Financial advisors new charges

Desperate_Housewife_2-2

I got a new pension out a few years ago via a financial advisor. The person is very good and provides an annual review but I have been told by them that due to new regulations there may be charges in the future.

When I got the policy I was told I didn't have to pay any charges as they were paid by the company.

Has anyone got any further info on this or how I can avoid paying out? Thank you.

Velcro_Hotdog

The charges the advisor currently receives are paid by you already. The pension company will be deductimg it from your pension pot and passing it to the adviser. Nothing in this world comes for free. Even commission is paid for by the consumer at the end of the day.

RDR (the new regulation the advisor mentuioned) rules may mean any changes to your policy result in the ongoing trail commission paid to your adviser will stop. In order to contiune to provide the service you will have to pay for it.

That's my understanding of the rules.

dunstonh

Prior to Jan 2013, the charges were built into the contract. They can still be built into the contract but are now fully disclosed and agreed with you. Many of the new plans available now are cheaper.

Think of it before in simple terms as you paying 1.5% but not knowing where it went. Now it is say 0.5% going to fund house, 0.5% going to adviser and 0.5% going to pension provider. Still 1.5% but you know where it goes.

Old contracts can continue until they are "disturbed". At that point, the adviser needs to bring them into RDR compliance. That doesnt mean the old contract needs to be changed. It is often just a clerical exercise. although some providers do not allow increments to their pre RDR contracts.

Desperate_Housewife_2-2

thank you. the advisor said that if the current charges do not cover the work they do then they will expect us to meet the cost. I wonder how much money it will be?

dunstonh

Desperate_Housewife wrote: »

thank you. the advisor said that if the current charges do not cover the work they do then they will expect us to meet the cost. I wonder how much money it will be?

That is not an uncommon scenario. Pre RDR, there was a lot of cross subsidy going on. Small investors would earn the adviser little but larger investors would earn them a lot more. This averaged out over time. Post RDR, cross subsidy has been reduced. Advisers have to cap their charge for larger investors and this means smaller ones are not benefiting from that cross subsidy.

So, post RDR, advisers are having to charge more to some smaller investors than they did in the past. However, do remember that product charges are likely to be lower as the adviser charge is not factored into them now. So, even if the adviser is charging more than before, it may not actually cost you more. I know that sounds strange but providers used to pay the adviser and once the adviser cost was recovered in the annual charge, they wouldnt lower your charges but keep the extra for themselves. They cant do that on post RDR contracts. Hence, why it can actually be cheaper.