Pension Transfer Costs

mirabell

Hi All

I currently have £50k invested in a pension pot. My IFA has suggested I move this to a lower costed scheme with the same pension company whereby the annual costs are much lower. I can still investment in the same funds as current.

To do this though my IFA wants to charge 2% fee (ie £1k) for the paperwork, transfer process, which they suggest I will save in 2 years due to the lower costs. They had agreed to reduce this from 3%.

My issue is that charging £1000 seems quite excessive for what is involved here - is it ? is my IFA taking advantage of the situation ?

I am loathed to proceed due to these costs but don't want to cut my nose off to spite my face, as after 2 years I would have made up this fee with the cost savings.

Any suggestions to proceed ?

dunstonh

My issue is that charging £1000 seems quite excessive for what is involved here - is it ?

No its not excessive. You could probably get a bit cheaper if you shopped around hard enough but I would think the minimum on a money purchase scheme would be £500. Maximum around £2500.

What bit of the work, knowledge and liability do you think is not being costed correctly for you to consider it excessive?

mirabell

dunstonh wrote: »

No its not excessive. You could probably get a bit cheaper if you shopped around hard enough but I would think the minimum on a money purchase scheme would be £500. Maximum around £2500.

What bit of the work, knowledge and liability do you think is not being costed correctly for you to consider it excessive?

Thanls for the response - I do think it is excessive for what I believe is only a couple of hours work (?), given I am transferring into the same funds on the new scheme anyway. I see this as being a paper form filling exercise and cannot see how this adds up to £1000 ?

dunstonh

I do think it is excessive for what I believe is only a couple of hours work (?)

What makes you think its a couple of hours work?

I see this as being a paper form filling exercise and cannot see how this adds up to £1000 ?

If only it was just a form filling exercise.

That said, if the adviser is on a servicing contract with you then charging you again does seem a bit harsh. Typically, when something better comes along, I move it over at no cost. However, if you are on a transactional contract or pay as you use contract then it makes sense.

cing0

In the past few years I've done 5 pension transfers for myself (pre and post 1997 flavour & stakeholders) all pretty straight forward, for free!
As well as the 2% commission, your IFA will also probably get an overide from the insurer/pension co. This is outrageous, choose a different pension co & IFA!

Cautious_Investor_3

cing0 wrote: »

In the past few years I've done 5 pension transfers for myself (pre and post 1997 flavour & stakeholders) all pretty straight forward, for free!
As well as the 2% commission, your IFA will also probably get an overide from the insurer/pension co. This is outrageous, choose a different pension co & IFA!

I really do need to correct this. I'm the first to criticise IFA's when it is warranted but I just think you are wrong here.

IFA's get paid in one of two ways (1.) commission from the provider (2.) a fee, usually an hourly rate or a % of the investment. In this case it sounds like option (2.) is being chosen, if so then the provider will not pay a commission to the IFA. To check this, look at the illustration, it will show exactly what the IFA is being paid.

And before someone suggests it, there is no such thing as secret overrides on upfront commissions (you could argue that there is on fund based renewal commissions, but that's another issue with the major platforms!).

You may well have done pension transfers for yourself and good luck to you, however to do this effectively the OP needs to be sure that they have:

1. A full knowledge of all pensions available in the market so they pick the right one in terms of charges, flexibility, features and benefits

2. The ability to assess their own attitude to risk (often a lot harder than you might think)

3. The ability to conduct asset allocation research and then decide which assets to purchase

If they can do all that then go for it, many people invest money directly themselves and do a really good job. However, many cannot do this, or indeed don't want to do this. In such cases an IFA is invaluable.

Turning to the fee, £1,000 seems pretty fair to me, just think what the IFA will need to do:

1. Conduct a fact find meeting
2. Assess attitude to risk
3. Research the pension market, recommend an asset allocation, recommend the secutirites what will be bought, and recommend a pension provider
4. Produce a report / suitability letter
5. Present the recommendations
6. Administer the transfers

I would have though this could easily take between 5 - 10 hours, probably towards the upper end of this range.

For that sort of work I would agrue that £1,000 is not excessive. Also, remember not all of this £1,000 will go into the IFA's pocket, to him it is 'turnover' off it will come all the usual business expenses from PI, compliance fees, staff, rent & rates, utilities etc.

If the OP is in any doubt though and thinks they are being over charged, one simple solution would be to pay what's on the time clock. I.e. get the IFA to charge by the hour for his time and for his administrators time (lower rate for the admin) and see if this comes out to a lower figure than the £1,000.

I hope this helps.

The Cautious Investor

mirabell

Cautious_Investor wrote: »

Turning to the fee, £1,000 seems pretty fair to me, just think what the IFA will need to do:

1. Conduct a fact find meeting
2. Assess attitude to risk
3. Research the pension market, recommend an asset allocation, recommend the secutirites what will be bought, and recommend a pension provider
4. Produce a report / suitability letter
5. Present the recommendations
6. Administer the transfers

I would have though this could easily take between 5 - 10 hours, probably towards the upper end of this range.

For that sort of work I would agrue that £1,000 is not excessive. Also, remember not all of this £1,000 will go into the IFA's pocket, to him it is 'turnover' off it will come all the usual business expenses from PI, compliance fees, staff, rent & rates, utilities etc.

If the OP is in any doubt though and thinks they are being over charged, one simple solution would be to pay what's on the time clock. I.e. get the IFA to charge by the hour for his time and for his administrators time (lower rate for the admin) and see if this comes out to a lower figure than the £1,000.

I hope this helps.

The Cautious Investor

Thanks - just to re-iterate, I am not moving pension company. I am moving to a more cost effective scheme within the existing pension company. My choice of funds will remain the same as currently invested, and is where I would see the bulk of the effort being involved.

dunstonh

mirabell wrote: »

Thanks - just to re-iterate, I am not moving pension company. I am moving to a more cost effective scheme within the existing pension company. My choice of funds will remain the same as currently invested, and is where I would see the bulk of the effort being involved.

Unfortunately, what you see as a simple transaction is treated as a new product and recommendation by the FSA. So, the same level of work, research etc has to be done whether you change the logo in the corner or not.


However, I refer you back to my earlier post on whether you are on a transactional contract or servicing contract with your IFA. If the IFA is transactional and not being paid for servicing then you pay when work is done. If the IFA is being paid for servicing then charging you are again is a bit much as it defeats the purpose of servicing.

Cautious_Investor_3

mirabell wrote: »

Thanks - just to re-iterate, I am not moving pension company. I am moving to a more cost effective scheme within the existing pension company. My choice of funds will remain the same as currently invested, and is where I would see the bulk of the effort being involved.

Ok, but of my list of tasks the IFA will perform, he will still have to do them all. I.e. he will have to prove that the new pension (with the same provider) is the most appropriate in the market, that the funds match your attitude to risk etc.

If it is done properly there is the same amount of work involved with your proposed transaction as there is with moving to a completely new provider, new asset allocation and new fund choice.

The Cautious Investor

Loughton_Monkey

As a 'neutral observer' here, I must say, OP, that this is an interesting debate. I can see the dilemma.

What you are seeking to do is an extremely 'simple' change. You are simply wanting to switch your funds into an enhanced 'wrapper' where the base 'product' is exactly the same, but it will reduce your charges well into the future. A bit like phoning your Utilities provider and switching from Tariff 6A to Super Tariff 8C, which saves you 5% a year.

You see this as a 'proverbial 5 minute job' on behalf of the IFA.

However. Enter the Regulator. Perhaps rightly, IFA's (and your pension company) are regulated by the FSA. The pension company can 'act' on the instructions of a licensed IFA since he is deemed 'competent' and is carrying the bulk of legal liability for the 'sale'. So what if a pension of any sort is inappropriate to you? What if the funds you are in are, again, totally inappropriate for your age or risk profile? What if you could get an even better deal - substantially the same funds - but even cheaper with a totally different provider?

OK, I would imagine there is a very small chance of any of those being true. Although I may be wrong, my understanding is that if that tiny chance prevailed, and you decided (perhaps unreasonably) to 'sue' your IFA, then you would very probably win. The layman would say that the IFA acted in good faith. You are the one who pedantically demanded the quick 'switch'. The IFA did you a 'favour' by acting 100% to your instructions for free (or for a shilling or two). But the reality is there are circumstances in which the IFA could get really stung and lose his livelihood.

This is (rightly or wrongly) why they have to go through a process of examining all the surrounding facts to ensure that the final instructions can be fully justified and that the switch is one in your best interests.

Overall, I generally support the concept of FSA regulation. There have been far too many 'cowboys' in the industry and I would really want everyone in the Financial Services industry to be 'Professional' - in exactly the same way as we expect our Lawyers and Doctors to be.

A strong part of me says that the 'answer' is to have the backcloth of strong regulation, but with a common sense 'get-out' in the form of 'Execution Only'. In a case like this, you would sign a very clear paper saying "I want you to do this. Please do it on my instructions. I take all the resposibilty for it. Just do it." This certainly was a possibility in earlier days, and probably still is in certain circumstances. I'm sorry, but I am out of touch with what the current practice is. [I believe, for a time, this sort of 'execution only' form was abused by some who routinely got customers to 'sign here' as if it were simply part of the normal admin process']

It doesn't take much, though, to foresee a dilemma of 'execution only' in any 'Professional' environment. E.g.

1. You hear from the 'man down the pub' that 'gifting your house' to your eldest son, now, is set to save you £250,000 in Inheritance Tax. You go to your solicitor and "Instruct" him that you don't want a debate about it. Just a cheap, clean, clinical, transfer of ownership from A to B. Get on with it! Where does such a solicitor stand if the transfer does nothing of the sort, and indeed causes you to lose your entire house in the process?

2. You go to USA on holiday. You take your essential heart pills with you. You lose them. You feel an attack coming on. You march into a local doctors office and demand a prescription for [named] pills. "This is what I take in UK. Believe me. This is what I want. What I have written down. I will pay for the prescription. I don't want a consultation. Just give me the pills. Now." Again, what is the status of the doctor if you wrote down the wrong drug name?

OK, a bit contrived. But sadly, I still do not know the optimum way to resolve your dilemma. Perhaps you simply have to pay up and live with it? I don't know.

Cautious_Investor_3

Hi

The problem with execution only is that the client has to approach the IFA stating exactly:

1. Which product provider
2. Which funds in which proportions
3. Which add ons should be included

Etc etc

This is not the case here, which probably explains why it cannot be done on an execution only basis.

There is also perhaps a wider point, if the IFA has found the OP a cheaper contract, confirmed the fund choice and asset allocation are correct, and the OP will break even on the initial charge in two years, which shouldn't the IFA be paid for all this?

Like I say, I am the first to critisise IFAs when I think thet have done wrong, or could improve in a certain area, I don't however think that is the case here.

The Cautious Investor