Large inheritance DIY vs professional

Linton

sendu wrote: »

Why does determining suitability cost £thousands more for client A just because he has twice as much money to invest as client B?

Knowledge that particular funds shouldn't be recommended (or should be) is obtained at some particular cost each year. Passing that knowledge on to clients only costs IFAs time, so clients should be charged at a fixed hourly rate, not a % of investment.

As a non IFA ISTM...


1) Clients want to know in advance how much the job is going to cost. The IFA could have to spend a lot of time analysing the customers situation before he could begin to estimate hours. The costs of doing this for those people who did not proceed to place the business would have to be borne by those who did. So a quick and simple charging algorithm suits both sides. The same applies to estate agents, decorators, builders, dentists and most other tradespeople.
2) Having clear charges for a job enhances competition. Lawyers prefer to tell you the cost after the work has been done when its too late to do anything about it. When choosing your lawyer do you go for the one who offers the lowest charge/hour when an expensive one may be more efficient?
3) A larger pot means higher risk for the IFA
4) A larger pot means that more possible solutions can be considered
5) Larger pots will tend to correlate with more complex objectives.
6) Larger pots will bring in more issues - eg tax avoidance, inheritance planning

sendu

Linton wrote: »

1) Clients want to know in advance how much the job is going to cost. The IFA could have to spend a lot of time analysing the customers situation before he could begin to estimate hours. The costs of doing this for those people who did not proceed to place the business would have to be borne by those who did. So a quick and simple charging algorithm suits both sides. The same applies to estate agents, decorators, builders, dentists and most other tradespeople.

You get fixed fee estate agents these days, and they're almost certainly the way to go. Tradespeople like decorators and builders do take the time to come up with a quote beforehand, based on estimated time and materials. Dentists that I'm aware of have fixed fees.

An IFA just has to have a fixed £/hr fee, and to quote a number of hours based on the initial free meeting to discuss requirements. This is not rocket science.

Maybe a brand new IFA who has never given advice for a particular kind of client/problem would have difficulty coming up with an accurate estimate, but that's their problem, not the clients. A quote is provided and accepted or not based on other quotes the client received.

2) Having clear charges for a job enhances competition.

There is nothing unclear about a fixed fee upfront-quote.

3) A larger pot means higher risk for the IFA

What are these risks?

The remaining points you mentioned are covered by a fixed-fee IFA estimating more hours of work. They should be paid for the work they actually do. Arbitrarily paying them £thousands extra for doing nothing extra is literally throwing your money away.

SonOf

You get fixed fee estate agents these days, and they're almost certainly the way to go. Tradespeople like decorators and builders do take the time to come up with a quote beforehand, based on estimated time and materials. Dentists that I'm aware of have fixed fees.

A quote and reality often work out different.

An IFA just has to have a fixed £/hr fee, and to quote a number of hours based on the initial free meeting to discuss requirements. This is not rocket science.

Yes, that could be done. And when the person expects x number of hours and it ends up being double that, then they wont be happy.

There is nothing unclear about a fixed fee upfront-quote.

This is why many advice firms add a cap and collar to their percentage charge. It covers the risk/liability cost increases that go with larger amounts but keeps the charge sensible.

What are these risks?

FCA, FOS, FSCS levies etc are all charged on percentage basis over their respective fee blocks.
PI insurance is part charged on percentage basis as well transaction risk basis. Larger investors carry greater liability risks.

Hourly rates are not popular with consumers. You may like it but the average consumer does not. We did a review on hourly rates a few years back and found that they just complicated things. In some cases it was slightly cheaper. In some cases it was slightly more. Then you would get the case where the client would have a difficult provider or they themselves would be difficult and the hourly rate would sky rocket with them.

There was also the issue that we are a rural firm and people just drop in and chat and use us for non-regulated advice things as well as a lot of things that we do not charge for which we would have to if we moved to an hourly rate as standard.

Finally, there was the issue over VAT. Intermediation is non-vatable and you don't need to charge VAT if you give a bundled charge, even if bits of it individually would be classed as vatable. if you break the job down into processes, then you have to charge VAT on the non-vatable processes. That increases the bottom line fee to the client. You may say you can just bundle the hourly rate but that would be the same bundling the percentage rate and you dont like that.

We dumped the hourly rate option altogether as it offered no value or benefit over a cap/collar percentage fee. Technically, we don't have a fixed fee any more either but if we were pushed to give one, it would be the fee cap.

Simplicity to give a fee that could be explained and understood in seconds was more important than having a range of chargeable options that could contradict each other at times.

Linton

sendu wrote: »

.......They should be paid for the work they actually do. Arbitrarily paying them £thousands extra for doing nothing extra is literally throwing your money away.

Isnt paying for some work that isnt done which must be coupled with not paying for some work that is done the effect and objective of any fixed fee scheme?

AnotherJoe

sendu wrote: »

The remaining points you mentioned are covered by a fixed-fee IFA estimating more hours of work. They should be paid for the work they actually do. Arbitrarily paying them £thousands extra for doing nothing extra is literally throwing your money away.

What about the risk they take advising you? A risk that goes back almost indefinitely. There's someone in these forums currently asking about taking action against his now deceased dads banker from the mid 80's on the grounds that they lent him money to start a business and the business went under so obviously it was the banks fault (at least thats the unstated assumption behind it). Thats 30+ years later!

In the case of an investment it would typically be on the grounds that the adviser shouldn't have picked fund X or put so much in it or moved you out of it or you didnt understand what you were doing because the adviser didnt explain, etc etc.

All of which costs money to insure against and the more money, the more the insurance costs.

sendu

AnotherJoe wrote: »

All of which costs money to insure against and the more money, the more the insurance costs.

I thank you and SonOf for insight in to the risks and costs that rise with the amount invested. It's an interesting problem for IFAs to be sure.

But that's their business model to sort out. From a client perspective - from the perspective of someone asking if professional advice is worth it on these forums - these issues don't matter. Clients should go for the cheapest advice from an appropriately qualified and regulated (I)FA that they can get.

Because paying extra due to a % based fee doesn't get you better advice, it only helps the FA (to eg. pay their insurance bill, or go on a more expensive holiday).

Somehow, purely fixed-fee IFAs charging "reasonable" rates exist, so if you can find one, you should use them in preference to a % fee one, if the actual cost does end up lower.

johnadams7

OldMusicGuy wrote: »

Some do, some don't. If you can't answer that question yourself, then you need an IFA (and I'm glad you decided not to use SJP).

FYI I do. I have a large DC pot invested in three multi-asset funds. It works very well for me. However, my situation and financial objectives are likely very different to yours so there's no way I can say if it's a good idea for you based on my situation.

I would never use a %fee based organisation of any type, because my DC pot is large and they would get a lot of money every year for very little effort IMO. My son contributes to a pension at work that is managed by a small "wealth management" firm that offers a choice of 5 fund portfolios of different risk levels. I looked at all of them and didn't like the look of any of them. However, he has to use them to get his employer's 10% contribution. Over two years, after fees the fund is worth less than the actual contributions. Pathetic.

I posted an example of the portfolio I may use. I understand that these products invest in these areas as a certain percentage. But obviously they are passive investment.

So perhaps removing the passive investments out, and adding a few well performing active investments will help. I understand that it will upset the percentage figures for each areas, but the top active investors would appear to be beating simply the average, which is what passive investing is, is it not ??

For instance if I invest in Lindsell train global equities, I doubt the underlying fund in Vanguard invested in global equities has done as well as LT. My understanding was the multi asset products reduce risk due to diversification and the top active funds make money due to being invested in the right companies.

Why is so little money invested in HSBC funds, do people not rate them as well?

Someone asked how much is available, as apparently that has a bearing. Obviously I like to keep my financial affairs to myself, and with taking a large chunk out in cash, I'd say I will be investing .1/2million - .750k.

johnadams7

As an example the FTSE UK All share Index UK 5 year accumulate = 38.77%
Lindsell train UK equity = 97.44%

3 year 57% LT
34% FTSE ALL SHARE. (Used by citywire to compare).

Therefore my conclusion is that the vanguard has a wider range - with more products and diversification. But LT, has easily out performed. Therefore this was my rationale for including both - the security of vanguard, and the added performance of LT.

AnotherJoe

johnadams7 wrote: »

I posted an example of the portfolio I may use. I understand that these products invest in these areas as a certain percentage. But obviously they are passive investment.

So perhaps removing the passive investments out, and adding a few well performing active investments will help. I understand that it will upset the percentage figures for each areas, but the top active investors would appear to be beating simply the average, which is what passive investing is, is it not ??

The problem is, you cannot pick the best active managers for the next 5,10,20 years. Only for the last 5,10,20 years. Until 2-3 years ago, a certain Mr Neil Woodford would have been a slam dunk for example.


For instance if I invest in Lindsell train global equities, I doubt the underlying fund in Vanguard invested in global equities has done as well as LT. My understanding was the multi asset products reduce risk due to diversification and the top active funds make money due to being invested in the right companies.
But you dont have access to a time machine to know that LT will do better than Vanguard in the future which is when your investment will be operating, not the past.


Why is so little money invested in HSBC funds, do people not rate them as well?
No idea. There's a lot of fashion investing.


Someone asked how much is available, as apparently that has a bearing. Obviously I like to keep my financial affairs to myself, and with taking a large chunk out in cash, I'd say I will be investing .1/2million - .750k.

Well thats along the lines of mine, all DIY'd. But I've been doing that for 20+ years. If I was jumping right in with no background I'd probably want to start with an IFA. Quite a few people at my last company did this, but then they never took much interest in investing. The one thing an IFA will/should help with, is stop you taking a monumentally stupid risk.

There's also no reason that it has to be one or the other.

DIY half with a few global funds and perhaps some side-bets on companies or sectors or geographies to spice it up, have an IFA manage the other half. Revisit every few years and decide which way to go after a while

[Deleted User]

It may be me, but I use an IFA versus DIY for a different reason.
I see DIY as investing and I see the IFA route as wealth preservation and tax efficiency
(yeah I know it's a moot point - but that's how I think)
My IFA (who I have known for years and has also given me free meetings when I wasn't a client) charges based on a fixed rate for differing levels of service. You also have the chance to have a % based (less than 1 I think) for a totally director level open access.
The fixed fees are in the range of £1.2k and £2.4k as the level of service is dependant on the number of reviews per year and also a choice of 4 portfolios
In addition there will be an Elevate platform charge (just dropped to 0.25% I think)
It's the additional tax advice I like.
And yes there is a Vanguard fund in the portfolios (low cost FTSE tracker)