Parents finally realised financial "advice" a rip-off

[walm]

My folks (both in their 60s) appear to be paying 2-3%+ on a bunch of reasonably sized investment pots run by the usual muppets, who do things like recommend individual stocks in an attempt to justify their fees and earn more on churn.

I am more than happy to set up exactly what they have now on a cheap platform and save them thousands, BUT I know very little about IHT planning or the tax benefits of ISAs/SIPPs for pensioners.

The biggest issue appears to be IHT planning. (For example, my mum justified the crazy fees for running her ISA because the guy claimed he could release funds for a funeral and to cover IHT immediately without worrying about probate - which sounds like utter BS to me... but I just don't know.)

I have checked the IM thread (some of it) and while it sounds great, they want to be a little more actively investing (for example, my uncle is a fund manager so they want to leave a bunch with him - despite his horrendous performance).

Is there anywhere I can go to for solid one-off tax advice?

[Derek Chevalier]

walm said:

My folks (both in their 60s) appear to be paying 2-3%+ on a bunch of reasonably sized investment pots run by the usual muppets, who do things like recommend individual stocks in an attempt to justify their fees and earn more on churn.

I am more than happy to set up exactly what they have now on a cheap platform and save them thousands, BUT I know very little about IHT planning or the tax benefits of ISAs/SIPPs for pensioners.

The biggest issue appears to be IHT planning. (For example, my mum justified the crazy fees for running her ISA because the guy claimed he could release funds for a funeral and to cover IHT immediately without worrying about probate - which sounds like utter BS to me... but I just don't know.)

I have checked the IM thread (some of it) and while it sounds great, they want to be a little more actively investing (for example, my uncle is a fund manager so they want to leave a bunch with him - despite his horrendous performance).

Is there anywhere I can go to for solid one-off tax advice?

I think we may have spoken recently as your situation sounds familiar. If not, I think a mid-tier accountancy firm might be a good starting point.

[walm]

Derek Chevalier said:

I think we may have spoken recently as your situation sounds familiar. If not, I think a mid-tier accountancy firm might be a good starting point.

Not spoken but sounds like that could be a plan. Will any accountancy do that?

[Ian350]

I agree - a good mid-tier accountancy firm will do. I'd suggest looking for one with its own financial advisor dept.

I looked for one 5 years ago and chose Howard Worth in Cheshire. I think they're excellent. They're maybe too far from you but check out their website so you can see the sort of resources, professionalism etc you should be looking for.

[JulianPH]

Do feel free to contact Nik on the IM thread regarding this, it does not matter that IM may not be a solution for them - the whole point of the sponsorship of this thread was to help other PHers.

You are completely correct that what was said to your Mum is indeed complete and utter BS.

I don't want to break any site rules by adding more here, but Nik holds the advanced financial qualification in Taxation and Trusts (which cover IHT planning in great depth) and would be happy to help save your parents money (and BS) without even discussing IM (and for free).

Well done for helping them out in this.

[walm]

JulianPH said:

Do feel free to contact Nik on the IM thread regarding this, it does not matter that IM may not be a solution for them - the whole point of the sponsorship of this thread was to help other PHers.

You are completely correct that what was said to your Mum is indeed complete and utter BS.

I don't want to break any site rules by adding more here, but Nik holds the advanced financial qualification in Taxation and Trusts (which cover IHT planning in great depth) and would be happy to help save your parents money (and BS) without even discussing IM (and for free).

Well done for helping them out in this.

Thanks Julian - an advanced qualification on taxation and trusts sounds like what we need! And I am a big fan of what IM is doing so I would love to support it somehow. It may be possible to break their portfolios into buckets - some in an IM managed wrapper with others in a simple ISA or SIPP platform.

[walm]

Ian350 said:

I agree - a good mid-tier accountancy firm will do. I'd suggest looking for one with its own financial advisor dept.

I looked for one 5 years ago and chose Howard Worth in Cheshire. I think they're excellent. They're maybe too far from you but check out their website so you can see the sort of resources, professionalism etc you should be looking for.

Thanks for the pointers Ian - I shall check this out alongside IM.

[Terminator X]

Use a tracker with lowest possible fees. I appreciate that the financial advisers on here will howl their derision.

TX.

[Derek Chevalier]

Terminator X said:

Use a tracker with lowest possible fees. I appreciate that the financial advisers on here will howl their derision.

TX.

Will they?

[JulianPH]

walm said:

Thanks Julian - an advanced qualification on taxation and trusts sounds like what we need! And I am a big fan of what IM is doing so I would love to support it somehow. It may be possible to break their portfolios into buckets - some in an IM managed wrapper with others in a simple ISA or SIPP platform.

Hi walm

Thanks for that, this may be a very good idea moving forward, but our assistance is not dependent on this (or anything else).

We take the view that if we do the right thing from day one then it will come back to us one way or the other. We are fortunate to be big enough to wait for this, rather than need to earn as soon as we can, though still small enough to ensure a personal response to everyone.

I suppose it is the investment sector equivalent of "pay it forward"!

Nik has so many Advanced qualifications it frankly does my head in!

[walm]

Terminator X said:

Use a tracker with lowest possible fees. I appreciate that the financial advisers on here will howl their derision.

TX.

Couple of things...
- What would it be wrapped in? ISA / SIPP / other?
- What are the best trackers for income rather than growth? (My folks need the income.)
- Which geographies?
- What about debt instruments rather than pure equities given their far lower risk profile in retirement?
- What mix of cash?
- What is the best structure to minimise IHT?
- What is the best structure to minimise income tax between them?

etc... etc...
Having been an active stock-picker for most of my professional life, I am well aware of the benefits of trackers!
It's the other stuff that I am less familiar with!

[walm]

JulianPH said:

Hi walm

Thanks for that, this may be a very good idea moving forward, but our assistance is not dependent on this (or anything else).

We take the view that if we do the right thing from day one then it will come back to us one way or the other. We are fortunate to be big enough to wait for this, rather than need to earn as soon as we can, though still small enough to ensure a personal response to everyone.

I suppose it is the investment sector equivalent of "pay it forward"!

Nik has so many Advanced qualifications it frankly does my head in!

[MisterJD]

walm said:

My folks (both in their 60s) appear to be paying 2-3%+ on a bunch of reasonably sized investment pots run by the usual muppets, who do things like recommend individual stocks in an attempt to justify their fees and earn more on churn.

I am more than happy to set up exactly what they have now on a cheap platform and save them thousands, BUT I know very little about IHT planning or the tax benefits of ISAs/SIPPs for pensioners.

The biggest issue appears to be IHT planning.

Do your parents in their 60s care about their inheritance tax bill? They could have a lot of life yet to live.

Important to you probably, important to them right now maybe not but in the future.

If they are minded to start planning there will likely be plenty of 7 year chunks you can work your way through with gifts, it'll resolve itself with effective planning that they want to proceed with.

[anonymous-user]

MisterJD said:

If they are minded to start planning there will likely be plenty of 7 year chunks you can work your way through with gifts, it'll resolve itself with effective planning that they want to proceed with.

Yup, may well be a case for getting "better and more cost-effective advice" rather than abandoning advice altogether.

[walm]

MisterJD said:

Do your parents in their 60s care about their inheritance tax bill? They could have a lot of life yet to live.

It's a slightly weird situation.
Like most people their age, they have no idea how much money the rest of their life will cost.
But at the same time, they are slightly paranoid they will drop dead any second (my dad had two strokes a couple of years ago so maybe not that paranoid).
They want to make sure they don't give the government too much while leaving them as much as possible to live on.
So, sadly for me they aren't about to start gifting me hundreds of thousands of pounds and hoping they survive at least 7 years.
I think they would trust me to save the money and look after them with it, if necessary, but my two siblings are likely to do the opposite and spend it, putting them very much out of pocket.
Although I believe you can do something with houses that avoids that... again, solid advice seems essential.

[DonkeyApple]

I’m not a financial planner but from my experience I would start the process by noting down what amount of income they want each year going forward and what their total pot size currently is. Then calculate what the sensible annual income would be from that pot. At which point you have a pretty clear picture as to whether there is gap, how big it is and therefor a clearer idea in regards to whether there is a big problem or not and the amount of work needed to bridge any gap.

For example, if they have a portfolio of £1m, use a sensible income yield of say 3% and only want a combined income of about £20k then there isn’t much of an issue and most of the focus can go into tax efficiency. If the pot is £250k and the same income is desired then there is arguably a significant issue which is going to have to be bridged by working longer, downsizing, living off capital etc.

Focussing entirely on yield rates if somewhere in the middle ground is, to me, pretty high risk and why so many people have been pouring money into dodgy 10% yield investments where they have probably lost all their capital at the point of initial investment or are running huge capital risks that over a 20 odd year horizon are almost certainly going to strike.

[walm]

DonkeyApple said:

I’m not a financial planner but from my experience I would start the process by noting down what amount of income they want each year going forward and what their total pot size currently is. Then calculate what the sensible annual income would be from that pot. At which point you have a pretty clear picture as to whether there is gap, how big it is and therefor a clearer idea in regards to whether there is a big problem or not and the amount of work needed to bridge any gap.

For example, if they have a portfolio of £1m, use a sensible income yield of say 3% and only want a combined income of about £20k then there isn’t much of an issue and most of the focus can go into tax efficiency. If the pot is £250k and the same income is desired then there is arguably a significant issue which is going to have to be bridged by working longer, downsizing, living off capital etc.

Focussing entirely on yield rates if somewhere in the middle ground is, to me, pretty high risk and why so many people have been pouring money into dodgy 10% yield investments where they have probably lost all their capital at the point of initial investment or are running huge capital risks that over a 20 odd year horizon are almost certainly going to strike.

Thanks DA - from what they have told me, there isn't any kind of income gap (currently, while they are relatively healthy).
(My dad has a fairly healthy DB pension from the NHS. And apparently has literally £200K+ in cash just sitting in his bank doing nothing on top of other savings.)
They just want to make their capital work harder for them while protecting it from tax (both income tax and IHT).

[GliderRider]

walm said:

My folks (both in their 60s)....For example, my mum justified the crazy fees for running her ISA because the guy claimed he could release funds for a funeral and to cover IHT immediately without worrying about probate - which sounds like utter BS to me... but I just don't know....

Sorting out my late father's estate, I can tell you that every bank and building society with which he had accounts offered to release funds from them to cover funeral costs.

Depending upon your, and your parents' attitude to risk and investments, there are companies which run funds using Business Property Relief shares, which are exempt from inheritance tax. Some people manage their own funds, but its more usual to get a specialist in this to do it for you. This article gives a bit of background: Using AIM shares to avoid IHT

Edited by GliderRider on Tuesday 12th November 22:50

[walm]

GliderRider said:

Sorting out my late father's estate, I can tell you that every bank and building society with which he had accounts offered to release funds from them to cover funeral costs.

Depending upon your, and your parents' attitude to risk and investments, there are companies which run funds using Business Property Relief shares, which are exempt from inheritance tax. Some people manage their own funds, but its more usual to get a specialist in this to do it for you. This article gives a bit of background: Using AIM shares to avoid IHT

Thanks Glider - that's food for thought!
The advisor just kept repeating that it was in a "nominee account" like it was some magic sauce.
And indeed it was magic. Magic for him in creating excess fees for doing absolutely nothing.

Just as an update:
I am moving all my foks investments to Interactive Investor.
Max fees £240 a year including VAT each. (They wil trade rarely and you are given trade credits which will cover that out of the fees.)
Dad's SIPP will go into either Vanguard LS 40 or 60. Fees 0.22% = roughly £500 a year.

Compared to:
£1,900 a year to some "retirement advisor".
£1,400 a year to the "investment manager".
£2,800 a year to the "investment manager" in completely unnecessary transaction costs (blatant churn for which we are in a formal complaint process).
£240 a year to the SIPP platform.
£1,900 a year to the funds themselves (they were all incredibly expensive actively managed funds, including some hedge funds).

So £8,240 a year should drop to £740. A saving of £7,500.

My mum's ISA will stay in the current fund and equities but on the ii platform. Current fund has fees of 0.5% and is c.half the portfolio.
Compared to:
£3,350 in "investment manager" fees.
£2,400 in fund fees.

So £5,350 should drop to £940. A saving of £4,400.

I spoke to Nik over at IM who was exceedingly helpful. And I think likely I will eventually transfer some of these funds to IM.
However, as you can imagine - my folks are fed up with being burned by excessive fees so just asked me to keep their portfolios as close to what they have now while minimising fees as much as possible, which I think is what I have done.

If anyone has older parents with savings, I know that generation hate talking about money, but CHECK.
My parents' refusal to ask me for help has cost them nearly £12k per annum in excess fees, as outlined above.

[Phooey]

walm said:

..nearly £12k per annum in excess fees, as outlined above.

Wowzers.


Out of interest, what kind of performance% (or value) did these 'professionals' return??