A financial adviser rip-off?
|Financial Advice | General
Asked by grumpy, submitted
17 January 2012.
Will I be dropping a clanger? Your opinion regarding the fees and charges related to the following pensions would be appreciated. I have today received a couple of pension illustrations from my IFA. I am 57 and self employed.
1) A contracted out Aegon pension fund from a previous employment, fund transfer value £12628.00
2) A non-contracted out pension fund with Phoenix, fund transfer value £19605.00.
The proposal is to transfer the fund from Phoenix and merge it with the original Aegon fund in a new Aegon fund.
For the contracted out part of the transfer there are no FA charges and a 1.8% annual fund management charge.
For the non-contracted out part there is a Financial Adviser charge of 5.5% and a 1.8% annual fund management charge.
It states that 'for arranging the plan we will pay your FA commission on the starting level of contribution of £1555.55 immediately and further commissions each year, assuming growth at mid rate this will be £167.22 at year 2 and £151.70 at age 65'
On top of this I am paying my IFA a one off fee of £305.00 for work done which includes finding out my projected state pension entitlement.
3) I am going to start (March 1st) a new pension in a multi manager fund with Aegon paying nett £600.00 per month. The Financial Adviser charge will be 50% a month of the built up fund for 12 months, and an annual fund management charge of 2.5%.
It states that my FA will receive £4725.00 immediately plus annual commission starting at approx £48.00 building to approx £242.00 at age 65.
I have yet to receive the 'cooling off' documents so not committed as yet.
Your impartial opinion would be appreciated, are these charges etc par for the course or am I going to pay over the odds.
Answered by Justin on 05 September 2012
Sorry for the very slow reply (rather a big backlog of questions), but yes it does look like you'll be dropping a clanger (I hope you changed you mind!). With charges this high and questionable advice the IFA is trying to take you for a very expensive ride.
It's hard to comment on the pension transfer advice without knowing more detail, but the annual fund charges look high (a stakeholder pension would probably be more suitable - but pay less commission to the IFA which is probably why they didn't recommend this option).
The IFA is effectively trying to pocket over £6,000 of your hard earned cash via sales commission for this advice (which you pay via product charges) and also has the cheek to try and charge a further £305 for a state pension projection you could obtain yourself via one phone call to the State Pension forecast Service on 0191 218 3600 or online here.
The Aegon pension the adviser is recommending is also quite poor and the fund management charge is excessive at 2.5%. As for the adviser receiving half your first year of contributions as commission - this is a throwback to the bad old days when pension mis-selling by snake oil salesmen was rife. I also doubt you'll receive any service in return for the ongoing commissions being paid.
Again, you'll very likely be far better off using a stakeholder pension (where there are no initial charges and annual charges are usually below 1%) or a low cost SIPP if you want a wider investment choice.
This is the type of adviser that gives the industry a bad name - the sooner they move on and stop ripping off the public the better.
Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific
investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if
necessary, use a qualified professional adviser.
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