Lifestyling funds
"I understand why some investors use them, but on the whole they’re a poor product," said Danny Cox (pictured right), head of advice at Hargreaves Lansdown.
"I suppose they do the best of a bad job for people who never look at their pension, but you can lose a lot of money in these types of fund."
Lifestyle funds automatically increase an investor’s exposure to fixed income as they approach retirement, based on the assumption that bonds will always be less volatile than equities.
In the last decade this assumption has paid off, but many industry professionals, including Cox, believe fixed interest is in for a tougher time in the next 10 years or so.
"Investors should be engaging actively in their investment strategy. During the financial downturn in 2008, some bond portfolios still would have lost 13 or 14 per cent," he added.
A recent Trustnet study found that the historically "safe" IMA UK Gilt sector has been more volatile than IMA Cautious Managed in the last year.
Mark Dampier, head of research at Hargreaves Lansdown, agrees with Cox, stating: "If, as expected, we go into a 10- to 15-year environment with higher interest rates and rising inflation, increasing fixed interest exposure will be a complete disaster."
Basic rate tax payers and ISAs
"It drives me up the wall when I hear advisers telling investors that there is no benefit of using a stocks and shares ISA if you’re a basic-rate tax payer," said Cox.
"This is a complete myth. Granted, there’s more of a benefit for those on a higher income, but there’s no reason why those on a lower income shouldn’t use an ISA."
"Investors still benefit from not paying income or capital gains tax, and they can move in and out of funds with ease. I just don’t understand why anyone would advise against it."
Misleading pension quotes
"The charges included in pension quotes are very misleading and very few investors or even IFAs know exactly what they’re paying for," said Richard Hancock, analyst at Cumbria-based IFA Financial Management Bureau.
"The charges of some funds look very high, but investors don’t realise that these high total expense ratios (TER) are often taken into account in performance."
"Comparative models don’t take these discrepancies into account, so the only way to avoid confusion is to go through each quote individually and know exactly what you’re paying for."
Asset allocation models
"I think it is a dangerous mistake to use one of these asset allocation models," said Hancock. "In a lot of cases, the lower risk brackets have a lot of money in gilts, which is not where you want to be at the moment."
In a recent Trustnet article, Graham Bentley, head of proposition at Skandia, defended asset allocation models, insisting they are a crucial tool for risk-conscious private investors.