Is an IFA really worth it?

silvercar

Albermarle said:

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.

Regarding the comments in bold.

In my experience the level of basic numeracy in the population is rather poor, even sometimes for people you would not expect. If you add that to many peoples tendency to be over affected by  what they read,( or what the bloke down the pub tells them ) and to be more emotional than rational, and to be scared of dealing with or talking about money.
The facility to DIY is definitely easier nowadays, but only a minority will be capable of making proper use of that.

It’s knowing what you don’t know.

We are probably more numerate than your average person in the street. OH is an accountant and I’m a statistician. Yet we know that we need expert guidance on finance and pay an IFA. Whereas we could possibly manage tax planning on our own, retirement planning and inheritance is not a field that we consider ourselves expert enough that it isn’t worth paying someone who knows their stuff.

Bostonerimus1

silvercar said:

Albermarle said:

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.

Regarding the comments in bold.

In my experience the level of basic numeracy in the population is rather poor, even sometimes for people you would not expect. If you add that to many peoples tendency to be over affected by  what they read,( or what the bloke down the pub tells them ) and to be more emotional than rational, and to be scared of dealing with or talking about money.
The facility to DIY is definitely easier nowadays, but only a minority will be capable of making proper use of that.

It’s knowing what you don’t know.

We are probably more numerate than your average person in the street. OH is an accountant and I’m a statistician. Yet we know that we need expert guidance on finance and pay an IFA. Whereas we could possibly manage tax planning on our own, retirement planning and inheritance is not a field that we consider ourselves expert enough that it isn’t worth paying someone who knows their stuff.

Knowing what your don't know is a far better situation to be in than not knowing what you don't know. For the latter people an IFA could be useful, but they often don't have sufficient assets to become a client. 

What intimidates you about financial planning? Is it how to invest and then sensibly drawdown? Is it getting an appropriate mix of investments and maybe annuities to generate your income? What is it about inheritance that causes you worry? Wording a will correctly or dealing with the taxation implications of inheritance? I'm interested because as an obviously numerate couple you are better placed than most people to navigate your finances.

Eyeful

dunstonh:      I had personal experience of 

1. The "Man from the PRU" trying to sell me an insurance policy when he called to collect money.
To give him his due, he accepted my "no" gracefully..

2. At one branch of the Co-op bank, they would not let me open a savings account until I had spoken with a "Financial Advisor". I just said "no"  to to his sales talk and opened the savings account anyway.

3. At a different branch of the Co-op Bank when I wanted to open a savings account, a "Financial Advisor" appeared and was like a dog with a bone, she just would not accept my repeated "no I am not interested in your investments". Even when I pointed out to her why those investments she wanted to sell me, where poor value.

Only when I told her to close my account, give me a cheque and I would go elsewhere did she with bad grace  reluctantly open the savings account I came in for.


 

thunderroad88

One thing that I’d like to see is IFAs  (and FAs/wealth managers) having more accountability for their recommendations…I know they can’t guarantee returns but one thing that always bugged me was that when my IFA recommended portfolio was “losing” me money, he was still raking it in from my dwindling wealth via his rigid fee structure. He wouldn’t entertain the idea of a type of “performance” fee arrangement, which was a small contributing factor in my decision to leave him and go diy. At least now, any underperformance is my own fault and no one is taking £5k for achieving it. Don’t know if any advisers offer that type of fee arrangement?

wjr4

thunderroad88 said:

One thing that I’d like to see is IFAs  (and FAs/wealth managers) having more accountability for their recommendations…I know they can’t guarantee returns but one thing that always bugged me was that when my IFA recommended portfolio was “losing” me money, he was still raking it in from my dwindling wealth via his rigid fee structure. He wouldn’t entertain the idea of a type of “performance” fee arrangement, which was a small contributing factor in my decision to leave him and go diy. At least now, any underperformance is my own fault and no one is taking £5k for achieving it. Don’t know if any advisers offer that type of fee arrangement?

As mentioned many times, IFAs are not investment managers - it is a small part of the overall financial plan. Was the portfolio suitable for you? 

Albermarle

Eyeful said:

dunstonh:      I had personal experience of 

1. The "Man from the PRU" trying to sell me an insurance policy when he called to collect money.
To give him his due, he accepted my "no" gracefully..

2. At one branch of the Co-op bank, they would not let me open a savings account until I had spoken with a "Financial Advisor". I just said "no"  to to his sales talk and opened the savings account anyway.

3. At a different branch of the Co-op Bank when I wanted to open a savings account, a "Financial Advisor" appeared and was like a dog with a bone, she just would not accept my repeated "no I am not interested in your investments". Even when I pointed out to her why those investments she wanted to sell me, where poor value.

Only when I told her to close my account, give me a cheque and I would go elsewhere did she with bad grace  reluctantly open the savings account I came in for.


 

I remember one time at Midland Bank, they insisted you came into branch when you received a new card 'to verify it and see you sign it' Inevitably you then got the hard sell about investing etc. 

dunstonh

One thing that I’d like to see is IFAs  (and FAs/wealth managers) having more accountability for their recommendations

They do. As already mentioned on this thread.

 He wouldn’t entertain the idea of a type of “performance” fee arrangement, which was a small contributing factor in my decision to leave him and go diy. 

Performance charges result in higher charges over the long term.    Plus, it would mean that the IFA would be paid more for something they have no influence in.  Which would be daft.

At least now, any underperformance is my own fault and no one is taking £5k for achieving it. 

And how is it your fault?   Unless you have no structure and process and make bad decisons rather than suitable ones, your returns, good or bad, or not down to you.

Bostonerimus1

dunstonh said:

One thing that I’d like to see is IFAs  (and FAs/wealth managers) having more accountability for their recommendations

They do. As already mentioned on this thread.

 He wouldn’t entertain the idea of a type of “performance” fee arrangement, which was a small contributing factor in my decision to leave him and go diy. 

Performance charges result in higher charges over the long term.    Plus, it would mean that the IFA would be paid more for something they have no influence in.  Which would be daft.

At least now, any underperformance is my own fault and no one is taking £5k for achieving it. 

And how is it your fault?   Unless you have no structure and process and make bad decisons rather than suitable ones, your returns, good or bad, or not down to you.

Linking fees to performance does not necessarily lead to higher fees, it depends on how much the IFA charges and how the fees are structured. But I'm sure that anything proposed by the financial industry would probably not undercut the existing amounts charged in fees...there's that cynicism again.

People naturally feel responsible for the decisions they make and it's all too easy to compare your results and chase return which leads to Woodford type scenarios. This is a vital component of the IFA/FA's sales pitch. It might not be explicit, but the client is usually looking to pass on responsibility in exchange for a fee. That might not be what's actually happening, but from some posts here many clients believe that is what's happening. If they want guaranteed return they should open a saving account.

I went with a simple 4 index fund portfolio with some basic allocation thresholds for rebalancing to minimize my decisions and did my best not to compare the performance of my portfolio to others portfolios and only to my anticipated long term return of around 7%. I can't resist making those comparisons every so often and my average annual return is well over 7%...but if I'd just stuck it all in S&P500 I'd be....now just stop that ;-)

poseidon1

Eyeful said:

DIY is definitely easier nowadays.

Back in 1970's, the ordinary people of my acquaintance did not use FA's or IFA's..

If they went to the bank to seek investment advice they spoke to someone with the fancy title of "Financial Advisor" who was just a sales person who was thinking of the commission they would earn on the sale of a product. 

Or the "Man from the PRU" would try to sale them more insurance.

However even back then, the ordinary person who was willing to learn and do some research could DIY.
There where:
Saving & Investment Magazines at Newsagents.
Books on investing which you could buy or loan from the local library
Saturday newspapers at the library had money and investment sections in them.

I like many others used Investment Trust savings schemes run by: F&C, Alliance Trust, City of London etc 

My first job in 1976 at age 18 (family trust accounting and tax compliance) bought me in day to day contact with City stockbrokers and direct contact with traditional stockmarket portfolios.

However with no capital of my own, my first foray into investing at that time was via a small £30 monthly investment into unit trusts sold direct to the public by Save and Prosper . Over 1 year built up £600 in their Japan  Growth fund  ( red hot at the time) before cashing out to go to Uni. 


The wealth of options, choices and indeed information now  readily available to retail investors is of an order of magnitude that simply cannot be compared to 1970s. Indeed I would  say UK retail investors are currently  very much spoilt for choice  compared to their European counterparts. Just a shame that the perennial lack of financial literacy in the UK mean just a relative few take advantage of what's on offer.

Bostonerimus1

poseidon1 said:

Eyeful said:

DIY is definitely easier nowadays.

Back in 1970's, the ordinary people of my acquaintance did not use FA's or IFA's..

If they went to the bank to seek investment advice they spoke to someone with the fancy title of "Financial Advisor" who was just a sales person who was thinking of the commission they would earn on the sale of a product. 

Or the "Man from the PRU" would try to sale them more insurance.

However even back then, the ordinary person who was willing to learn and do some research could DIY.
There where:
Saving & Investment Magazines at Newsagents.
Books on investing which you could buy or loan from the local library
Saturday newspapers at the library had money and investment sections in them.

I like many others used Investment Trust savings schemes run by: F&C, Alliance Trust, City of London etc 

My first job in 1976 at age 18 (family trust accounting and tax compliance) bought me in day to day contact with City stockbrokers and direct contact with traditional stockmarket portfolios.

However with no capital of my own, my first foray into investing at that time was via a small £30 monthly investment into unit trusts sold direct to the public by Save and Prosper . Over 1 year built up £600 in their Japan  Growth fund  ( red hot at the time) before cashing out to go to Uni. 


The wealth of options, choices and indeed information now  readily available to retail investors is of an order of magnitude that simply cannot be compared to 1970s. Indeed I would  say UK retail investors are currently  very much spoilt for choice  compared to their European counterparts. Just a shame that the perennial lack of financial literacy in the UK mean just a relative few take advantage of what's on offer.

My first investment was through my pension in 1987 and I chose a very conservative product that was linked to US bond markets and guaranteed a minimum 3% annual return. My reasoning was that I didn't want to lose money and it would have a long time to grow. That's not terrible logic, but I then went to a number of presentations from reps from Fidelity, Vanguard etc organized by my Benefits Office and started putting money into a basic 4 fund index fund portfolio of mostly US equity and bonds with a bit of international.

Thirty eight years later my initial conservative investment has averaged 6% a year and I can now turn it into a flat lifetime annuity at age 65 with a 10% payout rate. My index fund investments have grown at just over 10% annual average and keep compounding. I sort of fell into index investing after the Vanguard rep's presentation because the probabilities and statistics made sense to me. This was all done on paper forms submitted to the fund companies and I got to see my balance once a quarter. When I got access to the internet in the mid 1990s it took a while for things to go online, but that made things far easier to manage and fiddle with...which I don't think was necessarily an improvement.