IFA charge - is this one usual?

feet_up

We all hate charges, but you have to pay for stuff. I understand.

My IFA charges 1% on new investments and .75% p.a. Ongoing. I think this is pretty generous.

Now they are calling the 1% an ‘Advisory Charge’ and levying it on fund changes and rebalances as well as new investments. What this means is that the funds they chose in the past and have performed badly are now being replaced by others. It doesn’t seem a good charging model that I have to pay 1% of the fund value to them - to replace the poor funds that they chose.

I imagined that the ongoing charge should pay for the review and rebalancing of existing funds.
Although in cash terms this extra isn’t a lot compared to all the other charges (Fund, Platform, Advice, Ongoing) it’s may be the straw that breaks this particular camel’s back.

Is this normal? Is it good practice? is it a sensible remuneration model? 

Old_Lifer

When you change by selling  and then buying something else,  the purchase is a new investment.

HappyHarry

feet_up said:

We all hate charges, but you have to pay for stuff. I understand.

My IFA charges 1% on new investments and .75% p.a. Ongoing. I think this is pretty generous.

Now they are calling the 1% an ‘Advisory Charge’ and levying it on fund changes and rebalances as well as new investments. What this means is that the funds they chose in the past and have performed badly are now being replaced by others. It doesn’t seem a good charging model that I have to pay 1% of the fund value to them - to replace the poor funds that they chose.

I imagined that the ongoing charge should pay for the review and rebalancing of existing funds.
Although in cash terms this extra isn’t a lot compared to all the other charges (Fund, Platform, Advice, Ongoing) it’s may be the straw that breaks this particular camel’s back.

Is this normal? Is it good practice? is it a sensible remuneration model? 

Just to confirm, you are being charged 0.75% per year as an ongoing fee, and an additional 1% one-off fee on any changes recommended by your IFA?

This would not be normal. My initial thought is that there is a misunderstanding somewhere.

[Deleted User]

Don't believe the additional IFA charge is justifiable. 
You are already paying rebalancing charges within your fund holdings, though these are customarily submerged below the headline price.

Alexland

feet_up said:

We all hate charges, but you have to pay for stuff. I understand.

Yes we all have to pay for stuff we need (or don't need but use anyway) and those providing services for us have living expenses and bills to pay however I agree if the are charging a one-off fee to rearrange your investments (not even from any change in your circumstances) when you are already paying an ongoing advice charge that's a bit unreasonable and overall might make you question the value for money although it's hard to determine this without knowing the size of the investments. On £50k maybe but on £200k then it's looks expensive but then at the lower end you might be better just holding a multi asset fund and avoiding all these charges.

Still we don't use an IFA as I also hate charges and didn't conclude we need to pay for this however accept that it can be a very useful service to some people who might otherwise not capture their share of the market return via suitable investments for their circumstances.

Audaxer

HappyHarry said:

feet_up said:

We all hate charges, but you have to pay for stuff. I understand.

My IFA charges 1% on new investments and .75% p.a. Ongoing. I think this is pretty generous.

Now they are calling the 1% an ‘Advisory Charge’ and levying it on fund changes and rebalances as well as new investments. What this means is that the funds they chose in the past and have performed badly are now being replaced by others. It doesn’t seem a good charging model that I have to pay 1% of the fund value to them - to replace the poor funds that they chose.

I imagined that the ongoing charge should pay for the review and rebalancing of existing funds.
Although in cash terms this extra isn’t a lot compared to all the other charges (Fund, Platform, Advice, Ongoing) it’s may be the straw that breaks this particular camel’s back.

Is this normal? Is it good practice? is it a sensible remuneration model? 

Just to confirm, you are being charged 0.75% per year as an ongoing fee, and an additional 1% one-off fee on any changes recommended by your IFA?

This would not be normal. My initial thought is that there is a misunderstanding somewhere.

Does that mean that if OP has say a £100k portfolio, the IFA charges 1% (a £1,000 fee) every time it is rebalanced?

[Deleted User]

Audaxer said:

HappyHarry said:

feet_up said:

We all hate charges, but you have to pay for stuff. I understand.

My IFA charges 1% on new investments and .75% p.a. Ongoing. I think this is pretty generous.

Now they are calling the 1% an ‘Advisory Charge’ and levying it on fund changes and rebalances as well as new investments. What this means is that the funds they chose in the past and have performed badly are now being replaced by others. It doesn’t seem a good charging model that I have to pay 1% of the fund value to them - to replace the poor funds that they chose.

I imagined that the ongoing charge should pay for the review and rebalancing of existing funds.
Although in cash terms this extra isn’t a lot compared to all the other charges (Fund, Platform, Advice, Ongoing) it’s may be the straw that breaks this particular camel’s back.

Is this normal? Is it good practice? is it a sensible remuneration model? 

Just to confirm, you are being charged 0.75% per year as an ongoing fee, and an additional 1% one-off fee on any changes recommended by your IFA?

This would not be normal. My initial thought is that there is a misunderstanding somewhere.

Does that mean that if OP has say a £100k portfolio, the IFA charges 1% (a £1,000 fee) every time it is rebalanced?

Possibly.
Possibly £2,000.
If there is a rebalancing charge for the investment sold and another for the replacement. 

wjr4

I’d ask your IFA to clarify. The ongoing adviser charge should cover any rebalancing, reviews & top ups. 

dunstonh

Now they are calling the 1% an ‘Advisory Charge’ and levying it on fund changes and rebalances as well as new investments. 

When you are on an ongoing service, most advisory firms will include top ups and rebalances within that ongoing charge and not make an additional charge.    Some will (often the wealth management firms).  So, whilst not unheard of, it is not commonplace.  

To charge an initial fee on rebalances and top-ups would make you wonder what you are paying the ongoing servicing fee for.

I would not be comfortable with that model.  

Does that mean that if OP has say a £100k portfolio, the IFA charges 1% (a £1,000 fee) every time it is rebalanced?

No.   Its a 1% charge made on the purchase.  i.f. £10k of funds are switches it would be 1% of that.

[Deleted User]

Are you sure they haven't outsourced the portfolio choice to a DFM?
My old IFA created a new company which advised his IFA clients for a DFM (of which previously it was included in the normal charge), hence two sets of charges..
Hence why I now DIY

feet_up

Thank you all for reading and commenting.
 
dunston (as he often does) has got it right. I have clarified it with the IFA and challenged it verbally and now thanks to your help (I thought it might just be me! ) have written asking for my comments to be passed on to the company hierarchy.

This is an amount over a quarter of a million pounds - Beer money for some but nonetheless, even now, a lot!

The backstory is of a family having a trusted 1 man IFA in the  80s who became a partnership, who sold out to a regional company which was then taken over by an international group. The advisors are nice people who we have known for 20 years and like and trust but who are increasingly powerless. Regulation and corporate culture has stamped out individuality and flexibility. And yes ‘wealth management’ comes in to it.

If we leave the company we have to find someone else to trust and of course they will charge 1% of the portfolio value and move it into different funds and a different platform.
I guess.

So why an advisor when I could, and do DIY? 1) The IFA only has to do a couple of % better than me to pay for the charges. 2) I need advice on IHT, trusts etc which I am not so confident about. 3) My wife and children would need help when I pop my clogs.

I’ve rambled, but does this make sense?