Financial Advisors percentage based charges

Bigmac1

Just starting to look for a Financial Advisor and I'm finding it a confusing minefield. 

we've got around £700,000 in a pension with Scottish widows/ Standard life.  Returns are a bit up and down ranging from a 2% loss one year to a 17% gain, average is about 8% per annum.  It's come to the time I need to start thinking about doing something with it and I think a drawdown pension would be most appropriate.  Our outgoings are modest and everything is paid for - ample money in the bank, and all the kids have been given a house each to reduce our exposure to inheritance fees, all the solicitors stuff is completed.

I've spoken to a couple of financial advisors questioning why their charges are what they are - one claimed overheads, another stared into the distance and said "£170/hour (5 years ago)" and said they'd "quote for the work". 

Looking at websites today some give a fixed fee for "initial set up" - one (that was doing OK and getting my interest up to this point) wanted 2.75%, while another asks for 1.0% capped at £2500.  So the first website would be looking for £2750 on a £100,000 pension, while the second would only look for a grand.  If you have £1/2 million - it's £13750, compared to £2500 - and the second guy *appears* to be the better qualified.  If you look at those figures on an hourly rate of £200 for argument sake, website number one is claiming to be putting in 2 working weeks, while website number two will be completing whatever the tasks are supposed to be in about a day and a half.  If Number One is "all smoke and mirrors"  The need to get some polish on 'em!

RANT OVER
do I really need Financial advice for a drawdown pension or would I be wise to get some help?  I've got spreadsheets coming out of my ears and everything looks fine - but could they do a better job and make me better off? 

Albermarle

Here is a link to a current thread , with links to other threads on similar topics .
https://forums.moneysavingexpert.com/discussion/6245225/are-ifa-fees-reasonable/p1

TVAS

Looks like these are not DB schemes so less work for the adviser.
You could do the work yourself and research s cheap SIPP that is drawdown ready. 
If you want to take an annuity so have a guaranteed regular income you can still do the research yourself.

The 1% fee capped at £2,750 is competitive. What they will want to do i.e. the really prize is they will want to change an ongoing advice fee (OAC) if you go down the adviser route negotiate I would go no more than 0.25% p.a. However you do not need this if you don't want it. Some advisers do the work in an annual review they do a report, have a face to face or now Zoom to Zoom to meeting with you discussing the performance of the funds blah blah blah.  If this charge has been put onto your plan i.e. you agree when you no longer want the service you can write to the provider and ask them to remove it. 

You simply have to set up a new scheme telling them they will receive transfer moneys the new scheme will contact the old scheme with your details plan number etc. Most providers are part of an internal transfer system called Origo so making the transfer faster due to avoiding the postal network.

[Deleted User]

Welcome to the forum.
Your pension with ScottishWidows/StandardLife has provision for you to drawdown from it, I should have thought. If so, it needs no third party to "set it up."

dunstonh

Looking at websites today some give a fixed fee for "initial set up" - one (that was doing OK and getting my interest up to this point) wanted 2.75%, while another asks for 1.0% capped at £2500.  So the first website would be looking for £2750 on a £100,000 pension, while the second would only look for a grand.  If you have £1/2 million - it's £13750, compared to £2500 - and the second guy *appears* to be the better qualified.  If you look at those figures on an hourly rate of £200 for argument sake, website number one is claiming to be putting in 2 working weeks, while website number two will be completing whatever the tasks are supposed to be in about a day and a half.  If Number One is "all smoke and mirrors"  The need to get some polish on 'em!

So, in summary, pricing works exactly like other jobs.    Some are cheaper than others. Some are greedy.
I had two quotes from an arborist for doing the same job. One was £1800 and the other £6400.    Many years ago, I had another job where it varied from £1000 to £20,000.        Businesses are free to set their prices and consumers are free to accept or reject.

Bigmac1

Thanks Dunstonh, I too have been in business many years and I knew all of my competitors and they knew us.  We competed for business in what I would suggest is a more competitive arena fighting for Insurance company business, so our prices, our "offerings" were very similarly priced (even managed to get copies of their price lists from time to time.  I see you are an IFA - I'm trying to understand what it is that is being done for such large amount of money?  Y'know - even £2,500 isn't small amounts.

Bigmac1

ZingPowZing, thanks for your comment I'm almost certain that the Scottish Widows one does, Not so sure about the standard life one as it is "she who must be obeyed"'s.

I'd like someone to have a look over what I've done and either tell me it's OK, or that it's crap - but in that case WHY! :-D   

dunstonh

Bigmac1 said:

Thanks Dunstonh, I too have been in business many years and I knew all of my competitors and they knew us.  We competed for business in what I would suggest is a more competitive arena fighting for Insurance company business, so our prices, our "offerings" were very similarly priced (even managed to get copies of their price lists from time to time.  I see you are an IFA - I'm trying to understand what it is that is being done for such large amount of money?  Y'know - even £2,500 isn't small amounts.

IFA business models vary significantly.   Some focus on high net worth. Some focus on high volume.   Some firms are near end of life and just looking to harvest funds to sell to be buyer (who is usually not an IFA).  Some are general practitioner.  Some are investment-focused.

Y'know - even £2,500 isn't small amounts.

An IFA business is ridiculously expensive to operate for what it does.  Regulation and compliance will eat around 1/3rd of the fee income and even more time. .  A 20 page report given to a client summarising the advice can have 200-500 pages of documents on file to support it.      99% of those documents never see the light of day again.
Support staff are not cheap.  A paraplanner assisting an IFA is £30k-70k a year.
A transaction takes just minutes.   Getting to that transaction is a eurocrats wet dream.  MIFIDII in particular created a deluge of bureaucracy.

That said, £2,500 isn't really that much.   When I look at what I get billed by other trades, I actually wonder if we are charging enough.

TVAS

Read you policies just to make sure you are not giving up any benefits. Speak to the Pension Advisory Service it is free and you can have a 45 minute tele con with an experienced adviser (not IFA).

cfw1994

When you say

Our outgoings are modest and everything is paid for - ample money in the bank, and all the kids have been given a house each to reduce our exposure to inheritance fees, all the solicitors stuff is completed.

it feels to me you must be someone with their head screwed on, capable of managing the £700k pot as well as any IFA......but do you want to?  Have you the interest to?   Averaging 8% growth is pretty decent, albeit we have had a decent market to invest in for some years.  This week could see som gains reversing....

JohnWinder

Bigmac1 said:

do I really need Financial advice for a drawdown pension or would I be wise to get some help?  I've got spreadsheets coming out of my ears and everything looks fine - but could they do a better job and make me better off? 

There's a lot we don't know to allow a sensible answer to Q1. Choosing our own assumptions we could reasonably come up with 'yes' and 'yes' or 'no' and 'no'.

As I read it you're considering only some initial advice, nothing beyond that. If you found a £10,000 service that put your mind at rest about your own spreadsheets etc it might be justified. You might be wanting this service because you're a sensibly cautious person when it comes to £0.7M - good. But if you're wanting it because you feel under-informed about financial management and investing, then I think the risk to you with that service is that you're a bit bamboozled by what you're told, unable to fully appraise it because you're not adequately prepared and skilled, and finish up feeling you need an advisor for life who may do no better for you than you might have done for yourself with better preparation. The problem with needing to get advice is that you're ill-equipped to evaluate its quality; and if you can properly appraise it, there are good reasons to think you won't do better with it.

Advisors face a couple of headwinds in a long term relationship, at least in making you better off: none are likely to have your interests at heart to the extent you do; and they bring costs you can avoid without them. I calculate that paying only 0.25%/year in advisor fees would cost you £96k in foregone returns over 25 years of investing while withdrawing £25k/year (assuming 5%/year investment returns) - online compound interest calculator.

Even knowing all your circumstances, and knowing how an advisor suggested your investments should be managed, and both being favourable, I don't think anyone could say that an advisor would do a better job - future investment returns are just so unknown. But costs and their effects aren't.

Perhaps there's something in this podcast that helps you:

https://www.kitces.com/blog/jason-zweig-wall-street-journal-intelligent-investor-financial-advisor-curator