Abu Dhabi D-I-Y

Dominic Thomas
Sept 2024 • 4 min read

Abu Dhabi D-I-Y

Those who read the financial press may have observed that Bristol-based DIY investment platform Hargreaves Lansdown, which has made the founders incredibly wealthy, has agreed sale to a private equity group. It will give shareholders cash up front and if the buyers are to be believed (careful Dominic), the investment will be long-term (meaning longer than the typical three to five years that a private equity group would normally wait before scuttling the ship). At an eye-watering £5.4bn, there will be plenty to go around for the brokers of the deal.

A shareholder in HL will be offered £11.40 for each share which was described by the Board as “fair and reasonable” (the share price reached a peak of £24.19 in May 2019 and had shrunk back to 2013 levels by April 2024 to £7.18.

Managers at HL will of course now be looking over their shoulders, particularly if they haven’t secured shares in the company themselves. HL is the largest DIY investing platform in the UK, but still three times the price of our favoured platform. Technically it is a DIY service with all risk residing with the investor (unlike an adviser relationship). Meanwhile HL’s own latest data suggest that revenue is up 4% but operating costs have increased rather more (by 14%) and profits are down. They hold over £155bn on their platform, with growth largely coming from market returns (remember this is investor selected funds).

I am sure that the consortium of CVC, Nordic Capital and Platinum Ivy will help many people to invest for their futures, I simply remain unconvinced that this will generally benefit the staff or ‘clients’. Certainly technology is expensive, check that again for regulated technology as AI becomes ever more embedded into trading structures and report generation.

Competition that will likely focus on speed and cost reduction is the logical path ahead and one that HL will need in order to persuade its DIY investors to stay on board. This is probably the crucial aspect that platforms tend to forget. Those who are motivated by low price will always seek a lower price. Those that do not see or understand the value of advice will not pay for it, but may inadvertently pay rather more in the end.

Personally I quite like HL, they enable a lot of people to start investing. They are expensive, often having somewhat questionable ‘relationships’ with some investment companies who are then proffered as “Best Buys”; but nevertheless offer a nice, slick DIY service. The staff I have met all seem perfectly decent. Whether the culture changes and cost-cutting becomes particularly deep remains to be seen. Private Equity firms generally look for a lucrative return for owners not customers.

In summary, if you really want to spend your time fretting about Sharpe ratios, alpha, beta, OCF and the right asset allocation, you can continue to do so. Alternatively, we can do all that and take responsibility for a sum that I can assure you doesn’t even buy me a trip to Abu Dhabi, though perhaps Bristol. Of course I’m simply envious that I didn’t think of it 40 years ago!

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Abu Dhabi D-I-YJemima Thomas2024-08-30T15:05:10+01:00

Should you become an investment expert?

DEMANDING ATTENTION

I recently read Oliver Burkeman’s latest book “Four Thousand Weeks”. I thoroughly recommend it. One of the things he reminded me of is that your life is sum of the things you pay attention to.

Whether that’s a deliberate focus or a haphazard collection of experiences. What you pay attention to will define you.

You can choose to spend your time looking after your own investments. There is something about this that seems perfectly reasonable and “grown up” after all, who is more trustworthy with your own money?….

Or perhaps you can let go of the notion that you need to be fully competent in many aspects of adult life. Perhaps the plethora or choices and complexity is nothing like those your parents actually had. When money was generally a lot easier and investment choices were simple. Heck, it’s much more complicated than 10 years ago, let alone your parents generation.

Now we have that time saving device and access to the internet, all possible answers can be considered. But is this how you really want to spend your precious time?

THINGS I PUT DOWN

My parents built our first family home when they were just 25, the house itself is still standing and probably faring better than the faded magazine that reported their story (House Beautiful) from the time. Meanwhile I’m over twice that age and can barely achieve most rudimentary DIY tasks. In truth, they had limited options as a couple of new teachers back in the 60s. They built a house because for them, it got them a home they could afford. A decade later they sold it for five times what it cost them.

I’m not daft enough to attempt a house build, it is an aspiration to do so one day, but what I really mean is have a house built, one that I have “designed” not to actually lay all the bricks!

Perhaps I will never get to “build my own house” it can be added to the very long list of things that I will never get to do, that isn’t going to deflate me, it’s reality and the fact that my choices are always compromises.

If you want to do your own investing, fine, go for it. I can promise it’s not a part-time occupation and experience can be expensive to acquire. I’m serious – go for it. You will have a world of choices and “experts” bombarding you with information. My one tip would be to have an evidence-based Investment philosophy and stick with it for life…. Or at least 2 decades.

Alternatively, why don’t you go out and do something less boring instead…

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Should you become an investment expert?Dominic2023-12-01T12:12:51+00:00

Pensions: New Freedoms

Pensions Freedom

Have you heard about pensions freedom? Are you approaching retirement and thinking that this is excellent news, you can have your entire pension? Well you are right, but as ever there is a catch. You are free to self-destruct, it is your right to do so (and I’m not being patronising).

On the one hand freedom is good right? but with it comes responsibility (why do I sound like a Spiderman scriptwriter). By responsibility I mean, once you spend it, whether thats taking it as a lump sum or buyng an annuity or leaving it as a Flexible Access Drawdown pension, once it has gone – that’s it. Nothing left… except any other pension income you may have such as the State pension.

So this is all about knowing what you have and what you need. Something that no British Government has ever managed to get right for themselves, yet here we are, with new freedoms. So you have to figure out how long you will live to work out how much you can afford to take out each year. Actually rather more than that, you have to predict future inflation rates, mortality rates, investment returns and tax rates…. to name a few “elements”. Of course you could get a financial planner like me to help by doing some cashflow modelling and explaining the options and reviewing progress regularly or you could do it yourself.

Today I learned about a term called the IKEA effect. This is when we place a disproportianately high value on something that has been partially made us. Go on look it up. This is precisely what happens to DIY investors… that portfolio I built, its not bad. Actually the truth is rather different. I mean no disprect to IKEA or DIY investors. This is about a price-point in the market – what you can afford. Arguably you will have to live with both (furniture and your DIY portfolio) but your portfolio has to last your lifetime. I’m all for consumer empowerment and the removal of elist jargon and ivory towers, but information is not the same as experience or indeed knowledge. I wonder if you remember the John West tinned fish TV adverts? its the fish that John West rejects that make them the best. In other words, selection, some might call it curation – is vital.

Building the right portfolio to last for life is a fairly daunting challenge, for a few this isn’t going to be much of a problem, but for the vast majority of people it will be. Most people do not pay attention to the holdings in their ISAs or pensions. Most are in the funds or more likely single fund, that the adviser put them in when they started their pension. Little attention has been paid to assessing the level of contributions needed, frankly its more like lucky dip… and who can blame them! the jargon is a huge barrier, statements are fairly unclear and the rules keep changing, little wonder people don’t spend much time looking after one of their largest assets. Yet suddenly at the point of retirement, they are expecting to become investment experts. Whilst the Government may say that people should be trusted with their own money, thats fine if it relates to the straight-forward stuff of running a budget and basic banking, but when it comes to understanding asset allocation, volatility, sequencing risk, safe withdrawal rates, reductions in yield… well frankly its taxing even for the experts. Your pension is not a shelving unit from IKEA, its more like fitting a pace-maker, one that has to keep you going.

My advice is to get advice – don’t get sucked into short-term thinking and getting some degree of satisfaction from raiding your pension to show your displeasure with the pension company. Certainly there are better pensions, but you really need to get sensible advice to explore your options properly. You wouldn’t build a house without architectural plans (I hope)… the same is true when it comes to designing a portfolio for life.

Dominic

Pensions: New FreedomsDominic2025-01-21T15:50:49+00:00

Can the Money Box Producer invest £5,000?

Earlier this month Money Box, the BBC Radio 4 programme decided to find out how easy it was for a complete novice to do their own investing. He has a sum of £5,000 representing his life savings, which is otherwise held on deposit in his bank earning less than 1% interest.

Financial Planning Basics

It is true to say that basic financial planning is straight-forward, yet most people fail to do the most basic tasks. Financial advisers may therefore spend considerable time, helping clients to get the basics in place. This was touched on in the programme, but very briefly. In essence, ensuring that your finances are under control, knowing what you spend and what you earn, having suitable reserves (3-6 months of spending). Having a Will, adequate financial protection and clearing debt etc.

Too small-fry?

As a result the starting premise of the show is how to invest £5,000. In truth the vast majority of financial advisers are not really interested in this level of work. Its not financially worthwhile and its not satisfying work. A good planner will take investors through a risk assessment, invariably a questionnaire which helps start the process of explaining and understanding investment “risk”. In truth this ought to be a straight-forward process, but it often isn’t. DIY investing is fine for low levels of funds, but when the sums get bigger, so does the complexity.

How much is a pint of milk?

Sadly Wesley didn’t really do DIY investing. He asked for advice and then went to the investment company to find that they required £100,000 as a minimum to invest directly through them. Alternatively he could access the fund through a platform. He then asked a very good chap Mark Polson, who assesses platforms for people like me, about which platform to use. This is an art and science. However, Mark rightly points out that using a platform will cost typically 0.25%-0.35% for using their administration. That’s £12.50 – £17.50 for a £5,000 investment. I’d call that peanuts, though I’m sure Money Box would disagree.

Investing is not gambling. Gambling is gambling.

I was also disappointed to hear the description of investing as a “gamble” from someone in the know (Candid Money). It carries risk but it is not gambling. Thankfully ludicrous questions were kicked into touch and Mark also pointed out that “best” and “cheapest” are two different things. Paul Lewis also seems to think that charges are a loss. They are a cost of investing, not a loss (and free banking isn’t free, its cross subsidized by loans etc).

The DIY Investor

I have lots of sympathy with people that find financial planning expensive and also have had bad experiences. I recently met with a potential client who is a DIY investor, but really wanted to know how to minimise capital gains tax. He was a bright guy, but fairly unusual, holding shares in just two companies worth a good six-figure sum. Whilst he seemed to appreciate the risk he was taking, I had serious doubts. He had no clear idea of the returns achieved and not kept any good records. For all I know he may be a genius investor (unlikely) but my suspicion is that his approach was born out of an understandable mistrust and fear of being ripped off, yet in practice he was (and is) in serious problems should his two shares take a turn for the worse. The main winners will be HMRC as he has not used any capital gains tax or ISA allowances over the last 20 years (use it or lose it).

DIY is spending time to save money, yours.

DIY investing is not something to be undertaken lightly. I am learning new stuff almost each day and I’ve been doing this for over 20 years. Frankly, any professional skill can be learned by most people. Yes I could even learn to be a brain surgeon… but do I want to? am I actually playing to my natural interests and skills? if time is short, why would I waste it learning about stuff an expert can do for me? (and with whom I have a professional relationship). I tend to find people tend to fall in one of two camps – spend time to save money, or spend money to save time. DIY investors are the former (by doing it themselves) but beware it takes a lot of time, whereas you could focus on the things that actually improve your employed skills and therefore your income, or simply spending time on doing the things you love. Oh and Money Box – “ad valorem” is a fee based on the value of a portfolio, in short a percentage. There is definitely a need and place for DIY investing, but check where you are really coming from before you embark on this rather lonely and arduous venture. You don’t want to find that all is lost…

Dominic Thomas: Solomons IFA

Can the Money Box Producer invest £5,000?Dominic2023-12-01T12:38:59+00:00