Reasonable charges for an IFA?

Desertstormer · 11 January 2019 at 4:46PM

I'm still very new to researching for my retirement. I've been reading comments on this forum with much interest for several weeks in hope that I'll glean some knowledge from the kind people who respond on this forum.

I will be 60 in the next few weeks, and need to sort out some income from my DC pensions (total fund approx. £180K). I'm so overwhelmed by all the information posted and the subsequent research I've made that I've decided that as much as I would like to educate myself to take charge of my own retirement plans, I really don't have the confidence, knowledge or intellect to deal with this by myself.

My current circumstances are: I have been unemployed since 2015 and living off my stocks and shares dividends (approx. £2,500pa) and my ISA savings, which have now dwindled to around the £20K mark I rent out two properties (maximum net income approx £6,000 pa). I am due SP in 2025, have 41 years NI contributions (contracted out) with years 2015-16 onwards not full, current forecast £131.89 and awaiting a VC for 2016-17 to be applied to my NI record to increase my SP by £4.70pw. I intend to make further voluntary contributions for missing years in due course. I have a small NHS pension of £622p.a. due to be paid from age 65. In addition I have a Stocks & Shares ISA - £22,000.

I've found an IFA who is aware of the above and who I feel I can work with. I've checked his registration on the FCA Register and would like to proceed with him. But by nature, I'm very cautious. May I please ask if his charges of 1% - 1.5% (minimum charge of £250) for Financial Review and Advice and 1% (minimum charge of £1200) for 'Ongoing Services' are reasonable and in line with what other IFAs charge? Your views on this would be very helpful.

Thank you!

whatsup7 · 11 January 2019 at 5:01PM

I was paying my ifa 0.5% on going charges to manage my dipp.
Yours seem very expensive to me but there will be answers from more experienced members along soon.

dunstonh · 11 January 2019 at 5:12PM

ay I please ask if his charges of 1% - 1.5% (minimum charge of £250) for Financial Review and Advice and 1% (minimum charge of £1200) for 'Ongoing Services' are reasonable and in line with what other IFAs charge?

A min and max on fees is quite common. 1 to 1.5% is fine.

0.5% p.a. is the dominant IFA figure for ongoing. However, smaller portfolios are increasingly seeing 1% being used to reflect the reduction of cross subsidy that exists nowdays. You are in the ballpark where some would lower to 0.50% but many would be 1.0%.

Overall, the initial is good. Ongoing could be better but not unexpected.

Desertstormer · 11 January 2019 at 5:44PM

Thanks, dunstonh, for your very helpful thoughts on this. It's the cost of ongoing advice, specifically the minimum charge, that concerns me more than the initial cost. Once my fund drops to below £120,000 then I'll be (increasingly) paying more than 1% annually for ongoing advice.

Desertstormer · 11 January 2019 at 5:47PM

Thanks. It's useful to learn what others are being charged.

dunstonh · 11 January 2019 at 5:49PM

I did find it strange that the initial had a minimum of £250 and the ongoing £1200. If anything, I would expect it the other way around.

squirrelpie · 11 January 2019 at 6:19PM

It sounds like the initial fees may be reasonable but the ongoing fees are a bit on the high side, to me as an outside observer. But equally, you say you are new to researching your retirement and that you would like to educate yourself to take charge of your own retirement plans. Your lack of knowledge will be overcome by time, and that will hopefully also reduce or eliminate your lack of confidence (none of us are ever entirely sure we've got things right!). You don't need to be a rocket scientist either. So perhaps arrange initial dealings with this IFA to get things set up, but make sure that you can cancel any arrangements later, and hope that you'll feel confident enough to do the ongoing management yourself by the time it is needed? I don't think there'd be any problem telling your IFA that was your plan, as long as you have a good relationship.

Desertstormer · 11 January 2019 at 9:25PM

dunstonh wrote: »

I did find it strange that the initial had a minimum of £250 and the ongoing £1200. If anything, I would expect it the other way around.

Thanks Dunstonh. Your response prompted me to recheck the IFA’s terms of business and I was wrong; please accept my apologies.

To clarify, it is the ‘arranging and setting up investments’ fee which is 1% with a minimum fee of £250 (investments involving more complex pensions will be charged 1.5%). Fees for providing a financial review and advice ‘generally range’ from £750 to £4,000 (the IFA indicated I would be charged at the lower end of the scale).

Regarding Ongoing Services, "Financial Planning clients with investments under management will typically be charged a fee of 1% of their investments, subject to a minimum of £1,200. Clients looking to take the service of Investment Management only will typically be charged a fee of 0.75% per year of the value of their investments under management subject to a minimum of £900. This fee includes the cost of investment management only." I don’t know whether I would be regarded as a ‘Financial Planning client’ or a ‘Investment Management only client.’

I definitely need to ask the IFA to clarify his charges. I’m more confused now than I was before regarding his charges.

Desertstormer · 11 January 2019 at 9:38PM

squirrelpie wrote: »

So perhaps arrange initial dealings with this IFA to get things set up, but make sure that you can cancel any arrangements later, and hope that you'll feel confident enough to do the ongoing management yourself by the time it is needed? I don't think there'd be any problem telling your IFA that was your plan, as long as you have a good relationship.

Thanks squirrelpie! That's a great idea, and not one I'd have even thought of. That is providing I can eventually gain sufficient understanding and knowledge to carry out ongoing management myself. It's the ongoing management that frightens me. I don't think I'll ever be ready for it and if ever there's a case in point for engaging an IFA, I'm it!

jaybeetoo · 11 January 2019 at 9:41PM

Interesting article on IFA charges https://www.moneymarketing.co.uk/issues/9-february-2017-2/paul-lewis-percentage-charges-destroying-client-wealth/

Desertstormer · 11 January 2019 at 10:35PM

jaybeetoo wrote: »

Interesting article on IFA charges https://www.moneymarketing.co.uk/issues/9-february-2017-2/paul-lewis-percentage-charges-destroying-client-wealth/

Thank you. A very interesting article which we can all relate to.

Reasonable charges for an IFA?

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