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Cost of financial advice
gterr
Posted: 18 February 2013 13:21:02(UTC)
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OK, so I know this is a bit like asking 'how long is a piece of string', but could someone help with this?

My husband and I will be selling a business property in November which will give us approx. £180k to invest for a retirement income. We already have DIY S&S Isas with HL (just started them this year) and are happy to do lots of research to pick funds, do the rebalancing etc. However, with this large sum to invest I am thinking that it would be best to get an IFA to help. What I don't want is to end up with paying a fee every year for an IFA to review/rebalance the portfolios etc.

Would it be appropriate to pay a single one-off fee to an IFA for help in establishing the best way forward - guidance with where we park the funds whilst we are getting them in to the S&S Isas (which will take a few years), how best to set up the investments to provide retirement income for, potentially the next 30 years, etc., and perhaps to look at what annuity rates are doing by the time we get to November? Would an IFA take on a single job like this, or would they expect to be retained year-on-year?

And, lastly, any idea what we might be looking at paying, given an amount of approx £180k to invest between the two of us?
Ian Wells
Posted: 18 February 2013 17:03:46(UTC)
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I would not really be happy recommending a portfolio without a service agreement. A service agreement can be sought where you pay a flat fee or a percentage. I get my car and boiler serviced every year wether they need it or not. And neither is worth £180K
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gterr on 18/02/2013(UTC)
Dividend Income investor.com
Posted: 18 February 2013 17:13:46(UTC)
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Forget about 'financial advice', instead educate yourself and take control.

For an introductory read: http://www.littlesavvyre...rets-of-wealth-creation/
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gterr on 18/02/2013(UTC)
Gergiev
Posted: 18 February 2013 17:28:37(UTC)
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I've recently appointed an IFA to manage my pension fund after doing it myself for a while. I have negotiated a 1% per annum fee for him to set up a portfolio of investments and rebalance it every quarter (or when necessary since markets don't move on an obliging 3 month pattern). If after the first year (actually I could dispense with him after 3 months but unless I've really chosen badly I cannot give him so short a run) I don't rate his performance, or if I feel I want to say take control back myself or just try another approach, I can do so.
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gterr on 18/02/2013(UTC)
Clive B
Posted: 18 February 2013 17:58:09(UTC)
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Ian Wells

Interesting point, but imo a boiler/car going wrong is an objective thing (everybody would tend to agree whether it was working/not), but - to me - a portfolio going "wrong" is totally subjective, unless there's some hard and fast criteria, e.g. must return more than the FTSE 100 over any rolling 12 month period.

My portfolio is also worth far more than my car. I get my car serviced, but I run my portfolio myself.
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gterr on 18/02/2013(UTC)
James A Kane
Posted: 18 February 2013 20:23:56(UTC)
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These forums are written and read by investment professionals and DIY investors. The DIY investors by definition don't pay for advice and I suspect those who would like to be DIY investors would not be prepared for the "real" cost of advice either. In my practice we charge 3% fee plus 0.5% p.a. The regulatory costs of doing business total1.4% and the cost of running an office is 1.6%, so in year 1 the adviser (me) makes no money for his work. When we take on work at a fee of 3% with no ongong servicing we make no money on it. I think it helps when customers know the costs which the business incurs and can make an informed decision on whether they want to pay the cost.
Roydo
Posted: 18 February 2013 20:28:04(UTC)
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Gergiev;18079 wrote:
I've recently appointed an IFA to manage my pension fund after doing it myself for a while. I have negotiated a 1% per annum fee for him to set up a portfolio of investments and rebalance it every quarter (or when necessary since markets don't move on an obliging 3 month pattern). If after the first year (actually I could dispense with him after 3 months but unless I've really chosen badly I cannot give him so short a run) I don't rate his performance, or if I feel I want to say take control back myself or just try another approach, I can do so.


Begs the question, what do you expect from him/her? Some silver bullet that you have missed while doing it yourself, or some sort of stellar performance that everyone else has missed?

IMO, most IFAs are not, and should not, promote themselves as some sort of investment gurus. They are there to provide technical advice/support, (which I have proved many times on here), and investment guidance for those who have neither the interest nor inclination to go DIY.

I have many clients who DIY on the investment front, and I have no problem whatsoever with that. Investment is nothing more than an opinion. Maybe some more informed than others, but an opinion nevertheless.
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James A Kane on 18/02/2013(UTC), Clive B on 18/02/2013(UTC)
Clive B
Posted: 19 February 2013 09:03:42(UTC)
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James A Kane

Regarding your explanation of why you make no money simply on an initial fee of 3%, strikes me as a little odd that the professionals seem to regard 3% as a standard figure for initial fee (from reading the NMA pages). I could see 1.4% might be charged on AUM so be the same for all equally sized firms, but 1.6% for running an office suggests you've all got equally good/drab offices.

Anyway, I think RDR's a good thing - lets IFAs say "I charge x% and this is why I think it's good value for the client".
malcolm roberts
Posted: 19 February 2013 10:08:13(UTC)
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I like the above have money to invest.
Would anyone with the knowledge, give an oppinion on what monthly ROI I should expect from investing £200k.
Thanks.
dd
Posted: 19 February 2013 12:30:00(UTC)
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Malcolm,

If you are considering using funds or ITs for this purpose, you could create a virtual portfolio, somewhere like trustnet, so that you can see how your selection performs over whichever time period you choose (1m, 3m, 6m, 1yr, 3yrs, 5yrs).

A fund which is currently growing by 10%pa was recently recommended to me. A more adventurous fund was growing by 17%pa. I use these as my benchmark. These performance rates will change, of course and may go negative.

The actual yield on certain income funds may only be around 5% pa but if you need more than that, you could sell a slither when prices are high to crystalise any gain achieved by capital growth. That will also reduce the breakeven, which feels good.

So, £200k@ 5% = £10kpa = £833pcm, plus anything you choose to capitalise from growth. The hitch? If markets fall, you will not want to crystalise any loss and increase the breakeven and you will only want to take the natural income...

...generally speaking, of course.

To state the obvious, make sure that you have used fully any ISA allowances etc.

I hope this helps.
Clive B
Posted: 19 February 2013 13:34:49(UTC)
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dd

why do you say "If markets fall, you will not want to crystalise any loss" ?

If markets fall and your initial £200K is now worth (say) £180K, it's worth that whether you sell or not.

If after a fall you find your money is incorrectly positioned for going forwards, I'd say sell - makes no difference to the value of your portfolio (assuming selling/buying costs are low or zero), but can have a beneficial effect if you're in CGT territory as losses can be carried forwards.

TrevS
Posted: 19 February 2013 15:25:05(UTC)
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I recently started investing and started out using an IFA but refused to pay a percentage e.g. the 3% mentioned. The going hourly rate (down south) seems to be around £200. So 3% of 180K is 5400 or 27 hours at 200/hour. To me the percentage route is daylight robbery. Based on my experience and IFA would take nowhere near 27 hours to do an analysis of your situation and advise on where to invest.

I would say using an IFA initially may short cut your learning time if you start out without much knowledge and pick their brains (no gags please). If you drip feed your money and start out using the IFA advice you have time to do your own research and then make your own decisions.

Is £200 per hour worth it? Your choice. Its comparable to solicitors, accountants and medical consultants who seem to have to jump through more hoops to get where they are...
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Clive B on 19/02/2013(UTC)
dd
Posted: 19 February 2013 15:31:12(UTC)
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I agree, Clive (particularly re correct positioning, going forwards). I was thinking of a general fall of equity prices, such as, for example the dip at the time of the riots in August 2011, from which we have bounced back. I chose not to sell in that dip.

I was trying to keep my comment simple but I also realise that there is no absolute or straight forward answer. I have indeed sold at a loss before now to buy into something which I reckon stands a better chance of growing. In my case, within an ISA.

To keep my comment short, I didn't get into the subject of CGT. I don't disagree with you.
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Clive B on 19/02/2013(UTC)
Ian Hawkes
Posted: 20 February 2013 15:59:02(UTC)
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James A Kane;18087 wrote:
These forums are written and read by investment professionals and DIY investors. The DIY investors by definition don't pay for advice and I suspect those who would like to be DIY investors would not be prepared for the "real" cost of advice either. In my practice we charge 3% fee plus 0.5% p.a. The regulatory costs of doing business total1.4% and the cost of running an office is 1.6%, so in year 1 the adviser (me) makes no money for his work. When we take on work at a fee of 3% with no ongong servicing we make no money on it. I think it helps when customers know the costs which the business incurs and can make an informed decision on whether they want to pay the cost.


I think your practice needs to bring its costs down somehow. 3% is the typical maximum initial charge recorded by IFAs, and I'd normally expect to see this amount come down for larger portfolio values. If a relatively large proportion of your regulatory and office management costs are fixed, your statement presumably means that you would lose money advising a new one-off client on where they should invest £100,000, which seems a little absurd.

To the original poster: I would expect you to be able to find an independent adviser to make a recommendation for about 1-1.5% on that amount, so be prepared to negotiate if someone wants to charge significantly more than this. As someone else started doing in this thread, if you assume a £200 p/h rate, a fee in the region of £2k gets you around 10 hours work, which wouldn't be too surprising for meeting you to discuss your requirements, carrying out a full factfind, identifying opportunities, making recommendations and then implementing those recommendations for you. Unless you have extremely complex requirements, you shouldn't need more hours dedicated to you than that for the initial set-up (the required number of annual hours is then open to further negotiation).
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Clive B on 20/02/2013(UTC)
Alan Selwood
Posted: 20 February 2013 22:01:53(UTC)
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One of the things that comes out of this thread is the dead weight of regulation on the adviser, and consequently cost to the client.

Remember that financial services have always had their fair share of excessive costs and rip-offs, like the insurance brokers who got 6% of the money invested as an upfront commission on the insurance bonds they 'recommended' and then there were the undisclosed annual charges on the those investments to cover the insurance company's profits and the adviser's annual commission whether he serviced the client or not. No wonder you needed to invest for the long term to overcome such a drag on performance from day 1.

Now that RDR has banned commission (more or less), the adviser fees may in fact be no dearer than the above, even if they are inevitably more visible and therefore painful to behold.

The acid test in all this is:
Do you need specialist advice, or do you know enough to solve your own problems? If the former, you have to pay for it. Whether it's 3% up front and 0.5% p.a. or some other set of charges, you may get the advice, at the expense of the charges being a drag on performance.

If you get professional advice on wills and inheritance tax, and probably annual taxes as well, you might as well pay a good adviser a fee to set up your investments, though I'd then want to put in a proviso that for equity investments you want only investment trusts with total annual charges not exceeding 1% p.a. rather than specialist unit trusts or OEICs charging 1.5% to 2.25% p.a. on top of the adviser's annual fee.

If you pick generalist investment trusts, I don't see why you then need annual consultations or charges unless your circumstances change in a major way. After all, a big annual fee is a big drag on performance.

By the way, I can't currently see that 'cautious managed funds' are worth the effort by the time you've also paid an adviser, since the annual rate of return on such funds is likely to be lower than the fee, imho.


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Martina on 20/02/2013(UTC)
rik
Posted: 20 February 2013 22:27:23(UTC)
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It seems obvious to me that we are wealthier if we avoid paying other people to sit at a computer screen and tell us what we can find out for ourselves.

Rik
dd
Posted: 21 February 2013 09:06:08(UTC)
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Yes, I agree Rik but the counter argument is that for those who don't have the time or the interest, the IFA route despite the charges, can be far better than the alternative of a building society account and ignorance of what may be available to them. People who don't read Citywire are more likely to be the ones who would benefit from the service of an IFA.

Karl Smith
Posted: 21 February 2013 12:19:16(UTC)
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Agreed dd.
Maybe the question is how much does one value ones time? IFAs are all well and good and serve a certain demographic. On Citywire you're likely to find reasonably informed individuals (some of whom have been "burned" by sharp practice, or lazy advice, or even poor value) but who have the conviction in their ability and are willing to back them. No blaming IFAs for this and that, if you make a bad decision / investment, it's your fault!
I'm one of these and believe firmly in taking responsibility for ones future, but still have a proportion of my portfolio managed by an IFA. I don't mind paying the fee because I'm (a) busy enough with the rest of my portfolio (which shall we say is larger and more in need of regular maintenance, (b) diversity of opinion

Perhaps in response to the original post it's worth taking a similar split approach. But the biggest thing to remember is that inertia is the biggest threat so if the IFA portion of your investment is not woking for you do something about it. It's your money afterall
Tricky
Posted: 21 February 2013 16:57:25(UTC)
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In a similar position I have used IFAs in the past and find generally that after they have taken their initial fee they are unlikely to review your portfolio, yes, even the good ones and even if you ask them too. I am now using a discretionary asset management company instead, they will invest for up to 1% depending on the type of product and charge a .9% annual fee, they constantly review your investments on your behalf and will invest in a wide range of products, you can have as much involvement as you like with the investment portfolio which is unique to you, and incorporates stocks and shares, various funds ETFs and corporate or government bonds. The costs involved in the underlying investments tend to be less than using an IFA or DIY as these tend to use institutional funds rather than retail funds.

The main advantage that I have found by using these companies is that they act like normal intelligent human beings, most of the IFAs that I have dealt with have been so sales oriented as to appear untrustworthy. There is an enormous danger in professionalising sales people.

As for going it alone, I acquired my capital through individual property developments and I have seen some pretty awful conversions in my time and many that cost a great deal more than they should have done! For work I was a small company accountant, where i came across a great deal of financial mismanagement by people trying to go it alone, my view is that you should stick to what you know and what you are good at and find a professional who is prepared to work well on your behalf. Having said that I do envy those of you who do go it alone, I just don't think it's for me.
Clive B
Posted: 21 February 2013 17:38:16(UTC)
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Tricky

So who is this discretionary asset management company ?

Clive
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