Measuring IFA performance

cookie365

Hello, I'm helping a relative who uses an IFA.

I'm not sure if their performance is up to much.

Can anyone suggest what returns - after IFA fees - someone should have expected over the last year with low risk investments?

Thank you

TrustyOven

Hi,

I predict you won't get many useful replies until you specify:

- how much capital
- what it's invested in
- what exactly is low risk? (one person's low risk might be another's high risk)
- which specific risk? (there are many risks)

dunstonh

Can anyone suggest what returns - after IFA fees - someone should have expected over the last year with low risk investments?

In addition to the above asked by TrustyOven.....
What tax wrappers are being used?
What is your definition of low risk? (perhaps give us the target volatilty range for the portfolio)

One person's low risk is another person's high risk. So, without context, it is impossible to know.

Also, remember that low risk portfolios would not have been as good as higher risk portfolios over the last 12 months. So, it is important to know the volatility range.

bowlhead99

For investing with a vague remit such as "low risk investments", but not ultra-low risk investments (ie something offering more investment risk than cash and very short-dated government bonds), you would generally expect answers in the ballpark of "a few percent" or perhaps, "inflation plus a little bit".

UK bank base rate was solidly 0.25% for the period with CPI/CPIH inflation at 2.7-2.9% for the year to May 2017 (June yet to be published). With the decline in purchasing power of the pound on the world stage, any exposure to foreign assets or foreign incomes via equities or overseas bonds will have boosted returns. Some low risk strategies will have avoided foreign assets more than others.

Those that did not shun foreign currency exposure or equity exposure will have done very well (more than would have been expected without the benefit of hindsight) as the rate of return in some world stock markets was comfortably higher than long term averages, especially when favorable currency effects are taken into account for a UK investor.

bostonerimus

As other's have pointed out the OP's question is too vague to give a meaningful answer.

What are the IFA fees?
What are the "low risk" investments?
What are the returns over a number of years?

cookie365

Thanks everyone, I don't know the details, just the returns after fees.

I didn't want to quote the figures in case it accidentally biased the replies, but it looks like that wasn't the right thing to do.

After fees, my relative is getting back about 1.4% per year over the last 2 years.

I think that's poor but I don't know enough about investing to be sure.

AnotherJoe

cookie365 wrote: »

Thanks everyone, I don't know the details, just the returns after fees.

I didn't want to quote the figures in case it accidentally biased the replies, but it looks like that wasn't the right thing to do.

After fees, my relative is getting back about 1.4% per year over the last 2 years.

I think that's poor but I don't know enough about investing to be sure.

cake and eat it ?

They want low risk and high returns ?

"Low risk" isn't a meaningful measure. As said one persons low is another's scary.

I personally think that 1.4% is a miserable return but who knows what instructions your relative gave. They may have demanded that there was no chance of them losing money for example, in which case 1.4% is probably what they would get.

tacpot12

If the instruction was to have no chance of them losing money, 1.4% after charges is very good.

jimjames

cookie365 wrote: »

After fees, my relative is getting back about 1.4% per year over the last 2 years.

I think that's poor but I don't know enough about investing to be sure.

After fees I got nearly 25% last year but my portfolio is very high risk. Horses for courses. You can't expect to have low chance of losing money as well as massive returns.

If they're not happy with it then maybe they should review the risk they're taking?

bostonerimus

tacpot12 wrote: »

If the instruction was to have no chance of them losing money, 1.4% after charges is very good.

You could do better than that from a fixed rate saving bond. If you'd just put the money in VLS20 last year you'd have made over 10%.

dunstonh

Most IFAs operate a 1-10 risk scale. The weighting vary and some may have 1-15 but the principle across all risk scales is the same.

On our scale, 1 is cash. 2 is completely pointless and I dont think any investment is currently available that its in 2. 3 is the lowest risk where risk based investments appear and the returns are very very low. Barely worth the effort as you only get just above cash savings. So, if your relative is in that category then 1.4% would be about risk. Risk 4 (on our scale) is where it starts to become more sensible (as in where rewards vs risk start to make more sense) but our risk four is actually called Lowest Medium (i.e. the lowest level of the medium range). This is why context is needed.

Remember the IFA is not the one that is generating the rate of return. The IFA selects the investments after due diligence and research based on what is suitable for that client. If that client is low risk and sets criteria of little or no capital loss than the IFA has to comply with that. The fact it ends up at 1.4% is not the fault of the IFA.

You could do better than that from a fixed rate saving bond. If you'd just put the money in VLS20 last year you'd have made over 10%.

VLS20 has no capital security and is not the lowest risk category. Anything that made 10% in a year can lose 10% in a year. And there are people out there who call themselves low risk who get scared when their portfolio goes down 2%. let alone 10%