Financial Advise draw down pension fees

BritishInvestor

bostonerimus said:

 or active management.

Zero/negative after costs.

lisyloo

bostonerimus said:

BritishInvestor 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.

Anyone whose retirement plan is challenged by sequence of returns risk in the current market doesn't have a robust plan - whether they pay x pa to an adviser or DIY.

A bigger drag for some is that some of their funds are down 20-50% YTD. Financial services fees are a rounding error in comparison.

The bad bit is having to pay the fees when the markets are down. The markets will hopefully recover, but the extra amount paid in fees at the worst possible time will affect your portfolio and income for many years.

But the advice may mean you are not as far down as you could be without advice.

bostonerimus

Linton said:

bostonerimus said:

BritishInvestor 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.

Anyone whose retirement plan is challenged by sequence of returns risk in the current market doesn't have a robust plan - whether they pay x pa to an adviser or DIY.

A bigger drag for some is that some of their funds are down 20-50% YTD. Financial services fees are a rounding error in comparison.

The bad bit is having to pay the fees when the markets are down. The markets will hopefully recover, but the extra amount paid in fees at the worst possible time will affect your portfolio and income for many years.

On the the hand someone with little investing knowledge paying for advice would probably be rather more sensibly invested than to lose 20%-50%  of their assets shortly after starting retirement than if they had chosen their own strategy and investments. And less  likely to cash out the lot in panic.

That might well be true, the IFA will provide value to the inexperienced investor who might have put it all into Bitcoin as an extreme example and hand holding is worth something. But that value is going to vary with the experience and luck of the individual investor. If the investor is convinced that the IFA is providing value then who am I to argue they aren't. As I have a very passive investing style of mostly equity index funds that I leave alone I don't feel the need for an IFA.

Linton

lisyloo said:

zagfles said:

Linton said:

zagfles said:

lisyloo said:

zagfles said:

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.

Workplace pensions aren't always brilliant.
Sometimes you need advice on when to keep and when to transfer.
it's not always that easy to work out on your own (I tried and the advice I was given here was insufficient).

A robo advisor could absolutely be scam - of course it could.

Yes of course people can use these tools effectively or ineffectively.

I just don't agree that everyone can 100% use the appropriate tool at the right time 100% of the time.

Argue against someone who is saying that then.

Someone I know was thinking of using a IFA, I looked them up on the FO site

https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions , and they had a string of upheld complaints against them for stuff like Cape Verde property investments.

So you should  manage your own health and legal needs? Look up medical and solicitor malpractice cases.

She seems to be assuming using an IFA means your safe from scams. And that anything else, you're vunerable to them. That was the point.

There may be some confusion between execution and advice.
if your execution is being done by a firm authorised and regulation by the uks financial conduct authority then you should be safe from scams.

An IFA who is regulation and authorised by the IFA won’t be advising on scams.

pleas advise where the issue is.

And in the very few cases where the IFA does not behave properly compensation is provided.

zagfles

BritishInvestor said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor 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.

Anyone whose retirement plan is challenged by sequence of returns risk in the current market doesn't have a robust plan - whether they pay x pa to an adviser or DIY.

A bigger drag for some is that some of their funds are down 20-50% YTD. Financial services fees are a rounding error in comparison.

Anyone whose fund is down 50% YTD isn't an investor, they're a gambler. May as well include people in the local bookies as "DIY investors" if it helps your point.

Top 10 most-popular investment funds: February 2021

 https://www.ii.co.uk/analysis-commentary/top-10-most-popular-investment-funds-february-2021-ii515290

1	Baillie Gifford American

And? Anyone invested 100% in that fund is a gambler. I doubt many have though, it's not the most popular fund held, it's the most popular fund bought that month. Those who have boring old passives like VLS or HSBC All World tend to hold long term so won't register at all as they're not buying anything that month. Those who switch funds every month to the flavour of the month will make up most of the buy stats, but they're probably a tiny minority. And even they're unlikley to be 100% in a single highly volatile narrow fund.

It was an example of a 50% faller. Many others have fallen 20%+. In the real world, many DIY investors do not have an understanding of risk, diversification nor when someone is selling them a story too good to be true. It's a shame.

Good job there are so many products eg multi-asset funds, workplace pensions, robo pensions which mean they don't have to. Individually tailored advice isn't the only solution. It's probably the most expensive though. 

lisyloo

bostonerimus said:

lisyloo said:

bostonerimus said:

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...

It was albermarle YTD compared to mine.
Why is it fiendishly difficult to compare one portfolio with another? (I'm seriously genuinely interested in that)
2.6% is the difference after the IFA fees.

I don't believe that I personally could do better (I'm not saying someone else couldn't do better).

Are you saying advice is NEVER of value.

What if a professional advises someone to transfer a DB pensions at the right time and the transfer value doubles?
Is that worthwhile advice?

OK so it's YTD. It is easy to compare portfolios, it's difficult to compare them sensibly and tease out the actual value of advice or active management. I'm down 15% this year, but I have a high equity percentage in my invested portfolio, I'm assuming that with a 2.6% gain you do not. So the value your IFA might have provided is in a low risk portfolio matched to your requirements. I can see that as good if you don't feel comfortable DIYing, but I'm less convinced that ongoing fees provide value if the initial strategic set up was good. Has your IFA done anything tactical in the current market?

I am not 2.6% up, I have 2.6% lower losses than the one I’m comparing with.
I’m aggressively invested (rated 7/10 FWIW).

No, I haven’t seen anything “tactical” recently but the asset allocation and geo political/economic situation does get reviewed.

the on-going fees have covered the transfer of 2 employer pensions and retirement planning advice as well as discussion on de-risking some of our investments.
we didn’t de-risk due to a cash windfall but we may well have done otherwise.
we were also provided with free advice on a care fees annuity (that we decided not to take up).
we’ve also had advice on LPAs which we haven’t acted on (but have EPA).

so these aren’t the guys who take the money and do nothing for it.

maybe the people who don’t require ongoing advice have their wills, LPAs, inheritance all sorted? Yeah right.

zagfles

lisyloo said:

zagfles said:

Linton said:

zagfles said:

lisyloo said:

zagfles said:

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.

Workplace pensions aren't always brilliant.
Sometimes you need advice on when to keep and when to transfer.
it's not always that easy to work out on your own (I tried and the advice I was given here was insufficient).

A robo advisor could absolutely be scam - of course it could.

Yes of course people can use these tools effectively or ineffectively.

I just don't agree that everyone can 100% use the appropriate tool at the right time 100% of the time.

Argue against someone who is saying that then.

Someone I know was thinking of using a IFA, I looked them up on the FO site

https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions , and they had a string of upheld complaints against them for stuff like Cape Verde property investments.

So you should  manage your own health and legal needs? Look up medical and solicitor malpractice cases.

She seems to be assuming using an IFA means your safe from scams. And that anything else, you're vunerable to them. That was the point.

There may be some confusion between execution and advice.
if your execution is being done by a firm authorised and regulated by the uks financial conduct authority then you should be safe from scams.

An IFA who is regulated and authorised by the IFA won’t be advising on scams.

please advise where the issue/confusion is.

https://www.aclconsultancy.co.uk/investments/resort-group/

Linton

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor 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.

Anyone whose retirement plan is challenged by sequence of returns risk in the current market doesn't have a robust plan - whether they pay x pa to an adviser or DIY.

A bigger drag for some is that some of their funds are down 20-50% YTD. Financial services fees are a rounding error in comparison.

Anyone whose fund is down 50% YTD isn't an investor, they're a gambler. May as well include people in the local bookies as "DIY investors" if it helps your point.

Top 10 most-popular investment funds: February 2021

 https://www.ii.co.uk/analysis-commentary/top-10-most-popular-investment-funds-february-2021-ii515290

1	Baillie Gifford American

And? Anyone invested 100% in that fund is a gambler. I doubt many have though, it's not the most popular fund held, it's the most popular fund bought that month. Those who have boring old passives like VLS or HSBC All World tend to hold long term so won't register at all as they're not buying anything that month. Those who switch funds every month to the flavour of the month will make up most of the buy stats, but they're probably a tiny minority. And even they're unlikley to be 100% in a single highly volatile narrow fund.

It was an example of a 50% faller. Many others have fallen 20%+. In the real world, many DIY investors do not have an understanding of risk, diversification nor when someone is selling them a story too good to be true. It's a shame.

Good job there are so many products eg multi-asset funds, workplace pensions, robo pensions which mean they don't have to. Individually tailored advice isn't the only solution. It's probably the most expensive though. 

How does the existance of multi-asset funds etc guide you as to the appropriate risk level required to meet your objectives? In the past with workplace pensions a very limited choice of investments ensured that someone could not do something completely foolish.  However it would seem the choice can now be very broad.

The default view of many naive investors and contributors to these threads appears to be high return is good, higher return is better.  This may not be a major problem for the very young building a pension from scratch or those for whom investing is a hobby.  However for those people with serious amounts of money on which they are dependent for their well being for the rest of their lives the situation is very different.

zagfles

Linton said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor said:

zagfles said:

BritishInvestor 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.

Anyone whose retirement plan is challenged by sequence of returns risk in the current market doesn't have a robust plan - whether they pay x pa to an adviser or DIY.

A bigger drag for some is that some of their funds are down 20-50% YTD. Financial services fees are a rounding error in comparison.

Anyone whose fund is down 50% YTD isn't an investor, they're a gambler. May as well include people in the local bookies as "DIY investors" if it helps your point.

Top 10 most-popular investment funds: February 2021

 https://www.ii.co.uk/analysis-commentary/top-10-most-popular-investment-funds-february-2021-ii515290

1	Baillie Gifford American

And? Anyone invested 100% in that fund is a gambler. I doubt many have though, it's not the most popular fund held, it's the most popular fund bought that month. Those who have boring old passives like VLS or HSBC All World tend to hold long term so won't register at all as they're not buying anything that month. Those who switch funds every month to the flavour of the month will make up most of the buy stats, but they're probably a tiny minority. And even they're unlikley to be 100% in a single highly volatile narrow fund.

It was an example of a 50% faller. Many others have fallen 20%+. In the real world, many DIY investors do not have an understanding of risk, diversification nor when someone is selling them a story too good to be true. It's a shame.

Good job there are so many products eg multi-asset funds, workplace pensions, robo pensions which mean they don't have to. Individually tailored advice isn't the only solution. It's probably the most expensive though. 

How does the existance of multi-asset funds etc guide you as to the appropriate risk level required to meet your objectives? In the past with workplace pensions a very limited choice of investments ensured that someone could not do something completely foolish.  However it would seem the choice can now be very broad.

The default view of many naive investors and contributors to these threads appears to be high return is good, higher return is better.  This may not be a major problem for the very young building a pension from scratch or those for whom investing is a hobby.  However for those people with serious amounts of money on which they are dependent for their well being for the rest of their lives the situation is very different.

Indeed - some people seem to think performance over the last 6 months is a good guide

When people have the freedom to invest their own money, some will do stupid things. Some will even go to an IFA and end up with a Cape Verde hotel room share. But there's lots of ways to invest sensibly and safely and lots of products to help you do so. Getting individually tailored advice is not the only solution. It might be if you think your circumstances are unique rather than the same as thousands of others.

Some people cook their own food and get food poisoning because they've not cooked it properly or not kept the kitchen clean. So always eat in a restaurant. They have inspections and standards. You'll never get food poisioning if you eat in a restaurant. Well, you might, but then you might be able to sue them.

Anyway, I'm through. Do what you want, I'm out of here, wasted too much time going round in circles battling strawmen and silly analogies. Remember that vested interests will always want a cut of your pot especially if it's big. 

Have a lovely evening one and all.

BritishInvestor

bostonerimus said:

Linton said:

bostonerimus said:

BritishInvestor 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.

Anyone whose retirement plan is challenged by sequence of returns risk in the current market doesn't have a robust plan - whether they pay x pa to an adviser or DIY.

A bigger drag for some is that some of their funds are down 20-50% YTD. Financial services fees are a rounding error in comparison.

The bad bit is having to pay the fees when the markets are down. The markets will hopefully recover, but the extra amount paid in fees at the worst possible time will affect your portfolio and income for many years.

On the the hand someone with little investing knowledge paying for advice would probably be rather more sensibly invested than to lose 20%-50%  of their assets shortly after starting retirement than if they had chosen their own strategy and investments. And less  likely to cash out the lot in panic.

That might well be true, the IFA will provide value to the inexperienced investor who might have put it all into Bitcoin as an extreme example and hand holding is worth something. But that value is going to vary with the experience and luck of the individual investor. If the investor is convinced that the IFA is providing value then who am I to argue they aren't. As I have a very passive investing style of mostly equity index funds that I leave alone I don't feel the need for an IFA.

"That might well be true, the IFA will provide value to the inexperienced investor"

Personally I think the most value would be added to those that sit upon the "early" Dunning Kruger peak rather than the truly inexperienced.

"As I have a very passive investing style of mostly equity index funds that I leave alone I don't feel the need for an IFA."

There still seems to be a focus on the IFA adding value in the investment space. When it comes to retirement planning, it's way down the list.