Is my IFA cheating me?

Scully's_Girl

I'm so sorry about the delay in reposting to this, but Sterling just sent me a reply to my email today. Much to my annoyance, they also forwarded it to my IFA, which caused him to send me an email about why I was unhappy. Thiis is what Sterling says:

Dear Mrs. Scully,
Thank you for your email on 2nd May 2006 regarding your Individual Savings Account.
The initial charge for your £583.33 regular monthly investment is 4.5% and is taken from each payment you make. The inital charge for your investment of £1666.68 on 26th January 2006 was 4%.

Your financial advisor received £1679.99 (24%) for your regular investment and £104.16 (6.25%) for your lump sum investment. Please note that after 5 years of you making regular monthly payments your financial advisor will receive 6.25% of each payment per month.


I am more than happy to have my IFA benefit if the investment is better than any others I can receive. But I cant help thinking that a fund supermarket would have been so much cheaper. I'm checking the key features to find out how much it would cost to move it. I just feel that this is alot of fees. Is this normal? I've never had a shares ISA before, or an IFA, so I just don't know.

tomstickland

This just goes to show that there's no substitute for doing your own research.

Scully's_Girl

Yes , reading through the previous posts I want to cry. I did a ton of research to find this IFA, only to find out he chose the most expensive option when putting us into this ISA, & I cannot be sure it is the best ISA to have. I dont know what to do now.

dunstonh

I am more than happy to have my IFA benefit if the investment is better than any others I can receive. But I cant help thinking that a fund supermarket would have been so much cheaper.

Not much in it. If the intial charge is 4.5%, then that is an average amount. Only thing that isnt ideal is the way he has taken it all up front. Of course you can resolve that by ceasing the regular contribution and re-register with a fund supermarket (nil cost to you). The adviser then gets a claw back for that upfront commission.

Yes , reading through the previous posts I want to cry. I did a ton of research to find this IFA, only to find out he chose the most expensive option when putting us into this ISA, & I cannot be sure it is the best ISA to have. I dont know what to do now.

Research yourself or get a new model IFA to look at it. I would think that re-registration away is the best option or transfer if the funds are not what you want them to be.

Scully's_Girl

dunstonh, just to confirm:

You suggest I should cease contributions to the ISA? I will not get penalized for doing so and the company will clawback from the IFA part of the inflated iniital charge? I want to minimize the amount of money I risk. Then, I can start my contributions in a fund supermarket (Im happy to do so) and I will not get charged a penalty or anything? I just want to ensure I got it straight

dunstonh

Re-registering the ISA with another provider (fund supermarket) does not incur any costs to you. As it would include 06/07 contributions, after the re-registration has taken place you are free to continue the regular contributions into the ISA with the new provider (fund supermarket).

It is the IFA that gets the clawback. To quote Sterling:

Commission clawback - If your client encashes the account within the first 5 years (including the death of the investor) and/or your client stops their regular investments within the first 5 years, we will apply clawback on a pro rata basis up to a maximum of 24% depending on the commission option selected. Full details of commission clawback are contained in the Commission Guide.

You are not encashing but as the funds are leaving sterling, it has the same outcome. Having a read through the Sterling ISA T&Cs, it appears that they charge 0.5% p.a. on top of the normal annual management charge as well.

Remember, you havent paid the inflated commission. Sterling (aka Zurich) are paying the IFA in advance on the assumption that the business continues. If the business leaves them, they claw back some/all of the initial commission.

What I would do in this position is write to Sterling and ask for a 10 year projection based on current contributions and their charging structure, including any costs that occur on transfer/re-registration. Always pays to have it in writing. I would then compare that projection to the different fund supermarkets and see who comes out best (it varies depending on which funds and what features you want).

I can see no mention of any exit charges on the Sterling ISA literature and independent research software makes no mention of any either (the software actually states no penalty on withdrawal). If I was transacting the re-registration though I would still write to them to confirm first. It may delay it by two weeks but it's safer for me to be sure (I have a liability for the advice and that means it has to be accurate).

Scully's_Girl

Thank you so much. Im writing this letter now. One thing that upsets me about Sterling is that any and all correspondence with them is automatically forwarded to my IFA. A few months ago I wrote them saying I wanted a breakdown of a few things since I was reevaluating my position and my IFA, and the forwarded the letter to him. Needless to say, I was a little miffed at this, but since they began the relationship with him I suppose I can understand it, although its my money they are receiving.
I sent him an email advising him that I want to review this, and I will send them a letter as well. It just bothered me since last time he sent me an email saying he got a letter and he seemed so put out by it. *sigh* I tire of this game sometimes.
Im sure hes a great IFA, hes a very very nice man, but I'm questioning alot of stuff he does right now as our money is so sacred to us.

Conrad

Scully's_Girl wrote:

I want to trust an IFA, and I know there are good ones out there, but do we just look young and naive?

Warren Buffet the worlds second richest Man said this of financial advisers:

"in aggregate, people get nothing for thier money from professional money advisers".

I agree. Not one person Ive met who has built considerable wealth used an IFA in the process.

As an example it is very easy to buy shares in the top 100FTSE companies or to buy into actual investment funds themseleves (not far removed Banks and Insurers) without the need for an IFA.

IFAs do not spot opportunities which is why none were recommending Buy To Let in the early nineties (plus this didnt earn them much if any comission).

Now I find none have spotted the massive trend in buying abroad in new markets, either via funds such as 'DawnayDay Treveria' which are buying German shopping centres (note this wouldnt pay commision unlike a poxy bond) or by direct property investment.

I called many so called top London IFAs looking for German property funds and they all couldnt help yet the worlds top investors are quietly buying up German real estate,.. dohooooooo. Many huge American and UK Banks are amongst those buying Berlin real estate - yet IFAs seem oblivious to such trends. They are more interested in the latest L & G guaranteed tracker fund - yawn.

I did my own research and found lots of investment houses specialising in German real estate. One of Brittains richest Men - Jim Mellon bought 500 Berlin appartments last year and now offers shares directly into this investment. This same guy bought Banks in the Balkans just after the war ended and gave investors a 300% return in 5 years.

IFAs should be called 'insurance salesman' or 'Packaged investment salesmen' as they are in no practical sense FINANCIAL advisers.

Conrad

Chrismaths wrote:

2. They aren't Zurich's funds, they are the funds of external managers! .

This is a key reason IFAs are not giving best value and something I bang - on about.

YOU DONT NEED TO INVEST WITH HIGHLY EXPENSIVE ABNKS AND INSURERS. Usually you find they are a middle Man themsleves!

Go straight to the investment houses, there are loads that deal with the public. Choose a few good names and spread your money.

Chrismaths

Go straight to the investment houses, there are loads that deal with the public. Choose a few good names and spread your money.

Congratulations Conrad, you've just cost anyone who takes that advice a full 5.25% initial charge. Good demonstration of total ignorance. I see you've also managed to change your advice from investing in "DAWNAYDAY" (an investment management company) to investing in "DawnayDay Treveria" (an AIM listed property investment vehicle). This does indeed invest in German property, is listed in €, and has a significant amount of debt. The reason an IFA won't recommend this is because it is a SHARE, and most IFAs don't advise on direct equities. For this you need a stockbroker or investment manager (comme moi). I wouldn't go into a deli and ask for a recommendation for the 3:40 at Wincanton, so why would you expect an IFA to advise on these?

Some of my clients hold a small amount of German property through other, more diversified property investment vehicles, but as I don't have many clients who want to take a huge punt on a foreign property market (remember all those people who invested in Japanese real estate in the late 80's/early 90's), I tend to go for more diversified vehicles, that have actually produced a better return since this listed. German property may go up, it may do down. Be careful of people with vested interests advising on what they already hold.

Some IFAs are bond floggers. Some are not. There are good IFAs, Doctors, Lawyers, Accountants - and there are bad ones. Find a good one, who can advise you on how to plan for your financial future, and you'll be glad. Find a bad one, and you won't.

IFAs should be called 'insurance salesman' or 'Packaged investment salesmen' as they are in no practical sense FINANCIAL advisers.

Some should. But advising on insurance or mortgages is definitely FINANCIAL advice. It's not INVESTMENT advice though...

In the meantime, stop demonstrating your patent ignorance.