IFA Quote

DancingBadger

We have a combined pension pot of approximately £480k and an IFA quotation of £1460 for initial analysis and solutions, plus £180 per month for ongoing management.

Is this reasonable? Your views would be much appreciated.

kidmugsy

DancingBadger wrote: »

We have a combined pension pot of approximately £480k and an IFA quotation of £1460 for initial analysis and solutions, plus £180 per month for ongoing management.

Is this reasonable? Your views would be much appreciated.

I wouldn't cavil at the initial fee, but I would wonder what he can do that would justify the monthly fee.

mgdavid

kidmugsy wrote: »

I wouldn't cavil at the initial fee, but I would wonder what he can do that would justify the monthly fee.

same thoughts here

sandsy

Initial fee seems fine, given the size of the pot.


Ongoing fee works out at 0.45%, so just under 1/2%pa which is generally considered reasonable. However, the danger associated with % is that too many people don't work out what that means in cash terms and, as you've shown, the amount is considerable. On a yearly basis, it works out more than taking a single piece of advice.


I'd be tempted to ask yourself whether you really need the ongoing service or can you just go and get some ad hoc advice every couple of years which might work out as better value. There's no compulsion to accept an ongoing service.

dunstonh

Initial fee seems very reasonable. Industry norm is 0.5% p.a. So, its just under that.

DancingBadger

Thank you for your responses which pretty much concur with OH's reaction to the monthly fee ("HOW much?!:eek:).

However, to give a clearer picture I think I need to expand more on what advice we'd like from an IFA.

Neither of us has much experience of investment and think it would be ill-advised to attempt to manage the pension(s) ourselves. Horses for courses, etc.

OH really doesn't know when he will finally retire which probably makes financial planning a little more difficult. There's no pattern to his work and gross income varies wildly (anywhere between £1500-£4500 per month), and there's no way of knowing which months will be 'feast or famine'. (Budgeting can be challenging and some financial stability is what we need.) Throw into that his desire to cut back from next year and the picture becomes even less clear.

What we would like is to underpin his earnings with a lower, more stable, income stream from the pension(s) while staying under the 40% tax band and also making pension contributions from earned income. Flexibility is key for us, especially as his income could stop without warning.

Is that complex work? Would it account for £2160 worth of annual fees?

Dunnit

In broad terms you would be best to start drawdown this year so you are not constrained to £10k max contributions if drawing down from next fy. Then at the start of the year take £30k which you live off then put all your earnings into a new pension. Any earnings then over £10k will attract 40% tax relief and you should not contribute more than £40k to your pension. Repeat each year.

kidmugsy

DancingBadger wrote: »

Neither of us has much experience of investment ...

OH really doesn't know when he will finally retire which probably makes financial planning a little more difficult. There's no pattern to his work and gross income varies wildly (anywhere between £1500-£4500 per month), and there's no way of knowing which months will be 'feast or famine'. (Budgeting can be challenging and some financial stability is what we need.) Throw into that his desire to cut back from next year and the picture becomes even less clear.

What we would like is to underpin his earnings with a lower, more stable, income stream from the pension(s) while staying under the 40% tax band and also making pension contributions from earned income. Flexibility is key for us, especially as his income could stop without warning.

Is that complex work? Would it account for £2160 worth of annual fees?

How would I handle it if it were me? I think I'd hold more cash in my portfolio than might be thought "normal", so I could just use up cash rather than sell shares when the market is down: that would seem to me to suit the erratic nature of his income. I might withdraw all my (tax-free) Pension Commencement Lump Sum in this tax year, in case the next government decides to put a limit on the tax-free PCLS (and also because going into Capped Drawdown this tax year has advantages that, for instance, jamesd has often explained on this forum).

I could then expect to put ca. £60k into cash ISAs across this and next tax year (since there are two of you). I'd also try to maximise my use of interest-bearing current accounts at the moment. After that, who knows? Even premium bonds are paying out on average at more than this month's rate of CPI inflation: you can beat them (on average) with fixed term cash ISAs. Perhaps some investment trust zero dividend preference shares to exploit your CGT allowances? But, of course, the latter aren't cash, and you'd be taking investment risk. Anyway, this is the bit where you might want to absorb your IFA's advice, and compare it with my suggestions.

You'd also want to get his advice on how to invest the money remaining in your pension pots. He's likely to suggest a diversified portfolio: if you want to keep the costs down you should consider "passive investment" in funds or ETFs that invest in the shares of large companies in developed markets. For small companies and emerging markets you might consider Investment Trusts. He'll also presumably suggest bonds (held in funds/ETFs), perhaps property, perhaps a little gold or commodities or foreign currency, and maybe some sterling cash within the pensions too. (If he can identify for you a pension provider who pays non-negligible interest on cash, he'll be earning his corn.)

If he did that I suggest you ask him to confirm that it would be straightforward for you to re-balance that portfolio yourselves once per annum. If so, you could go ahead. Then after 3 -5 years perhaps pay for another session with him so that he can assess how it went, comment on it, and offer fresh advice. But, if your goals or circumstances changed then I think you might want to go back to him sooner than that, since his original advice would presumably be based on your original goals and circumstances.

And now I hope a professional such as dunstonh might care to point out the weaknesses of these notions.

gadgetmind

dunstonh wrote: »

Initial fee seems very reasonable.

It may surprise you to know that I agree with you. I'd prefer to see it broken down to time and materials, but it's not a huge sum.

Industry norm is 0.5% p.a. So, its just under that.

For maintenance? A couple of £k pa just for some rebalancing seems like a huge amount to me given that it takes me about an hour a year to rebalance two ISAs and two SIPPs.

And surely this is a fixed amount of time no matter how many zeros are involved? Why quote as a percentage? Could the fee still be £180 a month if the total involved was £50k?

Looks like trail commission is still doing the zombie shuffle!

atush

at 180 a month and 2160 a year, i'd say that you will come to him for an annual rebalance at the initial cost of 1460?

Would save you cash but you'd still be getting help? And he'd still be paid for his analysis.

gadgetmind

Remember it's not just the IFAs fees. They will probably use active management on a platform that charges percentage fees, so several £k could be going into the pockets of others every single year, whether you make money or not.