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  • FIRST POST
    • username12345678
    • By username12345678 13th Sep 17, 10:13 PM
    • 110Posts
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    username12345678
    Meeting with my IFA and Wealth Manager
    • #1
    • 13th Sep 17, 10:13 PM
    Meeting with my IFA and Wealth Manager 13th Sep 17 at 10:13 PM
    They have requested a joint meeting after I gave notice of my intention to cease our 'partnership' at the end of the year. They are keen to show how they 'add value'

    Out of courtesy I agreed and i'll be open minded about what they have to say and if it's compelling i'm fully prepared to change my mind and continue for another 12 months.

    If I go on my own i'm comfortable with understanding my own risk tolerance and i'm happy with structuring my own OEIC/IT/ETF portfolio to diversify and match that risk level.

    I have a list of questions/challenges for them but I fully expect to get 'tag teamed' so I want to be as prepared as possible to stand my corner (in a non-confrontational way of course). So i'd appreciate drawing on the forums collective brain for a sensible approach to the meeting.
Page 2
    • chiang mai
    • By chiang mai 14th Sep 17, 1:32 PM
    • 31 Posts
    • 4 Thanks
    chiang mai
    ''The 60% was a rough ballpark based on 40 years and 1.5%pa in fees''

    £100,000 invested for 40 years with a 7% return could theoretically generate £1.5 million. With an IFA taking 1.5% the return would be £821,000.
    Originally posted by davieg11
    Is that £821,000 in todays Pounds or future Pounds!

    Wow...! There is no contract with any IFA, it's something you can agree to and switch off when ever you want, why are you even considering costing IFA services over 40 years as part of your decision making process!
    Last edited by chiang mai; 14-09-2017 at 2:21 PM.
    • dunstonh
    • By dunstonh 14th Sep 17, 2:39 PM
    • 89,460 Posts
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    dunstonh
    Is that £821,000 in todays Pounds or future Pounds!

    Wow...! There is no contract with any IFA, it's something you can agree to and switch off when ever you want, why are you even considering costing IFA services over 40 years as part of your decision making process!
    Originally posted by chiang mai
    It is future money. Plus, the IFA would not be taking 1.5%. On figures of that size, you would expect the typical 0.5%.

    There also appears to be an assumption that this lowers the returns vs DIY. That is not necessarily the case. If the DIY is bad, it can be a costly error and if it's in investments that perform to a lower level then it can be false economy to pay less and get less.
    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.
    • HappyHarry
    • By HappyHarry 14th Sep 17, 2:50 PM
    • 397 Posts
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    HappyHarry
    I think the key is not how much less you will get by using an IFA, but how much more you can you gain.

    These kind of comparison figures always assume that you will make the same decisions yourself as the IFA recommends. Including future changes to the portfolio. This does seem somewhat unlikely.

    Can you;
    (i) Get the same or better performance as the portfolio recommended by the IFA for the same or lower level of risk.
    (ii) Make the same or better future adjustments to your portfolio and stay within the same or lower level of risk.
    (iii) Keep up to date with legislative changes over the next 40 years to ensure your portfolio is invested in the most appropriate tax-wrappers for your circumstances.

    If you can do all the above, then the IFA fee is indeed an unnecessary drain on your overall return.

    However, if you can't, then the IFA fee may well be worth paying, as you are likely to end up financially better off in 40 years time compared to going DIY.
    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.
    • username12345678
    • By username12345678 14th Sep 17, 3:09 PM
    • 110 Posts
    • 47 Thanks
    username12345678
    I think the key is not how much less you will get by using an IFA, but how much more you can you gain.

    These kind of comparison figures always assume that you will make the same decisions yourself as the IFA recommends. Including future changes to the portfolio. This does seem somewhat unlikely.

    Can you;
    (i) Get the same or better performance as the portfolio recommended by the IFA for the same or lower level of risk.
    (ii) Make the same or better future adjustments to your portfolio and stay within the same or lower level of risk.
    (iii) Keep up to date with legislative changes over the next 40 years to ensure your portfolio is invested in the most appropriate tax-wrappers for your circumstances.

    If you can do all the above, then the IFA fee is indeed an unnecessary drain on your overall return.

    However, if you can't, then the IFA fee may well be worth paying, as you are likely to end up financially better off in 40 years time compared to going DIY.
    Originally posted by HappyHarry
    Point 3 regarding legislation and process is valid.

    I'm more than happy to pay for advice as I approach drawdown to ensure I do it as efficiently as possible.
    • bostonerimus
    • By bostonerimus 14th Sep 17, 3:16 PM
    • 854 Posts
    • 427 Thanks
    bostonerimus
    Is that £821,000 in todays Pounds or future Pounds!

    Wow...! There is no contract with any IFA, it's something you can agree to and switch off when ever you want, why are you even considering costing IFA services over 40 years as part of your decision making process!
    Originally posted by chiang mai
    It's good to understand what 2% fees will do over time. If you pay them for 40 years your ending pot will be roughly half the size (44%) of the pot without fees.....that of course assumes similar returns with and without fees. 1% fees will reduce your pot by 67% of the pot without fees.

    The key is if you believe an IFA can consistently do better than you. I don't believe that they can. I've managed a 30 year return that equates to 8.5% every year. A large part of that number is produced because my total fees are 0.1%......very little cummulative drag.

    The biggest issue with the projections above is the use of a constant 7% return. You're going to have to deal with a distribution of returns, some negative, during those 40 years.
    Last edited by bostonerimus; 14-09-2017 at 3:25 PM.
    Misanthrope in search of similar for mutual loathing
    • davieg11
    • By davieg11 14th Sep 17, 7:14 PM
    • 241 Posts
    • 104 Thanks
    davieg11
    An example from me. My IFA recommended Royal London Governed Portfolio 7 for 1% ongoing fee. I negotiated down to a fee of 0.65%, plus 0.45% fee from Royal London. The last 3 months return has been 0.1%. My own works fund is mostly SL Baillie Gifford Life Managed Fund. Fees are 0.79%. Returns last 3 months are 0.7%. Obviously the next 3 months could be completely different but if you are willing to take an interest in your future wealth and check once or twice a year and don't panic on stock market crashes you could have the £1.5 million rather than the £821,000, in theory of course!
    • Audaxer
    • By Audaxer 14th Sep 17, 8:01 PM
    • 404 Posts
    • 166 Thanks
    Audaxer
    It is future money. Plus, the IFA would not be taking 1.5%. On figures of that size, you would expect the typical 0.5%.

    There also appears to be an assumption that this lowers the returns vs DIY. That is not necessarily the case. If the DIY is bad, it can be a costly error and if it's in investments that perform to a lower level then it can be false economy to pay less and get less.
    Originally posted by dunstonh
    I agree, but surely if the IFA someone selects turns out to be bad (as I am sure you get good and bad IFAs) it could also be a costly error.
    • username12345678
    • By username12345678 14th Sep 17, 8:11 PM
    • 110 Posts
    • 47 Thanks
    username12345678
    I agree, but surely if the IFA someone selects turns out to be bad (as I am sure you get good and bad IFAs) it could also be a costly error.
    Originally posted by Audaxer
    When you choose an IFA you're taking a punt on someone who is going to take a punt on a wealth manager who is going to take a punt on 15+ fund managers who are going to take multiple punts themselves.

    Lots of 'educated' guessing going on.
    • dunstonh
    • By dunstonh 14th Sep 17, 8:20 PM
    • 89,460 Posts
    • 54,930 Thanks
    dunstonh
    When you choose an IFA you're taking a punt on someone who is going to take a punt on a wealth manager who is going to take a punt on 15+ fund managers who are going to take multiple punts themselves.

    Lots of 'educated' guessing going on.
    Originally posted by username12345678
    When you DIY, you are putting a punt on yourself to do the same things.
    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.
    • username12345678
    • By username12345678 14th Sep 17, 9:04 PM
    • 110 Posts
    • 47 Thanks
    username12345678
    When you DIY, you are putting a punt on yourself to do the same things.
    Originally posted by dunstonh
    That's true of course.

    I do wonder if it's psychologically easier for amateur investors to rationalise away investment losses when they happen under the eye of a professional.

    If they self manage there is no way to abrogate that responsibility.
    • bostonerimus
    • By bostonerimus 14th Sep 17, 10:25 PM
    • 854 Posts
    • 427 Thanks
    bostonerimus
    When you DIY, you are putting a punt on yourself to do the same things.
    Originally posted by dunstonh
    I'd rather bet on myself with a simple low cost tracker portfolio and know exactly what's happening to my money that employ and IFA, FA or Wealth Manager. Over the long run a low cost tracker portfolio is probably going to beat most active portfolios, so I'm not going to pay someone to manage an active portfolio and as there is very little management to do with a passive portfolio it's simply not worth paying anyone to manage it.
    Last edited by bostonerimus; 14-09-2017 at 10:29 PM.
    Misanthrope in search of similar for mutual loathing
    • chiang mai
    • By chiang mai 15th Sep 17, 12:24 AM
    • 31 Posts
    • 4 Thanks
    chiang mai
    If those IFA fees did amount to 821k, surely that means the OP has generated wealth of almost 81 million, using the same percentages etc. hence 821k is a nothingness by comparison. Regardless, who, when they are going to buy a home looks at the probable cost over the next 40 years, it would be equally silly to do so.
    • bostonerimus
    • By bostonerimus 15th Sep 17, 2:55 AM
    • 854 Posts
    • 427 Thanks
    bostonerimus
    If those IFA fees did amount to 821k, surely that means the OP has generated wealth of almost 81 million, using the same percentages etc. hence 821k is a nothingness by comparison. Regardless, who, when they are going to buy a home looks at the probable cost over the next 40 years, it would be equally silly to do so.
    Originally posted by chiang mai
    It's simply the compounding of the fees. If you get identical returns, but have to pay 2% in additional fees, then each year you have 98% of what you'd have without the fees.....98^40=0.4457, for 1% 0.99^40 = 0.669 and for 0.5% 0.995^40 = 0.818
    Misanthrope in search of similar for mutual loathing
    • Malthusian
    • By Malthusian 15th Sep 17, 11:42 AM
    • 2,866 Posts
    • 4,097 Thanks
    Malthusian
    I agree, but surely if the IFA someone selects turns out to be bad (as I am sure you get good and bad IFAs) it could also be a costly error.
    Originally posted by Audaxer
    Costly for the IFA. The IFA would be required to make good any loss from such errors, which should in turn be covered by their PI insurance.

    Of course if the IFA you use is not just bad but downright dodgy they are unlikely to have PI cover and will probably liquidate the company rather than make good your loss, leaving you to claim from the Financial Services Compensation Scheme (which is capped at £50,000). But that is really quite unlikely if you a) don't invest with people who cold call b) don't invest in things you don't understand or that are too good to be true.
    • dunstonh
    • By dunstonh 15th Sep 17, 11:49 AM
    • 89,460 Posts
    • 54,930 Thanks
    dunstonh
    It's simply the compounding of the fees. If you get identical returns, but have to pay 2% in additional fees, then each year you have 98% of what you'd have without the fees.....98^40=0.4457, for 1% 0.99^40 = 0.669 and for 0.5% 0.995^40 = 0.818
    Originally posted by bostonerimus
    You are assuming identical returns. That assumption cannot be made. I have seen plenty of rubbish DIY investments over the years. And to be fair, I have seen some poor quality advised recommendations too. Although that is less likely today than it was 10 or 20 years ago due to the level of research and due diligence and increased knowledge that exists.

    Our hybrid portfolios have been outperforming VLS over 1, 3 and 5 year periods after charges. Many DIY investors using a mix of active and passive will say the same. It's not as simple to say that paying less in charges means you will get more.
    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.
    • bostonerimus
    • By bostonerimus 15th Sep 17, 1:07 PM
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    • 427 Thanks
    bostonerimus
    You are assuming identical returns. That assumption cannot be made. I have seen plenty of rubbish DIY investments over the years. And to be fair, I have seen some poor quality advised recommendations too. Although that is less likely today than it was 10 or 20 years ago due to the level of research and due diligence and increased knowledge that exists.

    Our hybrid portfolios have been outperforming VLS over 1, 3 and 5 year periods after charges. Many DIY investors using a mix of active and passive will say the same. It's not as simple to say that paying less in charges means you will get more.
    Originally posted by dunstonh
    I was giving active funds the benefit of the doubt...........Sure there are winners, but there will also be losers, could you disclose your losers? Do any of your IFA colleagues ever have portfolios that underperform the market or are they all above average? And of course VLS is a particular fund with a high UK exposure and a bond component, we'll need to be comparing similar asset allocations.
    Last edited by bostonerimus; 15-09-2017 at 1:30 PM.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 15th Sep 17, 2:49 PM
    • 854 Posts
    • 427 Thanks
    bostonerimus
    Costly for the IFA. The IFA would be required to make good any loss from such errors, which should in turn be covered by their PI insurance.

    Of course if the IFA you use is not just bad but downright dodgy they are unlikely to have PI cover and will probably liquidate the company rather than make good your loss, leaving you to claim from the Financial Services Compensation Scheme (which is capped at £50,000). But that is really quite unlikely if you a) don't invest with people who cold call b) don't invest in things you don't understand or that are too good to be true.
    Originally posted by Malthusian
    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation. That way the investor would be sure to get value and as all IFAs seem to beat the market it should not be a problem.
    Misanthrope in search of similar for mutual loathing
    • Malthusian
    • By Malthusian 15th Sep 17, 3:00 PM
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    • 4,097 Thanks
    Malthusian
    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation.
    Originally posted by bostonerimus
    Which passive index portfolio invested in which asset allocation?
    • bostonerimus
    • By bostonerimus 15th Sep 17, 4:07 PM
    • 854 Posts
    • 427 Thanks
    bostonerimus
    Which passive index portfolio invested in which asset allocation?
    Originally posted by Malthusian
    Use the accepted benchmarks from folks like Barclays and MSCI and create a passive portfolio with a similar asset allocation to the active portfolio. IFAs are always anxious to say they provide value and advertise that they beat passive indexing so they should sign up to do that. If they can't then why would you use them.
    Last edited by bostonerimus; 15-09-2017 at 4:15 PM.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 15th Sep 17, 4:21 PM
    • 89,460 Posts
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    dunstonh
    Sure there are winners, but there will also be losers, could you disclose your losers?
    There is one quartile 4 fund and that is a Vanguard tracker. There is a quartile 3 fund which is bricks and mortar property. I ignore that because the sector is flawed as bricks and mortar is mixed in with property share. The rest are quartile 1 and 2.

    Do any of your IFA colleagues ever have portfolios that underperform the market or are they all above average?
    I buy my data in from a company that supplies IFAs. Everybody has an investment that underperforms for a discrete period. Doesnt matter if its an IFA or a mutli-asset fund or your beloved Vanguard.

    For example, VLS60 is quartile 4 over the last 12 months ranked 236 out of 274. It is quartile 4 over 5 years ranked 162/208.

    And of course VLS is a particular fund with a high UK exposure and a bond component, we'll need to be comparing similar asset allocations.
    That goes without saying. In fact it is a regulatory requirement.

    Maybe the IFA should be made to guarantee a return, after all fees, at least as high as a passive index portfolio invested in a similar asset allocation.
    What happens if the IFA recommends a passive portfolio that underperforms?

    IFAs are always anxious to say they provide value and advertise that they beat passive indexing so they should sign up to do that. If they can't then why would you use them.
    It is not the primary job of an IFA to be an investment manager. Indeed we are not investment managers. However, the role requires selection of investments and nowadays, IFAs buy in the data, analysis and due diligence as the requirements are so much higher than they used to be and its not practical for firms to do most of this in-house.

    Also, IFAs use passives. It is not unique to DIY.
    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.
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