The cost of active management of my SIPP

dunstonh

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.

They should not have a single solution (or say 1 solution for each risk profile) as different providers will have different investment options. If they have any such restriction then they are not allowed to refer to themselves as an IFA. So, an IFA who only uses that solution (or one solution per risk profile) cannot be independent (or are doing so incorrectly if there are)

However, I would not expect you to be given the choice of active/passive or even ethical or non-ethical. They are things that people who want those restrictions will ask for specifically. If the person doesnt ask for those restrictions then the IFA will pick the funds they feel are most suitable without any restriction being placed on them. There would normally be plenty of discussion leading up to that point to allow the subject to be raised if the person actually had a preference.

Are you sure it was an IFA? Plenty of times on this forum we have seen people who said they were seing an IFA end up finding out they were using an FA. That said, there are a small number of boutique IFAs that use DFMs and only DFM for everything. That is the IFA pushing it in my opinion as they are not matching the client needs but matching their own needs. The FCA seems to agree as some of these have been forced to drop their IFA status and become FA.

Malthusian

Chunks wrote: »

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

The latter two combined are what dunstonh was talking about in post #9. So it's expensive at 0.9% per annum. But within the normal price range which is 0.5% to 1%. You could probably find an IFA who chose his own investments and charged 0.5% if you wanted, or remove it entirely if you DIYed, so the question is whether you want to.

I would have said the fund AMC is expensive but you said you believed in active management, so you're paying for what you've asked for.

dunstonh

oh I missed the fee breakdown.

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

Following on what Malthusian has said, we can see that this IFA has decided to not use investment funds but outsource to a discretionary investment manager (DFM). Many IFAs do not like and will not use DFMs and its something that has come up on this site in the past and I have said each time that it just creates an extra layer of charges with no real benefit. However, some put everything or virtually everything on a DFM. Not ideal at all IMO. Its not a missale reason but more a business model and they expect you to fit their model. Whereas an IFA should be advising a solution that fits you. If you read my post #13, the last couple of sentences mention IFAs that use DFMs. That is you.

For example, you could have had a decent Governed portfolio around 0.4% covering funds and provider and 0.4% for adviser making 0.8% bottom line. If you were prepared and wanted to use a wider spread of funds or bespoke portfolio then the charges may creep up a bit more. VAT and discretionary fee and custody fee are not fees you would see levied on an IFA built portfolio/selection.

Chunks

Thanks dunstonh. So, the arrangement isn't working necessarily in my best interest on the face of it. Should I consider getting a second opinion so to speak accepting that this will cost money? Appreciate it.

dunstonh

Chunks wrote: »

Thanks dunstonh. So, the arrangement isn't working necessarily in my best interest on the face of it. Should I consider getting a second opinion so to speak accepting that this will cost money? Appreciate it.

Personally, I would avoid any IFA that is using a DFM for their solutions. Unless you have a particular reason why "you" wanted a DFM (and I have never had as single client come to me with that request).

There is actually a rule called RU64 that requires advisers to benchmark any pension solution they recommend to the charges of a stakeholder pension. i.e. 1% per annum. That is the bottom line. Advisers can go above this figure and its quite fine if they do as long as there is justification. That justification has to be put into the suitability report. What does yours say about the reasons why paying more than that justified?

The FOS is a mixed bag on this. Some upheld complaints say there was no justification for the extra charges. Others reject the complaint saying that the person wanted active discretionary management (note most IFAs are not discretionary - so they would have no choice but to use a DFM if that was a requirement). From what you have said and the wording you have used, I suspect some word play on the "active management" has been used as an excuse to put it with a DFM. i.e. did the adviser steer you to the DFM solution on purpose and make the audit trail appear that you requested it. So, on paper, it looks like they gave you want you wanted but they were leading you to the outcome that suited them.....

If you got what you asked for then that is fine. If you now think you have not got what you asked for then it may worth another discussion with the IFA asking them why they used a DFM and not a more conventional option, such as a personal pension or SIPP with unit linked funds.

If they say that they only use a DFM, then consider making a complaint and note what was said. That is not what an IFA should be and that person should not be calling themselves an IFA.

If they offer an alternative solution at no cost to you, then that is fine. Give them the chance to see what they say.

Malthusian

Thanks dunstonh. So, the arrangement isn't working necessarily in my best interest on the face of it. Should I consider getting a second opinion so to speak accepting that this will cost money? Appreciate it.

It's expensive but that doesn't mean they aren't fulfilling their duty to work in your best interest. Overcharging is not a crime.

It wouldn't cost money to get a "second opinion". If you shopped around other IFAs you should be able to get a free initial consultation, at which you could ask what they charge and what a typical "all-in" charge would be on their portfolios, bearing in mind that you want active management. All that will cost you is time.

Chunks

dunstonh wrote: »

There is actually a rule called RU64 that requires advisers to benchmark any pension solution they recommend to the charges of a stakeholder pension. i.e. 1% per annum. That is the bottom line. Advisers can go above this figure and its quite fine if they do as long as there is justification. That justification has to be put into the suitability report. What does yours say about the reasons why paying more than that justified?

There is absolutely nothing in the report that relates to this. I expressed a desire to have my pension pot managed for me with the aim to preserve what had accumulated and access it when I chose.

Chunks

Malthusian wrote: »

It's expensive but that doesn't mean they aren't fulfilling their duty to work in your best interest.

No problem with paying the bill. If this deal is in my best interest only time will tell!

Good point re second opinion. There are a number of local IFAs where I live.

dunstonh

I expressed a desire to have my pension pot managed for me with the aim to preserve what had accumulated and access it when I chose.

That could be worded in a way that would make a DFM solution sound perfectly reasonable. It could also work with a managed investment portfolio (even where the underlying assets are passives). Words can be made to say many things.

At the end of the day, the charges are not excessive and as DFM solutions go, that is not too bad. However, my gripe is more about the use of a DFM to begin with. We are not looking at missale territory. More a case of is it best for you or is it best for the IFA, whilst still meeting your overall needs.

bostonerimus

With total fees of around 2% be prepared to take off about 1% from your retirement safe withdrawal rate ......so if you are planning on 3.5% annual withdrawals you'll actually take 2.5%. In other words you'll be paying 29% of your annual income to the funds, platform and advisers.