IFA fees for investing a lump sum

genie_g

Hi,

I'm starting to review the pensions I and my husband have so I'll probably be asking a few questions!

Here's the first:

For a lump sum investment into a personal pension or stakeholder pension is '3% of the amount you invest plus 0.5% of your fund value from year 1' a reasonable fee for an IFA?

Thanks in advance

dunstonh

For a lump sum investment into a personal pension or stakeholder pension is '3% of the amount you invest plus 0.5% of your fund value from year 1' a reasonable fee for an IFA?

When its quoted as a percentage it depends on the amount being invested. Up to around £75000 it is reasonable. Higher than that and it is less so (although it does depend on the type of firm and service you are using them for)


i.e. if its £10,000 then 3% is just £300. That would put it below my minimum fee. However, if its £100,000 than 3% is £3,000. That would put it above my maximum fee. So, you can see that it needs to be placed in context.

Location matters. City firms tend to be more expensive than more rural ones. Prestige firms cost more. Firms that focus on high net worth often price lower value more (partly as a passive blocker to put you off).

Also, it would not be a stakeholder pension. A stakeholder pension would not allow that type of remuneration.

genie_g

dunstonh wrote: »

When its quoted as a percentage it depends on the amount being invested. Up to around £75000 it is reasonable. Higher than that and it is less so (although it does depend on the type of firm and service you are using them for)


i.e. if its £10,000 then 3% is just £300. That would put it below my minimum fee. However, if its £100,000 than 3% is £3,000. That would put it above my maximum fee. So, you can see that it needs to be placed in context..

My pot is around £100K.

dunstonh wrote: »

Location matters. City firms tend to be more expensive than more rural ones. Prestige firms cost more. Firms that focus on high net worth often price lower value more (partly as a passive blocker to put you off)..

It's a provinicial town.

dunstonh wrote: »

Also, it would not be a stakeholder pension. A stakeholder pension would not allow that type of remuneration.

I quoted directly from the information they've sent me ahead of a meeting later this week so they are definitely saying it's for stakeholder pensions. I thought the limit on charges for stakeholder pensions was on what the provider (e.g. Aviva) can charge not what the IFA (e.g. Joe Bloggs IFA) can charge? Or have I got that wrong?

dunstonh

I quoted directly from the information they've sent me ahead of a meeting later this week so they are definitely saying it's for stakeholder pensions. I thought the limit on charges for stakeholder pensions was on what the provider (e.g. Aviva) can charge not what the IFA (e.g. Joe Bloggs IFA) can charge? Or have I got that wrong?

Dont rely on that. The FSA came up with some silly initial disclosure document rule some years ago but then abolished it shortly afterwards but said it expected firms to keep something similar. We are in a sort of holding pattern for the new rules coming in next year and unless the firm is FEE ONLY, they still tend to show example commissions on the document. Problem with commission is that it is just a guide. It doesnt mean you will pay that. The fact that a stakeholder pension just cannot pay 3% initial plus 0.5% a year is a good example of how its flawed.

I thought the limit on charges for stakeholder pensions was on what the provider (e.g. Aviva) can charge not what the IFA (e.g. Joe Bloggs IFA) can charge?

Until the end of 2012, the provider decides the commission on commission cases (although the IFA can decide to rebate some if they wish. From 2013, the IFA decides the remuneration and commission option wont exist. All the best pension products available today work on fee basis already. Hardly any left on commission basis (i.e. if commission was 3% then it would mean 3% deduction from your fund explictly - so a fee in other words). £100k should be on fee basis. Not commission. Look at their fee options and not the commission options.

£3000 is above what you should be looking to pay unless its really complicated. £2000 cap is nearer the mark and you can probably find it closer to £1000 by shopping around. However, give the firm a chance to verify the fee option.

Fee can be deducted under the commission system. So, you dont need to write a cheque. it can come from the product.

genie_g

Thanks dunstonh.

I'll post my supplementary question as a new thread!