IFA Fees

OldMusicGuy

choi wrote: »

Pay me 1.5% to set this up

And 1.4% pa for ten years

Come what may

Comments

That's why I took back control and now do it myself. You either swallow this business model or you do it yourself, it's as simple as that.

Prism

This applies to many professions. I run training courses and an individual might pay up to £3.5k for 5 days of training. I get paid regardless of the long term success of that training. Its not within my control what you do with that knowledge. Or you could always DIY the training yourself and avoid the cost of the course.

choi

Malthusian wrote: »

Do you refuse to pay your car mechanic because the traffic's been bad, therefore you shouldn't have to pay him because he's failed to make your car go fast?

I don't ask my mechanic to assess traffic flows

bowlhead99

choi wrote: »

I don't ask my mechanic to assess traffic flows

Then you don't ask your IFA to make the markets move in a certain way to deliver your return.

The IFA will try to understand your needs and goals, capacity for and tolerance for risk etc and put in place a plan to achieve the objectives over 10+ years. If the products used do not turn out to be suitable for the objective over the long term, you can complain and ultimately escalate to the regulator.

A 'give him a share of my return if it does well' is not a good remuneration strategy because it will potentially give the IFA the wrong motivation of getting paid more money if he takes higher risk and gets lucky in the markets. Essentially gambling with your money and lopsided because he won't pay you out for losses.

A 'only pay him the fair fee if it hits the target, pay him less if it doesn't hit the target but don't pay him more if it beats the target' seems skewed against the advisor.

To use the earlier analogy, the mechanic gives your car the equipment to drive 600 miles on a tank of fuel, and should be paid in full but then through no fault of his own you find yourself sitting in roadworks for half an hour crawling along at 1 mile per gallon. Or the mechanic takes the opposite extreme approach to tuning and sets your car up to be able to go 160mph, but then the one day of the year you get to a German autobahn, it's raining and there's loads of traffic so practically you don't get to take it to speeds more than half what you paid for. Would you say his fee should reduce? He can't guarantee what you can achieve, he can only guarantee the quality of the solution he recommends.

Thrugelmir

choi wrote: »

It is obviously a complex issue and there are no easy solutions

Rather than committing a large lump sum. Perhaps drip feeding a small amount on a monthly basis into a broadly diversified (low cost) fund is a better approach for you. Whilst leaving the remainder on deposit. Find your feet slowly. You may not achieve your 4% return but at least your capital will remain intact.

Malthusian

To put this discussion into context we can remind ourselves that choi isn't paying his adviser at all, unless he is paying him on an hourly basis for meetings and work done, rather than the traditional model of payment on implementation of a recommendation. And probably never will.

Thrugelmir

Malthusian wrote: »

To put this discussion into context we can remind ourselves that choi isn't paying his adviser at all, unless he is paying him on an hourly basis for meetings and work done, rather than the traditional model of payment on implementation of a recommendation. And probably never will.

Like Estate Agents only generate income on completed transactions. All the wasted time has to be paid for.

AlanP_2

choi wrote: »

I just think we should try it my way
Too many IFAs get away with making projections for what look like unsubstantiated returns
With the magic words
Can go up as well as down

Why don't you try it your way? Do the training and set yourself up as that IFA. Bound to make a fantastic living I'm sure.

Wildsound

You seem to have a lot of focus on the investment part.

An IFA should be a lot more than just picking you an investment and hoping it returns as expected (anyone can do that really), they should be working out the best products to meet your aim/objectives, keeping things tax efficient, working out your risk tolerance and capacity to take losses, working out whether your withdrawals are sustainable (for drawdown) etc...

To keep with the car analogy somewhat, from the way you have described it, it's like going to a car dealer saying "I want to go 120mph". Sure they can find you a range of cars that can do that, but it can range from a souped up Seat with no seatbelts to a Bugatti Vehron.

Instead, imagine going to a dealer with the main objective being "I need to get from A to B multiple times, with a decent soundsystem, a smooth ride, leather seats, seatbelts, sat nav" - this will then narrow it down to a handful of cars which meet all of these objectives.

bostonerimus

choi wrote: »

It is obviously a complex issue and there are no easy solutions

I disagree. For most people organising their finances is relatively easy and investing does not need to be complicated at all. The golden rules can fit on a single index card and if you follow them there is a very high probability you will reach you goals without ever having to pay an IFA/FA. You will have to use an advisor when the system forces you to, say if you want to move the CETV of a DB plan to a SIPP, but generally you can save yourself their fees and do as good a job yourself.