IFA fees, is 3% OK?

mikrt

Further to my earlier thread, I decided to seek professional guidance on what was best to do with my pensions.

I don't really want to start another thread on what I'm doing with it in detail, but basically, to keep my work pension going, and transfer by other 2 (one a money purchase @ £159k and the other a DB @ £107K) into a new fund.

It was a new name to me, MetLife, but apparently the biggest (or one of) in the business and a 3% growth is guaranteed with a lock in at the peaks.

My issue is that his fee for this is 3% (nearly £8K).

Is this standard for this type of work or a little on the steep side. By the way - the fee will be taken out of the pensions, and he's told me I should make that back in 3 months.

Also, I understand I have a 7 day cooling off period if I decide not to follow his suggestions, as he saw me at my home, is this correct also?

Thanks in advance.

HappyHarry

mikrt wrote: »

My issue is that his fee for this is 3% (nearly £8K).

Is this standard for this type of work or a little on the steep side. By the way - the fee will be taken out of the pensions, and he's told me I should make that back in 3 months.


Thanks in advance.

DB pension transfers are high risk for the adviser and so the fees tend to reflect that.

However, making back a 3% fee in three months implies that the IFA expects a growth of 12% per annum. I'm not sure how that would fit with this 3% per annum guaranteed growth rate on the product recommended.

Also, I understand I have a 7 day cooling off period if I decide not to follow his suggestions, as he saw me at my home, is this correct also?

No. Not unless the IFA decides to sit on every piece or work they get for seven days before starting. If you are not sure, just call the IFA and let them know you want longer to think.

Linton

In your previous post you dont seem to have told people that one of your pensions was DB. I would have thought the high cost arises purely from the DB fund. Transferring a DB pension is seen as high risk for all concerned and is therefore expensive - do you really have a good justification for doing it? Have you worked out the costs in terms of what you would be losing?

In order to transfer a DB pension worth more than £30K you must be able to show that you have received professional advice. There is a good chance the advice would be that it is not in your best interests.

macca1974

3% is probably towards the top end of charges, although not when you consider that includes a DB Pension Transfer. A couple of causes for concern that I would certainly question (although I will admit to not being familiar with the MetLife investments that you've mentioned).

I'd really want to understand the funds that have been recommended a little more. Anything with guarantees will inevitably mean a higher degree of charges and lower potential growth. What mechanism are they using to be able to offer 3% (per annum) guarantee? Does this also mean that capital is guaranteed as well? This would seem unlikely. Especially if they are also suggesting the potential for a 12% positive return (i.e. as mentioned you'll get your 3% charges back in 3 month). Something doesn't seem to add up there and it has the suspicious gleam of a sales spin to me.

With regard to the cooling off period, this is I think 30 calendar days for a pension scheme. It is likely that they will have started the process during this time and if things have already been moved (i.e. come out of your DB scheme) it might be quite complex putting things back together.

Also, you might want to double check the fee agreement that you signed. It may well be that the fee that you have been charged isn't conditional on the work being done and that if you did cancel you might have to pay it anyway.

dunstonh

IFA fees, is 3% OK?

Percentage fees always need context. 3% of £10,000 is cheap. 3% of £200,000 is very expensive.

Type of transaction is key. Topping up an existing pension is cheaper than doing a defined benefit transfer (which is one of the highest risk transactions an adviser can carry out).

It was a new name to me, MetLife, but apparently the biggest (or one of) in the business and a 3% growth is guaranteed with a lock in at the peaks.

Tiny UK player. Big American player but has consistently failed to tap into the mainstream UK market.

Not personally a fan as charges are paid through sale of units. The guarantee is based on unit count and not value. Plus, it uses the Blackrock index trackers as the underlying funds but the charges are so much higher because of the cost of the guarantees.

I am not a big fan of guaranteed products. If you are investor that is wanting guarantees, then it suggests you either don't understand investing or are not really of the risk profile to take on riskier options. Whilst generically, guaranteed investments would fit the bill, you tend to find that they are too handicapped by either playing it safe so the return potential is not worth the risk or the charges to pay for the guarantee take away too much of the return.

My issue is that his fee for this is 3% (nearly £8K).

Personally, I don't have an issue with that.
1 - you want to do one of the highest risk transactions an adviser can facilitate
2 - your investment selection indicates you like guarantees and are low risk. Yet you are carrying out a high risk transaction out of a guaranteed product to put it into a high charge product with a niche provider with guarantees. So, do you really have the risk profile for it?

he's told me I should make that back in 3 months.

Possibly. It would need a spectacular period of growth that will only occur rarely. So, probably not knowing the product range.

Also, I understand I have a 7 day cooling off period if I decide not to follow his suggestions, as he saw me at my home, is this correct also?

Partly. Financial services has a longer cancellation rights period on the product. However, the advice side only becomes chargeable after you sign the fee agreement and that has 7 days as you signed in the home. Although some transactions cannot wait 7 days and that is waived. If you pulled out of the product say 14 days later you would still have to pay the advice fee.

mikrt

Thank you all for your very fast responses,

There's a lot to take in and I'll read it further when I get home, rather than on my mobile.

A few points mentioned, Yes, I understand the capital is invested and he did say his other clients were receiving over 12%.

And I wasn't aware of the DB being one until very recently, this is one I didn't know about so didn't have all the details at first.

So 3% fee is acceptable, but high end by the looks of it. Would it be acceptable to call him and tell him I'm uneasy about the amount and ask if he'd reconsider his fees to maybe 2.5%, or is this a no-no?

Linton

mikrt wrote: »

Thank you all for your very fast responses,

There's a lot to take in and I'll read it further when I get home, rather than on my mobile.

A few points mentioned, Yes, I understand the capital is invested and he did say his other clients were receiving over 12%.

And I wasn't aware of the DB being one until very recently, this is one I didn't know about so didn't have all the details at first.

So 3% fee is acceptable, but high end by the looks of it. Would it be acceptable to call him and tell him I'm uneasy about the amount and ask if he'd reconsider his fees to maybe 2.5%, or is this a no-no?

The clients may well have gained 12% in the past 12 months, but the past 12 months were unusually good. 12% is not the average, one certainly should not rely on anything like it. Suggest you seriously look into the benefits and losses if you throw away the guarantees provided by your DB pension before you start worrying about the odd 1/2% in charges. Making a mistake here could cost you far more.

There is no problem with asking, but dont be surprised if he says no. Take the DB pension out of the equation and it should be a lot cheaper.

dunstonh

Yes, I understand the capital is invested and he did say his other clients were receiving over 12%.

None of the metlife funds have shown anything like that. No decent IFA would even consider suggesting 12% is a reasonable likelihood. One year may see that in isolation of others but certainly not consistently.

Most IFAs have software and analysis that can be produce the risk rating/volatility rating and the estimated returns of the underlying assets based on long term assumptions. I have one in front of me for a cautious fund that says inflation adjusted estimate of 1.94% a year. (i.e. inflation plus 1.94%). That report shows the asset allocations and assumptions used. So, what did this adviser show you to support his 12%?

So 3% fee is acceptable, but high end by the looks of it. Would it be acceptable to call him and tell him I'm uneasy about the amount and ask if he'd reconsider his fees to maybe 2.5%, or is this a no-no?

You could do that. I would be more inclined to get a second opinion. Your investment risk needs stronger discussion as well. Why did you want a guaranteed product and do you understand the higher costs that come with guarantees and the way the returns WILL be lower because of them.

PeacefulWaters

I've just started to set up a DB to personal pension transfer. I was being quoted £11k originally. When challenged they offered a choice of £250 an hour or 1.5% of a c£600k pot. Finally ended up agreeing flat fee £7,000 with no ongoing servicing.

So there may be room to negotiate.

Malthusian

I usually wouldn't second-guess the advice of a professional, given I don't have nearly as much information as he does, but I make an exception when third-way guarantee plans are involved.

Even with transfer values inflated as they are, you usually need to be confident of getting a pretty good rate of growth on your pension to deliver similar benefits to those the DB scheme will have offered. The annual charges on guaranteed plans like MetLife's are eye-popping. The underlying funds are managed not to generate growth for investors but to reduce the cost of the insurer's guarantees, with very low equity content. The combination of these factors means the chance of net growth after charges being sufficient to outperform the DB pension is remote. I would run a mile.

The initial fee however is not unreasonable.

I'm not familiar with MetLife offering 3% guaranteed growth. (If they guaranteed net growth of 3% after charges that would be eye-opening.) On their guaranteed drawdown plans they offer 3% increases to the guaranteed income amount if the investor defers taking it. This isn't the same as guaranteeing 3% growth by any stretch.

bigfreddiel

If you think 3% is too high negotiate for what you think you should pay

Now the pot size is irrevalent, 3% is 3%, so relative to the pot it's the same.

Say for example you were buying an investment trust that was trading at a 3% discount, you wouldn't expect the discount to decrease the bigger the purchase would you.

Ditto if you bought a car and the dealer offered you a discount you wouldn't expect it to taper with price would you? If the offer was 3% then you would expect 3% on the full price.

So if you don't like it negotiate a lower percentage, most IFAs are quite pragmatic and will be happy to discuss their fee. Good luck fj