Posts Tagged ‘commission’
With much being made of the new pensions regime in the news of late, together with tales of stock market depression and pitiful savings rates, you could be forgiven for wondering if you might need a financial adviser. Headlines from a new report by unbiased.co.uk suggests that now could be a good time to get financial advice, given that prices have fallen around 14%. However, as with most things, and particularly things related to financial advice, you have to remember that prices can go down as well as up.
The thing is, that a new charging structure was imposed on financial advisers during 2012. Instead of being able to offer ‘free’ advice, but rake it in over a number of years in trail commission, advisers became compelled to be up-front about fees and charges and had to levy a fee to make it clear to consumers exactly what they were paying. Previously, an adviser might have received an annual commission over a number of years, commission paid out of annual charges levied on an investment (for example) meaning that, over time, you would have paid far more for the service than if you had paid an up-front bill.
However, up front charges can put people off, even if there may be some scope for offsetting and initial commission earned, and in 2013, just after the new rules were introduced, it seemed financial advisers were exacerbating the problem, as median hourly rates for advice went up from just over £150 per hour in 2012 to £175 an hour in 2013. The latest figures show that the hourly rate has now fallen back to what it was before the change in the rules at a median £150 per hour.
But what the unbiased.co.uk survey also showed is that standard fees for various financial scenarios have not actually changed much, as shown in the table below.
This information is, of course, useful for people who might want to get some advice, but don’t know how much it will cost. The Money Advice Service (MA) has also produced a helpful guide for when it might be more worthwhile not to pay for advice, but rather do the research yourself- in general terms, the greater the risk to your cash, the greater the likelihood that financial advice might pay off in the long run. MA also highlight that you can still get advice covered by commission from tied agents, but these are only going to offer you products from their employer, and this might not actually be the best product for your particular circumstances.
MA is also currently compiling a list of financial advisers, using FCA data, and intends to list the fees charged by various advisers as part of the directory. MA wants to make the process of getting financial advice simpler and more transparent for consumers, although the industry is apparently concerned that publishing these details might lead to a ‘price war’ with advisers competing on cost. Which is supposed to be a bad thing?
Everyone knows the insurance industry is the worst kind of old boys club. Well, perhaps not the worst kind. Still, the fact that financial advisers can be sunning themselves on a cruise paid for on the back of advice given 20 years ago is why the whole financial services regime is currently undergoing a ‘reform’ to make it more transparent for everyone involved, with such ‘trail commission’ payments expected to be banned from 2014.
Now, HMRC have decided to get in on the act, with a new ruling that any such commissions that are thrown back to consumers will, from April onwards, be taxable. Earlier years’ bonuses will not be taxed. The insurance industry are perturbed by this new announcement, but are trying to spread the bad news by insinuating they are merely the first step on an HMRC cashback rampage.
The payments in question are basically repeat commission paid annually on longer term insurance-type investments. If you purchased the product with the help of a financial adviser, you can rest assured that he has been enjoying the benefit of the annual charge-back ever since you took it out. However, if you did not have an adviser, or in certain other circumstances, the investment product provider or broker will get the bung instead. Such firms are under no obligation to show you a penny of this free commission, but some do, notably Hargreaves Lansdowne who repay 16% of any commission received to its investors as a ‘bonus’. It is this cash payment returned to customers, either by way of an account credit or set off against management fees that HMRC have now ruled as chargeable. As far as they are concerned, it is an income generated by your investment, so unless it’s in a tax-free wrapper like a Stocks ISA or a SIPP, it’s fair game.
Hargreaves Lansdown, who is the largest bonus re-bunger, is understandably unimpressed. “It seems the Government is now seeking to tax small savers and investors. This is effectively a second tax on their income,” grumbled chief executive Ian Gorham.
However, he didn’t stop there, complaining to the Telegraph that it wasn’t just sour grapes, he was merely concerned that “the government may have set a precedent in taxing such loyalty schemes and savvy shoppers could well be next with Multi-buys, cashback credit cards and cashback websites all possible targets in the future.”
So should we all be worried about our clubcard balances? Is the taxman going to be making honey out of your Nectar card? Should you start declaring your Quidco and TopCashback earnings on your tax return? Apparently not. HMRC are reported to have dismissed these claims as “complete rubbish”, and the taxing of additional income on an investment product (i.e. designed to make the holder money) does seem to be entirely different from earning 20p from buying a kettle at Argos.
Still, you can never say never with HMRC, and perhaps the good folks at Hargreaves Lansdown have just given them a great idea for next year’s Budget…
We’re all for progressivity here at Bitterwallet. We applauded the bit in the Opening Ceremony where the grass was ripped up by Isambard Kingdom Brunel and we even let a girl write for Bitterwallet. So long as she’s good.
However, the latest move by the Financial Services Authority (FSA) to improve the provision of financial advice is now being hailed as bad for consumers, rather than offering them increased protection and better service.
The Retail Distribution Review (RDR) is “central to the FSA’s agenda of customer protection” and comes into force on 31 December 2012. One of the main changes under the RDR is to prevent financial advice being provided on a commission-only basis, aiming to eradicate the scurrilous advisers who might, possibly, recommend a product not based on its suitability for the customer, but on the amount of commission generated for their own pockets. A laudable aim.
However, the flip-side of this change is that consumers will soon have to pay agreed fees for financial advice. And apparently, we are none too keen on that arrangement.
A new YouGov survey commissioned by Deloitte found that
84% of people are unaware of RDR and that consumers will pay a fee for advice when RDR is implemented on 31 December 2012;
More than half of all consumers (54%) would refuse financial advice if charged a fee;
47% would be likely to reduce the number of times they use financial advisers if charged a fee of between £400-£600 or 3% of invested assets;
Only 3% of people with no savings would be prepared to pay a fee for advice; 14% of people with savings above £50,000 would be prepared to pay a fee.
Bank customers are five times as likely (60%) as IFAs’ (12%) customers to reject paying fees for advice
Deloitte are warning that the change will lead to an “advice gap – the shortfall between the amount of advice required and that provided” that “is likely to increase as advisers leave the industry or focus on wealthier customers.” And they may have a point- after all, who wouldn’t rather pay for advice in commission they’d never actually see in their own hands, rather than forking out hard-earned, and pre-taxed cash from their own pocket.
But we suspect there is a touch of scaremongering going on too. The FSA are keen to highlight the benefits and increased consumer protection of the RDR, and although the price of services must be agreed upfront, there is no requirement to actually pay upfront. For example, if advisers are no longer accepting commission as payment for their services, they are required to ask the insurance company to reinvest the commission they would have paid out into the customer’s investment. What was possible before the RDR, and will still be possible afterwards, is that the commission may be used to partially or fully offset the fee charged instead of becoming an additional investment. So there may be no need for actual pocket rummaging after all.
Deloitte have actually been using this fee-offset-by-commission system for many years, so it is unusual that they are shouting about a problem for which there is already a solution. Unless of course, they think they are the only ones to do this. They aren’t.
But still, you are probably much more likely to use Deloitte as your financial advisers now they have alerted you to this huge problem aren’t you?
You there! You’ve been paying TOO MUCH MONEY FOR THINGS! You knew that, so it’s scarcely news. However, the European Commission have noticed too, with regard to data roaming charges. This means they’ll be having a crackdown on “outrageous” charges for using the internet when travelling in the EU.
Even though the Commission have only just declared a bunch of cuts in mobile roaming charges, Brussels have decided to up the ante against network operators. The want further cuts.
Basically, the Commission want consumers to pay less than the current £2 per megabyte average when downloading abroad on another mobile group’s network (in some instances, it can be as high as £10.70).
So what does that mean? Well, by MEPs and EU sorts have agreed that the maximum operators should be able to charge (from July 1 next year) will be 80p per megabyte, with a further fall in price from July 2014 to 45p per megabyte.
There’s also talk that consumers will be able to opt for cheaper mobile roaming contracts which are separate from their national mobile contract while using the same phone number and SIM card, which is encouraging indeed.
EU Digital Agenda Commissioner Neelie Kroes, says: “This proposal tackles the root cause of the problem – the lack of competition on roaming markets – by giving customers more choice and by giving alternative operators easier access to the roaming market. It would also bring down prices for data roaming, where operators currently enjoy outrageous profit margins.”