Pay by commission or fee

dave1983_2

Hi, I'm in the process of getting financial advice regarding pensions and investments and have been given two options to pay for the services of the advisor.

The first is to pay by a one-off fee of £384 based on an estimate of 4 hours work at £87 p/h and the second is to pay a commission of 3% on my initial investment followed by a futher 3% of the monthly contributions plus a fee of £87 for one hours work.

What would be the cheapest way to pay as am I right in thinking that over the life of the investment we would pay 3% of the contributions for the life of the investment - eg 35 years for the pension?

Also, is the hourly rate of £87 reasonable? Thanks!

gozomark

how much is your initial investment, and your monthly contribution ???

opinions4u

The hourly rate sounds reasonable - within range. £87 x 4 = £348. This rises to £400 if VAT is due on the amount.

Which is best? Give us a clue how much you're expecting to save as a lump sum and monthly and I think you'll get clarity in an answer.

£100 a month for 30 years would have £1,080 deducted at 3%. In addition you are losing out on the growth potential of this 3% if you choose the commission route.

A £14,000 lump sum at 3% would have £420 deducted.

dunstonh

The hourly rate actually seems quite cheap.

VAT shouldnt be an issue if you purchase a financial product. You only pay VAT if no financial product is bought.

Lokolo

dunstonh wrote: »

The hourly rate actually seems quite cheap.

VAT shouldnt be an issue if you purchase a financial product. You only pay VAT if no financial product is bought.

I can see why you like your job then!

opinions4u

Lokolo wrote: »

I can see why you like your job then!

Once you factor in the costs of premises and equipment (including business rates, heating, water etc), employing administrative staff, normal insurances, FSCS contributions, compliance liabilities and costs etc it's not such a great rate of pay.

While a good IFA in the right location should be able to make a more than decent living, most will earn well under half of the fees quoted.

I genuinely admire those that have the balls to go it alone in that industry and do it properly.

I didn't have the bottle!

dunstonh wrote: »

VAT shouldnt be an issue if you purchase a financial product. You only pay VAT if no financial product is bought.

Thanks for the clarification.

dave1983_2

Hi, I've really biffed my maths - 4 hours at £87 is £348 and that'll be what he charges us, £348 instead of £384. Oops!!

I'd be looking at investing £500 initially followed by £50 - £100 per month for up to the next ten years and my girlfriend will be looking at putting £250 per month into her pension until age 60 (36 years away!). What the advisor has said is on our monthly investment of £362.50 we'll pay a monthly commission of £10.88 and I'll pay a commission of £15 on my initial investment.

Hopefully this will give clarity but I assume that, as commission is paid over the life of the product, it'll be cheaper in the long-term to simply pay the fee in cash?