A question for, and about, IFA's

fimonkey

I need to see an financial advisor, because I have an inheritence and I don;t know what to do with it!

Thing is, I know about seeing one that is 'Independent' in that they have access to the whole of the market,

1. But what about fee's etc? Are there upfront fees? If so about how much? Or are there fee's when i take out a product? Again how much?

2. What's the general deal with seeing an IFA? I go there for about an hour and then do what they recommend? or should I see more than one IFA and compare their recommendations?

I have in the region of 30K, single, no dependents, no mortgage (and not particularly wanting to get one for next year at least, or longer if housing market slows down and interest rates continue to rise) and my mini ISA is full.

I would like to see max return on the money, and would be willing to lock away about 10 - 15K for 2 or 5 years (which term is best?). Ideally I'd like to see the kind of growth that beats HPI.

3. So I know what I want. but I don;t know the ins and out sof the kind of products that are likely to be recommended to me, Anyone shed some light on this please?

4. Finally, what should I be looking for in terms of knowing the IFA is highly qualified and good at their job? There are heaps of them advertising in the yellow pages, adn no personal recommendations have been forthcoming unfortunately. I live in the Bournemouth Christchurch area

Thanks in advance

Mr_Mumble

1. Can be commission of fee based. With 30K its probably best to go down the commission route as fee based is often quite a large lump sum. The amount of commission can vary wildly (5% initial plus 1.5% per annum is likely to be the high end while 1% initial plus 1.25% per annum at the low end).
2. You certainly shouldn't be sold on what the first adviser you see says. Report their recommendations to this forum if you're worried!
3. You should be given the documentation for the products recommended, read them before agreeing to anything.
4. Check out unbiased.co.uk for IFAs in your area. Each IFA's page has a list of their qualifications and usually has a voucher for a free consultation.

dunstonh

1. But what about fee's etc? Are there upfront fees? If so about how much? Or are there fee's when i take out a product? Again how much?

You have fee based, commission or hybrid options (hybrid can utilise commission to pay an agreed fee with any extra being rebated or used to reduce charges).

Nowadays, commission on investment is mostly explicit. i.e. a 3% = 3% fee against the amount invested. So really fees and commissions are the same with investments. That said there are some investment options were charges and fees are not linked. These tend to be GEBs and you have been round long enough to know our views on those!

2. What's the general deal with seeing an IFA? I go there for about an hour and then do what they recommend? or should I see more than one IFA and compare their recommendations?

Depends on how you do it. You complete a factind. This is either done face to face or in advance if its emailed/posted to you. Then you discuss aims, goals, risk profile etc. The IFA then goes away, does the research and comes back with the recommendation.

You dont need to compare but the level of knowledge with IFAs varies. Mainly as the term IFA covers a range of skills. You may have a mortgage specialist or an investment specialist or a general practitioner. Obviously the investment specialist is the one you really want but the two are qualified to discuss just as much.

You can shop round and use multiple IFAs. You have to be wary not to be fooled by the slick salesman type to think they are best but actually look at the technical side of it. Ask to see the research, ask what sort of investment strategy is being used. On larger amounts you would expect multiple funds (7-15 funds typically). If you are only getting one fund, then you should be on guard that the advice may be simplistic.

I would like to see max return on the money, and would be willing to lock away about 10 - 15K for 2 or 5 years (which term is best?). Ideally I'd like to see the kind of growth that beats HPI.

2 years is too short with 5 years really being the minimum. Modern investments tend to have no tie in other than the fact they can go down as well as up and a drop in the short term may not have time to recover if you only invest for 2 years.

3. So I know what I want. but I don;t know the ins and out sof the kind of products that are likely to be recommended to me, Anyone shed some light on this please?

You are probably looking at just savings accounts to be honest and an IFA isnt what you need. We would just open moneyfacts or use the online version and tell you who is paying the top rate for what you need.

4. Finally, what should I be looking for in terms of knowing the IFA is highly qualified and good at their job? There are heaps of them advertising in the yellow pages, adn no personal recommendations have been forthcoming unfortunately. I live in the Bournemouth Christchurch area

Most people in the UK have never seen an IFA. Many of those that think they have, have not and are of mistaken belief that their tied adviser is independent (over 2/3rds apparantly). So, word of mouth is ideal but hard to come by.

Like any profession, it is hard to know in advance who is good and who is "not so good" when you open the yellow pages. In theory all IFAs should be able to do the job to the level required but you have the personality, business model and experience all having impact.

As I said though, in your case, an IFA probably isnt required.

fimonkey

Thanks guys, but now I'm really confused (and scared, seem's IFA's are a law unto their own)?

... I am more than capable of finding the best savings account for myself, but in terms of 10 - 15K and making it work for me, 4.8% net isn't really that great is it? Considering RPI is 4.3%. I personally think the housing market is about to cool and level out, hence I don't want to buy a property that isn't right for me at the moment purely for the sake of getting a foot on the ladder. Instead I would like to make this money work hard for me and beat the current HPI... is it really not possible? Is property still the only way to make any decent return on money? If need be, I COULD tie up more, for longer. I'd certainly prefer to invest than buy a grotty shed (which is all I can currently afford at the moment).

Specifically:
- what's a GEB?
- "Ask to see the research, ask what sort of investment strategy is being used". And what would be the best answers to these questions? (it's a bit like my french, i can ask teh questions, but I never understand the answers!).
- is a 3% fee against the amount invested typical? (or just illustrative).
- Can I protect my initial investmetn against being lost altogether if I do invest it and "it goes down"?

Thanks once again, I am learning! (slowly admittedly, but getting there)


Thanks in advance.

dunstonh

I personally think the housing market is about to cool and level out

Its a regional thing. In some places it has been stagnent for a while. In others it is still growing fast. In general a slow down has already started.

Is property still the only way to make any decent return on money?

Stockmarket investments have outperformed property in general for the last 4-5 years now. However, that was the last 4-5 years. The future is unknown.

The problem is not tie in as you can pay in your money into an investment and draw it 3 months later without a penalty. The problem is that investments can go down as well as up and will do so at times that you can not predict.

Hypothetical scenerio:

You invest the money and in 12 months time it is up 10%, then the following 12 months it drops 20% but you need the money out at that point and cannot wait. In which case you have lost 10% of your value (ignoring cumulative returns for sake of clarity). Year 3, 4 & 5 may have grown by 15% a year but you werent able to wait until then. Or are you?

So, when you say 2-5 years, you really need to be sure how long it is likely to be there. If it is likely to be only 2 years, then forget investing. If it is likely to be 5 years then consider investing.

btw, what's a GEB?

Sorry, I know we have posted in threads before and I assumed you had spotted the GEB threads. GEB = Guaranteed Equity Bond. These are awful investment products which are easily sold. Typically by banks, building societies and post office. They track the FTSE100 (most commonly) but have a guarantee of capital. That makes them attractive to some but the high implicit charges (implicit means hidden charges) means that they are often sold on the basis that you get "stockmarket potential with no risk to your capital and no charges". That is all SPIN. You get no dividends so are missing out on around 3% a year, you get averaging in the last year and sometimes the first and currently most have a cap on the amount they can grow by (i.e. you get 70% of the FTSE growth). In other words, you dont get 30% of it and you dont get dividends. So, there are your hidden charges.

fimonkey

Cheers, I don't understand GEB's, (but I've seen them advertised and DID indeed think they were a good idea! Thanks for the warning).

Are there any products similar to GEB's without the hidden charges?

So then, I CAN commit 10K for 5 years, is that amount worth investing? (And keep the rest in savings incase I do need it urgently). ..

Also, I see the bit about up and down over a short term period but overall, over a 5 year term, how many times in the past has it been down? (i.e If I invest in year x, five years later, (year y) historically, has year y ever been less than year x)? If so, has this been predictable and therefore have people been able to remove their money before the losses become too great? (Kinda like the opopsite to a capped rate mortgage).

If I do invest for 5 years, adn by some fluke it's up by 20% in the first year, what are the penalties for me taking it out then? (I assume there are some, otherwise everyone would invest for 10 years, but grab their money as soon as it appeared to peak)?

Thanks again. I cannot express my gratitude enough, you are more than helpful!

CLAPTON

if there is any reasonably prospect of your wanting to buy a property in the next 5 years then put it in a savings acccount. If the propety market has a price correction then you would be well positioned to take full advantage.


if you simply invest in stock and shares or similar then you can withdraw at any time..there are buying and selling costs and a buy/sell margin. However, if you are confident that you can read the peaks and troughs of the market then you are either destined for riches or poverty. many people think the current state of the market is too high, some think there is room to grow. the market is lower now than in 2001.

Put the money in a savings a/c now and start reading the financial press, the various bulletins boards about investment and take your time.

fimonkey

Clapton, I just cannot do that (read financial press etc), I do not have the acumen or financial literacy to know anything about financial markets. It's a completely different language to me, and I do not have the time to learn it. I have never studied business and my mathmatical skills are v.weak. I work in academia, I do not have any numerical aptitude what-so-ever (and I'm an old dog so learning new tricks is hard).

I would have to trust the advice of an IFA, and leave my investment alone until told otherwise. Hence my questions above about whether IFA's are any good or not.

IF the property market has a correction... but if it continues to give returns of 7-8% then I'm a fool to just stick my money in a savings account paying just 4.8% net. I would rather invest the lot and wait for 5 years. Any property correction will not happen overnight, neither will it last for only 12 months. With fixed rate deals coming to an end over the next 3 years, I reckon 5 years is fine for me to sit and wait. At the moment however I do not want to buy (a ridiculously small and grotty 1 bed over-priced shed) just yet as renting is a much much cheaper option for me, therefore it looks liek investing is the way to go. However taking heed of the advice on here,.......

.........I can put 20K into a savings account, and invest 10K, and leave it for 5 years if necessary... is it worth doing? And would the 'fund manager' or whatever/whoever looks after the investments be the one to shout if it's time to get out?

CLAPTON

My view:

If IFAs could call the market correctly and consistantly then there would be no old IFAs as they would have long since retired to their palaces in the sun wouldn't they?

If you are not personally interested in the markets then 10k isn't really worth giving an IFA to play with. put it in the saving a/c with the rest.

fimonkey

Cheers CLAPTON, my, perhaps contrasting view, is that you never see a poor IFA, so they're obviously doing something right!

I AM interested in markets, but I don't understand them and doubt I ever will! I also like listening to guitar music, but haven't the vaguest idea how to play the guitar myself and doubt I ever will... that's my weak analogy anyway.

CLAPTON

ah yes but is their wealth due to investing their own money or having a few percent of yours?
best of luck whatever you do.