Advice on an Adviser

I am looking for advice in what to look for when choosing an IFA. I have never taken professional advice before but feel that now may be the right time. I am specifically looking for investment advice having chosen my own PEPs/ISAs using discount brokers for the past 10 years or so. I also have a relatively large amount (in percentage terms) in cash type holdings which should probably be performing better. I assume that tax advice would come as part of any package as I may need some advice soon on avoiding CGT.

My questions are basically, how do I find & choose a good local adviser? What sort of price should I expect to pay? Is it better to go to a fee based or a commission based adviser?
I'm sure there are many more questions which don't come to mind at the moment so I would appreciate any help you can give.
Many Thanks.
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  • dunstonhdunstonh Forumite
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    My questions are basically, how do I find & choose a good local adviser?

    Just the same as any profession. You ask people you know. Problem you will have is that most will never have used an IFA and many that have used tied agents may think they saw an IFA. Also, mortgage IFAs are quite popular with people but they arent the IFAs you need to see, you want one that concentrates on investments.
    What sort of price should I expect to pay?

    It depends on the amounts involved. Typically, the more you invest, the better the charges/commission rebate will be.

    Is it better to go to a fee based or a commission based adviser?

    With many modern investments, it's the same thing. Especially on ISAs and unit trusts. i.e. a 2% commission will be a 2% reduction in the amount of the investment. Thats a 2% charge whether you pay it by cheque or from the investment. Pensions are better on commission basis as the tax relief helps cover part of the charge.

    FSA published averages states the investment average for collectives (Unit trusts/OEICs/SICAVs) is 1.8% with a typical maximum of 3%. So, if the IFA charges 1.8% or less, you are getting better than average. If they charge more, you are getting worse than average.

    Avoid salesforce IFAs (regional and national firms). Salesforces are the cause of most of the problems over the years (FOS published that 12 companies were responsible for nearly 2/3rds of all complaints). The salesforce working environment isnt good for advice. Sales targets, pressure from sales manager, incentives, league tables, getting sack if you dont do well are all things which could influence the advice to suit them, not you.

    Attached advisers or employed advisers usually have less scope to discount than owners/partners/directors. Attached/employed advisers may only get as little of 30% of the remuneration so they dont have the same scope to discount that the owner/partner/directors do. Plus, attached/employed advisers tend to move around more whereas the owners etc tend to stay put. Owners etc have a buy in to the business reputation and I tend to find from my own experience that the owners etc are of a higher standard in qualifications, knowledge and experience than their staff (or attached advisers who are technically self employed).

    There is something called Customer agreed remuneration coming in (probably in 2009) which is where you agree the fee in advance and this fee can be paid for by cheque or commission upto that amount (with any surplus being rebated or used to lower charges or enhance terms). The current business model that matches that already is called new model adviser (NMA). NMAs also tend to have better investment knowledge as it is what they focus on as their primary business. Unfortunatly, NMA is not something that you can look up as IFAs are not required to say whether they are NMA or transactional. Although you will find most IFAs that are NMA will make a point of saying so.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Grantmk_2Grantmk_2 Forumite
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    I've got a little over 100k to invest over half of which is in an ISA wrappers, we are intenending on investing a further £800 per months.

    I saw my first IFA yesterday (I will be seeing more) and I was pelasantly surprised by the experience. One query I have had subsequently regards the fees which I feel may be a little high going forward event though they seem low initially. The fees he advised were a flat fee of £500 up front and then 1% per annum falling a little at £150k (I expect to hit that in a couple of years time if I cash in my National Savings certificates). I would be moving my funds through Transact.

    Thoughts?
  • jem16jem16 Forumite
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    Transact is a good provider but mainly for high amounts as the discounts make it more worthwhile - your amount probably isn't in that area.

    Most IFAs will take 0.5% trail commission rather than 1% - are you getting more to warrant this extra?
  • How do the transact fees affect lower amounts?

    Until I speak to the other advisers I suppose I won't know if I'm getting more for the money. I guess I want to know whether the 1% is excessive:confused:
  • jem16jem16 Forumite
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    Grantmk wrote: »
    How do the transact fees affect lower amounts?

    Basically the higher the amount the lower the fees.
    Until I speak to the other advisers I suppose I won't know if I'm getting more for the money. I guess I want to know whether the 1% is excessive:confused:

    In my opinion you are paying double what is necessary.
  • dunstonhdunstonh Forumite
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    0.5% is natural trail. Anything above that is an explicit charge. The FSA take a dim view of advisers taking an explicit trail based charge (above the natural) who dont have sufficient justification for doing so. However, where there is justification they are fine with it.

    For example, a plush London office dealing with high net work clients utilising expensive software options as part of their setup could justify it. Whereas a small rural firm with limited software options couldnt use the same justification. I know of three recent FSA visits to firms locally and all have had a grilling on cases where they took more than the natural 0.5%. If that shows as a trend across the country then I would expect IFAs to get a public telling off in September or October when the findings are released.

    Can you clarify if that 1% is the adviser remuneration or does that include Transact's charge as well. This is important because Transact factory gate charge their investments. So you may be looking at both Transact and the adviser when you say 1%.

    My view of Transact is that it is a very solid wrap platform. It offers features and online access that no other does. However, it costs a bit more than the likes of Selestia, Cofunds and Fidelity (which are not wraps but fund supermarkets). So, unless you are going to use the features of the
    Transact platform there is no point paying the extra for it. If you do use the features then it is worthwhile.

    I tend to find that most clients wouldnt use the features of transact and the extra charges are therefore not suitable and sticking with the fund supermarkets is the better option.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Grantmk wrote: »
    The fees he advised were a flat fee of £500 up front and then 1% per annum falling a little at £150k
    Do you know exactly what you get for that?

    Will it be total 'wealth management' with them picking individual stocks for you? If so, can they show you a proven track record of success for doing that and adding suficient value to justify their fee? Or will some of the money go into collective funds where you'll be paying someone else more fees on top of their fee to do that?
  • dunstonh wrote: »

    Can you clarify if that 1% is the adviser remuneration or does that include Transact's charge as well. This is important because Transact factory gate charge their investments. So you may be looking at back Transact and the adviser when you say 1%.

    I'm not sure whether that includes transacts charge, I will check. The way I understand it Transact charge 0.5% on purchases. Then they charge 0.6% per annum. They also charge a small admin fee per quarter on ISA's. How does this compare to Cofunds charges?

    Without going into too much detail we did discuss using features of Transact that wouldn't be available with Cofunds.
  • dunstonhdunstonh Forumite
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    How does this compare to Cofunds charges?

    Cofunds charge the standard published annual managment charge for the fund. For most cases that is 1.0-1.5% but the adviser is paid out of that.

    The initial charge will depend on what the adviser is taking and the fund in question. Without an initial commission the initial charge will range for zero to 2% (most around zero to 1%). No admin charges. Its the annual managment charges that tend to be slightly higher with Transact unless you have large investment values (where discounting comes into play).
    Without going into too much detail we did discuss using features of Transact that wouldn't be available with Cofunds.

    Both have online valuations. Transact allows you to make transactions and have access to a bit more data. It really depends on how pro-active you want to be with the investing. Also, transact has almost limitless investment options within the platform. The fund supermarkets are limited to their range which is typically around 1100 funds.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Not if you're in the UK it isn't!;)
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