Finding an IFA.

BananaRepublic

To follow on, we are reliably informed by an IFA that most IFAs do not have to advertise because they get trade by word of mouth as they are so good. The first one I met was a pension advisor acting for the company I worked for. As soon as he heard I was leaving to work on a high paid contract he was all over me like a rash. His manner became unctuous, and ingratiating. I extracted myself from his presence sas soon as I could. The second one I dealt with was introduced to me by my accountant. This is standard practice in many trades. The benefit to the accountant is a commission from the IFA. This happens in many other areas. A job agent will often recommend an accountant, and gets a fee from the accountant. An estate agent may recommend a mortgage company, presumably for a commission. So much for word of mouth. The third IFA I dealt with was acting as a pensions advisor. It was the perfect way to get new clients. Many of the people he dealt with would have been quite wealthy. Again, so much for word of mouth. It might be that many IFAs are so good that they have to fend off people rushing to make use of their services. But those I met came across me either as a result of a referral fee, or when acting as a pension advisor.

aajax42

I had definitely decided to employ the services of an IFA and was trying to get help in choosing one. Unfortunately, despite the many valued contributions you have all kindly taken the trouble to make, I am no further forward. As I said from the beginning, I have no personal recommendations from friends or family to consider and as the thread has continued, nothing has improved upon 'Leap of Faith/Trust me'. (By the way, would anyone like to buy a Kirby?). I am now having to re visit going it alone and boy does that scare me.

bowlhead99

Logically, going it alone with your life savings when you have little experience in building investment portfolios should scare you.

You have dedicated 45 years of 'hard work and frugality' to building up what should be enough money to enter the retirement phase of your life. The way you have done all that building-up of hundreds of thousands was being good at something - a trade, a craft, a profession. Lets say you were a plumber or a lawyer.

When you first started it at age 15 or 21 or whatever, you might not have been very good at it and were at the bottom of the league tables in competence compared to the people with decades of experience and maybe professional qualifications. But by the end of the 45 years you are probably a well-practiced expert in doing that thing and knew exactly what you were doing with it and were looked up to by the new 16 year old lads.

So, how you made your money for that part of your life was through some knowledge, skills and hard work. Now you are (say) 65, and have another 4 decades to get through. You are not going to keep yourself afloat through those 45 years from your self-evident skills of plumbing or lawyering. You are going to have to do it by planning and overseeing investments and managing the risks and the tax to meet your end goals. And yet you do not have the decades of knowledge and experience to do that, because your skills lie in plumbing or lawyering and you have not paid much attention to economics or portfolio construction and risk management.

So you have a choice:

1) Take some time to acquire the knowledge for portfolio construction and risk management and the tax stuff and matching a suitable plan with your end goals. Start your retirement with the £300k being invested with the knowledge and skills of a relative newbie. This might be scary or time consuming and if you screw it up it could cost you £100k or more (e.g. if you dump it all in a FTSE tracker and sell in a panic when it drops 30%). Or;

2) buy in a service from someone with experience and qualifications who is professionally regulated in providing those parts of your personal skill set which you did not develop for the last 45 years (you didn't develop them because you were focussed on your plumbing or lawyering which was the way you historically made your money and got your annual income).

Taking advice from a professional HAS to be a 'leap of faith' / 'trust me'. When you go to the doctor and pay him for it (private out of your own pocket or by insurance, or NHS out of your tax), if he says you have a certain condition based on what he has the expertise in, you have to trust him, and know that you can sue for medical malpractice if he screws you up. This doesn't come from 'reviews' by non-medically-qualified members of the public saying that they got sound advice to give up marathon running on concrete, or smoking, at age of 30 and now four decades later they don't have arthritis in their knees or a lung condition, so it must have been good advice.

If you like, you can challenge the medical professional by saying that you think your stiff neck might be meningitis because you read on the internet that it was a symptom. Just like you can challenge a financial adviser by saying that you read on the internet that passive index trackers were best and you want him to redesign the portfolio around them. But being able to say that the professional is right or wrong, rather than simply trust the professional, is something that you need a certain level of expertise to do. That is why most people are not qualified to write reviews on the quality of a professional advice service.

They can tell you if the guy smiled a lot or was patient and what happened in the year or two since they got the professional advice. They can't critically opine on what happens over 30 years because you can't wait 30 years for their review and even if you did, they still might misunderstand how the results were achieved and whether they were achieved in a good or a bad way, which is the crux of what you need to know. Such reviews might be useful to help you filter down your choices but at the end of the day there has to be trust and if you can't trust you won't have a good time building an advisor relationship.

I appreciate this might not really be helpful - if you don't want to 'take a leap' that's your prerogative and you are most certainly not alone. However what it comes down to is you needing to either get the knowledge to DIY effectively, or get at least some of the knowledge to help see if a guy you don't really trust is pulling wool over your eyes, or trust the guy as a professional and not be too worried about it.

It is certainly natural to worry about it a bit, and maybe it would help to sit in cash for a year and do more of the knowledge acquisition before you engage the professional to help you get comfortable with what he's recommending. Alternatively, a method that some people use is spend the money on the initial advice and some ongoing servicing for the next few years, and then use those few years building up your own knowledge to help you 'take back' control of your portfolio if you don't like the way things have developed.

BananaRepublic

An IFA cannot be compared to a medical doctor, not only because the IFA may earn significantly more, but because the doctor has significantly more training. However, they provide a service, and the rate they charge is governed by the market. I don't think dunstonh has told you what you should be paying, but he might, so that is one hurdle dealt with. Your quotes seemed a lot to me, not that I know. It is possible that some of the IFAs you dealt with already have plenty of clients, so they can ask silly money, in the knowledge some people will accept. It is also possible you looked around in a posh area, with wealthy people in abundance. I would assume they decide on the fees beforehand rather than judging what the customer will stomach.

Despite my experiences with IFAs, and the fact that I do not use one, I suspect you would get decent advice from the vast majority, simply because a) it is a profession which is regulated, b) there is a training required albeit nowhere near the medical doctor level, or even an actuary, and c) they use tools that use your risk profile to select a range of products and d) I actually don't think it is that difficult once you have the training and tools. Basically they will create you a diversified portfolio that matches your risk level.

So that means that you could take the approach of finding two or three who have been practising at least 10 years (enough time to get a feel for the markets, and not get thrown out of the trade), do not have any findings against them from the regulatory body (if that information is available) and charge a reasonable fee. Then you pick the one with who you feel the most comfortable. The personal factor does matter, there's no point dealing with one who cannot put you at ease, and guide you through the process. As I've said, I suspect the actual process is rather straightforward from their point of view, and it is not a case of finding the clever one and avoiding the thicko.

Bowlheads suggestion to use an IFA, and then perhaps take more control later on is a good one.