What questions should a newbie ask an IFA?
Discussion
Ozzie Osmond said:
Whilst future returns are never guaranteed and markets move both ways I can tell for a fact that many people with stocks and shares ISAs have benefited from compound tax free returns of around 8% a year.
Out of interest, which funds return 8% compounded, and over how many years?Cash ISA may offer nothing (as much as anything, due to the £1000 personal savings allowance), but having a liquid cash buffer in the event of emergencies is important for most. Now that an ISA allowance may be tapped into and replaced (in the same tax year), for many people the cash ISA is not about making money.
The cash ISA, insurance.. neither are sexy but they're vital. They can be transferred into an investment ISA too, when it might be more appropriate to do so.
KTF said:
For arguments sake, assume it's a 60/40 split between cash in a deposit account and the rest in a cash ISA with a penalty if it is accessed before 2018.
I can transfer part or all of the ISA into a S&S ISA (either myself or via an IFA) for a penalty now or I can leave it alone and start drip feeding a 2017 S&S ISA from the money in the deposit account at £20k(ish) a year.
The question is how do you transfer the remainder of the cash over (saving some for a rainy day) to the S&S ISA (or similar) rather than drip feeding it at an ISA allowance per year. That's that part (I think) I would need an IFA to work out?
You don't need an adviser to do it, if you are content that you have sufficient expertise yourself. If you think that you need, for instance, six months salary as an emergency fund, that's not a bad start when working out how much to leave behind. The rules state that if you wish to transfer your cash ISA, you can split any previous ISA allowances between more than one provider although the current tax year ISA must be transferred in entirety.I can transfer part or all of the ISA into a S&S ISA (either myself or via an IFA) for a penalty now or I can leave it alone and start drip feeding a 2017 S&S ISA from the money in the deposit account at £20k(ish) a year.
The question is how do you transfer the remainder of the cash over (saving some for a rainy day) to the S&S ISA (or similar) rather than drip feeding it at an ISA allowance per year. That's that part (I think) I would need an IFA to work out?
However it may also depend on the provider and whether they allow a partial transfer or will simply transfer the lot. That will be up to your intended manager, and your existing's policy. Some ISA providers will not accept transfers of previous years’ allowances, for instance, some will not accept partial transfers. New money can be dropped in quite easily.
Chapter and verse; https://www.gov.uk/individual-savings-accounts/tra...
Read that yesterday, and agreed with practically all of it. Unusual for the trade press! As ever, with much of all trade press, there's only an angle for the writer's portfolio and hardly ever a story of genuine merit. Fin tech, generally, has become a self licking lollipop. Robo advice, in particular, has got traction, and it's working. But there are far too many players with poor business models, incredible levels of debt, and no proper strategy other than to share steal and worry about the consequences later (oh, to sell?!). It's crazy.
Ginge R said:
Ozzie Osmond said:
Whilst future returns are never guaranteed and markets move both ways I can tell for a fact that many people with stocks and shares ISAs have benefited from compound tax free returns of around 8% a year.
Out of interest, which funds return 8% compounded, and over how many years?However, by way of example check out the graph for Fidelity European. https://www.fidelity.co.uk/fund-supermarket/Fideli...
My own ISA performance over the past decade from a basket of funds is +9% p.a. with dividends reinvested and I believe others on this forum have achieved similar performance. [I backed the figure down a bit so as not be unrealistically high for a new investor]
I realise there are some funds that can get good returns. I have a small S&S ISA in one fund that is currently +54% up on the original investment (it has been higher) in the time that I have held it.
I picked that by going to iii and ticking all the boxes for 'I dont mind if I never see my money again' and then investing in it. Every few years I do the same again and see what happens.
Not exactly a scientific approach to picking funds but then it wasn't a large sum and worth a punt. However, I don't want to apply the same logic to larger amounts
I picked that by going to iii and ticking all the boxes for 'I dont mind if I never see my money again' and then investing in it. Every few years I do the same again and see what happens.
Not exactly a scientific approach to picking funds but then it wasn't a large sum and worth a punt. However, I don't want to apply the same logic to larger amounts
Ozzie Osmond said:
As you know, graphs/stats are easy to fiddle by moving the starting point.
However, by way of example check out the graph for Fidelity European. https://www.fidelity.co.uk/fund-supermarket/Fideli...
My own ISA performance over the past decade from a basket of funds is +9% p.a. with dividends reinvested and I believe others on this forum have achieved similar performance. [I backed the figure down a bit so as not be unrealistically high for a new investor]
I can't see the link ATM, but I'll take a look, cheers. As you say, they can be fiddled. For the longer term, you can certainly premise a likely aggregated total based on market growth and say, with the usual risk warnings and with an appropriate degree of confidence, you achieved what worked out at 'x'% per annum. But to have the confidence to target/hit 8/9% each and every year is risky/punchy! Hats off to you if that's what you set out to achieve and what you have done. I suggest to most clients that achieving average growth of 4+% per annum on an annualised basis and looking back over the medium term, is not unachievable. Of course, nothing in investing is certain and clients know that, especially the experienced ones.However, by way of example check out the graph for Fidelity European. https://www.fidelity.co.uk/fund-supermarket/Fideli...
My own ISA performance over the past decade from a basket of funds is +9% p.a. with dividends reinvested and I believe others on this forum have achieved similar performance. [I backed the figure down a bit so as not be unrealistically high for a new investor]
Ginge R said:
I suggest to most clients that achieving average growth of 4+% per annum on an annualised basis and looking back over the medium term, is not unachievable. Of course, nothing in investing is certain and clients know that, especially the experienced ones.
But you are not a fund picker or wealth manager, only a planner, and a relatively new one.Ok now all the serious stuff is done...
my questions would be;
How old are you?
How long have you been doing this?
Why are you still working?
Once we have established he is just doing this for love and his own future is very secure.
I would ask why he thinks pushing all the tax liability into someones retirement period is such a great idea.
If someone invests 10K taxed he will have the ability to take advantage of the UK's generous CG exemption, every year.
The person with the tax deferred 10K will grow, but to gain an advantage over the other 10K they should add the saved tax (which they don't)and they will ultimately end up paying income tax rates on the Capital gains along with deferred capital.
Planning the future using the current scenario can be a little dicey as governments will look for money flow and tax it at whatever rate they wish.
The approach I have taken is to develop three chunks of money so I can choose my income source for any particular year, tax free, tax deferred and "already my money".
note. The "Already my money" has had the cost basis adjusted so it really is almost "all mine" with only a modest CG liability.
I plan with regard to the US tax system, by keeping my AGI low my cap gains will be tax free and if I can manage to keep the the "combined income" down my social security will be tax free too. Maybe not every year, but for alternate years it's easy to do. (because I have choices, tax free and the My Money do not add to the AGI.)
I have planned this way as I don't subscribe to the theory of needing less disposable income in retirement.
I will pay far less taxes than much poorer people. Some might say that is unfair, but when you consider what they do with the tax money I think it's justified to be almost tax free in retirement.
Basically eggs not in one basket.
my questions would be;
How old are you?
How long have you been doing this?
Why are you still working?
Once we have established he is just doing this for love and his own future is very secure.
I would ask why he thinks pushing all the tax liability into someones retirement period is such a great idea.
If someone invests 10K taxed he will have the ability to take advantage of the UK's generous CG exemption, every year.
The person with the tax deferred 10K will grow, but to gain an advantage over the other 10K they should add the saved tax (which they don't)and they will ultimately end up paying income tax rates on the Capital gains along with deferred capital.
Planning the future using the current scenario can be a little dicey as governments will look for money flow and tax it at whatever rate they wish.
The approach I have taken is to develop three chunks of money so I can choose my income source for any particular year, tax free, tax deferred and "already my money".
note. The "Already my money" has had the cost basis adjusted so it really is almost "all mine" with only a modest CG liability.
I plan with regard to the US tax system, by keeping my AGI low my cap gains will be tax free and if I can manage to keep the the "combined income" down my social security will be tax free too. Maybe not every year, but for alternate years it's easy to do. (because I have choices, tax free and the My Money do not add to the AGI.)
I have planned this way as I don't subscribe to the theory of needing less disposable income in retirement.
I will pay far less taxes than much poorer people. Some might say that is unfair, but when you consider what they do with the tax money I think it's justified to be almost tax free in retirement.
Basically eggs not in one basket.
jeff m2 said:
If someone invests 10K taxed he will have the ability to take advantage of the UK's generous CG exemption, every year.
The person with the tax deferred 10K will grow, but to gain an advantage over the other 10K they should add the saved tax (which they don't)and they will ultimately end up paying income tax rates on the Capital gains along with deferred capital.
^^^ I've read this a number of times and don't understand the point that's being made.The person with the tax deferred 10K will grow, but to gain an advantage over the other 10K they should add the saved tax (which they don't)and they will ultimately end up paying income tax rates on the Capital gains along with deferred capital.
Tax free cumulation over several decades is massively beneficial o pension investments, especially when you take account of the fact you are getting cumulative tax free returns on tax which you haven't had to pay. Then take account of the 25% tax free lump sum (PCLS) and the possibility of only paying tax at 20% in retirement when you initially received tax relief at 40%....
If someone doesn't want pension then the next best thing is ISA with tax free cumulation, income and gains.
Only after using all of these would someone keen on avoiding tax need to get into use of the annual CGT allowance, albeit a useful thing to have when used regularly. There's also the ability to offset any CGT losses.
KTF said:
Another question. Assuming the most tax efficient way to transfer from cash is into a S&S ISA and I start doing this from the next tax year with new money, what do you do with the old money if you can only transfer up to your ISA allowance each year as I would take several years to move it over?
You are not limited to "only transfer up to your ISA allowance each year". You can transfer any amount you like, whenever you like.
If you have £1m in accumulated ISAs you could transfer the lot every week if you wanted to (or were daft enough!).
The annual ISA allowance is for new contributions and has no bearing on any ISA transfers you wish to make.
It may be the case that you do need a financial adviser, and there is nothing wrong with that. You might me over analysing things...
JulianPH said:
I tried to make this clear earlier:
You are not limited to "only transfer up to your ISA allowance each year". You can transfer any amount you like, whenever you like.
If you have £1m in accumulated ISAs you could transfer the lot every week if you wanted to (or were daft enough!).
The annual ISA allowance is for new contributions and has no bearing on any ISA transfers you wish to make.
It may be the case that you do need a financial adviser, and there is nothing wrong with that. You might me over analysing things...
Yes, I realise I can transfer some (or all) of the cash ISA into the stocks and shares ISA as you are not putting any new money in. You are not limited to "only transfer up to your ISA allowance each year". You can transfer any amount you like, whenever you like.
If you have £1m in accumulated ISAs you could transfer the lot every week if you wanted to (or were daft enough!).
The annual ISA allowance is for new contributions and has no bearing on any ISA transfers you wish to make.
It may be the case that you do need a financial adviser, and there is nothing wrong with that. You might me over analysing things...
The issue with transferring the cash ISA is that it is a fixed rate until 2018 with a 180 day interest penalty on the amount withdrawn. So if I were to transfer some (or all) of the cash ISA I would get this penalty applied which is effectively another fee to add on top.
I would also then be putting a lump sum in the S&S which I also thought was not recommended as you are then exposed to the market dropping the day after. I was under the impression that drip feeding it in was a better idea to avoid this?
The other issue is that say, for example, that I transferred all of my existing cash ISA into the S&S ISA tomorrow. In April 2017 I would then be able to top this up with my 2017 allowance (£20kish) but there would still be the remains of the cash sitting around in low interest accounts that couldn't be paid in as I would have already used my ISA allowance for 2017.
So in 2018 I put in another 20k, 2019 another 20k, etc which means the the whole conversion process takes several years.
At least that is how I understand it. If I am over thinking it, please feel free to correct
KTF said:
Yes, I realise I can transfer some (or all) of the cash ISA into the stocks and shares ISA as you are not putting any new money in.
The issue with transferring the cash ISA is that it is a fixed rate until 2018 with a 180 day interest penalty on the amount withdrawn. So if I were to transfer some (or all) of the cash ISA I would get this penalty applied which is effectively another fee to add on top.
I would also then be putting a lump sum in the S&S which I also thought was not recommended as you are then exposed to the market dropping the day after. I was under the impression that drip feeding it in was a better idea to avoid this?
The other issue is that say, for example, that I transferred all of my existing cash ISA into the S&S ISA tomorrow. In April 2017 I would then be able to top this up with my 2017 allowance (£20kish) but there would still be the remains of the cash sitting around in low interest accounts that couldn't be paid in as I would have already used my ISA allowance for 2017.
So in 2018 I put in another 20k, 2019 another 20k, etc which means the the whole conversion process takes several years.
At least that is how I understand it. If I am over thinking it, please feel free to correct
Sorry, I was going on:The issue with transferring the cash ISA is that it is a fixed rate until 2018 with a 180 day interest penalty on the amount withdrawn. So if I were to transfer some (or all) of the cash ISA I would get this penalty applied which is effectively another fee to add on top.
I would also then be putting a lump sum in the S&S which I also thought was not recommended as you are then exposed to the market dropping the day after. I was under the impression that drip feeding it in was a better idea to avoid this?
The other issue is that say, for example, that I transferred all of my existing cash ISA into the S&S ISA tomorrow. In April 2017 I would then be able to top this up with my 2017 allowance (£20kish) but there would still be the remains of the cash sitting around in low interest accounts that couldn't be paid in as I would have already used my ISA allowance for 2017.
So in 2018 I put in another 20k, 2019 another 20k, etc which means the the whole conversion process takes several years.
At least that is how I understand it. If I am over thinking it, please feel free to correct
KTF said:
what do you do with the old money if you can only transfer up to your ISA allowance each year
There is nothing wrong with lump sum investments, dripping it in is often referred to as pound cost averaging and this can work for you, but also against you (i.e. if markets rise over the year you are getting less for your money. If they fall you are getting more for your money). It is very difficult to be really helpful here because you (quite rightly) don't want to put all of your financial and personal details online!
(1) If you are married you could utilise your spouses ISA allowance thereby doubling what you can move into ISAs.
(2) You need to set a contingency fund in cash for the unexpected (this could be 3 to 6 months income).
(3) Whatever is left over in cash should be considered for 5 year minimum savings (anything required before 5 years should remain in cash)
(4) You should look at your investments - that is ISAs and Pensions - together, not separately.
(5) You should factor in any debt (mortgage, loans, other finance). Usually (but not always) it is better to pay these down if you can before investing.
(6) You should also consider any protection needs - single, no kids, is very different from married with kids. Pensions now also offer IHT planning that ISAs do not. This could be important for you, or irrelevant.
(7) You should make sure all investments are in line with the level of risk/reward you are prepared (or need) to take.
(8) You should review all of the above regularly.
(9) If you don't feel comfortable doing all the above for yourself (as most people don't) then paying a financial adviser to do this for you until either (a) you do feel comfortable doing it yourself, or (b) your adviser has proved that the value they have provided far outweighs their fees, is a very sensible approach.
(10) Ask a potential adviser how many clients they have, how much asset do the advise on, how do they add value for these clients, how important are you as a client (you can work this out yourself from the first two questions), how frequently will we meet for reviews, how much do they charge you on a fee per hour basis (providing you know in advance that you have sizeable enough asset for this to be cheaper that paying the percentage fee - at least £200,000) and what made them decide to become a financial adviser (this can be quite revealing).
Sorry this became long winded but I hope it helps!
Thanks for the advice, I do appreciate it.
I also realise its difficult to give any firm opinions either way without me laying out all the details which, as you point out, would not be wise in something as open to all as this forum.
The points you list are also very valid and yet more things to add to the list of things to consider before making a decision.
At a high level I understand the S&S approach in so far as you pick a platform, pick and buy the fund(s), keep an eye on them and move if needed.
What I would need 'help' with is picking the funds themselves - as my history of doing that to date has been less than brilliant - and then knowing when to shuffle the deck after that.
Whilst I do realise there is plenty of investment information online, there are so many funds to choose from I feel as though I might as well pick them by putting the names on a board and throwing darts.
I can see the appeal of the robo platform for achieving this as they do all the legwork for you and (in theory) keep the contents of the funds you pick fresh so there is less day-to-day maintenance required.
As the moment I am still on the fence about what to do as I get the impression that the guy who came round for a chat is geared up for higher worth individuals (60k+ is what they typically look for as a starting point). Its his business and he has been in the industry for years so appears to know his stuff. The Nucleus platform they offer has many pots but I would only be using one. Nothing wrong with that but is it the right fit for me, or is it maybe too complex for my needs at the moment. I really dont know...
I also realise its difficult to give any firm opinions either way without me laying out all the details which, as you point out, would not be wise in something as open to all as this forum.
The points you list are also very valid and yet more things to add to the list of things to consider before making a decision.
At a high level I understand the S&S approach in so far as you pick a platform, pick and buy the fund(s), keep an eye on them and move if needed.
What I would need 'help' with is picking the funds themselves - as my history of doing that to date has been less than brilliant
- and then knowing when to shuffle the deck after that.Whilst I do realise there is plenty of investment information online, there are so many funds to choose from I feel as though I might as well pick them by putting the names on a board and throwing darts.
I can see the appeal of the robo platform for achieving this as they do all the legwork for you and (in theory) keep the contents of the funds you pick fresh so there is less day-to-day maintenance required.
As the moment I am still on the fence about what to do as I get the impression that the guy who came round for a chat is geared up for higher worth individuals (60k+ is what they typically look for as a starting point). Its his business and he has been in the industry for years so appears to know his stuff. The Nucleus platform they offer has many pots but I would only be using one. Nothing wrong with that but is it the right fit for me, or is it maybe too complex for my needs at the moment. I really dont know...
KTF said:
Thanks for the advice, I do appreciate it.
I also realise its difficult to give any firm opinions either way without me laying out all the details which, as you point out, would not be wise in something as open to all as this forum.
The points you list are also very valid and yet more things to add to the list of things to consider before making a decision.
At a high level I understand the S&S approach in so far as you pick a platform, pick and buy the fund(s), keep an eye on them and move if needed.
What I would need 'help' with is picking the funds themselves - as my history of doing that to date has been less than brilliant - and then knowing when to shuffle the deck after that.
Whilst I do realise there is plenty of investment information online, there are so many funds to choose from I feel as though I might as well pick them by putting the names on a board and throwing darts.
I can see the appeal of the robo platform for achieving this as they do all the legwork for you and (in theory) keep the contents of the funds you pick fresh so there is less day-to-day maintenance required.
As the moment I am still on the fence about what to do as I get the impression that the guy who came round for a chat is geared up for higher worth individuals (60k+ is what they typically look for as a starting point). Its his business and he has been in the industry for years so appears to know his stuff. The Nucleus platform they offer has many pots but I would only be using one. Nothing wrong with that but is it the right fit for me, or is it maybe too complex for my needs at the moment. I really dont know...
I really believe that the adviser you first met with offered good value. I would suggest seeing two more (if need be) so your are confident and happy with this. It is easy for those that know how to self invest to pontificate about it (no insult intended, if I had my way everyone would come out of school with this knowledge and save a fortune from this understanding) but the reality is that they don't.I also realise its difficult to give any firm opinions either way without me laying out all the details which, as you point out, would not be wise in something as open to all as this forum.
The points you list are also very valid and yet more things to add to the list of things to consider before making a decision.
At a high level I understand the S&S approach in so far as you pick a platform, pick and buy the fund(s), keep an eye on them and move if needed.
What I would need 'help' with is picking the funds themselves - as my history of doing that to date has been less than brilliant
- and then knowing when to shuffle the deck after that.Whilst I do realise there is plenty of investment information online, there are so many funds to choose from I feel as though I might as well pick them by putting the names on a board and throwing darts.
I can see the appeal of the robo platform for achieving this as they do all the legwork for you and (in theory) keep the contents of the funds you pick fresh so there is less day-to-day maintenance required.
As the moment I am still on the fence about what to do as I get the impression that the guy who came round for a chat is geared up for higher worth individuals (60k+ is what they typically look for as a starting point). Its his business and he has been in the industry for years so appears to know his stuff. The Nucleus platform they offer has many pots but I would only be using one. Nothing wrong with that but is it the right fit for me, or is it maybe too complex for my needs at the moment. I really dont know...
Needing a financial adviser is akin to needing a plumber (insert any trade/skill you like here) - if you know how to do it yourself then great. If not, find someone who does.
Just remember that an IFA is a financial planner (not an investment manager) and should advise you on the most appropriate course whilst recommending an appropriate investment manager (or managers) for your personal circumstances.
IFA's do not manage your investments (with certain exemptions - and be weary of these - conflict of interest...???). Anyone who tells you they do is someone you should run away from (as fast as you can go!).
I get the feeling you should take some advice on your entire situation, and understand you have been offered this for just £500. That is a bargain. Go for it and see how it works out. Everything available to you know will always be available going forward. You can always change your entire position whenever you like.
Cheers
JulianPH said:
IFA's do not manage your investments (with certain exemptions - and be weary of these - conflict of interest...???). Anyone who tells you they do is someone you should run away from (as fast as you can go!).
This of course, is what used to happen. A quick flip through the FT and "job's a good 'un.". Edited by Ginge R on Friday 16th September 20:04
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