Neo looking for insight into pension management charges

Crater

We are looking for the first time at the possibility of pension management. Really we were looking for information, and the main information we have received is not to take an annuity at this time. (Owing to our circumstances.) The company is an established company (IFAs) which appears to use mainly one of the mega providers. For ongoing management of drawdown only, they will be wanting 0.90% a year, 1.5% a year platform fee, and between 0.5% and 0.8% for managing the portfolio .. depending on risk.  Plus about £3k as their reward from the provider. (Which comes out of our fund.)  I don't know if these fee levels are reasonably standard or not. They look like the kind of fees which for general non expert investing we have been trying to get away from for years, but they may be fair for a management company. 

Any insights appreciated.

dunstonh

The company is an established company (IFAs) which appears to use mainly one of the mega providers

IFAs, by definition have to be whole of market and cannot restrict.   Each and every case needs independent research to show the platform/provider recommended is best.  A lot of IFA firms get bespoke pricing and that can result in the majority of their clients ending up on the same platform.

For ongoing management of drawdown only, they will be wanting 0.90% a year, 1.5% a year platform fee, and between 0.5% and 0.8% for managing the portfolio .. depending on risk.  

That does not sound correct.    I suspect some of those figures have been put together.     To give you an idea of the usual type of split, an advisory IFA could be around 0.50% for the IFA, 0.25% for the platform, 0.1% OCF and 0.01% TC. That is 0.86% bottom line.     A discretionary IFA (or one that uses a discretionary portfolio) would typically have a higher OCF and TC (although there are some DFMS that use passives only), and the inclusion of a DFM charge of around 0.3%. 

Even those using DFMS wouldnt be a high as the charges you have shown here.  Your platform charge is the standout figure that appears wrong.    0.20-0.30% is the typical ballpark.    Your bottom line of around 3.2% is a long way from the an advisory IFA at around 0.8x% to 1.2x% and a wealth management IFA using a DFM of around 1.4% to 2.2%.

 Plus, about £3k as their reward from the provider.

IFAs are not allowed to be paid by providers.    FAs can, in a roundabout way, but it is effectively you  is paying that £3k.  Are you sure this is an IFA firm and not an FA?        No IFA is "rewarded" by a provider. 

Crater

Thank you. That is complicated (to me :-) ) but I can take time to read it through and learn from it. No, they definitely call themselves "IFAs", and as far as I can see are individually registered as such ... but that may not mean (IIUR) they are obliged to operate as such, as long as they are not tied advisers...  the 0.15%pa is called an annual platform fee (paid monthly). There is definitely a one-off fee from the provider mentioned. (Yes, our fund pays.)  People have praised them for being transparent, and I suspect this is a standard mode of operation. It does seem expensive though, for what look like standard portfolios, anyway.

Much to learn!  Thank you.

LHW99

Ah - did a decimal point slip in the first post?

1.5% a year platform fee

the 0.15%pa is called an annual platform fee (paid monthly)

greatkingrat

Are you assuming you will be paying 0.15% every month, so 0.15*12 for the year? I think 0.15% is the annual rate, so you would be paying 0.15/12 each month.

Crater

You are right, it's 0.15%.  This is why I am seeking input :-)  Even Specsavers can't stop me reading a figure wrongly at times.  No, I think I am OK on this being an annual fee. Even then I would want to double check.

Albermarle

So it looks like
£3K initial cost
0.9% for the IFA
0.15% for the platform
0.5% to 0.8% , presumably for investment fund fees and  a DFM ( Discretionary fund manager)

If this is correct, then what is happening is that the IFA is effectively delegating the investment side to a DFM, who also charges.
However in this case the IFA should reduce their charge and at 0.9% , does not seem to have done so.

The initial cost of £3K is not a kickback from  the provider, but the cost of setting you up as a new client. it seems a lot but you have not said the size of the funds involved which can have an effect, as can the complexity of any current arrangements.

dunstonh

Thank you. That is complicated (to me :-) ) but I can take time to read it through and learn from it. No, they definitely call themselves "IFAs", and as far as I can see are individually registered as such ... but that may not mean (IIUR) they are obliged to operate as such, as long as they are not tied advisers..

An IFA must not have any hint of a restriction.    If they do, they are not allowed to call themselves IFAs.  There are some wealth management IFAs that are very close or the wrong side of the definition and increasingly they have been told to drop IFA status to become FAs.    Typically you can spot them as they use the same platform for everyone and use the DFM for everyone.

 There is definitely a one-off fee from the provider mentioned. (Yes, our fund pays.) 

It is very unusual for a provider to have any initial charges nowadays.      The advice charge can be collected from the pension (and its usually best to do so rather than pay it directly).   However, it should never be presented as the provider paying it as that would not be correct or transparent.

 People have praised them for being transparent, and I suspect this is a standard mode of operation. It does seem expensive though, for what look like standard portfolios, anyway.

 To be transparent, the charges should be broken down into  the following:
1 - adviser charge
2 - platform/provider charge
3 - fund OCF
4 - fund Transaction charges (TC)
5 - fund other charges (Incidental/other - often abbreviated to IC)
and then total

Providers do not pay the IFAs anything.   You are the only one that does.  

The fund costs tend to focus on the OCF.    Most consumers are not interested in TC or IC.  Partly as IC is nearly always zero and TC is not an explicit charge but a manufactured cost equivalent using one of two calculation methods which can lead to different outcomes)  So, it's effectively Adviser, platform/provider and OCF you are looking at.

I suspect the charges you have given are 0.15% for the platform (which is cheap unless it is a large fund). 
0.90% for the adviser (which is towards the upper end - usually for smaller portfolios rather than larger ones typical range is 0.50% to 1.00%)
and 0.5-0.8% range for the funds (different risk levels would have different charges - this suggests an active managed portfolio and would be more expensive than a portfolio of index tracking funds (which would be around 0.1%).

So, not the most expensive we have seen but not the cheapest.       As the firm is an IFA, you can insist on the investment style.  So, if you want low-cost index trackers, then the firm must use them.  Same if you want ethical or ESG or other.   They cannot refuse if they are IFAs.  They can if they are FAs.

jim8888

It's good that you're looking into this. I bet you can save a small fortune by looking into how to manage your own pension drawdowns (providing they're not overtly complex, with overseas working, major tax complications etc..) It took me quite a bit of time researching pensions, much of it done on this board, to have the confidence to manage my own affairs, but you won't regret the learning experience. You'll feel much more in control, won't feel your IFA is ripping you off and might actually enjoy doing it 

Crater

Thanks to everyone, particularly dunstanh's analysis, which helps us to have more confidence in the quote and any future quotes.  We are not going to do anything for the time being (complicated health background situation arisen recently) but that may undermine our working situation in the future, in which case looking at self management as jim8888 suggests may become a good way to go ...