments about whether holding investments in individual companies is generally a high risk or low risk thing to do - but advice on a specific company share or on adding a bit of equity in a house is not inside the scope of an 'independent' service.
    • Aegis
    • By Aegis 18th Aug 17, 11:02 AM
    • 4,771 Posts
    • 2,875 Thanks
    Aegis
    I have been through similar. I have had three IFAs over the years and all have turned out dire for one reason or another, which is why I have just started self-managing my investments.

    The term IFA is a misnomer. Independent? They are often restricted to one form of investment or another. My last IFA would assess your risk and put you in one of the six portfolios they constructed. In pub terms they are tied houses not free houses. Financial? Only to a degree! I asked for advice about investing in property and was told they could not advise me on that – they only do stocks. Adviser? As already said … salesman!
    Originally posted by aroominyork
    Just to put a slightly different spin on this, did you have any requirements or requests which made you different to the "normal" client (whatever that is) for the firm? Generally speaking, if you have someone who comes out as Medium Risk (say, 5 out of 10 on a scale, though see below for more discussion on risk profiling) and doesn;t have any ethical restrictions or preferences for one type of investment over another, then a firm carrying out sufficient due diligence on the whole market should end up with fairly similar investment portfolios for all clients in such a position. This is specifically looked at by the FCA when they visit firms - outliers from the norm will raise questions because if the firm is following a process there should be a reason for any deviation from the optimum outcome.

    That said, an independent firm should be able to accommodate your requests. If you decided that you only wanted trackers or investment trusts, for example, then this likely wouldn't fit the standard models of most firms and something new ought to be created for you. The firm could elect to advise against that preference, and should then either decline to work with you or proceed only on an execution-only basis, but that would be their decision.

    I don't personally see anything wrong with model portfolios designed to meet the needs of, say, 90-95% of clients who come to the firm, with a separate investment policy for the outliers. But unless you are one of those outliers, you shouldn't be placed into a different solution, as it isn't likely to be what the firm believes is in your best interest.


    I also think their way of assessing risk appetite is inherently flawed. You fill in a load of questions but they do not give you any context by informing you of how markets move over long or short periods of time. So you answer whether you would mind losing capital for the chance of earning higher returns, but without them priming you to understand the difference between a 10 year and 30 year investment period that is meaningless.
    This is a confusing area of work for an investment professional, let alone anyone else, however the two things you have mentioned here are actually separate issues altogether. The questionnaire you mention is designed to assess your tolerance of investment risk, i.e. how steadfast you will be watching your portfolio fall in value during market downturns, regardless of how long you have left before your goal. For example, someone investing their pension into pure equities in early 2008 may well have seen 40%+ drops in value - risk tolerance is a way of trying to predict whether that person would be so unnerved as to sell their portfolio during the downturn even if they had, say, 40 years to go before retirement.

    Timescale of the investment falls under the remit of capacity for loss, which is a mathematical exercise that should be carried out by the firm to determine whether you would be able to recover from a loss in line with your maximum tolerance. If, for example, the firm assumes that a Medium Risk investor is able to tolerate a loss of around 25%, then the capacity for loss analysis should assess whether your goals are still achievable - or at least better than cash - if that maximum loss occurs during the life of your investment. Timescale plays a huge part of this, which is why no adviser in their right mind will ever suggest that you invest in risky assets for goals within three years, but almost all advisers will recommend investments for all clients with a 30-year time horizon.


    If an IFA has a limited number of funds for you to choose from, get clear graphs/data about how they have performed over a long period of time after accounting for fees, and then compare to Vanguard LifeStrategy that bostonerimus favours. You might find that a low cost tracker will do for you.
    Personally the specific investments selected really don't matter that much to me, as long as they fit the risk profile. My usual approach is to assume that trackers are a great starting point for anyone accumulating wealth, while active funds tend to be better for drawing down. I am, however, largely agnostic towards the active/passive debate these days (this was not always true, as you will see from my posting history). I feel that my role as adviser is more suited to helping people manage their expectations and to ensure that they minimise unnecessary taxes.

    There are now a number of low-cost investment propositions out there, and I think they're fantastic for a very significant chunk of the UK market, perhaps even the majority. I now see myself slotting in to help out where things have become much more complicated.
    I am an Independent Financial Adviser
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
    • bostonerimus
    • By bostonerimus 18th Aug 17, 1:04 PM
    • 1,107 Posts
    • 621 Thanks
    bostonerimus

    Personally the specific investments selected really don't matter that much to me, as long as they fit the risk profile. My usual approach is to assume that trackers are a great starting point for anyone accumulating wealth, while active funds tend to be better for drawing down. I am, however, largely agnostic towards the active/passive debate these days (this was not always true, as you will see from my posting history). I feel that my role as adviser is more suited to helping people manage their expectations and to ensure that they minimise unnecessary taxes.

    There are now a number of low-cost investment propositions out there, and I think they're fantastic for a very significant chunk of the UK market, perhaps even the majority. I now see myself slotting in to help out where things have become much more complicated.
    Originally posted by Aegis
    I agree with these observations. I don't really see the worth of an IFA in choosing and managing investments for anyone with a bit of common sense and the willingness to acquire some basic financial knowledge. However, many people will benefit from professional advice about tax planning and complicated topics like trusts and estate planning if they become necessary.
    Last edited by bostonerimus; 18-08-2017 at 2:51 PM.
    Misanthrope in search of similar for mutual loathing
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