Money to invest in trust for Kids

6022tivo

I have a large (150k) ammount to invest for the childrens future.
I had a FSA a few weeks ago, who was to set a trust up for them, and invest in some sort of tax wrapper fund spread over different types of investment so no tax issues.

Other information regarding up to 5% could be taken out yearly with no tax immplications.

Now, she was keen for this to be setup commision based, and with that I could contact her to arrange the 5% taken out, or altering the trust at any time..

I would like to know more about the commision, is it a one off percentage, or a ongoing thing.

I do have the option of paying a fee of around £1600 for the setup, and then I will get the commission, so again, would I get the commission as a one off, or a annual commission???. And I assume this would be taxable to me..

Last question, she was keen for commission as she would be able to alter, change etc... How easy would it be for me to alter the trust (Through a solicitor I assume) and apply for the 5% to be taken out if the kids needed them??? I assume no problems?

Thanks in advance.

dunstonh

I had a FSA a few weeks ago

I doubt it. The Financial Services Authority do not sell or set up products or give advice.

You probably mean IFA or FA depending on the regulatory status of the adviser.

I would like to know more about the commision, is it a one off percentage, or a ongoing thing.

It can be either. It depends on the terms you negotiate with the IFA. FAs and some IFAs do not have the ability to negotiate terms and you get what you are given.

I do have the option of paying a fee of around £1600 for the setup, and then I will get the commission, so again, would I get the commission as a one off, or a annual commission???. And I assume this would be taxable to me..

£1600 is good for £150k. It is less than the typical average of 1.8% of amount invested. Commission on maximum terms would be closer to 3%-4% assuming fund based trail was paid. If fund based trail was not paid then it gets a bit trickier as it would depend on provider. There are many different ways of doing it. Where commission isnt taken, you dont get it paid back to you. It is used to reduce charges or enhance terms.

Last question, she was keen for commission as she would be able to alter, change etc... How easy would it be for me to alter the trust (Through a solicitor I assume) and apply for the 5% to be taken out if the kids needed them??? I assume no problems?

It would depend on the type of trust you use and what the terms of the trust are as to what you can and cannot do (or what a solicitor can and cannot do). You can arrange withdrawals directly if you wish.

In your post, you have missed out the single most important thing with all this. How it is invested, what strategy and what reviews are taking place. Worrying about a 0.5% p.a. fund based charge (could be less than that with a customer agreed remuneration/fee of £1600) is nothing compared to the potential returns of a decent portfolio versus a poor quality one. A quality portfolio could return 2-5% a year more than a bad one.

So, whilst you do need to consider charges, you also need to consider what you are getting for those charges. If you are getting annual rebalancing and reports and reviews then that 0.5% fund based trail is good value (unless you intend to do that yourself in which case you dont arrange it on those terms). The software decent IFAs use carries an ongoing cost. This can run over £10k a year. If your recommendation and servicing is using that software and ability of adviser, then its worth it. If it isnt using it, then its not.

Are you getting a good portfolio spread? If its all in one fund then almost certainly not with that fund value.

Have you seen the research as to why that provider is chosen? There is a big difference in the providers in this area.

6022tivo

dunstonh wrote: »

I doubt it. The Financial Services Authority do not sell or set up products or give advice.

You probably mean IFA or FA depending on the regulatory status of the adviser.

It can be either. It depends on the terms you negotiate with the IFA. FAs and some IFAs do not have the ability to negotiate terms and you get what you are given.

£1600 is good for £150k. It is less than the typical average of 1.8% of amount invested. Commission on maximum terms would be closer to 3%-4% assuming fund based trail was paid. If fund based trail was not paid then it gets a bit trickier as it would depend on provider. There are many different ways of doing it. Where commission isnt taken, you dont get it paid back to you. It is used to reduce charges or enhance terms.

It would depend on the type of trust you use and what the terms of the trust are as to what you can and cannot do (or what a solicitor can and cannot do). You can arrange withdrawals directly if you wish.

In your post, you have missed out the single most important thing with all this. How it is invested, what strategy and what reviews are taking place. Worrying about a 0.5% p.a. fund based charge (could be less than that with a customer agreed remuneration/fee of £1600) is nothing compared to the potential returns of a decent portfolio versus a poor quality one. A quality portfolio could return 2-5% a year more than a bad one.

So, whilst you do need to consider charges, you also need to consider what you are getting for those charges. If you are getting annual rebalancing and reports and reviews then that 0.5% fund based trail is good value (unless you intend to do that yourself in which case you dont arrange it on those terms). The software decent IFAs use carries an ongoing cost. This can run over £10k a year. If your recommendation and servicing is using that software and ability of adviser, then its worth it. If it isnt using it, then its not.
Are you getting a good portfolio spread? If its all in one fund then almost certainly not with that fund value.

Have you seen the research as to why that provider is chosen? There is a big difference in the providers in this area.

I did mean a IFA, sorry.
I understand it is some sort of thing setup with Standard Life, that is spread across the 5 main investment types, (Shares, Savings, Commercial Property, erm... and ermmm???) A Safe bet that has performed well over the last 5 years gaining 50%.

Nothing has been said about reviews?? Changes??. Just that if I take the commission route to the IFA I can call her regarding the fund, arrange the 5%'s to be withdrawn if I wish, and to adjust the trust and add trustees if I wish for free.

If I take the Pay as you go route, I get charged a one off sum of about £1600 and close on £200 a hour for future advice, phone calls etc...

With what I have been reading recently, I would rather just stick it in a savings account, but apparently I can't as I would have to complete tax returns etc.. The investment recommended apprently falls under a umbrella of some sort for tax so none to be worked out?

I was also looking at buying my eldest child a property, but again, this apparently not a good idea, and in trust I have been told that the investment has to be spread around and not in one local item??

Thanks for the advice so far, I just don't want to pay some chick close on 6k for a couple of hours work.:cool:

dunstonh

Thanks for the advice so far, I just don't want to pay some chick close on 6k for a couple of hours work.:cool:

Its not advice. I need to make that clear for compliance reasons. Anything written here is discussion and opinion only. There is no regulatory protection.

Also, its not a couple of hours work. It can take a good adviser a day to find the right provider and another day to work out the portfolio and get the research to support that with larger portfolios. It can take a bad adviser 15 minutes to pull one out of that hat.

I understand it is some sort of thing setup with Standard Life

Not keen. Lower cost options exist and the Standard life bond only allows a limited number of fund switches for the life of the bond. As this is going in trust, that is a restriction I would not be happy with.

that is spread across the 5 main investment types, (Shares, Savings, Commercial Property, erm... and ermmm???) A Safe bet that has performed well over the last 5 years gaining 50%.

Thats great but everything has done well over the last 5 years. Ask them to provide data over the last 8-10 years and see how it performed 1999-2001 stockmarket decline. They may not be able to use identical funds as many wouldnt have been around then but they could show sector average or comparable funds if they have the software. If they dont have the software, then they arent really set up to handle investments of this size.

Things go down as well as up at times and the period of 1999-2001 is a good indication as that was a major drop. Whilst past performance is no guide to future returns, it does no harm to see how your portfolio did during some really bad years.

Nothing has been said about reviews?? Changes??. Just that if I take the commission route to the IFA I can call her regarding the fund, arrange the 5%'s to be withdrawn if I wish, and to adjust the trust and add trustees if I wish for free.

Transactional advisers are only interested in setting it up, taking the commission and you never see them again unless they think there is more money in it. These advisers tend to take all the money up front (often by indmnifying fund based with 4 years worth up front and nothing thereafter but you are still charged as if it was being paid. The provider keeps it for indemnifying the up front payment).

NMA advisers or servicing advisers will give servicing and take less up front but take the natural fund based commission. This pays for the ongoing servicing and gives the adviser a buy in to the performance of the investment. If fund goes up 10% , then so does the fund based commission.

Review will usually include periodic reports, checking on funds and rebalancing the portfolio to match risk profile and sector allocation (or whatever strategy is being used). It wont take many years for a portfolio to get out of shape from a risk point of view if left alone.

If I take the Pay as you go route, I get charged a one off sum of about £1600 and close on £200 a hour for future advice, phone calls etc...

Nothing wrong with that and if is what you really want then Standard Life certainly is not the provider of choice. You are better off with a provider that uses factory gate pricing and has a lower annual management charge.

Also, you need to be aware that fund based commission would be around £750 a year on £150k. no VAT. If you go down the charges route then VAT will be payable and a report and rebalance would probably cost more than £750.

An option is perhaps to agree the charge on upfront to place the business but allow them to keep the fund based trail commission to provide ongoing servicing with no further fees. As well as giving the adviser a buy in to the performance of the bond this also allows means that if the adviser doesnt provide ongoing servicing you need, you can appoint another IFA who can take over the plan and they will be paid the fund based trail without having to change the product provider.

With what I have been reading recently, I would rather just stick it in a savings account, but apparently I can't as I would have to complete tax returns etc.. The investment recommended apprently falls under a umbrella of some sort for tax so none to be worked out?

Yes, its certainly easier and should offer better long term returns.

I was also looking at buying my eldest child a property, but again, this apparently not a good idea, and in trust I have been told that the investment has to be spread around and not in one local item??

Trusts often have instructions on things they cannot and can do.

6022tivo

dunstonh wrote: »

Its not advice. I need to make that clear for compliance reasons. Anything written here is discussion and opinion only. There is no regulatory protection.

Also, its not a couple of hours work. It can take a good adviser a day to find the right provider and another day to work out the portfolio and get the research to support that with larger portfolios. It can take a bad adviser 15 minutes to pull one out of that hat.



Not keen. Lower cost options exist and the Standard life bond only allows a limited number of fund switches for the life of the bond. As this is going in trust, that is a restriction I would not be happy with.



Thats great but everything has done well over the last 5 years. Ask them to provide data over the last 8-10 years and see how it performed 1999-2001 stockmarket decline. They may not be able to use identical funds as many wouldnt have been around then but they could show sector average or comparable funds if they have the software. If they dont have the software, then they arent really set up to handle investments of this size.

Things go down as well as up at times and the period of 1999-2001 is a good indication as that was a major drop. Whilst past performance is no guide to future returns, it does no harm to see how your portfolio did during some really bad years.



Transactional advisers are only interested in setting it up, taking the commission and you never see them again unless they think there is more money in it. These advisers tend to take all the money up front (often by indmnifying fund based with 4 years worth up front and nothing thereafter but you are still charged as if it was being paid. The provider keeps it for indemnifying the up front payment).

NMA advisers or servicing advisers will give servicing and take less up front but take the natural fund based commission. This pays for the ongoing servicing and gives the adviser a buy in to the performance of the investment. If fund goes up 10% , then so does the fund based commission.

Review will usually include periodic reports, checking on funds and rebalancing the portfolio to match risk profile and sector allocation (or whatever strategy is being used). It wont take many years for a portfolio to get out of shape from a risk point of view if left alone.



Nothing wrong with that and if is what you really want then Standard Life certainly is not the provider of choice. You are better off with a provider that uses factory gate pricing and has a lower annual management charge.

Also, you need to be aware that fund based commission would be around £750 a year on £150k. no VAT. If you go down the charges route then VAT will be payable and a report and rebalance would probably cost more than £750.

An option is perhaps to agree the charge on upfront to place the business but allow them to keep the fund based trail commission to provide ongoing servicing with no further fees. As well as giving the adviser a buy in to the performance of the bond this also allows means that if the adviser doesnt provide ongoing servicing you need, you can appoint another IFA who can take over the plan and they will be paid the fund based trail without having to change the product provider.



Yes, its certainly easier and should offer better long term returns.



Trusts often have instructions on things they cannot and can do.

I am quite gutted tonight, and a little stressed.

I appreciate you comments re this being a discussion, and understand that, sorry.

I wish I had never bothered, I think I will invest it in a property and put the children down on the deeds as joint owners. Property has doubled in the last 5 years, and I have seen some good reduced properties locally. No doubt good old gorden brown has a way of making that difficult for me.

I fear we are due a bit of a bust period, and I fear I am just getting hooked in so someone can earn high fee's for little work.

She is a IFA but is a manager for a major high street bank, but indepentantly??. It was explained.?

I do feel unless I chase I don't see them doing anything for the fund based trail commission they will recieve.

The Standard Life was apparently the best option for Tax Wrapper, reasonable low risk gain??? But at this point she was under the impression that she would be commission based??

I need a rest, having a headache and wished I did not have to sort this out now...

Thanks for your opinions so far..

Aegis

She is a IFA but is a manager for a major high street bank, but indepentantly??. It was explained.?

Looks like a conflict of interest if ever I saw one!

I know that some IFAs work in conjunction with banks, but I would assume that to avoid any undue influence, the best bet would be to go with one without any such unofficial ties.

Have you looked at https://www.unbiased.co.uk to see if there are others near you?

dunstonh

She is a IFA but is a manager for a major high street bank, but indepentantly??. It was explained.?

I'm not being funny or elitist here but being an adviser is a full time role. It isn't something you can tag on to another job and expect quality advice. There is no way a bank manager also doing the adviser role could justify the time to build you a proper portfolio or do full research.

I wish I had never bothered

Its not that you shouldnt have bothered. You have just gone to the basic place for advice. Banks are not known and are not geared to provide top quality advice. They work on a factory line basis. They also tend to suffer high turnover on staff in the advice area (mainly as they are perceived in the industry as the place you go to get qualified and learn how to do the job before moving on to better placements).

I fear we are due a bit of a bust period, and I fear I am just getting hooked in so someone can earn high fee's for little work.

As I said, if done correctly, it's not a little work. Also, if you buy a property you will pay far more in fees, suffer just as much, if not more in tax, have far more admin and buying at a time when rental yields are low and the property prices are in a bubble.

The Standard Life was apparently the best option for Tax Wrapper, reasonable low risk gain??? But at this point she was under the impression that she would be commission based??

Even under commission or fees, I have doubts over Standard Life for reasons I have already posted. Of course, the adviser you have seen isnt thinking about servicing so policy issues dealing with servicing aren't on her mind. Also, even if the Standard Life bond was the best option, the exact same product is available through a fund supermarket on better terms but white labled with a different name (white label means its Standard Life's product but the fund supermarket puts their name to it).

I do feel unless I chase I don't see them doing anything for the fund based trail commission they will recieve.

I agree with a bank adviser that will be the case. Also, now we know its a bank adviser, it is worth stating that the adviser is unlikely to see any of the money and they are not going to see any of the trail. Banks take their commissions on full up front basis and the advisers are paid on bonuses and targets rather than the acutal commission you see in the illustrations.

I need a rest, having a headache and wished I did not have to sort this out now...

All you need to do is see a real investment adviser. Not one that works for salesforce with targets etc and doesn't have good investment experience.

Ask to see the research from this adviser. For the scenario you mention, I can immediatly think of 4 or 5 providers with lower charges and no restriction on fund switches who are better than Standard Life (There are also worse but you go to an IFA to get best. Not better than average). It would be interesting to see her research and how she eliminated Norwich Union, Clerical Medical, Legal & General, Friends Provident and AXA (all of whom offer better terms). NU and CM in particular would blow Std Life out of the water. Although being a bank, they probably dont get the products on the best terms.