Financial Advise draw down pension fees

bostonerimus

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.

I don't know what an IFA adds to your performance once things have been set up and you are just as likely to lose money as make it with a managed fund - the current darling Fundsmith isn't doing very well right now, but that's to be expected given it's composition. I think it's very difficult to quantify the value of an IFA and active fund management one way or the other so I DIY and using passive indexes because I know I can save the fees and that's a known gain that I'm making.

lisyloo

bostonerimus 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.

I don't know what an IFA adds to your performance once things have been set up and you are just as likely to lose money as make it with a managed fund - the current darling Fundsmith isn't doing very well right now, but that's to be expected given it's composition. I think it's very difficult to quantify the value of an IFA and active fund management one way or the other so I DIY and using passive indexes because I know I can save the fees and that's a known gain that I'm making.

Hollistic advice e.g. when to retire, looking at entire financial situation.
Annual reviews
Fund switching i.e. it's doesn't just stay the same.

Well it's only one anecdote I know, but I think it's easy to quantify by directly comparing one with another.

hmm....I don't agree with the last bit.
I could say I'm going to save £12K on solar panels because I can't accurately quantify the gain.
That's not a logical argument.

Of course if you are confident you can do just as well most of the time and life never gets in the way for you and you are willing to keep up with legislative changes then that's great.

A lot of people can't do that including thousands of them who are scammed out of large amounts of money.

Albermarle

lisyloo said:

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.

 

To be more scientific, you would need to look at longer term performance and no doubt our risk tolerance and objectives will not be the same.
As is known from the  many threads on IFA value, it is difficult/almost impossible to prove or disprove, at least from an investment performance angle.

zagfles

Linton said:

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.

So, provide a scheme where there's a sensible but limited range of options and defaults (eg a workplace DC scheme) and people are "unlikely to need or want external advice". If only such a thing existed outside workplace pensions. Oh, wait https://www.fool.co.uk/personal-finance/share-dealing/investing-solutions/

lisyloo

Albermarle said:

lisyloo said:

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.

 

To be more scientific, you would need to look at longer term performance and no doubt our risk tolerance and objectives will not be the same.
As is known from the  many threads on IFA value, it is difficult/almost impossible to prove or disprove, at least from an investment performance angle.

I totally agree - it's very ad-hoc, rough and ready as an example that there CAN be a gain.
I just don't agree with a blanket - "they aren't adding any value whatsoever" because it's "hard to quantify".

I would totally agree with monitoring the return over the longer term to make sure it's value for money (which we have done).

As an aside I have friends who have done DB transfers who have benefitted enormously from having professionals advise them when to transfer (we're talking double bubble).

I'm sure I could find many examples of people who've lost everything through being scammed by sophisticated QROPS scams etc.
I know nothing like that can happen with mine because when I want to do anything it's tax checked, advice checked, AML checked etc.

lisyloo

zagfles said:

Linton said:

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.

So, provide a scheme where there's a sensible but limited range of options and defaults (eg a workplace DC scheme) and people are "unlikely to need or want external advice". If only such a thing existed outside workplace pensions. Oh, wait https://www.fool.co.uk/personal-finance/share-dealing/investing-solutions/

If everyone was looking in the right place and implementing the right advice, there would never be anyone losing their life savings through scams.
Unfortunately it's an imaginary construct of people wanting to win arguments and does not reflect real life (sadly).

zagfles

lisyloo said:

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.

 

Or a DIY investor who was 100% in cash would easily win, they'd be up, at least in nominal terms, as they'd have no capital loss and have earnt some interest Doesn't mean being 100% in cash was a better portfolio!

lisyloo

zagfles said:

lisyloo said:

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.

 

Or a DIY investor who was 100% in cash would easily win, they'd be up, at least in nominal terms, as they'd have no capital loss and have earnt some interest Doesn't mean being 100% in cash was a better portfolio!

I agree, but we'd both agree they would be down (quite a lot) over the long term.
So 3 of us agree on that.
it was just a rough and ready to show it CAN be better an isn't right to assume it's NEVER beneficial.

zagfles

lisyloo said:

zagfles said:

Linton said:

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.

So, provide a scheme where there's a sensible but limited range of options and defaults (eg a workplace DC scheme) and people are "unlikely to need or want external advice". If only such a thing existed outside workplace pensions. Oh, wait https://www.fool.co.uk/personal-finance/share-dealing/investing-solutions/

If everyone was looking in the right place and implementing the right advice, there would never be anyone losing their life savings through scams.
Unfortunately it's an imaginary construct of people wanting to win arguments and does not reflect real life (sadly).

What's an "imaginary construct", workplace pensions or robo advisors? Don't they exist in "real life"? Or are they scams? Sorry, struggling to follow your argument here.

bostonerimus

lisyloo said:

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.

What is your basis of comparison? It's fiendishly difficult to assess the value of advice because you don't have a control for comparison. So what does the "2.6% up" refer to?
Over what time scale and what is your asset allocation? Maybe you should be up more...