Looking for an IFA - I will pay 5% maybe 10%!

Ilya_Ilyich

Oh most definitely, as I say I think financial advice is instrumental in helping the upper middle class to accrue more capital. When it comes in a fee form it certainly looks like there's less of an incentive for IFAs to take their clients' money. Just out of interest (in as un-snarky a way as possible) are there any data regarding IFA income or investor returns vs commission/fee bases? Or is that too recent a phenomenon to investigate? I'll happily admit I know little about the FA market!

Ark_Welder

Incoming......!!!

http://www.trustnet.com/News/Research.aspx?id=264148

Aegis

fairleads wrote: »

Profession! - pull the other one.

I actually believe it is a profession and wrote a post on why some time ago.

The thread has some detail before and after on why the question was raised, but I absolutely believe that independent financial advice can be a profession.

http://forums.moneysavingexpert.com/showpost.php?p=44308168&postcount=6

Ilya_Ilyich

e: Ark Welder That is such a !!!!!!!! link and you know it.

Outerbridge

Why not put half with an investment manager and manage the other half yourself? Then, after a year you can make a considered decision as to whether it is worth paying the commission.....

wriggly

Ark_Welder wrote: »

Incoming......!!!

http://www.trustnet.com/News/Research.aspx?id=264148

Hmm, it would be interesting to investigate if the funds that are expensive were always more expensive, or if, due to their success (whether 'tis skill or luck), they have been able to keep their AMC high.

IronWolf

When it comes to investment managers and IFA's I'm always reminded of Warren Buffetts story of the Gotrocks. It's talking about the US but has crossover.



Between Dec. 31, 1899, and Dec. 31, 1999, to give a really long-term example, the Dow rose from 66 to 11,497. (Guess what annual growth rate is required to produce this result; the surprising answer is at the end of this piece.)

This huge rise came about for a simple reason: Over the century, American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way cutting the returns they will realize from their investments.
The explanation of how this is happening begins with a fundamental truth: With unimportant exceptions, such as bankruptcies in which some of a company’s losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B.

And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic — no shower of money from outer space — that will enable them to extract wealth from their companies beyond that created by the companies themselves.

Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.

To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family — generation after generation — becomes richer by the aggregate amount earned by its companies.

Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers — for a fee, of course — obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what.

So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend, and in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new “beat my brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager — yes, us — and get the job done professionally.”
These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.

It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.

The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group — we’ll call them the hyper-Helpers — appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers — brokers, managers, consultants — are not sufficiently motivated and are simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with self-confidence, the hyper-Helpers assert that huge contingent payments — in addition to stiff fixed fees — are what each family member must fork over in order to really outmaneuver his relatives.

The more observant members of the family see that some of the hyper-Helpers are really just manager Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.
And that’s where we are today: A record portion of the earnings that would go in their entirety to owners — if they all just stayed in their rocking chairs — is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all the losses — and large fixed fees to boot — when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this — heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so — may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20 percent of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80 percent or so of what they would earn if they just sat still and listened to no one.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the fourth law of motion: For investors as a whole, returns decrease as motion increases.

Here’s the answer to the question posed at the beginning of this piece: To get very specific, the Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3 percent compounded annually. (Investors would also have received dividends, of course.) To achieve an equal rate of gain in the 21st century, the Dow will have to rise by Dec. 31, 2099, to — brace yourself — precisely 2,011,011.23. But I’m willing to settle for 2,000,000; six years into this century, the Dow has gained not at all.

oldvicar

Meeper wrote: »

Because the proponents of "do it yourself" are so entrenched in their thought process that they refuse to believe that there is a viable alternative to their opinions, thus they decry every contrary point of view as nonsense or unfounded.

Here's a decent example along the same lines as dunstonh mentioned previously:

I have a client for whom I have provided advice on pensions, investments, mortgages, savings and protection. Said client is not an idiot, uninformed or anything else. Said client is a fund manager, an investment banker working for one of the biggest investment banks in the world. Said client has experience in active management, passive tracker fund management, ETF's and a whole range of other areas to long to go in to. Said client has neither the time nor the inclination to research the most appropriate structures for tax-efficiency, find out which platforms offer the most flexibility, who is the most secure and reliable provider, where to find the best mortgage rates, which critical illness providers have the most illness definitions, and so on. Said client works over 70 hours a week and has a basic salary in excess of £150,000 per annum, IMA and CFA qualifications and a doctorate in financial analysis. Said client has referred over a dozen of his colleagues to me as the service I provide gives him the peace of mind he deserves for his finances so that he does not need to worry about the management of his money whilst he is busy managing the billions of other people's. I advise on the structures and underlying strategic asset allocations required to achieve his goals, and we jointly decide on the funds which will fit into the strategic modelling and make tactical asset allocation decisions from time to time on a joint basis in order to take advantage of certain situations or reduce the effect of others.

The adviser gives advice on strucutres and products which will achieve the aims and goals. The adviser does not generally (although some do) get involved in the physical investment management of the funds, leaving this either to the fund managers themselves or using a discretionary fund manager to work on behalf of this specific's clients objectives. It is the advice on said structures and products and their continued suitability for the aims and objectives of the individual client that justifies the adviser remuneration. It's that simple. Saying that an adviser should be liable to pay money back to the investor when markets fall is ludicrous and just plain nonsensical - referring to the original post.

Meeper

In a nutshell then, an IFA is like a Personal Shopper in a financial department store.

Clients such as Meeper describes probably also use Personal Shoppers ('strategically', of course) in 'high-end' department stores to satisfy their 'gifting goals' for the 'festive season'. The service will include a Wrapper, either fee-based or commissioned on the purchase price of the goods.

Those who don't see the point take the DIY approach and just buy Christmas presents in John Lewis (or for lower cost, in PoundLand)

Meeper

Interesting analogy. Inaccurate as it doesn't take into account years of qualifications and technical know-how, and once again is an over-simplification of the work done.

Good try though. Someone will do our profession justice one of these days.

IronWolf

I can understand if people are rich and work long weeks why they would want a lot of helpers.

I have some banker friends, they pay for their apartment to be cleaned, pay for people to clean and press their shirts, just because they have such little free time they don't want to waste it doing boring things like that.

I like to pick my own stocks but can't deny it takes a lot of effort, you can't take shortcuts or not put the time in or you could end up with some bad investments.