Changing pension company.

The_Economist

Hi all i'll try and keep it short.
I'm thinking of going through a IFA to invest the pension pot i have. I am doing it on a commision based fee. They are going to charge me nearly £800 initial fee this is equivalent to 4.50%. I assume this is on the amount to be invested. Then they will get 0.75% each year of the encashment value of the fund. But i was all so told there would be a 1% management charge each year. Now i'm getting confused . They are looking to invest through a company called Skandia.

Does anybody know of this company and are they any good?
Does this sound expensive for a pension pot of nearly £18,000.

dunstonh

I am doing it on a commision based fee. They are going to charge me nearly £800 initial fee this is equivalent to 4.50%.

That fee is higher than the commission which would equate to 3% typically as the usual maximum. There are times that commission is cheaper than fees and this appears to be one of them.

hen they will get 0.75% each year of the encashment value of the fund.

That means they are taking 0.25% more than the typical natural trail.

But i was all so told there would be a 1% management charge each year.

Annual management charges tend to be between 1 and 1.5%. Out of that, 0.5% natural trail commision is paid to the adviser. If the adviser is taking 0.75% then they are taking more than.

A firm near me had an FSA inspection last week and got pulled up on that and looks like they could be getting into trouble. The FSA have no problem with the natural trail but when extra is being taken they expect to see evidence of extra servicing to justify that ongoing fee. So, I would question the adviser on what extra servicing you are getting. Especially as they are taking more than the typical maximum initial commission. Remember there are greedy people out there and some advisers will increase their charges to put you off as they dont want to do small transactions. If you agree to the higher charge then they will do it but you can get it a lot cheaper by using a different IFA.

hey are looking to invest through a company called Skandia.

Skandia were the first fund supermarket. They recently merged with Selestia and as a provider they are fine. I wouldnt use them for small holdings as cofunds would be cheaper but larger ones are fine.

Does this sound expensive for a pension pot of nearly £18,000.

If they are using the Selestia version of the pension then its a great contract. I have a Selestia pension myself and its cheaper than the HL SIPP that so many mention but with all the usual unit trusts/oeics/Sicavs you would expect. If they are using the older version skandia personal pensions then whilst they used to be good contracts, they are a little dated now compared to the selestia version. I have been told that the skandia versions are closing for new business and it will be the selestia version going forward.

bigbloke45

I'm not sure what a "commission based fee" is, but it sounds like they are going to take commission from Skandia and then charge you a bit extra as well. Seems to me an expensive exercise for an £18,000 fund.

How about trying another IFA?

What DH says about commission is true, I think this shows "economy of scale" in action i.e. until your fund value reaches a "critical mass" where the fee to be charged is significantly smaller than the commission that would be paid, then it would probably be cheaper than taking the fee route.

The reality is that if you want advice, you have to pay for it one way or another.

But I would definitely shop around on this one!

Good luck.

dunstonh

I'm not sure what a "commission based fee" is, but it sounds like they are going to take commission from Skandia and then charge you a bit extra as well.

I do most of mine on a commission based fee. Its known as customer agreed remuneration. Its where you agree a fee but instead of writing a cheque for the fee, you take a commission amount equal to that with any surplus commission being rebated or used to lower charges.

or in this case, they are taking more.

bigbloke45

dunstonh wrote: »

I do most of mine on a commission based fee. Its known as customer agreed remuneration. Its where you agree a fee but instead of writing a cheque for the fee, you take a commission amount equal to that with any surplus commission being rebated or used to lower charges.

or in this case, they are taking more.

So, you need to see if they are/want to take more than the commission generated from the contract. If they do, are you certain that this is going to be worthwhile? I can't see you receiving lots of advice over the years for what should be a simple exercise.

dunstonh

Its certainly worth finding out the default. The FSA's menu would show that. For exam, with collectives, it would be 3% initial + 0.5% p.a. on typical maximum but average would be 1.8% plus 0.5%pa. So, when you look at 4% plus 0.75%p.a. you can really see the cost is very high.

The_Economist

dunstonh wrote: »

That fee is higher than the commission which would equate to 3% typically as the usual maximum. There are times that commission is cheaper than fees and this appears to be one of them.



That means they are taking 0.25% more than the typical natural trail.



Annual management charges tend to be between 1 and 1.5%. Out of that, 0.5% natural trail commision is paid to the adviser. If the adviser is taking 0.75% then they are taking more than.

A firm near me had an FSA inspection last week and got pulled up on that and looks like they could be getting into trouble. The FSA have no problem with the natural trail but when extra is being taken they expect to see evidence of extra servicing to justify that ongoing fee. So, I would question the adviser on what extra servicing you are getting. Especially as they are taking more than the typical maximum initial commission. Remember there are greedy people out there and some advisers will increase their charges to put you off as they dont want to do small transactions. If you agree to the higher charge then they will do it but you can get it a lot cheaper by using a different IFA.



Skandia were the first fund supermarket. They recently merged with Selestia and as a provider they are fine. I wouldnt use them for small holdings as cofunds would be cheaper but larger ones are fine.



If they are using the Selestia version of the pension then its a great contract. I have a Selestia pension myself and its cheaper than the HL SIPP that so many mention but with all the usual unit trusts/oeics/Sicavs you would expect. If they are using the older version skandia personal pensions then whilst they used to be good contracts, they are a little dated now compared to the selestia version. I have been told that the skandia versions are closing for new business and it will be the selestia version going forward.

The extra charge seems to be if i use there Investment monitoring service.
Which sounds good i think.

As i understand it the policy that i would be getting is not a with profits fund type policy but unit trusts if this is the right term. Hence giving more exposure to more markets. But this type of investment throws up another question.
The paper work that i have got shows charges for each company that i would invest in so is this on top of what the IFA would be charging. I know these are the sort of questions that i should be asking the IFA and i will do but trying to do my home work first.

dunstonh

The extra charge seems to be if i use there Investment monitoring service.
Which sounds good i think.

Which most will do taking just the natural 0.5%p.a. However, your problem is the smaller fund size. However, a once a year check should still be fine within the 0.5% without the need for more. Although if you want more servicing then you should expect to pay for it and if you are happy with that then its fine.

The paper work that i have got shows charges for each company that i would invest in so is this on top of what the IFA would be charging.

Unlikely. The charges you are shown on the illustration take into both fund manager, supermarket and adviser remuneration.