Your views please

oldwiring

I and OH are touching on 80 and have a mix of savings accounts, insurance bonds, equity ISAs, and cash. We have not done much since investments were made, some nearing twenty years ago on my early retirement and later from legacies. We had no need to, nor was life convenient, and we live quite well on our pensions.

Recently we saw an IFA, whom some close relatives have used for a number of years, and it was suggested that maybe our investments should be made more secure, less subject to volatility, at our life stage. To achieve this he mentioned a portfolio somewhat different from the norm.

Traditional Portfolio
Cash
Hedge Funds
Commercial Property
Bonds
International Equities
UK Equities

Suggested Portfolio
Cash Cash
Distressed Debt
Fixed Interest Hedge
Equity Hedged Strategies
Real Estate
Private Equity
Gold
Index Linked
Sovereign
HY Credit
IG Credit
International Equities
UK Equities

I would like the opinion of the more knowledgeable of those among us, of the suggested strategy; its benefits and pit-falls. Please! For instance what level of funds would it be aimed at opposed to the traditional.

kidmugsy

I can scarcely believe that Hedge Funds could reasonably be said to be part of a traditional portfolio.

As for the suggested portfolio, i'm not sure that it would appeal to me.

May I suggest that you need to be clear about your purpose. For instance, do you have a particular yield in mind as a target? Or is it just that you are worried that your portfolio is too risky? I suggest you start by telling us what %age of your portfolio is in cash, in shares, and in insurance bonds. For the insurance bonds maybe you can tell us whether they offer any guarantees. Then perhaps people here might find it easier to offer a view.

Here's a thought: at age 80 might each of you buying a top up to your state old age pensions be a decent, low risk investment? Did the IFA mention that possibility? If not, why not, I wonder. Of course if you buy a top up the capital becomes unavailable to you, but you might (or might not) prefer the income.

Last thought: are you absolutely sure he is an IFA i.e. independent?

JohnRo

I'd suggest you get a second opinion or two, pronto.

jimjames

I'd also wonder if there is any need to change if you're comfortable with existing. It'll be a big chunk of cost that may not be a massive benefit.

oldwiring

Is he an IFA?

FCA descibes him as CF4 Partner
CF30 Customer. He is a partner in a LLP that describes itself as "an independently owned investment management and financial planning company, an independent fund management company "

bowlhead99

The words "independently owned financial management..." or "independent management company" do not mean they are in the business of providing impartial independent advice. It just means that they are independently owned, i.e. the owner of the business is the guy you saw and his other partners in the partnership, rather than the business is owned by a big bank with branches everywhere or is listed on the stock exchange and owned by members of the public. They own the business and don't depend on some other company or owner to tell them what they have to do. Your local corner shop is 'independent' if it isn't owned by Tesco - but it doesn't mean it is an independent financial advisor

If they are a fund management company / investment management company that also does financial planning and other stuff, when you go to see them about financial planning you are unlikely to be getting an independent view. You are likely to be getting a view on how best to use their products - the investments they manage - to achieve your goals.

This does not mean that the view is garbage or the product is garbage and could not be suitable for your needs, but if he is a tied agent of his own firm which manages assets, there is a lot of bias to what he is realistically able to offer and may not be what you were looking for. Even though as a financial services business, they are regulated and the person appears on the regulator's website as being responsible for a controlled function. If what they are selling you is not independent financial advice, you can't complain to the regulator that the advice was poor and not independent.

The question to ask is whether they are evaluating every product from every fund manager to independently assess what product is best for you. If the product is their product - a managed fund that is split up into thirteen components and invested into assets or funds in different sectors while they take a management fee - there is nothing independent about it.

Someone can be a 'discretionary fund manager' making the day to day decisions on what's best for the portfolio, after an independent financial advisor has provided advice and independently concluded that you using a DFM for a certain type of investment is useful. But if you go direct to the wealth management company yourself, you are missing out the 'independent' step. If his material does not say anywhere that he is currently acting as an IFA in advising you, then he is not.

As to the make up of the portfolio - it looks like the kind of thing that people with larger levels of funds would hold, because such detail and individual specialist complex products are not necessary needed by people with small portfolios.

For example, my portfolio like many people's includes bonds. Mostly via a strategic bond fund where the fund manager determines what to invest in between 'sovereign' (government bonds / gilts), 'index linked' (inflation linked bonds usually issued by governments), 'IG credit' ('investment grade' high quality bonds from large stable companies) and 'HY credit' (high yielding bonds which are inherently more risky but pay higher returns).

As a sophisticated investor I might choose to, but don't need to, have four different strategies in my portfolio with those four names and allocations, continually adjusting the mix and rebalancing between them as they perform through the different economic cycles. But I might, just as reasonably, call them all 'bonds' and let someone else work out the fine detail. I guess that makes me a 'traditionalist'!

Similarly if I have hedge funds, then I might personally get interested in the differences between fixed interest hedged, equity hedged strategies, distressed debt etc but it is just expanding a headline that was already in the 'traditional' list. Hedge funds can be complex and can usefully have a place in a portfolio when bonds and equity markets are not certain, but the average person with £50-200k rather than £500k-£1m of investible assets probably doesn't use them at all. Historically they are products for sophisticated high net worth investors because they were difficult and inefficient to access with small pots. They are becoming more retail-accessible and most wealth managers would not ignore them. But it depends on the knowledge level of the actual investor, as to whether they are appropriate for recommendation by an IFA or similar.

oldwiring

Maybe, then, despite our close, but much younger, relative using him on long acquaintance and friendship, we need look elsewhere.

On some of my distribution vouchers the professional adviser ( or successor) from the time I took early retirement is listed. Their description is "Restricted Whole of Market Adviser ". Where do they stand in the scheme of things?

oldwiring

@kidmugsy Yesterday, 11:46 PM
I am working on an analysis.

Your comment

Here's a thought: at age 80 might each of you buying a top up to your state old age pensions be a decent, low risk investment?

I thought that my OP implied that I did not need to increase my and wife's state pension, as we lived quite well on our all-in pension incomes.

bowlhead99

oldwiring wrote: »

On some of my distribution vouchers the professional adviser ( or successor) from the time I took early retirement is listed. Their description is "Restricted Whole of Market Adviser ". Where do they stand in the scheme of things?

A few years ago the rules on 'IFAs' changed a bit. An adviser can be restricted by either the number of providers they look at (for example an investment adviser who may only look at a three or four providers) or by the product areas they advise on (the adviser may for example advise on investment, but not on pensions).

A whole of market restricted adviser can therefore offer you advice on all products in the market in a specific product area but they may not be able to cover all areas of your finances. As such, an Independent Financial Adviser is the only type of adviser that advises both on all areas of finances, and all products in the market.

In practice, many former IFAs will have decided to go for the less burdensome 'restricted' banner because it is a headache keeping on top of the research and due diligence for every single investment option. But whole of market means they are not going to look at just ABC Fund Management or just John Smith LLP Fund Management or a panel including ABC and JS - they have the ability to source products from far and wide even though they may have a particular preference for working with certain groups for certain situations. Any adviser should be able to explain their status and adequately articulate the differences between what they offer, and what an independent offers, however minor or major.

Maybe, then, despite our close, but much younger, relative using him on long acquaintance and friendship, we need look elsewhere.

Having to put a pin in a phone book (the directory is unbiased.co.uk) for an advisor is certainly more daunting than getting a personal recommendation from a trusted relative.

However, your trusted relative is in the 'accumulation' rather than 'decumulation / tax avoidance / inheritance planning' part of his financial life and so is looking for a subtly different sort of service, even though both of you are looking for experts.

If the trusted relative is using the person based on 'long acquaintance and friendship' then they are probably not a complete cowboy. But a recommendation based on acquaintance, friendship etc rather than based on a deep knowledge of the financial advice market and comparison of the service he gets from that firm versus others that he previously used for a period of time... then the recommendation may not really be worth more than the nothing you paid for it

If you have a previous relationship with another adviser, no harm in looking them up. But you mention the other firm as being involved with your early retirement and now you are pushing 80. So, there is no special insight into your circumstances which that particular firm would have. Going back to them effectively as a new customer you would have to go through an assessment of what they had to offer, what your needs were etc. It may be sensible to approach three local IFAs, have a free introductory meeting with each, and then decide what, if anything, to do with your current portfolio.

oldwiring wrote: »

I thought that my OP implied that I did not need to increase my and wife's state pension, as we lived quite well on our all-in pension incomes.

The fact that you've arranged your affairs so you have enough coming in, is not really being debated. You are looking at investment options. What is the purpose of that, if not to either grow your wealth or income or preserve your wealth from being eroded away by inflation?

So, one legitimate investment option may be to invest some money in getting a larger pension income for the rest of your life (which could be two decades from now). That could be wealth enhancing. For example if you deferred your state pension - just took a break from receiving it for 6 months - you could receive 5% more state pension every week for the rest of your life! After 10 years it pays for itself and is a great insurance policy against living to 105.

Or maybe if you retired early (as you said) without having made your full life's national insurance contributions, you are not getting as much as you could have done, so perhaps there is scope to pay them up and get a larger pension. Frankly I am not an 80 year old so don't know if that's feasible but kidmugsy's comment that there are things to consider around state pension, is sound, because pension deferral is quite lucrative (my mum is doing it on my advice).

The fact that your current pension pays your current bills, is not a reason to disregard the opportunity to invest money in improving it. If you didn't think there was any reason to make any investments, you would not have gone to see the advisor.

oldwiring

On the matter of my early retirement, as I got employment for the years after, I did accrue full state pension. My wife had her own contribution record and made an extra contribution to enhance it.

bowlhead99

In that case if your contributions are maxed all you can do is take a short deferral to get more money that way. Doing that to get a 10% return (inflation protected) is probably going to be better than the return on the 'suggested portfolio' above.