Are People Scared of Mortgage and Financial Advisers?

Mrs_Optimist

Mr O and I are both fairly clued up about financial things but we have a IFA who is excellent and we wouldn't be without him. Once you have a decent IFA don't let him out of your sight, they are hard to come by.

dunstonh

Thanks for the exachange Dunston. I like it when people passionate about their work make a contribution to these threads.

Guilty as charged. I get sucked into these types of threads far too often but they are much better when you get people being constructive and willing to debate like yourself.

I am not sure if who I have dealt with in the past are independent, but they certainly tell me they are so. Supposedly, they are the largest independants in the U.K.

There is your problem. Thats a salesforce for you. Doesnt matter if its independent or tied. Salesforces should be avoided. All the things you have mentioned are typical of salesforces. You need to compare that to a small local "independent" IFA (or mortgage adviser) who totally relies on reputation and word of mouth to get business and is directly financially responsible for the quality of advice.

If a salesforce adviser has an upheld complaint and redress is payable, the employer pays it. If a small firm does it, they have to pay it. In the cases of sole trader or partnerships, the owner/partner pays it. Its amazing how much that can focus the mind the adviser.

I guess it depends on what you call a modern pension. This company advised moving out of a stakeholder and investing in an actively managed fund. The pension did not need moving but the advice was that stakeholders were good for those earning less than £28K. The advice was also that an actively managed fund would give better returns (I don't doubt that).

I dont disagree with what they are saying. I will always use a personal pension/SIPP where someone wants me to give ongoing advice and better investments (the 28k thing is probably their own in house rule). Stakeholder investment funds are usually very limited in the potential. Although if they took you out of a stakeholder and put you in just one fund, that is digraceful. If it was a spread of 8 funds or more, then that is exactly what you are looking for (assuming the 8 funds were different sectors).

However, as the financial advisor did not pro-actively discuss the cost of moving pensions and just wanted to list the benefits of the new pension it was sufficiently obvious that that person was not one whom I would want to deal with regardless of whether the pension was good or not. I did not like reading investment charges of almost 6% when moving from the stakeholder without it being mentioned only realising it because I happened to take the paperwork home to read before signing.

Leaving the stakeholder costs you nothing. Joining a modern personal pension costs you nothing. If it was a SIPP or fund supermarket pension there can be initial charges but the funds available with these can offer far higher potential but do cost more.

It seemed to me, that the lucrative charging of personal pensions diminished with new legislation, but by adding new products to the market that weren't stakeholders, the higher charging of 5-6% for investment and 5% annual management charge could be maintained.

If they have moved you out of the stakeholder and utilised a decent fund spread and I have to assume they have done a SIPP for you and charged you full whack based on what you have said, then its still a good option. You could have got it cheaper (a lot cheaper) and you could have got it explained to you better as its clear its left you confused. No fault of yours but the benefits and the costs should be disclosed to help you make an informed choice.

However, I think you have highlighted what most of us here have said a number of times before. Never use a salesforce. They are the root of all evil (in any profession) but especially financial services.

EdInvestor

AMO wrote:

Are the projected graphs based on the gross contribution so that it takes into consideration all the charges, investment and management?

No.

dunstonh wrote:

Illustrations have to comply with FSA rules which state that charges are included.

No they don't.They state that explicit charges are included .Implicit (dealing and transaction) charges are NOT included and ( and this will be mentioned in the key features document).These implicit charges will typically add an additional 1% to the annual fees and will reduce the size of your fund by a quarter over 25 years.

These charges are not trivial.The fact that the FSA does not require them to be disclosed is a disgrace.

dunstonh

Ed is correct that some funds incur additional charges of 0.01% a year and not all providers include that in the calculations.

However, that has nothing to do with the charges that AMO is on about and average performance sees movement in unit prices by more than 0.01% in a day. So, its such a non issue.

These implicit charges will typically add an additional 1%

Made up figure.

EdInvestor

The source of the figure is the FSA itself.

Here's an analysis in detail provided by the Pension Commission report, based on the original FSA research.

http://www.pensionscommission.org.uk/publications/2004/annrep/chapters/ch6.pdf

Scroll down to page 10

Note that the intro says even stakeholder charges will take 20-30% of your fund.:mad:When you think about the size of City bonuses, it all becomes clear.

dunstonh

Ed, you like in a world of media soundbites. Your 20-30% is just an example of that. You add nothing to this thread with that sort of comment.

A stakeholder charging 1% a year is charging 1%. If you want to compound the charges up over the years and come out with a soundbite like 20% then it indicates a total lack of undertanding of how charges work.

These sort of soundbite figures are a bit like saying you will spend 10 years of your life eating breakfast or 15 years driving a car. They are meaningless unless you look at them in context.

EdInvestor

You want more evidence of the damage charges do?

OK, let's try a bit of real context.

https://www.fsa.gov.uk/tables

Go to the regulator's site and put in some figures for a real pension and see how much you will pay in real money ( and those tables don't include the hidden charges I mention above.)

It's pretty horrendous.I've yet to meet any ordinary punter who's tried this who hasn't been shocked rigid.

1% sounds so small, doesn't it? The miracle of compounding is great when you are earning the money but it can bite you badly when you're paying it.

That's a major reason why investment products are usually much worse ripoffs than mortgages - the percentage charges.At least mortgage fees are usually flat rate, so it limits the damage.

toonfish

but those charges (effect of deductions) aren't really what you pay in "real money" are they? Perhaps the fund managment companies should work for free, as well as the insurers and advisers?

Sam&Daz

I too am sceptical about this. We recently had a company pension review where the IFA said it would be beneficial to move our pensions from one stakeholder scheme to another.

We were given the option of transferring our current 'pots' into it, in fact we were pushed along to do it. I never moved mine and so started a fresh but many colleagues did under the advice of the adviser.

It grates me to think that our chairman, a single decision maker, can suddenly decide to ditch one IFA company for another. He has clearly IMO been 'sold' to.

When looking at the projection and illustrations given, it showed average commissions of around £800 per employee. Multiply that by 250 or so people!!

Very sceptical.

Sam.

EdInvestor

toonfish wrote:

but those charges (effect of deductions) aren't really what you pay in "real money" are they? Perhaps the fund managment companies should work for free, as well as the insurers and advisers?

Here's an example:Let's say you invest 200 quid a month into a pension over 25 years and it grows at an annual average of 7%.If you paid no charges, at the end your fund would be worth 157,594.

If you pay an annual charge of 1.5%, your fund would only be worth 126,394 after the 25 years, 25% less.The effect of the charges is that you lose 31,100 quid.:eek:

That's 31,100 quid,it's a lot isn't it? Paying a few hundred quid to a mortgage broker pales into insignificance by comparison.I don't mind people getting paid for their work but do you think really think these people are worth that much?