Diversification Q for IFAs

JuicyJesus

dunstonh wrote: »

The move to cutting size down has come about as we were told that the FOS take a dislike to long reports and will often get to a certain page and decide that anything that comes after that will not be read by the client and will disregard that content. I have no personal experience of the FOS thankfully but I do read the publications and the recently published ombudsman decisions and the various meetings you go to that often have ex FOS staff to give guidance.

You are joking, right? The FOS actually work on the principle of "tl;dr"?

bigadaj

Imnoexpert wrote: »

Leaving aside the spat with Gadgetmind this has been very interesting.

My IFA who is an employee of a national group who specialise in an occupational sector used to be able to suggest funds and portfolios but now the result of our annual conversation is to indicate one of 5 portfolios which match a risk profile and which are chosen by head office. The fund choices are quite often surprising so it is reassuring to find there is some method to it. My IFA either doesn't know or isn't giving me the detail which DunstonH has available for his customers

A couple of comments though.

Risk profiles are very blunt tools (at the client side) - How scientific are the questions? - has there been psychological research on them? In my case a few years ago I would have answered the question 'How would you feel about the value of your funds dropping by 25%''? differently from how I would now. I don't think my attitude to risk has changed but my knowledge of and cynicism about financial services certainly has.

Is investing a science or an art? All the figures which measure risk and reward are based on historical evidence - and at the bottom of all of them is the statement that "the past is no guide to the future". It's better than nothing but surely it should only be a part of portfolio building. Is the 'science' playing too big a part?

Sounds as though you need another chat with your ifa to understand him, and for and him to justify what he's doing with your money.

I'm not sure it's exactly a spat between gadget and dunston, just different opinions and interests.

If I were you I'm not sure if I'd be happy paying out for being lumped into one of five options, doesn't sound like what I'd expect as independent financial advice. Whilst everyone is different, people will fall into different groups dependent on background, risk attitude, age, income and future Needs amongst others and five options looks limited to me.

Your last two paragraphs seem to be contradictory, the first sees to want more evidence whilst the last states there may be too much analysis? How is the 'art' part going to help unless you're looking taw wanting a guru of some sort?

My concerns currently would be the fact that we are in interesting times, and, for example, if you look at a relatively risk averse investor conventional wisdom might suggest a heavy bond allocation, which means the risk of capital loss if care isnt taken with the bond selection.

bigadaj

JuicyJesus wrote: »

You are joking, right? The FOS actually work on the principle of "tl;dr"?

Fair point, but I think dunstons point is encouraging. One of the first stages in trying to redeem a very tarnished reputation is to ensure that a good regulatory structure is in place and communicated to relevant stakeholders. Part of my work is in health and safety in construction, and the hse position is that if you turn up with several lever arch files of procedures, method statements, risk assessment etc then that will be perceived critically, as it is so difficult to find the pertinent points. If this point is communicated and acknowledged then it should lead to a greater degree of clarity, and should make it easier to punish cases which flout such guidance.

There was a case on the loans board a few days ago where the clause quoted by the lender was on page 116 of the contract, which to me puts the lender in a different position. I review contracts as part of my job and would think level of detail unnecessary in many of the multi million pound schemes with which I'm involved, let alone a car loan contract with a normal consumer.

gadgetmind

dunstonh wrote: »

Tell us what the in between is then?

Multi-asset portfolios without any pretence of being scientifically crafted by legions of the wise to somehow magically outperform.

As where the efficient frontier lies can only be seen in the rear view mirror, spending a lot of money hunting for it is unlikely to be worthwhile.

As for the value of risk attitude questions, yes psychology is important, but I'm increasingly of the view that education regards what risk and volatility mean, and how to respond to them, are essential before you can get meaningful answers.

gadgetmind

bigadaj wrote: »

I'm not sure it's exactly a spat between gadget and dunston, just different opinions and interests.

Absolutely!

As it happens, there is a strong chance that I'll use an IFA again in the future, probably at the point I retire to sanity check and tweak plans, it's just that I don't rate the process used to construct portfolios. Nor to be honest do I like the fees, but that's a different issue.

pip895

A couple of years back when we were deciding how to manage our portfolio after the retirement of our old IFA, we spoke to a number of IFA's.
What put us off them all in the end, was all the profiling and asset allocation systems. We got the impression that the whole exercise was one of compliance with regulation rather than really taking into account our needs and preferences.
I have some sympathy with them, with the erosion of all semblance of "caveat emptor" in the financial service arena they probably had little choice - however, in the end, I could see little point in paying for the process and we went the DIY route.:undecided

bigadaj

gadgetmind wrote: »

Absolutely!

As it happens, there is a strong chance that I'll use an IFA again in the future, probably at the point I retire to sanity check and tweak plans, it's just that I don't rate the process used to construct portfolios. Nor to be honest do I like the fees, but that's a different issue.

It'll be interesting to see if you can find one that will transact with you. You'll presumably be able to spend a few hundred pounds in fees, or maybe a bit more, but I don't think many will be interested in that.

They won't be set up for a chat through investment options, but for longer term involvement from a regulatory and fees perspective, further complicated by the fact that they would probably treat you as an insistent client, and wouldn't want to take the additional risk with respect to PI insurance.

That's my impression but maybe dunston or other ifa could give an opinion, would be interested to hear.

grizzly1911

pip895 wrote: »

A couple of years back when we were deciding how to manage our portfolio after the retirement of our old IFA, we spoke to a number of IFA's.
What put us off them all in the end, was all the profiling and asset allocation systems. We got the impression that the whole exercise was one of compliance with regulation rather than really taking into account our needs and preferences.
I have some sympathy with them, with the erosion of all semblance of "caveat emptor" in the financial service arena they probably had little choice - however, in the end, I could see little point in paying for the process and we went the DIY route.:undecided

If the exercise talks down your risk profile, sells a relatively simplistic package to meet that "need, minimise risk of any accusation of poor advice and still earns the full fee then job done for the many.

There will no doubt be some scenarios where the crust is earned and benefits will be achieved for the client.

Porcupine

Seems sensible to me - rather than picking numbers like 70/20/10 out of the air, use something where the numbers are tested against actual data and then adjusted as the world changes (maybe those 'low risk' mortgage securities turned out to be higher risk than we thought). Better than sticking to outdated numbers, and worth the adviser paying £20/month (or whatever) for.

I can also see the FOS side - if an adviser has any case referred to the FOS then it's costly even if the case is unfounded. For a one-man-band that hurts, so better to do it by the book.

bigadaj wrote: »

There was a case on the loans board a few days ago where the clause quoted by the lender was on page 116 of the contract, which to me puts the lender in a different position. I review contracts as part of my job and would think level of detail unnecessary in many of the multi million pound schemes with which I'm involved, let alone a car loan contract with a normal consumer.

I bought a £29 e-reader (thanks to a deal pointed out by this site). First action on opening the box was to agree to the on-screen licence terms... which were 480 pages. I wonder if it would stand up in court.

kidmugsy

Since there are experts hereabouts, may I ask whether trustees of a discretionary trust (set up by a will) should expect to use any-old-IFA, or should they be looking for a specialist? If so, how do they find one?