IFA service and charges

gm0

Assumption is that you are being advised to consolidate the DC only. i.e. keep the DB. A chunk of your long term required income is covered and this *may* enable a more risk embracing approach to the DC portion.  Depending on your attitude and goals.  It certainly diminishes the perceived risk (to me) of self managing the DC element. You may feel differently. 
But 16k pa (3.5% of 465k DC pot in drawdown as a first estimate) vs 20k DB and 9k SP (plus any spouse SP).  So only 1/3 (or less with spouse SP) is DC drawdown the rest is guranteed income.  % drops further once you consider "required minimum income" vs "desired income".  Implication - how much risk do you need to take - or do you choose to take with this discretionary slice of income portion.

On the sell side this leaves a smaller pool of "assets under management" for the profit of the adviser.  Cost of a case is cost of a case. So a higher rate or opportunistic pricing to take the business may be expected.  So shop around.  You are being overcharged for what you will likely get.  0.5% would be the benchmark on the forum for advice (which would include functions that the DFM is doing so this should be netted off - don't pay twice as seems to be the case here).  The expensive slice of advisers seem to charge market price and pass through the DFM as though it was added extra value.  For most of us - it's not.  As explained on other threads it can remove a chunk of otherwise required compliance work for the adviser which makes it attractive - to them.  Forum regular dunstonh has explained this on other occasions better than I but the summary is that DFM for the customer is a specialist or a niche scenario not a common "need".

As a lowball DIY comparator my blended investment in equities funds setup has total fund+platform costs of 0.13% across platforms (a blend of 0.06, 0.11, 0.19) this being the equivalent of product and DFM costs in your story. 
No advice as I don't take it - but if that was added at 0.5% - funds under management then we would get to 0.63% total.

So you can likely see the extent to which you are being overcharged ongoing at more than one level.  Some of my numbers relate to particular historic schemes so if we take my worst platform and funds figure and round that up to "0.2%".  For a mainstream fairly passive yet diversified portfolio this should cost around 0.7% advised all in. No exit fees. For some cheeky active funds instead (based perhaps on a belief that this bet will perform better in uncertain conditions) - add another 0.5% to that. so 0.7% for the product and 0.5% for the advice = 1.2%.

Your number is 2.12%.  Excess profit is the difference 0.9% - 1.4% every year you stay with the arrangement. (I have ignored upfront costs in this although it makes it a little worse).   In a possible medium term world of sub 5% long term average growth asset returns - this is well beyond cheeky into actively impudent.  But at the end of the day it's negotiated prices for services.  They offer - you accept or you don't.  Entry fees can also be negotiable on the quantity of admin work to consolidate and the nature of the platform offered. I doubt you will get 0% with 465k but could haggle and shop around.

Don't assume that there is an active and causal connection between paying the adviser and the DFM on top of fund costs and "higher returns" for you which is not the case. For a similar portfolio the managed one underperforms by the extra fees - guaranteed.  Only if the portfolio is "better" (i.e. materially different") from a mainstream equity % or multi-asset holding can a case be made.

People invoke bad behaviour (trading at the wrong times) to suggest DIY underperforms advised and this may very well be true for some people - specifically the people who sell in the middle of a revaluation crash.  You need to convince yourself (or not) that you are not that person and can sleep with that risk without handholding.  My technique for that was to research drawdown and iteratively make a long term plan - not to increase certainty or precision of predicted outcome but to increase confidence and help drive behaviour.  What (may) work for me may not for you and you may have better uses for the time spent.

Data also shows "most of" active funds underperforming passive whole of market net costs.  And the equivalent of broadly the market managed portfolios (i.e the ones where the customer is unlikely to be spooked by mild underperformance and thus to leave) may instead be had for the cost of the funds alone without lining the pockets of the DFM and the adviser.   DIY picking actives avoiding the poor ones is often championed but that's not what a lot of advice does.  Your adviser picked the DFM.  The DFM uses Parmenion.  And there are packages of funds to suit risk appetite.  Categories into which you will be slotted.

Summing up - is what you are going to "get" every year worth up to as much as 25% of your returns ? 
Do you understand what it is ?  Do you truly value it ?

If the advice = success link existed then in a competitive market an advised package with performance contingent fees would exist which it does not.  All you can expect for these fees is "suitable" from a regulation perspective advice and to be put in something which is aligned to your risk appetite (as in a broad set of categories).  Blended multi-asset funds are plentiful which correspond to these categories in 20% growth asset increments. 

Neither the adviser nor the DFM is going to be sat poised to rapidly trade you intraday out of trouble when chill winds blow through.  They might set you up better (or worse) in terms of medium term trends.  But they get paid anyway. Win or lose. You get a nice letter explaining underperformance and the market headwinds behind it. 

Nonetheless this sort of advised setup may be suitable for you if you want to outsource worrying about this and the mechanics of it.  You likely can do materially better by "shopping around" but going through a proper discovery and compliance journey multiple times may a faff and approach the effort of setting up DIY.  It's your choice in the end.

In the end only you know whether you trust yourself to manage this "discretionary income" element alongside DB and SP.  That's a real value of the advice as hand hold.

If it was me and I still wanted advice - I would shop around some more and try to avoid a DFM (except where advice fees have dipped to offset the reduced work by moving this down the chain) i.e. it's invisible to you. 0.5% including DFM if present. Plus funds and platform (at a not stupid price for what is offered - wealth preservation, active, passive etc.).

AlanP_2

I don't see how the IFA can have come up with an appropriate plan that hasn't considered your wider financial situation.

Did your OHs situation feature in the discussion? Given their low pension provision did the IFA suggest that increasing pension contributions for them should be considered? You want them to at least use up their personal tax allowance in retirement rather than pay unnecessary tax on withdrawals from your pot.

Audaxer

zagfles said:

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.

That true, there could be a large weighting of the likes of Fundsmith or SMT in there which would bump up the portfolio historic returns, so have to carefully assess each fund and how it fits into to what is hopefully well balanced and diversified portfolio. I think if I was going through an IFA and they didn't produce any past performance figures, I would also want to have a look at past performance through Trustnet and compare to maybe passive or multi asset solutions with a similar percentage of equities.

Dead_keen

fcjf said:

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.   

Ooops.  Just re-read your post and it is not 0.91% ongoing, it is 0.91% + 1.21% ongoing (so 2.12%pa).  Using the above assumptions and the 2.12%pa ongoing, you would be £1.5m or so smaller (or 52.8% of what the Vanguard pot would have been).  Perhaps you will get a birthday card from your IFA too?

dunstonh

Is the initial 2.2% transaction charge (£10,000) for the IFA alone or will some of this be paid to the product provider?

Charges are unbundled. i.e. all fees must be broken down by adviser, platform, fund house, DFM (if used) and then bottom line.   So, if the IFA says the IFA charge is 2.2% then that is what the IFA gets.   It is unusual for any other initial charges to exist nowadays.
However, 10k is ridiculously high.   No need to pay anywhere near that.  Circa £2.5k should be more in line with your target.

 For the IFA’s ongoing charge of 0.91% (£4200pa) should there be an agreed scope of services for these charges? Is there a metric to ensuring that good service is provided?

This is a strange one.  0.91% doesn't really sound like only the IFA charge.   IFA charges are normally rounded.ie. 0.5%, 0.75% or 1.0%,     Although if you are reading the charge from a ex ante cost disclosure then that includes growth on the portfolio over the year.  So, you are not actually paying 0.91% of your initial value but what equates to 0.91% if x% p.a. is achieved. 

However, again, 0.9x% is too high for your value.  0.50% should be the target. Especially if a DFM is being used.
Bottom line is that both the initial and the ongoing charges (all in) are too expensive.  

20 years ago, I was told that investments shouldn't exceed 2% p.a.  Since then, charges have fallen a lot.and I would say that 1.5% ish is the maximum (I caveat that if the person is an ethical or ESG investor as they have to be more active on portfolios by their nature and that means you can just sneak a little over 1.5%).  However, with your fund value on a hybrid portfolio then you should be looking at a total bottom line (i.e. all charges across the board of 0.9%-1.2% as typical range).

If I go through with this I would consider adding £6000 to my HL SIPP before the transfer so, as a HRT payer, in effect cover off the £10,000 with this payment, is there anything wrong with this logic?

Paying fees via the pension is the most cost effective way for the reason you mention.

I have only approached 1 IFA through unbiased should I approach one or more IFA’s for their views and charges? 

Most IFAs I know no longer use unbiased.    In our area, none of the local independent IFAs is on it.  A couple of network IFAs are on it and several wealth management IFAs but mostly national or regional salesforces (and some of them were not IFAs).  Unbiased is no longer an IFA directory but a lead management service. 

. 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?   

An IFAs primary role is to make sure your investments are suitable for you and your objectives, knowledge, understanding and behaviour.   Performance is not a primary objective.   Of course, the hope is that the IFA can add some value there by aiming to avoid the trash and IFAs do typically buy in research, data and due diligence to do that.   However, your IFA is passing the investment decisions to the DFM. and you pay for that DFM.   

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.  

Most IFAs have never had a complaint with the FOS.  Something over 80% of IFAs haven't according to FOS (not seen any recent figures).  That could be partly scale of the size of the company.  Larger companies are more likely than smaller ones just due to volume.     If its a firm with 20 advisers and had 30 years of business, then two complaints would not be a concern.   If its a firm of 2 advisers with 5 years history, then it is a concern.

Ibrahim5

Sending me a Christmas card addressed to me correctly and on time was the only thing an IFA has ever done competently for me.

bostonerimus

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.

Sometimes you pay a fund manager to "outperform", sometimes they equal the bench mark and often you pay to underperform. What if all we do when we pay fund managers is perpetuate a myth that they are of any use whatsoever...akin to "telephone sanitation engineers"?

bostonerimus

fcjf said:

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!

There will be many successful retirement plan permutations for you. Some IFAs and fund managers will play on the uncertainty and paranoia of the investor. You should stop worrying about trying to come up with the perfect plan as long as you have done the usual sensible things about budget, asset allocation and drawdown. If you have a plan that works stop worrying about other plans that might be described as "better" in some other universe. If your plan lets you meet your goals and enjoy retirement it's perfectly good enough.

zagfles

bostonerimus said:

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.

Sometimes you pay a fund manager to "outperform", sometimes they equal the bench mark and often the underperform. What if all we do when we pay fund managers is perpetuate a myth that they are of any use whatsoever...akin to "telephone sanitation engineers"?

The point is, whether or not they actually succeed, fund managers are usually targeted with achieving a performance objective, whether it be outperforming an index or other benchmark. That's their job. Not that of an IFA.

Albermarle

• Former employers DC pension with Lifesight (Wills Towers Watson) of £290k, plan fund charge of 0.105%
• Current employers DC pension with Fidelity of £50k (I can withdraw current value but keep making mine 8% and employers 8% contributions). Plan fund charge of 0.21%
• Hargreaves Lansdowne SIPP of £125k. HL 0.45% + various product charges.

It is probably just worth noting that the charges for Lifesight & Fidelity pensions are very competitive ( assuming they include all charges for the platform and the funds ) . 
One possibility could be that you have a one off session with an IFA ( for a fee of course ) and they could advise you on an investment strategy for all your pensions and ISA's ( and for your spouse as best to include them in any financial planning exercise) but without transferring them ( or you transfer them ) .
You could repeat this every few years if necessary . Although some self management of the pensions/investments would  be needed , in reality they are usually best left alone rather than too much tinkering anyway.
The issue would be finding an IFA willing to do this without an ongoing fee as many seem reluctant , but it should be possible.