Financial Advisors

sparky0138

Since recently, my mum has around £60,000 invested in a SIPP (conservative fund that is managed) and a financial advisor taking a 1% per year servicing fee.

She's 64 and plans to retire at 66 with a state pension and around £40,000 in savings so hopes to keep the money in the SIPP as long as possible and not draw down.

She lives a very simple life and when it comes to finance of this kind, is not very knowledgeable. I'm not either when it comes to pensions, SIPP's etc. so can't really help her.

To save money, how easy (or advisable) would it be to do without a financial advisor and his yearly reviews and go it alone?

xylophone

In which fund is she currently invested?

Has she obtained a state pension forecast?

https://www.gov.uk/check-state-pension

She is sure that she has never contributed to an occupational/personal pension?

SonOf

To save money, how easy (or advisable) would it be to do without a financial advisor and his yearly reviews and go it alone?

The choice normally is to either DIY or use an IFA. (forget FA).

Financial products are no different to other areas. If you can DIY and DIY well, then you can save money. If you DIY badly, it can cost you money.

So, does she know what she is doing or does she need the support of an adviser? (you know her better than us!)

bowlhead99

sparky0138 wrote: »

She lives a very simple life and when it comes to finance of this kind, is not very knowledgeable. I'm not either when it comes to pensions, SIPP's etc. so can't really help her.

To save money, how easy (or advisable) would it be to do without a financial advisor and his yearly reviews and go it alone?

£600 a year as a servicing fee is going to eat into the ongoing returns on the £60,000 (there are presumably other management fees taken by the fund manager and investment platform that the advisor advised her to use).

She will probably find that some years (perhaps quite a lot of years) the advice will be: the funds inside the SIPP are fine, maybe a small re-balance needed, and the SIPP platform itself is still suitable for her needs. Maybe all the money is in just one fund inside the SIPP, and the investment manager of that fund keeps managing the money appropriately, so there is literally no action needed if the fund remains a suitable choice for her needs and she doesn't want to add new money or take money out.

Unfortunately the advice market doesn't cater very well for people with relatively small amounts of money (£60k is a lot to some people, a whole life's investment, but it is buttons to the people with £600k), and advisers need to dedicate a few hours for the review paperwork each year, so you won't find personal advice and support from an independent adviser for much less than she is paying.

A lot of people on this forum will not use an IFA for this sort of amount of money because it's not very cost effective and they can learn what they need to do themselves and save the fee. If she or you are not knowledgeable about investment options, the choice is basically to become more knowledgeable, or continue to pay it, as an insurance policy against doing it yourself and doing it badly.

For example:

Investing in really low risk assets, risks having the returns eroded by inflation and failing to meet your objectives.

Being willing to invest in more volatile assets will hopefully allow you to get higher returns over the long term, but there will be times when the markets go down instead of up, quite significantly down sometimes, and it can be very reassuring to have an advisor tell you it is normal and will work out ok in the end. Otherwise she and you may look at the fund, see losses, worry that she has picked badly, sell up and move to something 'safer'... and then miss the fund going back up with the rest of the market. Doing DIY but doing it badly, could hurt her wealth more than the 1% year drag from the ongoing servicing

This is a money saving forum after all, and it is populated by people who are interested and engaged in retirement planning, and a lot of them like to pick their own basic and cheap funds rather than outsource it to an advisor. So, many of those people will say it is not hard to learn the basics (at least, enough not to make silly mistakes), which is true for many people.

However, some people are not very good with numbers and find financial concepts hard to grasp, so it is not surprising that some are happy to pay £600 of the £60,000 each year to have someone oversee it. But after a decade it's £6000 of cost, (albeit paid out of the pension assets, rather than out of her after-tax income) so it is important she gives it some thought. Nobody can really tell her how easy or difficult she will *personally* find it.

The choice to learn how to DIY or pay someone else to help is something your mum will face in other walks of life. Does she change the washer in her sink taps if they start to drip? How about the oil in her car each year? Some people will do those, because it is easy to learn from the internet or a book; others will not because it is pretty cheap and certainly less messy to get someone else to do it. Maybe she would change a tap washer, or plug-in a new washing machine in the space the old one sat in, but would get a pro in to help if she needs a new boiler. Everyone has their own comfort zone when it comes to learning stuff.

What she could do is keep paying for now, do an hour of reading every week and then by the time she is ready to actually retire she will have picked up 100 hours of theory about how investments work, and may decide at that point that she knows what is going on and will take over the 'servicing' for herself.

Frankly it doesn't take that long to understand the basics, if you have the head for it. Advisers have a lot more than 100 hours of experience - thousands - but that's because they need to advise clients on a whole load of situations that might come up across their client base but won't be relevant for your mum. For example, if she is only looking to invest in a simple product and draw out a couple of thousand pounds annually within her personal income tax allowance, she may not need advice specially tailored for her personal circumstances, because her circumstances are much the same as many others.

If 100 hours spread over 2 years doesn't leave her feeling like she knows enough, she could spend her first month or two of retirement doing another couple of hundred hours of reading, and planning when and how she might need the money, and then she might feel closer to being comfortable with it all. Or she might not, but at least she would have more of an idea whether she knows what's up. The time invested by her is unlikely to have been a waste, because it helps her conclude whether she needs to buy the service. The reward of learning how to best manage a pension pot might well be worth more per hour of learning than she currently gets paid for going to a day job.

For some people they play along with that idea of doing some reading, but never commit to it and never get past the 'a little knowledge is dangerous' level. For those people, sticking with an adviser to save themselves from themselves is a decent approach, even though others would say that the advisor fee is a pretty expensive psychological crutch.

Audaxer

If she does decide to DIY, a low cost, globally diversified multi asset fund would be a good choice. Some of the popular ones discussed on here in many threads are Vanguard LifeStrategy funds, HSBC Global Strategy funds and L&G Multi Index funds. These come in versions with different percentages of equities, so she could select whichever fund suits her tolerance for risk. These multi asset funds are well diversified and she would only need one of these funds for her SIPP portfolio. It will be less costly than an IFA and probably give as good returns or better for the same level of risk.

However before she does anything, a good starting point is to read up on DIY investing, and multi asset funds in particular on the Monevator site, and by researching appropriate threads on this forum. She can then make the decision as to whether she is confident enough to DIY or go through an IFA.

[Deleted User]

Has your Mum had the benefit of a yearly review that you could reproduce here, sparky?

Or does he literally "do it over the phone"?

Or is their relationship new? If so, perhaps you can sit in with your Mum and hear what he does for his money.

sparky0138

This is all very helpful and I'll show it to my mum and come back and comment. However, I will say this now. From what I've read on the internet, I think she may have made a mistake by using a financial advisor rather than an independent financial advisor.

I remember doing a bit of research with her and knowing she should be looking for an independent one. I don't know what happened but we didn't realise until he made his initial visit that he wasn't independent.

She should have tried others but she'd just got divorced and I think she felt under pressure to get my dad's half of his pension transferred quickly because he had just passed retirement age and wanted to start taking his pension. We thought it would be easier for the pension to be split before he started taking it. I think that's why she didn't shop around, especially when the FA seemed to talk a lot of sense and was very helpful. Looking back now, was he just trying to make a deal?

Would she lose a lot of money if she found an IFA and they advised her to move the investment? I have a feeling I know what you're going to say.

Linton

sparky0138 wrote: »

...

Would she lose a lot of money if she found an IFA and they advised her to move the investment? I have a feeling I know what you're going to say.

I dont see why she should lose any money apart from trivial gains or losses by being out of the market during the transfer. The IFA should tell her if there are any extra costs. What are you afraid of?

[Deleted User]

Hoping the performance is not the long term scandal your last post hints at...When did your Mum invest in this FA?

Can you quote some of the quotes on his yearly reviews, 'cos certain stock phrases are a dead giveaway?

bostonerimus

What is this IFA doing for their 1%?I’ve done literally nothing to my investments in the 5 years since I retired and I’m averaging 9% annual return, so this stuff isn’t that complicated.

midlandsimon

1% is a really high figure to be charging. I normally see figures more around the 0.5%.


Don't forget that their will be ongoing fund manager and potentially platform charges added on top. Adds up to a large chunk of the £60,000.