IFA - pay fees or commission?

Padsaver

Thanks to you both! For non financially minded folk this subject is terrifying but I'm slowly starting to build some kind of understanding. I certainly will feel more fore-armed when I next meet my IFA next week.

The IFA only came back with one option which was the Front loaded 2% plus 50% of the first 12 months contributions. What I can't get my head around is the percentage of the contributions. Surely the amount I pay per month isn't going to have an impact on the amount of work involved for the IFA or is it?
For example two Clients, one contributing £100 per month and one contributing £200 surely won't cause the IFA any more work but one will pay twice as much as the other.

As I understand it I will pay 50% of the £239 per month I pay in plus 2% of my current pot which stands at around £27,000 after that I will never have to pay the IFA until I retire. Why wouldn't I just reduce my contributions for a year to reduce the fees?

I am obviously missing something here.

Sorry for being such a financial numpty!!

fairleads

jzabrads wrote: »

I am an IFA - when someone wants to simply set up a regular paying pension (£100/mth), I would offer the following terms;

Initial and subsequent meetings are free - no business, no fee!
Clients should not be forced to pay for a second visit and ultimately forced into accepting the advice. The second visit is where the adviser should present advice, therefore the client should get the opportunity to hear the recommendation(s) based on the information gathered at the first meeting.

Ultimately, for similar cases I have offered an initial fee/commission of £300 (25% of the 1st years' premiums) plus 1% trail ongoing to pay for annual reviews and administration.

Assuming that the client is happy to procced with my recommendation, they could pay £300 as a fee or pay no fee, but have the £300 paid as commission. This would result in an establishment charge over the 1st 12 months for the provider to recoup the initial commission paid i.e. for every £100/mth paid, £25 would come off the policy over the 1st year only to pay for the commission.

The 1% trail commission makes very little difference in the early years, however it does pay for annual reviews and given time, will build up.

I believe that, although there is not a lot of money in such a case for an adviser, you have to look at the bigger picture. I would have a new client - hopefully very satisfied with my advice/service. New clients have family and friends and sometimes there can be referrals leading to increased revenue.

Thank, Alan.

Congratulations Alan. An excellent maiden comment that will, i'm sure be very helpful to the majority of forum readers.

sandsy

Padsaver wrote: »

Thanks to you both! For non financially minded folk this subject is terrifying but I'm slowly starting to build some kind of understanding. I certainly will feel more fore-armed when I next meet my IFA next week.

The IFA only came back with one option which was the Front loaded 2% plus 50% of the first 12 months contributions. What I can't get my head around is the percentage of the contributions. Surely the amount I pay per month isn't going to have an impact on the amount of work involved for the IFA or is it?
For example two Clients, one contributing £100 per month and one contributing £200 surely won't cause the IFA any more work but one will pay twice as much as the other.

As I understand it I will pay 50% of the £239 per month I pay in plus
2% of my current pot which stands at around £27,000 after that I will never have to pay the IFA until I retire. Why wouldn't I just reduce my contributions for a year to reduce the fees?

I am obviously missing something here.

Sorry for being such a financial numpty!!

By using a structure based on %, it allows the adviser to service more people, as effectively those who pay more subsidise those who pay less. The alternative is that a large swathe of people just can't afford to get advice. It's not a uncommon business model - and not just in the advisory world.

Padsaver

I'm not sure about subsidising someone else's pension and help My IFA service more people. My Pension is due to under perform as it is.

I am only switching pension companies surely that shouldn't cost nearly £2000 worth of work?

Should I get a second quote?

Help!!

Meeper

Is your existing pension personal, or occupational? Are there any guaranteed growth rates? Any guaranteed annuity rates? Is the contract a with-profits one? Is there any entitlement to enhanced PCLS? What funds are available to switch into in your existing provider's contract? Can your requirements be met within these funds? Will this requirement be able to be met on an ongoing basis? Is there any charge for fund switching? What is the charging structure of your current contract? What are the costs of the individual funds within your contract? What are your projected benefits at your planned retirement age? What are the projections of the proposed contract? How does all of the above information on your old contract compare with your proposed one?

Potentially all of that detail as well as potentially a load more depending on your individual circumstances. I would suggest that for what you want, anything from £1500 to £2200 or so would be in the right ballpark.

Don't forget that the difference in the payments of £100 per month or £200 per month may not be any extra work per se, but it requires the adviser to take on more liability and exposure, which is a reason for higher costs being involved with higher transactional values.

dunstonh

And the nature of cost is that the IFA wont be getting £2000. A good chunk of that will vanish in costs.

Padsaver

Thank you once again for your input, it is much appreciated.
As I mentioned in an earlier post the IFA's client agreement states that their typical charges for an initial review is £1200 I assume therefore that I should be able to negotiate them down to around that figure as this is my initial review. Is this a reasonable assumption?

I have to make my decision by thursday as this is when my next meeting is. So I should be able to get some sleep after then.

dunstonh

As I mentioned in an earlier post the IFA's client agreement states that their typical charges for an initial review is £1200 I assume therefore that I should be able to negotiate them down to around that figure as this is my initial review. Is this a reasonable assumption?

If you dont ask, you dont get. However, £1200 doesnt leave much room for reduction.

brianrhill

dunstonh wrote: »

I have started to increase my trail to 1% for low value clients who want servicing. Or alternatively, I dont offer them servicing and rebate all trail and tell them if they want me in future they can use me. I still take 0.5% on the majority but you need to cater for low value people and the flexibility to go higher is important.

Rebating trail from a pension would be usually be deemed as an unauthorised payment, wouldn't it?

dunstonh

brianrhill wrote: »

Rebating trail from a pension would be usually be deemed as an unauthorised payment, wouldn't it?

It is. I meant rebate within the pension. That is allowed under HMRC rules.