IFA fees - pay up front or commission?

CannyJock

I'm thinking about switching my IFA. Have been watching a Scottish Equitable pension fund and a CoFunds ISA they strongly recommended shrink over the past year.

Can't blame them for the market conditions of course, but is frustrating when you phone to chat with them and the conversation goes along the lines:
Me: "Hi there, these funds look like they're losing a lot of money, what's your thoughts?"
Them: "Well, it's difficult to say"
Me: "Are they falling in line with other funds? Should I think about moving them?"
Them: "You could do if you want"
Me: "What would you advise?"
Them: "Well it depends on your attitude to risk"
Me: "We've had a lot sit-down chat about my attitude to risk before. What's your advice on these funds?"
Them: "Yeah we could look at them if you like"

Basically not getting a warm feeling that they're actually giving a toss about how my funds are performing.

So I'm starting the ball rolling on looking into alternatives.

Question for everyone - what's better FOR THE CLIENT in terms of paying your IFA a fee versus commission? IFA's make more money from commission based on fund value than they do on straight fees, correct?

And if anyone knows of an IFA who only takes commission on the growth in fund value, lemme know

dunstonh

I'm thinking about switching my IFA. Have been watching a Scottish Equitable pension fund and a CoFunds ISA they strongly recommended shrink over the past year.

Cofunds is one of the best fund supermarkets and many IFAs like Scot Eqs pension plan.

And if anyone knows of an IFA who only takes commission on the growth in fund value, lemme know

Not going to happen. It would not be fair remuneration and couldnt work. What timescale would you measure it over? daily, monthly, yearly, 5 or 10 years?

Question for everyone - what's better FOR THE CLIENT in terms of paying your IFA a fee versus commission? IFA's make more money from commission based on fund value than they do on straight fees, correct?

Incorrect. It depends on the size of the fee or commission or whatever hybrid option you agree. In the case of investments, commission based on trail is often the best option as it aligns the remuneration with performance. Cofunds operate on that basis but use of Scot Eq suggests that wasnt.

Can't blame them for the market conditions of course

To be honest, it does seem like you are blaming them for market conditions. There is not a lot that can be done about the markets. If the portfolio has been built within your risk profile then you should accept that. If you are now getting concerned then it suggests that perhaps you are not the risk profile you thought (or they thought) you were.

Did you employ a transactional IFA or employ a servicing IFA? Did you agree a schedule of reviews? If not, then you probably have a transactional IFA. If the IFA is from a larger firm, then its possible their employer has rules to reduce what level of switching or transferring that can be done (due to fears of churning which larger salesforces have got into trouble before).

IvanOpinion

To be fair to IFAs they no more have a crystal ball than anybody else .. but I can see your point .. we seem to pay them a significant amount of money (in commission or fees) for them to basically say 'they don't know'

Ivan

CannyJock

dunstonh wrote: »

Did you employ a transactional IFA or employ a servicing IFA? Did you agree a schedule of reviews? If not, then you probably have a transactional IFA. If the IFA is from a larger firm, then its possible their employer has rules to reduce what level of switching or transferring that can be done (due to fears of churning which larger salesforces have got into trouble before).

Sorry for not following this up earlier, been tied up on one of the other boards. There aren't a scheule of reviews, so I'd say that I've got a transactional IFA. Part of my current frustration is that I don't feel I'm getting any advice on whether to stick, switch or ditch.

Definitely not blaming them for the market conditions - and for the record I'd say that a commision based on annual growth but I was being slightly facetious

Good to know that CoFunds get a tick in the box, reassuring that this seems to have been a good choice. Can you tell me a bit more about reasons why they seem to like Scottish Eq's pension plan? Hopefully as simple as being a good performer.

dunstonh

Can you tell me a bit more about reasons why they seem to like Scottish Eq's pension plan? Hopefully as simple as being a good performer.

Nothing to do with performance. Most of the "best" funds appear on the products of all the providers. i.e. You are going to inv Perp Income or High Income available with most of the providers.

I dont like Scot Eq but thats more down to what I perceive as poor service and a lack of decent intergration into back office software. Not all IFAs use back office software so wont care about things like that. Especially transactional IFAs. I wont use a provider unless it integrates with my software. I have also found errors in their quotation system before which I passed up the line and were largely ignored. Only by pushing it did they eventually fix it. However, the error would have occured frequently and I was suprised no-one had mentioned it before. I was getting fobbed off and I dont like that so I am a bit tainted by that experience.

Just as a balance to that, most IFAs dont like Norwich Union but I get great service out of them so I could just be weird.