Ditching an IFA

Ed_Addis

I have an Embark Pensions SIPP which is looked after by an IFA who have looked after my finances for many years.  Unfortunately, the value of the SIPP has declined by more than 15% over the past six years, and I now want to move the whole fund into cash, and stop paying fees to the IFA.  Are there any potential pitfalls here that I need to consider?  I'm aware that, in theory at least, equities should be a better investment than cash, but if the fund had been in cash six years ago, it would be worth more now, not less!

eskbanker

What has it been invested in that's 15% down over six years, and when do you anticipate drawing it down?

Pat38493

Ed_Addis said:

I have an Embark Pensions SIPP which is looked after by an IFA who have looked after my finances for many years.  Unfortunately, the value of the SIPP has declined by more than 15% over the past six years, and I now want to move the whole fund into cash, and stop paying fees to the IFA.  Are there any potential pitfalls here that I need to consider?  I'm aware that, in theory at least, equities should be a better investment than cash, but if the fund had been in cash six years ago, it would be worth more now, not less!

This would very probably be a bad move putting all your investments into cash, regardless whether your IFA is doing a good job or not.  Investing your money beats keeping it in cash over all historical long term periods.

Have you asked your IFA to explain and asked for their opinion about what you should do?  What was the response?

Are you sure you are comparing like for like periods?  It's quite likely that your pension lost most of that amount in the last 2 years?

What are the exact investments that your pension is invested into within the SIPP wrapper?  If you had significant losses they are probably in the last 2 years and you are probably heavy in bonds but you would need to post the investments to be sure.

When do you actually need to start using the money?  Until you actually need to spend or de-invest the money, any losses are only on paper and will be crystallised if you sell the funds now.

Albermarle

I'm aware that, in theory at least, equities should be a better investment than cash, but if the fund had been in cash six years ago, it would be worth more now, not less!

The suspicion must be that the investment (s) you have are largely NOT in equities, or they would not have performed so badly. In fact a fund high in equities would have seen some nice growth over 6 years. Much higher than cash returns.

Another explanation could be that your investments were in some actively managed funds, where the fund manager tries to pick winners and it did not work.

gm0

Pensions - you save up for over 35 years.  20-55 or longer.  And in that time markets can crash two or three times by 50% or more.  Look at the world equities chart on any provider site.  Bottom left to top right.  Massive swings inbetween.  Big sine wave tilted up on a long term trend upwards

When it happens and you are a regular saver - you are getting half price units or thereabouts. More equity for the cash going in.  And in the end the overall trend line is still up.  The "units" that lost half the value (if sold) recovered again so they didn't lose anything.  And you have twice as many of the cheap ones from buying the dip which have also grown back.  It's scary to see half your pension disappear.  But it's normal.  Ability to look at online has not made it easier to cope with.

KEY TAKEAWAY - VOLATILITY IS GOOD FOR YOU IF YOU ARE A REGULAR SAVER WITH A LONG HORIZON

The person who doesn't like it is the person who is drawing an income now or is about to do so in a year or two.  They need to think about their asset allocation (chosen funds and how much gilts/cash) more carefully so that they don't get forced to "sell" too many units at depressed values in the worst of a short term volatility dip.  Just for essential income

This arithmetic phenomenon is called sequence risk.  The same long term average return (looking back) can arrive as a steady % n n n or a series of + and - of greater magnitude +2n -3n etc. which ultimately average out to the same - n.

Markets do the latter.  If you get - - - + + + and you sell too much of the investments for income during the - years then when the + arrives - it's too late for you.  Other people who own the investment see a gain but you already sold yours. 

By contrast - if you are buying or just holding the investment.
You get the long term average at the end.  And it doesn't matter how it wandered to get there
What you DO NOT DO.  Is panic and run during the dip

How old you are
What you plan to do in the next 5 years dictates what should consider doing

dunstonh

 I'm aware that, in theory at least, equities should be a better investment than cash, but if the fund had been in cash six years ago, it would be worth more now, not less!

It would be interesting to know what you are invested in as equities are not down from 6 years ago.

So, if you are seeing a lower valuation and are only invested in equities, as you suggest, then something is going wrong.  I suspect you are not fully (or even mostly) in equities.     For example, gilts are down massively and could easily put you back 6 years (excluding income they are back to around 1990s pricing) as they had their worst period in over 100 years.

coyrls

Ed_Addis said:

 but if the fund had been in cash six years ago, it would be worth more now, not less!

Unfortunately, you can't go back six years and change your decision and in six years' time, you won't be able to go back and switch to equities if they have done better than cash.

Bostonerimus1

Ed_Addis said:

I have an Embark Pensions SIPP which is looked after by an IFA who have looked after my finances for many years.  Unfortunately, the value of the SIPP has declined by more than 15% over the past six years, and I now want to move the whole fund into cash, and stop paying fees to the IFA.  Are there any potential pitfalls here that I need to consider?  I'm aware that, in theory at least, equities should be a better investment than cash, but if the fund had been in cash six years ago, it would be worth more now, not less!

It pains me to say this but a 15% loss might not be because of poor IFA performance, it might be more to do with market volatility and the investments you and the IFA agreed upon. Your idea of a flight to cash now, thus locking in your 15% loss, does not sound sensible to me, so can you provide more reasoning about how it would fit in with your financial plans? Your final sentence is deeply worrying as it displays the retrospective thinking that can doom future investments. You might not be happy with your current IFA, but the content of your post makes me think you might need one.