The cost of delay

Let your savings snowball

Making an early start is the most important factor in saving for the future.

Saving for the future can often come well down the list of financial priorities, behind paying off debts, paying a mortgage and financing a child’s education. However, the longer you put it off, the more you’ll miss out on the power of compounding returns.

Einstein reportedly stated: “Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn’t... pays it.” Most people appreciate the importance of paying off debts to avoid the interest rolling up. But the power of the compounding concept is often overlooked by those who need to create wealth for the future.

The secret of investing success lies in the way that investment returns themselves generate further gains. Reinvesting any income generated, rather than paying it out, means that returns in the next period are earned on the invested sum plus the previously accumulated income. It’s very much like a snowball effect: once it’s rolling, the more snow it collects and the bigger it gets.

Reinvesting dividends paid from company shares provides a powerful example of how compounding can boost investors’ total return. Figures from Barclays show that a notional £100 invested directly into UK shares at the end of 1945 would now be worth £10,933 in nominal terms, without the income reinvested; but would have grown to £238,690 if the dividends had been reinvested in more shares.1 However, past performance is not indicative of future performance.

The chart below illustrates just how much difference compounding could make when someone starts saving earlier. Daisy starts saving £200 a month when she is 25; Ken saves £400 a month from the age of 45. In total, they both save £96,000 by the age of 65. However, assuming an illustrative growth rate of 5%, Daisy ends up with almost twice as much as Ken due to 20 extra years of compounding returns.

Of course, these figures are examples only. The level of returns in both scenarios cannot be guaranteed and would depend on the performance of the underlying investments. They do not take into account the impact of charges and taxation which would also reduce the value of an investment.

Younger generations may nowadays face even greater financial challenges, but they have got time on their side. That’s why it also makes sense for families thinking about intergenerational planning to help children and younger adults make an early start by saving money through Junior ISAs, ISAs and pensions.

If you are telling yourself that you will put aside money for tomorrow ‘when I can afford to’ or ‘when I’m making more money’, you risk leaving it too late. But by getting into the savings habit earlier, committing to a plan and giving your money the chance to grow, a more secure financial future remains within reach.

Source: St James Place

How much does financial advice cost?

Our service is FREE for the initial consultation

If appropriate, and after agreement of need and value to the individual, the Financial Adviser will then offer to work on a charged basis in one of a few ways. For example: 

● An hourly rate - This will vary based on the advice provided and will be agreed up-front

● A small percentage - With ongoing investment management, you may be charged a percentage of the overall value

● Fixed fee - For a fixed fee for one-off services such as transferring a pension or buying an annuity

● Commission - This may apply to products such as insurance or mortgages. 

Your adviser will discuss with you in detail the likely costs whichever route you choose to take and they will not commence work on your behalf until you have agreed what would be best for you.

Free advice

An editorial by Which? magazine in June 2018 

Can I get free advice at retirement? 

If you’re unwilling or unable to pay for financial advice, you can get free guidance, in some cases ‘personalised guidance’, from a number of government-provided services – Pension Wise, The Pensions Advisory Service (TPAS) and the Money Advice Service. Which? used undercover fieldworkers to make a number of calls to the services in June 2018 asking for assistance with plans to cash in a £100,000 pension to pay off an outstanding mortgage and to consolidate three pensions into a single plan. 

Pensionwise 

Pension Wise was set up in 2015 to coincide with the introduction of the so-called pension freedoms. You can have a conversation over the phone (which we opted to do) or face-to-face, but you must be over the age of 50 and have a defined contribution pension. Despite the current eight-week wait for an appointment, our mystery shoppers eventually dealt with well-informed call handlers who asked personal questions and then covered the chosen retirement option in detail. The calls follow the same broad format, lasting about 45 minutes – questions about the consumer’s finances, health, family situation and pension provision , followed by points to consider with the preferred option, and finally an overview of the alternatives . In our scenario, the call handlers had some insightful observations about the tax liability if you take a pot in one go, even working out how much exactly you would pay in tax, and also gave clear warnings about potential scams. 

The Pensions Advisory Service 

Callers to The Pension Advisory Service (TPAS) can get straight through to someone to discuss their question. Our first call about cashing in the pension was fairly succinct, with the caller told to contact her pension provider, phone Pension Wise or seek financial advice. The other telephone call was more productive, with tax implications discussed and the dangers of having no alternative retirement income highlighted. Conversations about pension consolidation were again quite brief. However, some key considerations around the flexibility gained by keeping the pots separate, the potential loss of benefits and possible transfer penalties were outlined by TPAS . A point about managing separate pots effectively in the post-2015 world was particularly insightful. 

The Money Advice Service 

The Money Advice Service covers all financial issues, with phone menu options for debt, pensions, benefits, home/mortgages and ‘other’. If you choose pensions, you’re connected to someone at TPAS. We chose the mortgages option and explained we wanted to pay off our home loan by cashing in a pension. Speaking to a financial adviser was immediately suggested and some help given to find one. By their nature, the guidance services featured above will have their limitations. Call handlers can outline options and provide impartial guidance (sometimes ‘personalised’ to reflect your individual circumstances), but they can’t provide financial advice or recommend specific products.

Should I pay for financial advice? 

While the costs may seem high, paying for professional advice could be an invaluable investment – especially if you have little experience investing. A financial adviser has the tools and experience to help you plan for a future without work and make sure your savings last throughout your retirement. 

When should I see an adviser? 

An adviser can add value when you’re considering complex products, such as pension drawdown or investments, or significant decisions in life, such as retirement or arranging care, and don’t have the time, knowledge or confidence to make decisions yourself.

Source: Which?

Fees and commissions bias

Guide to financial adviser fees

Wondering how much financial advisers charge? It depends on a number of things, including your specific needs and the firm you decide to hire.

• Financial adviser fees vs commission

• How much does a financial adviser charge?

• What can affect a financial adviser’s fees

  The end of commission-bias

Financial adviser fees vs commission

Since 2013 advisers cannot be paid a commission if they give you advice about:

• Pensions

• Investments

• Retirement income products such as annuities

Instead they must charge you a fee for the advice.

However, if you’re getting advice on: mortgages, equity release, general insurance (like travel or home insurance) or protection insurance, such as term life insurance, advisers can still be paid commission.

At the end of the day, in both cases you are effectively paying for advice.

Either by paying a fee, or by purchasing a costlier product that gives the financial adviser commission.

How much does a financial adviser charge?

Many financial advisers offer an initial meeting free of charge. This isn’t designed to give you specific advice about your situation. It’s a chance to see how they work, how much they charge and to get a sense of whether you feel comfortable with them.

A financial adviser’s fees vary depending on what they are charging you for and how you pay.

Some advisers offer different ways that you can pay for advice.

If there is a particular option you prefer, ask the adviser as they might be happy to negotiate. These include:

• An hourly rate - this will vary from £75 an hour to £350, although the UK average rate is about £150 an hour

• A set fee for a piece of work - this could be several hundred or several thousand pounds

• A monthly fee - this could be a flat fee or a percentage of the money you want to invest

• An ongoing fee - an adviser can only charge you an ongoing fee in return for providing an ongoing service, unless you’re paying off an initial charge over time through a regular payment product

Make sure it works for you

It’s a good idea to find out whether you can choose different ways of paying for different services.

For example, paying an hourly rate for advice about your pension, but a percentage for advice about your investments.

Try to find a system that suits you.

Your adviser must give you a copy of their charging structure before providing any services to you.

They should also tell you how much the service you need will cost, or at least give you an estimate.

What can affect a financial adviser’s fees

The fees that financial advisers charge vary.

There are several factors that could affect how much an adviser charges:

• Location - some advisers might be based in a more expensive part of the UK, which means their office costs will be much higher

• How the service is delivered - some firms now offer advice by phone or even online, which can mean the cost of the advice is cheaper as they have lower overheads. However, if you’re receiving advice this way, make sure that it comes with a recommendation that’s specific to you so you’re fully protected

• Who does the work - some financial advice firms will use a highly-qualified adviser for all the work whereas another firm might use support staff to do some of the work (signed off by an adviser) which will cost you less

• How well qualified a financial adviser is - the more qualifications and experience an adviser has, the higher their fees might be. Depending on the type of advice you’re looking for, you might feel that paying for an adviser who is highly qualified is worthwhile

• How complex your situation is - if there’s a lot of sorting out to do, this can take time and time is money. You can help by being very clear about the type of advice you need and having your papers in good order. Any sorting out you can do in your own time you won’t have to pay for. Only use your adviser to do the things that you can’t do yourself and to provide the expert advice

The end of commission-bias

The Financial Services Authority (FSA) confirmed its pledge to ban commission on investment products by the end of 2012.

In a retail distribution review discussion paper published on 26 March, the City watchdog said it would ban financial advisers from taking commission from providers when recommending products.

Instead, advisors would have to be upfront about how much they charge for their services and give recommendations based on a comprehensive and unbiased analysis of the market.

"These new rules were designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free," said Sheila Nicoll, the then director of the FSA.

When the review rolled into action in 2012, investors were given the choice of paying an upfront fee or they can bundle the cost of advice with the cost of the product and spread out the payments.

It was unclear how exactly the bundling of advice and product fees would operate.

However, more needs to be done to help people who cannot afford to pay for full financial advice: It is clear that the changes meant that full advice services moved further up market, meaning that even more consumers need an alternative advice option.

These changes removed the influence of commissions on advisers’ recommendations.