“You’ll be assured of legendary customer service, unbiased advice, and because we do not pay our salesmen commission, you will go home with the perfect choice for you.” Is this notice for a financial adviser, asks Gill Cardy of IFA Professional Partnerships in Financial Adviser? “No. Jessops Photography.” Concerns over how independent your independent financial adviser (IFA) really is were compounded last month as fund manager Jupiter and insurance giant Norwich Union raised the commissions they pay IFAs who sell certain funds to clients. Jupiter lets advisers earn up to 4.25% on all lump-sum investments and transfers into 12 of its funds, while Norwich Union will offer 20% up-front commission on regular-contribution business into its investment funds.
But why raise the commission paid to an IFA? Simple: more commission means more sales, essential for a company such as Norwich Union, whose fund performance has not been great lately, says Warren Perry of Churchill Investments in Money Marketing. “Norwich Union are increasingly outsourcing their investment management to people like JP Morgan and Schroders, which tells you a lot about their performance.” Norwich Union says the plan is to offer IFAs more choice, as they can either keep the commission or offset it against the fees they charge clients. But Perry doesn’t agree. “It smacks of desperation by the provider and any IFA that uses it… It is not about building a business but about how they can get a quick profit.” Those IFAs who consider themselves truly independent are anxious that being offered such juicy carrots by fund groups will only make an already sceptical public distrust them more. According to a recent YouGov poll, 23% of people felt their IFA only sold investments that would earn them more commission.
As far as the funds offering commission are concerned, it’s just part of the promotional activity employed to help sell their products. But if a company is relying on commission to drive sales rather than performance, both they and the IFA touting them are best avoided. “Funds should be sold on their value (performance) and not on commission,” says Justin Urquhart Stewart of Seven Investment Management, who totally disapproves of plans to increase commissions. When funds aren’t sold on this basis, it can do “very unpleasant things to people’s portfolios”.