IFA-- fair commission/fees?

deghvtc

Hi there,
Our family has some money to invest and we recently met with an IFA who specialises in Brit/European situations. Since quite a bit of our savings is currently based in Europe, but we reside in the UK, this kind of expertise is valuable to us, to an extent. The commission quoted is 2% of the portfolio value in the first year, and .5% of the portfolio value each year thereafter. We're pretty inexperienced with all of this, and just want to be reassured that these rates are fair. The rate quoted seems to be regardless of which products are chosen. Thanks for any input!

Lokolo

They are OK rates as a %, but depends on the amount you are investing, as it could be cheaper with a fee instead of 2%.

dunstonh

The commission quoted is 2% of the portfolio value in the first year, and .5% of the portfolio value each year thereafter.

Do they mean 1.5% set up and 0.5% a year including first year (as 0.5% p.a. is typically paid monthly as 1/12th) or do they mean 2% set up with 0.5% p.a.

Typically, set up is shown as one cost and ongoing is shown as another.

2% of £10,000 is fine.
2% of £100,000 is about the most you want to pay
2% of £500,000 is way over the odds

0.5% p.a. is typical to cover ongoing servicing.

The rate quoted seems to be regardless of which products are chosen.

That is what you want. A figure that is same irrespective of solution. However, percentage figures are increasingly expected to be capped to prevent them from becoming excessive. e.g. 2% of amount invested with a cap of £2000 would be acceptable.

property.advert

Why doesn't your advisor have the transparency to put forward their fees per hour ?

That is a question you should be asking, though probably of your next advisor.

dunstonh

Why doesn't your advisor have the transparency to put forward their fees per hour ?

How do you know they dont?

Many IFA firms have different charging methods to cater for different people. You could have an hourly rate. A fixed all in charge or a percentage with a cap. Some people don't like hourly rates as they don't know how much the final bill is going to be. So, a selection of options can help that.

dunstonh

Just published today, JPMorgan did some research on what consumers wanted. The method of payment was one of the questions. The favoured option by consumers was as follows:
Hourly Fee: 11%
Percentage/ad valorem fee 30%
Fixed sum per task 37%
dont know 19%
other 3%

daywalker

I paid 1% intially on a £150k investment I made with 0.50% annual trail commission.

Whilst I wouldn't say I was happy with that it seems fair enough.

I've just been quoted a 2% fee if I want to add my full ISA S&S allowance to it for this year. If I ever want to top up the investmentwe will negotiate the fee.

I'm uncomfortable with it but they have have to make their living and as long as they do better for me than a cash accoutn over time then it's money well spent. I don't have the time or inclination to make these investments myself. It would cost me more in lost time to be honest anyway.

dunstonh

I paid 1% intially on a £150k investment I made with 0.50% annual trail commission.

Whilst I wouldn't say I was happy with that it seems fair enough.

I've just been quoted a 2% fee if I want to add my full ISA S&S allowance to it for this year. If I ever want to top up the investmentwe will negotiate the fee.

A more recent trend with servicing advisers is that increments on larger portfolios don't get charged any initial amount. The value to the firm is the 0.5% p.a. so, once that gets to a level, that will cover top ups as well. So, on £150k, you may wish to discuss with your adviser whether they will not take the 2% because they are making 0.5% on the whole value.

daywalker

dunstonh wrote: »

A more recent trend with servicing advisers is that increments on larger portfolios don't get charged any initial amount. The value to the firm is the 0.5% p.a. so, once that gets to a level, that will cover top ups as well. So, on £150k, you may wish to discuss with your adviser whether they will not take the 2% because they are making 0.5% on the whole value.

Yes I know what you mean. It's something I want to tackle them over just need to approach it the right way. As it is they are not going to see any top ups from me at 2% and I am considering moving IFA and the portfolio but I imagine that is easier said than done. There have been a couple of issues crop up, nothing major but it's made me uncomfortable and with this amount of money as a first tiem investor I need to be comfortable.

Of that 0.50% they get, how much of that would you honestly say is allocated to 'ongoing management'

dunstonh

I am considering moving IFA and the portfolio but I imagine that is easier said than done.

Not nowadays. Most platforms/providers allow you to appoint a new IFAs as the servicing agent.

Of that 0.50% they get, how much of that would you honestly say is allocated to 'ongoing management'

Depends on workload and amount that it generates. Remember that you are not just paying for the advice but also the research that leads to advice. So, software like Financial Express analytics which costs £5k a year, research suppliers, portfolio data (like quarterly sector allocations etc) as well as liability for the advice all have to be covered. On 150k the 0.5% is probably getting close to the minimum as far as affordability is concerned for an IFA.

If you get bed&ISA and bed & pension (if applicable) and portfolio rebalancing all in that 0.5% then you are doing fine.

daywalker

dunstonh wrote: »

Depends on workload and amount that it generates. Remember that you are not just paying for the advice but also the research that leads to advice. So, software like Financial Express analytics which costs £5k a year, research suppliers, portfolio data (like quarterly sector allocations etc) as well as liability for the advice all have to be covered. On 150k the 0.5% is probably getting close to the minimum as far as affordability is concerned for an IFA.

If you get bed&ISA and bed & pension (if applicable) and portfolio rebalancing all in that 0.5% then you are doing fine.

Thanks so it would actually be fair to say they should be paid for top ups on my pot (unless we are talking a relatively large amount).

Anyway, I'm hijacking this thread which is bad, apologies to all.