Financial Advisor - recommendations

cnile_2

I recently took early retirement, and consulted a financial advisor recommended by a family member. He was very pleasant and talked what I wanted to hear.
It seemed just what I wanted, especially when all he wanted was an advisor fee of 0.5%. and would discount the ISA charges.
Then came the portfolio recommendations and the true cost.
Existing ISA transfer charge and then commission. Commision on new ISA and other funds purchased.
Year 1 charges. ISA's 1.65%. Funds annual commission. 0.52%. Annual commision 1.0%. Advisor fee 0.5%. All this adds up to quiet a lot of money out of my retirement pot.
So what do I get? The worry of, are the markets going to fall in this very uncertain world of finance.
My invesments would have to perform really well to give me any kind return for the first two years after the charges have been taken out.
My own investments through a non advisory agent, with very low charges have given me a reasonable return over 15 years. I am now thinking, do I want someone to lift thousands of pounds out of my back pocket, in hope that they may or may not give me greater returns. Greed might be my downfall in these very volitile times.

dunstonh

Year 1 charges. ISA's 1.65%. Funds annual commission. 0.52%. Annual commision 1.0%. Advisor fee 0.5%. All this adds up to quiet a lot of money out of my retirement pot.

Have you typed in the wrong info there. It doesnt work out right as you say its fee based. yet you are showing commission. Commission is usually rebated on fee basis.
The three levels you normally get are platform charge, investment charge and adviser charge. You seem to be adding the whole lot up on top of each other which is not correct.

So what do I get? The worry of, are the markets going to fall in this very uncertain world of finance.

Nothing to do with charges then. There are pros and cons of the secured and unsecured options. The name gives it a clue. Secured vs unsecured. If you want security then you get it but it comes at a cost and with some risks (which are not investment related but elsewhere). If you want the benefits of the unsecured option then it comes with investment risk. You cannot get the best of both.

My invesments would have to perform really well to give me any kind return for the first two years after the charges have been taken out.

Why? No initial fee and a TER of 1.65% (noting that pension business uses the TER, not AMC) is not excessive. Indeed, its virtually the same as the TER of invesco perpetual high income is. So, its spot on the average.

My own investments through a non advisory agent, with very low charges have given me a reasonable return over 15 years. I am now thinking, do I want someone to lift thousands of pounds out of my back pocket, in hope that they may or may not give me greater returns. Greed might be my downfall in these very volitile times.

I suspect your non advisory agent is not doing it for free and you are possibly not comparing like for like. If its cheaper then its likely that its because its not using funds.

cnile_2

dunstonh
I am no genius when it comes to the minefield world of finance. I can only reply to your comments by stating how the costs were laid out-

Charges- ISA transfers 1.04%. New ISA and direct funds 1.54%. Total weighted annual expense for ISA's 1.65%. Advisor fee 0.5%. In addition the standard trail commission of 0.52%. Whatever that is!

Commission/Fees - ISA transfers 1.04%. New Investments 1.5% paid by cofunds to advisor. In addition 1.0% commission of total fund value each year.

The agent I used for my own invesments was Elson. I purchased my own choice of funds with Fidelity Jupiter and Invesco. I assume Elson get paid from the annual fund charges.

My investments are not inside a pension fund, some are part of a pension lump sum payment.

I know financial advisors don't work for free, but for the average hard working man, it's a lot out of his retirement pot. My view is buying funds with good reputable companies with a good spread in markets, has produced a reasonable but not fantastic return over the years. After all if world markets fall you lose even if invested via an agent and then you have their charges to recover on top.

dunstonh

cnile wrote: »

dunstonh
I am no genius when it comes to the minefield world of finance. I can only reply to your comments by stating how the costs were laid out-

Charges- ISA transfers 1.04%. New ISA and direct funds 1.54%. Total weighted annual expense for ISA's 1.65%. Advisor fee 0.5%. In addition the standard trail commission of 0.52%. Whatever that is!

Commission/Fees - ISA transfers 1.04%. New Investments 1.5% paid by cofunds to advisor. In addition 1.0% commission of total fund value each year.

The agent I used for my own invesments was Elson. I purchased my own choice of funds with Fidelity Jupiter and Invesco. I assume Elson get paid from the annual fund charges.

My investments are not inside a pension fund, some are part of a pension lump sum payment.

I know financial advisors don't work for free, but for the average hard working man, it's a lot out of his retirement pot. My view is buying funds with good reputable companies with a good spread in markets, has produced a reasonable but not fantastic return over the years. After all if world markets fall you lose even if invested via an agent and then you have their charges to recover on top.

To be honest, i don't quite follow your charges still. Although it looks like this case, the adviser is taking 1% instead of the more common 0.5%. Not uncommon with smaller pots but 0.5% is more common with larger.

Your existing agent is getting paid 0.5% p.a. unless you negotiated special terms. They are using bundled charging by the sound of it which is a very common model and the very same one that Cofunds use.

Iancfp

cnile wrote: »

dunstonh
I am no genius when it comes to the minefield world of finance. I can only reply to your comments by stating how the costs were laid out-

Charges- ISA transfers 1.04%. New ISA and direct funds 1.54%. Total weighted annual expense for ISA's 1.65%. Advisor fee 0.5%. In addition the standard trail commission of 0.52%. Whatever that is!

Commission/Fees - ISA transfers 1.04%. New Investments 1.5% paid by cofunds to advisor. In addition 1.0% commission of total fund value each year.

The agent I used for my own invesments was Elson. I purchased my own choice of funds with Fidelity Jupiter and Invesco. I assume Elson get paid from the annual fund charges.

My investments are not inside a pension fund, some are part of a pension lump sum payment.

I know financial advisors don't work for free, but for the average hard working man, it's a lot out of his retirement pot. My view is buying funds with good reputable companies with a good spread in markets, has produced a reasonable but not fantastic return over the years. After all if world markets fall you lose even if invested via an agent and then you have their charges to recover on top.

You appear to have been introduced to an expensive adviser but without knowing what they were providing and how good or bad their advice we can judge their value.

A more average IFA rate would be 0.5% p.a. your discount broker effectively gives you half this back so you are saving 0.25% for having no advice, no second opinion, nobody to sue if it goes wrong

Loughton_Monkey

If you were building your own house, knew nothing whatsoever about plumbing, and wanted gas central heating, you would definitely need a 'Gas Safe' registered plumber. You would expect him to do two things:

1. Use his specialist knowledge to understand your specific house, layout, and requirements, and design the 'correct' boiler, number and size of radiators, and generally cost this out for you.

2. After your 'OK', he would then install the boiler and radiators, test them, make sure everything's OK, and then take the money and go home. Apart from a 'guarantee period' that's about it.

Now the way I see it, that's a straight-forward and understandable business model. Provided he has not sold you a boiler twice (or half) the size you need..... You have paid a fixed, quoted, amount, an broadly speaking have got what you paid for. Maybe you will go back to the same guy every year or so and ask him to service it. He will charge a fee.

Provided Financial Advisors work in the same way, I have no problem with them. To the extent that I am 'competent' to design and fit gas boilers, I personally would not use one. I would do it myself for free. [I am totally incompetent on gas plumbing and so always use a plumber].

To me, the problem comes when you have the plumber (above) doing the design job for 'nothing', but then receiving 5% of your Gas Bill (from N-Power or whoever) for the rest of your (and his) life. This method of charging has two problems. Firstly, it does not guarantee that the payment to the plumber (IFA) bears any relationship to the work and expertise actually used on the job, and secondly, you are always left wondering (however true) whether or not the boiler is truly designed 'perfectly' - or perhaps a tad 'over-designed' so that more gas is actually used, and hence more renumeration paid.

The situation, currrently, in Financial Services is a little bit complex. In the gas example, then imagine that there is no way on this earth you would ever get 5% off your gas bill direct from the gas company, then you have to say you might as well get the job done for nothing, and let the plumber get paid by the gas company. Who would pay him the full whack and let him get away with 5% of your gas costs on top?

As is (hopefully) happening in Financial Services, I like the idea that the gas company must give you the 5% discount, and then you pay the plumber a fair flat fee for the work he has done - just like a lawyer. There is only one trouble with this business model though. Many people would simply not want to pay (say) £1,000 to buy a pension (which is the way they would see it). So they would simply 'go direct' and put together their own financial strategy. This could be as dangerous, though, as refusing to pay a plumber to design and fit your gas boiler. Do it yourself for nothing. When does it explode?

Rollinghome

Iancfp wrote: »

A more average IFA rate would be 0.5% p.a. your discount broker effectively gives you half this back so you are saving 0.25% for having no advice, no second opinion, nobody to sue if it goes wrong

Ian, you seem an honest sort so I assume you aren’t selling the idea here that clients will be able to sue their IFA just because things go wrong.

They will more likely need to demonstrate that outright mis-selling occurred which may be extremely hard to prove. Just because an adviser encouraged them to invest at a bad time won’t be enough. After all advisers do that all the time: they don’t send leads away suggesting they come back at a better time if they can help it. They want that sale now.

They didn’t do it in 07/08 when equities were looking risky or at the beginning of this year when it was obvious enough to any savvy investor that there was likely to be a correction at some point during the year. They just shrug their shoulders and mutter about not having crystal balls. Not having a crystal ball can be very convenient when selling investments.

Even many investors who were put into the now defunct Arch Cru funds by their advisers will be out of luck. Even though the mysterious way the funds apparently made money (sold as “cautious managed”) looked totally dodgy from the start and any adviser selling them would have needed to have been highly incompetent or dishonest. Arch Cru of course paid way above the standard rates of commission.

You may have read the article in the Observer about the women who was able to prove mis-selling because almost her entire savings were put into Arch Cru. But her adviser went into liquidation and she has only been able to recover a just small part through the FSCS.

So yes, an investor will get a second opinion from an adviser but to be realistic that opinion might be one that most suits the adviser. Just as a bank or insurance salesman, which most IFAs will have have been, will be there to generate profits for his company, then so will IFAs be there to benefit themselves and their companies. They don’t do the job for love of being helpful.

The problem has been that the industry has traditionally rewarded for sales rather than for giving good advice. Something the FSA has tried but as yet failed to change. Obviously some advisers will be more ruthless for a quick profit while others will take a longer term view and try for repeat business. There will be decent sorts and outright scoundrels but all advisers are in it to sell their services and products.

So if people are incapable of looking after their own money then getting advice may be sensible but they really do need to have some understanding of money in order to evaluate the quality of the advice they get. Just as when getting advice from a salesman in a shop. Passing the job to an adviser and hoping for the best can be costly. And one thing that would put me off any adviser would be lack of frankness.

grizzly1911

Sceptic001 wrote: »

No, I would ask a qualified engineer or a chartered surveyor. They have insurance if they screw up.:D

You may well get the same advice either way.

My experience of Bank Financial Planners is that they have often been unsuccessful sales people in other roles.

Bear in mind that when advisers of any persuasion say "medium/long term investment" , it really means give me time to get the commission and move on, if you do catch up with me in 10 /15 years time I will say unforeseen market conditions.

I have also read some copy recently that a number of IFAs are not upgrading to the new competency regulations and that there is insufficient business for the numbers.:cool:

grizzly1911

Iancfp wrote: »

You appear to have been introduced to an expensive adviser but without knowing what they were providing and how good or bad their advice we can judge their value.

A more average IFA rate would be 0.5% p.a. your discount broker effectively gives you half this back so you are saving 0.25% for having no advice, no second opinion, nobody to sue if it goes wrong

How often do FAs get sued, outside of Tied/Banking Advice?

How often do these complaints get upheld?

I'm just trying to understand how often poor advice is acknowledged (non fraud), as opposed to poor "asset" performance which could be down to market conditions.

darkpool

cnile wrote: »

I am now thinking, do I want someone to lift thousands of pounds out of my back pocket, in hope that they may or may not give me greater returns.

tbh that's the way i see it. i don't want to give an IFA thousands of pounds each year. especially when there seems little evidence that IFA/ active management is worth the fees.

how about investing some of your money directly into shares? for instance sainsbury is at a low and yields 4.5% if a fund invested into sainsbury for you they would take 2% a year. leavig you with 2.5% yield