How do people handle giving advice to family members?

[dingdong]

My sister has had a meeting with an IFA who has suggested a portfolio with insane initial and ongoing fees. I'm obviously keen to divert her to a better low cost solution but intrigued to know how people handle giving advice to family members.

She has no investment experience and a cautious outlook. Obviously there's the risk that markets crash etc. and I'd hate for her to then blame me if things don't turn out well. Equally I don't want her to be paying high fees unnecessarily which will eat into her returns.

What do other people do in this scenario?

1. Go for a sensible low cost portfolio and try to educate them about volatility and risk
2. Go for an inbetween option (e.g. a cheaper robo managed service like nutmeg/moneyfarm) so you're less involved and less responsible
3. Run a mile on a basis you should never get involved in the finances of family or friends as it won't end well!

[AsleepInYorkshire]

My sister has had a meeting with an IFA who has suggested a portfolio with insane initial and ongoing fees. I'm obviously keen to divert her to a better low cost solution but intrigued to know how people handle giving advice to family members.

She has no investment experience and a cautious outlook. Obviously there's the risk that markets crash etc. and I'd hate for her to then blame me if things don't turn out well. Equally I don't want her to be paying high fees unnecessarily which will eat into her returns.

What do other people do in this scenario?

1. Go for a sensible low cost portfolio and try to educate them about volatility and risk
2. Go for an inbetween option (e.g. a cheaper robo managed service like nutmeg/moneyfarm) so you're less involved and less responsible
3. Run a mile on a basis you should never get involved in the finances of family or friends as it won't end well!

3

AiY(D)

[DrFfybes]

1. Go for a sensible low cost portfolio and try to educate them about volatility and risk
2. Go for an inbetween option (e.g. a cheaper robo managed service like nutmeg/moneyfarm) so you're less involved and less responsible
3. Run a mile on a basis you should never get involved in the finances of family or friends as it won't end well!

5) Work out how much the IFA will take in fees over the next 5 years, or perhaps even the first year (as this includes initial costs), and tell her. See if you can get a mirror portfolio much cheaper (for example Vanguard Tracker funds have performed broadly similar to Dimensional products) and offer to help her with it.

And then leave it to her, unless it is a well known Ivnvestment House where it is trivial to dig up news articles about potential compansation claims, in which case show her those as well

Paul

[Boots]

I try and encourage people to read Tim Hale's Smarter Investing before parting with any money.

Those who do take the time to read it are generally turned away from an expensive decision. Those who do not, probably would not have been influenced by any words I could say.

[scrumpyjack]

I try to avoid doing so unless actively sought. I have found it's ok with immediate family (spouse, children etc), particularly where all the money has come from me, but wider family - brothers, sisters etc - is very dangerous. They'll blame you whatever happens!

[Dicky99]

There is much to recommend no. 1 provided that the person involved is open to being educated by you and genuinley understands the risk reward considerations.
When my dad passed away leaving mum with a mish mash of investments I steared her away from using an IFA explaining about trail commissions involved. She got it and agreed that consolidating everything into a couple of medium risk mixed asset funds was a perfectly good option. Because I explained to her that the funds would not shoot the lights out in good times but would not totally crater in a market crash she has remained philosophical about the anaemic performance of the last couple of years.
There is another member of my family who I'd say option 3 to. As she is not good at taking advice on any matter and I wouldn't have confidence that she'd fully taken on board the risk reward understanding. For that reason when she received a lump sum recently I advised her to call her current Building Soc and ask them what the best rate they can offer her for a short term fix.

[kempiejon]

I told 2 people about my methods and pointed out it's far to convluted for them. I explained that to capture stock market returns, that have historically beaten cash, but could fall by 50% or more in a bad patch, a global tracker is a cheap easy low cost way.
I did say that I opted for vanguard global accumulating etf for an ISA a couple of years ago. 1 of them did a a spot of reasearch and went to Vanguard for a global fund. The other opened LISA and has been buying VWRL monthly for a few years.

[yorkshirelad1]

6. Help her to make her own decisions a bit better and understand what she's doing. Read a bit on here (TLF), read a few Chronic Investor articles, or Saturday paper Money sections (I reckon the Times Money is the best at the moment) others.

I have (for my sins) found myself in the position of helping my sister (mostly becuase we have mirror investments after an inheritance each). I run her ISA (at HL), her pension is done by an IFA (because we need the advice as she is consolidating lots of plans, and coming up to retirement this year, so tricky getting it right with the complex and ever changing rules and she may be close to the LTA as it was when we were doing the planning before it got cancelled, so want to get things right), and her investment portfolio is run by the broker that we've always used on an advisory basis. So a bit of everything (in terms of advice and fees).

I have also been giving my (30-something) nephew some money each year for a Lifetime ISA (for a pension, as he has none, as he's self-employed, and he already has a house). I set him off in the right direction, with pointers, for items to read and making his own decisions, and send him the occasional IC article (to do with what he wants). He decided to put the LISA at HL (he sampled the market), it's invested in SMT & FCIT (mostly after my pointers) and another fund entirely of his choosing. He's got 20 years for it to run. He occasionally picks my brains, but seems to be doing OK and taking to learning about investments.

Whatever you do, make sure whichever family member you think you might assist gives you a truthful picture of their abilities. I've had a family member over-estimate their abilities, and I've not given the best guidance. I should have asked harder questions. In the cases of the above, I've known my sister for 40+ years so know what she's like. In the case of the nephew, he knew virtually nothing about investing, so it's easier to know where to start (from the ground up). The other family member who over-estimated their abilities was the awkward one. In the jargon of the business: KYC!

[scrumpyjack]

I think one can be treading on dangerous ground giving investment advice if one is not formally qualified to do so. I have had some experience of this, having been co-opted onto the board of trustees of a substantial charity with the particular remit to sort the finances out (I was a chartered accountant). The investments were managed by Coutts at a massive cost and with distinctly mediocre results.

Anyway I prepared a carefully thought out investment policy for the trust, taking account of special factors, and discussed it with an old friend who was chairman of an investment bank and then put it forward to the board of trustees. They approved it, we implemented it – (bye bye Coutts) – and engaged a broker on an execution only basis with no percentage fees. This saved a 6 figure amount per annum in fees!

I was concerned about meeting the legal requirements for managing charity investments and we felt we were meeting those requirements. But eventually, after 10 years or so, the trustees felt they had to cover their backsides by formally appointing the broker to manage the investments. In practice nothing changed except the trust was paying the broker about £100k pa in percentage charges. Glad I’m not involved any more as it is an utter waste of money.

The point is giving investment advice can be a legal minefield!

[Gerry557]

I'd be happy to share my experiences good and bad. Talk about emergency funds other debts etc and any plans or goals.

Probably suggest a couple of simple funds not shares with low commission to get a feel for investing.

Send them articles to read and some websites of interest. The idea being to get them to make their own decisions and become confident.

They need to be open and receptive too.

[Dod101]

My family are pretty well up on what to do (Son in Law works for Baillie Gifford) but I have a friend who will from time to time ask me about this or that. If I mention some share she will as often as not go and buy it. When I discovered that I was appalled because of course as we all know, it is just part of a portfolio, so I read her my version of the Riot Act and gave her some pointers but I do not want ever to get involved in any detail so I think we have a sort of understanding, but no I would not be advising my sister except in the broadest terms.

Dod

[bluedonkey]

You become responsible for the negative returns but the positive returns are down to their "smart" decisions!

[scrumpyjack]

You become responsible for the negative returns but the positive returns are down to their "smart" decisions!

Quite so and it is dangerous even to discuss individual shares with a friend, as you may think you are just discussing it for interest and then you find subsequently that they bought it and blamed you when it went down!

[GeoffF100]

A sensible approach is to suggest the Vanguard LifeStrategy fund with the same bond percentage as that recommended by the IFA. That way you are just suggesting a cheaper alternative that does the same thing. You are not offering financial advice. I have done that. Sod's Law says that they will then go away, misunderstand the rules, particularly for pensions, and break them. Telling them to hire a qualified accountant should help there. Encouraging people to educate themselves is good too. Nonetheless, never underestimate people's ability to mess things up.

[Dicky99]

Encouraging people to educate themselves is good too. Nonetheless, never underestimate people's ability to mess things up.

Like many on this board I started dabbling in investing many years ago and so have had time to mess things up and learn some hard lessons early enough in life to have time to correct them.
So the age of the recipient is relevant too. I've had friends of my age on occasion recently ask for investing ideas who've never invested before but now find themselves with large amounts of savings being eroded by inflation. They are too advanced in years to mess things up, learn from it and move on, or to see their new investment pot going down in value in the short term. So I invariably give a vague response about the stock market not being a place for the faint hearted and move on.
If on the other hand one of my young nephews asked for advice I'd happily have a discussion with them about regularly saving in an ISA for the long term and point them in the direction of a small number of low cost passive funds to get started.

[TUK020]

suggest she takes a look at Monevator:
https://monevator.com/category/investin ... investing/

[CliffEdge]

I have found that it doesn't work. Generally they cannot even be bothered to find out the difference between a share and a bond. That is they cannot even be bothered to invest a minimum amount of time in reading and learning.

I had this experience with my brother.

It is sad to see them throwing money away but there is nothing you can do. At least they're trying to preserve wealth.

So definitely 3

For offspring, a long term collaborative programme is wise.

[stevensfo]

I have found that it doesn't work. Generally they cannot even be bothered to find out the difference between a share and a bond. That is they cannot even be bothered to invest a minimum amount of time in reading and learning.

I had this experience with my brother.

It is sad to see them throwing money away but there is nothing you can do. At least they're trying to preserve wealth.

So definitely 3

For offspring, a long term collaborative programme is wise.

I've had this experience with both my sisters. Any talk of where their money is going to come from when they retire is met with blank looks, and "Well, I've got a pension....I think."

My youngest sister is the worst. Many, many years ago, some salesperson persuaded her to opt out of the council's pension scheme and open a private pension. My dad, looking after his own SIPP and being savvy about these things, went ballistic and asked her what the charges were. "Dunno." Did she know the advantages of the public pension scheme she'd just left. "Dunno."

I think the penny dropped and she said she'd return to the council scheme asap. "I'll get round to it." Never did! Of course, all too late now and all the public pension advantages lost!

During one of our many courses at work, I got talking to the girl next to me about the company's pension. When I asked if she invested herself, she looked at me horrified. "The stockmarket? Wouldn't touch it with a bargepole. You only lose money that way!"

I just shut up!

Steve

[DrFfybes]

I've had this experience with both my sisters. Any talk of where their money is going to come from when they retire is met with blank looks, and "Well, I've got a pension....I think."

I seem to be the 'goto guy' in our family for this, probably as I got the invetment interest from Dad, and my sister and bil always relied on their Teacher pensions. I set up JISAs for the great niece and Nephews, so obviously "know a bit about it" and tend to get asked. A young(er) relative mentioned she had an HL pension when I set up the JISAs, I asked about it and she admitted she'd put money in but thought it was still in cash. We looked and it was in 'Invesco UK Equities Pension Fund' that had returned 40% in about 15 years, total value about £6k. We agreed to move half into a Global tracker and look again in 15 years to see if I was right. If I'm not then I'll make up the difference, if I am then Xmas dinner is on them

The thing is, they don't care, they aren't interested, they don't see the benefits, and most people are like that. Tell them that they'll get 3% instead of 4% and these are tiny numbers, een telling them there'll be a £40k difference at retirement is met with a shrug. Even relatively intelligent friends seem happy with returns from Fisher despite me pointing out they're paying them £30k pa to underperform a tracker for the last decade.

My youngest sister is the worst. Many, many years ago, some salesperson persuaded her to opt out of the council's pension scheme and open a private pension. My dad, looking after his own SIPP and being savvy about these things, went ballistic and asked her what the charges were. "Dunno." Did she know the advantages of the public pension scheme she'd just left. "Dunno."

She should have had a compensation payout for the mis-selling. An ex was talked out of the council and got IRC £30k or so and she was only there a few years.

Paul

[raybarrow]

Hi,
Years ago I couldn't persuade my late Mother in Law to move the reasonable amount of money, in a miserable rate of interest building society, to something better by a factor of 5x or 6x. Still with a 'proper' institution nothing 'risky'. Two reasons 1) She wouldn't get a book record (do they still have those) and 2) The money was her late husband's redundancy money and she didn't want to touch it.

Sometimes there' nothing you can do.

Ray.