FSA bans commission

Lokolo

whiteflag wrote: »

thats right - thats why I cant stand this "our fee is x% of the amount invested" - a fee should be an hourly rate- dont you think thats the fairest way?

Yeh I agree, but just now I don't have a choice. If I am investing £100-£200 a month for 10 years, I can't go and see an IFA because costs make it unviable (is that the right word?). I started a year ago, now just hope I don't **** things up

dunstonh

Yet if an IFA is investing £150k in an investment bond (up to 8% commission) or putting a £150k pension into income drawdown (at least 3% commission, perhaps as much as 5%), he will be earning between £4,500 and £12,000, for 4-6 hours work.

You need to differentiate between commission and charges. Where 7% is paid, the client isnt paying that 7% up front out of their money. Indeed, it is possible at the moment to get 7% provider at the moment that has no initial charges and 0.85% annual management charges. Thats less than many DIY products. Commissions and charges are not the same thing a lot of the time.

Also, the 7% payers are actually indemnifying some of the trail commission that would normally be paid and paying it up front instead on drip. So, the charges to the consumer on a 7% case are no different most of the time to that on a 4% plus trail.

robefc

whiteflag wrote: »

thats right - thats why I cant stand this "our fee is x% of the amount invested" - a fee should be an hourly rate- dont you think thats the fairest way?

I'm in complete agreement with you, fees should be hourly with different rates for advisers, paraplanners etc. The advisory firm should be paid according to the amount of work they do for a client just like a solicitor or accountant.

However, this business model will only work if a) hourly fees are extremely high or b) the advisory firm offers a wealth management service, either via their own platform or a wrap platform.

There will be an initial fee and ongoing management fee as there is for any investment management service and they would both be on a percentage basis. Some people equate this to commission but it's fairly simple, if a product provider pays it's commission, if a client pays it's a fee.

Clearly for smaller investors a more basic investment product will probably be more appropriate as a sophisticated wealth management service will not be cost effective.

Cheers

Rob

nrsql

Say 25 year old visits an IFA and wants to invest £300 a month. Medium risk long term investment.

What sort of costs would be involved now and after the new rules come into effect?
Would new rules make banks/insurance companies/... more attractive or less.
Would the governments take change?

geoffky

WILL it not be the case where there will be commission deals done behind the scenes where just the fund manager and ifa know about?

is this possible ?

GDB2222

dunstonh wrote: »

You need to differentiate between commission and charges. Where 7% is paid, the client isnt paying that 7% up front out of their money. Indeed, it is possible at the moment to get 7% provider at the moment that has no initial charges and 0.85% annual management charges. Thats less than many DIY products. Commissions and charges are not the same thing a lot of the time.

Also, the 7% payers are actually indemnifying some of the trail commission that would normally be paid and paying it up front instead on drip. So, the charges to the consumer on a 7% case are no different most of the time to that on a 4% plus trail.

I do get hot under the collar when IFAs make statements like that without mentioning the back-end charges if the client wants to surrender before the provider has recouped the 7%. Of course, if you can find a clean product that pays you 7% and only charges a 0.85% AMC, then please let me know. Much money could be made on a commission-sharing arrangement with such a product.

GDB2222

Lokolo wrote: »

I was actually just thinking about the people who don't have a lot to invest.

If there is a base fee rate and everyone is charged the same then those who have, say £10,000, the % cost against the investment amount will be a lot higher than someone who is investing £100,000.

The regulators require fully-compliant advice whether the investor is investing £10k or £100k. Such advice is expensive, and I agree it's unlikely to be cost-effective (whether paid by fees or commissions) for a modest investment. I may be possible for advisers/providers to give generic advice in such cases, but basically the investor will be on his own.

Lokolo

GDB2222 wrote: »

The regulators require fully-compliant advice whether the investor is investing £10k or £100k. Such advice is expensive, and I agree it's unlikely to be cost-effective (whether paid by fees or commissions) for a modest investment. I may be possible for advisers/providers to give generic advice in such cases, but basically the investor will be on his own.

Sad times

dunstonh

I do get hot under the collar when IFAs make statements like that without mentioning the back-end charges if the client wants to surrender before the provider has recouped the 7%.

Come off it. Its a forum where responses are quick. You cant write out a 13 page response every time. The response was in context with the comments quoted. Ed was specifically talking about a certain product type and my response was in line with that product type. Where there is no exit charges, then 7% commissions dont exist. 3% is closer to the mark on the typical maximum there and according to FSA figures, IFAs take an average of 1.8%.

Lokolo wrote: »

Sad times

It wont make a lot of difference to the current position.

Remember that the funding for the cost of advice will allow increases in annual management charges or factoring the fee in over period. Commission set by the provider will be banned but fees set by the adviser will replace them and they will be allowed to be factored into the product charges. You wont need to write out a cheque if you dont want to. It could really end up being much the same as it is now but with larger cases not being able to earn big commissions like they have in the past.

StinkyMonkey

nrsql wrote: »

Say 25 year old visits an IFA and wants to invest £300 a month. Medium risk long term investment.

What sort of costs would be involved now and after the new rules come into effect?
Would new rules make banks/insurance companies/... more attractive or less.
Would the governments take change?

I would also be interested to hear some answers from those in the know...:o