My husband and I would like to to invest between 2% - 5% into a solid well known rebutable business that is worth three million pounds or more, and makes consistent profit each month of £50,000 or more year on year.

This would seem to us better and perhaps less risky then buying shares and maybe could provide a better pension income for us in later years.

Martin can you please give me some guidance on this as to which companies would be best and how we would go about this? Any guidance glad of it.

Silentotter

You mean more risky and it is the same as buying shares.

how will you 'invest' in the company and draw down 'profit' without buying shares?

your still ploughing in money into one companies shares and trusting your returns to its profitability alone.

what you are proposing is highly risky

Questions for you to consider:

• How much income do you expect the proposed investment to return, in your example the company has a gross profit margin of 1.67% - how great do you expect the dividend payout ratio to be?
• Are the owner(s) of such a business going to be prepared to sell you a meagre 2-5% of their company?
• In such a small business you will have absolutely no say in the decisions made by the company - are you comfortable with that?
• Your investment will be deeply illiquid (see point 2) and incredibly difficult to value

As a comparison the FTSE 100 yields 3.12% and you could liquidated your investment portfolio and receive the proceeds the following day.

In basic terms which seems more risky and provides the better income?

What would be considered to be excessive charges by a Financial Advisor?. Reason for asking is that I'm having to take over some of the affairs for my elderly father and one Bond he had set up 2 years ago, for £70k, had initial charges of £4,200 (6%). The bond itself is not performing at all well anyway & as a result he's only just back to the point at which it started so I'm inclined to suggest he cuts his loses & reinvests elsewhere but I'd like to know if this initial charge woiuld have been considered excessive.

Most bonds nowadays (and I include 2 years ago in that) have no initial charges. Indeed, that is one of their main benefits. Some do have initial charges but they never appear in the best value lists.

The bond is just a tax wrapper. It doesnt make or lose money. Where you invest does that.
That would be silly as the performance is almost certainly down to market conditions. For example, property has suffered a lot in 2007 (about 17% down compared to about 17% up in 2006), fixed interest funds have been poor as interest rates rose (although they look good value now as yields have risen and interest rates are heading down) and stockmarket has been volatile.

Fixed interest funds in particular are used heavily for the older investors. They have done nothing for the last 18 months but the yields are looking very good now and the potential is there for a good year or two. Indeed, you can get 8.52% yield now which is very attractive.

The bond probably has access to 100-1000 funds. It may be that the funds need changing or it may be that you are just looking at it too short term. Very roughly and in non-compliant speak, if you took a 5 year sample, you could expect a bad year, a year that does nothing and 3 good years. 2007 was generally between a bad year and a year that does nothing.

If its a charge or commmission then its excessive.

If the adviser was a tied rep then you expect maximum commission to be taken. You also expect the product to be expensive. If it was an IFA then you expect charges to be lower and the investment spread to be better.

Take a look at the illustration you got at point of sale (if you can) and look near the back pages for the reduction in yield. Something along the lines of "putting it another way, the charges have the effect of bringing a 6% return down to 5.2%". On a bond, you would hope it would be 4.7% or higher. I just put 5.2% on that example as that is one I have on my desk right now. That basically means the charge is an equivalent of 0.8% p.a. (6-5.2=0.8)

Thanks for prompt & detailed response. The bond is a Scottish Widows 'flexible options bond' sold through his local branch of Lloyds TSB in December 2005. It appears to be a 'defensive' portfolio (which I guess means little risk (My father was unaware of any risk & it's only in the usual small print that any risk is mentioned though of course it would be his word against the FA as to whether it was discussed & as my father is 81 & 'losing it' a bit....)). Anyway, the charge was definitely deducted immediately at set-up.

It was sold as a way of reducing inheritance tax (we had already sorted this out many years ago as his property has already been signed over to the family some 15 years ago (he lives in an annex on our house)).

I would personally prefer him to transfer to something that will not risk his capital further - I cannot see the coming year -18months being any better than the past year for investments & it's a major worry to him that this part of his savings are apparently disappearing. He doesn't need the money as he is on a good pension & has few expenses, but he does want to make sure his grandchildren are catered for as much as possible.

Fees & VAT

VAT should not be charged in relation to fees that have been incurred which has led to a financial transaction being carried out i.e. if your client has negotiated a fee of £500 and has commenced a product, if they pay the fee rather than the adviser taking the commission, the fee will not incur VAT.

However, it is worthwhile comparing if commission or fee is more appropriate in relation to the product charges.

Absolutely right.

As an example, say you agree a fee of £1000 for pension advice. If you don't purchase the pension/product through the IFA then you have to pay £1000 plus VAT. If you do purchase the product then there is no VAT to pay.

However, with pensions its actually better most of the time to pay the fee from the commission payment from the pension (when charged explicitly). That way you effectively get tax relief on the fee.

Agreeing a fee and having it paid for out of commission is increasingly becoming more popular with IFAs. That way it removes any perception of product bias that you may have and for larger transactions, it can make the cost of advice much cheaper. The official term for this is "Customer Agreed Remunertion". The FSA have proposed that this will be the required way for IFAs to operate from 2009 (fee only where you either pay by cheque or use commission equal to the amount of the fee). Its still under consultation and at present its up to IFAs to decide if they want to do that or not. Some do, some dont.

I find the whole process confusing.
What I want is to find an IFa who will search the best option for the annuity I want, maybe make the odd suggestion/advice, and having made the decision, conclude the transaction.
I want to know how much this will cost, ie the fee. I do not want a complete financial makeover, I just want the best value for a one-off insurance product.
I made contact with one of the "big three" IFAs referred to on moneysaving expert.
I was told that if they went ahead and made a recommendation, which I didn't accept, they would charge £350/450 - that's acceptable.
However if I accept the recommendation they charge 1.5 - 2/5% of the capital sum over £40,000, say £1,000 or "2500 for a large sum.
This means to me £450 for doing all the work and then another £2000 for sending off the application, or am I missing something? I was told that many companies would not deal with me if I did not use an IFA. I don't like this part - my only previous experience with an independent advisor was recommending my transfer out of a salary based scheme to a private pension in 1991. I have persued mis-selling all the way to the FSA, but was turned down because the firm did not have the "right" protection.
I was obviously expecting too much!?

For "persue", please read pursue""

Any IFA can do this. Its a bread and butter transaction for an IFA.

Probably best on commission rather than fees as annuity commission is typically 1 to 1.5%. Some annuity providers insist on commission taken and will not allow adjustments. If it is a large annuity (say over £100k after tax free cash) then you should have scope for some discounting on commission but HMRC rules prevent you getting it as cashback. You will get an extra pound a month or similar.

I assume you use the term big three to reflect their high charges. The site does not mention the biggest three IFAs in turnover. The discount IFAs mentioned on MSE are for non advice services. Their advice arms are typically more expensive than most local firms.

[quote]I was told that if they went ahead and made a recommendation, which I didn't accept, they would charge £350/450 - that's acceptable.
However if I accept the recommendation they charge 1.5 - 2/5% of the capital sum over £40,000, say £1,000 or "2500 for a large sum.QUOTE]

You are misreading what they have told you. They are charging you and keeping commission. This is not unexpected when you go to discount online IFAs that also have an advice arm. They can afford to charge a lot more because they can get away with it.

You will find a local IFA that wont charge a penny and will just keep the commission (which is not an explicit cost in the case of annuities).

That is correct. Many of the top payers will only transact through an IFA. If you are a smoker or can qualify for enhanced annuities then you must see an IFA as it will cost you a lot of money if you dont.

Which has nothing to do with the 30,000 or so other advisers that are authorised and regulated to give advice today. Over the years I have seen poor teachers, poor doctors, electricians etc. That doesnt mean you stop using them when needed. You just find a another one instead.

It sounds like you had a FIMBRA adviser who ceased trading before 1994. That would be the only time you would not be covered for a 1991 case. Also, 1991 is before regulation had really started to kick in fully.

Thanks Dunstonh

I appreciate the prompt and explicit reply. In essence you are giving me, gratis, exactly the advice I need. An IFA one can just have a little chat with to clear up misunderstandings. Thank you for that.
The big three I referred to were Annuity Direct, Annuity Bureau and William Burrows, referred to on Martin's site, and I went to the first.

I think that what I now understand is that going for commission will not reduce my pot by the % commission, but that the IFA will take that from the provider (who would just keep it in house otherwise).
I will be looking for an enhanced option, and at the moment am leaning towards a with profits option; some research with Prudential shows that these are not mutually exclusive.

without being too long winded. Previous adviser was J... H... Financial Services Ltd - a company in default under FSCS.
They accepted claim, then went into liquidation, parent company having been taken over.
I was told by Ombudsman that I had in fact transacted with J... H... Partners and would have to find and pursue individual partners - all long gone.

Thats a pain. I can understand that. However, that shouldnt reflect badly on current advisers. Whilst things are still not perfect, they are a lot better and this particular transaction isnt high risk. Unlike a final salary pension transfer.

A few of the IFAs on the board, myself included, have done comparisons and have found that we were able at worst to match the terms they got but also improve upon them. This is because none of those three are network members and they dont get the best terms. They also dont discount so there is no reason to use them unless you really really want a postal based application and process.

With enhanced rates it really is worth getting a local contact. This may sound old fashioned but with the enhanced annuity providers it is possible to haggle with them and get them to pay a bit more. Last week we got Just Retirement (one of the biggest players in this field) to increase their rate three times over their standard published figure. If that client had gone postal they would not have got those increases.

Some things are priced better if you DIY but in the case of the open market option, the local IFA is still the ideal distribution channel for these.

With Profits annuities are largely on decline and I would only consider one provider as being viable and that is the one you mentioned. I wouldnt risk my retirement income on anyone else if that was the option you wanted. Although I probably wouldnt pick a WP annuity personally either unless it was a low Anticipated bonus rate and the terms looked good against an increasing lifetime annuity.

Just my personal opinion (and I am biased) - if more IFAs were prepared to offer a little clear, common sense advice, without trying to draw you in lock, stock etc. as soon as you look at their sites, then the IFA profession would be viewed with far less suspicion!

Thank you, advice appreciated.

Hello,

I am hoping someone could give me advice. I am 25 and in my first job after Uni. I want to start a pension but I have no idea about them! I dont want to risk my monwey or anything like shares, I just want to save so that I am comfortable in retirement. I have read some posts on here regarding IFAs, but to me £300 + is a lot of money to spend on advice when I dont even know if I will buy the product or take the advice!
I have no idea what I need or what will be suitable for me so I am feeling vulnerable to being ripped off! Can anyone offer advice on what I should do or who I should see?

Does your company offer a pension plan? Often that's the best way to get started because the company will add contributions in addition to your own, straight from your gross salary.

Admittedly these schemes are rarely the best, but they're usually cheap, and if your employer matches your contributions then you're effectively getting several years worth of growth immediately.

That is a good reason to get advice. You seem to have got it into your head that 43 years of investing in stocks and shares is a risk greater than investing in cash.

If you intend to use cash based funds then you need to be prepared to increase your contributions to possibly as much as double someone that is using stocks and shares.
£300 is not a lot and you only pay VAT if you dont take the advice. If the fee is collected via the pension (rather than you writing a cheque out) then the fee also gets tax relief on it.

You need an IFA.

hello,

thanks for the replies, I will def speak to an advisor!

I've moved IFA as my old one was receiving considerable commission on products as well as increasing their fees, with no value being added.

My new IFA offered a flat annual fee, but I now find that there is a transfer cost of 0.6% (on fund value) to move funds across from Cofunds to Transact. In addition, my new IFA advises they will receive an initial 3.5% commission, and a further 0.5% annual return on the complete investment. As I am paying for a fee-based service, should I expect this commission to be passed on? (although I do not you state HMRC rules prevent you getting it as cashback)

Thanks.