Self employed, personal pension

gbgeer43

Hi everyone. Original poster here... I declare that contest a draw :shocked:
Having thought about this more, it seems like diversity could be the way to go.

A little bit pension, getting immediate tax deductible element.
And a little bit S&S ISA, getting tax free income element when I retire. Both seem to have pros/cons that even each other out in the long run, with similar levels of creaming off the top.
Ramping up pension contributions once I'm closer to seeing the benefit in retirement.

Overall it sounds like good old fashioned bamboozlement and obfuscation by our esteemed overlords... Can't have the hoi polloi having too much say over their money what what!

An S&S ISA does appeal, especially if it's an actual physical (but virtual) bank account. A pension fund still has question marks for me, especially about what happens to my hard earned if I expire early! S&S ISA with no age restrictions on access. It gives additional options, eg: if I decided to pump the money into a deposit for property to live off rental income from kids & pals or whatever.

Getting an IFA involved sounds like an option. I don't have a spare £2k knocking around immediately to get one activated. But if it definitely wins in the long term, then I'm willing to buy one up.
If I have to pay an annual management charge of 1%, I'd prefer to be paying 0.5% for decent advice and 0.5% to the main provider, than the whole lot into a bank's trousers.

So some general questions about IFAs...

1) Do you pay for an IFA and it's a one-off meeting, job done? Or is it a one-off payment for a long term agreement to actively manage the investments?

2) Would I have to stump up money for an initial consultation? Or would a fee only be payable once a product is agreed upon and activated?

3) Is the IFA an actual real physical human?
Or just a robot of a financial monolith on the end of a call centre menu? (reachable by entering my unique customer reference number at the tone followed by the hash key)

4) What happens if/when an IFA ceases to exist or becomes devoured by a financial leviathan. Would any sort of agreed management fees remain in place?

5) How/where are IFAs rated? Assuming there should be centralised data on rankings/performance/feedback? Or since they are independent, are they by definition unaccountable and in their own little cartel?

6) What sort of reduction in management charge percentage could I expect from an IFA? Had a very quick look at an HSBC S&S ISA and AMC was 1.2%. If I can end up having an AMC of 0.9-0.6% then I'd obviously be happer but is that realistic?

Cheers, B

jem16

gbgeer43 wrote: »

Getting an IFA involved sounds like an option. I don't have a spare £2k knocking around immediately to get one activated. But if it definitely wins in the long term, then I'm willing to buy one up.

The £2k I mentioned was the maximum - it would be unlikely to be that for startimg up a pension. It should be more in the region of £500-£750. Fees can be taken from the product itself rather than writing a cheque.

Have a read through this thread.
https://forums.moneysavingexpert.com/discussion/3374156

If I have to pay an annual management charge of 1%, I'd prefer to be paying 0.5% for decent advice and 0.5% to the main provider, than the whole lot into a bank's trousers.

Whatever you do do not go through a bank -poor quality funds and expensive.

Either see an IFA or DIY with a funds supermarket or discount broker.

So some general questions about IFAs...

1) Do you pay for an IFA and it's a one-off meeting, job done? Or is it a one-off payment for a long term agreement to actively manage the investments?

That depends on how you employ the IFA. Transactional is one-off advice, servicing is ongoing advice for which you would need to agree a fee which could be typically 0.5%.

2) Would I have to stump up money for an initial consultation? Or would a fee only be payable once a product is agreed upon and activated?

The first meeting would see no payment but that's mainly so that the IFA can lay out the charging structure and collect some facts. As you go further down the line you would be asked to commit before any further work is done.

3) Is the IFA an actual real physical human?
Or just a robot of a financial monolith on the end of a call centre menu? (reachable by entering my unique customer reference number at the tone followed by the hash key)

It's a real person. How you reach them depends on the IFA involved. It could be face to face, email or phone.

However try and steer clear of the large salesforces. They often have a high turnover of staff and often sales orientated. Try and use a small local firm where you can speak to the owner/partner directly and build up a relationship with.

If you have no personal recommendations use https://www.unbiased.co.uk to find local IFAs.

4) What happens if/when an IFA ceases to exist or becomes devoured by a financial leviathan. Would any sort of agreed management fees remain in place?

That depends on how it was set up in the first place. However you can change IFAs any time simply by going to a new IFA and asking him/her to take over your investment.

5) How/where are IFAs rated? Assuming there should be centralised data on rankings/performance/feedback? Or since they are independent, are they by definition unaccountable and in their own little cartel?

There is no rating system. Investment is about opinion and with so many funds to choose from it would be impossible to rate as no two IFAs would do the same.

Best way is to ask around if anyone has used an IFA and see 2 or 3 to see what you think.

6) What sort of reduction in management charge percentage could I expect from an IFA? Had a very quick look at an HSBC S&S ISA and AMC was 1.2%. If I can end up having an AMC of 0.9-0.6% then I'd obviously be happer but is that realistic?

Cheers, B

It is realistic with pension funds where a higher upfront fee can see a lower amc which will work out cheaper in the long run. The other thread I linked you to mentions an amc of 0.5% and 0.7%.

atush

GB,

I agree with you that in your case it may be the best approach to use both pensions and ISAs. Fairleads is against pensions and vehemently in favour of ISAs as he is already retired and things that could happen to you in future (such as but not limited to changing from self employed to employed, becoming ill and stopping work, you are sued by an unhappy customer, your business drying up and going on benefits) has not happened to him so won't as it is too late. We all hope you are as lucky as he was not to run into any bumps in the road. Given you have no crystal ball to look into the future, it will be best to use both systems to fund retirement with an emphasis on ISAs in the early years if you are paying basic rate tax, not higher and the emphasis on pensions if you are a higher rate taxpayer or start working for an employer. The major reason why is:

An S&S ISA does appeal, especially if it's an actual physical (but virtual) bank account.

By the fact it is a bank acct and comes into your personal wealth, you would have any future benefits reduced as you have this personal wealth to draw on, and any ligitants could possibly have a claim on it. Pensions are more protected and cannot be taken into acct before they have been activated by you retiring and you are then receiving an income from them. So you would not lose out on any benefits nor would any litigants be able to touch it.

gbgeer43

Thanks for all the info so far

jem16 wrote: »

That depends on how you employ the IFA. Transactional is one-off advice, servicing is ongoing advice for which you would need to agree a fee which could be typically 0.5%.

Is that servicing charge a percentage of the full investment pot, or a percentage of the money earned by the investment?
I assume it's separate to the annual management charge?

jem16: The link to that IFA thread was very useful.

atush: I hadn't thought about that protected aspect, very good point.

I think an IFA definitely makes sense. I've had a look on unbiased and there's a couple of local ones I might make a call to. Especially if they give me access to lower annual management charges.

Would I need ongoing servicing?
Or could I do a review appointment every 3-5 years?

I'd be pretty happy to monitor the progress of them myself and twiddle the funds around. Possibly even a share dealing ISA but that could be a big commitment.

Cheers

jem16

gbgeer43 wrote: »

Is that servicing charge a percentage of the full investment pot, or a percentage of the money earned by the investment?

It would be on the full investment pot.

I assume it's separate to the annual management charge?

It depends on what platform/provider your IFA uses so it's definitely a question to ask and make sure you understand.

With an standard insurance provider, the amc quoted usually includes the IFA trail commission. However more IFAs are using platforms nowadays where you can all of the investments on one platform. On this the charges are usually listed separately - i.e. fund amc, platform charge, IFA fee.

Would I need ongoing servicing?
Or could I do a review appointment every 3-5 years?

If you are starting from scratch, then probably not initially. Once it gets up to £20k an annual review would be useful.

I'd be pretty happy to monitor the progress of them myself and twiddle the funds around.

If you have time to do the research and happy to DIY then do so. However you could also lose more than you save if you make a pig's ear out of it, just like any DIY job.

Possibly even a share dealing ISA but that could be a big commitment.

If you fancy doing it yourself for a S&S ISA you could take a look at Hargreaves Lansdown.

http://www.hl.co.uk/

However they are best for funds, not direct shares but you might be better starting off with funds till you get the hang of it. For funds they rebate the initial charges and part of the amc(provided the value of each fund is more than £1000 from August 1st). For shares other providers are probably better.

atush

Above was some advice (or on another thread) that you shouldn't need ongoing advice until your 'pot' grows to 20K. We have sdo far not used an IFA as our pensions were always thru companies that had employers contributions. But we have been able to choose our funds/areas of investm,ent aprt from the oldest one that was with profits. As long as you look at the statements and review your fund choices annually or 6 monthly (which you can do loine if you know the funds) that should suffice til your pot grows big enough.

I can see my and Jem's post crossed here lol

And yes, protection of funds can be an issue for some self employed- even LC if there is some charge of illegality that can undo the protection you get from LC status. Not to mention the whole benefits thing. Which is easy for some like FL to dismiss as now they are past the danger of that happening to them, they refuse to accept it could happen to others not qutie so fortunate.

The only time I went to an IFA was with my newly divorced friend and I was helping her sort her finances incl life insurance. And I made sure to protect her from all eventualities inlc insuring her husbands life for a sum to replace the maintenance she was receiving for herself and her children as if he died the new wife (he married his mistress) would get everything. Lots of people dont' think about all the different things that can happen.

But she was made unemployed by her employer ceasing trading and she did not get the full jobseekers allowance as although she had worked 2 years full time, they base it on the employment record of the last two years for which taxes have ben filed and she didn't have 2 years full time (just one year full and one year part). So, despite my working her budget, and forcing her to save large amts of her maintence before it stopped being paid, she only got a very reduced benefit payments due to the fact that she had 30K in savings. So she had to live on maintenance CB and her savings in the monhts she looked for work as they only gave her 15 quid a week. If she hadn't saved so very hard she would have gotten the whole payment weekly.

gbgeer43

jem16 wrote: »

If you fancy doing it yourself for a S&S ISA you could take a look at Hargreaves Lansdown.

http://www.hl.co.uk/

However they are best for funds, not direct shares but you might be better starting off with funds till you get the hang of it. For funds they rebate the initial charges and part of the amc(provided the value of each fund is more than £1000 from August 1st). For shares other providers are probably better.

Interesting stuff! That HL Vantage ISA looks really good... http://www.hl.co.uk/investment-services/isa/savings-interest-rates-and-charges
But the charges seem low... almost too low!

A couple of things that confuse me on that page though...

Annual Charge - 0% for cash and funds that pay renewal commission (more than 2,100 to choose from)

and

Funds (unit trusts and OEICs) - FREE We also offer up to a 5.5% saving on the initial charges made by the fund manager

What do they mean by renewal commission and the initial charges made by the fund manager?
From that page it seems to suggest that setup is free but there's an initial charge from a fund manager?

Thanks for the info so far!

jem16

gbgeer43 wrote: »

Interesting stuff! That HL Vantage ISA looks really good... http://www.hl.co.uk/investment-services/isa/savings-interest-rates-and-charges
But the charges seem low... almost too low!

There is no actual charge for the ISA wrapper but you do have annual management charges for each fund, typically between 1.5% and 2.5% depending on funds chosen.

What do they mean by renewal commission and the initial charges made by the fund manager?
From that page it seems to suggest that setup is free but there's an initial charge from a fund manager?

Thanks for the info so far!

When you buy a fund there are two charges. One is the initial charge, typically 5% and one is the annual management charge as I said above. With HL the initial charge is usually fully discounted so if you invest £1000 that is what is actually invested and not £950 as it would be if you had the initial charge.

The next charge is the annual management charge (amc). On a typical fund costing 1.5%, 0.7% would pay the fund manager to manage the fund, 0.3% pays the platform provider (in this case HL) and 0.5% is the renewal commission normally paid to your IFA for providing advice. As HL don't provide advice ( you have to make the fund choices yourself) they rebate some of this 0.5% back to you so it's a little cheaper.

Some funds do not pay this trail commission so HL may make a separate charge for this - you should find info on this if you go and look at the info for each fund.

CannySaver_2

Two points to add here.

1. Focus on TER's (Total Expense Ratios) and not AMC's (Annual Management Charges).

The difference between the two is essentially disbursments.

Whilst not perfect a TER gives a better idea of the overall charges you will pay than an AMC.

2. The post from jem16 highlights the concerns I havew with HL.

HL recieve rebates from the fund managers over and above the fund based commission. These rebates are not decalred anywhere, and are therefore not transparent. HL also promote the "Wealth 150" highlighting their "favorite funds in each sector", I would be interested to know if there was any relationship between the size of rebates and entries in the "Wealth 150" but there is no way of finding out.

The lack of transparency causes suspicion in my mind.

The Canny Saver

The Canny Saver

jem16

CannySaver wrote: »

Whilst not perfect a TER gives a better idea of the overall charges you will pay than an AMC.

Good point.

2. The post from jem16 highlights the concerns I havew with HL.

I don't use them but they seem to be pretty popular with the DIY crowd on here because of their discounts and ease of use.

HL recieve rebates from the fund managers over and above the fund based commission. These rebates are not decalred anywhere, and are therefore not transparent. HL also promote the "Wealth 150" highlighting their "favorite funds in each sector", I would be interested to know if there was any relationship between the size of rebates and entries in the "Wealth 150" but there is no way of finding out.

You and a few others would be interested too. There was a whole thread about it recently.

Basically in my mind they should be rebating the whole 0.5% trail commission as they are not providing any advice. With their SIPP they keep the whole of that 0.5% yet many on here seem to think that their SIPP is "low cost".

The lack of transparency causes suspicion in my mind.

Unless the FSA does ban the unbundled platforms I doubt we will ever find out.