Obligations of an IFA
Discussion
I bought an investment bond some years ago and now wish to cash it in to pay for university fees. The IFA is still trading but is ignoring email/phone contact. Is this because their obligation cease at point of sale or like an insurance broker do their obligations last for the life of the product, and they fancy me going to the FOS (if that’s the right body)? If they have no obligations I will have to stick my hand in my pocket!
Hope that makes sense.
Rob
Hope that makes sense.
Rob
It depends upon how it was sold originally.
Some products might be sold with a one off fee which then require no future input, however all of my clients pay what is known as an ongoing advice fee; which is an amount charged as a % of their investments value, paid by monthly instalments direct from the provider.
Even on occasion where I have clients I have inherited with products that pay no ongoing fees, I will still help them with their enquiries, simply because it is the right thing to do.
As previously mentioned, I would recommend seeking advice, as there may be a tax liability depending upon your tax payer status and whether it was on onshore or offshore bond.
Some products might be sold with a one off fee which then require no future input, however all of my clients pay what is known as an ongoing advice fee; which is an amount charged as a % of their investments value, paid by monthly instalments direct from the provider.
Even on occasion where I have clients I have inherited with products that pay no ongoing fees, I will still help them with their enquiries, simply because it is the right thing to do.
As previously mentioned, I would recommend seeking advice, as there may be a tax liability depending upon your tax payer status and whether it was on onshore or offshore bond.
Edited by The Dictator on Tuesday 15th August 17:26
My clients generally either have a Onshore Bond or an Offshore Bond.
An onshore Bond pays the equivalent of 20% within the bond, so if you are a basic rate tax payer, there may be no further liability depending upon how much you are taking out and when.
You can access what is known as return of capital up to 5% per annum, without a tax liability, as it is effectively classed as you taking out some of the money you originally invested. If you are paying an ongoing fee of say 0.5%, then that reduces your max annual withdrawal to 4.5% and so on. Provider costs are not included in that calculation, only external costs.
You can do that for a max of 20 years, effectively taking out all of the money you originally invested (assuming growth)
There is more to it than that of course, but just a brief input.
An Offshore Bond does not pay tax or equivalent tax within the Bond = gross rollup, as such all withdrawals outside of return of capital can potentially be subject to tax.
Previously you would tend to advise an Onshore Bond to a UK resident unless they planned to retire outside of the UK and then may be subject to additional tax. These days we tend to favour Offshore Bonds more, as they have become more competitive cost wise over time.
Literally just a snapshot, but may be helpful.
An onshore Bond pays the equivalent of 20% within the bond, so if you are a basic rate tax payer, there may be no further liability depending upon how much you are taking out and when.
You can access what is known as return of capital up to 5% per annum, without a tax liability, as it is effectively classed as you taking out some of the money you originally invested. If you are paying an ongoing fee of say 0.5%, then that reduces your max annual withdrawal to 4.5% and so on. Provider costs are not included in that calculation, only external costs.
You can do that for a max of 20 years, effectively taking out all of the money you originally invested (assuming growth)
There is more to it than that of course, but just a brief input.
An Offshore Bond does not pay tax or equivalent tax within the Bond = gross rollup, as such all withdrawals outside of return of capital can potentially be subject to tax.
Previously you would tend to advise an Onshore Bond to a UK resident unless they planned to retire outside of the UK and then may be subject to additional tax. These days we tend to favour Offshore Bonds more, as they have become more competitive cost wise over time.
Literally just a snapshot, but may be helpful.
REM2112 said:
Thanks both. On the basis I haven’t paid any ongoing advice fees, it seems they are doing the right thing in ignoring me! Tax is absolutely the thing I wanted help with!
If I was the IFA (please shoot me if I ever am), I would at least have mustered the basic professionalism to reply and say that you need to approach the company direct, and to consider your tax position.One thing - are you sure the IFA hasn't been taking fees directly from the investment without you knowing? Again, talk to the company direct; they will be able to confirm this.
b
hstewie said:
hstewie said: Company or one man/woman band?
They could just be on holiday.
Maybe, but he could have set up autoreply, eg 'Thank you for your e-mail. I am currently on holiday but will attend to it promptly on my return on 21 August.' And a voicemail to say the same. Then the OP would know, as would his (other) clients.They could just be on holiday.
Panamax said:
Smoke and mirrors. It's just tax deferral and a nice little earner for guess who.
I had a look some years ago and decided to avoid like the plague. Never regretted it.
This just serves to confirm your lack of understanding, which is fine, because people like you are why I have a job.I had a look some years ago and decided to avoid like the plague. Never regretted it.
I haven't a single client with either type of bond, who over at least 5 years has not had a positive return. In fact I have many clients who have received the full initial investment back over 20 years and have more left within the investment than they actually put in in the first place.
Tax deferral is a very useful tool, especially for those with higher or additional status, how and when you take the money can make a huge difference to how much tax you pay.
@OP I hope you manage to get this sorted relatively easily, it is incredibly unprofessional for someone not to return a call or email, regardless of whether there is anything in it for them. Manners cost nothing.
OP - I am showing my age here, but investment bonds used to be sold with either a higher initial commission (c. 7%) or a lower initial commission (c. 3.5%) with a deferred trail commission (c. 0.5% a year).
Either way the commission was often payable for the sale of the product only, not any ongoing service.
Rules have changed regarding commission since then, but I don't think these rule chages apply to insurance products - which is what an investment bond is.
So the bottom line may well be that, after the sale, the financial adviser 'technically' has no further responsibility to you.
Of course, a professional advisory firm should be acting, well, professionally. This, on the face of it, does not seem remotely professional (though unfortunately is all too common).
There are potential tax implications and you should be aware of these. It may be worth you posting on one of our (Intelligent Money) threads to get a qualified answer regarding this for free.
Alternatively, I am sure a good financial adviser on here will also be happy to do the same. Either way some friendly professional input to steer you through this should be freely available here.
Either way the commission was often payable for the sale of the product only, not any ongoing service.
Rules have changed regarding commission since then, but I don't think these rule chages apply to insurance products - which is what an investment bond is.
So the bottom line may well be that, after the sale, the financial adviser 'technically' has no further responsibility to you.
Of course, a professional advisory firm should be acting, well, professionally. This, on the face of it, does not seem remotely professional (though unfortunately is all too common).
There are potential tax implications and you should be aware of these. It may be worth you posting on one of our (Intelligent Money) threads to get a qualified answer regarding this for free.
Alternatively, I am sure a good financial adviser on here will also be happy to do the same. Either way some friendly professional input to steer you through this should be freely available here.
Thanks all. I’m getting some tax advice on other matters so will just roll this in. I think the IFA is deeply unprofessional, but I suppose the takeaway is when you are investing, particularly when the time horizon is long, make detailed notes so you have a clear understanding of what you have bought and how it works. My scribbled notes of 18 years ago haven’t helped much. In better news daughter #1 got the grades to go to go to Leicester which is what I am doing with the money.
If you took out the bond 18 years ago then it was almost certainly sold on a commission basis and the original IFA technically has no ongoing obligation to give you financial advice BUT any IFA worth their salt would at least reply to your emails and offer to help or, failing that, at least be professional enough to say if they couldn't. If you are seeking tax advice elsewhere then they may well be able to help with that side although sometimes accountants are not as knowledgeable as they could be about such things.
I would try contacting other IFAs in your area to see if you could arrange an initial meeting or telephone call and discuss the options/implications with them, they should be able to at least give guidance without giving formal advice.
Finally if there is a tax implication on encashment then make sure you look into top slicing or even assigning the bond to another person before encashing (for example if you are a higher rate taxpayer and they are a non taxpayer).
p.s. One of my best clients came from such an enquiry, nothing in it for me at the time but I gave them some guidance, free of charge, as that's all that was requested at the time. A while later they came back to me over different matters and they are still a client to this day.
I would try contacting other IFAs in your area to see if you could arrange an initial meeting or telephone call and discuss the options/implications with them, they should be able to at least give guidance without giving formal advice.
Finally if there is a tax implication on encashment then make sure you look into top slicing or even assigning the bond to another person before encashing (for example if you are a higher rate taxpayer and they are a non taxpayer).
p.s. One of my best clients came from such an enquiry, nothing in it for me at the time but I gave them some guidance, free of charge, as that's all that was requested at the time. A while later they came back to me over different matters and they are still a client to this day.
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