Do You Need Financial Advice? When To Get It, When Not To Get It Discussion Area 20 October 2006 at 11:54AM edited 30 November -1 at 1:00AM in Savings & Investments 291 replies 71.3K views

Former_MSE_Archna

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Do You Need Financial Advice? When To Get It, When Not To Get It Article

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Chrismaths

Just a quick note on the fees vs commissions debate - it is possible to get the best of both worlds.

The benefit of paying a commission rather than a fee is largely that fees are subject to VAT (costing you an extra 17.5%) where as commissions are not.

Simple solution - agree a fee with your IFA, and then pay it to him as a commission. So if you agree a fee of £500 +VAT on an investment of £50,000, get him to take a commission of 1% (£500) saving yourself £87.50.

I'll read through the rest of the article and see if there are any other bits to note.

lisyloo

Surely it depends on what length of time the commission is over (on pensions for example it could be paid for 40 years).

We took out an ISA a long time ago.
We paid £100 plus £17.50 VAT (1999 so will be more now) but we get serveral hundreds back each year in rebated commission.
As it's been 7 years now we are quid in.

I would suggest that the probably length of the contract needs to be considered in the equation as well as other factors.

dunstonh

On annuities, it has been noted in the pensions section on a few occassions and I have tested it as well, that IFAs can beat the companies you mention.

On investments, you have only mentioned the differences on areas to invest but you also have the tax wrappers to consider.

Getting a private pension these days is often a simple case of picking a stakeholder correctly

I arranged over 300 pensions transfer last year but less than 10% of them ended up in a stakeholder. The stakeholder product served its purpose on bringing charges down but it is becoming less desirable as more time passes (with exceptions). Indeed, if you have more than 20 years to go until retirement, you can get lower charges on a personal pension than a stakeholder. Plus a large number of personal pensions are identical to stakeholder when using stakeholder funds but also have access to the [often] better external funds.

Suggestions for adding would include a warning under the type of advisers section that people should avoid salesforces. Statistically, salesforces account for most mis-sales and complaints. They also work in an environment which is based on league tables and incentives.

Additionally, salesforce or employed advisers tend to get paid less commission so dont have the scope to rebate as much as the owner/partner/director firms. Two of the larger firms in Norfolk/Suffolk only pay their advisers 30% of the commission earned. 70% goes to the firm. So, they dont have much scope for rebating.

A final note, seeing as commissions were mentioned in the article, is that different IFAs will get paid different levels of commission for selling an identical product on exactly the same terms. So, consumers shouldnt focus on the commission but what they are charging. The FSA publish figures which show that IFAs do a lot of rebating of commission and the more commission earned, the more you can rebate or offset against charges.

MortgageMamma

Thanks Martin for a very useful and positive article - I'm sure this will help many people realise that professional financial advice needn't cost much if anything - and whilst its good to save money, its good that you emphasise that with larger commitments mistakes can be costly

rgarrod1

Where is the highest rate of interest to be found for a sum banked for 6 months

Chrismaths

Not relevent to this thread. Start your own, or better still, read martin's article, or the 3,000,000 other threads on this board asking the same question.

feebasedadviser

Good article Martin

i do think more can be said though. and this is something that the national media never pick up on.

there is another type of adviser (as you're probably aware), the Certified Financial Planner. this is through the Institute of Financial Planning http://www.financialplanning.org.uk and advisers MUST have the AFPC (now known as Diploma in Financial Planning). they then have to work through a case study and present a financial plan for marking by a practitioner. the emphasis is on the financial plan, which is geared around whatever the client's objectives are.

importantly, the client would pay a fee for all the analysis work, research, strategy and report. they now have a road map with recommendations. if they then want to implement the recommendations they can do this with the CFP adviser or any other adviser. there are only 600 CFPs in the UK at present but membership is growing. interestingly, the FSA regulate product sales, not an advice process. so, you could have a CFP who is non-regulated producing financial plans for clients (although they couldn't recommend products).

I think it would be useful for you to add the CFP adviser to your article. the public need to know that there are advisers out there that will help them create an individual financial plan, all geared around their objectives and the outcomes that the client wants WITHOUT the need to transact a financial product (i see many clients that should be cancelling products or investing less as they're more than on track towards whatever it is they want).

i appreciate not everyone will need the depth of the service offered by a CFP, but, as the saying goes, you don't know what you don't know!

keep up the good work!

EdInvestor

interestingly, the FSA regulate product sales, not an advice process.

Err, who told you that?

Chrismaths

It's true, but a bit of a semantic point. Advisers (CFPs, Investment Managers etc) in FSA-speak have to be able to demonstrate the suitablility of their product sales. The only way it is possible to do this is through documenting the advice process. So while FBA is technically correct, in reality the advice process is heavily regulated.

feebasedadviser

what i mean is if i ask you to complete an expenditure questionnaire and then produce cash flow forecasts for you etc without advising on products, THAT process is not regulated