Independent Financial Advisors

[Deleted User]

NottinghamKnight said:

I don't really understand the radically opposed opinions. I don't use an IFA but they may be valuable for some, the qualifications required aren't too onerous compared to most professions but then we have rampant grade inflation in all areas. Most professional services would be charged on he basis of a fixed fee for a defined scope of work, or at hourly rates to a budget estimate; percentage charging is fine for a rough idea but is now outdated for most professions including architects, engineers, solicitors, accountants etc Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. Transactional advice would be good for may investors but the lack of certainty in income won't meet the financial requirements of most advisers, and it would appear to be rarely on offer from what is reported on the boards.

Maybe. 
But what is your justification for your position that pension freedoms should never have been allowed, Nottinghamknight?

Thrugelmir

ZingPowZing said:

NottinghamKnight said:

I don't really understand the radically opposed opinions. I don't use an IFA but they may be valuable for some, the qualifications required aren't too onerous compared to most professions but then we have rampant grade inflation in all areas. Most professional services would be charged on he basis of a fixed fee for a defined scope of work, or at hourly rates to a budget estimate; percentage charging is fine for a rough idea but is now outdated for most professions including architects, engineers, solicitors, accountants etc Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. Transactional advice would be good for may investors but the lack of certainty in income won't meet the financial requirements of most advisers, and it would appear to be rarely on offer from what is reported on the boards.

Maybe. 
But what is your justification for your position that pension freedoms should never have been allowed, Nottinghamknight?

British Steel.  

[Deleted User]

Thrugelmir said:

ZingPowZing said:

NottinghamKnight said:

I don't really understand the radically opposed opinions. I don't use an IFA but they may be valuable for some, the qualifications required aren't too onerous compared to most professions but then we have rampant grade inflation in all areas. Most professional services would be charged on he basis of a fixed fee for a defined scope of work, or at hourly rates to a budget estimate; percentage charging is fine for a rough idea but is now outdated for most professions including architects, engineers, solicitors, accountants etc Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. Transactional advice would be good for may investors but the lack of certainty in income won't meet the financial requirements of most advisers, and it would appear to be rarely on offer from what is reported on the boards.

Maybe. 
But what is your justification for your position that pension freedoms should never have been allowed, Nottinghamknight?

British Steel.  

Sorry I do not understand. 
Financial Advisers were/are placed in a position to provide advice wholly in the interest of the client.
What could possibly go wrong?

Thrugelmir

ZingPowZing said:

Thrugelmir said:

ZingPowZing said:

NottinghamKnight said:

I don't really understand the radically opposed opinions. I don't use an IFA but they may be valuable for some, the qualifications required aren't too onerous compared to most professions but then we have rampant grade inflation in all areas. Most professional services would be charged on he basis of a fixed fee for a defined scope of work, or at hourly rates to a budget estimate; percentage charging is fine for a rough idea but is now outdated for most professions including architects, engineers, solicitors, accountants etc Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. Transactional advice would be good for may investors but the lack of certainty in income won't meet the financial requirements of most advisers, and it would appear to be rarely on offer from what is reported on the boards.

Maybe. 
But what is your justification for your position that pension freedoms should never have been allowed, Nottinghamknight?

British Steel.  

Sorry I do not understand. 
Financial Advisers were/are placed in a position to provide advice wholly in the interest of the client.
What could possibly go wrong?

Made enough headlines in the serious financial press. 

[Deleted User]

NottinghamKnight said:

Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. 

The issue here is that we are not saying “it will cost you 5% of 1 million pound house value”. Thats a one off number most can understand.  The issue is that IFAs are charging 1% or 0.5% on the same money again and again and again, costing people hundreds of thousands which is much harder to understand. And the service is hand holding. Often advice is counterproductive because the interests are misaligned.  

NottinghamKnight

Deleted_User said:

NottinghamKnight said:

Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. 

The issue here is that we are not saying “it will cost you 5% of 1 million pound house value”. Thats a one off number most can understand.  The issue is that IFAs are charging 1% or 0.5% on the same money again and again and again, costing people hundreds of thousands which is much harder to understand. And the service is hand holding. Often advice is counterproductive because the interests are misaligned.  

That's fine don't use them, as you're in Canada it seems an odd debate in any case.
You can't protect people from their ignorance all you can is try and educate them, if they refuse them and are deemed to have mental competence it's their own decision. People purchase things all the time that others think are wasteful or inappropriate, expensive cars, clothes, sports tickets etc etc, you can call people idiots for any of those things as well as paying an adviser. The point to focus on is not primarily the costs but the approach adopted by some providers. As we've discussed the general approach to investment isn't difficult but ti obviously suits providers to give the impression it is, with the implied 'threat' that people could do huge damage ti their situation by doing DIY. It would be possible to screw things up badly but most people won't whether they will do better than an ifa minus charges no one knows.
As I stated previously I don't think the business model would work for IFAs if there was only transactional charging, whilst most people refer to bespoke advice in reality individuals fit into a particular group and so there are likely to be a limited number of packages that would be applied. Let's not forget that IFAs charge a fraction of FAs, SJP being the extreme example. 
You can lead investors to lower charges but you can't force them, many peole are happy with the service and/ or in their ignorance, it's their money and their choice.

Linton

Deleted_User said:

NottinghamKnight said:

Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. 

The issue here is that we are not saying “it will cost you 5% of 1 million pound house value”. Thats a one off number most can understand.  The issue is that IFAs are charging 1% or 0.5% on the same money again and again and again, costing people hundreds of thousands which is much harder to understand. And the service is hand holding. Often advice is counterproductive because the interests are misaligned.  

So you arent complaining about the initial work but rather an ongoing charge?

Surely the ongoing charge is a retainer to ensure availability of support when and if required.  I may pay £120/year for a security system  maintenance contract which is a lot more than 1% of the initial cost.  Year after year the technician does nothing except check the system is working, which it always has been, and perhaps hoover some dust off the control unit.  Am I being conned? £120 for 10 minutes work! Should I do it myself and save the £120? 

Back to IFAs - if you dont have the ongoing relationship what happens when you need further help.  eg a major crash which seriously worries you as you dont know how to handle it,  perhaps you receive a life changing  inheritance or maybe you are approaching retirement and you want to review your investments.  You would have to find an IFA who is available and willing to take up your situation. I assume the first thing the IFA will have to do is to go through a full fact find, with the associated new customer fee.

You can make the choice, deal with situations when they arise or pay an ongoing contract  - just like the maintenance of the security system.  There is one difference though between an IFA and a security system maintenance contract.  Should you not take up the IFAs ongoing offer choosing to manage your investments yourself, if thing go wrong possibly years later you still have the option to sue for bad advice.  I dont think you would get very far with trying to get compensation from the security system company in equivalent circumstances.

Audaxer

Deleted_User said:

Linton said:

Your rant against the charging mechanism seems to display a surprising lack of understanding how markets work.  IFAs like other professionals require a certain amount of income to make the job worthwhile.  But if it is too lucrative more people will set up as IFAs and competition will drive prices down.  This is independent of how the charges happen to be calculated or expressed.

A major problem is that many people, especially those not used to dealing with lawyers or accountants want to know in advance how much the charges will be.  Saying £n an hour sounds like a licence for unlimited charging with work expanding to fill the wallet as required. A far more acceptable way is a simple formula based on known numbers.  Of course the IFA could say my charges are £X/hour and I will quote 8 hours for this job therefore the charge is £8X or he/she could say my charge for this size pot is X% of pot.  The amounts of money in both cases could be the same.

Expressing the charging as a % of pot has a great social advantage is that it enables people with smallerr pots to get advice when it would otherwise not be profitable to provide it.  You see this with lawyers charging per hour making legal assistance unavailable to many people.  It of course also assists the IFA by expanding the market for his/her services

2. In the real world UK advisors charge people with smaller pots such high percentage that its downright harmful. Even then they are only really interested in wealthy clients. 

I agree that is a serious problem. If you have investments of say under £50k and are not knowledgeable enough or interested enough to DIY, your only option is a large company that are not Independent Financial Advisors that will charge you a fortune. 

[Deleted User]

NottinghamKnight said:

Deleted_User said:

NottinghamKnight said:

Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. 

The issue here is that we are not saying “it will cost you 5% of 1 million pound house value”. Thats a one off number most can understand.  The issue is that IFAs are charging 1% or 0.5% on the same money again and again and again, costing people hundreds of thousands which is much harder to understand. And the service is hand holding. Often advice is counterproductive because the interests are misaligned.  

That's fine don't use them, as you're in Canada it seems an odd debate in any case.
You can't protect people from their ignorance all you can is try and educate them, if they refuse them and are deemed to have mental competence it's their own decision. People purchase things all the time that others think are wasteful or inappropriate, expensive cars, clothes, sports tickets etc etc, you can call people idiots for any of those things as well as paying an adviser. The point to focus on is not primarily the costs but the approach adopted by some providers. As we've discussed the general approach to investment isn't difficult but ti obviously suits providers to give the impression it is, with the implied 'threat' that people could do huge damage ti their situation by doing DIY. It would be possible to screw things up badly but most people won't whether they will do better than an ifa minus charges no one knows.
As I stated previously I don't think the business model would work for IFAs if there was only transactional charging, whilst most people refer to bespoke advice in reality individuals fit into a particular group and so there are likely to be a limited number of packages that would be applied. Let's not forget that IFAs charge a fraction of FAs, SJP being the extreme example. 
You can lead investors to lower charges but you can't force them, many peole are happy with the service and/ or in their ignorance, it's their money and their choice.

Sure, everyone decides for themselves. But there is a problem and a solution:

 1. Lack of transparency in the current charging model.
It can and will change. We’ve already seen massive improvements in transparency in the industry over my life time. This particular change will be enforced sooner or later either by the government or by the public/industry. For example, advisors could be required to provide an illustration showing the impact proposed charges could have on the pot at the time of retirement. People would find it helpful to know the impact of advisor costs on their pots could easily amount to 300k. 

2. Transactional charging can and does work. 

For example there is a big push for transparent charging in Canada, with more and more advisors charging by the hour or by the project. Independent advisors using the transparent fee for service charging model are placed in special directories and promoted/recommended on financial forums like this, financial sections in the newspapers etc. 

barnstar2077

Linton said:

Deleted_User said:

NottinghamKnight said:

Percentage figures, especially<1% look minor to many people, and certainly far less than say £200 an hour when presented to a client. 

The issue here is that we are not saying “it will cost you 5% of 1 million pound house value”. Thats a one off number most can understand.  The issue is that IFAs are charging 1% or 0.5% on the same money again and again and again, costing people hundreds of thousands which is much harder to understand. And the service is hand holding. Often advice is counterproductive because the interests are misaligned.  

So you arent complaining about the initial work but rather an ongoing charge?

Surely the ongoing charge is a retainer to ensure availability of support when and if required.  I may pay £120/year for a security system  maintenance contract which is a lot more than 1% of the initial cost.  Year after year the technician does nothing except check the system is working, which it always has been, and perhaps hoover some dust off the control unit.  Am I being conned? £120 for 10 minutes work! Should I do it myself and save the £120? 

Back to IFAs - if you dont have the ongoing relationship what happens when you need further help.  eg a major crash which seriously worries you as you dont know how to handle it,  perhaps you receive a life changing  inheritance or maybe you are approaching retirement and you want to review your investments.  You would have to find an IFA who is available and willing to take up your situation. I assume the first thing the IFA will have to do is to go through a full fact find, with the associated new customer fee.

You can make the choice, deal with situations when they arise or pay an ongoing contract  - just like the maintenance of the security system.  There is one difference though between an IFA and a security system maintenance contract.  Should you not take up the IFAs ongoing offer choosing to manage your investments yourself, if thing go wrong possibly years later you still have the option to sue for bad advice.  I dont think you would get very far with trying to get compensation from the security system company in equivalent circumstances.

There is another difference between the security system and the IFA, and that is that an IFA won't cost you £120 a year.  It would be closer to ten times that on a £200k pot is my understanding.

Also, if I rang a few local firms telling them I had just inherited £500k to go with my existing £200k, I am pretty sure that most of them would somehow find the time to squeeze me into their busy schedule. 

I am in no way against using an IFA as you know, the above is just what came to mind as I read your post.