Investment cost

thegentleway

Hi,
What are typical fees for IFA? I'm looking at 1.5% implementation on top of the £750 for the initial report then 0.5% ongoing (negotiated down from 0.75%). It's a pretty simple set up: invest a 6 digit lump with monthly ongoing investments. The advisor is suggesting Parmenion due to my preference for ethical investments. 1.5% seems a bit steep for open four (one S&S ISA and one unwrapped one each for my partner and me) accounts with Parmenion?
Thanks,
Tom

dunstonh

What are typical fees for IFA? I'm looking at 1.5% implementation on top of the £750 for the initial report then 0.5% ongoing (negotiated down from 0.75%).

There is a wide range.   Broadly speaking, the percentages go down with the greater the amount you have.   You dont mention the amount so we cannot really comment until you tell us.

The advisor is suggesting Parmenion due to my preference for ethical investments. 

They do have a pretty good ethical investment offering.   Although it is a discretionary offering. So, it will cost a bit more than an advisory offering.

1.5% seems a bit steep for open four (one S&S ISA and one unwrapped one each for my partner and me) accounts with Parmenion?

Again, we dont know the amount.  At £100k its cheap.  At £500k, its expensive.

As for ongoing, again, 1% at £100k is not unusual but you would expect it to quickly tier to 0.5% with higher values.

Albermarle

Usually this initial cost just to set up some accounts is the main issue with IFA costs .
On the other hand you/the client could walk away after the work was done ( and not pay the ongoing 0.5%) so I think they like to get some fixed initial return in their pocket to make the job worthwhile. 

thegentleway

dunstonh said:

What are typical fees for IFA? I'm looking at 1.5% implementation on top of the £750 for the initial report then 0.5% ongoing (negotiated down from 0.75%).

There is a wide range.   Broadly speaking, the percentages go down with the greater the amount you have.   You dont mention the amount so we cannot really comment until you tell us.

The advisor is suggesting Parmenion due to my preference for ethical investments. 

They do have a pretty good ethical investment offering.   Although it is a discretionary offering. So, it will cost a bit more than an advisory offering.

1.5% seems a bit steep for open four (one S&S ISA and one unwrapped one each for my partner and me) accounts with Parmenion?

Again, we dont know the amount.  At £100k its cheap.  At £500k, its expensive.

As for ongoing, again, 1% at £100k is not unusual but you would expect it to quickly tier to 0.5% with higher values.

Thank you. The amount is £2-300k depending on whether we invest everything.

Albermarle

Of course there are also the ongoing costs of the investments themselves . Dunstonh mentioned that Parmenion is a discretionary offering , which normally means 'quite expensive ' as the IFA is effectively farming out day to day investments decisions/management to someone else . They also have a management fee and the actual funds have a % cost as well. 
It all adds up....

thegentleway

Albermarle said:

Of course there are also the ongoing costs of the investments themselves . Dunstonh mentioned that Parmenion is a discretionary offering , which normally means 'quite expensive ' as the IFA is effectively farming out day to day investments decisions/management to someone else . They also have a management fee and the actual funds have a % cost as well. 
It all adds up....

Thanks, so I should find a cheaper IFA or DIY then?

thegentleway

Albermarle said:

Of course there are also the ongoing costs of the investments themselves . Dunstonh mentioned that Parmenion is a discretionary offering , which normally means 'quite expensive ' as the IFA is effectively farming out day to day investments decisions/management to someone else . They also have a management fee and the actual funds have a % cost as well. 
It all adds up....

The total annual charge is 1.89% (1.39% Parmenion + 0.5% IFA); I would call that eye wateringly expensive, not just 'quite expensive'! My vanguard LifeStrategy is only 0.22%!!

Albermarle

The total annual charge is 1.89% (1.39% Parmenion + 0.5% IFA); I would call that eye wateringly expensive, not just 'quite expensive'! My vanguard LifeStrategy is only 0.22%!!

Firstly your Vanguard LS has to be held on a platform of some kind which will also have a charge . From 0.15% upwards .

With the IFA you are getting advice on your overall pension/investment/tax position . Then Parmenion are paying for the underlying funds ( ethical not just a general fund like Vanguard) and their own investment expertise.

DIY is clearly cheaper in terms of charges  ( although not every DIYer is invested in Vanguard low cost funds ) but will the end result be better?

It's a never ending argument on this forum and in the end it is up to you to decide.

dunstonh

My vanguard LifeStrategy is only 0.22%!!

That is not quite true.    It is 0.22% plus 0.04% (depending on which version) plus platform charge.   
It is also not a socially responsible investment and does not include managed funds.   Most SRIs are managed funds.    Ethics cost money.

If you have an ethical stance with investing, then why are you using VLS?  Or are you only socially responsible when it doesn't cost you? 

thegentleway

dunstonh said:

My vanguard LifeStrategy is only 0.22%!!

That is not quite true.    It is 0.22% plus 0.04% (depending on which version) plus platform charge.   
It is also not a socially responsible investment and does not include managed funds.   Most SRIs are managed funds.    Ethics cost money.

If you have an ethical stance with investing, then why are you using VLS?  Or are you only socially responsible when it doesn't cost you? 

Thanks for pointing out the platform charge (my LISA is with AJ Bell so it's 0.25%); that's a very good point! (There's also a £1.50 fund trading cost so 0.15% for a £1000 investment) What's the 0.04% btw?
I invested in VLS because I didn't realise there were ethical funds. Now I know this is an option, I'm very keen to ensure my investments are ethical, even if comes at cost to me. I presume there are DIY ethical funds so I need to research those to compare the 1.89% instead of my VLS.
I'm also a bit confused by the yields from Parmenion: the historic performance data for last 20 years shows an estimated yield of 1.66 for risk 9 (on a risk scale 1-10), however risk 4 has a yield of 2.43! (it also has lower charge of 1.67%!) Wouldn't one expect higher risk portfolios to get higher returns over a 20 year period?

dunstonh

I presume there are DIY ethical funds so I need to research those to compare the 1.89% instead of my VLS.

There are plenty of ethical funds.   These are the same funds available DIY or via an adviser.  The adviser in question here has chosen a DFM option.  DFM options are more expensive but on the ethical side, they can add value with more intensive research and filtering.  The adviser could have chosen non DFM alternatives. 

Remember that charges are a secondary concern.   Not the primary concern.  That doesnt mean you need to pay more than necessary but it also means that cheapest isn't best.   You do expect ethical portfolios to carry a greater cost than a passive only portfolio or a hybrid portfolio.   For example, our medium risk 3 responsible portfolio has an OCF of 0.62%.   Whereas our conventional portfolio on the same risk has an OCF of 0.28%.     With the responsible portfolio, you can really only include property and gilts as passive as they are neither negative or positive in terms of screening.  With bonds and equities, you need the positive and negative screening which effectively means going managed funds.  There are a few passive SRI funds that could come into play but it would depend on the screening you are after and how strong your ethics are.

I'm also a bit confused by the yields from Parmenion: the historic performance data for last 20 years shows an estimated yield of 1.66 for risk 9 (on a risk scale 1-10), however risk 4 has a yield of 2.43! (it also has lower charge of 1.67%!) Wouldn't one expect higher risk portfolios to get higher returns over a 20 year period?

No.  The higher you go up the risk scale, the less likely higher-yielding investments exist.   You are also reducing the amounts gilts & bonds where the historic yields would be higher.    Broadly speaking, starting at the lowest risk, you would expect yields to rise as you move towards medium risk and fall again as you move towards highest risk.

You would expect total return to go up as you move up the risk scale.  You are not mistaking yield for total return?

Charges tend to go up as you go further up the risk scale as Asian & Emerging Markets funds are more expensive than fixed interest funds.