Do I really need a IFA?

CannySaver_2

Hi

A few comments / points:

1. Always see an IFA, I think the difference is clear now. A recommendation from a friend or family is the best way, alternatively visit www.unbiased.co.uk

2. It's vital you get on with your IFA, it will hopefully be a long term relationship, so I'd see maybe two or three and see who you get on with and then make your decision

3. Cost is important, but then again so is value for money. 7.5% over £100k is huge if it's taken upfront, not so much if it is taken over 10 years, the charging structure you have been quoted is a little strange, so maybe you need to clear that up

4. You have a few options for paying for advice.

Commission, whereby the provider pays the IFA if he or she invests your money with said provider, the commission comes from the product charges, which act as a drag on performance. I would be wary of this route as with some IFAs commission has certainly caused bias, not only in advice but in terms of which provider is used.

I would prefer the fee route, which has a couple of options. The first involves the IFA charging you a initial percentage of your fund if they invest it for you and an ongoing percentage for ongoing advice. For example on a £100k fund the charge might be 3% initial and 0.5% for ongoing investment reviews etc. The more you invest the lower the initial fee should be, there is not double the amount of work investing £100k as there is £200k. Again, down this route the IFA will only earn something if you invest with them, so again it could cause bias in the advice if not the provider (as the fee is the same whichever provider you choose).

The second way a fee could be charges is a simply hourly rate for a recommendation, you pay the fee whether or not the advice is to transfer, or indeed whether you follow the advice. Typically I would suggest £100 - £150 per hour is reasonable, but I would always ask the IFA to cap it, if you then take their advice and it is to move your pension you will pay a further fee to complete paperwork, complete the transaction and for ongoign reviews.

Personally I prefer the last route as I know that there will be no bias from the IFA.

The fee can generally be paid by the pension, although not always.

I hope this helps.

The Canny Saver

jaycay

Thank you for this helpful advice Canny Saver. I shall see a couple more before commiting. The IFA who I have already seen thought I had made the right decision in keeping with the Provider when I had the pension transferred into my name. Could you also please enlighten me regarding the Provider's charges - they told me I would have to pay 1% annual fee if I did not have an IFA as almost a default charge. When I asked if there would be no fee if I had an IFA he was unsure but thought I would still have to pay something - is it usual to pay 1% regardless of whether I have an IFA or not?

jamesd

atush wrote: »

I think it is a good way, alongside of other ways of saving as it leaves you more flexibel when you come to sell or remortgage. But agree that to do only this is not the best way forward. For instance, I use this for less than 20% of my savings outside of pensions- probably closer to 10-15% as I engage in more risk with my non cash savings in this pool so it all balances out.

It's fine as part of a mixture but not so fine when someone does nothing else and thinks that they can make up for it later by investing their former mortgage payments - too late to catch up with the compound growth loss by then. For people who want to buy a larger property it's one way to accumulate equity to do that, though I'd prefer doing it with savings and investments for better efficiency.

If jaycay wants something very low risk and also low return, overpaying on or even clearing any mortgage is one good possible option to use. It's one of the best options there is that has very low risk. But it does make you poorer in retirement than investing, so it's not something to get carried away with.

I do no mortgage capital paying and have no plans to until after I've very comfortably exceeded my upper level retirement income target. I do routinely offset significant amounts of mortgage capital at the moment, to the point that the mortgage cost is less than the council tax cost. How much of this I do varies.

jamesd

jaycay wrote: »

Could you also please enlighten me regarding the Provider's charges - they told me I would have to pay 1% annual fee if I did not have an IFA as almost a default charge.

Depends on the provider. Some like Transact only want people with an IFA and have a punitive rate when dealing with customers with no IFA.

I'm not impressed b the IFA charge you've been quoted so far, should be able to do it on initial fee and annual review fee at lower cost than you've been quoted for your investment value. Average is something like 1.8% initial charge then 0.5% ongoing but with fees that'll vary and for your amount fee is probably cheaper than percentage.

There will be some ongoing charge even with an IFA, in addition to the IFA cost. How much depends on which firm the provider is.

jaycay

Thanks Jamesd. I've been in contact with another IFA who does not do set fee charges and the commission for a single investment is up 5.0% of amount invested and up to 0.5% every year.

dunstonh

jaycay wrote: »

Thanks Jamesd. I've been in contact with another IFA who does not do set fee charges and the commission for a single investment is up 5.0% of amount invested and up to 0.5% every year.

5% of what?

Commission is usually more expensive than fee unless it is for smaller transactions.

CannySaver_2

jaycay wrote: »

Thanks Jamesd. I've been in contact with another IFA who does not do set fee charges and the commission for a single investment is up 5.0% of amount invested and up to 0.5% every year.

Not sure what you mean by "does not do set fee charges".

5% would be expensive for a pension fund of the size you have, I'd expect to see it closer to 1 - 2%, I'd reiterate though that you should stringly consider the hourly rate option (albeit with a cap) as I believe this is the only way to get impartial advice.

Re your earlier question on fees, they fall into three catagories:

1. Wrapper fees Your IFA may recommend a pension sat on platform or indeed a stand alone pension, many of these have a fee, either percentage based (like Transact from memory) or a monetary amount (like Skandia which is circa £68 per year).

2. Investment charges If you are investing in funds, which is the most likely route for you each fund will have a charge. This can cary dramatically from say 0.25% for the cheapest tracker (I'm sure the HSBC Trackers come in at this mark) to over 2% for the most expensive fund of funds or manager of manager funds. There is some work which shows a correlation between lower charges and higher performance, although last time I posted a link on here to that study I got shot down in flames Personally i find it rather compelling. If you invest in funds, whether yourself or via an IFA you will pay fund management charges, which should always be quoted to you as a TER (Total expense ratio) rather than the less helpful AMC (Annual Management Charges) which does not include all the costs associated with investing in that particular fund.

3. Advice costs If you take advice then your IFA needs to be paid. i would suggest between 1 - 2% for the initial costs plus around 0.5% per annum if you want one meeting. But make sure you know what you are getting for this, it's all about value for money, not cost!

I hope this helps.

The Canny Saver

jaycay

Thank you Canny Saver and Dunstonh. I had a meeting this evening with another IFA who is brilliant. He gave me some very good advice and thanks to all the helpful advice you have given me here, I was more clued up and prepared. I realise the fees option is the best for me. Many thanks.

CannySaver_2

jaycay wrote: »

Thank you Canny Saver and Dunstonh. I had a meeting this evening with another IFA who is brilliant. He gave me some very good advice and thanks to all the helpful advice you have given me here, I was more clued up and prepared. I realise the fees option is the best for me. Many thanks.

Excellent, glad you are feeling better about the whole topic. I think your story shows the benefit of having done a little research before seeing an IFA, indeed any professional, it simply means we can ask more intelligent questions and therefore get more from the encounter.

The Canny Saver

fairleads

jaycay wrote: »

Thanks everyone for your advice. I am self-employed and run a small business with partners and don't see any concerns for future business. I just have the 2 pensions I mentioned. I have to sell the house I am in as part of the divorce settlement but hope to be able to buy something smaller mortgage free. I could frugally live for up to a year on my savings. I don't have any experience in investing/pensions so I think I will take your advice and put it in the hands of an IFA as I do not have the time to research this myself. Can anyone please advice me what would be a good price to pay? One FA told me he takes 5% at a rate of 1% per year if the value is under £100K and 7.5% is over £100k. The pension was being managed by an IFA when in my ex-husband's name but as it has been transferred as a pension in my name this no longer applies.

PS I apologise for my ignorance - I thought a FA was the same as an IFA

There is an anomaly here in that while you accept employment risk, so to say, you would prefer to entrust your retirement/life savings to a stranger. Come on, get an education, spend a few hours on the Trustnet website and suss out the funds managed by their Alpha Managers.