MSE News: Warning over charges that 'wipe millions off pension pots'

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  • dunstonh
    dunstonh Posts: 116,655 Forumite
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    Every single platform provider is working on a new platform or tweaks to their existing one.

    The thing to remember is that you should split the pension (as you would with any tax wrapper) into three chunks. Adviser : Platform/provider : investment.

    The cost of all three are effectively independent from each other. Legacy contracts tend to be all-in-one but modern contracts separate them out.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    It's news that also made the BBC TV news. Can't really be surprised that it was featured. At least here it's possible to provide some of the background information to help understand it.
  • zagfles
    zagfles Posts: 20,363 Forumite
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    jamesd wrote: »
    Take a look at say Fidelity Fundsnetwork or Skandia. Both have an annual charge that is recouped by lower ongoing costs once about £15-18,000 is invested. The lower ongoing cost is the removal of the need to pay the 0.5% trail commission that normally goes to the adviser that in the HL case is kept by HL even though it isn't acting as an adviser. So while you might pay 1.5% for a fund from HL it'd cost more like 1% from those two.

    The lack of an annual charge for funds is a big part of what makes Hargreaves Lansdown a better deal for smaller pension pot sizes or when the HSBC tracker range is used. Once the value gets larger it becomes cheaper to pay the fee.

    If you want even better disclosure, but at higher cost, take a look at Transact. But it has a 0.3% switching fee and 0.3% platform fee. Both discounted for quite large pot sizes. It completely unbundles its charges from the fund commission, not taking even the platform commission from the fund.

    Because of the different ways that things are paid for I end up saying Hargreaves Lansdown is both expensive and cheap, depending on the specific case at hand.

    Thanks - I had a look at the Skandia website but it seems to be assuming you have an adviser, even for their SIPP! Can you not use them without an adviser? They also don't seem to offer even half the range of funds HL do.

    Fidelity only seem to offer 0% initial charge on a very limited range of funds, and there is nothing about them refunding trail commission. And again the fund selection is under half of HL.

    I think I'll review my options after the RDR and the platform rules the FSA comes up with - when hopefully things will be much more straightfowards when you don't have advice costs built into products.
  • peterg1965
    peterg1965 Posts: 2,159 Forumite
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    As an HL SIPP customer, am I missing something here?

    "Annual Management Charge (AMC) Free for cash and more than 2,400 funds 0.5% for other investments, capped at £200 a year (charged monthly in arrears)"

    What charges am I actually paying in my SIPP then? I pay a discounted initial fee for my OEIC funds and an ongoing cost (TER?) and according to the above statement from HL I have no AMC payable to them if all my SIPP is in funds. Am I being naive in understanding the cost to me?
  • jem16
    jem16 Posts: 19,404 Forumite
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    peterg1965 wrote: »
    What charges am I actually paying in my SIPP then? I pay a discounted initial fee for my OEIC funds and an ongoing cost (TER?) and according to the above statement from HL I have no AMC payable to them if all my SIPP is in funds. Am I being naive in understanding the cost to me?

    Basically you are paying an amc of at least 1.5% (ter will be slightly more) for each fund which includes the 0.5% that an adviser would be getting for providing you with advice which you are not getting.

    If you are going DIY and receiving no advice, shouldn't you expect to get the fund for an amc of 1%?
  • zagfles
    zagfles Posts: 20,363 Forumite
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    peterg1965 wrote: »
    As an HL SIPP customer, am I missing something here?

    "Annual Management Charge (AMC) Free for cash and more than 2,400 funds 0.5% for other investments, capped at £200 a year (charged monthly in arrears)"

    What charges am I actually paying in my SIPP then? I pay a discounted initial fee for my OEIC funds and an ongoing cost (TER?) and according to the above statement from HL I have no AMC payable to them if all my SIPP is in funds. Am I being naive in understanding the cost to me?

    The problem at the moment is that built into the costs of the funds you invest in (typical 1.5% AMC, bit higher TER), is around 0.5% earmarked to pay the adviser, however as you don't have an adviser, HL keep this. They refund part of it in ISAs but not SIPPs.

    So there are no direct charges to you. This silly way of pricing (wrapping up advice costs in product costs) is due to end next year, when products will no longer include advice costs. This should see lower AMCs for funds, but then HL, and advisers, will need to charge directly rather than pretend to be "free" while getting a kickback off the product provider. Should result in more transparent pricing - you'll see what you're paying for.

    There's some controversy at the moment about additional refunds paid by funds to the likes of HL, for "distribution/marketing" rather than "advice", the FSA are due to make a ruling on whether this will be allowed. Hopefully it will, which should reduce any direct charge HL have to charge and hopefully result in lower costs overall.
  • jem16
    jem16 Posts: 19,404 Forumite
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    zagfles wrote: »
    There's some controversy at the moment about additional refunds paid by funds to the likes of HL, for "distribution/marketing" rather than "advice", the FSA are due to make a ruling on whether this will be allowed. Hopefully it will, which should reduce any direct charge HL have to charge and hopefully result in lower costs overall.

    If it is allowed how do you feel it will result in lower costs?
  • zagfles
    zagfles Posts: 20,363 Forumite
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    jem16 wrote: »
    If it is allowed how do you feel it will result in lower costs?

    Because if HL are getting money from the funds they presumably won't need to charge so much directly to customers. I suppose the funds' costs will be lower - but do they pay everyone these "distribution/marketing" refunds?
  • jem16
    jem16 Posts: 19,404 Forumite
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    zagfles wrote: »
    Because if HL are getting money from the funds they presumably won't need to charge so much directly to customers. I suppose the funds' costs will be lower - but do they pay everyone these "distribution/marketing" refunds?

    At the moment they get the distribution/marketing kickback and only rebate part of the IFA trail commission in ISA and unwrapped funds. They rebate none of it in the SIPP. If they are allowed to continue doing this why would they change? I would expect it to remain exactly the same.

    At the moment for a typical 1.5% amc, 0.7% is the fund cost, 0.3% is the provider costs and 0.5% is the IFA cost. They keep the 0.3% and the 0.5% on the SIPP and rebate some of that 0.5% on the ISA and unwrapped.

    If they are not allowed the distribution/marketing kickback they will have to introduce a platform charge to make up for that missing 0.8%. Will that work out more or less - who knows?
  • zagfles
    zagfles Posts: 20,363 Forumite
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    jem16 wrote: »
    At the moment they get the distribution/marketing kickback and only rebate part of the IFA trail commission in ISA and unwrapped funds. They rebate none of it in the SIPP. If they are allowed to continue doing this why would they change? I would expect it to remain exactly the same.

    At the moment for a typical 1.5% amc, 0.7% is the fund cost, 0.3% is the provider costs and 0.5% is the IFA cost. They keep the 0.3% and the 0.5% on the SIPP and rebate some of that 0.5% on the ISA and unwrapped.

    If they are not allowed the distribution/marketing kickback they will have to introduce a platform charge to make up for that missing 0.8%. Will that work out more or less - who knows?

    As I understand it some/most of that 0.3% is bulk buying/handling discounts, as it must be far cheaper in admin for funds to deal with large nominee accounts like HL than directly with customers. So fund AMCs are unlikely to go down buy 0.8%, I'd imagine 0.5% (advice fee) is more likely.

    So if fund AMCs don't go down by this additional 0.3%, if HL are allowed to keep this then overall I'd guess the charges will be lower.

    We'll wait and see...
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