Reasonable IFA commission

IronWolf

I dont think any 'annual charges' by an IFA are reasonable. I think you should agree a fee based arrangement whereby you pay them for the work they do, by the hour.

dunstonh

I dont think any 'annual charges' by an IFA are reasonable. I think you should agree a fee based arrangement whereby you pay them for the work they do, by the hour.

That may be a valid option for some. However, it would be a more expensive option for others. Thankfully you get the choice. How would you explain to someone that would pay more your way that your way is better?

Daniel54

IronWolf wrote: »

I dont think any 'annual charges' by an IFA are reasonable. I think you should agree a fee based arrangement whereby you pay them for the work they do, by the hour.

I disagree.As a client I lose control of the price on time charged and cannot verify the time spent for the result delivered.

On an annual fee basis I can make my own judgement on value for money

doughnutmachine

dunstonh wrote: »

That may be a valid option for some. However, it would be a more expensive option for others. Thankfully you get the choice. How would you explain to someone that would pay more your way that your way is better?

It seems that most IFAs prefer to be paid 0.5% [STRIKE]commission[/STRIKE] fee a year instead of charging by the hour. It would seem a reasonable assumption that a lot of IFA clients would be better off paying the IFA by the hour?

How would you explain that paying 0.5% a year is better than paying by the hour?

doughnutmachine

Daniel54 wrote: »

I disagree.As a client I lose control of the price on time charged and cannot verify the time spent for the result delivered.

On an annual fee basis I can make my own judgement on value for money

but surely you could still make a judgement on the value received when an IFA charges by the hour? All you have to do is look at the invoice amount and what work has been done?

IronWolf

dunstonh wrote: »

That may be a valid option for some. However, it would be a more expensive option for others. Thankfully you get the choice. How would you explain to someone that would pay more your way that your way is better?

Well those low fees are being subsidised by the higher fee payers, so if everyone followed my advice most of those without much to invest wouldn't be worth an IFA's time anyway.

I'm not all that sure what an IFA does to justify these ongoing fees anyway. 'Re-balancing' is a 10 minute job once a year. If I wanted advice about tax I could probably squeeze it into a half hour meeting.

If I wanted someone to manage a portfolio for me, entering and exiting investments then I'd pay an annual fee, and possibly a performance fee, but then I'd just hire an investment manager rather than an IFA.

jem16

doughnutmachine wrote: »

It seems that most IFAs prefer to be paid 0.5% [STRIKE]commission[/STRIKE] fee a year instead of charging by the hour. It would seem a reasonable assumption that a lot of IFA clients would be better off paying the IFA by the hour?

I would think that a more reasonable assumption is that most clients prefer to know what they are going to be paying, either in the form of a percentage or a fixed fee. Therefore most IFAs are charging that way because their clients choose that way.

IronWolf wrote: »

Well those low fees are being subsidised by the higher fee payers, so if everyone followed my advice most of those without much to invest wouldn't be worth an IFA's time anyway.

Percentage fees are often on a tiered basis so the less you have the higher the percentage and the more you have the smaller the percentage.

doughnutmachine

jem16 wrote: »

I would think that a more reasonable assumption is that most clients prefer to know what they are going to be paying, either in the form of a percentage or a fixed fee. Therefore most IFAs are charging that way because their clients choose that way.



Percentage fees are often on a tiered basis so the less you have the higher the percentage and the more you have the smaller the percentage.

I think most clients would prefer the fee structure that charges less? I know I certainly do.

Whenever someone talks about the annual fee their IFA charges it's normally 0.5%. At what wealth levels does this fee go down?

Daniel54

doughnutmachine wrote: »

but surely you could still make a judgement on the value received when an IFA charges by the hour? All you have to do is look at the invoice amount and what work has been done?

As per my original,I prefer a known fixed cost to an open ended structure.

Horses for courses -you might prefer to pay your decorator by the hour,I prefer to pay mine by the room.In my opinion there is more room for potential moral hazard around the decorator paid by the hour.

For an experienced investor like Ironwolf,re-balancing might take 10 minutes annually ,but for me it would be a lot more time consuming and I'm not sure I would do it well.Actually,this is one of the things I pay the investment manager for ( quarterly review rather than annual ) whereas the job of my IFA is to help check and verify that the investment manager is acting in accordance with the remit I have given them.

i don't need specialist advise on income tax or basic CGT.I do need advice on structuring how I will take my pensions and on IHT mitigation.I am happy to pay for this but can see why others would not wish to pay for something they don't think they need

dunstonh

'Re-balancing' is a 10 minute job once a year.

if only. How does the due diligence of your provider and funds across all fund houses take just 10 minutes?

If I wanted someone to manage a portfolio for me, entering and exiting investments then I'd pay an annual fee, and possibly a performance fee, but then I'd just hire an investment manager rather than an IFA.

Why should an iFA get a performance fee? The IFA has no control over the performance.

It would seem a reasonable assumption that a lot of IFA clients would be better off paying the IFA by the hour?

Some would. Some wouldnt. Also, a lot of clients like having the IFA available as a sounding board to run questions and odds and sods by without having to worry if it is going to cost them extra or not.

I think most clients would prefer the fee structure that charges less? I know I certainly do.

Hourly rate is the least favoured by consumers. Percentage is popular because that is what the market is. Fixed price is also popular. However, that can lose the benefit of cross subsidy in some casess whilst being better in others.