DIY or IFA

RTD2020

I’m in a reasonably good financial situation, partly through luck rather than judgement, don’t currently use a financial adviser, and keeping having a nagging feeling about whether I should.

Mortgage was paid off in 2010, when I was 50, and I then joined the works pension which is with Royal London, and I also have a DC from a previous employer which handily is also with Royal London, both invested in medium risk funds. I also put rather a large amount into shares of the company I worked for, which I now realise was very risky, but fortunately it paid off trebling my money.

My wife retired in 2015, and gets a DB pension, and will start drawing her state pension this month. We have no dependents, and no mortgage, so are happy to use equity in the house for care needs, if required, in the future.

I retired in early 2020 (hence the username), aged 59, got a significant sum from selling the company’s shares which, along with some cash savings, I realised I needed to invest. The advisers from the company scheme recommended putting it all into a Prudential PruFund, but along with their fees I was looking at just over 2% charges per annum, which seemed rather steep, especially for a relatively low risk/low reward investment.

It was around that time that I discovered the Meaningful Money and other financial podcasts during my COVID exercise walks, and also this forum. I also read quite a few books (The 4% rule etc), and being quite numerate thought that I could probably manage my own investments.

I’m not trying to maximise our investment gains as I feel we have more than enough assets to last us through retirement, and am happy with average performance, so index trackers appeal to me, especially given their low fees. I put quite a large amount of the cash into Vanguard global trackers over an 18 month period as I was afraid of a big drop if I put it all in at once, some in my name and some in my wife’s, maximising both of our ISA allowances each year.

I did see another local financial adviser just after I had retired, part of the Quilter group, using their free 1 hour offer. When I mentioned my preference for index funds he was very condescending in ruling them out, and was going to charge an initial 3% with over 1% annual charges. So I ruled them out on the basis of our incompatible investment strategies and their fees.

Outgoings - £55-60k pa

Wife’s DB + SP - £23k pa
My SP in 4 years time - £10k pa
My 2 DCs - £500k

Our ISAs in Vanguard trackers - £270k
My GIA in Vanguard tracker - £100k
Premium Bonds - £100k
1year Fixed saving account  - £85k
Instant access high interest saver - £120k

Each year I move money from my GIA to our ISAs, I draw out an amount equivalent to my personal allowance each year from one of my RL pensions, plus the 25% tax free, and apart from that do nothing else investment-wise. We obviously have quite a lot of cash, but I don’t see the need to invest more, as we can ride out 5-10 years of poor market performance without having to sell assets, and I’m getting 4% return on it.

I’d welcome any thoughts on whether I should have another go at discussing my situation with another financial adviser, and the benefits I would get from it, or just keep up the DIY approach?
Any other thoughts on my investment methodology also most welcome.

Sorry for the long post

gm0

Consumer.  Also early in DIY drawdown

If you and your partner are both able to run the current (or a simplified) version of this regimen.  Then there would appear to be no compelling reason to go and do an IFA deal in order to keep it going.

Your investment preference for market return and index tracking makes it less obvious to go to an IFA and then express this preference at 0.5%pa + initial fee - extra charges to get the same thing (and any other situational advice or admin support). 

If you are open to their recommendations on investment portfolio then maybe that's different.  Your experiences superficially seem to have been from the tied adviser end of the advice gene pool.

My thoughts (skim only).  Buffered. Lots of guaranteed income vs need.  Drawdown up and running.  Income taken in efficient manner.  No LTA issues.  MPAA triggered for you.  There is still a DC pension saving opportunity across the two of you although limited to non-earnings limits if there is no pensionable earnings self-employment element.

If inheritance planning doesn't form part of your thinking then that could either be a reason to visit advice or for some more research.

Starting with your own review based on the following ideas:

Spend pension last vs other pots (IHT exempt at present). 

Gifting out of regular income to family. 

And 7 year gifting rule (PET)) for IHT reduction for one offs if helping younger relatives through the UK property affordability crisis.

Only with a very large estate would anything more complex be really needed with the associated added complexity and costs). 

Depending upon your broader family situation and goals there may be a situation where owning a property outright and these assets sticks your neck out a bit for a sudden outbreak of wealth taxation where prior dispersal to family would have pre-dated the swoop from the treasury if or when it comes.  And your kids would still not reach the bar.  And the rake from you would be reduced.  Google the prior UK government consultation on the practicality of a one off wealth tax sweep. 
But general anti-avoidance can be expected when that bar drops - if it ever does - and what it then includes - pension assets, primary residence etc.  Avoidance of tall poppies across a family group makes it harder for the treasury wonks to get at you without further inflaming the middle class more generally.

RTD2020

gm0 said:

Consumer.  Also early in DIY drawdown

If you and your partner are both able to run the current (or a simplified) version of this regimen.  Then there would appear to be no compelling reason to go and do an IFA deal in order to keep it going.

Your investment preference for market return and index tracking makes it less obvious to go to an IFA and then express this preference at 0.5%pa + initial fee - extra charges to get the same thing (and any other situational advice or admin support). 

If you are open to their recommendations on investment portfolio then maybe that's different.  Your experiences superficially seem to have been from the tied adviser end of the advice gene pool.

My thoughts (skim only).  Buffered. Lots of guaranteed income vs need.  Drawdown up and running.  Income taken in efficient manner.  No LTA issues.  MPAA triggered for you.  There is still a DC pension saving opportunity across the two of you although limited to non-earnings limits if there is no pensionable earnings self-employment element.

If inheritance planning doesn't form part of your thinking then that could either be a reason to visit advice or for some more research.

Starting with your own review based on the following ideas:

Spend pension last vs other pots (IHT exempt at present). 

Gifting out of regular income to family. 

And 7 year gifting rule (PET)) for IHT reduction for one offs if helping younger relatives through the UK property affordability crisis.

Only with a very large estate would anything more complex be really needed with the associated added complexity and costs). 

Depending upon your broader family situation and goals there may be a situation where owning a property outright and these assets sticks your neck out a bit for a sudden outbreak of wealth taxation where prior dispersal to family would have pre-dated the swoop from the treasury if or when it comes.  And your kids would still not reach the bar.  And the rake from you would be reduced.  Google the prior UK government consultation on the practicality of a one off wealth tax sweep. 
But general anti-avoidance can be expected when that bar drops - if it ever does - and what it then includes - pension assets, primary residence etc.  Avoidance of tall poppies across a family group makes it harder for the treasury wonks to get at you without further inflaming the middle class more generally.

Many thanks for your comprehensive and well thought out reply. I can see from your previous posts that you are knowledgeable in this area. Your reply has provided me with some reassurance that I am on the right track.

I am aware that the advisers I saw previously were FAs and not IFAs - I've learnt a lot these past few years - but agree that my investment preference may reduce the benefit of an IFA.

We both have no earned income, I have thought of making the non-earnings limits pensions contributions we are both allowed. I know it won't produce big numbers, but it's probably worth doing.

I did anticipate gifting to family when we are both more into our retirement and our expenditure has reduced, but note your comments about the affordability crisis.

I've read articles about potential wealth taxes, I'll do a bit more research as you suggest. Although I'm sure they would make it as loophole proof as possible!

Thanks again, and I hope you are enjoying your retirement.

Pat38493

RTD2020 said:

I’m in a reasonably good financial situation, partly through luck rather than judgement, don’t currently use a financial adviser, and keeping having a nagging feeling about whether I should.

Mortgage was paid off in 2010, when I was 50, and I then joined the works pension which is with Royal London, and I also have a DC from a previous employer which handily is also with Royal London, both invested in medium risk funds. I also put rather a large amount into shares of the company I worked for, which I now realise was very risky, but fortunately it paid off trebling my money.

My wife retired in 2015, and gets a DB pension, and will start drawing her state pension this month. We have no dependents, and no mortgage, so are happy to use equity in the house for care needs, if required, in the future.

I retired in early 2020 (hence the username), aged 59, got a significant sum from selling the company’s shares which, along with some cash savings, I realised I needed to invest. The advisers from the company scheme recommended putting it all into a Prudential PruFund, but along with their fees I was looking at just over 2% charges per annum, which seemed rather steep, especially for a relatively low risk/low reward investment.

It was around that time that I discovered the Meaningful Money and other financial podcasts during my COVID exercise walks, and also this forum. I also read quite a few books (The 4% rule etc), and being quite numerate thought that I could probably manage my own investments.

I’m not trying to maximise our investment gains as I feel we have more than enough assets to last us through retirement, and am happy with average performance, so index trackers appeal to me, especially given their low fees. I put quite a large amount of the cash into Vanguard global trackers over an 18 month period as I was afraid of a big drop if I put it all in at once, some in my name and some in my wife’s, maximising both of our ISA allowances each year.

I did see another local financial adviser just after I had retired, part of the Quilter group, using their free 1 hour offer. When I mentioned my preference for index funds he was very condescending in ruling them out, and was going to charge an initial 3% with over 1% annual charges. So I ruled them out on the basis of our incompatible investment strategies and their fees.

Outgoings - £55-60k pa

Wife’s DB + SP - £23k pa
My SP in 4 years time - £10k pa
My 2 DCs - £500k

Our ISAs in Vanguard trackers - £270k
My GIA in Vanguard tracker - £100k
Premium Bonds - £100k
1year Fixed saving account  - £85k
Instant access high interest saver - £120k

Each year I move money from my GIA to our ISAs, I draw out an amount equivalent to my personal allowance each year from one of my RL pensions, plus the 25% tax free, and apart from that do nothing else investment-wise. We obviously have quite a lot of cash, but I don’t see the need to invest more, as we can ride out 5-10 years of poor market performance without having to sell assets, and I’m getting 4% return on it.

I’d welcome any thoughts on whether I should have another go at discussing my situation with another financial adviser, and the benefits I would get from it, or just keep up the DIY approach?
Any other thoughts on my investment methodology also most welcome.

Sorry for the long post

No big detail reply here but looking at what you are doing, it seems pretty sensible to me, so if it’s going well and you are happy to manage things yourself, I don’t see any strong need for you to hire an IFA.  I guess one option would be a half way house - you could ask an IFA to do a one off exercise and report on your position and plans, to be comfortable that you haven’t missed anything, but from your post it seems like you are pretty clued up.

JohnWinder

As you’ve read around to get familiar with some important issues like tracker or not, and withdrawal strategies, you’re less likely to benefit from paid advice than many others. But paying someone who’ll stop you doing some reckless selling in a badly down market can be worthwhile, but the worse the market and the more reckless you feel like being the harder it might be to trust someone else’s judgment to sit tight. Perhaps better to plan on dealing with all that yourself.

The, more likely one of the many, other thing you might miss without an advisor is suggesting a plan you’ve never considered like a liability matching portfolio or non-rolling bond ladder. But not many advisors seem to offer those ideas.

‘and am happy with average performance, so index trackers appeal to me, ‘

Average of what? All the research clearly points to you’re likely getting better than the average of all investors’ returns, since active fund investors more commonly get below market returns because of costs, trading expenses, buy/sell spreads etc within their funds. 

RTD2020

JohnWinder said:

As you’ve read around to get familiar with some important issues like tracker or not, and withdrawal strategies, you’re less likely to benefit from paid advice than many others. But paying someone who’ll stop you doing some reckless selling in a badly down market can be worthwhile, but the worse the market and the more reckless you feel like being the harder it might be to trust someone else’s judgment to sit tight. Perhaps better to plan on dealing with all that yourself.

The, more likely one of the many, other thing you might miss without an advisor is suggesting a plan you’ve never considered like a liability matching portfolio or non-rolling bond ladder. But not many advisors seem to offer those ideas.

‘and am happy with average performance, so index trackers appeal to me, ‘

Average of what? All the research clearly points to you’re likely getting better than the average of all investors’ returns, since active fund investors more commonly get below market returns because of costs, trading expenses, buy/sell spreads etc within their funds. 

Thanks for your reply.

One of the things I have learnt is that the main benefits of advisers seem to be in the behavioural areas, stopping you panicking during a large downturn, as well as ensuring you don't spend too much or even too little!
I've kept a large cash buffer to enable us to see through even the most sustained downturn, and fortunately I don't think I am reckless, which is why I believe we would get minimal benefit from using an adviser.

I'd not heard of those two concepts you mentioned, I'll go and educate myself on them.

I am aware that index funds generally outperform active funds, a trend which increases as the investment period increases. I was just being polite about active funds

dunstonh

I am aware that the advisers I saw previously were FAs and not IFAs - I've learnt a lot these past few years - but agree that my investment preference may reduce the benefit of an IFA.

it wouldn't.  IFAs are required to take into account personal preferences of the investor.  Not saying you need an IFA. Just remarking on that particular point.

One of the things I have learnt is that the main benefits of advisers seem to be in the behavioural areas, stopping you panicking during a large downturn, as well as ensuring you don't spend too much or even too little!

Correct.   Handholding, nudging, prompting, reassuring etc

gm0

JohnWinder raises two useful ideas.

Ladders

Holding actual bonds (linkers or fixed interest) to term.  1yr,2yr,3yr,Nyear (or nearest available).  This is a bond ladder or a form of "annuity" in that it is a near guaranteed cashflow (counterparty risk being small for government bonds). In USA they often call it a TIPS ladder.  It locks in any losses up front.  The cashflow is the nominal value of each bond at redemption and the received coupons prior.  As any cost / losses are locked in at the start by the "price" of the bond on purchase the exact behaviour is known.  Ladders can be rolled as cashflow is delivered if this is desired rather than consumption. Or the cash can be otherwise held or invested and the ladder rolled later when bond markets are more co-operative.  The investor rather than the bond fund manager is now in control of the timing.

All subsequent price movements of a bond with interest rates moving or speculation around the interest rate vs duration yield curve which impact the price of bond funds (like in 2022 when yields spiked and bond fund capital values fell in tandem). These are irrelevant as the bond is not sold but redeemed at term.

So this is a *very* different purchase than units in an open ended bond fund or ETF with a given duration and mix of corporates/gilts where holding to term does not happen.  Clearly you are buying single bonds so "who you buy them from" represents a credit risk if you bought Unilever bonds or a "junk bond" from a high risk company then you are taking a different kind of risk to buying a UK government gilt or a US one.

Liability Matching

Web research or I suggest "Rational Expectations" Bernstein.  Good discussion in that book on LMP as a thought process in asset allocation.   Essentially the key point is that people dependent upon portfolio value (Captial depletion) and returns for essential income should consider the equivalent of annuitisation to at least the level of essential income.  Liability matched cashflow.  Obviously you can discount "essential income" already available from other guaranteed income sources (or nearly so guaranteed) - DB, SP etc.).

So as a worked example - one could consider X = Essential Income.  Reduce X by SP and DB available.  (Essential is not the full desirable income but the must have or lifestyle breaksdown value).    That income is the cashflow that the LMP needs to generate.  If you accept the logic of an LMP then a portion of the portfolio that generates that cashflow from capital depletion and returns (via bond ladder or other "near cash" assets) would be present in the overall asset allocation of investible assets.
The rest can be allocated to an investment or growth portfolio.  In as high a risk set of growth assets - equity, property, alts etc. As the investor wishes.

While not a cookie cutter solution it provides a handy and arithmetic rather then subjective mechanism to review a portfolio shape and to determine the level of risk to essential income that the given portfolio represents.

Clearly if there is lots of guaranteed income and DB, SP etc. then the DC portion does not need to work as hard.  Although ironically it is now able to be invested more aggressively if that is desired due to the lower contribution to essential income that it needs to make.

Linton

Bond ladders may well be a good idea. The downside is that one’s ability to trade them may be limited. I have only found 2 platforms, II and HL, that sell both gilts and corporate bonds online and both have a limited range. It appears that II only have about 16 bonds in total including a few fixed gilts, IL and corporate bonds. For anything else telephone dealing is required. AJBell only sell bonds by telephone.  Fidelity sell corporate bonds online but apparently not gilts. I have not found any other platform that supports bonds though I have not made an exhaustive search.

Pat38493

dunstonh said:

it wouldn't.  IFAs are required to take into account personal preferences of the investor.  Not saying you need an IFA. Just remarking on that particular point.

I think the implication is that it should be easier for a DIY amateur investor to learn how to select and manage an index tracker fund approach, so one part of what you might outsource to an IFA, namely the investment strategy, might not be as important.

If your strategy is to buy index funds and hold them for long periods regardless of the market (except some planned rebalancing), I guess you don't really need an IFA for that.

This of course also implies taking on board the knowledge that you should not panic and crystallise your losses by selling up when there is an downturn.

Pat38493

Linton said:

Bond ladders may well be a good idea. The downside is that one’s ability to trade them may be limited. I have only found 2 platforms, II and HL, that sell both gilts and corporate bonds online and both have a limited range. It appears that II only have about 16 bonds in total including a few fixed gilts, IL and corporate bonds. For anything else telephone dealing is required. AJBell only sell bonds by telephone.  Fidelity sell corporate bonds online but apparently not gilts. I have not found any other platform that supports bonds though I have not made an exhaustive search.

I am intrigued by this idea for bridging a 10 year period to DB pension but I would need to research it a bit more and it appears form this and another very helpful recent thread that the choice of providers is very limited there.