IFA Advises Pension Move to True Potential : Thoughts Please?

randompenitent

Some good discussion here.  I’m sure a good IFA that you trust can help make sure your retirement is comfortable, that you don’t fall foul of obvious mistakes, and that your objectives are met - to the extent that this is possible.

I, probably like quite a few of the people posting here, have taken the view that I *want* to understand how this all works and Do It Myself, at least to some extent.  

Why? Lots of reasons: Intellectual challenge and curiosity; a certain amount of cynicism regarding the industry which sometimes exhibits behaviours better aligned to its employees than its customers; and a degree of self-interest.  I check my “How close am I to retiring” spreadsheet a little obsessively and have discovered that investment growth over the last couple of years has exceeded my (gross) salary over that time.  To me, that makes it something I absolutely have to understand.  It’s my future just as much as my job is - if not more - and I wouldn’t expect someone else to do my job for me.

Where do you draw the line? I don’t employ an FA or IFA, but I buy funds and investment trusts that employ managers. Others draw the line elsewhere - some people manage their own portfolio of shares and eschew funds, others delegate much more to an advisor. There’s no easy or right answer, I think, but I’m grateful to forums like this from which I learn much for the payment of no more than my time.

GSP

randompenitent said:

Some good discussion here.  I’m sure a good IFA that you trust can help make sure your retirement is comfortable, that you don’t fall foul of obvious mistakes, and that your objectives are met - to the extent that this is possible.

I, probably like quite a few of the people posting here, have taken the view that I *want* to understand how this all works and Do It Myself, at least to some extent.  

Why? Lots of reasons: Intellectual challenge and curiosity; a certain amount of cynicism regarding the industry which sometimes exhibits behaviours better aligned to its employees than its customers; and a degree of self-interest.  I check my “How close am I to retiring” spreadsheet a little obsessively and have discovered that investment growth over the last couple of years has exceeded my (gross) salary over that time.  To me, that makes it something I absolutely have to understand.  It’s my future just as much as my job is - if not more - and I wouldn’t expect someone else to do my job for me.

Where do you draw the line? I don’t employ an FA or IFA, but I buy funds and investment trusts that employ managers. Others draw the line elsewhere - some people manage their own portfolio of shares and eschew funds, others delegate much more to an advisor. There’s no easy or right answer, I think, but I’m grateful to forums like this from which I learn much for the payment of no more than my time.

Some very good points in here. I think there is a ‘no one else is looking out for you’ is out there as well. Yes, you have the IFA, but isn’t it good to be comfortable with his service/advice if possible. Some say why rely or listen to people you read on a forum. Yes its your choice, but like Tripadvisor say that’s where you look at opinions just to form a view. It’s difficult to speak to family or friends in these matters as they usually have less knowledge than you.
Personally, pensions and all that’s around them are going to be a huge learning curve for me. To be confortable more, but also I will still have to make decisions of one sort or another too.

[Deleted User]

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

GSP

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

[Deleted User]

GSP said:

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

Sit pat. 
Because this is the time when you are most vulnerable.
The perfect mark for the financial services industry is someone passive or uninterested with a good CETV figure. I dread to think how many DB transfers ending up in True Potential will be subject to complaints in 2030.

BritishInvestor

GSP said:

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

You have 2 paths:
1. Either you believe retirement is all about investing and great returns and you will spend your whole retirement worrying about what the markets are doing, asking questions on MSE and whether you have enough money. You will find no shortage of people in the industry willing to sell you products with a great track record. You may end up disappointed.

2. You follow a more structured approach, where you first work out what your desired lifestyle is, build a plan to achieve that and finally an investment engine to deliver the returns. The investment engine will be simple, transparent and liquid. it will be evidence-based and realistically pretty boring. You will create yourself an investment policy statement. You will monitor it once per year and spend the rest of the time reading the Daily Mail and moaning about the weather. You will also build a withdrawal policy statement so you know what future withdrawal you will take and from where. You will also monitor this once per year.

Most people tend to go with #1.

GSP

BritishInvestor said:

GSP said:

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

You have 2 paths:
1. Either you believe retirement is all about investing and great returns and you will spend your whole retirement worrying about what the markets are doing, asking questions on MSE and whether you have enough money. You will find no shortage of people in the industry willing to sell you products with a great track record. You may end up disappointed.

2. You follow a more structured approach, where you first work out what your desired lifestyle is, build a plan to achieve that and finally an investment engine to deliver the returns. The investment engine will be simple, transparent and liquid. it will be evidence-based and realistically pretty boring. You will create yourself an investment policy statement. You will monitor it once per year and spend the rest of the time reading the Daily Mail and moaning about the weather. You will also build a withdrawal policy statement so you know what future withdrawal you will take and from where. You will also monitor this once per year.

Most people tend to go with #1.

Like it BI. I suppose 2. can only work for those with a sizeable pot. What happens when that investment engine coughs and splutters and every time you want to go in and withdraw, your fund is down 10%?

Prism

GSP said:

BritishInvestor said:

GSP said:

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

You have 2 paths:
1. Either you believe retirement is all about investing and great returns and you will spend your whole retirement worrying about what the markets are doing, asking questions on MSE and whether you have enough money. You will find no shortage of people in the industry willing to sell you products with a great track record. You may end up disappointed.

2. You follow a more structured approach, where you first work out what your desired lifestyle is, build a plan to achieve that and finally an investment engine to deliver the returns. The investment engine will be simple, transparent and liquid. it will be evidence-based and realistically pretty boring. You will create yourself an investment policy statement. You will monitor it once per year and spend the rest of the time reading the Daily Mail and moaning about the weather. You will also build a withdrawal policy statement so you know what future withdrawal you will take and from where. You will also monitor this once per year.

Most people tend to go with #1.

Like it BI. I suppose 2. can only work for those with a sizeable pot. What happens when that investment engine coughs and splutters and every time you want to go in and withdraw, your fund is down 10%?

It can work with any size pot. The simple model is two funds, one equities, one government bonds or even just a single multi asset split that rebalances for you. You calculate how much to withdraw (e.g 4%) and that is it. Next year increase by inflation and repeat.

BritishInvestor

GSP said:

BritishInvestor said:

GSP said:

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

You have 2 paths:
1. Either you believe retirement is all about investing and great returns and you will spend your whole retirement worrying about what the markets are doing, asking questions on MSE and whether you have enough money. You will find no shortage of people in the industry willing to sell you products with a great track record. You may end up disappointed.

2. You follow a more structured approach, where you first work out what your desired lifestyle is, build a plan to achieve that and finally an investment engine to deliver the returns. The investment engine will be simple, transparent and liquid. it will be evidence-based and realistically pretty boring. You will create yourself an investment policy statement. You will monitor it once per year and spend the rest of the time reading the Daily Mail and moaning about the weather. You will also build a withdrawal policy statement so you know what future withdrawal you will take and from where. You will also monitor this once per year.

Most people tend to go with #1.

Like it BI. I suppose 2. can only work for those with a sizeable pot. What happens when that investment engine coughs and splutters and every time you want to go in and withdraw, your fund is down 10%?

At the outset of the exercise you will need to finalise your various desired parameters, one being success rate. Success rate in this case being the chances (using historical data) of a successful outcome. Assuming a reasonably prudent success rate (80-90%), and given the historical outcomes that caused the 10-20% to fail (usually long drawdowns and inflation) it would be unlikely that a short term blip (10% portfolio fall) would impact the plan. Certainly Covid earlier this year wasn't sufficient for most to need to alter their spending plans (I have a nice graph that shows Covid vs all other historical falls which puts it in context).

Regarding pot size, obviously you can't work magic and have a large withdrawal, over a long retirement, with 100% success rate on a small pot, but this would become very apparent during the initial planning work. 

cfw1994

BritishInvestor said:

GSP said:

ZingPowZing said:

I think readers overestimate the knowledge needed to invest on their own behalf, overestimate how much an adviser will outperform someone sticking a pin in the financial pages, overestimate the power of an adviser to protect you from a downturn and overestimate how much the adviser cares about any of the above because the bottom line is that he is playing with your money.

Okay. So someone has reached retirement age and has x amount in their pot. Has absolutely no knowledge of investing and where to go, no idea of the terminology, no plan at all.
What would you suggest they do in the first instance?

You have 2 paths:
1. Either you believe retirement is all about investing and great returns and you will spend your whole retirement worrying about what the markets are doing, asking questions on MSE and whether you have enough money. You will find no shortage of people in the industry willing to sell you products with a great track record. You may end up disappointed.

2. You follow a more structured approach, where you first work out what your desired lifestyle is, build a plan to achieve that and finally an investment engine to deliver the returns. The investment engine will be simple, transparent and liquid. it will be evidence-based and realistically pretty boring. You will create yourself an investment policy statement. You will monitor it once per year and spend the rest of the time reading the Daily Mail and moaning about the weather. You will also build a withdrawal policy statement so you know what future withdrawal you will take and from where. You will also monitor this once per year.

Most people tend to go with #1.

Can I take an option 3 please?
I can’t abide the Daily Wail & it’s never the wrong weather, only the wrong clothes.....& whilst I am on here FAR too often (it’s a hobby ), I don’t plan on worrying endlessly
We did escape for 2 weeks last month for a lovely break, & I noted how the markets rose nicely.....I feel more holidays might be good for the funds, when the world is a safer place to travel!!

I’m very much with RandomPenitant on this: “ It’s my future just as much as my job is - if not more - and I wouldn’t expect someone else to do my job for me.”.   Invest some time in understanding how things work, where your money is and how funds and drawdowns work: you are the only person on Planet Earth with your best interests 100% at heart, despite how lovely any IFA/FA may appear.
All that said, if your fiscal life is complex or you are unable to do that (I realise many are), then speak with at least 3 IFAs to find one you can genuinely trust, and each year be sure to understand how they have helped you when you speak.