Wealth management performance and charges

Albermarle

Zadumbreion said:

Albermarle said:

It is worth repeating a comment earlier in the thread that IFA's do not just offer investing advice . As important is advising on tax issues, inheritance issues, overall family finances etc. A large majority of the public are clueless on these issues.

Apparently many well paid clients turn up at the IFA office for the first time  having never claimed higher rate tax relief ,just as one example .

That's exactly where I am; I would be prepared to pay someone for the tax planning knowledge whilst I set up a simple passive portfolio. However I don't think I need ongoing advice - our circumstances are unlikely to change that much now  - and I suspect a lot of advisers won't want to give advice on an occasional / transactional basis.

Some will so keep looking !

dunstonh

That's exactly where I am; I would be prepared to pay someone for the tax planning knowledge whilst I set up a simple passive portfolio. However I don't think I need ongoing advice - our circumstances are unlikely to change that much now  - and I suspect a lot of advisers won't want to give advice on an occasional / transactional basis.

General practitioner IFAs have no issues with ongoing or transactional.  Wealth management IFAs/FAs is a business model that focuses on the ongoing side.   So, it can depend on what business model the adviser firm operates.

Can I jump into this thread please rather than start a duplicate one - I've recently been to see an IFA at Reeves to enquire about managing investments for me. Was quoted 2.5% consultation fee together with a 1.99% annual admin fee. Seemed extremely high but wasn't sure whether this was the standard or not.

Investing has a range of charges to give you the bottom line.  Platform charge, adviser charge, DFM charge (if one), fund OCF, fund TC, fund IC and then you add them together to give you the bottom line.

If you use a fully passive portfolio it will be cheaper. If you use a fully active portfolio it will be more expensive.  And if you use a hybrid portfolio it will be somewhere in between.    Investing styles can also influence the cost. ESG and ethical portfolios typically cost more than conventional portfolios.    

So, when you say 1.99%, that is almost certainly the bottom line figure.  It also suggests a fully active portfolio as you would expect a fully passive portfolio bottom line to be under 1%, a hybrid around 1.2% and active at 2%.

I said my risk profile was low to medium, they gave me an example of a fund they manage on this  basis which returned circa 22% over 5 years or about 4.4% per annum on average. If you deduct the annual admin fee from this and spread the 2.5% fee over 5 years then this equates to an actual return of 1.91% per annum.

Performance is normally disclosed net of fund charges.  Some will include net of all charges.

You also say they are an IFA.  That means they are not managing any fund.  IFAs are not fund managers.   An IFA will build the portfolio of funds and carry out the due diligence and research but it is the fund managers of the individual funds that manage the actual investments.

eskbanker

Ella_fella said:

I said my risk profile was low to medium, they gave me an example of a fund they manage on this  basis which returned circa 22% over 5 years or about 4.4% per annum on average. If you deduct the annual admin fee from this and spread the 2.5% fee over 5 years then this equates to an actual return of 1.91% per annum.

Is my maths right? If it is then its marginally better return than sticking the money in a fixed 2 year account where the interest will be guaranteed, any thoughts or comments please. 

No, your maths isn't right - dividing five year growth by five does give a simple average, but it's really the Compound Annual Growth Rate (CAGR) that you'd typically use, which is closer to 4% (4.057%) here, i.e. each year the investment grows at that rate (on average), but the compounding effect enhances the multi-year return.

The elephant in the room when comparing rates is that you're looking backwards at investment returns but forwards at savings rates, so it's not like for like - the last five years have been generally positive market conditions, so it should be expected that the return mentioned is towards the upper end of expectations.  However, when evaluating what to do with your money, the fundamental decision about saving versus investing needs to include factors such as objectives, anticipated duration, risk tolerance and access to other easy access money, as well as rates, so it's not as simple as comparing returns....

Ella_fella

eskbanker said:

Ella_fella said:

I said my risk profile was low to medium, they gave me an example of a fund they manage on this  basis which returned circa 22% over 5 years or about 4.4% per annum on average. If you deduct the annual admin fee from this and spread the 2.5% fee over 5 years then this equates to an actual return of 1.91% per annum.

Is my maths right? If it is then its marginally better return than sticking the money in a fixed 2 year account where the interest will be guaranteed, any thoughts or comments please. 

No, your maths isn't right - dividing five year growth by five does give a simple average, but it's really the Compound Annual Growth Rate (CAGR) that you'd typically use, which is closer to 4% (4.057%) here, i.e. each year the investment grows at that rate (on average), but the compounding effect enhances the multi-year return.

The elephant in the room when comparing rates is that you're looking backwards at investment returns but forwards at savings rates, so it's not like for like - the last five years have been generally positive market conditions, so it should be expected that the return mentioned is towards the upper end of expectations.  However, when evaluating what to do with your money, the fundamental decision about saving versus investing needs to include factors such as objectives, anticipated duration, risk tolerance and access to other easy access money, as well as rates, so it's not as simple as comparing returns....

Thanks for the reply this is where I'm getting out of my depth quie honestly.....trying again if the CAGR is 4% then would it be reasonable to assume that this return on my investment would be offset every year by the annual charge of 1.99% so actually Id be realising a gain per annum of only half the CAGR if you deduct these annual service charges?

eskbanker

Ella_fella said:

eskbanker said:

Ella_fella said:

I said my risk profile was low to medium, they gave me an example of a fund they manage on this  basis which returned circa 22% over 5 years or about 4.4% per annum on average. If you deduct the annual admin fee from this and spread the 2.5% fee over 5 years then this equates to an actual return of 1.91% per annum.

Is my maths right? If it is then its marginally better return than sticking the money in a fixed 2 year account where the interest will be guaranteed, any thoughts or comments please. 

No, your maths isn't right - dividing five year growth by five does give a simple average, but it's really the Compound Annual Growth Rate (CAGR) that you'd typically use, which is closer to 4% (4.057%) here, i.e. each year the investment grows at that rate (on average), but the compounding effect enhances the multi-year return.

The elephant in the room when comparing rates is that you're looking backwards at investment returns but forwards at savings rates, so it's not like for like - the last five years have been generally positive market conditions, so it should be expected that the return mentioned is towards the upper end of expectations.  However, when evaluating what to do with your money, the fundamental decision about saving versus investing needs to include factors such as objectives, anticipated duration, risk tolerance and access to other easy access money, as well as rates, so it's not as simple as comparing returns....

Thanks for the reply this is where I'm getting out of my depth quie honestly.....trying again if the CAGR is 4% then would it be reasonable to assume that this return on my investment would be offset every year by the annual charge of 1.99% so actually Id be realising a gain per annum of only half the CAGR if you deduct these annual service charges?

On the face of it you'd need to deduct the annual admin fee from the gross return to give a more accurate net return, but worth checking the figures with the IFA if they're unclear.  And don't put too much store by the fact that the fund concerned returned 22% over the previous five years, as it's highly unlikely that the next five would be the same, but nobody knows if they'll be better or worse....