IFA? Really?

dunstonh

 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.

No.  It does not work that way.    

PI insurance does not cover transactions in that year.  It covers transactions in the history of the company.   That is not much of an issue with low-risk transactions but with high-risk transactions, such as DB transfers, the firm will still be paying increased premiums because of your advice in 20-30 years time.

The higher the values, the greater the risk to the PI insurer.  ie.. £10k ISA costs nothing to put right.  £1m DB pension transfer could cost hundreds of thousands or even as much as £1m again to put right.   

. ultimately no risk to FA as they are covered by insurance. 

It is a massive risk.  That is why you are seeing so many that do DB transfers going out of business or having to restrict business.  It can cause bankruptcy as inability to get insurance means they cannot trade.

 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??

Asset weighting change throughout the economic cycle.  Funds will perform better in certain stages of an economic cycle.   so, what it set up at the start may be completely different to what is best several years down the road.

 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?

1% a year on £1m is totally unreasonable.  The dominant IFA ongoing charge is 0.5%.   And you would easily expect to beat that.

 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).

SJP are not IFAs and up there with the most expensive distribution channels.  

As you have probably gathered, I am not enamoured by my dealings with FA's.

FAs are sales agents of their employer.   IFAs are what you should be looking to use if you need advice.

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.

Which again leads you to IFAs and not FAs.

BritishInvestor

cander61 said:

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.

It may be that the SJP advisers you have spoken have had a large focus on the investment solution(s) and therefore made you ask whether it is worth paying their fees vs investing yourself.

My belief is that for a genuine retirement planning exercise, 5-10% of the time is spent on investments (and this happens right at the end of the process) with the time before that spent planning out a vision of what the client wants the future to look like and building a robust retirement plan to support that.
Sounds like a straightforward exercise but tends to be an interactive process and this is the part the client finds most useful, and is one that is (or should be) ongoing into the future for as long as you are with the adviser.

With respect to SJP fees:
The tie in you mention I assume is the early withdrawal charge (don't call it an exit fee ) which is supposed to compensate for the lack of initial charge on pensions (although I'm not sure whether there are additional charges for SJP DB work) and in theory you have to pay it if you leave within the window. I have heard of people leaving SJP and not having to pay it.

You'll have to bear in mind the ongoing annual costs which are approx 2.2% pa once you include transaction costs of which 0.5% goes to the adviser.
https://www.sjp.co.uk/~/media/Files/S/SJP-Corp/document-library/reports/2020/Pension_Charges_Summary_072020.pdf
https://www.sjp.co.uk/charges/transaction-costs
For me that is an issue (and advisers who have left SJP mention it frequently) - the adviser is adding (or should be) the most value in the chain yet ~1.7% of fees are going elsewhere.
Fees will obviously have a knock-on impact on portfolio longevity and how much you can safely take out so it so worth bearing in mind.

Brynsam

cander61 said:

Hi 
 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. 

Wrong on both counts I'm afraid. There are only a couple of PI insurers still in the field offering cover for firms transacting DB transfer business, and we are now seeing underwriters covering some firms on an 'each transfer' basis (i.e. individually underwritten). The idea there is no risk to the FA fails to grasp what Dunstohn has already said: an inability to get PI cover would put them straight out of business - and the insurance they have may not cover the claims against them.

For all those complaining about the fees charged for advice in relation to DB transfers, and loudly proclaiming they know what they are doing/don't need advice/would never dream of claiming, have a look at the FCA checklist published in June 2020: https://www.fca.org.uk/consumers/defined-benefit-pension-transfers/advice-checker

Now do you see why advisers are quitting this field in droves? 

xylophone

You will have the option of a PCLS from a DB pension.

Why would you not use this to make the planned gifts and the monthly pension to finance your retirement?
Have you obtained a state pension forecast?
https://www.gov.uk/check-state-pension

Diplodicus

“Now do you see why advisers are quitting this field in droves ?”

Yes. Advisers are governed by fear or greed.  

The tragedy of today’s mess of the DB transfer process was the assumption that in making them the gatekeepers, advisers would not act in their own interests.

[Deleted User]

Taking money out of a DB pension to put them into an asset with below inflation return seems counterintuitive. Big time. Unless the main concern is leaving a legacy which is kinda vain.

steampowered

Most of your posts made me cringe. I don't mean this as a negative way, but it is apparent that you are way out of your depth here and do not know what you are talking about when it comes to investments.

You REALLY REALLY need an IFA - and should go to see one with an open mind. Given your circumstances an IFA's advice will be worth what you pay for it many times over.

1)  Looking to "cash in" your DB pension could be a really daft thing to do. 

2) Taking the cash free lump sum, unless you need that cash, is also likely to be a daft thing to do - especially if you are just going to put the money into premium bonds. The return on premium bonds will be far less than the investment return it would generate in your pension.

3) The fact you mention St James Place - who have some of the highest fees in the market and shouldn't be touched with a barge pole. Check out The Times' investigation which reveals that on a £1m pot invested over 20 years you would pay £1m in fees https://www.thetimes.co.uk/article/the-cost-of-investing-1m-with-st-jamess-place-nearly-1m-lrm9d62hg. You did read that correctly - £1 million in fees paid to SJP. I'm sure whatever you pay your IFA will be less than that.

4) Putting money into premium bonds is just spaffing money up the wall. Conventional investments generate returns of 6-7% per year, on average. Compare that to the 1.4%  effective interest on premium bonds. Premium bonds won't even keep up with inflation let alone generate an investment returns.

tacpot12

cander61 said:

... 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.

Your questions are exactly the questions people should ask, but don't always. My answers are: 
1) No, you must use an IFA to get transfer advice. Once you have this advice, it is the receiving scheme's decision as to whether they will accept a transfer that is against the advice given. Most will not. You may find you are limited to opening a SIPP and managing the investments yourself, or engaging an IFA after the transfer has been completed. 
2) IFA's can charge a flat fee for the advice itself, but will need to charge you a percentage of the amount being considered for transfer to cover their professional indemnity insurance. I would prefer it if IFA's could be paid a fixed fee for the advice first and then the client pay the insurance element IF the advice is to transfer. If the advice is NOT to transfer but you do, you should have no come-back on the IFA, but unfortunately the woolly-headed FSA think that somehow the IFA is liable because they advised you. If you go against the advice you have paid for, you should have no comeback against the IFA IMHO  (unless they made a mistake in which case you might get all or part of your fee back.)
3) No IFA will guarantee to make a certain return. The markets are too uncertain. Investors have to take these risks on their own which is why Defined Benefit schemes are so valuable - all the risk of underperformance is borne by the provider who understands that they might have to apply additional capital to address any underperformance, and the government underwrites such pensions so that you can rely on receiving most of the pension you are due.