FOOL'S EYE VIEW
Fantastic Financial Discounts Online!

By Cliff D'Arcy
August 19, 2003

Last week, I wrote about Ten Wonderful Websites that you can use to improve your financial knowledge, shop around for bargains, avoid the nasties and, ultimately, make more money (including yours Foolishly, naturally!). However, there are many more websites out there that offer substantial discounts on financial products, especially investment, protection and pension plans.

If you're a regular visitor to the Fool site, you'll know that we're not big fans of most financial advisers. That's because the large commissions paid by certain products and providers sway many advisers into giving less than the 'best advice' required by the regulator. This is especially true for tied agents, who are employed by one company and can only sell that company's products.

The problem is, you can't avoid these juicy commissions by approaching insurance and investment companies directly. That's because they don't want to upset the financial advisers, who sell most of their products for them. If you go direct to a financial company for a pension, protection or investment plan, you'll still pay these hefty commissions, although the provider will pocket them instead of paying an adviser!

Nevertheless, some financial advisers are willing to sell products to you without advice (known as an 'execution-only service'), in return for vastly reduced commissions. These come in two forms: fund supermarkets and discount brokers.

Fund supermarkets

These were created with the aim of providing better value to consumers looking to buy into managed funds. Most managed funds include upfront charges of, say, 5% to 7%, plus annual management charges of around 1.5% (with some as high as 3% - ouch!). This means that, typically, 20% of your initial capital will be eaten up by charges over the first ten years of your investment.

Fund supermarkets cut these initial charges dramatically, often reducing them by two-thirds or even slashing them to zero. This is good news for investors, who see more money invested from day one. Here are three of the leading supermarkets:

Fund supermarket  No. of fund groups  No. of funds
FundsNetwork              53              840
Ample                     20              400
Egg                       24              240

Two other major fund supermarkets, Cofunds and Skandia, can only be used by independent financial advisers (IFAs).

Discount brokers

These are IFA firms that offer discounts on a whole range of different financial products. Several offer to cut initial commissions to zero, as well as sharing their annual commission with customers (also referred to as 'renewal' or 'trail' commission). So, not only do a few discount brokers slash the initial cost of buying products, they reduce the ongoing cost too.

What's more, as well as offering discounts on investments into managed funds, ISAs, unit trusts and OEICs, several online brokers also discount other financial products, such as investment trusts, investment and insurance bonds, and protection products. Here are six leading discount brokers:

Chelsea Financial Services became the UK's first discount broker nineteen years ago. It offers hefty discounts on initial charges, but doesn't share renewal commissions with customers.

Torquil Clark is another well-known IFA that offers discounts or cashback on investment and protection products. It offers 60% commission cashback on life policies, which makes it cheaper than many other firms.

Fool partner The Idol (Investment Discounts On-Line) offers discounts on protection and investment products, plus competitive quotes for other products, including home, motor and travel insurance. Visit our Insurance Centre to learn more.

Chartwell is another discount broker with a first-class reputation. As well as upfront discounts on most investment products, it offers a free pension transfer analysis to customers considering their pension options. What's more, Chartwell offers a cashback service through which it shares renewal commission with clients who buy through it (or transfer existing investments - even entire portfolios - to the firm).

goFIFTY50 is a new website that offers to give back half of the commissions it receives - both initial and renewal - to customers. By switching your investments to goFIFTY50, you'll get half the commission you pay as cashback, which becomes increasingly more valuable as your portfolio grows in size. What's more, if you sell your mortgage endowment through this IFA, it will give you back half of the commission it receives, increasing the amount you receive from the sale. It also has a very attractive website (I love the dog!).

Finally, I believe that Cavendish Online is remarkable, because it takes no initial commission and no annual commission either! Instead, it charges an upfront fee of (normally) £25 and, wherever possible, rebates all commission to its customers. This applies to investment products, pensions, life assurance, critical illness and income protection insurance. What's more, you can transfer existing investments to Cavendish and benefit from lower charges throughout the life of your plans, which could mean huge savings.

Recently, I wrote about my search for cheap life cover to protect my family. Cavendish's quote beat every other firm's hands down, and included the delightful phrase, "We won't pay any commission to your financial adviser." Just what I wanted to hear - it can't get any cheaper than this!

More: Why Pay More For Less? | Avoid Rip-Offs: Become A Money Wolf | ISA and Insurance Centres.