IFA - pay fees or commission?

jem16

K_P83 wrote: »

I've found a section in the paperwork i was given which may or may not help, may or may not apply in this case:

That's just normal and doesn't help much. Any pension will have cancellation rights.

I'd be trying to find out more information before committing, especially with the amc.

Dunstonh also suggested seeing a different IFA as he wasn't especially happy with the fees route being a higher percentage than the commission route.

Have you considered this?

Nine_Lives

Yes, i have actually. I was looking into other local IFAs, but based on knowledgeable peoples replies on my 2 threads, i'm thinking it's probably best to lump for a DIY approach at the moment & not pay an IFA to do the job for me, yet.


A concern of mine now is though - what i touched on in the other thread ... whether you can pause your subscription if your situation changes (i.e. you get laid off work, you're on long term sick etc & simply cannot afford to continue your payments).

gadgetmind

K_P83 wrote: »

A concern of mine now is though - what i touched on in the other thread ... whether you can pause your subscription if your situation changes (i.e. you get laid off work, you're on long term sick etc & simply cannot afford to continue your payments).

Most (all?) person pensions are very flexible regards ongoing payments and lump sums, so I wouldn't worry too much regards that.

Nine_Lives

On the topic of fees -vs- commissions ...

I was reading a comment from dunstonh about commission option being removed in the near future & only fees being available as an option (that was my understanding of his/her post).

As i would currently be looking at paying in £100pm, i understand that if i went commissions route (lets take the 4% from the IFA i saw as a figure), then i would pay £48 in the first year ... correct? Which isn't so bad (but i imagine not so good for them as £48 is nothing really). So i'll have paid in £1200, minus their £48, leaving £1152. Happy days.

But if the commissions option is removed totally, i'll be left with fees. Let's again take the quoted figure, which is £100 per hour. i was told by the chap that the research could take 5-6 hours, so let's go for the maximum ... 6hours = £600.

£600 off my investment of £1200, leaves £600. A huge difference.


Then we go into year 2. Are we looking at the same figures each year (i.e. i'm paying 6 months into a pension & 6 months to an IFA each year)? I knowi could go solo, but i looked at that & then got hit with so much contradictory advice/views which made me think i really should go with someone who knows.

Also, if i opt for commission now, what about when it's removed as an option? is it like your mobile tarriff where you're still signed up under that tarriff even though it's no longer available? (i.e. i'd still be paying via commission).


I could perhaps pay more than £100pm whilst i'm living at home, but i don't know until i start. As i only get £1100pm (net) i certainly can't pay in much more than £100pm as i'm also saving for a deposit on a house, which when i finally get, i most certainly will not be able to pay much more than £100pm.



Hopefully this post makes sense. Apologies if not as i'm not all that long off general anastetic lol.

besti

For £100 per month you will be better off opting for commission.

dunstonh

But if the commissions option is removed totally, i'll be left with fees. Let's again take the quoted figure, which is £100 per hour. i was told by the chap that the research could take 5-6 hours, so let's go for the maximum ... 6hours = £600.

£600 off my investment of £1200, leaves £600. A huge difference.

This is where it can probably blow your mind.

If that £600 is taken off year one contributions, it is usually cheaper over ther term, by a long way, then the £48 option that you initially think of as better.

The main reason is that the fee is gone. its done and dusted and you can get 0.2% p.a. ongoing. Whereas if you have a drag on your contributions for multiple years, there comes a point where it gets more expensive than the £600.

For £100 per month you will be better off opting for commission.

I disagree. Fee will be better.

Nine_Lives

In that case, i have quite clearly (& unsurprisingly) misunderstood.

Areyou saying that if i opt for commission, then it will be 4% forever ... year 1, year 2, and so on forever.
However if i opt for fees, it's not £100/hr for (let's say) 6 hours = £600 for year 1, same for year 2 and so on ... it is in actual fact £600 in year 1 and that's it, over with, done and dusted???

How does the IFA then receive payment in year 2, year 3 and so on? They'll still need to be paid. The chap i spoke to mentioned reviewing "things" (sorry can't remember the real term he used) to see how they're performing. If one is underperforming, he can switch with another. <--- he'll need to be paid for doing this & if it's not £100/hr in year 2, then how is he paid?

As i say, i've clearly misunderstood, but from what i THINK you're saying, then fees may well be better. I'd just like to know about how subsequent years are paid.

besti

If you want it reviewed each year he will charge you £250 at today rates. I', pretty sure he will be charging more over the years to keep up with inflation. The commission on a £100pm stakeholder is peanuts. Ask hi to give you an illustration with commission and without. The add £250 per year index linked until retirement age.

Nine_Lives

Oh right, so it doesn't automatically get looked at every year? You can leave it a while in between, so that you will pay in year 1, obviously, but may not have it looked at (& therefore need to pay again) until year "X"?

God i'm green!

How often do you generally get it reviewed then?

Also, i wasn't looking at stakeholder pensions based on the feedback here on them & also from the IFA.

sandsy

K_P83 wrote: »

As i would currently be looking at paying in £100pm, i understand that if i went commissions route (lets take the 4% from the IFA i saw as a figure), then i would pay £48 in the first year ... correct? Which isn't so bad (but i imagine not so good for them as £48 is nothing really). So i'll have paid in £1200, minus their £48, leaving £1152. Happy days.

Actually, commission doesn't quite work like this. The 4% you quoted is not an untypical commission charge for a single premium contribution. For regular premium, like yours, typically, the adviser will get about half of the first year's premium upfront. So on £100pm, that also works out at £600. Now there's a coincidence!

The difference is that the product provider obviously can't take it all out of your premiums at once as you'd effectively owe them money. So they use their reserves to fund the cost of paying the adviser commission straight away (this is called indemnity commission or factoring and this is what is disappearing from 2013) and then gradually recoup the cost from your pension policy over time.