Drawdown - is the fee I am being charged by a Financial Advisor too high?

David_Drummond

I am about to draw down a £100k pension in December, taking 25% tax free and reinvesting the remainder. For advise on this and for organising the drawdown, my financial advisor is charging me a fee of 3.5%. Having never done this before, I just wondered if this was the usual rate or if I should shop around for someone else cheaper?

I have not committed yet as he is preparing some recommendations for the re-investing. The fee also covers managing the re-investment. I would be so grateful for opinions on this and what questions I ought to ask him when I meet in a week's time. Thank you all.

Dazed_and_C0nfused

Why are you using a financial adviser?

Have you not considered an independent financial adviser?

And do you really mean you will draw down £75k of taxable income all in one go?

NedS

Dazed_and_C0nfused said:

Why are you using a financial adviser?

Have you not considered an independent financial adviser?

And do you really mean you will draw down £75k of taxable income all in one go?

I read that they would take the £25k TFLS and place the rest into drawdown (i.e, crystallised funds) - suitably invested to withdraw at a safe withdraw rate, not that they would withdraw the whole £75k all in one go.

Linton

3.5% seems a bit high but then £100K is not a very large pot in the overall scheme of things.

I am a little surprised that the advisor is preparing some recommendations before you have agreed to pay him.  To repeat @Dazed-and-C0nfused's question, are you sure you are dealing with a registered Independent Financial Advisor (IFA) rather than a rep from a financial services company?

Dazed_and_C0nfused

NedS said:

Dazed_and_C0nfused said:

Why are you using a financial adviser?

Have you not considered an independent financial adviser?

And do you really mean you will draw down £75k of taxable income all in one go?

I read that they would take the £25k TFLS and place the rest into drawdown (i.e, crystallised funds) - suitably invested to withdraw at a safe withdraw rate, not that they would withdraw the whole £75k all in one go.

Good point!

David_Drummond

Right, to clarify. I am drawing down £25k of the £100k as my tax free allowance. I need advice on what to do with the remainder as I have never invested before. The advisor is a financial planning consultant and is regulated by the FCA. We had an initial meeting (which he says is free) in which I gave him all the information he required about my circumstances. He is coming again to discuss with me what he recommends I do with the remainder of my pension fund and I assume at that point, charges will apply on the sum to be invested. I do have the option of ongoing advice managing the portfolio at 1.25% per annum. I am not sure I will take this option given the costs. So I ask again - are these fees & charges normal or should I shop around?

Albermarle

The fees are pretty normal. As mentioned £75K is on the lower side for an IFA to manage, so the % charges are on the higher side.
For example if you had £250K , the charges would be more like 2% and then 0.75% ongoing.

I need advice on what to do with the remainder as I have never invested before

Presume the pension pot is invested at this moment, and has been invested for many years, so in fact you have been an investor for a long time. In some cases the drawdown investments can even be the same as the previous investments, but that may not be the case for you. 
Have you any other need for an IFA, such as advice on estate planning, tax , pensions/investments for other family members etc ? In this case you would get more value from an IFA and the charges.
Just setting up a drawdown pot of this size is actually not that difficult or complicated. You could sort it out yourself online in a short time, if you had some basic knowledge.

Secret2ndAccount

Your problem is that your pot is relatively small. If your pot was 200k and the fee was 3.5% (£7,000) then I would say that was too much. For a pot of 100k, the fee is £3500. I don't think that is out of line with other numbers I see charged around here. I think it's a hefty charge for the complexity of the work involved, but it does appear to be close to the going rate.
There is nothing here that you can't do for yourself, but it depends on your abilities. Some people wouldn't dream of changing a washer on a dripping tap. Others would finish the job in five minutes. And some would flood the house. Same thing with pensions. The degree of difficulty is about the same, but the plumber doesn't charge £3500.
Ask your adviser if he is able to offer you products from the entire market, or if he is restricted to selling certain companies' products. Ask him if he receives any commission on the products he sells. An Independent Financial Adviser will scan the whole market, and cannot receive commission from his decision - that's why he charges you.
Get at least one more quote, from an IFA, before proceeding.

Dazed_and_C0nfused

Albermarle said:

The fees are pretty normal. As mentioned £75K is on the lower side for an IFA to manage, so the % charges are on the higher side.
For example if you had £250K , the charges would be more like 2% and then 0.75% ongoing.

I need advice on what to do with the remainder as I have never invested before

Presume the pension pot is invested at this moment, and has been invested for many years, so in fact you have been an investor for a long time. In some cases the drawdown investments can even be the same as the previous investments, but that may not be the case for you. 
Have you any other need for an IFA, such as advice on estate planning, tax , pensions/investments for other family members etc ? In this case you would get more value from an IFA and the charges.
Just setting up a drawdown pot of this size is actually not that difficult or complicated. You could sort it out yourself online in a short time, if you had some basic knowledge.

Although I still don't think we know if it in fact in IFA.  I'm not sure if the op even knows at this stage but hopefully @Secret2ndAccount's post will be food for thought.

dunstonh

I am about to draw down a £100k pension in December, taking 25% tax free and reinvesting the remainder. For advise on this and for organising the drawdown, my financial advisor is charging me a fee of 3.5%. Having never done this before, I just wondered if this was the usual rate or if I should shop around for someone else cheaper?

3.5% is higher than the average (which is about 1.8%.  However, that typically comes about as many advisers taper their fee as the investment value gets higher or they have a cap/collar arrangement.

£100k is not a lot for drawdown and many advisers won't be interested (the FCA the PI insurers still consider £100k the minimum for drawdown from a collective risk point of view.  That doesn't mean its unsuitable for those with less but it does make them higher risk from an advice point of view.   So, something around the 2% mark is probably the ballpark.

 The fee also covers managing the re-investment. 

I suspect that is a misunderstanding.  The initial fee will cover the initial set up. However, unless you pay an ongoing fee, the adviser will not do any future work on the investments, drawdown strategy or whatever.

Sunnylifeover50plan

Do most people pay 3.5% when taking their 25% tax free element and leaving the rest invested? Isn't the OP at risk of spending a fair amount of money potentially needlessly?