IFA's and parents

[Aminatidi]

Hoping for a little advice as in the kindest possible way I know this forum is home to a lot of retirees or people who are dependent on their investments which perhaps offers a different mindset than when you're accumulating.

My mum came into a reasonable sum of money some time back which at the time was sufficient for her to use a financial advisor.

He's was out this week for his two-yearly face to face review and it would appear that her money is split across two investment products with the rest being "cash" she manages herself across various accounts.

There is about £5.5K in an "Investec FTSE 100 Enhanced Income Plan 33" which is, I believe, fixed and cannot be touched until 2023.

There is around £35K in a Standard Life MyFolio Managed II fund.

The charges for the MyFolio, the platform, and his service, which appears to be an annual phone call and a visit every two years are broken down as:

* Fund Management Charge 0.83% which looks to be about right from the funds own factsheet.
* Ongoing Adviser Fee 1%
* Platform Fee 0.39%

Apparently there are no charges or fees to stop using the adviser other than giving him a short period of notice.

You know where this one is going...

Can anyone see any hidden benefit or something I may be naive to in suggesting she moves to something DIY and cheap and simple - most likely with me managing it though the accounts of course being hers?

The advisor is a likeable enough chap but I'm really struggling with where £700/year of "value" comes from other than peace of mind.

[fca2019]

Hi there, yes sounds like a good idea and 1% too high.

If it was me and I took on the investments to save the fee, I'd mirror the previous portfolio, as if there is a market correction you could say it would have been the same anyway without the fees.

What you wouldn't want is to go from 20:80 portfolio to a 100% growth portfolio, then have a correction losing 20-30% of value, as it would be your fault. When it's our own savings at risk of course it's our choice and we take the level of risk we feel comfortable with.

[Aminatidi]

Hi there, yes sounds like a good idea and 1% too high.

If it was me and I took on the investments to save the fee, I'd mirror the previous portfolio, as if there is a market correction you could say it would have been the same anyway without the fees.

What you wouldn't want is to go from 20:80 portfolio to a 100% growth portfolio, then have a correction losing 20-30% of value, as it would be your fault. When it's our own savings at risk of course it's our choice and we take the level of risk we feel comfortable with.

Oh gosh absolutely not.

I'm doing some homework on funds right now as the Standard Life products look to be very diverse but I also wonder if something as simple as a LifeStrategy or Capital Gearing so similar sort of risk level plus a small amount in a 100% equity fund would be simple enough to do the job?

Looking at the Standard Life fund it's 5 year average seems to be around 4% which suggests she's paying around 1/2 her returns in fees overall including the fund fee.

[fca2019]

Sounds like were singing from same hymn sheet. I like lifestrategy as well as ONC 0.22%.

[dspp]

Hoping for a little advice as in the kindest possible way I know this forum is home to a lot of retirees or people who are dependent on their investments which perhaps offers a different mindset than when you're accumulating.

My mum came into a reasonable sum of money some time back which at the time was sufficient for her to use a financial advisor.

He's was out this week for his two-yearly face to face review and it would appear that her money is split across two investment products with the rest being "cash" she manages herself across various accounts.

There is about £5.5K in an "Investec FTSE 100 Enhanced Income Plan 33" which is, I believe, fixed and cannot be touched until 2023.

There is around £35K in a Standard Life MyFolio Managed II fund.

The charges for the MyFolio, the platform, and his service, which appears to be an annual phone call and a visit every two years are broken down as:

* Fund Management Charge 0.83% which looks to be about right from the funds own factsheet.
* Ongoing Adviser Fee 1%
* Platform Fee 0.39%

Apparently there are no charges or fees to stop using the adviser other than giving him a short period of notice.

You know where this one is going...

Can anyone see any hidden benefit or something I may be naive to in suggesting she moves to something DIY and cheap and simple - most likely with me managing it though the accounts of course being hers?

The advisor is a likeable enough chap but I'm really struggling with where £700/year of "value" comes from other than peace of mind.

Sack him/her. They are parasites leeching off millions of folk at this level. I know of a few other similar cases, I am sure we all do.

When cost-free opportunities arise shift funds away to better locations.

She is being charged 0.83% + 1% + 0.39% = 2.22%.

In contrast the OCF for VWRL is 0.22% and many others are available. To that ought to be added the annual costs of a basic (e.g. ii) account of about £120/yr which would equate to 0.25% on £40k. So total 0.47%.

She is basically paying 1.75% so that someone will drink a cup of tea with her every two years.

Sack him/her.

regards, dspp

https://www.vanguardinvestor.co.uk/inve ... stributing
https://www.ii.co.uk/our-charges

[Aminatidi]

Sack him/her. They are parasites leeching off millions of folk at this level. I know of a few other similar cases, I am sure we all do.

When cost-free opportunities arise shift funds away to better locations.

She is being charged 0.83% + 1% + 0.39% = 2.22%.

In contrast the OCF for VWRL is 0.22% and many others are available. To that ought to be added the annual costs of a basic (e.g. ii) account of about £120/yr which would equate to 0.25% on £40k. So total 0.47%.

She is basically paying 1.75% so that someone will drink a cup of tea with her every two years.

Sack him/her.

regards, dspp

https://www.vanguardinvestor.co.uk/inve ... stributing
https://www.ii.co.uk/our-charges

To be fair I'd prefer that this didn't turn into an anti-IFA thread but yes the numbers are quite stark.

If I take the £35K in the MyFolio and the £5K that's in the Investec plan (if it's redeemable) I'd be looking at something very simple such as either LifeStrategy or maybe put the £35K in something like Capital Gearing Trust and the £5K in VWRL or a reputable investment trust.

She wouldn't draw from this often at all so it feels possible to get fees right down.

Hopefully it goes without saying but this would all be her accounts in her name with her having full online access, nothing underhand it's simply that she wouldn't know where to start.

I asked on here as respectfully I know older people can be fiercely independent so opinions on that one would be welcome - at the end of the day if she decides she wants to keep paying the 2% that's her choice, but she didn't realise she was paying that much as she only directly sees the cheque she pays him the rest is simply taken directly off the platform each month.

I'm not an expert investor but I'm struggling with how I could do anything that isn't as sound given her level of risk-aversion.

[Alaric]

the rest being "cash" she manages herself across various accounts.

Capital at risk of course, but if there's a sizeable amount of cash, it can do better than earning around 1%.

[Aminatidi]

the rest being "cash" she manages herself across various accounts.

Capital at risk of course, but if there's a sizeable amount of cash, it can do better than earning around 1%.

There's £50K basically.

I don't know what rate she's earning on it but it won't be much.

She is quite a canny saver so I wouldn't be surprised if it isn't earning something respectable but I haven't asked yet.

I can't really talk as I keep far too much cash in the bank.

One step at a time

[dspp]

She is being charged 0.83% + 1% + 0.39% = 2.22%.

In contrast the OCF for VWRL is 0.22% and many others are available. To that ought to be added the annual costs of a basic (e.g. ii) account of about £120/yr which would equate to 0.25% on £40k. So total 0.47%.

She is basically paying 1.75% so that someone will drink a cup of tea with her every two years.

To be fair I'd prefer that this didn't turn into an anti-IFA thread but yes the numbers are quite stark.

My apologies. My perspective is that a professional should act in the best interests of the client irrespective of whether they are an IFA, an engineer, or a doctor, etc. Whilst an IFA can in some circumstances add value, in this one the reality is that they are placing the client in a position where approximately half of the annual value is being creamed off by the IFA. That does not seem to me to be in the best interests of the client. Hence my view but I apologise if phrased it too harshly.

I am unsure of whether it is best to pick (say) VWRL or some other basket of funds/etc. That will depend on the consequences of loss and the need for downside protection. You will know her circumstances better than we do.

regards, dspp

[Aminatidi]

God no apology needed I just know IFA threads can go a certain way.

Having just spoken with her and gone through things my mum appears to be on board.

I think the penny dropped when I politely asked if she'd prefer the £7K in fees over the next 10 years to be in her bank account or the IFAs.

The good news is that she appears happy to go the DIY route and she also mentioned that she'd be quite interested in being able to contribute some of the leftover she has each month which she would never have asked the IFA about because you just can't with £100 here and there.

Another thing I found was that she's interested in the simplicity of something like HL's Active Savings as it's one place to go.

So now I have a dilemma which is somewhere like HL where the charges are higher but arguable there's more flexibility, or somewhere like Vanguard where the fees are much less but of course the choice is more limited and there are no savings products built-in.

[dspp]

So now I have a dilemma which is somewhere like HL where the charges are higher but arguable there's more flexibility, or somewhere like Vanguard where the fees are much less but of course the choice is more limited and there are no savings products built-in.

If you want to maximise simplicity then why not open an ii account, and put it all in the 80/20 (eqty/bond) Vanguard Lifestrategy with an OCF of 0.22%. In the same way as I calculated before the OCF is 0.22% to which ought to be added the annual costs of a basic (e.g. ii) account of about £120/yr which would equate to 0.25% on £40k. So total 0.47%. I don't think it gets simpler than that, and I think it (ii) is cheaper than Hargreaves Lansdown etc.

She could then put in spare cash as and when it arises, and then whenever enough accumulates she could buy additional units.

I'm not certain whether the accumulation or the income version of the 80/20 would be best for her. Maybe others could comment on that.

(a separate issue is whether it is beneficial to her to place it inside a ISA, but that is easy inside an ii account)

regards, dspp

[Aminatidi]

Honestly she'd crap it if I were to put it in something like LS80 and I think rightly so

LS40 seems the most suitable LifeStrategy product given her risk-aversion.

I'm trying to see if something like CG Absolute Return has FSCS cover as that is something she has concerns over.

I don't know how much of a concern FSCS cover should be but it is her money.

[xeny]

It's worth remembering that MyFolio II is pretty low risk, perhaps something like LS 40, when considering replacements.

It's a "safe" but horrid portfolio.

The costs are high enough there's no significant capital growth on the MF II (19.7% (presuming http://documents.financialexpress.net/L ... 967708.pdf is the correct fund?) cumulative over 5 years is I believe an average of ~3.6%/annum). Subtract 1% adviser fee, .39% platform fee and you're at 2.2%/annum, which is perhaps keeping up with inflation.

edit: I was a while writing that - looks as if we agree LS 40 is about the appropriate risk level.

[Aminatidi]

LS40 or something like Troy Trojan or CG Absolute Return were what leap to mind.

I have quite a bit of my own money in the investment trust equivalent of the latter two and they seem good safe options.

If I'm being candid I'm also cautious of over-thinking it when it may be that simply going with LS40 direct with Vanguard and dump the £5K from the Investec product into a global tracker is a good simple easy option for her that is about as low cost and easy to manage as possible.

[Wuffle]

In a similar boat with a parent, mine is in cash so far but I am nosing about.
I would suck up the IFA charges (can they still charge a percentage, I thought it was fixed fee now?) to neutralise sibling criticism but without that I would go it alone.

I think, and would appreciate a second opinion, that you could open an ISA (assuming no other actions have taken place in this regard) before the end of this tax year with 20 grand, then add 20 next year with Hargreaves Lansdown and they cap the ISA charges for ETF and investment trusts at £45, so 0.1% p.a., with a strong 11.95 buy in per investment but if it is just being left alone that is tolerable. The cash held would indicate thus.
Then you just need to pick an appropriate investment within these to match the risk requirement.
I am a customer but don't hang on the details as I am working and it is a rounding error in life but I think I am right about the charges. Maybe better than other suggestions, maybe not.
Though I wouldn't be surprised if the IFA has a clause though ......take care.

Wuffle.

[Wuffle]

I have gone back and reread the original post.
Is that investec product one that pays a fixed return annually if the FTSE is over a certain level until expiry, then pays back the lump?
If so my previous post has no merit as I don't think it would be transferable.
Sorry.

Wuffle.

[Aminatidi]

I have gone back and reread the original post.
Is that investec product one that pays a fixed return annually if the FTSE is over a certain level until expiry, then pays back the lump?
If so my previous post has no merit as I don't think it would be transferable.
Sorry.

Wuffle.

Reading their literature it is.

https://www.investec.com/content/dam/un ... 04MM25.pdf

Worst case I guess my mum just waits for it to mature as it's "only" £5K.

I'm cautious of second-guessing IFAs as I wouldn't like if someone second guessed my field of employment having spent 10 minutes on Google but I really don't get the point of a product paying a "guaranteed" monthly income of £22 for someone who doesn't need income.

[Wuffle]

By combining our posts I believe I have the answer.
It keeps a foot in the door for the adviser.
I recall my mum having similar advice on the passing of her mum, though I didn't get involved. Dad was still around and it was his problem.
I am now sweeping up the cash throw off of such products and deciding what to do with them.

W.

[Alaric]

but I really don't get the point of a product paying a "guaranteed" monthly income of £22 for someone who doesn't need income.

The paperwork for the original advice is supposed to contain a "reason why" explaining the supposed logic behind the investment selections.

I suppose it would point to the interest income of around 5% a year being much higher than on a fixed term deposit. It is however an example of what was sometimes termed a "precipice" bond. In other words if the FTSE 100 Index collapses, the investment falls with it.

https://www.investec.com/content/dam/un ... 04MM25.pdf
https://citywire.co.uk/funds-insider/ne ... ed/a251627

[Aminatidi]

but I really don't get the point of a product paying a "guaranteed" monthly income of £22 for someone who doesn't need income.

The paperwork for the original advice is supposed to contain a "reason why" explaining the supposed logic behind the investment selections.

I suppose it would point to the interest income of around 5% a year being much higher than on a fixed term deposit. It is however an example of what was sometimes termed a "precipice" bond. In other words if the FTSE 100 Index collapses, the investment falls with it.

https://www.investec.com/content/dam/un ... 04MM25.pdf
https://citywire.co.uk/funds-insider/ne ... ed/a251627

To be fair I'm sure everything is above board with the IFA as he's genuinely a nice bloke.

This isn't personal and there's no suggestion or suspicion of wrongdoing it simply doesn't appear financially prudent to be paying 2% on such a small pot.

I've read the brochure in the first link a couple of times and it sounds as though the Investec product can be cashed in at market value minus of course what has been taken out.

There doesn't seem to be any mention of fees or penalties.

The sensible thing would seem to be for my mum to contact them to ask for a figure but would people interpret it that way too?