This applies to the vast majority of once off payments such as ARF's, AMRF's, Single premium pensions.
You have an allocation rate - how much the insurance company will give you for your money. This is determined by the product, the term to maturity (in the case of pensions) and the amount.
In some cases, you can get an allocation rate of 105%, so the insurance company will pay an additional 5% for the business. The advisor may take some or all of that 5% as payment, it differs from advisor to advisor. It is not free money though. Over time the insurance company hope to recoup the money through the annual management fee. The management fee in this case will be 1% per annum (in Mijne and Gerry's case, there is an advisor fee paid on top of this 1%).
To protect themselves from you/ advisors taking the 5% bonus and moving it the next week, they impose early exit penalties for the first 5 years (they still don't recoup all of the bonus paid out after 5 years). I know of one insurance company who waived these early exit penalties and got stung for €20,000 when the client transferred out.
Then you have the other end of the spectrum, where there is no allocation rate. You pay the advisor fee (either write him a cheque or it can be taken directly out of your fund, you decide). As there is no commission to be recouped, the base annual management fee is 0.4% (plus whatever the advisor is paid for the ongoing work they do for you). Also, as there is no bonus allocations to be recouped, there is no early exit penalties.
There are plenty of other options in between depending on the charging structure that you want. Plenty of people prefer not to write fee cheques and are happy for the insurance company to pay with a higher AMC (not all have a base of 1%). others are happy to pay up front and have a lower AMC.
Gerry, Low allocation and high AMC doesn't look good. Find out if there are any early exit penalties on your contract. If there are, look at the paperwork you were given when you signed up, see if that contract structure was disclosed.
Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)