IFA Fees

JohnWinder

Accepting that you're determined to use an advisor, perhaps the best you can do for your concerns ('do the fees seem reasonable?') is to know why they are what they are, and accept it if you can't get them lower, perhaps somewhere else.

As to the first, some reasons have been put up, to which we can add that as a higher wealth person your fees might be partially subsidising the fees of your advisor's lower wealth clients.  We heard elsewhere yesterday that this practice had decreased.

As for shopping around for lower fees, you'd like to be confident you weren't going to get a worse 'product' for your fees. The investment choices you listed look to me to be far from the worst you might have been led to choose.

If you're eschewing self-management in favour of an advisor simply because you can't or can't be troubled to have an adequate understanding of financial management, then you are to some extent flying blind - so be careful of changing course, there's high terrain all around. If you knew what you were talking about you could ask your advisor for a one or two fund portfolio in the hope that by reducing his work he'd reduce your fee, but I'd guess any reduction would be minimal and the request go down like a lead balloon.

smartpicture

cfw1994 said:

Do they *explain* the funds you are in to any detail, or does it feel like they earn about £3,500 her hour for the effort put in?

They don't explain the funds to me in any detail, or (obviously) the charges, although the fee information and a 1-page summary of each fund is all there in the paperwork they provide. To be fair, I think that's my issue rather than theirs - while I was working, my time was more valuable, and I wanted to pay someone else to deal with this stuff and move on, and they took their lead from me. It's only because I've retired this year that I'm starting to look into it in more detail, and when my annual review happens later this week I want to be more educated in what I'm getting for my money and if I'm on the right path.

I still don't want to deal with it all myself though - what's the point in retiring then taking on another part-time "job" that I have no experience in, when I could be travelling, focusing on better health, taking up new interests, relaxing and doing all the things I couldn't do in the years I worked ridiculous hours running my own business?

smartpicture

JohnWinder said:

Accepting that you're determined to use an advisor, perhaps the best you can do for your concerns ('do the fees seem reasonable?') is to know why they are what they are, and accept it if you can't get them lower, perhaps somewhere else.

I think you're right, the first step seems to be to educate myself more in what these fees are and why, then ask some questions later this week of the advisor to see what I'm paying for so I can judge the value that has.

I'm somewhat surprised so many of you are against using an IFA at all - in my previous business, I charged my time out at £1200 a day, but that high rate wasn't just for a day's work, it was for my years of building up very detailed knowledge in a niche area and staying on top of everything happening in that industry that they did not have the time or inclination to do, so I guess I think of an IFA working on the same principle. But interesting to hear other views.

Either way, this has been a very useful discussion so thank you everyone. 

JohnWinder

smartpicture said:

I'm somewhat surprised so many of you are against using an IFA at all - in my previous business, I charged my time out at £1200 a day, but that high rate wasn't just for a day's work, it was for my years of building up very detailed knowledge in a niche area and staying on top of everything happening in that industry that they did not have the time or inclination to do, so I guess I think of an IFA working on the same principle. But interesting to hear other views.

Yes.....one could argue whether financial management is a niche area, but it's not brain surgery or even rocket science. Any old mug can get close to market returns consistently, their fair share of the prosperity of the community(ies). That experts struggle to get more than market returns consistently, and more commonly fail over periods exceeding 5 years, despite or partly because of high fees, points to the 'non-nicheness' of the business.

IvanOpinion

Your IFA fee is far too high.  If you really want to have an IFA I would suggest, based on the money you have invested with him, offer him half (0.375%) and see what he says.  You could determine a list of services he is giving you and then trim back on those that you feel you don't need - helping to reduce costs (don't fall for the old "it comes as a package" ploy - I fell for that once many years ago and when I said I wasn't happy paying for things I didn't feel I needed, they magically found a way to split the package).

You could also save significantly on your platform fees.  You are currently paying AJ Bell nearly £2400 per year.  By switching to II you would be paying £240 per year (which includes up to 12 trades) or maybe iWeb and pay a £100 one of fee plus cost of trades.

As far as rebalancing goes you could invest in a range of balanced funds and leave any rebalancing to the real professionals in this art (i.e. the fund managers).

The one thing I would suggest though is to read up and consider DIY.  You can then employ an IFA to help you with important life changing decisions at specific points of time.

cfw1994

JohnWinder said:

smartpicture said:

I'm somewhat surprised so many of you are against using an IFA at all - in my previous business, I charged my time out at £1200 a day, but that high rate wasn't just for a day's work, it was for my years of building up very detailed knowledge in a niche area and staying on top of everything happening in that industry that they did not have the time or inclination to do, so I guess I think of an IFA working on the same principle. But interesting to hear other views.

Yes.....one could argue whether financial management is a niche area, but it's not brain surgery or even rocket science. Any old mug can get close to market returns consistently, their fair share of the prosperity of the community(ies). That experts struggle to get more than market returns consistently, and more commonly fail over periods exceeding 5 years, despite or partly because of high fees, points to the 'non-nicheness' of the business.

I’m not so sure about “any old mug” managing thing - people are generally badly educated on finances, and often (therefore) scared of managing a pot that might be into 6 figures, but the gist of this is right: the financial world has changed massively over my investing lifetime, and even in the past 10 years!

I also work in an industry where paid time is over £1k per day, and as you say, @smartpicture, you are paying for experience.  I would say there is a lot less mystery around finance and a lot more information available - just as many of my customers no longer need to cast spells into arcane command line interfaces and write their own shell scripts! - but if there is no interest in delving into it, that is your choice.

Of course you can continue to do pay for your IFA, & I suspect you will, but this website is called MSE for a reason: most people here are looking to save money....& here in this little retirement/planning corner, those IFA fees can mount up to a massive number over the decades invest for!  

Google “ financial advisor fees impact investing” for more on this.....that IFA fee plus higher platform charge could cost you literally hundreds of thousands, at a period in your life when perhaps you are not charging £1,200 a day on your time

All that said, I think the best you can do is try to halve their fees as you head into retirement.  When dunstonh tactfully says “Adviser charge is above what you would expect for the fund value”, you can take that as “they are taking liberties with you”!!
Good luck: keep us updated!

Cus

cfw1994 said:

Cus said:

smartpicture said:

Cus said:

How often does the IFA change the fund choices?
How often does the IFA tune the amounts in the funds, and what types of funds have they selected?

I think it's only reviewed once a year. When we have our annual meeting I usually have to sign something to agree to move things around & re-balance to meet my risk profile, I don't believe the investments change in-between meetings. Funds are things like Fidelity Index World Fund, Dimensional Emerging Markets Core Equity, and Dimensional Global Short Dated Bond, there's 8 different ones.   

I use a wealth management firm and pay 0.85%. Our portfolio numbers are similar.
They invest in 20 or so niche funds on average, 25 or so multi country individual equity shares roughly, I speak to them regularly to ask about their investment strategy. They buy and sell funds regularly through the year, and adjust the amounts in them often.  They move in and out of shares many times a year also. They sometime dive in on an unusual index for a few months to try to boost profit. They follow my risk profile. And I get an IFA at no additional cost for any non investment queries.
I have a few benchmarks I judge them on, (not their benchmarks) and on occasion I quiz them a lot on performance, but so far (4 years), they are beating my benchmarks (after fees) by a level I am satisfied with.

For the kind of fees I am paying (like you), I need to be demanding, they need to be under pressure to perform, I expect a level of service. If they just invested in the funds you have, with a once a year rebalance I would likely just go DIY personally.

That sounds like a very active management of funds that they are doing.  It is sometimes said that active fund managers may have a few good years, but rarely beat the market consistently for *many* years.
When you say you have a few benchmarks to judge them on.....what do you mean?
I know some here find it a feature of “wealth management” companies to use many funds as you mention.  My main pot is a similar number, & currently is in 4 funds (has been up to 6 in the past).  I know there is an comforting element of “eggs and baskets” to using different funds, but even in my 2 “adventurous” funds there is already some overlap!
The reason I ask is that the main benchmark I can think of would be performance, pure & simple: my funds were X at Day 1, and Y one year later.  I personally track my funds quarterly, but overall it is annual growth of the “pot” that is of interest.  What sort of numbers (% annual growth after fees) are they producing?  If you prefer not to respond, that is of course fine!

Don't want to detract from the OP"s thread, and my comment was to describe the level of service I think he should get for the fee he is paying.

But to you q's, I don't have the time to truly investigate hundreds of funds and equities across niche areas etc, so if I was to go DIY I would have used one of a few popular 40-85% multi asset funds, e.g. Vanguard 60, or the BlackRock or HSBC one. So a few of the main ones that I would have chosen are my benchmarks.  So far they have beaten them all by double digits over the 4 year period, after fees. When I look at the 950 funds of this type in trustnet, they would be around 20th place and higher than any I would have chosen a few years ago.  ( Damn I should have dumped it in Baillie Gifford 😁 )
But as you say, can they consistently beat them? Also, if they don't manage this for this year, is that too short a time period to judge? Hopefully I won't have to decide.
Having the separate IFA to do some minor things /brief advice at no extra cost is also a positive for me.

sevenhills

smartpicture said:

I'm somewhat surprised so many of you are against using an IFA at all - in my previous business, I charged my time out at £1200 a day, but that high rate wasn't just for a day's work, it was for my years of building up very detailed knowledge in a niche area and staying on top of everything happening in that industry that they did not have the time or inclination to do, so I guess I think of an IFA working on the same principle. But interesting to hear other views.

I just have a few thousand, so I am no expert; but surely when you are in your 50s and working, paying an IFA can be worth the money, because there are many things to take into consideration, like mortgage, income tax, pension tax relief, IHT etc.

But when you are retired with your funds invested, surely any fees from an IFA would be much reduced?

dunstonh

But when you are retired with your funds invested, surely any fees from an IFA would be much reduced?

Depends on the work involved.   An IFA that doesnt control the investment strategy/selection does less work than one that does.  So, if the financial planning has reduced and there is no investment advice then the cost should be much lower.   If the IFA is controlling the investment strategy and selection then that takes a lot of cost and work.

wjr4

sevenhills said:

smartpicture said:

I'm somewhat surprised so many of you are against using an IFA at all - in my previous business, I charged my time out at £1200 a day, but that high rate wasn't just for a day's work, it was for my years of building up very detailed knowledge in a niche area and staying on top of everything happening in that industry that they did not have the time or inclination to do, so I guess I think of an IFA working on the same principle. But interesting to hear other views.

I just have a few thousand, so I am no expert; but surely when you are in your 50s and working, paying an IFA can be worth the money, because there are many things to take into consideration, like mortgage, income tax, pension tax relief, IHT etc.

But when you are retired with your funds invested, surely any fees from an IFA would be much reduced?

Retirement means trying to ensure the client does not run out of money by spending too much. Tax planning, estate planning, income tax planning, using tax allowances etc. It isn’t just about investment management.