Helping a friend - was her 75 year old mother given wrong advice

darkpool

lisyloo wrote: »

The buyer has to take some responsibility here for what they do.
They are a capable, competant adult and can't claim to be an entierly passive party if they've paid (for MANY years) and signed up to it.

100% agree with you there. If some mug goes to an IFA and insists on giving away 2% of his portfolio each year he type of deserves what he gets (or doesn't get )

Aegis

darkpool wrote: »

i have 300k in financial assets, if i went to an IFA he would either suggest i put the lots into Unit Trusts (annual fees 2%) or if he thought i looked really gullible he would suggest an investment bond (annual fees 3%).

Outright fabrication, please don't tell others what an IFA WOULD do what you clearly don't have a clue.

jem16

darkpool wrote: »

i have 300k in financial assets, if i went to an IFA he would either suggest i put the lots into Unit Trusts (annual fees 2%)

Or he could suggest a portfolio with funds ranging from 0.2%. Or he could even suggest keeping some as cash in NS&I. All depends on circumstances.

or if he thought i looked really gullible he would suggest an investment bond (annual fees 3%).

Most modern day Investment Bonds are able to use exactly the same investments as without the tax wrapper so charges will not be any dearer and in some cases may in fact be cheaper.

Someone who has £300k and is a higher rate taxpayer may well be better off using an Investment Bond as there is an immediate tax saving of 25% on dividend payments and no CGT of 28% to worry about.

so going to a professional would cost me 5k to 8k more a year than DIY.

Not necessarily and probably very unlikely.

Aegis

jem16 wrote: »

Or he could suggest a portfolio with funds ranging from 0.2%. Or he could even suggest keeping some as cash in NS&I. All depends on circumstances.

The comment about circumstances is spot on. An investment bond is generally only useful for pure investment purposes* where a client is already maximising their ISA allowance each year, utilising their capital gains tax exemption and in need of a supplementary income. It also helps if the client is likely to have a lower tax rate when they surrender the bond than when they contribute, as it's the tax rate at surrender that is applied, not the tax rate during normal operation.

* i.e. not considering its usefulness in inheritance tax planning matters

Most modern day Investment Bonds are able to use exactly the same investments as without the tax wrapper so charges will not be any dearer and in some cases may in fact be cheaper.

I saw one case recently where the bond wrapper charge coupled with the VAT exemption led to a net reduction in charges by using an offshore bond rather than an increase.

It's worth noting that investment bonds can't use the exact same investments, as there are rules against using "highly personalised investments", which restrict access to direct equities, bonds, gilts, commodities, etc. Of course, all of these can be accessed through unitised investments, including trackers if passive investments are selected.

Someone who has £300k and is a higher rate taxpayer may well be better off using an Investment Bond as there is an immediate tax saving of 25% on dividend payments and no CGT of 28% to worry about.

It's worth noting that it's not a tax saving, but a tax deferment. If that person is still a higher rate taxpayer in retirement, they may end up paying more tax in the long run (i.e. 40% on rolled-up gains rather than 28% on gains and 25% on dividends). This is where the flexibility to pass the bond to other people without triggering a chargeable event is very useful. A higher rate taxpayer can run the bond and benefit from the tax deferment, then they can pass it to someone paying a lesser rate of tax to surrender the bond. Usually this is a spouse, which nicely avoids inheritance tax issues on the transfer.

In short, it's a lot more to think about than just "if the client's gullible, investment bond". There are some major advantages to a good offshore bond and the fees can be very good value, especially with larger investments or with those made within a platform or wrap.

jem16

Aegis wrote: »

It's worth noting that investment bonds can't use the exact same investments, as there are rules against using "highly personalised investments", which restrict access to direct equities, bonds, gilts, commodities, etc.

Thanks for pointing that out with more detail. I really should have worded my reply better as I meant exactly the same investments as the Unit Trusts darkpool was going on about.

It's worth noting that it's not a tax saving, but a tax deferment.

Agreed. Again my bad wording.

dunstonh

i have 300k in financial assets, if i went to an IFA he would either suggest i put the lots into Unit Trusts (annual fees 2%) or if he thought i looked really gullible he would suggest an investment bond (annual fees 3%).

You talk out of your backside.

And yet again, you take another thread off subject with your anti-IFA ranting. This thread has nothing to do with IFAs.

JohnRo

darkpool wrote: »

i have 300k in financial assets....

so going to a professional would cost me 5k to 8k more a year than DIY. tbh i don't spend an "extraordinary" amount of time looking after my investments.

Strange, your numbers just don't add up in my experience.

Seems to me, having read a few of your posts, that you're just making stuff up, and for what it's worth I do not believe you're being truthful about the amount of time you spend fretting over your investment perfection either.

darkpool

JohnRo wrote: »

Strange, your numbers just don't add up in my experience.

Seems to me, having read a few of your posts, that you're just making stuff up, and for what it's worth I do not believe you're being truthful about the amount of time you spend fretting over your investment perfection either.

ehhhmmmm ok, you disagree with my 2 and 3% assumptions?

JohnRo

darkpool wrote: »

ehhhmmmm ok, you disagree with my 2 and 3% assumptions?

Yes, you claimed that an IFA advised portfolio, all things being equal, will be 2-3% more expensive than DIY, each year.

I do not see how anyone could agree with that assertion. My experience most certainly doesn't.

darkpool

JohnRo wrote: »

Yes, you claimed that an IFA advised portfolio, all things being equal, will be 2-3% more expensive than DIY, each year.

I do not see how anyone could agree with that assertion. My experience most certainly doesn't.

my buy and hold portfolio has charges of about 0.1% a year. we all know the typical active UT has a TER of 1.7% plus dealing charges. So it's safe to say most UTs will have charges more than 2%.

we've also seen a poster here say the charges on her investment bond was 3%.

how much do you pay in charges?