Philip Milton, founder of Devon-based IFA Philip Milton and Co, tells smaller advisers not to underestimate their value by comparison with expensive city accountants and investment banks.
We recently accepted a new and relatively wealthy client, a retired lawyer worth about £2.5m. He had previously been using the services of a big corporate accountant and an investment bank.
We were utterly shocked at the state of his finances.
We are a provincial firm of 20 based in Barnstaple, Devon, our clients are typically retired teachers worth about £40,000 and we naturally assumed that a big accountancy firm, with its minimum investment requirements, would offer superior investment management advice.
Neither the accountancy firm or investment bank had even covered the basics.
I knew this man socially, and he mentioned that he was planning to sell the final part of his share in a London-based law firm (he had been a partner) worth just over £1m.
He came to me for advice because we had already established a friendship.
The accountant and bank had been managing the £1.5m he received on retirement as a result of selling an initial share in the practice.
I began offering advice ten days before the tax year end - I quickly realised the accountancy firm had not advised this customer to exercise his annual inheritance gifts - one of the fundamentals of tax planning.
My client wanted to give his daughter £150,000 to buy her first home, but without exercising this break, the event of his death within seven years of the gift would mean his estate was liable to pay £60,000 in inheritance tax.
It was too late in the year to do any capital gains tax work and the bank reports did not make it clear how assets were owned or whether ISA allowances had been exploited.
Similarly, the accountant had not mentioned entrepreneur's relief to my client, nor attempted to divvy up his shares by putting some into the wife's name.
In addition, there were some messy privatisation shares - some certificated, some missing - while there was also some unwieldy and tax-complicated scrip dividends, unclaimed cash takeovers, and a very limited investment diversity of collective funds used by the bank, very likely providing high commissions.
The problem is that customers for these firms are just account numbers. My client never saw the same person twice.
The accountancy firm had done no investment planning at all, and no financial planner would make the mistakes this firm had done. The client had invested with these companies because it had been easy for him, but the decision could have cost him (and his family) dearly.
Like many small advisory firms we tend to deal with clients with far less money - typically a retiring school teacher with £40,000 to investment - and had expected the larger firms (accountants and investment banks) to be sophisticated in their investment management because they deal with significantly bigger clients.
However, I now see that small and often local financial advisers who do their fact finds and develop relationships with their clients offer an infinitely better service to even very wealthy clients by comparison with banks or accountants.
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