The Lemon Fool

My sister is about to retire in the NHS and must take a 25% tax free lump sum (although will continue to work part-time). The NHS trust has an arrangement where they arrange for staff to have a financial review from a company that provides advice on pension/retirement options but then goes on to recommend their own managed investment service.

She has never invested previously and has a cautious outlook, but clearly has a significant lump sum that she won't need to access for at least the next 5 years.

They have recommended their cautious portfolio below with a 2% upfront fee and 1.5% ongoing. I'm keen to see what people make of their portfolio and also what lower cost/simpler alternatives people would recommend. I was surprised to see individual stock choices in there!!

Table is too big to paste in so see link below to screenshot....

https://i.ibb.co/GdfJ1dQ/Screenshot-2023-06-16-at-09-03-57.png

Thanks!

I've replied to your other post.

Firstly..

dingdong wrote:he NHS trust has an arrangement where they arrange for staff to have a financial review from a company that provides advice on pension/retirement options but then goes on to recommend their own managed investment service.

Really? - that sounds borderline illegal. I can hear the 'no win no fee' mob rubbing their hands together waiting for people to realise what they've been talked into.

As for the portfolio - looks like a very complicated way of getting what is quite similar to a Vanguard Lifestrategy 60 fund. Ask if they have a historical performance for their recommendation.

A FTSE tracker, plus a world ex uk tracker plus a bond fund.

Just 2% upfront and 1.5% OCF you say? Tempting!

Anything with a 2% upfront fee and 1.5% annual charge is expensive bad advice, IMO

scrumpyjack wrote:Anything with a 2% upfront fee and 1.5% annual charge is expensive bad advice, IMO

And anyone who cannot see that should likely be in cash!

It does look very detailed - 0.08% invested in Persimmon plc, for instance. This means, I'd assume, that this is a collective portfolio - I don't think anyone's individual lump sum would be worth dividing in 1250 for one stock. That raises the question on whether they've advised on how ISAs might be used - either for cash or stocks and shares, and that depends on what your sister has already done (with a cash ISA, I'd assume). If the total of the lump sum is more than she could contribute to an ISA this year, then it would, I think, be worth knowing if they have a plan on how to do that, since over 40% of it in corporate bond funds could easily pay savings interest. Can their portfolio be owned both inside and outside an ISA, and is it easy to transfer it in?

I can't work out why it would be worth holding 7 different US funds, and 7 different European ones. Index trackers would have smaller charges, and achieve much the same effect.

Wow, just wow.

Vanguard 60/40, upfront fee 0%, ongoing costs 0.22%. job. done.

dingdong wrote:
They have recommended their cautious portfolio below with a 2% upfront fee and 1.5% ongoing.

Thanks!

I bet they have! Seriously, April 1st comes around SO quickly these days.

Go on, ask them for some total return figures on this portfolio suggestion ....

EthicsGradient wrote:It does look very detailed - 0.08% invested in Persimmon plc, for instance. This means, I'd assume, that this is a collective portfolio -

Is it perhaps a "fund of funds"? In otherwise all the money would be put in the "XYZ Cautious Fund" and what is being shown is opening out the fund to the next level down. Such arrangments may have multiple layers of charging. That might be included in the headline rates, but might not, particularly where non UK funds are held.

EthicsGradient wrote:It does look very detailed - 0.08% invested in Persimmon plc, for instance. This means, I'd assume, that this is a collective portfolio ...

Except about half way down that left hand column is iShares Core FTSE 100 UCITS ETF...

Some holdings are listed at 0.00% in the table. They're not going to contribute much!

NotSure wrote:A FTSE tracker, plus a world ex uk tracker plus a bond fund.

Just 2% upfront and 1.5% OCF you say? Tempting!

You missed out the management charges within the fund and the platform charges - I suspect the 1.5% ongoing is for them to review the portfolio periodically and say "fine, carry one".

Your sister could do a lot better with a simple investment strategy - a highly diversified global equity fund e.g. F&C Investment Trust (FCIT) held in its manager's (Columbia Threadneedle) ISA Savings Plan - £72 per year fees.

The trust has 350+ individual shares in the underlying portfolio, with about half invested in the USA and the other half in the Rest of the World. The trust has low borrowings, is conservatively managed and has been going for over 150 years - delivering returns of about 11% per year on average over the past 20 years.

Alternatively, a world equity index tracker and a cheap broker could be chosen instead of FCIT. All equity investments will go down from time to time - sometimes for year or two, but over 10 years should do much better than cash in a building society.

I agree with the comments regarding the over-complicated portfolio recommended by the IFA, especially those relating to fees. If one wishes to be cautious, the sum could be split 75% equity and 25% cash.

Literally daylight robbery! Unnecessary complexity to justify massive fees. 90% Vanguard Lifestrategy 60 and the rest in Premium Bonds. Job done.

It's bonkers.

I appreciate someone who's never invested before may [expletive deleted] bricks at the idea of investing a significant sum of money themselves but 1.5% is one hell of a headwind to overcome especially on a "cautious" portfolio.

This may be worth showing her.

https://larrybates.ca/t-rex-score/

There are literally tons of multi-asset funds that would meet a cautious outlook and that may be a suitable one stop shop.

DrFfybes wrote:

NotSure wrote:A FTSE tracker, plus a world ex uk tracker plus a bond fund.

Just 2% upfront and 1.5% OCF you say? Tempting!

You missed out the management charges within the fund and the platform charges - I suspect the 1.5% ongoing is for them to review the portfolio periodically and say "fine, carry one".

That's highly likely to be true. A relative if mine inherited a personal pension where the total, quite modest, sum was invested in one fund, Prufund. Fair enough. The "advisor" who set it up originally levied a 2% set up fee and then took another 1% of the fund value every year. Prudential took the same as well. For the 1%, all that the "advisor" did was pop the annual statement from Prudential in an envelope, send it out 2nd class. I told the relative to cancel the "advisor" as shown in the documentation. Instant 1% saving and Prudential now send the same bit of paper once per year instead.

(I used quotes because in my opinion, the word advisor is far too polite).

Thanks all. I think I'll suggest she can get the same sort of portfolio much cheaper with a vanguard lifestrategy on a low-cost platform and then leave the rest to her.

It does seem odd that a huge NHS trust would be introducing all its staff to an IFA firm with such high charges. I get the point about needing to understand the multiple NHS pension schemes that you are a member of and the rules around payouts/returning to work etc. but that feels like something the NHS should be explaining themselves rather than outsourcing that discussion to a company that then combines it with a pitch for ongoing managed investment services.

I imagine its very lucrative for the firm involved though if they are frequently dealing with investment novices!!

dingdong wrote:Thanks all. I think I'll suggest she can get the same sort of portfolio much cheaper with a vanguard lifestrategy on a low-cost platform and then leave the rest to her.

It does seem odd that a huge NHS trust would be introducing all its staff to an IFA firm with such high charges. I get the point about needing to understand the multiple NHS pension schemes that you are a member of and the rules around payouts/returning to work etc. but that feels like something the NHS should be explaining themselves rather than outsourcing that discussion to a company that then combines it with a pitch for ongoing managed investment services.

I imagine its very lucrative for the firm involved though if they are frequently dealing with investment novices!!

If she doesn't feel confident to go fully DIY perhaps also point out that the costs appear to be on the high side so she might want to shop around.

Companies get away with charging 1.5% because people don't know any better or don't have the confidence to look at whether they could or should manage this themselves.

Do you know if the 1.5% is fully inclusive or if there are fund and platform charges on top?

Aminatidi wrote:

dingdong wrote:Thanks all. I think I'll suggest she can get the same sort of portfolio much cheaper with a vanguard lifestrategy on a low-cost platform and then leave the rest to her.

It does seem odd that a huge NHS trust would be introducing all its staff to an IFA firm with such high charges. I get the point about needing to understand the multiple NHS pension schemes that you are a member of and the rules around payouts/returning to work etc. but that feels like something the NHS should be explaining themselves rather than outsourcing that discussion to a company that then combines it with a pitch for ongoing managed investment services.

I imagine its very lucrative for the firm involved though if they are frequently dealing with investment novices!!

If she doesn't feel confident to go fully DIY perhaps also point out that the costs appear to be on the high side so she might want to shop around.

Companies get away with charging 1.5% because people don't know any better or don't have the confidence to look at whether they could or should manage this themselves.

Do you know if the 1.5% is fully inclusive or if there are fund and platform charges on top?

Sometimes it's even worse than that. In some cases the advisor firm outsources the selection of funds to a discretionary fund manager*. That adds yet another layer of fees. I suspect that the 1.5% annual charge is 1% for the advisor, 0.5% for discretionary fund manager. With fund admin fees on top but they're effectively buried inside the fund so you don't see them unless you go looking for them. Of course, I could be dead wrong.

* So that the firm of advisors can (try to) claim they are not responsible for the fund selection when it all goes wrong.