Costs of Financial advisor

m.bradley

My husband has 4 private pension policies with Scottish Widows and Prudential. They are due to mature in July when he is 60. We have been to a financial advisor to ask for advice as to where to put them for one pension provider. He was recommended to us by our accountant. He says the work will cost us a fee of between £1200 and £1500. Is this the going rate or is he asking too much and can this advice be gained more cheaply.
Can anyone advise
Thank you

MrsM_4

I don't pay my financial adviser anything..

and he is great.

This seems excessive, but not sure where you can find one. Reccommendation is obviously key - ask around your friends who they use.

Of course you need an independent chap (or chapess)..

Help will be here soon!

mm

Chrismaths

I don't pay my financial adviser anything..

Errr... yes you do (unless he's a friend and is rebating trail to you). He will receive upfront commission on any product he recommends plus an ongoing servicing charge from the company that he recommends. You either pay by fees, by commission, or by a mixture. But you ALWAYS pay. Commission bias (where a financial adviser recommends a product that pays him a lot of money) still exists I'm afraid, and the only way to get round it is to take the fee option and make sure any commissions are rebated to you.

I take it from the £1200 - £1500 you've been quoted that the OP took the fee option. You can do it yourself if you want to save the money. You just sign up for a new pension with someone (personally I'd go for a SIPP with £80k, at least the charging structure is explicit, unlike most other insurance company pensions - but as an investment manager, I'm also probably biased ) - then fill in pension transfer forms. It's a lot of work however.

edited to fix quote

dunstonh

He was recommended to us by our accountant. He says the work will cost us a fee of between £1200 and £1500. Is this the going rate or is he asking too much and can this advice be gained more cheaply. This is an important life decision and we dont feel confident enough to do it ourselves.
The total pension fund for my husband is £80000.

That fee is more than the commission that would be payable if you went commission basis rather than fee basis. Annuities are typically 1%-1.5% of the amount after tax free lump sum.

IFAs attached to accountants are typically more expensive.

I don't pay my financial adviser anything..

As Chris says, that is not correct. You either get the provider to pay by commission, in which case you pay charges on the contract or you pay the fee and the charges on the contract are lower. No harm finding out the benefits of both ways as sometimes it can be cheaper on commission or cheaper on fees.

Commission bias (where a financial adviser recommends a product that pays him a lot of money) still exists I'm afraid, and the only way to get round it is to take the fee option and make sure any commissions are rebated to you.

The last investigation by the regulator found no wholesale bias due to commission. Obviously some may do that but the regulator was satisfied that it wasnt happening widely.

A third option is to agree a fee but have it paid by commission. This avoids the need to pay VAT on top of the fee (so in the case of the accountant's IFA, you would pay that fee plus 17.5%). If you agree a fee of £650 (which is reasonable for your transaction), then see if it can be paid by commission and therefore avoid VAT. It isnt always possible as some providers dont allow that flexibility, especially on annuities but nearly all do on investments (in case anyone else is reading). For information with investments, 1% initial commission with 0.5% servicing is becoming a popular standard for those on the new model basis for charging.

I take it from the £1200 - £1500 you've been quoted that the OP took the fee option. You can do it yourself if you want to save the money. You just sign up for a new pension with someone (personally I'd go for a SIPP with £80k, at least the charging structure is explicit, unlike most other insurance company pensions - but as an investment manager, I'm also probably biased ) - then fill in pension transfer forms. It's a lot of work however.

A SIPP being more expensive than a stakeholder pension if that was the route to be taken and both having explicit charging. However, m.bradley is talking about commencement of benefits rather than a transfer of provider and unless drawdown or similar is being considered, then a SIPP will not be appropriate.

EdInvestor

m.bradley wrote:

He says the work will cost us a fee of between £1200 and £1500. Is this the going rate or is he asking too much and can this advice be gained more cheaply. This is an important life decision and we dont feel confident enough to do it ourselves.The total pension fund for my husband is £80000.

What has he recommended? What are you aiming to do with this 80k pension fund - find the best value annuity?

After taking the 25% tax free cash, we are only talking about 60k.

You might like to look at the FSA tables to start with, for an idea of what you might get as the best value:

https://www.fsa.gov.uk/tables

It is usually said that annuity advice costs 1% of the value of the fund.He seems to be charging you 2.25%.

dunstonh

It is usually said that annuity advice costs 1% of the value of the fund.He seems to be charging you 2.25%.

He is almost certainly charging the flat rate that accountant IFAs usually do. In this case, because of the low value of the fund, it appears more expensive than the average. I know a couple of accountant based IFAs and generally the values they deal with are a fair bit higher than 80k and their fees are based on attracting high net worth clients and putting off those not in that bracket.

The FSA tables are useful for guidence but not an accurate representation of annuity rates or retirement options. I wish they were as it would make IFAs jobs easier.

Either way, I think we are all agreed that using the accountant IFA for this transaction is going to be the most expensive way of doing it.

Hillfly

I can reccomend an IFA. I've only used him for mortgages so far but he is very good and provides a friendly personal service. He is more of a mate now!
I've no idea what he might charge for advice in this case but it couldn't hurt to ask. I have already reccomended him to several MSE'ers. :T

PM me if you want his details.

moneyandmountains

m.bradley wrote:

This is an important life decision and we dont feel confident enough to do it ourselves.

m.bradley, I would recommend that you take what dunstonh says about fees very seriously. He has kicked around MSE for long enough to show his integrity, and as an IFA should know what he is talking about. I think that even EdInvestor as a 'savvy' non-IFA investor may admit that at least the IFA position is presented adequately.

Chrismaths

The last investigation by the regulator found no wholesale bias due to commission. Obviously some may do that but the regulator was satisfied that it wasnt happening widely.

Sure, but I've taken over a number of portfolios that were wrapped in expensive insurance bonds, with indemnity commissions that meant the contracts were very difficult and often prohibitively expensive to unwind. I'm sure the original seller of these products did full 'reasons why', 'factfinds' and were fully compliant, but in most cases i've seen the only reason I can work out for putting the investment into an investment bond was commission bias. I think the FSA's study looked at bias between providers (should I go Friends Prov or Standard Life) rather than bias between should I recommend (sell) a 'product' or not. I've seen cases where advisers have recommended people close ISAs and PEPs to invest in an investment bond! The relatively recent phenomenon of 'New Model' advisers (who focus on ongoing service rather than upfront sales commissions) can only be a positive thing in this regard.

A third option is to agree a fee but have it paid by commission. This avoids the need to pay VAT on top of the fee (so in the case of the accountant's IFA, you would pay that fee plus 17.5%). If you agree a fee of £650 (which is reasonable for your transaction), then see if it can be paid by commission and therefore avoid VAT. It isnt always possible as some providers dont allow that flexibility, especially on annuities but nearly all do on investments (in case anyone else is reading). For information with investments, 1% initial commission with 0.5% servicing is becoming a popular standard for those on the new model basis for charging.

This is in fact what we are about to do with our management fees - we will offset any commissions received against our management fees for precisely this reason. I just didn't want to over complicate my post.

A SIPP being more expensive than a stakeholder pension if that was the route to be taken and both having explicit charging. However, m.bradley is talking about commencement of benefits rather than a transfer of provider and unless drawdown or similar is being considered, then a SIPP will not be appropriate.

I didn't see anything in the OP to say he was vesting the pensions - only that he was going to one provider. I suppose the 'mature' thing could be interpreted that way. I was suggesting a SIPP for ongoing management of the fund - but as I wrote I have a personal preference for them as I'm an investment manager! If it's a simple vesting, then a) a stakeholder would definitely be best (if a transfer is needed at all) b) £1200-1500 is outrageous for a simple job.

On the subject of SIPP vs stakeholder, my personal views are that the relentless focus on cost in investment is overdone it's only one factor. What I think people should be focussing on is risk-adjusted returns after charges. If I'm buying a car, I don't only focus on cost, I focus on value for money - the way people are talking about charges it's as if a Merc and a Kia are the same things - I don't understand why people don't apply the same logic to investments, which have a greater effect on your overall wealth. After all, many of the richest people invest in hedge funds, which have typical charges of 2% + 20% performance fee. Another example is lawyers - if you were going to court would you want the cheapest lawyer or the best one for the money you can afford.

Perhaps this would be a good topic for a new thread...

dunstonh

This is in fact what we are about to do with our management fees - we will offset any commissions received against our management fees for precisely this reason. I just didn't want to over complicate my post.

I think this is becoming a more common option and certainly fits in nicely with the new model basis. I use that more than any other method now.

On the subject of SIPP vs stakeholder, my personal views are that the relentless focus on cost in investment is overdone it's only one factor. What I think people should be focussing on is risk-adjusted returns after charges. If I'm buying a car, I don't only focus on cost, I focus on value for money - the way people are talking about charges it's as if a Merc and a Kia are the same things - I don't understand why people don't apply the same logic to investments, which have a greater effect on your overall wealth. After all, many of the richest people invest in hedge funds, which have typical charges of 2% + 20% performance fee. Another example is lawyers - if you were going to court would you want the cheapest lawyer or the best one for the money you can afford.

Good way of putting it.

Perhaps this would be a good topic for a new thread...

You mean like the one that already exists in pensions forum... Problem with that thread is that you get the pro SIPP brigade giving an inbalanced opinion of SIPPs. The IFAs balance it up but that appears to many as being anti SIPP, which is not the case and the whole thread looks like a battle between pro SIPP and anti SIPP rather than looking at pension products themselves and considering the pros and cons of each option.

Chrismaths

Which is why the thread should probably be called something like "A guide to costs in investment" or some such, rather than related to Pensions/etc. It's a debate about absolute cost and value for money, which is a much wider topic. I've only recently started posting here, but I have noticed that thread, and didn't bother reading it too closely for the reasons you said. It also seems a bit Protestant/Catholic, Sunni/Shi'ite to me :eek:

I think that argument comes down to personal preference and circumstance, which is basically what your sig says...

All the best

Chris