Cost of financial advice

beamyup

SonOf wrote: »

And there are those that are so blinkered and biased to passive that they cannot see that there are some managed funds that are viable to hold.

I heard there was a good one called Woodford something.

SonOf

beamyup wrote: »

I heard there was a good one called Woodford something.

Mostly bought by DIY investors on the basis of a misunderstanding by novice investors about a certain marketing list and promotion by media (fashion investing). One of the major research providers for IFAs said back in 2017 that advisers should not recommend this fund.

It's always worth looking at media and marketing lists with a pinch of salt, no matter how they are dressed up.

And its worth remembering that balance in discussion does not automatically mean that managed is best every time or even most of the time. I am about 25% managed and 75% passive in my spread.

beamyup

To be fair i too have active at about that rate (20%) in my portfolio, however my point was about the costs as well.

My choice of "active" is VVAL which has a OCF of 0.22%.

I maintain that it is critical to minimise costs over almost everything else as it is something that you can control. And I still maintain that MANY IFAs do not give that enough priority which I BELIEVE is partly to not draw attention to their fees and partly to justify their fees with "actions" to buy and sell.

AnotherJoe

DT2001 wrote: »

If I were an IFA I’d be concerned about good net returns as happy clients with growing portfolios would earn me more from ongoing fees. So I would have thought underlying fees would be considered.
There are many happy clients paying far more than they need to getting less than they could. Witness most SJP customers for example. We've also seen unhappy clients post here when actually they did better than Mr Market and shoudl ahve been happy, but Mr Market went down and they are unhappy being down without realizing that relatively speaking they did better than the market. The happiness of clients is often a reflection of their level of ignorance rather than how well their funds are doing.

I pay .5% p.a. and know my holdings are reviewed a couple of times a year. On average one fund is changed. I think it is good value as I no longer need to spend so much time researching.

I suspect your IFA is doing this because it gives you the impression that its necessary to cycle your investments and of course since you cant judge what to do thank goodness you have someone [STRIKE]leeching[/STRIKE] charging 0.5% who can. How many funds have you got and whats their average lifetime?

dmelife

Well done for picking a below average ‘active’ fund, following your strategy of pay less, get less!

beamyup

dmelife wrote: »

Well done for picking a below average ‘active’ fund, following your strategy of pay less, get less!

some exposure to "Value" stocks is my choice - my "gamble" at the moment. we will see.

if you are reading this and don't know what i am referring to and have no vested interest then this
https://www.youtube.com/watch?v=MQT5TOs2Bg0
is well worth 20 minutes of your time.

DMSnell

Thank you for your points. Very interesting. Regarding charges, our IFA charges myself and my wife around £4,000 a year (1% or £400,000) and we have an annual review and he is also available to answer any questions we have on an ad hoc basis.
So here are my questions:
1. For a portfolio value of £400K, is a 1% charge standard or should it be more like 0.5%?
2. Do we have to have an IFA at all? Is it a legal requirement?
3. I'm starting to look at different ways of managing our SIPP, because as I understand it, on one extreme we can use a cheap provider like Nutmeg and at the other end of the scale we could be looking at paying an expensive adviser. I suppose it's true that if you pay peanuts you get monkeys - but on the other hand, if yo are looking at annual gains of 5% and the IFA is taking 1%, that's a big chunk of money. £4K over 20 years is £80K!! Thoughts? Advice?

beamyup

"I suppose it's true that if you pay peanuts you get monkeys". I would say that IFAs do not charge peanuts! .

£4K per year is NOT the same as 80K over 20 years, the actual cost to you is compounded and increases in line with fund growth so if you do the calculation the cost will be more like £200K assuming a growth rate of 6% per year and no more contributions.

Here is my calculation
https://docs.google.com/spreadsheets/d/1t8ZMCddCy6iB7SBxcYoJYT_w3LgS6lJZ1sgrB36qWJI/edit#gid=0


It is not just your IFA charges you should consider, it is also your fund charges.

You could "price up" a DIY approach to see whether you would like to do it.

With a £400K pot Interactive Investor may be a good choice.
https://www.ii.co.uk/our-charges

The funds you select could mirror what you have at the moment or you could keep it simple and put it all in to just 1 single diversified fund which matches your risk profile, for example a vanguard lifestrategy fund.

It is worth "doing the sums" to see how much it would cost you to do that and then over N years (depending on your age etc) see how much money you save compared to your current approach.

Audaxer

DMSnell wrote: »

Thank you for your points. Very interesting. Regarding charges, our IFA charges myself and my wife around £4,000 a year (1% or £400,000) and we have an annual review and he is also available to answer any questions we have on an ad hoc basis.
So here are my questions:
1. For a portfolio value of £400K, is a 1% charge standard or should it be more like 0.5%?
2. Do we have to have an IFA at all? Is it a legal requirement?
3. I'm starting to look at different ways of managing our SIPP, because as I understand it, on one extreme we can use a cheap provider like Nutmeg and at the other end of the scale we could be looking at paying an expensive adviser. I suppose it's true that if you pay peanuts you get monkeys - but on the other hand, if yo are looking at annual gains of 5% and the IFA is taking 1%, that's a big chunk of money. £4K over 20 years is £80K!! Thoughts? Advice?

It would be interesting to know whether your portfolio is all active funds or passive funds, or a mixture of both, or multi asset funds. If you have active funds they may have annual ongoing charges of 0.75% or more, so that would be a total annual charge of 1.75% which is a lot coming off your returns. Also, bear in mind that over the next 20 years there is no guarantee that you will get an average 5% growth before charges.

As an example some people with DIY investments that don't have the knowledge or inclination to select a portfolio of funds themselves, choose a low cost globally diversified multi asset fund. Some examples commonly discussed on here are Vanguard Life Strategy funds, HSBC Global Strategy funds and L&G Multi Index funds. They each have a range of funds to suit different risk profiles. For example if someone invested a lump sum into Vanguard Life Strategy 60, a medium risk fund, on Halifax Share Dealing platform, all it would cost would be a £12.50 trading fee, and £12.50 annual fixed platform fee, irrespective of the amount. The annual ongoing costs for that fund is only 0.22%. So in that example you would be saving a considerable amount in fees compared to 1.75%, which will have a significant impact on returns. In that example I would be very surprised if an IFA portfolio with total charges of 1.75% pa got better net returns over 20 years that a low risk multi asset fund with the same risk level (i.e. percentage of equities).

I personally wouldn't hold all of the £400k in one multi asset fund as I don't like all my eggs in the one basket, but some people are quite happy to have significant sums in one low cost multi asset fund, as they are well structured and globally diversified.

However if you do like the peace of mind of having an IFA, then that's fine, but I would be looking for about 0.5% as an IFA fee.

Keith_Clunk

Personally I would avoid using an IFA unless I was legally obliged to do so. However, I do understand that some people do not have the time available for in-depth research and/or the confidence to make their own financial decisions.

I thoroughly enjoyed doing my own research prior to consolidating 4 (of 5) pension pots into one SIPP with AJ Bell 3 months ago and enjoy continued research and understanding of the markets.

Fees are something I am very conscious of as they will compound over the years and eat into your gains quite considerably.

As a beginner I found the following UK orientated youtube channel extemely useful, but sadly as a new poster I am unable to post a link.