Questions to ask an IFA?

doubleJackD

dunstonh wrote: »

To say it is not independent then that suggests bias. What is that bias you perceive to be? If you want a recommendation to invest in property then fine have it. It will come with no consumer protection, no help from the adviser in deciding what property to pick, no due diligence on the suitability of the property but you will be charged £500 for that advice. Do you think there would be a market for such advice?

i believe the bias in known as "commission bias"?

if someone asked for financial advise from a financially astute family member it is likely they would be told to invest in direct shares/ property/ land etc. if they go to an IFA it appears they will be told to buy unit trusts etc.

i would suggest the advise from the family member will be largely unbiased (independent in the true sense of the word). While the advice from the IFA will be biased.

In my personal opinion most/ all advice from someone that profits from my buying a good/ or service is biased to a certain level.

dunstonh

i believe the bias in known as "commission bias"?

How does that come into it? You are paying for advice. It doesnt matter to the adviser if it is property, shares, funds or whatever. The adviser will earn for the advice they give.

if someone asked for financial advise from a financially astute family member it is likely they would be told to invest in direct shares/ property/ land etc. if they go to an IFA it appears they will be told to buy unit trusts etc.

The family member doesnt have any liability on the advice they give and will be biased by their opinion without having sufficient knowledge to be able to be sure the advice is correct.

Aegis

doubleJackD wrote: »

i believe the bias in known as "commission bias"?

Commission bias can only exist if certain products pay more to the salesperson than others. When you pay an agreed fee for advice, there can be no commission bias because the fee is the same regardless of the investments selected. In other words, if your adviser chooses to levy a fee of 1% set up and 0.5% ongoing for all assets under advisement, there's no commission bias at all in that portfolio.

Arguably there's now a new bias (let's call it fee bias) to get more assets under advisement and to therefore generate more money, but that temptation is always going to exist in some way until we get rid of the concept of money (which would, of course, negate the need for financial advisers in the first place).

fairleads

Lokolo wrote: »

If people want advise to invest in property and shares they can do, but they have to see a Wealth Management advisor.

L, you really are quite a comedian.

Lokolo

fairleads wrote: »

L, you really are quite a comedian.

Why now? You need to meet certain criteria to be able to advise on certain investments, a wealth manager will be qualified to do so. Not quite sure how that's funny...?

Aegis

Lokolo wrote: »

Why now? You need to meet certain criteria to be able to advise on certain investments, a wealth manager will be qualified to do so. Not quite sure how that's funny...?

Part of the trouble might be that "wealth management" isn't really a well defined term. For example, St James Place is often referred to as a wealth management company, when in reality they are just tied advisers selling St James Place investment products. I think they have a wider remit for protection, but even then they're considerably worse in terms of product range than an IFA.

Lokolo

Aegis wrote: »

Part of the trouble might be that "wealth management" isn't really a well defined term. For example, St James Place is often referred to as a wealth management company, when in reality they are just tied advisers selling St James Place investment products. I think they have a wider remit for protection, but even then they're considerably worse in terms of product range than an IFA.

Ah right yes I suppose it could have been interpreted wrongly. Just to clarify these are examples I was referring to;

http://www.investec.co.uk/about-investec/what-we-do/wealth-and-investment.html

http://www.schroders.com/privatebank/our-services/summary-of-our-services

http://www.jpmorgan.com/pages/jpmorgan/private_banking

doubleJackD

Aegis wrote: »

Commission bias can only exist if certain products pay more to the salesperson than others. When you pay an agreed fee for advice, there can be no commission bias because the fee is the same regardless of the investments selected. In other words, if your adviser chooses to levy a fee of 1% set up and 0.5% ongoing for all assets under advisement, there's no commission bias at all in that portfolio.

Arguably there's now a new bias (let's call it fee bias) to get more assets under advisement and to therefore generate more money, but that temptation is always going to exist in some way until we get rid of the concept of money (which would, of course, negate the need for financial advisers in the first place).

sorry, but has this thread not established that some investments pay no commission to an IFA?

from the sound of it fee bias is largely the same as commission bias? it seems the only difference is the name?

Aegis

doubleJackD wrote: »

sorry, but has this thread not established that some investments pay no commission to an IFA?

What relevance does that have to a client paying on a fee basis?

from the sound of it fee bias is largely the same as commission bias? it seems the only difference is the name?

I think you've fundamentally misunderstood the concept of commission bias. Under a fee arrangement, all assets under advisement, whether commission paying or otherwise, are charged at a specified advice fee, with trail commission either rebated or offset against that fee and the client paying the balance. Under such an arrangement, there can be no bias towards higher paying products because the client keeps the excess.

GeorgeHowell

doubleJackD wrote: »

if someone asked for financial advise from a financially astute family member it is likely they would be told to invest in direct shares/ property/ land etc. if they go to an IFA it appears they will be told to buy unit trusts etc.

Not necessarily. Many people shun, and advise against, direct ownership of single company equity for small private investors -- too risky. Land and property are arguably the most inflation proof assets in the longer term. However you have to know what you are doing and work at it. A lot of people have paid over the odds for new build buy-to-lets. Being a landlord involves a lot of hassle and a degree of risk. And liquidising the capital as and whenrequired is often difficult. Having said that I agree that advice from astute family members is likely to be more objective than that from most financial advisors. But unfortunately many do not see it that way, and confronted on the one hand with the (often unpalatable) facts of life from a well-meaning family member, and on the other hand with the slippery blarney of a financial advisor they tend to give credence to the latter. I've seen it happen.