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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

Hi. Trying to get a bit more pro-active with my pension. I have just over 100k in an Aviva pension mixed investment 40-85% fund with a 0.6% charge. If the money had been in an online managed fund like Nutmeg for example, is it reasonable to assume that as the markets fell last year the funds would have been managed in real(ish) time to limit the damage and therefore not suffer the loss the Aviva fund did? If so, is it therefore a no-brainer to transfer my pension to an online managed pension like Nutmeg (0.35% charge over 100k) or is it not quite as simple as that?! Thanks for your time

David, London

08 February 2019

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Lesley James

Hi David,

 

Fabulous that you are being pro-active about your pension fund.

 

Taking a look at fees and performance is exactly the place to start.

I can’t comment here about the relative merits of Nutmeg and Avivabecause we don’t know each other well enough and I don’t have the full context - for that kind of advice you need to seek out a regulated financial adviser (try looking on VouchedFor).

However, hopefully I can give you some pointers.

Firstly, (I’m afraid) all ‘managed’ funds work in the same way.

Aviva, Nutmeg and many other providers will all be looking at the potential for different markets and allocating your money in a way that they believe will bring you the best future return. With varying levels of success, it has to be noted.

And different managed funds offer different risk levels – for example, Nutmeg have 10 – with higher numbers relating to greater equity exposure and the lower numbers holding higher proportions in less volatile stocks.

 

Sadly, 2018 wasn’t a great year for stock markets, so all but the very lowest risk managed funds will have struggled. Including your Aviva fund. And, I note, all of the Nutmeg managed funds.

 

But dips come with the territory I’m afraid.

As long as you don’t panic, you stay invested, and have time to wait for markets to settle down, things should eventually turn around.

For those with additional spare cash, dips can even be a chance to invest more.

If you are feeling nervous, however, you might want to look at lowering the amount of risk you are taking so that, next time, you are not hit quite so hard.

 

Apart from risk, the only other things you have control of are the amount you invest and the charges you pay. And thankfully (combined with the right risk) these are also the two biggest indicators of long term success.

As you are already building funds in your pension, the next question is to take a look at how you can minimise your fees but still invest appropriately.

Index-tracking, managed funds, also referred to as ‘passive multi asset’, are a great place to start because of their combination of good diversity and generally, very low fees. This is what many of the robo advisers offer. And, nowadays, so do many of the more traditional providers.

 

If you are willing to do your own research, Boring Money have some Best Buy tables on here that would be a decent place to start. Or an adviser could do the research for you, and you could get a good deal without having to do the work.

 

A final word on fees, though.

Nutmeg actually charge 0.75% on the first £100K, then 0.35% on the balance above that.

There is then an additional charge of 0.27% for the investment fund and the effect of spread on the underlying investments.

So the effect of charges on £120,000 is actually 0.95% (£950) pa.

However, this does not necessarily mean they are more expensive than Aviva’s declared 0.6% pa.

Nutmeg should be congratulated for being so open about all the fees you will face. What you need to make sure is that you know all the charges you will face, regardless of provider.

A good start would be to ask potential providers for their total ‘Ongoing Charges Figure’.

This is still not an ideal measurement, but is a much better option for comparison than a single ‘Annual Management Charge’ or ‘Product charge’, if you want to see what the true annual costs of investment will be.

I recently came across your blog and it has been a great introduction to learning about my personal finances. I was wondering if you could recommend any additional resources (websites, books, online help) for beginners and that are tailored to the UK market. I am in my early 20's and I'm looking to further my knowledge of money, and foster a greater relationship with it. In addition to that, I'd like to know your opinions on how the possible outcomes of Brexit will affect the market and potential personal finance investments.

Rita, London

23 January 2019

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Phoebe Smith

Hi Rita,

Glad to hear that you've found Boring Money interesting and a useful intro into investing!

 

A great place to start

To get a feel for it all, you can do some initial reading using our Learning Path pages.

In particular, these ones may be useful;

Making Your First Investment - we've put together some key tips to get you started investing in the stock market.

Rebellious Renters - here's some quick ways for investors in their 20s and 30's to get ahead, and max out what they’re entitled to. It can be tough to juggle climbing aboard the career ladder, while also struggling with ever-higher rent, the rising cost of living and possibly student debt as well.

Wary Women - the reason why people tend to imagine a man when they are asked to imagine 'an investor', is because investing has traditionally been such a male-dominated scene. But this is slowly changing. Our Wary Women learning path helps women get a foot in the door by breaking down the jargon and laying out our tips.

 

Once you've done some initial reading and you've mastered the basics, you might like some longer reads.

Our money expert Catherine Morgan recently gave her book recommendations for a reader's 18 year old daughter.

Here's her list of book recommendations to help open up the personal finance world for young people;

 

"I’d recommend that you look at personal finance books but also non-financial books, as often the messages can be just as powerful in a non direct way.

  • Two of my favourite books are 'Rich Dad Poor Dad for Teens’ by Robert T. Kiyosaki and Jason Butler's 'Money Moments.

Jason writes through stories and short chapters, which I think is always a positive. He covers some of the simple yet vital messages that I wish I had learnt in my 20s such as changing mindset, dealing with spontaneous spending, spending your way to happiness and avoiding financial shocks. A very balanced way of understanding true financial wellbeing. Robert writes about some of the important personal finance areas such as compound interest and thinking outside of the salary box! Compound interest is such a powerful thing to learn early on as it encourages early saving habits - small savings over a longer period of time.

  • Some other great ones to look at are ’The Millionaire Next Door’ by Thomas J Stanley and ‘Your Money or Your Life’ by Vicki Robin.
  • Denise Duffield-Thomas also writes around the subject of Money Mindset in her book ‘Get Rich Lucky Bitch’

This is an incredibly inspiring book, as young women have grown up with lots of different messages about money from friends, culture, society and relatives. This book has helped a lot of my female audience to engage with some of their own fears around money, which more often than not can be more important than the factual information. 

  • I would also recommend 'How to Win Friends and Influence People’ by Dale Carnegie as this helps readers to think about how they deal with people and the importance of judgement and perception."

 

After all this book learning, you might want to get a little practical understanding

To accompany your reading, you could open up a small online investment account. Actually seeing how your investment account works, is the best way to learn about investing. Even if you're not fully confident yet, you set up a little account from as little as £1 with Wealthify just to see how it works. Watching your little pot of money going up and down, while you read about why should really help to demystify it all.

If you find that you really catch the investing bug and you want to take out a Stocks & Shares ISA, our Best Buys page is a good resource to help you decide between platforms. We've rated and tested lots of different platforms so you shouldn't need to search for the pros and cons yourself. Plus you can also filter these platforms by their consumer rating, and read the consumer reviews left on these Best Buy pages, to see what other investors thought.

 

Getting into investing early is great and should really be encouraged. The longer your money is invested, the more time it has to weather the ups and downs of the markets. So try to ride this wave of enthusiasm you're feeling, and get stuck in!

Here’s our top 5 tips for new and curious investors like you;

  1. Don't let anxiety about what to pick put you off.
  2. Avoid the 'get-rich-quick' stuff like bitcoin.
  3. Don't put all your bets on one horse, like the recent Monzo crowdfunding ‘opportunity’.
  4. Don’t sell at the first sign of a wobble.
  5. Pay in as much as you can once you're comfortable, as often as you can, and increase your monthly amount every time you get a pay rise.

 

Brexit

You say that you'd like to know our opinions on 'how the possible outcomes of Brexit will affect the market and potential personal finance investments'.

Now this is the million pound question!

With all the political chopping and changing happening at the moment, and the number of industries which are seeing companies swiftly moving their operations and HQs out of London, it's unsurprisingly difficult to be certain of how this will affect the market. Will the vacuum created by this industrial shift mean that entrepreneurial British companies step in to fill the gap, sparking an uptick in the UK market?

Off the back of the 12.75% drop in the FTSE 100 during 2018, some potential new investors think that this is a good time to jump into the UK market. They're hoping that by investing now while the pound is weak, they'll see good returns on their money when the market improves. However other investors warn that while this may seem like a big dip, you can't be sure that we won't see some even bigger slumps in the pound after Article 50's deadline in March. 

It's very difficult to know which camp is right. However if nothing else, it proves that it's always prudent to remember the most important rule of the thumb for investing - the longer you can leave your investments, the better. Investors who can be in it for the long haul are more likely to be able to weather the dips of the market

There's a lot of politically charged speculation out there, much of which changes from one day to the next. So we've mostly avoided the B-word at Boring Money over the last year or so, as nobody really knows with any certainty what the affects may be.

However in the final few months of the Brexit journey, as the government's March deadline looms, we have taken a look at the topic to see if there are any likely effects we can make our readers aware of.

Check out our article, How will Brexit affect investors?.

We asked four industry experts from Hargreaves Lansdown, Chase de Vere, Tilney & Seven Investment Management, for their Brexit wisdom.

 

Good luck!

Phoebe

With a SIPP in drawdown would a company like Netwealth whose investment management fees are of the order of .66% of the value of the portfolio, be a better option compared to companies like Hargreaves Lansdown or Investec? What are the relative benefits of Netwealth over the more traditional wealth managers?

Steve, Lancashire

22 January 2019

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Helena Wardle

Helena Wardle:

Good question.

When you are comparing charges of providers it is important to look at your objectives and think about whether the provider can facilitate them.

Consider what facilities you need and want and if you are prepared to pay extra to have those.

 

You are mentioning a SIPP in drawdown, so I take it that you are drawing on your pension?

There's therefore a few factors that you need to think of when assessing which provider is best for you;

  • How often do you need to withdraw from the pension?
  • Will it be regular withdrawals or as and when?
  • Have you already drawn tax free cash or will it be more efficient for you to take the tax free cash in stages?
  • Do you need a fund manager to help you decide on how to invest the funds within your pension? Or are you happy to research and make your own investment decisions?
  • Can these providers facilitate your pension needs in the way that you would ideally like, and if not, are you prepared to compromise to work within what their pension contract would allow?

It is worth looking at and comparing the drawdown facilities of the providers you have in mind, in addition to the investment funds.

It is also important to consider if what you are taking from your pension is sustainable to ensure your pension doesn’t run out before you!

 

Phoebe - Boring Money:

As for the difference between Netwealth, Investec and Hargreaves Lansdown...

This is quite a difficult question, given the specific requirements and peculiarities of your situation. 

While we can offer you our recommendations and general advice, it gets trickier when questions are about very specific investments or personal circumstance. We are not regulated to give you formal personalised financial advice. Nor are we regulated by the industry watchdog (although we do talk to them a lot).

This means we can talk about the generalities of different investment platforms and SIPPs – but it’s harder to be highly specific about different fee structures, as we don't know your personal circumstances.

 

However, in general;

First off, Investec don't seem to offer SIPPs - their Investec Click&Invest site FAQs state that 'Click & Invest does not currently offer a Self-invested Personal Pension (SIPP)', however the main Investec site confusingly does have a SIPP page in the 'For intermediaries' part of their site. On this page they don't mention their own offering. I contacted Investec about this while trying to find you a more concrete answer, but have yet to find out the definitive answer. 

Secondly, unfortunately comparing like for like (especially when looking at fees) is pretty tough. 

A general difference between the two platforms is that Netwealth offers a discretionary management service, while Hargreaves Lansdown offers self-selecting.

Unfortunately beyond this generalisation, specifics such as investment charges are notoriously difficult to compare.

In fact, we recently did a one year experiment to see if we could pin down exactly how much the differences in platform charges can affect a mid range portfolio. We found that the gap between the highest and lowest return after one year was £120. So the differences can be pretty big!

You can read more on our findings here - Who did best with £500? Best online investment platforms and robo advisors revealed

 

The difficulty in comparing the costs like for like for most investment products is in part thanks to the huge variety of terminology used by platforms, and also the fact that sometimes their fees can be a little hidden away on their sites.

However, Netwealth have a relatively helpful fees page and a slick interactive fees calculator which may be helpful to you.

Hargreaves Lansdown provides a nice straightforward fees page, dedicated specifically to SIPPs.

  • Ultimately, if you can find SIPP factsheets for these platforms this may well be your best shot at a roughly direct comparison. We can't currently track these down unfortunately, so we'd suggest contacting these platforms directly with your specific queries. While we can't speak for Netwealth, Hargreaves Lansdown have an exceptionally efficient telephone line. Often they pick up within 10 seconds! Speaking directly to these providers should help you quickly turn up the factsheets you need.

 

You can also take a look at our Best Buy pages for more general information about investing with Hargreaves Lansdown.

While we don't currently review Netwealth as part of our Best Buys, we have included them in our quarterly robo adviser results summaries.

Holly's write-up of our robo results from the 3rd quarter of 2018, is a nice intro to the topic or you can dive straight into the nitty gritty details.

 

Given the specific requirements of your situation, we'd suggest getting some regulated financial advice. Even if you just want some validation, we’d suggest you consider a session with a financial adviser. Some will give you an hour or two of consultation for an hourly fee. Check out Unbiased or VouchedFor.

 

Hope this helps!

 

 

Reader reply:

Steve, Lancashire

Thanks for that. Interesting.

Hargreaves Lansdown are market leaders but their costs are relatively high when you factor in all the actual costs plus VAT.

The Netwealth model is very interesting. In my case, they estimated they could save me about £90,000 in fees to be paid to my present provider over a 5 year period. That is significant!

Worth looking at their model more seriously. Surely MiFID II should shine a torchlight on what people are actually being charged?

After all, the recent FT survey highlighted client concern about exorbitant charges. The commentators need to wake up to this and take a more proactive approach when reviewing charges. The FT report published in the Weekend Money section on 1st December 2018 makes interesting reading, as it was a survey of clients and also wealth management companies. Both Investec and Hargreaves Lansdown were way down the listings--85 and 74 respectively.

The impression I get, is that there is still too cosy a relationship between the media & commentators and the wealth management industry!

There is great concern over "ad valorem" fees--% of value of portfolio--as compared to hourly rates. A comparison with Netwealth who charge £125/hours or an additional .2% on top of the charges, for comprehensive year round advise service, which in my case would be added to the wealth management charges .66%. The comparison would indicate almost a 3x increase!

Thanks again,

Steve

Investments | Pensions | Personal Finance | Robo Advisors

Is there a Robo Investor who provides both income and growth for those who are retired? (There must be a large market for this?) It seems to me that at the moment all the Robos focus on long term growth and reinvesting dividends - which is fine if you are younger. Have I got this right? Any comments / thoughts? P.S. I think your website / service is very good

David,

18 January 2019

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Dr Richard Bradley

Thanks for getting in touch, and for the nice feedback on our site.

You’re right – many robo-advisers are focusing more on investors building up assets rather than those taking income.  Most don’t offer pensions yet, and those that do typically don’t offer income drawdown for retirees.  The only one I know of which has specific drawdown functionality is PensionBee: https://www.pensionbee.com/drawdown

In terms of the actual investments that robo-advisers make, they’d typically reinvest dividends rather than focus specifically on generating income – they would look at the total return of a portfolio and let investors draw down from that.