SIPP Drawdown

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Discussion

bad company

Original Poster:

18,483 posts

265 months

Sunday 13th July 2014
quotequote all
I have a SIPP with Standard Life managed by a financial advisor (also my accountant).

I'm really not happy with the performance of the funds and have seen hardly any growth in the last year. I am drawing 3.6% which I would have thought is not too demanding.

Thinking of moving the SIPP to a cheaper platform and self managing.

Has anybody here done anything like this?

ellroy

7,002 posts

224 months

Sunday 13th July 2014
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When you're looking at high single digit/low double digit returns on a long term average on equities taking nearly 4% is going to be a bit of handicap on performance.

Not to say you shouldn't see some growth, but if you're keeping pace with inflation on the fund at that level, for a moderate degree of risk you'd be doing ok.

Rather than performance, which is not a certainty, I'd be most inclined to look at fees as a factor first which is much more controllable and can add to your bottom line.

You'll often be surprised as to what an 'advisor' charges per annum and what they're actually doing for the money.

Ginge R

4,761 posts

218 months

Sunday 13th July 2014
quotequote all
BC,

There are lots of facilities out there offering to do what you want to do. Costs are a massive hurdle to outcomes, but a) is rhe advice good and the fund selection good.. but the sector temporarily out of favour, or b) are you in expensive funds which are doing well but being kneecapped by a pricy platform and advice on top of that?

Start top down, not bottom up. Wipe the slate clean and address everything from your desired objectives to your feelings about money and investing. Don't forget your adviser might be offering a good service but the value of his parameters are not strictly limited or based on returns over a short period of time.

The FCA released a report on Friday which referred to nearly 40% of clients either not trusting their financial adviser or thinking they can do it better. If the former is correct, then that's my sector's own fault and I despise the greedy, self servers who infest(ed) it.

But if the latter is correct, then be careful. As a full time investment pro, even I sometimes find that keeping up to date on big picture strategy stuff is difficult, let alone reading punts on various stocks and funds. I imagine that even the most insightful and intelligent layperson who doesn't get dripfed investment regulatory and legislative detail constantly, but who looks at the detail and not the mind boggling macroperspective, will struggle sometimes.

Good luck!


bad company

Original Poster:

18,483 posts

265 months

Sunday 13th July 2014
quotequote all
Thanks for the replies/help. My advisor is charging 2%, the platform is Standard Life & that may be the problem. Will take a look at the fees.

jdearden

1,746 posts

176 months

Sunday 13th July 2014
quotequote all
Yhm

jdearden

1,746 posts

176 months

Sunday 13th July 2014
quotequote all
Yhm

ellroy

7,002 posts

224 months

Sunday 13th July 2014
quotequote all
2% per annum? What about underlying fee costs?

If the 2% is on top of those, think in the region of 1%, and then the SL fee, several hundred quid at least I think we may have found the major issue.....

Edited by ellroy on Monday 14th July 16:55

Ginge R

4,761 posts

218 months

Sunday 13th July 2014
quotequote all
bad company said:
Thanks for the replies/help. My advisor is charging 2%, the platform is Standard Life & that may be the problem. Will take a look at the fees.
BC,

If the adviser is charging you 2%, and there's the SL charge and other odds and sods on top, you're possibly paying too much (I don't know your circumstances but 2% to your adviser seems *incredibly* pricy). Make sure you're in the right funds as well though and although cheap isn't always best, if you have the strategy squared away, shopping around or what you need helps - finally, platform functionality and cost changes all the time. The choice should be reviewed regularly.

SIPPs are geting cheaper and cheaper, but for many, a decent personal pension can also offer many advantages. I have two inherited clients with SL SIPPs and although we'll do something with them at the end o the year I've no doubt, I wonder about the original decisions to put them in..

Jockman

17,912 posts

159 months

Monday 14th July 2014
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BC - I currently pay 0.5% IFA charges on my SIPP. Ok the IFA is my uncle in Aberdeen but I still feel your current charges are excessive. You need to have a plan B - pm Ginge yes

Ginge R

4,761 posts

218 months

Monday 14th July 2014
quotequote all
Many clients don't bother to establish the Reduction in Yield (RIY), an industry standard calculated to show the effect the total charges applied to your investments will have on your wealth's potential rate of growth. It is a useful way of comparing the cost of one policy/adviser/fund with another. This might explain how we calculate RIY for investments on a platform. Please bear in mind it's a simolification and may not apply to all arrangements and investments.

The example below relates to a mythical NISA £15,000 Stocks & Shares investment onto a particular platform which may or may not apply to other platforms. Assumptions then;

1 - £15,000 invested fully into a Stocks & Shares ISA.
2 - Growth rate of 7% a year.
3 - We will assume that an ongoing service is provided, and an adviser initial fee of 3.0% and adviser ongoing servicing fee of 1.0% pa is paid.
4 - No withdrawals are made and all income is reinvested.
5 - 100% investment into 'X' Equity Income - U fund. This is going to be our notional PH fund.

The method prescribed by the FCA basically consists of calculating the following steps:

Initial charges first;

The initial investment has a 3.0% fee applied to it, giving an initial fund value of £14,550 (£15,000 -3%). Spreading this particular impact then over a term of 10 years gives us an annualised cost of 3.0%/10 = 0.30% pa. In other words, the uncompounded and annual effect of the initial adviser cost = a hurdle of 0.3%.

Ongoing charges next..

Ongoing charges may be assumed to include our notional PH 'X' Fund charges + product (platform) charges + ongoing adviser (annual) charges = ('x' fund TER – reimbursed rebate) + service/product charge + adviser servicing fee.

Let's assume that the fund Total Expense Ratio (TER) = 1.62% and the reimbursed rebate = 0.98% and that the service charge on this particular platform for the ISA is a minimum of £8.33 per month. The TER is not the best way of establishing the total cost of owning an Open Ended Investment fund, but it'll do for now. The £8.33 per month minimum servicing charge kicks in for fund values below £20,000 so it will apply for this example but will drop in impact for higher amounts. The service charge as a percentage of the initial fund value is therefore 12 x 8.33/14550 = 0.687% pa.

This gives ongoing charges = 1.62% - 0.98% + 0.687% + 1.0% = 2.327%. Summing the ongoing charges with the annualised initial charges gives 0.300% + 2.327% = 2.627%. The FCA method has the effect of inflating all charges by the projection rate, which here is 5% pa and the RIY is then calculated as the sum of charges x projection rate inflation = 2.627% x 1.05 = 2.654%, which, rounded to 1 decimal place gives us a RIY of 2.7%.

In other words, that's the hurdle that your investments have to get over before you show a profit. Bear in mind that other costs may apply if you invest into different investment vehicles via different tax wrappers or different platforms. Bear in mind too, that inflation has a net effect and that if you're in a SIPP or on a broking platform that has erm, unique characteristics and charges (yes, you.. I'm looking at you - no names, no pack drill!) it'll be even higher. If you're in a Discretionary Fund Management Service, make sure you have a good idea in advance, what your dealing costs will be.

I'm not saying that 3% upfront for the adviser and 1% ongoing is or isn't a good thing or a bad thing, I'm just stating a simplistic view of the maths. Many advisers work like mad for their money and earn it, whatever the rate, and many don't. Conversely, many do nothing and also the cost is worthwhile. I long ago, stopped segmenting clients and their needs on the basis of assets under management alone.

I hesitate to say this lest it be seen as promoting, but the FCA released a paper last week refining its guidance on simple and limited advice. I have been quite a while in the forming of a proposition which may appeal to the likes of PHers and hopefully, that will be soft launched quite soon. I have always wanted to offer an incredibly cheap and cheerful service to those who want to start saving but find their route to market stunted, and a more involved, or execution only propositions for the more able.

I don't see it as a great money spinner, rather an evolution of my existing business model to provide commercial all round defence (sorry, I'm ex-mil!), resilience and diversification.

jon-

16,496 posts

215 months

Monday 14th July 2014
quotequote all
www.iii.co.uk have the cheapest sipps I believe.

Very easy to self manage.

Ginge R

4,761 posts

218 months

Monday 14th July 2014
quotequote all
Jon,

I'm not knocking iii at all, but on the basis that a headline grabbing rate can flatter to deceive, it would be interesting to see how the accrued charges related to dealing and other aspects of admin, all conspire to create a final Reduction in YIeld.

Like I say, I'm not knocking it, some clients do a better job of the day to day managing of their money than do many advisers!

http://www.iii.co.uk/shares/charges

williaa68

1,527 posts

165 months

Monday 14th July 2014
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What do PHers think is a reasonable rate to draw down at 55? I am hoping to retire next year with a fund size close to the max. It is currently in my employer fund but DC not DB. I don't need the tax free cash so am thinking I will move it all to a SIPP and have an asset allocation of about 50% equities with the rest in a mix of listed property, fixed income and alternatives - probably via investment trusts. I'd then draw down the tax free cash element slowly (say £5k per year) and then take an income of about 3.5% on the balance, so approx £40k a year in total, hoping to give myself rpi increases. Is this realistic if I assume I live it be, say, 90...?

Mr Trophy

6,808 posts

202 months

Monday 14th July 2014
quotequote all
Interested to see when the OP comes back and confirms he's being charged 2% on going.

I am also interested to see what he's getting for his 2% ongoing to.

Ginge R

4,761 posts

218 months

Monday 14th July 2014
quotequote all
Will,

Income in retirement these days is rarely drawn in a linear fashion. If you want to trek across Oz in flip flops and swim with dolphins for the first few years, buy a nice car and generally hoon it up for a bit, then ages 55-62 might be pricy. 62-66 might be cheap though because you're probably knackered after the first phase.

Whether or not you do or don't need the tax free cash isn't really the issue. The question is, what can you do with it? £300k or so placed into an investment bond wrapper can produce 15k per annum, free of tax at the time and point of delivery and deferred until you're ready for a Yugo when you won't care too much anyway. Consider to place it offshore for gross roll up of fund growth and take into account all the pros and cons.

Do you really need a SIPP? You've done all the hard work, make sure that the pension you choose is tuned to perform well in decumulation. There are some really very good Personal pensions out there which will tick your boxes I'm sure. Consider salami slicing your tax free cash on the other hand, great for keeping as much of your pension uncrystallised if you have an estate you want to leave your wealth to.

Also, consider how much risk you need to take - not how much risk you want to take. Your suggested asset allocation isn't too punchy - but have you determined the bells that your fund needs to ring in order to keep your objectives in mind?

Have you taken advice on parking your wealth, or a good part of it in 'safe' funds, such as a cash park or funds with a much lower risk profile? You don't want to suffer a small loss just as you're about to retire that puts a bit of a mocker on things.

Consider too, wrappers and products that allow wealth to be kept outside your estate for the purposes of establishing care costs! Any half decent IFA will be able to sit down with you to discuss and to address cash flow modelling - that's the process by which you'll see what your money has to achieve. They won't charge for it, just be open with them at outset and say that you're half inclined to look after your wealth yourself anyway but you'd appreciate a second opinion and may be minded to change your mind if the fit is right. If they're too up themselves or small minded to do that, even over the phone, then you are probably lucky that you didn't have to waste/spend time with them anyway.

But you've got a lot to consider, find an adviser you are inclined to trust and ask them for a steer. Finally, I hesitate to say this because I have to be very careful in how I communicate, but your suggested cash flow exercise shouldn't present too many problems at all if set up correctly and if you're canny amd smart. Either way, you have some decent wealth there to consider and retirement isn't a rehearsal. Take a steer from people you trust and who are regulated to offer advice.

Have fun!

menousername

2,106 posts

141 months

Tuesday 15th July 2014
quotequote all
Jockman said:
BC - I currently pay 0.5% IFA charges on my SIPP. Ok the IFA is my uncle in Aberdeen but I still feel your current charges are excessive. You need to have a plan B - pm Ginge yes
what does this mean please..... does this mean you run a SIPP rather than pay fees to a pension manager etc

and you pay an IFA to manager / advise on your SIPP holdings and the SIPP charges plus the IFA charges come in less than a traditional pension, correct?

is this a good approach?

from the perspective of a ltd company, are the IFA charges deductable? complicated?

Jockman

17,912 posts

159 months

Tuesday 15th July 2014
quotequote all
menousername said:
Jockman said:
BC - I currently pay 0.5% IFA charges on my SIPP. Ok the IFA is my uncle in Aberdeen but I still feel your current charges are excessive. You need to have a plan B - pm Ginge yes
what does this mean please..... does this mean you run a SIPP rather than pay fees to a pension manager etc

and you pay an IFA to manager / advise on your SIPP holdings and the SIPP charges plus the IFA charges come in less than a traditional pension, correct?

is this a good approach?

from the perspective of a ltd company, are the IFA charges deductable? complicated?
Suffolk Life is the Pension Administrator - annual charge £618 + annual property charge £354.

IFA Advice charge (all dealings with SL on our behalf plus all investing on the Transact fund platform) - 0.5% pa.

All charges deducted from SIPP smile

Mr Trophy

6,808 posts

202 months

Tuesday 15th July 2014
quotequote all
Jock,

I thought Suffolk Life was 425 plus VAT?


Jockman

17,912 posts

159 months

Tuesday 15th July 2014
quotequote all
Mr Trophy said:
Jock,

I thought Suffolk Life was 425 plus VAT?
I have the 2014 Schedule of Fees in front of me - £515 + vat.

Robbing gits smile

Mr Trophy

6,808 posts

202 months

Tuesday 15th July 2014
quotequote all
Jockman said:
I have the 2014 Schedule of Fees in front of me - £515 + vat.

Robbing gits smile
You're right !

Just leave it under the mattress wink