Checking IFA advice before investing

EdInvestor

If you would prefer to pay virtually no charges at all, and no tax on your income ( genuine income, not withdrawals from capital) you may like to cast your eye over the High Yield Portfolio strategy for some of your money.

It's a DIY version of an equity income fund. Works a treat I find.

This asset allocation calculator may also prove useful.

It is more important IMHO in the first instance to figure out what you want to invest your money in.

The tax wrapper should be the second consideration.You may find you don't even need one.

For instance a 5% return on 350k would be 17,500. If that income all arrived in the form of dividend income from a share portfolio, you would pay no tax on it all if it was your sole income, because dividends are tax free to basic rate taxpayers.

So there may not be any need to pay high costs for the establishment of tax wrappers around investments which when you look at them closely and boil them down to fundamentals, can be obtained at no tax cost quite easily.

Friday

My initial answer when asked what I wanted to do with the money from my business by the advisor was ' I want a set up and leave it in an investment that will allow me a regular income' . I have a modest lifestyle and enough capital to be able to live off the 4.5% before tax I am currently getting from ING and the like.
The advisor is claiming 5% tax paid is possible with these investment bonds and hence we will have a better income and be able to have more holidays etc.

I am not a savvy investor. I have had my head down working 12 hours a day for over 25 years. I came close to losing my house when times were bad and am not ashamed of the rewards of my labours. I have some PEPS and ISAs and a pension fund (also handled by the same advisor) that I could draw on if my investments don't keep up. Everything has been done because someone advised it was a good idea. I understand engineering I don't understand investments (yet).

I like to know what I'm doing and acting purely on advice goes against the grain but there is too much to learn on this subject.

You have been a great help and made it clear I need more advice before doing anything.

dunstonh

I would disregard Eds comments at this stage as a high yield portfolio is medium to high risk and jumping to a solution like that without your risk profile being taken into consideration, plus the fact you are an investment novice could do far more harm than good.

EdInvestor

It's always worth considering investment styles that are not covered by IFAs (because they can't make any money out of them) - not least because of course you pay much lower charges, and thus the likelihood is you will make more money.

You may like to check out some sample investment bond charges here on the regulator's site:

https://www.fsa.gov.uk/tables

The actual effect of these charges over a period on your investment is pretty horrendous

Could this be the reason they are so popular among salesmen?

Chrismaths

Excuse me Ed, As an investment manager, I'd make money out of your strategy, it's just that I chose to use other, better, more flexible strategies. And an IB is actually the best vehicle this guy could use in his circumstances. You can see that by the fact that even I, who would make no money on the bond, would recommend he did one.

You've also been told many, many times that those FSA tables are a load of bull if you use a NMA. There are worse things out there than HYP, but there are also much better things - don't constantly rule out all alternatives.

All the best, Chris

dunstonh

EdInvestor wrote:

It's always worth considering investment styles that are not covered by IFAs (because they can't make any money out of them) - not least because of course you pay much lower charges, and thus the likelihood is you will make more money.

You may like to check out some sample investment bond charges here on the regulator's site:

www.fsa.gov.uk/tables

The actual effect of these charges over a period on your investment is pretty horrendous

Could this be the reason they are so popular among salesmen?

Ed you continue to post this without understanding the benefits. You also fail to take into account that the majority are sold with discounts applied making them much cheaper than the tables shown.

You also fail to take into account that the tax savings on offshore/onshore bonds to the appropriate groups can be significant and more than wipe out any perceived extra charges.

As I said recently, I arranged a bond with a reduction in yield of less than 0.5%. That same bond shows a much higher reduction in yield in those tables. The tables may be published by the FSA but the FSA also publish tables every 6 months showing the average commission taken on them.

Also, Friday (the OP), seems quite switched into the NMA basis and in that case, the FSA tables are a complete red herring. Indeed, a bond on NMA basis could be significantly cheaper than the same UT funds over the 5 & 10 year periods.

edit: also note that Friday is getting a discount even from the old model adviser so the tables would be totally inaccurate there as well.

edit2: The current FSA tables on commission taken with bonds shows the average commission kept by IFAs as 70% with 30% being rebated.

Friday

I welcome different points of view

I'm used to running things myself but doing so in an environment I understand and can manage efficiently. I know my limits and the right financial decision is essential to secure my future income. If I was an experienced investor then a DIY approach would be the way to go but I don't find financial matters interesting (essential yes, interesting no) and would struggle to learn enough to be competant.

Paying for skilled advice is my only option and with the help I have recieved here I now know I need a second opinion and will make some calls today.

Friday

As to NMA or old model, I don't have a strong bias yet but I do think costs should be fair.

I do believe in fair reward for a service provided and the comments in this and other threads have been very helpful in establishing a guide as to what is fair. I have 900k to invest in total and 30k commission taken (not the total commission as some is rebated) by AWD on investment bonds with 3 providers is not in the 'fair' range. My other small investments have been reviewed and I have had about 2 or 3 hours at his offices making my situation clear.

I get the impression now that a NMA would do the same thing (time taken in establishing situation).... but I started off thinking there must be less advice if they are cheaper

Friday

dunstonh wrote:

edit2: The current FSA tables on commission taken with bonds shows the average commission kept by IFAs as 70% with 30% being rebated.

Which puts AWD in the average category. interesting. Still expensive but interesting to know.

dunstonh

I get the impression now that a NMA would do the same thing (time taken in establishing situation).... but I started off thinking there must be less advice if they are cheaper

NMAs do exactly the same in factfind, researching and recommending. However, as NMAs tend to be more switched onto investments as well, you often find portfolios are better built and serviced.

As a business person, you can probably spot the problems with the old model basis compared with new model:

Old models takes commission up front. New model gets paid 0.5% p.a. with a small amount upfront. One generates a regular income stream, the other one generates one off business. One survives on sales, the other survives on ongoing advice and servicing.