A very large sum - where do I start?

Flynn_2

jem16 wrote:

So basically you are not being advised to take a product that is unsuitable for you simply because it pays the adviser more upfront commission. He gets 1% regardless.

If I recall it was said the "NMA" IFA will take 1% or even less upfront. But what he relies on is the ongoing commission which does vary between investments with fixed interest and property funds paying only 0.15/0.35% and not 0.5%.

On £20K, 1% + 0.15% over 10 years is 2.5% and £500 earned by the IFA but 1% + 0.5% is 6% and £1200 earned. Which would you rather have?

Additionally some investments including most obviously building society savings accounts and I believe low cost tracker funds such those from L&G pay no commission at all.

So all investments are not equally remunerative to the "NMA" IFA any more than they are to Old model and it might still be in the IFA's own best interests to steer the client towards one home for his savings rather than another.

The more obvious benefit is that because there is reliance on commission being earned annually there is an incentive to the IFA to sell a product that the client will be happy with in the longer term - provided it's one that he earns an ongoing commission on.

Chrismaths

Since you have the cash - you should go where the big boys go. Here are some choices for you. Goldman Sachs, Lehman Brothers, Credit Suisse First Boston. Citibank, Merrill Lynch. A team of advisors will probably manage your portfolio, if that is what you want, for .50 % of the assets for a 1/2 million pound portfolio. All charges would be included in that fee. Funds would be bought at NAV, so no commission on the purchase, trailers, if any, would be returned to you. Funds would be switched at no charge. They have contracts with all major fund providers world wide. Also, are members of all major exchanges around the world.

Seems odd, but £650k is small potatoes to these guys. They tend to deal with "UHNW" (ultra-high net worth) clients - we're talking multi millions. There's no guarantee the service would be any better, and you'd be unlikely to get a service that cheap, in fact it would more likely be quite expensive. And it's "trail" BTW, not "trailers".

perhaps ifas & fund managers should be paid only for positive investment returns?

Performance fees are definitely a good idea, but one that is rather hard to put into practice. I haven't seen a method of charging a performance fee that really works. I can expand on this later if people are interested, but not at this time of night!

Additionally some investments including most obviously building society savings accounts and I believe low cost tracker funds such those from L&G pay no commission at all.

So all investments are not equally remunerative to the "NMA" IFA any more than they are to Old model and it might still be in the IFA's own best interests to steer the client towards one home for his savings rather than another.

The more obvious benefit is that because there is reliance on commission being earned annually there is an incentive to the IFA to sell a product that the client will be happy with in the longer term - provided it's one that he earns an ongoing commission on.

NMA isn't perfect. Nothing is. But a decent NMA is likely to take a view across an entire portfolio, and work out he is likely to get 0.4 - 0.45% trail overall. So what if the property or bond bit doesn't pay as much, it's the portfolio as a whole that's important.

Our firm took a view years ago that getting if you are getting paid by anyone other than the client, then you aren't working for the client, you are working for whoever is paying you.

It would obviously be hideously smug of me to point out that as an investment manager, we don't get paid a penny by anyone except our clients as we rebate trail - so we have no bias at all. So I won't.

dipsomaniac

i do think that all advisers should be looking to build their business on renewal commission. it benefits the client and it makes sense for the adviser to have an ongoing income stream which also has a value when the business is sold.

i was making the point that in cases where the investment amounts/premiums are low, advisers also need the option to take a higher i/c or a fee (same thing, different name). the explicit charges are not necessarily the most important factor, the quality of the ifa is.

agree with dunstonh the tied saleforce model is the one to avoid first, they are under great pressure to hit targets and are less likely to discount any i/c as well as having a limited range of products/funds available.

EdInvestor

Chrismaths wrote:

Seems odd, but £650k is small potatoes to these guys. They tend to deal with "UHNW" (ultra-high net worth) clients - we're talking multi millions. There's no guarantee the service would be any better, and you'd be unlikely to get a service that cheap, in fact it would more likely be quite expensive.

There's an article in one of the trade rags this week which says that 30% of the best-off retirees don't take advice at all.You can easily see why this would be the case.

#Anyone with less than a million to invest won't attract the investment banks.

#The IFAs of whatever stripe don't even cover major areas of interest to people with a decent chunk to invest, such as share portfolios, investment trusts, ETFs.

#Most of these people will have already learned to steer clear of banks - having either been stung for investment bonds or had their portfolios churned by expensive "wealth managers" , for example see this thread.

Is it any wonder that websites like this one and the Fool and companies like HL are doing a roaring trade?People have been forced to DIY to get decent performance and value for money.

And once they look into it of course, they often find it's nothing like as difficult as the "professionals" would have you believe.


*One point re IFAs:I used to say that it was always worth consulting a good pension IFA when dealing with a pension, particularly taking benefits from a sizeable one, mainly to avoid making financial mistakes due to the very complex rules.But now I wonder.There seems to be a lot of unnecessary churning going on - and knowledge about the rules seems to be worsening by the day. Knowledge of WP pensions ( which is where it is especially easy to make a mistake) seems to be abysmal among younger advisors and sales of poor value inappropriate IBs have rocketed.

So if you do go to an advisor, I would suggest you also DYOR and double check the recommendations on any large sum.

dunstonh

On £20K, 1% + 0.15% over 10 years is 2.5% and £500 earned by the IFA but 1% + 0.5% is 6% and £1200 earned. Which would you rather have?

Additionally some investments including most obviously building society savings accounts and I believe low cost tracker funds such those from L&G pay no commission at all.

If you are building a sector allocated portfolio, then you have little choice but to include fixed interest funds for the fixed interest sectors and property for property.

Trackers are overrated and in a volatile market (which is how I see things going forward) the downside protection offered on quality managed funds is a better option. Even then, if you did use one, it would still only account for a small proportion of the overall investment.

#The IFAs of whatever stripe don't even cover major areas of interest to people with a decent chunk to invest, such as share portfolios, investment trusts, ETFs.

That is where investment managers like CM come into play. If you want that sort of portfolio, then you use an investments manager. If you want a unit trust/unit linked portfolio then you use an IFA. There are those that have the qualifications and/or professionals within their company to do all of it.

*One point re IFAs:I used to say that it was always worth consulting a good pension IFA when dealing with a pension, particularly taking benefits from a sizeable one, mainly to avoid making financial mistakes due to the very complex rules.But now I wonder.There seems to be a lot of unnecessary churning going on - and knowledge about the rules seems to be worsening by the day. Knowledge of WP pensions ( which is where it is especially easy to make a mistake) seems to be abysmal among younger advisors and sales of poor value inappropriate IBs have rocketed.

I have done significant churning on pensions over the last 3 years. About 9 million pounds worth at last check. The FSA published an OP a few years back telling IFAs how and when to get people out of obsolete pensions. The also issued one on With Profits. The FSA was encouraging IFAs to do it and we did. Now you have insurance companies with large legacy books complaining about it. Well, my view is that if they moved everyone over to their current contracts they wouldnt lose the business. If they decide to keep people on obsolete plans then I have a duty to move people away.

over 80% of all advisers out there today have never had a complaint (FOS published that before Christmas). Most issues are legacy from early on in regulation or before regulation. You have more chance of finding a good adviser than a bad one and standards are improving all the time.

EdInvestor

Well, my view is that if they moved everyone over to their current contracts they wouldnt lose the business. If they decide to keep people on obsolete plans then I have a duty to move people away.

I agree.This is proper advice, it is not unnecessary churning of the type I was referring to.

That is where investment managers like CM come into play. If you want that sort of portfolio, then you use an investments manager.

Look for one here

prudryden

I agree that the payroll statement will generally state trail. But in general conversation, they are normally referred to as trailers. From investopedia:

Trailer Fee
A fee that a mutual fund manager pays to a salesperson who sells the fund to investors

The trailer fee pays the salesperson for providing the investor with ongoing investment advice and services. It is important to know whether your mutual fund salesperson is receiving a trailer fee because it may cause him or her to try to sell you a particular fund not because it is a good investment but because selling it to you will make him or her money. Also known as a "trailer commission," this fee is paid annually for as long as the investor holds shares in the fund.

Flynn_2

Chrismaths wrote:

Seems odd, but £650k is small potatoes to these guys.

With property prices as they are there'll presumably soon be plenty of kids around with substantial inheritances burning holes in their pockets. Will be interesting too to see what happens to all the pennies when there's a mass exit from buy to let - as there eventually is from anything.

Chrismaths wrote:

Performance fees are definitely a good idea, but one that is rather hard to put into practice. I haven't seen a method of charging a performance fee that really works. I can expand on this later if people are interested, but not at this time of night!

Yes please Chris, would be interested. I've only once looked at a pure performance-based structure, offered by a stock-broker, and ran away fast. If the obvious problems could be overcome I'd be very interested.

Chrismaths wrote:

NMA isn't perfect. Nothing is. But a decent NMA is likely to take a view across an entire portfolio....

Knowing whether any advisor is decent or very good and therefore worth a higher fee seems the difficult part. The larger the sums involved the more important that becomes. What I'd really like to see are managers/advisors offering data on their performance in the same way as is available for unit trusts. Are there reasons why this doesn't seem to be done, or is it? Is it because in the nature of things the performance for most will be "average" at best and so misunderstood?

dunstonh_ wrote:

Trackers are overrated and in a volatile market (which is how I see things going forward) the downside protection offered on quality managed funds is a better option.

I haven't been an active investor for some years so don't know how they're currently rated. About 10 years ago they were the flavour of the month and exaggerated claims were made. At the same time I found them to have their uses. The L&G Allshare tracker had a very low offer to bid which meant it could be used to jump in and out of markets at very low cost - far less than the spread + stockbroker fees for an allshare basket.

Longer term they are never going to do as well as the best managed funds but on the other hand they will out-perform many and presumably some well-meaning IFAs are out there today busily selling the funds that will underperform tomorrow. Isn't it correct that the average managed fund will always underperform the relevent index? As they say, "Past performance of an investment is not necessarily a guide to its performance in the future" and that may be especially true of managed funds.

prudryden

Performance based remuneration for an advisor, who is not using excessive margin (leverage) and not using derivatives, is not realistic. It would be near impossible for the advisor to have any income or the investor to have a better than average return. Performance based is almost entirely reserved for the hedge fund community.

prudryden

The firms previously listed above will have departments that deal exclusively with retail clients as opposed to institutional. I agree that 1/2 million would be considered small, but for a managed account, it would generally be acceptable. Failing that, you could try some of the smaller ones, although by no means small, such as Morgan Stanley, Raymond James Investment Services, Barclays Wealth Management.
.50% on £600,000 is very doable. I would do it for a lot less, especially if it was a fixed income or one composed entirely of funds (UT or IT) or even a conservatively balanced portfolio (combination of income and growth).