Using IFA's

richard686

Anyone feel free to waste your time accusing me of spamming!

I mention 'that company that's named after a spice' because it was mentioned on this site, by someone else... and I took a look their fees.

Regarding fees, how is 0.6% more expensive than 1%??? Am I missing something?

Anyway on with the discussion:

I'm still interested in pursuing the role of an IFA vs a Fund Manager from the customers point of view.

So an IFA advises which funds to use - that is exactly what I thought and I don't get where a 'fund manager' comes into it, which some posters seem to think I'm getting confused with.

Someone has a portfolio of investment products and wants them managed in a cost effective way such that the investment grows and is given some degree of defensive management. Are we saying thats what a fund manager does? I think an IFA does that.

I'm interested in how you'd rate the performance of an IFA and what you'd expect to get for your 1%.

At the end of the day maybe personal recommendation is the only way to know if you have a decent IFA without finding out the hard way...

JohnRo

Fund managers are like football players, they're the ones on the pitch playing the game. Some play in attack, some mid field and some defence. Others are free kick specialists or half time subs.

An IFA is like the pre match team selection specialist. How's that for over simplification?

arcadia00

You have an array of clients A B C D whose reqs. are the same. You have an array of suitable products E F G H.

You have an IFA who has a particular pref for E.

Does he direct A B C D all to E. Or does he spread A B C D over E F G H, so as to spread his own risk even though he has definite pref for E.

A B C D can only go with one of E F G H.

JohnRo

I suppose the point there is that the IFA is by definition independent and so doesn't have any preference as suggested?

There are presumably technical considerations and methods supporting the selection process rather than personal preferences.

arcadia00

JohnRo wrote: »

I suppose the point there is that the IFA is by definition independent and so doesn't have any preference as suggested?

There are presumably technical considerations and methods supporting the selection process rather than personal preferences.

In the end he must make a pick. I can't believe you can narrow everything down to there being one solitary logical pick. So there has to be a choice. I'm asking does he spread this choice around even if he has a preference.

An old trick by commercial tipsters is to tip a different horse to all clients so you always end up getting paid by some clients. I'm not suggesting this is the same. But in respect of mitigating ones own risk by spreading clients over suitable products. I'm just asking does it happen.

richard686

arcadia00 wrote: »

You have an array of clients A B C D whose reqs. are the same. You have an array of suitable products E F G H.

You have an IFA who has a particular pref for E.

Does he direct A B C D all to E. Or does he spread A B C D over E F G H, so as to spread his own risk even though he has definite pref for E.

A B C D can only go with one of E F G H.

Interesting question, if we rule out risk profile matching. The IFA is out to earn a living and no one should forget that. That is clearly his/her prime objective and no one should hold that against them either!

I think I'm right in assuming the new RDR rules are there to force a more professional approach where selection is made without trailing commission etc muddying the water. So the IFA charges a fee and the punter can see that up front.

I would assume that the company supplying the products technical support comes in to it too. Some companies provide easier to use software tools and phone support than others allowing report generating to be easier and less time consuming.

One would hope that the actual fund managers behind the scenes of the suppliers come into the choice of supplier along with actual fund performance of course!

dunstonh

In the end he must make a pick. I can't believe you can narrow everything down to there being one solitary logical pick. So there has to be a choice. I'm asking does he spread this choice around even if he has a preference.

The IFA has to filter from the whole of market. Many investments are actually fairly easy to filter out. Due diligence has to be completed on every investment recommendation. So, you cant just have a few favourites. The research has to be there. Many advisers will outsource the research and due dilligence (and pay for it).

Even when you filter the options down, you are frequently left with a selection of options. That is when it can come down to preference.

An old trick by commercial tipsters is to tip a different horse to all clients so you always end up getting paid by some clients. I'm not suggesting this is the same. But in respect of mitigating ones own risk by spreading clients over suitable products. I'm just asking does it happen.

No it doesnt happen. There is no benefit or reason for anything like that to happen. However, I frequently recommend investments that I personally would not invest in myself. Most IFAs will be the same. Everyone has different risk profiles and a different capacity for loss. Everyone has a different understanding and willingness to understand. So, you wouldnt use advanced investment options with someone that doesnt know what they are doing or want to know.

The FSA is taking a closer look at due diligence post RDR and has made it clear that the buck stops with the IFA on recommendations. Even where the fund house lies or gives false information.

richard686

So can anyone tell me if a 1% fee for an annual review of a few pension funds and a couple of S&S ISA's is good value? (In this case somewhere around £2k)

I have seen 0.7% mentioned elsewhere.

Dragonista

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!

From what I understand the laws in the UK have changed meaning IFAs have to very upfront with charges (eg "advice will cost £100ph"). I am offshore, my IFA takes his fee from the the product admin charge of 1.5%. My IFA doesn't touch my money, my money is invested in a product, not his back pocket. But if he makes me money (he tries to get 9% average annual return) he gets paid more. I think that's fair. It is in his interest to make me money, so he can make money. This is my pension fund and he says I should have a big enough pot to retire at 45 should I want, but obviously it's better to wait.

dunstonh

richard686 wrote: »

So can anyone tell me if a 1% fee for an annual review of a few pension funds and a couple of S&S ISA's is good value? (In this case somewhere around £2k)

I have seen 0.7% mentioned elsewhere.

Depends on the value. The most common figure is 0.5%. However, smaller values do tend to get pushed towards 1% because obviously smaller values do not provide sufficient amounts to cover costs.