Should I change financial advisors?

[fluffedup]

Seven years ago I used an independent financial advisor to invest £80k in a trust fund for my children for when they would be old enough to use it sensibly.

The investments were hit by covid / world events so the fund has only grown by £4k, however in that time the IFA has earned about £6,400 and the investment platform has charged a further £6000.

I am naturally pissed off. I would have earned more in a low interest bank account at 1%.

I asked about this on the Martin Lewis website and was told that the IFA’s charges were at the high end of normal and the platform cost at over 1% is what stands out as being pricey, also the fund is not performing particularly well.

I emailed the IFA and asked if we should change the fund but he just said the fund was ok and I should come in for a review. We do this every 2-3 years and it costs just under £500. I don’t think I am getting good quality advice and am thinking of changing IFA.

A recent thread on here mentioned that £90k was too little for an IFA to be interested – should I be using one at all? The problem is that I want to put the money in a trust so it's not just a matter of finding a good place to invest it.

I don’t know anything about investments which is why I used an IFA but should the advice have been to not use an IFA? The IFA was recommended to me by a solicitor so I trusted the recommendation.

90k is much too small for an IFA. If the money is in a general investment account (rather than a junior ISA) you should try and move it gradually into a JISA (has to be 9k per year, no more) but first take it out of the IFA’s remit and into a regular investment account. For children you can afford to take a bit more risk, so I’d suggest if you’re not comfortable making investment choices putting it into a simple Vanguard account invested in (say) a life strategy 100 or 80 fund.

What are the conditions of the trust? I think a JISAs give unrestricted access at 18, which may not be what you want.

Can you just have it in account in your name to hand over at the approriate time, and a clause in your will that if youndie beforehand the inheritance is held in trust until age whatever?

But you're right that the fee to performance ratio is off. Yes, Covid did dent things - but they've bounced back considerably since unless the IFA put it all in bonds or made some very poor decisions.

As for review fees, what's to review (apart from their poor performance)? It sounds like the sort of investment that should be a set-and-forget arrangement.

If the money has been put into trust, you can not just simply take it out again.

Is your adviser charging ongoing fees and fees every time he does a review?

Over this length of time I would have expected a much better return, some of it can be blamed on high fees but it still seems out of line.

thanks @jaundicedoutlook the problem is that the money is in trust, to keep it separate from mine and DH’s money.

@NoBinturongsHereMate thanks, your reply is confirming what I thought was probably true. And I have asked (by email) what was the point of the review but the advisor didn’t reply to that point.

The money isn’t in bonds, it’s in the Standard Life international MyFolio Multi-Manager II fund.

The money can be released to the children when DH and I feel they would be sensible. There are 4 children, the oldest is sensible and could probably have hers now. The youngest is 14.

@messybutfun yes he charges ongoing fees of £500 pa plus a review every 2-3 years which is another £500 but the review has never resulted in any changes or recommendations.

I was worried that I could not just take the money out of the trust – but can I set up another trust? I googled ‘can I set up a trust fund’ myself and apparently you need a solicitor or financial advisor to do it.

Could I get a solicitor to transfer it all over into a new trust? I have completely lost faith in my current advisor.

Is it £80k per child or in total? If £20 per child, it seems a restrictive and not particularly profitable way of investing.

I don't know how trust funds work. Is it set up in the children's names but only you and DH have control? Can the money only be released to the children or are you able to move it to other investments/savings?

@Plexie It's £20k per child

It is in the children's names but only DH and I have control. I don't know how trust funds work either but I would have thought that I could move it to another trust fund.

Probably can't be undone now, but I'm not really clear why you wanted a trust in the first place. You can keep.it separate from.your money simply by having it in a separate account.

You probably can't take it out of the trust, but I would think you should be able.to.change the investment choices and the advisor.

I'm sorry but £90k isn't a lot to involve an IFA and he has clearly ripped you off. You could have asked online and got better advice for free. Invest in property, it is guaranteed to grow and your kids will thank you for it.

You could even buy a property outright for £90k somewhere up North, leave it empty and it'll still outgrow most other investments!

Ask your adviser what you have been getting for the ongoing fee?

You should be able to change adviser. You should also be able to change the investment.

A trust is just a wrapper - it should not be tied to your adviser or investment.

you really don't need a trust for £20K per child - it is much more expensive to set up an manage a trust.

and as others have said, an IFA is really only for investments of £500K plus.

can you get the money out of the trust and invest it in a low-cost tracker like the ones from Nutmeg? it could be in separate accounts under the kids names and just don't give them the password yet.

Ok, my DH is an IFA.

80k is NOT too little for an IFA. Some IFAs will deal with investments of 20k plus.

The money being in one fund is a problem. Dh would spread it over four funds, to offset risk.

The fund your IFA has chosen has performed REALLY badly, considering you took it out in 2017, well before the pandemic.

But what is your risk strategy? If you are very risk-averse, these funds won't make as much as those that are higher risk.

Reviewing: DH reviews all his clients' portfolios every 6 months. Every 2-3 years is not nearly enough. He doesn't charge for reviews; they are part of his service.

He says you could consider a tracker fund, to be safe. You could do this yourself.

And yes, consider changing IFA. This one sounds incompetent.

And lazy. £500 pa plus £500 per review, yet no changes recommended?? Dh says he bets the IFA is old, set in his ways and lazy.

I work in this industry and people saying that £90k isn't "enough for an IFA to be interested" are wrong. As someone else said, the IFA isn't tied to the investment so just change advisers if you are unhappy with the service.

I think the Platform fee is very high. The IFA fee sounds pretty standard, but unfortunately would probably be the same regardless of the amount of money under advice, so smaller values get hit more as a percentage. The Standard Life fund that the trust is invested in does appear to be actively managed, but through funds. So your trust is paying IFA + Platform to host the fund + Standard Life fee + underlying managers fees.
It's easy to see why it's not performing well: there are too many layers of fees.

It will depend on how the Trust is structured, but you can normally move them to another management of funds. And there is a question whether ongoing advice is required now the trust is established (i also question whether it is the right structure but it is done now). The suggested Vanguard and Nutmeg deal with passive, tracker products which are inexpensive. They are also online models and impersonal, so I have no idea if they can help with a trust transfer which may be complex.

There are plenty of smaller independent wealth managers that manage money normally for larger accounts (but they do run smaller ones). They can give you some free advice and review of the current setup.

@NoBinturongsHereMate I created a trust because I wanted the money to be defined as the children’s and I thought that was what you did. Yes I need a new fund and a new adviser.

@Noonecares245 yes I feel ripped off.
I get what you’re saying about property but I have a long-term illness and don’t want to add managing a property to my list of jobs. That’s also why I paid for advice – I wanted to get this one important thing sorted out and felt that paying for professional advice was the best strategy in the long term. I didn’t consider that the advice might be rubbish.

@messybutfun
yes I will ask him what I’m getting for the ongoing fee. I’ve already asked what I’m getting for the 2-3 yearly review and been ignored.

@parietal
it looks like the money is stuck in the trust but I will be changing the adviser and the fund

@somethingwickedlivesnextdoor

I definitely need to change the IFA! But he’s not that old – maybe in his forties.

@24evergreen
He should have told me if the investment amount was too little but that was never mentioned.

@Taciturn

yes far too many fees – the trust is making money for everyone but those it was intended for. I’m going to ask locally for recommendations for another IFA or perhaps just a good solicitor who can change the fund.

I have invested less than that. We have a meeting every 6 months or so, which doesn't cost me anything. There was a small charge when I invested, and about half a percent per year. I would be looking for a new advisor.

What type of trust is it? Different types of trust have very different options. Look at the initial paperwork from the advisor to find out.

A bare trust for example you could move into a savings account in your child's name, or invest yourself via an investment platform such as AJBell after doing research. If your children will receive the money in a few years it may be best to have it in a good savings account with no fees, I think Yorkshire bank has around 4.5% interest on child savings accounts which I think a bare trust can be put into.

Other types of trust are more complicated, but there may be options to manage it yourself. The financial advisor and platform fees are large compared to the size of your pot. You could look into other advisors with lower fees and investors with lower fees, but there will often be "start up" costs which will eat into your pot.

If not a bare trust and more complicated trust, you could consider whether it would be best to dissolve the trust and gift 20k to each child now - the negative is that the child would have the money themselves once they reach 18, so they may not use it wisely. However if you continue paying these fees for several more years there may be little left.

Whilst some financial advisors will invest relatively small pots like 80k, the point is that it's not usually worth paying their fees to do so, unless the situation is complicated. For complex situations and large pots their fees may be be outweighed by the gains. For straightforward 80k investments most people could achieve the same or better results with some research.

The fund you have invested in aims to return 5% per year but obviously hasn't. From a quick Google, it is around 40% invested in bonds/ fixed income which (simplified) means loaning money to governments and companies for a small fixed rate of return. Bonds are usually pretty stable and chosen when you want to preserve your money. However they have performed really badly in recent years due to world events.

It looks like it has around 30% equities (shares) which aim to grow your money, however only around 13% in US shares which is where the recent growth has been.

Also some investments in property and other sectors. Btw I have only had a quick Google so these numbers are very approximate. The fund will have a more detailed document which you should have been sent. But broadly that is why the fund hasn't performed well.

Your fees of 12k over 7 years is around 2% per year of 80k pot. So I think the problem is that even if the fund had grown by it's 5% per year target then you would still only get 3% growth per year after fees, which you could currently beat by having the money in a savings account. So I would question whether investing this money into the fund seven years ago was good advice in the first place.

Obviously it's done now, but going forwards I would try and think what your objectives are (preserve the value of the money to gift to your kids in the next few years? Grow it to gift in 5-10 years plus?) before acting. If you are planning to gift the money on the next few years I would not invest it, I would find out how to get it into savings accounts.

If you have already raised your dissatisfaction with the IFA then you could now consider a formal complaint re the charges and performance. Their compliance team may decide it’s been unreasonable and reimburse some of the fees.
My DH is an IFA and doesn’t charge for reviews those are included in the annual fee and they should also review annually, not every 2-3 years.