How to choose an index tracker

harshanl

My dad (a non-UK resident) foolishly went to his bank (Barclay's) for advise on how to invest £30,000 over 5 years. They unsurprisingly recommended one of their own products: Asian Guaranteed Equity Account.

I've managed to persuade him to hold off for the moment.

My questions are:

1)What do people think of Index trackers in general?


2)How does one get good independent advice wrt this kind of product? He would like to guarantee the capital, minimise fees and maximise tax efficiency, and is prepared to put the money away for 5 years.

3)Is an IFA good for this kind of comparison? How independent would they be in recommending a better product which pays a smaller commission?
All advice welcome.
Thanks,
Harshan

dunstonh

1)What do people think of Index trackers in general?

Cheap but usually mid table performance in the sector you invest in.

2)How does one get good independent advice wrt this kind of product? He would like to guarantee the capital, minimise fees and maximise tax efficiency, and is prepared to put the money away for 5 years.

Sounds like he wants a GEB but they are awful products. He needs to have this discussed in more detail as his criteria basically is restricting him to poor quality products. Something has to give. Why does he want exactly 5 years? Most people have no defined timescale. Is he spending all the money in 5 years? Will it have a change of purpose or will he just be doing the same thing in 5 years time?

3)Is an IFA good for this kind of comparison? How independent would they be in recommending a better product which pays a smaller commission?

An investment IFA would be fine. No point going to a corporate IFA or a mortgage IFA. Agree the fee in advance then you dont have to worry about
any perceived commission bias. The fee can be offset by commission so if you agree say a 1% fee, then that can be paid either by cheque or taken from the investment (if explicit commission) or deducted from the commission (if implicit commission) with surplus rebated.

As a non UK resident, is he an ex pat? If so, thats not a problem but if he is not, an IFA (or any typical adviser) is not the option he should be looking for.

harshanl

Sounds like he wants a GEB but they are awful products.

Why are guaranteed equity bonds awful products?

He needs to have this discussed in more detail as his criteria basically is restricting him to poor quality products. Something has to give. Why does he want exactly 5 years? Most people have no defined timescale. Is he spending all the money in 5 years? Will it have a change of purpose or will he just be doing the same thing in 5 years time?

Doesn't have to be exactly 5 years. Would prefer some security: how much more interest is there to be gained by risking the capital?
As a non UK resident, is he an ex pat? If so, thats not a problem but if he is not, an IFA (or any typical adviser) is not the option he should be looking for.

He is a Sri Lankan Citizen who has UK savings from having worked here in the past. Savings are currently under my name. Why would an UK IFA be inappropriate to advise on investment? Would he have to pay tax on any interest earned?

Thanks,
Harshan

dunstonh

Why are guaranteed equity bonds awful products?

1 - Tracks the worst index in the western world (FTSE100)
2 - No dividends
3 - Averaging of the index
4 - Currently, you get less than 100% of the FTSE performance on most.

The cost of the guarantees is too much.

He is a Sri Lankan Citizen who has UK savings from having worked here in the past. Savings are currently under my name. Why would an UK IFA be inappropriate to advise on investment? Would he have to pay tax on any interest earned?

He is a non UK National and not UK resident. He will fall outside the scope of advice that most advisers will operate under. For example, wherever he his, is an IFA going to know what products are available in his country of residence? Would the IFA know the tax rules of the country in question? He would also have no FOS protection. Because of this most firms will not transact in this area.

UK nationals who are non-resident are fine (although many firms exclude US and Canada for legal reasons)

Also, there are potential money laundering issues here. The money is in your name but belongs to a non UK national who is not resident..... The risks are too great to the adviser.

Jonbvn

harshanl wrote: »

He is a Sri Lankan Citizen who has UK savings from having worked here in the past. Savings are currently under my name. Why would an UK IFA be inappropriate to advise on investment? Would he have to pay tax on any interest earned?

Since the money is in your name, then if you pay tax, then the return on the money will also be taxed.

To simplify things, I would suggest that you take a look at Index Linked Savings Certificates. They are tax-free, and you can save up to 15k per issue per person (you could get 15k each for you & your father).