How does an IFA earn money?

artha

This may seem a naive question but I've previously had the services(via my company at no cost to me or the company) of a reputable IFA.

The particular IFA gave me advice 14 years ago about investing in our company group AVC sceme which has now proven to be very poor given the current situation. Of course he did not know that 14 years on we would be in this state.

I saw him about 4 years ago when I was considering retiring and told me that AVCs were a waste of time - why did he give me this advice originally and why did he come to see me when there was no business to be had?

Is it a case of 10 people seen and 1 provides business?

I don't believe you get something for nothing nor do I expect it but in this case I don't understand why someone would travel 50 miles for my benefit

Lokolo

Well obviously IFAs are paid commision, the better you do, the more likely you are to pump more money in, the more money he then gets. So yes it is slightly performance based.

Same as if, he puts 50 miles of effort in, you think oh he must be dedicated, and you feel more comfortable in putting more money (also adding to his pay).

Obivously with the Stock Market things don't always go as you seem.

And this thing you have been investing over 14 years - how much have you put in and whats its value?

artha

Lokolo wrote: »

Well obviously IFAs are paid commision, the better you do, the more likely you are to pump more money in, the more money he then gets. So yes it is slightly performance based.

Same as if, he puts 50 miles of effort in, you think oh he must be dedicated, and you feel more comfortable in putting more money (also adding to his pay).

Obivously with the Stock Market things don't always go as you seem.

And this thing you have been investing over 14 years - how much have you put in and whats its value?

Actually I don't think he gets any commission from our Group AVC scheme (Standard Life). I think he hopes to pick up people when they retire or are made redundant from the company with investments and hence commission


I started investing when I was 43 (1994). Our normal retirement age is 62 but very few people have remained beyond 57 in the last 20 years.
I was originally advised to invest 50/50 in Pension with profits/Pension Stock Exchange Funds.

The SL Pension With Profits Fund stopped taking new money in 2002 and contributions were switched to SL Pension Millenium With Profits Fund.The Pension Stock Exchange Fund became the Pension Stock Exchange One fund.

At my last statement (31/3/08) I had contributed £17,572.89 with a plan value of £24,705. I have tried to estimate the current value from unit prices on the SL web site but can only find the Pension Stock Exchange One fund (can anyone help with the others?). This is about 40% down. If I assume the worst then my fund may be worth only £15000 at the moment. Just when I have a window of opportunity to take voluntary severance and retire.

I've probably gone off the original thread a little but learned a salutary lesson a little too late probably that an IFA is fishing for business and will always trot out the need for a long term view. But how long is long term? I think what is often overlooked when advice is given that it is not only the long term that is important but also timing of cashing in and that the investement should be reviewed at regular intervals and switched.

From the age of 28 I've had several investments for various purposes and all have been hit by downturns at crucial moments. Perhaps I've just been unlucky but I wish this site had existed years ago and I might not have had to rely on FAs or IFAs

dunstonh

Actually I don't think he gets any commission from our Group AVC scheme (Standard Life).

That is normally case. Only the scheme administrator gets paid on that (and other group schemes). However, some administrators are also IFAs.

Perhaps I've just been unlucky but I wish this site had existed years ago and I might not have had to rely on FAs or IFAs

Whilst this site is useful for generic information, it is no good for specifics and there is plenty of misinformation and bad information given out here at times. Also, you have to consider hindsight. Things that are available today wouldnt have been years ago. Going back years, AVCs were considered better than FSAVCs. Now FSAVCs are better than AVCs mostly with a few exceptions when lump sum calculations are involved and those rules changed in 2006.

As Martin recently found out, things change and people tend to hold you accountable even if what you said was correct at the time.

I saw him about 4 years ago when I was considering retiring and told me that AVCs were a waste of time - why did he give me this advice originally

4 years ago we started getting snippets of information about A day changes that were meant to start in 2005. However, it was put back to 2006 but changes kept coming almost right up to that point. Advance information did indicate that AVCs were largely going to be made obsolete.

Is it a case of 10 people seen and 1 provides business?

I dont think any IFA would survive with a 10% rate.

I don't believe you get something for nothing nor do I expect it but in this case I don't understand why someone would travel 50 miles for my benefit

We dont know their business model or terms. If he belongs to a salesforce then they often are targetted for appointments with the view that if you see enough people then you will generate business.

I've probably gone off the original thread a little but learned a salutary lesson a little too late probably that an IFA is fishing for business and will always trot out the need for a long term view. But how long is long term? I think what is often overlooked when advice is given that it is not only the long term that is important but also timing of cashing in and that the investement should be reviewed at regular intervals and switched.

If it was a regular visit you could understand it. I visisted a client of 14 years a couple of weeks ago on 120 mile round trip and didnt earn a penny from that trip and didnt expect to or go with the intention of doing so. It was their annual visit.

When seeking advice you should aim to see an adviser not a salesperson. At the moment, the waters are muddied there a bit with salespeople allowed to call themselves advisers. However, the FSA has suggested (under the retail distribution review proposals) that there will be a clear definition and split of sales and advice in future. Well overdue (and ironically it is the FSA that is to blame for the current position).

artha

thanks dunstonh for your comments.

Just to clear something up,after re-reading my own post, I wasn't getting at all Financial Advisers although it may have seemed that way. I'm just feeling sorry for myself at the moment and kicking myself for not taking action sooner with respect to managing my AVCs myself.

As to the advice given on this site by users I would agree that some of it is non specific and therefore to be treated with caution. I have to say however that in the last two years of using the forums and reading the main site I have improved my financial awareness to a point where I feel I am much better equiped to deal with money matters

Lokolo

artha wrote: »

As to the advice given on this site by users I would agree that some of it is non specific and therefore to be treated with caution. I have to say however that in the last two years of using the forums and reading the main site I have improved my financial awareness to a point where I feel I am much better equiped to deal with money matters

Unfortunately others don't see that view and have been very angry at Martin for suggesting savers should go to IceSave for the best rates (6 months ago)... meh! But I agree, I have learnt loads (actually, mainly from dunstonh!) on this site so I'm thankful.

dunstonh wrote:

That is normally case. Only the scheme administrator gets paid on that (and other group schemes). However, some administrators are also IFAs.

Could you reword that? Not sure I understand if they are paid by commission as I originally thought or some other way.

dunstonh

Could you reword that? Not sure I understand if they are paid by commission as I originally thought or some other way.

In-house AVCs would be arranged by the company scheme administrator. The administrator doesnt have to be an IFA. It can be in-house or use a professional administration company. Sometimes these companies are part of the insurer or part of an IFA firm. You would typically expect an in-house AVC to be arranged on fee basis or have a very small level of commission if the latter is chosen.

Group personal pensions can more often than not be arranged on commission basis and that is paid to the scheme IFA. Much to my disgust as a frequently put people into the hoseseasons scheme locally and dont get paid for the work yet the scheme IFA gets paid a commission. They do nothing and get paid whilst other IFAs do the work and get nothing.

artha

dunstonh wrote: »

In-house AVCs would be arranged by the company scheme administrator. The administrator doesnt have to be an IFA. It can be in-house or use a professional administration company. Sometimes these companies are part of the insurer or part of an IFA firm. You would typically expect an in-house AVC to be arranged on fee basis or have a very small level of commission if the latter is chosen.

Group personal pensions can more often than not be arranged on commission basis and that is paid to the scheme IFA. Much to my disgust as a frequently put people into the hoseseasons scheme locally and dont get paid for the work yet the scheme IFA gets paid a commission. They do nothing and get paid whilst other IFAs do the work and get nothing.

In my case I'm not sure what happens. I work for a fairly large international company in the chemical industry supplying raw materials, so not a household name. We have a whole dept assigned to look after pensions administration for the UK part of the business. These people are salaried, cannot give advice and therefore cannot receive any commission but are professionals in their own field. They can only present the Group AVC money purchase scheme options and then allow the person to make the choice and they then administer the choice. Guidance must come from the external IFA that has been coming into the company for many years and who takes no immediate benefit from his visits. I know of only two people from many (hence my question at the start of the thread) who have allowed the IFA to manage their pension/voluntary severance benefits after leaving the company. If any commision is paid then it must go into the company pension fund or is it that we get better rates/service than an individual?

Susan_C_4

Sometimes the employer pays a set fee to the external FA for giving advice to the employees. Any additional fees are agreed between the FA and the member i.e. yourself.

artha

Susan_C wrote: »

Sometimes the employer pays a set fee to the external FA for giving advice to the employees. Any additional fees are agreed between the FA and the member i.e. yourself.

I'll have to check on that with HR but I'm pretty sure that that the IFA (having established a link with our company for at leat 20 years) does not receive a penny from the company. When the company workforce was much larger and we were regularly shedding staff their used to be annual pre-retirement seminars to advise people on managing life after work and preparing for retirement/redundancy. The IFA was always part of this process. Perhaps in these circumstances he may have received a fee Unfortunately now that we have reduced our workforce dramatically there is only a trickle of people leaving and I guess the seminars have been a casualty of further cost cutting measures.

oldagetraveller

In my experience and to answer the original question, and this will not be popular, by promoting and selling the product that will give them the best commission!