Pension charges and financial advice

bohica

I've had a financial advisor for many years and have generally been happy with them but recent advice has set me wondering if I've done the right thing.


On the advice of my advisor I moved a large pension from Royal London to Nucleus (various arguments including they didn't offer flexible draw down etc). I agreed to pay 2% for the setting up and 1% for ongoing advice but 6 months in I've paid 2.7% of the money I've paid in, in total, as fees (including the setup fee) and my pot is 92% of money paid in now (including 6 months of quite large regular payments). The platform has charges, there are discretionary fees and finally advice feeds which last quarter added up to 63% of what I paid in, in the quarter.


Any thoughts?

dunstonh

On the advice of my advisor I moved a large pension from Royal London to Nucleus (various arguments including they didn't offer flexible draw down etc).

Royal London is the UK's largest provider of income drawdown. So, to say Royal London do not do it is wrong.
However, only their (approx) 2005 onwards plans support drawdown and some early versions may not support all options. So, it may have needed a new plan with them rather than them not actually doing it.

Nucleus is a small investment platform. Tends to be used more by "wealth management" FA firms rather than mainstream IFAs. This is because Nucleus require you to have them as the primary platform and IFAs just cant commit to that without risking their IFA status. Some will but the primary market for Nucleus is Wealth Management FAs rather than IFAs.

Apart from that, nothing wrong with Nucleus. it is cheaper than HL but more expensive than other IFA platforms.

I agreed to pay 2% for the setting up and 1% for ongoing advice but 6 months in I've paid 2.7% of the money I've paid in, in total, as fees (including the setup fee) and my pot is 92% of money paid in now (including 6 months of quite large regular payments).

Not an unexpected outcome considering markets fell around 16% between October and December.

he platform has charges, there are discretionary fees and finally advice feeds which last quarter added up to 63% of what I paid in, in the quarter.

Most DFMs are a waste of money. There are a small number of low-cost DFMs that are viable but the majority charge too much. DFMS allow the adviser to pass all investment decisions on to the DFM. That saves the adviser time. So, in that respect, being charged double the normal 0.5% seems greedy. However, you haven't mentioned the investment value. 1% is increasingly common for under £100k investments but 0.5% is the dominant figure.

Forget about applying the charges relative to your contributions. That is a flawed measure that makes no sense. You haven't actually mentioned what the annual charges are other than the adviser charge.

bostonerimus

Adviser and platform fees of 1% are going to be a large fraction (maybe a quarter) of the average annual gain or income you might expect from a DC pension pot. These costs will compound over the years and will also limit the income you can expect. You need to understand exactly the level of the fees in relation to the size of your pot and the service being provided and if you are unsatisfied than talk to your provider and if you are still unsatisfied take your money somewhere else.

bohica

dunstonh wrote: »

Royal London is the UK's largest provider of income drawdown. So, to say Royal London do not do it is wrong.
However, only their (approx) 2005 onwards plans support drawdown and some early versions may not support all options. So, it may have needed a new plan with them rather than them not actually doing it.

Nucleus is a small investment platform. Tends to be used more by "wealth management" FA firms rather than mainstream IFAs. This is because Nucleus require you to have them as the primary platform and IFAs just cant commit to that without risking their IFA status. Some will but the primary market for Nucleus is Wealth Management FAs rather than IFAs.

Apart from that, nothing wrong with Nucleus. it is cheaper than HL but more expensive than other IFA platforms.


Not an unexpected outcome considering markets fell around 16% between October and December.



Most DFMs are a waste of money. There are a small number of low-cost DFMs that are viable but the majority charge too much. DFMS allow the adviser to pass all investment decisions on to the DFM. That saves the adviser time. So, in that respect, being charged double the normal 0.5% seems greedy. However, you haven't mentioned the investment value. 1% is increasingly common for under £100k investments but 0.5% is the dominant figure.

Forget about applying the charges relative to your contributions. That is a flawed measure that makes no sense. You haven't actually mentioned what the annual charges are other than the adviser charge.

Thank you for your reply. There were more arguments other than the income drawdown but I'd have to look them up. My pension pot (in this case, I have others) was around 290K when moved from Royal London. It was created way before 2005, more like 199X but was proably with another provider before Royal London.



I understand your comment re comparing charges to my payments as the charges are on the whole pension pot which is far greater than any contribution but in real terms it is very saddening when you look it at this way. You pay £1800 in over a quarter and only thirty something percent actually reaches your pension.


Apart from the charges I've also been advised to put 20K in my pension as a single payment before the end of the tax year. As far as I can see, the advisor takes 2% of this and then 1% year after year (regardless of whether it increases or not). I understand why the advice is to make a one off payment as I get another 20% added to it when it hits my pension but the advisor makes a guaranteed 2% of that payment and an ongoing 1% every year so surely it makes sense for them to make that recommendation i.e., it makes them more money. So it could be good advice but it also coincides with making the advisor more money - I realise that alone doesn't make it bad advice.



I don't want anyone to get the wrong idea about what I'm saying. Other investments (from the same advisors) have done ok but the sheer level of charges when you add it up seem extortinate and I'm a little uncomfortable about being recommended to make additional payments into my pension by the people who stand to gain from me doing so.


In all honesty I'm starting to feel I made a bad decision and I'd have been better to leave things as they were. I accept investments can go up and down and the longer you can commit to an investment the better but the charges seem very high.

dunstonh

Thank you for your reply. There were more arguments other than the income drawdown but I'd have to look them up. My pension pot (in this case, I have others) was around 290K when moved from Royal London. It was created way before 2005, more like 199X but was proably with another provider before Royal London.

190k should be looking for 0.5% adviser charge with that sort of value.

I understand your comment re comparing charges to my payments as the charges are on the whole pension pot which is far greater than any contribution but in real terms it is very saddening when you look it at this way. You pay £1800 in over a quarter and only thirty something percent actually reaches your pension.

Ideally, you should think of the charges on the existing pot as one thing and the charges on the contribution as another. Otherwise, it will be disheartening. Although you are paying more than you should be aiming for.

Apart from the charges I've also been advised to put 20K in my pension as a single payment before the end of the tax year. As far as I can see, the advisor takes 2% of this and then 1% year after year (regardless of whether it increases or not).

You are being taken for a ride.
This particular adviser is doing no investment work. They are passing that to the DFM (who also charges you). If they are charging you for top ups when they are also charging you 1% for ongoing servicing then they are taking the P. if they are not handling the investment advice and not handling any pension increments under the ongoing servicing then why are they charging you for ongoing servicing and what are they doing for it?

I don't want anyone to get the wrong idea about what I'm saying. Other investments (from the same advisors) have done ok but the sheer level of charges when you add it up seem extortinate and I'm a little uncomfortable about being recommended to make additional payments into my pension by the people who stand to gain from me doing so.

The advisers on this board have broadly similar charges based on past threads where its come up. 1.2-1.5% being the typical range for ongoing servicing clients. I suspect you are coming out double that. Wealth Managers are usually expensive. You should consider your options as you are not getting good value for money.

In all honesty I'm starting to feel I made a bad decision and I'd have been better to leave things as they were.

Old legacy plans are often improved upon with modern plans. The decision to look at alternatives was probably a good one. The decision to go with an FA/Wealth manager was probably not a good one. IFA or DIY. Not FA. You can get greedy IFAs as well and poor quality DIY options. But good value IFAs and good value DIY exist. FAs tend to remain poor value.

bohica

My FA is a FA and not a WM. They are looking after the investments in that they are deciding what to invest in given my risk profile. They also rebalance and have the option to change the investments up to 10% between rebalances. I should have pointed this out up front.

bostonerimus

bohica wrote: »

My FA is a FA and not a WM. They are looking after the investments in that they are deciding what to invest in given my risk profile. They also rebalance and have the option to change the investments up to 10% between rebalances. I should have pointed this out up front.

Your FA may well be sub-contracting the WM and, of course, you have to pay for that. Do you know how your money is invested and the criteria for rebalancing?

dunstonh

My FA is a FA and not a WM.

They are using Nucleus and a DFM and they are not an IFA. That pretty much makes them a Wealth Manager even if they are not using that marketing. But lets just stick to FA for now then.

They are looking after the investments in that they are deciding what to invest in given my risk profile.

The DFM decides what to invest in. The adviser just sets the risk profile.

They also rebalance and have the option to change the investments up to 10% between rebalances.

The DFM does the rebalancing.

Your FA is doing diddly squat.