Evaluating an Initial IFA Meeting

HSVX

jimjames wrote: »

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.

The SIPP was set up by my father many years ago and he didn't know much about it at the time. The SIPP (which was originally a workplace pension but was then transferred) is basically in a single multi-fund absolute return sort of investment, that it has stayed in since inception, the money isn't being moved or managed by an IFA as such. I just worry that the fund it's in isn't any good, but having said that, if, after more analysis it looks OK then I guess it would stay there.

It seems like there would have to be a discussion about some sort of fixed fee for moving initially large amounts of capital over to this company with regard to the fees. We didn't have a discussion about fee negotiating in the meeting so I am just going on what the company usually charges for these amounts of assets.

I am trying to encourage my parents to take more of an active role in managing their money, but I am wise to the fact it will take a lot of research and time commitment, particularly with regards to building a portfolio of the right risk/reward level that can generate the capital they need.

jem16

HSVX wrote: »

The SIPP was set up by my father many years ago and he didn't know much about it at the time. The SIPP (which was originally a workplace pension but was then transferred)

What kind of workplace pension was it - Defined Benefit or defined Contribution?

HSVX

jem16 wrote: »

What kind of workplace pension was it - Defined Benefit or defined Contribution?

I think he got contribution from his employer for some years but it definitely wasn't defined benefit. I believe he always had control over who was managing it and not very much was organised by the employer.

Aegis

jem16 wrote: »

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.

Agreed. My standard fee for this sort of work would be under half of this figure and I work in Central London. Definitely possible to get a lot cheaper than this.

HSVX

Aegis wrote: »

Agreed. My standard fee for this sort of work would be under half of this figure and I work in Central London. Definitely possible to get a lot cheaper than this.

Interesting to hear, thanks.
Is it just the initial figures that seem very high to you? Is the ongoing fee of 1.1% (for ongoing advice, investment management etc.) close to what you would expect (as others have indicated)?

Aegis

HSVX wrote: »

Interesting to hear, thanks.
Is it just the initial figures that seem very high to you? Is the ongoing fee of 1.1% (for ongoing advice, investment management etc.) close to what you would expect (as others have indicated)?

My own fees are a little different as I tend to use portfolios with discretionary mandates for most clients rather than picking funds myself. These come in with total annual charges from 0.6% to 2.0% depending on the level of sophistication the client wants. Assuming my clients are happy with this, I usually monitor the portfolio for a fee of 0.25% per annum or thereabouts with a fixed annual fee depending on the number of meetings the client wants.

1% plus VAT is fairly common for a combination of financial advice and discretionary management fees, but bear in mind that this almost certainly doesn't include the cost of the investments and, depending on how the IFA firm has set itself up, may also not include platform or dealing fees. With a proper discretionary management firm you should be able to get at least the platform fee built in to the annual fees, meaning only the dealing fees and any costs associated with the underlying investments are separately charged.

As an example, if the firm is using a platform at 0.25% charges with no dealing fees and a blend of active funds averaging annual charges of 0.75%, then the total annual costs would be:

Advice fee: 0.50% + VAT
Discretionary management fee: 0.50% + VAT
Platform fee: 0.25%
Underlying investment fee: 0.75%
TOTAL: 2.20%

This may well be acceptable to you, but at least if you ask for all of this information up front you know the full fee basis before making any decision.

HSVX

Aegis wrote: »

My own fees are a little different as I tend to use portfolios with discretionary mandates for most clients rather than picking funds myself. These come in with total annual charges from 0.6% to 2.0% depending on the level of sophistication the client wants. Assuming my clients are happy with this, I usually monitor the portfolio for a fee of 0.25% per annum or thereabouts with a fixed annual fee depending on the number of meetings the client wants.

1% plus VAT is fairly common for a combination of financial advice and discretionary management fees, but bear in mind that this almost certainly doesn't include the cost of the investments and, depending on how the IFA firm has set itself up, may also not include platform or dealing fees. With a proper discretionary management firm you should be able to get at least the platform fee built in to the annual fees, meaning only the dealing fees and any costs associated with the underlying investments are separately charged.

As an example, if the firm is using a platform at 0.25% charges with no dealing fees and a blend of active funds averaging annual charges of 0.75%, then the total annual costs would be:

Advice fee: 0.50% + VAT
Discretionary management fee: 0.50% + VAT
Platform fee: 0.25%
Underlying investment fee: 0.75%
TOTAL: 2.20%

This may well be acceptable to you, but at least if you ask for all of this information up front you know the full fee basis before making any decision.

Thanks for the breakdown, makes it very clear. I will make sure a full discussion on fees is had so it is crystal clear before any service is mandated!

noggin1980

650k with 3% initial charge and 2% annual charge at 7% increase per year over 30 years =2.63mill
650k at 0.5% annual charge at 7% increase per year over 30 years =4.26mill

sandsy

Noggin, don't forget the funds will be drawn down to provide a retirement income.

I have concerns with the accumulation of ongoing fees to a level of 2.2% because by the time you allow for inflation of say 2.5%, you need to be achieving a return of 4.7% just for the pot to stand still in real terms. Generally, people invest to do better than stand still but the requirement to produce an income whilst preserving the pot as far as possible does place a constraint on the investment strategy, irrespective of any other risk attitude that emerges.

Aegis

sandsy wrote: »

Noggin, don't forget the funds will be drawn down to provide a retirement income.

I have concerns with the accumulation of ongoing fees to a level of 2.2% because by the time you allow for inflation of say 2.5%, you need to be achieving a return of 4.7% just for the pot to stand still in real terms. Generally, people invest to do better than stand still but the requirement to produce an income whilst preserving the pot as far as possible does place a constraint on the investment strategy, irrespective of any other risk attitude that emerges.

I'd be inclined to agree with the sentiment - cutting costs is quite important when managing funds. That said, there are certain circumstances where higher costs become justifiable. In drawdown, for example, stability of the portfolio becomes more important than keeping the costs down due to the negative impact of pound-cost-averaging on an income-generating portfolio. In addition, it's worth bearing in mind that even if you pick active funds at random they tend to perform broadly as well on average as passive funds in the same sector, so certain costs don't have the full drag on performance that is often cited, i.e. reducing overall cost is not the be all and end all of performance for all cost reductions. If you believe that even marginally above-average performers can be regularly picked - which certainly seems to be the case for some reputable research teams - then active management can be expected to cover its own cost.

I like passive portfolios as accumulation strategies because they're easy to understand and the extra volatility makes for good pound-cost averaging opportunity, but I'd generally prefer to put clients into something with a little more active stock selection for drawdown in the hope of reducing the volatility.