On the subject of charges, I had an interesting client meeting today.......
Client I've known for 18 years. GP who has specialised in Dermotology & is now totally self employed & no longer in the NHS Pension scheme. Income last year was c£185k & the tax year now ending probably in excess of £200k (inc rental income from 3 btls). She is 50 & type 1 diabetic who wants to retire before age 60 - most likely 55. NHS Pension is worth £30k pa.
She has a Private pension with Scottish Widows which I probably "sold" her 15 years ago. Old style. 1% AMC with some additional fund charges that brings it up to 1.2%. No ongoing advisor charges.....which on a fund of £160k is a bit galling, especially as it doesn't pay commission either if she wants to top it up. Currently paying £9750pa so is just below the reduced AA.
I have been talking to her over the last 2 years about switching / transferring to a newer "flexi access drawdown" plan. Main benefits to her are 1) that death benefits before she is 75 are totally tax free. She has a son who will inherit her entire estate (With btls probably over £2m) & put it to her the advantages to him of a totally tax free pension fund upon her death (New rules). And 2) that a new style pension has cheaper charges. Staying with SW would mean an AMC of 0.3% and on a straight like for like switch of funds the additional fund cost of 0.47.....so 0.77% in total. I could then add on my 0.5% ongping fee and make it 1.27%.....or reduce the ongoing fee to 0.4% & bring it in for slightly less than her current plan. Other option (and my preferred one) would be to switch the entire fund to Royal London, where the AMC is 0.45%. No additional fund charges using one of their 9 Governed portfolios (which are reviewed quarterly). Add in my 0.5% and she has a fully flexible, ready for drawdown plan for less than 1%.....and 0.25% less than her current old style plan.
Her concern. Cost. That I was "taking" £800 pa......even though the overall cost was lower. I was also only going to charge her an initial fee of £1500 (yes, a lot of money)....but less than 1% of the fund value....and which I should be charging 3%. And this to someone who earns £200k pa.
I'm pretty certain she will do it......but it will take another meeting & lots more illustrations & number crunching before she agrees. She understands the need to do it (she can't go into drawdown with her current plan) but just has a thing about charges.
Is it me....or am I just a crap "salesman".
Not always the case, but in my experience the wealthier people are often the tightest!
It's a tough sell I guess, which I sort of get. If it were me, i'd rather pay for your time/advice than a % charge ongoing as that seems an unfair way of charging as @Dippenhall mentions. When I got advice/report on a final salary scheme to transfer to my SIPP I did that, just paid for it.
Problem of course becomes I'm sure if you said to the lady, there you go, thats £1,000 please she'd find that difficult anyway.
I think the ongoing % charge basis needs to change.
My ongoing charge of 0.5% was the standard with IFA's before RDR.....and is the lowest of the 3 options the company I work for charge. A lot of advisers charge 1% and a study last year said the average across all advisors was around 0.75%. I did say to her (and in my post) that I would be willing to reduce it down......something is better than nothing & I have a few clients on 0.3% or 0.35%.....and 2 at 0.25%....But they have over £500k invested.
I'm not greedy. try finding an advisor who would do it for less...
I’m not suggesting you aren’t competitive or are greedy, that seems to be SJP :-), your rates as IFA's go are cheap!
But I believe a lot of people would think like I do, in that I don’t want to receive advice this week and still be paying for it in 10 years time, and likely an increasing charge (in £'s term) as fund values go up/more money is paid in.
The few times I've used paid for advice (been lucky that my employers tended to employ advisors for staff), I've just paid for it there and then.
Be interested in your hit rate, how many times have you been out and seen someone who doesn't proceed? I.E. what is stopping someone taking all your advice and doing it themselves? AKA the GP you mention?
for advice: 4.5% initial charge for you to tell me which funds of yours are best for me?
1.5% initial charge for product
plus minimum of 0.5% ongoing for first 6 years then 1%, or up to 6%
plus fund charges up to 1.26% depending on what ones you advise me to have.
so move £1m and you want £60k plus £5k per annum minimum plus up to £12.6k in fund charge, or when I realise what a mistake it was another £60k to withdraw?
Thats simply madness, nearly 15%....
————————————
Advice Charges
We charge for our initial advice and for our ongoing advice. 4.5% of your initial investment will be used to pay for initial advice and an annual charge of 0.5% will be charged for the ongoing advice and the relationship with your adviser.
Product Charges
There will be an initial product charge of 1.5% of your investment. There will also be an annual product management charge of 1% but this will be waived in the first 6 years for each investment. If you encash within the first 6 years of an investment there will be an early withdrawal charge of 1% of the value of your fund in respect of this investment.
Hi Rob,
This is a common misunderstanding of the charging structure which IFAs use to justify calling SJP ridiculously expensive. The fact is they aren't the cheapest, but I have come across hordes of IFAs perpetuating this sort of stuff when in reality they charge more overall.
The key thing is that the 4.5% advice fee and 1.5% initial charge are effectively waived in return for the 6 year exit penalty.
The ongoing would likely be somewhere in the region of 1.7%.
So to use your example;
If we moved £1 MIllion, 100% of the money would be invested on day one.
If the client were to move their pension within 6 years, the early exit penalty of 6% Y1 - 0% after Y6 would apply.
Therefore assuming the client was being charged the full whack, they would be paying in that example £17,000 overall for the advice, product, fund managers etc.
I’m not suggesting you aren’t competitive or are greedy, that seems to be SJP :-), your rates as IFA's go are cheap!
But I believe a lot of people would think like I do, in that I don’t want to receive advice this week and still be paying for it in 10 years time, and likely an increasing charge (in £'s term) as fund values go up/more money is paid in.
The few times I've used paid for advice (been lucky that my employers tended to employ advisors for staff), I've just paid for it there and then.
Be interested in your hit rate, how many times have you been out and seen someone who doesn't proceed? I.E. what is stopping someone taking all your advice and doing it themselves? AKA the GP you mention?
I generally only deal with existing clients.....plus any referrals I get off here so there aren't many times that a client sees me & goes elsewhere. It has happened before & probably will do in the future, but that's life.
I see the ongoing advice fee paying for all the stuff that goes on before & after a client meeting (checking portfolios, researching alternative funds, switching funds etc) and of course it pays for the meeting itself. At the start any initial meeting is free but once there is a "relationship" then my clients have to pay me for my time. Only ever had 1 client in 20 years of being an IFA who paid me for subsequent meetings. And they went elsewhere a few years later.
All my Doctor clients are so busy with work or so uninterested in the ins & outs that they'd rather someone do it for them. Same with me. I hate diy & gardenening & pay an "professional" to do it for me. Doctors are clever buggers but most have no clue about finance.
So as a complete novice here is my question to our IFAs on here and one that troubles me despite the fact I think I should use one. It is not meant to be rude, so apologies if it comes across that way;
If IFAs are so excellent at investing money and growing this investment then why are they working and not all themselves minted and living the life of riley?
I kind of get it for the younger ones whom have maybe not built the wealth to invest but surely if you are that finance literate you should be retired by 50 or is it simply the love of the IFA job which motivates to keep going?
In my opinion this is because your understanding of what an IFA / adviser is inaccurate, certainly in terms of describing what i do.
The primary value that a good adviser brings to the table as @golfaddick aluded to is strategy and knowledge. We spend far more time educating the client around different investment structures, the taxation and the myriad of allowances available to them. The point at which you actually choose your funds / portfolio is only one part of a much bigger service offering.
Sadly there are a lot of salesman type advisers (inside and outside of SJP) who do not give the industry a good name. This is frustrating as the regulatory and compliance that we have to abide by is is far greater than most fellow professionals such as accountants, but this will change. Before even considering investment we would be looking at other planning areas such as protection planning for example as this has a fundamental impact on your investment decision. Thereafter whenever we take an action we consider how it impacts on each other area of planning, advisers in banks for example might put £500,000 life cover in place, but not consider what impact this would have on the clients IHT position.
A lot of IFAs / advisers do well, i'm one of very few sub-30 year old advisers running a successful business, employing people & with happy clients. My strength is explaining complex matters in layman's terms, because there is so little financial knowledge out there this is seemingly a very valuable thing. I have been amazed over the last 6 years how financially illiterate the general populous are including for example the owners of £10 million businesses. I suppose what helps is that I am not particularly money motivated. The paradox is that because i therefore approach things differently I run a far more successful business than most of my peers.
A lot of advisers could retire tomorrow, but it becomes a lifestyle and your clients become a huge part of your life. It is more common for advisers to start to reduce their hours as they enter their 50s but a lot find it hard to ever actually retire.
The truth is that people are not willing to pay for the service they actually need, which is a fee based service like using a solicitor.
Historically commission worked because it wasn’t a visible cost and looked “free”. Now advisers have to disclose the commission dressed up as a fee it is more difficult to justify added value. You rarely look at a solicitor as adding value, you pay him to do stuff you can’t do yourself and you should pay for his time, not how much is involved in the transaction.
If a professional adviser had the full range of skills and knowledge to cover off tax, pension and investments to provide independent advice, but could earn a 6 figure salary using his skill within a large corporate financial consultancy where the big money is - his career path would unlikely lead him down the path of being an IFA. If he chose to be an IFA he would need to charge at least £300 an hour for his time to give unbiased objective advice that didn’t have to result in churning of investments that released commission.
It costs the same to advise on investing £10k as £100k but the £10k would cost more if the individual had more financial issues to sort out. That’s why taking a % of assets charge is not only unfair but means an adviser cannot afford to “waste” his time advising normal folk with modest wealth and needs to make an excessive margin on large accounts to subsidise his loss making activities.
it also means money has to be churned to free up the cash to fund client charges. How many people would want to pay £2,000 from their wages for advice that might result in not changing investments but was useful in preventing a bad decision.
When I was a fee based consultant I had a client refuse to pay a £1,500 fee for annuity advice and servicing the transfer of a £m+ fund but instead turned to a commission based adviser taking 1.5% commission of £18,000 because it was “free” to use an IFA.
The long established tradition of commission business has conditioned people to think financial advice should be free at the point of delivery, and close our eyes on how the ultimate costs are funded and who is profiting, bit like the NHS.
We have the financial advisory service industry we are prepared to support and pay for, and in many ways I should not be knocking it if the public are not demanding something different.
This is superb.
The only thing I would add is that I have had 3 client situations in the last month alone whereby a fee-based service would not have been financially viable, the asset % basis therefore made it worthwhile for me to invest the time that I did.
for advice: 4.5% initial charge for you to tell me which funds of yours are best for me?
1.5% initial charge for product
plus minimum of 0.5% ongoing for first 6 years then 1%, or up to 6%
plus fund charges up to 1.26% depending on what ones you advise me to have.
so move £1m and you want £60k plus £5k per annum minimum plus up to £12.6k in fund charge, or when I realise what a mistake it was another £60k to withdraw?
Thats simply madness, nearly 15%....
————————————
Advice Charges
We charge for our initial advice and for our ongoing advice. 4.5% of your initial investment will be used to pay for initial advice and an annual charge of 0.5% will be charged for the ongoing advice and the relationship with your adviser.
Product Charges
There will be an initial product charge of 1.5% of your investment. There will also be an annual product management charge of 1% but this will be waived in the first 6 years for each investment. If you encash within the first 6 years of an investment there will be an early withdrawal charge of 1% of the value of your fund in respect of this investment.
Hi Rob,
This is a common misunderstanding of the charging structure which IFAs use to justify calling SJP ridiculously expensive. The fact is they aren't the cheapest, but I have come across hordes of IFAs perpetuating this sort of stuff when in reality they charge more overall.
The key thing is that the 4.5% advice fee and 1.5% initial charge are effectively waived in return for the 6 year exit penalty.
The ongoing would likely be somewhere in the region of 1.7%.
So to use your example;
If we moved £1 MIllion, 100% of the money would be invested on day one.
If the client were to move their pension within 6 years, the early exit penalty of 6% Y1 - 0% after Y6 would apply.
Therefore assuming the client was being charged the full whack, they would be paying in that example £17,000 overall for the advice, product, fund managers etc.
Where’s the misunderstanding? Where on your website does it states those fees are waived? If they aren't charged why are they even on there? The fee it states is waived for the early encashment charge is the 1% product management fee NOT the 'Advice Charges'. It also states it's (the 1%) only waived for the first 6 years - so assume it kicks in on year 7? Or is the website wrong on that as well?
If you are saying all of that is wrong we'd best refer SJP to the FCA. If all of the fee's stated on the website are wrong, it's hardly surprising SJP/Advisors get a bad name.
Sorry to harp on, but an SJP advisor is not an IFA. You are tied to SJP products (in the main) so need to drop the 'I'.
for advice: 4.5% initial charge for you to tell me which funds of yours are best for me?
1.5% initial charge for product
plus minimum of 0.5% ongoing for first 6 years then 1%, or up to 6%
plus fund charges up to 1.26% depending on what ones you advise me to have.
so move £1m and you want £60k plus £5k per annum minimum plus up to £12.6k in fund charge, or when I realise what a mistake it was another £60k to withdraw?
Thats simply madness, nearly 15%....
————————————
Advice Charges
We charge for our initial advice and for our ongoing advice. 4.5% of your initial investment will be used to pay for initial advice and an annual charge of 0.5% will be charged for the ongoing advice and the relationship with your adviser.
Product Charges
There will be an initial product charge of 1.5% of your investment. There will also be an annual product management charge of 1% but this will be waived in the first 6 years for each investment. If you encash within the first 6 years of an investment there will be an early withdrawal charge of 1% of the value of your fund in respect of this investment.
Hi Rob,
This is a common misunderstanding of the charging structure which IFAs use to justify calling SJP ridiculously expensive. The fact is they aren't the cheapest, but I have come across hordes of IFAs perpetuating this sort of stuff when in reality they charge more overall.
The key thing is that the 4.5% advice fee and 1.5% initial charge are effectively waived in return for the 6 year exit penalty.
The ongoing would likely be somewhere in the region of 1.7%.
So to use your example;
If we moved £1 MIllion, 100% of the money would be invested on day one.
If the client were to move their pension within 6 years, the early exit penalty of 6% Y1 - 0% after Y6 would apply.
Therefore assuming the client was being charged the full whack, they would be paying in that example £17,000 overall for the advice, product, fund managers etc.
Where’s the misunderstanding? Where on your website does it states those fees are waived? If they aren't charged why are they even on there? The fee it states is waived for the early encashment charge is the 1% product management fee NOT the 'Advice Charges'. It also states it's (the 1%) only waived for the first 6 years - so assume it kicks in on year 7? Or is the website wrong on that as well?
If you are saying all of that is wrong we'd best refer SJP to the FCA. If all of the fee's stated on the website are wrong, it's hardly surprising SJP/Advisors get a bad name.
Sorry to harp on, but an SJP advisor is not an IFA. You are tied to SJP products (in the main) so need to drop the 'I'.
This will explain it better...I agree it’s a ridiculously complicated way of explaining no initial charge, 6 year exit penalty and 1.5% AMC but it the FCA that have created this due to a necessity to explain what bit goes towards advice.
I don’t use the I and I make it very clear to clients. This said I wouldn’t wear IFA as a badge of honour given the quality of the average IFA.
Look I get it, if you asked me for a fair and balanced review of Crystal Palace you wouldn’t get it!
Just read the last couple of pages - interesting reading.
Surely advice is advice, so why a different charge for telling me where to put 100k rather than 10k ?
Bit like estate agents commission - there is no greater cost to them to sell a 200k house than a 600k house so why is the fee a percentage and not a flat fee?
Just read the last couple of pages - interesting reading.
Surely advice is advice, so why a different charge for telling me where to put 100k rather than 10k ?
Bit like estate agents commission - there is no greater cost to them to sell a 200k house than a 600k house so why is the fee a percentage and not a flat fee?
Maybe we should set up a virtual investment club, IFA's verses tied FA's v's Joe public, a virtual £100k at the beginning of the tax year and see how much you have by the end. £20 entrance fee, winner takes half, half to the upbeats or similar.
Who's in?
I'm in - could be fun.
I was a member of an investment club for years when I lived in Kent - really just an excuse to meet every 2 weeks for a good drink but was very enjoyable. Maybe the possibility of a real CL investment club if there's enough takers.
for advice: 4.5% initial charge for you to tell me which funds of yours are best for me?
1.5% initial charge for product
plus minimum of 0.5% ongoing for first 6 years then 1%, or up to 6%
plus fund charges up to 1.26% depending on what ones you advise me to have.
so move £1m and you want £60k plus £5k per annum minimum plus up to £12.6k in fund charge, or when I realise what a mistake it was another £60k to withdraw?
Thats simply madness, nearly 15%....
————————————
Advice Charges
We charge for our initial advice and for our ongoing advice. 4.5% of your initial investment will be used to pay for initial advice and an annual charge of 0.5% will be charged for the ongoing advice and the relationship with your adviser.
Product Charges
There will be an initial product charge of 1.5% of your investment. There will also be an annual product management charge of 1% but this will be waived in the first 6 years for each investment. If you encash within the first 6 years of an investment there will be an early withdrawal charge of 1% of the value of your fund in respect of this investment.
Hi Rob,
This is a common misunderstanding of the charging structure which IFAs use to justify calling SJP ridiculously expensive. The fact is they aren't the cheapest, but I have come across hordes of IFAs perpetuating this sort of stuff when in reality they charge more overall.
The key thing is that the 4.5% advice fee and 1.5% initial charge are effectively waived in return for the 6 year exit penalty.
The ongoing would likely be somewhere in the region of 1.7%.
So to use your example;
If we moved £1 MIllion, 100% of the money would be invested on day one.
If the client were to move their pension within 6 years, the early exit penalty of 6% Y1 - 0% after Y6 would apply.
Therefore assuming the client was being charged the full whack, they would be paying in that example £17,000 overall for the advice, product, fund managers etc.
Where’s the misunderstanding? Where on your website does it states those fees are waived? If they aren't charged why are they even on there? The fee it states is waived for the early encashment charge is the 1% product management fee NOT the 'Advice Charges'. It also states it's (the 1%) only waived for the first 6 years - so assume it kicks in on year 7? Or is the website wrong on that as well?
If you are saying all of that is wrong we'd best refer SJP to the FCA. If all of the fee's stated on the website are wrong, it's hardly surprising SJP/Advisors get a bad name.
Sorry to harp on, but an SJP advisor is not an IFA. You are tied to SJP products (in the main) so need to drop the 'I'.
This will explain it better...I agree it’s a ridiculously complicated way of explaining no initial charge, 6 year exit penalty and 1.5% AMC but it the FCA that have created this due to a necessity to explain what bit goes towards advice.
I don’t use the I and I make it very clear to clients. This said I wouldn’t wear IFA as a badge of honour given the quality of the average IFA.
Look I get it, if you asked me for a fair and balanced review of Crystal Palace you wouldn’t get it!
Not sure it does, it confirms the charges I mentioned above that you said get waived?
Still states the 4.5% on initial investment and 0.5% on-going simply for the advice, nothing about that being waved.
It states at the end under 'the effect of these charges' that it equates to 1.5% per annum if you remain for 6 years. I believe the calculation is (on say £1m);
Initial charge of 4.5% & 1.5% = £60k (so how does the full amount get invested initially?)
0.5% on going, which for 6 years = £30k
Total £90k / 6 = £15k per annum, or 1.5% - all before the charges for managing and maintaining underlying investments that ranges from 0.11% to 1.26%, meaning anything between a total of 1.61% to 2.76%.
A very convoluted way of basically charging 1.5% per annum plus fund cost (assuming you stay for a minimum of 6 years).
Just read the last couple of pages - interesting reading.
Surely advice is advice, so why a different charge for telling me where to put 100k rather than 10k ?
Bit like estate agents commission - there is no greater cost to them to sell a 200k house than a 600k house so why is the fee a percentage and not a flat fee?
An advisor doesn't have to work on a % basis to pay for advice. It can be worked on an hourly basis or as a flat fee. Out of interest, what would you pay an IFA to invest £10k into an ISA today, for this tax year ? What do you think is fair & reasonable ?
Just read the last couple of pages - interesting reading.
Surely advice is advice, so why a different charge for telling me where to put 100k rather than 10k ?
Bit like estate agents commission - there is no greater cost to them to sell a 200k house than a 600k house so why is the fee a percentage and not a flat fee?
Just read the last couple of pages - interesting reading.
Surely advice is advice, so why a different charge for telling me where to put 100k rather than 10k ?
Bit like estate agents commission - there is no greater cost to them to sell a 200k house than a 600k house so why is the fee a percentage and not a flat fee?
An advisor doesn't have to work on a % basis to pay for advice. It can be worked on an hourly basis or as a flat fee. Out of interest, what would you pay an IFA to invest £10k into an ISA today, for this tax year ? What do you think is fair & reasonable ?
when I took advice over switching from a Final Salary Scheme to a SIPP I paid about 5k for the advice I think although my old employers whose scheme it was I left paid over half of that. I thought it money well spent. It's no different than having your driveway done. You can either get a reputable company in and have a good job done and be happy or get one of the local Romany community to dump a lot of tarmac over the old driveway and have no end of issues afterwards.
I don't generally advise family.......but I did briefly explain to him about drawdown (during half time at The Valley if memory serves me) and said he should look at this option rather than just taking the deal offered by his employer. I think he'll agree that was the right choice.
I don't generally advise family.......but I did briefly explain to him about drawdown (during half time at The Valley if memory serves me) and said he should look at this option rather than just taking the deal offered by his employer. I think he'll agree that was the right choice.
I can see why advising family would be a recipe for disaster.
I would prefer a performance fee, ie you take a far larger % on the profit that you make me, not a smaller % fee on my capital amount invested which ultimately means you are rewarded equally for good and bad advice.
Maybe we should set up a virtual investment club, IFA's verses tied FA's v's Joe public, a virtual £100k at the beginning of the tax year and see how much you have by the end. £20 entrance fee, winner takes half, half to the upbeats or similar.
Who's in?
I'm in - could be fun.
I was a member of an investment club for years when I lived in Kent - really just an excuse to meet every 2 weeks for a good drink but was very enjoyable. Maybe the possibility of a real CL investment club if there's enough takers.
I wouldn’t know where to start so would happily represent Joe public!
I would prefer a performance fee, ie you take a far larger % on the profit that you make me, not a smaller % fee on my capital amount invested which ultimately means you are rewarded equally for good and bad advice.
But unless the advisor is personally invested in the same things he puts you into, he has a significant incentive to take outsized risks with your money.
I would prefer a performance fee, ie you take a far larger % on the profit that you make me, not a smaller % fee on my capital amount invested which ultimately means you are rewarded equally for good and bad advice.
But unless the advisor is personally invested in the same things he puts you into, he has a significant incentive to take outsized risks with your money.
Good point and the reason I would be representing Joe Public! Lol.
I would prefer a performance fee, ie you take a far larger % on the profit that you make me, not a smaller % fee on my capital amount invested which ultimately means you are rewarded equally for good and bad advice.
But unless the advisor is personally invested in the same things he puts you into, he has a significant incentive to take outsized risks with your money.
A bit of a moot point as that type of fee model is not available, and not sure how you would implement it, as the advisor would be paid retrospectively once you knew how the fund(s) performed over any given period.
Golfie - I have no idea to be honest, I have a work pension and that is that, so have never looked into.
I would say an hourly rate or flat fee would seem preferable to a percentage to a layman though.
well, if you cant say how much you WOULD pay, you cant complain about what I think I'm worth. So, once again, how much would you pay to invest £10k in an ISA.....
Maybe we should set up a virtual investment club, IFA's verses tied FA's v's Joe public, a virtual £100k at the beginning of the tax year and see how much you have by the end. £20 entrance fee, winner takes half, half to the upbeats or similar.
Who's in?
I'm in - could be fun.
I was a member of an investment club for years when I lived in Kent - really just an excuse to meet every 2 weeks for a good drink but was very enjoyable. Maybe the possibility of a real CL investment club if there's enough takers.
I would give it a go too, think years ago I was in a couple of things like this.
However wouldn't we need to sort out the investing time horizon and the assumed goals of the virtual investor whom we are advising? If we are looking at next 12 months, then obviously you'd make different choices to a 5 year perspective.
I would prefer a performance fee, ie you take a far larger % on the profit that you make me, not a smaller % fee on my capital amount invested which ultimately means you are rewarded equally for good and bad advice.
But unless the advisor is personally invested in the same things he puts you into, he has a significant incentive to take outsized risks with your money.
Surely they then risk earning nothing?
Of course, but if you had enough clients paying a performance-based fee and you made sufficiently diverse (but high-octane) bets you'd expect some of them to win big.
It's the same reason that investors in hedge funds (especially) insist that the manager has a substantial % of his/her own net worth alongside them to create alignment of interests.
Comments
I'm not greedy. try finding an advisor who would do it for less...
I’m not suggesting you aren’t competitive or are greedy, that seems to be SJP :-), your rates as IFA's go are cheap!
But I believe a lot of people would think like I do, in that I don’t want to receive advice this week and still be paying for it in 10 years time, and likely an increasing charge (in £'s term) as fund values go up/more money is paid in.
The few times I've used paid for advice (been lucky that my employers tended to employ advisors for staff), I've just paid for it there and then.
Be interested in your hit rate, how many times have you been out and seen someone who doesn't proceed? I.E. what is stopping someone taking all your advice and doing it themselves? AKA the GP you mention?
This is a common misunderstanding of the charging structure which IFAs use to justify calling SJP ridiculously expensive. The fact is they aren't the cheapest, but I have come across hordes of IFAs perpetuating this sort of stuff when in reality they charge more overall.
The key thing is that the 4.5% advice fee and 1.5% initial charge are effectively waived in return for the 6 year exit penalty.
The ongoing would likely be somewhere in the region of 1.7%.
So to use your example;
If we moved £1 MIllion, 100% of the money would be invested on day one.
If the client were to move their pension within 6 years, the early exit penalty of 6% Y1 - 0% after Y6 would apply.
Therefore assuming the client was being charged the full whack, they would be paying in that example £17,000 overall for the advice, product, fund managers etc.
I see the ongoing advice fee paying for all the stuff that goes on before & after a client meeting (checking portfolios, researching alternative funds, switching funds etc) and of course it pays for the meeting itself. At the start any initial meeting is free but once there is a "relationship" then my clients have to pay me for my time. Only ever had 1 client in 20 years of being an IFA who paid me for subsequent meetings. And they went elsewhere a few years later.
All my Doctor clients are so busy with work or so uninterested in the ins & outs that they'd rather someone do it for them. Same with me. I hate diy & gardenening & pay an "professional" to do it for me. Doctors are clever buggers but most have no clue about finance.
The primary value that a good adviser brings to the table as @golfaddick aluded to is strategy and knowledge. We spend far more time educating the client around different investment structures, the taxation and the myriad of allowances available to them. The point at which you actually choose your funds / portfolio is only one part of a much bigger service offering.
Sadly there are a lot of salesman type advisers (inside and outside of SJP) who do not give the industry a good name. This is frustrating as the regulatory and compliance that we have to abide by is is far greater than most fellow professionals such as accountants, but this will change. Before even considering investment we would be looking at other planning areas such as protection planning for example as this has a fundamental impact on your investment decision. Thereafter whenever we take an action we consider how it impacts on each other area of planning, advisers in banks for example might put £500,000 life cover in place, but not consider what impact this would have on the clients IHT position.
A lot of IFAs / advisers do well, i'm one of very few sub-30 year old advisers running a successful business, employing people & with happy clients. My strength is explaining complex matters in layman's terms, because there is so little financial knowledge out there this is seemingly a very valuable thing. I have been amazed over the last 6 years how financially illiterate the general populous are including for example the owners of £10 million businesses. I suppose what helps is that I am not particularly money motivated. The paradox is that because i therefore approach things differently I run a far more successful business than most of my peers.
A lot of advisers could retire tomorrow, but it becomes a lifestyle and your clients become a huge part of your life. It is more common for advisers to start to reduce their hours as they enter their 50s but a lot find it hard to ever actually retire.
The only thing I would add is that I have had 3 client situations in the last month alone whereby a fee-based service would not have been financially viable, the asset % basis therefore made it worthwhile for me to invest the time that I did.
Where’s the misunderstanding? Where on your website does it states those fees are waived? If they aren't charged why are they even on there? The fee it states is waived for the early encashment charge is the 1% product management fee NOT the 'Advice Charges'. It also states it's (the 1%) only waived for the first 6 years - so assume it kicks in on year 7? Or is the website wrong on that as well?
If you are saying all of that is wrong we'd best refer SJP to the FCA. If all of the fee's stated on the website are wrong, it's hardly surprising SJP/Advisors get a bad name.
Sorry to harp on, but an SJP advisor is not an IFA. You are tied to SJP products (in the main) so need to drop the 'I'.
Surely advice is advice, so why a different charge for telling me where to put 100k rather than 10k ?
Bit like estate agents commission - there is no greater cost to them to sell a 200k house than a 600k house so why is the fee a percentage and not a flat fee?
I'm in - could be fun.
I was a member of an investment club for years when I lived in Kent - really just an excuse to meet every 2 weeks for a good drink but was very enjoyable. Maybe the possibility of a real CL investment club if there's enough takers.
Not sure it does, it confirms the charges I mentioned above that you said get waived?
Still states the 4.5% on initial investment and 0.5% on-going simply for the advice, nothing about that being waved.
It states at the end under 'the effect of these charges' that it equates to 1.5% per annum if you remain for 6 years. I believe the calculation is (on say £1m);
Initial charge of 4.5% & 1.5% = £60k (so how does the full amount get invested initially?)
0.5% on going, which for 6 years = £30k
Total £90k / 6 = £15k per annum, or 1.5% - all before the charges for managing and maintaining underlying investments that ranges from 0.11% to 1.26%, meaning anything between a total of 1.61% to 2.76%.
A very convoluted way of basically charging 1.5% per annum plus fund cost (assuming you stay for a minimum of 6 years).
An advisor doesn't have to work on a % basis to pay for advice. It can be worked on an hourly basis or as a flat fee. Out of interest, what would you pay an IFA to invest £10k into an ISA today, for this tax year ? What do you think is fair & reasonable ?
I would say an hourly rate or flat fee would seem preferable to a percentage to a layman though.
You're not negotiating hard enough :-)
well, if you cant say how much you WOULD pay, you cant complain about what I think I'm worth. So, once again, how much would you pay to invest £10k in an ISA.....
£10 ?? £100 ?? £250 ?? £500 ??
However wouldn't we need to sort out the investing time horizon and the assumed goals of the virtual investor whom we are advising? If we are looking at next 12 months, then obviously you'd make different choices to a 5 year perspective.
Of course, but if you had enough clients paying a performance-based fee and you made sufficiently diverse (but high-octane) bets you'd expect some of them to win big.
It's the same reason that investors in hedge funds (especially) insist that the manager has a substantial % of his/her own net worth alongside them to create alignment of interests.