Who has consulted an Independent Financial Adviser (IFA)?

[sendu]

Right, so the idea there is they supposedly have an incentive to find well-performing funds to increase the amount they’ll earn, which is also in your interest. Win-win, right?

That’s what will happen with someone trust-worthy, honest and actually capable. Hopefully your chap is one such person.

But equally you could have someone that just sits back and does nothing of value, and just rakes in the money. For example:

• Client invests £1mil
• Good IFA John picks good investments that increase the value by 4% after a year, to £1,040,000. He then charges his 1% fee, making £10,400.
• Or bad IFA Sam picks an investment he didn’t bother researching. It only increases value by 1% after a year, to £1,010,000. He then charges his 1% fee, making £10,100. (Notice client now has less than he started with, but Sam just doesn’t need to care.)

John’s reward for his excellent performance and hundreds of hours of hard work is an extra £300 compared to Sam, who basically did nothing and laughed his was to the bank.

Basically, for an IFA on a % fee, they don’t actually have much incentive to do well. If they really want to make extra money, it’s far more lucrative to become unscrupulous and take an additional % cut/fee/kickback for investing in certain products. That way they can get 1% from the client, and 1% from the fund, and make an extra £10,000 instead of a meagre £300.

[Rogerb]

Yes, can see that and hopefully I do have a good chap. Can you do the same scenario with a fixed fee IFA? R-

[sendu]

Sure, with a fixed fee it looks like:

• Good IFA Carl picks good investments that increase the value by 4% after a year, to £1,040,000. He then charges his £3,000 flat fee.

Here’s what the client ends up with after 1 year:

• Good IFA John who charges 1%: £1,029,600
• Bad IFA Sam who charges 1%: £999,900
• Good IFA Carl who charges a fixed rate: £1,037,000

Obviously, clients are better off with Carl. It’s a lot easier to trust Carl because we know he isn’t driven by greed. He’s just charging enough to make his living, in line with the value of his advice. (You can be especially sure of this if you pick funds based on his advice and buy them yourself - then you know with certainty there’s no kickback situation.)

Carl’s incentive to do well is that if he gives you bad advice that doesn’t meet your financial goals, you simply won’t go back to him for advice next year. You’re free to leave him, because as a good IFA he hasn’t done anything to “trap” you in to his service.

You can bet that Sam, on the other hand, will do everything in his power to make it as difficult as possible to leave him, and to convince you there’s nothing wrong and you’re doing well. He just wants his 1%. Sam’s main skill will be making clients happy that their investments gained 1% this year, while hiding the fact the client is actually poorer. Sam’s clients consider “feelings”, and don’t really look at the reality of the numbers.

[dan_g]

I consulted one as I’m self employed and manage my own pension.

I simply wanted a pension review, and advice on which funds to invest in. I got this and the selected funds have outperformed my previous funds, so the advice had more than paid for itself.

However the actual process was much as I’d feared - much more interested in selling me into a scheme that would get them commission, couldn’t answer specific questions about products they weren’t pushing (p2p lending for example).

Also used two for mortgages (one was not good, the other excellent and also used her for life insurance).

So I guess my experiences bear out other people’s concerns - how do you find a good one? If you do they’re probably expensive, upfront costs are rarely clear etc etc…

[o99]

I don’t feel I need general ongoing investment advice. I’m perfectly happy to do that myself. Where I feel an IFA could potentially help me is for ad-hoc large financial events - mortgage, inheritance, whether to transfer pensions when moving jobs, etc.

I don’t know if I can get an IFA for ad-hoc needs or if I need to employ one on an ongoing basis via some kind of retainer fee in order to access ad-hoc advice. This has been an obstacle for me.

[JuB]

@o99

Where I feel an IFA could potentially help me is for ad-hoc large financial events

When you’re unsure of where to go, do you often resort to the internet or chat to friends? I used to call my parents but I now realise that their financial journey was so different to mine that it actually isn’t the best resource for me.

[robert]

@JuB

I used to call my parents

I still do, but on the other hand I am the parent of two teenagers and it worries me that I am about to become their ‘phone a friend’ on these matters and yet I am the one who is still unsure.

I see we’ve had a few late additions to the ‘Yes’ camp in the in the poll. For the longest time we were at pretty much the national average of 5-10% but we’ve jumped up to 26% which is very impressive.

I’m guessing that the kinds of people who join Dozens today, or at least those who join discussions like these, are those who are a bit more likely than most to have thought about their future and considered getting advice.

The experience of most of those who have commented, like @Rogerb @sendu and @dan_g generally seems positive on balance, but with some provisos re costs. Is that fair?

I have to say that my experience is completely positive, but I’ve consciously restricted what I expected from him. His advice has paid off many times over with a mortgage change we made some years ago (before the 2008 crash) and with his help to consolidate my pension, so I can’t argue.

To be fair, our savings weren’t of the order where his advice was needed (or could be afforded) so we did what @o99 suggested I guess, and stuck to specific decisions.

However, I do wonder if there might have been some further advice, or maybe encouragement, that could have been given so that those savings might have been better taken care of over the years? I know, I could have done more research … but we don’t get around to it, right?

Another point of interest is that most of us in this discussion, with the honourable exception of @JuB, have been men (to the best of my knowledge). I wonder if there are any women willing to share their experience, or concerns, with IFAs?

In my case it was actually my sister who referred me to her IFA that she thought highly of, but I understand that there is a substantial difference in this area (in one report I read, only 25% of those who do seek advice are women)

[4martin]

Over the years, I have used four or five different IFA’s but with hindsight I have gained little from the encounters. The “after sales” care has been non-existent! These days, I wouldn’t accept this behaviour from any other provider so why do IFA’s continue to treat customers so badly? The advice is not cheap and there are no guarantees their advice will result in any financial gain even over the long term. How can people assess or compare potential IFA’s when no meaningful performance data exists?

I can appreciate that people who are uncomfortable or not confident managing their own medium- or long-term financial plans might benefit from a whole-of-market IFA. But IFA’s were conceived in a pre-internet age when large financial corporations controlled the flow of information and financial products were made difficult to understand, access and manage. There was a time when you had to buy a broadsheet newspaper if you wanted to know the price of shares or funds! IMHO, the internet has made IFA’s virtually redundant for ordinary folk. When you consider IFA fees alone, it’s clear they are now targeting themselves at the high-net-worth client.

The internet has changed everything! Everyone can now access good quality information that will allow them to make their own decisions (yes, assuming you also know how to avoid the click-bait, marketing hype, misinformation, etc). You can even learn the basics of personal finance free at the Open University - https://www.open.edu/openlearn/money-business/mses-academy-money/content-section-overview. All the resources are in place to allow people to make more decisions for themselves on savings, insurance, life assurance, pensions, investments, etc and access the products they need. What’s more, Open Banking/PSD2, challenger banks, etc has accelerated the change allowing new entrants to the market like Dozens to develop platforms, tools, AI, etc that put customers in full control of their own money.

An IFA may give you peace of mind but I don’t think they represent good value for money for most people prepared to do a little homework.

[dan_g]

@robert

The experience of most of those who have commented, like @Rogerb @sendu and @dan_g generally seems positive on balance, but with some provisos re costs. Is that fair?

The cost for me was more-or-less as I’d expected. Obviously I would have preferred to pay less, but I accepted that my IFA’s hourly rate was higher than mine.

Since the funds I was advised to invest in went up quicker than the investments I was in previously, the advice paid for itself. If it hadn’t I might have felt a little less happy about the fee .

My main issue was that I had a clear idea what I wanted - one off advice on how to invest in my existing pension scheme, but had to sit through a bit of hard selling of other products that would generate the IFA ongoing commission.

[JuB]

@dan_g

but had to sit through a bit of hard selling of other products that would generate the IFA ongoing commission.

This for me can sometimes make me feel a little nervous, just from the worry that i’ll be sold something I didn’t really need or that could be better invested somewhere else. Did you say anything to you IFA/ give any feedback?

[dan_g]

In truth, not really.

At the time, when pushed, he admitted that while it was ‘likely’ the funds in their more expensive scheme (with fees starting at 1.5%) would perform better, there was no guarantee they would out-perform funds in my existing scheme (with flat fees of 0.5%). Once I’d given them a firm “thanks, but no thanks” and explained my reasoning (“the only certainty you’re offering is triple fees…”) it was respected.

In fairness to the IFAs of the world - they do have to be confident that you understand what you’re saying ‘no’ to just as much as what you’re saying ‘yes’ too. Some have lost a lot of money for giving advice that was later deemed to be unsuitable (and this is why you have to go through all your finances in great detail just to get even relatively simple advice…).

I haven’t been back, and will look for a different advisor next time. Having been through it once, I think I’d be more confident up front ringing several up and finding someone who agreed to do what I wanted for a fixed fee.

I dare say there’s a lot more willingness these days to do this remotely / asynchronously -which gives you more time to consider/investigate products/investments they may try and sell to you, and the time to compose a polite decline when needed.