Do You Need Financial Advice? When To Get It, When Not To Get It Discussion Area

dunstonh · 30 December 2007 at 3:43PM

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.

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

slipp_digby · 30 December 2007 at 3:49PM

silentotter wrote: »

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

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

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

what you are proposing is highly risky

JDinho · 30 December 2007 at 4:14PM

silentotter wrote: »

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

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?

Tallymanjohn · 9 January 2008 at 3:06PM

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.

dunstonh · 9 January 2008 at 4:02PM

one Bond he had set up 2 years ago, for £70k, had initial charges of £4,200 (6%).

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 itself is not performing at all well anyway

The bond is just a tax wrapper. It doesnt make or lose money. Where you invest does that.

I'm inclined to suggest he cuts his loses & reinvests elsewhere

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.

I'd like to know if this initial charge woiuld have been considered excessive.

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)

Tallymanjohn · 9 January 2008 at 4:22PM

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.

RobertBell · 27 February 2008 at 11:44AM

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.

dunstonh · 27 February 2008 at 12:27PM

RobertBell wrote: »

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.

dgbshifnal · 27 February 2008 at 2:35PM

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!?

dgbshifnal · 27 February 2008 at 2:39PM

For "persue", please read pursue""

Do You Need Financial Advice? When To Get It, When Not To Get It Discussion Area

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