Financial Adviser vs DIY

nodough_2

My 89 yr old Mother has £285k which is currently in her bank deposit account (house sale proceeds) which we are trying to manage for her. She will keep £85k readily available (premium bonds etc) and invest the rest. We have consulted a reputable FA who has provided a recommendation of an S&S ISA of £20k and the rest in a GIA with Fidelity which all seems fine, however the charges for the first year would total £7k which seems a lot of money. 

Initial adviser fee 2.00% £4,000.00

Ongoing adviser fee 0.50% £980.00

Fidelity Investor Fee Fixed monetary amount £45 per annum

Fidelity Service Fee 0.25% £490.00

Total Ongoing Investment Charges (weighted) 0.76% £1,489.60

Total of all ongoing charges expressed as a % 1.51% £3,004.60

The time factor is an issue as Mum is in reasonable but not fantastic health so difficult to say how long the investment period would be and on her death this money would be divided by myself and my Sister. Would it be reasonably straightforward for someone such as me who is reasonably intelligent but has only a very rudimentary understanding of investing, funds etc. to arrange something myself with Fidelity or another platform to negate some of these charges - I'm thinking particularly of the £4k adviser fee, and perhaps engaging the services of an FA once a year to review things? It would have to be something i could set up with no or minimal maintenance. If anyone has any thoughts or advice it would be gratefully received

Alexland

nodough_2 said:

My 89 yr old Mother has £285k which is currently in her bank deposit account (house sale proceeds) which we are trying to manage for her. She will keep £85k readily available (premium bonds etc) and invest the rest. We have consulted a reputable FA who has provided a recommendation of an S&S ISA of £20k and the rest in a GIA with Fidelity which all seems fine

It doesn't seem fine. What experience does she have of S&S volatility and what assessment has the advisor (are they even independent?) done to determine, given her age/heath, that investment would be suitable? Care costs could quickly use up that £85k and then drawing on the investment money when it is needed could be when markets are low. In addition it could cause unnecessary worry at a difficult time in life.

pip895

The only definite advantage of having an advisor is that it shifts responsibility from you - What does your Sister think - if she has any concerns about you managing the account then don't go there.  Having said that there are probably much cheaper options than the FA you are looking at that would do the same thing.

dunstonh

We have consulted a reputable FA who has provided a recommendation of an S&S ISA of £20k and the rest in a GIA with Fidelity which all seems fine, however the charges for the first year would total £7k which seems a lot of money. 

Firstly, the choice should be between using an IFA or DIY.  Not an FA or DIY.   There is rarely any justification for using an FA as this usually means paying over the odds for a restricted option that is usually not as good as a whole of market option.

Initial adviser fee 2.00% £4,000.00
Ongoing adviser fee 0.50% £980.00

The charges to the adviser seem reasonable.   It is possible to get lower on the initial but the ongoing is exactly where you would expect it to be.

Fidelity Investor Fee Fixed monetary amount £45 per annum
Fidelity Service Fee 0.25% £490.00

Standard charge for Fidelity.  0.25% is the ballpark for that figure invested.

Total Ongoing Investment Charges (weighted) 0.76% £1,489.60

Advisers are required to include OCF, TC & IC in the investment charges.  DIY investors tend to ignore TC & IC (as do advisers in reality but disclosures must include them).    0.76% suggests a mostly active portfolio or the use of funds with higher TC/IC.

I'm thinking particularly of the £4k adviser fee, and perhaps engaging the services of an FA once a year to review things?

No. That would be particularly pointless.   There is no point you picking investments and then asking the FA to review your investment selection.  It incurs the same work for the adviser (possibly more depending on your investment selection) and an FA may not be able to do it as they are not an IFA.  So, it would not reduce costs.

To be honest, I would be more concerned with investing money for an 89 year old for the first time.   The money is from a house sale. So, is she now in care?   Her health is not great. So, all these things put me on guard straight away.  The average life expectancy for someone in care is under 2 years.    Nowhere near enough to consider investments in their own right.   There can be some justifications for doing it (and we dont have enough to say here) but generally, the FOS upholds most complaints about over 85s investing for the first time without significant justifications on suitability.

MaxiRobriguez

nodough_2 said:

The time factor is an issue as Mum is in reasonable but not fantastic health so difficult to say how long the investment period would be

Equity investments should be held for 5 years minimum, preferably 10, preferably forever.

So if your Mum may need all of the £285k then investing it is not suitable, given her age and health.

If she intends to leave some as inheritance to you both then it may be suitable, but would then depend on you and your sisters plans for the money. If you were to spend it as soon as it was received, then equity investing now is not suitable.

Agree with Alex's comment that £85k may not go as far as your Mum thinks. 

Personally I'd go with a capital preservation approach and then if there is any money when your Mum does pass on left to you, then you can decide what to do with it based on your needs, and your needs alone.

Alexland

MaxiRobriguez said:

If she intends to leave some as inheritance to you both then it may be suitable, but would then depend on you and your sisters plans for the money. If you were to spend it as soon as it was received, then equity investing now is not suitable.

Even then markets aren't offering a compelling enough opportunity at the moment to be in any hurry to invest any surplus not that we know at this stage how much that might be. As dunstonh describes a reputable advisor would probably not make this suggestion for fear of getting a complaint unless there are other factors at play (for example a high DB pension income, etc).

While it is still her money everyone involved should act in her best interests.

Albermarle

She will keep £85k readily available (premium bonds etc) and invest the rest.

Considering the sensible comments above , it would be important to know who initially decided she should 'invest the rest 'and for what reasons?

Was it her ? or you ? or the advisor?

Linton

nodough_2 said:

My 89 yr old Mother has £285k which is currently in her bank deposit account (house sale proceeds) which we are trying to manage for her. She will keep £85k readily available (premium bonds etc) and invest the rest. We have consulted a reputable FA who has provided a recommendation of an S&S ISA of £20k and the rest in a GIA with Fidelity which all seems fine, however the charges for the first year would total £7k which seems a lot of money. 

Initial adviser fee 2.00% £4,000.00

Ongoing adviser fee 0.50% £980.00

Fidelity Investor Fee Fixed monetary amount £45 per annum

Fidelity Service Fee 0.25% £490.00

Total Ongoing Investment Charges (weighted) 0.76% £1,489.60

Total of all ongoing charges expressed as a % 1.51% £3,004.60

The time factor is an issue as Mum is in reasonable but not fantastic health so difficult to say how long the investment period would be and on her death this money would be divided by myself and my Sister. Would it be reasonably straightforward for someone such as me who is reasonably intelligent but has only a very rudimentary understanding of investing, funds etc. to arrange something myself with Fidelity or another platform to negate some of these charges - I'm thinking particularly of the £4k adviser fee, and perhaps engaging the services of an FA once a year to review things? It would have to be something i could set up with no or minimal maintenance. If anyone has any thoughts or advice it would be gratefully received

The charges are not as high as it appears.  The "Total Ongoing Investment Charges" represent the costs for the Fund Manager to manage the funds beyond the market price of the underlying investments and would apply even if you had dispensed with the IFA and chosen the same funds yourself.  These charges are not something extra you pay, they are already included in the fund performance data.

Obviously choosing different funds would lead to different Ongoing Investment Charges. Whether choosing a different set of funds with lower charges would ensure a higher return in the future is unknown and unknowable.

Grenage

Considering a very respectable age and suboptimal health, I would echo Alexland's thoughts.  The likely duration of the investments is probably not worth the risk.

pip895

I think before we get too hung up on investment not being a good idea we should consider how little we know of the circumstances.  It could be that the OP has good reason to think that his Mum will not need this cash in the short to medium term and that the circumstances of both the OP and his sister could mean that they would be likely to invest rather than spend any inheritance.   Perhaps we should give the FA the benefit of the doubt in not having mis advised the OP - he has undoubtedly had the benefit of a great deal more information regarding this ladies circumstances. 

Thrugelmir

One has to question for whose benefit the money is being invested. Do you hold an LPA?  Where is your mother now residing?