Investment advice from IFA

zagfles

Ella_fella said:

Due to the poor interest rates over the past few years I recently contacted a well know national IFA to ask about investing some of savings, about 160k. I came out as low to moderate risk ratings after initial consultations.

They suggested I invest the bulk of my money in one of their income based portfolios using the Parmenion platform. After sending me through the fact sheets rhe fund has a cumulative return of nearly 13% over 5 years which didn't sound amazing to me.

I mentioned to the fund manager that if I put my money into an Aldermore 5 year fixed saving at 3.5% gross account after 5 years my cash will have grown by 19%. The fund manager said no that would be 3.5% over the lifetime not year by year. I apologized and said I must have misunderstood.

The following day they phoned back and said I was right - I then queried why I would then invest my money in a scheme that historically has performed lower then a fixed rate where my money wouldn't be at risk at all.

Am very nervous now about proceeding with this company - am I simply asking for too much return on my money for the risk which I'm prepared to take, am I overlooking some key point in investing or is it just not for me?

Would you really trust an IFA who makes such a fundamental mistake?

masonic

Ella_fella said:

masonic said:

Ella_fella said:

masonic said:

The top 5 year fix from August 2017, maturing around now, would have been Atom Bank @ 2.5% giving a total return of 13.1%, so it would have equalled the performance of the "income based portfolio". By comparison, low-medium risk Vanguard Lifestrategy 40 would have returned 18%. The rapid rise in interest rates during 2022 has been wounding for lower risk investments, as the bonds they hold have fallen significantly. If you compare the annualised performance of 40% to 100% equities using VLS as the example, you can see how poorly the lower risk investments have performed recently, and even 5 year returns are not much better than half the historical average.

Going forward most of the damage to bonds is done, so the next 5 years are very likely to be better than the last 5 years.

I would have some concerns about your adviser if they weren't able to put the past performance into context for you.

The portfolio they are recommending is built up of 50% equities and 40% fixed interests, the equities are capped at 60%.

Probably closest to Vanguard Lifestrategy 60% Equity in that case. So it hasn't done well. Returns are less than half what could have been achieved within that asset allocation, assuming of course the 5 year return figure was up to date.

Yes the range provided was June 2017 to June 2022.

Unsure why they picked that specific portfolio given how low the returns were, surely they can choose from other portfolios that have the same level of risk?

Risk is an abstract concept. Most attempts to quantify risk depend on how much things move up and down in value relative to other such things on a day to day basis. This is not how the general public perceives risk. They are more likely to think in terms of worst case outcomes over a longer time period. Lower risk investments can still fall a long way, but do so gradually. In the first half of this year, that's exactly what happened, with the lowest risk funds losing more than higher risk investments. Any investment can have a period of relatively poor performance, and those that do poorly in one period often go on to do better in the next.

The adviser should be able to explain what went wrong for this portfolio between June 2017-June 2022 and what action (if any) the adviser took over the past 12 months to make adjustments for the reasonably predictable losses that the 40% fixed interest component would have suffered as interest rates rose. The answers might be reassuring, but if not, on the face of it the portfolio doesn't look that great compared with standard one stop multi-asset funds a DIY investor might use.

Ella_fella

zagfles said:

Ella_fella said:

Due to the poor interest rates over the past few years I recently contacted a well know national IFA to ask about investing some of savings, about 160k. I came out as low to moderate risk ratings after initial consultations.

They suggested I invest the bulk of my money in one of their income based portfolios using the Parmenion platform. After sending me through the fact sheets rhe fund has a cumulative return of nearly 13% over 5 years which didn't sound amazing to me.

I mentioned to the fund manager that if I put my money into an Aldermore 5 year fixed saving at 3.5% gross account after 5 years my cash will have grown by 19%. The fund manager said no that would be 3.5% over the lifetime not year by year. I apologized and said I must have misunderstood.

The following day they phoned back and said I was right - I then queried why I would then invest my money in a scheme that historically has performed lower then a fixed rate where my money wouldn't be at risk at all.

Am very nervous now about proceeding with this company - am I simply asking for too much return on my money for the risk which I'm prepared to take, am I overlooking some key point in investing or is it just not for me?

Would you really trust an IFA who makes such a fundamental mistake?

I totally agree and has made me very nervous - on the phone I quite clearly remember them saying if it's 3.5% every year over 5 years then I'll get money in that as if to say it's not believable.

They then emailed me back to say they weren't abreast of current market developments etc and hoped that this wouldn't affect my confidence in them.

Asked for another follow up call with them this week but they can tell am getting cold feet now.

masonic

Ella_fella said:

zagfles said:

Ella_fella said:

Due to the poor interest rates over the past few years I recently contacted a well know national IFA to ask about investing some of savings, about 160k. I came out as low to moderate risk ratings after initial consultations.

They suggested I invest the bulk of my money in one of their income based portfolios using the Parmenion platform. After sending me through the fact sheets rhe fund has a cumulative return of nearly 13% over 5 years which didn't sound amazing to me.

I mentioned to the fund manager that if I put my money into an Aldermore 5 year fixed saving at 3.5% gross account after 5 years my cash will have grown by 19%. The fund manager said no that would be 3.5% over the lifetime not year by year. I apologized and said I must have misunderstood.

The following day they phoned back and said I was right - I then queried why I would then invest my money in a scheme that historically has performed lower then a fixed rate where my money wouldn't be at risk at all.

Am very nervous now about proceeding with this company - am I simply asking for too much return on my money for the risk which I'm prepared to take, am I overlooking some key point in investing or is it just not for me?

Would you really trust an IFA who makes such a fundamental mistake?

I totally agree and has made me very nervous - on the phone I quite clearly remember them saying if it's 3.5% every year over 5 years then I'll get money in that as if to say it's not believable.

They then emailed me back to say they weren't abreast of current market developments etc and hoped that this wouldn't affect my confidence in them.

Asked for another follow up call with them this week but they can tell am getting cold feet now.

That is worrying, as I went back and looked up the best 5 year fix from 5 years ago and it wasn't very much different (2.5% vs 3.5%). Obviously, rates have been much better than that in the more distant past. I held a 5 year fix at 5% in the early 2010s.

Beddie

Ella_fella said:

zagfles said:

Ella_fella said:

Due to the poor interest rates over the past few years I recently contacted a well know national IFA to ask about investing some of savings, about 160k. I came out as low to moderate risk ratings after initial consultations.

They suggested I invest the bulk of my money in one of their income based portfolios using the Parmenion platform. After sending me through the fact sheets rhe fund has a cumulative return of nearly 13% over 5 years which didn't sound amazing to me.

I mentioned to the fund manager that if I put my money into an Aldermore 5 year fixed saving at 3.5% gross account after 5 years my cash will have grown by 19%. The fund manager said no that would be 3.5% over the lifetime not year by year. I apologized and said I must have misunderstood.

The following day they phoned back and said I was right - I then queried why I would then invest my money in a scheme that historically has performed lower then a fixed rate where my money wouldn't be at risk at all.

Am very nervous now about proceeding with this company - am I simply asking for too much return on my money for the risk which I'm prepared to take, am I overlooking some key point in investing or is it just not for me?

Would you really trust an IFA who makes such a fundamental mistake?

I totally agree and has made me very nervous - on the phone I quite clearly remember them saying if it's 3.5% every year over 5 years then I'll get money in that as if to say it's not believable.

They then emailed me back to say they weren't abreast of current market developments etc and hoped that this wouldn't affect my confidence in them.

Asked for another follow up call with them this week but they can tell am getting cold feet now.

As we're all fallible, I will give him credit for checking the rates and calling you back to own up to his error.

dunstonh

Due to the poor interest rates over the past few years I recently contacted a well know national IFA to ask about investing some of savings, about 160k. I came out as low to moderate risk ratings after initial consultations.

Are you sure its an IFA and not an FA?   Most national firms are FAs, not IFAs.  Most IFAs are small localised firms with 1-5 advisers.  You get the odd regional firm that may have several offices over a county or two.  Nationals are not common.

There are some larger IFA firms but they tend to mimic the wealth management model and use discretionary fund management and more expensive platforms that do the MiFIDII disclosures for them.  The problem with big firms is that they have to have greater systems and controls in place and cater for the lowest common denominator.  They all have to sing from the same hymnbook.  This typically means they use one platform and one DFM and their IFA status is actually questionable.

The period covered is June 2017 to June 2022. I was advised by the IFA that obviously Covid had a huge impact in the returns as does currently the Ukraine conflict.

5 year periods are too short term.   An economic cycle is around 15 years now (it used to be closer to 10 years).    In that 15 years you will get a 5 year period that is high growth.  A 5 year period with a little volatility but good growth and a 5 year period that is highly volatile and has little growth.   You never know the order and it could be shorter or longer than 5 years but its a good yardstick.

The last 5 years have been the highly volatile low growth period.  June 20th was the low point in the last 9 months with values pretty much back to 2020 levels.  July was a very good month.  Still not recovered last years levels though.

Often the best time to invest is during the highly volatile low return period.  Rather than the other two which may have the low return period to follow (i.e. you end up buying higher and have to wait out the negative period).

Albermarle

I have about another 150k in savings beside this plus about 150k in pensions and I own my own property. 

Just to change direction a little.

We do not know your age, or whether you are in employment or not, but normally it is recommended to see investing via a pension as the first priority, over investing via other routes. This is because of the tax relief you get with pensions, although the amount you can get will depend on your taxable income. The money is tied up until you are older, so having some investments and savings outside a pension can be a good thing, but if you are looking towards saving for retirement income, then a pension is usually the best bet.

It would be surprising if the advisor did not discuss something similar with you.

Malthusian

I am with Zagfles on the 3.5% per year / over term snafu. There's nothing more off-putting than being loftily told that you are wrong by someone whose job it is to know more than you, and then finding that actually you were right. 
The big mistake isn't not knowing what 5 year bonds currently pay, but gainsaying you without checking their facts.
3.5% over 5 years would have been extraordinarily bad value even when interest rates were 0.1%. Nobody would take out an account like that unless they got railroaded into one on auto-renew. Assuming that 3.5% for 5 years must be total return over the term doesn't suggest "not being abreast with current market developments", it suggests total ignorance of the cash savings market. 
I would echo dunstonh's question as to whether you are sure this is an independent financial adviser. Not all IFAs are walking MSE databases, but wilful ignorance of the cash savings market does sound more like restricted salesman mentality.