What will a financial adviser do for me?

mollycat · 7 March 2017 at 11:28AM

Good advice given so far above.

Also read the monevator site, (click on "investing" tab).

No need for an economics qualification

.

Although a fair bit of reading (and googling) is required so you don't plunge in on the "wrong foot", perhaps you are on the verge of over thinking and over complicating matters?

Plenty of similar beginner threads on the forum worth searching for as well.

Good luck.

dunstonh · 7 March 2017 at 11:47AM

Smarter Investing says thatportfolio assets should be spread across, according to my aims and age:

Equities:
1.Global - market (developed) - which I think means a developed nations all-market tracker? 36%
2. Global - value (developed) - which is cheaper priced, poorer performing companies across developed markets 12%
3. Global - smaller companies (developed) 12%
4. Emerging markets - trackers of indexes of the whole emerging market countries 8%
5. Emerging markets - value and small - worse performing and smaller companies in emerging markets 4%
6. Global commercial real estate 8%

Bonds:
1. AA short dated 0-5 years - 10%
2. Inflation-linked bonds AA short dated 0-5 years 10%

Will Vanguard lifestyle 80 cover this?

If that was how IFAs recommended investments it would be a mis-sale. There is more to it than that. Firstly, asset allocations tend to be fluid. Not statatic. Economic data and assumptions change. Rigid allocations do not take account of that. The bond allocation is very weakly put together. For example, at this time, high yield bonds are more favourable than gilts or corp bonds. Yet the allocations dont cater for that. Global real estate increases the volatility of the portfolio. That may be fine for some but in the UK we have direct property investments which lower the volatility of the portfolio. They may be more appropriate and give better diversification.

Secondly, risk assessment is personal. It is not based on age. It is based on knowledge, understanding, capacity for loss and need to take risks (or not). That is all very personal. No point a book telling you to go 80% equity if the first thing you are going to do when your investments fall 35% (and that is when, not if) is sell the investment because you panic that your £100k is now worth £65k.

This is not to say that you need an IFA. There is nothing wrong with going DIY and it can save you money if you do it well. Or if your amounts are small that makes using an IFA not cost effective. Do it badly though and it can be a costly mistake. Also, keep an open mind. Don't let books give you a bias. We see it on this forum sometimes. Just in the last week we have had some posters tell an investor to invest in trackers despite her own portfolio of managed funds significantly outperforming the trackers. Some people buy wholesale into a certain method and cannot see the pros and cons of the different methods. Keeping an open mind is much better.

MoneyGeoff · 7 March 2017 at 12:33PM

Jon_W wrote: »

And I didn't know I could hold funds in an ISA and select the funds myself. I thought a stocks and shares ISA selected them for me. This is something else I have no idea how to do so would need an advisor for.

Did you use an advisor to find this site, register yourself, login, find the correct forum and then create the post? If not then you don't need an advisor in order to register with a platform and invest in a fund. It's the same level of difficulty.

The book is confusing you. Listen to the advice in the posts above. Also read this:

http://monevator.com/find-the-best-online-broker/

and then the comparison table that it links to. You need to consider your investment type (eg funds) and the amount (five figures) to decide on the best site for you.

You could use a sipp as well as an isa. The process is very similar in terms of how you invest using a broker web site. You won't be able to access money in a sipp until you are 57 though. Isa is probably best if you are a basic rate tax payer. You don't pay tax on any growth within the isa.

Jon_W · 7 March 2017 at 12:51PM

@dunstonh

The reasoning for this portfolio mix (author says) is that it increases the chances of smooth, non-jumpy, (albeit not spectacular) gains over time as the asset classes tend to perform independently of each other to a degree. He does mention that global real estate is volatile, to be fair.

The thinking behind it is that you have a 'return engine' which includes the more risky assets to achieve your growth and the 'defensive mix' to hold up in rocky times, comprised of the bonds.

Linton · 7 March 2017 at 12:57PM

Jon_W wrote: »

Thanks for your advice all. I am finding all this fascinating as well as bewildering. I also now wish I'd have done some economics/business/finance qualifications at some level. I am even wondering whether an economics A level or GCSE would help me to at least understand the basics. I have the time, what do you think?

It helps to understand how capitalism works. What is a share, What is a dividend. What is a bond. Markets and how they work. You should be able to find a book that covers these areas. You need one that provides basic information rather than one that advocates a particular investment approach, a problem I have with Tim Hale.

Also regarding Vanguard 80: is it risky putting all £ in on product provider in case it does a Lehmann?

No significant risk. With banks if you deposit money with them, they own your money which can be used to pay their debts. All you own is a promise by the bank to pay you back. Funds are different.
Barring large scale fraud your investments are ring fenced and remain yours. If the provider goes bust your money couldnt be used to pay their debts. Responsibility for managing the fund would probably be taken over by someone else or the money would be returned to you. The only real problem could be that this may take some time to organise.

And I didn't know I could hold funds in an ISA and select the funds myself. I thought a stocks and shares ISA selected them for me. This is something else I have no idea how to do so would need an advisor for. I assume that I am taxed on income from a stocks/shares/funds ISA for gains which are a result of investing more than £15k a year (unless the Chancellor alters this tomorrow)?

From April this year you will be able to put up to £20K each year into an S&S ISA. If you wanted to make additional investments you would need to set a separate portfolio which would be subject to tax. There are reasonably generous tax allowances for dividends and for capital gains so with care you could probably avoid tax completely. However you would need to keep detailed records just in case the tax man decided to investigate. One advantage of pensions or ISAs is that you dont need to do this.

Smarter Investing says thatportfolio assets should be spread across, according to my aims and age:

Equities:
1.Global - market (developed) - which I think means a developed nations all-market tracker? 36%
2. Global - value (developed) - which is cheaper priced, poorer performing companies across developed markets 12%
3. Global - smaller companies (developed) 12%
4. Emerging markets - trackers of indexes of the whole emerging market countries 8%
5. Emerging markets - value and small - worse performing and smaller companies in emerging markets 4%
6. Global commercial real estate 8%

Bonds:
1. AA short dated 0-5 years - 10%
2. Inflation-linked bonds AA short dated 0-5 years 10%

Will Vanguard lifestyle 80 cover this?

Or am I realistically looking at investing in a separate fund for each asset class, which stacks-up the management fees?

The principle is fine though the %s and other details may be arguable, they certainly arent directly dependent on your age. You wont find any set of funds that match every % exactly. For example if you correct an allocation in small companies you may change the % in value. How much it is worth worrying about the more detailed %s depends on how much money you have to invest. If for example your pot is £50K, 4% in emerging value/small means £2K. In absolute terms any advantage this may give is pretty irrelevent to your retirement lifestyle. If you have £500K you may be more interested.

Vanguard VLS80 covers all the areas you list except for a specific enhancement of the value % and property. Its % small may be lower than Tim Hale recommends, though the definition of "small" isnt precise. If you go for a Vanguard based solution then you may wish to buy additional niche funds to fill the omissions. There are multi-asset funds from other providers that do include property.

I would only think about a separate fund for each asset class if you have a 6 figure portfolio. For say £20K or less one broad fund covering everything would be fine.

Linton · 7 March 2017 at 1:29PM

Jon_W wrote: »

@dunstonh

The reasoning for this portfolio mix (author says) is that it increases the chances of smooth, non-jumpy, (albeit not spectacular) gains over time as the asset classes tend to perform independently of each other to a degree. He does mention that global real estate is volatile, to be fair.

The thinking behind it is that you have a 'return engine' which includes the more risky assets to achieve your growth and the 'defensive mix' to hold up in rocky times, comprised of the bonds.

That is the reason for any broad mix, not just Tim Hale's one. With your example allocation of 20% bonds, 80% equity, the 20% in bonds is only going to help a bit. For example with the 2008/2009 crash global equities generally dropped by 40% or so. Having 20% in bonds would change that to about 30%. Still pretty fightening to a naive investor who may have cashed out his investment and missed the subsequent rise in prices which in a few years would have more than recovered his original wealth.

Jon_W · 7 March 2017 at 1:31PM

MoneyGeoff wrote: »

Did you use an advisor to find this site, register yourself, login, find the correct forum and then create the post? If not then you don't need an advisor in order to register with a platform and invest in a fund. It's the same level of difficulty.

The book is confusing you. Listen to the advice in the posts above. Also read this:

http://monevator.com/find-the-best-online-broker/

and then the comparison table that it links to. You need to consider your investment type (eg funds) and the amount (five figures) to decide on the best site for you.

You could use a sipp as well as an isa. The process is very similar in terms of how you invest using a broker web site. You won't be able to access money in a sipp until you are 57 though. Isa is probably best if you are a basic rate tax payer. You don't pay tax on any growth within the isa.

Thanks! Yes, I'm basic rate. Thanks for the link.

I also see that the bank I bank with has various passive tracker products, I might see what they recommend as I might be able to obviate the costs of a third party advisor. Obviously, any advice will have to be contextualised as not impartial though.

Can I ask another basic Q to everyone? Fund charges/TER is quoted in figures like .25%, .15%, etc. Is this that percentage of the value of your holding or of any annual gains which accrue?

Jon_W · 7 March 2017 at 1:33PM

Linton wrote: »

It helps to understand how capitalism works. What is a share, What is a dividend. What is a bond. Markets and how they work. You should be able to find a book that covers these areas. You need one that provides basic information rather than one that advocates a particular investment approach, a problem I have with Tim Hale.
No significant risk. With banks if you deposit money with them, they own your money which can be used to pay their debts. All you own is a promise by the bank to pay you back. Funds are different.
Barring large scale fraud your investments are ring fenced and remain yours. If the provider goes bust your money couldnt be used to pay their debts. Responsibility for managing the fund would probably be taken over by someone else or the money would be returned to you. The only real problem could be that this may take some time to organise.

From April this year you will be able to put up to £20K each year into an S&S ISA. If you wanted to make additional investments you would need to set a separate portfolio which would be subject to tax. There are reasonably generous tax allowances for dividends and for capital gains so with care you could probably avoid tax completely. However you would need to keep detailed records just in case the tax man decided to investigate. One advantage of pensions or ISAs is that you dont need to do this.

The principle is fine though the %s and other details may be arguable, they certainly arent directly dependent on your age. You wont find any set of funds that match every % exactly. For example if you correct an allocation in small companies you may change the % in value. How much it is worth worrying about the more detailed %s depends on how much money you have to invest. If for example your pot is £50K, 4% in emerging value/small means £2K. In absolute terms any advantage this may give is pretty irrelevent to your retirement lifestyle. If you have £500K you may be more interested.

Vanguard VLS80 covers all the areas you list except for a specific enhancement of the value % and property. Its % small may be lower than Tim Hale recommends, though the definition of "small" isnt precise. If you go for a Vanguard based solution then you may wish to buy additional niche funds to fill the omissions. There are multi-asset funds from other providers that do include property.

I would only think about a separate fund for each asset class if you have a 6 figure portfolio. For say £20K or less one broad fund covering everything would be fine.

Actually, that was a bit of d dim Q the book does mention the ringfencing aspects.

My portfolio ATM will be about £40k. That will go up to around £65k with a will legacy.

Eco_Miser · 7 March 2017 at 1:39PM

Jon_W wrote: »

What sort of fees will the adviser charge, a flat fee or a percentage of any gains?

Hourly rate or percentage of funds invested (not gains)

You have until 5th April (but don't leave it to the last minute) to put £15240 into an ISA before that opportunity expires. If you haven't decide on a platform by then, you could put it into an instant access cash ISA, and have your S&S ISA manager (platform) transfer it when you have decided.

You then have from 6th April 2017 to 5th April 2018 to put a further £20000 into an ISA, making £35240 safely protected form the taxman for as long as it stays in the ISA. The rest of your money will have to be invested 'unwrapped' or put in a pension. The same platform will be able to handle all three types of investments. The link to Monevator's comparison of platforms has already been given.
From April 6th 2018 and yearly thereafter you will be able to move a further £20000 into the S&S ISA to protect it from taxes.

dunstonh · 7 March 2017 at 1:44PM

The reasoning for this portfolio mix (author says) is that it increases the chances of smooth, non-jumpy, (albeit not spectacular) gains over time as the asset classes tend to perform independently of each other to a degree.

Does it also describe the volatility rating of that portfolio?
Does it say what capacity for loss is appropriate?
Does it say what behaviour should be acceptable for that portfolio?

IFAs will have around 10 different portfolio spreads to cater for the different risk profiles. How many does the book have?

Can I ask another basic Q to everyone? Fund charges/TER is quoted in figures like .25%, .15%, etc.

TER is out of date. OCF is the current method used (except on pensions and life funds where the AMC equates to the OCF)

Is this that percentage of the value of your holding or of any annual gains which accrue?

To your holding. Performance bonuses is the other method and most of those should be avoided.

What will a financial adviser do for me?

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