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

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.

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.

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,

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.

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...

Hi Trevs

£200 per hour would finance many excellent books on investing, including our introductory read "10 secrets of Wealth Creation", downloadable in PDF form or via Amazon.co.uk, at http://www.littlesavvyre...rets-of-wealth-creation/

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.

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.

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.