IFA Charges - Increase

Sanxxx

My IFA has just said that he will be increasing his charge from 0.5% to 0.75 % (i.e. a 50% increase) citing increased costs and regulation, this is for a pot of c£750k. He also states that the 'average' IFA charge is now 1%.

Why charges need to increase by a minimum quarter point is of course a mystery however as it stands it's still a 50% increase.

I was previously with SJP so even 0.75% is still cheaper. On top of the IFA charge I have DFM and platform charges of 0.35% so 1.1% overall

I'm in no way saying that I'm dissatisfied with his service, the question is; Is 0.75% the current typical IFA rate for that size of pot?

dunstonh

My IFA has just said that he will be increasing his charge from 0.5% to 0.75 % (i.e. a 50% increase) citing increased costs and regulation, this is for a pot of c£750k. He also states that the 'average' IFA charge is now 1%.

I would disagree with that 1% is the average. Indeed, its pretty much impossible that is it the average as 1% is the typical maximum.   So, all those paying 0.50% or 0.75% or whatever below that will drag the average down.

Why charges need to increase by a minimum quarter point is of course a mystery however as it stands it's still a 50% increase.

I can understand it.    I was joking with someone the other day that back in the 90s you would have around 30 minutes of paperwork after a meeting.   Now you have about 4-5 hours of admin.  Then on top of that you have to have so many things documented about processes and systems that need regular updates.

Indeed, I started work on a case this morning where I have already had the meeting on a previous day and I am still working on it now.   Partly due to phone calls and emails and interruptions but mostly because the review file will end up with around 1200 pages for the audit trail.

The FCA Consumer Duty comes in shortly, and that could be the driver behind it.   Like the RDR before it, this is further reducing the ability to use larger investors to cross-subsidise the smaller ones.
  Many adviser firms are busier than there is time available and are culling numbers.   If you increase charges and lose 20% of the customers and 80% accept the increase, then they earn more and free up time.  

I was previously with SJP so even 0.75% is still cheaper. On top of the IFA charge I have DFM and platform charges of 0.35% so 1.1% overall

I'm in no way saying that I'm dissatisfied with his service, the question is; Is 0.75% the current typical IFA rate for that size of pot?

In general, I have seen 0.35% as the lowest and 1% as the highest.   Increasingly, adviser firms are tiering their charge based on your investment values.  Some are also introducing cap and collars.      A broad guide to what we are seeing more in our area is 1% for smaller values (up to around 250k). 0.75% for medium values (250k-500k) and 0.50% for larger values (500k plus).     

The use of a DFM reduces adviser work.    Most firms that use a DFM get the client to pay for that but some firms reduce their adviser charge if a DFM is used.

Then there are those that look at SJP and think they want some of that and charge 1% with no tiering.  However, the FCA consumer duty rules should end that but some firms will prolong it as long as they can (such as those that use a single platform and a single DFM and still call themselves IFAs when they arent).

Bottom line is that 0.75% for £750k is too much IMO.   However, there will be greedy ones that will charge more but also others that charge less.

Albermarle

My IFA has just said that he will be increasing his charge from 0.5% to 0.75 % (i.e. a 50% increase) citing increased costs and regulation
Inflation seems to affect everything and if the 'IFA market' is as busy as Dunstonh says, you might struggle to transfer.

As said in theory using a DFM should reduce the advisor charge, so you may wish to discuss with the IFA.

However 1.1 % overall using a DFM is very much on the lower side I think.

phynix_uk

Are you sure about your fees? 0.35% for a DFM and platform seems extremely low. Assuming that's correct, where do you place the value of your service? The DFM is basically manging your money (within a chosen risk appetite), what is your IFA doing for their share of the cost? Are they really adding 3 times the value?

I'm not knocking the IFA as they can add significant value and I believe in the benefits to utilising a proper DFM but what is the IFA actually doing for you now that warrants £7,500 per year? 

JohnWinder

It’s serious enough but we ought not over-dramatise the situation of a ’50% increase’ as it’s a relative increase. Flying once a year gives you a 1 in 50M chance of dying by crash. We don’t baulk at flying twice because our risk doubles.
Nonethless, 1200 pages more than hints at a regulatory, structural, paradigm or whatever, faults in the system in need of repair, unless 1197 of them are cut and pasted from the last client. But you might want to consider whether this is the least of your avoidable cost losses by looking at this analysis: ‘Relative to what they would have achieved with an index fund, he found that the aggregate annual loss investors in US active equity funds incur is a staggering $235 billion’ https://www.evidenceinvestor.com/the-eye-watering-sum-active-us-investors-lose-each-year/

Albermarle

phynix_uk said:

Are you sure about your fees? 0.35% for a DFM and platform seems extremely low. Assuming that's correct, where do you place the value of your service? The DFM is basically manging your money (within a chosen risk appetite), what is your IFA doing for their share of the cost? Are they really adding 3 times the value?

I'm not knocking the IFA as they can add significant value and I believe in the benefits to utilising a proper DFM but what is the IFA actually doing for you now that warrants £7,500 per year? 

I am guessing that the 1.1% is only for IFA/DFM/platform and the charges for the actual investments is on top. Investment fund charges are taken from within the fund so the OP will not see them as explicit charges.

Cus

JohnWinder said:

It’s serious enough but we ought not over-dramatise the situation of a ’50% increase’ as it’s a relative increase. Flying once a year gives you a 1 in 50M chance of dying by crash. We don’t baulk at flying twice because our risk doubles.
Nonethless, 1200 pages more than hints at a regulatory, structural, paradigm or whatever, faults in the system in need of repair, unless 1197 of them are cut and pasted from the last client. But you might want to consider whether this is the least of your avoidable cost losses by looking at this analysis: ‘Relative to what they would have achieved with an index fund, he found that the aggregate annual loss investors in US active equity funds incur is a staggering $235 billion’ https://www.evidenceinvestor.com/the-eye-watering-sum-active-us-investors-lose-each-year/

A considerably large percentage of your posts refer to the active versus passive discussion, even if it's not mentioned in the original posts. Are you personally employed by a company that promotes passive investments, or are you just particularly enthused to tell forum members of your personal preference?

RogerPensionGuy

Over the years I've become more and more sceptical about paying fees to get investments and pensions looked after.

I think during longish years of upward trending markets paying fees maybe completely acceptable to people. 

I certainly feel some people are best served with fees getting good advice and actually processing stuff, but I also feel nowadays plenty of people can use low cost outfits and maybe getting some advice if they like from time to time.

The link below certainly shows how profitable this sector is.
☆☆☆☆☆☆

https://citywire.com/new-model-adviser/news/true-potential-offers-8-aum-cash-deal-to-retiring-advisers/a1376828

JohnWinder

… employed by a company that promotes passive investments, or are you just particularly enthused to tell…

No, and no, but sorry if it grates on you but there are people not as well informed as you who might benefit. I don’t think anyone should follow my preferences for investing as it’s not a good basis for what to do. Rather, I think we should understand the issues, giving appropriate weight to the quality of the evidence available, and chart our own paths. The evidence I offered in the post you cited was from the July issue of a peer reviewed journal; I doubt the OP was aware of it and I hadn’t posted it before. When forum users have asked for my investment preferences I’ve refused and explained why. If you can point to my post(s) where I’ve indicated how I invest I’ll try to get it/them deleted and write more carefully next time.

But I plead guilty to ‘large percentage’. I know little about pension rules, taxation, financial regulation or hedge funds etc. I’m a one-trick pony.

retiringtoosoon

Why on earth would you pay somebody to advise on your pension investments? It’s not rocket surgery. DIY 

kinger101

retiringtoosoon said:

Why on earth would you pay somebody to advise on your pension investments? It’s not rocket surgery. DIY 

While I personally don't, not everyone  is equipped to handle stuff like pensions planning well so it can make sense so to avoid expensive mistakes.  I am cack handed with any household DIY, so I have a low threshold for calling in someone who isn't and paying.