DO IFAs HAGGLE?

Mensch

I've only been a member for a couple of months so I don't know if this has been discussed before. Sorry, if it has.


Frau Mensch and her IFA met yesterday to discuss a drawdown plan to cover the six-year gap between qualifying for her NHS pension and her SP.

She's perfectly happy with previous advice given on fund investments for which he charged 1.76%. Now he wants 3% for the drawdown plan.

I believe that is quite reasonable on his part, although she, being a hard-headed deutsche Hausfrau, definitely doesn't, but my question is would it be acceptable for her to try to negotiate a lower percentage as he is also hoping to set up something similar for me when I retire? Should she attempt to knock him down a bit?

She likes him a lot and probably wouldn't take her business elsewhere anyway but still we're talking about a £3000 charge (for both plans) here. And, as far as I know, Prudential won't let you set up this kind of thing without IFA involvement.

silvercar

We had a "discussion" with our IFA over his fee. It was after we had been with him a number of years and the size of the pot has grown considerably, so we felt the percentage gave him a bigger sum than maybe the work merited.

The discussion was amicable and left us feeling comfortable to continue using him.
He wouldn't budge on fees at this point but we agreed the point at which he would budge. It left us feeling confident that other people had beaten him down, leaving us paying way over the odds.

Aegis

Mensch wrote: »

I've only been a member for a couple of months so I don't know if this has been discussed before. Sorry, if it has.


Frau Mensch and her IFA met yesterday to discuss a drawdown plan to cover the six-year gap between qualifying for her NHS pension and her SP.

She's perfectly happy with previous advice given on fund investments for which he charged 1.76%. Now he wants 3% for the drawdown plan.

I believe that is quite reasonable on his part, although she, being a hard-headed deutsche Hausfrau, definitely doesn't, but my question is would it be acceptable for her to try to negotiate a lower percentage as he is also hoping to set up something similar for me when I retire? Should she attempt to knock him down a bit?

She likes him a lot and probably wouldn't take her business elsewhere anyway but still we're talking about a £3000 charge (for both plans) here. And, as far as I know, Prudential won't let you set up this kind of thing without IFA involvement.

If I'm reading it right, you're looking at £50k pots on average, in which case you probably have little negotiating power. You might try to bring it down to a lower figure on the basis that both of you will get broadly the same advice and product, but I'm not sure whether he would budge if this is his standard charge.

jamesd

Mensch wrote: »

And, as far as I know, Prudential won't let you set up this kind of thing without IFA involvement.

Prudential has no choice on the matter. You're at liberty to transfer elsewhere and do it yourselves if you want to.

Frankly, the amount you're being asked for is outrageous given that the amount to be invested is about £50,000. It's not outrageous so far as IFA charging levels go for this amount of money, it's just that it's horribly inefficient because of the size and planned duration.

What is the general objective, I suppose to drain the whole pot over the six year period so income remains roughly stable between now and start of the state pension?

If so and assuming a fairly high share component, the average investment return per year might be around 6%. This means that the IFA charge of 3% would be around 46% of all investment growth during the period.

Essentially, the IFA would be looking to charge £3,000 but the total investment growth, not reduced to allow for inflation, would be around £6,506.

Base draw 9150 Inflation 1.02 growth 0.06

Base draw	8900	Inflation	1.02	growth	0.05
						
year	amount	draw	grow	yearend	total growth	
1	50000	8900	2055	43155	2055	
2	43155	9078	1704	35781	3759	
3	35781	9260	1326	27847	5085	
4	27847	9445	920	19322	6005	
5	19322	9634	484	10172	6489	
6	10172	9827	17	362	6506	
						
IFA cut of growth		46.11%

For this calculation I used 5% growth after fund fees of 1%, 2% inflation and income drawing starting at £8,900 a year and increasing with inflation each year, income drawn at the start of the year. I assumed that the IFA was making no annual charge, probably not true.

It's also not really practical to get as much growth as I've used from conventional investments because you need to allow a safety margin of low volatility investments for at least the last half of the period unless you have safety margin provided for in other ways. You could help that to some degree by taking the pension tax free lump sum and investing it in some of the peer to peer options that pay over 8% and don't move up or down in relation to the stock market.

If you don't have such a safety margin then you'd need to reduce the growth after fund charges to closer to 2% than 5% to reflect your forced use of cash in the final years to provide high confidence that you'd have the income when needed. At that growth level the IFA charge would be 116% of all growth and it's easy to say put the money into savings accounts and cash to make more money than the loss the IFA charge would cause. Not best, just easy and a better deal than paying the IFA.

I suggest that you do it yourselves with help here. It seems very unlikely that the IFA is going to be able to compensate for the loss of 46% of all investment returns over the period.

redbuzzard

My thoughts are as JamesD's, pretty much, although only doing it in my head I made the IFA charge at 3% about a quarter of a reasonable expectation on investment income.

If Frau Mensch is hard headed and knows what she wants, the IFA fee is just an insurance premium for Pru's benefit, not hers.

Just make sure there are no exit fees, or "market value adjustments" (always downwards of course) etc., and there are no other benefits being forgone such as guaranteed annuity rates.

Mensch

Thanks for the responses.


The IFA has been back in touch to report he has used incorrect figures for the draw-down calculation so I'll wait until he gets back to us with the correct ones before I clarify a couple of issues.


Thanks again.

Aegis

Just realised that I should have asked if this is 3% initial charge to set up the plans or a total annual charge of 3%? There's a huge difference there

Mensch

A one-off 3% charge at the outset.

Mensch

Just to bring anyone interested up to date.


IFA got back to Fr Mensch on Friday. 3% charge is non-negotiable but he will haggle on other fees to do with transferring ISAs to an investment with Brewer Dolphin (might have been Dolphin Brewer though, senior moment) which apparently is a super-duper investment firm which deals with customers with real money only, normally.


His firm of course has a special deal with them and he would forgo the initial fee altogether (another 3%) but charge AMCs only - about 1.6% p a, if she does go ahead with the drawdown arrangement.

atush

Mensch wrote: »

Thanks for the responses.


The IFA has been back in touch to report he has used incorrect figures for the draw-down calculation so I'll wait until he gets back to us with the correct ones before I clarify a couple of issues.


Thanks again.

This would not instill me with confidence. I'd be looking elsewhere

TheTracker

Personally I find haggling a chore and a turn off. Why would you go with someone who told you a service cost £10k only to tell you a few seconds/hours/days later he'd do it for £5k? Tell a service provider up front that you are getting multiple quotes, lowest price is a key factor, and they only get a single chance to quote. And as a service provider when I quote I tell people the price is what it is and open for acceptance not negotiation.