can i change my mind after signing?

DavidLaGuardia

dunstonh wrote:

The charge is heavy so find another IFA. On that sort of transaction, I would be looking at getting the regular premiums with no initial commission/fee and the transfer value down to around 4.5%. Ideally, the reduction in yield should be to around 5.9%.

It could be high, but we a judging it in isolation here. If a lot of work in other has been done or will be done for no or little charge, then I suppose an IFA could justify putting the remuneration on one contract's commission rather than having to charge a fee elsewhere.

dunstonh

DavidLaGuardia wrote:

It could be high, but we a judging it in isolation here. If a lot of work in other has been done or will be done for no or little charge, then I suppose an IFA could justify putting the remuneration on one contract's commission rather than having to charge a fee elsewhere.

Very fair comment. I have done that a number of times myself.

Pal

This does highlight the problems associated with commissions: it is very difficult to work out how much you are actually paying.

Surely it should be possible for an IFA to quote a fee (say £1000) for advice up to a point, and this £1000 is then paid by the individual, or subtracted from any transfer value as a commission, or taken as a high percentage of future fund values until the £1000 has been paid. You could even offer a discount for payment up front. £900 cash, or £1000 through commission over a year.

I have no problem with up-front commissions but they need to be completely transparent and easy to understand as a fixed amount of money, as it obviously is not in this case. After all, why should the advice necessarily increase just because the value of the policy is higher?

My other concern is with ongoing renewal commissions after the first year. These are always in respect of "ongoing" advice, but we know that in practice this doesn't happen in a manner that is satisfactory for the individuals (no action if underperformance starts) or the advisers (held responsible for underperformance and not paid enough to carry out annual checks on the individual's cirmcumstances etc). IMHO it is these renewal commissions that have damaged IFA's reputations in so many people's eyes. They expect an ongoing service and very rarely do they receive one.

It seems to me that renewal commissions have far more to do with the investment managers covering their !!!!!! than the individual investor:

"But Mr FSA/Ombudsman, we were paying someone else to provide the advice!"

Current commissions are just as misleading as mobile telephone charges.

cheerfulcat

The problem with commissions is that they cost *so* much more than they appear to. Over the life of the investment this can add up to tens of thousands of pounds lost.

the figures quoted are that the charges would have the effect of bringing the investment growth from 7% a year down to 4.8%.

If you had a transfer value of £50,000, monthly payments of £300 and a growth rate of 7%, at the end of twenty years you would have ~£346,000. Factor in the effect of the commission and you have only ~£247,000. The commission has cost over one hundred thousand pounds. Can anyone justify this?

dunstonh

If you had a transfer value of £50,000, monthly payments of £300 and a growth rate of 7%, at the end of twenty years you would have ~£346,000. Factor in the effect of the commission and you have only ~£247,000. The commission has cost over one hundred thousand pounds. Can anyone justify this?

Thats almost correct but that is the compound effect of growth had the charges not been taken. Commission only represents part of those charges. Even where no commission is taken, you will still see reduction in yields. There is no way that the £100,000 was down to commission only.

Looking at the business models of many financial services companies, that is where much of the problem is.

Currently most advice firms use the higher commission values to offset the costs of the smaller commission values. In any other area, I'm sure this would have been cracked down on years ago. However, this would leave a signficant portion of the population unable to afford advice and more likely to do nothing, which in turn would leave the Govt funding for their inadequate planning.

Many financial services companies are unable to cope on any other business method than initial commission. i.e. where the owners take 70% and the advisor takes 30%. The advisors needs as much commission as they can to make the 30% worthwhile. Many businesses would fail if a change was made to the charges overnight.

I think many businesses are going to have problems as well. Under A day rules, we are going to see the mainstream return of pension term assurance. The relaxation of the restrictions on this are going to see rebroking of life cover go through the roof. Those that took indemnity commission are going to see massive claw backs and many will not survive.

Indeed, I not too long back cancelled a few insurance policies arranged by a mortgage broker which had paid him over £3000 commission. I rebrokered them, set them up correctly (thats another story!) and will be paid £493 for the work over the next 4 years. The mortgage broker got a full £3k clawback as it was still in the first year. He also had the nerve to phone me to complain that i cost him £3k.

EdInvestor

Of course it's not actually necessary to pay these horrendous charges if you go through a discount broker/IFA/Sipp provider and invest direct, rather than via pooled funds and/or inside expensive tax wrappers which offer only quite small savings.

Pal

Except, of course, that you don't get any advice in those cases so are competely guessing about what to do.

dunstonh

Also, buying a personal pension/stakeholder pension direct doesnt mean you get lower charges. A discount broker may offer lower charges but going direct to a provider can often same or higher charges without getting advice and the consumer protection that goes with it.

Also, the assumption that SIPPs are cheaper than personal pensions/stakeholders is incorrect. Sometimes they may be, sometimes they may not be.