two different IFAs - which model is better?

gemma.zhang

Between me and my husband we have lumpsum of 90k in ISA to invest in funds, we are not comfortable to manage it ourselves due to lack of time & knowledge, hence would like to use IFA. recently met up two IFAs, they operate very differently.

IFA A - smaller firm, they charge 3% for initial setup, then 0.75% yearly management fee. he only provides advisory role and recommend fund to invest in. But the firm itself doesn't build up the portfolio, they just choose multi-asset funds like Cirilium and others.

IFA B - bigger firm, fixed setup fee ( much lower 500 rather than % ), however 1.1% + VAT yearly management, which includes advisory and portfolio management. the firm IFA works for does the portfolio allocation, and have its in-house researchers / analysts, portfolios have been performed really well since 2008.

I didn't put platform and fund charges here, as they are roughly the same.
From calculations, looks like long term (>4 yrs), it's cheaper to go with IFA A, but I do prefer IFA B personally. Performance wise, A & B's portfolios perform roughly the same, maybe 1-2% difference here and there since 2008, apart from Cirilium is a very well-established, however B's using in house portfolio modeling.

These are only two IFAs I have seen, both are recommended, have a few questions -
1. Is it normal to pay VAT for IFA?
2. Which model is better? or it doesn't really matter?
3. Any thing else I need to concern when choosing IFA?


Many Thanks again!

dunstonh

IFA A - smaller firm, they charge 3% for initial setup, then 0.75% yearly management fee. he only provides advisory role and recommend fund to invest in. But the firm itself doesn't build up the portfolio, they just choose multi-asset funds like Cirilium and others.

1 - Are you sure this is an IFA? Cirillum tends to be used by Old Mutual reps. it is open to IFAs but it is an Old Mutual Wealth fund used by Intrinsic agents (owned by OMW).
2 - 0.75% on that amount is not bad. 0.5% is more common but more on 100k plus.
3 - 3% is high (£2700). Especially on a pre-built solution involving simple wrappers (ISA & GIA). £500-£1000 should be a closer target

Nothing wrong with cirillium (never personally used it but very aware of it and not inclined to use it but investing is about opinion and whilst i would not use it, you would probably be fine using it as you would be with countless other options that you could use). Its a simplier option than IFA B.

IFA B - bigger firm, fixed setup fee ( much lower 500 rather than % ), however 1.1% + VAT yearly management, which includes advisory and portfolio management. the firm IFA works for does the portfolio allocation, and have its in-house researchers / analysts, portfolios have been performed really well since 2008.

1 - set up fee closer to expectation
2 - This sounds like discretionary investment management. This is more expensive and I am personally not a fan (especially not on just £90k).

1. Is it normal to pay VAT for IFA?

If the intention is to buy a product (even if you dont follow through) then its not vatable. However, parts of discretionary management can be.

2. Which model is better? or it doesn't really matter?

Ignoring price and given only the two options available here, I would be against discretionary management but its very much a personal opinion. They both do their job but I just feel its an extra cost for no obvious gain.

3. Any thing else I need to concern when choosing IFA?

Generalisation alert. Larger firms tend to have higher staff turnover. So, if you like a steady contact, you would ideally aim to get the owner/direct/partner as your adviser as they are less likely to move. A staff member IFA may not be there long term. So, maybe check with them how long they have been with that company.

Be comfortable with what you are doing and why. If you dont feel comfortable dont do anything until you are.

TheTracker

Lack of time. An interesting circumstance where one has too little time to manage the money you're making because you're too busy making money. There is an intersection point where the best use of some of your time is to manage your money.

May I ask who manages your credit cards and bills and so forth? I certainly spend significantly more time doing that than I do managing my investments.

And knowledge is just a function of time with this topic. Financial advice isn't rocket science.

Almost everyone replying to the post you made earlier this month, except the IFA, said you could go it alone because it's probably not as time consuming or difficult as you think. Not sure why it warrants a new post. I reckon you'd spend more time finding and hand wringing over an IFA than you'd need to actually invest the money sensibly.

gemma.zhang

TheTracker wrote: »

Lack of time. An interesting circumstance where one has too little time to manage the money you're making because you're too busy making money. There is an intersection point where the best use of some of your time is to manage your money.

May I ask who manages your credit cards and bills and so forth? I certainly spend significantly more time doing that than I do managing my investments.

And knowledge is just a function of time with this topic. Financial advice isn't rocket science.

Almost everyone replying to the post you made earlier this month, except the IFA, said you could go it alone because it's probably not as time consuming or difficult as you think. Not sure why it warrants a new post. I reckon you'd spend more time finding and hand wringing over an IFA than you'd need to actually invest the money sensibly.

Thanks for your reply and appreciate your point. Agree there is lots of time spent on looking and talking to IFA. I have been doing all the bills and stuffs, which is more machanic. However making decision on what and how much to invest money, also keep eyes on them regularly is what I find difficult and not comfortable with.

JohnRo

also keep eyes on them regularly is what I find difficult

There is no need to check an investment more often than once a year or so if rebalancing existing allocations. If it's a single multi asset fund then the rebalancing is done for you and even checking annually becomes unnecessary.

gemma.zhang

1 - Are you sure this is an IFA? Cirillum tends to be used by Old Mutual reps. it is open to IFAs but it is an Old Mutual Wealth fund used by Intrinsic agents (owned by OMW).
2 - 0.75% on that amount is not bad. 0.5% is more common but more on 100k plus.
3 - 3% is high (£2700). Especially on a pre-built solution involving simple wrappers (ISA & GIA). £500-£1000 should be a closer target

Nothing wrong with cirillium (never personally used it but very aware of it and not inclined to use it but investing is about opinion and whilst i would not use it, you would probably be fine using it as you would be with countless other options that you could use). Its a simplier option than IFA B.

Yes, it's a IFA. the guy is MD of the company, although it's a young company. They have an in house team doing strategy, work out what to buy.
I do find 3% high figure, hence hesitating + the guy is less approachable than B.

1 - set up fee closer to expectation
2 - This sounds like discretionary investment management. This is more expensive and I am personally not a fan (especially not on just £90k).

Could I ask why 'not on just £90k', is this more suitable for larger asset?
Are these two typical models IFA operate?

dunstonh

Could I ask why 'not on just £90k', is this more suitable for larger asset?

In IFA terms, 90k is not a big investment. it is in IFA territory but many IFAs have a minimum of £50k or £100k (or even £250k as I found recently with a potential client).

However, Discretionary management is, in my opinion, more suited to the the multi-hundreds of thousands of pounds investor. Not sub £100k where conventional unit linked investments fit perfectly (and at lower cost).

Are these two typical models IFA operate?

Depends on what you mean by models. You have transactional IFAs (pay by transaction rather than ongoing), servicing IFAs (such as ongoing reviews, rebalancing, bed & ISA etc and lifestyle planning IFAs who go much more in depth and provide cashflow forecasting over the long term and their service is more about planning and affording things in life rather than the product/investment side (which they still do but the focus is different).

As for investments, you have simple solutions which could be multi-asset fund solutions. These could be from fund houses or it could be from their linked compliance company (like Cirrilian). You could have model portfolios which use a selection of single sector funds to build a portfolio. Or you have discretionary investment management. You will find pros and cons with the different options but they all do the job they are required to do but in a different way. There are over 30,000 investment options available with near infinite number of variations. You will not get consensus on what option is best and a lot of the time, every option will have a period where that option is better than others. You can certainly get it wrong (such as picking single sector funds and not having any balance or investing above risk profile or using unregulated investments). However, neither of the options mentioned to you or the other typical options are wrong.

Some IFAs have target markets and price themselves for that market and effectively price themselves uncompetitively for the market they are not interested in.

On the servicing side, I would check that the ongoing charge for servicing includes all servicing (rebalance, bed & ISA etc) and that those things do not incur extra cost. Most will include them but some dont.

gemma.zhang

Thanks everyone for your kind advice and replies! Definitely learn a lot. We're still in two minds between using: DIY investing into multi-asset funds like Cirilium or Vanguard which does re-balancing; or go via IFA B.