What pension + advice fees are reasonable

ringo747

Hi, looking for a steer please and some guidance on some queries to put to a new financial advisor I've been connecting with - they claim to be fully independent.

Still 20+ years from retirement and have around 200k through a workplace pension that has been performing below average 8% for a while. I haven't been clued-up enough to review it but now trying to get things in order. Small portion of this is held separately in a LifeStrategy100% in a SIPP which is charting much better performance wise.

Adviser is suggesting active management approach where they are paid to select from a mix of funds from other providers. Their management fee to perform these selections, and other financial check-ins during the year is 0.7%, with an additional 0.7% between the fund fees and platform fees. First year based on current pot value would be £3k+ in fees, and assuming 60k+ annual contribution, the yearly fee could be as much as £8k by year 5. 

On top of this is a 3% transfer fee which involves moving any contributions from my workplace pension into the SIPP at the end of each tax year. This takes £7k+ in year one but reduces over time as the annual contribution value is lower than the initial transfer.

Questions
- 1.4% annual charge seems quite significant compared to the 0.3% for current workplace pension (granted this is unmanaged and unperforming). Does this charge year-on-year sound ridiculous? I'd need to model it out but I suspect that any gains by trying to beat the market will eventually get swallowed up by fees. 

- 3% transfer fee from workplace pension to SIPP - I don't see why this is required. Can I not request a transfer from workplace pension and push it into the SIPP myself?

- I have individual stocks that I can apparently wrap into a pension to drive better use of yearly allowance. What is the technical term for this and is it something that most providers should be able to accommodate?

- Any other questions I should put to my adviser? If they are truly independent I'd expect they can still guide me on fund selection with ad-hoc advice, without being tied into an ongoing management service? 

Peterrr

In my humble opinion you don't require an IFA and are capable of selecting appropriate funds in your existing workplace pension scheme. Your apprehensions about fees are correct, and there is no way the IFA can assert that his management will lead to higher returns (especially after his fees).
Surely to enjoy ongoing employer contributions you would have to pay into your workplace scheme rather than whatever the IFA is suggesting?

dunstonh

Still 20+ years from retirement and have around 200k through a workplace pension that has been performing below average 8% for a while. 

Has it been underperforming or is performance reflecting the assets you are investing in.  For example, gilts have just had their worst period in over 100 years.  So, anything that uses gilts would have had negative returns. That doesn't mean it was underperformance.

 I haven't been clued-up enough to review it but now trying to get things in order. Small portion of this is held separately in a LifeStrategy100% in a SIPP which is charting much better performance wise.

Not an optimal option but does better reflect timescale etc.

Adviser is suggesting active management approach where they are paid to select from a mix of funds from other providers. Their management fee to perform these selections, and other financial check-ins during the year is 0.7%, with an additional 0.7% between the fund fees and platform fees. First year based on current pot value would be £3k+ in fees, and assuming 60k+ annual contribution, the yearly fee could be as much as £8k by year 5. 

On top of this is a 3% transfer fee which involves moving any contributions from my workplace pension into the SIPP at the end of each tax year. This takes £7k+ in year one but reduces over time as the annual contribution value is lower than the initial transfer.

That seems expensive for initial costs.

- 1.4% annual charge seems quite significant compared to the 0.3% for current workplace pension (granted this is unmanaged and unperforming). Does this charge year-on-year sound ridiculous? I'd need to model it out but I suspect that any gains by trying to beat the market will eventually get swallowed up by fees. 

The 0.3% for the workplace pension doesn't include adviser cost and is a budget product.  
1.4% as a total charge doesn't seem bad on your value.  Especially with active funds being used.     Active funds are always more expensive.

- 3% transfer fee from workplace pension to SIPP - I don't see why this is required. Can I not request a transfer from workplace pension and push it into the SIPP myself?

No you cannot.  The fee is to the adviser.    However, 3% based on your value is high.  Half that would be more typical as a target price.

- I have individual stocks that I can apparently wrap into a pension to drive better use of yearly allowance. What is the technical term for this and is it something that most providers should be able to accommodate?

bed & pension.   Its only a joined up process if the ceding account and receiving account are on the same platform.  Otherwise it a manual process.

 If they are truly independent I'd expect they can still guide me on fund selection with ad-hoc advice, without being tied into an ongoing management service? 

Yes and no.   Yes you can go transactional rather than ongoing but the IFAs advice will change.  For example, if the IFA is recommending an MPS, then you have to be an ongoing servicing client.     The advice on investments will change if you are transactional.   You will see multi-asset or a single fund choice made.   That is not necessarily a bad thing if you are going 100% equities, but the IFA is unlikely to provide advice on portfolio builds (i.e. a portfolio of funds) as they require ongoing management, and you do not want that.   You would have to show sufficient knowledge nad understanding of portfolio building and management for the adviser to be happy to do that.

squirrelpie

You say your financial adviser claims to be independent but have you actually checked? A scammer might claim exactly the same.

https://www.fca.org.uk/firms/financial-services-register

LHW99

Still 20+ years from retirement and have around 200k through a workplace pension that has been performing below average 8% for a while.

Pensions themselves don't perform - its the funds you have chosen (or been defaulted into).

Expecting 8% pa average growth (if that's what you mean) would need a high equity content IMO.

Albermarle

 a workplace pension that has been performing below average 8% for a while. I haven't been clued-up enough to review it but now trying to get things in order. Small portion of this is held separately in a LifeStrategy100% in a SIPP which is charting much better performance wise.

Most likely the investment fund you have in the pension is different to VLS100 so you will be comparing apples and pears. Have you looked into the investment choices in your workplace pension? I am only aware of one that does not offer any choice.

Bostonerimus1

If you aren't happy with 8% return then I see a lot of sorrow in your future. If you think paying a lump sum to an advisor and then an annual fee is going to allow you to "buy" better returns you stand a very good chance of disappointment and even more sorrow.

FYI your advisor might not be choosing those funds as they will often pay a third party service to do that. If that's the case don't expect to get any active management that will sell at peaks and buy on the lows etc. So you are really just buying a portfolio. If the advisor can help with tax efficiency and preparation for retirement income generation that's a useful function, but don't expect them to be stock/fund pickers.

wjr4

Your IFA sounds like an old school product sales person. Have they offered you a full financial plan including a cashflow model? That’s a very expensive initial charge and older firms charge 3%, not the up to date ones. 

ringo747

Late reply - thanks all for the responses. 

I just don't think it is justified given the fees - the front ended cost given a full transfer out of my existing work pension would take some time to recover from. Perhaps nearer retirement some advice could be useful but I'm happy enough with a passive index fund. 

Speaking of which, is there any reason not to use the same fund in ISA, SIPP and workplace pension? I have the Vanguard Global All cap at the moment but have seen the Fidelity Index World P recommended and this is much cheaper. Is this a decent option given it doesn't focus much (afaik) on emerging markets? It was either this or the HSBC equivalent.

My thinking is that I keep some monthly allocation going into work pension so as to maximise employer contributions, but I would keep this fairly low and handle the rest via SIPP, and self assessment after tax year end.

Part of the reason for the poor historic performance of the funds that workplace pension invested in was maybe a 70/30 split of equities to bonds. This was moved more recently and the current fund is listed as "BlackRock FutureWise Early Days Aggregator". I need to research more but may move it into something else. It seems that the Index World P isn't available in the workplace pension fund list.

If I have a limited fund selection via work, I may ask to transfer some of this to SIPP but not sure if this is permitted. 

JohnWinder

I have the Vanguard Global All cap at the moment but have seen the Fidelity Index World P recommended and this is much cheaper. Is this a decent option given it doesn't focus much (afaik) on emerging markets?

Two comments. Firstly, the more broadly diversified you are with equity funds the safer against extremes of returns you should be; the underperforming sectors or regions will hold you back from better returns at times, and at other times the sectors etc falling the least will protect you against the worst falls. But that has to be balanced with what’s available to you, how simple or complex you want your holdings to be, fees, how well the index is tracked, the amount of home country bias you want etc. Only you can put all that together to best suit you.
A resource to help you weigh up those considerations is portfoliovisualizer because it will show you how small an effect your choices can have, so get familiar with the ‘asset allocation backtest’ tool on the portfoliovisualizer website. Because here you can see what difference having or not having emerging market stocks, or small cap stocks etc, in a global tracker would have made in the past. The future will be different although not much probably, and it will likely be that sometimes EM helps and sometimes hinders returns, but the differences are small. Have a look. https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=3Wj3bUUk6vkIJGJL2DYRYy

m_c_s

A 1% annual fee on an initial investment of £200k that grew 8%pa over 20 yrs would be £160k. A question you should ask yourself first is are you happy to give your adviser £160k out of your retirement pot? Ofcourse if you are adding to your pot each year then the fee given to your adviser over 20 yrs will also grow enormously, Adding 20k per annum to your pot would mean a total fee paid of around £300k. 
What is he or she doing for you for this £160k or £300k?