Independent Financial Advice - Recommendations

dunstonh

Deleted_User wrote: »

Hmmm... Charging by the hour seems to work for accountants. And, yes, lawyers. And for better IFAs in other countries.

It's a shame that accountants are not as transparent as IFAs when it comes to charging.

IFAs in the UK are generally regarded as a much higher level than equivalents in other countries. Indeed, the UK model is being adapted elsewhere.

[Deleted User]

Don’t accountants have to have an actual education rather than a “course”?

bowlhead99

Deleted_User wrote: »

Hmmm... Charging by the hour seems to work for accountants. And, yes, lawyers.

Generally what the customers want is a fixed quote because they value certainty / predictability.

You probably don't procure a lot of accounting and legal services. If you speak to companies who do buy a lot of accounting and legal services, they don't just say "go and spend as long as it takes to do the work and then add up all the hours and send me the bill".

The accountants or lawyers will have charge-out rates for each of their staff, but the rates are often only used to support relatively small amounts of add-on /ad-hoc work or to help negotiations in seeking extra compensation for over-runs on the project for which they're engaged. The core quote for the work will be pretty fixed because the people who have the budgets to procure the tens or hundreds of thousands of pounds worth of services do not want to engage the service provider to work on a 'see how much it costs' basis, rather they want to know what part of their budget they are going to need to set aside for the provider.

Likewise, when someone engages an IFA, the IFA will give them certainty by telling them that it will cost them £2850 for the initial setup, or perhaps 1.5% of the £190k being invested, rather than telling them that it will be an hourly rate of £261.50 and hopefully be done in 10.9 hours, but might take a few hours more or less than that depending on what distractions the IFA has while going about his business.

And for better IFAs in other countries.

Do you mean that in other countries the better independent advisors charge by the hour while the worse ones charge by the percentage or fixed quote?

Or do you mean that in other countries the independent advisers generally all charge by the hour and on average are better than the ones in the UK?

I would be curious about the data sources for either.

Deleted_User wrote: »

Don’t accountants have to have an actual education rather than a “course”?

This seems to be a dig / ad hominem attack on an IFA rather than anything to do with what remuneration method is appropriate for someone providing investment services.

We get it, you don't like advisors and just think people should just educate themselves and then dump their money into an index fund.

Both accountants and IFAs require education followed by CPD/CPE whatever you want to call it. Personally I went the school/ university /chartered accountancy training contract route, but the value I add to my clients in my day job now mostly comes from the couple of decades of practical experience since that time together with ongoing learning (both structured and unstructured). I expect the latter is true of IFAs and other types of professionals too.

Working in the professional services industry it seems clear to me that clients do not really want open ended time-cost though they will accept it for some types of work or for some elements of an overall service. They would be more likely to accept it with a cap, because then in their head they will think that they are probably just going to be charged the cap, in which case it doesn't really matter if the fee was derived from an arbitrary number of hours, or a crazy chargeout rate, or from basis points on a transaction value or asset value, etc etc

[Deleted User]

We are going in circles. Briefly,

1. Rated quotes typically should and do have maximum number of hours for a given scope. That’s what I want as a customer. Transparency. Having said this, no issue with a fixed price for a fixed scope.

2. I procure accounting services every year for my family’s tax returns.

3. Telling someone: I will charge 0.5% annually provides no “certainty” as you claim. It provides a misleading method of getting into clients’ pockets and drawing an ever escalating amount (at the rate of the stockmarket, on average).

4. Suggesting that costs double when portfolio goes from 1 million to 2 million is, to put it bluntly, a lie.

5. Charging % of assets under management provides an inherent conflict of interest. If I want to withdraw 100k, the IFA has an incentive to advise against,

6. I mean that in other countries better IFAs charge by the hour or flat fee rather than %. Here is a list for US: https://www.forbes.com/sites/baldwin/2017/07/18/where-to-find-hourly-financial-planners/#5226a64f1612.

7. Re education, I was responding to a claim that accountants are “not as transparent as IFAs”.

There are good and bad accountants and IFAs. There are educated IFAs. But the requirement is for IFAs to have passed a 9 months training course (I think?) and for accountants to have a university degree.

And IFAs are rewarded based on selling rather than on how well they advise. They don’t learn statistics or risk assessment and event trees (for example) by spending years in the industry.

Clients don’t tend to appreciate how little it takes to become an IFA and how easy it is to learn, hence inherent lack of transparency.

Linton

Deleted_User wrote: »

....And IFAs are rewarded based on selling rather than on how well they advise.

.......

Wrong yet again but don’t let facts get in the way of your axe grinding. For the past 5 years Advisors have been banned from obtaining commission for selling investments. IFAs advising on investments are solely rewarded by direct payment for the advice provided.

[Deleted User]

Linton wrote: »

Wrong yet again but don’t let facts get in the way of your axe grinding. For the past 5 years Advisors have been banned from obtaining commission for selling investments. IFAs advising on investments are solely rewarded by direct payment for the advice provided.

You are not responding to the comment you quoted. There is no connection between my statement and commission based advice.

[Deleted User]

To spell it out, IFAs are marketing and sales people. The ones who stay in business are the ones who achieve the most sales. Nothing to do with being able to understand risk, statistics or security analysis. Therefore years of experience are irrelevant to evaluating quality of service.

Prism

To be fair, you don't need to be hugely qualified to provide financial advise or accountancy. It comes down to if you feel you have enough understanding of either topic yourself and the inclination to spend the time doing the work rather than paying another company or individual to do it for you - like pretty much any kind of service. To me it doesn't matter quite how that fee is packaged up as long as I know what it is ahead of time. I much prefer a fixed fee than an hourly rate.
I don't use an IFA for my finances and I don't use an accountant to run my company. I fully understand people that do.

Linton

Deleted_User wrote: »

To spell it out, IFAs are marketing and sales people. The ones who stay in business are the ones who achieve the most sales. Nothing to do with being able to understand risk, statistics or security analysis. Therefore years of experience are irrelevant...

On that basis private doctors, accountants, lawyers and vets are also marketing and sales people as is anyone else who deals with customers and expects to be paid for the service they provide which makes your statement pretty vacuous. Perhaps intentionally, what you said could be taken as meaning that IFAs routinely directly benefit from selling particular investment products to their customers and tailor their advice accordingly. That is incorrect and any IFA who provided inappropriate advice in that way could be sued and their business closed down

[Deleted User]

Linton wrote: »

On that basis private doctors, accountants, lawyers and vets are also marketing and sales people as is anyone else who deals with customers

Agreed. They are. However accountants, lawyers, doctors and vets also have to study for years, have experience of working under supervision. You can’t start operating on people or dogs by a bit of self-education.