Pensions and IFA commissions

dylanfan

Hi everyone
I'm a new forum member and really impressed by just how supportive this forum community is ! [EMAIL="I@m"]I'm[/EMAIL] looking for a bit of advice/reassurance. I am 57, have a SIPP and am now looking to access my 25% tax free cash to invest in my business. I approached my IFA to discuss this, he agreed, suggested income drawdown and got me to fill in a few relevant forms. For this he wants to charge 3% of the pension fund after the tax free sum is taken - ie 3% of 130,000. This seems a lot for what is being done and considering that he got commission for setting up the SIPP, for changing elememts within it and there are on-going commission payments anyway. So, my query is - does this seem fair, are these standard industry fees, is it negotiable ?

Incidentally, I have read the extensive thread re merits of drawdown versus annuity and am now wondering if drawdown is my best bet. I need the lump sum but don't immediately need the income. Maybe I should leave it invested ?

Many thanks

Dylanfan

purch

Maybe I should leave it invested

When you put the Pension into drawdown you can leave it invested however you choose.

The main decision you need to consider is the effect on the Fund if you unfortunately pass away in the near(ish) future. Once you take the tax free money and put the rest into drawdown (whether you take an income from it or not) the balance will become taxable.

This seems a lot for what is being done and considering that he got commission for setting up the SIPP, for changing elememts within it and there are on-going commission payments anyway.

It sure does, especially as the S in SIPP means Self

dunstonh

For this he wants to charge 3% of the pension fund after the tax free sum is taken - ie 3% of 130,000. This seems a lot for what is being done and considering that he got commission for setting up the SIPP, for changing elememts within it and there are on-going commission payments anyway. So, my query is - does this seem fair, are these standard industry fees, is it negotiable ?

3% is a common figure. 4% is a typical maximum on setting up a new plan. If its an existing plan that is running and just requires a fund switch then its very very expensive as many IFAs wouldnt charge a penny as the natural trail would cover that. If it was a brand new plan then some initial is fair but effectively your adviser is double dipping and that isnt fair.

Incidentally, I have read the extensive thread re merits of drawdown versus annuity and am now wondering if drawdown is my best bet. I need the lump sum but don't immediately need the income. Maybe I should leave it invested ?

That still requires you to do drawdown. However you just set the income at zero or set the income at a level to fund your £7200 ISA allowance if you dont have the funds already to do that.

Retired_I.F.A.

5% is a fair amount I reckon and blooming cheap too, Compare that with any goods in a shop you will find the retailers mark up is at least 30%.

dunstonh

Retired_I.F.A. wrote: »

5% is a fair amount I reckon and blooming cheap too, Compare that with any goods in a shop you will find the retailers mark up is at least 30%.

Not since TCF has come in.

A firm down the road from me had an FSA inspection 2 weeks ago and they were taken apart for taking too much commission. They are going to have to do some remedial action and in future do more to evidence the work they are doing for that fee and show the fee is reasonable.

Basically, if your commission is a lot higher than the fee you would have charged or you are making explicit charges that are percentage based (with no cap) then you need to have evidence and justification.

If the product is in place and you are just advising on drawdown bit of that contract and maybe switching some funds then 3% of £97500 =£2925 would have to be justified against their fee structure. To be honest, £2925 is going to be hard to justify. Especially with the 0.5% natural trail as well.

The days of being able to take big commissions have gone but there are plenty of firms that dont realise that yet. They will though as the FSA has said it plans to visit between a third and a half of them and the 3 firms that have been checked in our county in the last few months that I am in contact with were all taken apart on their commissions and fees.

Retired_I.F.A.

I didn't mean it as a fee I meant as a one off commission payment. Purely on the principle that commission does not discriminate on the wealth of an individual as fees do.

Perfection for both seller and buyer I believe comes with a 1% -2% initial amount and a trial commission also expressed as a percentage of what remains invested but varying from IFA to IFA

dunstonh

I didn't mean it as a fee I meant as a one off commission payment. Purely on the principle that commission does not discriminate on the wealth of an individual as fees do.

A SIPP commission would be an explicit charge though so whether its 3% and paid by cheque or 3% and paid out of the pension there is no difference (apart from VAT on the cheque option and of course no tax relief).

A commission in the conventional sense paid for out of the AMC and taking a provider around 15 years to break even wouldnt matter as much potentially. However, the FSA consider that where commissions are large, then fee option would have been better as the annual management charge would be lower. That isnt always the case, especially with annuities as the cost of advice is often spread over 20-30 years so paying fee can be false economy but you have to justify it or risk the FSA having a hissy fit.

Within 12 months IFAs will be effecfively fee based only anyway (with commission used to offset fee allowed) so the days of big commissions look like they are coming to and end if you use an adviser. Only the sales reps will be able to get away with big commissions.

oceanblue_3

I agree with dunstonh. Maybe you could ask your IFA what he will be doing to justify charging 3% of the residual fund.

EdInvestor

dylanfan wrote: »

For this he wants to charge 3% of the pension fund after the tax free sum is taken - ie 3% of 130,000. This seems a lot for what is being done and considering that he got commission for setting up the SIPP, for changing elememts within it and there are on-going commission payments anyway. So, my query is - does this seem fair, are these standard industry fees, is it negotiable ?

The IFA has already been paid for doing most of the work involved in drawdown - ie setting up the SIPP and investiung the money withing.Processing the drawdown is purely admin work and should cost very little. He is trying it on.,

Incidentally, I have read the extensive thread re merits of drawdown versus annuity and am now wondering if drawdown is my best bet. I need the lump sum but don't immediately need the income. Maybe I should leave it invested ?

You have to put the fund into drawdw2on to take the cash.But you don't need to take an income - you can just leave the remainder invested, or as DH suggests, extract an annual amount adequate to fund your S&S ISA thus getting it out of the tax net.e.

Retired_I.F.A.

The IFA has already been paid for setting up the SIPP and advising on the investment within up till retirement.

Now he is advising on the investment of that money for the policyholders remaining lifetime.

And you reckon he should do it for free do you?

I dont call that trying it on one bit. Two entirely different contacts.

EdInvestor

Gosh you are out of touch, aren't you? :eek:

He's already being paid to oversee the investment on an ongoing basis .How much should he get for writing one letter to the SIPP provider instucting him to pay out the 25% ?

Your comments make it obvious why advisers have acquired such a bad reputation over the years.