Finding an IFA....the unfolding story

nocash

I have been employed for most of my life but following redundancy, aged 61, have now stopped working and am using existing pension and savings to live off. My broad position is as follows:

a) DB pension 1 has been started and currently pays £6,200 p.a (no life cover or benefits)
b) DB pension 2 is available, has some life cover, but has been left to gain added years (from age 60) and current options with it are:
- £15k tax free with an income of £2,200 p.a or no cash and £3,100 p.a.
- A transfer fund value of £95,000
c) Money Purchase pension 1 - £70k value (risk fund rating 4)
d) Money Purchase pension 2 - £10k (no idea on risk fund rating)
e) Savings - £70k (£60k ISA/Premium Bonds/Savings + £10k various shares)
f) State pension forecast is £171 per week (at current rates)

My outgoings are very low (£600 per month inc food and bills) with no debts/mortgages/car loans etc. Anything on top of that just comes out of savings, that is what they are there for and if I die happy but penniless so be it!

Planning for the future I have had the call with Pensionwise and spoken to the various pension companies so feel relatively well informed about the basics, the next step is to ensure the monies perform well with a reasonable risk attached. My goals are to use the funds as and when I need them but I think that when the state pension kicks both myself and my partner will manage ok.

In the last week I have had two introductory conversations with IFA's sharing all the above and any extra info they have asked but each have concerned me. The first one suggested moving the Money purchase schemes to a company that does Flexi draw down however, both my existing
companies offer this option so I suspect that before anything is discussed he is positioning a move for fee purposes?? The second did a very full fact find and sent me a quick market review, all very interesting with tables and charts but totally focused on different types of annuities. What surprised me was that they have put the transfer value of DB pension 2 into these calculations without consideration of leaving as is. The headline fee both charge are 3% and 3.25% and want letters of authority to get all the relevant facts. Additionally, IFA 2 is a new subsidiary of another IFA using a slightly different name, looking at companies house I see that directors etc are all the same, might be something and nothing but why??

The areas I am seeking to understand better are:
- is my situation that complex, I feel not but could be wrong, is the fee level appropriate?
- can I get significantly lower fees by shopping around/haggle
- If I give lots of letters of authority to IFA's is this a problem with the Pension Providers i.e. might they start to charge?
- is there a shortcut route to get things underway? e.g. a website that uses technology to combine alot of the investment information out there and help you?
- is self management a folly or a real option?
- Is my sceptiscm about IFA's justified?

Any other tips/comments appreciated.

Many thanks

tacpot12

The fee level looks very high to me, I paid £1000 for advice on two pensions. But you also need to understand what they are going to do for the fee. Your situation is not especially complex. I would say it was of "average" complexity.

If you find an IFA prepared to offer you advice for a fixed fee I think you will find it very much cheaper. My IFA offered to refund the fixed fee I paid if I ended up engaging them to manage the portfolio as their management was higher in the first year to cover the initial advice.

I think the pension providers might want to charge you if you instruct more than one IFA.

There is no shortcut to getting the right advice; you need to due more due diligence on the IFAs asap so that you can pick one to instruct. Until you agree to a fee schedule you are not going to start making any real headway.

To my mind, self management of your pension investments is a real option for people who are willing to apply themselves to the problem and have the time and energy to do so and who are willing to take the risk that self management brings. You should compare it to the alternative where you pay a professional to do it and have some protection as a result.

Your scepticism about IFAs is justified. The marketplace is immature and this creates the possibility that poor IFAs can operate for long periods without anyone really being aware of how bad they are. Caveat emptor.

Malthusian

You don't say who your existing MP pensions are with. However most MP schemes that weren't set up by an IFA after 2012 do not offer the option to take the adviser's fees from your pensions. If you paid them out of your taxed income, not only is this extra hassle but more importantly you wouldn't get tax relief on it. Some providers also don't like dealing with IFAs (because it's not their market and because they get in the way of their attempts to flog stuff to you). So it is not in itself concerning that an IFA's recommendation would more than likely involve a transfer from the existing scheme.

The initial fees they are quoting are standard. You didn't say what they quoted as an ongoing fee. I assume you were looking for ongoing advice and not just transactional.

Your description of what the second IFA gave you sounds a bit odd but we don't have enough information to second guess it. Are you sure that they are an independent financial adviser and not restricted?

- If I give lots of letters of authority to IFA's is this a problem with the Pension Providers i.e. might they start to charge?

No. If your current plans are pre-2012 ones paying yearly commission to the provider or whoever sold you the policy originally, the letters of authority might arrange for that commission to be paid to your new adviser instead. However this is just commission that is already coming out of your funds but paid to someone who isn't giving you any advice in return. There won't be any new charges unless you explicitly agree to them.

xylophone

I am surprised that the IFA would wish to do anything with the DB2 other than leave it alone.

Incidentally, was the Normal Scheme Retirement Age of this pension 60 or later?

Have you checked that if you continue to defer this pension beyond NSRA, you do actually continue to build extra pension within the scheme or an increase is given for such deferment?

You speak of a partner rather than a spouse - what is the position regarding your pensions if you predecease your partner?

Even though you are no longer earning, you could still consider making an annual contribution of £2880 to a pension scheme - the provider would claim tax relief of £720.

It would be possible to transfer your MP pensions to a SIPP and manage this yourself if you had the confidence to do so.

You are in a good position to consider self management since your two DB pensions when in payment ( presumably with some form of increase in payment?) more than cover your basic outgoings and you have the certainty of an additional index linked supplement ( the state pension) at SPA.

Some reading http://www.hl.co.uk/pensions/drawdown/investment-ideas

https://www.theguardian.com/money/2015/apr/18/best-investments-for-retirement-financial-advisers

Perhaps you should do some reading round before employing an IFA?

nocash

Thanks, wasn't aware of the 2012 issue. They are both ex-employer schemes, MP 1 pre 2012 with Aviva & MP 2 post 2012 with Aegon

Restricted advice is what the 2nd IFA initially provide with an IFA referral if required, appeared to be layered.

If you appoint the IFA and they charge, say, 1% annual management fee, does the Provider continue to charge their 1% on top of that?

Your point about the money for no advice is also interesting.

Lots of learning still!

dunstonh

he first one suggested moving the Money purchase schemes to a company that does Flexi draw down however, both my existing
companies offer this option so I suspect that before anything is discussed he is positioning a move for fee purposes??

If you employ an IFA then you are you going to pay a fee regardless of the provider used. The fee is not dependent on the provider. You say you current ones support all flexi-access drawdown options. That is unusual unless it is a recent plan itself or a platform based pension.

It could be that the provider is one that does not deal with IFAs. Or it could be that the provider is one that is known to be more expensive than modern options. An IFA cannot transfer a pension on a whim. There has to be justification. However, moving it is an expected outcome.

The headline fee both charge are 3% and 3.25% and want letters of authority to get all the relevant facts.

If you are looking at just the money purchase schemes, then 3% is fine.

The second did a very full fact find and sent me a quick market review, all very interesting with tables and charts but totally focused on different types of annuities. What surprised me was that they have put the transfer value of DB pension 2 into these calculations without consideration of leaving as is.

That could be an early analysis of income. The software I use for income in retirement allows you to put all sources in to get an idea of the different options and forward plan when income may run out etc. The report also compares income options using drawdown, phased flexi-access drawdown and annuity and takes into account other sources of income. The idea is to compare all the various methods to see which is best. So, is it possible that what you are seeing is a potential comparison or an early report that will need fine tuning when entering the next phase of discussion?

Additionally, IFA 2 is a new subsidiary of another IFA using a slightly different name, looking at companies house I see that directors etc are all the same, might be something and nothing but why??

Are you sure its an IFA? Some firms operate an independent arm and a tied arm. Same location, same directors. Sometimes same advisers. If you are using the IFA part then fine. But make sure you are not using the tied part.

- can I get significantly lower fees by shopping around/haggle

You can get lower. However, probably not by a lot. Your investment value isn't high and that reduces your haggle ability.

- If I give lots of letters of authority to IFA's is this a problem with the Pension Providers i.e. might they start to charge?

No issues with charging. However, it can cause occasional potential problems only in respect of the information being provided. We had an issue not too long back where someone was seeing multiple advisers and gave multiple authorities. The provider got the authority letters in one after the other and would only give info to the last one received as they said that authority letter superseded the others.

- is there a shortcut route to get things underway? e.g. a website that uses technology to combine alot of the investment information out there and help you?

The IFA will have that technology as long as the provider is one that supports it.

- is self management a folly or a real option?

DIY or using someone is the same in financial services as it is with any other task in life. If you DIY and do it well then you can save money. If you DIY and do it badly then it can cost you a lot of money.

- Is my sceptiscm about IFA's justified?

Asking questions and getting info is normal. Although some of the questions you have asked here are best answered by the advisers in question.

nocash

Thank you.

Have checked, it is 60 and they sent me a scale of the additional rates it achieves. My thinking is that while these are attractive and probably growing at a faster rate than my savings, I am still eroding my savings a little each month whereas I could be using the DB2 money and start to look at holding less cash and investing more of it in options like the ones you mention. Both DB's are index linked.

Thanks for the links, will read and also continue to research. Also thanks for your positive comments about having a SIPP, a little light in my sea of darkness:-)

nocash

Thanks for your useful insight, I like your DIY analogy, made me smile, lots of work still to do, appreciate you sharing your expertise

dunstonh

Thanks, wasn't aware of the 2012 issue. They are both ex-employer schemes, MP 1 pre 2012 with Aviva & MP 2 post 2012 with Aegon

Are you sure both of these offer flexi-access drawdown on the existing plans? Both of these tend not to offer it on their Life and pensions contracts but do offer it on their platform pension. Those L&P plans tend to only offer UFPLS. Anyone on the L&P side or older one can move onto the platform side. But it would involve a new pension being set up, new terms etc if you used them directly.

When you asked the providers, did you ask them if they supported flexi-access drawdown or whether the existing plans supported flexi-access drawdown? (or whichever variant of flexi-access drawdown is likely to be used - as some dont support all variants). My expectation would be that both would say they support it but if asked if your specific existing plan offered it, I would expect them to say no.

The letter the IFA writes to the providers would ask if they support it on the existing plan. That is the key thing.

nocash

Will give them a call and check, thanks

nocash

Yes DH you are correct, it needs transferring, Aviva say it is easy and there is no charge when the time comes to do it.

Aegon say that the fund needs to be £20k for drawdown, I could take it as small pot scheme now though, something to consider.