How to find a decent IFA - or best not to?

Undervalued · 6 February 2016 at 2:10PM

A couple of times in the last ten years or so I have felt I could benefit from using a decent IFA. Neither has ended well so I am very torn as to whether to try again.

In the past I have run my own business and been treasurer for a organisation with a seven figure turnover so I am reasonably financially literate. I also worked in a field that required great accuracy and integrity.

Briefly, the problems in the past have been:-

IFA one rather lost my confidence by producing inaccurate paperwork then took far longer than they should have done handle several transactions. This was in a rapidly moving market and cost me a significant amount of money. They tried to deny responsibility but eventually paid compensation and refunded their fees.

IFA two wanted to use a particular platform (maybe Co-Funds ??) and gave me very misleading advice about the total costs involved. I was quite happy to pay a fee for their time and advice as to what to buy. However I was not willing to be mislead (lied to basically) about the initial fund charges being cheaper through them when in fact the reverse was the case.

So currently I am using a self administered platform with a portfolio based partly on the funds IFA two was recommending and partly on my own research.

I have no real expertise in market research so I keep wondering:-

Should I have another go at buying some pure advice from time to time in the hope that will be cost effective? If so how do I find the right person / firm?

or

Would I just be better using one of the online platform's "ready made" portfolios and save the IFA fees?

Thoughts would be appreciated.

TheTracker · 6 February 2016 at 2:36PM

Do you want to fund your retirement or their retirement?
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/12138512/We-put-500000-into-Aim-shares-to-avoid-inheritance-tax.html

Undervalued · 6 February 2016 at 2:45PM

TheTracker wrote: »

Do you want to fund your retirement or their retirement?
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/12138512/We-put-500000-into-Aim-shares-to-avoid-inheritance-tax.html

Well mine obviously!

However I have no problem with how much they make, providing it is cost effective for me compared with realistic alternatives.

It is a bit like if I want some home maintenance or car repair work doing. If I am not confident in my own skills my choices are:-

Spend time and energy learning then do the job

or

Pay somebody who has the necessary skills

Assuming both lead to a satisfactory result it comes down to how much I value my time and whether I enjoy spending my time in that way.

dunstonh · 6 February 2016 at 3:28PM

IFA two wanted to use a particular platform (maybe Co-Funds ??) and gave me very misleading advice about the total costs involved. I was quite happy to pay a fee for their time and advice as to what to buy. However I was not willing to be mislead (lied to basically) about the initial fund charges being cheaper through them when in fact the reverse was the case.

Back in the bundled pricing days, Cofunds would give the cheaper of their deals or the IFAs arranged deals. They would never be more expensive than the default. Nowadays, unbundled pricing has removed IFA deals. it is the platform that arranges deals (although some IFAs will have different deals with different platforms).

Would I just be better using one of the online platform's "ready made" portfolios and save the IFA fees?

Ready made portfolios don't seem to have a good reputation. I have seen a number and not been impressed with any. Plus, the costs are often more expensive as they bundle their costs into the TER rather than an explicitly separated as an adviser would. Indeed, I have seen a number of ready made portfolios where their cost is greater than the advised portfolio. So, its actually costing more to DIY in those cases.

The term "IFA" covers very many business models. You could have one that is mostly mortgage and does hardly any investment business. Great if you want a mortgage. Not if you want to invest. Or one the other way around. You may get one that favours DFMs, another that focuses on high net worth, another that focuses on lifetime planning and farms the investments out to others.

Like any job in life, you either DIY or you get someone to do it for you. You can save money if you DIY but only if you are capable of it (get it wrong and the saving can cost you more than getting it done by someone). Advice will cost you but if it does it right and saves you time then it could be money you are happy to pay. It is really down to personal opinion.

Undervalued · 6 February 2016 at 4:05PM

Thanks for your thoughts.

Forgive me but what is a DFM?

I am only looking for investment advice as this is the area where I feel I am lacking the DIY skills. I am quite happy to do the admin.

To carry on the DIY analogy, I am confident that my own efforts would be safe but I am hoping that a professional would do a better job. But I need to be confident, if I am not I will end up checking and re-checking everything myself and neither of us will be happy.

I have used the same accountant for nearly thirty years and trust him implicitly. I also have long standing relationships with several tradesmen. So far though, I have struggled to find anything similar in this field.

bigadaj · 6 February 2016 at 4:39PM

Dfm is discretionary fund management.

If you are prepared to do some research then there's no reason why you can't diy, the svaings can be considerably more than other areas of life.

The first thing is to determine where you are in your ndy what your aims are. That sounds very woolly but you need to look at your age, your wealth, what you have in terms of property, cash and investments, including pensions and then work form there.

What are your aims, is this for retirement, inheritance, financial security, school fees etc etc

The length of time you are investing for and your capacity for risk, which really is volatility if you are in it for the long term. An ifa can help in determining and explain this but hasn't got a magic button to create higher returns or pick a fund that is guaranteed to be better.

Commission has pretty much been banned now, so they should be upfront with their fees but as dunstonh says you gave the choice to employ someone or manage your investments yourself.

Undervalued · 6 February 2016 at 4:56PM

bigadaj wrote: »

Dfm is discretionary fund management.

If you are prepared to do some research then there's no reason why you can't diy, the svaings can be considerably more than other areas of life.

The first thing is to determine where you are in your ndy what your aims are. That sounds very woolly but you need to look at your age, your wealth, what you have in terms of property, cash and investments, including pensions and then work form there.

What are your aims, is this for retirement, inheritance, financial security, school fees etc etc

The length of time you are investing for and your capacity for risk, which really is volatility if you are in it for the long term. An ifa can help in determining and explain this but hasn't got a magic button to create higher returns or pick a fund that is guaranteed to be better.

Commission has pretty much been banned now, so they should be upfront with their fees but as dunstonh says you gave the choice to employ someone or manage your investments yourself.

DFM - ah yes, obvious now! Thanks.

Unlikely to appeal, certainly initially. I know in effect that is happening within any individual fund I buy. However somehow I would need to gain confidence before I let an IFA buy and sell without running it past me first.

I don't feel I need help with defining objectives, IHT planning or anything like that. I don't really want to be paying for their time in do that (although I realise that some aspects may be obligatory so that they can justify the appropriateness of their advice).

Thinking back to IFA two that I mentioned (a small local firm), where do they get their recommended portfolios from? I can't believe what I was recommended back then was created specially for me. At best I assume they took one of the shelf that fitted my profile?

Can one cut out the middle man and go to the wholesaler so to speak?

dunstonh · 6 February 2016 at 5:21PM

Unlikely to appeal, certainly initially. I know in effect that is happening within any individual fund I buy. However somehow I would need to gain confidence before I let an IFA buy and sell without running it past me first.

IFAs require permission to carry out a transaction. The vast majority do not hold discretionary permissions.

Thinking back to IFA two that I mentioned (a small local firm), where do they get their recommended portfolios from

Hard to comment on other firms. However, we buy asset allocation models created by actuaries to fit defined risk profiles. We also purchase research to aid filtering. The company we use is used by thousands of other IFAs too. The level of due diligence required nowadays means you cant really do these things in-house any more. However, the actual funds used to fit the allocations are left to the adviser.

Can one cut out the middle man and go to the wholesaler so to speak?

If you are willing to get yourself FCA authorised and pay the actuaries then yes. However, you wouldnt benefit from economies of scale. An IFA will be doing it for hundreds of clients. So, the cost is spread. You would be doing it for yourself alone.

Undervalued · 6 February 2016 at 5:44PM

dunstonh wrote: »

Hard to comment on other firms. However, we buy asset allocation models created by actuaries to fit defined risk profiles. We also purchase research to aid filtering. The company we use is used by thousands of other IFAs too. The level of due diligence required nowadays means you cant really do these things in-house any more. However, the actual funds used to fit the allocations are left to the adviser.

Thanks again.

I don't quite understand the last sentence, are you saying the IFA chooses between similar funds offered by, say, Aberdeen or Invesco or is that part of the built in model too?

Also, what I don't understand is this. Having established a risk profile (say on a scale of 1 to 10) why are there not 10 matching portfolios knocking around on the internet.

If fact, realistically it is not as many as that as I can't imagine a average IFA getting many clients that score 1, 2, 9 and 10. Presumably people in those categories will follow a different route?

dunstonh · 6 February 2016 at 6:00PM

I don't quite understand the last sentence, are you saying the IFA chooses between similar funds offered by, say, Aberdeen or Invesco or is that part of the built in model too?

The asset allocations are provided by the actuaries. The IFA picks the funds to meet the allocations.

Also, what I don't understand is this. Having established a risk profile (say on a scale of 1 to 10) why are there not 10 matching portfolios knocking around on the internet.

Models are not static. The allocations get reviewed quarterly based on economic data, asset pricing etc. So, rebalancing would be based on the latest allocations. There are some static models on the internet but they are not risk rated beyond the very basic. The risk is also that you could pick higher risk bonds to fit the the bond allocation and that would require lower risk equities to counterbalance or an adjustment made in the allocations to bring back in line with objectives.

If fact, realistically it is not as many as that as I can't imagine a average IFA getting many clients that score 1, 2, 9 and 10. Presumably people in those categories will follow a different route?

1 and 10 are rare. Indeed, you only seem to see what an IFA would class as 10 on the DIY side. Often by people that dont realise the risks they are taking.

Undervalued · 6 February 2016 at 6:56PM

dunstonh wrote: »

The asset allocations are provided by the actuaries. The IFA picks the funds to meet the allocations.

OK, so how do they do that bit? Presumably some are better at it than others. Or is it like Doctors and drugs? The better the corporate hospitality........

Out for now, I'll return to this later or tomorrow.

How to find a decent IFA - or best not to?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free