IFA Ongoing Fees

Spreadsheetman

OldMusicGuy wrote: »

You could do that to at least give you some comparison of relative performance. And if you could do that, why doesn't the IFA base their charges on how they outperformed a benchmark portfolio? Because they don't have confidence in their ability to consistently outperform anything and they want to maximize the income out of you based on an outdated charging model.

I've suggested that approach before, because we've had IFAs on here extolling the virtues of their custom portfolio over things like Vanguard. Will they put their money where their mouth is? No.

I personally hate charging models based on things like a portfolio percentage where there is no downside for the service provider, only upside for them, regardless of how "valuable" the advice is. Which is why I prefer not to use an IFA.

To be fair, I think that could be regarded as advice given their position and that could open them up to all sorts of potential liabilities. I think that is why no proof is provided either way.

lisyloo

cfw1994 wrote: »

I understand how many won’t feel they have the knowledge to DIY....
....but how does your IFA help you avoid large losses?

By their superior (to mine) investment choices.
By being globally diversified for example.
For example when the £ has fallen my portfolio has not as I have investments that are not in Sterling.
That’s a very simple example but doing DIY assumes you know all the risks as well as an IFA who has access to much wider resources (my portfolio isn’t dependent on an individuals skills).

Or do you just mean they can (with your profiling!) chose to invest you in lower risk funds?

No I am not cautiously invested as it happens.

To my knowledge, IFAs never reimburse for any losses in holdings....

That’s not what I meant.
I meant they can anticipate various risks. I can only give you a very simple example (currency risk) as I’m not a sophisticated investor.

If you think you can constantly keep up to date with all the risks as well as a firm of IFAs or think your fund manager e.g. vanguard, can do that then you are free to do DIY.

I’m not trying to advocate or promote a particular course to others.
Just saying that I don’t believe I can have (or want to have) the skills required.
I am probably capable, but have limited life so prefer to prioritise on activities that I enjoy.

If you don’t believe that IFAs have any value, then how do you think the unsophisticated would know where to invest?
For example what if I’d heard Neil Woodford was a good bloke (he was well respected) or thought London capital and finance sounded good?
I think I could find you lots of examples of people making large losses that wouldn’t have happened with an IFA.

Audaxer

OldMusicGuy wrote: »

I personally hate charging models based on things like a portfolio percentage where there is no downside for the service provider, only upside for them, regardless of how "valuable" the advice is. Which is why I prefer not to use an IFA.

I think there could be a bit of a downside for an IFA in that if the performance of the portfolio is poor, they are getting lower fees as it will be 0.5% of a lower portfolio value.

I don't use an IFA but if someone has a large portfolio and not interested in managing it themselves, I think paying a good IFA a percentage fee of 0.5% is reasonable and could provide peace of mind. I think the difficulty would be finding a good IFA to put your trust in. What you don't want to be doing is going through an expensive Wealth Management company, where charges seem to be a lot more expensive.

lisyloo

I agree with the last comment about finding a good IFA.
Mine includes any advice I need in my fees.
So he recently spent time advising me on my employers MPP for which he received no payment.
Also advice on a care needs annuities for which there was no payment/commission.

segovia

I should add that my IFA is acting for me and my wife, we both have PPP's that don't have any drawdown capability, they are low risk and not actively monitored or managed. The IFA is recommending identical SIPP's and identical investment funds for both of us.

We both have the same risk appetite and we both plan to move into drawdown in four years time when we retire. We both have the same needs in our retirement with the exception of our life expectancy which differs only slightly. We don't view our pots individually, they are for both of us to live on in our retirement.

Our current pots are circa 100K (wife) and 300K (me), the fund recommended by the IFA is a DMF. The IFA is proposing a 0.6% annual management fee taken quarterly paid directly to the IFA by the fund manager. Indicative first, second, third and fourth year fees are clearly identified in the proposal. Total for the both of us over 4 years is circa £8,000.00 for "advice"

I am assuming that any advice needed in the future would equally apply to both of us, would I appear unreasonable if I agreed to fees on the lower pot and not the higher pot, my way of looking at it is that we are being asked to pay twice for the same advice if we are charged 0.6% on both investments.

Malthusian

segovia wrote: »

A frightening thought, I took out my personal pension in the 80's, the IFA has long gone, moved into another industry. I wonder if he has been receiving a commission for the past 30 years

Why wonder? You can ring the pension provider up and ask them.

segovia wrote: »

I am assuming that any advice needed in the future would equally apply to both of us

You are free to assume that but the IFA, being liable for their advice, is not.

would I appear unreasonable if I agreed to fees on the lower pot and not the higher pot, my way of looking at it is that we are being asked to pay twice for the same advice if we are charged 0.6% on both investments.

That would be reasonable if you were happy with the IFA only advising your wife and not you.

Personally if I was an IFA I would decline to act if I knew the husband was supposedly going DIY but in reality copying what I told the wife. That makes me potentially liable for something I have no control over and, less importantly, am not getting paid for.

cloud_dog

cfw1994 wrote: »

I understand how many won’t feel they have the knowledge to DIY....
....but how does your IFA help you avoid large losses?

Or do you just mean they can (with your profiling!) chose to invest you in lower risk funds?

To my knowledge, IFAs never reimburse for any losses in holdings....

Isn't this the crux of the matter for some, and the the basic misunderstanding which then causes the mistrust / resentment?

I don't believe IFAs are the to make you 'more money' or to ensure you loose 'less money'. They are there to advise you holistically on your financial situation, the best use of financial vehicles to mitigate any considerations, i.e. tax, but within your guidance of what you are looking to achieve, and to help identify investment options within your guidance (what you are looking to achieve) and within your agreed risk tolerances.

They may make you more money but that may be a side effect of efficient tax planning or use of tax efficient vehicles.

I think this is where a lot of the angst towards IFAs is founded; this misconception that they are there to make you more money or lose you less money, this is where some people don't get it or don't want to get it.

lisyloo

I don’t entirely agree.
I think my IfA will make me more money and/or reduce my exposure to risk because they know which are the best funds to pick at the best cost and in which combination.
They might actually make me a bit less but with substantially less exposure to risk - that combination would be fine to me.

But IMO their fund picking expertise and their constant vigilance (not a one-off activity) is worth the extra cost.

I think I could so the same activity and save fees in the same way as I could service my car, clean my own windows, clean my own gutters, but with finite life there are sometimes things we would choose to pay others to do.

Imagine you won the lottery and didn’t like cooking, well you may well employ a cook.

I don’t have an issue with DIY if that’s what others want to do but we don’t all have the time/inclination.

Why shouldn’t we be able to pay someone if we want?

cloud_dog

lisyloo wrote: »

I think my IfA will make me more money and/or reduce my exposure to risk because they know which are the best funds to pick at the best cost and in which combination.
They might actually make me a bit less but with substantially less exposure to risk - that combination would be fine to me.

But IMO their fund picking expertise and their constant vigilance (not a one-off activity) is worth the extra cost.

Absolutely, I don't disagree.

What I was trying to say was that in line with normal people IFAs do not actually really have a crystal ball so they cannot actually really choose a better performing fund. Yes, they can exclude the constantly underachieving investments and by that process they can help ensure a higher probability of 'making more' but the fund will go wherever the underlying investments take it; nothing an IFA can do about it other than to ensure its volatility fits within your tolerance profile (or at least the overall portfolio meets that requirement).

lisyloo wrote: »

Why shouldn’t we be able to pay someone if we want?

Absolutely. As mentioned previously my OH would not want to the responsibility for the decisions so if she were in that situation I would encourage her to use IFAs.

Thrugelmir

lisyloo wrote: »

By being globally diversified for example.

That's a very broad generalisation. Still requires selection of some kind.