IFA Fees....

Linton

Diplodicus said:

Well, a lot of people think your approach outdated, Linton.

A lot of people have decided they are not yet fitted to the rocking chair and - given the investment climate uniquely favourable to our generation - are still firmly in the accumulation phase. You may never catch them up but, ironically, you are still evidently fully absorbed in the business of husbanding  your fortune. 

Edit: You realise, Linton, that when your IFA  pitched the idea of retirement at 55, the expectation was that your lifetime would deplete your pension pot to nothing? 
This calculation still forms a good raft of the received wisdom passed over this forum by IFAs and their wingmen.

So many mistakes in so few lines.
 - Retire at 55 was my number.  It's not up to the IFA to decide.  You clearly have little experience of the world if you think retirement means the rocking chair.  Early retirement means the freedom to do whatever you want, provided you have saved sufficient money.  
 - And no the expectation wasn't that one would steadily deplete one's pot to nothing during retirement.  Drawdown of any form only became possible in the 1990s and was highly restricted so as to be unsuitable for most people.  It only became mainstream in 2015. When I retired the assumption would be that one would buy an annuity, which was fine because annuity rates were much more favourable than now.
 - Where do you get the idea that one should plan to deplete one's pension pot to nothing anyway?  That would be madness since you dont know when you are going to die.

csgohan4

Diplodicus said:

Linton said:

Diplodicus said:

Ibrahim5 said:

I think it's important for balance. The forum has resident IFAs who will always tell you how marvellous they all are. It's hilarious how they all have to thank the same posts.

Yes, I agree. 
Apart from the obvious IFAs, there are a group of posters who rush to their aid on this board. For three main reasons:

1) The poster has an ongoing relationship with an IFA and will not contemplate the idea that they may be wasting their money.

2) The poster thinks himself a cut above posters who arrive on the board with basic questions. Hence, "I'm qualified to DIY, you're not." It lets them feel superior.

3) The poster is acutely conscious of cost but does not want to pay for financial adviser advice; cravenly hoping their unqualified support may stand them in good stead if they ask for free advice. As Shakespeare said "Where thrift may follow fawning."

The problem with the anti IFA brigade is that do not seem to understand what an IFA is for.  Clue: It's not to choose future outperforming funds. 

There is no anti IFA brigade. There is only a strong kickback to any post challenging the IFA agenda.

Anyway to respond to your points:
1) I am not an IFA, married to an IFA nor do I have any other personal links to IFAs.  I have not sought advice from an IFA for perhaps 30 years.  However the one I did talk to at that time certainly changed my life.
(upshot: retire at 55)
That became my primary financial objective and 20 years later I retired.

And now your sense of self worth is tied up with that decision. 

Note that you are near the bottom of the Great British Bake Off table. Is it not the case that you are so invested in received wisdom of investment strategy  - bolstered by others including IFAs - that you cannot now change horses midstream but must stick to your course? I have sympathy if that is the case.

I could say your taking it personal and seems  a bit rich given your obvious flaw in your assumptions

Note Linton is retired and your comparing investors at different stages in life with completely different investment strategies. So your value in an IFA is more of their money they make rather than the principle and strategy and professional opinion on helping you on the your journey.  They are advisors, not magical sages predicting the next  quick rich funds for you. 

They base investments off the clients risk profile as you know. So again your not comparing like with like.

JohnWinder

ChainsawCharlie said:

The problem I  have as the ordinary man in the street then is what else can you base your choice on other than past performance, even if you look at allocation of funds past performance still comes into play on equities, bonds, gilts, foreign markets, looking at the markets I guess most would agree China isn't too good at moment, but again I know naff all :-)

You may be being a bit disingenuous there, since I'm guessing you know that it's safer to invest in a diversified fund rather than a small bunch of individual shares. And that's a good basis for the ordinary man's choice. Go for a widely diversified fund that spreads the risk widely. Before that however, get a feel for how much gyration in value you can stomach your investments exhibiting, and choose a suitable mix of risky and less risky assets to address your stomach sensitivity, including stocks, bonds, cash (and that's all the ordinary man needs).

Then choose diversified funds, or a blended fund with suitable proportions of asset classes (stocks, bonds, cash). You can choose index funds or active ones. Not on the basis of past performance, as fund fees seem to be a more reliable predictor of returns. Hard to believe, but the Morningstar research has found that the single best predictor of future performance for equity funds is their cost. A lot of people won’t like that thought, and perhaps the research is rubbish (but Morningstar has a big reputation riding on it), and perhaps I’ve misrepresented their results, and I don’t think it’s all that helpful in choosing a fund. But the answer is not past performance.  https://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of-returns.aspx
The more you pay the less net return you're likely to get, after fees. It's contrary to our common experience that the more you pay the better the product, but there it is.  To quote: 'Overall, there does not appear to be a clear linear relationship between fund charges and the gross performance generated by the fund manager.'  source: Asset Management Market Study  Final Report: Annex 4 – Assessing the relationship between the price and performance of retail equity funds in the UK  June 2017

'The expense ratio is the most proven predictor of future fund returns. We find that it is a dependable predictor when we run the data. That's also what academics, fund companies, and, of course, Jack Bogle, find when they run the data.
But it's been a couple of years since I provided the proof statement, so we have updated the data to show just how strong and dependable fees are as a predictor of future success. That's not to say investors should use them in isolation. There are many other things to consider, but investors should make expense ratios their first or second screen.' https://www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-failure

A widely diversified active fund won't differ in performance much from an index fund, after all they're both holding a wide range of assets. For active to outperform an index the fund manager has to be very selective in their holdings; better for the ordinary man not to go there.

And that's about it. You can tinker around the edges with 'do I over-weight UK shares?' or 'do I hedge foreign currency?' or 'do I only hold government bonds or investment grade corporates as well?' or 'should I include China?', but no one knows whether one choice will turn out better than another. So don't bother fussing with it.

It's not rocket science; it's not even brain surgery as we've already heard. But certainly don't focus on past performance, even if you take past risk into account as well, which you must anyway.

robatwork

JohnWinder said: But the answer is not past performance.  https://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of-returns.aspx

The more you pay the less net return you're likely to get, after fees. 

An interesting contribution and to follow up my point on page 4, perhaps that is a similar way someone with no recommendation can find an IFA. The less you spend on them, the more ends up in your pot and hence the better they are. So a race to the bottom, don't spend £5,000 when you can spend £500.

I wonder if anyone, IFA or not, would maintain that a more expensive IFA is better in any way. If so, are there any published charts that rank or measure their advice's performance over time?

Albermarle

I wonder if anyone, IFA or not, would maintain that a more expensive IFA is better in any way. If so, are there any published charts that rank or measure their advice's performance over time?

A more expensive IFA , may have more experience dealing with complex tax matters , trusts, family problems, international matters , dealing with properly wealthy clients  etc 

Seems unlikely though that paying more would translate into better returns . In any case investing is not just about better returns, it is about having a portfolio that suits you personally . Some people with a big pot are happy if it just keeps up with inflation and are not chasing better returns .( IFA or no IFA) 

This is the crux of this never ending debate about IFA's worth - it is not possible to measure their investment performance. or whether you get value for money in any meaningful way , because every client has different objectives .

I suppose you can only measure it in less direct ways . Such as do you get on with them, do they respond in a timely manner , explain things properly , help you relax about financial issues , (which scare a lot of people) etc. 

MK62

One question does spring to mind here though.......if low fees was indeed the best predictor of success, why do we not now see these lowest fee funds at or around the top of their respective performance tables?

HappyHarry

The product you are in will determine which of the fund classes are available to
invest in.

HappyHarry

I am surprised. What product, exactly, are you looking to hold the investments in?

dunstonh

ChainsawCharlie said:

Aviva Mixed investment shares 0-35%

That will be in most Aviva life and pension products for the last 40 odd years.  Not that you would want to be in that fund.

HeyYeah

This is where an excel spreadsheet is your friend. You'd need to know how much money you are putting in, then the expected time invested and work out which is better for you... For a higher value, longer term investment S12 might be better and otherwise S6.