What will a financial adviser do for me?

Skibunny40

What about making a few "free initial appointments" with various FA/IFA's?

I did this when I was starting out, and gained more/different information and understanding which each person I talked to. I also finally found an IFA I got on with and trusted - some of them might have been fab at their job, but I just didn't like them. I know many will say that shouldn't be relevant, but it was for me.

Jon_W

bowlhead99 wrote: »

Yes you could do that by going back through the thread and writing them down (as many of them have been laid out above, or are implicit from what has been laid out above), or using google to search for pros and cons of the different options.
Why do you need to list in advance the pros and cons of the different options? The IFA will already know the pros and cons of the different options, so you don't have to teach him what they are. He can tell you in the meeting what the pros and cons are, and ask you which ones you consider most important, to help you establish what is best for you to do.
Wouldn't the answer be "I don't have any provision for my retirement, and would like some assistance understanding the options available to me and putting a plan in place using the money I have available and new money coming available to me in the future, which would result in me building up a portfolio of suitable investment funds using appropriate tax wrappers to meet my objectives."

Then the IFA's question would be "So what are those objectives then", to which you will probably say something inane like "I want money in retirement but not sure when or how much, but as much as possible please, that costs me as little as possible now". Then the IFA will say OK that's what everyone wants but let's explore more about your needs and objectives and what might be realistic and what the priorities are and how we could best accomplish that.

None of that requires you to know what all the different wrappers are. You can just say "I have heard of pensions and ISAs and now LISAs but I'm afraid I don't remember the pros and cons of each or how they might best be used in my plan, but hopefully you understand them don't you Mr or Ms IFA?" And he/she will say that first we need to work out what the objectives are and then we can decide broadly the types of assets which might be used to meet them and what if any of the major tax planning opportunities we should use to get there.

Once you've decided what the objectives are. If you are going to an IFA they will walk you through the process and advise on the funds and tax wrappers. You only need to do the structuring and fund picking yourself on a DIY basis if you want to do it DIY and not advised.

If you are going to decide your structure and tax wrappers and funds for yourself then you won't need an IFA because you will have already found the answers yourself. Of course, if you're not confident that the answers you found are the right ones you can meet an IFA and do a full fact find and pay the IFA to work with you to come up with the plan of how they would have done it, which will either help validate that your choice was OK or give you an alternate path to follow if you are more convinced by their plan than yours.

I want to know the basics before I meet an IFA so I can get the most out of the meeting: if he is explaining the basics to me, which I could learn from this thread, then it's wasted time for both of us to a degree.

I like your model responses that I could (will!) use though, so cheers!! :beer:

Jon_W

Skibunny40 wrote: »

What about making a few "free initial appointments" with various FA/IFA's?

I did this when I was starting out, and gained more/different information and understanding which each person I talked to. I also finally found an IFA I got on with and trusted - some of them might have been fab at their job, but I just didn't like them. I know many will say that shouldn't be relevant, but it was for me.

Where did you find them, Ski bunny?

Skibunny40

I went on unbiased.co.uk and also just googled "IFA in xxxxx(my hometown)". Anyone that offered a free initial appointment, I went along.

Jon_W

Skibunny40 wrote: »

I went on unbiased.co.uk and also just googled "IFA in xxxxx(my hometown)". Anyone that offered a free initial appointment, I went along.

Thanks, I'll start there.

Jon_W

Some more Qs and general statements of my understanding (sorry!) on SIPPs and LISAs (albeit with me knowing that some/all of this may just be speculation at this stage for the latter).

QUESTIONS/STATEMENTS ABOUT SIPPS

1. Do you get any interest on the value of your investments held in a SIPP? If so, I would imagine that it is up to the pension owner (me) to invest it?

2. Any dividends from the investments held in the SIPP, I would imagine that whether these are reinvested depends on whether the funds held in the SIPP are accumulatory or income?

3. Are the dividends from the investments held in the SIPP liable to income tax? And even if automatically reinvested by the fund holder(s)?

4. Are the capital gains taxed? (I think that CGT is only payable when gains are crystalised, that is, turned into cash so wouldn't be payable as they accumulate, right?) From what has been explained it seems not, and that only the income from it (after the 25% lump sum has been taken) is taxed, if over the personal allowance or at a higher rate if takes your annual income into a higher band.

QUESTIONS/STATEMENTS ABOUT LISAS

1. Completely tax free. No income tax on any dividends, no income tax if take and income from the investments, no CGT if/when sell

2. Interest payable on LISAs and S & S ISAs is on the value of assets held?

3. The interest on LISAs and S & S ISAs, is it calculated on the value of assets held at the end of each month? Or is it (say) calculated on the value of assets held at the end of the financial year?

3. When is interest on S & S ISAs and LISAs paid? Monthly, quarterly or (financial) yearly?

4. When does the Government pay the 25% bonuses? Every tax year or on the occurrence of reaching age 60 or buying property?

5. IF the government 25% bonus is payable in the future on a qualifying event what happens if a subsequent Chancellor says, "Actually, I don't like these LISAs. I will pass legislation to abolish them." Then what will happen? We're stuffed!

6. What sort of interest rates can you see providers offering? (I assume these will increase if/when the base rate moves up, which may be some way off)

7. I also assume that I could make my annual £4k top-up into the LISA by transferring funds from a S & S ISA

8. Again, I assume that the responsibility for investing any dividends from the funds held is a function of the funds themselves and depends on whether they are accumulatory/income

9. Will the £4k a year I am allowed to put in a LISA deducted from the ISA annual allowance of £20k (which it'll be by the time they're up and running)?

masonic

Maybe it would be a useful exercise for you to research (i.e. Google) a few of those questions for yourself and come back with a shorter list of those you couldn't easily find the answers to. Finding out basic information for yourself using the internet is a useful skill to possess.

badger09

Jon_W

You seem to have forgotten something very basic. S&S ISA, LISA (S&S), SIPP are just tax wrappers, or envelopes.

What you hold inside those envelopes determines whether they attract interest or dividends.

Income and gains inside all of the above are free of tax

You can choose to have dividends automatically reinvested by buying acc version.

bowlhead99

Jon_W wrote: »

Some more Qs and general statements of my understanding (sorry!) on SIPPs and LISAs (albeit with me knowing that some/all of this may just be speculation at this stage for the latter).

Many of these have been answered up the thread.

1. Do you get any interest on the value of your investments held in a SIPP? If so, I would imagine that it is up to the pension owner (me) to invest it?

Depending on the nature of the investment funds you choose to hold in the SIPP they may pay interest, dividends, property income distributions, whatever.

If your assets are cash or bonds they will generate interest income. If it is investments in funds that invest in company shares and properties you will get dividends or other types of income instead. You do not magically get paid interest on the value of your dividend-paying funds as well as receiving dividends from them.

If the funds you buy are not 'accumulation' ones which reinvest the proceeds of their investment activity, and they instead send the interest, dividends, property income distributions, whatever - into your account; you will end up with cash within your SIPP which needs to be reinvested by you.

2. Any dividends from the investments held in the SIPP, I would imagine that whether these are reinvested depends on whether the funds held in the SIPP are accumulatory or income?

Yes. Most are available in both flavours.

3. Are the dividends from the investments held in the SIPP liable to income tax? And even if automatically reinvested by the fund holder(s)?

No they are not. As I already explained when you were asking about the pros and cons of pension versus ISA, a pension just like an ISA "has no tax on interest, dividend, investment income, capital gains as you go along".

When you get to retirement and want to draw out the total value of the pension into your bank account, there may be some tax to pay on the amount of money you take out, depending on your available allowances.

4. Are the capital gains taxed? (I think that CGT is only payable when gains are crystalised, that is, turned into cash so wouldn't be payable as they accumulate, right?) From what has been explained it seems not

Answered by the previous answer. There are no taxes to pay on the gains.

, and that only the income from it (after the 25% lump sum has been taken) is taxed, if over the personal allowance or at a higher rate if takes your annual income into a higher band.

A pension, because it has had income tax relief at the beginning when you put the money in, is considered to be a big pot of value coming from your employment.

It gets bigger over time due to the returns on investment, but is basically a pile of employment income which has not been taxed yet (because any tax paid was relieved on the way in).

So when you get to your late 50s or beyond and you want to access it, you will need to pay tax at your marginal rate at that time. As you say, 25% lump sum will be tax free as a nice concession to encourage people to use pensions, but the rest will be taxable at your marginal rate. This might be 0% within your annual personal allowance, or basic rate or higher rate.

The size of the personal allowance is not guaranteed but will presumably remain higher than state pension level; the 20% and 40% figures are not guaranteed, because tax rates change from time to time. So you might find the rates are 18% and 42% or 15% and 35% or 25% and 50% or any other combination that the government decides.

QUESTIONS/STATEMENTS ABOUT LISAS

1. Completely tax free. No income tax on any dividends, no income tax if take and income from the investments, no CGT if/when sell

Basically yes, as already mentioned several times on the thread.

However, just to be pedantic I am going to say there is no *UK* income tax but if you invested in something exotic like spending £50 on one individual share of Microsoft, then the US taxman would take a 15% cut of the annual Microsoft dividends before it reached your ISA, but the UK taxman would not take any further tax on the dividend income.

To all intents and purposes though, ISA investing is considered tax free.

2. Interest payable on LISAs and S & S ISAs is on the value of assets held?

If your assets are cash or bonds they will generate interest income. If it is investments in funds that invest in company shares and properties you will get dividend or other types of income instead. You do not magically get paid interest on the value of your dividend-paying funds as well as receiving dividends from them.

3. The interest on LISAs and S & S ISAs, is it calculated on the value of assets held at the end of each month? Or is it (say) calculated on the value of assets held at the end of the financial year?

As mentioned, for SIPPs, LISAs and S&S ISAs you do not receive fixed amounts of interest unless what you are holding is cash or bonds. If you are holding cash or bonds then the returns will be based on the amount held every day and not just a snapshot of month-end or year-end. Like in a bank account, you can't just have £1 in the account all year and then put another £999 in on the last day of the year and say "pay me interest as if I had £1000 all year".

3. When is interest on S & S ISAs and LISAs paid? Monthly, quarterly or (financial) yearly?

It depends what investment you hold within it. If you invest in a bond fund or cash fund that happens to pay interest distributions monthly, it will be monthly. There are thousands of choices of funds. If it is quarterly it is quarterly. If it is annually it is annually. Presumably if your goal is retirement in 25 years you don't care because you will either be reinvesting the interest or using accumulation funds which do not pay it out anyway.

There will be some LISAs that will be offered by banks or building societies which are simple cash products which operate like a normal cash ISA, paying an agreed amount of interest. Those do not let you invest in investment funds so would not be suitable for a retirement goal 20+ years away because the interest will be unlikely to exceed inflation by any material amount. But whether they chose to add your interest monthly or quarterly or annually would be similarly irrelevant given you are not going to touch the money anyway for a couple of decades and there are penalties for withdrawal from a LISA.

4. When does the Government pay the 25% bonuses? Every tax year or on the occurrence of reaching age 60 or buying property?

The first will not be paid at the end of the 2017/18 tax year.

After that, it is acknowledged that if you need to make a withdrawal to buy property or because you're 60, you won't have to wait to the end of the full tax year to get the remaining accrued bonuses that have not yet been paid, so there will be a mechanism to get the bonuses earlier. The suggestion in the last draft of the rules and regulations which went out for consultation with industry was that they would address that by doing the bonuses monthly. In the world of pensions, government pays over tax relief to the pension operators monthly and that seems to work OK.

LISAs as a product do not exist yet, and will not be launched until the 2017/18 tax year. There is a guide to LISAs on the main site and many long threads discussing LISAs. If you are still lost, read them.

5. IF the government 25% bonus is payable in the future on a qualifying event what happens if a subsequent Chancellor says, "Actually, I don't like these LISAs. I will pass legislation to abolish them." Then what will happen? We're stuffed!

Well, it would be politically pretty unacceptable to 'abolish' millions of people's retirement plans. So, they are not going to take your assets from you.

Imagine in a decade's time you are 49 and they say they are going to phase out LISAs because young people don't need these 'bonuses' any more and we can just go back to the system where everyone uses pensions for their retirement instead. Presumably they would do it by reducing the annual LISA allowance to zero. It wouldn't mean you couldn't keep what you already had in there, they are unlikely to go around confiscating your assets.

If you are concerned about the government confiscating your assets you could plan for retirement by hiding your money under your bed instead of in a bank account or investment product. Make sure you do it in foreign currency cash though because the government will cunningly change the design of UK notes and coins over time causing the old ones to stop being accepted. There is all kinds of ways the government can screw you over. You can plan for taxation risk but do not let it put you off doing your retirement planning properly.

6. What sort of interest rates can you see providers offering? (I assume these will increase if/when the base rate moves up, which may be some way off)

Cash LISAs will be similar to existing Cash ISAs. On the one hand perhaps slightly better because the limited amount of new money you can put into them is set at a pretty low level by law and so they can offer an attractive rate without actually having to pay it out on tens of thousands of account balance. But on the other hand perhaps slightly worse because people are getting a free 25% bung from the government which they would not get on a normal Cash ISA and so there will be quite a lot of demand for them even if the providers have crap rates.

However, this is largely irrelevant : because you are not going to be investing in a cash-interest-rate product for your retirement, you are going to be investing in investment funds to grow your wealth. The interest rates that providers offer on cash LISA products is irrelevant ; you will be using S&S ISAs and S&S LISAs.

7. I also assume that I could make my annual £4k top-up into the LISA by transferring funds from a S & S ISA

Yes, or from the other types of ISA being Cash ISA or Innovative Finance ISA.

If you transfer from an existing ISA it will not use up any of the £20k overall ISA allowance for the year. But your balance in the other ISA will fall, so you might want to top it up with cash from your bank account, in which case you might as well have made the contribution to the LISA direct from your bank account.

8. Again, I assume that the responsibility for investing any dividends from the funds held is a function of the funds themselves and depends on whether they are accumulatory/income

Yep.

9. Will the £4k a year I am allowed to put in a LISA deducted from the ISA annual allowance of £20k (which it'll be by the time they're up and running)?

Yep.

badger09

bowlhead99 you have the patience of a saint :A