Meeting with my IFA and Wealth Manager

dunstonh

chiang_mai wrote: »

Is that £821,000 in todays Pounds or future Pounds!

Wow...! There is no contract with any IFA, it's something you can agree to and switch off when ever you want, why are you even considering costing IFA services over 40 years as part of your decision making process!

It is future money. Plus, the IFA would not be taking 1.5%. On figures of that size, you would expect the typical 0.5%.

There also appears to be an assumption that this lowers the returns vs DIY. That is not necessarily the case. If the DIY is bad, it can be a costly error and if it's in investments that perform to a lower level then it can be false economy to pay less and get less.

HappyHarry

I think the key is not how much less you will get by using an IFA, but how much more you can you gain.

These kind of comparison figures always assume that you will make the same decisions yourself as the IFA recommends. Including future changes to the portfolio. This does seem somewhat unlikely.

Can you;
(i) Get the same or better performance as the portfolio recommended by the IFA for the same or lower level of risk.
(ii) Make the same or better future adjustments to your portfolio and stay within the same or lower level of risk.
(iii) Keep up to date with legislative changes over the next 40 years to ensure your portfolio is invested in the most appropriate tax-wrappers for your circumstances.

If you can do all the above, then the IFA fee is indeed an unnecessary drain on your overall return.

However, if you can't, then the IFA fee may well be worth paying, as you are likely to end up financially better off in 40 years time compared to going DIY.

username12345678

HappyHarry wrote: »

I think the key is not how much less you will get by using an IFA, but how much more you can you gain.

These kind of comparison figures always assume that you will make the same decisions yourself as the IFA recommends. Including future changes to the portfolio. This does seem somewhat unlikely.

Can you;
(i) Get the same or better performance as the portfolio recommended by the IFA for the same or lower level of risk.
(ii) Make the same or better future adjustments to your portfolio and stay within the same or lower level of risk.
(iii) Keep up to date with legislative changes over the next 40 years to ensure your portfolio is invested in the most appropriate tax-wrappers for your circumstances.

If you can do all the above, then the IFA fee is indeed an unnecessary drain on your overall return.

However, if you can't, then the IFA fee may well be worth paying, as you are likely to end up financially better off in 40 years time compared to going DIY.

Point 3 regarding legislation and process is valid.

I'm more than happy to pay for advice as I approach drawdown to ensure I do it as efficiently as possible.

bostonerimus

chiang_mai wrote: »

Is that £821,000 in todays Pounds or future Pounds!

Wow...! There is no contract with any IFA, it's something you can agree to and switch off when ever you want, why are you even considering costing IFA services over 40 years as part of your decision making process!

It's good to understand what 2% fees will do over time. If you pay them for 40 years your ending pot will be roughly half the size (44%) of the pot without fees.....that of course assumes similar returns with and without fees. 1% fees will reduce your pot by 67% of the pot without fees.

The key is if you believe an IFA can consistently do better than you. I don't believe that they can. I've managed a 30 year return that equates to 8.5% every year. A large part of that number is produced because my total fees are 0.1%......very little cummulative drag.

The biggest issue with the projections above is the use of a constant 7% return. You're going to have to deal with a distribution of returns, some negative, during those 40 years.

davieg11

An example from me. My IFA recommended Royal London Governed Portfolio 7 for 1% ongoing fee. I negotiated down to a fee of 0.65%, plus 0.45% fee from Royal London. The last 3 months return has been 0.1%. My own works fund is mostly SL Baillie Gifford Life Managed Fund. Fees are 0.79%. Returns last 3 months are 0.7%. Obviously the next 3 months could be completely different but if you are willing to take an interest in your future wealth and check once or twice a year and don't panic on stock market crashes you could have the £1.5 million rather than the £821,000, in theory of course!

Audaxer

dunstonh wrote: »

It is future money. Plus, the IFA would not be taking 1.5%. On figures of that size, you would expect the typical 0.5%.

There also appears to be an assumption that this lowers the returns vs DIY. That is not necessarily the case. If the DIY is bad, it can be a costly error and if it's in investments that perform to a lower level then it can be false economy to pay less and get less.

I agree, but surely if the IFA someone selects turns out to be bad (as I am sure you get good and bad IFAs) it could also be a costly error.

username12345678

Audaxer wrote: »

I agree, but surely if the IFA someone selects turns out to be bad (as I am sure you get good and bad IFAs) it could also be a costly error.

When you choose an IFA you're taking a punt on someone who is going to take a punt on a wealth manager who is going to take a punt on 15+ fund managers who are going to take multiple punts themselves.

Lots of 'educated' guessing going on. :rotfl:

dunstonh

username12345678 wrote: »

When you choose an IFA you're taking a punt on someone who is going to take a punt on a wealth manager who is going to take a punt on 15+ fund managers who are going to take multiple punts themselves.

Lots of 'educated' guessing going on. :rotfl:

When you DIY, you are putting a punt on yourself to do the same things.

username12345678

dunstonh wrote: »

When you DIY, you are putting a punt on yourself to do the same things.

That's true of course.

I do wonder if it's psychologically easier for amateur investors to rationalise away investment losses when they happen under the eye of a professional.

If they self manage there is no way to abrogate that responsibility.

bostonerimus

dunstonh wrote: »

When you DIY, you are putting a punt on yourself to do the same things.

I'd rather bet on myself with a simple low cost tracker portfolio and know exactly what's happening to my money that employ and IFA, FA or Wealth Manager. Over the long run a low cost tracker portfolio is probably going to beat most active portfolios, so I'm not going to pay someone to manage an active portfolio and as there is very little management to do with a passive portfolio it's simply not worth paying anyone to manage it.