IFA service and charges

Prism

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

You shouldn't be looking for an IFA specifically for improved performance in your investments. Their role is to make sure you are invested appropriately for your situation as you move towards retirement.

If you do want to compare past performance I would also include maybe a similar passive multi-asset fund vs your previous portfolio and the IFA portfolio.

zagfles

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

Why do you think an IFA would deliver better performance? That's not the job of an IFA, their job is to assess your overall finances, risk appetite, objectives etc and come up with a suitable investment plan. A fund manager's job is to deliver performance, that's what you pay fund managers for.

If an IFA tries to sell their services on the basis of performance I'd be very wary, and ask them for performance history in writing. If what they tell you verbally differs substantially to what they're prepared to put in writing that's a big red flag!

Also worth doing a quick search for the IFA here in case they have financial ombudsman judgements against them (apparently most have none, so if they have some it could be another red flag): https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

Audaxer

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

I was adding the total product fees you quoted of 1.21% to the ongoing charge of 0.91% to get total annual fees of nearly £10k. Is that not correct?

Although the portfolio may have not be around long, I would assume most of the funds chosen have a longer history. To satisfy yourself about the past performance of the portfolio, you could recreate it in Trustnet by inputting the funds and weightings, and it will show you the returns, net of the ongoing fund charges, over the last 3, 5 and 10 years. 

BritishInvestor

Prism said:

If you do want to compare past performance I would also include maybe a similar passive multi-asset fund vs your previous portfolio and the IFA portfolio.

Surprisingly difficult to do (fairly/accurately) unless you have a history of all the fund switches that have taken place, and also adjusted for factor tillts. For example, the proposed IFA portfolio might have bought the usual "favourites" and had a great five years, but this doesn't really tell you much. 

zagfles

Audaxer said:

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

I was adding the total product fees you quoted of 1.21% to the ongoing charge of 0.91% to get total annual fees of nearly £10k. Is that not correct?

Although the portfolio may have not be around long, I would assume most of the funds chosen have a longer history. To satisfy yourself about the past performance of the portfolio, you could recreate it in Trustnet by inputting the funds and weightings, and it will show you the returns, net of the ongoing fund charges, over the last 3, 5 and 10 years. 

The trouble is if the portfolio is new it could have just been created by looking at yesterday's winners. Then it would show excellent performance, but that's performance in hindsight, anyone can create a new portfolio consisting of the best performers of recent years.

Prism

BritishInvestor said:

Prism said:

If you do want to compare past performance I would also include maybe a similar passive multi-asset fund vs your previous portfolio and the IFA portfolio.

Surprisingly difficult to do (fairly/accurately) unless you have a history of all the fund switches that have taken place, and also adjusted for factor tillts. For example, the proposed IFA portfolio might have bought the usual "favourites" and had a great five years, but this doesn't really tell you much. 

True - most investors don't know what their own returns are, especially if they have been contributing or withdrawing along the way.

fcjf

Audaxer said:

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

I was adding the total product fees you quoted of 1.21% to the ongoing charge of 0.91% to get total annual fees of nearly £10k. Is that not correct?

Although the portfolio may have not be around long, I would assume most of the funds chosen have a longer history. To satisfy yourself about the past performance of the portfolio, you could recreate it in Trustnet by inputting the funds and weightings, and it will show you the returns, net of the ongoing fund charges, over the last 3, 5 and 10 years. 

Yes sorry that is correct, I misunderstood the point you were making which when reading it again is eye watering.  

fcjf

zagfles said:

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

Why do you think an IFA would deliver better performance? That's not the job of an IFA, their job is to assess your overall finances, risk appetite, objectives etc and come up with a suitable investment plan. A fund manager's job is to deliver performance, that's what you pay fund managers for.

If an IFA tries to sell their services on the basis of performance I'd be very wary, and ask them for performance history in writing. If what they tell you verbally differs substantially to what they're prepared to put in writing that's a big red flag!

Also worth doing a quick search for the IFA here in case they have financial ombudsman judgements against them (apparently most have none, so if they have some it could be another red flag): https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

I meant better performance through the combination of the IFA (in determining what investment plan I need) and the fund manager (through delivering performance). 

I've just checked the ombudsman website and they have two judgements upheld against them, both relating to investment bonds so thank you for this, that's helped me with a decision, at least with this particular IFA.  

fcjf

Prism said:

fcjf said:

Audaxer said:

Apart from the initial charge of £10k, the ongoing fees totaling 2.12% amounts to nearly £10k per annum which seems very high. I don't know anything about the SIPP provider or adventurous portfolio they propose, but with these charges I think it would have to produce very good returns to beat a low-cost globally diversified portfolio that could be self managed.

However I can understand if you feel more comfortable going through an IFA. I would suggest maybe approaching a few IFAs to compare their charges, and making sure they are definitely Independent FAs, and not just FAs. Has the IFA you approached advised what funds are in their Spectrum A portfolio, or given you a global breakdown and percentage of equities in the portfolio etc.?

The ongoing fee is 0.91%, so approx. £4000 but still makes me uneasy, certainly without knowing what I get for that

Yes, they provided a full list of the funds in the recommended portfolio along with the % allocations.

I would be happy just transferring the pensions myself, it was more the choice of funds to run with that I maybe thought could be done better by an IFA both now and going forward. If the year on year improved performance by the IFA provider at least matches their fees then I'm not in effect paying anything, or is this not the way to look at it?   

You shouldn't be looking for an IFA specifically for improved performance in your investments. Their role is to make sure you are invested appropriately for your situation as you move towards retirement.

If you do want to compare past performance I would also include maybe a similar passive multi-asset fund vs your previous portfolio and the IFA portfolio.

The point about the IFA ensuring that I am invested appropriately as I move towards retirement is key for me. I have learned a lot on this site and others and I have a rough strategy that takes in my DB pension, ISA's and pension to deliver a tax efficient pension using a sensible drawdown rate but what if I have missed something or there is a better way of doing it? That's what I'd pay for but I don't fancy paying £10k a year for it!

fcjf

Dead_keen said:

It is very difficult to get an intuitive feel for how much a small percentage fee will steal from your pension pot. The power of compounding means that it can have an eye watering impact.  Have a look at this: https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/minimise-costs-maximise-pension

I've found this calculator using google (no idea if it is any good) but you can play with your own numbers and hope it is accurate.  As you are quite young, make sure that you use a long period (e.g. 35 to 40 years) see http://www.candidmoney.com/calculators/pension-cost-comparison-calculator

By way of comparison, Vanguard's fees for a low-cost diversified index tracker would be around 0.12% to 0.24% pa plus a capped platform fee of 0.15%.  So 0.27% (or lower with larger pots).    Using your numbers in that comparator (2.2% initial, 0.91% ongoing, £465,000, no further contributions, 35 years vs 0.27%) and making up a 6% annual return, the extra charges your IFA is suggesting would mean that your pot is roughly £700,000 smaller (i.e. it has reduced by 21% from what it would have been with low charges).  

Personally, I find those charges quite high but then you would probably get some very nice Christmas cards from your IFA.

I should say that there are other low cost funds around.  

This guy has produced an interesting book (with a couple of chapters focused on US stuff, but the rest is good) if you want another view: https://jlcollinsnh.com/stock-series/

Thank you for the calculators, I'll run my numbers later but ultimately ending up with a smaller pot through excessive charges has been a concern.