Could my pension be working harder?

GSP

DT2001 said:

Deleted_User said:

 

IFA isn’t going to suffer if you run out of money. Your family will. Its your responsibility to take care of yours and your family’s financial success. Whether you use IFA for advice or not, you and you alone are making financial decisions. Your IFA is called an advisor rather than a “decision maker” for a reason. 

You can let him do the research and advise if thats your thing but you need to know enough to evaluate his recommendations and the investment “stress” is all yours either way. An IFA has enough to worry about: he is going to be stressed about having enough high value clients to pay his bills.

PS. I also invested in the past into all sorts of things. I think you can do ok by being an active stock picker but its hard, you need to have unusual personality, its time consuming and psychologically challenging. 

IFAs can be good for special one off services, and you still need to know enough to pick a good one. 

These days, the convenience and cost efficiency of all in one funds/etfs is so good and investing with them is so easy that I  can’t see why anyone would use IFAs for bog standard portfolio services. 

An IFA earns more if his client’s portfolios are worth more. His/her business will thrive if getting new business by recommendation. Our interests coincide.

I have set out my requirements to my IFA and he has built a strategy to achieve them. We check our progress regularly and as long as we are still on the right road I’ll let him carry on with little interference. I ask questions from my relatively limited knowledge.
I have not abdicated responsibility for my financial well-being I have just delegated control of part of it to a paid professional.

When you and a few others state how simple it is and then a thread veers off into SWRs, Guyton Klinger, définitions of sector, portfolio rebalancing, bond ladders, EFTs etc etc it implies that  our (not DIY ers) knowledge is severely lacking. 

What is your objective? Mine are to achieve a level of guaranteed income to cover ‘basic’ requirements (which I’ve done with small DB’s and ensuring full SP when it is paid) and then to have the natural income from our investments to fund luxuries whilst preserving capital. I have made my financial decisions at that level not which fund to invest in or what mix of assets.

Really good post. Why wouldn’t an IFA want the best for you if it impacted on his take home pay, and reputation. At this stage however I’d like to add that I prefer things simple, let another do the work. I want to retire, but some appear to treat this like a hobby there’s a mish-mash of capabilities across the spectrum here.

GSP

I would also say that for a number me included who have just started withdrawing their pensions, we’ve been told mainly we might have another 30 or 40 years to get through yet! Whatever new products, ways of investing are going to occur in the next five or ten years perhaps. I’d rather have someone on my side hopefully navigating me through the changing times and accept they would be best placed to make recommendations etc.

OldMusicGuy

GSP said:

Really good post. Why wouldn’t an IFA want the best for you if it impacted on his take home pay, and reputation. At this stage however I’d like to add that I prefer things simple, let another do the work. I want to retire, but some appear to treat this like a hobby there’s a mish-mash of capabilities across the spectrum here.

Because for many of them it is dead easy to set up a simple portfolio and watch the money pour in because of their percentage charging method. Some are great I am sure, many are indifferent, and some are downright fraudulent (I have had experience of this). It's pot luck. And they don't have an inside track on investing, they just have more time to do the reading that gives them a bit more knowledge about the various funds and investment vehicles out there (because it's their job).

Five or six years ago I was like you. I didn't know what SWRs were, I didn't know the difference between active and passive investing and thought IFA/FAs were "experts". I read a fantastic post by jamesd on here about SWRs which started me on my journey to learning about all of this and being confident about making some simple investment choices. I resent paying IFAs a huge amount over the years for something I can do myself. But others don't feel the same way, and that's fair enough.  

[Deleted User]

DT2001 said:

Deleted_User said:

 

IFA isn’t going to suffer if you run out of money. Your family will. Its your responsibility to take care of yours and your family’s financial success. Whether you use IFA for advice or not, you and you alone are making financial decisions. Your IFA is called an advisor rather than a “decision maker” for a reason. 

You can let him do the research and advise if thats your thing but you need to know enough to evaluate his recommendations and the investment “stress” is all yours either way. An IFA has enough to worry about: he is going to be stressed about having enough high value clients to pay his bills.

PS. I also invested in the past into all sorts of things. I think you can do ok by being an active stock picker but its hard, you need to have unusual personality, its time consuming and psychologically challenging. 

IFAs can be good for special one off services, and you still need to know enough to pick a good one. 

These days, the convenience and cost efficiency of all in one funds/etfs is so good and investing with them is so easy that I  can’t see why anyone would use IFAs for bog standard portfolio services. 

An IFA earns more if his client’s portfolios are worth more. His/her business will thrive if getting new business by recommendation. Our interests coincide.

I have set out my requirements to my IFA and he has built a strategy to achieve them. We check our progress regularly and as long as we are still on the right road I’ll let him carry on with little interference. I ask questions from my relatively limited knowledge.
I have not abdicated responsibility for my financial well-being I have just delegated control of part of it to a paid professional.

When you and a few others state how simple it is and then a thread veers off into SWRs, Guyton Klinger, définitions of sector, portfolio rebalancing, bond ladders, EFTs etc etc it implies that  our (not DIY ers) knowledge is severely lacking. 

What is your objective? Mine are to achieve a level of guaranteed income to cover ‘basic’ requirements (which I’ve done with small DB’s and ensuring full SP when it is paid) and then to have the natural income from our investments to fund luxuries whilst preserving capital. I have made my financial decisions at that level not which fund to invest in or what mix of assets.

The maths does not think that yours and your IFA’s interests coincide. Lets say you have a 100k portfolio and the IFA charges 1%. If you underperform the market by 1% a year for the next 30 years with 7% market growth, your portfolio will be short around 225k. More if you are contributing.  And you don’t care about the value of the fund until you start the withdrawals in 30 years (or at least you shouldn’t). 

The IFA’s interests are much more short term. He cares about his bills now and in the next few years.  Need to be paid. He cares about his cash flow. He is very unlikely to even work at the same firm in 30 years. Sure, he will lose 1% of 1% next year if you underperform by 1%.  That’s 10 quid. He will make 1k by sweet talking to an extra client. What would rock his boat 1k or 10 quid? 

And he’ll keep you because someone going to an IFA year in and year out probably hasn’t bothered to learn about time and money weighted returns to understand whats going on. 

Which is why the most successful IFAs are the ones who are great at marketing rather than the ones who are good at maximizing your returns or are good at maths. And its very hard to maximize when the same pot of money is getting charged thousands again and again and again and again.  This misalignment is even worse during the withdrawal phase.  

And one can see the value of an upfront charge to set up the portfolio if the punter is ignorant. The running of it should be straightforward given the investment vehicles we have today.  But its not in IFAs interest to have you off the hook. Your interest is simplicity. But simple does not take a lot of effort. His interest is complexity to impress you better and so you have to use him for the next few years. 

Its not IFAs fault. Just how the system works and how he is incentivised. There will be some IFAs who work differently but incentives are important for an average person. 

Alexland

Deleted_User said:

HSBC FTSE All World is tracking a 4000 stock index with just over3000 stocks.  Wonder if it has any companies from FTSE SmallCap.  Seems to be tracking well so far though.

It's a very good fund and we have been using it for a while in our iWeb accounts and so far it's never had daily movements that have caused us to be concerned. The recent charges reduction to 0.13% is also very welcome.
Sure it doesn't have the full index (some optimal sampling at work) or the small proportion of small caps found in the Vanguard fund but it's cheaper and does the job which is all an investor really needs. Of all our investments this is my favourite.

zagfles

DT2001 said:

Deleted_User said:

 

IFA isn’t going to suffer if you run out of money. Your family will. Its your responsibility to take care of yours and your family’s financial success. Whether you use IFA for advice or not, you and you alone are making financial decisions. Your IFA is called an advisor rather than a “decision maker” for a reason. 

You can let him do the research and advise if thats your thing but you need to know enough to evaluate his recommendations and the investment “stress” is all yours either way. An IFA has enough to worry about: he is going to be stressed about having enough high value clients to pay his bills.

PS. I also invested in the past into all sorts of things. I think you can do ok by being an active stock picker but its hard, you need to have unusual personality, its time consuming and psychologically challenging. 

IFAs can be good for special one off services, and you still need to know enough to pick a good one. 

These days, the convenience and cost efficiency of all in one funds/etfs is so good and investing with them is so easy that I  can’t see why anyone would use IFAs for bog standard portfolio services. 

An IFA earns more if his client’s portfolios are worth more. His/her business will thrive if getting new business by recommendation. Our interests coincide.

I have set out my requirements to my IFA and he has built a strategy to achieve them. We check our progress regularly and as long as we are still on the right road I’ll let him carry on with little interference. I ask questions from my relatively limited knowledge.
I have not abdicated responsibility for my financial well-being I have just delegated control of part of it to a paid professional.

When you and a few others state how simple it is and then a thread veers off into SWRs, Guyton Klinger, définitions of sector, portfolio rebalancing, bond ladders, EFTs etc etc it implies that  our (not DIY ers) knowledge is severely lacking. 

What is your objective? Mine are to achieve a level of guaranteed income to cover ‘basic’ requirements (which I’ve done with small DB’s and ensuring full SP when it is paid) and then to have the natural income from our investments to fund luxuries whilst preserving capital. I have made my financial decisions at that level not which fund to invest in or what mix of assets.

You don't need to understand all the technicalities you mention above, there are loads of simple options for pension investing such as personal pensions, stakeholders, the likes of PensionBee etc, with simple defaults based on a few variables such as intended retirement age, attitude to risk etc. You don't have to use a SIPP, and if you do, you can choose simple options eg the VLS target retirement funds.

These would typically have total charges in the range of 0.5-1%, far lower than typical IFA portfolios we've seen here, most of which seem to have charges around the 2% mark!! Even the simple ones.

For drawdown, "investment pathways" (ready made off the shelf investment solutions) are coming to do similar for people in drawdown, see https://www.fca.org.uk/news/press-releases/fca-proposes-rules-investment-pathways-and-other-measures-improve-retirement-outcomes-consumers

Most people have broadly similar objectives for their retirement planning, if your circumstances or requirements are complicated you may need individually tailored financial advice, and you may have to pay more. But there should be a good reason to pay much more than 1% in charges in total.

cfw1994

OldMusicGuy said:

GSP said:

Really good post. Why wouldn’t an IFA want the best for you if it impacted on his take home pay, and reputation. At this stage however I’d like to add that I prefer things simple, let another do the work. I want to retire, but some appear to treat this like a hobby there’s a mish-mash of capabilities across the spectrum here.

Because for many of them it is dead easy to set up a simple portfolio and watch the money pour in because of their percentage charging method. Some are great I am sure, many are indifferent, and some are downright fraudulent (I have had experience of this). It's pot luck. And they don't have an inside track on investing, they just have more time to do the reading that gives them a bit more knowledge about the various funds and investment vehicles out there (because it's their job).

Five or six years ago I was like you. I didn't know what SWRs were, I didn't know the difference between active and passive investing and thought IFA/FAs were "experts". I read a fantastic post by jamesd on here about SWRs which started me on my journey to learning about all of this and being confident about making some simple investment choices. I resent paying IFAs a huge amount over the years for something I can do myself. But others don't feel the same way, and that's fair enough.  

Totally agree with this.   

It is, of course, purely heresay (or my view!), but I have a few pals who use IFAs just because they are afraid or scared to take time to understand what they are doing.  Heck, I have one pal who is with SJP (St James Place) & perfectly happy - won't read anything bad about them (& there is LOTS!), won't consider there may be a better way, because "their IFA is a nice chap and looks after them"     
Another good friend totally gets the costs he pays, but justifies it with the knowledge that if he pegged it tomorrow, his wife would spend it all on shoes and handbags, and accepts the costs of his financial advisor as a hedge against that - totally reasonable!   (my partner is more fiscally savvy than me - Scottish - so not a problem here;) )

There are far fewer IFAs now than there were a few years back (I recall dunstonh mentioning numbers once).  It is very easy for those left to pick a formula, sound confident and authoritative (they are, remember, in sales, however you dress it up!) & keep enough clients on a line to keep the money coming in nicely.   The fact that True Potential will offer so many of them a deal to pick up their clients as the advisors retire tells you that there is money in those lists!

OF COURSE there will be some good ones in there (we have one or two great ones on here willing to share their knowledge and comments for many), and there ARE people who will benefit from financial advice.....each to their own....
.....but when the IFA's income stream is predicated on keeping £Xm "under management", it is in their interest to make it appear they are doing well and managing things....so a change here, a nice lunch there, all cushty!

The advantage of this forum is that there are people like OMG, dunstonh, jamesd, EdSwippet, zagflies and many others who have shared thoughts & approaches.   This isn't a science, but an art, with a moving canvas & brushes of all sizes........but it feels perfectly feasible for those willing to take time to understand their finances and the broader mechanisms available to them to save money.   
& we are MSE at heart ;-)

SpeedSouth

DT2001 said:

What is your objective? Mine are to achieve a level of guaranteed income to cover ‘basic’ requirements (which I’ve done with small DB’s and ensuring full SP when it is paid) and then to have the natural income from our investments to fund luxuries whilst preserving capital. I have made my financial decisions at that level not which fund to invest in or what mix of assets.

My objective is as you say to ensure that my pension covers my expenses and allows for some luxuries.

I don't have any DB, so all needs to come from the DC pot.
Running figures I should achieve that (although salary and pension contributions have taken a hit due to COVID) so in next 15-20 years anything could happen.

As OMG said I looking to maximise my earnings, and maybe getting too caught up in it all.  But if I'm dropping 30k a year in my pension I just want to make sure I'm getting a half decent return and not chucking money away in fees.

Equally if you could pick a fund that gives you an extra 2% a year why wouldn't you...

Thrugelmir

Deleted_User said:

DT2001 said:

Deleted_User said:

 

IFA isn’t going to suffer if you run out of money. Your family will. Its your responsibility to take care of yours and your family’s financial success. Whether you use IFA for advice or not, you and you alone are making financial decisions. Your IFA is called an advisor rather than a “decision maker” for a reason. 

You can let him do the research and advise if thats your thing but you need to know enough to evaluate his recommendations and the investment “stress” is all yours either way. An IFA has enough to worry about: he is going to be stressed about having enough high value clients to pay his bills.

PS. I also invested in the past into all sorts of things. I think you can do ok by being an active stock picker but its hard, you need to have unusual personality, its time consuming and psychologically challenging. 

IFAs can be good for special one off services, and you still need to know enough to pick a good one. 

These days, the convenience and cost efficiency of all in one funds/etfs is so good and investing with them is so easy that I  can’t see why anyone would use IFAs for bog standard portfolio services. 

An IFA earns more if his client’s portfolios are worth more. His/her business will thrive if getting new business by recommendation. Our interests coincide.

I have set out my requirements to my IFA and he has built a strategy to achieve them. We check our progress regularly and as long as we are still on the right road I’ll let him carry on with little interference. I ask questions from my relatively limited knowledge.
I have not abdicated responsibility for my financial well-being I have just delegated control of part of it to a paid professional.

When you and a few others state how simple it is and then a thread veers off into SWRs, Guyton Klinger, définitions of sector, portfolio rebalancing, bond ladders, EFTs etc etc it implies that  our (not DIY ers) knowledge is severely lacking. 

What is your objective? Mine are to achieve a level of guaranteed income to cover ‘basic’ requirements (which I’ve done with small DB’s and ensuring full SP when it is paid) and then to have the natural income from our investments to fund luxuries whilst preserving capital. I have made my financial decisions at that level not which fund to invest in or what mix of assets.

The IFA’s interests are much more short term. He cares about his bills now and in the next few years.  Need to be paid. He cares about his cash flow. He is very unlikely to even work at the same firm in 30 years. 

An "IFA" can be an organisation not just a person. To expect one individual to the fountain of all investment knowledge is simply unrealistic. Requires a team of individuals to formulate a range of cohesive investment strategies. 

DT2001

The maths does not think that yours and your IFA’s interests coincide. Lets say you have a 100k portfolio and the IFA charges 1%. If you underperform the market by 1% a year for the next 30 years with 7% market growth, your portfolio will be short around 225k. More if you are contributing.  And you don’t care about the value of the fund until you start the withdrawals in 30 years (or at least you shouldn’t). 

The IFA’s interests are much more short term. He cares about his bills now and in the next few years.  Need to be paid. He cares about his cash flow. He is very unlikely to even work at the same firm in 30 years. Sure, he will lose 1% of 1% next year if you underperform by 1%.  That’s 10 quid. He will make 1k by sweet talking to an extra client. What would rock his boat 1k or 10 quid? 

And he’ll keep you because someone going to an IFA year in and year out probably hasn’t bothered to learn about time and money weighted returns to understand whats going on. 

Which is why the most successful IFAs are the ones who are great at marketing rather than the ones who are good at maximizing your returns or are good at maths. And its very hard to maximize when the same pot of money is getting charged thousands again and again and again and again.  This misalignment is even worse during the withdrawal phase.  

And one can see the value of an upfront charge to set up the portfolio if the punter is ignorant. The running of it should be straightforward given the investment vehicles we have today.  But its not in IFAs interest to have you off the hook. Your interest is simplicity. But simple does not take a lot of effort. His interest is complexity to impress you better and so you have to use him for the next few years. 

Its not IFAs fault. Just how the system works and how he is incentivised. There will be some IFAs who work differently but incentives are important for an average person. 

As I said in a previous post I work an extra hour a week to cover the fees because I am aware of the compounding effect of fees. Fortunately only paying 0.5%.

I am with a firm that has been around for quite a few years so hope they have at least a medium term outlook. They are IFA’s not wealth managers or FA’s so some plus points.

Maybe your objective is to maximise your pot mine is to provide a level of income with minimised risk.