'I've sacked my adviser – how do I run my £2.3mn portfolio?'

When further market gains look far from guaranteed, one easy way to improve your investment returns can be to pare back excessive fees.

That’s the current thinking of Laurence, a 72-year-old reader who wants to ditch his financial adviser, simplify his investment portfolio and move into cheaper funds.

“As the short-term outlook for growth is lacklustre and I am paying around £47,000 in management fees I wish to manage the portfolio myself, move it to AJ Bell in-specie and simplify the very significant number of assets held which number in excess of 50,” he says.

“I want a diversified tracker portfolio to reduce management fees balanced by bonds which should see a return as inflation falls.” Laurence, who has been investing for 40 years, would like to see his investments grow by some 5 per cent a year and would be prepared to stomach a 10 per cent loss in a given year.

He has certainly been stung by some of the big market movements of recent times, noting: “The financial adviser’s performance has not been great in the past two years as they were heavily exposed to US tech stocks which took a hammering and made quite a dent in the performance.”

Laurence receives roughly £14,000 a year from state pensions and takes around £37,000 a year in drawdown from his £2.3mn self-invested personal pension (Sipp).

In terms of other assets, he and his wife have a £1.8mn property with no mortgage, Isa investments to the tune of £260,000, £100,000 in Premium Bonds, and £20,000 in cash.

Beyond taking over and simplifying the investments, Laurence’s strategy is now to keep drawdown and pension income within the 20 per cent tax bracket and use their Isas and Premium Bonds to top up as required, to a maximum of around £30,000 a year. “My wife will take dividends from our small consulting business in the short term, of around £20,000, for the next two years in addition to her £11,000 state pension.

“I see this as a long-term strategy as our additional tax-sheltered savings will suffice for around 10 years after which the Sipp will be our sole income source.”

Laurence has taken the tax-free lump sum from his Sipp and given it to his grown-up children, meaning withdrawals will be subject to income tax.

NONE OF THE COMMENTARY BELOW SHOULD BE REGARDED AS ADVICE. IT IS GENERAL INFORMATION BASED ON A SNAPSHOT OF THESE INVESTORS' CIRCUMSTANCES

John Moore, investment manager at RBC Brewin Dolphin, says:

The first thing to say is you have organised your financial circumstances well and the desired returns within the tax framework set are more than achievable which is a comfortable starting position to be in. However, there are a few things that may be worth considering.

While the spread of investments is larger than you would like it to be, it isn’t out of kilter with a more granular and lower individual investment risk approach. In the last 20 months or so, market returns have been driven by a handful of investments, so the largest 10 in the UK in 2022 and the ‘super eight’ as they are now called in the US this year. This narrowness has been a drag on the performance of active managers who typically hold a broader spread portfolio and in general terms, funds will always have a bias to slightly smaller companies (where there may be less research and more potential to add value).

If underlying cost and short-term performance considerations are a factor, then there may be a case for taking some of the active collectives and using index trackers to meet this desire. Trackers would also naturally allow for greater aggregation of holdings also.

Being mindful of the desire to achieve returns of around 5 per cent and also of the regular withdrawals, there may be a case for more gilts, this would also reduce underlying costs, at the expense of many of the UK or strategic bonds.

Gilts that mature between now and 2027 offer a yield of around 5 per cent, and this not only meets the return criteria but would also be liquid when they matured, which would provide more options in terms of managing the income requirements of the Sipp and the Isas. If you bought bonds directly, they would also be tax free.

If holding more cash on deposit is less attractive, then under-par gilts and their potential to offer good tax-equivalent returns could be a consideration too. While the 2027 gilts offer the desired return profile, the maturity is short so a spread of maturities would be a better option.

The level of cash held at the bank seems low relative to the overall level of wealth and the income taken each year. It’s a good idea to have six months’ worth of income or expenses to hand in the bank and with interest rates competitive at the moment, there is no real disincentive to do this.

It is also worth tackling the appropriate level of risk, the ability to cope with losing 10 per cent in any given year would typically be consistent with someone with a lower-risk profile that would have less in equity and more in bonds. Adding to cash, as outlined above, from equity exposure might be a way of reconciling this if applicable.

Dennis Hall, chartered financial planner at Yellowtail Financial Planning, says:

You mention that your Isas and Premium Bonds are supplementing your combined pension and dividend income. These savings are expected to last another 10 years. Making some very basic calculations suggests you are topping their pension income up by approximately £12,000 annually for the next two years which then increases to around £32,000 for the next eight years. I’m ignoring Isa gains, interest and inflation, so there’s some margin of error.

I estimate gross income to be around £98,000 a year, so once the savings income is depleted the amount of drawdown required from the pension in today’s terms rises from £37,000 to around £67,000 if we allow for the extra tax that will need to be covered.

Based on a current pension value of £2.4mn that is a withdrawal rate of approximately 2.8 per cent which is sustainable and should be able to provide a fully index-linked income at that level for life. There is scope to take out a lot more money from your pension.

Normally at this point, I would be making reference to the Lifetime Allowance Test at age 75, but as it stands this is scheduled to be removed during the course of this government. However Labour have said they would reintroduce the Lifetime Allowance, but under what terms? It makes planning very difficult.

If the Lifetime Allowance were not being abolished there is an argument for withdrawing higher levels of income between now and age 75 to reduce the amount of tax paid at 55 per cent on the excess above the Lifetime Allowance threshold. Without knowing what a future (Labour) government would do it’s hard to advise. It’s even more difficult if we attempt to second guess a future government’s approach to passing on pension benefits on death, a common reason why people will spend assets in their estate before drawing down their pensions.

I wonder if there is any scope in using some or all of the company dividend payments to fund pension contributions in her name, especially given the reductions in tax-free dividend allowance.

Employer contributions to a pension are not limited by the employee’s salary. If a pension was set up, personal contributions of £2,880 net could also be made even if not in receipt of earnings, and this could continue to age 75. The savings may be small, but are worth having all the same.