Are these charges OK? Can I do better?

horlicksjan

I posted recently about my pension fund. It has managed 5.5% p.a. growth over 8 years. The consensus here was that this was not great but reasonable given the last 8 year economic period, and as the funds are fairly adventurous it could have been worse, and may offer better returns in future.
For the feedback a big thank you to RedBuzzard, JoeCrystal, Linton, dunstonh, atush, bigfreddiel and N1AK!

I have now looked at the fees and charges on my Pension Policy. Can anyone help me estimate in total what the practical real impact of these fees is on the % annual growth rate of my pension fund, and whether I could do better elsewhere?

Fees and Charges:
Bid/Offer Spread 5%
Switch Charges: Nil
Annual Management Charge 0.75% reflected daily pricing of units and not shown as a deduction
Fund Manager Annual Management Charge - dependant on funds chosen.
Annual Fee to Financial Advisor: 0.5%

As a reminder the funds in my plan are:
Aberdeen Eur FrontierA
Artemis European Growth
Henderson Asia Pac Cap Gwth
Henderson Emerging Mkt Opps
INVESCO Perp Global Sm Cos
INVESCO Perp High Income
INVESCO Perp Latin American
OM Artemis UK Special Sits
OM JPM Natural Resources
Schroder UK Mid 250

This is the current allocation but the funds get switched and amended, so if I didn't have a managed fund I would have to make a selection and stick with it. I would be OK with that if the chosen selection was sensible.

Lokolo

The financial advisor charge may not be worthwhile at 0.5%. They should be doing the rebalancing and yearly reviews, and not sure if you need them or not.

You would have to ask to stop your ongoing advice service.

Annual Management Charge 0.75% reflected daily pricing of units and not shown as a deduction
Fund Manager Annual Management Charge - dependant on funds chosen.

I think you have confused yourself and that these are the same thing.

Linton

The charges dont seem to me to be out of the ordinary except for the bid-offer spread. This in any case should only apply to a minority of funds as most are OIECS which trade on a single price, all charges being taken from the core fund.

I dont think its meaningful to say how much you would gain if you werent paying those charges, because if you werent paying the charges I doubt you would be in those investments.

My suggestion is that you only focus on charges once you have your strategy sorted. It's at the strategy level that the real money is made or lost. I dont like the idea that the funds are being continually switched and amended as overall I believe this to be counter productive especially if you are subject to a high bid/offer spread. Also some of your fund providers arent the ones I would normally think of in those sectors in which you are investing (Henderson, Artemis). So identify the sectors you want to invest in long term and then identify the fund managers who appear to have some specific expertise in those sectors.

dunstonh

5% bid/offer spread is obsolete.

The adviser ongoing charge is the industry norm. The investments you have will need rebalancing. If you tell the adviser you dont want ongoing servicing, you will usually find the investment recommendation is changed to something a bit more basic and self balancing (and often that actually increases the cost or the potential quality).

You would expect a basic recommendation to be cheaper. That may be entirely suitable for you. However, many people dont mind paying a bit more to access external funds which offer the potential to grow more than the cheaper funds. There is nothing wrong with either opinion. Indeed, investing is all about opinion. The important thing is to have what is right for you. Cheap and simple or more expensive and increased quality (which may not result in higher returns - it is only potential you are looking at) or a mixture of both.

redbuzzard

The impact of the 0.5% p.a. on the fund has been about £5k over 8 years (the difference between 4.75%p.a. and 5.25% p.a.).

I don't think I understand the charges explanation - 0.75% looks low for the fund management charges even with no downstream commission, but I'm happy to be corrected on that. Is the 0.5% all the FA gets? Or is there an additional fee for "investment management", over and above advice and reviews, that goes to them?

I had assumed that the "spread" was the deduction on intial purchase - I infer from the nil "Switch Charges" that you are not paying that or any material spread charges now on single priced funds, but it would be good to know. In the bad old days, advisers would "churn" funds and pick up new initial commission every time - I assume this doesn't happen where you have explicit fees but I have no recent experience of advisers, and I imply nothing - but you might confirm all costs and deductions with the adviser before making any more changes if you do not decide to DIY. I'm not sure how it's possible as a client always to distinguish commission from "fees", I'm sure one of the IFAs can enlighten.

I agree that a fresh look at the allocation would be a good thing to do before jumping anywhere.

Apology for the vague bits - I do try not to make replies that amount to "I don't know"... but maybe I've flagged a question or two.

EDIT - I see dunstonh has already replied and covered the "spread" question.

dunstonh

I don't think I understand the charges explanation - 0.75% looks low for the fund management charges even with no downstream commission

About right for clean priced funds. However, there would be a provider/platform charge on top of that. So, either that is missing or something is amiss.

I had assumed that the "spread" was the deduction on intial purchase - I infer from the nil "Switch Charges" that you are not paying that or any material spread charges now on single priced funds, but it would be good to know. In the bad old days, advisers would "churn" funds and pick up new initial commission every time - I assume this doesn't happen where you have explicit fees but I have no recent experience of advisers, and I imply nothing - but you might confirm all costs and deductions with the adviser before making any more changes if you do not decide to DIY. I'm not sure how it's possible as a client always to distinguish commission from "fees", I'm sure one of the IFAs can enlighten.

Switching charges tended to exist on no-trail/renewal contracts to pay for the cost of advice on switching. You would expect nil switching charge where there is ongoing servicing. Greedy ones may well have both but one or the other is fine.

The spread could be a poorly documented initial charge for the adviser. Or this could go back to when the adviser was paid out of the spread. You wouldnt expect to see it today on new business (bar the very few funds that have a spread but with post RDR charging, the spread would be tiny and would not to go the adviser.

horlicksjan

dunstonh wrote: »

5% bid/offer spread is obsolete.

The adviser ongoing charge is the industry norm.

Why is the bid/offer spread obsolete? 5% sounds a lot to be losing on each purchase. Is it a case that every fund or provider will suffer the same cost? I assume the only way to minimize this cost in future is to pick a selection of funds and stick with them?

I used to get 'Switch' notices by post every couple of weeks until I asked them to stop posting them to me as it was becoming a small forest of paper. So it looks like they are very 'active'.

redbuzzard wrote: »

I don't think I understand the charges explanation - 0.75% looks low for the fund management charges even with no downstream commission, but I'm happy to be corrected on that. Is the 0.5% all the FA gets? Or is there an additional fee for "investment management", over and above advice and reviews, that goes to them?

I had assumed that the "spread" was the deduction on intial purchase - I infer from the nil "Switch Charges" that you are not paying that or any material spread charges now on single priced funds, but it would be good to know.

I don't know any more about the fees than this.

I emailed the Fund Management company and I have copied exactly what it said in their reply which included the List of Fees and Charges which I copied into my OP.

To me it looks a bit costly, 0.5% to the advisor, 0.75% Annual Management Charge, that's 1.25%. If that's all the costs then for a 'managed' service I suppose that's acceptable.

But then it says "Fund Manager Annual Management Charge - dependant on funds chosen - see schedule of Funds. On the Schedule of Funds there is a list of at couple of hundred funds, each with headings, among which are:
Fund Based Commission - fund based trail commission payable to your Financial Advisor
Annual Management Charge - AMC made by the Fund Manager

On the list of funds, the FBC ranges from 0.25-0.5%, the AMC are from 1.35-1.75%

So does this mean the Fund Management Charges on top of the 0.5% paid to the Financial Advisor and 0.75% Annual Management Charge? That would add up to anything from 3.35%-4.5%. Am I lining the pockets of the Fund Managers and Advisors if the % they get is almost as much as the % growth in my pension fund (5.5% average)?

dunstonh

Why is the bid/offer spread obsolete?

Most pension funds have not had bid/offer spreads since 2001 (introduction of stakeholder). Unit Trust funds had bid/offer spreads but most Unit Trusts are now OEICs and have no bid/offer spreads. Bid/Offer spreads were used to pay the adviser (although some fund houses kept a chunk for themselves). However, today, advisers cannot be paid via commission and the adviser charge has to be explicit and would show as an initial charge.

Is it a case that every fund or provider will suffer the same cost?

No. Not any more.

To me it looks a bit costly, 0.5% to the advisor, 0.75% Annual Management Charge, that's 1.25%. If that's all the costs then for a 'managed' service I suppose that's acceptable.

Most of those funds you list have total charges in retail form getting towards 2% p.a. So, what you are saying is that they are cheaper than normal retail.

Am I lining the pockets of the Fund Managers and Advisors if the % they get is almost as much as the % growth in my pension fund (5.5% average)?

Everything has charges. Even money in a savings account (cash savings are typically more expensive - you are just not told the charge explictly).

I make the annual charge 1.25% Not the 3.35%-4.5% you make it.

Lokolo

What platform are you using for your pension?

horlicksjan

dunstonh wrote: »

Most pension funds have not had bid/offer spreads since 2001 (introduction of stakeholder).

I make the annual charge 1.25% Not the 3.35%-4.5% you make it.

If (most) pension funds no longer have bid/offer spreads, if mine didn't why would they list 5% spread on the list of fees and charges?

How do you arrive at 1.25% total annual charges if the list of fees and charges is as they sent me?
Financial Advisor - 0.5%
Annual management charge - 0.75%
Fund Based Commission - trail commission to Financial Advisor 0.25-0.5%
Fund Manager AMC dependant on funds chosen 1.35-1.75%

These are all listed as separate items on fees and charges so how would the total % fees be 1.25%?

horlicksjan

Lokolo wrote: »

What platform are you using for your pension?

I don't use any platform actively but the service that provided the list of fees and charges is Skandia. I log in to their website for details of my pension. On top of their fees they say my Financial Advisor who set up the pension scheme gets a further 0.5% p.a. of the fund value.