Financial Advise draw down pension fees

zagfles

Linton said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to be your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

The average DIY investor would probably be quite happy (probably ecstatic) to only trail the market by 1% pa.

Many think nothing of paying a fund manager 1% per year, so fees don't seem to be that important to some.

But the fund fees are on top! As we've seen here, some people pay over 2% inc advice, fund and platform fees. 2% will be a serious drag on any portfolio. In bostonerimus's method of calculating it, 2/5th of the drawdown, or mine, about 30% of your portfolio. Whichever, massive.

If you believe that paying more to get better performance is worth it, then at least those who pay an active fund manager are paying the right person. It's the fund manager's job it is to outperform the market, not an IFAs.

Of course many will argue that it's impossible to predict which fund manager will do best and that most don't outperform the market anyway, so go passive where you can. But those who believe that you can pay for better performance should be seeking out the best fund managers, not the best IFAs.

The "best" IFAs tend towards boring passives in my experience. 

What do you think the average DIY pot is down this year (inc Crypto)? 25%? That's a serious drag, and as you say, massive.

The sort of people who invest in crypto etc aren't going to consider using an IFA. So a pointless comparison. Boring passives with and without the drag of IFA fees would be a better comparison.

What do you think the average pension holder knows about active or passive, let alone diversification or risk management?  They are far more likely to lose out by over-cautious investing because they dont want to take any risks and failing  to meet their retirement objectives or investing in the best performing funds/shares pushed on social media and lose out when they sell everything in a panic in the middle of the next crash.

Compared to those sorts of losses fees are next to irrelevent.

They don't. And they don't need to, most people with DC pensions use workplace DC schemes or robo pensions like pensionbee etc.

zagfles

lisyloo said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to be your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

The average DIY investor would probably be quite happy (probably ecstatic) to only trail the market by 1% pa.

Many think nothing of paying a fund manager 1% per year, so fees don't seem to be that important to some.

But the fund fees are on top! As we've seen here, some people pay over 2% inc advice, fund and platform fees. 2% will be a serious drag on any portfolio. In bostonerimus's method of calculating it, 2/5th of the drawdown, or mine, about 30% of your portfolio. Whichever, massive.

If you believe that paying more to get better performance is worth it, then at least those who pay an active fund manager are paying the right person. It's the fund manager's job it is to outperform the market, not an IFAs.

Of course many will argue that it's impossible to predict which fund manager will do best and that most don't outperform the market anyway, so go passive where you can. But those who believe that you can pay for better performance should be seeking out the best fund managers, not the best IFAs.

The "best" IFAs tend towards boring passives in my experience. 

What do you think the average DIY pot is down this year (inc Crypto)? 25%? That's a serious drag, and as you say, massive.

The sort of people who invest in crypto etc aren't going to consider using an IFA. So a pointless comparison. Boring passives with and without the drag of IFA fees would be a better comparison.

I’m happy to compare mine (and show graph/evidence).
can you give the YTD gain/loss for the theoretical DIY portfolio?

Go ahead then. It would need comparing with a similar portfolio ie based on similar attitude to risk, retirement date, intention etc, so if you give you details on these could compare with a workplace/robo portfolio/target retirement type fund with similar criteria.

lisyloo

zagfles said:

lisyloo said:

zagfles said:

lisyloo said:

bostonerimus said:

lisyloo said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to lbe your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

But the fee isn’t 20% of the drawdown, it’s 1% of the total pot.
it’s the total pot that’s being managed or advised upon not just the bit that’s being drawn down.

Assuming a 5% of the pot drawdown, 1% fees on the entire pot is 20% of the drawdown. If you go with 4% the fees would take up 25% of your annual income. You'd better have that as a line item in your budget.

Yes of course, but you also need to have as a line item the extra performance your getting which I’d expect to be more than that (otherwise what are you paying for?).

if you are reasonably sure you can make your portfolio perform as well as the advisor (and any other advice you are getting) then I’d totally agree with dropping them.

An IFA's job is not to get you better performance, it's to make sure your investments are appropriate, tax issues are considered, risk level is appropriate etc. It's fund managers' job to get good investment performance, that's what their fee is for.

Agreed (although I think as a result of having investments, good performance should follow compared to a portfolio that "languishes" for example in bought out companies).

And like everything else, if you want it and can't do it yourself (like gas installation, heart surgery, root canal surgery, laser eye surgery) then it's better to pay someone qualified and good rather than try to DIY which could have quite drastic consequences.

If you are extremely capable and have the time and life never gets in the way then there is nothing wrong with DIY, but for the naive or inexperienced it could be a disaster (they could lose everything if they are scammed).

I don't have anything against DIY for those who are capable but many don't have the skills, time, inclination and also have other responsibilities where life gets in way of keeping on top of it to the necessary degree.

The fact that it costs money is not different to a car service, new boiler installation etc. costing money. Obviously one should try to get value for money and not overpay, but just because something costs doesn't mean it's bad value.
Sometimes expensive purchases can be good value or even money saving e.g. solar panel installation.

I expect my money to work for me and by that I don't mean nominal fund performance. The value of an IFA (especially one giving hollistic advice) is that I'm protected from scammers, I'm diversified corrected and I'm protected from IHT etc. etc. etc.

There are a few people who might be able to work out asset allocation, tax efficiency, hollistic financial planning from books, but those who have the capability and the time to do so and keep up with changes e.g. tax legislation are the few not the many.

But you don't need an IFA for 99% of that. Most people with DC pensions hold them in a workplace scheme, how many people in workplace schemes do you think has an IFA? The workplace scheme will usually have a default or a sensible set of defaults based on a few criteria such as attitude to risk, expected retirement age, whether you intend to take an annuity or drawdown -  and the scheme chooses the investments based on that criteria. There's the option of selecting funds yourself, but something like 95% IIRC use one of the defaults.

Robo pensions like PensionBee are similar. Same for drawdown, now that all providers offer "investment pathways", a list of 4 or 5 options depending on what your intentions are.

If your circumstances are unusual or complicated, then you might need an individually tailored plan. But most people have similar objectives and circumstances to thousands of others, so do they really need individually tailored advice, which will come with fees which will put a big drag on performance? You can get a tailor to make you individually tailored clothes, or you can buy them off the shelf at Primark. Same with pensions and investments.

DIY is a silly term to use for people who buy off the shelf products. If you invest directly in shares, bonds, crypto etc then yes. But buying off the shelf investment products/pensions is no more DIY than buying clothes at Primark. I'm not a "DIY" investor. 

Ok, I was using “DIY” for someone not using an IFA.
Can you suggest some figures for someone doing a passive “default” and give a YTD loss?
e.g. whatever default tracker you’d use for someone age 54 (or tell me what it’s called and I’ll look up the YTD).

when I had to use HL for a workplace pension there was no “default” and they charged (quite a lot) for advice.
so it’s not necessary true that there are defaults for small/medium sized companies. 

zagfles

lisyloo said:

zagfles said:

lisyloo said:

zagfles said:

lisyloo said:

bostonerimus said:

lisyloo said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to lbe your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

But the fee isn’t 20% of the drawdown, it’s 1% of the total pot.
it’s the total pot that’s being managed or advised upon not just the bit that’s being drawn down.

Assuming a 5% of the pot drawdown, 1% fees on the entire pot is 20% of the drawdown. If you go with 4% the fees would take up 25% of your annual income. You'd better have that as a line item in your budget.

Yes of course, but you also need to have as a line item the extra performance your getting which I’d expect to be more than that (otherwise what are you paying for?).

if you are reasonably sure you can make your portfolio perform as well as the advisor (and any other advice you are getting) then I’d totally agree with dropping them.

An IFA's job is not to get you better performance, it's to make sure your investments are appropriate, tax issues are considered, risk level is appropriate etc. It's fund managers' job to get good investment performance, that's what their fee is for.

Agreed (although I think as a result of having investments, good performance should follow compared to a portfolio that "languishes" for example in bought out companies).

And like everything else, if you want it and can't do it yourself (like gas installation, heart surgery, root canal surgery, laser eye surgery) then it's better to pay someone qualified and good rather than try to DIY which could have quite drastic consequences.

If you are extremely capable and have the time and life never gets in the way then there is nothing wrong with DIY, but for the naive or inexperienced it could be a disaster (they could lose everything if they are scammed).

I don't have anything against DIY for those who are capable but many don't have the skills, time, inclination and also have other responsibilities where life gets in way of keeping on top of it to the necessary degree.

The fact that it costs money is not different to a car service, new boiler installation etc. costing money. Obviously one should try to get value for money and not overpay, but just because something costs doesn't mean it's bad value.
Sometimes expensive purchases can be good value or even money saving e.g. solar panel installation.

I expect my money to work for me and by that I don't mean nominal fund performance. The value of an IFA (especially one giving hollistic advice) is that I'm protected from scammers, I'm diversified corrected and I'm protected from IHT etc. etc. etc.

There are a few people who might be able to work out asset allocation, tax efficiency, hollistic financial planning from books, but those who have the capability and the time to do so and keep up with changes e.g. tax legislation are the few not the many.

But you don't need an IFA for 99% of that. Most people with DC pensions hold them in a workplace scheme, how many people in workplace schemes do you think has an IFA? The workplace scheme will usually have a default or a sensible set of defaults based on a few criteria such as attitude to risk, expected retirement age, whether you intend to take an annuity or drawdown -  and the scheme chooses the investments based on that criteria. There's the option of selecting funds yourself, but something like 95% IIRC use one of the defaults.

Robo pensions like PensionBee are similar. Same for drawdown, now that all providers offer "investment pathways", a list of 4 or 5 options depending on what your intentions are.

If your circumstances are unusual or complicated, then you might need an individually tailored plan. But most people have similar objectives and circumstances to thousands of others, so do they really need individually tailored advice, which will come with fees which will put a big drag on performance? You can get a tailor to make you individually tailored clothes, or you can buy them off the shelf at Primark. Same with pensions and investments.

DIY is a silly term to use for people who buy off the shelf products. If you invest directly in shares, bonds, crypto etc then yes. But buying off the shelf investment products/pensions is no more DIY than buying clothes at Primark. I'm not a "DIY" investor. 

Ok, I was using “DIY” for someone not using an IFA.
Can you suggest some figures for someone doing a passive “default” and give a YTD loss?
e.g. whatever default tracker you’d use for someone age 54 (or tell me what it’s called and I’ll look up the YTD).

when I had to use HL for a workplace pension there was no “default” and they charged (quite a lot) for advice.
so it’s not necessary true that there are defaults for small/medium sized companies. 

HL do have "master portfolios", but not specifically designed for pensions https://www.hl.co.uk/funds/help-choosing-funds/master-portfolios . They also have the Portfolio+ service although that is quite expensive as they use multi-manager funds (that's pretty similar to paying an IFA to choose funds). Vanguard have "target retirement" <year> funds. Pension Bee are similar to workplace pension with a small range of options based on similar criteria as workplace pensions, although I think they only take transfers rather than new pensions.

Albermarle

I do not have any statistics for performance of default funds, but I would think most would be similar to VLS60/80 for those not near retirement. Even to the point of typically having a high UK weighting. These VLS funds are down approx 10% YTD.

I would think HL are quite small in the workplace pension market, which is dominated by the big insurers (Standard Life, Aegon, Royal London etc) and the newer auto enrolment providers ( NEST, Peoples Pension etc ) where there are default funds/very limited choice. So I think Zagfles is right saying >90% of DC pension holders are in a default fund, or with a choice of a handful of simple funds.

Personally I DIY, and have quite a few different investments ( too many really ) over different pensions and ISA's. Some have been badly affected this year ( bonds, UK small cap ) and some have done well ( WP funds, infrastructure). Overall I am 9.5% down, so maybe would be less effort ( but not as interesting) to just be in a default fund 

lisyloo

zagfles said:

lisyloo said:

zagfles said:

lisyloo said:

zagfles said:

lisyloo said:

bostonerimus said:

lisyloo said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to lbe your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

But the fee isn’t 20% of the drawdown, it’s 1% of the total pot.
it’s the total pot that’s being managed or advised upon not just the bit that’s being drawn down.

Assuming a 5% of the pot drawdown, 1% fees on the entire pot is 20% of the drawdown. If you go with 4% the fees would take up 25% of your annual income. You'd better have that as a line item in your budget.

Yes of course, but you also need to have as a line item the extra performance your getting which I’d expect to be more than that (otherwise what are you paying for?).

if you are reasonably sure you can make your portfolio perform as well as the advisor (and any other advice you are getting) then I’d totally agree with dropping them.

An IFA's job is not to get you better performance, it's to make sure your investments are appropriate, tax issues are considered, risk level is appropriate etc. It's fund managers' job to get good investment performance, that's what their fee is for.

Agreed (although I think as a result of having investments, good performance should follow compared to a portfolio that "languishes" for example in bought out companies).

And like everything else, if you want it and can't do it yourself (like gas installation, heart surgery, root canal surgery, laser eye surgery) then it's better to pay someone qualified and good rather than try to DIY which could have quite drastic consequences.

If you are extremely capable and have the time and life never gets in the way then there is nothing wrong with DIY, but for the naive or inexperienced it could be a disaster (they could lose everything if they are scammed).

I don't have anything against DIY for those who are capable but many don't have the skills, time, inclination and also have other responsibilities where life gets in way of keeping on top of it to the necessary degree.

The fact that it costs money is not different to a car service, new boiler installation etc. costing money. Obviously one should try to get value for money and not overpay, but just because something costs doesn't mean it's bad value.
Sometimes expensive purchases can be good value or even money saving e.g. solar panel installation.

I expect my money to work for me and by that I don't mean nominal fund performance. The value of an IFA (especially one giving hollistic advice) is that I'm protected from scammers, I'm diversified corrected and I'm protected from IHT etc. etc. etc.

There are a few people who might be able to work out asset allocation, tax efficiency, hollistic financial planning from books, but those who have the capability and the time to do so and keep up with changes e.g. tax legislation are the few not the many.

But you don't need an IFA for 99% of that. Most people with DC pensions hold them in a workplace scheme, how many people in workplace schemes do you think has an IFA? The workplace scheme will usually have a default or a sensible set of defaults based on a few criteria such as attitude to risk, expected retirement age, whether you intend to take an annuity or drawdown -  and the scheme chooses the investments based on that criteria. There's the option of selecting funds yourself, but something like 95% IIRC use one of the defaults.

Robo pensions like PensionBee are similar. Same for drawdown, now that all providers offer "investment pathways", a list of 4 or 5 options depending on what your intentions are.

If your circumstances are unusual or complicated, then you might need an individually tailored plan. But most people have similar objectives and circumstances to thousands of others, so do they really need individually tailored advice, which will come with fees which will put a big drag on performance? You can get a tailor to make you individually tailored clothes, or you can buy them off the shelf at Primark. Same with pensions and investments.

DIY is a silly term to use for people who buy off the shelf products. If you invest directly in shares, bonds, crypto etc then yes. But buying off the shelf investment products/pensions is no more DIY than buying clothes at Primark. I'm not a "DIY" investor. 

Ok, I was using “DIY” for someone not using an IFA.
Can you suggest some figures for someone doing a passive “default” and give a YTD loss?
e.g. whatever default tracker you’d use for someone age 54 (or tell me what it’s called and I’ll look up the YTD).

when I had to use HL for a workplace pension there was no “default” and they charged (quite a lot) for advice.
so it’s not necessary true that there are defaults for small/medium sized companies. 

HL do have "master portfolios", but not specifically designed for pensions https://www.hl.co.uk/funds/help-choosing-funds/master-portfolios . They also have the Portfolio+ service although that is quite expensive as they use multi-manager funds (that's pretty similar to paying an IFA to choose funds). Vanguard have "target retirement" <year> funds. Pension Bee are similar to workplace pension with a small range of options based on similar criteria as workplace pensions, although I think they only take transfers rather than new pensions.

I think I did look at one of their portfolios and did that with allocation with my pension (in the funds directly not multi manager), but there was no default to do it for me.

Linton

zagfles said:

Linton said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to be your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

The average DIY investor would probably be quite happy (probably ecstatic) to only trail the market by 1% pa.

Many think nothing of paying a fund manager 1% per year, so fees don't seem to be that important to some.

But the fund fees are on top! As we've seen here, some people pay over 2% inc advice, fund and platform fees. 2% will be a serious drag on any portfolio. In bostonerimus's method of calculating it, 2/5th of the drawdown, or mine, about 30% of your portfolio. Whichever, massive.

If you believe that paying more to get better performance is worth it, then at least those who pay an active fund manager are paying the right person. It's the fund manager's job it is to outperform the market, not an IFAs.

Of course many will argue that it's impossible to predict which fund manager will do best and that most don't outperform the market anyway, so go passive where you can. But those who believe that you can pay for better performance should be seeking out the best fund managers, not the best IFAs.

The "best" IFAs tend towards boring passives in my experience. 

What do you think the average DIY pot is down this year (inc Crypto)? 25%? That's a serious drag, and as you say, massive.

The sort of people who invest in crypto etc aren't going to consider using an IFA. So a pointless comparison. Boring passives with and without the drag of IFA fees would be a better comparison.

What do you think the average pension holder knows about active or passive, let alone diversification or risk management?  They are far more likely to lose out by over-cautious investing because they dont want to take any risks and failing  to meet their retirement objectives or investing in the best performing funds/shares pushed on social media and lose out when they sell everything in a panic in the middle of the next crash.

Compared to those sorts of losses fees are next to irrelevent.

They don't. And they don't need to, most people with DC pensions use workplace DC schemes or robo pensions like pensionbee etc.

Most people whose only investments are employer DC schemes are unlikely to need or want external advice until perhaps they approach retirement.  So they are irrelevent to the discussion.  No-one is suggesting that they would benefit from paying for advice, nor I guess would it be particularly worthwhile for IFAs.

PensionBee has charges and offers a much reduced service compared with that from a paid-for advisor.

lisyloo

Albermarle said:

I Overall I am 9.5% down, so maybe would be less effort ( but not as interesting) to just be in a default fund 

Thanks for confirming.
I’m a tad under 7% down after charges and hollistic advice so happy it’s (IFA) the right thing for me/us at the moment.
I think it’s making us better off not worse off. through better decisions rather than direct nominal performance if you like - but that’s not looking too bad relatively speaking either.

 

bostonerimus

dunstonh said:

bostonerimus said:

lisyloo said:

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to lbe your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

But the fee isn’t 20% of the drawdown, it’s 1% of the total pot.
it’s the total pot that’s being managed or advised upon not just the bit that’s being drawn down.

Assuming a 5% of the pot drawdown, 1% fees on the entire pot is 20% of the drawdown. If you go with 4% the fees would take up 25% of your annual income. You'd better have that as a line item in your budget.

It is a rather bizarre way to look at the costs though.

If the person only had a 1% draw need then that method of relating charges to draw rate would be completely different despite the charges being the same.

The fact is that the charge is related to the fund value.  Not related to the draw rate.

I'm not wedded to any particular way of looking at costs, all I was doing was giving one way to look at things. The important thing is that a retiree understand what they are paying in fees and that they include it in their budget as it is probably going to be one of their largest single expenses ie someone with a 500k pot with 1% IFA/platform/fund fees will be paying 5k/year. As they spend down the portfolio that cost should decrease, but they will then start to bump up against "minimum charges". 

Right now people just retiring into falling markets are having to pay financial services fees are in nasty position as sequence of returns risk is going to be compounded by the drag of the fees.

lisyloo

bostonerimus said:

Right now people just retiring into falling markets are having to pay financial services fees are in nasty position as sequence of returns risk is going to be compounded by the drag of the fees.

yes but as you just saw with real figures mine is reducing my losses.

So as I said before I agree with the charges being a line item 
but lets also have the benefits as a line item

The most recent comparison we've just done shows I'm 2.6% up and that's after charges.
obviously that's one single ad-hoc anecdote, but the point is we need to include both the benefits of the advice/fund management as well as the costs.