Financial Adviser pension investment... can I get out?

jo_kenyon

I saw a financial adviser at the end of 2013 and he advised me to transfer the two pensions I had into one. He set up a 'platform' for a pension investment, taking a hefty 5% set up charge (I know this is probably normal but seemed like a lot of money to give away.) The financial adviser assured us that this 'fee' money would be made back in 6 months.

When I questioned the lack of profits on 2014 the adviser explained 'You are invested in the balanced model portfolio which is constructed of 20 individual funds spread across fixed interest, property and equity funds, short term performance has been subdued by events in the Ukraine, however this should turn around shortly.'

The last entry on my portfolio 'reports and documents' was January 2016. This was the 6 Monthly Statement dated 15th November 2015. (I have had nothing since.)

It stated the value of the investment at 6th April 2015. Then it revealed the value of the investment at 5th October 2015. The October amount was substantially less than it was six months before.

I was slightly alarmed seeing the October figure is practically the same as the amount invested when they set up the fund in 2013 (out of which they took [FONT=Calibri,sans-serif]their 5% set up fee)[/FONT][FONT=Calibri,sans-serif] so in the 3 years they have been handling my money, when they promised me healthy profits, I have less money than when I started.

I am not stupid, i understand investments can go down as well as up but i instructed them to invest safely, and they assured me their investments would move in the right direction...

Now for my questions... can I get my money out? Am I being ripped off here? Can anyone offer me any advice? on a balanced portfolio is this expected?

I want to write to him and question him but I am not sure of what to say and what my rights are? I also have the fear that if I did question him anything could happen to my money.

Thanks for any help.
[/FONT]

LHW99

Was the adviser independent, was he regulated, what are the investments(Company, funds)?

Additional information would help people make more constructive comments.

Superscrooge

Stock markets were at an all-time high in April 2015 so it is not too surprising that the value of your investments had dropped by October 2015.

5% set up charge does seem high to me. But there are a couple of IFA's that regularly post on these boards that will have a better idea whether that is a reasonable charge?

I can't see how any IFA can guarantee that their 5% fee will be made back within 6 months

Do you know what annual management fee you are being charged? Over the long term it's the annual fee that is a bigger drag on your investment returns than the initial fee.

bowlhead99

jo_kenyon wrote: »

He set up a 'platform' for a pension investment, taking a hefty 5% set up charge (I know this is probably normal but seemed like a lot of money to give away.)

5% is a lot, and higher than 'normal', but normal does depend on the amount invested.

If your pensions only totalled £30k then it's £1500 which is a high percentage but not a huge absolute amount of money. But if they totalled £300k then it's £15000. That would be crazy money to set up a pension portfolio, but some people choose to pay it because they buy into the marketing hype and don't shop around to find someone who will charge a couple of thousand instead of a five figure sum.

Some people do their shopping at Fortnum & Masons rather than Aldi and choose to pay £4 for biscuits instead of 40p because they assume that either the biscuits, or the customer service while buying the biscuits, will be better. But you are not guaranteed that either the biscuits or the service will definitely be better, just because you are paying a lot. So, most people don't shop at Fortnum's.

The financial adviser assured us that this 'fee' money would be made back in 6 months

That seems optimistic. But generally you would expect a portfolio to go up by over 5% a year in the long term. So the charge is probably less than a year's growth. Probably not as little as half a year's growth.

But maybe he showed you that the balanced portfolio had done 10% in a year and said the 5% was only half a years' worth and you blindly accepted it - even though you say you know that markets can go down as well as up, so clearly it's not guaranteed that the 5% will get recovered in the first six months or even the next six months or the one after that.

When I questioned the lack of profits on 2014 the adviser explained

'You are invested in the balanced model portfolio which is constructed of 20 individual funds spread across fixed interest, property and equity funds, short term performance has been subdued by events in the Ukraine, however this should turn around shortly.'

It depends on the actual dates of course but markets were rocky when Russia was taking over other countries. Markets did subsequently improve with equity markets getting to a peak around April/May 2015

It stated the value of the investment at 6th April 2015. Then it revealed the value of the investment at 5th October 2015. The October amount was substantially less than it was six months before.

That makes sense, because markets were at or close to an all-time peak in April. The main UK stock index dropped about 15% from its peak to the beginning of October though started to recover a bit in early October so it depends on the exact dates, but basically October is probably a good bit less than April. It depends what you call 'substantial' - some would say a 30% fall is substantial while 10% is an annoying downwards correction from a nice peak.

I was slightly alarmed seeing the October figure is practically the same as the amount invested when they set up the fund in 2013 (out of which they took their 5% set up fee) so in the 3 years they have been handling my money, when they promised me healthy profits, I have less money than when I started.

Just to clarify, say you invested 100 "(out of which they took their 5% set up fee)" and now the amount is "practically the same as the amount invested" ; so - you have had some growth which increased the 95 back up to almost 100 by October, although you're disappointed that it's not as high as it had been in April when it was over 100? Or was it around the 95 level in October meaning you have yet to make progress on recovering the setup fee.

I am not stupid, i understand investments can go down as well as up but i instructed them to invest safely, and they assured me their investments would move in the right direction...

If you have gone back up from 95 to about 100 then the portfolio *is* going in the right direction. If it is still at 95 it is not moving in any direction it is just bobbling around as the markets have been bobbling around, and ongoing management fees will eat into that. But over the *long term*, you would expect growth, and for it to move in the 'right direction'.

As you have not been invested with them for the long term, but only for less than two years at the statement date, you can't say whether or not it is a good investment. You could compare it to other balanced investment funds. Some years will be flat or down, it's how markets work. They assured you it would grow, but also reminded you that markets can go down, which you say you understand. So if markets go down, and you are paying initial and ongoing fees to be invested in their funds, you are unlikely to be growing your wealth in that particular time period.

Also, you said "I instructed them to invest safely". That is not the same as saying "I instructed them to invest for the maximum return". In fact, it's the opposite, and the returns from the lowest risk option would not be expected to be very high (certainly not the level at which a 5% fee gets recovered in six months). However it sounds like you ended up in something balanced between the two extremes, which is fine for most people who don't need their money back any time soon because it's in a pension.

Now for my questions... can I get my money out?

You could transfer it to another pension, either self-managed or with another adviser. As I understand it, some of the expensive advisers have a high 'exit fee' in the first few years. As it sounds like you picked an expensive adviser, maybe yours has a fee to transfer out. But many do not, or only charge something nominal, because they already took a big fee on the way in.

So, you may find there is or there isn't a fee to move it out, but if you go to another adviser there will be a fee for that new adviser to assess your needs and set something up, unless you are going to DIY. If you keep changing advisers every two years and paying set-up fees you will lose a lot of money over time, so that's a poor strategy.

Am I being ripped off here?

What is important now you have this relationship with the adviser is what they are charging you ongoing and what you are getting for your money. You can forget the 5% setup fee because that's gone. What you are paying per year going forward is what's important, and whether that's justified compared to other options.

If you are paying 2% a year for advice and fund fees, and someone else would charge 1.5% or 1% a year instead, then it would do you good to shop around (as you should have done in the beginning ) and you would save money by moving. However if you are paying the same as everyone else charges, aside from that initial 5% which is dead and gone, then there is no need to move. It is difficult to comment when we don't know the £ amounts involved or the ongoing fee level.

on a balanced portfolio is this expected?

Generically yes it is expected for balanced portfolios to go up and down. It is also expected that they would have fallen from early April 2015 to early October 2015. You say you've lost money overall but it wasn't clear whether you have lost anything substantial from the 95% that was actually invested in funds, or if in fact it has grown from 95% and you're just talking about losing from the 100% you paid over because there was a fee.

Also we don't know the exact date it was set up because timing affects returns hugely when markets are volatile. So it is difficult to comment on performance.

You will probably find that when you get your April 2016 statement it will not be much better than October 2015. You could probably blame global uncertainty caused by China, US, oil prices and Brexit for that. There is always one reason or another why the returns are not as they would be in an ideal world. The only reason returns are even available is because there's risk and uncertainty; if there was no risk, everything would already cost a huge amount of money and you could not buy in and sell out later for more.

But generally over the long term, balanced investment portfolios make money and in the short term there is noise. Did you even bother to review your two old pensions every six months, or just leave them? If you just left them, why not just leave this one too and check back in a few years?

I want to write to him and question him but I am not sure of what to say and what my rights are?

You have a right to get information about your investments, and the fees charged on them, and change the investments, or cancel the service and move to someone else after paying him whatever fees you agreed to when setting it up.

I also have the fear that if I did question him anything could happen to my money.

Assuming this is a regulated firm, he is not going to run off with your money or burn it out of spite just because you ask him awkward questions. He gets questions all the time. He is getting paid to be an 'advisor' so if you are paying ongoing fees to receive advice there's no reason why you shouldn't ask questions.

One way something could happen that damages your money as a result of asking questions is if you decide you are losing too much money and want to be in a very low risk investment. You then risk falling very far short of your retirement needs. Alternatively if you decide you are not getting enough growth and you ask for it to all be moved into a much higher risk portfolio instead of keeping it in the balanced portfolio. Then you could get a shocking short term loss which panics you and you transfer out and lock in the huge loss. So, if balanced portfolio was right for you two years ago it probably still is now and there is no need to change it.

Seems to me like you just need to get him to explain again what fees you are paying, what your options are, and how the returns over the last two years have compared to industry benchmarks for balanced portfolios, and why his service is better than someone elses for the long term.

sandsy

A great, balanced response there, bowlhead.

dunstonh

taking a hefty 5% set up charge (I know this is probably normal but seemed like a lot of money to give away.) The financial adviser assured us that this 'fee' money would be made back in 6 months.

Without context, it is hard to say if the 5% is normal or not. i.e. £10,000 @5% would be £500. That would be cheap. However, £100,000 @ 5% is £5,000 and that is damned expensive.

5% is a strange figure. It is not one you see with IFAs very common but it is one that is used by St James Place (who are not IFAs).

I was slightly alarmed seeing the October figure is practically the same as the amount invested when they set up the fund in 2013 (out of which they took their 5% set up fee) so in the 3 years they have been handling my money, when they promised me healthy profits, I have less money than when I started.

An economic cycle is around 10 years. You will have good years, bad years and nothing years. You dont know the order they will come but you do know they will happen. Broadly speaking, investments are back to around where they were 3 years ago because they there was a market drop late last year. So, you are in the expected ballpark.

I am not stupid, i understand investments can go down as well as up but i instructed them to invest safely, and they assured me their investments would move in the right direction...

What do you mean by safely? Using regulated investments with FSCS protection? They havent lost money. They just havent made much. However, the period in question would explain that.

You say you understand investments can go down as well as up but are you sure you understand. Octobers statement would be well down on April as you had a large fall in the markets. If you understood that, you wouldnt be querying it now. Over the years I have had a number of people say they understand investments will go down as well as up and they make all the right noises to suggest they do understand but when a loss period occurs, they then make different noises which suggest they do not really understand. Or, that they do understand it but have now decided they can't stomach that level of volatility despite thinking they could.

Now for my questions... can I get my money out? Am I being ripped off here? Can anyone offer me any advice? on a balanced portfolio is this expected?

Nothing suggests you are being ripped off. Possibly paying over the norm but thats about it. There isnt much to go on but broadly speaking, it hasnt been a great 3 years but that is ok as you don't invest for three years and periods like this are were your monthly contributions go on to make the most money.

bigadaj

Love the quote in the OP about underperformance due to events in the Ukraine, that alone would make me question the advisor. Compared with everything happening in the Middle East then Ukraine issues would be minor unless he's invested in Russia funds which might be abive many risk profiles.

TheTracker

Agreed. I'd sack him for the Ukraine comment alone. He should be proficient at explaining, and calming the consumer, that markets behave like this. Weasle words on his part.

That said, it's a shame that in the UK many consumers see FAs as magicians who can extract better returns from the market than a punter can. Where in fact, their value lies in financial planning and crafting portfolios in accordance with personal circumstance and risk aversion. OP, your portfolio balance will go up and down pretty much as world markets do, with a bob and dive here and there. No point paying an advisor to watch that happen. Instead, pay for initial and periodic financial planning advice.

dunstonh

I'm can't see what was wrong with the statement. It was made in 2014 and Ukraine-Russia Crisis was creating a drag on the markets in early 2014. If it was made in 2016, then it would be a different matter.

EdGasket

dunstonh wrote: »

I'm can't see what was wrong with the statement. It was made in 2014 and Ukraine-Russia Crisis was creating a drag on the markets in early 2014. If it was made in 2016, then it would be a different matter.

Yes this year the IFA would probably use Brexit as an excuse no doubt. There will always be possible excuses for poor performance and high fees.

bowlhead99

EdGasket wrote: »

Yes this year the IFA would probably use Brexit as an excuse no doubt. There will always be possible excuses for poor performance and high fees.

They would not be using brexit as an excuse for high fees.

They might use it as one of the explanations of why the UK equity allocation did not perform in line with long term average. There are probably a number of reasons for the UK to under-perform as a sector, but announcing that you will resign from a trading bloc with a population of 500m people in two months time if your public want you to, when the poll-of-polls shows that the public are 50/50 (ignoring the 'undecideds'), cannot be good for investor confidence in UK shares, as markets do not like uncertainty.

If I asked an IFA if he was aware of any reasons for relative low values of UK shares compared to their peak, and he didn't mention Brexit or oil price or the impact of global growth assumptions (esp. China) on resource companies, I would think he wasn't very up to date on world affairs. Of course, the people putting together his risk models, might be.

There is always a *reason* for performance. That reason could include potential Brexit, over which the IFA has no control. However, whether the particular reason is a satisfactory "excuse" or not, will be arguable, depending on circumstances and how the portfolio is constructed.