Are IFA fees reasonable?

Albermarle

Langtang said:

eskbanker said:

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....

That's interesting (no, really), as I had assumed quite the opposite. Why spend c£5k pa for no increase in returns. Just my, uneducated, assumption. I hate to ask this question, but why pick an (I)FA if they're not going to get better results than you could?

IFA or no IFA , many people are looking for capital preservation /to beat inflation and not necessarily for high returns . Especially if they already have a big pot and are near retiring/have retired.

fred246

dunstonh said:

Michael121 said:

dunstonh said:

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.

Why would two people with the same risk appetite and time horizon, living in the same country with the same goals get a different portfolio based on if they pay ongoing charges.

Clearly, they are not identical if one is looking for a one-off piece of advice and the other is looking for ongoing servicing.  So, the advice needs to match the different needs.  You also haven't considered knowledge, understanding and behaviour as they would need to be the same too.

Portfolios need adjustments.  Rebalancing, weighting changes, fund switches etc.    An IFA can put that in place on day one based on current research and data but without ongoing reviews, the individual is not going to be supplied with that ongoing data.

The EU directive, MIFID, required investment recommendations to be within the understanding and capability of the individual.     So, putting someone paying on a one-off basis into a portfolio that needs ongoing reviews and maintenance would not be considered suitable unless you are satisfied they have the ability, understanding and willingness to do that for themselves.        So, typically, you would use something like a multi-asset fund for those transactional clients.  you would not use a portfolio where ongoing work is required.

There is also the commercial reality.  That data, due diligence, research etc that is carried out on an ongoing basis needs to be paid for by the adviser firm on an ongoing basis.   If a new governance report is issued that recommends that investors in that fund should come out of it then those paying for ongoing servicing will get pulled out.   Those that are not paying for ongoing servicing would be left in it.    For example, our research provider issued a governance report back in September 2017 saying that it would not be suitable to use Woodford income due to its long list of illiquid assets which are not suitable for UK equity income fund.   An adviser firm that had Woodford income in their portfolios, would have removed all the ongoing servicing clients.  They would not have removed the transactional clients who would be left in a fund that ended up failing in 2019. 

Dunstonh's posts are becoming more crooked. Giving the impression that if you hold funds with an IFA they can never fail because the IFA would know they were about to fail. Very wrong. Very crooked to suggest that.

JohnWinder

Well, you don't only get better returns by reducing costs and having diversified investments. You might also get them by having an advisor talk you out of doing something stupid like selling assets that just crashed as a pandemic hit, only to find they bounce right back up again inside a year while the scared person is still in cash.  They might also help you eke out more annual withdrawals from your investments because they have that experience to guide them, while the ill-informed investor might hold back too much spending and die rich or overspend and run out too early. I think there's a lot they can do.

Having objectives other than 'the highest return I can get for the risk I'm prepared to take', such as 'capital preservation' or 'just beat inflation' doesn't change the universal benefit of low cost, diversified investments. With any of those objectives the asset classes and funds can be the same, in just different proportions.

dunstonh

Well, you don't only get better returns by reducing costs and having diversified investments.

Reducing costs does not mean better returns.   Equally paying more doesn't either.   

[Deleted User]

"Reducing costs does not mean better returns.."
Well, it does if we strip out other factors but I would agree that other factors will be far more important in determining financial wellbeing down the road of an investment journey. One irony is that those most dependent on financial advice are likely to finish up with the lowest returns because the adviser is duty bound to play it safe with their investments, according to their "risk profile."

This thread seems a pretty good illustration of why people rely on advisers. 
Langtang says "I would indeed make a pigs ear of it." That's natural. Most people consider themselves somewhat unlucky. That of course, is a mis-conception - the world wasn't made to disappoint them - but rather than "tempt fate" they would rather someone else took responsibility for their fortune. I'm afraid that is something of a misunderstanding about the role of a financial adviser, you don't pay him him to enhance your returns but to manage your expectations; the final responsibility is still your own.

Another factor is the personal nature of the adviser/client relationship. As staggered says  "I get on well with him and have been impressed.. 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." It's not like hiring a plumber or even a solicitor, clients really, really want to trust their advisers.  Which makes it far harder to question their value objectively.

LHW99

I would also suggest that if you're not too keen on maths, are not a spreadsheet geek and value your own time highly, then an IFA is not a bad way of ensuring you don't invest in palm oil plantations or car park spaces and can get on with your own life.

Not my preference now, because I'm rather a control freak, but may well be when I get towards 80+.

Albermarle

LHW99 said:

I would also suggest that if you're not too keen on maths, are not a spreadsheet geek and value your own time highly, then an IFA is not a bad way of ensuring you don't invest in palm oil plantations or car park spaces and can get on with your own life.

Not my preference now, because I'm rather a control freak, but may well be when I get towards 80+.

I am not a spreadsheet geek and I have never invested in car park spaces . Not sure you can link the two 

[Deleted User]

I suspect investors in funds are (unwittingly) more susceptible to that sort of malarkey. 
People who are inclined to check their investments will spend a lot of time on it, whether they take responsibility for them or have a financial adviser on the case. Many of us who invest off our own bats spend very little time deliberating whether to buy or sell, and waste a lot of time watching the markets. 

If you have better things to do with your valuable time, shifting the responsibility to your IFA is an option. Unfortunately for you, your IFA will also value his own time. Once your ongoing relationship is established, the IFA has an obligation only to provide you with an annual review, and can look forward to the fairways re-opening so s/he can work on that handicap.

There was a thread on these boards this week from an investor whose only interaction with her IFA for eight years was an annual report. Negligible growth. Now her account has been monetised (sold to another firm) the same adviser (no longer indi) wants to double her fee and move investment.

jimjames

fred246 said:

dunstonh said:

Michael121 said:

dunstonh said:

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.

Why would two people with the same risk appetite and time horizon, living in the same country with the same goals get a different portfolio based on if they pay ongoing charges.

Clearly, they are not identical if one is looking for a one-off piece of advice and the other is looking for ongoing servicing.  So, the advice needs to match the different needs.  You also haven't considered knowledge, understanding and behaviour as they would need to be the same too.

Portfolios need adjustments.  Rebalancing, weighting changes, fund switches etc.    An IFA can put that in place on day one based on current research and data but without ongoing reviews, the individual is not going to be supplied with that ongoing data.

The EU directive, MIFID, required investment recommendations to be within the understanding and capability of the individual.     So, putting someone paying on a one-off basis into a portfolio that needs ongoing reviews and maintenance would not be considered suitable unless you are satisfied they have the ability, understanding and willingness to do that for themselves.        So, typically, you would use something like a multi-asset fund for those transactional clients.  you would not use a portfolio where ongoing work is required.

There is also the commercial reality.  That data, due diligence, research etc that is carried out on an ongoing basis needs to be paid for by the adviser firm on an ongoing basis.   If a new governance report is issued that recommends that investors in that fund should come out of it then those paying for ongoing servicing will get pulled out.   Those that are not paying for ongoing servicing would be left in it.    For example, our research provider issued a governance report back in September 2017 saying that it would not be suitable to use Woodford income due to its long list of illiquid assets which are not suitable for UK equity income fund.   An adviser firm that had Woodford income in their portfolios, would have removed all the ongoing servicing clients.  They would not have removed the transactional clients who would be left in a fund that ended up failing in 2019. 

Dunstonh's posts are becoming more crooked. Giving the impression that if you hold funds with an IFA they can never fail because the IFA would know they were about to fail. Very wrong. Very crooked to suggest that.

Is there any sector of society that you are happy with? On the Motoring board you routinely attack garages as being fraudulent, here it's IFAs. I don't think dunstonh is saying any such thing.

dunstonh

Fred does not rely on telling the truth.   He just hopes if he tells lies often enough, it may be believed by some.