A very large sum - where do I start?

Flynn_2

To keep it very simple my/our savings are in a horrible mess.

We've got funds of around £600,000, not including pension fund, jointly owned with my wife and over the last 7 years or so just it hasn't been managed because we've had other priorities. A huge chunk is in cash and I'm also totally out of touch.

What should be our first step?

PoorDave

Take the cash part out in £20's and roll on the floor in it?!

What are you looking for? Growth? Income? Security? Low risk? High risk?

Do you have a will? If not, that would be high on my list

Flynn_2

PoorDave wrote:

Take the cash part out in £20's and roll on the floor in it?!

We do that every Saturday night.

I think what I'm asking is should we be looking for a financial adviser and if so how? The last time we saw a couple of leading stockbrokers years ago they were both pretty useless. One just wanted to put the money in equities on a fairly random basis and the other wanted us to put the lot in their in-house zeros based on hyped waffle that even I saw was rubbish. Are they all as bad?

dunstonh

I think what I'm asking is should we be looking for a financial adviser and if so how?

Answer these yes or no.

Do you know what your risk profile is?
Do you know what investment tax wrappers you should be using?
Do you know how to build an asset allocated investment portfolio to match your risk profile and goals?
Do you know what investments to use within the asset allocated portfolio?
Do you have any external tax issues which would influence the tax wrapper being used?

If you dont know the answers to those, then you either need to do a heck of a lot of learning and research or you need to get an investment specialist IFA or investment manager. That isnt a tied adviser from the bank or an IFA that deals mostly in mortgages. You need one that is an investment specialist.

The last time we saw a couple of leading stockbrokers years ago they were both pretty useless. One just wanted to put the money in equities on a fairly random basis and the other wanted us to put the lot in their in-house zeros based on hyped waffle that even I saw was rubbish. Are they all as bad?

You saw stockbrokers. Not advisers.

GUMPO

You have a huge wad of cash and have been "out of touch" for some time.

Are you an armed robber?

jamesd

First step: make sure it is in interest-bearing accounts paying at least 4%, better 5%. If it's in current accounts, open the associated savings account and move it.

dunstonh mentioned investment specialist IFAs and investment managers. Either of those professionals will cost you some money in fees but should deliver you more in increased returns on the money to offset their cost. That's particularly true if you don't want to manage the money yourself.

With your level of funds to manage, an IFA following the NMA payment model would be quite likely to charge you nothing up front, rebating initial commissions to you or your fund, and finance ongoing management of the money 50% or more from annual commissions on the investments. And that gives this type of IFA some incentive to help your money grow so they make more money from the increased value. Charges would vary depending on things like location and services offered.

EdInvestor

Flynn wrote:

To keep it very simple my/our savings are in a horrible mess.

We've got funds of around £600,000, not including pension fund, jointly owned with my wife and over the last 7 years or so just it hasn't been managed because we've had other priorities. A huge chunk is in cash and I'm also totally out of touch.

What should be our first step?

How old are you?

Do you need income from this money or is it for long term investment/retirement?

Do you have adequate property already?

What about family issues/future spending?

It's really hard to make any useful suggestions knowing so little about you.

Flynn_2

James, does NMA mean New Model Advisor and if so, what is the model and where should I look for an IFA following it? What questions should I ask? Apart from a few thousand, all the cash is in accounts earning 5% AER. A smaller proportion is in a mish-mash of shares and PEPs.

I realise it's probably a fairly unusual postion. The fact is our income has always been more than we needed and worrying about money has been at the bottom of our priorities. We've got enough even if we just stuff it under the mattress and it's just not an interest. We've got a house also worth about £600K with the mortgage paid off many years ago but no other property and we'll both be retiring soon. Our pensions alone will probably be as much as we need and it's likely most of our savings will eventually go to a couple of charities that are important to us.

dunstonh, I could answer those questions but I can't be sure if I'd be right. Ed, we don't really need income unless we make an effort to change our habits when we retire but we don't really need capital growth either. I guess complete flexibility would be the preference so that we can go in whatever direction we choose.

dunstonh

NMA is New Model Adviser. I work on this basis but the number of advisers that do is small. We can only guess at the numbers but its got to be around 10-15% of all IFAs.

Citywire, the site that is often linked here publish a weekly paper called New Model Adviser and there are profiles on firms in there every week who operate on NMA basis. There hasnt been a week without a profile and it averages 4 a week.

Old model advisers typically take full commission up front and work on a transactional basis. In other words, they only get paid when they do an application for new business. New Model Advisers get paid ongoing with a reduced amount up front. The model isnt dependent on obtaining new business but retaining existing business and getting it to grow with investment returns.

There is pressure on firms to move to new model basis and under TCF (new FSA requirements) firms have to show that they are not reliant on transactional business. A number are going to have a problem with that and the FSA has just fined it's first company for failing a number of TCF requirements.

The old model isnt seen as sustainable although salesforces rely on it. For example, you have an adviser that sells 100 policies this year and gets paid up front for each one. He has now run out of clients and needs to pay his mortgage and get his sales targets.... its now getting desperate so what is he going to do? Churn for the sake of churning? Do what little business he has using products that pay that little bit more? Hopefully not but in reality we all know it happens.

The NMA adviser is paid 0.5% of the funds under management. So, they get a constant income stream. There is no pressure to sign up new business but you focus on what you have and you maintain that. I have found that just being an NMA generates it's own referrals and introductions from other clients giving the company investment return growth as well as new funds. I have heard the same from other NMA firm owners/directors I speak with.

Typically, commission to an old model adviser would be:
4% plus 0.5% p.a. or the adviser can roll up 4 years of 0.5% upfront to give them 6%. Some go as high as 7.5%. It doesnt matter what option they choose as the charges to the client are the same. That roll up of commission doesnt mean the 0.5% starts later. It wont. The provider keeps it for themselves.

NMA basis would always take the 0.5% and typically work on a single rate of 1 or 2% upfront regardless of the product or type. So, that level allows for discounting, making NMA cheaper than old model and it means the adviser is getting paid ongoing to allow for servicing. It also means that they will be paid the bulk of their income on the basis of investment performance.

This is also means that NMA advisers tend to be of higher quality when it comes to dealing with investments. After all, their income is very much tied to the performance of your investment. The old model adviser isnt paid on what it performs by.

So, everyone with investments and needing advice should be seeking out either an investments manager or a NMA IFA. Problem is that they are the minority type of adviser so it is harder to find one.

cheerfulcat

Flynn wrote:

I realise it's probably a fairly unusual postion. The fact is our income has always been more than we needed and worrying about money has been at the bottom of our priorities. We've got enough even if we just stuff it under the mattress and it's just not an interest. We've got a house also worth about £600K with the mortgage paid off many years ago but no other property and we'll both be retiring soon. Our pensions alone will probably be as much as we need and it's likely most of our savings will eventually go to a couple of charities that are important to us.

Why not give it away now, then? If you don't need the money, and you aren't interested in it, you could invest it for income and donate that to the charities of your choice.

EdInvestor

Indeed, there doesn't seem to be any point in bothering about it, if it's all on at 5%, just leave it where it is. You wouldn't be the first well-off people who keep their money in cash.

There's no need to feel guilty about it.