DIY retirement planning vs professional advice: what's the real cost?

But retirement is one of the biggest financial transitions you'll ever make. Decisions about pensions, income, investments and tax can have long-term consequences, and it's often the questions you don't know to ask that create the greatest risk.

So, how do you decide whether a DIY approach is enough, or whether working with an expert could add value? We answer some of the most common questions below.

Is DIY retirement planning a realistic option?

If your finances are relatively straightforward and you're comfortable making investment decisions whilst managing your pension and tax strategies, a DIY approach may be suitable.

However, retirement planning is rarely a one-off exercise. Markets change, legislation evolves and personal circumstances can shift unexpectedly. Many people find they can manage the basics themselves but become less confident when things change and challenge the status quo.

What are the biggest risks of managing retirement yourself?

The following is a non-exhaustive list of the risks to be aware of in managing your own retirement:

• Investment biases – when managing your own investments there are many cognitive and emotional traps that you can fall into. A common and often damaging example is the temptation to sell-out or de-risk during turbulent market conditions. Whilst these impulses are understandable, they are rarely beneficial for a long-term investor.
• Lack of full knowledge – many people are well-versed on the retirement income options they will face but are, for example, less able to fully grasps how the relevant personal taxes (Income Tax, CGT and IHT). A good adviser should have full knowledge of these relevant areas and be able to bring them together into a coherent and well thought through plan.
• Administrative risk – the world of pension administration has only got more complex in recent years and the demand on pension providers has also increased. In recent years we have seen this result in numerous headlines about providers missing deadlines around the end of the tax year and, more often than not, this relates to DIY platforms.
• Continuity risk – in a family the responsibility for running the finances often sits with one individual. This creates a risk that if that individual is not able to perform that function, the plans that they have created may quickly be derailed.

What will my adviser actually do?

At a basic level, two of the most valuable aspects of professional advice is helping you identify what your objectives are and then understanding whether your plans are realistic and sustainable.

Many people planning their own retirement rely on spreadsheets built around fixed assumptions for investment returns, inflation and spending. While these can be useful, they don't always reflect how retirement works in practice. Markets rarely deliver consistent returns year after year, and factors such as inflation, market volatility and changing spending patterns can all affect long-term outcomes.

Professional cashflow modelling allows advisers to test a range of scenarios and understand how different events could affect your finances over time. It can help answer important questions such as: How much can I afford to spend? What happens if inflation remains high? How would a market downturn affect my plans? Could I afford to help my children or grandchildren financially?

Once you have a robust plan in place, the role of an adviser should be:

• Ensuring your invested assets remain invested appropriately. Crucially, this is often not about simply picking great investments, it is more about helping clients to avoid the risks.
• Proactively advising you as legislation, market conditions and personal circumstances change.
• Dealing with the administrative burden of managing your financial position.

What value can an adviser add beyond managing your finances?

Ultimately the aim for any adviser is to create better financial outcomes than you would deliver yourself, after taking account of their fees. Whilst in most cases this is impossible to measure, an adviser with strong expertise, appropriate investment oversight and who keeps in regular contact with you should be well-positioned to meet this objective.

However, when we speak to our clients about the value they derive from our services, the response is rarely about financial outperformance. Instead, they talk about the following factors as being where they derive most value:

• Removal of administrative burden and the associated freedom to enjoy their retirement.
• The confidence that they have a plan that is realistic, tested and achievable and that it will continue to be reviewed and amended as needed.
• Clarity over their long-term financial position and what actions they are likely to take over the next five to ten years.