Best method for validating strategy?

Bostonerimus1

magd36 said:

Bostonerimus1 said:

The gap between your retirement and DB and SP seems to be your big issue, so why are you retiring that early and have you thought about some part time work?

People are naturally apprehensive when they look at drawdown and it can seem very daunting. But if you keep things simple I think many people can do it without an IFA. The most obvious way to generate retirement income is an annuity, but you give up your capital, next would be a gilt ladder and here's and example for a 500k portfolio that comes close to your 30k income requirement.

https://www.ii.co.uk/analysis-commentary/building-gilt-ladder-everything-you-need-know-ii534096

After that there are income focused investment trusts, dividend focused portfolios and total return approach from a more growth oriented portfolio.

Unfortunately it's a health issue that leads me to retirement.

I feel with cash and my DC pension my needs should be met if I take a low risk option. I just need someone to validate my plan seems reasonable.

The gilt ladder is interesting and possibly a 7 year annuity for my wife and I, but I'm hoping to find an advisor to validate the plan rather than make income from the capital and possible growth. My own experience with IFA's has not really had any benefit with on going charges negating the benefits.

The most direct risk mitigation action is to reduce spending, that takes pressure off your portfolio. A fixed term annuity would be a risk free way to span your income gap, but you'd probably have to go through an IFA for that.
You could set up a 5 year savings bond ladder with half your money and get 4% income and supplement that with drawdown from a dividend focused equity fund or just look into ITs that deliver regular dividends. Personally I'd use a 60/40 total return portfolio with 2 years spending in MMF. You have lots of options.

Linton

magd36 said:

dunstonh said:

IFAs are not responsible for investment returns. So, establishing remuneration as an investment performance fee would be inappropriate.

How would it work?  For example, if you invested on 1st January 2000, then your fund value on any equities content would be lower on 1st January 2010 as the markets fell over that 10 year period.   

I doubt any firm could continue with 10 years of zero income.  And again, what influence did an IFA have on global equities in that period? - None.

I think we'll have to disagree on that.

In terms of pensions, I think an IFA has a responsibility to grow or at least protect your money. If they aren't adding any value because they're advised method of making money is failing isn't the clients fault. What is the justification for receiving money for advice that didn't benefit the client? Even cash grew above zero percent from 2000 to 2010.

I don't think we'll see eye to eye on that which is ok. I understand your point but seems wrong to make money from giving advice that didn't benefit the client.

dunstonh said:

The expectation of markets and governments was that the unwinding would be much slower. The invasion of Ukraine resulted in energy challenges that spiked prices, driving inflation upwards, creating a perfect storm.  It was the worst period in over 100 years (pretty much since reliable records became available).

Some say plan your investment for the worst case scenario as compounding will take care of the rest.

dunstonh said:

It just reminded everyone of the importance of bucketing your planning when drawing money out.

100%

It seems bizarre to expect an IFA to spend time and effort giving advice if they werent going to be paid for 10 years.  Why would anyone go into that business.

If the client's stated requirement was that they could not possibly lose any money then the only correct advice would be to put it in a savings account or similar.  If that is what you want it seems pretty pointless to use an IFA.

There is no way any insurance company would underwrite the performance of an equity investment.

Equity investment outcomes inherently have some level of risk as they depend on external events.  Unless you can predict the detailed future behaviour of the world economy you dont stand a chance of guaranteeing future returns.

magd36

Bostonerimus1 said:

The most direct risk mitigation action is to reduce spending, that takes pressure off your portfolio. A fixed term annuity would be a risk free way to span your income gap, but you'd probably have to go through an IFA for that.
You could set up a 5 year savings bond ladder with half your money and get 4% income and supplement that with drawdown from a dividend focused equity fund or just look into ITs that deliver regular dividends. Personally I'd use a 60/40 total return portfolio with 2 years spending in MMF. You have lots of options.

Thanks. Lots to think about.

magd36

Linton said:

It seems bizarre to expect an IFA to spend time and effort giving advice if they werent going to be paid for 10 years.  Why would anyone go into that business.

If the client's stated requirement was that they could not possibly lose any money then the only correct advice would be to put it in a savings account or similar.  If that is what you want it seems pretty pointless to use an IFA.

There is no way any insurance company would underwrite the performance of an equity investment.

Equity investment outcomes inherently have some level of risk as they depend on external events.  Unless you can predict the detailed future behaviour of the world economy you dont stand a chance of guaranteeing future returns.

I think we're getting off topic but the example given was equally as extreme as my cash response and your reply.

Of course I wouldn't expect an IFA to work for nothing. Nor would I expect zero risk.

However how can an initial and ongoing percentage fee be justified.

Although indemnity insurance may be higher, I doubt there's more work in managing a 300k or 200k portfolio and certainly no more work if it grows by 10% versus 2%. Yet the advisor earns a lot more on a £300k 10% growth versus a £200k 2% growth. If IFA's can't control the market why do they gain from it when it performs? This is most people's pensions we're talking about not just excess fun money.

I'm all in favour of a fixed fee for work carried out and a percentage fee of any gains. But not the %age of everything model. I feel the same when Estate Agents charge a fee as a percentage of a house selling price.

I'm just frustrated that so few seem interested in a fixed fee for advice or stress testing only.

Happy to hear any justification for the fee structure especially as my own experience is my IFA managed fund is under performing my own fund purely because of the 0.75% annual charge.

magd36

gm0 said:

Some things to ponder…

All very interesting. There’s a few bits I get but a lot I don’t understand or acronyms I don’t get.

I’ll digest it slowly to see if there’s anything important that I’ve not considered.

Thanks for replying

DT2001

In April last year we parted company from our IFA. Partly because they wanted to increase the ongoing fee from 0.5% to 1% max. £10k but also because the speed of service had declined. The IFA had outside consultants in who suggested a more uniform approach across their client base and part of this was utilising well diversified trackers and/or value funds. From my own research and reading threads regularly on here I thought the logic was valid and left the ongoing service with the intention of taking one off advice when my OH finally decides to retire completely. The IFA firm did not seem averse to transactional consulting. We are saving £1k p.m. in ongoing and platform fees (using two fixed fee platforms). So I will be interested to see how you get on. 

The more I read on here and learn from the likes of James Shaker the more convinced I am that a DIY plan can be implemented. In my case I have written down the rules and am implementing them to avoid knee jerk reactions. I have invested through property/investment bubbles and have realised my concern about DIY was the value of the funds. Look to your end goals and realise we won’t get it 100% right but you do not need to.

 You have been given some good pointers already to look into further to see if they fit your take on it - annuities/gilt ladders/IT etc or a combination of them. If you have flexibility in terms of your expenditure it will also allow you to go with the flow.

IMO IFAs are there to guide you/stop you making daft choices not to achieve better returns.

magd36

DT2001 said:

IMO IFAs are there to guide you/stop you making daft choices not to achieve better returns.

I agree. I just find they’re not interested in fixed fee work. Only transferring assets and taking a percentage. It’s frustrating 

LHW99

magd36 said:

DT2001 said:

IMO IFAs are there to guide you/stop you making daft choices not to achieve better returns.

I agree. I just find they’re not interested in fixed fee work. Only transferring assets and taking a percentage. It’s frustrating 

Although I have been DIY since I started investing (many years ago now, when I had very minimal spare cash and, even with commission, IFA's were not keen on taking me on), I have only found one IFA prepared to work for a fixed fee in the last couple of decades (maybe I'm just living in the wrong place). This was for guidance on how to approach retirement funding with only a small DB and DC available.

Even then they were not keen. They came up with one useful suggestion - leave HL, and one totally unuseful - how about transferring out of your DB!

So if you are prepared to learn, and you know where your requirements lie, don't necessarily worry if you can't find a fixed fee practitioner. Although it would certainly be useful IMO if more IFA's were prepared to do this.

Perhaps the new Targeted Guidance will eventually help fill the gap.

dunstonh

magd36 said:

DT2001 said:

IMO IFAs are there to guide you/stop you making daft choices not to achieve better returns.

I agree. I just find they’re not interested in fixed fee work. Only transferring assets and taking a percentage. It’s frustrating 

fixed fee is one of the most common models for transactional advice.

Have you perhaps been looking at the IFAs operating on a consolidator model rather than a general practitioner model?  The former exists to hoover up assets.   The latter is your typicaly smaller localised independent.

However, most small independents are working at or above capacity and if they don't fancy a job, they can price themselves accordingly (like many trades)

magd36

dunstonh said:

fixed fee is one of the most common models for transactional advice.

Have you perhaps been looking at the IFAs operating on a consolidator model rather than a general practitioner model?  The former exists to hoover up assets.   The latter is your typicaly smaller localised independent.

However, most small independents are working at or above capacity and if they don't fancy a job, they can price themselves accordingly (like many trades)

When you say "operating on a consolidator model" do you mean large corporations?

I'm dealing with two local companies. I just get the impression it's easier and they make more money from percentages and on going fees.

Does transactional advice mean they charge for the advice and then to carry out the execution of advice (maybe as the platforms are only available to IFA's) or just leave the execution to the individual (obviously this would need to be possible under DIY).

I think I'm hoping for the former with no ongoing charges or the latter if it exists!!

The default situation seems to be free advice then charge for execution and build in ongoing fees.

Do I just need to be clearer of my requirement when approaching them?