What pension planning advice do I need?

gm0

Any advice review process combines the following things some designed to benefit you some designed to keep you in the milking stall and some forced by regulation.

Recommending "suitable" investments so you can't get a payday from complaining (suitable to your situation and pot and risk appetite) per regulation.  This will happen at review ongoing against any change in your situation and based on outcomes if material enough (good or bad) to have changed the situation.  It's not that beneficial but is intrinsic to the model.  On the plus side it does put some fairly broad fence posts around what advisers can recommend or offer to you so there is that.  Your recourse is strictly limited to being put in unsuitable investments for your customer category.  Nothing about performance.  People who knew what they were doing try it on with complaints that they invested over risk appetite and look for a compliance hole to get a performance uplift payday on the failed bet. Customers can be rogues as well as advisers.

Reviewing drawdown income against investment performance and inflation indexing uplifts to income - is it all on track or at risk of depletion or can income go up.  This is a benefit - something you would need to DIY if not done for you.

Tax and regulation watch - government changes the rules - the correct (for you) strategy can change - the adviser watches and interprets these things so you don't have to.  Again a benefit to some to not have to monitor it yourself.

Admin of any rebalancing of investments.  A benefit - something you would have to do.

Admin of next year's income and any BCE (crystallisation) per your plan.  A benefit - something you would have to do.

Review of portfolio as part of annual process - this is partly a sensible thing and partly about customer retention.  Activity as antidote to a few years net fees disappointing performance.  Adviser creates a media consistent narrative about a particular sector or asset class and it's unexpectedly disappointing performance and then come up with some restructuring adjustments. 
Keep the milk cow in the stall so it's the investments that switch and not the adviser relationship. This is generally not that beneficial (for you) but can sometimes be needed due to market changes where funds change focus and are no longer meeting the original brief - c.f  Woodfords move to small pharma private equity from listed shares.  Good advice got people out prior.  The sleepy or the sharks were recommending it right to the end. Benefit of hindsight applies (to a degree).  Handily changing portfolio structure makes comparison over time a bit more challenging so is good for the bamboozle.  Unsurprisingly wealth managers restructure and relabel their portfolios and swap around fund managers every couple of years precisely for this reason.  Activity as a substitute for value

Those are the main things.  For some the regulation watch and admin is worth 0.5% of fund value annually regardless of investment outcomes.  For others they would eat their shoes rather than pay that much over 40 years retirement.  0.5% x 1/2 * 40 * initial value (assuming depletion is the target)

Active hounds say ignore the cost the adviser picks better funds and this can dwarf the cost difference.  The SPIVA surveys say - on average - that's not true.  Active is a zero sum game vs market return.  Some must lose so that others can win. Funds close and survivor bias all impact a holistic view of this.  Can you get on (and off) a fashionable train - sure.  Can you improve the odds by avoiding closet trackers and long term dog funds. Yes.   Does paying more (and 0.5%) for the help with it guarantee it - not at all. 

A few years ago - I did a 5 year back test compare of the "net fees" SJP offer low cost passive FTSE All Share index tracker (Bogle/Lars Kroijer style - hold market cheaply) with Woodford active UK equities in the SJP pension product as the like for like asset class - equities, UK component.   Net fees it was pretty much a wash.  This was post the stellar Woodford era and prior to the downfall so volatile middling performance from the active.   What did I conclude - that I could take more risk (concentration) and hold a more volatile and opaque investment in order to pay SJP but not see a penny more for me.  Your conclusions could vary.   It's hard to get many wealth managers to backtest vs total return indices or passive (at a genuine low holding costs*) as the graphs generally don't sell their product. 

*A "typical fund" with a made up retail holding cost can be used to conveniently move passive performance "down".  Now which cup was the ball under again.

LV_426

OldMusicGuy said:

ajfielden said:

So I'm not actually clear about what these 'ongoing management fees' are all about. What is the advisor doing exactly once the plan is set up? I just want to know what I'm getting for my money that's all.

You will never know. Some may do a lot, others do sweet FA. There have been several threads on here recently from people asking the forum to explain things about their pensions to them to them even though they are paying an IFA! 

The whole business model is against transparent charging and proving value for money. You have to go with them based on trust. It's a simple choice between taking some responsibility yourself or "trusting an expert".

I'm afraid through life experience, I do not have that much trust in people

[Deleted User]

ajfielden said:

Deleted_User said:

ajfielden said:

I notice Vanguard offer a personal financial planning service. Anyone used this? What do you reckon? 

https://www.vanguardinvestor.co.uk/financial-advice

I know they will only offer recommendations based on their products. But I was already thinking about using their Lifestyle plan anyway.

The initial advice, being free, could be helpful. Your key decision is about asset allocation. The best approach is to educate yourself before making it. Second best - to seek advice. Once a good plan is executed, there should be minimal or no human involvement. Should run on an autopilot. 

So I'm not actually clear about what these 'ongoing management fees' are all about. What is the advisor doing exactly once the plan is set up? I just want to know what I'm getting for my money that's all.

Good question.  

Well, new advice may be needed if your circumstances change (eg large inheritance, divorce or moving from accumulation to retirement phases). If you are paying ongoing fees, that should cover advice on changing things up.   But long term its better value to only pay for advice when you need it. 

If you bought into a dodgy high flying fund with poor liquidity, the adviser might give you heads up that there is a problem.  Then again, he can only base it on info that is in any case public and buying such funds is a bad idea in the first place. 

Advisers could put you on a platform which only deals with advisers, then you are forced to use them for ongoing services.  In my book that’s also a bad idea.

They are supposedly doing periodic reviews and some claim that they keep picking funds with the best performance.  Thats just BS.  A good plan needs very little tinkering.

The most useful thing that comes from such ongoing services is hand-holding.  If a person panics, adviser should be able to tell him to do nothing and stay the course.  Is this service worth. the money? For people who panic it may be. 

OldMusicGuy

Deleted_User said:

They are supposedly doing periodic reviews and some claim that they keep picking funds with the best performance.  Thats just BS.  A good plan needs very little tinkering.

This is a really good point. The biggest lesson I learnt is to stop tinkering and fiddling, just identify a plan and stick to it. If the plan is simple and effective, it doesn't need much ongoing servicing! Certainly not .5% worth of my portfolio every year.

dunstonh

Ongoing management? Have you actually gone to their website and looked at what they can provide?
For an 'all in' fee of 0.79% they are providing some kind of ongoing management service. How does that compare to the level of service I would get from say an IFA, like yourself?

For a transactional piece of advice (which it appears you are after) then the ongoing charges could be around 0.33% p.a.(platform and multi-asset fund).    There would be an initial charge though which would depend on the workload.

Vanguard themselves have stated the restrictions.  Although if you have limited values or financial needs then no ongoing service would be necessary irrespective if it was Vanguards restricted service or an IFA service.  If you want all Vanguard funds then use their VLS.    You don't need a Vanguard employee to tell you that using a Vanguard multi-asset fund is right for you.  You don't need an IFA telling you that either if that is what you intend to use.  You would just be paying an extra 0.5% to either type for no reason.

Where ongoing servicing adds most of its value is in tax planning, annual CGT use, bed & ISA, bed & Pension, simpler drawdown management, forward planning and implementation.   If you are not doing that sort of thing then you don't need ongoing servicing from a restricted service that cant do much of that anyway or an IFA ongoing service.

0.79% (including platform charges) is less than an IFA would charge.

No it's not.   Vanguard charge 0.50% for the ongoing advice.  That is the most common ongoing charge for IFAs.  Some charge more for smaller values.    So, certainly, you can pay more but depending on your investment value, it is in the same ballpark.

Fund charges are the same whether it's an IFA or Vanguard (although could be more or less depending on funds chosen.   For example, HSBC and Fidelity have some lower charges on trackers than Vanguard.  Equally, an IFA may prefer to recommend a mix of passive and active that could be more expensive - that would depend on your discussions and preferences - e.g. do you want passive only, hybrid or ESG or other).

Platform charges are typically in the same ballpark.  I have just finished a review case today that was set up back in 2010 with a platform charge of 0.06%, IFA ongoing 0.50% and the portfolio of 10 funds with an OCF of 0.20% (a mixture of active and passive, including a couple of Vanguard funds). Total 0.76%.      
That is probably an unfair comparison as that person got very special platform terms that you wouldn't get. More typically IFA platforms are around 0.10% to 0.25% and based on investment size.

From everything you have said, bar the investment amount, which is unknown, it appears a transactional service is likely to be better if you need advice or DIY if you don't

OldMusicGuy

dunstonh said:

Where ongoing servicing adds most of its value is in tax planning, annual CGT use, bed & ISA, bed & Pension, simpler drawdown management, forward planning and implementation.   If you are not doing that sort of thing then you don't need ongoing servicing from a restricted service that cant do much of that anyway or an IFA ongoing service.

Aha, now we have the truth . The annual IFA fees are not giving you "better performance", they are for things that most people don't need, or that can be done very simply by themselves. At the very least, they could be charged for on an hourly basis.

LV_426

dunstonh said:

0.79% (including platform charges) is less than an IFA would charge.

No it's not.   

Sorry I have to correct you again there. The brochure I have just been sent by an IFA charges £1000 for a fund worth £100,000+ Now my maths is good enough to work out that is 1%
To be fair, I think now he's a bit pricey, and if I were to use an IFA, I'll shop around a bit more.

Melly2912

Having read most of the above or skimmed through to be honest! I feel I should point out that no-one mentioned how important it is to ensure that any advice you seek make sure it is from a regulated financial advisor.  The moneyadviceservice.org.uk and fca.org.uk both have list of regulated advisors and how to find the right one etc. In addition what about Investment Pathways? Just a thought if you are not that investment savvy and don’t want to appoint a financial advisor. PensionWise offers free guidance for DC pensions concerning the options available from age 55 and their website also has plenty of useful information as does the moneyadviceservice website. Thought I would throw this in here for good measure 😊

dunstonh

OldMusicGuy said:

dunstonh said:

Where ongoing servicing adds most of its value is in tax planning, annual CGT use, bed & ISA, bed & Pension, simpler drawdown management, forward planning and implementation.   If you are not doing that sort of thing then you don't need ongoing servicing from a restricted service that cant do much of that anyway or an IFA ongoing service.

Aha, now we have the truth . The annual IFA fees are not giving you "better performance", they are for things that most people don't need, or that can be done very simply by themselves. At the very least, they could be charged for on an hourly basis.

The better performance is just a nice addition.

Sorry I have to correct you again there. The brochure I have just been sent by an IFA charges £1000 for a fund worth £100,000+ Now my maths is good enough to work out that is 1%
To be fair, I think now he's a bit pricey, and if I were to use an IFA, I'll shop around a bit more.

What bit is incorrect?  As I said before, one firm does not equal all firms.  £100,000 is not a lot.  So, I would not be surprised to see 1% used.

gm0

Thanks Melly2912 for bringing up "Pathways". 

The regulator has noticed that at the mass market end of smaller private pension pots - there isn't room for highly regulated and yet sophisticated bespoke advice with a "custom" range of options. It quickly isn't cost effective for either the customer or the advisor.  Small pot = higher % or not viable for work, PI and profit.  Higher % = too expensive to make sense for the customer.  An unaddressed constituency facing drawdown complexity unadvised.  Hence PensionWise, PAS and much else from the FCA MAS etc.

As to pathways - I view it like this - think about buying a suit: a SavilleRow made to measure vs an M&S off the peg jacket.  Pathways is an attempt at an off the peg model.  A few basic choices that will *sort of* fit a lot of people. And a nudge to force offering this first.  With more consistency in comms and less needless product diversity at this end of the market. Ideally it all gets a bit easier to navigate.

That's the intent anyway.  So you can buy your off the shelf "pathway" product with some confidence once you have been through the guidance/options discussion with PensionWise and based on the pack your scheme gave you. That was the intent. Whether the design lives up to it (yet) is however questionable. Anyone dumping on it should really bring forward an alternative which addresses the unmet need or buckle down to help make it better. It's the CSR thing to do.

For the many people that don't need and can't afford Saville Row suits a more standardised basic offer makes a lot of sense. 
Some people who sell bespoke will obviously say it's not as good (as well fitted - and it's not) and therefore it's not good enough but often this critique exists in a vacuum where no alternative solution that works for the unaddressed group is offered.

So what would be better (than pathways) for small scale private pension savers in a world where gilt backed indexed annuities are an endangered species. 

IMHO it would take a *much* bigger structural reform to create a bigger pooled DC approach to reduce sequence and longevity risks falling so directly on the single DC pensioner.  And as a positive externality also remove many advice and fund and investment management snouts from a large trough of pooled money.  That's a 50 year project right there.   So dead on arrival.  Such an idea is between a pipedream and a wild speculation for UK at present. (xref: House of Lords/Westminster Pensions policy briefing papers - (Defined Ambition if interest is piqued).  Netherlands has something somewhat in this direction on DC pooling.  Probably the nearest in the international survey that was done about it analysing the problems that exist with the current UK approach.  Spoiler: the briefing papers acknowledge the near impossibility of getting there starting from here.

Better make Pathways work then.