Questions to ask an IFA?

chris1

srcandas wrote: »

Chris I think you are ignoring that the lump sum invested is entirely tax free. It consists of the lump sum and interest after tax (in your example)...

Thanks for you reply. Sorry, I didn't make myself clear, I was ignoring the lump sum issue, and just focusing on an example of a pot of 50K, (after lump sum if that was going to be taken) with the personal tax allowance already taken up by State Pension and other bits, so both pensioners were already basic rate taxpayers. The size of the pot makes no difference to the calculations (well, not in my spreadsheet anyway...)

I follow your explanation in the previous post about the lump sum, that it just depends on what annuity rate you can get. It's a separate decision though on whether level or escalating is better, and thet's where I'm getting stuck!

srcandas

Chris sorry my mistake.

Yup on the benefit of flat, fixed increase or inflation protected I have found the whole thing difficult to get a good handle on.

The IFAs I met wanted to first calculate all my needs (no easy task) and then fit the pension to the needs. All well and good but I have 7 to ?? years work left in me yet

However I did graph the three options but of course you have to estimate/guess your life expectancy, inflation in terms of your retired types of expenditure, you're decreasing necessities as you get beyond say 75, and the withdrawal or lowering of state help as the burden on the state of the retired increases in future years.

In the end my chosen strategy has been to go for draw down as this leaves the options open at a future date. Where I have a GAR I need to take this as an annuity this year aged 60 as the investment is not even keeping up with inflation and the terminal bonus is very susceptible to economic news like Europe. At the moment it is the best it has been for a while so I'm hoping it is still ok in August.

Problem with these annuities is you get one decision point and then you are sunk.

One IFA did offer that there were a few options to consider but at this point we were looking at £3500 bill plus ongoing. And when he suggested reinvesting a pension in a pension and the example was erroneous I gave up pursuing that route and decided to get the books out and rely on Dunston and colleagues here. Why they are so generous I do not know but I am for sure very grateful.

Good luck :beer:

bigfreddiel

i would ask an ifa who he uses!

seriously tho' i'm not convinced and ifa acts in your own interest - after all he has to make a living so he's going to recommend products and services that benefit him and not you.

how can this be so i hear you ask, well for starters there's the good old standby get out clauses:

your investments may go down as well as up (actually true this one - they will go down as well as up)

previous performance is no indicator of future performance (true - a higher pecentage of top performing equities one year are the dogs of he next year - ever wondered why fund managers base their adverts around 5 years - its because over any longer all funds perform the same - there may be one or two that don't onform to that rule but good luck finding them from the thousands on offer)

you may not get as much out as you put in (actually true as well - especially once you've paid trail commission and other charges)

ifas must know more than me - don't believe it - you can learn the basics in just a few weeks if you have some intelligence and most importantly the desire - you want proof! well just take a look at the governor of the boe - his mission - keep inflation at 2% - he can't - but that's his bag - he must be the big cheese of all ifas. my point here is no one can provide any advice on how any financial product is going to perform period.

so there you have it - learn to diy - if you spent half the time you did choosing your car/smartphone/tv or following your football/rugby/cricket team or whatever your passion is you'll be sucessful.

what can be more fun than making 'easy'money

well i can thing of a couple of things - to quote george best "i spent my money on women and booze - ans the rest i squndered"

cheers

fj

dunstonh

seriously tho' i'm not convinced and ifa acts in your own interest - after all he has to make a living so he's going to recommend products and services that benefit him and not you.

How is that the case? Lets say you agree a fee of whatever. How does the choice of provider or investment change that?

ifas must know more than me - don't believe it - you can learn the basics in just a few weeks if you have some intelligence and most importantly the desire - you want proof! well just take a look at the governor of the boe - his mission - keep inflation at 2% - he can't - but that's his bag - he must be the big cheese of all ifas. my point here is no one can provide any advice on how any financial product is going to perform period.

An IFA will know more than you. Even if you know the basics. An IFA will not have a crystal ball though. So, expecting them to have one is daft. It also is an indicator that you don't know enough to make the claim you know more than an IFA.

Rollinghome

dunstonh wrote: »

How is that the case? Lets say you agree a fee of whatever. How does the choice of provider or investment change that?

That depends entirely on the basis of the remuneration. If it's based on sales commission from the providers the problem is obvious. Due to the problems of rewarding IFAs with sales commission from the fund managers, the FSA will disallow the practice by the end of this year.

It now seems that many, if not most, of the current commission based salesmen will then move to charging a percentage based on the amount they can persuade the prospect to invest, including additional annual percentage based fees each year.

Clearly there is still a risk of a salesman being less than objective when the the more he can persuade his client to invest, the more money he makes. They may also be encouraged to make the investments more complex in order to justify their ongoing annual fees.

To have any confidence that advice is objective there needs to be a fee that is the same regardless of the details of the advice. That suggests that a fixed fee determined by the nature of the transaction and the time involved is the safer route.

Unfortunately it looks as if many of the old commission based IFAs will try keep things as much like the old system as they can.

dunstonh wrote: »

An IFA will know more than you. Even if you know the basics. An IFA will not have a crystal ball though. So, expecting them to have one is daft. It also is an indicator that you don't know enough to make the claim you know more than an IFA.

Whether an unspecified IFA will know more than the poster I have no idea. However people should be realistic about how knowledgeable an IFA is likely to be about the wide subject of investment.

The best that can be expected of most is that they know something about some areas of high-cost retail collective investment such as unit trusts and insurance bonds. They are likely to have very little or no knowledge about most other investments.

As you say, no IFA has a crystal ball. Depending on how he is remunerated, it may also be against his own interests to discourage a prospect to invest, regardless of how he sees the outlook..

bigfreddiel

dunstonh wrote: »

An IFA will know more than you. Even if you know the basics. An IFA will not have a crystal ball though. So, expecting them to have one is daft. It also is an indicator that you don't know enough to make the claim you know more than an IFA.

i'm sure an ifa will know more than me - the point is regardless of how much he knows he will never beat the market - its too random - all an ifa can do is seond guess waht's going to happen - anyone can do that and be just as 'lucky' - as said by a famous golfer when it ws said he was 'lucky' - his reply was that the more he ractised the 'luckier' he got!

so learn a bit and beat the ifa - its not hard guys aand gals - jdi!

fj

srcandas

What I expect from an IFA is that he/she can identify all the options open to me, describe to me the costs and arguments for assessing risks, and to be able to action the processes to make my chosen options happen with a high degree of accuracy and timeliness.

I do not expect them to offer winning investment formulas. If they could do that they would be very rich investors and not wasting their time being IFAs.

Yes there are bent and incompetent IFAs but I suspect not to any greater degree than other similar type service providers, and of course there are complaint and compensation options available.

As seen in my previous posts I have had to go without an IFA and I agree it is hard to find a good one for what you may want, but over bashing and accusing them of corruption I think is unjust.

Just my tuppence worth :beer:

1echidna

The lesson is buy your own bleedin' crystal ball. Good grief you can buy your own for a few quid from the astrologers' shop. Don't forget to keep reading MSE though and get a few tips from others with perhaps larger ones

Daniel_Elkington

The whole point of outsourcing anything is that you can spend time doing what you want to do and most are, nowadays, making a move to professionalism like accountants and solicitors.

You can do your own tax return, it is unlikely to be as good as if an accountant does it but...

You an self represent in court but you are unlikely to do as good a job as a solicitor.

You can try to sort out and plan your finances but are unlikely to do as good a job as an IFA.

Finally, only a stupid IFA would advise people to overinvest after performing a fact find which should encapsulate needs and circumstances and capacity for loss. A complaint is very expensive. My network charges a firm £500 each time they have to investigate a complaint (its in their charges booklet). That's even if the complaint is unjustified!

I suppose that's another question to ask an IFA, what are your plans for the future, if they want to be an IFA until they die...

1echidna

Daniel_Elkington wrote: »

The whole point of outsourcing anything is that you can spend time doing what you want to do and most are, nowadays, making a move to professionalism like accountants and solicitors.

You can do your own tax return, it is unlikely to be as good as if an accountant does it but...

You an self represent in court but you are unlikely to do as good a job as a solicitor.

You can try to sort out and plan your finances but are unlikely to do as good a job as an IFA.

Finally, only a stupid IFA would advise people to overinvest after performing a fact find which should encapsulate needs and circumstances and capacity for loss. A complaint is very expensive. My network charges a firm £500 each time they have to investigate a complaint (its in their charges booklet). That's even if the complaint is unjustified!

I suppose that's another question to ask an IFA, what are your plans for the future, if they want to be an IFA until they die...

Not to someone who is so tied up in his own lingo that he can't see the wood for the trees and whose record in terms of helping people to prosper you can't examine.