Pension options

patricia1066

My husband has an IFA report to guide him on how to access a flexiaccess drawdown on pension. It is advised that he amalgamate several DC pensions into a Standard Life SIPP. He will retire in 6 years time and has a total fund valued at a little less than half a million.

The IFA has offered a portfolio (one of 3 offered by the firm) at an annual charge of 1.71% and £800 to implement the SIPP and other charges for each fund that is transferring over.
The recommended portfolio is a dizzy making portfolio of 16 funds, of which I cannot distinguish a single bond fund, they may all be some funds of funds.

It must be implemented using Standard Life, which has a significant charge if you no longer use an IFA at a later point. They charge 0.5% which replaces the IFA's 0.5% charge.

He has had a 20 year history with this IFA so he is very reluctant to believe that he could get a better deal elsewhere, and he is nervous of self execution.

That word, execution, sounds so ominous.

So he won't make any decisions on his own behalf, unless guided by this IFA, and he does not feel confident of his ground in negotiating.

Any other close alternatives? I was looking at Nutmeg, which has a suitable portfolio for a balanced 3/5 type of investor. He could ask to have a single front end charge, yet Standard Life would charge him 0.5% anyway if the IFA isn't involved in the transfer.

dunstonh

It must be implemented using Standard Life, which has a significant charge if you no longer use an IFA at a later point. They charge 0.5% which replaces the IFA's 0.5% charge.

This is because the adviser does most of the work when work is required. If you remove the IFA then the platform has to do it. So, they charge accordingly.

He has had a 20 year history with this IFA so he is very reluctant to believe that he could get a better deal elsewhere, and he is nervous of self execution.

If you DIY and do it well, then it will save you money compared to an IFA. It is no different to any job in life. DIY is cheaper than using a professional as long as the result is done well. If you DIY badly then it can be a costly mistake.

Any other close alternatives?

No. The choice is IFA or DIY. Forget about using FAs as they are restricted.

I was looking at Nutmeg, which has a suitable portfolio for a balanced 3/5 type of investor.

Have you seen their dire financials? What makes you think their portfolio is suitable?

The IFA will have cheaper options available. At the moment, the IFA is using the SIPP as this will allow them to have investments which they feel are best for your husband. If you want the IFA to compromise that position and go with something cheaper then you can tell them that. There are cheaper options available. Doesnt mean they are better (or worse). However, if cost if your primary focus rather than investment return, features and options then tell that to the IFA.

patricia1066

dunstonh wrote: »

This is because the adviser does most of the work when work is required. If you remove the IFA then the platform has to do it. So, they charge accordingly.

Standard Life charge for each event, transfer, drawdown etc and the platform charge and "additional" 0.5% charge is designed to mop up any savings you may consider by dropping the IFA.

Have you seen their dire financials? What makes you think their portfolio is suitable?

Thanks for pointing me to that. Definitely not going there!

The IFA will have cheaper options available. At the moment, the IFA is using the SIPP as this will allow them to have investments which they feel are best for your husband. If you want the IFA to compromise that position and go with something cheaper then you can tell them that. There are cheaper options available. Doesnt mean they are better (or worse). However, if cost if your primary focus rather than investment return, features and options then tell that to the IFA.

Reduction in returns is the issue, its hard to do well when your portfolio has to handle reductions such as Standard Life impose. The IFA said this is his cheapest option.

dunstonh

Standard Life charge for each event, transfer, drawdown etc and the platform charge and "additional" 0.5% charge is designed to mop up any savings you may consider by dropping the IFA.

That is a hypothetical though. If you went DIY you wouldnt use SL.

Reduction in returns is the issue, its hard to do well when your portfolio has to handle reductions such as Standard Life impose. The IFA said this is his cheapest option.

Platforms are not the cheapest option. Personal pensions are. The likes of Royal London for example (which is not the cheapest but in that ballpark and is the UK's largest provider of drawdown) are around 0.45% all in (product/provider and funds). With just the adviser charge on top.

As platforms go, Standard Life themselves are not the cheapest. They actually have two platforms. One branded as Standard Life and the other branded as Elevate (which they bought from AXA). The Elevate platform has lower charges than the Std Life one. There are several other platforms that are cheaper than SL too. Although the functionality and investment choice on SL (or Elevate) is very good. Some of the cheap ones are cheap for the reason that the functionality or service is poor. SL do have one of the largest ranges of superclean funds.

Are you sure it is an IFA? No IFA could ever say SL platform is the cheapest option. However, if they are restricted FAs then it could be as they may only operate one or two platforms. Std Life do have a number of advice firms in their stable who do not operate under the Std life name.

*caveat to note is that some platforms do have charges levels that are specific to firms based which can be different to their published terms.

So, what is the Standard Life charge? (not the adviser charge or the funds charge. Just the Std Life platform charge - and dont include their extra charge if you dont have an IFA).

xylophone

he is nervous of self execution.

:eek:

I don't think I'd be too thrilled either......

patricia1066

He is definitely registered as a IFA, actually he has the relevant Chartered Institute membership, and is qualified to transfer Defined Benefit pensions. His advice seems pretty reliable on the important issues, and he has recommended we keep our defined benefit pensions, just transfer the DC pensions into this SIPP.

I feel his firm is replacing the trail commission by choosing a SIPP with high fees. Everything that we may need to use in future like drawdown is an additional fee. As these are Funds of Funds other charges are taken out in the dilution levy.

The breakdown is
0.5% IFA ongoing charge
0.35% Platform charge
0.77% average Fund management charge

The report states that the charges for transfer are usually 1% but he will do the transfer for £800.

I hadn't thought that there may be savings in the cost of the funds, I will compare with the Fidelity platform which has all the funds mentioned in the report. He explained that his firm need to use a single platform as they manage their clients funds. It is a small firm.

Maybe the real problem is that he wants to provide Chris with a Rolls Royce when he just wants to preserve his fund.

stoozbet

Those charges are low for an IFA.

0.5% ongoing for advice and a face to face service is very good. 0.75-1% is more typical.

You have already said that he does not feel comfortable going execution only, you do not feel capable of helping him yourself hence you are doing your own research here.

He should receive a professional service and chances are he may do better with advice in spite of the in ongoing 0.5% fees he is paying.

If he doesn't want advice he can do cheaper but may mess it up. Everything you are saying leans towards him wanting to take advice - If this is the case then what you are being proposed is not out of line & sounds lower than average cost for advice.

Hope that helps.

BLB53

and he is nervous of self execution.

I think a lot of people are nervous about tackling pensions on a diy basis but like everything, when you do a little research and 'look under the bonnet', you will probably discover it is not so complicated...or at least it doesn't need to be.

Basically, transfer the DC funds to a low cost execution only broker (execution only just means they cannot offer you advice) and then invest the money into low cost investments with an appropriate level of risk.

I am retired and use AJ Bell for my drawdown and invest in Vanguard Lifestrategy 60 fund. The total charges each year are around 0.5% so a simple strategy such as this would save you a LOT of money...I am sure you can work out the savings.

For further research you may want to look at some of the low cost investing options on Monevator..http://monevator.com/category/investing/passive-investing-investing/
and also diy investor ... http://diyinvestoruk.blogspot.co.uk/p/pension.html

dunstonh

I feel his firm is replacing the trail commission by choosing a SIPP with high fees.

0.35% is not high. HL, the largest DIY provider, is 0.45%. Anything in the 0.2x% to 0.3x% range is spot on.

Trail commission ended in 2013. The ongoing adviser charge, should you choose ongoing servicing, would be no different regardless of provider or investments selected.

0.5% IFA ongoing charge

Exactly what you would expect for £100k plus size investments.

0.77% average Fund management charge

And again, exactly what you expect. There is scope to go cheaper there if you want to. You can mention to the IFA that you want passives only. It may or may not compromise the returns but it will be cheaper. The IFA can follow your limitation there.

I will compare with the Fidelity platform which has all the funds mentioned in the report.

Slightly cheaper platform but less functionality, poorly working cash fund (which is important for structured drawdown) and virtually no superclean funds. The IFA can use Fidelity too. There is a good reason why he isnt.

He explained that his firm need to use a single platform as they manage their clients funds. It is a small firm.

So, IFA in name but not IFA in nature. The FCA do allow IFAs to do a company level research to lower the number of platforms that they consider by eliminating the less favourable ones. Typically that brings it down to around 3-5 platforms. One platform is not enough for an IFA. Plus, the regulator has said that IFAs have to consider off platform with each case too. The cheapest options are off platform. If it found an IFA putting everything with one provider, they would have to drop to FA. You are a good example of this. you dont want quality or best. You want cheap and cheerful.

I am retired and use AJ Bell for my drawdown and invest in Vanguard Lifestrategy 60 fund. The total charges each year are around 0.5% so a simple strategy such as this would save you a LOT of money...I am sure you can work out the savings.

It may save money but it doesnt mean it is the best. For example, our model portfolio outperforms VLS60 after charges.

Maybe the real problem is that he wants to provide Chris with a Rolls Royce when he just wants to preserve his fund.

The examples you have given that you may consider are clapped out Fiats instead. Std Life platform is not a Rolls Royce. It is modern whole of market platform with full functionality that can and will adapt to change. Unlike the cheaper products which get issued in versions and you can find yourself on an older version lacking functionality and options that came in later (just as happened with Fidelity in the past)

I had someone who insisted on cheap over quality and we did as they asked. Last year, they were abroad and needed some money urgently. However, as they had gone with cheap, that provider needed everything in paper form. Had they gone with the original recommended option, we could have had the money CHAPSed into their bank account that very day. The difference in costs between our original recommendation and the compromised recommendation was 0.0x% a year. Totally false economy but it is down the choice of the individual and the IFA needs to adapt to that.

BLB53

Lets be honest, the OP can continue with the advised option and pay an extra 1.5% in fund ongoing charges and an additional 0.5% annual review fee. On £500K that's £10,000 every year plus a further £2,000 vat.

Or you can do a bit of research and go diy and save £12,000 every year in extra charges with every chance the portfolio will perform just as well..if not better. After all, its got a 2% head start every year!

patricia1066

BLB53 wrote: »

Lets be honest, the OP can continue with the advised option and pay an extra 1.5% in fund ongoing charges and an additional 0.5% annual review fee. On £500K that's £10,000 every year plus a further £2,000 vat.

Or you can do a bit of research and go diy and save £12,000 every year in extra charges with every chance the portfolio will perform just as well..if not better. After all, its got a 2% head start every year!

If it was me, I would do just that. Standard Life have a minimum charge of 0.35% but any actual service is charged in addition, according to our advice report. I have downloaded the charges literature from SL website, but they all refer to execution only charges.
I need to find the charges that Standard Life make in adviser managed SIPPs. Has anyone a link?