Absurd Commissions

Earlier this week a client (let's call him BH) telephoned me to tell me about his experience with one of the top 4 high street banks.

BH is approaching retirement and will have sums of around £200,000 available to invest to supplement his income in retirement. He thought he would test the bank to see what they had to say before asking for my advice.

The financial adviser in the bank recommended that BH should invest £150,000 of that sum into an investment bond.

BH took care to look through the product literature and was shocked to see that such an investment would give rise to a commission payment to the bank of £10,500, equating to 7% of the investment.

We joked that, based on my hourly rate of £130, I would have to do 80 hours of work for BH (equivalent to 2 whole weeks) to justify such a payment.

By comparison the bank adviser was hoping to do no more than perhaps 3 or 4 hours.

In short, the amount of commission that would have been paid is completely disproportionate to the amount of time that would have been spent by the adviser working for BH.

Needless to say, by consulting a fee-based adviser working on an hourly rate, BH is going to save thousands of pounds in unnecessary costs.

The message here is that if you need advice regarding a large lump sum, you should only be speaking to fee based advisers that work on an hourly rate.