First world problem I know, and I may be just having a small rant, and already know the answer, sort of...and curious if anyone has been down this same path.
I've recently had some financial advice, primarily to get advice on what to do with a bit of inheritance that has unfortunately come our way. We had intro conversations with a few local IFAs and went with the chap who came across the best to us. The charging fee structure was set out up front and didn't seem unreasonable as I sort of thought that it would be based on the inheritance money alone.
We have been through the process now which included the IFA obtaining details of all my private pensions and this culminated with a meeting to discuss strategies (for which a one-off fee of £500 is due, fair enough). The advice for the inheritance made sense, and included putting a lump into a pension plan. However, the advice was that all my pensions, aside from the current workplace pension, need consolidating into a new scheme based on performance and risk. The pension fund provider suggested is only available to IFAs (Royal London) and for the pleasure of opening the account and writing to my existing pension companies, and the one-off payment into RLP, there will be a charge of just shy of £10K, with an ongoing managing charge of £450/month. So in the next twelve months, I'll be down circa £15K just on fees.
They aren't commission based, so I suppose that doesn't alter what they think is the best product, but there must be some thought process that if they said everything was fine with what I have, they will be down £10K fees for their business. A cynical view might also be that to suggest an IFA accessible only fund stops me doing this independently, which he said I can, I'm not obliged to go through with his proposals.
FWIW, I don't think I can stomach that charge and with a bit of diligence, can probably find a Vanguard 80/20 or 60/40 that would be equivalent, and just do it myself.
But what if I screw it up? Is the IFA advice actually good value and worthwhile after all, notwithstanding the above? Had, for example, I had half the pension pot, the fee would have been much less, but the advice just as valid. Will decent advice see me recoup those fees (and more) in due course?
Part of me thinks pay it, be on the safe side, but part also thinks it's a big hit and will take a bit of clawing back through growth.
Royal London are a good, reasonably priced provider. The IFA is likely to be independent of them (as far as I know they have no “tied” advisers).
However, those fees seem pretty large. How many pensions are you consolidating? What total value? Are some of them Defined Benefit/Safeguarded Rights?
Unless I was paying someone to manage a 7 figure investment I wouldn't be paying £450/month, that seems crazy high. Consolidating pensions is simple enough (you've already done the hard part if you have all the provider details). What's the expected & historic returns on the suggested pension vs your existing pension(s), did the IFA discuss why he thought you'd end up better off by switching (factoring in the additional fees)?
It's not seven figures, quit a way short!!! The fee is irrelevant to the number of pensions, it's just based on the total value to be consolidated.
There were issues with some of the pensions not being suitable for drawdown, some just poor (old Equitable Life but that's just £6K) some of the HL Blackrock ones not performing well and some had started "lifestyling".
£10k up front + £450 per month is insane.
IFA-only fund is bollocks, it'll still ultimately be invested in funds accessible to anyone.
They aren’t commission based,
They are, but nowadays it's called a fee for advice, not commission. It will however, completely coincidentally, be exactly the same amount as the previous commission would have been.
To the IFA this is money for old rope; the admin involved is trivial, the funds they 'carefully choose' will be a standard set that's based on your risk appetite that they use for all their clients, then they just sit back and let Royal London manage the funds and cream off their commission. Sorry, their advice fee.
did the IFA discuss why he thought you’d end up better off by switching
Hmm, why might they be suggesting switching, I wonder....
Interesting post for me as well. My 'managed' pension made 4% after fees last year, Vanguard 60:40 made 10% and 80:20 made 12%. And over 5 years, Vanguard is still significantly ahead. I get good long term advice /planning from my financial advisor and I trust him but, for me, it just seems that they can't compete with tracker funds
I have worked with financial advisors for most of my career, so 30 plus years now. I am afraid that experience shows that there are very few good ones. Most of them are firmly in the 'What's in it for me' camp. Very few truly have their clients needs at heart.
That said the fees quoted seem really high. The up front fee for the advice is fair at £500. The consolidation fee should be between 1.5% and 3% of the funds being transferred into the Royal London pot (most advisors would rebate the £500 too at the point of transfer). As far as the annual fee goes, I would be looking to pay 0.75% to 1.5% per year of the value of funds under management.
I have my own stuff with an IFA and I pay him 1% per year and I get a review with him once a year. I think my transfer fee was 2.5%.
I d have a search on the meaningful money podcast, he s talking about charges fairly regularly. The proposed charges are a hefty chunk I d be getting a few second opinions.
Fwiw we bought a product only available via ifas, paid 12k I think in commission, product has now paid out c 70k increase after 5 years and saved a few 100k. The if a fee was tiny in comparison and good value.
The fees are excessive.
Ask the IFA for 5 year performance information - including risk profile - for the fund being proposed.
Then compare with Vanguard 80/20 and 60/40 over the same period - other trackers are available.
The IFA commission charge for pension transfers is - or used to be - based on which band the transfer value fell into.
Even if the £450/month covers all charges - IFA, RL, platform etc - it still seems very expensive.
Just to clarify, without giving too much away re the pot, the fees and ongoing chares are inline with those suggested percentage ranges above.
The galling thing is I suppose, I can go on Vanguard, do a risk appetite quiz, and that confirms the IFA's risk assessment, that I am cautious with a dab of adventurous (4/7), and Vanguard suggest the 80/20 or 60/40. The RLP Managed Portfolio 4 being recommended, seems to align with those, as does my current workplace Aegon pension.
We did wonder about getting another opinion from our second choice firm and ponying up another £500, just as a sense check.
£450 a month!!!
Which are usually a good neutral source of advice. They suggest charges are
"0.75% to 1.25% in most actively managed funds"
So for £450 a month I would expect the sum invested to be in the region of £500k.
Presumably there was some sort of illustration to justify moving pensions?
e.g. your pensions are currently worth X, if you do nothing then in N months/years might expect them to be worth A to B. (Id expect a breakdown for each pension).
if you move them, then they will be worth X-fee, but in N months/years might be worth C to D. To be useful to the lay person that needs translated that into "which might buy you an annuity of Y per month".
if you don't spend this money on fees - what will you do with it? if that involves a hapiness factor IFAs are not great at including that in their equations.
If any of your existing pensions are DB you will, dependant on their transfer value, have to use an IFA and there is no guarantee they will recommend transferring out.
The regs around DB transfers are stringent.
They are all DC, been contributing in to various company schemes since I was 19.
You have paid £500 to get your finances looked at by an IFA. You have the suggestion that they should be consolidated in one place. So far so good. I just can't see the value in paying £10k to get someone else to move funds around.
I'd need a lot of convincing the best thing was't just a low cost pension in Vantage UK or elsewhere and do the transfers yourself.
As it happens I have two very small pensions with Aviva and Vanguard. The Avivia one has underperformed so for simplicity I'm transferring the Aviva to Vanguard. Looks very simple. Started off online. Needed my ref number and the current value. I signed a decleration that I wasn't getting advice (from Vanguard) and that was it. They say they will contact me should any further info of clarification be needed and it will be done in a few week. It wasn't £1k worth of work.
There is no such thing as an independent financial advisor. It's a total crock pot . The entire investment market is structured in a way to make it as confusing as possible for the layman . With lots of long complicated words and fancy websites.
All you are doing is paying someone else with the same amount of ability to see into the future as you do....to guess what's in the future.
Ignore vanguard 60ls performance, it was hit hard by the bond yeild issue last year so it skewed the numbers.
The fees he had quoted are in line with management of a diverse portfolio of around 10 million. So he's pulling down your pants.
Please do not do anything with this guy.
AJ bell , Vanguard or Hargreaves Lansdowne are amongst the best low value Sipp providers.
If you don't have a defined timeline you can be more risk averse now .
It's hard to advise without knowing your age , profession , savings or investment capital but a mix of , for example Vanguard LS100 , European sri , S&P 500 , Asian markets will invest in thousands of companies at very low cost with net income reinvested .
Keep say £9k in a deposit account , utilitize your ISA allowance, avoid sharks .
There is an old book about the financial services industry with a title along the lines of
"Where are all of the customers super yachts?"
Which tells you all you need to know.
What are the supposed benefits of a pension fund which is “only available to IFAs”?
That's simple, it allows the IFA to charge an exorbitant fee for a mediocre fund!
Which is quite a considerable benefit to the IFA.
I think, purely speculate, that maybe Royal London are being super cautious with who they let invest with them and maybe they get some reassurance that it isn’t a glossy brochure, or past performance, that has led to the man on the street dumping their entire wealth in with them. They probably get some reassurance that any customers have been advised, in one form another, so they can avoid any potential criticism.
Maybe.
I don’t think this makes their fund any better though, and it doesn’t seem to blow the Vanguard one out of the water. And, of course, investments can go down as well as up. Curiously, I was looking at the top fund performers over the last five years and the top ones appeared somewhat obscure. I can’t image that any FA, if we could roll back five years, would have recommended any of them to a middling risk investor.
I can’t image that any FA, if we could roll back five years, would have recommended any of them to a middling risk investor.
They'll recommend a very bland mix of trackers which you could get from anywhere on web. Probably very similar to one of the Vanguard Lifestyle funds....
Paying through the nose for exactly the same thing branded as 'exclusive to IFAs' would just be insane.
I know a few people who've chased every penny in profit as they couldn't stand to be 'safe'. One lost everything on a scheme his financial advisor set up for him.
There's so much good free advice out there now that there's no way I'd be paying £450/month for it. Not for normal person types of money.
Or you could talk to a few Mutual companies for advice (like the NFU Mutual) - admittedly they only sell their own products but they have safe records (maybe not market leading).
£450 a month is taking the piss. I pay 0.3% fees on my cheapest pension and if you work out how much you save over the term it’s amazing. You have to remember the savings compound over time. If you are paying 1-1.5% fees you are effectively giving away half of any future growth in your pot.
If you want to consolidate remember to look for any guarantees that may come with your DC pensions before going ahead. Some old schemes/funds used to have annuity rate or growth guarantees. One of my old funds guarantees a 6% return with no loss of capital. Paperwork to consolidate is pretty easy to do for DC pots.
I’m generally sceptical of the whole financial services market as the practitioners seem to be more adept at lining their pockets than providing good advice to clients. A recent example was the lifestyle profiling where funds were moved into bonds as you approached retirement to reduce risk. Given that bond prices move inversely to interest rates any fool could see you’d get rinsed when interest rates went up. With base rate near zero you could see what would happen. My old scheme saw 40% losses when interest rates rose. I’m glad I’d already turned off the lifestyle profile, but plenty of other folks didn’t and were angry they’d lost so much in a supposedly low risk scheme. The pension provider just swerved round the difficult questions the last time we had a Q&A session with them. Muppets the lot of them.
The preliminary modelling is in hand and I’m struggling to now see how it’s a decent proposal. The bumf includes comparisons of existing funds against the RL and all bar one have outperformed (over the last five years anyway) the proposed RL fund. The RL is going to have to smash it to claw back the costs.
There is also a summary figure that suggests that by staying with my current providers, I’ll have a larger pot than the prosper RL fund and it suggests that I’ll have a reduction in yield by moving.
This just seems bizarre now, how can it be dressed up as a better option? I’ve only ever paid into standard workplace pensions so I reckon most of them will be on a par with the RL proposed, from a risk POV, and the graphs I now have all plot very VERY similar growth lines. There seems to be nothing at all exceptional with the RL fund that would warrant a change for me.
Postscript, a mates BIL runs his own FA firm and has recently bought a Ferrari, an apt in Spain and a holiday home on the East Coast.
Open an Interactive Investor SIPP. The platform charge is £12.99/ month. Total. They have an offer for transferring in at the moment that will give you @£1500 Cashback on a pot of that size. Choose some global trackers at am AMC of 0.1-0.2% and laugh at the £10k that IFA wanted you to spend to do that for you.
I’ve just had everything finalised with my pensions, it’s taken ten months due to one financial entity* who ended up holding the two biggest policies, and who’ve taken their own sweet time handing over the money. There were several little ones I just got the cash for, the two big ones I’ve got a £19k lump sum, and about £400/month annuity which will top up my state pension, effectively giving me a final salary pension based on my last income. I was quoted a charge of £1800 for the work, and that’s what I’m paying. My Annuity is with Scottish Widows. Perfectly happy with the outcome, I couldn’t possibly have dealt with it myself, I have no understanding of what’s involved, and if I’d followed some people’s advice and just gone onto one of those online pension things, I reckon I’d have ended up with very little.
*Their name begins with A, I’m not impressed with their work.
Whenever I hear about IFAs or their charges, I can't help thinking "why didn't I become an IFA". Unless I'm missing something major there doesn't seem a whole lot of skill or knowledge involved - most of the time it's just picking a few funds now rather than investing in individual shares. And if they're picking anything other than trackers then it's luck whether they outperform a tracker or not.
and the fees seem huge.
The up front fee for the advice is fair at £500. The consolidation fee should be between 1.5% and 3% of the funds being transferred into the Royal London pot
Why should it be a percentage? And why would you pay anyone rather than do it yourself?
I did some consolidation a few years back. It's a 'pull' process - you contact the pension provider you want to consolidate to, they send you a form you fill in, they send that to the provider you want to leave and the funds transfer. There was no charge for it. The amount of work is the same whether it's a £2000 pension or a £200k pension. I've just been to my Standard Life website and theres a 'combine your pensions' button...
I couldn’t possibly have dealt with it myself, I have no understanding of what’s involved, and if I’d followed some people’s advice and just gone onto one of those online pension things, I reckon I’d have ended up with very little.
And this is what the financial companies and IFAs thrive on. The thing is, with the amount of online content available these days there's any number of ways to educate yourself on this subject, or, you take the alternative of having your pants pulled down by an IFA.
If you believe in the efficient market hypothesis (even in its weakest form) you can save an awful lot of money and do it yourself.
Having said that, doing it yourself isn't a complete free ride, there is stuff to do which takes time and effort and it's understandable that some might want to delegate that effort and responsibility. But you can end up paying large sums for not very much really.
I have transferred poorly performing ISAs and pension funds away from the HL platform to Vanguard. A lot lower commission fees and so far performing better.No cost to transfer and a pretty straightforward process.
Having spoken with IFAs over the last 30 years i have never felt comfortable with the advice i was given.
A friend has been paying £3000 a year into a pension for 20 years. The providers last statement showed a valuation of just £70,000 and advised him that he should be upping his contributions to provide a decent income in retirement.Great financial advice !
The interactive investor above is a fair deal, I just opened an eqi sipp at an annual fee of c 110 GBP. This is offset by trading fees, so if you trade within the sipp you effectively get your admin fee back.
A friend has been paying £3000 a year into a pension for 20 years. The providers last statement showed a valuation of just £70,000
That sounds like an absolutely shocking level of performance. I couldn't imagine how it is possible to invest so poorly.
I couldn’t imagine how it is possible to invest so poorly.
Isn’t that the issue with these life-styling options. Have just been looking at my wife’s pension and it is heavily exposed to bonds, the bond units have lost 37% over the last 2 years or so. As you would expect, this has dragged the whole pot down. Exacerbated by them charging too much in fees for ‘managing’ it.
Isn’t that the issue with these life-styling options. Have just been looking at my wife’s pension and it is heavily exposed to bonds, the bond units have lost 37% over the last 2 years or so. As you would expect, this has dragged the whole pot down. Exacerbated by them charging too much in fees for ‘managing’ it.
Just as a comparison the Vanguard Lifestrategy 40% fund which has 40% Equities and 60% Bonds was down 13.61% in 2022 but up 8.45% in 2023. So yes, the bond market did take a hit in 2022 but previous years and this year have more than made up.
Yes, time to transfer it out to a better provider. My wife’s is currently Scottish Widows.
These conversations are not easy though, I guess she got some fairly ropey financial advisor advice when she started this one and is now inclined to stay put and ride it out. Many people are simply not financially literate enough to manage these options, they think they have done the right thing by putting money away.
And if I hear one of my boomer parents/ in laws, who are rolling in final salary dosh, moan about being skint and/or comment how we have this to look forward to after their 5th holiday of the year I can’t be held responsible for my actions. 😉
these life-styling options
can you explain to a layperson what this means?
I am one of these poor fools who just pays into a work pension and doesn't know the relative merits of bonds, equities and SIPPS, nor whether my pension is 'lifestyling' 😳
Lifestyling is gradually moving your investments out of higher risk investments, like equities, into lower risk investments, like bonds, as you approach retirement age. The theory being that as you approach the point where you want to draw on the money you don't want it in investments that carry a higher risk of losing a significant amount of value quickly (i.e. you don't want the value of your pension pot to halve six months before you retire), you instead want it in stuff that's more stable, like bonds.
Unfortunately the bond market went a bit mental last year after Liz Truss's little fiscal hissy fit.
Also, it was more appropriate under the previous rules where you had to cash in your entire pot and buy an annuity. Now that you can keep your pension pot invested in stuff after you retire it makes less sense than it used to.
And if I hear one of my boomer parents/ in laws, who are rolling in final salary dosh, moan about being skint and/or comment how we have this to look forward to after their 5th holiday of the year I can’t be held responsible for my actions
You've met my neighbours then?
My experience with IFAs has been mixed at best.
On the one hand they've given me a few tips about diversification of my portfolio and risk.
On the other, they've always had some financial product that they've wanted to sell me.
My limited understanding of investing is that management fees on funds are a real drag on compounding, and therefore they should be kept to a minimum. Also that in the long term, very few funds consistently beat the market. These seem to point towards some form of passive investing being the solution for most people.
Funnily enough, the IFAs I've spoken to go quiet at this point. One even became borderline aggressive asking me why I'd decided to speak to him if I knew so much about investing.
The provider moves your investments away from risky shares into other , safer investmentsvas you near the point of needing the Dosh.
So the provider will sell units that own a few hundred shares in , let's say the FTSE 250. Which is a fairly solid performer, and reinvest your money into other derivatives. Mainly government or compy bonds. These give a fixed yeild over lifetime so tend to be less volatile hence less likely to devalue suddenly this leaving you thousands short.
Which is fine , till an unprecedented event happens like in '22 / '23 when the bottom fell out of the bond market and the government was forced to shake the magic money tree to stop a load of defaulting and potentially bankruptcy of company pension schemes iirc
So that's lifestyle , if you have enough money to be able to ride out the fluctuations they are slightly less attractive. As they tend to yeild less in the last 5 years till retirement
The lifestyling of moving into bonds etc before retiral made more sense when your main option at retiral was to buy an annuity. So you were realising your investment at a fixed point it time.
It makes less sense now IMO when you could retire at 65 and have on average 20 years ahead of you. That is long enough to smooth out ups and downs if you keep most of your money invested and draw down as required.
Also, it was more appropriate under the previous rules where you had to cash in your entire pot and buy an annuity. Now that you can keep your pension pot invested in stuff after you retire it makes less sense than it used to.
Very much this. It makes sense if you plan to buy an annuity when you retire. If you plan on a drawdown approach it might make more sense to change your investment approach.
My personal plan is to drawdown so I'm building up a 'cash' reserve which will cover my outgoings for a couple of years. Thus if there is a 'Truss moment' in future I will take less out the pension that year and withdraw from the cash. This relies on the pension recovering within a couple of years (I then refill the cash reserve in better years).
All this relies on you being happy to monitor things. For many people they just want to know how much they are going to get. Thus annuity's still have their place and are the right choice for some.
Slightly off topic for me, but I hear annuities are increasing in value a bit and James Shack (YouTube) makes a reasonable point that for someone retiring early, say 57, a ten year annuity to get you to state pension age isn’t a particularly daft plan of you want some certainty in that interim period.
