It's not you, it's me: taking a break from an IFA?

SeniorSam

I would expect every investors financial position can and will change as time goes by. Goals can change and certainly an initial selection of investments is hardly likely to be the same as the ones you will finish up with.

Also, you will be aware that financial markets do go down and as well as up and there will be times when the value of your investments will drop down for a few weeks, months and perhaps years. The ideal is to be able to select a cross section of investments that will have already accounted for ups and downs, but regular reviews are essential.

Any IFA worth his 'salt' will spend time reviewing your plans and perhaps 'tweaking' what you have in place according to any changes. If you can learn enough about investments to manage this yourself, then you don't need an IFA. If you cannot bother to learn or dont wish to, then such advice regularly should be worth the commission that the IFA will be paid from your investments.

Within your overall plan, you should have spare cash that can be very useful to rely on when markets are down, but also to use to buy more investments when markets are again moving upwards. That way you take advantage of the downturns.

Reading about investing and watching the videos that are freely available these days will help you, but as time goes by, you do need to have built up enough knowledge to ask the right questions and to really understand the answers and the action you are taking.

Very good results can be achieved with a combination of a good IFA and building your own knowledge, so don't just rely on someone else, start learning more yourself.

[Deleted User]

To get somewhere near the ideal the IFA needs to understand what return in what timeframe you require and what level of fall would make you concerned.

This is a good example of questions typically asked by bad IFAs. This line of questioning invariably leads to gross mischaracterisation of risk tolerance and poor asset allocation.

SonOf

Deleted_User wrote: »

This is a good example of questions typically asked by bad IFAs. This line of questioning invariably leads to gross mischaracterisation of risk tolerance and poor asset allocation.

Investment behaviour is an important consideration. Not just by advisers but by the investor themselves. To call it bad suggests a lack of understanding of the average consumer.

You don't need to look far on this site to see posts from DIY investors that did not consider their behaviour when it comes to losses.

Indeed, anyone that has said they won't invest on the stockmarket again after losing money is a failure to consider risk tolerance and behaviour.

And whilst timescale can reduce/increase risk, it is no good if the individual reads every quarterly statement and takes poor actions because of short term movements.

I don't know why you would write that off as bad by an adviser.

[Deleted User]

SonOf wrote: »

Investment behaviour is an important consideration. Not just by advisers but by the investor themselves. To call it bad suggests a lack of understanding of the average consumer.

You don't need to look far on this site to see posts from DIY investors that did not consider their behaviour when it comes to losses.

Indeed, anyone that has said they won't invest on the stockmarket again after losing money is a failure to consider risk tolerance and behaviour.

And whilst timescale can reduce/increase risk, it is no good if the individual reads every quarterly statement and takes poor actions because of short term movements.

I don't know why you would write that off as bad by an adviser.

Several reasons:

1. Nobody likes losing money. There isn’t one investor with healthy psyche who won’t feel bad during a real bear market. That’s not a good reason for a 30 year old to keep money under the pillow or in gold or with unreasonably high allocation to bonds.

2. People answer this question differently depending on their mood and what’s happening in the stockmarket on a given day. Does it mean allocations should change daily?

3. Only people who have themselves invested and lived through bears can answer this question in a meaningful manner. Such people have no business asking IFAs for investment advice.

4. The real risk isn’t market downturns but not having enough money for your retirement.

5. Major real long term risks to one’s financial health, such as a bout of unexpected inflation for bonds, are rarely covered.

There are more reasons why these standard questionnaires are a bad idea but the above should give you a taste.

DT2001

Deleted_User wrote: »

Several reasons:

1. Nobody likes losing money. There isn’t one investor with healthy psyche who won’t feel bad during a real bear market. That’s not a good reason for a 30 year old to keep money under the pillow or in gold or with unreasonably high allocation to bonds.

2. People answer this question differently depending on their mood and what’s happening in the stockmarket on a given day. Does it mean allocations should change daily?

3. Only people who have themselves invested and lived through bears can answer this question in a meaningful manner. Such people have no business asking IFAs for investment advice.

4. The real risk isn’t market downturns but not having enough money for your retirement.

5. Major real long term risks to one’s financial health, such as a bout of unexpected inflation for bonds, are rarely covered.

There are more reasons why these standard questionnaires are a bad idea but the above should give you a taste.

Can you expand so I can understand better your viewpoint

1. Isn’t an assessment of one’s attitude to risk important?
2. It might vary but probably not significantly. I’ve completed the forms irregularly over the years and am still in the same ballpark.
3. Why?
4. True. So level of risk is important?
5. When it becomes expected it would be dealt with? The hope is that a diversified portfolio will cope with the unexpected?

[Deleted User]

DT2001 wrote: »

Can you expand so I can understand better your viewpoint

1. Isn’t an assessment of one’s attitude to risk important?
2. It might vary but probably not significantly. I’ve completed the forms irregularly over the years and am still in the same ballpark.
3. Why?
4. True. So level of risk is important?
5. When it becomes expected it would be dealt with? The hope is that a diversified portfolio will cope with the unexpected?

1. In order to assess attitude to risk one must first understand what are short term and long term risks. Stockmarket drop isn’t even a risk for young people - it’s good for them.
2. Actually, the variability is significant, even impacted by the weather. At least that’s what those who investigate neuroscience of investing say.
3. Because the sinking feeling in one’s stomach after “losing” 100k in investment isn’t something one can learn from a questionnaire. Crucially, very hard to know how one would respond to a real 1930s or 70s type scenario in real life.
4. Understanding risk is important in designing appropriate asset allocation. Doesn’t happen by chatting to an IFA or filling in a questionnaire. An adult needs to behave like one and take responsibility for his financial future rather than look for handholding
5. That’s not what I was referring to. If inflation is anticipated by the market then bonds perform just fine. Surprises obliterate the real value of bonds - as was often the case in the 20s century.

In a perfect world people would put an effort into learning a bit of maths, read up on risk, read memoirs on what it felt like to be an investor in the 30s and 70s and then decide on allocation.

The second best approach is to pick one of those life strategy funds where allocation is linked to age.

Questionnaires do more harm than good. As do ongoing IFA charges

DT2001

Deleted_User wrote: »

1. In order to assess attitude to risk one must first understand what are short term and long term risks. Stockmarket drop isn’t even a risk for young people - it’s good for them.
2. Actually, the variability is significant, even impacted by the weather. At least that’s what those who investigate neuroscience of investing say.
3. Because the sinking feeling in one’s stomach after “losing” 100k in investment isn’t something one can learn from a questionnaire. Crucially, very hard to know how one would respond to a real 1930s or 70s type scenario in real life.
4. Understanding risk is important in designing appropriate asset allocation. Doesn’t happen by chatting to an IFA or filling in a questionnaire. An adult needs to behave like one and take responsibility for his financial future rather than look for handholding
5. That’s not what I was referring to. If inflation is anticipated by the market then bonds perform just fine. Surprises obliterate the real value of bonds - as was often the case in the 20s century.

In a perfect world people would put an effort into learning a bit of maths, read up on risk, read memoirs on what it felt like to be an investor in the 30s and 70s and then decide on allocation.

The second best approach is to pick one of those life strategy funds where allocation is linked to age.

Questionnaires do more harm than good. As do ongoing IFA charges

1. Questionnaires are a starting point. As you point out until you understand people’s perception of risk you cannot advise them.
2. Lucky I live in sunny Devon then, so probably more positive. I know we are affected but I do not think the majority of people’s outlooks would vary ‘significantly’
3. It is better to have an idea of someone’s attitude to investment value falls than not. The question isn’t asked in isolation
4. An IFA, if you find a good one, can help you understand risk and asset allocation. I think I have taken responsibility for my financial future however I use an IFA as he has more experience than I of investing and expertise in some areas. How much time would be needed to gain a similar level of expertise. One piece of advice, when George Osborne realigned Pension contribution timings, saved me 7-8k (on a £26k transaction). I do not see it as handholding but help getting to where I want to be.
5. When do you get surprise inflation?

We are all different, thankfully, so I think concentrating on our own areas of expertise and paying others (whilst doing some research ) is also a good option.

[Deleted User]

DT2001 wrote: »

1. Questionnaires are a starting point. As you point out until you understand people’s perception of risk you cannot advise them.
2. Lucky I live in sunny Devon then, so probably more positive. I know we are affected but I do not think the majority of people’s outlooks would vary ‘significantly’
3. It is better to have an idea of someone’s attitude to investment value falls than not. The question isn’t asked in isolation
4. An IFA, if you find a good one, can help you understand risk and asset allocation. I think I have taken responsibility for my financial future however I use an IFA as he has more experience than I of investing and expertise in some areas. How much time would be needed to gain a similar level of expertise. One piece of advice, when George Osborne realigned Pension contribution timings, saved me 7-8k (on a £26k transaction). I do not see it as handholding but help getting to where I want to be.
5. When do you get surprise inflation?

We are all different, thankfully, so I think concentrating on our own areas of expertise and paying others (whilst doing some research ) is also a good option.

There really are two different parts to “risk”: long and short term. Dealing with Long term risk requires one to know how many years are left to planned retirement date. Dealing with short term risk requires education. Don’t see how questionnaires are helpful in any way, unless there is just one question: how old are you?

Good IFAs can probably help understand risk but not as well as a good book by one of the worlds top experts and a few more by people who lived through 1930s. Most IFAs are undereducated marketing people. They are rewarded for sales and that’s where their real experience lies.

Saving 8k is awesome but how much do you spend per decade? Someone with 1M (assume constant) in investable assets at 0.5% will have spent 50k on an IFA. We don’t get enough pension reforms to justify this kind of extravaganza. And for a retiree that’s a month and a half of his income every year (assumed 4% of assets per year). And what’s stopping one asking for advice on a case by case basis when there are reforms?

Paying others for hard physical or highly skilled work, requiring years of education and special tools is one thing. Paying every single day for something that has been made quite simple and cannot be delegated is another matter entirely.

Linton

Deleted_User wrote: »

There really are two different parts to “risk”: long and short term. Dealing with Long term risk requires one to know how many years are left to planned retirement date. Dealing with short term risk requires education. Don’t see how questionnaires are helpful in any way, unless there is just one question: how old are you?

Age is only the major factor for long term risk for someone employed with a steady moderate income saving for retirement in the medium to long term future. I would agree that ongoing use of an IFA should not be necessary in those circumstances.

This does not apply to someone with no knowledge or experience who suddenly receives a large lump sum eg as an inheritance or on retirement. It does not apply to someone needing ongoing income.

Being able to handle short term risk is a mixture of psychology, knowledge and experience. One needs both knowledge and experience (reading a book is not enough) to control one’s emotions. What should someone with no knowledge and no experience of dealing with life changing amounts of money do?

It seems to me that a sensible IFA should get some handle on their likely emotional response and start off with a portfolio based on that. At most times returns will be suboptimal. Within a year or two the customer will have some experience and the IFA will be able to discuss the possibility of taking further risk. What must be avoided is for the customer to panic and do something stupid.

Someone not using an IFA will probably either keep all their money in a bank account for safety, buy something dodgy like an 8% “guaranteed” bond or put all their money into something they have heard of, eg high risk tech or Woodford.

IFAs are rewarded for sales and that’s where their real experience lies.

IFAs are not rewarded for sales of financial products. They would still get paid even if the advice was to put the money in a bank account.

And what’s stopping one asking for advice on a case by case basis when there are reforms?

Nothing. But one may also need advice when one’s circumstances or objectives change, the world economy changes, the portfolio wanders off course or for other reasons.. If the IFA has no ongoing relationship each consultation will take some extra time and cost. At some point it becomes more efficient to pay for the ongoing relationship. Does one go to the dentist when one has toothache or have a regular checkup?

beamyup

Linton wrote: »

IFAs are not rewarded for sales of financial products. They would still get paid even if the advice was to put the money in a bank account.

I see this idea posted quite a lot but I don't think it is as simple as that.

IFAs take a lot of fees off their clients (I cannot comment on how much of these they keep in their pay packet of course). The longer they keep the client, the more the fees.

If the IFA sells a "concept" to the client that is sticky, they are likely to get fees for the rest of the life of that client which is a big value sales win. For example the idea of needing to tailor investments each year, the idea that the IFA will help them reduce risks and / or beat the market by doing this etc etc.

However, If the IFA just says - "based on what I have leaned about you - well, just put your money in this (e.g. LS60 + low cost SIPP) and leave it", there is no stickiness, the client will think (correctly) that the advice is complete and just pay the one off fees.

How often does the latter happen? how often should it happen (in order to benefit the client)? That's where I think there is a problem.