Recent DB Transfer: Ongoing Fees for Dedicated IM and FA

Because_I_Can

Hi, I recently completed a transfer of my DB pension which now sits in a SIPP with InvestAcc with the monies being invested by a Quilter Cheviot Dedicated Investment Manager.  This income and growth portfolio approach was a recommendation from my FA who works for a company that is an appointed representative of Quilter Financial Limited.  I don’t anticipate needing access to the money for at least 5 years and once I do, the FA has recommended a couple of other fund options which we’ll explore nearer the time, e.g. Prufund and Scottish Widows for example.  My willingness to accept risk is rated as medium with my ability to bear loss at moderate.  Whilst I’m not a novice investor, any exposure has been more equity focused and given the future LTA position, I believe the services of an expert Is warranted. 

I’ve listed below details of our financial position and it’s really just a couple of points that keep niggling away (listed below).

Age: 53 in Oct
OH: 48
No children
DB Transfer Value: £1.3m
Other Savings & Investments: Circa £350k (70% in cash savings - various accounts)
OH just accepted VR (£109k) and has a DB pension (£30k at aged 60) plus AVC pot of £200k
Both have no plans to work again, just doing voluntary work
Own our house, no mortgage, house worth about £375k
Retirement all worked out assuming we’d need £40-50k each year (pre Covid!!)

1) In terms of fees, I’ll be paying the FA 0.35% per year - does that seem reasonable for a pot this size?
2) In year one, the DIM AMC will be 0.65% (+0.13% VAT) and together with the other costs (stamp duty, collective fund costs, currency, etc), you’re looking at around 1.34%.  For subsequent years, the overall charge will be around 1.11%.  Again, does this feel reasonable?
3) Over the last month or so, the majority of the monies have been drip fed into the market.  The portfolio appears to be well diversified in terms of asset mix, sectors, regions and markets but the sheer volume of assets feels quite large (close to 100, accepting there’s quite a few single shares in all that).  Is this just down to the personal strategic approach / preference of the DIM or does this seem OTT?
4) Finally, I’ve read some genuine, well thought out responses and advice to many people via this forum and just wondering if there’s anything anyone would like to comment or challenge on the above?  Whilst I’m not unduly concerned, this would be a big help in building up my knowledge - I’m also half way through the excellent book Smarter Investing.

Thanks for reading and listening!

bigadaj

interested to know what db you have given up for this, you are well over the lifetime allowance as things stand. 
fees percentage wise seem fairly average but it's a very large fund, so the fa is getting around £10k a year? Dfm double this, or does this include the fund costs as well? Use of individual shares seems unusual, or are these investment trusts or similar?

Albermarle

I think 1.7% in total is about normal for FA + Investment manager + fund /SIPP costs .
Of course you could DIY it for a third of the cost but you may or may not get as good a result.
I think you are very comfortable, especially with the guaranteed £30K pa income from your partner, making your total pot effectively around £3 million , so maybe not worth worrying about your investments too much .Luxury problem !

Because_I_Can

bigadaj said:

interested to know what db you have given up for this, you are well over the lifetime allowance as things stand. 
fees percentage wise seem fairly average but it's a very large fund, so the fa is getting around £10k a year? Dfm double this, or does this include the fund costs as well? Use of individual shares seems unusual, or are these investment trusts or similar?

Thanks for responding.  From memory, think is was £29-30k if accessed at 55 and £41k at 60.  Yeah, we’ll over the LTA and this is where the FA will earn some of his corn.

The FA will get about £4550 per year (0.35% of £1.3m) and the DFM double that I guess (0.65% + 0.13% VAT) with the fund costs, etc, over that.  Think for the DFM element overall, i.e. all costs, it was circa 1.34% in year 1 and 1.11% thereafter. 

The portfolio is a mix of individual shares plus a multitude of funds, trusts, etc.

Because_I_Can

Albermarle said:

I think 1.7% in total is about normal for FA + Investment manager + fund /SIPP costs .
Of course you could DIY it for a third of the cost but you may or may not get as good a result.
I think you are very comfortable, especially with the guaranteed £30K pa income from your partner, making your total pot effectively around £3 million , so maybe not worth worrying about your investments too much .Luxury problem !

Thank you for your response Albermarle.  DIY is an aspiration but perhaps something to explore in the future as my knowledge and experience grows.  Yes, we are in a very fortunate position and now have the time to invest in ourselves together with the voluntary work I started getting involved in this year.  Your point about not worrying about the investments is well made as I’m spending too much time tracking their performance where in reality, I hope to achieve my objectives after 5+ years so just review periodically. Thanks again.

dunstonh

1) In terms of fees, I’ll be paying the FA 0.35% per year - does that seem reasonable for a pot this size?

The fee is reasonable and its less than what I would charge, for example.  However, it is probably cheaper as its using off the shelf basic options that require virtually no ongoing investment decisions.  They are passing those to the DFM.   

Advisers the pass the investment decisions to DFMS often reduce their charge (the greedy ones often don't).

2) In year one, the DIM AMC will be 0.65% (+0.13% VAT) and together with the other costs (stamp duty, collective fund costs, currency, etc), you’re looking at around 1.34%.  For subsequent years, the overall charge will be around 1.11%.  Again, does this feel reasonable?

That is expensive for a DFM.    

but the sheer volume of assets feels quite large (close to 100, accepting there’s quite a few single shares in all that).

DFMs will often use direct assets and shares as well as funds.   Where direct assets are held, rather than funds, you would expect a larger range of assets

Is this just down to the personal strategic approach / preference of the DIM or does this seem OTT?

The DFM controls the investment strategy.  There should be governance reports etc available to you.  These will detail the structure and process.  So, you should ask for those.

4) Finally, I’ve read some genuine, well thought out responses and advice to many people via this forum and just wondering if there’s anything anyone would like to comment or challenge on the above?

FAs are limited on what they can offer.  The general consensus is that you should either DIY or use an IFA.  Not an FA.

I think 1.7% in total is about normal for FA + Investment manager + fund /SIPP costs .    

About right for an FA.   Too high for an IFA though.    0.9-1.2% all in would be the IFA ballpark (although there are IFAs that would have higher charges and may even use similar solutions).

 

Because_I_Can

dunstonh said:

1) In terms of fees, I’ll be paying the FA 0.35% per year - does that seem reasonable for a pot this size?

The fee is reasonable and its less than what I would charge, for example.  However, it is probably cheaper as its using off the shelf basic options that require virtually no ongoing investment decisions.  They are passing those to the DFM.   

Advisers the pass the investment decisions to DFMS often reduce their charge (the greedy ones often don't).

2) In year one, the DIM AMC will be 0.65% (+0.13% VAT) and together with the other costs (stamp duty, collective fund costs, currency, etc), you’re looking at around 1.34%.  For subsequent years, the overall charge will be around 1.11%.  Again, does this feel reasonable?

That is expensive for a DFM.    

but the sheer volume of assets feels quite large (close to 100, accepting there’s quite a few single shares in all that).

DFMs will often use direct assets and shares as well as funds.   Where direct assets are held, rather than funds, you would expect a larger range of assets

Is this just down to the personal strategic approach / preference of the DIM or does this seem OTT?

The DFM controls the investment strategy.  There should be governance reports etc available to you.  These will detail the structure and process.  So, you should ask for those.

4) Finally, I’ve read some genuine, well thought out responses and advice to many people via this forum and just wondering if there’s anything anyone would like to comment or challenge on the above?

FAs are limited on what they can offer.  The general consensus is that you should either DIY or use an IFA.  Not an FA.

I think 1.7% in total is about normal for FA + Investment manager + fund /SIPP costs .    

About right for an FA.   Too high for an IFA though.    0.9-1.2% all in would be the IFA ballpark (although there are IFAs that would have higher charges and may even use similar solutions).

 

Thank you for your response donstonh, it’s much appreciated.

Yeah, the FA charge was originally 0.5% but I managed to negotiate a reduction to 0.35% and I imagine he was happy to do so for the reason you state.  I also imagine he may ask for the rate to be increased once I move away from the DFM.

Appreciate your thoughts re the DFM charges.  Whilst I expected to have to pay for things like stamp duty, fund charges, currency conversion, etc, I knew the AMC was the element that perhaps I needed to negotiate a bit harder on - the 0.65% +VAT is discounted but perhaps I need to revisit.  I take it the size of the pot should be my going in position - what is a reasonable % to pay for a DFM would you suggest (I do believe in paying a fair going rate)?

I have seen many recommendations outlining the value of an IFA over an FA.  Whilst I don’t feel confident enough to DIY, I will take some time to explore how an IFA would take over such a relatively new investment portfolio above.  Whilst I’d be keen to avoid another batch of charges, it feels like this could be beneficial in the longer term.

Again, thank you for taking the time to respond.

dunstonh

he 0.65% +VAT is discounted but perhaps I need to revisit.

I rarely use a DFM as I don't believe they add value apart from certain circumstances where the client goes missing for very long periods and investment decisions need to be made without their permission.     For context, you are seeing figures on the IFA side of 0.275% for DFMs.     

 take it the size of the pot should be my going in position - what is a reasonable % to pay for a DFM would you suggest (I do believe in paying a fair going rate)?

I would question whether you need a DFM.  For most, its just an extra layer of charges for little benefit.   So, unless you plan to go missing, you may prefer to not use a DFM at all.

I have seen many recommendations outlining the value of an IFA over an FA.  Whilst I don’t feel confident enough to DIY, I will take some time to explore how an IFA would take over such a relatively new investment portfolio above

The OMW platform is used by IFAs.   Not as much as it used to be as its not that good value any more.  However, it would be as simple as an agency change internally with OMW to get it allocated to an IFA.      The IFA then may look to move it to a lower cost platform with better functionality.

Whilst I’d be keen to avoid another batch of charges, it feels like this could be beneficial in the longer term.

You may well find a number of IFAs willing to take it on with little or no initial charge because of the value.  

squirrelpie

Just a question from an ignoramus. There are a lot of abbreviations used in this thread, most without explanation. Is there a page somewhere that explains what all these abbreviations mean?

[Deleted User]

Given that you are buying individual shares via a manager, 100 stocks isn’t a problem.
Did the FA account for your wife’s DB pension? With that and your state pensions, you should be able to invest your own pot far more aggressively. 

Personally, I would learn about risks and asset allocation and try to understand what is happening with your investment. You received the advice and you are getting an ongoing service. Fine, particularly accounting for taxation issues. You need to understand enough to make an informed decision based on the advice.  

BritishInvestor

Because_I_Can said:

Hi, I recently completed a transfer of my DB pension which now sits in a SIPP with InvestAcc with the monies being invested by a Quilter Cheviot Dedicated Investment Manager.  This income and growth portfolio approach was a recommendation from my FA who works for a company that is an appointed representative of Quilter Financial Limited.  I don’t anticipate needing access to the money for at least 5 years and once I do, the FA has recommended a couple of other fund options which we’ll explore nearer the time, e.g. Prufund and Scottish Widows for example.  My willingness to accept risk is rated as medium with my ability to bear loss at moderate.  Whilst I’m not a novice investor, any exposure has been more equity focused and given the future LTA position, I believe the services of an expert Is warranted. 

I’ve listed below details of our financial position and it’s really just a couple of points that keep niggling away (listed below).

Age: 53 in Oct
OH: 48
No children
DB Transfer Value: £1.3m
Other Savings & Investments: Circa £350k (70% in cash savings - various accounts)
OH just accepted VR (£109k) and has a DB pension (£30k at aged 60) plus AVC pot of £200k
Both have no plans to work again, just doing voluntary work
Own our house, no mortgage, house worth about £375k
Retirement all worked out assuming we’d need £40-50k each year (pre Covid!!)

1) In terms of fees, I’ll be paying the FA 0.35% per year - does that seem reasonable for a pot this size?
2) In year one, the DIM AMC will be 0.65% (+0.13% VAT) and together with the other costs (stamp duty, collective fund costs, currency, etc), you’re looking at around 1.34%.  For subsequent years, the overall charge will be around 1.11%.  Again, does this feel reasonable?
3) Over the last month or so, the majority of the monies have been drip fed into the market.  The portfolio appears to be well diversified in terms of asset mix, sectors, regions and markets but the sheer volume of assets feels quite large (close to 100, accepting there’s quite a few single shares in all that).  Is this just down to the personal strategic approach / preference of the DIM or does this seem OTT?
4) Finally, I’ve read some genuine, well thought out responses and advice to many people via this forum and just wondering if there’s anything anyone would like to comment or challenge on the above?  Whilst I’m not unduly concerned, this would be a big help in building up my knowledge - I’m also half way through the excellent book Smarter Investing.

Thanks for reading and listening!

1.
0.35% is reasonable for someone that is providing you with comprehensive retirement planning, whereas paying someone 0.35% to meet once a year to discuss fund performance is expensive, IMO.

This book can be an eye-opener for someone working with a "traditional" adviser.
https://www.amazon.co.uk/Enough-Much-Money-Need-Rest/dp/1530800552/ref=sr_1_1?9&sr=8-1

2.
There are many ways that your returns can be reduced vs the returns that the market is giving you and you must be happy that each part of the chain is delivering value - below are ballpark figures for:
A). Adviser fees
. Platform (used to hold investments etc)
C). Fund manager + transaction costs (+DFM)

A: We've discussed adviser fees already circa 0.35%
B on a pot of your size a platform can be had for 0.1%
C as you will discover in Tim's book, you can buy the world these days (his examples are a few years out of date ) for around 0.2% with 0.1% transaction costs.

All in well under 1% per annum

C is where your costs seem to be mounting. Again, as you will read in Tim's book, it's extraordinarily difficult for a fund manager to beat the market on a consistent basis, and equally difficult to identify those managers ahead of time. I'm not sure what the remit is for the DIM you are using but I've not seen many (I am being polite ) that can achieve market returns after costs.

You will therefore need to be happy they are giving value for money.

As an aside, if the DIM had a genuine "edge" you would expect them to do something far more lucrative - it's important to understand the people they are "competing" with
https://www.amazon.co.uk/Man-Who-Solved-Market-SHORTLISTED/dp/0241422159/ref=sr_1_1?


3) I'm not sure what the upside to holding individual shares might be. One could argue that it's in the DIM's interest to make something appear complex to justify their fees, but as you are reading, investing can, and one could argue should be straightforward. You can buy a fund that has global exposure and holds 10000 shares. What does holding individual shares add to this?

4) . I think there's a lot for you to consider

Enjoy Tim's book - it's one I've enjoyed reading. Tim is a really nice chap and his firm (Albion) is well respected among the financial planning profession. If you have any questions on the book please feel free to post.

You might also enjoy this. Abraham has an equally high reputation and his retirement planning tool is becoming more widespread. 
https://www.amazon.co.uk/Beyond-4-Rule-retirement-portfolios/dp/1985721643/ref=sr_1_1?