Reasonable IFA commission

silvercar

So know I seem to have established that he is charging over the odds.

So I negotiate a lower rate (assuming that is possible) and worry that I will now get poorer service, given that I will be paying less than most of his clients.

Or I jump ship and then feel honour bound to tell the friends/ relatives that I have recommended to him that we are leaving and why.

Also have to find a new IFA.

Grumpy now because I did like this guy, was fairly happy with his service and advice and have been with him for a number of years.

dunstonh

So I negotiate a lower rate (assuming that is possible) and worry that I will now get poorer service, given that I will be paying less than most of his clients.

Many self employed or business owners/directors will tell you that when you have too much work you can put your prices up by an amount knowing that some will drop. The art if finding the balance. e.g. if you put your prices up 20% but only lose 5%.

if he is busy and it is coming in fast then he may be willing to let you go. If he is quiet then he may be willing to negotiate. You should not get any less service as the service you get is agreed.

Grumpy now because I did like this guy, was fairly happy with his service and advice and have been with him for a number of years.

1% plus 1%pa. would have been good pricing not that many years ago. As time has moved on and your balance has no doubt increased, it now looks poorer value. So, time to negotiate. Your value is such that virtually all IFAs would be happy to have you on board at 0.5%. That is what you should aim for. The old NMA model (one of the forerunners seen as good value pre RDR was 1% plus 0.5% p.a.). So, if you get the ongoing halved, then that would be fine.

grizzly1911

dunstonh wrote: »

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

I know they should and accept your point.

The question is do they the all do it or are "pet" funds used that broadly fit the criteria for the run of the mill portfolios.

In a similar way are set menus used depending ATR with the odd side thrown in rather than al la carte unless challenged, directed in some way?

It doesn't mean to say those menus won't meet the requiremts or justified as meeting them.

dunstonh

Fund recommendations have been under increasing scrutiny and due diligence expectations are far greater than they were 5 years ago let alone 10 or 15 years ago. I cant speak for others as each will have own processes.

I outsource a lot of the research as the cost and time of doing it myself would be too great. However, straight away, that outsourcing generates a cost. That cost is not one off but ongoing. However, there has to be due dilligence on the methods used by the company doing the research to make sure they meet required standards. If they mess up, it wont be them that suffers but me. So, even with their research, there still needs to be more research on each one. Separate to that, is risk profiling and portfolio building using software. That has moved away from provider sourced data (some may still use that but concerns exist over independence if you use provider supplied material). Now, you tend to buy that data and research in as well (so more ongoing costs). That data is fluid. So, you cant rely on old data. The portfolio is built using volatility ratings to match different risk profiles. So, you have to ensure all the funds when put together at the desired ratios match the volatility range for that risk profile.

The advice has to match the ability to understand and willingness to understand by the individual. So, you could have two people with identical risk profiles and amounts but with different investments because of this.

Liability comes with all this as well as the documentation requirements that need to be retained (fund switch and rebalancing requirements have increased with RDR. Liability costs money but so does the extra time it takes to document what you have done and why. Knowledge costs money as well. A DIYer may have enough knowledge to get by but they wont likely have the knowledge of an IFA. They may not ever need a fraction of that knowledge and that is why DIY can save money. However, if you don't have that knowledge and ability and you are employing someone that has the knowledge and ability in any walk of life, then it will cost.

The actual fund switch itself can be done in 10 minutes. The build up to that point and work that follows along with the liability and having the tools to achieve it is where the cost is.

IronWolf

dunstonh wrote: »

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

I'd hope due diligence of the funds was done before they were even recommended. Keeping up to date with the market and fund offerings is part of being an IFA, I don't see why I should pay for them to do that.

When I go to see a doctor I don't pay for them to read the latest medical journals and learn the latest procedures, I expect them to do that off their own back, they are a doctor. I pay for the consultation which is charged at an hourly rate. The hourly rate reflects their accumulated knowledge and builds in the cost of non-consultation work.

dunstonh

I'd hope due diligence of the funds was done before they were even recommended. Keeping up to date with the market and fund offerings is part of being an IFA, I don't see why I should pay for them to do that.

I take it you are not self employed or run a company at management level.

When I go to see a doctor I don't pay for them to read the latest medical journals and learn the latest procedures, I expect them to do that off their own back, they are a doctor. I pay for the consultation which is charged at an hourly rate. The hourly rate reflects their accumulated knowledge and builds in the cost of non-consultation work.

You have just contradicted yourself. You say you dont pay them to read whatever but then you pay them an hourly rate. They set that rate based on costs, time, liability, knowledge and profit.

IronWolf

dunstonh wrote: »

I take it you are not self employed or run a company at management level.



You have just contradicted yourself. You say you dont pay them to read whatever but then you pay them an hourly rate. They set that rate based on costs, time, liability, knowledge and profit.

I am both self-employed and employed. In my self employment I only get paid on the product I deliver, doesn't matter how much effort or time I put into something.

There is no contradiction. I prefer to pay people by the hour for the work they do directly for me, not research or reading. Just like I expect my accountant to keep on top of the latest in tax laws and IFRS, I dont pay him for that all I pay him for is doing the accounts. But he doesnt charge £5 because all the extra knowledge and work it entails is built into the hourly charge.

I don't see why the IFA industry needs to work in a different way.

DiggerUK

Why anyone still buys a private pension is beyond me. With current legislation you never get any real control over 75% of your pension pot.
Add to that how much is lifted out of your pocket in fees and charges, and it gets very Wongaesque.

This article quotes a high annual fee of 1.5% in it's example, but it makes clear that any 'free money' from tax relief does not go to the pension purchaser.
The comment stream is worth a few minutes of anybody's time.
..._

dunstonh

I am both self-employed and employed. In my self employment I only get paid on the product I deliver, doesn't matter how much effort or time I put into something.

And how does that product get priced? Do you pluck a price out of thin air or do you work out what the costs are?

I don't see why the IFA industry needs to work in a different way.

it doesnt. the product is priced the same way.

Why anyone still buys a private pension is beyond me. With current legislation you never get any real control over 75% of your pension pot.
<snip>This article quotes a high annual fee of 1.5% in it's example, but it makes clear that any 'free money' from tax relief does not go to the pension purchaser.

wrong thread digger. Just because an article in the telegraph says something doesnt mean it is actually the case. Yes you can pay 1.5% but you can also pay 0.4%. Since 2001, in retail pensions, there has been a benchmark of 1% where you need to justify why you are going above 1%.

Rollinghome

IronWolf wrote: »

I prefer to pay people by the hour for the work they do directly for me.

The FCA tends to agree with you and has expressed concerns as to whether charging for advice on a percentage basis is compliant with the aims of RDR:

"FCA warns of ‘dealing bias’ from percentage charges" http://citywire.co.uk/new-model-adviser/fca-warns-of-dealing-bias-from-percentage-charges/a692355