Ongoing Financial Advice...what's reasonable and fair?

[P.Griffin]

I'm pretty happy with the performance and the advice I have been given, but I'm paying 1%p.a. to the adviser (bi-annual reviews) . Including fund and platform charges, this comes to just over 2% p.a. I no longer have to pay one off charges on investments, but every % of yearly charges eats into the growth. With the markets looking to flat line, if not come off a little in the next few years, I'm curious to know if what i'm paying is reasonable. I know there will be many variables but I'd be interested to know your thoughts as answers online are so vague. Cheers

[mikeiow]

P.Griffin said:

I'm pretty happy with the performance and the advice I have been given, but I'm paying 1%p.a. to the adviser (bi-annual reviews) . Including fund and platform charges, this comes to just over 2% p.a. I no longer have to pay one off charges on investments, but every % of yearly charges eats into the growth. With the markets looking to flat line, if not come off a little in the next few years, I'm curious to know if what i'm paying is reasonable. I know there will be many variables but I'd be interested to know your thoughts as answers online are so vague. Cheers

The $64,000 question!

A fair number of people manage their own financial affairs, thus having only the fund/platform charges. Going with IM (see sticky) keeps that to 0.87%, thus saving a chunk against your numbers....more broadly, I see people talking about advisor fees of 0.5% being reasonable.

.....but I would ask how happy you are with the performance?

If you have been making 8-10% AFTER those fees, I'd say the fees sound reasonable - the IFA has helped chose decent funds for you.
If not, is it because your risk profile is too low, or are the funds chosen not so appropriate?

There are a shed-load of ways to find out how things perform now compared with 10-20 years ago.

My *personal* view is that for long term savings, one really wants the total fees to be as low as possible: an extra 1%+ 'taken' each year compounds up to BIG losses when seen over many years.

[P.Griffin]

mikeiow said:

The $64,000 question!

Going with IM (see sticky) keeps that to 0.87%.

.....but I would ask how happy you are with the performance?


My *personal* view is that for long term savings, one really wants the total fees to be as low as possible: an extra 1%+ 'taken' each year compounds up to BIG losses when seen over many years.

Sorry to open a can of worms but your final point sums up my concerns with ongoing fees, even though I am happy with the performance. Thank you for the heads up on the sticky..do you know if 0.87% is their fee or inclusive of fund and platform?

[JulianPH]

P.Griffin said:

mikeiow said:

The $64,000 question!

Going with IM (see sticky) keeps that to 0.87%.

.....but I would ask how happy you are with the performance?


My *personal* view is that for long term savings, one really wants the total fees to be as low as possible: an extra 1%+ 'taken' each year compounds up to BIG losses when seen over many years.

Sorry to open a can of worms but your final point sums up my concerns with ongoing fees, even though I am happy with the performance. Thank you for the heads up on the sticky..do you know if 0.87% is their fee or inclusive of fund and platform?

Thanks for the recommendation Mike, same service station for the cash filled brown paper envelope?!!!

Peter, our 0.87% includes everything and a named financial planner (an advanced qualified IFA) who is available as and when you require.

We also are about to launch a range of trackers (with different equity/bond exposure) in the next couple of weeks. These are 0.57% a year (again fully inclusive of all costs and unlimited financial planning from your account manager).

If you would like to know more please post on the IM sticky, as I don't want to breach any PH rules here.

Cheers

[mikeiow]

JulianPH said:

P.Griffin said:

mikeiow said:

<snip>
My *personal* view is that for long term savings, one really wants the total fees to be as low as possible: an extra 1%+ 'taken' each year compounds up to BIG losses when seen over many years.

Sorry to open a can of worms but your final point sums up my concerns with ongoing fees, even though I am happy with the performance. Thank you for the heads up on the sticky..do you know if 0.87% is their fee or inclusive of fund and platform?

Thanks for the recommendation Mike, same service station for the cash filled brown paper envelope?!!!

Peter, our 0.87% includes everything and a named financial planner (an advanced qualified IFA) who is available as and when you require.

We also are about to launch a range of trackers (with different equity/bond exposure) in the next couple of weeks. These are 0.57% a year (again fully inclusive of all costs and unlimited financial planning from your account manager).

If you would like to know more please post on the IM sticky, as I don't want to breach any PH rules here.

Cheers

LOL - I know, I feel that people are perhaps intimidated by the length of that sticky thread, but it does need emphasising the valuable advice anyone here can get FOR FREE before making decisions. & yes, the same dead letter box as usual

Peter - on your reply I highlight above - if you are HAPPY, then having a well-compensated advisor should not be a problem! Like I said, if I was netting out 8-10% every year, happy days!
If, however, you have a nagging feeling it could be doing better....then I would follow Julian's advice & take it to the IM sticky! & that is WITHOUT me being on the payroll, dammit

[P.Griffin]

Thank you chaps

[anonymous-user]

mikeiow said:

Peter - if you are HAPPY, then having a well-compensated advisor should not be a problem! Like I said, if I was netting out 8-10% every year, happy days!

This IMO, provided the advisor isn't running a much higher level of risk than the investor had in mind. If and when there's a drop in performance it will always be explained as "unexpected market conditions" rather than poor advice.

If and when there's a downturn it's essential to make sure the advisor is still outperforming markets - even if you're losing money. Don't just accept the answer "everyone's losing money at the moment".

Remember, each year the advisor is charging "2% of what you've got".

Another way to look at it is a fee of 20% every decade. So for someone 40 years old and investing for retirement at 65 the advisor fee will hit a whopping 50%.

[Mr Pointy]

rockin said:

mikeiow said:

Peter - if you are HAPPY, then having a well-compensated advisor should not be a problem! Like I said, if I was netting out 8-10% every year, happy days!

This IMO, provided the advisor isn't running a much higher level of risk than the investor had in mind. If and when there's a drop in performance it will always be explained as "unexpected market conditions" rather than poor advice.

If and when there's a downturn it's essential to make sure the advisor is still outperforming markets - even if you're losing money. Don't just accept the answer "everyone's losing money at the moment".

Remember, each year the advisor is charging "2% of what you've got".

Another way to look at it is a fee of 20% every decade. So for someone 40 years old and investing for retirement at 65 the advisor fee will hit a whopping 50%.

JulianPH put up a post laying out the effect of advisor fees but it's like trying to find a needle in a haystack.

[JulianPH]

Mr Pointy said:

JulianPH put up a post laying out the effect of advisor fees but it's like trying to find a needle in a haystack.

I'll try and dig it out, but TBH even I can't remember where I posted it!

If I can't find it I'll do a new one when I get a minute.

[bigdrew]

This?

https://www.pistonheads.com/gassing/topic.asp?h=0&...

JulianPH said:

Steve is spot on once again with this.

For example (and I am not suggesting you use IM here), over 25 years of saving a flat £100 a month (and assuming 7% average annual returns before charges) then the difference alone between IM's 0.87% and HL's 1.45% (that you put forward) would eat up 5 year's worth of contributions.

Don't underestimate the impact of charges on smaller sums.

[JulianPH]

tighnamara has done the work for me!!!!

tighnamara said:

JulianPH said:

Following on from a question raid on another thread:

DeuceDuece said:

OP - would you mind taking a moment to look into the actual effect paying 1% in additional fees will have on your pension fund in 30 years?

I gave a response. On the basis (as I did not know the OP's exact circumstances) of using round numbers, this was:

• £100,000 fund value

• £1,000 flat monthly contributions

• 7% average annual return after fund charges

• 30 years of growth (the OP is 35) and 20 years of income drawdown

The answer was the annual 1% adviser fee cost the client c. £1,000,000 on his £460,000 of total lifetime contributions.

So the adviser charge was reducing the pot at a rate of over twice the amount the client invested, with the client taking all of the investment risk and the adviser taking none of this.

I said I would post other examples here, but as none will accurately represent those of each individual, I will only give a handful of examples and invite anyone who would like a personal comparison to contact us for a completely free summary of their own adviser costs.

This will enable you to compare the costs against the value provided (and we can go over this with you too).

We are not aiming to devalue financial advice, simply to enable you to understand the cost of such financial advice, so you are able to come to your own conclusions.

Quick Samples

The impact of a 1% annual adviser charge - everything else being based upon a 7% average annual return after investment (and platform) charges:

• £50,000 invested for 30 years = c. £100,000 loss.

• £100,000 invested for 30 years = c. £200,000 loss

• £1,000 a month invested over 30 years = c. £210,000 loss

• £2,000 a month invested over 30 years = c. £420,000 loss

And so on...

So my basic message is that you need to be certain you are receiving some pretty stupendous 'value' for such fees (I doubt you are though).

Obviously having a qualified and experienced financial professional available can indeed add value.

But can they add more value than the compound growth you could have received on the total amount of money you invest over your lifetime (without their fees)? I think not.

It is financial planning (not transactional financial advice) that adds the most value. This is something we offer our Private Clients for free. I'll post on this in the morning.

Cheers!

Julian's previous post on adviser costs over investment lifetime. Keep it at hand to remind me what I didn't know.

[anonymous-user]

The flip-side of which is that DIY investors tend to panic and sell when the market takes a bit of a drop and may end up losing out in the longer term.

If an advisor stops people panic selling he may well be earning that extra 1%.

[JulianPH]

rockin said:

The flip-side of which is that DIY investors tend to panic and sell when the market takes a bit of a drop and may end up losing out in the longer term.

If an advisor stops people panic selling he may well be earning that extra 1%.

The flip-side of which is having a named financial planner a mobile phone call away to do the same thing, but at no additional cost!

Our clients learn that market falls are buying opportunities, not a time for panic selling.

If someone is happy to give 1% of their invested wealth away every single year for a financial adviser to (hopefully) do this, then that is their choice.

(not directed as you personally Steve )

[anonymous-user]

Julian, does your financial planner deliver regulated, personal advice to clients as part of the all-in service?

[anonymous-user]

If I've understood correctly,

• You can help people decide how to split their money between ISA/pension/no-wrapper and perhaps even between equities/bonds, but
• It's then up to the individual to decide which specific investments to buy.

Have I got that right?

[JulianPH]

rockin said:

If I've understood correctly,

• You can help people decide how to split their money between ISA/pension/no-wrapper and perhaps even between equities/bonds, but
• It's then up to the individual to decide which specific investments to buy.

Have I got that right?

Hi Steve, almost, but there is more to it than that. What we can cover is:

Where your investments currently are and the full fees you are paying, together with how these have performed

• Are you on track to meet your goals on time and if not what options you have (and the pros and cons of each of these) to ensure you get back on track

• Explaining the differences between different investments strategies and asset classes

• Is there anything you have overlooked or were unaware of (which is very often the case)

• Are you making the most of your tax allowances

• Are there any simply changes you can make for greater tax efficiency, such as increasing a pension contribution to put you under the threshold for Child Tax Credit or continued Personal Income Tax Allowance (and where relevant to reduce any Corporation Tax liability)

• Onwards tax planning and mitigation (including IHT mitigation)

• Are their any protection needs you have overlooked or you are paying for when not needed

• Are there any other meaningful saving you could be making without impacting on your quality of life

• Working with you accountant on some of the above (where required)

• And very importantly, stripping away all of the industry jargon so you understand things in plain English

This is by no means and exhaustive list, just the most common requirements of potential clients.

Sometimes we assist Private Clients with completely random things, such as a cursory inspection of a BTL the client was looking at buying in a different area without having the time themselves to visit (such is the trust generated between the client and their Private Client Manager).

I should also highlight that one of the outcomes of our financial planning work may be identifying that someone has a need that does require financial advice, which we will tell them.

At least then the client knows they are paying for something they really need rather than paying for something they didn't need. In that respect we can also act as the first sounding board.

The only thing we don't do is recommend you sell or buy anything or give a judgement value that implies as much (this is the part of the process that is regulated financial advice).

If we have done our job properly you know what you want to do (and why) and can make this decision yourself, whether this is by becoming an IM Private Client, going in a different direction, or a combination of the two.

I hope that makes sense!

[anonymous-user]

No judgement being made here at all, but to clarify, does this mean IM offers guidance, but cannot make a recommendation as to what the client should do? I presume, may be wrong, that this then means the client has not got the security of insured Advice and so if, in a few year's time, they realise they misunderstood or did not appreciate the risks in the guidance offered, and have lost out as a result, they have little or no comeback, whereas if they took insured advice, they likely would.

There is plenty of room for guidance, and probably not enough of it around, however consumers should be aware of the limitations of guidance versus the costs and security of personal Advice.

Yes, advisors cost money and some take the Mickey in ongoing charges (though they are very much on the regulator's radar), though what you get for that over guidance is personalised advice specifically for you that is insured and you have ombudsman and civil action protection against faulty advice into perpetuity, to the best of my knowledge.

[Mr Pointy]

janesmith1950 said:

No judgement being made here at all, but to clarify, does this mean IM offers guidance, but cannot make a recommendation as to what the client should do? I presume, may be wrong, that this then means the client has not got the security of insured Advice and so if, in a few year's time, they realise they misunderstood or did not appreciate the risks in the guidance offered, and have lost out as a result, they have little or no comeback, whereas if they took insured advice, they likely would.

There is plenty of room for guidance, and probably not enough of it around, however consumers should be aware of the limitations of guidance versus the costs and security of personal Advice.

Yes, advisors cost money and some take the Mickey in ongoing charges (though they are very much on the regulator's radar), though what you get for that over guidance is personalised advice specifically for you that is insured and you have ombudsman and civil action protection against faulty advice into perpetuity, to the best of my knowledge.

Are there many cases where an advisers insurance has actually paid out?

I guess your last sentance means all those currently being hounded by HMRC in the Loan Charge debacle will now be able to call on their advisers insurance?

[bitchstewie]

Mr Pointy said:

Are there many cases where an advisers insurance has actually paid out?

Is it likely with the Woodford debacle and some of the dodgy bonds that seem to have cropped up lately?

[Mr Pointy]

bhstewie said:

Mr Pointy said:

Are there many cases where an advisers insurance has actually paid out?

Is it likely with the Woodford debacle and some of the dodgy bonds that seem to have cropped up lately?

Maybe. I haven't heard of any insurance policy payouts but maybe the poster can enlighten us. It's comforting to know that anyone who used an IFA is covered forever if things go wrong.