1.5% too much to pay an IFA?

Linton

2010 wrote: »

A proven track record is what they did in the past not in the future.

There`s no sure-fire formula for making your money grow.

Putting your money in savings accounts, especially if you are a higher rate tax payer is a guaranteed way of losing wealth with current and likely future inflation.

Proper investing is little to do with track records or clever fund picking. Where you gain money is having different proportions in different areas.

Relatively small amount in many areas that are likely (but may not) do very well, together with larger amounts in a range of safer areas is very likely to increase your wealth far more than bank savings will. This is compounded if you regularly rebalance between the two types of investment.

Sorry but your comments appear to come from someone with no experience in investing whatsoever.

jem16

geosaver wrote: »

Elsewhere in this forum. I was just trying to get a ballpark figure, I know it will depend a lot on the actual investments that are made.

From reading through your posts I get the impression - my apologies if I'm reading this wrongly - that you are a little confused with the charges and fees/commission.

There are basically two sets of charges/fees that you need to consider.

1. The initial fee. This is a one off fee/charge.

This is paid to the IFA for his work in doing a fact find with you and then advising on what investments woudl be necessary to achieve your objectives, be it all investments, all savings or a mixture of both.

This fee would be a pre-arranged amount with the IFA and could be paid directly to the IFA in the form of a cheque or taken from the commission paid from the provider to the IFA.

The latter can sometimes be worthwhile as no VAT is paid on the product. If the provider were to pay a higher commission than the fee agreed then that would be reabted back to the client.

If a fee is paid by cheque then all initial provider commission would be reabted.

A fee would either be a specific amount per hour of the adviser's time or a percentage amount. The main point is that it is agreed. There are some posters on here who would decry the use of a percentage fee but it is still a fee provided there is at least some sort of cap on it.

As to which is best for the client really depends on the amount involved. For a £100k investment a 1% fee and a fee of £1000 at £150 per hour ( ie.e 6.5hrs work approx) is neither here nor there.

However for your investment of £800k then paying a fee is going to be much cheaper. Either that or an IFA working at 1% with a £2k cap. In other words the ballpark figure of £2000 or less for advice is what you should be looking at.

2. Ongoing fee for servicing - also known as trail commission. This is paid annually and covers at least a yearly review/rebalance - perhaps more often depending on amount or changes to risk profiles.

This is where you have probably come up with the 0.5% figure. Most funds hava a typical annual management fee of 1.5%pa. Out of this 1.5%, 0.5% is paid to the IFA as trail commission. This covers the reviews. In your case a fee may well work out cheaper and the 0.5% would be rebated. Again this is agreed with the client. For lower amounts the natural trail of 0.5% is adequate.

I wanted advice on what to do with the £8ooK whether it be all investment, some cash savings or whatever.

No reason not to expect that.

The message I'm getting here is that if I'm not prepared to do some of my own research, I better not enlist an IFA. I'm too busy with my business to spend a lot of time doing research which is why I wanted an IFA. Maybe my best approach would be to just keep it in cash savings.

Don't let the in-house fighting put you off here. The majority of IFAs will do exactly what you are expecting. As has been suggested, with your amount a DIM ( Discretionary Investment Manager) might also be a good choice.

geosaver

jem16 wrote: »

From reading through your posts I get the impression - my apologies if I'm reading this wrongly - that you are a little confused with the charges and fees/commission.

There are basically two sets of charges/fees that you need to consider.

1. The initial fee. This is a one off fee/charge.

This is paid to the IFA for his work in doing a fact find with you and then advising on what investments woudl be necessary to achieve your objectives, be it all investments, all savings or a mixture of both.

This fee would be a pre-arranged amount with the IFA and could be paid directly to the IFA in the form of a cheque or taken from the commission paid from the provider to the IFA.

The latter can sometimes be worthwhile as no VAT is paid on the product. If the provider were to pay a higher commission than the fee agreed then that would be reabted back to the client.

If a fee is paid by cheque then all initial provider commission would be reabted.

A fee would either be a specific amount per hour of the adviser's time or a percentage amount. The main point is that it is agreed. There are some posters on here who would decry the use of a percentage fee but it is still a fee provided there is at least some sort of cap on it.

As to which is best for the client really depends on the amount involved. For a £100k investment a 1% fee and a fee of £1000 at £150 per hour ( ie.e 6.5hrs work approx) is neither here nor there.

However for your investment of £800k then paying a fee is going to be much cheaper. Either that or an IFA working at 1% with a £2k cap. In other words the ballpark figure of £2000 or less for advice is what you should be looking at.

2. Ongoing fee for servicing - also known as trail commission. This is paid annually and covers at least a yearly review/rebalance - perhaps more often depending on amount or changes to risk profiles.

This is where you have probably come up with the 0.5% figure. Most funds hava a typical annual management fee of 1.5%pa. Out of this 1.5%, 0.5% is paid to the IFA as trail commission. This covers the reviews. In your case a fee may well work out cheaper and the 0.5% would be rebated. Again this is agreed with the client. For lower amounts the natural trail of 0.5% is adequate.



No reason not to expect that.



Don't let the in-house fighting put you off here. The majority of IFAs will do exactly what you are expecting. As has been suggested, with your amount a DIM ( Discretionary Investment Manager) might also be a good choice.

jem16, many thanks for taking the trouble to respond with your complete answer to my question. You are correct in thinking that I was a bit muddled with the fee structures. Your explanation is exactly what I was looking for. I know exactly what to expect and what to ask for now when I talk to an IFA.

ManicMum

I think for that sort of money, I would be tempted to employ someone for 6 months and get your money's worth out of them!

2010

Linton wrote: »

Sorry but your comments appear to come from someone with no experience in investing whatsoever.

You obviously didn`t read my post # 28 before making your silly,ignorant comment.

darkpool

why not invest the £800k in your business?

browniej

feesarefare wrote: »

Isnt it about time you woke up and rather than constantly trying to undermine people who are genuinely attempting to make the world of financial planning, advising and investing clear & fair,

I take it you refer to yourself with this comment?

I thought jem16's post was very helpful and certainly followed my recent experience when meeting 3 local IFAs.

Unfortunately your post in reply to him just seemed to be looking to rip his to shreds rather than actually posting information to help make the world of financial planning and advising clear and fair to use your own words.

jem16

feesarefare wrote: »

Did you know most platforms split this out now, so what you said doesnt apply in many cases ?

Yes there are unbundled platforms that do that and bundled platforms that still don't split it. Some providers are offering both unbundled and bundled so that IFAs can choose the most suitable pricing structure for their clients as it has been shown that for some clients unbundled may in fact be dearer. What matters most is the client.

http://www.ifaonline.co.uk/professional-adviser/feature/1742048/bundle-bundle

As to the rest of your points I really can't be bothered arguing - 5 people obviously found it helpful.

dunstonh

The FSA ruling on platform charging in future isnt due until June. If the FSA ban bundled platforms (which wont just hit IFA clients but also DIY as HL is bundled for example), then everyone will have to decide then what to do. I have yet to find an unbundled platform that is cheaper or on par with an unbundled one.

I don't particularity think that unbundled platforms are being that honest with their pricing either at the moment. If you pick a 1.5% AMC fund in a bundled platform then the unbundled one, when you compare like for like, will tend to come in around 1.65%-1.85%. The unbundled has the advantage of knowing what everyone gets paid but does the average consumer want to pay 0.25% p.a. more for that knowledge. If the unbundled platforms are not taking the rebates and refunding them to the holders then why is it that most unbundled platforms tend to have the very much the same charge per fund? Surely each fund house is not paying the same level of rebate?

Personally, I have mixed views on this. Disclosure is good but is it still good when it costs consumers that much more? Plus, they now believe that if everything goes unbundled then VAT will have to be added to chunks of it which will put prices up further on unbundled platforms. The FSA has acknowledged this and is apparently taking it into account as an unintended consequence.

Whether you use unbundled or bundled or hybrid, you know what the IFA is getting. Do you really need to know what the platform is getting or what fund house is getting? Is it really worth paying extra for that? Whats next? Do we start demanding how much everyone gets paid on a tin of beans? Also, at the moment, the bundled platforms seem content to have some loss leaders on their platform. Skandia have the blackrock class D trackers. HL have the HSBC index trackers. If you ban bundled platforms then the cost of index tracking funds goes up by 2 or 3 times overnight if held on platforms.

Ethically, its good to know but given the choice of a bottom line of 1.5% p.a. AMC or 1.85% for full disclosure, which would you choose?

jimjames

dunstonh wrote: »

T

Whether you use unbundled or bundled or hybrid, you know what the IFA is getting. Do you really need to know what the platform is getting or what fund house is getting? Is it really worth paying extra for that? Whats next? Do we start demanding how much everyone gets paid on a tin of beans? Also, at the moment, the bundled platforms seem content to have some loss leaders on their platform. Skandia have the blackrock class D trackers. HL have the HSBC index trackers. If you ban bundled platforms then the cost of index tracking funds goes up by 2 or 3 times overnight if held on platforms.

Ethically, its good to know but given the choice of a bottom line of 1.5% p.a. AMC or 1.85% for full disclosure, which would you choose?

That was a point I made elsewhere. We don't know how the markup is calculated for Tesco selling a tin of beans; we expect that they will be making a profit on it but as long as we are happy with the price then so what. Paying more to see that visibility but that doesn't actually give a benefit seems crazy.

The person in this thread is completely at the other end of the scale to the OP

https://forums.moneysavingexpert.com/discussion/3034552

but the charges being quoted for a small investment seem to wipe out any benefit of long term savings. Losing 4.5% plus 10% of your money up front when the initial payments are the ones that will compound the most seems a guaranteed way to not make money. It makes the 1.5%/£12k quoted for the OP almost seem reasonable.