IFA Annual Fees

scotty4406

Hi,
looking for some input from others more financially savvy than me. About five years ago I engaged an IFA to set up a SIPP  and a couple of stocks and share ISAS. The initial funds came from a transferred out DB scheme. The agreement on fees was 1.5% annually of the portfolio. I have an initial drawdown pension in payment.
Since the initial set up I have had virtually no proactive contact from my IFA, typically consisting of a phone call advising " investments are doing fine".
My understanding is that my portfolio requires/gets little active management.

My question is.....what is the minimum formal contact, written information etc that I should reasonably expect from my IFA (who is collecting an average of £3.5k/annum for his/her "service")?

Thrugelmir

My personal view is that 1.5% is a high % of any potential investment return. Particularly when the investments themselves will incur fees.  I'd worry less about the contact and more about whether there is value being added. 

scotty4406

Thrugelmir said:

My personal view is that 1.5% is a high % of any potential investment return. Particularly when the investments themselves will incur fees.  I'd worry less about the contact and more about whether there is value being added. 

Thanks for your response. Can you offer examples of "value being added". Plus, if I don't get told anything, how do I assess added value?

Albermarle

scotty4406 said:

Thrugelmir said:

My personal view is that 1.5% is a high % of any potential investment return. Particularly when the investments themselves will incur fees.  I'd worry less about the contact and more about whether there is value being added. 

Thanks for your response. Can you offer examples of "value being added". Plus, if I don't get told anything, how do I assess added value?

There are numerous discussion on this forum about whether they add value or not . Lets just say there are varied opinions on the subject .
However as already said 1.5% is unusually high. Normally it is between 1% and 0.5% depending on the size of funds involved .
In any case I think there should be one proper review meeting a year and quarterly updates . Even if your investments have not changed , the market outlook will have.

dunstonh

The agreement on fees was 1.5% annually of the portfolio.

Are you sure about that?
1.5% is extraordinarily high as an adviser charge.  I don't think I have ever come across a charge that high.   Are you sure that is the adviser charge and not the total charges? (and if so, no adviser can ever agree to a total charge as the platforms and fund charges move over time. Only the adviser charge can be set by the adviser).   Typically the adviser charges range from 0.5% to 1% in various stages.

Since the initial set up I have had virtually no proactive contact from my IFA, typically consisting of a phone call advising " investments are doing fine".

Pre 2013 sales do not require any pro-active action from the adviser.  Post 2013 sales do.  And since 2018, that requirement has been "at least annually".

My question is.....what is the minimum formal contact, written information etc that I should reasonably expect from my IFA (who is collecting an average of £3.5k/annum for his/her "service")?

There are no prescribed rules on what is required.   Your contract, that you signed, should have laid out what the adviser would do in terms of services.       And that is the expectation of what should be carried out.

Typically, the most common jobs are rebalancing the portfolio, carrying out ongoing due diligence on the investments, utilising appropriate tax wrappers, top-ups at no cost, modelling your drawdown plan for sustainability checks.  Adjusting the portfolio for the timescale of withdrawals etc. and generally acting as a sounding board.   Some people will have more needs than others. 

If your adviser is charging 1.5% (then get a new adviser!!!) then that would make your fund value around £235,000.    If yours is more than £235,000 then your adviser is not charging 1.5%.

Grumpy_chap

scotty4406 said:

Hi,
looking for some input from others more financially savvy than me. About five years ago I engaged an IFA to set up a SIPP  and a couple of stocks and share ISAS. The initial funds came from a transferred out DB scheme. The agreement on fees was 1.5% annually of the portfolio. I have an initial drawdown pension in payment.
Since the initial set up I have had virtually no proactive contact from my IFA, typically consisting of a phone call advising " investments are doing fine".
My understanding is that my portfolio requires/gets little active management.

My question is.....what is the minimum formal contact, written information etc that I should reasonably expect from my IFA (who is collecting an average of £3.5k/annum for his/her "service")?

To me, IFA fees are shrouded in mystery and their service even more so.  I actually understood the fees to a level of "zero" for my pension and, with the help of this forum, got something better than nothing in the summer last year (2021). 

The biggest thing I learned was that there is not a single fee, but the fee has several components.  Is the 1.5% just your IFA fee, or the sum of parts?

For information, when I started looking at this last year, I was paying a total fee of 1.93% which this forum advised me was outrageous.  That fee comprised:

• Wrapper fee 0.4%
• Adviser fee (IFA) 0.5%
• Discretionary Fund Manager (DFM) fee 0.25%
• Fund Administrator fee 0.78%

With the advice from this forum, I changed IFA and secured the fee at 1.15%, comprising:

• Wrapper fee 0.4%
• Adviser fee (IFA) 0.75%
• DFM fee = nil (no DFM engaged)
• Fund Administrator fee = included in the IFA fee

That structure was also tiered and the fund value has moved through a tier, so the fee is now 1%, comprising:

• Wrapper fee 0.35%
• Adviser fee (IFA) 0.65%
• DFM fee = nil (no DFM engaged)
• Fund Administrator fee = included in the IFA fee

I didn't really think that fees varied that much before and I was not aware that fees changed like that with tiers related to fund value.  I did think that the previous fee was an outrage - what alerted me was the fee each month exceeding my monthly contribution so I felt as though I was starting by going backwards.  I also became disillusioned with the service from the IFA, so all those parts together meant learning more and taking action.  

I still don't really know much on the subject, but just thought that sharing what my fees were and are now might give you some data points to help assess whether your fee (overall) is good, bad or indifferent.

Thrugelmir

scotty4406 said:

Thrugelmir said:

My personal view is that 1.5% is a high % of any potential investment return. Particularly when the investments themselves will incur fees.  I'd worry less about the contact and more about whether there is value being added. 

Thanks for your response. Can you offer examples of "value being added". Plus, if I don't get told anything, how do I assess added value?

I assumed that you had a plan/strategy when choosing to transfer out of a DB scheme. 

NedS

scotty4406 said:

Thrugelmir said:

My personal view is that 1.5% is a high % of any potential investment return. Particularly when the investments themselves will incur fees.  I'd worry less about the contact and more about whether there is value being added. 

Thanks for your response. Can you offer examples of "value being added". Plus, if I don't get told anything, how do I assess added value?

You say your investments are doing fine. Are they achieving returns 1.5% or more than you would have achieved had you not employed an IFA? If so, then the IFA has added value.

After fees, are you achieving an investment return high enough above what your guaranteed DB pension would have paid had you not given it up, to fully compensate you for the risks you are now taking? If so, then the IFA has added value.

What price do you put on not having to manage your portfolio yourself and the stress / worry that may bring?

scotty4406

Thanks a thanks all for the responses - informative and thought-provoking. I’m not here to be negative, I genuinely wanted views on what tasks an IFA should be carrying out and what level of detail I should expect to see/ get as a matter of routine. Grumpy Chap has set out some interesting information - I need to spend time to learn and understand the key questions I should be asking.
Dunstonh has provided some good examples of the background work which might be going on - I’ll look for info from my IFA around these issues.
Appreciate folks taking the time to respond!

Ibrahim5

I think history gives us the key here. IFAs used to get commission for doing absolutely nothing and they did absolutely nothing. They made no attempt to review any investments and just collected their money. When commission was banned they then introduced the ongoing fees scandal whereby they take as large a proportion of your money that they can get away with and do as little as they can get away with.

Secret2ndAccount

Ibrahim5 said:
... whereby they take as large a proportion of your money that they can get away with and do as little as they can get away with.

Isn't that what most companies do: supermarkets, plumbers, car dealers, Microsoft? Arguably that's the legal obligation of a company director.