Do IFAs get extra commission if a SIPP is moved between companies?

RogerPensionGuy

I have two extended family members who don't know each other.

They both CETV'd out sizable DB schemes in to SIPPs about 6 years ago using their own IFAs found in their own ways, nobody connected here, its just a coincidence in my head.

Both SIPPs performance have been maybe middle of the road or a touch below and now at year 5.5 and 6 years both the IFAs are suggesting swapping SIPP providers to try improving performance.

As I understand it, the IFAs and the SIPP companies have been charging pretty well for their services. 

It looks to me like a lot of paperwork just to use another SIPP provider that will probably offer a very similar service to the previous provider. 

I would of thought the IFA would just request their current SIPP provider to modify the portfolio to try improving performance.

My suspensions are these IFAs may just get more commission as moving clients money from old to new provider.

So in short, do IFAs make extra income by just changing providers?

A little supplemental info, both pots are about 1.3 and 1.6M and charges are very similar at 0.5% for IFA and 2% for SIPP providers, both in drawdown, so these two guys are paying approximately 2.5% charges per annum, in the up ticking years, everyone happy but now pretty flat times and the guys not so happy.

Both guys are and have been drawing about 3.5% but looking to reduce to 3% or below as they don't want to see pots dropping down.

My view is they paying too much % charges overall and do wonder if swopping SIPP providers is worth it.

My main question is do IFAs get more personal income by swopping SIPP providers?

mark55man

That does sound expensive

I'll leave comments in IFA to those more in the know.

dunstonh

Do IFAs get extra commission if a SIPP is moved between companies?

No. Commission was banned in 2013.     IFAs can be fee based only and not receive any money from providers.    Some FAs have models that mimic commission.  But IFAs cannot.

both the IFAs are suggesting swapping SIPP providers to try improving performance.

Changing a SIPP won't change performance.     SIPPs are whole of market and share the same investments.   So, if they want to change the investments, then they can do that in any SIPP.       Changing provider will change the charges and the software/functionality.

It is common to move platforms periodically.    The best platforms today are not the best ones from 20 years ago.  In some cases, some recent software changes by several of the platforms has left them in a poor state functionality wise or service wise.   Those are the sort of reasons you use for platform moves.  Nothing to do with performance.

It looks to me like a lot of paperwork just to use another SIPP provider that will probably offer a very similar service to the previous provider. 

Its not really a lot of paperwork and they will do a similar thing.     

I would of thought the IFA would just request their current SIPP provider to modify the portfolio to try improving performance.

Correct, if fund adjustments are the real reason.

My suspensions are these IFAs may just get more commission as moving clients money from old to new provider.

Your "suspensions" [sic] are wrong.

So in short, do IFAs make extra income by just changing providers?

no.  The vast majority of the work involved in moving it is done by the IFA.  It costs IFAs money to move platforms.

A little supplemental info, both pots are about 1.3 and 1.6M and charges are very similar at 0.5% for IFA and 2% for SIPP providers, both in drawdown, so these two guys are paying approximately 2.5% charges per annum, in the up ticking years, everyone happy but now pretty flat times and the guys not so happy.

That is damned expensive and suggests 100% managed funds and probably a DFM involved.   Under 1% is possible with many IFAs.  (platform of say 0.20%, 0.50% adviser and 0.1% funds = 0.80%)

Are you sure that they are IFAs?    The charges are more like FAs or Wealth managers.

My main question is do IFAs get more personal income by swopping SIPP providers?

no

My view is they paying too much % charges overall and do wonder if swopping SIPP providers is worth it.

They are paying too much. Nobody should be over 2% and ideally with their values, under 1% unless they have given certain investment instructions (such as ethical or ESG).

However, you havent mentioned the SIPP charges.  So, we cannot tell if swapping providers is worth it.

Pat38493

Per Dunstoh the first question would be to double check are they really using an true IFA or is it more an FA

zagfles

RogerPensionGuy said:

I have two extended family members who don't know each other.

They both CETV'd out sizable DB schemes in to SIPPs about 6 years ago using their own IFAs found in their own ways, nobody connected here, its just a coincidence in my head.

Both SIPPs performance have been maybe middle of the road or a touch below and now at year 5.5 and 6 years both the IFAs are suggesting swapping SIPP providers to try improving performance.

As I understand it, the IFAs and the SIPP companies have been charging pretty well for their services. 

It looks to me like a lot of paperwork just to use another SIPP provider that will probably offer a very similar service to the previous provider. 

I would of thought the IFA would just request their current SIPP provider to modify the portfolio to try improving performance.

My suspensions are these IFAs may just get more commission as moving clients money from old to new provider.

So in short, do IFAs make extra income by just changing providers?

A little supplemental info, both pots are about 1.3 and 1.6M and charges are very similar at 0.5% for IFA and 2% for SIPP providers, both in drawdown, so these two guys are paying approximately 2.5% charges per annum, in the up ticking years, everyone happy but now pretty flat times and the guys not so happy.

Both guys are and have been drawing about 3.5% but looking to reduce to 3% or below as they don't want to see pots dropping down.

My view is they paying too much % charges overall and do wonder if swopping SIPP providers is worth it.

My main question is do IFAs get more personal income by swopping SIPP providers?

So basically their charges are almost as much as the income they're drawing! 2.5% is completely ridiculous on a pot that size, rather than reduce their income by 0.5% why not try to reduce charges by 2%?

Why would the IFA change providers to improve performance? If they picked badly 6 years ago what makes them think they'll pick any better now?

Most drawdown providers now offer investment pathways, see https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/drawdown-investment-pathways at a cost far less than 2.5%, so do they really need individually tailored advice at such a big cost?

HappyHarry

I have changed providers for a few of my client’s SIPPs in recent years, mainly due to better charging structures elsewhere. There is a reasonable amount of work involved for the IFA in any SIPP transfer.
However, as the clients pay me an ongoing fee I have never charged an additional fee for this work as it is, as they say, part of the service.

RogerPensionGuy

Thanks for the replies, very nice.

I don't know if they are using an IFA, FA or a Wealth Manager, they only spoke in general terms and I don't really like getting personally involved with other peoples stuff like this, 

My old fashioned view that I have is any of the above maybe tempted to pick a SIPP provider/platform that may not be in the clients 100% best interest.

Maybe my wires are all mixed up, I thought one route on this process is to engage a wealth management company, they filter needs of customers and recommend 3 or 4 advisers for client to pick from, all no charges up to now.

The customer picks a FA or IFA and they move funds on to a SIPP/platform provider.

In the above process the wealth manager, FA/IFA and SIPP/platform provider get fees or charges of some description, I guess this can be okay if the end result is 100% perfect for customer and overall the initial and on-going charges/costs are not too high but, I tend to hear many people feel costs are too much. I guess in a long period of bull market conditions charges may get overlooked a bit and guess in reasonable periods of a flat or bear market conditions more people will question costs and review.

My own view is just using a good SIPP/platform with low charges, self monitor/adjust and be aware of draw-down rate, in fact so much talk about draw-down rates and not enough talk about just having different buckets/units in the SIPP and treating them as long, medium and short-term income units/buckets and just using them in a simple fashion over time.

I feel lucky that I have a sensible DB and a DC pension (DC is 0.13% charges) and haven't started drawing any yet as still in paid employment, presently letting them cook and still filling DC.

The link below is a good read on this matter to some extent.
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https://www.thisismoney.co.uk/money/pensions/article-9772967/Can-stop-paying-ongoing-fees-financial-adviser.html

Dazed_and_C0nfused

So basically their charges are almost as much as the income they're drawing! 2.5% is completely ridiculous on a pot that size, rather than reduce their income by 0.5% why not try to reduce charges by 2%?

Says it all really.  On £1.6 million the costs are £40,000/year.

Many people on here would be happy with that as their own annual pension income!

RogerPensionGuy

Below is a nice article and looks easy enough to see how much charges are applied.

However I guess if a person isn't happy or isn't able to operate simple low cost SIPPs, they need to get others to get involved and charges rack up.

On a slightly different thread, at least currenty the LTA has gone away and that reduces some issues.
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https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/pension-income-drawdown/compare-pension-drawdown-plans-and-charges-aMxXo0o2dHBV

squirrelpie

The article is over-simplistic and doesn't give a realistic comparison, at least in my case.

dunstonh

My old fashioned view that I have is any of the above maybe tempted to pick a SIPP provider/platform that may not be in the clients 100% best interest.

Why would an IFA pick a platform that is not in the clients best interest?   

FAs and wthose that use DFMs certainly could have that accusation thrown at them but that is one of the risks of using an FA or firm that uses the DFM model  instead of an IFA on advisory basis.

FAs can only offer a limited range of options.  Often as little as one provider
Those that use DFMs tend to want a platform that does more of the work for them (such as the MiFID2 notifications),  Those platforms tend to be more expensive.

IFAs can pick who they want and usually it will be a compromise between cost and functionality.  ie. the cheapest for cost focused people who dont care about the software or service (although I bet they will when something doesnt go right) or the best middle ground option that ticks all the boxes for functionality but isn't likely to be the absolute cheapest.

Maybe my wires are all mixed up, I thought one route on this process is to engage a wealth management company, they filter needs of customers and recommend 3 or 4 advisers for client to pick from, all no charges up to now.

That is not how it works.  Wealth manager is not official terminology.   There are some companies with wealth management in their name or tagline that do not operate the DFM model.  There are some that do.  So, the focus should be on whether the firm is advisory or uses discretionary fund managers

The use of DFMs adds that extra layer of charges.  it can be viable in some cases. ESG investing for example.   But in many cases, the advice firm puts everyone into the DFM whether they need one or not.  That is the thing to watch out for.

The customer picks a FA or IFA and they move funds on to a SIPP/platform provider.
In the above process the wealth manager, FA/IFA and SIPP/platform provider get fees or charges of some description, I guess this can be okay if the end result is 100% perfect for customer and overall the initial and on-going charges/costs are not too high but, I tend to hear many people feel costs are too much. I guess in a long period of bull market conditions charges may get overlooked a bit and guess in reasonable periods of a flat or bear market conditions more people will question costs and review.

Your example assumes the business model of an FA or IFA operating on the DFM model.    However, as mentioned, its the most expensive method.

IFAs operating on an advisory model are cheaper as they do not include the extra layer of charges that a DFM has.  Plus DFMs tend to (but again, not always) use managed funds.  
So, an IFA operating the portfolio on an advisory basis using passives would be around
0.50% for advice,  0.20% for platform and 0.1% for funds = 0.80%
An FA/IFA operating with a DFM would typically use more expensive platforms and have higher adviser charges. and the funds are usually managed funds.  So, that is why you get towards 2% or over.

My own view is just using a good SIPP/platform with low charges, self monitor/adjust and be aware of draw-down rate, in fact so much talk about draw-down rates and not enough talk about just having different buckets/units in the SIPP and treating them as long, medium and short-term income units/buckets and just using them in a simple fashion over time.

Bucketing has been hard to do with software until relatively recently. However, it is a good point and ties in the original bit about moving platforms.    We are moving about 70 clients away from a platform this year as their cannot support bucketing (multiple model portfolios) and move money between them.   So, that would be an example of a reason why you move platforms.