New rules on financial advice and NEST – contractors’ overview
Following a change in regulations on December 31st 2012, contractors seeking pension or investment advice from an Independent Financial Adviser will need to pay a fee, writes Tony Harris, of freelancers’ specialist IFA ContractorMoney.
New rules for financial advice
ContractorUK Money Club members have had the option of working via a commission or fee basis for many years, but those contractors wishing to start investing in 2013 will now fall under the retail distribution review (RDR) rules, set by the Financial Services Authority, and only have a fee option for the advice that they receive.
It is important to remember that this new fee structure applies across the board for advisers, meaning contractors seeking investment advice will be subjected to a fee whether they approach an IFA, a ‘restricted’ adviser (-able to only advise on products from a limited range of providers) or an in-house adviser from a high street bank or building society.
Benefits for CUK Money Club members
These fees will vary from firm to firm. The benefit of using the CUK Money Club is that their IFAs are contractor specialists and have over 14 years’ experience in helping contractors find the right investment solution to suit their individual needs. Moreover, these advisors were qualified to the higher standards required under the RDR well ahead of the December 31st commencement date. Let’s take an example from the CUK Money Club. Members will pay just £780 to set up a completely new pension or investment solution and can also opt for an ongoing management service too.
Through the CUK Money Club, you as a contractor can have access to a truly independent, ‘whole of market’ advice service which means that the advisers will look at every product available to find the solution that best meets your investment criteria. With membership to the club, you benefit from the peace of mind that your investment is being managed by a team of experienced professionals who can advise you on the best fund choices to suit your individual attitude to risk and help you reach your investment goals.
Consider, compare and contrast before committing
Bear in mind that the alternative of investing yourself - where you’d use an online provider - offers little or no protection in the event you take a wrong turn with your fund selection. Also, contrary to popular misconception you can often end up paying more in annual fees to the online provider than you would pay for an adviser to manage your investment for you under the new regulations.
The good news is that CUK Money Club members still pay none of the usual broker fees for mortgage or freelancer specialist protection advice, as the new regulations only impact pensions and investments advice. This enables contractors to save £500-plus in mortgage advice fees that are levied by many other brokers and you benefit from specialist, independent advice tailored to your contractor status.
If you are still unsure about the new rules for financial advisers, and what they might mean for you, do consult the guidance on offer through the Money Advice Service. Now let’s get on to what most one-person businesses want to know about from me, more than hearing about fees – guidance on what do with their finances!
NEST in the press
Since the start of this month, publicity surrounding NEST (National Employment Savings Trust) has helped to bring pensions to the forefront of the news agenda, which can only be a good thing considering the woefully low state pension and ever increasing state retirement age!
It shows the level of concern among policymakers regarding the long term viability of state benefits that the UK’s millions of self-employed workers have now been given the option of investing in the NEST pension scheme.
NEST and the self-employed
Initially the preserve of larger enterprises, even the smallest of sole traders now have access to the government-endorsed scheme. However, it is important for CUK Money Club members to remember that contractors working via sole-person limited companies are NOT caught by the auto-enrolment pension rules, so NEST is not the only option to save for retirement. Thousands of contractors have already started to make strides towards their retirement goals with a company or personally sponsored personal pension scheme.
Nevertheless, NEST offers tax relief on contributions so shouldn’t be sniffed at. That said, a company sponsored personal pension or SIPP can offer the same corporation and individual tax reliefs with the advantage of far more flexibility to invest in a fund selection of that person’s choice. NEST only offers three options based on your attitude to risk; a low risk, balanced or high risk selection along with a Sharia and cash fund.
Contractors are also limited when it comes to retirement as with NEST, you must choose from one of a list of set retirement options. Again, a company or personally funded personal pension or SIPP offers far more scope to choose when to retire, how much income to draw from your pension and whether to buy an annuity - all choices that can be made with the help of your financial adviser so you can choose the right solution to suit your retirement needs.