Industry Charges Explained
The myth and the Reality of charges and fees in the Financial Services sector, and the role of the Financial Conduct Authority explained.
Types of Charges
Commission
A fee paid to an agent for transacting a piece of business or performing a service.
Initial Commission
This is where a company that is giving the service will charge an initial fee, usually between 1-3% of your investment amount.
Trail Commission
This is paid to the adviser on an annual basis, usually between 0.5% and 1% of the total funds under management.
Annual Management Charge
This is the charge the product provider will charge for investing and managing your funds, usually between 0.5% and 2%.
The Reality
The question you should be asking yourself is: If client A invested £100,000 and the adviser was charging 1% (£1000) and client B invested £500,000 with a 1% charge (£5000) in the same portfolio, is the adviser doing 5x the work to invest £500,000 than £100,000?
Plus. If the adviser is taking a trail commission of say 1% per annum, are they doing 5x more work for client B than client A? As the fund grows, so does your fee to the adviser.
Fee Based Model
We at J Kempson Associates Limited have saved our clients thousands of pounds by taking them out of these expensive contracts and just put them on a fee based service model.
Don’t forget the higher the charges that come out of your investment is having a massive effect on your investment fund and your potential returns.
The Financial Conduct Authority
The Financial Conduct Authority (FCA) is the regulator of the Financial Services Industry in the UK.
The FCA was set up by the Government, the government is responsible for the overall scope of our regulatory activities and powers.
The FCA has a wide range of rule making, investigatory and enforcement powers to meet these responsibilities.
The FCA main objectives are:
- Maintaining confidence in the UK financial system
- Contributing to the protection and enhancement of stability in the UK financial system
- Securing the appropriate degree of protection for consumers
- The reduction of financial crime.
This is only a brief outline of what the FCA does, for more information go to the FCA website
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