SIPP, Hargreaves Lansdown and Funds

workingNOMAD_2

I have seen three IFAs and they are slag off SIPPS - and I thought fair enough but then I realised they probably don't make so much money out of you this way so of course they are going to advise against them!

IFAs = Estate Agents

whiteflag_3

workingNOMAD wrote: »

I have seen three IFAs and they are slag off SIPPS - and I thought fair enough but then I realised they probably don't make so much money out of you this way so of course they are going to advise against them!

IFAs = Estate Agents

Wrong !!! They dont recommend them because they dont suit most people.

SIPP stands for Self Invested Personal Pension, so it follows that people visiting IFAs are not capable of making their own minds up thats why they are seeking advice. Why then would they be recommended a product as suitable for them that needs "self investement".

workingNOMAD = typical ill informed narrow minded clown.

dunstonh

I have seen three IFAs and they are slag off SIPPS - and I thought fair enough but then I realised they probably don't make so much money out of you this way so of course they are going to advise against them!

Probably as most people shouldnt be in a SIPP and they are more expensive than the alternative options. Plus you have the FSA coming out saying the same.

I'm pleased to see that you have seen three IFAs who have all said SIPPs were not right for you. It suggests good advice.

srg751

Who won???:D

sdooley

EdInvestor wrote: »

And ETFs if you want trackers.

Exchange traded funds are much misunderstood. The smoothing mechanism they use to ensure their net asset value tracks the index means they should have an extremely close adherence to the targetted value - however such mechanisms can stop functioning dramatically, especially with larger funds in more illiquid markets like the USO fund invested in crude oil, which has gone way off its benchmark due to having to pay a premium to roll from one month's contract to the next. Some ETFs are fully invested in the underlying (reference) instrument, but many are based on a contract with a 'copper-bottomed' financial institution which agrees to pay any change in value of the index - unfortunately some such institutions like Lehmans and AIG have fallen on bad times and may not be able to honour these contracts.

Inittowinit_2

I've been reading this board for a while and feel compelled to post, to set a few things straight.

I have a HL SIPP that I started about 5 years ago with a very small transfer from a Norwich Union Stakeholder (<£3k) and regular monthly contributions of £50. Over time I have increased the contributions and the total fund is now worth nearly £15k.

I also have a Scottish Widows PPP for contracting out, as this wasn't something that you could do in a SIPP at the time I set mine up.

Overall, I have been very pleased with the SIPP. It is certainly not something that should be taken out by people who have no idea about pensions or investments (or by those who do not read the terms!), but for those who have some idea about what they are doing or who bother to do their own research I don't think you can go far wrong.

The basic charges are clearly set out on the website (but I'm not allowed to post the link in my first post!). The amount that you actually pay in fees will depend on the investments you choose.

The vast majority of my SIPP is invested in funds, with my core holding being the Invesco Perpetual Income. This has a 1.68% TER and the initial charge of 5% is fully discounted by HL. Other holdings include First State Asia Pacific Leaders (1.56% TER, 4% initial charge fully discounted) and GAM North American Growth (1.61% TER, 5% initial charge fully discounted).

Cheaper funds are available through HL - I believe the UK index trackers by HSBC are the cheapest with fully discounted initial charges and AMCs of 0.25% (the TERs are a couple of basis points higher). HL also offer a range of HSBC and Legal & General tracker funds investing in various countries and asset types with TERs of substantially less than 1%. If you prefer a cheap actively managed fund Schroder Managed Balanced has a fully discounted initial charge and a TER of 0.99%. I'm sure I could find a few more examples if I tried.

The charges of the funds that I have chosen to hold with HL are significantly higher than the funds that I've selected with Scottish Widows - three examples are SW UK Equity, SW Global and SW North American - and the AMC was discounted down to 0.45%. Charges on SW external funds are significantly higher, up to almost 2% on certain holdings.

However, you also have to consider the relative performance of these funds. For example, over 5 years, the Invesco Fund out-performed the SW UK Equity fund by roughly 35%. If (and I do accept the if!) you do your research and pick good funds, equities or other assets you can offset the higher fund charges on certain funds in the SIPP. The SIPP gives you scope to pick a range of good funds simply because of the number on offer.

Alternatively you can still have a SIPP and invest in funds with extremely low charges (i.e. less than you would pay in a discounted stakeholder) by doing a little research on the issue. And that's really the crux of the matter. Do your own research, decide what you think might be right for you, then do a little more research.

HL's SIPP can be substantially cheaper than a stakeholder (and I defy anyone to find a pension anywhere that charges less than 0.27%!). It can also be more expensive if you want access to the full range of funds and various other types of assets available.

Right, that's quite enough rambling for one post. Hope this is vaguely useful to someone!

dunstonh

HL's SIPP can be substantially cheaper than a stakeholder (and I defy anyone to find a pension anywhere that charges less than 0.27%!).

0.3% to 0.4% reduction in yields are very easy to find. RIY are typically 0.1% more than the AMC due to compounding so it is possible to beat. Plus most internal pension funds have the TER as the AMC so its not always as easy to compare like for like.

What are the reduction in yields on the SIPP as its the RIY that really matters on pensions.

Charges on SW external funds are significantly higher, up to almost 2% on certain holdings.

You are comparing full commission pricing to execution only pricing. If you compare DIY pricing on the SW plan then knock 0.4% off the AMCs. SW's pricing isnt the cheapest. However, they have a good fund range and a good internal range allowing you to build a portfolio utilising good internal funds cheaply (useful at the low risk end of the portfolio) and pick the equity funds (which insurance companies are usually poor at) from the external range.

If you prefer a cheap actively managed fund Schroder Managed Balanced has a fully discounted initial charge and a TER of 0.99%. I'm sure I could find a few more examples if I tried.

Why would you want to do that when you can get balanced managed funds at 0.2-0.5% on a stakeholder or personal pension. If an IFA was to put you in a SIPP and stick you in the schroder managed balanced fund and you complained it would be upheld as bad advice.

Apart from that, a very good post. Especially for your first.

EdInvestor

Inittowinit wrote: »

Cheaper funds are available through HL - I believe the UK index trackers by HSBC are the cheapest with fully discounted initial charges and AMCs of 0.25% (the TERs are a couple of basis points higher). HL also offer a range of HSBC and Legal & General tracker funds investing in shares and ITS, but H-Lcountries and asset types with TERs of substantially less than 1%. If

These will normally trigger an annual management fee, as they pay no trail commission to HL, as will a SIPP portfolio primarily invested in shares or investment trusts.Charges on the former can be virtually negligible if investors don't trade.

The various options available from Sippdeal will be more competitive for those who want to invest in shares and ITs.On the fund side, people with larger portfolios (75k+) may get a better deal out of Alliance Trust.But for basic regular investments in quality unit trusts,the H-L product is top of the heap.

Inittowinit_2

Dunstonh, thanks for the response.

RIY

I'm not entirely sure what you mean by reduction in yield.

On the SW funds held in my PPP, the AMC = TER, which is 0.45%, so I guess the annual RIY over 5 years would be:

1.0045 to power 5 = 1.0227034

100(1.0227034-1) = 2.27034

2.27034/5 = 0.454068% p.a.

This calculation appears logical to me, but I'm not sure it's technically correct. I'd be grateful if you could confirm it looks about right before I go off making incorrect comparisons...


SW External Fund Charges

The charges for all of the SW funds were subject to a 0.65% reduction negotiated when the scheme was set up as no advice was given on it. Granted the fee schedule that I have is now out of date, but I am comparing the XO price of the SW plan to the XO prices of investing in a SIPP.


Schroder Balanced Managed

I accept your point, but I would be interested to see some examples of stakeholders charging 0.2-05%. The best individual XO plans that I have come across generally start at around 0.7%. And again there is the question of relative performance!


EdInvestor, thanks for your response.

I know HL do charge 0.5% + VAT on nil commission paying funds. However, I believe that HSBC do pay HL something, so the additional charge does not apply. I may be wrong in that though and I have no idea whether it would apply to L&G funds.

Also, my apologies for the garbled state of the para that you responded to. It was getting late be the time I finished the post!

dunstonh

I'm not entirely sure what you mean by reduction in yield.

Its how you measure the charges on pension contracts. Its shown on the latter pages of pension illustrations where it says something along the lines of "charges have the effect of bringing a 7% p.a. return to 5.9%"

That example of 5.9% is a RIY of 1.1% which would typically indicate an charge equivalent to 1% p.a.

If you had an execution only SW personal pension or stakeholder (not including their retirement plan), then the 1% amc on internal funds would be 0.6%. That would show a reduction in yield of 0.7%. Other providers would come in cheaper due to fund based discounts and a multi-charge pension could come in a lot cheaper if you have more than 20 years to go until retirement. Hence the 0.3-0.4% RIYs that are possible.

I accept your point, but I would be interested to see some examples of stakeholders charging 0.2-05%.

Stakeholders wont get you 0.2% but a multi charge personal pension would. Quite a lot of stakeholders could go to 0.5%, a few could be cheaper but to get the lowest charges you typically need to use a personal pension with fund based discounts (and probably a multi-charge plan). I seem to recall that Whiteflag (or one of the other IFAs that posts) has their Scot Eq pension with a 0% RIY.

And again there is the question of relative performance!

I would agree to a very large extent and I myself use a personal pension that uses unit trusts (not a SIPP). However, its quite possible to build decent sector allocated portfolios using a modern low cost personal pensions that may not have the 1900 unit trust funds but 100-300 funds including the stakeholder and the external and you would be surprised how good the mix and match approach works out.

If you are a higher risk investor you certainly would be looking towards SIPPs or PPPs with large fund ranges as you want access to those higher risk funds. However, the typical consumer is more cautious or medium risk in nature and thats where the stakeholders and personal pensions tend to be at their best.