MSE News: Guest Comment: How financial advice will change for good

db7

dunstonh wrote: »

investment bonds using insurance company funds do not pay trail commission. Any ongoing commission is either paid due a reduced initial commission being paid and is therefore funded by the insurance company and not the individual (which is costed in the fund charges) or made via an explicit charge. The commission will continue until the bond ceases.

The documentation says 0.5% of the fund value is paid to the advisor every year I hold the investment. AXA themselves charge 1% so presumably they get half of this and the advisor gets the other half? And this won't change?

gadgetmind

Trail commission? What's that?

http://www.telegraph.co.uk/finance/personalfinance/consumertips/8799554/Trail-commission-Whats-that.html

"Millions of savers don't know whether they are being charged by their financial adviser when they buy investment products.

According to a YouGov survey, four out of five British savers have no idea that they might be paying commission that is deducted from their investments each year, which is known as trail commission.



These annual payments, taken from the value of investments and paid to the independent financial advisers (IFAs) who set up the policies, are worth an estimated £1.6bn a year."

Rollinghome

Lokolo wrote: »

I disagree a lot with this. As I said earlier, a lot of platforms already have announced their post RDR charging structure. My portfolio is too small for this to be cost effective. I don't want to be charged 3x what I am at the moment, which is what it is from examples such as Cofunds, whereby it will cost £40 + £9, so £49. Currently my platform is free, but I get charged the comission part whereby HL keep the rebate - effectively costing me £15-20 on £3k portfolio.

It's not total nonsense, it's the truth. Post RDR will make it less cost effective for smaller portfolios.

I agree with your part that the costs should be clearer, but I don't think the current charging structure should be banned.

I think you should read what I actually said.

I said that the pretence that it was a serious concern to IFAs that following RDR small investors would no longer get the benefit of their advice was nonsense.

People like yourself who have just started their first job and have just a tiny amount of savings wouldn't get through the door of an IFA now due to the tiny amount of commission they could earn off you and that won't change. You'd probably need to have around twenty times that amount to be of interest to even the smallest IFAs. They simply don't cater for small savers like you and are unlikely to do so in future. I'm not sure even a bank salesman would be interested in that amount. I doubt it.

Whether costs for you will rise or fall I have no idea. It will depend on what you invest in. But then I'd question whether someone with such a small amount should be bothering with investing rather than saving. You'll have a better idea when H-L announce their plans and how the fund managers respond because what they do will determine what the others have to compete with. For obvious reasons, none will want to announce now that it will be cheaper to invest in 18 months time so don't expect the final outcome to be known very much before December 2012.

Paying £49 to invest £3k on top of all the other costs would be nuts. If you have bought managed unit trusts from HL your total costs to invest will already be way, way more than £15 to £20. But even with £3k, you can currently invest for 0.40% amc or less with no other charges and you will still be able to do that post RDR. If there are people determined to pay more they will still be able to.

dunstonh

The documentation says 0.5% of the fund value is paid to the advisor every year I hold the investment. AXA themselves charge 1% so presumably they get half of this and the advisor gets the other half? And this won't change?

That means the adviser took less initial commission and for doing so, AXA pay him 0.5% instead. You would pay the same AMC whether he took say 7% up front or 4% upfront plus 0.5% p.a.

Effectively, AXA are funding the commission payment rather than you paying it explicitly. You are paying the retail charge. In some cases, AXA make more if its all paid up front and in other cases, they lose out if its paid on drip. However, the end result to the consumer is the same in your case.

Going forward, for as long as you hold that contract and are with that adviser, it wont change. Its only on new business post RDR that it changes or if you make a change on the old contract post RDR. It should also be noted that if you say you dont want the old adviser to be paid the annual amount, you dont get it. AXA keep it for themselves. That is why you often see insurance companies ask you if you are still using an adviser or not as they will turn off trail/renewals to the adviser if you say no but they keep it instead of giving it to you.

Rollinghome

gadgetmind wrote: »

According to a YouGov survey, four out of five British savers have no idea that they might be paying commission that is deducted from their investments each year, which is known as trail commission.

Yup, that's what I tend to find too. That's obviously a small matter about which many aren't 'advised'. And why RDR was so necessary.

Rollinghome

jem16 wrote: »

Unfortunately, due to that soft closure, buying direct will see you needing a minimum of £250k and having to pay a 5% initial charge. The "O" version is still available through the unbundled platforms without those restrictions but with the platform fees.

Neither that minimum investment nor any initial charge apply to existing investors in the fund. They can still buy 'O' shares direct with no platform fees, minimum deal of £1k, and the terms are unchanged. New investors could look at the Personal Assets IT also run by Sebastian Lyons in a very similar way.

jem16

gadgetmind wrote: »

"Millions of savers don't know whether they are being charged by their financial adviser when they buy investment products.

Is that because they don't read the paperwork given to them? All the paperwork I have received clearly states how much my IFA is getting.

According to a YouGov survey, four out of five British savers have no idea that they might be paying commission that is deducted from their investments each year, which is known as trail commission.

Reading these forums it seems that the great British Public seem to have a habit of not reading the T&C of almost everything they purchase, most of which unadvised.

For example;

Why am I being charged £50 for changing the car/address on my car/house insurance policy?

Why is my bank charging me £?? for bouncing one of my cheques/not paying my DD even though I had no funds available to pay it?

Why have I only got £2 interest when my Regular Saver says I should have received 8%?

Why has the bank charnged the variable rate of interest and my mum has only been getting a few pence in interest these last few years - it's a scam!

etc, etc.

Unfortunately the great British public has turned into a "blame everybody but me" culture.

jem16

Rollinghome wrote: »

Neither the minimum investment nor any initial charge apply to existing investors in the fund. They can still buy 'O' shares direct and the terms are unchanged.

I know that. However others that read your post might not and would think they could get these terms now.

Rollinghome wrote: »

Yup, that's what I tend to find too. That's obviously a small matter about which many aren't 'advised'. And why RDR was so necessary.

Yes now we'll have a lot more disclosed charges which the great British Public will never read.

I can just see the headlines;

"Platform Fees - what are they"

"Fund Managers' Rebates - what are they?"

"Why can't they just tell me what I'm paying!!

As I said I am all for explicit charging, but I don't think it's the be all and end all for the majority of investors. For a lot it will just serve to confuse and may not be to their benefit. Time will tell.

jamesd

Not the be all and end all but it is nice to know what you're paying each part of the chain for service instead of having people think that what say HL gets is the difference between AMC and TER or that it's really free.

You might, or might not, find Fund rebate disclosures by platforms, COBS 6.4.3 tracking my experiences requesting fund manager rebate information interesting.

Rollinghome

jem16 wrote: »

I know that. However others that read your post might not and would think they could get these terms now.

Well done, but you didn't say it. I'd assume when I said in that post "The fund was soft-closed to new investors earlier this year. The same terms apply to existing investors." most would be smart enough understand what I meant even if perhaps you found it difficult.

You said "Unfortunately, due to that soft closure, buying direct will see you needing a minimum of £250k and having to pay a 5% initial charge." which is not correct for existing investors.