Starting out in Investments. Paying an Independent Financial Advisor?

grumble_100

I am due to retire in around 18 months when I should get an annual pension of around 30k and a lump sum of 200k. I have recentley visited an Independednt Financial Advisor who has recommended I take out two products, a Stocks and shares ISA with Aviva and also a Personal Pension Plan with Aviva. The tax benefits of both have been explained to me and recommended that both myself and partner take one of these and pay £100/£200 a month in each. However, I am perplexed by the various fees. I can see, for example, that Aviva charge 0.25% account charge as wll as 1% ongoing fees. In addition the IFA charges us (after the initial consultation), £89 one off set up fee, £54 a year (£4.75 a month) which covers annual reviews etc. They also charge a cut for the producs eg £240 for setting up the Aviva ISA,( £4 a month for 60 months)and then 1.5% of the fund ongoing. There is also a mention of 4% taken from initial investments and 0.25% fund switch fees.

As I am new to this I would probably appreciate the advice but my son (who has been looking into this sort of thing for a while) suggests that I cant go wrong with the likes of Vanguard Life Strategy Funds if I only intend putting in £100/£200 a month for now (which will rise when I get my lump sum ). The IFA has suggested they use active fund managers which is where the extra costs come in as there is a potential for better returns. I appreciate it will need to be my decision but am looking for any views as to whether the extra costs from using an IFA are really worth it. I have read elsewhere that Actively managed funds are not always better that passive funds (sometimes the reverse).Appreciate any views.

OldMusicGuy

The extra costs of an IFA aren't worth it IMO. There is no guarantee that anything they do will be "better" than the type of approach recommended by your son, which is what a lot of us on here do. You can guarantee however that you will pay a lot more in fees to an IFA over all the years you use them compared to a low cost approach. 

But this is a topic that divides us on here, you will get a split of opinions. I found this book helpful btw: DIY Pensions: A Simple Guide to Pensions, SIPPs & Retirement Planning by John Edwards. There are a lot of other resources available once you have taken the first steps in understanding this.

[Deleted User]

What is your supermarket bill? 
From your IFA's recommendations, you would be giving away £100 per week in ongoing fees. 
Dunstonh and Albemarle will be along in a minute to put the case for that.

cloud_dog

The question that needs to be asked, which certain other posters will completely ignore, is.... Why did you feel the need to speak with an IFA?  The answer to that may help posters better understand your own situation/capabilities rather than reflecting their own. 

Xbigman

An obvious question to ask. Why are you taking a lump sum? No lump sum and a bigger pension might suit you better if you plan to invest the 200k lump sum because you don't need it. Given your lack of investing experience you'd probably sleep better at night.

Darren

grumble_100

cloud_dog said:

The question that needs to be asked, which certain other posters will completely ignore, is.... Why did you feel the need to speak with an IFA?  The answer to that may help posters better understand your own situation/capabilities rather than reflecting their own. 

We had a number of IFAs visit us on a pre retirement course. My intention was to see how best to ensure any spare cash is invested wisely, especially the lump sum, and to ensure this is done in a tax efficient manner. I anticipate I will have around 120k left of lump sum after paying off mortgage, new car etc and want to ensure this does not depreciate

Albermarle

cloud_dog said:

The question that needs to be asked, which certain other posters will completely ignore, is.... Why did you feel the need to speak with an IFA?  The answer to that may help posters better understand your own situation/capabilities rather than reflecting their own. 

That is also what was I was going to ask ( sorry to disappoint ZPZ) . The OP seems to have  a very good pension with a secured income that an IFA can have no impact /influence on . So what was the reason for seeing one ? Especially for what seems to be relatively low amounts of money , that normally an IFA would not be interested in anyway . 
Maybe it was what to do with the £200K lump sum  ?

DireEmblem

Xbigman has a good question, but either way I would take the 25% tax free sum needed or not to minimise tax.

If you haven't already, then you can put 50k each into premium bonds, until you decide what to do with the funds.

Giving you are retiring, focus on what you want to do in retirement.  The 200k could be used to buy yourselves a holiday home in the sun, or cover the cost of some rather nice cruises each year - you have earned it after all.

Start by looking at what you would like to do with your extra time, and take things from there.

grumble_100

Xbigman said:

An obvious question to ask. Why are you taking a lump sum? No lump sum and a bigger pension might suit you better if you plan to invest the 200k lump sum because you don't need it. Given your lack of investing experience you'd probably sleep better at night.

Darren

The advice we have generally had is that it is nearly always better to take the lump sum, mainly because it is tax free. With some good investment it could then grow further. If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension. Of the £200k I would probably be left with 120k after a new car, pay off mortgage etc. I would be looking for advice as to where best to put that.

grumble_100

Maybe it was what to do with the £200K lump sum  ?

Yes, mainly that. And also I am in a position at the moment where I do have a few hundred pounds spare each month. My wife has very little pension provision and just wondering what to do with this spare and then the lumper when it comes in 18 months time. Just didnt like teh look of some of the IFA fees and cut of any growth on investments

dunstonh

grumble_100 said:

Xbigman said:

An obvious question to ask. Why are you taking a lump sum? No lump sum and a bigger pension might suit you better if you plan to invest the 200k lump sum because you don't need it. Given your lack of investing experience you'd probably sleep better at night.

Darren

The advice we have generally had is that it is nearly always better to take the lump sum, mainly because it is tax free. With some good investment it could then grow further. If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension. Of the £200k I would probably be left with 120k after a new car, pay off mortgage etc. I would be looking for advice as to where best to put that.

No.  Its not nearly always better to take the lump sum.        If you don't need it you shouldn't take it unless there is justification as you can use it for income payments instead and still have access to the lump sum later on should you later need it.  Phasing it can result in a greater amount of tax free cash over the long term than up front.