Barclays: advise caution...

Myrmidon_J

The 3.0% figure is used as a reference point only. It is up to the client whether they then pay by fee (i.e. write us a cheque) or commission (we get paid by the life office), though most appear to favour the latter.

I believe Zurich currently has a deal whereby 1.0% "initial commission" can be purchased (on a clean investment bond contract) for a 0.9% reduction in allocation rate. So, it is cheaper for the client to pay by "commission" than write a cheque, in this specific example.

A "large investment" is usually anything over £250,000. Discounts are scaled such that a really large investment might attract a 1.0% fee.

Incidentally, we do have a large number of clients who simply pay us a one-off fee (negotiated up-front) and a retainer, with no percentage points involved. E.g. £7,500 to manage "retirement" plus £1,500 per annum.

However, feedback from our clients indicates that the percentage-based system - where it is clear and transparent - is actually preferred in many cases.

whiteflag wrote:

... if one investor is paying twice as much as another for the same work, how is that fair?

Well... it isn't the same work.

For example, it's not possible (or advisable) - in my opinion - to diversify a portfolio across 20 funds if the amount invested is (relatively) small. The benefits are lost and the transaction costs too high. However, investing £1,000,000 (say), as advisers, we would certainly work for our money - it isn't the same as filling up Mrs Smith's ISA allowance for the year!

dunstonh

I believe Zurich currently has a deal whereby 1.0% "initial commission" can be purchased (on a clean investment bond contract) for a 0.9% reduction in allocation rate. So, it is cheaper for the client to pay by "commission" than write a cheque, in this specific example.

Another example would be pensions where £1000 as a fee by cheque would be £1000. However, deduct £1000 using the commission system and its only cost £800 as a basic rate taxpayer or £600 if higher rate as the fee effectivey attracts tax relief.

However, feedback from our clients indicates that the percentage-based system - where it is clear and transparent - is actually preferred in many cases.

Same here. Its knowing the charging structure that is important and it being one that is easy to work out. Telling someone that you will take 1% of the amount invested with a cap of £2000 allows them to know exactly what its going to cost them. Telling them that it will be £150 per hour plus VAT potentially and it may take 6-8 hours leaves them with a bit of unknown.

These variations we are talking about here are all cheaper than average and significantly cheaper than the banks who take maximum commission where fee options rarely exist and service levels are rarely as high.

whiteflag_3

jem16 wrote: »

[

QUOTE]I said agree a fee - that may be a percentage to suit smaller amounts or an hourly fee to suit larger amounts.

Sorry I cant see where you said AGREE

It could also be argued that one investor is paying half as much than the other and therefore getting a great deal rather than someone paying twice as much and getting a worse deal.

So how does this fit with treating customers fairly?

You said earlier that any products you sold would be on a commission or fee basis. So if your client chose commission basis on a £100k investment bond with a 7% commission level presumably you would take this plus your financial planning fee?

No, hourly rate to do the transaction. Commission would be rebated to enhance the product

What do you take as a retainer fee by the way?

[/QUOTE]

£140 per month.

whiteflag_3

Myrmidon_J wrote: »

Well... it isn't the same work.

For example, it's not possible (or advisable) - in my opinion - to diversify a portfolio across 20 funds if the amount invested is (relatively) small. The benefits are lost and the transaction costs too high. However, investing £1,000,000 (say), as advisers, we would certainly work for our money - it isn't the same as filling up Mrs Smith's ISA allowance for the year!

I have to disagree. As most IFAs use some form of portfolio planning tool there is no more work involved in investing £100K or a £million.

whiteflag_3

dunstonh wrote: »

Same here. Its knowing the charging structure that is important and it being one that is easy to work out.
QUOTE]


Yes, you make it clear to your clients but as shown on here time and again there are many IFAs who dont make it clear.

IMO with the RDR coming in, clients will start asking why they are paying double, treble or more than some clients for the same service.

But then again having spent the last 12 months pulling our business apart and completely rebuilding it to charge fees , I might be a bit biased.

dunstonh

IMO with the RDR coming in, clients will start asking why they are paying double, treble or more than some clients for the same service.

I think it will kill off a load of advisers and salesforces that have been reliant on big up front commissions and cant afford to make a transition to a lower cost basis. Thats why firms already moving to a more cost efficient and transparent model (whether it be small percentage based, hourly rate of fixed fee) will be much better placed.

Myrmidon_J

dunstonh wrote:

Another example would be pensions where £1000 as a fee by cheque would be £1000. However, deduct £1000 using the commission system and its only cost £800 as a basic rate taxpayer or £600 if higher rate as the fee effectivey attracts tax relief.

Yes, exactly.

In any case: a multitude of options - which tend not to be available to banks, who simply take maximum initial commission (and, as I understand it, are not legally permitted to charge a fee - though I could be wrong).

As most IFAs use some form of portfolio planning tool there is no more work involved in investing £100K or a £million.

That's nonsense.

By the same logic, as most IFAs tend to be white men with a penchant for pinstripes and oversized automobiles, no IFAs are black, or female, or dress in "anything other than pinstripes" - nor drive electric cars...

So: how is it fair that one investor pays twice as much as another, for the same work?

In our case, at least - they don't.

jem16

whiteflag wrote: »

Sorry I cant see where you said AGREE

In Post 23

jem16 wrote: »

If a fee is agreed in advance, whether paid through commission or actual cheque I can't see what difference it makes.

No, hourly rate to do the transaction. Commission would be rebated to enhance the product

Sorry I thought you said earlier

whiteflag wrote: »

yes , and a fee/commission would be agreed / accordingly .

When do you use commission then?

£140 per month.

So basically a portfolio of around £165k and less would be dearer and over £160k would be cheaper.

I think there are merits in both the system you use and that which Dunstonh uses. Your system does favour the larger portfolios though whilst Dunstonh seems to cater for large and small.

However as long as costs are clearly laid out from the start there should be no problem.

whiteflag_3

jem16 wrote: »

In Post 23

Sorry I thought you said earlier



When do you use commission then?

If clients wants to pay us that way , rather than writing a cheque

For example, I did a lifestlye planning case recently which involved drawdown £250k) , personal pension £2,000 per month , offshore investment bond £100k , national savings and full ISAs . Using our hourly rates the fee came to just over £3k .

Client asked if we could take £3K commission from the drawdown to save vat , which is what we did. All the other products were on nil commision basis.

So basically a portfolio of around £165k and less would be dearer and over £160k would be cheaper.

or another way to look at it is that our lifestyle financial planning clients with over £165 K invested are getting a bloody good deal.

whiteflag_3

That's nonsense.

By the same logic, as most IFAs tend to be white men with a penchant for pinstripes and oversized automobiles, no IFAs are black, or female, or dress in "anything other than pinstripes" - nor drive electric cars...

well we all entitled to our opinion

So: how is it fair that one investor pays twice as much as another, for the same work?

who said it was?

In our case, at least - they don't

that makes two of us then