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

Linton

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.  

There you are:

https://www.fca.org.uk/publication/transcripts/inside-fca-podcast-transcript-debbie-gupta-interview-consumer-investment-strategy.pdf

And that means we’re having to make complex decisions with more choices than ever before. And on the flip side, I think the market that we regulate is dominated by lots and lots of small firms. So it makes it really difficult for people like you and I to navigate. 6,000 firms and over 27,000 individuals provide services in this space to help us understand where we might invest, how we might invest, and providing advice to consumers. And that means that it’s really difficult for us to understand what good looks like, it’s really difficult to find trusted firms that do their work well. But also, for the regulator, it’s really easy for bad actors to hide in this market because there are so many of them. And so those 3 things combined mean that we are really clear that this market isn’t working for consumers in the way that we want it to. 

Diplodicus

Linton said:

 

There you are:

https://www.fca.org.uk/publication/transcripts/inside-fca-podcast-transcript-debbie-gupta-interview-consumer-investment-strategy.pdf

There is no place in that document where the FCA spokesperson states that the FCA  wants fewer and bigger firms to offer financial advice. Is there?

But - if that were the FCA intention - why does it mean the client should pay for ongoing financial advice?

[Deleted User]

Linton said:

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.  

1. VPW does not call for a 40% drop in expenditure “overnight”.  It does not react to daily fluctuations at all. Monthly withdrawals include a lot of dampening (see spreadsheet for specifics) https://www.finiki.org/wiki/Variable_percentage_withdrawal#VPW_Accumulation_And_Retirement_Worksheet

Ongoing forward test shows only very mild variability in drawdown.  

Note that I also have a decent amount of DB income, so 40% overnight wouldn't have happened even if I based daily withdrawals purely on the stock market. It is my plan, so deals with my circumstances.

2. The more formalistic and the more simple the better.  Human decision making is bad for stock returns.  Simple is beautiful and helps to stick to ones strategy.  

3. I have freedom to take an expensive holiday from the point of view of my strategy.  The dogs and ducks on my pond are more of an issue. 

4. Driving expenditure purely by desires without a budget isn’t going to make me happy.  I may desire a $500K piece of equipment times 20 but going bankrupt will make me unhappy. 

In a way, its irrelevant to the topic. Different things make different people happy.  Having a strategy which does not need changing daily or monthly is surely a good thing.  Right? 

Thrugelmir

Deleted_User said:

Linton said:

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.  

  Having a strategy which does not need changing daily or monthly is surely a good thing.  Right? 

No trading strategy lasts forever. Primarily as markets themselves change and evolve.  

Diplodicus

dunstonh said:

This subject has been worrying the Financial Conduct Authority.

  

The FCA has also said it would prefer it if there were less firms and that those that remain were larger.   

So, 4 1/2 hours later, are we agreed? The FCA never said this?

DT2001

Diplodicus said:

Linton said:

 

There you are:

https://www.fca.org.uk/publication/transcripts/inside-fca-podcast-transcript-debbie-gupta-interview-consumer-investment-strategy.pdf

There is no place in that document where the FCA spokesperson states that the FCA  wants fewer and bigger firms to offer financial advice. Is there?

But - if that were the FCA intention - why does it mean the client should pay for ongoing financial advice?

Linton’s quote does state the FCA want fewer firms so it is easier to regulate. They have a finite budget to investigate with so if fewer firms are in the market they can ensure the service overall is better? 

It is not necessary for clients to pay for ongoing advice. 

They can stop anytime.
dunstonh did point out how the FCA collected data re one off pension payments - my OH falls into that category so this tax year she’ll be 4 ‘new’ clients all with ongoing advice.

Diplodicus

DT2001 said:

Diplodicus said:

Linton said:

 

There you are:

https://www.fca.org.uk/publication/transcripts/inside-fca-podcast-transcript-debbie-gupta-interview-consumer-investment-strategy.pdf

There is no place in that document where the FCA spokesperson states that the FCA  wants fewer and bigger firms to offer financial advice. Is there?

But - if that were the FCA intention - why does it mean the client should pay for ongoing financial advice?

Linton’s quote does state the FCA want fewer firms so it is easier to regulate. 

Put the FCA quote in quotation marks below.

So that they realise what you claim they're stating.

Ibrahim5

I assume most IFAs are capable of driving. Maybe they could retrain as HGV drivers and do something useful instead.

HappyHarry

Ibrahim5 said:

I assume most IFAs are capable of driving. Maybe they could retrain as HGV drivers and do something useful instead.

At least then you might understand what they do 😀

DT2001

Diplodicus said:

DT2001 said:

Diplodicus said:

Linton said:

 

There you are:

https://www.fca.org.uk/publication/transcripts/inside-fca-podcast-transcript-debbie-gupta-interview-consumer-investment-strategy.pdf

There is no place in that document where the FCA spokesperson states that the FCA  wants fewer and bigger firms to offer financial advice. Is there?

But - if that were the FCA intention - why does it mean the client should pay for ongoing financial advice?

Linton’s quote does state the FCA want fewer firms so it is easier to regulate. 

Put the FCA quote in quotation marks below.

So that they realise what you claim they're stating.

“I think the market that we regulate is dominated by lots and lots of small firms. So it makes it really difficult for people like you and I to navigate.“

This is from the FCA podcast which Linton more fully quoted. It is as stated.

What do you think it means?

Do you agree that there is nothing stopping people from using ongoing advice from IFAs?