Did this investor really need an ISA?
Informed Choice chartered financial planner Martin Bamford was featured on thisismoney.co.uk today, in an article asking whether a reader with no existing cash savings really needed an investment ISA.
The reader was sold a Sterling Individual Savings Account (ISA) by the financial adviser who looks after his group pension scheme.
Commenting on the situation, Martin commented:
It does seem potentially unsuitable for a financial adviser to recommend an investment into an investment ISA when you have no existing cash savings.
After the repayment of debt, creating a reasonably sized amount of cash savings as an ’emergency fund’ should always be the first financial planning action to consider.
Martin also commented on the amount of commission the financial adviser could have been paid for selling this ISA product:
The cynic in me might suggest that this recommendation was made because a cash savings account or cash ISA does not pay the adviser any commission! Even with interest rates at a historic low, people need cash savings before they invest their money.
I’ve looked at the commission terms for this ISA by running a sample illustration based on an investment of £10,200 and you would pay up to £637.50 to the adviser, which is a whopping 6.25% of the amount invested.
You can read the article in full here.
Photo credit: Flickr/HowardLake