Can I ditch my useless financial adviser…? Veteran money expert @henryhtapper explains how to negotiate a break-up if you pay chunky fees every year for bad service https://t.co/Tk9gQ6UsMg
— Tanya Jefferies (@Tanya_Jefferies) February 17, 2023
A user of the This is Money website asks;
A few years ago I employed a financial adviser to consolidate all my company pensions, and my personal pension, into one pension.
They advised I get a plan with a big, well-known pension firm.
Since signing up for the plan, I now pay a percentage of the value in fees to the financial adviser each year and I don’t feel I’m getting value for money.
Basically I have an annual review where they advise not to do anything with the pension.
Do I have to have a financial adviser or am I allowed to manage my pension myself?
Tanya Jefferies, of This is Money, replies:
“We often receive questions from readers who got good service from a financial adviser when they set up a pension arrangement, but don’t want to carry on paying chunky annual fees in exchange for little to nothing for the rest of their lives.
Advisers can usually justify their initial fees for set-up work, particularly when someone retires and wants a suitable investment portfolio and income drawdown plan created from scratch.
But they should work to keep your business and keep providing value for money and personal help if they expect to keep charging an ongoing percentage of your pension for many years to come. Our pensions columnist, Steve Webb, previously gave advice on this topic to a reader here.
There are pros and cons to getting initial financial advice about a pension – when frankly, it can be invaluable, especially in dodging unknown pitfalls – then looking after your own investments from then on.
You need to weigh this carefully, because a good adviser should keep you up to date on important changes to legislation, investment risks, how much income to take, tax rules and so on, all of which will change over time.
But if you think you might want help only at the outset, or to walk away at some point in the future, or to switch to another adviser, it is best to avoid a lengthy contract with a financial advice firm, or placing your pension pot in their tied, or white-labelled, in-house investment funds and platforms”
Instead, try to find a firm which will use funds and an investing platform that are readily available to all DIY customers, and to other advisers as well in case you decide to switch later on.
To answer your question, and explain how to leave your financial adviser amicably if you wish to do so, we asked influential industry veteran Henry Tapper to respond below.
Henry Tapper is a financial adviser and founder of the Pension Playpen professional network and AgeWage, which analyses the value for money of pensions. He replies:
Marriages usually start well but sometimes end badly.
People are often impressed by first meetings with financial advisers only to find the ongoing relationship doesn’t work out. This sounds like what’s happened here.
There’s nothing wrong with charging fees from your pot, but advisers are required to offer fair value and their regulator (the Financial Conduct Authority) is currently investigating the value of this advice.
Advisory fees are ‘bundled’ into management costs and according to financial services firm EY, you can expect to pay a total fee of 2 per cent to 3.5 per cent for investment and advice.
That means £2,000 to £3,500 each year for every £100,000 in the pension pot.
This can severely restrict the amount you draw as an income and reduce the growth if you’re rolling your pot up.
You may conclude that you are not getting value for your money and decide to end your relationship with your adviser. But walking away can be daunting.
Many people took financial advice to combine pots (as happened here).
This is sensible and if your pots have guarantees in them, advice may be compulsory. But once that advice is paid for, there’s no ongoing requirement to take or pay for ongoing advice.
Many people stay with an adviser because they feel they are trapped – they shouldn’t.
But you are bound by the terms of your contract, even if that means having to pay to walk away.
Some contracts, such as those with St James’s Place, have walk-away penalties for up to six years and most require a certain amount of notice. (SJP has very high customer satisfaction ratings, so exit penalties do not necessarily mean bad service.)
If you have bad service and an exit penalty; you can appeal to the Financial Ombudsman though you should negotiate with your adviser and exhaust their complaints process before you do.
Some people don’t feel empowered to walk away and here I can help with a four-point plan.
Four steps to part ways with your financial adviser
- Review your contract and follow the advice above.
Decide what you’re going to do next. Don’t cash in your pension pot like a muppet – have your next steps in place before giving notice.
Make sure you have a copy of your investment records. Disputes shouldn’t happen, but make sure you have all due information.
Announce your intention cleanly and fairly. The end of your relationship need not be acrimonious. I find a simple factual approach easiest. Here’s a template.
I have decided that I no longer want your advice on my pension money and wish to resign my contract from xx/mm/yy.
I appreciate the work you have done for me, but I consider that there are better options available to me elsewhere.
I will send you instructions on where I want the proceeds of my investments through your office to transfer.
I would be grateful if you would acknowledge this letter. I thank you in advance for your co-operation.
As with a matrimonial divorce, the hardest of the four steps may be working out what to do next.
You may want to move to another adviser, or you may prefer to manage your affairs yourself (you’ll be seen as ‘non-advised’). This means you have less protection if things go wrong but lower fees.
Most of the ‘non-advised’ Self-Invested Personal Pensions (Sipps) offer fees well below 1 per cent a year and some a fraction of that. Leading providers include Fidelity, Hargreaves Lansdown, AJ Bell, Interactive Investor and PensionBee. You can search out many more.
This may be a good time to look at alternatives to drawdown, and you might want to talk to an annuity broker to lock into guaranteed rates.
You’ll get help in moving your money to a new Sipp.
Make sure that your personal details are recorded correctly by your new Sipp firm and your existing provider to avoid delays. This should take between one and 10 weeks.
If you are moving to another adviser, you should expect their help in managing the risks of being out of the market and of overpaying transaction fees.
There are costs of leaving a financial adviser and of moving money so be sure before you write that letter. It is better to mend a marriage than break one.
There are people who think that activity means “added value”, and if the financial planner has less activity, they think he is paid for nothing.
The financial planner is there to hold someones hand, not for activity and trading. Those do not add value.
DIY investors do so bad, it could be seen in the high profits that Hargreave Landsdowne makes. Around 30% of the total assets are in cash, the only one to make a profit from this situation is the provider.