IFA - Commission

oldscot71

I have been investing with the same IFA for many years and he has always taken commission with small rebates.
I now understand he should have also offered me to pay by fee only.
Can I now reclaim any of the commission?

Lokolo

Doubt it. Not all IFAs offer fee based, they don't have to. They will soon though (wait for dunstonh...)

dunstonh

IFAs have to offer a fee based option. Clients can choose whether they go fee or not. You havent chosen to and the IFA doesnt have to encourage you to. The requirement to offer a fee only option also isnt that old. I cant remember how many years back but its not many.

Can I now reclaim any of the commission?

Not a chance. You dont pay the commission in the first place, the provider does. So why should you be able to reclaim it? You pay the charges and in many products it can take many years for the providers to recover the cost of commission. On pensions, for example, it can take 15 years for the provider to recover the cost.

Small transactions are often better on commission basis anyway. Its larger ones that are better on fee. Plus, it sounds like you have negotiated terms with the IFA anyway with the rebates given and that is just as good as a fee in the FSA's eyes.

Lokolo

Ok right that bedazzled me, I thought they didn't have to do fees until later on in a few years (as with the advisor status as sales!) meh!

dunstonh

Lokolo wrote: »

Ok right that bedazzled me, I thought they didn't have to do fees until later on in a few years (as with the advisor status as sales!) meh!

I think it was when the IDD was introduced that you had to have a published fee option and could not refuse to do a transaction on fee basis. With all the changes over the years its hard to keep track of the exact dates but the IDD was 2005 (ish).

Fee option becomes compulsary as a replacement to commission from 2012. Although the commission system can be used to collect the fee and the fee can either be explicit or factored in to product charges. Many already work on that basis already and it is expected that most will move to it, if they havent already, before 2012.

Lokolo

dunstonh wrote: »

Fee option becomes compulsary as a replacement to commission from 2012. Although the commission system can be used to collect the fee and the fee can either be explicit or factored in to product charges. Many already work on that basis already and it is expected that most will move to it, if they havent already, before 2012.

^^ Thats what I was thinking of! Doh!

oldscot71

Thank you both for the information I will certainly not pay the high commission in the future.

Lokolo

oldscot71 wrote: »

Thank you both for the information I will certainly not pay the high commission in the future.

Unfortunately its the same the other way around. Have low amounts of money and go by fees meaning the actual % of your money is extremely high! Shame really isn't!

Aegis

oldscot71 wrote: »

Thank you both for the information I will certainly not pay the high commission in the future.

You don't really pay the commission now. The company your assets are held by pay a commission to the adviser, usually funded by the initial charge and the ongoing charges for the investments. If you choose to pay a fee, you'll often see a much bigger impact up front because the adviser won't receive ongoing commission from the investment company. The actual difference will depend on just how much you invest at once and on the fee structure that the adviser uses.

dunstonh

Thank you both for the information I will certainly not pay the high commission in the future.

You dont pay it now either. As the point has been made, the provider pays the commission. You pay the fees. They dont equal each other in most areas, although there is a trend for that to be the case. It is very common to find that the big commission payers are also the amongest the cheapest and vice versa.

Plus, you can see one IFA geting paid say 5% for a product and another getting paid 3%. yet the charges are the same to you. If the one getting 5% rebates 1% to you then his version is cheaper for you but he gets paid more than the other. If you focus on commission, then you could end up with a worse deal. You need to focus on charges as that is what you pay.

Unfortunately its the same the other way around. Have low amounts of money and go by fees meaning the actual % of your money is extremely high! Shame really isn't!

Yes. The move towards fee basis will basically cut out the smaller value business going through IFAs and push the transactions towards the banks who will still be able to work on commission. Bank products are usually more expensive and lower quality. So, paying the fee via an IFA will end up cheaper a lot of the time but too many people cannot tell the difference between charges and commmission and think commission is free.

sons_2

dunstonh wrote: »

You dont pay it now either. As the point has been made, the provider pays the commission. You pay the fees. They dont equal each other in most areas, although there is a trend for that to be the case. It is very common to find that the big commission payers are also the amongest the cheapest and vice versa.

Plus, you can see one IFA geting paid say 5% for a product and another getting paid 3%. yet the charges are the same to you. If the one getting 5% rebates 1% to you then his version is cheaper for you but he gets paid more than the other. If you focus on commission, then you could end up with a worse deal. You need to focus on charges as that is what you pay.



Yes. The move towards fee basis will basically cut out the smaller value business going through IFAs and push the transactions towards the banks who will still be able to work on commission. Bank products are usually more expensive and lower quality. So, paying the fee via an IFA will end up cheaper a lot of the time but too many people cannot tell the difference between charges and commmission and think commission is free.

That's because the banks/sales forces tell the customer how much better commission is and that it will save the customer money. The big bad fee charges wont get their cut etc etc. It is a shame that people will end up being pushed into the hands of the banks.