Is Vanguard's digital advice service suitable for those in drawdown or at retirement?
29 July 2021
Question by Peter
I am now retired and living off my redundancy money which will take me to my 66th birthday next February, when I can get my state pension. I should have around £440K (hopefully more) in 3 frozen pensions which I intend to put into one drawdown policy and combine with my state pension to live on.
I have a trust issue with financial advisors. One FA wanted to charge me £5k to manage my pensions and charge an ongoing fee of 1.5% per year, which I think is excessive. Another FA wanted to charge me £2500 to move a Clerical Medical policy to Scottish Widows. I found SW owned CM and I could have done this for free myself. Your recent article on Vanguard's digital advice service of 0.79% all in charge including advice seemed to be what I may be looking for but in your article you say that this was "not for those in Drawdown or at Retirement ". Can you explain why please?
Answered by Boring Money
Thank you for your question, as a Financial Planner myself, I’m well aware that there is often a lack of trust around what we do and the value that we add, but if you choose wisely, please trust me when I say, we do add value!
You’re absolutely right, I am sure there are many tasks that a Financial Planner would charge you for which you could probably do for yourself. However, that is the case in many professions. I have recently paid a plumber a small fortune for something I could have probably done myself, but I wasn’t 100% confident that I wouldn’t make a hash of it and flood the house, so I paid a professional for the peace of mind. While Vanguard will help you invest your pension in line with your objectives and attitude to risk, that’s the easy bit. They won’t coach you to be brave during times of volatility when you see the value of your portfolio fall. They won’t calculate a sustainable withdrawal rate based on your predicted mortality to make sure you never run out of money. And they won’t structure your pension withdrawals using both your tax-free cash and taxable element to make the withdrawals as tax-efficient as possible? These areas of financial planning are where the real value is, not in the investment of your money.
Vanguard Financial Planning is a cost effective and valuable service. For people with less complex needs (that is not you) who want to start saving for the future, it’s great and provides a service for millions of people, for whom full Financial Planning is out of reach.
However, calling it Financial Planning is like calling McDonalds fine dining. The title Financial Planner means something. A good financial planner doesn’t flog products, can offer advice from the whole of market and takes a holistic approach, by looking at your savings, tax position, life assurance needs and estate planning, not just pensions and investments. Vanguard ticks a couple of those boxes but misses the majority. If you look at their key features document, they are very clear about who their proposition doesn’t suit. Here are some examples:
Anyone who requires holistic financial advice that includes, for example, estate planning, life cover or income protection.
Anyone that wants advice that considers all available products across the investment market.
Anyone who is less than five years or more away from retirement.
Your pension must last you a lifetime. With no other income other than the state pension you should be considering an annuity. Even if you just use a proportion of your pot to guarantee your subsistence income needs. Only then should you be considering drawdown, but don’t penny pinch when it comes to professional advice, Red Adair the world-famous firefighter once said, “If you think hiring a professional is expensive, wait until you hire an amateur”. There are many excellent Financial Planners listed on this website, who offer fees at a range of levels. Speak to a couple of them and see if they can change your view about the profession.