IFA and platform/fund fees - advice please

woodcutter2

Hi all,

I am trying to do some research for my mother who is looking to invest some money. I have no knowledge or experience in this area.

Initially she has £100k to invest and will have approx another £200k next year after selling her home and downsizing. She has a cash reserve of about £30k to live on for now and for costs of selling and buying. She will need to live off these funds in combination with 4k per annum state pension.

She has been recommended to an IFA by a close friend and we have had an initial meeting. He has proposed to invest through the 7IM platform, and transfer her money into a nisa yearly within the platform and to invest in the 7IM Balanced AAP fund (asset allocated passive). He is proposing to charge a 1.41% fee per annum in total with no advice/setup fee. So once she has invested fully the total annual cost would be £4230 per year. From what I can figure out from reading 7IM literature the cost of the platform and fund is roughly 0.75%, so the IFA is making 0.66%, approx £2000 per year. If I have got this right.

Does this sound reasonable? It seems like a lot to me if he has little to do in actually managing the money other than his initial reccomendation and maybe occasional reviews. I may have this wrong?
What would the cost be for her to invest in a smilar fund independently from the 7IM platform?

Any advice much appreciated!

masonic

woodcutter2 wrote: »

He is proposing to charge a 1.41% fee per annum in total with no advice/setup fee. So once she has invested fully the total annual cost would be £4230 per year. From what I can figure out from reading 7IM literature the cost of the platform and fund is roughly 0.75%, so the IFA is making 0.66%, approx £2000 per year. If I have got this right.

I'm not sure the IFA would include the underlying management charge of the fund within his own fee. It seems far more likely she would be paying the IFA 1.41%, which perhaps includes a platform fee, but probably not the ongoing charges (I got 0.68% from the provider factsheet) that are taken separately from the fund.

Does this sound reasonable? It seems like a lot to me if he has little to do in actually managing the money other than his initial reccomendation and maybe occasional reviews. I may have this wrong?

It's always worth shopping around. She might be better off paying a setup fee with a lower annual fee. With a single fund like this, there is not much ongoing work to do - rebalancing is taken care of within the fund.

What would the cost be for her to invest in a smilar fund independently from the 7IM platform?

If she is comfortable doing that (or having it done for her), it will be a lot cheaper. The fund in question appears to be a fund of funds, which has significant holdings in index trackers, but uses a tactical asset allocation, which is varied according to the views of the fund manager. This is not the same as a standard passive multi-asset fund, which would maintain the same asset allocation whatever markets are doing. That said, if you were to go with a passive multi-asset fund, you might pay somewhere in the region of 0.6% per year including platform charge (and, if using Vanguard Lifestrategy, you'd also pay a 0.1% initial charge). However, this requires a certain amount of commitment to take responsibility (and an interest) in the investments, which might not be the best course of action for your mother.

EdSwippet

Two thoughts. Firstly, offer to pay your IFA either a fixed fee or -- slightly less optimal -- an hourly rate. If he won't agree to that, consider a different IFA. Unbiased.co.uk is a good place to search.

Secondly, one of the Vanguard Lifestrategy funds, already mentioned, is an ideal choice for somebody who doesn't want to engage with their investments. They are designed to be hands-off. Their TER is 0.29% (not 0.6%) and your mother will save thousands annually on fees. At over £100k she can also go direct to Vanguard and so sidestep undesirable platform charges.

Archi_Bald

EdSwippet wrote: »

At over £100k she can also go direct to Vanguard and so sidestep undesirable platform charges.

But only £50K would be FSCS protected - and perhaps not even that much as some Vanguard funds are Ireland domiciled, so FSCS doesn't apply.

A similar issue might exist with 7IM.

Your_Hero

woodcutter2 wrote: »

Hi all,

I am trying to do some research for my mother who is looking to invest some money. I have no knowledge or experience in this area.

Initially she has £100k to invest and will have approx another £200k next year after selling her home and downsizing. She has a cash reserve of about £30k to live on for now and for costs of selling and buying. She will need to live off these funds in combination with 4k per annum state pension.

She has been recommended to an IFA by a close friend and we have had an initial meeting. He has proposed to invest through the 7IM platform, and transfer her money into a nisa yearly within the platform and to invest in the 7IM Balanced AAP fund (asset allocated passive). He is proposing to charge a 1.41% fee per annum in total with no advice/setup fee. So once she has invested fully the total annual cost would be £4230 per year. From what I can figure out from reading 7IM literature the cost of the platform and fund is roughly 0.75%, so the IFA is making 0.66%, approx £2000 per year. If I have got this right.

Does this sound reasonable? It seems like a lot to me if he has little to do in actually managing the money other than his initial reccomendation and maybe occasional reviews. I may have this wrong?
What would the cost be for her to invest in a smilar fund independently from the 7IM platform?

Any advice much appreciated!

From an IFA's viewpoint, 0% initial and 0.66% ongoing is very competitive. The remainder 0.75% goes to the platform and fund manager which is also competitive.

Remember the fee covers the initial advice, meetings/paperwork, reviewing the portfolio and ongoing advice. The fact that it is in a ready-made portfolio means there should be less ongoing work to the adviser hence the lower fee.

You could probably ask for a reduced fee of 0.5% once the full amount of £300k is invested but not with £100k.

Rollinghome

Is he definitely recommending putting the lot into a single OEIC? To suggest your mother puts the whole of £300,000 into a single fund of funds seems extra-ordinarily lazy and to then expect to take several thousand pounds per year simply for doing so seems outrageously greedy.

It may be that he doesn't feel his own management of her investments could match that of a fund of funds. He may well be right: in which case he doesn't warrant the fees he wants to charge. Personally, I would feel very uncomfortable about putting everything I had into a single fund, regardless of whether it were a fund of funds.

A point to remember is that you would be paying 7IM to manage the fund of fund, further undisclosed fees within the fund from returns to the managers of the various funds 7IM then invests in, around 0.25% to the platform used as intermediary, and the biggest chunk to an adviser who wants to do very little, if anything.

If you really felt that a single fund would meet your mother's needs then a fair basis would be a single agreed hourly-based fee to set up the investment with further hourly based fees for reviews when and if she requires them.

You may have heard of Justin Modray who is a well qualified adviser, very respected for his knowledge and openness, and frequently heard commenting on the radio etc. His website is at http://www.candidmoney.com/ . His company is Candid Financial Advice at https://www.candidfinancialadvice.com/ and might well be worth a call.

woodcutter2

Thanks for all your replies everyone! Lots to think about.

I am going to talk to some other advisers and compare services and fees.