IFAs - what is "normal" for them to charge?

munkster

Am going down the route of an S&S ISA for the first time and have had an IFA look into it on my behalf.

Just wondered what the "normal" commission for something like this is - they seem to want 3% of any deposit then an annual 2% of the value of the portfolio, if that's the right word.

Is this good? Bad? The norm? Is it a function of the IFA's abilities??

I obviously am aware that I could do this all myself directly much more cheaply but would rather play it safe initially I think.

Aegis

munkster wrote: »

Just wondered what the "normal" commission for something like this is - they seem to want 3% of any deposit then an annual 2% of the value of the portfolio, if that's the right word.

Is this good? Bad? The norm? Is it a function of the IFA's abilities??

If it's exactly as stated, then bad. 2% annual fee on top of the platform fee, investment annual management charge and additional incurred expenses would be prohibitively expensive.

Could it be that you're quoting the total expense ratio instead, which would include all of the above and would be somewhat more reasonable?

The traditional "normal" fee is 0.5% annually, though this will depend a lot on the portfolio size and how much ongoing work you require.

dunstonh

ust wondered what the "normal" commission for something like this is - they seem to want 3% of any deposit then an annual 2% of the value of the portfolio, if that's the right word.

Are you sure 2% is what the adviser is getting paid or is that the total cost? 2% to adviser is very high. Typically it is 0.5% although smaller values will see that ramped up to 1%.

3% initial again is typical of small amounts but would be high on larger amounts where you would expect that to progressively reduced.

munkster

Thanks for replies, interesting reading!

I've not got any S&S ISAs at present so that pretty much tells you what the value of the portfolio will be in the short term (ie. my intention is to use up my non-cash allowance in S&S before next financial year)...

Pretty sure it's 2% (ish, slightly more in fact) per year yes (and that's the single total annual fee quoted, nothing else is mentioned, and I'm not expecting any other ongoing annual fees unless I add to the value of the thing, at 3% I presume!).

munkster

Reading back the replies in more detail maybe my layman's terminology has confused? When I said "commission" I'm getting the impression that that might actually just be one part of an overall "fee" is that right?

My understanding with this proposal is that the 2% annual "thing" is the sum total of what I will pay to the IFA every year (whether he/she keeps the full amount is another matter, obviously, presumably the ISA provider will receive some?).

westy22

You need to get the IFA to clarify all of this for you.

The 3% initial charge is fine and probably about right for the small sum involved. Normally whichever fund you choose to invest in will have an annual charge basically for running the fund - this is known as the Total Expenses Ratio (TER) and for most managed funds is between 1% and 1.8% with an average of 1.5% - this is taken directly by the fund from your investment; you don't actually 'pay' it as such. Most IFAs will then charge a further 0.5% per annum directly for themselves making about 2% in total.

You should not be paying 2% per annum to the IFA himself.

munkster

I have checked the written proposal and it is pretty clearly 2% total fees so looks like it's nothing out of the ordinary judging by the comments above then... Thanks all.

jem16

westy22 wrote: »

Most IFAs will then charge a further 0.5% per annum directly for themselves making about 2% in total.

No they don't. The TER for bundled managed funds includes the traditional 0.5% paid to the IFA.

jem16

munkster wrote: »

My understanding with this proposal is that the 2% annual "thing" is the sum total of what I will pay to the IFA every year (whether he/she keeps the full amount is another matter, obviously, presumably the ISA provider will receive some?).

You won't pay the IFA 2%. Your 2% is deducted by the ISA provider. Some of that goes to the fund manager, some to the ISA provider ( or platform) and some to the IFA. The IFA will be paid 0.5% via the ISA provider.

munkster

Gotcha - well the finer details of who I pay the money to/via has yet to be decided/explained to me but from what you guys have said, all sounds within tolerances so thanks for the help!