Question
I've been getting some advice from an IFA and his proposals are to take out the following:
A Sterling investment bond - £170k ( this would be used to fund the following 2 items via draw down).
A Zurich whole life insurance to cover any possible IHT - value £90K.
Two Aviva stakeholder pensions paying in £2880 per pension per year (stakeholder pensions for my grandsons).
For this he says he will receive:
Sterling investment bond - 3% upfront commission plus 0.5% trail.
Zurich whole life insurance - £2k.
Two Aviva stakeholder pensions - an unspecified amount as yet.
I have asked him to quote me quote me for fee based work but he seems reluctant to do so.
The commission amounts to £7100 plus the stakeholder amount. Is this a fair commission charge?Answer
The simplest way to answer the question is ask yourself whether you’d be happy to write out a cheque for £7,100 for the advice the IFA has given you plus a further cheque for around £850 a year for ongoing advice you may or may not receive. You’ll end up paying for the commission over time out of product charges, so this is a fair way to think about it.
Alternatively, we could assume the adviser spends 12 hours working on the advice – longer than required in my opinion, but let’s be generous. This equates to an hourly rate of around £600...daylight robbery.
I don’t know your situation so it’s difficult to comment on whether the advice is appropriate. However, my gut feeling is that you should steer clear – commission or no commission.
Investment bonds are rarely very tax efficient for most people, especially when compared to investments that can use your capital gains tax allowance. And in the situations where they are worthwhile it’s usually better to use an offshore bond where gains and income are not automatically taxed at basic rate. As far as I’m aware Sterling only offers onshore bonds, so this is likely to be a bad choice regardless of whether an investment bond is suitable for you.
As for whole of life insurance I’m really not a fan. There is an argument for using it to cover potential inheritance tax liabilities in future, but do you really want to pay premiums until you die? Plus, if investment performance is poor you could see steep hikes in future premiums. If concerns over inheritance tax are the reason for wanting whole of life insurance then I’d suggest considering other ways to mitigate the potential liability before deciding on what’s best for you. Take a look at our inheritance tax page to get a feel for the options.
The Aviva stakeholder pension is a reasonable choice with 34 funds to choose from. My only reservation is that your grandsons won’t be able to get their hands on the money until at least age 55, possibly later still if the minimum retirement age continues to increase – although this may be no bad thing depending on what you’re looking to achieve.
If I were in your shoes I’d speak to at least two other fee-based independent advisers, maybe more, until you find one that offers a fair deal and you can trust. Yes, it’s hassle, but the advice will likely affect you over the rest of your life so it’s important to get it right. You can find independent advisers in your area using www.unbiased.co.uk - there’s no guarantee they’ll be any good, but you can search based on qualifications and how they paid.
I’m reticent to suggest how much the advice should cost as it’ll depend on your situation and requirements, but as a ballpark I think any more than £2,000 for the initial advice is probably too much.
I've been getting some advice from an IFA and his proposals are to take out the following:
A Sterling investment bond - £170k ( this would be used to fund the following 2 items via draw down).
A Zurich whole life insurance to cover any possible IHT - value £90K.
Two Aviva stakeholder pensions paying in £2880 per pension per year (stakeholder pensions for my grandsons).
For this he says he will receive:
Sterling investment bond - 3% upfront commission plus 0.5% trail.
Zurich whole life insurance - £2k.
Two Aviva stakeholder pensions - an unspecified amount as yet.
I have asked him to quote me quote me for fee based work but he seems reluctant to do so.
The commission amounts to £7100 plus the stakeholder amount. Is this a fair commission charge?Answer
The simplest way to answer the question is ask yourself whether you’d be happy to write out a cheque for £7,100 for the advice the IFA has given you plus a further cheque for around £850 a year for ongoing advice you may or may not receive. You’ll end up paying for the commission over time out of product charges, so this is a fair way to think about it.
Alternatively, we could assume the adviser spends 12 hours working on the advice – longer than required in my opinion, but let’s be generous. This equates to an hourly rate of around £600...daylight robbery.
I don’t know your situation so it’s difficult to comment on whether the advice is appropriate. However, my gut feeling is that you should steer clear – commission or no commission.
Investment bonds are rarely very tax efficient for most people, especially when compared to investments that can use your capital gains tax allowance. And in the situations where they are worthwhile it’s usually better to use an offshore bond where gains and income are not automatically taxed at basic rate. As far as I’m aware Sterling only offers onshore bonds, so this is likely to be a bad choice regardless of whether an investment bond is suitable for you.
As for whole of life insurance I’m really not a fan. There is an argument for using it to cover potential inheritance tax liabilities in future, but do you really want to pay premiums until you die? Plus, if investment performance is poor you could see steep hikes in future premiums. If concerns over inheritance tax are the reason for wanting whole of life insurance then I’d suggest considering other ways to mitigate the potential liability before deciding on what’s best for you. Take a look at our inheritance tax page to get a feel for the options.
The Aviva stakeholder pension is a reasonable choice with 34 funds to choose from. My only reservation is that your grandsons won’t be able to get their hands on the money until at least age 55, possibly later still if the minimum retirement age continues to increase – although this may be no bad thing depending on what you’re looking to achieve.
If I were in your shoes I’d speak to at least two other fee-based independent advisers, maybe more, until you find one that offers a fair deal and you can trust. Yes, it’s hassle, but the advice will likely affect you over the rest of your life so it’s important to get it right. You can find independent advisers in your area using www.unbiased.co.uk - there’s no guarantee they’ll be any good, but you can search based on qualifications and how they paid.
I’m reticent to suggest how much the advice should cost as it’ll depend on your situation and requirements, but as a ballpark I think any more than £2,000 for the initial advice is probably too much.
Read this Q and A at http://www.candidmoney.com/questions/question172.aspx
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