What is the usual commission charged by brokers?

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Titan

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I went to an independent financial adviser to get some investment advice for some inheritance that I received.

I will be going back to him once he has gone through my risk assessment questionnaire.

Their fees are based on commission,they charge 1.5% per year,I was just wondering is this about average,high or low compared to what is typically charged?
He said that the investment company(say Standard Life,Zurich etc..) gets 1% and they get the other 0.5%.

Is this fairly typical?

Thanks
 
It is fairly typical for an insured product i.e. through Zurich or Standard Life.

There are two things at play (1) allocation rate and (2) annual management fee

To get your business, the insurance company typically offers a bonus 3% for you money. The advisor usually takes this as his implementation fee; you have 100% of your money invested and you don't pay the advisor a fee directly.

The insurance company has to recoup that 3% that they paid to the advisor, so the recoup this through the management fee. Typically, 0.4% of that 1% is because of the bonus allocation. You will not be allowed to cash in your policy or transfer it out for the first 5 years. If you do, a penalty will apply.

There is also a 1% government tax on the way in and after 8 years you have to pay tax on any growth on the fund, regardless of whether you want to cash it in or not.

There are other investments out there that don't pay bonus allocation rates, so you pay the advisor fee yourself. As there is no commission, the management fee is 0.35% and you can access your money at any time without penalty. As they are not insured products, there is no 1% government tax either and the 8 year rule doesn't apply either. You also get access to the global fund managers instead of just the Irish ones.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
[QUOTE=" There are other investments out there that don't pay bonus allocation rates, so you pay the advisor fee yourself. As there is no commission, the management fee is 0.35% and you can access your money at any time without penalty. As they are not insured products, there is no 1% government tax either and the 8 year rule doesn't apply either. You also get access to the global fund managers instead of just the Irish ones. Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)[/QUOTE]

Can you give an example of these?
 
Hi Steven, likewise we use Conexim in the manner you suggest. In the interests of providing a like for like comparison versus life companies, in our view it helps to outline full costs separately i.e. the platform or Conexim costs, the annual management charges for the funds and/or ETF and lastly the ongoing adviser charges if they apply. Only with all costs outlined is the comparison accurate. I am open to be corrected here but our Conexim costs are 0.35% or 0.4% and the annual mangement charges are in addition to this?
The full liquidity, wide range of investment options, prospect of superior returns etc are a strong plus for clients, which in our view offsets any bonus allocation rates. Therefore we recommend to clients that this option be considered alongside all the insured options.

Regards Vincent
 
Hi Vincent

It is difficult to do a full comparison with the life companies because we don't have all the costs from the life companies. They don't disclose them all.

For an investment, Conexim charges 0.35% AMC. The fund you chose will also has their charge. I use Dimensional a lot and their AMC varies from 0.15% for the 100% bond fund all the way up to 0.46% for the 100% equity portfolio.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
It's great to see that the debate has finally moved on from allocation rates and insurance company products.

Perhaps the most important issue to point out is that for non pension investments gross roll up funds subject to exit tax aren't always the best option.

For example Capital Gains tax is at a rate of 33% whereas gross roll up funds are subject to tax at 41%

Equally income from funds is taxed at a flat rate of 41% irrespective of your personal circumstances whereas depending on circumstances income could be taxed at a marginal rate ranging from 0% to 55%.

We have several clients with capital gains tax losses and no earned income who pay no tax at all on their investment income and gains and who would otherwise have paid 41% tax on the lot.

Assuming a reasonably conservative investment return of 5%pa the tax saving alone could equate to an annual saving of up to 2.05%pa. That alone would trump any investment costs argument for many investors.

Furthermore it is possible to build a tax efficient portfolio from funds with annual management charges as low as 0.10%pa. We find that by building more optimal portfolios we can typically shave another 0.2%pa off of annual running costs.

There is a lot more to this problem than perhaps meets the eye.
 
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Excellent contribution Marc - It's good to see that the impact of tax on investments being discussed.
 

Hi Steven,

So if the funds are invested for only say 4-5 years will you have to pay government tax on any gains made in those 4-5 years?Or does this government tax only apply at 8 years?

I am also in the lowest rate tax band ( 20% tax band ) so would this make any difference between investing with someone like Zurich for say 5 years and investing based on paying the advisor a fee?

Thanks.
 
If you cash in before 8 years, you pay tax on the gains.

The 8 year tax is another way of the government getting tax on your savings. Loads of people invested money with insurance companies for the long term. The Revenue only got tax when people took their money out, so they brought in this 8 year rule. At the end of 8 years, you pay the tax due on any profit in your fund. It is taken directly from the fund.

Income tax rates don't come into it.

If you go to someone like Zurich Life, they offer a bonus percentage to your investment, say 3%. The advisor may take this as his fee, or you can take it and write the advisor a cheque for the work done.

There are other structures where you still have 100% of your money invested but the management fee is lower (if the insurance company gives you a bonus, they have the recoup that by charging a higher management fee).

It's all smoke and mirrors.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Hi Titan

As I noted in my earlier post your personal rate of income tax is extremely relevant to your investment decisions.

As Stephen notes above most brokers will sell you some sort of fund which is liable to exit tax at a flat rate of 41% on income and Gains.

For a non or starting rate taxpayer there can be some considerable tax savings available from avoiding funds which are subject to exit tax.
 
Hi Stephen
I have a connected enquiry. For an investment of 49504.95 with Zurich through a broker the projected expenses and charges for the first year are €3131.26. Can this be right? It just seems an awful lot to be reducing the original investment by. This is in addition to the 1% tax.
 

Over 6%. Seems high alright. Ask the broker to explain it to you. All good advisors should be up front about charges so you know exactly what you are paying.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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