IFA home visit re Pension/ISA

dunstonh

I initially invested in ISA's which an IFA 'looked after' to the point where they'd halved in value. My remaining ISA was initially 14k (the maximum at that time) but its now £11,400. I like the Pension because at least it only seems to go up!

The UK stockmarket fell by 43% during the dot.com crash and the same again during the global recession/credit crunch. So, was the drop because of market events? If the ISA was invested in the same place as the pension (or vice versa) then you would have got the same returns. So, are you comparing investments on a like for like basis in the same period?

Linton

feesarefare wrote: »

what do you think could be problematical with the pension?

Its bigger and from his comments I take it that the OP is a complete newbie to investing. He can "play" with his ISA without doing life-changing damage.

Linton

feesarefare wrote: »

Yes, but what is the IFA going to do thats life changing?

Can he outperform, for example, the default lifestyle option enough to justify his ongoing fees? Advisers cant control the markets and cant second guess them either....wouldnt they all be on a beach somewhere if they could?

I was more concerned about the OP underperforming. For example, jumping ship on a major downturn, or experimenting over-enthusiastically with the latest high profile "guaranteed" winner. Those sort of things could be life-changing by delaying retirement for a year or more.

If the IFA is just going to balance and there is a free balancing option there is not much point in paying him provided the OP understands what is happening. On the other hand if the IFA is going to review the investments say once a year with the OP to confirm that they are still appropriate for the OPs situation and attitude to risk at that time, then that is a useful service in my view. At least until the OP has the understanding to do the job him/her self.

gadgetmind

I wouldn't recommend that anyone try running their own investments, be it pension, ISA or anything else, until they'd read a book or two regards different asset types, volatility, portfolio construction, etc.

gadgetmind

I remain to be convinced that anyone can be sure of their attitude to risk until they understand how and why this maps onto different asset allocations, and how this in turn affects volatility and returns.

However, this might be because I'm a reductionist engineer type who needs to understand how things work before he's happy using them!

gadgetmind

Yes, I'm sure it's been discussed, I'm just deeply unsure of how mutually informative it will have been if the client didn't understand all the different kinds of risk.

gadgetmind

feesarefare wrote: »

Dont want to sound daft but what would be all the risks you mention?

Market risk (volatility), inflationary risk, business risk (lack of diversity), liquidity risk, tax/government risk, and many more. The main risk that seems to bother private investors is volatility, but unless they have a very short investment window, this is often the one that just needs understanding and using rather than fearing.

Can you also explain how the op using an adviser would seriously reduce any risks. Bearing in mind the adviser has to look to outperform to make up for his additional fees for starters?

As long as the op can come up with a portfolio that is sufficiently diverse (which requires an understanding of different asset classes) and has an equity percentage that's in line with their investment timescale, then I think they'll do fine.

However, I've seen a lot of people come up low regards attitude to risk simply because they don't understand volatility. My personal view (which may reflect more on my need to understand things than anything else) is that you can put together a portfolio that better represents your needs if you understand why the value of your equity holdings falling (say) 40% is nothing to get stressed about.

I must have given my (ex) IFA the wrong vibes regards my attitude to risk as he came up with a portfolio that featured 30% commercial property and another 25% bonds.

Now I'm running my own investments, I still have some REITs and bonds, but a much larger slug of equities and a fair bit of bank preference shares and subordinated financial bonds.

gadgetmind

feesarefare wrote: »

a well managed lifestyle fund would look after the rest for the op

But would this have lower fees than using an IFA to access lower TER components to build the portfolio?

And this is an honest question as we've often seen people using "cheap" platforms such as Hargreaves Lansdown without realising that they are anything but unless you take a lot of care.

rpc

feesarefare wrote: »

Ok given that some of the risks are out of the control of investors, IMHO a well managed lifestyle fund would look after the rest for the op

Surely most risks are out of control of most investors? How many investors can control inflation, volatility, legislation? The object is surely not to control risks but to understand and mitigate them.

feesarefare wrote: »

I'm wary as I have practical experience of seeing IFAs charging 1% on top of using the more expensive funds so you see ters in excess of 3%!

And I shudder to think what some restricted financial advisers (in tied sales forces) charge.

DIY is fine if you know how to DIY but if you don't then you need to pay someone else. The point isn't that the pension is cheaper direct if OP doesn't have the knowledge to choose. I manage my own S&S ISA and will manage my own personal pension when I take one out. I pay a garage to service my car, even though I know I am paying them more than it would cost me to buy the same oil, etc.

gadgetmind

rpc wrote: »

I pay a garage to service my car, even though I know I am paying them more than it would cost me to buy the same oil, etc.

I judge each job individually and some I do myself and others I take the car to the garage. And even if I choose to get a service done at a garage, I check whether I can buy the oil cheaper at retail than they charge, and if so I buy it myself and tell them to use mine.

I use financial professions in exactly the same way. And as I learn more and more with each passing month, I need to use them less and less.