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.

From a social point of view, I'm not sure I'd recommend buying a house for DS to live in during uni. When I was at uni, a classmate's parents were her landlords, renting the spare rooms out to other students. When something in the house didn't get repaired promptly, the other tenants turned on the landlord's daughter and she ended up quite ostracised. I can also see problems arising if you need to keep DS' friend's deposit for damage or similar.

Sure @sanbeiji, but I'm happy to clarify on the thread! I should specify that my understanding of "the SJP issue" goes back 3 or 4 years and there may have been some big changes since then.

There is no problem (IMO) with SJP and their proposition or performance. They're a professional outfit and have been extremely successful - they certainly have a big foothold in the market, hence they attract more of the fast talking type of adviser who is focused on earnings, but only a small segment. I'd conservatively suggest that the biggest problem "the industry" has with SJP is a) their fees - the initial charges can be high compared to most IFAs, as are their ongoing (servicing) fees, and b) that they have a clause in their agreement which actually ties clients in to a minimum period of servicing and applies an exit penalty if they terminate. Or, I should say, they used to - this may have been removed in recent years.

What (I believe) pains SJPs competitors the most is that the regulator has not once stepped in to "police" this perceived outrageous practice! The industry villifies SJP because the average small practice could never build or retain a client base on the same fee basis, so it feels grossly unfair that they can charge in this way and never be held to account by FCA (which often states that it does not regulate price). In fairness to SJP, they still hold a big chunk of the market so they must be doing something right...

Talk to people who own property

Talk to IFA who have a long standing track record with their firm. Many IFAs stay with the same firm due to their long standing client bank.

Look at the tax advice regarding property ownership and trusts, this will impact returns.

Meet your advisers agree terms and fees. Good advisers will summarise your meeting with initial notes so you will know where you stand.

@SirGawain

This adviser claims to be independent, but is nevertheless recommending the funds offered by his own company (for which he will receive a commission). I'm not sure that this is even legal.

IFA do not now ever receive commission unless they are in a structure such as SJP. IFAs charge fees initial and ongoing, commission products finished in 2012

@PennyDeFuckwit

Sure *@sanbeiji*, but I'm happy to clarify on the thread! I should specify that my understanding of "the SJP issue" goes back 3 or 4 years and there may have been some big changes since then.

There is no problem (IMO) with SJP and their proposition or performance. They're a professional outfit and have been extremely successful - they certainly have a big foothold in the market, hence they attract more of the fast talking type of adviser who is focused on earnings, but only a small segment. I'd conservatively suggest that the biggest problem "the industry" has with SJP is a) their fees - the initial charges can be high compared to most IFAs, as are their ongoing (servicing) fees, and b) that they have a clause in their agreement which actually ties clients in to a minimum period of servicing and applies an exit penalty if they terminate. Or, I should say, they used to - this may have been removed in recent years.

What (I believe) pains SJPs competitors the most is that the regulator has not once stepped in to "police" this perceived outrageous practice! The industry villifies SJP because the average small practice could never build or retain a client base on the same fee basis, so it feels grossly unfair that they can charge in this way and never be held to account by FCA (which often states that it does not regulate price). In fairness to SJP, they still hold a big chunk of the market so they must be doing something right...

Fair enough, thanks! this is consistent with forums like MoneySavingExpert.

From the POV of one relative who use them... they're a one-stop shop for everything. She has businesses all over the place, money in trusts... her IFA also had his own independent practice before moving to SJP.

As far as she's concerned she makes good returns based on their comps, more than the fees. I don't know if she has the time or inclination to compare to other options.

Ultimately the only way is to do your own research HOWEVER bear in mind that a lot of DIY advocating sites claim that it's 'easy'. No it's not!

It's 'easy' if you have a bit of spare cash, and want it to grow beyond savings accounts, and maintain its value. It's not if you factor in things like tax, want to get the MAXIMUM return possible etc. Taking into account all the possibilites.

Buy to let is still being regulated. H+S, taxation, tax break, standards, yearly checks, ever changing legislation that favours the tenants more and more.

If you can't give your BTL quite a bit of your time for research and then management, over and above any you get from appointing a managing agent, then you won't get the best out of it.

Maybe take what your IFA said and compare it to the general advice on MSE, see what sticks and what doesn't. But please, don't assume BTL will be easy.

@SamphiretheStickerist

Buy to let is still being regulated. H+S, taxation, tax break, standards, yearly checks, ever changing legislation that favours the tenants more and more.

If you can't give your BTL quite a bit of your time for research and then management, over and above any you get from appointing a managing agent, then you won't get the best out of it.

Maybe take what your IFA said and compare it to the general advice on MSE, see what sticks and what doesn't. But please, don't assume BTL will be easy.

Yes, it's not like even 5 (or 10) years ago! Also factor in extra cash for things like damage caused by tenants, maintainence. You MIGHT be able to get away with substandard housing in London but probably not the rest of the country

BTL properties have been a nightmare over Covid and lockdown - workmen not turning up, workmen not getting required equipment through, workmen charging a fortune as a job takes 3 times as long due to delays and tenant /workmen having covid etc etc.
It's still a nightmare as the electrician who promised to see to smoke alarms (in Scotland had to be done by beg Feb) STILL hasn't done it. And isn't replying to txts etc
I think the people that say buy a property and make lots of money don't own btl.

@PennyDeFuckwit

Sure *@sanbeiji*, but I'm happy to clarify on the thread! I should specify that my understanding of "the SJP issue" goes back 3 or 4 years and there may have been some big changes since then.

There is no problem (IMO) with SJP and their proposition or performance. They're a professional outfit and have been extremely successful - they certainly have a big foothold in the market, hence they attract more of the fast talking type of adviser who is focused on earnings, but only a small segment. I'd conservatively suggest that the biggest problem "the industry" has with SJP is a) their fees - the initial charges can be high compared to most IFAs, as are their ongoing (servicing) fees, and b) that they have a clause in their agreement which actually ties clients in to a minimum period of servicing and applies an exit penalty if they terminate. Or, I should say, they used to - this may have been removed in recent years.

What (I believe) pains SJPs competitors the most is that the regulator has not once stepped in to "police" this perceived outrageous practice! The industry villifies SJP because the average small practice could never build or retain a client base on the same fee basis, so it feels grossly unfair that they can charge in this way and never be held to account by FCA (which often states that it does not regulate price). In fairness to SJP, they still hold a big chunk of the market so they must be doing something right...

One of the advisors I worked for a few years ago was with SJP. Again it's very much a lottery of who you get - my boss was exceptionally conciencious and I've seen him advise against moves that would have made him a BIG fee. He would also balance every client's portfolio at least annually (with no fee for changes).

Regarding the "lock in", that's tied in to the transfer/investment fees for pensions. Clients are (or weren't) at that time charged a fee up front for standard pensions transfers or set up, but if you left withion X years then a proportion of the fee would be charged depending on how long you held the pension e.g. transfer fee would have been £5k, if you stay for 5 years you pay nothing, if you leave after 2 years you pay £3k out of any increase in value (figures are not real, just as an example).

So in theory they large initial fee for pensions could be non existant if you stayed invested with them long enough.

True that only the massive wealth behind SJP allows for this to take place, as the company does pay the advisors the fee at the start whether the client stays or not.

Fiance people don't like vanguard because it's set up by a man who wanted to open up in investing to the masses And remove the need for the snake oil sales.

What miss us means by no risk is low Risk.

Eg jack Bogle Said why search for the needle in the Hay stack .. when you can buy the haystacks.

Market's are self cleaning.if I buy index following FTSE 100 and company fails, it's dropping out and replaced.

@Tigersonvaseline

Fiance people don't like vanguard because it's set up by a man who wanted to open up in investing to the masses And remove the need for the snake oil sales.

What miss us means by no risk is low Risk.

Eg jack Bogle Said why search for the needle in the Hay stack .. when you can buy the haystacks.

Market's are self cleaning.if I buy index following FTSE 100 and company fails, it's dropping out and replaced.

What you say about Vanguard and using index funds to avoid single stock risk is spot on. However, I never said "no risk". I said that you cannot go wrong with Vanguard, in the sense that they will not overcharge you, conceal fees and costs or lock you into agreements that will cost you money to get out of. As I stated previously, it is owned by its investors and manged for their benefit.

"As I stated previously, it is owned by its investors"

is it? How?

@PigletJohn

"As I stated previously, it is owned by its investors"

is it? How?

The wikipedia article explains that.

@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 get different advice from a number of different expert's, rather than just one.

I would buy the property near uni. You can always rent it to students afterwards if you don't want to sell it.

Personally I would consider investing in low fee index funds (like FTSE all share), but not with the financial advisor. Then when you kids are able to buy, give them the money for a deposit.

Probably not a good idea to put all of the money into one house.

As an investor in a Vanguard ETF, how does my fractional ownership manifest itself?

Why haven't I been notified of the AGM, or invited to vote on directors emoluments?

I'd seek advice from a medium sized solicitors firm with a tax and iht planning arm. If necessary they shoukd be able to recommend a professional and sensible ifa.

@PigletJohn

"As I stated previously, it is owned by its investors"

is it? How?

Who Are the Owners of Vanguard Group?

Vanguard has a fairly unique structure in terms of investment management companies. The company is owned by its funds. The company’s different funds are then owned by the shareholders. Thus, the shareholders are the true owners of Vanguard. The company has no outside investors other than its shareholders. Most of the major investment firms are publicly traded.

Vanguard's structure allows the company to charge very low expenses for its funds. Due to its scope of size, the company has been able to reduce its expenses over the years. The average expense ratio for Vanguard funds was 0.89% in 1975.

That number stands at 0.09% in 2021.

Some experts believe Vanguard’s structure allows it to avoid conflicts of interest that are present at other investment management firms. Publicly traded investment management firms must cater to their shareholders and the investors in their funds.

Key Takeaways
Vanguard Group is the second-largest investment firm in the world, after BlackRock.

It is the biggest issuer of mutual funds worldwide and the second-biggest issuer of ETFs.

The company is unusual in the fund world in that it is owned by its different funds, which are in turn owned by the company's shareholders.

The company has no other owners than its shareholders, which sets it apart from most publicly-traded investment firms.

so, as an investor, why do I see no signs of "ownership?"

In other membership, mutual or shareholder-owned concerns, I receive a notice of the results and AGM and am invited to vote on proposals put forward.

@PigletJohn

As an investor in a Vanguard ETF, how does my fractional ownership manifest itself?

Why haven't I been notified of the AGM, or invited to vote on directors emoluments?

See above. The ETF has an ownership interest in the group. It is not a publically traded company.

@Siepie

From a social point of view, I'm not sure I'd recommend buying a house for DS to live in during uni. When I was at uni, a classmate's parents were her landlords, renting the spare rooms out to other students. When something in the house didn't get repaired promptly, the other tenants turned on the landlord's daughter and she ended up quite ostracised. I can also see problems arising if you need to keep DS' friend's deposit for damage or similar.

I know lots of parents who do this and they have never had such a problem. Indeed one of the benefits for such students is usually that repairs get done quicker and the property is of a higher standard than normal student lodgings.

If the child is in fact the owner then they can just give 28 days notice. It’s more complicated if it’s the parents who are the owners, depending on the tenancy agreement.

However I agree that it’s not a good option for the OP, due to other reasons .

This is all fascinating. Have spoken recently with a FA from my union. He was recommending some form of investment as a pension fund and not adding extra on to our current pensions - we are both educated adults but beyond bank accounts and mortgages this was all Greek to us.
I feel through this thread I have a start on where to go to financially educate myself, though I need to get a move on!

@Shortofspace

This is all fascinating. Have spoken recently with a FA from my union. He was recommending some form of investment as a pension fund and not adding extra on to our current pensions - we are both educated adults but beyond bank accounts and mortgages this was all Greek to us. I feel through this thread I have a start on where to go to financially educate myself, though I need to get a move on!

I find the Money Saving Expert forums and guides brilliant. It seems confudsing at the start but go slow.. soon it will make sense

"The ETF has an ownership interest in the group. It is not a publically traded company."

doesn't marry up with "owned by the investors"