Using IFA's

richard686

Not sure where to post this, could have gone in pension area, but here goes.

I seem to remember a quote that goes "A financial advisor is someone you give your money to, until there's none left".

I am curious why there don't seem to be any financial advisors who work on a 'no gain, no fee' basis and why they can charge say 1% of your investment fund to 'manage' it regardless of the quality and therefore performance of their advice.

With various investment funds running at 3% fee levels, the IFA fees add another percent cost, regardless of performance so this can whittle your nest egg away over the years.

Clearly anyone can dive in and go fishing for funds or go crystal ball gazing and various studies have shown monkeys can beat the best financial brains when it comes to predicting the future, so what to do?

Is there such a thing as financial advice that has performance related fees?

Can you trust anyone with your own money, if they get their cut regardless?

Just curious to hear other peoples views.

Cheers All!

grizzly1911

Try reading Smarter Investing - Tim Hale and this Monevator Site.
http://monevator.com/

You can't expect professional to work for nothing. For many they add value and for others think they can do a better DIY job.

Depends what you know.

Aegis

richard686 wrote: »

Not sure where to post this, could have gone in pension area, but here goes.

I seem to remember a quote that goes "A financial advisor is someone you give your money to, until there's none left".

I am curious why there don't seem to be any financial advisors who work on a 'no gain, no fee' basis and why they can charge say 1% of your investment fund to 'manage' it regardless of the quality and therefore performance of their advice.

With various investment funds running at 3% fee levels, the IFA fees add another percent cost, regardless of performance so this can whittle your nest egg away over the years.

Clearly anyone can dive in and go fishing for funds or go crystal ball gazing and various studies have shown monkeys can beat the best financial brains when it comes to predicting the future, so what to do?

Is there such a thing as financial advice that has performance related fees?

Can you trust anyone with your own money, if they get their cut regardless?

Just curious to hear other peoples views.

Cheers All!

If we worked on a "no gain, no fee" basis, what do you expect would happen during market downturns like those we've seen lately? Companies and people need income to survive the full economic cycle, and without that income they go bust.

In the system you've described, you would either be hammered with far higher fees than necessary in the good years to protect against the bad years that might be coming or you would find your adviser closing shop during the period where arguably you need the most advice.

For the record, a 1% annual fee for managing your investments is, in my view, too much to pay an IFA unless you have an extremely small portfolio and still want an adviser involved.

GhIFA

The other point to bear in mind is that a good IFA doesn't give advice on performance - it is about putting together a plan with the aim of achieving the agreed objectives. It is not possible to always get positive performance because no individual has control over the wider economic circumstances. The ongoing review of a client's plan, and amending where required, still requires work to be carried out, and incurs a cost.

Performance is only part of the process - thinking this is the "be all and end all" of Financial Advice is a common misconception.

dunstonh

I am curious why there don't seem to be any financial advisors who work on a 'no gain, no fee' basis and why they can charge say 1% of your investment fund to 'manage' it regardless of the quality and therefore performance of their advice.

The reason is that you dont understand the role of an adviser. They are not investment managers.

With various investment funds running at 3% fee levels, the IFA fees add another percent cost, regardless of performance so this can whittle your nest egg away over the years.

Your fees are wrong. Most clean funds are running with no initial charges and 0.1% to 1.2%

Clearly anyone can dive in and go fishing for funds or go crystal ball gazing and various studies have shown monkeys can beat the best financial brains when it comes to predicting the future, so what to do?

Now you are mixing up advice with investment options.

Is there such a thing as financial advice that has performance related fees?

No.

Ignoring the fact it isnt what an adviser is there for, lets say you do pay it that way. Growth periods outnumber negatives. So, you would end up paying more. Plus, it would create a volatile income that may or may not cover the cost of the services agreed. It would also encourage risk. A cautious investor will typically make less than a more adventurous investor. So, you would be penalising the adviser for giving a cautious investor a cautious portfolio. So, in turn you are creating the potential for bias and risk taking.

Can you trust anyone with your own money, if they get their cut regardless?

yes. you buy a service and if the service is provided then you get what you pay for. You are not buying a service that includes a crystal ball.

It appears you are mixing up the services offered by advisers and those offered by investment managers.

richard686

Thanks for the feedback!

First point, when I said 'no gain - no fee' I was thinking along the lines of beating/matching the sector average - not beating the market. I say this because I think it would give an easy performance indicator.

Second point. Are the IFA's who responded saying that they should not be recommending specific investment funds? If that's not the case, why all the attitude to risk questions?

I'm interested in hearing exactly what one should expect from a good IFA for a fee of (for example) 1% on 250k per annum for looking after pension and isa investments.

I'm also interested in what IFA's think about companies like NUTMEG.

Surely the punter who has an investment pot in ISA's or Pension funds (trying not to extend the discussion into tax planning, trust funds, property etc etc) wants someone to manage the investment to insure it provides maximum growth while fitting their (the clients) risk attitude...

dunstonh

First point, when I said 'no gain - no fee' I was thinking along the lines of beating/matching the sector average - not beating the market. I say this because I think it would give an easy performance indicator.

As already explained, that is not the role of an IFA.

Second point. Are the IFA's who responded saying that they should not be recommending specific investment funds? If that's not the case, why all the attitude to risk questions?

That isnt what has been said. The IFA is to put in place a solution to fit the risk profile and capacity for loss as well as the objectives. That involves recommending suitable investments but it doesnt involve managing those investments. The fund manager does that.

I'm interested in hearing exactly what one should expect from a good IFA for a fee of (for example) 1% on 250k per annum for looking after pension and isa investments.

review, rebalancing, bed&ISA at no cost, increments possibly at no cost and ongoing due diligence.

I'm also interested in what IFA's think about companies like NUTMEG.

No opinion as they are running a discretionary investment management service and not an IFA service. Like most DIMs they charge more than the average IFA for their service.

Surely the punter who has an investment pot in ISA's or Pension funds (trying not to extend the discussion into tax planning, trust funds, property etc etc) wants someone to manage the investment to insure it provides maximum growth while fitting their (the clients) risk attitude...

And that is what an IFA does by putting in place a solution that does that.

richard686

Hi Dunstonh,

So, hypothetically, the punter has a pension with a company that has a wide selection of funds to choose from.

Are you saying a fund manager should choose which funds the pension is invested in, within that particular suppliers range of funds?

Suppose the pot has been invested in a selection of funds (available in that company's pension product) and one of those funds tanks. Does the IFA pick up on that during the annual review and suggest a re-structure?

(Nutmeg charge 0.6% for 150k to 500k investments)

Cheers, Richard.

grey_gym_sock

nutmeg seems to have little to do with your other questions, and yet you keep on throwing in a mention of it. you're the second new poster today to be interested in them. i hope that's just because their advertizing is pervasive

dunstonh

Are you saying a fund manager should choose which funds the pension is invested in, within that particular suppliers range of funds?

No. The adviser decides which funds to use.

Suppose the pot has been invested in a selection of funds (available in that company's pension product) and one of those funds tanks. Does the IFA pick up on that during the annual review and suggest a re-structure?

Yes. Although the fact it underperformed the sector in a period does not necessarily mean it is poor performing. It could be totally expected. For example, a lower risk fund in a sector will typically underperform a higher risk fund in a growth period. Some sectors are so wide in their risk spread that any meaningful comparison cannot take place without knowing the risk differences.

(Nutmeg charge 0.6% for 150k to 500k investments)

So, confirmed more expensive than most IFAs. However, as mentioned, its a service comparable to discretionary investment management and not advisory.

You need to be careful promoting a company as a new sign up. Especially when your subject matter is incorrectly attacking an alternative option. Some may think you have a connection with the company and accuse you of spamming. Companies that have spammed these boards in the past by pretending to be consumers have usually been found out and its created more damage to them than good.

atush

There is a difference between an independant advisor, and a stock picker/investment manager. You seem to be confusing the two really.