Discretionary Fund Managers

dunstonh

If you feel you need someone to help make sure they give you value for money and I would see if you can employ them on a "one off basis". Try to avoid paying someone an annual fee to "manage" your portfolio as for 99% of people a well constructed financial plan should be easy to self manage.

I totally disagree.

If you employ the adviser to provide advice on a transactional/one off basis then the advice will reflect that and a portfolio will not be put in place. Expect a multi-asset fund as the recommendation. And as myself and the other IFAs that post here have said before, their portfolios have been outperforming the often mentioned multi-asset funds.

Assuming 99% of people can manage a portfolio is just plain wrong. Yes, some can but it is a minority. Not a majority and certainly not 99%.

A very useful thread. A related aspect is the varied roles of "platforms". We use HL to do the clerical work such as record keeping and reporting, bed and ISA ing and dividend reinvesting but not to advise us. Are those typical platforming activities offered also by IFAs?

An IFA does all those things but would not use HL as they are too expensive. IFA platforms are getting into the 0.2x% p.a. range or cheaper. Half the cost of HL.

short_butt_sweet

dunstonh wrote: »

I totally disagree.

If you employ the adviser to provide advice on a transactional/one off basis then the advice will reflect that and a portfolio will not be put in place. Expect a multi-asset fund as the recommendation. And as myself and the other IFAs that post here have said before, their portfolios have been outperforming the often mentioned multi-asset funds.

typically, the people whose investments have done well are more keen to talk about it than those who have done badly. and without questioning IFAs' professionalism, IMHO that's likely to apply to IFAs' portfolios too.

anybody may outperform for a while (even by accident with a really bad portfolio!), but that can easily change (even for a sensible portfolio).

in order to use an IFA portfolio, you also have to pay the IFA's charges for advice, plus the charges for the platform the IFA uses. so the IFA portfolio is handicapped by those extra charges, and even if it beats a multi-asset fund before adding those charges, may well lose after taking all costs into account.

Assuming 99% of people can manage a portfolio is just plain wrong. Yes, some can but it is a minority. Not a majority and certainly not 99%.

i agree with you here, however. most people who are not experienced investors, if they are not using an IFA, should go for a multi-asset fund. then there are fewer ways to mess it up.

An IFA does all those things but would not use HL as they are too expensive. IFA platforms are getting into the 0.2x% p.a. range or cheaper. Half the cost of HL.

this is why i was counting the platform an IFA uses as an extra cost. perhaps you were about to say that DIY investors also need to pay for a platform. they do, but people with enough investible money to interest most IFAs could put it all in a multi-asset fund with iweb / halifax share dealing, and pay virtually nothing for the platform (as a %).

so if IFA platforms cost c. 0.2x%, and the typical IFA advice charge is 0.5%, then an IFA portfolio has a handicap of c. 0.75% compared to a multi-asset fund on iweb. it needs to beat multi-asset funds by more than that to come out ahead.

there are some good reasons people might use IFAs (e.g. can't handle picking a multi-asset fund, or holding it through market downturns, or want the assurance of a professional making the decisions, or want fancy cash-flow projections, etc), but beating a multi-asset fund is IMHO not 1 of them.

reeac

dunstonh wrote: »

I totally disagree.



An IFA does all those things but would not use HL as they are too expensive. IFA platforms are getting into the 0.2x% p.a. range or cheaper. Half the cost of HL.

Presumably, in order to access those lower cost services I would need to be in an execution only contract with an IFA. How much would that add to the platform activity costs?

Wildsound

reeac wrote: »

Presumably, in order to access those lower cost services I would need to be in an execution only contract with an IFA. How much would that add to the platform activity costs?

Not necessarily. There could be a range of platforms which offer a low fixed % across the board, and it may be that the firm has negotiated a reduced platform fee. Others will have a reducing tier system and some have a fixed fee with a cap. The platforms with a cap will suit those with large sums of money, whereas the fixed % would suit those with small amounts.

The problem with execution only is that it is likely the IFA/FA will charge a one-off fee every time you wish to transact as they have a middle-man like relationship with you. This fee will likely be considerably more than if you just execute it yourself directly with a platform.

bostonerimus

dunstonh wrote: »

I totally disagree.

If you employ the adviser to provide advice on a transactional/one off basis then the advice will reflect that and a portfolio will not be put in place. Expect a multi-asset fund as the recommendation. And as myself and the other IFAs that post here have said before, their portfolios have been outperforming the often mentioned multi-asset funds.

As an IFA I would not expect you to agree with my opinion that your ongoing services aren't of much use to most people.

Also I do wish that the budgeting and saving side of personal finance was initially emphasised over the investing side. Once spending has been fully understood and controlled then the taxation and investing side of the equation can be tackled.

Audaxer

dunstonh wrote: »

A pretty large number of firms are transitioning from IFA to FA. Often as they are being bought out. The larger national/regional firms are active in buying IFA firms and most get converted to FA. At that moment in time, they may be IFA but know they are moving to FA in the future. They will often look to downplay and reduce/remove references to their IFA status whilst they still have it.

dunstonh, interested to know why large firms would want to transition from IFA to FA. Is it not better to for them to stay as IFAs so as not be restricted in any way?

Are there any large reputable national firms that are still IFAs?

Pension_Geek

Audaxer wrote: »

dunstonh, interested to know why large firms would want to transition from IFA to FA. Is it not better to for them to stay as IFAs so as not be restricted in any way?

Are there any large reputable national firms that are still IFAs?

Some are paid large sums of money. It may be for succession planning, or they want the support staff and compliance a network can give.

dunstonh

Audaxer wrote: »

dunstonh, interested to know why large firms would want to transition from IFA to FA. Is it not better to for them to stay as IFAs so as not be restricted in any way?

Are there any large reputable national firms that are still IFAs?

It all comes down to the FCA's systems and controls requirements and liability. The bigger you get, the greater the level of control you have to exercise over the advisers. The more the firm restricts, the lower the costs and risk liability.

Small firms get little or no cost benefit by restricting. Larger firms get significant gains by restricting and the costs and risks of remaining independent become undesirable.

As mentioned higher up, you often find the restrictions initially are things like unable to do EIS, VCT, unregulated investments and things like that. That really isnt much of an issue in the mainstream market as less than 1% of the business is in those areas.

What you then find is you they realise that if they restrict the fund selection, provider selection, products available, it gets even cheaper and it speeds up the process. So, that mission creep from very little restriction to heavy restriction starts to occur.

Prior to 2013, IFAs could refuse to transact in high risk areas. After 2013, they could not. This is really when the move from IFA to FA started to pick up pace.

And much like we have seen local solicitors and accountants being bought up by regionals and nationals, we are seeing increased activity with IFA firms being mopped up. Firms looking to be bought are positioning themselves to be bought. Or once bought, they have to be moved to the processes of the parent company.

They don't care if they lose 20% of their clients in the process as they will be more profitable than that amount. Plus, probably around half the clients wouldn't notice any difference whatsoever and a bit of SPIN and marketing speak will keep the rest satisfied. Remember that research was carried out some years back on clients that had seen an FA and over half of them thought they were seeing an IFA. So, IFA status, whilst important, can be mitigated if you dont have it through slick marketing. Look at SJP for example. One of the most expensive distribution channels, heavily restricted to own brand but making big profits and people signing up with them in large numbers. An IFA can walk all over them in terms of cost, quality of product/investment etc. yet people fall for the marketing.

LHW99

It all comes down to the FCA's systems and controls requirements and liability. The bigger you get, the greater the level of control you have to exercise over the advisers. The more the firm restricts, the lower the costs and risk liability.

And much like we have seen local solicitors and accountants being bought up by regionals and nationals, we are seeing increased activity with IFA firms being mopped up.

Which sort of makes me wonder whether the endpoint in 20 years time will be no small local firms that are actually independent in many, if not most, areas rather as bank branches are now disappearing.
I can understand the logic from the firms points of view, but it can't be what the intention of the legislation was.

dale_cotterill

LHW99 wrote: »

Which sort of makes me wonder whether the endpoint in 20 years time will be no small local firms that are actually independent in many, if not most, areas rather as bank branches are now disappearing.
I can understand the logic from the firms points of view, but it can't be what the intention of the legislation was.

It's always the unintended consequences of 'well meaning' regulation. I don't really understand how the FCA haven't learned by now that by significantly increasing the compliance burden you cause significant consolidation and lower standards overall.


For sure RDR brought in some good things, but it's certainly less clear now who is genuinely given independent advice, and what 'restricted' is actually restricted to.


You only have to look at the consolidation in places like life and pensions to see where the end-game will ultimately be. A handful of massive firms with a limited offering and approach.