IFA Charges

NottinghamKnight

zagfles said:

BananaRepublic said:

dunstonh said:

How did you find out about the ombudsman decisions going against them? 

The FOS say its something like 85% have never had a complaint go to FOS, let alone rule against them.   So, to have 7 complaints go to the FOS within a year on a small local firm, would raise concern.  Using unregulated investments would be a concern.  I recall one stat from about 5 years ago that indicated that less than 1% used unregulated investments and other weird or unusual things.  Yet that 1% did it an awful lot of it.   

 The FCA should force a pro-active review of any unregulated investment sales over the last 15 years.    It won't but it should.   

I did a search against local IFA’s and very few had complaints, none of which were upheld. 7 complaints would put me off. 

It was 9, and that was just the upheld complaints, there were a few others not upheld. She'd heard about them from a friend who was using them, I guess the moral is to do your own research, don't just rely on friends' recommendations. I've made that mistake with builders...

Surprised they can still get PI cover with that record.

Malthusian

jimpwarsop said:

Best laugh I've had this year.....................or last year to be fair.

I once asked an IFA firm what they would charge for a £300k portfolio - 0.5% non negotiable.

They went on to explain all the work they would be doing for £1500.

Okay, I asked what would you do differently if I had £500k ?  Nothing, but that will be another £1000 thankyou please.

The correct answer was "Making you an extra £666 on top of every £1,000 they were going to make you before you added another £200k."

Why should someone with £300k pay 40% more than someone with £500k per every £ of value received?

This is the logic that applies to all percentage fees in the finance industry, not just ongoing advice fees. IFAs do not control investment returns, but one of the things they do is give investors the confidence to invest in risk-based investments that give higher returns than they would if they were managing their wealth on their own. For many people an adviser is the difference between investing or leaving their money in cash watching inflation eat it away. If you're not one of them, and an IFA would have generated £0 of value because they wouldn't do anything you can't do yourself, fair enough. I don't pay people to fix my computer for the same reason.

The value you receive is what matters.  If someone dug a 6ft hole in my garden and then filled it back in 1,000 times they would have done much more work than an IFA, but I wouldn't pay them more.

dunstonh

jimpwarsop said:

Alexland said:

barnstar2077 said:

Fred, I don't always agree with what you say, but you do make me laugh on a regular basis! :  )

Fred doesn't understand that advisors have been going 'above and beyond' recently..
https://www.ftadviser.com/your-industry/2020/12/31/advice-industry-went-above-and-beyond-this-year/
(Light fuse, run...)

Best laugh I've had this year.....................or last year to be fair.

I once asked an IFA firm what they would charge for a £300k portfolio - 0.5% non negotiable.

They went on to explain all the work they would be doing for £1500.

Okay, I asked what would you do differently if I had £500k ?  Nothing, but that will be another £1000 thankyou please.

The issue is the behind the scenes costs. 
A firm that deals with higher net worth clients needs to spend more on the software they use as the cheaper options would no longer cut it.
The FCA, FOS, FSCS and other levies charged to IFAs are percentage based.  As is PI insurance effectively.
Larger investors create more risk than smaller investors. Risk costs money in all walks of life.
Larger investors have more financial needs than smaller investors.  That can include wrappers and options that are priced as higher risk on PI insurance and require greater knowledge and understanding from the adviser.  

Ultimately, there is an element of cross subsidy.    Some firms have tiered charges to reduce the cross-subsidy effect.  However, even then, a tier involves some cross subsidy effect.     

Some firms won't deal with investments below a certain amount.  I have seen some say their minimum is £250k.   At £300k, you would be one of their lowest value clients benefitting from that cross subsidy.   At £500k you could be just below their average and 0.5% would be about right.   Firms generally price themselves based on the assets under management.     If you run a business you would understand that as its similar to how all businesses set their prices/fees.

There are firms that do not use any cross subsidy model.  However, that effectively prices them out of the market for smaller investors.

zagfles

fred246 said:

I do a lot of thinking. My latest thought is that employing an IFA is a bit like being married to a gold digger. You have a good relationship with them and you are compatible and will help each other. Everything is great but then they will occasionally show you their true colours and remind you that they are really just there for your money.

You're overthinking it. Employing an IFA is just like employing anyone else to perform a service for you, of course they're doing it for the money, just like your window cleaner is. They're not your mate or your spouse, they're someone you pay for a service.

Of course, you need to trust your window cleaner not to damage your house, but that's unlikely. So you might be happy to employ Trotter's Independent Traders to clean your windows for a fiver.

However if your very expensive antique chandelier needs a clean, you'd likely find the price not only reflects the cost of labour, but also the insurance premiums which all chandelier cleaners need to pay because a few get broken. Perhaps 1 in 200 get broken, and so the insurance premiums are around 0.5%.

It might also be prudent, rather than falling for Del Boy's flannel, to do a bit of research and look for companies who, for instance, didn't have a string of complaints from disgruntled customers with smashed chandeliers, eg using the chandelier equivalent of https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

d_barratt

I use an IFA - paid £500 for the set-up and 0.5% management fee. From my perspective, I feel that i'm smart enough to manage my own investments and have an active interest in the markets, but I have an extremely time consuming and demanding job so the price I pay actually works out more cost effective than if I were to take the time to manage my investments myself.

I expect that when/if my career slows down a little I may take on the responsibility of managing my investments, but until then I'm happy to continue paying the fee. I may have a slightly unique view on this though - I work in the software outsourcing industry so spend every day selling the benefits of outsourcing services, so I do have a fundamental belief that outsourcing services to an expert is the way to go.

BananaRepublic

fred246 said:

I do a lot of thinking. My latest thought is that employing an IFA is a bit like being married to a gold digger. You have a good relationship with them and you are compatible and will help each other. Everything is great but then they will occasionally show you their true colours and remind you that they are really just there for your money.

If you think an IFA is poor value for money, don't hire one. If someone does a job, and they are skilled, they expect to be paid. It's not rocket science. They do provide a service for many people. I happen to think they charge a lot, but if they are competent, it could turn out to be money well spent.

It's a shame that there is no way to asses the abilities of an IFA unless you know people who have used one, in which case they might let you know the portfolio size, the risk profile, the aims and the performance.

Anyway, if 0.5% is considered expensive, it's not hard to halve the fees. If your portfolio is worth £500,000, tell them you have £250,000 and then replicate the suggested investments with the other half. Of course this has problems. If the advice is unsound to the point where the FOS rules against them, you will have no comeback for the hidden half. And of course the advice does actually depend on the assets that you have at the time, and hence the advice might be inappropriate when applied to the whole amount. If however you simply want an answer to "where should I invest this money to maximise growth subject to my risk profile", that method might work. But it strikes me as poor practice, if you want advice form an IFA, let them know your full wealth so that the advice is appropriate.

zagfles

d_barratt said:

I use an IFA - paid £500 for the set-up and 0.5% management fee. From my perspective, I feel that i'm smart enough to manage my own investments and have an active interest in the markets, but I have an extremely time consuming and demanding job so the price I pay actually works out more cost effective than if I were to take the time to manage my investments myself.

I expect that when/if my career slows down a little I may take on the responsibility of managing my investments, but until then I'm happy to continue paying the fee. I may have a slightly unique view on this though - I work in the software outsourcing industry so spend every day selling the benefits of outsourcing services, so I do have a fundamental belief that outsourcing services to an expert is the way to go.

As do nearly all investors, the difference is the level of outsourcing.

1) Invest direct in shares, bonds etc

2) Invest in single asset funds/ETFs

3) Invest in multi-asset funds

4) Use an IFA.

So anyone in 2-4 is "outsourcing" to an expert, the difference is the level/number of layers of outsourcing.

zagfles

BananaRepublic said:

fred246 said:

I do a lot of thinking. My latest thought is that employing an IFA is a bit like being married to a gold digger. You have a good relationship with them and you are compatible and will help each other. Everything is great but then they will occasionally show you their true colours and remind you that they are really just there for your money.

It's a shame that there is no way to asses the abilities of an IFA unless you know people who have used one, in which case they might let you know the portfolio size, the risk profile, the aims and the performance.

As above in my builders example, its dangerous to rely on the experience of just 1 or 2 people you know, they might have had a great service but most businesses will satisfy most of their customers otherwise they won't last long.

When I'm looking at reviews for anything, I always skip to the negative reviews even of those which get great overall ratings, as they can point our potential issues. Often it's trivia, or stuff that is clearly the customer's fault, or people being far too picky, but occasionally real issues, sometimes serious. One or two probably wouldn't be a concern as it might have been one off, but if one issue was a recurrent theme, it might be a cause for concern, even if overall most customers are happy.

Linton

To put IFA 0.5% charges into some sort of context:  The difference between VLS100 and VLS80 and between VLS80 and VLS60 average annual returns over the past 5 years is about 1.5%.  So if you have insufficient knowledge to make a rational decision on which you should buy the amount of money at risk is about 3 times the annual cost of an IFA on what is a relatively simply and apparently relatively trivial matter.  Of course anyone with the size of investments that justified paying an IFA is likely to have rather more complex decisions to make.

d_barratt

zagfles said:

d_barratt said:

I use an IFA - paid £500 for the set-up and 0.5% management fee. From my perspective, I feel that i'm smart enough to manage my own investments and have an active interest in the markets, but I have an extremely time consuming and demanding job so the price I pay actually works out more cost effective than if I were to take the time to manage my investments myself.

I expect that when/if my career slows down a little I may take on the responsibility of managing my investments, but until then I'm happy to continue paying the fee. I may have a slightly unique view on this though - I work in the software outsourcing industry so spend every day selling the benefits of outsourcing services, so I do have a fundamental belief that outsourcing services to an expert is the way to go.

As do nearly all investors, the difference is the level of outsourcing.

1) Invest direct in shares, bonds etc

2) Invest in single asset funds/ETFs

3) Invest in multi-asset funds

4) Use an IFA.

So anyone in 2-4 is "outsourcing" to an expert, the difference is the level/number of layers of outsourcing.

Fair perspective on things - I meant completely 'outsourcing' to an IFA, but I understand your point.