Financial Advise draw down pension fees

Samandella

Hi, I have a draw down pension that I have been accessing for the past few years.  Only recently I looked at the pension provider statement and the charges.  The pension provider charges 0.5% of the fund values annually and £35 for each transaction.  My financial adviser however has an annual  fee charges 1% of fund value.  This total fees amount to 20% of the pension I am receiving.  I speak to my financial adviser once a year and discuss what risk factors I am happy with and he then decides where to invest the fund. 

If I did not use the financial adviser what are my options?  Does anyone manage their own investments and where do you get the information as to where to invest?  Are there specific site that give this sort of advice freely?  

I have asked the pension provider but their reply was basically very short, saying that it will “will be at your own risk”

Thanks for any comments

Brie

so you are paying fees of something like £40 and receiving £200 a year or similar?  what is the FA doing for that money?  

or have I misunderstood?

Brie

and can you transfer this all to another provider with lower transaction fees?  £35 sounds rather a lot

Albermarle

Brie said:

so you are paying fees of something like £40 and receiving £200 a year or similar?  what is the FA doing for that money?  

or have I misunderstood?

I guess the issue is that the charges of 1.5% are on the whole fund, whilst the OP is only withdrawing a small part of the fund each year. 

Albermarle

Samandella said:

Hi, I have a draw down pension that I have been accessing for the past few years.  Only recently I looked at the pension provider statement and the charges.  The pension provider charges 0.5% of the fund values annually and £35 for each transaction.  My financial adviser however has an annual  fee charges 1% of fund value.  This total fees amount to 20% of the pension I am receiving.  I speak to my financial adviser once a year and discuss what risk factors I am happy with and he then decides where to invest the fund. 

If I did not use the financial adviser what are my options?  Does anyone manage their own investments and where do you get the information as to where to invest?  Are there specific site that give this sort of advice freely?  

I have asked the pension provider but their reply was basically very short, saying that it will “will be at your own risk”

Thanks for any comments

As far as I know, the majority of drawdown pensions are NOT looked after by a financial advisor. The question is how well are they being looked after, and how many people make a dogs breakfast of it ?  In which case the 1 % fee would be worth it.

On this forum are many regular posters who manage their own finances, pensions etc without any obvious problems. However this is a pensions forum, and therefore inhabited by people who are generally knowledgeable on the subject, so unrepresentative of the general public. So for sure it is possible to learn to DIY your drawdown, but will need a bit of effort and learning on your part, and probably best not to ditch the advisor until you know more.

On a more practical note, 1% is a standard charge level but is usually discounted if the total fund is say above £150K. Can you say how large your fund is ?

Although 0.5% all in for platform and fund fees  is fine, are you sure this is the total charge? Often fund charges are not explicit, that is the fund pays itself. Suggest you double check with your advisor. £35 per withdrawal seems a bit much, often it is free.

Finally is your advisor an Independent Financial Advisor , or one linked with the pension provider?

dunstonh

If I did not use the financial adviser what are my options?

You would make decisions and planning yourself.  If your portfolio is controlled by the adviser, you would make those decisions going foward.

Does anyone manage their own investments and where do you get the information as to where to invest? 

Some people DIY very successfully. Some people make a rights pigs ear of it.

Are there specific site that give this sort of advice freely?  

Advice is what the adviser gives.   You won't get advice for free.   On the internet, you get opinions.  Some opinions will be correct and good.  Others will be bad.

I have asked the pension provider but their reply was basically very short, saying that it will “will be at your own risk”

Providers are not adviser.  They will either take instructions from your adviser or you.   They are just there to carry the out the transactions requested of them.  If the providers were giving advice, the costs would be higher (just as they used to be when providers used to dominate the distribution many years ago).

and can you transfer this all to another provider with lower transaction fees?  £35 sounds rather a lot

I think the OP is confused on the transactions.  The majority of providers that advisers use are percentage charged with no transaction charges.   Pension funds don't have transaction charges.  If UT/OEICs are being used then they don't have transaction charges.   There are transaction charges on ITs/ETFs but they tend not to get used with low knowledge consumers.  Possible but unlikely statistically.

I know a lot of providers, as you would expect.  Not all, but all the mainstream ones or the ones that come out best on charges and I don't recognise this £35 transaction charge.   So, it could be a niche, non-mainstream provider.    Or it could be something an FA product has rather than an IFA product./

It could be the OP is looking at the MiFIDII annual costs and charges disclosure.  That has a column for transaction charges but they are not transaction charges made at an individual level but at fund level and are implicit rather than explicit.

As far as I know, the majority of drawdown pensions are NOT looked after by a financial advisor

Historically, it was the case most drawdowns were done via advisers.  Since 2016, the number of DIY drawdown cases has increased significantly.  However, the FCA found many consumers were doing things wrong or making a pigs ear of it and has tried to find ways for those that don't have adviser to avoid some of the mistakes.

On a more practical note, 1% is a standard charge level but is usually discounted if the total fund is say above £150K. Can you say how large your fund is ?

This is important.   1% is typically charged on smaller funds.  Many adviser firms taper it down as the amounts get bigger.    Also, the platform/provider charge is 0.50%.    That is high and more typical of smaller values.  However, there is no mention of fund charges.   So, it could be a provider that includes the fund charges cost within the product charge (an older style pension product using insured funds for example).

Albermarle

I think the OP is confused on the transactions.  The majority of providers that advisers use are percentage charged with no transaction charges.   Pension funds don't have transaction charges.  If UT/OEICs are being used then they don't have transaction charges.   There are transaction charges on ITs/ETFs but they tend not to get used with low knowledge consumers.  Possible but unlikely statistically.I know a lot of providers, as you would expect.  Not all, but all the mainstream ones or the ones that come out best on charges and I don't recognise this £35 transaction charge.   So, it could be a niche, non-mainstream provider.    Or it could be something an FA product has rather than an IFA product./It could be the OP is looking at the MiFIDII annual costs and charges disclosure.  That has a column for transaction charges but they are not transaction charges made at an individual level but at fund level and are implicit rather than explicit.

My understanding was that the OP meant that they were being charged £35 for each withdrawal, although it is not that clear.

zagfles

Have a chat with Pensionwise https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

There are now "investment pathways" which all drawdown providers offer, basically a small number of ready made investment options depending on what you want to do with your drawdown, see:

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/drawdown-investment-pathways

dunstonh

Albermarle said:

I think the OP is confused on the transactions.  The majority of providers that advisers use are percentage charged with no transaction charges.   Pension funds don't have transaction charges.  If UT/OEICs are being used then they don't have transaction charges.   There are transaction charges on ITs/ETFs but they tend not to get used with low knowledge consumers.  Possible but unlikely statistically.I know a lot of providers, as you would expect.  Not all, but all the mainstream ones or the ones that come out best on charges and I don't recognise this £35 transaction charge.   So, it could be a niche, non-mainstream provider.    Or it could be something an FA product has rather than an IFA product./It could be the OP is looking at the MiFIDII annual costs and charges disclosure.  That has a column for transaction charges but they are not transaction charges made at an individual level but at fund level and are implicit rather than explicit.

My understanding was that the OP meant that they were being charged £35 for each withdrawal, although it is not that clear.

I still don't recognise a provider/platform that does that.      Hence, why I think it may be an FA arranged product rather than an IFA one or confusion over charges.   However, I don't have a 100% knowledge of all the providers as IFAs use software to find the bottom line cost of providers/platforms.   You get to know the ones that come out at the top of the list (i.e. lowest charges) but don't tend to look in any detail at those that come out at the bottom (the most expensive ones).

Hopefully, the OP will return and confirm the provider/platform.   (I suspect it is a provider as there is no mention of fund costs.  Unless that is another confusion).

bostonerimus

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to be your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

lisyloo

bostonerimus said:

Yep if you have a 5% annual drawdown and fees are 1% you end up with only 4% and you've just spent 1/5th of your income on financial fees. That could easily to lbe your largest single cost in retirement. Financial advisors will argue that if your drawdown goes up each year with inflation then their fees as a percentage of your drawdown will decrease as you get older. They don't often say that in a down market their fees will continue to eat into your pot at the worst of times. Ongoing financial fees are a real drag on your retirement spending.

But the fee isn’t 20% of the drawdown, it’s 1% of the total pot.
it’s the total pot that’s being managed or advised upon not just the bit that’s being drawn down.