IFA Ongoing Charges

Linton

fjh wrote: »

Re ongoing servicing charges- would an 'option' be to 'link' 'Growth to cost?
E.g x% of annual growth -or would that increase the 'risk'

I dont see linking growth to cost makes much sense:
- absolute growth is primarily determined by world economic factors and luck, not the skills of the advisor or investor
- for most investors maximum growth is not the primary objective. Sufficient growth at minimum risk is more important.
- as you imply it would create incentives for the advisor that do not match the customers needs

dunstonh

fjh wrote: »

Re ongoing servicing charges- would an 'option' be to 'link' 'Growth to cost?
E.g x% of annual growth -or would that increase the 'risk'

That would be expensive. Growth periods outnumber negative periods.

It would also be pointless as an IFA is not an investment manager. The IFA is not responsible when markets boom or markets crash.

It would also create risk bias and the whole point of an IFA is that there is no bias.

Clive_Woody

dunstonh wrote: »

However, the adviser firm will usually use different investments for non-servicing clients and that could impact on the returns. Our servicing portfolio outperforms the transactional multi-asset funds we would use.

dunstonh wrote: »

.......the whole point of an IFA is that there is no bias.

Those two statements don't seem to support one another.

I appreciate what has been said about clients who pay ongoing fees and those who do not, but essentially this does build bias into the process where you state one is going to get preferential treatment with better outcomes.....so long as they keep paying the fees.

justme111

Clive_Woody wrote: »

Those two statements don't seem to support one another.

I appreciate what has been said about clients who pay ongoing fees and those who do not, but essentially this does build bias into the process where you state one is going to get preferential treatment with better outcomes.....so long as they keep paying the fees.

Because they would have additional service as compared to people who do not want to pay for that additional service ! Would you object to fitness instructors saying that people who they see once and give them a workout programme would get lower results than people who they do personal training sessions with on a weekly basis even if they spend exactly the same time at the gym?

Clive_Woody

justme111 wrote: »

Would you object to fitness instructors saying that people who they see once and give them a workout programme would get lower results than people who they do personal training sessions with on a weekly basis even if they spend exactly the same time at the gym?

Not at all, I would expect a definite bias in the outcomes.

I would not expect the fitness instructor to claim there is a lack of bias as quite clearly there is, as you suggest this would most definitely be the case.

[Deleted User]

IFAs are biased.

First of all, they are biased to more complex investments. How can you justify thousands of pounds in fees every single year if the investment product is really simple?

Secondly, they are human. That’s always a disadvantage because emotions and love of patterns are not conducive to maximizing returns.

Thirdly, most subscribe to dated interpretations of what “risks” are important and how to mitigate them.

And the fees are nuts; people paying thesefees for decades are decimating returns.

The problem will resolve itself. The likes of Vanguard will cut down the fees to far more sensible levels. And robo-advisers will do the rest.

fred246

IFAs still receive billions of pounds in trail commission where they are paid for ongoing servicing although they don't do anything whatsoever. It is banned for new policies but payments are still ongoing. I was sold a pension where I paid a fortune in commission. I was then told to stop paying in as it was 'total rubbish' according to the IFA who sold it to me. The IFA then received trail commission for years on a pension that was incredibly poorly invested. I asked another IFA to look at it but she wouldn't even glance at it saying she would charge so much I wouldn't have anything left. It was fantastic when I took over the running of it and invested it appropriately. Of course the IFAs will tell you that my experience was years ago and they have reformed themselves since then. Now they are totally honest apparently.

justme111

Clive_Woody wrote: »

Not at all, I would expect a definite bias in the outcomes.

I would not expect the fitness instructor to claim there is a lack of bias as quite clearly there is, as you suggest this would most definitely be the case.

I think you are building your argument on misinterpretation of the word " bias"

dunstonh

Clive_Woody wrote: »

Those two statements don't seem to support one another.

I appreciate what has been said about clients who pay ongoing fees and those who do not, but essentially this does build bias into the process where you state one is going to get preferential treatment with better outcomes.....so long as they keep paying the fees.

There is no bias. If transactional is most suitable then so be it. If ongoing is more suitable than so be it. Recommendations are required by EU law to be suitable with the knowledge and understanding of the individual.

If the client gives the direction that they want transactional advice then that is no different to an instruction that they want only passive funds or socially responsible or ethical or any other direction given by the client.

The criteria and requirements build up and you recommend on that basis.

Linton

Deleted_User wrote: »

IFAs are biased.

First of all, they are biased to more complex investments. How can you justify thousands of pounds in fees every single year if the investment product is really simple?

Secondly, they are human. That’s always a disadvantage because emotions and love of patterns are not conducive to maximizing returns.

Thirdly, most subscribe to dated interpretations of what “risks” are important and how to mitigate them.

And the fees are nuts; people paying thesefees for decades are decimating returns.

The problem will resolve itself. The likes of Vanguard will cut down the fees to far more sensible levels. And robo-advisers will do the rest.

Complex solutions are sometimes necessary because people's needs are complex. On this forum we often hear from people who perhaps are currently aged 50, wish to retire at 55, have one DB pension coming in at 60, another at 65 but could be taken earlier with reduced income, and SP at 67. What do they do now with their £500K of DC pot and how do they manage their portfolio over the years to safely ensure a stable standard of living? They probably havent yet worked out what income they need.


Other people write in to simply say they have inherited £1M, what do they do with it? There is no further information. Such people clearly need guidance to identify realistic objectives before one can even start to think about the question.

These real life problems cannot be reduced to choosing which VLSxx to buy or filling in a robo questionnaire. The particular funds one chooses is a secondary matter. What is important is the strategy, whether it can be implemented at an acceptable risk, and how.