Financial advice leaves people £40k better off

Those who receive financial advice are on average £40,000 better off than those who don’t, a new report has found.

Research, published by the International Longevity Centre and Royal London, found those who received financial advice between 2001 and 2007 accumulated significantly more liquid financial assets and pension wealth than those who didn’t by 2012 to 2014.

The report, called The Value of Financial Advice, examined the impact of advice on two groups: the ‘affluent’, who are wealthier and more likely to have degrees and be homeowners, and the ‘just getting by’, who are less wealthy and more likely to be single, rent and have lower education levels.

It found that the ‘affluent but advised’ accumulated on average £12,363 (or 17 per cent) more in liquid financial assets than the affluent and non-advised group, and £30,882 (or 16 per cent) more in pension wealth, making a total of £43,245.

Meanwhile the ‘just getting by but advised’ accumulated on average £14,036 (or 39 per cent) more in liquid financial assets than the just getting by but non-advised group, and £25,859 (or 21 per cent) more in pension wealth, bringing a total of £39,895.

Ben Franklin, head of economics of ageing at ILC-UK, said: “The advice market is not working for everyone.

“A high proportion of people who take out investments and pensions do not use financial advice, while only a minority of the population has seen a financial adviser.

“Since advice has clear benefits for customers, it is a shame that more people do not use it.

“The clear challenge facing the industry, regulator and government is therefore to get more people through the ‘front door’ in the first place.”

The report also finds that financial advice led to greater levels of saving and investment in the equity market.

The ‘affluent but advised’ group were 6.7 per cent more likely to save and 9.7 per cent more likely to invest in the equity market than the equivalent non-advised group.

Of the ‘just getting by but advised’ group 9.7 per cent were more likely to save and 10.8 per cent more likely to invest in the equity market than the equivalent non-advised group.

Those who had received advice in the 2001 to 2007 period also had more pension income than their peers by 2012 to 2014.

The ‘affluent but advised’ group earned £880 (or 16 per cent) more per year than the equivalent non-advised group while the ‘just getting by but advised’ group earned £713 (or 19 per cent) more a year.

Sir Steve Webb, director of policy at Royal London and former pensions minister, said: “This powerful research shows for the first time the very real return to obtaining expert financial advice.

“What is most striking is that the proportionate impact is largest for those on more modest incomes.

‘Thousands’ miss out on tax break as IHT take totals £1.9bn

The government received £1.9bn in inheritance tax in the first four months of the tax year, as thousands are believed to be missing out on tax breaks because of the complexity involved.

Information provided to financial advice firm NFU Mutual under the Freedom of Information Act shows a mere 5,420 taxpaying estates successfully claimed for the Residence Nil Rate Band (RNRB) in the 2017/18 tax year.

Although the numbers are increasing this tax year, with 3,490 taxpaying estates already claiming the RNRB, the firm said there were still thousands of estates that could be claiming but are not.

More than 24,000 estates pay inheritance tax each year, according to the latest official figures for the HM Revenue & Customs (HMRC).

The RNRB was introduced in April 2017 in addition to the inheritance tax standard nil rate band (currently £325,000). It is available on residential property left to direct descendants.

Individuals are able to pass on assets worth up to £325,000 – the nil rate band – when they die, before they have to pay inheritance tax at 40 per cent.

Since April 2017 there is an additional £100,000 nil-rate band when a residence is passed on death to a direct descendant, which is tax free.

This has risen in value to £125,000 this year, and will gradually increase to £175,000 by 2020/21. From then on, it will increase in line with consumer price index (CPI) inflation.

Together with the inheritance tax nil-rate band and the ability to transfer unused main residence nil-rate band to a surviving spouse or civil partner, this allowed the government to claim there will be an effective inheritance tax threshold of £1m in 2020/21.

Earlier this year the Chancellor of the Exchequer wrote to the Office of Tax Simplification asking for a review of IHT, after saying the levy and the regime in which it operates was “particularly complex”.

According to Sean McCann, chartered financial planner at NFU Mutual, this tax break “does nothing to change the perception that inheritance tax is fiendishly complex and unfair”.

He said: “The conclusion of the Office for Tax Simplification’s review of IHT can’t come soon enough.

“It’s plain to see that in many instances the complexity of the rules means that many people are missing out.”

Mr McCann said the RNRB is only available to those leaving their home to ‘direct descendants’, which “unfairly penalises” those without children who want to pass on their house to nieces, nephews, brothers or sisters.

He added: “Many business owners also miss out on some or all of the extra relief on the family home, if their total estate including their business exceeds £2m.

“This is because the value of the estate is tested before applying Business Property Relief.”

FTAdviser reported this week that Rachael Griffin, tax and financial planning expert at Quilter, wrote an open letter to the chancellor in which she called for the RNRB to be removed and for the nil rate band to be increased to £1m.

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