There are many areas where you can take control of your finances to save money and make money.
But while you can redecorate your home, you probably wouldn’t take on the task of rebuilding it yourself, and the same applies when dealing with your money.
So when do you need expert assistance with your money? Put simply, when a lot of it is at stake. Here are common situations where that applies and where using an adviser can help you avoid costly mistakes.
Protecting your family
It’s easy to buy cheap life insurance from an online provider. But buying it this way may mean your family don’t get the money when they need it, or that they pay tax on it unnecessarily.
For most people, life insurance should be placed ‘in trust’ both to ensure immediate payment and to keep the money away from the taxman. While you can get your head round a set of trust forms, you really need to think carefully about who gets the money in what circumstances.
Moreover, many people don’t fully think through the type of cover they buy - you may be buying cheap term assurance, but a Family Income Benefit policy might be a more appropriate (and even cheaper) way to provide the cover your family needs.
Also, many people today are buying Critical Illness insurance when a more appropriate (and cheaper) form of cover may be Income Protection (Permanent Health) Insurance. So there are some big issues here that it may useful to discuss with an adviser.
Making your Will
You can find DIY will forms on the shelf and on the web - but I suggest you leave them there. A simple error of grammar is enough to botch a will. And unless your affairs are complex, it shouldn’t cost more than £100 to get one drawn up by a solicitor.
Whatever you do, never appoint a bank as your executor under a will. Their charges are outrageously high. In fact, avoid professional executors altogether - pick two reliable friends, but make sure they are a bit younger than you.
Give them comfort by adding a clause to your will authorising them to pay for professional help if they need it. A lawyer who is accountable to a living executor is likely to be considerably cheaper than one working for a dead person.
Altering your pension
If you don’t have any form of pension plan, then starting up a no-frills stakeholder or SIPP pension plan is a simple decision that you can make without consulting an adviser. But if you have existing pension plans, I recommend that you take advice before transferring them from one scheme to another.
Pension rules are extraordinarily complicated, and this is a minefield where the wrong decision could result in giving up rights to tax-free cash or suffering unnecessary penalties on switching.
Most employer ‘final salary’ schemes involve penalties on leaving early. The same applies to personal pension plans, where you may get much less than the current value of the plan if you transfer it to another scheme. It may still make sense to transfer, but you need to fully understand the figures before you make a decision.
Creating a financial plan
Most people muddle through with their money, dealing with issues as they arise but never having an overall plan.
There’s no doubt that having an overall financial plan can help, not least because it forces you to focus on your real aims in life and how you’re going to achieve them.
Yet creating a long-term financial plan is challenging. You need to define and prioritise your goals, and there’s always a trade-off between what you’d like to do (retire early) and what you feel you must do (help the kids through college).
It’s quite normal and understandable that when you do this kind of planning on your own, unconscious bias creeps in and you may make quite unrealistic assumptions. And some of the ‘what ifs?’ you need to consider are ones you may prefer to avoid.
So creating your plan with the help of an adviser is likely to result in a better - more realistic, more useful - plan. Many of the advisers who specialise in ‘holistic planning’ operate on a fee basis, and in the context of getting your whole financial life in order, paying fees of a few hundred pounds could be the best investment you ever make.
Investing a capital sum
If you have no experience of investing, inheriting a big chunk of capital can be frightening. Between the temptation of gains and the fear of losses you can get paralysed, and indeed many people just leave the cash lying in deposit accounts for years.
But you don’t have to choose between making all the decisions yourself - which can feel like a lot to take on - and following an expert’s suggestions down to the letter. Instead, take your list of questions to an adviser, agree to pay a fee for a full review and recommendations and follow-up sessions where you can question these.
Then decide how much of the task of managing the investments you want to take on yourself and how much you want to entrust to an adviser.
Get the costs in perspective. A full structural survey of a house costs around £700, and if there is capital of, say, £50,000 at stake, paying a fee of a similar amount is no big deal.
Avoiding inheritance tax
The starting threshold for inheritance tax is £312,000, which means that the homes of many retired people in the South of England alone will result in them being liable for the tax at 40% on the excess.
It’s well-known, though, that inheritance tax is a voluntary tax. Why? Because if you give away money (up to the threshold of £312,000), it vanishes from your estate after seven years and there’s no tax to pay.
Plus, because husband and wife both have £312,000 allowances, they can effectively leave £624,000 to their families with no tax with a bit of planning. And even if the assets are worth more, you can avoid tax by using many other tax-saving ploys ranging from the simple to the complex.
You could try getting your head round all this, but I wouldn’t even try. Find a good adviser, and pay for an in-depth review of the situation and possible solutions.
