PEP Survey: How to pick up a plan on the cheap

VIRTUALLY ALL PEP managers pay commission to the adviser or intermediary who sells their plans to investors. This is typically a 3 per cent introductory commission, worth pounds 180 on a pounds 6,000 investment.

Competition is such, however, that a number of the brokers and other intermediaries are now offering execution-only services, where you get no advice on which is best for you, but you do get a discount on the cost of buying your PEP.

Investors who go directly to the PEP provider may think they will avoid the commission charge, but in fact they do not - the manager is able to keep the commission for itself.

Companies such as Hargreaves Lansdown (0117-988 9880) and PEPwise (0345- 573277) charge no fee for investing your money in a PEP and they fully refund any commission they receive. They make their living from any renewal commission in later years, which can be 0.5 per cent or more.

Other discount brokers, such as The PEP Superstore (0171-351 6022), part of Chelsea Financial Services, will split the commission with customers. Some discounters, such as PEPDirect (0800-413186), will refund all commission to the customer but charge a pounds 25 fee or so.

Discount brokers are also able to give you any special deals which PEP providers may be offering. For example, Perpetual and Credit Suisse are both offering a 2 per cent discount on their unit trust PEPs. PEPDirect will pass this directly on to customers. So on top of the 3 per cent commission refund, they would also receive the 2 per cent discount from the PEP provider, 5 per cent in all.

Discount brokers only offer refunds when they themselves receive commission. While most unit trust houses pay commission, there are some notable exceptions, such as Equitable Life and Virgin. For their PEPs you will need to go direct.

Where there are no initial charges on a unit trust PEP, it is unlikely there will be any commission paid to introducing agents. But there are exceptions. Legal & General, for example, offers a unit trust PEP which tracks the All Share index and has no initial charge.

Despite this, the manager still pays brokers and intermediaries 0.75 per cent commission when they introduce business. Investors who invest pounds 6,000 in this particular PEP through discount broker PEPwise are refunded the pounds 45 commission plus the broker pays out an extra pounds 15.

Few investment trust PEPs pay commission. "If you want to invest in one of these you usually have to go direct to the investment trust company," says John Churn, technical support manager at PEPDirect. The minority of investment trust PEP providers that do pay commission include Fidelity and Gartmore. When these are sold by a discounter, they will split any initial commission with the investor.

Additionally, not all discount brokers offer corporate bond PEPs. Be prepared to phone round a few discounters until you find one that does sell them.

Some fund managers are starting to react to the discounters. Fidelity, for example, offers to match any deal a new investor or one of its existing direct clients is offered by a discount broker. You could try to see if other PEP providers will offer a similar deal.

Before you commit yourself, find out what deal the discounters will offer you. Then call the PEP provider to see if they can match this and offer additional services too.

Other discount brokers include PEP Shop (0115 982 5105), Seymour Sinclair (0171-935 6445) and Elson Associates (0500 691790).