Drop in well paid using IFA's

dunstonh

Do the IFAs here often experience with new clients that they come to them seeking the 'magic', and then have the uphill struggle of (trying to) explaining what they really do?

It is a common misconception by a significant minority. You can see that from this thread (although some of them appear to have significant chips on their shoulders and make up things and wouldn't care what was the position is). i would say most people who use an IFA do so because they dont know what to do themselves or find it easier or more efficient to delegate to someone who does. Not because they believe the adviser has a crystal ball.

Linton

gadgetmind wrote: »

There's no such thing as the optimal frontier, so any old diversified portfolio should muddle though pretty well, particularly (especially!) if you keep the fees low.

Bernstein, Graham, Hale, take your pick.

If your sole aim is to get a generally reasonable capital return over an indeterminate number of years, and you have no great interest in the investing process, I would agree. In fact I would go further - simply buy a global balanced fund or two and leave it at that.

However if you have got specific needs, particularly after retirement when you dont have the ongoing income to cover up earlier mistakes, you need a more focussed approach. If you require a certain income you need the skills and experience to set up your investments to provide it reasonably securely.

If you have spare capital beyond that which is required to fund your desired standard of living in the short/medium term and have the time, knowledge, and interest, then you can safely focus your portfolio on growth using more specialist investments.

darkpool

dunstonh wrote: »

You can see that from this thread (although some of them appear to have significant chips on their shoulders and make up things and wouldn't care what was the position is).

sorry, i don't remember people making up stuff on this thread? or is this the stuff about the widow going to the IFA and being advised to buy a 15 year investment that had 3% annual fees? i think the plain hard truth is that she was given indicative figures that showed the annual fees were......3% over 15 years.

Rollinghome

oldvicar wrote: »

I have learnt here that IFAs (and maybe the FSA) view their role as evaluating attitudes to risk, understanding investment aims, and constructing a 'balanced portfolio' accordingly. Maybe at the tail end of the process, when selecting investments, an IFA does demonstrate his flair or magical power - or that might just be wishful thinking on my part.

The reason why so many people have unrealistic expectations is because it’s widely encouraged by IFAs to justify their charges.

Most will pretend to have special access to research or systems that will enhance returns. They probably don’t. If they could time the markets they wouldn’t want to anyway: they want your money now. If they can lock you into an insurance bond for 5 years then many will.

In the case mentioned earlier, the IFA would have got about £20,000 in initial commission plus £5000 a year afterwards. This wasn’t a posh city outfit with high costs, just a small suburban company running half a dozen IFAs from tertiary shop premises.

And what would the clients have got for their money? For their ISAs both husband and wife would have got the same stock list of unit trusts. They already had £100k in shares and investment trusts but the recommendations were given without even bothering to check what those investments were and whether they over-lapped.

The couple were newly retired with index-linked pensions well in excess of their needs with the surplus being re-invested. That didn’t stop the IFA persistently trying to sell them insurance bonds providing more unrequired income by falsely claiming they were tax-free. The insurance bonds would have paid the IFA initial commission of 4.5% plus trail.

Over 5 years they would have been tens of thousands worse off but unfortunately, that’s apparently regarded as par for the course and no grounds for any complaint. There would have been zero tax savings, in fact the reverse.

The central problem with IFAs is that 99% of them will be salesmen above all else rather than financial gurus. The product providers don’t pay IFAs with only basic qualifications huge amounts of commission just to give us advice: they pay them to sell us their products. IFAs are employed as their well-paid sales team.

As Dunstonh said in a post a few years ago to someone who wanted to become an IFA: “If you are not sales minded you will not succeed”. With only a few exceptions, selling is where they all come from. Check any one of them out, there will be exceptions but very few.

Danny Cox chief IFA at HL worked in the fruit and veg dept of a Sainsbury’s supermarket before getting into selling insurance and then becoming an IFA. Justin Butler who runs the posh city firm Blooomsbury Financial was a car salesman before selling insurance then working as an IFA. Many of the old-timers were “insurance-men” selling “industrial branch” insurance policies door to door and collecting the premiums weekly. I’m sure gpop will have as interesting CV as any of them.

Paul Lewis of BBC Moneybox objected to the whole term “IFA”. He claimed they weren’t independent of the companies they rely on to pay them sales commission; they covered only a very limited area of finance; and they were paid to sell, not to give advice. He thought what they did was better described as “assisted sales”.

He said that a couple of years ago as a guest speaker to an IFA’s conference. Interesting thing will be how much RDR next year will improve things. The problem of direct “commission-bias” should be reined back but most employees will still be paid commission and/or bonuses for sales and if working on a percentage of assets basis it will still be their objective to persuade clients to invest as much as possible with them.

Most will be trying to maintain the same level of income as they were paid as salesmen for the product providers. Will be interesting to watch.

If you haven’t seen an IFA then you could try one for fun. You might be lucky. Of the six I’ve had involvement with recently, either for myself or for friends, five in my opinion were misleading and/or dishonest and one seemed decent enough but very dim. He didn’t recognise any of the ITs I held and thought 3i (which is a very large IT) was a telephone company. I didn’t get as far as asking for his recommendations but “made my excuses and left”.

The most useful adviser I’ve used was a small midlands stockbroker. I dealt directly with the principal who was very shrewd and helpful. Stopped using them because it was telephone only and way more expensive than online brokers and then they were taken over by Brewin Dolphin. Very few of the really good small brokers left.

In my view, if someone has need of advice then probably the best way is to get it on a one-off basis as, and when, required. It usually makes no sense have a IFA with limited ability justifying the taking of a large percentage of your investment returns annually year after year by giving “advice” whether you need it or not. Even more so over the next few years when returns on investments could be poor.

2010

It just gets worse:

IFAs plan to up ongoing fees, drop initial charges post-RDR

Ongoing charges will rise following the Retail Distribution Review while initial fees will decrease, a research study of advisers by accountancy BDO suggests.
In a survey of 283 advisers, the firm found that 90 per cent expected IFA remuneration to be equal to or higher than it is at present after the RDR.
In a pre-RDR scenario on a client investment of £50,000, average initial commission was 2.9 per cent followed by an average trail commission of 0.6 per cent annually, the study says.
After RDR, advisers said the same investment would incur an initial adviser charge of 2.8 per cent, plus an ongoing adviser charge of 0.8 per cent annually of the value of the investment as it changes over time.

Although advisers expect the initial charges to be lower on average, this is more than made up for by the increase in yearly income from larger ongoing charges.

For advisers who intend to charge clients on an hourly rate, respondents expect to charge £160 per hour on average.

http://www.ftadviser.com/2012/02/13/regulation/rdr/ifas-plan-to-up-ongoing-fees-drop-initial-charges-post-rdr-wI4yDXK5X2L4y2Arnk72iI/article.html

darkpool

2010 wrote: »

For advisers who intend to charge clients on an hourly rate, respondents expect to charge £160 per hour on average.

it does seem a lot of money for what seems an easy enough job, all the IFAs seem to do is match different investors to different risk investments.....

ohhh and every year they "rebalance" your portfolio, which is a technical term for selling one investment to buy another.

i'm starting to see why some IFA qualifications are considered the same as an A level.

Would any of the IFA groupies here be happy paying 160 an hour to determine their attitude to risk? I could maybe start another thread to help you out?

gadgetmind

darkpool wrote: »

Would any of the IFA groupies here be happy paying 160 an hour to determine their attitude to risk? I could maybe start another thread to help you out?

Given that I've paid *massively* more than that (several £kpa) in trail commission over the years, £160 per hour seems reasonable.

dunstonh

It just gets worse:

IFAs plan to up ongoing fees, drop initial charges post-RDR

Which is common sense given the cost of ongoing advice will go up due to the extra requirements.

Aegis

dunstonh wrote: »

Which is common sense given the cost of ongoing advice will go up due to the extra requirements.

Do you get the feeling that some people won't be happy until you charge £5 an hour and have to go bust because of compliance costs?

2010

Aegis wrote: »

Do you get the feeling that some people won't be happy until you charge £5 an hour and have to go bust because of compliance costs?

£160 an hour

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£332,000 a year

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reasonable?

Get real, the Prime Minister only takes £142,500 per annum.