Is an IFA really worth it?

Linton

Monoecho said:

Many thanks for all the comments and information.

However, this is exactly the issue I'm having with the IFA's - probably caused by me not understanding how to phrase the questions, to obtain the answers I'm investigating.

I could phrase it in this manner:

If you had £200K to save/invest would you pay an IFA £4K, who might tell you to put 20% in an ISA and 10% in a pension and the rest in shares? Which then leaves you with £196K before you have invested a penny. Is this value for money?

I suppose I am asking an impossible question - which is what am I actually paying an IFA for, if all they can tell me are a selection of options I already understand.

It appears you have not told us a lot about your circumstances.  But from what you have said, in your position some of the questions I would like to see answered are:

1) When do you plan to retire? What income will you need in retirement?
2) Have you enough money to provide the lifestyle you want in retirement until you are well into your 90s?
3) The money is held in cash in savings accounts and investments in the DC pensions.  How will you structure your investments and savings to provide a steady cash flow? Do you have the right mix of safe cash and riskier investments?
4) What type of investments will you be using? Apart from the ongoing income you will also need growth to deal with inflation.
5) The growth investments will probably be largely equity (funds of shares).  What is the strategy should there be a market crash? A 50% fall in equity is quite possible at some stage during your retirement.  Drawing down cash from the investments carries the risk that you will eat into the core money you will need for future growth.  What is your strategy for dealing with such circumstances.?
6) Have you considered using your DC pensions to buy an annuity? If so what type of annuity?

If you can provide a clear answer to questions like these then you dont need an IFA.  If you cannot answer any or only 1 or 2 then an IFA may be very helpful.

Bostonerimus1

money4sb said:

dunstonh said:

money4sb said:

NoMore said:

Doesn't seem a particular tax efficient plan from the AI, It's wasting a hell a lot of Personal Tax allowance in the early years.

That's the problem with AI, what it produces can be very convincing, doesn't mean it's right.

You need to answer the questions it threw up first before it starts going into detail.   It can take you down many paths.

But if you don't know the right questions to ask, then that won't be much help. And if you have to give the AI the answers in advance, that sort of defeats the point.

Plus, the UK SWR is typically between 3% and 3.5% depending on age. 4% is too high for a 59 year old.  Plus, it doesn't say what equity ratio was in play (and here I have assumed 60%).    The 4% SWR is if you are based on Dollars not Sterling.

Ask it as many questions as you like and give it every scenario you can imagine too.  4% might be perfect for a man who doesn't think he'll live past 75 for example.   

AI is probably not your thing or you have no faith in it or understand how fast it's developing.

There won't be any need for human IFAs within about 3 years.  

As a skeptic of IFAs and FAs in many circumstances, I'm biting my tongue here.

Bostonerimus1

Monoecho said:

Many thanks for all the comments and information.

However, this is exactly the issue I'm having with the IFA's - probably caused by me not understanding how to phrase the questions, to obtain the answers I'm investigating.

I could phrase it in this manner:

If you had £200K to save/invest would you pay an IFA £4K, who might tell you to put 20% in an ISA and 10% in a pension and the rest in shares? Which then leaves you with £196K before you have invested a penny. Is this value for money?

I suppose I am asking an impossible question - which is what am I actually paying an IFA for, if all they can tell me are a selection of options I already understand.

Anyone who told you to put 70% of 200k into shares (assuming they are in individual companies) wouldn't deserve any payment because it's a pretty silly idea. I think you need to do a bit of reading and learn about tax wrappers like pensions and ISAs and the investments you can hold within them - especially the different types of investment funds. Also some understanding of your risk tolerance given you circumstances would be good and how you can mix cash, bonds and equity funds to meet your needs. So do some research so you know the questions to ask.

Follow this flow chart, put as much as you can into pensions and ISAs and keep the rest in a general investment account with someone like H&L, Vanguard etc until you can contribute to pensions and ISAs again, and only invest in low cost index funds or multi-asset funds and MMFs and saving accounts for cash.

https://ukpersonal.finance/flowchart/

artyboy

I do hope that @Ibrahim5 is ok... 3 pages in to a classic IFA rage bait thread and nothing...

(Sorry OP, just a little in-joke...)

money4sb

The first piece of information that AI will give you one day very soon is your predicted lifespan.  I'll become super accurate too based on your health records which it'll have access to all the time.   GAI is really not far away so get ready.

This is/will be the biggest factor in any of your planning.

Once it knows how many years you have left, the information given will be much more useful.

Any of these financial flowcharts are useless until you know how many years you have to plan for.

There: I've said it.   

aroominyork

Unless I have missed something skimming through this thread, it misses a crucial question. Do you want an IFA to invest your money on an ongoing basis, or do you want some advice about how to structure and plan your finances which you will then manage yourself?

For the former, you will pay the IFA an annual charge, typically 1% but reducing for large amounts (and maybe another 1% at the start for them to take you on as a client), and they usually justify this high fee by choosing actively managed funds to try to beat the market (which, naturally, most fail to do). The last IFA I used said I should assume 2% of my money would go annually in their fees and fund management fees.

The other option is to pay an IFA a fixed fee to advise you on structure and planning, which you then go away and handle yourself. In my experience it is not easy to find 'advice only' IFAs, I assume because they are interested in clients who will pay them ongoing fees to manage their money. 

dunstonh

For the former, you will pay the IFA an annual charge, typically 1% but reducing for large amounts (and maybe another 1% at the start for them to take you on as a client), and they usually justify this high fee by choosing actively managed funds to try to beat the market (which, naturally, most fail to do). The last IFA I used said I should assume 2% of my money would go annually in their fees and fund management fees.

The most popular MPS available to IFAs are underlying passive, followed by hybrid.    FAs are still heavily weighted in active portfolios but even some of them are starting to offer passive or hybrid.
   

The other option is to pay an IFA a fixed fee to advise you on structure and planning, which you then go away and handle yourself. In my experience it is not easy to find 'advice only' IFAs, I assume because they are interested in clients who will pay them ongoing fees to manage their money. 

That would be VATable.  The IFA putting it in place avoids VAT.

The IFA could still do transactional advice though without the ongoing.    IFAs are not allowed to insist on ongoing advice.   However, those firms set up to build AUM will often find ways to put you off.  Whereas your smaller localised general practitioner firm will do pretty much everything, capacity allowing (and capacity is an issue for most of them)

aroominyork

dunstonh said:

For the former, you will pay the IFA an annual charge, typically 1% but reducing for large amounts (and maybe another 1% at the start for them to take you on as a client), and they usually justify this high fee by choosing actively managed funds to try to beat the market (which, naturally, most fail to do). The last IFA I used said I should assume 2% of my money would go annually in their fees and fund management fees.

The most popular MPS available to IFAs are underlying passive, followed by hybrid.    FAs are still heavily weighted in active portfolios but even some of them are starting to offer passive or hybrid.

Have things changes in recent years, perhaps as passive funds have grown in profile and clients ask/expect IFAs to use them more?

dunstonh said:

The other option is to pay an IFA a fixed fee to advise you on structure and planning, which you then go away and handle yourself. In my experience it is not easy to find 'advice only' IFAs, I assume because they are interested in clients who will pay them ongoing fees to manage their money. 

That would be VATable.  The IFA putting it in place avoids VAT.

The IFA could still do transactional advice though without the ongoing.    IFAs are not allowed to insist on ongoing advice.   However, those firms set up to build AUM will often find ways to put you off.  Whereas your smaller localised general practitioner firm will do pretty much everything, capacity allowing (and capacity is an issue for most of them)

Saving VAT is hardly a reason to pay an IFA a fee each year! So far as transactional advice goes, I asked about four IFAs in Brighton for this (around 2017) and they all declined, which is why I educated myself, largely through this forum.

Rollinghome

aroominyork said:

Have things changes in recent years, perhaps as passive funds have grown in profile and clients ask/expect IFAs to use them more?

RDR happened. The FSA/FCA forced huge changes back in 2012 banning commission payments from investment fund providers.

Before that, several people on here who now embrace passive funds (which in most cases paid no commission) considered them the work of the devil. As did platforms like Hargreaves Lansdown which used all manner of spurious arguments in their mailshots against passives, and ITs, to discourage their use.

dunstonh

Saving VAT is hardly a reason to pay an IFA a fee each year!

As i said, they can do transactional.  

So far as transactional advice goes, I asked about four IFAs in Brighton for this (around 2017) and they all declined

It would largely depend on their business model.   A consolidator (or a firm positioning for consolidation) will be focused on AUM.  it is their reason for existing.   It is their model.     Whereas general practitioner firms will do everything as long as they have the time.