Independent Financial Advisers fees vs Novice Investor!

darkpool

dunstonh wrote: »

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.

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

You really consider an IFA as being a professional though? I would say they are closer to being salespeople - nothing wrong with that.

I do get that the IFA has charges that he has to take out of the 700 pounds. I'm a professional, the charge out rate my firm charges was circa 2 times the workers salary. If an IFA uses the same multiplier the IFA is getting 100 pounds an hour to fill in some forms etc.

to be fair I think I do understand investments quite well, I also think I understand the investment advice business as well. It just seems weird that a client of an IFA has a long line of people taking commission for the advice they receive, then if things go wrong the response is "you lack understanding of investments".

I'd say investments will be lucky to return 5% a year in real terms in the coming decades. You really think it wise for people to invest and give away circa 3% of this return each year in fees? That means the advisors are getting more of the cake than the original investor

dunstonh

You really consider an IFA as being a professional though? I would say they are closer to being salespeople - nothing wrong with that.

You have your opinion and you like saying it. It meets the criteria for a profession.

If an IFA uses the same multiplier the IFA is getting 100 pounds an hour to fill in some forms etc.

So what? What about the years of training and learning? What about the lifetime of liability that the adviser will carry to their grave (there is no 15 year long stop with IFAs - virtually unique in any industry)? What about the tens of thousands of pounds paid each year for software? or tens of thousands of pounds paid each year for compliance and regulation? or the tens of thousands of pounds paid for office (rates etc)?

I'd say investments will be lucky to return 5% a year in real terms in the coming decades. You really think it wise for people to invest and give away circa 3% of this return each year in fees

If that was all they were getting then yes. However, the returns are net of charges so 5% real terms net of charges is not bad.

That means the advisors are getting more of the cake than the original investor

Lets say the return is 8% after fund management costs. The IFA gets 0.5% and investor gets 7.5%. How is the adviser getting more than the investor?

IronWolf

dunstonh, personal question but I've always wondered, what ball park are we talking about for an average IFA's income after expenses, and how much work/hours need to be put in on average?

darkpool

dunstonh wrote: »

You have your opinion and you like saying it. It meets the criteria for a profession.

So what? What about the years of training and learning? What about the lifetime of liability that the adviser will carry to their grave (there is no 15 year long stop with IFAs - virtually unique in any industry)? What about the tens of thousands of pounds paid each year for software? or tens of thousands of pounds paid each year for compliance and regulation? or the tens of thousands of pounds paid for office (rates etc)?

If that was all they were getting then yes. However, the returns are net of charges so 5% real terms net of charges is not bad.

Lets say the return is 8% after fund management costs. The IFA gets 0.5% and investor gets 7.5%. How is the adviser getting more than the investor?

if IFAs are professionals would they not have some proof that UTs outperform trackers? IFAs seem to sell UTs ahead of every other product, yet the evidence is that UTs underperform trackers. Does that not suggest that IFAs are more interested in commission than the financial wellbeing of their clients? Hardly a sign of being a professional.

8% after fund management costs? the ftse 100 peaked at 7000 in 1999, it's now about 5100. i don't think many people have been enjoying 8% real growth a year in the last decade, do you? i don't believe other world stockmarkets have been doing that well either

So what are the total annual fees paid by an investor buying unit trusts through an IFA? it's certainly not 0.5%. And by total fees I mean total fees, not just the ones the fund management industry wants to tell punters about.

You must admit, the Total Expense Ratio is a misleading term. If you were a sceptic you would think the fund management industry use it to mislead punters investing in their products.

opinions4u

Although I've worked in banking for most of my adult life, if I had a decent sum of cash to invest I would have no hesitation in seeing an IFA ahead of a tied adviser or investing myself.

I've read many books. They invariably become out of date the second the Chancellor of the Exchequer gets to his feet and announces his latest budget.

Just getting the right tax wrappers at the right stage of life is worth the expense alone. Before you worry about which fund and what flexibility you need.

jem16

darkpool wrote: »

if IFAs are professionals would they not have some proof that UTs outperform trackers?

Why do you have to turn every thread into a tracker vs managed argument?

IFAs seem to sell UTs ahead of every other product, yet the evidence is that UTs underperform trackers.

This discussion has been done ad nauseam.

Does that not suggest that IFAs are more interested in commission than the financial wellbeing of their clients? Hardly a sign of being a professional.

A fee based adviser receives the same fee regardless of what type of investment being advised , be it passive or active.

So what are the total annual fees paid by an investor buying unit trusts through an IFA? it's certainly not 0.5%. And by total fees I mean total fees, not just the ones the fund management industry wants to tell punters about.

What have the total fees got to do with it?

You stated that an adviser is paid 3%pa which is a load of rubbish. An IFA is paid 0.5%pa for providing advice which is what an IFA is paid to do. Any other fees are paid to the fund manager and provider and will still be paid whether you go DIY or use an adviser.

Try and keep to the point of the thread without going off on your usual anti adviser rant.

Janeybo

The exact example for one investment this year into S&S ISA:

Invested Amount = £10,680.00
Initial Commission (paid to IFA) = 3% = £320.38
Initial Charge (Fund Manager) = various %'s according to the fund = £80.21
Renewal Commission = £43.34

For this year it would be £10,680 x 2 investment
Plus transferring in an old cash ISA at £15K :-

Total fees described up front to me = £1,102.14

As I say there are 13 funds, all the same ones, with some re-balancing taking place. It's done through Cofunds, they area mix of OEIC's, UT's and European Collective Investments Vehicle's.

dunstonh

if IFAs are professionals would they not have some proof that UTs outperform trackers?

What has that got to do with anything?

IFAs seem to sell UTs ahead of every other product

Logically, it makes sense for IFAs to act within their remit. The FSA are changing the rules in 2013 that allow IFAs (and make it mandatory) to cover all types of investment. However, it is not 2013 yet.

yet the evidence is that UTs underperform trackers

That doesnt make any sense (comparing investment instrument with a strategy is comparing apples and oranges to see which one tastes most like a pineapple)

Does that not suggest that IFAs are more interested in commission than the financial wellbeing of their clients? Hardly a sign of being a professional.

Again, what has that got to do with anything?

8% after fund management costs? the ftse 100 peaked at 7000 in 1999, it's now about 5100. i don't think many people have been enjoying 8% real growth a year in the last decade, do you? i don't believe other world stockmarkets have been doing that well either

Yes its possible. You ignore dividends and other asset classes. Certainly much harder to achieve that sort of growth in the short term looking back but certainly possible over the last decade.

So what are the total annual fees paid by an investor buying unit trusts through an IFA? it's certainly not 0.5%.

Anything from 0.1% through to 2.5% I would think is the likely range.

I dont understand how you are mixing up investment strategy or a type of investment instrument with IFA remuneration.

dunstonh

Janeybo wrote: »

The exact example for one investment this year into S&S ISA:

Invested Amount = £10,680.00
Initial Commission (paid to IFA) = 3% = £320.38
Initial Charge (Fund Manager) = various %'s according to the fund = £80.21
Renewal Commission = £43.34

For this year it would be £10,680 x 2 investment
Plus transferring in an old cash ISA at £15K :-

Total fees described up front to me = £1,102.14

As I say there are 13 funds, all the same ones, with some re-balancing taking place. It's done through Cofunds, they area mix of OEIC's, UT's and European Collective Investments Vehicle's.

Whilst I would take issue over needing 13 funds with such a small amount I have no issue over the IFA take. The problem really comes down to the size of the investment. I have a minimum charge of £500 on transactional cases. So, in your case, I would have charged more. Nearly 5% in percentage terms. However, I would have charged £500 had it been £50,000which equates to 1% in percentage terms. Its a reality of having a small amount that in your case you would probably have been better of going DIY unless you feel that you would make a pigs ear of it. However, in reality, you havent been charged that much for the work done.

nrsql

>> 8% after fund management costs?
>> Certainly much harder to achieve that sort of growth in the short term looking back but certainly possible over the last decade.

Does that mean ifa's should be expected to get that sort of growth for customers or would you expectthem not to. I suspect it's possible to get 1000% growth over the last decade but that's fairly meaningless.

Sounds a bit like ths thread is degeneragting into "you don't know what you are talking about" responses rather than trying to educate or help.