To be wary of trusting this (or any) financial adviser with my inheritence

[frammlinton]

I'm inheriting a substantial sum from the sale of my mum's house. I want to use the money to help our children (currently aged 18 and 15) onto the housing ladder at an appropriate time. Some ideas I had are:

1. Buy a rental property in my name, mortgage free, and rent it out. (Pro: Hedge against inflation. Con: tax, fees, hassle).
2. Ditto, but buy the property via a trust in our sons' names, so I am effectively gifting the money to them now. (Pro: Hedge against future inheritance tax and rental income tax).
3. Ditto, but buy property in location where DS1 can live during uni (Pro: Will reduce uni expenses and capital gains tax)
4. Invest the money until the DC's need it. (Pro: Liquidity, growth prospects. Con: Risk of losing money).

I consulted with a financial adviser recommended by a friend. He very quickly dismissed options 1-3 and homed in on option 4 on the grounds that over time investments tend to rise above inflation. I get that in principle, but they can obviously go down as well as up. This adviser claims to be independent, but is nevertheless recommending the funds offered by his own company (for which he will receive a commission), which rings an alarm bell. Am I being too cautious? I know that none of you can tell me whether or not to trust this person or the organisation they work for, but my question is ... how does anyone ever trust any financial adviser? If you use a financial adviser, how did you go about vetting them in the first place? I know the website 'Unbiased.com' is widely recommended for finding independent advisors, but independence still doesn't guarantee that the advice is any good.

I’d trust any financial adviser more than Mumsnet tbh!

But I agree that if you have doubts about the one you’ve spoken to, find another one.

I don't know what the right answer is but I would avoid any property in your children's names - as your children won't be entitled to any first time buyer incentives at the time such as help to buy accounts, no stamp duty for first time buyers etc.

I also think you have to be super careful not to change the course of your children's lives and restrict their choices. E.g. your child going to uni should choose the course they want in the city they want to live in and mix with others in the same boat - not choose the city and where abouts in it to live based on house prices (in my opinion). Also if you buy a property for the 18 year old at uni they might stay in it (when they otherwise might have travelled for work/moved cities/come home) changing the course of their lives. Can you afford to in turn by another property when your younger child goes? Will they have to go live with their older sibling or miss out?

What if your child has a partner and they have good jobs and would like to buy together but instead of saving up as a team and starting out together they are squabbling over ring fencing deposits - and your child not wanting to marry their partner as their cash is then exposed to the risk of divorce.

That's all very doom and gloom and I don't mean it to be but I believe you should play your cards close to your chest. Have your own savings or investment property and help your children as you see fit at the time. E.g. If your child was buying with a partner and saving up it might be better for their relationship to gift them a relatively small amount of help with their deposit than a huge amount that makes their home buying very unequal. You can always make further gifts later towards their mortgage when you are comfortable they are for the long haul.

I also think you should be careful to only give away what you have truly given away - so if you give your child the money for a house at 20 and they decide to sell up to spend a year travelling/lose half in a divorce/lose it all in bancrupcy that is the risk you take. If you want control you need to keep ownership.

If you had your own rental property you could help your children with the income from it without the restrictions/ control and limits over their choices - and with minimal risk.

If you get a rental make sure you understand all the responsibilities and obligations on landlords - perhaps use a well reputed agent. Make sure you understand the tax situation. I don't expect you will make lots of money renting out (after paying tax/repairs/maintenance/voids) but you will safeguard your money so it continues to be worth one property.

Renting a property always has risks but in my experience you can minimise this by having a desirable property (e.g. well maintained family home in sought after area) so you can have a choice of tenants.

If you choose to put your money in the stock market I would have thought a FTSE tracker which spreads your money over lots of UK companies would be a reasonable choice. If stocks perform poorly your money will fall but in the long term should just follow the ups and downs of the market.

As this is inheritance from your mum I think you need to consider that what is in your children's best interests long term and what safeguards the money for the medium term might not be the same as the most financially lucrative in the short term and might not be the same choice as what your kids prefer - e.g. given the choice of being gifted a 200k property for example which I expect they would jump at.

I would go for 1 and 3 (so in your name but uni town). If you put it into DC’s name, what happens when one of them meets someone and wants to sell even if the other DC doesn’t want to?

Also a good hedge against DC losing it in a future divorce.

do you already own a house?

if so, what %age of your wealth is in domestic property?

If you buy another house, the %age will be even higher.

Eggs, baskets.

As for effort, I know people in building trades who say they make a lot out of housing. Doing work themselves mostly.

Can you replace a boiler or mend a roof?

My parents had a financial adviser who invested well for my parents. Now my generation have inherited we also inherited the IFA so luckily we know him but I would be wary of using someone I didn’t know

Presume the FA is aligned to SJP ?

A good IFA is worth their weight in gold. I'd look at a few before you decide what you want to do.

I'm not an IFA.

But with what little knowledge I have-

1. Avoid premium bonds like the plague - especially with how high inflation is currently. The only benefit they provide is that you are covered and wont lose your original investment.

They are not a good way of making money, and with inflation high at present you will lose 3-6% of their original value every year you have them.

1. Investing your money in stocks/ shares will outperform anything else if you are not going to need the cash for at least 10 years. If you invest depending on what you go for, the money may lose value but over time as long as you keep it invested you will generally have done much better than most other investments. Obviously it depends on what you invest in, and there is a possibility you may lose money.

1. Over the last few years property has been a very good bet, but there is no guarantee this will continue. Also it is not as easy as people think being a landlord. It is very difficult if you get a problem tenant and this can cause you lot of costs.

I would go with investment- into an ISA but via funds on vanguard. I would be vary the FA if trying to earn themselves commission.

Though a good IFA is worth way more and could give much better advice re investments.

@Porfre

I'm not an IFA.

But with what little knowledge I have-

1. Avoid premium bonds like the plague - especially with how high inflation is currently. The only benefit they provide is that you are covered and wont lose your original investment.

They are not a good way of making money, and with inflation high at present you will lose 3-6% of their original value every year you have them.

1. Investing your money in stocks/ shares will outperform anything else if you are not going to need the cash for at least 10 years. If you invest depending on what you go for, the money may lose value but over time as long as you keep it invested you will generally have done much better than most other investments. Obviously it depends on what you invest in, and there is a possibility you may lose money.

1. Over the last few years property has been a very good bet, but there is no guarantee this will continue. Also it is not as easy as people think being a landlord. It is very difficult if you get a problem tenant and this can cause you lot of costs.

I would go with investment- into an ISA but via funds on vanguard. I would be vary the FA if trying to earn themselves commission.

Though a good IFA is worth way more and could give much better advice re investments.

What is vanguard?

I'm the compliance oversight officer for a national IFA. @Elphame yeah I know exactly what company that is too!

Commission was replaced by fees in 2013, the only "commission" to be earned now is from protection policies. All advisers charge a fee for their professional services, as an accountant or solicitor does, although IFA's rarely charge hourly.

It's simple really, if you think you know best and all advisers are out to shaft you, invest it how you see fit. If you're not sure of the long term tax implications, indications for capital growth or loss and how investment risk works, use a professional and pay them for their expertise (there's been some good points made about the illiquidity and fragility of property investment already).

There is a minimum level of qualifications and evidence of ongoing development required of all proper advisers, and all the dinosaurs who used to take the highest amounts of commission for the least amount of work have all but died out.

I'm not denying that there are charlatans, swindlers and rip-off merchants out there, but it's easy to tell - if it sounds too good to be true it probably is. Any promises of performance are false or exaggerated, and if anyone tries to rush you they're probably shite. Check the FCA register for their firm, an investment adviser must be authorised and certified. Don't invest in anything "sexy" like bamboo or teak, carbon credits, Film Schemes or Dubai car parks. 🙄 Don't take more risk than you can afford to lose, which might mean sticking it in a bank account.

There is nothing wrong with advisers recommending their own proposition at all (certain places, let's call them St Jimmy's shall we, charge a hefty fee and tie you in to a minimum contract with exit penalties but it's only them that do that) - everyone else does much the same thing. They are still classed as independent because they will have conducted complex research to decide what platform and investment approach they'll use for their proposition (and repeat the research every year), and if it isn't suitable for you they'll come up with an alternative. It just means they're not tied to a provider or investment house.

The problem with financial advice these days is that the regulator tied up all the rules so tightly that there is now an advice gap - it's not worth advisers getting involved in the process and taking on a client for less than £100k, and anyone with less than that doesn't really want to pay a fee.

A friend of mine’s parents bought a house for her to live in whilst she was at Uni in Manchester. It was 4 bedroomed in a student area, and my friend had 3 other students living with her there. She charged them a very small rent and all bills were split 4 ways. By the time she had left (4 years) she had saved enormously as she didn’t need to take out a maintenance loan whilst at Uni and the rent she got covered her own bill. It worked really well. Her mum then put the house in my friends name to do what she wished with it - she rented it out for a couple of years to fund travelling round the world, before settling down, selling it and buying where she wanted to live.

I worked as a financial administrator and paraplanner for a while, with different organisations. The variety of the quality at both places was massive - luckily I worked closely with 2 who were excellent, but did paraplanning for some who I wouldn't trust with a tenner of my own money.

Definitely shop around, and make sure that the ones you talk to all come from different organisations, as IFAs tend to be self employed but "tied" to one organisation who have their favorite investment platforms. There are a few companies who have their own packages of funds and the IFAs tied to them can't really advise different funds.

A decent IFA should not only make a recommendation, but explain why they have made that recommendation in "common person" language e.g. maximise ISAs each year for the tax benefits, invest in pension funds again for the tax benefits and also for the compound growth etc.

Ah @PennyDeFuckwit said it so much better than me, with more up to date knowledge. Crossposted

I was in your position a few years ago ( sale of business proceeds) Relative arranged a meeting with two financial advisers who were very dismissive of my idea ( buy 2 x rental properties) and we’re very pushy for me to take their options. I was shocked relative who attended meeting with me fell for their “ we’ll be on the phone to you every month to update you on how much you’ve made” I dumped them and went for my idea. Turned out their “ sure bet” investment crashed a month later and I’d have lost thousands.
Look at different property options, some student accommodation is fully managed with income guaranteed.

I agree totally with poofre
I wouldn't use a financial advisor unless money was ridiculous amounts (more than a million) and debt free with substantial savings
Yes to vanguard

Option 1-3 are all essentially the same. Invest in property. Property is not as lucrative as it once was. Landlording is much harder nowadays, less passive than it was previously. I could understand why he suggested investing the cash.

You're not wrong @Allergictoironing, there's a few I wouldn't trust with my own money as well!

I've been in the business for 30 years, I'm trying to think of the best way to distinguish a cynical "salesman" from a genuine, hardworking IFA who cares about his clients best interests.

IME, the dickheads are the ones who try to baffle you with bullshit, and ramble on and on loving the sound of their own voice but put words in your mouth - trying to answer questions for you (usually because they're so damn clever and you're a bit thick). They usually think they're oh so witty and smart.

The good ones will be a bit boring. They'll go steadily through the process examining and explaining, and will be anxious that you understand everything. They'll take it quite seriously and will give you an awful lot of paperwork and be at pains to tell you why they're doing so.

So, quick-talking charmer in a sharp suit who blusters over the boring bits and is a bit arrogant - avoid. Rather boring stiff shirt who asks a lot of questions and listens carefully to the answers before showering you with papers - safer.

I've dealt with some absolute charlatans myself, maybe I'll do an AMA.

Oh yes, Vanguard is a good option.

Make sure you use an IFA. My husband is one. He's trustworthy and so are most you do need expert advice

Op - can we ask what kind of amount are we talking here? As I think that might influence what people advise you to do with it.

And is your own mortgage paid off? Any what’s your pension pot like?

DH’s parents helped him on to the property ladder when he was a student. He rented out rooms in his house to friends and was able to pay the mortgage and bills with that as well as having some left over for drinking funds! He also obviously had a property to sell when moving on.
You could split the inheritance in half and put solid deposits down for each of your children to own their own home.

Oh do the AMA PennyDeFuckwit, there's rather a lot of people on here who would really benefit!

One of my best friends fell for one of those fast talking young "IFAs" just before I started in FS. Luckily it was only one of his 2 pensions he let them "invest" in a dodgy unlisted investment. I read the Suitability Letter & pointed out that they'd said they only invested in that company at his insistance & they hadn't recommended it - which of course was the only way he'd heard of it!

When he retired recently & moved so had a 6 figure lump sum to invest, I referred him to one of the excellent IFAs I had worked with, the one who didn't work for St Jimmy's . He's very happy with the results I'm pleased to say. And no I didn't get anything for the recommendation

Oh nooooo, your poor friend! Rotten snakey bastards. Nobody is allowed to write such letters or facilitate that kind of shit here.

All the trouble around occupational pension transfers is coming home to roost at the moment, regulator has gone mad on it.

I'd have to word the AMA right or the first question will be "why would anyone care" haha.

A good IFA will give you time to think about it and explain all options in detail as many times as you ask.

They should be finding out what level of risk you’re happy with and working with that.

Option 4 could be broken down into lots of options due to different risk levels/investments etc.

I would go by recommendations if you can get any and go and see a couple and see who you are comfortable with. Also make sure they’re independent and not just only able to offer a few different options because their hands are tied.

Also, don’t go near SJP

Property has again and again proved to be a good place for cash. If you buy a rental home you get both income and increase in value.

I would personally buy a rental your DS can use at uni. It will always be needed by future students, so is a pretty secure option. Once your DC leaves uni, you may be able to pass the house to the uni so they lease it out. You get slighyly less income, but the uni takes care of everything!

@notapizzaeater

Presume the FA is aligned to SJP ?

A good IFA is worth their weight in gold. I'd look at a few before you decide what you want to do.

I was going to say I imagine it’s SJP