first time investing via financial advisor

dunstonh

So there are IFAS which won't take any commission at all if their clients make no profits?

Not in the way you are saying as that wouldnt work for the client and the IFA would likely earn far more in the long run.

Losses are inevitable in some periods. A loss does not make it bad advice. Anyone that thinks the IFA role is only about avoiding losses clearly doesnt have a clue what the IFA role is. They also clearly don't understand investing either. Which makes a bit of a mockery of the other comments that suggest DIY is better (for someone that doesnt understand investing).

Loughton_Monkey

Gaffy wrote: »

Why pay someone else thousand's of pounds to lose you money when you can do it yourself for free.

Simple!

So you have got someone to blame.

cepheus

dunstonh wrote: »

Not in the way you are saying as that wouldnt work for the client and the IFA would likely earn far more in the long run.

Losses are inevitable in some periods. A loss does not make it bad advice. Anyone that thinks the IFA role is only about avoiding losses clearly doesnt have a clue what the IFA role is. They also clearly don't understand investing either. Which makes a bit of a mockery of the other comments that suggest DIY is better (for someone that doesnt understand investing).

Well that's exactly what I did mean, but you suggested I was wrong. What variation did you mean, one where IFAs get paid either way just more if they advise investments which earn more profits?

In what way does a true profit related commission not work for the client? it is still slanted to benefit the IFA since he can only win not lose!

Why should the IFA earn more in the long run if the commission is averaged out?

Surely avoiding long term losses would be a cornerstone of any investment strategy, certainly this is what clients are led to believe, since they are always told they are investing for the 'long term'. Well if IFAs are so good at this they can organise their own finances along the same lines!

An alternative model might be to pay the IFA relative to some benchmark, so they might get paid when markets fall if their choices are good ones. Of course a good portfolio will minimise risk through diversification, but whoops we are back to minimising losses again, so perhaps drawdawn of the porfolio might be a criteria?

Of course all these ideas are bad news for IFAs! To be fair they could get a cut of any savings due to tax planning.

Perhaps they should provide all their clients with a record of their past clients performance before they sign? I wonder if there are any Japanese IFAs?

dunstonh

n what way does a true profit related commission not work for the client? it is still slanted to benefit the IFA since he can only win not lose!

What is profit/loss and when would it be classed as such?

Why should the IFA earn more in the long run if the commission is averaged out?

Because typically periods of gains exceed periods of losses.

Surely avoiding long term losses would be a cornerstone of any investment strategy, certainly this is what clients are led to believe, since they are always told they are investing for the 'long term'. Well if IFAs are so good at this they can organise their own finances along the same lines!

That is not within the remit of an IFA.

An alternative model might be to pay the IFA relative to some benchmark, so they might get paid when markets fall if their choices are good ones. Of course a good portfolio will minimise risk through diversification, but whoops we are back to minimising losses again, so perhaps drawdawn of the porfolio might be a criteria?

Possible but difficult to implement.

Of course all these ideas are bad news for IFAs!

No they are not as the costs would go up to cover it.

Perhaps they should provide all their clients with a record of their past clients performance before they sign?

And what would be the point of that as you have clients with many different portfolios over many different periods and many different objectives and risk profiles?

IFAs are not fund managers. They cannot act as discretionary investment managers. So, expecting them to do so is wrong.

cepheus

It's not within the remit of an IFA to avoid long term losses?

I bet you customers would be interested to hear that

feesarefare

dunstonh wrote: »

IFAs are not fund managers. They cannot act as discretionary investment managers. So, expecting them to do so is wrong.

The problem is that most IFAs market themselves a psuedo fund / investment managers. Isnt it where they say they can add value?

What is it that they are charging the 0.5% -1% trail for? My understanding was that it is paid for monitoring the funds in the portfolios that they have put together?

I look forward to your response

dunstonh

cepheus wrote: »

It's not within the remit of an IFA to avoid long term losses?

I bet you customers would be interested to hear that

They already know it. No IFA can promise anything. No investor whether they DIY or use someone else can expect any different. When you invest you know that future returns are unknown. You know will you will get ups and downs. To expect any different means you dont understand investing.

Rollinghome

Aegis wrote: »

Quit the attacks, they just make you look silly.

Calm down. You’re now being abusive because you feel under attack. You aren’t - unless you're referring to making it clear that you work for an IFA (an interest which you chose not to make clear). So let's stop all the tantrums shall we?

Aegis wrote: »

Once again, I support the requirement for minimum qualifications levels far in excess of GCSE levels. All I'm arguing here is that there is a lot of excess material in the modern GCSE Maths qualification which would render it pointless to someone who was around during the time of O-levels and left school before sitting exams. As long as they can handle the Diploma, I see no reason for them to go back and get additional qualifications in GCSEs with curricula that only have the barest fragments in common with the work they want to do.

Good. Because as you will know other IFAs have been fighting the better (but still sub-degree level) qualifications sought by the FSA tooth and nail by bombarding MPs with their protests and some absurdly threatening to take the matter to the European courts as threatening their livelihoods. Read their protests in the on-line IFA journals. Hence the dismissive comments of the finance secretary Mark Hoban and Sheila Nicol of the FSA.

You seem to have misunderstood. No one, including the FSA, has suggested that existing IFAs should be sent back to school to gain GCSEs.

Aegis wrote: »

Supply and demand. If people are willing to pay it then market forces dictate that a company will pitch its price at a level where they are still comfortably busy.

As already pointed out, the large fees demanded for a very simple service by people with very basic educational and vocational qualifications is a result of the commission system. The current levels haven’t being determined by the client but by the investment providers.

To get advice free of potential bias the client is required to outbid the levels of commission the investment providers are willing to bribe IFAs with to get sales. As Paul Lewis of BBC Moneybox, reputable enough to be guest speaker at various IFA functions, has said many times, commission is the poison at the heart of financial advice.

The hope is that without the competing bribes on offer from the product providers, normal supply and demand will operate and will reduce charges to the level that clients find gives value.

Aegis wrote: »

If anything costs are likely to increase for a lot of firms, from what I've seen.

I’m not sure whether you mean costs or fees. We shouldn’t underestimate the determination of the industry to keep fees unjustifiably high. If you are right then the hysteria of so many IFAs about the threat to their livelihoods has been unnecessary.

I believe many people do need cost effective and unbiased advice so I hope you are wrong.

cepheus

dunstonh wrote: »

They already know it. No IFA can promise anything. No investor whether they DIY or use someone else can expect any different. When you invest you know that future returns are unknown. You know will you will get ups and downs. To expect any different means you dont understand investing.

Yes the returns are always unknown, that is not the issue. What if a non too wealthy client is satisfied with a low return providing there is no significant risk of drawdowns?

It might have been that the best low risk strategy for some people would be to buy NS&I inflation linked certificates, or 10 years ago to have spread their savings around 10-20 building societies. Wouldn't this have guaranteed their money back plus a bit extra?

There are also near certainties such as GEBs and two decades ago the various government utility sell offs which were deliberately priced absurdly cheap for political reasons. These could have been hedged to make a guaranteed killing whatever the stockmarket did.

Regarding guaranteed returns for wealthier clients, perhaps simple advice on using full use of tax free investments and allowances could at least guarantee better returns relative to their original setup which could be used as a benchmark. In some cases simply investing more in a defined benefit company pension might guarantee a return assuming the company didn't go under.

Those are the sort of options I might have expect(ed) a good IFA to at least mention.

dunstonh

What if a non too wealthy client is satisfied with a low return providing there is no significant risk of drawdowns?

If that is what they want then nothing wrong with that.

It might have been that the best low risk strategy for some people would be to buy NS&I inflation linked certificates, or 10 years ago to have spread their savings around 10-20 building societies.

IFAs are the biggest introducers to NS&I index linked certs. They even have an IFA webpage and send IFAs updates of the rates and products on changes.

There are also near certainties such as GEBs and two decades ago the various government utility sell offs which were deliberately priced absurdly cheap for political reasons. These could have been hedged to make a guaranteed killing whatever the stockmarket did.

Outside the scope of IFA remit.