IFA costs - is this right?

MarvinWantedMore

Question about commission/fees paid to my IFA on starting a new pension - does this sound right?

In addition to my dull work pension I decided to pay £250 a month into a more flexible and better performing pension. I liked Winterthur but my IFA suggested Norwich Union. But when I challenged him on the performance of similar funds from each, he accepted Winterthur was outperforming NU.

The fee: I'm being charged £1750 (deducted from my fund in year 1).

What makes me worried is that my IFA gave me some waffle about Winterthur's "confusing choice of how commission is paid" and then said he told them to pay him what NU would have paid him. No problem. But then I read that NU were offering IFAs very high levels of commission this summer to push NU - so am I paying over the odds? Am I paying a fee + commission? Or does this sound like roughly the amount most providers deduct on a £250 per month pension??

Cheers!

dunstonh

But then I read that NU were offering IFAs very high levels of commission this summer to push NU - so am I paying over the odds?

Nu do this periodically to boost their market share. The do not increase the charges to the plan when they do this so it has no impact on your whatsoever.

Personally, i dislike winterthur. I find them a pain to deal with and the contracts are unnattractive and unneccessarily confusing. The NU personal pension is far better than the stakeholder and actually can obtain lower charges when internal funds are used.

Can you clarify, did you pay a fee or commission or a hybrid option (i.e. agree a fee but have it paid out of the commission?

On a £250pm contribution, it would be unusual to see any initial charges nowadays unless it is a SIPP or hybrid SIPP. That said, it is possible with some contracts still.

MarvinWantedMore

I believe it's just the Winerthur personal pension - with the option to choose from the 'Tailored Selection' of external funds. My IFA has not mentioned hybrid payment - as far as I'm concerned he's earning the normal commission that Winterthur would pay.

What worries me is that he complained about the amount of time he put into getting a NU quote and then the Winterthur quote and he even hinted that if I continued to use up his time with my questions, etc, then he might have to move to a fees based relationship. But at no time did he say he had done this or agree fees with me. The only thing he said was that he asked Winterthur to pay him the same as NU would have done (because the Winterthur commission structure was so confusing, he said).

So before I ask him axactly how am I paying for this advice, I want to get some idea of what is 'normal'. I assumed he'd earn a commission, but I didn't think it'd be coming out of my fund - I assumed the provider paid for that.

dunstonh

So before I ask him axactly how am I paying for this advice, I want to get some idea of what is 'normal'. I assumed he'd earn a commission, but I didn't think it'd be coming out of my fund - I assumed the provider paid for that.

To be honest, these are questions you should be asking him.

However, with pensions and commission, normally the providers pay the commission out their own money but get it back over the years in the annual management charge. Commission is not a good guide to what your charges are. For example, some of the lowest commission payers have the highest charges and vice versa. As I mentioned before, NU periodically up commissions but do not change the charges when they do.

I can understand his fustration with Winterthur although I know advisers that like them. It does appear to be a love/hate relationship. Could be due to the fact that Winterthur are selective in their contact with IFAs.

As for work, it takes about 2 minutes to get an NU quote. Although the research in provider and funds and prepping a report can take many hours (typically 5-6 hours on a quality report).

The adviser is within their rights to turn round and say that they do not wish to transact on commission terms and be fee only but only from that point onwards. It cannot be done retrospectively.
He may be getting vibes from you that give him the impression that he is going to be doing a lot of work and not earn much from it.

I dont know what your relationship is with him or the size of your business. It could be that your case is not viable for the length of time and amount of work or it could be that hes a moody git and wants everything on a plate. Its hard to tell which from your posts.

whiteflag_3

dunstonh wrote:

Although the research in provider and funds and prepping a report can take many hours (typically 5-6 hours on a quality report).

or 5 to 6 mins if hes from Positive Solutions!

I find it bizarre that "keyfacts" about the cost of our services docs are given out at the begining of a meeting yet there seems to be ongoing confusion on how the adviser is being paid.

dunstonh

or 5 to 6 mins if hes from Positive Solutions!

Speaking of naff.. I act as a consultant to a couple of IFAs who are members of Personal Touch and their standards and knowledge are disgraceful. I suppose that is what happens when you get a flood of ex Pearl and AXA head office staff running the compliance of a newbie network. Although the fact that those IFAs need another IFA to act as consultant to them also says a lot about their quality as well.

EdInvestor

Although the fact that those IFAs need another IFA to act as consultant to them also says a lot about their quality as well.

Amazing. :eek:

dunstonh

I was being a little cruel to them. They are IFAs but majority of their business is protection and mortgages. They are not at all Investment savvy. They ought to be mortgage advisers really. Still, whilst they are willing to pay me to do their work, I dont mind.

Titan

I was under the impression that the commision to IFA's is paid out of a members fund, the way this works is as follows:

You pay a management charge to the life office or investment house you are investing with, they split this into whatever they agree to pay to the IFA and the rest is their income. Works the same for initial commision.

So, if you want to know which investment is cheaper then you have to check the charges applied to it from the life office or investment house. If the IFA is going to get paid anything other than this, then he must draft an agreement that YOU as an investor will then sign. So read every bit of paper that you're given before you just sign it! Although most IFA's will make you aware of what the document you are signing means...


Titan

dunstonh

Commission can be paid a number of ways.

It can be a direct commission = deduction from the fund. Or it can be the insurance company paying up front but then getting it back over the years through the annual management charge. With stakeholder pensions and many personal pensions, it is the latter. With SIPPs and Hybrids SIPPs and some personal pensions, it can be the former.

The thing to note is that commission does not equal charges. You can get a 1% stakeholder pension that pays more commission than a 1.5% stakeholder. You should never mix up commission and charges. Just look at charges as that is what you pay.

MarvinWantedMore

I'm pretty clear on the charges Winterthur are making - including the slighly higher charges for external funds - and I've no problem with paying more in management charges for better performing funds (which is what made me select Winterthur over NU).

I also have no problem with IFAs earning a reasonable income from either fees/commission/both - but I was surprised that over 50% of my first year fund was going directly to the IFA (excluding management fees to Winterthur). I suspect he's decided to include a fee as well as commission, and trail commission, in his payment and has not told me the full story.

It looks like the only way to check what I'm being charged is to ask him the question (not easy when he's such a stroppy fellow and waffles and bluffs and avoids direct questions......). And then I'll be looking for a new IFA.