Are IFA fees reasonable?

staggered

Sorry if this has been discussed before.

In the last few years, I have built up a fairly significant amount of cash (approx £400,000).  I would like to invest approximately half of it.  I am aware of, and comfortable with, the risks involved, and happy to invest for at least the next 10 years..

I have approx £180,000 in a cash ISA.  The adviser recommended transferring this to a stocks and shares ISA.  This makes sense to me - the savings made by not paying tax on a cash ISA paying just 0.5% interest are fairly negligible.  They'd potentially be a lot higher in a stocks and shares ISA.  Before I spoke to the IFA, I had thought that this would be the route that I would go down.

I've spoken to the IFA a couple of times, including an in-depth consultation where we went through my current and future finances and goals in detail.  I get on well with him and have been impressed by his thoroughness and apparent professionalism.  He's got all of the necessary qualifications and accreditations.  It's important that you trust the person that could potentially be dealing with a big chunk of your money for the next 10-20 years and, on that score, he ticks all of the boxes.

The only hesitation I have is the fees.  I have been quoted 2.75% fees to identify a suitable fund to invest in and carry out the transfer (plus 0.75% per year for ongoing management, if I wanted that).  These are the company's standard fee rates for new clients.  In my case, the set-up fees are £4,950.  I think that, if it was a more complicated transaction e.g. setting up or consolidating a pension, I would be comfortable paying these levels of fees.  However, for what seems to me to be a relatively straightforward transaction, they seem on the high side to me.  I know that, if I did my own research and ended up selecting a poorly-performing fund, this could end up costing me a lot more than £4,950 (I would have no problem with the mechanics of transferring the money but have little knowledge - or interest - in financial markets).  I also think that paying £4,950 up-front for the services of an IFA that you trust to do the best for you could turn out to be a good long-term investment.  However, I'm just not convinced that the amount of work involved justifies that level of fees.  

I'd be grateful for any (constructive!) opinions or suggestions.

JohnWinder

Here are some to be getting on with, recently:

https://forums.moneysavingexpert.com/discussion/6244984/financial-advisor-value-vs-cost/p1

https://forums.moneysavingexpert.com/discussion/6244734/do-i-reallt-need-financial-advice#latest
https://forums.moneysavingexpert.com/discussion/6240335/ifa-fees/p1

dunstonh

 I have been quoted 2.75% fees to identify a suitable fund to invest in and carry out the transfer (plus 0.75% per year for ongoing management, if I wanted that).  These are the company's standard fee rates for new clients.  In my case, the set-up fees are £4,950.

It's not overly expensive but you could get half that by shopping around.   You could also get double that.     The average is around 1.8% to give you an idea.  However, averages are slanted by size of investment.   The more you have, the cheaper the percentage becomes.   Around £2500-£3000 initial would probably be the target to aim for that amount.
The ongoing is about right for the size of the investment.  

Firms have different costs.  City firms have higher office costs than rural firms.   If you are seeing an employee adviser rather than an owner/director/partner adviser, then they are usually more expensive as employing people costs more.  That said, the owner/director/partner tends to deal more in the high value clients and wont deal as much with smaller ones.  So, are often priced to deal with the £250k-500k plus type client and not competitive for the smaller values.    Firms that market themselves as prestige firms charge more.  Firms that market themselves as "wealth management" generally charge more than general practitioner firms.       There are different business models.  For many firms, you would be amongst their smallest investors.  Some would not even consider you.  For others, maybe a new adviser starting out, you would be more important to them.     

staggered

Thanks.  That's helpful. 

I don't want to DIY.  I don't think I have enough knowledge, or interest, in financial markets to do that.  So I should really be thinking of relative, rather than overall, costs of advice.  It's a small firm in a small town (outside the South East).  I would be dealing with owner / director / partner rather than employee.  They don't market themselves as a "wealth management" or "prestige" firm.  So, none of the factors that typically inflate fees.

I genuinely think (based on dealings so far) that I'd be getting a good service.  But will try a couple of other firms.  Having a ballpark figure is helpful but I won't get tied to that if I don't think I'll get as good a service from a firm quoting me that price. 

I also have in mind that, over the course of 10 years, a 0.75% fee will add up to around £15,000 so saving £1,500 on initial costs for an inferior service isn't vfm.

Albermarle

Like with all services , there is presumably some negotiating room . Especially as it is a pretty straightforward transaction technically ( cash ISA to S&S ISA could be sorted out on line by you in less than 10 mins for zero cost, although you would have to then pick the investments  ) and 2.75% is very much top end as you have already guessed.
In the last few years, I have built up a fairly significant amount of cash (approx £400,000).  I would like to invest approximately half of it.  I am aware of, and comfortable with, the risks involved, and happy to invest for at least the next 10 years..
Before you even saw the IFA , you seem to be half way along the path already after making your own decisions.
Although would be interesting to know why you have stayed in cash for so long and now suddenly you want to invest half of it .
Would have been better to have started investing some time ago and built the investment size up, rather than this one shot approach. Presume you had your reasons though.

staggered

I've saved that over the space of the last 4 years.  So not that long, really.  Prior to that, I invested spare money in rental property as I wanted the guaranteed income to allow me to retire if I wanted to.  I now want to diversify my investements.  I did consider investing about 18 months ago but uncertainty over Brexit was playing on my mind..

Yes - I already had an idea of what I wanted to do before seeing the IFA and he came to the same conclusion.  I glanced at stocks and shares ISAs some time ago but was overwhelmed by the range of them.  I'm looking for advice on exactly where to invest - the actual mechanics, like you say, is a 5 minute job - and paying 2.75% for that advice seems high.  At the same time I'm conscious that, if it finds me an IFA that I'm happy with and want to stay with for a long time (10+ years) paying that premium now could turn out to be a good investment.  Better than paying 1.5% now for someone that I'm less happy with and having to switch at a later date.

I'll see what other IFAs have to suggest and offer.

[Deleted User]

Your chosen IFA will be keen for you to undertake a formal risk profile; mostly because it represents to him a “get out of jail free” card:
should the investments underperform, it’s your fault; he has to choose within your tolerance for risk. 
Happily (for him) it looks as you are quite risk averse, which will equal a cautious approach and targets he can meet with his eyes closed. 
Moreover, you are looking for a lasting relationship. It’s not good business for the adviser if the client becomes independent, better the client depends on the adviser. 
Fortunately, you don’t feel up to managing your own investments.
But you have the ability to accrue money rapidly, so he can look forward to managing increasing amounts for you.


All the above makes you an extremely attractive prospect to an (I)FA, so you may well find more competitive quotes as you shop around. You may expect all of them to be personable; it’s a hand holding job. Their aim is not to maximise your investments but to manage your expectations.

Thrugelmir

staggered said:

I've saved that over the space of the last 4 years.  So not that long, really.  

That's impressive. £1,900 after tax per week.   Surprised you didn't start a pension scheme to mitigate the huge amount of tax you've incurred. 

eskbanker

ZingPowZing said:

Their aim is not to maximise your investments but to manage your expectations.

To be fair, anyone going to an IFA under the impression that the adviser's role is to maximise investments needs to have their expectations managed....

thegentleway

If you like the IFA you've found but not his fees, why not ask him if he'll do piece work: i.e. you pay him to make recommendation for investments and you impletment it and manage it. Gives you piece of mind your portfolio is suitable for your risk tolerance but you don't have to pay expensive implementation and ongoing costs.

dunstonh

thegentleway said:

If you like the IFA you've found but not his fees, why not ask him if he'll do piece work: i.e. you pay him to make recommendation for investments and you impletment it and manage it. Gives you piece of mind your portfolio is suitable for your risk tolerance but you don't have to pay expensive implementation and ongoing costs.

Not sure that will work.   For example, the portfolio we use for ongoing servicing clients is different to what we would use for transactional clients.    This follows FCA guidance.     So, I suspect it would be similar with other advisers.
Also, most portfolio spreads from adviser firms are fluid and not rigid.  So, that juts gets you the current quarter weightings and research but not changes in the future.