Should we be worried about our investment?

pinky13_2

jem16 wrote: »

The 0.5% and 0.2% are fees to use the Transact wrap platform - nothing to do with Stamp Duty.

Pinky13 - can you clarify what is inside your Transact wrap - i.e. what are the actual funds that your IFA has chosen for you?

They are:

Aberdeen Emerging Markets
First State Asia Pacific Leaders
Invesco Perpetual High Income
Invesco Perpetual Monthly Income
M & G Global Basics
New Star European Growth
New Star Sterling Bond
New Star UK Property
Norwich Property Trust
Old Mutual Japanese Select
Rensburg UK Select Growth
Standard Life Select Property
UBS US Equity

Purch: I am not sure if these are classed as 'funds' as I do not know enough about the difference between stocks/shares/funds, its all financial jargon to me.

Etccarmageddon

looks like your money has been put into a bunch of unit trusts which you could have done yourself.

purch

They are:

That is not a particularly bad spread of Investments, but also not particularly inspired either........definately not a choice worth paying a FA over the odds for

In my view there are too many property funds, but overall there is a decent spread.

The Rensburg UK Select has been a particularly poor performer within the UK All Share over the previous 9 months, which won't help the overall performance.

To hold funds like these you would expect to pay in the 1.5 to 1.7 % range in AMC's if the FA takes the trail commission.

2% still sounds a lot especially if you are receiving a poor level of service.

pinky13_2

Purch:

Thanks for your advice. Is there anywhere where we can get an independent review of the services we have received from our FA and what we should be expecting for the fees we pay? Obviously we are new to this and we do not have any kind of meter to measure the performance of our FA or Transact by.

jem16

pinky13 wrote: »

The 'wrap' is made up of a cash element and investments. We are charged for the whole wrap with a 0.60% applied to the investment element and the 0.45% applied to the cash element so we are charged on both.

Yes you are charged on both but you don't add the percentages together to make 1.05%.

For example;

£1000 invested - £900 in investments and £100 in cash.

You would pay 0.6% times £900 which is £5.40 and 0.45% times £100 which is £0.45. Total fee is £5.85

If you did it your way by adding 0.6% to 0.45% to get 1.05% you would then pay £10.50 on a total investment of £1000.

pinky3 wrote:

Aberdeen Emerging Markets
First State Asia Pacific Leaders
Invesco Perpetual High Income
Invesco Perpetual Monthly Income
M & G Global Basics
New Star European Growth
New Star Sterling Bond
New Star UK Property
Norwich Property Trust
Old Mutual Japanese Select
Rensburg UK Select Growth
Standard Life Select Property
UBS US Equity

Yes these are funds.

Shares are invested in one single company. Funds are run by a fund manager who may invest in 10 different companies - the fund manager may change the companies within his fund anytime he sees fit.

An IFA is not authorised to recommend shares.

These funds could have been invested through Cofunds or Fidelity (which are Funds Supermarkets) by your IFA. They do the same type of job that your IFA is using Transact for without the extra charges.

_purch wrote:

To hold funds like these you would expect to pay in the 1.5 to 1.7 % range in AMC's if the FA takes the trail commission.

2% still sounds a lot especially if you are receiving a poor level of service.

With Fidelity or Cofunds you could do exactly the same type of investment (perhaps without the cash) and it would just be the normal AMC (annual management charge) of 1.5% approx. The IFA would be paid the normal trail commission of 0.5% from that 1.5%

From what I can work ( and I may be wrong) out pinky13 is paying fees of;

IFA = 1%
Transact wrap = 0.6% (for the funds)
AMC = 1% (the normal AMC of 1.5% minus normal IFA commission of 0.5%) - with an AMC discount of 0.15% according to amount invested making it 0.85%. That discount only seems to apply to amounts over £50k, so only £40k discounted.

So altogether 2.45% instead of 1.5%.

Questions to consider;

1. Is your IFA earning that extra commission of 0.5% above the normal trail commission? If he is great, if not he is being greedy.

2. Is Transact necessary as a platform? If all you are going to put into it is funds then the answer is probably not. Your portfolio isn't large enough to benefit from the larger discounts that would help negate the extra 0.6% annual fee for being in Transact.

Thanks for your advice. Is there anywhere where we can get an independent review of the services we have received from our FA and what we should be expecting for the fees we pay? Obviously we are new to this and we do not have any kind of meter to measure the performance of our FA or Transact by.

If you are not happy that the IFA is giving you the extra service to justify his double the normal fee, then ask another IFA to take over the business and move your funds into Fidelity or Cofunds.

I pay my IFA initial commission of 1% and annual trail commission of 0.5%. He uses Fidelity as the Funds Supermarket.

Rebalancing of the portfolio has been yearly with an extra rebalance last December when Property Funds were doing badly.

Transact is a good platform but with the advent of Funds Supermarkets, it's maybe just a more costly way of doing something if you are not utilising all its benefits.

dunstonh

The IFA in question is taking far too much commission. Any IFA doing this and not able to justify the extra charges they are taking are running the risk of getting into trouble with the FSA.

I know 3 firms locally now who have had FSA inspections in the last 2 months and all of them are getting a rebuke for using platforms that had higher charges and higher commissions but nothing to show how the client benefited from those higher charges. I am expecting the FSA to issue a public "telling off" of IFAs that do this in Sept/Oct time as they have given enough warnings about it. Plus the FSA are visiting around 1/2 of all IFAs and if its a trend then some are going to get into trouble.

The fund supermarkets of Cofunds, Selestia/Skandia and Fidelity (and others) are cheaper. They may not have the web access ability and trading ability that transact has but unless you have £500k or more with transact then it it likely you are paying more than necessary.

Transact is the daddy of platforms but its variable charging structure means that some could abuse this whilst others could benefit (abusing it looks the case here). Its ability to purchase investments of all sorts is almost unique within all tax wrappers and its fine to pay a bit more if you use that service but if you are only using unit trusts (which most do) then why pay more?

jem16

dunstonh wrote: »

Transact is the daddy of platforms but its variable charging structure means that some could abuse this whilst others could benefit (abusing it looks the case here).

How does the Transact charging structure work?

For example if the AMC is 1.5% and the normal IFA commission paid through that is 0.5%, that would leave 1%. The Transact discounts seem to range from 15% to 35% bringing it down to between 0.85% and 0.65%. However you then have Transact's own annual fee of 0.6% which makes it dearer again. Even more so when the IFA takes more than the normal trail commission.

Is there scope for further reductions that are not so apparent?

dunstonh

jem16 wrote: »

How does the Transact charging structure work?

For example if the AMC is 1.5% and the normal IFA commission paid through that is 0.5%, that would leave 1%. The Transact discounts seem to range from 15% to 35% bringing it down to between 0.85% and 0.65%. However you then have Transact's own annual fee of 0.6% which makes it dearer again. Even more so when the IFA takes more than the normal trail commission.

Is there scope for further reductions that are not so apparent?

Transact largely uses "factory gate pricing" (pension forum regulars would recognise that term as well as those following the FSA's retail distribution review). Basically Transact strip out the trail commissions and retail the funds cheaper than most of the fund supermarkets. However, they add on top of that their own charge (which reduces based on portfolio value). Then the IFA can add on their fees. If the IFA adds on the typical 0.5% that is the normal natural trail amount and the portfolio isnt large then the annual management charge will be higher than fund supermarkets as you have the transact charge (which isnt a lot but its still a charge).

The problem is when you get an adviser adding in more than the typical 0.5% as is too often the case. 1% is often the figure seen and unless the IFA can justify the 1% they are taking the P. Some of the discounts that Transact negotiate for larger portfolios (running in high hundreds of thousands) can make it a very attractive option then if the IFA is taking standard trail or less. So, it is important to note that it isnt so much the transact platform that is the issue here as much as the fees you agree with the IFA and the amount you have to invest.

jem16

dunstonh wrote: »

So, it is important to note that it isnt so much the transact platform that is the issue here as much as the fees you agree with the IFA and the amount you have to invest.

Wasn't trying to knock the Transact platform, just trying to understand its charging structure as the discounts appeared to be less than the charges. However it appears that there are extra discounts for higher wealth portfolios.

Like anything else if you use all the features it's worth paying for but perhaps not so good if you don't want/need them.

pinky13_2

Firstly, thank you to all who have replied with helpful information.

Judging by the replies to this thread, we do not have a very good deal afterall with our IFA. The question then is, what to do next. Do we instist that they transfer us to one of the cheaper Funds Supermarkets seeing as we are not in the big league - moneywise and can we make a complaint to any kind of watchdog regarding this? Would it be worth trying to renegotiate the IFA fee if we decide to stick with them?

If we decide to go no further with these specific IFA, how do we go about finding a good IFA who isn't going to do the same? We both feel very let down as the IFA was recommended by a good friend who we trust. However, it must be said that said friend has a lot more to invest and is perhaps receiving better treatment due to being a big fish moneywise. Is there anywhere where we can seek reviews of IFA's or anything like that?

Thanks, Pinky :beer: