Find trail commission levels?

Question
I have acted on your helpful information on receing trail commission on ISAs a, Units and OEICs investments. There is one problem you haven't yet dealt with: how to find out, before purchase, what, if any, the trail commission is! Neither Hargreaves Lansdown or Commshare - excellent as their websites are - offer this facility [although you can phone and ask - with all the attendant inconveniences and hazards].

Cavendish does offer [with a warning to check] a link http://www.cavendishonline.co.uk/investments/fund-discounts/ but it is grossly inaccurate. It quotes trail commission values, for example for trackers [e.g.HSBC American Index] that are actually zero.

Can you think of a way to find the values, if any, of trial commissions before purchase without phoning, waiting, once connected waiting some more, while the 'advisor' finds the value, if any?Answer
Trail commission is largely standardised across the industry at 0.5% a year on funds which levy a 1.5% or higher annual management charge. Funds with lower annual charges tend to pay 0.2% - 0.5% except for trackers, which typically pay no commission (not really viable when the total annual charge is usually 0.5% or lower).

While commission rates can vary from these norms and it's not unheard of for providers to increase commissions for favoured distributors (e.g. very large IFAs or discount brokers), in practice such variances are quite rare these days. What's more common is for distributors with their own platforms (e.g. Hargreaves Lansdown, Bestinvest) to negotiate additional fees from fund groups via their platform, which currently do not have be disclosed to investors - so impossible to know exactly how much they're making.

If you want to gauge how much trail commission specific funds generally pay I'd take a look at the Alliance Trust Savings fund list - the annual rebate column shows the full trail commission rebate. It looks like some groups pay extra platform fees too, which ATS also rebates, hence inflating the figure for some funds.

I've taken a look at the Cavendish Online fund list and a quick check of 10 funds (including trackers) showed accurate trail commission rebate figures. That's not to say there are no mistakes in their fund database, but I think you can be confident their figures are largely accurate - I certainly wouldn't call them grossly inaccurate.

All this should (in theory) get a whole lot simpler over the next year or two.

The FSA's Retail Distribution Review (RDR) will ban commissions from January 2012 on new sales via financial advisers. It will remain for execution only sales (e.g. Cavendish, HL) for the time being, but it's expected they'll fall under the same regime within a year.

This means that funds should be offered without adviser commissions and platform fees built into their charges - which is effectively the same as the 'institutional' unit classes already offered by many funds.

The net result is that a fund currently charging 1.5% a year will likely charge 0.75% instead. Investors will then have to pay explicit discount broker and platform fees directly. This is pretty much how Interactive Investor and Alliance Trust Savings are already operating, but it could prove quite a shock to customers of companies like Bestinvest and Hargreaves Lansdown where the pricing is more opaque thanks to the companies receiving undisclosed fees from the fund groups on their platforms. Customers who thought they were getting the platform service for 'free' will likely have to start paying for it directly rather than via fund charges.

Read this Q and A at http://www.candidmoney.com/questions/question697.aspx

Third way pensions a good idea?

Question
I've been seeing articles about so called Third Way pensions. On the face of it they sound as if they may be a better option at the moment than drawdown or annuities. Do you please have any information or links to information which I can use to research the topic?Answer
I'm in two minds about 'third way' pensions - which basically offer some form of protection to growth and/or income while your pension fund remains invested.

My cynical view is that they're just a money-spinner for insurers and financial advisers, with most customers unlikely to end up better off versus a decent conventional pension or annuity.

Being more generous, they might give some customers peace of mind and protect against a crash in markets and/or annuity rates.

For a fuller description of how they work along with pros and cons take a look at my answer to this earlier question, but a brief overview below.

If you've yet to reach retirement age then 'third way' pensions allow you to invest in protected investment funds. So you potentially benefit from upside (often with a cap) while avoiding the worst of market falls.

When you reach retirement age third way pensions can allow you to defer buying an annuity and/or draw an income while your pension fund remains invested, again with some protection. The income rates tend to be lower than conventional annuities at the outset (with a minimum amount guaranteed for life) but could rise if strong fund performance generates growth after income withdrawals.

Both scenarios sound great in theory. But the (potentially big) downside is that protection costs, so you'll normally incur additional annual charges and end up with a rather expensive pension fund. While short term protection can be valuable (albeit expensive), I'm less convinced for the need longer term if you have a sensibly diversified or cautious portfolio.

So, yes, depending on market conditions some customers could benefit from this type of pension or at least sleep peacefully if nothing else (not to be undervalued). But I think the majority would be better served by a sensibly invested conventional pension until retirement age followed by an annuity or income drawdown to provide retirement income.

It's not out of the question that third way pension annual charges could top 3%, which is way too high and rather negates the potential benefits.

I don't expect everyone to agree with my view, but unless charges fall (unlikely, as protection isn't cheap) I can't see myself using one.

Read this Q and A at http://www.candidmoney.com/questions/question709.aspx

What happens to Barclays 6% Pref Shares in 2017?

Question
I have a Barclays 6.0 per cent non-cumulative callable preference share, tt was recommended by a financial adviser some time ago.

I believe it matures in 2017. I am happy to keep the shares til maturity provided the payments are made each year which has been happening even through the worst period when Lloyds etc had to stop paying coupons.

The value of the shares has been and is very low, but I ws wondering if you have any advice and I am not sure what exactly does happen in 2017?

ThanksAnswer
Let's start with a quick recap. Preference shares are a cross between shares and corporate bonds. Unlike ordinary shares they pay a fixed dividend (much like a bond) rather than participate in a company's profitability. Plus preference shareholders must receive dividends before they're paid to ordinary shareholders and they also rank higher in the event the company goes bankrupt (but not as high as debt, e.g. corporate bonds).

However, preference shares don't usually carry voting rights and if the company is successful returns over time are likely to be lower than ordinary shares, although probably higher than corporate bonds.

The Barclays 6% preference shares you hold unsurprisingly pay a 6% annual income on 15 December each year (the 6% is based on the £10,000 issue price, so £600 annual dividend per share held). The non-cumulative part means that if Barclays doesn't pay the annual dividend it doesn't have to make good the missed dividends if/when payments are eventually resumed - so tough luck investors.

Barclays has the option to 'call' the preference shares on 15 December 2017 (i.e. buy them back from you at £10,000 per share) and on each anniversary thereafter. The income level will also change from 15 December 2017 (assuming Barclays doesn't redeem the shares). The new rate will be 3 month LIBOR plus 1.42% - potentially a much lower income if interest rates remain at current levels (at the time of writing LIBOR is 0.8%) and income will be paid quarterly.

At the time of writing the share price is around 62.8 (based on a notional 100 issue price - it keeps the maths simpler than a listing based on £10,000), so new investors are getting a flat yield of just over 10%, plus there's scope for gains if the shares are eventually redeemed at £10,000.

The main risks are Barclays not being in a position to pay the 6% dividend, deciding not to redeem (bad news if the share price remains below redemption price as less scope to recover losses), a lower income from December 2017 if interest rates remain low and, of course, Barclays going bust. The latter is fairly unlikely, but there's a fair chance Barclays will decide not to redeem in 2017.

Assuming you bought at issue then you're currently sitting on a loss and your best bet of clawing back some of the loss is for the Barclays ordinary share price to improve, as this should pull up the price of preference shares. Meanwhile, the dividends are decent so things could be worse. If you bought after issue you may be sat on a loss or profit. If a profit then getting out will reduce risk - the financial sector remains volatile - although the fixed income remains appealing if you can tolerate the potential share price volatility.

You can view more details about your preference shares in the Barclays prospectus here.

Read this Q and A at http://www.candidmoney.com/questions/question710.aspx

Question
Our daughter is three and a half years of age, born in January 2008. We have always contributed the full amount annually into her CTF via a savings account. However we now wish to switch this to an investment plan, probably equity based rather than stakeholder for better potential profits and this is where we need more help. We do not envisage the requirement to access funds until she is at least university age, if she should prefer that route. Considerations for the funds may be: university education and associated costs (we hope we would be able to fund part of this), a deposit for a house, a nest egg for starting a pension scheme.

We intend to always contribute the maximum allowance into the CTF and also wish to start a monthly contribution of say initially £50 to £75 into another vehicle and wonder whether this is best done via a Children’s Investment Plan or even to start a pension scheme for her, or split the contribution between the two.

We are basic rate tax payers. We would recommend your suggestions ref the best options and funds / providers for our requirements.Answer
Although the Government has closed CTFs for new babies and scrapped plans for the £250/£500 top-up at age 7, existing CTFs can run until maturity - although I suspect they'll be merged into Junior ISAs at some point. Anyway, good to hear you're topping up your daughter's, it should help give her a flying start to adulthood.

As for investing a monthly contribution into stock markets, an investment fund (e.g. unit or investment trust) is likely to be the most practical route. Plus it makes spreading risk easier.

You could use a pension, but your daughter won't be able to access the money until age 55 (probably higher still by the time she reaches that age). If you'd prefer this money goes towards her retirement rather than late teens then by all means consider a low cost stakeholder pension - she'll benefit from basic rate tax rebates on contributions, i.e. an £80 contribution will be grossed up to £100.

Buying funds via a 'platform' (using a designated account or bare trust - details here) and using a discount broker is likely to be the most cost effective and flexible route. Using a platform makes it simple to mix and match funds from a wide variety of different managers and subsequent fund switches are fast and straightforward. While discount brokers help to cut costs by rebating sales commissions. Take a look at our Guide to ISA discounts for more details (it largely applies to funds held outside of ISAs too).

As for funds, if you don't mind a fair bit of risk along the way I think emerging markets remain a good bet over the next 15 years, perhaps consider funds like Aberdeen Emerging Markets and First State Global Emerging Markets Leaders. But you may want to temper such risks with a UK equity income fund, where dividends and a focus on cash rich companies can help weather turbulent markets. Funds with good track records include Invesco Perpetual High Income and Threadneedle UK Equity Income.

Of course, once the investments starts building up to a reasonable size you might consider diversifying further.

Good luck!

Read this Q and A at http://www.candidmoney.com/questions/question612.aspx

M&S Premium Current Account review

Marks & Spencer is seeking to spread its 'cut above the rest' branding to the lucrative world of banking with the imminent launch of a new current account (backed by HSBC). But with annual charges of up to £240 do customers stand any chance of getting a decent deal?

The M&S Premium Current Account comes in two flavours, an account costing £15 per month promising various 'extras' in return and another costing £20 per month which also includes worldwide family travel insurance. Both require you pay in a minimum of £1,000 per month.

M&S usually excels at customer service and I wouldn't expect its bank to be any different - after all, it has to protect the mother brand. And, for some, maybe this alone is worth the hefty annual fee - especially if they're not internet banking converts who still use branches and call centres (the M&S call centre will be based in the UK).

But for most, the decision rests on whether the various extras more than justify the monthly fees - because ultimately you'll be paying for a plain vanilla current account with some sweeteners thrown in. Let's take a look at each in turn:

Overdraft facility

Nice and simple with no overdraft fees. The first £100 of overdraft is interest free, after which 15.9% interest is charged up to the £500 limit. The interest rate is high, but still below the 19.5% market average. I doubt prospective customers will rely heavily on overdrafts, but the lack of fees is welcome.

No debit card charges ATMs abroad

Useful if you travel frequently as it could save around 2.5% (often with a £3 minimum) on withdrawals. However, not as good as cards like Halifax Clarity or Sainsburys Gold which also remove foreign currency 'loadings' of around 3% on both spending and cash withdrawals.

Hot drinks vouchers

48 vouchers for a hot drink at in-store cafes. These are apparently worth £127, although you'll probably end up spending more than this on cakes and snacks to accompany your free drink.

Treats & Delights vouchers

4 vouchers which M&S values at £45. No details yet of exactly what treats or delights you'll get, but probably high margin stuff which ultimately costs M&S a lot less than £45. Again, nice if you'd bought the items anyway otherwise of little value.

M&S Vouchers

£40 of M&S vouchers. Welcome if you'd spend the money at M&S anyway

Birthday Gift

A free gift on your birthday valued at £10. Nice if it's something you'd bought anyway, but potentially pointless.

6% Savings Account

You'll have access to a savings account paying 6% interest on a monthly saving between £25 and £250 over 12 months. If you want to save spare monthly cash anyway it's a good deal (although other banks often offer similar deals), but bear in mind it's equivalent to 3.2% interest on a lump sum over the year - competitive but not earth shattering.

M&S Reward Vouchers

For every £1 you spend at M&S on your debit card you'll get 1 reward point, notionally worth 1p. So you'll effectively get 1% cash back on your M&S shopping (provided you use your M&S debit card)to spend at M&S in future. Alternatively, you could just use a cash back credit card (e.g. Amex) and get real cash rather than vouchers.

Travel insurance

A worldwide annual travel insurance policy covering you, your partner and children/grandchildren (provided they're under 18). However, excludes anyone aged 70 or over. This is a good policy and would probably cost around £100 a year if you tried to buy similar cover elsewhere, so well worth an extra £5 a month if you need family cover.

Discount vouchers if you switch your current account (1st year only)

Move your banking across to M&S and you'll receive 12 vouchers (1 per month), each giving 20% off a M&S spend of up to £250 - food and electrical items excluded. Worthwhile if you plan to spend a lot on clothes and household furniture/items.

Ignoring the discount vouchers, M&S estimates these goodies are worth £337 a year, rising to £582 with the travel insurance. Of course, they're exaggerated using the old trick of assuming you'd otherwise pay top whack for travel insurance, so how much are the extras really worth?

Let's ignore the overdraft, savings account and debit card cash back/foreign ATM fees, as they may not apply to everyone and you can get similar deals elsewhere.

Assuming you're a regular M&S shopper who likes a hot drink and would use the various vouchers you'll probably get around £220 of annual benefit, rising to £320 if you chose the travel insurance option. And if you plan to use the discount vouchers you could obviously save a lot more over the first year. This compares to an annual cost of £180 and £240 respectively, so the account looks reasonable value.

But, if you don't much care for the hot drinks the likely benefit falls to around £95 and £195 respectively - and even less if you don't use the various vouchers or like the birthday gift. A far from compelling deal.

This is clever M&S marketing, the hot drinks and other vouchers cost them a fraction of the retail price, so M&S is likely quid's in (via the annual fee) before they even start making money from current account deposits (on which they pay no interest).

Die hard M&S customers may benefit overall if they'd spend the hot drink/voucher money anyway. But for the rest of us this account is likely to prove poor value unless you place a high price on customer service, which is likely to be excellent.

Read the full review at http://www.candidmoney.com/candidreviews/review62.aspx

Borrow to invest?

Question
I operate a current account and use an overdraft. I have raised capital as much as my borrowing power will allow and am thinking of saving some money to invest in real estate. Should I open a savings account or leave the money in my current account to save me some overdraft interest?Answer
Borrowing to invest (known as 'gearing') is a risky game, especially when paying sky high overdraft interest rates.

If you're paying anywhere near the average overdraft rate of 19.5% then forget it - pay off the overdraft. You won't find an investment with the potential to generate these kinds of returns unless you take a significant amount of risk, which could leave you facing losses and maybe having to borrow more money to manage your debts - a dangerous downward spiral.

Even if you could borrow money cheaply I'm not sure I'd use it to invest in the current climate, not unless you can comfortably afford to lose it, as markets are too volatile.

So yes, I'd suggest leaving the money in your current account to avoid paying overdraft interest. And, if you find yourself sitting on some spare cash having paid off borrowings then perhaps open a savings account where you can safely build up some rainy day money to avoid the risk of needing to use an overdraft in future.

Read this Q and A at http://www.candidmoney.com/questions/question608.aspx

Capital gains on foreign property?

Question
My question relates exclusively to the rates of exchange allowed by the Inland Revenue on Property Capital Gains Tax. I am strugling to find any clear guidance on the HMRC site. I easily find the the listing made for euros ( up to eight decimal places!) for the dates that are relevant to me but I am not sure whether they are applicable for CGT purposes. If they are, I am not clear as to whch of the rates for each year I may use. I do not have actual rates of exchange as I transferred amounts to France on a round sum basis over the eight year period of ownership and accessed them as required for the many improvement projects which we undertook.

The HMRC rates are accessible at http://www.hmrc.gov.uk/exrate/european-union.htm

Many thanks for your guidance.Answer
Let's start with the simple bit first. When calculating the gain on investments in a foreign currency HMRC requires you to use the exchange rates on the date you purchased the property and date you sold it. Quite straightforward.

However, you can reduce the gain on second homes/investment properties by deducting money you've spent on improving the property and buying/selling expenses - note: general maintenance and repair expenditure is excluded.

In theory you should use the exchange rate for every allowable deduction at the time each expense was incurred. If this is impractical HMRC would probably be comfortable if you instead simply deduct each chunk of money you transferred over the 8 years using the exchange rate on the date of each transfer (which I guess you can get from your bank statements if you didn't keep a log) - not forgetting to remove from those transfers amounts that weren't spent on improvements or other allowable deductions.

If you are subject to any French gains tax this may be credited against the UK liability

As ever with the taxman, provided you're not actively trying to evade tax then you shouldn't have any issues. However, it might be worth running the above past their telephone helpline to cover yuourself (although in my experience the helpline is soemtimes as useful as a chocolate teapot!).

Read this Q and A at http://www.candidmoney.com/questions/question604.aspx

Which site for sare information?

Question
Which site is the best for up to date share information?Answer
There's lots out there to choose from. if you just want share prices and basic data them pretty much all will suffice. However, they vary widely in terms of the amount of data/stats available and market commentary.

Digital Look - my favourite, lots of clear info and simple to use.

ADFN - a rather cluttered layout, but plenty of info and good commentary.

Yahoo Finance - well presented and quite a lot of info.

Google Finance - less user friendly, but useful news portal.

If readers have any other suggestions, please post them below, thanks.

Read this Q and A at http://www.candidmoney.com/questions/question703.aspx

Should I use a Chartered IFA?

Question
I will shortly retire with £108,000 lump sum from a final salary pension. Also 2 final salary pensions as well.

For financial advise on this money do I need the qualifications of a 'Chartered' advisor or just an advisor with e.g Diploma.

Would a Chartered adviser cost me more because of the extra qualification?Answer
The main criteria for a financial adviser to attain chartered status is to hold an Advanced Diploma in Financial Planning and have at least five years of industry experience. Does this guarantee good, honest advice? No. But attaining an advanced diploma requires some legwork suggesting the adviser probably takes their career seriously. Although, if they made a fortune from taking clients for a ride already then passing the extra exams would have been a strong motivation to keep the gravy train flowing.

Unless your needs are particularly complex (e.g. complicated inheritance tax planning) then I can't see that a chartered adviser would be in a position to give technically better advice than an adviser with just the diploma qualification (the minimum qualification required to practice). In practice the bigger issue is that far too many IFAs lack either the skill or inclination to give solid investment advice, instead opting to use funds of funds - which is something of a kop out and usually more expensive for customers.

As for cost, most IFAs (regardless of qualification) will still try and get away with 3% upfront and 0.5% a year, either as sales commission or 'fees'. In fact there seems a trend for some advisers to try and charge 1% a year, which seems excessive - but they seem to get away with it...

Those working on an hourly rate seem to charge around £150 - £250 an hour, which sounds a lot, but what's important is how much they'll bill you in total for the advice and ongoing service. You don't want to find yourself in a position where you're effectively signing a blank cheque.

I would speak to several potential advisers and get a clear idea of the service they'll provide and costs you'll incur. Try to gauge how professional they are and whether they'll provide bespoke investment advice or simply lump your money into a funds of funds. And, if they try to sell you their own company's investment funds then walk (it's usually a bad idea and the adviser might be financially incentivised to sell his company's product over others). You can find more info on choosing and adviser on our financial advice page.

Good luck.

Read this Q and A at http://www.candidmoney.com/questions/question707.aspx

Should I delay state pension?

Question
I'm due to recieve my state pension in a few months time. I'm currently working full time hours and work has said that they would like to keep me on, on the same hours past my next birthday, I like my job and the work I do in the shop.

I don't have any other pensions in place apart from my state pension and minimal savings, am single and have never been married so know one depends on me. With my wages i can survive week to week, I have been told that I can delay my state pension if I want, as my wages cover my outgoings. Should I delay it?

Is there any benefit in delaying it? My friend said take it out straight away given that I've been paying in long enough. I honestly dont know what to do?

Thanking you in advance for your helpAnswer
If you delay taking your state pension it will continue to increase by either 0.2% per week until claimed (equal to 10.4% a year), or the value of the unclaimed payments plus annual interest of 2% plus base rate (so currently 2.5% a year).

To give a simple example. Suppose you're entitled to £130 state pension (including any extra pension due to SERPS/S2P) at age 65 and you delay for a year. Let's assume inflation is 3% so the £130 pension becomes £133.90 a year later. If you'd deferred the pension it would instead be £133.90 plus 10.4% = £147.83. Or, you could instead take a (taxable) lump sum equal to the missed payments plus 2.5% (assuming base rate is 0.5%), equal to approximately £6,845.

There is no definitive answer on whether it's worth deferring if you don't need the money now, it's really a gamble on how long you'll live. If you delay for a while then live a long life you'll probably be quids in and, of course, vice-versa.

You might find it helpful to have a play with our State Pension Delay Calculator to get estimates of break even points versus average life expectancies when deferring. You might also find it helpful to read my article on state pension delay.

Having said all this, as you have minimal savings I'd be inclined to seriously consider taking your state pension rather than delaying. This way you'll get cash in the bank (use a savings account/cash ISA with decent interest) which could be very useful to fall back on if you have a financial emergency. Yes, you could delay and take the state pension lump sum instead when needed, but the taxable rate of 2.5% interest is less appealing than current 'best buy' tax-free cash ISA rates paying around 3%. Plus, having the money in the bank gives you more flexbility.

Read this Q and A at http://www.candidmoney.com/questions/question699.aspx

What are ex-dividend shares?

Question
Hi, can you tell me what it means when it says on share information EX DIVIDEND?

Thank YouAnswer
Shares go 'ex-dividend' to stop investors from receiving up to a year's worth of dividend income by owning the shares for just a few days. For example, if they were to buy a share just before a dividend is paid and then sell it shortly afterwards.

When a company announces its dividend it also announces an ex-dividend date, dividends are only paid to whoever owned the shares before that date (typically a few months before the dividend is actually paid). As you'd expect, the price of the shares falls by around the amount of the dividend on the ex-dividend date as investors buying then won't receive the imminent dividend.

In practice this should make little difference when buying shares, although bear in mind when buying shares ex-dividend that you may have a long wait until you receive your first dividend (as the imminent dividend will be paid to the share's owner on the ex-dividend date).

Read this Q and A at http://www.candidmoney.com/questions/question698.aspx

3% initial fee too high for discretionary?

Question
I am considering investing just under £200k with a Discretionary Fund Manager. My Financial Adviser recommends the DFM service operated by RSM Tenon, for which he works. I have been right through their process of establishing risk profile and recommending a portfolio, etc, and am confident of RSM's integrity and service, but want to check comparative fee levels before committing.

Their 'Weighted Underlying Investment Annual Management Charge' (which my questioning of them suggests is all-inclusive) is 2.09%, which looks OK compared to your recent answer to another questioner on this subject.

However, there is an 'Initial Advice Charge' of 3% at set-up, amounting to over £7500, which they will deduct from my initial investment before it is made. Is this normal and reasonable? Would it be normal to try to haggle on this amount?

I've looked at websites of other DFM providers and it is very difficult to get a clear picture of their fees.

Thanks in anticipation of your adviceAnswer
3% tends to be the norm for initial sales commission when buying a unit trust via a financial adviser. In this instance it's being described as a 'fee', but RSM Tenon is obviously trying to pocket the same amount of money as if they were working on a commission basis.

However, while 3% might be reasonable on smaller sums, it looks pretty extortionate on larger sums. For this reason, most discretionary managers try to get way with around 1% upfront instead, although some don't charge upfront fees at all, Bestinvest for example.

So, unless the adviser is carrying out extensive other work within the 3% fee then it's a blatant rip-off - it doesn't take £7,500 worth of advice to recommend putting your money into their own discretionary management service.

Given RSM Tenon will be pocketing a chunk of the 2.09% annual fee themselves every year you hold the investments it seems very greedy to be taking much, if anything as an initial fee.

Bearing this in mind you won't be surprised to hear me urging you to haggle. I'd ask them to waive the 3% fee, or at least reduce it to 0.5% at most. Even 0.5% on £200,000 is £1,000, which sounds like too much to me, but if you're otherwise happy with the adviser and don't want to end the relationship it might be worthwhile. Although personally I could never trust a financial adviser who tries to get away with such obscene fees!

Being cynical, I fear some financial adviser's are encouraged to sell their own company's discretionary management services over other investment solutions as it's usually more profitable for the company.

Read this Q and A at http://www.candidmoney.com/questions/question613.aspx

Why is Skandia charging to switch funds?

Question
I have been with Skandia Investment solutions for some time and I was told be my IFA there was no charge for switching funds within the platform. I have been switching for a year or so.

It was not clear from Skandia literature but I have just called them after I seen a 5% entry charge on a fund I wanted to switch into and after having to ask some colleagues the advisor told me that funds can charge fees like this.

I am angry that I missed this but also because they and my IFA have told me that once in the find there is no charge for switching and the 5% is significant. Can you advise, it has probably cost me quite a bit so far. Answer
This sounds very strange. Skandia's own website confirms that there are no initial fund charges on its platform.

The initial charge isn't always the whole story, as unit trusts have a difference between buying and selling prices, called a bid-offer spread. Bid-offer spreads largely comprise the initial charge, but may also include other costs incurred by the fund of creating new units, i.e. stamp duty and dealing costs on the underlying investments bought within the fund. Nevertheless, it's rare for these extra costs to add more than 1%-2% on top of the initial charge (which Skandia doesn't apply), so this still wouldn't account for the 5% figure you've been quoted.

The only other reason for a charge I can think of is if the IFA has opted to sales commission on switches (which would have required your consent), as Skandia allows them to take up to 3%. I'd ask your adviser to clarify whether this is the case. If so, complain very strongly unless the adviser has made you aware they're taking commission on switches (which is a pretty shady practice in any case unless significant work is involved).

If the above doesn't solve the mystery then please post more information below about the funds on which the charge is being applied and whether they're held in an ISA, pension or investment bond and I'll investigate further.

Read this Q and A at http://www.candidmoney.com/questions/question702.aspx

Decent pension cash rate?

Question
Upon retirement rather than buy an annuity I was thinking of placing the crystalized funds on fixed deposit for a period of 5 years. At the moment some good institutions are paying in excess of 4 1/2% for 5 year funds. However, I understand that monies from a pension fund are classified as Trustee Monies and are subjuect to certain conditions and restrictions which could mean that a funds placed on deposit might only earn an interest rate of 2%. Is this correct?Answer
As you've discovered, money must remain in a pension until you take benefits, i.e. purchase an annuity (income for life) or draw an income. This means you have to use the cash account or fund(s) offered by your pension provider and herein lies the problems - the rates are usually rubbish!

The majority of pensions, including low cost SIPPs (self-invested personal pensions), currently pay next to nothing on cash balances - you'll be lucky to earn 0.5% a year. In order to access better rates you normally need a high end SIPP that lets you hold any trustee savings account, but even then the rates tend to lower than accounts offered to the public and you'll be charged hundreds of pounds a year for the SIPP wrapper itself.

The best compromise I can currently find is the James Hay iSIPP, which offers access to a limited range of savings accounts with half decent rates provided you have at least £50,000 invested. Within this you can earn 3.6% fixed for 2 years via Cater Allen Bank (a subsidiary of Santander). However, you'll need to factor in a £180 annual SIPP charge and a £50 fee to transfer in your existing pension. Plus, there may be transfer fees levied by your existing pension provider.

It's frustrating that pension providers don't offer decent cash rates, probably because it's a very profitable move on their part (they can effectively earn more interest on your money elsewhere and pocket the difference). And because your cash is trapped within the pension sphere there's nowhere to turn provided all the pension providers pay very low rates.

In their partial defence it's hard to get the same sort of rates from banks on pension money as retail customer accounts - in the case of the latter the banks hope to flog other products to the customer so are sometimes prepared to pay higher rates of interest to acquire them. Nevertheless, it's an unfair practice and I hope a pension company out there will be brave enough to break rank and finally give pension customers a decent deal on cash.

If any readers know of good pension cash deals out there please post details below, thanks.

Read this Q and A at http://www.candidmoney.com/questions/question611.aspx

Wound up final salary pension less than expected?

Question
I am 65 and due payment from final salary scheme pension which was wound up 2006.Am I right to expect the 6x1/80th+17x1/60th due at that time as a portion of my £40k salary at that date. This is not what I am being offered presently.Answer
In theory, yes, but it depends on the circumstances and specific rules of the pension scheme that was wound up.

In general, when an occupational final salary pension scheme is wound up the scheme's trustees will use the money in the pension fund to buy deferred annuities for scheme members (like yourself) to ensure they receive their due pension income at retirement.

However, If there's too little money in the fund to do so (i.e. a deficit) and the company is either insolvent or would go bust if forced to make up the deficit, then members might end up with a lower pension than expected. If this was the case the trustees were obliged to make you aware of this at the time and give you yearly updates. And, if the company was insolvent before the scheme was wound up then the Pension Protection Fund should step in, although this only covers 90% of up to £34,049.84 annual pension at age 65.

I'm sorry I can't be more specific, as I'd need a lot more information to do so. But hope this points you in the right direction to finding the reason for the shortfall. If you haven't already done so I'd ask the pension scheme trustees to explain the reason for the difference too.

Read this Q and A at http://www.candidmoney.com/questions/question590.aspx

Question
I'm considering buying the Insight UK Market Neutral Fund as a defensive option given that it offers low volatility and low-risk income. Though I have information about how the fund operates e.g. uses a pairs trade, I'm uncertain about buying as it so very different from my other investments.

I have a portfolio of funds which includes mainly equity income funds, some high-yield bonds and quality (corporate) bonds; cash and about a dozen blue chip shares. In principle I'm a "cautious investor" although the above may not appear as such. I am incidentally retired.

I have my portfolio with Bestinvest -- were you not with them some years ago? -- but I'm finding that their advisers come and go frequently and sometimes you cannot get a satisfactory answer to a query. The personal annual review is patchy and often just repeats the ideas given in their well researched brochures.

I hope this is not too much to ask and perhaps too specific. I am encouraged, however, after reading some of your replies to questions. They are very thorough giving a lot of good solid information.

My thanks in advance.Answer
Sorry for the slow reply, afraid I've had too many other distractions the last few months to devote much time to the site. Back on the case now though...

The Insight Absolute UK Equity Market Neutral fund sounds a good idea in theory. The manager tries to remove market risk by buying shares in a company he likes and 'shorting' (i.e. placing a bet the price will fall) on a company in the same sector he's less keen on - the so-called 'pairing shares' approach.

An example will hopefully better explain this. Suppose company A and company B are both high street retailers. The manager thinks A will perform better than B but is worried that the sector (indeed, markets as a whole) could be quite volatile. If he buys A and shorts B then he'll benefit if his hunch that A performs better than B is correct. However, shorting B will also protect him if the sector/markets falls as a whole - because shorting a share makes money if its price falls.

However, in practice the fund's performance has been less than convincing. While it's mostly managed to side-step market falls, it's struggled to make money overall. Total returns over the last three years have been just 2.7% - you would have been far better off in a decent savings account..It's a fair period over which to judge the manager as market volatility has been high - just the sort of conditions in which this type of fund is meant to shine.

I can't see a reason to put money into the fund, nice though the concept is. If you're keen on the idea of absolute return funds then perhaps take a look at other more successful funds in the sector, such as Standard Life Global Absolute Return Strategies and CF Odey UK Absolute Return - but please bear in mind there's no guarantee these funds will continue to deliver what's on the tin, most don't!

Yes, I did once work at Bestinvest and it was a very productive, enjoyable time, especially as there was a strong emphasis on impartiality and giving clients a great deal and service. Following a 3i funded management buyout in 2007 Bestinvest founder and driving force John Spiers took a back seat and a few employees, including myself, decided it was an opportune time to leave and seek fresh challenges. Since then I gather staff turnover has been reasonably high (as you seem to have experienced) and I was very disappointed to read in the trade press recently that Graham Frost, Bestinvest's highly regarded Chief Investment Officer, is to leave the firm.

Despite Graham's departure I still think Bestinvest has an excellent research team, but it sounds as though they perhaps need to pull their socks up when it comes to looking after clients like yourself. I would be inclined to drop their CEO, Peter Hall, a polite complaint outlining your issues. Hopefully you'll receive a positive response aiming to resolve these. And, if not, perhaps consider trying out a different adviser, although you may struggle to find one that gives advice in return for trail commission only (as per Bestinvest), most will want initial commission too or look to charge a hefty fee.

Good luck!

Read this Q and A at http://www.candidmoney.com/questions/question601.aspx

Limit on pension tax relief?

Question
I have an occupational pension and i want to contribute £40,000 into it through my employer and myself for this year. Will i get tax relief at the basic rate on this amount?Answer
Tax relief is given on pension contributions (including any employer contributions) of up to your earnings or £50,000 a year, whichever is lower.

So, provided your earnings between 6 April 2012 and 5 April 2013 are at least £40,000 and your overall pension contributions, including any money your employer pays in, are less than £50,000 you'll get tax relief on your contributions.

The amount of tax relief depends on your overall earnings for the year. If your income falls fully within the basic rate band then you'll get 20% tax relief on the whole contribution, i.e. for every £80 you pay in £20 tax relief will be added to bring the contribution to £100. If you're a higher rate taxpayer then the proportion of your £40,000 contribution that falls into the higher rate band will enjoy 40% tax relief, i.e. a £60 contribution will enjoy £40 tax relief to give a £100 overall contribution.

Note, your employer may make contributions directly from your gross salary, so you won't pay income tax on that money (the net result being the same as above). But if your employer makes a pension contribution out of their pocket rather than your earnings, then they'll benefit from tax relief and not you (the contribution would be treated as a business expense to offset against their taxable profits).

Read this Q and A at http://www.candidmoney.com/questions/question705.aspx

How to buy PIBS?

Question
I read the piece in this week's Sunday Times 'Money' section and am interested in buying some PIBS in the Coventry Building Society on which you made some comments - how do I go about buying PIBS in the Coventry? Are there limits to the amount that can be invested? What charges are involved when buying/selling?

Thanks!Answer
Permanent Interest Bearing Shares (PIBS) are basically corporate bonds issued by building societies. The main issue when buying and selling is that they're not always that widely traded, which can lead to quite high differences between the buying and selling price (i.e. bid offer spread) at times.

If you already use a stockbroker (online or otherwise) then check whether they offer PIB dealing, chances are they will. I just checked low cost online broker x-o.co.uk and they appear to offer the Coventry BS 6.092% PIB due to be called (i.e. redeemed if the society chooses to do so) in June 2016, with a bid price of 86.5p and offer price of 89.5p (a 3.47% spread, not too bad). The minimum deal size is £1,000 which tends to be norm for PIBS. The only charge should be the stockbroker dealing fee (£5.95 through x-o) as PIBS are exempt from stamp duty.

Although potential returns look enticing - the yield to call (which includes both income and profit from buying the PIBS below their 100p redemption price assuming they are subsequently redeemed) for the Coventry PIBS is (at the time of writing) 9.29% - please ensure you're aware of the potential risks before taking the plunge. The reason yields are high is that the market perceives these investments to be fairly risky, so you need to invest with your eyes open .I think they look a reasonable bet at present, but there are no guarantees!

To read more about PIBS take a look at my reply to this previous question.

You can also view an up to date list of PIBS issues, prices and yields on the Fixed Income Investment Information website.

Read this Q and A at http://www.candidmoney.com/questions/question706.aspx

Tax on gifts made to children?

Question
I wish to give my two children a sum of money, I am a non tax payer what are the ramifications on this action?Answer
Gifts are not directly taxable (as in theory the money has already been taxed), either in yours or your children's hands. However, there are potential issues to be aware of.

Firstly, when parents gift money to an unmarried child aged under 18 the parents will be subject to income tax on the interest if it exceeds £100 per year per parent per child. This tax rule is simply designed to stop wealthy taxpaying parents using their kids to avoid paying tax on savings. As you're a non-taxpayer anyway this rule shouldn't affect you - and of course your children might be 18 or over.

The other key issue is inheritance tax. If someone makes a gift and lives for at least seven further years then that money will fall outside of their estate - i.e. it won't potentially be taxed on their death. If they die within seven years of making the gift then it will still be included, either in part or full, within their estate. This would be a consideration if your motivation behind making the gifts is to avoid inheritance tax, otherwise I wouldn't worry.

Of course, your children would have to pay tax as usual on interest earned from the money if they put it in a taxable savings account etc, but this won't affect your tax affairs unless the £100 rule mentioned above comes in to play.

Read this Q and A at http://www.candidmoney.com/questions/question596.aspx