Independent Financial Adviser - Commission

dunstonh

Its important to understand that charges and commission are not necessarily always linked directly.

Someone should tell the FSA that.

You want to buy a washing machine. You know the model and exactly what you want to buy. Do you go to the retailer with the lowest profit margin or do you go to the one where you pay the lowest price? (ignoring service and convenience)

The same applies to commission and charges. The focus is often on the commission but with many products the commission is not in line with the charges or taken the same way.

So where does the commission money come from?

Its factored into the charges you pay but over a period of time. The insurer may take an upfront hit to pay the adviser and then not fully recover the cost for 10 or even 15 years.

Is this Aegon pension called the Flexible personal pension? Is there a bonus paid after 10 years and an adjustment to the annual charges?

archy

The pension is a 'personal pension', it is flexible in the sense that I can change funds. I don't think there is a bonus.!I take your point about the washing machine. I'm now just trying to make sure I have a good investment.!

The commission and charges are linked as the documentation states 'commission will be taken from the AMC'. I think the reason I am confused about it is the 'c' word - commission. My IFA never explained at the outset the commission they would get, and how it is structured over the duration of the plan. It does say in the policy 'we will pay you IFA £x per month' but it does not say how this is worked out and how long it would go on for. This is agreed between Aegon and my IFA. I have had to go back to them and ask. The IFA also never offered an alternative way if paying them. I would just expect full transparency from the outset. The FSA have started to make changes to the system and I think that will be a good thing.!

Would I have taken that financial advice if they would have said - we will be paid £x per month for 3 years then £y per month for the duration of the policy? I think yes, I'm sure that some people would be scared off but I think even more people are scared off because of the c word. IFA's are invaluable and I am happy to pay for their service. Wish it was as easy as buying a washing machine!

dunstonh

The pension is a 'personal pension', it is flexible in the sense that I can change funds. I don't think there is a bonus.!

Scot Eq offer a mono charged pension and a multi charged pension. The multi-charge pension is often the cheaper one but it takes the charges in a different way to the mono charged one. (mono charge means single charge which is the annual management charge. Its easier to understand but not always the best).

The IFA also never offered an alternative way if paying them.

If it is a group scheme and not an individual plan then the arrangements are made at company level. If its an individual scheme then you should have been given the choice at the start.

The FSA have started to make changes to the system and I think that will be a good thing.!

Some will benefit from the changes but many will lose out.

I'm sure that some people would be scared off but I think even more people are scared off because of the c word.

More people are scared off by the word fee than commission. It requires a bit of eduction and many people can understand it but as the advice has been marketed by the banks and the like as "free", its got people used to advice.

Just remember that you pay the charges. You dont pay the commission. The commission will impact on the charges but on many contracts it is not like for like.

Your IFA will be able to (and should) explain the charging structure if you dont understand it. Remember they are getting paid for it. So, make them earn their money. Dont try and look for a correlation in charges and commission. It often isnt there. Focus on the charges you pay.

You can have one pension that pays £1000 commission but has higher charges than another that pays £2000 commission. Economies of Scale often means that providers will enhance commissions with no impact on the charges. So, you may see one IFA that gets 4% and another that gets 6% but the charges are the same. If that adviser with 6% rebates 1% then he still gets more commission than the other but you get lower charges. If you focused only on commission and bought that way then you would end up with the worse deal.

archy

I think mine is a mono charged pension as it has an AMC. It used to be part of a Group Pension Scheme but I left one job and started a new job so it was set up as a personal pension. When it was converted to a personal pension my IFA never mentioned anything about the charging structure. I can ask them for more details.

You say 'Economies of Scale often means that providers will enhance commissions with no impact on the charges'. So the charges would remain the same regardless of the commission being paid to an adviser?
You say 'If that adviser with 6% rebates 1% then he still gets more commission than the other', I understand this. But how does that mean I get lower charges?

dunstonh

I think mine is a mono charged pension as it has an AMC.

If AMC is the only charge then its mono charged. The scot Eq multi-charge pensions (which Scot Eq call the flexible personal pension), has an annual management charge, an establishment charge but a rebate/bonus usually after 10 years and annually after that. The illustration highlights those. So, they would be obvious.

I understand this. But how does that mean I get lower charges?

The commission is paid out of the annual management charge. If the adviser chooses not to take 100% of the commission available, then the annual management charge is lowered (it is against HMRC rules to rebate commissions on pensions so the charges get lowered instead). So, if the commission is £2000 but the adviser takes £1000. Your dont get the other £1000 and your pension doesnt either. Your annual management charge will drop from say 1% p.a. to 0.8% p.a. instead.

EdInvestor

dunstonh wrote: »

You want to buy a washing machine. You know the model and exactly what you want to buy. Do you go to the retailer with the lowest profit margin or do you go to the one where you pay the lowest price?

This is an irrelevant comparison as it is impossible for the consumer conveniently to compare the price of advice because of the way the fees/commission system is structured, as is very clear on this thread.

Only the execution only (non-advised) sector is transparent on prices, allowing genuine comparisons.

dunstonh

Only the execution only (non-advised) sector is transparent on prices, allowing genuine comparisons.

Complete and utter rubbish. The same products on execution only exist on advice. So, how can that product suddenly be understandable on execution only but not on advice?

This is an irrelevant comparison as it is impossible for the consumer conveniently to compare the price of advice because of the way the fees/commission system is structured, as is very clear on this thread.

The confusion on this thread is because none of us have seen the illustration. It wasnt clear what product it was and the archy was initially mixing up charges and commission making it unclear which each was. It is now clear that its a mono charged personal pension. They very same type that you can buy on execution only. So, that blows your advice vs execution only comments out of the water.

EdInvestor

dunstonh wrote: »

The confusion on this thread is because none of us have seen the illustration. It wasnt clear what product it was and the archy was initially mixing up charges and commission making it unclear which each was.

That's what I mean.The fees and commsissions are confusing and baffling to even a reasonably switched on customer like archy - even you couldn't see what was going on.

If archy for instance wanted to invest in the IP income fund via an H-L Sipp, he would pay 1.5% amc on the fund,no initial charge and no charges on the SIPP wrapper.

That's cheaper and clearer.

whiteflag_3

EdInvestor wrote: »

If archy for instance wanted to invest in the IP income fund via an H-L Sipp, he would pay 1.5% amc on the fund,no initial charge and no charges on the SIPP wrapper.

That's cheaper and clearer.

Its cheaper granted but I dont suppose someone from the H-L sipp will go out to Archy's employer and convince them it would be better to pay Archys contribution to SIPP with them. If they agree HL will then organise the SIPP and the salary sacrifice and sit down with Archy and help select the funds will they

Come on Ed pull the other one, your not comparing apples with apples.

The Aegon plan has no initial charges or wrapper charges so how it its structure less clear than the SIPP?

whiteflag_3

dunstonh wrote: »

The confusion on this thread is because none of us have seen the illustration. It wasnt clear what product it was and the archy was initially mixing up charges and commission making it unclear which each was. It is now clear that its a mono charged personal pension. They very same type that you can buy on execution only. So, that blows your advice vs execution only comments out of the water.

What confusion? the fact that Archy said in post 1

• introduced by employer
• salary sacrifice scheme set up
• 1% charge with no other charges

it was clear as day that it was a standard mono charged group scheme.

You cant do a group FPP .

Taking level commission is very common for group schemes these days.