1.5% too much to pay an IFA?

jem16

feesarefare wrote: »

Shame, a meaningful debate may have been usefu

I would have been glad to have had a meaningful debate with you but you don't seem to actually read my comments and accept that there is another view to all of this and one that is no more right or wrong than your own.

if we try to shoehorm people into little boxes according to one size fits all, it isn't going to work. Different clients require different approaches.

l as I know your quite bright really

So treat me and others like we do have something valuable to say. Once you started with comments like these I lost interest.

you try to learn more about the industry that based on your post you clearly have very little understanding of.

- glad to see you helped Dunstonh though, at least he learned something from you , not sure it will count towards his CPD though.

See you're at it again - some glib comment designed to provoke.

jem16

feesarefare wrote: »

So please dont make your underhand comments about infighting and "some people on here". Ive got the courage of my convictions

There is in-fighting here - you've just proved that.

As I said earlier "some people on here" do not believe a percentage fee can be a fee - that's fact too. Neither are underhand - they are factual comments.

then I'll come back here and ask for the all knowing to tutor me on how to implement the % system.

Why would you need tutored on something you used to do back in your whiteflag days?

jem16

feesarefare wrote: »

Its a pity certain others cant defend their corner instead of pushing the "thanks" button.

So that's what's really annoying you then - 5 people had the temerity to thank my post to the OP because they thought it was useful and in your opinion it was useless.

weegieblue

I've worked for 2 IFA's with different fee models.

The first didn't charge any fees but did receive commissions from the products sold. They also charged 0.5% of funds under management. I didn't like this model as part of the process of recommending products was to look at what we were paid.

The second charged a retnetion, which covered the cost of your ISA subscriptions and annual pension advice for you, your partner and your children, and I think it was a few grand. They then charged fees for the additional work, such as investing in specific shares or researching overseas pension. Finally, they charged 1.5% of funds under management. Although this all sounds like a lot of money, the advice was top notch and the clients were all happy as the products they were invested in were the best, rather than the ones that paid the most.

Investing is essentially gambling, so you're always going to be paying someone something for their advice unless you have the knowledge to go it alone. And while the amounts might sound huge, if you get a decent IFA who can help you avoid the bigger losses when the market contracts and get a chunk of the cash when the markets start moving upwards, in my view it's worth every penny.

dunstonh

This might help you understand where I am coming from, and it confirms Dunstonh is correct in that I am indeed in the minority

http://www.yellowtail.co.uk/pdfs/yel...l-ifa-fees.pdf

That pdf seems to completely ignore the fact that "commission" and "fees" on investments have largely meant the same thing for very many years now. i.e. the "commission" is charged to the investment on a like for like basis. Its only a small number of contracts now that work in the way that pdf mentions. So an adviser taking 1% on £100k means £1000 is taken from the investment (or you can pay £1000 by cheque). An adviser with an hourly rate coming to £1800 means you pay £1800 (and can have that £1800 taken from the investment or paid by cheque). Either way, the client is paying the hourly fee or percentage fee explicitly.

It also ignores VAT differences and the fact taking the fee via the commission system can be more tax efficient (pensions for example). e.g. if you have a fee of £1000 then pay by cheque and you pay £1000. If you use the commission system and have the £1000 deducted from the pension contribution then the adviser still gets £1000. You still pay £1000 but you get tax relief on that £1000. So it will really only cost you £800 (or £600 if higher rate tax). If the fee option chosen has been broken down into stages, then some of those stages will have VAT to be added to them. So, you could have one adviser working on a % basis that will cost you £600 and another that goes on about percentages not being real fees charging you £1800 just because they want to be all high and mighty about it.

Being blinkered because you think your own business model is best and no other business model should exist does not help anyone. If you want to charge £1800 odd and harp on about percentages not being real fees then go for it. If other business models want to charge £600-£1000 on percentage basis let them go for it. Potential clients can choose what they want to pay. The important thing is that they know what they are paying.

dunstonh

Now we are getting somewhere. That is exactly the point i've making, many IFAs are saying they have changed their business model and are all open and upfront how they get paid when in reality they are doing the same as they have alway done , they have just substitued the word fee for commission.

I don't see that. I cant see how a fee agreed by the client and charged explicitly to the client can compare to a commission set by the provider and paid by the provider in a way that is not charged explicitly.

Dont get your point . The hourly charging IFA would have worked how long the job took and charged accordingly. Which means the the % IFA has undercharged for the work by £800, which doesnt seem too clever a way to run a business - although great for the client!!!!

Or the hourly fee charged more than they really should have.

Theres nothing high and mighty about it . Its all about being able to sit across the desk from someone and say this is what weve done, this how long it took and this is what it costs. An knowing yourself that youve made a profit and none of your other clients have subsidised the transaction.

It doesnt require an hourly rate to have that.

Im not convinced im the blinkered one. Percentages are not real fees.

... in your opinion. However, not in the opinion of the FSA or most others.

And its not just my business model i look at - havent you noticed ive updated my signature

I find it very strange that any IFA should struggle to implement that RDR changes unless they are true old fashioned commission based firms. If that is all you are having contact with then it may explain things.

When you start pointing out to client b) that they just paid twice as much as client a) for exactly the same service, and they say they are happy with that arrangement then good luck. You have obviously found a way to square that one with yourself.

I have no problem with it whatsoever. My terms are fully explained and have a cap and collar to avoid excessive fees. Never had a problem with anyone saying they are unhappy with that. If they don't like it they can go to the local "fee only" regional accounts with an IFA arm and pay their hourly rate with a minimum fee that is higher than my cap. I am happy that they have published fees just like I do. The fact they are different is the sort of choice a consumer should have.

dunstonh

How do you equate "more than they should have" ?

Probably in the same way you equate it to not being enough.

Yes I know - The FSA have hardly got a reputation of covering themselves in glory have they?

No they havent. Apart from mortgage KFIs you would have a hard job finding much over the last decade that you could call a success with regards to the intermediary side of things. However, it doesn't mean they are wrong at everything.

As for most others, Im not sure they do. Most others dont really understand. If they read the PDF and still think % is best then good luck.

The pdf is biased and misses out key facts and refers to contracts which are traditional commission paying contracts rather than explicitly charged contracts that use the commission system for payment of the fee.

Shame there is so little choice in your area.

There is choice. However, they are just the biggest in the area and the most vocal about being fee only.

Look, I agree with you where the fee is structured to be like commission. e.g. x% with no cap or reducing factor to reflect investment size or where its higher than the commission option and the firm e.g. Towry Law who slag off commission but their fee option is higher than the commission option and is structured like a commission. However, where there is a reducing factor and/or cap on the percentage and the percentage is low and its charged explicitly then it cannot be anything other than a fee as the client is paying the amount. Not the provider.

jem16

feesarefare wrote: »

People thanking posts that are full of errors and inconsistencies isnt a new thing,

My post may have had errors and inconsistencies as far as your business model is concerned but it was certainly not full of errors or inconsistencies on all models. The exact model that I quoted was the way of business done only one month ago by a firm in your area.

indeed one of the thankers actually said the opposite to you earlier in the thread.

Perhaps he thought that the percentage fee with a cap might just be a possibility and might suit some clients better.

This might help you understand where I am coming from, and it confirms Dunstonh is correct in that I am indeed in the minority

http://www.yellowtail.co.uk/pdfs/yellowtail-ifa-fees.pdf

I know where you are coming from - this article could well have been written by you. As it was written by a firm of financial planners it's not surprising they have the same beliefs as you.

Tell me though - why did you not write a post, similar to mine, that laid out the way someone visiting your firm would have expected to do business with you?

That way the OP would have been able to compare models, decide which one would have met his needs and made an educated choice?

feesarefare wrote: »

An uncapped % cant be in the clients interest

Finally we have found something that both you and I totally agree on. Now look back at my post and find the bit where I said

the use of a percentage fee but it is still a fee provided there is at least some sort of cap on it.

I have never once advocated the use of a simple percentage with no cap as the correct way. If you look back at my posts (not just on this thread) you will easily see that I have mentioned the £2000 cap several times.

Seems like this is one of the few place where the consumers friend gets the mauling.

Have you any idea why that might be so?

jem16

feesarefare wrote: »

Im there are many bizarre and ill conceived charging structures in my area, as there appear to be in yours. I know of a Glasgow IFA who tell their clients and ill quote directly from their suitabitility letter - "fundsnetwork switch charge is 2.25% which is inclusive of our fee" . Nice earner if you do that with your client bank twice a year.

Just as well I'm not a client of the ill conceived and bizarre ones you talk about then.

If you read the whole thread you might see I did before your even posted - in much more simplistic terms

Must have been a bit too simplistic given his reply to my post, which as you say, was after your posts.

geosaver wrote: »

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.

and the OP thanked me for it- lol

Yes he did - did you check when?

Perhaps but the OP just asked if £12 K for a few hours work was too much .

As the thread progressed it became increasingly obvious that the OP was becoming more and more confused. Having given him a fuller reply which he obviously appreciated that would have been your chance to give him a fuller indication of an alternative.

moshking

I think the best question you can ask is what you get for your fee. You can then make a considered judgement as to whether you feel this is worthwhile.

For this level of investment, we would charge around 0.8% per year (up-front, and ongoing), but for that money we would prepare a comprehensive financial plan which looks at the fundamentals of your lifestyle and assets, and calculates what is likely to happen in the future based on certain assumptions. This kind of goal seeking can help you to make financial decisions based on facts, and may also mean that you can afford to reduce risk in your investment portfolio. We would also provide investment management, which means regular repeatable reviews of the risks and returns on your money invested.

The point is that you get a repeatable service each year which has a value to many people. If your adviser is just charging you 1.5% to invest your money, then this is not good value, although this is still less than what most advisers charge. If they are providing a detailed service based on your needs on an ongoing basis, then you might think it is. Personally, I feel 1.5% is too much even for what we offer. 0.5% may be the 'going rate' but it really depends on what is offered for that fee/commission. Incidentally, most advisers charge 3% up front with 0.5% ongoing. If they don't provide an ongoing service then this fee structure is poor value in my opinion.

By the way, I think most advisers would be happy to charge an hourly rate if that's what you want. We typically find that flat/fixed fees work better because they align interests and are easier to understand. I hope this helps.