Be Your Own Financial Adviser: The comprehensive guide to wealth and financial planning

433 Pages·2010·7.75 MB·English

by  Jonquil Lowe

Many people stumble through their B Accessing fi nancial products and services is not
fi nancial life reacting to events and E diffi cult – there is no shortage of commercials,
advertisements, direct mail, email and
advice in an ad hoc way. As a result, Y
marketing calls to entice you to take out loans,
O
few choose the most suitable fi nancial
buy insurance and invest your money.
U
products, some fall prey to mis-selling and But choosing which products are right for you
R
many never realise their fi nancial goals. can be hit and miss.

O
Good fi nancial planning requires a systematic
Are you one of them? W
strategy. You should start by assessing your
N own particular circumstances, attitudes and
Be Your Own Financial Adviser shows you how to timescales and then work out how you can
F
ABOUT THE AUTHOR make sensible fi nancial decisions without the need implement your strategy on a long-term basis.
I
for expensive advice. Its accessible style, examples N
Jonquil Lowe is an economist who worked and case studies explain and evaluate fi nancial A BE YOUR OWN Let Be Your Own Financial Adviser be your guide
for several years in the City as an investment products, and put you fi rmly in control of your own N to making better fi nancial decisions.
analyst, and is a former head of the Money fi nancial well being. It advises on how to adopt the C
Group at Which? She now splits her time best saving, spending and investment strategies, I FINANCIAL It includes advice on the following:
A
between working as a freelance fi nancial make decisions tax-effi ciently, manage risk wisely,
L  Financial planning
researcher and journalist, and as a lecturer in and protect and enhance your wealth. It also

personal fi nance with the Open University. suggests when professional help is a good idea, A  Do you need an adviser?
D
and shows you how to protect yourself against  Protecting your income
Jonquil holds a diploma in fi nancial mis-selling and get the best out of your adviser. V ADVISER
planning, and researches and writes I  Providing for your family
S
extensively on all areas of personal fi nance.
Be Your Own Financial Adviser shows you how to: E  Health and care
She is the author of over 20 books, including
R
Giving and Inheriting, The Pension Handbook,  Somewhere to live
 Stress-test your fi nancial decisions
Save and Invest and Finance Your Retirement,
J  Building a pension
all published by Which? Books; the  Take advantage of legal tax breaks
Personal Finance Handbook published by on  Retirement choices
 Achieve your fi nancial goals
the Child Poverty Action Group, which is q  Saving and investing
used as a set text for a number of personal  Manage and preserve your wealth u
fi nance courses; and, with Sara Williams, il The comprehensive guide to wealth  Managing your wealth

The Financial Times Guide to Personal Tax. L  Passing it on
o and fi nancial planning
w
e
Cover by Knifesmith. Image © iStock
FINANCE
Visit our website at
Photograph by Graham Hiscock, Camelot Photographic www.pearson-books.com
Visit our website at Jonquil Lowe
www.pearson-books.com
CVR_LOWE7798_01_SE_CVR.indd 1 01/03/2010 15:45
Be Your Own
Financial Adviser

A01_LOWE7798_01_SE_FM.indd 1 05/03/2010 09:51
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A01_LOWE7798_01_SE_FM.indd 2 05/03/2010 09:51
Be Your Own
Financial
Adviser
The comprehensive
guide to wealth and
financial planning

Jonquil Lowe

A01_LOWE7798_01_SE_FM.indd 3 05/03/2010 09:51
PEARSON EDUCATION LIMITED
Edinburgh Gate
Harlow CM20 2JE
Tel: [phone]
Fax: [phone]
Website: www.pearsoned.co.uk
First published in Great Britain in 2010
© Pearson Education Limited 2010
The right of Jonquil Lowe to be identified as author of this work has been asserted by her in accordance
with the Copyright, Designs and Patents Act 1988.
Pearson Education is not responsible for the content of third party internet sites.
ISBN: 978-0-273-72779-8
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Lowe, Jonquil.
Be your own financial adviser : the comprehensive guide to wealth and financial planning / Jonquil Lowe.
p. cm.
Includes index.
ISBN 978-0-273-72779-8 (pbk.)
1. Finance, Personal. I. Title.
HG179.L688 2010
332.024--dc22
2010002465
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise,
without either the prior written permission of the publisher or a licence permitting restricted copying in the
United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London
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of binding or cover other than that in which it is published, without the prior consent of the Publishers.

10 9 8 7 6 5 4 3 2 1
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Typeset in 9pt Stone Serif by 30
Printed and bound in Great Britain by Ashford Colour Press, Gosport
The publisher’s policy is to use paper manufactured from sustainable forests.
A01_LOWE7798_01_SE_FM.indd 4 05/03/2010 09:51
Contents
Introduction / vii
Acknowledgements / xi
PART 1 PLANNING AND ADVICE / 1
1 Financial planning / 3
2 Do you need an adviser? / 37
PART 2 PLANNING FOR PROTECTION / 63
3 Protecting your income / 65
4 Providing for your family / 89
5 Health and care / 114

PART 3 BUILDING AND MANAGING YOUR WEALTH / 143
6 Somewhere to live / 145
7 Building a pension / 176
8 Retirement choices / 216
9 Saving and investing / 252
10 Managing your wealth / 292
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vi Contents
11 Passing it on / 335
Appendix A: The UK tax system and tax credits / 357
Appendix B: Useful contacts and further information / 387
Index / 409

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Introduction
When I first started to write about financial planning, I likened making
personal financial decisions without any plan to setting out on a long
journey without a map. Since then, GPS (global positioning system) has
become standard equipment in vehicles, enabling motorists to successfully
reach a destination without advance planning – though the route may
be less than ideal. There is no GPS for financial planning. In most cases,
there is no last minute detour or short-cut that can save your finances if
you have set out on completely the wrong track. Especially when it comes
to long-term goals such as having a comfortable retirement, paying for
education or leaving an inheritance. Without a plan you put yourself at
high risk of failing to reach your destination at all. Even with shorter-term
financial goals, the lack of a plan can mean you pay over the odds, get
caught out by the small print or have the wrong products altogether. To
avoid joining the one in five pensioners who live in poverty1 or the 3,000
people who take a complaint to the Financial Ombudsman every day2, or
the countless others who silently put up with shoddy products, poor ser-
vice and bad outcomes, planning ahead is essential.

Financial planning means systematically working out and prioritising your
goals, appraising your resources, identifying generic solutions (in other
words, the broad systems and schemes that would work for you), tracking
down the most suitable products and providers, and regularly reviewing
progress to keep your plan on track. Chapter 1 describes this process in
detail. There is a further element which should be added to any financial
plan whether for a large banking institution, an international company,
a small business, or your own household: that is stress testing. (We have
all learned from the global financial crisis that hit the world in 2007.) We
seem to live in an ever more volatile world and ordinary people like you
1 House of Commons Work and Pensions Select Committee, Tackling pensioner poverty,
July 2009.
2 Financial Ombudsman Service, Annual review 2008/09.
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viii Introduction
and me are increasingly forced to engage with it as the State puts greater
pressure on individuals and households to provide financially for them-
selves. Any financial plan must be robust in the face of this volatility. You
can’t know what the future holds, but you can pre-test your plan to see
how it would be affected if a range of possible changes and events were
to occur. The UK regulators have stress tested the big banks to see how
robust they are; households need to do the same. Therefore, as each chap-
ter of this book looks at a key area of financial planning – protecting your
income (Chapter 3), providing for your family (Chapter 4), planning for
health and care (Chapter 5), organising where you live (Chapter 6), build-
ing a pension (Chapter 7), making decisions at retirement (Chapter 8),
saving and investing (Chapter 9), managing your wealth (Chapter 10) and
planning inheritance (Chapter 11) – it will also suggest ways to stress test
the plans you create.
Hopefully, you are convinced of the need for financial planning. But why
be your own adviser? Why not rely on a professional? Financial advice
has had, and is still experiencing, a long and painful evolution from glo-
rified selling to the status of a profession. There have always been good,
highly professional advisers but picking them out from the mass of the
mediocre and downright bad has been no easy task. Financial advice has
been regulated for over two decades, so you might wonder why there are
still questions over the quality and professionalism of advisers. Part of the
answer lies in the strength of insurance companies, banks and other big
financial providers which have, for example, resisted the abolition of the
‘commission system’ that has rewarded advisers according to what and
how much they sell rather than the quality of the advice they give. The
distorting effect of paym ent by commission has been at the root of many
scandals over the years, such as endowment mis-selling (see Chapter 6)
and pensions mis-selling (Chapter 7). At last, the regulators have grasped
the nettle and payment for investment advice by commission is due to be
abolished from 2012 onwards (see Chapter 2). This may signal the start of
financial advisers becoming part of a proper profession, in the same way as
solicitors and accountants.
Even now, not all financial advisers are paid by commission. Advisers
whom you pay by fee have no incentive to sell you unwanted or unsuit-
able products. But consumers often baulk at paying £75 to £250 an hour
for advice3. In some cases, the nature of your financial planning issue may
3 http://www.unbiased.co.uk/independent-financial-advice/how-to-pay-for-advice.
Accessed 14 August 2009.
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Introduction ix
be too small to warrant such an outlay. In other cases, you may be unsure
that the cost of the advice really will be reflected in a superior plan. This
book, by showing you what is involved in creating good financial plans,
will help you decide whether the tasks involved are ones you want to take
on yourself or whether using an adviser would be money well spent. It will
also guide you through the process of selecting an adviser and ensure that
you have the background knowledge to appraise and make the most of the
adviser’s skills and resources. In practice, you are likely to mix-and-match,
using an adviser where issues are complex or finding information would
be hard or time-consuming, but in many areas fully able to be your own
financial adviser.
Note
This book was written in late 2009 and takes into account tax measures
implemented in the Finance Act 2009 and proposals announced in the
Pre-Budget Report on 9 December 2009.

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