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

lisyloo

Personally I think ours is worth his weight in gold.
Most things we can work our for ourselves but sometimes there is something you haven't thought of that a good professional will know.
I think ours probably saves up more than he costs.

yes information is freely available but does everyone here claim to think of everything 100% of the time?

[Deleted User]

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.

You need three conditions for ongoing hand holding advice like this to be useful:
1. The investor cant manage investments.  There is evidence that retail investors are getting a lot better at avoiding emotional selling during crashes. 

2. The advisor is good.  Far from assured. 

3. The investor would heed adisor’s advice during a crash.  If he is emotionally driven then he might not. 

Under all other scenarios its redundant. 

Linton

Deleted_User said:

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.  

Sounds like your IPS is a mighty tome.  But I am unclear what you mean.  Perhaps it would help if you could quote what it says you do about:
a) you receive a $100K legacy
b) your pot has increased in value well above expectations
c) interest rates increase from 1% to 5%.

[Deleted User]

dunstonh said:

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.

Advisors who can afford to pay for pretty decent investment tools include the likes of Morgan Stanley.   Sadly, evidence that their (and others) tools are any good is sorely lacking. The boring strategy of buying and holding a diversified portfolio kicks …

[Deleted User]

Linton said:

Deleted_User said:

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.  

Sounds like your IPS is a mighty tome.  But I am unclear what you mean.  Perhaps it would help if you could quote what it says you do about:
a) you receive a $100K legacy
b) your pot has increased in value well above expectations
c) interest rates increase from 1% to 5%.

14 pages. Yes, its too long.  Largely because I provide justifications and references so if spouse takes over she can trace decision making steps. 

a) no change to asset allocation. Invest ASAP. 

b) no change. I don’t have “expectations”. Increases are routine. Even more routine than corrections.  Use VPW strategy when I move on to withdrawls. 

c) no change to asset allocation. No change to equity investments. I take liberties with the FI portion of the portfolio in picking specific FI investment vehicles. Its a drawback of my strategy. If taken over by someone else, the strategy says to invest everything into an all-in-one ETF using the same asset allocation. 

dunstonh

How has regulation increased the ratio of ongoing advice?

At its peak, there were over 300,000 advisers, agents and reps.   Most of the advice was done on a transactional basis with no explicit servicing.    Explicit servicing was typically only carried out by IFAs.  Although the old salesforces would offer servicing at no explicit cost it was implicit within their product charges but on a reactive basis.     Today, there are just 20,000.   And a good many of those 20,000 only focus on higher net worth individuals whereas the lower net worth individuals tend to be ignored by the advice market.     

The advice gap was created because of regulatory changes with RDR as prior to that cross subsidy was allowed.   FAMR and MiFIDII increased the advice gap further.     

So, if you have less people who are more likely to be transactional being seen by the firms then the ratio is going to change.

There is also the issue of how the FCA records and reads data.   I personally do hundreds of bed & ISA and bed & pensions each year.   There are also all the top ups that come in each year from directors doing single premiums into their pensions or those using allowances outside of existing investments by adding cash.  All with the ongoing servicing.  On the data collection, that is new business (even where the money is moved from GIA to ISA/SIPP).  So, before I see any potential new clients in the business year, my data shows hundreds of ongoing servicing transactions.  Multiply that against all advisers. 

Many advice firms are at capacity where they mostly look after ongoing servicing clients only and just get natural growth without any advertising and marketing.  So, again, those firms will have a significant ratio showing ongoing servicing clients and not transact as much for new clients.

Have you a link for the FCAs stated preference for fewer and larger financial advice firms, please,

Its been something that has been going on for over a decade.  Pretty much started by tackling the networks prior to 2010 by getting all their members firms to work the same way using the same methods and processes.  Prior to that each member firm of a network could decide how it worked as long as the outcome was suitable.  By getting thousands of firms working from the same rule book (the network) and the same processes, it only has to visit the network and not each of the member firms.

The regulator has always struggled with regulating large quantities of very small firms.    Despite most people in the industry knowing where the problems are, the regulator always seems oblivious.   Indeed, many of the issues where things have gone wrong (DB transfers by factory line firms, mini-bonds, unregulated investments etc) were talked about on this board by advisers and consumers alike but the regulator took no action.

Two weeks ago on the inside FCA podcast, Debbie Gupta, director of consumer investments at the regulator responded to the point that there was 3000 DB transfer firms in 2018 to 1200 today, she said: "While that is not great for the firms that are no longer operating in the market, it’s a much better outcome for consumer"

I believe you can find the inside FCA podcast online if you are so inclined.

Diplodicus

dunstonh said:

How has regulation increased the ratio of ongoing advice?

At its peak, there were over 300,000 advisers, agents and reps.   Most of the advice was done on a transactional basis with no explicit servicing etc..

I'll grant you all of that, dunstonh, but you have produced no FCA quote stating that their preference is for fewer and larger financial advice firms. Indeed, such a statement would be surprising if the corollary is an increase in unnecessary ongoing financial advice and a less efficient market.

The FCA has been misquoted recently on this board.  

cfw1994

Diplodicus said:

dunstonh said:

How has regulation increased the ratio of ongoing advice?

At its peak, there were over 300,000 advisers, agents and reps.   Most of the advice was done on a transactional basis with no explicit servicing etc..

I'll grant you all of that, dunstonh, but you have produced no FCA quote stating that their preference is for fewer and larger financial advice firms. Indeed, such a statement would be surprising if the corollary is an increase in unnecessary ongoing financial advice and a less efficient market.

The FCA has been misquoted recently on this board.  

Aha....well, back in the day, Financial Advisors didn't *need* on-going explicit servicing - they got commission payments that meant they could just sell products and sit back!

Clearly without that, the now smaller assembly of advisor firms are inevitably focussing on the wealthier people, surely *because* they will get a larger amount by taking 0.5-1% (sometimes more) for having larger sums under their management. 
I know dunstonh shares concerns at the firms with "wealth management" in their title....I too feel it is not necessarily your wealth they are aiming to improve 👀

Diplodicus

From the same report:

FCA returns data indicate that ongoing advice has increased from 60% of revenue in 2016 to 70% in 2019.

This looks to be the cash cow going forward. 
And while you see a "Good IFA/Bad FA" narrative promoted on this forum, there really isn't that much difference between them.

Linton

Deleted_User said:

Linton said:

Deleted_User said:

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.  

Sounds like your IPS is a mighty tome.  But I am unclear what you mean.  Perhaps it would help if you could quote what it says you do about:
a) you receive a $100K legacy
b) your pot has increased in value well above expectations
c) interest rates increase from 1% to 5%.

14 pages. Yes, its too long.  Largely because I provide justifications and references so if spouse takes over she can trace decision making steps. 

a) no change to asset allocation. Invest ASAP. 

b) no change. I don’t have “expectations”. Increases are routine. Even more routine than corrections.  Use VPW strategy when I move on to withdrawls. 

c) no change to asset allocation. No change to equity investments. I take liberties with the FI portion of the portfolio in picking specific FI investment vehicles. Its a drawback of my strategy. If taken over by someone else, the strategy says to invest everything into an all-in-one ETF using the same asset allocation. 

Seems over formulaic and simplistic to deal with the realities and complexities of life.   Clearly the FI problems weren't covered in the IPS. Hpwever the biggest issue for me is the control of expenditure. I suspect it may not last beyond the next major crash.   Are you really going to cut your drawdown by perhaps 40% overnight and not reinstate it for a year even if there is a recovery in prices in the meantime? 

Personally I value the freedom to, for example, take an expensive holiday or upsize my home should there be sufficient money to do it without feeling guilty about deviating from an IPS.  Nor do I want to have to drawdown cash I don't need.  As a general principle, for maximising happiness one's expenditure should be driven by needs and desires rather than by following a simple formula.