Any IFAs out there?

[Lunaballoon]

If an IFA recommends moving a substantial part of someone's pension pot into an investment fund managed by the company he represents, would he receive commission for that business? I'm looking to consolidate several pension plans into one and his recommendation is to move them into a platform provider with a large part invested in one of the funds managed by the IFA's company. I'm already paying a fee for him to set up my new pension and for his advice but I wonder whether his choice of provider could be skewed by any commission he might receive from the investment in his company.

What is the investment fund investing in? I only ask because one of the pensions scams out there is to invest in high risk areas like rainforests or alternative energies, only to lose the lot because it wasn't really invested in there in the first place.

But in answer to your question, I don't believe IFAs can be commission-based anymore and/or must declare any commission they'll receive in return for you taking their advice.

Where are you transferring from into this new investment pension fund? I know you said various pension plans, but are any of them company schemes? This just sounds like so many of the transfers out that we block because they are suspicious.

I don't think the fund is dodgy in any way and has performed reasonably well in the past, I just have a gut feeling that his recommendation is more about what's in it for him rather than what's best for me.

They're paid up plans from previous employers - non of them final salary. I just want to consolidate them into a single scheme that's easy to manage online.

He can't be an IFA if he's recommending moving funds into 'an investment fund managed by the company he represents' - IFAs are independent and don't 'represent' any companies.

Yes, he will receive commission for moving money into a new fund - do you realise how many hours of paperwork are involved for any advisor to move funds around? Especially for a pension?? Several hours ... add that to the time he has spent travelling to see you and visiting you - and that's why they charge! They have to make a living too.

My DH is a FA - PM me if you'd like more info.

I thought I was paying for independent advice, I found his details on the IFA website, but the fact he is recommending a fund run by the company he works for makes me question this. I'm also expecting to pay heavily for this "advice."

IFAs can and do run investment funds, and it is another income stream for them as they collect their annual charges for looking after the Funds under Management. Not all IFAs do this though - many will outsource to a Discretionary Fund Manager because they have the expertise and are more likely to generate better returns for the client. However, you will then pay the annual fee to the DFM instead. It is usual for the fees to be quoted as a percentage of the value of your investment and that way there is an incentive for the fund manager to achieve growth in the fund.

Your IFA will probably have suggested to you that the annual fund management fees will go towards an on-going servicing agreement, so he shouldn't then be billing you an additional fee year on year just to keep you updated with progress, but check your paperwork to see what has been agreed between you.

Thanks, Sunseed - I didn't know that!

Yes, thanks Sunseed. His billing has been clear - X amount for setting up the fund plus a percentage for ongoing servicing. I'm just suspicious about his motives for recommending one of his own company's funds. It may be perfectly legal, it just doesn't seem to be in the spirit of "independent" advice.

Well all he's doing really is keeping your money 'in-house' where he has more control over it than sending it out to a third party fund manager. He presumably is confident that their in-house fund expertise is just as good as anywhere else, and I'm not in a position to disagree with that. If you are consolidating funds then at the end of the day they have got to be invested somewhere so may as well be with his own firm if it's a competitive proposition. As an independent, he is acting as your agent and should recommend what he feels is the most suitable place for you to invest and give you sound reasons why.

When I say that he has more control, what I mean is that for you to disinvest your money you will have to do it through him/his firm; you wouldn't get it out without contacting him in some way, unlike via a third party where you could approach them directly to make a withdrawal.

This isn't necessarily a bad thing as it's your money after all and you are free to do whatever you like with it, but just worth bearing in mind.

Thanks Sunseed. That's very reassuring. I guess I'm nervous about shifting what to me is a large amount of money. But like you say, it's in his interest to invest in wherever he thinks the best returns will be.

Hi Luna
I'm an IFA and the way we work is to charge an hourly fee to set up a clients transfer and then agree an on going fee for annual review etc. This is usually a percentage of the funds under management ie 0.5%, 0.75% or 1% dependent on fund size.

we use a Discretionary Fund Manager who initially created these funds for us but over the last 3 years he has made them available to the market via a platform.

we do this because we will never have the experience to manage a fund, but our speciality is showing a client how to achieve the results they desire.

A significant number of IFA's offer their own funds but as long as you are paying between 1.5% and 2% per annum in total and getting at least annual reviews then it seems reasonable enough.

Your IFA should not be getting anything extra for advising on that fund and in fact may be getting you a discount on that fund charge and passing it on to.

Ask him what the total Annual Management cost will be each year.

Finally, if the pension is on a platform and you are unhappy with your IFA it is very easy to change funds without the initial IFA's

Thanks mumbles. I'm feeling reassured now.

I expect the IFA will receive commission from the pension provider but I also suspect that he would receive approximately the same from any pension provider he places your business with. The difference would undoubtedly be minuscule and not sway their opinion. Plus for FCA regulation the IFA has to show best practise on their write up of their advice to you and if there was another, better provider they would be in the brown stuff. Think fines and prison.

It's not St James Place is it?

St James Place are not IFA's!!

I know their independent (not that they EVER point that out!), it was just the OP's comment about funds run by his company... sounds like SJP to me!

St JAMES PLACE are TIED advisers ... in case of doubt. I've no problem with that in itself, but people should understand the difference (but usually don't)

ahhhhh! I know they're NOT independent (oh bother why am I posting with a hangover, can't spell, can't write. Doh)

Not SJP whoosh. Thanks for all your responses. I'm nervous of financial service providers after having been missold a mortgage and what with all the dodgy dealings connected to the banking crisis. I'm feeling calmer now.