SIPP Fee Question

dunstonh

However the issue here is paying a premium for multi-asset, 1.1% instead of typical 0.6-0.8% or so. This is fair enough for a DIY investor who isn't confident or doesn't have the time to select a balanced portfolio and rebalance periodically.

But for those using an IFA, I would expect the IFA to select/rebalance the fund as part of his ongoing fee rather than just buying a multi-asset fund.

I too would prefer to use a fund under 1% in my selection criteria. But that is choice and opinion. If a multi-asset solution is best then that is what should be recommended. For a lot of people, its not the investment style that matters. It is the meeting and discussion about their life plans and how they are going to pay for those and what they need to do to achieve things. Tax and investment can be secondary to them.

An IFA is about giving the correct solution to the individual based on their situation. The service the IFA provides to different people will be different.

I really don't get the point about the client not understanding the investments. That's the whole point of using an adviser, surely? They let the adviser advise. If they're going to ignore the advice and do their own thing then why are they paying for advice?

Problem is the nanny state we have now doesnt think that way. The person doesnt need to know in depth detail but has to have a reasonable understanding of what you are doing and why. The problem is how you prove that and when complaints are made, the person nearly always plays dumb. When the complaint is reviewed, the investing history of the individual is considered as well as their occupation (that is a crude measure but professionals tend to be treated as more knowledgeable).

I personally wouldn't call a portfolio of single sector funds built to a structured model and re-balanced annually a complicated or advanced option. However, the FOS have.

If they're going to ignore the advice and do their own thing then why are they paying for advice?

That comes down to behaviour risk. The adviser may have risk profiled and explained everything correctly and to a high standard and the investor may have made all the right noises but when a risk event happens, like a crash, then how they said they would behave and everything they were told may be totally different. Some people really dont listen or want to learn unless something goes wrong and they then cry foul.

Also, don't underestimate the impact of someone reading a biased article or complete journalistic rubbish or being told something by a mate down the pub or even cold calling scams. The adviser may have plans and structure in place but suddenly the person may be swayed by these. Indeed, I have been in that situation several times.

westv

I seem to have opened a right can of worms. :D

zagfles

dunstonh wrote: »

Problem is the nanny state we have now doesnt think that way. The person doesnt need to know in depth detail but has to have a reasonable understanding of what you are doing and why. The problem is how you prove that and when complaints are made, the person nearly always plays dumb. When the complaint is reviewed, the investing history of the individual is considered as well as their occupation (that is a crude measure but professionals tend to be treated as more knowledgeable).

I personally wouldn't call a portfolio of single sector funds built to a structured model and re-balanced annually a complicated or advanced option. However, the FOS have.


That comes down to behaviour risk. The adviser may have risk profiled and explained everything correctly and to a high standard and the investor may have made all the right noises but when a risk event happens, like a crash, then how they said they would behave and everything they were told may be totally different. Some people really dont listen or want to learn unless something goes wrong and they then cry foul.

Also, don't underestimate the impact of someone reading a biased article or complete journalistic rubbish or being told something by a mate down the pub or even cold calling scams. The adviser may have plans and structure in place but suddenly the person may be swayed by these. Indeed, I have been in that situation several times.

Right - but how can the adviser possibly be held liable for something the client does against advice, or without taking advice? If the adviser has set up a nice balanced portfolio and the client then decides to do something daft, eg transfer it all to some dodgy holiday property development in Cape Verde then how can the adviser possibly be held liable?

bowlhead99

zagfles wrote: »

dunstonh wrote:

Problem is the nanny state we have now doesnt think that way. The person doesnt need to know in depth detail but has to have a reasonable understanding of what you are doing and why. The problem is how you prove that and when complaints are made, the person nearly always plays dumb

That comes down to behaviour risk. The adviser may have risk profiled and explained everything correctly and to a high standard and the investor may have made all the right noises but when a risk event happens, like a crash, then how they said they would behave and everything they were told may be totally different. Some people really dont listen or want to learn unless something goes wrong and they then cry foul.

Right - but how can the adviser possibly be held liable for something the client does against advice, or without taking advice?

The regulator is consumer-friendly and wants to stop sharp practice by firms that aren't good at their job.

If the adviser speaks with the client and understands that they understand the product and the fact it might drop in value 35% in a bad year, and the client signs off on the advice, you would think that would be fine.

However, if the customer does not truly understand the product, and sees that the £200k which was supposed to get him through retirement is now only worth £140k, he might panic and instruct the advisor to sell out to cash, or to a dodgy scheme promising the earth via another advisor, because he isn't going to let the original IFA and the original fund have a chance to lose him even more money.

Then later once the market had mostly recovered itself while the investor is in cash, the investor complains that he didn't really understand what he was signing, that he "knew investments probably went down and up but not sixty thousand pounds sob sob sob".

The IFA will need to have all his ducks in a row when the investor says "but I didn't understand, and now i've lost a third of my retirement fund, how could you let this happen, sob sob"

zagfles

bowlhead99 wrote: »

The regulator is consumer-friendly and wants to stop sharp practice by firms that aren't good at their job.

If the adviser speaks with the client and understands that they understand the product and the fact it might drop in value 35% in a bad year, and the client signs off on the advice, you would think that would be fine.

However, if the customer does not truly understand the product, and sees that the £200k which was supposed to get him through retirement is now only worth £140k, he might panic and instruct the advisor to sell out to cash, or to a dodgy scheme promising the earth via another advisor, because he isn't going to let the original IFA and the original fund have a chance to lose him even more money.

"Instruct" the adviser? Surely the adviser doesn't have to obey the "instruction" if he thinks it's the wrong decision? If he does he seems rather pointless. He would surely tell the client no, and if the client really wants to do something stupid then he'll have to sack him or transfer out. In which case the adviser isn't to blame for the stupid decision.

dunstonh

Right - but how can the adviser possibly be held liable for something the client does against advice, or without taking advice?

if the client moves it to cape verde without advice then its their own responsibility for losing their pension. That is a new contract that the adviser is not involved in putting in place. If they sell their UK fixed income fund themselves in the existing pension and put it all into Emerging Markets because emerging markets went up more then the adviser can be responsible for putting them in a position that allowed them to do that. Their lack of knowledge should never have seen them in that type of product in the first place. The complaint won't just look at that transaction but the original advice transaction. Barclays had a high profile case earlier in the year go against them because a client had access to transactions that they were not suited for and they lost money, went on to complain and win. It was on their non advised DIY platform. No advice given.

I know a local firm that had a client that wasin heavy in property funds. The adviser firm had on record a number of times they recommended reducing property and that they did not consider it sensible to invest that way but the client replied that is what he wanted. The FOS just ruled against that adviser. He is popping over soon to show me the response but he was gobsmacked at the decision. That wasnt even what the complaint was about. The point the client raised in the complaint was rejected. The FOS decided to look at other things and picked up on the high property exposure.

zagfles

dunstonh wrote: »

if the client moves it to cape verde without advice then its their own responsibility for losing their pension. That is a new contract that the adviser is not involved in putting in place. If they sell their UK fixed income fund themselves in the existing pension and put it all into Emerging Markets because emerging markets went up more then the adviser can be responsible for putting them in a position that allowed them to do that.

So instead of buying a selection of funds with reasonable charges, the client has to pay a premium for multi-asset (as well as paying the financial adviser) to protect him from himself and protect the financial adviser's backside! Yes, really excellent "consumer protection" :rotfl:As usual the sensible have to pay the price for the stupid!

Their lack of knowledge should never have seen them in that type of product in the first place. The complaint won't just look at that transaction but the original advice transaction. Barclays had a high profile case earlier in the year go against them because a client had access to transactions that they were not suited for and they lost money, went on to complain and win. It was on their non advised DIY platform. No advice given.

Have you got a URL? All I can find is this https://www.ftadviser.com/2016/06/15/regulation/regulators/court-missed-crucial-point-in-barclays-case-nHxREy8u2CTKZh8lirgO5M/article.html
which talks about interest rate rate swaps and how execution only sales weren't allowed, is this the case you're thinking about?

I know a local firm that had a client that wasin heavy in property funds. The adviser firm had on record a number of times they recommended reducing property and that they did not consider it sensible to invest that way but the client replied that is what he wanted. The FOS just ruled against that adviser. He is popping over soon to show me the response but he was gobsmacked at the decision. That wasnt even what the complaint was about. The point the client raised in the complaint was rejected. The FOS decided to look at other things and picked up on the high property exposure.

Doesn't the adviser usually "execute" the transactions for the client? If so then the adviser could refuse if against advice?

Few weeks ago was talking a friend about pensions, he's in his early 40's, contracting, earning quite a lot but has no pension set up. He's seen an IFA who suggested a BTL property or two rather than a pension! Seriously!

dunstonh

So instead of buying a selection of funds with reasonable charges, the client has to pay a premium for multi-asset (as well as paying the financial adviser) to protect him from himself and protect the financial adviser's backside! Yes, really excellent "consumer protection" As usual the sensible have to pay the price for the stupid!

You don't put a Ferrari in the hands of an 18 year old male who just passed his test unless you make sure they are capable.

Have you got a URL? All I can find is this https://www.ftadviser.com/2016/06/15/regulation/regulators/court-missed-crucial-point-in-barclays-case-nHxREy8u2CTKZh8lirgO5M/article.html
which talks about interest rate rate swaps and how execution only sales weren't allowed, is this the case you're thinking about?

That is not the case. I dont have a link personally. There was a discussion thread on the board here at the time and most could not understand the outcome. How a DIY investor could basically invest off their own back, lose money and then blame someone else and get refunded did not go down well.

Doesn't the adviser usually "execute" the transactions for the client? If so then the adviser could refuse if against advice?

Advisers execute advised transactions. That does not stop individuals going straight to provider.

Few weeks ago was talking a friend about pensions, he's in his early 40's, contracting, earning quite a lot but has no pension set up. He's seen an IFA who suggested a BTL property or two rather than a pension! Seriously!

Stupidity exists everywhere.

zagfles

dunstonh wrote: »

You don't put a Ferrari in the hands of an 18 year old male who just passed his test unless you make sure they are capable.



That is not the case. I dont have a link personally. There was a discussion thread on the board here at the time and most could not understand the outcome. How a DIY investor could basically invest off their own back, lose money and then blame someone else and get refunded did not go down well.

Well I can't find it, presumably it was a pretty specific or odd circumstances (like the case I linked) as SIPP providers do still allow you to invest in stuff which can go down in value. But pointless discussing further unless you can provide a link.

Advisers execute advised transactions. That does not stop individuals going straight to provider.

Stupidity exists everywhere.

Indeed. Particularly across the pond. Mind you we were no better a few months ago. The whole world's gone mad!