Investment advice please

imported_jac

Hi
My father is 85. He has £110,000 in a fixed rate account of 6% which matures in April. He draws £400 per month from this. He is worried about what to do with the money in April and how he can keep getting his £400 per month. He contacted his accountant and they have an investment dept. and a chap came out to see Dad. He talked about putting the money into cash, not shares and getting a good rate so that Dad could still draw his £400. Also he said that Dad would not have to pay tax as this would be paid from his estate. The fee for this would be about 1.5%. As yet Dad has not received any information showing exactly where the money will be invested, so he is happy that he can still get £400 and not pay tax, but is in the dark about the details. I am going to phone the investment chap and would like some input please on what I should be wary of and any questions I should ask.
Thanks
Jackie

Aegis

I'll put this at the start so that you know this isn't an advised solution, just something for discussion purposes. I'm not an investment adviser and as such this is purely from what I know from certain people who work around or for me in my workplace. However, this is something that you should compare possible solutions to, as this one should not come with a fee attached, as the product in question pays a commission to the adviser with no reduction in investment amount.

Currently Barclays Wealth have a 5-year cash product out which offers a 4% per year return. That gives about £333 per month if you use the interest only and invest £100k over 5 years. Putting aside the bulk into that account and drawing down from the remainder as required, your father would be able to maintain his £400 a month at the expense of his long-term capital. A more flexible alternative would be to put aside enough for £300 per month (£90k) and keep back £20k for supplementing his expenses and for anything unexpected.

This is only a simple solution from what I know, and there are probably a multitude of other options including annuities, corporate bonds, gilts, etc, none of which would come under the heading of "shares".

Tell your dad to go along with you to see a local Independent Financial Adviser to discuss investing for a fixed (or better yet, rising) income.

opinions4u

Why does Dad need £110k?

Time to start enjoying it by spending whatever he wants and treating his family. Perhaps setting up trust funds for the education of great grandchildren would be a start.

As for maintaining the income? Why not just reduce the capital by a modest amount during these low rate times.

IFA is probably the best way to go - both from an investment point of view but also on how to reduce his capital legally before the state steal it all to pay for his care in old age.

Myrmidon_J

imported_jac wrote: »

The fee for this would be about 1.5%.

As yet Dad has not received any information showing exactly where the money will be invested, so he is happy that he can still get £400 and not pay tax, but is in the dark about the details.

The major question I would ask: to what extent is your father's capital at risk? And: what benefit does your father obtain from paying the fee?

It sounds as though this is part-investment, part estate planning - probably a good idea, if your father is 85. But
I think it is absolutely essential that your father understands exactly what it is that he's buying into!

imported_jac

Thanks everyone for your help. I would love my Dad to just spend his money but he won't. He says his money might not last as long as he does even though I've pointed out that we'll make sure he's ok. The investment chap also told him that this scheme prevented the state from using his money if he had to go into care. There is no need for this as we can look after him but it does seem as though you are right Mymidon_J that it is part investment and part estate planning. He wants me to check it out before he goes ahead with anything so I need to brush up on my facts before I ring the chap.
The Barclays Wealth option looks interesting Aegis, he is already with Barclays so he could easily pop in and talk to them about it. He does prefer to deal with people he can pop in and see, such as Nationwide, who he is with now.
Thanks
Jackie

opinions4u

imported_jac wrote: »

The investment chap also told him that this scheme prevented the state from using his money if he had to go into care. There is no need for this as we can look after him but it does seem as though you are right

24 hour nursing care is one hell of a difficult thing for even the most caring family to provide.

Myrmidon_J

imported_jac wrote: »

The investment chap also told him that this scheme prevented the state from using his money if he had to go into care.

I would consider this very carefully... Local councils tend to try to avoid paying for long-term care and as such scrutinise personal capital incredibly closely. If they consider that your father has "deliberately" deprived himself of capital, they may withhold funding.

Although you say that you'd happily look after your father (and I'm sure you would), 'opinions4u' is quite right - long-term care is extremely difficult for any family to provide. I'd consider taking specialist advice before proceeding.

He does prefer to deal with people he can pop in and see, such as Nationwide, who he is with now.

Whilst I appreciate that relationships such as these are valuable, "advisers" from Nationwide (and indeed, any other "tied representative") are only permitted to offer advice on their own products.

For individuals with more complex needs, independent ("whole of market") advice might be more suitable.