Unit Trust v Investment Trust ISAs

dunstonh

I think that you are saying that the commission paid out to IFAs on Investment Trusts does not come out of charges. Is that correct? If the IFA's commission does not come out charges, where does it come from?

Im guessing the from the other charges that are taken over the years. In a similar fashion to stakeholder pensions where there is no initial charge.

I just grabbed a list of ITs and looked down them to see what the commissions were. Some were zero, some were 3%.

The IFA said that two months after Investment Trust purchase that the Investment Trust could be put into an ISA. What he did not say was it had to be sold and re-purchased. There were losses on that second transaction but the IFA claimed to make no commission. So would the losses just be stockmarket fluctuations between the times of selling and repurchasing?

I wouldnt want to say but normally a switch like that would be done on zero commission. If done with the same provider, then you should really only be out of the market for one day (if that).

I now know that Investment Trusts are more volatile than Unit Trusts and OEICS and I wonder if his unreserved recommendationre (without highlighting any risks) put the IFA in breach of any regulations?

Suitability Report would have to be issued. Another would have to be issued on switch as well. There would also have to be a key features document and commission disclosure issued as well.

If you ask the IFA for copies of both of those and they key features document that was "issued" at the time, he is obliged to give it to you. Copies will be held until 6 years after the contract finishes.

dunstonh

Ideally, you will be able to catch him out. If he supplies the information to you when you ask for it, you can check the dates of the literature. It should be consistent at the time of advice.

If it isnt or he cannot produce the literature, then you have good grounds to get an upheld complaint. The suitability report should document any charges and inconveniences which are the result of a discontinued plan. A switch from IT to ISA-IT would be classed as a discontinued plan and would require a suitability letter. The illustration may not be issued as some plans do not. However, in those cases a commission disclosure letter would be issued.

I would say it does no harm asking for them.