There is a story being reported at the moment of a dispute between a firm and one of its consultants over the repayment of a commission sum paid to said consultant in respect of an Investment Bond sold to a client.
The Bond was fully en-cashed not long after the investment was made.
The Investment Bond policy conditions and possibly the agreement between firm and consultant (I am not able to confirm either of these points as I don’t have access to the agreement – but this is what is reported) required the repayment of the commission paid.
The sums are somewhat eye-watering; an amount of £4,000,000 was invested in the Bond and a commission of £250,000 was paid to the consultant.
Leaving aside any debate on the suitability of an investment of £4m in one financial product, the “advice cost” of 6.25% of the amount invested seems to be to be (tongue in cheek comment) somewhat on the high side!
Is £250,000 really the cost of investing £4m?
I have I am afraid more questions than answers.
What did the client actually get in return for the £250,000?
It’s possible that if this investment was part of an estate planning exercise that a significant inheritance tax saving might have been made and perhaps the consultants “fee” was calculated by reference to that saving – but I think not.
6.25% was at the higher end of the commissions that we heard about in the day when advisers typically were paid by commission and more often the amount paid was lower than that, 2% to 3% being more normal.
That said, for substantial investments most independent financial advisers would have reduced the commission amount even further.
Today things should be much more transparent for the consumer.
Adviser charging has replaced commission and the amount of charge is by agreement between the client and adviser and in monetary terms.
I am not saying that in the above example the £250,000 was not disclosed to the investor but I really cannot think of any circumstances where a client we deal with would have found a charge of £250,000 for investing £4,000,000 acceptable.
Thank goodness for total transparency; how more healthy in a trusting relationship is that?
