Inheritance issues are primary driver for seeking financial advice
Inheritance tax (IHT) planning is the number one reason for seeing a financial adviser, beating purchasing a property and retiring into second and third place respectively, according to new research from Boring Money.
The firm's Spring Census, which used data from a YouGov survey of 2,042 UK adults, found receiving an inheritance (29%) was the main life event that would motivate them to seek financial advice. This jumps to almost half (49%) for those with a household income in excess of £80,000.
This topped buying a house (24%) and retirement planning (22%), while 28% said nothing would prompt them to see an independent financial adviser.
Holly Mackay, founder and managing director of Boring Money, says the research shows savers and investors need a trigger to prompt them into receiving financial advice.
“Inheritance tax and funds/investments were the two topics most likely to unnerve people - 45% of respondents told us they were very uncomfortable with both ideas,' she says.
“This translates through into actions; if you receive an inheritance you will obviously deal with it, so that's a major trigger for advice.”
The survey reported 45% of respondents were 'uncomfortable' about managing their inheritance tax affairs online without advice.
Indeed, according to financial adviser search engine unbiased.co.uk, the UK is overwhelmingly wasteful when it comes to IHT.
In its TaxAction 2016 report, sponsored by Prudential, Unbiased estimates 'the UK could have saved around £595 million more through some simple estate planning'. This accounts for some 13% of the UK's total for unnecessarily paid tax, which stands at £4.6 billion in 2016.
The report adds: “For many families, [IHT savings] could be achieved by the simple measure of ensuring that life insurance pays into trust, not into the deceased's estate.”
Rise of the robo-adviser
Despite an acknowledgement of the need for financial advice, Boring Money's survey found that just 8% would be willing to pay more than £100 per hour for financial advice. However, the average adviser charges between £120 and £200.
A further 30% said they would not be willing to pay for advice.
This widespread resistance to footing large upfront bills could pave the way for robo-advice, a $50 billion (£34 billion) industry in the US, to become increasingly popular in the UK, says Mackay.
“You don't have to be a genius to see that traditional face-to-face advice is becoming a luxury, not the norm. So-called robo-advice is likely to pick up some of the slack, although it's early days and people remain cautious about investing this way.
“The direction of travel [towards robo-advice] is clear - what is less certain is the pace of change and how quickly we'll embrace these tech-led solutions.”
*Infographic courtesy of Boring Money.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.