Would you trust an IFA right now?

[Pancho]

IFA care about the fee.  They give you options that they have available.  That is it, it is your decision.

Caring about the fee is open and honest. It's how he puts bread on the table. I have no problem with that.

In fact, you should only deal with advisers to whom you are paying a fee. And by "paying a fee", I mean writing an actual cheque for X hundred pounds per hour - not a buried percentage skimmer.

Just remember advisers only advise - you still carry the can. Same goes for the % skimmers known as fund managers; you can delegate the authority to handle your money but the responsibility will always lie with you.

Also worth remembering that "Oh, it's all too complicated, I'll do nothing" is an investment decision - complete with a set of risks (inflation primarily, but also bank counterparty risk, single currency risk, etc, etc). Once you have money it is impossible to not be making investment decisions.

I've come to the conclusion that neither beast; advisor or manager are worth paying for (with the exception of tax advisers). You need to understand the territory before you engage an advisor - so that you can have a meaningful conversation, and so you actually make an informed choice of advisor in the first place. And. as you swot up to reach that point of knowledge, it soon becomes apparent that there's no dark art, no secret sauce, and you might as well crack on on your own.

Stocks and shares make no sense to me, as in the fluctuations.

There are whole libraries filled with books and PhDs on the movement of share prices. Accepting that you don't understand it is a good place to be - and far wiser a place than someone who puts up lots of PowerPoints of graphs and entrails and claims that they do understand it.

I can tell you factors that in the past have influenced share prices, and probably will in the future. But I try and avoid prediction and try and embrace diversification[1].

But as has been shown these can be manipulated and you will get away with it.

Not sure what you mean here. Yes there are crooks. There have also been crooked credit card lifting bike shops - but they don't detract from the merits of cycling.

Or do you mean markets can be gamed and "cornered". Well, it has happened in the past. But generally such wheezes require the greedy to buy into it. A long term, well diversified portfolio will keep you out of such nonsense. Note that I'm talking real investments here - not buying/selling puts/calls on esoteric futures.

The real risk of unfair loss comes from the % after % skimmed off by level after level of manager and advisor, IMO.

[1] All this learning isn't hard. I came from a position of knowing absolutely nothing and keeping every penny in my current account. Now I self-manage all my investments and don't use a single FA or fund manager. It's a lifetime's savings / pension - which all the % skimmers would love to get their snouts into.

[Pancho]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

Personally I think we'd be better off if people didn't invest in things they didn't understand at all. Conventional wisdom is to put money into the stock market but so many people end up doing little more than handing it over to a relative stranger, trusting a few bits of paper that show they meet some government guideline, and then hoping for the best. I'm not entirely convinced that's a good strategy when it comes to something like retirement.

I agree that people really shouldn't invest in what they don't understand. The problem is that even doing nothing and staying in cash is an investment decision - the implications of which aren't understood.

Conventional wisdom isn't bad wisdom. While investment costs can be a drag, the real shirt-losing only happens when debt is involved. That's what made the 1920s/30s terminal for some people. My worry is that the popularity of contemporary "investment vehicles" such as buy-to-let suggests that many people are once again confusing borrowing with investing. It won't end well.

[giropaul]

A friend of mine is an IFA.
Several years ago he suggested he could look at my finances for me.
I asked him how old he was (60), so my comment was that he was still working hard and not riding Colnagos and spending his time in the sun.
"Fair comment" he said.
We are still friends by the way.

[Andrew]

Personally I think we'd be better off if people didn't invest in things they didn't understand at all. Conventional wisdom is to put money into the stock market but so many people end up doing little more than handing it over to a relative stranger, trusting a few bits of paper that show they meet some government guideline, and then hoping for the best. I'm not entirely convinced that's a good strategy when it comes to something like retirement.

I couldn't agree more.

Tbh, I'm a little annoyed with myself for lacking intuition and creativity and simply following the convententional wisdom. I'm really not clued up financially so found myself taking what I call the Microsoft option. That is, simply doing what people 'in the know' recommend, supposedly playing safe when it's not at all that. Ah well, interest drives research and I can't profess to be interested in finance. Quite the opposite really. Like shaving, I consider it a necessary evil.

We are were we are. Fortunately, it's not my retirement pot (retirement as a number is over 10 years away) so even if the worst happens (which I'm confident it won't) then it'll not be the end of the world. 

[Polar Bear]

I think that Pancho has it.   I look after my meagre investments and do make the 'do nothing' decision quite often because I have no idea what will happen next week.   I see some bank shares seem to have lost rather a lot of value over the past week or so.   Good time to buy?   Well, who really knows?

Nothing like a nice safe cash isa imo.

[TimC]

Most cash ISAs currently pay little or no interest, so tbh I can't see the point in holding them! They are an instrument that allows you to avoid tax on the dividends or profits, but as security (and an investment) they're really no better than money in a 90-day account. There aren't much in the way of profits just now, but dividends can be very good. If they're reinvested, and time isn't critical, dividends make ISAs very worthwhile indeed.

Small investors and their logic aren't really affecting this or any other market event. It's the leveraged (and software-driven) 'investors' - really, gamblers - that have more effect. The really big investors - pension and similar managed funds - will tend to move slowly and carefully, and be aware of how large movements of money into or out of market sectors can distort things. The gamblers - which used to include the banks - on the other hand, effectively amplify their motions by using borrowed money. There's a large part of the active market each day that is driven by this factor, and it most definitely distorts the market when compared with the underlying economies.

I may well invest into this weakness this week, but it will be relatively small amounts into sectors which will return to strength sooner or later because they aren't an optional part of the economy - and banking is probably the most obvious of those. There are plenty of strong banks' shares being dragged down by this volatility, and plenty of funds that diversify the risks in this sector.

[Polar Bear]

Well yes, isa rates (and virtually all savings rates) aren't brilliant but they are much safer.  You can chase money with the high interest paying current accounts but there is very little guaranteed money to be had.   Savers always suffer in a low interest economy.   

On the other hand, £10lk invested in Barclays one year ago would be worth somewhere closer to £6k* today which is rather less attractive than a 1% gain in value.   If you're in for the long haul then dividend return is slightly higher at the moment (but not stratospheric) though there are still no guarantees.

*vaguely approximate figures based on a share price one year ago of £2.51 and the current trading price today when checked is £1.50. 

 

[Pancho]

I think that Pancho has it.   I look after my meagre investments and do make the 'do nothing' decision quite often because I have no idea what will happen next week.   I see some bank shares seem to have lost rather a lot of value over the past week or so.   Good time to buy?   Well, who really knows?

Nothing like a nice safe cash isa imo.

For the last year or so, a nice safe cash ISA would certainly have been the place to be. In that time period, the FTSE100 is down 20%. I have a small but Pyrrhic victory in that I'm only down 17.5%.

I don't hold much in the way of cash or bonds in an ISA or otherwise. I fully recognise this is a massive investing handicap - but, for me, it's my ethical investment strategy in the same way that many people avoid weapons, 'baccy, and booze (another reason for DIY - you are in control of what activities you fund). I don't need to invoke religion - I used to have a role that meant I saw the damage that debt did to people and families and resolved never to be part of it. And that means not being lender - so I try hard to keep my loot out of the hands of banks. Have looked at Sharia-compliant banking in the past but it just looks like obfuscated debt to me (but there are some good rates often).

I'm undergoing a great test of commitment just now - just as my earned income dries up, I'm watching the value of my investments decimated (in fact, double-decimated). As I said upthread, this goes with the territory so I'm putting on a brave face and reminding myself that it's the divis that are my lifeblood not the share prices. Shame that dividend forecasts are looking a bit iffy as well.

But, hey ho, we'll see what happens. One thing I have learned over the years is that in investing, as in life, there's no such thing as safety - so it's better to learn to keep cheerful whatever happens. And, the worst isn't really that bad, anyway.

[Canardly]

Barclays was 98p in Jan 2009 so 50% is not too shabby. You will find that some banks are hugely undervalued when measured against assets.

[Polar Bear]

Yeah but didn't that coincide with a rights issue or summat?

[Pancho]

Well yes, isa rates (and virtually all savings rates) aren't brilliant but they are much safer.  You can chase money with the high interest paying current accounts but there is very little guaranteed money to be had.   Savers always suffer in a low interest economy.   

Not quite true. Interest rates at 2.5% and inflation at 1% is better for lenders than interest at 5% and inflation at 4%. In fact, today's environment isn't too bad.

[Polar Bear]

Ah yes, isn't that when they went to 25p shares instead of £1 ordinary shares?

[Canardly]

Yeah but didn't that coincide with a rights issue or summat?

Possibly I can't remember. In each of the last two years however, it has been up towards the £3 level.

[Polar Bear]

Well yes, isa rates (and virtually all savings rates) aren't brilliant but they are much safer.  You can chase money with the high interest paying current accounts but there is very little guaranteed money to be had.   Savers always suffer in a low interest economy.   

Not quite true. Interest rates at 2.5% and inflation at 1% is better for lenders than interest at 5% and inflation at 4%. In fact, today's environment isn't too bad.

Actually yes, I was talking bollox.  Nothing nw there!   

The issue is around interest rates vs inflation rates.   Brain fail.  thanks for the warm start.      

[Polar Bear]

Yeah but didn't that coincide with a rights issue or summat?

Possibly I can't remember. In each of the last two years however, it has been up towards the £3 level.

It actually hit just 51 pence in January 2009 having been close to £8 two years earlier.   I'm pretty sure that it was a realignment to 25p shares and a rights issue to devalue even further.    Barclays share price has bumped around like shit in a sieve for a few years now.

[Pancho]

Many may know the share markets have taken a plunge since the New Year. Those with financial savvie (not me) will maybe have opinions as to why. Me, I just take advice from those with more knowledge than I. With that in mind, I contacted our IFA about moving the portion of our savings that are in stocks and shares to a less volatile, more stable platform. His response took an hour and reminded me of sales pitch.

This gave me the niggling feeling that his advice to "hold our nerve" was more influenced by something other than his opinion of the current situation and our best interests,  perhaps it was influenced by commission protection? I don't know.

I've read a number of doom mongers, predicting another crash. They are not single voices, nor without credentials. Our IFA dismissed all of that (citing reasons) but such was his zeal that he didn't seem even handed. It felt he was telling rather than advising. This gave me my predictable, knee jerk contrary desire to withdraw all of our investment and stick them in bank deposit accounts!

We originally engaged our IFA because we trusted them to give good advice. Now, I'm not so sure of that advice.

Apols for not replying to the OP earlier - I've been busy replying to replies instead.

There are two questions here. The one which has been thoroughly discussed is the merits of moving out of equities at this juncture. But the question that hasn't really been considered in as much depth is in the title of the OP - is the IFA trustworthy?

Natch, we can't tell from the info given. But it seems like the OP is questioning the reasoning behind the IFA's advice to stick with it - and the OP is suspicious that fees might be the reason for some of his answers.

I'd take this "amber flag" as a reminder to closely examine the contract/relationship you have with the advisor. Particularly look at how he's being paid. As I said, if it's by the hour, then you can relax (a bit). If not, then I'd work out who is paying him and what behaviours that might be leading to.

[Andrew]

I discussed moving to cash/gilt/bond based investments with the IFA. (Quick aside; in France we have the ISA like wrapper known as 'assurance vie' - the safe funds within that are known as 'fonds en euros'). He remarked that the rate of return on those will have to go down, simply because the bond rates that underpin them are reducing as bonds mature and are replaced at lower rates).

The 'assurance vie' is a very popular savings mechanism in France, largely due to it's tax and inheritance benefits, and I guess people are happy to sit with the security of 'fonds en euros'. But it's a problem for insurance/investment houses here (presumably because there's sod all money to be made from them) and they are trying to get punters to switch from 'fonds en euros'.

[Andrew]

I'd take this "amber flag" as a reminder to closely examine the contract/relationship you have with the advisor. Particularly look at how he's being paid. As I said, if it's by the hour, then you can relax (a bit). If not, then I'd work out who is paying him and what behaviours that might be leading to.

Yes, I was/am concerned by the motivation of the advice as it seemed surprisingly forthright in what seems to me a quite volatile climate. The IFA (well respected, UK based France specialist) is not paid by the hour so obviously via commission. Whether that was one-off at time of inception or on-going, I honestly don't know.

However, I don't expect advice for free and however they are paid, I have to trust them to give advice driven by our requirements rather than their own self-interest (not that the two are necessarily mutually exclusive). And, as a general rule, up until now, I have had no reason to doubt their advice.

As people on here have echoed what the IFA have told me, I feel a touch more comfortable with his advice. I've decided to monitor the situation for a couple of months, plus decide a line in the sand at which point I would realise any on-paper losses and either cash out entirely or switch to secure, cash based investments.

[TimC]

I think that Pancho has it.   I look after my meagre investments and do make the 'do nothing' decision quite often because I have no idea what will happen next week.   I see some bank shares seem to have lost rather a lot of value over the past week or so.   Good time to buy?   Well, who really knows?

Nothing like a nice safe cash isa imo.

For the last year or so, a nice safe cash ISA would certainly have been the place to be. In that time period, the FTSE100 is down 20%. I have a small but Pyrrhic victory in that I'm only down 17.5%.

I don't hold much in the way of cash or bonds in an ISA or otherwise. I fully recognise this is a massive investing handicap - but, for me, it's my ethical investment strategy in the same way that many people avoid weapons, 'baccy, and booze (another reason for DIY - you are in control of what activities you fund). I don't need to invoke religion - I used to have a role that meant I saw the damage that debt did to people and families and resolved never to be part of it. And that means not being lender - so I try hard to keep my loot out of the hands of banks. Have looked at Sharia-compliant banking in the past but it just looks like obfuscated debt to me (but there are some good rates often).

I'm undergoing a great test of commitment just now - just as my earned income dries up, I'm watching the value of my investments decimated (in fact, double-decimated). As I said upthread, this goes with the territory so I'm putting on a brave face and reminding myself that it's the divis that are my lifeblood not the share prices. Shame that dividend forecasts are looking a bit iffy as well.

But, hey ho, we'll see what happens. One thing I have learned over the years is that in investing, as in life, there's no such thing as safety - so it's better to learn to keep cheerful whatever happens. And, the worst isn't really that bad, anyway.

I'm mostly in funds rather than individual shares, and my portfolio today is down around 11% on this time a year ago. That reflects probably the fund managers' drift towards cash and 'safe-haven' shares rather than any particularly brilliant fund choices by me! Equally, I'm unlikely to benefit greatly from any individually brilliant share performances in the recovery which will inevitably happen at some point or other. I do play at a very small level with individual shares (within an ISA) and have successfully shown myself that I am most definitely not cleverer than the fund managers I employ, but I'm not significantly worse either. However, the highs and lows are more accentuated!

[bryn]

The big advantage of using an IFA is you can use the time you would otherwise spend agonising over what to invest in and when to sell etc to just get the bike out instead and enjoy a great bike ride.

And when you come home again you feel so good you don't worry when you turn on the lunchtime news and see the markets have headed south another 2.4%.  Well, not much......

Bryn

NB Our IFA returns any commissions paid back to us.  I thought all IFAs were now fee based and also returned commissions.

[Pancho]

Yup - the Retail Distribution Review banned commissions on certain products but doesn't prohibit taking % of assets under management, for example.

You say he returns all commissions - so how's he get paid?

[bryn]

You say he returns all commissions - so how's he get paid?

The fees, the fees!  But at least it's all up front and obvious.  Also management percentage but this again is fully transparent. And he keeps his pension fund in the same investments he is recommending to us.  So we'll all go down together....or hopefully, up

Bryn

[contango]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

Personally I think we'd be better off if people didn't invest in things they didn't understand at all. Conventional wisdom is to put money into the stock market but so many people end up doing little more than handing it over to a relative stranger, trusting a few bits of paper that show they meet some government guideline, and then hoping for the best. I'm not entirely convinced that's a good strategy when it comes to something like retirement.

I agree that people really shouldn't invest in what they don't understand. The problem is that even doing nothing and staying in cash is an investment decision - the implications of which aren't understood.

Agreed, and cash comes with all sorts of issues of its own, not least the devaluation potential when banks start producing ever-more of it.

I often think that the average man in the street would do well to read and understand at least the basics of how the stock market works before investing in it. I know it's something of a cliche but there's certainly truth in the notion that people will spend more time reading reviews and understanding all the features before a life-changing decision like choosing a new DVD player, but when it's something as trivial as investing for their retirement they just hand over a couple of hundred every month to someone else and assume it will all be OK.

Conventional wisdom isn't bad wisdom. While investment costs can be a drag, the real shirt-losing only happens when debt is involved. That's what made the 1920s/30s terminal for some people. My worry is that the popularity of contemporary "investment vehicles" such as buy-to-let suggests that many people are once again confusing borrowing with investing. It won't end well.

When debt bubbles burst it certainly gets ugly fast, and the words "margin call" (or their modern day virtual equivalent) do have the potential to make the market get very nasty. I remember at least one of the recent financial crashes (there seem to have been a few 100-year-events in the last decade or so) was reckoned to have been made a lot worse by the fact people who were trading on the margin were forced to sell other assets to make margin calls, causing other apparently unrelated markets to sink in unison.

Buy-to-let is unlikely to end well either, especially when governments respond to property prices spiralling out of control by making it easier for people to afford prices that are really not affordable. And every time they do that they help prop the prices that might otherwise move to a more affordable level, meaning those who aren't wealthy enough to pay the inflated prices and who don't qualify for government help are just shut out even further. When that all unwinds I wouldn't be at all surprised to see the price of one and two bedroom apartments nosedive. If/when that happens it's hard to have much sympathy for the buy-to-let landlords who took an investment punt and lost out. It's hard not to have sympathy for the people who wanted nothing more than a roof over their head to call their own and end up with massive negative equity.

[contango]

Well yes, isa rates (and virtually all savings rates) aren't brilliant but they are much safer.  You can chase money with the high interest paying current accounts but there is very little guaranteed money to be had.   Savers always suffer in a low interest economy.   

Not quite true. Interest rates at 2.5% and inflation at 1% is better for lenders than interest at 5% and inflation at 4%. In fact, today's environment isn't too bad.

Actually yes, I was talking bollox.  Nothing nw there!   

The issue is around interest rates vs inflation rates.   Brain fail.  thanks for the warm start.      

Where inflation is concerned it's usually worth looking at what might be called your own personal inflation figure. The official figure is invariably based on some kind of standardised basket of goods and/or services, which is great as long as your purchases align with what's in this notional basket.

The trouble is when your finances are squeezed the fact that the imported widescreen TV is down 20% from last year isn't much use when the cost of bread is up 15% and the cost of milk is up 10%. It's also worth considering the possibility of bias in selecting the contents of the basket used to calculate inflation and any other methods that might be used to shift it one way or the other. If the people trying to manage the economy against an inflation target get to influence the way inflation is measured you can be sure they'll find it easier to get closer to their targets.

If the price of the things you personally buy has gone up by 5% then the fact the official inflation figure is 2% is all but meaningless, unless you have investments or benefits explicitly tied to the official figure.

[sojournermike]

Many may know the share markets have taken a plunge since the New Year. Those with financial savvie (not me) will maybe have opinions as to why. Me, I just take advice from those with more knowledge than I. With that in mind, I contacted our IFA about moving the portion of our savings that are in stocks and shares to a less volatile, more stable platform. His response took an hour and reminded me of sales pitch.

This gave me the niggling feeling that his advice to "hold our nerve" was more influenced by something other than his opinion of the current situation and our best interests,  perhaps it was influenced by commission protection? I don't know.

I've read a number of doom mongers, predicting another crash. They are not single voices, nor without credentials. Our IFA dismissed all of that (citing reasons) but such was his zeal that he didn't seem even handed. It felt he was telling rather than advising. This gave me my predictable, knee jerk contrary desire to withdraw all of our investment and stick them in bank deposit accounts!

We originally engaged our IFA because we trusted them to give good advice. Now, I'm not so sure of that advice.

It's not necessarily self interest, so much as misplaced optimism and naivety. You need to be an optimist to sell investments and so there is a tendency to believe in them, even when all the evidence points the other way.

I work with a lot of optimists, and they are mostly pretty much as negative as I am about the future economic path.