What's reasonable for an IFA?

Thrugelmir

usefulinfo wrote: »

We haven't finalised details but he mentioned charging a percentage as a fee - between 1 and 3%.

What would the fee be on a fixed hourly rate basis?

The % model only benefits one person when in reality the workload is very similar.

usefulinfo

I agree with you, but I've read a lot of negative stuff about fixed fees, and I'd have no idea what was reasonable.

bowlhead99

Thrugelmir wrote: »

What would the fee be on a fixed hourly rate basis?

The % model only benefits one person when in reality the workload is very similar.

Intuitively that makes sense, but a larger investment pot typically uses more complex solutions (asset allocation is much less important in terms of the variance of actual pounds being made, when you are only investing £10k versus £1m) and also the liability on advising a larger piece of business is inherently higher.

So, you could see why an advisor would want to get a higher remuneration on a larger sum invested, without that necessarily implying it would be a rip off.

As the advisor has only indicated a 'range' of percentages at the moment when he already knows the amount to be invested, there is an implication that he would look at it some more before coming up with a quotation based on workload and risk; he is not saying it's definitely 1% or definitely 3% at this stage. Although the fee might be calculated as a fixed fee or time cost, it is often convenient to express it in basis points or percentages because that's what people look at when considering their likely investment return.

For example, if someone knows they can put their finger in a hat and pick investments out without too much thought, and get a random range of returns from +50% to -50% per annum, it is useful to know that the one off cost of getting a sensible balanced portfolio tailored to your needs is 1 or 2% and then maybe 0.5% ongoing for rebalancing. You can see how it might be worth paying for advice to tweak your variance of returns to tolerable levels.

Whereas if you just tell them it is going to cost fifteen hundred quid for the advice without the % level as context, they will say "holy !!! that's an entire month's net salary for me, it could never be worth that much, at minimum wage that's 238 hours and there's no way you have done six solid weeks of work for me there, these fees are a disgrace".

I do agree that merely adding another zero on the end of the amount invested does not change the work tenfold but '1-3%' on £100k depending on complexity (and going more towards the bottom of that percentage range as the investment figure goes up) seems consistent with other fee scales I've heard.

I agree though that it's worth trying to nail down what the fee would be for at least coming up with recommendations (and perhaps there is another fee for implementing the recommendations which can only be guesstimated rather than fully costed yet because the recommendations haven't been made).

If you get told £x but don't have any kind of ball park expectation of whether £x is reasonable you could seek feedback here but it would probably be more useful to see another IFA for a free initial meeting with them and see how they come across and what they charge someone in your situation.

Ainsley1

This post will not answer your question but may give food for thought.
To put in perspective I go down the DIY route so take that into account!

In the past I had to get advice for a reasonably similar amount. Four sources of 'Independent' advice gave four quite different solutions (with profits/one particular investment/diversified stocks and shares [including funds etc] and a mixture of cash and bonds :eek: ). Now they may all have been good but I had my doubts as the level of risk, potential returns and investment types varied. In the end I could only be comfortable with one of them.

So like mentioned above why not visit other IFAs as you can then compare the general recommended approach as well as the costs.

I would have been very disappointed if I had taken the three uncomfortable advice proposals, especially had I had to pay for them. Risk is one of the major factors to get right. Primarily the risk is on the investor and taking advice does not necessarily remove that risk and may even enhance it!

There are a few posters that I respect very well in this forum and their freely given advice matches my amateur thoughts. Why not also ask about a £50K investment (you can always copy that with the remainder :rotfl:) but also consider what your other potential needs will be for your dosh (pension emergency fund etc.). There are many posts in the forum covering that topic.

Overall a good idea to post and there is no need to rush into it as a few week deliberation will be better than putting your cash in the wrong places.