Investment advice from IFA

Ella_fella

Due to the poor interest rates over the past few years I recently contacted a well know national IFA to ask about investing some of savings, about 160k. I came out as low to moderate risk ratings after initial consultations.

They suggested I invest the bulk of my money in one of their income based portfolios using the Parmenion platform. After sending me through the fact sheets rhe fund has a cumulative return of nearly 13% over 5 years which didn't sound amazing to me.

I mentioned to the fund manager that if I put my money into an Aldermore 5 year fixed saving at 3.5% gross account after 5 years my cash will have grown by 19%. The fund manager said no that would be 3.5% over the lifetime not year by year. I apologized and said I must have misunderstood.

The following day they phoned back and said I was right - I then queried why I would then invest my money in a scheme that historically has performed lower then a fixed rate where my money wouldn't be at risk at all.

Am very nervous now about proceeding with this company - am I simply asking for too much return on my money for the risk which I'm prepared to take, am I overlooking some key point in investing or is it just not for me?

HappyHarry

What a strange comparison you are making. You are comparing the return on  a lower risk investment made 5 years ago with the returns in cash being offered today.  Surely a more appropriate comparison would be what you might have received if you put your money in a fixed rate savings account five years ago, and compared that to the return on the investment fund over the same period?

Anyway, if the IFA (if they are an IFA and not just an FA - and do feel free to name the company here) does not make you feel comfortable then stop now. 

Either find an IFA you are comfortable with (good idea), or keep cash savings (but beware of inflation) or invest yourself (if you would do the necessary research) but never, ever, commit to advice that you feel uncomfortable with.

Albermarle

Normally it is best to stay away from big financial advice firms and stick with local IFA's

Regarding the 13% return over 5 years. You are right it looks a bit sad. However you did say low to moderate risk, so inevitably returns are modest . It depends on exactly what 5 year time scale is being used. 2017 to 2021 inclusive or June 2017 to June 2022, or the exact 5 years before the date you spoke to the advisor. It can make a difference.


Can you say what your objectives are for this money? For long term /retirement or just to try and keep up with inflation in the medium term? Hopefully the £160K is not your total savings? Do you have a mortgage or pension?

Prism

A few things to consider. Five years ago you likely wouldn't have got a 3.5% 5 year account - if I remember correctly is was more like 2.5% or maybe a bit lower. Also you can sell a low risk fund at any time whereas you often cannot end a fixed term savings account ahead of the term. However the main reason that the numbers look different is that low risk investment funds have had a terrible eight months or so mainly due to rising interest rates. Many are negative over the last five years. A medium/low fund will have done moderately better.

Probably the biggest thing to consider though is the duration of five years. Investments are best approached with at least a ten year horizon.

Ella_fella

Albermarle said:

Normally it is best to stay away from big financial advice firms and stick with local IFA's

Regarding the 13% return over 5 years. You are right it looks a bit sad. However you did say low to moderate risk, so inevitably returns are modest . It depends on exactly what 5 year time scale is being used. 2017 to 2021 inclusive or June 2017 to June 2022, or the exact 5 years before the date you spoke to the advisor. It can make a difference.


Can you say what your objectives are for this money? For long term /retirement or just to try and keep up with inflation in the medium term? Hopefully the £160K is not your total savings? Do you have a mortgage or pension?

The period covered is June 2017 to June 2022. I was advised by the IFA that obviously Covid had a huge impact in the returns as does currently the Ukraine conflict.

I did comment that I was told 5 years was a reflective period so who's to say that similar phenomena won't then occur in the next 5 years when I mentioned as you did how poor the returns look - this is net of about 1.5% platform and service charges which is bringing it down. 

I don't know if this is genuinely the best investment for my money without then propelling myself into a higher risk category. The initial brief was to keep up with inflation medium term.

I have about another 150k in savings beside this plus about 150k in pensions and I own my own property. 

masonic

The top 5 year fix from August 2017, maturing around now, would have been Atom Bank @ 2.5% giving a total return of 13.1%, so it would have equalled the performance of the "income based portfolio". By comparison, low-medium risk Vanguard Lifestrategy 40 would have returned 18%. The rapid rise in interest rates during 2022 has been wounding for lower risk investments, as the bonds they hold have fallen significantly. If you compare the annualised performance of 40% to 100% equities using VLS as the example, you can see how poorly the lower risk investments have performed recently, and even 5 year returns are not much better than half the historical average.

Going forward most of the damage to bonds is done, so the next 5 years are very likely to be better than the last 5 years.

I would have some concerns about your adviser if they weren't able to put the past performance into context for you.

Ella_fella

masonic said:

The top 5 year fix from August 2017, maturing around now, would have been Atom Bank @ 2.5% giving a total return of 13.1%, so it would have equalled the performance of the "income based portfolio". By comparison, low-medium risk Vanguard Lifestrategy 40 would have returned 18%. The rapid rise in interest rates during 2022 has been wounding for lower risk investments, as the bonds they hold have fallen significantly. If you compare the annualised performance of 40% to 100% equities using VLS as the example, you can see how poorly the lower risk investments have performed recently, and even 5 year returns are not much better than half the historical average.

Going forward most of the damage to bonds is done, so the next 5 years are very likely to be better than the last 5 years.

I would have some concerns about your adviser if they weren't able to put the past performance into context for you.

The portfolio they are recommending is built up of 50% equities and 40% fixed interests, the equities are capped at 60%.

masonic

Ella_fella said:

masonic said:

The top 5 year fix from August 2017, maturing around now, would have been Atom Bank @ 2.5% giving a total return of 13.1%, so it would have equalled the performance of the "income based portfolio". By comparison, low-medium risk Vanguard Lifestrategy 40 would have returned 18%. The rapid rise in interest rates during 2022 has been wounding for lower risk investments, as the bonds they hold have fallen significantly. If you compare the annualised performance of 40% to 100% equities using VLS as the example, you can see how poorly the lower risk investments have performed recently, and even 5 year returns are not much better than half the historical average.

Going forward most of the damage to bonds is done, so the next 5 years are very likely to be better than the last 5 years.

I would have some concerns about your adviser if they weren't able to put the past performance into context for you.

The portfolio they are recommending is built up of 50% equities and 40% fixed interests, the equities are capped at 60%.

Probably closest to Vanguard Lifestrategy 60% Equity in that case. So it hasn't done well. Returns are less than half what could have been achieved within that asset allocation, assuming of course the 5 year return figure was up to date. It has probably combined the worst of both worlds - low growth equities and higher risk fixed interest.

Ella_fella

masonic said:

Ella_fella said:

masonic said:

The top 5 year fix from August 2017, maturing around now, would have been Atom Bank @ 2.5% giving a total return of 13.1%, so it would have equalled the performance of the "income based portfolio". By comparison, low-medium risk Vanguard Lifestrategy 40 would have returned 18%. The rapid rise in interest rates during 2022 has been wounding for lower risk investments, as the bonds they hold have fallen significantly. If you compare the annualised performance of 40% to 100% equities using VLS as the example, you can see how poorly the lower risk investments have performed recently, and even 5 year returns are not much better than half the historical average.

Going forward most of the damage to bonds is done, so the next 5 years are very likely to be better than the last 5 years.

I would have some concerns about your adviser if they weren't able to put the past performance into context for you.

The portfolio they are recommending is built up of 50% equities and 40% fixed interests, the equities are capped at 60%.

Probably closest to Vanguard Lifestrategy 60% Equity in that case. So it hasn't done well. Returns are less than half what could have been achieved within that asset allocation, assuming of course the 5 year return figure was up to date.

Yes the range provided was June 2017 to June 2022.

Unsure why they picked that specific portfolio given how low the returns were, surely they can choose from other portfolios that have the same level of risk?

eskbanker

Ella_fella said:

Unsure why they picked that specific portfolio given how low the returns were, surely they can choose from other portfolios that have the same level of risk?

Are you assuming that returns over the previous five years should be used to make (or even support) decisions about future investment choices?

The role of the IFA is to establish your objectives, risk tolerance, etc, and then to find the lowest risk way of achieving those objectives, i.e. suitability rather than seeking the highest returns....

zagfles

masonic said:

Ella_fella said:

masonic said:

The top 5 year fix from August 2017, maturing around now, would have been Atom Bank @ 2.5% giving a total return of 13.1%, so it would have equalled the performance of the "income based portfolio". By comparison, low-medium risk Vanguard Lifestrategy 40 would have returned 18%. The rapid rise in interest rates during 2022 has been wounding for lower risk investments, as the bonds they hold have fallen significantly. If you compare the annualised performance of 40% to 100% equities using VLS as the example, you can see how poorly the lower risk investments have performed recently, and even 5 year returns are not much better than half the historical average.

Going forward most of the damage to bonds is done, so the next 5 years are very likely to be better than the last 5 years.

I would have some concerns about your adviser if they weren't able to put the past performance into context for you.

The portfolio they are recommending is built up of 50% equities and 40% fixed interests, the equities are capped at 60%.

Probably closest to Vanguard Lifestrategy 60% Equity in that case. So it hasn't done well. Returns are less than half what could have been achieved within that asset allocation, assuming of course the 5 year return figure was up to date. It has probably combined the worst of both worlds - low growth equities and higher risk fixed interest.

Yes, VLS60 is up 30% over the last 5 years. Other similar multi asset funds have probably done even better.