Financial Planner - Typical Charges?

Meeper

I agree with Dunstonh - the bond is not required and a mixture of ISA and Collective is more appropriate in this case.

dunstonh

The bond info is in the links below, kindly provided by jem16.

http://library.adviserzone.com/wrapib17a.pdf

https://www.adviserzone.com/adviser/.../remuneration/

That is the platform it is going on. However, what is the investment fund?

Basically, that will tell us if the fund is available on all the wrappers or if it is one of the unique funds that is only available on insurance based contracts (like own brand funds).

I cant see any benefit to the IFA recommending the bond. So, that cant be an incentive. However, as already covered, there seems no benefit to the individual either.

jem16

dunstonh wrote: »

That is the platform it is going on. However, what is the investment fund?

I believe Toki gave this information back in Post 29.

Toki wrote: »

Okay, that makes sense, his estate will get back whatever is left if he dies then.

The fund is "Standard Life MyFolio Multimanager IV Life Fd"

I can't see any mention of fees to exit at anytime. Again, can't see any mention in the report that this will be written into trust. Will have to ask her this also.

He also gives the RIY back in Post 25

Toki wrote: »

The bond also states "How could this affect the growth rate? - Charges will reduce investment growth to that date - In year 3 from 6% to 2.5% a year. in year 5 - from 6% to 2.9% a year. In year 10 from 6% to 3.2% a year. In year 25 from 6% to 3.4% a year" Again does this seem high? It does to me. He would be better putting some into a high interest bank account and the rest into a 5 year fixed bond surely? That would pay more than 2.9%. Appreciate these figures are only guides as it could under or outperform this.

RIY at Year 3 is 3.5%, Year 5 is 3.1% and Year 10 is 2.8%.

How does that equate with a Fund amc of 0.7%?

Toki

jem16 wrote: »

RIY at Year 3 is 3.5%, Year 5 is 3.1% and Year 10 is 2.8%.

How does that equate with a Fund amc of 0.7%?

Possibly due to the CFP taking 3% from the initial amount? She recommends putting £20k and she gets £600 of that up front.

Toki

dunstonh wrote: »

That is the platform it is going on. However, what is the investment fund?

Basically, that will tell us if the fund is available on all the wrappers or if it is one of the unique funds that is only available on insurance based contracts (like own brand funds).

I cant see any benefit to the IFA recommending the bond. So, that cant be an incentive. However, as already covered, there seems no benefit to the individual either.

The fund is called "Standard Life MyFolio Multimanager IV Life Fd"

Surely the benefit to the CFP is that she is getting £600 up front and ongoing 0.75% where if my dad kept the money himself and put it in a high interest account, then stuck half of it in a cash ISA next year, he would be £600 up already, depending on the fund performance obviously.

dunstonh

Thanks, I missed the fund info post.

Ignoring the initial charge, a fund AMC of 0.7% would see a reduction in yield of around 0.8% (typically you add on 0.1%). By year, 10, even with the initial commission of 3%, the RIY should be getting much closer to 0.8% figure as that 3% initial gets diluted by the years.

Does it say which series of fund it is? Std life have issued multiple versions of that fund.

S1 have an AMC of 1.05
S2 =1.55
S5 = 0.95%

Surely the benefit to the CFP is that she is getting £600 up front and ongoing 0.75% where if my dad kept the money himself and put it in a high interest account, then stuck half of it in a cash ISA next year, he would be £600 up already, depending on the fund performance obviously.

The CFP could get the same remuneration in any tax wrapper. Thats the bit that confuses me. There is no gain for the CFP. Yet using the bond doesnt seem as suitable as using unwrapped (with a view to using ISA allowances over the years).

jem16

Toki wrote: »

The fund is called "Standard Life MyFolio Multimanager IV Life Fd"

Toki this might help explain the different charges between the Bond and ISA.

http://library.adviserzone.com/gen877c.pdf

Looking at that I think she has given you the AMC of the Market MyFolio Funds as opposed to the MultiManager range that you say it is.

However it doesn't paint the whole picture. Looking at the chart the fund you are being recommended has an AMC of 0.95% (which is what dunstonh mentions for S5 funds). There is then an Additional Expenses charge and a rebate to take into account making the Effective Charge 1.51%. This is for the Bond.

For the same fund in an ISA the Effective Charge is 1.71% as the Bond uses the Life Fund and the ISA uses the OEIC Fund.

Added to both of these will of course be the 0.75% IFA remuneration.

Now on first glance this appears to say that the Bond is in fact cheaper than the ISA to hold this fund. However on looking at the Platform Charges, it says that the ISA and Personal Portfolio Charge is 0.4% and the SIPP/Bond Charges are 0.6%.

http://library.adviserzone.com/wrap49.pdf

Now what I'm unclear on - and perhaps dunstonh can help out on this - is whether that charge is built into the Effective Charges or whether it's added on. If it's added on then the Fund is 2.11% for both ISA and Bond which would be normal. This would also make sense with the RIY as 2.11% in Fund/Platform charges plus IFA fee comes to 2.85%.

Now of course the question is, with the charges appearing to be identical as you would expect on a wrap platform, which fund version performs better after charges - the Life version or the OEIC version?

Toki

Thank you both dunstonh and jem16 for your time in researching this.

My gut feeling is neither is worth those hefty charges and to advise my dad to take the £20k and put it into cash ISA when he can this year and April 2012. I'm going to ask the CFP if he can go ahead with the pensions and leave the bond out of it, with no further charges. My gut feeling is she is trying to get everything on the wrap for her own personal gain, rather than my dads. I'll keep you both posted on this.

jem16

Toki wrote: »

My gut feeling is neither is worth those hefty charges and to advise my dad to take the £20k and put it into cash ISA when he can this year and April 2012.

It will take almost 4 years for your dad to shelter the £20k in a Cash ISA as the annual limit is just £5340 for cash but £10,680 for S&S. It's up to you and your Dad but cash ISA rates aren't particularly good at the moment with few managing to keep up with inflation. The S&S ISA has a better chance of returning an above inflation rate even after charges.

My gut feeling is she is trying to get everything on the wrap for her own personal gain, rather than my dads.

I'm not so sure about that. Your Dad requested income to supplement his pension. He is potentially going to lose £1,000 of that income so how would he make that up? A cash ISA plus savings account will soon lose its value if taking £1kpa as well as making less interest than inflation.

The problem is not the wrap, nor indeed the actual advice per se. It's just that we don't see the need to use a Bond when a S&S ISA could be used instead.

Perhaps you and your Dad could arrange an appointment where you both see the IFA and ask her to show you, with actual charges of Bond and ISA, why she favours the Bond route and not the ISA route over say 5 and 10 years. A face to face discussion with all 3 of you would probably be better ,

Toki

jem16 wrote: »

It will take almost 4 years for your dad to shelter the £20k in a Cash ISA as the annual limit is just £5340 for cash but £10,680 for S&S. It's up to you and your Dad but cash ISA rates aren't particularly good at the moment with few managing to keep up with inflation. The S&S ISA has a better chance of returning an above inflation rate even after charges.



I'm not so sure about that. Your Dad requested income to supplement his pension. He is potentially going to lose £1,000 of that income so how would he make that up? A cash ISA plus savings account will soon lose its value if taking £1kpa as well as making less interest than inflation.

The problem is not the wrap, nor indeed the actual advice per se. It's just that we don't see the need to use a Bond when a S&S ISA could be used instead.

Perhaps you and your Dad could arrange an appointment where you both see the IFA and ask her to show you, with actual charges of Bond and ISA, why she favours the Bond route and not the ISA route over say 5 and 10 years. A face to face discussion with all 3 of you would probably be better ,

Of course, I wasn't thinking, and stupidly calculated using the £10,680 ISA allowance.

Thinking more about it, you may be right. As you know I am sceptical about the charges but maybe should talk it through again to make sure everything is right.