IFA or Stockbroker

phyland

Hi everyone.
This question has been puzzling me for months:

If I needed advice on which collective investments to invest in, I would speak to an IFA.

If I needed advice on which individual securities to invest in, I would speak to a Stockbroker.

But, what if I didn't know whether I should be investing in individual shares or funds/collective investments? Who can give me financial advice, but consider BOTH of these options???

dunstonh

If you are after generic advice rather than which shares than an IFA can give that. If you want specific advice on which shares then a stockbroker.

phyland

Are there no IFA's out there who can give advice on both packaged products AND individual securities? What if I met with an IFA and he assessed my risk tolerance as high, and so a fund investment would be innappropriate - we he pass me over to a stockbroker and lose the client?

How can an IFA call himself 'independent' if he is recommending a collective investment over individual securities, not exclusively because of suitability, but based on the qualifications held. Would it not be better for the client if IFA's (or stockbrokers) were able to advise on both funds and individual stock selection or portfolio construction? This way the investment choices would be based entirely on suitability.

dunstonh

Are there no IFA's out there who can give advice on both packaged products AND individual securities?

It requires a different set of qualifications. IFAs that will have access to stockbrokers and discretionary investment managers but it is rare to be the same person.

What if I met with an IFA and he assessed my risk tolerance as high, and so a fund investment would be innappropriate - we he pass me over to a stockbroker and lose the client?

You would have to be pretty damned high risk for funds not to be suitable. However, passing you to a discretionary investment manager would be the thing done (assuming your investment amounts are appropriate).

How can an IFA call himself 'independent' if he is recommending a collective investment over individual securities, not exclusively because of suitability, but based on the qualifications held.

Because the vast majority of the population wont want shares and whilst an IFA can facilitate those that do, they cannot tell you which shares to have. They leave that to someone who is much better placed to give that advice. The fact that IFA can arrange the facility even if they wont recommend the shares personally does not make them any less independent.

Would it not be better for the client if IFA's (or stockbrokers) were able to advise on both funds and individual stock selection or portfolio construction? This way the investment choices would be based entirely on suitability.

No. It would be an awful idea. IFAs have to perform due diligence on any investment they recommend. This includes provider, contract and investments held. If you included individual shares, then what makes you think the IFA would be able to provide decent enough advice on shares as well as all the other things? You just dilute knowledge and end up with a Jack of all trades, master of none.

The bottom line is that most IFAs can facilitate what you want in product/platform provision but will not personally give you share advice. For that you need someone suitability qualified and experienced. Again, the IFA can put you in contact with that person if you dont want to find your own one.

psychic_teabag

If one was to take a very cynical view, a stockbroker makes money when you trade (buy and sell) shares, so you'd need to be sure that any advice is for his benefit or for yours.

(And with that same cynical view - not necessarily my own viewpoint, and please everyone lets not start another debate about this in this thread - beware of FA's who base their advise on collective investments based on levels of commission rather than your best interests. And remember that fund managers get their fee whether your money grows or shrinks.)

So you need to be sure who is benefiting from any advice you receive. Especially "free" advice.

I'm not quite sure why you would want to pick individual stocks if you need someone else to tell you what to buy. Why not just buy a collective fund and let the fund manager do the stock-picking for you ? Or do you want to start by following other peoples tips, and graduate to doing your own research. Or just take other people's tips as a starting point for your own research.

But anyway, there are lots of stock tips in newspapers, and magazines such as Investors Chronicle or MoneyWeek. Of course any such things are public and so by the time you see them, there may already have been big moves. And there are lots of online discussions on sites such as motley fool.

darkpool

phyland wrote: »

How can an IFA call himself 'independent' if he is recommending a collective investment over individual securities, not exclusively because of suitability, but based on the qualifications held.

brilliant point!!!! "independent" is really just a term used by unit trust salemen to mislead consumers.

if you want "independent" financial advice an IFA is the last place you would get it.

darkpool

dunstonh wrote: »

You would have to be pretty damned high risk for funds not to be suitable. However, passing you to a discretionary investment manager would be the thing done (assuming your investment amounts are appropriate).

Because the vast majority of the population wont want shares

my granny had 80% of her wealth in direct equity, i wouldn't have considered her a high risk individual. you really consider maybe 100 holdings in blue chips "high risk"

the vast majority of the population don't want shares? so why do you sell them UTs and other products that invest in shares?

IronWolf

I think if you want to invest in individual shares then you shouldn't use a stockbroker for advice, you should do your own research and learn to invest.

If you aren't comfortable with that then pay a fund manager to do it for you, or just invest in index funds if you don't believe you can 'pick the winners' from funds.

psychic_teabag

phyland wrote: »

Are there no IFA's out there who can give advice on both packaged products AND individual securities? What if I met with an IFA and he assessed my risk tolerance as high, and so a fund investment would be innappropriate - we he pass me over to a stockbroker and lose the client?

How can an IFA call himself 'independent' if he is recommending a collective investment over individual securities, not exclusively because of suitability, but based on the qualifications held. Would it not be better for the client if IFA's (or stockbrokers) were able to advise on both funds and individual stock selection or portfolio construction? This way the investment choices would be based entirely on suitability.

You seem to be looking for someone who is an expert, and fully up to date, across the entire financial spectrum, from the big picture all the way down to individual stocks. That doesn't really seem fair. Perhaps an IFA is a good person to consult for the big picture (what classes of product are available and suit a client's requirements, tax situation, etc). Then the FA can delegate lower-level details to others.

E.g. A fund-manager's full-time job is to pick individual stocks. So it makes sense for a higher-level financial advisor to delegate that aspect of an investment to a fund manager.

phyland

Thanks everyone for your feedback. I should have explained my background to put the question in context.

I've spend the last 12 years working in the city in a middle office support capacity. I recently decided to leave the rat rate and retrain to become an IFA. I have DipPFS as well as the Investment Management Certificate from the CFA UK (this is one of the qualifications commonly held by stockbrokers as it permits me to advise on and deal in securities). So, I am authorised by the FSA to advise a prospective client on both funds and stocks.

I guess what I really want to know is, if I'm able to set myself up as a self-employed IFA, and a client wants to buy shares directly, can I not advise him and retain him as a client instead of packing him off to a money-grabbing stockbroker. It's not like stockbrokers are highly qualified individuals - the IMC exam only takes a few months. Anyway, it's not like they do any research h themselves, don't they just buy research from 3rd parties and regurgitate it? I can do that myself.

I'm completely new to the IFA industry so please feel free to put me in my place, but aren't IFA's missing a trick here? Spend 6 months doing IMC, subscribe to some 3rd party research (as would a stockbroker) and RETAIN an the clients you would otherwise have to pass over to a stockbroker.

psychic_teabag

Suppose you had a bunch of clients holding stocks you recommend. Would you look after each client's portfolio entirely separately, making individual decisions, or would you end up recommending the same stocks to each client. (Basically, a standardised portfolio, or a set of portfolios, one per risk category.)

So now you have a bunch of individuals buying and selling the same stocks at the same time, as your opinions change. You can save them some money by buying and selling in bulk - one set of trading costs rather than each client paying separately. In effect, you have now become a fund manager.

Are you going to recommend to new clients that they invest in your fund. Bit of a conflict of interests ..?