With Profit Bonds

dunstonh

The effect of charges is one of the least important things you need to know and there has been talk of that information being removed. It confuses things and doesnt appear in any other class of business. You dont go shopping in Tesco and get told that the cost of their profit margin over 5 years, if it wasn't taken, would reduce your shopping bill by x amount.

There is an increasing realism that charges need to exist and that cheapest isnt always best.

EdInvestor

You dont go shopping in Tesco and get told that the cost of their profit margin over 5 years, if it wasn't taken, would reduce your shopping bill by x amount.

Obviously you haven't heard of the low cost supermarkets like Asda and Lidl which provide the same or similar reductions on Tesco prices, or the low cost no-frills airlines which also provide the basic product, as do the discount IFAs, brokers and SIPPs on investments and pensions.

The discounters seem to be growing their market share in general as people get more savvy about saving money and not paying out extra for second rate addons they don;t need. Look at the growing numbers logging on to MSE - same phenomenon, isn't it?

There is an increasing realism that charges need to exist and that cheapest isnt always best.

I would say there's an increasing realism that any charges above basic levels are not worth paying unless they are accompanied by performance.

dunstonh

Obviously you haven't heard of the low cost supermarkets like Asda and Lidl which provide the same or similar reductions on Tesco prices, or the low cost no-frills airlines which also provide the basic product, as do the discount IFAs, brokers and SIPPs on investments and pensions.

You obviously havent heard of Harrods, John Lewis or similar doing the opposite.

I would say there's an increasing realism that any charges above basic levels are not worth paying unless they are accompanied by performance.

You would say that given your position. However, in the real world, charges usually have little to do with what people want. Certainly value for money is important but quality of product and service is the most common thing required.

ReportInvestor

I'm still reeling from shock at that 0.8% pa for IFAs over ten years of a WP Bond.

In the USA that's the sort of fee you would pay for INVESTING the money, not deciding where it should be placed :mad:.

dunstonh

I'm still reeling from shock at that 0.8% pa for IFAs over ten years of a WP Bond.

Why? It costs no more to the consumer. It's a business choice for the providers.

In the USA that's the sort of fee you would pay for INVESTING the money, not deciding where it should be placed

Go move there then. Or perhaps China would suit your communist approach.

ReportInvestor

Me a Communist ? That's a laff. You might more accurately accuse Martin & MSE of Communism.

dunstonh wrote:

Why? [0.8% pa reductions paid to IFAs] cost no more to the consumer. It's a business choice for the providers.

Yea. Of course :rotfl: .

Rest assured I will publicise your views more widely.

keithwales

Dunstonh,
Feel I would like to chip in.

I've read a few of your posts over the last few months since joining MSE.

Always found that what you say in your posts always stands up 100%.

There is jargon in every industry, when a product is explained, it can be easy to miss or misunderstand information on a product.

Too easy to cast doubt over a product after reading a newspaper.
Also this can shake a persons confidence in advice received- whether the adviser is a family friend /tied adviser / ifa.

OK thats off my chest-

dunstonh

Thank you Keith. Its hard work sometimes

Quote:

Why? [0.8% pa reductions paid to IFAs] cost no more to the consumer. It's a business choice for the providers.


Yea. Of course :rotfl: .

Rest assured I will publicise your views more widely.

Feel free. I would suggest you correct your post though as I did not say what you have quoted me as saying. What you have edited it to is something completely different.

I see absolutely no problem with what the IFA does or does not get paid. The important part is what the consumer gets charged.

Lets knock up an example...

Company A has a reduction in yield of 1% over 10 years and pays the IFA £4000 commission.
Company B has a reduction in yield of 0.8% over 10 years and pays the IFA £5000 commission.

So, company B has the lower charges but pays the IFA more. Whats the problem with that? The consumer shouldn't worry about what the IFA gets. The should concentrate more on what they are getting.

Another common example.

IFA 1 gets £4000 commission from Company A
IFA 2 gets £3000 commission from Company A for same product.
IFA 3 gets £6000 commission from Company A for same product but rebates £1500 into the plan keeping £4500 for himself.

IFAs do not get paid the same amount for the same product from the same provider. It depends on their turnover/network and relationship with the provider. However, the policyholder pays the same charges. That is simple supply and demand economics. The bigger you are, the better terms you can get. In the above example, IFA 3 gets the most but the consumer gets the best deal too. You comments suggest that this IFA shouldnt be used even though the consumer gets the best deal.

So, your continued comments about commissions = charges is incorrect. Yes there is an impact to the base level. However, enhanced commissions due to economic considerations have no impact on the policyholder at all.

The fund based trail is an economic decision between the IFA and the provider as well. Consumers pay no more in charges whether the IFA takes fund based trail instead of a higher upfront commission. The business risk is with both the provider and the IFA. If the business doesnt last long on the books, up front commission has benefited the IFA but cost the provider. If the IFA took reduced commission in return for fund based and it comes off quickly, the IFA loses out but the provider gains. The break even point for fund based is year 4 to 5.

Sticking to the earlier supermarket theme, which would you buy?
A = Tin of beans retailing at 30p but cost retailer A 20p -giving profit of 10p
B = Same tin of beans retailing at 28p but cost retailer B 12p - giving a profit of 16p

All your comments suggest you would buy the more expensive one because retailer B makes more money on it. And that is the problem with looking at commissions on products.

ReportInvestor

What I'm saying is that the average 0.8% pa to an IFA on a WP Bond lasting ten years (a reasonable investment term for such a product) is an excessive burden for the consumer - whoever's fault it is that such a situation exists.

dunstonh

ReportInvestor wrote:

What I'm saying is that the average 0.8% pa to an IFA on a WP Bond lasting ten years (a reasonable investment term for such a product) is an excessive burden for the consumer - whoever's fault it is that such a situation exists.

The consumer is not directly paying it though.

Using the Standard Life example earlier in the thread, the reduction in yield was 0.3% over 10 years. So the policyholder is losing 0.3% p.a.

If standard life want to pay the IFA 0.5% fund based trail and a few percent up front, what does it matter? The important bit is the 0.3% RIY.