Help with investment options?

rOAdeh

Hi guys,

I'm fortunate enough to have inherited £180k recently, but am struggling to know what to do with it. I'm 27 but currently living in Australia and earn comfortably more than what I live off out here, hence have no desire to move it. I expect not to return to the UK (on a resident basis) for several years, although this timeframe will almost certainly involve some travelling, when I have no/little income. I intend to have no need for the money during this time as my savings here should be sufficient. I also have no other debts (aside from a few grand on a student loan), but would like to pay off the remainder of my mum's mortgage (~£60k) using either the capital, or some of the proceeds.

I was settled on buying a couple of new developments in the UK and using an acquaintance's company to provide a mortgage and agency service. They have provided some useful advice on maximising the tax benefits from my non-resident status (especially when it came to paying off my mum's mortgage). However, I'm somewhat skeptical of some of the figures they have quoted on the returns for this property. In addition, a relative (who works as a surveyor) has confirmed that they are surprised they are not suggesting that I diversify more outside of property. Having read around, the UK property market does seem somewhat stagnant currently, so I am not sure investing entirely in something as illiquid as property is prudent, especially since agents will require a significant cut.

I'm young enough to be open to a reasonable amount of risk, though ideally I'd like something that I could access in say 5 years, in case I wish to buy my own house by that point. I know the next logical step is an IFA, but there's such conflicting views on their value, that for someone in my position (as an unusual case, given I'm an ex-pat), I don't know how much I should rely on them.

At worst, I guess I'm here prepared to listen to any suggestions, so at least I can sound them at any potential IFA and see how they react. Any help would be greatly appreciated!

Thanks,

R_P_W

Hi - I think in the meantime put the funds in savings accounts (split in a way so that you are fully protected). Don't feel to rushed into doing something with it as the pressure will probably cloud your better judgement.

As you say you have found yourself in a very fortunate position and can understand you want to make the most of it.

Paying off your mum's mortgage is a very nice gesture that will give her some additional surplus income, take some of the pressure off and allow her to enjoy some of the finer things in life. Something I think we would all do for our parents if able to.

So if for example you paid off the mortgage and put aside say 10k for your own use (i.e. holiday, travelling). You will have £100k left - dont rush into anything though - i think most people would advise whatever you do that you spread your risk, so dont put it all into property in the UK, maybe split a portion off for that, some for cash savings and some for shares.

jayship

Property unless you can buy it at a very reasonable price would be a good investment for part of your inheritance. However u need to do your homework if u r nvesting outside the M25 as prices can vary considerably and making decisions from Australia is not a good idea.

So many investors have had their fingers burnt and are unable to off load their investment without taking a loss. I may be pessimistic but others on the forum with experince will soon put it right.

rOAdeh

Thanks guys; I thought that might be the recommendation. Is there a way on unbiased to find an IFA who knows about dealing with ex-pats? I guess those who specialise in off-shore banking might be more clued up?

rOAdeh

Hi guys,

Having spoken with an IFA, I just want to check if these sorts of fees are standard? Seems quite high to setup a portfolio, given the amounts involved?

As a guide, we would charge an agreed flat fee on amounts up to £20,000, with roughly 3% up to £100,000, then 2% on the next £100,000. Higher amounts would be at a lower rate overall. For ongoing reviews we take 0.5% per annum typically. More often than not this is covered by fund manager rebates to us, so no extra charge possibly. On the investment side, I do think it is an ongoing relationship, not a one off transaction (5 years + for you), so that I think is important. To put this in to context, if you directly buy funds the initial charge on equity funds is normally 5.0-6.5% and they retain the 0.5% rebate we would receive (at least that’s in the UK) with no advice being given either at outset or ongoing.

Can anyone provide any insight?

Thanks,

Ben

grey_gym_sock

i think those are fairly typical charges for IFAs, though other posters will know more about it than me.

however, the suggestion that you would pay as much or more if you bought funds directly is a bit misleading.

not all funds have such high initial charges and on-going rebates. and for those that do, if you were happy to pick funds yourself, then you could buy them via a discount broker, instead of directly from the fund management company, which could reduce the initial charge to (close to) 0 and get the whole 0.5% on-going rebate repaid to you.

also, the 0.5% rebate is due to be abolished for new investments from next january.

so basically, the IFA's charges are not something that you'd pay anyway if you do it yourself - unless you do it yourself and do it very badly. they're charges for advice, so pay them if you think the advice is worth it.

jamesd

Those amounts are reasonable particularly given your non-UK residence status.

Paying off your mother's mortgage could be a bad idea unless it has an unusually high interest rate. You can get more than current UK mortgage rates from investments so it may be more efficient to pay her the amount of the mortgage payment and let her keep the mortgage. Depends in part on your tax situation.

Remember to give due consideration to your Australian income tax position. Be sure that the IFA you're hiring is considering that.

It is no longer usual in the UK to pay any initial charge for funds, with uncommon exceptions like the Vanguard funds, some of which charge several years worth of annual charges up front. Normally for the amount you have you would want to agree a fixed fee, not a commission, and have the IFA place the funds on a platform where the commission is never charged or where it is rebated to you, not the IFA, possibly via the IFA. Something like the Skandia Collective Investment Account but there are many others. That one happens to have a charging model- the fund commission - that is being made obsolete soon, so you might want to ask the IFA about unbundled products that are RDR complaint and the IFA paid by flat fee.

rOAdeh

Thanks jamesd; that's a very helpful post. Aiming to have a discussion with the IFA in the next few days..