A new financial advisor

smartpicture

My IFA, who I've always used after being recommended by some bloke at the tennis club years ago, recently split from his firm and went out on his own with a couple of other staff members. I didn't like the way he was touting for my business while still working for the original firm (although I've always been happy with his advice), so I decided to take the opportunity to look around for someone the proper way. I eventually found a Chartered Financial Planner in my area but have a couple of questions:

a) I've always paid the other guy an hourly rate (as it seemed better than the commission option for the numbers we were talking about) but this guy wants to charge me £50/mth. Is this normal? It seems to me that would incentivise him to do as little as possible for me as he'll still earn the same amount either way - plus it's considerably more than I was paying the other guy.

b) Would you expect your IFA to recommend particular funds to choose in your pension? With my previous guy, he just asked me about my level or risk then suggested a balance of different funds to invest in. This guy seems horrified by that idea and says an IFA isn't qualified to recommend funds and that's not their job. But then whose job is it, as surely I'm even less qualified to select funds than he is and wouldn't know where to start!

Lokolo

As I recall (could be wrong), a Chatered Financial Planner is one of the highest qualifcations you can get hence why its more expensive.

An IFA should be doing a risk assessment and giving you options (usually different funds) depending on your profile. That is there job. Unless they're not qualified to do so in the area (speciality, like mortgage advisor etc.).

smartpicture

I suppose the expense makes sense then. Although it still seems odd to me because he says you sign up for £50 a month but can cancel at any time, so what's to stop me getting his advice then cancelling straight away? I'm not planning to, but it seems a strange business model.

So it sounds like you think he should be recommending funds for my pension as well then. So I'm still not clear on why he thinks I should do that bit myself!

dunstonh

but this guy wants to charge me £50/mth. Is this normal?

Its on option that some firms have. Its not normal or abnormal. Its just one type of fee option.

Would you expect your IFA to recommend particular funds to choose in your pension?

Absolutely. You seek advice and you want advice.

This guy seems horrified by that idea and says an IFA isn't qualified to recommend funds and that's not their job.

Some CFPs think that way and are quite vocal about that subject. They will say IFAs are not qualified to pick stocks blah blah blah. Although they still end up recommending funds as well.

IFAs are not qualified to act as an investment manager. It is not the role of the IFA and you shouldnt expect it. However, the IFA should be capable of ascertaining your risk profile and working to a defined investment strategy (of which there are many) and selecting funds that fit with that strategy.

Its not about micromanaging the investments but making sure the money is in the right place to fit your risk profile and objectives. You dont want an IFA that is polarised in an opinion at either end really (e.g. you dont want one that micromanages and switches all the time and you dont want one that dismisses investment selection out of hand as being a waste of time).

Although it still seems odd to me because he says you sign up for £50 a month but can cancel at any time, so what's to stop me getting his advice then cancelling straight away?

He will still be earning off the investments you have. The charge is almost certainly incremental. Has any mention of a platform or wrap been made. e.g. Transact?

medders2604

there is a retail distribution review being introduced in 2012 that will (as far as we know at the moment) stop IFA's taking commission so they will all have to move to a fee basis. Most people don't want to pay fees of several hundred pounds (minimum) at a time so it makes sense for them to move to a monthly price. I know a lot of IFA's/planners that are moving to this model.
Ive also tended to notice that the monthly premium basis generally means they take even more care as if you are not happy you will just stop the DD.
Sounds like you have found a guy that knows what he is doing and being Chartered is highly qualified its about the equivalent of a degree (Im studying for mine at the moment 5 exams done and countless more to go)

medders2604

dunstonh wrote: »

He will still be earning off the investments you have. The charge is almost certainly incremental. Has any mention of a platform or wrap been made. e.g. Transact?

Good point DunstonH its worth OP checking whether he is also taking trail commission on business he writes.

dunstonh

there is a retail distribution review being introduced in 2012 that will (as far as we know at the moment) stop IFA's taking commission so they will all have to move to a fee basis.

Commission is being withdrawn in that the product provider will no longer pay a figure they set. However, the IFA (or tied agent or multi tied) will agree a fee with you in advance and you can then have that fee collected via the product still in charges made to the product. There are already products available that work on that basis and they can be much more cost effective than the older commission only type plans.

The adviser can still take 1%, 2%, 3% or a fixed amount or whatever is agreed from the investment and a percentage per annum if they wish. The difference is that it is done under a fee agreement which will say what you get for that fee. Currently, renewal and trail commission is paid irrespective of any fee agreement you have.

As you say, many have already made a move to agreed fee basis. However, the method of the fee still varies across firms.

One firm near me charges every time a bit of work is done but has no retainer. Another one I know has a monthly retainer and will do basic work (valuations etc) and give access to software but will still charge on top of that for any advice given. Some will use the trail commission that is paid to pay for servicing.

There are many different charging models and some people will be suited to one model and not another. It really depends on what service you actually want.

aylithuk

I know if your with a High Street Bank and within their Private Banking area they hold IFAs on retainer for clients that feel the bank's own FPM products are not right for them

It might be worth speaking to your bank and seeing if they are refer you on?

dunstonh

aylithuk wrote: »

I know if your with a High Street Bank and within their Private Banking area they hold IFAs on retainer for clients that feel the bank's own FPM products are not right for them

It might be worth speaking to your bank and seeing if they are refer you on?

Avoid them totally. HSBC still seem to have a bias for HSBC products and Lloyds discretionary management portfolios are full of unit trust funds run by Scottish widows. They also charge on top of the normal charges as well.

Banks also tend to suffer a high turnover in advisers and it is still a salesforce. Sales managers putting pressure on, targets to sell etc. That isnt how you should get advice.

smartpicture

I'm starting to think I should go back to the first guy now, as he seemed to have no problem recommending funds for me. Does anyone else think it was unethical to tout for my business for his new firm whilst still being paid by his old employer, or was he just being entrepreneurial?

Aegis

aylithuk wrote: »

I know if your with a High Street Bank and within their Private Banking area they hold IFAs on retainer for clients that feel the bank's own FPM products are not right for them

It might be worth speaking to your bank and seeing if they are refer you on?

I just left HSBC, and I have to agree with dunstonh on this one. If you go to see one of their IFAs at the moment they will very strongly push the world selection fund on you regardless of your investment objectives. This is a new fund with only about 8 months of performance data to examine, runs at a 4% initial charge normally (discounted to 3% through the IFAs) and runs at a TER of around 2.7% if memory serves.

As the fund is designed to minimise volatility, this TER represents a very large chunk of the likely gains in any one year, so it's likely to be a long-term bad choice for many people. I know that the bank were very pleased that they were managing about a 6% return on the dynamic world selection fund at some point this year, but that was when many of the markets around the world were looking at gains of closer to 25%.

Many of the IFAs there were essentially being told that all customers had to have one flavour of this fund, and with the very high costs it's easy to see why.