First S&S ISA - DIY or IFA?

GDBL

Hi,

First time poster and am looking for some advice for my first S&S ISA - mainly whether to try to DIY or pay an IFA to do it for me.

Bit of background - am 38 and in a steady job (medical profession) and am happy with my current cash savings for a rainy day. I own my own property and have another 3 years left on the mortgage.

I have just over 22.5k in a cash ISA that is effectively ‘spare’ from the above savings and am looking to put this into a S&S ISA and make regular contributions (approx £500-750/month). I don’t have a very specific need/use for this in mind but plan to put this away for +10 years and am comfortable with potential volatility / drop in performance over a period of years.

I saw an IFA who was recommended by a colleague. He discussed the above with me and suggest a moderately aggressive risk (which I’m happy with as above) and suggested transferring into an investment ISA on the Nucleus Wrap platform (can give full breakdown of funds / asset allocations if helpful). Charges for this will be -

2% for the initial transfer

0.82% annual fund manager charge
0.35% wrap platform charge
0.75% ongoing advice charge

I’m pretty new to all this but the above charges seemed mostly reasonable, the only one I was a little uncertain about is the ongoing advice charge to the IFA.
Looking through their other paperwork their advice charges are tiered (I think according to amount of investment involved) and at the lowest level (which I am) it doesn’t appear that I would get any regular ongoing advice / meetings / telephone consultations and any further advice would be provided on request at extra costs to be agreed.
I hope I don’t have the wrong end of the stick but am not sure it’s worth paying an ongoing advice fee if this doesn’t actually translate into any advice.

As above I’m new to this and the initial thought of doing it myself was a bit daunting (and still is!) but after a bit of research wonder whether I really need an IFA and the costs involved, particularly given I’m not investing a huge amount.
Having a quick look at the forum and other websites (Monevator etc) it appears that picking a passive fund and then choosing a platform myself might meet my needs to start with and would hopefully save me on charges. Still getting my head around all the different funds but multi asset approach would hopefully be a good starting point and planning to look further into these. From just a quick look at some example funds (Vanguard / Blackrock / L&G) they appear cheaper overall on fees.

Example VG LS80 through Cavendish (not suggesting I’ll go with this but common in threads so far / online and easy to compare with above).

0.22% fund manager charge
0.2% platform
0.05% Cavendish ongoing fee

So in summary my main question is - Am I being a little harsh / greedy re IFA? I fully understand they need to make their money and don’t grudge this, just wondering if given that I’m only starting off and not investing a huge amount, it may be cheaper to DIY and do without the advice that I might not necessarily need at this stage?

Any thoughts / comments appreciated

dunstonh

and at the lowest level (which I am) it doesn’t appear that I would get any regular ongoing advice / meetings / telephone consultations and any further advice would be provided on request at extra costs to be agreed.

The lowest level would be transactional. That is exactly what you have have described. However, transactional does not have an ongoing charge. it is a FCA requirement that any ongoing servicing has to have a pro-active service. It cannot be as you describe. So, are you mixing up the transactional offering with their ongoing offering?

That said, it is also quite common for the low value ongoing servicing offerings to charge again on top ups and further investment until you have more invested.

Any ongoing service arrangement is optional.

but after a bit of research wonder whether I really need an IFA and the costs involved, particularly given I’m not investing a huge amount.

unless you already have an IFA or its a family IFA, then probably not.

bowlhead99

GDBL wrote: »

Hi,
0.75% ongoing advice charge

I’m pretty new to all this but the above charges seemed mostly reasonable, the only one I was a little uncertain about is the ongoing advice charge to the IFA.
Looking through their other paperwork their advice charges are tiered (I think according to amount of investment involved) and at the lowest level (which I am) it doesn’t appear that I would get any regular ongoing advice / meetings / telephone consultations and any further advice would be provided on request at extra costs to be agreed.
I hope I don’t have the wrong end of the stick but am not sure it’s worth paying an ongoing advice fee if this doesn’t actually translate into any advice.

I would think the IFA would have difficulty justifying his 0.75% if it didn't involve any ongoing advice or service whatsoever. Perhaps you misunderstand it.

But the ongoing £500-750pm is going to be quite large in relation to your initial investment of about £20k (i.e. the assets under advice will likely increase by over 33% in the first year), and the IFA will ensure it all gets invested into your portfolio fund(s) at the same level of risk - and document it - and presumably communicate to you about what is going on. Meanwhile the fee he earns at 0.75% a year of say £25k is under a couple of hundred quid as the sum total of what he earns from you over an entire year, which is likely to be under one hour of time-costs for a professional advisory business. He is not getting rich off that.

As above I’m new to this and the initial thought of doing it myself was a bit daunting (and still is!) but after a bit of research wonder whether I really need an IFA and the costs involved, particularly given I’m not investing a huge amount.

You've run up against a common issue.

Which is that £200 a year for a professional advisory service is pretty much nothing in terms of the tens or hundreds of thousands of pounds that it costs someone to run a business and pay the rent and rates and fixtures and fittings and salaries of advisory staff and admin staff and hardware and software and professional subscriptions and ongoing training and regulatory compliance and insurance etc for an IFA business...

...yet it is a large amount in the context of your personal portfolio which might only deliver 5% after platform and fund management fees ; so to pay almost a percent for the ongoing advice, is taking a fifth of your profits, which appears a lot - it will eat a big slice of compound returns.

Example VG LS80 through Cavendish (not suggesting I’ll go with this but common in threads so far / online and easy to compare with above).

0.22% fund manager charge
0.2% platform
0.05% Cavendish ongoing fee

Basically if you look at numbers like that it is 0.25% for the platform and 0.2-0.25 to the fund manager. The IFA suggested 0.35% for the platform at your relatively low level of investing which gives access to a platform that the IFA gets on with; providing the IFA with the tools and data to help him spend not too much time on your reports (because you only want to give him <£200 a year for them); basically an extra 0.1% a year on the £20k ; but you can pretty much ignore 0.1% here and there in the context of your retirement planning. It's not a big deal like do I want to pay 0.75% for IFA servicing or not.

Then looking at the fund itself, it's a choice of 0.82% for the fund management and ongoing charges of the fund or funds which the IFA might be likely to use for you (although this probably can't be known yet - is just illustrative- because you haven't actually paid him for detailed advice), versus a relatively popular cheap multi-asset fund-of-funds which leans heavily on stock market indexes - at 0.22% a year and which is likely to deliver a different annual return.

With those lower fees: some years, the Vanguard lifestrategy product would get you a better return (e.g. if foreign currencies or overseas stockmarkets which make up a lot of that fund's holdings do well, or the particular industries that make up the FTSE 100 do well), while in other years the fund selected by the IFA might do better and it might be significantly higher gain or lower loss than the 0.6% fee differential. It is difficult to know which would do better without buying both and waiting for hindsight to give you the returns. Fans of passive investing would say something tracker-based is the best; others wouldn't. But Vanguard Lifestrategy coexists in an industry of other multi-index funds which use exclusively trackers and others that use some trackers and others that don't use trackers at all, with a range of running costs. The fact that it costs 0.22% instead of 0.32 or 0.62% or 0.82% doesn't mean it will deliver the best net result for your needs.

So in summary my main question is - Am I being a little harsh / greedy re IFA? I fully understand they need to make their money and don’t grudge this, just wondering if given that I’m only starting off and not investing a huge amount, it may be cheaper to DIY and do without the advice that I might not necessarily need at this stage?

It is like any potential DIY project.

If you are going to plaster and paint a wall in a small room in your house, you might invest some time and effort in reading the marketing blurb printed by B&Q or Homebase, or by more specialist stores, or you might look to youtube and google for advice, and then decide what exactly to do and then implement it for yourself either with cheap materials or luxury materials depending on what you think you can get away with.

For larger projects it might become relatively more attractive to seek contractors to do what you'd like them to do rather than do all the gruntwork yourself. For even larger projects it can be useful to have architects with experience and project managers to decide what it is you'd even like the contractors to do (e.g. is plastering and painting the right approach for that room ; should that room even still exist on the plan given all the things you could do with the space if you took a proper high-level overview).

As it is with investments. Investing is about opinion and some science- and- psychology bits such as what risk level is appropriate. If you already know what risk level is appropriate for your needs and are happy and confident to pick your own funds, and the amount involved is 'only' £20-50k, then the services of a professional IFA might not add more value to your outcomes (net of their cost) than if you just worked it out for yourself.

Effectively - because being an IFA is a regulated business - you are unlikely to get steered towards an inappropriate investment if you use one. But at close to £200 on £25-30k as an ongoing fee for advice, your investment has more work to do than if you had simply been able to buy an appropriate investment at lower cost. It is clearly better to pay 1% for advice and only be able to net +5% from a +6% investment, than self-advise yourself and select the -35% investment for a lower 'fee'.

So, bottom line, the fees don't seem 'abnormal' - but whether it is worth you paying them if you have already identified a set of decently-appropriate investments that could meet your needs, or are willing to put the time in to do that (where the lack of advice fees mean the returns don't have to hit such a lofty target to leave you satisfied) then advice might not really be 'worth it' for you.

xylophone

https://forums.moneysavingexpert.com/discussion/5583030

http://monevator.com/category/investing/passive-investing-investing/

GDBL

Thanks for the comments, very helpful and has given me a perspective from the IFA point of view. I do appreciate that any money they would receive from me is a relative drop in the ocean in terms of running a business and the work involved in providing financial expertise. As above I don't grudge this at all but was just a little uncertain as what form any advice would take.

Have looked again at the information I've received and it still seems a little contradictory, although think I'll get back in touch with them to ensure I haven't misunderstood.

I was given a copy of their advice charges when we first met. This document suggests they have a tier of advice levels (Copper/Bronze/Silver/Gold/Platinum) that are up to 1% pa and range from full review meetings several times a year with newsletters / market commentaries etc, down to Copper which is "service will be provided on request at a cost agreed at that time depending on individual requirements"

When I was sent details of the suggested ISA and its charges they confirmed the ongoing advice charge will be 0.75% per annum ongoing, and also that this will be at the Copper level, which is where I initially got a little confused. I think as you pointed out bowlhead this will cover them investing my monthly contributions and not sure if this counts as the 'advice' rather than having formal review meetings etc with them?

Thanks also for the comments on the IFA chosen option versus a passive tracker. The illustration that an IFA chosen investment would have to 'work' a little harder than a passive DIY option with lower costs is a good one. If there was any guarantee (or even a strong inclination) that the former would perform better overall even allowing for fees then I would clearly go for this but obviously no-one has a crystal ball and I accept that there isn't any guarantee of future performance.

Will have a think about what to do and double check ongoing advice with the IFA. Thanks again for your comments.

PS Will put a breakdown of proposed ISA in nucleus wrap below in case any comments

Cash 2.00%
Artemis Global Income I Inc 9.80%
7IM AAP Moderately Adventurous C Acc 19.60%
Franklin UK Managers Focus W Acc 7.35%
Invesco Perpetual Global Targeted Returns Z Acc 4.90%
24 Dynamic Bond I Net Acc 4.90%
Newton Global Equity W Inc 14.70%
Old Mutual GEAR I Acc 7.35%
CF Lindsell Train UK Equity Acc 9.80%
Premier Multi Asset Distribution C Inc 9.80%
Jupiter Absolute Return I Acc 4.90%
Aberdeen UK Property Feeder Unit Trust I Acc 4.90%
Total 100.00%

ARandomMiser

I have found that the main thing an IF A will do for you is assess your risk profile and select suitable investments to match. However there are many online facilities to assess risk in much the same way, and there is some help for selecting suitable investments (but not brilliant for novices). Given all the caveats about past performance and 'may go down' an IFA is not a guarantee of success, they are crystal ball gazing just as much as anybody else.

I expect this will improve and makes me think that IFAs are going to have to find more ways to add value. I have not had a great experience with IFAs over the years.

BLB53

So in summary my main question is - Am I being a little harsh / greedy re IFA? I fully understand they need to make their money and don’t grudge this, just wondering if given that I’m only starting off and not investing a huge amount, it may be cheaper to DIY and do without the advice that I might not necessarily need at this stage?

It would definitely be much cheaper to DIY. Even if you save 1% that would be £220 for starters and more as your investment grows each year.

It is not difficult to open an ISA account with one of the low cost brokers and arrange for them to transfer over your money.

As you have identified, Vanguard Lifestrategy 80 is a strong contender for a solid long term investment and is frequently mentioned/recommended (I hold VLS60).

You have already visited Monevator. Possibly also have a look at diy investor http://diyinvestoruk.blogspot.co.uk/ for further research etc.

Keep things simple and keep costs low and you should get a reasonable return for your DIY efforts.

kidmugsy

GDBL wrote: »

2% for the initial transfer

Dear me.

GDBL wrote: »

0.82% annual fund manager charge
0.35% wrap platform charge
0.75% ongoing advice charge

1.92%? That could be 50% of your return. No fear.

GDBL

Heard back from the IFA who confirmed they'd made a mistake when preparing the report - given the ongoing advice charge of 0.75% the level of service shouldn't be 'copper' (purely transnational) but one level up from this and the charge would then cover ongoing investment into the portfolio / re-balancing and occasional meetings etc.

Thanks again for all the above comments - overall consensus seems to be that charges aren't excessive but as several posts above have pointed out would be probably cheaper to DIY rather than have extra charges eat into compound returns.

Hickson

Hi,

First time poster too and in a similar position, I want to transfer £85,000 from cash ISA to S&S ISA for a better return. I have spoken to an IFA who has quoted a 3% fee. Approx. £2500 seems a lot to give up without a bit of research.

I am 46, own my own property with no mortgage, have additional savings for a rainy day. I don't have any immediate need for the cash so can put it away for 5-10 years. Based on my objectives and cautious attitude to investment risk, the IFA suggested Old Mutual Wealth Active Managed portfolio.

I also feel doing it myself is a bit daunting and to be honest, feel overwhelmed by the options out there so I suppose am either looking to stick with a IFA but could I be paying a smaller percentage? or finding some kind of more cost effective middle ground.

I also need to address my pension (or lack of it....I know at the age of 46!) I paid into a very good one for a few years but don't feel I want to put lots onto a pension to have to pay tax on it when I draw it out. I realise though that I need to take advantage of the tax savings especially as a higher rate tax payer so looked into a NEST one that could be simply set up myself as a self-employed worker.

Any comments appreciated