IFA Quote for Drawdown

hullenedgers

I have received a quotation from a local IFA to organise and manage a drawdown but have no way of knowing if the figures quoted are good value, and tend to think they seem rather high.
I have a pension pot of just over £400000 before taking the 25% tax free leaving around £300000 to go into drawdown.
So far the IFA has contacted the pension companies on my behalf to confirm the actual terms of the various funds , one large replacement policy fund and a decent stakeholder with Aviva and 3 smaller ones with other companies two of which he says could qualify as stranded pots. All this has been done FOC for which I am grateful.
He now has come back to me with a quote for organising getting the tax free element and setting up and managing the drawdown with an annual review of how the various investments are performing.
His initial fee would be £5000 (1.25% of the whole £400000) which could be paid by cheque or deducted from the plan. Ongoing fees would be 2.75% pa coming out of the plan of which the IFA will receive 0.75% pa (£250 per month/£3000 pa). This certainly seem to be a lot of money to cover one annual review.
I am not averse to going DIY as we are reasonably investment savvy with our other investments and do understand there will be various charges no matter which route we take.
Any thoughts would be greatly appreciated.

tony4147

I will probably get shot down for this, many on here will say £5K to sort out at £400K pot is reasonable, but is he doing anymore work sorting out £400K than he would sorting out a £200K pot?
And as for £3K/Yr this does seem very steep to me.

I would love to know how many hours an IFA spends working on the above

Me personally I would want to go fixed fee and I would want every hour accounted for, just like a Solicitor does.

You have worked hard all your life to get a pot that size I think it is only fair to ask for a full and complete justification regarding charges.

dunstonh

His initial fee would be £5000 (1.25% of the whole £400000) which could be paid by cheque or deducted from the plan.

That is high. A figure closer to half that would be more ballpark.

Ongoing fees would be 2.75% pa coming out of the plan of which the IFA will receive 0.75% pa (£250 per month/£3000 pa).

Again that is high. About 0.5% would be the going rate. Smaller values have seen increases in recent years and 1% tapering down to 0.5% as the value goes up is common but you would expect the tapering to 0.5% to be in place by £400k.

So, unless you have picked a prestige firm or a city location and getting a premium service that is priced to target £1m plus clients (and any less being more expensive) then you can expect to get lower pricing.

I will probably get shot down for this, many on here will say £5K to sort out at £400K pot is reasonable, but is he doing anymore work sorting out £400K than he would sorting out a £200K pot?

Yes the cost of dealing with £400k is more than £200k. However, as already mentioned, the cost in this case is above the normal range you would expect.

Me personally I would want to go fixed fee and I would want every hour accounted for, just like a Solicitor does.

If you go fixed fee, then the hours dont matter. Solicitors have increasingly moved away from hourly rates to fixed fee for tasks that dont involve the courts.

tony4147

dunstonh wrote: »

That is high. A figure closer to half that would be more ballpark.



Again that is high. About 0.5% would be the going rate. Smaller values have seen increases in recent years and 1% tapering down to 0.5% as the value goes up is common but you would expect the tapering to 0.5% to be in place by £400k.

So, unless you have picked a prestige firm or a city location and getting a premium service that is priced to target £1m plus clients (and any less being more expensive) then you can expect to get lower pricing.



Yes the cost of dealing with £400k is more than £200k. However, as already mentioned, the cost in this case is above the normal range you would expect.



If you go fixed fee, then the hours dont matter. Solicitors have increasingly moved away from hourly rates to fixed fee for tasks that dont involve the courts.

Glad to see that my initial thoughts of the fees being high were correct
What you are suggesting does sound more reasonalbe

macrae2100

hullenedgers wrote: »

Ongoing fees would be 2.75% pa coming out of the plan of which the IFA will receive 0.75% pa (£250 per month/£3000 pa). This certainly seem to be a lot of money to cover one annual review.

Are you sure the ongoing service fee isn't 0.75% of the remaining £300,000? Which would mean ~£2,250 pa, which is £187.50 pm.

atush

The fees are high as said, esp the ongoing one. And yes, I would negotiate a fixed fee for the set up.

HarryD

Gee whiz! What is he going to do for his £5000 that you could not do yourself? And that ongoing fee!!! I don't understand it at all.

I think I paid less than £100 to put my SIPP into drawdown (having transferred it to Hargreaves Lansdown at zero cost). I pay 0.45%pa I think it is now the pot is in drawdown, plus the AMC on the fund held within the pot (a tracker with a charge that's very low - about 0.1% from memory). So let's say 0.75% pa total cost at the very most.

What are you going to be paying someone 2% more that that to do for you every year? (Plus fund AMCs?)

Maybe I'm missing something, but I just don't see what you're paying all that money to someone for.

mgdavid

The fees are a big drain on the pot even if you get them halved or quartered. As you suggest, consider DIY.
Open a SIPP, transfer the various pots in, take the 25% PCLSs, keep a few years-worth of drawdown in cash and invest the rest to match your risk appetite (low I would hope).
Your drawdown plan will depend on your age, life expectancy, how much you need to live on each year, other planned large expenditure, other income, your willingness (or not) to pay Higher rate income tax, etc etc.

dunstonh

I think I paid less than £100 to put my SIPP into drawdown (having transferred it to Hargreaves Lansdown at zero cost).

HL are not cheap.

I pay 0.45%pa I think it is now the pot is in drawdown, plus the AMC on the fund held within the pot (a tracker with a charge that's very low - about 0.1% from memory). So let's say 0.75% pa total cost at the very most.

You also pay drawdown charges and HL have exit charges and a menu of other charges (more than most platforms).

What are you going to be paying someone 2% more that that to do for you every year? (Plus fund AMCs?)

The OP is not paying 2% more. You are mixing up your charges and not comparing like for like.

If the OP went ahead, you would probably find the chosen platform is cheaper than HL, fund charges the same as HL (as is normal in the unbundled world) and then you have the adviser charge on top which is paying for the advice.

atush

Plus you are self investing. I am assuming the IFA will be recommending the investments and reviewing them.

Not everyone is keen on self investing, or even capable for that matter.

Linton

HarryD wrote: »

Gee whiz! What is he going to do for his £5000 that you could not do yourself? And that ongoing fee!!! I don't understand it at all.

I think I paid less than £100 to put my SIPP into drawdown (having transferred it to Hargreaves Lansdown at zero cost). I pay 0.45%pa I think it is now the pot is in drawdown, plus the AMC on the fund held within the pot (a tracker with a charge that's very low - about 0.1% from memory). So let's say 0.75% pa total cost at the very most.

What are you going to be paying someone 2% more that that to do for you every year? (Plus fund AMCs?)

Maybe I'm missing something, but I just don't see what you're paying all that money to someone for.

I dont think the optimal investment strategy for a pot of £300K is one index tracker (does it matter which one?). Actually I dont think one index tracker is sensible for any pot from which you are hoping to get a steady income. The more money you have the more it makes sense to invest in niche products focused on achieving your specific objectives.