Drop in well paid using IFA's

dunstonh

I suggest you look at the recent thread by someone who was persuaded by their IFA to invest in the now defunct commission paying Arch Cru funds.

And perhaps that the DIY investors who said they were going to invest in the same funds as well. Difference now being that the DIY investors have no redress but the advised investors do.

Rollinghome

dunstonh wrote: »

And perhaps that the DIY investors who said they were going to invest in the same funds as well. Difference now being that the DIY investors have no redress but the advised investors do.

Indeed. I wonder how many bought it as a result of one person who recommended it in over 20 separate posts to this board. Which goes to prove that you should always do your own research and not rely on strangers on message board who may not be as shrewd or experienced as they like to pretend.

I'd hope that most IFAs would have seen at a glance that it was impossible to know how those funds were invested and perhaps questioned why the funds were paying double the usual rate of commission.

Clearly too many IFAs did sell the funds either due to stupidity or greed, which are issues that the FSA's RDR is intended to improve upon. There'll be a big hit on the FSCS as a result I gather with a further £38.3m needed to cover the cost of compensating Arch Cru investors..

Anything we buy from a shop is required to be fit for purpose under the Sale of Goods Act if we ask for the advice of the seller. It still makes sense to understand what it is you're buying just as it make sense to understand what you might be buying from someone selling investments.

gadgetmind

Rollinghome wrote: »

Which goes to prove that you should always do your own research and not rely on strangers on message board who may not be as shrewd or experienced as they like to pretend.

People fall for all kinds of things, and invest without sufficient regard to diligence or risk. Caveat emptor.

However, people go to IFAs because they don't feel their have the skills to DIY. For them then to be steered into investments that most (but not all) DIY investors would shun does suggest that some (but not all) IFAs are a little too focussed on commission and don't pay enough attention to the underlying assets.

dunstonh

I'd hope that most IFAs would have seen at a glance that it was impossible to know how those funds were invested and perhaps questioned why the funds were paying double the usual rate of commission.

Most IFAs didnt invest it. Overall it was a very small number. Also, i dont believe the commission came into it as if you look at those that have, most seem to be on unbundled investment platforms (in particular Transact), where the commission is rebated to the individual and not paid to the adviser.

The gaping hole that was present in the asset mix of the fund should have put them on guard. it didnt as too many believed what they were told. The fact they didnt get the commission would indicate their problem was naivety and possibly a lack of knowledge. That said, a good number were chartered qualified (level 6). Sometimes the more qualified a person is, the more complicated or less mainstream they want to be. i.e. "you wont find this product coming from your average IFA". When in reality, you do tend to find that the simple things work the best.

Anything we buy from a shop is required to be fit for purpose under the Sale of Goods Act if we ask for the advice of the seller.

There have been calls for products to be FSA authorised. This way you know they meet certain standards. FSA doesnt want it though.

gadgetmind

dunstonh wrote: »

Sometimes the more qualified a person is, the more complicated or less mainstream they want to be. i.e. "you wont find this product coming from your average IFA".

I have personal experience of this and it triggered my "run for the hills" reaction. However, some people seem to fall for the "not for hoi polloi" line, mainly people who like to convey a certain image.

When in reality, you do tend to find that the simple things work the best.

Agreed 100%. We do hold some "fancy pants" ITs, but the vast majority of our investments are mind-numbingly boring and simple.

And then there's my tech shares ... Yes, I'm out on a limb a little with these (an IFA winced when he saw my "big picture" pie chart!) but I understand them.

Who could honestly claim they understood Arch Cru?

jamesd

gadgetmind wrote: »

Who could honestly claim they understood Arch Cru?

Understanding the description was easy enough. Unfortunately the description wasn't accurate, in part because those who were responsible for ensuring that it was weren't doing their jobs properly. Then there were the dubious valuations of the investments held within it and dubious fund valuations.

I stopped using it in diversification examples in mid 2008 when I became concerned about the investments and proposed investments of the funds as well as the character of at least one individual involved.

It'll be interesting to see how much consumers end up getting back. Capita has been suggesting that it'll be around 63% of the value at suspension for those using the Investment Portfolio fund, plus whatever people other than them and the FSCS pay out. 23.6% has already been paid out, 25.1% is still in the funds, Capita is to pay 15.2% (to those who accept their offer).

Looks as though it'll end up with considerably more than the under 40% that those who used New Star's Out of Africa fund ended up getting when it was liquidated, without the associated scandals and regulatory failings.

I suppose it's worth updating the values someone who'd just used one of my old diversification examples would have got. This is continuing from this discussion from April 2010. The values from a post back then:

jamesd wrote: »

In case it's of interest, here's that old 20 January 2010 set:

Total invested	£1000			
					Buy	Now	Bought	Now
30%	BlackRock UK Absolute Alpha	118	123	£300	£313
20%	Cru Investment Portfolio	100	60	£200	£120
20%	Invesco Perp Monthly Inc+	171	204	£200	£239
20%	Invesco Perp Income		1560	1670	£200	£214
10%	Neptune Global Equity		272	260	£100	£96
							£1000	£981

And an update for 21 April 2010:

Total invested	£1000			
					Buy	Now	Bought	Now
30%	BlackRock UK Absolute Alpha	118	122.9	£300	£312
20%	Cru Investment Portfolio	100	60	£200	£120
20%	Invesco Perp Monthly Inc+	171	215.64	£200	£252
20%	Invesco Perp Income		1560	1741.35	£200	£223
10%	Neptune Global Equity		272	275	£100	£101
							£1000	£1009

As before I've ignored the income from the Cru Investment Portfolio, ignored my decision that I didn't want to stay with it before it had visible trouble and treated it as a lump sum rather than the regular investments it was intended for.

Remember that the objective is low volatility and a long term return greater than mortgage interest rates or cash, for regular ongoing contributions.

Updating to 5 April 2012 prices and still using 60% for the Investment Portfolio it'd be at:

Total invested	£1000			
					Buy	Now	Bought	Now
30%	BlackRock UK Absolute Alpha	118	119.4	£300	£304
20%	Cru Investment Portfolio	100	60	£200	£120
20%	Invesco Perp Monthly Inc+	171	231.28	£200	£271
20%	Invesco Perp Income		1560	2059.17	£200	£264
10%	Neptune Global Equity		272	281.80	£100	£104
							£1000	£1062

So 6.2% up at the moment, though more to come with compensation payments. About 1.6% compounding return over three and three quarters years.

jamesd

Rollinghome wrote: »

I wonder how many bought it as a result of one person who recommended it in over 20 separate posts to this board.

You're probably referring to my posts, in which case you should also be mentioning that it was one fifth of a mixture and that anyone who had just blindly used the mixture would be in profit today, just as they were back in 2010.

darkpool

dunstonh wrote: »

Most IFAs didnt invest it.

i would say 900 firms is a fair amount......

"Tuesday’s (November 22) ruling seals the fate of the 900 adviser firms who sold Arch Cru."

http://www.ftadviser.com/2011/11/24/opinion/blogs/arch-cru-losses-are-all-your-fault-qxoRWAjv88CPdRHZDSM2rJ/article.html

dunstonh

darkpool wrote: »

i would say 900 firms is a fair amount......

"Tuesday’s (November 22) ruling seals the fate of the 900 adviser firms who sold Arch Cru."

http://www.ftadviser.com/2011/11/24/opinion/blogs/arch-cru-losses-are-all-your-fault-qxoRWAjv88CPdRHZDSM2rJ/article.html

Out of 28,000

Thrugelmir

darkpool wrote: »

So why would the well paid stop using IFAs? Maybe it's because they don't see any value for money?

Investment managers fees are coming under pressure. As investment returns are becoming harder to make. Days of monetary inflation alone increasing asset values is over.