can i change my mind after signing?

davewinner_2

Hi everyone. Got myself into a bit of a sticky situation and need some advice!! On Tuesday 21.06.2005 is signed up to transfer my existing pension and start paying premiums in to a new pension fund on the advice of an FSA(sorryIFA). Didn't really have enough time to read all the small print till after he had gone upon which i found out that the FSA(sorry IFA) was going to take 7.5% of my existing fund just to transfer and 75% of my first years payment +1% of my fund each year from year2 for life!!! At the initial meeting i told him that i would like to pay on a commision only basis which i thought would be paid by the pension provider.Would like to know what would happen if i tell them that i don't want to go ahead. Thanks in advance for any advice received.

dunstonh

signed up to transfer my existing pension and start paying premiums in to a new pension fund on the advice of an FSA

The FSA do not give advice.

Didn't really have enough time to read all the small print till after he had gone upon which i found out that the FSA was going to take 7.5% of my existing fund just to transfer and 75% of my first years payment +1% of my fund each year from year2 for life!!!

The FSA dont make charges. Plus, that doesnt sound like a modern pension plan that is currently available. The 1% p.a. AMC sounds right but not the 7.5% on the transfer. The 75% of first year payment sounds like a heavy charged old fashioned personal pension.

The FSA is the regulator for financial services. They do not give advice and they do not charge consumers.

Can you tell us who the insurer is?

My guess is that the 7.5% isnt an initial charge at all but gross commission payment. That is recovered out of the annual management charge. As for the 75% of hte first year, a few personal pensions do that but they tend to lower the annual management charge in later years which can make them cheaper than a stakeholder pension over the term.

This should be confirmed in the suitability report that has been issued to you. It is a legal requirement (under FSA rule RU64) that a stakeholder must be recommended unless there is a good reason otherwise not to and that reason must be documented on the suitability report.

So, before you cancel, feed back the following to us:

1 - Was the policy sold by an IFA or a tied agent?
2 - Who is the insurance company being used?
3 - What is the name of the pension product?
4 - Take another look at the charges. Is it really a 7.5% intial charge or is that just the cost of advice figure?
5 - What investment funds have been recommended?

If you give us that, it will help us guide you on what your options may be. Your post does suggest you have misunderstood somethings so let us help you get it right.

davewinner_2

Sorry i meant it was sold by an IFA. The insurance company is Scottish Life,and it is a Personal Pension Plan.According to the "Keyfacts" sheet ,that i wasn't given till the day of signing,i will be charged 75%of the first 12month's payments plus 0.5%of fund value from year 2 + because i am transfering another fund in i will be charged 7.5%of the amount i invest plus 1%of the fund value from year2. These are the charges of the IFA on top of those i also have to pay Scottish Life approx. 1.5% fund management charge.

EdInvestor

Hi Davewinner

Interesting to note that Scottish Life is by no means the worst of the better known names as far as charges go.

https://www.fsa.gov.uk/tables

Click on "stakeholder and personal pensions" and then input your pension details to see how much you will pay in charges overall.

davewinner_2

It's not really the charges that Scottish Life charge that are bothering me,it's the charges that the IFA is imposing in order to set up the fund through product charges.I was on the understanding that all charges would be made through commision.

cheerfulcat

davewinner wrote:

At the initial meeting i told him that i would like to pay on a commision only basis which i thought would be paid by the pension provider.

Hi, davewinner,

This is something that has annoyed me for a very long time, but you are the first person I have ever seen to articulate it. I think that many, many people are under the impression - given them by the industry - that commission is paid by the company to the IFA in return for your business. It isn't. You pay it; it comes out of your investment.

Once the policy is set up the company should send you a form ( along with all the policy bumf ) which you can return if you have changed your mind. You have 30 days from the receipt of the form to cancel.

HTH

Cheerfulcat

Edited to replace quote with correct one :-)

dunstonh

Ok, you have misunderstood the contract.

Scottish Life charge 1% on their funds if commission is taken. The advisor has not actually taken commission. He has taken the advisor fee instead. This means the annual management charge drops to 0.4%. If you have more than 20 years to go until retirement, this can be cheaper than no initial charge and 1% amc. I use this option often as its cheaper for the client over the term compared with the commission option. Although I tend to take more than half what this IFA is taking but then I get to keep all my commission and dont need to share it with an employer.

This IFA does appear to be taking the absolute maximum possible. Take a look at projected growth figures over the years and there should be a figure known as reduction in yield. Something along the lines of the charges reducing the 7% growth to 5.7% (or thereabouts). What is the x.x% quoted?

That will tell us if he is taking 1% fund charge on top of the 7.5%. If he is, then hes damned expensive and you should go to another IFA.

davewinner_2

the figures quoted are that the charges would have the effect of bringing the investment growth from 7% a year down to 4.8%. From reading the paperwork that i have been given it looks as though commission and an adviser fee have been taken.Quotes taken from the IFA's "KEYFACTS " Sheet; Commission if you invest monthly:75% of the first twelve months payments plus 0.5% of your fund value from year 2, industry average: 9.1%of the first twelve months payments plus 0.5% from year 2. Commisssion if you invest a lump sum: 7.5% of the amount you invest plus 1%of your fund value from year 2, industry average 0.7% of your fund value from year 2.Now that i have signed am i allowed to cancel the agreement and go to another IFA ?

dunstonh

Scottish Life dont allow an advisor fee and commission to be taken together on the same plan. The regular and the single would be treated as two things though so advisor fee on single and commission on regular is possible.

Basically, you should be looking at a reduction in yield down from 7% to anything between 5.4 and 6.2% (6.2% is unlikely if external funds used but achievable if internal funds used, otherwise down to 5.4% is likely).

The charge is heavy so find another IFA. On that sort of transaction, I would be looking at getting the regular premiums with no initial commission/fee and the transfer value down to around 4.5%. Ideally, the reduction in yield should be to around 5.9%.

davewinner_2

Am i allowed to cancel the agreement even though i have signed all the paperwork? If so will i then have to pay the IFA an advice fee? Even if i do i will probably be better off in the long run, in the first year alone i will pay £1326.12 in commission from my fund plus regular payments each year for the term of the policy.

oceanblue_3

You have a "cooling-off" period of up to 30 days from receipt of the policy documents.

Clearly, as you have only just signed the application forms, you have well over 30 days left to change your mind.

However, if you feel you can still work with this IFA, despite his rather high costs, then try to re-negotiate the contract so that he receives less commission, and your Reduction In Yield percentage is closer to 5.9%, as dunstonh suggested. I think this would be fairer to you, and the IFA would still receive payment for his advice.

As a matter of interest, did the IFA show you his research? Typically, this would have been in the form of projections to age 65: the current arrangement versus the proposed arrangement. These figures should have shown how the proposed arrangement was superior.

If, however, you feel you can no longer work with this IFA, then you will need to find another IFA. Do you have any friends or colleagues who have an IFA they could recommend?

In either case, you need to inform the current IFA that you have changed your mind so that the transfer process can be halted immediately - once that gets into gear, it's difficult to stop.

As far as a fee is concerned, I don't see how it could be justified, unless you have already signed an agreement. I don't see how his recommendations so far could fairly be said to have been in your interests - the Reduction In Yield from 7% down to 4.6% is an indication that he's put his own interests before yours.