COMMISSION TO IFAs

Cavendish

This message is posted in two parts.
Hi, I’m Ian Williams, Director at Cavendish Online.

I was advised of this thread by one of our clients who felt that Julian Penniston-Hill (JPH) of Intelligent Money (IM) had been “telling lies” about Cavendish Online.

I have discussed this with Martin and we hope that JPH will amend or retract certain comments about our service.

JPH says “For some reason they (Cavendish) are not clear about fund supermarkets and say that they will charge you £10 a year for EACH FUND you hold within a supermarket”,

Cavendish Online replies: This is simply not true and our site makes it perfectly clear that we use Fidelity’s Fundsnetwork and our renewal commission service fee is £10 per Fidelity account, and a client would hold all ISAs and Peps under one account and all unit trusts under another, so fee would be 2 x £10.00.
We ask that Mr Penniston-Hill retract, remove or amend this statement.

I would also like to take this opportunity to comment on the service offered by IM and compare it to Cavendish Online.

Fundamentally I believe there are 2 flaws with his plan:

1. Pension commission and the Inland Revenue.

Our understanding, verified with the Revenue last week is that IFAs cannot return commission to a client from a pension plan; it can only be rebated into the plan. That’s why Cavendish Online doesn’t offer this service for pensions, we only set-up new ones with no commission.
The Revenue confirms that it disapproves of rebated commission with personal pensions, saying it is only prepared for investors to be offered gifts under the value of £30. If this is breached, investors could be forced to give back the relief they have had and pay 40 per cent tax on the value of their pension fund.

Hargreaves Lansdown’s head of pensions research Tom McPhail says Penniston-Hill is acting "extremely recklessly" as the Inland Revenue frowns upon cashback being paid to pension investors. He says IM is effectively running the risk of misselling his service because policyholders could lose their tax privileges.
Penniston-Hill says: "I stand by my guns but if the Revenue has an issue then I will immediately roll out pension contracts which pay no commission at all."
That’s exactly what Cavendish does, for a £25.00 one off fee and not £35.00 a year!


2. Renewal commission is not a gift from the provider; it pays for a service.

I am sorry to advise customers that what a provider is paying the IFA for is to take the servicing burden on themselves, so that the customer does not contact the provider, but the IFA.
Payless (whose views I would generally agree with, not least because he’s clearly experienced) queries whether providers will pay commission to advisers who do not look after their clients. This relates to an FAQ on IM’s website:
JPH says in FAQs
Q. Are you now my first port of call if I have any questions about my investments, savings, insurance and any financial matter?
A. No. You would continue to speak to your product provider or Financial adviser. If you are having problems we will do our best to point you in the right direction. Intelligent Money offers a service and does not offer financial advice.

IM’s service will contravene the IFA agreement of most providers and they will not set up an account or pay commission to IM if they continue with this line. I have discussed this with a couple of providers and they point out that renewal commission is paid by the company to provide a service to the client. If the IFA specifically says he won’t provide that service (IM) then the provider will not pay renewal to them. Cavendish Online is the first point of contact for our clients, and that’s what we receive the renewal commission for.
Schroder’s head of UK retail Robin Stoakley says: "I completely disagree with the principle of IM's idea and do not support any such initiative. The vast majority of IFAs we deal with do an awful lot of advising and portfolio monitoring for clients, which they need. Trail is paid to allow advisers to continue monitoring and advising on a non-transactional basis."


These two items alone imply to me that JPH has not researched his market place very well. Coming up with headline grabbing figures about customers commission is great for the tabloids but this site usually wants to check the facts.

The reason Martin’s site is so spectacularly successful is that he is not interested in marketing hype and generalisations such as JPH saying “I believe that us more competitive 9 times out of 10.” (sic);
Moneysavingexpert just focuses on the figures and lets you decide; so let’s do some examples.

Cavendish

Part 2.
And in reply to JPH’s comments:

-JPH says tracker funds pay renewal, including Legal and General.
Legal and General has two commission options for the IFA to choose; 1% initial and no renewal or 0.25% renewal. Our contact at Legal and General says his experience is that most are set up with 1% initial and no renewal. I believe that most trackers do not pay renewal. The problem is that IM makes it the client’s responsibility to check.

-JPH says “Cavendish have a vested interest in getting you to take out more investments as this increases their revenue. Intelligent Money does not.”
Via Cavendish Online a client can make each additional ISA contribution online without incurring our administration fee. We charge for what we do, and if a client uses their debit card to add to their ISA account, then we do not receive an application and therefore do not charge a fee. We frequently recommend this process to clients; I don’t think that’s trying to get more customers to take out more investments.


-Martin asked: If you cancel this policy - ie stop paying the £35 (which is only an offer price, it could be higher after Feb) the company retains the commission without paying you a cheque. I don’t like this. It means you are locked in for the life of a product.

JPH: If you cancel the membership, then IM get the commissions. But this is just like a normal IFA, so you don't 'technically' lose. How many IFAs will give you back all the commission they receive on products you buy through them, for just a £35 fee? I see the argument as 'pay a little, and benefit' else 'pay nothing, and let IFAs fill their greedy pockets' –

This isn’t the Cavendish way: IM asks for £35.00 upfront and takes no responsibility for getting the renewal.
Cavendish says “we’ll keep the first £10.00 of renewal per policy and give the remainder to you”
So if IM or Cavendish only receives from a provider then £12.50 of renewal, Cavendish gives you £2.50 and IM would charge you £22.50!


JPH: “…an endowment - this will pay renewal commission that IM can claim back for you - Cavendish don't offer this service”
We will put ANY policy into our renewal commission service, and we have done so for a number of clients. But it’s worth looking at why we don’t promote this service as much as IM:
Pensions; they’re not allowed under Inland Revenue rules.
Life cover; we set up life policies and Income Protection on nil commission terms. This is usually cheaper than retaining an older commission paying plan.
Company pensions; again contravening the Inland Revenue’s rules, but also because a plan can only have one IFA associated with it, and that would be the IFA who looks after the scheme.

Summary

Money Marketing (an industry magazine) says “There is little doubt that some people will be persuaded by his campaign - which is being assisted by PR guru Max Clifford - and will divert some trail to IM.”
I think he also represents Simon Cowell and Mohamed al-Fayed…

There is another factor with companies such as ours and IM: Our margins are very low, and as such we relied heavily on the support of our backers, a one of the earliest established fee based IFAs, during the early years. It would concern me as an investor if IM is all on its own.

Regards
Ian Williams
Director
Cavendish Online
https://www.CavendishOnline.co.uk
Tel: 08456 442544

payless

JPH of IM said 31/1

I agree with payless on most points.

IW of Cavendish said 19/2

Payless (whose views I would generally agree with, not least because he’s clearly experienced

Hey I'm popular ;D

System

Year 1 - £36 commission (as expected)
Year 2 - £113 commission (???? - what's going on here?)
....

I expected Year 2 to be:  ( £36 + 7% )  + £36   = £74

Hi, The £113 figure is how much your investment would of grown by if you re-invested the cash received from IM. You are correct on your calculations that the commission cheque in year 2 would be approx. £75

Does that help?

Would the calculator be clearer if it should the actual amount received rather than the potenial growth?

Andy

payless

Andy

Hi, The £113 figure is how much your investment would of grown by if you re-invested the cash received from IM. You are correct on your calculations that the commission cheque in year 2 would be approx. £75

incorrect- we are looking at an endowment here- see my original reply

unless the plan is low start - ie premiums increase yearly, then the renewal will stay at £3pm.

payless

Andy- I now see that you are from IM

the calculator does appear incorrect for regular premium endowments-
see my previous posts

I have just put in that I have 1 policy at £1pm for a 22yr old ( this would accrue 2.5p pm renewal = £7.50 over 25 yrs)
but they tell me

Currently, your savings will be reduced by £1,757.00 to pay commission charges. If you join Intelligent Money we will send you cheques totalling £635.00 You can either spend this money as you wish, or (and we recommend this) put this cash back into your savings so you don't end up losing £1,757.00
Note:
These commission calculations are based upon both inital and renewal commissions using the figures in this table.

System

To find out if ongoing commissions are being paid on any pension or other investment, ring the provider. They have to tell you what the renewal fees are if any.

I rang with regards to some lump sum personal pensions I set up six years ago and was staggered at the annual .5% being paid to an IFA I have'nt spoken to in years.

OKbeaker

I have 2 issues to raise with Intelligent Money. They are not new but I have never seen an answer. (I am a paying customer!)

1. What is the latest with the Inland Revenue and clients' receiving renewal commissions on pensions? Is it safer to spend the rebate or try to reinvest it back in the pension? If pension approval status is threatened at a future date do you have sufficient Professional Indemnity to cope?

2. How are clients' supposed to know when a provider has indeed changed agency? The phonelines are always engaged (both to IM and the providers!)

You might be interested to know that I have 2 plans with a well known life company. I sent an agency transfer letter to move the agency to IM for only the With Profits Savings plan and only this policy number was listed. Therefore I was very surprised to find out, by accident, that they had transferred both products to IM.

The second product was my stakeholder pension on which I was waiting for Inland Revenue clarification. So question 1. is doubly important to me!

Finally, I did try to contact the Inland Revenue pensions department in Nottingham and they just don't understand the issues involved...

payless

It bee nearly 1 month since I pointed out that the commission calculator on their site gives incorrect figures - just checked and still wrong!

Frosty_3-2

Short answer is 'yes'. But, you may want to talk to the people at Intelligent Money first.

Also, bear in mind that paying the IM membership fee may not be worthwhile if the fees you get back from your mortgage don't cover it. Do you have any other investments, insurances, etc that may also be paying commission to IFAs/brokers?

The more products you can link through IM the better the deal will be.

Darryl.

I can't help noticing Darry1's reluctance to address Lojo's comment: "So to me its better to use the IFA and have someone to help you (and bounce another few questions of at the same time)"

A distinct negative bias here, which will serve nobody unfortunately :-/