What would a IFA recommend?

GeorgeHowell

gozomark wrote: »

IFAs will still try to argue that over the long term they have proved to be the best investment

the irony is, the harder it is to prove that, the better the timing is to do it - ie top of market is when its easiest to prove equities are better than cash. On a very long term basis, cash will return maybe 1% more than inflation. Equities will return real GDP growth ie 2.5-3% - ie over the very long term, its easy to see equities outperforming cash by about 1.5-2% per annum. The trick is buying equities when below trend, not above trend - they are currently below trend - not to say they won't go more below trend though

Yes that's all true. Although I think an absolute drop in UK equity price level over 10-12 years is pretty unprecedented in modern times. If someone is say 20 and receives a sizeable inheritance, puts it in equities and forgets about it until they retire in 40 or more years time then they probably would gain over all or most alternatives (same goes for domestic property perhaps). However for somebody retiring at 60 or 65 with perhaps a 20-25 year actuarial life expectancy it might be a different matter. Even if equities did outperform cash over that period, does that person need the angst and uncertainty as the roller coaster proceeds ? Also the long term gain theory for equities requires leaving funds untouched including dividends. Many people, especially the retired, may not have that luxury, and may have to withdraw some of their investment at the worst times.

Despite the protocols imposed by the totally discredited FSA I'm not confident that IFAs do routinely take account of potential investors' individual circumstances in their real best interests. Personally I would not touch an IFA because I know they would guide me towards a portfolio which was much more risky than I want, even though they would have to categorise me as cautious and risk averse. Probably their idea of a cautious portfolio is typically 30%-50% in equities. Mine is about 7.5% !

dunstonh

I would not touch an IFA because I know they would guide me towards a portfolio which was much more risky than I want

Which would then be a mis-sale. You should be guided to a portfolio that matches your risk. Most do that.

Probably their idea of a cautious portfolio is typically 30%-50% in equities.

20-30% is cautious typically.

Mine is about 7.5% !

Thats not cautious. Thats near paranoid-as you hint. However, this is why when people throw the phrases "cautious" or "low risk" around, they really need to be in context as one persons low risk is another persons hight risk. Modern risk profiling methods are much better than the methods of old (pick a number between 1 and 5 style).

However for somebody retiring at 60 or 65 with perhaps a 20-25 year actuarial life expectancy it might be a different matter.

Not really as retirement planning tends to be done with monthly payments and periods when it drops are beneficial to the monthly payments and it reduces the short term losses whilst giving the potential for long term gain.

does that person need the angst and uncertainty as the roller coaster proceeds ?

Up to them. They dont have to have it but then they run the risk of suffering shortfall and having to pay more. Investing below your risk profile is just as risky as investing above and for IFAs it can carry a liability for bad advice just as much as investing above the risk profile.

Most balanced portfolios are nowhere near down as much as the FTSE. Putting it context, drops are typically around 25%. That really isnt a lot when you consider that we are going through what is generally regarded as a 1 in 100 year event.

GeorgeHowell

dunstonh wrote: »

Thats not cautious. Thats near paranoid-as you hint. However, this is why when people throw the phrases "cautious" or "low risk" around, they really need to be in context as one persons low risk is another persons hight risk. Modern risk profiling methods are much better than the methods of old (pick a number between 1 and 5 style).

That, if I may say so, is a typical IFA standpoint. Which is why people who have a genuinely cautious and risk-averse outlook are best to steer clear of IFAs. This is because they are never going to come up with something acceptable to us so we are wasting our time and money. What the typical IFA would call cautious, I would call balanced/fair degree of risk. It's a matter of opinion of course, but, independent or not, IFAs do all have a vested interest in promoting equities and fund investments for the reasons that I outlined in the previous post.

Lokolo

Yes but then again what does one do if they want to put money into investments but know nothing? Would you call it wise for them to put it into 100% equities? As with any job you learn through experience, so an IFA would easily be able to determine where someone actually lies in their risk catagory.

Obviously personally I wouldn't go and see one because I am starting to know where I am going, but others who work 9-5 with that extra bit of money but want to put it into investments, what is there to do?

Stavros_3

Ahh, the goold old 'Lets bash the IFA comments'. I have to say my IFA was up front from the start. B4 we got anywhere near talking about investments/risks he went through his charges to get it out of the way which I appreciated. There then followed the 'risk assessment' questionaire which on completing honestly with my wife we came out as medium risk. After discussing our capital etc etc, he had prepared a very detailed financial plan for 5+ years which I was comfortable with. He recommended a particular wealth management company with good fund managers. I have parted with six figures with the hope of a good long term return on our investment portfolio. Only 17% at the moment is in UK equities. I recently spoke to the fund manager recently who said that even though our risk profile is medium, they are taking a cautious approach due to volitility in the market. They are however buying into opportunities as they see them. I have nothing but praise for my IFA for his honest dealings with us. Yes he has a living to make but his aims ands objectives are directed towards us his clients

whiteflag_3

GeorgeHowell wrote: »

What the typical IFA would call quote]

So what your definition of a "typical IFA" ?

I am also interested in just how many IFAs you have seen to allow to make such a judgement.

dunstonh

There is no such thing as a typical IFA. There are far too many business models and IFAs focusing on different parts of the market to compare them. The term IFA just indicates a certain level of qualifications and that they are whole of market and have to have a fee offering. Beyond that, its all different.

In addition to that you get different types of consumers. You could get two consumers with identical needs but different "IQ" (to put it bluntly) and you will get two different recommendations. Very little is typical about anything.

As most consumers have never used an IFA, it does seem strange that you get some people posting as if they have seen loads and all their friends have too.

a7man

I dont understand why so many people are against IFAs, they deal with wealth options for a living so have a much better expertise than the average investor. Sure you can learn yourself, but you can also learn to be a mechanic and fix your own car, a builder and build your own house.You wouldnt expect them to work for free would you.

whiteflag_3

a7man wrote: »

I dont understand why so many people are against IFAs, they deal with wealth options for a living so have a much better expertise than the average investor. Sure you can learn yourself, but you can also learn to be a mechanic and fix your own car, a builder and build your own house.You wouldnt expect them to work for free would you.

I think the problem is that IFAs are being blamed for losing their clients money, when really world events are beyond their control.

Using your example, if you paid your mechanic to fix your brakes and then you ran into the back of another car it would be more convenient to blame the mechanic rather than admit you could have paid a bit more attention.

Lokolo

I think its because IFAs are expected to give good returns. I know this is not true, but for example. If I went upto my friend A and asked him to suggest a good financial advisor, hes most likely to pick the guy who got the best return. Now I go to this IFA, he sets everything up blah blah blah. I then lose 10% of my holding, I then come on moneysavingexpert.com, slag off IFAs and say I could have done a better job....