first time investing via financial advisor

blewitt

Looking into investing via a financial advisor, we decided on fee based. We obviously expect to pay for someone to manage our finances, but after reading the full cost I wonder what is the normal amount one should expect to pay. Although it has been explained to us, when it is in black and white the fees seem extremely high.

On a sum of £160,000 we have been quoted an initial fee by the FA of 2.50% and a review charge of £197 per quarter.
On top of this the wrap provider (with whom the FA works) charges a annual admin charge of 0.54%, plus 0.20% of assets purchased, plus for onshore investment bonds £100 + £18 per quarter, plus 1% to go to the FA for annual servicing fees.

Adding all this up, we would appear to be paying over £7,500 for the first year, and after that £3,500 per year - whether our funds have increased in value or not.

Any help or advice would be much appreciated.

dunstonh

but after reading the full cost I wonder what is the normal amount one should expect to pay

There isnt really any such figure to suggest normal....

Location can have a lot to do with it as well as the type of adviser you use. A city location is likely to be more expensive than rural. A business model that focuses on high net worth clients (i.e. those over a million to invest) may price their model based on those sorts of values. So, their price may be attractive for £1mill but be damned expensive for £100k.

On a sum of £160,000 we have been quoted an initial fee by the FA of 2.50% and a review charge of £197 per quarter.
On top of this the wrap provider (with whom the FA works) charges a annual admin charge of 0.54%, plus 0.20% of assets purchased, plus for onshore investment bonds £100 + £18 per quarter, plus 1% to go to the FA for annual servicing fees.

On the face of it, it seems high but thats possibly as you have chosen a quarterly review.

Benchmark what you are paying against the typical maximum commission and the average commission taken (as given by the FSA).
Typical maximum comm is 3% plus 0.5% p.a.
Average was 1.8% plus 0.5% p.a.
You are paying 2.5% plus 1% p.a. plus £197 per quarter.

So, whilst you have chosen fees, you are actually paying more than the commission option.
I would aim for a fee closer to a max of £2000 and no more than 0.5% p.a. for an annual review (£160k doesnt need quarterly if its a structured portfolio).

premierfella

I was surprised to see both the quarterly review fee and the 1% p.a. annual servicing fees to the IFA quoted without a rebate on one or the other.

Would it be common for both to be levied under a fee based IFA service without a full or partial rebate on one or the other? (a genuine question for my own interests).

Rollinghome

The point of paying fees rather than commission isn’t one of costs but to try to eliminate the problem of commission bias where financial advisors sell the products most profitable to themselves rather than to the client. It’s the reason why the FSA is forcing an end to IFAs selling on commission by 2013.

That said, taking 4.7% of your capital in the first year followed by taking 2.2% in subsequent would be an absurd arrangement unless your affairs are monstrously complex. Is there any likelihood that the benefits you receive could ever cover the cost especially over the next few years when the returns on capital after inflation could be unusually low?

Much to the annoyance of many IFAs, Sheila Nicoll of the Financial Services Authority, repeated the point made by Treasury financial secretary Mark Hoban MP that the basic qualification currently required by IFAs is only the equivalent to a diploma in shift management at McDonald’s (i.e. QCF Level 3). http://www.fundstrategy.co.uk/markets/britain/fsa-joins-mcdonalds-rdr-row/1020681.article

The advisor you saw may have been exceptionally able but I very much doubt those fees would be cost effective. The only way to ensure that an adviser doesn’t make more from your money than you do is to manage it yourself or at the very least understand the basics. For most people it really isn’t that difficult.

Whether you use an advisor or not some books would be useful:

• The Financial Times Guide to Investing £12.49 - very comprehensive, describes the pros and cons of a wide range of investments. New 2010 edition. http://www.amazon.co.uk/exec/obidos/ASIN/027372374X
• Be Your Own Financial Adviser - Financial Times series £9.99 - new April 2010 edition. Covers all financial planning. Includes how to find an IFA if you need one and how to avoid the dodgy ones. http://www.amazon.co.uk/exec/obidos/ASIN/0273727796
• Smarter Investing - Financial Times series £9.99 - about setting financial goals and how to get there. http://www.amazon.co.uk/exec/obidos/ASIN/0273722077
• Save and Invest - "Which?" Essential Guides series £6.13 - basic easy read. http://www.amazon.co.uk/exec/obidos/ASIN/1844900444

(The price of all those books has risen in the past few months but still good value.)

dunstonh

I was surprised to see both the quarterly review fee and the 1% p.a. annual servicing fees to the IFA quoted without a rebate on one or the other.

I wasnt surprised as I have seen similar where the natural trail has been kept and a retainer in place. However, its unusual to see a figure above the natural trail AND a retainer.

Would it be common for both to be levied under a fee based IFA service without a full or partial rebate on one or the other?

Normally it would be one or the other.

Technically, a retention fee is liable for VAT. Natural trail is classed as its part of the initial set up cost so isnt liable for VAT. Where there is an explicit % added it would be liable for VAT unless the servicing includes the purchase of a product. An annual bed & ISA transaction for example is classed as purchase of a product so avoids VAT. This is important as from 2013, all trail set up after that will be classed as explicit and potentially liable for VAT (makes you wonder if HMRC were involved in some of the new FSA rules ). So, make sure things like bed&ISA and bed&pension are included in the servicing cost as it will avoid VAT on the IFA charge. Plus, in reality if you are paying for annual servicing, then you shouldn't really incur any extra IFA charges for doing those as they should be part of the servicing. It is not yet known if a rebalance on unit trust funds would be classed as a new product. Its something I am waiting for an answer on as the quick and dirty response I got was that ISAs and pensions (or other tax wrappers) are the product, not the funds within them. However, with unwrapped investments, its the individual funds that are the product. So, a sell and buy to rebalance on unwrapped investments would not incur VAT but a rebalance on only ISA or pension would.

feesarefare

premierfella wrote: »

I was surprised to see both the quarterly review fee and the 1% p.a. annual servicing fees to the IFA quoted without a rebate on one or the other.

Would it be common for both to be levied under a fee based IFA service without a full or partial rebate on one or the other? (a genuine question for my own interests).

No it would'nt be common. What on earth is he/she doing for both?

Did you request a 1/4ly review -thats totally pointless

Fees as a percentage of the amount invested are just commission- please dont let anyone tell you any different.

blewitt

Thanks to everyone for all your help. It looks like back to the drawing board but it has certainly opened our eyes, especially as we have already had to pay nearly £400 for the financial recommendation.

Reaper

blewitt wrote: »

Thanks to everyone for all your help. It looks like back to the drawing board but it has certainly opened our eyes, especially as we have already had to pay nearly £400 for the financial recommendation.

I would have expected the fees to be discussed at your initial meeting (before recommendations were made) which I would have expected to be free. Did this not happen?

feesarefare

blewitt wrote: »

Thanks to everyone for all your help. It looks like back to the drawing board but it has certainly opened our eyes, especially as we have already had to pay nearly £400 for the financial recommendation.

what was the £400 for.

hermionepotter

I am just changing my IFA as I lost a huge amount of money via Chartwell- who were meant to be prize-winning !!! I woulod DEFINITELY not invest with them ever!
My questuion is that my IFA has put all my portfolio into Transact. They seem to have been transferred as cash so now I have to buy more within a tax wrapper but the fees seem high. Should I just choose my own investments or go with the IFA???

DiggerUK

Rollinghome wrote: »

..........the basic qualification currently required by IFAs is only the equivalent to a diploma in shift management at McDonald’s ..........

blewit, it gets worse.
IFA's do not even have to hold a GCSE exam pass in Maths, Economics, Business Studies or Basic Principles of Accounts.

On top of that they are not qualified in any aspect of Market Analysis, nor are they expected to be.
They really are just sexed up sales reps of financial services and products.