Sterling ISA 4.75% charge

VictorMeldew · 4 June 2008 at 9:36PM

I've just read a previous thread about the higher charges that IFA's can charge with the Sterling/ Zurich ISA's. I started one of these about 3 years ago and want to withdraw my funds now (see my other thread below). I seem to remember signing someting to say I had to stay with the ISA for at least 4 years, otherwise I would have to pay the IFA's fee's that he would have otherwise have got from Sterling. Is this normal/legal? What would happen if I stop the ISA now?

DavidLaGuardia · 5 June 2008 at 8:16AM

The adviser's time and expertise can be paid for by a separate fee, or via commissions tken from the costs on a plan over a period of time. For example this migh be from the charge levied on regularr premiums over (in your case) 48 months. If cost of the advice is (for example) be £240 this may be achieved by collecting £5 of each of the 48 intial premiums. Stoppng after, say two years, would mean the adviser has only been paid £120.
Aside from a case of innapropriate advice, if the costs etc. were made clear to you at the start, you signed an agreement and you are invoiced for a fee to make up the difference owed to the adviser, then you are not being treated unfairly.

VictorMeldew · 5 June 2008 at 12:45PM

Thanks David for your advice. I agree that the adviser's time and expertise should be paid for, and in my case, I'm paying 4.75% commission to him on every payment I make. What my grumble is, is that it appears that he has specifically chosen the Sterling ISA because of the higher commission that he gets with this one particular ISA. If this had been made clear to me that I'd be paying him more for this ISA compared to others than I would definitely not gone ahead with it. Who would?

Could somebody please clarify for me what the differences are in charges for this ISA compared to others. I have a meeting with him this evening and want to be clear that what I am saying is correct.

DavidLaGuardia · 6 June 2008 at 6:16PM

Sorry that I was not able to reply in time for your meeting. Most ISAs have 3% commission on them driven from the fund's initial charge.
There is nothing wrong per se with an additional charge if the level of premium warrants it and the adviser is not being paid for anything else you are doing (as you would otherwise have to pay a fee upfront. However It sounds to me as if things were not made crystal clear to you which reflects badly on the adviser. I think this is an inherent problem in pure commission based advice. Over a long term I'd rather have a set fee for the advice and all the initial commision rebated.

jem16 · 6 June 2008 at 6:42PM

DavidLaGuardia wrote: »

Most ISAs have 3% commission on them driven from the fund's initial charge.

Which is really the normal maximum taken.

If the IFA only charges 1% then 2% of that commission would be rebated back into the ISA.

VictorMeldew · 6 June 2008 at 8:44PM

I think I may be paying an extra charge for one of the funds within my ISA also. In the documents of my ISA I found this amongst the reasons the IFA chose this ISA-

5. Yearly Charge & Fund Expenses : Threadneedle 1.81%

6. Charge : 4.00%, (reduced from 4.75% for a limited period) of each payment you make and 0.50% (plus VAT) each year of your account value up to £10,000. Subject to a min £25 each year (plus VAT)

Could there be any specific reason why my IFA chose this ISA other than the higher, and upfront commission?
Am I paying more overall for this ISA, or is it just that the adviser is getting a higher % (I'm not that bothered if this is the case - everyone wants to earn more money).
I asked him about the 4 year tie-in period that I signed and he said that they never enforce it (only once in 14 years), and if I left the ISA now I would not be charged.
From replies from other IFA's on here, it was suggested that Sterling ISA's are generally sold by greedy advisers. Is this a widely held opinion?

Sorry for all the questions, I am desperately tring to trust my adviser but am still having doubts.

dunstonh · 6 June 2008 at 9:26PM

Could there be any specific reason why my IFA chose this ISA other than the higher, and upfront commission?

Death guarantee possibly but thats only if you asked for it. Maybe he was an ex Zurich rep and was comfortable with Sterling.

Am I paying more overall for this ISA, or is it just that the adviser is getting a higher % (I'm not that bothered if this is the case - everyone wants to earn more money).

Both. You are paying more and adviser is getting more (than typical norm).

From replies from other IFA's on here, it was suggested that Sterling ISA's are generally sold by greedy advisers. Is this a widely held opinion?

I'm not sure many of the other regs would have experience of it. Sterling make their products available through the Zurich salesforce and IFAs. Its a very small player on the ISA front compared the others. The UK's biggest is Cofunds.

VictorMeldew · 6 June 2008 at 11:37PM

Thanks once again Dunstonh. At my meeting yesterday with my IFA, I asked him about the fees and why they were higher than the norm. He just showed me a long list of providers (I think from the Transact website) showing me that all providers have fees of around 4-5%. He also said that Sterling offered products 'across the board'. Also that he earns around 200k, and that the difference in the commission is immaterial to him. I couldn't really argue with any of this, not knowing enough about it.

I also told him that I was concerned about the four year tie-in period, and he said that they 'never' (once in 14 years apparently) enforce this, and that its only there to cover themselves against timewasters. He said that if I left the ISA now there would be no exit fees. He said that if I wanted to continue with him, he would move my ISA and my stakeholder pension to Transact as it's 'the way forward' (he said he was going to do this anyway, before I started questioning him). Presumably, if he had have done this, some of his fees from the Sterling ISA would be clawed back. If this is true then thats a very honest thing for him to be doing.

He was at first angry, and then genuinely upset that I was challenging his reasons for choosing the ISA (I certainly didn't ask/know about the death gaurantee btw), and I came away feeling a bit guilty. I said that I would try and research what he'd said and get back to him.

So what should I do? I'm aware that I am the only person who can decide, but I'd welcome the impressions of others based on what he said. I'm beginning to feel that maybe its just me being paranoid.

Also if I do cancel this ISA, how can I ensure that I'm not charged an exit fee (or should I just rely on his word)?

dunstonh · 7 June 2008 at 12:33AM

He just showed me a long list of providers (I think from the Transact website) showing me that all providers have fees of around 4-5%.

Personally, I prefer independent research and not provider produced. The assumption there is that all the providers have the adviser taking the typical norm commission. Plus, transact are one of the more expensive providers so its in their interest to show others using their maximums.

There is something that makes Sterling different from the adviser side. Not saying it has influenced your adviser but..... The other fund supermarkets pay typically 3% initial commission and 0.5% p.a. fund based trail. Sterling allow upto 6.25% initial commission with 0% trail. That option has no impact on the charges to you (as 4% plus 0.5% was the comparable option as far as charges go). So, the adviser, may decide that using Sterling pays then 6.25% upfront compared to 3% normal max with the others.

The biggest difference though with Sterling is that they will indemnify 3.5 years worth of commission and pay it up front whereas all the others pay as you go. So, a £250pm contribution with Sterling on max commission basis could pay £600 up front but with Cofunds or Fidelity (the big two) would pay £7.50pm on each contribution.

You mentioned comparison. Lets take Inv Perp funds for example. Most portfolios will contain at least one Inv Perp fund. Buy direct and you pay 5% initial charge. Buy using an IFA from Cofunds or Fidelity and you get a 2% discount to 3% and the IFA default is 3% commission. If IFA rebates 2% of that then the charge to you is 1%. With Sterling, the initial commission is 4% and the initial charge is 4.75%. So, with Cofunds or Fidelity you are paying a 3% initial charge on maximum but Sterling you are paying 4.75%. So, each contribution is costing you more plus you have that £25-£55 annual fee (which increases with NAEI annually).

Also that he earns around 200k, and that the difference in the commission is immaterial to him. I couldn't really argue with any of this, not knowing enough about it.

It doesnt matter what we earn. Many of us earn 6 digit incomes but its no measure of quality. Some of the greedy ones manage to do it with a lot less work because they take more. We used to have a multi-tied agent posting a few backs on these boards who was quite happy to take maximum commissions and do about 20 "sales" a year and earn over £100k.

So what should I do?

The adviser hasnt done anything wrong. So, its important from that point of view.

However, you need to decide if you feel you are getting value for money from the amounts you are paying. You also need to decide if the recommendation of Sterling was to your benefit or someone elses.

The seed of doubt in my mind is that why pick Sterling with only around 300 funds when you have Cofunds, Fidelity and Skandia/Selestia over the 1000 mark each. Cofunds and Fidelity and Skandia/Selestia also have lower charges for you. The death benefit option is not applicable and without that and with no discounting it doesnt look attractive to you as a consumer (higher commission paying products can be attractive when commission is being rebated as the rebates are bigger).

Also if I do cancel this ISA, how can I ensure that I'm not charged an exit fee (or should I just rely on his word)?

Can you email him asking for confirmation, in a casual manner slipped in with a few more questions. If he emails back then keep a copy of that and there is your evidence.

VictorMeldew · 8 June 2008 at 11:37PM

Thank you very much again Dunstonh for your help. I'm forming the conclusion that either my advisor chose Sterling for his own benefits rather than mine, or that he just wasn't aware of/didn't give me the cheaper alternatives. I doubt the latter very much.

Either way, I think I'm going to be changing advisers. I think I'll phone the FOS again, and tell them that my adviser has verbally confirmed to me that there would be no exit charges should I stop paying into the ISA now. (I've already phoned them just to register the case on the off chance that I want to proceed with a complaint). I will also try your idea of emailing him.

Thanks again, Damian

Sterling ISA 4.75% charge

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