Reasonable Fees....

wymondham

Hi All
What would be classed as reasonable fees to manage my private pension?  What percentage of money you pay in each month is considered reasonable to be taken as fees?  I've contacted my provider to go over their structure as it seems i may be paying way to much but want to test the water before we get into figures!!  thanks!!

Dox

What sort of funds are you invested in?

wymondham

Dox said:

What sort of funds are you invested in?

lots of different ones.... is it something specific i need to look for?  thanks for the reply..

wymondham

I pay 1.25% fees - 1% advisor and .25% for the Nucleus management. These are higher than the average?

dunstonh

What would be classed as reasonable fees to manage my private pension? 

It depends on the amount invested.   Advisers and platforms frequently taper their charges down as the value gets higher.   

I pay 1.25% fees - 1% advisor and .25% for the Nucleus management. These are higher than the average?

Platform charge is at the right area.   Adviser fee is more typical of smaller values.  0.5% is the dominant figure but you usually need well into 6 figures for that.

gm0

Varies with size. Assume 0.5% for an IFA ongoing for a decent size private pension pot. Smaller pot = higher percentage to achieve a minimum fee level vs fixed compliance and per case work to be worth taking on.  Any platform, fund management, incidental/trading costs on top which can be tiny or a lot depending upon your proposed asset alliocation and the fund choices.  DFM can add a layer of cost between IFA and individual funds.

So ultra skimpy DIY down to ~0.15% all in (a largely set and forget passive approach).  And up to 2% - IFA, DFA, expensive active funds.  Clearly the assets chosen and management of same needs to be genuinely different to justify the cost difference.

2% could be worth every penny if the outperformance was there to be seen and consistent (whether that is delivered in same return/lower volatility + risk) or extra return.  Or it could be convenient to you not to self manage. 

Or it could be a total rip off delivering mildly sub-par returns at greater cost than needed for similar underlying assets with you carrying more risk but losing half the return (including any extra from the extra risk) to branded mouths in the trough of your pension fund.

Albermarle

An IFA will charge typically between 0.5% and 1 % for their advice.
They should have access to a low cost pension provider- maybe 0.2 % and then the cost of the funds ( 0.1% to 2 %) 
If you DIY can be anything from 0.25% all in ( if you have a cheap workplace pension with a cheap fund ) - more typically 0.5% to 1.5% depending on funds used.

gm0

Think hard about advised and active funds before you commit to the strategy during long term accumulation.

Watch Lars Kroijier talk about it (youtube).  Dig out the SPIVA reports (Active fund reporting - clearly it is a zero sum game - some must win, others lose vs the market return on the asset class) - SPIVA examines whether the winners are predictable from past performance (Spoiler - they aren't very).  It's not hopeless but the value for money of expensive active funds picked for you by an IFA or worse yet an IFA and a Discretionary Fund Manager as a store of value during accumulation is a "case" that needs to be by those proposing it over collecting close to the market return cheaply and buying units consistently through the periods of long term volatility

Not an exact calculation but close enough for our purpose here. 

Target 750k fund. Duration 30 years.  Median (half way value)    "cheap version" = 0.25/100 * 375000 * 30 = £28,125.    Expensive version = 2/100 * 375000 * 30 = £225k.   

Pretty close to 200k extra costs for which there had better be superior returns - not just a series of bad odds short term craps bets on which subsets of equities to hold or not hold that couple of years.

You clearly start to break even when the "active" fund + advised approach" passes 200k of additional returns above the market returns for the assets.   

If you planned to accumulate mostly or all in equities and buy through the volatility for most of the 30 years derisking at the end then the value add for the 200k is essentially that they will make bets about the market for you. If it is more than that then they should show you. Not their no doubt superb and value adding "process".  Rather their sustainable - above market return - net of fees - outcomes. 

Don't take this the wrong way - active funds are great - to implement a specific investment philosophy and portfolio plan based on your world view.  And based on whether market sentiment agrees with you sooner or later - then you may be lucky and enjoy substantive outperformance (the top performers can outperform by a lot).  But can also deliver Woodford type disasters. 
If you spread out to avoid it then the closer you get with a larger mix of actives to a range of under and over performance and back to market return you go - just 200k more expensively.  They get paid whether you win or lose.  You don't.

You can probably tell I am not a fan, in accumulation phase of doing more than buying lots of equities cheaply every month rain or shine - as cheaply as you can manage it consistent with capturing employer contributions.

Thrugelmir

gm0 said:

 But can also deliver Woodford type disasters. 

Not as bad as some suggest

https://citywire.co.uk/funds-insider/news/us-buyer-flips-woodford-stocks-after-cut-price-deal/a1369015?re=75571&ea=237867&utm_source=BulkEmail_FundsInsider+Weekend&utm_medium=BulkEmail_FundsInsider+Weekend&utm_campaign=BulkEmail_FundsInsider+Weekend

ffacoffipawb

Thrugelmir said:

gm0 said:

 But can also deliver Woodford type disasters. 

Not as bad as some suggest

https://citywire.co.uk/funds-insider/news/us-buyer-flips-woodford-stocks-after-cut-price-deal/a1369015?re=75571&ea=237867&utm_source=BulkEmail_FundsInsider+Weekend&utm_medium=BulkEmail_FundsInsider+Weekend&utm_campaign=BulkEmail_FundsInsider+Weekend

The Woodford holders lost out there by the assets being disposed of far too cheaply.

wymondham

dunstonh said:

What would be classed as reasonable fees to manage my private pension? 

It depends on the amount invested.   Advisers and platforms frequently taper their charges down as the value gets higher.   

I pay 1.25% fees - 1% advisor and .25% for the Nucleus management. These are higher than the average?

Platform charge is at the right area.   Adviser fee is more typical of smaller values.  0.5% is the dominant figure but you usually need well into 6 figures for that.

The pot is about £163k, so looking quite normal then?