DIY v Financial Planner

[elkay]

Hi all,

I retired just over 2 years ago, with a reasonable DB pension available. I decided to split it, retaining 2/3 as a DB pension,in payment, and 1/3 was transferred out. Full tax free lump sums were taken at the time.

Of course, to transfer out, I had to take advice from a financial planner, a local company taken over by a national network of financial planners. I was happy to let my pension be invested with the firm for at least the first year, whilst I improved my understanding, mainly through this site and links from this site. Following family issues, I didn't look at taking over the pension myself during the second year. Now, I am actively looking at the options, particularly as the financial planners fees are increasing from 0.65% to 0.8%.

So, I'm looking for a little help here...

1. Up to now, following a lot of comments and discussion in these forums, I was thinking it was an easy decision that I should move away from paid for advice to managing my own portfolio, geared around a selection of funds, with some diversity. However, I did some analysis of the performance of my portfolio, and was surprised by the results. I looked at the last 6 months (Sep-Feb), and found:
- Advised portfolio grew by 7.73% after fees
- Another small DC pension (<50K) grew by 4.1%
- selection of Vanguard funds I chose myself grew by 4.7% (ranging from 3.45% to 7.2%)
So this made me think twice. But when I look at previous 15 months (Jun 22 - Aug 23) performance, the advised portfolio was -1.67%, the DC was -5.62% - and I haven't delved into checking a range of trusts yet.

- Is there an easier way of an easy way of checking the general performance of a diversified basket of funds for comparison purposes? I would be looking mainly at passive funds, tracking markets at a global level, with limited UK exposure.
- Any thoughts on the performance of my advised portfolio?

2. The financial planners are managing my portfolio on the Scottish Widows platform (previously Embark).
- Am I right in thinking that if I ended my relationship with the firm, I would be able to continue with the current funds as-is on the SW platform? Though it appears at least one of the funds might be exclusive to the firm I am currently with.
- If I decided to go with a different provider/different platform, would all funds have to be sold off & rebought if necessary on the new platform?

3. Any suggestions on a provider? I'm thinking about Vanguard, as they will have funds that meet my requirements, are low-cost. I don't intend to dabble in equities, and activity woul dbe low once set up.

TIA
elkay

[ukmtk]

Depending on how much you have it might be cheaper holding Vanguard funds at Hargreaves.
I pay £200 per year for my SIPP at Hargreaves. I think the maximum Vanguard charges is £375.

[BullDog]

Depending on how much you have it might be cheaper holding Vanguard funds at Hargreaves.
I pay £200 per year for my SIPP at Hargreaves. I think the maximum Vanguard charges is £375.

You need to be careful at HL. Funds are subject to the 0.45% platform fee. ETFs are not. Not an issue if you fully understand the investments and how HL's fee work. The OP is presently a client of an advisory firm. There might be more learning required by the OP before going down the HL path.

To add, the biggest reason I like Interactive Investor over the others is that the monthly fixed fee is completely transparent. It doesn't matter what type of investment you have. The platform fee is always the same.

[ukmtk]

The OP did say that he was primarily interested in Vanguard.
I was just pointing out that holding Vanguard at HL might be cheaper than Vanguard itself.

[Degsy67]

Don’t overthink the move away from your current financial advisor. They don’t have any special insight, secret sauce or magic wuffle dust which delivered better results over a 6 month timeframe. The result is completely random.

If their terms of business say that they will reduce their fees to zero when the portfolio is down but will only take x% of any increase when your portfolio is up then stay with them as that means that their fees are aligned with your own best interests. I have a sneaking suspicion however that their terms of business won’t be framed in this way and that they will take their fees irrespective of how your portfolio performs.

Financial planners can provide a valuable service when they help you to understand your options and make decisions to help optimise your drawdown and optimise tax efficiency. They can act as valuable financial coaches if you need a coach, in the same way that a personal trainer can help you to get fit and loose a few pounds. If you’re working 60 to 70 hours a week pre-retirement and don’t have the time to do the admin required to consolidate multiple pensions etc to get ready for retirement then paying a professional to do this to get it right can have some merit. For these services you should be prepared to pay a fixed fee, agreed up front, based on the amount of time and effort they will be putting in.

If you’re retired, have time available and intend to follow a very passive, globally diversified and simple investment strategy, there is very little value in handing over thousands and thousands of pounds every year for a third party to generate random positive or negative returns on your behalf so that they can buy themselves a better yacht.

Best of luck taking back control. It’s the right decision.

Degsy

[Boots]

Read Tim Hale's excellent Smarter Investing: Simpler Decisions for Better Results.

Then turn away from the Dark Side, and face into the light of passive investment. You'll save even more costs.

The degree of difficulty is largely up to you. It could (and probably should) mean just rebalancing a handful of ETFs once a year.

Best of luck! You won't regret it!

[PrefInvestor]

Hi elkay, I can’t help you wrt financial advisor portfolio performance. I have always avoided going that route for two reasons:-
a) The high and repeated annual costs involved (though at 0.65-0.8% your charges are lower than the 1-2% I’ve read about elsewhere)
b) Because I personally could not stand losing money as a result of someone else’s investments decisions AND have to pay them for doing so. If I’m going to lose money I want it to be as a result of my own decisions !.

But you might find this link of interest which is from interactive investor (ii) and details the performance of DIY investors of various ages on their platform,

https://www.ii.co.uk/analysis-commentar ... 3-ii530505

They seem to publish these once a quarter and you ought to ought to be able to find these with internet searches if you want them, You could compare the ii DIY investor performance with what your advisors achieved ?.

Personally I have never managed to achieve anything like the performance quoted in these ii quarterly reports. My portfolio tanked by about 12% in 2020, regained all that and more in 2021 up 15%+, down again by 0.5% in 2022, but up by 4.25% in 2023. Right now in 2024 its more or less flat. I put it down to the income focused (and hence rather UK biased) nature of my portfolio. While I have some exposure to US growth its not been enough to take advantage of the extreme outperformance of US markets.

My portfolio ALWAYS produces significant income but when share prices are falling it has lost ground in total return terms, so these days I am strongly focused on total return. But if you invest mostly in low or no dividend growth stocks thats great when markets are on the up but when they are down you get nothing, no income or growth – that’s not an investing solution that I’m happy with personally.

ATB

Pref

[elkay]

I was initially considering Vanguard, because I expected it to meet my needs, and be one of the cheapest solutions. The comments mentioning HL & II have reminded me that the devil is in the detail, and that it is possible that there are cheaper alternatives, with the bonus that I wouldn't be limited to Vanguard funds should I chose to widen my scope at a later stage.

Financial planners can provide a valuable service when they help you to understand your options and make decisions to help optimise your drawdown and optimise tax efficiency. They can act as valuable financial coaches if you need a coach, in the same way that a personal trainer can help you to get fit and loose a few pounds.
Degsy

This is a very useful comment. I don't use a personal trainer because I have the knowledge to produce the similar results.
If I then think about financial advice in the same way...I believe my financial planner has added little to my knowledge, and the only benefit has been the active management of funds by his firm. I had done my research before taking the first step to transfer out part of my DB pension, and everything I considered and planned for is what I ended up with. To transfer out, I had to get a recommendation from an IFA, and my employer contributed to the cost of that. But the recommendation was effectively for what I had decided beforehand.
I'm indebted to the contributors on this site, who have contributed significantly to my knowledge.

If you’re working 60 to 70 hours a week pre-retirement and don’t have the time to do the admin required to consolidate multiple pensions etc to get ready for retirement then paying a professional to do this to get it right can have some merit. For these services you should be prepared to pay a fixed fee, agreed up front, based on the amount of time and effort they will be putting in.
Degsy

I do have more time myself now, but I also have a backup option for if/when I end the relationship. I have a relative (by marriage) who is an IFA, and who I could consult with (for agreed fees) for anything where I need specific experienced assistance with.

If you’re retired, have time available and intend to follow a very passive, globally diversified and simple investment strategy, there is very little value in handing over thousands and thousands of pounds every year for a third party to generate random positive or negative returns on your behalf so that they can buy themselves a better yacht.
Degsy

Which is why I started this thread

But you might find this link of interest which is from interactive investor (ii) and details the performance of DIY investors of various ages on their platform,

https://www.ii.co.uk/analysis-commentar ... 3-ii530505

Pref

This looks useful...though the million dollar question is - will I be able to match the performance of the average ii investor

My portfolio ALWAYS produces significant income but when share prices are falling it has lost ground in total return terms, so these days I am strongly focused on total return. But if you invest mostly in low or no dividend growth stocks thats great when markets are on the up but when they are down you get nothing, no income or growth – that’s not an investing solution that I’m happy with personally.
Pref

I've still more time to invest (and reading of recommended books), before I chose my strategy, and provider.

Thanks for all the contributions, they are invaluable.

elkay

[mc2fool]

The OP did say that he was primarily interested in Vanguard.
I was just pointing out that holding Vanguard at HL might be cheaper than Vanguard itself.

The OP talked about both holding and being further interested in Vanguard "funds". Normally that refers to OEICs/UTs, of which Vanguard has quite a few, although the OP may be including ETFs in that, of which Vanguard also has quite a few.

Vanguard's fee for both is 0.15%pa capped at £375. HL's fee for OEICs/UTs is a massive 0.45%pa, and also for ETFs but capped at £200 for the latter (only).

[mc2fool]

I was initially considering Vanguard, because I expected it to meet my needs, and be one of the cheapest solutions. The comments mentioning HL & II have reminded me that the devil is in the detail, and that it is possible that there are cheaper alternatives, with the bonus that I wouldn't be limited to Vanguard funds should I chose to widen my scope at a later stage.

Suggest you also look at IWeb where the SIPP charges are only £90/£180pa for less/more than £50K irrespective of what you hold. (However, also look at and compare drawdown charges). https://www.iweb-sharedealing.co.uk/our-accounts/self-invested-personal-pension.html

2. The financial planners are managing my portfolio on the Scottish Widows platform (previously Embark).
- Am I right in thinking that if I ended my relationship with the firm, I would be able to continue with the current funds as-is on the SW platform? Though it appears at least one of the funds might be exclusive to the firm I am currently with.
- If I decided to go with a different provider/different platform, would all funds have to be sold off & rebought if necessary on the new platform?

That's a definite maybe. In theory you can do an in specie transfer, meaning that the holdings themselves get transferred as-is. That's generally not a problem for LSE listed shares and ETFs, however may be problematic for OEICs/UTs as not all platforms have all of them and not all have all classes of each. Of course that's particularly the case with in-house funds, like the one of your Scottish Widows funds you mention.

The thing to do is to check the ISIN of what you hold against what the new broker has available. With IWeb you can do that in their "Research centre". In some cases if they have the same funds but different classes you may be able to switch class as part of the transfer; that you'll have to ask about on a per case basis.

[PrefInvestor]

Hi Again elkay, IMHO how you invest is dependant on your age, whether you are retired and still working etc. and your other sources of income (if any) – all of which effects your investment objectives.

When you are young, still working and in the “accumulation phase” of building your pension pot then I think that growth is most important and a portfolio that needs little hands on management. Income from dividends is likely less important as you are still working and so don’t need to rely on your investments to provide your income. I think that passive investing in a set of low cost global index tracking ETFs with a perhaps larger allocation to US markets is a good solution in that situation.

When you are older and retired and in the “drawdown phase” where you are using your pension pot together with other sources of retirement income to support yourself during retirement then that’s a very different situation to the above. The most important thing then is for your portfolio to RELIABLY deliver what you need from it in terms of income plus some growth such that it doesn’t get decimated over time by inflation.

I am in the drawdown phase and my portfolio is constructed to deliver a reliable income stream as its primary objective. Most of my holdings are dividend paying and I hold only a very few growth only investments. Personally I never want to be in a situation where I have to sell my investments to fund my living expenses but want my income to be delivered by the natural yield of my portfolio. I hold a diverse set of investment trusts and ETFs but also a set of high dividend paying equities and fixed interest investments (preference shares and bonds). When the market is down I want my income to be unaffected ideally but I am prepared to tolerate the investments losing value in capital terms. But I never want to sell them such that they should recover any capital losses when the market recovers. In good times when I don’t need the income I reinvest it to further grow the set of investments that I hold, further increasing my income and hopefully providing for further capital growth.

Of course if you are really well off and have significant income that does not rely on your pension pot then I guess the constraints that I have mentioned may not apply. For anyone in that situation the growth seeking passive investment methodology may remain the most desirable solution.

I also manage my daughters SIPP for her as she is not really up to speed with investing. For many years I invested it in the same sort of things that I hold in my own portfolio. But around 6 months ago her portfolio really wasn’t doing well (it was holding too much green stuff ie renewable energy stocks, which have been hammered by high interest rates). So I sold most of her holdings and reinvested it all in a set of global index trackers plus a set of other mainly US based investments MSFT, GOOG and BRK.B for example. This portfolio has delivered quite remarkable growth but produces very little income, but that’s not a problem as she doesn’t need any income from it at her stage of life. I am also slightly concerned about how it will fare in the event of a US correction. I wouldn’t be happy going this route for my portfolio but for her it seems eminently suitable.

Tax planning is also an important investment topic and use of tax shelters is critically important IMV. I spent many years getting ALL of my investments into ISAs so that I don’t have to worry about CGT, dividend tax or income tax on my investment income. I also never have to do any tax returns. I didn’t really recognise the significant benefits of a SIPP so never started one back when I was working, and now that I’m not working the amount that I can contribute to a SIPP makes it not worthwhile. So I have missed out on that opportunity but just have to live with that.

Anyway the above are just my collected views on investing based on my own experiences. I have no idea how well they would correlate with what a financial advisor would tell you OR how to achieve the portfolio performance in those ii articles !. Others may feel completely differently. DYOR etc…..

ATB

Pref

[JohnW]

'I did some analysis of the performance of my portfolio, and was surprised by the results. I looked at the last 6 months (Sep-Feb), and found:
- Advised portfolio grew by 7.73% after fees
- Another small DC pension (<50K) grew by 4.1%
- selection of Vanguard funds I chose myself grew by 4.7% (ranging from 3.45% to 7.2%)
So this made me think twice. But when I look at previous 15 months (Jun 22 - Aug 23) performance, the advised portfolio was -1.67%, the DC was -5.62%'

Here's why I suggest not taking too much notice of those results.
Those periods are just too short to give any meaningful sense of what their future returns might be. And that's what counts. We could find a bond fund that outperformed the best equities fund over a two year period, but it wouldn't mean we think bond returns will be better than equity returns over the next 20 years. Or a clever active fund manager could buy a great stock that just happens to run into 2 years of bad performance such that a dumb old index fund beats him for 2 years before that stock shows its true colours and makes him look like a genius.

And a couple of quotes:

' the authors find that investors who chose managers with poor recent performance earned higher benchmark-adjusted returns than those who chose managers with superior recent performance. Their findings pose a challenge for asset owners: If past performance is used at all in selecting managers, it is the best-performing managers who should be replaced, not the underperforming ones.Does Past Performance Matter in Investment Manager Selection? Bradford Cornell, Jason Hsu and David Nanigian. The Journal of Portfolio Management Summer 2017https://jpm.pm-research.com/content/43/4/33
‘from a practical or decision-making perspective, it reinforces the notion that choosing between active funds on the basis of previous outperformance is likely a misguided strategy.’
Don't waste your time comparing funds as you have, there are better ways with more plausible and proven methods.

'- Is there an easier way of an easy way of checking the general performance of a diversified basket of funds for comparison purposes? I would be looking mainly at passive funds, tracking markets at a global level'

Yes, the tracking error of the fund for those tracking an index; how close to the index performance is the fund performance.

'- Any thoughts on the performance of my advised portfolio?

Yes, you've given us the fund returns presumably. Very low risk funds usually return less than high risk funds over meaningful periods. Evaluating returns with some measure of risk level is another waste of time.

'It could (and probably should) mean just rebalancing a handful of ETFs once a year.'

I doubt it even needs that. Plenty of personal investing writers get off on different reasons and thresholds for best rebalancing, but when you get down to doing it it's pretty questionable to my mind. Put up a scenario if you wish, and i'll try to suggest whey it's not worth the effort.

'if you invest mostly in low or no dividend growth stocks thats great when markets are on the up but when they are down you get nothing, no income or growth' –

The current theoretical belief for best return for risk balance with equities is to just invest in everything, the whole market. Fama got a Nobel prize for that, but he's not the only academic to think that way. So it's not wildly sensible to invest in only growth stocks, making the argument that you should invest with dividends in mind a straw man. And if you're not comfortable losing a lot of value over a short time, hold something as well as equities to steady the ship; don't throw out the diversification baby with the 'growth stocks are too risky' bathwater.

'When you are young, still working and in the “accumulation phase” of building your pension pot then I think that growth is most important and a portfolio that needs little hands on management. Income from dividends is likely less important as you are still working and so don’t need to rely on your investments to provide your income. '

This is another expression of the widely held idea that taking dividends does less harm to the value of your holdings than selling some holdings. Maybe it's right, but profits go into paying dividends or are held in the business (which means the value of the business is increased by the same amount as the dividends that were otherwise paid out). It thus makes no difference to the value of the business you hold in your equity portfolio if the dividends are paid to you or if you sell an amount of stock to the same value. Tell me which is the more convincing view, and if it's the former, what's the logical flaw in the latter?
Receiving dividends means no brokerage fees, no effort, and no thinking, all of which are benefits; but ignoring those it seems like we're into magical thinking which leads to sub-optimal asset choices.

[elkay]

.

Thanks JohnW, an interesting broad perspective across the issues that I have been considering.

regards
elkay

[PrefInvestor]

'When you are young, still working and in the “accumulation phase” of building your pension pot then I think that growth is most important and a portfolio that needs little hands on management. Income from dividends is likely less important as you are still working and so don’t need to rely on your investments to provide your income. '

This is another expression of the widely held idea that taking dividends does less harm to the value of your holdings than selling some holdings. Maybe it's right, but profits go into paying dividends or are held in the business (which means the value of the business is increased by the same amount as the dividends that were otherwise paid out). It thus makes no difference to the value of the business you hold in your equity portfolio if the dividends are paid to you or if you sell an amount of stock to the same value. Tell me which is the more convincing view, and if it's the former, what's the logical flaw in the latter?

Receiving dividends means no brokerage fees, no effort, and no thinking, all of which are benefits; but ignoring those it seems like we're into magical thinking which leads to sub-optimal asset choices.

Well selling some of your investments will be fine PROVIDED that your portfolio is doing well and delivering a significant capital gain. But if the markets are down and your portfolio is losing money then it’s a very bad idea as it reduces your investment assets upon which you are reliant to deliver your future income. Taking dividends not exceeding the natural yield of your portfolio leaves your invested capital in place where it can recover when the markets recover, suffering only temporary paper losses. It also facilitates dividend reinvestment which grows your stock of invested assets facilitating the production of more income in the future.

Selling your investments to live on in falling markets can give rise to the dreaded “pound cost ravishing” effect (the very reverse of virtuous “pound cost averaging”) as you are selling the core assets which deliver your income. I must say I find the prospect of doing that quite a scary personally. But maybe if you have a very large portfolio it would be OK.

That’s my view on the matter anyway….

ATB

Pref

[Urbandreamer]

Selling your investments to live on in falling markets can give rise to the dreaded “pound cost ravishing” effect (the very reverse of virtuous “pound cost averaging”) as you are selling the core assets which deliver your income. I must say I find the prospect of doing that quite a scary personally. But maybe if you have a very large portfolio it would be OK.

That’s my view on the matter anyway….

ATB

Pref

Or, you could take the attitude that every glass is either half full or half empty.
"Pound cost ravishing" is indeed the reverse of pound cost averaging. However being the reverse one can not be more statistically relevant than the other.

It's my strong opinion that such debates ignore peoples circumstances. Many adopt pound cost averaging, because they have regular income rather than irregular lump sums. Likewise many adopt "pound cost ravishing" because they have regular expenses and have not built enough of a savings buffer to remain solvent in an extended falling market. Selling into a falling market is not an aspect of dividends rather than manufacturing income from capital.

This thread started with long term investing, however for those in the divestment phase of life, can I recommend the book,
Beyond The 4% Rule: The science of retirement portfolios that last a lifetime

[JohnW]

Has the discussion been based on the premise that 'dividend' stocks have the same returns as other stocks? Might be false. If 'value' stocks are a proxy for 'dividend' stocks, and 'growth' stocks are the other type, portfoliovisualizer shows US value stocks had better returns over the last 50 years (in USA) by 1.5%/year; the last 15 years have favoured growth stocks. Better returns might be the saving grace for UK retirement investors choosing the 'dividend route'.
That the 'dividend/value' approach would have been more rewarding for your daughter had she been investing for the last 50 years in USA undermines the notion you put that the young don't need dividends but the old do. This thinking that dividends are best for oldies while growth is for youngsters closes off opportunities that otherwise exist and might be better. There are more complex and nuanced considerations for choosing an asset allocation, some of which you've considered by holding bonds, growth stocks etc; but we should be careful not to mislead less thoughtful investors who don't read between the lines.

Assuming value and growth stocks return similarly I'll offer some thoughts, but you've not rebutted the logic of 'dividends or growth are the same for sustainable spending'.
I'll opine that for any retiree investor one should specify their objectives. Yours were:
'Reliable £value income as natural yield; no asset selling for daily expenses; no selling without significant capital gain'

'doing that quite a y personally. But maybe if you have a very large portfolio it would be OK.'

So, we're not talking about a retirement pot in abundance such that any old approach will do; we're talking about getting the most bang for our buck.
I don't think your 'dividend favoured' approach can be relied up to deliver your objectives, since in crisis times dividends are cut or abandoned; it fails at the first hurdle. And any other investing approach will also be best served by an acceptance of a flexible drawdown income, unless you want to leave a lot on the table`.
My concern is that some of the promotion of the 'dividend approach' overlooks this. Too much of 'how safe it is not to sell', not enough of 'dividends get cut', and too much of 'carefully choose good dividend payers' which a few years ago might have included General Electric and Kodak but which don't offer enough diversification.

You're fearful of selling depressed assets (which is not pleasant, but need not be the end of the world), and so invest accordingly (in a way that can misguide people, I fear). That's a valid choice for you, just as holding cash in high interest accounts only would be a valid choice for me for the next 25 years since I fear my wealth falling (which is not pleasant, but need not be the end of the world). But my choice ought not be the one we try to persuade others of.

'Well selling some of your investments will be fine PROVIDED that your portfolio is doing well and delivering a significant capital gain.'

True enough, but this overlooks the hopefully long periods on either side of 'down'; selling when down can, over a 20 year period, be associated with prior and later periods of 'up' in compensation.
Unfortunately, only SP500 data, but there's a lot for interested readers here: https://earlyretirementnow.com/2020/10/ ... s-part-40/ And not all of it 'anti-dividend'.

[PrefInvestor]

I don't think your 'dividend favoured' approach can be relied up to deliver your objectives, since in crisis times dividends are cut or abandoned; it fails at the first hurdle. And any other investing approach will also be best served by an acceptance of a flexible drawdown income, unless you want to leave a lot on the table. My concern is that some of the promotion of the 'dividend approach' overlooks this. Too much of 'how safe it is not to sell', not enough of 'dividends get cut', and too much of 'carefully choose good dividend payers' which a few years ago might have included General Electric and Kodak but which don't offer enough diversification.

Well JohnW as I think I said, I see passive investing in worldwide markets plus selected growth investments as a good way to grow a pension pot over time when you are still working and don’t need to rely on it to deliver your day to day income. But as a solution to live off in retirement I am not convinced, mainly due to the need to sell investments to deliver your income.

As for dividends being cut or cancelled most of my portfolio is in bonds, bond funds, preference shares and investment trusts which all paid out in full even during the covid pandemic. A few single stocks did stop paying but not many. So in that high stress situation the dividend paying solution worked well as far as I am concerned.

ATB

Pref