When to get an Independent Financial Advisor?

RosieAnn

A little background:

My partner and I are 30. We both are NHS doctors. We pay towards the NHS pension (2015 scheme). We bought a house together last year. I don’t know what the future holds but I would like to try and manage my finances well and make the most out of my savings.

I only started looking into investing last year. I was a bit cautious at first as felt I knew nothing about it. I did some research and finally felt comfortable in opening a Fidelity S&S ISA. I initially invested £1000. I chose 4 funds that I felt were well recognised, diversified in their portfolio and charges not to high (around 0.7-1%). Most are high risk (score 5 or 6). In the first 4 months - my investment portfolio dropped by 25% [thanks COVID] - surprisingly I didn’t panic too much and still persisted. I know invest £300/month and sometimes add lump sums. I had a Cash LISA which I transferred to AJ bell at the end of last year so investing in that too. My fidelity S&S ISA has recovered and now sits at 5% return after 12 months. This is bearing in mind the first 6 months - I only had £1000 in the account and just was testing waters. 

I have a decent amount of savings in easy access accounts whose interests rates have all diminished quite miserably. I have around £30,000 which really doesn’t need to just sit in cash. I bought a house last year so don’t have any planned huge expenses. I need an emergency fund of around £15,000. My financial plan is to use up my ISA allowance this year - I still have £8000 left. 

This is an overview of my savings: 

Fidelity: £8500

AJ bell LISA: £10000

NSI Bonds: £5000

Virgin Cash ISA: £5000

Easy access accounts: around £30,000

I try to save around 25% of my salary which goes towards fidelity S&S, LISA and joint savings with my partner. 

My goals of investing to make the most out of my money! I don’t need access to it for >10 years.... well that’s currently my thinking. 

My question is when do you seek advise from an IFA? 

I don’t have huge investment funds but also at the same time - I don’t really know if the funds I am choosing are sensible or the right decision. I appreciate no one can chose the perfect funds as S&S are unpredictable and past performance does not guarantee future results. I feel the method of drip feeding savings is best suited to me - as makes me panic less instead of investing a lump sum of £20,000. My partner takes little interest in finances so I can’t really ask for his advise. I have opened a S&S ISA and LISA for him also, and he just tells me to do whatever with it. I find investing interesting and quite enjoy reading up about it. I like to read the funds factsheets and look at their portfolio ... sounds so sad. But it is quite a contrast to my day job and something I really have never had any exposure to. 

Should I continue to persist with my investing?  

Or should I get an IFA to look at my portfolio ? 

Sorry for long post 

darkidoe

Hi RosieAnn.
There are quite a few medics into personal finance as well. I am one too. 
I don't think you neccesarily need an IFA unless you have more complex circumstances, needs further pension advice (eg reaching LTA, etc), have large amounts to invest, etc.
The rules of personal finance can be quite simple:
1) Use Tax advantaged accounts to minimise taxes, S&S ISA is a great way, same for SIPPs - which ever one depends on you time horizon.
2) Have an emergency fund
3) Keep investing (Begin with world tracker funds and you will be well diversified enough to begin with and can forget all about it)
Since you already have a house, I would recommend a investing via a SIPP over a S&S LISA. Read this to get an idea why.
If you have more medium to long term goals which will require funds before pension age, S&S ISA would be more appropriate.
Figuring out more concrete goals, eg kids, cars, houses, holidays can help you budget and plan for them easier. It's okay to tweak on the plan as you go along.

Keep reading around and you will learn quickly enough. Monevator has a lot of brilliant articles to start you off. 

JohnWinder

Yes: if it scratches an itch that will be a lot more expensive to scratch in 15 years time. Or if you need decision support during times of financial crises to prevent you doing something silly.

No: you'd be as smart as the average IFA, interested enough to be diligent, and carrying the interests of 2 people unlike an advisor who'd have to deal with the urge to have 3 people's interests at heart. Secondly, expenses detract from returns, big time when they're big investments over a long period - and two doctors over 60 years potentially is about as big and as long as it commonly gets. Thirdly, from the unrepresentative sample we read about here it's common for advisors to choose complex, expensive portfolios; the unkind think it might be to justify their fees since simple, cheap choices are likely to perform better.

Do plenty of reading. There's plenty readily available to the public, unlike trying to be your own doctor, and you'll have the critical appraisal skills to make sense of it and discard the dross.

dunstonh

My question is when do you seek advise from an IFA? 

No different to any other job where you can DIY or use a professional.   

Or should I get an IFA to look at my portfolio ? 

You are not really in IFA territory at the moment.  You are early days in this process and with your current value, minor mistakes are not going to be costly.

As far as investments go, IFAs cost the same as you doing it.  The only additional cost is the adviser fee.   If you are picking in-house/own-label funds issued by the platform, then you are paying more than an adviser would likely cost.   Cheap choices are not likely to perform better or worse. Same with expensive choices.  Some people focus too much on cost and not on the investment itself.  They worry about 0.x% a year whilst not taking interest in x.x% a year potential.     Cost is important but it is a secondary concern behind the investment itself.   

BananaRepublic

You use an IFA if you don’t have the time to look after your portfolio, or your tax situation is complex or if you don’t have the temperament needed.

Regarding temperament, some people panic when investments drop, and withdraw the money, thereby crystallising losses, rather than leaving the funds to recover. You need a more rational approach, which I’m sure you have given your profession. 

Your tax situation does not sound complex. 

Managing a portfolio is not rocket science, and doesn’t take much time. You do though need to learn the basics. There are plenty of decent books. Andy Bell, the founder of YouInvest.co.uk, wrote a good book although it only covers the kind of investments that he sells and ignores property, art etc. It’s still worth reading. Other people might be able to recommend other books. 

There are many platforms that allow you to buy and manage your investments. I use YouInvest.co.uk which has a good fund selection and user interface, but it’s not the cheapest. 

You’ll come across arguments about active and passive funds. The popular choice here is to use global tracker (passive) funds. I prefer a range of active funds, apart from the US where passive funds are the clear choice. You need to think about regional allocations, small, medium and large caps, value, growth and blend funds and so on. It’s worth looking at historical charts for funds going back at least ten years, preferably more, to get a feel for trends. Beware of buying a fund because it has grown huge amounts. It might have had a couple of good years by chance. Look for consistent good performance over ten years or more relative to the index.

Also beware of experts, and be wary of online advice. Do your own research. It has been said that financial experts were created to make fortune tellers look respectable. Financial predictions are as a whole woeful. Almost no-one saw the 2008 crash. The dot com boom was an obvious bubble but people still piled in. No-one foresaw covid 19. 

MaxiRobriguez

Agree with feedback you received so far. Learn the basics, work out your risk tolerance and go from there, minimising your expenses/tax as you go.

You may want to consider time with an IFA when your portfolio reaches six figures, by which point you'll have a better grasp of what you want to achieve and how, and so your time with an IFA will be more lucrative, with the ability to bounce ideas off each other, than it is now when you'll just nod your head and say "sure whatever" to everything.

Albermarle

Compared to many people , your future finances are already secured by virtue of having two NHS pension schemes .
So if you make a mistake investing, then it is much less of an issue than for someone who is having to invest inside and outside their pension . In any case you learn my your mistakes a lot of the time .
I find investing interesting and quite enjoy reading up about it. I like to read the funds factsheets and look at their portfolio ...
This means that you have  less need for an IFA than most . Many first time posters on here would not know a fund factsheet if they fell over one .

Alexland

RosieAnn said:

Fidelity: £8500

AJ bell LISA: £10000

If you tried to engage an IFA on percentage charges they would only be able to charge against the above two S&S accounts (and would probably move them elsewhere) which are not big enough to be economic for them to provide ongoing servicing unless you wanted to pay around 10% pa for advice which would be extreme. It only really works when you have six figure S&S investments big enough that they can make a living by charging around 0.5% to 1% pa for the advice otherwise they would be taking all your return (and some of your capital).

I guess you could try any pay for them on a one-off transactional basis to provide some basic tax advice or select a multi asset fund for you but that doesn't really seem worth it when your affairs are not that complicated.

darkidoe said:

Since you already have a house, I would recommend a investing via a SIPP over a S&S LISA. Read this to get an idea why.

It's really not that simple. After contributing enough into pension(s) to maximise benefits and avoid (or reduce if limited by the annual allowance after considering carry forward etc) higher rates of tax then a LISA can be useful for the remaining income. A LISA provides the same 25% uplift as basic rate relief on a SIPP contribution but does not use any LTA and there is no tax on withdrawal (assuming pension(s) would at least use up the personal allowance in retirement). For high earners a LISA can certainly be a useful part of the mix.

darkidoe

Alexland said:

RosieAnn said:

Fidelity: £8500

AJ bell LISA: £10000

If you tried to engage an IFA on percentage charges they would only be able to charge against the above two S&S accounts (and would probably move them elsewhere) which are not big enough to be economic for them to provide ongoing servicing unless you wanted to pay around 10% pa for advice which would be extreme. It only really works when you have six figure S&S investments big enough that they can make a living by charging around 0.5% to 1% pa for the advice otherwise they would be taking all your return (and some of your capital).

I guess you could try any pay for them on a one-off transactional basis to provide some basic tax advice or select a multi asset fund for you but that doesn't really seem worth it when your affairs are not that complicated.

darkidoe said:

Since you already have a house, I would recommend a investing via a SIPP over a S&S LISA. Read this to get an idea why.

It's really not that simple. After contributing enough into pension(s) to maximise benefits and avoid (or reduce if limited by the annual allowance after considering carry forward etc) higher rates of tax then a LISA can be useful for the remaining income. A LISA provides the same 25% uplift as basic rate relief on a SIPP contribution but does not use any LTA and there is no tax on withdrawal (assuming pension(s) would at least use up the personal allowance in retirement). For high earners a LISA can certainly be a useful part of the mix.

Yeah. As you mentioned, maximise pensions before LISA with an eye on annual allowance and lifetime allowance not to get to additional tax rates according to pension rules. There is also the benefit of higher rate tax relief from pensions. In simple terms I would choose Pensions over LISA at this stage of accumulation because i think it is potentially more tax efficient. 

Scotbot

Am I correct that in the UK IFAs make their money by commission on the investments they sell and that you are therefore limited to the products work with?  

Linton

Scotbot said:

Am I correct that in the UK IFAs make their money by commission on the investments they sell and that you are therefore limited to the products work with?  

You are incorrect.  Since around 2013 commission for investment products has been banned.  IFAs charge directly for giving investment advice and for carrying out subsequent agreed work, if any.  They operate in the whole of the market.

Note that the "I" in IFAs is imporrtant.  IFA is a protected job title and implies that the person concerned is regulated by the FCA.  Other "advisors" are likely to be FAs who can be regarded as salespeople and will be restricted in the products thery can offer.