Reasonable IFA commission

silvercar

We have had an IFA for a number of years, who we have generally been happy with. I would just like some feedback on charges.

We have a SL SIPP wrapper, the investment advice (through IFA) comes from Margetts. What are reasonable charges (initial and annual)? We pay by way of commission.

grizzly1911

Depends on the size of the pot.

3% on investment and 0.5% annual "maintenance"?

dunstonh

Reasonable IFA commission

Nil. Commission has been abolished for new business. It would now be fee agreed with legacy commission to offset the fee. Any suprlus above the fee would be refunded, any shortfall would see you pay it. In the case of SL wrap (like most platforms) there is no commission as the remuneration can be set to match the fee.

For ongoing servicing, It tends to start at 1% for small amounts and taper down as the amount gets bigger. 0.5% is by far the most common but increasingly you are seeing reduction on that as funds get into the millions range but again, it depends on services.

Initial is much the same. Based on amount. You can get fixed fees or percentages. Percentages to be high for small amounts and low for larger amounts.

silvercar

Nil. Commission has been abolished for new business. It would now be fee agreed with legacy commission to offset the fee. Any suprlus above the fee would be refunded, any shortfall would see you pay it. In the case of SL wrap (like most platforms) there is no commission as the remuneration can be set to match the fee.

Are you playing with words?

According to the SL literature it is "initial advisor charge" and "ongoing advisor charge". I think whether you call it charge, commission or fee you know exactly what I was refering to.

There hasn't been a fee agreed, hence my question.

As for the size of the pot etc. This SIPP stands at about 400k and chunks of about 20k are added periodically. There are other investments managed by the same IFA.

dunstonh

Are you playing with words?

No. Commission and fee are two different things but the waters do get muddied at times. Post RDR, the distinction needs to be clear.

According to the SL literature it is "initial advisor charge" and "ongoing advisor charge". I think whether you call it charge, commission or fee you know exactly what I was refering to.

I know what you were referring to but it is important to make a distinction. Commission may not reflect the actual charges being taken. e.g. an amount may be paid up front but collected over time through the annual management charge. A fee would be explicitly deducted on a like for like basis.

The first bit of advice or disturbance post RDR requires the adviser to move to fee basis if they do not already work that way. Commission offset would then need to be used if it is a commission based contract. SL wrap is not a commission based contract. Although fee disclosure requirements pre RDR are different to post RDR. Although a couple of forms changes that (even if nothing else changes)

As for the size of the pot etc. This SIPP stands at about 400k and chunks of about 20k are added periodically. There are other investments managed by the same IFA. However, there are other models which could be just as justifiable.

I would expect nil initial on increments and 0.5% p.a. as a fair charge. The increments forming part of the ongoing service.

doughnutmachine

dunstonh wrote: »

No. Commission and fee are two different things but the waters do get muddied at times. Post RDR, the distinction needs to be clear.

so what exactly is the difference between 0.5% commission and a 0.5% fee?

doughnutmachine

silvercar wrote: »

As for the size of the pot etc. This SIPP stands at about 400k and chunks of about 20k are added periodically. There are other investments managed by the same IFA.

my sipp provider charges a maximum of £200 a year (plus dealing charges). I invest directly in shares and don't churn my portfolio, so my sipp costs circa £400 a year in fees.

if you have invested in managed funds etc you could easily be paying 2% a year in fees etc..... or about £8k.

dunstonh

doughnutmachine wrote: »

so what exactly is the difference between 0.5% commission and a 0.5% fee?

0.5% commission is not necessarily 0.5% explicit deduction on the investment. It is paid for out of provider charges. Now those charges may be increased to reflect that but they may not be (it may be factored into an initial charge). for example, there are investment products out there that have the same AMC whether there was 0.5% p.a. ongoing commission or nil ongoing commission.

0.5% fee is an explicit fee that is actually deducted on a like for like basis.

Unit trust funds have the retail annual management charge that paid commission out of them long before disclosure existed. Commissions on those can vary from 0% to 0.75%. The same fund could pay different commissions with different platforms and negotiations with fund houses regardless of the annual management charge (which would remain the same). With fee basis, at 0.5%, the commission, whatever it is, is rebated and the 0.5% deducted explicitly.

Daniel54

I engaged an IFA earlier this year and over the summer have moved my personal pension into a SIPP and transferred my ISAs.Total value is similar to the OP's.I knew the investment managers before appointing the IFA.

Charges are clear and as follows:

Investment manager ( discretionary management) :1% plus VAT,any other commissions rebated to my investment account

IFA :0.5% fee on the SIPP -either to be deducted from the SIPP ( which I chose) or could have been payable by cheque

The IFA has been advising me on various areas of my financial affairs,including my DB pensions and some early estate planning -so the fee is for the total of his services,not just the SIPP itself

Incidentally,the SIPP platform charges are £180 annual

Hope this helps

silvercar

dunstonh wrote: »

I would expect nil initial on increments and 0.5% p.a. as a fair charge. The increments forming part of the ongoing service.

Hmm. We are paying 1% of initial and 1% p.a. of all funds under his management.

Think a tactful discussion is required.

dunstonh

silvercar wrote: »

Hmm. We are paying 1% of initial and 1% p.a. of all funds under his management.

Think a tactful discussion is required.

1% ongoing on £400k is high. The 1% initial is ok but at £400k, you would get IFAs willing to do an annual contribution as part of the ongoing service. So, negotiation is in order.