Commission paid for 15 years after IFA changed
Discussion
Petrus1983 said:
It's often harder to build a portfolio targeting 3-5% as there's little leeway for error - target 10% and return -5% and all you have to say is "market is tough" or "you wanted volatility".
Thats why i used the 'risk im happy with' caveat. 
My point put simply is, i dont believe the fees have moved in line with paradigm shift of reasonable returns seen in the last 8 years or so. Its only my opinion, but for me, i've yet to have a meeting with a IFA or wealth management person who has convinced me the true costs (including fund bid offer spreads etc) are currently good value. But its all subjective and personal.
To tie it back to this thread, 15 years ago, with a different horizon and paradigm, 0.5% annual may have seemed reasonable, currently to me, it does not and is maybe something worth considering when committing to long term investments and fee structures.
gibbon said:
I bow to your knowledge and experience in this field Ginge, however, i have to disagree with your correlation remark.
The relative returns environment is hugely relevant when determining value. Sure, sage advice has always got value, but that value that can be readily justified is somewhat different in a world where 7% returns are a benchmark figure for low to medium risk long term planning, to a world of 1.5% returns being heralded as a success, negative cash interest rates and high value rental yields falling to 3% and equity dividend payouts being slashed (just a few arbitrary examples of course).
Compounded, 0.5% per year in order to hope to make 2-3% is just too much imho. If you can make me 7-10% with a risk profile im happy about then sure, have your 0.5%.
Tax advice, well thats maybe something different.
I don't disagree with you at all, value is key and it's subjective. I was referring, I suppose, only to expense - £5000 to transact any business which can be done in half a day is expensive, regardless of whether or not the client sums involved are £10,000 or £1,000,000. Clients will gave to determine whether we offer good value or not; that's the variable. The constant is the expense. I accept that that also, can be all things to all men. The relative returns environment is hugely relevant when determining value. Sure, sage advice has always got value, but that value that can be readily justified is somewhat different in a world where 7% returns are a benchmark figure for low to medium risk long term planning, to a world of 1.5% returns being heralded as a success, negative cash interest rates and high value rental yields falling to 3% and equity dividend payouts being slashed (just a few arbitrary examples of course).
Compounded, 0.5% per year in order to hope to make 2-3% is just too much imho. If you can make me 7-10% with a risk profile im happy about then sure, have your 0.5%.
Tax advice, well thats maybe something different.
Ginge R said:
I don't disagree with you at all, value is key and it's subjective. I was referring, I suppose, only to expense - £5000 to transact any business which can be done in half a day is expensive, regardless of whether or not the client sums involved are £10,000 or £1,000,000. Clients will gave to determine whether we offer good value or not; that's the variable. The constant is the expense. I accept that that also, can be all things to all men.
Ginge, do you ever rebate underlying fees? Are you ever able to?gibbon said:
Petrus1983 said:
It's often harder to build a portfolio targeting 3-5% as there's little leeway for error - target 10% and return -5% and all you have to say is "market is tough" or "you wanted volatility".
To tie it back to this thread, 15 years ago, with a different horizon and paradigm, 0.5% annual may have seemed reasonable, currently to me, it does not and is maybe something worth considering when committing to long term investments and fee structures. Mr Trophy said:
Can I ask why it's not?
Sorry, why i dont think its reasonable?If thats what you mean, then i dont deem paying someone 0.5% to make a potential 3% worth the value added. Admittedly i have some ability myself so have decided to self manage, but i am by no means a pension expert, and happily pay for a service, i just dont think the risk, reward, and fee equation is right at the moment for me.
Not the potential upside, there is of course potential downside.
Maybe i am just a tight, but 0.5% compounded for 30 years looks like appalling value to me with current expected returns.
Ginge R said:
I don't disagree with you at all, value is key and it's subjective. I was referring, I suppose, only to expense - £5000 to transact any business which can be done in half a day is expensive, regardless of whether or not the client sums involved are £10,000 or £1,000,000. Clients will gave to determine whether we offer good value or not; that's the variable. The constant is the expense. I accept that that also, can be all things to all men.
Again, maybe i just have a different world view to you, but im not sure i agree there either. Its not about time taken to me, its about value added, and when we are working in a percentage return defined environment then its about the percentage charged, not the number of hours taken for a service or outright cost. Maybe my view is biased because i work in an environment where i can charge a fairly large sum for something that takes a split second to do, though relative to the sums involved the charges a tiny. To me these things arnt about charging per hour for labour or time taken, its about paying to have access to a facility to achieve a result, and the result achieved dictated the sum im willing to pay for it.Maybe thats all woffle and im not making sense!
In summary for me, the constant is value added not expense, and at 0.5% in the current climate there is not enough expected value added to justify the fees.
I'd imagine it's like many things - it's depends what you're getting for the .5/.75/1% and how knowledgeable you are on the topic. If you're happy balancing your portfolio profit and losses to avoid CGT each year, are knowledgable on the VCT/EIS options, know the best tax mitigation homes for your money, have time to study the markets etc then .5% may seem a lot. However, if not it's the same as why I'd buy an Aston through a Aston dealership not off someone's driveway.
Eta - I can't see AM being happy with a 0.5% markup
Eta - I can't see AM being happy with a 0.5% markup
gibbon said:
Ginge R said:
I don't disagree with you at all, value is key and it's subjective. I was referring, I suppose, only to expense - £5000 to transact any business which can be done in half a day is expensive, regardless of whether or not the client sums involved are £10,000 or £1,000,000. Clients will gave to determine whether we offer good value or not; that's the variable. The constant is the expense. I accept that that also, can be all things to all men.
Again, maybe i just have a different world view to you, but im not sure i agree there either. Its not about time taken to me, its about value added, and when we are working in a percentage return defined environment then its about the percentage charged, not the number of hours taken for a service or outright cost. Maybe my view is biased because i work in an environment where i can charge a fairly large sum for something that takes a split second to do, though relative to the sums involved the charges a tiny. To me these things arnt about charging per hour for labour or time taken, its about paying to have access to a facility to achieve a result, and the result achieved dictated the sum im willing to pay for it.Maybe thats all woffle and im not making sense!
In summary for me, the constant is value added not expense, and at 0.5% in the current climate there is not enough expected value added to justify the fees.
gibbon said:
Maybe my view is biased because i work in an environment where i can charge a fairly large sum for something that takes a split second to do, though relative to the sums involved the charges a tiny. To me these things arnt about charging per hour for labour or time taken, its about paying to have access to a facility to achieve a result, and the result achieved dictated the sum im willing to pay for it.
The model you're describing for your business is rather like the market making or brokerage model that my previous employers in the capital markets could get away with. We charged a very small percentage on very large deals and thereby made a lot of money on what were individually simple transactions, and since the fee was purely a function of the size of the deal, the fees bore no relation to their actual cost to us. That is a great business model if your clients will let you get away with it, but it is mad that they do.The model of charging for advice is much cleaner. IFAs should not be in the business of chasing return because that becomes a zero sum game, i.e. collectively it is impossible for them to deliver it. They should be focused on risk management, i.e. explaining the relationships between returns and risk and helping clients come up with a strategy that is appropriate to their risk appetite.
Professional advice has historically been charged by the hour. You don't pay your doctor based on outcome. No win no fee lawyering is generally seem as something that undermines professionalism. Why should an IFA not be paid by the hour too? If you want genuinely independent advice, then surely you have to decouple it from sales fees and the asymmetric rewards favoured by ramping up your client's risk?
The problem is that this can price individuals out of the market for legal services and medical treatment, hence Legal Aid, the NHS and a lot of pro bono work. Apart from under charging for their time, there's no equivalent safety net for financial advice.
ATG said:
The model you're describing for your business is rather like the market making or brokerage model that my previous employers in the capital markets could get away with. We charged a very small percentage on very large deals and thereby made a lot of money on what were individually simple transactions, and since the fee was purely a function of the size of the deal, the fees bore no relation to their actual cost to us. That is a great business model if your clients will let you get away with it, but it is mad that they do.
The model of charging for advice is much cleaner. IFAs should not be in the business of chasing return because that becomes a zero sum game, i.e. collectively it is impossible for them to deliver it. They should be focused on risk management, i.e. explaining the relationships between returns and risk and helping clients come up with a strategy that is appropriate to their risk appetite.
Professional advice has historically been charged by the hour. You don't pay your doctor based on outcome. No win no fee lawyering is generally seem as something that undermines professionalism. Why should an IFA not be paid by the hour too? If you want genuinely independent advice, then surely you have to decouple it from sales fees and the asymmetric rewards favoured by ramping up your client's risk?
The problem is that this can price individuals out of the market for legal services and medical treatment, hence Legal Aid, the NHS and a lot of pro bono work. Apart from under charging for their time, there's no equivalent safety net for financial advice.
I've come from brokerage and now work for one of the few genuinely independent IFAs left.The model of charging for advice is much cleaner. IFAs should not be in the business of chasing return because that becomes a zero sum game, i.e. collectively it is impossible for them to deliver it. They should be focused on risk management, i.e. explaining the relationships between returns and risk and helping clients come up with a strategy that is appropriate to their risk appetite.
Professional advice has historically been charged by the hour. You don't pay your doctor based on outcome. No win no fee lawyering is generally seem as something that undermines professionalism. Why should an IFA not be paid by the hour too? If you want genuinely independent advice, then surely you have to decouple it from sales fees and the asymmetric rewards favoured by ramping up your client's risk?
The problem is that this can price individuals out of the market for legal services and medical treatment, hence Legal Aid, the NHS and a lot of pro bono work. Apart from under charging for their time, there's no equivalent safety net for financial advice.
We are happy to charge people an hourly rate if they prefer that to an initial and annual % charge.
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