Advice needed on choice of IFA

COYS1965

I'd be grateful for any advice that can be offered by those more expert than me regarding the choice I have between two different IFAs for initial investment advice and ongoing advice on my DC pension pots. I'll be 60 this summer and am aiming to retire then, with the option to do bits of freelance work if I need to.
I have 3 DC pension pots with different providers, totalling around £600k and I also have another £150k in various cash savings (ISAs, NS&I index-linked accounts etc). Two of my DC pots are in default lifestyle funds and the other is in an apparently quite adventurous portfolio. I'll admit that I have always buried my head in the sand a bit with regard to pension planning; I've always just paid into the company schemes where I've worked and let them put my money into their default investment option. Over the last few months, I've realised I need to get more informed and have realised that the lifestyle funds have been a poor choice given that I'm not intending to purchase an annuity (at least not in the short or medium term).
Because of my lack of expertise, I'm intending to engage an IFA to firstly advise on the best investment option for my pension pots and secondly to provide ongoing advice for at least the first few years while I develop my knowledge about tax-efficient drawdown etc (after which I might DIY).
I've spoken to multiple IFAs (all fully independent) and have narrowed my choice down to two.
One of them is a strong advocate of passive funds - his company uses Timeline MPS, with the specific portfolio allocation depending on attitude to/ tolerance for risk. He says his most important role is to provide financial planning advice and to leave the investment advice to the experts who run the MPS. This does tally with the small amount of knowledge I have, which suggests that active investment does not lead to any better outcome than passive but generally comes with higher costs.
The other IFA has investment as well as financial planning qualifications and has recommended a bespoke, semi-active portfolio. His firm's view is that equities are currently overvalued and the prevailing geopolitical uncertainty means it makes sense to keep a chunk of money in trackers but a higher proportion of my money in "hedging assets" (gold, fixed-interest investments) until the market settles down, at which point he would advocate moving more of the money into equities. My starting point would have been to stick with my plan for a more passive approach and to quote the adage time in the market > timing the market blah blah. But this guy is very impressive and has done some excellent analysis of my situation so I'm just wondering whether to reconsider.
The cost issue is not relevant as both are quoting a similar upfront cost to implement their recommendations and a similar ongoing advice cost (1.25% total, made up of 0.75% for ongoing advice plus platform and fund costs).
Any thoughts or advice? Many thanks!

COYS1965

I should have added that the second IFA has presented me with lots of graphs showing how his recommended portfolio has had better performance than the Timeline ones (higher returns with lower volatility) over the last 3 years. But is that long enough a record to indicate future performance??

tacpot12

Do you have the option to use both IFAs? e.g. put £300K with each of them. It would allows you to compare how their approaches work out over the next few years, and it also gives you some protection in case one of the platform has an IT glitch that delays a payment to you. You at least get half of your money on time. 

Bostonerimus1

There's nothing wrong with "Lifestyle-ing", but I think it's often done so it's too risk averse for people looking to do drawdown over maybe 30 years. What makes you think you can't DIY right now? Did the IFA's talk to you about budgeting and drawdown? I'm highly biased to a passive indexing approach so the second IFA's advice sounds like a load of BS to me.

dunstonh

I should have added that the second IFA has presented me with lots of graphs showing how his recommended portfolio has had better performance than the Timeline ones (higher returns with lower volatility) over the last 3 years.

Timeline portfolios are one of the highest performers.  They have outperformed the Vanguard LS range (both classic and global and the HSBC GS range.  Two of the most respected ranges going.   
Timeline run 10% equity slices.  So, there are 11 tracker portfolios starting at 0% equities through to 100% equities.

Here is the 60% equities version:   (Multi Asset VLS60 is the OEIC version with home bias.  Equity MPS Global is the IFA version of VLS with no home bias).  Limited by launch date of the Vanguard global MPS which was 2022.




There are others I could include in that list who run tracker portfolios and beat VLS Classic and to be honest, any that beat VLS classic on a like-for-like basis and cost the same or less would be fine .    However, I just wanted the chart to be simple and focus on the main ones and the lowest-cost ones rather than overload it with a dozen more.

The other IFA has investment as well as financial planning qualifications and has recommended a bespoke, semi-active portfolio. His firm's view is that equities are currently overvalued and the prevailing geopolitical uncertainty means it makes sense to keep a chunk of money in trackers but a higher proportion of my money in "hedging assets" (gold, fixed-interest investments) until the market settles down, at which point he would advocate moving more of the money into equities. My starting point would have been to stick with my plan for a more passive approach and to quote the adage time in the market > timing the market blah blah. But this guy is very impressive and has done some excellent analysis of my situation so I'm just wondering whether to reconsider.

In the past, IFAs had to pick the funds and the portfolio. There weren't the requirements that exist today, nor the data available.    However, things have moved on so much that it's very difficult for IFAs to do the things they need for themselves without the outside support of third parties.        

The cost issue is not relevant as both are quoting a similar upfront cost to implement their recommendations and a similar ongoing advice cost (1.25% total, made up of 0.75% for ongoing advice plus platform and fund costs).

I would have thought the timeline one would be cheaper.
Fundment is the cheapest platform to hold Timeline portfolios on in most value ranges.   
Fundment is 0.14% (on 600k)
Timeline OCF is 0.08% to 0.09% depending on asset mix. Lets say 0.09%
Timeline DFM is 0.09%
Adviser charge is 0.75%
Total:  1.07% excluding transaction charges (which will be disclosed but most people ignore and are around 0.04% on top)

I should have added that the second IFA has presented me with lots of graphs showing how his recommended portfolio has had better performance than the Timeline ones (higher returns with lower volatility) over the last 3 years. But is that long enough a record to indicate future performance??

Many of these MPS have only been around 3 years Timeline Tracker is coming upto 5, Vanguard MPS Global is 3.

In the last 3 years, the primary driver has been US equities, and the weakest area has been bonds, particularly UK Gilts.    So, any portfolio heavy in US equities and low in UK gilts would be at an advantage in that 3 year period.   

The likes of Vanguard, HSBC and Timeline do not build portfolios on the basis of past performance.   They have a defined strategy.    Timeline is the market cap for equities and a broad currency hedged bonds spread (Gilts, index-linked gilts, short-term bonds, global bonds and corporate bonds).   Timeline also uses institutional share classes, which is one of the things that makes them cheaper than HSBC and Vanguard, who, ironically, don't use institutional share classes in their own MPS/OEICs but do make their funds available to third parties, like Timeline, to use.

There is a big flaw with charting software when it comes to bespoke portfolios.   It takes the current weightings for funds and then backdates them to the start date of the chart and doesn't include any rebalancing done after that.

Look at chart below:

The blue line is VLS60 OEIC
The yellow is portfolio following the Timeline 60% tracker strategy with annual rebalancing carried out in the same month each year (Timeline actually rebalances at 10% drift rather than annually or other frequency but I have done it annually for this example)
The grey line is the exact same portfolio as the yellow but with no rebalancing.   i.e. it has taken the current snapshot weightings and assumed that is what you would have invested with in Feb 2014 and never made any changes after that.     That would have been the case.

For example, in 2013 market cap for UK was 7.97%.  In 2024 it was 3.56%,      US was 46.68% in 2013 but 62.13% in 2024.    So, if you use 2024 weightings in your asset class ratios for a portfolio starting in 2014 you would be telling a fake story as you didnt know 2024 market cap weightings in 2013.        You have already said that the other adviser makes management decisions and adjustments.   So, backdating the current snapshot and showing that the historical return is a fake picture that will artificially make it better than everything else.




By presenting that grey line, no rules have been broken but the reality would have been closer to the blue or yellow line.   

Whereas discretionary MPS/OEICs do not do that.  They show the actual return over the history and not just the current snapshot.

Bostonerimus1

I like the philosophy of Timeline and the low fees and the performance is good relative to its peers, looks like 1% or 2% cumulative more than VLS60 over the last 3 years. Of course you are paying an advisor 0.75% a year to access Timeline.

dunstonh

Bostonerimus1 said:

I like the philosophy of Timeline and the low fees and the performance is good relative to its peers, looks like 1% or 2% cumulative more than VLS60 over the last 3 years. Of course you are paying an advisor 0.75% a year to access Timeline.

The VLS60 second in the list is the IFA version that doesn't have home bias.   The VLS60 that is available to the whole of market, with home bias is the lower one.   So, its more like 6% cumulative.

Linton

COYS1965 said:

I should have added that the second IFA has presented me with lots of graphs showing how his recommended portfolio has had better performance than the Timeline ones (higher returns with lower volatility) over the last 3 years. But is that long enough a record to indicate future performance??

The best way to have achieved over-performance over the past 3 years is to have invested even more heavily than the average in US tech socks.  But you would not have known that 3 years ago.  But you would have known that it is higher risk.  It's a simple balance, the higher return you aim for the greater chance of one-off poor performance.

In my view a better way to approach investing is to decide first on your level of risk and then to ensure you are widely diversified.  The markets then decide what happens.

Your level of risk should be based mainly on your timeframe - how much money do you need and when but also on your abilityy not to panic when faced with what will almost certainly be temporary falls in the market.  A good IFA should be able to recommend portfolios that suit your needs rather than maximise returns.  So I would avoid any financial advisor who  says they can get higher returns - that should not be your primary objective in seeking financial advice.

In any case 3 years history means nothing, take it as random noise.  5 years history can mean very little. And by the time you get to 10/20 years the world may have changed so much in the meantime that any historic performance achievements are no longer relevent.

wjr4

tacpot12 said:

Do you have the option to use both IFAs? e.g. put £300K with each of them. It would allows you to compare how their approaches work out over the next few years, and it also gives you some protection in case one of the platform has an IT glitch that delays a payment to you. You at least get half of your money on time. 

This is pointless as a proper financial planner makes a financial plan. What is the point of having two? 

However, 1.5% is far too expensive (£9,000). Look for a fixed fee firm, not one that uses a percentage. 

COYS1965

Big thanks to everyone who has commented so far - I really appreciate it. The consensus seems to be in favour of the IFA who favours passive investment via Timeline, which was my starting instinct.
Re the charges, the 1.25% quoted by both IFAs includes 0.75% for ongoing advice but with a cap on that of £5,000 (I have asked for details of how that cap would change re inflation etc). Then the other 0.5% is their estimate of the maximum cost for platform and fund charges (with the precise figure to depend on final choice of portfolio). I thought that seemed reasonable. One of them promotes their service as a "fixed-fee model" as the initial implementation fee is fixed rather than % based and they switch to the capped £5k fee if the investments they manage on your behalf go over a threshold where the 0.75% would be > 5k. I've struggled to find an IFA who offers lower fixed fees (or percentage) for ongoing advice.

wjr4

COYS1965 said:

Big thanks to everyone who has commented so far - I really appreciate it. The consensus seems to be in favour of the IFA who favours passive investment via Timeline, which was my starting instinct.
Re the charges, the 1.25% quoted by both IFAs includes 0.75% for ongoing advice but with a cap on that of £5,000 (I have asked for details of how that cap would change re inflation etc). Then the other 0.5% is their estimate of the maximum cost for platform and fund charges (with the precise figure to depend on final choice of portfolio). I thought that seemed reasonable. One of them promotes their service as a "fixed-fee model" as the initial implementation fee is fixed rather than % based and they switch to the capped £5k fee if the investments they manage on your behalf go over a threshold where the 0.75% would be > 5k. I've struggled to find an IFA who offers lower fixed fees (or percentage) for ongoing advice.

My comment was in relation to the initial charge, unless I’ve read wrong?