Stocks and Shares ISA from IFA

jimjames

Deru wrote: »

Hi Jim,

Slight misunderstanding. The £25 per month charge is the fee I'm paying to the IFA each month. Not fees/charges for this ISA. This product, I'm paying 4.5% to the IFA per contribution (i.e. 4.5% of £250 each month) and around £50 per year.

25K! Considering I'm only paying £250 per month, I'm miles away.

I don't exactly earn that much (less than 20K pa). Is this product really suitable for someone that's drip feeding rather than paying in 10K+ lump sums? Is it suitable for someone with my level of income?

He did say this was a 5 year thing in order to see good returns but he also said that each contribution will only see good returns after around 5 years but as I'm drip feeding, each £250 will need to wait another 5 years if it's recently contributed. So 2 years in, the £250 I pay in tomorrow will need to wait another 5 years to be worthwhile, which makes me think lump sum is the only good way to go unless I'm really really patient. (did that make sense?)

If that's the case, wouldn't I be better off transferring 3K into the S&S ISA? I'm guessing transfers incur the same 4.5% charge.

I'm just thinking how much I'd need to invest and how long before I even cover all the fees I've already paid plus the ongoing £25 per month and £50 per year at my level of investment.

Oh and thanks for your time, dunstonh, jim. Much appreciated.

You could always transfer the S&S ISA to another provider that doesn't have those charges. One like Hargreaves Lansdown, iii or Best Invest would not incur 4.5% charge on all your payments. That means your investment has to rise by 4.5% just to pay that charge.

What is the £25 per month fee that you pay the IFA for? Do you have other investments with this IFA? £25 a month fee on £250 contributions sounds incredibly high unless it is for other services. It sounds very confusing if you are paying £25 per month plus 4.5% on each contribution. To me that sounds like 14.5% of every payment is going in charges! Not as bad as the pension plan I was sold but it is very high for something as simple as an ISA! Would a IFA actually advise that it was not cost effective for someone paying small monthly amounts to do this because the charges are so high?

As an example of a non IFA product for my ISA I pay 0% inital charges and no ongoing fees other than the charges on the funds themselves (approx 1.5% pa) which you are probably paying as well.

Deru

Do you have other investments with this IFA? £25 a month fee on £250 contributions sounds incredibly high unless it is for other services.

Also do my pension through them. That and my income protection and critical illness with life cover.

Would a IFA actually advise that it was not cost effective for someone paying small monthly amounts to do this because the charges are so high?

That's what I'd like to know. Maybe it would be cost effective after 10-20 years?

To me that sounds like 14.5% of every payment is going in charges!

If not including the £25, it'd be 7.1% currently but only with new money paid in and if I'd stopped using the IFA, they'd get the 4.5% commision for each new payment but I wouldn't be paying the £25 each month. If I stopped paying, then there'd be no charges beside the £50 per year. Which sounds fair. At the end of it, I'd like to be able to earn back the charges and make something out of it. Going to ask how long that would take and whether I should transfer some funds from the Cash ISA. I mean, no point doing all this if in 5 or 10 years time, the charges eat up all the money made. Hoping that won't be the case. If I took out the money now, all charges paid up till now will be for naught so I'm thinking I'm better off sticking with it but doing it slightly differently than drip feeding £250 each month. Maybe pop in 3.5K or something straight in.

dunstonh

Some IFAs charge a retainer. It is just a different way for paying for servicing. However, some are greedy and charge a retainer, keep trail commission and keep initial commission or charge fees on top. Deru has another thread going in another section and its clear that this IFA is being greedy. Normally you choose servicing and pay for that with things set up being done cheaper or at no cost because you are paying for servicing or you choose transactional where you pay as you use. Typically this is more expensive as each transaction is done but you only pay each time you do a transaction.

A transactional adviser is likely to take the full cut on a monthly contribution. However, it will be a long time before it is profitable. e.g. £50pm @ 3% (the typical max) is £1.50pm. After 5 years, the IFA has been paid £90. To use a servicing adviser on a small amount would be more expensive as you realistically have to be paid at least £500 a year to be cost effective. So, whilst the servicing adviser may put the transactions through with little or no initial charge, it is more geared to people with larger holdings.

jimjames

Deru wrote: »

Also do my pension through them. That and my income protection and critical illness with life cover.

That's what I'd like to know. Maybe it would be cost effective after 10-20 years?

If not including the £25, it'd be 7.1% currently but only with new money paid in. If I took out the money now, all charges paid up till now will be for naught so I'm thinking I'm better off sticking with it but doing it slightly differently than drip feeding £250 each month. Maybe pop in 3.5K or something straight in.

The charges will be the same if you put in a lump sum or drip feed. At least with drip feeding you reduce the risk of a drop in the market after your lump sum goes in.

You have to include the £25 in your calcs as it is a cost you pay; Dunstonh has even suggested that the IFA is being greedy with what you are being charged. Maybe more moderate than the words I'd use but I was in a similar situation ripped off over a high costing pension plan many moons ago.

Maybe its worth speaking to the adviser and saying that paying initial charges when you are also paying a fee doesn't seem right and it should be one thing or the other not both.

Deru

hi, Thanks for the reply.

I can agree with that. I thought it was either commission OR pay something upfront for their services but don't think there are any rules on that. Is this even normal? Not used any other IFA befre. That and 4.5% is at the higher end of the charges they're allowed.

The charges will be the same if you put in a lump sum or drip feed. At least with drip feeding you reduce the risk of a drop in the market after your lump sum goes in.

Sure, but something good about this Skandia is that it spreads the money across differnt markets so if one goes down, the rest may do well. Drip feeding is very slow in getting returns is the problem I'm looking at.

Maybe its worth speaking to the adviser and saying that paying initial charges when you are also paying a fee doesn't seem right and it should be one thing or the other not both.

He'll probably come back and say I agreed to it and signed up, which I did. It's just that I've only realised how much the fees amount to. May seem less significant if I had more money invested but that would take time.

At the moment, I'm leaning towards paying a lump sum in. Even 5K as that still leaves 3.5k i.e. around 3 months pay, as my safety cushion for if things go pear shaped.

smallfry27

dunstonh wrote: »

Actually, the average was recorded by the FSA over a number of 6 month periods and it came out at 1.8% plus 0.5%.

I've been told by another IFA that the 1.8% average is calculated over all forms of buying funds, including non-advised fund supermarkets which are sometimes 0%.

hbakhshi

Quite simply you are being ripped off! Combining the rate at which you are being charged along with the rate of return on your investments means the only person making anything at all is your IFA..!!

You could consider transferring your ISA into a simple tracker which charges less than 0.5% a year all in. This would give you time to figure out what you wanted to do long term.

Also 5% annual return over the last year is not that good, the market has shot up with the FTSE 100 up 17% in the same period.

I've used Virgin Money in the past and I know HSBC are good. Alternatively you could Self-Select from a fund supermarket.

For the record, I buy my redundancy cover direct from Aviva and also manage my pensions myself now.

dunstonh

I've been told by another IFA that the 1.8% average is calculated over all forms of buying funds, including non-advised fund supermarkets which are sometimes 0%.

it didnt include non-advised as they were not recorded (the FSA split business non advised and advised). It did include advisers that operated on fee basis or no initial commission. That was the whole point though. To show that what you could get. It also included tied agents are are max commission every time. So, if anything, that probably pushed the average higher.

Deru

Hi all

Thanks for responses up till now.

Deru has another thread going in another section and its clear that this IFA is being greedy. Normally you choose servicing and pay for that with things set up being done cheaper or at no cost because you are paying for servicing or you choose transactional where you pay as you use.

Glad you think so. Was starting to think it was all me making a fuss over nothing when this is how they all worked.

My IFA has said that he'll let me transfer my Cash ISA of 8.5K for free (so no 4.5% charge), as a goodwill as he's also leaving the company soon. I've verbally agreed to do it as it sounds good to me. That'll be 13.5K in there.

I could stop using their services after I've got my head round everything as well to stop the £25 retainer monthly charge? and also stop paying in my £250 and just put that back into the Cash ISA (if that still exists after the transfer). What do you guys think?