The allure of the local IFA is easily understood, but their merits are all too easy to overestimate – with disappointing results. Here, we explain why choosing bigger brand is likely to be a better choice for those serious about building and preserving their wealth.
Wealth management might be, fundamentally, all about the numbers, but it is also a profoundly personal and relationship-based business. It is therefore easy to appreciate the appeal of going to your local Independent Financial Adviser (IFA), someone who might be recommended by a friend and whose brand might be familiar fixture your locale.
Choosing a provider to maximise your wealth has to be a very careful decision, however, one that is based on facts rather than unfounded feelings, and with preconceptions put aside. Upon closer examination, you are likely to find that going with a larger firm is the superior choice across a range of metrics.
Performance beyond the personal touch
You may believe (or may have been told) that smaller advisory firms are able to deliver superior investment performance due to taking a more personalised approach. While this may be true for some high-performing IFAs, it is essential to consider the broader investment, research and risk management ecosystem which larger organisations can offer.
Larger firms have dedicated and expert research teams, economists and analysts who continually monitor global markets and economic trends right down to the individual security level. It naturally follows that these resources enable them to make better-informed investment decisions based on comprehensive data and analysis, which is likely to generate far stronger performance over the long term. Unless your ‘one man band’ is another Warren Buffet, it is difficult to imagine a solo adviser competing at anywhere near the level of a wealth manager which is well appointed on both the people and technology fronts.
Unless your ‘one man band’ is another Warren Buffet, it is difficult to imagine a solo adviser competing at anywhere near the level of a wealth manager which is well appointed on both the people and technology fronts
In fact, IFA themselves recognise this. You may be surprised to learn that a huge proportions of IFAs actually outsource the management of clients’ portfolios to larger wealth managers themselves, meaning that underlyingly you would almost be that wealth manager’s client, except paying on top for your IFA’s time.
Hidden costs are all too common
While IFAs might often lead their pitch on offering value for money, it is vital that you consider the fee structure in its entirety (see our recent piece breaking down pension management fees). Hidden costs, such as platform fees, product charges, and trailing commissions, can erode your returns powerfully and make a huge difference to your final financial position. We often hear from new users of our service who had thought they were paying 0.7% pa with an IFA and were horrified to learn that all told they were paying 2% (and very often much more).
In contrast, you will often find that larger firms take it for granted that a transparent fee structure and a clear breakdown of costs is best practice; we certainly only feature such firms on our platform.
There is, of course, a great deal of variation in fees and charges in the wealth management industry; what you need to ensure is that you only pay a premium for very good reason. Access to a wider range of investment options, advanced technology or specialised expertise can justify higher fees; a familiar face and a handy location alone may not
There is, of course, a great deal of variation in fees and charges in the wealth management industry; what you need to ensure is that you only pay a premium for very good reason. Access to a wider range of investment options, advanced technology or specialised expertise can justify higher fees; a familiar face and a handy location alone may not.
Top Tip
Lee Goggin
Co-Founder
Service standards may not be as promised
It might be easy to assume that a smaller adviser will naturally offer a superior level of service, but thinking this through fully may convince you that there are flaws in this line of logic. Due to smaller staff numbers, you may well find that busy periods lead to a degree of neglect; for a very small advisory firm, the departure of just one advisor can cause chaos.
For consistency in service, consider the fact that larger wealth managers are ultra conscious of client retention and brand reputation. They will typically have robust systems and processes in place to ensure a seamless client experience at all times. Succession plans will also be as standard, so that even if your primary adviser leaves for pastures new, there is no interruption to your service.
Consider IFA industry consolidation
Finally, you should know that there is a huge amount of consolidation ongoing in the IFA industry and this is only likely to accelerate as compliance costs mount. Many smaller IFAs are being swallowed up by larger organisations and they are often only too glad to be acquired to gain economies of scale and access to a wider range of resources. The independent adviser you select today might well be part of a larger firm tomorrow.
Many smaller IFAs are being swallowed up by larger organisations and they are often only too glad to be acquired to gain economies of scale and access to a wider range of resources. The independent adviser you select today might well be part of a larger firm tomorrow
If, instead, you choose a larger wealth manager from the outset you can avoid the uncertainty that your IFA account will suddenly become merely part of a ‘book of business’ which is being acquired.
You have huge choice, so don’t settle too early in your search
The UK wealth management sector is highly diverse, and IFAs are best thought of as sitting towards the furthest point on a spectrum that runs from tiny high street advisers right up to the wealth divisions of global banking groups. Your choice is not binary between those two extremes; for instance, you can choose a mid-tier wealth manager which has regional roots and a local feel, but which is also offering infrastructure, resources and expertise of a quality that most IFAs simply cannot.
You can find the perfect wealth manager for your needs fast and free, so don’t just settle for the IFA on the high street unless and until you have taken a look at a beauty parade of organisations which might serve you better long term
Your final selection of wealth manager will be highly nuanced and based on a host of factors besides the all-important ones of performance, service and fees. This is why our matching service is so successful: our profiling questionnaire generates a shortlist of providers which would be a good match on the facts; you then get to make a choice that feels right to you. You can find the perfect wealth manager for your needs fast and free, so don’t just settle for the IFA on the high street unless and until you have taken a look at a beauty parade of organisations which might serve you better long term.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
