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    • steviewander
    • By steviewander 11th Apr 18, 1:47 PM
    • 69Posts
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    steviewander
    IFA fees and starting pension
    • #1
    • 11th Apr 18, 1:47 PM
    IFA fees and starting pension 11th Apr 18 at 1:47 PM
    I am trying to gather my thoughts after an initial 'free' meeting with my first ever Independent Financial Advisor.

    I am 43 years old and have recently paid off my mortgage with my partner and with about 50k in stock and shares ISA in full time employment with 750 a month to put away somewhere each month.

    I have sought a meeting with an IFA to get advice on whether I should start a pension or whether it was too late. She advised that she would always advise starting a pension despite that at my age it isn't ideal because of the 20% government top up.

    I have been reflecting on our meeting and looking at the charges her company makes and it is substantial at 4% for the initial work and then subsequent 0.5% yearly management fees for my ISAs and potential pension. Can anyone advise me if this is normal, good value or excessive?

    Part of me feels I should just start my pension on my own without her help. CONFUSED!

    Thanks in advance.
Page 1
    • JoeCrystal
    • By JoeCrystal 11th Apr 18, 1:52 PM
    • 1,401 Posts
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    JoeCrystal
    • #2
    • 11th Apr 18, 1:52 PM
    • #2
    • 11th Apr 18, 1:52 PM
    What about your employer's pension scheme? As you mentioned that you are in full time employment, that should be your first port of call. Especially that they will contribute at least 2% into it. What is the issue with your employer's pension scheme that you are not taking advantage of?
    Last edited by JoeCrystal; 11-04-2018 at 2:06 PM.
    • mikael
    • By mikael 11th Apr 18, 2:03 PM
    • 316 Posts
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    mikael
    • #3
    • 11th Apr 18, 2:03 PM
    • #3
    • 11th Apr 18, 2:03 PM
    I am not sure why you would need to use a Financial Advisor if you have already successfully been investing into a S&S ISA. You can easily establish a SIPP with various funds platforms and you can choose many managed funds to put your money into. A 4% fee and an annual 0.5% charge seems quite a bit.
    • cloud_dog
    • By cloud_dog 11th Apr 18, 2:04 PM
    • 3,651 Posts
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    cloud_dog
    • #4
    • 11th Apr 18, 2:04 PM
    • #4
    • 11th Apr 18, 2:04 PM
    I am 43 years old and have recently paid off my mortgage with my partner and with about 50k in stock and shares ISA in full time employment with 750 a month to put away somewhere each month.
    Originally posted by steviewander
    So you've built up 50k in S&S investments, I assume on your own (with partner); why the need for an IFA? Did another IFA assist you with your S&S or did you DIY?

    What has changed that you feel you need an IFA now for the pension?

    EDIT: ^^^^ What he/she said above ^^^
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • PeacefulWaters
    • By PeacefulWaters 11th Apr 18, 2:20 PM
    • 8,244 Posts
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    PeacefulWaters
    • #5
    • 11th Apr 18, 2:20 PM
    • #5
    • 11th Apr 18, 2:20 PM
    It's not too late for a pension. You don't have to utilise an IFA.

    What do your employers offer pension wise? Getting the maximum matched funding from that is step one.

    Beyond that, Cavendish Online and HL are two of many choices to consider.

    Come back with some numbers on your employer schemes. Have a browse around other providers and come back with some questions around investment options.

    4% feels steep but not outrageous up front, especially if it includes your ISA. 0.5% ongoing is fine, but do you need it?

    Utilising good knowledge here can help you DIY.
    • Brynsam
    • By Brynsam 11th Apr 18, 2:29 PM
    • 760 Posts
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    Brynsam
    • #6
    • 11th Apr 18, 2:29 PM
    • #6
    • 11th Apr 18, 2:29 PM
    Which company does the IFA work for?

    Why do people think that because they didn't start a pension while in the cradle, it is somehow 'too late'? Unless you've reached the age of 75 (at which point you can't get tax relief on pension contributions), and you want to save for your retirement - or at least the later part of your life - a pension remains an excellent and tax efficient means of saving.
    • BLB53
    • By BLB53 11th Apr 18, 3:08 PM
    • 1,245 Posts
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    BLB53
    • #7
    • 11th Apr 18, 3:08 PM
    • #7
    • 11th Apr 18, 3:08 PM
    Part of me feels I should just start my pension on my own without her help. CONFUSED!
    If you feel comfortable running your own S&S ISA then it should be fairly straight forward to do your own SIPP via one of the low cost platforms such as AJ Bell Youinvest (which I use) or HL for example.

    Maybe get hold of the 'DIY Pensions' book by Edwards before you proceed but I do not think you should be paying fees to an IFA for something you can achieve yourself.
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
    • dunstonh
    • By dunstonh 11th Apr 18, 4:58 PM
    • 92,189 Posts
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    dunstonh
    • #8
    • 11th Apr 18, 4:58 PM
    • #8
    • 11th Apr 18, 4:58 PM
    I have been reflecting on our meeting and looking at the charges her company makes and it is substantial at 4% for the initial work and then subsequent 0.5% yearly management fees for my ISAs and potential pension. Can anyone advise me if this is normal, good value or excessive?
    Context is needed. 4% of 10,000 is low. 4% of 100,000 is high.

    How does that 4% fit with a regular contribution? An adviser can only charge on regular premiums in the first 12 months. So, 4% of 12 months of regular is actually very cheap.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • steviewander
    • By steviewander 11th Apr 18, 8:23 PM
    • 69 Posts
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    steviewander
    • #9
    • 11th Apr 18, 8:23 PM
    • #9
    • 11th Apr 18, 8:23 PM
    Thank you for all your replies.

    More context is indeed needed.
    So I have 50k in an S&S ISA because the cash ISA account had dropped to 0.1% interest rate and having been fed up with low interest rates for so long, I transferred most of it into a medium risk portfolio with Nutmeg because it easy and requires little input from me (I have no experience in stocks and shares).

    My reason for seeking an IFA is because we have just finished paying off the mortgage and so I have the opportunity save into pension now that I have more spare cash, but do not know if to keep putting it into Nutmeg S&S ISA as a saving vehicle for retirement as I am already 43, or start a pension and try and build up a pot as fast as I can.

    Just a correction sorry, I am self-employed working 40hrs a week renting a chair in a high end salon and not entitled to employers pension scheme. Having been there 10 years, I forget and feel employed. The benefits of self-employment outweigh the benefits of being employed, especially as the salon pension scheme is the bare minimum and my wage is substantially higher than it would be if I was employed.

    The 4% upfront fee is for dealing with a sum of 50k in funds but decreases to 3% should my funds reach above a higher amount. The 0.5% ongoing management fee is the same for all clients regardless of how much money is involved. The IFA is with AFH wealth management.
    Last edited by steviewander; 11-04-2018 at 8:49 PM. Reason: Spelling mistake again!
    • dunstonh
    • By dunstonh 11th Apr 18, 9:08 PM
    • 92,189 Posts
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    dunstonh
    The 4% upfront fee is for dealing with a sum of 50k in funds but decreases to 3% should my funds reach above a higher amount.
    Tiering of charge is common. As are caps and collars on the charge.

    The 0.5% ongoing management fee is the same for all clients regardless of how much money is involved.
    That is the most dominant figure. However, ongoing servicing is optional.If you dont want ongoing servicing then it cannot be forced on you. However, the adviser may not offer the same investments.

    Sticking to the context theme The IFA could set up an ISA and pension with ongoing costs a third of those of Nutmeg. So, initial fee is higher but thereafter it is cheaper and a breakeven point will come. Alternatively, the IFA may have a model portfolio that costs more but out performs nutmeg.

    Or you can go proper DIY and get cheaper than both IFA and Nutmeg.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • steviewander
    • By steviewander 11th Apr 18, 9:13 PM
    • 69 Posts
    • 19 Thanks
    steviewander
    Tiering of charge is common. As are caps and collars on the charge.



    That is the most dominant figure. However, ongoing servicing is optional.If you dont want ongoing servicing then it cannot be forced on you. However, the adviser may not offer the same investments.

    Sticking to the context theme The IFA could set up an ISA and pension with ongoing costs a third of those of Nutmeg. So, initial fee is higher but thereafter it is cheaper and a breakeven point will come. Alternatively, the IFA may have a model portfolio that costs more but out performs nutmeg.

    Or you can go proper DIY and get cheaper than both IFA and Nutmeg.
    Originally posted by dunstonh
    Thanks for your insight. My concern is that I won't be able to build up enough before I retire (hopefully 60) and I end up with just a few thousand pounds a year in a dismal annuity. Realistically I probably won't be able to get a pot above 150k. I have no idea if this is enough.
    • JoeCrystal
    • By JoeCrystal 11th Apr 18, 9:26 PM
    • 1,401 Posts
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    JoeCrystal
    Bear in mind that you won't be paying into a pension pot when you retire. It really depend on how much does your and your partner need to live on an annual basis and work backward from that. You may find that without any mortgage or pension commitment, especially with a paid off home that it doesn't take much to live on. Especially once you take into state pension provision into account. Let say I want to retire at 55 but my state pension doesn't kick in until 68, since I can easily live on state pension income which is 8,546.20, I just need 13 years of gap covered until the state pension kick in, so I just need 111,100 (13 years worth state pension saved up) to draw down until my SPA kick in which is one way of doing it. You may find 150,000 be enough even, especially if you are contributing 750 per month into pension pot. You already got 50,000 invested elsewhere.

    As you mentioned that you got a partner, it is certainly worth checking how your partner doing it as well.
    • steviewander
    • By steviewander 11th Apr 18, 9:43 PM
    • 69 Posts
    • 19 Thanks
    steviewander
    Bear in mind that you won't be paying into a pension pot when you retire. It really depend on how much does your and your partner need to live on an annual basis and work backward from that. You may find that without any mortgage or pension commitment, especially with a paid off home that it doesn't take much to live on. Especially once you take into state pension provision into account. Let say I want to retire at 55 but my state pension doesn't kick in until 68, since I can easily live on state pension income which is 8,546.20, I just need 13 years of gap covered until the state pension kick in, so I just need 111,100 (13 years worth state pension saved up) to draw down until my SPA kick in which is one way of doing it. You may find 150,000 be enough even, especially if you are contributing 750 per month into pension pot. You already got 50,000 invested elsewhere.

    As you mentioned that you got a partner, it is certainly worth checking how your partner doing it as well.
    Originally posted by JoeCrystal
    That all makes sense, thank you.
    Yes my partner has a sizeable pension but I have always had it ingrained in me to be self sufficient (hard parenting!). I hear people say "there won't be a state pension when you get to pension age".
    My parents and my partner say it for goodness sake - is it all hyperbole or for real?!
    • LHW99
    • By LHW99 11th Apr 18, 10:05 PM
    • 1,249 Posts
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    LHW99
    Don't forget that if you put 750 per month into your pension, the Government adds back the 20% tax relief (and if you are a higher rate taxpayer, you can reclain the additional 20% too).
    That's actually 900 per month, and when you take it out as pension 25% of what you have saved is tax free, and if you have no other income, you can take out up to your personal allowance tax free too.
    • steviewander
    • By steviewander 11th Apr 18, 10:26 PM
    • 69 Posts
    • 19 Thanks
    steviewander
    Don't forget that if you put 750 per month into your pension, the Government adds back the 20% tax relief (and if you are a higher rate taxpayer, you can reclain the additional 20% too).
    That's actually 900 per month, and when you take it out as pension 25% of what you have saved is tax free, and if you have no other income, you can take out up to your personal allowance tax free too.
    Originally posted by LHW99
    Actually that sounds a lot better. I forgot about the 20% top up and didn't realise you could take out up to your personal allowance free. Thanks for that.
    • mikael
    • By mikael 11th Apr 18, 11:08 PM
    • 316 Posts
    • 145 Thanks
    mikael
    I recently turned 40 and had been maxing out my ISA allowances each year for the last 10 years or so, but I did not bother with a pension until the new pension freedoms were announced. I did not like the idea of having to buy an annuity etc. However, now with pension freedoms, pensions are better than ISAs due to the tax relief you receive and the ability to just draw an income down as you see fit. I was also lucky enough to be able to start a Lifetime ISA. It is often said that it is best to start contributing to a pension when you are as young as possible, but that is not always the best. If you expect to earn much more as you get older, it can be worth delaying and paying much more in when you become a higher rate tax payer. However it is never too late, as you get tax relief which you would not otherwise receive! There are so many low cost SIPP providers around and lots of information on funds you can invest in, I would explore the options of doing it yourself first. Many studies have shown that investment decisions made by "non experts" do not generally perform any worse than those made by "professionals". Nobody has a crystal ball.

    As you are self employed and have some control over how you are employed, it could be worthwhile to setup your own limited company. If you are in a position to earn well and pay significant sums into a pension, especially in the next three years you could get your own company to make contributions into your own pension without any tax or NI to pay at all. For maximum effect, if you were employed in your own limited company, your company could pay you a salary up to the level of the NI Primary Threshold which is 8424, which would be paid to you before tax from your company and would also be tax free to you. You could then contribute 6739.20 into a pension yourself which would be topped up with 20% tax relief, even though no tax has been paid by you or your company! Your personal contribution would then be topped up to 8428. Your company could then contribute on your behalf up to a further 31572 without paying any corporation tax, NI or you paying any income tax. Contributions made by your employer (in this example your own limited company) are not limited to your PAYE earnings, just limited by the annual contribution allowance.


    If there are enough profits, you can also use carry forward rules to use up some of your unused pension contribution allowances from previous years. Using these allowances would be possible even if you just remain as self employed.
    Last edited by mikael; 11-04-2018 at 11:29 PM.
    • PeacefulWaters
    • By PeacefulWaters 11th Apr 18, 11:11 PM
    • 8,244 Posts
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    PeacefulWaters
    Don't forget that if you put 750 per month into your pension, the Government adds back the 20% tax relief (and if you are a higher rate taxpayer, you can reclain the additional 20% too).
    That's actually 900 per month, and when you take it out as pension 25% of what you have saved is tax free, and if you have no other income, you can take out up to your personal allowance tax free too.
    Originally posted by LHW99
    I make it 937.50.
    • steviewander
    • By steviewander 11th Apr 18, 11:21 PM
    • 69 Posts
    • 19 Thanks
    steviewander

    As you are self employed and have some control over how you are employed, it could be worthwhile to setup your own limited company. If you are in a position to earn well and pay significant sums into a pension, especially in the next three years you could get your own company to make contributions into your own pension without any tax or NI to pay at all. If there are enough profits, you can also use carry forward rules to use up some of your unused pension contribution allowances from previous years. Using these allowances would be possible even if you just remain as self employed.
    Originally posted by mikael
    Thank you for your thoughts. I'm definitely feeling better about my situation now that I've read some very useful contributions on this thread. I will look into the option of creating a limited company if I can use it increase my pension pot. My accountant did elude to this last year but I didn't follow it up. I will now, so thank you for the reminder!
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