Independent Financial Advice on Pensions & Savings

dunstonh

saver861 wrote: »

I understand what you are saying but, not I am not clear on the concept. If I understand it correctly, you give advice but only on the basis of continuation management?

However, if you provide advice, then the client has to ultimately make the decision to go with that advice? I understand you do not want to be responsible for ongoing performance of anything not of your choosing. However, is your approach not completely removing any decisions from the client - whose money it is at the end of the day!

The client is ok to overrule the adviser. Although many advisers will restrict the areas they can overrule for liability reasons.

What is the point of paying for advice if you are not going to follow it? Sure, there will be discussions that lead to an end point but if it ends up with you paying to DIY then that is largely a waste of money.

To give you an idea, providers can feed fund data into my back office software. That in turn volatility risk rates the portfolio and gives me the underlying assets for each fund including assets which are undisclosed or "other". Other being things that may be of concern. If I have no control over the investment advice, I cant control risk. I cant control service. If its a provider that doesnt feed info to IFAs then there is no control of data supply.

If someone wants ad hoc wrapper advice or ad-hoc shortfall analysis then that is fine. They can pay for it on an ad-hoc basis. However, there is no value in giving that an ongoing service. Those sort of things are better on a transactional basis and not an ongoing servicing basis.

saver861

dunstonh wrote: »

What is the point of paying for advice if you are not going to follow it? Sure, there will be discussions that lead to an end point but if it ends up with you paying to DIY then that is largely a waste of money.

True there is no point in paying for advice that you are not going to use, unless you suspect that advice is not reliable.

I suppose really it depends on the entry point knowledge of the client. Would an IFA prefer to deal with a client that has no knowledge of Financial Matters versus a client that has above layman's average knowledge? The former would be least resistance while the latter might suffer from the 'little bit of knowledge' syndrome.

dunstonh wrote: »

To give you an idea, providers can feed fund data into my back office software. That in turn volatility risk rates the portfolio and gives me the underlying assets for each fund including assets which are undisclosed or "other".

Yes and of course the IFA will have access to data that they DIY person will not. Clearly a client wanting to invest in something outside that range would be of concern to an IFA - I get that. On the other hand, given the data supplied to IFA's with risk analysis etc, most IFA's should come up with a relatively similar solution to a given scenario. I'm not sure that happens as frequently as it might do.

Taking that a bit further, the current 3% - 5% given by interest paying current accounts is certainly the best for any instant or short access, and probably outstrips many medium investment returns also. Whilst amounts are limited, nonetheless, its possible to max these to around £100,000 or so with zero risk.

How would an IFA deal with that scenario when a client wants to use that route versus potential investment funds from other providers given via the back office software? Is there not a potential conflict of interests? I know it is not necessarily that black and white but the general concept is there.

dunstonh

I suppose really it depends on the entry point knowledge of the client. Would an IFA prefer to deal with a client that has no knowledge of Financial Matters versus a client that has above layman's average knowledge? The former would be least resistance while the latter might suffer from the 'little bit of knowledge' syndrome.

I think an adviser prefers someone between the two. Someone that wants to know the basics and have an understanding is better than someone that just says "tell me where to sign". Someone that is too much involved can often want to do trading or things that an IFA is not able to do.

How would an IFA deal with that scenario when a client wants to use that route versus potential investment funds from other providers given via the back office software? Is there not a potential conflict of interests? I know it is not necessarily that black and white but the general concept is there.

Something like that would be an ad-hoc fee rather than ongoing.

saver861

dunstonh wrote: »

Something like that would be an ad-hoc fee rather than ongoing.

Yes - but in this hypothetical situation, currently the best advice might be to max out these interest paying current accounts. However, the better business for the IFA is to have the on-going management fees.

So does the IFA advise the lesser beneficial option for the IFA, albeit with an ad-hoc fee, or does the IFA try to persuade the ongoing investment option, which might slightly less beneficial to the client, is the better route?

My own suspicion is that the IFA will still try to persuade the option that benefits the IFA - unless the disparity is too great.

dunstonh

So does the IFA advise the lesser beneficial option for the IFA, albeit with an ad-hoc fee, or does the IFA try to persuade the ongoing investment option, which might slightly less beneficial to the client, is the better route?

It doesnt really work like that. People dont ask IFAs for various savings rates. Plus, the vast majority of deposit takers will not transact via IFAs. Effectively, you separate out how much to keep in cash and how much to invest and focus on the investment side.

saver861

dunstonh wrote: »

It doesnt really work like that. People dont ask IFAs for various savings rates. Plus, the vast majority of deposit takers will not transact via IFAs. Effectively, you separate out how much to keep in cash and how much to invest and focus on the investment side.

I think my point is taking someone with £100k looking to get best returns and looking for advice from an IFA. In the current market, the high interest current accounts will have many positive aspects when compared to other investment models that might be recommended by an IFA.

In the past, it was clear cut that you could never get the returns from savings/instant access/current accounts that you could from an investment model.

So, as it stands, maxing out current accounts with £100k will bring in over 3% average, no risk and instant access.

So an IFA dealing with a client with little or modest knowledge of financial matters, advises the client if you invest in a, b and c funds the potential returns are x%, risk is y% and my charges are z £'s.

Would that same IFA in the same meeting, not also advise the client that, actually, if you currently max out the high paying current accounts with your £100k you will get 3% plus interest with no risk etc. Obviously, that route would be less beneficial for the IFA as opposed to investment of the £100k and on-going management fees.

gadgetmind

saver861 wrote: »

So, as it stands, maxing out current accounts with £100k will bring in over 3% average, no risk and instant access.

Which is fine for someone with a short investment window (<10 years) or for a longer period as part of a portfolio, but it's at the *very* bottom end of investment returns over 10+ years, and can't hold a candle to 20+ years.

Don't get me wrong, we have a well-stuffed 123 account, and loads of NS&I index linked bonds, but the other 90+ of our investments are in balanced equity/bond portfolios with about 75% in equities (and some of the rest in what some might regards as being "more equities"!)

dunstonh

In the past, it was clear cut that you could never get the returns from savings/instant access/current accounts that you could from an investment model.

And little has changed on that front.

So, as it stands, maxing out current accounts with £100k will bring in over 3% average, no risk and instant access.

You dont invest money to get 3%.

Would that same IFA in the same meeting, not also advise the client that, actually, if you currently max out the high paying current accounts with your £100k you will get 3% plus interest with no risk etc.

If the person has a very low risk profile, low capacity for loss and short term then that is fine.

Obviously, that route would be less beneficial for the IFA as opposed to investment of the £100k and on-going management fees.

IFAs turn away people all the time telling them not to invest and stick with savings and dont charge them a penny. If that person wants the IFA to source the savings accounts then the charge would be the same. If that person wanted an annual review then that person would be charged.

saver861

gadgetmind wrote: »

Which is fine for someone with a short investment window (<10 years) or for a longer period as part of a portfolio, but it's at the *very* bottom end of investment returns over 10+ years, and can't hold a candle to 20+ years.

Of course it is all relative - equally though it would depend on which 10 or 20 year period you are looking at.

The markets from 1960 to 1980 were averaging at around 6% per year. The twenty year period from 1980 to 2000 averaging 18% per year - and that included the 1987 crash. The 2000's averaging just 1% per year - obviously impacted by 2001 and 2008.

The performance for 2010 to 2014 is averaging over 12% per year but the 20 year period from 2000 to 2020 will be similar to 1960 - 1980 assuming movement continues in the same vein as the last four of five years.

dunstonh wrote: »

You don't invest money to get 3%.

No - certainly not in an ideal situation. As described above, depending on the time spans, certainly in the 80's and 90's 3% would be dwarfed. However, in the 2000's I'm betting there are some out there who would have been happy to average 3% !!!

dunstonh wrote: »

If the person has a very low risk profile, low capacity for loss and short term then that is fine.

Well assuming investments are for minimum 5 years then it becomes a balancing act from there on.

I'm guessing there is lots of research out there on attitudes to risk. I would be amazed if the attitude to risk has not changed though, given the 01 and 08 crashes. The crash in 87 barely dented the average returns for that decade - whilst the crashes in 01 and 08 definitely did for that decade.

Aegis

gadgetmind wrote: »

Isn't a signed HNWI form pretty much a "get out of jail free"?

(Oh, and I suspect my "H" wasn't "H" enough for him!)

Not at all, the HNWI form only declares that you have earnings of £100k per annum or investable assets of £250k or more outside pensions and insurance. It is an exception to the general prohibition for marketing unregulated schemes, but it does not release the adviser from having to check that a) the scheme is suitable for investment in the first place and b) that the scheme is suitable for the client they promote it to.

Clients can still complain about the suitability of the advice, though the HNWI declaration may count against them with the Ombudsman (e.g. if the only complaint is that the investment could not have been marketed to them legally in the first place). Otherwise all retail client protections and requirements remain as usual.