The Value of Memory Lane

2006: The History Boys - Hytner

Financial Planning comes with baggage (a lot). We have all probably had some bad experiences with money, perhaps a tale or two about being ripped off. Childhood experiences of money - right from our family approach to reward and affirmation to the holidays we took and our pocket money budgeting skills (or lack of). In essence our experience of money in our formative years invariably provides the backdrop for our adult experience. Our relationship with money is complex and I am always intrigued by it.

This weekend was a family celebration for my family. We decided to meet up in the west country, where I grew up. I had booked a B&B for the weekend, and rather surprised to find my old History teacher welcome us inside (thankfully History lessons and exams hold good memories for me). We met up with several long-term family friends, many of whom I had not seen for over thirty years, yet the memories came flooding back. Its funny what we can remember. I was aware of how much I had changed, but also how my own childhood seemed so relatively simple. It also seemed that life was also much more straight-forward. Most people probably had little if any financial planning back then, financial products were certainly fewer and appeared to be quite simple (from today's perspective). Now there is a huge amount of complexity and potential for disaster from an enormous array of financial products. Yet, the reality is that little has really changed. Today people want what they wanted then - a life that involves enjoyment, fulfilment, meaning, and as little anxiety as possible. Yet we seem to have complicated this to the point of paralysis with information overload. Things change - most obviously in the purchasing power of a pound (which was a paper note in my childhood). It was amusing to listen to my brother attempt to explain inflation to his son - which of course is often explained in terms of the price of sweets.

However, the past is the past. It is the backdrop, it is not our future. Certainly the predictability of domestic family life has an element of repetition. It has lessons to teach us and warnings to heed as well as reminding us of our roots and providing a "grounding". However, the role of a good financial planner is to help make the complex rather more simplified. To keep the focus on what is important to you (not the market and certainly not the media). Predicting the future is folly, we all know that life can deliver an unhelpful curve ball or two, however, being prepared, being able to know what you value not "what your valued" can have a very liberating and anxiety reducing effect. To your future!

The Hunt for Decency

2007: The Hunting Party - Shepard

The financial services industry has a poor reputation I admit. In the 1990's it was quite common for me to come across people that had been mis-sold policies and this left me and those that I worked with at the time somewhat vitriolic in our distaste for others in the "industry", we saw ourselves as the good guys in a fight to help people get decent financial products. My view was that most advisers were liars, cheats and thieves. Since then a few things have changed. Most importantly, I have altered, I have matured and have also been able to see my own short-comings. This, I am told is how it is.. the more you know, the more you know you don't know. Back in the 1990's I was still selling products like almost all other "advisers" at the time. I still don't believe anyone was disadvantaged, but with the benefit of experience, I can say that things could have been better. Hence in 1999 when I started my own firm, things would be very different. They were. I was better at my job and charged less for doing it (eh?) I was vastly more efficient (funny how running your own small business does that), clients were better off, the products were better. Turning up to training seminars, I was still seething at the way many "advisers" operated on a commission basis still (the car park told its own story) and whilst I came across fewer examples of mis-selling, was of the opinion that it was still a product driven industry full of crooks.

It wasn't until I joined the IFP and began what I would now call proper financial planning, that I found my own attitudes changing towards other advisers. Finally it seemed that we could work collaboratively, seek out each others help and experience. I was also aware that some of them are actually really rather clever and very good advisers, not to mention holding high standards of practice and ethics. Over the last 5 years or so, I have had renewed faith in my own industry, with a real sense that advisers and their advice (and how they charge for it) has been improving dramatically. I had been wrong about many of them. The new RDR rules have helped this process too, catching far more advisers up in the transition to decency than would otherwise have happened, left to their own devices. Ok, I still meet some that simply don't get it and fail to or lack the ability to think, but this is rarer than it was. Most are engaged with the change.

So it particularly grates on me when clients are hassled by people from claims companies attempting to get them to complain about PPI. I have had two clients in the last 2 weeks double check with me (having been hassled to the point that they thought it wise to do so) that they have not got PPI (they hadn't). The claims "adviser" was adamant that they had a valid claim and had exerted considerable pressure to get them to appoint him to make a claim on their behalf. Let me be clear. These claims consultants are ruining what remains of any faith in financial services. They are scoundrels. They have broken the data protection laws in obtaining information about people, they have then lied about what they know, and lied about what they charge for their "service". They are exactly the sort of people that mis-sold PPI, which for the record does not include me. They are wasting vast amounts of time and money, chasing claims that do not exist, making false promises and in it only for themselves. Much like the deer that sought out and attacked my dog (without provocation) as we walked in Richmond Park this morning, these claims consultants will meet with the same short sharp response from me...."go away!".

Cash ISA Update

2010: Conflict of Interest - Manning

As usual, for the sake of the hard of thinking, I need to state that this is not advice, but a list of some of the better rates available “out there”. You should always check the detail and I recommend doing so via the Moneyfacts website as your starting point. Remember the rules about consumer protection – only the first £85,000 is covered by the compensation scheme (FSCS) and be warned that there are a number of Banks that come under the same Banking license. I would be unwise to speculate about which Banks may have liquidity problems, but a glance at the media would suggest you are more circumspect of those that from within Portugal, Ireland, Greece and Spain, which may provide you with a conflict of interest.

Instant Access Accounts

Online: Coventry 3.15%

Bank: Virgin Money 2.60%

Building Society: Nottingham 3.25%

Cash ISA Fixed Rate

Online: Bank of Scotland 3.80% (4 years)

Bank: Halifax 4.25% (5 years)

Building Society: Kent Reliance 3.75% (5 years)

Cash ISA Variable Rate

Online: Santander 4.00%

Bank: Barclays 3.05%

Building Society: Nationwide 3.50%

Half Year Valuation Statements

2003: The Statement - Jewison

Most investors will have received a half-yearly valuation statement at some point over the last couple of weeks based on values at 5th April 2012. These half-yearly statements are dull but important and are required by the Regulator. A problem that sometimes occurs is understanding what they say. In short they provide an overview and the detail of alterations in your holdings since the previous half year statement (October 5th).

You will observe that new lump sums or regular payments are shown, including the purchase date and price of assets/funds that were bought. Income payments of two forms - either income from dividends generated by your investments and/or income paid directly to your bank as you take it from the portfolio. There will also be a note of fund changes due to switching and/or rebalancing funds, so that your portfolio remains appropriate to your attitude to risk and your requirements from the fund.

Finally, you should also see our charges and fees clearly highlighted. Remember that these vary depending on the service level that you have from us and your total funds under management. If you have any questions about this please get in touch. You may also see a fee for the platform where appropriate, this is the charge for having your assets on the selected administrative platform, enabling improved information and management of your holdings.

In most cases there is an overview and then a breakdown of all the costs - it is not both, merely an attempt to show the layers of charges and activities conducted on your behalf. An important point to note is that the valuation is now wrong - it was the value at the 5th April 2012, not the value now. So if you have made changes since that date they will not be picked up in the statement until next time.

Solomons: Truth Required - Dispelling Myths

2010: Clash of the Titans - Leterrier

When the Bank of England and politicians talk about the possible problems as a result of Greece leaving the Euro, one is only left to wonder if they have looked at their own finances. Here in the real world, the "possible problems" are a reality, with falling stock/share prices, which everyone has some exposure to - be it directly in their own portfolios or as people that live on planet earth and make use of products and services provided by business. Unless you live in a handmade tent and self sufficient, you are being impacted by the Eurozone nonsense that has been rumbling on. The markets are in reaction to indecisiveness. Here are a few facts which may help provide some perspective for a longer term view.

Financial planning is partly about dispelling myths about money. As we know Greece and China are two ancient nations with a great history for mythology, whether its Dragons or Gorgons, Minotaurs or Xiezhi, but their present day financial stories seem to be taking centre stage. However, these two ancient nations would provide a very uneven match for each other, this is no clash of the Titans. Today, Greece has an estimated population of 11.3m (about 20% of the size of the UK population) and GDP of $301,083m (about 14% of the UK's GDP) which has been shrinking each year since 2008. At the same time its public debt has been rising rapidly since 2008 from 99% of GDP to over 150% of GDP. However, whilst the debt is certainly "bad" the percentage figure can be rather misleading when you consider the size of the economy against others.

Compare this to China, where GDP has been growing year on year. The population is a staggering 1,338.3m (over 100 times bigger than Greece) with GDP of $5,926,612m (20 times bigger than Greece) and growing by about 9% a year (almost twice the size of the Greek economy a year). The US has GDP of $14,586,736m about 3 times the size of China (as the world's most developed economy) and has a population of 309.3m (about a quarter of the Chinese population). Here within the British Isles, collectively known as the UK, we have a population of 62.2m and GDP of $2,261,713 equivalent to about 15% of the US and now less than half of the Chinese GDP.

These "facts" are from the World Bank's own data, which anyone can look up online.

Solomons: Morning Brew Extends Life

1931: Cafe Noir - Leslie Hiscott

As clients of ours will know, when creating your financial plan we need to assess how you currently spend your money, often there is a gap between what is stated and what happens. This is what I (and many others) call spending creep and I usually suggest that this is what all those trips to coffee houses actually cost. Unless some fairly tough decisions need to be taken, I rarely suggest that we alter "spending creep" we assume that it is indeed spent money, rather than treat it as identifiable and therefore able to be saved and put into your financial bucket or plan (as some are prone to do). Spending creep is part of life and a budget should be something that allocates money, not counts every bean. Well it turns out that perhaps not terribly helpful to your wealth, all those coffees are perhaps helpful to your health. The LA Times report that drinking coffee might improve your life expectancy. Now I'm not an expert so I couldn't tell you if this is actually true. I have to admit to holding a great many suspicions about the links between research, business and media particularly in the US. However, if it is an accurate assessment, then perhaps coffee drinking is a new form of investment in your future... but of course living longer may bring other issues - for instance being able to afford to live or have additional need for care, which has a significant price tag.

For those of you that work and grab a coffee on the way, I wonder if you have thought about how much your spending on coffee typically is each week? I have failed to notice any good hot drink sell for less than £2 and I invariably find myself parting with something closer to £5.... I'm a sucker for the blueberry muffins. Any visitor to Paris, Venice, Florence or Rome will also be aware of the high price of a the black nectar. Well say that's 5 days a week and something like 46 weeks a year.. around £1,150 a year... which is why I bought a decent coffee machine for the office (which clients like too). Whilst I cannot grab the coffee on a platform (or near one) my pod coffee machine is not even a tenth of the expense. "Look after the pennies and the pounds will look after themselves". So apart from being a nice pick-me-up, if coffee is also a wake up call to longevity, make sure your financial planning ensures you have enough beans until the end!

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Financial Planning to a Different Rhythm - Yours!

1992: Strictly Ballroom - Baz Luhrmann

To many people financial planning is about building up savings in a variety of financial products, coupled with trying to achieve market beating returns. This is a complete misunderstanding of what it really is. A meeting that I had this morning is an example of what financial planning is (or should be in my opinion). Financial planning is about you setting the tempo, the rhythm and pace to your own lifestory, not outside forces such as "the markets". You don't have to do things the way everyone else does, but if you want things to work, you need a plan and one that includes a few safety nets.

Over the last six years I have been working with a charming couple, who I always enjoy seeing, as they planned their retirement. This has now happened, though they are busier than ever before. We have put in the groundwork over the years and today was an opportunity to review progress. Over the years we have been discussing their plans about their future. Today, most of our focus was on how they plan to spend their money, provide for their children and also support charities close to their heart. We discussed how we might make sensible provision for care or assistance in their later years to ensure that their funds don't run out, but with a significant emphasis on living generously today.

After discussion I am able to make a few minor adjustments to their plan, to demonstrate what investment returns are really needed each year, which when factoring in their lifestyle spending and giving plans is a meagre 1.44% a year after all investment costs, which clearly has implications for how a portfolio is structured and has made allowance for inflation. Our thoughts turned to the current problems in the Eurozone and the impact that this might have on selecting a few worst case scenarios (such as the stockmarkets crashing), should their portfolio suffer a 35% decline and not recover, (by which I mean no "bounce back") investment returns would need to increase, but only to a very modest 3.15% a year. In short, we identified that they were highly unlikely to ever run out of money - the only real pressure was from their own spending behaviour (which we review, not to be controlling, but to ensure that our assumptions are broadly correct). 

I would suggest that (from over 20 years experience) anyone seeking financial planning advice is not terribly interested in ISAs, pensions or investments - but whether or not their money will run out, whether they will have enough and in the event of calamity, what the consequences might be. This delivers genuine peace of mind and appreciation of the long-term "game" as well as what is really important. This is the antedote to a media filled with stories of woe and fear..which reminds me of a quote from the Baz Luhrmann film Strictly Ballroom: "a life lived in fear is a life half lived". If this is what you would like from your financial planning, what are you waiting for? pick up the phone or send me an email.

Being Wary of Men in Black Suits

2002: Men In Black 2 - Sonnenfeld

On your behalf (and mine) I have been seeking out the wisdom of "experts" again today, with the second and final day of the Morningstar 2012 conference.  That said, one of the most memorable talks was from Dave Fishwick, Head of Macro and Equities Investments at M&G who pointed to the flaws in human nature to consistently seek out the opinions of supposed experts. "Men in suits", who purport to have a valid, credible opinion. He suggested that many of those claiming to have spotted significant moments of change, invariably have only done so once, and perhaps this has something to do with luck. This was acknowledged later by contrarian investor Alistair Mundy of Investec, who talked with great honesty about the need for Fund Managers, advisers and investors to be honest about our mistakes and to learn from them, something that is often difficult for Fund Managers in particular, to do. He pointed to the abilty of humans to forget all too readily and this is something that investors need to be mindful of in the coming months as yet more market turbulence is likely as European markets eventually figure out how they will address their problems.

The world has changed though, particularly in the credit markets, what was once low risk, is now arguably high risk, for which there is a considerable premium. The Bond market has seen huge inflows of money as investors seek safety, yet many corporate bonds are actually paying lower levels of yield (income) than equities from the very same companies. Risk has been moved from the private sector to the public sector, with sovereign nations more at risk than many investment banks. This is a fundamental change in the way Bonds have worked throughout my time on earth (or indeed anyone else's for that matter). Luke Spajic of PIMCO, argued that the new upside down credit world poses questions for portfolio construction and something that I am currently reviewing, though thankfully believe clients are well positioned.

The key points from my perspective frankly have little to do with investment selection, but everything to do with having robust, repeatable processes that are tried, tested and work. This is something that I have constantly worked on for our clients over the last decade or so. Financial planning has a fair bit to do with artistry - applying experience and professional opinion to the reality of data. Ultimately though, achieving goals is the purpose of financial planning, not calling the market (right or wrong).. but helping our clients to get where they need to go, as cost effectively as possible and ensuring that purchasing power and lifestyle are protected.

Seeking Values

1957: Something of Value - Brooks

Today has been a "classroom day", spent in the company of some of the leading financial planners and several top drawer Fund Managers. Today's key themes were probably to be expected - what on earth is going on in Europe? and what will the impact be on our clients? Well, as with all investment seminars, there are as many opinions as there are people (and a few more besides). The question of Europe hangs heavily in the air, reactions are mixed. For starters, "Europe is not terribly significant" (6-9%) of the global market and shrinking each year in terms of its global impact, though the way the media cover the story one would liken its significance to a catalyst for an End Times scenario. There are better places to invest (yes I would hope so too) but what irks me is the way that the financial services industry makes blanket statements about parts of the world. We are talking about people, indeed we are talking about our peers, friends and family, not simply "them" or "the consumer"...it may be politically expedient to forget that nations are nothing more than a collection of people, but to discuss the world in such terms does rather miss the point, that business exists to serve people and investors exist to help business flourish. So whilst I might agree that, yes Europe is a mess and is only a small part of global markets, it is our neighbour and whilst its size may be increasingly diminished, failing to reflect on the societal impact of an unstable Europe would perhaps be like missing the bad apple, which will eventually pass its dis-ease to others. Only time will tell.

As for regional investment, there was mixed and arguably divided opinion on this. The only speaker to make helpful use of data in his slides suggested that investors need to focus on companies not countries. A valid point, but the cultural differences of countries, combined with their political and legislative take on life is not something that even a multi-national company can easily bypass. The truth is of course that investors need to seek out value and diversify, being mindful of where most growth is likely to reside, though historically this would also carry the highest risk, due to the size of the relevant market or exchange (and possible Government interference). Investment Management Firms need to search for the next big thing... the next Brazil, Russia, India and China (BRIC)... it was suggested that the "next eleven" or N11 would include South Korea, Turkey, Mexico, Indonesia, Nigeria, Bangladesh, Egypt, Philippines, Vietnam, Pakistan and Iran.... somewhat controversial and of course would probably require a significant change in political leadership on all sides.

Thankfully, there were signs of hope that growth is returning and indeed happening (largely in non-OECD nations) and that investors must think globally. Something that we at Solomon's do with our clients - we aren't UK centric in our investment approach (thankfully). Perhaps one of the most refreshing talks was an interview with Hendrik du Toit, the CEO of Investec Asset Management, who spoke of values, serving our clients and being a faithful fiduciary, something that resonated with me and I hope is clearly expressed and imbedded in our client service.