Transfer to Group SIPP

Richie(UK)

Hi all,

My brother-in-law is in a group pension scheme and his employer matches his contributions (lucky him). The boss at his firm has appointed an IFA to 'look after' the scheme.

In ballpark terms he has approximately £50k in this pension and another £50k in a previous pension. The IFA has recommended to him that the previous pension should be transferred to the (Standard Life) Group SIPP. The basis for the transfer is that having a single large fund will allow costs to be reduced and that the SIPP will allow the IFA to 'generate higher returns because of the better choice of funds' (the IFA's own words). The IFA is seeking 3% commission (£1500) for the transfer.

A couple of questions, if I may:

1. The suggested commission seems to be very much at the top end of what I would have expected here. However, I am not an IFA and have only my own limited experiences to draw upon in comparison. Anybody else think this seems high?

2. Are IFAs obliged to offer an hourly rate alternative or is it just optional? My brother-in-law did ask about this but the IFA seemed reluctant (he has also phoned my brother-in-law to 'encourage' him to commit to the suggested deal quickly as 'opportunities for greater returns are being missed'). Admittedly I haven't heard this directly from the IFA but it sounds to me as if he (the IFA) is more akin to a second-hand car salesman than a financial adviser.

EDIT : Follow-up question.
My brother-in-law has spoken to another IFA who said that they would perform such a transfer for a flat fee of £500. However, with the 'group' situation they were not sure whether they would actually be able to undertake this on his behalf. Is he 'stuck' with the appointed IFA come what may?

As an aside (I don't think I'm saying anything inappropriate as this is all on a 'no names' basis), a number of employees have been so upset with the IFA in question that they decided to transfer all of their funds to their own SIPPs. The feelings seem to stem from previous suggestions that he would 'generate higher returns because of the better choice of funds'. Obviously the IFA can't have foreseen the market changes that we are currently facing but I think he is perhaps over-promising to secure transfers. (I assume that the employees concerned have reached an agreement with the employer as it would be crazy to turn down the generous employer contributions.)

dunstonh

1. The suggested commission seems to be very much at the top end of what I would have expected here. However, I am not an IFA and have only my own limited experiences to draw upon in comparison. Anybody else think this seems high?

You say the investment amount is two lots of £50k. So, £1500 on that is 1.5%. Not 3%. Is it a £1500 fixed fee of percentage based and what is the actual percentage?

2. Are IFAs obliged to offer an hourly rate alternative or is it just optional? My brother-in-law did ask about this but the IFA seemed reluctant (he has also phoned my brother-in-law to 'encourage' him to commit to the suggested deal quickly as 'opportunities for greater returns are being missed'). Admittedly I haven't heard this directly from the IFA but it sounds to me as if he (the IFA) is more akin to a second-hand car salesman than a financial adviser.

There is no requirement to offer an hourly fee. Where it is available, it is typically the least used fee option. They have to offer a fee option but the client here is not your brother in law. It is the employer. The employer agrees the terms with the IFA.

EDIT : Follow-up question.
My brother-in-law has spoken to another IFA who said that they would perform such a transfer for a flat fee of £500. However, with the 'group' situation they were not sure whether they would actually be able to undertake this on his behalf. Is he 'stuck' with the appointed IFA come what may?

As it is a group scheme, they would have to take the £500 explicitly from your brother by cheque and the IFA for the scheme will still be paid their cut as well. Group schemes can be a pain. Frequently, IFAs recommend people to join the scheme (for free money from employer) but it is the group scheme IFA that gets the remuneration despite doing none of the work.

As an aside (I don't think I'm saying anything inappropriate as this is all on a 'no names' basis), a number of employees have been so upset with the IFA in question that they decided to transfer all of their funds to their own SIPPs. The feelings seem to stem from previous suggestions that he would 'generate higher returns because of the better choice of funds'. Obviously the IFA can't have foreseen the market changes that we are currently facing but I think he is perhaps over-promising to secure transfers. (I assume that the employees concerned have reached an agreement with the employer as it would be crazy to turn down the generous employer contributions.)

That is just being silly. They are losing the employer contribution to go from one scheme to another scheme that offers identical investment options.

An adviser cannot predict markets (no-one can). External funds offered in SIPPs do typically tend to outperform internal insurance company own brand funds. There is some basis of truth in there. However, it should be made clear that it is only being done on potential and there is no guarantee.

Richie(UK)

Hi dunston,

Thanks for the feedback

dunstonh wrote: »

You say the investment amount is two lots of £50k. So, £1500 on that is 1.5%. Not 3%. Is it a £1500 fixed fee of percentage based and what is the actual percentage?

Sorry, I didn't make that very clear. It's a transfer of the 'old' £50k into the same pot as the 'current' £50k. So, it's 3% of the 'old' pension (percentage based rather than fixed). If it were 1.5% I wouldn't have raised an eyebrow (although I may still have suggested he ask for a fixed fee quote) but 3% seems quite high.

There is no requirement to offer an hourly fee. Where it is available, it is typically the least used fee option. They have to offer a fee option but the client here is not your brother in law. It is the employer. The employer agrees the terms with the IFA.

Yes, that does make it altogether more tricky doesn't it.

As it is a group scheme, they would have to take the £500 explicitly from your brother by cheque and the IFA for the scheme will still be paid their cut as well. Group schemes can be a pain. Frequently, IFAs recommend people to join the scheme (for free money from employer) but it is the group scheme IFA that gets the remuneration despite doing none of the work.

Hence the trepidation of the other IFA presumably.

That is just being silly. They are losing the employer contribution to go from one scheme to another scheme that offers identical investment options. An adviser cannot predict markets (no-one can). External funds offered in SIPPs do typically tend to outperform internal insurance company own brand funds. There is some basis of truth in there. However, it should be made clear that it is only being done on potential and there is no guarantee.

Agreed, but I think it is indicative of how the IFA is perceived. Perhaps the best option may be for the boss to appoint another IFA - or is that likely to be messy if there is already one in place?

dunstonh

Sorry, I didn't make that very clear. It's a transfer of the 'old' £50k into the same pot as the 'current' £50k. So, it's 3% of the 'old' pension (percentage based rather than fixed). If it were 1.5% I wouldn't have raised an eyebrow (although I may still have suggested he ask for a fixed fee quote) but 3% seems quite high.

In that case, I would think the £1500 is on the high side. £500 into an existing plan they are already being paid trail commission on would be more realistic.

Agreed, but I think it is indicative of how the IFA is perceived. Perhaps the best option may be for the boss to appoint another IFA - or is that likely to be messy if there is already one in place?

The employer may not be aware of the staff feeling. They should make him aware. However, it may also be an unfair judgement. I have lost count of the number of times I have heard people say over the years that one investment they had was bad but another was better when in reality they had virtually the same thing but covered different periods (one being a negative period and the other being positive). They perceive one is better than the other without comparing like for like in the same period.

kidmugsy

"he has also phoned my brother-in-law to 'encourage' him to commit to the suggested deal quickly as 'opportunities for greater returns are being missed'": I wouldn't trust an IFA offering that line of argument. A pension is invested for (typically) decades: so what's the rush?

jamesd

Why use the firm's IFA at all? SL will take transfers in, so why use the IFA at all? You can also tell SL not to tell the employer or their IFA details of amounts paid in except from the employer and not tell where the money is invested.

There's no rush for your brother in law. For the IFA there's a coming end to ongoing commission payments and some firms want to get as much money as possible into old arrangements with such ongoing payments.

There's no loss of employer contributions when an existing pot is transferred out of the work pension to a new pension provided they continue to make payments into the work pension. It can be sensible even just on financial grounds if the alternative personal pension offers lower charges and/or better investment options. For this reason I asked my employer about transferring out from a workplace SL group personal pension to another pension periodically - it gets me the employer matching and then the better investment choices and lower ongoing costs I can get elsewhere.

The SL group SIPP may be more costly even for the same investments than the existing pension. Can't say without knowing what the charges are for each, it'll probably show up as a difference in annual management charge for the funds. For a generic fund with 1.5% AMC I pay 1.25% in the SL SIPP.

There is a reduction in the annual charge from SL for FundZone fund use if more than £100,000 is invested. But without knowing what the other pension charges for funds I can't say if it's more or less expensive.

Your brother might usefully ask the other IFA how the charges for funds compare with say a Skandia pension compared to the SL SIPP. Chances are that the same funds can be held more cheaply with Skandia.

dunstonh

Why use the firm's IFA at all? SL will take transfers in, so why use the IFA at all?

It's a group scheme. Not an individual scheme.