Pre- RDR Commission?

Mothman

Hopefully someone can confirm this for me.

In 1999 my mother invested an amount of money through a local IFA who placed it in a mixture of onshore & offshore investment bonds which now total around £360k. She appears to receive little if anything in the way of practical ongoing advice from the IFA and this year she decided not to attend the annual review meeting.

If she decides to no longer use the services of the IFA, am I right in saying that her investments will not benefit from the commission the IFA receives which is at least 0.5% pa, and that the IFA will continue to get this commission irrespective?

masonic

It will either continue being paid to the IFA or will be kept by the fund house depending on the nature of the investment products in which she is invested. To benefit from the saving, she would need to switch into lower cost investments that do not make a provision for trail commission to be paid out.

"a mixture of onshore & offshore investment bonds which now total around £360k" does not sound like a balanced investment portfolio to me.

Mothman

masonic wrote: »

It will either continue being paid to the IFA or will be kept by the fund house depending on the nature of the investment products in which she is invested. To benefit from the saving, she would need to switch into lower cost investments that do not make a provision for trail commission to be paid out.

Thanks for confirming, it's disappointing but I half expected it would be the case. Unfortunately my mother is now quite elderly and though she is still very with it, she doesn't have the energy to start searching for another IFA at her time of life.

masonic wrote: »

"a mixture of onshore & offshore investment bonds which now total around £360k" does not sound like a balanced investment portfolio to me.

The onshore bonds were all invested in With-Profits funds which isn't necessarily a problem, however she wasn't aware that her gains are being taxed and the IFA has never discussed using her ISA allowance to shelter any of the money from tax.

The offshore bond which includes a trust, was sold by the IFA as an IHT mitigation product. The investment is split across four funds which the IFA picked, but in 20yrs he has never recommended changing any of the funds or rebalanced the portfolio back to the original allocations.

masonic

Mothman wrote: »

The onshore bonds were all invested in With-Profits funds which isn't necessarily a problem, however she wasn't aware that her gains are being taxed and the IFA has never discussed using her ISA allowance to shelter any of the money from tax.

With-profits funds are from a bygone era. They are expensive and generally not recommended, although there are one or two that are less bad. You'd struggle to find an adviser who would recommend them today. But one of the advantages of with-profits is in IHT planning, which presumably was the objective here. The same seems to be true of the offshore funds.

I wonder if in the end, the tax saving will outweigh the cost impact of the extra charges and commission, and of course the opportunity cost of these investments vs. a choice made freely without an eye on IHT. Taking action now may not make a lot of difference as 20 years worth of fees and commissions have already been taken.

Mothman

I think the WP bonds were quite a profitable for IFA's back in the day and my view is that this probably had more to do with their selection rather than any IHT aspect, certainly no mention of this was made to my mother at the time of investment.

The offshore bond\trust is a whole different kettle of fish and this was most definetly was chosen for IHT planning purposes. Under the current allowances there probably isn't an IHT liability, though the IFA wasn't to know this back in 1999 . The jurys out in my mind as to whether it would perform it's IHT mitigation function if needed, even if it did, it has been a very expensive product and there is an income tax liability that is going to have to be dealt with when it is eventually brought onshore :eek:.

My mother has done OK simply by taking the decision 20yrs ago to get invested rather than sit with everything in cash. Though I can't help feel she would probably have done much better with an IFA who had taken more of an interest rather than just sit back and collect the fees, but hey hindsights a wonderful thing :rotfl:

Thanks for the replies

SonOf

Most of these old bonds charged no more if the adviser took renewal commission or took it up front. It was a business decision made by the insurer and did not impact on the policyholder.

I think the WP bonds were quite a profitable for IFA's back in the day and my view is that this probably had more to do with their selection rather than any IHT aspect, certainly no mention of this was made to my mother at the time of investment.

Whether it was WP or UL didnt have any impact on commission. Where there was a difference was bonds allowed a larger upfront commission by sacrificing the ongoing renewal commission (compared to lower upfront and higher ongoing). Most UT/OEICs didnt give that choice.

So, if this adviser is receiving ongoing commission, then it means they took less up front.

In 1999, investment bonds were typically cheaper than UT/OEICs. You often saw 1% AMCs all in. Sometimes less than that. Whereas comparable UTs would be 1.5% or more.

You also had the age allowance back then. Bonds didnt reduce the age allowance but UT income could. Plus, ISAs had a very small allowance compared to today.

The change of the tax credits on dividends and increase in the ISA allowance plus the introduction of the dividend allowance are the main reasons bonds are niche today.

Some old bonds are gems worth keeping. Others are easily justified moving into ISA over a period.

My mother has done OK simply by taking the decision 20yrs ago to get invested rather than sit with everything in cash. Though I can't help feel she would probably have done much better with an IFA who had taken more of an interest rather than just sit back and collect the fees, but hey hindsights a wonderful thing

Is there actually ongoing commission being paid or is it just a guess?

Mothman

SonOf thanks for the detailed reply.

SonOf wrote: »

Is there actually ongoing commission being paid or is it just a guess?

The onshore bonds are with Aviva, Prudential and Scottish Widows and each contract definately states an ongoing advisor charge of 0.5%. I can't recall the exact establishment charges but they were more than 1%.

The offshore product is with CLI, the establishment charge was 5% and ongoing investment charges total around 2.18% pa at current values, being 1.42% funds, 0.26% product and 0.5% advisor charge. Expensive, but I then I suppose these types of niche products usually are.

SonOf

The onshore bonds are with Aviva, Prudential and Scottish Widows and each contract definately states an ongoing advisor charge of 0.5%. I can't recall the exact establishment charges but they were more than 1%.

Aviva were a cheap bond provider. You could actually get a negative reduction in yield at times. Aviva had them on near constant special offer with improved terms. They were buying market share with them. old Pru bonds are still often worth keeping as they are much better value than their modern range. Scottish Widows less so (the old Clerical Medical Bonds, now branded under SW were good value but can be improved on with modern options. SW original branded bonds offered little that was attractive).

Establishment charges were all about the initial commission. Not the ongoing.

The offshore product is with CLI, the establishment charge was 5% and ongoing investment charges total around 2.18% pa at current values, being 1.42% funds, 0.26% product and 0.5% advisor charge. Expensive, but I then I suppose these types of niche products usually are.

These were a popular offshore version but not that cost-effective.