IFA initial report v unsatisfactory do I have to pay

dunstonh

I have written twice to the IFA and she has insisted on the bill being paid.    

Which is logical.  You employed them.  You agreed on the price.  The job was carried out.  You now need to pay the bill.

 I suppose I had expected an IFA to be able to recommend investments with a better track record than the ones I already had not worse.  Including one that as only three years pedigree and negative growth for that period.  Was that naive?

Yes.  It was naïve - or at least it indicates a lack of knowledge and understanding about investing on your part.

For example, gilts had a significant negative period from 2022 to mid 2023.  It was a bad enough drop to effectively give a cumulative loss over 5 years.   However, going forward, gilts are now far more attractive than they were at any point in the last 5 years.

In the late 90s, tech stocks boomed.  If you used past performance at that time, you would have picked tech stocks.  And then they crashed 90%  So, your method would have cost you a fortune.     However, if you had bought tech stocks after that 90% crash, you would now be sitting on a massive gain.

When you invest, you are looking ahead.  You are not looking behind. 

The primary requirement of an IFA on a recommendation is suitability.

The reporting writing software will often integrate with the adviser software but its not failproof.  Some assets may not get included (often you find cash and investments get left off. Or it may split the value by the number of owners.  So, a report written to one spouse may halve the value of the asset.      Or the adviser may have chosen to leave certain assets off (e.g. cars and chattels).  Especially if the asset values have absolutely no impact on the advice given.   Unfortunately, software integration is still a bit weak in the adviser software world.  Its a work in progress with the software companies but none of them are 100% reliable.       It usually requires a report to have adjustments made after it is created.    The adviser may have missed them if they are not important to the advice recommendation.

An IFA - client relationship works when communication is good.  its a two way street.       In your post, you have written it as if you have become extraordinarily adversarial because of a couple of typing errors and lack of understanding on your part.   Most people would have gone back to the IFA for clarification on the points and further discussion.    That discussion can answer pretty much everything you have raised.    Instead, you have jumped to seeking a lawyer and trying to get out of paying the bill after receiving the advice.

Linton

Jacobite132 said:

Thanks for your replies.  I suppose I had expected an IFA to be able to recommend investments with a better track record than the ones I already had not worse.  Including one that as only three years pedigree and negative growth for that period.  Was that naive?

That was naive., Funds with a record of unusually high returns are far more likely to be lucky funds than good ones.  There are no guarantees that the luck will continue.  Funds that perform extremely well in particular economic conditions are likely to perform very badly  when those conditions change.Conversely some funds that appear to be producing fairly low returns may be very important in particular circumstances.

Sadly no-one can predict the future of the markets.  So what do you do?

Presumably you are investing to achieve some goal which requires a sum of money to be available in a particular time frame.  The role of an IFA is to choose those funds that together will achieve your objective at an acceptably low risk.  Such funds are unlikely to be the ones at the top of the performance tables.  Solely choosing the "best" funds is poor investing because it ignores the risk.

A second factor is that people with little experience of investing are likely to panic if conditions suddenly turn difficult..  Many reasonable funds could experience a 40% fall over a few weeks in a crash at some point..  What would you do?  The disastrous reaction would be to immediately sell the lot to prtevent things getting even worse and so turn a temporary fall into a permanent loss.

Your IFA has to ascertain your capacity for risk and temporary losses and recommend appropriately cautious funds to reduce the chances of you ever being put in a position you cannot sensibly/psychologically handle.

Rather than getting excited, blaming the IFA and threatening not to pay them for doing the work I suggest you would be better advised to ask for a meeting to rationally discuss your questions and to allow them to explain why they came to the conclusions they did.  I would have hoped they would discuss with you where their thoughts were going before completing a report that came as an unpleasant surprise.

Jacobite132

Thanks for your replies, really helpful and instructive.  I may get back to you when I get a response to my complaints.

DullGreyGuy

dunstonh said:
ESG doesn't have an attitude to consider.   Are you mixing up ESG with ethical?  ESG is ESG. There are no opinions to apply. Ethical, on the other hand, is personal.

Unusually @dunstonh I disagree strongly with you on this one...

1) Most importantly, having done work on ESG for a financial services company, if you compare the ESG rating for the same companies by Moodys, S&P, MSCI etc they are all very different results... in fact the first UK ESG positive insurer got itself in a big mess because they originally said they'd only insurer companies where all the agencies agreed that they were rated as "Good" or better... they basically found almost no one was and so faced greenwashing claims when they had to row back and change the statement

2) ESG is made up of three components, each rating agency has come up with their own methodology of scoring them and then combining them into a single score. Some people are more concerned over E than say S&G... many oil companies get high ESG scores because by default they have to have good governance, many are making social investments and planting a few trees or looking into Wind can reduce the fossils fuel impact on the E... I no longer have access to the scores but the likes of BP were some of the highest rated customers we had even though we insure hydro-electric and wind plants

There was actually a big debate on if certain classes of insurance should be included in my work as people felt they were inherently polluting but for the handful of companies we checked MSCI loved them and gave very high scores. 

At least one of the agencies, we didn't talk to them all, even change how they combine the score based on the industry of the entity and so for fossil fuel companies they weight the E component less when creating the over all ESG score than say a Telecommunications company.

 ESG scores are also heavily influenced by stated plans, or direction of travel if you will, so say you're going to do something and your score gets better. Now they do say they will track promises and adjust scores once its shown if companies have a habit of breaking them or not but ultimately unless you peal back the layers you are seeing where they may get to rather than just where they are. 


There is a vast amount of opinion in ESG, the two suppliers of the ESG data we ended up going with ultimate gave us several hundred data points on each company, gave how they scored them and weighted them but suggested we may want to change the weighting for our own purposes. 

Now, anyone know where I can park a high horse. 

starving_artist

I sympathise with the OP.  For that kind of money you should be able to expect a very high quality, bespoke service and certainly one where the kind of poor software integration issues dunstonh describes are not an excuse.  A friend of mine had a similar experience with a wealth manager who basically ignored his concerns/priorities, didn't accurately record his responses to the risk questionnaire and based his report on his own ideas and assumptions.  When queried he was arrogant and patronising even scolding my friend like a child when he cashed in an investment to pay a tax bill.  My friend complained to the firm who agreed to knock a bit off the bill still leaving an eye watering amount to pay.  He then took his complaint to the ombudsman who after months and months basically thought the discount offered was enough compensation.   I can't think of many areas of commerce where you are expected to pay such high sums for what is essentially very poor customer service.

Hoenir

Jacobite132 said:

- Proposed investments that have underperformed our existing ISAs by 35% over last 5 years including one fund that has had negative growth.

The FSA's warning continues to fall on deaf ears. They have repeatedly warned investors that past performance is not a reliable indicator for future results, but this advice has continued to be disregarded by nearly 50% of retail investors. I guess the same attitude as we are currently seeing with those driving through flood water. What lies beneath the surface is the problem. When it goes wrong. Who are investors going to rant at them. Seriously concerning. 

dunstonh

Unusually @dunstonh I disagree strongly with you on this one...

I'm not sure we actually disagree.  But processes may be different.    If someone wants to have explicit areas of inclusion/exclusion/screening beyond generalist ESG/SRI position, then we classify them as ethical investors.   If they are generalist and after an ESG or SRI approach with no personal filtering, we classify them as ESG or SRI.    A different approach is then carried out on the research.      

With ESG, we would use a DFM.  We wouldn't even try and build an ESG portfolio.  The tools available to IFAs and the ability to carry out the due diligence themselves just isn't possible.  SRI is better as there are tools for those.    Although, in most cases, we would still use a DFM for them.  Ethical has long standing research tools although certain areas of ESG won't be reliable or possible as there isn't filter options to exactly match ESG criteria.

In my experience, you get people who show an interest in sustainable/responsible or have a specific screening selection which is not extensive.  Many of those decide not to invest ethically, ESG or SRI after they are told that returns are historically lower and will almost certainly be lower in most years than a conventional investment portfolio.     i.e. they like the idea of it but not quite prepared to accept lower returns because of it.

Those that decide to put their money where their mouth is, are usually generalists or only have a few ethical areas that need screening.      And more often than not, the outcome at the end is an MPS from a DFM on an SRI basis or an advisory sector allocated portfolio (sector as in region/country) but using funds that meet the specific screening criteria.

To date, we have not had a single investor specifically request ESG as an investing style.   Had quite a lot mention sustainable and responsible as their drivers.     ESG gets banded around as a phrase but in reality, we find the environmental, sustainable, responsible side seems to resonate more with investors in our limited experience.

it would be interesting to learn if the OP was specifically ESG or was more SRI or ethical in their positioning with the adviser.   i.e. did they say "I would like my portfolio to be ESG focused" or did they say "I would like my portfolio to be focused on sustainable companies or environmentally responsible companies"? (insert other variations to suit).      And whether there were specific screening questions asked and answered or discussions on whether ESG is what they actually wanted or was it something more specific.

wjr4

starving_artist said:

I sympathise with the OP.  For that kind of money you should be able to expect a very high quality, bespoke service and certainly one where the kind of poor software integration issues dunstonh describes are not an excuse.  A friend of mine had a similar experience with a wealth manager who basically ignored his concerns/priorities, didn't accurately record his responses to the risk questionnaire and based his report on his own ideas and assumptions.  When queried he was arrogant and patronising even scolding my friend like a child when he cashed in an investment to pay a tax bill.  My friend complained to the firm who agreed to knock a bit off the bill still leaving an eye watering amount to pay.  He then took his complaint to the ombudsman who after months and months basically thought the discount offered was enough compensation.   I can't think of many areas of commerce where you are expected to pay such high sums for what is essentially very poor customer service.

Not everyone is like this. 

Marcon

starving_artist said:

I sympathise with the OP.  For that kind of money you should be able to expect a very high quality, bespoke service and certainly one where the kind of poor software integration issues dunstonh describes are not an excuse.  A friend of mine had a similar experience with a wealth manager who basically ignored his concerns/priorities, didn't accurately record his responses to the risk questionnaire and based his report on his own ideas and assumptions.  When queried he was arrogant and patronising even scolding my friend like a child when he cashed in an investment to pay a tax bill.  My friend complained to the firm who agreed to knock a bit off the bill still leaving an eye watering amount to pay.  He then took his complaint to the ombudsman who after months and months basically thought the discount offered was enough compensation.   I can't think of many areas of commerce where you are expected to pay such high sums for what is essentially very poor customer service.

With all due respect, that's the version your friend has given you. The fact that the ombudsman supported the level of compensation offered by the firm tells quite another story...

cfw1994

dunstonh said:

I have written twice to the IFA and she has insisted on the bill being paid.    

Which is logical.  You employed them.  You agreed on the price.  The job was carried out.  You now need to pay the bill.

Curious. 

I agree that the OP I has many ‘complaints that are something of their misunderstanding, potentially…..

….but are you suggesting the first two points are acceptable expected behaviour for an IFA?

”

- Misstated value of our assets by 65k.
- Included wrong information about proposed new pension arrangements.

”

If I was being asked to pay a fairly significant sum, and was twice told that those errors were acceptable, I would be directly onto the complaints process with a view to escalating to an Ombudsman if the business didn’t make a suitable gesture 🙄

Feels slightly odd that you chose to gloss over those 🤷‍♂️