Financial Advisor question

Matty_Neth

My mother has a number of unit trusts and ISA's that she has funded via her Financial Adviser. I am not happy with the service the adviser provides - she receives 1 statement a year from him, and after he tried to sell her an investment fund investing in some dodgy american scheme she hasn't heard a thing for 2 years. Still he still sends her a £150 bill annually for this!!

Anyway, she wants me to take over looking after her finances. I guess she can write to the investment companies that have her investments to get the latest investment balances, and close them down if you wants to?

What I'm trying to say is how can she break the contract with the poor financial adviser to stop paying him money? As he set up the funds for her?

any advice to a newbie to the board

cheerfulcat

Hi,

Your mother can move the funds to a discount broker ( I use Hargreaves Lansdown but there are others ) if she wants to keep the investments but break the link with the financial adviser. She doesn't need the IFA to do this. If she wants to sell, she can also do this without him; as you say, she can write to the companies directly, or phone them to get the relevant forms.

HTH

Cheerfulcat

dunstonh

To be charged an annual fee retention your mother would have signed an agreement. This agreement can be cancelled in writing.

dunstonh

If you do not wish to transfer them to a discount broker remember that even if the agreement for £150 is cancelled that your mum's IFA will proabably still earn annual commission from the unit trusts fund managers

Not if he has taken fees instead of commission.

If unhappy with an IFA, I would not want him to earn this commission. To stop this you can write to the fund managers (I think) and say that you have no IFA. The fund manager will then retain the commission themeslves! Your mum will not benefit by doing this but at least she can rest in the knowledge that neither will the IFA!

Not necessarily. Many providers treat trail commission the same as initial and consider it an entitlement due to the advisor taking lower initial commission instead of full up front (known as indemnity). They will continue to pay it even if a transfer request of cease request comes in.

dunstonh

I understand that IFA's can take a fee and commission as well, in fact I think I remember a post from yourself saying that. Is that correct?

Presently they can. I believe that will not be allowed later this year on new business transacted after the date it applies (I think its June/July time but I dont have my reference material to hand on that).

I have on occassion charged for initial advice but then rebated it against the commission (to cover costs of transfer analysis for example which I have to pay whether the transaction happens or not). I can imagine there have been some that have not rebated that or have double charged.

Also, the fee that Matty Neth pays seems to be a fee for maintaining a portfolio. Would that be payable in addition to any fee paid for advice/commission paid for any money invested or would it cover that as well?

This is where it is still a bit vague. Was the original fee/commission for transacting the business? Is this retention fee for ongoing review/report? Are the two things considered different? The spirit of it is that you pay by one means or another although the hybrid option of agreeing a fee and having the commission meet that with any shorfall/surplus being dealt with by the client can apply.

Can you tell me what happens to the initial commission if someone pays for advice on a fee-only basis? Would it be rebated as cash, or added to the investment or kept by the fund manager?

This is also a tricky area as most initial commission has a clawback period which can last upto 5 years. If initial commission is rebated back to the client, an agreement is usually signed that agrees for the client to repay any clawback suffered by the IFA. Often the easier way is to alter the allocation of the plan so the commission is in effect going into the plan. If the plan is transferred, then there is no problem and if the client ceases/surrenders, it is handled within the plan itself.

The easiest method, which is the one I use, is select the lower annual management charges. This is usually the most cost effective over the long term and can knock around 0.5 to 0.6% off the annual charge.

Similarly, what would happen to the annual renewal commission?

renewal commissions are taken at the expense of lower initial commission. So if full initial is taken and allocated to the plan or rebated then there will be no renewals. Same if the annual management charge is reduced.

I dont know why some of these discount brokers refund renewal commission instead of chosing to reduce the annual management charge. Perhaps it is because many of them restrict themselves to using one fund supermarket provider and that provider doesnt allow that option.

Personally, i would prefer to take the £25 fee and submit the application on a no commission, reduced annual management charge basis and then forget about it rather than getting paid the trail (which is paid monthly) and then rebating that once a year. The admin for that must be a big hassle. Then again, they get to sit on the trail for upto a year and earn interest on it. I would think the amounts involved with these discount brokers are not small so the interest would be quite sizeable.

BTW, If the insurer/plan provider does allow commission to be ceased, they get to keep the money instead.

Matty_Neth

thanks for the replies - this has helped me alot.

The £150 annual fee it would appear simply relates to maintaining her portfolio. Having gone through literally a mountain of statements and correspondence with the fund managers of her funds at the weekend (statements going back 11 years!), it transpires that my mother only actually has funds in 3 unit trusts + her private pension fund. I put together a simple spreadsheet (just like her financial advisor has done) showing her a breakdown of what she's got which took me about 2 minutes to put together and she is now very happy.

I'm drafting a letter for her to send to her now ex-financial advisor and hopefully there won't be any problems.