Independent Financial Advisers fees vs Novice Investor!

saveonarola

One last thing. When you pay a fund-management fee (the AMC/TER), up to 0.5% of that is 'trail commission'. As I understand it (like I said, I don't know a great deal about advisers and fees), depending on your platform and your arrangement with your adviser, this may be kept by the platform (the broker or fund supermarket), rebated to you (i.e. go back into your funds), or it may be paid out to your adviser (every year, regardless of whether they do any work for you or not). I'm not saying there's anything irregular about this, but you should at least understand where your money is going.

From what you've said, it sounds as though you're paying an upfront commission instead of trail commission. If, however, your adviser is also getting trail commission, then you may be justified in expecting them to do a certain amount of work each year without further upfront commission payments. Perhaps I'm wrong (I repeat, I don't know the ins and outs of IFAs and their fees), but you might want to investigate this. Did you get quotes from more than one adviser when you first hired them, in order to compare costs and approaches to charging? (I appreciate it's difficult to do this before you know how the industry works. Catch 22.) The only way to find out whether your adviser's fees are 'normal' is to know exactly what they are and to compare what others charge. (As well as asking advice on forums like this, which is why I was disappointed that other people hadn't weighed in with their own adviser stories. But I've already explained why that might be.)

darkpool

Janeybo wrote: »

I understood the initial commission last year as there was time spent getting to know us and selecting the 13 companies to invest in. £700 this year seems a lot as our risk level is the same and all the funds have remained the same.

700 pounds is a weeks take home pay for a fairly well paid couple. You really want to hand that money over for investing a 5 figure sum? Buy a book and DIY.

Imnoexpert_2

I have read and taken part in a number of similar threads and I think this one has been the best of its type. Some great contributors!

No great insight from me here.I just wanted to say the first bit! I'm a fan of IFA's and of those who choose and are able and confident to manage their own affairs too. I think the problem is the current charging model which often lacks transparency and encourages scepticism and distrust at a time when trust in the adviser is key to the transaction.

In your case my view is that the adviser is charging too much. Even Dunston's very fair balanced and persuasive answers have failed to convince me. Usually if your gut feeling is ouch! than you should follow it.

IFAs are in the sales game and I think this guy would have done well to cut you a deal on the lines of "I should charge you £700, I know it sounds a lot for a little however there are a few costs that are unseen to you - these are what they entail..., so I'll reduce the charge to ???? - of course remember there are some jobs that are more costly and I will need to charge more for" I think you would be happy to use him again, recommend him to your mates, go on websites like this to say how good IFAs are and when you come into a large sum of money in the future you will go back to him.

I have my car serviced by the guy who 10 years ago spent 15 minutes fixing a minor problem and waved me away when I offered to pay.

dunstonh

I have my car serviced by the guy who 10 years ago spent 15 minutes fixing a minor problem and waved me away when I offered to pay.

Problem is that the increment in this case was probably closer to 2-3 hours. There are almost certainly other fingers in the pot as well as you have the likes of compliance or networks taking their chunk.

Froggitt

IFAs get trail commission for doing nothing......thats one point of view. The other point of view is that when you took out the investment, the IFA was clear (or should have been clear) that he would be receiving trail commission. It was part of the cost of the advice you received.

If you dont like the IFA taking the trail, pay a fee up front for your advice.

Can someone point me to somewhere concise that shows the changes in this area coming up? And do those changes impact existing investments paying a trail?

calypso_rhapsody

This is a really interesting debate. My own experience of IFAs is that you do actually need to know enough to ask the right questions and challenge or stress-test the answers you get. Personally i am happy to pay fees for the right advice in areas that i feel that i don't know enough about - for example decisions about whether to drawdown on my SIPP, buy an annuity etc etc .... but i won't act on advice that i don't fully understand.

As to the issue of the fees on this particular case, it does on the face of it sound preposterous but sadly dustonh's explanation of the regulatory hoops that the IFA has to jump through sound enitrely plausible and quite expensive. I so also wonder if there is a tendency at the moment for IFAs to grab whatever trail commission they can on the basis that they won't be able to do so in the brave new world?

One other point that jumped out at me when i read the initial post was 13 investments for two S&S ISAs (about £22k so £1.7k per investment) - that sounds as if the portfolio is being spread pretty widely/thinnly unless the advice was given in the context of expecting further 'increments' into the same portfolio ...

dunstonh

but sadly dustonh's explanation of the regulatory hoops that the IFA has to jump through sound enitrely plausible and quite expensive.

Regulation and compliance is the biggest cost we have behind wages. We a are looking at opening up a shop front in a high street and the costs of freehold on that, rates and running costs wont be fun to pay but they will still be lower than the compliance cost.

I so also wonder if there is a tendency at the moment for IFAs to grab whatever trail commission they can on the basis that they won't be able to do so in the brave new world?

I doubt it as someone already invested is likely paying it. So, unless there is "new" money, there is nothing really to gain.

One other point that jumped out at me when i read the initial post was 13 investments for two S&S ISAs (about £22k so £1.7k per investment) - that sounds as if the portfolio is being spread pretty widely/thinnly unless the advice was given in the context of expecting further 'increments' into the same portfolio ...

its a good point. Personally, I would probably look to far fewer investments at that amount, even just one portfolio fund, and of course the cost would be much lower in the process. I am all for running a structured portfolio with rebalancing etc but not on small values where the cost outweighs the benefit.

And do those changes impact existing investments paying a trail?

Not really. A line is being drawn in the sand. pre and post. However, if you appoint a new IFA, the legacy trail will either have to be turned off (which may not actually result in lower charges - the provider/platform may get to keep the difference) or the new IFA has to then agree to providing some service going forward to justify it.

Before people get too excited though, the FSA have said that it is up to firms what services they supply and how much firms charge and how they charge it. So, a firm "could" turn around and say that 0.5% is for telephone and email support when you need it, a periodic visit if you want one and any corporate actions dealt with (effectively the status quo). A lot of firms are putting their trail up to 1% explicitly and dumping small cases or pricing them high so they dont have to deal with them, or if they do, the cost is covered.

The FSA have also created this impression that cross subsidy is not allowed. However, recently, they have back tracked away from that and denied it.

darkpool

dunstonh wrote: »

Problem is that the increment in this case was probably closer to 2-3 hours. There are almost certainly other fingers in the pot as well as you have the likes of compliance or networks taking their chunk.

700 pounds for 2-3 hour work is not bad going. Even if the IFA has to pay half the fee in costs he's still getting an hourly rate most can only dream about.

It just seems unfair that the OP has lost money on their existing investments, while the IFA/ fund manager etc still get their fees. So the only person to lose money is the OP. Not exactly natural justice.

dunstonh

700 pounds for 2-3 hour work is not bad going. Even if the IFA has to pay half the fee in costs he's still getting an hourly rate most can only dream about.

Nothing stopping those people working harder at school, going on to higher or further education to put them in a position to get access to better paying roles.

As most professionals will tell you, time is only part of the cost. You are not just paying for time.

It just seems unfair that the OP has lost money on their existing investments, while the IFA/ fund manager etc still get their fees.

For someone so opinionated, you lack of understanding of investments is astonishing.

saveonarola

Oh - and read Smarter Investing by Tim Hale.

Hale is an advocate of passive investing, so the book is very much tailored towards that kind of investment strategy. But if he's sceptical of fund managers, he's very open-minded about advisers, seeing the choice of whether or not to use an adviser as a personal, practical issue. And the book is superb and very easy to read on the basics: why to invest in stocks and shares, what proportion of your assets to invest in stocks and shares and what to do with the rest, and so on.