Is a Financial Adviser worthwhile for investments (and when)?

JimmyTheWig

Someone should invent an "investment knowledge test" to test how much you know about investing.
Your score could then be translated into a percentage of your investment pot that an advisor could improve for you.

racing_blue

JimmyTheWig wrote: »

In my case it turns out my blind spots were quite obvious.

Just spots then?

dunstonh

I had thought that an adviser would have been able to beat the market in terms of expected value. But I accept Monevator's stance that that isn't possible - not for the likes of adviser I could afford, anyway!

Monevator is wrong. I have plenty of portfolios that are exceeding benchmark. It is possible. However, no adviser can guarantee it and sometimes you may be under, sometimes over. Sometimes individual funds may underperform, some out perform. You just dont know in advance.

Exactly. And you'd be paying for that 50% chance of beating average!

Not really. You would eliminate the closet trackers and the bank funds.

I just did a portfolio review that had 10 funds. 6 are managed, 4 are trackers. 4 of the 6 managed funds are above average.

Did I get lucky, was it down to research, was it down to timing... It could any of those but most likely a combination. Just as poor research, poor timing and being unlucky could give the reverse.

The key thing an adviser does though is research, due diligence and suitability. For most consumers a 100% worldwide equity tracker would not be suitable.

That said, i dont think an adviser could offer much short term benefit because the fee would take some years to recover. They could certainly improve what you have and if you had you sought advice 5 years ago, you would probably be better off now because of it. But now you know your products are old and not very good, you can do something about it.

noggin1980

dunstonh wrote: »

Monevator is wrong. I have plenty of portfolios that are exceeding benchmark. It is possible. However, no adviser can guarantee it and sometimes you may be under, sometimes over. Sometimes individual funds may underperform, some out perform. You just dont know in advance.

monevator aren't wrong and they certainly don't say that active managed portfolios can't beat the benchmark just that on average over the long term they won't.

dunstonh wrote: »

Not really. You would eliminate the closet trackers and the bank funds.

if you eliminate closet trackers and bank funds the average of the funds left will still under perform the benchmark after charges.

dunstonh wrote: »

I just did a portfolio review that had 10 funds. 6 are managed, 4 are trackers. 4 of the 6 managed funds are above average.

thats hardly a shocking result, if you toss a coin 6 times having 4 heads is a very likely result.

How will the 4 funds that outperformed do next year? if the majority of the portfolios you are managing are outperforming the benchmark over many years after charges then you are doing something great.

dunstonh wrote: »

The key thing an adviser does though is research, due diligence and suitability. For most consumers a 100% worldwide equity tracker would not be suitable.

Sure but is working out the persons appetite for risk and building them a suitable portfolio worth the amount many advisors charge? I'm sure you will think so of course but I'm very sceptical

dunstonh wrote: »

That said, i dont think an adviser could offer much short term benefit because the fee would take some years to recover. They could certainly improve what you have and if you had you sought advice 5 years ago, you would probably be better off now because of it. But now you know your products are old and not very good, you can do something about it.

They certainty could improve what he has but then he's now with a few hours of reading gotten the knowledge to do so himself without being charged 3 % and another 0.5 a percent for the next 30 years or so.

TH1878

Glen_Clark wrote: »

If that is so then you don't need one. Rather like you don't need a car mechanic if you know how to fix your car. But if you don't then you are better off employing someone who does, or buying a book.
All the information is probably available free on the internet, But you have to wade through a great deal that is wrong, or biased, in order to find it.

One of the best posts I've read on here.

Being an IFA isn't rocket science but do you have the detailed tools (costing £000's, inclination or time to do it all yourself? I'm a competent DIYer but time is more important to me than money.

I'm a highly qualified adviser but I still pay someone else (ok, heavily discounted rates!) to provide advice to me and my immediate family. This isn't because of practical knowledge (as a Chartered Financial Planner) but more because 2 minds are better than one and, even as a professional, you can sometimes let emotions get in the way of better judgment.

If you can and are able to DIY, fill your boots, but personally speaking it's usually wise to get a second opinion especially when you've not made great decisions in the past (no offence to the OP but not many Santander investments will feature highly in any best buy lists!)

TH1878

JimmyTheWig wrote: »

Well, two days ago an IFA could have turned round and told me those things without me needing to google. But that would hardly have justified their fee!

I had thought that an adviser would have been able to beat the market in terms of expected value. But I accept Monevator's stance that that isn't possible - not for the likes of adviser I could afford, anyway!

What could an IFA do for me now?
Well, they could find or make a world equity index tracker for me.
And they could find the lowest percentage fee provider for me.
But again, I don't think that would justify their fee.


I think I've got my answer.

Jimmy,

One question:

Why is this money important to you?

You've told us what you think is a good investment etc but why is this money important to you?

Linton

The purpose of using an advisor is not to get an extra fraction of a % above the FTSE100 or whatever. What is far more important is that the investments are appropriate for your situation, requirements, timescales, and ability to cope with risk.

The main problem with using an advisor is that new investors who need this understanding the most usually dont have enough money to justify the costs of employing an advisor. So my advice would be to start with only investing a small amount of your total wealth and keep things simple. Go for a small number of general funds, whether they are trackers or managed doesnt matter much. Once you have say £20K-£50K invested you should have the experience to take more risks and be able to focus your portfolio to specific objectives. However if you are starting your investment journey with a £100K inheritance use an advisor.

justme111

Why would not worldwild equity tracker be suitable for most consumers ?

Linton

justme111 wrote: »

Why would not worldwild equity tracker be suitable for most consumers ?

If you have a life-affecting amount of money invested you can afford to take a lot more risk with some of it - so extra small companies, EM or whatever. On the other hand wealth preservation becomes more of an concern so you may want a certain amount in specialist funds in that sector. You may want more detailed control for other reasons.

In my case we drawdown steadily on about 40% of our assets and so want some level of future income protection. 20% is held in an income generating portfolio holding dividend paying UK shares with income focused funds covering the rest of the world. The rest is higher risk held for the long term. Working in this way means that one can easily implement strategic decisions for example to change the amount of income generated vs long term holdings or increase the security of the drawdown without affecting the long term investments.

In practice overall the long term return may not be very different to a global equity tracker or may even be less, but risk is greatly removed in the areas where it matters.

If you are a small investor whose future quality of life doesnt directly depend on your investments and you have no great interest in the details of investing something like an L&G multi-asset fund or a Vanguard LS of appropriate risk level would be fine. On the other hand it could be very useful to prepare yourself for the time when your investments really really matter.

noggin1980

justme111 wrote: »

Why would not worldwild equity tracker be suitable for most consumers ?

it is suitable for most people but alot of people wouldn't want all their money in equities this is especially true as you get closer to retirement, if you are in your 30's and the stock market drops 30% bummer but you can ride it out no problem and it might even be a good thing in the long run however if you are nearing retirement it might really mess up your plans, so you'd have half say half your money in equities and have in bonds so that 30% crash it's massively mitigated.

Also some people may wish to have their money in funds that produce bigger dividends for income rather than be hoping for their shares to go up in value again especially true in retirement.

Advisors can definitely be very useful I just don't think the costs are really justified in some situations and that it's ignorance in many cases that lets them get away with it, people don't realise the full effect high fees can have.