Financial Advice - how much does it cost?

asmith1972

Hi I'm 50 and as I'm sure many people do I have a private pension that I have been personally paying into for like 30 years plus a number of pensions that have been setup by previous companies I have worked for.I also have a resonable amout of savings in ISAs and general instant savings account.
I'm looking to get some finance advise to see if I should be consolodating, moving or paying in more to my pension pot plus general advise around  my circumstances.
As one of my pensions is with Aviva I've had a initial call with them and they seam to be wanting to charge 2% of my my TOTAL fund assets to give advise. This seams quite high to me.
So I was wondering what is the standard charge for this type of thing?

Albermarle

Firstly it is usually recommended to go to an IFA, rather than an in house advisor who can only recommend their own products .
2% initial fee is pretty much the norm, although if you had a big fund it might get capped at say £5K.
Then normally most arrangements are for ongoing advice at 0.5% to 1 % pa , although you do not have to have that.

dunstonh

As one of my pensions is with Aviva I've had a initial call with them and they seam to be wanting to charge 2% of my my TOTAL fund assets to give advise. This seams quite high to me.

A percentage needs context.

For example, 2% on £100,000 is reasonable.   2% on £50,000 is cheap.  2% on £500,000 is expensive.
A lot of firms will have cap and collars on their fees.  So, that 2% may hit a cap.    Some firms are greedy.

So I was wondering what is the standard charge for this type of thing?

There is no such thing as a standard.  You tend to find city firms charge more than rural firms due to higher overheads.  Prestige firms charge more than small local firms working in a small office/home office.  
Some firms have pricing models that target higher net worth. Some have pricing models that target the lower value market.

LHW99

Do you have the details of all your pensions? (DB or DC, who with, how much, projected income)

Have you looked at your state pension projection? https://www.gov.uk/check-state-pension - read it all!

Do you have an idea of how much you want to live on in retirement?

If you do talk to an IFA, knowing all that will let you have a better idea of what you need to discuss in relation to the questions you are asking about consolidating / paying more in etc. On the other hand, it may give you enough information to come and ask a few more questions here, and deal with it yourself. Transferring DC pensions yourself is fairly easy, adding more money may be a no-brainer (very few people will regret that), and any DB pensions are in most circumstances worth keeping.

Qyburn

The IFAs I approached all wanted 3%, with some bollox about being confident they could save at least that much in tax. 

dharm999

I’ve been quoted 1.5% for initial advice and 0.75% for the ongoing annual cost, excluding platform fee and fund costs.  Our SIPPs, ISAs, Cash and general investments are in to seven figures, and the initial cost would be over £40k, which is a lot in my opinion.  I’m going to find out if they will cap the cost when we have our next meeting.  We are looking for overall advice on IHT, tax, savings, pensions, and pensions drawdown planning.  

Bostonerimus1

dharm999 said:

I’ve been quoted 1.5% for initial advice and 0.75% for the ongoing annual cost, excluding platform fee and fund costs.  Our SIPPs, ISAs, Cash and general investments are in to seven figures, and the initial cost would be over £40k, which is a lot in my opinion.  I’m going to find out if they will cap the cost when we have our next meeting.  We are looking for overall advice on IHT, tax, savings, pensions, and pensions drawdown planning.  

The 1.5% isn't so much of an issue, it's the ongoing 0.75% compounding over the years. You might also think about it like this: the generic safe withdrawal rate from a retirement portfolio is 4% and if you are paying 0.75% to an IFA and maybe 0.5% in fund fees that's a total of 1.25% or 31% of your annual retirement withdrawal which would probably make it your largest single expense.

DT2001

Bostonerimus1 said:

dharm999 said:

I’ve been quoted 1.5% for initial advice and 0.75% for the ongoing annual cost, excluding platform fee and fund costs.  Our SIPPs, ISAs, Cash and general investments are in to seven figures, and the initial cost would be over £40k, which is a lot in my opinion.  I’m going to find out if they will cap the cost when we have our next meeting.  We are looking for overall advice on IHT, tax, savings, pensions, and pensions drawdown planning.  

The 1.5% isn't so much of an issue, it's the ongoing 0.75% compounding over the years. You might also think about it like this: the generic safe withdrawal rate from a retirement portfolio is 4% and if you are paying 0.75% to an IFA and maybe 0.5% in fund fees that's a total of 1.25% or 31% of your annual retirement withdrawal which would probably make it your largest single expense.

According to the article linked below your calculation is correct but only for year 1 of drawdown. It says if you manage to drawdown your capital to nigh on zero your fee as a % of your withdrawal is much lower. What is your take on this article Bosternimus1?

https://finalytiq.co.uk/impact-of-adviser-fees-on-withdrawal-rates-in-retirement-portfolio/

Locally ongoing fees seem to be drifting towards 1% even for larger portfolios. I assume costs are rising. This is being offset to some degree by use of more passive funds. The assessment anyone needs to make is if the service - building diversification into a portfolio (assets, geographically etc) to provide a return to meet your goals plus tax/estate advice and peace of mind - is value for money.

gm0

As the article points out.  0.5% is ~10% of the initial pot - as fees - 40 year plan.  2% on the way in.  That's 12%.  For a big initial pot.  That's a LOT OF MONEY in anybody's book.  So it is a LUXURY good.  Wealth management (FAs) being the Veblen good version - overcharging via exclusivity.

Your affairs and investments may require tax planning wizardry and your family affairs may need lots of quality monitoring of tax optimisation and estate planning advice.  An trusted IFA may therefore be something you need and want in your life

Or not. And for those people - total waste of money.  Reluctantly faced with the true size of the charges.  Vs the long term average returns.  I concluded I would learn about it and opt out.

Your time v Money.  Level of interest.

That's it.

It's not better performance.  Or lower investing costs. No promises on anything like that. 

It's the "other" helpful advice.  And the fee is the fee.

Bostonerimus1

DT2001 said:

Bostonerimus1 said:

dharm999 said:

I’ve been quoted 1.5% for initial advice and 0.75% for the ongoing annual cost, excluding platform fee and fund costs.  Our SIPPs, ISAs, Cash and general investments are in to seven figures, and the initial cost would be over £40k, which is a lot in my opinion.  I’m going to find out if they will cap the cost when we have our next meeting.  We are looking for overall advice on IHT, tax, savings, pensions, and pensions drawdown planning.  

The 1.5% isn't so much of an issue, it's the ongoing 0.75% compounding over the years. You might also think about it like this: the generic safe withdrawal rate from a retirement portfolio is 4% and if you are paying 0.75% to an IFA and maybe 0.5% in fund fees that's a total of 1.25% or 31% of your annual retirement withdrawal which would probably make it your largest single expense.

According to the article linked below your calculation is correct but only for year 1 of drawdown. It says if you manage to drawdown your capital to nigh on zero your fee as a % of your withdrawal is much lower. What is your take on this article Bosternimus1?

https://finalytiq.co.uk/impact-of-adviser-fees-on-withdrawal-rates-in-retirement-portfolio/

Locally ongoing fees seem to be drifting towards 1% even for larger portfolios. I assume costs are rising. This is being offset to some degree by use of more passive funds. The assessment anyone needs to make is if the service - building diversification into a portfolio (assets, geographically etc) to provide a return to meet your goals plus tax/estate advice and peace of mind - is value for money.

As you increase your drawdown income with inflation then the percentage amount you are paying in financial fees will go down if those fees don't also increase with inflation. Also if your pension pot decreases in size the amount you pay in fees will also go down. It's a point that financial advisors love to make ie. they like to distract you from the often very high percentage of your income you are paying at the beginning of retirement which will ripple through your entire retirement in the same way sequence of return risk does. Concluding that you are going to pay financial fees equivalent to 10% of your total retirement income or see a 0.5% reduction in withdrawal rates just underlines to me that fees and financial advice can be a big drag on retirement income - the article is no defense and thinking that it is just shows how warped the view of the financial industry can be. It's also probable that starting at a 4% indexed withdrawal will allow the pension pot to stay well above zero for a long time so you will still be paying big fees and that does not seem to have been considered in the article. 

cfw1994

gm0 said:

As the article points out.  0.5% is ~10% of the initial pot - as fees - 40 year plan.  2% on the way in.  That's 12%.  For a big initial pot.  That's a LOT OF MONEY in anybody's book.  So it is a LUXURY good.  Wealth management (FAs) being the Veblen good version - overcharging via exclusivity.

Your affairs and investments may require tax planning wizardry and your family affairs may need lots of quality monitoring of tax optimisation and estate planning advice.  An trusted IFA may therefore be something you need and want in your life

Or not. And for those people - total waste of money.  Reluctantly faced with the true size of the charges.  Vs the long term average returns.  I concluded I would learn about it and opt out.

Your time v Money.  Level of interest.

That's it.

It's not better performance.  Or lower investing costs. No promises on anything like that. 

It's the "other" helpful advice.  And the fee is the fee.

Veblen goods - had to look that up!!

Agreed, & well put.
For many people who wander through life ignoring money, maybe it is well spent….for us, it felt definitely worth the effort of figuring things out.