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  • FIRST POST
    • MSE Archna
    • By MSE Archna 20th Oct 06, 11:54 AM
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    MSE Archna
    Do You Need Financial Advice? When To Get It, When Not To Get It Discussion Area
    • #1
    • 20th Oct 06, 11:54 AM
    Do You Need Financial Advice? When To Get It, When Not To Get It Discussion Area 20th Oct 06 at 11:54 AM

    This thread is specifically to discuss the content of the

    Do You Need Financial Advice? When To Get It, When Not To Get It Article

    To discuss or ask a question about the article: click reply
    Report inappropriate posts: forumteam@moneysavingexpert.com




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    • dunstonh
    • By dunstonh 21st Apr 08, 5:05 PM
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    dunstonh
    My new IFA offered a flat annual fee, but I now find that there is a transfer cost of 0.6% (on fund value) to move funds across from Cofunds to Transact.
    Cofunds are great. One of the better fund supermarkets. Transact are not a fund supermarket but a platform so there is a difference here. Transact sell investments with factory gate pricing. They add a bit for themselves and then allow the adviser to add their charges. An explicit fee based adviser with a client with a large portfolio can make a lot of savings with Transact. I seem to recall its over £500k or something around that.

    In addition, my new IFA advises they will receive an initial 3.5% commission, and a further 0.5% annual return on the complete investment. As I am paying for a fee-based service, should I expect this commission to be passed on? (although I do not you state HMRC rules prevent you getting it as cashback)
    I think there is either a misunderstanding here or you are not getting what you think. With transact the adviser sets the initial charge. So, if it says 3.5% commission is being received then that is what the adviser is getting. If the adviser was taking no initial commission then it would say zero. The 0.5% is the natural trail commission.

    So, if the adviser is taking 3.5% and charging you a fee then not only are they taking more than the normal maximum commission option (typically 3%) they are charging you on top. That is either an error of understanding or you are being ripped off.

    I would also suggest that unless you have many hundreds of thousands of pounds in your portfolio, that you get them to fully justify the reason for using Transact over Cofunds. I have transferred a lot of out Transact set up by others and put them into Cofunds (and Selestia) as they are both usually cheaper options.
    Last edited by dunstonh; 21-04-2008 at 5:17 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ccmuirhead
    Costs - Moving from Cofunds to Transact
    Thanks for your response dunstonh

    I'm still confused slightly. We wanted to move away from Cofunds due to limitations on what you can see/do. We were advised that Transact offered better visibility and control for a comparable fee. On the Transact website https://www.transact-online.co.uk/, costs are stated as:

    Initial Costs:0.50% Transact Commission3.50% Adviser Commission5.00% Fund Manager Fee(5.00%)Fund Manager Rebate--------4.00% Total Initial Cost

    And the ongoing charges on the same asset would be:

    Annual Costs:
    0.60% Transact Commission0.55% Adviser Commission1.50% Fund Manager Fee(1.00%)Fund Manager Rebate--------1.65% Total Annual Cost

    This illustration suggests a 3.5% adviser commission is normal, but trying to find a source (other than Transact) to confirm this is proving difficult.

    What I don't understand is who would pay for the Adviser commission (I'm suspecting me!!) and why they would elect to receive payment as a fee as well as commission .. is this normal??

    Thanks for your feedback.
    • dunstonh
    • By dunstonh 23rd Apr 08, 3:08 PM
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    dunstonh
    I'm still confused slightly. We wanted to move away from Cofunds due to limitations on what you can see/do
    Cofunds are a fund supermarket with around 1000 funds. They do have online access for viewing accounts.

    Transact are a platform which has access to virtually every unit trust and quoted stock etc that there is. So, it beats cofunds on that point but you pay for it. Transact is very good as a concept and it is the top of the range model effectively and if you want all those bells and whistles and intend to use them then its money well spent. If you dont use them then you are paying unnecessarily.

    s illustration suggests a 3.5% adviser commission is normal, but trying to find a source (other than Transact) to confirm this is proving difficult.
    Its not normal. With transact the adviser can select the initial charge that goes to them. The illustration will show the charge that applies to you based on the terms they have requested at transact.

    What I don't understand is who would pay for the Adviser commission (I'm suspecting me!!) and why they would elect to receive payment as a fee as well as commission .. is this normal??
    Agreeing a fee and having commission offset that fee is quite normal and valid. However, agreeing a fee and still taking commmission on top is dodgy.

    I suggest you get this checked with the adviser as it could be a clerical error or misunderstanding but as it stands, if you have agreed a fee and commission is being taken on top of that fee then that should not be the case.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • MigsyBigsy
    • By MigsyBigsy 5th Jun 08, 10:42 AM
    • 142 Posts
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    MigsyBigsy
    Hello All,

    my friend has recently sold a house for 400,000 and has now that amount in a NatWest current account. NatWest have booked an appointment to see one of their Financial advisors. She is off to live in Portugal soon.

    Should she book an IFA rather than see the NatWest one?

    She is also not into investing in shares and stocks and therefore should she stick to high interest accounts , ISAs etc??

    thank you for the replies...
    • dunstonh
    • By dunstonh 5th Jun 08, 11:50 AM
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    dunstonh
    Should she book an IFA rather than see the NatWest one?
    Natwest dont have financial advisers (using the FSA's proposed changes for Oct 08).. They have insurance sales agents. So, your question really is should she book an IFA or a sales agent. Obvious answer to that is IFA.

    note: FSA have proposed that tied agents will no longer be able to give advice or use the term adviser. This is partly prompted from the fact the fact that most mis-sales come from tied agents an in particular the banks nowadays. IFAs in turn will also have to have higher qualifications (which should see reduced numbers as some IFAs wont want to sit more exams and some wont be capable of passing them).


    She is also not into investing in shares and stocks and therefore should she stick to high interest accounts , ISAs etc??
    What about the options in between stocks and shares and cash? Why is she not investing in stocks and shares?

    There are a number of other questions as well that would be appropriate for an IFA to ask to ascertain what is best but its not practical to ask them all on a forum and you wouldnt know the answers anyway. So, in summary, she should see an IFA as that is the only type of adviser that is really qualified and able to give her proper financial advice. Anyone else is just a sales rep.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Milarky
    • By Milarky 5th Jun 08, 1:47 PM
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    Milarky
    So, in summary, she should see an IFA as that is the only type of adviser that is really qualified and able to give her proper financial advice. Anyone else is just a sales rep.
    Originally posted by dunstonh
    Of course there is a certain tautology here - in defining 'financial advice' with reference to those who may offer it (a statutory definition)
    .....under construction....
  • optiMISER
    Getting accurate annuity quotes comes at a cost. Unlike other product illustrations, you can only get real time annuity data if you pay for it. All these tables you see are based on snapshot data and assumptions and not sufficient to base a recommendation on. So, if you want to engage the services of an adviser on this front, I cannot blame them wanting to get a commitment from you when they are incurring costs.
    Pehaps I am mistaking the political or legislative/regulatory basis of "the open market option" but it seems it was introduced with the intention to benefit consumers. Is that purpose not severely hampered if insurance companies (and perhaps IFAs) have conspired to make such quotes only accessible via a further layer of middlemen and costs?

    What good are initiatives such as the FSA annuity tables, introduced with:

    The Financial Services Authority today launched its independent annuities tables to help consumers nearing retirement shop around online and compare the rates available for annuities under their open market option.
    If we believe dunstonh (as I for one am inclined to do) then we might as well add:

    . . . but these tables are in fact next to useless as consumers will only get accurate quotations by paying an IFA, especially for those more vulnerable consumers who wish to claim an enhanced or impaired life annuity
    The example with the plumber was nearly apt. Except it is just like if you needed a plumber paying someone else to phone around plumbers and get quotes from them. Most people wouldn't consider this, but perhaps when getting an expert to work on say, a potentially dangerous item such as your gas pipes, it would be folly not to get another expert not only to get the best price but that you are getting the right service (i.e. the plumber is really qualified, the specific work that needs doing is confirmed). There is a problem of infintite regression here. Most DIY disparagers in all areas overlook that when you get someone in (GSI) you are in effect putting yourself forward as an expert in human resources managment, project managment and procurement etc etc. (In the trades of course there are certain manual skills that might not be possessed by the competent overseer, so GSI might be more justifiable; with an IFA dealing only in information the regression becomes more of an issue).

    Ok, I digress as I see a common sentiment in all of this: leave it to the "professionals" (blue collar or white collar) and everything will be fine. Do it yourself and you'll mess up.

    I guess what really gets me is that dunstonh (and Martin in one of his articles for that matter) is saying that you're not likely to get a good deal unless you go to an IFA (and at times, not just in this thread he seems to be verging on saying that you will always get the best rate if you go to an IFA). But there is no way for you to check this for yourself without commitment because you can't even get a quote from an IFA without them charging if you don't take the best deal that they find for you.

    I would ask that members on this forum who are going to see an IFA for annuitiy purchase, first get quotes for themselves (of course on the exact same terms) and then at least they can post those figures and the IFA figures so we can see real examples. But this wouldn't solve the problem of differences between IFAs (who if they were bound to get you the best deal would surely all be the same - or are they only bound to give you the best deal out of what they could find, in which case err hello what is the point of these binding regulations?).
    Last edited by optiMISER; 03-07-2008 at 2:54 AM.
    • dunstonh
    • By dunstonh 3rd Jul 08, 9:38 AM
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    dunstonh
    Pehaps I am mistaking the political or legislative/regulatory basis of "the open market option" but it seems it was introduced with the intention to benefit consumers. Is that purpose not severely hampered if insurance companies (and perhaps IFAs) have conspired to make such quotes only accessible via a further layer of middlemen and costs?
    There are a number of reasons providers may choose to use IFAs.

    1 - To sell direct you need to either have financial advisers or have an direct to provider only offer that doesnt give advice. Both options require further regulatory requirements which introduce a lot of costs.

    2 - Annuities are a low profit product. So, if you are an annuity provider, will you be able to cover your costs if you have a direct to public offer.

    3 - Liability. If an IFA does the work, the IFA take on the liability and paperwork. If the provider does the work, they take on the liability and paperwork. That means more staff and more cost.

    4 - retail distribution. Why pay to set up your own "shop" when you distribute your products through retailers (IFAs) that already are up and running. You dont buy your Heinz foods from a Heinz shop.

    If we believe dunstonh (as I for one am inclined to do) then we might as well add:
    thank you. I will just add that if I was giving advice and need to support my advice, I could not use the FSA tables in that because they are not reliable enough. I could use the tables as part of the initial research but when you get the real quotes from the providers they never match what is on the FSA tables (or the quote portals that IFAs use). That is beginning to change as some providers have started to give real time live figures. However, one major provider in this field is stil using Aug 07 figures in the tables despite the number of changes in annuity rate over the last year.

    The typical outcome is that we get the figures initially in a similar way to how you get them on the FSA tables. We then look at the top 5 and get manual quotes from the providers. More often than not on of those placed between 2nd and 5th will actually beat the best quote that was on the initial tables.

    With impaired life or enhanced (enhanced is where increasingly the business is going) you cannot get real rates until you submit medical information, past employer information or smoker information. Once the providers have that then they will issue their real figures. 3 or 4 of the enhanced annuity providers only transact through IFAs.

    I guess what really gets me is that dunstonh (and Martin in one of his articles for that matter) is saying that you're not likely to get a good deal unless you go to an IFA (and at times, not just in this thread he seems to be verging on saying that you will always get the best rate if you go to an IFA). But there is no way for you to check this for yourself without commitment because you can't even get a quote from an IFA without them charging if you don't take the best deal that they find for you.
    I think you have to look at that from both sides. Why should the IFA do all the work and not be paid for it. In theory, there should be little difference in quotes from different IFAs. Maybe a bit of difference with some providers where the figure has come from the IFA haggling with the providers. However, with a typical commission rate of 1%-1.5% there isnt the scope to use commission to discount that much unless you have larger fund values. Some IFAs may get enhanced terms which other IFAs dont and they may help a bit. e.g. Norwich Union and Just Retirement give me much better terms for commission than standard without actually changing the terms to the client. So, if I work on a fee basis with commission offsetting that fee (hybrid fee basis - which is becoming quite popular now) then the extra commission not taken enhances the annuity rate. However, before you get excited, you have to remember that the commission is costed over the period of life expectancy. So, if they think you are going to live 25 years and you get 500 commission rebated into the plan to enhance terms than its roughtly 500/25 = 20 a year increase. You would probably need around 100k fund after tax free cash to get a rebate like that.

    Before you ask, with pension business the HMRC do not allow rebates of commission to be paid back to the client. So, that 500 rebate cannot be given to you as a cheque.

    I would ask that members on this forum who are going to see an IFA for annuitiy purchase, first get quotes for themselves (of course on the exact same terms) and then at least they can post those figures and the IFA figures so we can see real examples. But this wouldn't solve the problem of differences between IFAs (who if they were bound to get you the best deal would surely all be the same - or are they only bound to give you the best deal out of what they could find, in which case err hello what is the point of these binding regulations?).
    That seems sensible. However, do remember that things like protected rights, with or without proportion, indexation, guarantee periods, capital buy back, enhanced terms etc will impact on the figures and the lag in the data supplied to the FSA (or other tables) may cause small differences in the real figures.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • optiMISER
    Unlike other product illustrations, you can only get real time annuity data if you pay for it.
    The typical outcome is that we get the figures initially in a similar way to how you get them on the FSA tables. We then look at the top 5 and get manual quotes from the providers
    I don't quite understand how these two statements are compatible. I presumed that you were talking about IFAs paying for some kind of electronic real time data in the first instance. My vision would be if this were available then this should be made available to the public. (Of course using your second method the IFA would be involved in costs in time and telephone etc - mostly time given the rates IFAs expect, but your first statment seemed to be implying data subsrciption costs.)

    If it isn't available then maybe it should be. Such a system would be expensive initially but if done properly and with open data exchange standards instead of just working with proprietary software it might prove very effective in the long run. I'm not sure the analogy with physical goods is very apt but even there the internet has allowed more direct relationships between manufacturers and consumers.

    My point wasn't, "why do providers want to use IFAs?", but, why does the regulatory and legislative system (actually I have got the impression here that there is a legislative basis; I don't know what the Act is exactly if there even is one) bring in a right to an open market option and allow it only to be properly accessible by a further layer of middlemen? Indeed, middlemen amongst whom you cannot as a consumer meaningfully shop around with. I can compare the prices of Heinz beans at Asda, Tesco etc without commiting to either buy them or pay a fee!

    I think you have to look at that from both sides. Why should the IFA do all the work and not be paid for it.
    As already suggested salesmen and retail outlets do alot of work without always getting paid. If you could go to IFAs to purchase different products and only buy or pay if the product seemed a good deal (compared to what other IFAs offer) to you then maybe I wouldn't be so concerned. That mode of charging would also make IFAs put their money where their mouth is. They take the risk that if they can't get you the best deal then they don't get paid.

    But probably I don't want the IFAs to do any work. I want the acturaries to do the bulk of the work and then computers and IT workers to do the rest to deliver the product quotes to consumers. For that matter IT could hopefully also allow acceptance of the quote/transfer of the fund within a reasonable timeframe that would acutally be within the quote validity limits (I refer here to another post which is in part about the rather silly situation that quotes have time limits but the transfer rarely goes through within that time).

    By the way dunstonh even though I disagree with your general pro IFA stance, I have read many of your posts not just your replies to me and thank you for the info; an interesting insight into the working life of someone who I believe is a genuine IFA.

    I guess what really gets me is that dunstonh (and Martin in one of his articles for that matter) is saying that you're not likely to get a good deal unless you go to an IFA
    I didn't mean that - it's not that they are saying that, but the fact that it is probably true, and also that they (particularly Martin) haven't at least questioned whether this might be right or wrong.
    • dunstonh
    • By dunstonh 10th Jul 08, 9:22 AM
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    dunstonh
    I don't quite understand how these two statements are compatible. I presumed that you were talking about IFAs paying for some kind of electronic real time data in the first instance. My vision would be if this were available then this should be made available to the public. (Of course using your second method the IFA would be involved in costs in time and telephone etc - mostly time given the rates IFAs expect, but your first statment seemed to be implying data subsrciption costs.)
    You require FSA authorisation to be able to register to use those tools. mainly as they also allow online submission of applications. They are linked to agency arrangements as well to allow individually negotiated terms to be shown. There are a couple of free portals (subsidised by the providers who are willing to pay to be on there) and some portals that charge the IFA to use.

    ut probably I don't want the IFAs to do any work. I want the acturaries to do the bulk of the work and then computers and IT workers to do the rest to deliver the product quotes to consumers.
    As I said with that, many companies dont want to take on the extra compliance requirements and costs to allow that to take place. Annuity business is low profit and is too heavy in paperwork at present. There really is no incentive for the providers to do this unless they already have a delivery mechanism in place and have multiple products to offer. However, many of these providers retail their products direct at exactly the same cost or often more expensive (or with options removed to improve simplicity) as the IFA product.

    By the way dunstonh even though I disagree with your general pro IFA stance
    There are areas where if you know what you are doing you dont need to use an IFA. However, as it currently stands there are some areas where it makes sense to use one. Annuity purchase is one of those.

    you also need to remember that the average consumer isnt going to know what GMP, GAR, with or without proportion, index linking, capital buy back etc actually means. This is a once only decision that is cast in stone when done. Get it wrong and you cannot change it.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • SylviaC
    I'm now confused about fees and commission. Tryin to sort out tax,savings,investments in Spain we contacted a Financial Management company (FSA registered) and they have produced a financial plan for us. so far the process has been free (so it can't be fee based) but if we continue we pay 1.25% of the portfolio capital as an ongoing yearly fee - but as we pay it it can't be commission from the product companies - plus a quarterly policy fee and an encashment fee for the first ten years. It all sounds very expensive to me but I am financially illiterate! I've checked the internet for imformation about the company (Blevins Franks) and all info is favourable. Can anyone explain the charges?
    • dunstonh
    • By dunstonh 10th Jul 08, 10:16 AM
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    dunstonh
    so far the process has been free (so it can't be fee based)
    Even on fee basis there is often a period of free consultation to see if the services are required.

    if we continue we pay 1.25% of the portfolio capital as an ongoing yearly fee
    Thats expensive unless its discretionary investment management.

    plus a quarterly policy fee and an encashment fee for the first ten years.
    That sounds more like product charges.

    It all sounds very expensive to me but I am financially illiterate!
    Its hard to compare as we dont know if you are buying a packaged product or using a discretionary investment manager. It sounds like it could be either.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • SylviaC
    Thankyou dunstonh - I meant it when I wrote 'financially illiterate' - what is discretionary investment management please!
    • dunstonh
    • By dunstonh 11th Jul 08, 9:44 AM
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    dunstonh
    Thankyou dunstonh - I meant it when I wrote 'financially illiterate' - what is discretionary investment management please!
    Originally posted by SylviaC

    IFAs will advise on packaged products which use investment funds typically. Things like ISAs, unit trusts, investment bonds and pensions.

    Discretionary investment managers (DIM) will manage a portfolio of direct investments (usually) such as shares, investment trusts, ETFs etc. They will buy and sell these without needing your authority or agreement (beyond an initial agreement to allow them to do it).

    Packaged products can be on fee basis or commission (if using an IFA you can decide which). The remuneration tends to more or less follow industry averages although some can be more expensive than others and some products allow the adviser to set the remuneration.

    DIM typically use products that do not pay a commission so they have to add in fees to compensate for that.

    If the person you are seeing is a DIM then the fees are not too bad (Although you ought to be looking perhaps closer to 1% and ensure if any commission product is sold that the commission is rebated).

    If the person you are seeing is an IFA then it would mean there are product charges. If those charges you mention were product charges then its not bad as the typical annual management charge is around 1.5%. If those charges are on top of the annual managment charge then you are being ripped off.
    Last edited by dunstonh; 13-07-2008 at 12:37 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • SylviaC
    Again many thanks - for a really clear explanation which I could easily understand.
  • UnhappyHarry
    Maybe we've been unlucky, but my wife (retired), and myself (retiring at the end of the year) don't seem to get such great service from IFAs.

    About 7 years ago, we utilised an IFA on a commission basis. His recommendations (primarily Skandia MultiFunds) performed shockingly badly, and were a much poorer investment than our own self-picked funds, which we sold on his advice.

    We've seen him only ONCE since the original meeting, and he has never suggested altering funds. I don't think that there's ben any contact since 2004, yet he still collects commission on the products sold.

    I know that this is a relatively common grouse amongst investors, but we still see strong recommendations on this site that we should always employ an IFA for pension dealings, so we decided to start again and find a new IFA.

    Basically, our situation is that my wife has a final salary scheme, so no involvement required there. Between us, we have savings of about x, with insurances and endowments currently valued at about x (we've decided to surender and sell these, as they're al maturing too late for our purposes). I have a company pension and a private pension with a combined present fund value of about x.

    I did some research and found an IFA specialising in retirement planning (also listed on "unbiased"), and over 2 meetings, lasting in total about 8 hours, he discussed our situation.

    We had always made it clear that we wanted fee-based advice, and this is the fee structure which he suggested:

    Pension: 3% Initial fee + 1/4% per quarter (x + x pa)

    Investments: 3% Inital fee + 1/4% per quarter (x + x pa)

    "Lifestyle": x Initial fee + x per month

    Naturally, I've walked away from this, but I'd like some feedback on the above (particularly from some of the IFAs that contribute to this forum). Am I expecting too much?

    How do we find an IFA giving good solid, dependable advice, without feeling that they're going to make more out of me, than I would out of them?
    Last edited by UnhappyHarry; 13-10-2008 at 11:08 PM. Reason: Removed financial data
    • dunstonh
    • By dunstonh 29th Aug 08, 10:51 AM
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    dunstonh
    About 7 years ago, we utilised an IFA on a commission basis. His recommendations (primarily Skandia MultiFunds) performed shockingly badly, and were a much poorer investment than our own self-picked funds, which we sold on his advice.
    That has nothing to do with the advice but the timing. You hit the tech stocks crash and american accountancy scandals which would have hit performance at that time.

    We've seen him only ONCE since the original meeting, and he has never suggested altering funds. I don't think that there's ben any contact since 2004, yet he still collects commission on the products sold.
    Did you employ him on a servicing basis or just a transactional basis? Is your investment value enough to justify a regular contact without a fee being paid?

    We had always made it clear that we wanted fee-based advice, and this is the fee structure which he suggested:

    Pension: 3% Initial fee + 1/4% per quarter (2,400 + 800 pa)

    Investments: 3% Inital fee + 1/4% per quarter (4,350 + 1,450 pa)

    "Lifestyle": 1275 Initial fee + 145 per month

    Naturally, I've walked away from this, but I'd like some feedback on the above (particularly from some of the IFAs that contribute to this forum). Am I expecting too much?
    That isnt a fee basis. That is commission basis. The FSA state that fee basis must not match commissions. It would breach TCF guidelines. Fees can can include a sliding scale but must be a monetary amount that is fixed. i.e. 1500 for job done or 150 an hour or 1% of amount invested with a minimum of 500 and a maximum of 1500.

    It cannot be 3% because that is the typical maximum commission on investments. That is not fee basis. Indeed, it is quite a major breach of rules and the FSA would take issue with them on that on a visit (and the FSA has said it plans to visit at least 1/3rd of IFA firms in the next 2 years. So, good odds they will get caught).

    How do we find an IFA giving good solid, dependable advice, without feeling that they're going to make more out of me, than I would out of them?
    Avoid the national and regional large firms. They tend to operate on a salesforce basis. That isnt a good environment for advice. Plus, there is often less scope for discounting so they prefer commission basis. They also tend to have higher turnover in staff.

    You can usually tell better quality by just listening or reading the recommendation and research. If there isnt any research provided then you should be on guard. If you ask for it and there is little or no research provided then walk away. You may not understand quality research in full but you should be able to identify if it is quality or not (i.e. why has this tax wrapper been chosen over another, why has this portfolio of funds been recommended etc, how the companies compare and why this one chosen etc). A good guide is how they have ascertained your risk profile. Have they asked questions that have made you think about your risk in more detail or have they more or less just said pick a number between one and five to indicate where you are on a risk scale. The latter is old fashioned and basic and a good sign of a basic adviser.

    IFAs have the lowest complaints to the FOS. Just 4% last year yet they transact over half the business. So, I think you are just being unlucky. Most will do a perfectly good job. Some will be greedy though and I think that is what you have had there. Personally, I would have put a complaint in on that one as its a clear breach. Out of interest, do you still have the initial disclosure documents for that firm (key facts about our services)? That is the very first document given to you before anything is done and would have a section in there which details their fees.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • UnhappyHarry
    dunstonh,

    Thanks for the detailed reply, and you at least give me some confidence that there might just be ethical IFAs out there somewhere...

    However, I would appreciate your forbearance in some of my responses to your post, as I think my naivete may be showing.
    That has nothing to do with the advice but the timing. You hit the tech stocks crash and american accountancy scandals which would have hit performance at that time.
    I accept that, but I did monitor the performance after selling (Newton Income), and the comparison was striking. To give you some idea of how badly the Skandia funds have performed, I have invested £100 per month since Sep 01 (total £8,400). Today's value? £9,618.
    Did you employ him on a servicing basis or just a transactional basis? Is your investment value enough to justify a regular contact without a fee being paid?
    I quote from a letter written in July 2004 after complaining about the poor performance, "....and I do apologise furthermore for not contacting you on an annual basis to review your business." And he still hasn't.
    That isnt a fee basis. That is commission basis.
    Now I'm lost! I understood that there were two methods of paying:
    1. Fee. I pay the IFA
    2. Commission. The product suppliers e.g. Skandia pay the IFA
    Surely if I pay, whether it's percentage based or not, it's still a fee? Could you humour me on this, and explain, please?
    Avoid the national and regional large firms.
    That's exactly what we did. IFA 1 worked from home, but as part of an established network. IFA 2 also worked from home, independently in a rural location in Highland Perthshire. He's listed on unbiased.co.uk and has an extensive website and professes to specialise in pension and retirement planning.

    I don't know whether anyone has worked out the fees that we were quoted, but over 10 years (assuming his rates don't rise), we would have paid him just short of £48,000.

    I hope that there are some IFAs out there reading this that feel as incensed as myself that people like this shouldn't be allowed to practice.

    I repeat, "How do we find an IFA.....?" If anyone in the Perthshire or Stirling areas thinks that they can do an honest and reasonable job for us, just let me know. (Previous applicants, if they recognize themselves above, need not apply).
    Last edited by UnhappyHarry; 31-08-2008 at 10:27 AM. Reason: Typos
    • dunstonh
    • By dunstonh 31st Aug 08, 12:04 PM
    • 97,063 Posts
    • 65,052 Thanks
    dunstonh
    I accept that, but I did monitor the performance after selling (Newton Income), and the comparison was striking. To give you some idea of how badly the Skandia funds have performed, I have invested £100 per month since Sep 01 (total £8,400). Today's value? £9,618.
    That doesnt make it bad. Monthly ones take ages to make real gains. They should be viewed in 10-15 years minimum. You could have made more, you could have made less. It really depends on where you are invested and if that is appropriate for your risk level. It is the underlying investments that are chosen that matters. Skandia is a fund supermarket so there are over 1000 funds to choose from. Its not great and I would expect more than that but without knowing the sector allocation it's difficult to comment. Use of Skandia is not the reason though.

    Quote:
    That isnt a fee basis. That is commission basis.
    Now I'm lost! I understood that there were two methods of paying:
    1. Fee. I pay the IFA
    2. Commission. The product suppliers e.g. Skandia pay the IFA
    Surely if I pay, whether it's percentage based or not, it's still a fee? Could you humour me on this, and explain, please?
    You can pay an IFA by fee or by commission. On collective investments, the typical maximum commission is 3% plus 0.5% natural trail. So, if the adviser is charging 3% plus 0.5% then it equals the commission. That would be a breach under FSA guidelines.

    The fee option has to be either a fixed monetary amount or an hourly rate. It cannot be percentage based. It also has to be paid for by cheque and not from the product provider. There is some allowance for percentage to be used if it signficantly undercuts the commission rate and has a cap on the amount. i.e. 1% with a minimum of £500 and maximum of £1500.

    However, there is something the FSA calls "customer agreed remuneration" (CAR) where you agree the fee in advance and then use the commission to pay that fee. This is ideal on pensions for example where you effectively gain tax relief on the fee. It can also avoid any potential for VAT on the fee. This currently is not classed as a fee but the FSA would have no problem with any adviser using this if the amount matches the fee. (the proposals have it classed as a fee from next year).

    That's exactly what we did. IFA 1 worked from home, but as part of an established network. IFA 2 also worked from home, independently in a rural location in Highland Perthshire. He's listed on unbiased.co.uk and has an extensive website and professes to specialise in pension and retirement planning.
    unbiased.co.uk shows around 99% of all IFAs. The only check they do is to make sure they are on the FSA register. There are no quality checks.

    I don't know whether anyone has worked out the fees that we were quoted, but over 10 years (assuming his rates don't rise), we would have paid him just short of £48,000.
    Are you including provider charges in there or just his remuneration? However, based on your earlier post and my comments above, you are paying him commission, not fee basis. If he is a network member, I would be surprised to see his let network get away with that. If he is directly authorised then there is probably no-one to tell him that what he is doing is wrong.

    I mentioned it higher up. What does his "about the cost of our services" document say in section 4 "how much might our services cost"? That is where the fee options must be disclosed. This document must be provided early on in the process. Ideally the first thing but there is no rule to say that. You can ask IFAs to supply these to you before you see them so you can compare charges. They can post, email or fax them to you if you wish.
    Last edited by dunstonh; 31-08-2008 at 12:09 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • UnhappyHarry
    Its not great and I would expect more than that but without knowing the sector allocation it's difficult to comment. Use of Skandia is not the reason though.
    I accept that, but not managing the portfolio would be a contributory factor. The 2004 letter actually stated that he wouldn't recommend switching funds, but I thought that was the whole point; monitor and fine-tune for maximum benefit. No changes at all in 7 years doesn't seem right. Out of interest, the funds were Fidelity American Spec Sits, Framlington Health, Henderson Global Tech and Invesco Perp Euro Equity. Maybe my calculations are flawed, but I think that if it had been banked in a Savings Account, it would be more than 10,000 now.
    Are you including provider charges in there or just his remuneration?
    By that do you mean any charges that he would have to pay to the provider? If so, I presume so, but I don't know what they would be. However, on the other side of the coin, Skandia pays a commission to IFAs, but they won't pay it to the client if they self-manage; it stays with Skandia. I asked IFA2 what happened to that commission, and he claimed that he didn't understand the question. I asked again if the commission would be rebated back to us (there's no sense in letting Skandia keep it), but he's never answered.
    What does his "about the cost of our services" document say in section 4 "how much might our services cost"
    I have a document entitled "Terms of Business Letter" which has a section titled "Disclosure of charges/fees" which doesn't give any detail, but says things such as "All charges/fees will be fully disclosed to you." etc.
    I also have another document "Additional Services" giving prices for specific items such as Pension Review, Setting up new files etc., but no indication whether VAT is additional.

    I know that every workman is worth his fee, but I find these costs quite ridiculously high, and it really puts me off trying to find another IFA. If I muddle through on my own, I may lose a few thousand, but I can't see that I would benefit by greater than my payments to an IFA, if these are typical.

    Interestingly, and I may have this wrong, but my situation is that if I retire at the end of this year, I'll be aged 56, and with no income. I would have thought that my first course of action for FY2009/10, would be to put as much as possible into an ordinary high interest savings account, to get an interest income up to the level of my personal allowance i.e. before even looking at ISAs. If that's the correct course of action, why didn't IFA2 suggest it? Is it because IFAs don't benefit from bank accounts? Or maybe I've got it wrong. I had hoped that the professionals would have helped me, but my experience seems to suggest that there's too much self-interest.

    PS I've just invested 20 in "Personal Finance & Investing for Dummies"......
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