How many people use an IFA?

enthusiasticsaver

I have found myself in the position of having to use an IFA for advice on transferring an old DB pension and it being compulsory for me to take advice and pay for it from a pension transfer specialist before the company will agree to transfer.

I have nothing against IFAs per se but have spent a great deal of time and effort researching investing and so far have dealt with our own financial needs as the only IFA we engaged when my DH retired made an error in calculations which would have been very costly had we taken his advice. He admitted the error but I could not trust him after that so since then we have dealt with our own finances. I cannot do this with the pension transfer and whilst I understand cashing in a DB pension is never advised there are reasons particular to me where it might be advisable.


The pension is superfluous to requirements and will lead to me paying tax.

There are no inflationary increases due to it being pre 1988.


We already have 2 main DB pensions and would like for this one to be invested in my existing SIPP.


Putting it in my SIPP will give us more flexibility in when we draw it which could be beneficial from a tax point of view.


I have contacted 2 pension specialists, one of which wanted a fixed fee working out at around 7% of the CETV of the pension and the other one will work on either a fixed fee or percentage basis but will only work with clients who have a relationship with them so he wants to know about all our other investments etc which could be costly even if he works on a 1% basis as our existing investments are low cost index trackers and I got the impression this is not what IFAS use.


So my question is, as most of the forum members on here are financially savvy how many use IFAS to deal with their investments rather than DIY and how do I decide whether their fees add value to our portfolio? He said he can model what our investments would have done had he invested them rather than them being put in diversified index trackers like many others have done on this forum.

Can we listen to the IFA and just ask him to sign the paperwork re the pension transfer providing he agrees that it is in our best interests to do it?


If anyone has used one how did you decide whether to go with them or not?

JoeCrystal

I only used IFA twice, just for transactional advice and that is just for setting up private pension and five years later, transferring it to a cheaper pension provider with a different fund (and recommending S&S ISA & fund to put into as well). Most likely, I will do it again next year. I decided to do it since I am somewhat clueless about investments and prefers to play it safe. Once the pension pot gets to £125,000, I probably will have a look at ongoing servicing.

AnotherJoe

Sounds as if you just need the IFA to do the transfer.
The complaint about it being too expensive to transfer is a common one here but most of the cost seems to be related to the insurance to cover the inevitable complaints in 10 years time when people who have incompetently managed their investments complain they should never have been able to xfer even if the advice was against it (its happened).
I self manage, been doing it after realising 20 years ago that my IFA (very nice guy) had no more clue about what the market would do than i did. Plus I'd been dealing with shares myself for 15 years at that point (though not funds).

OTOH many posters here obviously shouldn't be left to manage a whelk stall let alone their pension.

enthusiasticsaver

JoeCrystal wrote: »

I only used IFA twice, just for transactional advice and that is just for setting up private pension and five years later, transferring it to a cheaper pension provider with a different fund (and recommending S&S ISA & fund to put into as well). Most likely, I will do it again next year. I decided to do it since I am somewhat clueless about investments and prefers to play it safe. Once the pension pot gets to £125,000, I probably will have a look at ongoing servicing.

I only started investing myself around 5 years ago and am certainly not an expert but used the following principles.


Low cost passive index trackers on the grounds that a lot of experts say it is impossible to beat the market and the thing that erodes portfolios more than anything is high charges. My funds charge 0.22% and I pay a fixed platform fee for my stocks and shares ISA of £12.50 which works out at around 0.00015% of the portfolio and a £28 sipp fee which is 0.15%. Performance has been 31.2% on a cumulative basis for the last 3 years.

I only use multi asset, well diversified and balanced funds - key fund is Vanguard LS60 but I also use Artemis Monthly Income and Premier monthly income. My appetite for risk is low so I keep a substantial cash buffer in high interest current accounts and internet savers. I have 25% cash and 75% investments.

I guess I think that I am relatively inexperienced too (I hesitate to say clueless :rotfl:) and wonder if maybe we should have been using an IFA all along. Total combined portfolios are over £300k including cash so a lot of money. If an IFA takes 1% of that a year though that is over £3k which is significantly more than our current £53 for diy.

enthusiasticsaver

AnotherJoe wrote: »

Sounds as if you just need the IFA to do the transfer.
The complaint about it being too expensive to transfer is a common one here but most of the cost seems to be related to the insurance to cover the inevitable complaints in 10 years time when people who have incompetently managed their investments complain they should never have been able to xfer even if the advice was against it (its happened).
I self manage, been doing it after realising 20 years ago that my IFA (very nice guy) had no more clue about what the market would do than i did. Plus I'd been dealing with shares myself for 15 years at that point (though not funds).

OTOH many posters here obviously shouldn't be left to manage a whelk stall let alone their pension.

Yes, I got the impression from both IFAs that they do a full fact find so go into all our finances to get a true picture of what the best decision is for us and then make a recommendation. I cannot just say to them that it would be better for me to transfer it so I have flexibility in drawing it down to make best use of my tax allowance, have other DB pensions and it has no inflationary increases so over time the value will be eroded. Hopefully they will come to that conclusion themselves or point something out I may have missed.


I am of the opinion though that although IFAs have obviously a lot more experience than me they don't have a crystal ball so have no more clue about what the market will do than me and will still charge me heavily for the benefit of their expertise.

dunstonh

I have contacted 2 pension specialists, one of which wanted a fixed fee working out at around 7% of the CETV of the pension and the other one will work on either a fixed fee or percentage basis but will only work with clients who have a relationship with them so he wants to know about all our other investments etc which could be costly even if he works on a 1% basis as our existing investments are low cost index trackers and I got the impression this is not what IFAS use.

7% of the transfer value seems extremely high but what matters if the monetary amount. If you are talking around £300k ten its an obscene amount.

The second one is being more cautious. By having ongoing servicing, they protect themselves somewhat from later bad investment decisions made by the consumer. DIY investors just looking for the IFA to sign the form and let the consumer self invest is higher risk.

Why do you think IFAs do not use trackers? Your perception is way off the mark.

My funds charge 0.22%

That is high for an index tracker. Howver, just to give you a comparison, our low/medium spread (which is where the average UK consumer sits) has fund charges of 0.38% (including transaction charges - most DIY investors leave those off but advisers cannot). There are 5 trackers in the spread and all of them are under 0.22%.

It's clear you are not using transaction charges in yours as VLS would increase to 0.33% if you did. Plus you are paying more than 0.22% with you also using two expensive managed funds.

I only use multi asset, well diversified and balanced funds - key fund is Vanguard LS60 but I also use Artemis Monthly Income and Premier monthly income.

So, you are not using index trackers. You are using multi-asset funds. Some of which are expensive.

Total combined portfolios are over £300k including cash so a lot of money. If an IFA takes 1% of that a year though that is over £3k which is significantly more than our current £53 for diy.

At £300k you would be looking for 0.5% p.a

I am of the opinion though that although IFAs have obviously a lot more experience than me they don't have a crystal ball so have no more clue about what the market will do than me and will still charge me heavily for the benefit of their expertise.

Absolutely right on the first bit. However, IFAs are usually more experienced, carry out greater due diligence than you would and work to a structure and process rather than putting relatively random amounts into fashionable funds. Many IFAs would have been through multiple large market losses and gained experience that you do not have.

Not so right on the second bit. Some will be greedy and expensive. Others less so and you seem happy to use some expensive funds as it is. So, the net cost may not be as much as you think if you avoid greedy IFAs.

At the end of the day, only you can decide if you want to DIY or not. Many here DIY. So, I would expect the DIYers to outnumber the advised. Its the audience you are playing to. Overall though, IFAs account for around 70% of the retail individual pensions market. That isnt really of any help though because it is you that matters. Not everyone else.

enthusiasticsaver

dunstonh wrote: »

7% of the transfer value seems extremely high but what matters if the monetary amount. If you are talking around £300k ten its an obscene amount.

The fee was fixed for £4500 for transferring a pension with a CETV of £66884.

The second one is being more cautious. By having ongoing servicing, they protect themselves somewhat from later bad investment decisions made by the consumer. DIY investors just looking for the IFA to sign the form and let the consumer self invest is higher risk.

Yes I understand that completely.

Why do you think IFAs do not use trackers? Your perception is way off the mark.



That is high for an index tracker. Howver, just to give you a comparison, our low/medium spread (which is where the average UK consumer sits) has fund charges of 0.38% (including transaction charges - most DIY investors leave those off but advisers cannot). There are 5 trackers in the spread and all of them are under 0.22%.

It's clear you are not using transaction charges in yours as VLS would increase to 0.33% if you did. Plus you are paying more than 0.22% with you also using two expensive managed funds.

I will be pleasantly surprised if that is the case. My terminology in describing the VLS should have read basket of trackers. I have omitted the transaction charges as it is an invest and leave portfolio and we are no longer adding to it. Misleading maybe.



So, you are not using index trackers. You are using multi-asset funds. Some of which are expensive.

point taken.

At £300k you would be looking for 0.5% p.a



Absolutely right on the first bit. However, IFAs are usually more experienced, carry out greater due diligence than you would and work to a structure and process rather than putting relatively random amounts into fashionable funds. Many IFAs would have been through multiple large market losses and gained experience that you do not have.

Not so right on the second bit. Some will be greedy and expensive. Others less so and you seem happy to use some expensive funds as it is. So, the net cost may not be as much as you think if you avoid greedy IFAs.

At the end of the day, only you can decide if you want to DIY or not. Many here DIY. So, I would expect the DIYers to outnumber the advised. Its the audience you are playing to. Overall though, IFAs account for around 70% of the retail individual pensions market. That isnt really of any help though because it is you that matters. Not everyone else.

Thank you for the insights. I will be going into the meeting with an open mind and take it from there.

dunstonh

I will be pleasantly surprised if that is the case. My terminology in describing the VLS should have read basket of trackers. I have omitted the transaction charges as it is an invest and leave portfolio and we are no longer adding to it. Misleading maybe.

Transaction charges is a new EU Directive requirement. OCF is no longer the only measure. You have a couple of others on top. TC being one of them. The VLS range is around 0.11% to 0.14% TC on top of the OCF. It's an annual charge measure. So, if I was recommending VLS, I would quote the charge as 0.33%. Your statements and annual cost disclosure from April this year (or earlier) should quote the charges including transaction charges.

You are paying TC whether you invest or forget as its within the fund that is the measure. Not your other charges. (IFA platforms tend to be mono charged rather than menu of charges. So switching funds is not a cost event in most cases)

Many of us think TC is flawed as a measure. It is good that it includes more cost disclosure than the OCF but it includes the potential for profit and loss to be included in the TC figure. Profit and Loss should never be referred to as charges. However, that was how the EU wanted it. An IFA has no choice but to declare their charges inclusive of TC. A DIY investor like you can ignore TC but it will exist.

Pension_Geek

Db to DC is seen as high risk and that's because it generally is, for the reasons already covered above. If you want to do this, then you'll need a transfer specialist, and they will not give you advice for free, as also mentioned. As much as you might well know that your situation is thus that you can manage without the income, the IFA wont until they really look into your capacity for loss, the income you have and your other provisions, liabilities and so on.

I'd go as far to say as if you find someone willing to give advice without doing all of this, be very very wary!

ggmf

I used an IFA to consolidate a number of separate non-DB pensions into a SIPP, he is also ‘managing’ my SIPP. Consolidated funds into the SIPP = £300k, IFA charges 0.75%, current SIPP value only very slightly over the starting figure after a period of 2 years (includes the balance held in the cash account). 41% of the income generated by the funds has been taken in platform and management charges, this does not include the IFA fee's for performing the review and consolidation works. The cash in the SIPP is being used to support the platform and management charges, and is slowly growing, but any surplus cash is not been used to purchase any additional units for the IFA selected funds, growth is therefore dependent upon income from the 12 funds. Now I can see the information that I wanted for the Fidelity SIPP, I can determine the income being generated against the value for each fund held, and how the value of the funds has fared over the 2 year period.

After 2 years of reading and trying to understand, I'm starting to feel in a position to ask some questions at the next annual review.

Based on the above I have updated my pensions forecasting spreadsheet to show zero growth, and budgeting spreadsheets showing inflation at 3%.

enthusiasticsaver

ggmf wrote: »

I used an IFA to consolidate a number of separate non-DB pensions into a SIPP, he is also ‘managing’ my SIPP. Consolidated funds into the SIPP = £300k, IFA charges 0.75%, current SIPP value only very slightly over the starting figure after a period of 2 years (includes the balance held in the cash account). 41% of the income generated by the funds has been taken in platform and management charges, this does not include the IFA fee's for performing the review and consolidation works. The cash in the SIPP is being used to support the platform and management charges, and is slowly growing, but any surplus cash is not been used to purchase any additional units for the IFA selected funds, growth is therefore dependent upon income from the 12 funds. Now I can see the information that I wanted for the Fidelity SIPP, I can determine the income being generated against the value for each fund held, and how the value of the funds has fared over the 2 year period.

After 2 years of reading and trying to understand, I'm starting to feel in a position to ask some questions at the next annual review.

Based on the above I have updated my pensions forecasting spreadsheet to show zero growth, and budgeting spreadsheets showing inflation at 3%.

Goodness that sounds somewhat depressing but investments everywhere have not fared that well over the last 2 years I guess. Brexit I presume plus slow European growth plus Chinese economy and US bond yields and interest rates. My Vanguard LS Sipp is up by 7.83% most of it beginning of last year and end of 2017 but very little movement at the end of 2018. I think this is exactly what I am worried about that in these days of fairly low growth any increase in value will be eroded by charges. I have found the same with my income portfolio in that even though the income is relatively constant the underlying value of the funds is dropping partly due to management charges possibly. I keep reading that it is just a normal correction and I understand that they go up and down over a fairly long cycle but it makes me worry enough not to put any more into investments at the moment if it is delivering even less than cash.