IFA charges - what is reasonable for initial planning and ongoing reviews?

noalibi

Between the OH and I, we have accumulated six “simple” DC schemes totalling about £2.25m.  I use the term simple as they don’t appear to have any exit restrictions or guarantees that would overly complicate matters, other than one of us has exceeded the LTA, the other nearing the LTA.  Likewise, we don’t have any other complicating factors, i.e. only minimal savings, no inheritance factors, debt free.

Nearing retirement, and having made the decision to use an IFA for pension advice, we have had initial meetings and quotes from a number of potential candidates.

Services from the various IFAs appear to be similar, i.e. initial planning sessions (risk analysis, pension review, cash flow forecasts, consolidating/moving funds if required, etc.) and ongoing review service (annual meeting, reviewing/rebalancing the portfolio, determining optimal drawdown rate and strategy).

We have had mixed quotes from them, ranging between 0.4%-1.0% of the portfolio for the initial advice and any set up (circa £10k-£23k) and 0.75%-1.8%/year (circa £17k-£40k) for ongoing services.

Cost will not be the only factor in the decision.  Our choice is likely to come down to who we feel most comfortable with, however we would like to understand if what we are being charged is reasonable.  We do not begrudge paying for the service - they are skilled professionals.  However we want to ensure we am not being excessively charged.

Given our situation, what would you consider to be a reasonable charge for both the initial engagement and for an ongoing service?  We’d also be interested to know if you think there is scope to negotiate these charges and what - if any - successes you have had negotiating a lower fee.

Many thanks

Albermarle

We have had mixed quotes from them, ranging between 0.4%-1.0% of the portfolio for the initial advice and any set up (circa £10k-£23k) and 0.75%-1.8%/year (circa £17k-£40k) for ongoing services.

The initial figures look about right, especially as you both have considerable pension assets .  Normally they are more like 2or 3% but clearly this has been reduced to take account of the rather large sum of money involved. To some extent a one off £13K difference is neither here or there on a pot > £2M .

For the ongoing charge , that would be high just for ongoing advice, but I presume that also includes the fees for the pension platform and Investment fund costs ? 

If so 0.75% all in for advisor, platform and funds would be pretty low , whilst 1.8% would be high . Obviously keeping the ongoing cost down is important. 

 We do not begrudge paying for the service - they are skilled professionals. 

I am not sure if you are regular readers of the forum? If you are then you will know there are many 'discussions' about the value of using IFA's and I would  be surprised if the above statement does not generate some  comments.  Just to make you aware.

dunstonh

We have had mixed quotes from them, ranging between 0.4%-1.0% of the portfolio for the initial advice and any set up (circa £10k-£23k) and 0.75%-1.8%/year (circa £17k-£40k) for ongoing services.

Charges need to be looked at in monetary terms even when you are using percentages.  There is no reason for the vast majority of investment/pension cases for the initial charge to exceed £3k.    Some firms are greedy and go way beyond that.  Some will have a decency cap. or a cap and collar arrangement.   The ongoing charges are often tapered with firms.  Although some have a fixed rate.   i.e. 1% for smaller value, 0.75% for medium, 0.5% for larger.   

We’d also be interested to know if you think there is scope to negotiate these charges and what - if any - successes you have had negotiating a lower fee.

Strictly speaking, a firm should not discount their charge for one individual without good reason for doing so.    If they discount willy nilly then it indicates their charging structure is not suitable.  If the discount is due to family linking (a lot of IFAs deal with all members of the client's family for example) or dealing with x number of people from the same workplace etc then that is fine.   If its just a case of giving a discount because you asked for it then no.  It doesn't mean you won't get it but it says more about the firm that they are charging too much in the first place and those that pay more are subsidising those that pay less.

Ibrahim5

Of course the charges aren't reasonable. Your £2.25 million will generate a lot of money. They want a big share of it. How much you give them is up to YOU. Having a spiv come on here and say "our normal fee is x% of your portfolio" doesn't mean it is reasonable. You need to negotiate the fee down. The IFA won't do it for you. Watch the negotiations on "The Apprentice".

[Deleted User]

I can understand that someone may want to consult as circumstances change and you go into withdrawal mode.  

For the life of me I can’t fathom why anyone needs an annual review and pay a whole Honda Civic revery single year regardless of whether fund goes up or down.  A good plan should be on autopilot and shouldn’t be tinkered with.  After 30 years of retirement you will have provided IFA with a large fleet of Civics, Mercs and  a few Porsches. 

What exactly do you get for 17-40K?  If the original plan is good you should get a handshake and a “no change” advice. 

Ibrahim5

It's strange how annual reviews weren't needed in the days of commission. They got their money without reviews so they never did them. My investments weren't reviewed for over 20 years. It would have been OK if the IFA had invested them appropriately in the first place.

Albermarle

After 30 years of retirement you will have provided IFA with a large fleet of Civics, Mercs and  a few Porsches

It's not clear how much the specific annual advisor charge is from the OP. Lets say typically it was 0.5% , so £11250 pa .

 Then just maybe  the IFA might just have a few costs to pay out , like running an office and not be able to just trouser the whole fee him/her self .So even after thirty years the IFA would have to be happy with just one  new Porsche every few years .

I agree though it is a lot of money when you add it up, but as we know from numerous other similar threads it is impossible to ever be sure whether it is worth it or not, so the argument just goes around in circles. 

noalibi

Thank you for the comments so far.  Many touch on things I have considered myself - especially the comments about % charges given the amount of work doesn't necessarily increase with the size of the portfolio.  I have more confidence (trust?) in those IFAs with a cap.  As an example, one had high % charges for the initial engagement, but a (circa) £12k cap.

Also agree with comments about the need for annual reviews.  At the moment I don't have the confidence, so am looking at a longer term engagement.  If however, the annual reviews are nothing more than a nice meeting over a coffee once a year, then I can always discontinue and/or pay for further advice if/when required.

The 0.75%-1.00% annual fees don't include the platform or fund fees, whereas the 1.8% one does.  Not sure if this suddenly makes the 0.75% look bad and the 1.8% look good.

Albermarle

The 0.75%-1.00% annual fees don't include the platform or fund fees, whereas the 1.8% one does.  Not sure if this suddenly makes the 0.75% look bad and the 1.8% look good.

Something to look out for is that some IFA's delegate the actual investment strategy to what is known as a DFM ( discretionary fund manager ) and they have a charge as well.  That might be included in the 0.75% to 1 % because they are high just for a IFA charge . Typically you should see something like the following for ongoing charges

IFA - 0.5%

DFM ( if there is one ) 0.4%?

Pension platform charge - 0.2% 

Funds charges - from 0.2% to 1.2 % ( can vary a lot depending on the portfolio constructed - passive funds are much cheaper than active ones for example ) 

So IFA with no DFM and a mixed portfolio should be no more than say 1.3% all in. That's my estimate anyway.

[Deleted User]

noalibi said:

Thank you for the comments so far.  Many touch on things I have considered myself - especially the comments about % charges given the amount of work doesn't necessarily increase with the size of the portfolio.  I have more confidence (trust?) in those IFAs with a cap.  As an example, one had high % charges for the initial engagement, but a (circa) £12k cap.

Also agree with comments about the need for annual reviews.  At the moment I don't have the confidence, so am looking at a longer term engagement.  If however, the annual reviews are nothing more than a nice meeting over a coffee once a year, then I can always discontinue and/or pay for further advice if/when required.

The 0.75%-1.00% annual fees don't include the platform or fund fees, whereas the 1.8% one does.  Not sure if this suddenly makes the 0.75% look bad and the 1.8% look good.

You amassed a decent amount if money over the years.  Was it from investments or did the money just land in your account? 

BritishInvestor

Albermarle said:

The 0.75%-1.00% annual fees don't include the platform or fund fees, whereas the 1.8% one does.  Not sure if this suddenly makes the 0.75% look bad and the 1.8% look good.

Something to look out for is that some IFA's delegate the actual investment strategy to what is known as a DFM ( discretionary fund manager ) and they have a charge as well.  That might be included in the 0.75% to 1 % because they are high just for a IFA charge . Typically you should see something like the following for ongoing charges

IFA - 0.5%

DFM ( if there is one ) 0.4%?

Pension platform charge - 0.2% 

Funds charges - from 0.2% to 1.2 % ( can vary a lot depending on the portfolio constructed - passive funds are much cheaper than active ones for example ) 

So IFA with no DFM and a mixed portfolio should be no more than say 1.3% all in. That's my estimate anyway.

With a pot that size you can certainly do better than 0.2% on the platform and 0.5% for the IFA. 

If you are going to use a DFM, there are some decently priced offerings out there - no need to spend 0.4% on something that is commoditised.

https://www.betafolio.co.uk/

Also, no reason for funds to be more than 0.2-0.3% pa.

I'll go for 0.7-0.8% pa all in.