‘My adviser of 20 years manages my £1.3m portfolio for 1pc – am I paying too much?’

Dear Ian,

Firstly, it’s never too late to make changes to your portfolio. It is important to take control of your finances, whatever your stage in life, otherwise you could find yourself nursing unnecessary losses. You’re in a strong position with plenty saved in tax-efficient pensions and Isas, rental income, and a lump sum of cash at your disposal.

Starting with your investments managed by a financial adviser – apart from Royal London Sustainable World Trust and Liontrust Sustainable Future Managed Growth – you’re fully investing in what the industry calls “fund of funds”. These are portfolios built with other funds designed to spread risk.

They own a mixture of equity and bond funds, with different risk profiles according to the asset class mix, are pretty normal building blocks of portfolios and are generally low cost as they own passive funds run by their own investment managers, such as HSBC, Legal & General, and Vanguard. 

These are slow and steady funds and aim to provide you with decent long run returns. Vanguard LifeStrategy 80pc Equity and L&G Multi Index 7 are both up around 43pc over the past five years before adviser and platform fees are added.

While there’s nothing wrong with this approach, I would speak to your adviser and ask why you need multiple funds that are basically doing the same thing. Just so you know, you could also easily invest in one or two of these “fund of funds” (which I think would be plenty) on a DIY investor platform and save yourself on fees.

Having said that, financial advice can be very valuable, and if it gives you the confidence to invest then that is important.

As you are entering retirement, it has never been more important to manage your money well and minimise tax, so an advised approach is most probably suitable for your circumstances and worth the extra fees. One percent of assets to your adviser is standard in the industry.

I expect you are also paying fund fees too, which range from 0.18pc (HSBC Global Strategy Dynamic Portfolio) to 0.86pc (Liontrust Sustainable Future Managed Growth). Remember if you’re going to be paying extra for advice, then you want the cost to be worth it. 

Your financial adviser is not the only one out there, so if you’re not feeling happy with the service, then have a shop around and find another one that works better for you.

Moving on to your Isa, since you’re confused about how they work, put simply, your £20,000 of individual shares are all held inside the so-called Isa “wrapper”, which means that buying and selling of shares all happens within your Isa. 

The Government gives you a limit of £20,000 a year that you can put inside the ISA wrapper. You can buy and sell investments in your Isa without triggering any tax or changes to your annual allowance. If you withdraw any cash from the Isa then you might not get any additional allowance back, depending on your provider’s terms.

On to what to do with your Isa, clearly stock picking isn’t working out. But don’t panic, you’re not alone and there is a simpler solution. 

Stocks are far riskier than investment funds, which can own hundreds or even thousands of stocks and bonds, so if you want to reduce the risk you are taking, and hopefully drive you in the direction of better returns, then I would consider selling most or all your share portfolio and shifting into a diversified fund or funds instead.

Based on the funds your adviser has opted for, which I can only assume meets your risk appetite and objectives, one option might be to replicate the Vanguard LifeStrategy 80pc Equity fund from your Sipp. It is an excellent, straightforward option owning a geographical and asset class diversified portfolio of stocks and bonds in a ratio of 3 to 2. 

You could put your entire annual Isa allowance into this single fund, which would make managing your portfolio immeasurably less stressful.

If financially possible you could also set up regular investing into this fund of £1,666.66 a month, allowing you to maximise your £20k Isa allowance each year. Alternatively, again if possible, you could put a lump sum of up to £20,000 into this fund at the start of each tax year if you want to allow for more time in the market and potentially slightly better returns.

There are of course many other funds to choose from, in what can be a complex universe. But I think this is a great starter for 10 for you that should help begin to ease your nerves about DIY investing and prove to you that it doesn’t have to be complicated or unnecessarily risky. 

If you are conscious about fees, perhaps over time as your confidence grows you could increase your low-cost DIY investing pot and rely less on the adviser – but that’s a totally personal decision only you can make.

If you take nothing else from this article, I want you to know that investing doesn’t have to be daunting and fees matter, so always keep an eye on them. 

Deciding whether to use a financial adviser or opt for DIY investing is up to you to decide, and it’s not an ‘either/or’, so you could just stick with both. Best of luck for your financial future!

Victoria is head of investment at Interactive Investor. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.