Investment Fund Advice

Graeme7777

Hi,

I am considering investing in a few retail funds, though I will need to engage professional help in making my choices as I have no expertise in that area.

Should I expect to pay fees for such a service or do investment advisors typically operate on a fees-free model like mortgage advisors?

And what level of analysis should I expect from them when making their recommendations; a review of how each fund has performed against benchmarks and peers, or something more sophisticated?

Thanks!

chookie1

Graeme7777 wrote: »

Hi,

I am considering investing in a few retail funds, though I will need to engage professional help in making my choices as I have no expertise in that area.

Should I expect to pay fees for such a service or do investment advisors typically operate on a fees-free model like mortgage advisors?

And what level of analysis should I expect from them when making their recommendations; a review of how each fund has performed against benchmarks and peers, or something more sophisticated?

Thanks!

Definitely pay a fee - otherwise you'll pay them via commission and you'll never know whether it's the best product or just the one that paid the best commission. I'm sure there are very ethical IFAs out there..... but human nature is what it is

Reaper

* Don't go to a bank - they will only sell you their products. Go to an IFA instead.
* The IFA will give you a choice of paying an upfront fee letting them take commission. As choolie1 says paying a fee is best.
* The IFA will ask you how much risk you want to take, what period you want to invest over, your objectives, current situation etc so try to think about some of this before meeting them.
* They should fully explain what products they are recommending and why.
* Not all IFAs are the same. Get a recommendation from somebody else if you can.

If you are in doubt about any advice they give you ask here before going through with it.

dunstonh

Should I expect to pay fees for such a service or do investment advisors typically operate on a fees-free model like mortgage advisors?

With investments, commissions usually equal fees. e.g. a 3% commission will reduce your investment by 3% or reduce the allocation rate by 3%. So it doesnt really matter if you do commission, pay by cheque or agree a fee that is paid for out of commission (with surplus rebated). The end result is the same. In which case, go by a set fee.

And what level of analysis should I expect from them when making their recommendations; a review of how each fund has performed against benchmarks and peers, or something more sophisticated?

Depends on the size of the investment. A large investment should have very good analysis and detail. A smaller one is less likely to have the same level. Mainly as its harder to build structured portfolios with small investment amounts.

Past performance is no indication of future returns so using benchmarks can be misleading. Often, the best funds in growth periods are the worst funds in downturns. Riskier funds also tend to do better in growth periods but worse in bad.

The term IFA does not indicate much beyond the person being investment authorised and having a certain level of qualification. You can get IFAs that specialise in corporate affairs or investments or estate planning or mortgages or a general practitioner. Others focus on financial planning with the investment side a lower priority (or farmed out to a firm that is more focused, like a discretionary investment manager). If you see an IFA that focuses 95% of the time on mortgages then their investment knowledge is not likely to be that strong (and vice versa).

Remember that IFAs are not stockbrokers or discretionary investment managers. We are not authorised to deal on a daily basis (typically rebalancing and periodic fund switches is the level we are meant to do). We only have access to packaged products within the FSA authorisation. If you want something wider then you need to use a stockbroker or discretionary investment manager. If you are happy with packaged products then an IFA is fine.

I'm sure there are very ethical IFAs out there..... but human nature is what it is

Despite being the biggest distribution channel and handling the majority of transactions, IFAs only accounted for just over 2% of complaints at the FOS last year (and its been dropping every year for a long time). Only 1/3rd of those were upheld as well. The FOS themselves have said that the negative perception does not reflect reality when it comes to IFAs. Probably as we get all the flack from the rubbish that tied salesforces give out (over half those seeing tied agents think they are seeing an independent). From 2012, agreed fee will be the only option and increasingly IFAs are already moving to that basis. Some of us for quite a few years now.

Graeme7777

Thank you all very much!