Financial Advice Costs

MarcoRolo

So I’m lucky enough to have about £1.4m in my pension pot.  The investments are managed by a wealth management financial consultancy and are invested in various funds through Quilter.  In addition to the Quilter costs, I get charged 0.65% of my fund by the financial consultancy.  This means they take around £9k a year from me for general advice, portfolio reviews and switching between funds once a quarter.  It’s really hard to know whether they add enough value to justify this as I can’t really compare what they do with any decisions about investment funds that I would take myself.  Am I being ripped off??

artyboy

There's a general rule of thumb that 0.5% is achievable for IFA services such as you are describing, especially for a large sum under management. So while 'ripped off' is always a subjective, not to mention hyperbolic term, I'd suggest you may not be in too bad a place...

That said - a 'wealth management financial consultancy' doesn't immediately say 'IFA' to me - are they actually independently advising you? I'm guessing they are not SJP or a partner practise, because the charges would be higher still, but if you chose to name them, there may be IFAs on here that will have a view on what they do and whether 0.65% could be good or bad...

Albermarle

 It’s really hard to impossible to know whether they add enough value to justify this as I can’t really compare what they do with any decisions about investment funds that I would take myself.  

There are numerous threads on the forum on the subject of using a financial advisor vs DIY.

There is no consensus on the matter, except maybe that an advisor can be most useful in complex situations. For example where there are very large sums involved ( larger than yours), complex tax issues, trusts, small business issues, blended families, divorce  etc . Also if the client has no idea on money matters/does not want to get involved/ is happy to pay for some peace of mind/ handholding.

The actual investing side is not rocket science, but does require some reading and research. You need to have some understanding of taxation issues relating to pensions as well. Also helps if you are interested in these types of things.

dunstonh

1.4m shouldnt be as high as 0.65% but there are firms that charge 1% flat.  So, it could be worse.  0.5% would be the ideal figure for that.

Wealth management is a phrase that tends to add costs.  Its not a 100% rule but firms with wealth management in their name tend to be the more expensive ones as they tend to be fully active on funds and use third party DFMs. (which the investor pays for). I am not a fan of those as the extra layer of costs seem to add no value other than to give the adviser firm less work.

MarcoRolo

Thanks for the replies, really interesting to get your views.  I’m 52 so looking to have the option to start to draw on this in around 3 years, depending on how I’m feeling about work etc at that stage.  I probably want around £40k pa on drawdown so would want to keep it invested and working for me in the years ahead.  Assuming costs stay as they are, they would be taking £9k per year to help me take £40k per year, and this feels like a ridiculous cut.  Am I looking at this wrongly?  

Pat38493

It depends how much time you want to spend learning how to manage it yourself.  You could certainly learn how to do that and very likely need up better off by taking a DIY approach and paying lower charges or you could hire a proper IFA and instruct them to take a passive approach to minimise charges.

it looks like you have asked very similar questions each year on this forum since 2019.  Seems like you were not that unhappy with the situation or were reassured by the replies then?

artyboy

MarcoRolo said:

Thanks for the replies, really interesting to get your views.  I’m 52 so looking to have the option to start to draw on this in around 3 years, depending on how I’m feeling about work etc at that stage.  I probably want around £40k pa on drawdown so would want to keep it invested and working for me in the years ahead.  Assuming costs stay as they are, they would be taking £9k per year to help me take £40k per year, and this feels like a ridiculous cut.  Am I looking at this wrongly?  

In my view you are, yes - you're comparing a charge against the whole versus the small amount you want to take out (which, incidentally, is sub 3% of your pot, so within generally accepted 'safe' levels to preserve your capital).

The way I'd be looking at it is - are you getting sufficient INDEPENDENT advice (you've not clarified if your consultancy is an IFA or not?) to be comfortable that you are well invested and your £1.4m is doing what it needs to do in terms of growth within your risk tolerance? Do you understand where it's invested and why? Are you clear on what your attitude to risk is?

Or could you, hand on heart, manage all this entirely for yourself without sleepless nights over whether you are doing the best for your pot...? Because if the answer to that is yes, maybe you should be having a hard discussion with your advisor to get them to explain what else they need to do to earn your money. For me (a few years and a few hundred thousand behind you), I'd be thinking estate planning, IHT, LTA management and the like - anyone with 'wealth management' in the name ought to be able to help with that!

MarcoRolo

Pat38493 said:

It depends how much time you want to spend learning how to manage it yourself.  You could certainly learn how to do that and very likely need up better off by taking a DIY approach and paying lower charges or you could hire a proper IFA and instruct them to take a passive approach to minimise charges.

it looks like you have asked very similar questions each year on this forum since 2019.  Seems like you were not that unhappy with the situation or were reassured by the replies then?

You’re right, I have asked similar questions before…I still have the same nagging concerns, but have only just started thinking about it in terms of the relativity of charges versus the annual amount I’m thinking I’ll take. As artyboy says, I am looking at charges against the whole pot rather than the amount I might want to withdraw, but this will continue to be a big issue for me, particularly when I start to see that £50k has been withdrawn from my pot in a year, of which £10k has gone straight to my “wealth management consultant“.  Can’t see me being able to tolerate this when that time comes around!  

Audaxer

MarcoRolo said:

Pat38493 said:

It depends how much time you want to spend learning how to manage it yourself.  You could certainly learn how to do that and very likely need up better off by taking a DIY approach and paying lower charges or you could hire a proper IFA and instruct them to take a passive approach to minimise charges.

it looks like you have asked very similar questions each year on this forum since 2019.  Seems like you were not that unhappy with the situation or were reassured by the replies then?

You’re right, I have asked similar questions before…I still have the same nagging concerns, but have only just started thinking about it in terms of the relativity of charges versus the annual amount I’m thinking I’ll take. As artyboy says, I am looking at charges against the whole pot rather than the amount I might want to withdraw, but this will continue to be a big issue for me, particularly when I start to see that £50k has been withdrawn from my pot in a year, of which £10k has gone straight to my “wealth management consultant“.  Can’t see me being able to tolerate this when that time comes around!  

If the £9k fees (0.65%) are just the Wealth Management company fees, there will be fund fees as well, which if they are active funds could average at least 0.75%. So that could be another £10k or more in fees automatically deducted from your portfolio value before your £40k income drawdown.

gm0

Here is my take:

There is no answer to this “advice or DIY” question that is correct – just the one that suits you and your family.

Running DIY is simpler than setting it up.  It's not rocket science to get to a mostly OK version. Fund and fund manager monitoring is more difficult as a consumer without paid access to digested research data available more cost effectively to advisers. But the risks that this gap in monitoring presents can be reduced by considering the mix of what you choose to invest in in the first place.  (Actually mainly what you exclude)

My take is that most people should commence learning in the approach to retirement about pensions, deaccumulation, access freedoms, investment, sequence risk etc. in order to be well informed customers and consumers of advice, or if so motivated to move past that - to prepare to DIY.  The initial effort is not wasted and will help inform the judgement on whether learning enough to do it "once" is for you.

The price roughly - 0.5% pa plus initial fee (which is >10% of initial pot size on a 40 year plan) is what it is. The suitability "guarantee" (not of performance but of suitable risks being taken) and the other process help getting to the answer and maintaining it is worth it to you or it isn't. 

dunstonh

Ballpark for this sort of sum:
Platform 0.15-.20%  (could get lower but may need to start compromising quality)
Adviser 0.5%
Funds 0.1%
Total: 0.75-0.80%