Why is the cost of advice so high?

bostonerimus

dunstonh said:

I have just had a meeting this morning and it went like so many have before.    

start of meeting client to me:  "I want to do "this" and just need to know which provider to use.  Can you do that that?"
middle of meeting: me saying "why have you chosen that method and not "this method" etc.   Response, I didnt know about that.
end of meeting:   what we are doing is nothing like what the person thought they wanted to do at the start.

Seriously, advisors will charge as much as they can. In some cases the advise is well worth it, but most people need simple, basic advice and if more people realize they can DIY and companies like Vanguard make it relatively easy and inexpensive to invest then the cost should come down...or become very specialized and expensive.

DIY is only as good as the knowledge and ability of the person doing the DIY.     
Vanguards ongoing adviser charge is 0.50% and only uses vanguards own funds and it isn't a full advice service.   It is restricted.      The most common IFA charge for ongoing is also 0.50%.  So, how is a restricted ongoing advice service tied to one provider charging the same amount as a full advice ongoing service which is whole of market any better?

Advice has it's place, my opinion is that most people have relatively simple requirements that can be handled by themselves on one of the usual platforms, I mention Vanguard because they have helped many people to DIY and I don't accept that sticking to Vanguard products has any meaningful practical restriction, but people can obviously also do DIY elsewhere. I have the same distain for paying 0.5% to Vanguard as I would to any advisor.

dunstonh

I mention Vanguard because they have helped many people to DIY and I don't accept that sticking to Vanguard products has any meaningful practical restriction,

I know you are in the US and wont be aware of the UK offering but it is restricted.  it is not a full advice product despite charging the most common charge for full advice.

I have the same distain for paying 0.5% to Vanguard as I would to any advisor.

We are not talking about you though.     We are talking about people need advice.

cfw1994

LV_426 said:

BritishInvestor said:

LV_426 said:

BritishInvestor said:

LV_426 said:

Albermarle said:

LV_426 said:

BritishInvestor said:

LV_426 said:

I think I have a promising way forward here. Had a conversation this morning with an IFA recommended by a friend. I was left with a good feeling about him, and have arranged further discussion.
Maybe my mistake was going to IFAs who were part of a practice. Probably costs are higher and they need to charge bigger fees.

A one-man band or just someone that isn't part of a national group?

One man band. Sounds like he has enough regular clients to bring in a solid income. And of course being self employed is a huge advantage (for me anyway, in terms of fees).

I would have thought that a small group of IFA's ( 3 or 4 ) sharing an office and some admin/IT costs would actually be more cost efficient than a one man band ?
Also they can cover for each other in case of illness, holidays etc

I guess it depends. Say you have 100 clients, paying £750/year for ongoing support. Guaranteed £75k/year income. Plus new clients requiring financial planning and advice, for which you can charge more.
As a single self-employed person, your overheads are very minimal.

I'm not sure what you'd expect to get for £750 a year, but it would be unlikely to be much financial planning. Even Vanguard (known as being reasonable value) ask for £750k*0.5%pa to have a dedicated financial planner relationship.

https://www.vanguardinvestor.co.uk/financial-advice

I guess an adviser could run a service from his bedroom and keep overheads to a minimum, but if you want to provide a decent service for 100 clients (especially if you are taking on new ones), then you're probably going to have to pay for various items over and above the regulatory fees, including software, staff, ongoing training, office space etc.

£750 was a number I'd seen somewhere in the service charges. I agree that wouldn't cover much, and will be a topic of discussion when I meet with the advisor. By 'financial planning' I was meaning the initial in depth work, involving analysis of my current arrangements, cash flow etc, which of course I would expect to pay more than that.
Providing my pensions are consolidated and set up in a suitable platform I'm pretty sure I could be in a position to manage it myself, going forward.

If you are just looking for a piece of transactional work, I would struggle to see the value in a one-off cashflow planning exercise (the financial plan being inevitably wrong and out of date as life inevitably changes).

Similarly, if you are happy to manage things yourself going forward, what stops you from doing the initial work yourself and saving some money if that's the priority?

Well my first question is, I have 6 DC pension plans. What's the best thing to do with them?   IT DEPENDS!

a) Do nothing, leave them as is
b) Transfer them all into one of the existing funds
c) Combination of a) and b)
d) Transfer some or all of them to an entirely new fund/platform

Any advisor I've approached wants to go through an initial meet and greet, then asks for information about my current assets and income/expenditure. So we're immediately into a planning/analysis exercise. Obviously with costs involved.

No professional advisor wants to answer my specific question. They all want to draw me into an ongoing relationship. Absolutely nobody I've talked to will do a one off piece of work as you suggest.

Nobody here knows.....but here's my tale that may (or may not?) help you:

I had four (or was it five?!) schemes a few years back.
One was my 'active' work one, & a fair bit larger than all the others.   None were below 10k, which might make them of interest to take under the "small pots rule".

At some point, perhaps 10 years earlier, a work pal & I had taken a very active interest in our work scheme during a slow work day: we printed off a bunch of "key facts" documents, spread them across 2 or 3 large desks, and compared & contrasted them. 
OF COURSE, past performance is no indication for the future, but frankly it is the best most people may have (unless you have serious inside knowledge).   
We ended up tweaking our funds, each slightly differently, but away from just the default 'glidepath'
Since then, I would say the funds have done pretty well.....helped, of course, by the bull-run the markets have experienced 🤷🏼‍♂️

Meanwhile: the older plans I had (like yours):
Each year, when annual statements came in, I had noted the values of the older ones in my trusty spreadsheet.
At some point, as I was delving deeper into our finances, it struck me that they had clearly not increased as much (as a %) as my primary active one 🧐
I checked that there were no guarantees on them, & then one by one, contacted them to arrange to move the sum to the active work fund.  The first one was a little nervy, but as it turned out, all of the companies were part of Origo options, which meant that essentially they would talk to each other 'well' and help make it easy to move things 👍


If you are not confident managing your plans, then you would really need to take IFA advice, & pay them accordingly for that work.  

If, however, you feel you can manage them....then why do you need their help going through the steps I outline above and simply DIYing it?

I would very much doubt if any advisor is going to give you advice at the rates you imply you would be happy with.   
They will, for the most part, be pretty disinterested unless you are willing to let them have a sniff of managing your overall pot, at their %.   That is how it works.   
Some may offer planning only consultancy, but to wade through SIX pension schemes, I imagine that would take some time, and therefore cost.....

bostonerimus

dunstonh said:

I mention Vanguard because they have helped many people to DIY and I don't accept that sticking to Vanguard products has any meaningful practical restriction,

I know you are in the US and wont be aware of the UK offering but it is restricted.  it is not a full advice product despite charging the most common charge for full advice.

I have the same distain for paying 0.5% to Vanguard as I would to any advisor.

We are not talking about you though.     We are talking about people need advice.

I thought you meant that the choice of funds was restrictive, not the nature of their advice. I took a look at the advice service and they estimate a total cost of 0.79% per year...too much IMO. There is definitely a place for advice when things get complicated ie DB transfers and evaluations and maybe drawdown strategies. But most of the time people's finances should tick along in a relatively simple way...that's if they get good advice when/if they need it.

Finances don't need to be complicated and people often lack the knowledge to see through the unnecessary complications and do the simple things. I had a maths teachers who were good at connecting things like compound interest and exponential growth with real world things, be it rabbit population growth or future value, but the basic concepts can be grasped and applied by anyone with some common sense. I would really like basic financial stills to be taught as part of arithmetic along with reading and writing as they are skills people need in life. But there is still a desire in some places to keep the hoi polloi in their place by either belittling their ability to do and understand things or restricting access to financial tools and knowledge.

The_Green_Hornet

Malthusian said:

LV_426 said:

Well my first question is, I have 6 DC pension plans. What's the best thing to do with them?

a) Do nothing, leave them as is
b) Transfer them all into one of the existing funds
c) Combination of a) and b)
d) Transfer some or all of them to an entirely new fund/platform

Any advisor I've approached wants to go through an initial meet and greet, then asks for information about my current assets and income/expenditure. So we're immediately into a planning/analysis exercise. Obviously with costs involved.

No professional advisor wants to answer my specific question. They all want to draw me into an ongoing relationship. Absolutely nobody I've talked to will do a one off piece of work as you suggest.

If you say to a doctor "I have a lump on my neck. What should I do about it?" and refuse to let him examine you because you don't want to pay for an examination, what would you expect the outcome to be?

Plenty of advisers will do transactional advice (although it's a niche) but very few will willingly do bad advice. "What should I do with my 6 pension plans" "Well, what are your retirement goals, how do these pensions fit into them" "Not telling" "No probs, in that case I'll recommend you do something made-up at random" is bad advice.

Transactional advice is a rare niche because financial plans should be reviewed regularly, annually at minimum. If you're happy you don't need advice in the future then what's the need for it now?

Please don't compare independent financial advisers with doctors. It is embarrassing.

BritishInvestor

The_Green_Hornet said:

Malthusian said:

LV_426 said:

Well my first question is, I have 6 DC pension plans. What's the best thing to do with them?

a) Do nothing, leave them as is
b) Transfer them all into one of the existing funds
c) Combination of a) and b)
d) Transfer some or all of them to an entirely new fund/platform

Any advisor I've approached wants to go through an initial meet and greet, then asks for information about my current assets and income/expenditure. So we're immediately into a planning/analysis exercise. Obviously with costs involved.

No professional advisor wants to answer my specific question. They all want to draw me into an ongoing relationship. Absolutely nobody I've talked to will do a one off piece of work as you suggest.

If you say to a doctor "I have a lump on my neck. What should I do about it?" and refuse to let him examine you because you don't want to pay for an examination, what would you expect the outcome to be?

Plenty of advisers will do transactional advice (although it's a niche) but very few will willingly do bad advice. "What should I do with my 6 pension plans" "Well, what are your retirement goals, how do these pensions fit into them" "Not telling" "No probs, in that case I'll recommend you do something made-up at random" is bad advice.

Transactional advice is a rare niche because financial plans should be reviewed regularly, annually at minimum. If you're happy you don't need advice in the future then what's the need for it now?

Please don't compare independent financial advisers with doctors. It is embarrassing.

In what way?

Malthusian

The_Green_Hornet said:

Please don't compare independent financial advisers with doctors. It is embarrassing.

No worries bro. If you say to an architect "I want an extension", they say "What do you want to do in your extension" and you say "I don't want to pay you for a chat about what I like doing in my own house, I just want you to design an extension" what would you expect the outcome to be?

The analogy could be adapted to almost any profession that involves need -> goals -> fact-finding -> solution. There is nothing particularly special about the fact-finding process whether it involves money, buildings or embarrassing bits on people's bodies.

dunstonh

Finances don't need to be complicated and people often lack the knowledge to see through the unnecessary complications and do the simple things.

Or they do the wrong things.   Unregulated mini-bonds for example.   I have prevented loads of those over the years (as would have most IFAs).  Take the thread about £50k mini bond in the savings section going on currently.   That person could have paid an adviser and been placed in a regulated mainstream retail investment which would be far higher in value that it was. Instead, they went DIY and placed it in a dodgy non-retail loan note/corporate bond that is going to cost them every penny of that £50k.

Or, the reason I am posting it now is following this mornings appointment with someone that was about to draw up all their pension.  I put them off.   Saved them over £8000 and it cost them £500.   You would be telling them not to pay for advice as it is simple and that it's better to pay an unnecessary £8000 bill because they avoided a £500 advice bill.

The general public does not have the knowledge and ability to carry out many of these simple things.  Or perhaps more a case of a lack of inclination to learn about it before doing it.     The regular posters here are not typical of the general public.

 But there is still a desire in some places to keep the hoi polloi in their place by either belittling their ability to do and understand things or restricting access to financial tools and knowledge.

Why do you equate acceptance that the average consumer doesn't have the knowledge and ability to do many financial tasks to belittling them?
I can't service my boiler.  Or my car.  Should I criticise heating engineers and mechanics for that?  I also employ people to do things that I could DIY with but I choose to employ them because a) it frees up my time or b) they are better at it than me.

Albermarle

The general public does not have the knowledge and ability to carry out many of these simple things.  Or perhaps more a case of a lack of inclination to learn about it before doing it.     The regular posters here are not typical of the general public.

Regardless of the usual pro/anti IFA comments , the above statement is 100% correct .

In my experience a significant % of people are literally clueless about personal finance, pensions etc . and have little/no interest in learning about it . Of the rest most only have a vague idea of the details ( and a little knowledge can be dangerous ) and maybe only start thinking about it a bit more as retirement appears on the horizon.

german_keeper

Albermarle said:

The general public does not have the knowledge and ability to carry out many of these simple things.  Or perhaps more a case of a lack of inclination to learn about it before doing it.     The regular posters here are not typical of the general public.

Regardless of the usual pro/anti IFA comments , the above statement is 100% correct .

In my experience a significant % of people are literally clueless about personal finance, pensions etc . and have little/no interest in learning about it . Of the rest most only have a vague idea of the details ( and a little knowledge can be dangerous ) and maybe only start thinking about it a bit more as retirement appears on the horizon.

Conversation with my sister a few years ago when she mentioned her mortgage went something like this:

Are you on the Standard Variable Rate? No idea what's that? Any idea what rate of interest you are on? I haven't a clue. Have you ever remortgaged? I don't think so, what does that mean? Do you want me to have a look and see if you can go somewher else and save some money? No way they are fantastic, always let us borrow more money on the mortgage whenever we ask. 

They divorced after paying the mortgage for about 30 years and still had a large chunk of it outstanding. And neither of them are unintelligent, just lived their life as they wanted and brought up their kids. Never took the time to try and understand their finances properly.