Using an IFA to recommend funds in my Company Pension... What should I expect.

Troubleatmill_2

Just reading through recent posts on this forum and one thread gets into the topic of using an IFA to investigate and recommend particular funds within a company pension ( eg My company scheme is with Std Life and has around 40+ funds to choose from ).

I can go to Citywire and have a look at historic past performers.
I can take a shot at splitting between geographic areas...

What would an IFA offer in terms of insight, that I would not have access to myself?

Yes an IFA will charge a fee - but ... for the right advice I believe it's worth it.

Best
Troubleatmill

toonfish

if you have a relationship with an IFA they may just do it as a favour. In terms of what they know that you can't find out yourself regarding performance and fund structure well, not a great deal but they will have opinions on the most appropriate sectors to be investing in over the medium to long term.

dunstonh

I agree with toonfish. This sort of thing with an existing client wouldnt be charged. However, a brand new IFA with no other business may want to levy a charge or may just see it as a loss leader for goodwill purposes. Or you may get an IFA that thinks its a waste of their time and will just point to a couple of funds and tell you to use those (no better than you doing it).

Citywire league tables are no indication of future return. A sector allocated portfolio achieving sector average returns only would have beaten the top performing fund of 10 years ago. In addition, you get different types of funds within the same sector with differing levels of volatility and risk. A fund may never go near the top 10 but be a steady eddie and that may be more important to you.

I would like to think an IFA would help you but I fear that too many would see it either as a waste of time as they arent going to earn from it and just fob you off with a quick and dirty selection which you could do yourself. A proper analysis would be valuable. But would you get it in reality?

netlang

I am in a similar position as the IFA that has been looking after our company pension is now chartered and they seem to be charging around £500 per month for group scheme with 8 members. I am refusing to pay this but would like to someone who can explain it and advise on asset allocation and review it once a year... £6000 a year for this is not going to happen

dunstonh

they seem to be charging around £500 per month

That is way over the odds. Unless of course they only deal with millionairies. Most retainers tend to be around the £25-£50pm when charged and most IFAs do not charge that.

Tiggs_2

As has been covered already...the prob you have is that most IFA's cant make money on it so wont want the work. They could charge a fee but what involved? A couple of hours work? Is it worth it for them even then? Have better chance getting a builder to quote for tightening a screw on a woobly door hinge!

IF you are a good client to have then any FA would want you on the books and would do it for free.....depends on where they see future business.

The bigger issue is what does the "average" IFA do thats different to what you can do? Not much in many cases - there are clearly exceptions....but not many.

Always makes me chuckle when i read financial press on fund managers/funds etc and they will say stuff like "80% of IFA's back Mr X's approach to emerging markets for his funds holdings in China...." In my experience............80% couldnt find China on a map!

So if you do end up with someone ask him to JUSTIFY his recommendation and dont be fobbed off with him giving you a couple of fund fact sheets his Std Life rep has passed him and a few one liners that makes him sound clever!

dunstonh

Some of the problem comes down to regulation and remuneration.

The adviser cannot technically come out and see you only to complete a risk profiler and then recommend a sector allocated spread. If done correctly, they would have to factfind you, research the funds fully and document the research and then write a suitability letter outlining the recommendations. Everything would have to be kept on file forwever. They then have a life time of liability on that recommendation. In all, its taken a 3-4 hours work. Ironically, the suitability letter would have more in it about what you arent doing then what you are because the claims companies will be looking to get money from the adviser some years down the road.

So, regulation, compliance and compensation culture make a transaction like this, which many consumers would like, an unreasonable one for many IFAs.

It could be so easy. Here is a summary of how I do it so you get an idea. I have two risk profiler questionnaires. One extremely detailed, the other a shortened version. I tend to use the shorter one as the other takes too long for most people and the results usually come out the same. From there, I have 10 risk levels of portfolios which define the sector spread. This is updated into the software every 3 months from data provided by Watson Wyatt. That doesnt pick the funds, just the sectors. The fund research comes next.

If you ignore the compliance requirements and look at the workload needed just to do what you want, then the actual cost to get to that stage is quite low. The risk profiler could be sent by email and filled in by the client in their own time and then scanned and emailed/posted back. That "scores" the individual and from there I pull down the model portfolio from the software that relates to that score and there I have the sector spread. The cost is the software, the time to update the sector spreads every quarter and a little bit of time. £25 and done. The compliance and requirements if done officially would add another £200 at least. (i have ignored costing in skill and knowledge in knowing what those things actually mean and where/how/why behind it for the moment).

All that said, there are still advisers that dont use computers so how the hell are they going to give good advice as most of the useful data is computerised. Then you have the IFAs are the really just mortgage advisers and shouldnt be doing investment class business who wouldnt even have heard of sector allocation and think alpha beta sharpe is a flash way of saying ABS. There was some stat recently that said over 2/3rds of IFAs would be financially better off if they ceased being IFAs and just held onto insurance and mortgage authorisation.

Sorry, that got long winded...

EdInvestor

Asset allocation isn't that complicated.

Put simply, you can divide assets up into basically 4 categories from nil to high risk:

1.Cash, gilts - no risk ( safe stuff only)
2.Corporate bonds,commercial property - low risk (cautious)
3.Blue chip mainstream UK equities (FTSE100&250) - medium risk (balanced)
4.Other equities ( eg small cap, foreign), commodities etc. - high risk (adventurous)


Then divide your money up according to what percentage you want in what category.

Many UK people end up with something like 20/20/50/10.

dunstonh

Then divide your money up according to what percentage you want in what category.

Many UK people end up with something like 20/20/50/10.

Splitting into just 4 asset classes and then randomly selecting percentages into those 4 isnt doing it right.

EdInvestor

But the "right" way is a matter of opinion, isn't it?

There's no point IMHO in ending up with so many sectors people can't understand what's going on and find it too difficult or time consuming to keep evne vague track of their money.

It's just a way of managing risk after all.

dunstonh

It is matter of opinion and research but 4 asset classes is not enough. Plus pulling random percentages out doesnt reflect risk profiling. Personally, I work on 8 sectors across 10 risk profiles. Within those 8 sectors you may well pick different sub sectors within them. So a minimum of 8 funds and often 10-13.

There's no point IMHO in ending up with so many sectors people can't understand what's going on and find it too difficult or time consuming to keep evne vague track of their money.

If they find that difficult then it suggests that they shouldnt be doing it themselves. Or they should pick a contract that automatically rebalances after the initial allocation is set and then review it every few years.

It's just a way of managing risk after all.

Its also a way of achieving better long term growth.