Pension Transfer Costs

Bigsmak

mirabell wrote: »

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 ?

Just out of interest, what do you do for a living? How are your costs charged out?

I can't really add more to what the guys above have said. It will take more than a few hours work, we have to take the compliance risks for the recommendations, we have monthly fees to pay to remain regulated/insured, we have to pay monthly fees to our IT packages to ensure we have all the up to date information available. etc etc

The other thing is that, is that the IFA, by doing all his work has shown you that these costs will be covered in a couple of years and you should be in a better position because of his advice (which takes into account his fees) ..

So here's your choice..

1.You can stay as you are and be worse off in the long run,
or
2.You can use your IFA and be better off in the long run (even taking into account his charges)

Loughton_Monkey

Cautious_Investor wrote: »

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.

All valid points. But what would your own attitude be in a hypothetical case like this:

You live in a world of completely private medicine. No Insurance. You simply consult with a doctor, get treatment, and pay in full for it.

You have had a small heart problem. You have paid £3,000 for a full diagnosis, consultation, and treatment, and he has not only recommended a course of drugs, but has used his knowledge to recommend a supplier who will supply monthly bottles of 31 pills on contract for £200 a month linked to CPI.

Six months later, you are perfectly well. Symptoms are stabilised. But of course you still need to keep taking the drug for life.

You get a phone call from your doctor. He tells you he has spent a couple of hours reviewing your file. Double checking the X-rays and tests. But reason for calling is that there is a new supplier of the drug. Slightly different (better) formulation. Entirely consistent with your needs. But only £120 a month. Also CPI linked. Save you £80 a month. That's £960 a year, forever.

Here's my bill for £1,500.

Now what are the 'ethics' of this? Chances are (you would maintain) that the health magazine you read would almost certainly have mentioned this new drug before long. Now you know of its existence, you can simply phone your supplier, switch to the new brand, and save yourself £120 a month.

Similarly, chances are, if you had a different doctor, he may 'as a matter of service' noticed this new drug and phoned all his 'customers' to tell them of the new drug, and perhaps offer to contact the supplier on your behalf - since switching is (to a professional) a 'no brainer' - at a small admin fee of £25.

Yes, you can tell the doctor where to stick his £1,500 bill and stay with the same drugs. But would you not think of changing your doctor?

Cautious_Investor_3

Loughton

Like the analargy, just not sure it's quite valid here.

Look at it from a different perspective, the OP will get a cheaper pension contract, the IFA has a significant amount of paperwork to do to facilitate the move (no one seems to dispute this), should the IFA work for free?

If we assume that an IFA, like any other business, needs to be paid for the work they do the question is what is fair and how should it be paid?

There are only two ways to invest money:

1. Directly, you do your own research, the buck stops with you but you pay less in fees (generally)

2. Advise, someone helps you make choices i.e. an IFA and they have to be paid for their time

What should we expect of the IFA in this situation, what would be fair to him and the OP?

The Cautious Investor

Loughton_Monkey

Difficult debate, I agree. Benefit of doubt says IFA's have a right to exist and a right to eat.

I generally support the new system whereby everything must be done via a transparent 'Fee' rather than 'hidden' commission - even though there's disclosure on that - because us consumers do not generally understand whether of not an alternative might have been better for us with lower commission.

When I make a will, I go to my solicitor and pay a pre-arranged fee. I could 'do it myself' but I would only be saving £150 - and I don't wish to carry the large research burden, and element of doubt, were I to do it myself. I am broadly comfortable with financial matters, but not legal ones. Market Forces over a period have ensured that Solicitors are reasonably comparable with their charges, and I would seldom, for example, get charged £1,500 for that same simple pair of mirror wills.

Hopefully, with fixed fees, IFA's can earn a decent crust and the public can get trustworthy unbiased advice at a reasonable cost.

Now what about the fund managers..........!

Bigsmak

feesarefare wrote: »

Cautious_Investor wrote: »

Loughton



I think youve hit the nail on the head though, theres a significant amount of "paperwork" and not much high level IFA advice. The bulk of the work is the work of administrator.

How much do yo think an IFA business charging by the hour would want for this transaction?

Just one more question I would like to ask the OP (and of course everyone else as well)

If the IFA had gone away and done all his work and came back and recommended that you change provider to get the best deal. Should the charge be different because he found that the company you are with is best?

Is the problem because he recommended staying with the same provider?

Cautious_Investor_3

feesarefare wrote: »

Cautious_Investor wrote: »

Loughton



I think youve hit the nail on the head though, theres a significant amount of "paperwork" and not much high level IFA advice. The bulk of the work is the work of administrator.

How much do yo think an IFA business charging by the hour would want for this transaction?

I shouldn't have used the term "paperwork" it was misleading.

Let's look at what the IFA has to do in this case and see if we can work out an fair fee based on an hourly rate.

I'll use an hourly rate of £100 for an adviser and £40 for an adimistrator (the adviser hourly rate is probably a bit on the low side):

1. Get projections and details of the existing scheme, along with discharge paperwork (admin job, 30 minutes)

2. Analyse performance of existing scheme and charges (adviser, 1 hour)

3. Research pension market to identify the correct provider moving forward, consider asset allocation and fund choice (adviser, 2 hours). The fact that the OP is moving from plan A to plan B with the same provider should be irrelevent, the IFA still needs to have done his whole of market research to confirm that the new plan is indeed the most appropriate for the OP. He also still needs to confirm that the OP's attitude to risk has not change and that the asset allocation / funds chosen are appropriate

4. Meet with the client to present recommendations (adviser, 1.5 hours)

5. Write suitability report (adviser 1 hour, admin 1 hour, bit of a guess that, depends on how the practice runs)

6. Post advice paperwork (admin, 2 hours)

So what totals do we have?

Adviser 5 1/2 hours, so £550 in fees
Administrator 3 1/2 hours, so £140 in fees

Total fees £690, although I have probably pushed down the adviser's hourly rate.

So in that very rough example the client would be better off on a fee, but the OP's adviser isn;t exactly ripping them off.

I come back to the question should the advsier work for free?

As an aside, it probably would have been better for the adviser to ask the client whether he could conduct a review of their pension and make it clear that if the advice was to move it there would be a charge for doing so. That would have been more transparent, however I don't think that is being charged is unfair.

The Cautious Investor

Cautious_Investor_3

Bigsmak wrote: »

feesarefare wrote: »

Is the problem because he recommended staying with the same provider?

I think that is indeed part of the problem.

The advice process is the same whether the new pension is take out with the existing provider and the same funds / asset allocation are used or a new provider with new funds and asset allocation.

mirabell

Thanks to everyone for the very useful replies. I have instructed my IFA to proceed on the basis that I will be better off in the long run and will have to accept they will charge an amount for it. Still think the fee is a little high, but am thinking overall picture and long term saving.

dunstonh

mirabell wrote: »

Thanks to everyone for the very useful replies. I have instructed my IFA to proceed on the basis that I will be better off in the long run and will have to accept they will charge an amount for it. Still think the fee is a little high, but am thinking overall picture and long term saving.

Are you on a servicing contract or not? You havent said. If you are then it is high and I would question it. If you are not then its fair as you are paying per advice/transaction.

People dont realise the level of costs an IFA firm has. Costs can run to around 30-50% of the income. You see £1000 as high but thats just turnover. By the time its turned into gross profit then its probably around £600. Get the IFA to take the fee from the pension rather than by cheque. You effectively get tax relief on the fee then.

purch

Costs can run to around 30-50% of the income

All those lunches up at the Gold Club