MSE News: Financial advice shake-up: what will you pay?

doughnutmachine

Aegis wrote: »

Quite possibly, and I believe they're right to do so. Even if a firm generally doesn't believe that such products usually match the requirements of their clients, to rule them out altogether at outset is not being independent, it's making an assumption about all of your clients which likely won't hold true in all cases.

it's always been my understanding that IFAs never advise on certain investments like shares and property. if they don't do you really consider IFAs as being "independent"?

tbh, one thing that's always put me off going to an IFA is that my perception is that they only advise on a fairly slim pool of investments

dunstonh

it's always been my understanding that IFAs never advise on certain investments like shares and property. if they don't do you really consider IFAs as being "independent"?

Your understanding is wrong.

Aegis

doughnutmachine wrote: »

it's always been my understanding that IFAs never advise on certain investments like shares and property. if they don't do you really consider IFAs as being "independent"?

IFAs advise on regulated retail investment products as defined by the FSA. Going outside that remit would be a breach of permissions. That said, property funds can be used where some diversified property exposure is required in a property portfolio, and an IFA can advise on the tax treatment and inheritance tax mitigation on property portfolios.

Ultimately an IFA is central to a client's investment proposition but isn't going to (or at least shouldn't) recommend direct investments into specific properties or companies - we can't be specialists in property investment with the expertise to pick a specific property for someone to invest into, for example.

When IFAs help to create a portfolio of investments, the idea is to get the asset allocation and level of risk correct. We aren't there to pick the next skyrocketing share, we take a long term view and try to put together something for that client.

That said, if they want to invest in property, we will support them. If they want direct investments into shares, then they can be introduced to a stockbroker or a discretionary manager - certainly my own firm treats those like any other product and carries out independent due diligence on as many of the players in this market as we can.

To summarise, independence is based on the FSA's list of retail investment products, and going outside that list is generally considered to be higher risk for both the client and the adviser.

tbh, one thing that's always put me off going to an IFA is that my perception is that they only advise on a fairly slim pool of investments

Which is fair enough, but that "slim pool" includes tens of thousands of investments. That's a lot of research that already needs to be done. If you wanted to expand this to include a considerably wider range, then firstly the adviser would have to spend a lot more time researching and a lot less time available to clients and secondly the additional workload and expertise would increase the costs to a level far too high for most clients.

Direct holdings into shares are, to my mind, something that should be handled by either an investor directly or by a firm with discretionary permission to act on behalf of their client - they are not well suited to advisory relationships.

Direct property investment, on the other hand, is a business in itself, and one which can require a lot of work per property. It would be something a client could manage for themselves if they wanted, and it is something an IFA can be involved with peripherally (for example, investing into a property within a pension), but an IFA isn't a surveyor and cannot therefore value properties and make recommendations to purchase.

doughnutmachine

dunstonh wrote: »

Your understanding is wrong.

so if i wanted to invest in direct property/ shares what should i look for in an IFA?

i have to be honest, some of the zoned residential land looks cheap, i mean 90% off the peak values shouts out "buy me".

magpiecottage

doughnutmachine wrote: »

it's always been my understanding that IFAs never advise on certain investments like shares and property. if they don't do you really consider IFAs as being "independent"?

They can advise on any form of investment. However, there is no point in wasting time (which their client must pay for) considering the merits of a class of product that is manifestly unsuitable).

In addition, there is EEA legislation which prevents the marketing of things called unregulated collective investment schemes to most consumers.

tbh, one thing that's always put me off going to an IFA is that my perception is that they only advise on a fairly slim pool of investments

. That is probably like saying you are not going to swim in the Channel because it is quite narrow in relation to the Atlantic. Few of us are likely to end up in Calais complaining we have run out of sea!

bigadaj

doughnutmachine wrote: »

so if i wanted to invest in direct property/ shares what should i look for in an IFA?

i have to be honest, some of the zoned residential land looks cheap, i mean 90% off the peak values shouts out "buy me".

Would be interested to see where that residential land is and what opportunity there is for purchase. Lack of house building currently and consequent lack of supply is primarily down to the house builders sitting on land banks, though part of this may be down to the fact that it is on their books above that on the free market. 90% seems fanciful to me, anything near 50% would be a big buy, obviously depending on planning status.

doughnutmachine

magpiecottage wrote: »

. That is probably like saying you are not going to swim in the Channel because it is quite narrow in relation to the Atlantic. Few of us are likely to end up in Calais complaining we have run out of sea!

tbh, i think some investments are the "bread and butter" of the investing world. an IFA not selling shares and property is a bit like a corner shop not selling the sun newspaper and bog roll.

Aegis

doughnutmachine wrote: »

tbh, i think some investments are the "bread and butter" of the investing world. an IFA not selling shares and property is a bit like a corner shop not selling the sun newspaper and bog roll.

Not really. IFAs generally deal on the basis of diversification, and most clients do not have large enough portfolios to justify a directly owned property as an investment, nor do many of them have the time or inclination to manage it as a business. Those that do can receive advice on what they are doing with the cashflow and the tax, but running someone's property business isn't the role of an IFA.

Direct shares are more of a grey area, but again it would make more sense for most clients to approach a stockbroker or a discretionary manager (with a recommendation from their IFA if they want to pursue this route), as they are able to follow the movement of shares on a daily basis if necessary. Their entire job is to manage these types of investment and to research the general markets and the performance of each stock within those markets. Alternatively, equities can be accessed through a fund. This diversification approach is likely to be the best approach from a risk perspective, with more speculative clients still perfectly able to buy their own shares if they wish to.

I think you're asking an IFA to be a specialist at everything, which is a contradiction in terms.

dunstonh

doughnutmachine wrote: »

tbh, i think some investments are the "bread and butter" of the investing world. an IFA not selling shares and property is a bit like a corner shop not selling the sun newspaper and bog roll.

IFAs have to do due diligence on the investments they recommend. So, whilst the IFA can recommend and discuss property and shares generically, they cannot recommend a physical property or a specified share because they will not be able to do the due diligence on them. You would be told to employ a stockbroker or property agent or DIY.

IFAs are providers of advice. Not investment managers or property managers.

jamesd

doughnutmachine wrote: »

tbh, i think some investments are the "bread and butter" of the investing world. an IFA not selling shares and property is a bit like a corner shop not selling the sun newspaper and bog roll.

Direct investment in shares and property are both activities pursued only by a minority of investors. A bigger minority in the case of shares but still only a minority.

For an IFA recommending shares, do consider that if the IFA is recommending they do have to do lots of due diligence and are on the hook for redress payments even in cases where their recommendation was based on misinformation in approved materials like annual reports. Fraud by directors of a business can still result in the IFA having to pay.

But that's mostly moot anyway. Most people just don't have high enough investment value to diversify properly with shares and will need to use collective investments to get sufficient diversification, including sufficient international diversification at a tolerable cost. Getting that diversification in place is going to be one of the most important parts of a full IFA workup and recommendation.