IFA charges

cgzz

I'm only highlighting an issue about charges. If the OP can accept rewarding an IFA when they lose money then that's their decision.

Iancfp

There may be times when a portfolio goes down but the advice is good - if a medium risk portfolio went down 10% at the height of credit crunch when the market was 35% down you would be pleased

You only are paying for failure if you have an underperforming portfolio and you keep paying - if your IFA consistantly underperforms you get rid of them. Like any service you buy if you do not get value shop around

Amanita_2

cgzz wrote: »

I'm only highlighting an issue about charges. If the OP can accept rewarding an IFA when they lose money then that's their decision.

Again - so how would you go about it?

dunstonh

cgzz wrote: »

"assuming the IFA charges are based on fund value if the funds go down so do the fees"

OK - 0.5% annual charge on £150000 portfolio is £750. If the portfolio drops to £140000 the annual charge is then £700. The IFA still gets £700 paid for failure but the portfolio owner loses a massive £10000. IFAs always focus on charges when everything is going up and of course when fund values go up the IFA reaps a better reward. However the IFA never loses out because when fund values go down they still get paid the annual charge. The charge may be smaller when the fund values go down but it is still being paid for failure.

By using a 0.5% charge, the adviser is paid more if the value goes up. They are paid less if it goes down. That is just about the only option that works well if you want to align adviser interests with yours.

Put it in context, if you use no IFA and use HL's SIPP or go direct to fund houses, then they keep that 0.5% without providing any advice at all.

Paying advisers only on short term success would fail. It would encourage risk taking as historically, growth periods outnumber the negative periods. (e.g. lower risk portfolios being less volatile but over long term go up less typically). This was also the problem seen with investment banks remuneration packages as short term bonuses encouraged risk. You also need to remember that you are paying the adviser to do work. You could opt to pay them the same irrespective of performance. That option does exist.

There is no perfect option but a percentage based servicing fee is the one that closest aligns interests.

durham_saver

So generally speaking I'm better off using an Ifa not a bank, def need some help cos this kind of investment we're talking about is too much for me to do. I don't have the knowledge.

dunstonh

So generally speaking I'm better off using an Ifa not a bank,

The choice between those two is a no brainer. There isnt one area a bank can offer you better.

magpiecottage

durham_saver wrote: »

So generally speaking I'm better off using an Ifa not a bank, def need some help cos this kind of investment we're talking about is too much for me to do. I don't have the knowledge.

Absolutely. A few things to look out for:

1. Are they truly independent - that means they MUST offer products from the whole of life and they MUST offer you the chance to pay them by fee rather than commission (they may offer commission as an alternative or part of the payment method but they do not have to).

2. Carefully read their Client Agreement and any document entitled "Key Facts about our services". This will tell you what you can expect from them and ought to tell you what they expect of you in return.
If instead of a "Client Agreement" they give you a "Terms of Business" be wary - it could mean they are still using obsolete documents which in turn could mean their compliance is not as good as it ought to be.

3. Read the documentation and do not commit to anything until you understand what you are being recommended to do, why it is being recommended, what the risks are and why it is reasonable and not imprudent to take those risks - and what it is going to cost you!

4. Remember, a good IFA cannot guarantee investment performance or avoid losses. They will, though, seek to push the odds in your favour so that you are more likely to get a better outcome with their intervention than without it.

bigfreddiel wrote: »

not toworry

That sounds very close to the name of the firm that got about 10% of all IFA complaints referred to the Financial Ombudsman Service last year!

bigfreddiel

Iancfp wrote: »

So do you want to do it yourself - pay the same and make a hash of it???

why should anyone make a hash of it?

admittadly you do need a bit of knowledge on how investment works -but its not rocket science or even brain surgery - a little bit of learning is required and thebasics can be found on the internet, MSE, finance pages and magazines - certainly worth the effort to learn and perhaps save yourself thousands -okay i know whats coming next - being a novice clueless investor you're going to lose thousands with bad uninnformed choices - what i say to counter that one is to checkout how the professional fundmanagers are always so successful - well they're not really - just check out the tables.

another expert, good old Mervyn - all he has to do is keep infation below 2% - every month another excuse - so its all just a guessing game - no skills needed -just an understanding of the rules

property.advert

If you cannot do it yourself then you need help. That help will cost you money. Your job is to pick the best help you can find and negotiate a fair price for the work done.

If you cannot be bothered to learn a little, then how on earth do propose to deal with any new challenge ?

bigfreddiel

property.advert wrote: »

ne.

If you cannot be bothered to learn a little, .....

hit the nail on the head - loads of people these days just can't be bothered - rather worry about how their footbal teams doing than bother looking after themselves and their families