How do I find a good IFA?

Question
How can I check an IFA's track record, viz whether he's any good at his job. I had one before with loads of qualifications but he was worse than useless.

How can I find out the 'going rate' for their fees and can I negotiate them down,or would this encourage them to line their own pocket some other way at my expense?Answer
Checking an independent financial adviser's (IFA's) track record is easier said than done.

As you've found out, impressive sounding qualifications are no guarantee you'll get good advice or service. And a friendly, helpful attitude could soon turn to indifference once they've won your business.

I'd start by checking them against the Financial Services Authority (FSA) register.

First run a 'Financial Services Firm Search' to check some basic details such as how long the firm has been authorised by the FSA, whether they've ever been in trouble with the regulator (disciplinary history) and the activities they're allowed to carry out. You can then run an 'Individuals Search' to check similar details for the adviser. If he or she has worked for a number of different companies, that's usually a bad sign.

There's no guarantee a long established company with loyal advisers will be any good, but they're probably doing something right to still be in business and retaining staff.

Speaking to existing clients is the best way to find out what's really beneath an adviser's polished veneer. Ideally they'll have used the adviser for a few years so can give you useful feedback on the quality of advice and service they've received. So if you know any, ask them.

I'm hoping the user reviews centre on this site will start filling up with readers' reviews of their advisers, as I think this could be a really useful resource for people in your situation. In fact I'd encourage you to leave a review of the adviser you've been unhappy with.

When it comes to qualifications then take them with a pinch of salt, but do look out for Chartered Financial Planners (CFPs). While there's no guarantee a CFP is honest or will do a good job, the qualification is fairly rigorous which suggests they're serious about their career.

IFA investment track records are difficult to obtain and measure. I'd ask the adviser to show you some sample client portfolios including performance versus a relevant benchmark, then get them to explain how they select and monitor investments. For example, how will they decide your spread of investment across different asset types? And will they get in touch to advise you if there's a detrimental fund manager change? Unless they have a credible research and monitoring process I'd be wary. Also, if the adviser has to research investments themselves as well as look after clients they're probably stretched, which doesn't bode well for either the quality of research or ongoing service.

I also suggest avoiding any adviser who heavily pushes their own product - I find it incredulous that some advisers have the nerve to do this and still call themselves independent. There was an interesting article in The Times recently which suggested that a large IFA was paying its salesmen extra bonuses to sell its own investment funds over others. The FSA should really stamp down on such practices.

As for fees, I suggest calculating roughly how much a commission based adviser would earn if they invested all your money in unit trusts. As a rule of thumb assume 3% initial commission and 0.5% trail commission, e.g. £3,000 initially and £500 a year on a £100,000 portfolio. This gives you a good benchmark against which to compare fees.

If a 'fee-based' adviser wants to charge you as a percentage of your portfolio and it's similar to your commission estimate then be wary, it's probably little more than commission in disguise.

An hourly fee should, in theory, be the most transparent type of charge. Make sure that all commission is re-invested and get a firm quote for the initial advice along with a solid estimate for how much you can expect to pay for ongoing reviews and advice. If the fees are similar to, or higher, than your commission approximation then you're probably being charged over the odds unless you're investing a reasonably small sum.

Hourly fees vary widely depending on location, expertise and experience. I've seen them range from £75 to over £300 an hour. The best way to gauge average fees in your area is to phone several advisers and ask them – you can use www.unbiased.co.uk to get a list of fee based advisers in your locality. Although, the total you end up paying is more important - if the lower rate bills more hours to complete the job you may be no better off.

Don't be afraid to haggle if you like the adviser but feel their fee is excessive. Provided they rebate all commissions and give you a firm quote in writing for the work there's little scope for them to make up the money elsewhere. They can only say no, in which case be prepared to go elsewhere if need be.

Finally, please don't think I'm trying to paint a grim picture of all financial advice. In my experience financial advisers these days are really no better or worse than other professionals such as accountants and solicitors. There's a broad mix of good, bad and ugly.

Bear the above points in mind and there's every chance you'll find a good adviser who'll do an excellent job of looking after you.

You might also find our financial advice page helpful.

Read this Q and A at http://www.candidmoney.com/questions/question128.aspx

Check your tax code

The tax man has made a monumental cock-up meaning a lot of us could end up on incorrect tax codes. Fail to correct your code and you risk paying too much tax, potentially costing you up to several thousand pounds..

It's that time of year when HMRC posts tax codes to many employees and pensioners for the forthcoming tax year - normally a pretty dull event. But thanks to a computer error hundreds of thousands of us could receive the wrong code and some might even receive too many codes, risking the loss of personal allowances. It seems you're most likely to be affected if you've changed jobs in recent years.

What are tax codes?

Tax codes are a few digits, such as 647L, that tell HMRC and your employer or pension provider how much income you're allowed to earn over the financial year before you pay tax.

Should I be worried?

If you're an employee or pensioner then yes. There's no need to panic, but you should check your tax code over the next few weeks to ensure you don't end up paying too much tax from April.

What's at stake?

End up on the wrong tax code and you could lose some, or all of your personal allowance. For someone under 65 this £6,475, so depending on how much you earn you could end up paying up to 40% of this allowance in unnecessary tax.

Is it my problem?

Yes, no matter how unfair it might seem. While HMRC is to blame for sending out some incorrect codes, it's ultimately your responsibility to ensure your tax code is correct.

What should I do?

If you're an employee or pensioner, check that your tax code for the 2010/11 tax year is correct. If you haven't received a tax code in the post then ask your employer(s) and/or pension provider(s) what code they're using for you.

How do I check my code?

You might think checking your tax code is like trying to crack the Enigma, but it's not usually too difficult.

Most tax codes are a number followed by a letter while a few will simply be two letters.

Number – when multiplied by 10 the number gives the amount of income you can earn in a year before paying income tax, i.e. your available personal allowance. Unless you have a K code in which case it's the amount that must be added to your taxable income to take account of untaxed income you've received.

Letter – the letter tells HMRC what allowance, if any, you're eligible for.

Special Codes – if you have two or more sources of income you might have a two letter code, usually in relation to a second job or pension. This tells HMRC that your allowances have been applied to your main job or pension (for which you'll have a normal code).

Letter/Special Code	What it means
L	You're eligible for the basic personal allowance.
P	You're aged 65 to 74 and eligible for the full personal allowance.
Y	You're aged 75 or over and eligible for the full personal allowance.
T	There's other items HMRC needs to review in your tax code.
K	Your untaxed income on which tax is due is greater than your allowances.
BR	All your income is taxed at the basic rate of tax (most commonly used for a second job or pension).
D0	All your income is taxed at the higher rate of tax (most commonly used for a second job or pension).
NT	No tax is to be taken from your income or pension.

Working out your tax code requires 4 steps:

1. Add up your tax allowances (for most people it's simply your personal allowance e.g. £6,475).


2. Add up any untaxed income and taxable employment benefits (let's assume £1,275).


3. Deduct the total in (2) from (1) (e.g. 6475 – 1275 = 5200).


4. Divide the balance in (3) by 10 and add the letter that suits your situation (e.g. 520L).

You can read more on the HMRC website.

What if I think it's wrong?

Contact HMRC and tell them, but wait until after 31 January as they're a bit tied up with last minute self assessment tax returns this week.

Read this article at http://www.candidmoney.com/articles/article55.aspx

Beware tax return scams

Criminals are targeting taxpayers via phoney emails as the 31 January self-assessment deadline beckons. Don't get caught, else you could end up with an empty bank account and no money to pay the taxman..

With just a handful of days to go before the online self-assessment deadline on January 31, it's a fair bet – based on past years – that the best part of two million have still to complete in their tax return. It's equally a reasonable punt that at least one million will fail to meet the cut-off date and end up with fines, interest and penalties.

But this is not about filling in your tax return. It's a warning what might happen both to those who complete their return and those who don't. You could get caught in a 'phishing' scam where you get a message saying you have a tax rebate due to you.

As most of us spend most of our money paying the other way, news of a rebate is more than welcome. However, the message does not come from HMRC as it would appear but from evil overseas-based scamsters who want to strip your bank account bare rather than give you anything.

The false message looks like this. It appears quite good – except for the English. The UK tax authorities rarely use the American word 'fiscal' and would never sign a letter with 'Best Regards'. If you receive a message like this then delete it without hesitation.

Tips for safely submitting your tax return

1. Don't open suspicious emails that appear to come from HMRC or click on links contained within them. HMRC never sends details of tax issues such as rebates by email.


2. Don't call telephone numbers contained within these emails. There have been a number of cases where the scam is operated by telephone.


3. Access the HRMC website directly by entering the address (www.hmrc.gov.uk/sa) in your browser


4. Keep your passwords secure and do not share them with anyone.


5. Make sure your anti-virus software is up to date and contains an anti-spyware component.

Read this article at http://www.candidmoney.com/articles/article54.aspx

Are PIBS worthwhile?

Question
What do you think of PIBS?

Our Financial Adviser has suggested Zopa but not mentioned PIBS which seem a good option for retirement income provided you do not put too much into one Building Society. I would really appreciate your thoughts.Answer
Permanent interest bearing shares (PIBS) are similar to corporate bonds, i.e. they're long term IOUs that pay a fixed rate of interest. The main differences are that PIBs are issued by building societies and rarely have a repayment date.

Interest is paid twice yearly (called a ‘coupon') and taxable, although it's tax-free when the PIBS are held within an individual savings account (ISA). Either way, capital gains are exempt from tax.

Although PIBs have historically been viewed as quite safe, the recent banking crisis clearly highlighted the risks. If a building society becomes insolvent then PIB holders sit at the bottom of the pile in terms of getting their money back (although above shareholders if the society has 'demutualised'). And if you do lose money it won't be covered by the Financial Services Compensation Scheme).

Even if a building society doesn't go bust, it might still suspend paying interest on PIBS if it hits financial trouble – as Northern Rock did in August 2009. And missed payments are usually gone for good, as the society isn't obliged to roll these up into future payments.

The other risk, as with all fixed interest, is that their value could fall if interest rates and/or inflation rise. While I think interest rate rises over the next year or two will be small, if any, they are likely to rise medium term. Inflation has recently risen and while likely to be fairly stable going forwards it's very difficult to predict.

Bearing in mind these potential risks, are current yields attractive?

You can view a full list of PIB yields from 22 January 2010 on the FT website here.

[Note: PIBs don't have redemption yields (which include any capital gain or loss when the PIB is repaid) as such because there's no fixed redemption date. However, some PIBS give the society the option to redeem at a certain ‘call' date, in which case a yield ‘to call' may be shown.]

Nationwide PIBS, probably viewed as one of the safer options, have ‘running' yields (i.e. income/price) of around 7% gross.

This compares to 20 year gilt yields of about 4.4%, so in the case of Nationwide you're getting an extra 2.5% or so interest a year to compensate for the additional risk over lending to the UK Government.

Building societies that are perceived to be higher risk unsurprisingly yield more. For example, Kent Reliance PIBs have running yields of around 9-10% while First Active PIBS are yielding 12.5%.

When building societies do get into financial difficulty they're usually swallowed up by a larger society rather than being left to collapse, so on this basis you might view PIBS as being a pretty good bet. However, there's no guarantee this will happen and rising interest rates and/or inflation could cause prices to fall over coming years.

A final consideration is that PIBS are not always easy to trade. This means you might find it difficult to buy and sell and could face an unappealing margin between buying and selling prices (bid/offer spread).

Overall I think current PIB yields fairly reflect the risks involved. So while PIBs aren't offering any bargains, they don't look overpriced either.

If you're looking for a long term income then by all means consider PIBS, but do appreciate the possible risks and test the waters with a stockbroker to see whether there's a market for the particular PIBS(s) you want to buy.

As an aside, Zopa is an interesting concept – basically bringing private lenders and borrowers together. The idea is that borrowers can get a better deal versus a bank loan and lenders earn more than they'd get in a savings account. Bad debts, i.e. borrowers not paying you back, are an obvious risk in the current climate, although the risks are reduced by your money being spread across 50 borrowers or more. The rates don't always work out as they'll usually favour either borrower or lender depending on demand, but it's worth a look.

Read this Q and A at http://www.candidmoney.com/questions/question126.aspx

Banks told to play fair on mortgage arrears

The FSA finally appears to be getting tough on lenders who continue to hit mortgage customers with excessive fees when they're down..

We’re all used to banks trying to make money from us wherever they can. But if you fall behind on your mortgage payments, perhaps close to losing your home, the last thing you need is the lender pouring salt onto your wounds by hitting you with unfair penalty charges. Yet that’s what most lenders have been doing for years and, despite lots of bad publicity, it’s continued.

Good news?

Well, hopefully, yes. The Financial Services Authority (FSA) has today published its plans to get tougher with lenders and ensure borrowers who are in arrears get treated more fairly. The plans are open for feedback until 30 April with the final rules intended to be introduced in June this year.

What can we expect?

The key plans are that lenders should:

1. Not levy arrears charges where a customer already has an arrangement in place to repay them by direct debit. If paid by alternative means, e.g. cheque, the lender can only charge fair admin costs.


2. Take more account of an individual’s situation before hitting them with a repossession order – i.e. stop being so heavy handed.


3. Not include arrears charges (and interest on them) within any early repayment charges.


4. Keep records of all arrears correspondence (e.g. telephone, paper, electronic) for three years after the arrears have been cleared.


5. Use arrears payments to clear the missed monthly payments, not charges.


6. Provide simpler arrears statements.

The FSA also re-iterated that its current rules already state that lenders should not profit from arrears charges, they should simply cover the admin cost of writing a letter or making a phone call – i.e. if it costs them £12 and they charge you £30 that’s £18 too much.

How much do lenders charge?

Common arrears charges (there are others) currently charged by some lenders are shown below:

Lender	1st arrears letter	2nd letter	3rd letter
Alliance & Leicester	n/a	£35	£35
Bradford & Bingley	£30	£30	£30
Halifax	£35	£35	£35
HSBC	£0	£0	£0
Lloyds TSB C&G	£10	£31	£206
Natwest	£25	£25	£25
Royal Bank of Scotland	£25	£25	£25
Santander	£40	£40	£40

All good then?

Let's hope so. As is often the case, the FSA has been too late at taking necessary action. But provided the proposals come into force in undiluted form this June, and the FSA sucessfully enforces them, today's announcment can only be a good thing.

What can you do if you think you’ve been over-charged?

If you think your lender has charged you excessive mortgage arrears fees then complain to them in writing. State that you believe their charges to be in excess of fair administrative costs, a breach of rule 12.4.1 in the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB).

MCOB 12.4.1

A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.

If this gets you nowhere then take your complaint to the Financial Ombudsmen Service.

Read this article at http://www.candidmoney.com/articles/article53.aspx

Allied Dunbar won't transfer commission?

Question
In 1994 I invested jointly with wife £15,000 in Allied Dunbar Distribution Bond ( joint life - joint ownership. I used the execution only services of Credenda Limited, an IFA, to acquire the bond. I have never had or requested any advice from this company, but they still get annual renewal commision from Allied Dundar.

On several occasions since 1994 I have contacted Allied Dunbar and requested that I be permitted to change my IFA re: this ongoing investment..but they have refused and said it is not their policy to do so.

Would be interested in your advice if their action (or non action) is legal? or where do I go from here?Answer
Sadly a handful of less progressive providers, Allied Dunbar (now Zurich Life) being the most prominent, don’t allow ongoing trail commission to be transferred to another adviser. I believe Skandia can also be awkward sometimes too.

While legal, this practice seems at odds with the Financial Services Authority’s (FSA’s) mantra that financial companies should treat their customers fairly. You could try pointing this out to Zurich Life and see what they say (please let me know how you get on).

Perhaps more importantly, it would be worth reviewing whether the distribution bond is still an appropriate investment for you and your wife.

If either of you are non-taxpayers it could be positively awful, as investment bonds pay income and gains net of basic rate tax which can never be reclaimed.

Even if you are both basic rate taxpayers you would, in theory, be better off switching to a unit trust with a similar investment style, as gains will be tax-free if within your annual capital gains tax allowance.

If you are higher rate taxpayers then there might be an argument for continuing to hold the bond, it would need closer analysis. But even then it may still make sense to switch the money into individual savings accounts (ISAs) which ensure tax-free growth and interest, with no further tax on dividends – again, you could choose a unit trust that invests similarly to your existing bond.

If you decide to sell the bond then check you won’t end up paying tax – any gains will be subject to a 'top-slicing' tax calculation. You can read more on our life company investment page and use our investment bond tax calculator to estimate how much tax, if any, you’ll have to pay.

Read this Q and A at http://www.candidmoney.com/questions/question120.aspx

Which student account?

Question
I tried searching your site for student accounts but was unsuccessful, can you please advise accordingly?Answer
Banks tend to be reasonably generous to students (at least by their usual standards) in the hope that giving away some freebies and free/cheap borrowing for a few years will gain them a profitable customer for life. Nevertheless, overstep your agreed overdraft and you’ll find that steep bank charges are alive and well, even for students.

If you think your account will fall into overdraft then it’s vital you look at how large an interest-free overdraft a bank will give you and how much they’ll charge if you exceed this, both authorised (i.e. agreed in advance) and unauthorised. You’ll usually need to apply for an overdraft beyond a nominal limit, as the bank will want to gauge the likelihood you’ll repay it at some point.

Also check how long after graduating you’ll have to repay the overdraft before they charge interest. Some banks will switch you over to a graduate account straight away, usually hiking their charges and reducing the free overdraft limit in the process.

While the freebies, which range from £50 cash to a free rail card or flight, might appeal, their value could become insignificant versus future charges if you’re not careful. So never choose an account based on this alone.

So which accounts are the ‘best buys’?

If borrowing is your main priority then Halifax offers the highest potential free overdraft, up to £3,000. This remains free for up to a year after you graduate. If you need a higher overdraft and Halifax agrees then you’ll be charged 7.2% EAR on the whole amount, but go overdrawn without getting the ok first (i.e. unauthorised) and you’ll be charged a whopping 24.2% EAR, plus a monthly fee of £28 AND £20 each day you try to spend above your authorised overdraft limit. The freebies, AA and card insurance discounts are worthless.

Ulster Bank has lower borrowing limits, but fairer charges on unauthorised overdrafts. It offers free arranged overdrafts of between £1,250 and £2,000 depending on your year of study. Overstep this without permission and you’ll pay 12.68% EAR but, crucially, no monthly fees – although you could still pay £15 each day you try to spend when above your authorised overdraft limit. You can keep the account for up to a year after graduation. No freebies worth mentioning.

Smile is also worth a look. Its free overdraft ranges from £1,000 to £2,000 depending on your year of study. Authorised overdrafts above this are charged at 9.9% EAR and unauthorised at 15.9% EAR. There’s no monthly unauthorised overdraft fee, but you’ll pay £30 every time Smile declines a payment you try to make, capped at £150 per quarter. The charge is waived for up to six consecutive days provided you haven’t incurred it within the previous 366 days. You can keep the account for up to four years after opening. No freebies.

As for freebies, Santander is probably the most generous. It’ll pay you £50 to open an account, but charges 28.7% EAR plus £25 per month on unauthorised overdrafts.

The best advice I can give you is that whichever account you choose, never go above your overdraft limit without first agreeing this with the bank. Stray into an unauthorised overdraft and the costs will mount up in no time.

If you end up having some spare cash, consider opening a high interest savings account (or cash ISA if you’re a taxpayer) and transfer money over to your student current account when needed.

You might also find the information on student loans on our borrowing page helpful, along with our Student Loan Repayment and Overdraft Interest calculators.

Enjoy your student days while they last!

Read this Q and A at http://www.candidmoney.com/questions/question125.aspx