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

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  • dunstonh
    dunstonh Posts: 116,633 Forumite
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    edited 22 July 2011 at 10:32AM
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    However, when is someone who lives off fees and margin ever going to say that said fees and margins are anything other than fairly priced?

    I don't live off the fees of the product, provider or investment. I take an explicit amount which is then bolted on top. If a commission is payable, I rebate it into the plan where it can offset my fee or buy more units or increase the cash fund etc etc. It's actually in my interest to get product/platform/provider/investment charges lower.

    When articles just pick one bit of the "package" then it is always going to be flawed. If you pick the segment with the lowest charges but ignore where the charges are actually being paid and then compare it to a [UK] version where you include the whole package then you are not going to get a like for like comparison.
    I'm a big fan of the Vanguard trackers, but they aren't exactly made easy to access (is Alliance Trust the best/only way?) and I'd guess that a vanishingly tiny percentage of IFAs would ever mention them even assuming that they'd heard of them.

    All IFAs have access to them. Most of the unbundled platforms have them available. I have frequently researched them but despite being cheap, they consistently underperform trackers costing 0.2-0.3% p.a. So, why would I recommend a tracker at 0.1% that underperforms a tracker costing 0.3%? Yes it makes the charges look better but that is just false economy.
    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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    dunstonh wrote: »
    Or perhaps HL will want some of the money that Skandia are making? Skandia's platform is over twice the size of HL!
    Or both! I suspect that Skandia thinks of the HL margins and goes "I want some of that!", while HL thinks what they could make if they had more people paying them 0.8% instead of 0.3%. :)

    I haven't compared incomes but given the high margins I wouldn't be surprised if HL was making more money than Skandia by now.
  • jem16
    jem16 Posts: 19,404 Forumite
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    gadgetmind wrote: »
    However, when is someone who lives off fees and margin ever going to say that said fees and margins are anything other than fairly priced?

    Which fees are we talking about here - IFA fees, platform fees or fund fees? Or all bundled in as a package?
    As I said earlier, I do think fees (up-front and ongoing) are heading in the right direction for consumers, but they still have a long way to go to catch up with the low fees paid elsewhere.

    Are those low fees paid elsewhere the whole picture though?
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
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    jem16 wrote: »
    Which fees are we talking about here - IFA fees, platform fees or fund fees? Or all bundled in as a package?

    The sheer number of snouts in the trough, layer upon layer of them, with little transparency regards how much they are all scoffing, is a fundamental part of the problem.

    Even when you do see a figure, for example the AMC of an OEIC, it's not the full story, and neither is the TER. The situation becomes worse when the OEIC fund has holdings in other OEICs or ITs, etc., which is why I'm (now!) actively avoiding such vehicles and seeking out the lowest cost way to invest in the underlying equities, which is increasingly via trackers and (some!) ETFs.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • jem16
    jem16 Posts: 19,404 Forumite
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    gadgetmind wrote: »
    I'm (now!) actively avoiding such vehicles and seeking out the lowest cost way to invest in the underlying equities, which is increasingly via trackers and (some!) ETFs.

    That's fine so long as you are not compromising your investment by doing so. There are some sectors where trackers really are not suitable.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
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    jem16 wrote: »
    That's fine so long as you are not compromising your investment by doing so. There are some sectors where trackers really are not suitable.

    True enough, and I'm happy to admit that I'm a beginner at this malarkey, but there are lots of good sources of information available nowadays. I find the monevator blog/site to be a good source of common sense without the hype and bravado one often encounters.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • SallyG
    SallyG Posts: 850 Forumite
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    http://www.moneymarketing.co.uk/pensions/transparency-of-charges-is-the-key-to-pension-success/1034912.article
    "In many cases, savers may find it difficult to figure out whether they are better off paying an initial charge of 1.8 per cent with a 0.3 per cent AMC or simply going for a scheme with a 0.5 per cent AMC"
    How do people decide which is the best deal?
  • dunstonh
    dunstonh Posts: 116,633 Forumite
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    SallyG wrote: »
    http://www.moneymarketing.co.uk/pensions/transparency-of-charges-is-the-key-to-pension-success/1034912.article
    "In many cases, savers may find it difficult to figure out whether they are better off paying an initial charge of 1.8 per cent with a 0.3 per cent AMC or simply going for a scheme with a 0.5 per cent AMC"
    How do people decide which is the best deal?

    Use an adviser if they cant do it themselves or use a spreadsheet if they can.

    Getting someone to do it for you or going DIY is no different to any other job. DIY may be cheaper but get it wrong and it could be more expensive.
    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.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
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    SallyG wrote: »

    How do people decide which is the best deal?

    Surely they just grab a calculator or spreadsheet?

    I just did exactly that and the lower AMC will make up for the additional fee after about ten years. After 20 years, the gap will have widened to just over 2%, after after 30 years, it will be over 4%.

    If you invested £1000 today, didn't contribute any additional money, and your investment grew by 6%pa, you'd have £5154 after 30 years with 1.8% plus 0.3% AMC, and £4941 with 0% and 0.5% AMC.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • Porcupine
    Porcupine Posts: 682 Forumite
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    jamesd wrote: »
    For ISAs they do need to say something about how they handle it. Skandia apparently rebates to the IFA who if on fee basis would then have some way of returning it to you. Not particularly convenient, the HL loyalty bonus account is a neater way of doing that for those looking after themselves, but maybe OK for most of Skandia's current customers, where it would be the IFA getting the money for ongoing servicing.

    The other issue is that such rebates may end up outside the wrapper. Not much of a problem for pensions, because you can usually just pay slightly more in to start with, but for ISAs it slightly devalues your benefit because you may well have already used your full allowance and so interest/gains on the rebate are then taxable. If the fees were simply reduced at source, the benefit would remain inside the wrapper and be available for full compounding.
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