How best to put £255k in savings

GeorgeHowell

Aegis wrote: »

Because it's investing, not a get rich quick scheme. As such, you can only invest what you already have. An IFA early in their career on a total remuneration package of £50k a year might be able to put aside £10-20k a year into savings, pensions, etc, which isn't enough to sustain a life of Riley in the Bahamas any time soon!

A professional may end up able to retire there in later life if they want, but only by following the same sort of plan they recommend for clients. This sort of financial planning is all about the long game, not the short term gratification a lot of people think investing is all about.

The Bahamas comment of of course somewhat tongue in cheek, and financial advisors are certainly potentially useful when specialist areas are involved where the average person would not have sufficient experience or knowledge to cope -- trusts, complicated tax matters, that sort of thing. But for matters like where to put a six figure sum, anyone with reasonable intelligence and access to the internet can glean as much useful information as they need about the structure of a suitable portfolio and best buy products to achieve it. You don't need to pay thousands of pounds in fees or commission and I doubt whether any many circumstances the average IFA would produce enough extra income or capital gain to cover that. Look at managed funds for example -- they seldom do better over the long game than trackers do. In my view a managed portfolio is unlikely to do better than average either. And although IFA's have to have professional indemnity this does not cover you against them simply backing the wrong horses on your behalf. Moreover IFA's are in my opinion likely to push people towards more risky investments (notably equities) than is good for them, because that is of course the IFAs' primary stock in trade. UK equities have overall fallen in value since 1999 -- is that a good long game strategy ?

GeorgeHowell

oldvicar wrote: »

I sense that a difference of opinion is that some financial advisers think they can manage money better than their potential clients, and Meeper is faced with comments from several possibly financially savvy and fairly wealthy people on here who think the exact opposite.

Both may have words of wisdom for the financially naive. But only one charges and has professional cover. One would hope that those seeking opinions (advice) understand the difference.

In general I would personally rather have the opinions of the 100s people on here than advice from just one paid professional. 'Crowd Theory' * suggests that this could actually provide better advice. But I would also take responsibility for making my own judgements on people's opinions, and above all try to understand what I invest in. Having said that, some of the wisest comments posted on here have been from people who make their living as IFA's ... so I'd be happy to have plenty of them in the crowd!

* http://en.wikipedia.org/wiki/The_Wisdom_of_Crowds

Actually I don't get the impression that this forum is as sheep-like as you imply. Invariably in these sort of discussions the bull and the bear are both represented, and the contrarian view gets an airing. Anyone can be reasonably financially savvy if they are interested enough and motivated enough, because there is so much free information and advice out there these days. Of course if someone has a six figure sum (or less) to invest and does not want to be involved in the detail then they can just hand it over to an IFA and pay for the privilege. That's like paying someone to decorate your living room because you just can't be a***d to do it yourself. But if someone takes the trouble to post the question on a forum like this then then one assumes that they are sufficiently interested in a DIY approach to have a go. And my view is that in such circumstances they have as much chance of making a decent fist of it as the average IFA does.

Meeper

Rollinghome wrote: »

I should be very wary of any financial adviser, as you claim to be, who doesn't understand, or pretends not to understand, the problem of commission, i.e. the commission offered by product providers to sell their products.

For one thing many of the most cost-effective investments, most obviously investment trusts and ETFs, don't pay commission.

A further problem is that some investments that do pay commission pay more than others - such as the Arch Cru funds before they were forced to close. Were the advisers who sold those funds just extremely stupid or simply greedy? Why would anyone sell such dodgy investments other than for the unusually high rates of commission? Investors who were sold those funds may still have to wait years to be compensated http://www.thisismoney.co.uk/money/investing/article-2033334/Arch-Cru-victims-face-delay-compensation.html

It makes no sense whatsoever to be restricted only to retail products that need to pay the "adviser" sales commission to be sold - to use the old saying 'Good wine needs no bush".

The FSA is forcing the ending sales of commission by 2013 for very good reasons. It is also insisting on better qualifications than the extraordinarily basic qualifications IFAs currently require - equivalent to a McDonalds shift manager's diploma as Financial Secretary to the Treasury Mark Hoban famously pointed out. http://www.moneymarketing.co.uk/regulation/fsa-joins-mcdonalds-rdr-row/1020673.article The intention is to increase the emphasis on advice rather than just on selling.

Any adviser who still claims not to understand the problem with commission is certainly one to avoid.

All good and valid points. But you are going a step or two too far I'm afraid.

In the example that I gave earlier, the payment coming from the provider would be classed as a commission in FSA terms, however the net effect to the client is exactly the same as the fee option. It's just a different model to get to the same result.

What I am trying to point out is that whilst people on this board say "always use a fee-based adviser", there are MANY advisers who work on a commission basis in an open, honest and transparent way.

There are many advisers who abuse commissions in exactly the ways you have stated. The answer therefore is not necessarily to use a fee-only adviser, but to use an adviser who provides you with clear and concise information, is transparent, and about whom you understand the remuneration method clearly in advance of any transaction.

You will find that although "commission" is going to disappear in 2013, the methodology will remain but be called "client agreed remuneration" or some other such title.

gadgetmind

GeorgeHowell wrote: »

the IFAs' primary stock in trade. UK equities have overall fallen in value since 1999 -- is that a good long game strategy ?

An IFA who didn't recommend spreading investments across both sectors and territories would be doing a *very* bad job IMO. They *should* also be rebalancing this spread on a regular basis.

My (outgoing!) IFA managed to get at least this right, but did use funds for everything rather than low cost trackers/ETFs/ITs for those areas of my portfolio where they could have been used.

gadgetmind

Meeper wrote: »

there are MANY advisers who work on a commission basis in an open, honest and transparent way.

When working on a commission, would they recommend investment products that don't generate a commission if these products were the best long-term investments for the client?

Meeper

gadgetmind wrote: »

When working on a commission, would they recommend investment products that don't generate a commission if these products were the best long-term investments for the client?

You don't understand what I'm trying to say.

Please, allow me to try again. Perhaps I'm not explaining my meaning adequately.

A commission is not always what you think it is. So, in my previous example:

Guy has £100,000 to invest and agrees remuneration with me of £1,500 for the advice and implementation of the contract. He can either:
a) Give me two cheques. One for £1,500 to cover the fee, and one for £98,500 for the investment, or
b) Give me one cheque for £100,000 for the investment and the provider will pay the £1,500 to me.

Either way, the investment is £98,500. According to regulations, option a) is a fee-based proposition and option b) is a commission.

In THIS instance, there is nothing at all wrong in taking a commission.

Products which pay a commission which is EXCLUSIVE from the clients' funds should be avoided. Things with enhanced allocations which may credit the client with 105% of their funds, pay the adviser a "commission" of 5% (so the client is still investing 100%) and then charge the client much higher annual fees to recoup the commission. THAT is an example of where commissions are bad. My example above shows where commissions are no different to fees.

My advice stands. Agree something that is transparent, open and honest. Agree the remuneration amount up-front, then discuss with the adviser the method by which this amount should be paid.

Rollinghome

You seem to misunderstand. The reason to avoid advisers selling on commission isn't one of cost. It's in order to minimise "commission bias".

Meeper wrote: »

You will find that although "commission" is going to disappear in 2013, the methodology will remain but be called "client agreed remuneration" or some other such title.

On that you're quite right. After all the majority of financial advisers have been salesmen all their lives and their attitudes won't suddenly change overnight.

Although the direct payment of commission to advisers from the investment companies for selling their products will end, IFAs will continue to be paid commission and bonuses by their employers based on how much they persuade the client to invest.

Financial advisers aren't like priests or the Citizens Advice Bureau, just there to help any more than are the investment providers or the banks. As always caveat emptor.

oldvicar

GeorgeHowell wrote: »

Actually I don't get the impression that this forum is as sheep-like as you imply. Invariably in these sort of discussions the bull and the bear are both represented, and the contrarian view gets an airing. Anyone can be reasonably financially savvy if they are interested enough and motivated enough, because there is so much free information and advice out there these days. Of course if someone has a six figure sum (or less) to invest and does not want to be involved in the detail then they can just hand it over to an IFA and pay for the privilege. That's like paying someone to decorate your living room because you just can't be a***d to do it yourself. But if someone takes the trouble to post the question on a forum like this then then one assumes that they are sufficiently interested in a DIY approach to have a go. And my view is that in such circumstances they have as much chance of making a decent fist of it as the average IFA does.

I agree with all this, and certainly was not trying to imply a sheep like mentality. My point was rather that with all the (differing) opinions on here some of them and indeed the consensus view could well be better than that obtainable from a single adviser.

Meeper

It COULD be. But would you rather take advice fro 10 people who have never studied the subject, or one individual with 10 years experience in advising, numerous technical examination passes and sufficient knowledge to be able to offer REAL advice which is backed by consumer protection legislation.

Taking the DIY approach is ok with small sums. When you are talking about £255k (or anything over £50k really), it can be a massive amount to take a risk with. At least in using an adviser you have the various protection schemes in place if something goes wrong. Don't fancy your chances of getting a complaint upheld by the ombudsman because the advice you received from MSE Forums didn't work out.

gadgetmind

Meeper wrote: »

b) Give me one cheque for £100,000 for the investment and the provider will pay the £1,500 to me.

No, I won't, and the reason I won't is because I deeply suspect that you have chosen an investment that maximises the £1500 you get rather than maximises my long-term return.