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Finding the right IFA.

peterg1965
Posts: 2,164 Forumite


Up until now I have done my own financial planning. Having decided to look at alternate ways to invest in order to optimise retirement income and ways of paying off my mortgage I am going to seek professional advice.
having located a 'suitable' IFA from the unbiased.co.uk website I have made initial contact by email, and have asked the straightforward question; 'do you work under the NMA model?'. This is is basis that I want advice because I believe it incentivises the advisor. The answer I have got back is:
" Our commission is usually structured so that it is spread in two ways; Firstly to pay an initial amount for research, arrangement and admin of the product. Secondly, to pay a small ongoing amount (usually paid annually) which is commonly based on the fund size (and therefor eits performance) which pays for ongoing admin, valuations and review appointments with the client. This second dtrand is vital as I like our customers to know that they can call on us at any time, however small the query, without having to worry about how much it will cost.
Our product selection, though, is based o the product features and how best this meets the clients requirements then we look at how best the advice can be paid for"
Is this NMA advice?
If I want to go down the flexibility of a SIPP fund and a fund supermarket for ISA selection (like H-L), am I wasting my time (and money) going with an IFA.
having located a 'suitable' IFA from the unbiased.co.uk website I have made initial contact by email, and have asked the straightforward question; 'do you work under the NMA model?'. This is is basis that I want advice because I believe it incentivises the advisor. The answer I have got back is:
" Our commission is usually structured so that it is spread in two ways; Firstly to pay an initial amount for research, arrangement and admin of the product. Secondly, to pay a small ongoing amount (usually paid annually) which is commonly based on the fund size (and therefor eits performance) which pays for ongoing admin, valuations and review appointments with the client. This second dtrand is vital as I like our customers to know that they can call on us at any time, however small the query, without having to worry about how much it will cost.
Our product selection, though, is based o the product features and how best this meets the clients requirements then we look at how best the advice can be paid for"
Is this NMA advice?
If I want to go down the flexibility of a SIPP fund and a fund supermarket for ISA selection (like H-L), am I wasting my time (and money) going with an IFA.
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Comments
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NMA is ideally structured as specialist investment advisers offering a low initial commission with an annual trail commission from the funds to provide ongoing servicing. Ideally the model should be close to 1% initial with 0.5% a year. The 0.5% coming from the natural fund based commission and not incremental. Some have to have higher than that due to location and costs.
Transactional IFAs can still take initial and trail but the figures and servicing will vary from almost NMA like to never see again.If I want to go down the flexibility of a SIPP fund and a fund supermarket for ISA selection (like H-L), am I wasting my time (and money) going with an IFA.
If you want advice, then you are not going to get that from HL without paying for it. The cost of advice on a SIPP/fund supmarket pension/ISA with a 1% NMA is basically going to be 1% because HL keep the trail commission on their SIPP.
So, if you dont need advice, then HL could be the best option (although they can be beaten on execution only with higher fund values). If you want and/or need advice, then go for it.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
There are not many NMAs about and most of those who do claim to use this style seem to specialise in high net worth clients. This is fairly obvious as 1% upfront isn't going to be worth a lot unless the amount of money involved is well into the high end of the six-figure range, or the advisor can generate a substantial volume of lower value business.
For instance a non NMA advisor can make as much as 7% upfront by flogging an investment bond, so 7,000 to invest a client's fund worth 100,000.An NMA would need a client with a fund of 700,000 to achieve the same earnings for the same amount of work.
You could always just pay the ordinary advisor a fee for his thoughts, and then do the actual investing yourself according to his suggestions via H-LTrying to keep it simple...0 -
For instance a non NMA advisor can make as much as 7% upfront by flogging an investment bond, so 7,000 to invest a client's fund worth 100,000.An NMA would need a client with a fund of 700,000 to achieve the same earnings for the same amount of work.
Maximum commission with trail is 5% plus 0.5%. So discounting to 1% plus trail is not that big a jump. Many IFAs discount to some degree anyway with the most common level being equalisation to unit trust commission to remove any bias. That brings it to 3 plus 0.5%.
50k still generates £500 upfront and £250 a year so even at that level its worth it. Some NMAs will charge a tiered rate. i.e. 2% upto x amount, 1% above and maybe even lower with higher amounts. At the end of the day, the fees are open to negotiation.You could always just pay the ordinary advisor a fee for his thoughts, and then do the actual investing yourself according to his suggestions via H-L
Seems a bit pointless doing that as a one off fee would allow the IFA to set up the pensions cheaper than HL.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Or you could consult one or more IFAs and judge if you feel they can do any better than "Up until now I have done my own financial planning"
Correct me if I am wrong but is NMA not a fancy name for a charging structure which will generate better income for the IFA who can build up a longer term relationships and saves him having to chase new business. It is no guarantee as to the quality of the advice you may receive?"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
Correct me if I am wrong but is NMA not a fancy name for a charging structure which will generate better income for the IFA who can build up a longer term relationships and saves him having to chase new business. It is no guarantee as to the quality of the advice you may receive?
Nothing is guaranteed just like anything else you buy.
However the trail commission of 0.5% is going to give a much better chance that the investments are going to perform well as the better the returns the more the adviser is paid. Compare that with the adviser charging all upfront commission - investment does badly what does he care, he has his money already.
I doubt there would be much of a long term relationship if your returns were bad and there was no ongoing servicing. You could just walk away.0 -
Correct me if I am wrong but is NMA not a fancy name for a charging structure which will generate better income for the IFA who can build up a longer term relationships and saves him having to chase new business. It is no guarantee as to the quality of the advice you may receive?
More or less, yes. However, it is also cheaper for the consumer and it puts the remuneration in line with performance so the adviser has a buy in to performance whereas an upfront only commission doesn't.
Remember the up front commission sees the provider indemnifying the 0.5% p.a. for an average of 4 years and paying it upfront. The 0.5% is still being paid but its going to the provider instead of the adviser. The provider, over time, recoups the indemnified commission and then sees a profit. So, the 0.5% is not an extra charge to the consumer. It is there regardless of model. Its get paid to HL if you go with them, it gets paid to the NMA IFA if you go with them. It gets paid up front to a transaction IFA with the provider getting it thereafter.
The FSA proposals have the top level adviser (professional/chartered) very much based around the NMA model. Current NMAs are basically futureproofing themselves by already moving towards the highest level adviser and distancing themselves from the basic level adviser which will be the alternative.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
I was not having a pop at NMA advisors and I am pleased to hear about improvement in the qualification requirements. My point was simply NMA is not neccessarily an indication of good advice. I take your point about the incentive, but to play devils advocate, the difference on the trail 0.5% on say a £100,000 investment generating plus 10% and loosing 10% would be ...... very little.
I am not adverse to paying for good advice. Another method of charging is flat fee for services rendered as most professionals do. IMHO, more transparent and possibly much cheaper for the larger investor?"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
Fees paid for servicing a liable to VAT. When taken from investment they are not. Larger investments can get rebates in trail as well. You tend to find that larger investors create far more work than smaller investors. 10 investors of £100k each tend to generate less work than the 1 x £1 mill.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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I never realised the implications of the dreaded VAT"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
It wouldnt say VAT has sneaked in but it has become an issue in recent years. There was some guidence issued last year.
If you pay for advice but do not buy a product, VAT is charged on the advice fee. If you buy a product, it isnt.
Some servicing fees would be vatable, others are not. I have a whole list of things where VAT is and isnt charged.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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