Financial Planner - Typical Charges?

Toki

Just to let you know this still hasn't been finalised. We gave the IFA the go ahead to proceed but it turns out my dad either never got the necessary forms or misplaced them.

Been sent the forms now, called "Open Market Option Form 1 - Discharge" There are 2 options, 1A which would give a 25% tax free lump sum of £15k and rest to new provider, or option 1B which forwards 100% to new provider. The form has been filled i by the IFA with option 1B ticked and for my dad to sign.

My dad receives an occupational pension which uses up his tax free allowance already. Is there a reason why option 1B would be better? I would have thought he'd be better taking the tax free amount otherwise his future drawdown pension will be taxed at 20%?

I was also thinking, the IFA is taking 3% as per above posts. I know she also took 3% a few years ago when the existing pension was set up through Winterthur. Is this typical to charge for original advice, then another 3% when situation changes and more advice is required? I expect it is but thought I would check.

Thanks.

dunstonh

Is there a reason why option 1B would be better? I would have thought he'd be better taking the tax free amount otherwise his future drawdown pension will be taxed at 20%?

Maybe its because the annuity provider is paying the tax free cash instead. With one pension, you normally use open market option (the existing provider pays tax free cash and pays the rest to the new provider). With multiple providers, you use full fund transfer and the new provider pays the tax free cash.

Sometimes even when there is only one provider, it can be better to use full fund transfer (e.g. Pru expire their OMO forms with just a two week period. Yet they dont on full transfer)

I was also thinking, the IFA is taking 3% as per above posts. I know she also took 3% a few years ago when the existing pension was set up through Winterthur. Is this typical to charge for original advice, then another 3% when situation changes and more advice is required? I expect it is but thought I would check.

If the adviser is employed on transactional basis then you are charged per advice transaction. If the adviser is on servicing basis then you not usually charged again or if it is, it's very little. This one appears to be on transactional basis.

Toki

dunstonh wrote: »

If the adviser is employed on transactional basis then you are charged per advice transaction. If the adviser is on servicing basis then you not usually charged again or if it is, it's very little. This one appears to be on transactional basis.

Thanks, what do you mean by servicing basis? I do know my dad has been paying commission to the IFA on an ongoing basis on his existing pension, every 3 months from memory.

dunstonh

Toki wrote: »

Thanks, what do you mean by servicing basis? I do know my dad has been paying commission to the IFA on an ongoing basis on his existing pension, every 3 months from memory.

It is when you employ the adviser on an ongoing basis to provide advice. Typically funded either by a standing order payment or directly from the investments.

Most traditional pensions do not pay any ongoing trail commissions. Although more modern ones could. If there is an ongoing servicing arrangement then charging 3% again is greedy. You can understand a small amount but not that much.

Toki

I've had a bit of time to have a look over what the CFP / IFA has charged my dad for previous advice.

My dad invested £30,000 on 29/02/08 as per IFA advice. For this advice, she received £1,153.85.

He also invested £350 per month from April 2008 to 21/02/11 when the last payment was made. This was probably sound advice at the time, however my dad stopped working at the end of March 2009. From the time my dad received the initial advice to approx April 2011 when my dad got back in touch to ask her to carry out another review, he never heard from the IFA at all. No reviews, no statements or anything. However, she has been taking commission on an ongoing basis from his private pension she helped set up.

Up to the end of October 2011, total "Advisor Remuneration" was £2,069.93, inclusive of the £1,153.85 I mentioned earlier for set up. She has done absolutely nothing to justify this ongoing commission with no changes to my dads pension at all in this time. Of course my dad should have been in contact with her when his circumstances changed, he's not the best at all this!, but I can't see how she can now justify another 3% inital fee for more advice due to change of circumstance and dad now wanting to earn a monthly income.

What are your thoughts? The more I look at it, the more it seems she is charging a lot, most if unjustified. Does this seem reasonable to you dunstonh or anyone else?

Thanks in advance.

Toki

dunstonh wrote: »

Maybe its because the annuity provider is paying the tax free cash instead. With one pension, you normally use open market option (the existing provider pays tax free cash and pays the rest to the new provider). With multiple providers, you use full fund transfer and the new provider pays the tax free cash.

Sometimes even when there is only one provider, it can be better to use full fund transfer (e.g. Pru expire their OMO forms with just a two week period. Yet they dont on full transfer)



If the adviser is employed on transactional basis then you are charged per advice transaction. If the adviser is on servicing basis then you not usually charged again or if it is, it's very little. This one appears to be on transactional basis.

Following on from this, I went back to the IFa and asked for clarification, she has agreed that Option 1A is best, taking the 25% tax free sum. However, all her advice up to this point has been to transfer the whole amount to the new WRAP platform.

I quote from the inital report back in June 2011 "I considered taking benefits from your existing plans and discounted this because you have no immediate need for capital only incom and you did not want to purchase an annuity at this time" I asked my dad, and he wasn't consulted about this. To me, it's quite obvious, take the tax free amount, otherwise he will have to pay 20% tax on the amount once he takes it as income.

I'm sure the CFP/IFA has only recommended this course of action as she will be getting 3% from it. How should I go about raising a complaint as I really feel she was taking advantage of my dad and now since I've become involved, has had to admit to an error. The whole report is based around the £60k being transferred and taking income via drawdown, however amount in the new pension will only be £45k or so now.

I also feel taking the 3% a few years ago, ongoing commission for no work or review, then charging another 3% for the review last year and ongoing commission after this is excessive. Am I right or is this the norm?

Toki

dunstonh wrote: »

It is when you employ the adviser on an ongoing basis to provide advice. Typically funded either by a standing order payment or directly from the investments.

Most traditional pensions do not pay any ongoing trail commissions. Although more modern ones could. If there is an ongoing servicing arrangement then charging 3% again is greedy. You can understand a small amount but not that much.

[FONT=&quot]Following on from this, I went back to the IFa and asked for clarification, she has agreed that Option 1A is best, taking the 25% tax free sum. However, all her advice up to this point has been to transfer the whole amount to the new WRAP platform.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]I quote from the inital report back in June 2011 "I considered taking benefits from your existing plans and discounted this because you have no immediate need for capital only incom and you did not want to purchase an annuity at this time" I asked my dad, and he wasn't consulted about this. To me, it's quite obvious, take the tax free amount, otherwise he will have to pay 20% tax on the amount once he takes it as income.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]I'm sure the CFP/IFA has only recommended this course of action as she will be getting 3% from it. How should I go about raising a complaint as I really feel she was taking advantage of my dad and now since I've become involved, has had to admit to an error. The whole report is based around the £60k being transferred and taking income via drawdown, however amount in the new pension will only be £45k or so now.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]I also feel taking the 3% a few years ago, ongoing commission for no work or review, then charging another 3% for the review last year and ongoing commission after this is excessive. Am I right or is this the norm?[/FONT]

dunstonh

I also feel taking the 3% a few years ago, ongoing commission for no work or review, then charging another 3% for the review last year and ongoing commission after this is excessive. Am I right or is this the norm?

A complaint on that basis wont succeed. The FSA does not define excessive fees and actually avoids doing so. My compliance team defines excessive as £10k (although personally I think that is far too high - everyone has views). I know of a case that had over £70k paid in commission but a complaint wouldnt get anywhere as commission is not the same as a fee.

You have grounds for changing adviser.

You may have scope on the 25% tax free cash as with money purchase plans (except those with GARs) taking the 25% is common sense. Even if you use it as a defaqto income for a year or two (e.g. lump sum of £20k may last you two years)

Toki

dunstonh wrote: »

A complaint on that basis wont succeed. The FSA does not define excessive fees and actually avoids doing so. My compliance team defines excessive as £10k (although personally I think that is far too high - everyone has views). I know of a case that had over £70k paid in commission but a complaint wouldnt get anywhere as commission is not the same as a fee.

You have grounds for changing adviser.

You may have scope on the 25% tax free cash as with money purchase plans (except those with GARs) taking the 25% is common sense. Even if you use it as a defaqto income for a year or two (e.g. lump sum of £20k may last you two years)

Thanks again dunstonh.

Reading more of the report from last year, she considered 4 options.

1. Drawdown the pension, taking full tax free cash and a flexible income.
2. Phased (drip feed) Drawdown, where you take part taxable and part tax free income.
3. To take the tax free lump sum and puchase a fixed annuity.
4. Purchase an annuity with total funds - No tax free cash/

She goes on to say,

I recommend option 2, Phased or Drip Fee Drawdown. Standard Life is able to offer a variation on phased pension fund withdrawl called drip feed drawdown. The essential difference is that payments of tax free lump sum (and income) can be made on a monthly basis rather than annually which is usual.

Does this mean the 25% tax free amount (approx £15k in this case) could be kept within the Standard Life pension and spread across the year (or longer) rather than the lump sum option?

dunstonh

She goes on to say,

I recommend option 2, Phased or Drip Fee Drawdown. Standard Life is able to offer a variation on phased pension fund withdrawl called drip feed drawdown. The essential difference is that payments of tax free lump sum (and income) can be made on a monthly basis rather than annually which is usual.

Does this mean the 25% tax free amount (approx £15k in this case) could be kept within the Standard Life pension and spread across the year (or longer) rather than the lump sum option?

That is effectively phased income drawdown and means that only part of the fund is crystallised each time but 25% is taken with transaction. So, no complaint there.

Phased drawdown is quite a good method for people that dont need capital and are looking for income whilst maintaining as much tax free death benefit as possible.