Restricted advisor - benefits vs disadvantages

Avoirdupois

Hi, Compliments of the Season to one & all.  I've been mulling over a dilema for ages to wit whether or not to go with the services of a restricted advisor.  I have a friend who uses their services and has done so for a decade. She has been and remains very pleased with them.  She tells me that they know her well and she depends on and benefits from their advice.  Acting on her recommendation I went to see them to talk about investing a sum in the region of £200k.  I made other enquiries and have established that they've been trading for around 40 years and receive positive customer feedback.  However, they use products from a single company (Standard Life) and I'm wondering whether this is a red flag or else, bearing in mind that financial advice is a lot to do with one's being comfortable with the individuals concerned, are there aspects to an advisor's service that may balance the downside of their restricted products?  I'm not sure I fully understand why restricted advice is necessarily a bad thing... an analogy might be me going to a Volvo dealer to buy a decent car.  The dealer may well not be able to offer me a Mecedes or a Jaguar, but that doesn't mean I shouldn't buy a Volvo.  I'm a bit puzzled - any comments?

Daliah

Using your car dealership analogy: if you went to a Car Supermarket, you could get a Volvo, a Merc, a Jag, and many other makes, probably at keener prices than from a tied dealer. You are also able to get top service for your car, regardless of where you bought it from. You just won't get Christmas cards and fluffy toys etc (that you would fully pay for) from the car Supermarket.

So unless you are 100% set on a given make, come rain or shine, why lock yourself out of the 98% or more of the market? How does your friend who recommends the services of the tied advisor know that she got the best she could have got? How do you know she doesn't get paid for referring people?

NB. If you are set on Standard Life Funds, you can also get them on other platforms, such as iWeb, and any independent financial advisor would be able to recommend them if they were the optimum choice for your requirements.

Cus

The guy at the Volvo garage might be able to get you the car mats with the red stitching at a discount to anywhere else. 

Daliah

Cus said:

The guy at the Volvo garage might be able to get you the car mats with the red stitching at a discount to anywhere else. 

Of course he might, as you have already paid over the odds for the Volvo in the first instance. He might also have tickets for Wimbledon or for the Goodwood races, for himself and for you, as you have already paid for those, too 

Cus

The point I was (unsuccessfully and poorly) trying to make was knowing where to buy exactly what you need at the best price is the key, tied agent or not. No point in buying the red stitching at a discount if you paid more for the car. 

dunstonh

She has been and remains very pleased with them.

As she has only experienced a restricted FA she has nothing to compare against.

She tells me that they know her well and she depends on and benefits from their advice. 

That is irrelevant to FA or IFA status.   A long standing relationship can occur with both.

 However, they use products from a single company (Standard Life) and I'm wondering whether this is a red flag or else, bearing in mind that financial advice is a lot to do with one's being comfortable with the individuals concerned, are there aspects to an advisor's service that may balance the downside of their restricted products?

Standard Life have two platforms.   Wrap and Elevate.   Elevate is aimed at general practitioner IFAs and Wrap is aimed at restricted FAs or IFAs that commit to placing significant proportions of their business on to that platform.    Elevate pricing is cheaper than Wrap.  Both use FNZ software.   

 I'm not sure I fully understand why restricted advice is necessarily a bad thing

Restricted means reduced choice.  Depending on the restriction, it may be limited or it may be significant.  Common restrictions are using a single platform and using a DFM (expensive) and not using investments from the whole of market. 

an analogy might be me going to a Volvo dealer to buy a decent car.  The dealer may well not be able to offer me a Mecedes or a Jaguar, but that doesn't mean I shouldn't buy a Volvo.  

no single fund house has the best funds in all areas.    So, when building a portfolio, you would expect to see funds across the fund houses.   However, if you buy a restricted option, the you could be buying funds from as little as one fund house.     If it's a DFM, then its usually because the firm have chosen that DFM due to commercial agreements rather what is best.   Some restrictions are so deep that they are vertically integrated through all levels.  i.e. they get a cut of the adviser fee, a cut of the platform fee and a cut of the investment fee.

Also, SL Wrap platform is very functional but what if your scenario makes Aviva platform better or Transact platform, or Std Life Elevate or one of the others.  What if the LISA tax wrapper is required (not available on Std Life). 

Restrictions are about making the job easier for the adviser and at a lower business cost.  However, restricted firm fees tend to be higher than general practitioner IFAs. (restricted FAs tend to be in wealth manager territory for charges)

Avoirdupois

Thanks for your comments.  They include a number of ideas I don't fully understand eg DFM which I learn means discretionary fund management.  This has prompted me to realise that there's a lot of ideas & concepts to do with choosing an investment manager that I don't know.  Although I've met with and and am happy with the company I referred to upthread, I realize that I have no idea who I could compare their offering with others (other than to look at two key costs: the intial fee and their on-going fees.)  How do other folk pick their investment manager?   I'm going to make an assumption here which is that I understand that there are skills & qualifications associated with investment management and that since I don't have them, I'm better off paying someone who does have them to do the job.

Daliah

 I think that, restricted advisors excepted, all of the more experienced people on this board would recommend an Independent Financial Advisor if you decide you need an advisor

Avoirdupois

OK - next question - how do I pick the right one?  Is there a "league table"?  How do I know I can trust them - is there a website anywhere that reviews them?  I can check out a restaurant or museum by using TripAdvisor - surely for something more important like financial advice, there's something similar?  Or is it just pot luck?  Or do I simply compare their charges and pick the cheapest?  Or do I ponder the fact that it doesn't necessarily follow that the cheapest fees result in the best fund performance??  I'm confused...   Any pointers will be gratefully received - I've been trawling the web and don't see anything very striaghtforward with respect to making this critical choice.

eskbanker

Avoirdupois said:

OK - next question - how do I pick the right one?  Is there a "league table"?  How do I know I can trust them - is there a website anywhere that reviews them?  I can check out a restaurant or museum by using TripAdvisor - surely for something more important like financial advice, there's something similar?  Or is it just pot luck?  Or do I simply compare their charges and pick the cheapest?  Or do I ponder the fact that it doesn't necessarily follow that the cheapest fees result in the best fund performance??  I'm confused...   Any pointers will be gratefully received - I've been trawling the web and don't see anything very striaghtforward with respect to making this critical choice.

https://www.moneysavingexpert.com/savings/best-financial-advisers/ gives some pointers, linking to a couple of directory sites but omitting another (adviserbook) sometimes mentioned on here.

Charges are only one dimension, but don't get sucked into the notion that an adviser's performance should be judged on 'best fund performance' - the role of the adviser is to help you identify your own investment objectives and then map a route to achieving them, not to pick the products with the 'best' performance in a vacuum.

dunstonh

How do other folk pick their investment manager?

If they are using an adviser, then they will leave it to the adviser.

The adviser is not an investment manager.   A restricted FA working for a vertically integrated firm (i.e. a company that owns all bits of the process) will just recommend their in-house option.   A firm that exclusively uses a DFM will put the investment decisions in the hands of the DFM.      Many IFAs who do not use a DFM will buy in the data, research and due diligence and put that together to build a portfolio.   That makes the IFA the facilitator.  Not an investment manager.   The adviser uses the weightings supplied to them.   They selected from the funds that pass the due diligence requirements (so there is some influence from the adviser there).   

At the end of the day, the average consumer tends not to take that much interest.