SIPP - should I keep paying for ongoing advice?

JohnWinder

The sad reality is that most of us, like you, don’t know enough about investing during accumulation and drawdown (including the necessary taxation issues) to be able to evaluate our financial advisor and DFM to decide on their value to us. And by the time we’ve learnt enough to evaluate them, we can do most of what they do ourselves, so don’t need them except perhaps to help us avoid stupid behavioural mistakes (selling in a panic at the bottom of a crash).

I don’t see any way out of it other than a trustworthy commendation, or educate yourself which is not that hard for anyone with reasonable information literacy skills. May the force by with you.

dunstonh

Platform - £878 (0.22%)
Ongoing adviser charges - £3931 (0.98%)
Discretionary fund manager - £1409 (0.35%)
Investment charges - £474 (0.12%)
Total - £6692 (1.67%)

With your fund value, 0.2x% is fine.  Ongoing adviser charge is high, especially as a DFM is being used (the DFM does a chunk of the adviser's work but you are paying for it).  investment charges are low.   If you could get the adviser to 0.50% to 0.75% then that would be better.    You could also ask the adviser to move to an advisory basis instead of discretionary.  That would cut out the DFM charge.   Although, if it's an FA, they may not be able to do that.  Whereas an IFA should.

The overall charges are not excessive but not the cheapest.  

Joey_Soap

Well there's ~£5500 a year thereabouts money ripe for not being paid.

On a £400000 pot the natural yield should generate £12000 to £16000 per year income without touching the capital. Seriously, does this justify an advisor taking nearly half or a third of that income in fees? It's not even difficult to achieve that kind of yield and not unnecessarily risky.

Any of the major retail investment platforms have ready built income portfolios that you can buy. Free of charge other than the investment platform fee itself.

At Interactive Investor (for example) the SIPP would cost £240 per year total. The other charge is the underlying fee within the chosen investment. You pay that whatever happens unless you just buy single company shares, that I wouldn't recommend doing under these circumstances. A basket of investment trusts or OEICs would be ideal.

Albermarle

At Interactive Investor (for example) the SIPP would cost £240 per year total. The other charge is the underlying fee within the chosen investment. You pay that whatever happens unless you just buy single company shares, that I wouldn't recommend doing under these circumstances. A basket of investment trusts or OEICs would be ideal.

I am pretty sure that the investment/fund  charges are included in the current cost. 

Income producing funds and investment trusts will have charges of up to 1 % . Lets say on average 0.8% all in with the platform charge .

So the OP would still pay about half the current charge . So saving more like £3,500 rather than £5,500 . Still a significant amount of money, although now having to take full responsibility for a £400K pot , which can be stressful for some people.

The way to save even more money would be to go for passive investments as part of a Total Return strategy.

Joey_Soap

Albermarle said:

At Interactive Investor (for example) the SIPP would cost £240 per year total. The other charge is the underlying fee within the chosen investment. You pay that whatever happens unless you just buy single company shares, that I wouldn't recommend doing under these circumstances. A basket of investment trusts or OEICs would be ideal.

I am pretty sure that the investment/fund  charges are included in the current cost. 

Income producing funds and investment trusts will have charges of up to 1 % . Lets say on average 0.8% all in with the platform charge .

So the OP would still pay about half the current charge . So saving more like £3,500 rather than £5,500 . Still a significant amount of money, although now having to take full responsibility for a £400K pot , which can be stressful for some people.

The way to save even more money would be to go for passive investments as part of a Total Return strategy.

I am referring  to -

"Ongoing adviser charges - £3931 (0.98%)
Discretionary fund manager - £1409 (0.35%)"

The underlying fund/trust charges are there but the yield from a fund or trust is after those charges. Not pretending they aren't there, but that's the management of the underlying portfolio you're paying for. If you pay an adviser and a discretionary fund picker as well, that's three layers of management you're paying for. Two of which you don't need and add very little if any value compared to a freely available ready to go portfolio from one of the big platform providers.

What value can an adviser add beyond a simple 3 to 4% natural yield from a basket of well established funds/trusts? Each of which has it's own manager anyway. I see no way an advisor is worth a third to half of the portfolio draw down.

Anyway, this has been done to death here over the years so I'll shut up now.

Albermarle

Joey_Soap said:

Albermarle said:

At Interactive Investor (for example) the SIPP would cost £240 per year total. The other charge is the underlying fee within the chosen investment. You pay that whatever happens unless you just buy single company shares, that I wouldn't recommend doing under these circumstances. A basket of investment trusts or OEICs would be ideal.

I am pretty sure that the investment/fund  charges are included in the current cost. 

Income producing funds and investment trusts will have charges of up to 1 % . Lets say on average 0.8% all in with the platform charge .

So the OP would still pay about half the current charge . So saving more like £3,500 rather than £5,500 . Still a significant amount of money, although now having to take full responsibility for a £400K pot , which can be stressful for some people.

The way to save even more money would be to go for passive investments as part of a Total Return strategy.

I am referring  to -

"Ongoing adviser charges - £3931 (0.98%)
Discretionary fund manager - £1409 (0.35%)"

The underlying fund/trust charges are there but the yield from a fund or trust is after those charges. Not pretending they aren't there, but that's the management of the underlying portfolio you're paying for. If you pay an adviser and a discretionary fund picker as well, that's three layers of management you're paying for. Two of which you don't need and add very little if any value compared to a freely available ready to go portfolio from one of the big platform providers.

What value can an adviser add beyond a simple 3 to 4% natural yield from a basket of well established funds/trusts? Each of which has it's own manager anyway. I see no way an advisor is worth a third to half of the portfolio draw down.

Anyway, this has been done to death here over the years so I'll shut up now.

 The problem is that there seems something not right about the figures given by the OP. ( or supplied to the OP)

The investment charges are quoted as only 0.12%, which is very low. On the other hand the advisor and DFM charges together of 1.33% seem pretty high . I suspect ( maybe wrongly) that some of the investments charges are in the IFA/DFM charges.

Anyway what we do know is that it is 1.67% all in, and a self managed portfolio of income trusts would probably cost about half of that, so the saving would be about half. 

Thrugelmir

What funds is your SIPP invested in? 

BritishInvestor

Joey_Soap said:

On a £400000 pot the natural yield should generate £12000 to £16000 per year income without touching the capital. Seriously, does this justify an advisor taking nearly half or a third of that income in fees? It's not even difficult to achieve that kind of yield and not unnecessarily risky.

Have you stress tested your approach?

https://finalytiq.co.uk/natural-yield-totally-bonkers-retirement-income-strategy/

"Take for instance, our Class 1900 who started their retirement with a natural income of £4,550. By the second year, their inflation adjusted income fell to £3,897 and by the 5th year it was £3,005. But their troubles were only just beginning; by their 20th year in retirement, their real income yield had fallen to £1,024!"

westv

BritishInvestor said:

Joey_Soap said:

On a £400000 pot the natural yield should generate £12000 to £16000 per year income without touching the capital. Seriously, does this justify an advisor taking nearly half or a third of that income in fees? It's not even difficult to achieve that kind of yield and not unnecessarily risky.

Have you stress tested your approach?

https://finalytiq.co.uk/natural-yield-totally-bonkers-retirement-income-strategy/

"Take for instance, our Class 1900 who started their retirement with a natural income of £4,550. By the second year, their inflation adjusted income fell to £3,897 and by the 5th year it was £3,005. But their troubles were only just beginning; by their 20th year in retirement, their real income yield had fallen to £1,024!"

Whilst I appreciate that dividend cash can go down as well as up, I was a bit confused by some of the wording in the article.

"Dividend and bond yields fluctuate significantly over time. This means that a retiree’s income will change significantly from year to year. "

Does he mean the yield or does he mean the dividend in cash terms? Obviously the yield % will fluctuate with she share price but that doesn't automatically mean the actual dividend per share will.

"Even if yield appear stable in percentage terms, the income received in £ terms will still be calculated in relation to the outstanding capital, which invariably fluctuates over the retirement period."

I didn't understand that point. The income comes from dividends. The more shares the more dividend income you get. What does he mean by "outstanding capital"?

MissBojangles

Thrugelmir said:

What funds is your SIPP invested in? 

Aegon Retirement Choices