Is my pension advisors advice in my best interest? 26 August 2010 at 2:42PM edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning 16 replies 2K views

peetj

Hi There,

Its come to that time of year where I'm due a pension review. In previous years my advisor has suggested changing funds, and this time around he's suggesting creating a second fund and splitting payments (to spread risk).
I've also previously amalgamated a pension from a previous employer with my current fund (with the same pension provider).

Now, each time a change is made, it seems that my advisor gets some form of renumeration from the pension company (which is in the print when the documentation comes through, but not mentioned to me when we're discussing the changes).

Every time he suggests a change, its always on a projected no loss basis, but we seem to be changing things every couple of years, and I wonder whether It is really me or him who is benefitting most from the advice?

Am I being paranoid?

edinburgher

Every time he suggests a change, its always on a projected no loss basis, but we seem to be changing things every couple of years

I don't see any issue with this - portfolio rebalancing seems to be a perfectly typical part of managing any investment portfolio/pension.

, and I wonder whether It is really me or him who is benefitting most from the advice?

Well, how is the pension performing in your eyes? If it's doing well, what's the problem? I'm happy to pay a reasonable price for decent financial advice (or for an advisor to make money from decisions that benefit me in the long term)

dunstonh

Every time he suggests a change, its always on a projected no loss basis, but we seem to be changing things every couple of years, and I wonder whether It is really me or him who is benefitting most from the advice?

Most IFAs will try and avoid being paid for switching nowadays as it removes the impression that the "paranoid" can have.

That said, periodically rebalacning the portfolio is key when you use selections of investment funds. Research consistently shows that rebalanced portfolios outperform ones left to their own devices.

If the adviser is being paid a retainer or is receiving a natural or explicit trail commission annually, then to be paid again on fund switches is greedy. However, if there is no trail commission then its quite understandable.

Sometimes charges are incurred on switches which do not get paid to the adviser but are made by the provider or fund house.

I wonder whether It is really me or him who is benefitting most from the advice?

Why don't you ask him that. Maybe its time for you to review your charging method. If you don't like charges on fund switches then ask to change to a different charging method. If the adviser wont do it then plenty out there will.

Chris1975z

All

It's worth noting that pension advisors under future reforms (as I understand it) will not be commission based and therefore any changes into different funds at present will generate more income for them. Agree with all the comments above but I still remain a little sceptical and have been "independantly" advised by a few brokers (and friends in the business) that this shoddy business will soon be stamped out by the fee based approach. That said, and as everyone else has said - if you've got a good deal from your investments thus far then surely the advice has been sound?

peetj

Thanks for the replies guys, I guess I really need to pull my finger out and evaluate the advice so-far given for myself, although it may be somewhat difficult to find a decent benchmark.

dunstonh

It's worth noting that pension advisors under future reforms (as I understand it) will not be commission based and therefore any changes into different funds at present will generate more income for them.

Thats not correct. Remuneration has to become explicit from 2013. It does not stop the contract being used to pay for it. Effectively, providers will not set the remuneration any more. The adviser will.

Indeed, it could actually start some advisers charging for switches explicitly where no retaining fee exists. However, the annual retainer charge is still the most likely option for those having servicing. Personally, I prefer the retaining fee. Its clean and doesnt matter if you rebalance/switch £10 or £10000. It removes any perception of bias (real or otherwise).

Whilst the changes ahead remove commission, they do not remove remuneration. In some cases people will be better off. In some cases they will be worse off. The average person is unlikely to see much difference as you replace one method of remuneration with another, call it a different name but the end result is much the same.

feesarefare

peetj wrote: »

Hi There,

Its come to that time of year where I'm due a pension review. In previous years my advisor has suggested changing funds,

Fyi - rebalancing shouldnt involve changing funds so ignore the comments on rebalancing.

Im struggling to understand the justification for switching funds every year on a pension contract? Thats because theres no justification!

If rebalancing is so important then why dont advisers just use the pension contracts with free auto rebalancing

and this time around he's suggesting creating a second fund and splitting payments (to spread risk).

Eh? (cobblers) Just another money making scheme

I've also previously amalgamated a pension from a previous employer with my current fund (with the same pension provider).

So amalgamate and then suggest splitting- Why?

Now, each time a change is made, it seems that my advisor gets some form of renumeration from the pension company (which is in the print when the documentation comes through, but not mentioned to me when we're discussing the changes).

All costs should be given in advance ( im sure Dunstonh will agree)

Sounds like a wide boy to me

Every time he suggests a change, its always on a projected no loss basis, but we seem to be changing things every couple of years, and I wonder whether It is really me or him who is benefitting most from the advice?

Him clearly!

Am I being paranoid?

Nope , pity 99% of the population dont start asking the same questions as you.

Ps

Is your pension going to give you enough income to support the lifestyle you plan for retirement?

sandsy

peetj wrote: »

Hi There,

Its come to that time of year where I'm due a pension review. In previous years my advisor has suggested changing funds, and this time around he's suggesting creating a second fund and splitting payments (to spread risk).

A second pension policy?????
What risk exactly is he trying to spread? Why can't he spread risk by recommending different funds within the pension you've already got?

What is the current value of your pension fund?

feesarefare

Agreed, but the client might, being better informed decide not to pay.

Whilst the changes ahead remove commission, they do not remove remuneration.

They do if better informed clients decise they are not prepared to pay.

In some cases people will be better off. In some cases they will be worse off. The average person is unlikely to see much difference as you replace one method of remuneration with another, call it a different name but the end result is much the same

This might be of interest

http://www.ifaonline.co.uk/ifaonline/news/1723302/consumers-shop-around-lowest-adviser-charge

jamesd

peetj, using only one fund isn't what I'd expect an IFA to be doing and using one fund per £50 you're investing each month would be unsurprising. You should ask your IFA to explain the charges that will be involved in the switch.

Changing funds isn't something that should normally be expensive but changing pension company (not investment company within the pension) could be.

It's also worth considering just switching the location of new money to the new fund if that will result in reaching the targets percentage split rapidly enough to be sensible. This way you'd avoid any switching costs for the existing money.

peetj

Thanks for all your replies... wow

I've done some digging and now found out the performance of my funds... its a little underwhelming...

Fund#1 Balanced lifestyle - 60% of my pot in here
Figures in brackets are the quoted sector median

3 months -8.9% (-7.3%)
1 year 16.9% (17.7%)
3 years -1.9% p.a. (-2.0% p.a)
5 years 4.1% p.a (4.0% p.a)
10 years 1.0% p.a (1.4% p.a)

Fund#2 Global - 40% of my pot in here
Figures in brackets are the quoted sector median

3 months -11.2% (-8.5%)
1 year 17.3% (19.6%)
3 years -4.2% p.a. (-3.5% p.a)
5 years 4.0% p.a (4.1% p.a)
10 years -0.5% p.a (1.0% p.a)

One of these funds did come from a previous employer (and financial advisor) so I can't blame my current FA for that , although I would expect him to at least check the performance of both funds on my behalf.... surely?


Any advice on where to go from here? AFAIK everybody in my company uses the same pensions advisor... Does the above show good advice? Am I missing something ? If you need any more info, please don't hesitate to ask

Is one fund seriously only giving 1% compound interest over a 10 year period, where the other is giving -0.5%???

I'd post links to the fund factsheets, but sadly can't do this as i'm a newbie to this forum.
they can be found here (please remove spaces before dropping into your browser):

www . aegonse . co . uk /funds/downloads/client-pen-global.pdf
www . aegonse . co . uk /funds/downloads/client-pen-balancedlifestyle.pdf