Should I use a financial planner for my retirement?
18 July 2019
Question by Rob
Hello Holly, I retired in December 2018. Just before that time, I attended the free Pension Wise meeting and also a Standard Life 'introduction to retirement' seminar. Both were very worthwhile and informative. My initial thoughts were to consolidate my pensions into the Standard Life Active Retirement pension for income drawdown which looked simple and straightforward, but it meant handing over management of the investments. However, after viewing the performance of the funds they invest in, I hesitated. I have since spoken to a number of financial advisers, but have received mixed feedback about what I should do at retirement. More recently I spoke to an advisers aligned to the investment philosophy of Albion Strategic Consulting headed by Tim Hale. I found them transparent, but as the investment philosophy is towards indexing funds, I have been scared off once again by the messages regarding DIY investor dealing with re-balancing, sequencing, and lack of ability to stress test without the correct professional financial software, in addition to the high costs. With fees of around 1.6% per annum plus the initial one off fee. Over a 25-30 year lifespan, the costs would be more than 50% of our initial investment value. Is this logical for what is an indexing strategy? In addition, looking at another of the fifty or so boutique advisers who also promote the Albion strategy towards total Wealth Management, and low cost indexing funds. The particular company concerned state on their website/in their brochure that 90% of independent or tied advisers are still working with a broken system. I really don't know what they mean by such a statement. This makes me more concerned about handing over the control, although I know retirement can be a complex time regarding finances. Each of these IFA's are Chartered Financial Advisers whom have studied to high standards, and whilst I respect their knowledge and capability, I cannot see how these kinds of costs can be recouped with a passive strategy over time. The industry is sending out very unbalanced messages to basic investors such as myself. I understand the basics, but am now totally unsettled as to the direction I should take and if, at such a critical stage, I should invest in an IFA on a regular basis. I have started to read Tim Hales book "Smarter Investing". I also understand Vanguard are introducing a drawdown pension in the coming months. For your information, I have approx. £600k in total pensions with Aviva and Standard Life, plus £300,000 in ISAs with Hargreaves Lansdown, in one of their multi manager portfolios which again have the higher charges attached due to their structure (I do think HL are a great company though). We also own our own property at approx. £600k. Our basic overhead costs in retirement are covered by current final salary pensions, and state pensions. I appreciate you cannot give me direct financial advise but I am finding the whole event very disconcerting, when I thought I had the basic acumen to manage the transition. Would appreciate your feedback. A great website by the way, Holly.
Answered by Holly Mackay
A few observations I’d make.
Please remember that I can't give you personal recommendations or regulated financial advice. So this is food for thought only.
You retired in December 2018 after a hideous 3 months for stock markets. So don’t be surprised if any short-term performance numbers looked ugly.
Indexing or Passive Investing
Indexing or passive investing is a low-cost way to get – by definition – average returns.
You don’t believe you can pay smart people to pick winners, or back a particular region or investment type.
It’s been a while since I read his stuff, but I think Tim Hale is smart and credible. However academics will argue till the cows come home about active versus passive. You can make arguments for both so you need to make this decision.
Managing a portfolio in drawdown
Managing a portfolio of assets in drawdown isn’t the easiest thing to do. You need to be clear on what your goals and targets are, and make sure you don’t run out of money and/or you don’t end up scrimping and not spending enough, ending up with more left over than you need at the end of your life.
I think you are confusing the two skill sets of financial planning and investment management. A good financial planner will help walk you through the right place for your money, how to budget and make your money last, make sure you don’t pay too much in tax, etc. etc.
A DIY platform won't help you with any of this but will give you exposure to the stock market.
In terms of the 1.6% per annum fee you mention, that does seem a bit expensive for a passive portfolio and advice so maybe question that.
You are in the fortunate position of not needing to move quickly - your final salary scheme and state pensions are paying the bills.
There’s a lot of money in different pots, and I think you would benefit from some advice to give you peace of mind that you’re not doing something daft in the structuring of your retirement.
Maybe separate the initial advice and structuring from the ongoing management of this in your head?
The first phase could be finding an adviser and agreeing a fixed fee for them to walk through the structure of things first. To talk you through some cashflow modelling? This exercise would probably cost you £2k - £3k. As a % of the money you have, this is not huge. And it will give you peace of mind.
Once you have a plan and have answered the how much/what/why questions, then I think you can turn your mind to the how and where.
At which stage you may decide to DIY and manage the agreed strategy alone. Or you may have sufficient trust with an advisory firm, to decide that you can make an informed decision about them adding sufficient value to warrant an ongoing fee?
Hope that helps, and sorry I cannot be more specific to your particular needs.