Independent Financial Advisor - worth their fees?

WongstaMK

Hi All

I'm incredibly lucky to have come into a large sum of money recently. I have engaged with a couple of IFA's, one of which I've had a couple of view meetings and a house visit to explain my financial situation and goals (early retirement)

I have an existing Hargreaves Landsdown SIPP with £185k in it. I am a self exployed and usually pay myself a basic salary with dividends through my Ltd company.

The IFA has proposed that they would transfer my SIPP to a Vanguard Lifestrategy 80 fund Pension on the Aviva platform, set up an ISA (using this years £20k allowance) and general account (£60k) to the same fund.  Addtionally he has recommended that I stop paying myself from the Ltd Co and pump up my pension (maxing out the £60k allowance) for a period of time.
The inital fee they want to charge is £9,600 (2.5% of funds)

The ongoing servicel fee from the IFA is 1%, which initally would be £3.8k but obiviously rising to nearer £5k as my assets (Pension, ISA's, GIA) grow over the years. This is for ongoing "financial advise" 

I've had a look at my SIPP, which has performed at 8.51% ave growth per year for the last 5 years. The Vanguard Lifestrategy is 8.64%.

My mind is blown about the fees the IFA is wanting to charge. I do admit the strategy they've come up with is full of good advice and I wouldn't have come up with it myself, but I can't see it as a £10k one off piece of work!? And the ongoing sevice fee of 1% - that's like £40-50k given to them over the next 10years, and for what exactly, they've set me up and he'll look at my situation once a year and check in with me..?

I'm still considering the offer but I'm leaning towards walking away - though I do feel slightly guilty asthey have put some work in, but.....I just don't see the value for money. The one off fee, may be, but I would only pay half of that and the ongoing service fee I just cannot see the value. Or have I got the wrong end of the stick, and that these fees are actualy the going rate for the service they offer? Does anyone have any good news or success stories that they've used an IFA and had a great outcome and relationship with? 

valueman1

These days there is so much financial information available for free.  Have a look at Monevator, it’s a brilliant blog which is free.  I’m cynical about IFAs, St James’s Place had to pay out £12m to 4,000 clients for overcharging.  You should have agreed the fee at an hourly rate before engaging the IFA.  Now you have the advice don’t pay them any more.

artyboy

valueman1 said:

These days there is so much financial information available for free.  Have a look at Monevator, it’s a brilliant blog which is free.  I’m cynical about IFAs, St James’s Place had to pay out £12m to 4,000 clients for overcharging.  You should have agreed the fee at an hourly rate before engaging the IFA.  Now you have the advice don’t pay them any more.

But St James Place is not an IFA...

masonic

The fees look on the high side to me. I guess the initial fee would be justifiable if it were a one-off piece of work. There should be some scope for getting the charge down a little as the portfolio grows - and if not, you are probably not locked in to this adviser.

Cus

Although it appears to be good advice, it's not something that you couldn't have determined on your own with some research and effort and then implement without the fees.

dunstonh

The IFA has proposed that they would transfer my SIPP to a Vanguard Lifestrategy 80 fund Pension on the Aviva platform, set up an ISA (using this years £20k allowance) and general account (£60k) to the same fund.  Addtionally he has recommended that I stop paying myself from the Ltd Co and pump up my pension (maxing out the £60k allowance) for a period of time.
The inital fee they want to charge is £9,600 (2.5% of funds)

Aviva is a basic platform that hasn't been developed as they have promised.  However, Aviva have offered discounts to their standard terms to many IFAs so it can be good value if a discount is in place but not if its default terms.  (platform charge would ideally be in the 0.15-0.25% ballpark nowadays ideally).

The advice sounds reasonable but the initial fee is very high. About 3 times higher than it really ought to be.

The ongoing servicel fee from the IFA is 1%, which initally would be £3.8k but obiviously rising to nearer £5k as my assets (Pension, ISA's, GIA) grow over the years. This is for ongoing "financial advise" 

Many IFAs taper their charge as the value gets higher and whilst 1% is common on small values, it starts being greedy on larger ones where you would expect tapering to bring you down towards the most common figure of 0.5%.

Also, if you make future top ups, many IFAs will include those with no future initial charges as part of the ongoing.  But some greedy ones do.

I've had a look at my SIPP, which has performed at 8.51% ave growth per year for the last 5 years. The Vanguard Lifestrategy is 8.64%.

Are you looking at the same Vanguard Lifestrategy?   IFAs have access to the MPS version of VLS which has outperformed the OEIC version.     Do you know if the IFA is going to use the OEIC or the MPS version?   MPS is better so you would hope it is that.     However, if you are going down that route then you have better options still.

IFAs are more than just picking funds but if the adviser is expensive, you would expect better than the VLS OEIC.   i.e. the VLS MPS or other MPS that operates in a similar way.   

If the adviser is charging top rates, using a multi-asset OEIC and a platform that is not good value then that is greedy.
If the adviser  is using an MPS, a discounted/low cost platform and charging reasonable amounts then that is what you are after.

gm0

There are two things here.  What you already committed to to get the advice.  Contracts if any. And obtaining market price.  Which should be nearer 1% initial for setup and 0.5% ongoing.  And then platform and funds - the actual product at about 0.3% all in.  I have older threads with a more detailed rundown on these rough and ready benchmarks.

I am a keep drag down - low cost focus person who wants my market return drag down below 0.3%.  And don't take ongoing advice.   So I am ahead already by >0.5% pa cumulative.  Until your whizz bang adviser introduced portfolio outperforms mine by more than that   Which it could.  But probably won't.

The value is in the broader knowledge of rules and tax advice i.e. time and research you don't need to do.  Value of your time,.

And if you - at better prices find this one trustworthy and they work well with you.  If you want advice - great.  A trusting relationship is needed.   From an adviser where you are a core client (wealth level) - not an afterthought.

Sadly advisers do use deterrent pricing.  I'll do it for rich pickings.  They can only do so many clients each.  And they prefer bigger fish to small in context.  It's only natural.

SacredStephan

WongstaMK said:

I am a self exployed and usually pay myself a basic salary with dividends through my Ltd company.

You are not self-employed.
You do not pay yourself a salary, because the Ltd Co and you are different legal entities.

UncleK

As others have said, this seems a lot to start with and way to much on an ongoing basis. Look at what you have signed up to and only pay that - and if it's nothing then walk away, however rude that may appear and however uncomfortable that may make you feel. If you are still feeling guilty, go and give some money to a worthy charity.

boingy

No, that particular IFA is not worth their fees. DIY it, with advice and suggestions on here and other sites. It will save you a shedload of money in the long term and it will put you in control of your money and increase your understanding of it.

Start with a review of your pension. What fees are you paying, how is it invested? If early retirement is your aim then boosting your pension is the key. Payments from your Ltd Co to a pension are definitely the way to go. 

Then look at mortgage and other any debts. Is it beneficial to pay anything off, or plan to pay off when and interest rate deal ends?

With your new money open an ISA and max it out. Cash or Stocks and Shares  - your choice. Park some of the remaining money in a decent savings account with a view to using your max ISA allowance in the coming years.

Then buy a Ferrari and some clothes that are too young for you with the remaining cash. ;p

Dizzycap

Personally, the only time I've found that an IFA is worth their weight in gold was when I was setting up my private pension some 35 years ago. Things were very much different then and they knew which loopholes to close for any potential government future changes, as best as they could. They did a fantastic job and at the time I paid them around £200, which turned out to be one of the best investments I ever made.

As for the rest of my finances, I worked through them myself NO IFA required, inclusive of any inheritance I have recevied over the years, maximising investments such as PEP's, ISA's, Bonds, Gold, Regular Savers, High Interest Drip-feeder Accounts etc, ect. 

I've also followed Martins Money for a number of years which has also been invaluable when it comes to saving accounts, being able to save money on bills, insurance, and even plugging a couple of missed NI Contribution years for my State Pension. Let's face it, the recent changes went from 30 years to 35 years of required NI Contributions in a flash and whilst there is, at the moment, Pension Credit, this might not be so in the future. Who knows? You can only do your best, but lining the pocket of an IFA for investments you can do yourself, is for me, a no brainer no,no.

My advice is read, read and then read some more about any investments you plan to make, making sure that they are suitable for YOUR present & future needs. Don't follow the sheep, only you know your financial goals & your reasonings for those goals. Don't let anyone ever put you off investing into something you believe is appropriate for you, as it's your money and your future, not theirs..........