Advisers incentivised to sell fixed term annuities?

Question
Thank you for providing such a great site! My question concerns Fixed Term Annuities.Is there any financial advantage to an annuity broker or financial adviser to promote this type of annuity against a traditional life time annuity? I am suspicious that there will be another fee to pay when the fixed term is up and another review is required.Answer
Fixed term annuities can be used in some pensions as a way to avoid locking into low current lifetime annuity rates. The fixed term annuity provides income for a set number of years after which you receive a guaranteed maturity payout, which can either be invested in your pension (if you opt for the income drawdown route) or a lifetime annuity (i.e. income for life).

As the rates offered by fixed term annuities are usually worse than lifetime annuities, you're only likely to benefit if lifetime annuity rates show a healthy increase (compared to the present) or your health deteriorates (probably increasing your lifetime annuity rate) by the time the fixed term annuity matures.

In my view fixed term annuities are generally not a good idea, unless you're confident either of the above will apply.

You're right to be suspicious. While the sales commissions paid on fixed term annuities tend to be similar to lifetime annuities, less scrupulous financial advisers may prefer them as they'll try and take another bite of your pie when the annuity matures, by selling you another (advisers will have to be fee-based from 31 December this year, but instead of commission they'll likely try and pocket a fee on maturity for further 'advice').

Read this Q and A at http://www.candidmoney.com/askjustin/773/advisers-incentivised-to-sell-fixed-term-annuities

DIY personal injury trust?

Question
Does a person wanting to have a Personal Injury Trust drawn up have to use a professional person to do so, or can he/she write one out themselves. If it is possible to have a D.I.Y. Personal Injury Trust Deed, do you know where would I find a template to help?Answer
The usual rationale behind using a personal injury trust is to protect a compensation payment from affecting your entitlement to means tested state benefits. Although, of course, if the amount is significant and the injury serious a trust also provides a legal means for others (called 'trustees') to manage the money on the injured's behalf and in their best interests.

At their simplest a personal injury trust is little more than a type of bare trust, which is money for old rope as far as solicitors are concerned. However, I'm afraid I've been unable to find any diy versions or templates - so unless any readers can point out a viable alternative it looks like you'll need to use a solicitor.

In more complex cases I wouldn't hesitate to use a solicitor, although trustees should be careful who they use to advise on what to do with the money held within (as the solicitor might try and push financial advisers with whom they have a cosy relationship, with little regard for whether they're actually any good).

Sorry I can't be of more help.

Read this Q and A at http://www.candidmoney.com/askjustin/768/diy-personal-injury-trust

How do offset mortgages work?

Question
I have paid off the mortgage on my house and was thinking of taking out an offset mortgage in case I ever need a substantial lump sum of cash and was surprised when the Bank I asked about this said they needed to know what I intended to do with the money, as they only advanced money against the house for certain specific purposes such as home improvements or purchase of a car.

I thought an offset mortgage was more like an overdraft, and one could take up to your agreed maximum loan to value any time you wanted within the term of the mortgage and could pay back however much you want any time within the term?

Can you briefly explain how an offset mortgage works please.Answer
This surprises me too, as how you spend your money isn't really your bank's business. My guess if they'd prefer you to spend the money on your house as it increases the value of the asset against which they loan the money, but I've not heard of them actually stipulating this before. And, in any case, provided the bank agrees to a sensible loan to value (of your property) then they should be more than covered in any case.

Your definition of an offset mortgage is spot on. If you have an outstanding mortgage then you can use savings to offset the balance owed (normally via a linked current/savings account), reducing your monthly interest payments (which effectively equates to tax-free interest). Or, as in your case, if the mortgage is already paid off the offset mortgage acts like a big overdraft facility that usually benefits from far lower rates of interest than other forms of borrowing.

I'd try speaking to some other lenders who hopefully won't impose such a draconian condition. Or, provided you don't have to sign anything to the effect, simply tell the lender you spoke to you intend to spend the money on home improvements - banks are constantly economical with the truth to their customers, so why not play them at their own game.

Read this Q and A at http://www.candidmoney.com/askjustin/767/how-do-offset-mortgages-work

Can I manage my wifes ISAs?

Question
I am interested in setting up/transferring some ISAs for myself and my wife using a Discount Broker. Will I be able to act on my wife's behalf doing this so that our investments are all in the same place?Answer
Yes, but your wife may need to sign some letters/forms along the way.

The simplest scenario would be if your ISAs are already held on a fund platform, for example Cofunds or FundsNetwork. In this instance your funds are already held in one place, making monitoring and subsequent fund switches very straightforward. Benefitting from a discount broker (who offers trail commission rebates) simply means signing a 'change of agency' form or letter (your wife would need to sign for her ISAs) and the ISAs can remain in situ with the platform.

Given most platforms allow you to manage your investments online, it would be straightforward for you to look after your wife's ISAs (including subsequent switches) provided she's happy to give you her login details. If you want to make switches and get information over the phone or in writing then your wife would normally need to sign a letter giving you permission to do so, which would be sent to the discount broker and platform.

If the ISAs are currently held with different ISA providers and you want to consolidate onto one platform then you and your wife will need to complete ISA transfer forms, supplied by the discount broker. Once the transfer is complete, you can manage the investments as per above.

Read this Q and A at http://www.candidmoney.com/askjustin/766/can-i-manage-my-wifes-isas

View on Aberdeen Asian Income C Shares?

Question
I've read recently that the Aberdeen Asian Income Trust is launching C-shares which will trade at a lower premium than the existing shares - about 2%, just under 1/3 of the premium on the existing shares according to an article on Trustnet.

The article said that the money will be invested by 28 June 2013 at the latest, presumably in the same companies as the existing shares but it doesn't explain. It also says that "they will convert to ordinary shares on an NAV for NAV basis".

I decided I don't really understand and wondered if you would kindly explain!

Would you consider this an opportunity to invest, and is it ever sensible to buy an IT that is trading on a premium? Answer
When investment trusts want to attract more money under management, they need to issue more shares. But unlike unit trusts, they can't simply create extra units/shares on demand, it needs to be via a formal share issue - with 'C' shares the usual route to doing so.

C shares are a short term home for new subscriptions. Once money is raised and invested, then the C shares are converted into ordinary shares in the main investment trust. Why go to all this bother? It makes life much simpler - the shares can be offered at a fixed price then converted at the prevailing price later on, plus it avoids affecting the performance of the existing investment trust by suddenly injecting a whopping amount of cash and existing investors partly having to foot the bill for stamp duty and dealing charges on new investments purchased.

The potential advantage of buying C shares is avoiding the current premium to net asset value of around 7% on the Asian Income Trust. In English this means the shares currently cost about 7% more than the value of the underlying investments, largely because it's a popular trust with more buyers than sellers - hence the extra share issue.

When the C shares are converted into ordinary shares (due by 28 June 2013 at the latest), they will buy those ordinary shares at net asset value, not the prevailing share price, hence avoiding any premium there might be at that time. However, this will be partly offset by an initial charge of around 2% (slightly less if fully subscribed) when buying C shares to cover the costs of issue.

Should you buy C shares instead of the existing ordinary shares? If you want to invest now, it's arguably worthwhile in order to avoid paying a premium for the existing shares, even after the initial charge on C shares. But bear in mind the fund won't be fully invested immediately, which could drag short term performance versus the ordinary shares if markets rise meanwhile. And, if you weren't otherwise planning to invest now, the existing premium to net asset value may well decline by the time the C shares are converted, due to greater supply of shares.

There's little reason to avoid investment trusts at a premium provided you're confident the premium won't fall, by much at least. This is very difficult to predict, but in simple terms if the trust is likely to remain popular (most likely thanks to strong performance) then a premium will likely remain - notwithstanding the possible impact on the C share issue.

You can read full details of the Aberdeen Asian Income Trust C Share issue in the prospectus here.

Read this Q and A at http://www.candidmoney.com/questions/question765.aspx

Avoid continuous payment authorities?

Question
I feel that there may be a case for banning the use of "Continuous Payment Authorities" in the UK.

They can be subject to aggressive marketing tactics, for instance, when an online, an goods retailer website may offer you a £10 discount if you sign up to an associated discount saver type website to get future discounts on all kinds of goods . But unbeknown to the unsuspecting customer who trusts the retailer, on the associated site, buried away in the small print there will be a trial offer for a limited period and then a deduction of £10 per month for membership of the associated discount website.

If you do not check your emails or your bank statements in detail this can cost a lot .I did not find it when I checked my monthly direct debits and standing orders because it was a Continuous Payment Authority and these are not listed alongside these other payment methods on the banks website I do not like Continuous Payment Authorities and I do not knowingly sign up for them but I got caught nevertheless. Answer
I agree that continuous payment authorities are open to abuse.

Continuous payment authorities (CPAs) are similar to direct debits but apply to debit and credit cards rather than a bank account and, vitally, they are not subject to the protection offered by the direct debit guarantee scheme (which essentially says you must be notified in advance if the amount, date or frequency of direct debit changes).

Finding out whether you have any set up is really a case of trawling debit/credit card statements for regular payments - far from satisfactory. And, if you have any annual insurance policies that you pay be debit/credit card be especially careful as these are more often than not setup via CPAs.

If you want to cancel a CPA then in theory your bank/credit card company must do so if you ask them (as per the Payment Services Directive). In practice it seems banks are sometimes reticent to do so and there's confusion over whether they're obliged to do so (despite the law...). So the first point of call should perhaps be the company taking the payments - ask them to stop taking payments (although you'll need to fulfil any outstanding payments/obligations as per the contract you agreed to, if relevant). If the company is difficult then ask your bank/credit card company to cancel. And if that fails take your complaint to the Financial Ombudsman Service (FOS), although even they appear to have a chequered history of upholding CPA complaints - all in all the whole thing seems rather a mess.

Best to avoid CPAs in the first place wherever possible - companies offering free trials etc that require you to provide your credit card details will almost certainly be entering you into a CPA. And, if you have some, watch your debit/credit card statements like a hawk to ensure the company only takes what's owed.

Read this Q and A at http://www.candidmoney.com/questions/question762.aspx

Can I setup bare trust myself?

Question
Can I setup a Bare Discounted Gift Trust without using an intermediary? Simple passing on of monies to two children but I would like to manage the investment fund myself and make changes as necessary. Where can I find appropriate wording for the the Trust document?Answer
Yes, you can.

However, for something that should be straightforward bare trusts cause an immense amount of confusion with little definitive guidance on what you actually need to do to set one up. Some fund managers/platforms/brokers provide a form and some don't. And HMRC doesn't require notification via the usual 41G trust form, but does state you need to write to them with details. In practice I doubt many people are doing this correctly and I also doubt HMRC cares that much - this is hardly the preferred route for big tax evaders.

If you want to write your own I'd use this Abbey form as a template (it may be an old form, but the wording remains valid). Then send a letter to your tax office informing them.

Bear in mind that placing the investments in a bare trust means they're taxable as the child's and count as a gift (both likely positive), although the child can't take ownership until they're 18.

Another, potentially simpler, option would be to use Junior ISAs. These avoid the hassle of trusts, are not taxable and can't be accessed by the child until age 18. The annual contribution limit is currently £3,600 per child, which may be split between cash and investments. However, there's a slight complication if any of your grandchildren already have a child trust fund (CTF), as this means they can't open a Junior ISA. CTFs will likely be merged into Junior ISAs at some point, meanwhile existing CTFs may also be topped up by up to £3,600 a year.

Read this Q and A at http://www.candidmoney.com/questions/question760.aspx