We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Evaluating an Initial IFA Meeting
Options
HSVX
Posts: 35 Forumite
I sat in on a meeting with my parents and an IFA, as I am more financially savvy than they are, and I just wanted to listen to the advice they were being given and check that it wasn't very misleading or anything.
The company the IFA works for is a small, independently owned financial advisory company and the firm seems to have a decent track record, having been going for the last 50 years. I basically just wanted to hear from any of you that are more experienced with IFAs, whether what the guy said, and his fees are reasonable. As a bit of background my parents will have around £400k cash to invest, as well as a SIPP worth around £250k, with the idea of generating income while preserving as much of the initial pot as is possible.
The SIPP is currently being managed by another small firm and seems to have under performed against the benchmark (it seems to be some sort of diverse absolute return fund, it's returned around 22% in the last 4 years), so he said he would go away and investigate that and see if it's any good. He said if the SIPP was moved to his company, there would be a one-off fee of 2.5% of the value. For any other cash that would be deposited in a 'lump sum', the one off fee would be 2% of the total. These charges supposedly cover establishing goals, gathering data, analysis, discussion of detailed recommendations, and implementation etc.
Furthermore, if the SIPP was moved to them (as well as any other money), there would be a fee of 0.5% PA for an "ongoing review, advice and implementation" service. On top of this, there would be another fee for investment management, ranging from 0.1% for a passive portfolio, up to 0.5% + VAT for discretionary investment (this is the one the IFA seemed most keen to talk about, for obvious reasons).
So basically, the fees are going to be around 2-2.5% of the initial investment, and up to 1.1% yearly, before platform costs and fund charges are considered. The company uses the Standard Life and AXA Elevate platforms. I had a look at these and the platform fees seem quite high (but not extortionate), up to around 0.6%.
The IFA proposed producing a cash flow model to work out the amount of income that would need to be generated, considering when state pensions would kick in, kids leaving home etc. which seemed sensible, and also said he would investigate the pension further and come up with a sort of proposition in a few weeks when there would be another meeting. He gave my parents the standard risk assessment questionnaires to fill and using this, would put the money into one or more of the portfolios they have (ranging from cautious to adventurous), which they construct themselves on these platforms from well-known funds like Woodford, Jupiter, etc. (for the discretionary service). Their funds seem to have performed well, and compared to peers are ranked between the top decile and second quartile for all their portfolios.
Sorry it's getting a bit long, but trying to be detailed...
I basically want to hear what you think about the above. My parents love the idea of giving all of their money to someone to look after and produce a return from, at the moment a lot of their money is sat in cash doing nothing, and they are not overly willing to start making portfolio decisions themselves. So it strikes me that the IFA's proposition seems reasonable at a glance, but I'd like to hear your thoughts... They are quite risk averse, but I would be more keen for them to look more at the passive side of things. Should there in theory be a passive portfolio that is still quite defensive and has more of an absolute return nature? (My parents would need to generate a reasonable income from this money, and can't afford to take high levels of risk as a result, so they will probably be considered "cautious").
Thanks!
The company the IFA works for is a small, independently owned financial advisory company and the firm seems to have a decent track record, having been going for the last 50 years. I basically just wanted to hear from any of you that are more experienced with IFAs, whether what the guy said, and his fees are reasonable. As a bit of background my parents will have around £400k cash to invest, as well as a SIPP worth around £250k, with the idea of generating income while preserving as much of the initial pot as is possible.
The SIPP is currently being managed by another small firm and seems to have under performed against the benchmark (it seems to be some sort of diverse absolute return fund, it's returned around 22% in the last 4 years), so he said he would go away and investigate that and see if it's any good. He said if the SIPP was moved to his company, there would be a one-off fee of 2.5% of the value. For any other cash that would be deposited in a 'lump sum', the one off fee would be 2% of the total. These charges supposedly cover establishing goals, gathering data, analysis, discussion of detailed recommendations, and implementation etc.
Furthermore, if the SIPP was moved to them (as well as any other money), there would be a fee of 0.5% PA for an "ongoing review, advice and implementation" service. On top of this, there would be another fee for investment management, ranging from 0.1% for a passive portfolio, up to 0.5% + VAT for discretionary investment (this is the one the IFA seemed most keen to talk about, for obvious reasons).
So basically, the fees are going to be around 2-2.5% of the initial investment, and up to 1.1% yearly, before platform costs and fund charges are considered. The company uses the Standard Life and AXA Elevate platforms. I had a look at these and the platform fees seem quite high (but not extortionate), up to around 0.6%.
The IFA proposed producing a cash flow model to work out the amount of income that would need to be generated, considering when state pensions would kick in, kids leaving home etc. which seemed sensible, and also said he would investigate the pension further and come up with a sort of proposition in a few weeks when there would be another meeting. He gave my parents the standard risk assessment questionnaires to fill and using this, would put the money into one or more of the portfolios they have (ranging from cautious to adventurous), which they construct themselves on these platforms from well-known funds like Woodford, Jupiter, etc. (for the discretionary service). Their funds seem to have performed well, and compared to peers are ranked between the top decile and second quartile for all their portfolios.
Sorry it's getting a bit long, but trying to be detailed...
I basically want to hear what you think about the above. My parents love the idea of giving all of their money to someone to look after and produce a return from, at the moment a lot of their money is sat in cash doing nothing, and they are not overly willing to start making portfolio decisions themselves. So it strikes me that the IFA's proposition seems reasonable at a glance, but I'd like to hear your thoughts... They are quite risk averse, but I would be more keen for them to look more at the passive side of things. Should there in theory be a passive portfolio that is still quite defensive and has more of an absolute return nature? (My parents would need to generate a reasonable income from this money, and can't afford to take high levels of risk as a result, so they will probably be considered "cautious").
Thanks!
0
Comments
-
He said if the SIPP was moved to his company, there would be a one-off fee of 2.5% of the value. For any other cash that would be deposited in a 'lump sum', the one off fee would be 2% of the total.
The percentages quoted do not sound bad till you actually work out the monetary cost. For the SIPP it would be £6250 and for the £400k cash it would be £8000 so total of £14,250.
Fra too expensive in my opinion. You should be able to get far lower. So either ask for a Fixed Fee or get a cap on those percentages.Furthermore, if the SIPP was moved to them (as well as any other money), there would be a fee of 0.5% PA for an "ongoing review, advice and implementation" service.
That's what I would expect for a portfolio of that size so no issue there.On top of this, there would be another fee for investment management, ranging from 0.1% for a passive portfolio, up to 0.5% + VAT for discretionary investment (this is the one the IFA seemed most keen to talk about, for obvious reasons).
The discretionary investment management is a choice to make. I don't use that so will not comment.So basically, the fees are going to be around 2-2.5% of the initial investment, and up to 1.1% yearly, before platform costs and fund charges are considered. The company uses the Standard Life and AXA Elevate platforms. I had a look at these and the platform fees seem quite high (but not extortionate), up to around 0.6%.
Don't know about Standard Life but Axa Elevate would charge 0.28% on a portfolio of £650k - no problem with that.He gave my parents the standard risk assessment questionnaires to fill and using this, would put the money into one or more of the portfolios they have (ranging from cautious to adventurous), which they construct themselves on these platforms from well-known funds like Woodford, Jupiter, etc. (for the discretionary service). Their funds seem to have performed well, and compared to peers are ranked between the top decile and second quartile for all their portfolios.
Nothing wrong with what they are doing although perhaps it could be better to have a portfolio constructed to fit them rather than them fitting the portfolio.0 -
The SIPP is currently being managed by another small firm and seems to have under performed against the benchmark (it seems to be some sort of diverse absolute return fund, it's returned around 22% in the last 4 years), so he said he would go away and investigate that and see if it's any good.
You cant really measure absolute funds by a benchmark as the sector they are in covers a wide risk band. So, a low risk version would typically be "underperforming" a high risk one in a growth period.He said if the SIPP was moved to his company, there would be a one-off fee of 2.5% of the value.
This is high against a value of 250k. personal pension to personal pension would be expected to be around £1000-£1500 . However do note that prestige firms and city firms are likely to charge more than rural firms.Furthermore, if the SIPP was moved to them (as well as any other money), there would be a fee of 0.5% PA for an "ongoing review, advice and implementation" service. On top of this, there would be another fee for investment management, ranging from 0.1% for a passive portfolio, up to 0.5% + VAT for discretionary investment (this is the one the IFA seemed most keen to talk about, for obvious reasons).
That is in the more typical range. Not sure why it would be obvious for the IFA to be keen to talk about discretionary management over any other option. What does tend to happen is that some IFAs prefer to use discretionary investment management firms and some prefer not to. Personally, I am not a fan as it just seems to create a new layer of charges. However, like most investing, it is about opinion.The company uses the Standard Life and AXA Elevate platforms. I had a look at these and the platform fees seem quite high (but not extortionate), up to around 0.6%.
Not sure where you are getting your charges from. AXA Elevate would be 0.28%. Its a good platform. I'm not so keen on Standard Life but again, its like choosing a supermarket to buy from.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 -
The percentages quoted do not sound bad till you actually work out the monetary cost. For the SIPP it would be £6250 and for the £400k cash it would be £8000 so total of £14,250.
Fra too expensive in my opinion. You should be able to get far lower. So either ask for a Fixed Fee or get a cap on those percentages.
That's what I would expect for a portfolio of that size so no issue there.
The discretionary investment management is a choice to make. I don't use that so will not comment.
Don't know about Standard Life but Axa Elevate would charge 0.28% on a portfolio of £650k - no problem with that.
Nothing wrong with what they are doing although perhaps it could be better to have a portfolio constructed to fit them rather than them fitting the portfolio.
Thanks for the comments. Do you think that because they put their clients money primarily into one of their 6 cautious to adventurous fund of funds as it were, that it makes their fees harder to justify (rather than providing a bespoke portfolio for each client)?
Saying that, it sounds like they put significant resources into in-house fund analysis and have analysts etc., so it has to be paid for somehow. I agree the overall fees seem high and hope it would be possible to negotiate some sort of fixed fee.0 -
You cant really measure absolute funds by a benchmark as the sector they are in covers a wide risk band. So, a low risk version would typically be "underperforming" a high risk one in a growth period.
This is high against a value of 250k. personal pension to personal pension would be expected to be around £1000-£1500 . However do note that prestige firms and city firms are likely to charge more than rural firms.
That is in the more typical range. Not sure why it would be obvious for the IFA to be keen to talk about discretionary management over any other option. What does tend to happen is that some IFAs prefer to use discretionary investment management firms and some prefer not to. Personally, I am not a fan as it just seems to create a new layer of charges. However, like most investing, it is about opinion.
Not sure where you are getting your charges from. AXA Elevate would be 0.28%. Its a good platform. I'm not so keen on Standard Life but again, its like choosing a supermarket to buy from.
Thanks for the comments. The first one is especially interesting and seems obvious now you have said it. Will wait to see what the IFA's analysis of the SIPP brings...
I think it probably is considered to be more of a prestigious firm which might be why the costs are higher.
The discretionary management this firm offers is actually in house, but they do have alternative options like the passive one I mentioned. How should risk levels and objectives be evaluated against possible active/passive investment strategies?
Also, is it common for companies like this to charge a fee when moving cash over to them? I don't really understand that as I would have thought the admin involved would be far less than moving something like a SIPP....0 -
Thanks for the comments. Do you think that because they put their clients money primarily into one of their 6 cautious to adventurous fund of funds as it were, that it makes their fees harder to justify (rather than providing a bespoke portfolio for each client)?
Not really - different firms operate in different ways. The fees are for the IFA's advice - they aren't investment managers.
Personally I would just have expected a more bespoke portfolio for that amount.0 -
Not really - different firms operate in different ways. The fees are for the IFA's advice - they aren't investment managers.
Personally I would just have expected a more bespoke portfolio for that amount.
In this case, the financial advice and investment management is sort of rolled into one. They are an investment manager for their clients (they only advise individuals) as well as providing investment advice. That's why the fees are broken down the way they are.0 -
I think it's absolutely obscene but you pays your money you takes your choice.0
-
Also, is it common for companies like this to charge a fee when moving cash over to them? I don't really understand that as I would have thought the admin involved would be far less than moving something like a SIPP....
It is. However, the amounts will vary. If you are on an ongoing service with the IFA, then the IFA is more likely to reduce or even waive the initial charge as the value to them is the ongoing servicing charge. You are effectively paying for two services here. 1 is the initial advice and implementation. 2 is the ongoing advice and implementation of that advice (i.e. bed & ISA, rebalancing, ongoing due diligence and research, changes in legislation changing the plans to reflect it etc).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 -
In this case, the financial advice and investment management is sort of rolled into one. They are an investment manager for their clients (they only advise individuals) as well as providing investment advice. That's why the fees are broken down the way they are.
Yes I realise that.
However what I meant was that some firms will offer more for their clients within their standard 0.5% ongoing fee, than just 6 portfolios to fit into.0 -
The SIPP is currently being managed by another small firm and seems to have under performed against the benchmark (it seems to be some sort of diverse absolute return fund, it's returned around 22% in the last 4 years), so he said he would go away and investigate that and see if it's any good. He said if the SIPP was moved to his company, there would be a one-off fee of 2.5% of the value. For any other cash that would be deposited in a 'lump sum', the one off fee would be 2% of the total. These charges supposedly cover establishing goals, gathering data, analysis, discussion of detailed recommendations, and implementation etc.
Moving SIPPs or investments between IFAs and attracting fees for the move just seems a crazy situation that will eat into your returns hugely.
If you have already paid for advice on that money I can't see the logic in paying someone else to do the same job again.
As per the above comments the percentages do seem very high when converted into absolute numbers of pounds.
Having said that, for someone who has no interest in managing their money it might still be a viable option for the portion not in a SIPP already. I'd be very wary about moving money already being looked after by another IFA.Remember the saying: if it looks too good to be true it almost certainly is.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 351K Banking & Borrowing
- 253.1K Reduce Debt & Boost Income
- 453.6K Spending & Discounts
- 244K Work, Benefits & Business
- 598.9K Mortgages, Homes & Bills
- 176.9K Life & Family
- 257.3K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards