Choosing an IFA and fees

dunstonh

One thing I guess I'll have to check is are there any issues with leaving Zurich, ie loss of bonuses? or penalties for leaving?

Correct. Also, you may find Zurich is cheaper once the plan is made paid up. Zurich is a company that has a number of legacy brands (Eagle Star and Allied Dunbar for example). ex Allied Dunbar plans were expensive but the charges were levied against the contributions. When you made them paid up (stop paying into them) there was effectively no annual charge any more.

HL is quite an expensive platform and that is only one part of the charges. You need to add fund charges on top. HL will wipe the floor with Zurich in terms of software but if you are not going to be using that software, then you could end up paying for a white elephant.

_pete_

Bianchiintenso wrote: »

Just spoken to another IFA, who wouldn't take a one off fee for advice (that's two), seems they want to manage my affairs on a monthly basis. Correct me if I'm wrong but seems to me, that they can be picky and choosy at the moment about who they work for, so basically it's an ongoing fee or we won't give advice. All of the government/banking/pension websites say seek IFA, easier said than done!

Three years ago I was paying an IFA 0.5% annually for 'ongoing reviews'. In practice, this meant that he called up my fund details during our annual 30 minute meeting, went through them and said things like "next year, we might think about dropping that fund". If I'd continued with him I'd now be paying him more than £2000 for each of these 'reviews'. That's £4k an hour - not a bad rate is it? And yes, I know that he has lots of costs associated with compliance etc etc.

So I looked around for a new IFA, but before I did so I did a fair bit of reading (on here and a couple of books). I decided I wanted to go down the passive investment route but I lacked confidence to do it myself. So I rang three IFAs (genuinely independent ones) and asked them if they would set me up with a pension invested in index trackers. One wanted to charge me £4k. My existing IFA quoted me £500 to take a fresh look at my pension then a 2% fee plus 0.5% annual fee to set up a different, lower charge arrangement. Another pooh-poohed the passive approach and tried to sell me her 'hands-on' style claiming that she would be checking my funds on a weekly basis(!) and changing investments as necessary.

A couple of points about these IFAS:

1. All were recommended by people I knew.
2. None of them appeared to have any complaints upheld against them.

So, none of them were crooks or completely incompetent. I just don't think that they are particularly good at their jobs. It's like lots of jobs - doctors, lawyers, estate agents - some are good, some are excellent, some are a bit rubbish. Very few are actually negligent.

In the end I found someone who quoted me £750 to set me up with a SIPP of about 10 funds, all in index trackers with the exception of a property fund. He did a full assessment of my needs, wrote a report and got it all set up for me to manage myself online. I was very happy with his service and may well go back to him in a few years time when I'm thinking about drawdown arrangements.

Apologies for the long-winded post, but what I've learned over the past 3 years is:

1. Some IFAs may be able to choose funds which consistently outperform the various indexes, and make extra money for the investor over and above the increased fees. The problem is, I don't know how to spot these advisors. I do know that I have met some very charming and persuasive individuals in the profession though.

2. I'm an 80-90% person in terms of things like exercise, diet, etc. I could probably add a few more months to my lifespan by doing lots and lots of research on what I should be eating, following a stringent regime, practising yoga for an hour a day etc etc. But I do sensible things, and accept that I might be missing out on an extra 10% of health/longevity. I have the same approach to investing - I've done sensible things in setting up a diverse portolio with a sensible proportion of shares/bonds etc. Sure, lots of people could pick holes in it, but from what I've read it's a reasonably sensible approach.

3. Experts (in all fields but particularly economics and finance) have an appalling track record in predicting the future. Some years ago I read https://www.amazon.co.uk/Dance-Chance-Making-Luck-Work/dp/1851687203/ref=sr_1_1?ie=UTF8&qid=1513857017&sr=8-1&keywords=dance+with+chance and it opened my eyes to the futility of trying to second-guess the markets/company performance/the next development in the global economy.

4. I prefer to pay someone to get me off to a good start, then manage things myself. Some people pay a personal trainer to work with them every week in the gym. I paid a guy to draw up an exercise plan, show me how to lift weights with good form and then let me go forward with it.

In conclusion, I do think a lot of financial management is like many areas of life - there are daft options and sensible, defensible options. So long as you choose one of the latter category the main thing is probably to go with an approach that fits your temperament and you know you can live with.

bostonerimus

In the end I found someone who quoted me £750 to set me up with a SIPP of about 10 funds, all in index trackers with the exception of a property fund. He did a full assessment of my needs, wrote a report and got it all set up for me to manage myself online. I was very happy with his service and may well go back to him in a few years time when I'm thinking about drawdown arrangements.

Ahh yes 10 funds. It sounds like having a lot of funds means the IFA did some work and he/she probably talked about diversity. I wonder if they came up with that themselves or farmed it out to another company. I wonder just how much thought went into your allocation or whether it's just a canned allocation that comes out of some software. I wonder how many people involved in generating this allocation have read anything by French and Fama and understand the ideas behind efficient markets.

redux

dunstonh wrote: »

HL is quite an expensive platform and that is only one part of the charges. You need to add fund charges on top. HL will wipe the floor with Zurich in terms of software but if you are not going to be using that software, then you could end up paying for a white elephant.

It depends what the investments are.

In funds, 0.45% a year is quite a chunk. In investment trusts or other shares this is capped at £200 a year.

I have holdings there outside outside SIPP or ISA, after two investment trust savings schemes were closing and suggested moving there. They've earned about £32 from me in a bit over 2 years, two purchases and 1% fees on reinvested dividends.

As my two SIPPs are also in investment trusts and I'm considering merging them, it's one of the candidates.

dunstonh

Ahh yes 10 funds. It sounds like having a lot of funds means the IFA did some work and he/she probably talked about diversity. I wonder if they came up with that themselves or farmed it out to another company.

It doesnt matter if the IFA came up with it or used an external company to provide the data. The IFA is responsible for it.

I wonder just how much thought went into your allocation or whether it's just a canned allocation that comes out of some software.

It doesnt really seem you are satisfied with anything. If it comes out of actuarial data and research its not good. If its self researched its not good. Clearly no multi-asset fund would be any good either as they use the same basis. It must be very hard for you to invest in anything.

Bianchiintenso

So for someone on a sharp learning curve, can you explain the pro's and cons of using a financial advisor who farms out the investment work to another company?
The IFA i've had a meeting with I've noticed, are an appointed representative of a Financial services distribution company which quote "gives our business the support we need to do what we do best" Since this financial services distribution company takes on private clients can anyone explain what the IFA would do in this partnership other than act as an admin/middleman? I am genuinely interested in how the relationship works between all of these parties and adding to my slowly growing knowledge

dunstonh

can you explain the pro's and cons of using a financial advisor who farms out the investment work to another company?

Depends on what is being farmed out. We buy in actuarial data and investment research because it makes commercial sense. Small local firms (which is what most IFAs are) cannot resource to expected levels of governance and due diligence nowadays. We cant pay for IT departments to develop our own systems or employ our own actuaries in-house. So, its quite normal for that sort of thing to be bought in. We also buy in compliance services but its our choice what we do with the advice we are given.

The IFA i've had a meeting with I've noticed, are an appointed representative of a Financial services distribution company which quote "gives our business the support we need to do what we do best" Since this financial services distribution company takes on private clients can anyone explain what the IFA would do in this partnership other than act as an admin/middleman? I am genuinely interested in how the relationship works between all of these parties and adding to my slowly growing knowledge

Couple of issues here. Appointed rep either means they are a tied agent of a provider or a member of a network.

Firstly, are you sure it is an IFA. If its a tied agent then they cannot be IFAs. If its a network member (which sounds more likely from the explanation) then most Networks have ceased being independent and have gone restricted. They may refer to themselves as whole of market but that is not independent. Which network is it? (i.e. who are they an appointed rep of?)

My firm used to be an IFA network member. However, that was back in the day when Networks just dealt with back-office compliance tasks and left you alone in respect of your business model. Networks 20 years ago are very different from networks today. The regulator completely changed the expectation and requirements on the networks since then and most have closed down and ceased being IFA networks. To give you an idea of the change, The UK's largest IFA network closed in 2013 after spending 30 years buying up smaller networks all because of the change by the regulator. Changes included insisting that all member firms must operate the same way, use the same processes, software etc and networks had to cater for the lowest common denominator. Effectively, modern network members are little more than employees doing what their boss tells them to do (although most are still self-employed but attached).

The adviser is never the middle man or admin. Especially if they are IFAs. If they are FAs then a lot of the options are taken off the table and the FA can only select from what is left on the table. However, they are still giving advice.

Personally, I would not use an appointed rep anymore. It was fine years ago but nowadays there are too many restrictions in place and a lack of independence in how you operate. Generally, it is the lower skilled advisers or one man bands that are network members nowadays and most are not IFAs but FAs.

capital0ne

IFAs are generally a complete waste of time if you're just going to set up a simple portfolio for your ISA or SIPP.

With all the information available at your fingertips it's not hard to do your own research

If you still feel you can't do it by all means take advice and PAY for it and a meeting by meeting basis.

The biggest con is taking a percentage based fee, which begs the question why does it cost more to invest £50k or £150k if your desired outcome is the same.

Beware of those doom mongers who say you'll fail. It's just scare tactic so ignore them

dunstonh

Beware of those doom mongers who say you'll fail. It's just scare tactic so ignore them

Beware of the anti-IFA brigade that tell you that you will succeed or save money. They don't know you, what you are like, what you have or what you will do in future. You could go on to make a success of it. Or you could make a right pigs ear of it. We have seen many examples of both on this site.

The biggest con is taking a percentage based fee, which begs the question why does it cost more to invest £50k or £150k if your desired outcome is the same.

The investment selection on £50k and £150k would be different. Liability and workload increases with the larger amount.

Bianchiintenso

dunstonh wrote: »

Beware of the anti-IFA brigade that tell you that you will succeed or save money. They don't know you, what you are like, what you have or what you will do in future. You could go on to make a success of it. Or you could make a right pigs ear of it. We have seen many examples of both on this site.


The investment selection on £50k and £150k would be different. Liability and workload increases with the larger amount.

Which leads me back to who has the liability and the workload, the IFA I mentioned or the financial services distribution company? My guess is the one that i would have to sign a contract with?