Indemnified Fees Explained
Indemnified fees refer to the fees paid to a financial adviser by a product provider (e.g., life company or investment platform) for their services, usually as a commission. In the context of an Investment Portfolio Bond (IPB) or Platform Account (PA), this means the adviser is compensated by a pre-agreed amount with the investor client, for their advice. The indemnified fees are typically calculated as a percentage of the amount invested in the bond or platform account.
To help you understand the concept better, let's break it down with an example.
Suppose you decide to invest in an IPB or PA, through a financial adviser, and you plan to invest $10,000. The financial adviser will help you analyse your risk tolerance, select appropriate investment options, and guide you through the process. For these services, the adviser may receive a commission or indemnified fees.
Let's say the adviser is taking an indemnified fee of 3% of the invested amount for the adviser's services. In this case, the adviser will receive $300 (3% of $10,000).
In this example, the indemnified fee of 3% is paid to the financial adviser by the IPB or PA for their services. Let's consider how this might affect the amount available to invest in the client's account on day one.
There are two primary ways in which the indemnified fees might affect the initial investment amount:
Upfront charges: In some cases, the bond provider may choose to deduct the indemnified fees from your initial investment as an upfront charge. In this scenario, if you invest $10,000 and the indemnified fee is 3% ($300), the amount available for investment on day one would be reduced by the indemnified fee, leaving you with $9,700 ($10,000 - $300) to invest.
Embedded within ongoing fees: Alternatively, the bond provider may opt to recover the indemnified fees through ongoing fees and charges associated with the IPB or PA. In this case, your initial investment of $10,000 would remain intact, and the full amount would be available for investment on day one. However, over time, you may pay higher ongoing fees (such as annual management fees, administration fees, etc.) that would ultimately cover the cost of the indemnified fees paid to the adviser.
In either scenario, it's crucial to understand the fee structure and how it may impact your investment over time. Your financial adviser should be transparent about the fees associated with the IPB or PA, including any indemnified fees, so you can make an informed decision about your investment.
If a client chooses to close the IPB or PA early, there might be a financial penalty or an exit fee, depending on the specific terms and conditions of the bond. These penalties are often in place to encourage long-term investments and to help cover the costs incurred by the bond provider, such as the indemnified fees paid to the financial adviser.
It's important to note that while the IPB or PA provider pays the indemnified fees to the adviser, they may indirectly recover these fees from you through the investment product itself. This may be done through various charges like annual management fees, administration fees, or other charges applied to your investment.
In summary, indemnified fees are the commissions that financial advisers receive from investment product providers, such as those offering Investment Portfolio Bonds and Platform Accounts. These fees compensate advisers for their services in helping you make investment decisions. Although the fees are paid by the provider, they may be indirectly passed on to you through charges associated with the investment product.
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