IFA? Really?

cander61

Hi
I will soon be 60 and I'm in the fortunate position to be mortgage free with a reasonable amount of savings which I could live off for the next 5+ years. I will soon be able to 'cash-in' my company pension worth £1m+. I was thinking of ; drawing down my tax-free sum (which again would last another 5+ years), gifting my family some money and putting the remainder in NS&I bonds. I believe you can have up to £1m in these. I know the interest will be around 1% but I probably wont live long enough to spend it anyway so why over-complicate matters. My questions are; 1) Can I get my pension without using an IFA? I know you have to take financial advice but are you obliged to use them? 2) Why do IFA's charge by % and not a flat fee? I want the best advice regardless of whether I have 10k, 100K, or 500K. 3) Can/will IFA's guarantee to make more than their fees plus the 1% I can get without the hassle, if not, why use them? I realise my questions may seem simplistic, and there are tax wrappers etc but don't see the need to pay tens of thousands of pounds for advice, when in theory, I would have enough money available to live relatively comfortably for the 10+years.
Thanks

xylophone

Can I get my pension without using an IFA? 

What kind of pension is this? Where is it currently held?

JoeCrystal

What do you mean by cash in? Is it either cashing in the DC pension scheme or transferring out the CETV out of DB pension scheme?

[Deleted User]

I know of IFAs who charge a flat retainer fee, however they do charge a % for the use of the portfolios

Linton

1) If you are talking about converting a DB pension to a lump sum pension pot, yes for £1M you do, by law, need to have received financial advice from a suitably qualified IFA (most aren't or do not want this business) but you do not have to take the advice. However most platforms will not accept a transfer in against advice.  The main one that will is A J Bell.
You do not have to use the IFA for future finance management but there may be reluctance to take on the work in that case.

2) An IFA could explain the % charge in greater detail but there are 2 good reasons I can think of.  In giving advice an IFA is taking on the risk of you sueing them for possibly N X £100k if the plans dont work out, possibly even if you go against their advice.  So the IFA's liabilities are proportional to the money involved and the costs of insurance are very high.  This is also a good reason for the IFA wanting to have the responsibility for managing the money - they daren't trust you not to mess things up and then seek compensation.

Another reason is that hourly costs could make IFA advice prohibitively expensive for most people who would benefit.

3)  An IFA's job is NOT to maximise your return.  They have no more ability to predict the direction of future stock market movements than anyone else.  Their role is to help you to invest appropriately taking into account your wishes, circumstances, objectives, and ability to accept risk.  This could include minimising tax, estate planning etc.  There are also potentially expensive issues particularly if your total pension assets were to exceed the current £1073100 Lifetime Allowance, which would seem to be a distinct possibiliuty.

Is your life expectancy really low?  I ask the question because until they become aware of the data many people have the view that because their father died at say 60 they wont live to enjoy the benefits of a pension and should therefore be spending their money now.  According to ONS statistics life expectancy for an average male aged 60 is now in the mid 80's and many are expected to live well into their 90's.

The other issue you may wish to consider is inflation.  NSI is very unlikely to ever match inflation.    According to the BoE calculator costs have doubled since 1990.  And of course inflation was very much higher in the period 1970-1990.  So keeping all your money in NSI for the long term is pretty risky, arguably more so than a cautious investment.

BritishInvestor

cander61 said:

Hi
I will soon be 60 and I'm in the fortunate position to be mortgage free with a reasonable amount of savings which I could live off for the next 5+ years. I will soon be able to 'cash-in' my company pension worth £1m+. I was thinking of ; drawing down my tax-free sum (which again would last another 5+ years), gifting my family some money and putting the remainder in NS&I bonds. I believe you can have up to £1m in these. I know the interest will be around 1% but I probably wont live long enough to spend it anyway so why over-complicate matters. My questions are; 1) Can I get my pension without using an IFA? I know you have to take financial advice but are you obliged to use them? 2) Why do IFA's charge by % and not a flat fee? I want the best advice regardless of whether I have 10k, 100K, or 500K. 3) Can/will IFA's guarantee to make more than their fees plus the 1% I can get without the hassle, if not, why use them? I realise my questions may seem simplistic, and there are tax wrappers etc but don't see the need to pay tens of thousands of pounds for advice, when in theory, I would have enough money available to live relatively comfortably for the 10+years.
Thanks

2.) Some IFAs charge flat fees. Some charge a mixture of flat fee and % of money invested. The IFA community tie themselves up in knots about it and I am writing about this exact topic in my book this morning
Personally I would start by looking at the headline cost first before looking at how the figure was arrived at.
3). Investment management is commoditised and in the context of retirement planning, a small part of the value add that a retirement planning specialist will bring to a typical person at retirement.
An adviser will not be able to offer anything that can "beat the market", but they will (hopefully) build you a retirement plan and subsequently build a portfolio that is aligned to that and the risk you are happy taking.

For a pot of £1m it's perfectly possible to pay all-in costs of under 1% per year (adviser, fund, platform, transaction fees). Considering many people pay far more than that for a non-advised solution, some may consider it reasonable value.

dunstonh

I was thinking of ; drawing down my tax-free sum (which again would last another 5+ years), gifting my family some money and putting the remainder in NS&I bonds

Gifting is fine but putting the rest in NS&I bonds is likely to be the wrong thing to do unless you are crystallising the pension for tax purposes.  Is this due to the lifetime allowance?     Do you have any transitional reliefs?

1) Can I get my pension without using an IFA? I know you have to take financial advice but are you obliged to use them?

What type of pension is it?  There is no requirement to take financial advice unless there are safeguarded benefits or you are looking to transfer out of a DB scheme.

2) Why do IFA's charge by % and not a flat fee? I want the best advice regardless of whether I have 10k, 100K, or 500K.

Some IFAs charge flat fees.  Others charge percentage with a cap and collar.   The advice for someone with £10k or £100k or £500k would be different.    Liability costs also go up with larger amounts.    There is an element of cross subsidy.    A totally flat fee for everyone would see smaller investors paying disproportionately more than larger ones.

3) Can/will IFA's guarantee to make more than their fees plus the 1% I can get without the hassle, if not, why use them? 

Make more than what?     IFAs are there to do the work and ensure the suitability of the investments and have a structure and process in place.   They are not investment managers.    Yes, they can put portfolios in place and maintain them if you wish but it is the investments that will make the money.  Not the IFA.   

 I realise my questions may seem simplistic, and there are tax wrappers etc but don't see the need to pay tens of thousands of pounds for advice, when in theory, I would have enough money available to live relatively comfortably for the 10+years.

Why would you be paying tens of thousands of pounds for advice?

IFAs are there to ensure things are done optimally.  If you don't care about that or you have the knowledge and experience to DIY then you dont need an IFA.  

Brynsam

If you will 'soon be 60' and able to 'cash in your company pension', that suggests you may be within a year of the scheme's normal retirement date (NRD). Can't tell from the wording of your question, but if it's a defined benefit (DB) scheme, are you sure you haven't missed the boat already if you are considering transferring out to a defined contribution arrangement? You have a statutory right to a transfer out of a DB scheme until you are within one year of the scheme's NRD. The scheme may well allow you a non-statutory transfer if you are already within a year of NRD, but you'd do well to check.

cander61

Hi 
Thank you all for your advice. As you have probably gathered, I am at the early stages of planning for retirement but this forum and advice from you guys is a big help.
To clear of couple of points raised: I have spoken to a couple of family-run FA's; I am favouring converting a DB into a lump sum with a predicted value of  around £1.3m; I assume FA's take out insurance annually and not per client, therefore if they had 50 clients with £1m+ they would get cover for £100m+ annually and that is the clientele profile they are working with, less clients, less total value, less premiums etc. ultimately no risk to FA as they are covered by insurance. The only risk I can see is what clientele do we want to attract and make sure our insurance covers us, but the client ultimately pays for the insurance; Also, I assume the same investment advice would be given to the 50 clients with £1m+ portfolios barring tweaking for personal allowances; I agree they cannot predict the future, but once they have invested appropriately, surely its done, yes, markets go up and down, but at least two of the three people want to tie me into a contract for 5/6 years... up to 50k in fees...  hello?? what if they are rubbish?; If I am paying someone 10k per year, I would expect them to at least make their fees and a minimum of 1% guaranteed i.e. 20k, on the value of my investments or what is their point?; I am assuming 20 years of reasonable health taking me to 80 (maybe 10 years for the cruises and exotic holidays, cars etc) after which time I'm sure I'll be slowing down; two out of the three are with St James Place so not even covering the whole market (probably making money at both ends of the deal or using their insurance umbrella). As you have probably gathered, I am not enamoured by my dealings with FA's. I have no problem paying someone for their services if I feel I am getting a bespoke information and guidance and not tied to a contract regardless of results.

JoeCrystal

cander61 said:

Two out of the three are with St James Place so not even covering the whole market (probably making money at both ends of the deal or using their insurance umbrella). As you have probably gathered, I am not enamoured by my dealings with FA's. I have no problem paying someone for their services if I feel I am getting a bespoke information and guidance and not tied to a contract regardless of results.

SJP is almost legendary for extraordinary high charges, exit fees and the fact they may be restricted so they can only offer their expensive products. Keep looking for another IFA, a proper IFA rather than potentially restricted FA. It would be best if you shopped around a bit more.

And please use paragraph. Having a block of text make it hard to read and understand your points, so please divide the post into paragraphs.

cander61 said:

Also, I assume the same investment advice would be given to the 50 clients with £1m+ portfolios barring tweaking for personal allowances;

No, totally wrong I am afraid. Each client would have a unique situation that needs to be taken into account for investment advice.

Albermarle

 two out of the three are with St James Place

Well known to be an expensive option with tie ins for years.

A typical IFA charge for around £1Million would be max 0.5% and they may have access to pension products at a lower charge than you could get yourself .

On the more important subject of the very large financial decision to transfer out of a DB pension . You seem to be assuming that that the IFA pensions transfer specialist will give a positive recommendation, when the reverse is much more likely. Although you can still go ahead with transfer with a negative result ( a so called insistent client) I find it hard to believe that the IFA giving a negative recommendation would then agree to manage the investments after transfer . I would presume their insurers would not allow it .

Can you say what DB pension you would be giving up for £1.3 million ? If it was below £30K pa it looks like a good deal ( without knowing all details ) If it is significantly above £30K then probably not a good deal.