IFA recommends switch to Metlife

Blue_Parrot

IFA has recommended that my husband switch his pension (currently worth ~£175,000) from AXA/Friends Life to Metlife. He has 5 years to go before retirement, minimum.

His pension (which his company pays into) has been with AXA to date.

Caveat Emptor: I looked into the small print of the IFA's 80-odd pages recommendation package. Sure enough I found the commission - over £5,000 should he sign up to this. That would come out of his pension pot.

Any informed views on this recommendation would be welcomed. I already know what my gut-instincts are.

Many thanks.

Lokolo

The £5k is quite expensive, the fee quote should be a lot less.

What reasons has the IFA given for switching? I would say yes, switching investments, but provider? Not so sure unless he has a good reason to.

bigfreddiel

get an agreement to relate it to performnace in your case its simple

take the advice and pay him according to how much better the new product performs compared to the existing product - if it better you pay him - if worse he pays you - simples

glad to help

fj

dunstonh

Caveat Emptor: I looked into the small print of the IFA's 80-odd pages recommendation package. Sure enough I found the commission - over £5,000 should he sign up to this. That would come out of his pension pot.

The illustration with the commission on (should commission be chosen) is only going to be around 5-8 pages.

IFA has recommended that my husband switch his pension (currently worth ~£175,000) from AXA/Friends Life to Metlife. He has 5 years to go before retirement, minimum.

Why is your husband employing the IFA on commission basis? With that sort of sum, fee basis would be cheaper.

Any informed views on this recommendation would be welcomed.

What is the recommendation and why? You have only told us the outcome.

I already know what my gut-instincts are.

There isnt enough posted to give me any gut instinct.

Advice given has to be in his best interests whether it earns the IFA, £5, £500, £5000 or £50,000.

Blue_Parrot

What I have here is

2-page letter
1-page "confirmation" requiring signature
23-page MetLife application form
3-page Transfer form
Big Bound Folder containing 59 pages

and a reply-paid envelope.

The bit about their commission is on page 14 of the Big Bound Folder, therefore 53 pages in.

Will answer your other questions later, have to go now.

Blue_Parrot

More information: Why is the IFA on commission? Because no-one read the small print before I started my newly-found keen interest in pensions. It's better late than never.

The recommendation to switch from AXA to Metlife is because they (allegedly) pay 3% p.a., minimum.

Now that I'm reading small print, and reading around, I am wondering how many £thousands they have had down the years in commission, for writing 85-page reports (85 pages is a guesstimate but close).

My instincts are to ask for a second opinion - a new IFA locally will give an initial consultation free. If he only asks one question (AXA > Metlife?) that should fit with initial free consultation (?)

Other instincts are to immediately switch to Fee not Commission and wait to see what the bill is; and - a valid option considering stock markets and my own pension performance - to do nothing. Masterly inactivity has yielded 13% growth on my pension this year, believe it or not. And all without paying thousands to an IFA.

.........

Does anyone have any recommendation or otherwise about Metlife?

Aegis

The best bet would be to go back to the adviser and ask him to summarise what the benefits of this plan are and how he proposes the loss of £5,000 will be gained back by doing this rather than doing nothing.

It's also worth asking him what he'd charge to implement these recommendations on a fee basis, as that should come out considerably lower.

CannySaver_2

Hi

I'd agreed with everyone else, working on a fee basis should be a whole lot cheaper. You can also be sure of a completely impartial recommendation, even opening up the possibility that the best advice is to stay with the current scheme.

I assume the recommendation is to make the switch to reduce risk in the years leading up to retirement, is this correct? If so there are other ways of achieving the same aim, for example fund switches within the AXA contract or if you want zero capital risk you could always consider a cheap SIPP and use deposit accounts. A five year fixed rate deposit account for a SIPP will get you above 4% per annum and you could get the SIPP fees as low as a couple of hundred quid a year (with advice fees on top).

I'd speak to another IFA, lay out your goals, discuss risk, work on a fee basis and see what they come up with. £5k for this type of transfer seems rather a lot, and certainly represents more than if you were to engage the IFA on a fee basis.

The Canny Saver

Blue_Parrot

Aegis and Canny Saver, those are good replies, thank you. Another look at the very thick report shows that the £5,000 commission is 3% of the fund value.

1. Is 3% a high commission? I have had a look around the internet but can't find any rule of thumb figures as to what IFAs are likely to charge in commission.

2. This Metlife has (alleged) 3% growth p.a. Therefore the whole of the first year's growth would be wiped out in commission charge aforehand.

I am now wondering how much they've had in commission down the years. It must be thousands of pounds. Who should I ask/where should I look, will it be stated somewhere in the AXA paperwork?

Also, does anyone know the procedure for ceasing to use an IFA, and making sure that they (the current ones) do not receive any more commission?

Very many thanks for all your help.

dunstonh

1. Is 3% a high commission? I have had a look around the internet but can't find any rule of thumb figures as to what IFAs are likely to charge in commission.

When there is a trail commission payment (i.e. 0.5% p.a.) then 3% is the typical maximum. The FSA used to publish averages and when they did, the average commission take was 1.8%. I have often said that 1.8% should be a good guide to what you should aim for on average. However, do note that the less you have, the more you should expect to pay and the more you have, the less you should pay. In monetary terms, on fee basis, I would be looking for £1000-£1500 in this case.

I am now wondering how much they've had in commission down the years. It must be thousands of pounds. Who should I ask/where should I look, will it be stated somewhere in the AXA paperwork?

Probably not as much as you think. Pension funds do not pay natural trail commission. Historically it was up front payments only. You could get annual payments included but it was typically the result of taking little or nothing up front and resulted in the same charges to the holder. Exceptions do of course apply.

Also, does anyone know the procedure for ceasing to use an IFA, and making sure that they (the current ones) do not receive any more commission?

You tell them you dont want to use their services. You can tell AXA to switch off the commission but all that does is allow AXA to keep it for themselves (if there is any). They do not reduce charges or pay it back.

The met life contract is very different from AXA's past range. Also, dont assume that the £5000 commission means that you will be paying more in charges than AXA. Some high commission payers have lower charges than low commission payers. Indeed, we have seen examples where an IFA could take a £3000 charge from the pension and still come in cheaper than a nil commission stakeholder pension. That doesnt mean you should do it on commission basis. A fee basis with it taken from the pension makes more sense. It just means that you shouldnt assume that this new contract is worse or more expensive than what is currently held.

Blue_Parrot

" In monetary terms, on fee basis, I would be looking for £1000-£1500 in this case."

You reckon we're going to get a bill of a THOUSAND POUNDS for this huge long report? :question::exclamati She requested the meeting (being a new IFA in a firm of IFAs, for familiarisation purposes), we paid the lunch bill, then we (might) get a bill for a THOUSAND POUNDS?????????

Alternatively, take up the Metlife recommendation and surrender £5,000 in commission?

Yes there is a trail commission. On page 17 it says 3% initial commission plus 0.5% trail commission. This is on the Metlife form. It says "Please state the exact commission you have agreed with the customer. Your commission may not be paid if you do not give full details here."

So, "...Pension funds do not pay natural trail commission..." who is paying that?


This looks like a rock + a hard place. Even if we play Scarlett O'Hara the IFA is going to want paying for this very long report, somehow.