Do I really need a Financial Advisor on an ongoing basis?

MisterT

Hi, last year I transferred an old final salary pension to the Royal London Governed Portfolio 1. With the amount involved engaging a Financial Advisor was mandatory and I was happy with the way it was handled. The cost of "monitoring and ongoing reviews" is 0.35% of the fund value and having just had my first annual statement from Royal London I'm wondering what exactly am I getting for this. Since the dust settled on my transfer I haven't had anything from the advisor other than a statement of how the fund was doing a few months, nothing I can't get directly from Royal London myself whenever I want to.

I've got 3 years or so until I retire so I'm not looking for anything much in the run up to that, I'm happy to stay invested with RL until then at which point I plan to use the fund to for income drawdown.

So can and should I save myself 0.35% a year by dispensing with the ongoing advisor fees and using an advisor on a transactional basis if and when I need one?

dunstonh

Do I really need a Financial Advisor on an ongoing basis?

It depends.

If the adviser is controlling the investment strategy then they are doing the work for that.  If they are using an off-the-shelf solution then they are not.        RL is an off the shelf solution.   We tend to use it on transactional clients (no ongoing servicing).  So, if you have no ongoing planning needs and there is no control on the investment strategy by the adviser then you dont need the ongoing service.

Be aware though, that transactional advice (pay if and when needed) can work out more expensive in the long run.  

JohnWinder

dunstonh said:

Be aware though, that transactional advice (pay if and when needed) can work out more expensive in the long run.  

Clearly, there must be circumstances where this is true: I chose a different advisor each time I go for transactional advice; or I go for this advice every 8 months and make a nuisance of myself; or 0.35%/year represents £150/year. But if I have an account with an advisor, and wish to only have her service every three years on a transactional basis, it can't be necessary for the advisor to undertake all that's necessary with a new client, to justify three years of fees for one bit of transactional advice in the situation the OP painted? Surely there has to be some balance here.

[Deleted User]

https://citywire.co.uk/new-model-adviser/news/fca-concerned-consumers-are-paying-for-ongoing-advice-they-don-t-need/a1434136

According to the FCA’s own data, more than 90% of new clients are paying ongoing advice fees. 

This is particularly relevant to the FCA's concerns over the long-term viability of DB pension transfers, as many will be depleted by ongoing financial adviser fees leeching from the principal throughout the life of the pension.

Albermarle

Couple of other points to think about .
Normally Royal London is a provider that normally works with advisors , rather than direct with the public. 
I think once you have an account with them set up by an advisor , you can do some things directly , like make new contributions for example. However if you needed to change to a new product you would have to go via an advisor , or transfer out to a new provider that is happy to deal direct with the public ( there are plenty ) . That might be the case also if you want to start taking the pension.

You would probably get more value for the ongoing advice if you had some other needs rather than just the pension . Such as tax advice, ,family financial issues or any other more complex financial affairs.

Drawdown is more complicated ( to do correctly ) than accumulating the pension pot in the first place .

dunstonh

JohnWinder said:

dunstonh said:

Be aware though, that transactional advice (pay if and when needed) can work out more expensive in the long run.  

Clearly, there must be circumstances where this is true: I chose a different advisor each time I go for transactional advice; or I go for this advice every 8 months and make a nuisance of myself; or 0.35%/year represents £150/year. But if I have an account with an advisor, and wish to only have her service every three years on a transactional basis, it can't be necessary for the advisor to undertake all that's necessary with a new client, to justify three years of fees for one bit of transactional advice in the situation the OP painted? Surely there has to be some balance here.

0.35% a year or say 2% for each transactional advice event.  The balance is a commercial reality.

I'm not saying that turning it off in wrong in the right circumstances.   We have ended plenty of ongoing servicing ourselves where there really wasnt a need any more.  We will probably knock off another dozen this year where people have got to the end of the advice cycle and are on multi-asset funds/off-the-shelf options.

However, transitional clients will pay transactional rates.  They don't get the discounted terms that the ongoing clients get.   So, the frequency of use vs the fee structure should be looked at.

MisterT

Thanks for the comments and insights.

As has been pointed out I may well need advice in the future and I would hope that a simple enough query even if not 100% related to my RL investment the advisor would be happy to answer given I'm on his books.

How much are typical transactional rates?  When I come to the point of actually retiring there are bound to be more things to consider than just arranging drawdown given I have 2 other final salary schemes and AVCs to take into account as well.

Is the 3k or thereabouts I'd save in the run up to that point going to be negated by paying for transactional advice at that time?

bostonerimus

I think only you can really know if you need or want an advisor. It's perfectly possible to be successful without one, but you do need some basic knowledge and the discipline to not do silly things when times are tough. With the easy availability of index trackers, multi-asset funds and active funds on platforms with lots of admin tools you can build a portfolio and manage it. If your investing style is more on the "buy and hold" end of the spectrum I don't see the value of an advisor except for major life events like maybe developing a drawdown strategy and even that's pretty simple to DIY.

naedanger

MisterT said:

Thanks for the comments and insights.

As has been pointed out I may well need advice in the future and I would hope that a simple enough query even if not 100% related to my RL investment the advisor would be happy to answer given I'm on his books.

How much are typical transactional rates?  When I come to the point of actually retiring there are bound to be more things to consider than just arranging drawdown given I have 2 other final salary schemes and AVCs to take into account as well.

Is the 3k or thereabouts I'd save in the run up to that point going to be negated by paying for transactional advice at that time?

Will your ongoing fees definitely cover the advice you will need when you retire e.g. including  how to invest any tax free lump sum and AVC funds? If not then factor such additional costs into your comparison of ongoing vs transactional fees.

If there is not a lot difference between the two ways of paying, it may be worth considering the convenience of having an existing adviser when you come to retire. 

TVAS

Write to Royal London and the IFA. Tell the former you wish to remove the Ongoing Adviser Charge (OAC) from your plan, This is your right as per the Retail Distribution Regulation (RDR) regulations which came into effect from 1 December 2012. 

You can read what the FCA think below but they do think clients are routinely charged for OAC when it is not required/justified,

https://www.fca.org.uk/publication/corporate/evaluation-of-the-impact-of-the-rdr-and-famr.pdf

dunstonh

As has been pointed out I may well need advice in the future and I would hope that a simple enough query even if not 100% related to my RL investment the advisor would be happy to answer given I'm on his books.

If you end servicing, then you are not really on the books any more.   Ongoing servicing won't just include formal stuff but general queries, sounding board and opinions.     Don't expect much in the way of freebies if you have ended the ongoing servicing.

How much are typical transactional rates?  When I come to the point of actually retiring there are bound to be more things to consider than just arranging drawdown given I have 2 other final salary schemes and AVCs to take into account as well.

Every firm sets its own rates.   You would need to ask your adviser what theirs are.    Top ups/switches with no initial charge are frequently included in the ongoing service of many firms but not all.