Financial Planner - Typical Charges?

Toki

My Dad has taken early retirement from work and is now 60. He has taken advice on what to do with his £60k private pension. He has another work related pension separately. He requires £500 per month from his private pension.

The chartered financial planner is looking to charge 3% from his pension as their fee for the initial advice with an ongoing yearly 0.75% charge which they call "fund (possibly fee, not 100% sure what was said) based commission" is this the same as trailing commission? My dad will not be contributing any more money to his private pension.

The financial planner has advised a WRAP account.

My question is, is these charges typical? I am told that they usually carge 4% but has been discounted to 4%.

Otherwise, the advice seems fine to me, this is including advice on current pension including putting a lump sum ithen put nto a £20k bond and taking 5% (£1k) out each year as this is tax free. Everything seems fine, apart from the 3% fee and the ongoing 0.75% charge which will equal £500 based on his amount.

If you have any other queries that would help to answer the question, feel free to ask and I will answer them. Thanks in advance.

jem16

Toki wrote: »

The chartered financial planner is looking to charge 3% from his pension as their fee for the initial advice with an ongoing yearly 0.75% charge which they call "fund (possibly fee, not 100% sure what was said) based commission" is this the same as trailing commission? My dad will not be contributing any more money to his private pension.

3% is £1800 so within the maximum I would look for on fee basis. However it may be possible to get it for less.

Fund based commission is the same as trail commission but it is usually 0.5% not 0.75% so he's taking more than usual.

The financial planner has advised a WRAP account.

What has the CFP actually advised for the pension? Is he using drawdown to take an income and leave the rest invested?

What wrap account is being suggested?

My question is, is these charges typical? I am told that they usually carge 4% but has been discounted to 4%.

That didn't quite make sense - usually charge 4% but discounted to 4%?

Who is "they" as in usually charge? Maximum commission charge for an IFA was usually 3% although average is more like 1.8% so perhaps some room for getting it down a bit.

Otherwise, the advice seems fine to me, this is including advice on current pension including putting a lump sum ithen put nto a £20k bond and taking 5% (£1k) out each year as this is tax free.

Using an Investment Bond for £20k when your father is retired and I assume will only be a basic rate taxpayer doesn't sound good to me. Investment Bonds are usually better priced for at least £100k.

What's wrong with using his ISA S&S allowance of £10.8k approximately and using unwrapped OEICs/UTs for the rest?

Toki

jem16 wrote: »

3% is £1800 so within the maximum I would look for on fee basis. However it may be possible to get it for less.

Fund based commission is the same as trail commission but it is usually 0.5% not 0.75% so he's taking more than usual.



What has the CFP actually advised for the pension? Is he using drawdown to take an income and leave the rest invested?

What wrap account is being suggested?



That didn't quite make sense - usually charge 4% but discounted to 4%?

Who is "they" as in usually charge? Maximum commission charge for an IFA was usually 3% although average is more like 1.8% so perhaps some room for getting it down a bit.



Using an Investment Bond for £20k when your father is retired and I assume will only be a basic rate taxpayer doesn't sound good to me. Investment Bonds are usually better priced for at least £100k.

What's wrong with using his ISA S&S allowance of £10.8k approximately and using unwrapped OEICs/UTs for the rest?

First of all thanks for the reply.

I did specifically ask if this was the same as trail commission but was told it wasn't the same, strange. She may have said fee based commission, is this different?

The pension is a drawdown as you mention and taking (crystallising) portions to provide an income. Wrap account is from Standard Life.

Apologies, this should have read, usual charges for this company is 4%, they are charging 3%. By this I mean the CFP is taking 3% from the £60k as their charge.

Regarding the investment bond, this £20k is coming from a lump sum my dad can, and will, take from a company based pension. The CFP is advising putting this into the investment bond and taking 5% per year. I believe this may be unwrapped but not 100% sure to be honest.

Regarding the S&S ISA, this is another recommendation with other money he has lying around.

Should I try and negotiate this fees down then do you suggest?

Thanks again.

jem16

Toki wrote: »

I did specifically ask if this was the same as trail commission but was told it wasn't the same, strange. She may have said fee based commission, is this different?

The natural trail commission built into funds at the moment is called trail commission and is as I said 0.5%. Technically you could describe the 0.75% as a fee but certainly not fee based commission as that is contradictory. It's also higher than the normal fund based commission so what is the CFP doing to warrant the extra charge?

Regarding the investment bond, this £20k is coming from a lump sum my dad can, and will, take from a company based pension. The CFP is advising putting this into the investment bond and taking 5% per year. I believe this may be unwrapped but not 100% sure to be honest.

The Investment Bond is a tax wrapper but a rather niche one which is only likely to be useful for a small minority of people. For example higher rate taxpayers, those over age 65 nearing the limit for the age related allowance, those with a desire to shelter funds from care home fees (but cannot be documented as that) and maybe the odd other thing that I can't think of right this minute. Other than that unwrapped funds are usually cheaper for such a small amount as charges are generally higher. However perhaps with the Standard Life wrap ( as opposed to an Insurance based Investment Bond) that is not the case so worth checking it out.

Have you asked the CFP to give you a cost analysis of unwrapped OEICs/UTs against the Investment Bond? Or asked why he has chosen that tax wrapper as opposed to unwrapped? As I say it might be absolutley fine but it's worth asking the questions.

Should I try and negotiate this fees down then do you suggest?

No harm in asking. Perhaps also seeing a couple of other IFAs as well might be an option.

Toki

jem16 wrote: »

The natural trail commission built into funds at the moment is called trail commission and is as I said 0.5%. Technically you could describe the 0.75% as a fee but certainly not fee based commission as that is contradictory. It's also higher than the normal fund based commission so what is the CFP doing to warrant the extra charge?



The Investment Bond is a tax wrapper but a rather niche one which is only likely to be useful for a small minority of people. For example higher rate taxpayers, those over age 65 nearing the limit for the age related allowance, those with a desire to shelter funds from care home fees (but cannot be documented as that) and maybe the odd other thing that I can't think of right this minute. Other than that unwrapped funds are usually cheaper for such a small amount as charges are generally higher. However perhaps with the Standard Life wrap ( as opposed to an Insurance based Investment Bond) that is not the case so worth checking it out.

Have you asked the CFP to give you a cost analysis of unwrapped OEICs/UTs against the Investment Bond? Or asked why he has chosen that tax wrapper as opposed to unwrapped? As I say it might be absolutley fine but it's worth asking the questions.



No harm in asking. Perhaps also seeing a couple of other IFAs as well might be an option.

Many thanks, sounds like my dad and me have been slightly mislead. She clearly stated that the usual charge was 4% and she gave us a discount to 3% when in actual fact this is the maximum amount that she could charge. Also, the higher 0.75% so I will certainly ask these questions and why they are higher than the norm.

My only other concern, is that the CFP has already stated that my dad will be charged for the reports she has completed, regardless of whether he goes ahead or not. I don't know how much this will be but fear it will be enough to really encourage him to accept the recommendations.

Appreciate your help / advice.

Will keep you informed on how I get on.

jem16

Toki wrote: »

Many thanks, sounds like my dad and me have been slightly mislead. She clearly stated that the usual charge was 4% and she gave us a discount to 3% when in actual fact this is the maximum amount that she could charge.

Not exactly what I meant. The typical maximum commission for IFAs was 3% although average tended to be 1.8%.

Your CFP may well be correct in what she is saying in that her typical maximum fee is 4%.

Also, the higher 0.75% so I will certainly ask these questions and why they are higher than the norm.

Some IFAs take up to 1% so it's not over the top. However 0.5% is more the norm.

My only other concern, is that the CFP has already stated that my dad will be charged for the reports she has completed, regardless of whether he goes ahead or not. I don't know how much this will be but fear it will be enough to really encourage him to accept the recommendations.

As it's gone as far as a recommendation, then yes I would imagine that you will incur some costs at least and that this might prohibit going elsewhere.

However I would certainly ask some questions of the CFP. She might have her reasons for using an Investment Bond for £20k and only she knows the full picture of your Dad's circumstances. It may be that it's no dearer than unwrapped as some platforms I believe do offer this. If this is the case she should be able to show you a cost analysis between using the Investment Bond and not using it. If it's a neutral cost then using it could be advantageous as it may avoid some extra tax for your Dad as I assume he's going to be a taxpayer through his other pension?

Have you been given the Key Facts Document for the Bond? If you have look for the section that says something like - this is the effect that charges will have on your Bond. It has the effect of reducing the yield from 7% to whatever. This is called the Reduction In Yield (RIY) and would give an idea of cost. Do you have that?

This is the literature for the Investment Bond.

http://library.adviserzone.com/wrapib17a.pdf

You might want to look at the Standard Life platform and see if it helps answer some questions.

https://www.adviserzone.com/adviser/public/adviserzone/propositions/wrap/whatiswrap/remuneration/

dunstonh

A 60k pension pot will drop to £48k after tax free cash. Its no longer feasible for advisers to charge 0.5% on small values and still give the required servicing (especially post RDR requirements). So, 0.75% will pay the adviser £360 a year which is good if it it involves all the usual drawdown requirements.

Many of the modern contracts now take the adviser fee explicitly and refund any commission. That can involve some cancelling out (i.e. 0.5% trail would cancel out a 0.5% fee).

Toki

dunstonh wrote: »

A 60k pension pot will drop to £48k after tax free cash. Its no longer feasible for advisers to charge 0.5% on small values and still give the required servicing (especially post RDR requirements). So, 0.75% will pay the adviser £360 a year which is good if it it involves all the usual drawdown requirements.

Many of the modern contracts now take the adviser fee explicitly and refund any commission. That can involve some cancelling out (i.e. 0.5% trail would cancel out a 0.5% fee).

Thanks for the information. As far as I'm aware, there is no cancelling out for my dad.

What is your opinion on having the £20k invesmtent bond in the tax wrapper? The £20k is coming from another company pension tax free pot and being reinvested into the investment bond. Appreciate you have limited info to go on, but in general terms is this the right thing to do?

dunstonh

What is your opinion on having the £20k invesmtent bond in the tax wrapper?

I cant see how you an adviser could justify putting £20k in an investment bond. An S&S ISA would be far more tax efficient and unwrapped investments would be next in the pecking order (unless your dad is going to be a higher rate taxpayer or needs a trust set up).

I would be on guard with any investment bond recommendation that is being done on commission basis where the investment value is less than £100k. ISAs/UTs normally pay around 3% commission. Investment bonds can pay upto 7.5%. On fee or agreed remuneration basis, it makes no difference as the adviser gets the same. On commission basis the adviser is going to get a lot more and dodgy advisers may well let that influence them.

Toki

dunstonh wrote: »

I cant see how you an adviser could justify putting £20k in an investment bond. An S&S ISA would be far more tax efficient and unwrapped investments would be next in the pecking order (unless your dad is going to be a higher rate taxpayer or needs a trust set up).

I would be on guard with any investment bond recommendation that is being done on commission basis where the investment value is less than £100k. ISAs/UTs normally pay around 3% commission. Investment bonds can pay upto 7.5%. On fee or agreed remuneration basis, it makes no difference as the adviser gets the same. On commission basis the adviser is going to get a lot more and dodgy advisers may well let that influence them.

Thanks dunstonh,

My dad is paying a fee for the advice so shouldn't make any difference to the CFP. May be worth me questioning the reasons behind the investment bond recommendation instead of the ISA/UT alternative you mention.

Out of interest, is it possible for the IFA/CFP to take a fee and commission if he or she chose to without the customer knowing?

dunstonh

May be worth me questioning the reasons behind the investment bond recommendation instead of the ISA/UT alternative you mention.

absolutely. The adviser should be doing a cost/tax comparison and coming out with justification. ISA is nearly always top of the pile so at the very least it should be ISA and UT or ISA and bond. ISAs/UT allow regular withdrawls. They have access to protected funds etc (they are often "lame" excuses used in attempted justification for doing a bond).

If its on fee basis then you wouldnt expect any bias unless its fee AND commission being taken.

Or it may be that the adviser is recommending mostly bond funds (as in corporate bonds, high yield bonds etc) and its a terminology mix up