IFA charges. do these sound ok?

grumpycrab

Hi, finally getting around to giving our pot (to last 15 years for income) to an IFA. Do these charges look ok. (I'm not expecting them to be cheap; the IFA is a medium sized firm)
- 2% of funds taken under management
- yearly charge 1.75% max. This is broken down as follows:- 0.75% annual advice fee and fund management charges will be between 0.25% and 1% depending on the funds they select for us; this latter charge is TER.

dunstonh

- 2% of funds taken under management
- yearly charge 1.75% max. This is broken down as follows:- 0.75% annual advice fee and fund management charges will be between 0.25% and 1% depending on the funds they select for us; this latter charge is TER.

The typical maximum is usually around 3% plus 0.5% p.a. The FSA published average was 1.8% plus 0.5% p.a.. So, you can place your charges in context.

The more you have to invest the better the terms you should be able to get. If you are under £100k then its not too bad. If its over £100k then you can get better. However, there is also the value for money element. Not point paying peanuts and getting nothing for it. Everyone has a different perception of value for money.

grumpycrab

The pot will start at about 250K rising to about 350K in a year. Thanks dunstonh. Working on Sataurday? I sent you a PM. Talk to you on Monday?

div_ad

Its about value I suppose.

Is the service worth £7000?

Will you recoup this £7000 over the life of the investment after you have paid the annual charge of .5%?

Will anyone else do as good a job cheaper?

I wish I knew. I have to make the same kind of decision very soon. I know what service I would expect from my solicitor, accountant, or architect for that kind of money - let alone the guy who plasters the wall or looks after my car.

jem16

grumpycrab wrote: »

The pot will start at about 250K rising to about 350K in a year.

An initial commission of 2% on £250k makes it £5000 and £7000 on £350k. I would say that's expensive.

You should be looking at paying a fee rather than commission with the amount you are investing.

grumpycrab

dunstonh wrote: »

However, there is also the value for money element. No point paying peanuts and getting nothing for it.

How do I know what I will get? IFAs don't appear to have their own league tables, but even if they did, their past performace would apparently mean nothing (which seems illogical to me; surely that would be one genuine bit of data that could help make a decision...)

div_ad wrote: »

Will anyone else do as good a job cheaper

I'm sure there are lots of IFAs who could do a better job. If there was a league table of IFAs I'd be looking for someone in the top half.

jem16 wrote: »

You should be looking at paying a fee rather than commission with the amount you are investing.

Hmm. I that that was fee based; based on the fact that I can predict what I'm going to be charged. Or is fee based an hourly rate? (you can tell I'm new at this :-)

jem16

grumpycrab wrote: »

Hmm. I that that was fee based; based on the fact that I can predict what I'm going to be charged. Or is fee based an hourly rate? (you can tell I'm new at this :-)

Perhaps I should have been a bit clearer in what I was saying. There have been many discussions on this board as to what constitutes a fee to IFAs.

There are many different ways of paying an IFA at the moment.

1. Hourly rate and all commission rebated.
2. A percentage rate but agreed in advance and capped at a certain amount so no bias on product choice. This can be paid either as a cheque or through the commission paid by the product provider. If fee less than commission paid then the rest of the commission is rebated. Often seen as a hybrid fee.
3. Full commission.

With an amount of £250 - £350k you will almost certainly be better off paying an hourly rate, as in No 1 or negotiating better percentage terms (such as 1%) with perhaps a cap of £2000.

As Dunstonh has said, the terms you have been offered are good for under £100k but not for the amount you are talking about.

grumpycrab

jem16 wrote: »

There have been many discussions on this board as to what constitutes a fee to IFAs.

Thanks for the info. I won't extend the thread but will check previous posts.

dunstonh

If there was a league table of IFAs I'd be looking for someone in the top half.

League tables won't work. Advice is personal. Not one size fits all. If you have an IFA that deals mostly with cautious people (say older, wanting an income in retirement) then their long term returns are likely to be lower than higher risk portfolios. Also, with portfolios being personal, how would you compare all the different ones? Over what timescale, would you use (1 year would make the high risk ones look better, 3 years would make the cautious ones better).

Some firms may have fixed portfolios that you have to fit them rather than they fit you. That is not personal advice. That is buying a product off the shelf. Some firms have 3 risk profiles. Some have 10. How much fine tuning do you want as 10 gives more then 3.

Investing is about opinion. Sometimes the opinions will be right, sometimes wrong. If you take all the major investment strategies and assumes same level of risk, they will all have periods when they are the best performers and the worst performers. The important thing is to have a strategy though as hit and hope/random selections are most likely to fail.

Hmm. I that that was fee based; based on the fact that I can predict what I'm going to be charged. Or is fee based an hourly rate? (you can tell I'm new at this :-)

A fee is anything you agree that is defined and agreed in advance. However, some fees can look like commission. They are the ones to avoid on larger sums (commission can still be cheaper on small amounts). Percentage based is a fee providing it is capped and tiered. Hourly rate is a fee. Fixed Amount is a fee. Agreeing a fee and using commission to pay that fee (no more/no less) is a fee (good with pensions as you get tax relief on the fee).

grumpycrab

dunstonh wrote: »

Some firms may have fixed portfolios that you have to fit them rather than they fit you.

Thanks Dunstonh. I realised that league tables was a non-starter so I'm sorry for wasting your time. (PS. As you probably know I sent you a PM)

Changing the subject, does anybody know an IFA with a fixed set of portfolios accessible through a (software) wizard. I know all you IFAs will say that ther personal touch is vital but I have a very narrow, well defined, set of requirements (honestly) and I can see a clever IFA+clever software writer producing a web app to make these fixed portfolios accessible? There must be some out there...

jem16

grumpycrab wrote: »

Changing the subject, does anybody know an IFA with a fixed set of portfolios accessible through a (software) wizard.

I suppose the only thing that might be near this is using multi-manager funds.

http://www.moneywise.co.uk/grow-money/investing/article/2008/05/22/do-multi-manager-funds-justify-their-price

http://www.google.co.uk/search?hl=en&q=multi-manager+funds&meta=

I know all you IFAs will say that ther personal touch is vital but I have a very narrow, well defined, set of requirements (honestly)

What is it you are looking for?

and I can see a clever IFA+clever software writer producing a web app to make these fixed portfolios accessible? There must be some out there...

Whether of course the extra costs for the multi-manager funds doing what a servicing IFA should be doing is another debate altogether.