IFA and pension?(21 Posts)
I'm setting up a pension via an IFA. I'm totally new to having either a pension (other than old work ones) and using an IFA so wanted to run it past knowledgeable folks to ask if I should consider anything else and whether this seems like a normal arrangement.
I'm putting 25k in. I've been quoted a 3% lump upfront fee by the IFA (paid to him so it doesn't come out of my investment). I'll be charged 0.75% per annum of the total amount in the pension. I've completed a personal risk survey which has determined which fund my money will go into. I'm like a 60% in terms of risk appetite.
Does all this sound fine - are there any specifics I sound be checking with the IFA? I've checked that he's registered and he's been clear that he receives 0.75% pa from the fund managers. The fund seems to be making a decent enough return 5-7% but I realise there are no guarantees. Are there obvious checks I can do on that company to be more certain? How does anyone get really confident with who they trust to decide on all this? Sorry - feeling a little nervous as it's new to me!
Really appreciate any thoughts.
Is that 0.75% on top of the fees of the fund itself? How much is that? Make sure it doesn't eat into your potential profits too much. Has the IFA gone over your old pensions? Do you know where and how much they are?
I think it's on the high side, but unfortunately with only 25k you're an expensive client.
If you got £100k you've got room to negotiate.
If you came to me I'd put you in something like the Royal London governed range and tell you to come back in 7/8 years for a review (depending on your age). I really think that these charges are going to erode your pot too much.
The only time I'd say do it, is if you will need annual advice and guidance (tax planning/business owner)
that's an abridged version obviously!
Thanks so much for replies and sorry for the delay - I was suddenly without internet for the last week argh!
JoJoSM2 yes his fee is 0.75 on top of the fund fee which is 0.62. So I'm paying 1.37% total. We haven't gone into the old pensions but I could dig them out and we could look at that later.
Have had more discussion with IFA and settled on 30k as my investment amount. He will charge 2% fee so 600 upfront. Then 1.37% p.a. as split above. The min, mid, max growth predictions from the fund illustration are -0.5%, 2.5%, 5.5%.
This doesn't seem all that great to me, but then I'm a total beginner so I don't really know. Thoughts anyone?
don'tcallme Assuming I just go to a fund manager like Royal London and set up a pension myself, wouldn't they also charge a yearly fee like 1-2%? To address your point about the amount being small, I will have a lump sum coming to me next year, around 200k. I don't need tax planning, only where to invest it. In this case, would it be normal for people to make their own arrangements, put the max in ISAs and then split the rest across several pension funds, leaving some in cash? If I have no complex needs as you mention then perhaps this is my best option even with the larger amount?
Is he charging you an ongoing fee?
For this initial pension of 30k, fees are as above (600 one off fee and then 1.37% pa of the pension pot).
We haven't covered fees for the future stuff yet as it's not clear when that will happen. Suspect it will be similar but I don't actually know.
So my question is around the immediate pension which I want to start now, whether it's a good deal and whether I would be better just putting it directly into a fund (or perhaps 2 or 3 funds) myself.
Are you still paying the ifs the initial fee of £600 directly? Alternatively you could pay the £600 into your pension and get tax relief of either £120 or £240 depending on your tax rate and you could ask him to collect it from the pension provider.
Net result either £120 or £240 better off.
I charge an ongoing fee but It's very clear to my clients what they get in return for my ongoing fee.
Do you know exactly what you'll get for your additional fee?
Ah thanks for that mumbles - he did give the option of both ways of paying the initial fee but did not explain the benefits as you have there.
I asked what was included in the ongoing fee, his response:
"The 1.37% covers everything . Me the fund manager the platform any changes we decide to make etc .
Hope that makes sense . "
I feel a bit uneasy but I don't know if it's just because I'm being naturally cautious due to my complete lack of experience (plus a family member lost a lot of money in the Equitable saga). Or if I need to trust him more (and how do I go about that since I don't really know what I'm supposed to look out for!) He was recommended to me by someone I know but I would say that person has a bigger appetite for risk than me.
Not exactly building trust when he doesn't explain how you can save money though is he?!
Agree with DONT, you need an IFA who has your best interests at heart and he should have explained how you could have saved money on his fee.
At £600 initial fee and £225 ongoing fee there is not a lot of profit for ifa once he's paid out all regulatory and business expenses so I don't think the fees are out of line. It's more a case of what he'll do to earn the ongoing fee.
I think taking account the money you are coming into you need an ifa who will conduct a full factfind taking into account you current and future needs and create a long term financial plan (we call ours a long term cash flow plan) that will show you how to get to where you want to in money terms i.e. When do you want to retire and on how much you want as income then. The ifa needs to assess your old pension pots and ensure they are doing the best possible for you.
Finally you should meet up annually to ensure the financial plan is on track.
I appreciate he has been recommended by a friend but I would go on unbiased.co.uk and go and see 3 Ifa's, first meeting is usually free to see if you think you can work with them long term.
A good working relationship with an ifa who will look to save you money in the long run whilst earning a reasonable living is essential because if he doesn't earn enough from you he wont be there to look after you in the long term
Apologies for length of post
I agree with mumbles, if your advisor makes you feel uncomfortable, he's probably not the one for you.
You should be clear what you are getting and how much you are paying for it. He's not doing you a favour, he's rendering a service. Get second, third and even fourth professional opinions.
To all these points about trust: well exactly! Thank you all, really helped. Even the way you've all answered my questions here was a world away in terms of the tone of responses i was getting. Lots to think about for what to look for. Thanks!
I have never used a financial advisor. I just opened a SIPP and picked my own investments and am free to change them whenever I feel so inclined. I am with Hargreaves Lansdown. They're definitely not the cheapest platform to use, but I have been very happy with them for the past 15 years or so. There's quite a lot of information on their website to help you choose funds and they also have a small selection of "ready made" portfolios.
We are same as 80smum.
Used a FA recommended by a friend years ago, he advised a PP instead of joining that at my new employer, which I realise now was a massive mistake. Was young and had no idea.
Never trusted a FA again. DH and I use Hargreaves Lansdown too, got ISAs and SIPPs for us and the kids, as 80smum said, not cheapest, but there's no upfront fees and plenty of info on the website.
I got burnt when I put a lump sum in a technology fund just before dotcom bubble burst, but we have gained experience of fund picking since then, and ALWAYS, ALWAYS drip feed money monthly into more than one fund. That way you smooth out peaks and troughs of stock market and dont risk capital if you happen to pay in when your one and only fund drops just after you put your lump sum in!
If you have the time and are fairly financially literate i would skip the IFA. You can open a personal account with any of the top providers such as
Hargreaves Landsdown, Aviva, Legal and General etc. Most will offer you a good selection of funds so you can choose different risk levels. All of the top providers have minimal fees on their funds.
If you don't have the time or knowledge then go with an IFA but make sure you know what services you are getting for your fee.
I work in the industry, most advisers charge an ongoing annual fee of between 0.5% & 1%pa so you 0.75% is not unusual.
Another self-investor here, after mixed experiences with IFAs to date.
I use Interactive Investor as a platform for both my SIPP and ISAs and also some JISAs for the DCs. They are one of the cheapest. Not as many frills and hand-holding as Hargreaves Lansdowne, but they do the job!
I've found these tables very helpful for comparing the platforms for different levels of investment:
And if you really want to read about it all in more detail then you can go to the creators of the table - The Lang Cat consultancy - and download their latest report for free:
Sam as 80smum. I just opened my own SIPP. However it can be a personality thing. I wanted to control my own SIPP investments (you can have a SIPP but someone else manages it too though if you want) and be in charge. There are still fees to pay but it worked well for me. I would not use an IFA. However lots of people know nothing about money and do not want to handle it and do very well out of using an IFA of course.
Is this a separate stand alone pension, not something your employer might pay into? Without employer pension contributions you do need to consider carefully these days whether a pension or ISA or even repaying mortgage (if you have one) is a better bet although I am not saying do not put money aside for old age of course.
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