Relationship With Your IFA

Linton

Ibrahim5 said:

Investing for yourself is different to investing for someone else. The IFAs say they rarely invest in 100% equities because the customer can't handle the volatility. I would say they don't because it's too risky for the IFA. If you refuse to learn about investing and give the IFA a lump sum to look after and find it has dropped 50% you are likely to dump the IFA.

A more logical reason is that one should invest for an objective.  If meeting that objective requires that you invest at a very high level of risk the chance is high that you will miss it.  Perhaps you would be better with an objective that can be met at lower risk, so the uncertainty is mainly on the upside.

Perhaps it would help us understand your point if you could let us see your portfolio, your objectives and the timescale.

dunstonh

There is a slightly dangerous assumption that all IFAs are perfect machines who perform the same 👀

Clearly that is not true...

Same as any walk of life.    That research and analysis costs a lot of money.  Some could shortcut.   However, you could ask your IFA why every single fund in your portfolio is included.  They should have the Governance to show you.  If they cannot then you know they are not doing what is required of them.

The majority of financial advisers did not alter their investment strategy or due diligence protocol in the aftermath of the Neil Woodford debacle, despite the former star manager’s fall from grace dominating headlines throughout 2019.

The majority didn't need to as they didn't invest in Woodford.  One of the biggest research and governance providers to advisers issued a warning not to use Woodford Income back in 2017 because of its high level of illiquid assets.

Research from FE Fundinfo, published this week (April 20), showed 55 per cent of advisers “made no changes” in response to Mr Woodford’s fund and firm closure.

Which is a pointless stat when the majority of advisers were not using Woodford Income.  You dont change something you are not using.

[Deleted User]

dunstonh said:

If you do chose to use an IFA, & it will make sense for some, it ought to be about much broader financial/lifestyle guidance, & (IMHO) absolutely not about their investing skills 😉

The IFA is not the investment manager.  But they will buy in the data, research, analysis and due diligence and consolidate all that into their selection.   So, the IFA is more of a facilitator.   It provides a structure and process and, if done correctly, can avoid issues like Woodford and Arch Cru (both of which were more popular with DIY investors).

And it comes back down to the ability of the individual.  The UK's largest DIY platform frequently has its own brand expensive  MM funds in its top selling funds list.    So, the DIY investor picking those is paying nearly twice the platform cost that an IFA would have access to and two, three or even four or more times the cost of fund charges.   So, paying more than using an adviser.    For most, the point of going DIY is to save money. Not pay more.  Yet plenty do.

FSA says that 795 IFA firms were involved in selling Arch Cru to investors. Thats 15% of IFA firms picking just one of many inappropriate and terrible investments for their client. 

So, when you say that many DIY investors don’t know what they are doing and screw up, you are absolutely right.  You forget to mention that the same goes for many IFAs. Uneducated investor can screw up. So can a bad IFA on naive investor’s behalf. And with added charges on the top. 

Its not a complicated equation:

• If you know little about investing and aren’t prepared to learn then you are better off with an IFA, assuming the IFA is good.
• For all other scenarios you are better off investing yourself. 

Source: https://www.theguardian.com/money/2012/apr/30/arch-cru-investors-100m-mis-selling-payout

robatwork

dunstonh said:

If you do chose to use an IFA, & it will make sense for some, it ought to be about much broader financial/lifestyle guidance, & (IMHO) absolutely not about their investing skills 😉

The IFA is not the investment manager.  But they will buy in the data, research, analysis and due diligence and consolidate all that into their selection.   So, the IFA is more of a facilitator.   It provides a structure and process and, if done correctly, can avoid issues like Woodford and Arch Cru (both of which were more popular with DIY investors).

I'm not pro or anti IFA like many on these spate of threads recently with some fairly unpleasant anti-IFA sentiment.

On a personal level like almost everyone here, I've appreciated the sound guidance you've given, freely, over the years, dunstonh.

My bugbear is there doesn't seem to be a quantitative way to choose or distinguish between IFAs. Yes I understand recommendations from someone trusted, but I hardly know anyone who has used an IFA. At least not happily...

The point of saying this is that I am not attacking the IFA "world", but is there evidence of IFAs recommending avoiding your example of Woodford well before it was obviously a basket case?

dunstonh

FSA says that 795 IFA firms were involved in selling Arch Cru to investors. Thats 15% of IFA firms picking just one of many inappropriate and terrible investments for their client.

Breaking down the stats, 140 firms accounted for 90% of advised cases.  Over half of those ceased trading before the RDR (a bit step up in regulations, later followed by further step-ups with FAMR and MIFIDII).

And 85% didn't use it.   It is also worth noting that all the IFAs on this board at the time said it was unsuitable to invest in and people shouldn't do it.    For that unfortunate 15 %, they received compensation.     It was bought by more DIY investors.  They did not receive compensation.

dunstonh

My bugbear is there doesn't seem to be a quantitative way to choose or distinguish between IFAs. Yes I understand recommendations from someone trusted, but I hardly know anyone who has used an IFA. At least not happily...

Research has found that over half of people seeing an FA think they are seeing an IFA (its often seen on the board here where someone talks about their IFA and it turns out they are with SJP or Quilter or bank etc).   So, it wouldn't really help you if you did. 

date, when they used an adviser, is an issue as well.    I know two ex FAs that had a short period as IFAs and both were completely useless.  They wouldn't missell but they didn't have a clue about anything.   They failed to pass the 2013 requirements as did many that said goodbye to being advisers at the time.   There was a similar turning point in the mid 90s when the first levels of qualification were brought in.     There has been a progressive improvement in standards on a near continuous basis.  So, the further back in time you go with an experience, the less likely it would be relevant to today.

The point of saying this is that I am not attacking the IFA "world", but is there evidence of IFAs recommending avoiding your example of Woodford well before it was obviously a basket case?

It is very hard to quantify because the majority of IFA firms are small localised firms with 1-5 advisers that have little info on the internet than your local butcher or baker.   However, the FOS complaints stats have a very low complaint rate against IFAs relative to the transactions that occur.       When you look at the issues over the years, they have been entirely predictable.  In most cases, a small minority abusing things. 

For example, factory line firms using third party introduced to sell unregulated investments.  Purely to try and get around the commission ban at the end of 2012 (which did not apply to unregulated investments).   The factory line firms set up purely to to DB transfers by the bucketload.   Time and again, it seems to be the firms that have a disproportionate level of business transacted via a handful of advisers.

In the case of Woodford, one of the two big research companies issued the warning 2 years before Woodford failed.  The other did not.  So, the firms that used the one that did would be better placed than the one that did not.  I think the advised woodford clients have a strong case against their advisers as the illiquid nature of the assets was known.   It wasn't hidden from anyone.

[Deleted User]

dunstonh said:

FSA says that 795 IFA firms were involved in selling Arch Cru to investors. Thats 15% of IFA firms picking just one of many inappropriate and terrible investments for their client.

Breaking down the stats, 140 firms accounted for 90% of advised cases.  Over half of those ceased trading before the RDR (a bit step up in regulations, later followed by further step-ups with FAMR and MIFIDII).

And 85% didn't use it.   It is also worth noting that all the IFAs on this board at the time said it was unsuitable to invest in and people shouldn't do it.    For that unfortunate 15 %, they received compensation.     It was bought by more DIY investors.  They did not receive compensation.

There are over 7 million DIY investors in the UK. Only 28% of investors use advisors, not all of the latter are independent.  And of the IFAs 40% just outsource investing to DFAs, so they don’t actually select investments.  

Saying “a bad investment was made by more DIY investors” is a highly misleading claim. Its like claiming that DIY prevents bad investments because more DIY investors on this board did not invest in Arch Cru.  

While clients of Arch Cru advising IFAs did receive compensation, the real question is how often bad and misleading investment advice is provided by IFAs. 

And the claim that DIY clients of Arch Cru did not receive compensation is not true. https://www.ftadviser.com/2015/01/14/opinion/jeff-prestridge/the-arch-cru-scandal-still-festers-4m5iar3TjMwIMh8Y4KstlN/article.html

eskbanker

robatwork said:

I'm not pro or anti IFA like many on these spate of threads recently with some fairly unpleasant anti-IFA sentiment.

I'd go so far as to say that most MSE posters aren't pro- or anti-IFA, but some of the lynch mob only seem to be able to view life in very binary terms, i.e. 'if you're not with us you're against us', so anyone daring to challenge the more extreme ranting is automatically deemed an apologist/defender/wingman/cheerleader for IFAs, an absurdly reductive stance that does little for reasoned debate....

fimacdoodle

Personal choice. I manage my own funds, as I met with a couple of IFA's and they failed to impress........

Bianchiintenso

I have had meetings with 2 IFAs, well before I ever visited this forum or had any interest in managing my own pensions, both left me feeling like I was nothing but a potential source of income to them. It was those meetings that made my mind up to learn more and eventually ‘SIPP’ my wife’s pension with AJ Bell.
My larger pot is still with original provider Zurich, as I’m happy with performance and low fees. Thanks to DunstonH for setting my mind to rest on that. It could be that I’m missing a trick with that fund, but after the two meetings and recommendations to move to funds that would have cost me £40k in fees over 5/6 years, better the devil you know.
[Edit] it was 3 IFAs (SJP as well) It could have been a totally different story of course if the IFAs had come across differently and inspired confidence that they were helping me.