New Pension Set-Up - Please Help Me Get My Head Around This!

wary

Until recently, I had stakeholder-friendly pensions with Aviva whereby I'd make regular contributions via direct debit and single contributions via cheque. This has all changed now, and so I'd appreciate some help getting my head around my new set-up.

My IFA has transferred my Aviva pot into a new Legal & General policy split across approx 20 funds. Their fee for this was 3% of the pot which I believe is about standard.

I've received a letter from Cofunds saying that a cash account is now automatically available to me, into which I can transfer money. However, they did not provide a sort code / account number. I'd never heard of Cofunds before, but having done some research, I see that it is a well-known funds supermarket. I also understand that I cannot do the trades myself in terms of making further contributions into my pension; only my IFA can.

I spoke to L&G and they said I can send them a cheque direct; in fact the guy I spoke to seemed to know nothing about Cofunds. However, my IFA says that I should send it direct to Cofunds as that is all L&G would do. Is this correct?

I think the AMC is around 1.5% to 1.7%, of which my IFA would take 0.5% for annual servicing, which I believe is standard. Questions are:
- who actually takes the AMC – L&G or Cofunds?
- how do Cofunds make their money? Do they simply take a portion of the AMC each year or do they charge a fee or take commission each time a trade occurs? If the latter, where does this money come from?
- if I'm reliant upon my IFA to make the trades for me, would they normally charge any fees/commission each time they do this (in addition to the annual 0.5% of the pot), especially if they're only investing using the same percentage split across the funds as at present without doing further research?

In anticipation of me sending a cheque, my IFA has drafted a letter for Cofunds. In it, they've included the statement "please ensure that <my IFA> receives FBR commission of 0.5% on this contribution as set up at the policy inception". Does this refer to additional commission that I wasn't aware of (I've no idea what FBR means)? Or are they simply ensuring that this contribution is included within their annual fee? If the latter, I'm surprised that they should feel the need to highlight this as I thought they would automatically get 0.5% of the pot, but maybe they're concerned that they won't get the credit for this contribution if I effectively bypass them when making it?

Would it all together much simpler if I get details of my cash account from Cofunds and transfer funds into it (or nominate my own account), and then let my IFA do the rest?

I suppose I'm a bit wary that by using my IFA and/or Cofunds, this may incur additional fees or commission compared to sending it direct to L&G. Previously, my IFA was getting massive commission on my contributions for doing nothing, and I'm keen to move away from that. (Although the commission wasn't coming directly out of my fund, there's still the principle of it.) When he set this up, my understanding was that apart from the AMC, from which he'd take 0.5% for servicing, there would be no further fees or commission payable.

Thanks.

dunstonh

. I'd never heard of Cofunds before, but having done some research, I see that it is a well-known funds supermarket.

They are the biggest in the UK. So, no problem there.

I spoke to L&G and they said I can send them a cheque direct; in fact the guy I spoke to seemed to know nothing about Cofunds

Most L&G staff wouldnt. There is no reason for them to do so either.

I think the AMC is around 1.5% to 1.7%, of which my IFA would take 0.5% for annual servicing, which I believe is standard.

The AMC is retail AMC of the fund. The funds range from 0.25% to 1.75%.

- who actually takes the AMC – L&G or Cofunds?

The fund house of the funds you invest in.

- how do Cofunds make their money?

They get paid some of the AMC.

- if I'm reliant upon my IFA to make the trades for me, would they normally charge any fees/commission each time they do this (in addition to the annual 0.5% of the pot), especially if they're only investing using the same percentage split across the funds as at present without doing further research?

Depends on the IFA and the service level and fees you agreed.

In anticipation of me sending a cheque, my IFA has drafted a letter for Cofunds.

I would have thought a top up form would have been better.

In it, they've included the statement "please ensure that <my IFA> receives FBR commission of 0.5% on this contribution as set up at the policy inception". Does this refer to additional commission that I wasn't aware of (I've no idea what FBR means)?

Thats not in addition. Its out of the 1.5% AMC.

Or are they simply ensuring that this contribution is included within their annual fee? If the latter, I'm surprised that they should feel the need to highlight this as I thought they would automatically get 0.5% of the pot, but maybe they're concerned that they won't get the credit for this contribution if I effectively bypass them when making it?

Disclosure is correct. Every illustration issued repeats disclosure. Its because its new money.

Would it all together much simpler if I get details of my cash account from Cofunds and transfer funds into it (or nominate my own account), and then let my IFA do the rest?

The IFA should be doing everything. The whole point of using and paying for an IFA is for the IFA to do as much of the work and advice etc as possible.

I suppose I'm a bit wary that by using my IFA and/or Cofunds, this may incur additional fees or commission compared to sending it direct to L&G.

It won't. Cofunds is not set up to deal direct with public. They are set up to deal via IFAs.

Previously, my IFA was getting massive commission on my contributions for doing nothing, and I'm keen to move away from that. (Although the commission wasn't coming directly out of my fund, there's still the principle of it.) When he set this up, my understanding was that apart from the AMC, from which he'd take 0.5% for servicing, there would be no further fees or commission payable.

So, you decided to pay more in charges to reduce the amount the previous IFA was being paid? That doesnt seem a sensible justification for moving into a more expensive contract. Were there other reasons you want to pay more in charges?

wary

Thanks DunstonH for a comprehensive response as always. Would appreciate a few extra bits of clarification though ...

dunstonh wrote: »

The AMC is retail AMC of the fund. The funds range from 0.25% to 1.75%.

Not sure what you mean by "retail AMC". Nevertheless, I've just realised that you're right in that each fund has a different AMC, so the overall will be a kind of weighted average, depending on the pot within each fund ... if that's what you mean?

dunstonh wrote: »

I would have thought a top up form would have been better.

Please clarify what you mean by "top up form"?

dunstonh wrote: »

Disclosure is correct. Every illustration issued repeats disclosure. Its because its new money.

Sorry, not sure what you mean by this and by "disclosure".

dunstonh wrote: »

The IFA should be doing everything. The whole point of using and paying for an IFA is for the IFA to do as much of the work and advice etc as possible.

Point noted. I'm just a bit wary that I may end up incurring additional fees/commission for tasks that I could do myself. I'll go back to my IFA to clarify but I want to get things clear in my own head first.

dunstonh wrote: »

So, you decided to pay more in charges to reduce the amount the previous IFA was being paid? That doesnt seem a sensible justification for moving into a more expensive contract. Were there other reasons you want to pay more in charges?

Yes there were other reasons. The main reason for changing was to move from a basic stakeholder-friendly pension to one where there's more choice of funds available, the idea being that the anticipated additional growth will (hopefully) outstrip the additional charges. Although the IFA (actually the same IFA) will be getting more, at least I'm now getting full servicing which I wasn't before.

dunstonh

Not sure what you mean by "retail AMC". Nevertheless, I've just realised that you're right in that each fund has a different AMC, so the overall will be a kind of weighted average, depending on the pot within each fund ... if that's what you mean?

Every unit trust fund has a retail annual managment charge. i.e. the fund charge published by the fund house. Some may discount this or increase this but typically most pay that retail charge.

Please clarify what you mean by "top up form"?

Cofunds have forms for most things. This includes adding a top up to an existing plan.

Sorry, not sure what you mean by this and by "disclosure".

disclosure of what the adviser gets paid. The adviser has to let you know what they are getting paid for each contribution of new money.