S&S ISA - Financial advisor v DIY

AdamBrunt

Hi all,
So we are currently looking into investing a large sum of money across two (one for me, one for the OH) S&S ISAs.

Our plan is we have £X which we want to stick in a S&S ISA and then largely forget for the next Y years - we have no intention of regularly/daily/monthly checking share prices and moving the money between stocks/shares; just want, if you like, a historically based good performing tracking fund/portolio.

After an initial consultation (which we are quite happy to pay for) a financial advisor has come up with a suggested portfolio - based on our attitude to risk - and this is coming back with what looks like a 2% annual fee [ based on the costs being nearly £800 for a total investment of £40k for the first year ]. This portfolio, according to the t&cs also requires us to take out a life insurance policy in order to get this 'low' fee rate. This 2% fee seems particularly high to me when compared to say the DIY platforms like Vanguard, AJ Bell, Hargreaves Lansdown, etc [ almost 4x higher in some cases ] which go me thinking ...

Other than the initial consultancy, in this particular situation, what are you actually paying a financial advisor for that would suggest a reason for a 4x higher fee ? I am assuming he may have access to exclusive porfolios/funds that other platforms may not have access to but I can't think of anything else they would provide in a "sit back and hope the money pours in" situation.

Am I missing something here ?

Albermarle

oming back with what looks like a 2% annual fee [

You should be told exactly what %is being charged for what . For example if next year when you have £80K and the fee is still £800, then it is only 1 %. So you need some more clarity .

Is it an Independent financial advisor or one tied to a provider?

Normally they charge an initial fee and then around 1%pa for the relatively low amounts mentioned here . Then the platform and funds fees can be anything between say 0.3% and 1%

Whether its worth paying an advisor or not is subject to much debate on this forum ( probably too much )At the end of the day it is up to you and if you know enough to DIY.

AdamBrunt

Albermarle said:

oming back with what looks like a 2% annual fee [

You should be told exactly what %is being charged for what . For example if next year when you have £80K and the fee is still £800, then it is only 1 %. So you need some more clarity .

Is it an Independent financial advisor or one tied to a provider?

Normally they charge an initial fee and then around 1%pa for the relatively low amounts mentioned here . Then the platform and funds fees can be anything between say 0.3% and 1%

Whether its worth paying an advisor or not is subject to much debate on this forum ( probably too much )At the end of the day it is up to you and if you know enough to DIY.

That's a very good point about the consultancy fee being included in the first year fee - I will check. If it does then maybe their fees aren't too bad.
I believe the advisor is tied to a provider
So Vanguard, for example, is quoting about 0.45% total fees [ for two tracking funds and the platform fee ] though this might just be for the first year. 

Albermarle

So Vanguard, for example, is quoting about 0.45% total fees [ for two tracking funds and the platform fee ] though this might just be for the first year. 

Yes if you DIY and are happy with simple passive funds then paying around 0.4% to 0.6% is the norm . You can pay even less although you need to be  quite pro active and have a better level of knowledge. On the other hand you could go a well known platform , like HL, and invest in one of their heavily marketed actively managed multi manager funds and end up paying nearly 2%, with no advice.

dunstonh

After an initial consultation (which we are quite happy to pay for) a financial advisor has come up with a suggested portfolio - based on our attitude to risk - and this is coming back with what looks like a 2% annual fee [ based on the costs being nearly £800 for a total investment of £40k for the first year ].

Your investment value is low.   So, 2% bottom line does not sound unreasonable for an investment solution with ongoing servicing.   Although whether you need ongoing servicing for just £40k is a different matter.   

This portfolio, according to the t&cs also requires us to take out a life insurance policy in order to get this 'low' fee rate.

Is this a UK financial adviser?     It cannot be an IFA as that would not be allowed (although discounts for existing clients is not uncommon or family members etc is not uncommon, that sort of requirement is not commonplace in the UK.   However, it is with expats/overseas firms where endowments or endowment like policies are still common).

This 2% fee seems particularly high to me when compared to say the DIY platforms like Vanguard, AJ Bell, Hargreaves Lansdown, etc [ almost 4x higher in some cases ] which go me thinking

You are not comparing like for like.   The fund charge (assuming that is part of the advice) would be the same irrespective of the platform used.     The platform charges vary but they are all broadly in the same ballpark. Although HL is typically more expensive than adviser platforms.    DIY wont have an adviser fee as you are going DIY.    That is really where the only difference would be.

Other than the initial consultancy, in this particular situation, what are you actually paying a financial advisor for that would suggest a reason for a 4x higher fee ? 

If the advice was transactional and you told the adviser you are cost focused, then you would expect to come in cheaper than HL etc minus the initial advice fee.   If the advice is ongoing then with the small amount, on a like for like basis, you would be only 2x or 1x higher.

 I am assuming he may have access to exclusive porfolios/funds that other platforms may not have access to but I can't think of anything else they would provide in a "sit back and hope the money pours in" situation.

Yes there are portfolios the adviser has access to that you dont and portfolios advisers pay to get the data and analysis to put in place on behalf of clients.   However, the former is not great typically and the latter is normally used with larger investors and not smaller ones.         

I believe the advisor is tied to a provider

This should be clear in the initial meeting. It is mandatory to state the status.   Tied sales reps tend to be the most expensive distribution channels.   However, an IFA isn't going to be cheap really on £40k either.  Many would not offer services or put a passive blocker in place (price) to put you off.  Although ironically, that price would probably be the same as tied sales rep charges as normal.

Also note that advisers must supply figures in the EU standard.   DIY does not have to pre-sale.   So, that means Transaction Costs and Incidental costs will be included in the annual charge.  You still pay these exactly the same on DIY basis but DIY seems to generally ignore them and just focus on the OCF and platform charge.   That won't be a big difference.  Typically around 0.05% to 0.3% as a ballpark.

AdamBrunt

dunstonh said:
snip

Thanks for that.
So the breakdown of the charges (for an initial investment of £20k into one of the ISAs though the other ISA is identical with identical fees) is as follows:

Service charges
Ongoing charges
Advance portfolio yearly charge £70.00 (0.35%)
Ongoing adviser remuneration £130.00 (0.65%)
Advance retained interest £0.40 (0.10%)
Total service charges £200.40
Asset costs and charges
One-off charges * £0.00 (0.00%)
Ongoing charges £142.64 (0.71%)
Transaction costs £52.36 (0.26%)
Incidental costs £0.00 (0.00%)
Total asset costs and charges £195.00
Total costs and charges £395.40

In the above, I am assuming "Advance portfolio yearly charge" is the equivalent of the fund charge since 'Advance' is the name of the portfolio (which is more than triple, say, Vanguard's U.S. Equity Index Fund charge of just 0.1% but I appreciate that different portfolios may require more work than simple tracker funds) but I can't workout what the equivalent of the platform charge is and, there, how much of the rest is going on additional 'servicing' ?
The "adviser remuneration" being an ongoing 0.65% cost suggests to me that it is not a one off fee 

dunstonh

AdamBrunt said:

dunstonh said:
snip

Thanks for that.
So the breakdown of the charges (for an initial investment of £20k into one of the ISAs though the other ISA is identical with identical fees) is as follows:

Service charges
Ongoing charges
Advance portfolio yearly charge £70.00 (0.35%)
Ongoing adviser remuneration £130.00 (0.65%)
Advance retained interest £0.40 (0.10%)
Total service charges £200.40
Asset costs and charges
One-off charges * £0.00 (0.00%)
Ongoing charges £142.64 (0.71%)
Transaction costs £52.36 (0.26%)
Incidental costs £0.00 (0.00%)
Total asset costs and charges £195.00
Total costs and charges £395.40

Advance is the platform (Embark Advance) and is the new name for the old Sterling ISA/Zurich platform.   
Not sure what the retained interest bit is on the ongoing.
Platform charge could be better but could be worse.  For the amount involved, it's ballpark.  You could get this down to around 0.25% on that value with another whole of market platform or cheaper still with a restricted option.
Adviser charge is low for £40k.   Although whether it is necessary or not at your point is debatable.
Fund charge OCF is 0.71%.   You can get more expensive funds and you can get cheaper funds but it does appear its not a DFM service (no DFM charge).   0.71% is too high to be a passive or hybrid portfolio and it in line with a fully active portfolio.
Transaction charges of 0.26% are high but these would be totally disregarded and not mentioned in the DIY world despite them existing.  (the same fund bought DIY would have an identical transaction charge)
Incidental costs are nearly always nil.   
So, ignoring TC & IC, it would be 1.71% (or 1.81% of that retained interest could be explained).  If you bought fully active funds from HL you would be looking at a not too dissimilar amount.
If you do not want fully active funds then you should inform the adviser and they will adjust the recommendation.

AdamBrunt

dunstonh said:

AdamBrunt said:

dunstonh said:
snip

Thanks for that.
So the breakdown of the charges (for an initial investment of £20k into one of the ISAs though the other ISA is identical with identical fees) is as follows:

Service charges
Ongoing charges
Advance portfolio yearly charge £70.00 (0.35%)
Ongoing adviser remuneration £130.00 (0.65%)
Advance retained interest £0.40 (0.10%)
Total service charges £200.40
Asset costs and charges
One-off charges * £0.00 (0.00%)
Ongoing charges £142.64 (0.71%)
Transaction costs £52.36 (0.26%)
Incidental costs £0.00 (0.00%)
Total asset costs and charges £195.00
Total costs and charges £395.40

Advance is the platform (Embark Advance) and is the new name for the old Sterling ISA/Zurich platform.   
Not sure what the retained interest bit is on the ongoing.
Platform charge could be better but could be worse.  For the amount involved, it's ballpark.  You could get this down to around 0.25% on that value with another whole of market platform or cheaper still with a restricted option.
Adviser charge is low for £40k.   Although whether it is necessary or not at your point is debatable.
Fund charge OCF is 0.71%.   You can get more expensive funds and you can get cheaper funds but it does appear its not a DFM service (no DFM charge).   0.71% is too high to be a passive or hybrid portfolio and it in line with a fully active portfolio.
Transaction charges of 0.26% are high but these would be totally disregarded and not mentioned in the DIY world despite them existing.  (the same fund bought DIY would have an identical transaction charge)
Incidental costs are nearly always nil.   
So, ignoring TC & IC, it would be 1.71% (or 1.81% of that retained interest could be explained).  If you bought fully active funds from HL you would be looking at a not too dissimilar amount.
If you do not want fully active funds then you should inform the adviser and they will adjust the recommendation.

That make sense about the name of the platform since the blurb mentions "Advance Portfolio and the Zurich Accidental Death Cover" According to the blurb Incidental costs are "These costs include any performance fees that may be charged by the asset manager if certain performance levels are achieved within a certain time period"
So we are basically talking about a platform fee of 0.35% and fund fee of 0.71%
The latest update (as of October '20) for the portfolio had the following info:

Yield: The anticipated yield for this portfolio is 2.21%
Discrete annual performance (as at 30/09/2020):
09/2019 to 09/2020: -2.42%
09/2018 to 09/2019: 6.09%
09/2017 to 09/2018: 4.29%
09/2016 to 09/2017: 12.18%
09/2015 to 09/2016: 23.61%

dunstonh

That make sense about the name of the platform since the blurb mentions "Advance Portfolio and the Zurich Accidental Death Cover"  

Ahh, the accidental death benefit.  That is a blast from the past.    I think its pretty unique to them and most wont want it.  However, it is likely to get mentioned in generic documentation.  If it is being applied to you, it would be mentioned specifically in your personalised terms.

So we are basically talking about a platform fee of 0.35% and fund fee of 0.71%

Yup.   plus adviser charge which the DIY option wouldn't have.

AdamBrunt

Ahh, the accidental death benefit.  That is a blast from the past.    I think its pretty unique to them and most wont want it.  However, it is likely to get mentioned in generic documentation.  If it is being applied to you, it would be mentioned specifically in your personalised terms..

If we say we don't want it then apparently the fees will go up [ but can't remember by how much ]

Yup.   plus adviser charge which the DIY option wouldn't have.

Thanks