Pay money off mortgage or put in savings

[notasausage]

I went to see a financial advisor about investments for my daughters future and he refused to advise me because we don't have money in savings. I have just paid a lump sum off my mortgage (which we can get back at any time) and my DH also has a rapid repay account on another mortgage ie mortgage offset by savings. I couldn't believe that this FA needed me to have withheld money rather than pay it into my mortgage where we are being charged twice what I would have got in savings interest.

What do you all think?

i think that you did the right thing with your money.,

i would see a different IFA!

You did the right thing. Paying down debt is always better than having a debt and then investing spare cash elsewhere.

The IFA is constrained by regulations too. He/she cannot sell/advise you to put money in investments unless you have savings sufficient to meet emergency spending.

It is the law.

You did the right thing but unfortuantely with nothing to invest you are of no use to an IFA, or rather, this type of IFA.

An IFA is, by definition, independent of any one investment provider- they are able to advise on a range of investment products. However, there are different types:

1. You pay an hourly rate for advice.
2. It's free but the IFA gets commission from the investment provider when you invest money.

If you saw Type 2 then you are no use to him/her because they can't make any money from seeing you if you are always just going to pay down your mortgage as a priority. Therefore there is no benefit to them of having you as a client.

Also, you are right to think it's better to pay down mortgage debt than hold cash savings.

However, the same doesn't hold if you were to invest in equities as you should get a better return on shares than the interest rate on your mortgage. This is especially true if you are investing longer term.

Ideally you want a spread of investments to protect you against fluctuations in one asset class.

ArticFox I would llike to point out that as an IFA I have plenty of clients who I give advice to but I would recieve no commission. Most of them could not afford to pay fees anyway. I give advice happily in the knowledge that when they do have business they want to discuss they will come back to me.
Good business is not all about the short term view.
One thing you miss out on investments is that there are no guarantees that they will out perform the interest rate on your mortgage. Just look at endowments and how their payouts have reduced, or even the return of the UK stockmarket (FTSE 100) over the last ten years. However if you overpay on your mortgage you are guaranteed to reduce your mortgage.
My advice? Clear your mortgage every time.
lastly notasausage, was it an IFA you saw or did you see someone in a bank?

BGD- fair enough. I suppose I was just giving a possible reason for the lack of interest. Put it this way, if, as an IFA, you are basically maxed out on clients (mine is basically saying no new clients atm as is too busy), it makes sense to deal with the ones who are most active in investments. He is not, after all, a charity.

Agree that equities are more volatile than
cash, hence higher potential returns, but I dont think that the best advice for everybody is to reduce their mortgage. Surely it depends on the individual client, their wealth and their risk profile?

e.g someone who was prepared to stick their savings in equities at the start of 2009 just made a 1 year approx 50% return vs. 3% on cash, but if they couldnt afford to lose say, 20% of that money short term, you are right; it would be terrible advice.

I guess that's the rich man's paradox. The wealthy can afford to take the risks to get more wealthy.