Should I take new pension advice

Cybermush

Hi Guys,
Long time lurker, first time poster :j

Got a quick pension query, I'm just not sure what I'm being advised is for the best.

Long story short 4 years ago my pension advisor pulls all 4 of my pensions together into 1 and tells me I need not make any more changes now, just leave it and we should be on for around £200k. I'm paying 1.37% in annual charges and I paid him around 3% which I was happy to do for all the work. I have 8 funds and he gives me an annual review but never tells me to change anything.

4 years down the line the pension is growing well but a bit too early to tell if we're on for £200k but it seems possible.

Then he retires and a new bloke steps in...

Suddenly he's telling me to move pensions to another company, expand it to 15 funds and bring in Brewin and Dolphin to manage it monthly. My fees will rise to 1.75% and he wants 3% of my pension fund :mad:

I can agree with him that increasing the funds to 15 and managing it monthly will possibly lessen the risk and increase the returns (by 10% historically he reckons)

I'm just not sure if I'm better staying where I am on the lower fees. Is 1.37% charges good for a pension these days?

Should I stick with advisor A's advice or go with advisor B???

I'm 42 so about another 20-odd years to go.

Thanks!

kidmugsy

Cybermush wrote: »

4 years ago my pension advisor pulls all 4 of my pensions together into 1 and tells me I need not make any more changes now, just leave it and we should be on for around £200k. I'm paying 1.37% in annual charges and I paid him around 3% which I was happy to do for all the work. I have 8 funds and he gives me an annual review but never tells me to change anything.

An old friend, a retired investment manager, told me that 8 well chosen funds gives him enough diversity. And trading costs you money; if the portfolio is doing OK, why trade? 1.37% p.a. is heavy though: why not go in for passive investing and run it yourself? See the monevator blog.

Cybermush wrote: »

Then he retires and a new bloke steps in...

Suddenly he's telling me to move pensions to another company, expand it to 15 funds and bring in Brewin and Dolphin to manage it monthly. My fees will rise to 1.75% and he wants 3% of my pension fund :mad:

Pah! You wouldn't see me falling for that. I refer my honourable friend to the remarks I made a few moments ago.

saver861

Cybermush wrote: »

4 years down the line the pension is growing well but a bit too early to tell if we're on for £200k but it seems possible.

well that sounds positive, it seems to be on target so seems like good advice from the outset. however, I would have thought it would have been possible to gain some sort of projection on it to get some perspective on performance v target?

Cybermush wrote: »

Suddenly he's telling me to move pensions to another company, expand it to 15 funds and bring in Brewin and Dolphin to manage it monthly. My fees will rise to 1.75% and he wants 3% of my pension fund :mad:

Sure he does - so he gets 3% - but you have already paid your 3% and its doing ok - why pay another 3%.

Cybermush wrote: »

I can agree with him that increasing the funds to 15 and managing it monthly will possibly lessen the risk and increase the returns (by 10% historically he reckons)

If thats 10% more on the existing performance then I'd be asking how he figures that.

First off you need to ascertain what your existing performance is and if it is good ask yourself would you realistically get another 10% on top of that!!

If you want to increase the funds why not add more to your existing scheme?

Cybermush wrote: »

Should I stick with advisor A's advice or go with advisor B???

Personally I would certainly stick with what you have until you ascertain more facts. It should then be more clear and I'd be asking why 1.75% charges per year also - somewhat above the norm.

jamesd

Which other company is he suggesting moving to? The fees for pension plaforms have varied so it isn't a surprise if a review now finds that a move can reduce platform costs.

The 1.75% I assume is the ongoing fund cost. Maybe also the platform cost? On the high side today and I'm quite surprised it's that high. The fund part is reasonable enough if the funds do deliver improved performance, though 10% better is unlikely.

3% for your pension pot size doesn't seem sensible, you have enough to consider fixed fees instead of percentage to save money.

Brewin Dolphin are unlikely to be looking at your pension each month. Perhaps he's planning to use a service they offer that provides monthly portfolio updates/changes to large groups of people at various risk levels?

addedvaluebob

Looks like you new adviser is just looking to cash cow you for 3% for not doing very much, your last one may have done something similar. Before moving any funds the adviser should have given you a direct comparison between the funds you were in and the new proposition using the FSA projection rates applicable at the time.

This projection should have shown the total value of the four funds at retirement age against the new arrangement you were recommended to move to. Your new adviser should also have given you a clear comparison, again using the current projection rates to retirement so you can see the effect of the 3% initial charge and the higher ongoing fees on the proposed funds. This should be both in percentages and in monetary terms.

On a very simplistic basis, if the adviser is using the FCA projected rates for the old scheme and the new one you will have less money at retirement because you will lose 3% today and a higher annual management fee. After that everything will be down to fund performance which they cannot guarantee.

They should also have explained why the new funds or something similar are not available within the current arrangement (this should also have been done 4 years ago). It was generally cheaper to switch internally with a provider than move the whole fund and a lot of the platforms have a wide range of funds to meet your attitude to risk and underlying investment mix. An explanation of why that was not available should also have been included in the original report as well

The FSA have been looking at switching of pensions as part of a wider review for years and in your case it looks like they have good reason.

dunstonh

Suddenly he's telling me to move pensions to another company, expand it to 15 funds and bring in Brewin and Dolphin to manage it monthly. My fees will rise to 1.75% and he wants 3% of my pension fund

Some adviser firms are outsourcing investment advice. It is their decision, not yours. Your fund isnt big enough to really be suitable for a discretionary management service (it will work ok but it wont be cheap and its largely unnecessary).

In effect, they are asking you to pay to fit their model rather than them providing advice to fit you. If they moved you to the discretionary management service at no cost then maybe that is fair enough (i am still doubtful but I dont like Discretionary management on values of that size) but to charge you 3% is taking the P.

Cybermush

Wow thanks guys!! :T

kidmugsy wrote: »

1.37% p.a. is heavy though: why not go in for passive investing and run it yourself? See the monevator blog.

That's interesting, I thought 1.37% would be good! That will drop a bit in a few months as my pension reaches the next milestone and if I do it myself I can claw back the 0.25% my advisor is getting anyway, which would probably take it closer to 1%.

saver861 wrote: »

Sure he does - so he gets 3% - but you have already paid your 3% and its doing ok - why pay another 3%.

Exactly!!!

saver861 wrote: »

If you want to increase the funds why not add more to your existing scheme?

Yes that crossed my mind after the meeting.

jamesd861 wrote: »

Which other company is he suggesting moving to?

It's Aviva.

jamesd861 wrote: »

3% for your pension pot size doesn't seem sensible, you have enough to consider fixed fees instead of percentage to save money.

Well interesting I looked back and when we did all this 4 years ago it was a fixed £1000 and I didn't really mind paying that as I'm no pensions expert and the guy pulled all 4 of mine into one new one and I can tell that since doing that my pension has performed much better.

jamesd861 wrote: »

Brewin Dolphin are unlikely to be looking at your pension each month. Perhaps he's planning to use a service they offer that provides monthly portfolio updates/changes to large groups of people at various risk levels?

Well that's how it was sold to me, but on the face of it a man sitting in an office staring at my pension figures every months doesn't seem likely. You're probably right they will just check each month that the funds match your risk category, if they don't then they will just block switch it for everyone.

addedvaluebob861 wrote: »

Looks like you new adviser is just looking to cash cow you for 3% for not doing very much

Got it in one! :mad:

addedvaluebob861 wrote: »

This projection should have shown the total value of the four funds at retirement age against the new arrangement you were recommended to move to. Your new adviser should also have given you a clear comparison, again using the current projection rates to retirement so you can see the effect of the 3% initial charge and the higher ongoing fees on the proposed funds. This should be both in percentages and in monetary terms.

Nope! But I've sort-of done it myself. I worked out both ways assuming I leave it alone at 1.37% then handing him 3% and taking the fees upto 1.75% but assuming the funds will do 10% better (he's never actually proved that though)
I was actually trying to work out where the break-even point is, in other words after I've taken the 3% hit when have I caught up again and the answer is 3 years. So basically by switching now I'll set my pension back another 3 years until I've recovered the costs and start moving forward. On the face of it that doesn't sound good!

I've really had no figures or projections from him to back up any of this other than what I've done. It really was a case of "I want to switch to Aviva because it will be better for you" The 3% charge was a little glossed over in the meeting but I was savvy enough to know where that was coming from and that caught him off-guard a little.

Perhaps I should have started moo-ing in the meeting :rotfl:

Well I think I've talked myself out of that option now, so do I remain on an annual review basis, perhaps being advised every few years to switch a fund or two and pay 1.37% or ditch them all together and manage this myself bringing the fees closer to 1%. But it must be remembered I really don't have any experience in this so realistically I will just leave the funds as that are for the next 20-odd years.

atush

It sounds to me like he is 'churning' you for fees. I suspect he may be doing it with other clients he has taken on. If you want to stay there, ask to see another IFA?

Otherwise, I'd stick as you are, then start researching to see if you would like to run your own pension, or search for an IFA that will go fee based and put you in a cheaper platform. Your charges are looking a little high.

Daniel_Elkington

To fly in the face of danger here, he might be doing it for the right reason.

If he is working with the same firm the 3% seems excessive. 1% is probably more than enough for the extra hassle of, essentially, starting again if it is the same firm as it's not as though he's got to open a new file or anything.

Looking at annual charges is a massive misnomer. People get obsessed about them because it is a number they can focus on, but perhaps the old scheme is reporting AMC and the new scheme TER, or OCF. Additionally, there are a number of charges that a open-endend fund manager CANNOT report because the regulator won't let them, such as broker costs to issue new shares.

You could DIY if you wanted and probably get it slightly cheaper. I'd say annual charges less than 2% are reasonable, as long as you're getting the desired outcome.

Additionally, you'd probably be better off only worrying about it once a year and getting on with life and work for the other 364 days!

I know this message won't go down well on MSE, because the DIY way is one where you can 'save money'.

I'd ask him about the performance, promising performance is not something any IFA worth their salt does. I'd also question using Brewin Dolphin as (being a fund manager and an IFA) the DFM model is generaly opaque and results in higher fees and lower performance. I'd also question those charges as Aviva wrap costs 0.35%, the adviser will charge 0.5%, this leaves 0.9% for the DFM AND the fund costs. Normally our bespoke portfolios cost around 0.3% and Brewin 'believe' in active fund management, they'd normally charge 0.65% for managing the portfolio and 0.75% for their model portfolios.

I could see it being the case that the 1.75% does not include advice charges, which do not have to be included when considering pension switches unless the advice charge is only charged if the switch occurs.

To be quite honest - I'd go for a proper second opinion with another IFA (chartered, or at least possessing AF4.)

Hope this helps,

Dan

gadgetmind

Daniel_Elkington wrote: »

You could DIY if you wanted and probably get it slightly cheaper. I'd say annual charges less than 2% are reasonable, as long as you're getting the desired outcome.

My all-in fees for our SIPPs and ISAs, which consist of balanced portfolios of various global equity ETFs, bond ETFs, REITs, and ITs are sub 0.5% including platform fees and trading fees. My group personal pension is in a fund that uses active asset allocation on top of (mainly) Blackrock passives, and its fees are 0.5%.

I regard 2% as being a million miles off reasonable as it will result in a big chunk of the expected annual return being syphoned off.

Yes, fees aren't everything, but you can't keep losing 3% to churn every few years, and then 1.5%-2% every year, without it having a massive effect on the end result.

dunstonh

I regard 2% as being a million miles off reasonable as it will result in a big chunk of the expected annual return being syphoned off.

It should be noted that your fees do not include adviser charge. So, its not exactly like for like. It is expected that an adviser arranged plan with ongoing servicing will be higher cost than DIY.

That said, if you are paying for ongoing servicing, you dont expect to be hit for an initial charge at the same time. Its typically one or the other.