Transfer charges on ISA

ChrisMeech · 30 October 2010 at 12:18AM

We used a financial advisor earlier this year to transfer ISAs - cash and stocks and shares from Santander to Sterling. Have (belatedly) been looking through the paperwork.

The income yield is 2.08%. On a transfer payment of £18300 Sterling took 4%, they paid commission of £1303,87 to the advisor and it says 'any payments to your adviser will be paid out of, and are not additional to, the ISA charges.' There is a yearly charge of .5% + VAT up to a max of £56 + VAT.

On a single payment of £10,200 into a stocks and shares ISA the commission paid was £726.75.

We also set up an £850 a month payment for which the commission was £2052 immediately and after 5 years £36 every month for the regular payment. As it happens we cancelled the £850 payments after the first month because husband lost his job.

My husband did the same as me (slightly less money).

We are obviously not very good at this which is why we used the FA. However it seems obvious that he had a huge incentive to sell us this package. Or are we just naive and this is a reasonable amount to have lost? What do we do now??? We haven't used all our allowance for the year but don't want the FA to get any more of our money as he's had 7k already can we deal with Sterling direct and pay less commission.

Any advice will be very much appreciated.

xrjtg · 30 October 2010 at 11:52AM

Transferring away from Santander was probably sensible, but the charges seem horrific. Sterling may be a step in the right direction, but I don't think it was far enough.

As an illustration, Hargreaves Lansdown, a popular discount broker, will receive transfers free of charge, rebate all or almost all of the initial charges on funds, carry a wider choice of investments and don't charge any annual fee on ISA holdings (in fact, they will typically pay you 0.25% a year on the funds you hold as part of the trail commission they receive from fund managers). If you use them as a discount broker then you are not getting any advice, so they're not directly comparable to your situation, but you might best be served by putting in the time to learn enough about unit trust investing to handle things yourself.

When you say financial advisor, was that an independent financial advisor, or a tied sales rep?

dunstonh · 30 October 2010 at 12:47PM

However it seems obvious that he had a huge incentive to sell us this package.

Its certainly expensive. Indeed, its full commission basis. However, the investment options within Sterling are certainly better than those of Santander. So, it was a case of one step backwards to take two forward. You could have got cheaper if you had shopped around. Although your value is quite low and doesnt really allow a lot for much discounting under an advice process. i think the best you could have got was around £500 charge.

The use of Sterling is a strange one unless you saw a tied rep of Zurich. I only tend to use them when you want the protected profits fund or the death guarantee.

Rob_192 · 1 November 2010 at 10:52AM

ChrisMeech wrote: »

Have (belatedly) been looking through the paperwork.

Forgive me saying it, but this was your mistake. Why didn't you enquire about the charges before doing this.

I also transfered some Isa's earlier this year from Fidelity to Hargraves Lansdown and minimising the charges were the major issue for me.

ChrisMeech · 1 November 2010 at 11:52AM

Rob_192 wrote: »

Forgive me saying it, but this was your mistake. Why didn't you enquire about the charges before doing this.

I also transfered some Isa's earlier this year from Fidelity to Hargraves Lansdown and minimising the charges were the major issue for me.

Forgive me for saying it Rob 192 but what exactly was the point of your reply to my post? If your intention was to tell me I'm an idiot you didn't need to I already know that. Or was it that you wanted the world to know that you're cleverer than me? If so you may be clever but you're not a very pleasant person.

ChrisMeech · 1 November 2010 at 11:54AM

He's independent as far as I know.

jimjames · 1 November 2010 at 1:51PM

To say I'm both shocked and amazed would be an understatement. This appears to validate my distrust of advisers and that the days of extreme commission payments are far from over. The work associated with a transfer of this size would seem to be minimal and is something that HL for example do for free.

To have been charged what appears to be £4000 commission on transferring an £18000 investment which included cash seems to be an unbelievable example of overcharging. I would suggest that even though the Santander product is poor, with these charges there would be no justification in moving your ISA across. To make the ISA back up to the value you had in Santander it will need to grow by 30% just to stand still. Also bear in mind that commission taken at the start of an investment has much more impact than commission taken later on hence the trap of pensions where the majority of the early payments were used as advisor commission.

The likelihood of this kind of outperformance being maintained over a long period is fairly small if you are in the same risk funds.

I don't know the standard commission rates for this kind of transfer but on the face of it this sounds to be excessive. Dunstonh may be able to suggest what would be a reasonable rate to move an ISA from one provider to another but over 20% charge to do so seems way over the top.

Andy

dunstonh · 1 November 2010 at 5:00PM

This appears to validate my distrust of advisers and that the days of extreme commission payments are far from over. The work associated with a transfer of this size would seem to be minimal and is something that HL for example do for free.

Its not minimal. Its about 6 hours approx. HL dont do it for free either. They only rebate some of the trail commission. Sterling can indemnify about 4 years worth of trail and pay it to the adviser up front instead of on drip.

To have been charged what appears to be £4000 commission on transferring an £18000 investment which included cash seems to be an unbelievable example of overcharging.

Dont mix up charges and commission. They are not the same things.

To make the ISA back up to the value you had in Santander it will need to grow by 30% just to stand still.

That is based on an incorrect assumption though.

As I said, this one is expensive but the figures would be indemnity rather than explicit.

I don't know the standard commission rates for this kind of transfer but on the face of it this sounds to be excessive. Dunstonh may be able to suggest what would be a reasonable rate to move an ISA from one provider to another but over 20% charge to do so seems way over the top.

Personally, I rarely charge anything on transfers unless the pot is only made up of ISAs. Then its around 1% with a cap which would depend on the size of the pot (typically between £1000-1500). I would say thats fairly similar to what you would expect on fee basis.

On new money, the typical maximum is around 3%. The FSA recorded the average around 1.8%.

ChrisMeech · 1 November 2010 at 8:48PM

The figures I gave in my original post were an example of one of the transfers. Just so nobody comes to blows the actual full figures are as follows:
On various transfers from me and husband totaling £51,638.79 the initial charge was £2059.85 - as I said 4%.

The adviser on these transfers got - in commission - £5700 which was paid to him 'immediately'

On the £850 a month payment which we both set up the immediate payment to the adviser was £2052 (each) 'immediately and after 5 yrs £36.56 a month. As I said previously only one of these payments went in because husband lost his job.

We personally didn't directly pay the adviser anything.

JimJames has, I think, combined the charges and the commission when he says 'To make the ISA back up to the value you had in Santander it will need to grow by 30% just to stand still.' However, we think it will certainly take a year if we're lucky and bearing in mind that the adviser knew that we weren't looking for longterm investment (both planning on packing up work within 2 years) still think we were ill advised.

Many people, including R!!!92, will no doubt be amazed that we were so gullible but the adviser was recommended by a friend, had organised a mortgage for us efficiently and we LIKED AND TRUSTED HIM!!!! You're never too old to learn I suppose and we have certainly learned an expensive lesson.

dunstonh · 1 November 2010 at 9:34PM

The figures I gave in my original post were an example of one of the transfers. Just so nobody comes to blows the actual full figures are as follows:
On various transfers from me and husband totaling £51,638.79 the initial charge was £2059.85 - as I said 4%.

The adviser on these transfers got - in commission - £5700 which was paid to him 'immediately'

No-one is coming to blows!!!

That just confirms that the charge and the commission are not the same thing. Funds pay a "trail" commission over the years to the servicing IFA/FA. What sterling offer for advisers on a transactional model is to take some of that trail commission up front in exchange for never getting any thereafter. So, your investment isnt reduced by the the £5700 but by the £2059. The difference is Sterling lending the adviser the money up front and then taking it back from you from the retail annual charge over the years (e.g. the charge isnt increased to pay for it. You are paying the recommended retail charge (or annual management charge is its more commonly known).

JimJames has, I think, combined the charges and the commission when he says 'To make the ISA back up to the value you had in Santander it will need to grow by 30% just to stand still.' However, we think it will certainly take a year if we're lucky and bearing in mind that the adviser knew that we weren't looking for longterm investment (both planning on packing up work within 2 years) still think we were ill advised.

Its not 30%. You suffer an immediate drop of 4%. You need to recover that to stand still. Given the choice of the funds available from Sterling (even though its not my personal first choice), I would take those over Santander funds any time. Although you havent actually mentioned the funds anywhere in this thread and in reality, they are the most important thing.

Many people, including R!!!92, will no doubt be amazed that we were so gullible but the adviser was recommended by a friend, had organised a mortgage for us efficiently and we LIKED AND TRUSTED HIM!!!! You're never too old to learn I suppose and we have certainly learned an expensive lesson.

The advice isnt actually bad (Based on what you have said). Its just that you have paid more than you could have if you had shopped around or even agreed on fee basis. Or you may have even got this adviser, who you liked, to lower their commission/charge.

feesarefare · 2 November 2010 at 5:39PM

dunstonh wrote: »

same thing. Funds pay a "trail" commission over the years to the servicing IFA/FA. What sterling offer for advisers on a transactional model is to take some of that trail commission up front in exchange for never getting any thereafter

No its not. They dont give up the trail, the adviser gives up nothing - its indemnified initial £850 X 4% X 60 months =£2040!

The advice isnt actually bad

No its bloody awful- Sterling exists for commission hungry salesman - im trying to understand why another IFA would try and justify this.

(

Based on what you have said). Its just that you have paid more than you could have if you had shopped around or even agreed on fee basis

I thought the IFA did the shopping around on behalf of the client?

. Or you may have even got this adviser, who you liked

"Liked" being the operative word!

Transfer charges on ISA

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