IFA - pay fees or commission?

agent69

I've had 2 IFA's, and the system appears to be consistent. You get the first meeting for free, where the IFA explains who they are, what they can do, and what it will cost. After you have had a think, you can agree, or go elsewhere.

All other things being equal, a commission based service would be better if you have a small amount invested and a fee based approach better if you have a big wad stashed away. If you go for the commission based approach you will pay 3 types of charge;

• Initial commission to the IFA - typically 3 - 4% of each payment you make
• Trail commission to the IFA - typically 0.5% anually on the total value of your investment
• The fund providers anual fee - varies depending on the size of your pot but typically £40-50.

Beware of indemnity commission (mentioned in post 21 above). My original IFA set me up with Sterling and was paid 5 years commission in advance (although he never told me this). When I decided to change IFA part way through the 5 years, Sterling would not pay my new man the 4% initial commission, because they were still recovering the indemnity from the first man.

However, what the IFA charges is in many ways secondary to the quality of his advice.

Padsaver

I saw a IFA yesterday for his second visit. I have £25,000 already in my pension pot and have 20 years to my 70th Birthday. I pay £210 per month into my pension with a 10% annual increase built in. He wants to move my pension to another company and front load the fees 50% of my monthly contributions for 12 months plus 2% I presume this will make my total fees around the £1500 mark this seem much higher than any of the other figures mentioned in this thread. I realise I won't have any more fees to pay in the future but does this seem like a good deal?

dunstonh

Padsaver wrote: »

I saw a IFA yesterday for his second visit. I have £25,000 already in my pension pot and have 20 years to my 70th Birthday. I pay £210 per month into my pension with a 10% annual increase built in. He wants to move my pension to another company and front load the fees 50% of my monthly contributions for 12 months plus 2% I presume this will make my total fees around the £1500 mark this seem much higher than any of the other figures mentioned in this thread. I realise I won't have any more fees to pay in the future but does this seem like a good deal?

Whilst 50% of the year one monthly may sound a lot, it is only £1260. It also means it is out of the way within 12 months. The provider is no longer factoring in remuneration after that. So, the annual charge will be lower. Possibly as low as 0.2% p.a. So, it may be more expensive in year one but it will be cheaper thereafter. The IFA should be able to tell you the breakeven point.

£1500 charge is higher than some fee based advisers but its cheaper than the max commission if that option had been done. Its also not the worst fee you can have. A regional account near us charges £2000 minimum for every case.

mbbetter

Thanks for the thread K_P83 - very interesting indeed. Just read this thread end-to-end

Fees are a new thing for me to look in to on my pension journey. I hadn't even identified these as a cost issue, they also weren't really pointed out by my the advisor I spoke to today, but then again I haven't read the paperwork yet.

cheers

Padsaver

Thanks for that Dunstonh. I feel a little better now.
My only concern is that after 12 months when the IFA has his fee in full, how do I know that he won't neglect me. I assume we will have periodic reviews and should another move be required wouldn't that incur a new fee?

Nine_Lives

Padsaver wrote: »

Thanks for that Dunstonh. I feel a little better now.
My only concern is that after 12 months when the IFA has his fee in full, how do I know that he won't neglect me. I assume we will have periodic reviews and should another move be required wouldn't that incur a new fee?

I wondered the same.

I've had paperwork through saying that after the first 12 months, the IFA gets only 0.5%. This would barely buy him a pint no doubt, so the doubting side of me says - why will he be interested after 12 months.

dunstonh

My only concern is that after 12 months when the IFA has his fee in full, how do I know that he won't neglect me.

When you employ an adviser you either employ them on transitional basis or servicing basis (or just servicing if its in relation to pre-existing contracts). If you employ them on transactional basis then that is the for the work done at the start. Not later. Later comes from ongoing servicing. Yes it will cost you (typically around 0.5-1.0% p.a.) but you need to think of the as two different things. Some advisers dont really offer a servicing model. Whilst other advisers are not keen on a transactional model.

Padsaver

I have had another read through the client agreement left by the IFA for me to sign should I agree to go ahead. I must add that this company were assigned to me when I originally took out my pension 10 years or so ago. This is my first meeting with them, (my fault I know). I presume that they have been collecting a nice little commission on my pension for 10 years without having to do too much. Anyway back to the point. In the agreement it states that the typical charge for a review is £1200 however after having done more detailed calculations I will be paying £1983 all because it is a percentage of my contributions. If I were to be paying £100 per month then the fee would be nearly half that. Surely the amount I pay per month will not have an effect on the amount of work he is required to do? Has he conjured up the percentage to arrive at the figure he wants ie, Had I been contributing £100 per month would he have asked for 100% for first 12 months? Can I negotiate with him? I am obviously very nieve as to the work involved for an IFA. As you can tell I am getting a little flusted and confused and he's coming back next week for a decision!! Sorry for the lengthy post

dunstonh

I presume that they have been collecting a nice little commission on my pension for 10 years without having to do too much.

Dont assume it. Most pensions dont pay a penny after set up. If they do, its usually at the expense of any up front amount and at no difference in cost to the consumer. i.e. Aviva stakeholder paying 4% up front or 0.4% p.a. One or the other, not both.

In the agreement it states that the typical charge for a review is £1200 however after having done more detailed calculations I will be paying £1983 all because it is a percentage of my contributions. If I were to be paying £100 per month then the fee would be nearly half that. Surely the amount I pay per month will not have an effect on the amount of work he is required to do?

Are you employing them on fee basis or commission basis? In this case, it seems more logical to operate on fee basis.

Has he conjured up the percentage to arrive at the figure he wants ie, Had I been contributing £100 per month would he have asked for 100% for first 12 months?

You cant get 100% of the first 12 months. On commission, 50% of the first 12 months is a very common level.

Can I negotiate with him?

yes

jzabrads

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.