The cost of active management of my SIPP

Chunks

Morning,

I have the fortunate position of having a large pension pot, which I won't have to rely on as I approach normal retirement age.

In respect of the pot on the advice of an IFA, I opted for drawdown and a cautious investment strategy with active management, since I wanted to preserve capital believing that active management, even with low a volatility product choice, was the best way forward.

Stupidly, I know, but only now do I realise that all the fees (all were shown separately) add up and cost nearly 1.9pct pa in total. The net effect is that I am set to get net returns of ca. 2pct pa.

If this is a fair cost for achieving my goals, fine but with all the investment risk and only half the reward, I am wondering if I have been badly advised.

dunstonh

since I wanted to preserve capital believing that active management, even with low a volatility product choice, was the best way forward.

It may well be the best option. Plenty of active options outperform passive ones.

Stupidly, I know, but only now do I realise that all the fees (all were shown separately) add up and cost nearly 1.9pct pa in total. The net effect is that I am set to get net returns of ca. 2pct pa.

Returns are not set like that.

If this is a fair cost for achieving my goals, fine but with all the investment risk and only half the reward, I am wondering if I have been badly advised.

Nothing you have said suggests you have been badly advised. It does seem as if your knowledge and understanding is weak. So, maybe going back to the IFA and asking them to remind you/explain to you how it works could be a good idea.

The primary consideration of any investment is the suitability of the investment. Cost is a secondary option.

Some people have the opinion that cost if the primary consideration. Some people have a preference for ethical funds. Some people have a preference for passive funds. Some people have a preference for active funds.

I had a client come to me not too long back as they had seen something similar on the web about charges and thought he was paying too much and getting no benefit out of it. He said he would be better off with Vanguard Lifestrategy (an internet DIY investor favourite) as it would save him money on charges. He was correct it would reduce his charges. However, I pointed out that the Vanguard fund had returned 77.95% compared to 103.22% (after charges) for the portfolio I had set up.

At the end of the day, the IFA will take your preferences into account when building your portfolio. If you tell the IFA that you only want low cost passives, then the IFA will only use low cost passives. However, you need to be aware that this may or may not improve your return and the use of active investments is certainly not bad advice.

BLB53

Stupidly, I know, but only now do I realise that all the fees (all were shown separately) add up and cost nearly 1.9pct pa in total. The net effect is that I am set to get net returns of ca. 2pct pa.

This sounds like you will be taking all the investment risks and sharing the returns with your IFA/platform and fund managers.

You could go DIY and get a lot more of the cake for yourself!

ams25

if you can and have the appetite to learn DIY (not so hard, but not for everyone either) you can get your pension platform and fund fees to around 0.4%-1.2% depending on the portfolio size, platform and funds selected.

is the 1.9% inclusive of these costs, ie the IFA is adding another 1% or so?

1% for this work might be a price worth paying, or it might be an amount you feel justifies learning more and going DIY.

how are the fees structured. probably not a fixed % as high as this.

Chunks

Thanks for taking the trouble to respond. First to admit that I am novice in terms of such matters, which is why I went the IFA route. Boiling things down to the use of low volatility product solution that comes with with what looks like high costs is the concern. As stated, if active management means this is what you should expect to pay, so be it. I have no interest, currently at least, of becoming my own fund manager so I shall shut up and pay the bill!

Thanks again,

C

Chunks

ams25 wrote: »

is the 1.9% inclusive of these costs, ie the IFA is adding another 1% or so?

Inclusive and includes access to the IFA for other advice on an ongoing basis. Ironically, if you say you don't want ongoing advice, the bill would be higher.

In terms of fee structure, there are no caps, so the sums are material on the £500k pot

dunstonh

Inclusive and includes access to the IFA for other advice on an ongoing basis. Ironically, if you say you don't want ongoing advice, the bill would be higher.

It is quite common for the initial charge to be discounted for those that use ongoing servicing. However, the ongoing charge would be lower without the ongoing adviser charge.

The investment recommendations on a portfolio without ongoing servicing are likely to be different to one that has ongoing servicing.

ams25

now the portfolio is set up and presume now needs lighter touch maintaining (ie the heavy lifting is done) I would be trying to negotiate a lower annual fee.

would this be reasonable dunstonh?

dunstonh

ams25 wrote: »

now the portfolio is set up and presume now needs lighter touch maintaining (ie the heavy lifting is done) I would be trying to negotiate a lower annual fee.

would this be reasonable dunstonh?

Depends on what the annual fee is. It isnt mentioned here. If it was 1% then that is expensive of £500k. If it was 0.5% then that is the typical.

Also, the heavy lifting is not over. MiFID II starts next year and the increases the workload on ongoing servicing. We were looking to add another reduction in our charging tiers but have put that back because of MiFID II because of the increased cost of EU regulation.

Chunks

My 'buying experience' from this IFA has not been without its problems. Won't bore you with the detail. My hand is weak when compared to the IFA's so not sure your idea, reasonable though it is, has legs. Having paid out thousands already, I think he's in the box seat.

At the end of the day, if the bill is at (or near) a level one would expect to have to pay, fine.

Incidentally, the cost structure is:

Plan (inc drawdown) 0.13%
Fund AMC 0.65%
Custody fee 0.19%
Discretionary fee (inc VAT) 0.50%
Adviser fee 0.40%

LHW99

At the end of the day, the IFA will take your preferences into account when building your portfolio.

Interested in that Dunstonh. When I went to an IFA 2 years ago, to get an opinion on my / my OH's pension provision, he offered a choice of two pre-set portfolios (funds and fund proportions set within each). No choice of active / passive approaches, ethical investing or whatever.
He also seemed at that point quite happy to advise on shifting a DB pension to invest in his fund choice, so the total amount to be invested would have been around £400k.
We were less impressed, and agreed to pay for his time in reviewing our position and making comments / investment suggestions, but did not take him up on further work.
This was a small local firm that had (I think) 5 advisors at that time.