Proactive is not authorised to provide financial advice, pension advice, mortgage advice, nor to make recommendations about products or companies. We can advise on the tax implications of your intention to act on any advice which you may have received.
The financial advisors you meet are in the business of running a business. They may be trying to find you a good deal, but more importantly they will be trying to find themselves a good deal. The accounting forums are littered with horror stories of advisors putting people into the wrong products, purely because that product gives the advisor a better commission. Additionally, some IFAs tend not to understand the Inheritance Tax implications of products and strategies they advocate.
They’re not doing this for your benefit, they’re doing it for their benefit.
The accountancy profession does not hold IFAs in high esteem. The running joke is “What does IFA stand for? Idiot Financial Advisor”. At Proactive we’ve met a few over the years, but none that we could recommend! It would be nice to find a reliable, ethical one.
When you choose an advisor please establish early on whether they charge you a fee or take a percentage from the Finance House (the pension company, the lender, etc). Check what that figure is. You are more likely to get independent advice if you pay the advisor’s fee, rather than the Finance House.
To give you one example, if a commission based advisor places your business with a Pension House then the commission the advisor receives is roughly equivalent to the pension contributions you pay over the first 24 months of your policy.
If you engage an advisor, expect to start with a lengthy “financial health questionnaire”. In the days of paper, these used to run from 10 to 30 pages of A4. It’s worth your while completing this fully and accurately in order that there can be no misunderstanding about the information the advisor can rely on.
For example, over the last few years there has been a lot of pension mis-selling and this could give rise to a claim for compensation. Even if the financial advisor who sold the pension is no longer trading, then the Finance House can be pursued. That means that you will need a copy of the “financial health questionnaire” if you want to prove any case of negligence.
Any financial advisor who does not start with something like a “financial health questionnaire” is well worth avoiding.
In support of your request for advice, your advisor may ask you to provide copies of your personal tax calculation (a form SA302), copies of your personal tax overview (a summary from the HMRC website), and for people who run a freelance business, copies of the formal accounts. That’s all perfectly reasonable and any accountant should be able to provide that. At Proactive we routinely prepare these documents, generally we have them ready long before they are needed, and we can then let clients have them within seconds, not hours, not days, not weeks.
HMRC has been working with the lending industry on the issue of documentation and has reported that the number of requests for additional evidence has declined significantly. But, they add, that the message has not yet filtered down to all staff in all relevant “financial advice” organisations.
If your advisor questions the veracity of the documents you/we provide, then find a different advisor or work directly with a lender . HMRC has published this useful list of lenders who accept your own documents:
Note that the HMRC page says “The lenders on this list have agreed to accept tax calculations and tax year overviews that customers, or their agents or accountants, have printed themselves.”
In the light of this information, if your advisor still refuses to accept these documents and continues to question their content, then they are in effect accusing you, or accusing us, of fraud. A properly completed “financial health questionnaire” along with the form SA302, the tax overview, and the formal accounts is all that they need.
Not since 1988 has a personal tax return had a section for “chargeable assets acquired”. As a result, we do not routinely maintain an overarching asset register of clients’ properties and investments, and we cannot answer questions about those assets. The decision to stop maintaining an asset register was a time saving measure implemented by us donkeys years ago. Subsequently, the GDPR (see below) would have forced that decision upon us anyway!
Subject to de minimis limits, a personal tax return does have a section for “chargeable assets disposed of” and hence we do sometimes seek further information about “chargeable assets acquired” in order to calculate capital gains tax liabilities. Our record keeping strategy follows Einstein’s advice:
“Make everything as simple as possible, and no simpler than that.”
It’s simple. Banks need to lend, like birds need to fly.
Banks that do not lend will fail. Pension Houses that cannot sell pensions will fail. IFAs that cannot offer intelligent financial advice will fail. Some IFAs make the simple task of getting a loan from a lender far more complicated than it needs to be. That’s why we advocate dealing with the lender directly and cutting out the middle man.
All these financial institutions, IFAs and accountants included, need to follow the KYC rules (know your client rules) mandated by various bodies including the Financial Conduct Authority (FCA).
At the same time, we all have to comply with the GDPR. In particular, under Article 5, the amount of data that can be requested is restricted to the minimum needed to do the job.
If your IFA is too enthusiastic about gathering too much data, then please point them to this report on this Proactive website! If they say “it’s our policy” to ask more questions, then please respond with “may I have a copy of that policy document in order that I can fully understand the policy?” and then if the policy document does not exist, or is “for internal use only”, the IFA has something to hide.
“Article 5 – the amount of data that can be requested
is restricted to the minimum needed to do the job”
A properly completed “financial health questionnaire” along with the form SA302, the tax overview, and the formal accounts is all that is needed. If your IFA has not asked you for (or cannot interpret) a properly completed “financial health questionnaire” then you need a different IFA. Likewise, if your IFA cannot read and understand a set of statutory accounts, then you need a different IFA.
We will genuinely help in cases where it is within our power to do so. When we face questions which are outside the remit of the role of the accountant, then we genuinely cannot answer those questions.
“Make everything as simple as possible, and no simpler than that.”