Investment ideas?

Aos

I am currently taking stock of my pensions and investments after finishing work.
I currently have a number of pensions which I am crystallising and will end up with a lump sum in excess of 150k to invest. I currently have an ISA with Hargreaves Landsdown which is around 200k and another investment with them it around 300k. These are under their personal advisor investment system (called PMS). Previous I have been happy with these but I have now reviewed and consider their fees to be rather high. To invest in their funds I need a personal advisor who I pay and then pay their fund costs on top of this, basically I feel ripped off. In the past their charges have not been transparent but this year they are more transparent. I appear to be paying about 2.5%. I have a financial review every year with them and nothing changes, so we basically have a chat. I recently discussed other items such as my pension crystalisations and taking money from an offshore bond. I was told advice only related to HL investments (noting I also have a SIPP with 250k in it with them) and would have to pay additional fees (starting at 1200) to discuss anything to do with pensions.
In addition to this a substantial part of my capital gains allowance is being used up when they rebalance my portfolio. They have done well for me in the past but I am in a position where if I want to extract assets from the main account I face a quite large capital gains tax bill, as they will use a substantial amount of the tax free allowance rebalancing. It is difficult to work out what that tax bill might be as I won't really know how much they have used rebalancing till the end of the financial year. I feel somewhat locked I into their system, but have decided to bit the tax bullet.
I am looking for an alternative and am thinking of something like the Vanguard Lifestratergy, although this is a little too much US based for me. I am thinking low risk. Can anybody suggest alternatives?
In addition, as I read it, a number of investments rebalance within the investment internally and therefore do not use any of my personal allowance for capital gain, is that correct?
Thanks in advance.

eskbanker

Aos wrote: »

I am looking for an alternative and am thinking of something like the Vanguard Lifestratergy, although this is a little too much US based for me. I am thinking low risk. Can anybody suggest alternatives?

It's often mentioned on here that VLS is more weighted towards the UK than most of its peers, and therefore will be less US-oriented. What sort of US representation do you feel would be appropriate in your next move?

Alternatives to VLS in the global multi-asset space include Blackrock Consensus, HSBC Global Strategy and L&G Multi-Index.

In terms of your wider situation, it sounds to me like you'd benefit from engaging with an Independent Financial Adviser....

SonOf

These are under their personal advisor investment system (called PMS). Previous I have been happy with these but I have now reviewed and consider their fees to be rather high.

Yes, expensive. We have had several new clients come from them and they were paying twice the cost of what the IFAs set up for them as a replacement.

basically I feel ripped off. In the past their charges have not been transparent but this year they are more transparent.

The charges have been transparent. It's just that previously they were not given as much prominence.

I have a financial review every year with them and nothing changes, so we basically have a chat.

You wouldn't expect it on the investment side as they are not using the type of investments that need rebalancing. Although you would expect them to get you to use the ISA allowance, CGT allowance, and pension allowances (where applicable). You mention offshore bond. So, that would require some management as well if the plan is to exit that (as so many are).

In addition to this a substantial part of my capital gains allowance is being used up when they rebalance my portfolio.

So, they are doing something.

They have done well for me in the past but I am in a position where if I want to extract assets from the main account I face a quite large capital gains tax bill, as they will use a substantial amount of the tax free allowance rebalancing.

In the year you want to do this, you just tell them that you need the CGT allowance that year.

I am looking for an alternative and am thinking of something like the Vanguard Lifestratergy, although this is a little too much US based for me. I am thinking low risk.

With the amounts you have, a single multi-asset fund is not an ideal solution. A portfolio of single sector funds would give more flexibility to control CGT. Its more typical of what a larger investor would utilise.

In addition, as I read it, a number of investments rebalance within the investment internally and therefore do not use any of my personal allowance for capital gain, is that correct?

Yes and no.

Internal fund changes do not create a CGT gain/loss. However, the single fund you use would have gains/losses and would be subject to CGT. If you didnt use your CGT allowance annually then you are just increasing the eventual tax bill.

You mention it is with HLs PMS. Since they went restricted, that usually means they use their own brand funds. Including their MM funds. They are similar to the VLS funds (except more expensive and unfettered rather than fettered). Are you in a portfolio of whole of market single sector funds or are you in HL funds?

Albermarle

I appear to be paying about 2.5%

That's high :eek:, almost like in the 'old days'
As said even if you use an IFA ( which could be a good idea for your portfolio) , you would not expect to pay more than half of that , including their fee, platform fee and fund fee ( unless you had more specialist funds )
There are some experienced DIY investors on this forum who say their total costs are as low as 0.3%, although something in the region of 0.4% to 1 % would be the typical range , depending on funds and platform used. Also ISA's are usually a little cheaper than a SIPP.

bowlhead99

Aos wrote: »

In addition, as I read it, a number of investments rebalance within the investment internally and therefore do not use any of my personal allowance for capital gain, is that correct?

Yes, if you invest in shares or units of Fund A that holds various underlying assets (which could include other funds, shares, bonds, whatever), Fund A can buy and sell as many of those underlying assets as it likes without exposing you to any capital gains or losses because *you* have not bought or sold anything - you still hold the same number of shares in Fund A.

For example, HL themselves have some (quite expensive) 'multi-manager' funds with various strategies which invest in other managers' funds - and if you just held one HL multimanager fund you wouldn't be using any of your CGT exemption if you didn't sell it. However, as you are aiming for a specific risk profile, you probably couldn't achieve your overall blended portfolio by holding just one of those multi-manager funds (e.g. you probably don't want all your money in UK Growth, or Strategic Bond, or their exact mix of Balanced Managed). So there would still be some buying and selling to create the blend and maintain it over time.

You mention that if you wanted to take some money from the main account that would result in more selling to get the cash, and might put you over the annual exemption for that year because some of the exemption was used up in the rebalance process. Generally if you have an adviser to whom you've given carte blanche to keep the portfolio in line with a desired mix, you are best to keep them informed if you want to take substantial sums out, because if they know you want to do that they can sell down the portfolio accordingly in relevant proportions in one exercise rather than rebalance first and then have to make further sales to get your cash out.

One perhaps obvious point to make is that at the moment, their buying and selling activity is using up a chunk of your exemption each year - which can be annoying if it is not planned well - but if they *didn't* do that (because you were just holding one internally-rebalanced, mixed asset fund product and you never needed any mid-year rebalance sales and purchases), you would not be making much use of this free annual exemption that the taxman lets you have. This means you will be building up a bigger unrealised gain for when you next get to a year when you want to take money out, but you only have one year's allowance to set against it.

For example, if you invest £100k in an internally-rebalanced portfolio and it doubles over 10 years, the eventual assets are worth £200k and half of any disposals at that point would be gains. However, if you had been using a portfolio of separate funds that were bought and sold as part of annual rebalance processes as you go along, the eventual sale at £200k won't be matched against the original £100k purchase, but against the mix of various purchases along the way. By triggering CGT events and purchases each year at a variety of ever-increasing prices over time, your average cost of investment to set against the £200k cost might be more like £150k than £100k.

So when you decide to exit the 'externally rebalanced' investment portfolio and get your £200k out, only a quarter of the money is capital gain (£200k proceeds against £150 cost), instead of half the money being capital gain on the 'internally rebalanced' fund (£200k proceeds against £100k cost). Obviously it's better not to have huge unrealised gains building up because it could be painful in the end (unless you're keeping them until you die - no CGT on death )

So, if you do move to a simpler solution, it is worth exploring how to still make use of the ongoing annual CGT exemptions. As eskbanker /others mentioned, an independent financial advisor could probably offer a better (and cheaper) solution than HL's non-independent advice offering.