Guidance please. Substantial savings. IFA??

Newnoob

I have been reading the forums here for a while but much of the more informed discussion goes straight over my head. Can I ask those informed contributors to please advise me?
I am in my 50s and self employed. No mortgage or debts. I have been saving hard for most of my life. I have had some dealings with IFAs but on the whole have felt let down by the service I have received. I have a not very large pension plan, which on doing further research on, is another product that seems to have been designed to line somebody else's pockets rather than my own (high fees). I will want to maximise my pension contributions and understand I can use allowances for the previous 3 or 4 years?
Anyway, altogether, I have about £400,000 mostly in ISAs and cash, and, not getting any younger, I am looking at ways to maximise the return on this. I have contacted several IFAs but they all seem to want around 3% to set up a savings/investment/pension plan for the future. That's £12,000!! And all they seem to offer with regard to general investing is to buy into their ready made plans for cautious, intermediate, or aggressive investors. Well, isn't that what, say, the Vanguard 60/40 fund is, a widely diversified portfolio run by people who know as much as any IFA is going to know, which I can buy into at a fraction of 3%, or am I, in my ignorance, being a fool. Given the amount involved, and that I will never make that money again, so I can't afford to get it wrong through ignorance, should I just pay up and let those more knowledgeable than me run things, or should I look at working out some sort of DIY strategy with Vanguard at the heart of it, and try to educate myself on future strategy in the meantime. And as far as self-education goes, can anyone recommend what periodicals, books etc I should be reading.
Sorry, this is a bit long winded, but any helpful advice would be gratefully received.
Many thanks.

AlanP_2

If I had that sum of money to invest and was as close as you to retirement I would go down the IFA route.

(I might keep say 5/10% to use on DIY options).

No idea whether 3% is a reasonable fee for setting something up and not sure what ongoing management fee would be but let's say its 0.75% pa.

Over 10 years (assuming no investment growth) you would pay:

12K + (3k *10) = £42k

That equates to 1.05% per annum which, at least to me, sounds more palatable.

As for researching have a look at Tim Hale's Smarter Investing book for a relatively straightforward explanation of the various Asset Classes you could invest in, relative volatility and how they interact with each other.

The monevator.com website is also a useful place for "bite sized" articles on similar topics.

jem16

Newnoob wrote: »

I will want to maximise my pension contributions and understand I can use allowances for the previous 3 or 4 years?

You can use Carry Forward allowances to allow you to pay more than the Annual Allowance limit of £40k into a pension. However tax relief is limited to 100% of your earnings in the tax year you make the contribution so it may not help you. How much do you earn?

Anyway, altogether, I have about £400,000 mostly in ISAs and cash, and, not getting any younger, I am looking at ways to maximise the return on this. I have contacted several IFAs but they all seem to want around 3% to set up a savings/investment/pension plan for the future. That's £12,000!!

With £400k I would certainly look for the help of an IFA. However with that amount 2/3% is far too high. What you need to do I is look for one who will work on a fixed fee for setting up your portfolio.

Look on https://www.unbiased.co.uk for an IFA or Restricted whole of market adviser.

noggin1980

I would never pay 3% to an IFA especially when you already have a large pot, pay for a flat fee IFA

JohnRo

There's no simple easy fix, that's a lot of money to be experimenting with. The starting point is to be honest with yourself and ask what you want the money to do and how you really feel about risking your capital for income, growth or both.

In terms of investing, either you put the hours of work in reading and learning about investment options, and more importantly developing an understanding and appreciation of risk and reward, alongside what's required for the investment portfolio, or you pay a professional who's already done that learning and has industry data and application at their fingertips.

You can also do both those things together, DIY is nothing to be scared of but it requires that you tread carefully with purpose and requires more effort than some might be willing to admit, at least initially.

The thing to avoid in my opinion is wanting to learn too much too quickly and suffering information overload, also there's a wise saying, a little knowledge is a dangerous thing and so is a lot, some humility is required, just start with the basics and build from there.

http://monevator.com/

noggin1980

AlanP wrote: »

If I had that sum of money to invest and was as close as you to retirement I would go down the IFA route.

(I might keep say 5/10% to use on DIY options).

No idea whether 3% is a reasonable fee for setting something up and not sure what ongoing management fee would be but let's say its 0.75% pa.

Over 10 years (assuming no investment growth) you would pay:

12K + (3k *10) = £42k

That equates to 1.05% per annum which, at least to me, sounds more palatable.

You've lost the benefit that the 12k provides over the 10 years too.

12k with 7% growth per year is 24.1k in 10 years.
12k with 5% growth per year is 19.1k in 10 years.

The vanguard life strategy would be 0.25% + the platform charge or dealing charges.

I think paying 3% is nuts when you have 400k, but reading the Tim Hale book so you have a decent understanding and then paying a flat fee IFA is the best choice. That way you'll have enough understanding to ask the right questions, make sure charges are kept low and you'll be able to tell if the advice is good.

I'd probably do it myself though but that doesn't mean thats the best choice.

xylophone

Even if you are using an IFA, it is a good idea to educate yourself on financial matters otherwise how will you evaluate their advice?

https://www.unbiased.co.uk/

Re pensions, free guide to pensions tax relief here http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

Re carry forward http://www.hl.co.uk/pensions/sipp/pension-carry-forward

https://www.pensionwise.gov.uk/?gclid=CIrDs9v0tsQCFWGL2wodDFEAHw

Remember that you can transfer your pension to another provider if you are dissatisfied with charges.

Re new state pension https://www.gov.uk/new-state-pension/overview

bowlhead99

Newnoob wrote: »

And all they seem to offer with regard to general investing is to buy into their ready made plans for cautious, intermediate, or aggressive investors. Well, isn't that what, say, the Vanguard 60/40 fund is, a widely diversified portfolio run by people who know as much as any IFA is going to know, which I can buy into at a fraction of 3%, or am I, in my ignorance, being a fool. Given the amount involved, and that I will never make that money again, so I can't afford to get it wrong through ignorance, should I just pay up and let those more knowledgeable than me run things, or should I look at working out some sort of DIY strategy with Vanguard at the heart of it, and try to educate myself on future strategy in the meantime. And as far as self-education goes, can anyone recommend what periodicals, books etc I should be reading.

The Vanguard 60% equity fund is a bit of a blunt instrument rather than a tailored financial solution. It happens to sit halfway between two of their other funds in terms of equity percentage, which may or may not translate to halfway on the risk scale .

Sound advice for a new investor with a small balance is to pick a generic multi-asset fund. The VLS fund is one. It is a pile of market-capitalization weighted equities funds, and bond trackers. It is not a fund that intends to suit the circumstances of any particular individual in respect of their needs or preferences for income, wealth preservation, tax optimisation or the desire for non equities component to be anything other than certain types of gilts and bonds.

At 400k, some people might have it as a core of their portfolio but I wouldn't trust it for all of it; your challenge is whatto mix it with and why. Some reading here and elsewhere may help and there are various threads on reading materials and links( with ad hoc recommendations on loads of posts). I have never used an IFA but might consult one for some things and would (and have) definitely recommend to some of my family members that they should.

If you get the impression that a prospective advisor is going to charge you 12k for looking up on their screen for a standard basket of funds for one of three or four risk levels, then it is worth getting them to explain what they actually claim to do for that money and what criteria a fund needs to meet to pass their due diligence tests. Unbiased.co.uk should allow you to find and meet a few advisors for intro meetings. Whether you could do just as well yourself by judgement or luck, is up for debate.

The problem with paid advice is that you can't really tell in hindsight what you would have done differently if you were making the decisions, unless you make them all in parallel and look back after 20 years. Even if your method equals or outperforms theirs, it would likely have behaved differently under different market conditions if we had had them. So a retrospective review is not a great indicator and is too late anyway; you need to assess in advance, which could be something of a leap of faith.

So, meeting several IFAs, together with educating yourself as much as possible, is key really. Presumably your 400k is not going anywhere in a hurry.

Aegis

Newnoob wrote: »

I have been reading the forums here for a while but much of the more informed discussion goes straight over my head. Can I ask those informed contributors to please advise me?
I am in my 50s and self employed. No mortgage or debts. I have been saving hard for most of my life. I have had some dealings with IFAs but on the whole have felt let down by the service I have received. I have a not very large pension plan, which on doing further research on, is another product that seems to have been designed to line somebody else's pockets rather than my own (high fees). I will want to maximise my pension contributions and understand I can use allowances for the previous 3 or 4 years?
Anyway, altogether, I have about £400,000 mostly in ISAs and cash, and, not getting any younger, I am looking at ways to maximise the return on this. I have contacted several IFAs but they all seem to want around 3% to set up a savings/investment/pension plan for the future. That's £12,000!! And all they seem to offer with regard to general investing is to buy into their ready made plans for cautious, intermediate, or aggressive investors. Well, isn't that what, say, the Vanguard 60/40 fund is, a widely diversified portfolio run by people who know as much as any IFA is going to know, which I can buy into at a fraction of 3%, or am I, in my ignorance, being a fool. Given the amount involved, and that I will never make that money again, so I can't afford to get it wrong through ignorance, should I just pay up and let those more knowledgeable than me run things, or should I look at working out some sort of DIY strategy with Vanguard at the heart of it, and try to educate myself on future strategy in the meantime. And as far as self-education goes, can anyone recommend what periodicals, books etc I should be reading.
Sorry, this is a bit long winded, but any helpful advice would be gratefully received.
Many thanks.

3% as a charge for investing any amount of money is a very old-school financial advice model, and it's one that can very easily be beaten by shopping around. You are quite right that £12,000 is far too high a fee to pay to an adviser for something relatively straightforward, especially if they're just using their ready-made portfolios rather than finding you something bespoke.

Newnoob

Thank you all, for your replies.
My way forward looks a lot clearer now, and a lot cheaper too.
I have been to my excellent library and borrowed Smarter Investing (Hale), Worry Free Investing (Bodie/Sykes) and Investing Demystified (Kroijer). Looks like a have a busy weekend ahead.
Thanks again.

noggin1980

Newnoob wrote: »

Thank you all, for your replies.
My way forward looks a lot clearer now, and a lot cheaper too.
I have been to my excellent library and borrowed Smarter Investing (Hale), Worry Free Investing (Bodie/Sykes) and Investing Demystified (Kroijer). Looks like a have a busy weekend ahead.
Thanks again.

:beer: good luck