IFA or "Discretionary Fund Manager"

lunarjetman

I want to change IFAs, so I talked to a different IFA yesterday about transfering my investments for them to manage. I have unit trusts held on a platform (Transact). The new IFA suggested that most Financial Planners do not have access to all the research tools that a stockbroker would have. He suggested transferring management of most of my portfolio to a stockbroker (Williams de Broe). The IFAs annual fees would be 0.5% of my portfolio and the stockbroker would get 0.75%. So it would cost me 1.25% per year to manage my portfolio in this way. So I am thinking to myself why do I need the IFA in the first place ? Why not just go directly to the stockbroker and let them manage my portfolio at 0.75% ?? All I want to do is grow money for retirement planning purposes. I don't really require any other IFA services at the moment and if I did I could always just pay a flat fee for some one-off advice. What do others think ??

dunstonh

IFAs and discretionary fund managers (DFMs) are very different services. IFAs are not allowed to change investments without permission. DFMs can.

The IFAs annual fees would be 0.5% of my portfolio and the stockbroker would get 0.75%. So it would cost me 1.25% per year to manage my portfolio in this way. So I am thinking to myself why do I need the IFA in the first place ?

Exactly. The IFA is paid the 0.5% to run servicing tasks and do things like rebalance the portfolio, utilise the ISA allowances each year, review the investments periodically etc. If you use a DFM then they are doing that. So, the IFA has little or nothing to do. So, it should be more about one or the other. Not having one on top of the other. Although there will be some things the DFM cant do but needs the IFA to do potentially depending on the DFM.

The new IFA suggested that most Financial Planners do not have access to all the research tools that a stockbroker would have.

There is an element of truth in that. IFAs are not investment managers. However, they buy or are supplied data from the likes of actuaries and research companies who have run due diligence. So, whilst the IFA themselves wont have the research resources individually, they dont need to. However, it would be disingenuous to suggest most DFMs do their own research either.

Is your portfolio of a size that would benefit from a DFM or is it more of a size that would benefit from a servicing IFA or even of a size that a transactional IFA service would be better?

lunarjetman

Thanks for your reply. Much appreciated.

I have found that the IFA business is a bit of a minefield, with some good ones and some bad ones. My current IFA seems dis-interested and are takling me for granted so I want to freshen things up whilst trying to save money on fees if I can.

The portfolio is about £170K which I consider as a future pension fund that I would like to grow.

dunstonh

I have found that the IFA business is a bit of a minefield, with some good ones and some bad ones.

Its not really a minefield. IFAs handle the majority of regulated transactions but only account for 1% of complaints at the FOS. Any profession has good or bad. However, the term IFA does not indicate the business model. That is probably a bigger issue.

The portfolio is about £170K which I consider as a future pension fund that I would like to grow.

Personally, I would say that is too low for DFM and average for an IFA.