Not Proceeding With IFA Advice?

alfapersius

I recently discussed retirement options with an IFA, AFH Wealth Management. While I got on with the adviser, I'm not overly impressed with the advice which, to summarise, was to transfer everything to them in a new SIPP with discretionary service of that SIPP bundled in. The reason for not being happy with the advice is the large fee to transfer the pension and the ongoing costs would take a big chunk of money.

I know nothing is free and I'd be paying for their expertise but it seems unlikely they would be able to outperform my current pension by a big enough margin to recover these costs.

Does anyone have any experience with using AFH? If I decide not to proceed with their recommendation, I'm not sure where I stand, I assume they would want to charge me a fee for what they have done but it's not clear in the documentation I have.

Brie

Don't know a thing about AFH but I have had chats with a few IFAs and have yet to settle on one officially.  I may have found one now but it was clear from our conversations that the work they have done so far in reviewing things is free and I will know for sure when the charges start.  And that seems to be when they actually are handling the money rather than looking at it from a distance.  

eskbanker

My understanding is that all you'll generally get free from an IFA is an initial introductory chat for up to an hour, and that anything beyond that is chargeable, but that an engagement letter should be issued clearly explaining such charges.

dunstonh

I know nothing is free and I'd be paying for their expertise but it seems unlikely they would be able to outperform my current pension by a big enough margin to recover these costs.

You haven't mentioned the charges or what you are in or what they are recommending.

 If I decide not to proceed with their recommendation, I'm not sure where I stand, I assume they would want to charge me a fee for what they have done but it's not clear in the documentation I have.

Normally there is a point that you become liable for (some or all) charges even if you do not proceed with the purchase but you have to be told when that point is.   Often, it coincides with signing their fee agreement.

While I got on with the adviser, I'm not overly impressed with the advice which, to summarise, was to transfer everything to them in a new SIPP with discretionary service of that SIPP bundled in.

What is wrong with that?    Statistically, the movement of old plans into a newer, cheaper platform with better options and functionality is the advice in the majority of cases.   There are some old plans that are gems that are worth keeping, but the majority can be improved upon with modern options.

The use of a discretionary management service is not a bad thing.   I use a DFM MPS at times and the portfolio and DFM charge is lower cost than the lowest cost multi-asset fund (which is effectively a DFM MPS within an OEIC).    So, what is wrong with the one that has been recommended?

poolboy

Some of the fees are eye watering for something you could do yourself.  I listen to meaningful money podcast he s got some really good ideas.

Albermarle

I know nothing is free and I'd be paying for their expertise but it seems unlikely they would be able to outperform my current pension by a big enough margin to recover these costs.

There is a common misconception that you employ a financial advisor, solely to somehow out perform compared to if you did the investing yourself.
They can also advise on tax , withdrawal strategies, more general family finance, planning for legacies, changes in Govt legislation  etc.
Although normally you would be better off with an IFA, than a 'Wealth Manager' .
If you DIY, like many people on this forum, you need to keep up to speed as much with all the non investment part as the investment part.

alfapersius

thanks for the comments guys.

@dunstonh my pension is currently with my employer Fidelity. Currently I believe that's got a total cost of 0.37%.

My main concern is the charges which would be 2.5% to transfer the pension from FIL to the AFH SIPP and then an ongoing 1.97% fee made up of platform, transaction fees and service charges. It's a combination of the 2.5% to move it and the ongoing annual fee that concerns me, they will have to consistently outperform the FIL pension just to make up what they take in fees.

dunstonh

@dunstonh my pension is currently with my employer Fidelity. Currently I believe that's got a total cost of 0.37%.

The Fidelity workplace pension is not great.  Not bad as workplace pensions go but that is not a high bar. Its has a limited range of funds and more expensive share classes compared to the SIPP.

My main concern is the charges which would be 2.5% to transfer the pension from FIL to the AFH SIPP

AFH are IFAs.   IFAs are whole of market and don't retail their own product.   However, a small number of IFAs (typically the nationals) will white-label or build products.   If they are retailing their own product, they have to be seen to be whiter than white.  i.e. if you get a IFA platform like Fundment at 0.15% (just picked that one as example) and the own brand platform is say 0.25%, then they have to go out of their way to show why they believe their platform is better than Fundment and the extra cost is worthwhile.  Otherwise, they are not acting as IFAs but as sales agents of the product provider (themselves).

2.5% needs context.  That could be cheap or it could be expensive as its the monetary amount that matters.

and then an ongoing 1.97% fee made up of platform, transaction fees and service charges.

1.97% is high.   However, disregard the transaction charges figure.  IFAs are required to disclose them, as are platforms, but it's a flawed figure introduced by the EU and it's synthetic and not explicit.  i.e..  You pay the platform, OCF and adviser.  They are the explicit charges.  They are the three to add up.          So, what is the figure without the transaction charges figure?

I am just checking in case the figure is high due to TC or its high due to something else.

 It's a combination of the 2.5% to move it and the ongoing annual fee that concerns me, they will have to consistently outperform the FIL pension just to make up what they take in fees.

With the Fidelity workplace pension, the range of funds available is not great. Last one I saw only had a couple of dozen funds and it was weak on the bonds side of the portfolio.   So,its possible, depending on your risk profile.     

Remember that the adviser is not there to outperform.  They are there to provide suitability.     

Also, IFAs cannot insist on ongoing servicing.  If you want just transactional advice, then the IFA cannot take the ongoing fee.   The investments will be different but they may be just what you need.       Most small local IFAs (which make up the majority of IFA firms ) will happily do transactional work.  The nationals tend to prefer to hoover up assets under management to put on their ongoing servicing.  Not saying that is happening here but that is a general approach.

alfapersius

The AFH charges are broken down as follows:

1.0% investment service charge
0.2% prod/platform fee
0.77% ongoing fund charges including transaction charges

dunstonh

alfapersius said:

The AFH charges are broken down as follows:

1.0% investment service charge
0.2% prod/platform fee
0.77% ongoing fund charges including transaction charges

1% for adviser is typical for smaller values.  It typically tapers down as the amount gets larger with  0.5% being the dominant figure.

0.2% is ok for platforms.   Certainly not the cheapest.   So, an IFA recommends a platform costing 0.2% when platforms at 0.15% are available to IFAs (possibly cheaper, but just using that as an example again) then the IFA has to justify why they are putting you in a more expensive platform.

Indeed, that is a question on the FCA's pension switching template.

The 0.77% ongoing fund charges, including transaction charges, suggest that its managed funds are being used rather than passive.    However, it could be hybrid but without knowing what the transaction charges are (so they can be disregarded), its difficult to say.  For example, the low cost HSBC Global Strategy Balanced fund has an OCF of 0.18% but a couple of years ago, there was a quarter when it was disclosing transaction charges of around 0.36% giving a total fund charge of 0.54%.   The TC figure is bizarre and pointless because its not a common standard and allows different calculation methods which do not need to be disclosed and can include an element of profit and loss.

You don't say how much money is involved (and that is important as the more you have, the lower the percentages become) but you could get the following:
0.50% IFA charge
0.15% platform
0.17% funds  

0.82% total p.a.

You can instruct some of that change as AFH say they are independent.  a) tell them you want passive funds.   Some will already default to passive. Some do not, but all IFAs have to follow your investment preferences. b) Tell them you want the lowest cost platform.   If they refuse, then it means they are not acting as an IFA.   

The only thing that may not give is the adviser charge.   But you are free to shop around just as they are free to dictate what their adviser charge is.

alfapersius

Thanks @dunstonh. My pot is just over £400k. And I think you have highlighted the root of my concern, they are and IFA but seem to be tying all their customers into using a Pershing SIPP with discretionary management on top so the charges are higher.