ISA charges alert

whiteflag_3

cheerfulcat wrote:

Okay, then

I would split the investment between an equity income fund and ETFs tracking Eastern Europe, European high-dividend stocks and the MSCI World Index. I would possibly add a commodities fund. The proportions to be £100 to the EI fund and £50 each into the others.

You've got me interested now; I think I'll construct a paper portfolio along those lines and keep an eye on it

CC - remember I asked you to answer the question as if you weere the IFA

As an IFA would you not be permited to recommend the investments listed above, would you?

Are these within an ISA wrapper?

Assuming as the IFA you are permitted to arrange thisd what systems would you be putting in place to monitor the above?

How would you propose to be paid for all the work in setting up the above for your client and what/how would you expect to be paid for the ongoing servicing/ liability for the the advice you have given?

cheerfulcat

whiteflag wrote:

As an IFA would you not be permited to recommend the investments listed above, would you?

Why ever not?

Are these within an ISA wrapper?

Yes

Assuming as the IFA you are permitted to arrange thisd what systems would you be putting in place to monitor the above?

I assume that like other IFAs I would have access to various portfolio tools.

How would you propose to be paid for all the work in setting up the above for your client and what/how would you expect to be paid for the ongoing servicing/ liability for the the advice you have given?

I would expect to be paid by the hour for the work I've done, both at outset and again when doing an annual review.

whiteflag_3

cheerfulcat wrote:

Why ever not?



Yes



I assume that like other IFAs I would have access to various portfolio tools.





I would expect to be paid by the hour for the work I've done, both at outset and again when doing an annual review.

There are limits to what IFAs can recommend, ie individual shares etc

What would you expect your fee to be ?

dunstonh

Why ever not?

Outside the scope of authorisation that the FSA allow us.

I assume that like other IFAs I would have access to various portfolio tools.

Which have to be paid for. Morningstar full feed £100pm. Back office software £120-£300 pm. Synaptics/Aequos heading onto £100pm. Dynamic planner or similar £100pm

I would expect to be paid by the hour for the work I've done, both at outset and again when doing an annual review.

What hourly rate would you suggest?

cheerfulcat

whiteflag wrote:

There are limits to what IFAs can recommend, ie individual shares etc

That's pretty limiting to an IFA's advice then; it suggests that all they are really allowed to do is sell funds...

What would you expect your fee to be ?

I can't really answer that, as I don't know what expenses are involved. I can say that I would be more than happy with £16 per hour after tax and expenses, though. Perhaps you could gross that up for me?

dunstonh

I can't really answer that, as I don't know what expenses are involved. I can say that I would be more than happy with £16 per hour after tax and expenses, though. Perhaps you could gross that up for me?

About £150-£175 an hour plus vat then.

cheerfulcat

Thanks, dh. So it's well within the range of what fee-based IFAs charge.

whiteflag_3

cheerfulcat wrote:

Thanks, dh. So it's well within the range of what fee-based IFAs charge.

So you agree that an ISa is the right product.

You will get a fee for up front for all the work involved in setting up the plan
along with an annual fee for reviewing.

An IFA recommending the Sterling ISA gets paid up front for setting up the plan and then has to do the reviews to make sure the plan remains the right product, for nothing.

How can your way be so much better for the client than the Sterling version?
After all you concede the advice has to be paid for somewhere

cheerfulcat

whiteflag wrote:

So you agree that an ISa is the right product.

An ISA is not a product, as you well know; it is a tax " wrapper " and as such of course it should be used - it would be daft not to. FWIW had the hypothetical client not had a pension I would have suggested one of those as well...

You will get a fee for up front for all the work involved in setting up the plan
along with an annual fee for reviewing.

An IFA recommending the Sterling ISA gets paid up front for setting up the plan and then has to do the reviews to make sure the plan remains the right product, for nothing.

For nothing???The advisor gets paid five years' worth of fees in advance, for Heavens' sake!

How can your way be so much better for the client than the Sterling version?
After all you concede the advice has to be paid for somewhere

Can you not see that with my way there is every incentive for me to do my very best for the client, knowing that if his investment underperforms he might not come back and I don't get paid? Whereas with the Sterling version, there is every incentive for the IFA to encourage the client to keep the product regardless of its suitability and performance because if he doesn't, the IFA has to return the money. Then too there is the considerable drag on returns created by such a massive up front commission...incidentally, I most certainly do not concede that advice has to be paid for; you put me in a hypothetical situation and I responded from the point of view of an IFA.

dunstonh

Going slightly off tangent a little. The problem with Sterling is that they are catering for the saleforces rather than the small independent IFA.

Two firms locally to me. One regional, one national:

The regional firm keeps 70% of the commission for itself, giving the advisor 30% for clients that came into the shop. Its the other way round for self generated stuff.

The national firm keeps 50% of the intial commission for itself on all cases and pays no trail commission to the IFA.

So a saleforce IFA, in many cases, has no interest in the trail as they wont get any and they arent getting much of the upfront either. They are also probably less likely to service any clients ongoing as they are not getting paid for that servicing, although the company is.

This is why its always best to avoid any salesforce, not just tied but IFA as well. Stick with the independent IFAs or small practice.