Questions of Cash: How can I stop paying fees to my financial adviser?
Saturday 02 June 2012
Q. I am paying fees to an independent financial adviser and I would like to know how to stop doing so. My father had Parkinson's disease. In 2007, he was no longer able to live on his own, so his house had to be sold to fund his care. I was his only relative and had power of attorney.
I went to an IFA, who suggested investing his money to provide a return that would help pay for his funds and stop them being completely eaten up by care home fees. My father's doctors suggested he could live for another seven or eight years, so I took the IFA's advice. Unfortunately, the next year my father died and the value of the investment had virtually halved. I know that investments are long term, but now, five years later, this investment is still 10 per cent down on the value invested.
With the IFA's cut, the fees paid for the Skandia platform and the fund's poor return, my investment has to deliver 3.4 per cent a year to stand still. The IFA also botched an investment switch, for which I received compensation from his insurance. In addition, he forgot to open an ISA one year.
Now, he proposes raising his commission from 0.5 per cent to 0.75 per cent. He even persuaded me to switch my pension so that he now gets trail commission on this investment. If I agree the increase, his annual fees will equate to a month of my earnings, or every penny I put into my pension over the course of a year. I feel trapped and don't know how to get out of this. When I looked at the FSA website, it looks as if I don't have to pay trail commission if I do not continue to take advice, but the IFA seems to suggest that I do. SM, by email.
A. Trail commission is the commission paid on a financial product bought at some point in the past. Whether you must continue to pay trail commission depends on your contract with your IFA. The Financial Service Authority's Andrea Kinnear explains: "The situation is that whether the customer can stop the trail will depend on the terms of the contract he had with that adviser. The adviser's contract with the provider may also deal with this issue and whether the trail can be re-registered to another adviser – for example, it may say that trail can be stopped by the provider if the customer is no longer a customer of that adviser.
A client in this situation should start by looking at his terms of business agreement with the adviser, or contact the adviser to discuss it with him. If the contract allows for trail to be stopped and the customer doesn't want to re-register it to another adviser, he should be aware that the provider will keep it and not pay it to the customer. Stopping the trail won't be retrospective."
Specialist firms have been set up to assist recovering trail commission where this is possible and a person is no longer receiving advice from the IFA. These firms include Massow's, which will rebate 80 per cent of the trail commission, and InvestSmart, which promises to rebate half the commission. Given your experience with your IFA, it would seem sensible to seriously consider taking advice elsewhere and lodging a complaint about your past difficulties with the Financial Ombudsman.
However you tell us that this is difficult because the IFA is a friend of a friend. You should perhaps consider how important this issue is to you, given that you seem to have little confidence in the IFA. As we have remarked before, mixing friendship and business can be a problem – and is a recurring issue for clients of IFAs. Our view is that you should use an IFA that comes with a strong professional recommendation, that you have no personal associations with – and that you can fire without it causing personal complications.
Q. I applied online over two weeks ago to open a Tesco Bank fixed online saver account at 3.5 per cent interest. At the end of the application, it said I would be contacted. I've heard nothing more from them, despite phoning twice. They simply say they have my details and will be in touch. Do they want my money or not? DE, Birmingham.
A You perhaps need to be a bit more patient. A Tesco Bank spokesman says: "We've apologised for this delay which was partly due to additional verification required because [the reader] had recently been the victim of fraud. [The reader's] account is now open and we've given him a £20 Tesco gift card as a gesture of our goodwill."
Q. I am registered self-employed, which I was advised by a recruitment agency to do so that the company I work for can pay me gross and I will pay the taxes later. But the company is paying me through an outside payroll company and is deducting four to five per cent of my wages to do so. These deductions seem very high and are at risk of putting me below the income threshold I need to have my immigrant work permit renewed. AA, by email.
A. We asked to see the contract you have with the company you are working for, but you tell us that you have not received this, despite requesting it several times. We suggest that you urgently take advice on your situation from Citizen's Advice. You need to take into account whether your situation is affected by HM Revenue & Customs rules that prohibit tax evasion through "artificial" self-employment where you are only, or overwhelmingly, working for a single company. The section of the HMRC website "Work out if you are employed or self-employed" may be worth reading: see www.hmrc.gov.uk/working/intro/empstatus.htm. You should also make inquiries regarding the company you are being paid through, to ensure that the arrangement is legitimate and acceptable to HMRC.
Questions of Cash cannot give individual advice. But if you have a financial dilemma, we'll do our best to help. Please email us at: firstname.lastname@example.org
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