IFA v Bank FA - Advice please

Charleyfarley_2

Having read some of the articles on other threads since investing with the Halifax recently, and being a first time extremely cautious investor, I'd just like a few views and if possible any advice in respect of charges etc.. Our investment profiles show my wife as a medium risk taker with me being cautious.

We did seek the advice of an IFA for a portfolio and the charges were £3.4k commission, (not immediately charged to us but incorporated into our annual management charge of 2.05%) and penalties starting at 11% for the first year, 9% for the second etc. etc. should we decide to withdraw.

Accepting that the Halifax will only recommend their own products and probably will not make us as much money, the only charge we're aware of is a 1% annual management charge. There are no set up costs, no commission, together with the ability to remove the money at anytime with no penalties other than what it would be worth at the time we decided to remove it, (obviously as we speak that is not what we're looking to do!)

As I already have a good pension, we're not looking to make oodles of money, just hopefully keeping our investment above inflation and dabbling a bit!

Half of the money we had to invest we've put into fixed rate ISAs (6.7%), and 1 year bonds (6.7% in my wife's name as a non-taxpayer) with a further £7k in a 6 month fixed rate bond (6.7%) with a view to using that for next year's ISAs.

Any views (preferably not too in depth!!) would be appreciated.

dunstonh

Halifax funds are awful and you will pay more in poor performance many times over the charges the IFA had.

Plus, like any retailer, you can get expensive ones and cheap ones. IFAs are no different. You were not paying the £3400 commission to the IFA. The provider was. You were paying 2.05% amcs (which is high). You would expect the amc to be around 1-1.5% ideally. However, the higher amc may have been offset against a higher allocation rate (usual when there is a 5 year tie in). This means that for periods up to 10 years, the actual charges after higher allocation and amc are less than 2.05%.

The Halifax sounds as if they have recommended their unit trust and the IFA was recommending an investment bond. Halifax cannot portfolio plan either (like the other banks). It is not within their remit as tied advisers. You mentioned the charges but not the fund. Hopefully, it's not the cautious managed fund although it probably is.

Charleyfarley_2

I appreciate your response and you are quite correct in that half of the sum invested with the Halifax is in the Cautious Managed Fund, whereas the other half is spread across Corporate, UK Growth, UK Equity Income and International Growth funds.

Our only previous experience in the investment field is with a relative who suggested this particular IFA having made approx 13% net each year for the first two years investing in UK Commercial property. I understand however that is now in something of a downward trend.

Since then, another acquaintance has informed us that their £100k investment became £98k after 5 years with the same IFA. Something to do with market value adjustment amongst other things. Hence our, or should I say my, reticence.

We have been informed that in the past, Halifax Investment Funds have generally outperformed deposit based investments, however if we are unhappy with the cautious managed fund we can change with no further costs.

Reading your response it would seem that in your opinion we have made a bad move, however bearing in mind my extreme cautiousness is that necessarily a bad thing, as all we're looking for is a little bit of growth and a dabble into investment with as little risk as possible?

dunstonh

Our only previous experience in the investment field is with a relative who suggested this particular IFA having made approx 13% net each year for the first two years investing in UK Commercial property. I understand however that is now in something of a downward trend.

The typical UK commercial property fund is expected to break even or grow by 4% this year. The lower risk property funds are still heading towards double digits at this time. Mainly as they didnt up their valuations as much as others.

Since then, another acquaintance has informed us that their £100k investment became £98k after 5 years with the same IFA. Something to do with market value adjustment amongst other things. Hence our, or should I say my, reticence.

That a medium risk investment and would have been done over the period of the stockmarket crash. Its a basic low quality investment but its still better than a FTSE tracker which would have lost more and taken a lot longer to recover.

We have been informed that in the past, Halifax Investment Funds have generally outperformed deposit based investments, however if we are unhappy with the cautious managed fund we can change with no further costs.

I'm afraid whoever told you that was telling porkies. The Halifax cautious managed fund hasnt been round long enough to get a history. It was launched 6/4/05. It is performing below sector average.

Reading your response it would seem that in your opinion we have made a bad move, however bearing in mind my extreme cautiousness is that necessarily a bad thing, as all we're looking for is a little bit of growth and a dabble into investment with as little risk as possible?

I think it was a bad move.

I've mentioned the cautious managed fund. The corp bond fund is down 3.26% in the last 6 months and is performing well below sector average. UK Growth is a really poor UK growth fund. Its underperforming sector average and a bog standard tracker would have been better, let alone a UK fund from a decent fund house. The equity income fund is a little better but its still underperforming sector average.

If you are cautious, then using second quartile funds with an aim of consistency rather than outperformance is often a good idea. Using completely duff funds though isnt. Plus, for a cautious spread, I am not that impressed. There ought to be a bit of property in there and UK other bond and perhaps no UK growth. Maybe the addition of the specialist fund Schroder UK Income Maximiser as well. Of course, none of that is possible with Halifax as they dont have a UK other bond fund or property fund and cannot use external fund houses.