Early retirement - should i use an IFA?

jamesd

dunstonh wrote: »

It should be noted that internet posters do not carry liability for their comments and measure risks in different ways to IFAs. The IFA does carry the liability and it would be them you complain to if something goes wrong. It is the IFA that pays the bill for putting it right. Not internet posters.

Right. And that clearly does affect the business that financial advisers are willing to do, not necessarily only because of customer interest but because of their own risk.

dunstonh wrote: »

The use of illiquid options and non-mainstream investments without FSCS protection typically results in upheld complaints at the FOS for investors that have no indication of knowledge or understanding of those types of investments.

That's a problem for an IFA alright. Though do note that the only necessarily illiquid things that I mentioned were annuities and deferring the state pension.

dunstonh wrote: »

FOS decisions indicate that they position VCTs as suitable for experienced investors and they measure them as higher risk than regulated mainstream options. They would expect the investor to have a history of using unregulated investments or have significant wealth of which unregulated investments would only form a very small part. They also expect the investor to be able to explain their VCT risks and how it works to a greater level of understanding than a standard life personal pension fund.

Also a problem for an IFA but that's again an option that they can explain to the person paying them for advice.

dunstonh wrote: »

Also, HMRC has said in the past that it will disqualify tax relief on EIS and VCT that are low risk.

Has that ever happened? All they do is ban new VCTs from using options that they consider to be not risky enough, so new ones can't use hotels but old ones that bought hotels when they were allowed are fine.

dunstonh wrote: »

Look at the risks the Albion VCT lists.

(a) An investment in a VCT carries a higher risk than many other forms of investment.
(b) A VCT’s shares, although listed, are likely to be difficult to realise.
(c) You should regard an investment in a VCT as a long term investment, particularly as regards
a VCT’s investment objectives and policy and the five year period for which shareholders
must hold their ordinary shares to retain their initial income tax reliefs.
(d) The investments made by VCTs will normally be in companies whose securities are not publicly
traded or freely marketable and may therefore be difficult to realise and investments in
such companies are substantially riskier than those in larger companies.
(e) If a VCT loses its Inland Revenue approval tax reliefs previously obtained may be lost.

The VCT is liquid in fact with a buyback policy of 5% or so discount. The potential for a run on it exists that could force it to move to sell say the hotel.

dunstonh wrote: »

Whilst the regulator can be behind the times on some product options and that can lead to advisers being stuck between an out-of-date view and best advice, it is still worth noting the position of the FCA and the FOS.

Certainly is, but in many ways it's a constraint on IFAs suggesting options that their customers might well be happy to use if they were explained to them.

I don't have to worry about what the FOS might say so I can present options and tell people about them, then leave them to decide, or seek professional advice if they want to, as I expect to happen in this case.

Fretman12

Hi Playing with fire

The IFA was up front with the fees but I didn't take time to record them as I intended to take all that in later after completing the lifestyle questionnaire and consequent meeting. I also wanted to come on here to get some feedback on actually using an IFA as opposed to DIY or just going with the company I'm with Standard Life.

jamesd

dunstonh wrote: »

Just to follow on from that, the following is a snippet from a compliance company given to IFAs regarding VCTs. ....
So, you can see that it is wrong to criticise advisers who position VCTs as high risk when everyone that matters does too.

I think that people who might want 10% income from largely secured lending might matter a bit as well. The customers, that is.

VCTs vary in risk level. It's a simple fact and if a compliance firm and the FOS choose to ignore it that's unfortunate for customers who may be steered away from them by a financial adviser concerned about their own risk.

Of course this is a real problem for financial advisers, they have to operate a business and look to protect their financial interests as well.

jamesd

jem16 wrote: »

James I have to seriously question whether or not you have got considerably out of touch with the average person who is likely to seek advice from an IFA.

It's worth having a look at the first post in this topic to see what this potential client has done:

1. They have a high risk investment in BTL, possibly leveraged with a mortgage now or in the past.
2. They have at least some experience in investing because they have a pension pot of £180k
3. There's also some guaranteed income from the NHS and presumably state pension but my personal view is that it's on the low side and I'd like to see more guaranteed for life income eventually.

jem16 wrote: »

However I think you have to rein in a bit of that enthusiasm and consider that the average client is not on the same wavelength. To suggest that any IFA that does not immediately suggest state pension deferral, P2P and VCts is bad news is just plain wrong and could lead some people down the wrong path if they decide to DIY on the face of that.

I don't think that an IFA who does not immediately suggest them is a problem. But if they call themselves an IFA I expect them to be able to explain why they are not suitable and for reasons other than "my compliance firm says its too risky and that I'd lose a FOS case if you complained later".

I do recognise that it's a reality of life for IFAs that those complaints do show up even where a product has been perfectly explained and the client did understand.

I also expect that an IFA might simply choose to mention them only in passing where the person paying them for advice is clearly not a suitable candidate for their use.

jem16 wrote: »

I have a friend who has recently been in touch with an IFA to consider what to do with a private pension pot for her husband. I have mentioned state pension deferment as a possible option as, under the current rules, it is certainly a good investment. However despite Public Sector pensions and a good amount of savings, neither is interested in doing that. Drawdown has been explained by the IFA but again they are not interested.

I think that's fine. The options have been presented to them and they have made a choice.

jem16 wrote: »

Their reason - they want to sleep at night without worrying what is happening to a drawdown pot. To them the security of the guaranteed income for life - and yes it was explained that state pension deferral gave them that - was worth more than an increased income.

Also fine by me - their choice after being informed about their options. Some people will just want simple. A pretty high proportion of a financial adviser's customers. But not all, so I do also like to see those who do want more to be offered more.

jem16 wrote: »

If VCTs and P2P had been suggested they would have run a mile to be honest and never gone near an IFA again with the resultant possible worst option of DIY. For them this would have been wrong and I see them as pretty much your average IFA client.

I think that your expectation of their reaction is probably right. But here we quite often see people who are more interested in options.

jem16 wrote: »

I think it is certainly worth mentioning the various options to posters on here but to suggest that an IFA "can do major damage to your income and security" is taking it too far.

It's not that hard to see, just go to an IFA at state pension age and ask for an income and see if you're offered an annuity or state pension deferral with the money left in cash while you defer. Or both. Assuming normal good health today the deferral will pay more than twice the income of the annuity, for reasonable deferral durations, and I do expect an IFA to be able to work out the cash flow and transition at appropriate times.

I prefer to hope that an IFA would not turn a blind eye to deferral when that would result in higher guaranteed income for their customer.

Similarly, I hope that an IFA would be familiar with the research on drawdown strategies and could have a sensible discussion about them with suitable clients, while also having a sensible discussion about them with clients of lower interest or capability levels. What might be appropriate for a person with a BTL property and 180k pension pot is quite different from what could be appropriate for someone of much lower intellectual ability and interest. Finding the right balance in this is one of the potentially tougher challenges of being a financial adviser.

coyrls

jamesd wrote: »

10% income from largely secured lending

Might be a bit misleading: for funds raised from 6 April 2011, a VCT must have at least 70% by value of its investments throughout the year in shares or securities in VCT qualifying holdings, of which a minimum overall of 70% by value must be in ordinary shares which carry no preferential rights

jamesd

Playing_with_Fire wrote: »

I'm dubious about the IFA's claim about fees and returns. Yes it is true that you may do no better if you DIY, but it is also true that you may get eaten by a shark, or that you may win the lottery.

It's not that bad. Here are a few ways in which an IFA can genuinely save money or improve results:

1. Using IFA-only products where those have lower costs for the customer. Even after IFA costs these can have lower total cost than a DIY option.
2. Negotiating with providers. Particularly relevant for say annuities for those with health conditions.
3. Not negotiating but doing a proper health fact find so that their client gets all of the boosts to income that their medical conditions can provide for.
4. Still not negotiating, but knowing which providers consider which conditions and ensuring that those providers are checked.
5. Helping their clients to understand the investment options available and how they might fit into a full financial plan for their needs for the rest of their life, and for their inheritance objectives.

Most customers just won't know those things as well as a capable financial adviser and could benefit very substantially from taking advice.

There are plenty of other ways in which financial advisers can deliver very considerable value to their customers.

jamesd

coyrls wrote: »

Might be a bit misleading: for funds raised from 6 April 2011, a VCT must have at least 70% by value of its investments throughout the year in shares or securities in VCT qualifying holdings, of which a minimum overall of 70% by value must be in ordinary shares which carry no preferential rights

This particular VCT was established way before then and you can see its dividend payment history back to 1997 here. The list of investments held on 30 June 2015 is here. Notice how much of that hasn't been allowed for many years but was done using with the rules in force at the time of the investment. A person buying today still gets to own those older investments, even while the VCT itself needs to ensure that it follows all of the rules applying to it for new money.

Also quite a bit of cash then, not long after the time when money inflow timespan for this particular VCT had ended.

There are many VCTs that I wouldn't touch with a barge pole, particularly some of the ones specialising in technology startups, but this one has some properties that are quite interesting. Still definitely not for everyone or even most people, but worth knowing about so it can be considered and rejected if not desired.

jamesd

Fretman12 wrote: »

Thank you and very,very useful. I've printed this out for my next meeting which follows in a couple of weeks after Ive submitted the lifestyle section Ive been given. The process is: I fill this section in then they build a package with options. I,m OK to take this and either use them, another company or DIY. If I choose them they also have annual reviews for me. I can't remember all the costs but will nail this down at the next meeting and probably compare elsewhere along with service user reviews which I think are important.

Do also have a look at dunstonh's thoughts and see which of those you think apply to your interests.

The thing that struck me most about your situation is that you don't have a lot of secured for life income, so I'd be looking to do some state pension deferring once you get to a suitable age. Provided this doesn't conflict with your inheritance objectives.

We also don't know much about how your current projected income and that of your partner fit together and might meet your income needs or not. I don't think it applies to your situation based on what I've seen so far but some people who know that they will have plenty of income would do something like selling the BTL and buying an annuity then forgetting all about money and concentrating on getting on with living life.

Fretman12

Thank you. Must admit there's been more to this than I originally expected or can really understand but thanks to all for contributing I do appreciate your goodwill and experience.
I think my original hopes were to confirm if using an IFA for advice was sound and that any costs if I take them up are more or less along the lines of cost incurred if I just followed my current pension providers advice and stayed with them. I think that has been confirmed for me.

Just a note my rented house is not BTL but my old house which I almost own outright (15K outstanding mortgage).

I intend to discuss all the posts here that you all have very kindly taken time to write.

So again thanks to all this forum is an excellent resource.

jem16

Playing_with_Fire wrote: »

Paying someone 2% of your money every year doesn't guarantee or even make it likely that you will get better returns than DIY, but it will cost you 2%.

The only difference in cost between using an IFA and not using an IFA is the fee for the adviser and that is not going to be 2%. At the most it should be 1% and for many it will be 0.5%.

Any IFA who says they can certainly do better than DIY is lying to your face.

We don't know what context this was said in. If it was for an annuity it's more than likely to be correct as the fee for IFA will be less than the built-in commission cost for DIY.

I would never let anyone who didn't disclose their fees straight up manage my money because they sound too slippery.

IFAs must disclose their fees before any business is transacted.

Lastly, what car does the IFA drive? Do you want to pay for that?

What do you spend your wages on?