IFA Commission

andyg107

My Dad is about to retire and has been to an IFA over options with his 10 separate pensions. The IFA has recommended my Dad "re-invest" his pension pot with a medium-level risk. From what info I can gather, it seems this will be in the form of a drawdown pension

I am concerned that he's been talked into investing the funds (I thought the time for the possibility of his pension pot to fluctuate was over now he'd stopped working), but more than the type of pension, I'm concerned at the level of commission my Dad tells me the IFA is asking in return for arranging all of this.

The IFA is looking to charge him 4% of his total pension income as a fee.

This to me seems a huge amount of commission, and I'm wondering if anyone is better informed than me in order to comment or advise on this?

JoeCrystal

How big is the overall pension value? 4% of £10,000 make sense, 4% of £100,000 is too much for example.

andyg107

His pension pot is apparently over £300k. And it turns out he's already paid £500 just for the initial appointment.

JoeCrystal

Is he sure he is seeing an IFA? £12,000 is high for something as simple as pension consolidation. I mean you would expect something like that for a DB transfer which is a very high risk. Does any of the pension pot is DB or just all DC pension schemes?

EDIT: Sorry, I noticed that you mentioned pension income. So is it 4% of the total pension value or 4% of the pension income? Seem strange.

tacpot12

4% of his total pension income will be about £700 a year, which is very good value as an ongoing charge. So you probably mean 4% of his total pension value. As others have said this is very high unless there are DB pensions that need specialist advice to transfer them.

Money in a DC pension needs to be invested in order to avoid inflation decreasing the value of the pension. A pension invested in equities might last 40 years where as if it not invested it might only last 12-15 years. While it is invested, its value will fluctuate. This is why DB pensions are so valuable - the income from them doesn't go down and usually rises with inflation. (The DB pension scheme trustees also invest the pension's money so that they can pay pensions that rise in line with inflation).

You father can only have been charged for the initial appointment if he agreed to the charge. It sounds like he has received advice at the first meeting, that advice being to consolidate his pensions and invest in a medium risk portfolio. £500 seems very cheap for advice that has reviewed 10 existing pensions, if only to understand the charging structure of each.

4% is too much for on-going management of the portfolio. A medium-risk portfolio is only going to yield about 4-5% pa so the IFA will be taking most of the pension income leaving your dad very little to live on! So this seems very unlikely. Most IFAs charge less than 1% pa, or about 20% of the pension income - you can see why so many of us manage our pensions ourselves - its and easy way to increase our pension income by 20%!

dunstonh

I'm concerned at the level of commission my Dad tells me the IFA is asking in return for arranging all of this.

Commission was banned at the end of 2012. There should be no commission. It should be fee-based only.

The IFA is looking to charge him 4% of his total pension income as a fee.

Being charged a rate against the income is a method I have not heard of before. Are you sure about that? Normally it is against the capital value.

His pension pot is apparently over £300k. And it turns out he's already paid £500 just for the initial appointment.

If it is 4% against the capital value with no cap and collar then its very high. exceedingly so. However, many IFAs will have a cap to avoid it getting high in monetary terms or they taper the charge as the value goes up.

However, as you say its against the income, whilst a bizarre method, it would likely be a higher percentage.

A £300k pension with no safeguarded benefits going into drawdown would typically be around £2500 fee.

I am concerned that he's been talked into investing the funds (I thought the time for the possibility of his pension pot to fluctuate was over now he'd stopped working)

Around 85% of people use that method now. So, why do you think your dad should be using the method of that only 15% use?

What level of income is your father after?
What other investible assets/savings and income does he have?

If it is a defined benefit pension that he has at present then that changes the responses significantly.

TadleyBaggie

I had 6 pensions to sort out, total value around £350K. My IFA charged me an upfront £2K to do the legwork, and 0.5% ongoing.

fred246

This sort of stuff is unbelievable. Someone asks is it right that I am charged £12k for someone to fill a few forms out. The last reply seems to suggest "I got a bargain. I only paid £2k and I will pay £1750 every year for someone to glance at it". These amounts are just obscene for the tiny amount of work involved.

wjr4

1) He should not have paid for an initial appointment. It does not sound like an IFA to me!
2) As mentioned above, it is not commission.
3) 4% is a high charge and I would tell him to look for another IFA - one who offers a free first meeting as 99% do!
4) Ignore fred246 as he is against all IFAs.

fred246

I am not against IFAs. I am against rip offs.

sandsy

andyg107 wrote: »

My Dad is about to retire and has been to an IFA over options with his 10 separate pensions. The IFA has recommended my Dad "re-invest" his pension pot with a medium-level risk. From what info I can gather, it seems this will be in the form of a drawdown pension

Most people take drawdown - it gives flexibility over the level of income taken. But take too much income and there is a risk of running the fund down. The alternative is an annuity which offers a guaranteed income for life, either level of increasing depending on what suits. Drawdown automatically means that the pension funds have to stay invested and managed but there is a risk attached to that as the fund will be exposed to stock market movements. Annuities remove that risk but offer no flexibility about how and when to take income. A financial adviser is paid to work out what suits your dad best.

andyg107 wrote: »

I am concerned that he's been talked into investing the funds (I thought the time for the possibility of his pension pot to fluctuate was over now he'd stopped working), but more than the type of pension, I'm concerned at the level of commission my Dad tells me the IFA is asking in return for arranging all of this.

Commission was abolished at the end of 2012. Providers no longer pay advisers to place business with them. Advisers set and levy their own charges. They charge for initial advice (such as setting up a retirement plan) and then each year for checking the plan is on track, amending the investments back in line with each individuals client's attitude to risk as it will move out of kilter as investment markets shift.

andyg107 wrote: »

The IFA is looking to charge him 4% of his total pension income as a fee.

This to me seems a huge amount of commission, and I'm wondering if anyone is better informed than me in order to comment or advise on this?[/QUOTE]

I guess you mean 4% of the total value of the pension funds. This is a very high charge. Your dad should shop around to see if he can do better. Some advisers charge on a fixed price basis for initial advice, rather than using %, which is likely to be better value with a larger pot. But annual charges are nearly always in % terms.