IFA's - Do you use them? Are they worth it?

Joey122

Hi,

Broadly speaking what benefit do IFA's give you and how do you diffrentaite between good IFA and bad ones?

Is there a particular metric which you can use to tell a good one from a bad one?

How do they make their fees? Can you go to an ISA , get their advice and then bypass them by going to a fund supermarket? Is that allowed , Can they stop this?

Thanks very much!

jem16

Joey122 wrote: »

Hi,

Broadly speaking what benefit do IFA's give you and how do you diffrentaite between good IFA and bad ones?

They give you the benefit of advice on how to invest if you are not able or have the time to go DIY. A good IFA will expalin his/her research and why they have chosen a specific product. He/she will also be willing and able to answer any questions you may have.

How do they make their fees?

They will either work on commission basis or fee basis.

Can you go to an ISA , get their advice and then bypass them by going to a fund supermarket? Is that allowed , Can they stop this?

I'll assume you mean IFA as opposed to ISA.

Persoanlly I would never dream of doing this. Morally it would be very wrong. I doubt they could stop it but you may find a bill for their fee dropping through your door - I don't know.

The best way to find a good IFA is through a recommendation. I doubt you would get many recommending their IFA if this was how you would treat them.

Joey122

I want to make clear that this is not what I was suggesting - Its the first time I ve heard of IFA's and wanted to know exactly how they are regulated and how they operate so that interactions with them can be as transparrent with them.

More specifically if you choose an IFA and then meet another who has overlapping ideas but not neccessarily the same will you have to pay fees twice?

jem16

Joey122 wrote: »

I want to make clear that this is not what I was suggesting - Its the first time I ve heard of IFA's and wanted to know exactly how they are regulated and how they operate so that interactions with them can be as transparrent with them.

Glad to hear that.

They are regulated by the FSA ( Financial Services Authority) so you have some comeback if you have been advised wrongly. This doesn't mean that you can complain if your investment performs worse than you hoped for as investments can go up or down. What it does mean is that they must give you the best advice for your circumstances.

More specifically if you choose an IFA and then meet another who has overlapping ideas but not neccessarily the same will you have to pay fees twice?

There is nothing to stop you seeing more than one IFA and comparing their commission or fees. A lot will give you a free introductory meeting and an outline of their ideas. However they may be looking for a commitment from you before going into the nitty gritty of exactly where to invest. However it is still possible to back out if you don't like their advice in the end.

egamar

This might be inflammatory, but I reckon you only need an IFA when you've got a lot of money (or complex affairs - and that normally means a lot of money) or some special bit of planning like pension arrangements for the self-employed, IHT planing, CGT issues, discretionary will trust investments and so forth.

If you're just putting £7k/£14k into ISA's each year, your choices will be about as good as theirs (if you do a bit of reading and asking around in here first).

We use an IFA for my dad's £300k will trust, but not for our own £130k ISA portfolio built up over years; and I see no reason to; my mum doesn't use one for her £200k+ cash and shares, but I wish she would.

In the former case, the IFA was worth every penny. Her advice was sound from start to finish, and even if we didn't choose the "best" solutions, we knew that we had made our choices on sound reasoning.

In our own case, for £14k a year into ISAs we did our own research, and made a reasonable fist of it. We go it looked over when we transferred our big-enough portfolio to a broker who would give us a review, and he made one or two suggestions to de-risk and consider property (where we were under invested). That cost us nothing, because we had £100k+

In the latter case. I wish she'd use an IFA for her peace-of-mind that she's doing the right thing with her shares and cash. She knows she isn't, but is reluctant to take a step that involves paying someone for advice. That's short sighted, and even if the IFA says "Nope, everything you're doing is fine" that is worth a reasonable fee for getting peace of mind.

That's how I would use IFAs, anyway ....

Joey122

Egamar,

Thanks very much - Thats useful info.

Hyrpotetically speaking if you invest 100K in one fund(I m not propsing this - This is just an example), outside of your ISA, and it yields 5% thats going to give you 5K. Is this classed as CGT for tax purposes? Do you have 9K of CGT relief a year? Can this be booked as it?

jem16

Yes any profit you make would be liable to CGT. Yes you have a CGT allowance of around £9k this year.

Problem arises when you allow your fund to grow over a number of years - you can't carry over unused allowance.

Joey122

Really? Can t you close out your position on the 4 th April if they are in the money and open them up again on the 5th?

That would avoid it - No?

Aegis

No. Buying the same fund after selling it within a few months of each other don't count as individual. I think that loophole was closed a few years back because people worked out exactly what you just said

However, you could feasibly change from one fund into another similar fund and avoid gaining huge amounts from a single investment. I think that might be next to impossible to ban!

egamar

Aegis wrote: »

No. Buying the same fund after selling it within a few months of each other don't count as individual. I think that loophole was closed a few years back because people worked out exactly what you just said

However, you could feasibly change from one fund into another similar fund and avoid gaining huge amounts from a single investment. I think that might be next to impossible to ban!

It used to be called 'bed and breakfasting". It was referred to on Working Lunch just last week, I think. ISTR you can't buy back the same investment inside a year. Your spouse/civil partner probably could though ....

And yes, you could switch to a similar fund. no problem - but beware the charges if outside an ISA.

You could also cash out your ISA allowance CGT free (obviosuly depedning on what these become over time) from the large non-ISA investment each year and put that amount into an ISA ..... twice that if you have a spouse/civil partner

cheerfulcat

Joey122 wrote: »

Hyrpotetically speaking if you invest 100K in one fund(I m not propsing this - This is just an example), outside of your ISA, and it yields 5% thats going to give you 5K. Is this classed as CGT for tax purposes? Do you have 9K of CGT relief a year? Can this be booked as it?

If it has a yield of 5%, that is, it pays out that much in dividends, then this is classed as income. Dividends are treated as having had tax paid to the appropriate basic rate level so as long as the gross dividend ( dividend actually paid + notional tax credit ) doesn't push you into the higher rate tax band there is no further tax to pay.

Capital gains occur when you sell an asset for more than you paid for it. The first £9200 ( current tax year ) is exempt.

Can t you close out your position on the 4 th April if they are in the money and open them up again on the 5th?

As others have indicated, " bed and breakfasting " was outlawed some years back - you need to leave 30 days between selling and buying back, or use the alternative " bed and spouse " or " bed and ISA ".