IFA charges - is this reasonable?

genie_g

Hello

I've just been quoted the following charges from an IFA as a new customer on a servicing basis:

0.5% active management fee

plus

3% of the fund for an 'identifiable piece of work'

e.g. if the advice is to consolidate pension funds with a transfer value of £100K then the IFA will take £3K and the funds actually paid into the new fund will be £97K

We would have £278K in pension funds under active management. We would be looking at other investments in future but that is our current priority.

The 0.5% seems in line with what I've read on this forum as being reasonable but I'm not sure about the 3%?

Any opinions would be gratefully received - thanks.

Lokolo

An hourly fee may be cheaper. 3% of £278k is just over £8k which is quite a lot.

The local IFAs might have a better view of it but imo it's quite expensive.

genie_g

Lokolo wrote: »

An hourly fee may be cheaper. 3% of £278k is just over £8k which is quite a lot.

The local IFAs might have a better view of it but imo it's quite expensive.

Thanks for your prompt response Lokolo.

I thought it maybe sounded expensive but I've always dealt with IFAs on a commission basis before so find it hard to judge.

In reality we will only potentially be moving around £115K, maybe less, as the remainder of the funds are in a company DC scheme (current contributing member for my husband, deferred member for me) but we want advice on which funds to invest in within that scheme. I won't be moving my funds from that scheme as the charges are extremely low.

Thanks again.

dunstonh

I thought it maybe sounded expensive but I've always dealt with IFAs on a commission basis before so find it hard to judge.

On collectives (unit linked funds) the FSA used to record the average and publish it. 3% was the typical maximum (although some could go higher) but 1.8% was the average. On £100k, you would be wanting average or less. The 0.5% p.a. ongoing is typical but trending towards 1% on values under £100k.

soperman

If it is a singular piece of work try to negotiate a fixed monetary fee and request a time breakdown for the job. The IFA is likely to charge a higher fee, the more pension pots you are consolidating as each potential transfer will need to be considered on its own merits - there could be a fair amount of work involved here to provide accurate advice.

In my opinion, the ongoing advice fee is competitive.

genie_g

Thanks dunstonh. Informative as ever.

genie_g

Thanks soperman.

soperman wrote: »

If it is a singular piece of work try to negotiate a fixed monetary fee and request a time breakdown for the job. The IFA is likely to charge a higher fee, the more pension pots you are consolidating as each potential transfer will need to be considered on its own merits - there could be a fair amount of work involved here to provide accurate advice.

It's ongoing management but with in addition, the charge for moving/consolidating my husband's one personal pension and my three.

jamesd

Perhaps you could consolidate yours first and save some money that way? Maybe consolidate all into one at Hargreaves Lansdown then have the IFA move from there to wherever it ends up. HL is good for this sort of administration. You would need to check that you don't have an unusually good deal on price or fund choice in one or more of the pensions being consolidated because there's a chance that it may not pay to consolidate one or more of them.

It might be possible to move money into the work pension from the others and that might be cheaper overall. It may be possible to move money from the work pension to another cheaper one while remaining a member. It's not always permitted to do either of these.

An hourly charge for the moving/consolidating work seems likely to cost less than 3% of the amount involved here. Even more so if you do some consolidating in advance so the IFA only has to compare with one other pension.

magpiecottage

genie_g wrote: »

It's ongoing management but with in addition, the charge for moving/consolidating my husband's one personal pension and my three.

I always have a concern with this. The move can actually make it easier for the IFA whilst not necessarily benefitting the investor.

Before moving, you need to establish why it is in your best interest to move. In particular, how much better would the new fund need to do than the old one to overcome the cost of the transfer.

Aegis

3% on any identifiable piece of work gets absurdly expensive for large scale transactions. Have you shopped around to find other quotes? As others have said, it's worth asking advisers to quote on a fixed fee basis and to estimate on an hourly fee basis as well.

If this is the pricing model this adviser employs, it would be worth asking what he is going to do when it comes to taking an annuity. That's arguably an identifiable transaction, so is that going to be another 3% charge to take an annuity? What about if, after RDR, he discovers that another pension platform would better suit your needs? Would that be another 3%? Etc.

There's nothing wrong with scaling the fee with the size of the transaction, as there are increased costs of compliance and potential liability if it goes wrong, but there's little justification (in my mind) for a flat fixed percentage of 3% on everything, especially as some identifiable pieces of work are very straightforward while others take a lot of effort.

Ok, rant over about the pricing model in general, and on to the specifics.


Now, pension transfers tend to be some of the more complex cases, but I can't imagine that there's going to be £8,000 worth of complexity here unless there's some seriously heavy-duty analysis to be done on your portfolios. However, if these are genuine personal pension, there are really only a few things to consider, mainly:

• Charges
• Guarantees
• Protected Tax Free Cash
• Investment Range
• Retirement Options
• Lifetime Allowance (assuming this isn't an issue in your case because of the portfolio size you've mentioned, but I suppose it might factor in if you have hefty final salary or other occupational pensions as well)

If you assume this adviser's hourly rate to be about £200, he'd have to do 40 hours worth of work (i.e. not factoring in the lower costs usually associated with admin time) on four pensions, which seems extremely high (i.e. over a week's work for one client). Taking into account research, analysis, report writing, implementation, etc, I can't imagine this taking more than a couple of days in total, i.e. about 16 hours. Call it 20 to account for the meetings, and you should immediately be asking for a 50% reduction to £4,000, even without factoring in the fact that a lot of the implementation and research work (e.g. calls to providers, printing forms & factsheets, binding, etc) would be charged as admin time.



Naturally, just my thoughts on the subject, certainly open to debate from anyone else.

fairleads

genie_g wrote: »

Thanks dunstonh. Informative as ever.

I second that. In spite of all the protestations to the contary, it does appear the industry is populated by a significant number of chancers.