SIPP proposed move from Equities to Gilts and Corporate Bond

markNEscotland

I am 69 and probably 2 or 3 years from taking this SIPP, which is with Standard Life. 2020 was the first year it lost money, my advisor quoting the stock market volatility. He is proposing a switch from 70% equities, to a 16% equities and 74% Gilts/Corporate Bonds, based on my reduced risk profile. (proposed product is Standard Life Myfolio Market 1 Fund)
In doing this he proposes to now charge 1.005%, compared to previous charge of 0.62%. This new charge represents £1900 per year, with presumably no guarantee that the change in investment will provide an increase value to cover his charge, and also give me some positive return rather than a loss.
Any views on 'advisor' charges and returns welcome.

dunstonh

2020 was the first year it lost money

Or was 2020 the first you that you saw a loss?

2018 was a negative year.  2015/16 had a large drop in it.  There were drops in multiple years in the last two decades.  Perhaps you were not looking and that is why you didn't see them.

He is proposing a switch from 70% equities, to a 16% equities and 74% Gilts/Corporate Bonds, based on my reduced risk profile. (proposed product is Standard Life Myfolio Market 1 Fund)

Are you sure it is a SIPP?    Just asking as you say its a Standard LIfe pension and the fund is also Standard Life. SIPPs being whole of market offer wider choice.  Personal pensions or stakeholder pensions limit the choice.

In doing this he proposes to now charge 1.005%, compared to previous charge of 0.62%. This new charge represents £1900 per year, with presumably no guarantee that the change in investment will provide an increase value to cover his charge, and also give me some positive return rather than a loss.

You say "he proposes to  now charge".   Are you saying that the adviser is putting his charge up based on the change of assets?  That would be very unusual and I would question it.  The figure does not seem consistent with an adviser charge as they are usually round figures.  e.g. 0.5%, 0.75% or 1.0%   

However, if you mean the revised fund charges (which would not mean "he proposes to now charge") then they will change based on the funds utilised.   The fund charge suggests again that it is not a SIPP as the OEIC version of the fund (that would be used on a SIPP) is 0.33% OCF.  The insured version of the fund is 1.00% which could show 1.05% when costed over a 12 month period.

Any views on 'advisor' charges and returns welcome.

You are going to get lower returns from a generic point of view as you are reducing investment risk.  Why are you reducing investment risk?  are you planning to draw it all out in 3 years time or will it buy an annuity or go into drawdown?  (the latter means it could be invested for another 30 years. So, reducing risk so much may not be sensible).

I don't think the charge you have mentioned is an adviser charge.  So, views cannot be offered on it.  Or it may be that it is the total charge (platform/provider + adviser + fund).  it is in the ballpark from a total charge.

You are focusing on charges but I would be focusing more on your understanding and reasons for wanting the investments changed.  If you think 2020 is the only year that has been negative then you are mistaken and making investment decisions based on a misunderstanding or lack of understanding is not a good idea.        

What are you invested in at the moment?  it will give us an idea of where you are presenting in terms of risk.    The proposed option is very pretty defensive (i.e. low volatility and low return).  

Albermarle

Well a switch from 70% equities to 16% is quite drastic . At your age something more in between would probably be more appropriate .
Also I am no expert but as far as I know SL funds in general are not great performers, due to a high UK content.

BritishInvestor

It's not entirely clear what you are paying him for. When you say "taking SIPP" I'm assuming you plan to go into drawdown rather than taking an annuity?

[Deleted User]

If 3/4 of your portfolio is in bonds and the combined charges are over 1% then you should expect regular annual losses, particularly if you subtract inflation.  

That might be ok if you already accumulated more than you need. Still paying more than the expected return in portfolio charges would bother me. 

markNEscotland

Thanks Dunstonh, let me take in your reply, and will clarify my situation. It is definitely a Standard Life SIPP.

AnotherJoe

markNEscotland said:

I am 69 and probably 2 or 3 years from taking this SIPP, which is with Standard Life. 2020 was the first year it lost money, my advisor quoting the stock market volatility. He is proposing a switch from 70% equities, to a 16% equities and 74% Gilts/Corporate Bonds, based on my reduced risk profile. (proposed product is Standard Life Myfolio Market 1 Fund)
In doing this he proposes to now charge 1.005%, compared to previous charge of 0.62%. This new charge represents £1900 per year, with presumably no guarantee that the change in investment will provide an increase value to cover his charge, and also give me some positive return rather than a loss.
Any views on 'advisor' charges and returns welcome.

What do you mean by "taking it "? Do you mean going into drawdown or buying an annuity?

if the former I'd stay as you are.  There will be down years so why panic when you've had one, though you are possibly being premature saying 2020 is one unless yiur years aren't calendar ones but say August-August or similar?
If the latter then maybe moving to near cash is the best thing to do and the extra cost over a couple years is neither here nor there. Though you could just go literally into cash in which case there should be no rise in fees. 

markNEscotland

Regarding 'taking it', I refer to buying an annuity. I have taken the tax-free drawdown from the pension some years ago, when needs must, so wary of tax implications as I am still self employed with small income.
No doubt annuities are in their worst ever performing period.
What do you mean by 'moving to near cash'?
I will ask advisor if the new charges are related to the new assets.
The new asset split portfolio appears to now be UK Equities now 11% and Global Corporate Fixed Interest 51%, and a variety of Global Emerging, and Global High Yield.
Current portfolio is International Equities 35%,UK Equities 30%, UK Gilts 24%, plus International property Shares and Money Market.
My priority is to maintain SIPPs current value; i.e. prevent further fall if possible.

NottinghamKnight

Moving out of equities and into bonds is a standard move when looking at capital preservation, but the reduction in income and ultimately value is a consequence of the risk reduction. The difficulty is that the fees then take a larger percentage of your returns and ultimately your pot. Given near zero rates worldwide then as well as low returns any increase in rates, unlikely as it is, would also hit capital values of bonds. It seems as though your advisor is trying to increase returns on the bonds by going for a significant amount of riskier asset classes, as you mention corporate and especially global emerging and high yield, this increases the chances of defaults and losses.

Albermarle

The impression is that the advisor had you in too high equity % for your risk tolerance and you were only 3 years from buying an annuity . Then the value has dipped a bit , caused a mini panic and now you are switched to a very low equity , high bond mix.
It's quite a drastic switch and a more gradual move to reduce equity % from 70% starting a couple of years ago to say maybe 40% today and then less as you get nearer to the end . Not sure the advisor has done a very good job here on the evidence presented .

AnotherJoe

markNEscotland said:

Regarding 'taking it', I refer to buying an annuity. I have taken the tax-free drawdown from the pension some years ago, when needs must, so wary of tax implications as I am still self employed with small income.
No doubt annuities are in their worst ever performing period.
What do you mean by 'moving to near cash'?
I will ask advisor if the new charges are related to the new assets.
The new asset split portfolio appears to now be UK Equities now 11% and Global Corporate Fixed Interest 51%, and a variety of Global Emerging, and Global High Yield.
Current portfolio is International Equities 35%,UK Equities 30%, UK Gilts 24%, plus International property Shares and Money Market.
My priority is to maintain SIPPs current value; i.e. prevent further fall if possible.

Sorry that was meant to be "nearly all" cash . And yes if you will take out an annuity then by all means try to prevent a further fall and do what your adviser suggests though you might want to ask them why not actual cash instead of bonds ?

I'm not convinced bonds wont fall.