IFA Fees

BritishInvestor

Prism wrote: »

So you don't think that the skill/experience of an IFA has any effect on the returns you might get?

There's going to be a very small percentage of IFAs (or anyone else for that matter) that can pick winning funds that outperform their (correct, not chosen) benchmarks (and therefore a portfolio over the aggregate benchmark) over long periods of time. That's not really their job or where they add most value.

fred246

Yes the IFA will always take a large guaranteed fee. Whether the customer benefits will depend on stock market performance. The customer could lose a lot. The IFA takes no such risk.

Alexland

cloud_dog wrote: »

You seem to be coming at this from a 'how do IFAs justify themselves' perspective in comparison to the DIY option.

I actually support that many people need quality investment advice and education to make sensible initial and ongoing decisions especially if their circumstances change or during periods of high market volatility.

Where I struggle is when either DIYers or IFAs feel the need to start making up model portfolios which then require ongoing local effort to maintain. It just seems so very inefficient when high quality, low cost and ready-made funds already exist for different risk appetites and there appears to be no evidence to suggest that on average the portfolio approach will do better.

dunstonh wrote: »

Potentially lower charges (our model portfolio OCF plus adviser charge comes in cheaper than most multi-asset funds).

Would the charges be materially different to the circa 0.20% on many passive mixed asset funds? Looking at some of the discounted and institutional rates it seems that it should be possible to construct these all types of funds for under 0.10%?

Alex.

HappyHarry

fred246 wrote: »

Yes the IFA will always take a large guaranteed fee. Whether the customer benefits will depend on stock market performance. The customer could lose a lot. The IFA takes no such risk.

Unless, of course, it's a client with a very low attitude to risk, in which case, they could lose a little.

There are figures demonstrating that DIY investors tend to have far higher attitudes to risk than advised investors.

That's due in no small part to the fact that an IFA will explain the downside of investments very clearly, and investors will then often reduce their attitude to risk accordingly. Those taking a DIY approach often don't fully consider the downside.

So, you could easily point out that those using an IFA tend to lose far less than those going for a DIY solution, during periods when the markets fall.

(I do recognise there are a number of regular posters on here who DIY, and do take risk into account very well. There are a greater number, however, who don't!)

dunstonh

Would the charges be materially different to the circa 0.20% on many passive mixed asset funds? Looking at some of the discounted and institutional rates it seems that it should be possible to construct these all types of funds for under 0.10%?

There are not many multi-asset funds that charge 0.2%. And the performance is above those that do.

Where I struggle is when either DIYers or IFAs feel the need to start making up model portfolios which then require ongoing local effort to maintain. It just seems so very inefficient when high quality, low cost and ready-made funds already exist for different risk appetites and there appears to be no evidence to suggest that on average the portfolio approach will do better.

There is no evidence that they do not either.

I have just finished a rebalance on a portfolio this morning. 14 funds in the model (but only 10 currently used in that risk profile). Of those 14 funds, 5 are trackers, 9 are managed. Of those 14, three have been bottom half performers over 3 years. Two of those bottom performers are trackers and one is managed. A property fund in bricks and mortar. So, you expect Q3/4 performance (as property share typically fills the top half during growth periods). The portfolio this morning saw two changes from last year. two managed funds out and replaced with a tracker and a managed. The latter replacing a fund that has been a very good performer and held for over a decade.

There seems to be an assumption that if you pick say 10 funds then all 10 of your funds will underperform a tracker. In reality, I find around 7 out of 10 will usually be top half and 3 will be bottom half and inevitably, at least one of them will be a tracker.

Now, if you asked me to pick one managed multi-asset fund that I thought was going to stand out above the rest, I don't know if I could do that. I think if you are going to go MA then you may as well go passive underlying.

Prism

dunstonh wrote: »

The portfolio this morning saw two changes from last year. two managed funds out and replaced with a tracker and a managed. The latter replacing a fund that has been a very good performer and held for over a decade. .

Out of interest when this fund change happens for your model, do you immediately change your clients funds or wait for a review or rebalance?

dunstonh

Prism wrote: »

Out of interest when this fund change happens for your model, do you immediately change your clients funds or wait for a review or rebalance?

I'm advisory, not discretionary. So, it gets done at next review. Only discretionary can make the change it immediately.

There is rarely an urgency with these things.

fred246

dunstonh wrote: »

You are welcome to put the study in, pass the qualifications and put in the work hours that a new adviser would have to do. However, be prepared for failure. Over half the advisers that attempt to join the profession leave within 2 years as they cannot make a success of it.

It's a bit like being a footballers agent. Spivs think "how can I make lots of money without needing to put a lot of effort in?" "Oh yes let's be an IFA." Unfortunately with no track record it's hard to be employed. If you were a top footballer would you employ an agent with no experience? It's hard to start being an IFA but it's not a difficult job. Ask a few questions. Make a few recommendations. Charge a few thousand. Actually I'd be quite good at it. I was wondering what to do in my retirement. Hmm maybe.

HappyHarry

fred246 wrote: »

It's a bit like being a footballers agent. Spivs think "how can I make lots of money without needing to put a lot of effort in?" "Oh yes let's be an IFA." Unfortunately with no track record it's hard to be employed. If you were a top footballer would you employ an agent with no experience? It's hard to start being an IFA but it's not a difficult job. Ask a few questions. Make a few recommendations. Charge a few thousand. Actually I'd be quite good at it. I was wondering what to do in my retirement. Hmm maybe.

I'm not convinced you know what an IFA does. However, I'll bite.

What qualities do you have that you think would make a good IFA?

fred246

I am good at listening, can use a computer and can fill forms and send invoices for large amounts of money. I am very tactful and I am very keen never to upset anyone.