Cost of financial advice for money in a trust

iainbooth0

My mum came into an inheritance and diverted £200,000 of it to be put into a Discretionary Trust for her grandchildren (there are other reason why we need a discretionary trust). Myself and my brother will be trustees. We need to employ financial advisers, so we sought help from Tilney. We were just about to sign the contract with Tilney when we discovered the charges were more than I had understood...

Tilney service fee: 1.02%
Tilney managed funds fee: 0.75%
Platform and Custody charge: 0.4%
TER (3rd party fund managers fees): 0.77%
TOTAL annual charges: 2.94 %

So Tilney are going to take 1.02 + 0.75 = 1.77% = £3540 pa
Plus another set up charge of £2340 for the first year.

Does this seem excessive? I know a trust is a specialised area but they are only providing financial advice (we have to do the tax return, open the bank account and the lawyer has setup the actual trust).

My main problem is the Tilney managed fund fee - it seems to be a pointless extra layer. (Tilney have 4 managed funds, each with different risk factors, that invest in the actual unit trusts and OEICs.)

dunstonh

Does this seem excessive?

Yes. But is it Tilney. You expect wealth managers to be expensive. Discretionary investment management is more expensive than advisory.

I know a trust is a specialised area but they are only providing financial advice (we have to do the tax return, open the bank account and the lawyer has setup the actual trust).

They are not just providing advice. They are also acting as fund manager.

My main problem is the Tilney managed fund fee - it seems to be a pointless extra layer. (Tilney have 4 managed funds, each with different risk factors, that invest in the actual unit trusts and OEICs.)

Its a discretionary investment management service. They are effectively acting as fund managers. This is a big difference between an adviser and a DFM.

They are offering their product under their management using their decisions. It's a package. I personally don't like DFMs as I feel it adds an unnecessary layer of charges that will not benefit most people. However, if you go to a DFM then you should expect the DFM to provide the services of a DFM.

The problem when you approach DFMs rather than IFAs is that you are only getting offered their in-house offering. Finding out late at this stage that you dont like the cost doesn't allow for a change in investment strategy without choosing a new company. The general position is that you should either DIY or use an IFA. Not an FA or a wealth manager.

Heedtheadvice

I am a bit out of date as regards costs associated with trusts but first impressions, taking into account that anything to do with trusts seems expensive (maybe for good reasons), are that the Tilney figures you quote seem steep.


I suggest that if you just accept them as they stand then you could be accused of not acting in the best interest of the beneficiaries so should at least seek out other financial advice and compare that and the associated costs.


When in a similar position a number of years back it was startling how varied the advice and costs were!! We ended up with total costs (not just investment costs) in the order of 1% ( but things have changed since then) and we managed the investments ourselves. That might also be considered a bit risky too but it has turned out fine.



It could be Tilney best meets the need but you will not know if you do not do some comparisons.


Edit: beaten to a response by Dunston who explains things in a far superior manner!!

dunstonh

I suggest that if you just accept them as they stand then you could be accused of not acting in the best interest of the beneficiaries so should at least seek out other financial advice and compare that and the associated costs.

It could be argued that not seeking independent advice and using a tied wealth manager is not acting in the best interests of the beneficiary either.

kidmugsy

iainbooth0 wrote: »

TOTAL annual charges: 2.94 %

It's quite conceivable that that will equal or exceed all the return the assets will generate, especially after the excruciating tax rates that DTs pay.

Aegis

On a percentage basis, that seems eye-wateringly expensive. It's at the low end of value that an adviser should be taking on, but should still be possible to get the advice, platform and investment costs for considerably less than that each year.

iainbooth0

Thanks everybody. I will check out IFAs

kidmugsy

I ask from ignorance, but could one pay an IFA a one-off fee to set up an offshore single premium insurance bond, and then, perhaps, to give financial/tax advice once per decade? Would that be reasonably cheap? Would it be legit?

When I was a trustee in the 80s the will explicitly said that we need not seek professional advice. I was a financial naïf but one of my fellow trustees was an investment manager by trade. We seemed to roll along perfectly well.

kidmugsy

Aegis wrote: »

It's at the low end of value that an adviser should be taking on

How should trustees best get professional advice for trusts of less than £200k?

Malthusian

kidmugsy wrote: »

I ask from ignorance, but could one pay an IFA a one-off fee to set up an offshore single premium insurance bond, and then, perhaps, to give financial/tax advice once per decade? Would that be reasonably cheap? Would it be legit?

Depends what you mean by legit.

Investments should be reviewed annually at minimum. If the adviser makes it clear that they are providing transactional advice and not ongoing, they should be in the clear.

The trustees will be responsible for ensuring they keep the investments under review the rest of the time.

If the beneficiaries suffer a loss because the trustees ignored the investments for ten years the trustees will be liable.

I think a lot of IFAs would walk away from that business as it's a complaint waiting to happen. But there's nothing illegitimate about it.

When I was a trustee in the 80s the will explicitly said that we need not seek professional advice. I was a financial naïf but one of my fellow trustees was an investment manager by trade. We seemed to roll along perfectly well.

Wills don't override the statutory duties of trustees. If you collectively didn't have the knowledge or wherewithal to manage the investments as a prudent person of business would, it would have been your responsibility to take professional advice. In your case of course, you did.

The Will said "need not take advice" not "shall not" so there was nothing to stop you taking advice.

*Edit* Would it be cheap? Depends. If you don't pay for ongoing advice then naturally you save the cost of advice. However, not taking advice can cost you a lot more than the cost of advice.

Aegis

kidmugsy wrote: »

How should trustees best get professional advice for trusts of less than £200k?

I don't know, unless an adviser is happy to make it a side case alongside an existing business relationship with the trustees on their personal affairs.