Help! What management fees are considered good?

Sue-Bob

Hi,

The small company where I work is interested in beginning company pensions before our auto enrolment date (2017) and would ideally like to include a FA (hoping this would benefit employees in the long run).

At the moment, we can't afford to start big and would start with contributions of 1% from employer and 1% employee.

We've spoken to two FAs.

Advisor (A) comes recommended from several board members and charges the business £1300 for report & recommendation, then £2000 for implementation, then £1300 per annum for on-going advice. We could opt out after any stage. Then, of course, there'd be the pension provider's fees.

Advisor (B) has (without us asking) found a provider who would take an initialadvice charge of 30% of the first years premiums, then a total Annual Management Chargewith the Advice Fee of "just" 1.23%. (More than the provider he suggested in the consultation meeting)

I'd really like to know...
- What fees are considered really good (and what is the range of fees a person might expect to encounter)?
- Is it worth waiting until we can (probably) contribute more to individual's pensions? Would this reduce fees?

Thank you so much for any advice.

dunstonh

Advisor (A) comes recommended from several board members and charges the business £1300 for report & recommendation, then £2000 for implementation, then £1300 per annum for on-going advice. We could opt out after any stage. Then, of course, there'd be the pension provider's fees.

That seems very expensive unless the fund value is particularly large.

Advisor (B) has (without us asking) found a provider who would take an initialadvice charge of 30% of the first years premiums, then a total Annual Management Chargewith the Advice Fee of "just" 1.23%. (More than the provider he suggested in the consultation meeting)

Providers dont take initial charges. The adviser does. If the adviser charge is 30% of year one contributions then that would be the same across the board. An annual charge of 1.23% would suggest externally managed funds. Not internally managed.

- What fees are considered really good (and what is the range of fees a person might expect to encounter)?

Anything from £500 for setting up and 0.50%-1.00% for ongoing servicing if you want that option.

- Is it worth waiting until we can (probably) contribute more to individual's pensions? Would this reduce fees?

How much are you contributing?

Sue-Bob

"An annual charge of 1.23% would suggest externally managed funds. Not internally managed."

I was under the impression the FA would be managing the funds.


"How much are you contributing?"

1% initially, then up to (at least) 3% as soon as possible. Our average wage is approx. 35k


I guess I didn't get an amazing impression from Adviser B who talked about how one person he advised made 10% each year over the course of his 20 or 30 year investment and so B's ongoing advice fee (0.5%) would be nothing. I didn't think one person's specific returns were that relevant to us.

dunstonh

I was under the impression the FA would be managing the funds.

IFAs manage the fund selection but the fund manager manages the investments within the funds. FAs rarely get involved with any investment decisions and frequently document fund selection as your choice. Internal funds are those managed in house by the pension provider. External funds use fund houses from elsewhere.

1% initially, then up to (at least) 3% as soon as possible. Our average wage is approx. 35k

In which case, adviser A is a complete rip off. I suspect he has one size fits all charges and your contributions are not at all suitable for that level of fee. Also, you dont need servicing yet. Once your fund gets bigger then get it added. In the meantime you should go transactional.

I guess I didn't get an amazing impression from Adviser B who talked about how one person he advised made 10% each year over the course of his 20 or 30 year investment and so B's ongoing advice fee (0.5%) would be nothing. I didn't think one person's specific returns were that relevant to us.

He is a lot cheaper than adviser A. Although if you dont like him then you shouldnt use him.

Based on what you have said, a figure of around £1000 with no ongoing servicing figure would typically be what you should look for. That £1000 could be collected over the first 12 months from the pension pot (which is logical as you effectively get tax relief on the fee that way).

Sue-Bob

What's servicing? (Is that the annual advice fee or is it something different).

dunstonh

Sue-Bob wrote: »

What's servicing? (Is that the annual advice fee or is it something different).

Servicing is the annual ongoing cost of the adviser. e.g. the £1300 on adviser A. Servicing is useful with larger portfolios that need rebalancing of investments, reviews of holdings (in case changes are needed), no charge increments as it falls under the servicing cost, use of multiple tax wrappers (such as ISA, pension and unwrapped) etc. However, it is not something that is really worth paying for on sub £30k portfolios. That said, some people like the old insurance agent home service style contact and will pay for that. However, that sort of servicing tends to be around £250 year and not £1300.

It is difficult to judge others because that one charging £1300 could be a prestige firm in a city and you are paying for name and they could be good value with their typical client and it may just be that you are not at that level yet.

Sue-Bob

I think his small firm does usually with individuals with a large pension pot.

Re: both. Does that mean it's not usually good value for money for small companies offering pensions to get annual advice meetings? Both FAs gave the impression annual advice was *the* benefit of using them (as opposed to NEST).

dunstonh

Re: both. Does that mean it's not usually good value for money for small companies offering pensions to get annual advice meetings? Both FAs gave the impression annual advice was *the* benefit of using them (as opposed to NEST).

annual advice is a benefit to those that need it. It is a waste of money for those that don't. NEST does nothing apart from what you tell them. An adviser tells you what to do. With small funds, there really isnt much to tell. With monthly premiums, it wouldnt really matter where you invested until you got to around £10k. Then upto around £30k, the differences are no significant and you can get away with every 3-5 years. Once you get closer to £100k. then annual reviews can make a lot of sense.

Sue-Bob

Thanks. That's been really helpful.

sandsy

You said Adviser A charges the business. Does this mean the charges you quoted are the total for all employees in the business or per employee? How many employees would join the scheme?

gadgetmind

Fees that large would have me howling up the drainpipes but I am a Yorkshireman.