What do financial advisers do for their annual fees?
Discussion
Firstly, this is not intended to be a knock financial advisers thread, more of an understanding and educational one.
Following on from the 'Who wants to be an ISA millionaire' thread where a highly vocal adviser suddenly became very shy and absolutely refused to discuss this matter, someone suggested starting a new thread on this (so as not to derail that one).
So, it is very obvious what advisers do for their initial fees at the point of advice (I am not questioning this), but what is being done for the annual fees taken each and every year, as when additional advice is needed there is always another initial fee taken?
I know there are some great financial advisers here who make really helpful comments, equally there must be countless clients of advisers here. Can anyone elaborate?
Cheers
Following on from the 'Who wants to be an ISA millionaire' thread where a highly vocal adviser suddenly became very shy and absolutely refused to discuss this matter, someone suggested starting a new thread on this (so as not to derail that one).
So, it is very obvious what advisers do for their initial fees at the point of advice (I am not questioning this), but what is being done for the annual fees taken each and every year, as when additional advice is needed there is always another initial fee taken?
I know there are some great financial advisers here who make really helpful comments, equally there must be countless clients of advisers here. Can anyone elaborate?
Cheers
What kind of 'fees' are we talking about? Do you mean the IFA takes a % just for having you under his/her wing, or a % for being in one of 'their' portfolios?
Example - I pay 0.7% to my IFAs for an Adventurous (they also do Cautious, Balanced etc) portfolio that they have built themselves from approx 20-30 different funds. I then pay an additional % to Standard Life for the Wrap, and I think there is also another charge (fixed) for the Wrap. All in it's less than 2%p/a (not including fund charges - which we don't see?). I also meet with my IFA and probably speak with him 2 or 3 times a year. He also sends me something to sign for 'rebalancing'. I don't pay any extra for initial money in, or any extra for meeting with him - just the 0.7%p/a.
Are we saying that people pay for one-off investment advice AND also pay a yearly %? I always get a bit confused when it comes to 'fees' and can't understand why advisor's can't be clearer or more upfront with what they want out of it.
Example - I pay 0.7% to my IFAs for an Adventurous (they also do Cautious, Balanced etc) portfolio that they have built themselves from approx 20-30 different funds. I then pay an additional % to Standard Life for the Wrap, and I think there is also another charge (fixed) for the Wrap. All in it's less than 2%p/a (not including fund charges - which we don't see?). I also meet with my IFA and probably speak with him 2 or 3 times a year. He also sends me something to sign for 'rebalancing'. I don't pay any extra for initial money in, or any extra for meeting with him - just the 0.7%p/a.
Are we saying that people pay for one-off investment advice AND also pay a yearly %? I always get a bit confused when it comes to 'fees' and can't understand why advisor's can't be clearer or more upfront with what they want out of it.
There may be a good reason why IFAs don’t make their fee structure clear...
My OH and I chose the wealth management firm we plan on using in the near future once we feel out of our depth sorting things out for ourselves partly because they have a very simple way of working out costs. A different firm we spoke to give a very vague response about theirs depending on how much they handle for you, what the money is invested in blah blah...
My OH and I chose the wealth management firm we plan on using in the near future once we feel out of our depth sorting things out for ourselves partly because they have a very simple way of working out costs. A different firm we spoke to give a very vague response about theirs depending on how much they handle for you, what the money is invested in blah blah...
Phooey said:
What kind of 'fees' are we talking about? Do you mean the IFA takes a % just for having you under his/her wing, or a % for being in one of 'their' portfolios?
Example - I pay 0.7% to my IFAs for an Adventurous (they also do Cautious, Balanced etc) portfolio that they have built themselves from approx 20-30 different funds. I then pay an additional % to Standard Life for the Wrap, and I think there is also another charge (fixed) for the Wrap. All in it's less than 2%p/a (not including fund charges - which we don't see?). I also meet with my IFA and probably speak with him 2 or 3 times a year. He also sends me something to sign for 'rebalancing'. I don't pay any extra for initial money in, or any extra for meeting with him - just the 0.7%p/a.
Are we saying that people pay for one-off investment advice AND also pay a yearly %? I always get a bit confused when it comes to 'fees' and can't understand why advisor's can't be clearer or more upfront with what they want out of it.
Hi Phooey, you are paying your adviser 0.7% a year for him to pick a basket of funds based upon your risk/reward level.Example - I pay 0.7% to my IFAs for an Adventurous (they also do Cautious, Balanced etc) portfolio that they have built themselves from approx 20-30 different funds. I then pay an additional % to Standard Life for the Wrap, and I think there is also another charge (fixed) for the Wrap. All in it's less than 2%p/a (not including fund charges - which we don't see?). I also meet with my IFA and probably speak with him 2 or 3 times a year. He also sends me something to sign for 'rebalancing'. I don't pay any extra for initial money in, or any extra for meeting with him - just the 0.7%p/a.
Are we saying that people pay for one-off investment advice AND also pay a yearly %? I always get a bit confused when it comes to 'fees' and can't understand why advisor's can't be clearer or more upfront with what they want out of it.
Your adviser does not actually 'manage' your funds for you, the underlying fund managers do this. This is why he has to meet with you to get your consent to rebalance.
Your adviser uses the Standard Life wrap for this, but you pay for it on top of their fees, just as you pay the fund fees and underlying costs which you can't (but should be able to) see.
Did your adviser charge you an initial fees to set all of this up? If so you have paid for investment advice AND are now paying three different levels of annual fees to hold these funds.
There isn't anything inherently wrong in any of this. In fact it is perfectly normal. Your adviser is also providing you with a clear service - their in house portfolios. If the performance (after fees) beats any comparable alternative then you have demonstrated the value added by the adviser.
You do need a picture of the whole set of fees to discover this though. It could be closer to 3% a year when you add in active fund management charges. They may use low cost ETFs though, which will leave you still around the 2% level.
PM me if you want to know more without posting financial details online!
Unexpected Item In The Bagging Area said:
There may be a good reason why IFAs don’t make their fee structure clear...
My OH and I chose the wealth management firm we plan on using in the near future once we feel out of our depth sorting things out for ourselves partly because they have a very simple way of working out costs. A different firm we spoke to give a very vague response about theirs depending on how much they handle for you, what the money is invested in blah blah...
This is the sort of thing I am talking about. With Phooey it is clear he is getting a service for his fees. Whether the service is worth what he is paying is a separate matter - it could very well be - but he is receiving something for the adviser fees.My OH and I chose the wealth management firm we plan on using in the near future once we feel out of our depth sorting things out for ourselves partly because they have a very simple way of working out costs. A different firm we spoke to give a very vague response about theirs depending on how much they handle for you, what the money is invested in blah blah...
The whole point of this thread is for advisers to let us know what they do for their fees when there is no apparent justification.
No one doubts they work long hours, are highly regulated and have expensive PI insurance and FSCS levies. This may, indeed be the answer to my question.
I just don't understand the concepts of charging annual fees year in, year out, when they charge initial fees every time they give advice.
One of the other I get. It is when they do both that I can't understand the justification. Most clients seem happy to pay though, so there must be a reason and that was what I was searching for.
Ongoing admin, insurance, training, that covers the previous stuff and the current cod requirements each year, the experience you’re buying does not come free and the one off advice fee really doesn’t cover that frankly. The list goes on and on, but that’s a decent summary to my mind.
In many cases you’re also paying for the risk the business takes on as well. For example, pension transfers are high risk, if the regulations change down the road the regulator very rarely uses the old regs to see if things are ok. It’s much more fun to retrospectively apply the new regs. Hence, there’s a cost to the business and you the client.
In many cases you’re also paying for the risk the business takes on as well. For example, pension transfers are high risk, if the regulations change down the road the regulator very rarely uses the old regs to see if things are ok. It’s much more fun to retrospectively apply the new regs. Hence, there’s a cost to the business and you the client.
Ive just pasted this over from the other thread..
I have an IFA, they do state their charge on all dealings, so I do have a choice. I went with the advisor because thats what most did back in the 80's. To be fair, they explain potential investments so I can understand. I get all the info on upside and downside. I invest for min 5 years. Some for over 20 years with decent dividends.
I must have shelled out quite a bit for their Central London Offices, but whats the answer?
I read Morning Star and Motley Fool among others to try and understand it all, but On one or 2 funds I was advised - by the advisor that Insurance was available. (ARM Holdings ) When they crashed I recouped my Investment.
In my family 2 of us have IFAs and 2 do their own thing. We are all about par, the 2 who play their own game are only in blue chip.
JulianPH said:
Hi Phooey, you are paying your adviser 0.7% a year for him to pick a basket of funds based upon your risk/reward level.
Your adviser does not actually 'manage' your funds for you, the underlying fund managers do this. This is why he has to meet with you to get your consent to rebalance.
Your adviser uses the Standard Life wrap for this, but you pay for it on top of their fees, just as you pay the fund fees and underlying costs which you can't (but should be able to) see.
Did your adviser charge you an initial fees to set all of this up? If so you have paid for investment advice AND are now paying three different levels of annual fees to hold these funds.
There isn't anything inherently wrong in any of this. In fact it is perfectly normal. Your adviser is also providing you with a clear service - their in house portfolios. If the performance (after fees) beats any comparable alternative then you have demonstrated the value added by the adviser.
You do need a picture of the whole set of fees to discover this though. It could be closer to 3% a year when you add in active fund management charges. They may use low cost ETFs though, which will leave you still around the 2% level.
PM me if you want to know more without posting financial details online!
That makes more sense mate - I probably worded it a bit googly gook, but yes I understand they are only putting apples into a basket and charging me a % for the privilege. They use the same funds for each of their portfolios but just weight them differently depending on your attitude to risk - Defensive, Cautious, Balanced, or Adventurous. I think they might of added a new fund now too - Hedge Strategy?Your adviser does not actually 'manage' your funds for you, the underlying fund managers do this. This is why he has to meet with you to get your consent to rebalance.
Your adviser uses the Standard Life wrap for this, but you pay for it on top of their fees, just as you pay the fund fees and underlying costs which you can't (but should be able to) see.
Did your adviser charge you an initial fees to set all of this up? If so you have paid for investment advice AND are now paying three different levels of annual fees to hold these funds.
There isn't anything inherently wrong in any of this. In fact it is perfectly normal. Your adviser is also providing you with a clear service - their in house portfolios. If the performance (after fees) beats any comparable alternative then you have demonstrated the value added by the adviser.
You do need a picture of the whole set of fees to discover this though. It could be closer to 3% a year when you add in active fund management charges. They may use low cost ETFs though, which will leave you still around the 2% level.
PM me if you want to know more without posting financial details online!
In the early days I paid them 3% for 'new money in' plus 1%p/a but since the pot grew a bit I knocked them down to 0.75p/a, and now 0.7p/a, with no extra charges for new money in or meetings etc etc. FWIW they have just given me a cheque back for a few quid because they realised they had "forgot" to cancel the 3% mentioned above. They noticed, not me so hats off to them (2 years worth of (3%) charges)
ps - thanks for the offer of a pm! Cheers mate
JulianPH said:
I just don't understand the concepts of charging annual fees year in, year out, when they charge initial fees every time they give advice.
One of the other I get. It is when they do both that I can't understand the justification. Most clients seem happy to pay though, so there must be a reason and that was what I was searching for.
Now I've gained a little knowledge (not much!) I fully agree with you. Why pay for both? I think "most clients" pay it simply because they don't know any better One of the other I get. It is when they do both that I can't understand the justification. Most clients seem happy to pay though, so there must be a reason and that was what I was searching for.
Phooey said:
Now I've gained a little knowledge (not much!) I fully agree with you. Why pay for both? I think "most clients" pay it simply because they don't know any better
Bingo. IFAs get away with it because:1) We assume they are experts and so will manage our finances better than we can.
2) 1% doesn't sound much*.
3) The money is taken direct from funds so it's easy not to notice how much is being lost. If an invoice arrived there'd be instant screams for sure.
4) When we challenge them they dazzle with bulls
t.- If your investments grow by 4%, he's taking 25% of your gain. And he will also get 1% if your investments go down. You can lose, but he will always gain.
Edited by Simpo Two on Saturday 26th May 22:39
The simple answer is that they usually do sweet F.A. for their trail commission.
What grinds my gears is that you are paying them to be *your* agent but in fact they always have a (large) degree of self-interest. Mine kept me on a very expensive B2B platform that required an intermediary (him!) to execute instructions. After a while I worked out how much he was taking in fees and how little work he was doing for the money (we are talking about £20k p.a. here). I also came to realise that he had no better insight into the future directions of the markets than I did - in fact demonstrably worse since I cut myself loose a few years ago and went on to a B2C platform doing my own portfolio management.
When I didn't know a bond from an ISA from a SIPP from an OEIC I got some useful advice and I would definitely say I got some value for his fees in the first couple of years. But once I understood the different financial vehicles (not hard) there was absolutely nil value I was getting for the trail commission (in fact less than nil, because he often wasn't available to execute transactions when I gave instructions, which usually cost me).
Most people don't realise that fees and tax are the things that will impact your long term portfolio management the most; get a handle on these before stressing about individual funds.
All of the transparency on fees now is a good thing as it has been far too opaque for too long, and the IFA is really anything but. Independent? More like Self-Interested Financial Advisor.
They have their place, but it should be on a simple model - a one-off payment for advice given each time. Then they would have to demonstrate the value of their advice. Mine just wanted to tie me into a high trail commission platform and funds, and then forget about me. After all, why would he want to change?
What grinds my gears is that you are paying them to be *your* agent but in fact they always have a (large) degree of self-interest. Mine kept me on a very expensive B2B platform that required an intermediary (him!) to execute instructions. After a while I worked out how much he was taking in fees and how little work he was doing for the money (we are talking about £20k p.a. here). I also came to realise that he had no better insight into the future directions of the markets than I did - in fact demonstrably worse since I cut myself loose a few years ago and went on to a B2C platform doing my own portfolio management.
When I didn't know a bond from an ISA from a SIPP from an OEIC I got some useful advice and I would definitely say I got some value for his fees in the first couple of years. But once I understood the different financial vehicles (not hard) there was absolutely nil value I was getting for the trail commission (in fact less than nil, because he often wasn't available to execute transactions when I gave instructions, which usually cost me).
Most people don't realise that fees and tax are the things that will impact your long term portfolio management the most; get a handle on these before stressing about individual funds.
All of the transparency on fees now is a good thing as it has been far too opaque for too long, and the IFA is really anything but. Independent? More like Self-Interested Financial Advisor.
They have their place, but it should be on a simple model - a one-off payment for advice given each time. Then they would have to demonstrate the value of their advice. Mine just wanted to tie me into a high trail commission platform and funds, and then forget about me. After all, why would he want to change?
Thing is, if you are a really good IFA of course you charge a retainer fee. You only have capability to serve X customers a year, so to ensure that customers get access to your time they pay a retainer. Top lawyers/ law firms are the same. New customers go to the back of the queue or are politely declined.
But then, if you are an average IFA, but want people to think you are a really good IFA, the sensible thing will be to do the same. If you don’t think your advice/ access is worth a retainer, why would it be worth one off payment either?
‘Reassuringly expensive’...
But then, if you are an average IFA, but want people to think you are a really good IFA, the sensible thing will be to do the same. If you don’t think your advice/ access is worth a retainer, why would it be worth one off payment either?
‘Reassuringly expensive’...
I have worked with financial advisers for a long time.
Some provide on-going service in the form of regular updates, reviews, newsletters, recommendations when something new comes out or something needs changing, and they are on tap to sort out issues around changing circumstances and negotiating with product providers on their clients' behalf, which can be useful if the client wants to do something that the product he has does not specifically permit.
Around 5% of financial advisers do all the above, and more, for their fee.
The rest do very little, or less.
Some provide on-going service in the form of regular updates, reviews, newsletters, recommendations when something new comes out or something needs changing, and they are on tap to sort out issues around changing circumstances and negotiating with product providers on their clients' behalf, which can be useful if the client wants to do something that the product he has does not specifically permit.
Around 5% of financial advisers do all the above, and more, for their fee.
The rest do very little, or less.
PhilboSE said:
I also came to realise that he had no better insight into the future directions of the markets than I did - in fact demonstrably worse since I cut myself loose a few years ago and went on to a B2C platform doing my own portfolio management.
When I didn't know a bond from an ISA from a SIPP from an OEIC I got some useful advice and I would definitely say I got some value for his fees in the first couple of years. But once I understood the different financial vehicles (not hard) there was absolutely nil value I was getting for the trail commission (in fact less than nil, because he often wasn't available to execute transactions when I gave instructions, which usually cost me).
Most people don't realise that fees and tax are the things that will impact your long term portfolio management the most; get a handle on these before stressing about individual funds.
I don't run an IFA, but I don't think that the first point is considered part of their remit - they're not trying or claiming to give trading advice.When I didn't know a bond from an ISA from a SIPP from an OEIC I got some useful advice and I would definitely say I got some value for his fees in the first couple of years. But once I understood the different financial vehicles (not hard) there was absolutely nil value I was getting for the trail commission (in fact less than nil, because he often wasn't available to execute transactions when I gave instructions, which usually cost me).
Most people don't realise that fees and tax are the things that will impact your long term portfolio management the most; get a handle on these before stressing about individual funds.
The other two paragraphs I'd utterly agree with.
For people of moderate wealth, IFAs are great if you don't have the time/intellect/interest to get your head around passive investing and effective use of tax wrappers. Taxes tend to be higher than IFA fees, so if you're not using pensions and ISA allowances effectively, an IFA can save you a significant amount of tax and you're better off overall.
As they present fees as a fraction of portfolio value, they look reasonable - if the fee was presented as a % of average annual return, I suspect people would be much less accepting of the cost. The best paid activity I've ever done in my life was doing enough research to not need to employ one, with the caveat I've got the free time to do that research. If you're time poor, that may not seem to be an option.
xeny said:
For people of moderate wealth, IFAs are great if you don't have the time/intellect/interest to get your head around passive investing and effective use of tax wrappers. Taxes tend to be higher than IFA fees, so if you're not using pensions and ISA allowances effectively, an IFA can save you a significant amount of tax and you're better off overall.
This is the piece I struggle with.I may change my mind if I get to a point where I need one but if I need a plumber I call one out and I pay them for the time they spend and that's it, I don't have to pay them a retainer in the months I don't use their services.
I've no issue at all paying an IFA per hour if I need assistance with wrappers and how to structure my money optimally, but once that's done I simply don't understand the continual ongoing percentage fee of the portfolio.
At present there would appear to be a requirement when using a DFM - that an IFA is on board to fulfil an annual suitability requirement for FCA legislation. Once again, the remuneration for doing so would appear to be an ongoing % fee as opposed to a one off/hourly fee for such service.
bhstewie said:
hstewie said: I've no issue at all paying an IFA per hour if I need assistance with wrappers and how to structure my money optimally, but once that's done I simply don't understand the continual ongoing percentage fee of the portfolio.
Absolutely this.I've found paying an accountant for their time has been the best of both worlds. No commissions or ongoing charges, just tax advice and sensible planning information from a well-qualified professional.
Obviously, they have an excellent knowledge of these areas, without the vested interests of an IFA.
Simpo Two said:
Phooey said:
Now I've gained a little knowledge (not much!) I fully agree with you. Why pay for both? I think "most clients" pay it simply because they don't know any better
Bingo. IFAs get away with it because:1) We assume they are experts and so will manage our finances better than we can.
2) 1% doesn't sound much*.
3) The money is taken direct from funds so it's easy not to notice how much is being lost. If an invoice arrived there'd be instant screams for sure.
4) When we challenge them they dazzle with bulls
t.IFAs make their money by having customers. How those customers fare is almost completely irrelevant.
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