IFA ongoing fee..Why pay?

enthusiasticsaver

Our IFA reviews our portfolio quarterly and looks at asset allocation, global outlook etc and we get a report to say what they have done. We have an annual meeting to discuss our financial needs and aims for the next year. If you were in a passive tracker I can understand why you would just let things tick along. We did that for five years ourselves but most of our investments are now in active managed funds so I am reassured our IFA keeps an eye on the portfolio. I don't have the time, desire or experience to know what to look at so we pay him instead.

fronty

ZingPowZing wrote: »

I get why people go to a Financial Adviser initially, and I get why people may revisit when circumstances change, but why in the world pay an FA or IFA when the investment plan is ticking over?

Indeed, I have just been through the whole process of dumping my IFA and going DIY, from start to finish it took just under 4 weeks to transfer my £375K portolio from my IFA's SL Wrap platform to my new II SIPP. I've switched from a bewildering array of 18 funds which they managed on my behalf (they provided a discretionary service), down to 2 globally diversified multi-asset passive funds.

The trigger for me was seeing nearly 5K in fees being extracted this year and of course it's been going up every year as my portfolio grew. Reviewing the charges since they took over management of my SIPP (Feb 2016) they have taken £15,515.32 in advisor fees and £4.240.16 in platform fees, a total of £19,755.48 in fees in just under 4 years.

I possibly wouldn't have minded so much if my IFA had beaten the market, but in pretty much every quarter over the previous 3-4 years they had under-performed passive funds such as VLS 60 and HSBC GS Balanced (my portfolio was rated as medium risk). I appreciate I might not be comparing apples to apples, but this was supposed to be an actively managed portfolio and they had the freedom to find growth wherever they needed (within the agreed risk profile) but IMHO they failed spectacularly, and I just could not see how such high charges could be justified. If I had not done anything then tens of thousands of pounds would have been extracted from my portfolio over the coming years - that's money that could have had a massive impact on the performance of my portfolio over the next 10-15 years.

I decided I just could not allow this continue so fired my IFA and initiated the switch. Only time will tell if I made the right choice, but I still have 10-15 year investment horizon so am hoping I can at least double the value of my portfolio before I retire.

Albermarle

I possibly wouldn't have minded so much if my IFA had beaten the market

You have probably made the right decision overall but I do not think any reputable IFA would claim to be able to beat the market . Only to be able to manage your investments correctly within the risk guidelines , which is not the same thing of course.
So the question is can you save more on the fees than you might lose in performance . I guess the answer is probably yes, but it is difficult ever to be sure .
I am the other way round . I DIY but sometimes wonder if I might do better with some professional help at some point , although I also baulk at paying £5K or more a year.

Brian65

I can understand people not wanting to pay an IFA a hefty fee for what seems like not very much work.
But even that is better than falling victim to a scam and losing everything as many people do when they DIY
That was my analogy with car servicing - someone who doesn't know what they are doing can miss a vital safety risk that even a lazy mechanic would have spotted.

[Deleted User]

fronty wrote: »

Indeed, I have just been through the whole process of dumping my IFA and going DIY, from start to finish it took just under 4 weeks to transfer my £375K portolio from my IFA's SL Wrap platform to my new II SIPP. I've switched from a bewildering array of 18 funds which they managed on my behalf (they provided a discretionary service), down to 2 globally diversified multi-asset passive funds.

The trigger for me was seeing nearly 5K in fees being extracted this year and of course it's been going up every year as my portfolio grew. Reviewing the charges since they took over management of my SIPP (Feb 2016) they have taken £15,515.32 in advisor fees and £4.240.16 in platform fees, a total of £19,755.48 in fees in just under 4 years.

I possibly wouldn't have minded so much if my IFA had beaten the market, but in pretty much every quarter over the previous 3-4 years they had under-performed passive funds such as VLS 60 and HSBC GS Balanced (my portfolio was rated as medium risk). I appreciate I might not be comparing apples to apples, but this was supposed to be an actively managed portfolio and they had the freedom to find growth wherever they needed (within the agreed risk profile) but IMHO they failed spectacularly, and I just could not see how such high charges could be justified. If I had not done anything then tens of thousands of pounds would have been extracted from my portfolio over the coming years - that's money that could have had a massive impact on the performance of my portfolio over the next 10-15 years.

I decided I just could not allow this continue so fired my IFA and initiated the switch. Only time will tell if I made the right choice, but I still have 10-15 year investment horizon so am hoping I can at least double the value of my portfolio before I retire.

Well done fronty.

You will save a six-figure fee over your timeline. Good luck to the iFA who can out-perform you over that period after those charges but choosing 18 different funds suggests your ex-IFA may struggle to find the couch in his living room.

In any case, you will be happier taking back control. Fortune favours the brave.

bostonerimus

Brian65 wrote: »

I can understand people not wanting to pay an IFA a hefty fee for what seems like not very much work.
But even that is better than falling victim to a scam and losing everything as many people do when they DIY
That was my analogy with car servicing - someone who doesn't know what they are doing can miss a vital safety risk that even a lazy mechanic would have spotted.

There will always be people who pray upon people’s gullibility and ignorance. The worst of those are the outright crooks and scammers. People in the legitimate financial industry mostly don’t go out to explicitly steal as they have been conditioned to think that they are providing a worthwhile service, and sometimes they are. But many times they are just pushing paper and charging a pretty penny for it. Hubris and entitlement don’t go well with customer value.

I haven’t done much of anything with my mostly passive index fund portfolio for the past 20 years other than some rebalancing and regular contributions. I spend more time on shopping lists than managing my funds. Which reminds me I must make my annual contribution to my self employed pension which will take a couple of mins on the website to add to a global and a US index fund.....wow what hard work.

mark13

I have just merged my pensions and my IFA is managing the pot. They have no issue with me managing the portfolio myself in future if I so wish and could offer advice if required . Happy to let then manage it for now. I do have ISA's I manage so will be interesting to see how it performs compared to my results. The mechanic analogy is a good one.

bostonerimus

Malthusian wrote: »

You can ask though. And you don't need to leave hairs on the tyres like Fred's dad. A good IFA will quite happily yabber away about their Centralised Investment Proposition and investment committee decision making process until you remember why you pay someone else to worry about all this crap.

The more jargon the greater the fee. This is a great example of IFAs making things more complicated than they need to be. I have a "CIP".....shove it in equity index funds and there's always a quorum on my investment committee of one.

I have a sub-committee, but that just decides what sort of sub-sandwich I want for lunch.

Jaynishriya

ZingPowZing wrote: »

I get why people go to a Financial Adviser initially, and I get why people may revisit when circumstances change, but why in the world pay an FA or IFA when the investment plan is ticking over?

Speedbird676 wrote: »

You don't know what the mechanic does behind the scenes. Likewise, you don't know what the IFA does behind the scenes.

In either scenario, what they charge may or may not be worth the cost, and it is a personal judgement whether it is value for money and whether to pay up or not.

This subject has attracted intense academic debate and there is an interesting article titled 'Money Doctors', published in the Journal of Finance (July 2014), which argues that investors base their trust on money doctors when they delegate portfolio management tasks over to them. It explains that trust in money managers reduces an investor's perception of the riskiness of a given investment, and allows them to charge fees. Competition for investor funds may induce managers to reduce fees, but because of trust, fees are generally higher than costs. In short, its the way the market operates, due to information asymmetry between the investors and managers.

ZingPowZing wrote: »

If there were to be a seismic event affecting financial mkts., your FA is likely to spew more dust than Krakatoa, but unlikely to elevate your fortunes above the herd.

You don’t need a seismic event for this to occur. The same article goes on to show that managers on average underperform the market net of fees, but investors nevertheless prefer to hire managers to investing on their own. In other words, such a phenomenon may exist in equilibrium. Moreover, when investor’s attitude to investment follows some behavioral preference theory (termed biased expectations), trust can cause managers to pander to investor beliefs.

SonOf

bostonerimus wrote: »

The more jargon the greater the fee. This is a great example of IFAs making things more complicated than they need to be. I have a "CIP".....shove it in equity index funds and there's always a quorum on my investment committee of one.

I have a sub-committee, but that just decides what sort of sub-sandwich I want for lunch.

It is not a great example of IFAs making it more difficult as it is a regulatory requirement following MIFIDII.

, but because of trust, fees are generally higher than costs.

Fees have to be higher than costs in all walks of life otherwise there is no point.