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Financial Planning

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.

Gavel laying across book entitled Powers of Attorney

The importance of arranging a Lasting Power of Attorney

By | Financial Planning

Setting up a Lasting Power of Attorney is an important step you should take to make sure your loved ones can make the important decisions about your health and your financial wealth on your behalf, should you become incapacitated through ill health or accident.

We live in an era when people are likely to live for many more years than previous generations would have expected. But with more people living longer, it has become increasingly commonplace that many will reach a point in their life when they are no longer able to make decisions for themselves.

Sadly, this is only likely to become more commonplace. According to Alzheimer’s Research UK, one million people in the UK will be diagnosed as living with dementia by 2025, and this will increase to two million by 2050. A person’s risk of developing dementia rises from one in 14 over the age of 65, to one in six over the age of 80.

When the person who has been in charge of the family finances all their life is no longer capable, it can become increasingly difficult for their family to ensure that the right decisions are being taken. So, as we all get older, it becomes even more important to make sure we get our affairs in order, and one of the best ways to do this is to arrange a Lasting Power of Attorney (LPA).

 

What is a Lasting Power of Attorney?

An LPA is a legal document that lets you appoint someone you trust to make decisions on your behalf, should you become unable to make those decisions for yourself in the future. There are two different types of LPA:

  1. Property & Affairs LPA – which lets the person/s you appoint make decisions about your property and finances.
  2. Health & Welfare LPA – which lets the person/s you appoint make decisions about your health care and medical treatment.

You can choose to set up one or both types of LPA, and you can nominate the same person or elect to have different attorneys for each. However, just because you’ve set up an LPA, it doesn’t mean that you instantly lose control of the decisions that affect you. You can be very specific on the LPA about when the attorney acting on your behalf is able to take control. All LPAs must be registered at the Office of the Public Guardian, which is the government body responsible for the registration of LPAs before they can be used.

 

Who can be your attorney?

You can nominate anyone to be your attorney, provided they are 18 years old or older. However, for a Property & Affairs LPA, your attorney cannot be bankrupt or the subject of a debt relief order. Whoever you choose, you should bear in mind that they will need to be someone that you trust to make decisions for you, and will be able to act responsibly and in your best interests. It’s always worth having a conversation with the person you’re considering to nominate as your attorney, so you can explain your wishes and your preferences, along with what you expect of them.

 

What are the benefits of setting up an LPA?

Having an LPA in place will make things easier for you and your family should you start to become incapacitated. For example:

 

  • Once the LPA has been set up, it will become easier to have discussions with your family, both in terms of your wishes now, and what you want to happen in the future. An LPA is a great way to make sure everyone is on the same page. It can also help your attorney to become familiar with all your financial and legal arrangements.
  • With a Property & Affairs LPA, you don’t have to step away entirely from the decision-making process. You can ask your attorney for help with your decisions but still have the final say yourself.
  • Arranging an LPA will make things considerably less complicated, time-consuming, and expensive for your loved ones should they need legal permission to act on your behalf in the future.


What happens if someone doesn’t have a Lasting Power of Attorney?

If you lose mental capacity and don’t have an LPA arranged, your family will have to apply to the Court of Protection to become your appointed ‘deputy’. The Court of Protection will make an assessment and appoint someone that it believes is a suitable appointee. This deputy will then make financial decisions on your behalf. It’s worth recognising that the person the Court appoints may not be the person you would have intended. It’s also worth noting that the process of appointing a deputy can take considerable time to resolve.

 

LPAs and Discretionary Fund Management

For obvious reasons, when it comes to managing someone’s investments, the subject of exactly what an attorney is legally allowed to do becomes more complicated. Many people who have been placed into the role of attorney may not feel qualified to make strategic investment decisions, and feel this type of responsibility is best left to professionals with the experience and qualifications to make the right decisions.

Therefore, subject to the donor’s consent, it is important that any LPA document contains specific wording that provides express permission to delegate investment management decisions to an existing or new discretionary investment manager. If the document does not provide this permission, Attorneys will need to take decisions themselves following advice from an investment professional or they will need to apply to the Court of Protection to obtain retrospective consent before they instruct any investment decisions.

 

How we can help

Quite often, it is the parent in need of care who holds all the family assets in their name. At FAS, we have been made aware of several cases where family members have found it difficult to make long-term care provisions for a parent who was no longer capable of making their own decisions.

In these instances where no LPA has been put in place, family members have spent considerable time and money trying to take control of the parent’s assets to pay for their care, while experiencing lengthy delays trying to get a determination from the Office of the Public Guardian. These cases have convinced us that families should really start talking about the importance of LPAs long before they think an LPA will ever be needed. We can help to ensure that any LPA drawn up contains the necessary wording to delegate investment decision-making to those best placed to manage the investments.

 

Summary

As with writing a will, the most important aspect of an LPA is that it gives you the power to make a decision when you choose to, rather than leaving it too late to have your say. Creating an LPA at the same time as you write your will could potentially save you and your family a great deal of money and distress further down the line.

 

If you are interested in discussing arranging an LPA 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.

Broken piggy bank on the shelf. National Savings

National Savings rates are dropping – should you take action?

By | Financial Planning | No Comments

We are living in an era of historically low interest rates, which is particularly bad news for anyone with NS&I Premium Bonds, ISAs, and other cash savings products. Now might be the time to look at getting a better return.

 

If you were looking for a secure and responsible home for your savings, it used to be hard to beat National Savings & Investments (or NS&I for short). For decades, NS&I was the place where people kept their cash savings, either in Direct Savings Accounts, Cash ISAs, or if you wanted the thrill of winning a possible jackpot, Premium Bonds. One of its biggest selling points has always been that its purpose is to provide money for the UK Government and that all its products are backed by a 100% guarantee from the Treasury.

 

A long-standing institution

NS&I might seem like a bit of a relic from a past age, and in many ways it is. This is, after all, the same establishment that issued War Bonds and Defence Bonds during the First and Second World Wars. However, today the role that NS&I plays in raising funds for the government is much reduced and represents only a small part of the government’s borrowing plans. Instead, it is far more likely to raise billions of pounds by selling Government Bonds (Gilts) on the open market.

But even if its best days are behind it, NS&I still stands as one of the largest – and most popular – savings institutions in the UK, with 25 million customers trusting it with more than £179 billion. And the problem is that the majority of these customers are being short-changed by the rate of interest they are earning on their savings. That’s because recently NS&I has been trying to discourage people from investing with them. In September, it announced sharp reductions to interest rates across its product range, and these new rates came into effect on 24 November:

  • Direct Saver interest rates are being cut from 1.00% to 0.15%
  • The interest rate on Income Bonds is cut from 1.15% to 0.01%
  • The interest rate on Direct ISAs is reduced from 0.90% to 0.10%
  • Junior ISAs don’t escape either – the interest rate is being cut from 3.25% to 1.50%
  • Even the monthly odds of your numbers coming up on the Premium Bonds are being slashed – from 24,500 to 1 to 34,500 to 1.

An era of historically low interest rates

It’s worth remembering, of course, that the UK base rate of interest is currently 0.1%. The Bank of England opted to reduce it from 0.25% to 0.1% in March 2020, as part of its measures to control the economic impact of the coronavirus lockdown. So, NS&I is simply making changes that reflect the current state of affairs. But from a savings perspective, things could get worse.

 

Are negative interest rates on the way?

You might be forgiven for thinking that with the base rate at 0.1%, it couldn’t go much lower. But you would be wrong. The Bank of England has recently started discussing the prospect of negative interest rates, which could take interest rates below 0.0%. Negative interest rates are not unheard of and have already been put in place in the Eurozone, Japan, and Switzerland. Whether negative interest rates are any more effective at encouraging economic support and stability, is still very much open to debate.

In October, the Bank issued a letter to the chief executives of all UK banks and building societies, as well as large international banks and insurers, asking them to identify any “operational challenges” associated with the implementation of zero or negative interest rates. Dave Ramsden, the Deputy Governor at the Bank of England, recently pointed out that negative rates are “certainly in the toolbox for potential use in future”, adding that the Bank “will keep the appropriateness of all tools, including negative rates, under review”.

 

So, what does this mean for cash savers?

Anyone holding cash in a standard deposit or savings account should understand that their money is already earning a paltry rate of interest – and this is only likely to continue for the time being. Even though inflation is also relatively low at the moment (The Consumer Price Index measured inflation at 0.7% in September), this still means that the value of the cash you hold in the bank is being eroded – it is literally worth less than it used to be. Negative interest rates would mean receiving zero return on your savings, ensuring your money would shrink even faster as it sits on deposit.

So, with savings offering little or no value, should you be looking elsewhere for an income on your money? We think so. If you rely on your savings for an income, it is certainly a good idea to look at some of the alternatives available. For example, investing in a cautiously managed portfolio of stocks and shares could be a way of earning a better rate of return, and growing the value of your investment over time, without taking too many risks with your money. In fact, a zero interest rate environment could even be a positive for UK stocks. This is because it allows companies to borrow more, and should increase the value of its future earnings paid out to shareholders.

There are other investment options available too, so this might be a good time to work out how much cash you hold and whether it could be put to better use to keep your long-term financial plans on track.

 

If you have cash on deposit, we would be pleased to hear from you to discuss possible alternatives that might be more suitable. Please get in touch with one of our experienced financial planners here.


The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Robo advice vs financial adviser

Why robo-advice won’t be taking over the world just yet

By | Financial Planning | No Comments

Trusting your finances to a digital investment platform might be cheap, but you can’t put a price on the peace of mind that personal financial advice gives you.

Technology has had an outsized impact on our lives for several years now. Every time you use a computer, your mobile phone, or take a trip in your car, algorithms are there, behind the scenes, helping to shape your decisions, whether you realise it or not. Algorithms even choose what we see on social media, they dictate which films we watch on Netflix, or what ends up in our basket when we shop online.

But when it comes to providing financial advice, algorithms are still lagging behind. Back in 2015, the introduction of ‘robo-advice’, which relied on computer-generated investment portfolios, was predicted to spell the beginning of the end for financial advisers. But five years later, although we have all grown used to doing most of our daily activities online, the machines don’t look like they’re winning this particular battle.

 

So, what exactly is robo-advice?

As you would expect, robo-advice is an online investment service where clients are asked a number of questions, including how much they wish to invest, how long they plan to invest the money for, and their general attitude towards risk. The answers to these questions are then used to invest the client’s money into one of several available investment portfolios. The money is then managed digitally for as long as the client wants to remain invested.

 

What are the positives of robo-advice?

First of all, robo-advice promises to keep the cost of the investment lower than you would expect if you tried to manage a diversified portfolio of investments yourself, or through a financial adviser. And by keeping things simple, it’s a very quick process to get a portfolio up and running. Once the questions have been answered, the client can have their funds invested within a day or so. For investors who have relatively small amounts to invest, it’s a good way of setting aside regular amounts without having to worry too much about keeping an eye on the investments.

 

What are the negatives of robo-advice?

Despite the name, robo advisers don’t usually offer financial advice. They use algorithms to know just enough about someone to place their money into a particular savings pot, but that’s about the extent of their ability to solve clients’ financial problems. For most people, robo-advice can only get them so far.

 

Why is robo-advice limiting?

If the events of 2020 have taught us anything, it is that life is unpredictable and sometimes more complicated than we would like it to be. The companies that offer robo-advice to customers want to convince people that financial advice can be stripped down to a computer-generated, algorithmic ‘paint by numbers’ approach. But the reality is that people’s needs are usually far more complex.

One of the most valuable aspects of having a relationship with a financial adviser or financial planner is that it goes far beyond just recommending and overseeing a specific investment.

 

It pays to have someone to talk to about money

Most people have an emotional relationship with money. Financial issues are the number one cause of arguments rows between married couples. It gives people sleepless nights, and can have a significant impact on their mental health. So, having a financial planner to talk to, someone to listen to your financial needs, hopes and fears, is still an essential part of the advice process – and not something that an algorithm can deal with (yet).

 

Keeping calm during a crisis

One of the ways that financial planners can really demonstrate their worth is through the value of their experience. This has been a strange year in investment terms. In the early months of the year, when the coronavirus pandemic – and subsequent lockdown – became a global threat, stock markets plunged in value. Inexperienced investors, or those without a financial adviser, often respond in times of crisis by selling their investments, and crystallising their losses.

But a good financial planner can take the emotion out of your financial decisions, help to put ‘apocalyptic’ media headlines into perspective, and make sure that your portfolio is best-positioned to take advantage of recent stock market falls, while also capitalising on longer-term trends. Financial planners can help to reduce the overall risk within your investment portfolio by recommending sophisticated investments, such as tax-efficient Venture Capital Trusts or Enterprise Investment Scheme plans, that simply aren’t available on robo-advice platforms.

In short, during volatile investment conditions, financial planners get the opportunity to get creative, demonstrate their experience and specialist skills, and to really prove their value to their clients. A robo adviser portfolio will just carry on regardless.

 

Financial planning that goes beyond investment

And of course, investment advice is just one aspect of what our financial planners do. The questions we ask during our fact-finding stage are not just restricted to finding out how much you want to invest and for how long. We are more interested in hearing you talk about your life goals, your plans for your retirement, the wealth you want to pass on to your children and grandchildren. We’re asking these questions because we want to help you plan your financial journey through life. All this information helps us to create a much deeper, lasting relationship with our clients throughout their relationship with us. And it means we’re ready to help when something unexpected happens.

 

Summary: a matter of trust

While algorithms have improved our way of life in many areas, often in areas we’re not even aware of, it’s also becoming more apparent that algorithms can themselves be flawed or contain hidden biases – after all, they are still programmed by humans.

The lack of take-up of the services offered by robo-advice companies suggests that most people are still deeply sceptical about leaving their financial future in the hands of computer programmes that don’t understand them or care about them.

For some people, using digital-only robo-advice is a cost-effective and simple way to start setting money aside for the future. But for the vast majority, there’s really no substitute to having an experienced financial planner giving you the confidence to make better informed investment decisions. When it comes to the really important questions, or those life-changing decisions, people will always prefer to talk to someone they trust. So, here’s our prediction for the future: financial planning will always be a people-first business.

 

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.

It pays to know the differences between independent and restricted financial advice

By | Financial Planning | No Comments

Do you know which is better, independent or restricted financial advice? Spoiler alert: there’s only one right answer to this… Independent advice is far superior, and we’ll gladly explain why.

What is ‘independent’ financial advice?

As the name suggests, an Independent Financial Adviser (IFA) 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. They won’t be biased towards any particular financial company or product, and they won’t base their recommendations on fees paid by other companies to encourage them to sell their products. If you get your advice from an independent financial adviser or financial planner, you can feel confident they are working solely for the benefit of you, and no-one else.

Being independent is a highly-valued status in the advice industry. To call ourselves independent, financial advisers must be able to prove their status to the UK regulator of financial services, the Financial Conduct Authority. If you’re not sure whether an adviser is independent or restricted, ask them. A financial adviser who can only offer restricted advice must declare this to you before making a recommendation.

How does restricted advice compare?

It all comes down to the options that the financial adviser can give you. Being ‘restricted’ means an adviser can only recommend products from a limited selection or product range, not from the whole of the market. Here’s an example that highlights the difference from a client’s perspective.

You arrange to meet a financial adviser to set up a personal pension. An independent financial 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.

With a restricted financial adviser, however, the recommendation process is different. The adviser might tell you that they are only able to suggest a pension from one pension provider, or from a select panel of a handful of different pensions. Your options could be drastically reduced, because they won’t have access to the widest choice of products available.

Why is independent better?

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 this might not be in your best interests.

And, sometimes, getting advice that isn’t independent can be a problem. Restricted advisers will often work for a much larger financial services company – in which case they are probably keen to sell you one of their products. Alternatively, they may call themselves restricted because they only focus on one type of financial product (pensions, for example). So, if the restricted adviser recommends a pension to you, you can never be entirely sure whether it is the right pension to suit your needs, or just that he gets paid to sell this particular pension to you.

Independent financial advisers, on the other hand, are so much more than just salespeople. We believe that financial planning is more important than just recommending where you should put your money. It’s our job to find out about your goals in life, look at your personal circumstances and help you decide on the best course of action. 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 we don’t think is 100% right for you, and will always give you clear and comprehensive reasons behind every recommendation we make.

Are independent financial advisers getting harder to find?

You may be wondering why advisers choose to be restricted, since being independent is clearly better for clients? The simple answer is that it is more expensive to be independent than it is to be restricted.

Being restricted makes it easier to run an advice business. A lot of smaller financial advice firms have chosen to become part of larger networks, which give them a panel of investments to sell to their clients. This makes it cheaper for them to run their business, because they can minimise their costs, outsource some of their functions and don’t have to spend so long carrying out painstaking investment research.

Being independent, on the other hand, means going it alone. This can mean paying more for professional insurance, training, and other regulatory burdens.

Don’t forget, most financial advice firms are themselves small businesses. Some have been hit hard by the coronavirus. In fact, the number of independent financial planners operating throughout the UK is shrinking. We’re not quite becoming an endangered species yet, but it’s sad sometimes to see that there are fewer of us out there flying the flag for independence. Because we believe people deserve the opportunity to get independent advice.

As for us, we have no plans to switch from offering independent financial advice to restricted. We believe that being independent means we can keep delivering better quality advice – and better quality outcomes – for our clients. We’re proud to say that all of our financial planners are highly qualified, have years of experience of financial planning – not just selling financial products – and are proud to call themselves independent.

So, if you’re ever in doubt over independent or restricted advice, remember this: a financial adviser who is independent will proudly tell you that fact, whereas an adviser who is restricted is legally required to disclose it. That should tell you everything you need to know about which is better.

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.

Financial planning to help parents (and their kids) prepare for higher education

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While coronavirus has made academic life full of uncertainty, the one thing you can be sure of is that it’s likely to prove expensive. But don’t worry, we’ve done our homework and put together some practical tips to help you start saving for university fees.

Private school fees – let’s start with the maths

The number of parents who choose to put their children into private education has fallen significantly in recent years. According to the Independent Schools Council, private schools educate around 6.5% of the total population of schoolchildren. That works out at around 625,000 children being taught in around 2,600 schools.

And of course, private education doesn’t come cheap. Based on current prices, sending a child to a private secondary school between the ages of 11 and 18 could mean spending more than £105,000 in total. Sending them to a boarding school could cost four times that amount.

So, unless you have that amount lying around, you’ll need to start investing as soon as possible. For example, if you start saving around £461 per month as soon as the child is born, assuming that you achieve growth of 4.5%, then you should be able to have set aside around £75,000 by the time they start their first year at secondary school. But the later you leave it, the more you will have to save each month (and please don’t get us started on the cost of school uniforms).

What about university fees?

Last year, a record-breaking number of young people enrolled on degree courses to UK universities. And in 2017, the average university student graduated with a debt of £51,000 (according to the Institute for Fiscal Studies). So, if you have children looking forward to university life in the not-so-distant future, expect the ‘Bank of Mum and Dad’ to be called on frequently.

And, if you want to cover their debt completely, you’d need to start investing £457 a month when they turn 10 years old (assuming a return of 4.5% over an eight-year period). Start investing from their first birthday, however, and the monthly amount you need to invest falls to a much more palatable £180.

Investing for the long term

As with any investment, the best way to reach your long-term goal is to hold a portfolio of different investments spread across major asset classes (such as UK and international equities, fixed income investments (bonds), and other assets such as commercial property). Once you’ve built up a sizeable investment pot, you might want to convert some of your investments into cash, to make sure you’re always ready to pay the school fees (a good rule of thumb is to always have three years’ of school fees in cash deposit accounts).

Make use of tax wrappers

You should always try to make use of any available tax wrappers to help you with your school fees planning. Don’t forget that each parent can invest up to £20,000 a year in a Stocks & Shares ISA. This will give your investment the chance to grow tax-efficiently, and you don’t need to declare your ISA on your self-assessment.

Making use of the Junior ISA

If you can, it’s well worth making use of the Junior ISA to pay for university fees. You can open a Junior ISA on behalf of your children and currently you can invest up to £9,000 a year. As well as being tax-efficient, you can also invite grandparents and family friends to contribute. The money can only be withdrawn by the child when they turn 18.

That’s great, but my little angel is off to university this year!

If you have children about to head towards university, don’t despair. There are tuition fee loans and maintenance support designed to help manage the expense.

The maximum amount that universities can charge in tuition fees annually is £9,250. It’s worth knowing that tuition fee loans (plus any interest) are repayable over a 30-year term. Repayments only kick in once the student has graduated and is earning more than £25,000 per annum. The graduate will be expected to pay back 9% of the income they earn over this amount, so if they find a job with a salary of £28,000, they can expect to pay £270 a year (or £22.50 per month) towards their total tuition fee debt. And, if there’s any debt left over after 30 years, it is automatically written off.

We can help you start to plan ahead

If you’re thinking about how to start setting aside money to pay for your children’s education, get in touch. One of our qualified financial planners will be able to talk through the options available to you, assess your attitude towards investment risk, and come up with a plan to help you – and your kids – achieve the best possible outcome. There’s really no better time to start than right now.

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.

Ensuring Those Left Behind Have Enough Money

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Life insurance puts money in the hands of those who need it when a person dies. There are many reasons why this money might be needed. It’s not just for parents with young families. A need could arise at any age and the nature of that need could change as you get older. As such, regular reviews of your financial protection needs are essential.

If your income would stop upon your death, and you have people who depend on you financially, you should have life insurance cover. If you live with a spouse or partner and their earnings would also stop at death, they too should have insurance cover. However, if you do not have financial dependents, you may not have a need for life assurance.

Quantifying the need for life insurance

The life insurance needed to cover a loan is relatively simple to assess. You need enough insurance for the amount of the loan, and the cover should last for the time that the loan is outstanding. If you pay off some of the loan, you should be able to reduce the amount of cover earmarked for this purpose. However, if you take advantage of loan or mortgage repayment holidays as a result of Covid-19, you’ll need to review the cover you have in place as it may no longer be sufficient, unless you subsequently make overpayments. Most people also need insurance cover to replace their income if they were to die. The same principles apply but the calculations are a little more complicated.

Example – calculating needs
David and his wife Penny have a son of five who is about to start school. They have decided to send him to a fee-paying school and expect him to be there until he is 18. David and Penny are now considering life insurance to ensure that the fees could continue to be paid for the next 13 years. The first thing to do is therefore to quantify the total cost of school fees over the next 13 years, taking inflation into account.

The approach to insuring other needs is roughly the same. For example, you could calculate how much your family would need to cover the general household and other expenses, and how long they would need the funds for.

You can arrange for life cover to pay out a series of annual amounts over a set period, which is a simple approach to replacing an annual income, but most life cover pays out a lump sum. If you want a lump sum to provide £1,000 a year for 10 years, you would need life cover of about £10,000 because even if you invested a lump sum it wouldn’t have long to grow before you needed to spend it. If you needed the income for 20 years, however, you might only need about £18,500 because you could invest some of this for the longer term and benefit from growth and income.

It is sometimes hard to work out how much life cover you would require for your family, because of the difficulties of assessing your family’s needs after one or both parents have died. Your usual pattern of expenditure provides a good starting point for these estimates. Then you would have to consider the other costs that might be involved, like childcare. It can be especially difficult to assess the potential financial impact of the death of a parent who spends most of their time looking after children and the household. A good starting point is to estimate the costs of buying in these services.

Over time, your circumstances will change. Children grow up and mortgages and other loans are repaid. Your income may rise or fall, stop and restart. The same goes for your expenditure. You may take on more debt. It’s therefore a good idea to review the amount of cover you have on a regular basis, to ensure that it is still appropriate for your needs and that you are not under or over-insured.

The Right Life Insurance Policies for You

Term assurance is the right sort of life cover for most types of family protection needs. It can provide insurance at the lowest cost for the period that it is required.

It is rare that you would need other types of life insurance for family protection, because they generally involve much higher costs than term assurance for comparable levels of cover. Whole of life assurance provides cover for the whole of your life, as the name implies, and its main use is in inheritance tax planning and provision for funeral expenses. Whole of life policies can have substantial investment values that you can cash in, unlike term assurance policies.

Term assurance is the simplest form of life insurance, working in a similar way to your home insurance. The policy will pay out if you die during the term, but if you survive to the end of the term, the contract simply ends and there is no pay-out.

The cost of term assurance varies considerably according to factors such as your age and state of health. The cost of 10-year term assurance for a 30-year-old is about a tenth of the same cover for a 60-year-old. A person’s state of health is also important; poor health could mean increased premiums or even the possibility that the individual cannot be insured. Although term assurance is a simple product, there are variations that suit different needs.

Types of term assurance

Policy type Description
Level term These polices pay out a fixed sum if you die during the term of the policy.
Renewable or convertible term Some policies are renewable, so that you can extend them for an additional period of cover at the end of the term regardless of your state of health at the time, while others are convertible to a whole of life policy regardless of your health. These policies cost more than level term.
Increasing term Some policies have an element of inflation proofing. You either have the option to increase the cover from time to time by a set percentage or, in some cases, the amount of cover increases automatically by a set percentage, or perhaps the rate of inflation. These policies also cost more than level term assurance.
Decreasing term This is like level term, but the amount of cover reduces each year. Decreasing term is typically used to cover a liability that you expect to decrease year on year, such as paying school fees until a child reaches the age of 18. The cost of this cover is less than level term assurance because the overall amount of insurance provided over its lifetime is lower.
Mortgage Protection This is a type of decreasing term assurance, but the cover reduces in line with the outstanding capital on a repayment mortgage where you pay off some of the capital every month. The higher your mortgage interest rate, the more slowly the outstanding mortgage capital falls each year. It is important to ensure that the interest rate specified in the policy matches the mortgage it is intended to cover, or that the rate is higher than the interest rate you expect at any time during your mortgage.
Family Income Benefit These policies pay an annual sum if you die during the term of the policy and the payments continue until the end of the term. Family income benefit can provide a higher initial cover for a lower cost because it is effectively a form of decreasing term assurance.

 

Example

Mark has twin children, aged five. He wants to ensure that if he died, the family would be protected until the twins reach 21. He feels they would need £30,000 a year for this and takes out a family income benefit policy to cover the liability. If he were to die in year one, the policy would pay £30,000 a year for 16 years – a total of £480,000. If he were to die two years before the end of the term, it would pay £60,000 in total.

Life cover from your employer or pension scheme If you are employed, you may well have life cover from your employer and you might want to take this cover into account when deciding how much insurance you need. However, you need to bear in mind that you will probably lose this cover if you leave your employer. At which point, you’d need to consider taking out additional cover.

Relevant life policies Employers can take out these policies on the lives of employees. They are not part of their pensions, but they have many of the same tax advantages.

Joint life policies There may be situations where you would want to take out a policy on more than one life. The policy could then pay out after both the insured people have died – this is sometimes used for inheritance tax planning. Alternatively, the policy might be arranged so that it pays out when the first of the insured people dies. This could be suitable for financially interdependent people, but would mean that the second person would no longer be covered by the policy after the first of the couple dies.

Ensuring the right people get the money

Generally, the best way to ensure that the proceeds of a life policy are paid to the people you intend to benefit is to arrange for the policy to be in a trust. Some types of trust give the trustees discretion or flexibility about how they distribute the benefits, but it is a good idea to get advice about this. If you die, the policy proceeds will be paid to the trustees and then the beneficiaries, not into your estate. This arrangement could save them IHT and should speed up the payment to the beneficiaries.

There are other ways to set up life policies. The person you want to benefit could take out the policy themselves – the so-called life of another basis. In some circumstances this can be a wise arrangement, especially if the potential beneficiary wants to be certain that the premiums on the policy are being paid. But mostly it is preferable to arrange for a policy to be in trust.

Covid-19 and life insurance

Many life insurance providers are reassuring those with existing policies that they will pay out in the event of a claim resulting from a coronavirus-related death. However, because each insurer has different terms and conditions, you should check your policy to ensure that pandemics are not excluded.

Applications for life insurance from new clients are being accepted, but if an applicant is currently experiencing Covid-19 symptoms, the insurer is likely to postpone processing their application until they have fully recovered. Telling an insurer that you are in a good state of health when you are not will invalidate your policy, meaning that it will not pay out in the event of a claim.

Please do give us a call if you wish to speak to one of our Financial Planners about your life insurance requirements. We have good relations with reputable providers and can possibly make preliminary enquiries with underwriting teams about certain conditions to gain an understanding of how an application may be considered.

This article is for general information and is not intended to be advice to any specific person.

Making Sure That You Have Enough Money if You Fall Seriously Ill

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The purpose of health insurance is to provide some money if you fall seriously ill or have an accident, potentially affecting you for many years. In this case, you would probably stop earning, although your financial needs might well be greater than ever. The state benefits you would receive would be relatively low and would be most unlikely to provide sufficient income to meet your needs, especially if you have substantial rent or mortgage payments to make. You might also need capital, for example to make adaptations to your home or to pay off debt. A rainy day fund can help in the short term here, but it’s not a complete solution. The precise level of fund required can vary from person to person, but, as a minimum, three to six months’ expenditure could be used as a guide.

Virtually everyone who is working therefore needs some kind of health insurance to provide financial protection if their earnings are affected by serious illness or disability. Even if you have no financial dependents, there is a very strong chance that you will need health insurance if you are responsible for paying your own bills.

Income Protection Insurance

Income protection insurance – sometimes called permanent health insurance – pays a weekly or monthly income if you cannot work because of illness or disability. You may think that you do not need to worry about this kind of cover, but the fact is that in the UK there are nearly 14 million people with a limiting long-term illness, impairment or disability. The prevalence of disability rises with age. Around 8% of children are disabled, compared to 19% of working age adults and 45% of adults over state pension age.

You can generally be insured to receive a monthly benefit of up to about half to two-thirds of your pre-tax income. If you have no income, you may still be able to take out a policy, but the maximum payout will be limited, generally to an income of about £20,000 a year.

Some employers provide income protection insurance, but a very large number do not. Employers are only legally obliged to pay employees, in the form of statutory sick pay, for the first 28 weeks of their being unable to work because of an illness or injury; even then not everyone will qualify, and the employer does not have to pay the full salary. It is worth specifically checking the position with your employer. If your employer provides cover, the benefits generally continue to be subject to income tax and national insurance contributions, at least initially, but you won’t usually have to pay tax on the premiums. If you take out the cover yourself, the benefits are tax free.

Income protection insurance pays after a waiting period on each claim and can usually continue to pay you up to retirement age, unless you recover and return to work sooner. The cover normally lasts until you are aged 60 or 65, but you can arrange the insurance for much shorter periods – say five or ten years – and this cover is much cheaper because it is substantially less valuable. The chances of having a serious illness or disability increase substantially as you grow older.

During the Covid-19 outbreak, insurers have experienced a rise in queries regarding income protection insurance. Generally people who are simply self-isolating are unlikely to be covered. However, a small number of providers will consider claims for self-isolation where it is medically advised. Those with severe coronavirus symptoms that continue beyond the waiting period will start to receive their monthly payout if those symptoms mean they meet their insurer’s definition of incapacity (e.g. they are unable to work at their own occupation). Some providers are restricting cover for respiratory conditions for new customers.

Income protection can appear relatively expensive but can be very valuable if you fall seriously ill. If you are considering taking out a policy these are some of the things you should consider.

Consideration Possible issues
Exclusions Check the conditions and exclusions on income protection insurance policies as terms vary between different insurance companies. Almost all illnesses are generally included in the cover, but most have exclusions, for example if the illness is caused by drugs or alcohol abuse.

There is an important difference between cover for being unable to work at your own occupation and cover for being unable to work at ANY occupation. It is much better to have the first type of cover, though it is likely to be more expensive. Otherwise, if you cannot work at your own occupation, under the wider definition the insurer could insist on your undertaking other work.

Insurers will generally only pay a proportion of recent earnings as benefits, which can be hard for people who are self-employed or have fluctuating earnings.

Inflation protection It is normally advisable for income protection insurance to be inflation protected in two main ways. You should be able to increase the level of cover periodically regardless of your state of health, or the cover should increase automatically in line with inflation or a fixed percentage. It is also important to ensure benefit payments keep pace with inflation. If benefit payments never increase after you fall ill and cannot work, their real value will be gradually eroded over the years.
Underwriting Insurers are careful when people first apply for income protection insurance. If you have, or have had in the last few years, a health issue, the insurance company may exclude your particular problem, increase the premium or possibly decide not to insure you. Insurers also pay attention to your occupation. You will get the best terms if you work in an office, mostly indoors and do little or no manual work. The cover is much more expensive for people who work with machinery or in relatively hazardous places like factories and farms.
Claiming If you have to make a claim, the insurance company will continue to pay you the benefit until you are well enough to return to work. If your illness recurs, they should start paying the benefit again. Unsurprisingly, they will want to check from time to time that claimants are genuinely incapacitated.

Example David works as an IT manager. He earns a good salary and he lives a comfortable lifestyle. In the event of being unable to work due to illness, he would receive full pay for up to four weeks, but would then only receive statutory sick pay and, later, state benefits if he is eligible for them. He would not be able to continue to meet his commitments and may have to sell his flat should the illness continue into the long term. David might consider income protection to provide an ongoing income after his employer stops paying him. This could continue until his selected retirement age or, if he wanted to keep premiums down, for a limited term of, say, five years.

Critical Illness Insurance

Critical illness insurance pays a lump sum if you are diagnosed as suffering from a specified illness. Over 30 conditions may be covered, including serious cancers, heart attack and stroke. Some providers may cover significantly more – even up to 100 different conditions.

The advantage of critical illness insurance is the benefit is paid very early, shortly after diagnosis of the illness, without any significant delay – unlike the usual longer waiting periods of income protection. It is also in the form of a lump sum that can allow you to make rapid adjustments to your lifestyle and pay off loans. The main drawback is that this type of health insurance only covers a limited set of conditions. These are common disabilities, but critical illness insurance generally does not cover some important conditions, such as musculoskeletal pain and most mental illnesses.

People often take out critical illness insurance to cover a mortgage or other loan. Because you are significantly more likely to have a critical illness than die whilst you are of working age, it is more expensive than life insurance. But this reflects the likelihood of needing to claim on the policy.

Critical illness is an important and valuable addition to income protection, but it should not normally be regarded as a replacement for it.

Whereas an income protection policy will pay out to those suffering from severe Covid-19 symptoms beyond the waiting period where the insurer’s definition for incapacity is met, Covid-19 itself is not covered by critical illness policies. However, if the coronavirus leads to one of the conditions listed on your policy, for example a heart attack or a stroke, and you survive the waiting period, the policy would pay out.

Again if you would like to discuss your income protection requirements in more detail, please do give us a call.

This article is for general information and is not intended to be advice to any specific person.

Helping You to Afford the Cost of Private Medical Treatment if You Need it

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Private medical insurance (PMI) pays for private health treatment. Depending on your budget, you choose what you want covered – just in-patient or day-patient treatment, or out-patient consultations and medical tests. PMI pays for the treatment of acute conditions only. It does not cover chronic conditions (except, generally, at onset) and pre-existing conditions may also be excluded. As part of the response to the Covid-19 outbreak, providers are continuing to delay non-urgent treatments to free up beds for the NHS. Treatments will be delivered and funded by the provider once the beds are no longer required.

Health cash plans pay for everyday health costs, typically 75%–100% of costs for dentistry, optical and consultation costs, plus a small sum for each day spent in hospital, subject to an annual limit. Other dental options include capitation (maintenance) plans, which are agreed with your dentist and cover likely costs over the next year, and dental insurance. Plans may require an initial waiting period to stop people taking out cover for known treatment then cancelling the policy.

We can assist you in obtaining medical insurance by researching the marketplace for the most suitable cover. So, if you wish to discuss this area of protection in more detail, please do get in touch.