IFA Fees

Flying_Dodo

JoeEngland wrote: »

I meant lucky in a general sense as it was said that half of FAs don't make it work. Compared to other professions it is somewhat of a racket if they take a % of future money. I've yet to come across a builder who demands a share of the increased selling price of a home when he builds an extension on it :-D

Of course the builder doesn't have to worry about unlimited and non time barred complaint issues, whilst the IFA has a number of fees such as FCA, FSCS and professional indemnity costs which rise in line with business turnover. Depending upon the size of firm, those would be 10%-25% of turnover.

dunstonh

Compared to other professions it is somewhat of a racket if they take a % of future money.

Why?

If you dont employ them to provide services they dont take any money. If you employ them to provide services, are you suggesting they should not be paid and should be doing it for free?

I've yet to come across a builder who demands a share of the increased selling price of a home when he builds an extension on it :-D

Building is a one off event. Some financial advice can be but some is also ongoing.

Example:

12 months later, a review carried out and portfolio is now out of sync with current allocations. So, needs bringing into alignment. Two of the 10 funds are no longer suitable and need replacing. ISA allowance needs to be used, pension allowance needs to be used. Capital Gains tax allowance needs to be used (and that is probably a section 104 CGT calculation). (plus a change of circumstances check, sustainability check, preparation for future events etc etc)

Transactional one off (no ongoing charges) means none of the things needed will happen unless the person does it themselves.

Ongoing advice (with ongoing charges) sees the adviser do all that on an ongoing basis.

BritishInvestor

Think it’s Transact

https://www.transact-online.co.uk/faqs/

fred246

The parasites used to get continuing sustenance without doing anything. So they didn't do anything. Then the regulator stopped it and made them 'review' your portfolio in return for continued nutrition. So now they do the minimum to keep the host happy.

dunstonh

fred246 wrote: »

The parasites used to get continuing sustenance without doing anything. So they didn't do anything. Then the regulator stopped it and made them 'review' your portfolio in return for continued nutrition. So now they do the minimum to keep the host happy.

Oh do give it a break. We found out on the other thread that you were either telling lies or, if you prefer to be generous, you were mistaken.

JoeEngland

dunstonh wrote: »

Why?

If you dont employ them to provide services they dont take any money. If you employ them to provide services, are you suggesting they should not be paid and should be doing it for free?


Building is a one off event. Some financial advice can be but some is also ongoing.

Example:

12 months later, a review carried out and portfolio is now out of sync with current allocations. So, needs bringing into alignment. Two of the 10 funds are no longer suitable and need replacing. ISA allowance needs to be used, pension allowance needs to be used. Capital Gains tax allowance needs to be used (and that is probably a section 104 CGT calculation). (plus a change of circumstances check, sustainability check, preparation for future events etc etc)

Transactional one off (no ongoing charges) means none of the things needed will happen unless the person does it themselves.

Ongoing advice (with ongoing charges) sees the adviser do all that on an ongoing basis.

Of course I'm not suggesting that IFAs shouldn't be paid, but I find the concept of them taking an ongoing % of someone's investments once they've given and been paid for their advice to be troubling. Maybe part of the issue is that finance has become so convoluted that the ordinary person finds it difficult to deal with effectively.

Flying_Dodo

There's nothing stopping anyone setting up their own investments/pensions/life assurance and then reviewing them regularly. Or they can pay someone to do it for them.

JoeEngland

dunstonh wrote: »

Why?

If you dont employ them to provide services they dont take any money. If you employ them to provide services, are you suggesting they should not be paid and should be doing it for free?


Building is a one off event. Some financial advice can be but some is also ongoing.

Example:

12 months later, a review carried out and portfolio is now out of sync with current allocations. So, needs bringing into alignment. Two of the 10 funds are no longer suitable and need replacing. ISA allowance needs to be used, pension allowance needs to be used. Capital Gains tax allowance needs to be used (and that is probably a section 104 CGT calculation). (plus a change of circumstances check, sustainability check, preparation for future events etc etc)

Transactional one off (no ongoing charges) means none of the things needed will happen unless the person does it themselves.

Ongoing advice (with ongoing charges) sees the adviser do all that on an ongoing basis.

Out of curiosity, if an IFA charges a % (say 1%) for their advice, does the amount of work they do increase with the size of the pot to be invested? For example, if I had a 250k pot would they have to do more work than for a 200k pot?

dunstonh

but I find the concept of them taking an ongoing % of someone's investments once they've given and been paid for their advice to be troubling.

The IFA is paid for initial advice with an initial fee. Plenty of transactions work on that basis with no ongoing fee.

However, remember that most investors using IFAs are investing large amounts with ongoing needs. So, the service just doesnt end at that point. it needs ongoing work. That ongoing work is what is bewing paid for with ongoing fees.

Just like calling a builder back to do more work in the second year or third year will cost you.

Out of curiosity, if an IFA charges a % (say 1%) for their advice, does the amount of work they do increase with the size of the pot to be invested?

Work can increase and liability certainly increases and the use of different tax wrappers and forward planning increases. A smaller investor may use a multi-asset fund. A larger investor may use a model portfolio which involves more work.

if I had a 250k pot would they have to do more work than for a 200k pot?

CGT could come into play more. Liability is greater.

Many IFAs do taper their charges.

Aegis

JoeEngland wrote: »

Out of curiosity, if an IFA charges a % (say 1%) for their advice, does the amount of work they do increase with the size of the pot to be invested? For example, if I had a 250k pot would they have to do more work than for a 200k pot?

It's not a direct link between size of portfolio and amount of work, though larger asset values do tend to generate more work than smaller ones simply because of increased complexity.


Nevertheless, the lack of a direct linear relationship relationship between portfolio value and amount of work does lead me to suggest fixed fees (rising with inflation, if we're being strict) to clients more often than percentage-based ones. This approach generally seems quite popular.