What fees to expect on SIPP organised by Financial Adviser

Miaow

Having decided to get and organise paying into a pension at the ripe age of 47, I was advised by a local financial adviser to start up a SIPP. (There was no fee for the interview as "the pension provider would be paying him his commission"). I suggested investing £100 a month, being thwe maximum I could afford. The details have just come through from the provider AXA including the information that the adviser will receive 36 monthly payments of £45.09 a month, totalling £1623.24 from my fund for arranging this. I was very surprised at this amount, thinking it might be about half that amount.

Can anyone advise if that seems about the right amount? All AXA could tell me is that the advisers set there own commission rates and of course they could not comment further on the amount.

I am now wondering whether to cancel it (I have less than 30 days now) and just organise a simple online stakeholder pension which I presume will not incur a large commission, or just add to my ISA.

EdInvestor

You could of course set up your own SIPP directly.These providers offer very low costs and rebate charges on the investments within the SIPP.

www.h-l.co.uk
www.sippdeal.co.uk
www.alliancetrust.co.uk

If you don;t need help on investing the money, there seems little point on using the advisor as set-up is quite straightforward.

purch

If you don;t need help on investing the money, there seems little point on using the advisor as set-up is quite straightforward.

And if you do need help investing the money, then a SIPP might not be the best option for you.

Miaow

Thanks EdInvestor and Purch -

I would have no idea about the best places to invest, and quite frankly not much interest in learning about it either - I would rather leave it to someone who had the interest and the knowledge. Although they probably just move everyone's investments at the same time with a few clicks of the mouse.

Maybe that's why the commission is a bit steep. Does anyone else think it seems a lot? Maybe I am wrong?

Retired_I.F.A.

Yes it is a rip off charge. Sign the cooling off notice and find a decent IFA.

Commission IMO on £100 P/M gross should be no more than what it has been for many many years approx £824 up front via indemnity and say 900 on the non indemnity basis you illustrate.

However since I retired 7 years ago the trend has been to take less up front and a trial commission of around 1/2% p/a of the fund value. That is much fairer although it can be more expensive for you in the long term depending on the negotiable arrangement of the percentages you and the IFA agree upon. This modern approach means the adviser is then being paid to advise you throughout your life whereas I could have took the 800 and never seen you again.

Dont sign the cooling off notice and theres every chance this guy wont advise you one bit ever again. In which case you'll be facing another ifa down the road and agreeing on more CAR for him to asdvise you. Go with a decent IFA and agree on some trial commission , then if he cant or wont advise you on the plan in the future for whatever reason you can take your plan to another ifa and simply say advise me on my plan and you can have the 1/2% trial.

Seems to me this guy is using the new CAR (customer agreed renumeration) flexability to screw you. And if he's doing it to all then he wont be an IFA for long as the regulators I hear are very much against this practice and rules to cease it happening are not far away.

Miaow

Thanks for all your info Retired IFA.

Sorry to be thick - but what exactly do you mean by 'trial commission'?

He mentioned periodically looking at where the money was invested and shuffling it around if necessary. He was non-committal in discussing the fee in the first place. I am wondering whether he will check with me when intending to move it around (I would just say "Go ahead") and then charge me each time. Or whether this £1623 will cover all of this for whatever time period. Definitely a question to ask him - but I wish it had all been made clear in the first place. Like a lot of 'experts' they forget that they must get down to very simple language when dealing with laymen!

It's lucky he is on holiday this week which has given me some time to stop and think!

Retired_I.F.A.

My maths is good but my spelling rubbish sorry.
I meant trail not trial. Trail as in it's throughout the term of the contact (a trail of commision) instead of all up front at the begining.

I am wondering whether he will check with me when intending to move it around (I would just say "Go ahead") and then charge me each time.

He'd be a right cowboy if he did charge you again. Fair enough if when reviewing the plan you increase the contribution he should be paid for the "extra sale" but this guy is taking twice the lifetime rate up front already. (well my lifetime definition that is)

'experts' they forget that they must get down to very simple language when dealing with laymen!

I couldn't agree more. Real experts are those that undestand the maths, the terminology and the rules and explain them in Plain english to everyone no matter who they are or what they do. In my first ever job (progress chaser) I was bollocked for talking "common" in my accent to customers, in my last I got sales because of it.

dunstonh

A few of the modern personal pensions can pay a "fee" from the fund and have the annual management charges set at factory gate pricing (i.e. cheaper than retail). If you have around 20 years or more to go to retirement the one off fee can be a lot cheaper than having no (or smaller) initial commission paid which is funded out of the annual management charge.

Miaow

Ploughing through all the pages, I can now see thatin addition to this £1623.24 to be deducted over 36 months, there are also "charges taken over the course of each year as a percentage of the size of the fund - 0.7% plus 0.3% extra re AXA Newton Managed plus 0.65% extra re AXA M&G Recovery P plus 0.93% extra re AXA First State As Pac Ldrs P aand 1.19% extra re AXA Jupiter European P"

This does all seem a lot out of my £100 per month I intend to put in - seems as if it will struggle to grow! Am going to speak to the IFA when he is back from holiday on Monday and see what he has to say. I am annoyed that none of these percentages or figure were ever mentioned to me until I received the documents from AXA. He just told me not to worry about the charges as he would be paid by the Insurance Co. So I presumed it would not be what seems to be a lot coming out of my pension pot, more a general retainer type of fee for him. Let's see on Monday!

dunstonh

This does all seem a lot out of my £100 per month I intend to put in - seems as if it will struggle to grow!

Every investment fund has annual management charges. Indeed, so does your savings account at a bank although the charges there are implicit and not explicit (typically the net interest charge is around 0.9-1.2%p.a.).

I am annoyed that none of these percentages or figure were ever mentioned to me until I received the documents from AXA.

The illustration supplied to you would have detailed these annual management charges. The AXA illustration isnt too bad for disclosure of details.

He just told me not to worry about the charges as he would be paid by the Insurance Co.

You are mixing up commission and charges and it also seems you may be mixing up products as well. All the funds you mention are personal pension funds and not unit trusts. This suggests you have a personal pension rather than a SIPP (or a deferred SIPP currently on personal pension terms - although the mention of 36 months tells us its a personal pension not a SIPP).

In the cases of most plans you do not pay the initial commission to the adviser. The provider pays this. They then spend the next 7-15 years recovering that payment out of the annual management charges. Although AXA do have a pension product that allows a fee rather than commission to be taken from it and has lower annual management charges. This is funded over 36 months. Its cheaper in the long run but more expensive in the short term. This appears to be the version you have.

So I presumed it would not be what seems to be a lot coming out of my pension pot, more a general retainer type of fee for him.

Nothing you have typed so far suggests trail commission will be going to the adviser. Typically with stakeholder and personal pensions the choice is for initial commission only or trail only. Some do allow a combination but usually its a case of reducing the initial commission down to allow the trail commission to be paid (as is the case with AXA who dont allow full initial and trail).

Take a look at the illustration and near the back pages you will see a reduction in yield figure saying something along the lines of "putting it another way, the charges have the effect of reducing the return from 7% to 5.9%". What is the figure yours is reduced to as that is the only way to measure the cost of this pension against others.

I am now wondering whether to cancel it (I have less than 30 days now) and just organise a simple online stakeholder pension which I presume will not incur a large commission, or just add to my ISA.

Good chance the stakeholder will not be as cheap and wont have anywhere near the quality of investment options and to be honest and brutal you dont have the knowledge or skills to do it yourself based on what you have typed so far. The adviser (is it an IFA or an AXA tied rep) appears to have some faults in not explaining things to you more fully as your thread is full of misinformation but your lack of knowledge means going DIY could do far more damage than good.