Finding an IFA

Linton

kjs31 said:

Bostonerimus1 said:

Your first job should be to educate yourself about retirement planning, do a budget to define your spending and income needs and look at “safe withdrawal” amounts from things like SIPPs and DC pensions. You”ll see amounts like inflation linked 3% or 4% of your pension pot. That’s pretty risk averse and is set to make the chances of you running out of money very low and in most circumstances you’ll die with a healthy balance for your heirs to inherit. An IFA can provide an appropriate portfolio and withdrawal strategy, but they might charge 1% of your portfolio or more so in the early years you might be spending 25% of your annual budget on financial fees. The alternative is to DIY. This takes knowledge and some common sense to apply basic investment and budgeting rules. I save IFA fees by DIYing substantial DC pots and like you have a DB pension which reduces the pressure. You are thinking ahead and have some time so do some reading to understand the issues and maybe interview a few IFSs when you are ready.

My aim is to withdraw the maximum to be a basic rate tax payer as I think that should cover what I need. I have no mortgage or loans plus I have a reasonable chunk of savings so I can just use those if I need more money one year. Hence I’m thinking of withdrawing the whole lot at the end of the tax year when I know what other interest I will have earned etc. Or possibly withdraw circa 1k a month and then a lump sum right at the end. Haven’t thought too much about a withdrawal strategy yet as I’ve got another year to decide. 

I know that if I withdraw 3% of my pot (circa 39k currently), then with with savings interest at the current levels and my DB pension I will probably be a little bit over paying basic rate tax so ordinarily I probably won’t need to withdraw as much as 3%. Once I get the state pension in just under 8 years I will need to withdraw even less, although I may have used some savings at that point so it might even itself out. 

I’m not that bothered about an IFA doing additional stuff as I have a reasonable handle on my tax position, shares, ISAs etc and as I’ll be retired I should have plenty of time to spend some time on it. I do know that I need to move my SIPP and workplace pension to a different platform as the current SIPP platform is hopeless and doesn’t allow me to do anything online, and my workplace pension (with WTW) doesn’t allow drawdown so I have to transfer it from where it is anyway. So I need to choose an appropriate platform, and more importantly decide where to invest. That’s my main consideration. Everyone I speak to (other than people who have used the same IFA) seems to invest in different completely funds so looks like there are a ton of options out there. 

The major problem with planning retirement investments is not the particular choice of funds.  The important work is to determine the overall strategy given your requirements, and therefore what mixture of underlying investments are most appropriate.  In my view pretty much any reasonable choice of funds that provide this will work fine, it does not matter a lot which are chosen.

wjr4

kjs31 said:

Seems a lot for someone to tell me that my funds are invested in the appropriate fund and to stay put does it not? 

That’s not the only thing that advisers do. Look for a financial PLANNER not adviser. One that can use a cashflow model for your future and doesn’t concentrate the entire meeting around performance and funds. 

Ibrahim5

£890k? The IFAs are drooling. How can we get him to pay us thousands of pounds, year after year for doing virtually nothing. Er I mean planning. Just a few mugs, I mean good customers like this and I have a good 'business'. Then I can throw all the customers under the bus, I mean sell my 'business' for a small fortune and retire myself.

LHW99

Ibrahim5 said:

£890k? The IFAs are drooling. How can we get him to pay us thousands of pounds, year after year for doing virtually nothing. Er I mean planning. Just a few mugs, I mean good customers like this and I have a good 'business'. Then I can throw all the customers under the bus, I mean sell my 'business' for a small fortune and retire myself.

Somewhat cynical IMO Ibrahim5.

For someone who has never tried to look after their own pension before, to suddenly think about having to manage a pot that is approaching £1m could well be daunting. I took over the running of our family's pots some 15 years ago, and that was notmuch more than £120k,and it was daunting enough even though I had been managing ISA's (PEP) and GIA investments for a good 30 years before that.

It's daunting because even if you don't want to lose money in an S&S ISA when the markets have a wobbly, it's not quite the same as seeing your future (maybe only) source of income when old and frail doing the same. It takes nerve, and you don't know how you'll cope until you've had a Russian financial crisis (1998), a GFC etc.

The OP could get an IFA to set up something on a site that he can monitor, and let it run for a few years with IFA support, and use the time to learn about what he is invested in / how it reacts to events / how he feels about those reactions.

He will then be in a good position to make the decision as to how much value he receives for the fees, versus how much effort he wishes personally to put in. There is always the half-way house in future of turning off annual servicing, and having a paid for consultation every few years as desired / necessary.

As long as the advisor is an IFA, he should have an acceptable outcome. The main thing seems to be to find someone who you can get on with and talk to confidently initially. Trust builds over time.

kjs31

LHW99 said:

It's daunting because even if you don't want to lose money in an S&S ISA when the markets have a wobbly, it's not quite the same as seeing your future (maybe only) source of income when old and frail doing the same. It takes nerve, and you don't know how you'll cope until you've had a Russian financial crisis (1998), a GFC etc.

I think that’s true to a point but having been through the process with an FA twice (different advisors) I didn’t feel like I was getting something that I couldn’t have come up with myself. My risk level has come out as moderate both times and as I have a reasonably large pot of 1.3M and only expect to withdraw circa 3% of that PA I doubt that I’ll need to worry about growing the pension significantly in the longer term. The second FA was much more thorough and went through modelling my income, expected fund growth and was able to demonstrate that with fairly conservative growth I wouldn’t run out of money until I was well over 100, and even if I drew down another 20k per year, every year, I would be in my 80s before the pot was gone. 

That said, even if supposed low risk funds are chosen there is no guarantee that the value won’t reduce significantly. For example my workplace pension has 3 lifestyling options that most people choose to accept by default. The most popular one is for people who want to access flexible drawdown, or have a mix of flexible drawdown alongside an annuity and possibly some cash. It invests in global equities initially but starts to switch into a fund containing mostly a mix of equities and bonds 30 years from retirement. 20 years from retirement it has completely switched into the mixed fund and then 10 years out it starts to switch into annuity bonds too. Given that most people won’t be buying an annuity these days and there is a separate lifestyling option for those who do, it surely seems inappropriate to buy into annuity bonds for the vast majority? Then in 2022 when bonds imploded those close to retirement lost a significant chunk of their pot value. The ‘stellar’ advice from the trustees was to wait longer before accessing their pot which meant delaying retirement for many. I had opted out of lifestyling and managed to make a profit that year just by choosing equities over bonds. My SIPP was invested in a mix of equities and bonds so I did make a loss there, but it’s recovered now. I think that proves that these generic lifestyling approaches are too conservative for many, and bale out of equities far too quickly. That might have been the right approach when buying an annuity was the only option, but surely for flexible drawdown you need to remain in equities for longer? 

Albermarle

I think that proves that these generic lifestyling approaches are too conservative for many, and bale out of equities far too quickly. That might have been the right approach when buying an annuity was the only option, but surely for flexible drawdown you need to remain in equities for longer? 

You are probably right, although the extent will vary from provider to provider.

However you have to see the other side of the coin. If the fund at retirement was 60% equities and markets crashed .

Cue disgruntled clients saying why were the funds so risky etc.

wjr4

Ibrahim5 said:

£890k? The IFAs are drooling. How can we get him to pay us thousands of pounds, year after year for doing virtually nothing. Er I mean planning. Just a few mugs, I mean good customers like this and I have a good 'business'. Then I can throw all the customers under the bus, I mean sell my 'business' for a small fortune and retire myself.

Sounds like a regular poster who was banned a while ago. Welcome back. 

Bostonerimus1

kjs31 said:

LHW99 said:

It's daunting because even if you don't want to lose money in an S&S ISA when the markets have a wobbly, it's not quite the same as seeing your future (maybe only) source of income when old and frail doing the same. It takes nerve, and you don't know how you'll cope until you've had a Russian financial crisis (1998), a GFC etc.

I think that’s true to a point but having been through the process with an FA twice (different advisors) I didn’t feel like I was getting something that I couldn’t have come up with myself. My risk level has come out as moderate both times and as I have a reasonably large pot of 1.3M and only expect to withdraw circa 3% of that PA I doubt that I’ll need to worry about growing the pension significantly in the longer term. The second FA was much more thorough and went through modelling my income, expected fund growth and was able to demonstrate that with fairly conservative growth I wouldn’t run out of money until I was well over 100, and even if I drew down another 20k per year, every year, I would be in my 80s before the pot was gone. 

That said, even if supposed low risk funds are chosen there is no guarantee that the value won’t reduce significantly. For example my workplace pension has 3 lifestyling options that most people choose to accept by default. The most popular one is for people who want to access flexible drawdown, or have a mix of flexible drawdown alongside an annuity and possibly some cash. It invests in global equities initially but starts to switch into a fund containing mostly a mix of equities and bonds 30 years from retirement. 20 years from retirement it has completely switched into the mixed fund and then 10 years out it starts to switch into annuity bonds too. Given that most people won’t be buying an annuity these days and there is a separate lifestyling option for those who do, it surely seems inappropriate to buy into annuity bonds for the vast majority? Then in 2022 when bonds imploded those close to retirement lost a significant chunk of their pot value. The ‘stellar’ advice from the trustees was to wait longer before accessing their pot which meant delaying retirement for many. I had opted out of lifestyling and managed to make a profit that year just by choosing equities over bonds. My SIPP was invested in a mix of equities and bonds so I did make a loss there, but it’s recovered now. I think that proves that these generic lifestyling approaches are too conservative for many, and bale out of equities far too quickly. That might have been the right approach when buying an annuity was the only option, but surely for flexible drawdown you need to remain in equities for longer? 

It sounds like you know enough and have the common sense to DIY. One thing I'd like to point out from your post is that annuities can be useful in some circumstances as longevity insurance and to ease the process of income generation. I would not over use them, but they can provide a safe level of "foundation income" to cover the basics. Your mix of investments and pensions is similar to mine and I also have a pot that can easily cover my living expenses and so I am ok with risk and have most of my money in simple inexpensive equity index funds. I've been retired for 10 years, have never used an IFA or FA and my pension and GIA accounts have grown on average by just over 9% each year. I haven't started withdrawals because I live on a DB pension and some rental income from a mortgage free flat that I bought 25 years ago. Because I have these sources of income and will also get state pension, I intend to stay invested in equities until they carry me off in a box. I also keep a couple of year's spending in cash for emergencies.

kjs31

Bostonerimus1 said:

It sounds like you know enough and have the common sense to DIY. One thing I'd like to point out from your post is that annuities can be useful in some circumstances as longevity insurance and to ease the process of income generation. I would not over use them, but they can provide a safe level of "foundation income" to cover the basics. Your mix of investments and pensions is similar to mine and I also have a pot that can easily cover my living expenses and so I am ok with risk and have most of my money in simple inexpensive equity index funds. I've been retired for 10 years, have never used an IFA or FA and my pension and GIA accounts have grown on average by just over 9% each year. I haven't started withdrawals because I live on a DB pension and some rental income from a mortgage free flat that I bought 25 years ago. Because I have these sources of income and will also get state pension, I intend to stay invested in equities until they carry me off in a box. I also keep a couple of year's spending in cash for emergencies.

I did have a look at annuities, albeit briefly, as I thought it might be worth getting say 10k as guaranteed income via an annuity but as I have a 7k DB pension that I will start withdrawing in the next tax year that will pay for a chunk of the basics and will have a full state pension 7 years later I decided not to bother as it didn’t seem great value. I do see how they may be a decent option for those who only have a DC pension though. 

I cashed in my larger DB pension 5 years ago. Best decision I made. I got a great CETV at the time even though the popular advice was never to cash in a DB pension. My DB pension had a salary cap on it however so was reducing in real terms year on year, especially now inflation is much higher. Plus CETV values have pretty much halved now. I don’t see anyone who cashed in that particular DB pension saying they wish they hadn’t but there are plenty who stayed in the scheme who are saying that they can no longer afford to retire as planned and they can no longer afford to cash in their DB pension as CETV rates are way too low. 

How much time would you say that you actively spend managing your pension pot? Or do you just tend to leave it invested in the same equity funds? 

DT2001

We have had an IFA for about 9/10 years. The reason we used one originally was to set up a SIPP with a lump from generated after the sale of a business. I did an internet search and talked to a few local ones and made my decision from that.
I know I could have made more money if I had gone the DIY route however I had an end goal and that has been achieved, success. I think some people miss the point of an IFA which IMO is to help you put in place a plan that suits your level of risk aversion and needs. 

My IFA saved us money when setting up the SIPP by getting the bonus salary sacrificed. Since then he has taken on MIL’s affairs and she is now passing on excess income to reduce IHT (ensuring we have in place all the ongoing records). In addition he charges her 0.5% a 1/3rd less than she was paying. Our children also have their own investments which benefit from our ‘family rate’.

We have comeback against poor advice as well. I know that there will be continuity if I were to die.

Ibrahim 5’s point about being sold to another firm happened to my mother however it was when the one man business owner was very near SPA and as he told everyone there was no obligation to move to or stay with the new firm. At the end of the day customers vote with their feet!

The OP stated that he needed to drawdown at a low % even before SPA so maybe a variation of the ‘normal’ investment plan is appropriate and an IFA should be able to show different possibilities. For instance an annuity for the gap to SPA, a savings ladder or gilt/bonds ladder.

As Linton has said on another thread “if you have won the game why are you still playing?” which I have chosen to interpret to mean I can derisk and pay someone else to keep a close eye on my plan.