Monthly Archives

June 2021

Woman speaking with her financial adviser

The four questions to ask your financial adviser

By | Financial Planning

Since the COVID-19 pandemic, we have noticed an increase in the number of people coming to us for financial advice. We see this as evidence of the real need for people to seek out professional advice to help with their financial concerns and aspirations. So, we wanted to share some of the questions that should be asked when anyone chooses to meet with a financial adviser.

 

1. What are your professional qualifications?

It always makes good sense to find out what professional qualifications a financial adviser has attained. When it comes to finding the right person, it is important to start with a feeling of trust. You want to feel reassured that they are professionally competent and that they have the necessary specialist knowledge, experience, and technical expertise to be able to advise you properly. Of course, a professionally qualified adviser will be pleased you asked the question and will be more than happy to disclose their credentials as they will have worked very hard to pass their exams!

One of the challenges with the UK financial services sector is that there are a number of different bodies that assist in the attainment of industry professional qualifications entitling someone to be called a ‘Financial Adviser’. These include the Chartered Insurance Institute, the Personal Finance Society, the Institute of Financial Planning, the CFA Society of the UK, and the Chartered Institute for Securities and Investment. All Independent Financial Advisers in the UK are regulated by the Financial Conduct Authority (FCA) and can be found on the FCA register.

At FAS, we are part of a relatively small group of independent financial advice firms in the UK to have been awarded the ‘Chartered Status’ from the Chartered Insurance Institute. This is considered the ‘gold standard’, in terms of commitment to professional excellence and integrity. The Chartered Insurance Institute only awards Chartered Status to firms with the highest level of advanced qualification, an overall commitment to continued professional development, and adherence to an industry-standard Code of Ethics.

 

2. What services do you provide?

People decide to talk to a professional financial adviser for any number of different reasons. Perhaps they have experienced a sudden change in their personal circumstances or decided that the time is right to start planning for their future.

At FAS, we call ourselves financial planners because we believe in offering our clients a comprehensive service that takes everything into account. While some financial advisers can be relied upon to recommend a particular product or service, we believe financial planning should be holistic and more about the actual advice than simply selling financial products.

Our team will talk to you and take whatever time is needed to help determine both your shorter and longer-term financial aims and objectives. This means that as well as covering more immediate issues, such as tax-efficient investments and savings, mortgages and protection and family arrangements, we will also cover a wider variety of topics such as your retirement goals, inheritance tax and estate planning, and any potential later life care needs. For example, tax planning is one of our specialist areas, and because this is such a potentially complex area, it is important that a client receives comprehensive professional advice tailored to their personal situation, rather than receiving generic advice.

Our aim is to work with you to build a well-considered, robust financial plan that can give you peace of mind and allow you to work towards the future you want for yourself and your family. We would always say that a financial plan is better than just selling a product, but this is an important discussion to have with any financial adviser you are considering using.

 

3. How do you get paid for providing financial advice?

This is an important question to ask anyone who provides financial advice, and it is an answer that most advisers will already have prepared in advance. We believe that the best financial advice pays for itself in the long run and that the best available advice is independent in nature.

As the name suggests, an independent financial adviser will offer you impartial, objective advice on financial products and services. This means they will carry out research across the whole of a particular market to find the right solution to suit you personally. The alternative is a ‘restricted’ financial adviser, who can only recommend products from a limited selection or product range, not from the entire marketplace. Restricted advisers are usually incentivised to recommend products or services from within the available product range.

We have noticed an increasing number of clients who have come to us because they have been disappointed by the performance of managed portfolio products recommended to them by restricted advisers. This is because in most instances the adviser can only recommend the managed portfolio service from the investment company they work for. However, if you receive an investment recommendation from an independent financial adviser or planner, they are able to research and choose the associated product from the whole of the market, not just one provider.

 

4. What experience do you have advising people in my situation?

One of the most common questions we hear from new potential clients is whether we have experience advising clients in a similar situation to their own. More often than not, the response is a resounding ‘yes’. We have been providing independent financial advice since 1991 so for 30 years we have been able to provide our clients an exceptional level of personal service, tantamount to what you should expect to receive from any professional practice.

We often receive enquiries from potential clients who have had a less than welcoming experience from larger financial advice firms, which has left them feeling neglected while ‘bigger’ clients are prioritised. No one wants to be made to feel like a ‘little fish in a huge pond’, which is why we have continued to expand the business to make sure that both new and existing clients remain well looked after and receive the attention they deserve.

 

Summary

People often make the decision to talk to a financial adviser because they have a specific issue in mind, usually one that demands immediate attention. But looking beyond that, you should look to forge a relationship with a financial professional who understands you, your personal needs, and your lifestyle goals – someone who will be able to use their knowledge and experience to turn this into a well-defined financial plan.

Above all, it is worth thinking about the relationship you have with your financial adviser. It should be capable of lasting for many years, you should feel comfortable with that person and expect to continue to benefit from their advice well into the future.

 

If you are interested in discussing your financial plan or investment strategy with one of our experienced financial planners at FAS, please get in touch here.

 

This content is for information purposes only. It does not constitute investment advice or financial advice.

 

Senior couple receiving independent financial advice

The advantages of independent financial advice

By | Financial Planning

With the coronavirus forcing many of us to re-evaluate our lives, and to prioritise what’s most important, thousands of people have realised the advantages of getting professional financial advice to help them reach their goals and protect their family.

The pandemic has certainly helped to focus people’s minds on things that they may have been putting off for a long time. For many, reviewing their financial situation has been a necessity, as many individuals have been put on furlough, lost their job, or chosen to retire early.

So, it is no surprise that since COVID-19 interrupted everyone’s lives more than a year ago, there’s been a sharp increase in the number of people seeking financial advice. Here at FAS, we have noticed a significant number of new clients talking to us about protection products such as income protection and critical illness cover. We have also seen a rise in demand for retirement and estate planning advice, as more people have decided that they need to make decisions now about their future.

However, the rise in the number of people seeking financial advice has been met by an expanding range of options available to individuals. In recent years, a number of large investment companies have widened the services they offer clients to include financial advice. However, it is important to recognise that there is a huge difference between financial advice designed to sell you products, and a more comprehensive financial planning service designed to look after your needs.

The meaning of ‘restricted advice’

If your high street bank or big-name investment provider tells you they now offer financial advice, you can be certain that the advice they give is of the ‘restricted’ variety. Being ‘restricted’ means an adviser can only recommend products from a limited selection or product range (usually the bank or investment provider’s own services), not from the whole of the market.

Using a restricted financial adviser doesn’t necessarily mean you’ll be getting ‘bad’ advice. All financial advisers must have a similar minimum level of qualifications and meet the same standards. It just means that the choices available to you may limited, and the advice they give you might not be in your best interests. They might only be able to suggest a pension from one pension provider, for example. Your options could be drastically reduced, because they won’t have access to the widest choice of products available. More importantly, after they’ve sold you the product, their job is done so you run the risk of experiencing a very shallow, transactional approach, when you might well be in need of more comprehensive financial planning.

The meaning of ‘independent advice’

Independent financial advisers, on the other hand, are so much more than salespeople. We believe financial planning is more important than just recommending where you should put your money. It’s our job to help you plan your goals in life, consider your personal circumstances and help you decide on the best course of action.

In the case of pension planning, an independent adviser will research every relevant pension available within the UK market to find the one that they believe is best suited to your needs. They will then make a recommendation and provide you with the reasons that justify their decision.

In fact, recommending products is just a small part of what we do. We tailor our advice to suit your needs, and we will never recommend a product that is not suitable for you. We will always provide you with clear, comprehensive reasons behind every recommendation we make.

Creating your bespoke financial plan and carrying out regular reviews

There are other advantages to be gained from talking to an independent financial adviser over a restricted financial adviser tied to a larger organisation. For example, we can help you to set clear goals and create a financial plan that covers all eventualities. And, whether you like to keep on top of your investments and finances regularly or just every now and then, we can make sure that your finances stay on track, and alert you to important changes of rules and regulations that may come with tax implications or that you may be able to take advantage of. With us, you will not end up feeling forgotten after you have signed on the dotted line.

Tax planning and tax efficiency

One area in which independent financial advisers excel over the new breed of restricted financial advisers comes with navigating the complexities of the UK tax system. Whereas financial advisers who work for investment companies or banks may be well-versed in the benefits of their own company’s products and services, they may not be so well-equipped with helping you with tax and estate planning. We can provide a comprehensive service that takes tax planning into account, and potentially reduces your tax obligations in the process.

Summary

Good independent financial advice can make a real difference to your quality of life, at any age. At a time when many people are thinking more deeply about their personal finances, as well as their goals and future plans, talking to an independent financial adviser who is capable of giving impartial, expert advice is still the most cost-effective way to help you get there. If you receive advice from an independent financial adviser at FAS, you can certainly feel confident they are working solely for the benefit of you, and no one else.

If you are interested in having a discussion with one of our experienced financial planners, please get in touch here.

 

This content is for information purposes only. It does not constitute investment advice or financial advice.

Multi-generational family walking through woods

Using life assurance to eliminate inheritance tax on gifts

By | Tax Planning

If you are thinking about gifting a large sum of money to loved ones during your lifetime, it is important to realise that the gifts you make could still carry an inheritance tax liability after your death. So, you might want to consider arranging a life assurance policy that will eliminate the risk of leaving behind an unexpected inheritance tax bill.

When Chancellor of the Exchequer Rishi Sunak announced in his March Budget that inheritance tax thresholds would be frozen until 2026, one of the consequences was that inheritance tax and estate planning returned to the top of the agenda for lots of people. We have seen an increase in the number of clients talking to us about the potential inheritance tax liability that could be due on the value of their estate, and we have been pleased to be able to discuss the different estate planning strategies with them – as there are lots of different options available during a person’s lifetime.

 

What are the current inheritance tax thresholds?

As a reminder, everyone in the UK aged 18 or over has a personal inheritance tax allowance known as the nil-rate band. This nil-rate band currently stands at £325,000. If the value of a person’s estate (money, property and possessions) when they die is below this amount, then there is no inheritance tax to pay. However, if their estate is valued above £325,000, the beneficiaries of the estate will be required to pay inheritance tax at a rate of 40% on the amount over the threshold.

It is also worth noting that if you give your home away to your children or grandchildren in your Will, your estate can also claim the residence nil-rate band, which is another inheritance tax allowance that can increase the value of your estate excluded from inheritance tax to £500,000. However, this allowance is only available provided you leave the home to your direct descendants, and the allowance is reduced if the total value of the estate is more than £2 million.

 

What are the current rules on gifting?

Gifting money to your family during your lifetime is one of the most popular ways of attempting to reduce an inheritance tax liability. However, in order for a gift to become completely free of an inheritance tax liability, the person who gave the gift must survive for at least seven years from the date when the gift was made. Lifetime gifts of this type are known as potentially exempt transfers. Also known as the ‘seven-year rule’, the inheritance tax bill due on a potentially exempt transfer reduces on a sliding scale for each full year the person who made the gift survives (also commonly referred to as ‘taper relief’); however, no taper relief is available in the first three years after making a gift.

How does this work in practice? Let’s use an example. Frederick gives £200,000 to his daughter. It is a potential exempt transfer, so should Frederick die within the three years of having made the gift, Frederick’s daughter would be required to pay inheritance tax at 40% on the value of the gift (£80,000). In year four, the inheritance tax rate drops to 32% (a bill of £64,000), it falls to 24% in year five (a bill of £48,000), 16% (£32,000) in year six, and 8% (£16,000) in the seventh year. After the full seven years have passed, Frederick’s daughter will have no inheritance tax bill to pay, but as those amounts demonstrate, the inheritance tax due on the gift can prove very costly depending on Frederick’s health during those seven years.

Fortunately, there is a way to remove the risk involved with making large gifts, and to make sure that the recipient of the gift, like Frederick’s daughter, is not left facing a significant tax bill.

 

Using a life assurance policy to plan ahead for an inheritance tax bill

One of the most cost-effective ways of avoiding an inheritance tax bill is to set up a life assurance policy that pays out if you were to die, with a sum insured that covers the potential tax liability. In cases where a large gift has been made, or could be made in the future, a ‘gift inter vivos’ policy can be created. Roughly translated, inter vivos means ‘between the living’, and it can be used to pay a lump sum paid in the event of a person’s death during a specific timeframe.

Most users of a gift inter vivos policy arrange for the policy to have a fixed seven-year term, with the amount of cover it provides reducing to match the reduced inheritance tax liability as taper relief starts to take effect. Although the cover reduces, the premium you can expect to pay for this type of assurance policy typically remains fixed for the whole seven years.

 

Considering the nil-rate band

However, before choosing to set up a gift inter vivos policy, it is important to determine whether the available taper relief will apply in your own particular circumstances. This is because any lifetime gifts made will first be allocated against your nil-rate band when the gift is made. This means that the initial impact of any gift you make, as well as any subsequent gifts, is that your nil-rate band will itself be reduced during those seven years, potentially increasing the inheritance tax liability due on the value of the estate during this time. It is also worth noting that taper relief is applied to the rate of inheritance tax, not to the value of the gift. So, if a gift falls within the nil-rate band, the rate of tax is zero and therefore taper relief has no effect.


Writing the assurance policy into trust

When we discuss setting up a gift inter vivos policy, we usually recommend that the policy itself is placed into trust. This ensures that the proceeds of a claim made on the policy are not included in the policyholder’s estate, which would otherwise increase the inheritance tax liability. Arranging the policy into trust also means the policy does not get caught up in the probate process, meaning beneficiaries should be able to get the policy proceeds quickly to settle the inheritance tax bill.

 

Summary

One of the most attractive things about gifting money to loved ones – perhaps to help with a house deposit or university fees – is that you’re able to play a part in their future now, rather than waiting till you die. But the rules around gifting, especially calculating the liability on lifetime gifts, can be a headache. Using a life assurance policy designed to cover the costs of that liability can really make a difference, and is a very effective way of removing the uncertainty that comes with making large gifts.

With more families likely to be caught in the inheritance tax trap – thanks to the frozen inheritance tax allowances – we expect such policies will prove increasingly popular with our clients.

 

If you are interested in discussing estate planning arrangements or your tax situation with one of our experienced financial planners at FAS, please get in touch here.

 

This content is for information purposes only. It does not constitute investment advice or financial advice.