To use an IFA or not?

IvanOpinion

dunstonh said:

What I would say, if you engage an IFA, is work out a fixed rate, and ascertain how many hours of work this will provide, resist the temptation of allowing them to take a percentage of your pot (that would eat into your returns).  Only you can judge what is value for money for you.

Hourly rate is one of the most unpopular methods with consumers as you do not know your final bill in advance.   You can end up paying far more with an hourly rate than a percentage of fixed price tariff.

The adviser will not know the work in advance and if you are a chatty person you will be paying for your time to talk.   If your work involves a pension provider that is difficult on admin, slow to respond etc then you end up paying for that.

You should not rule out percentage (or other methods) as they can be cheaper than hourly rates.  They can also be more but the key is the bottom line.  Not the method used.  

As I said only the individual can work out what they determine is value for money.
I can only use my example in which I was looking for a new IFA after my last one let me down badly (see my previous posts).  One IFA (found using one of the 'trusted IFA' sites) was under some strange misapprehension that I would be willing to give him 5%, as an initial fee, and then he would "only" take 2.5% as an ongoing annual fee (he seemed quite upset when I burst out laughing); others (through recommendations) were significantly cheaper but the cheapest was still talking of a percentage relating to a very significant 5 figure sum over 10 years.  

In the end I did the work myself in that instance (a complete novice), it took me a 10 minute phone call followed by about 30 minutes to complete all the "forms" (mostly online), and barring one mistake (which Fidelity phoned me up to verify) it appears I did everything correctly.  So in my case I considered that the IFA was offering incredibly poor value for money.

Recently I have been contemplating some options in relation to how to take my pensions and again looked for an IFA for professional advice - every single one I contacted was only willing to talk to me based on a percentage value of my investments - they lost interest when I told them that I just wanted advice and was not willing to hand over control.  On the other hand, I made a post on this board and got some fantastic genuine responses Bowlhead and Albermarie (many thanks to both) - responses that I have printed off and stored (accepting that things could change in the next few years).

cfw1994

dunstonh said:

What I would say, if you engage an IFA, is work out a fixed rate, and ascertain how many hours of work this will provide, resist the temptation of allowing them to take a percentage of your pot (that would eat into your returns).  Only you can judge what is value for money for you.

Hourly rate is one of the most unpopular methods with consumers as you do not know your final bill in advance.   You can end up paying far more with an hourly rate than a percentage of fixed price tariff.

The adviser will not know the work in advance and if you are a chatty person you will be paying for your time to talk.   If your work involves a pension provider that is difficult on admin, slow to respond etc then you end up paying for that.

You should not rule out percentage (or other methods) as they can be cheaper than hourly rates.  They can also be more but the key is the bottom line.  Not the method used.  

It is a tricky one though.   
If I move house, need a new heating system, or require a lawyer, I can (usually!) clearly see the hourly rate I will pay.
Furthermore, that professional, on account of having done similar things a hundred times before, will be able to give a reasonable estimate (quote) on what it might cost, subject to caveats, of course.  I guess the response to that is that "no two clients are the same", which is not unreasonable.  
Not sure why a slow pension provider would add time to the IFA hourly rate - that should just mean a slower response.   Unless the IFA is going to charge £X every time they have to respond with "sorry, still waiting for <company X> to respond to my requests"?

The finance advisor space still feels it needs to just take a % chunk year in, year out, even if there is a bad year.   "IFA haters" here *hate* this.   Genuine "DIYers" are perhaps more sanguine - that is just the cost of having that 'support', and many people need & benefit from it.  The trick there is to perhaps negotiate a low fee....

To the point of the thread: as people sometimes point out, the IFA role is not really to guarantee making you more money than you could make on your own, but to help coach/guide you from making disastrous decisions or mistakes.  As Albermarle suggested, have a browse through that large thread, and do please feel free to drop back in here and report on your thoughts!
If you do want to DIY, I would suggest reading up as much as you can.  I personally found http://kroijer.com helpful in making me focus on "whole of market, low cost" investments as a broad backdrop to what we do, although have also found LOTS of help here & on other forums.

BritishInvestor

cfw1994 said:
The finance advisor space still feels it needs to just take a % chunk year in, year out, even if there is a bad year.   "IFA haters" here *hate* this. 

Irrespective of how the adviser is paid (fixed fee, %, whatever - as dunstonh says the bottom line is all that matters), I just don't understand this concept of paying an adviser based on returns. The sooner people get over this belief that their adviser/fund manager/snake oil salesman is going to give them market-beating returns the better their outcomes are likely to be. 

dunstonh

One IFA (found using one of the 'trusted IFA' sites) was under some strange misapprehension that I would be willing to give him 5%, as an initial fee, and then he would "only" take 2.5% as an ongoing annual fee (he seemed quite upset when I burst out laughing); others (through recommendations) were significantly cheaper but the cheapest was still talking of a percentage relating to a very significant 5 figure sum over 10 years. 

That is no different to any trade.    I have had building quotes that are as much as 10x higher than others.    They know they are not going to get every bit of business but then they do not need to.   They only need 1 in 10 to make the same money as the one that is 10x cheaper.

Furthermore, that professional, on account of having done similar things a hundred times before, will be able to give a reasonable estimate (quote) on what it might cost, subject to caveats, of course.  I guess the response to that is that "no two clients are the same", which is not unreasonable. 

Of course you can give a reasonable estimate.   However, things do not always work out like that.   You ahve the providers that need multiple contacts to get the information.  You have providers that send you 5 pages to read through and others that send you 50  pages to read through.

Not sure why a slow pension provider would add time to the IFA hourly rate - that should just mean a slower response.   Unless the IFA is going to charge £X every time they have to respond with "sorry, still waiting for <company X> to respond to my requests"?

Chasing up and delays cost money.   The longer the case takes, the more times you need to re-read the file to remind yourself of what you are doing.   You say "unless the IFA..."  but that is the point of hourly rate. You pay for every minute of work.  Plus, if you are like most that charge hourly rates, you do it in minimum time blocks of 15 minutes.  

The finance advisor space still feels it needs to just take a % chunk year in, year out, even if there is a bad year.   "IFA haters" here *hate* this.   Genuine "DIYers" are perhaps more sanguine - that is just the cost of having that 'support', and many people need & benefit from it.  The trick there is to perhaps negotiate a low fee....

If you employ an adviser to provide ongoing advice and support then you pay for them that service.      I don't know what you mean by a bad year as there is no such thing that relates to an IFA service.

Nick9967

Thanks to all,
couldn't log on from home over the weekend so apologies i wasn't ignoring your efforts on my behalf.
I have never had a good relationship with an IFA, perhaps because i wasn't a big enough customer to be worthwhile, or I was niaive with the whole subject! who knows, but i have also never known any aquaintance to have a positive experience, who knows why? I do get frustrated with them sometimes having been in a very senior commercial role for 30 years (until recently) i like to frank and to the point whilst remaining polite and not B.....d to, i cant stand sales people haha!
I appreciate all of the feedback, and think a good IFA would be useful to me to help me manage the most efficient way to manage what i will have at 58, perhaps Asvira at 0.25% pa is not a bad thing to have watching my funds and picking the most approiate funds to be in. Perhaps i need both , a good IFA and Asvira and together we have a happy marriage!
   

cfw1994

Nick9967 said:

Thanks to all,
couldn't log on from home over the weekend so apologies i wasn't ignoring your efforts on my behalf.
I have never had a good relationship with an IFA, perhaps because i wasn't a big enough customer to be worthwhile, or I was niaive with the whole subject! who knows, but i have also never known any aquaintance to have a positive experience, who knows why? I do get frustrated with them sometimes having been in a very senior commercial role for 30 years (until recently) i like to frank and to the point whilst remaining polite and not B.....d to, i cant stand sales people haha!
I appreciate all of the feedback, and think a good IFA would be useful to me to help me manage the most efficient way to manage what i will have at 58, perhaps Asvira at 0.25% pa is not a bad thing to have watching my funds and picking the most approiate funds to be in. Perhaps i need both , a good IFA and Asvira and together we have a happy marriage!

Good luck with your musings - my *limited* experience with IFAs has been kind of as you intimate - some warm fluffy words that haven't instilled me with any confidence, which is perhaps why I continue to "DIY".   
There is often a 'mystique' about finance that some people cannot see beyond: in reality, these days, you have relatively easy access to an enormous amount of information that was not possible for "mere mortals" 10-20 years back, and finance should NOT be some arcane dark art requiring the skills of a financial and behavioural 10th level wizard!!

Your 6% growth isn't too bad for this year.  Others have posted indications of poorer performance: most funds appear to be back above the trough of March, but looking over any 12-month period, I always feel if you can get 6-10% growth (or more!), you will be doing okay in the race to beat inflation and grow the pot.  If you had been in US funds the past few years, you might be doing a little better (one of my funds is "Baillie Gifford American", & appears to have done over 50% in the past 12 months!), but who knows where that will head after Novembers election over there.....
If you post the funds here maybe some will give comments on them - have you investigated options within the "Asvira" scheme you have to see if there might be options that appeal more to you?   
We all know "past performance is no guarantee to future", but since it is pretty well all we have....you could look at fact sheets for the funds you have access to.    It might raise some obvious ideas to you, maybe even spreading the pot between 2-4 funds would give you a decent balance of risk v reward.

BritishInvestor

Nick9967 said:

Thanks to all,
couldn't log on from home over the weekend so apologies i wasn't ignoring your efforts on my behalf.
I have never had a good relationship with an IFA, perhaps because i wasn't a big enough customer to be worthwhile, or I was niaive with the whole subject! who knows, but i have also never known any aquaintance to have a positive experience, who knows why? I do get frustrated with them sometimes having been in a very senior commercial role for 30 years (until recently) i like to frank and to the point whilst remaining polite and not B.....d to, i cant stand sales people haha!
I appreciate all of the feedback, and think a good IFA would be useful to me to help me manage the most efficient way to manage what i will have at 58, perhaps Asvira at 0.25% pa is not a bad thing to have watching my funds and picking the most approiate funds to be in. Perhaps i need both , a good IFA and Asvira and together we have a happy marriage!
   

"Got a pot with SW of about £205k"
"perhaps because i wasn't a big enough customer to be worthwhile"

I often hear this, and fully understand why people might feel this way, but I do wonder how much truth there is in that. I haven't checked IFA numbers recently, but SJP a breakdown of numbers on their website.
https://www.sjp.co.uk/shareholders/our-investment-story
733,000 clients
4271 advisers
£117BN AUM
equates to ~£160k per client. I wouldn't expect the IFA world to be that different (dunstonh may have a view) so I don't believe your pot is necessarily too small for them to give you a decent service.

Maybe the IFAs you have worked with have a charging structure (initial vs ongoing) that is skewed towards the former meaning that they are constantly chasing new business rather than look after existing clients?

LHW99

Chasing up and delays cost money.   The longer the case takes, the more times you need to re-read the file to remind yourself of what you are doing.   You say "unless the IFA..."  but that is the point of hourly rate. You pay for every minute of work.  Plus, if you are like most that charge hourly rates, you do it in minimum time blocks of 15 minutes.

While I understand that, and if it is agreed that the client is happy for the IFA to manage their funds on an ongoing basis then a % charge is logical, it does rather mitigate against those that want to get a check on their overall position but carry on handling things themselves.

Solicitors will charge by the hour, and although most regular transactions can have estimated costs, even then things arise that make the final charge change.

Perhaps more advisors do have hourly charging available, but don't advertise it because of the dificulty in estimating costs and because they think it won't be of much interest? This then becomes a circular argument.

I wonder whether it would be possible to have some kind of half-way house between the very generic guidance offered by the pensions advisory service, and the full IFA work? Difficult to define the scope I suppose, which would make the insurance question difficult.

dunstonh

I do get frustrated with them sometimes having been in a very senior commercial role for 30 years (until recently) i like to frank and to the point whilst remaining polite and not B.....d to, i cant stand sales people haha!

I wonder if you have actually seen FAs rather than IFAs.  Research has shown (from asking people who used FAs) wthehr their adviser was an IFA or FA and over half said FA).    FAs are usually sales people working for a provider.   Most IFA firms, on the other hand, tend to be small localised firms with 1-5 advisers.   A very different set up from a salesforce FA.     Although in recent years, there has been some hoovering up of smaller localised IFA firms into larger regional firms that operate on an FA basis (i.e. started out as IFA but ended up as FA).

I did have to smile at your last bit though as I have lost count of the number of times people have moaned at be for being blunt about something.   Funny thing is that most of the IFAs I know are the same.  Although those that I know tend to be owner/director IFAs rather than employee IFAs.   It makes a difference.

I wouldn't expect the IFA world to be that different (dunstonh may have a view) so I don't believe your pot is necessarily too small for them to give you a decent service.

Pot size does come into play.   As does the type of firm you are dealing with.   A city firm focusing on high net worth clients will either have a minimum value (and I have seen £250k mentioned before) or they will price smaller investors higher to act as a passive blocker.  Or if the person is willing to pay the higher costs, they will do it.      However, I suspect the figure for most IFAs firms is around £50k to £100k.    I wont see smaller value clients any more but we have advisers that do.  There will come a time when those advisers will increase their limits and the generation behind them will focus on the smaller ones.   A similar pattern in any profession where those starting out generally focus on the less valuable clients and the experienced focused on the higher value.

Maybe the IFAs you have worked with have a charging structure (initial vs ongoing) that is skewed towards the former meaning that they are constantly chasing new business rather than look after existing clients?

Its a good point.   Many of the firms I know do not advertise. They dont need to as business comes in naturally.   They dont need to be looking for initial fee income.   Whereas the likes on trustpilot and vouchedfor must need it as they are expensive to advertise on.  My view is that you dont choose to be on those unless you need to be on those.    i.e. you dont have enough work.  That could be because you are a new adviser starting out.  Or it could be that you are expanding and have capacity.   However, sooner or later, a successful adviser (as an individual rather than firm) will hit capacity.  

I wonder whether it would be possible to have some kind of half-way house between the very generic guidance offered by the pensions advisory service, and the full IFA work? Difficult to define the scope I suppose, which would make the insurance question difficult.

IFAs can be employed to provide guidance rather than advice.  However, it gets into difficulty as that requires no product specific adviser (no provider/platform names), no fund discussions and no strategy discussions.    It cannot hint towards advice or opinion.   Just generic info.     Some firms will not allow their advisers to do guidance over fears that it will be treated as advice if it ever goes to complaint.  Some firms wont do it because they dont want to do it.       It is important to remember that an IFA firm is not one consistent thing.  It is a collection of different business models and target markets.

cfw1994

LHW99 said:

Chasing up and delays cost money.   The longer the case takes, the more times you need to re-read the file to remind yourself of what you are doing.   You say "unless the IFA..."  but that is the point of hourly rate. You pay for every minute of work.  Plus, if you are like most that charge hourly rates, you do it in minimum time blocks of 15 minutes.

While I understand that, and if it is agreed that the client is happy for the IFA to manage their funds on an ongoing basis then a % charge is logical, it does rather mitigate against those that want to get a check on their overall position but carry on handling things themselves.

Solicitors will charge by the hour, and although most regular transactions can have estimated costs, even then things arise that make the final charge change.

Perhaps more advisors do have hourly charging available, but don't advertise it because of the dificulty in estimating costs and because they think it won't be of much interest? This then becomes a circular argument.

I wonder whether it would be possible to have some kind of half-way house between the very generic guidance offered by the pensions advisory service, and the full IFA work? Difficult to define the scope I suppose, which would make the insurance question difficult.

I think the brutal truth is that there are too few IFAs compared with professions like solicitors.   Dunstonh has, I believed: certainly google suggests there is a decline, and that more plan to do so. 
Therefore those that are around can afford to cherry pick clients - guess what, if I were in that position, I'd pick clients with greater wealth and less concern over my fees!

Like it or loathe it, I suspect forums like this and others are de facto the 'half-way house' you mention.   

Let's face it, there are a large number of bloggers and the likes of MrMoneyMustache and others that the information is out there....but it moves the onus on the clients to do their research and make decisions, which is where things get more challenging.   
Our company (for some time) offered some 'free' advisor access - which was actually pretty helpful to me around 18 years ago.   Maybe we need more companies to take a similar approach - could be an attractive 'low cost' benefit for them to offer.