Conversation with IFA about DB transfer

normanna

Hi

We spoke with an IFA today as we'd previously decided to transfer out of our defined benefit schemes. We haven't come to this decision lightly but it feels the best route for us. We have around £900k and £800k values currently.

The IFA would charge £6.5k each and we would require the funds to be managed by his company (no tie in period) and his initial advice was to invest into a cautious moderate fund with growth rate of between 5.5% and 6.2%. Charges would then be 1.48% ( 0.73 fund charge, 0.25 platform charge and 0.5 his ongoing advice charge). Taking inflation into account the returns would in reality mean around an increase of between 1 to 2% a year.

He said we could explore other options if we wanted to increase risk. He also said that we would find it difficult to find an IFA to sign off on the transfer if we wanted to self manage a personal pension or SIPP - I'm not too sure what the difference between the two is.

We had been thinking about self managing as we do manage other investments ourselves and would probably split into cautious and higher risk with cautious funds being the majority. He also said it is worthless to consider tracker funds as they are a waste of time with such a large investment as there would be too much risk.

Would be good to hear others thoughts on what he's said along with the charges please

CBX1985

I'm a financial adviser.

First of all, the most important thing to consider is why you want to take the money out? What pension are they offering you at Normal retirement age? Just because it seems a large amount, its't a reason to take the money.

Taking money out of a functioning DB scheme, unless at risk of going into PPF prior to your 65th birthday, is a massively high risk activity.

Secondly, is that two pensions of 900k and 800k + £1.7m? If so that isn't a bad quote for such a large transfer. Charges are about standard in general for this kind of activity.

I find it surprising he said index funds are so risky. That is simply not true. They have outperformed managed funds, and you gain on fees as they are lower. Some people prefer managed funds, but that isn't to say indexed ones are naturally riskier - they simply aren't.

marco_79

I transferred out of a DB scheme recently after much thought, consideration and independent financial advice from a pension specialist. My transfer value was x38 at £840k. I'm 38 and was forced to transfer to a DC scheme leaving my DB deferred for the next 20 years.
The IFA has taken a 1% fee and my investment will be actively managed, total fees 1.5%.
I'm now no longer contributing to my own pension due to LTA considerations but putting that money into S&S ISAs again managed.

Aegis

normanna wrote: »

He said we could explore other options if we wanted to increase risk. He also said that we would find it difficult to find an IFA to sign off on the transfer if we wanted to self manage a personal pension or SIPP - I'm not too sure what the difference between the two is.

We had been thinking about self managing as we do manage other investments ourselves and would probably split into cautious and higher risk with cautious funds being the majority. He also said it is worthless to consider tracker funds as they are a waste of time with such a large investment as there would be too much risk.

Personally there are some warning signs here. Starting with the fact that he won't sign off the transfer recommendation unless you agree to invest with him - I can somewhat understand this position as it makes the compliance easier, but as an independent adviser he should be able to advise on the pension transfer based on whatever investments are going in. If he thought you were falling for a scam, that's one thing, but if you are experienced investors who understand how to put together portfolios that you feel are appropriate, then my view is that you should be able to do this.

His comments about it being difficult to find an IFA to sign off such a transfer may be valid, but in honesty it just sounds like he wants to retain the business. I doubt he has conducted any sort of market analysis to see how many advisers would be okay with doing so. I have done this for clients before, and although I do ask for evidence that they have been investing, I wouldn't look to block a transfer if the clients didn't want to share their exact strategies with me.

I think the final warning sign is his attitude to trackers. Calling them "worthless" or "too risky" without some pretty good reasons is outright wrong. Trackers certainly have their place within portfolios, and the more I look at the investment world the more I realise that trackers are a viable strategy. I tend to steer people in drawdown towards at least an active asset allocation with some analysis as to where the income should be drawn from, but even if you wanted to go for a pure passive portfolio the extra risk is still likely offset by the reduction in fees.

Is your adviser definitely independent?

dunstonh

There are a few recent threads where the discussion has been about advisers only signing off on it if its a positive recommendation.

These seems to be a position more common with FAs rather than IFAs or IFAs that are appointed representatives rather than directly authorised.

Given the number of people that seem to think they are using an IFA when its actually an FA, it is worth checking the status of yours.

I also think the fee of £13,000 is far too high.

He also said it is worthless to consider tracker funds as they are a waste of time with such a large investment as there would be too much risk.

There is a place for managed and there is a place for trackers. Anyone that shows bias totally to one method or the other doesnt really understand investing. FAs, rather than IFAs, tend to be biased to their own managed options. So, again, this is pointing towards the adviser being an FA rather than an IFA.

For reference, we operate three portfolio types to cater for different people (i say we but we buy in the data and analysis although we carry the liability and responsibility). We have active, passive and hybrid. The hybrid is consistently the best performer of the three. Hybrid being a mix of active and passive.

ams25

Have you considered and discounted transfering out of one of the schemes only and retaining the other? If you have the bulk of you expenses covered by a DB pension + SPs then you can take more risk with the balance. Maybe better than taking a very cautious approach with the combined sum.

k6chris

Does anyone else find the offer of a "cautious moderate fund with growth rate of between 5.5% and 6.2%" slightly high?? Could just be me, but sounds like a wonderful fund!!

kidmugsy

ams25 wrote: »

Have you considered and discounted transfering out of one of the schemes only and retaining the other? If you have the bulk of you expenses covered by a DB pension + SPs then you can take more risk with the balance. Maybe better than taking a very cautious approach with the combined sum.

Yes, and it lets the couple transfer the DB scheme that offers the highest transfer value multiple. Or keep the one with the best inflation-protection. Or keep the best funded. Whatever appeals to them. Worth a thought anyhow.

greenglide

..... or keep the one with the best survivor benefits.

Or the one where the holder has the higher life expectancy?

BLB53

He also said it is worthless to consider tracker funds as they are a waste of time with such a large investment as there would be too much risk.

This is rubbish...I would go no further and look around for a more professional IFA.

sandsy

normanna wrote: »

Hi

We spoke with an IFA today as we'd previously decided to transfer out of our defined benefit schemes.

Talk about doing it the wrong way around! The whole purpose of taking financial advice is to get a recommendation from the professional on whether it's likely to be the right thing for you to do. To walk in there with a predetermined mindset, and ignore the warning signs you've been given is naive at best.

You've come away still not understanding the difference between a personal pension and a SIPP. The adviser has indicated that you could increase your risk although the recommended investments aren't consistent with that. Honestly, it sounds like a mis-sale in the making.

The point of taking advice and getting a personalised recommendation is that you can take an informed decision. I really don't think you're at that point yet.