ISA charges alert

EdInvestor

Obviously Moneysavers should avoid this appalling ripoff Sterling ISA product (from the people that gave you "Allied Crowbar" in the past), but to my mind it's the comment in the last paragraph that's more worrying.

Many people could get caught by this without realising.

Sunday Telegraph report

dunstonh

Actually, I disagree with your comment "Moneysavers should avoid this appalling ripoff Sterling ISA product" but do agree with your sentiment behind it.

The Sterling ISA has a guarantee return of investment on death if fund values have dropped. If the product is sold on fee basis or on the same commission (or better) terms than the other fund supermarkets, it may be useful for someone who wishes to invest but has concerns over the capital if they day. It is quite a good product in that respect for the elderly who do not wish to miss out on the potential of stockmarket growth with funds likely to be passed down as an inheritance but don't want to risk the capital being eroded if they die "at the wrong time".

One of the good things about high commission products is that when you see an IFA that discounts that commission, you often get more back than a low commission product, making it cheaper.

You just need to make sure you see an IFA that is on the "new model" charging basis as it tends to be referred to in the industry currently.

whiteflag_3

Experts have warned that big upfront commissions on life office bonds such as the Sterling product are forcing fund supermarkets to increase their annual charges to make them attractive to advisers. The standard 1.5 per cent annual management charge for Invesco Perpetual's popular High Income fund can rise to 2.35 per cent for the first five years when it is bought via Fidelity's FundNetwork and 2.05 per cent on Cofunds, an IFA fund supermarket. Modray said: "The fact that fund supermarkets are pushing up charges in this way is a sad reflection on the state of the industry.''

A few questions - why when the article is talking about ISAs does the paragraph start talking about life office bonds?
What do life office bonds have to do with Fund supermarkets?

According to Fundnetworks own website the AMC on the Invesco Fund is 1.5% Why is it 2.35% in the article?

Whos to say Modray does not have an agenda , in the same way as the IFAs selling Sterling?

FOR YOUr INFO THIS STERLING DEAL HAS BEEN AROUND FOR AT LEAST 6YEARS- TRUST THE TELEGRAGH TO BE ON THE BALL!

dunstonh

Good spot WF.

I have taken chunks of that article and its full of mis-information. It should also be noted that the people they are speaking to have their own agendas.

The high charges on the Sterling Isa mean that even if the underlying portfolio generates an annual return of 7 per cent, investors will earn only 2.3 per cent a year in the first five years. An investor paying in a total of £12,000 over five years would make just £800.

Factually incorrect. I just did a test quote on 100% commission basis and £12,000 over 5 years at 7% gave a £14,380. A gain of £2,380. Not £800 as mentioned in the article.

The 100% commission taken is also in excess of the commission that IFAs take on average. Providers have to report to the FSA the commissions taken on products and the FSA publish this information every 6 months. The average IFA does not take full commission based on that information.

High commissions have been blamed for a number of mis-selling scandals. Consumer groups such as Which? have long claimed that commission unduly influences advisers' recommendations. Which? is calling on the Financial Services Authority to investigate payments such as those generated by the Sterling product.

This is said often by Which? but all investigations that have taken place in the past have shown no sign of wholesale mis-selling based on commission bias. Remember, this is the Which? that recommended endowments when advisors were but now re-writes history by saying advisors were doing it to earn more commission. Which? would not earn an income without attacking various industries and making it's voice heard.

Mick McAteer, the principal policy adviser at Which?, said: "Who on earth would take out a product like this? You could do better at the building society. High levels of commission and other incentives that reward volume of sales rather than quality of sales clearly introduce conflicts of interest and the cost usually ends up being passed on to consumers.''

He obviously hasn't got a clue. See my previous post as to a typical potential client that this product may be suitable for. Again, he is focusing on the commission to the advisor and not the charges to the policyholder. There are product providers that pay double the commission of others but have lower charges. One of the lowest charged and best stakeholder pensions currently available pays more commission than the rest. So, if we do what Which? want us to do, we sell the lower commission products but the policyholder pays more for it.

It should also be noted that one IFA could earn 4% on a product but another IFA could earn 7% on the same product but with exactly the same charges to the policyholder. Finacial services works exactly the the same as the retail industry. The higher your turnover, the better terms you can demand from the providers. If IFAs can increase their margins, then they can afford to offer them cheaper. Some will, some will not and keep it for themselves. No different from buying a PC from PC world or a smaller online company. Chances are PC world paid less for the stock but still price it more expensive than anyone else.

Focus on charges you pay as an individual. Not on what the advisor gets.

The standard 1.5 per cent annual management charge for Invesco Perpetual's popular High Income fund can rise to 2.35 per cent for the first five years when it is bought via Fidelity's FundNetwork and 2.05 per cent on Cofunds, an IFA fund supermarket. Modray said: "The fact that fund supermarkets are pushing up charges in this way is a sad reflection on the state of the industry.''

Again, I just logged onto the sites for those providers and the figures in the article are incorrect. Here are the AMCs for that fund from the following:

Fidelity FNW -1.50%
Cofunds - 1.50%
Selestia - 1.50%

This can be confirmed by anyone wanting to visit those sites and look for the list of charges which they publish.

So, all in all, a typical newspaper article which doesn't rely on facts but made up figures and comments from people who have their own agenda.

I am not supporting Sterling ISA either. Indeed, I have only placed 2 ISAs there in the last 3 years (had to get the computer to search for when I last did one as I couldnt recall). They are not the cheapest fund supermarket. However, whenever a guarantee is taken on a product, you pay for that guarantee. Their charges reflect the guarantee. When that guarantee is required and appropriate, then the sterling ISA is acceptable.

whiteflag_3

In the light of the real facts being made available, perhaps ED would like to review/reword her original post

EdInvestor

THis looks like the one here, and indeed it does seem to have this GEB type money back feature - but only if you die (how much would 7k life cover cost for that? :rolleyes: )

Sterling ISA

Perhaps our IFAs would care to give us a Reduction In Yield figure for this ISA, so we can see the effect of the charges for this guarantee on the returns?

While you're at it, I see that the ISA features access to a neat little With-profits lookalike " profits protection" fund. Do you think you could provide an RIY figure for that fund as well?

I note that it offers daily churning in and out of cash and equities. Very interesting to see the effect of that on the charges.

whiteflag_3

Ed , ill get the figures you want if you are good enough to respond to my questions re the last paragraph from your first post. Once I see your response I will get you the RIYs.

dunstonh

That is the ISA that I got the figures on.

EdInvestor

Well, let's have the Reduction in Yield figure then chaps.

Not yet mentioned and it's the key figure.

Whiteflag:

Do you mean my comment:

Obviously Moneysavers should avoid this appalling ripoff Sterling ISA product

or this one?

Many people could get caught by this without realising.

Strikes me this is a product specially designed to extract money from trusting, nervous and non-astute older people, like many MSE mums and dads who are retiring and have a big lump sum to invest when they take their pension.

I'll be delighted to hear that I'm wrong.

whiteflag_3

EdInvestor wrote:

Well, let's have the Reduction in Yield figure then chaps.

Not yet mentioned and it's the key figure.

Whiteflag:

Do you mean my comment:



or this one?



Strikes me this is a product specially designed to extract money from trusting, nervous and non-astute older people, like many MSE mums and dads who are retiring and have a big lump sum to invest when they take their pension.

I'll be delighted to hear that I'm wrong.

No it was more the fact you found the last paragraph of the report worrying, yet seem to have nothing say about it being inaccurate,factually incorrect and full of spin. Will get the figures anyway as you still seem to be interested in this thread.

whiteflag_3

Sorry for delay, client just left

Here are the RIYS


3% + 0.5% trail
INV High Income Fundsnetwork 2.3%
Sterling Inv High Income 2.6%
Protected Profits 2.8%

Full Sterling Indemity Commission

Inv H I 2.6%

Protected Profits 3%


£500 pm ISA

Look forward to your comments