Are IFA fees reasonable?

[Deleted User]

For me, the goodIFA/badFA routine is overplayed on this board.

dunstonh is an exemplar of his trade but even the most sainted IFA is constrained by his firm's lawyers. 

The whole foundation of the financial adviser industry is that your adviser, in terms of your risk tolerance or the longevity of your family line, knows you better than you.

Good luck with that.
 

Langtang

Albermarle said:

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.

Indeed, this is exactly what we are looking to do, beat inflation and supplement our pensions a little.. I don't want market beating returns, and to spend next to nothing to get them. I'm not one of those people who will want to come on here in 5 years time and tell people how fantastically well my investments have done and that I bought and sold at just the right times, was perfectly diversified, made no mistakes and it only cost me 0.16% all in (more power to your elbow if you are one of those people. No disrespect meant)

JohnWinder said:

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.

Diversification. I'm having issues with only having one stock in our portfolio at the moment (Chevron) and not wanting to diversify a little. I think I maybe need to look at my risk profile, see if I'm not being too cautious. I'm sure an IFA would say "sell some, diversify a little" (or a lot) and I think I need someone there to tell me that.

lescarp88

OP, investing isn't rocket science. For all the fancy talk of research models identify bad egg active funds (e.g. Woodford) ahead of time and skillfully steering clients is laughable. 
A suitable passive multi asset fund will most likely get you a favourable outcome without paying IFAs wages. 
Despite what the IFAs on this forum say, they are none the wiser to future market movements than anyone else. 

Bottom line:  choose a suitable balance between risk on/risk off assets, stick with it and don't tinker. 

dunstonh

OP, investing isn't rocket science. For all the fancy talk of research models identify bad egg active funds (e.g. Woodford) ahead of time and skillfully steering clients is laughable.

Laughable for you.  But factually correct.

A suitable passive multi asset fund will most likely get you a favourable outcome without paying IFAs wages. 

Your assumption that a passive multi-asset fund - which doesn't actually exist - is better is what is laughable.
Mutli-asset funds with underlying passives have management decisions on them.

Despite what the IFAs on this forum say, they are none the wiser to future market movements than anyone else. 

I don't believe any IFA on this forum has said such a thing.   Please provide evidence to support your allegations.

JohnWinder

dunstonh said:

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.   

Complete uncertainty could be a useful place to hide behind, but do we have complete uncertainty?

ESMA Report on Trends, Risks and Vulnerabilities No. 2, 2017 1 Investor protection The impact of charges on mutual fund returns 

1. Our interim report summarised results from studies of the US mutual funds industry, which pointed towards there being a negative relationship between the cost of a mutual fund and the performance of the fund manager. The interim report also included initial results from the UK retail active fund industry, suggesting that there was no clear relationship between price and performance.

2. Following the interim report we have performed further analysis of the relationship between the OCF of retail active funds in the UK and performance and have found that:

   •   Overall, there does not appear to be a clear linear relationship between fund charges and the gross performance generated by the fund manager.

   •   Looking at the relationship between charges and performance net of fees we find some evidence that more expensive active funds underperformed cheaper active funds.
     

 ' Low cost continues to be the most effective quantitative filter that has been shown, with some consistency, to improve performance.'  Source: Active Management: the importance of cost, talent and patience. Vanguard Research 2017.

'Canstar's analysis finds that most managers with higher fees do not produce sufficiently high returns to more than compensate investors for the high fees.'

https://www.smh.com.au/money/super-and-retirement/managed-funds-often-not-worth-the-high-fees-paid-by-small-investors-20160707-gq0j0e.html

'

This year, the data covered 600 multi-asset investment options offered by the nation’s 100 largest super funds, comparing how they performed, after fees, to other super options of similar risk over five years. 

Each of the top 10 funds across investment options, named “Fit Cat Funds”, had fees of less than 1 per cent, averaging at 0.76 per cent. In contrast, the average poor performer, referred to as a “Fat Cat Fund”, charged a fee of 2.07 per cent.'

https://www.ifa.com.au/news/27134-underperforming-funds-charging-highest-fees

lescarp88

@dunstonh, IMO a low cost such as Vanguard FTSE Global All Cap represents the wisdom of the crowd. According to your software, which equity funds will give the highest return in 2021?

I used the term 'passive multi asset fund' to denote a fund based on the underlying investment being 'passive' in nature, but there's no need to get in to semantics. 
Your assertion that there is no such as thing as a passive fund is correct, but then doesn't pretty much all investment involve some kind of decision making. The central tenet is that fees will have a big impact when compounded across a long time frame. 

For the OP, the main question is: why would they need a third party (IFA/adviser/Joe Bloggs/person x/whoever) taking a percentage cut of the overall pot?

@dunstonh, to answer your final point. The use of research software or similar to identify good/bad/average funds is implying that you have an insight to possible future market performance. It's guess work. 

dunstonh

@dunstonh, IMO a low cost such as Vanguard FTSE Global All Cap represents the wisdom of the crowd. According to your software, which equity funds will give the highest return in 2021?

That is a ridiculous thing to ask.

@dunstonh, to answer your final point. The use of research software or similar to identify good/bad/average funds is implying that you have an insight to possible future market performance. It's guess work. 

There is no such implication.   I haven't the foggiest where you have got that idea from.

fred246

His research software only tells him which funds are going to fail.

NeilCr

ZingPowZing said:

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.

And to counter balance that story my IFA reviews my investments every three months and recommends any changes. And there are no additional costs for me for the review or any switches  to occur

Thus is going to be like many other professions. There will be good IFAs and there will be bad. And there will be those who are good at DIY and there will be those who are bad. 

Personally, I get on well with my IFA and, for what I require, she is doing a really good job. In the end that suits me fine and takes any stress out of it. 

[Deleted User]

Expensive, unnecessary and downright conflicted ongoing advice has also raised concerns at the FCA, particularly the 70% of DB transferees who sign up for it.
July '19. I don't know whether the recommendations have come to anything.
https://citywire.co.uk/wealth-manager/news/fca-to-clamp-down-on-expensive-and-conflicted-ongoing-advice-fees/a1254558