It’s still crucially important that these key factors are adhered to, thereby ensuring that the fundamentals are in place.
Let’s just consider these in turn:
Your financial plans
This can be anything from your life insurance products to your Personal Pension arrangement. It is not only important that each product offers value for money, but that it’s also up to date and able to take advantage of any changes in legislation that occur all too frequently.
A good example of this is a Personal Pension.
One of the biggest changes in pension legislation occurred in April 2015 (this was called Pension Freedoms; for more information, do have a look at our Guide) and if your Personal Pension was set up before 2015, it may be unable to take advantage of some of the new rules that are now available, such as the changes to death benefits and flexibility in retirement.
In fact, it’s probably likely that you’ve changed your television more times than you’ve changed your pension provision and when you consider how important your pension is to your financial well being, it does make you wonder why that is the case.
A good financial adviser will look closely at your products and make sure they’re fit for purpose.
Underlying investments
This isn’t about having the best performing funds or the best ISA, it’s about you making sure that the investments suit your circumstances. It is crucially important to ensure that your underlying investments fit both your risk profile and your capacity for loss.
For example, the very best performing funds may simply be due to the fact they are taking the highest amount of risk. There is a chance that this year’s best performers are next year’s worst.
No adviser will have a magic wand to be able to tell you which is best (frankly, if they did, they probably wouldn’t be an adviser!). But a good adviser will have tools to ensure that the underlying funds fit your personal circumstances.
They will be able to provide a proposition that will almost certainly have a mixture of assets, such as Shares and Property and Gilts, to ensure you reduce the level of risk that you need to take.
Once again, we’d encourage you to read our Guide which highlights the benefit of Multi Asset Investing.
Taxation
This is another area where mistakes can be costly and advice is crucial. Rather than go into specific matters concerning your own circumstances, consider a simple example:
Bob is retiring and wishes to draw £30,000 per annum from his Personal Pension as income. In Tax Year 19/20, he has a personal allowance of £12,500 with the rest of his income taxed at 20%. This means he would pay Income Tax of £3,500 in tax year 19/20. However, if he talks to a Financial Adviser, they may suggest his income is taken from his ISA (which is able to pay any income free of Income Tax) or he could discuss using a portion of the Tax Free Cash from his pension to provide some income.
This planning could enable Bob to draw his income free of all tax and that advice could save him just under £300/month.
Naturally, that’s a very simple example, but it highlights how advice is crucial in these matters. Now consider what could happen if mistakes are made with Inheritance Tax planning when the tax rate is 40% or issues occur with your Pension Life Time Allowance which has a potential 55% charge. These can be very costly errors that could run into many thousands of pounds.
There are also tax allowances that can save tax. Saving vehicles like Personal Pensions and ISAs are tax efficient, there are more specialist Investment products that offer generous tax relief and Inheritance Tax has many allowances that can be used to reduce the overall value of your Estate for IHT purposes.
All these factors are crucial to ensure your underlying assets support you in the best way possible. But the most important thing with all of this is the adviser. S/he is your Gatekeeper to these products and services and is there to support and protect you.
But its not just you they’re supporting and protecting. Having an adviser means that those closest to you will also be protected and will benefit fully from your hard-earned savings and investments.
Let’s consider how advice can help with Succession Planning >>
Professional advice can draw on behavioural science to encourage good savings and investments behaviour, which should eventually have a positive effect on your retirement income.
But the opposite is also true: the same behavioural science is being used to encourage people to invest in all sorts of products without necessarily taking advice.
One example is London Capital & Finance, a microbond issuer with a colourful back-story, which went into administration in Feb 2018 to the horror of 14,000 investors1.
We believe the majority of investors in this or similar high-risk products will have found their way there on their own as opposed to by taking the advice of a registered financial planner.
Obviously, behavioural stuff and nudges can be a good thing.
But the simple act of stopping people making cataclysmic decisions based on material from firms who are using the same behavioural techniques to push their products is surely one example of the huge value of advice itself.
Don’t risk making a costly mistake – always take professional advice.
1: https://www.londoncapitalandfinance.co.uk/faqs-07.02.19.pdf
