Paying Ongoing Advisor Charges

jem16

Al. wrote: »

Out of the 0.79%, I am paid 0.34%.

Ok thanks - so a little cheaper than advisers charging 0.5%pa.

My (typically) 0.65% per annum is for my (other) conventional face to face service

No I realise that. However if it's 0.65% of £50k it's better value than 0.65% of £250k which is why I asked if it was across the board but you didn't answer on that one.

An adviser who offers 1% for portfolios less than £100k and 0.5% for above could be better value.

I do think advice will become free, or as near as damnit. I can see my Fiver a day service reducing in cost further, to 0.48% or so.

If all you did was robo advising would you be able to sustain that level of charging? In other words is there any element of cross subsidy with your face-to-face clients?

It isn't a race to the bottom, and business can still be profitable. But we have to be a) smart) and b) pragmatic. The 1980s/1990s/2000s days of financial services excesses are over (I only came into this in 2008, great timing, right?) and the likes of Hargreaves etc which have 'x' billion under management costed at 2% pa or so might well end up with a nasty hangover.

I suppose you've got to consider what is in a portfolio that is charging 2%pa. It's unlikely to be purely tracker funds as I suspect any portfolio at 0.48% would be based on. Now I'm not advocating active vs passive but you do have to compare like with like. Whilst I agree HL's advised service is expensive I daresay it would be less than 2%pa if they used solely trackers.

But you are correct - the business has to be profitable. So overhead costs, compliance costs, liability insurance etc have to be taken into account. The adviser has to make some profit otherwise he wouldn't be in business for long.

masonic

jem16 wrote: »

I suppose you've got to consider what is in a portfolio that is charging 2%pa. It's unlikely to be purely tracker funds as I suspect any portfolio at 0.48% would be based on. Now I'm not advocating active vs passive but you do have to compare like with like. Whilst I agree HL's advised service is expensive I daresay it would be less than 2%pa if they used solely trackers.

I daresay that HL do not solely use trackers in their advisory service (I'd be surprised if they used them at all). So the comparison should be not be like with like if customers are going to be pushed into more expensive funds by HL. The comparison should be based on the costs of the funds actually recommended, since the customer is relinquishing their option to choose active vs passive for themselves.

nb73

I don't like the % charge model. Surely work done is work done, independent of the size of funds being managed. I'm happy to pay my financial advisor a flat hourly rate or a fixed fee but not a %.

dunstonh

I don't like the % charge model. Surely work done is work done, independent of the size of funds being managed.

There is more work done with larger portfolios but also the risk increases with larger ones too. Plus, many of the adviser charges are percentage based too (e.g. FCA, FSCS, FOS etc).

I'm happy to pay my financial advisor a flat hourly rate or a fixed fee but not a %.

Hourly rate is the least popular consumer method.

bigadaj

dunstonh wrote: »

Hourly rate is the least popular consumer method.

In most areas of professional consultancy hourly rate charging has superseded percentage costs because of the apparent clarity and traceability.

I've worked as a consulting engineer for over 25 years and percentage fees had disappeared before I started, similarly for architects, solicitors in most cases etc. Even for estate agents then it's not as prevalent as it used to be.

There is a difference when dealing with the public rather than companies but personally, and this could be my engineering contract side, I want to see what I'm paying for and how that has been achieved. Hourly rate is risky for many consumers if they don't have the confidence to challenge where necessary and also don't have any idea of the work that is being done or shop around or have historic or guidance figures, hourly rate should also be constrained by budget estimates for most specific and well defined work packages in most instances.

jem16

masonic wrote: »

So the comparison should be not be like with like if customers are going to be pushed into more expensive funds by HL. The comparison should be based on the costs of the funds actually recommended, since the customer is relinquishing their option to choose active vs passive for themselves.

Taking advice should not mean relinquishing all options to the adviser. If you want an all passive approach then tell the adviser that.

Cheapest isn't necessarily best but then neither is dearest.

masonic

jem16 wrote: »

Taking advice should not mean relinquishing all options to the adviser. If you want an all passive approach then tell the adviser that.

Cheapest isn't necessarily best but then neither is dearest.

I think it would be much better for the individual to identify an advisor who shares their preference for a passive approach if that is what they want. Turning to a service like that provided by HL, and then insisting you don't want to invest in their MM funds or Wealth 150 funds is likely to lead to an inferior result than going to an advisor who specialises in constructing passive portfolios for clients. In practice, I rather suspect the vast majority of HL's advisory clients have accepted whatever portfolio has been suggested to them.

jem16

masonic wrote: »

I think it would be much better for the individual to identify an advisor who shares their preference for a passive approach if that is what they want.

Absolutely which is why seeing maybe 2/3 advisers to start with would be a good idea.

Turning to a service like that provided by HL, and then insisting you don't want to invest in their MM funds or Wealth 150 funds is likely to lead to an inferior result than going to an advisor who specialises in constructing passive portfolios for clients. In practice, I rather suspect the vast majority of HL's advisory clients have accepted whatever portfolio has been suggested to them.

Personally I wouldn't choose HL's advisory service as it always had the reputation for being expensive and using its own in-house funds. Now they have dropped their IFA status and gone Restricted it's probably even more likely that just their own funds will be used.

dunstonh

In most areas of professional consultancy hourly rate charging has superseded percentage costs because of the apparent clarity and traceability.

Yet solicitors and accountants are moving away from hourly too. Fixed fee is by far the most popular.

Other professions do not have a fairness aspect applied to their fees. So, they may have a fixed charge that everyone pays. Advisers can have a fixed charge but have to consider fairness and reduce the charge (or refuse the business) if the charge could be considered too high for the amount being invested.

One big difficulty with hourly rates is calculating the time the work took. The other day I started on a case first thing in the morning and was working on it all day and didnt finish it that day. Not because the work would take that long but because of constant interruptions. You cant just sit there and dedicate x hours of time to someone.

Many advisers work late into the night. So, you do have an evening rate and a daytime rate? Same with Saturday and Sunday work.

Al.

jem16 wrote: »

Ok thanks - so a little cheaper than advisers charging 0.5%pa.



No I realise that. However if it's 0.65% of £50k it's better value than 0.65% of £250k which is why I asked if it was across the board but you didn't answer on that one.

An adviser who offers 1% for portfolios less than £100k and 0.5% for above could be better value.



If all you did was robo advising would you be able to sustain that level of charging? In other words is there any element of cross subsidy with your face-to-face clients?



I suppose you've got to consider what is in a portfolio that is charging 2%pa. It's unlikely to be purely tracker funds as I suspect any portfolio at 0.48% would be based on. Now I'm not advocating active vs passive but you do have to compare like with like. Whilst I agree HL's advised service is expensive I daresay it would be less than 2%pa if they used solely trackers.

But you are correct - the business has to be profitable. So overhead costs, compliance costs, liability insurance etc have to be taken into account. The adviser has to make some profit otherwise he wouldn't be in business for long.

Jem,

I'll reply to you privately if you don't mind.

All the best.