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

ccmuirhead · 23 April 2008 at 1:23PM

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 · 23 April 2008 at 3:08PM

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.

MigsyBigsy · 5 June 2008 at 10:42AM

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 · 5 June 2008 at 11:50AM

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.

Milarky · 5 June 2008 at 1:47PM

dunstonh wrote: »

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.

Of course there is a certain tautology here - in defining 'financial advice' with reference to those who may offer it (a statutory definition)

optiMISER_3 · 3 July 2008 at 2:46AM

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?).

dunstonh · 3 July 2008 at 9:38AM

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.

optiMISER_3 · 10 July 2008 at 2:22AM

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 · 10 July 2008 at 9:22AM

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.

SylviaC_2 · 10 July 2008 at 9:35AM

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?

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

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