Fees V's Commission

Source : Money Marketing

Our survey shows 80% of public will not Pay fees
Rebecca Barr

Eighty per cent of people are not prepared to pay fees for financial advice, according to a survey carried out for Money Marketing by market research firm Nunwood.

The firm asked 1,000 people across the country if they would be prepared to pay an up-front fee for independent financial advice and, if so, how much. The results are at odds with the FSA's research in CP121, which concluded that all consumers would be prepared to at least consider paying fees. The FSA based its research on 36 face-to-face interviews and questioned another 40 people in
focus groups.

According to the Nunwood survey, only 5 per cent said they would pay over £100 for advice while only 1 per cent would be prepared to pay over £250. Reluctance to pay up-front fees holds across the board, regardless of age, gender, socio-economic group or location. Even in London, where consumers are understood to be relatively financially knowledgeable, 79 per cent of people said
they would not pay an up-front fee and only 6 per cent would be prepared to pay over £100.

Campbell Insurance Services IFA Amy Stockdale says: "I am not surprised that the public are not receptive to fees. It is not black and white but in certain specific areas, like term
insurance, commission works for clients."

Your comments please.

Hi Karen

A lot of brokers have said the same thing to me. They would like to charge fees instead of commission, but their clients are not interested.

There are fee based Authorised Advisors and I suggest that they should band together and promote the concept.

Brendan

Why just Authorised Advisors Brendan?

I see AAs as advising people.

I see RAIPIs as selling products on behalf of a Restricted group of companies. They will often not have a suitable product and will not be able to advise on it.

Having said that, I think it would be better for RAIPIs to charge a fee anyway and work on a nil commission basis

Brendan

Fee -v- Commission

Just a nitpick.

I'm not sure that we should attach too much weight to a survey based on a sample of 76 people, more than half of whom were interviewed in a group setting.

For whatever reason, I fear that most Irish people still have an innate dislike of the idea of paying upfront fees for financial advice, regarding such major financial products such as pensions, mortgages and investments. I would go further to speculate that most people don't even want "financial advice" as such when it comes to making such decisions.
They just want to buy a product which is suited to their needs - the same as it they are buying clothes or a car.

However, that is not to say that people are stupid - far from it, and most people can judge when an advisor, product intermediary or company salesperson is trying to sell them a pup.

That said, I honestly don't think that the vast majority of people have the slightest idea of the difference between a RAIPI and an AA. Certainly in the accountancy world, most people can't differentiate between ACAs, ACCA's, CPAs, IIPAs and for that matter CIMAs.

I think once people see that their own accountant or financial advisor is regulated by an Institute or the Central Bank, that this does provides a degree of reassurance. However, I fear that the whole attempt to differentiate AAs from RAIPIs is far to academic an exercise to bother the average consumer.

If someone has dealt in the past with, and received valued assistance from, a trusted professional who is now classed as a RAIPI, are they really going to cross the road to start a new relationship with an unknown AA, just because the latter carries a slightly more prestigious title? I doubt it.

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> most people can judge when an advisor, product intermediary or company salesperson is trying to sell them a pup<hr></blockquote><!--EZCODE QUOTE END-->

Hi Tommy - I'm not sure that this is true. Many people by life insurance and pension products with really understanding what they are purchasing, and we've seen many posts on AAM from consumers who are shocked/horrified to find out that a 5% bid/offer spread means that they are losing 5% of their money from day 1. I certainly fell into the bracket in the dark, distant past before AAM.

They just want to buy a product

"when it comes to making such decisions.
They just want to buy a product which is suited to their needs - the same as it they are buying clothes or a car. "

Tommy,

Do you think recent legeslation has helped the consumer in this respect??

S

Re: They just want to buy a product

I don't think the average consumer even knows the legislation is there. If they do, they certainly can't understand it. Remember that the average consumer is not generally as financially clued-in as the average AAM user.

Its certainly no harm that the legislation has got rid of a lot of mickey-mouse & amateur life & pensions sales people who in the past gave the industry a bad name through all sorts of sharp practice.

Otherwise, I honestly think the legislation is pointless. For example, life & pension company salespeople are apparently still free to sell policies directly to the public, and still seem to be doing so very successfully. People hear the ads for Eagle Star/ Irish Life/ Friends First/ whoever on the radio, ring up the company, and say they want to buy a pension. The company is hardly going to send them to an AA! That appears to me to be a long way away from the brave new era of "independence" promised by the advent of the "Authorised Advisor"

With regard to charges, bid/offer spreads and the like, IMHO most people to my knowledge are not that price-sensitive that they are prepared to automatically opt for a product because it is slightly cheaper. People are also hung-up (mistakenly, in my opinion) on trying to secondguess which company will deliver the best return over x years. This is almost invariably done on the basis of the false expectation that past returns will be repeated in the future.

Of coursepeople are often shocked when the full impact of charging structures are outlined in full detail to them - but I would really question whether the new regime has improved things in this regard for most consumers. Just because someone signs a piece of paper confirming this and that doesn't automatically mean that they understand all aspects of the products they buy.

Tommy

I think that a lot of what Tommy has said is right. I'm a fee based AA and most of my customers come to me because they have heard that they can get a good deal. Before I advise them or sell them anything they will know the impact of normal commission on their pension, investment etc. They are shocked by the impact commission has on their plan and I can only assume that the views expressed in this survey(whether a suitable sample or not) are done so without the knowledge of the impact of commission.

If you think something is for free then of course you won't want to pay for it.

Unfortunately because the cost impact of commission has been hidden for decades it will take some time for this information to filter down to the general public. It cannot be expected to happen over night and just because it hasn’t does not in any way mean that the issue should not be highlighted at every available opportunity.

Another problem is that a lot of the time when fee based advice is mentioned in the press they tend to be connected to high net worth individuals and the masses are the ones who pay commission. I think this view is wrong (although an accurate reflection of most fee based brokers) because it results in the market being fragmented and the middle to lower end of the market is destined to be stuck with poor products and even worse, poor advice.

<!--EZCODE BOLD START--> An example of why Commission should be banned<!--EZCODE BOLD END-->
I have a pension client (earns less than 30k p.a.) who has just a few years to go to retirement (likely to have a fund delivering about 7% of salary) and his existing broker was more than willing to take 50% of his last few years top-ups in commission without having seen the client for some years and the client having no idea that this was happening. The client thought he had paid all the high charges at the start of his plan and was now increasing his payments to support himself in retirement. There is no justification for such charges and they only continue because most people don't know about them.

Unfortunately I don't see a massive rush of previous or current brokers and sales people running to their clients and converting them to lower cost contracts.

<!--EZCODE BOLD START--> On a slight aside I also think that the word "independent" should be reserved for those who really are and therefore only AA's should be allowed to use it. <!--EZCODE BOLD END-->

Regards Michael

Authorised Advisor & Discount Broker
w.myadviser.ie

Fees V Commission

Michael
Not withstanding that the commissions agreement is long gone.I find it hard to understand that there are still companies out there who would 50 per cent commission for a topup on one so close to retirement ?
Please let me know who it is
Ross

Re: Fees V Commission

Ross, you can still buy these contracts although less are sold than say 2 years ago. That said, I would guess that most of the existing individual pensions were sold on this basis and continue to run. So it is a bit useless to list most of the pension providers selling pensions.

Regards Michael

Authorised Advisor & Discount Broker
www.myadviser.ie

Fees v Commission

Michael,
It was my understanding that commission was paid @ a rate of 2.5% x years to retirement
Ross

Ross,

"A few years to retirement" could mean that the punter is retiring at 60 BUT a pension could be written to age 75(if the punter was asleep or brain dead) which could generate additional commission for the unscrupluous adviser.

Michael,

Show me an adviser that never took full commission on a pension?

REA do Geller.

We refund 50% of commission on all non mortgage related business, in cash on protection products and reinvested in pension. This offer has been in place since January 1999.

Regards,

Sarah

www.rea.ie

Why refund

Why refund it Sarah?

Is it not better reinvested?

Also

Person pays €5K in to pension fund and claims tax relief on €5k but has received cash back of 50%... is it legal?

John

Refund

Do you have to provide the revenue with a list of clients that you rebate commission to? How many clients just stick it in their back pocket and 'forget' about it?

Re: Refund

Hi John,

Commission on pensions is re-invested so there is no cashback; if we gave cash back on pensions it could case problems with the Revenue.

Hi Tom,

Commission refunds on both mortgages and insurance are accompanied by a letter to the client -

"It is important to highlight to you that there may be tax implications in receiving this refund which you should discuss with your tax advisor."

Regards,

Sarah

www.rea.ie

Fee

Sarah,

Understood. Would a person be better off if you reinvested 100% of your commission and charged a fee instead?
john

Re: Fee

Probably John but, as you see above, most people are not keen to pay fees for financial services.