Pensions and IFA commissions

dunstonh

And you reckon he should do it for free do you?

He shouldnt do work for free but he is getting 0.5% p.a. and charging a fee for this is not unacceptable. Maybe £100 but not £2925.

Indeed, the fund value is paying him nearly £500 a year. Other IFAs would be quite happy to have that portfolio switched to their agency and provide the advice for nothing as part of ongoing servicing to keep the trail..

I fear the FSA is going to give IFAs a public rap on the knuckles in September when they feedback on this first tranche of visits and the two things that are going to be highlighted will be charging excessive fees (and taking excessive commission when fee was more appropriate) and using wraps which have a second layer of charges with no evidence of benefit to the client.

Retired_I.F.A.

Ah sorry all, I skipped this bit".. and there are on-going commission payments anyway." Assuming thats the trial commission then yes he has a cheek to ask for initial as well as that trial will continue regardless. Perhaps a couple of hundred tops for explaining draw down as Dunstonh says then yes that's more like it.

If there were no trial though and remember trial commission was almost unheard of 7 years ago then I see nothing wrong with him having two lots of initial commission on one lot of money as the first was a contract to advise until retirement and the second in retirement.

For what it's worth , the single premium pensions I used to do were almost entirely, nay come to think of it they all were, transfers from occupational schemes whereby one could end up doing a section 32 to preserve the higher tax free cash, transfer it again if it were over funded near to retirement to a personal pension and again into a drawdown plan instead of annuity purchase. Each time generating 5.2% commission. I took just the one initial commission of 5.2% and any future transfers were all covered in that charge.

Luckily for me the number of clients that agreed to have me work on a commission basis then cool off and give the business to some bucket shop on execution only basis were few and far between.

how do you protect yourself from those sort of cowboy clients Dunstonh?

dunstonh

Luckily for me the number of clients that agreed to have me work on a commission basis then cool off and give the business to some bucket shop on execution only basis were few and far between.

how do you protect yourself from those sort of cowboy clients Dunstonh?

You dont give too much away until you get some commitment. I havent lost much over the years to the information grabbers. Plus I am not greedy on the commissions anyway. My average initial is less than 1% (with typical minimum of £500 and max of £2000). That level of charge/commission wipes the floor with most advisers. I took on a £1.3 million pound portfolio recently and the person said that they had shopped around and one adviser was going to take commission of nearly £100,000. I took £2,000 because its not the initial that matters with those but the fund based trail. The greed of some advisers is just amazing. In fact, I know the adviser in question and he's absolutely rubbish at the technical stuff and I wouldnt use him if he was free. He thought that investment bonds were lower risk than Unit trusts!!!!! He wont survive the RDR.

dylanfan

Hi
Many thanks to all those who replied to my query. I'm very grateful for the advice. Just to clarify a couple of things. I am not averse to paying for advice and work undertaken - I just wondered if the amount my IFA wants to charge seemed reasonable. From what many of you have said it seems not !

Again to clarify, the residual amount after taking the tax free lump sum is £130,000 so the 3% commission for sorting out the lump sum and income drawdown would be c.£3900 The IFA's trail commission for last financial year was £1636.. There has been no major change to the SIPP since it was set up . Excuse my ignorance, but what is trail commission meant to cover ?

I am unsure what to do for the best now. Could I or should I -

1. try to negotiate a better percentage - but it is a big firm and I have found them inflexible in the past
2. ask them to quote a fee rather than commission for this work
3. shift to another IFA - but is this difficult, would they ask for "exit " fees ?
4. anything else anyone can suggest !

many thanks again
Dylanfan

mrsh1968

Hi, I work for an IFA and we dont charge commission, we feel it is wrong to do so given that we are getting a commission for the transfer, we specialise in Annuities and enhanced annuities amongst other things. Shop around because there are IFA's out there who dont believe in charging a fee! Also try telling him you want to do the business but you are not prepared to pay this fee and demand he wavers it, I imagine that your IFA wouldnt want to lose the large commission he will get for doing the transfer as well as your business!!
hth

JeremyZerg

I am not averse to paying for advice and work undertaken - I just wondered if the amount my IFA wants to charge seemed reasonable. From what many of you have said it seems not!

From my reading of your situation: it would appear that your IFA is indeed "having a laugh".

Again to clarify, the residual amount after taking the tax free lump sum is £130,000 so the 3% commission for sorting out the lump sum and income drawdown would be c.£3900 The IFA's trail commission for last financial year was £1636.. There has been no major change to the SIPP since it was set up . Excuse my ignorance, but what is trail commission meant to cover ?

£3,900 is a ludicrous sum - processing an income drawdown case involves nowhere near this amount of work. The vast majority of the administration will be done by the SIPP provider, after all (having worked for a SIPP provider, and an IFA, I feel qualified to make this comment).

Trail commission, in my view, is supposed to cover ongoing administration costs with regard to the SIPP, as well as ongoing advice - fund switches, etc. - and ongoing attention to your retirement planning.

The IFA I work for at the moment charges between 2.5% / 3.5% initial, and 0.5% ongoing, for which the client receives investment advice and portfolio rebalancing throughout the life of the SIPP.

There are no charges (other than the ongoing commission) for taking a plan into drawdown.

And, as I believe is essential: fund switches are processed as the client approaches income drawdown, to lower risk and ensure consistent income streams.

It seems absurd that there have been no changes within your pension fund!

I am unsure what to do for the best now.

Good question...

Another IFA is bound to charge, as there are obvious costs involved on their part.

You could try aggressive negotiation (with your current IFA) for lowered costs - making reference to TCF and the ongoing FSA campaign against commission piracy - but that might sour the milk, so to speak.

I suppose you could try working it out yourself... Do you feel lucky? :P

Good luck.