Personal pension advice

TeeDubya

Thanks dunstonh.

Can you explain what you mean by 'switching to a modern product that integrates with the IFA systems'. Do you man that an IFA does not have all the detail about the funds within Aegon that I'm with for example? Also what do you mean by 'transactional'. These are all terms that I'm unfamiliar with.

Regarding my mistrust. Of course I have no issue with paying fees to a professional who will help my pension grow using skills and knowledge that I don't currently possess. Part of my issue is that I entered my details in one of the recommended websites from pensionwise for an IFA and only ever got a call back from the same company. I'd have thought I'd get calls from a number of different companies. This happened 3 times. I find this quite odd.

When filling in my details for a call back I requested a pension health-check to find out it I was on-track. During discussion with the IFA I said I was open to discussing one off or on-going advice but keen on keeping costs down. We had a further discussion a few weeks later after the he had access to my pension. This was quite an involved discussion where he gave me a few options. And within this was the cost of an initial 3% for pension set up and then 1% ongoing management charge. I said I thought 3% was very high at which he asked how much I was willing to pay and could take it back to management to see if they would agree. So, firstly, I don't like the fact that I'm being quoted a price that can be bartered down. I feel like someone is more interested in taking as much money from me as they can rather than making more for me. I think that's wrong. When I objected to the cost he explained the amount of work involved in setting up the new pension. However, the work would be the same for people with different sized pots. So if I had a pot of £50,000 he would charge me £1,500 or if had a pot of £250,000 he would charge me £7,500. That seems wrong to me.

So what would you recommend on finding a good honest IFA?

dunstonh

Can you explain what you mean by 'switching to a modern product that integrates with the IFA systems'. Do you man that an IFA does not have all the detail about the funds within Aegon that I'm with for example?

Some providers retail products that are not designed to be serviced by IFAs. They wont take fund switch instructions or provide values or current fund holdings/weightings for example without either you getting them or you signing an authority each time.

These things also age. A product created in the 1990s is not going to have the functionality that a 2018 product has. It may not support drawdown, it may only have 100 funds in its range (compared to 30,000 options that a whole of market wrap would have). 100 is a lot and for a basic investor could be fine. But if you want better from your investments, then you would find 100 funds would result in you having to take compromises. e.g. there may only be one Japanese fund. So, when filling the Japanese sector allocation, you have a choice of 1. What if that single fund is not very good.

Some products dont provide detailed fund data to third parties. So, it makes the due diligence and research much harder and can involve assumptions rather than fact.

Transactional is one-off advice. i.e. you pay every time you seek advice as there is no ongoing servicing being paid for. Ongoing advice is where you pay on an ongoing basis (typically 0.5%-0.1% p.a.) but you then dont get charged for changes, rebalances, top ups etc. (and as of January 2018, these reviews must be "at least annually".

Regarding my mistrust. Of course I have no issue with paying fees to a professional who will help my pension grow using skills and knowledge that I don't currently possess. Part of my issue is that I entered my details in one of the recommended websites from pensionwise for an IFA and only ever got a call back from the same company. I'd have thought I'd get calls from a number of different companies. This happened 3 times. I find this quite odd.

The term "IFA" covers a number of business models. I had a new client a year or so back come to us after trying another IFA first. They refused to deal with the client as they only dealt with people with more than £250,000. I have a minimum threshold nowadays (except where we are the family IFA) and that is quite common with experienced/long established advisers. I let the newer/younger ones deal with the smaller value stuff! So, if you put in there that you had only £50k (for example) then many advisers wont be interested. So, they wont offer their services. Some of the directories charge the adviser firm if they take on a client via them. So, if they see the value is low in the text, they wont contact you as they dont want to be charged.

This was quite an involved discussion where he gave me a few options. And within this was the cost of an initial 3% for pension set up and then 1% ongoing management charge. I said I thought 3% was very high at which he asked how much I was willing to pay and could take it back to management to see if they would agree. So, firstly, I don't like the fact that I'm being quoted a price that can be bartered down.

As it happens, the FCA are not keen on that either. Every firm is required to have their published charges. It wont cover every single event but it will cover the main ones. If a firm deviates from that, they have to have justification and it cannot be the norm. e.g. a firm may discount if its a family member and the firm is the family IFA. Or its a long standing client of decades.

It could be that the IFA is in a quiet period and thinks you would be a good fit and doesnt mind doing it cheaper as they want the long term business. Taking it back to management sounds like this is an employed IFA who has no discretion. Employed IFAs tend to earn less than self employed/partner/director IFAs. So, they dont have the scope to discount or they charge more to begin with to compensate.

3% initial is not that high. And when you compare it to the old commision days its low. Pre 2013 (when a commission was allowed) you saw figures of 5% as the norm. However, percentages have to be in context with the amount. For example, 3% of £10,000 is damned cheap. Whereas 3% of £100,000 is starting to get expensive. 1% ongoing is typical on smaller values whereas 0.5% is the dominant figure on larger values.

When I objected to the cost he explained the amount of work involved in setting up the new pension. However, the work would be the same for people with different sized pots. So if I had a pot of £50,000 he would charge me £1,500 or if had a pot of £250,000 he would charge me £7,500. That seems wrong to me.

There is more work with larger cases. A small value case is likely to utilise a multi-asset fund. Whereas a larger case is likely to use a model portfolio. Also, the liability for the adviser firm on larger cases is an issue. There more money you have the more complex it can be (things like annual allowance tapering, carry forward and section 104 CGT calculations - for unwrapped investments - chargeable gains calculations etc can come into play more with larger cases). However, most firms will have a decency cap and/or operate tapering in their percentage charges. Cap and Collared charging is increasingly common. (i.e. 2% with a minimum of £500 and a maximum of £2500). There are also just plain greedy firms that dont do any of that.

TeeDubya

Thanks for the clarity dunstonh

TeeDubya

Thanks for taking the time ro respond. It's all very helpful to me.