Independent Financial Advisers fees vs Novice Investor!

nrsql

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.

If the IFA isn't going to assess investments due to the size of the fund why not just look at what your first tranche is invested in then diy in similar funds for following years. After a few years you will have built up enough to be able to negotiate a different structure.

browniej

dunstonh wrote: »

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.

The OP seems to be investing a total of £36,360 - 2 times £10,680 new ISAs plus one £15k cash to S&S ISA.

For this the commission payment is £1102.14 although I expect that this includes the trail commission of £43.34 x 3.

Out of interest, would your charge have been £500 instead of £1102.14? Or would it have been £500 per transaction so £1500?

dunstonh

Out of interest, would your charge have been £500 instead of £1102.14? Or would it have been £500 per transaction so £1500?

It would have been £500 initially and then each increment would have been lower but it depends on the amount of work involved with each. Probably around £250 with each. I would not have offered ongoing servicing either. I would have left it to ad hoc reviews when required.

That assumes no family connection as I, like many advisers, treat families collectively (as do many product providers who offer tiered charges based on the total holdings of all family members).

So, I wouldnt have been much different probably. Indeed, I suspect that had a city based IFA been used, it would have been a lot more.

darkpool

jem16 wrote: »

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.

Looking at the performance of the UK/ US stockmarket over the last 100 years shows a real return of about 5 - 7%. I've seen academic research that shows the market should return a couple of percent more than the growth of GDP.

GDP growth in Europe/ USA is forecast to be poor in the next five years. So I would guess the markets will be lucky to return 5% a year in real terms in the next decade.

If you invest in UTs with an IFA you will pay total annual fees of circa 3%. So the average UT investor will likely pay more in fees than they receive in returns.

Fair enough if UTs outperform the market by 3% or more, the annual fees are worth it. However hardly any of them do..... and the few that do are likely to be have lucky..... Of course your going to mention "perp high income" now. But perhaps that is a lucky fund...

I believe I said total fees are 3%, you do understand that other advisers apart from the IFA charge fees?

jem16

darkpool wrote: »

Looking at the performance of the UK/ US stockmarket over the last 100 years shows a real return of about 5 - 7%.

Performance returns are always quoted after all fees have been deducted. Surely you know that?

If you invest in UTs with an IFA you will pay total annual fees of circa 3%.

If you invest into UTs without an IFA, you will pay 0.5% less.

So the average UT investor will likely pay more in fees than they receive in returns.

So 5&/7% average returns (after fees as I have already said) as you quoted earlier and 3% fees. How exactly is 3% more than 5%/7%?

Of course your going to mention "perp high income" now. But perhaps that is a lucky fund...

I'm not going to mention any fund becasue this thread is not about managed vs tracker. It's about using an IFA or going DIY.

I believe I said total fees are 3%, you do understand that other advisers apart from the IFA charge fees?

What advisers would that be then?

In an average UT you have a fund manager's charge, a provider's charge, an IFAs commission plus various dealing charges. The only adviser amongst them is the IFA who takes 0.5%. Nobody else is offering advice.

darkpool

dunstonh wrote: »

What has that got to do with anything?

i would have thought all the statistical research that UTs underperform the equivalent tracker would have been an important fact. i agree that UT underperformance has no immediate impact on the fees paid to the IFA though.

but well, if i was a client of an IFA i would want to know why I was invested in UTs when it has been shown that they underperform the equivalent trackers. i thought professionals had to act in the best interest of their clients?

Linton

darkpool wrote: »

Looking at the performance of the UK/ US stockmarket over the last 100 years shows a real return of about 5 - 7%. I've seen academic research that shows the market should return a couple of percent more than the growth of GDP.

GDP growth in Europe/ USA is forecast to be poor in the next five years. So I would guess the markets will be lucky to return 5% a year in real terms in the next decade.

....

Why do you equate "the markets" with Europe/USA?

And even within Europe/USA there are areas, both sectors and geographies, which will perform well and those which will perform badly.

darkpool

jem16 wrote: »

Performance returns are always quoted after all fees have been deducted. Surely you know that?

If you invest into UTs without an IFA, you will pay 0.5% less.

So 5&/7% average returns (after fees as I have already said) as you quoted earlier and 3% fees. How exactly is 3% more than 5%/7%?

I'm not going to mention any fund becasue this thread is not about managed vs tracker. It's about using an IFA or going DIY.

What advisers would that be then?

In an average UT you have a fund manager's charge, a provider's charge, an IFAs commission plus various dealing charges. The only adviser amongst them is the IFA who takes 0.5%. Nobody else is offering advice.

thank you for giving me the gift of patience!

i think you will find that the stockmarket overall has returned 5 - 7% a year over the last century. so that means after 3% annual fees it would have rerturned 2 - 4%. You do realise that not every investor in the UK gives away 3% of their portfolio each year?

So what total annual fees do you think a client of an IFA pays a year for investing in UTs? I think it is about 3%, what do you think it is?

jem16

darkpool wrote: »

i think you will find that the stockmarket overall has returned 5 - 7% a year over the last century.

Performance figures given for UTs are always after all fees have been deducted as I have already told you.

so that means after 3% annual fees it would have rerturned 2 - 4%.

How many times do you have to be told that the figures quoted are AFTER fees have been deducted. So a 5%/7% performance figure is exactly that.

You do realise that not every investor in the UK gives away 3% of their portfolio each year?

Not every investor wants to use shares.

So what total annual fees do you think a client of an IFA pays a year for investing in UTs? I think it is about 3%, what do you think it is?

Anything from 0.1% to 2.5%.

darkpool

jem16 wrote: »

Performance figures given for UTs are always after all fees have been deducted as I have already told you.

How many times do you have to be told that the figures quoted are AFTER fees have been deducted. So a 5%/7% performance figure is exactly that.

Not every investor wants to use shares.

Anything from 0.1% to 2.5%.

ehhmmm ok, i said history has shown the stockmarket has returned 5 - 7% a year. You do know there is a difference between the stockmarket and UTs?

joking apart though, i think you are better off in UTs. You aren't going to get rich investing in them, however you shouldn't lose the lot either.

For everyone else, just think about what I'm saying. If you accept that over the coming decades real returns on the stockmarket are 5 - 7 % a year do you really want to invest in UTs that charge 3% a year? It means half of your returns are lost in fees it will lower your real returns to 2 -4 %.