Moving to drawdown - costs reasonable?

scdandem

Hi, my husband and I hope to retire in the next 2 years, he is 64, I'm 55. Hubby already draws some DB pensions and is semi retired. IFA has recommended moving both our DC pots to drawdown - currently with Royal London/Aviva and drawdown would be with Old Mutual Wealth - to get things all in one place and plough as much as possible in over next two years. This all sounds reasonable and he comes highly recommended, is lovely to work with and his advice to date has seemed logical, clear and in our best interests. 

I've educated myself on finances over the years but don't feel knowledgeable enough to to DIY, but would appreciate any thoughts on quoted costs so I can just be sure we're not being over charged. 

IFA says he normally charges 3% to transfer money out/set things up, but will charge us 1.5% as we came recommended from a mutual friend. That will be about £3k upfront. 

Ongoing adviser charges are 0.5%, calculated daily and collected monthly. 

On top of that, Okd Mutusl charge 0.33% product fee then an average 0.73% fund management. Again calculated daily and taken monthly. 

All fees are taken from investment (as long as there is money in!)
So in total we're looking at around 1.6% charges. 

IFA says he would expect us to achieve 6.5% after costs. 

We're currently paying 0.45% with Royal London and have no IFA. 
When I was exploring things with the IFA, the setup fee came as a bit of a shock, but maybe fair enough? The 0.5% fee seemed reasonable but I, perhaps naively, didn't bank on the additional 0.33 + 0.73% charges from the provider. 

To me, the combined fees sound high and the 6.5% after costs sounds unachievable, but I'm not experienced so that's what I'd like any opinions on please!
Thanks in advance 👍🏻

gm0

Wow - I truly cannot say that your advice is right or wrong to your overall circumstances.  These products may suit you admirably. Or they may not.  No experience of them.  I would suggest being more curious as to the product structure and if it is "just" packaged funds then what is in it that is so very special.  And if it does something clever then do you understand it.

What are the actual investments being held for you, at your risk inside the wrapper.  The charging structure is - generous. 

I hold some of my global equities at 0.06% all in platform and fund (occupational/employer).  For non-advised I can move this to "in drawdown" for 0.18% (platform, product, fund, 0% on the way in).  Even with an assumed 0.5% for handholding services ongoing that should set a floor around 0.68%.   Regular forum posts abound about blended cases at 0.3% (plus 0.5% for the advice). So 0.8% on properly advisor matched/designed portfolios.   Do you see ?  On any reasonable sub-SJP basis this looks potentially quite fat as an all in cost. 

If I project my self-select but fully active fund manager options across to a 0.5% advised situation (Threadneedle Managed Equity) + 0.5% advice then I'd be paying 1.1%

So to my (limited and just a consumer way of thinking - the market price lies is between 0.7% and 1.1% all in once it is set up. 

Disclaimer - as we always say around here a suitably chosen advised product may make you way more money than the difference in fees vs a bad DIY.  Or you will just get a bit less than long term market return more expensively (also possible - SPIVA reports say more likely than not)

There is possibly something funny going on about reporting assumptions on inflation and/or deaccumulation of capital over time. In this illustration.  6.5% net after costs.  With 1% platform and fund and 0.5% advice that is 8% as a long term average.  And then inflation.

I would love some of that on a 40 year view.  Is there perchance some historical performance data relatable to both the product and the market portfolio that evidences this bold claim of net fees performance across 20 years or so and a couple of market down turns ?   Or is this 6.5% in fact a guesstimate of a "withdrawal" amount where "capital deaccumulation" and inflation uplift assumptions are being armwaved into the mix so that the numbers aren't lies but the picture is muddied by return of your capital.

JohnWinder

There have been recent threads discussing some of this which can save folk a lot of typing, and the planet a bit of energy in storing repetitive comments. Would it help to identify them for you?

There's a big difference between x% of not much, and x% of £10M. Which is why it would be better to quote fees in £, on your part and on your IFA's part.

Commiserations at several levels. Yours aside, the UK has some widespread eye-wateringly high charges for personal financial products. I think Italy and perhaps Germany are worse, but folk in some countries pay 0.1%/year for a no frills retirement account that sends you pension money regularly, a yearly statement and online access - no advice. That 0.1% includes all fund management fees, platform fees, trading fees, exit fees, contribution fees, service fees - everything essential, you name it. You can't move country, but you can be aware and keep raising your concerns about high fees in person and online; eventually the message will filter through to the industry and the government and you'll have done the next generation a big favour.

You've said you can't DIY so it might be hard to evaluate the quality of what you're getting for 1.6% (per year, remember). That's the second commiseration. Can't you bone up on all this in the next year?

If the fund management fee is 0.73%, which I take as high, it's likely an actively managed fund. Long term, most of these that can be compared to an index fund under-perform a cheaper comparable index fund;  some can't be compared easily which is handy for them. There is a justifiably held view that the more you pay in fund fees the worse your returns will be (clearly the association won't be perfect and may not be entirely causal). You can hunt out the research on this fairly easily to help decide if you believe that view.

6.5%/year after costs? Quite possible, although is it the annual average or the compound annual growth rate (CAGR)? They're different. A mixed fund of 70% diversified equities and 30% diversified bonds and some cash has returned over 8%/year (average) for 10 years, international stocks about 11%/year. All before inflation takes its bit. I'd be happy with 6.5%/year after costs, but not happy losing 19.7% of my returns to fees if it was going to go on for more than a year or two. And more than 19.7% if returns are not so good for the next ten years, as predicted. Commiserations on that too.

One would think that most of the cost of financial advice would be in the setting up: understanding the client, choosing investments etc. It is possible to build a suitable portfolio, a simple cheap one - so likely to get better returns, that needs almost no management after that. A 0.5%/year ongoing advice fee makes sense if the assets are worth <£100k, but you'd worry that a high £ fee for unnecessary work might encourage people to do unnecessary work and mess with a good portfolio.

scdandem

Thanks so much for the detailed replies. I feel like I've done the sensible thing over the years, read all the lay-person guides to pensions etc and always saved diligently towards a pension. I'm an expert in my own field and it's now time to put trust in an expert IFA, but it seems you have to be an expert yourself to avoid being ripped off! This is my worst nightmare and I'm sure I'm not alone. How on earth do you find someone you can trust with your life savings that isn't charging over the odds? 

If it helps, aside from DB pensions, we have a £40k/£210k pot plus £100k stocks and shares ISA. I'm happy we have we have enough but am stumped how to make sure we get a fair deal! Thanks again. 

LHW99

Scandem - you say your OH has a DB pension (do you?), do you know how much of your hoped for retirement income that covers? Do you both have full state pensions (have you checked recently?). If your DB and eventually state pensions cover all your necessary spending, going DIY with the rest may not be so big a step as if you need to rely on that DC income for food, heating etc.

AlanP_2

scdandem said:

Thanks so much for the detailed replies. I feel like I've done the sensible thing over the years, read all the lay-person guides to pensions etc and always saved diligently towards a pension. I'm an expert in my own field and it's now time to put trust in an expert IFA, but it seems you have to be an expert yourself to avoid being ripped off! This is my worst nightmare and I'm sure I'm not alone. How on earth do you find someone you can trust with your life savings that isn't charging over the odds? 

If it helps, aside from DB pensions, we have a £40k/£210k pot plus £100k stocks and shares ISA. I'm happy we have we have enough but am stumped how to make sure we get a fair deal! Thanks again. 

You are more than likely going to get a "fair deal" from an IFA and not be "ripped off" when doing a like for like comparison against another IFA in the UK.

How cheaply you can get non-advised service outside the UK is irrelevant.

What you will not do when using an IFA is achieve the lowest level of costs that the most assiduous money saving DIY investor will achieve, and you need to be careful about comparing headline IFA costs against headline DIY costs in the same way as you would when comparing a builder's quote for an extension against the DIY cost.

Whether the quote you have is fair, good value and sensible for your cirumstances I don't know. You could get a competing quote from another IFA or 2?

Linton

Are you sure about all the OM fund charges being taken from your account?  Normally fund charges are included within a fund's published results, they arent an explicit extra.  The extras are advice and platform charges, the latter in your case I assume are included within what you have called the fund charges as you are using OM funds in an OM environment.

dunstonh

currently with Royal London/Aviva and drawdown would be with Old Mutual Wealth - to get things all in one place and plough as much as possible in over next two years. 

Is the adviser an FA or IFA?   Old Mutual Wealth is available to IFAs but Old Mutual Wealth (or Quilter as its being renamed) also operate their own salesforce. 

On top of that, Okd Mutusl charge 0.33% product fee then an average 0.73% fund management. Again calculated daily and taken monthly.  

Have you told your adviser you are cost-focused and not returns focused?    OMW platform is not the cheapest platform.  An IFA can do better than that (although an FA with OMW cannot).   Fund selection can be adjusted as well to make it cost-focused.

When I was exploring things with the IFA, the setup fee came as a bit of a shock, but maybe fair enough? The 0.5% fee seemed reasonable but I, perhaps naively, didn't bank on the additional 0.33 + 0.73% charges from the provider. 

The initial is not unreasonable and the ongoing is exactly where you expect it.   
The platform charge is more but you would still be looking at 0.15%-0.25% as a typical range. Fund charges are the same whether you DIY or IFA/FA.

To me, the combined fees sound high and the 6.5% after costs sounds unachievable, but I'm not experienced so that's what I'd like any opinions on please!

Sounds within the ballpark and achievable for medium risk or above.

Some people on this forum focus on cost before investment selection.  Others focus on investment selection before cost.    Being returns focused or cost-focused is a personal choice.  Cheap doesn't mean better.  Expensive doesn't mean better.    Some here will not consider a single managed fund.  Others will only consider managed funds.  Others will prefer a hybrid selection of the two.   These are all choice and opinion.      You also have things like sustainable/ethical investments.

In your case, I would question the platform.   For me, OMWs software and functionality is not worth the extra cost compared to cheaper alternatives.  A FA of OMW wouldn't have choice. an IFA does.   I would also make your opinions on cost known if you feel that way.  An IFA can adjust the recommendations to suit your views. An FA may not be able to.   I would be opened minded though if I was you.   Compromising too much on cost can reduce your returns.

scdandem

LHW99 said:

Scandem - you say your OH has a DB pension (do you?), do you know how much of your hoped for retirement income that covers? Do you both have full state pensions (have you checked recently?). If your DB and eventually state pensions cover all your necessary spending, going DIY with the rest may not be so big a step as if you need to rely on that DC income for food, heating etc.

Thanks, I have a ‘very’ small DB, not worth considering. We are well provided for with DB and both have full state pensions, so if we lost the lot with the DC (god forbid) we would still be fine. Perhaps DIY is looking more appealing. Are there courses / particular reading on the subject you know of? Silly question I expect!

scdandem

Linton said:

Are you sure about all the OM fund charges being taken from your account?  Normally fund charges are included within a fund's published results, they arent an explicit extra.  The extras are advice and platform charges, the latter in your case I assume are included within what you have called the fund charges as you are using OM funds in an OM environment.

I’m quoting from the OM paperwork that refer to “our charges” “investment related charges” and “FA fees”. It says “our charges” are for the product - 0.33% annually, “Asset Manager Charges” are reflected in the changing daily prices of the assets and not taken from the investment - 0.72% + performance related fees(?). FA fees 1.5 per % initial fee + 0.5% ongoing servicing fee. Interestingly it refers to FA throughout, not IFA and all funds are Quilter. 🧐 
So am I right in thinking that from a fee comparison point of view I should not include the Asset Manager Charges as even if you DIY you will have to pay these? And different platforms (ie the product) will have different fees. So OM is 0.33% but others may be more or less? So for someone who is DIY, they would obviously have lots of knowledge about the different funds to invest in, may also consider the Asset Manager Charges of the particular fund before choosing it, and obviously wouldn’t be using the services of an IFA/FA? Do you still need to use a platform such as OM to DIY? Thank you so much for helping me understand all this!

scdandem

dunstonh said: 

currently with Royal London/Aviva and drawdown would be with Old Mutual Wealth - to get things all in one place and plough as much as possible in over next two years. 

Is the adviser an FA or IFA?   Old Mutual Wealth is available to IFAs but Old Mutual Wealth (or Quilter as its being renamed) also operate their own salesforce.  
I’m assured he’s an IFA but all the funds are in fact Quilter. I will double check!         

On top of that, Okd Mutusl charge 0.33% product fee then an average 0.73% fund management. Again calculated daily and taken monthly.  

Have you told your adviser you are cost-focused and not returns focused?    OMW platform is not the cheapest platform.  An IFA can do better than that (although an FA with OMW cannot).   Fund selection can be adjusted as well to make it cost-focused.
I questioned whether there were other options but he said he had used OM for numerous years and it was the biggest and the best. I’m paying him for advice so to then question it seems rude. This is my dilemma. How can you guarantee the best advice! Someone else might give you answers you prefer to hear, but is that necessarily the best advice? That’s why I’m here I suppose.

When I was exploring things with the IFA, the setup fee came as a bit of a shock, but maybe fair enough? The 0.5% fee seemed reasonable but I, perhaps naively, didn't bank on the additional 0.33 + 0.73% charges from the provider. 

The initial is not unreasonable and the ongoing is exactly where you expect it.   
The platform charge is more but you would still be looking at 0.15%-0.25% as a typical range. Fund charges are the same whether you DIY or IFA/FA.
Thank you, that is incredibly helpful!

To me, the combined fees sound high and the 6.5% after costs sounds unachievable, but I'm not experienced so that's what I'd like any opinions on please!

Sounds within the ballpark and achievable for medium risk or above.
Some people on this forum focus on cost before investment selection.  Others focus on investment selection before cost.    Being returns focused or cost-focused is a personal choice.  Cheap doesn't mean better.  Expensive doesn't mean better.    Some here will not consider a single managed fund.  Others will only consider managed funds.  Others will prefer a hybrid selection of the two.   These are all choice and opinion.      You also have things like sustainable/ethical investments.
In your case, I would question the platform.   For me, OMWs software and functionality is not worth the extra cost compared to cheaper alternatives.  A FA of OMW wouldn't have choice. an IFA does.   I would also make your opinions on cost known if you feel that way.  An IFA can adjust the recommendations to suit your views. An FA may not be able to.   I would be opened minded though if I was you.   Compromising too much on cost can reduce your returns.
Thank you, that’s just the sort of advice I was hoping for from someone experienced. I will question whether OM is for us. We are medium risk. Our DC pensions are icing on the cake rather than day to day living. I will also question if he is in fact FA or IFA where OM are involved. As a business owner myself I fully understand the need for costs, and am happy to pay the going rate. It just seemed sensible to check out what I was being quoted, to make sure we were making a good decision.

Can I ask whilst I’m on? One thing I’m dubious about is whether there’s a need to move from Royal London to OM and set the drawdown up right now, when we’re not going to be needing it for at least 2 years (my husband) and me probably much longer? We’re currently paying 0.45% to RL with no other fees (although I now suspect from what I’ve learned there will be Asset Management Fees built into that), whereas if we move to OM now we will start paying the 0.33% platform fee plus 0.5% to the IFA and a further 1.5% of the funds transferred. I suppose if we wait a couple of years then my own pot will have increased by about £30k (so another £400+ fees for transferring). Am I missing something? I can’t help but worry that that is only in the IFA’s interests, to get the business under his belt now? Perhaps I need to question him on this...