Should we have an IFA?

pinkteapot

I'm finding life (long-term outlook), financially, highly confusing.

At the moment, we're high earners. Hubby earns £50k and I earn £75k plus annual variable bonus of £30-50k. We only owe £95k on our mortgage and have no other debts. We put about £3k a month into savings plus a good chunk of my bonus (could save more but we like spending on nice things while we can afford to!).

Two issues:

1) Increase in income has been very rapid. Five years ago I was single, earning £25k and had personal debts (not much but meant I had about £50 spare each month!). I'm just not used to earning this; neither of our sets of parents ever did. It's not a world we're quite comfortable with or adjusted to.

2) I plan to stop work when we have kids, until they're at school. So then we'll be much more like the average family. Hubby currently has a long commute and once we have kids wants to work locally, where he is likely to earn more like £35k. So we'll have a family income of around £35k instead of the current £150k+. :eek:

So, kids are probably a couple of years off (touch wood, obviously if we have difficulty it'll be longer). We're ploughing lots into savings to have a 'baby fund'. Hubby's local salary would cover the monthly bills and food. The fund (currently around £45k) we would live off till I go back to work. When I do go back to work it'd be something local, probably only earning £20-25k (in today's money).

ANYWAY, I worry that we're not doing enough with our money. We're under-leveraged on housing (not a big concern in this market!) and our savings are all sitting in cash savings accounts/ISAs and not earning much at the moment.

If I was planning to stay in work and our income was going to stay where it is, I'd have an IFA already because I don't feel confident enough myself to save/invest our money for the long-term. At least not without some professional advice.

But because it's only for a few years we haven't done this.

I worry about how we'll afford uni if the kids want to go; should we be putting a small lump into a long-term investment portolio now?

I also have immense guilt about my plan to give up work and stay home; if I kept earning what I do the kids would have a very different life, albeit one where they don't see a lot of mum. If I worked they could probably go to private school with my income. My parents came from working class families and moved up to white-collar. We're in a position to take another step up. But (selfishly?) I don't think I could bring myself to leave the kids when they're young and work long days with my current long commute. This part is slightly off the point as an IFA can't really advise on this I know. It's an emotional decision; the finances make it obvious what I should do, I just don't think I want to do it!

Anyway, rambling I know, but I feel like (a) I'm making a ridiculously big lifestyle decision and (b) we're not being clever enough with our pot of savings. Should we have an IFA and how much do they typically cost? I've seen adverts for several in our home town I could call but I find them a bit daunting for some reason!

Reaper

It's a nice situation to be in.

You are doing the right thing thinking about this now. If you have a limited period of good income it is the perfect time to save/invest as it is painless and you don't want to adapt your lifestyle to a new level of income that won't last.

As you are thinking about long term you should probably be considering investments rather than savings (other than some emergency money of course).

Putting more in your pension may be a good option because you are a higher rate tax payer and you get tax relief on it.

Paying off your mortage early is another option though it depends on the terms and the interest rate you are currently paying.

If you are comfortable investigating these areas yourself then do so. If not then seeing an IFA (not bank advisor) would be a good idea. Probably best to ask for a fees based option rather than commission. It is likely to work out cheaper and ensures unbiased advice.

EDIT: P.S. No need to feel guilty about giving up work. Life is a work/life balance thing. Rich kids are not automatically happy kids. If you are worried you could always ask the company their view about you going down to 3 days a week. That is what my wife is doing. It will give her 4 days at home with the kids each week and they get 3 days at nursery learning to interact with other children.

dunstonh

Should we have an IFA

What specifically would you want an IFA to do for you?

and how much do they typically cost?

Depends on the transaction in question and what type of contract you want with them (i.e. ad hoc transactional or servicing etc). Different IFAs charge different amounts. Some will be expensive, some cheap. Some will price themselves to focus on high net worth clients and put off low net worth clients or vice versa. Often you can pay by a percentage of the amount invested, or a fixed fee or an hourly rate. You can also still go by commission (which is ok for small amounts as it can be cheaper that way but not for larger amounts).

pinkteapot

Thanks both, I was a bit worried I'd get jumped on for earning good money but this board seems a bit more amenable than some of the others. We are incredibly lucky and we know that. Also having money only recently and planning for it to only be short term we do appreciate the nice things we can buy/do now! I possibly justify too much spending using "But this is the only time in our lives we'll be able to do this."

I think what I'd be asking an IFA to do (or what I feel we need to do ourselves) is:

(1) Work out how much we need to put aside for me having X years out of work (hard to quantify I know); we're just saving what we can at the moment

(2) Work out if we can afford to put a lump into an investment plan of some sort to fund future uni (or give us a bl**dy good holiday if they don't want to go to uni )

(3) Look at the issue of paying off mortgage (tracker, currently 2.49%) versus saving; I understand the principles obviously with mortgage versus savings rates but I worry that we'd pay it off and then have money in the house but not enough in liquid assets for the future.

(4) Sort out my pensions mess and advise on whether I should be putting more in. (I have three, two of which only have a few k in as they were from companies I didn't stay at long, the current one is 10% employer contribution, I'm not putting any more in) Pensions are one financial product I have just never been able to get my head round. I've been putting off consolidating the three for about 2 years now.

Three day week would possibly be an option; another lady here has come back from maternity leave doing that. In my role it's a bit more awkward but they like me and I think they'd want me to stay. Part of the trouble is I like my job but I'm not deeply passionate about it. I sold out for the cash.

We are HSBC Premier customers so have access to their advisers, but I had assumed it was better to use an independent.

Cautious_Investor_3

Hi

The right IFA, like the right Solicitor or Accountant (where needed) can be invaluable.

In my experience an IFA can become more than just an adviser, over time the become a financial friend and even a confidant.

An IFA should spend time discussing with your your goals, both financial and personal, then assess your current arrangements and tell you how to get from point A to point B. Any arrangements should be then kept under constant review.

When I was an IFA a client once asked me to tell him what he must do, should do and could do, I used that maxim with other clients and it seemed to summarise what an IFA should do really well.

From time to time an IFA also needs to be able to tell a client when they are being really daft! The relationship therefore needs to be able to stand up to such a conversation.

So, how to find the right IFA?

Well, working on a recommendation is always a good start, ask friends who they use and get an introduction. You could also visit www.unbiased.co.uk to find other IFAs in your area and you can search using different criteria. I'd speak to a couple, by all means cover fees v commissions but it is also important how you get on with the IFA, remember, you may end up telling this person the most personal of details, you have to be comfortable with them.

I'd avoid using a bank adviser, even if they are a independent, not beacuse I'm bashing banks but more to do with the fact that they advisers employed by banks tend to move on quicker to new positions, you will then need to form a relationship with another IFA.

I hope this helps.

The Cautious Investor

pinkteapot

Thanks, very useful post Cautious Investor!

I think partly I felt like we "shouldn't" be IFA clients because if we do go down to one local salary we're not really the financial profile of a typical IFA client. In short, I don't feel like a rich person and rich people have IFAs. :rotfl:

I don't know anyone who uses one as we are in a better position financially than most people we know. A couple of people at work would, I'm sure, but none of them live local to me and I'd prefer someone in our home town.

We'll discuss it a bit more. The pensions are definitely a push to go for it as hubby needs to sort out his pension situation as well and they're a product neither of us are good with.

Any indication on costs? I know it's a piece of string question depending on what services we went for and the amount of advice we wanted. But I have absolutely no idea of the scale of what we'd be looking at.

Cautious_Investor_3

pinkteapot wrote: »

I think partly I felt like we "shouldn't" be IFA clients because if we do go down to one local salary we're not really the financial profile of a typical IFA client. In short, I don't feel like a rich person and rich people have IFAs. :rotfl:

Any indication on costs? I know it's a piece of string question depending on what services we went for and the amount of advice we wanted. But I have absolutely no idea of the scale of what we'd be looking at.

Hi don't assume an IFA won't want to deal with you! Every IFA will have a target market and from what you have said about your circumstances you won't have too much of a problem finding one to help you. One of the important things to an IFA is that you are serious about financial planning, this can often be more important than percieved wealth.

Re cost, that is a bit of a piece of string question, you will only find an answer to this by speaking to an IFA. If you can't get a recommendation then you need to do a bit of research:

1. Use www.unbiased.co.uk as this will be a good starting point to fine say half a dozen in yoru area that meet your criteria

2. Then look at the FSA register http://www.fsa.gov.uk/register/home.do click on the individuals tab and look at the IFAs history. Ideally you want someone stable, who hasn't moved around too much

3. Then look at the IFAs website, most have these now, and it will give you a better feel for them#

4. You will probably have reduced your list now to 2 or 3, pick up the phone and meet with them. An IFA shouldn't have a problem with taking an hour out of their day for a cup of tea and a chat, they will want to get to know you and you them, meet, have a chat, see how you get on and then select the one you want to work with.

The Cautious Investor

dunstonh

Thanks both, I was a bit worried I'd get jumped on for earning good money but this board seems a bit more amenable than some of the others.

There is no easy way to say this without it sounding a bit off. Your level of earnings are typically at the middle to lower end of what an IFA deals with on average. Generally, tied agents/FAs deal with the lower earning people and IFAs deal with the higher earning people. So, you wont feel out of place at all.

We are HSBC Premier customers so have access to their advisers, but I had assumed it was better to use an independent.

You are right. Whilst HSBC IFAs technically meet the criteria to be called IFA, they still sell too many HSBC products which suggests that there is some bias in place (confirmed by a poster here who had links with HSBC). Like their poor quality HSBC world selection portfolios which have no justifaction being recommended (short history, expensive and what history there is has been poor) yet you see them recommedning them. Wherever there is an employer (like a bank) you always run the risk of seeing someone working in a salesforce environment (whether FA or IFA) and working on targets and sales management pressure (sell or you are sacked). An established local independent won't have those pressures.

Any indication on costs? I know it's a piece of string question depending on what services we went for and the amount of advice we wanted. But I have absolutely no idea of the scale of what we'd be looking at.

It really is rough as one IFA firm near us charges £2000 is a minimum charge. Thats expensive for smaller amounts but for larger amounts it can be cheap. £125 per hour for a rural location. £200 per hour for city. 1-2% of the amount invested with a cap on the amount should be the sort of target amount but it really depends on how much. The more you have, the better the terms should be pro rata.

pinkteapot

Thanks dunstonh. Don't worry about sounding off, I didn't think we were quite up in the obvious IFA target client category.

We might end up using one to get our house in order now (well, over the next couple of years), but not as a long-term ongoing partnership. I'm not sure we'll be able to justify the costs when/if our income drops off as much as I'm anticipating.

I just used unbiased and there are four listed in our home town (Colchester; shame you're not in Suffolk rather than Norfolk ) so I might be brave and give them a call. I just didn't want to do it then have that horrible moment, like when you walk into a shop you realise is far too expensive for you and you have to try and escape without looking like a complete loser. :rotfl:

In your opinion, and I know you may well not be able to answer with such sketchy information about our finances, is it worth us seeing an IFA? Worth it in the sense of long-term gains from using recommended products instead of having all our savings in cash at HSBC (!) versus cost now? I assume that most clients feel they are better off net of fees, hence it's worth it. With us being lower end, I guess I'm a little concerned it wouldn't be the case for us.

I will look out for minimum charges if I speak to them; that's a good tip.

dunstonh

shame you're not in Suffolk rather than Norfolk

I'm near the town that neither Norfolk or Suffolk want. Its in Suffolk but most treat it as Norfolk.

In your opinion, and I know you may well not be able to answer with such sketchy information about our finances, is it worth us seeing an IFA? Worth it in the sense of long-term gains from using recommended products instead of having all our savings in cash at HSBC (!) versus cost now? I assume that most clients feel they are better off net of fees, hence it's worth it. With us being lower end, I guess I'm a little concerned it wouldn't be the case for us

The first consultation with an IFA is free. So, it does not harm to see if there are areas that you can benefit from. It also gives you a chance to see if their busienss model fits your needs. (i.e. many are set up for servicing and are not interested in ad-hoc or transactional advice or vice versa). The term IFA just covers the qualifications and authorisation. There are many different business models and specialities under that term though.

shame you're not in Suffolk rather than Norfolk

Technically it is Suffolk but most businesses treat it as Norfolk as there isnt much south of us for 40 miles. Although Norfolk doesnt want our town and Suffolk wants to pass us over to Norfolk. So, we have this identity crisis out here

ThriftyFelicity

You should consider doing a budget, to find out what you're spending your money on each month, and what a realistic spend would be when your income drops to £35k.

I'm guessing your household take-home pay is around £8500-£9300 (including your bonus); if you're saving £3k, then an average monthly spend is £5500 to £6300. That's a fair bit since your mortgage isn't that big.

You have probably gotten used to expensive holidays, the latest gadgets, lots of meals out, etc... how much of a change in lifestyle will be acceptable in future? How much extra will you be spending because of the child/children? Will you need a bigger house and all of the extra expenses that go with it (mortgage, council tax, utilities, etc)? Thinking carefully and realistically about all these things can help determine how much you'll need to have in savings to help fund the lifestyle you want.

You may determine that you can comfortably live on £5k a month, with one child. If your hubby is earning £35k in a few years' time, his take home pay would be about £2200 a month, a shortfall of £2800. £2800 times 12 months times five years (is that what age a child is in school full-time? Sorry, clueless childfree person here ) is £168,000. That doesn't take into account any interest you may get on the £168,000, but that may be minimal.

Your plan is to return to work when your child is at school. Provided you're able to get a job at your estimated salary of £25k, you would still need to supplement this (in the example above), as it would add only £1600 to your take home pay. (You'd still be £1200 per month short of £5000).

Separate to this will be your child's university fund (or obscenely expensive holiday fund should your child not go to uni )

Well done for having the foresight to plan NOW for this big change in lifestyle... most people are more hedonistic than that!