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

DT2001

Deleted_User said:

DT2001 said:

Deleted_User said:

MisterT said:

Since I started this thread I've had occasion to ask my IFA some questions about the impact of my wife possibly having to take early retirement and how best we could manage the impact to our finances. Despite me having read up as much as I could he came up with some interesting options I hadn't considered, which of course is his job.

So perhaps for us that 0.35% a year isn't a bad thing at all. As a few have commented it's exactly this type of problem that really has nothing to do with managing the portfolio (which more or less manages itself) that we are really paying the ongoing charge for. We have help for financial issues on tap when we need it, within reason I suppose - I'm sure if I was getting in touch every week he might have something else to say about it.

This raises a few questions:

1. How often does your wife retire? 

2. Do you think the advisor would have rejected you had he not been paid an annual fee growing well above RPI?
3. 0.35% does not sound like a lot.  Yet its the same money getting taxed again and again and again for decades.  Do you know the cumulative compounded cost after lets say 20 years?
4. People buy houses way more often than they retire.  Do you have a real estate agent on a retainer? Do you pay him a proportion of your current house valuation? 

Playing devils advocate
1. MisterT’s wife was only looking at an impact of possibly retiring
2. how does it grow above RPI or are you suggesting the portfolio is rising well!
3. If, and I know some will say a big if, the IFA made a good investment decision on day 1 the returns would compound over time
4. IFA’s might advise on retiring, investing, IHT, decumulation, your children’s investments, ISA’s etc so it is not a fair comparison. If you’ve sold a property in France and had to pay 6% to the immobilier plus TVA you might think 0.35% a bargain!

1.  I often look at a nice house and think about buying it.  Should I seek advice from a realtor every time?  Unless its serious, its waste of everyones time.
2. I am suggesting that it should have been growing well above RPI if the decision maker spent 10 seconds on putting it all in a world index. 

3. See item 2.
4. Realtor might advise on constantly changing planning permissions in the area. And on neighbours boundary issues. And on price forecasts.  And on adding value by refurbishing a kitchen or best colours for the bathroom.  

5. Where does 6% come from? In Canada transactional financial advice  costs 700 to 1500 GBP a pop. The cost of transactional advice is what we should be comparing against. 

1. Your retirement plans can alter more than once and on each occasion be serious.
2. and 3. Client wins if IFA helps them make a better decision. I know many more people that don’t bother planning for retirement than are DIYers often because they lack the willingness to try and learn enough or the time to do so. If an ongoing service helps them in terms of performance and peace of mind is that not good?
4. Presumably whilst selling not at different times throughout ownership.
5. 6% comes from France when selling a property using multi agency. 

Can you compare Canada and the U.K. from point of view of regulations, competition and how the systems work?

Ibrahim5

So why was ongoing servicing not needed in the days of commission? Nobody ever mentioned it. IFAs never made any attempt whatsoever at 'ongoing servicing'. They just took their commission and ran. 'Ongoing servicing' was only invented so they could keep getting their annual commission. OK they would have to do a tiny bit of work but it meant they would get an annual payment forever from each customer. The servicing cost is probably much more than the commission ever was. So the regulator banned commission but in typical IFA style they found a way of turning it to their advantage.

Linton

Ibrahim5 said:

So why was ongoing servicing not needed in the days of commission? Nobody ever mentioned it. IFAs never made any attempt whatsoever at 'ongoing servicing'. They just took their commission and ran. 'Ongoing servicing' was only invented so they could keep getting their annual commission. OK they would have to do a tiny bit of work but it meant they would get an annual payment forever from each customer. The servicing cost is probably much more than the commission ever was. So the regulator banned commission but in typical IFA style they found a way of turning it to their advantage.

I am afraid you are simply wrong about this, as in much else.  I certainly had yearly or possibly 6 monthly reviews (I dont remember) with my IFA 20-30 years ago at no extra cost to me.  Presumably the IFA could justify it as he would get a commision from any future business.  It would be in his interest to keep in contact with a happy customer. 

Diplodicus

I am afraid you are simply wrong about this, as in much else.  - The signature superior, condescending tone employed by IFAs and their cheerleaders. Yesterday I was the recipient when dunstonh claimed that the financial advice business landscape was shaped by the big, bad FCA.  The day before that, Linton said Yet again the same people are making the same mistake - meaning that financial advice should not be judged by measurable results. 

Still, good for the financial advice business to see someone who has achieved early retirement and financial independence devoting his freedom to covering its back.

Ibrahim5

How long does an annual review costing £5k take? The IFAs won't answer the question. Is it 2 hours at £2.5k an hour or 100 hours at £50 an hour?

DT2001

Ibrahim5 said:

How long does an annual review costing £5k take? The IFAs won't answer the question. Is it 2 hours at £2.5k an hour or 100 hours at £50 an hour?

Are you assuming that there are no other costs than the time of the review?
Are you assuming there is no other contact throughout the year?

[Deleted User]

DT2001 said:

Deleted_User said:

DT2001 said:

Deleted_User said:

MisterT said:

Since I started this thread I've had occasion to ask my IFA some questions about the impact of my wife possibly having to take early retirement and how best we could manage the impact to our finances. Despite me having read up as much as I could he came up with some interesting options I hadn't considered, which of course is his job.

So perhaps for us that 0.35% a year isn't a bad thing at all. As a few have commented it's exactly this type of problem that really has nothing to do with managing the portfolio (which more or less manages itself) that we are really paying the ongoing charge for. We have help for financial issues on tap when we need it, within reason I suppose - I'm sure if I was getting in touch every week he might have something else to say about it.

This raises a few questions:

1. How often does your wife retire? 

2. Do you think the advisor would have rejected you had he not been paid an annual fee growing well above RPI?
3. 0.35% does not sound like a lot.  Yet its the same money getting taxed again and again and again for decades.  Do you know the cumulative compounded cost after lets say 20 years?
4. People buy houses way more often than they retire.  Do you have a real estate agent on a retainer? Do you pay him a proportion of your current house valuation? 

Playing devils advocate
1. MisterT’s wife was only looking at an impact of possibly retiring
2. how does it grow above RPI or are you suggesting the portfolio is rising well!
3. If, and I know some will say a big if, the IFA made a good investment decision on day 1 the returns would compound over time
4. IFA’s might advise on retiring, investing, IHT, decumulation, your children’s investments, ISA’s etc so it is not a fair comparison. If you’ve sold a property in France and had to pay 6% to the immobilier plus TVA you might think 0.35% a bargain!

1.  I often look at a nice house and think about buying it.  Should I seek advice from a realtor every time?  Unless its serious, its waste of everyones time.
2. I am suggesting that it should have been growing well above RPI if the decision maker spent 10 seconds on putting it all in a world index. 

3. See item 2.
4. Realtor might advise on constantly changing planning permissions in the area. And on neighbours boundary issues. And on price forecasts.  And on adding value by refurbishing a kitchen or best colours for the bathroom.  

5. Where does 6% come from? In Canada transactional financial advice  costs 700 to 1500 GBP a pop. The cost of transactional advice is what we should be comparing against. 

1. Your retirement plans can alter more than once and on each occasion be serious.
2. and 3. Client wins if IFA helps them make a better decision. I know many more people that don’t bother planning for retirement than are DIYers often because they lack the willingness to try and learn enough or the time to do so. If an ongoing service helps them in terms of performance and peace of mind is that not good?
4. Presumably whilst selling not at different times throughout ownership.
5. 6% comes from France when selling a property using multi agency. 

Can you compare Canada and the U.K. from point of view of regulations, competition and how the systems work?

1. Sure. Same goes for my house buying plans. 

2. and 3. The point is that I don’t see any circumstances when ongoing IFA fees could be helpful.  If you need to decide, transactional advice ought to be the answer.  If you want IFA to be paid on an escalating scale while he is sleeping and it gives you “piece of mind”, go ahead but don’t claim its good for your wallet.
4. At different points throughout ownership. 

5. Why should a consumer care who and what is responsible for high costs? According to Which hourly charges for IFAs in the UK are 30 to 250 GBP. How many hours of IFA  do you need every single year? 

DT2001

Deleted_User said:

2. and 3. The point is that I don’t see any circumstances when ongoing IFA fees could be helpful.  If you need to decide, transactional advice ought to be the answer.  If you want IFA to be paid on an escalating scale while he is sleeping and it gives you “piece of mind”, go ahead but don’t claim its good for your wallet.

5. Why should a consumer care who and what is responsible for high costs? According to Which hourly charges for IFAs in the UK are 30 to 250 GBP. How many hours of IFA  do you need every single year? 

For someone like yourself, knowledgeable and confident, it would not be good for your wallet.

 If you use an IFA on a transactional basis I assume you acknowledge there are areas where even you, with all your know how, benefit? 

If an IFA puts in place a strategy to achieve your objectives and uses bought in research to buy appropriate funds it could be better for your wallet as well. I concede that you could pay less if you use a transactional service however if the availability of your IFA, through a retainer, means that you implement any planning and keep on top of it, is that not to your benefit?

The forumites here tend to be more knowledgeable and definitely more interested in their retirement planning, willing and able to spend time researching. For the vast majority this is not the case (read about the kind offers to fellow workers to help educate them about pensions being ignored) so my contention is that implementing, even an ongoing relationship, with an IFA  is better for some.

When, as another poster suggested, you reach the time for decumulation you could change your requirements to transactional.

You should know try and understand (rather than care) why costs are higher than you think they could/should be. For e.g. a friend of mine in a one man accountancy firm but he has bought in software to reduce the time it takes to produce company accounts and any related personal tax returns. If he charges the same per hour he would earn less and his costs would have risen.

If the average ‘pot’ is £50k in the U.K. a review at 0.5% is £250. If it takes an hours meeting, an hour to prepare/arrange and an hour to send over the recommendation and complete the file to comply with audit requirements. Is that OK? If that person then calls/emails are they then getting a cheap service?

The point I’m trying to make is that there are circumstances when using an IFA, even on an ongoing basis, is better especially when the alternative is to do nothing.

Ibrahim5

IFAs won't touch pension pots of £50k. If you read the website where they buy and sell IFA businesses they quote the percentage of customers with over £100k. A good business would be 100% They like lots of funds under management with a high ongoing fee preferably 1%. Lots of cash for doing very little. Await Linton to tell us that he knows someone who has a pension of less than £100k managed by an IFA.

DT2001

Ibrahim5 said:

IFAs won't touch pension pots of £50k. If you read the website where they buy and sell IFA businesses they quote the percentage of customers with over £100k. A good business would be 100% They like lots of funds under management with a high ongoing fee preferably 1%. Lots of cash for doing very little. Await Linton to tell us that he knows someone who has a pension of less than £100k managed by an IFA.

I know of 3 admittedly between 50 - 100 and 2 will be over soon.
Maybe that is more normal as we live in the West Country not the affluent as the SE