Naive question about IFA

Efg

I'm looking to invest and I don't have the time or knowledge to do it myself. I've spoken to some IFA's and looked at qualifications, fees etc. So assume I've selected an advisor, we've discussed types of investments, my risk profile, etc. The adviser goes away, comes up with a suggested portfolio, what's the normal process after that, ok I assume I sign something, I assume I write a cheque for fees, but do I just hand over a cheque for a 150k investment? Payable to whom? If it's payable to the adviser or his firm, what then legally links those investments to me? Also what does it mean when info on the FCA financial services register states 'unable to hold client money' ?

dunstonh

hat's the normal process after that, ok I assume I sign something, I assume I write a cheque for fees, but do I just hand over a cheque for a 150k investment?

Yes. However, in most cases, people pay the fees via the product. That can make CGT calculations easier. With pensions it makes it cheaper (As you get tax relief on the fee). ISAs are the one you tend not to take any fee on.

Payable to whom?

Whoever the investment is with. Never to the adviser.

Also what does it mean when info on the FCA financial services register states 'unable to hold client money' ?

It means they are unable to hold client money That is the norm. Some FCA classifications allow the holding of client money. Uncommon nowadays though.

Efg

Thanks for the response.
I know I'm being thick, but it's who I'm investing with that isn't clear to me. I'm assuming from discussions so far that the adviser will come up with a number of different funds that my money will be spread across, he's suggested, assuming I'm happy with the funds, I'll need to provide one cheque for the whole amount. I haven't asked who the cheque will be payable to, and I will, but want to know what's the norm. it can't be made out to the individual funds if it's one cheque, if it's to his firm, then aren't they then 'holding my money', or is there some other 'company/entity' in the mix?

grizzly1911

Efg wrote: »

Thanks for the response.
I know I'm being thick, but it's who I'm investing with that isn't clear to me. I'm assuming from discussions so far that the adviser will come up with a number of different funds that my money will be spread across, he's suggested, assuming I'm happy with the funds, I'll need to provide one cheque for the whole amount. I haven't asked who the cheque will be payable to, and I will, but want to know what's the norm. it can't be made out to the individual funds if it's one cheque, if it's to his firm, then aren't they then 'holding my money', or is there some other 'company/entity' in the mix?

If the funds are going to be invested via platform(broker) then one cheque should be payable to them who would then pay the individual mangers of each fund selected e.g. Skandia.

SliAbhaile

Efg wrote: »

I know I'm being thick, but it's who I'm investing with that isn't clear to me.

No you're not, I had to ask the same question.

In my case my IFA opened an account for me with Cofunds, I handed him the cheque made payable to Cofunds and a couple of days later it appeared on my Cofunds account. Then he logged into that account, as an Advisor, and bought the funds with the balance.

As I understand it he can never take any money out. When we've sold funds the money (and the monthly income too) goes directly to my nominated bank account.

VfM4meplse

Is there any reputable online service that can you can plug your age, asset values, pension plans etc into, assess your attitude to risk and make recommendations as to the right mix of investments? (Obviously not specific suggestions, but a guideline to provide growth for the future?). Wouldn't that be great?

Says she who needs some help!

dunstonh

Is there any reputable online service that can you can plug your age, asset values, pension plans etc into, assess your attitude to risk and make recommendations as to the right mix of investments? (Obviously not specific suggestions, but a guideline to provide growth for the future?). Wouldn't that be great?

That is advice. So, all the advice requirements would be needed. Both information and disclosure.

TH1878

VfM4meplse wrote: »

Is there any reputable online service that can you can plug your age, asset values, pension plans etc into, assess your attitude to risk and make recommendations as to the right mix of investments? (Obviously not specific suggestions, but a guideline to provide growth for the future?). Wouldn't that be great?

Says she who needs some help!

Risk profiling is a funny one. It's basically designed to see how much pain you can take and then devise a recommendation to deliver that amount of pain.

It would be like me sticking pins in you to see how many you can take before it gets too much and then keeping you just below that threshold.

You need to start with the end goal in mind (what are you saving for) and work back from there.

bigadaj

VfM4meplse wrote: »

Is there any reputable online service that can you can plug your age, asset values, pension plans etc into, assess your attitude to risk and make recommendations as to the right mix of investments? (Obviously not specific suggestions, but a guideline to provide growth for the future?). Wouldn't that be great?

Says she who needs some help!

There's plenty of resources to get there, but you have to do some work if you do it yourself, alternative is to pay an ifa, with associated cost.

Basic reading of books such as smarter investing by tim hale are a good starting point and discuss things like asset allocation. Portfolios can be plugged into trustnet to give asset allocation.

There's a lot of crude estimation out there, such as half your age into a pension, 35k by the age of 35, 100- your age allocation of equities but you still need to take responsibility for your decisions. Traditionally people would be moving out of equities and into bonds with increasing age, but we live in interesting times and many think bonds will unravel over the next few years so may be best avoided.

Aegis

TH1878 wrote: »

Risk profiling is a funny one. It's basically designed to see how much pain you can take and then devise a recommendation to deliver that amount of pain.

It would be like me sticking pins in you to see how many you can take before it gets too much and then keeping you just below that threshold.

You need to start with the end goal in mind (what are you saving for) and work back from there.

This is precisely why a decent risk profile assessment should take into account the maximum tolerance of risk (which is what you described) and the minimum level of risk required to meet the goals put into place. In practice this second point is extremely difficult to quantify because past performance is not a reliable predictor of future performance, so at this point everything starts to become a lot less scientific (there are stochastic modelling-derived predictions of future performance, but they have the same issue and still need a lot of interpretation). As a secondary issue, such goal-based risk profiling needs to be reassessed regularly to "de-risk" the investment portfolio as you approach the target date.

As such, it would be very difficult for a company to put together any online portal which went through a full risk profiling exercise and came up with investment recommendations in a compliant fashion.

bigadaj

Aegis wrote: »

This is precisely why a decent risk profile assessment should take into account the maximum tolerance of risk (which is what you described) and the minimum level of risk required to meet the goals put into place. In practice this second point is extremely difficult to quantify because past performance is not a reliable predictor of future performance, so at this point everything starts to become a lot less scientific (there are stochastic modelling-derived predictions of future performance, but they have the same issue and still need a lot of interpretation). As a secondary issue, such goal-based risk profiling needs to be reassessed regularly to "de-risk" the investment portfolio as you approach the target date.

As such, it would be very difficult for a company to put together any online portal which went through a full risk profiling exercise and came up with investment recommendations in a compliant fashion.

I'd be very interested to see how IFAs relay their information. This approach require the client to acknowledge a level of volatility to achieve a probabilistic outcome, or is the advice for them just to forget about it and all will be fine.

For those that do use an ifa aren't many of them simply after a defined return, so happy if that occurs and obviously seriously miffed if not, without ever realising the level of risk that has been taken to get there.