I’m in my mid-30s and have recently ticked over £100,000 in my workplace pension.
However, I’m in my firm’s default fund and don’t know if I should be diversifying – I’ve had a look what’s on offer from the pension company, and there are plenty of choices with different ongoing fees, but I’m not confident enough to pull the trigger out of fear of making a costly mistake.
I’d happily pay for one-off financial advice to help build a more sophisticated portfolio, but not sure where to turn to find it and how much I should be paying?
Is it possible to sit down with a financial adviser for a few hours without committing to a long-term relationship?
Investment choice: Can I get a financial adviser to help me pick the best funds available in my work pension scheme?
Tanya Jefferies, of This is Money, replies: Many people admire having an ongoing relationship with an adviser, although this comes at a cost.
That doesn’t make sense for a one-off task admire this. However, once you get started you might find it is worth looking for a financial expert who will take an all-round look at your – and if relevant, your immediate family’s – assets and future goals.
Regarding what to do about your work pension, we asked two experienced and independent-minded advisers for their takes on your situation.
Henry Tapper is a financial adviser and founder of the Pension Playpen professional network and AgeWage, which analyses the value for money of pensions. He replies:
Congratulations on saving so much, early in your career. Money makes money and you’re right to now question whether your pot’s working as hard as you do.
A default fund is better than it sounds. Your pension company’s judged by it, so it gets attention.
The fund has a 0.75 per cent cap on its charges and is designed to confront the needs of the average saver at each stage of his or her saving career.
Henry Tapper: Money makes money and you’re right to question whether your pension is working as hard as you do
The option to chose other funds is tempting but you are right to be cautious. Are your best ideas better than the experts and what makes your circumstances special?
As for diversification, your default should be doing that for you.
The Government is urging workplace pension companies to invest smarter to get you value.
Even if this means you have to pay more for the investments they select for you.
Upcoming changes are likely to direct to better outcomes in the long term. So, I would be minded to stick with the default – unless you have strong conviction about making your money matter.
As regards advice, I’ll make myself unpopular with advisers by suggesting that you do not need investment advice.
You have over 30 years to you get to state retirement age and paying for advice on an alternative portfolio will set a high bar for those chosen to supervise your money.
You should consider carefully if they can do appreciably better than your default manager who resources and economies of scale.
I would expect to pay £200 per hour for high quality financial advice and I would expect my adviser to advertise an hourly rate as well as quote fixed fees.
However, sitting down with a financial adviser to work out a financial strategize, is probably a good investment of time and money. You might admire to think of this as giving yourself a midlife MOT.
Good advisers should be able to quote you a fixed price for a one-off project which won’t commit you to ongoing advice. Do not skimp on this.
You should expect to pay a four-figure fee for this work and pay VAT on top.
A good financial adviser’s fees will typically differentiate favourably to those of solicitors and tax-advisers.
Professional advice, regulated by the FCA and backed by professional indemnity insurance is worth paying for.
You may well find that it will direct to a long-term relationship with an adviser but you must make it clear that this is project work and not an annual contract.
I would expect to pay £200 per hour for high quality financial advice and I would expect my adviser to advertise an hourly rate as well as quote fixed fees.
As a general tip, you should be careful about letting advisers take their fees from your investments.
The fee may not sound very much but even 0.5 per cent to 1 per cent of your wealth can work out as expensive compared with a fixed fee.
Your adviser may explain that it is more efficient for them to take their fees this way (it is true that it helps you avoid VAT) but it may be better to pay VAT than find yourself locked into a long term contract.
Some advice firms have a lock-in period, which is fine where you use an adviser for life but is not value for money if you just want occasional advice.
Justin Modray, director of Candid Financial Advice, replies: The first question is whether you need advice.
If you stick with sensible ‘managed’ style funds offered by pension providers you’re unlikely to make a costly mistake provided they broadly match the level of risk you’re comfortable taking.
In simple terms, this means blending exposure to stock markets, which tend to offer higher long term returns with higher volatility along the way, with more cautious corporate bond style investments.
There are other investment types you could add too, but these are the most common.
Justin Modray: don’t be afraid to select funds yourself as you’ll likely be fine with some legwork and common sense
At your age, you can likely afford to risk having high stock market exposure, as there is plenty of time to ride out the bumps in the road until retirement.
By comparison, someone close to retirement and planning to buy an income for life via an annuity would probably wish to be far more cautious.
The stock market covers a very wide range of investments, ranging from ‘safer’ large blue-chip companies to highly speculative start-up businesses. And, of course, you can invest in many different regions and sectors.
Things are made a little easier by most pensions offering funds, run by investment managers, whose job it is to deduce which companies to buy.
Funds come in two flavours; those that simply track a stock market index and those run by active managers who effectively take bets to try and beat the index.
However, active managers often struggle to beat the index, so choosing between them can be a job in itself, with no assure of success.
If you deduce to select funds yourself, then opting for index-tracking is likely a sensible route, as it reduces the scope for making a mistake.
Consider combining several to ensure you have a good global spread, or use a fund which holds a good range of index-trackers within it. Index-trackers also tend to be lower cost than actively-managed funds.
The argument for using a professional to select funds is that they can help match the risk you are comfortable taking and try to recognize the active managers who might beat the index.
The former is potentially valuable, but the latter haphazard as no-one has a crystal ball so professionals don’t always get it right either.
If you want advice, finding an adviser who will cost-effectively supply this as a one-off may demonstrate tricky.
Advice is tightly regulated, so the adviser will need to spend time collecting and documenting information, even if what you’re asking for is relatively straightforward.
And being blunt, it will likely be less profitable for them versus taking on a client they will look after long term, so you may struggle to find one who will oblige.
Some employers supply access to pension guidance or advice for their employees, so it is well worth asking them if this is an option.
Otherwise, don’t be afraid to select funds yourself, you’ll likely be fine with some legwork and common sense.
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