IFA meeting next week. Will my IFA do this for me...?

Nine_Lives

Skip down to the so then bit if you're looking to skim read

So i loaned a book from the library to try & better understand pensions: http://www.amazon.co.uk/Pensions-Explained-Complete-Retirement-Essential/dp/1844901106/ref=sr_1_1?s=books&ie=UTF8&qid=1324163160&sr=1-1

It told me a few things, but tbh, nothing considerable that i haven't picked up on MSE these past few weeks.

For anyone not familiar with my previous threads, i'm 28, male & looking to begin investing (not necessarily pensions - perhaps S&S ISAs if that's what the IFA advises - what i'm saying is, my mind is open). My annual income is approx £18k & i'll be looking to begin with investing £100 (plus tax relief=£125pm) a month with a view to perhaps increase this if i can afford.


Having already met with 1 IFA (2hour meeting) i now have a brief idea of what to expect. Speaking of brief, this 2nd IFA has stated our meeting will be 30 minutes.


The 1st IFA gave me some pre-set questions to fill out which based on my answers, he said will get fed into a computer & churn out my approach to risk. So i'm expecting similar from the 2nd IFA. When he asked me about my risk approach, i didn't/don't really have an answer.

If we took on a scale of 1-10 on approach to risk with 1 being scared & 10 being insane, i'd guess i'm at about 7.5.
I also imagine with starting later at 28, that i'd perhaps be best taking a bit of risk. I don't know whether my "7.5" is what would be called appropriate for my age & pension situation.


SO THEN...

Based on how i see my approach to risk & my contribution of £100pm, i'd like:

* to say to my IFA, here's my attitude to risk. Here's my £100 each month, now go & invest it. I read in the book & on MSE that "eggs in 1 basket" is a bad thing - so a spread on (book says "Asset Class" and/or "Type of Fund") ... what would you ask for, what's the correct way to say it - would you ask for a spread on asset classes or a spread of funds? Or is this approach a bad idea? From reading up i thought this the best thing to do.

* I'd like to be able to vary my payments! Not every month i should add, but as said - i'm new to this. I'd like to start out with £100pm, but i'd like the flexibility to be able to increase/decrease (more likely increase) these payments. Any increase isn't likely to be seen as a "lump sum" is it? As the IFA has already said they take 3% of any lump sum investment.



That's basically it. Personally i don't think i'm asking for a lot.
If i've got to choose myself on where to invest my money then i'm not going to have a clue & i simply wont be able to make an educated decision - that's what i'm wanting the IFA to do for me ... to go away with my £100 & spread it based on my risk.



SO, first off thanks for reading through all that, secondly - am i expecting too much? Should my IFA be able to do this for me, or am i likely to be expected to choose WHERE my money is going to be invested?

That's my main concern. Then the ability to change monthly payments.

westy22

There are a number of ways of spreading risk:-

1. Buy into several funds in non-correlated areas - not really practical with £100 per month as most funds will have a £50 per month minimum subscription.
2. Subscribe to a single 'Fund of Funds' - the TER is usually quite high i.e. 3% pa as there is the fund TER to pay plus the TERs of the sub-funds.
3. Subscribe to something like the Vanguard LifeStrategy funds that contain a mix of geographical indexes and bonds at a very reasonable TER.
4. Subscribe to one fund for about 6 months and then change your monthly subscription into a different fund / geographical area, gradually building up a spread of investments.

Most platforms will enable you to vary your monthly subscription subject to their minimum levels - but expect your IFA to want a cut of commission from the revised figure.

to go away with my £100 & spread it based on my risk.

I would want to be fully involved in the discussion and decision if it were my money! Your IFA can make recommendations to you but the ultimate decision should be yours based on your belief in the reasons he gives you for choosing a particular fund.

jem16

K_P83 wrote: »

Based on how i see my approach to risk & my contribution of £100pm, i'd like:

* to say to my IFA, here's my attitude to risk. Here's my £100 each month, now go & invest it. I read in the book & on MSE that "eggs in 1 basket" is a bad thing - so a spread on (book says "Asset Class" and/or "Type of Fund") ... what would you ask for, what's the correct way to say it - would you ask for a spread on asset classes or a spread of funds? Or is this approach a bad idea? From reading up i thought this the best thing to do.

I wouldn't start off this way.

Let the IFA do his job and advise you based on what he finds out about your risk profile, your current situation and what you want in the future. Once he comes up with his recommendations then you can discuss them.

* I'd like to be able to vary my payments! Not every month i should add, but as said - i'm new to this. I'd like to start out with £100pm, but i'd like the flexibility to be able to increase/decrease (more likely increase) these payments. Any increase isn't likely to be seen as a "lump sum" is it? As the IFA has already said they take 3% of any lump sum investment.

That's something you should tell the IFA as that would influence his recommendation.

Linton

Agree with Westy though to expand on Option 4:

Start off with a general fund (perhaps something in the "Global Growth" area) until you have say £2K, and then switch to something more focussed for a while.

For £100 a month, although I appreciate it is a reasonable spend, in the overall scheme of things it's a very small investment, and so using an IFA may not be worthwhile for yourself or the IFA.

Nine_Lives

Cheers guys. I noticed something i didn't explain the greatest...

I didn't mean throwing £100 at the IFA & saying toddle off & invest that now each month. Contact me in 40years time.

I meant talking to the IFA (as best as 30mins will allow) - tell him/her my approach to risk, how much i'll be investing each month, telling them that i'd like the ability to change the amount paid in each month (this would very likely be in the early days as i'm getting used to it all).
Then based on that, the IFA would be to come back to me & tell me what they ADVISE.
The decision is then mine. But tbh, i would likely just 1) go for it as i don't understand or 2) post back on MSE ... as i don't understand.

I appreciate you breaking it down like that westy, but despite trying, i just don't really understand (maybe because i've never seen it all in action, i don't know).
I've actually tried, but i can't get my head around the investing & choosing investments part. How you break up your contribution, how you select when there's many to select from.

Hopefully i've better explained what i'm expecting from this IFA.

So based on that, is my expectations of this IFA realistic? Should they be able to do that?

Linton wrote: »

For £100 a month, although I appreciate it is a reasonable spend, in the overall scheme of things it's a very small investment, and so using an IFA may not be worthwhile for yourself or the IFA.

I totally agree (in part).
£100 is approx 10% of my net monthly wage, so to me it's a reasonable amount at the moment. Having never paid into a pension, i don't know if i can up that % or not. I don't want to delay too much longer at the age of 28, by "trialling" it to see if i can put more away - i want to get started asap.
However i've made the IFA aware of how much i'm looking to invest & asked if they'd be interested in advising me. They said yes.

Also, i appreciate your final point. When i started asking questions on MSE, that's what "the masses" suggested also - that i go solo until i build my pot. So i considered it & looked into it.
That's when things got beyond confusing. Any investment in this scenario, despite what members are saying, really would be me closing my eyes & picking out where to invest.
So i got tired of not being able to understand at the moment (despite trying to understand) & decided to pay for someone who should know.

Nine_Lives

Oh & another one i thought of last night whilst looking at the pensions -vs- ISAs argument...

Don't want to stick for too long on this question & instead focus on the above, but i've seen many times over the retirement experts of MSE say that a mixture of 1) pensions 2) S&S ISAs 3) savings is best.

Yet whenever someone queries pensions -vs- S&S ISAs, these same experts say that comparing the 2 will only ever have ISAs worse off as you don't get the tax relief.

So, despite being tax free, why would an approach of 1) pensions 2) S&S ISAs 3) savings be best? Surely based on what they're saying RE:tax relief, would mean that any money in a S&S ISA would be better in a pension & that the better approach would be 1) pensions 2) savings..?

No doubt this is something else i've not got my head around. I just can't see how they're good if pensions are constantly better due to tax relief.

atush

Well ISAs can be worse off w/o the tax relief element. And should you fall on hard times they are added to your cash savings and may keep you from getting means tested benefits.

But, they are accessible before the age of 55 for anything you want them for (not just retirement) so always have a place alongside pensions and cash Savings. They are a good way for medium/long term savings for whatever reasons.

jem16

K_P83 wrote: »

So based on that, is my expectations of this IFA realistic? Should they be able to do that?

Yes he/she should.

K_P83 wrote: »

So, despite being tax free, why would an approach of 1) pensions 2) S&S ISAs 3) savings be best? Surely based on what they're saying RE:tax relief, would mean that any money in a S&S ISA would be better in a pension & that the better approach would be 1) pensions 2) savings..?

No doubt this is something else i've not got my head around. I just can't see how they're good if pensions are constantly better due to tax relief.

You have to use the tax breaks in the best way possible. Pensions are best if;

1. There is an emloyer contribution.
2. Salary sacrifice which can save on NI.
3. The tax relief you gain is greater than the tax payable in retirment.
4. 25% tax-free lump sum.
5. To use up your tax-free personal allowance.
6. Advantages with tax credits as contributions don't count towards overall income.

Other reasons are;

1. It's not accessible until age 55 which means you can't dip into it.
2. It's not counted in any means tested benefits.

After that list has been exhausted then use S&S ISAs.

That's why it's best to have a mixture.

dunstonh

Yet whenever someone queries pensions -vs- S&S ISAs, these same experts say that comparing the 2 will only ever have ISAs worse off as you don't get the tax relief.

That is correct for income. Even if all the income in the pension ends up taxable (above personal allowance) the fact you have taken 25% of the pension out and had 20% tax relief (which gives you a 25% higher value), the income from the pension will be higher than the income from the ISA. The gap is small if all the income is taxable. However, if you have unused personal allowance that can be mopped up by the pension, then it makes more sense to use pension up to that point (and ISA beyond if you are a basic rate taxpayer). Pensions are lousy for capital provision though. ISAs trump the pension there.

roves1

K_P83 wrote: »

The decision is then mine. But tbh, i would likely just 1) go for it as i don't understand

It's never a good idea to place all your faith in one persons advice, especially if they have a vested interest, unless you are prepared to lose a significant proportion of what you put in. Going through someone using the letters IFA does not mean you won't get your fingers burnt - they could be using a pin too for all you know. There is a lot of risk around atm, wherever you go.

How secure is your job, when are you planning to buy a house, start a family, will you have any savings left when you buy?

Nine_Lives

Thanks boys & girls.

Again, with S&S ISAs, i'd have about as much clue as with the pensions (i.e. NONE!!) so it'd be IFA route once again, unless we were talking cash ISAs, but then the long term profit on them i would imagine would more than likely come nowhere near a S&S ISA (if contributing to a pension & then when i move home, i'd no longer be able to max out either ISA)

roves1 wrote: »

Not a good idea to place all your faith in one persons advice, especially if they have a vested interest.

Have you got any savings? How secure is your job, when are you planning to buy a house?

I agree - it wouldn't be a good idea, but from where i am, i'd have little other choice. I could:

1) Ignore them, do nothing (so pointless even visiting them)
2) Go see another IFA (but i could do this until the day i die having exhausted every IFA in the land)
3) Take a random punt myself, totally not knowing what i'm doing, and hope i get lucky (& with my luck that would be zero chance!)
4) When they produce their findings, come back on MSE, tell you guys, get a response from you
5) Go with what they say.


To me, only #4 & #5 are any good here. But i have a thing about #4...

While i don't doubt anyones advice here (i should say that again .... i DON'T doubt anyones advice here!!), i've noticed the funny trend online - where you tell the community what you've been advised outside the net, or something you've purchased outside the net (happens a bit on a car forum i'm on), and you always get a fair few saying oh that's bad advice, or oh that's very costly.

Now if you don't know, then this confuses the hell out of you.

I bet i could go visit every IFA from top to bottom & produce their advice & each one would get labelled as bad advice.


That's just what i've observed online, but again, i don't doubt any advice given here.


So i think i will still post up the advice given by the IFA to see what the MSE experts reckon & i'll take it from there, but it'd likely be going ahead with that IFAs advice.


Savings: Yes, £30k of my own money, but my savings are for a deposit on a house (alongside my gf's savings - £10k at the moment).
Job secure: Yes pretty much. They may not be the best employers or pay the best, but they could've let many people go a long time ago. Instead they just reduce hours. In my 15 years there i've only seen 1 person let go. That said, on 18k per year doing 50-60 hours per week, i would really like to go & do something that pays more. My problem here is i "settle". I don't like change. It's not a good combination!! While i understand they can let anyone go at any time in any order, it would cost them the most to get rid of me, by far. IT would cost them more to get rid of me than even our supervisor.
Moving out: Either 2012 or 2013 i would say. My gf would say 2012, but i say she needs to save properly as she's a liability (harsh, but honest). If she can't save appropriately whilst we're at my mothers, how does she expect us to be able to run a house).