Advice please - first visit to IFA

florence22_2

Hello,

I am new to investing and would be very grateful for advice.

My background - early 30's, married with children. Combined household income (husband full time, me part time) of around 110k. Recently paid off our mortgage. No large expenditure imminent. Can live comfortably and make savings on our current income. We have pensions.

I have been given approx 300k in cash (gift). I understand the inheritance tax implications of this. We don't need the income from this - would prefer to go for capital gains to "protect the pot of money."

I have been to see an IFA. He advised putting all into a Unit Trust (with an ISA wrapper). The choice of Unit Trust would be based upon the level of risk I was prepared to take... The fee is £1200 for the "research and report making" then 3% of the invested money, then ongoing 1% per year. Is this a typical fee? Should I shop around? Seems like I would need to make a fair bit of interest to cover the fees, but then I don't have the knowledge needed!

Having come away from the preliminary discussions, I think I would be more comfortable with a proportion of the 300k in a savings account (= safe, even if its not keeping up with inflation) than "risking" the whole amount on the stock market. Having said that I am pretty level headed / laid back and would be prepared to take a long term approach and not panic in volatile periods.

Advice or suggestions welcomed!

kidmugsy

florence22 wrote: »

I have been given approx 300k in cash (gift)... would prefer to... "protect the pot of money."

I have been to see an IFA. The fee is £1200 for the "research and report making" then 3% of the invested money, then ongoing 1% per year.

Run a mile. Ludicrously expensive, and I don't think much of his advice either - the whole lot in a single unit trust? Pah!

Aegis

florence22 wrote: »

Hello,

I am new to investing and would be very grateful for advice.

My background - early 30's, married with children. Combined household income (husband full time, me part time) of around 110k. Recently paid off our mortgage. No large expenditure imminent. Can live comfortably and make savings on our current income. We have pensions.

I have been given approx 300k in cash (gift). I understand the inheritance tax implications of this. We don't need the income from this - would prefer to go for capital gains to "protect the pot of money."

I have been to see an IFA. He advised putting all into a Unit Trust (with an ISA wrapper). The choice of Unit Trust would be based upon the level of risk I was prepared to take... The fee is £1200 for the "research and report making" then 3% of the invested money, then ongoing 1% per year. Is this a typical fee? Should I shop around? Seems like I would need to make a fair bit of interest to cover the fees, but then I don't have the knowledge needed!

Having come away from the preliminary discussions, I think I would be more comfortable with a proportion of the 300k in a savings account (= safe, even if its not keeping up with inflation) than "risking" the whole amount on the stock market. Having said that I am pretty level headed / laid back and would be prepared to take a long term approach and not panic in volatile periods.

Advice or suggestions welcomed!

Over £10,000 for the initial structuring and then £3,000 a year for ongoing support strikes me as too high by far. You can definitely do much cheaper.

gadgetmind

florence22 wrote: »

He advised putting all into a Unit Trust (with an ISA wrapper).

You can't put all of that sum into an ISA in one go so there must be more to it than this.

The choice of Unit Trust would be based upon the level of risk I was prepared to take.

Did he explain what "risk" means or just ask a load of rather odd questions, press a few buttons, and tell you what level came out?

The fee is £1200 for the "research and report making" then 3% of the invested money, then ongoing 1% per year. Is this a typical fee?

You can buy a unit trust for 0% up front and around 0.75% pa ongoing. For the sum you have, you could spend 0% up front and pay <0.3% pa ongoing, but you'd need to go DIY for this.

Seems like I would need to make a fair bit of interest to cover the fees, but then I don't have the knowledge needed!

That you use to word "interest" suggests that you don't. A book that could increase your knowledge 50x would cost £15. Are you prepared to spend this amount of money and time?

Having said that I am pretty level headed / laid back and would be prepared to take a long term approach and not panic in volatile periods.

So, how do we square this with you wanting to keep a lot of this money in savings accounts?

I don't think you really understand your goals or *real* attitude to risk.

Archi_Bald

£1,200, then 3% upfront and 1% p.a. sounds exceedingly expensive. You most likely will need to add the annual costs of the fund as well as the platform costs on top of the IFA fee - it seems to all get quite out of hand, costwise.

Also, if the lot goes into a single Unit Trust, how could the IFA possibly justify the fees? Might be a big misunderstanding - as the suggestion of an ISA seems to be. You can only put £15,000 a year into an ISA. So it would take 20 years - assuming the annual ISA allowance remains for that long - to put £300K into an ISA. 10 years if you and your partner share the £300K.

If I were you, I would put the £300K into an NS&I Direct Saver for now, so the money is safe for the time being. You can then do your research and decide what to do with the rest. Some random ideas from me:

• keeping some cash (emergency fund, 6-12 months living costs) is a good idea
  
  
• S&S ISA is a good idea but you are limited to £15K per annum
  
  
• you can probably add additional funds to your pension / start a SIPP
  
  
• the rest can go into unwrapped investments that you can gradually move into your S&S ISA
  
  
• ask a couple of other IFAs for their initial proposal (note that none of them will tell you their full plan until you have agreed to use their service)
  
  
• it is not hard to DIY if you are prepared to do a bit of research to start with, and then rebalance your portfolio once a year or so subsequently. Start by reading this article on monevator.com
  
  
• How about investing some tax efficient money for your kids? Do they have CTFs, JISAs? Each would qualify for £4K annual CTF/JISA allowance (CTFs are a bit obsolete now, and will be completely obsolete next April, but JISAs are still good). You could even think of starting pensions for your kids.

florence22_2

Thank you to all of you who have taken the time to respond - I appreciate it very much.

I am a total novice to investing (as you are all only too well aware) which is why I approached an IFA. I have also bought several books on the subject which I am wading through but am far from enlightened..... I will keep reading.

I have only had the preliminary discussions and didn't sign on the dotted line as I was unsure about the fees and felt I needed to research that area further. I understand that the IFA would not "reveal their hand" until the full fee is paid.

I have double checked the literature and the fees are as I stated earlier - although I think you get the £1200 research fee back if you go ahead with the recommendations (ie pay the 3% on the investment value).

I obviously don't have the full recommendations yet - but I did ask about other investments and a Unit Trust was the recommendation. I asked about investing my 15k in a Cash Isa I had seen and was told that they would recommend putting the 15k Isa in the same fund as the Unit Trust but with an "Isa Wrapper." I am probably using the wrong terminology but I understand that the ISA is a max of 15k per annum.

Children investments were not discussed at this stage but I will look into these further.

I have split my funds into 85k cash savings to be protected short term whilst I understand my situation better!

Thanks again - I will look into your suggestions further, and thank you for being so helpful to a complete novice.

gadgetmind

florence22 wrote: »

I am a total novice to investing (as you are all only too well aware)

We all were, once. I didn't really start learning the ropes an taking control until around 10 years ago. I wish I'd done it sooner!

But the more you learn, the more you realise how simple it really is, which is very different to many other disciplines.

I have also bought several books on the subject which I am wading through but am far from enlightened..... I will keep reading.

Which books, out of interest?

I understand that the IFA would not "reveal their hand" until the full fee is paid.

I remain to be convinced that there is a winning hand behind the fee in this case!

I have split my funds into 85k cash savings to be protected short term whilst I understand my situation better!

Very sensible. You don't exactly want to be rushing into current markets, but neither should you sit in cash for years.

jem16

florence22 wrote: »

I have double checked the literature and the fees are as I stated earlier - although I think you get the £1200 research fee back if you go ahead with the recommendations (ie pay the 3% on the investment value).

£9000 for initial advice is still way too high. Try and meet with some other IFAs as you should be able to do a lot better. On £300k a fixed fee should be better for you.

I obviously don't have the full recommendations yet - but I did ask about other investments and a Unit Trust was the recommendation. I asked about investing my 15k in a Cash Isa I had seen and was told that they would recommend putting the 15k Isa in the same fund as the Unit Trust but with an "Isa Wrapper." I am probably using the wrong terminology but I understand that the ISA is a max of 15k per annum.

I think the main problem is that the IFA has probably been talking in very much generic fashion and that unit trusts may be used as opposed to a single unit trust.

It may of course be possible that the IFA would plan to use a multi asset fund as opposed to building a bespoke portfolio as you don't have much in the way of investment experience and an IFA has to take this into account.

However whatever the conversation was about, it's still far too expensive.

I have split my funds into 85k cash savings to be protected short term whilst I understand my situation better!

Thanks again - I will look into your suggestions further, and thank you for being so helpful to a complete novice.

Sounds very sensible. Take your time and make sure you're happy with the decisions and costs.

dunstonh

Some IFAs charge a lot. Some charge a lot less. The expensive ones expect not to get as much business but then they dont need to as they can earn the same as lower cost ones but do quarter of the workload. This one is expensive.

bigadaj

OP, it would be perfectly reasonable to ask the ifa to justify his fees, though the fact he's tried this approach means there is really a breach of trust in his approach anyway. Financial advice is no different to many purchases, shop around and see a few people, you can haggle their fees but you also want to deal with someone you like and trust.

The ifa should be able to justify his fees in time really, and whilst hourly rates are often high, say £150-£200 an hour, then £9k means he's suggesting spending a week and a half of his time in setting this up, and then a couple of days a year reviewing which is hugely excessive. Percentage fees are ok on smaller amounts but not larger ones, it doesn't really take a lot more to manage a larger sum than a smaller one, which unfortunately means a large fee in percentage terms for those with small sums, but that's life.

bigadaj

dunstonh wrote: »

Some IFAs charge a lot. Some charge a lot less. The expensive ones expect not to get as much business but then they dont need to as they can earn the same as lower cost ones but do quarter of the workload. This one is expensive.

Do you think there is ever justification for the approach noted here?

There's obviously an argument for shopping at waitrose rather than lidl or buying a Mercedes rather than a Kia, but very difficult to demonstrate any value in cases like this. I suppose if the OP was after something unusual or specialist then it could be partially explained, but those are rare cases.

Just strikes me as an incredibly unprofessional approach.