Reclaim commission and look after pension and ISA myself?
|Retirement | Investment Choice
Asked by BillN, submitted
10 January 2013.
Your website is invaluable to a novice such as I, long may it continue.
Now that RDR is here, I'm thinking of moving my investments and kicking my IFA into touch, so I would be grateful for your comments on the following scenario.
I currently have three ISAs collectively worth £23K on Fidelity Funds Network, and a Pension Portfolio of £100K with Scottish Life.
My advisor pockets 0.5% per year commission on both ISA and pension.
I monitor my investments constantly, and consider that I could produce better results by doing it myself now that I'm retired, though I admit I'm a novice.
I'm looking at Interactive Investor or Sippdeal as the platform, and looking to invest in investment trusts rather than unit trusts or pension funds.
My investment horizon is 20 years, but I will want to enter into capped drawdown within the next 2-4 years, before I am 70. My wife is 10 years younger than I, and I would want her to inherit my pension pot when the grim reaper calls for me.
Q1. Does trail commission stop when investments are transferred to another platform?
Q2. If I transfer the three ISAs without converting into cash first, as an in specie transfer, does the trail commission to my IFA stop?
Q3. What is your opinion of Interactive Investor and Sippdeal?
Q4. Should I worry about buying investment trusts at a premium?
Answered by Justin on 24 January 2013
Glad to see you taking an active interest in your investments. Assuming you're happy looking after your own financial affairs then yes, you can avoid the trail commission moving forwards. Before I answer your specific questions, a few points to bear in mind.
Scottish Life might levy a penalty if you transfer the pension which, depending on the amount, may influence your decision. Certainly worth checking how much this would be, if applicable, assuming you haven't already.
I wouldn't dismiss unit trusts out of hand. They've often looked more expensive than investment trusts in the past due to unit trusts building sales commissions into their charges. But with RDR prompting the issue of 'clean' unit trust classes and some fund platforms/discount brokers rebating all commissions where still paid, there's generally little difference now (on new investments at least). Investment trusts can borrow money to 'gear' returns and you may benefit or lose from the share price varying from actual underlying value - you might see these as advantages. But on balance I'd pick investments on their merits rather than focus on one specific genre.
As for drawdown, you can certainly do this without an adviser, just keep a close eye on income withdrawals and risk/performance to reduce the chances of your port running dry too soon. Your wife can inherit what's left of your pension under current rules, either taking taxable income or withdrawing a lump sum subject to a 55% tax charge.
On to your questions:
1. Yes. Commission can no longer be paid where advice is given in any case. But if you make the decision yourself (called 'execution-only') then commission can still be paid - if the new platform or discount broker you transact through receives any commission they might rebate some/all of to you depending on their deal.
2. Yes, same as above. Because the provider/platform changes, any arrangements with the IFA will automatically cease.
3. Both Interactive Investor and Sippdeal are sensible platforms, generally offering good value if you want to hold investment trusts. Bestinvest might also be worth a look if you want more in the way of tools and research. Their unit trust rebates aren't usually as high as Interactive Investor, but this won't matter if you only hold investment trusts. I've just launched a fund platform comparison tool at www.comparefundplatforms.com which you might find useful.
4. If it's more than a few percent then arguably yes. You don't want to buy at a 10% premium only to see it slip to a 10% discount over the course of a few years, that's an 18% loss ignoring underlying investment returns. Of course, if a premium remains as high, if not higher, then no problem. These things are hard to predict, but nevertheless, high premiums are obviously caused by high demand, so it's worth trying to understand what's driving the demand - great prospects or hot air?
Hope this helps and good luck!