what are the rebated commisions consist of

leegate

I have read in this forum that some online discount brokers would rebate some or all commissions received from fund providers. Most provider would have both initial and annual charges. what are this commissions consist of? any one could care to explain please. many thanks.

dunstonh

Most provider would have both initial and annual charges.

Most personal pensions and no stakeholders have no initial charges and havent done for years. Its only on SIPPs that you may see this.

Rebates cannot be given on pensions as it breaches HMRC rules. The only rebate can be used to reduce an explicit initial charge or reduce an annual management charge. You are not allowed to have an increased allocation rate or a cash refund.

leegate

thank you dunstonh.

online pension brokers rebate commissions if pension plan is arranged through the brokers. so buying pension via broker is cheaper than going direct.

but what sort of commissions do providers give the brokers? does this commission mainly come from pension funds' annual charge?

dunstonh

online pension brokers rebate commissions if pension plan is arranged through the brokers. so buying pension via broker is cheaper than going direct.

Correct.

but what sort of commissions do providers give the brokers?

It varies. For example, last time a few of the IFAs on the board compared Cavendish and a few others against ourselves on nil commission, we were able to beat them. This is because we had better commission terms and therefore the rebates within the plans gave better terms. However, there is no way a small IFA firm can churn out a factory line of applications at £25 a go or whatever.

Also, another thread that other day showed that with some pension plans where the term until retirement is more than 20 years, the IFA taking maximum commission possible was able to beat the plans offered by Cavendish and other discount brokers (discount brokers on the web are IFAs with a website). The problem is that these plans are not generally available by the execution only brokers.

does this commission mainly come from pension funds' annual charge?

Some do, some dont. Stakeholders have to. However, increasingly common now on the advice channel are pension plans which have the cost of advice costed over a much shorter period. Historically, the annual management charge was what paid the advisers commission. It would often take upto 15 years for the provider to recoup the amount paid. However, after that, the provider was then in profit. Now, you can get pensions where you agree a fee with the adviser and the adviser takes that from the pension over a 3-5 year period by an increase in the annual management charge for that period only. After that, the annual management charge can drop to as low as 0.3%p.a.