If you are reasonably financially literate, is a wealth manager ever worth it?

[HappiestLabrador]

NC for this.
We are in our forties with a high joint income. We already fill up all our tax wrappers efficiently, including the kids’ and invest the rest through an investment platform, plus early mortgage payments. We manage our own investments with a balanced, medium risk approach, with a reasonable diversification and have mostly done okay (and sometimes much better than the market.) We recently had a consultation with a chartered tax advisor and there was not much we could be doing differently to be more tax efficient. We are reluctant to get into EIS’s or VCT’s, investing in property, art or fine wine (I’m sure there are many other options.) DH (the highest earner) gets regular communications from wealth managers (I guess these are just IFA’s?) offering to assist us in parting with 1% of our investable assets a year in exchange for strategising and managing our money. But is there really anything they can do with our money that we can’t? Surely they would be using the same platforms and funds and would simply be taking a calculated risk like we do, but would need a stronger performance to break even? I’d be really interested to hear peoples’ thoughts about this, or their experiences, positive or otherwise.

I don’t think that’s really a relevant question. By “the market” I presume you mean the equity market (but there are many others). If all the wealth manager has done is put them in equities or some blend of equities and other sensible things, and encourage them to ride out the highs and lows, then he or she has done them good service, even though they won’t have “beaten” anything.

It really depends on what a “high joint income” IME a “wealth advisor” is not great value unless you go high end. Otherwise they’ll just be selling you standard options.

Better value can be found with a tax expert they can often save more than you can earn

Depends on how much you’re investing. DH is very financially literate and manages some of his own investments, more for ‘fun’ than anything else. We have a huge amount invested overall and a wealth manager deals with most of it because it’s too much to take the risk. Ours is great and we have used him for years, we have him alongside an accountant who helps out with tax etc too.

So, income wise, 1.2M last year (not much of that me.) But I’m not sure we really want to go much beyond standard options into SEIS or VCT’s, they just feel too risky and I’m not too sure how a wealth manager can alleviate that risk enough to tempt us to.

The tax advisor has been really helpful, especially with my own tax situation. I think we’ll just focus on investing conventionally and hopefully accumulating for now and revisit it when we come to actually needing the money for something.

I had a good review of my SIPP performance since 2015, & it is up in value by 60%; average earning has been 6%, which beats the market. This past year it is up 12%. However, I don’t know how much of that is active management & how much is simply a good stock market performance.
My IFA is supposed to be coming back to me this month with some IHT planning ( basically a trust or similar to shield my heirs from tax demands, now that pensions are subject to IHT). So I am on the fence ATM.
I am actively looking at all options to reduce costs (changing to a cheap gym, very limited eating out, etc) I will be frank with him when we next meet, saying I expect to see value for the higher fees.

When you say 6% beating the market - are you referring to bank interest rates? It’s just that 6% seems a low figure to suggest it beat the market. And 12% last year - which was an incredibly successful year for the stock market isn’t brilliant. Have you a very low risk appetite and investing to meet that?

We don’t have one but that’s because DH actively enjoys doing it. If he were to die I’d engage one as I don’t have a clue what I’m doing with it.

Debatable given the quality of free advice on Reddit and Moneysavingexpert forums.

There's a few things you could do which your tax adviser would know about but can't implement and, as far as I know (but could be wrong) are tricky to implement yourselves. The obvious one standing out to me is whole of life assurance in trust so that it's outside your estate and provides liquidity to pay the iht bill on death; both tax efficient and pragmatic. Apart from that I'd agree that a wealth manager will mostly do what you're already happy doing (would potentially also invest in wider asset classes I guess, even if not in vct/eis), but that's about it.

it depends on how much you have, we have just employed one, who will manage our funds for us, and do everything from managing and investing, to tax optimisation and inheritance planning. We were like you doing it ourselves, and on delving in, we found as much as the returns were good, it was not optimal and they can do more. If we feel they are failing we can stop at any time.

so for us yes, but we are taking early retirement, we are in our fifties, and are now at the stage we need to hand over to an expert, who can manage it.

With a household income over £1m I’m really surprised you don’t have a wealth manager. You must have millions in investments. Our wealth manager can access funds that we can’t access on the “retail” market and has a carefully calibrated hedging strategy (eg during the GFC our portfolio didn’t lose value).

our wealth manager takes on clients with investable assets over £1m. Our household income is a fraction of yours and I think we must be one of his lowest income clients but the firm are great for us in terms of future planning right to our predicted death dates (!)

A portfolio losing value is only significant if you you need to liquidise in the short term. In the long term your portfolio recovers as the market bounces back. I'm not sure an investment strategy that hedges so severely that there is no impact following a financial crisis would be the approach I'd buy into when the investments have decades to run. Do you have a low risk appetite?

With an income of 1.2m I’m going to assume you’re not investing more than 250k per year?

If so it’s likely the options offered by your bank if you have some sort of premier or private banking option are sufficient.

once your total portfolio is over £2m then that’s when you start to see roi, imo.

Do you try to treat your own health problems? Would you rewire your own house. Wealth managers/ financial advisers take a load of exams and have to keep up to date. We don’t have shed loads of money but know that our WM has given us great advice and invested our money wisely.

@Rocknrollstar that’s an interesting analogy but I think it convinces me a bit less. I certainly wouldn’t rewire my own house, as I wouldn’t have the faintest idea where to start, so an electrician would do it better. But we more than know where to start with investments. I would treat many uncomplicated health problems myself. I don’t need a dermatologist to treat a patch of eczema, but would see one if something more complicated cropped up, which is perhaps a comparable situation. We have a good income but uncomplicated financial arrangements (make a good return on investments) and I’m sceptical that a WM can offer much to that in return for their fee. I’m not at all critical of people who have made a different choice, and I understand why they do.

Both health and wealth, I will gather information from experts and then make and my own decisions. Only I know my entire risk profile and what I'm comfortable with, no amount of information gathering can give another individual your entire life situation, it's only ever a snapshot.

Hmm - I'm not hanging off the opinions of every doctor I ask to treat a condition. I certainly wouldn't turn up at an appt without doing a bit of research on my condition and my treatment options. Last electrician I asked for evidence of exams/courses taken never came back!😂
I'd like to believe that professional exams demonstrate someone's high levels of ability but I have come across too many incompetent professionals (with all the exams and qualifications) to know better. You're putting a lot of faith on those qualifications - I just couldn't.

Tax efficiency is the biggie and beyond that your advisor has to do superbly well to compensate for the fees. Many can for a while but few for the longer term. Over time the power of diversity and the market trends beat stand alone good picks.

@Waywardremote in the pension investment world, 4% is the standard used, eg, the rule of thumb is not to take out more than 4% of your pension value pa if you want to preserve capital. Doubtless if you are a stock picker extraordinaire you could beat 12%, but any investment firm advertising more than 10% on a mixed portfolio, well, I would be raising my eyebrows.
I have a medium risk investment portfolio.

4% rule is about providing a steady income stream in your retirement.
When average stock market returns have been 7-8% (real) long term why would you see 4% as the standard while you are continuing to add to your pension?

Do you consider yourself financially literate? I don’t mean to be rude but 4% is a very low target - and they are charging you to try and achieve that? And there you are thinking 6% is good when it’s really not. Did they tell you that the average gain was 4% or was that something you found out for yourself?

I think you’ve misunderstood. @Moanranger is correct that there is a rule of thumb that 4% pa is the safe withdrawal rate if you want to preserve the real (ie after inflation) value of an equity portfolio. Thats consistent with a nominal return of about 7% (assuming 3% average inflation). 7% is more or less long run average equity returns.

I’m sure you’ve had better returns than that over the last ten or fifteen years. But the last decade has been one of the best ever and you shouldn’t extrapolate that forwards.

@AlastheDaffodils Moanranger says she had an average earning of 6% on her Sipp over the last 10 years and that beat the market. I disagree - the market has done much better than 6% over the last 10 years. Her initial comment did not mention pension draw down.

She’s retired so presumably has a decent allocation to bonds and cash and that 6% is the blended rate of return across asset classes. Her portfolio overall may well have beaten the appropriate market comparator, which won’t be 100% equities.

I think people really mean volatility when they use risk which isn’t helpful.