FEES / DFM

ttmatt

My financial advisor has just advised that i put my 400k of savings in an investment fund managed by a Discretionary fund manager (DFM), due to me already having 2 buy to let properties and being secure in my pension and ISA options. She said that her fee as my IFA is 0.88 and the DFM is another 0.65, so overall will be about 1.5% ongoing ... with an initial fee of 1.5%. Is this normal, i also don't know really know what i'm paying her fee for when it will be the DFM doing all the work. Can i not just cut of the middle man/woman and just hire the DFM, if so any recommendations. I've no previous experience with funds and investing so don't want to manage it myself if possible. Thanks

SonOf

Is this normal
Most advisers use advisory investments and not DFMs.    Some adviser firms put everyone into a DFM (often those with "wealth management" used in their tag line or marketing).     Some FAs only offer DFMs.   Whereas IFAs have the choice.   Although an IFA transitioning to FA status (which has been happening a fair bit over the last 5-7 years) may try and string their IFA status out as long as possible whilst effectively operating as an FA.   DFM and single platform use is a good indicator of this.

I am not a fan of DFMs.   However, we offer a DFM sometimes as it has its place.  99% of what we do is advisory.    We have a few clients that are notoriously hard to get hold of and go missing for months (or almost a year).    So, for them a DFM is better than advisory.   For everyone else, we feel advisory is better as there is no reason to add an extra layer of charges.
Discretionary allows changes to be made without the need to seek investor permission first.
Advisory requires the investor to give their permission for changes to be made.
Also, I don't like running DFMs where a general investment account is being used (unwrapped investments) as the sales/switches could trigger a CGT tax liability and on £400k you should be able to manage it on advisory basis to avoid tax.  A DFM does not give you that control.

i also don't know really know what i'm paying her fee for when it will be the DFM doing all the work. 
Advisory does involve more work for the adviser than discretionary.   So, you have a point.   However, the adviser retains the liability for ongoing suitability and there are still the other tasks that need doing.  Such as tax wrapper use, CGT allowance use etc.  
Your adviser at 0.88% is more expensive for a £400k investment than you would expect and if they are also using a DFM, you could argue its not good value.

Can i not just cut of the middle man/woman and just hire the DFM, if so any recommendations. 
DFMs do not give advice.  They will not use your allowances.

Maybe an alternative solution is to find a cheaper adviser and say you do not want a discretionary fund manager.  You will probably find many out there more than willing to offer you services on that basis.

ttmatt

Thanks for the response, very informative. I will have to do a little more homework on this one. The FA is in fact attached to the Quilter brand so is not entirely an IFA maybe this is why she suggested a DFS. Just to go back to last point regarding me cutting out the middle man/woman, are there companies/platforms that allow me to just allow a DFS/advisory or similar a lump sum to invest on my behalf and to deal with me drawing out the capital gains relief and selling stocks that have not made a profit. Or does my financial advisor need to deal with that side of things. If not then i don't feel i would benefit from her advise each year as i think i am more than capable of making a choice about whether to keep the money in the fund or draw it out and wouldn't require any more advice on pensions etc.

I thought if i am it for the long haul then the capital gains tax won't really effect me as long as i don't take it out of the fund.I was wold by the FA that each year i would expect to get about 22k tax free after fees had been paid with slight growth by inflation on the account fund. This seemed to good to be true tbh but in your experience is this realistic???

thanks

SonOf

The FA is in fact attached to the Quilter brand so is not entirely an IFA maybe this is why she suggested a DFS. 
An FA is not an IFA.  So, "entirely" does not come into it.

 Just to go back to last point regarding me cutting out the middle man/woman, are there companies/platforms that allow me to just allow a DFS/advisory or similar a lump sum to invest on my behalf and to deal with me drawing out the capital gains relief and selling stocks that have not made a profit. 
You dont want a DFM unless you have a specific need for one.  It doesnt matter if you DIY or use an adviser.
You can DIY and use investments of your choice.  However, you will need to control your own tax wrappers and CGT management if you DIY.   It is your job or it is your adviser's job.   There is no-one else that will do it.

I thought if i am it for the long haul then the capital gains tax won't really effect me as long as i don't take it out of the fund.
It will affect you as it will build up over time.  It can be mitigated through bed&ISA, bed & Pension and and switches.

.I was wold by the FA that each year i would expect to get about 22k tax free after fees had been paid with slight growth by inflation on the account fund. This seemed to good to be true tbh but in your experience is this realistic???
Good advisers will generally under predict and aim to over deliver.  Not the other way around.  Typically we recommend 3.5% p.a. as a sensible draw rate if you wish to retain capital and look for increases in the future (although risk profile will impact on that).  5.5% is achievable in many cases but we wouldn't want someone to think that is normal.   especially as people have a habit of making ad-hoc lump sum withdrawals every now and then and 5.5% gives no real space for that.