Excessive or reasonable charges for managed SIPP?

[Deleted User]

Aegis wrote: »

It's worth looking at the proposal's financial's as well. Take a £1 million portfolio and assume for the sake of argument that the IFA can squeeze an extra 1% a year out of the portfolio compared to the selected benchmark. On that basis, the 1% outperformance would be £10,000, and 10% of the outperformance would be £1,000. Advisers are not going to be keen to take on the risk of a £1 million portfolio for £1,000 a year guaranteed, let alone one where they have to pay money back if the portfolio underperforms a benchmark.

I agree. Which is why fee for service advisors are the only ones to use. Their interests are not fully aligned with those of the investors but at least the charges are transparent and there is no long term damage. As it is the advisors are rewarded purely for their marketing skills while the costs are staggering - and the only certain aspect of the whole service.

This will become moot point in the not too distant future. Pretty sure the market for such services will be shaken up; not a minute too soon.

[Deleted User]

menziesthefish wrote: »

I would also argue that the primary role of a good IFA, when looking after someone's investments, is behavioural management and education, not just 'hand-holding' as you put it. It's to stop the investor panicking when markets fall, or getting carried away when markets spike. Human nature is the biggest determinant of poor performance when self-managing investments; people's obsession with trying to time the market, pick the next 'big thing', follow the trends etc. All of things that make the big crashes so severe and the bubbles so big - though I'm sure you avoided all of those thanks to your books

Re IFA role, we are saying the exact same thing. Keep in mind that there is zero guarantee your advisor won’t panic sell or try to time the market. I know of several people whose advisors do exactly that and teach pre-retirement investors that all will be good in case of a bear market as all their investments will be put into gold and the like just beforehand. The same advisor told this individual that he shouldn’t invest into ESPP because he can get better return by investing into blue chips. That’s complete BS, the particular ESPP provided over 100% MWR guaranteed.

The single largest risk to one’s financial success isnt selling during a downturn, but that many who do that learn the wrong lesson. They tend to stay out of stocks altogether, which is where most damage comes from. I did succumb to the tech bubble but only risked a small amount and lost 800 pounds (80% of my “tech” investment). Mostly stayed with broad markets and there was no lasting damage. Good lesson, worth the money.

fred246

The meeting I will never forget is when an IFA came to talk to us to explain that commission had been banned. He explained that advisers had been caught selling products to get commission and in future IFAs were going to act in the best interests of their clients. To this end they were going to introduce a fixed fee of £250 per hour. I have never seen so much spluttering. Everyone obviously thought a fee of £20 to £30 per hour was reasonable. It was just incredible that a group of people could see themselves as that important. It just isn't that complicated a job to justify that sort of fee. I thought one day someone may provide a service at a price that people could accept. It hasn't happened yet. They just follow rich people around and hope they can get a few to sign up to their ridiculous fees.

[Deleted User]

k6chris wrote: »

Just to build on Linton's excellent post, the reason not to pay IFAs based on financal results is that is encourages excessive risk taking. If you want to reward me with a percentage of any growth above some benchmark, I am going to select a volatile portfolio of 'high risk - high return' investments that may indeed 'beat the market' - but may well tank. I could make a very nice living by 'reccommending' a variety of HR-HR portfolios to a number of different people, safe in the knowledge that a few of these will pay handsomely. My risk is spread - yours is not. Anyone want to pay me 10% for all market beating growth from a 100% Bitcoin recommendation??

Not really. High volatility does not give high return. The exact opposite is true - low vol is one of the best factors to enhance returns. A diversified portfolio of coins will provide the exact same return as the diversified portfolio of AAA bonds did when it was based on underperforming mortgages in 2008.

[Deleted User]

To invest sensibly you need to have an objective, and a viable strategy for getting there. This needs to be developed in the context of the customers financial, tax and personal situation, and their ability to understand and cope with risk.

Right. It’s called “investment policy statement”. Good books provide guidance on developing one. Examples are available on the web. Mine is a bit long - has all the detail, justification and references so that a spouse or kids can figure out what’s going on, if required. IFAs are not incentivised to spend time with an investor to really understand his/her circumstances. They are marketing people incentivised to fill in a bunch of forms quickly and to continue receiving retinue forever and ever. If you think they understand Neuroeconomics, finance or statistics, think again. A few might, but they are not rewarded for it. Their required level of education is equivalent to year one at university.

Prism

fred246 wrote: »

The meeting I will never forget is when an IFA came to talk to us to explain that commission had been banned. He explained that advisers had been caught selling products to get commission and in future IFAs were going to act in the best interests of their clients. To this end they were going to introduce a fixed fee of £250 per hour. I have never seen so much spluttering. Everyone obviously thought a fee of £20 to £30 per hour was reasonable. It was just incredible that a group of people could see themselves as that important. It just isn't that complicated a job to justify that sort of fee. I thought one day someone may provide a service at a price that people could accept. It hasn't happened yet. They just follow rich people around and hope they can get a few to sign up to their ridiculous fees.

£20-£30 per hour? I do hope you are joking (but I don't think you are). I can't think of any professional jobs that pay so little for an individual never mind a fully licensed and insured organisation backed service. As an IT professional I get charged out at anywhere from 1k - 4k a day and that isn't complicated either. It costs a lot more than you think to run a services business.

[Deleted User]

My experience of using an an adviser to help me define a portfolio was not good. I am very risk-averse, so without understanding what risk really meant (and with no knowledge of investing), I would always tell an adviser I'm a 1 on a scale of 1 to 10. That meant the advisers made very poor investments for me because they did what I asked.

Exactly. The vast majority of people would make the same mistake (my wife did) because IFAs don’t spend time finding out what a dumb answer to a dumb question really means. Typically the same person could be gang-ho or risk shy, depending on what’s going on in the markets or level of optimism re promotion at work. Nor does risk really mean “volatility” as the IFAs seem to have been taught. The Real risk that matters is not having enough in your pension pot when it’s time to retire.

dunstonh

Keep in mind that there is zero guarantee your advisor won’t panic sell or try to time the market.

IIRC, you are not based in the UK. In which case you may not be aware that IFAs operating on an advisory basis cannot transact without the permission of the individual. And those operating on discretionary have to do it with full governance and cant do things like that.

[Deleted User]

dunstonh wrote: »

IIRC, you are not based in the UK. In which case you may not be aware that IFAs operating on an advisory basis cannot transact without the permission of the individual. And those operating on discretionary have to do it with full governance and cant do things like that.

Of course they can’t. Same everywhere. But they can “advise”. And the advice can be wrong. And there is zero consequence to an IFA. And it’s just wrong when they charge thousands year in year out. Charges are not transparent, nor people understand what they are paying for. And like you said (I think), they don’t even have to provide comparisons vs benchmarks, so there are no easy means for investors to evaluate performance.

dunstonh

nd the advice can be wrong. And there is zero consequence to an IFA.

Again, in the UK, there is a consequence when advice is wrong.

Charges are not transparent,

How are they not transparent?