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  • FIRST POST
    • thrifty_pete
    • By thrifty_pete 13th Oct 18, 7:49 AM
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    thrifty_pete
    Prudential funds
    • #1
    • 13th Oct 18, 7:49 AM
    Prudential funds 13th Oct 18 at 7:49 AM
    A friend has inherited a very substantial sum but has very little idea about personal finance. He has no ISAs and no proper pension. He is a higher rate taxpayer as his rental income alone takes his up to the threshold. He has a couple of mortgages on interest only which I've told him to pay off! He has an average wage salary.
    An IFA suggested he buy this Prodential Investment Plan:
    https://www.pru.co.uk/investments/investment-products/prudential-investment-plan/
    Compared to a pension or ISA it looks like the fees are high and you're fairly locked in to this company or at least this (life insurance?) product. The 5% looks pretty restrictive if he wanted to withdraw it. He's 40 so his plans might change I suppose. His main aim is to have some secure income in the future, save tax and something which stops him spending it!
Page 1
    • AnotherJoe
    • By AnotherJoe 13th Oct 18, 8:16 AM
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    AnotherJoe
    • #2
    • 13th Oct 18, 8:16 AM
    • #2
    • 13th Oct 18, 8:16 AM
    I know nothing of this fund, but you finished with
    His main aim is to have some secure income in the future, save tax and something which stops him spending it!
    and i suspect this does all that, and i also suspect you are looking at the investment from the POV of a competent DIYer who doesn't need those features rather than someone who asked for A,B C and is being suggested a product that has A,B&C albeit at a cost.


    (why for example does he need additional and secure income when he is already high rate on the basis of rental income alone, presumably owns the houses backing that up, yet is apparently so lacking in self control that he needs a scheme to stop him spending it? )

    Does he have a job? Did the IFA suggest he starts a pension?
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • dunstonh
    • By dunstonh 13th Oct 18, 10:58 AM
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    dunstonh
    • #3
    • 13th Oct 18, 10:58 AM
    • #3
    • 13th Oct 18, 10:58 AM
    Compared to a pension or ISA it looks like the fees are high
    Onshore investment bonds are a niche tax wrapper nowadays. You used to be able to get these at under 1% p.a. but they no longer benefit from economies of scale pricing. Offshore investment bonds are more expensive but potentially more tax efficient.

    You haven't mentioned what the charges are.

    The 5% looks pretty restrictive if he wanted to withdraw it.
    You can draw more than the 5%. The 5% is cumulative and is an HMRC allowance. It is not a limit on the product.

    His main aim is to have some secure income in the future, save tax and something which stops him spending it!
    ISA is better than the on/offshore bond. So, regardless of what comes later in the pecking order, ISA is top or second. As a higher rate taxpayer, pension is likely to be the best option for someone looking for income in later life. Although you mention accessibility. That is where a pension falls down.

    A certain amount in a general investment account (unwrapped) may be suitable as well if he is not in receipt of dividends.

    Based on the extremely limited information you have given, I would say the advice is not the most suitable. As is so often the case when you see Prudential mentioned. Its a product oversold by old fashioned advisers that should be taken out and shot. That is not to say that every one of these sold is bad. It just seems that some are so focused on the capital security and Pru's long term history of delivering that it becomes the go to solution for everything they do. It is an easy and lazy solution to present to people who are nervous about investing (and therefore meets the objective set).

    However, I add the caveat that we do not know all the facts and scenario and a few variations or additional bits of info you may not have mentioned could turn it into being suitable.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • thrifty_pete
    • By thrifty_pete 14th Oct 18, 10:34 PM
    • 256 Posts
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    • #4
    • 14th Oct 18, 10:34 PM
    • #4
    • 14th Oct 18, 10:34 PM
    (why for example does he need additional and secure income when he is already high rate on the basis of rental income alone, presumably owns the houses backing that up, yet is apparently so lacking in self control that he needs a scheme to stop him spending it? )
    Originally posted by AnotherJoe
    Houses are hard to sell, whereas a large cash balance is much more tempting. Rental income is not 100% reliable and long term it could even fall if the property market takes a dive. As interest rates are low, diversifying into something else makes sense.
    Does he have a job? Did the IFA suggest he starts a pension?
    Originally posted by AnotherJoe
    He does have sporatic periods of employment, 18 months say, and then 6 months to a year not working. The IFA didn't mention a mention AFAIK. The question is perhaps how much can one pay into a pension? More than your gross employment income in that tax year?
    • kidmugsy
    • By kidmugsy 15th Oct 18, 12:17 AM
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    • #5
    • 15th Oct 18, 12:17 AM
    • #5
    • 15th Oct 18, 12:17 AM
    An IFA suggested he buy this Prudential Investment Plan:
    https://www.pru.co.uk/investments/investment-products/prudential-investment-plan/
    Originally posted by thrifty_pete
    Not for me, Clive. Though maybe the IFA was influenced by your friend's fear of blowing all the money; then the 5% restriction might impart a bit of discipline.

    A friend has inherited a very substantial sum but has very little idea about personal finance. He has no ISAs and no proper pension. He is a higher rate taxpayer as his rental income alone takes his up to the threshold. He has a couple of mortgages on interest only which I've told him to pay off! He has an average wage. He's 40 so his plans might change I suppose. His main aim is to have some secure income in the future, save tax and something which stops him spending it!
    Originally posted by thrifty_pete
    If he expects to stay a higher rate taxpayer he might indeed be wise to clear those mortgages if they are on his BTL properties. The wisdom of clearing a mortgage on owner-occupied housing may not be so clear, except that if he feels that that would help him to avoid wasting the money maybe he should do that too. (First rule of not wasting money - no new cars!)

    He should fill ISAs - Cash ISAs if the markets frighten him at the moment, S&S ISAs once he's had a chance to gather his breath and learn about investing. As a higher rate payer he should also look at buying the max amount of Premium Bonds - 50k, giving him a roughly steady stream of small monthly prizes tax-free, plus the tiny chance of bigger wins.

    Pensions: he should probably fill up to the allowed gross amount = his gross earnings in the tax year. That's EARNINGS, not income. So BTL rents don't count (unless he's running holiday lets).

    He should also be quick to spread his money around. I can't guess what you mean by "a very substantial sum" but he had better be aware that the compensation limit for bank accounts is 85k per Banking Licence. Or park much of it at ns&i for the moment - they have a Treasury guarantee.
    Last edited by kidmugsy; 15-10-2018 at 12:19 AM.
    Free the dunston one next time too.
    • thrifty_pete
    • By thrifty_pete 16th Oct 18, 6:49 PM
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    • #6
    • 16th Oct 18, 6:49 PM
    • #6
    • 16th Oct 18, 6:49 PM
    OK, thanks for the advice. It is seven digits so I think my friend is out of his depth.
    Are these funds fairly unsafe then? Any money above 85k is at risk?
    Would a pension pot be any safer?
    I'm and NS&I fan too, fairly solid product range.
    • Malthusian
    • By Malthusian 17th Oct 18, 10:06 AM
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    Malthusian
    • #7
    • 17th Oct 18, 10:06 AM
    • #7
    • 17th Oct 18, 10:06 AM
    OK, thanks for the advice. It is seven digits so I think my friend is out of his depth.
    Originally posted by thrifty_pete
    He should see an actual independent financial adviser. If the adviser who recommended PruFund claims to be independent, he should see a better one.

    Are these funds fairly unsafe then? Any money above 85k is at risk?
    The 85k FSCS limit is virtually irrelevant.

    How safe or unsafe the investment is depends on what the adviser is recommending he holds within the Prudential Investment Plan.

    Would a pension pot be any safer?
    Your question is a bit like "would a bowl be any tastier than a plate". Pensions are neither safe nor unsafe. The investments that go in them are safe or unsafe. Largely the same investments can be held in a pension as in a Prudential Investment Plan.

    I'm and NS&I fan too, fairly solid product range.
    If any part of his inheritance is to be invested for the long term (5-10 years or more) then NS&I has high inflation risk and shortfall risk.

    If he still wants advice from people over the Internet, tell him to register here and ask questions directly, because at the moment we are playing Chinese Whispers. Someone who has little knowledge of investments is asking questions of someone who also has little knowledge of investments (this is not a judgement on you; most people don't), who then asks random people down the pub, and then relays what he thinks he heard back to his friend. This is a recipe for disaster.

    He should either see a proper IFA or, if he must ask people down the pub, ask us directly instead of third-hand.
    • thrifty_pete
    • By thrifty_pete 22nd Oct 18, 8:36 PM
    • 256 Posts
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    thrifty_pete
    • #8
    • 22nd Oct 18, 8:36 PM
    • #8
    • 22nd Oct 18, 8:36 PM
    He should see an actual independent financial adviser.
    Originally posted by Malthusian
    I did tell him to find an independent advisor. The term IFA seems to always mean tied salesperson with a very limited range of products. Would any IFA really tell me to invest in NS&I products which have no commission?
    The 85k FSCS limit is virtually irrelevant.
    How safe or unsafe the investment is depends on what the adviser is recommending he holds within the Prudential Investment Plan.
    Originally posted by Malthusian
    As a private investor I can estimate risks for shares but I can't judge the risk of the bank defaulting if they are held in a nominee account. I understand it is only 50k for investments, so fairly small. I think in my share example, finding a broker who offers personal CREST membership would reduce the risk.
    Your question is a bit like "would a bowl be any tastier than a plate". Pensions are neither safe nor unsafe. The investments that go in them are safe or unsafe. Largely the same investments can be held in a pension as in a Prudential Investment Plan.
    Originally posted by Malthusian
    I was wondering if there were any regulatory safeguards such as the FSCS for pensions. Especially as many pensions pots will exceed the 50k or 85k limits.
    If any part of his inheritance is to be invested for the long term (5-10 years or more) then NS&I has high inflation risk and shortfall risk.
    Originally posted by Malthusian
    I was thinking as part of a portfolio. I have some index linked bonds which I like as they are fairly secure.
    If he still wants advice from people over the Internet, tell him to register here and ask questions directly, because at the moment we are playing Chinese Whispers. Someone who has little knowledge of investments is asking questions of someone who also has little knowledge of investments (this is not a judgement on you; most people don't), who then asks random people down the pub, and then relays what he thinks he heard back to his friend. This is a recipe for disaster.
    Originally posted by Malthusian
    I'm just after some rough advice. I'm confused with this Prudential product as I don't see why is has tax advantages if it isn't a pension or ISA.
    He should either see a proper IFA or, if he must ask people down the pub, ask us directly instead of third-hand.
    Originally posted by Malthusian
    Of my friends and relatives who've been to an IFA, going down the pub for advice would have resulted in a much better outcome. The upfront charges of some of these products are fairly obscene. You can't blame the IFA for selling them, if someone was going to pay me a year's salary in commission I would be tempted to flog anything. I think times have changed, people trust meercats more than insurance brokers, and a good blog like monevator which doesn't have a vested interest are the true Independent Advsors.
    Last edited by thrifty_pete; 22-10-2018 at 8:43 PM.
    • dunstonh
    • By dunstonh 22nd Oct 18, 9:50 PM
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    dunstonh
    • #9
    • 22nd Oct 18, 9:50 PM
    • #9
    • 22nd Oct 18, 9:50 PM
    The term IFA seems to always mean tied salesperson with a very limited range of products. Would any IFA really tell me to invest in NS&I products which have no commission?
    The term IFA NEVER means tied salesperson. That is FA.

    Research has found that over half of people seeing an FA think they are seeing an IFA. FAs will not go out of their way to correct an incorrect perception. Unless the adviser states clearly that they are independent then they are not. If they use terms like unbiased or impartial then they are not independent. Independent Financial Adviser is a protected term that can only be used by IFAs.

    Would any IFA really tell me to invest in NS&I products which have no commission?
    IFAs are not paid by commission. And yes, they will recommend NS&I where appropriate. Done it many times myself.

    As a private investor I can estimate risks for shares but I can't judge the risk of the bank defaulting if they are held in a nominee account. I understand it is only 50k for investments, so fairly small. I think in my share example, finding a broker who offers personal CREST membership would reduce the risk.
    An IFA is unlikely to recommend shares. If risk based investments are used, then unit linked funds are likely to be recommended and its 85k (as of April 2019) per fund house.

    I was wondering if there were any regulatory safeguards such as the FSCS for pensions. Especially as many pensions pots will exceed the 50k or 85k limits.
    Stakeholder pensions and personal pensions using insured funds can get 100% FSCS protection with no upper limit. SIPPs using Unit Trusts/OEICS get 85k (as of April 19) per fund house.

    I was thinking as part of a portfolio. I have some index linked bonds which I like as they are fairly secure.
    None currently available from NS&I.

    I'm just after some rough advice. I'm confused with this Prudential product as I don't see why is has tax advantages if it isn't a pension or ISA.
    It doesn't. It sounds as if it was being recommended in the life assurance tax wrapper (either onshore or offshore versions). ISA and pensions are not the only tax wrappers.

    Of my friends and relatives who've been to an IFA, going down the pub for advice would have resulted in a much better outcome.
    And those friends actually saw an IFA and not an FA? Could they tell the difference?

    The upfront charges of some of these products are fairly obscene.
    Again, this suggests they are not using IFAs. There are barely any investment products that an IFA has available that have any up front charges.

    You can't blame the IFA for selling them, if someone was going to pay me a year's salary in commission I would be tempted to flog anything.
    No commission.

    I think times have changed, people trust meercats more than insurance brokers, and a good blog like monevator which doesn't have a vested interest are the true Independent Advsors.
    IFAs are not insurance brokers. Monevator has no regulatory permissions and doesnt provide any advice. Whilst it isn't a bad site, it does have some inbuilt bias and an independent shouldnt have any bias.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • kidmugsy
    • By kidmugsy 22nd Oct 18, 10:13 PM
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    kidmugsy
    It is seven digits so I think my friend is out of his depth.
    Originally posted by thrifty_pete
    Ah, then maybe there is a smidgen of logic in buying a single premium life insurance bond. Your chum's wealth is far bigger than can be accommodated quickly in pensions, ISAs, and premium bonds. Maybe it would still be very large once has has cleared off his mortgages. In that case what is he to invest the balance in?

    Has he got a wife, children, or grandchildren? They can be useful tax shelters. Or even parents?

    But above all he's got to find an IFA.
    Free the dunston one next time too.
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