Options for parents - IFA vs. Investment manager

chewmylegoff

My parents are 70 and have reasonably significant investments. I have no idea how much but I would estimate a minimum of £2 million total across all asset classes. My dad has managed it all himself but he is starting to find it too difficult and my mum is getting fed up with him sitting in front of the computer struggling to keep track of what is going on. I think one of the problems is that their investments are split across a number of different platforms with a wide range of instruments including lots of individual shares, funds, bonds etc and in a mixture of pensions, ISAs and the precursors to ISAs so just tracking everything is a pain in the rear.

My dad gets advice in some capacity from an IFA but I think this just covers the management of his pension somehow, I am not sure.

The IFA has recommended that they use the services of Quilter Cheviot who are an investment manager. They will charge 1.02% per annum (including VAT). I don't think this is full on discretionary investment management either - I think they would make investment recommendations and keep track of the performance of everything. I am slightly suspicious as to whether the IFA would be getting a referral fee and that is his motivation (I also suspect he may not be an IFA but they are just calling him that and he is really a tied advisor but I don't know).

It all sounds rather expensive to me. I have never used an IFA but I am wondering whether it would be more sensible for them to pay an IFA to do a full on overhaul leaving them with a manageable portfolio on one investment platform which my parents could easily keep track of and which could then be reviewed with the IFA on an annual or twice annual basis. Does this sound a sensible way to push them. I know there are a few IFAs on here - is this a service you normally offer and if so (very approximately) how would the fees for this compare to 1% per annum that they are being quoted.

They definitely want some professional advice to help them rather than to overhaul themselves but I am just wondering which direction to point them in.

dunstonh

I know there are a few IFAs on here - is this a service you normally offer and if so (very approximately) how would the fees for this compare to 1% per annum that they are being quoted.

I am not a fan of these discretionary investment management services. Either on full service or a cut down service (a cut down service makes even less sense). To me it just seems to add another layer of charges with little or nothing to show for it.

Whilst an IFA is not an investment manager, the IFA can control the tax wrappers, agree the risk profile and set up the investments using due diligence and research and rebalance them periodically. That is what you expect from the adviser. So, why pay another amount to do half of that role again?

I do know some IFAs like discretionary management. However, in all my years, I have never had one convert my views. Indeed, the benefit seems more to the adviser as they get to do less. That was actually what one said to me in the past to persuade me it was better. "I can focus on time with clients, let my PA do the admin and not worry about the investments". He certainly has more free time than me but he couldnt show me any other benefit.

Their is also VAT to be aware of as well. IFAs can avoid that "where there is an intention to buy a product" there is no VAT. Annual ISA allowance use is a purchase. So, an IFA can rebalance, review and use allowances and not charge VAT.

Aegis

Unlike dunston I do make use of discretionary managers for some clients, and the first thing I would say is that you're probably not getting the best deal on cost (unless this is the all-in cost for the service, which is possible but not particularly likely). At £2 million, most discretionary fund managers should be willing to make significant cuts to their standard fees, so you can definitely afford to look around and see if this fee can be bettered. Quilter have quite a good reputation, but I haven't used them myself and can't comment on how flexible they might be for larger investment amounts.

At the level you're looking at, I would normally expect an adviser to send out requests for tender to a number of discretionary managers asking them to pitch for business and making it clear that they are in competition with one another on price and reputation. At the end of the process, either a manager is appointed or another strategy is selected - this depends entirely on client wishes. I think it would be very difficult to simply have one discretionary service to whom clients are introduced, as the service has to feel right for the client and not all such managers can build the required level of trust.

I definitely think the fee situation can be improved. £2 million at 1% is £20,000 per annum, which is an enormous amount of money to pay an investment manager. If your parents only want half yearly reviews and rebalancing, then an IFA should be able to work on a fixed fee for a considerable discount on the quoted figure (which may not include the IFA's own annual fee, incidentally). Even if you agreed, say, £5,000 per annum due to the level of complexity associated with your parents' case, that saves 0.75% every year, which all adds to the bottom line in the long run. I'm not sure how many discretionary managers can claim that they will outperform an advisory service by that magnitude over a period of years/decades, but I imagine it's relatively few.

It may also be worth considering the wider circumstances, as some managers will operate better with certain inheritance tax planning initiatives if that's of concern to your parents. Offshore bonds, in particular, can be particularly difficult for certain discretionary managers to work with due to the investment restrictions on insurance-based policies, however this can equally apply to pensions or general portfolios where some sort of restriction or preference is in place (ethical considerations are a major factor, for example).

If you would like a second opinion on the situation, then I'd be happy to see if anyone I know (and trust, more importantly) works near your parents. Feel free to PM if that would be of use.

chewmylegoff

Thank you both for taking the time to answer - some really useful perspective and helpful advice in there for me which I will think over before discussing with them again.