With Profit Bonds

EdInvestor

Charges on WP bonds are typcially between 20 and 25% of the value of your investment over the life of the bond.There are a few that are a bit cheaper.

Check here under "Investment bonds" for details:

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

dunstonh

Alan Steel [in 2006] says commission / charges on bonds could be unclear

"Alan Steel, at independent advisers Alan Steel Asset Management, said his firm had always capped any commission payment at 3% to avoid bias, particularly where bonds were paying up to 8%. He said the Financial Services Authority had allowed insurers to hide the commission paid on bonds by not requiring it to be spelled out in the letter of recommendation to the client, as was the case with Unit Trusts, OEICs and ISAs. “I believe it should be a level playing field.” Steel said the commission payment on bonds only had to appear in the “key features” document, but it was “always on the back page, and pages are never numbered and often the back page is missing.” ….

He's being economical with the truth a bit there. Probably in an attempt to get his firm into the media. He is comparing the 3% plus trail option with the full initial commission with no trail option. In other words, not like for like.

There is also some mis-information in there with regards to what appears their own firms approach and not an FSA rule. There is no FSA requirement to disclose commissions on ISA/Unit Trusts or OEICs in the letter of recommendation. Just as there isnt for bonds. With Bonds, the commission is shown on the personal illustration under the cost of advice section. There is no FSA requirement to issue a personal illustration with ISAs/UT/OEIC but the cost advice has to be disclosed the same. Now many providers will still issue an illustration in the standard format but one major provider doesn't (cofunds). Commission is not shown on key feature documents either.

It should also be noted that the commissions paid will vary from IFA to IFA. The same business, lets pick the NU Bond as its been mentioned a lot recently, can pay 4.5% commission with one IFA but 7.1% commission with another (assuming full initial and no trail with both). The charges to the policyholder are the same its just that different IFAs have negotiated different terms.

Either this Alan Steel has been edited heavily or he has made some foolish comments. Given the basic errors, I would think he has been edited.

But what happened to the RIY when Standard upped the up front commission available to advisers to 7% in 2003?

The reduction in yield remained low until early last year. The commission paid had no impact on the charges. Standard Life were another one where you could get different commission amounts with different IFAs.

Charges on WP bonds are typcially between 20 and 25% of the value of your investment over the life of the bond.There are a few that are a bit cheaper.

No they are not. You continue to mix up charges and the effect of charges.

EdInvestor

He's being economical with the truth a bit there. Probably in an attempt to get his firm into the media.

What a remarkable and depressing comment :mad:

Alan Steel is one of the few IFAs who have ever publicly give the so called profession a good name.In the 1990s he spotted that Equitable Life was misselling income drawdown plans on a grand scale to people with very small pension funds and explained the story to the Mail on Sunday.

Equitable threatened both him and the paper with a suit for defamation and he was muzzled. Thousands of victims lost money as a result.Equitable collapsed in 2000, and Steel's judgment was finally recognised as right.

DH unfortunately seems unaware of the history of his industry.

dunstonh

DH unfortunately seems unaware of the history of his industry.

Excuse me!

Let me highlight the following errors in his article:

said his firm had always capped any commission payment at 3% to avoid bias, particularly where bonds were paying up to 8%.

He is comparing 3% + 0.5% trail per annum against 8% (which is hardly ever achievable - 6-7% being the norm. e.g Clerical Medical, one of the cheapest bonds available at the moment pays 5.75% at top network enhanced rates. small IFAs would get less than that) + 0% per annum. It doesnt take a genius to realise that if he is taking 3 + 0.5% then that version will pay more than the 8% over 10 years. Indeed less by the time investment growth is added on. If you use the 6-7% more common upfront figure then you are looking at 6-8 years.

So error 1. He is not comparing like for like. If bonds are arranged same basis as unit trusts with a 0.5% trail, then you are looking at 3-5% as the initial commision.

Also worth noting is that the FSA publishes market averages and it shows that on Investment bonds, the average commission taken is 2.9% initial with 0.5% fund based. 2.9% is therefore lower than the 3% his firm is taking. So, his charges are above average.

He said the Financial Services Authority had allowed insurers to hide the commission paid on bonds by not requiring it to be spelled out in the letter of recommendation to the client, as was the case with Unit Trusts, OEICs and ISAs

Error 2 - there is no FSA requirement to put commission in the suitability report for unit trusts, OEICs and ISAs. The requirement is to disclose the commission. Most common method is an illustration from the provider in the standard format or a commission disclosure form. The illustration from bonds use the standard format.

“I believe it should be a level playing field.” Steel said

Hmm, not like your article then

Steel said the commission payment on bonds only had to appear in the “key features” document

Error 3 - Commission is not disclosed in the key features document. It is on a personal illustration. The key features document is not personalised and is a standard print that is given to one and all commencing that product. The illustration is personalised and contains the correct terms and commission amounts.

but it was “always on the back page, and pages are never numbered and often the back page is missing.” ….

If he has evidence of that then he should take it to the FSA.

Error 4 - The illustration pages are often numbered but not always and the commission payment is usually on the same page as other information and if it was missing, it would be clear by a paragraph suddenly ending incomplete. That is a long way from "never numbered".

Alan Steel is one of the few IFAs who have ever publicly give the so called profession a good name

By slagging it off with incorrect information like that?

As I said, I believe his comments to have been edited to suit the tone of the article.

So Ed, before you start insulting me. Perhaps you should get your facts right before you discount my comments. Indeed, you are a fine one to talk given the amount of inaccurate, misleading and anti-industry comments you post.

ReportInvestor

Standard Life

dunstonh wrote:

The reduction in yield remained low until early last year. The commission paid had no impact on the charges.

Are you saying that Standard was taking 0.3% pa in charges while paying 7% to some IFAs :eek:? No wonder the CEO was eventually forced to resign.

Commission on WP Bonds

On a previous occasion when the 7% Standard commission was discussed you suggested that IFAs would rebate much of it to clients, and I don't recall you mentioned anything in that thread about 0.5% trail commission while you criticised journalists for getting unjustifiably excited about high charges .

You left me with the impression that 3% commission on a WP Bond sale would be more normal.

Why do you assume, without the article stating it, that Allan Steel was additionally charging trail commission on top of 3% initial commission on WP bond sales?

dunstonh

On a previous occasion when the 7% Standard commission was discussed you suggested that IFAs would rebate much of it to clients, and I don't recall you mentioned anything in that thread about 0.5% trail commission while you criticised journalists for getting unjustifiably excited about high charges .

It was a standard life sales rep "talk" that promoted the fact that they had no exit charge and if you gifted a chunk of the initial commission, you could wipe out the initial charge as well.

You left me with the impression that 3% commission on a WP Bond sale would be more normal.

Standard Life were still paying the commission but with a chunk of it going into the plan on behalf of the policyholder. So the cost was still there to SL.

Why do you assume, without the article stating it, that Allan Steel was additionally charging trail commission on top of 3% initial commission on WP bond sales?

Because with ISAs, OEICS and UTs, the 3% plus 0.5% trail is the standard option. A number of the providers in that area do not give you the facility to not take the 0.5%. It's automatic. The 3 plus a half has become the standard on that front in effect.

ReportInvestor

So 3% total commission on WP bond sales for an IFA would be abnormally low. Thanks for that.

dunstonh

ReportInvestor wrote:

So 3% total commission on WP bond sales for an IFA would be abnormally low. Thanks for that.

No. The FSA have the average commission taken on bonds as 2.9% plus 0.5% trail.

ReportInvestor

So that average mounts up to more than 7.9% bond if a bond is held for ten years and grows.

SIgnificantly above 3%.

EdInvestor

What you really need to know is the total effect of the charges which is typically 20-25% of the investment over the life of the bond, but can be higher and in a few cases, a bit lower.

As shown on the FSA site.