Do we need a ifa?

daisyrose

Thank you all for your comments. I will have a look at the links and reading suggestions. I understand that different fund values affect the charges but what is the average percentage charge people are comfortable with both with and without using a ifa?

bostonerimus

daisyrose wrote: »

Thank you all for your comments. I will have a look at the links and reading suggestions. I understand that different fund values affect the charges but what is the average percentage charge people are comfortable with both with and without using a ifa?

The rule of thumb is that with a reasonably priced advisor you'll probably pay between 0.5% and 1% more in fees each year than if you DIY. Now if you consider that you might withdraw between 3% and 4% of your pot each year to live on those fees could start out as around a quarter of your annual spending. Some people like an advisor and feel that they add value and others prefer to DIY. Do your research before making a decision.

Then you have to consider platform, transaction and fund fees.

Linton

bostonerimus wrote: »

The rule of thumb is that with a reasonably priced advisor you'll probably pay between 0.5% and 1% more in fees each year than if you DIY. Now if you consider that you might withdraw between 3% and 4% of your pot each year to live on those fees could start out as around a quarter of your annual spending. Some people like an advisor and feel that they add value and others prefer to DIY. Do your research before making a decision.

Then you have to consider platform, transaction and fund fees.

On the other hand choosing fund A rather than fund B or drawing down too much or too little could have a much larger effect. So it all depends on how confident you feel in choosing funds and managing your drawdown strategy. If you are not confident you could start with an IFA and take over once you feel ready.

zagfles

dunstonh wrote: »

DIY can also increase your costs. It isnt whether you DIY or not that saves you money. It is how you DIY. Two of HL's top 10 selling funds are their own brand very expensive funds. This means a high proportion of their DIY investors are paying more than they would by using an IFA.

How do you know? The IFA might buy an expensive multi asset fund and end up with total charges around 2% as you've just been discussing in another thread. I don't think even HL's more expensive funds plus platform fee come to 2%.

Prism

The average DIY investor (at least in the US) significantly underperforms the index year after year. An IFA doesn't especially have to beat the market - just what an inexperienced investor would do otherwise

As an example https://www.dalbar.com/Portals/dalbar/Cache/News/PressReleases/QAIBPressRelease_2019.pdf

bostonerimus

Prism wrote: »

The average DIY investor (at least in the US) significantly underperforms the index year after year. An IFA doesn't especially have to beat the market - just what an inexperienced investor would do otherwise

As an example https://www.dalbar.com/Portals/dalbar/Cache/News/PressReleases/QAIBPressRelease_2019.pdf

Which is why most people should buy indexes and hold them

Prism

bostonerimus wrote: »

Which is why most people should buy indexes and hold them

I absolutely agree - but it seems most people don't do that at all. My feeling is that for every monthly contribute buy and hold index investors there are many other buying and selling (shares, ETFs and active funds)

dunstonh

The rule of thumb is that with a reasonably priced advisor you'll probably pay between 0.5% and 1% more in fees each year than if you DIY.

Not quite as simple as that though.

An IFA may cost between 0.5% and 1%. The dominant figure is 0.5%. So, I will use that. So, using an IFA will add 0.5% that DIY investors wont pay.

However, that is just one bit of it. Platform charge and investment charge need to be considered.

HL, the UK's most popular DIY platform is 0.45%. Most IFA platforms are in the 0.2x% range now. Whilst you dont have to use HL, it is worth noting that HL have more assets under management for DIY investors and all the other DIY platforms put together. So, that adds 0.2x% compared to IFA version. (lets say 0.20%).

Investment funds cost exactly the same whether you use an IFA or DIY. However, lets note that two of the top selling funds to DIY invesrtors are HL's own brand funds costing 1.49% or 1.31% So, a significant proportion of DIY investors are paying 0.45% pllus 1.49% = 1.94% pa. We know from the IFAs that post on this site that their model portfolios tend to be around the 0.3-0.6% range.Lets use the upper figure So,. 0.50+ 0.25 +0.60% = 1.35%. That is cheaper than many of those going DIY.

DIY does not mean it is cheaper than using an IFA.
Using an IFA introduces the advsier charge that DIY will not have but DIY doesnt mean you will use a lower cost platform/provider or suitable investments.

The numbers show that very many people are paying more by DIY than using a adviser. To save money, you need to DIY well. Not just DIY.

bostonerimus

dunstonh wrote: »

The numbers show that very many people are paying more by DIY than using a adviser. To save money, you need to DIY well. Not just DIY.

I think that this comment can be lumped in with Prism's observation that many DIY investors lag the index.

You need to DIY sensibly to come out ahead and there are some well known ways to do that relatively simply. It is not conceptually difficult to be successful DIYing, but people will try to make things more complicated than they need to be.

Albermarle

Yes it is relatively easy to keep total costs of DIY well below 1 % , even if you do not just rely on trackers .
So in this case having an IFA will cost money up front .
The $64,000 question is will you overall be better off long term or not.
If the IFA is good then probably not , but that is not guaranteed.
Also something not often discussed in this long running debate , is that some people just prefer that a professional looks after their financial affairs, and some just prefer to DIY, as they are interested by the subject and don't feel comfortable delegating everything to someone else.