IFA millionaires: how 8 next-gen advisers would invest £1m

What would you do if you had a sudden windfall of £1 million? These young leaders in the advice profession think they know

Our readers spend most of their waking hours designing investment and income strategies to sustain clients through the major events of their lives. Be it retirement, weddings, or unexpected difficulties; financial planners are there to help. 

But what would they do if they themselves received a sudden windfall? 

In this article, we asked young leaders in the financial planning profession how they would invest £1 million if they were ever to stumble across it!

Click on to read more. 

Our readers spend most of their waking hours designing investment and income strategies to sustain clients through the major events of their lives. Be it retirement, weddings, or unexpected difficulties; financial planners are there to help. 

But what would they do if they themselves received a sudden windfall? 

In this article, we asked young leaders in the financial planning profession how they would invest £1 million if they were ever to stumble across it!

Click on to read more. 

Name: Kirsty Stone

Firm: Dart Capital

Title: Investment manager

Location: London

How would you invest it?

I would look to do the key fundamentals first: ISAs and pension contributions. I would not feel the need to invest the capital in any complex tax mitigation strategies given my age and wider circumstances.

Would you allocate to ethical funds?

I would not currently allocate a significant amount of capital to ethical funds, on the basis there is still a limited breadth of companies that can be held and therefore limited quality available on the market.

However, this is an area myself and others are eagerly reviewing on a regular basis. I would definitely consider a higher allocation to ethical holdings as the sector and global sentiment to ethical business and investing progresses.

Are there any specific regions you would invest in?

I would definitely consider a higher allocation to emerging markets given the time horizon of the capital and my own understanding of volatility in these areas. India and Japan certainly offer interesting investment opportunities.

I would look to retain around three years' worth of income needs in cash. For me, the risk of losing capital over the short term on this figure outweighs the potential growth over this relatively short period.

What would your asset allocation be?

I would look to target an equity weighting of roughly 60%, with a fairly even split between UK and international equities. Given the current climate, I would certainly be underweight in longer-dated fixed interest, instead hoping to allocate this to long/short and alternative funds.

If you have kids, would you put any in a junior ISA or in a pension for your children?

There is an argument for doing a bit of both. Saving into the pension will allow an element of control to ensure the children do not waste away their savings. But tying up all their money in a pension is very restrictive and will not provide solutions for university costs or property purchases.

However, the compounded growth on an investment that cannot be touched for 55 years will be significant. So I would definitely look to tie up at least some of the gifts in a pension.

 

Name: Charlotte Curd

Firm: BBi Financial Planning

Title: Financial adviser

Location: South Woodford

How would you invest it?

First, I would definitely pay off my mortgage! After that, I would fulfil my pension annual allowance (including previous years’ unused allowances) and ISA allowance. I would also keep some money in a general investment account (GIA) for future ISA contributions (around £80,000).

I would put some money into an enterprise investment scheme (EIS) – around £250,000 – for five to 10 years as a high-risk, medium-term investment and use a discretionary fund manager (DFM) for the remaining amount.

Where geographically would you invest it?

With Brexit occurring, I think it is important to have an overall globally diverse portfolio. I would invest predominantly in the UK (around 50%). I like the Vanguard Life Strategy funds in particular, so I would definitely invest a reasonable percentage in those funds as well.

How much would you keep in cash?

I would keep less than 3% in cash as, despite winning £1 million, I would continue to work and therefore have the money as a savings pot for my holidays/early retirement. As I would view the money as a long-term investment, only a small proportion would be in cash due to the inflation risk and the long-term decreasing purchasing power it causes.

What would your asset allocation be?

I would invest predominantly in equities – most likely around 65% – as, although Brexit is around the corner and most people are worried about investing, I personally think it is a good time to get into the market. I would then diversify my portfolio by investing around 30% in fixed interest and 5% in property.

If you have kids, would you put any in a junior ISA or in a pension for your children?

I would put money into a junior ISA for their future to help fund their education fees and a deposit for their first house purchase. I would be worried about how they chose to spend the funds when they turned 18 though, as I am sure all parents are and would be!

Name: Harry Frapple

Firm: Nexus 

Title: Financial adviser

Location: Somerset

How would you invest it?

The first thing I would do with a million pounds is purchase a house, let us say for argument's sake one worth £200,000. Living without a mortgage at the age of 22 is the dream, right? The next logical step has to be to maximise a stocks and shares ISA with £20,000.

After this, I would put another £250,000 into a stocks & shares GIA with a bed and ISA to enable the maximisation of the ISA every year. This would then leave me with a cool £530,000 left to play with. Of that, I would place £200,000 into a venture capital trust (VCT) to gain the 30% tax relief. To create long-term wealth, I would keep £250,000 to invest in the firm I am currently employed by, leaving £80,000 as a rainy day fund.

Where would you invest it?

Coming from a firm that believes in discretionary fund management I would take a different approach. First thing would be to asses my attitude to risk and capacity for loss which comes out as moderately adventurous. Based on this I would use a DFM to build a bespoke portfolio around my aims and objectives.  

How much would you keep in cash?

Having £80,000 in cash would be more than enough as a rainy day fund!

I think the modern way of doing financial planning is to maximise ISAs so you can plan for a tax-free future. VCTs are exciting products that can offer you a great amount of tax relief.

 

Name: Josh Richardson

Firm: Informed Financial Planning

Title: Chartered Financial Planner

Location: Barnsley, Leeds and Hull

How would you invest it?

£1 million is a significant sum and could have a life-changing impact on an individual’s lifestyle. Despite the magnitude of the sum, unless it is managed and invested correctly, it is unlikely to last an individual's lifetime, particularly if it is won at a young age or relied upon for day-to-day spending.

In terms of investment I would look to use various wrappers to ensure diversification across tax regimes. I would consider the use of ISAs, GIAs, bonds, business property relief (BPR) qualifying investments and pensions to provide tax wrapper diversification and accessibility to meet my varying goals.

Where geographically would you invest it?

Diversification would be key for me when it comes to choosing investment funds. In my opinion, actively managed funds offer a great prospect of longer term returns and global diversification, which I believe is crucial in these current times of macroeconomic uncertainty.

The number of actively managed funds is increasing and therefore, through the various tax wrappers I would look to use, an extra level of diversification could be achieved. Compromises may need to be made with BPR qualifying investments, which are often geographically concentrated in one area. 

How much would you keep in cash?

With £1 million, it is highly unlikely any winner would save or invest every penny. Short term capital expenditure on cars, houses or other luxuries is inevitable. I would fall into this category and would therefore retain sufficient cash for short-term needs.

Talk me through your asset allocation

With any investment, I would look to ensure it is both actively managed and linked to my attitude to risk. With the active management side of things I would trust the managers to make qualified decisions on the asset split, safe in the knowledge they would be adhering to my risk-level instructions.

On the majority of attitude to risk questionnaires, I would normally get a result of 'very high', 'aggressive growth' or 'adventurous' due to the investment term.

Some may argue that, as my winnings would be more accessible and more relied upon, a lower attitude to risk should be taken. However, due to the size of the hypothetical investments, my ability to bear loss would likely increase depending on my income and withdrawal requirements. I would therefore look to invest at a similar degree of risk to my pension to hopefully achieve a strong level of return over the longer term. I would, however, decrease this risk level if I became more reliant upon my investments.

 

Name: Thomas Dalton

Firm: AFH

Title: Financial adviser

Location: Preston

How would you invest it?

The most suitable way to invest £1 million will vary widely according to who is investing and their circumstances.

Personally, being a younger adviser at the age of 30, I would pay down mortgage debts to make sure the household asset is secure at a young age, freeing up more disposable income for further investment and enjoying life with a young family.

With the mortgage cleared I would then look to invest funds in collective ISA/GIA assets, and I would use the remaining funds to consider the purchase of two rental properties, in the £100,000-£120,000 range, with no mortgage debts attached to them and with secure tenants in place.

I think with no mortgage debt, two rental properties and a large collective investment portfolio, I would end up with a diversified and low-correlated portfolio of investments with no debt or interest rate risks. Property is used to hold some form of investment not correlated to the market, and to build a secure stream of income alongside dividends from the ISA/GIA.

What would your asset allocation be? 

Considering my age and timeframe for investment, I would not be shy of investing largely in equity managers with a proven track record of good performance.

While it would be important to regularly review the investments initially selected as market climates change, I think exposure to UK equity, European equity, US equity and some emerging market equity funds would stand me in good stead to capture positive returns in the long term.

Time in your investments will be more important than timing of your investments, in the long run. As I get older, a reduction to equity exposure would be sensible, but I would consider this around 15 years down the line.

Artemis' Income fund with dividends reinvested would be on the list, as would Marlborough's Special Situations fund, and it would be difficult to ignore Fundsmith Equity and the returns Terry Smith has proven to deliver.

How much would you keep in cash?

10% in cash is always a sensible level to hold: things happen in life and circumstances change. And while interests rates are poor and the money could technically go backwards against inflation, the remainder of your portfolio should offset that risk. £100,000 would be held on low-interest easy-access accounts.

Talk me through each component of what you could do until you have amounted to £1 million, e.g. 20% in bonds, 40% in equities, etc.

£100,000 in cash, setting my safety foundation first. £200,000 against mortgage repayments, clearing financial liabilities, £200,00 across two rental holdings for diversification purposes, £500,000 in collective ISA/GIA investments, initially exposed to 90% equity and 10% commercial property holdings or bond

I would put money into JISA accounts: my children are six, four and just three weeks.

While pensions are extremely friendly for tax relief, the timeframe on access is very long term. JISAs can be used in the shorter term to support housing deposits, university and early adult life. Pension planning can always be considered as the children enter their mid-20s.

Name: Amyr Rocha-Lima

Firm: Holland Hahn & Wills

Title: Partner 

Location: Kingston Upon Thames

How would you invest it?

I would invest the money in a low-cost globally diversified investment portfolio. Terribly boring, I know, but the goal would be to take the pressure off achieving some of the future financial goals I am planning for, such as children’s school fees and helping them get onto the property ladder.

I would build a low-cost globally-diversified 100% equity portfolio using Dimensional and Vanguard funds.

What would your asset allocation be?

I would keep £500,000 in cash and start searching for a slightly bigger property, and then invest the remaining funds in a 100% globally-diversified equity portfolio. I would gradually phase blocks of capital from equities into cash around four-years from when my future financial goals arise.

If you have kids, would you put any in a junior ISA or in a pension for your children?

I would put money into my children’s junior ISAs, and this would be a nice way to discuss money with them when they are older. I would not invest in pensions for my children, mainly because of the uncertainty over future withdrawal rules.

 

Name: Tom Davies

Firm: Penguin Wealth

Title: Financial adviser 

Location: Cardiff

How would you invest it?

The first thing I would do is maximise my pension and ISA allowances and probably look to put a small amount of it into and EIS or VCT.

Where geographically would you invest it?

I do not get directly involved in the fund research, as we have a centralised proposition, but I would shy away from European equities with Brexit on the horizon and the very real issues that the EU economy is going through. On the ethical question, I think I would try to do some impact investing to see if there was a way to make a difference in some way.

How much would you keep in cash?

I would keep around £50,000 in immediate cash just to cover any expenses that may come around over the next couple of years. With all the uncertainty around at the moment, I would not want to be dipping into an investment at the wrong time.

Talk me through each component of what you could do until you have amounted to £1 million, e.g. 20% in bonds, 40% in equities, etc.

Based on my age and the fact I probably will not be retiring for another 30-plus years I would look to have a lot of exposure to equities. As an example, Penguin's current highest risk portfolio which I am invested in is 4% cash, 5% property, 10% fixed interest, 10% absolute returns and 71% equities (these investments are spread across all regions, and we currently have our lowest ever exposure to the UK).

If you have kids, would you put any in a junior ISA or in a pension for your children?

I do not currently have any children but I do have a 10-year-old sister that I would put money away for. I would probably shy away from a junior ISA, as it gives full access and control at 18. But I would look to put money away via a trust for her to have to help with university fees and her first house. I would definitely look to put some into a pension for her as well, and try to maximise her allowance as much as possible until she was working and could then start contributing herself.

 

Name: Ricky Chan

Firm: IFS Wealth & Pensions

Title: Director and chartered financial planner

Location: London

How would you invest it?

I am generally pretty 'vanilla' with my investments, and do not opt for anything particularly 'exotic'. But with a windfall of £1 million, my options would widen a lot and planning could get interesting – so I imagine I would not mind investing up to 10% into tax-advantaged higher risk investments for this purpose.

Would you invest in ethical funds?

Due to starting my career as a financial adviser at The Co-Op's insurance arm, I have an affinity towards ethical investments, as I have seen the positive impacts these have on society. 

Hence, I would align this windfall investment with a bias towards ethical, socially responsible investments, similar to that of how we have invested our firm’s assets. 

I have taken some core funds from our ethical model portfolios and added two interesting new low-cost, well diversified exchange traded funds that give further exposure to Japan and emerging markets (iShares). I personally favour emerging market opportunities. For a long time, ethical investments in these markets have been quite limited.

I also particularly like Nick Train’s investment philosophy (high conviction, buy and hold, low turnover) so have added his Lindsell Train Global Equity fund, which is not an ethical fund but is in our main model portfolios.  

Overall, I’m quite comfortable with a moderate to high risk portfolio.

Talk me through each component of what you could do until you have amounted to £1 million.

  • Stocks and shares ISA - £16,000
  • Lifetime ISA - £4,000 (boosted up by 25% from government bonus)
  • VCT - £20,000
  • Offshore investment bond - £100,000
  • NS&I premium bonds - £50,000 (still hoping for the big ticket win)
  • GIA - £810,000

(No personal pension contributions as this would be fully funded by employer contributions from my company)

Over the coming years, I would encash funds in the GIA to maximise my tax-advantaged ISA, lifetime ISA and VCT wrappers (around £40k per annum).

The overall amount I would invest in VCTs would be limited to around £100,000 (about 10% of my portfolio). Each tax year this would provide £6,000 income tax-relief (30%) to reduce my tax bill. This would also provide some tax-free dividends for some Christmas gifts.

If I wanted to be even more aggressive with tax-planning, I could tweak the numbers and reduce my tax liability to zero. After holding each tranche for five years, I would look to encash the respective tranche and reinvest the same initial investment proceeds into another VCT for further tax relief, and this could be repeated from year six onwards.

If you have kids, would you put any in a junior ISA or in a pension for your children?

I do not have kids yet, but I have a lovely new-born twin niece and nephew, so I would help maximise their junior ISAs, funded by annual encashment from the GIA.

My other older niece and nephew have just turned 18, so I would be interested in helping them maximise their lifetime ISA contributions to help them to get onto the property ladder. Or alternatively, the opportunity to tax-efficiently assign segments of the investment bond wrapper can also help them in future.

 

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