Financial advice - ignore it and then DIY

capital0ne

dunstonh wrote: »

IFAs also tend to have clients with higher fund values than DIY investors.

Why do IFAs have clients with high values - is it down to the IFAs skills or do they start with higher values than a DIY investor?

username12345678

I can see both sides of this argument after paying for a year of IFA/DFM involvement with my DB transfer.

If you take the time to educate yourself (and the available resources are incredibly comprehensive) then anybody can learn about how to assess their own risk tolerance, how their age/retirement requirements fit, how to build a SIPP with appropriate asset allocations, rebalancing etc etc etc.

That said, it's far better to pay c1% pa to have your assets managed if you don't have the motivation or confidence to do it yourself rather than guess and make a horlicks of it.

Just be aware of the cumulative costs over a 30+ year investment time scale.

As I approach draw down (10 years away) I will certainly be paying for advice to ensure I minimize my tax liabilities and maximise my income.

bowlhead99

capital0ne wrote: »

Why do IFAs have clients with high values - is it down to the IFAs skills or do they start with higher values than a DIY investor?

I know you are just trolling but let's pretend it's a serious question. A DIY investor can start with £50. They are not going to employ an IFA to manage that £50. People with lower values will often find it is not going to be worth paying the IFA for their time and advice and the IFA is not going to want to spend time on people who can't get an effective result or give them a reasonable income - it's a lose-lose.

If you paid an IFA £500 a year for a review on a £10k portfolio, you would be losing money pretty quickly and you have better priorities for your money not to mention very limited capacity for loss so you wouldn't be investing in risky stuff anyway; bank accounts are simple.

On a £50k portfolio a £500 annual fee would feel expensive but not as bad as what you could lose by making bad decisions for yourself ; on a £100k portfolio it's relatively more affordable. On a £500k- £1m portfolio it wouldn't be as cheap as £500 but there are economies of scale at work - and as 'stick it in a global equities tracker' is something that could see you temporarily lose half a million quid to market fluctuations on a million pound portfolio in a global index, it's understandable that people might seek the experience of a professional if they don't want to gain the knowledge and/or spend the time.

Of course at the 'high value' end of the scale there are plenty of people who don't think financial advice is worth it.

Some of them are right (because they have plenty of knowledge and/or lots of time on their hands). Others think it's not worth it because they don't know what they are missing in terms of different tax positions and asset classes, and might have had some luck in making their own money quite easily when the markets were going up. Who needs to shell out thousands for advice when every man and his dog can make money whatever they invest in? Others have enough money that they could just close their eyes and stick it in a tracker for a long time, and will still have enough money to not run out regardless of the state of the markets. When you have a safety margin of hundreds of thousands you can invest really badly and still get away with it until it hopefully 'bounces back'.

username12345678

Another point about the performance drag of employing an IFA/DFM...

Whilst 1% to 1.5% may sound like quibbling in the margins over cost you need to set that against the forecast returns over your timescale.

With equity and bond valuations stretched as they are most observers are predicting the next decade to return nothing like the historical c8.5% nominal of a 60/40 allocation.

Estimates for the next decade are typically running at around 2% real annual returns which, if it comes to pass, will mean your IFA is taking (on average) 50% of what your investments are earning.

newatc

I used financial advisor once and followed his investment advice which turned out terrible. Fortunately his reasons for choosing one of his two bad ones was also so bad that I managed to get compensation for those losses.
So I'm now reluctant to use an IFA to choose funds while recognising I was probably both unlucky and naive. I wouldn't say my choices are particularly good but they are mine and fee-free.

I would however consider using an IFA on a hourly rate for developing a strategy for specific goals using their wider knowledge of the financial system.

LHW99

newatc wrote: »

I used financial advisor once and followed his investment advice which turned out terrible. Fortunately his reasons for choosing one of his two bad ones was also so bad that I managed to get compensation for those losses.
So I'm now reluctant to use an FA to choose funds while recognising I was probably both unlucky and naive. I wouldn't say my choices are particularly good but they are mine and fee-free.

I would however consider using an FA on a hourly rate for developing a strategy for specific goals using their wider knowledge of the financial system.

If this was an FA rather than an IFA then the term "salesman" comes to mind IMO

DiggerUK

LHW99 wrote: »

If this was an FA rather than an IFA then the term "salesman" comes to mind IMO

It is conditioned into many people, that they are incapable of making financial decisions.
A few are just hopeless with finances, some can't be bothered. But the vast majority could look after their own affairs at a great saving to themselves.

The false distinction made between Independent Financial Advisers (IFA) and Financial Advisers (FA) is just one of the nudge arguments made by IFA's to drum up business.The differences don't amount to anything of substance.

Both of them are sellers of financial services and products. IFA's just try to sound a bit more sexed up..._

newatc

LHW99 wrote: »

If this was an FA rather than an IFA then the term "salesman" comes to mind IMO

Sorry he was I believe an IFA. I've corrected my post.

bowlhead99

DiggerUK wrote: »

It is conditioned into many people, that they are incapable of making financial decisions.
A few are just hopeless with finances, some can't be bothered. But the vast majority could look after their own affairs at a great saving to themselves.

The vast majority do look after their own affairs which is evident from the fact that the vast majority don't directly employ financial advisors (some may have services bought for them as part of workplace pension, but don't reach into their own pocket to buy advice services). They don't have (or don't think they have) the 'luxury' of being able to afford it.

A subset of those people would do better if they bought advice because they do have a reasonable level of assets but don't have the right knowledge or they don't put the right level of effort into it.

One thing you can say about getting an invoice from an IFA is that it focuses the mind on the fact that you have paid for something and therefore managing your 'life savings' is something you consider as important. When you DIY you don't get that invoice and you might just sit around don't nothing about your investments and not properly considering your exposures and risk profile, because nobody is there telling you to do that, and you'd rather watch telly.

The false distinction made between Independent Financial Advisers (IFA) and Financial Advisers (FA) is just one of the nudge arguments made by IFA's to drum up business.The differences don't amount to anything of substance.

On or near the borderline there are some just at one side that will advise across the whole gamut of financial investment products and some just on the other that will stop short in one or two areas and so won't be allowed to say they are fully independent because they don't do everything, even though it might be quite enough for what the customer needs.

The honest advisors will tell you that. However they will also be keen to make clear that the 'FAs' category also includes the bank and insurance company salespeople who will be happy to 'advise' you which of their own tiny range of products might be least worst for your situation but will be allowed to ignite better solutions. Just like if you go to an Apple store they are not going to tell you to save your money and get a Windows or Linux PC or an Android phone or a Swatch. The advice from such tied advisors might not be what you need.

Both of them are sellers of financial services and products. IFA's just try to sound a bit more sexed up..._

Generally if you're paying money for advice, you should do it properly and make sure you're getting independent advice or at least advice that covers a vast range of products in the market and is being properly paid for by you, rather than being effectively 'sponsored' by an employer or service provider of the agent - which would have significant potential to bias the advice.

If you don't have to pay for the advice you shouldn't really expect that what you're being told is anything other than sales patter for the products being promoted. The IFA will be charging for the advice so yeah they have to make it sound better -e.g., independent and high quality - because otherwise they won't make any sales as people would take the free 'service review / upsell' meeting at their bank and stop there.

But the fact that an IFA has a vested interest in selling his service rather than not getting any business, does not inherently make it a bad service or overly pricy etc

bostonerimus

I have no problem with someone going to an IFA or FA for one time advice, it's the ongoing 0.5% or 1% charges that seem ridiculous to me. Once a strategy and portfolio are set there's really not much action to be taken. The financial advice industry does a good job of making this all seem more complicated than necessary and making people believe that they are not clever or knowledgeable enough to DIY. They also like to drum up fear that without an IFA/FA they will get things wrong. Also, as with any service you buy, some advisers are good and some are bad.