IFA ongoing fee..Why pay?

cfw1994

Just mildly amused that I asked about what kind of global outlook people get from their regular (annual?) IFA chats:

cfw1994 wrote: »

A couple of people have mentioned getting a global outlook from their IFA during an annual update - I assume this is just the 'relatively' obvious platitudes that are often put out by finance companies that don't really commit or say much? For example, this one from Moola.
Anyone learned something really useful and changed tack because of such conversations?

No responses yet (welcome them if you want to share!)....
....but the example given was from Moola.....who today announced they are closing down!

Feels ironic!

Curiously, I cannot see any "market" news on it, but received this email this morning:

Closure of Moola Systems Limited trading as Moola
Individual Savings Account (ISA) investments

After a recent strategic review, we have regretfully decided to close Moola with effect from 27 February 2020. Any monthly payments will stop being collected from 17 January 2020.

Our investment was tiny, so I've just closed it, but it does strike me that many fintech/robo investment companies may find 2020 a struggle.....

cupidstunt

What is the going rate for using an IFA to advise on transferring out 2 x DB pensions (combined value £330K) and then advising on my whole pension pot of £500k (I have £170K) in a DC. I have been quoted 1% a year which seems excessive

bowlhead99

cupidstunt wrote: »

What is the going rate for using an IFA to advise on transferring out 2 x DB pensions (combined value £330K) and then advising on my whole pension pot of £500k (I have £170K) in a DC. I have been quoted 1% a year which seems excessive

Probably best to start your own thread on the pensions board. 1% a year ongoing does seem more than the going rate for ongoing servicing/advice as anecdotally people usually talk about half that rate on pots of a few hundred grand. But if it was an all in ongoing fee which included fund platform fee and ongoing fund operating costs it wouldn't seem too crazy.

Or are you saying the 1% a year ongoing is an advice fee which includes all the work on the initial transfer and implementation- rather than the more common approach of charging for the up front work as a one-off fee up front, and then having a lower fee ongoing?

If that 1% fee included the transfer advice and implementation and you're not locked in for a minimum period (ie you get both DB transfers completed and invested to a plan, along with advice on the existing £170k, for only £5k in the first year) it doesn't actually seem too bad; you could perhaps jump ship after the transfer was complete if you didn't think there was ongoing value in it.

SonOf

cupidstunt wrote: »

What is the going rate for using an IFA to advise on transferring out 2 x DB pensions (combined value £330K) and then advising on my whole pension pot of £500k (I have £170K) in a DC. I have been quoted 1% a year which seems excessive

Broadly speaking, 0.50% p.a. is the dominant fee used by IFAs. You do tend to find 1% for smaller values and tiering through 0.75% to 0.50% is a popular pricing model.
Wealth management firms often charge 1% regardless of amount. Many of these are not IFAs but FAs. (over half of the people seeing an FA believe them to be an IFA when they are not).

Bottom line, its double the expectation of 0.50%.

[Deleted User]

cupidstunt wrote: »

What is the going rate for using an IFA to advise on transferring out 2 x DB pensions (combined value £330K) and then advising on my whole pension pot of £500k (I have £170K) in a DC. I have been quoted 1% a year which seems excessive

Excessive ongoing fees can be a killer:

https://citywire.co.uk/new-model-adviser/news/fca-targets-expensive-and-conflicted-ongoing-advice-fees/a1254504

SonOf

ZingPowZing wrote: »

Excessive ongoing fees can be a killer:

https://citywire.co.uk/new-model-adviser/news/fca-targets-expensive-and-conflicted-ongoing-advice-fees/a1254504

The FCA were looking to extend RU64 to DB transfers with the default being the workplace scheme rather than a stakeholder pension scheme. That was already the case for individual pensions. So, a logical thing for them to do.

There are cases out there with wealth management firms where they are putting people on expensive platforms at around 0.4-0.5% with a DFM managed portfolio costing over 1% and the adviser taking over 1%. So, well into the mid to high 2.x% range. We were told years ago that the regulator have treated anything less than 2% bottom line is acceptable but over 2% they start asking questions.

Malthusian

SonOf wrote: »

We were told years ago that the regulator have treated anything less than 2% bottom line is acceptable but over 2% they start asking questions.

Questions like "Are you St James's Place?" "Yes." "Can I have another biscuit?"

[Deleted User]

SonOf wrote: »

We were told years ago that the regulator have treated anything less than 2% bottom line is acceptable but over 2% they start asking questions.

Doesn't marry with what the FCA have said more recently.
This from last July:

"The FCA has also proposed new rules that will make advisers prove they are offering value for money when it comes to ongoing advice charges following a DB transfer.

In its cost/benefit analysis, the regulator noted that a typical ongoing charge of between 0.5% and 0.75% meant that a person who completed a DB transfer worth the average £350,000 transfer value would pay an annual charge between £1,750 and £2,625.

The FCA said this did not usually reflect value for money for consumers after the transfer.

‘Retirement for many can last 20 to 30 years. Apart from a decumulation decision and a possible later decision to purchase an annuity, many consumers will just need a sense check on their current retirement strategy and readjustment of their portfolio in some circumstances. Unless their circumstances have significantly changed, this should be a relatively straightforward task."

Malthusian

2% is all-in (adviser fees + platform charge + fund charges + anything else). Your quote from the FCA is talking about adviser fees only.

fred246

Either the regulator needs to act or customers need to toughen up. £2.5K a year to glance at my portfolio? You're having a laugh. I'll give you £200. That's more than enough.