Are financial advisers worth their fees if you're risk adverse?
15 July 2021
Question by Stephen
I have had a long and successful career, and intend to retire in autumn, aged 60. I have earned strong money, but being risk-averse, I have been content to let it mount up largely as cash, plus a pension (along with some smaller Stocks & Shares ISAs etc). I now find myself with £1 million in a low-cost Aviva pension, plus £2.5 million in cash. It is my hope to leave my pension untouched, and pass it over as part of inheritance tax planning. I have one son and a new grandson, who I would like to leave as comfortable as possible when I'm gone, so would like to balance my risk-adverse character with making my money work harder for us all. I have talked with several IFAs, but given my risk/return appetite, their fees seem to eat up most of the benefit they offer over my current position. I guess my question is, do IFAs normally bring sufficient benefit to low risk strategies, to make it worthwhile or am I better off cautiously investing myself, and saving the fees? Many thanks, Stephen
Answered by Catherine Morgan
Firstly, what a fantastic amount of money to have accumulated ready to support your retirement. Now is a great time to be considering your options.
You have asked a very worthwhile question. Managing your own finances when you go into retirement is a little tricky, as you need your money to last you potentially for 40 years. If you are determined to leave money to your family, you may also want to consider how you can shelter some of your savings from inheritance tax, and long-term care planning issues that may arise in the future.
Your attitude to risk should have no bearing on the value that an IFA can bring to the table.
However in my opinion, for you, it is important to differentiate between a financial adviser vs a financial planner.
A typical financial adviser who operates on a ‘assets under management’ model will charge you between 0.75-1% per annum.
It is important to ask them what they provide for the annual fee. If it is just managing the money invested, then I would have a conversation with financial PLANNERS. Financial planners will provide you with a financial forecast to help you to plan out scenarios and manage issues such as tax planning, inheritance tax and safe withdrawal rates. This will ensure that you never run out of money, whatever your tolerance to risk is.
The focus here is on planning and not just managing risk, investment strategies, and financial products.
In reality, the question you are asking here is "how can I protect my lifestyle, so that I can never run out of money, and I can leave a legacy to my family.”
Financial planning will help you to answer this. Some planners will allow you to work with them on a fixed fee arrangements, and it may well be that you ask them to create a financial plan first, and then decide if their ongoing service is of value to you.
With a pension fund at £1 million, you will need to consider Lifetime allowance limits, as your pot may grow in excess of the allowance, and also other inheritance tax planning strategies for the cash, depending on your spending plans and objectives.
I hope that helps.
Certified Financial Coach
Catherine has a passion for educating women around the behavioural and practical aspects of money. She is a Mum of two and founder of The Money Panel, a money guidance business for women, helping to support them in managing their personal and business finances. She's was nominated as a finalist in the Women in Financial services award 2018, and works as a regulated financial planner.