Do I really need a Financial Advisor on an ongoing basis?

dunstonh

I don't know if that's right, some evidence would be interesting. But without it, I'd say you're joining up some pretty distant dots to get that picture. (And I think I know what 'meeting your strategy' means.)

It is right.   The investment tools are professional level and expensive.  FAMR and MIFIDII increased the due diligence and audit trail requirements bringing in levels of governance that were not necessary prior to that.

JohnWinder

It was whether expensive tools gives a client the best chance of reaching their strategy was what I was questioning, not how horribly expensive those tools might be of which I had little doubt. But 'professional level' sounds like the goods.

DT2001

JohnWinder said:

Someone with a moderate knowledge of investing and appropriate arithmetical and spreadsheet skills should be able to come up with a sensible answer to these questions.

Even a smart person with those skills can make ratty emotion-driven decisions when markets flame out; that's where a trusted advisor with steady hands can earn their keep.

IFA’s can have access to expensive research tools to ensure your mix of investments has the best chance of meeting your strategy (risk/reward balance).

I don't know if that's right, some evidence would be interesting. But without it, I'd say you're joining up some pretty distant dots to get that picture. (And I think I know what 'meeting your strategy' means.)

I’ll let any IFA’s on this forum provide evidence of their research tools rather than my anecdotal account.

We have a ‘floating’ retirement plan as my OH does not know when she’ll retire. The date depends on when she stops enjoying her work! I have a higher risk taking ratio than my OH so as our finances are intertwined our IFA needs to balance that out as well.
I believe that the strategy in place works as when lockdown 1 started, we didn’t have any income for months and I thought we might be default early retirees, our ‘pots’ would have provided enough for essential expenses and some ‘luxury’ but not our number (which I admit was plucked from the ether). Our mix of investments will not produce the results, in terms of returns, that some/many of the DIYers get on here but will, hopefully, cope with our flexible end goals.

dunstonh

JohnWinder said:

It was whether expensive tools gives a client the best chance of reaching their strategy was what I was questioning, not how horribly expensive those tools might be of which I had little doubt. But 'professional level' sounds like the goods.

Yes, they do give a better chance of reaching the desired strategy (whatever that happens to be).   It is far removed from 10 years ago and a world apart from 30 years ago.   With the investment committee/governance requirements that now exist, you have to justify the use of every fund in a portfolio.  You have to justify the reason why x% goes in ABC equities and y% in DEF equities and so on.    And ensure that the underlying assets of that fund are suitable and match that.

This is partly why so many advice firms use DFMs nowadays.  They do not want to carry out the due diligence and requirements themselves as it can be costly and time-consuming to facilitate it in-house.  Indeed, it is pretty much impossible for small advice firms (which are the majority) to do these things totally in-house.  So, if in-house is off the menu, using a DFM or buying in the data, research and analysis from third parties are the alternative options.      DFMs reduce the work for the adviser significantly but pass the cost to the investor (by the addition of a DFM charge).  Some IFAs/FAs will reduce their charge accordingly. Most do not.    Buying in from third parties sees the adviser firm carry the cost and increases the internal workload as the adviser firm has to collate and facilitate that data to come to the end result.   

As has been said many many times here.  The primary requirement of an IFA to a client is suitability [for the objective].

You have probably realised with the many DB threads that the UK is a bit nanny state when it comes to consumer protection.  It assumes that the average consumer is low knowledge and low risk in nature.  And they are right.  The average consumer doesn't have a clue about tax wrappers or investments and tends to worry when investments go negative and forget about the positive periods.   So, it's all very well saying the info is on the internet.   The reality is that advisers control expectations and comfort people and prevent them from doing silly things.    You also those that do know what they are doing and could easily do it themselves but choose not to as they value their time doing other things.  

The reality of the real world consumer is that very few are interested in the actual investments themselves.  If you measured conversation with a client by time, you would find that for most,  the time spent on the actual investments is very low.    The time is spent on whether they can retire at age x or how much they can spend on their overseas holiday next year.    They have the peace of mind of knowing their money is doing what is needed for them to achieve their goals and sleep easy at night.     Then you have the comfort calls when markets drop (don't get too many of those if you have done your job right but there are always some that need it no matter how much you tell them or how many negative periods they have gone through).  Or those that keep reading the internet and keep finding mini-bond scams and want to check it's legit.  Or those that formulate their own plans but want a sounding board to see if they are on the right track (often they are but often they haven't considered something).

Some people on this board don't understand what an IFA actually does and believe it's only to do with the investments.  They are wrong.

Diplodicus

This subject has been worrying the Financial Conduct Authority.

https://citywire.co.uk/new-model-adviser/news/fca-concerned-consumers-are-paying-for-ongoing-advice-they-don-t-need/a1434136

From the report:

Where firms offer both one-off and ongoing services, more than 90% of new customers are placed in arrangements for ongoing advice. 
We are concerned that so many new customers are placed in ongoing advice arrangements, suggesting that this may be a default option rather than always justified by the consumer’s circumstances. This concerns us because some customers might be paying for a service they do not need. Once consumers are in an ongoing service, they tend to remain there.

Customers are obliged to engage a financial adviser to transfer their DB pensions, and ongoing advice most often accompanies a positive recommendation.

Ibrahim5

I had money invested hilariously badly by an IFA thirty years ago. After the IFA took their initial commission they got paid commission every year for doing nothing. They made no attempt to 'review' my investments. Obviously thought it didn't need doing. Funny how after they banned commission which was money for nothing the IFAs then decided that annual reviews were needed which is lots of money for hardly anything.

Thrugelmir

Ibrahim5 said:

I had money invested hilariously badly by an IFA thirty years ago. After the IFA took their initial commission they got paid commission every year for doing nothing. They made no attempt to 'review' my investments. Obviously thought it didn't need doing. Funny how after they banned commission which was money for nothing the IFAs then decided that annual reviews were needed which is lots of money for hardly anything.

Thirty years ago the Nikkei crashed. Took overseas investors both small and large by surprise. 

dunstonh

This subject has been worrying the Financial Conduct Authority.

It hasn't really. When it says "concerned", it's merely an observation that it may look into.  However, it is inevitable that the ratio is increasing and it's a result of regulatory direction.  

The FCA has also said it would prefer it if there were less firms and that those that remain were larger.   However, the larger firms are mostly wealth management firms whose business model is hoovering up assets under management that they can take ongoing servicing fees against.    Smaller firms tend to have a much more natural spread of ongoing and transactional clients.     So, inevitably, the ratio would change because of that.

You also need to consider that the FCA created the advice gap that it is also "concerned" about.   So, the smaller value clients that used to make up the bulk of the transactional advice cases are now in that advice gap.  Leaving advisers to focus on higher value clients that do need ongoing services.  Again, that influences the ratio.

That said, I do think too many wealth management firms and certain online firms put people on ongoing services that don't need it.  So, that is an area that could be looked at.

The article also mentions fee clustering but again, that is because of regulation.  MiFIDII basically killed the ability for advice firms to work in different ways to cover different types of clients.  MiFIDII mandated certain requirements across all clients.   So, it is inevitable that as differences in services levels become less, charging levels become similar.

Diplodicus

dunstonh said:

This subject has been worrying the Financial Conduct Authority.

It hasn't really. When it says "concerned", it's merely an observation that it may look into.  However, it is inevitable that the ratio is increasing and it's a result of regulatory direction.  

How has regulation increased the ratio of ongoing advice? 
Have you a link for the FCAs stated preference for fewer and larger financial advice firms, please, dunstonh?

[Deleted User]

Linton said:

Yet again the same people are making the same mistake in seeing the IFA's primary role as managing the nuts and bolts of investing.  To my mind paying an annual management charge is almost nothing to do with making changes to the portfolio which as said should not normally be necessary except for some infrequent minor rebalancing.  The important part is keeping the contact,  For example....

Say you dispense with your IFA and a couple of years later the newspapers are headlining major volatility on the stock market.  Which investments do you sell?

One of your children needs help buying a house. Can you afford to cash in part of your pension?

Your investments are performing rather better than you expected.  Do you book a world cruise?

You are finding your drawdown is not covering your desired expenditure - do you increase it?

You get a £100K legacy but have no immediate need for the cash.  What do you do?

You talk to a mate in the pub who tells you of the small fortune he has made on Bitcoin.  How much of your savings do you invest?



Someone with a moderate knowledge of investing and appropriate arithmetical and spreadsheet skills should be able to come up with a sensible answer to these questions.  If you are confident in your abilities then paying an IFA an ongoing charge may well not be worthwhile.  However if you feel you would need help with this level of questions and have not retained an IFA I suspect you would find it difficult to get a one-off consultation.  For a start the IFA would presumably have to redo all the fact-finding and produce appopriate documentation. Would they want to take on such a small job for a charge that you would consider reasonable? 

I share cfw1994's view that many people do not have the basic skills. 

The examples you are quoting are routine and should be encapsulated within ones strategy. My IPS addresses all of these.  Would absolutely expect that if I went to an IFA for help in developing a strategy, a good one would provide advice on a stable strategy addressing all of the above.  

Where specialist advice could be needed are major events, like conversion of a DB pension to DC (now the advice is required), planning legacy if you are wealthy or issues relating to a private business.