Fidelity fund choice and IFA commission

dunstonh

These IFA's that people have putting together complex individual portfolios for people at between 1.8% commission just don't seem to exist in my world.

I know 4 firms locally that do it including my own. Citywire publish a weekly magazine for IFAs that work on that basis and they wouldnt do that if there werent many. The greedy !!!!!!s taking the maximum 3% though seem to be easier to find though buts thats because the transaction model still outnumbers the servicing models. However, it is changing quickly and by 2012 you will find it far more common.

That said, your investment amount is only £41k and many IFAs wont get out of bed for that figure. So, they may just price the higher rate and not be bothered if they get it or not. You may also be hit with a minimum charge which in percentage terms can be equal or higher than 3%. e.g. a firm may charge £1500 flat fee. To you thats 3.65% but to someone with £410k its 0.365%.

Makes me wonder how honest some posters actually are being.

The 1.8% is published by the FSA based on the previous 6 months transactions with data supplied to them by all providers. It is updated twice a year. It includes fee adviser, commission advisers and hybrid fee advisers. If you take a look at the Key facts document "about the cost of our services" that your IFA issued and look in table 2 - commission if you invest a lump sum you will an entry for collective investments (eg unit trusts) and it will have market average. There are variations of the theme (e.g. for those that take no initial but higher trail or vice versa) but the default shows [FONT=Arial,Bold][FONT=Arial,Bold]1.8% [/FONT][/FONT]of the amount you invest [FONT=Arial,Bold][FONT=Arial,Bold]0.5[/FONT][/FONT]% of your fund value each year.

Baz_2

dunstonh wrote: »

That said, your investment amount is only £41k and many IFAs wont get out of bed for that figure. So, they may just price the higher rate and not be bothered if they get it or not. You may also be hit with a minimum charge which in percentage terms can be equal or higher than 3%. e.g. a firm may charge £1500 flat fee. To you thats 3.65% but to someone with £410k its 0.365%.

Yep, in my world £41k is a lot of money.

So it sounds like anyone advising me that my IFA should be doing miracles for me is not really ever likely to happen at that amount. Which means that the best I can hope for is third party structured products.

In one breath I should be getting a personalised portfolio and in another they wont get out of bed for my sort of money.

dunstonh

So it sounds like anyone advising me that my IFA should be doing miracles for me is not really ever likely to happen at that amount.

At £41k you can build a structured portfolio but the amount doesnt allow for the same sort of build that a larger one would. I dont have an issue so much with your IFA wanting 3% as that equates to a similar fee level. However, for that level he ought to be doing more for it. If he doesnt want to build a portfolio as he feels he is not able to do so and prefers to use managed solutions then why is he asking for a fee on top of the commission for what is a simple solution that doesnt take any real work or require any knowledge or software.

Effectively, its an off the shelf solution and not something built for you personally.

thelawnet

Baz wrote: »

I said I want 75% low risk with the other 25% more agressive.

And yes, the idea is to take advantage of the free inital charge and move elsewhere later.

Its only costing me £270, the rest comes from fidelity.

You said

"He gets 2% from fidelity but has said he will need to charge a small fee too."

2% of £41000 is £820. Which is at least 8 hours work in my book. Which it doesn't sound like he's doing, but there maybe other services he's doing 'for free' (aka charging you £820 to dump far too much money in a single fund).

And if you invest in the fund directly (not that I would) with a discount broker you'd get that £820 in your investment.

Unit trusts/OEICs are a complex mechanism to pass fees (commission) to third parties without the owner (i.e. you) really noticing.

They are all charges, no matter which way you look at them.

The upfront commission/charge is simply taken out of your investment. And each year fees will be passed to the adviser, and to the fund platform. These fees won't appear on your statement, but yed.ou are still being charged.

The reason things are done this way is that advisers/salesmen would get much less business (and so would the fund managers) if the commissions weren't paid. That doesn't mean it's in your interest, and in this case it's not.

Baz_2

thelawnet wrote: »

You said

"He gets 2% from fidelity but has said he will need to charge a small fee too."

2% of £41000 is £820. Which is at least 8 hours work in my book. Which it doesn't sound like he's doing, but there maybe other services he's doing 'for free' (aka charging you £820 to dump far too much money in a single fund).

And if you invest in the fund directly (not that I would) with a discount broker you'd get that £820 in your investment.

Unit trusts/OEICs are a complex mechanism to pass fees (commission) to third parties without the owner (i.e. you) really noticing.

They are all charges, no matter which way you look at them.

The upfront commission/charge is simply taken out of your investment. And each year fees will be passed to the adviser, and to the fund platform. These fees won't appear on your statement, but yed.ou are still being charged.

The reason things are done this way is that advisers/salesmen would get much less business (and so would the fund managers) if the commissions weren't paid. That doesn't mean it's in your interest, and in this case it's not.

This fund normally charges an upfront fee of 3.5% and pays advisor commision out at 3%. (i.e the advisor gets 3%, fidelity keeps .5%) The current deal however, is that the upfront fee is waived and the advisor commission is paid out at 2%. Now I am assuming the 2% is coming from fidelity, and if I pay in £10,000 into this then £10,000 will be converted into units without this 2% being deducted from it.

If that is not the case then this whole thing is getting even more bizzare.

I understand normally that the commission does come from my investment but in this case I don't think it does. So in effect I am paying discount broker prices but getting the IFA too. Seems a good deal its just the extra 1% I am not sure about.

As for the yearly fees I agree I will be charged them but that's another matter.

whiteflag_3

Baz wrote: »

Yes I did but somehow he ended up giving me his probable advice before it was finalised. He will therefore, (which has happened to me before) just make the fee exactly the same as the commission.

Under the treating customers fairly regime , your IFA cant just invent a fee to match what the commission would be. It would have to be x hours @ £Y

dunstonh

Under the treating customers fairly regime , your IFA cant just invent a fee to match what the commission would be. It would have to be x hours @ £Y

Or a fixed amount that was declared at the outset before you started. Bit late for that now but that is also a valid fee option.

Matching fee with max commission isnt allowed though as you quite rightly say.

whiteflag_3

dunstonh wrote: »

I know 4 firms locally that do it including my own.

QUOTE]

In another post recently you said

The two main towns in my area are amongst the poorest in the country. Generally you find its volume rather than value for a lot of the transactions. On the transactional side, the average premium value on singles is just over £7000.

How the heck do you make money- its an awful lot of work for not alot of money.

thelawnet

whiteflag wrote: »

How the heck do you make money- its an awful lot of work for not alot of money.

He probably makes a few bob from people emailing off here.

Lokolo

thelawnet wrote: »

He probably makes a few bob from people emailing off here.

IFAs can't do that I don't think as its cold calling etc.