Is this good advice?

Legacy_user

I posted a few eeks ago about my DH retiring with a lump sum from his employer and a pension. The consensus here at that time was that we really should go to see and IFA as this was a significant change in our life.

Well we went to two IFA's and both gave advise re paying off cards etc, setting aside some money to pay with and investing the rest. In both cases they recommended putting 3/4 of the remaining pot in a guaranteed investment bond (Prudential) and 1/4 in a slightly higher risk investment bond with (Scottish Widows).

They both explained that commission would be paid to them by the companies concerned.

Can anyone advise if these are good products that we are having recommended to us or are the IFA's promoting them because they pay them higher commissions than other companies?

Thank you

Wannabedebtfree

I wonder how much commission was going to be paid.

As for whether the products are any good, you would need to provide a few more details, such as length of term, is the guaranteed bond a with profits and % rates etc.

dunstonh

They both explained that commission would be paid to them by the companies concerned.

Thats fine but would fee option be cheaper?

or are the IFA's promoting them because they pay them higher commissions than other companies?

Pru have multiple investments available in the guaranteed area. Although the three of them are all good but just variations of a theme. Nothing wrong with it as a product. Its not as cheap as holding funds but thats because of the cost of guarantees. The minute you take on a guarantee you take on a higher cost. Either in reduced return during good times or higher charges.

Scottish Widows have hundreds of funds available. What were the reasons for recommending a bond over ISA and unit trusts?

Also, investments are about opinion. To have two identical recommendations from two different IFAs would be unusual. For example, i wouldn't use the Scot Widows bond. Its not bad but I believe there are better. It may be that the terms I get on products differs. Most IFAs get different terms with different providers.

or are the IFA's promoting them because they pay them higher commissions than other companies?

If you are paranoid about that then go fee basis. However, Pru is not a big commission payer and Scot wid will vary but isn't typically at the top end.

whiteflag_3

Well we went to two IFA's and both gave advise re paying off cards etc, setting aside some money to pay with and investing the rest. In both cases they recommended putting 3/4 of the remaining pot in a guaranteed investment bond (Prudential) and 1/4 in a slightly higher risk investment bond with (Scottish Widows).

I find that very hard to believe!!

They werent sat next to each other at the time were they?

System

whiteflag wrote: »

I find that very hard to believe!!

Why? What possible motive would I have to lie?

DH and I are at a significant stage, financially, in our lives. It's unlikely that we will ever have this amount of money to invest again and we don't want to gamble with it. Both IFA's took this onboard when we told them and they both suggested investing the majority of the money in something like the Prudential and sited the option of having the capital guaranteed over several years with 5 years being an average.

They also said if we were willing to gamble a bit then something like the Scottish Widows "wrapper?" would be worth considering and we could invest it in a phased(?) way. One of them talked about Scottish widows placing the money in various funds in the more medium to high risk areas.

We don't understand any of it which is why we are seeking advice. The only reason these options sounded good was because they are supposed to be more tax efficient and I believe the Prue one offers the opportunity to draw down some of the gains without HMRC getting involved. That sounded like a good way to fund holidays each year.

With everything that has happened in the markets over the last few months we don't want to risk the money. We thought these options sounded as if they would give a better return than just putting them in a savings account.

dunstonh

Why? What possible motive would I have to lie?

There are tens of thousands of products out there and investing is not an exact science but a matter of opinion. The odds of getting identical recomendations are remote unless the advisers are linked in some way.

Pru you can understand the chance of overlap but Scot wid investment bond would not be something you would expect.

They also said if we were willing to gamble a bit then something like the Scottish Widows "wrapper?" would be worth considering and we could invest it in a phased(?) way. One of them talked about Scottish widows placing the money in various funds in the more medium to high risk areas.

Why in a bond and not ISA and unit trust? Are the amounts high enough to justify a bond? Is there something in your tax position that suits the bond?

I believe the Prue one offers the opportunity to draw down some of the gains without HMRC getting involved.

Thats becuase the tax is paid at source. The alternative options pay tax only when required. So, unless the amount is large enough to generate a tax issue each year or you have some personal tax reason (such as close to age allowance reduction) the use of bond would be unusual.

With everything that has happened in the markets over the last few months we don't want to risk the money.

The last few months have seen the stockmarkets rise nearly 15%. Why wouldnt you want that? I think you are referring to events earlier than the last few months. Recession and stockmarket performance dont go hand in hand in timescales. Markets tend to act in advance. Not trying to talk you up the risk scale but just positioning what you are saying.

There doesnt seem anything fundamentally wrong with the recommendations Just the fine tuning on the Scot Wid bit and the fact you havent mentioned ISAs and ISAs are always top of the list (well except for trust work)..

System

We would make use of cash ISA's but we are wary of stocks and shares. We already have 1 each of those which we stopped paying into because they are worth much less than what we put into them.

We are talking about a lump sum of approximately £100,000 and we are under 50 so no age allowance to consider.

I think I've misunderstood the Prue bond because I thought it was such that you could withdraw 5% without tax being due at all rather than being deducted at source.:rolleyes:

Oh this is all so complicated.

I think some more indepth research is required especially into unit trusts:o

dunstonh

We would make use of cash ISA's but we are wary of stocks and shares.

So why are you investing then? What do you think the Scot Wid is going to be in?

We already have 1 each of those which we stopped paying into because they are worth much less than what we put into them.

investments zig zag. That is quite normal. We are in a zag at the moment. However, the scot wid will zig zag but you will pay more tax than the indentical invesmtent held inside the ISA.

Oh this is all so complicated.

Yes. The UK has too many tax wrappers.

I think some more indepth research is required especially into unit trusts:o

Probably not. There are two thousand unit trusts. Most can be held inside an ISA. They will zig zag. Some will be low risk, some extremely high and most somewhere in between.

Pru may be taxed at source but its only the capital growth that is taxed higher than a unit trust. Income within the fund is the same. Plus the tax is 20% but still benefits from taper relief which means that in reality the tax within the fund is usually closer to 10%. So, it can still be the right option but only in the right circumstances.

Based on the limited information you have posted and making a load of assumptions, it appears that you have said to the advisers you dont like ISAs and rather than educate you and show you why they are best, they are going to ignore the best option for you. You also need a bit of "training" on risk and reward. Things a good IFA would give you. Its worth a bit of boredom when you are talking £100k. Knowledge and understanding will help you a lot.

whiteflag_3

Pam17 wrote: »

Why? What possible motive would I have to lie?

sorry Pam, never meant to imply you were lying

What i cant believe 2 IFAs came up with the same recommendation. In my experience its more likely you could see a thousand and never get the same recommendation

The real shame is youve seen two and are now more confused

System

Thanks for the replies. As I have stated above I really don't understand this at all.

This evening DH was talking to one of his colleagues who is also taking advantage of the opportunity to retire early and he went to one of the IFA's that we went to and got exactly the same advice, by the sound of it. That sounds to me as if there is something of a "one size fits all" approach being given out.

The 2 IFA's we have gone to are completely separate entities but they have both been promoted by DH's union and employer at seminars aimed at helping retirees settle into retirement. Given what we are learning both here and from DH's colleagues I think we should visit someone else.

dunstonh

The 2 IFA's we have gone to are completely separate entities but they have both been promoted by DH's union and employer at seminars aimed at helping retirees settle into retirement.

No no no. Dont use those types of advisers. That explains everything. Go to a local indpendent.

Expect to be told ISA is best. Counter it with your view on ISAs which is wrong and needs correcting but use that to see if the adviser responds by explaining why its best and "teach" you the basics. If the adviser just accepts your view then walk away.