IHT, BPR and IFA's... and other TLA's ;)
Discussion
I'd like some advice about 'how to get advice' I suppose.
I am looking at BPR IHT schemes and need to understand the risk factors. It will be a one-off investment so we're reluctant to pay ongoing fees for advice, and we don't need wealth management.
The initial cost of DIY investment vs 'advised' investment seems similar, I assume the investment companies prefer not to deal with the general public. I've looked at Close Brothers, Invesco, Octopus etc, there must be 10 others on my list.
It's likely we would use an AIM scheme, and I'm having trouble understanding the worst-case risk factors. I can imagine what might happen to the value of the AIM shares, and I can clearly see the effect of the initial, dealing & annual charges. What I can't easily compare is how possible is it that a scheme (or it's investment vehicle) could go under, and what if any protection we would have?
Are there IFA's who specialise in such schemes, and would they be likely to offer impartial advice by the hour? Or is there another way to ascertain the worst-case for each? If PH finance isn't the right place to ask, can anyone suggest a more appropriate forum?
Thanks in anticipation.
I am looking at BPR IHT schemes and need to understand the risk factors. It will be a one-off investment so we're reluctant to pay ongoing fees for advice, and we don't need wealth management.
The initial cost of DIY investment vs 'advised' investment seems similar, I assume the investment companies prefer not to deal with the general public. I've looked at Close Brothers, Invesco, Octopus etc, there must be 10 others on my list.
It's likely we would use an AIM scheme, and I'm having trouble understanding the worst-case risk factors. I can imagine what might happen to the value of the AIM shares, and I can clearly see the effect of the initial, dealing & annual charges. What I can't easily compare is how possible is it that a scheme (or it's investment vehicle) could go under, and what if any protection we would have?
Are there IFA's who specialise in such schemes, and would they be likely to offer impartial advice by the hour? Or is there another way to ascertain the worst-case for each? If PH finance isn't the right place to ask, can anyone suggest a more appropriate forum?
Thanks in anticipation.
There are lots of IFAs out there who will happily sit down with you and charge by the hour.
A good starting point in understanding the risks involved is to compare the AIM index with the FTSE 100 index over the long term, this should give you an idea of the level of volatility you'd be looking at - I've tried to upload a graph for you but without success.
There are many investment managers out there offering portfolios, each with different objectives. If you're concerned about downside risk then you should perhaps look at portfolios where capital preservation is a priority. In theory, these should be less volatile, but given the nature of this type of investment, nothing is certain.
I'd suggest having a look at something like this:
https://www.octopusinvestments.com/!documents/pdfs...
A good starting point in understanding the risks involved is to compare the AIM index with the FTSE 100 index over the long term, this should give you an idea of the level of volatility you'd be looking at - I've tried to upload a graph for you but without success.
There are many investment managers out there offering portfolios, each with different objectives. If you're concerned about downside risk then you should perhaps look at portfolios where capital preservation is a priority. In theory, these should be less volatile, but given the nature of this type of investment, nothing is certain.
I'd suggest having a look at something like this:
https://www.octopusinvestments.com/!documents/pdfs...
Pete,
Octopus is the scheme out of all those which I like. The are others, but invariably with approaches such as these, peace of mind and credibility is paramount, and probably more so than eeking every last cent out of returns in exchange for a lower peace of mind.
A lot will depend on your circumstances, your capacity for loss, attitude and inclination for risk, your other various investments, including professional and partnership interests, whether you take income that makes you a HRT, your thoughts on agricultural land, forestry, shareholdings in unquoted AIM companies and enterprise investment schemes (EIS).
You might be in your 40s any still growing and paying tax on growing income, but many more senior or older people whose primary objective is to preserve their capital and reduce a potential IHT burden, the main options are typically either BPR, EIS or a packaged AIM portfolio.
EIS schemes can in some cases be excellent planning tools for wealthier people but to enjoy the tax relief benefits and capital gains deferral in addition the IHT relief after only two years' investment, they are more suited to the younger wealth earner (above). It must be remembered that that is of course only the case if the investor does pay a suitable level of income tax in the first place.
Historically, they have been considered high-risk options, but some providers are beginning to focus on making them less risky for elderly and/or more cautious investors. The Octopus scheme for instance, targets growth, of 3%. The benefit though, is in IHT shielding, not mahoosive growth. Sometimes, fear of investment and finacial loss can become a self fulfilling prophecy.
AIM schemes invest in a selection of shares of companies quoted on the AIM market. They are normally in small companies and are likely to be rather volatile and can carry a higher risk of significant loss. As such, they are only appropriate for elderly investors with a very high appetite for risk and significant capacity for loss. However, if you set aside that rather dogmatic view and dig deeper, you can get a basket of funds that is invested in unlisted companies, superbly managed and run. Unlisted doesn't mean basket case.
You should remember too, that although it normally is easy enough to cash in your AIM or BPR holdings and withdraw your cash if you need to at a later date, that will return the assets back into your estate again. BPR IHT schemes have the same tax treatment as AIM portfolio services (i.e. shares fall out of your estate after two years' ownership), but generally have a lower degree of volatility.
They generally hold unquoted shares in businesses that are dull but reliable, including solar farms, wind investments, farming, forestry, property construction, building and commercial storage. The minimum investments are normally in the range of £25,000-£100,000. You mentioned Octopus. They invest in property schemes within the M25 circle and solar farms, to name but two. Consider too, Agricultural Property Relief, that might be suitable for you, and do't forget the other issues and options, such as insurance and gifting, etc.
Returns aren't stellar, neither should they be. The objective is wealth preservation as much as growing wealth. Normally, when you opt in for something like that, you have already grown wealth and all you want to do now, is keep hold of it for the future.
Whichever course of action you choose, make sure you're completely happy with it.. these things take time to live with and reflect on. Going into this financial phase of your life is like having a suit fitted. There is no point in spending money if all you want to do deep down is adopt a one size fit all off the peg solution that simply saves a few quid.
Most good IFA should be able to help you. I would tip my hat into the ring but my client workflow is too busy for the next few months to help you to the extent that you (and this important and complicated matter) undoubtably deserves (alas).
In respect of costs, take your pick - pay peanuts get monkeys or a fool or a fool and his money are easily parted. Don't be afraid to haggle but remember that the cost of a good IFA is nothing to the depreciation we are happy to accept on a decent car. This type of work and relayionship is based on both parties benefiting, mutual respect and longeivity aside from the fact it also comes with terrifying regulatory and compliancy issues and legal consequences.. which exist to protect you and your estate as much as anything.
Octopus is the scheme out of all those which I like. The are others, but invariably with approaches such as these, peace of mind and credibility is paramount, and probably more so than eeking every last cent out of returns in exchange for a lower peace of mind.
A lot will depend on your circumstances, your capacity for loss, attitude and inclination for risk, your other various investments, including professional and partnership interests, whether you take income that makes you a HRT, your thoughts on agricultural land, forestry, shareholdings in unquoted AIM companies and enterprise investment schemes (EIS).
You might be in your 40s any still growing and paying tax on growing income, but many more senior or older people whose primary objective is to preserve their capital and reduce a potential IHT burden, the main options are typically either BPR, EIS or a packaged AIM portfolio.
EIS schemes can in some cases be excellent planning tools for wealthier people but to enjoy the tax relief benefits and capital gains deferral in addition the IHT relief after only two years' investment, they are more suited to the younger wealth earner (above). It must be remembered that that is of course only the case if the investor does pay a suitable level of income tax in the first place.
Historically, they have been considered high-risk options, but some providers are beginning to focus on making them less risky for elderly and/or more cautious investors. The Octopus scheme for instance, targets growth, of 3%. The benefit though, is in IHT shielding, not mahoosive growth. Sometimes, fear of investment and finacial loss can become a self fulfilling prophecy.
AIM schemes invest in a selection of shares of companies quoted on the AIM market. They are normally in small companies and are likely to be rather volatile and can carry a higher risk of significant loss. As such, they are only appropriate for elderly investors with a very high appetite for risk and significant capacity for loss. However, if you set aside that rather dogmatic view and dig deeper, you can get a basket of funds that is invested in unlisted companies, superbly managed and run. Unlisted doesn't mean basket case.
You should remember too, that although it normally is easy enough to cash in your AIM or BPR holdings and withdraw your cash if you need to at a later date, that will return the assets back into your estate again. BPR IHT schemes have the same tax treatment as AIM portfolio services (i.e. shares fall out of your estate after two years' ownership), but generally have a lower degree of volatility.
They generally hold unquoted shares in businesses that are dull but reliable, including solar farms, wind investments, farming, forestry, property construction, building and commercial storage. The minimum investments are normally in the range of £25,000-£100,000. You mentioned Octopus. They invest in property schemes within the M25 circle and solar farms, to name but two. Consider too, Agricultural Property Relief, that might be suitable for you, and do't forget the other issues and options, such as insurance and gifting, etc.
Returns aren't stellar, neither should they be. The objective is wealth preservation as much as growing wealth. Normally, when you opt in for something like that, you have already grown wealth and all you want to do now, is keep hold of it for the future.
Whichever course of action you choose, make sure you're completely happy with it.. these things take time to live with and reflect on. Going into this financial phase of your life is like having a suit fitted. There is no point in spending money if all you want to do deep down is adopt a one size fit all off the peg solution that simply saves a few quid.
Most good IFA should be able to help you. I would tip my hat into the ring but my client workflow is too busy for the next few months to help you to the extent that you (and this important and complicated matter) undoubtably deserves (alas).
In respect of costs, take your pick - pay peanuts get monkeys or a fool or a fool and his money are easily parted. Don't be afraid to haggle but remember that the cost of a good IFA is nothing to the depreciation we are happy to accept on a decent car. This type of work and relayionship is based on both parties benefiting, mutual respect and longeivity aside from the fact it also comes with terrifying regulatory and compliancy issues and legal consequences.. which exist to protect you and your estate as much as anything.
NatAsp said:
There are lots of IFAs out there who will happily sit down with you and charge by the hour.
I don't doubt that for a second, but are there any IFA's who specialise in IHT BPR schemes?I understand the volatility of AIM, and most funds/schemes hold shares in 20-40 companies. It's how they hold them that concerns me, and whether there's any kind of government-backed compensation or risk insurance to prevent total loss. For example, I know Octopus are participants in the Financial Services Compensation Scheme (FLA) which could provide £50K cover in the case of default, but rather than trawl through all the T&C's and past performance of each of 10+ schemes, I'd be willing to pay an IFA who has already done these comparisons.
Maybe it's too optimistic of me, but you know, this is PH so anything is possible.
Thanks Ginge R, I've just seen your post. The scheme is for an elderly acquaintance, sadly I don't have any excess money right now
Edited by -Pete- on Saturday 8th February 11:05
Pete,
I was working on this earlier this morning, funnily enough.
Without going into detail, I am working on an idea to mitigate FSCS induced institutional risk by concurrently investing into 5 or 6 different schemes on an ongoing basis and covering short term exposure with insurance in the meantime; it is a plan that has evolved and born of evolution and not revolution.
That requires ongoing research and being able to demonstrate due diligence. And THAT never stands still!
This sort of work has always appealed to my strategic mindset, and although I wouldn't presume to hawk my wares so blatantly, I consider myself a diligent practitioner who could help you. Alas, with this sort of thing, sometimes you have to act in a timely manner, especially if your relative would (and why not?) need to feel completely comfortable and have the opportunity to reflect.
I was working on this earlier this morning, funnily enough.
Without going into detail, I am working on an idea to mitigate FSCS induced institutional risk by concurrently investing into 5 or 6 different schemes on an ongoing basis and covering short term exposure with insurance in the meantime; it is a plan that has evolved and born of evolution and not revolution.
That requires ongoing research and being able to demonstrate due diligence. And THAT never stands still!
This sort of work has always appealed to my strategic mindset, and although I wouldn't presume to hawk my wares so blatantly, I consider myself a diligent practitioner who could help you. Alas, with this sort of thing, sometimes you have to act in a timely manner, especially if your relative would (and why not?) need to feel completely comfortable and have the opportunity to reflect.
BPR schemes come in four main forms really, bespoke private companies, AIM investments, mezzanine finance, agriculture and also EIS with the later having the possible advantage of some upfront income tax relief.
Ingenious might have the perfect proposition for you, but it has a complicated charging structure - something to look out for. There was a good article in today's FT about venture capital.
Ingenious might have the perfect proposition for you, but it has a complicated charging structure - something to look out for. There was a good article in today's FT about venture capital.
Ginge R said:
Quite a lot, yes.
I did have one or two admin snags just before xmas but that was probably down to newness of the product/process. Any ongoing issues with Octopus - can I lend a tentacle?
To be fair, it's not actually Octopus.I did have one or two admin snags just before xmas but that was probably down to newness of the product/process. Any ongoing issues with Octopus - can I lend a tentacle?
I am doing five partial ISA transfer's and there is one platform who is currently telling me that they will not do it.
It's either all or nothing it would appear.
Having spent 45 minutes in call centre hell/apathy with a UK platform this afternoon, I did what comes naturally.. ask the MD on twitter what the hell was his company playing at, of course. Phone call 5 minutes later, all sorted. They'll get my claim for wasted time next week.
Are you talking about re-reg out from your platform that will only let you transfer all out? Ask them if they are familiar with the principles of Treating Customers Fairly. Or drop me a line. I'm with clients all day tomorrow but should find a few mins to take a look.
I worry about platforms sometimes, advisers need to be mindful they don't rely on them to the extent there will soon be no other options and then, the platforms have the market sown up with costs.
Are you talking about re-reg out from your platform that will only let you transfer all out? Ask them if they are familiar with the principles of Treating Customers Fairly. Or drop me a line. I'm with clients all day tomorrow but should find a few mins to take a look.
I worry about platforms sometimes, advisers need to be mindful they don't rely on them to the extent there will soon be no other options and then, the platforms have the market sown up with costs.
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