What questions should a newbie ask an IFA?
Discussion
KTF said:
I think from the various comments here, what I am being offered is 'fair' value.
I agree with the comments that it will be cheaper to use a robo option as I would just be converting cash to S&S at this point but (for a small sum in the grand scheme of things) it may be worth having an IFA on hand if you need advice on other matters or want to look at other options, etc.
If it was a mortgage then that would be different as its a one off thing on an infrequent basis.
My adviser doesn't use a platform ot charge an ongoing percentage fee, so does things differently - hence the low 0.87% total annual investment cost (including the SIPP). I was adding this to the mix to highlight the different approach different advisers take. They do not all use a similar platform with the same products and often the adviser fee (as Al highlighted above) can be greater than all the other fees combined (from the companies actually providing the investment and SIPP services). This is wrong at every level in my book.I agree with the comments that it will be cheaper to use a robo option as I would just be converting cash to S&S at this point but (for a small sum in the grand scheme of things) it may be worth having an IFA on hand if you need advice on other matters or want to look at other options, etc.
JulianPH said:
If the OP wants I can make an introduction - but I obviously have to declare here that I have a connection. It might be an idea to see a different approach (my adviser operates over the phone and internet, rather than does house visits), but I think what he is being offered is good value and he may prefer a 'face-to-face' adviser.
Assuming they all use a similar platform and will offer the same products then it comes down to the difference in fees. I think for the time being I would prefer to go with someone I 'know' rather than someone in another part of the country.If it was a mortgage then that would be different as its a one off thing on an infrequent basis.
However, as I have said several times, I think what you are being offered by your adviser is very good value for money and covers everything you need, so focus more on value rather than cost at this stage. You have the rest of your life to decide if the cost starts to outweigh the value (as your investments - and therefore the adviser fees - grow) and make changes.
It's an interesting point. If they are aligned to and selling a solution based on a third party platform, are they still an independent financial adviser? Not that I think dropping the independent is necessarily a bad thing. Too often in this litigious society people shy away from making any actual recommendations, preferring simply to lay out the options and let the customer pick for themselves.
As long as the adviser makes a recommendation from across the market, yes. Fiver isn't an independent proposition - and affirms that (I shan't post a link), but in many instances I don't think that all clients need a fully independent solution anyway. It may sound like heresy for an IFA to suggest, but like many advisers I know quite quickly what solution is in all likelihood going to be the most suitable to suggest for many of those clients who have simpler needs. For lots of people, something like Fiver or Nutmeg etc is going to be fine, especially as both offer functionality and sophistication that would have cost a client much bigger bucks for a few years back, and when all the saver wants to do anyway, is gain traction instead of spinning his wheels due to (needless) cost.
Agree with that completely. In this case though, from looking around the Nucleus site, it seems these advisers are essentially agents for the platform, that's what they sell (exclusively?). As long as it's a good platform though, and the adviser selling it is genuine, I think that's a positive for most people.
Just to add to my last post before the day calls, we are hard wired to be drawn towards complexity. We don't think that the simplest way is the best way, because we are raised in a consumer driven society where we are conditioned to spend money and we want therefore, to get something back for our money.. something that feels a bit beefy. Financial services plays to this narrative superbly, it positively panders to it. It knows that blokes are drawn to complexity and detail like hunters were once drawn to a new spear or my missus is drawn to Jane Norman.
In days gone past, you'd sit in front of some pompous ass of an adviser who'd intone thoughtfully as he discussed weighty financial matters of the day.. stuff that reeked of great import. Eight or nine times out of ten, it doesn't make a flying fig of difference which fund you're in if you're reduced to splitting atoms worth of difference between two likely candidates, as long as they're both suitable and equal, (all things considered), when you buy or sell (heaven forbid), or how much research you do.
The clever clients, the clients who truly, truly get 'it', are those who have pinned down the objectives, worked out the strategy and then run with it, making a few tweaks at outset if need be, and then, minor mid course corrections. Financial planning isn't about being a genius. It's not rocket science, it isn't about sweating the small stuff. Of course, you have to have faith that you're doing what is right and that you're not being ripped off.
But the client who can't see the wood for the trees, or who panders to the narrative that sometimes, the best course of action doesn't have to be ludicrously complex or intricate, is the client who is his own worse enemy. So, OP, nail the objectives (there could be a few), work out the strategy, don't be afraid to haggle, opt out of all those hideous emails trying to sell you the next best fund and just get started. As Julian said, and it's a bloody good point, you can start getting clever later if you need to.
Edit: This, incidentally, is a good point about needless complexity. I have huge respect for Hargreaves Lansdown, it's a success story we should be proud of. But when I first evolved Fiver (and it was for clients serving in Afghan), I had all these points in mind.
https://www.youtube.com/embed/TM5ol3sDyes
In days gone past, you'd sit in front of some pompous ass of an adviser who'd intone thoughtfully as he discussed weighty financial matters of the day.. stuff that reeked of great import. Eight or nine times out of ten, it doesn't make a flying fig of difference which fund you're in if you're reduced to splitting atoms worth of difference between two likely candidates, as long as they're both suitable and equal, (all things considered), when you buy or sell (heaven forbid), or how much research you do.
The clever clients, the clients who truly, truly get 'it', are those who have pinned down the objectives, worked out the strategy and then run with it, making a few tweaks at outset if need be, and then, minor mid course corrections. Financial planning isn't about being a genius. It's not rocket science, it isn't about sweating the small stuff. Of course, you have to have faith that you're doing what is right and that you're not being ripped off.
But the client who can't see the wood for the trees, or who panders to the narrative that sometimes, the best course of action doesn't have to be ludicrously complex or intricate, is the client who is his own worse enemy. So, OP, nail the objectives (there could be a few), work out the strategy, don't be afraid to haggle, opt out of all those hideous emails trying to sell you the next best fund and just get started. As Julian said, and it's a bloody good point, you can start getting clever later if you need to.
Edit: This, incidentally, is a good point about needless complexity. I have huge respect for Hargreaves Lansdown, it's a success story we should be proud of. But when I first evolved Fiver (and it was for clients serving in Afghan), I had all these points in mind.
https://www.youtube.com/embed/TM5ol3sDyes
Edited by Ginge R on Wednesday 14th September 09:50
I feel a spreadsheet coming on to work this all out but at a high level I see it like this (feel free to correct any errors).
Aim: Move from cash into tax efficient stocks and shares wrapper instead. As a layman I assume this would then be limited to my annual ISA allowance each year. I have already used this years ISA allowance in a cash ISA so there is a charge for transferring that over to the S&S platform.
So, laying out the two options I see at the moment:
Option 1 (IFA)
Setup cost = £500
180 day interest penalty for moving this years ISA allowance (£15,240) = X
Annual charge of 1.63%/365 x number of days between setup and the next tax year.
Option 2 (fiveraday for example)
180 day interest penalty for moving this years ISA allowance (£15,240) = X
Annual charge of 0.8/365 x number of days between setup and the next tax year.
So for 'year 1' going for option 2 makes you +£500 & 0.83% up on option 1 assuming they are invested in similar portfolios that return similar results.
So, from a financial point of view, unless the IFA can do something recover that 'loss' in 7 months it doesn't sense to go with that option (I realise the figures involved are low but still).
For year 2, option 1 would also have grow by more than 0.83% (maybe more if the loss from year 1 is not recovered yet) before it again started to make sense.
Also for year 1, the deposit would be a lump sum rather than drip fed which increases the exposure to the market tanking the day after its invested (unlikely as that may be).
Now maybe the IFA would have more ideas on what could be done compared to me opening an account with fiveraday and putting it in the suggested portfolio or maybe the product they sell is essentially the same so there would be no big difference between the results you get out?
Aim: Move from cash into tax efficient stocks and shares wrapper instead. As a layman I assume this would then be limited to my annual ISA allowance each year. I have already used this years ISA allowance in a cash ISA so there is a charge for transferring that over to the S&S platform.
So, laying out the two options I see at the moment:
Option 1 (IFA)
Setup cost = £500
180 day interest penalty for moving this years ISA allowance (£15,240) = X
Annual charge of 1.63%/365 x number of days between setup and the next tax year.
Option 2 (fiveraday for example)
180 day interest penalty for moving this years ISA allowance (£15,240) = X
Annual charge of 0.8/365 x number of days between setup and the next tax year.
So for 'year 1' going for option 2 makes you +£500 & 0.83% up on option 1 assuming they are invested in similar portfolios that return similar results.
So, from a financial point of view, unless the IFA can do something recover that 'loss' in 7 months it doesn't sense to go with that option (I realise the figures involved are low but still).
For year 2, option 1 would also have grow by more than 0.83% (maybe more if the loss from year 1 is not recovered yet) before it again started to make sense.
Also for year 1, the deposit would be a lump sum rather than drip fed which increases the exposure to the market tanking the day after its invested (unlikely as that may be).
Now maybe the IFA would have more ideas on what could be done compared to me opening an account with fiveraday and putting it in the suggested portfolio or maybe the product they sell is essentially the same so there would be no big difference between the results you get out?
KTF,
Is the penalty worth moving? If you don't have a good buffer fund for when the roof falls off, why not consider leaving it where it is and start afresh? Cheapest isn't always best, but you really have to justify expense, and more importantly, needless expense.
Bear in mind too, if you lose (for argument's sake, 5%) and your funds do well enough to recover 5%, you are still behind. You're behind because 5% of 95% is still less than 100% and because you've lost something you can never ever recapture - time. The compounded effect of a 5% compared to, say, a loss of 2% over time really can't be underestimated. It's especially important at outset.
I don't know what the penalty is, or what it is in relation to the lump sum you had in mind (and my accountant will hate me) but my gut instinct would be to say, will waiting until you're penalty free really be so bad? Said, clearly, with my Fiver a Day 'Head of Business Denial Services' hat on!
Is the penalty worth moving? If you don't have a good buffer fund for when the roof falls off, why not consider leaving it where it is and start afresh? Cheapest isn't always best, but you really have to justify expense, and more importantly, needless expense.
Bear in mind too, if you lose (for argument's sake, 5%) and your funds do well enough to recover 5%, you are still behind. You're behind because 5% of 95% is still less than 100% and because you've lost something you can never ever recapture - time. The compounded effect of a 5% compared to, say, a loss of 2% over time really can't be underestimated. It's especially important at outset.
I don't know what the penalty is, or what it is in relation to the lump sum you had in mind (and my accountant will hate me) but my gut instinct would be to say, will waiting until you're penalty free really be so bad? Said, clearly, with my Fiver a Day 'Head of Business Denial Services' hat on!
I don't think you'll see a huge difference between platforms in terms of returns, for the reasons Ginge mentions above. If it's purely S&S ISA, Nucleus makes less sense as you're paying for but not using the rest of the product/service. If you start getting your pensions involved, then the IFA and the rest of Nucleus makes more sense.
To cut costs further you could even look at tracker funds purchased through the lowest cost broker you can find. Splitting across several well established ones should see you suitably diversified and reasonable returns. This is the type of thing that would be worth that one-off fee to the IFA though.
To cut costs further you could even look at tracker funds purchased through the lowest cost broker you can find. Splitting across several well established ones should see you suitably diversified and reasonable returns. This is the type of thing that would be worth that one-off fee to the IFA though.
Ginge R said:
Is the penalty worth moving? If you don't have a good buffer fund for when the roof falls off, why not consider leaving it where it is and start afresh? Cheapest isn't always best, but you really have to justify expense, and more importantly, needless expense.
This was another thought as I could just do nothing until nearer April and get it all set up to start drip feeding in from the start of the tax year.The penalty is 180 days interest on the amount withdrawn (£15240) and the rate is 2.05% so that is around £150 to add to the 'losses' (if my sums are correct). Not a large number but a number all the same. There would then be the lost interest on the remaining balance to factor in for the rest of the term (the remainder would mature March 2018).
rsbmw said:
I don't think you'll see a huge difference between platforms in terms of returns, for the reasons Ginge mentions above. If it's purely S&S ISA, Nucleus makes less sense as you're paying for but not using the rest of the product/service. If you start getting your pensions involved, then the IFA and the rest of Nucleus makes more sense.
To cut costs further you could even look at tracker funds purchased through the lowest cost broker you can find. Splitting across several well established ones should see you suitably diversified and reasonable returns. This is the type of thing that would be worth that one-off fee to the IFA though.
On the pensions side of things I was more interested in seeing if it was worth combining them and/or moving the current amounts to difference portfolios within the existing plans, etc. This is the area that I have least knowledge about and see it as a separate piece of work. I have no idea what benefit (if any) there would be in bringing them in under the Nucleus umbrella.To cut costs further you could even look at tracker funds purchased through the lowest cost broker you can find. Splitting across several well established ones should see you suitably diversified and reasonable returns. This is the type of thing that would be worth that one-off fee to the IFA though.
Yes, you could reduce costs a bit further by picking the trackers yourself (or via the IFA) but then that would need an element of active management compared to going for the robo option that manages it on your behalf? Also my track record of picking trackers and shares myself is less than brilliant
Without scrutineering properly, you have a guaranteed 2% and you'll lose a further c.1%?
Stronger gut instinct? I don't know your bigger picture so can't advise, and it might be that if you're investing regularly from new money over the long term it makes little difference, but strongly consider not doing anything with Fiver or Nucleus, or someone else, until April. Rake in your 2% and keep the 1% penalty. That though, just a gut instinct.. don't sue me if the markets soar!
If you have 15k to invest, be particularly astute with regards to cost. £500 is a big chunk to lose at outset. Drop me a line if you want to natter, I'm happy to amplify on that for you.
Stronger gut instinct? I don't know your bigger picture so can't advise, and it might be that if you're investing regularly from new money over the long term it makes little difference, but strongly consider not doing anything with Fiver or Nucleus, or someone else, until April. Rake in your 2% and keep the 1% penalty. That though, just a gut instinct.. don't sue me if the markets soar!
If you have 15k to invest, be particularly astute with regards to cost. £500 is a big chunk to lose at outset. Drop me a line if you want to natter, I'm happy to amplify on that for you.
It is a guaranteed 2% on the whole amount in the account but you lose 180 days of 2% interest on the amount withdrawn. The remainder still gets 2% so the interest gained overall for the year will be less than 2% but more than 1% due to the remaining balance.
From what I understand, the most tax efficient way would be to use the S&S ISA allowance and as I have already paid on to a cash ISA this year the only option would be to transfer a chunk of that over (hence the penalty).
As the ISA allowance is 15k this year, 20k next year, the transfer of cash to S&S would have to be drip fed in over a number of years (unless someone knows of another way?) so yes, the £500 would be a year 1 loss (amongst other fees, etc) that would have to be recovered before you recover your costs and start showing a profit.
From April next year the payments to the S&S ISA would be from new money as the existing ISA would not need to be touched so yes, starting from April is starting to look like a better option...
From what I understand, the most tax efficient way would be to use the S&S ISA allowance and as I have already paid on to a cash ISA this year the only option would be to transfer a chunk of that over (hence the penalty).
As the ISA allowance is 15k this year, 20k next year, the transfer of cash to S&S would have to be drip fed in over a number of years (unless someone knows of another way?) so yes, the £500 would be a year 1 loss (amongst other fees, etc) that would have to be recovered before you recover your costs and start showing a profit.
From April next year the payments to the S&S ISA would be from new money as the existing ISA would not need to be touched so yes, starting from April is starting to look like a better option...
KTF said:
As the ISA allowance is 15k this year, 20k next year, the transfer of cash to S&S would have to be drip fed in over a number of years (unless someone knows of another way?)...
ISA transfers have no effect on the annual allowance. They are already an ISA so not classed as a further contribution. You can transfer whenever you like with no impact on your allowance.I would do as others suggest and wait until there is no penalty.
JulianPH said:
ISA transfers have no effect on the annual allowance. They are already an ISA so not classed as a further contribution. You can transfer whenever you like with no impact on your allowance.
I would do as others suggest and wait until there is no penalty.
I have already paid the full amount into my cash ISA this year, in May, so my allowance is used up until 2017 which is why I would have to do a transfer.I would do as others suggest and wait until there is no penalty.
I agree that it seems wasteful to transfer out and incur the penalty.
Another question. Assuming the most tax efficient way to transfer from cash is into a S&S ISA and I start doing this from the next tax year with new money, what do you do with the old money if you can only transfer up to your ISA allowance each year as I would take several years to move it over?
You don't need an IFA to transfer a few ISAs! Any of the big providers/platforms will do the whole thing for you - all you'll need to do is sign some forms.
For what it's worth my view of cash ISAs with current low interest rates is that they are a complete waste of the generous tax relief available. Tax relief on sod all is sod all. What you want in an ISA are stocks and shares so that you get maximum advantage from grossing up free from Income Tax and free from Capital Gains Tax.
Whilst future returns are never guaranteed and markets move both ways I can tell for a fact that many people with stocks and shares ISAs have benefited from compound tax free returns of around 8% a year.
For what it's worth my view of cash ISAs with current low interest rates is that they are a complete waste of the generous tax relief available. Tax relief on sod all is sod all. What you want in an ISA are stocks and shares so that you get maximum advantage from grossing up free from Income Tax and free from Capital Gains Tax.
Whilst future returns are never guaranteed and markets move both ways I can tell for a fact that many people with stocks and shares ISAs have benefited from compound tax free returns of around 8% a year.
For arguments sake, assume it's a 60/40 split between cash in a deposit account and the rest in a cash ISA with a penalty if it is accessed before 2018.
I can transfer part or all of the ISA into a S&S ISA (either myself or via an IFA) for a penalty now or I can leave it alone and start drip feeding a 2017 S&S ISA from the money in the deposit account at £20k(ish) a year.
The question is how do you transfer the remainder of the cash over (saving some for a rainy day) to the S&S ISA (or similar) rather than drip feeding it at an ISA allowance per year. That's that part (I think) I would need an IFA to work out?
I can transfer part or all of the ISA into a S&S ISA (either myself or via an IFA) for a penalty now or I can leave it alone and start drip feeding a 2017 S&S ISA from the money in the deposit account at £20k(ish) a year.
The question is how do you transfer the remainder of the cash over (saving some for a rainy day) to the S&S ISA (or similar) rather than drip feeding it at an ISA allowance per year. That's that part (I think) I would need an IFA to work out?
As regards DIY platforms, check out these fees from Fidelity,
https://www.fidelity.co.uk/investor/funds/fund-cha...
Click the blue ISA tab on the link if you want to find out more about their ISAs.
"A clearer approach to charges, which is simple, so investors can focus more of their time managing their portfolios.
https://www.fidelity.co.uk/investor/funds/fund-cha...
Click the blue ISA tab on the link if you want to find out more about their ISAs.
"A clearer approach to charges, which is simple, so investors can focus more of their time managing their portfolios.
- Our typical service fee is just 0.35%.
- Fund ongoing charges start from just 0.06%.
- Extra savings for investors with larger portfolios.
- Additional discounts on over 200 funds."
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