Do i have a complaint against IFA?

Texas_Pete

jimjames wrote: »

Are you saying that he told the IFA that he was prepared to lock the money up for 10 years but then realised after 5 years that he actually needed it? Or did he tell the IFA he needed access to the money?

If he told the IFA that he needed access to the money then there may be a case I guess but if it is clearly documented that he agreed he didn't need access for 10 years then I'm not sure what the complaint would be?

The planned investment term was 10 years but the document also states ability to access funds (which i suppose is true though not without getting taxed or paying an early encashment charge).

I think the basis for the complaint may have been more was this the best choice of investment at the time?

Texas_Pete

jamesd wrote: »

Assuming this is an investment bond there are some possible benefits:

1. Money in one may not count against the means test if residential care is needed in old age. This may preserve assets for inheritance and is one of the more popular reasons for people or ordinary income levels to get benefit from using them. If done for this it must be done long before there is a predictable need for care.

I'm pretty sure this isn't mentioned in the record of the meetings. He wasn't that old either at the time (mid 50's) so i'm not sure it would have been a factor?

jamesd wrote: »

2. The ability to draw 5% a year ax free, with the ability to accumulate any unused allowance so that if none is used after say four years 20% of the original deposited could be taken with no tax to pay.

This would probably be useful but wouldnt he have been better utilising his CGT allowance?

jamesd wrote: »

3. Deferring tax liability until money above the 5% parts is withdrawn, of particular value to those subject to 40% or 50% tax. Drawing more than the accumulated 5% allowances is taxed as normal income.

He wasn't in the higher tax bracket when this investment was taken out.

jamesd wrote: »

4. Avoiding age allowance reduction.

jamesd wrote: »

5. A convenient tax wrapper than can ease the administration of investments, like avoiding CGT calculations and tracking within the product. Of use mainly to those who have already used their ISA allowance and who will exceed their CGT allowance.

His CGT allowance was still available.

jamesd wrote: »

Whether it was appropriate depends on the objectives he had when he did it, including his past, present and future tax situations, and what he said about the chance of needing more than an average of 5% a year from it.

Agreed - I don't know exactly what was said and am only going on the record of the meetings. Doesn't seem like the investment i would have taken out in the circumstances though.

Linton

It looks like a reasonable choice of funds to me to provide income and capital growth. Of course the high % in property in general and New Star in particular has been shown by events to be less than optimal but that is with the benefit of hindsight.

I am no expert in this area but the choice of investment vehicle to provide a steady tax free income again seems reasonable.

What is the concern?

Linton

Texas_Pete wrote: »

...


This would probably be useful but wouldnt he have been better utilising his CGT allowance?

...

Trying to provide a steady income, if that is what he wanted, from capital growth is far from easy. There are 2 problems I see:

1) You continually need to decide what investments to sell - those which have done very well but could fall or those which have done badly but could be good bets for the future.

Making a decision takes expertise and effort - both of which are expensive. Always making the right decision is impossible as you dont know which areas are going to be successful in the future.

2) Looking at a capital growth portfolio as a whole - this will fluctuate in value. By taking a steady income you will be selling at times when all the prices are low, something which is not a good basis for successful investing.



Having separate growth and income components means that monitoring can be much more intermittant. The income components can be relied upon to provide a fairly steady income without the need for tinkering. All that is required is a review and rebalance between the components say on an annual basis.

darkpool

I think the lesson here is to consider an IFA as a salesman - not an adviser.

dunstonh

I'm pretty sure this isn't mentioned in the record of the meetings. He wasn't that old either at the time (mid 50's) so i'm not sure it would have been a factor?

Its not allowed to be mentioned. If it is, it then voids it as being acceptable. Its a consequence of the tax wrapper and using it for that purpose is seen as evasion rather than avoidance. In the 50s is a perfect age for it. You have to find a different reason for justifying it though.

This would probably be useful but wouldnt he have been better utilising his CGT allowance?

Possibly. IFAs have tax/charge calculators that work out the difference between the wrappers on a like for like basis. Typically you find there is often very little difference on a mix asset portfolio. High equity portfolios can be better on unit trust but high fixed interest better on bond.

I did a bond vs oeic calc last week for someone on a £135,000 investment (after ISA used for this and next tax year) and the difference after 10 years was just £189 assuming basic rate on encashment.

From the view of income provision, this would have required consistent reviews and record keeping and submitting of annual returns on UTs. The bond doesnt have any of that. Plus, the ability to defer income tax if higher rate tax is possible during the period makes the bond potentially more suitable.

Doesn't seem like the investment i would have taken out in the circumstances though.

The fund choice seems reasonable. So, that just leaves tax wrapper differences. So, are you saying you wouldnt invest at all or just wouldnt use that tax wrapper, even if it was the right thing for you?

jem16

Texas_Pete wrote: »

He wasn't in the higher tax bracket when this investment was taken out.

How close was he to it though?

Dividend payments from the investments are counted as taxable income and could well have pushed him into it.

Any likelihood of Inheritance Tax being an issue?

What exactly does it say in the Suitability Report regarding the reasons for choosing a bond? It's usually well documented.

CleverWithMoney

Darkpool : Not all IFAs are the same. Some of us take the Adviser bit of IFA very seriously and have the qualifications to prove it. I hope that Texas Pete and his Dad will not be put off using an IFA in the future.

Most investment bonds are segmented (think of an orange) so an £80k investment could have been set up as 80 segments of £1000. Doing it this way can sometimes help to reduce the tax bill by cashing in some segments rather than making a withdrawal from the whole investment.

agrinnall

FaithSmith wrote: »

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Texas_Pete

dunstonh wrote: »

Not on what you have said. The IFA does not have a crystal ball. If your father said that money was not required for 10 years but then 5 years later decides he does need money then there is no way that IFA can be held responsible for that.

Also, the tax issue is largely irrelevant as bond has deferred higher rate tax rather than create a new tax.

I've no issue (easy for me to say its not my money) about the investment or its performance. The query really related to the tax wrapper.

dunstonh wrote: »

he could have taken 6% on UTs if he wanted. So, whilst 6% is very high by todays standards the figure doesnt suggest any potential for bias. Skandia Life was on the first providers to offer external funds and whilst they were never the cheapest, they were one of the best quality providers around at that time (not any more as the ex Selestia contract now owned by Skandia and rebadged as Skandia is better placed for that)

Would it have been possible for the IFA to charge 6% on UT's? That seems high when you look at the initial charges at places like H&L now.

dunstonh wrote: »

I cant see any wrong doing. He was a higher rate taxpayer. So, the ability to defer higher rate tax rather than pay each year is an advantage of the bond. The IFA cannot be responsible for a withdrawal made 5 years later.

He wasn't a hight rate tax payer at the time - I think he said his income was 25K in the meeting. I'm not sure what the higher rate then but would have thought 40K+?