SIPP, Hargreaves Lansdown and Funds 2006 (dunstonh)

optimist_2

Yes, this sounds increasingly like a good plan! I was just thinking of what you said about whether an IFA would consider it worth his while to do ongoing servicing without any transfer fee.

And also wondering how, and on what basis, I will get the initial investment advice that I need.

Thanks!

dunstonh

optimist wrote: »

Yes, this sounds increasingly like a good plan! I was just thinking of what you said about whether an IFA would consider it worth his while to do ongoing servicing without any transfer fee.

And also wondering how, and on what basis, I will get the initial investment advice that I need.

Whether its worth the while for an IFA is going to vary from firm to firm. I was told of a firm that turned a £250k investment portfolio away recently as it was below what they focused on. Whereas £250k will be fine for most firms. £50k is going to see a struggle. I would expect many firms would say 1% p.a. on £50k rather than 0.5% or a flat fee of say £500 p.a. (which is equates to 1%).

IFAs take on portfolios in place all the time. They will give investment advice from that point forward. If you DIY on the transfer, you will have to pick investments or go cash until you appoint an adviser.

optimist_2

So if the IFA considered ongoing investment was not worth his while, doing an internal execution only transfer (if that is possible) would not make any difference to the situation?

dunstonh

optimist wrote: »

So if the IFA considered ongoing investment was not worth his while, doing an internal execution only transfer (if that is possible) would not make any difference to the situation?

No. Execution only means you are telling the IFA what to do. So, there is no advice anywhere. So, building and servicing the portfolio is not an issue to that IFA.

optimist_2

I'm probably not being very clear! Can I ask, instead, what an internal transfer is?

optimist_2

On the question of fees/commission, the discount broker keeps the commission from the product provider, and so does not charge a fee. Initial, and 60% renewal commission, is rebated.

On the other hand, the IFA I have had contact with would charge a transactional fee, while any commission which would have been paid is used to reduce the ongoing fees associated with servicing. How would this work? It doesn't sound a straight forward rebate. Trail commission is rebated where possible, not sure about initial commission.

Secondly, the terms and conditions from the discount broker state that I would be treated as a retail client, and that I may not necessarily have rights under the Financial Ombudsman Service or the compensation scheme (I assume FSCS) as a result of this categorisation.

Lastly, do I have to check with my existing provider that they are happy to deal with an execution only broker?

Thanks!

dunstonh

Can I ask, instead, what an internal transfer is?

If you were moving from say an old version pension product to a new version pension product with the same provider.

On the question of fees/commission, the discount broker keeps the commission from the product provider, and so does not charge a fee. Initial, and 60% renewal commission, is rebated.

On the other hand, the IFA I have had contact with would charge a transactional fee, while any commission which would have been paid is used to reduce the ongoing fees associated with servicing. How would this work? It doesn't sound a straight forward rebate. Trail commission is rebated where possible, not sure about initial commission.

It depends on what methods you would agree to and the platform used. If we say you agreed 0.5% p.a. nominated trail/explicit charge, this would mean any natural trail paid by the investments (which range from zero to 1% typically) can be used to offset that charge. You would probably have to get that IFA to explain how its done in their case as there are different ways you can do this.

Secondly, the terms and conditions from the discount broker state that I would be treated as a retail client, and that I may not necessarily have rights under the Financial Ombudsman Service or the compensation scheme (I assume FSCS) as a result of this categorisation.

The discount broker is not giving advice and you get virtually no cover for bad advice on this method as you have not sought advice. So, you cant go to the FOS and say it was the wrong thing to do (you can but you will likely get knocked back as no advice was sought or given). It is normal on execution only cases to be made aware of the lower consumer protection.

Lastly, do I have to check with my existing provider that they are happy to deal with an execution only broker?

No.

optimist_2

Thanks dunstonh.

Does an internal transfer need to be done through a broker/IFA?

I got the impression it was the commission from the provider for the sale of the product that was offset against ongoing servicing fees, but I don't know how much that is likely to be.

Your example of 0.5% p.a. nominated trail/explicit charge would seem to be a good way of doing it, as you are effectively subsidising the cost of funds with higher trail commission. Does this mean that all trail commission greater than 0.5% is rebated? I understand it is platform dependent, but what are the standard ways of offsetting IFA fees against commission?

If the IFA is entirely fee based, although this provides for transparency, doesn't this lead to a considerable loss of flexibility? For example, if ongoing servicing is £40 per month (4.8%), this would necessitate all trail commission being rebated, and depending on the platform/fund, this may not be possible.

So with an execution only transaction, it is the mechanics of the transfer that is protected, so that the right amount of your money arrives in the right place?

If you do an advised transfer through an IFA, you are protected against transferring into a scheme with higher charges, for example. This would be the wrong thing to do. What other things would fall into this category?

dunstonh

Does an internal transfer need to be done through a broker/IFA?

Yes, if the provider does not operate their own salesforce.

I got the impression it was the commission from the provider for the sale of the product that was offset against ongoing servicing fees, but I don't know how much that is likely to be.

Many investment funds pay 0.5% p.a. If the adviser fee is 0.5% p.a. then they cancel each other out.

Your example of 0.5% p.a. nominated trail/explicit charge would seem to be a good way of doing it, as you are effectively subsidising the cost of funds with higher trail commission. Does this mean that all trail commission greater than 0.5% is rebated? I understand it is platform dependent, but what are the standard ways of offsetting IFA fees against commission?

It also puts the IFA in the position where they cannot be accused of any bias as they are paid 0.5% whether they use managed funds, trackers, ITs, ETFs, shares or whatever. Its clean.

Where trail is higher than the agreed remuneration, then it is rebated within the pension (you are not allowed it cash - you would pay a 55% tax charge on it if you did).

If the IFA is entirely fee based, although this provides for transparency, doesn't this lead to a considerable loss of flexibility? For example, if ongoing servicing is £40 per month (4.8%), this would necessitate all trail commission being rebated, and depending on the platform/fund, this may not be possible.

It increases flexibility as it allows more choice. The rebating and the charging of the explicit trail are handled within the pension (by changes in units or via a cash fund).

So with an execution only transaction, it is the mechanics of the transfer that is protected, so that the right amount of your money arrives in the right place?

Yes.

If you do an advised transfer through an IFA, you are protected against transferring into a scheme with higher charges, for example. This would be the wrong thing to do. What other things would fall into this category?

Higher charges is not a mis-sale. You could be in a rubbish internal fund paying 0.6% p.a. whereas you prefer a defined investment strategy utilising higher quality investments with a view to obtaining greater growth. Its about knowing what you want and getting it. The IFA has to give best advice for the scenario. if that means paying more, then so be it. However, the IFA has to justify the advice

Wrong would be things like moving a plan with a guaranteed annuity rate of 10% (theoretically possible to justify but damned hard) or an old Allied Dunbar plan that is paid up with zero charges (they do exist) into a bog standard internal managed fund that is more expensive.

optimist_2

Could an adviser insist on an internal transfer to an identical plan , if he wasn't happy with just receiving ongoing servicing commission?

Will the adviser receive a separate initial commission from the platform provider for setting up the plan, in addition to the initial charge provided by the funds?

So if both explicit charge and trail are 0.5%, there is no charge. If the trail is greater than 0.5% the difference is rebated, and if the trail is less than 0.5% an additional charge is made up to 0.5%?

If the nominated trail is expressed as a flat fee or as a percentage, are they both classed as fee based? The percentage will obviously give a bigger fee for bigger pots, while the flat fee will remain the same, regardless of pot size. If the flat fee is written into a contract, will this be reviewed on an annual basis?