IFA commissions on pensions: going up

EdInvestor

The FSA has now announced an inquiry into the whole advisor commission area and it looks clear that costs are going up.

This useful Scotsman aricle has a lot of detailed info about which company is paying what level of commission to IFAs (15% in some case :eek:) on new pensions and transfers, most helpful for anyone looking to move a pension at the moment.

If you are thinking of starting a new pension it might be better to wait a few weeks and see what Brown and Balls come up with on the ISA front - could be a better bet than a pension if they put up the annual allowances, certainly it's much more flexible.

cloud_dog

EdInvestor wrote:

If you are thinking of starting a new pension it might be better to wait a few weeks and see what Brown and Balls come up with on the ISA front - could be a better bet than a pension if they put up the annual allowances, certainly it's much more flexible.

From what the Mail indicated ISAs are 'likely' to be extended (made permanent?) but the £7k limit will remain, although the split between cash and stocks & shares could be a little bit flexible, i.e. £1k cash £6k S&S, although the £3k cash limit will remain.

As I said the above is hypothesis at the moment.

cloud_dog

lilac_lady

Useful post - I'll be working on for a few years after 60 if I can and will need advice about my pension. Anyone have any ideas of what an IFA's fee would be if I chose not to pay commission?

dunstonh

Anyone have any ideas of what an IFA's fee would be if I chose not to pay commission?

Varies on transaction. £150 per hour is a rough rate.

With regards to this article you have to realise where the pressure is coming from. A couple of years ago the FSA released a document for advisers called OP18 called to switch or not to switch. It basically told IFAs to get people out of old pension providers on high charges and poor funds and put them into modern, better plans. However, companies like Pru have been making all sorts of threats to advisers saying that if they transfer plans they could have their agency removed. They have been putting pressure on the FSA to reduce switching. Despite the FSA being the ones encouraging it.

which company is paying what level of commission to IFAs (15% in some case

Taken out of context. Whilst 15% is available within the product, it is not commission but a fee and requires a client to sign to agree the fee. Transactions such as commercial property purchase can involve heavy costs from accountant, solicitor and accountant and having the facility to have the SIPP pay those fees means that tax relief can be used to cover the fee.

i.e. £100k invested, cost higher rate tax payer £60k. Solicitor, accountant and adviser fee was £10k (10%) but the 40% tax relief makes the fee is £6k in real terms.

jamesd

dunstonh, if you don't mind citing a real example, how much might you ask for a non-advised sale of the Scottish Widows personal pension, IFA version, with all initial and trail commission going to the fund or rebated to the customer?

That talk of rates is interesting but what's lacking is generally the context: say a graph showing commission paid for all sales in 1% bands. Or at least some good IFAs posting their fees somewhere to provide a bit of context.

dunstonh

dunstonh, if you don't mind citing a real example, how much might you ask for a non-advised sale of the Scottish Widows personal pension, IFA version, with all initial and trail commission going to the fund or rebated to the customer?

Scottish Widows do not pay trail commission so no rebate available on that front. Commission rebate is not an option but with no commission taken, it would reduce the annual management charge by around 0.4% p.a.

The fee for non advised sale would still require some work. Setting up on back office software, copying all documents for file (to be held for life), issuing a letter of execution only and getting a fee agreement sorted. I would charge £100 for it with no advice given.

To add a bit of variable to it, during busy periods, I may increase the price and during quiet periods, I may lower it.

jamesd

dunstonh, thanks. Here is what the firm providing a benefits package for my employer provided in a Scottish Widows illustration assuming 350 a month in total payments from me, tax relief and employer, for about 22 years:

Commission paid during year 1: 1394.61
2 onwards: 42.00

With all of the money going to the mixed fund the fund charges are given as 1.250%.

This is with an IDD and business agreement offering independent financial advice, stating whole of market selection (is really one choice only), with financial advice (email from the person who signed the documents says none provided) and a direct question about whether they offer a fees-based option ignored.

The held for life aspect of the documentation makes me thing that advisers provide a lot of business for warehouse storage of originals and document imaging systems.