Wealth Management fees causing drag on my SIPP and ISA?

MJS89

Hi all,

Let me preface by saving I’m a novice when it comes to investing. However, I have spent quite a few hours reading this forum, reddit investment groups and the Monevator website, so I have at least grasped the basics of pensions and ISAs.

I’m 40, self-employed, and have an SIPP worth roughly £90k and a S&S ISA worth £40k. Both with Quilter. The former comprised of 10 funds, all equities. The later comprised of 4 funds, three equities one gilt.

I contribute £1500 to the pension and £500 to the ISA per month.

I’m with an independent wealth management firm, and we agreed last year - due to my relatively young age - that moving to a higher risk appetite is prudent. They suggested moving to an active management. I agreed. Since then I’ve done more research and it appears active funds rarely outperform the market in the longterm. 

Due to the active management, my fees have increased. The fees are broken down separately for both the pension and ISA. For the pension I pay annually: 1% advice costs, 0.24% platform costs, and 1.13% investment fund costs. And an initial regular flat fee of £900 over 24 months. So 2.37% in total. The same is true for the ISA apart from the initial regular fee which is £300 over 24months. And a 2.5% initial fee for any lump sump payments into the pension or ISA. I don’t really utilise the advice other than asking for contributions to be increased.

Since moving to an active fund last year my pension value performance is in the negative (-3%) according to Quilter. My ISA is doing well (up 5.66%). Now, I fully understand that 9 months is very little time to judge the performance. But am I right in thinking my pension is going to have to seriously over perform the market to make an active approach worth it, due to these fees?

QrizB

Others will have more insight than me, but it seems that your "wealth managers" are taking a big cut and making things over complicated.

If you'd put your SIPP in eg.  HSBC Global Strategy Adventurous (a higher-risk multi asset fund) you'd be ~15% up over 9 months. And on a low-cost platform you'd be paying much less in fees.

MK62

It's not so much the active vs passive fund fee issue here, but rather that you are on an expensive platform......and those fees are eating into your returns - I doubt you'll find many on this forum willing to pay those kind of fees tbh.

Can't comment on the funds themselves as you haven't named them.......

barnstar2077

MJS89 said:

Hi all,

Let me preface by saving I’m a novice when it comes to investing. However, I have spent quite a few hours reading this forum, reddit investment groups and the Monevator website, so I have at least grasped the basics of pensions and ISAs.

I’m 40, self-employed, and have an SIPP worth roughly £90k and a S&S ISA worth £40k. Both with Quilter. The former comprised of 10 funds, all equities. The later comprised of 4 funds, three equities one gilt.

I contribute £1500 to the pension and £500 to the ISA per month.

I’m with an independent wealth management firm, and we agreed last year - due to my relatively young age - that moving to a higher risk appetite is prudent. They suggested moving to an active management. I agreed. Since then I’ve done more research and it appears active funds rarely outperform the market in the longterm. 

Due to the active management, my fees have increased. The fees are broken down separately for both the pension and ISA. For the pension I pay annually: 1% advice costs, 0.24% platform costs, and 1.13% investment fund costs. And an initial regular flat fee of £900 over 24 months. So 2.37% in total. The same is true for the ISA apart from the initial regular fee which is £300 over 24months. And a 2.5% initial fee for any lump sump payments into the pension or ISA. I don’t really utilise the advice other than asking for contributions to be increased.

Since moving to an active fund last year my pension value performance is in the negative (-3%) according to Quilter. My ISA is doing well (up 5.66%). Now, I fully understand that 9 months is very little time to judge the performance. But am I right in thinking my pension is going to have to seriously over perform the market to make an active approach worth it, due to these fees?

Why not just transfer to a SIPP and ISA on a cheaper platform, Vanguard, Interactive Investor etc and invest in a globally diverse tracker fund (assuming you don't need the money for a while.)  You will save almost a couple of percent a year in fees probably.  That would be a good start.

Do that for a while until you start thinking about retirement and then pay for some advice at the time if you feel like you still need to.

gm0

>For the pension I pay annually: 1% advice costs, 0.24% platform costs, and 1.13% investment fund costs.

Impossible to say whether this active fund and its portfolio contents and any shifts it makes will "outperform".  What can be said with certainty is that everyone else is getting paid first. And you get paid last.  As is true for all wealth management products and indeed active funds.  It's a tilt or concentration within the market which will win or lose relative to it in a given period.  And this affect can be very big - in either direction or both over time.  And the wealth manager adviser gets paid win or lose.  Nothing is contingent on what you get out of it.

I am no longer 100% equities (in deaccumulation now).  But was prior.  So holding "whole of market" and chasing money in consistently through volatility served me just fine.  (The 50% dip in total value 20078 was both financially rewarding ultimately - but still scary at the time). 

And I have a bias to passive investing. 

But your setup needs to outperform a lot, and consistently to be of real value.

First it has to catchup by at least your extra costs.  Which are about 2% pa cumulatively more than mine.  Given historic *long term average equities returns* (don't know what that is - go and learn about it) - of which 2% is a decent chunk - this is "quite unlikely" - not impossible as I have no crystal ball on perfecting asset allocation any more than Quilter's recommended fund provider does.  But finding 2% consistently just to break even doesn't start the race that favourably for them.

Here is my personal benchmark view of market price (consumer)

For DIY the charges should be roughly

0 initial (cost is your time deciding and form filling (work to get confident to do it - is real - transfers and setup not actually difficult tasks.  Less difficult than buying a house or probate. It's a choice to spend the time to be ready to it and the value this represents - vs outsourced cost you place on it). 

0 for advice - not taken with DIY. 0.5% as target for IFA hand hold.

0.3% (all in.  passive(ish) approach, fund and platform fees

Forum advice is generally to find a proper market price independent and pay 0.5% for advice.  Or to DIY and don't do that but to avoid all wealth managers with their expensive ways to do the similar things.

If what you have is mostly "global equities" underneath.  Then paying more to do the same thing.  Is foolish.  So expensive passive or passive adjacent solutions that mimic the market performance more or less pre-costs but  expensively are for the birds.  Genuine conviction active investments, and some difficult to understand country markets provide exceptions.

Value of "advice" from wealth manager/IFA is almost always external to the product.  Tax rules advice to family situation etc. 

Most IFA introduced pensions (for most of us) don't have unique unicorn asset allocations.  You can do something similar.  DIY retail funds are widely available. 

For long term pound cost averaging of monthly contributions into equities - a cost focused passive fund approach may well serve you perfectly well.  And over the long term - it is unclear how you will choose "the" active which outperforms that consistently over business cycles or jump at the right times over that longer timeframe.  But it could happen.  I cannot tell you with a straight face that it can't.  Probability (per SPIVA etc) is likely more supportive of the cheap global indexer approach.  You choose your investing philosophy and poison.  Funds. Platforms. Use of advice.

An "active" fund manager approach clearly will cost more for fund management. 
0.1% for passive becomes 0.5% or 0.75% even >1% depending what it is for the fund management charge.

DRS1

You have done your reading on here and elsewhere so you know you will be told you have 13 funds too many and should be in a low cost global equity index tracker.  Knowing that you decided to go with the active managed option so you must have a reason to believe that will be better.  You have gone with multiple funds presumably with different themes or geographies.  Could that be a good idea?  So when you decide America is going bust all you have to do is sell the American fund without bothering about Europe or India or Renewables or whatever else you have.  Presumably you thought that was a good play.  If so has it stopped being a good play?

Fees can matter but it is net gain/loss that matters more.  Presumably you believed that the active managers you or your adviser picked would out-perform the market - enough to justify their fees.  Have you got a good reason to change your mind?  9 months is no time at all.  Did you look at their past performance over 3 years 5 years 10 years?  Of course the past is no guide for the future.

Some of the fees are for Quilter.  Presumably you picked Quilter for a reason.  Does that still hold good?  If not how easy is it to leave them?  Are you locked in for 24 months?  Or can you just up sticks to ii or some other platform whenever you like?  Do your funds exist on that other platform?

wjr4

They are very expensive and Quilter are not independent. Do you mean you’re paying £300 pm for 2 years for the initial fee??!! That’s extortionate if you are! I’d be moving away asap. 

MJS89

MK62 said:

It's not so much the active vs passive fund fee issue here, but rather that you are on an expensive platform......and those fees are eating into your returns - I doubt you'll find many on this forum willing to pay those kind of fees tbh.

Can't comment on the funds themselves as you haven't named them.......

Yeah I agree. To me, the actual funds are moot, because they'd have to perform so well to out-do the negative effects of the fees. Unless I'm missing something

Bostonerimus1

Looks like you are being gutted. Move to an inexpensive platform and ditch the "Wealth Managers" who I'm convinced are actually bad for your finances and then charge you for it. FYI I've been investing in a small number of index tracker funds for almost 40 years and have an average annual return of 9%...do the compounding maths for that and I think you'll see it's been a good strategy and all it cost me was the low fund and platform fees.

MJS89

wjr4 said:

They are very expensive and Quilter are not independent. Do you mean you’re paying £300 pm for 2 years for the initial fee??!! That’s extortionate if you are! I’d be moving away asap. 

No, no, £12.50 per month over 24 months. As for Quilter, it was recommended I move to it as it had a better choice of funds from where my pension and isa were (Fidelity)

MJS89

DRS1 said:

You have done your reading on here and elsewhere so you know you will be told you have 13 funds too many and should be in a low cost global equity index tracker.  Knowing that you decided to go with the active managed option so you must have a reason to believe that will be better.  You have gone with multiple funds presumably with different themes or geographies.  Could that be a good idea?  So when you decide America is going bust all you have to do is sell the American fund without bothering about Europe or India or Renewables or whatever else you have.  Presumably you thought that was a good play.  If so has it stopped being a good play?

Fees can matter but it is net gain/loss that matters more.  Presumably you believed that the active managers you or your adviser picked would out-perform the market - enough to justify their fees.  Have you got a good reason to change your mind?  9 months is no time at all.  Did you look at their past performance over 3 years 5 years 10 years?  Of course the past is no guide for the future.

Some of the fees are for Quilter.  Presumably you picked Quilter for a reason.  Does that still hold good?  If not how easy is it to leave them?  Are you locked in for 24 months?  Or can you just up sticks to ii or some other platform whenever you like?  Do your funds exist on that other platform?

It's only recently that I decided to actually pay attention to my pension so I only really began reading up from the start of this year. Up until then I kinda just went along with the advice given (that's not to say I was forced or anything like that - I had the final say in everything, so all decisions were mine). Again with the funds, I just went along with the recommendation. Quilter was chosen by the advisor, and I agreed to move across to it.

Having spent more time reading and researching I can see that active doesn't always produce better results than passive, and the extra fees for the former certainly aren't helping.