Should an IFA be a fund tracker too?

hc25036

We find ourselves in a tricky situation. We are fairly easygoing and in the past not very investment savvy, having a few grand in ISAs. Our IFA is a family friend.

However, a few years on a good salary and early retirement with a big lump sum payout changed that. The IFA advised further investment in ISAs and a joint unit trust and picked the funds for us after due process and discussions about our risk profile and a compliance checks. That investment is doing OK and we are happy with it.

About 60% of the money went into an offshore product (reasonable at the time) and has increased just a couple of percent in 6 years. This is due to a couple of the funds losing 20% of their value in that time, falling continuously over the past 3 years. The other funds are OK.

To the question. Is it reasonable for us to expect that the IFA would have noticed this and switched funds? We've had meetings where he has lamented the poor performance but not recommended changes.

Not looking for any kind of action, just to understand our situation and maybe to have a reason to give him at what will be a difficult meeting if we decide to take our money elsewhere.

Radiantsoul

Where else would you take your money?

jimjames

hc25036 wrote: »

To the question. Is it reasonable for us to expect that the IFA would have noticed this and switched funds? We've had meetings where he has lamented the poor performance but not recommended changes.

Not looking for any kind of action, just to understand our situation and maybe to have a reason to give him at what will be a difficult meeting if we decide to take our money elsewhere.

No it isn't reasonable to expect that. Switching out of a fund purely because it has dropped in value is a surefire way to lose all your money as you have no guarantee the alternative will do any better.

The only reasons to be changing would be if the fund no longer met your original objectives or you needed to rebalance.

hc25036

Thanks for the advice. The move would be to another IFA with whom I had an initial meeting and who said that part of his service would be to review the individual funds in each wrapper to make sure they were on target and still appropriate.

The funds that are losing are one invested in natural resources and one in BRIC markets and both have been in steady decline continuously for 3 years with no redeeming features as far as I can see. As I understand it, these fund areas are not expected to do anything in the medium term. More than 20% of our money in that wrapper is in those funds. We have been in that wrapper for 6 years with no changes made or any serious review from the IFA.

I understand the principle of not consolidating losses, but surely there is a point where you would say enough is enough?

jimjames

Natural resouces has certainly been a rollercoaster but should be a very small proportion of overall funds. You only need to see how volatile the gold price has been this week to get an idea of how fast things can move. I'm not sure anyone can predict how they will perform in future but whether it is good to get out once they have already fallen is something you need to decide. If it is 20% in this then that seems very high risk.

Which BRIC fund are you invested in? That certainly isn't an area that has crashed consistently over the last 3 years in the same way as resources. In fact my emerging funds are close to their maximum prices so it would be interesting to know what fund has done so badly.

I think the consensus is for emerging economies to do pretty well over the long term so maybe review funds or consider whether less risky/volatile investments would be better for you if you aren't comfortable with these price variations.

dunstonh

Is it reasonable for us to expect that the IFA would have noticed this and switched funds?

No. That is not the role of the IFA.

During reviews, the IFA will discuss the investments and offer opinion and advice but without a crystal ball, there is no way to know what the future holds. If you had no reviews, then no review would take place.

The funds that are losing are one invested in natural resources and one in BRIC markets and both have been in steady decline continuously for 3 years with no redeeming features as far as I can see.

You dont look at funds like that on the basis of three years. JPM Natural Resources (which is guess is one. Perhaps Allianz RCM Bric the other) is great little fund ideally suited for the specialist sector. A couple of bad years is actually good reason to be in them.

As I understand it, these fund areas are not expected to do anything in the medium term.

What other predictions is your crystal ball capable of making?

We have been in that wrapper for 6 years with no changes made or any serious review from the IFA.

Did you employ them to give you reviews?

I understand the principle of not consolidating losses, but surely there is a point where you would say enough is enough?

That isnt how it works. I fear you are looking at things too short term and the two sectors are the most volatile of any sector. You also seem to think you can predict things when no-one can.

redbuzzard

I will caveat my comments by saying I am not an IFA, I don't currently use one, and I don't know exactly how the rules prescribe their duties to clients, so I'm happy for any IFA here to qualify or correct me.

I would expect investment advice, or consultancy, from an IFA, not fund management or investment management. The decision would always be mine.

Apart from basic knowledge, competence, honesty and integrity which should be a given, what I think should distinguish the good from the bad is whether they tell the client what questions they should be asking.

I was on an investment committee when the investment consultants, pitching for the renewal of their contract, presented a strategic recommendation involving an almost complete reallocation of the fund, completely out of the blue. The first question from the chairman was "Why haven't you proposed this before?" to which the reply was "Had you asked us for a recommendation, this is what we would have put forward".

A lesson was learnt by both sides - and the contract was not renewed.

To a degree this is covered by the fact find, but that is necessarily structured and won't of itself cater for the individual client's particular concerns or willingness voluntarily to ask what they think might be stupid questions.

So, based only on inference from the information supplied, it seems likely that the OP's IFA has been a little too laid back, and should have done more to tease out the concerns of the client, who shouldn't be in the position of asking these questions years after the horse has seemingly bolted - whether or not the IFA thought the investment was still a sensible one.

Incidentally, I don't know how many IFAs do it before a review, but I would also find it very helpful to have the performance information provided before a review meeting, so that I could prepare questions on anything I didn't understand, or further information I wanted. It's a bit like seeing the doctor - if you aren't prepared, there's a good chance you'll get home and still not know whether or not you should be worried!

dunstonh

I will caveat my comments by saying I am not an IFA, I don't currently use one, and I don't know exactly how the rules prescribe their duties to clients, so I'm happy for any IFA here to qualify or correct me.

I would expect investment advice, or consultancy, from an IFA, not fund management or investment management. The decision would always be mine.

The IFA is there to give planning advice. They are also there to risk profile and make sure the investment portfolio matches objective (timscale) and risk profile. The IFA has to do due diligence on the investments but has no involvement with day to day running of the actual investments within the portfolio. You can employ an IFA on transactional basis (one off - which is what most do) or on servicing basis. Even on servicing basis, the IFA is not checking the portfolio daily. Typically it is to check it say annually to perhaps use ISA allowances, rebalance and maybe a tweak in the funds if something on the fund has occurred that means it fails due diligence now or a change of circumstances requires a change to the portfolio.

An IFA has the tools to build a portfolio of funds and research funds to a certain level but does not have the resources and is not expected and actually does not have the investment permissions to actively move your investments without first getting your permission (that requires discretionary investment management and that is a different role)

grizzly1911

redbuzzard wrote: »

Apart from basic knowledge, competence, honesty and integrity which should be a given, what I think should distinguish the good from the bad is whether they tell the client what questions they should be asking......

Incidentally, I don't know how many IFA's do it before a review, but I would also find it very helpful to have the performance information provided before a review meeting, so that I could prepare questions on anything I didn't understand, or further information I wanted. It's a bit like seeing the doctor - if you aren't prepared, there's a good chance you'll get home and still not know whether or not you should be worried!

I have been asked to chaperone an elderly relative in their dealing with a an IFA.

Last last year the IFA asked to undertake a review and suggested a couple of switches which resulted in transfers into a ISA platform and the swap of funds at the same time to the same value. The advice made sense but it was a fait accompli really. He had come forearmed with that recommendation and this was the first time he had seen the client in 5+ years.

At no time was a fact find, of any form, undertaken and the client position had changed significantly in the interim. The switches made were logical and didn't affect the risk profile but the advisor was making assumptions.

He retired at the end of the year and passed his book on to a new firm.

We are shortly due to meet the new advisor shortly. They have provided summary performance and valuation information for the portfolio, as it stands at present, upon request and have responded by return to questions posed. It is apparent they want to do a fresh fact find and full appreciation of the clients position, needs and aspirations.

There is the potential for new business going forward but they are not aware of that, yet their approach appears to be a breath of fresh air.

Horses for courses, perhaps the previous incumbent saw his days were numbered. It will interesting to see how the new colt performs.

hc25036

dunstonh wrote: »

Even on servicing basis, the IFA is not checking the portfolio daily. Typically it is to check it say annually to perhaps use ISA allowances, rebalance and maybe a tweak in the funds if something on the fund has occurred that means it fails due diligence now or a change of circumstances requires a change to the portfolio.

An IFA has the tools to build a portfolio of funds and research funds to a certain level but does not have the resources and is not expected and actually does not have the investment permissions to actively move your investments without first getting your permission (that requires discretionary investment management and that is a different role)

I'm trying to learn here and not sure I deserve some of the sarcasm I'm attracting! This has hit it on the head though. More than 20% of the investment was in the funds you correctly guessed with and they have lost more than 20% over the 7 years. I accept that no-one has a crystal ball and I get the basics of investing, but we have not had the reviews you suggest should be the norm given that we have an annual meeting with the IFA.

I am not claiming a crystal ball and accept I'm giving the impression of impatience. Essentially our money is spread 50:50 over two wrappers, one of which has gained 40+% and one 3% over the 7 years or more (and I understand that includes the crash). The less-well performing fund would also be at 20% were it not for those two funds. As I understand the comments, those funds are not dead ducks but rather volatile and we are possibly overweight in them (by the way, the aim of that fund is long-term growth to supplement pensions in 9 years or so).

My original question was should we be expecting our IFA to review funds and suggest changes, and the answer seems to be "no". Thank you all for that and the additional suggestions.

dunstonh

Horses for courses, perhaps the previous incumbent saw his days were numbered. It will interesting to see how the new colt performs.

There were fears that those outgoing would look to make changes before the RDR to be able to get more value from their book when they sold up.

I accept that no-one has a crystal ball and I get the basics of investing, but we have not had the reviews you suggest should be the norm given that we have an annual meeting with the IFA.

I did not say they were the norm. Transactional (one off) outnumbers servicing.

I am not claiming a crystal ball and accept I'm giving the impression of impatience.

You seem to think they will not go up though.

As I understand the comments, those funds are not dead ducks but rather volatile and we are possibly overweight in them

Very volatile. Not rather. It is not uncommon to hold around 5-7% in specialist (Nat res in this case) and another 5-7% in emerging markets. The ratios are adjusted depending on risk profile that could see more/less.

My original question was should we be expecting our IFA to review funds and suggest changes, and the answer seems to be "no".

If you employ the IFA on servicing basis then getting reviews periodically is frequently part of that service. If you don't, then you wont. Amount invested will be key as well. Someone on less than say £100kk probably wont get servicing on a frequent basis or pro-active basis. More a re-active, as and when requested/required basis. The more you have, the more cost effective it is to have pro-active servicing.