Does anyone here use an IFA?

gravel_2

etienneg said:

eskbanker said:

It's a fairly common misconception that the role of the IFA is to increase returns, so it is important that anyone seeking to engage one is clear about what they're likely to achieve by doing so!

That's a very interesting comment. Perhaps you could expand on it for the sake of those of us who are left wondering just what is the point of an IFA if not to increase returns.

Please understand, I'm not saying you are wrong. However, I'm one of those currently embracing this "common misconception", but open minded enough to want to learn from those who know better.

An IFA could be the difference between someone holding only cash and the default pension fund vs someone actually investing. It's not a binary option of DIY or IFA.

An IFA could also be the difference between a DIYer buying 100% SPX after watching a few US investment videos vs having a basket of investments better suited to their risk profile and life goals.

Aminatidi

etienneg said:

eskbanker said:

It's a fairly common misconception that the role of the IFA is to increase returns, so it is important that anyone seeking to engage one is clear about what they're likely to achieve by doing so!

That's a very interesting comment. Perhaps you could expand on it for the sake of those of us who are left wondering just what is the point of an IFA if not to increase returns.

Please understand, I'm not saying you are wrong. However, I'm one of those currently embracing this "common misconception", but open minded enough to want to learn from those who know better.

I'd see an advisor as more about helping with plans and objectives and helping you meet them with a sound plan.

Things like how much you need to save to meet those objectives and how to save it given the various wrappers available and pros and cons of each around money going in and money coming out.

I think the "increase returns" point has some merit but not in the sense of thinking an advisor can pick "superior" investments - more in the sense of things like helping with a plan and ensuring you stick to it i.e. you might get returns you wouldn't get if you panic sold.

I'd like to think I'm reasonably well aware of what a sensible way to invest my money is.

Tax and wrappers and that sort of stuff much less so (or I'm giving advisors much more credit 😀)

eskbanker

NoMore said:

etienneg said:

eskbanker said:

It's a fairly common misconception that the role of the IFA is to increase returns, so it is important that anyone seeking to engage one is clear about what they're likely to achieve by doing so!

That's a very interesting comment. Perhaps you could expand on it for the sake of those of us who are left wondering just what is the point of an IFA if not to increase returns.

Please understand, I'm not saying you are wrong. However, I'm one of those currently embracing this "common misconception", but open minded enough to want to learn from those who know better.

Not an IFA, but most I think would say that to produce a financial plan for you that meets your objectives and timescales within your risk tolerance in the most tax efficient way possible.

Yes, this is the sort of thing I had in mind - the word 'suitability' is often used, i.e. identifying what's the most suitable way of achieving objectives, which in turn requires a structured approach to defining those objectives, plus establishing risk tolerance, etc, rather than trying to shoot the lights out.

Bostonerimus1

zagfles said:

Albermarle said:

 how did you or do you reconcile the fact you might be paying an advisor what might be a third to half of what you're spending on yourself?

Not sure how you have made this calculation?

Lets say you had £500K, the ongoing fee should be 0.5% = £2,500 pa
If you had say £300K the fee would be more like 0.75% = £2,250 pa

Suspect OP is looking at drawdown eg a 3% withdrawal rate and 1% fees. Over the long term seemingly low % fees can take a large chunk out of any investment, this site has a calculator Impact of Fees Tool - Rebel Donegans

Yes, at the start of drawdown financial fees of 1% on a 4% withdrawal could be a retiree's largest expense ie 25% of what they take from their pension pot. This might change as they increase their pension income, but it will always be a big expense.

DiamondLil

I used an IFA almost 30 years ago; he was the best investment I've ever made. He taught me the ins and outs of investing, explained all the different types of instruments, and, most importantly perhaps, he taught me to think for myself and do the research. I no longer need his services but he became and remains a good friend. 

Bostonerimus1

eskbanker said:

Section62 said:

eskbanker said:

Aminatidi said:

If you live reasonably frugally and have built up a decent pot - and if you have an ongoing relationship with an advisor v one-off planning - how did you or do you reconcile the fact you might be paying an advisor what might be a third to half of what you're spending on yourself?

I think that's an odd comparison to be making - engaging an IFA is just paying for a service, which, if you find it beneficial, should deliver value, but measuring that against an arbitrary benchmark of what you spend on yourself seems strange to me.  Do you compare, say, council tax or energy costs with what you spend on yourself?

I think what the OP might be asking in a roundabout way is if you have decent reserves and don't spend much, then does it make sense to pay a not insignificant amount for ongoing IFA help, vs accepting lower returns from a simpler (perhaps DIYable) arrangement?

It's a more fundamental question which goes deeper than just costs... i.e. is there a point in spending more to get more growth, when the outcome could be largely the same from a different strategy.

Alternatively, I might be projecting my own circumstances onto the OP's question.

It's a fairly common misconception that the role of the IFA is to increase returns, so it is important that anyone seeking to engage one is clear about what they're likely to achieve by doing so!

Good point. An IFA is not an investment advisor and many farm that function out to specialist firms. These firms often develop portfolios using computer models that I believe have dubious utility. Where an IFA can be useful is in navigating the pensions/ISA/taxation maze for people who can't be bothered or who have been convinced that they aren't capable of doing that on their own. They can stop people from making silly mistakes and act as a psychological crutch. However, I believe that most don't do enough to deserve their fees, but people can spend their money how they want.

GeoffTF

etienneg said:

eskbanker said:

It's a fairly common misconception that the role of the IFA is to increase returns, so it is important that anyone seeking to engage one is clear about what they're likely to achieve by doing so!

That's a very interesting comment. Perhaps you could expand on it for the sake of those of us who are left wondering just what is the point of an IFA if not to increase returns.

My understanding is that an IFA who claimed he could increase returns without a corresponding increase in risk (i.e. beat the market) would be breaking the rules. An IFA has to look at your whole financial situation and objectives and recommend appropriate investments, and manage them if that is part of the contract.

Albermarle

GeoffTF said:

etienneg said:

eskbanker said:

It's a fairly common misconception that the role of the IFA is to increase returns, so it is important that anyone seeking to engage one is clear about what they're likely to achieve by doing so!

That's a very interesting comment. Perhaps you could expand on it for the sake of those of us who are left wondering just what is the point of an IFA if not to increase returns.

My understanding is that an IFA who claimed he could increase returns without a corresponding increase in risk (i.e. beat the market) would be breaking the rules. An IFA has to look at your whole financial situation and objectives and recommend appropriate investments, and manage them if that is part of the contract.

Plus of course they will have an understanding of the all the rules and regulations ( which change regularly) , surrounding pensions, ISA's and tax efficiency generally.

etienneg

OK. Thanks to all who responded to my post above. As is often the case, terminology can cause problems and I think this answers a major part of my query. I was taking "increase returns" to mean "leave the investor with more money" - that is, taking into account his/her situation, taxation, and so on. I see that others are using it in a much more restricted sense, just meaning "returns on an investment". My use may well have been wrong. In the end it doesn't matter; what does matter is that I now have a clearer understanding, so thanks.

Conclusion: If an investor wants (or needs) the bigger picture to be covered, an IFA may well be the way to go. However, if s/he knows sufficient of the rules and regulations surrounding tax and investment vehicles, and just seeks help with choice (an "investment advisor"), then an IFA is not a good choice and his/her fee may well end up reducing the overall return to the investor.

Aminatidi

Interestingly I was messing around with ChatGPT and throwing in some of the questions/scenarios I've been considering.

I'm blown away how even the free version seems to come out pretty much in line with almost any "collective wisdom" I can find after hours of reading different articles.

Quite remarkable though ultimately comes down to how much trust you have in something like that.

Not sure I'd trust it with absolute numbers - but the numbers it did spit out are very much in line with what tools like Guide and Timeline and similar tools have come back with.