IFA to DIY - Thank you forumites

DT2001

I have completed our move back to DIYing. It would not have been possible without the guidance from many of the regular contributors on this forum so I wanted to say THANK YOU.

Some months ago I started to research investment strategies following a change of personnel within the IFA firm I was with - people pointed me in the direction of Lars Kroijer, James Shack, Monevator etc. It became obvious that passive investing suited our requirements. At a review meeting our IFAs suggested moving our funds to a Global tracker, on a cheaper and better platform whilst increasing their ongoing fees (as they didn’t apply fees fairly across their clients) from 0.5% to a £10k maximum (about 0.8%). I know that IFAs are not there to achieve better returns but ensure you organise your investments/drawdown etc in an efficient manner however I do question the 60% increase in cost of the service (especially as I have picked up the odd small mistakes). I know that my knowledge is limited however I will seek one off advice especially re IHT (which would have incurred an extra fee with the IFA) and stick to a simple pre determined drawdown plan requiring no guessing of the state of the market (aided by our willingness to embrace variable income).

We have moved to fixed fee plan platforms (again looked at recommendations from on this site) to reduce costs even further. By doing this and not paying £10k p.a. over a 30 year retirement, the residual pot would be £800k larger (assumptions 7% average growth, 2.5% inflation, 3.6% withdrawals)  - on a poorer return sequence the amount would be less but the % of the pot ‘lost’ higher. Happy to use some of this for one off help.

Thanks again to everyone who has challenged my statements, provided guidance or just made thought provoking assertions. It made it possible to push the button on a £100k+ buy. BTW JustETF has a volatility risk index for each ETF so I am presuming the worst to help deal with corrections/crashes etc.

I hope others will consider DIY and do the research although it definitely is not for all. 

dunstonh

. I know that IFAs are not there to achieve better returns but ensure you organise your investments/drawdown etc in an efficient manner however I do question the 60% increase in cost of the service (especially as I have picked up the odd small mistakes). 

I will give that a stab....

The work required for servicing has significantly increased. It has become almost ridiculous, and the problem is that technology has not accommodated the increase. So, it's a very manual process.  Technology is coming but its always coming and never seems to arrive or bits arrive that do a little but then the FCA wants more and you back to square one again.

Most adviser firms are at or above capacity. When that happens in business, one method is to increase charges where you may lose 20% but retain 80% freeing up capacity whilst not impacting on the bottom line.

The FCA is aware that MiFIDII has been a problem for advisers and has stated it plans to review the impact of RDR and MIFIDII later this year.   The suggestions have been that rather than having an EU directive say what ongoing servicing is for every single retail client and requiring that to be carried out even if it is of no interest for a client, they will consider allowing clients to say what services they want and pay for them accordingly and not the things they don't want.   We will see.

tacpot12

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

michaels

tacpot12 said:

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

Why on earth would you have a lower rate of return, same level of risk = same return, unless the advisor can beat the markets in which case why are they advising and not just retired on their own private island?

MeteredOut

michaels said:

tacpot12 said:

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

Why on earth would you have a lower rate of return, same level of risk, same return, unless the advisor can beat the market sin which case why are they advising and not just retired on their own private island?

"can afford ... a lower rate", not "have a lower rate".

ie. going DIY may provide you with a little more breathing space if your investments don't meet any target growth in place

On the flip side, its been mentioned that some IFAs have access to some funds that have lower fees than the same (equivalent) retail fund. Whether it has been determined if those reduced fees outweigh the IFA charges over time, I don't know.

Hoenir

tacpot12 said:

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

With the caveat of course that you make the right investment choices. Easy to get sucked into the herd in this social media driven world. Where confirmation bias abounds.  

michaels

Hoenir said:

tacpot12 said:

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

With the caveat of course that you make the right investment choices. Easy to get sucked into the herd in this social media world. Where confirmation bias abounds. 

I wonder if IFAs also to an extent follow fads (hopefully because that is what their clients ask for rather than by them being taken in by the hype)

Albermarle

michaels said:

tacpot12 said:

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

Why on earth would you have a lower rate of return, same level of risk = same return, unless the advisor can beat the markets in which case why are they advising and not just retired on their own private island?

Simply because your DIY investment choices/portfolio may contain some 'DIY errors'. I am pretty sure mine does !

Hoenir

michaels said:

Hoenir said:

tacpot12 said:

I’m not sure how many people factor in that if you DIY your pension, you can afford to achieve a lower rate of return because of the fees you save. 

With the caveat of course that you make the right investment choices. Easy to get sucked into the herd in this social media world. Where confirmation bias abounds. 

I wonder if IFAs also to an extent follow fads (hopefully because that is what their clients ask for rather than by them being taken in by the hype)

I would suggest not.  As they offer balanced preconstructed portfolio's to fit the clients needs rather than actual investment advice per se.  Clients of course are free to ask for whatever they want. Though seems pointless to pay for advice there's no intention to use. Herd Mentality isn't hype , it's a common financial bias . Of which there are a number. 

Cobbler_tone

I always wonder at what point using an IFA becomes viable. I am sure a lot of it is down to individual understanding of pensions, investments, options and tax etc. Let's face it, a lot of the population have little idea.
With probably 70% DB and 30% DC, plus the state pension, I have often thought about whether I will use advice. I like to think I am pretty switched on but often learn a lot on here. If you don't know you don't know! 
TBH when I end with c£150k in my DC, I understand the multiple options but have no experience in where to put it, who to use, the optimal way to use it in relation to my other income etc. So it would be at my point of retirement in a couple of years that I would go down that road. I am sure a lot of people have that dilemma and most probably just muddle through themselves, being none the wiser if they could have been better/worse off as long as they have the comfortable income they need.

I have a very affluent neighbour. Very smart, worked in director roles all his career, retired at 55, (divorced) single and rattles around a 5 bed house with almost 7 figures in the bank and other than a new car every 12-18 months spends very little. He is actually moving to a smaller house, so will generate some more money. I know he isn't messing around putting money into a SIPP each year, holds a bit of gold and scans individual items at the supermarket to get round ups. He knows the ins and outs of pensions and has several coming in, a couple phased to the state pension which he'll get a couple of extra years out of. He has now started putting his heating on before Oct because I think the penny has dropped that his tax bill is growing. There is a reason he is a millionaire!  He wouldn't touch an IFA but I am sure he could grow his wealth even further. Context is everything and we aren't all aiming to become Bill Gates. 

Reading some of the above, it sounds as though the role is getting harder and that there are less of them. Common sense alone tells you that supply and demand will lead to price increases. Try getting a decent tradesperson on the day you want them for less than £400-500 a day. 
I would imagine a good, trusted and efficient IFA is worth their weight in gold.
  

artyboy

Cobbler_tone said:

I always wonder at what point using an IFA becomes viable. I am sure a lot of it is down to individual understanding of pensions, investments, options and tax etc. Let's face it, a lot of the population have little idea.
With probably 70% DB and 30% DC, plus the state pension, I have often thought about whether I will use advice. I like to think I am pretty switched on but often learn a lot on here. If you don't know you don't know! 
TBH when I end with c£150k in my DC, I understand the multiple options but have no experience in where to put it, who to use, the optimal way to use it in relation to my other income etc. So it would be at my point of retirement in a couple of years that I would go down that road. I am sure a lot of people have that dilemma and most probably just muddle through themselves, being none the wiser if they could have been better/worse off as long as they have the comfortable income they need.

I have a very affluent neighbour. Very smart, worked in director roles all his career, retired at 55, (divorced) single and rattles around a 5 bed house with almost 7 figures in the bank and other than a new car every 12-18 months spends very little. He is actually moving to a smaller house, so will generate some more money. I know he isn't messing around putting money into a SIPP each year, holds a bit of gold and scans individual items at the supermarket to get round ups. He knows the ins and outs of pensions and has several coming in, a couple phased to the state pension which he'll get a couple of extra years out of. He has now started putting his heating on before Oct because I think the penny has dropped that his tax bill is growing. There is a reason he is a millionaire!  He wouldn't touch an IFA but I am sure he could grow his wealth even further. Context is everything and we aren't all aiming to become Bill Gates. 

Reading some of the above, it sounds as though the role is getting harder and that there are less of them. Common sense alone tells you that supply and demand will lead to price increases. Try getting a decent tradesperson on the day you want them for less than £400-500 a day. 
I would imagine a good, trusted and efficient IFA is worth their weight in gold.
  

For me, the 'when' isn't primarily driven by a net worth figure, but rather by my (and Mrs Arty's) age.

Because whilst we have been happy to DIY investments, estate planning is a very different matter, and if we're not careful, Rachel from accounts (or one of her successors) will end up getting a big big chunk. 

So some targeted advice in that area is definitely on our to do list - we just have to find an IFA with enough specialization in this area, as I'm guessing it's not something that all IFAs focus on.