High Pension and ISA Commissions - Have I been mis-sold ?

colshandy

My partner and myself took out a mortgage related ISA (stocks and shares including life and critical illness cover) in approx 2002 through an IFA and have been contributing significant amounts since that date.

Only recently I have discovered that the charges on this product are very high (the initial charges are reactivated for 2 years after any increase in contributions into the ISA (total combined charges from total payments of £79k was £15k - in the region of 19%of contributions. There are other charges e.g. monthly management fee but these are relatively small...

I pointed this out to the IFA but not made a formal complaint yet.

On requesting from him exact commission he received from the initial charges, his commission works out at about 86% of the charges.

He made a proposal verbal and emailed proposal towards offering something back (about 1/2 of the charges) in way of a rebate, however the bulk of monies he is proposing to give back are mainly commission from further products he proposes we take out (transfer of existing funds into new ISAs and life assurance as the old product had life insurance included), products which I now realise I can get myself for less money/charges.

I would appreciate some general advice to help me proceed and make the best out of this situation. Can you please advise:

a. Whether he has broken any professional code
b. Is he obliged to rectify the situation
c. What rights do we have and best course of action to take.

We have also taken out several pensions through himself and on speaking to one pension provider directly I have been informed that he received over £6k for transferring one pension plan (similar plans but I cannot recall his reasons for proposing the switch) to another and this sum came out of my contributions directly. This commission seems completely disproportionate to the amount of work he would have done to make the switch. Any advise on this also would be appreciated.

Products are from several years ago and I do not have the original paperwork but clearly if I knew the magnitude of the charges/commission I would not have taken these products out.

Any advice greatly appreciated...

dunstonh

I pointed this out to the IFA but not made a formal complaint yet.

Probably a good job as there is no complaint to answer here based solely on what you have written so far.

On requesting from him exact commission he received from the initial charges, his commission works out at about 86% of the charges.

That is almost certainly not the case unless the provider has paid up under indemnity commission where they pay up front a large amount but nothing ongoing. It doesnt cost you any more if they do it that way as the provider takes the risk.

On typical maximum commission basis on level terms, the figure are typically around 3% of each contribution and 0.5% p.a. of the fund value. In many cases that is cheaper than going direct to fund house without using an adviser.

a. Whether he has broken any professional code

No. If you employ an adviser on commission basis rather than fee, then they will be paid commission.

b. Is he obliged to rectify the situation

As there is no wrong doing then he has nothing to rectify.

c. What rights do we have and best course of action to take.

You can complain and burn your bridges with that IFA but you have limited chance of success. The adviser documents given to you tell you the fees and commission. The providers also issue paperwork direct to you that tells you the fees and commission. So, complaining 9 years later that you didnt know the adviser was being paid for doing his work is unlikely to be successful.

We have also taken out several pensions through himself and on speaking to one pension provider directly I have been informed that he received over £6k for transferring one pension plan (similar plans but I cannot recall his reasons for proposing the switch) to another and this sum came out of my contributions directly. This commission seems completely disproportionate to the amount of work he would have done to make the switch. Any advise on this also would be appreciated.

Nothing wrong with any of that. Again, this is what happens with commission. If its 6% then its 6% on £1000 or 6% on £100,000. That is the nature of it. That is why fee basis is nearly always considered best.

The IFA would have been required as a mandatory requirement, to compare the pension to a stakeholder pension and others using the charges you are paying. Thinking of those providers that allow 6% commission, there are plenty that will pay that to the adviser and still give you lower charges than nil commission stakeholder pension.

Again, the illustrations issued by the adviser at point of sale and by the provider in the post direct to you afterwards as confirmation would have documented the commission level and the fees you paid.

You are focusing too much on commission and not on what you are paying. Yes, you should have gone fee basis but you didn't. As I said, the pension paying 6% can be cheaper than a pension paying 2%. Would you rather be in the more expensive pension that paid the adviser less but charged you more? You dont go to Tesco and complain that they are making 16% profit on an item. You look at the price you pay and the same goes for retail financial products.

Products are from several years ago and I do not have the original paperwork but clearly if I knew the magnitude of the charges/commission I would not have taken these products out.

2002 was 9 years ago. A lot has changed since then. Product charges have got lower and most IFAs now work on fee basis. Back then commission was the norm and product charges were higher. Not taking the product because of what the adviser was paid is daft. Especially if it was cheaper than what you had. Could you have got cheaper? Probably yes had you done it on fee basis. However, we dont know the size of the pension pot or the level of payment on the ISA. So, cant really say until we do.

In future go fee basis. Then you will not have to worry about this.

roonaldo

Are you try to do an IFA out of his commission? What is this website coming to!

magpiecottage

colshandy wrote: »

Only recently I have discovered that the charges on this product are very high

The charges would have been in the illustration and "Key Features" document you were provided with when you took them out.

If you have "only recently discovered" this, I think it is reasonable to ask why you did not take the trouble to read them, and raise any concerns nine years ago.

the initial charges are reactivated for 2 years after any increase in contributions into the ISA total combined charges from total payments of £79k was £15k - in the region of 19%of contributions.

This sounds implausible. Legally, each year you take out a separate ISA. The provider cannot go back and change the terms of the previous one simply because you have taken out another one the next year. Each year's ISA MAY incur its own charges.

On requesting from him exact commission he received from the initial charges, his commission works out at about 86% of the charges.

That reflects not only his profit but his costs which are proportionately far higher than the provider's. As DunstonH says, this can be avoided by paying a fee. However, that is not necessarily cheaper.

One IFA I know takes 5% commission. Another charges a fee £800. Even on the maximum investment the commission is cheaper - ignoring the fact that the commission is not subject VAT but the fee is.

Can you please advise:

a. Whether he has broken any professional code[/quote]
No

b. Is he obliged to rectify the situation

No

c. What rights do we have

You can take your business elsewhere

and best course of action to take.

Read Martin's Teen Cash Guide. and learn that any business is there to relieve you of your money. Do not let it do so unless you are satisfied that what what you are getting in return is worth enough to you to justify paying that amount.

We have also taken out several pensions through himself and on speaking to one pension provider directly I have been informed that he received over £6k for transferring one pension plan (similar plans but I cannot recall his reasons for proposing the switch) to another and this sum came out of my contributions directly. This commission seems completely disproportionate to the amount of work he would have done to make the switch. Any advise on this also would be appreciated.

Products are from several years ago and I do not have the original paperwork but clearly if I knew the magnitude of the charges/commission I would not have taken these products out

Again, if you had read the illustrations provided at the time you would have understood.

However, older pension plans had considerably higher charges than modern ones. A switch could mean an initial dip in fund value but a longer term better outcome.

For example, moving from an annual charge of 2% to 1% might cost 5% of the fund value but after 5 years, assuming the same returns on the underlying investments, you break even and after that you are better off. That is why the point DunstonH has made about what the adviser is paid is not relevant.

However, you could ask the adviser for a copy of his suitability letter, that would have been sent to you at the time. This should clarify the reasons for his recommendations.

dunstonh

That reflects not only his profit but his costs which are proportionately far higher than the provider's. As DunstonH says, this can be avoided by paying a fee. However, that is not necessarily cheaper.

On a small regular contribution, commission basis will almost certainly be cheaper. If you use the typical 3% per contribution and say £100pm then the IFA gets £3 pm. If the cost of advice is £750 (no VAT chargeable as intermediation) then it would take 250 months before fee option is cheaper than commission.

My guess is that the ISA provider indemnified the commission in this case rather than pay level basis. In which case, the commission has no direct link to the level charges paid.