Excessive or reasonable charges for managed SIPP?

JoeCrystal

fred246 wrote: »

The meeting I will never forget is when an IFA came to talk to us to explain that commission had been banned. He explained that advisers had been caught selling products to get commission and in future IFAs were going to act in the best interests of their clients. To this end they were going to introduce a fixed fee of £250 per hour. I have never seen so much spluttering. Everyone obviously thought a fee of £20 to £30 per hour was reasonable. It was just incredible that a group of people could see themselves as that important. It just isn't that complicated a job to justify that sort of fee. I thought one day someone may provide a service at a price that people could accept. It hasn't happened yet. They just follow rich people around and hope they can get a few to sign up to their ridiculous fees.

Find a different IFA or do it on a transactional basis for a one-off fee. Last time I used an IFA to transfer the pension pot, it only cost me £300 and that was taken out of the pension pot. Very reasonable.

fred246

Last time I transferred a pension pot it look less than half an hour and cost me nothing. Stopping using an IFA is one of the best decisions I ever made.

beamyup

Deleted_User wrote: »

Of course they can’t. Same everywhere. But they can “advise”. And the advice can be wrong. And there is zero consequence to an IFA. And it’s just wrong when they charge thousands year in year out. Charges are not transparent, nor people understand what they are paying for. And like you said (I think), they don’t even have to provide comparisons vs benchmarks, so there are no easy means for investors to evaluate performance.

here is a scenario to ponder.

A person has 100k to invest at age 25, retirement at 67, plus £12k per year additional contributions up to retirement.

IFA route:
Go to get advice off an IFA, they recommend a pension through them, selling the idea that an IFA offers the best approach
Charges and fees
IFA fee : 3% initial set up
IFA fee :1% per annum
Money is invested in pension and gets a return of 6% PA net of all non-IFA fees
Pension pot at 67 = £2.5 million
IFA Fees = £377K


Alternative - NO IFA - self invested in same fund at same 6% returns
Pension pot at 67 = £3.5 million
IFA Fees = 0
Assuming that the money saved on IFA fees are invested inside the pension rather than spent elsewhere


So - that advice from the IFA has cost the investor a cool £1 million of their pension pot! and the IFA has earned £377K for that advice.


I am sure that the IFA would see that as excellent advice and service, as the pension pot had grown so well!

Do others on this forum agree with the IFA's thoughts?

Should the IFA have actually offered a transactional advice fee instead, i.e. just the initial 3%?

Should the IFA have to set out and explain the likely consequences of the 1% annual fees on the final pension pot?

ggmf

And here is the problem. I'm guessing the average investor seeking help from an IFA to setup and manage a portfolio for them do not understand what the £'s costs are against the {small} percentage fees mentioned in the IFA’s blurb or sales pitch. I'm less than impressed with my IFA, I’ve had to chase them for my annual review, and all I effectively received from them, were printouts from the Fidelity website that I monitor daily anyway. Mind you he does have lovely offices, and a nice car, I’m reviewing our ongoing relationship.

dunstonh

What benefit is there to picking random numbers as hypothetical fees that are way above the average?

beamyup

dunstonh wrote: »

What benefit is there to picking random numbers as hypothetical fees that are way above the average?

Is 1% PA high for a 100k portfolio?
Would the IFA offer reductions to a lower fee (e.g. 0.5%) over time as the portfolio value increased, without any pushing from client? maybe / maybe not.

Hey I could have included in this scenario the extra fees/consequential losses during drawdown period of maybe 30 years! That figure would have been equally amazing.

If you feel what I have selected as the scenario is not representative, or if you think my calculations are wrong then please, can you suggest some other scenario?

As you are an IFA yourself, what do you think of my ending questions about whether an IFA should make very clear to the client the full (final pension)effect of the ongoing charges, assuming that a DIY fund selection could perform equally well?

dunstonh

Is 1% PA high for a 100k portfolio?

For 100k, no. But with the annual contribution/growth you have used, you would expect it to hit 0.5% pretty quickly. 0.5% is the dominant figure used by IFAs.

Would the IFA offer reductions to a lower fee (e.g. 0.5%) over time as the portfolio value increased, without any pushing from client? maybe / maybe not.

Depends on their published tariff. It shouldn't require any pushing as the terms are clear and agreed.

Hey I could have included in this scenario the extra fees/consequential losses during drawdown period of maybe 30 years! That figure would have been equally amazing.

What extra fees?

As you are an IFA yourself, what do you think of my ending questions about whether an IFA should make very clear to the client the full (final pension)effect of the ongoing charges, assuming that a DIY fund selection could perform equally well?

It has been a requirement since 1994 (in its current form).

It is a partly flawed method though as it takes the future money value and shows it in future money terms and not todays money terms.

beamyup

dunstonh wrote: »

What extra fees?

My example scenario only shows impact up to retirementdate, however if the person used drawdown after retirement date then the IFA fees would remain in place annually for the life of the drawdown, this would be a significant extra fees/consequential loss to the client.

dunstonh wrote: »

It has been a requirement since 1994 (in its current form).

It is a partly flawed method though as it takes the future money value and shows it in future money terms and not todays money terms.

That is very interesting, personally I have not used an IFA since 1994 so have not seen this.
In my "example" scenario above what would the impact be shown as - £1 million or some other number? Do clients not run a mile when they see this or is it presented in a different way than I presented it above?

Linton

Deleted_User wrote: »

Right. It’s called “investment policy statement”. Good books provide guidance on developing one. Examples are available on the web. Mine is a bit long - has all the detail, justification and references so that a spouse or kids can figure out what’s going on, if required. IFAs are not incentivised to spend time with an investor to really understand his/her circumstances. They are marketing people incentivised to fill in a bunch of forms quickly and to continue receiving retinue forever and ever. If you think they understand Neuroeconomics, finance or statistics, think again. A few might, but they are not rewarded for it. Their required level of education is equivalent to year one at university.

Yet again you appear not to understand the UK situation. As far as investments are concerned IFAs (as opposed to FAs) are not marketing people as they get no benefit from choosing investment A rather than investment B, nor do they lose out if they advise that you dont invest at all. Commission has been banned. What you pay for initially is advice and subsequently you may choose to pay for the effort/skill in managing the portfolio.

[Deleted User]

dunstonh wrote: »

Again, in the UK, there is a consequence when advice is wrong.

How are they not transparent?

Let’s be honest with ourselves, the portfolio designed by an adviser for OP is crap. You may not be allowed to say this but it is. And it cost him thousands. Underperforms boring 1-fund tracker with 20% bonds in a good year. And in a bad year. And frankly, that’s exactly how I would expect this expensive mess of a portfolio to perform 95% of the time.

Please tell me what recourse the OP has.

Thanks.

Charges are not transparent because:

a) people are not provided with a simple plot indicating cumulative effect of the 1% annual fee, plus the upfront fee, plus the expensive funds’ fee over the projected time of the investment. I doubt people appreciate the massive damage this does to their pension pots.

b) people have no idea what are hourly charges of undereducated advisers, once back loaded payments are taken into account.

c) my bet is that most don’t even realise that the same pot they put into pension is subjected to 1% deductions again and again and again, By the time a typical 30 year investment period is done, a 30 percent bite has been taken out of the original investment (ignoring inflation and extra charges which will come from portfolio growth).

d) like you said, there is no obligation to compare performance vs benchmark. Customers are not even provided with info that would allow them to evaluate performance.