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Are IFA fees reasonable?

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  • dunstonh said:
    b). The global equities market is the collective intelligence of every retail fund, hedge fund, and trader in the market? A cheap global tracker buys you that minus the big fees. It's an interesting idea that a regional IFA tweaks these allocations to an optimal bespoke allocation. I'd suggest that doing so would represent dumb money. What insider information or edge do you have against the collective intelligence of the market?
    What makes you think that the tracker has the best global allocations?    The tracker matches the market weightings but the market weightings may not be desirable.  When the US does well, global trackers will do better.  When the US does badly, global trackers will do worse. Throw in exchange rate movements with that. 
    It is not an interesting idea at all that weightings are tweaked.    Vanguard do it.  It has been done for generations.  
    The data supplier is one of the largest in the country and used by institutional investors as well as advisers firms.  They decide the weightings just as Vanguard decide the weightings on VLS.
    c

    Its irrelevant if the tracker has the best global allocation because the fact is nobody knows or at least most don't.

     A retail investor wanting 100% equity has 3 options.

    Get all cap world tracker, tinker with the allocations himself or get an IFA. So the all cap tracker is the benchmark to beat, if an IFA charges 1% fee he has to at minimum outperform the world tracker by 1%. 

    You say vanguard tweak allocations, so vls100 has 15% UK and hasn't performed so well, might not be the case in 10 years however, why use the IFA if vanguard can do the tweaking for us for a lot less charges.

    For anything else i get it you might want an IFA for many things.

  • lescarp88
    lescarp88 Posts: 31 Forumite
    10 Posts First Anniversary Name Dropper
    edited 27 February 2021 at 3:09PM
    @dunstonh, the collective intelligence of thousands, perhaps million, or investors suggests that a cheap total world tracker is a useful option worth considering. The wisdom of the crowd is an interesting theory and can be applied to a market with biuyers and sellers. As lay people, we simply don't know in advance which region will perform better than another.
    The advantage of a tracker is it doesn't need to know. If, say, EM stocks have a good run, then the tracker will adapt to the situation. The fact that US equities dominate cap weighted indices is not set in stone.
    Admittedly, Vanguard do tweak the equity allocations in their Lifestrategy series. but this product does not claim to be a pure equity tracker. But that's a whole different argument.
    I am not implying that only a global tracker's allocation is going to give the best returns and everything else will not. Quite the contrary. The key is the only thing we know going forward - fees.
    Your bespoke allocations may well outperform an equivalent Vanguard multi-asset product. The difference is the consumer can invest directly with Vanguard for 0.22% OCF (plus possible transaction fees and platform fees). On the other hand, your bespoke offerings have a tailwind of your adviser fee on top.
    Additionally, you provide no evidence that your particular brand of 'secret sauce' is any better than an off the shelf product in risk adjusted terms
  • fred246
    fred246 Posts: 3,620 Forumite
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    70-90% passives plus a few active funds to complicate matters sounds about right. If you met with your IFA and left it all in a global tracker you wouldn't have much to talk about. "Your global tracker has done well this year. We will leave all your money there. £2k please."  IFAs always have to use multiple funds and mess about with them according to their "research".
  • IvanOpinion
    IvanOpinion Posts: 22,136 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    edited 27 February 2021 at 5:21PM
    lescarp88 said:
    Your bespoke allocations may well outperform an equivalent Vanguard multi-asset product. The difference is the consumer can invest directly with Vanguard for 0.22% OCF (plus possible transaction fees and platform fees). On the other hand, your bespoke offerings have a tailwind of your adviser fee on top.
    I think that is probably oversimplifying.  You may have a product with 0.22% fees that returns 1.22% or you may have a product with 1.5% fees that maybe returns 3.5%.  By definition a simple tracker will (generally) do no better or no worse than the 'average' of what it is tracking.  What someone with a little bit of knowledge can do is maybe supplement that with selected products and (hopefully) do slightly better than 'average'.

    I have previously compared financial advice to where computer sellers were in the 1980's.  No matter what a customer wanted or needed it just so happens that the product the seller has will suit the bill perfectly (maybe with a minor tweak/upsell).  

    If someone wants a respectable ready made portfolio then they could go for a simple global tracker or a good quality mixed asset fund - and that is basically all they need.  Suitable ready-made products can be easily found on sites like HL, Fidelity, II etc. etc.  However some people do not have that confidence or belief that such a product would suit them - so they will need an IFA and be perfectly happy with those charges.

    Generally though that is not where I see an IFA/FA adding value.  Their value is in having a deeper understanding of financial products and offerings and navigating an industry that deliberately tries to obfuscate what is going on.  Eventually the industry will be much more open requiring IFA/FA to re-evaluate how they interact with their customers and what services they offer.  There will always be those that will need, and benefit, from those services and be willing to pay what is asked.  While I don't think that the current level of fees offers good value for basic portfolio management (for me, but maybe it does for others), the big thing to remember is that like anything else, it is up to the individual to negotiate that price, and if they are not happy then go elsewhere.
    I don't care about your first world problems; I have enough of my own!
  • dunstonh
    dunstonh Posts: 119,638 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Additionally, you provide no evidence that your particular brand of 'secret sauce' is any better than an off the shelf product in risk adjusted terms

    I have on several occasions but that's not the point.

    Your bespoke allocations may well outperform an equivalent Vanguard multi-asset product. The difference is the consumer can invest directly with Vanguard for 0.22% OCF (plus possible transaction fees and platform fees). On the other hand, your bespoke offerings have a tailwind of your adviser fee on top.

    The difference in fee is very small in reality.   

    Admittedly, Vanguard do tweak the equity allocations in their Lifestrategy series. but this product does not claim to be a pure equity tracker. But that's a whole different argument.

    As do all multi-asset funds. Some more frequently that VLS.  Such as the risk targetted MA funds.


    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • The difference may appear small on the surface, but those tenths of a percent will compound over the long-term.
    Back to the original question: Are IFA fees reasonable? For the IFA they're fine. Your income is derived from a percentage of someone's investment pot. Where Vanguard and similar low cost providers are so popular is their scale enables low cost solutions.
    It seems that IFAs need to charge a certain % to cover regulatory fees, ongoing CPD, staff costs, and a myriad of other expenses. But that's not the investor's problem. Perhaps IFAs will shift to an online behavioural led model or lower cost way of doing business. They will need to, or risk being spoken of in the past tense.
    I'd rather be investing with sound mathematics at "the church of Vanguard" (as you eloquently put it) than your arrogance and baseless assumptions of superior returns.

  • Prism
    Prism Posts: 3,847 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    lescarp88 said:

    I'd rather be investing with sound mathematics at "the church of Vanguard" (as you eloquently put it) than your arrogance and baseless assumptions of superior returns.

    What sound mathematics have those been? That since launch Vanguard has made management decisions that have caused the Lifestrategy range to underperform the general market while also not being the cheapest option available.

    I like Vanguard. Some of their funds are fine. I'm not sure where the maths come into it. 
  • @Prism, the maths part is keeping fees low. Try to avoid fees compounding and eating in to returns. 
    The VLS range isn't intended to be benchmarked against the general market. It's a multi asset product that should be viewed relative to its direct peers. I'd imagine it's done OK by that comparator. Perhaps not the best or worse, but a fairly sensible option. 




  • eskbanker
    eskbanker Posts: 37,036 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    lescarp88 said:
    It seems that IFAs need to charge a certain % to cover regulatory fees, ongoing CPD, staff costs, and a myriad of other expenses. But that's not the investor's problem.
    I'd suggest that anyone looking to engage with a business on some sort of net cost price basis, without that business's overheads being built in, has a problem with their financial expectations....
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