Using IFA's
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Depends on the value. The most common figure is 0.5%. However, smaller values do tend to get pushed towards 1% because obviously smaller values do not provide sufficient amounts to cover costs.
So do you think 1% on a 200k investment is high or about right?
IMHO 200k is not really a small investment...0 -
richard686 wrote: »Thanks for the feedback!
I'm also interested in what IFA's think about companies like NUTMEG.
QUOTE]
I had a look at the Nutmeg website as this thread piqued my interest. I have three comments:
1. The website is quite difficult to read. Although the font size is reasonably large, the print is quite faint, and the letters tend to squash together. There's a few typos as well - not very encouraging. If an organisation can't use a spell checker on its website, well, that suggests a lack of professionalism, and that puts me off to be honest.
2. I absolutely hate the concept of reducing fees by earning "nutmegs" through investing activity and successful referrals to friends etc. Fees should scale down depending on the size of the investments, full stop. And there's no way I am recommending an investment management service to friends and family, especially not for my own personal gain. It might be the right thing for me, but I'm not taking the responsibility of anyone else getting involved.
3. I'm more inclined towards a passive style of investment. This is much too active for me. All the evidence suggests that the likelihood is that, over time, active investment will produce poorer returns than a passive strategy.
That's my tuppence worth. Feel free to disagree!0 -
richard686 wrote: »So do you think 1% on a 200k investment is high or about right?
IMHO 200k is not really a small investment...
It's high for £200k. You would normally expect 0.5% for over £100k. However it does depend on the IFA but that is the norm.0 -
I have found a local Chartered Financial Planner that is charging 0.5% and zero % for new investments.
Sounds like a good deal compared to my current OMB IFA (1% and 3%).
While looking, I have found discretionary managers who charge 1% on going for that service, so to expand the discussion, I would be interested to hear peoples views of the pros and cons of a discretionary service vs a financial planner who recommends some funds and checks them 6 monthly vs just going for a self invested low cost passive approach (tracker fund).
I know a lot of it is down to personal preference - but I have deliberately not included an option where I directly invest in funds or S&S and do all my own research and management.0 -
The problem with a discretionary fund manager is that it’s nigh impossible to quantify how good they are.richard686 wrote: »While looking, I have found discretionary managers who charge 1% on going for that service, so to expand the discussion, I would be interested to hear peoples views of the pros and cons of a discretionary service vs a financial planner who recommends some funds and checks them 6 monthly vs just going for a self invested low cost passive approach (tracker fund).
I know a lot of it is down to personal preference - but I have deliberately not included an option where I directly invest in funds or S&S and do all my own research and management.
If you ask them what returns they achieve they’ll not entirely unreasonably say “it depends”. Returns can be boosted by taking higher risks and unless you know and understand exactly what risks the manager is taking then it’s impossible to know how good they are at their job. Luck can look like skill until the luck runs out.
The clue to the primary job of a financial planner is in the name, he plans your finances if you feel you are unable to do that for yourself.
What you can be certain of is that all fees reduce your returns and need to be minimised unless you’re sure they add value.
On your original post, the idea of performance related fees is attractive but extremely difficult to implement in a way that’s fair to both parties. Typically hedge funds operate on a "2 and 20" basis, i.e. 2% per year plus 20% of the profits but have been of questionable value for many people.
Many years ago I was offered a similar arrangement by a stockbroker – a straight 20% of all profits. The first problem is, like the bankers, there’s the temptation to take massive risks with other people's money when you know that if the bet comes off you win 20% and if it doesn’t it's only someone else's money that lost.
The other problem is that markets go up and down so there need to be effective hurdles. In the arrangement I was offered, I would have paid 20% on profits every year from 1995 to 2000 but then the market fell right back to where it had been in 1995. The same happened up to 2008 when the markets rose before fallingl 40% and in today the FTSE is still below where it was in 2000 even if you don’t take inflation into account. Add in inflation and it looks much worse. That could be a lot of 20% fees to get nowhere.
Ultimately, any investor who doesn’t learn at least the basics of investment will find it very hard to know whether he’s benefiting from any advisor. Don’t expect anyone else to put your finances ahead of their own and finding a decent advisor can often be harder and require as much knowledge as making your own investments in the first place. Managing your own investments and savings really isn’t difficult for any normally intelligent adult.
You’ll find a huge amount of very authoritative information on investment and getting advice on Justin Modray’s website http://candidmoney.com/intro/financialadvice.aspx0 -
Thanks Rollinghome, you have clarified what I have been thinking.
I'll look at that site. The Monevator site as interesting too.
I have a reasonable grasp of investments and I, like may other savers, am looking for better options for getting a reasonable return on cash savings as well as making sure my pensions are kept on the straight and narrow.
In terms of actual planning - well I've done a reasonable job at that so far and there are limits to what you can actually plan for in this ever changing world.
You're right about the advisors taking risks with other peoples money - hence my question about performance related fees.
One assumes that all these guys out there with billions of ££££ of other peoples money must be able to do something right (unless it's all just a giant smoke and mirrors con)!0 -
performance fees are very overrated. in many situations, they completely fail to do what they're supposed to do, i.e. to align the interests of the ppl paying and receiving the fees.
for very simple jobs, pay by results may work. for anything more complicated, it's very hard to measure performance accurately.
performance fees also encourage excessive risk taking. place a large bet with somebody else's money; take part of the winnings if you lose; lose nothing (except perhaps your job) if you lose. but then if you avoided risks, and ended up with mediocre performance, you'd be equally likely to lose your job.
you can see excessive risk-taking among the top executives of many big companies, and among fund managers (not only among hedge fund managers, though they're generally a more extreme case). for managers of companies, the only time their interests are really aligned with shareholders is when they are themselves major shareholders in the company.
for IFAs, as opposed to fund managers, i don't even see how you'd apply the concept of performance-related pay. what would compare the performance of the investments they selected with? different clients have different risk appetites, and different timescales, so it's not 1-size-fits-all.
even if you could pick a suitable benchmark for the risk level, the purpose of the IFA is more to select the right risk level and implement it consistently than to pick the best performing investment for a given risk level.
also, IFAs are supposed to help you to use tax shelters efficiently. how do you benchmark for whether they've done that well?
i do agree with the suggestion that it might be easier to look after one's own finances than to find a good IFA to do it. i'd have no idea how to select a good IFA.0 -
richard686 wrote: »I have found a local Chartered Financial Planner that is charging 0.5% and zero % for new investments.
Sounds like a good deal compared to my current OMB IFA (1% and 3%).
Yes certainly sounds better.
However is there a charge for initial advice as I would expect there to be a fee for the financial plan with any investments placed being 0% initial and 0.5% ongoing?0 -
Yes certainly sounds better.
However is there a charge for initial advice as I would expect there to be a fee for the financial plan with any investments placed being 0% initial and 0.5% ongoing?
They tell me that the only fee is the 0.5% annual fee.
I would expect that if I ask for some other work to be done, then there would be some fee, but all the work required to get my funds moved (if required) and the new 'platform' set up is done FoC.
Ultimately they are just a middle men and they do seem to like expensive 'fund of fund' funds, but I think 0.5% seems reasonable to do what they promise to do.0 -
I think this is the best advice of all.grizzly1911 wrote: »Try reading Smarter Investing - Tim Hale and this Monevator Site.
http://monevator.com/
You can't expect professional to work for nothing. For many they add value and for others think they can do a better DIY job.
Depends what you know.
IFAs may do their best to identify a client’s risk profile, but a “reasonable person” (which is not wishy-washy speak and is actually a legal term used to describe a normal, rational person) wishing to invest for a decade or two would include funds in their portfolio.
Meanwhile, the passive v managed fund argument rages on without conclusion, but the number of IFAs prepared to recommend a passive fund is, in my experience, limited. Yes, I ask every IFA if they are 100% independent, but even independents are loathe to recommend a tracker fund.
I’d like to know why this is.0
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