Cost of financial advice

beamyup

Keith_Clunk wrote: »

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.

what is the name of the channel?

SonOf

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?

1 - 0.5% at that amount. 0.5% is the dominant figure. You tend to find 1.0% is used on smaller values and tiers towards 0.5% as the value increases.
2 - no
3 - Nutmeg is not cheap. It is also losing money hand over fist and keeps having to raise finance from its backers. Nutmeg is fine for the £10k or so value accounts but its not targetted for those with real wealth. An IFA with a similar portfolio spread could be cheaper. Yes, some would be more expensive but the typical on a like for like basis could see an IFA at lower cost than Nutmeg.

beamyup

SonOf wrote: »

Nutmeg is fine for the £10k or so value accounts but its not targetted for those with real wealth. An IFA with a similar portfolio spread could be cheaper. Yes, some would be more expensive but the typical on a like for like basis could see an IFA at lower cost than Nutmeg.

Personally I would not use Nutmeg but I doubt this very much indeed!
£400K would cost 0.45% in total including platform and fund fees.

SonOf

£400K would cost 0.45% in total including platform and fund fees.

It turns out we are both wrong. They are slightly cheaper but they cost more than 0.45%

Nutmeg would be 0.45% (100k at 0.75% and 300k at 0.35%) plus 0.19% for investments plus 0.07% TC = 0.71%
An IFA would be around 0.8% on the same basis.
So, you are right, it is a bit cheaper. Although the IFA service would be full advised but Nutmeg would just be investment allocation. That may or may not be an issue for some people.

However, if you are going down that particular route, then there are far better options at lower cost than Nutmeg.

Audaxer

SonOf wrote: »

Nutmeg would be 0.45% (100k at 0.75% and 300k at 0.35%) plus 0.19% for investments plus 0.07% TC = 0.71%
An IFA would be around 0.8% on the same basis.

You might be right, but from what I've read from previous posts on here, I think it would difficult to find and IFA where the costs, including fund costs, would amount to only 0.8% pa. Even if they did I assume there would be a fairly high initial IFA cost on a £400k portfolio.

SonOf

Audaxer wrote: »

You might be right, but from what I've read from previous posts on here, I think it would difficult to find and IFA where the costs, including fund costs, would amount to only 0.8% pa. Even if they did I assume there would be a fairly high initial IFA cost on a £400k portfolio.

Pretty easy to achieve 0.8%. You give the IFA the instruction you only want passive investments. In most cases there would be an initial fee for setting up. That would range from £1000 upwards. Some would be extremely greedy. Some would be good value.

Now, whether the passive only position would be the default choice of the IFA (without instruction) is a different matter. More likely a hybrid of active and passive putting you closer to 1.0-1.2%.

Audaxer

SonOf wrote: »

More likely a hybrid of active and passive putting you closer to 1.0-1.2%.

Yes, I think a hybrid would be more likely as I can't see the point of instructing an IFA to create a passive-only portfolio.

beamyup

Audaxer wrote: »

Yes, I think a hybrid would be more likely as I can't see the point of instructing an IFA to create a passive-only portfolio.

Nor a hybrid, nor an active.
Why would you want a IFA to set up a hybrid or active for you? because they could pick the right funds better? VERY unlikely. (I wait for the usual replies telling me I am wrong)

The IFA might suggest a hybrid or active to add some "black magic" to the mix to make the fees he/she charges seem reasonable. and to hide the impact of their fees.

SonOf

Why would you want a IFA to set up a hybrid or active for you? because they could pick the right funds better? VERY unlikely. (I wait for the usual replies telling me I am wrong)

As you know you are wrong already, what would be the point?

beamyup

SonOf wrote: »

As you know you are wrong already, what would be the point?

Sport?

Seriously now though, are we really thinking that IFAs can pick funds that beat the market after charges (fund charges that is - not theirs obviously !)?