Is an IFA really worth it?

Bostonerimus1

IMO most people don't need IFAs as they could manage their own personal finances by doing a bit of reading and following a few simple rules. However, lots of those same people will want an IFA for psychological reasons or because they don't believe that they can manage their own finances. Whether or not an IFA is good value for money really depends on the personal perspective of the client.

Cus

Honest question to IFA's..
If client 1 has a portfolio of X, an IFA will charge a percentage (call it A%) of that as an ongoing charge.
If they also have another client, client 2, who has a portfolio of 2X, they will charge a percentage likely lower, (let's call it 0.5A%)

Is the charging model based on total fees paid, or is that in reality, the larger the portfolio, the larger the fee charged? And is that because it actually costs more on a like for like basis?  More work?  Or is it that it's a pricing model that clients are willing to pay so why buck the trend even though the cost versus service ratio to the client is worse the more they have?

Edit: this is a business, and pricing models are warped across many industries so this is not a complaint...

Bostonerimus1

Middle_of_the_Road said:

Bostonerimus1 said:

As has been said many times "IFAs are not investment managers". I can see their utility for answering questions about taxation, insurance, overall personal finance and investment strategies, particularly when it comes to drawdown, but the individual should be ultimately responsible for what they invest in. I don't like the idea that you can spend a few percentage points and hand that responsibility over to some spiv in "The City" or probably now someone with GCSE maths entering data into an algorithm. That's how people end up invested in Woodford, Indonesian pork bellies or with a portfolio of 20 plus funds. That is why I advocate simplicity for the vast majority of people and learning that basics about investment funds and ultimately sticking to multi-asset funds and or index funds from the major providers.

Highly insulting to the IFAs on here who generously answer questions from those seeking free guidance.

IFAs are not investment managers - it's the investment managers that I'm calling "spivs". But that's not to say they are bad people, it's just the nature of the job that is, IMO, often built on numerology, delusions and very dubious application of maths.

Cus

Many investment managers believe in analysis, maths and research.  Just because you don't believe it is worthwhile doesn't mean that therefore they are spivs.  You may have a different opinion but you don't need to denigrate the other side to validate your investment approach for yourself.  It is not binary

Edit to add: I've seen the years of exams and work effort some of these people put themselves through to become investment managers.  To think that they all know its a spivs game and are just playing the game for 20 career years is too depressing for me to accept. Maybe the word spiv has different connotations to us

Bostonerimus1

Cus said:

Many investment managers believe in analysis, maths and research.  Just because you don't believe it is worthwhile doesn't mean that therefore they are spivs.  You may have a different opinion but you don't need to denigrate the other side to validate your investment approach for yourself.  It is not binary

Yes, it's my opinion and I'm reasonably passionate about it because I think most people don't have the analytical skills to recognize the problems and are wasting their money. It certainly isn't binary as I do own one active income fund, but that is still inexpensive at 0.16% fees. My opinion is that the best you can do is Modern Portfolio Theory and keeping your investments broadly based...which is why I was always skeptical of Woodford and flavours of the month like Lindsell Train etc. I've come to this opinion with a background in physics, mathematics and control theory. My approach was simple and inexpensive and allowed me to retire at 52 and never have to worry about money again...it's only one sample, but it is obviously highly weighted for me.

Eyeful

1. I do remember the big debate to separate FA's and IFA's. 
The trouble that they went to so that those who knew little about investing should not end up in poor performing bank funds. Sold by sales persons with no knowledge of investing but every interest on the sales commission it would get them.

2. It does seem to me that we are going back towards the bad old days with the latest government proposals. They again want to allow  institutes to contact people to suggest that they should invest their money instead of saving (for the persons long term good of course). Nothing to do with those institutes increasing their profits of course.

3. If it does come to pass, I can see scammers rubbing their hands in joy!

aroominyork

Bostonerimus1 said:

IMO most people don't need IFAs as they could manage their own personal finances by doing a bit of reading and following a few simple rules. However, lots of those same people will want an IFA for psychological reasons or because they don't believe that they can manage their own finances. Whether or not an IFA is good value for money really depends on the personal perspective of the client.

You can apply that to people who are reasonably numerate and comfortable with numbers, but there are many people who simply cannot make sense of numbers. At the extreme end is dyscalculia, a diagnosable condition (also known as the Harry Redknapp Defence ).

Bostonerimus1

aroominyork said:

Bostonerimus1 said:

IMO most people don't need IFAs as they could manage their own personal finances by doing a bit of reading and following a few simple rules. However, lots of those same people will want an IFA for psychological reasons or because they don't believe that they can manage their own finances. Whether or not an IFA is good value for money really depends on the personal perspective of the client.

You can apply that to people who are reasonably numerate and comfortable with numbers, but there are many people who simply cannot make sense of numbers. At the extreme end is dyscalculia, a diagnosable condition (also known as the Harry Redknapp Defence ).

Agreed, this isn't black and white or all or nothing. My opinion is that personal finances are overly complicated by a financial industry with a vested interest in making things seem difficult, and people are unnecessarily intimidated as anyone with basic numeracy skills and the ability to follow a few simple rules can be successful. But for me the most important thing anyone can do is to be thrifty and follow Mr. Micawber's rule of always spending less than you make. Unfortunately that isn't easy for everyone today.

Rollinghome

Bostonerimus1 said:

I don't like the idea that you can spend a few percentage points and hand that responsibility over to some spiv in "The City" or probably now someone with GCSE maths entering data into an algorithm. That's how people end up invested in Woodford, Indonesian pork bellies or with a portfolio of 20 plus funds and no understanding of how to manage their money. 

 Shortly before RDR was implemented, so about 2013, I met three IFAs when looking for someone local to build a relationship with by having them manage a part of my assets - so that my wife had someone around should I inconveniently pop my clogs.  

 Two of them told clear untruths, and you might describe them as "spivs", but it would be fairer to call them typical salesmen. Because that was what most were back then.  Their job was to sell the products for the providers who paid them very generous sales commission - a serious conflict of interest.  The third IFA was very likeable but hopeless - his business folded, and he was gone shortly after I saw him.

 Since payment of commission was banned following RDR, I haven't met any IFAs (apart from a couple of friends) but get the impression that the industry has much improved as a result. Now an IFA is answerable to clients and not to the investment houses that paid them sales commission. The cost of that commission now goes back to the investor by way of lower management fees.

 That said, I would agree that very few people, especially now, really need an advisor.  Investing is so much easier now than it was before the internet. All the necessary information and services can be had without leaving home. We all need to learn how to manage our own finances, because no-one will care as much about our financial wellbeing as we do ourselves.

 But while I don't have any experience of advisors since then, I do meet a lot of IT investment managers now.  There are a small number you might describe as "spivs", but those are usually the ones charging the highest fees that I keep well away from. Most are very earnest and very aware of their responsibilities, as are good directors. They have to be, because it's the performance numbers that are there for all to see that count with canny investors, and shiny shoes alone wouldn't get them far. I assume fund managers are very similar, as many manage both closed- and open-ended investments.

Bostonerimus1

Rollinghome said:

Bostonerimus1 said:

I don't like the idea that you can spend a few percentage points and hand that responsibility over to some spiv in "The City" or probably now someone with GCSE maths entering data into an algorithm. That's how people end up invested in Woodford, Indonesian pork bellies or with a portfolio of 20 plus funds and no understanding of how to manage their money. 

 Shortly before RDR was implemented, so about 2013, I met three IFAs when looking for someone local to build a relationship with by having them manage a part of my assets - so that my wife had someone around should I inconveniently pop my clogs.  

 Two of them told clear untruths, and you might describe them as "spivs", but it would be fairer to call them typical salesmen. Because that was what most were back then.  Their job was to sell the products for the providers who paid them very generous sales commission - a serious conflict of interest.  The third IFA was very likeable but hopeless - his business folded, and he was gone shortly after I saw him.

 Since payment of commission was banned following RDR, I haven't met any IFAs (apart from a couple of friends) but get the impression that the industry has much improved as a result. Now an IFA is answerable to clients and not to the investment houses that paid them sales commission. The cost of that commission now goes back to the investor by way of lower management fees.

 That said, I would agree that very few people, especially now, really need an advisor.  Investing is so much easier now than it was before the internet. All the necessary information and services can be had without leaving home. We all need to learn how to manage our own finances, because no-one will care as much about our financial wellbeing as we do ourselves.

 But while I don't have any experience of advisors since then, I do meet a lot of IT investment managers now.  There are a small number you might describe as "spivs", but those are usually the ones charging the highest fees that I keep well away from. Most are very earnest and very aware of their responsibilities, as are good directors. They have to be, because it's the performance numbers that are there for all to see that count with canny investors, and shiny shoes alone wouldn't get them far. I assume fund managers are very similar, as many manage both closed- and open-ended investments.

I will admit to some hyperbolae by using the term "spivs". I don't believe that there are many truly unethical investment managers, just that it's an industry built on very shaky foundations. The people working in it are almost part of a cult with a set of beliefs that they must consider to be true otherwise their world would collapse. I have my own world view and that has it's own flaws and biases, but I'm evangelical about it because it worked for me. I'm sure there are other paths to financial success and I can be ecumenical when someone is DIYing, but it just rankles me when someone is paying for something that I don't think has a good probability of delivering on it's promises or for something that would be easy to DIY.

But investment managing is not the reason anyone should go to an IFA and I can see how many people want the reassurance of someone with greater experience because they don't know what they don't know.