Financial advisor or DIY?

egyptiancotton

Hi, all. I hope everyone had a nice bank holiday weekend.

I'm looking for some advice on whether I should hire a financial advisor to help with savings, investments, and pensions. Here's my current situation:

• Age 35.
• Single. No dependants.
• Own my house outright.
• I have a 20-year-old car, so no PCP, HP, etc.
• Salary of £49k. This will be going up to £51k at the end of this month.
• My pension contributions are 6%. My employer pays 11% (maximum). I increased my pension contributions from 3% to 6% in March last year. My pension contributions are salary sacrifice, so they reduce my taxable income and I pay less NI as a result.
• I have no savings in ISAs. I stopped with my cash ISA a while ago because the interest rate was poor. I have heard of stocks & shares ISAs but knew nothing about them until recently.
• I have £145k in cash savings. I plan to set aside about £5k for an emergency fund, and about £10k for a new kitchen. This leaves me with £130k to invest.
• My disposable income is about £2,000 each month, as my outgoings are very little. I shop around for the best deals for utilities, etc.
• I put a small amount away each month for things like Christmas, birthdays, insurance, car maintenance, etc.
  
• I have a credit card but only use it for monthly expenditure. It gets paid off every month.
• My current workplace pension pot is sitting at about £29k. I have three pension pots with other providers from previous employment, totalling about £22,100.
• My state pension forecast is on track.
• I don't have a student loan. I paid it off a few years ago through salary deductions.

I engaged with an IFA recently to understand their fees and ask what their recommendations are:

• Upfront fee of £3k (2.3%), down from £3,611 (2.77%) after negotiation.
• Ongoing advisor fee of 0.65%, down from 0.75% after negotiation. This will be deducted monthly.
• Platform charge of 0.25% for ISA and GIA, and 0.30% for pension.
• Investment fund charge of 0.22% for ISA, GIA, and pension.
• Total ongoing charges are 1.12% for ISA and GIA, and 1.17% for pension.
• ISA recommendation: Set up a stocks & shares ISA with Vanguard (LifeStrategy 80%) via Aviva Wrap and make an immediate lump sum contribution of £20k this tax year, and make another lump sum contribution of £20k in the next tax year.
• Pension recommendation: Transfer and consolidate my three pension pots, from previous employment, to a new SIPP portfolio with Aviva Wrap. The fund will be Vanguard LifeStrategy 80%. Make a lump sum contribution of £36,760 immediately this tax year to benefit from tax relief of £9,190. Retain £36,760 in cash and set up regular pension contributions in the new tax year of £3,063 per month, so that each payment will benefit from £765.85 of tax relief.
• GIA: Set up an investment portfolio with Aviva Wrap and make a lump sum contribution of £31,480. Begin regular contributions of £2k every month. Each tax year, use Bed & ISA to move funds from the GIA into the ISA, utilising the CGT allowance.
• Currently on track to retire at 55, based on my current cashflow. Having children in the future will affect my cashflow, and I have no issue with this.

My mum feels that paid advice might help me, and my step-father feels that the initial and ongoing charges seem high and will add up over time.

My concern is that ongoing charges will eat into capital value during periods of low performance.

My friends know nothing about my financial situation. It's not something I feel comfortable talking to them about, as they have mortgages and children. I fear that my friends will treat me differently if they knew about my financial situation, and I don't want them to question their own. With a large of amount of cash savings and not having a mortgage, it's a card that I hold very close to my chest.

I'm in a bit of a panic because the end of the tax year is imminent. I don't want to miss out on the tax relief from the lump sum pension contribution this tax year, and I also don't want to lose my ISA allowance for this tax year. I'm torn between hiring the IFA and going it alone. I said to the IFA that I'm leaning towards engaging him on a transaction basis every year for the Bed & ISA service. He understood my point but still recommended the ongoing service as it'll be cheaper in the long run.

I'm sorry for such a long post. I wanted to ensure that I included as much helpful information as possible. I would be grateful for any advice you can offer. Thanks in advance.

El_Torro

If you DIY well then using an IFA is a waste of money. If you DIY badly then an IFA is definitely worth using. How confident are you in your DIY investing skills? If you’re not confident then how willing are you to brush up on those skills?

From what you’ve posted your IFA’s plan doesn’t sound very inspiring. Including his choice of fund (VLS). 

In your position I would make the most of the fact that your employer has a salary sacrifice pension scheme. Shovel what you can in there, even if it means not having enough income to meet your needs. You have £130k in cash to help cover your living expenses after all.

Stocks & Shares ISAs will make up an important part of your strategy as well, especially if you do retire at 55. You’ll need some income before you access your pension. 

Bostonerimus1

If you have some common sense you can DIY. So do some reading and see if you are comfortable with the ideas and practicalities. For what it's worth your IFA seems to be quite sensible and I like their advice, but is it worth their fee particularly on an on going basis? IMO you don't need an IFA to implement the plan they have outlined and it's one that most people should be following ie be frugal, maximize employer pension, contribute to an ISA, keep costs to a minimum and use simple portfolios of index funds or a multi-asset fund if you must.

egyptiancotton

El_Torro said:

If you DIY well then using an IFA is a waste of money. If you DIY badly then an IFA is definitely worth using. How confident are you in your DIY investing skills? If you’re not confident then how willing are you to brush up on those skills?

From what you’ve posted your IFA’s plan doesn’t sound very inspiring. Including his choice of fund (VLS). 

In your position I would make the most of the fact that your employer has a salary sacrifice pension scheme. Shovel what you can in there, even if it means not having enough income to meet your needs. You have £130k in cash to help cover your living expenses after all.

Stocks & Shares ISAs will make up an important part of your strategy as well, especially if you do retire at 55. You’ll need some income before you access your pension. 

Many thanks for replying. I don't know much about stocks & shares ISAs and SIPPs - I'm happy to read up about both. I'm new to investing - confidence is sort of low but I'm happy to research. My cousin has done a bit of investing (stocks & shares ISAs) - he recommended the Vanguard platform and a few books on investing to me.

May I ask why you think the IFA's plan doesn't sound inspiring, especially his choice of fund?

I will look into maxing my ISA allowance this tax year and the next. What I could do is choose a fund this tax year, and switch it in the next tax year - so at least I've used my ISA allowance this tax year. I'm mindful that the surplus cash will set there gaining no interest unless I put it in a GIA.

I'm keen to know more about why you suggest that I increase my pension contributions into my current workplace pension scheme. Would this be better than a SIPP?

Thanks again.

egyptiancotton

Bostonerimus1 said:

If you have some common sense you can DIY. So do some reading and see if you are comfortable with the ideas and practicalities. For what it's worth your IFA seems to be quite sensible and I like their advice, but is it worth their fee particularly on an on going basis? IMO you don't need an IFA to implement the plan they have outlined and it's one that most people should be following ie be frugal, maximize employer pension, contribute to an ISA, keep costs to a minimum and use simple portfolios of index funds or a multi-asset fund if you must.

Thanks very much for your reply. I see your point on whether the fee is worth it, particularly on an ongoing basis. I could open a SIPP with Vanguard and make a lump sum this tax year to get the tax relief, and change the fund later on if I need to.

I'm anxious about the GIA and how the Bed & ISA approach works. I have no idea how to calculate the gains and stay within the CGT allowance, especially with purchasing shares when I make monthly contributions, if that makes sense - this is my biggest concern.

dunstonh

• I said to the IFA that I'm leaning towards engaging him on a transaction basis every year for the Bed & ISA service. He understood my point but still recommended the ongoing service as it'll be cheaper in the long run.
  

It probably would be as you would be charged initially every time, whereas ongoing usually sees advisers do top ups, etc, without initial charges.  The adviser could also change the investment selection as transactional clients wouldn't be able to use their MPS (if they are using one) and they wouldn't use an advisory portfolio either. 

My mum feels that paid advice might help me, and my step-father feels that the initial and ongoing charges seem high and will add up over time.

That are not high and reflect the amount you are paying.  Charges tend to get cheaper relative to the amounts involved and you don't have a lot at the moment.  Platform charge is higher than is ideal nowadays (0.15-0.20% is becoming more common).  

The fund will be Vanguard LifeStrategy 80%.

Is that the OEIC fund version or the MPS version?   (the MPS version is better performance-wise and priced the same but requires an adviser).  The MPS version is available on Aviva.

Bostonerimus1

egyptiancotton said:

Bostonerimus1 said:

If you have some common sense you can DIY. So do some reading and see if you are comfortable with the ideas and practicalities. For what it's worth your IFA seems to be quite sensible and I like their advice, but is it worth their fee particularly on an on going basis? IMO you don't need an IFA to implement the plan they have outlined and it's one that most people should be following ie be frugal, maximize employer pension, contribute to an ISA, keep costs to a minimum and use simple portfolios of index funds or a multi-asset fund if you must.

Thanks very much for your reply. I see your point on whether the fee is worth it, particularly on an ongoing basis. I could open a SIPP with Vanguard and make a lump sum this tax year to get the tax relief, and change the fund later on if I need to.

I'm anxious about the GIA and how the Bed & ISA approach works. I have no idea how to calculate the gains and stay within the CGT allowance, especially with purchasing shares when I make monthly contributions, if that makes sense - this is my biggest concern.

Do you own anything with capital gains in your general accounts. ie things like stocks and investment funds  -  not cash is saving accounts.

egyptiancotton

dunstonh said:

• I said to the IFA that I'm leaning towards engaging him on a transaction basis every year for the Bed & ISA service. He understood my point but still recommended the ongoing service as it'll be cheaper in the long run.
  

It probably would be as you would be charged initially every time, whereas ongoing usually sees advisers do top ups, etc, without initial charges.  The adviser could also change the investment selection as transactional clients wouldn't be able to use their MPS (if they are using one) and they wouldn't use an advisory portfolio either. 

My mum feels that paid advice might help me, and my step-father feels that the initial and ongoing charges seem high and will add up over time.

That are not high and reflect the amount you are paying.  Charges tend to get cheaper relative to the amounts involved and you don't have a lot at the moment.  Platform charge is higher than is ideal nowadays (0.15-0.20% is becoming more common).  

The fund will be Vanguard LifeStrategy 80%.

Is that the OEIC fund version or the MPS version?   (the MPS version is better performance-wise and priced the same but requires an adviser).  The MPS version is available on Aviva.

Thank you for replying.

I've looked through the factsheets for the ISA, and can't see any mention of OEIC or MPS. I'm sorry I can't be more helpful.

egyptiancotton

Bostonerimus1 said:

egyptiancotton said:

Bostonerimus1 said:

If you have some common sense you can DIY. So do some reading and see if you are comfortable with the ideas and practicalities. For what it's worth your IFA seems to be quite sensible and I like their advice, but is it worth their fee particularly on an on going basis? IMO you don't need an IFA to implement the plan they have outlined and it's one that most people should be following ie be frugal, maximize employer pension, contribute to an ISA, keep costs to a minimum and use simple portfolios of index funds or a multi-asset fund if you must.

Thanks very much for your reply. I see your point on whether the fee is worth it, particularly on an ongoing basis. I could open a SIPP with Vanguard and make a lump sum this tax year to get the tax relief, and change the fund later on if I need to.

I'm anxious about the GIA and how the Bed & ISA approach works. I have no idea how to calculate the gains and stay within the CGT allowance, especially with purchasing shares when I make monthly contributions, if that makes sense - this is my biggest concern.

Do you own anything with capital gains in your general accounts. ie things like stocks and investment funds  -  not cash is saving accounts.

Thanks for getting back to me. The cash is currently sitting in current accounts that don't pay interest until I can decide what to do next. I don't own anything with capital gains in general accounts.

MX5huggy

Open a Cash ISA tonight probably with a bank you are already a customer of so you can move £20k now this takes the pressure off and lets you think. 

Don’t worry about the additional pension contributions this tax year. You can put £51k in next year if you wish. 

Salary Sacrifice pension contributions are best because you save the NI on top of the income tax savings. As the vast majority of your income is taxed at 20% the NI saving is an additional 8%. You also don’t pay student loan payments on the sacrificed salary (do you have a student loan?).

up your salary sacrifice so you are left with National Minimum wage (you can’t sacrifice below this) £11.44 per hour is just under £24000 per year. 

You can put the rest of your income in a SIPP if you wish. 

egyptiancotton

MX5huggy said:

Open a Cash ISA tonight probably with a bank you are already a customer of so you can move £20k now this takes the pressure off and lets you think. 

Don’t worry about the additional pension contributions this tax year. You can put £51k in next year if you wish. 

Salary Sacrifice pension contributions are best because you save the NI on top of the income tax savings. As the vast majority of your income is taxed at 20% the NI saving is an additional 8%. You also don’t pay student loan payments on the sacrificed salary (do you have a student loan?).

up your salary sacrifice so you are left with National Minimum wage (you can’t sacrifice below this) £11.44 per hour is just under £24000 per year. 

You can put the rest of your income in a SIPP if you wish. 

Thank you for replying. I really appreciate it.

Do you know if tax relief only applies to earnings in the current tax year? Can I carry unused annual allowances from previous tax years and get tax relief on that?

I hadn't thought of increasing my salary sacrifice pension contributions. I assumed that paying a lump sum into a SIPP would be better because of the tax relief - 20% top-up sounded good.

Good point about the student loan which I forgot to mention - I don't have a student loan. I paid that off a few years ago. I paid via monthly payments through salary. I didn't pay it off in one go or anything. I've updated my original post to include that I don't have a student loan.

I felt a bit of pressure speaking to the IFA yesterday and today. I mentioned to him that I could set up an ISA and make a lump sum contribution of £20k this tax year so that I don't lose the allowance and, worst case scenario, transfer the ISA to another provider in the next tax year- he didn't really comment on this approach. As for the pension tax relief, he advised that losing the tax relief on the lump sum pension contribution this tax year would be a shame - this is where I felt the pressure to get a move on with making a lump sum contribution this tax year to get the tax relief.