IFA charges/fees

Pedro1

1. We are currently about to use the services of an IFA to invest my mothers assets to produce an income for future potential care requirements.

2. My Q is, how much would be normally charged by the IFA for:

a) Introduction fee %
b) Management fee % p.a

3. The sums involved will be initially £150K rising by another £100K on the sale of her property later this year.

4. The IFA has stated that fees are negotiable but we would like to know what is reasonable as a starting point.

Thanks

bigadaj

Numbers often quoted are 3% initial and 1% for ongoing management though I think these are probably higher end.

There's no reason why you can't haggle and/ or shop around but I'd be reluctant to pay more than £5000 set up and £1500 annual servicing, though there may be a little more upfront work here if you want to look at things like purchased life annuity in the mix to balance returns against guarantee of generating enough cash.

Is there an annual figure that you need to generate?

Pedro1

Thanks.

Yes those are the approx. figs quoted and seem to be the "standard" charges. We will attempt to get them both down!

We are looking at investing whereby there is a "safety net" of either 85%, 90 or 100% of your initial investment. How it was explained was that you obviously obtain better return if you are at 85% rather than 100% guarantee.

We are aiming at approx. £20K p.a. to help pay for any potential care home fees for my mother.

dunstonh

2. My Q is, how much would be normally charged by the IFA for:

a) Introduction fee %
b) Management fee % p.a

Figures are relative to amount. Small amounts tend to get higher percentages. Large amounts get lower. 0.5% p.a. would be the norm on an amount like that with around 1% to 1.5% on initial.

We are looking at investing whereby there is a "safety net" of either 85%, 90 or 100% of your initial investment.

Yuk. That means you are looking at expensive products with limited growth potential and you have to question whether there is any point investing in the first place.

bigadaj

OP, dunston is an experienced ifa and I'd agree with his interpretation of the proposed approach, guaranteed products are expensive and poor value.

Might be worth seeing if you can get more specific details from the ifa and then report back. How old is you mother as this may well influence a reasonable approach.

You're after an 8% yield which is too high to be sustainable but not by very much conventional investments are likely to return figures a little lower so there would be some erosion of capital but it depends on your attitude to risk and how long the need for funding is. Without being morbid this is your mothers life expectancy which is obviously a range and the level of confidence in guaranteeing this, if you want a high level of guarantee that will cost money. It may be worthwhile for peace of mind but inheritance may also be something to consider.

grizzly1911

I would be surprised if you could get anywhere near 8% out of a straight "guaranteed capital" vehicle. Even more so if you need to take account of inflation.

We were quoted 3% and 0.5% annual fee from an incumbent IFA. That was for a six figure addition to result in a slightly lower overall amount than you are looking at.

Shop around.

Pedro1

My mother is 80 y.o and in reasonable health although is a heavy smoker.

Our attitude to risk is not strictly risk averse but we dont wish to lose much capital if there was a crash or the like, hence our requirement for an 85% or 90% "safety net" for capital invested.

bigadaj

Pedro1 wrote: »

My mother is 80 y.o and in reasonable health although is a heavy smoker.

Our attitude to risk is not strictly risk averse but we dont wish to lose much capital if there was a crash or the like, hence our requirement for an 85% or 90% "safety net" for capital invested.

Fair enough but guarantees are very expensive, in the round by the time you take out the ifa fee then projected returns might not be a lot better than cash returns, and you could end up handing over the money as a lump sum for a guarantee only for your mother to die in a Couple of years, meaning the care has cost £100k a year.

Pedro1

Yes we have had a look at that. Need to look further with IFA and investment vehicle past returns to see if the return less fees are acceptable.