St James’s Place persuaded Dad to move investments. Looking at damage limitation.

ComicGeek

gm0 said:

Selling the client list to a tied FA practice is a regularly used retirement route for IFAs.  A weakness of the IFA system - he or she that is one today may not be one tomorrow.  At which point this very situation can arise.  As it seems to have done.  Singleton IFAs exit the business for a variety of reasons - age, current partner gone, back office support for modern compliance workload is sustainable/easier if they join somebody.  And a cash out for the business they built and its ongoing funds under management / goodwill value.

I fell for this myself a year ago. Our long trusted IFA retired and his partner took over his clients - he quickly moved across to a different platform, and convinced us to change across. Fortunately didn't pay any exit or transfer fees, but only now realise that he's now a FA and not an IFA anymore.  

Should have trusted my gut that I didn't really like him when he took over. He had spun a tale of training up his colleague to take over, but it's pretty obvious that he's selling the client list. He claimed that by not formally writing and advising us to make the switch he would be able to waiver any transfer fees etc, but obviously just a ploy to not have to document anything dubious. Just wish that I had recorded the phone conversation now.

Something that I'm still unpicking, but at least I managed to get rid of him and he doesn't get the fees anymore from me. He'll still get a good payout from the pension platform though...     

Malthusian

handful said:

The performance has been broadly similar to other pots that I held elsewhere but I did want to consolidate into my SIPP last year before realising I was going to get stung with some significant charges. I am now going to wait until they drop off but having contributed for 5 years this will be some time. I think his decision will be seen in the long term as an annoying one rather than a disastrous one depending on the choice of investments of course.

It would be worth looking at how much extra you will be paying in ongoing fees by waiting until the penalty drops off, compared to biting the bullet and consolidating now, and comparing the cost of waiting with the cost of the exit penalty. 

(Especially if the exit penalty is only on a portion of the fund, i.e. the more recent contributions, while the higher ongoing fees will be on the whole lot.)

Exit penalties - whether SJP, mortgage deals, or something else - tend to put you in a position whether they have you coming or going. I.e. if you don't pay the exit penalty you pay via higher ongoing costs instead. 

gm0

New deposit.  New clock starts for that portion.

Of course none of this contingent exit fee stuff matters if you are committed to using them and happy with the general family financial advice and service you are getting from the individual for the fee.   As you will never pay any of it.  As you don't leave.

In the IFA exit scenario we are of course dealing with someone who would in MSE forum generally expressed attitudes - for advice world - have been the right kind of "hero" to go to - the year before.  And now isn't.  A fallen paladin who has lost their I(FA).  Yet for those customers of that individual the personal trust relationship built up prior hasn't changed.

And the IFA has two choices essentially.  Tell clients they are stopping and to go away and find a new adviser.  Ethical but an actively poor value choice at their end and some would argue a very unhelpful lack of continuity being offered to clients also. 
Or it is some version of "marketing introductions" to brand X.  Or a merger into another practice in order to provide at least a default option for ongoing service.  Which you can take.  Or you can go shopping.

Continuity has a non-zero value to long term existing clients who may be elderly and not up for procuring across 2 or 3 possibles and doing it all again and getting to the point of trusting someone new they find.  And for being charged for advice again as the "new" adviser will want to cover fact find, setup and their insurance costs.  There are lots of FAs interested in different sectors and wealth levels that an IFA's book could end up with.  Some less malevolent.  Some distinctly dodgier.  SJP get the most stick on here because they have grown so much swept up a large number of new advisers.  Fairly mass market successful and visible having been spanked fairly hard in some of the Murdoch press in recent years for various corporate excesses.   I am unconvinced that most of the other wealth management brands who keep their heads down a bit more are materially that different.

If not happy with the trusted advice relationship at the price - then you pick a moment to leave when the exit fee isn't too traumatic or another product platform is offering an exit fee rebate to offset it.  This does come up sometimes.

Leaving early with a large amount subject to exit fees and then paying again for a new setup and another set of ongoing fees is somewhat cutting off nose to spite face as this is even more expensive than just paying the ongoing fees and running it off.

diystarter7

John905 said:

Thanks for the swift and detailed replies, much appreciated.

I wouldn’t like to say that he lacks capacity, but as I mentioned, finance is definitely not his thing. In terms of being lied to I think there could be an argument. In no way did he have any issue with his previous provider. The case to switch did not involve any argument that the new investments were likely to perform any better, it’s based on my Dad supposedly saying he wanted due diligence of the fund to be enhanced and a better service. This is total news to him (though I appreciate he has probably unknowingly signed something to this effect).

From what I can see, SJP became involved when his IFA became a partner practice. He has been using this adviser for a few years now.

How much was the unwrapped (GIA) holding?    A sale in this could have generated a capital gains tax liability.  Do you know if it has? I'll need to check the documents again as I'm not familiar with the terminology. In total you were looking at approximately £300k.

My fear here is that they might well have acted within the letter of the law, but certainly not in my Dad's best interests. As you said dunstonh, he has agreed to this willingly, without questionning the nature of the advice given or its motivation, at least up until now. In effect he has paid 2.5% of his investment for something he didn’t request, didn’t want and was not aware that he had.

Hi OP
Thanks for that. Playing the devils advocate, would you be saying that if by the time you knew about this and his investments had increased massively?
No offence meant or intended, just getting you ready for what you will encounter.
Good luck.

Malthusian

gm0 said:

Leaving early with a large amount subject to exit fees and then paying again for a new setup and another set of ongoing fees is somewhat cutting off nose to spite face as this is even more expensive than just paying the ongoing fees and running it off.

It's usually not "cutting off your nose to spite your face" because your nose is going to fall off anyway if you keep paying the inflated ongoing fees. Effectively you committed up front to paying through the nose for a given number of years when you signed on the dotted line, and either you pay that via ongoing fees or via exit penalty. 
The cost of "paying again for a new setup" is a sunk cost as you are going to pay that anyway whether you exit now or after the exit penalty expires. 
(This assumes, of course, that you plan to move to an arrangement with lower ongoing costs. But if you aren't, there must be some other reason why you want to bother. The loss of that benefit over the period until the exit penalty expires is a cost, just as if the driver for moving was ongoing fees.)
The question of whether to bite the bullet of the exit penalty or not is also moot if the advice was a missale and you can get a refund and/or exit penalties waived. 

zagfles

I'd suggest a chat with the money and pension service https://moneyandpensionsservice.org.uk and possibly raising a complaint with the financial ombudsman. You could have a search on their site for judgements about similar scenarios: https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

John905

These replies have been brilliantly informative, so thanks everyone. I think the next step will be to have a good chat to my Dad and suggest we put in a formal complaint on the grounds of miss-selling. Morally I think the case is clear, but I realise that proving this will be far from easy, given that he has signed multiple forms along the way waiving rights etc. In the short-term I think the best course of action will be to do nothing rash and just leave the investments as they are. It will also give some time during the complaints process to research more into the chances of success of taking the complaint further to the Financial Ombudsman. I’ll make sure I return to this thread and let you know how we get on.