IFA speak

nocash

I have had two initial meetings with local IFA's, both were interesting and have changed my views so I am now more positive about using an IFA (I posted before about this) and both are possibly open to negotiate on fees (a little). I thought both were trustworthy and could deal with either of them.

My area of concern/interest is around the DB pension 2 that I now want to do something with (£92,000 a year ago, just waiting for an updated valuation to come through in April.

IFA 1 is new in business, sat with me for two hours and covered all aspects of my situation and suggested that the DB 2 might be worth cashing in. No mention of fees or need to be a specialist. Usual 3% fee structure and 1% annual management fee.

IFA 2 is more established and made a few interesting comments. With DB 2 he said that they cant manage the transfer as it needs to be a Transfer Specialist who will typically charge 4-5%. But they have an arrangement with a "Platform" who will do it for no charge with the hope that your cash will be invested through their platform; good commission rates and they can get me 5.9% annual growth through it. With my other funds he said that he can get me 6.2%, I pushed him on this and he was firm that he could do it. Usual 3% and 0.6% annual management fee.

I understand that he cant guarantee either rates but are these claims sales speak or are they realistic?

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Personal situation: 62 years young

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. (max 3 % increase p.a.)
- A transfer fund value of £92,000
c) Money Purchase pension 1 - £76k 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)

sandsy

IFA 2 sounds like a mis-sale waiting to happen.

dunstonh

IFA 1 is new in business, sat with me for two hours and covered all aspects of my situation and suggested that the DB 2 might be worth cashing in. No mention of fees or need to be a specialist. Usual 3% fee structure and 1% annual management fee.

Wouldnt need to mention specialist if they have the permissions. 3% is not usual.

IFA 2 is more established and made a few interesting comments. With DB 2 he said that they cant manage the transfer as it needs to be a Transfer Specialist who will typically charge 4-5%. But they have an arrangement with a "Platform" who will do it for no charge with the hope that your cash will be invested through their platform;

Are you sure this one is an IFA? The only arrangements I am aware of that do that are restricted FAs through their own platform and require investing in their own brand funds (which have a high annual charge - that is where they get their money back).

good commission rates and they can get me 5.9% annual growth through it.

Commissions has been banned since the end of 2012. on regulated investments. They are only allowed on unregulated investments. Do not invest in unregulated investments. I would be on guard. It could be you not quite typing what was said/meant or it could be dodgy. Growth rates are variable. How was that 5.9% presented? (i.e. past performance, expectation based on your risk profile and assets used or an actual figure saying you will get?)

I understand that he cant guarantee either rates but are these claims sales speak or are they realistic?

Maybe. Maybe not. The company we use for model data has past performance going back to 2005 and that shows every model from risk profile 3 upwards has exceeded that figure. So, certainly possible.

robber2

Did IFA1 explain your tax liabilties to you in the event of cashing in your DB pension? It would cost you £1000's !!!!!

zagfles

sandsy wrote: »

IFA 2 sounds like a mis-sale waiting to happen.

Yes, quoting figures as specific at 5.9% and 6.2% but no guarantees? It's laughable. Maybe that's based on past performance, but as is plastered everyone on financial products past performance isn't a reliable guide to the future, certainly not down to tenths of percents!

The past performance on my SIPP, all investments chosen by me, have been over 10%pa over the last 10 years. But I'm not stupid enough to think that means it'll be 10%pa going forwards and I'm certainly not planning on that basis!

Malthusian

nocash wrote: »

No mention of fees or need to be a specialist. Usual 3% fee structure and 1% annual management fee.

No mention of fees but they would be 3% + 1%? Do you mean he didn't specify what the fee would be on the DB transfer? Are you sure that isn't included in the 3% + 1%?

You don't need to be a "specialist" to recommend a DB transfer. You need a specific qualification and permission from the FCA and a generalist / whole-of-market / holistic IFA (circle term you like best) can easily have them.

I would not call 3% + 1%pa usual. 1% is the top end for annual advice fees. But as you want a DB transfer of a 5-figure sum you may struggle to find somewhere cheaper overall.

I understand that he cant guarantee either rates but are these claims sales speak or are they realistic?

They're not unrealistic. But I would be wary of anyone who talks of future growth as if it can even be expected (a rung down from guaranteed). It could be anything from sales-speak pulled out of his behind, to blindly quoting past performance as expected future performance, to the output of a sophisticated and clever model which he has sourced from a leading economic research firm. I'm not in a position to second-guess his opinion based on third-hand information.

Nonetheless, the one thing you know with certainty about the future growth of your potential investment is that it won't be 5.9% or 6.2%. (The probability of getting any exact number from a continuous probability distribution is zero.)

4-5% fee to a "transfer specialist" on top of a 3% fee for the advice, if that is what is being proposed, would be obscene. If it's just 4-5% initial on the DB transfer and 3% on any other investments, with 0.6% ongoing, that's more reasonable given the figures in your post.

You haven't said what your needs and objectives are so we are in no position to comment on whether the DB transfer might be a good idea beyond that.

zagfles

robber2 wrote: »

Did IFA1 explain your tax liabilties to you in the event of cashing in your DB pension? It would cost you £1000's !!!!!

I suspect by "cashing in" he meant moving to a SIPP/drawdown pension rather than taking it all out of the pension wrapper.

dunstonh

They're not unrealistic. But I would be wary of anyone who talks of future growth as if it can even be expected (a rung down from guaranteed).

Agreed. If you look at the stochastic modelling providers that do give expected figures for returns, they consistently have lower figures than the past performance figures. For example, I just checked one and it has a past performance of 7.5% after charges but "expected" net of inflation return of 2.9% before charges.

Expected is a word used on these tools but it comes with disclaimers and caveats. i.e. based on assumed average growth rates of the different assets. They also tend to state that their assumptions are based on around 90% of market activity. They lop off the two extremes that cover unusual events creating atypical growth/losses. In real life, these will happen.

Most experienced investors and advisers will have an expectation of what they think future returns will be broadly speaking. However, people thought though the same in the 80s and got it wrong. In the 90s and got it wrong and in this millennium and got it wrong.

Investments will do what they do and you will not have clue how much they will return in the future until you look back and see. They may predict x% pa. growth long term but that long term is probably 30-40 years. In theory, the longer you are invested, the closer you will move towards the long term average. However, that long term could be very very long term and longer than you plan to invest.

We could suffer an atypical event Japan style where investors see the market fall say 20% and not recover for 20 years.

bikeman

nocash wrote: »

With DB 2 he said that they cant manage the transfer as it needs to be a Transfer Specialist who will typically charge 4-5%.

Maybe I am being a bit thick but why does a transfer need to be 'managed' and is there such a thing as a 'transfer specialist' for what is a simple form to complete?

Do you perhaps mean that you need a suitably qualified IFA to advise you on the transfer?

dunstonh

Maybe I am being a bit thick but why does a transfer need to be 'managed' and is there such a thing as a 'transfer specialist' for what is a simple form to complete?

It is doubtful that anyone would want to leave it in cash for the rest of their lives.

And yes, the firm is required to hold pension transfer permissions which is a specialist permission.

Do you perhaps mean that you need a suitably qualified IFA to advise you on the transfer?

Which would be an IFA or FA with pension transfer specialist permissions (or someone in the firm signing off on it who is qualified to do so).

nocash

Many thanks all. I write as a lay person so commissions are actually fees, I am pretty sure IFA 2 is FCA regulated but will check. The CETV would be into a pension arrangement of type.

Thanks again.