Investing a lump sum to generate retirement income - do I need to use an IFA?

rudebhoy

Am taking early retirement in a few months time. I have 2 DB pensions which will kick in at the end of 2015. I also have capital now of 250k, and no debts (mortgage paid off last year).

The pensions will leave a shortfall in income which I intend to plug with my savings until the state pension kicks in (not for another 12-13 years).

I have seen an IFA and they have recommended that I move my savings into a mix of a "cautious" fund (75%) and equity ISAs (25%).

The cautious fund is with the Prudential. The IFA have quoted me 3.5k to set everything up, including transferring current ISAs and savings.

I am happy to pay the IFA for the report, but 3.5k seems pretty high for setting up a pretty simple portfolio.

Can I do this myself with the Pru or do I need to go through an IFA?

atush

75% into any one fund is too high IMHO. What are the annual costs of this fund? What is the name, as there might be an equivalent somewhere you can invest in it yourself?

3.5K is not too high a figure for investing 250K, as it is less than 2%. However, it is poor advice to use just two investments with a fund that large. So i'd see another IFA.

what I would say, is to hold some as cash, certainly enough for 3 or more years extra income required plus an emergency cash fund. This could be up to 50K of your 250. Then invest the rest, in a diversified portfolio. Which would contain more than 2 investments.

jamesd

That seems like quite a high charge for such a straightforward solution when you could easily do it yourself. For the amount you have I would expect an IFA to use more like a dozen funds.

I'm a little puzzled by the use of a cautious fund and equity ISAs wording. Does that mean that the cautious fund won't be in an ISA. Not even a plan to move into it over time?

What is meant by a cautious fund? A fund in what was called the cautious managed sector? One with a mixture of lots of bonds of various types as well as equities? If lots of bonds, particularly if a high percentage is long duration UK government bonds, such a fund could be relatively risky at the moment because it's expected that bond values, particularly the long term types, will drop as interest rates go up. Defence against that risk involves using short duration bonds and alternatives like commercial property funds.

I suppose - hope - that the IFA was going to work out an appropriate income withdrawing rate to use to top up your income while not draining more of the capital than you want to have drained?

You definitely don't need an IFA to do it and I'm fairly unimpressed with the nature of what has been done so far by this IFA. IFAs vary and their charges also vary so if you do want more investment advice you could shop around.

rudebhoy

atush wrote: »

75% into any one fund is too high IMHO. What are the annual costs of this fund? What is the name, as there might be an equivalent somewhere you can invest in it yourself?

3.5K is not too high a figure for investing 250K, as it is less than 2%. However, it is poor advice to use just two investments with a fund that large. So i'd see another IFA.

what I would say, is to hold some as cash, certainly enough for 3 or more years extra income required plus an emergency cash fund. This could be up to 50K of your 250. Then invest the rest, in a diversified portfolio. Which would contain more than 2 investments.

The recommended fund is the PruFund Growth Life Fund. The mix is 35% equities (half in the UK, the rest in various worldwide markets), 40% fixed interest (same kind of geographical split as above), 20% property and 5% cash.

rudebhoy

jamesd wrote: »

That seems like quite a high charge for such a straightforward solution when you could easily do it yourself. For the amount you have I would expect an IFA to use more like a dozen funds.

I'm a little puzzled by the use of a cautious fund and equity ISAs wording. Does that mean that the cautious fund won't be in an ISA. Not even a plan to move into it over time?

What is meant by a cautious fund? A fund in what was called the cautious managed sector? One with a mixture of lots of bonds of various types as well as equities? If lots of bonds, particularly if a high percentage is long duration UK government bonds, such a fund could be relatively risky at the moment because it's expected that bond values, particularly the long term types, will drop as interest rates go up. Defence against that risk involves using short duration bonds and alternatives like commercial property funds.

I suppose - hope - that the IFA was going to work out an appropriate income withdrawing rate to use to top up your income while not draining more of the capital than you want to have drained?

You definitely don't need an IFA to do it and I'm fairly unimpressed with the nature of what has been done so far by this IFA. IFAs vary and their charges also vary so if you do want more investment advice you could shop around.

According the IFA, the Pru are talking about doing this fund in an ISA from 2015.

Pru management charge is 0.9%. The IFA wants another 0.5% for them to review and advise annually.

I don't want or need to take big risks with my capital, so am just looking for something relatively low-risk which I can invest in, manage and take a regular income from without having to pay unnecessary set up or ongoing fees.

Your_Hero

£3.5k is probably in the right ball park for the amount in question. Don't forget, it's not just about setting this 'simple portfolio' up - IFAs are not brokers, they provide advice personal to you. The funds and providers all had to be researched across the market along with the paperwork and report to you, and more importantly the IFA has a regulatory responsibility for his advice.

I suppose it depends what the actual investment funds are to decide whether this is a simple portfolio or not. With this sum, it would be more beneficial to build a portfolio with a range of funds to diversify.

Maybe speak to another IFA and see what they suggest.

atush

Well as James said, there could be more risk than you want with that cautious managed fund if it holds long gilts or bond funds. these are seen to be in a bubble, and could drop sharply when interest rates rise.

Instead i'd be looking at short gilts/bonds and investment trusts with good income that have risen their dividends for decades. Short term volatility of IT shares could be ridden out as they continue to pay dividends and if you have the cash fund I suggested.

Your_Hero

rudebhoy wrote: »

According the IFA, the Pru are talking about doing this fund in an ISA from 2015.

Pru management charge is 0.9%. The IFA wants another 0.5% for them to review and advise annually.

I don't want or need to take big risks with my capital, so am just looking for something relatively low-risk which I can invest in, manage and take a regular income from without having to pay unnecessary set up or ongoing fees.

If you are confident, you don't need to use the IFA just DIY. Why did you go to seek advice in the first place?


You don't need to take up the ongoing service or his advice. If you are happy, you can simply find something else you want to invest in. Be aware though, depending on the terms of the client agreement with the IFA, you may have to pay him a small fee for his time spent with you so far.

dunstonh

You dont need an IFA.

However, do be aware that the ombudsman recently upheld a complaint that an IFA recommended a portfolio of investments rather than using multi-asset funds for a person as they didnt feel the investor was knowledgeable enough to use single sector holdings. So, perhaps the adviser was using multi-asset investments because they didnt feel you were ready for single sector holdings?

rudebhoy

Your_Hero wrote: »

If you are confident, you don't need to use the IFA just DIY. Why did you go to seek advice in the first place?


You don't need to take up the ongoing service or his advice. If you are happy, you can simply find something else you want to invest in. Be aware though, depending on the terms of the client agreement with the IFA, you may have to pay him a small fee for his time spent with you so far.

to be fair to the IFA, the discussions I have had with him have helped me work out the right strategy for me. I have had a few reservations tho - notably when he recommended I transfer one of the DB pensions into an income drawdown scheme, which I rejected as an unnecessary risk, and putting 75% of my eggs in one basket also doesn't seem right.

I am happy to pay him for what he has done to date, but will take it from here myself.

jem16

rudebhoy wrote: »

The cautious fund is with the Prudential. The IFA have quoted me 3.5k to set everything up, including transferring current ISAs and savings.

I am happy to pay the IFA for the report, but 3.5k seems pretty high for setting up a pretty simple portfolio.

Can I do this myself with the Pru or do I need to go through an IFA?

As others have said, you don't need an IFA but you may feel happier to have one advise.

In saying that £3.5k seems a lot for advice. I realise that it's less than 2% but with larger figures it's not wise to look at the percentage rate. I'm sure you could do better if you have a look around for a different IFA.

As to the fund, although it's a single fund it is a multi asset fund. Would you be expecting to use exactly the same fund if going it alone or would you be looking at something else?