Do You Need Financial Advice? When To Get It, When Not To Get It Discussion Area

Hibinator

Hi folks, I'd be grateful for any thoughts on the terms I'm being offered from an IFA for advice and recommendations on investment, along with advice on what to do with a previous pension from a previous employer. The IFA proposes an annual review of pensions and investments once these are set up, charging 0.5%  per annum as a retainer fee, plus transaction fees on a commission basis from the provider. I'm looking to invest between 10k and 16k, and the pension concerned is a defined contribution pension that has 7k in the pot. The IFA has also advised me to change my current life insurance provider which will reduce my monthly payments for LI and critical illness cover by around £12 until I retire in 27 year's time, with him receiving a reducing commission on this after the fourth year. 

The few in particular for on going advice seems about average from what I have read but given the relatively small investment amount could be costly.

Any advice would be appreciated. Thanks

Malthusian

0.5% per year for ongoing advice is both the modal average and at the lower end of the range. You would be unlikely to find lower without a much larger amount under advice.

Commission has not been charged on pensions since 2012 (on life insurance it's still fine) and IFAs charge for advice rather than transactions. That is probably pedantry over terminology; I assume you mean an initial fee. As you haven't said what it is we have no idea whether it's reasonable or not.

Hibinator

Malthusian said:

0.5% per year for ongoing advice is both the modal average and at the lower end of the range. You would be unlikely to find lower without a much larger amount under advice.

Commission has not been charged on pensions since 2012 (on life insurance it's still fine) and IFAs charge for advice rather than transactions. That is probably pedantry over terminology; I assume you mean an initial fee. As you haven't said what it is we have no idea whether it's reasonable or not.

The pension matter hasn't been discussed in detail yet, but the fee quote I have states the 0.5% fee applies for investments and pensions. So it's got me confused!

dunstonh

The IFA proposes an annual review of pensions and investments once these are set up, charging 0.5%  per annum as a retainer fee, plus transaction fees on a commission basis from the provider. 

As mentioned, 0.50% is the dominant figure.   Many charge more on smaller amounts.

There is no commission as that is not allowed on investment products arranged after 2012.

I'm looking to invest between 10k and 16k, and the pension concerned is a defined contribution pension that has 7k in the pot.

To be honest, in that situation, I would probably not offer ongoing servicing terms and place you on transactional basis.   If you wanted ongoing terms then I certainly wouldnt offer them at 0.50% as it would be loss making.  So, if this IFA is willing to do it on such a low value, then that is their choice.

Have they actually said they are going to offer you an ongoing service or is that in their general charges disclosure (and not the personalised fee agreement)?

but given the relatively small investment amount could be costly.

0.50% of £23,000 is £115.    0.50% of £230,000 is £1,150.  With percentages, the fee scales with the amount.  It doesn't become more expensive if you have less unless the percentage rate goes up or there is a minimum fee applied (in which case, that could be expensive. e.g. 0.50% subject to a minimum of £500).

he IFA has also advised me to change my current life insurance provider which will reduce my monthly payments for LI and critical illness cover by around £12 until I retire in 27 year's time, with him receiving a reducing commission on this after the fourth year. 

Commission is still allowed on insurance.    Most providers will pay the commission over a 4 year period.   It is possible for it to be paid upfront with a reduced amount.  It can also be taken over the full term of the policy on a monthly basis. However, the method the adviser takes it has no impact on the premiums paid.

Malthusian

Although we don't know how much the life insurance is, I suspect you are effectively getting advice on the pension and investment thrown in with the life insurance. As Dunstonh said, in isolation, charging 0.5% to give full regulated advice on an investment and pension that size would be loss making. But the commission paid on the life insurance may make the overall package worthwhile for both parties.

Some would consider it infra dig to cross-subsidise the insurance and pension/investment advice in this way, but charging a commercial rate for the pension/investment advice to the pension/investment only would take far too big a chunk out of it, so if the cost can be spread over the life insurance premiums, why not.

This assumes you are actually being charged 0.5% of the pensions / investments without a much higher initial fee, and no minimum amount applies for the ongoing fee.

Lapengia

Should we stay or go?
My husband and I currently have a large sum invested through Lloyds Investment Portfolio Service. When we first invested about 10 years ago we were complete novices investment-wise (I'm afraid we still are!) and we just let them tell us what to do with it as they were our bank.
Now Lloyds are moving their investment arm to Schroders and we have been asked to confirm we want to move to their Personal Discretionary Portfolio Service or move our investments elsewhere. We thought this would be a good opportunity to look elsewhere to see
1. if we could get a better deal re charges
2. we could get better more personalised performance
3. we could get better more personalised advice
4. we could choose more sustainable/ethical/progressive investments and 'do good' with our money or at least a portion of it.
Currently charges are: 
1% plus VAT annual servicing fee taken upfront at start of the year. Plus underlying fund charges of average 4.8%. = 1.68% inc VAT.
For the new PDPS, charges are:
0.2% pa platform charge
0.35% pa discretionary fund management charge
0.65% pa ongoing advice fee
0.48% pa underlying fund charges
= 1.68% (but there's no mention of VAT - does it not apply?).
Currently our risk profile is cautious and the aims are split between income and growth. 
We are thinking of moving away from growth and towards income, keeping a cautious risk profile.
Given current circumstances, I feel it simpler and safer to just move to Schroders (we have to move or go elsewhere by December), but carry on researching our options.
But is there some reason why that would be a bad idea if we do end up deciding to move our investment portfolio elsewhere in the next few years? 
I feel we would benefit from an overall assessment of our goals and attitudes and how best to invest to fit them - probably from an IFA. But there's the usual problem of finding one you can trust and get on with when you don't know where to start other than personal recommendations (don't know anyone who has used one), and a website/organisation listing (feels a bit needle in a haystack).
If you were someone with limited knowledge of or interest in investments, with little appetite for risk and modest needs re income/growth, what would you do!?

dunstonh

When we first invested about 10 years ago we were complete novices investment-wise

The minute you said you used a bank, we knew that already.  

1. if we could get a better deal re charges
2. we could get better more personalised performance
3. we could get better more personalised advice
4. we could choose more sustainable/ethical/progressive investments and 'do good' with our money or at least a portion of it.

1 - yes

2 - yes

3 - yes

4 - yes

(but there's no mention of VAT - does it not apply?).

the discretionary fee is Vatable but the rest is not.

But is there some reason why that would be a bad idea if we do end up deciding to move our investment portfolio elsewhere in the next few years?

You are not getting financial advice.  You are buying a discretionary investment management service.   if a lot of the holdings are held unwrapped (not in ISA or pension for example) then sales of investments can create capital gains tax bills.  DFMs do not check your tax status first as they are not advisers.  Equally, if you sell up later to move elsewhere, that could create a CGT liability.

I feel we would benefit from an overall assessment of our goals and attitudes and how best to invest to fit them - probably from an IFA.

An IFA can beat a restricted advice service or pure DFM service every time if they wish to do so.

But there's the usual problem of finding one you can trust and get on with when you don't know where to start other than personal recommendations (don't know anyone who has used one), and a website/organisation listing (feels a bit needle in a haystack).

That is the same with every profession and job.   However, the good news is that overall, IFAs have tiny levels of complaints and the industry is in a healthy position today compared to how it was decades ago.   If you avoid FAs and firms that tag themselves as Wealth Management then you usually find that the biggest issue is not quality of advice but cost.   Some firms charge eye watering amounts but others are very good value.     You often find that it is the small local firms that give the best value.   Not those with a strong web presence that pay for various advertising tools like vouchedfor etc.   None of the IFA firms I know well, who I would trust,  do any form of advertising apart from the usual free entries. Usually because they do not need to get business that way as it comes in naturally through friends and family of existing clients.   So, that can actually make it harder to find the good value ones.  A firm may be paying lots for advertising because they are on a growth drive.  Or it could be that they just don't have enough business and need to find it.  Advertising is expensive (vouchedfor especially so) and that can reflect in the fees being charged.

If you were someone with limited knowledge of or interest in investments, with little appetite for risk and modest needs re income/growth, what would you do!?

Never use a bank or FA.  The choice should always be IFA or DIY.

feb22

I have just received my annual report for my pension  portfolio. which is going to become my pension when I retire in approx 5 years.l am a little concerned as to the charges which are being levied and would appreciate your comments.
Value of portfolio £173000
total service charges 1.07%
investment costs and charges 0.30%

total cost and charges 1.37% - £2676.09

This seems expensive as I only invest £300 per month
your comments would be welcome

dunstonh

This seems expensive as I only invest £300 per month

If you are going to ignore £173,000 of the portfolio then yes it would (i.e nil value just starting £300pm)   However, you are not going to ignore £173,000, are you?

if its an advised portfolio its right where you would expect it to be.  If it's a non-advised portfolio, then it is expensive (as you are effectively paying for advised charges without getting advice).

Alramsay

My IFA tells me that he is required to take out investment specific professional indemnity insurance for each new investment we make through his company,  adding significantly to overall costs. Does anyone know if this is a FSA requirement? Thanks.