When taking one (or more) pension funds into a drawdown arrangement the responsibility for managing that investment rests with you (or your adviser). You will need various tools and partners to help you manage your investment and each of these comes at a cost. It is therefore important to understand the makeup of your investment management fees and what does (and does not) represent good value.
Our research shows that typical costs (quoted as a percentage of fund value) for ongoing advised portfolios are circa 2.4% p.a. Although we have seen costs higher than 3% p.a. The cost or ongoing fees are generally made up of three parts; an investment management fee, a platform (or product) fee and an ongoing advice and support fee.
It is important that you establish the full cost of the offer and not just the ongoing advice fee and also what you will get for the money you pay. Not understanding the total costs can lead to you paying more without knowing it.
At The Pension Review Service we charge 1% p.a. for ongoing advice however the total cost of your ongoing investment and product provider (0.29% and 0.42% respectively) makes the overall charge typically 1.71% p.a. Contrast this with an Adviser fee of 0.5% p.a. Platform charge of 0.4% and investment charges of 1%. This produces an ongoing cost of 1.9% p.a.
It is for you to decide who you will pay your ongoing fees to however you only have the option to cancel one. If your adviser doesn’t fulfill their obligations to you then you have the power to stop their charge. The product provider and fund management charge will remain the same until you move to a cheaper fund or lower cost provider.
Are You Obtaining The Best Value?
It is important to consider value not cost. What does your Adviser deliver for their charge. If an Adviser never seeks to engage with you again once the pension transfer into drawdown is complete then that is obviously poor value.
Paying a little more for investment management if it results in your pension fund growing more than the industry average over the long term is money well spent. If you want to be monitor your investments on a regular basis and have access to all the reports and information you could ever wish for it may be worth paying a higher platform charge.
The problem is of course how can you judge when engaging an Adviser what level of ongoing advice and support you may receive. How do you know the investment management and platform services on offer meet your needs and are good value. How do you know that the investments recommended for you are the most appropriate for your needs.
Careful consideration before choosing an investment, platform and/or adviser is crucial. It is important to understand exactly what you are paying for an what you can expect moving forward. Ultimately, if a bad decision is made it is possible to change but (especially in the early years after sign up) there may be a cost.
There are concerns that potential commercial arrangements between fund managers, platform providers and advisers could potentially be to the detriment of the consumer. There are also concerns about the level of platform fees. The FCA has therefore commissioned a investment platform market study to consider these issues. A interim report is expected in summer 2018.
Should you want to check the level of investment management fees and support on your investments then please do not hesitate to get in touch on 0800 043 8341. Alternatively, complete the contact box below and we will call you. We have offices near Durham, in North Lincolnshire and in London and operate U.K wide.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance. This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action.