Personal Pension charges

iwblue

I engaged an IFA 4 years ago to help me sort out an old PP I had that was with Barclays from years and years ago. My main pension is a DB. Long story short, got great advice moved my pp to Scottish Widows he did all the work etc.....initially that was all I wanted. Didn't really think I needed any more advice. Anyway Continued with him, then his advice fee upped from .54% to 1%, SW was 0.3%. I pay approx £2000 per year into account. Valuation is 60K. This year after reviewing everything he recommended Legal General Multi-Index 5 Fund Acc...their fee is 0.54. So I thought my fees for the year will be about £1100. I thought altogether the fees were alot of what I pay in so decided to terminate the IFA contract....I've no problems with the IFA.....Not really any experience in pension fees etc....Was I hasty with cutting ties....what are other people's experiences? Many thanks in advance 

Albermarle

Ongoing IFA charges are usually between 0.5% and 1 % depending on size of fund.

Normally there is a charge for the investment fund and a charge for the pension provider, often referred to as a platform charge. Sometimes they are rolled into one. Do you know what the situation is with yours?

iwblue

Mine are 0.3% for the platform and 0.54% for the investment fund....thanks

Albermarle

iwblue said:

Mine are 0.3% for the platform and 0.54% for the investment fund....thanks

You can pay less and you can pay more. It is within normal boundaries. 

However I have checked with a platform I use and the L&G fund charge is only 0.33%, which is more what I would expect for a low cost multi asset fund.
Legal & General Multi-Index 5 Fund I Class Accumulation Key Statistics | GB00B8VZ3F59 | Fidelity

If you transferred to another platform, you should be able to reduce the fund charge to 0.33% with a similar, or even lower platform charge.

I just noticed your fund size is £60K, so no surprise the IFA was charging 1%, as £60K is at the low end for an IFA managed account

Pat38493

Albermarle said:

Ongoing IFA charges are usually between 0.5% and 1 % depending on size of fund.

Normally there is a charge for the investment fund and a charge for the pension provider, often referred to as a platform charge. Sometimes they are rolled into one. Do you know what the situation is with yours?

Do any IFA charge in some other way like a flat fee per year or by the hour worked?  I always thought it was a bit strange for them to take a % cut of the fund because I am struggling to see how the amount of work they need to do to manage a fund is linearly related to the size of the fund - surely this is an isssue for the IFA as well - stock market crash gives them a pay cut but doesn’t reduce their workload.  Arguably could also be an incorrect incentive to keep clients in less volatile funds that might not be right in the long term?

Albermarle

Pat38493 said:

Albermarle said:

Ongoing IFA charges are usually between 0.5% and 1 % depending on size of fund.

Normally there is a charge for the investment fund and a charge for the pension provider, often referred to as a platform charge. Sometimes they are rolled into one. Do you know what the situation is with yours?

Do any IFA charge in some other way like a flat fee per year or by the hour worked?  I always thought it was a bit strange for them to take a % cut of the fund because I am struggling to see how the amount of work they need to do to manage a fund is linearly related to the size of the fund - surely this is an isssue for the IFA as well - stock market crash gives them a pay cut but doesn’t reduce their workload.  Arguably could also be an incorrect incentive to keep clients in less volatile funds that might not be right in the long term?

When you first start with the IFA, there will always be an initial fee. Typically 2% but can vary.
Then you can leave it at that. They will give you recommendations, and you go off and set up the SIPP, ISA etc and the investment portfolio within it. You can then go back for irregular meetings/updates/review, with a set fee each time. A so called 'transactional' relationship.
Or you can agree to an ongoing fee % . Normally then the IFA will set up the SIPP, ISA etc and the investments for you, and review them with you say half yearly.
The latter system seems to be preferred by the IFA's and their clients.
I think paying by the hour is not popular as you do not how much the bill will be beforehand.

No doubt there are a few variations on the above scenarios, in non standard cases.

Arguably could also be an incorrect incentive to keep clients in less volatile funds that might not be right in the long term?
If an advisor puts you in unsuitable funds, they can be sued/fined/lose their job. A lot of the cost involved in working with an IFA, is that they have to collect and record a lot of personal detail via set and fixed procedures, and be able to show that any investments recommended were appropriate for your personal situation, objectives, risk tolerance etc 

dunstonh

Generally speaking, most IFAs don't do ongoing servicing for smaller values.  However, where they do, it tends to be more expensive at 1%.   As values get higher, it tends to taper down to around 0.5%.

This year after reviewing everything he recommended Legal General Multi-Index 5 Fund Acc...their fee is 0.54.

That fund is not 0.54%  The OCF is 0.31% on class I (the main share class.  Some platforms may have a slightly cheaper share class).   There is a class F share class which is 0.50% but that is not for use with advisers.  That is if you go direct to L&G.

Do any IFA charge in some other way like a flat fee per year or by the hour worked?

Consumers generally do not like hourly rates.    Fixed fees can be possible.    

 always thought it was a bit strange for them to take a % cut of the fund because I am struggling to see how the amount of work they need to do to manage a fund is linearly related to the size of the fund - surely this is an isssue for the IFA as well - stock market crash gives them a pay cut but doesn’t reduce their workload.

The problem is that the FCA and FOS generally look at charges on a percentage basis.  So, an adviser with a fixed charge of £xxx may appear good value with large amount where it may equate to 0.3% but with smaller amounts, it could equate to 1.5%.  They would not be happy with that on the smaller amount

It is worth noting that the FCA, FOS and FSCS all charge IFAs on percentage basis as well.  And PI insurance is pretty much that way.

iwblue

Apologies for my ignorance, what does OCF mean? I've only just started with this new fund and discovered a payment I made on 1st of the month still hasn't been invested by legal and general.....when I. spoke with SW they said they have this problem constantly with them....nothing they can do about....they didn't have a contact at LG so I could chase up....I feel a bit lost here and unsure how to proceed....I didn't expect these types of issues...is this normal?

Albermarle

iwblue said:

Apologies for my ignorance, what does OCF mean? I've only just started with this new fund and discovered a payment I made on 1st of the month still hasn't been invested by legal and general.....when I. spoke with SW they said they have this problem constantly with them....nothing they can do about....they didn't have a contact at LG so I could chase up....I feel a bit lost here and unsure how to proceed....I didn't expect these types of issues...is this normal?

If your pension provider is Scottish Widows, then it is for them to invest your money in your chosen fund, and not for you to have to chase the fund up.
SW appear to be in some administrative chaos, so I suspect that maybe where the issue is.