Ongoing use of IFA

Snakey

Last year's resolution was to sort my finances out, and in about February I duly signed up with a financial adviser to manage my pension fund and ISA investments (around £950k and £150k respectively). The charge is 0.8% appplied to my pension fund only, so about 0.7% overall for total funds under management.

I was assuming that they would be swapping investments in and out from time to time, but they haven't touched it since the day they set it all up. They also haven't had any other ideas or suggestions, apart from some EIS investments (but I pay an additional fee for those, it's not included in the basic cost, and all the correspondence comes directly from the providers). So I'm paying something like £150 a week for them to do basically nothing.

I do have one meeting a year (in addition to the initial meeting) but they mildly irritated me because a) they compared their investment picks against the FTSE and acted like they should get a medal because their picks did better and then got defensive when I said it'd be more useful to have a comparison against the performance of the funds I'd been in when I handed over to them, and b) when I originally went to see them I had already done a very amateur cashflow, which had me taking out my pension lump sum just as soon as I could access it. They made a big deal about how it was far more efficient to draw it down over time, which surprised me but made me think oh I'm getting my money's worth here. Then at our meeting they'd changed it back again... and tried to present this to me as if it was some brilliant piece of tax planning that they'd come up with that would save me loads of money. But it was what I'd been going to do in the first place!

So both of those things, although minor, left a bit of a bad taste in my mouth, because it's like they must think I'm stupid or something. It also makes me wonder whether they are actually that good at all, if the only thing they can think of to impress me is try to pull the wool over my eyes - haven't they actually done anything real worth telling me about?

I'm sort of thinking that if all they're going to do is rebalance everything once a year, well, now that they've done the initial allocations I can take it over myself. The terms of the contract I have with them is that I can stop any time I like with no further fees or exit charges.

But I need to make an informed decision and right now I'm not sure I'm seeing the full picture. Is there any value in continuing to pay? Is there stuff going on behind the scenes? Do they come into their own on the day of a crash and so I should see the ongoing fee as more like an insurance policy?

Any advice much appreciated! And do feel free to be as rude as you like. I don't mean to be trying to slate IFAs, the issue is perhaps just that I had too high an expectation of what they would do for me (or perhaps that my level of understanding is greater than I'd given myself credit for and so their value-add isn't as high as it would be if I were less financially literate).

If you have made it this far, thanks for your time spent reading!

Bianchiintenso

I am going through the same doubts at the moment after a meeting with an IFA, seems the more you learn, the more you realise IFA's aren't the only answer to your pension and investment demands, see the thread pensions for more info
http://forums.moneysavingexpert.com/showthread.php?t=5759796
Personally in the dealings i have had so far with IFA's, they seem only to be interested in having a long term contract for a percentage of my funds with (obviously) no guarantees that they can perform any better in the years to come. Like many, i am realising that I had a deluded view of IFA's as every pension/government website says "seek the advice of an IFA". I've tried 3 who are not interested in working for a one off fee for advice, they want to manage my funds or not interested!

dunstonh

The charge is 0.8% appplied to my pension fund only, so about 0.7% overall for total funds under management.

That is high for over 1m. 0.5% or under should be target. it is also technically a breach as charges from pension are only allowed for pension advice and must not be used for advice in other areas.

I was assuming that they would be swapping investments in and out from time to time, but they haven't touched it since the day they set it all up.

You wouldnt expect changes to be made by an IFA like that. If it is on advisory basis, then once a year at review you would expect it. If it was on discretionary basis (which costs more) then changes happen more frequently but even then it only averages around 3-4 times a year.

They also haven't had any other ideas or suggestions, apart from some EIS investments (but I pay an additional fee for those, it's not included in the basic cost, and all the correspondence comes directly from the providers). So I'm paying something like £150 a week for them to do basically nothing.

They are not there to provide suggestions. They are there to provide advice. You have only been there 10 months. You shouldnt expect changes every couple of months. Annual tends to be sufficient for most. Most advisory firms have the ongoing charge as the catchall and nothing in addition to that. So, this again makes the existing firm look more expensive than most.

had already done a very amateur cashflow, which had me taking out my pension lump sum just as soon as I could access it. They made a big deal about how it was far more efficient to draw it down over time, which surprised me but made me think oh I'm getting my money's worth here. Then at our meeting they'd changed it back again... and tried to present this to me as if it was some brilliant piece of tax planning that they'd come up with that would save me loads of money. But it was what I'd been going to do in the first place!

I do far more phased flexi-access drawdown than flexi-access but it requires an analysis of the situation and working out future plans and allowances to see which option comes out best.

I'm sort of thinking that if all they're going to do is rebalance everything once a year, well, now that they've done the initial allocations I can take it over myself. The terms of the contract I have with them is that I can stop any time I like with no further fees or exit charges.

Funnily enough, I just did a performance comparison for one of my advisers who has an SJP rep sniffing around one of his clients. The client also mentioned just going DIY with VLS. We mapped his returns since 2012 at 93.6%. Whereas SJP would have been 54.56%. VLS was 73.7%. We also mapped in there had the 2012 allocations and selections remained in place and no changes made after that, it would have been 80.39%. So, we were able to show the value of the ongoing reviews.

So both of those things, although minor, left a bit of a bad taste in my mouth, because it's like they must think I'm stupid or something. It also makes me wonder whether they are actually that good at all, if the only thing they can think of to impress me is try to pull the wool over my eyes - haven't they actually done anything real worth telling me about?

I think there is a failure in expectation and realism. I don't think any adviser would think you stupid. For some firms, you would be a major client (more rural basis ones typically). For a city firm focusing on high net wealth, you may be at the lower end. If its a larger firm with lots of employee advisers then ownership of you may not be as strong. There are many models and some do not suit everyone.

Is there any value in continuing to pay? Is there stuff going on behind the scenes? Do they come into their own on the day of a crash and so I should see the ongoing fee as more like an insurance policy?

I think yours is expensive and you have no trust in them. As mentioned, I think this is down to a failure in communication and expectation. There is lots of stuff that goes on behind the scenes. I havent personally had an appointment with a client for over a week but have been running 12 hour days sorting things out for clients who may only get a short letter or a quick phone call.

An adviser/client relationship needs communication and trust. If you don't value the relationship or trust it then there is no point having it. If either side cant communicate then it is destined for failure. That does not mean the option should be ruled out completely. You may have another firm down the road with a different model that suits you better and you may be a major client to them vs you being small fry with the existing.

It's a very personal thing as well. If you have the wrong adviser in terms of personality or style or model, then its never going to be right for you.

Linton

Snakey wrote: »

.......

I was assuming that they would be swapping investments in and out from time to time, but they haven't touched it since the day they set it all up.......

That is good. In the ideal world you would set up your portfolio to meet your needs and leave it alone to do its stuff. Continually swapping investments in and out is a good way to lose money.

In practice occasional tweaks are needed, perhaps as one investment increases or decreases enough to begin distoring the portfolio. And of course your requirements may change over time. But anything more than a 6-monthly or annual review should be unnecessary.

If you are steadily drawing down you may need to keep an eye out for major falls in the market which could lead to a change in drawdown strategy but only rarely will any action be required.

bostonerimus

I feel that paying an IFA for advice is ok, but ongoing "management" of your assets is pretty much a rip off in many cases. Save yourself 0.7% and DIY your investments and only use IFAs for one time bits of advice. Quoting 5 years returns will always produce a spread of return, my 70/30 portfolio and no rebalancing approach has produced 89% return since 2012, so this stuff isn't rocket science. You can do pretty simply things that will allow you to beat many IFAs and their subcontracted wealth managers, but there will always be some that you will lag. That's the nature of investing.

capital0ne

If you've managed to accumulate a nice size SIPP and ISA portfolio, you've obviously got the intelligence to DIY - at least you've realised that on going advice is complete waste of time, so ditch it now.

Obviously nothing will change year on year because if the IFA is any good then why should it change (unless your circumstances change of course).

You'll get a few replies saying how you won't be able to DIY, you'll make a hash of it, but they all have a vested interest so ignore those.

Its a bit like asking a damp specialist if your house has a damp problem. Or asking a brick paving company whether brick or gravel would be suitable for new driveway.

dunstonh

You'll get a few replies saying how you won't be able to DIY, you'll make a hash of it, but they all have a vested interest so ignore those.

I have been here a lot longer than you and I don't recall anyone ever posting that you will make a hash of it.

It is just the same as any job where people can DIY. If you do it well, it can save you money. If you do it badly it can cost you money. On this board we see some people attempting DIY and they are clearly doing it well. Other times we see people attempting DIY and are making a right pigs ear of it.

Vested interests work both ways. The pro DIY brigade will always put people off advice as that is their bias. They cannot fathom that some may prefer advice. There is plenty of room for advice and DIY. There is no need for bias.

bostonerimus

dunstonh wrote: »

It is just the same as any job where people can DIY. If you do it well, it can save you money. If you do it badly it can cost you money. On this board we see some people attempting DIY and they are clearly doing it well. Other times we see people attempting DIY and are making a right pigs ear of it.

Vested interests work both ways. The pro DIY brigade will always put people off advice as that is their bias. They cannot fathom that some may prefer advice. There is plenty of room for advice and DIY. There is no need for bias.

The big difference between the amateur "DIY brigade" and the professionals is that the amateurs don't have a financial stake in their position. I believe that many professionals provide a genuine benefit to their clients who either can't be bothered and or are too frightened to DIY., But what I don't like is any effort to keep investing as a "dark art " to stop the vast majority of people from DIYing who have the bit of common sense that you need to succeed.

OldMusicGuy

You need very clear investment and financial goals to make the decision which way to go. I have a large DC pot and savings (similar to yours) that I manage on a DIY basis and am very happy with how it's going. I personally would resent paying IFA fees when I am comfortable making investment decisions myself, but I have specific goals in mind that I feel I can achieve on a DIY basis. I have come to this conclusion over many years and have used both IFAs and FAs in the past.

It sounds like you feel you aren't getting value from your current IFA. I would feel the same way myself based on what you have told us. I would consider other IFAs and maybe compare that against going DIY.

TheTracker

I’ve followed your story here on MSE and sad to hear you’re experiencing this.

The key points I make are:

An IFA isn’t there to switch investments in and out regularly, or change your asset allocation regularly. Change the latter only on changes to your life plans, that’s probably only a handful or two times across your life. Change the former no more than annually (active) or every few years or more (passive). As a mid-40’s person during the last 5 years I’ve not changed my asset allocation one bit. I’ve made only one fund change, and that was because a more appropriate one became available to meet the allocation, not because the old one had anything wrong with it. I like to think this would have been the case if I was taking either a DIY or IFA approach.

My view is that the market for ongoing financial advice at its core is not value for money for a person without unusual circumstances. Simply, it costs £5000 per annum to maintain a client with a £1m portfolio, where cost includes salaries, training, regulation, and for a firm profit. I could pay someone £5k pa for all sorts of services where the price is fair for what it costs someone to provide the service to me, but it doesn’t mean it’s value. So the industry creates an air of mysticism and mild FUD to sell poor value for money advice.

ivormonee

I wonder whether you (OP) may be able to relay some of your sentiment to your IFA (in a tactful and polite way) to see what their response is. Of course, if you feel that they may be a lost cause then there are two options as far as I can see. One is to seek out a new IFA, and to quiz them prior to signing up so that you're clear on what they provide and that they meet your future expectations or, the other is to DIY, which will depend on both your own knowledge and experience (which sounds like it may be quite good) and confidence to do so.