£40,000 commission?

JesseBirdsall

I went to see an IFA today concerning a 1.3M inheritance. He showed me some quotes for a Norwich with profit bond and a guaranteed fund with legal and general. Anyway, looking at the back page i worked out the advisor will be getting £40k approx plus an amount each year.

We talked about fees, he said unless I want to be invoiced for everything, the commission option would cover it.

Any ideas? seems a bit steep to me.

dunstonh

We talked about fees, he said unless I want to be invoiced for everything, the commission option would cover it.

Of course it would. That would cover a lot of servicing.

Any ideas? seems a bit steep to me.

A transaction this size must be done on fee basis as you will benefit more from it. IFAs have different business models and charging structures. There will be many IFAs that will not take a penny in initial charge (or just a very small amount - £1000 say) as it will just be the natural fund based trail that they will use in future for servicing and that will avoid any requirement for invoicing. However, you may prefer that option in which case there will be some that work to that basis as well.

When you employ an IFA you need to decide what level of service you want. Is it just a one off transaction, a full review, a portfolio service etc. Then you find out how much they will charge for the level of service you want. Some will be good value, some expensive. Cheap isnt always best but expensive isnt either. If the service gives good value for money then its worth it.

Aegis

Ask what you get for the trail commission and how much the equivalent cost for fee-based advice would be. Then go and ask another IFA the same question and see if they'll do a better deal. Post the result here for critiquing.

Personally it sounds like he's trying to dissuade you simply because the commission option will earn a lot more for him. Not the best way to start a working relationship. I really can't see a fee-based option coming out at more than £40k. As an example, Hargreaves Lansdown (considered fairly expensive for advice rather than execution only) would charge you about £17k up front and £6500 per year for their review service. Chances are that the commission option would be much the same on an annual basis, but the up-front fees seem much higher.

Ask around, in summary.

JesseBirdsall

the IFA said there is no initial charges and the allocation rate is 103% so he is adding value.

medders2604

You will be paying back the additional allocation as part of the charges of the bond I would suspect so really do look into the bond charges.
At a quick glance the advisor is taking 3% initial commission and 0.5% trail. I work with financial advisors and this is a fairly common commission figure on smaller figures but the vast majority reduce the percentage on higher figures. When you look at the work they have to do for compliance etc its the same no matter what the investment amount so I would def suggest you shop around. I dealt with a similar size investment case recently and the advisor reduces his usual 3% initial to 1% and 0.25% trail.

ed123_2

...I would keep away from with profit bonds and look to spreading risk/investment/savings depending on timeframe/age/tax position/attitude to risk/property etc. Given the state of the markets I would keep it all in savings at present (split below £50k per bank/b soc.) a lot of bother but more of a bother if you lose £1.25 mill......

Aegis

ed123 wrote: »

...I would keep away from with profit bonds and look to spreading risk/investment/savings depending on timeframe/age/tax position/attitude to risk/property etc. Given the state of the markets I would keep it all in savings at present (split below £50k per bank/b soc.) a lot of bother but more of a bother if you lose £1.25 mill......

You'd have a lot of hassle on your hands finding and looking after 25 homes for your money, and you'd probably find that there would be no point. Split it among 4 or 5 large banks and you're covered enough. After all, if any of the really large banks go bust, the compensation scheme simply wouldn't be able to pay out without rendering the currency worthless.

That said, why go into cash instead of working out a way to get into assets with more long-term growth potential? Yes, putting a lot in as a huge lump sum may not be a great idea, but drip feeding in a large investment amount over, say, the next 12 months could well turn out to be a really good strategy for the medium- to long-term investments. The markets are going to swing around at some point, so why not try to take advantage of that by buying mechanically at this very cheap period?

Of course, this is all just for discussion

musehead

You'd need about 30 savings accounts to keep £1.3m + interest save under the FSCS limit. A bit OTT I think!

dunstonh

ed123 wrote: »

...I would keep away from with profit bonds and look to spreading risk/investment/savings depending on timeframe/age/tax position/attitude to risk/property etc. Given the state of the markets I would keep it all in savings at present (split below £50k per bank/b soc.) a lot of bother but more of a bother if you lose £1.25 mill......

The product and fund recommended is not a with profits bond.

Plus, the fund recommended has a capital guarantee and the FSCS protection on the product is higher than that provided to savings accounts.

I actually have no issues with the product and provider and its clear no commission bias has been used as NU are not a big commission payer. I just think that the commission take is greedy. Especially for a single product, single fund recommendation that actually wont require any servicing until the 5th anniversary when the fund matures.

Aegis

dunstonh wrote: »

The product and fund recommended is not a with profits bond.

Plus, the fund recommended has a capital guarantee and the FSCS protection on the product is higher than that provided to savings accounts.

I actually have no issues with the product and provider and its clear no commission bias has been used as NU are not a big commission payer. I just think that the commission take is greedy. Especially for a single product, single fund recommendation that actually wont require any servicing until the 5th anniversary when the fund matures.

It certainly seems like a staggering amount of money for two products. I wish I could get even close to that level of remuneration for what can only be a few hours work here!

Definitely OTT for what it is, all in all.

dunstonh

It certainly seems like a staggering amount of money for two products. I wish I could get even close to that level of remuneration for what can only be a few hours work here!

Definitely OTT for what it is, all in all.

Its still cheaper than going to a bank though. The IFA should be able to get NU to give another 1% allocation on that due to the size.

Its still very greedy though. Whilst the FSA have not stated what they class as fair or unfair, I would love to see the justification under TCF for taking a £40,000 commission. Especially when the FSA wrote to the major networks asking them to report any cases where commission of £10k or more was paid so they can be investigated to see why a fee option wasnt taken by the client when that be the obvious option.

With most IFAs happy to take zero to £2000 as the fee, that would mean the NU product would have its allocation increased from 102.5% to 107.5% (ish) with another 1% from NU if the IFA asks for it and has a good relation with NU. In monetary terms that would see the investment increased by £32,500 on the proposed terms using that IFA to £110,500 by going with a no initial charge/fee based IFA.

Under TCF, how could an IFA justify it when you look at it in those monetary terms.