standard life or hagreaves landsdown sipp

dunstonh wrote:

HL do not discount the funds on their SIPP. So you will pay the full retail AMC.

Are there any SIPPs that do rebate fund commission?

What are some cheap alternatives to a SIPP with a good choice of funds?

Most personal pensions offering decent external funds seem to charge a small premium over their AMC for the external fund: so you may well be paying 1.6-7% there, compared with 1.25% for a similar fund in the HL Sipp (which has no annual fee).

BTW congratulations DH on joining the MSE bonkers club

The main advantage to the SIPP is the much wider and cheaper range of investment choices it offers - eg shares, investment trusts, ETFs. Tracker funds ought to be quite a lot cheaper in a Sipp than a PP because their AMC is usually below the pension annual fee.

In the case of the OP however, I would agree that the investment ISA wrapper should be considered first.

dunstonh wrote:

Not aware of any that do it on internet basis. Its unlikely to change either and indeed, online SIPPs could get more expensive next year when they are regulated and the providers will need to increase their capital requirements.

The fund supermarket personal pensions (hybrid SIPP) can be arranged with fund based discounts but you have to deal with an IFA. I have done a few of these on execution only basis with Selestia for some forum members with me only keeping 0.1% of the fund based commission with the rest being rebated into the plan. However, the fund supermarket pensions whilst offering the 1000 odd unit trust funds, do not allow shares of other investments not on their platform. That said, most SIPPs invest in the unit trust funds anyway. On that basis, the Selestia pension beats HL if you have more than £50k in the pension. It will also take protected rights.

Is this product you refer to: Selestia Retirement Account

It seems to have a few charges:

Each time you make an investment, we offer you a choice of how you
would like the initial charge to be deducted. Your Adviser will advise you
on which charging option best suits your needs.
Option 1: Initial charge
An initial charge of 5.2% is deducted from each investment you make
and the balance is invested in your selected funds,
or
Option 2: Phased initial charge
Your full investment is invested into your selected fund(s) and a phased
initial charge of 1.3% per annum of the relevant investment is deducted
from your Account over each of the following 60 months. This charge is
deducted monthly at a rate equal to the annual rate divided by twelve.
We sell units to meet this charge. If you select this option, and you
make a transfer before this period has elapsed, any outstanding phased
initial charges will be deducted from your Account before the proceeds
are transferred.
The financial cost of choosing this option is approximately 9.5% per
annum before charges and expenses, over 5 years. The financial cost
will be higher if you close your Collective Retirement Account during
this period.

Selestia Investor Charge
The Selestia Investor Charge, £78.08 per annum as at 1/4/06, is deducted
twice yearly. We will sell units to meet this charge.

A charge is applied for some funds as listed in the Selestia Funds List. For
example, where Fidelity Funds are selected there is currently an additional
charge of 0.25%, per annum, on the value of these funds. The charge is
calculated as a percentage of the fund value at the start of each month
and is deducted monthly. Selestia may add further fund managers to the
platform where this additional charge may be applied, for details please
refer to the Selestia Funds List.

Transaction Charges
Where you choose to take an income, a charge of £50 per annum will be
applied.

Selestia may receive a rebate from the fund managers in respect of their
annual management charge which we retain. This is currently around 50%
of the fund managers’ annual fee.

You can switch between funds and/or Investment Strategies at any time,
either fully or partially, with a discretionary switch charge of up to 3% of
switch value. Any switch charge will be paid to your Adviser as commission
and must be agreed by you in writing. A dealing spread and/or dilution
levy may still apply and some fund managers will levy a small initial
charge. These charges will be reflected in the unit price.

The commission paid to the adviser on fund purchases is:

Initial commission
Initial commission is defined as a percentage of the investment
amount. The standard rate is 3% (4% for the Selestia Offshore Collective
Investment Bond). There is no initial commission for re-registration business.

AND

Fund specific trail commission
EITHER
0.50% p.a. Equity/Managed funds
0.35% p.a. Fixed Interest and Property funds
0.25% p.a. Tracker funds
0.00% p.a. Cash funds
OR UPFRONT
‘Capitalised’ trail commission
5.25% Equity/Managed funds, no trail (6.25% Selestia Offshore
Collective Investment Bond)
4.50% Fixed Interest and Property funds, no trail (5.50% Selestia
Offshore Collective Investment Bond)
4.00% Tracker funds, no trail (5.00% Selestia Offshore Collective
Investment Bond)
3.00% Cash funds, no trail (4.00% Selestia Offshore Collective
Investment Bond)

The comparative charges for HL's SIPP are:

DURING LIFE OF PENSION

Establishment Free
Contributions (including transfers in) Free
Fund dealing (Unit Trusts/OEICs) Free
Annual Charge 0% for monies invested in the SIPP bank account and funds that pay us renewal
commission. For all other investments, we charge an annual fee of 0.5% + VAT
up to a maximum of £200 + VAT per annum (charged quarterly in arrears)*

AFTER RETIREMENT:

Annuity quotation Free
Annuity purchase Free if purchased via HL, Otherwise £150 + VAT
Income Drawdown and ASP
Each GAD calculation £75 + VAT
Alter payment amount/frequency £10 + VAT
Ad Hoc payments £25 + VAT
Annual Charge 0% for monies invested in the SIPP bank account and funds that pay us renewal
commission.
Arranging Death Benefits £150 + VAT
Pension splitting on divorce £150 + VAT
Triviality Payment £150 + VAT
Transfer Out to UK Scheme £75 + VAT
Transfer Out to Qualifying Overseas Scheme £250

By contrast to Selestia, HL seems very much more transparent with its charging - a few one-off charges, but no commissions or charges for investment.

Selestia's charges are essentially: 5.2% per contribution + £78.08/year on the pot, but then a large commission to the advisor, which you are rebating.

It's very hard to hack through Selestia's maze of commissions, initial charges, phased charges, trail charges, annual charges, and so on, which do not seem designed to aid comprehension by the naive investor.

But so far as I can tell, for a £100k investment:

£5,200 charge (5.2%) is levied: £94,800 remains

3% up-front commission is paid to the IFA: £3,000
5.25% capitalised trail commission is paid: £5,250

Total commission paid: £8,250

Are you saying you only keep £100 (0.1% of the total) of this? Meaning the investor receives £94,800 + £3,000 + £5,250 - £100, so £102,950 is invested? This commission seems rather low. Have I got this wrong?

(The £78.08/annum charge is not significant in the context of £100k.)

Incidentally, paying 5.2% upfront is better than paying 1.3% per annum for 5 years, regardless of the rate of growth, though Selestia doesn't tell you that....

I assume having invested this way, Selestia would not charge the investor for fund-switching?

And how about further contributions? Assuming I'm correct, Selestia does work out quite a bit better than Hargreaves Lansdown for a one-off payment, but you're still paying 5.2% on any future contributions. I can't imagine you wanting to get involved with rebating commission on every individual payment if the investor is contributing say £1000/month into the pension, as the admin costs would be too high.

So Selestia only works out cheaper if you're only transferring a lump sum and then not making any more contributions, as the 5.2% charge to future contributions is rather swingeing.

dunstonh wrote:

HL dont pay commissions as they keep the commission for themselves. Selestia allow different commission options.

Selestia's charges are essentially: 5.2% per contribution + £78.08/year on the pot, but then a large commission to the advisor, which you are rebating.

That 5.2% is after commission. If done with no initial commission, then its 1.2%.

[/quote]

To clarify, is this commission effectively never taken out in the first place? Do you opt out of receiving it? Or does it have to be paid back in to the pot?

THere is no such thing as a trail charge and the annual management charge on funds it the same with HL, Std Life, Selestia or whoever. You need to separate commission options with charges. The consumer pays charges, the adviser receives commission. The consumer doesnt pay the commission, the provider does and that comes out of the charges. So, the consumer only needs to concern themselves with the charges.

It is a trail commission, but the money that it comes from is not a management charge: it exists purely as a commission charge for the referrer. The 0.5% of the fund is a commission for the seller of the product.

But so far as I can tell, for a £100k investment:

£5,200 charge (5.2%) is levied: £94,800 remains

3% up-front commission is paid to the IFA: £3,000
5.25% capitalised trail commission is paid: £5,250

Total commission paid: £8,250

That is incorrect.

On full commission terms, 5.2% is taken which is £5200. So, the charge is £5200. That includes 3% standard commission being paid to IFAs (I get 4% due to negotiated terms at no cost to consumer).

The rest of the things are not charges.

No I didn't say they were. When I said total commission paid, I meant "total commission received by the adviser", I wasn't saying it was paid by the commission was paid by the investor: I was saying that the investor was having £94,800 invested, while the IFA was receiving £8,250 from the pension company (which is more than the total paid in by the investor). If £5,200 in charges is paid, but you receive £8,250 in commission, then there's more money in the fund on day 1 than the investor actually paid.

This was based on my assumption that you were taking the capitalised commission rather than trail commission.

Obviously the trail commission makes it more viable for you, as you are receiving 0.1% per annum, rather than simply 0.1% of the initial investment.

I guess if you wanted to, you could take the capitalised commission and rebate part of that instead.

This could work out better:

E.g.:

If you receive 5.25% commission on £x today, you receive:

£0.0525x

If you then invest that commission (your money) for n years, and the money grows at a factor of y per annum (e.g., 7% per year then y = 1.05), you have at year n:

0.0525x * y^n

Alternatively you receive 0.5% commission on the value of the fund every year, where the fund is worth x and is growing at y per annum, then each year you receive:

0.005x * y^n

Of course at year n, the commission received in year n-1 can be assume to have grown by a factor of y, so for instance by year 10, year 3's commission is worth at year 10:

x * y^3 * 0.005 * y^7

I.e. the value of each year's commission is constant:

x * y^n * 0.005

So the total future value of commissions received under the ongoing trail commission model is:

nxy^n * 0.005
compared with 0.0525xy^n on an upfront commission model

dividing both sides by xy^n, gives
0.0525 < 0.005n for upfront commission being better, and
0.0525 > 0.005n for trail commission being better

I.e. for an investment period of 10.5 years or more, there is more commision paid that way. (This of course simply upfront commission / trail commission - i.e. 5.25/0.5) Seems like quite a long time to me for it to catch up, also presumably more admin involved this way.

If you are taking 0.1% trail commission, then the equivalent upfront commission (so that the trail commission becomes better after the same number of years) would be 0.001 * .0525/.005 = 1.05% upfront commision, with 4.2% rebated.

For tracker funds (lower commission 4% vs. 0.25%), it would take 16 years to catch up on a trail basis. And for property funds (4.5% vs. 0.35%), it would take 12.9 years.

Each contribution paid is treated as a single contribution (at this time, fixed regular is coming). They would be 1.2% as per original contribution. Top up applications can be emailed or posted although £1000 a go would be a pain

So this means that the product is unsuitable for people making ongoing contributions I assume. So for a person looking for a pension to make regular contributions to, this product is unsuitable (are there any others).

So can I take it that:

* if you want advice than go to an IFA
* if you don't want advice and prefer to manage your own pension then if you have a large amount to invest AND don't want to make regular contributions then this Selestia fund would be the best option
* everyone else should just get a SIPP.

With Selestia, the adviser can rebate the 0.5%. So, if i take 0.1% and rebate 0.4% p.a. (note the per annum), then it only takes 3 years for the Selestia contract to be cheaper than HL.

The 0.1% PER ANNUM is the thing I was confused about - I thought you were just taking an upfront charge. Depending on the length of the investment as detailed above, this works out exactly the same (in real money) as a 1% initial charge (£1,000 on £100k) over 10 years, 2% (£2,000) over 20 years, 2.5% (£2,500) over 25 years, etc - it depends on the length of your investment

Of course this can make sense for the investor as he is gaining access to lower ongoing charges.

The relative commission models I compared above from your perspective. Obviously your interests are the exact opposite of the investors in this: if he is investing for a shorter period (<10 years), then he would prefer to get a 0.4% trail commission rebate and no initial charge, whereas you would be better off with a 1.05% initial charge and a 0.5% trail commission rebate.

Of course, the idea that trail commissions are a payment to the ongoing service is somewhat misleading, as there is no reason why the advisor should not receive a larger upfront payment instead, as advance payment for future growth. The commission model IMO simply hides the true cost of commission.

Anyway, I guess it all goes to show that HL are charging too much money - they have a max charge of £200 per annum on non-commissioning funds, but do not cap the amount of commission they take on commissioned funds. More competition will presumably come.