IFA ongoing fee..Why pay?

Linton

bowlhead99 wrote: »

True. It's not rocket science - a great way to be somewhat immune to failures in strategy is to have more money than you need.

Some people will get there by good fortune, others by being smart. Some will have got there thinking it was because they were smart, when actually it was good fortune, or at least a combination of the two.

If having more money than you need is not yet an option yet, it's perhaps best to try to avoid both the cost of IFA fees and the cost of errors - by DIYing and getting everything right (or close to it).

For some, getting everything right (or close to it) feels like it may be difficult, hence using an IFA may be the lesser of two evils (the annual cost of an IFA can be lower than the cost of getting things wrong).

For others, getting everything right (or close to it) feels like it may be difficult, but their total amount of money is not enough to make IFA a real option because personalised advice is relatively more costly on relatively small amounts of money. So they have to do some learning, research and planning and try not to get things wrong, because that's the only practical choice they face.

When those people have done their learning, research and planning and not got things too far wrong (or had good fortune), they may find that at some point later in their life they could afford an IFA - but having had the experience from 'starting small', and developed their enquiring mind by building up their knowledge of the things that will only become relevant at higher values (tax planning etc), they may become confident that they no longer need or want one.

A subset of those people will have false confidence because their success with lower values was due to good fortune rather than them understanding the topic, and may still benefit from an IFA.

Seems a good summary though I would add 2 more caregories..
1) Those who start small and grow a reasonable pot by default without gaining experience - eg because they had a sensible default fund in their employers pension.
2) Those with no experience who achieve significant wealth as a lump sum eg as an inheritance.



Both of these may well benefit from paid-for advice and to try to persuade them into not to take advice could be grossly irresponsible.

Prism

arnoldy wrote: »

The Financial Services industry largely operates on a 'skimming' basis. Small amounts are siphoned off at frequent intervals - unnoticeable in the short term but devastating in the long term.
For example, if I had 100k in a UK fund I could be paying 1% OCF + 0.3% non OCF charges, Plus 0.5% IFA = 1.8%.


Or about £4 in every £10 dividends does not reach you.


But actually it's the fund charges that are most significant not the FA. That's why Funds and ITs have such astonishing profit margins.


If you have any semblance of understanding own the underlying investments your self (Cost = basically 0%) for your FTSE All share portfolio.
Yes for markets you can't access eg. India you have to pay the £s commission for Funds or ITs.

Its only worth doing if you believe you can do a better or equal job to the fund manager. Looking at the performance of my funds over the years I doubt I could have come close. Most of the companies they invest in I have no idea about financially. If I only invested in companies I understood that would be pretty much zero.

Its the same with the IFA. In this case I do believe I can do a decent job of risk management and fund selection but many haven't got the time or otherwise the confidence to just go for a simple low cost multi asset or set of balanced active funds.

bigadaj

dmelife wrote: »

I think the OP has inadvertently made a great case for seeking financial advice. Their investment strategy is madness and their lack of understanding so very apparent. Good luck with that! :rotfl:

Yes, so from a conspiracy theory perspective he could be an adviser posing as a low knowledge investor to justify the case for using an adviser.

Wheels within wheels....

bostonerimus

Prism wrote: »

Its only worth doing if you believe you can do a better or equal job to the fund manager. Looking at the performance of my funds over the years I doubt I could have come close. Most of the companies they invest in I have no idea about financially. If I only invested in companies I understood that would be pretty much zero.

Its the same with the IFA. In this case I do believe I can do a decent job of risk management and fund selection but many haven't got the time or otherwise the confidence to just go for a simple low cost multi asset or set of balanced active funds.

I think you give IFAs too much credit. They often sub-contract the portfolio development side of things. You might well have a good IFA, but their results will follow the same statistical distribution as the DIYer.

bostonerimus

Linton wrote: »

I diy without stress and to be honest mainly because I enjoy doing so. But that is because now we are only dependent on our investments for perhaps 25% of our expenditure, all of it discretionary, some of the discretionary and all essentials being covered by SP, annuities, and a smallish DB pension.

Were the income requirement from investments to be say 50% or more and include some essentials then the stress could be a significant problem. I certainly would not rule out paying for advice.

I definitely felt some stress in 2007/2008, but my stress has been pretty low for the past 30 years precisely because I did't use an IFA and always knew what was happening. By using mostly index funds and rebalancing at set thresholds I didn't have to do much or think much. There will be many investors that have beaten me and many that have done worse, but for me my results have pretty been what I expected and so I have hit my numbers without much worry. I expect to continue to do that in retirement. The fact that my approach has put me in a very comfortable financial position is why I recommend it.

SonOf

bostonerimus wrote: »

I'm in a very similar situation, but I DIY so don't pay an IFA. I have no stress either.

As you are based in the US, you can't use an IFA.

bostonerimus

SonOf wrote: »

As you are based in the US, you can't use an IFA.

OK the US fiduciary equivalent.

[Deleted User]

bigadaj wrote: »

how did you select your few stocks and what will you be doing in future when they underperform?

I always start with the name. I look for a company with a strong attractive name; not keen on acronyms nor names that end on a weak stress. An example of a name with good connotations would be Disney. But there can be exceptions. Kodak. Liked the product and loved the name but the whole company tanked with the advent of the phone camera.

For me, location also enters the thought process. The bigger half of my investment is in the USA, and not just Stateside but on the West coast. Pleasing in itself but splitting my investment protects me against domestic economic turbulence. Since I have these investments and also use an online platform that trades in many different currencies, I was very aware on the morning of 24/06/16 that we in the UK had woken up poorer in the world. Having a foot in two camps helps to ameliorate the risk of the Brexit project, offering a nice balance.

Certainly, you should not be burning the lamp, poring over charts, yields and "fundamentals" to try to second-guess which way a price will move. Go to the golf course while others figure out that stuff - and by others I mean market makers and brokers, not Financial Advisers.
The internet is chock full of financial news and 99% of it is hindsight, back-fitting reasons and juxtaposing events to explain why something that happened happened.

I don't recognise my investment as "high-risk". I already had twenty disappointing annual statements from my pension provider, I was quite prepared for my investments to underperform the market in the first year. In the event, they have outstripped my top line expectations, I consider this years' gains insurance against the markets tanking next year. If you feel you have to make every post a winning post , then my strategy is not for you. It's a long game and, as the financial advisers say "time in the market is more important than market timing."
I suppose I could hand control of my pension to fronty's ex-IFA for him to dilute my investment between a myriad of stocks and bonds in eighteen funds; I don't see how that would offer me protection or anything other than a feeling of helplessness if markets started to go seriously south.. Basically where I was in 2008: I had a portfolio of different stocks all over the wicket, half of which I never even liked the names of; so it was a very liberating day for me when I sold the lot. When I began to re-invest, it was with a clear strategy, I wanted to be in the tech mega-caps that did not and do not exist in the UK. Again, their spectacular gains through the intervening years give me a lot of tolerance to withstand a correction. I did sell a quarter of my Apple holding just over a year ago for $180; it had declined from c $225 in three months. My rationale was that the stock was still up on the year (2018). The most important thing, for me, is the freedom to act when I feel I need to.

bostonerimus

bowlhead99 wrote: »

True. It's not rocket science - a great way to be somewhat immune to failures in strategy is to have more money than you need.

Some people will get there by good fortune, others by being smart. Some will have got there thinking it was because they were smart, when actually it was good fortune, or at least a combination of the two.

If having more money than you need is not yet an option yet, it's perhaps best to try to avoid both the cost of IFA fees and the cost of errors - by DIYing and getting everything right (or close to it).

For some, getting everything right (or close to it) feels like it may be difficult, hence using an IFA may be the lesser of two evils (the annual cost of an IFA can be lower than the cost of getting things wrong).

For others, getting everything right (or close to it) feels like it may be difficult, but their total amount of money is not enough to make IFA a real option because personalised advice is relatively more costly on relatively small amounts of money. So they have to do some learning, research and planning and try not to get things wrong, because that's the only practical choice they face.

When those people have done their learning, research and planning and not got things too far wrong (or had good fortune), they may find that at some point later in their life they could afford an IFA - but having had the experience from 'starting small', and developed their enquiring mind by building up their knowledge of the things that will only become relevant at higher values (tax planning etc), they may become confident that they no longer need or want one.

A subset of those people will have false confidence because their success with lower values was due to good fortune rather than them understanding the topic, and may still benefit from an IFA.

I think this is an excellent post, particularly the bit about the access and cost of IFAs to beginners. People should definitely start out simply with a small number of inexpensive funds that they have made an effort to broadly understand. They also need to have a general concept of risk and the volatility implied by their choices. There are now lots of good platforms and information that let people do this for themselves. If they succeed with a simple DIY approach initially there’s a good chance that they will continue doing that.

My contention is that an IFA is probably good for avoiding stupid errors, but that it’s easy for the DIYer to do that if they have some common sense and follow a few simple rules; the IFA is also good for one time advice if the investor can’t work it out for themselves and the IFA is a necessary psychological crutch for some investors. I don’t think that on average they provide any better results than sensible DIYers.

LobsterMemory

... should definitely...

Sorry, can't do quotes using the phone, but I stopped reading your post here. There's no such thing as 'definitely ' when it comes to investment. And that's the same for the previous post which claimed that success depends on the syllabus structure of a company's name

What works for one person doesn't mean that it'll work for everybody