Financial Advisor HUGE Commission????

SouthwickJohn

I have recently signed up for a pension, I am still within the 30 day cancellation period and I am very nearly doing so due to the size of commission that the Financial Advisor is getting.

Basically I'm paying a meagre sum of £200 a month and I gave him a cheque for £4k - He gets £1700+ for the regular contribution and £425 for processing the cheque.

Is this right, i.e. is it industry standard or is this outrageously expensive. I don't want to cancel it and find I cannot get it cheaper elsewhere??

bendix

It's your choice. For that sort of contribution, I can't understand why you'd use an IFA at all. Read a book. Read this forum, and do it yourself.

Pensions are easy. Money in, money out. Bingo.

Cautious_Investor_3

SouthwickJohn wrote: »

I have recently signed up for a pension, I am still within the 30 day cancellation period and I am very nearly doing so due to the size of commission that the Financial Advisor is getting.

Basically I'm paying a meagre sum of £200 a month and I gave him a cheque for £4k - He gets £1700+ for the regular contribution and £425 for processing the cheque.

Is this right, i.e. is it industry standard or is this outrageously expensive. I don't want to cancel it and find I cannot get it cheaper elsewhere??

Hi

A few points here:

1. I think using an IFA is worthwhile if you don;t wish to do this yourself, they will help you look at the entire pension market to help you choose the right contract and provider.

2. I would say what you are being charges is hugely over the top. Take a look at the reduction in yield figure on the illustration, I'd love to know what this is. Also look at your transfer value at the end of year one, it should be approximately the same as you have paid in, if it isn't you know where the money is going

3. Whilst the premium is not massive and no IFA is going to get rich on it you deserve to be charged a fair fee not represent a windfall profit for the IFA. I'd suggest a 3% fee is fair i.e. £120 for the cheque and 3% of each contribution being made. Far less than you are being charged! Of course the actual fee depends on what the adviser is doing for you etc and as I say it is the sort of business an IFA might transact in the hope of you becoming a long term client, it is almost a loss leader for them.

Unfortunately this is the sort of IFA that gives the industry a bad name.

I hope this helps.

The Cautious Investor

PS which provider did he or she recommend?

sandsy

The FSA used to publish market average commission rates up to 2007. The last set of average commission rates in relation to pensions were as follows:

10 year regular pension: 18.5% of 1st year's premium
25 year regular pension 31% of 1st year's premium
Single premium pension 5.5% of investment

The published figures took into acccount both initial and trail commision and were based on the present value of the expected commission payments.

dunstonh

Is the £1700 for the provision of advice and liability or were you just using them to submit an application for on your behalf?

Is that £1700 a commission or a fee?

For £200pm, the typical maximum commission you would expect is £1200 (50% of year one premium). So, the figures you mention sound like a fee. Some IFA firms price themselves so they look cheap for higher net worth clients but expensive for lower net worth. One larger regional firm near me has a minimum fee of £2000 irrespective of the transaction. So, in your case that would be expensive but for someone investing £200,000 its cheap.

What is the reduction in yield on the pension? (near the back of the illustration it will have an effect of charges that reduces 7% to x%). A stakeholder pension is your benchmark at 5.9%. 6% or above is better. 5.8% or below is worse. External funds cost more so you would expect around 5.2-5.5% with those.

It is possible for pensions with no commission to be more expensive than pensions with £3000 commission. So, you need to look at the cost you are paying and not necessarily what the IFA is being paid as the two things often not the same thing.

adrewetx

I'm no pension guru, but I have recently started to use an adviser and paid nowhere near that kind of fee.

Depending on how much time you have left to cancel the arrangement, I would quickly call 2 other IFA's including a nationwide network and another local financial adviser. Explain your situation to them and ask them for a quote.

Although I think IFA's are extremely useful, my gut instinct is that no IFA should be charging almost a 3rd of your investment as a fee.

SouthwickJohn

dunstonh wrote: »

Is the £1700 for the provision of advice and liability or were you just using them to submit an application for on your behalf?

Is that £1700 a commission or a fee?

What is the reduction in yield on the pension? (near the back of the illustration it will have an effect of charges that reduces 7% to x%). A stakeholder pension is your benchmark at 5.9%. 6% or above is better. 5.8% or below is worse. External funds cost more so you would expect around 5.2-5.5% with those.

The plan states it is initial commission.

The reduction in yield is 4.60% which I'm guessing is pretty shocking!

dunstonh

The plan states it is initial commission.

That doesnt mean it is though. It could be a fee being paid through the commission system.

The reduction in yield is 4.60% which I'm guessing is pretty shocking!

That is shocking and disgraceful. It shouldnt get below 5%.

If internal funds are used only then you should be expecting around 6.x% as that figure. Indeed, if you are in your low 30s, you could see it at around 6.5% on that premium (on typical max commission basis. If external funds are used then you would expect it to be more expensive as they cost more. However, better than 5% is what you would expect.

SouthwickJohn

dunstonh wrote: »

That doesnt mean it is though. It could be a fee being paid through the commission system.

I have spoken to Aegon the pension provider, they have already paid it. The letter of cancellation is on its way!

dunstonh

Aegon's personal pension is a fee based one. The adviser sets the fee and collects the fee via the commission system. Its a very good pension but it can be open to abuse. For example, I have used the FAF version of the aegon personal pension the last week and took £600 as the fee (via the pension) and the reduction in yield from 7% was to 6.4%.

So, if you do go to another IFA and they recommend Aegon, don't automatically think bad. You know where to look now for the reduction in yield now (all providers have to show it on pensions). So, check there first.