Choosing an IFA

cfw1994

Ibrahim5 said:

I was using data from the Financial Conduct Authority rather than "vouchedfor" whoever they are.

Maybe quote your source - the actual pages?

artyboy

kjs31 said:

Ibrahim5 said:

You normally meet the adviser who asks a few questions and fills in a few forms. The average fee for that is 2.4% which will be £31200. They will want you to pay an ongoing average fee of 0.8% or £10400 for an annual review lasting a few minutes. IFAs are obsessed by FUM (funds under management). They will want your £1.3M in their FUM which means that your custom will provide large ongoing fees for very little work. When the IFA has enough FUM they will sell their business and throw you under the bus and you will find yourself with a new advisor who probably won't be independent.

Well I absolutely won’t be paying 31k and nor am I likely to commit to ongoing advice. Hence the search for a fixed fee IFA. Once the pensions are consolidated and put into drawdown I likely won’t return for advice unless there is an obvious need for this. 

The poster you replied to has a very negative view of IFAs, possibly as a result of a bad experience they had in the past. Unfortunately, while this has become a bit of a running joke (or rather something to ignore) for the regulars here, it needs to be pointed out from time to time for those less familiar with their somewhat broken record approach.

As with any industry, there are bad apples, but you will certainly be able to do a lot better than the numbers quoted, as well as get a better service than is being implied. The challenge (as Dunstonh points out) is finding the right one for you in the absence of any true independent directory. 

The often suggested idea of shopping around locally, speaking to a few, and going with the one you feel the best connection with may be best for you here. 

That said, both Mrs Arty and I have DC pots in the same ballpark as you, and we are happy to DIY. For me especially, moving pensions around has become quite a lucrative side hustle because the SIPP providers have run a lot of cashback offers to get you to transfer pensions to them. Yes it can be a fair bit of paperwork (especially moving from occupational DC schemes), but the rewards are very decent if you're happy going with fairly standard tracker funds (and especially ETFs) to keep fund and platform charges down.

I appreciate it's not for everyone though, so if you do feel the need for an IFA, both for the mechanical side of moving pensions, and the investment side of choosing funds, then good luck to you!

MeteredOut

Do/can IFA's ever offer a service which is fixed at a lower initial percentage, but on meeting certain goals, get paid more.

eg, 0.1% basic plus 0.7% on any annual increase in fund value

I suspect such a model would be of interest to a segment of clientele.

Or are they not allowed to?

Bostonerimus1

Scrudgy said:

Unless there are some issues that complicate things (like GMP etc) DC pensions are usually very easy to transfer and consolidate by yourself at zero cost. Pick a platform like Interactive Investor and your platform fees will be about £13 per month. If you choose low cost passive investments you could be as little as 0.15% PA. I have consolidated 3 DC pensions at zero cost, and encouraged my friend to do the same with 4 that he had after he was quoted 3% to do the work and again it cost him zero to do it himself.

Setting up Interactive Investor for either flexi access drawdown or UFPLS or a mixture of the two is a breeze. As you have £1.3m, ii will be really cheap as they charge a fixed monthly fee, not a percentage.

As far as investment help, you might want help with that to pick a strategy that suits you, but if you are comfortable with self investing, your costs can be very low. 

Tax efficiency planning, optimum use of tax free sources (ISAs etc), inheritance tax planning, cash flow modelling is important, so if you haven’t thought much on this then a retirement planner could be money well spent if you get a favourable price. I made my own plan for all of the above, but wanted it sense checked, so paid a chartered retirement planner a one off fee for advice. This was £3k.

I'm not so much against IFA/FAs as pro DIY. The financial industry has a vested interest in making things look complicated and scary and then charging quite large fees when for most people things can be quite simple and inexpensive. OP I would do some reading and look into moving your DC pensions into a SIPP, there are plenty of online resources from the government and the large platforms. Read about drawdown and portfolios for drawdown income, you obviously understand something about investing for retirement income as you mention a "3%" drawdown. If you have particular tax and inheritance questions talk to a specialist for some one time advice and planning.

dunstonh

Do/can IFA's ever offer a service which is fixed at a lower initial percentage, but on meeting certain goals, get paid more.
eg, 0.1% basic plus 0.7% on any annual increase in fund value

IFAs are not investment managers.  Yes, they facilitate the investment fund or strategy to match your risk profile and objectives but they are not the ones carrying out the investment management of the fund.    And returns will be what they will be.  IFAs cannot influence that.

I suspect such a model would be of interest to a segment of clientele.

It would be daft to pay a fund performance fee to an adviser.  It would cost you more over time and you would end up paying the adviser for something that is outside of their control.

Cus

MeteredOut said:

Do/can IFA's ever offer a service which is fixed at a lower initial percentage, but on meeting certain goals, get paid more.

eg, 0.1% basic plus 0.7% on any annual increase in fund value

I suspect such a model would be of interest to a segment of clientele.

Or are they not allowed to?

I use a wealth management firm where the management fee is linked to the performance of my portfolio.  There is an associated IFA that the firm has recommended that I could use on a transactional basis if needed, but I don't.  
I probably wouldn't want an IFA to be incentivised to take more risk, not their role/speciality.

gm0

There are some wealth management / FA products which have a "profit share" (on the assumption) that there will be some excess profits to share i.e. an extra rake for extreme success.  It fits the idea that these are highly superior secret sauce products. Even if they are not.  Generally if the base fee - before performance uplift is already high - this is of little consequence to the person selling it.  And to you - unless the high nominal growth spike occurs and you are unexpectedly forced to share.

Most normal funds/etfs IFA and DIY world tend not to work like that. 
Though some more sophisticated investor / investment trusts/hedgie stuff does variations on it at the margins

On the "advice" transaction rather than the product - very few of those doing the FCA regulated dance to conduct of business rules will want their income linked to stock market performance.   0.5% of assets under management - rain or shine.   And your outcomes - are your outcomes for your risk taken with your money.  Once you accepted the "recommended" suitable portfolio.  And it became your decision to take the risk.

It was "suitable" in FCA land for you to take those risks based on the fact find. 
But nothing about what happens after that is guaranteed at all

It is a hardy perennial myth that the advice purchase in some manner underpins the performance outcome of the investments chosen.   

It is helpful to the successful sale of advice for people to believe this.  And many do.  At least until they pay closer attention.

kjs31

Scrudgy said:

Unless there are some issues that complicate things (like GMP etc) DC pensions are usually very easy to transfer and consolidate by yourself at zero cost. Pick a platform like Interactive Investor and your platform fees will be about £13 per month. If you choose low cost passive investments you could be as little as 0.15% PA. I have consolidated 3 DC pensions at zero cost, and encouraged my friend to do the same with 4 that he had after he was quoted 3% to do the work and again it cost him zero to do it himself.

Setting up Interactive Investor for either flexi access drawdown or UFPLS or a mixture of the two is a breeze. As you have £1.3m, ii will be really cheap as they charge a fixed monthly fee, not a percentage.

As far as investment help, you might want help with that to pick a strategy that suits you, but if you are comfortable with self investing, your costs can be very low. 

Tax efficiency planning, optimum use of tax free sources (ISAs etc), inheritance tax planning, cash flow modelling is important, so if you haven’t thought much on this then a retirement planner could be money well spent if you get a favourable price. I made my own plan for all of the above, but wanted it sense checked, so paid a chartered retirement planner a one off fee for advice. This was £3k.

Thanks. I’m reasonably savvy wrt general financial decisions such as maximising ISAs, understanding tax etc. I already had a quite in depth review last year by an FA from Schroders Personal Wealth who was able to model my finances and showed that I was unlikely to ‘run out’ of money even if I drew much more from my pension than I intended (that was based on a level of growth clearly). I decided not to go with their offering as it seemed expensive compared to other options open to me but at least I’ve had the modelling done. I’ve just moved house and am mortgage free so am unlikely to have to budget for a house move in the next 10 years at least (hopefully). I qualify for a full state pension when the time comes and I can take my 7k DB pension from my first ever job at the end of this year however I will be deferring that until next tax year when the arrears will be paid as it’s more tax efficient that way. I have 550k in cash savings and 120k in investments (100k of that in a stock and shares ISA). I have a fair chunk of cash tied up in fixed rate bonds so that the interest doesn’t pay until next tax year when I should be a standard rate tax payer. I’m still going to struggle to keep under 100k this tax year however and I’ve completely maxed out my pension contributions plus carry forward so I don’t have any options there. Still, it’s not the worst problem in the world to have. 

I hadn’t considered GMP but as it’s never been mentioned I doubt I’m eligible for it. 

I’ve been managing my own DC workplace pension (currently at 375k) for the last 5 years since I transferred out of the DB scheme into a SIPP (I used a FA for the transfer out as I couldn’t do that without advice). I have learned quite a lot simply by looking into the (relatively small number) of funds that my workplace pension offered. In the last couple of years I invested heavily in the US and tech so have made a reasonable return (way better than the life styling approach would have anyway), but having hit the point where I will no longer be contributing to a pension I decided to move everything into a cash fund last month (currently returning circa 5.4% PA) as maintaining my investment level with a smallish return was more important to me than continuing to invest in higher risk funds. I didn’t choose ongoing advice from my FA when I took the CETV for my DB pension so the money is still invested in the 2 funds he offered but I do need / want to move them.  I’ve just looked and that sits at 940k at present. 

The main thing that I’m struggling with is what funds to invest in. As I mentioned I’m not looking for a spectacular return as I don’t believe I will ever spend all of it anyway and I’m not hugely bothered about leaving an inheritance as I have no kids. Just something low cost and relatively safe and hopefully keeping up with inflation. Have to admit I am a bit reluctant to use bonds heavily as I lost a fair bit when bonds imploded but I’m being told that was a one off …

The other slight spanner in the works is that the company that did my DB transfer to SIPP has written to me to say that the advice they provided was unsuitable and they have asked me to provide authority for valuations so that the independent actuary can calculate whether any redress is due. I’m not sure how long that takes and whether it’s likely that I will qualify for any redress, and I don’t know whether it’s compensation or has to be paid into the pension and I’ve already maxed out the annual allowance so there are tax implications. I’m not even sure that an IFA would be best placed to advise there. 

kjs31

artyboy said:

I appreciate it's not for everyone though, so if you do feel the need for an IFA, both for the mechanical side of moving pensions, and the investment side of choosing funds, then good luck to you!

Thanks. Just for the latter really. I am not worried about the physical transfer side. Mind you now that I’ve retired I may have more time to look into DIYing. 

kjs31

gm0 said:

You have some time (VR).  Depending on next steps.  Not hurrying and learning about investment, risk, the differences in deaccumulation vs saving up is either

a) good preparation to DIY

b) preparation to participate more meaningfully in fact find, goal and risk discussions with the eventual IFA you hire

I made the advice vs no advice decision quite late in my own journey towards early retirement. 
And asked many of my stupid arcane questions here, watched videos, read books etc.

You have a "can I be bothered" / "do I find it interesting to learn about / keep brain active" decision to make about the use of and value of your own time

An ongoing advice relationship *does* mean you can mostly not care about the whole subject and have it monitored and have tax planning on tap.

But over the life of a 40 year pension this will cost you 10%-12% of the initial pot in fees. 
As drag on cumulative returns.  Are you 150k not bothered ? 
For me that's worth some work and attention.
You do you - age/health/spouse etc.

It is harder to get confident to setup than it is to run.  Products are readily available - retail to the UK consumer.

Now for sure:

Bad DIY decisions / tax misunderstandings can crimp your wealth in retirement. 

As can getting trapped by an FA firm or sold to an FA by an IFA which can be an unhelpfullly expensive yet bad experience where you put up with it.  Or have to do it all again.  This is a bad "finding an adviser" decision. 

A professional genuine IFA will take you on for a low initial charge and 0.5% per year.  Possibly with some cap on the arrangement.  Finding 3 independent ones locally to check personal fit - and compare offers/contracts may be harder than you think.

In thinking about your financial plans for the next stage by either route - the following template may be of assistance. 

As you will discover the questions here are the same things you will need to be able to articulate should you hire somebody to colour in the implementation for you.

- Plan duration and basic parameters about you and any spouse/dependents

- Future income both needs and wants separated out

- Capital - Initial DC pot(s) and other capital  events - house downsizing/inheritance/bank of mum and dad

- Risk taking *required* to match required and desired income to capital

- Sources of guaranteed income and its impact on risk taking

- Handling sequence of return in deaccumulation

- Writing an investment statement based on the above and portfolio selection and design

- Platform and specific fund selection

- Scheme transfers and implementation of drawdown, annuities / whatever it is

- Rebalancing, monitoring and ongoing work

Post/dm if anything unclear.

Thanks. Lots to think about. I’m quite happy to DIY if I can decide whether I am able to select the funds to invest in wisely. I’m looking for fairly safe / inflation proof rather than spectacular returns (and potentially losses too) as I don’t believe I should need more money than I’ve got available to me now. I’m not looking for private jets or 100k cars - just a reasonably comfortable retirement. I don’t plan to work again so I should have time to look at things in more detail.