'Standard practice' IFA Fees

hogboon

I have too much money sat in banks so contacted a financial adviser to ask what I should do with it that would be more sensible. He produced a plan. When I asked about fees I was told the "ongoing advice charges" would be 0.75% p.a. When I asked if this was a percentage of the profits [if any] made from my capital or a percentage of the fund as a whole I was told it would be the latter. Is this standard practice? If so it strikes me as astonishing. Why would anyone hand money over to someone who has contributed nothing to its acquisition? Or is this the take-it-or-leave-it market 'norm'?

InvesterJones

Yes, common for platform or advisor fees to be a % of the total. It's not that they're not contributing to the acquisition, they're contributing to what you do with the assets.

Section62

hogboon said:

...

When I asked if this was a percentage of the profits [if any] made from my capital or a percentage of the fund as a whole I was told it would be the latter. Is this standard practice? If so it strikes me as astonishing. Why would anyone hand money over to someone who has contributed nothing to its acquisition? Or is this the take-it-or-leave-it market 'norm'?

If you made no profit, or a loss, you'd be expecting the IFA to do the job without earning anything. (or perhaps paying you if you lost money?).

Eyeful

1. Did you see an Independent Financial Advisor (IFA), who is supposed to work for you?
2. Did you see a Financial Advisor (FA), who works for the company that employs them?
3. Read this:
https://www.moneysavingexpert.com/savings/best-financial-advisers/

Cus

hogboon said:

I have too much money sat in banks so contacted a financial adviser to ask what I should do with it that would be more sensible. He produced a plan. When I asked about fees I was told the "ongoing advice charges" would be 0.75% p.a. When I asked if this was a percentage of the profits [if any] made from my capital or a percentage of the fund as a whole I was told it would be the latter. Is this standard practice? If so it strikes me as astonishing. Why would anyone hand money over to someone who has contributed nothing to its acquisition? Or is this the take-it-or-leave-it market 'norm'?

It's the norm. Some do one off advice fees. Ironically it's likely that if you had seen them just before you put too much money into the bank accounts then even with their 0.75% you would have been better off now

DRS1

Eyeful said:

1. Did you see an Independent Financial Advisor (IFA), who is supposed to work for you?
2. Did you see an Independent  a Financial Advisor (FA), who works for the company that employs them?
3. Read this:
https://www.moneysavingexpert.com/savings/best-financial-advisers/

Changed a typo 

dunstonh

When I asked if this was a percentage of the profits [if any] made from my capital or a percentage of the fund as a whole I was told it would be the latter. Is this standard practice?

It would be daft for both an adviser firm and a consumer to have the charge set against profits.    It would create a whole range of issues and result in you paying more over the long term.

If so it strikes me as astonishing. Why would anyone hand money over to someone who has contributed nothing to its acquisition?

It appears you don't realise what an adviser does and you are basing your opinion on a misconception.

If you do not require ongoing services of an adviser, then you do not have to pay them an ongoing fee.   If you do require ongoing services, then you would expect them to be paid for that.

Ongoing services can be planning, annual allowance use, portfolio adjustments, being available to explain things and changes each year.  i.e. doing all the things linked to planning and investing so you don't have to.

If you are only investing £20k as a one off, then you don't need ongoing servicing.  If you are investing, say £200k, then you will, unless you plan to do the annual allowance use and any portfolio adjustments yourself.  And if you are going to do that, then you would have to question why you would use an adviser in the first place.

Albermarle

hogboon said:

I have too much money sat in banks so contacted a financial adviser to ask what I should do with it that would be more sensible. He produced a plan. When I asked about fees I was told the "ongoing advice charges" would be 0.75% p.a. When I asked if this was a percentage of the profits [if any] made from my capital or a percentage of the fund as a whole I was told it would be the latter. Is this standard practice? If so it strikes me as astonishing. Why would anyone hand money over to someone who has contributed nothing to its acquisition? Or is this the take-it-or-leave-it market 'norm'?

Before you get to the 'ongoing fees' there will be an initial charge for setting everything up. Part of the cost is that the advisors are heavily regulated and have to do everything by the book.
The initial charge can be typically between 1 and 3 % of your funds.

The alternative is DIY investing, in which case you have to learn something about it . Not just investing but tax rules, ISA rules,  pension rules etc .
Or you can just leave it all in cash at the bank, but almost certainly in the long run you will lose out doing that,

QrizB

Cus said:

hogboon said:

I have too much money sat in . Is this standard practice? If so it strikes me as astonishing. Why would anyone hand money over to someone who has contributed nothing to its acquisition? 

It's the norm. Some do one off advice fees. Ironically it's likely that if you had seen them just before you put too much money into the bank accounts then even with their 0.75% you would have been better off now

Let's consider an example.

Imagine you have £100k in the bank. At a typical interest rate of 5%, over a year you'll make £5k.

Now imagine you go to an IFA. The IFA recommends you invest the £100k in a boring multi asset fund like VLS60. Over the past 12 months, VLS60 is up 11.4%, so your £100k will have made £11400.

In exchange, you pay the IFA £750. You're still £5650 better off than you would have been otherwise.

Imagine you'd done this five years ago. In those five years, there are two of them where VLS60 went backwards, so you'd have been paying your IFA despite making a loss. But despite this, VLS60 is up almost 33% over that period while a savings account would have made roughly half that.

Ibrahim5

You are quite correct OP. The fee is astonishing. Estate agents and IFAs charge a percentage that they hope looks small, but is actually astonishing.