IFA fees to set up and manage pension

LVR

Hello

I have just engaged a financial advisor to set up and manage a SIPP.
I am investing a lump sum of £25K plus approx £7.5K transferred from a previous pension.
The advisor is charging 2% initial fee (£670) plus 2% of any future contributions made.

There is an ongoing fee of 1% plus platform charges adding to 1.65% all in, which works out around £27 a month. As part of the management I have two face to face meetings a year and unlimited advice.

Can anyone tell me if these fees are reasonable/average?

Many thanks

MallyGirl

seems high to me

2% contribution fee plus 1.65% other fees mean the first 3.65% of any growth has gone in fees.

dunstonh

The advisor is charging 2% initial fee (£670) plus 2% of any future contributions made.

How are the future contributions being made?

Advisers cannot take an open-ended initial charge against regular contributions. It can be no longer than 24 months (most do 12. Some charge nothing on regular contributions where there is an single/transfer value). They can against ad-hoc payments as each one is a single advice event (whereas regular is not).

Personally, i think the adviser is daft. Two face to face meetings a year is unnecessary with that amount and likely to be loss-making. At around £30k, it would almost certainly be better on transactional basis rather than ongoing advice basis.

However, 2% initial is fine (as long as it means initial only as per above). And 1.65% all in is fine.

Spreadsheetman

The set up fee sounds ok (cheap even), but the future contribution fee doesn't.

The rest doesn't sound out of line for the small pension size. I'd ask for tiered reducing ongoing fees depending on pension size though - 1% would start to get expensive when the total climbs.

Does the 0.65% platform fee include individual fund charges?

LVR

dunstonh wrote: »

How are the future contributions being made?

Advisers cannot take an open-ended initial charge against regular contributions. It can be no longer than 24 months (most do 12. Some charge nothing on regular contributions where there is an single/transfer value). They can against ad-hoc payments as each one is a single advice event (whereas regular is not).

The terms state "Thereafter our standard initial fee of 2% of the amount transferred will apply to any additional lump sum or regular contributions made, if additional capital is invested above an exisiting portfolio value of £300,000 the initial fee will be reduced to 1% of capital invested."

I haven't set up any regular contribution at the moment as I can't afford to for the next couple of years. There appears to be no time limit set on any future contributions and specifically includes regular contributions, are they allowed to do this?

LVR

Spreadsheetman wrote: »

The set up fee sounds ok (cheap even), but the future contribution fee doesn't.

The rest doesn't sound out of line for the small pension size. I'd ask for tiered reducing ongoing fees depending on pension size though - 1% would start to get expensive when the total climbs.

Does the 0.65% platform fee include individual fund charges?

Yes that includes two individual fund charges so 1.65% is absolutely everything included. The annual management fee does reduce from 1% to 0.85% once your portfolio exceeds £500k which includes others at your address, so it is an incentive for my partner to also invest with them.

dunstonh

The terms state "Thereafter our standard initial fee of 2% of the amount transferred will apply to any additional lump sum or regular contributions made, if additional capital is invested above an exisiting portfolio value of £300,000 the initial fee will be reduced to 1% of capital invested."

That is a regulatory breach and not allowed under the 2013 retail distribution rules set by the FCA. It may also be a consumer credit act breach as well as it exceeds 12 months and would need a specific credit agreement and the firm would need to hold permissions to enter into a regulated credit agreement as a lender. COBS 6.1A.23R would also usually block a credit agreement being used as the firm would have to be able to show that is it in the individuals best interests (which is virtually impossible).

For regular contributions, the fee must be specific. So, it can say it is £500 and will be collected at £50pm for 10 months. Or in theory (but not practical) it could extend the term beyond 12 months but it must not exceed £500 in total. It cannot have an open ended initial charge.

UNLESS, the term regular means multiple single contributions and they have worded it extremely badly.

Yes that includes two individual fund charges so 1.65% is absolutely everything included. The annual management fee does reduce from 1% to 0.85% once your portfolio exceeds £500k which includes others at your address, so it is an incentive for my partner to also invest with them.

Tiering down is normal as the amount gets bigger. Typically you find 1% for smaller amounts and 0.5% for larger amounts. 0.5% is the dominant figure. Firms vary on when they tier down to 0.5% but figures around £250k to £500k are common. Being on 0.85% at £500k is expensive.

LVR

Thank you so much for your reply. I'm not sure what to do now having already signed with them, I wish I had taken time away to do my research before agreeing to it!

LHW99

OP your first post says "financial advisor" - are they actually independent?

LVR

LHW99 wrote: »

OP your first post says "financial advisor" - are they actually independent?

Yes they are an IFA, I have checked their details on the FCA register

dunstonh

LVR wrote: »

Yes they are an IFA, I have checked their details on the FCA register

The FCA register doesn't show the status of the adviser.