Are these IFA fees reasonable?

freddy124

My wife and I own a Ltd company and draw wages and dividends up to the higher rate bracket. We have more money in the company and want to invest in a pension.
We saw an IFA who recommended putting £15,000 each into a personal pension and £7,000 into an ISA.
He wants a £1,200 fee for this and says the commission on the policies will cover this. Is this reasonable?

dunstonh

Its a fee you are paying effectively. It is commission the adviser is receiving.

The figure of £1200 is at the top end of the scale at 5.45%. The IFA average on collectives is 1.8%. So 1.8% is what you should be aiming for. However, it is a relatively small transaction and 1.8% would only pay the adviser £396 and realistically a minimum of £500 should be set.

Many IFAs are employees and dont have the ability to take less commission as the employer or firm they are linked to takes upto 70% of the commision. So, it is possible that this IFA hasnt got scope to discount. If he has, then £1200 is greedy for that transaction as a fee but normal as a commission.

Another thing is that he could be pricing himself expensive on purpose. IFAs tend to deal with larger cases and discount more heavily on larger cases. £23k isnt a lot unless you have future contributions and ongoing relationship with this adviser planned.

claretmatt

I really hate to disagree dunstonh, but it seems like your figures are wrong.

I think you misread the post I think he means £15k each into a pension.

dunstonh

Good spot clarematt.

In which case, that makes the overall commission 3.24%

If he is taking that on the pensions and taking nothing on the ISA then its not bad. I think they could push for it being lower though. £500-600 being more reasonable.

freddy124

I thought it sounded a lot.
It is more than likely that we will put at least this much into the pensions each year as a tax efficient way of taking money from the business. Maybe I need to try another IFA (this one was recommended by my accountant).

dunstonh

Aim for 1.8% as that is the FSA average for collective investments. You can get lower but more will be higher.

Aim to get the fee taken from the pension and not the ISA. Tax relief means you are only paying a net fee effectively.

simondo

If you have the time and feel up to it you should do the research yourself and stay away from IFA's. My experience of them has been to find them somewhat dishonost and that they tend to think of their own pockets rather thsn yours.

simondo

ps No offensive Dunstonh. Your contribution to helping people has been above and beyong the call of duty and I thank you for that.

chickencow

Do you consider the work they have done good value for money?

If so, then pay the money.
If not, then don't.

freddy124

I've no idea how long it will take; it's just a matter of filling in forms isn't it?

Anyway, another issue.
If I'm only paid £5k/year through the company and take the rest in dividends can I really put £15k into a pension? I've tried searching this forum and the answers are mixed. What is the definitive answer?

dunstonh

I've no idea how long it will take; it's just a matter of filling in forms isn't it?

Its not just form filling. There is the cost of advice and knowledge. There is the cost of liability. There is the cost of ongoing advice and servicing (assuming its not a transactional IFA but a servicing IFA).