IFA charges

cheesesarnie

hi...quick question.

have been quoted by a local IFA charges of 3% for all funds deposited into their investment management tool (forget its name at the minute) & ongoing 1.5% ish management fee.

is this comparable with other IFAs?

sorry so vague..got to go out

thanks

dunstonh

have been quoted by a local IFA charges of 3% for all funds deposited into their investment management tool (forget its name at the minute) & ongoing 1.5% ish management fee.

is this comparable with other IFAs?

The 1.5% is the typical retail annual management charge for managed funds.

The 3% is the typical maximum for commission option. The FSA recorded the average over a number of 6 month periods and found that 1.8% was the average taken.

For small investments you may not find much improvement on 3% but for large investments you should find big improvements. Ideally getting the initial charge to equate to around £1000-£1500 tops.

cheesesarnie

thanks Duston...

what they're saying that at day 1 we'll be charged 3% of whatever we deposit/transfer to them ...ie. £5k in = £150...£100k = £3k...think we'll be at the top end of that

ongoing every £1 we pay in/transfer in is subject to the 3% charge then the whole pot has a management fee of 1.5% ish

clearly the initial charge continues to apply going forward

is that normal/to be expected?

thanks

tony1947

After a lot of shopping around and asking questions on here we have just done the same exercise and placed a large sum (although everythings relative) with an IFA in Cheltenham. They charged 3% to take the funds in and 1% to manage them.

It was quite traumatic to see the wodge of cash "disappear" on setup but we decided to go ahead for several reasons.

The majority of the 3% was funded from money we didn't realise we had. Aviva told us time and time again via their help desks that we would suffer an MVR penalty AND would not get any terminal bonuses if we switched funds. The IFA investigated and found we would get the Terminal bonuses. I know the purists on here would argue it was still our money but we would not have switched without the IFA discovering the full details of the contracts.

The service and support has been exceptional, if they can invest and manage even half as well as the administration team do their job we will be very pleased.

Finally though, we went for a level 4 cautious portfolio and even that out performed anything I could do by chasing the best interest rates on cash deposits. There are probably several people on here who could have, or have, constructed a similar portfolio and saved themselves the IFA charges but we prefer the idea of letting the IFA watch the funds and inform us every month of whats happening rather than trawling through web site after web site to make sure all is well.

If the company we used could manage the fund for 1% I would have thought any other IFA should be able to match it. If you like the feel of the company I would negotiate hard and get them down to 1%. If you are ambivalent about them look elsewhere. If you want any more info re the company we went with feel free to PM me

jem16

tony1947 wrote: »

placed a large sum (although everythings relative) with an IFA in Cheltenham

How much was your large sum?

They charged 3% to take the funds in and 1% to manage them.

Is the 1% you mention on top of the fund annual management charge?

The amc that dunstonh mentions is the normal fund management charge of 1.5% out of which 0.5% is paid to the adviser.

If you are paying 1% to the IFA to manage your funds you are paying twice the norm.

dunstonh

what they're saying that at day 1 we'll be charged 3% of whatever we deposit/transfer to them ...ie. £5k in = £150...£100k = £3k...think we'll be at the top end of that

Thats commission basis. If you are at the top end then you should go fee basis and aim to pay around £1000-£1500.

The 1.5% is the typical retail annual management charge for managed funds.

is that normal/to be expected?

Its normal and is the typical maximum. If you were investing say up to £20,000 then its fair enough but if you are investing closer to £100,000 then its expensive and you should expect to pay less. Commission advice tend to be a flat rate. Fee advice tends to be better on larger cases.

If the company we used could manage the fund for 1% I would have thought any other IFA should be able to match it.

Is that 1% what the IFA is getting paid or the bottom line of fund charges and what the IFA is being paid?

cheesesarnie

thanks for your comments

as it happens I've found the name of the wrap system...its called Nucleus wrap..

fee breakdown is 3% initial - 0.35% nucleous wrap (annual)
0.671% fund charge (annual)
0.750% advice fee (annual)

hows that sound?

as it happens the service & advice has been very useful so far from the ifa

tony1947

jem16 wrote: »

How much was your large sum?

Is the 1% you mention on top of the fund annual management charge?

If you are paying 1% to the IFA to manage your funds you are paying twice the norm.

Investment was 400k but this was made up of numerous types being combined and placed in new funds. E.g Pension Pots,ISAs, Cash Deposits, L&G Bonds etc.

My understanding (but I will now definitely check) is that the 1% is the overall charge including any fund charges.

Rightly or wrongly what we decided was that by comparing the IFAs performance over 5 years (after all charges) to what we had managed as amateur investors there was no comparison. If the IFAs returns similar figures as he has done in the past then I will thank him with a huge smile on my face. I won't really care what he has charged me,there is no benefit in paying small fees if the returns are small as well.

We spent a long time deciding which IFA to go with and at the end of the deliberations it was as much to do with the "gut feeling" that you have for a company just as much as the fees they charge. Its good to see Cheesarnie feels the same way about the people he is dealing with.

dunstonh

fee breakdown is 3% initial - 0.35% nucleous wrap (annual)
0.671% fund charge (annual)
0.750% advice fee (annual)

hows that sound?

The platform charges are typical of an unbundled platform. The advice charge is a bit higher than the norm at 0.5%.

So, you have to ask yourself if you are happy to pay more than the norm to use this particular IFA. Look at Tony's posts above. He has been. However, there will be others out there who have paid more and get less for it. So, you need to make sure that you get what you are paying for.

Rollinghome

tony1947 wrote: »

Rightly or wrongly what we decided was that by comparing the IFAs performance over 5 years (after all charges) to what we had managed as amateur investors there was no comparison. If the IFAs returns similar figures as he has done in the past then I will thank him with a huge smile on my face.

I wonder if you could explain how you did the comparison? What were you comparing, one pot of money you invested and another you gave to him over an identical period? Were you comparing like with like with identical levels of risk?

With fund managers it's been repeatedly shown that past performance is not a reliable indication of the future with a strong tendency to return to the mean and it's extraordinarily difficult to ascertain whether any out-performance is due to skill or luck. Picking funds would otherwise be so much easier. If you are willing to pay over the odds I assume you've taken that on-board with your calculations?

Fees you can be sure of, performance you can't.

My understanding (but I will now definitely check) is that the 1% is the overall charge including any fund charges.

Knowing what you are paying for a service is not an insignificant matter. Presumably this was made very clear to you at the time?

tony1947

Rollinghome wrote: »

I wonder if you could explain how you did the comparison? What were you comparing, one pot of money you invested and another you gave to him over an identical period? Were you comparing like with like with identical levels of risk?

With fund managers it's been repeatedly shown that past performance is not a reliable indication of the future with a strong tendency to return to the mean and it's extraordinarily difficult to ascertain whether any out-performance is due to skill or luck. Picking funds would otherwise be so much easier. If you are willing to pay over the odds I assume you've taken that on-board with your calculations?

Fees you can be sure of, performance you can't.
Knowing what you are paying for a service is not an insignificant matter. Presumably this was made very clear to you at the time?

Our comparison was based on a mixture of preliminary telephone conversations and face to face meetings. We met with individual IFAs and small family firms. We didn't meet with a couple of firms after the telephone conversations because their fees were higher than the ones we are currently paying. We decided on the one we went with because of the way the principal of the company explained how they would invest and monitor the money to our satisfaction and prior and subsequent to those meeting we had discussed various issues with the "back office staff" at the company. The company falls between the sole trader IFA and the Hargreave Lansdowns of the financial world. If I had to guess about 20 staff.

Before the responses to the questions on this thread I was certain that we would be paying 1% including fund charges but the responses did raise some doubt and so I have checked and I was correct it's 1% including any fund charges.

I have researched enough to know that its almost impossible, sorry IS impossible, to guarantee that the selection of an IFA is going to be a good choice. All you can do is the best research you can and hope for the best and if you can't take past performance into the equation I am not sure whats left to base your judgement on.

We are fortunate that we are in a position of "protecting" the 400k against inflation rather than hoping for stratospheric growth. If the company we chose can do that consistently over time we don't really care a) what he charges, within reason and b) if somebody else could have made a few percentage points more on the investments.

If anyone can give cast iron rules as to how choose an IFA I am sure many readers of the forum would appreciate it.