Pension - what next?
Discussion
Hello,
I started a pension about 5 years ago (I'm now 35). I enlisted a local IFA at that time, and decided to start off hopefully on the right foot.
The IFA is now suggesting to switch a few things.
Old provider charge 0.9% Royal London / New provider Nucleus 0.35%
Old Fund Management 0.58% / New fund Management 0.8%
IFA charge 1% in both
The total savings are quite minimal now (2.48% old /vs 2.15% new).
I am wondering if I should bother?
I know this will not constitute advice but seems a hassle for a short gain in fee reduction?
The IFA provided the initial advice and charges 1% ongoing. For this, I don't feel like I get much value - an online risk tool each year and a plan recommendation - this is the first year in five that they have recommended a change. Wants to change to 7IM Moderately Adventurous Model portfolio.
I started a pension about 5 years ago (I'm now 35). I enlisted a local IFA at that time, and decided to start off hopefully on the right foot.
The IFA is now suggesting to switch a few things.
Old provider charge 0.9% Royal London / New provider Nucleus 0.35%
Old Fund Management 0.58% / New fund Management 0.8%
IFA charge 1% in both
The total savings are quite minimal now (2.48% old /vs 2.15% new).
I am wondering if I should bother?
I know this will not constitute advice but seems a hassle for a short gain in fee reduction?
The IFA provided the initial advice and charges 1% ongoing. For this, I don't feel like I get much value - an online risk tool each year and a plan recommendation - this is the first year in five that they have recommended a change. Wants to change to 7IM Moderately Adventurous Model portfolio.
Phleaser said:
The IFA provided the initial advice and charges 1% ongoing. For this, I don't feel like I get much value - an online risk tool each year and a plan recommendation - this is the first year in five that they have recommended a change. Wants to change to 7IM Moderately Adventurous Model portfolio.
I know what I would do.... but it depends I suppose on your portfolio size. Personally, I wouldn't pay 1% to the IFA, but maybe that is just me. Better to pay for any advice that you need. DibblyDobbler said:
Have you checked the Intelligent Money offering (pinned thread on this forum)? It's be a heck of a lot cheaper
This ^Work out how much your IFA's charge of 1% will cost you over the next 20/30 years (if of course you stuck with him for that period) - should be an eye opener if nothing else.
Fees are the only thing you really have control of at outset. Look on it as the law of marginal gains, every little helps. And what type of product do you need? A brokered mirror fund, a PP that you can fire and forget, or a SIPP?
Phleaser said:
Hello,
I started a pension about 5 years ago (I'm now 35). I enlisted a local IFA at that time, and decided to start off hopefully on the right foot.
The IFA is now suggesting to switch a few things.
Old provider charge 0.9% Royal London / New provider Nucleus 0.35%
Old Fund Management 0.58% / New fund Management 0.8%
IFA charge 1% in both
The total savings are quite minimal now (2.48% old /vs 2.15% new).
I am wondering if I should bother?
I know this will not constitute advice but seems a hassle for a short gain in fee reduction?
The IFA provided the initial advice and charges 1% ongoing. For this, I don't feel like I get much value - an online risk tool each year and a plan recommendation - this is the first year in five that they have recommended a change. Wants to change to 7IM Moderately Adventurous Model portfolio.
I started a pension about 5 years ago (I'm now 35). I enlisted a local IFA at that time, and decided to start off hopefully on the right foot.
The IFA is now suggesting to switch a few things.
Old provider charge 0.9% Royal London / New provider Nucleus 0.35%
Old Fund Management 0.58% / New fund Management 0.8%
IFA charge 1% in both
The total savings are quite minimal now (2.48% old /vs 2.15% new).
I am wondering if I should bother?
I know this will not constitute advice but seems a hassle for a short gain in fee reduction?
The IFA provided the initial advice and charges 1% ongoing. For this, I don't feel like I get much value - an online risk tool each year and a plan recommendation - this is the first year in five that they have recommended a change. Wants to change to 7IM Moderately Adventurous Model portfolio.
Ginge R said:
A brokered mirror fund...
I've been in and around investment for a while although I'm not entirely familiar with that expression. Let's see what Investopedia has to say,"An insurance provider will create a mirror fund to replicate the performance of a high-quality mutual fund. These mirror funds come as the investment options for a variable life insurance policy. The method allows policyholders to invest in mutual funds without the requirement of investing directly in the market. Also, the policyholder may avoid the minimum acceptable investment by accessing the fund through the insurance company's mirror fund."
Right, so the provider will want a fee for copying something else. No mention of broker. So let's see what Investopedia has to say about "broker",
"A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. A broker also refers to the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services."
Sounds to me like OP needs a "brokered mirror fund" like a hole in the head.
OP, would you mind taking a moment to look into the actual effect paying 1% in additional fees will have on your pension fund in 30 years? There are lots of online calculators that can show you how much more you would have if you paid, for example, 0.5% versus 1%. Please share your findings on this forum (if you’re happy to) so others in similar situations can become better informed.
Different people put different value on paying for things like financial advice or putting a shelf up. Some would never consider paying for one but would happily pay for the other. There is no right or wrong, but there is such a thing as too expensive. I don’t know the facts here but if this were a thread on putting up a shelf I would expect that shelf to be a hell of an awkward shelf to put up (and maintain for the next 30+ years).
If your retirement plans are not unduly complex then I would think you would be fine investing until retirement without the ‘help’ of an adviser charging 1% to d**k around with changing wrapper provider, platform provider, investment provider etc
There are few circumstances where a 1% fee for a 35 year old paying a regular sum into a pension is justified but they do exist so don’t do anything in haste based on my post. I’m happy for you to PM me to discuss in more detail and to allow me to explain the assumptions I’ve made in regard to my post. I’m not an IFA (although I am qualified) so have no agenda other than wanting to see an end to people getting ripped off (which you may not be).
Different people put different value on paying for things like financial advice or putting a shelf up. Some would never consider paying for one but would happily pay for the other. There is no right or wrong, but there is such a thing as too expensive. I don’t know the facts here but if this were a thread on putting up a shelf I would expect that shelf to be a hell of an awkward shelf to put up (and maintain for the next 30+ years).
If your retirement plans are not unduly complex then I would think you would be fine investing until retirement without the ‘help’ of an adviser charging 1% to d**k around with changing wrapper provider, platform provider, investment provider etc
There are few circumstances where a 1% fee for a 35 year old paying a regular sum into a pension is justified but they do exist so don’t do anything in haste based on my post. I’m happy for you to PM me to discuss in more detail and to allow me to explain the assumptions I’ve made in regard to my post. I’m not an IFA (although I am qualified) so have no agenda other than wanting to see an end to people getting ripped off (which you may not be).
Obviously I don't know the figures for the OP, but using round numbers a £100,000 investment with £1,000 a month additional contributions would be worth around £2m in 30 years time assuming an average annual return of 7% after fund charges.
Ad a 1% annual adviser the and this falls to £1.5m.
So the cost of 1% a year advice fees is c. £500,000.
It goes without saying that this is more money than you actually invested (£460,000) over the whole period.
I have also not factored into this any initial advice charges made on the lump sum or monthly contributions.
Of course, advices do not stop at retirement.
A further 20 years of drawdown from the £1.5m pot (I have assumed 4% drawdown and the same 7% average annual return after fund charges) at a 1% adviser fee would see and additional £470,000 of funds lost to the cost of advice.
So in this example more than double the amount you have invested over your lifetime is lost through a 1% annual advice fee (£30k shy of £1m).
The adviser must add some pretty bloody spectacular 'value' to warrant this and in my personal opinion that is simply impossible to do.
An analogy would be to spend £460,000 on a painting and then a further £1m on the frame.
As this is likely to be of interest to people I will post some more examples and combinations on the Intelligent Money thread today.
Ad a 1% annual adviser the and this falls to £1.5m.
So the cost of 1% a year advice fees is c. £500,000.
It goes without saying that this is more money than you actually invested (£460,000) over the whole period.
I have also not factored into this any initial advice charges made on the lump sum or monthly contributions.
Of course, advices do not stop at retirement.
A further 20 years of drawdown from the £1.5m pot (I have assumed 4% drawdown and the same 7% average annual return after fund charges) at a 1% adviser fee would see and additional £470,000 of funds lost to the cost of advice.
So in this example more than double the amount you have invested over your lifetime is lost through a 1% annual advice fee (£30k shy of £1m).
The adviser must add some pretty bloody spectacular 'value' to warrant this and in my personal opinion that is simply impossible to do.
An analogy would be to spend £460,000 on a painting and then a further £1m on the frame.
As this is likely to be of interest to people I will post some more examples and combinations on the Intelligent Money thread today.
JulianPH said:
Obviously I don't know the figures for the OP, but using round numbers a £100,000 investment with £1,000 a month additional contributions would be worth around £2m in 30 years time assuming an average annual return of 7% after fund charges.
Ad a 1% annual adviser the and this falls to £1.5m.
So the cost of 1% a year advice fees is c. £500,000.
It goes without saying that this is more money than you actually invested (£460,000) over the whole period.
I have also not factored into this any initial advice charges made on the lump sum or monthly contributions.
Of course, advices do not stop at retirement.
A further 20 years of drawdown from the £1.5m pot (I have assumed 4% drawdown and the same 7% average annual return after fund charges) at a 1% adviser fee would see and additional £470,000 of funds lost to the cost of advice.
So in this example more than double the amount you have invested over your lifetime is lost through a 1% annual advice fee (£30k shy of £1m).
The adviser must add some pretty bloody spectacular 'value' to warrant this and in my personal opinion that is simply impossible to do.
An analogy would be to spend £460,000 on a painting and then a further £1m on the frame.
As this is likely to be of interest to people I will post some more examples and combinations on the Intelligent Money thread today.
I think if you are going to do this it's worth doing it for a number of case studies using actual data.Ad a 1% annual adviser the and this falls to £1.5m.
So the cost of 1% a year advice fees is c. £500,000.
It goes without saying that this is more money than you actually invested (£460,000) over the whole period.
I have also not factored into this any initial advice charges made on the lump sum or monthly contributions.
Of course, advices do not stop at retirement.
A further 20 years of drawdown from the £1.5m pot (I have assumed 4% drawdown and the same 7% average annual return after fund charges) at a 1% adviser fee would see and additional £470,000 of funds lost to the cost of advice.
So in this example more than double the amount you have invested over your lifetime is lost through a 1% annual advice fee (£30k shy of £1m).
The adviser must add some pretty bloody spectacular 'value' to warrant this and in my personal opinion that is simply impossible to do.
An analogy would be to spend £460,000 on a painting and then a further £1m on the frame.
As this is likely to be of interest to people I will post some more examples and combinations on the Intelligent Money thread today.
If we assume, for arguments sake, the perfect portfolio is a mix of global equities and bonds, and our perfect DIY investor buys this, accepting some slippage and costs, lets assume he underperforms the perfect portfolio by 30bps pa (which includes a simple low cost platform). Let’s call him investor 1.
https://finalytiq.co.uk/power-brainless-portfolio/
https://finalytiq.co.uk/standard-life-myfolio-vs-b...
Investor 2 holds the same portfolio as the above but suffers from typical DIY investor behaviour, panicking when the market falls, taking on too much or too little risk. He trails the perfect portfolio/investor by xxx
https://www.thinkadvisor.com/2019/04/10/bad-behavi...
Investor 3 is similar to the O/P, paying a total of 2.5% to a traditional financial adviser. Assuming his funds after costs trail the perfect portfolio, he is underwater by xxx. Hopefully the adviser keeps him on track during volatile times, but we can address that in value added in a separate chat.
4. Investor 4 takes an offering such as yours - taking into account your fees, DFM performance (risk/return and drawdown vs perfect portfolio) and investor behaviour, the relative performance would be xxx
Happy to discuss xxx in all cases - I think it's too simplistic to simply say an adviser charges 1% a year in isolation and say that's how much he is underperforming the market by - it's more nuanced IMO.
Derek Chevalier said:
I think it's too simplistic to simply say an adviser charges 1% a year in isolation and say that's how much he is underperforming the market by - it's more nuanced IMO.
I was simply addressing the question as DeuceDeuce asked it.Whilst the other points you raise have their own significance, they do not detract from the costs of a 1% annual advice fee.
I think we are both in agreement that financial planning is the important factor, rather than product recommendation.
In my experience there are two types of financial adviser. The small minority (in which I class you) who focus on financial planning and adding value.
Then you have the vast majority who focus primarily on transactions (the recommendation to buy or sell something) rather than adding value through strong and robust financial planning.
Like you, our Private Client Manager's focus is on financial planning. Our investments are plain to see and compare with other approaches available and we put people in the position whereby they are informed enough to make their own decisions on which investments are best suited to their needs (be that with us, or with another investment manager).
I think the problem for transactional financial advisers is that if they gave their clients all of the information, guidance, education and knowledge that we (and I assume you) impart to our clients, then they fear they would lose the ability to charge initial and ongoing transactional fees as the client has become empowered enough to make their own decisions.
I have an interesting report (you might have been the person who directed me to it!) that assessed the value delivered by 4 different mediums; Financial Planners, Transactional Financial Advisers, friends & family, and the internet.
Financial Planners came out on top in terms of adding value and Transactional Financial Advisers at the bottom...
JulianPH said:
Derek Chevalier said:
I think it's too simplistic to simply say an adviser charges 1% a year in isolation and say that's how much he is underperforming the market by - it's more nuanced IMO.
I was simply addressing the question as DeuceDeuce asked it.Whilst the other points you raise have their own significance, they do not detract from the costs of a 1% annual advice fee.
I think we are both in agreement that financial planning is the important factor, rather than product recommendation.
In my experience there are two types of financial adviser. The small minority (in which I class you) who focus on financial planning and adding value.
Then you have the vast majority who focus primarily on transactions (the recommendation to buy or sell something) rather than adding value through strong and robust financial planning.
Like you, our Private Client Manager's focus is on financial planning. Our investments are plain to see and compare with other approaches available and we put people in the position whereby they are informed enough to make their own decisions on which investments are best suited to their needs (be that with us, or with another investment manager).
I think the problem for transactional financial advisers is that if they gave their clients all of the information, guidance, education and knowledge that we (and I assume you) impart to our clients, then they fear they would lose the ability to charge initial and ongoing transactional fees as the client has become empowered enough to make their own decisions.
I have an interesting report (you might have been the person who directed me to it!) that assessed the value delivered by 4 different mediums; Financial Planners, Transactional Financial Advisers, friends & family, and the internet.
Financial Planners came out on top in terms of adding value and Transactional Financial Advisers at the bottom...
JulianPH said:
So my basic message is that you need to be certain you are receiving some pretty stupendous 'value' for such fees (I doubt you are though).
If, for his 1% a year, all the adviser does is keep the client invested in the boring global portfolio, thereby keeping him clear of investment/fund manager underperformance and his own underperformance due to typical DIY behaviour, this is easily worth 1% a year based on the evidence I have presented.+1. As you’ll soon be tested on..
One freebie almost worth its weight in gold is the quarterly JPM market review. Check out the two shots from the latest copy. Behavioural Finance was the FCA’s first paper, if I remember correctly. I’m totally against the life coach nonsense we see permeating, but understanding bias and behavioural finance is such an important role for us. It’s not up to me to suggest which is better, to pay a little extra for long term counsel or slightly less for ‘investment management’, but to label it so dogmatically and prescriptively is flawed.
What op chooses will depend on his (presumably) needs wishes and feelings. And they are unique to us all.
One freebie almost worth its weight in gold is the quarterly JPM market review. Check out the two shots from the latest copy. Behavioural Finance was the FCA’s first paper, if I remember correctly. I’m totally against the life coach nonsense we see permeating, but understanding bias and behavioural finance is such an important role for us. It’s not up to me to suggest which is better, to pay a little extra for long term counsel or slightly less for ‘investment management’, but to label it so dogmatically and prescriptively is flawed.
What op chooses will depend on his (presumably) needs wishes and feelings. And they are unique to us all.
In contrast to the OP, the bulk of my pension is currently with Royal London and I couldn't be happier - I don't think anyone could do better for cheaper. The pension is a reasonable size and I moved it from my former company's platform precisely because the fees on that were high. After taking advice from an (excellent) IFA I settled on RL in one of their Governed Portfolios. The base fee after the size discounts for the portfolio is 35bps. However RL being a mutual has a profit share which has just refunded me 18bps. So the overall cost is just 17bps, which seems like extraordinarily good value (and the performance is pretty good too) - sub-Vanguard levels for an actively managed portfolio. I am sure the IM offering is excellent but as I am suspect Julian and others would be the first to admit, 70bps of fee drag (if I have understood correctly they charge 0.87% but it may be less as portfolios get bigger) is quite a lot to make up over a long time.
Glad you found an IFA able to make such a good call..
Your point is a very well made one. Even a pot that only costs 0.45% offers great value when the divi is taken into account. It won’t always be 0.18% of course, and I think it’s capped at 0.25%. But still, as you say, great value. Phil Loney is a great CEO too, I have a lot of time for him. Shame he’s moving on.
Your point is a very well made one. Even a pot that only costs 0.45% offers great value when the divi is taken into account. It won’t always be 0.18% of course, and I think it’s capped at 0.25%. But still, as you say, great value. Phil Loney is a great CEO too, I have a lot of time for him. Shame he’s moving on.
williaa68 said:
The base fee after the size discounts for the portfolio is 35bps. However RL being a mutual has a profit share which has just refunded me 18bps.
That does seem extremely good value. The published TER fees for RL seem to be 1% for their various 'Governed Portfolios'.I know many providers will discount from the published rates, but you seem to have obtained a substantial discount. You mention you secured a size discount - do you mind me asking the rough size of your pot?
williaa68 said:
In contrast to the OP, the bulk of my pension is currently with Royal London and I couldn't be happier - I don't think anyone could do better for cheaper. The pension is a reasonable size and I moved it from my former company's platform precisely because the fees on that were high. After taking advice from an (excellent) IFA I settled on RL in one of their Governed Portfolios. The base fee after the size discounts for the portfolio is 35bps. However RL being a mutual has a profit share which has just refunded me 18bps. So the overall cost is just 17bps, which seems like extraordinarily good value (and the performance is pretty good too) - sub-Vanguard levels for an actively managed portfolio. I am sure the IM offering is excellent but as I am suspect Julian and others would be the first to admit, 70bps of fee drag (if I have understood correctly they charge 0.87% but it may be less as portfolios get bigger) is quite a lot to make up over a long time.
hi willif you dont mind the question what gp have you plumped for and how has it performed for you?
EddieSteadyGo said:
That does seem extremely good value. The published TER fees for RL seem to be 1% for their various 'Governed Portfolios'.
I know many providers will discount from the published rates, but you seem to have obtained a substantial discount. You mention you secured a size discount - do you mind me asking the rough size of your pot?
This might help. (Added fot)I know many providers will discount from the published rates, but you seem to have obtained a substantial discount. You mention you secured a size discount - do you mind me asking the rough size of your pot?
https://adviser.royallondon.com/globalassets/docs/...
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