Is my IFA cheating me?

dunstonh

dunstonh, I cant put a pricetag on the peace of mind you've given me, thank you so much.
You've clarified this for me perfectly. I am happy that you've confirmed that one of the products he chose were based on performance, & not on commission.

The L&G looks that way. However, he potentially went and blew it with the Sterling ISA.

I know Sterling paid him a commission, but is it a company you would recommend as well? I haven't lost any money on it yet, &, except for not being able to see my balance online, which is ideal for me, I am quite happy with the company.

Whilst Chris is correct that the Sterling ISA has the potential to have high charges due to increased commission cut, on standard terms it is not much different to other fund supermarkets. So, if he has done it on the "standard" 3% initial commision on each contribution, then that is normal (can be cheaper but FSA average commission shows regular savings to be 2.8% of each contribution). If he has taken the increased commission option as Chrismaths suggests, then it is a rip off contract. I suggest you look at the illustration provided on that and if it shows any more than £16pm (per contribution) being paid to the advisor, then you need to get it reviewed.

I'm very familiar with this product as I contacted the New Model Advisor (trade rag) about it, which was subsequently picked up and mangled by the Telegraph (hence why I wasn't quoted in that article).

I saw the article in both publications. I cannot understand how the telegraph managed to make such a mess with it. One minute they were talking about ISAs and the next Investment Bonds but without mentioning that they had changed product.

Chrismaths

Email I sent to the author at the time following a phone call from him - Subsequently ignored :mad:

John,

Regarding the RIY (reduction in yield) I've knocked about a few figures.

There is no unit trust charge - Sterling charge 4.75% and this is the only upfront, So it requires 2.5% charges per annum to reduce the return to £12800 (ie reduce net return to 4.5% net). That comes from c1.5% unit trust (although at least 0.5% of AMC is trail commission - and I imagine that Sterling have had this enhanced by the fund companies), 0.5%+vat additional Sterling ISA charge, and an extra Sterling charge of 0.5% pa on selected funds (eg First State Global opps). There's transparency for you. [/tags on to list of reasons not to let life companies anywhere near my money]

Even if you bought the fund direct from the UT manager and paid a full 5.25% upfront (not that anyone does that in reality, with the growth of online XO brokers) you'd be better off. (13066 after 5 years)

If you went to an decent IFA for financial advice (who had negotiated away the initial charge to nil), took the fee option (so trail and initial were rebated), you'd have made £13,965 after 5 years - you could afford to pay him a couple of hundred quid, and you'd have got some decent, impartial financial advice into the bargain.

Regarding bancassurers, they really are the Great Satan. People trust their banks (despite the fact that most of them effectively charge you 4.4% (BBR - 0.1%) of your money per year for the privilege of a bank account - another rant, another time...) and that puts them in a privileged position, which they subsequently abuse. They don't provide financial advice, they sell products. They are up there with Double glazing salesmen and the gypsies who tarmac your drive, and they prey on the elderly. People are simply too trusting/stupid/ignorant to realize that they are there to sell, not to advise. [/me takes sip of tea, lets blood cool...]

So please, have a go at the bancassurers on the commission rebate (that's why I suggested a mystery shopper test), I'll be cheering you on, but remember the root of the problem is the system of commissions itself, in which banks, and especially insurers have a huge vested mutual interest.

If all good advisers rebate commissions, then why do we need the commissions in the first place? The only reason to take a commission is if you are offsetting them against fees, as for some reason, commissions do not incur VAT, whereas providing advice does.

The only long term solution is to reduce the financial links between advice and product providers. Many independent (as in not national network) IFAs have seen the light and are doing this already, and most of them read New Model Advisor, which is why I contacted them in the first place, and why I was disappointed with the headline. People clearly need the services good IFAs can provide, just tell them to run a mile if they see a 7% commission charge...

Best regards

Chris

EdInvestor

Oh no, not the dreaded ripoff Sterling ISA again :mad:

We discussed it at length some time ago, but I can't find the thread.

Zurich ( also the owners of the life company formerly nicknamed Allied Crowbar for the approach it took to your money) is still up to its old tricks.

dunstonh

As I said, be careful calling it rip off. On standard terms it can be an attractive product for the right person (guarantee of return of investment on death if value has dropped). Its only on increased commission terms that it becomes poor value.

Scully's_Girl

Any idea how much I love you guys? Thank you so much for helping me through this. So I posed my fears to my IFA, & he responded as follows:

I thank you for your mail.
The reasons for the choice of ISA is as follows: .
1. The company has a wide range of funds.
2. The past performance of their funds have been generally good.
3. The track record of the fund(s) has been especially excellent
over the last five years. However, the value of the units can go down as
well as up and past performance is not necessarily a guide to the
future.

4. . The charging structure of the ISA is very competitive
with other providers.
5. . The plan is relatively flexible, allowing you to
increase or reduce the amount of the regular investment. Nevertheless,
the returns on the plan can be reduced if contributions are stopped
prematurely
6. . Currently there is free switching between funds
I do hope that this allays any of your fears. However, do let me know if
you have any other concerns.

Chrismaths

1. True, but not as wide as a supermarket.
2. They aren't Zurich's funds, they are the funds of external managers! The underlying performance is irrelevant to the wrapper - Scully'sGirl - what funds did he put you in?
3. Again, nothing to do with the ISA wrapper.
4. Only if doesn't take commissions - and even then there are cheaper ISAs available from the supermarket/wrap platforms.
5. Relatively flexible!!?? Relative to what? All decent ISAs are totally flexible, subject to a maximum of £7,000 per person per year.
6. Fair enough. Not significant though - how many switches do you do a year.

No wonder he was keen to get your young (relative to his client base) friends on board - I bet he flogged them Sterling ISAs as well. If he places 2 of these ISAs per month, he could earn £40k per year! At least that's what the blurb said when Zurich (Sterling) advertised it among IFAs...

dunstonh

Just to put the scale of the sterling in perspective I tend to invest around 5 million a year in new funds and in the last 3 years I have done 2 sterling ISAs of single premium basis with the massive amount of £3000 each! That was 2 MINI ISAs for an elderly couple wanting more potential for growth but not wanting risk of capital loss. I'm not sure how I would justify using Sterling over cofunds, fidelity, skanida or selestia if no death guarantee is required. Sterling is more expensive than those 4 and they are the big players in the fund supermarket stakes.

Can you ask for clarification on the charging structure. Specifically ask for the intial charge, annual managment charge and any other charges. If its the usual 3-5% intial charge plus 1.5% p.a. and no other charges, then he has done it one standard terms and not used the enhanced commission/charge option.

Scully's_Girl

Yes. Ill get all that info & will post it as soon as I can. Might be tomorrow, hope thats ok

Edna_Bucket_2

Scully's_Girl wrote:

...In addition, because we were his youngest clients (both in our 30s) he put pressure on us to recommend our friends to him.

Those words alone would make me run a million miles from this so-called "professional."

Referrals in all walks of life are welcome and the best way to generate new business, but they should be offered willingly and after excellent service.

Your phrasing reminds me of the high pressure life assurance salesmen from 20 or so years ago, and not what I would expect of an IFA of today. That comment of yours alone would be sufficient for this reader to cast doubt on every other word that this fellow told you.

dunstonh wrote:

...Personality of an individual is something you cannot regulate and if you dont feel comfortable with that, then fair enough.

I'm afraid I think that is utter rubbish and a real excuse - a "professional" of any kind ought to be able to prove his/her worth by being able to deal and empathise with clients of any age, or background. That's what being a professional is all about surely - you give professional advice equally well to people who are "not like you." You wouldn't hear that sort of line being used for accountants or lawyers, so why IFAs?

dunstonh

I'm afraid I think that is utter rubbish and a real excuse - a "professional" of any kind ought to be able to prove his/her worth by being able to deal and empathise with clients of any age, or background. That's what being a professional is all about surely - you give professional advice equally well to people who are "not like you." You wouldn't hear that sort of line being used for accountants or lawyers, so why IFAs?

Excuse me? I am not making an excuse. I was pointing out that you cannot complain because of a personality issue. As it happens, I come across exactly the same sort of comments with solicitors and accountants. You have to be comfortable with the person you deal with. A clash of personality is going to happen sometimes.