Vanguard 2030 Vs IFA?

hodd

Hello all

I’ve always handled my own pension affairs, but I had a chat with an IFA recently. I’m wondering what they could add.

Background

I’m 54, planning to partly retire at 62. I’ll get £5000 a year from defined benefit pensions and will have £300k in a SIPP. Not a huge amount, but I intend to work part-time.

The SIPP is a Vanguard 2030. It has lowish fees with a current split of 60% equity and 40% bonds; the latter increases as the retirement date approaches.

I had an appointment with PensionWise recently which was useful in terms of options for actually getting money out at 62. I don’t think I’m in that bad a place.

The IFA

I know IFAs have to gather all information first so can’t dive in and say what they’d change. They’re with Quilter, and the brochure makes the claim that the average retirement income with and without financial advice is £24,175 and £17,168 respectively. No source for this.

The fees

The minimum fees are £987. For lump sum investments, 2.7% of the amount invested. For monthly investments, 10% for the first 12 months only. After that, the annual fees are 1% (which will total £17000 over 8 years I calculate) which includes annual reviews, etc. We’re looking at £20000 over 8 years or around 7% of my pot.

The question

The only option I can see for the IFA would be to re-invest the current SIPP elsewhere. Am I missing something here? I can’t see what the IFA can do for me.

JohnWinder

You may have read here that advisor fees, being what they are, exclude those with lower wealth; the fees are just too high. So, you might expect those without financial advice to have lower retirement incomes if they have smaller investments.

You're being invited to think that advisors add £7k/year to retirees' income. Ask them if that's how they interpret those figures.

hodd

JohnWinder said:

You may have read here that advisor fees, being what they are, exclude those with lower wealth; the fees are just too high. So, you might expect those without financial advice to have lower retirement incomes if they have smaller investments.

Yes, that was my thinking. The £24,175 and £17,168 is not useful information for the reasons above. Being harsh on the IFA (20 years experience), but he did make a big thing of these two figures without stating the caveat you mentioned. 

Dazed_and_C0nfused

The fees

The minimum fees are £987. For lump sum investments, 2.7% of the amount invested. For monthly investments, 10% for the first 12 months only. After that, the annual fees are 1% (which will total £17000 over 8 years I calculate) which includes annual reviews, etc. We’re looking at £20000 over 8 years or around 7% of my pot.

If you have got that right do you think it's justified for the service they will be providing?

LHW99

And if the average is £x, then 50% get more, an 50% less.

Starting point is to wrok out what you will need, and see if your current provision will provide that. If so, happy days, and if you have managed that by yourself, do you necessarily need an IFA?

If not, maybe you need to increase your contributions or decrease your expectations.

Also, I think Quilter is a platform. Not sure if people can go direct to them, so the important thing will be to ensure your adviser is actually independent (IFA).

zagfles

hodd said:

Hello all

I’ve always handled my own pension affairs, but I had a chat with an IFA recently. I’m wondering what they could add.

Background

I’m 54, planning to partly retire at 62. I’ll get £5000 a year from defined benefit pensions and will have £300k in a SIPP. Not a huge amount, but I intend to work part-time.

The SIPP is a Vanguard 2030. It has lowish fees with a current split of 60% equity and 40% bonds; the latter increases as the retirement date approaches.

I had an appointment with PensionWise recently which was useful in terms of options for actually getting money out at 62. I don’t think I’m in that bad a place.

The IFA

I know IFAs have to gather all information first so can’t dive in and say what they’d change. They’re with Quilter, and the brochure makes the claim that the average retirement income with and without financial advice is £24,175 and £17,168 respectively. No source for this.

The fees

The minimum fees are £987. For lump sum investments, 2.7% of the amount invested. For monthly investments, 10% for the first 12 months only. After that, the annual fees are 1% (which will total £17000 over 8 years I calculate) which includes annual reviews, etc. We’re looking at £20000 over 8 years or around 7% of my pot.

The question

The only option I can see for the IFA would be to re-invest the current SIPP elsewhere. Am I missing something here? I can’t see what the IFA can do for me.

  That's a bit like the stat that private schools get better results than state schools. Of course they do - they have selection tests, plus there's a correlation between wealth and acedemic success! 

It's a useless stat as it tells you nothing about the value add (if any) of taking advice. For that you'd need an analysis done with equal starting points. Even that wouldn't be much use as those who "DIY" will range from those who simply shove it all into VLS TR funds or similar to those who really believe they can beat the market and think they can see things that professional investors with billions behind them can't. Or those who buy yesterday's winner and then wonder why it becomes tomorrow's loser. 

JohnWinder

'Am I missing something here? I can’t see what the IFA can do for me.'

'They' might have taxation understanding you don't, or estate planning knowledge. They might add insight into your risk tolerance for optimal asset allocation. Even with a suitable asset allocation investors need to deal with their own behavioural inadequacies like performance chasing or panic selling or following the next fashion; a third party can help with that.

But as to choosing investment products, advisors have largely been dealt out of the game by the commodification of excellent, low cost, risk minimised products like target date funds available to ordinary folk (with no front end loading, even better). You pick them off the shelf as you do detergent in the supermarket; plenty of choices, all much the same, and hard to know which will do the job better ahead of time.

Albermarle

The minimum fees are £987. For lump sum investments, 2.7% of the amount invested. For monthly investments, 10% for the first 12 months only. After that, the annual fees are 1% (which will total £17000 over 8 years I calculate) which includes annual reviews, etc. We’re looking at £20000 over 8 years or around 7% of my pot.

For reference these fees seem a little on the high side, although it is not clear what your fund size is at the moment.

Plus of course the platform and investments fees, which may or may not be more than you are currently paying Vanguard.

DoublePolaroid

Vanguard have done an analysis attempting to quantify the value added by advisers based on specific domains. Bearing in mind you’d expect it to skew towards painting advice in the best possible light, some people might find it helpful to work out how much they personally might benefit from advice. 

They suggest the biggest value add is from behavioural coaching, which is consistent with other research and makes sense intuitively as illustrated for example by panic-driven selling during a bear market. To state the obvious, the value of advice is substantially greater for an individual who understands they may not have the discipline to stick to their chosen strategy in times of stress. Withdrawal strategy is also potentially an area of significant added value, though one could take the view that getting one-off advice nearer the time of retirement (if such a thing is possible) might be appropriate if one feels the need.

Interestingly they rate suitable asset allocation by an adviser as potentially adding no value at all, though again this will be highly variable depending on the individual. 

hodd

Albermarle said:

The minimum fees are £987. For lump sum investments, 2.7% of the amount invested. For monthly investments, 10% for the first 12 months only. After that, the annual fees are 1% (which will total £17000 over 8 years I calculate) which includes annual reviews, etc. We’re looking at £20000 over 8 years or around 7% of my pot.

For reference these fees seem a little on the high side, although it is not clear what your fund size is at the moment.

Plus of course the platform and investments fees, which may or may not be more than you are currently paying Vanguard.

The pot size is around £150k at the moment. I have a limited company and get reasonably well paid so am aiming to add £25000 a year for the next 7 or 8 years to give a pot of around £300k.

I should add I’m single (divorced sadly) with no financial issues there or dependents. I am planning to retire abroad to Asia whilst continuing to work part-time (online). No pension is simple, but I’m a complex case I’d say 🙂

Dazed_and_C0nfused

hodd said:

Albermarle said:

The minimum fees are £987. For lump sum investments, 2.7% of the amount invested. For monthly investments, 10% for the first 12 months only. After that, the annual fees are 1% (which will total £17000 over 8 years I calculate) which includes annual reviews, etc. We’re looking at £20000 over 8 years or around 7% of my pot.

For reference these fees seem a little on the high side, although it is not clear what your fund size is at the moment.

Plus of course the platform and investments fees, which may or may not be more than you are currently paying Vanguard.

The pot size is around £150k at the moment. I have a limited company and get reasonably well paid so am aiming to add £25000 a year for the next 7 or 8 years to give a pot of around £300k.

I should add I’m single (divorced sadly) with no financial issues there or dependents. I am planning to retire abroad to Asia whilst continuing to work part-time (online). No pension is simple, but I’m a complex case I’d say 🙂

Why are you contributing?  Have you discussed this with your accountant?