Financial advisers - are they worthwhile

silverfoxuk

I've got my head around a good IFA investment charging model (NMA with low initial commission and high ongoing/renewal) but what about paying an IFA for protection products (Life, CI, IP/PHI etc). Are these best paid for by max initial and low renewal to remunerate the IFA for his time? What ratio is best for ongoing 'service'?

dunstonh

There is no real ideal model for protection. The different types of remuneration (level, indemnity and non-indemnity) have no impact on premiums. Only the amount of commission taken will. I would like to think an NMA would take a little less than old model but there is no particular model to favour.

dunstonh

Earlier in this thread, the initial disclosure documents were mentioned. On post #10 I said: Hopefully, the EU will put an end to commission disclosure and the focus will turn to charges in it's place as that is the true cost to an individual.

Well, it appears we have a first step in that direction as it has just been announced that the Menu document is to be abolished as it is in breach of EU rules. Now we just need the EU to force the FSA to stop commission disclosure and focus on charges instead as that is the real cost to the consumer.

Coops10

(applause) - you are wasted Sir!

wisbech_lad

How long is a piece of string?

I don’t use IFA anymore, preferring to DIY. But then again, investment & stock picking is a bit of a hobby – a big shout out to low load ETF!

BUT, they are good if you just aren’t interested in things like asset allocation, diversification, reversions to mean, economic cycles, risk weighted returns. What they can (and should) do is add discipline to your saving. It is tough to be allocating some of your savings to something that is “out of fashion” (i.e. value stocks 1996-2001, or China stocks 2003-2005) when the headlines are screaming about the latest and greatest fortunes being made elsewhere. Chasing performance is a fools game, and a good IFA can hold your hand while you ignore it, and stick to the basics (a well thought out asset allocation, with periodic review & rebalancing, and a choice of good cost/benefit products within each of those asset classes)

A good IFA should also be looking out for you in the short and long term. I.e, if you have decided that you need 25% allocation to long bonds, then she should offer alternative of bond fund, or buying the bonds direct (usually cheaper)

Problem is, that if the IFA ends up recommending some allocation to something cheap to buy and sensible (i.e. three months wages in a high yield building society, and maybe a large chunk of index linked gilts, then some tracker funds) people feel “it wasn’t worth it”, or question the value for money. But for most of us, cheap and sensible is a good way to go, with only a small allocation on “fun stuff” like, say, Indonesian mining firms.