Discretionary Managed Pension charges

RichardS

I’m currently paying a total charge of 1.57% for a Discretionary Managed Pension (handled by my FA on the Fidelity Platform). I contribute £4800 a year and the fund is currently worth £195K. I’m very concerned that too much of what I am putting is getting eaten away in charges.  Am I right to be concerned by the charges? The returns after charges are currently around 3% and at its best point it has been around 5%.  (Posting on here and as I started a similar thread on the investing forum and it was pointed out that that’s probably the wrong place so apologies for the slight duplication)

Bostonerimus1

What does your fee cover? Does it include fund and platform charges as well as the advisor fees? but you are right to be concerned. How is your money invested? Whether 5% is a good return will depend on the investments that have been chosen and time scale, but giving up 2% return for expenses is not very sensible, at least for your. FYI many inexpensive retail multi-asset funds will have significantly beaten your "Managed Pension" YTD and over 3, 5 and 10 years, but to do a comparison more information about the composition of your pension is needed.

JohnWinder

You could usefully recalibrate your thinking on fees and performance. Your 1.57%/year fee based on assets under management presumably is high, low or whatever, but what your returns have been are largely irrelevant. 4%/year return on a low risk investment might have been reasonable in recent times regardless of whether the fee was high or zero; and 4%/year on a high risk/high return investment over many years might have been poor even if the fee was zero. Yes, it does placate the gods of justice if a high fee comes with an unusually high return, but the reality is one can get those high returns without high fees.

And some data: Morningstar does lots of analysis of funds’ fees and returns. They say the best single predictor of a fund’s return is its fees. That information doesn’t get you very far since there are other determinants (not as strong, but present) of fund returns, but it should help you get the right mind set. Essentially, we don’t need to know your fund’s returns to appraise the fees.

EDIT: Morningstar says the higher the fee the worse the return. Counter intuitive indeed, but with investing and fees you get what you don’t pay for.

RichardS

Bostonerimus1 said:

What does your fee cover? Does it include fund and platform charges as well as the advisor fees? but you are right to be concerned. How is your money invested? Whether 5% is a good return will depend on the investments that have been chosen and time scale, but giving up 2% return for expenses is not very sensible, at least for your. FYI many inexpensive retail multi-asset funds will have significantly beaten your "Managed Pension" YTD and over 3, 5 and 10 years, but to do a comparison more information about the composition of your pension is needed.

Yes it includes fund, platform and advisor fees.  I thought my fees were 1.3% but when I checked this this morning (after reading some of the comments on my other thread) my FA replied saying is also a Quilters fee of 0.27% giving me a total charge of 1.57%

JohnWinder

Q1: Yes, you should be concerned, and the higher the more concerned. Fees should be part of every year or so’s investment review; can they be improved; are they coming down? 
To know how concerned, read around. Some of your options are limited. The UK pension industry does not have low fees compared to some countries, but you’d rather not be living in Italy, so you have to take it on the chin to some extent but keep agitating for lower fees and your fellow countrymen might be rewarded eventually. They have been coming down.

Qyburn

RichardS said:

Yes it includes fund, platform and advisor fees.  I thought my fees were 1.3% but when I checked this this morning (after reading some of the comments on my other thread) my FA replied saying is also a Quilters fee of 0.27% giving me a total charge of 1.57%

Is Quilter the fund?  I don't quite agree with the comments that returns aren't relevant, these seem to assume that you'd be sure to get the same return if you ditched the FA and made your own fund choices. That might be a path you'd be less willing to take if you're getting the returns you need, net of fees. 

RichardS

Qyburn said:

RichardS said:c

Yes it includes fund, platform and advisor fees.  I thought my fees were 1.3% but when I checked this this morning (after reading some of the comments on my other thread) my FA replied saying is also a Quilters fee of 0.27% giving me a total charge of 1.57%

Is Quilter the fund?  I don't quite agree with the comments that returns aren't relevant, these seem to assume that you'd be sure to get the same return if you ditched the FA and made your own fund choices. That might be a path you'd be less willing to take if you're getting the returns you need, net of fees. 

I have no idea what it is - presumably some sort of investment fund that my pension is linked to

dunstonh

I’m currently paying a total charge of 1.57% for a Discretionary Managed Pension (handled by my FA on the Fidelity Platform).

Historically, I have been negative towards DFMs.  However, there has been a lot of movement in pricing of some DFMs recently.   Some new entrants have disturbed the market and prices have been falling.   Although there are still plenty of damned expensive ones.

 I’m very concerned that too much of what I am putting is getting eaten away in charges.  Am I right to be concerned by the charges?

Charges are a secondary concern. An important one but not the primary one.   

1.57% all in needs context.
Who is getting what out of that?    What investment style is it?   Conventional, Ethical, ESG, Passive, Active, Hybrid etc?   Costs will vary quite a lot across the styles.    1.57% for passive would be expensive but it could be cheap for fully active.

Yes it includes fund, platform and advisor fees.  I thought my fees were 1.3% but when I checked this this morning (after reading some of the comments on my other thread) my FA replied saying is also a Quilters fee of 0.27% giving me a total charge of 1.57%

There was a new disclosure style from 2018 which is still largely optional on life and pension wrappers but now includes a synthetic charge called transaction charges.   This is not an explicit charge that you pay but Quilter, like most advised platforms, will disclose it to you.     You pay the adviser charge, and the platform charge and the OCF.   You don't pay the transaction charges.  It is meant to be an indication of your share of the implicit charges a fund can suffer through its business.   There are different calculation methods that can be used and they can result in different outcomes.    

So, the transaction charges figure has to be disclosed but most investors disregard that column.

We are lucky as the UK pension industry has some of the lowest fees compared to some countries.    

Qyburn

RichardS said:
 

I have no idea what it is - presumably some sort of investment fund that my pension is linked to

Do you have a Fidelity login, if so you'll be able to see the funds?

RichardS

@Qyburn yes I can log in and see the allocation. There are lots of funds, they don’t really mean much to me. Would it worth posting them in here ?

dunstonh

RichardS said:

@Qyburn yes I can log in and see the allocation. There are lots of funds, they don’t really mean much to me. Would it worth posting them in here ?

If the portfolio is built using a DFM, then there will be structured due diligence, research and analysis and a process to rebalance and adjust where necessary.

If you DIY, you take over the investment choices and how the portfolio is run.

This is what it really boils down to.    Do you want to DIY or pay someone else to do it for you?     On your value, an advised portfolio at 1.57% total cost (possibly including the synthetic TC costs) is not a scary fee.    You can do better.  You can get worse.    If you DIY well, then you could be better off.  If you DIY badly, it could be a very costly mistake.