Which SIPP Investment: 6 Vital Questions (6 of 6)

Question 6: Do I Need Advisors For Any Portion Of This Investment?

Given any deal, you will not know certain areas, comparable company prices for example. I personally know nothing of refurbishing. We all reach our limits, and every deal will have an aspect in which you are not expert. Understanding risks does not mean you have to be expert in a thousand areas of law, property markets, chemistry, solar installations, property repairs and so forth. Understanding means understanding what the risks are and having a plan to manage them. One strong method is to have people better than you do certain aspects: lawyers to make or check contracts, builders to do renovations, estate agents to see market trends, financial advisors to help with putting a potential asset in the context of your entire portfolio and your goals.

So, while understanding the aspects of your investment, price in the right advisors. For example, to invest in a solar panel on your house (or someone else’s, for that matter) then getting advice about potential installations and how much they could produce in your region are critical. Getting an expert to place and position it correctly is also essential, and so forth. With solar panels, the current high yields arise from governmentally set rates for producing the electricity and also for selling it back to the electrical grid. Understanding these nuances requires an expert’s opinion. Furthermore, the governmental rates might change (i.e. be reduced) over time. While you may not be able to “manage” this risk, you should at least know the political component of this type of investment.

I would never buy a property without having someone inspect it. Same goes for used cars. Using an advisor is like buying an inspection.

Even when I know an area, I seek out knowledgeable people and tell them what I am trying to do to get their reactions. It is easy to miss things, even in your own profession. How easy is it to miss things outside your own profession? Even in my own profession, when trying to do something new, it is easy to get carried away in the wrong direction, to lose sight of obvious risk or even obvious benefits.

By the way, not all advisors are expensive. Some are even free. Independent Financial Advisors (IFAs) have initial talks for free. So do estate agents.

Of course, not all are free. Some start free but will eventually require a fee for certain services. You should factor this into your decision process. Advisors are like insurance. They seem expensive until something goes wrong, then they seem a God send.

By the way, people who are free and never lead to a fee make me nervous. The question I ask is, “Why are they doing this?” Some talk about “giving back” or “just the love of it,” but I am too conservative an investor to take such comments at face value. If their fee is paid by someone else, then that is biased advice they are giving. Some have a less than wholesome way of benefiting form a deal. I am not saying all such people are crooks, only that their advice is not aligned completely with your interest.

Also, consider the manner of an advisor’s fee. Consider stock brokers. They get paid by commission on every trade. They generally do not get paid more when you earn well. Unsurprisingly, they offer a lot of trade ideas. This generates more commissions. Buying and holding does not benefit them as much, though may be good for you.

Skimping on advisor fees may be the most expensive investment decision you ever make.

A Summary

which sipp investment
Dr Matt Modisett

About Dr Matt Modisett

With more than 25 years’ experience, Dr Matt Modisett PhD FIA ASA MMA has spent his career in investments and insurance.  He's worked in the USA, Japan, The Netherlands, Spain, Belgium, Hungary, Australia, and the UK. He was formerly a Chief Investment Officer for an insurer, Asset-Liability Manager for three insurers, and has consulted for many years, all for top tier institutions. He has served as Professor of Actuarial Science and also as Professor of Finance.

He holds a PhD in Mathematics, is a Fellow of both the UK Institute and Faculty of Actuaries and the Hungarian Society of Actuaries, and is also an Associate of the USA Society of Actuaries. He has numerous publications to his credit.

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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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