IFA fees to manage Pension - worth it?

ukdw

I would recommend multiplying all of the annual costs and charges by the likely total length of the pension to put them into perspective. If for example you are age 50 - I would assume an average lifespan of say 84 - therefore the multiple is 34.
Therefore 1% becomes 34% or £272k.
0.5% is better, but still 17% or £136k

dunstonh

Or, to say the same, in different words: 'No. However, there are a number of times that it does.' I guess we're talking about a fee of 1%/year resulting in a return more favourable by 1%/year than obtainable without an on-going advisor fee.

It would be interesting if the OP returned and confirmed the charges.   From how its written it could be 1% all in or 1% adviser charge.  An adviser charge at 1% on £800k is expensive and there are plenty of alternative advice firms out there that charge half that.

JohnWinder

ukdw said:

I would recommend multiplying all of the annual costs and charges by the likely total length of the pension to put them into perspective. If for example you are age 50 - I would assume an average lifespan of say 84 - therefore the multiple is 34.
Therefore 1% becomes 34% or £272k.
0.5% is better, but still 17% or £136k

£272k is indeed 34% of the original investment of £800k. And this nicely illustrates why people keep banging on about how important fees are over the longer term.

But you better tell us the assumptions you made and the conclusion you drew with 34%. Because when I use an online compound interest calculator to emulate £800k being invested for 34 years and getting a 3%/year return, I find the final value is worth millions. And when I repeat that with a 2%/year return because fees of 1%/year are taken, I get the same final millions MINUS about £600k. That's a lot different from a 'cost' of £242k.

westv

JohnWinder said:

ukdw said:

I would recommend multiplying all of the annual costs and charges by the likely total length of the pension to put them into perspective. If for example you are age 50 - I would assume an average lifespan of say 84 - therefore the multiple is 34.
Therefore 1% becomes 34% or £272k.
0.5% is better, but still 17% or £136k

£272k is indeed 34% of the original investment of £800k. And this nicely illustrates why people keep banging on about how important fees are over the longer term.

But you better tell us the assumptions you made and the conclusion you drew with 34%. Because when I use an online compound interest calculator to emulate £800k being invested for 34 years and getting a 3%/year return, I find the final value is worth millions. And when I repeat that with a 2%/year return because fees of 1%/year are taken, I get the same final millions MINUS about £600k. That's a lot different from a 'cost' of £242k.

You seem to be assuming nothing will be withdrawn from the pot before 84.

Traktor_4

dunstonh said:

Or, to say the same, in different words: 'No. However, there are a number of times that it does.' I guess we're talking about a fee of 1%/year resulting in a return more favourable by 1%/year than obtainable without an on-going advisor fee.

It would be interesting if the OP returned and confirmed the charges.   From how its written it could be 1% all in or 1% adviser charge.  An adviser charge at 1% on £800k is expensive and there are plenty of alternative advice firms out there that charge half that.

The current pensions have a 0.3% Management Charge - the proposed scheme ongoing charge together with adviser fee is 1%.  I will clarify whether that includes any platform fee as that was not discussed.  

dunstonh

Traktor_4 said:

dunstonh said:

Or, to say the same, in different words: 'No. However, there are a number of times that it does.' I guess we're talking about a fee of 1%/year resulting in a return more favourable by 1%/year than obtainable without an on-going advisor fee.

It would be interesting if the OP returned and confirmed the charges.   From how its written it could be 1% all in or 1% adviser charge.  An adviser charge at 1% on £800k is expensive and there are plenty of alternative advice firms out there that charge half that.

The current pensions have a 0.3% Management Charge - the proposed scheme ongoing charge together with adviser fee is 1%.  I will clarify whether that includes any platform fee as that was not discussed.  

In which case, 1% is far too expensive on £800k.    Fund charges are right in the ballpark.  
Advisers are required to split the charges down by
providers/platform/product charge (not all pensions a charge here)
OCF (or TER if no OCF or AMC if using insured funds)
Transaction charges*
Incidental charges (other)*
Adviser charge.
Total.

*most investors take no notice of the transaction charges and incidental charges and you rarely see them mentioned on sites like this.   However, advisers are required to include them even though they are flawed figures.   Advisers, like experienced investors, will usually downplay the TC/IC in discussion but they will be documented.

[Deleted User]

Traktor_4 said:

dunstonh said:

Or, to say the same, in different words: 'No. However, there are a number of times that it does.' I guess we're talking about a fee of 1%/year resulting in a return more favourable by 1%/year than obtainable without an on-going advisor fee.

It would be interesting if the OP returned and confirmed the charges.   From how its written it could be 1% all in or 1% adviser charge.  An adviser charge at 1% on £800k is expensive and there are plenty of alternative advice firms out there that charge half that.

The current pensions have a 0.3% Management Charge - the proposed scheme ongoing charge together with adviser fee is 1%.  I will clarify whether that includes any platform fee as that was not discussed.  

Platform fees on 800k can and should be a tiny fraction of 0.1%.  The answer is still the sane. You are paying way too much. 

JohnWinder

westv said:

 And when I repeat that with a 2%/year return because fees of 1%/year are taken, I get the same final millions MINUS about £600k. That's a lot different from a 'cost' of £242k.

You seem to be assuming nothing will be withdrawn from the pot before 84.

Quite right. Sorry. I've got the flu, I hope.

So, withdrawing £20k/year each year, at the start of the year, makes a difference of £422k to the final balance at the end.

Don't expect me to be able to do that with inflation adjusted withdrawals, even without the flu, although it is tempting.

Traktor_4

dunstonh said:

Traktor_4 said:

dunstonh said:

Or, to say the same, in different words: 'No. However, there are a number of times that it does.' I guess we're talking about a fee of 1%/year resulting in a return more favourable by 1%/year than obtainable without an on-going advisor fee.

It would be interesting if the OP returned and confirmed the charges.   From how its written it could be 1% all in or 1% adviser charge.  An adviser charge at 1% on £800k is expensive and there are plenty of alternative advice firms out there that charge half that.

The current pensions have a 0.3% Management Charge - the proposed scheme ongoing charge together with adviser fee is 1%.  I will clarify whether that includes any platform fee as that was not discussed.  

In which case, 1% is far too expensive on £800k.    Fund charges are right in the ballpark.  
Advisers are required to split the charges down by
providers/platform/product charge (not all pensions a charge here)
OCF (or TER if no OCF or AMC if using insured funds)
Transaction charges*
Incidental charges (other)*
Adviser charge.
Total.

*most investors take no notice of the transaction charges and incidental charges and you rarely see them mentioned on sites like this.   However, advisers are required to include them even though they are flawed figures.   Advisers, like experienced investors, will usually downplay the TC/IC in discussion but they will be documented.

To confirm, the proposal is to consolidate two company pensions (Scottish widows, total £800k) into a portfolio of funds, based on my risk profile, managed on the IFA only platform.  The portfolio has performed at 16% average over the past 3years.
The charge to move the pensions into the new platform and portfolio investment is £5k.
The ongoing fund charge is 0.28% and the total annual management charge is 1% (ongoing fund +IFA charge).

JohnWinder

Traktor_4 said:
The charge to move the pensions into the new platform and portfolio investment is £5k.

So that would be 10 hours of work, charged at, let's say £500/hour to cover office costs. Is there any fat in the system that can yet be trimmed there?