Financial Planner - Typical Charges?

jem16

Toki wrote: »

Okay, that makes sense, his estate will get back whatever is left if he dies then.

As would happen with any investment.

The fund is "Standard Life MyFolio Multimanager IV Life Fd"

Multimanager fund - that accounts for the higher charges.

Toki

Here is the response regarding the bond. Not sure its much to go on to be honest. There's no breakdown on how she came to the 0.11% figure.

You asked about the bond and whether your dad would be better just in collective investment, our research shows that the overall cost is reduced by 0.11% if the bond wrapper is used. The bond is a tax wrapper and as such your dad does not have to declare interest or dividends as in a collective. He will receive income or capital with no further liability to income tax or capital gains tax. Tax could only be an issue if he paid at the higher rate.


I am trying to provide your dad with tax free income therefore preserving more of his capital.

dunstonh

The bond is a tax wrapper and as such your dad does not have to declare interest or dividends as in a collective.

he doesnt have to in an Collective either unless he is a higher rate taxpayer. The bond have tax at 20% on gains but the collectives do not as they are subject to capital gains tax (where you have a £10k a year allowance). So, Collectives beat bonds in most cases for basic rate taxpayers.

I am trying to provide your dad with tax free income therefore preserving more of his capital.

Bonds are not tax free. Whilst some less honest types may an present them as such (banks were very prone to that and old school IFAs stuck the early 90s). It may be a typo by them when they mean no further tax liability rather than tax free.

jem16

Toki wrote: »

our research shows that the overall cost is reduced by 0.11% if the bond wrapper is used.

Ask to see the research and how it specifically applies to your Dad. She should be able to show the difference in costs between using a Bond and using collectives, within or outwith an ISA for that matter.

The bond is a tax wrapper and as such your dad does not have to declare interest or dividends as in a collective.

If this was an issue - which it's not as your Dad is nowhere near the age allowance reduction figure, never mind the higher rate tax band - putting half of the £20k into an ISA now and the rest in 7 months into an ISA next tax year would easily solve that problem.

I am trying to provide your dad with tax free income therefore preserving more of his capital.

To be pedantic, she is actually selling some of the capital as that is how the 5% "tax free" income is realised.

Toki

I'll go back to her and ask to see the research and to point out what you have said dunstonh.

It has taken her until now to get back to me. Should also have said, she wrote the following

"I shall leave the ball in your court and will not proceed any further with your dads investment until I am instructed otherwise, meantime I have sent an invoice to your dad for work to date and this invoice will be waived if he proceeds."

I haven't seen the invoice yet, but suspect it will be more than what it'll cost my dad to go ahead with her advice!! Will let you know what she comes back with. Thanks again.

bigfreddiel

jem16 wrote: »

What's wrong with using his ISA S&S allowance of £10.8k approximately and using unwrapped OEICs/UTs for the rest?

jem16 - the above advice sounds good to me, maybe you could tell us all how your S&S ISA and OIECs/UTs are doing right now, what sort of income/gains are you making and what are you invested in?

Just curious

cheers

fj

dunstonh

And come next April he gets a new £10,680 allowance and can "bed & ISA" by moving that money from the OEIC/UT into the ISA.

Toki

jem16 & dunstonh,

Got a little more information on where the 0.11% has come from.

The "Calculated Annual Charge that applies to your investment is 1.93%" for taking the SIPP along with the bond. The weighted average AMC for these 3 (1 SIPP, 1 ISA and 1 bond) is 1.18%, made up of 1.31% for the ISA, 1.29% for the SIPP and 0.7% for the bond.

If my dad doesn't take the bond, the weighted AMC increases to 1.29% according to the illustration. As the bond has the lower AMC, this takes the average AMC down, hence the charges decrease.

However, it's a bit misleading in my opinion. The bond also has a 3% initial fee equalling £600 plus the ongoing 0.75% commission. Still think what you are both saying is the better option, use the ISA allowance due to my dad only putting £20k in the bond anyway.

I don't have a breakdown in the comparison between these options and the collective however.

For your info, my dad will have to pay £1,250 if he decides not to go ahead with her advice.

dunstonh

Modern products have the same funds available across the tax wrappers at the same cost. There are some exceptions where some may be cheaper or more expensive (internal "own brand" funds may be cheaper but external mirror funds are usually more expensive). However, on a like for like basis, it shouldnt cost any more or any less if its in the bond, ISA pension or unwrapped.

Do you know what the fund in the bond is? I am going to guess it is an internal fund at 0.7% (managed funds from external funds tend to be closer to 1.5%. Tracker funds tend to be closer to 0.2%. Internal funds tend to fall between the two).

It just seems so weird to see £20k being put in an insurance bond. Its the sort of thing you typically see bank sales reps do. he isnt a higher rate taxpayer so he doesnt have to worry about higher rate tax being avoided. Its just £20k so he is never going to fall foul of CGT (would be nice if it did but with a £10k allowance and the ability to have it in the ISA long before that could it is never going to happen). So, why pay 20% extra tax on the bond which wouldnt be charged on the unit trust?

So, unless this is some rare fund that is dirt cheap and cannot be replicated in the unwrapped/ISA universe, then I still take issue with it.

Toki

dunstonh wrote: »

Modern products have the same funds available across the tax wrappers at the same cost. There are some exceptions where some may be cheaper or more expensive (internal "own brand" funds may be cheaper but external mirror funds are usually more expensive). However, on a like for like basis, it shouldnt cost any more or any less if its in the bond, ISA pension or unwrapped.

Do you know what the fund in the bond is? I am going to guess it is an internal fund at 0.7% (managed funds from external funds tend to be closer to 1.5%. Tracker funds tend to be closer to 0.2%. Internal funds tend to fall between the two).

It just seems so weird to see £20k being put in an insurance bond. Its the sort of thing you typically see bank sales reps do. he isnt a higher rate taxpayer so he doesnt have to worry about higher rate tax being avoided. Its just £20k so he is never going to fall foul of CGT (would be nice if it did but with a £10k allowance and the ability to have it in the ISA long before that could it is never going to happen). So, why pay 20% extra tax on the bond which wouldnt be charged on the unit trust?

So, unless this is some rare fund that is dirt cheap and cannot be replicated in the unwrapped/ISA universe, then I still take issue with it.

The bond info is in the links below, kindly provided by jem16.

http://library.adviserzone.com/wrapib17a.pdf

https://www.adviserzone.com/adviser/.../remuneration/