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[MSE Archna]

This thread is specifically to discuss the content of the

Do You Need Financial Advice? When To Get It, When Not To Get It Article

To discuss or ask a question about the article: click reply

[Chrismaths]

Just a quick note on the fees vs commissions debate - it is possible to get the best of both worlds.

The benefit of paying a commission rather than a fee is largely that fees are subject to VAT (costing you an extra 17.5%) where as commissions are not.

Simple solution - agree a fee with your IFA, and then pay it to him as a commission. So if you agree a fee of £500 +VAT on an investment of £50,000, get him to take a commission of 1% (£500) saving yourself £87.50.

I'll read through the rest of the article and see if there are any other bits to note.

[lisyloo]

Surely it depends on what length of time the commission is over (on pensions for example it could be paid for 40 years).

We took out an ISA a long time ago.
We paid £100 plus £17.50 VAT (1999 so will be more now) but we get serveral hundreds back each year in rebated commission.
As it's been 7 years now we are quid in.

I would suggest that the probably length of the contract needs to be considered in the equation as well as other factors.

[dunstonh]

On annuities, it has been noted in the pensions section on a few occassions and I have tested it as well, that IFAs can beat the companies you mention.

On investments, you have only mentioned the differences on areas to invest but you also have the tax wrappers to consider.

Getting a private pension these days is often a simple case of picking a stakeholder correctly

I arranged over 300 pensions transfer last year but less than 10% of them ended up in a stakeholder. The stakeholder product served its purpose on bringing charges down but it is becoming less desirable as more time passes (with exceptions). Indeed, if you have more than 20 years to go until retirement, you can get lower charges on a personal pension than a stakeholder. Plus a large number of personal pensions are identical to stakeholder when using stakeholder funds but also have access to the [often] better external funds.

Suggestions for adding would include a warning under the type of advisers section that people should avoid salesforces. Statistically, salesforces account for most mis-sales and complaints. They also work in an environment which is based on league tables and incentives.

Additionally, salesforce or employed advisers tend to get paid less commission so dont have the scope to rebate as much as the owner/partner/director firms. Two of the larger firms in Norfolk/Suffolk only pay their advisers 30% of the commission earned. 70% goes to the firm. So, they dont have much scope for rebating.

A final note, seeing as commissions were mentioned in the article, is that different IFAs will get paid different levels of commission for selling an identical product on exactly the same terms. So, consumers shouldnt focus on the commission but what they are charging. The FSA publish figures which show that IFAs do a lot of rebating of commission and the more commission earned, the more you can rebate or offset against charges.

[MortgageMamma]

Thanks Martin for a very useful and positive article - I'm sure this will help many people realise that professional financial advice needn't cost much if anything - and whilst its good to save money, its good that you emphasise that with larger commitments mistakes can be costly

[rgarrod1]

Where is the highest rate of interest to be found for a sum banked for 6 months

[Chrismaths]

Not relevent to this thread. Start your own, or better still, read martin's article, or the 3,000,000 other threads on this board asking the same question.

[feebasedadviser]

Good article Martin

i do think more can be said though. and this is something that the national media never pick up on.

there is another type of adviser (as you're probably aware), the Certified Financial Planner. this is through the Institute of Financial Planning http://www.financialplanning.org.uk and advisers MUST have the AFPC (now known as Diploma in Financial Planning). they then have to work through a case study and present a financial plan for marking by a practitioner. the emphasis is on the financial plan, which is geared around whatever the client's objectives are.

importantly, the client would pay a fee for all the analysis work, research, strategy and report. they now have a road map with recommendations. if they then want to implement the recommendations they can do this with the CFP adviser or any other adviser. there are only 600 CFPs in the UK at present but membership is growing. interestingly, the FSA regulate product sales, not an advice process. so, you could have a CFP who is non-regulated producing financial plans for clients (although they couldn't recommend products).

I think it would be useful for you to add the CFP adviser to your article. the public need to know that there are advisers out there that will help them create an individual financial plan, all geared around their objectives and the outcomes that the client wants WITHOUT the need to transact a financial product (i see many clients that should be cancelling products or investing less as they're more than on track towards whatever it is they want).

i appreciate not everyone will need the depth of the service offered by a CFP, but, as the saying goes, you don't know what you don't know!

keep up the good work!

[EdInvestor]

interestingly, the FSA regulate product sales, not an advice process.

Err, who told you that?

[Chrismaths]

It's true, but a bit of a semantic point. Advisers (CFPs, Investment Managers etc) in FSA-speak have to be able to demonstrate the suitablility of their product sales. The only way it is possible to do this is through documenting the advice process. So while FBA is technically correct, in reality the advice process is heavily regulated.

[feebasedadviser]

what i mean is if i ask you to complete an expenditure questionnaire and then produce cash flow forecasts for you etc without advising on products, THAT process is not regulated

[dunstonh]

Good job it isnt regulated as cashflow forecasts are inaccurate because there are so many variables.

In this day and age, you get sued when you arent spot on. I reckon it will rain tomorrow. It didnt. Oh dear, here come the claims companies now....

[whoosh]

Evening all,

I'm trying to help my mon-illiterate mother find a good IFA in Blackpool to help her invest a lump sum of just under £100k for income only. She's seen a few people already and received a smorgasbord of suggestions about which I've had some really useful feedback from forum members. I'm keen to help her find the right person (I live in London), but on meeting one or two of them on trips back home, I don't think she has seen very good people.

Can anyone on this forum give a general recommendation of an IFA based in the Blackpool or Fylde area (St Annes, Cleveleys etc)? Someone who knows what they're doing? The Yellow Pages trial-and-error method is pants.

If not, any idea where I might go, on-line or off? She has tried asking family friends but not had any good leads.

Cheers!

[fredpipes]

Hi
If I wanted to take out a mortgage or buy an ISA I could find a table of current rates and choose the best. When it comes to buying an annuity however, it seems I have to pay someone for 'advice'. I have a (smallish) pot to spend and looking at the calculators on the websites of the IFAs mentioned in Martin's article, all can do much better than the quote my pension company Standard Life has given me.

I naively thought that getting a quote from one of these IFAs would be like getting a quote from a plumber: I have a set sum to invest and want to get the highest possible annuity! But oh no, I have to commit to one of them, or pay fees (or let them take commision) not only to the one I choose, but to the ones I don't go with!

I am already annoyed that an IFA I spent 20 minutes with over 20 years ago has been earning commission ever since from a pretty random choice of pension provider (you should see his projections - pure fantasy as it turns out!) so I am not best pleased about having to part with more money to get the pittance an annuity wil provide! Any (free) advice out there?

fred

[dunstonh]

IFAs didnt exist 20 years ago. The term IFA came about in 1988 with polarisation (Clerical Medical take credit for inventing the term). Before then it was just unlicenced insurance brokers effectively.

Also, a pension from 20 years ago wouldnt pay trail commission so he wouldnt have earned anything from it after the sale unless there were ongoing contributions. In which case, it would have been around 0.5-1% of each contribution.

Inflation over the last 20 years has been quite significant so if you didnt increase your contributions in real terms to keep up with inflation, then you shouldnt expect to get the same size pot you were looking at back then.

I naively thought that getting a quote from one of these IFAs would be like getting a quote from a plumber: I have a set sum to invest and want to get the highest possible annuity! But oh no, I have to commit to one of them, or pay fees (or let them take commision) not only to the one I choose, but to the ones I don't go with!

Getting accurate annuity quotes comes at a cost. Unlike other product illustrations, you can only get real time annuity data if you pay for it. All these tables you see are based on snapshot data and assumptions and not sufficient to base a recommendation on. So, if you want to engage the services of an adviser on this front, I cannot blame them wanting to get a commitment from you when they are incurring costs.

I dont understand what you mean by paying the ones you dont go with as you dont.

Using your plumber example, it would be like asking a plumber to go out and buy the materials before you agree to the job.

[Chrismaths]

Look on the FSA website www.fsa.gov.uk/tables. Type in your details and you'll get a good idea of the best quote around. Then you can go forearmed to an IFA and do it on an "Execution only" basis - meaning you can negotiate with the IFA for a reduction in the commission s/he takes (as you have no legal comeback on him/he's given no advice). Commissions are around 1% of your pension pot (but some will get more if they do lots of business - at no extra cost to you). The bigger the pot, the more likely they are to negotiate (as it costs the same to set up in time terms irrespective of amount of money).

[dunstonh]

Do not rely on the FSA tables with annuities. I can tell you that if you get the top 5 from the tables, then get the top 5 real quotes, the order will be different and the amounts different.

Annuities data changes daily and the tables do not. Also, if you are going to go execution only will you need to tell the firm how you want the following (execution only prevents advice being given):
with or without proportion?
advance or in arrears?
level, 1%,2%,3%, LPI or RPI?
Single life, with 50% spouse, 66% spouse, 100% spouse?
no guarantee, 5 year guarantee, 10 year guarantee?
Will it be a smoker or non smoker annuity?
Will it be an ill health or clean health annuity (even high blood pressure or cholestoral can increase the payment)?
Will you want buy back on death?

The snapshot data used on tables just isnt reliable enough and buying an annuity is a once in a lifetime event. You cannot change it in the future. Once it is done, it is done for life. Get it wrong and you are stuffed.

[DannyC77]

Hi, apologies if this is not the right place to post this, I am a 30 yr old teacher with annual income of 30k, I have an unencumbered property worth £300k with an annual rental income of £13k, i also have £6k in cash isas with Abbey. I am looking into how i should invest this, and am a bit of a novice at this sort of thing, would it be worth me seeing an IFA to discuss options??

[dunstonh]

would it be worth me seeing an IFA to discuss options??

Depends on what options you want to discuss. Cash ISAs and buy to lets arent what you would see an IFA for. Unless you are looking to fund that capital gains tax bill on the buy to let property when you eventually sell up.

[hazel rabbit]

I have decided to choose an IFA because I am able to make initial decisions for myself but paralised when it comes to making changes a couple of years down the line. Any advice?
Hazel Rabbit