General advice on IFAs - any alternative?

nearleyretired

I did read the sticky about IFAs before I decided to go ahead and post this.




I am trying to get some general advice about IFA’s.

I am trying to do some preliminary retirement planning; I will be retiring in the next few years.

I have had discussions with two IFA’s and find the tariff for doing business strange.

I was told that for an investment bond that the rate is up to 8% of the sum I invest – so 10000 pounds would be 800 pounds in the first year. 100000 pounds would be 8000 pounds in the first year!!!

I asked about the quoted hourly rate 150 – 180 pounds per hour for the IFA and 70 to 80 for an administrator; wouldn’t this be a cheaper option? I was told no – that it takes a long time to do the necessary research. I was also surprised that the hourly rate does not take into account travelling to the client’s home [this is charged at the full rate]. I would find it more acceptable if the hourly rate allowed for preliminary visits to the client and travelling. [No doubt it also has to pay for the Mercedes/ BMW/Audi ].

I do wonder why it should cost the same percentage rate for 10000 or 100000 pounds. Or why it should take longer to do the research for 100000 pounds or 10000 pounds.

How is the hourly rate justified – especially for an admin hour?


I am fairly financially aware myself , I look in the financial press and study websites like these, without being unkind it does not seem difficult to become an IFA – there doesn’t seem to be a 3 year degree in finance required [am I wrong?]. It all seems fairly simple stuff. I suspect that there are only a handful of ‘types’ of client and the discussion soon leads the IFA to know which you are.

What also surprises me is that the IFA’s I have met seem to use paper and a calculator to show examples – I have modelled my retirement in a series of spreadsheets finding it much easier to do ‘what if’ scenarios. Surely it I possible to develop software where the IFA or better the client feeds in their personal details and out pops a range of options.

What I am really asking is – is there a better way of investing rather than spending probably 2 or 3 years investment profits on the IFA fees?
Is there some sort of [cheaper] execution only investment route if one is prepared to do the reading?
Is there an alternative to investment such as just putting the money in a building society – yes I know about tax?
Is there an IFA who accepts a percentage of one’s profit – an incentive to do well for the client?

Or are the IFA fees justified and I am missing something. Do I have no alternative but to use an IFA?

bryanb

Hope you get some sensible answers as these questions have troubled me for a few years. I just couldn't spell it out so concisely. Thanks & I'm watching intently. BB

jem16

nearleyretired wrote: »

I did read the sticky about IFAs before I decided to go ahead and post this.




I am trying to get some general advice about IFA’s.

I am trying to do some preliminary retirement planning; I will be retiring in the next few years.

I have had discussions with two IFA’s and find the tariff for doing business strange.

I was told that for an investment bond that the rate is up to 8% of the sum I invest – so 10000 pounds would be 800 pounds in the first year. 100000 pounds would be 8000 pounds in the first year!!!

I asked about the quoted hourly rate 150 – 180 pounds per hour for the IFA and 70 to 80 for an administrator; wouldn’t this be a cheaper option? I was told no – that it takes a long time to do the necessary research. I was also surprised that the hourly rate does not take into account travelling to the client’s home [this is charged at the full rate]. I would find it more acceptable if the hourly rate allowed for preliminary visits to the client and travelling. [No doubt it also has to pay for the Mercedes/ BMW/Audi ].

I do wonder why it should cost the same percentage rate for 10000 or 100000 pounds. Or why it should take longer to do the research for 100000 pounds or 10000 pounds.

How is the hourly rate justified – especially for an admin hour?


I am fairly financially aware myself , I look in the financial press and study websites like these, without being unkind it does not seem difficult to become an IFA – there doesn’t seem to be a 3 year degree in finance required [am I wrong?]. It all seems fairly simple stuff. I suspect that there are only a handful of ‘types’ of client and the discussion soon leads the IFA to know which you are.

What also surprises me is that the IFA’s I have met seem to use paper and a calculator to show examples – I have modelled my retirement in a series of spreadsheets finding it much easier to do ‘what if’ scenarios. Surely it I possible to develop software where the IFA or better the client feeds in their personal details and out pops a range of options.

I'll let Dunstonh (an IFA who posts regularly) answer the above.

What I am really asking is – is there a better way of investing rather than spending probably 2 or 3 years investment profits on the IFA fees?

No need to pay all that.

Is there some sort of [cheaper] execution only investment route if one is prepared to do the reading?

If you are able to DIY then you invest through Hargreaves & Lansdown. They will discount initial charges and part of the annual charge.

Is there an alternative to investment such as just putting the money in a building society – yes I know about tax?

Yes lots - OEICs, UTs, ITs, Investment Bonds to name a few.

Is there an IFA who accepts a percentage of one’s profit – an incentive to do well for the client?

Yes - commonly known as a NMA ( New Model Adviser ) or one working to CAR ( Customer Agreed Renumaration). My advsier takes 1% commission regardless of type of investment and 0.5% trail (annual) commission. The more my investment makes the more he gets paid each year.

However I think you need to understand the difference between charges and commission first. The Investment Bond you mentioned comes with an up to 8% commission fee from the provider - you don't pay it, it's not a charge.

With my bond the provider paid 8.5% commission. As my adviser only took 1% commission, the other 7.5% was rebated into my investment so my initial allocation was £107,500.

The maximum commission IFAs take is usually around 3 or 4%. The average is 1.8%. Like any business there are some who take more and some who take less. Large salesforces tend to take more.

Or are the IFA fees justified and I am missing something. Do I have no alternative but to use an IFA?

You can DIY if you want but if you don't know what you are doing it can cost you a lot more than the IFA charges or takes commission for.

davey9998

there is not much difference in handling £10,000 or £100,000 - you are right about that.

you could do it yourself and save a decent amount of money and you are right there are some poor advisers.

fee based is normally the best way to go as you ensure that they are doing what is in your best interests not just what gives them the best commission.

however, as an adviser I do have a 3 year degree in finance and many other qualifications and it is a profession that requires a lot of knowledge and study. Indemnity fees, running an office, car, printer, paper, ink, admin staff, stationary, laptop, professional fees, accountancy fees etc all do add up to an awful amount of money. Some people also don't like the fact that they may have to pay £2,000 for advice but you can learn a lot from speaking to an IFA and you also have some comeback if things go wrong.

the money for advice may seem a lot to people who are in lower paid jobs but unfortunately it is a fact of life that some people who have studied hard do earn more than some others.

either way, i wish you luck!

nearleyretired

jem16 - is there any way you can mention an example of one these

Yes - commonly known as a NMA ( New Model Adviser ) or one working to CAR ( Customer Agreed Renumaration). My advsier takes 1% commission regardless of type of investment and 0.5% trail (annual) commission. The more my investment makes the more he gets paid each year.

or does it break forum rules ?

Thanks for the post

jem16

nearleyretired wrote: »

jem16 - is there any way you can mention an example of one these



or does it break forum rules ?

Thanks for the post

Not quite sure what you mean here? Do you mean post the details of a specific adviser working on NMA or CAR?

Your best bet would be to use https://www.unbiased.co.uk to find someone in your area. Avoid large national salesforces (often using 0870 numbers) as these are the ones usually working to high commission levels. Try to find a local firm where you can deal with the owner/partner. Then ask if they work to either of the methods I mentioned and what their terms would be.

caveat_emptor

"Some people also don't like the fact that they may have to pay £2,000 for advice but you can learn a lot from speaking to an IFA and you also have some comeback if things go wrong."
davey, would you explain what comeback there is if things go wrong. In my experience there is none.

nearleyretired

jem16 wrote: »

Not quite sure what you mean here? Do you mean post the details of a specific adviser working on NMA or CAR?

Your best bet would be to use www.unbiased.co.uk to find someone in your area. Avoid large national salesforces (often using 0870 numbers) as these are the ones usually working to high commission levels. Try to find a local firm where you can deal with the owner/partner. Then ask if they work to either of the methods I mentioned and what their terms would be.

No thanks that's fine - I think I live only 60 miles ish from you so an exact name would be nice - I can see that this is difficult on here.

Though I have sent a PM - didn't realise this forum allowed them until now.

dunstonh

I was told that for an investment bond that the rate is up to 8% of the sum I invest – so 10000 pounds would be 800 pounds in the first year. 100000 pounds would be 8000 pounds in the first year!!!

That is not a fee. It is commission. Commission can vary with products and providers. Some commissions are explicit. i.e. a 3% commission on a unit trust will see a 3% deduction from the investment. Whereas an 8% commission on most investment bonds will see no deduction from the investment as its not explicit. The provider pays the adviser the commission which is then recouped via the annual management charge over the next 5-10 years.

If an adviser has said they will take 8% as a commission then walk away. That is greedy.

I asked about the quoted hourly rate 150 – 180 pounds per hour for the IFA and 70 to 80 for an administrator; wouldn’t this be a cheaper option? I was told no – that it takes a long time to do the necessary research. I was also surprised that the hourly rate does not take into account travelling to the client’s home [this is charged at the full rate]. I would find it more acceptable if the hourly rate allowed for preliminary visits to the client and travelling. [No doubt it also has to pay for the Mercedes/ BMW/Audi ].

I do wonder why it should cost the same percentage rate for 10000 or 100000 pounds. Or why it should take longer to do the research for 100000 pounds or 10000 pounds.

Larger portfolios do take longer to build. So, there is an element of larger investments costing more to put together. For example, a £10k fund spread would be an hour on the research but a £100k fund spread could take 5-6 hours. It would typically beat commission taken on maximum terms.

How is the hourly rate justified – especially for an admin hour?

Doesnt have to be justified although the FSA do expect it to be reasonable. £150 is the typical figure although city locations and prestige firms can be a lot more. Some may have a minimum. One large regional accountancy firm near me has a £2500 minimum charge. You are paying for an individual that has taken exams and built up experience. Its knowledge you are paying for rather than the actual workload. Also, it is not a cheap profession to be in. If I cut all costs to the bone it would still cost me over £10k a year before I get out of bed. By the time you add in the things you need to be a good adviser you can double that. My business year ends next week and I am well over £70k in costs.

I am fairly financially aware myself , I look in the financial press and study websites like these, without being unkind it does not seem difficult to become an IFA

It isnt difficult to become an IFA and work to minimum standards. It requires 8 exams currently although the FSA have proposed a further 4 from 2009 to make a clear distinction between IFAs and tied agents.

Also, are you making the distinction between tied agents and IFAs? Tied agents are a doddle to get started in. It is harder to become an IFA than a tied agent especially if you try it in one go.

Regardless of what you read in the press, there is knowledge and detail that you just dont see on simple transactions that the media cover.

there doesn’t seem to be a 3 year degree in finance required [am I wrong?].

Its not required but one exists. The proposed standard from 2009 would equate to a BA hons. The chartered standard is degree level.

However, you wouldnt be able to afford a chartered standard adviser if you wanted to invest £100k. There would be little point a chartered adviser dealing with you either. It would be like bokking an appointment with a brain surgeon to see you about splinter in your finger.

What also surprises me is that the IFA’s I have met seem to use paper and a calculator to show examples – I have modelled my retirement in a series of spreadsheets finding it much easier to do ‘what if’ scenarios. Surely it I possible to develop software where the IFA or better the client feeds in their personal details and out pops a range of options.

Examples often have to be given on the fly. If you are sitting at a table and you are fired a question where a diagram is required then its quicker and simpler to doodle it than create a spreadsheet. Abilty to use excel does not make a good or bad adviser.

Software is available and after regulatory costs, it is my second highest cost. However, a lot of it requires an internet connection which is no good for home visits. Also, the average age of IFAs is 53. No disrespect to my elder IFAs but many of them are not good with computers. They use PAs for that. Again, fine for prepared examples but no good on the fly.

What I am really asking is – is there a better way of investing rather than spending probably 2 or 3 years investment profits on the IFA fees?

I reckon it will take you about 3 years to get sufficient investment knowledge to be able to build your own portfolio to an ideal standard. Alternatively, you can look for an IFA that isnt greedy. The larger the portfolio the cheaper in percentage terms it should be.

Is there some sort of [cheaper] execution only investment route if one is prepared to do the reading?

Yes. Its called execution only and most IFAs will transact this way. Some business models are focused on this.

Is there an alternative to investment such as just putting the money in a building society – yes I know about tax?

If you are happy with returns that may not keep up with inflation then that is fine.

Is there an IFA who accepts a percentage of one’s profit – an incentive to do well for the client?

Sort of. NMA IFAs will take a much lower upfront commission or fee in return for the natural fund based trail commission. That trail commission is a percentage of value so they get paid more as the value goes up or less if it goes down.

davey, would you explain what comeback there is if things go wrong. In my experience there is none.

If you seek advice and the advice is wrong then you are protected under FSA rules and have the ability to take your complaint to the FOS. If you go execution only then you do not.

It is worth noting that some of these execution only firms are no cheaper or not much cheaper than the better value advisers. You are posting in the pensions forum so assuming pensions, you can look at the HL SIPP vs an IFA arranged one with an NMA IFA. The only difference there is the intial commission which is typically 1% with an NMA IFA and nothing with HL. However, HL keep the trail commission as does the IFA. So, the cost of advice in this case is the 1% initial commission.

nearleyretired

thanks dunstonh

You are posting in the pensions forum so assuming pensions, you can look at the HL SIPP vs an IFA arranged one with an NMA IFA.

probably too early in the morning but did not undertand "HL".

I should probably have said I am not intereseted in a pension but in how to best invest a lump sum (I am in a final salary pension) when I do retire.

jem16

nearleyretired wrote: »

thanks dunstonh




probably too early in the morning but did not undertand "HL".

HL is Hargreaves Lansdown that I linked to earlier.