OpinionNov 12 2014

Is it better to invest where the sun don’t shine?

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I have just made an investment that I am hoping will provide me with a return equivalent to 7 per cent a year tax-free. It is linked to the retail prices index and will pay out for 20 years.

What is more, it is backed by the government, so my income stream looks pretty secure.

My investment of choice? Solar panels.

Now before you all throw your arms up in disgust I would like you to tell me where else I could get this return with relatively low risk.

My panels cost £6,250. Based on Met Office figures for sunlight, I expect to get a cash return of around £640 tax-free in the first year. On top of this, I hope to save around £250 on my electricity bill.

That beats any investment I can think of.

After making conservative estimates on the retail price index, and allowing for some maintenance costs, I reckon I ought to make between £22,000 and £25,000 over the next 20 years.

After my initial outlay, that looks like a return of around 7 per cent a year.

It certainly makes sense as an investment to someone of my age. At 55, I am likely to stay in my current home for a decent period.

I suppose this falls under the umbrella of alternative investments. It is certainly an attractive alternative to the miserable returns on high street savings for someone who already has enough money committed to the stock market.

But why am I telling you all this? Well, if you took a look at the figures being bandied around by solar panel salesmen you would be horrified.

They seem to be free to make the sorts of claims and assumptions that would have you booted out of the industry.

They seem to be free to make the sorts of claims and assumptions that would have you booted out of the industry

Can you imagine an adviser now being allowed to assume RPI would be 10 per cent a year in future? These panel salesmen do.

They also make ludicrous assumptions about the future price of electricity.

In fact, the whole arena appears to be lacking any realistic financial regulation. And as this is primarily a financial decision, it seems grossly negligent of the government not to step in.

It is a shame, because I believe panels are a decent investment without all the flannel. I would certainly put them above squandering money on an annuity.

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Advice can be priceless...

How do you put a value on financial advice? Some have tried.

Unbiased’s Value of Advice research found that those who had taken advice received an additional income of £3,654 every year of their retirement – based on a £100,000 pension pot.

Really? What do the others do – set fire to their money?

Of course, the research was based on a survey of 217 advisers – so it’s hardly “unbiased”.

The same research saw advisers “estimating” they could increase clients’ income by an average of 28 per cent if they sought advice at the point of retirement.

Another way of putting a value on financial advice is how much people are prepared to pay or how much advisers charge.

Over the past year hourly fees have fallen by 14 per cent to a median £150 an hour, according to Unbiased.

Other key fees, such as an initial review and report and some forms of advice, have remained unchanged – though some have increased.

At first sight, we might think that consumer pressure has forced down the rate as transparency has increased following the retail distribution review.

There is certainly no evidence of the big increase in fees that some advisers were warning of in the run-up to RDR.

So what is going on – are some of you cutting hourly rates to get clients through the doors?

At the end of the day, I suspect the true value of good financial advice comes in the security and confidence it can give individuals whether they are planning for the future or eking out their money through retirement.

But how do you put a figure on that? I am sure I do not know.

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... or not

OK. I am flabbergasted.

A couple of weeks ago I commented on a piece of advice that I felt was decidedly dodgy.

BBC’s Moneybox highlighted the case of a pensioner who was advised to take £50,000 equity release and use most of it to buy a life annuity.

So that would involve borrowing at a high rate and having the interest compounded in order to get a mostly taxable income at a lower rate.

The annuity offers no flexibility, but it does pay a nice little charge to the adviser.

Amazingly, some advisers felt this was perfectly acceptable.

Naturally, none have attached their real names to their comments. Perhaps one of them gave this or similar advice – I can only speculate.