HELP! What do I do with it all?

DocProc

Five tough questions to ask your Independent Financial Adviser (IFA)

More on them at http://www.ecademy.com/node.php?id=83632

Essentially they are as follows:

1 - Are you independent?
2 - What are your qualifications?
3 - How do you charge for your services?
4 - What is your investment advice process?
5 - What ongoing service will I receive from you?

Quote:

Any professional finanical adviser should welcome these questions and be able to provide answers with certainty and confidence. If the adviser starts getting defensive then you probably have good reason to be suspicious.

As a final point, always check the credentials of your financial adviser (new or existing) against the Financial Services Authority (FSA) Register at http://www.fsa.gov.uk/register Never (and I mean never!) take financial advice from someone who is not currently authorised and regulated by the FSA. Asides from this being illegal, it leaves you with no legal protection if the advice is bad and leaves you with a financial loss.

DocProc

There are now three different types of financial adviser who are regulated by the FSA. They are as follows:

Independent Financial Advisers (IFAs)

These advisers offer unbiased financial advice to their clients and recommend the most suitable products, if any, after researching the whole market. The key differentiator is that they act on your behalf and will offer you the option of paying by a fee, as well as the option of paying by commission.

The big advantage of independent financial advice is that you have access to all the products on the market through a qualified practitioner.

An IFA’s job is to research and recommend the most appropriate financial solutions after asking their clients a whole range of detailed questions about their circumstances, their financial goals and their attitudes to risk.

IFAs are answerable to the FSA to ensure that they keep to the rules. As they act on your behalf they provide personalised written reasons why they have recommended particular products or a course of action.

Tied agents

They can advise only on the products of one provider. Many people buy financial products through tied agents, such as the sales staff who work at their bank or building society.

When they want a pension or investment product they often find it easier just to nip into their bank and accept what is sold through that organisation’s relationship with a single life insurer or investment house. The person providing the product information or advice is acting on behalf of the product provider.

Many people buy products this way, usually because they feel more comfortable buying from a big name organisation and assuming, sometimes incorrectly, that they are bound to get a good deal. What they are actually getting is limited information from a small selection of products.

Confusingly, some banks also have an IFA available upon request!

Multi-tied agents

They are financial advisers allowed to recommend the products of a limited selection of providers, rather than just one.

Multi-tie arrangements were introduced in late 2004 because the FSA believed the 16 year-old regime of ‘polarisation’ (the official term used for the system of either tied or independent advice) wasn’t working efficiently for consumers. By giving organisations the opportunity to link up with several providers instead of just one, the regulator hopes to create more choice for those consumers who are not inclined to research the market or to use an IFA themselves.

Banks and building societies that previously had a single tie to a financial product provider are likely to include in their range one or two products from other providers. This will avoid the time and costs of having to look across the whole market for the ‘best’ products. Customers need to check out the breadth of products and providers on offer and decide if the choice of products available is a suitable enough range for them.

munk

I'd be very wary of going to a bank for financial advice(!) - as jem and others above have pointed out, banks really aren't suitable for providing advice on investing money because they're generally tied to a very small selection of investment products which come with inflated/non-discounted charges.

Usually their remit is to just get you into an investment product and leave it at that. Any ongoing discretionary management (ie tweaking of your investment portfolio to ensure it continues to meet your goals over time) would be up to you. With a considerable amount of money that can be a daunting task.

I know Lloyds bank offer a 'Private Banking Service' (think that's the correct term off top of head) - which caters for 'high wealth' clients and does include a discretionary portfolio management service. However the charges involved are very high - 3% incremental pa comes to mind (I may be wrong though) (ie they take 3% of your portfolio's value as a charge per year). Just for comparison I know Bestinvest offer a similar service for only 0.5% pa. The general point is that banks are expensive for *proper* financial investment advice and management.

dunstonh

I know Lloyds bank offer a 'Private Banking Service' (think that's the correct term off top of head) - which caters for 'high wealth' clients and does include a discretionary portfolio management service. However the charges involved are very high - 3% incremental pa comes to mind (I may be wrong though) (ie they take 3% of your portfolio's value as a charge per year). Just for comparison I know Bestinvest offer a similar service for only 0.5% pa. The general point is that banks are expensive for *proper* financial investment advice and management.

Lloyds Private banking is discretionary management. Best invest is not. So, its not like for like. Best invest is similar to the NMA IFA model where the natural trail commission the funds generate gets you reviews, rebalancing, reviewing of risk and fund switches when required. Discretionary fund management will be able to use products which are not packaged (shares, ITs etc) as well as unit trusts/oeics/sicavs. They will also have potentially, daily dealing. This is why they charge more. That said, a non bank based discretionary manager would be a lot cheaper and my experience of taking over portfolios of Lloyds PB is that they churn a lot, charge a lot and have a lot of staff changes. Plus the performance is lower than what you would get on a decent UT spread (mainly due to their charges).

lolarentt

asmuchasthat wrote: »

Thanks for that...

I was thinking of shares etc but what with the fluctuations in interest rates and the possibility of them increasing I was worried an interest rate increase would impact on share value etc.

I am typically cautious :rolleyes:

You've had a lot of sensible advice already, but I'd just like to add a thought. Most of the suggested investment vehicles you will find to be extremely dull, but nonetheless essential. It sounds like you have enough to have a bit of fun with as well though so if you are interested in shares I'd thoroughly recommend having a go direct (buying/selling on stock market yourself).

You can do this direct in your own name through a broker, or use someone like Barclays stockbrokers http://www.stockbrokers.barclays.co.uk (there are plenty of other companies offering this service) where you can buy and sell, with or without advice, and the shares are held in a nominee account.

I've been doing this myself for over 30 years and have had far more fun spotting future winners (and the odd loser) with the 5% or so of my capital I invest in this way, than all the ISAs, PEP, trusts, offshore bonds etc the rest gets put into.

dunstonh

Most of the suggested investment vehicles you will find to be extremely dull

I don't know. Wombat seems to be enjoying himself with his China funds.

DocProc

Years ago I used the services of Lloyds Bank to hep manage my private finances.

To that end, my wife and I were interviewed by their 'expert', who was actually a retired branch manger. Off he went taking all sorts of insurance policies and stuff so as to read through them and make a summary of them so as to discuss things with us again further and make recommendations.

It all went badly wrong for them from a kick off!

Having had a good old read, he handed everything to one of the office juniors to send back to us. She must have jammed everything in an envelope, which was neither big enough or strong enough. Neither was it addressed to our home. It was actually addressed to our business, but not well enough. Neither was it marked 'Private and Confidential'.

The envelope was split open when we eventually received it. The person who gave it to me was our business neighbour. It had been delivered by mistake to his business address next door.

I think the envelope was torn when he got it. It had our name on it and I still think he helped the tear along and had a good old read at the contents.

I rang the bank immediately and told the 'expert' off. I also told him to take his crappy services and 'stick them!'

Rafter

Ian,

As others have said, get some professional independend advice. Personally I would pay for the advice too. That way you know you aren't just being sold products that earn good commission for the advisor.

The main thing for you seems to be to decide whether you want the money to generate an income for you now or in the future? Do you want to use it to enable you to retire earlier? Would you like a bigger house etc?

Personally I would put over half of it into a pension fund so it is locked away building up to enable me and my partner to retire earlier.

It would be nice to use some of the rest to fund a better lifestyle: Holidays/ Cars/ Home/ Gadgets.

It would also be nice to set up some modest funds for my god children, so they can enjoy university/ go on a gap year, without getting into debt from an early age.

The main thing with that kind of money, is not to put all your eggs in one basket. Spread it around. Don't get seduced by hedge funds and complex products promising spectacular but high risk returns.

Nothing wrong with stocks and shares in good companies as a long term investment to beat inflation though. Good also to spread your money around the world a bit so you aren't just reliant on UK plc (although big UK companies usually earn over half their profits overseas).

Good luck and enjoy it!

R.

munk

dunstonh wrote: »

Lloyds Private banking is discretionary management. Best invest is not.

This is the page detailing Bestinvest's portfolio management service - it's an actively managed/discretionary service which goes over and above the remit of the basic portfolio review/report service they offer for lower value portfolios. To quote that page:

Our investment management service is designed for investors who do not want to have the burden of monitoring their portfolio themselves. We have found this particularly suited to client with SIPPs, Trusts and Investment Portfolios in excess of £250,000.

I have no idea how well Bestinvest's discretionary service stacks up against others and have no vested interest in Bestinvest - all I know is that to date my contact with them regarding portfolio building suggestions has been very positive.

dunstonh

Thanks for that. It certainly brings the charging in line with NMA (although that tends to be 0.5% inclusive of VAT as there is no VAT on trail commission).

So, seems alright. There are transaction charges for non UT/OEIC/SICAV investments by the looks of things though but that is to be expected.

As others have said, get some professional independend advice. Personally I would pay for the advice too. That way you know you aren't just being sold products that earn good commission for the advisor.

Just to repeat what I said earlier, most investment products now have the commission as an explicit charge. So there is no difference between fee and commission. i.e. adviser paid 1% commission will see a 1% charge. adviser paid 3% commisssion will see a 3% charge.

That said, there are some exceptions and certain providers will enhance commission terms without increasing charges so you cannot assume it is always like for like and that can make commission lower. Pension products are better on commission if you work to CAR - customer agreed remuneration. i.e. agree the fee but have it paid for by commission. Commission payments also avoid VAT whereas some fee agreements do not.