Transfer Fees

magd36

A Financial Advisor is suggesting I move my pension from the current provider to their own fund (basically passive managed fund to actively managed fund). There’s no exit fees. As well as ongoing annual fees they are asking for a one of fee of 3% of total fund to transfer. Is this normal? Would they ask for the same if it was a standard investment I was depositing. Why the charge? Thanks

MX5huggy

3% if £20k or 3% of £0.5million? 

There’s some work involved, 3% might be acceptable for a small value if there is no advisor charge as well. 

But I would run a mile, there’s no evidence active is better than passive and even less if active starts 3% down. 

Marcon

magd36 said:

A Financial Advisor is suggesting I move my pension from the current provider to their own fund (basically passive managed fund to actively managed fund). There’s no exit fees. As well as ongoing annual fees they are asking for a one of fee of 3% of total fund to transfer. Is this normal? Would they ask for the same if it was a standard investment I was depositing. Why the charge? Thanks

Is this an independent financial adviser? Sounds more like one who is 'tied' so can only advise on their own products.

Do you have the option to keep your pension with your current provider but simply switch to actively managed fund(s)? If so, ask why the adviser's own fund is better for you and how the respective costs compare.

magd36

MX5huggy said:

3% if £20k or 3% of £0.5million? 

There’s some work involved, 3% might be acceptable for a small value if there is no advisor charge as well. 

But I would run a mile, there’s no evidence active is better than passive and even less if active starts 3% down. 

3% of somewhere in between the two amounts you mention. I just wasn’t expecting such a high charge over and above the annual fee. As you say it would have to perform at a decent rate just to recover the initial charge never mind the ongoing fees.

Billxx

Walk away.  This does not seem right to me.  As Marcon said, why is their fund better for you and what are the ongoing charges?

magd36

Marcon said:

magd36 said:

A Financial Advisor is suggesting I move my pension from the current provider to their own fund (basically passive managed fund to actively managed fund). There’s no exit fees. As well as ongoing annual fees they are asking for a one of fee of 3% of total fund to transfer. Is this normal? Would they ask for the same if it was a standard investment I was depositing. Why the charge? Thanks

Is this an independent financial adviser? Sounds more like one who is 'tied' so can only advise on their own products.

Do you have the option to keep your pension with your current provider but simply switch to actively managed fund(s)? If so, ask why the adviser's own fund is better for you and how the respective costs compare.

Yes, they’re independent and recommended through unbiased. I never thought about asking the current provider if they can actively manage but I will now. Thank you.

magd36

Billxx said:

Walk away.  This does not seem right to me.  As Marcon said, why is their fund better for you and what are the ongoing charges?

I am going to walk away. I was more interested if a one of fee over and above the ongoing costs was normal.

dunstonh

A Financial Advisor is suggesting I move my pension from the current provider to their own fund (basically passive managed fund to actively managed fund). 

The general consensus is that you should not use an FA.   The choice should be between IFA and DIY.     By using an FA, you are effectively seeing a sales rep offering their own product.

As well as ongoing annual fees they are asking for a one of fee of 3% of total fund to transfer. Is this normal?

Initial advice fee is normal.    The amount is best discussed in monetary terms though. 3% could be cheap or it could be expensive (as mentioned higher up).   Many independent advisers have caps and collars or tiering in place to stop the fee becoming obscene.   Most FAs do not.

 Would they ask for the same if it was a standard investment I was depositing. Why the charge?

There is probably around 6 hours work  involved in providing the initial advice.    You are paying the adviser for their advice and the work involved.        There is nothing unusual or new about this.  Indeed, initial advice fees are lower today than they were 15 years ago.

 As you say it would have to perform at a decent rate just to recover the initial charge never mind the ongoing fees.

Not really.  3% could be recovered quite quickly in most periods.  However, if you suffer a loss straight after investing it will take longer.

Yes, they’re independent and recommended through unbiased.

unbiased doesn't make recommendations.   And unbiased is no longer an IFA directory. They include FAs as well.  In our area, hardly any of the local IFAs appear on unbiased any more apart from the free entry.

If you use unbiased to make an enquiry, rather than viewing list the companies, then unbiased sell your details as a lead.     If you are viewing the list of companies and not using them to find a company then you should ensure the list includes the advisers that do not pay for an entry on unbiased. 

What you describe in post 1 is not the actions of an IFA but an FA.    IFAs do not have their own funds.   IFAs are independent. It is what the I stands for.    Those that sell their own products and/or funds are FAs.

I never thought about asking the current provider if they can actively manage but I will now. 

The vast majority of providers do not hold advice permissions and cannot manage it.    Only those with a current salesforce can.  But that would still incur advice charges and typically higher than an IFA.

I am going to walk away. I was more interested if a one of fee over and above the ongoing costs was normal.

Yes it is normal.   The average initial fee is 1.8% across the industry, when displayed in percentage terms.   Larger values typically pay less. Smaller values typically pay more and then you get the big salesforces charging 5% or thereabouts.

Albermarle

magd36 said:

A Financial Advisor is suggesting I move my pension from the current provider to their own fund (basically passive managed fund to actively managed fund). There’s no exit fees. As well as ongoing annual fees they are asking for a one of fee of 3% of total fund to transfer. Is this normal? Would they ask for the same if it was a standard investment I was depositing. Why the charge? Thanks

 If you go to a financial advisor, they have to look into all your finances in detail. Then they have to work out your objectives, plans for the future, risk profile etc . Usually it will include your spouse as well ( if you have one) Then because they are highly regulated, there is a lot of paperwork.
Then finally they will make some recommendations on what would be the best way forward. This can include transferring pensions, but can be many other things as well, such as tax efficiency, planning for when you die,  etc.
If they make unsuitable recommendations you can make a claim against them.
So all that is  really what the 3% is for. The actual transfer of the pension and investing it is a minor cost.

I assume you have had only had a general chat with the advisor and they have suggested one option could be to transfer your pension. However they can not offer this as formal financial advice until you have been through the process above.

It is not mandatory to then have ongoing advice ( with a fee) . You should be able to just have the initial advice.

 I never thought about asking the current provider if they can actively manage but I will now. 

Your current provider will NOT actively manage your pension. That would constitute personal financial advice. 
What @Marcon meant was that your current provider may well have some actively managed investment funds available for you to choose from, but that would be your choice which one(s) to pick.

Caveat here is that some pension providers, do have a financial advice arm. However you would have to go through the same process as detailed above and pay for it of course.

RogerPensionGuy

I think in the recent long generally upward moving markets some people were happy paying fees for a nice warm feeling. 

However in low or downshifting markets and if time isn't short many people reconsider if fees are always worth paying for themselves. 

☆☆☆

https://www.which.co.uk/money/investing/financial-advice/how-much-financial-advice-costs-aODa70J6nYs7

☆☆☆

https://www.ginsglobal.com/articles/94-of-us-fund-managers-underperform-sp-500-over-20-years/

wjr4

magd36 said:

Billxx said:

Walk away.  This does not seem right to me.  As Marcon said, why is their fund better for you and what are the ongoing charges?

I am going to walk away. I was more interested if a one of fee over and above the ongoing costs was normal.

What was the actual reason you looked for a financial adviser in the first place? What are your objectives?