commission v fees

dunstonh

The OP's relative should be able to invest directly into a selection of funds on a tax-free basis via a discount broker and obtain a tax-paid income in the 4-5% range, plus additional tax free capital gains for growth without paying more than 100k to an insurance company /IFA.

Ed that is complete rubbish. Its full of errors.

1 - Janemw has stated that the person is low knowledge on investments so going to a discount broker without advice when investing 500k could easily cost far more than paying for advice.
2 - picking investment funds (unit trusts/oeics) as you suggest would result in a 200k IHT tax bill on 500k.
3 - 500k could easily trigger a capital gains tax bill the way you suggest
4 - It would wipe out the age allowance increasing the tax payable.
5 - The HL suggestion will save you only around 1% a year in charges. Not the massive figures Ed suggests. It would also remove all consumer protection when you find out how wrong the information was as you didnt seek advice. However, you could sue Martin for allowing this to happen on his website. Especially as it has been brough the attention of the moderators.

I was going to quote more rubbish from Ed but actually what Ed is doing is dangerous. The IFA you have seen appears to have given you good advice based on what you have said so far. The tax savings could easily equate to over £200,000. Yet you have Ed telling you to do something that is going to cost you over £200,000 in IHT, suffer potential capital gains tax at 40% and wipe out age personal age allowance increasing the income tax payable.

The questions you have raised are valid and you need to know but do not be afraid to ask your IFA. They know the situation, the advice so far seems good and the potential savings here appear massive.

This is a moneysaving site. If you follow Eds "advice" it would be the most costly transaction you would ever do. I wonder how Martin would feel if he found out that his forum had cost someone over £200,000 because they chose to follow a forum members advice and not that of a qualified and authorised independent financial adviser.

Due to the severity of the Eds misinformation and the consequences to the OP if she was to follow Eds bad advice, I have reported this thread to the moderators. Ed is not a financial adviser and has limited knowledge in this area. You are risking serious amounts of money if you follow Eds advice.

Tiggs_2

getting back on track now that Dunstonh has summed up Ed in his normal "short and sweet" styleeee

the one thing to watch with advisers at the moment (of ANY type) is those jumping on the IHT bandwagon - as this thread shows it is quite possible to earn £15k +++ per case (in fact cases in excess of £100k are not uncommon) and because the tax saving to client can be vast it is accepted.

this attracts a lot of advisers into the market who arent up to the job....this is a particular frustration to me as my company does nothing but IHT planning. The reason for that is the money to be made, simple as that - but we have gone about it by ensuring our focus is 100% on the IHT issues in hand....Jack of all trades we are not and when most advisers spent this summer faffing about with grasping the tax and trust changes we were writing lump sums in trust within a couple of weeks of the budget with full confidence in what we were doing.

So worth asking the chap what his experience is in the field - easy to set up a £500k bond in trust but is he able to deal with any issues on trusts/tax that come up in the future? and when realitive drops dead what long term service has he offered to assist with any steps required at that time. pay the guy £15k by all means - but understand what you are buying.

jem16

EdInvestor wrote:

I would suggest that the OP's rellie, as a basic rate taxpayer taking a 5% net income pa, after 10 years of investing directly outside the bond and paying virtually no charges, should s/he then pass away, the estate [net of IHT @40%] would be as much as double what it would be if the bond/trust was used.

I'd love to see some actual figures on this Ed.

£500k at 6% over 10 years would realise £895,424 minus the £152k charges mentioned by the OP would be £743,688.

What would your "proper investment" have to do to get double after 40% IHT and 5% income pa?

Tiggs_2

and more importantly..............where would you put all the loto tickets that didnt win????

jem16

janemw wrote:

I have used the IFA in question before, but I feel embarrassed to put questions about charges and commission to him (I know that sounds stupid) as I am very conscious of how little I know and that I may not understand the reply.
The main object of the investment is to save IHT,and the 5% income taken from the capital is a way of moving some of the money out of the estate.

janemw

Please ask your IFA all the questions you need to. If you don't understand the reply, ask him again to explain. If he's any good he will answer them all patiently - if he doesn't find one who will. This is a lot of money and you need to be sure of what is happening.

However please be careful with the advice given here. You have advice from;
Tiggs - specialises in IHT
Chrismaths - investment manager
Dunstonh - IFA
Your own IFA

All of the above are in agreement over the bond and its use.

And then you have Ed.

Tiggs_2

ohhhh...i got top billing

Ian_W

jem16 wrote:

janemw
However please be careful with the advice given here. You have advice from;
Tiggs - specialises in IHT
Chrismaths - investment manager
Dunstonh - IFA

And IMPORTANTLY, none of them, unlike your own IFA, stand to make a penny out of the advice, nor do they have any other reason to say it's good advice if it's not. They are qualified to judge and I've seen more than one of them be quite forthright when they consider an IFA has given bad advice to a poster on these forums.

gt94sss2

janemw wrote:

However it's the fees v commission that I don't understand.

Investment will be boosted by 7%.
An establishment charge of 0.625% every quarter for 5 years.
An admin charge evry quarter of £17.
Average initial investment charges of 0.5% and ongoing 1% pa.
Initial commission to the IFA is £15,600, followed by 0.5% pa.

The effect of the deductions to date is illustrated at £25k for the first year, risng to a cumulative of £152k after 10 years.

Do these charges seem reasonable? I haven't clue really, altough I suppose % wise it works out to about 5%.

I would ask the following questions:

1. Why is there a quarterly 'establishment charge' - why not a one-off charge? (i.e. in addition to the annual investment charges)

2. Is the £17 admin charge/quarter charged by AXA or the IFA? If its the IFA why are they charging you this when they will also get 0.5% pa in commission - i.e. what are you getting in return for that?

3. How much the IFA would charge if they rebated all the commission to you and charged you on a fee/time basis instead. As has already been said by dunstonh, £15,600 in initial commission seems high.

There is also no harm asking a 2nd IFA for their opinions of a suitable investment and their charges as well.

Regards
Sunil

Tiggs_2

sunil,

1 & 2 - those are provider charges. maybe in an ideal world you would have one single charge and nothing more but most plans of this type will have some sort of fussy charging plan. Also you are better paying an establishment charge over the first few years than dropping X% on day 1

3 If the IFA charged by the hour its almost certain it would be cheaper, even if the bloke runs at £200 ph thats still 75 hours work. As an IFA he has to offer that which is a pity to be honest (IMO) Any adviser not working on a soley fee basis is being paid to SELL products. DOesnt matter if they NMA, 7% up front or anywhere in between - the job is product sales (and thats no bad thing if your adviser is good and uses quality finacial advice and service to generate those sales) ...and most sales jobs pay on commision (esp. ones where what you sell is worth £500k) In fact, one of the reasons i ceased to be an IFA is that i wanted to work on commision only, i do about 20 cases a year at most and can easily go a month or two without selling anything - as such i am paid like anyone selling a low volume high margin product...well. You could debate whether its fair that Mr X generates me £15k because it takes me a while to sift through the prospects to find him....but thats life, go buy a Ferrari 550 and ask the salesman what his cut is then ask if you can pay him £150 per hour instead!

lastly - the problem with your last point is two fold. Firstly there is a large part of the "being happy with your solution" that comes from the relationship with the adviser - the "bag a bargain" people may not like it but people normally rate things like trusting/liking the IFA ABOVE the charges, and you cant shop around for that relationship in the same way....

and secondly, a £500k IHT case will ALWAYS be able to be "beaten" on a 2nd opinion.....i guarantee you if the OP came to me for that 2nd opinion the IFA would loose the sale - theres always another way to skin the cat and theres always a way to make the charges lower - 2nd opinions are fine but you wave £15k commision under an IFA's nose and his opinion will be geared to getting that business.

cheerfulcat

janemw wrote:

An elderly family member has a substatial amount to invest (over £500k), and we're looking for ways to minimise IHT. Long term care may be required at a later date.

No-one ( except Ed! ) seems to have mentioned the long term care aspect. Is part of the intention to reduce the elderly relative's available assets in order that the local authority will pay any fees? Because if it is, I wonder whether an off-shore bond is suitable? In fact, AIUI it's possible that moving money into an investment bond of any sort at an advanced age may be seen as deliberate deprivation of assets...please note that I know very little about IBs except that I mis-bought one a few years ago! I do think that it would be worth getting a second opinion though.