Hockney and Reflecting A Bigger Picture

2012: A Bigger Picture - David Hockney

Financial planning in south west London affords me the ability to do many things, including visiting the latest art show at The Royal Academy. It used to be said that artists only make money once they die, however one of Britains most successful living artists has buried this misconception along with many others. David Hockney who will turn 75 this summer has had a remarkable career. Influenced at an early stage by Picasso and Walt Whitman, he brings his own perspective to his work.

The show is perhaps one of the very best that I have seen, called "A Bigger Picture" it is simply an outstanding collection of work, reminding and calling us to look again in particular at the English countryside and to get out and enjoy it. His vibrant use of colour and innovative adoption of new technology (see what he does with an i-pad) is a reminder that becoming older does not mean becoming greyer or out of touch. Indeed he remains revolutionary, as perhaps all great artists are.

Wearing my financial planning hat, his huge canvases and use of fragmented images to create a larger "whole piece" is a reminder that detail is in the large as well as the small and that different perspectives and experiences shape the overall picture. My financial planning interpretation of this is perhaps stretching things, but notes that our lives are made up of many experiences and are gradually woven together to create a masterpiece, even though the process of each experience may seem unconnected to the next at the time. Financial planning can sometimes feel disconnected - and my role is to bring the elements of the plan together, reflecting it back to my client, assessing progress and helping to shape, but more importantly understand the overall vision. Financial planning when it is done well is not really about numbers, it isn't really a science, but an evolving artistic work - yours! and I have the great pleasure in helping frame and hang the elements to bring the pieces together.

I am a Hockney fan, which because its art won't be the same for everyone, but the depth and scale of this show is spectacular and money well spent. A very good job has been done by the team at the Royal Academy and the exhibition runs until 9th April - tickets are in high demand. As for art as an investment, well I have to admit to being more of a traditionalist - buy what you like.

Bonus Cutting at Prudential

2003: In The Cut - Jane Campion

Financial planners generally are not terribly interested in the bonuses paid to investment managers, but we are concerned about Insurance companies providing with-profit investment products that seem to worsen every year. This time Prudential, perhaps the best known with-profit company has announced today that it is reducing its bonus payments (to investors). That said, they seem to be top of the pops for final total payouts when compared against their competitors.

Prudential are quick to point out that maturing policies in 2012 have increased in value against 12 months ago (though I would argue that this is merely meeting expectations), terminal bonuses remain relatively strong but the cuts have come in the form of the regular annual bonuses (reversionary bonsues) which have been reduced by 0.50% to around 2.50%-3.00%. Prudential estimate that £1bn of reversionary bonuses have been added with a further £1.1bn added as final bonuses (relative to maturing policies).

Prudential remain a strong company with a global presence and one that specialise in with-profits, in my opinion in 2012 remain market leading in this regard. As a relatively low risk form of investing this is about as traditional a financial services product that you can get, in 2012 with the much wider array of investment options, it is unlikely that most people will take out a new with-profits policy, which has longer-term implications for the with-profits product providers. That said, the traditional argument for with-profits of smoothing the volatility of the market is hard to ignore when over the last 10 years the Prudential with-profits fund has accumulated a return of 92.7% against the FTSE AllShare index of 59.5% over the same period. The story of the tortoise and the hare comes to mind.

Lessons with David Suchet

1956: Long Day's Journey Into Night

Anyone that knows me, will know that I greatly enjoy the arts - particularly film, theatre and music. Hence this blog is splattered with film and literature references. As a financial planner, I think it is helpful for clients and anyone wanting to become one, that you get a flavour of who I am and why I do what I do. I'm lucky to be living and working near to one of the world's cultural centres - London, so I try to take advantage of what is close at hand.

Last week I was at the Richmond Theatre to see David Suchet (known to most for his portrayal of Hercule Poirot) and Laurie Metcalf, who is probably best known to the world for her role in the TV series Roseanne. Both are brilliant. They play husband and wife in Eugene O'Neill's melancholic play "Long Day's Journey Into Night" which explores a dysfuntional family unable to speak helpfully to one about the very real struggles that they all have coping with life's disappointments and tragedy. The story, set in 1912, itself semi-autobiographical of the author's own experiences, is both painfully gritty but supremely performed by all four cast members.

Much like the hammer that sees every problem as a nail, as a financial planner, I could not help but think that with a good financial plan, perhaps James Tyrone would have known how much he could spend and whether he had "enough" to prevent his nightmare scenario of returning to the poor house. This may have enabled him to take a very different view of his sons and his relationship with his wife, who suffers from borderline personality disorder and is addicted to morphine. Whilst I am not pretending that money will solve problems, understanding it clearly, having a unique financial plan (that accounts for disaster) would have provided this family with the starting point to improve and possibly repair their relationships. Something that they all wanted desperately, but lacked the ability to see how this might occur.

It is this potential to help people have a better understanding of money, so that they can focus on the important things in life (not money) - which to my mind is about knowing others and being known and enjoying many of life's wonderful experiences. So many people fail to fully live life because they have no clear idea about what they want and how much it costs. The power of financial planning, when done properly is not (contrary to what one financial planner recently suggested) about the "toys". To my mind it is about the freedom that can be found in understanding what you really value. It is not about the money.

Tickets to the play are not easy to come by - which is a testament to the quality of David Suchet and Laurie Metcalf. The show continues at Richmond until Saturday 3rd March before moving to Milton Keynes, then Glasgow before heading for the West End from 3rd April at the Apollo Theatre with a planned run until August.

Bogus Pension "Cash Liberation" Schemes

2009: Lies and Illusions - Tibor Takacs

It is particularly concerning when I come across unregulated and unqualified people offering advice about pensions. However badly some people think of financial advisers, using companies that are not even regulated by the FSA is very worrying and illegal. Financial planners like me, spend years learning about pension rules - which are constantly being updated and despite promises from the previous Government to make pensions simple, the reality is completely the opposite. This is admittedly a very poor state of affairs when a pension should be in every UK adult's vocabulary of financial planning. Good financial planning involves repayment of debt, building wealth and avoiding unnecessary charges and penalties. This latest "pension liberation" scam increases debt and reduces wealth and increases charges dramatically.

There has been a spate of small adverts, some appearing on social networking sites such as Facebook which I have seen myself and are completely misleading. These are designed to entice people needing cash and having a pension pot to "liberate" the cash from the pension. There is also the suggestion that investment performance will be improved. However cash from pensions can only be taken from age 55 and is restricted to 25% of the fund. Taking more is illegal and will invoke charges and penalties from HMRC resulting in a significantly worse pension. There has been over £200m moved into these bogus arrangements already according to the Pensions Regulator, FSA and HMRC the bulk of which has occurred since May 2010.

The schemes effectively set up loans and the only people making money from them are those that are "arranging" them. The promise is one of liberating up to 50% of the value of a pension fund before the age of 55. These schemes tend to operate by paying 50% of the fund in the form of a reciprocal loan with another investor. The balance of the fund is often put into some very dubious property deals. This is a scam, fraud -swindle and thoroughly unethical. Do not be taken in by such schemes. As a financial planner I find this deeply depressing, my industry has enough jargon and mis-selling scandals without another one rearing its head from "advisers" that are not advisers and unregulated. This will not end well. See here for more details about pension liberation. Please pass this post on to your social network friends. You can also click here to see some of the more common scams and swindles that the FSA attempt to prevent.

London Fashion Week - Fashionably Early and Hem Line Investing

2006: The Devil Wears Prada -Frankel

As a financial planner, I'm not one to suggest for a moment that I'm also a fashion expert - except I suppose when it comes to fashionable investments. The London Fashion Week closed yesterday - I don't really know if it's my interpretation or whether a week that starts on Friday and ends on a Wednesday is fashionably late, early, unconventional or simply the next big thing....anyhow of one thing you can be sure, fashion is by nature premature - in that this was a show for Autumn/Winter 2012.. after all this is showing what will be stocked later in the year. What I can report is that hem lines look set to be a little above the knee this September. There are some of the more "out there" financial speculators that see this as an indicator of confidence and use this to inform investment decisions. Yes you did just read that here. I don't know if there is any substance to the suggestion, but as investors tend to have a herd-like mentality (professional and private) it is possible to see that confidence could be contagious in many aspect of life, so why not the markets? After all, inflation will be lower (by mathematical analysis) and we will have gone through what transpires for Europe (though the out workings are likely to be very long-term).

To purists, fashion is designer clothing, to others it is making things that we see and use "cooler" by that read the anything pre-fixed with "i" (ipad, iphone etc). Great businesses will be seeking to ensure that their products and services are as "user-friendly" and "cool" as possible. The Chinese middle and upper classes (it seems George Orwell was right) have an appetite for luxury brands and cannot get enough of them... selling like hot cakes.  So although China's growth and inflation are slowing (which was inevitable) the new land of opportunity is proving to be something of a goldmine for those willing to create one and many will have attended the London Fashion Week.

The direct value of the UK fashion industry is reported to be worth £21bn and its wider contribution in influencing spending in other industries is over £37bn. In the UK the fashion industry is the largest creative sector for employment, with 816,000 jobs. It is about the same size as the food and beverage service industry and telecom industry. The UK is regarded as having world leading fashion colleges, so this is where the story begins. The major export markets for the UK are the USA, Japan, Russia, France, Italy, the Middle East, Hong Kong and China. Of course, much like having a tailor made suit or designer dress, a good financial plan is one that is unique, bespoke and fits you perfectly.

Time To Believe and Celebrate Difference

1990: Edward Scissorhands - Burton

Financial planning or more specifically, selecting investments from the global range is an awkward task these days. Today, following the latest round of not looking at a gift horse in the mouth, Greece having been granted a bail-out deal (which is not good news for anyone) have been downgraded by credit rating agency Fitch from CCC to C. They believe (as do I) that Greece is more likely to default, not less. The current package, would see a..wait for it... 53.5% "haircut" on Greek Government Bonds. Now these days I have little requirement for a trip to the hairdresser.. but imagine going to one and coming away with only half a haircut... it might have been ok in the 1980's (passed off as fashionable) but unless you are a pop star, probably not terribly welcome. In essence this means that those holding the relevant Greek Bonds will lose half of their money... which granted is better than losing all of it.

The great sadness with this is that whilst there is much to criticise about the Greek economy, political and welfare system, this is incredibly harsh on Greek people, who are probably at melting point. This mess was caused by the credit crunch, the folly of the Eurocrats believing (as many still do) that one size fits all. Have any of them ever left their standard issue European hotel room and gone to a bar, shop or museum? Difference is the jewel that makes us human and frankly makes life so fascinating. Attempting to force a nation or region to all work in the same way, spend in the same way is Utopian lunacy. We go to the Med for holidays because of the weather, not because it is the best environment in which to build a car in a factory. I simply don't understand the pre-occupation with the Euro. A Europe united does not mean a Europe the same. The continual denial of the reality that the Euro is broken costs us all more each day and is particularly punitive on the Greeks who are much maligned and all too unfairly. May I suggest a rewatching of Edward Scissorhands for those that continue to suggest we should all be the same or will they go on believing the "suits you sir!".

Credit Rating Agencies and the Smell of Fire

2010: The A-Team -  Joe Carnhan

As a financial planner with expertise in investment, you may have read my post yesterday about the change in the Fund Manager of the Blackrock UK Fund. Well call me an old cynic, but today one of the ratings agencies (OBSR) has announced that it has reduced its "rating" of the fund from AA to A. One has surely got to ask the question why on earth they did not do this earlier? after all the performance has been disappointing for some time. An alternate view might be that the downgrade represents the increased uncertainty about the future due to the change in Manager, which is the sort of line that is offered. However, whilst I admit the analogy doesn't hold entirely, this is a bit like yelling "fire" once the flames can be seen, rather than observing the smell of smoke somewhat earlier, which after all, is presumably the point of a ratings agency. The sad reality is that ratings agencies now seem to be having a disproportional impact on investment markets. Given the failings of credit ratings agencies pre-crunch, one wonders what ratings they themselves would attain. Sadly, there seems to be no plan B.

Rangers - What Lurks Beneath

1954: 20,000 Leagues Under The Sea

Financial planners often use the football league as metaphor for investment performance - the six top teams are fairly predictable each year and a sense that success breeds success. Relating this to the top performing funds is stretching things, though I acknowledge that sometimes this does appear to be the case. Invariably funds do not consistently perform at the highest level, with very few exceptions. There are some analogies that can be helpful, though not necessarily reliable - for example the duration of the manager, which for Fund Managers can be relatively short-term, but perhaps not quite as brief and sanguine as the very short-term tenures of the majority of football managers. The size of the football club would often suggest strength of resources (as it might for investment companies) but recent evidence would suggest (as any good business person knows) that governance and how an organisation is operated are the vital ingredients.

Take Glasgow Rangers typically either 1st or 2nd in the comparatively small pond of the Scottish Premier League. It would appear that this club (company) had forgotten (like many others seem to) how to run a business. Expenses cannot exceed income for very long. Ambition and desire can play havoc with reality. The use of tax avoiding schemes to pay staff were always questionable and certainly complex. The most recent takeover of Rangers by Mr Whyte used funds provided in advance of ticket revenues... which has a similar feel to it as using the future payments on mortgages to form a capital sum (which effectively was the mechanism that caused the credit crisis). What has this to do with investors? well nothing, unless you have invested in a particular Enterprise Investment Scheme (which is a higher risk form of investment) and run by Octopus, who amongst various holdings, have holdings in Ticketus. The money provided was essentially "working capital" that enabled Mr Whyte (having put up personal guarantees) to takeover Glasgow Rangers. Effectively swapping future ticket revenue for a lump of cash now. This is also similar to the demsie of Enron who operated on the unchallenged assumptions about the future. The implications of the arrangement and the collapse of Glasgow Rangers are being explored by both the administrators and Octopus. EIS investors know that an EIS investment is high risk and there is always a chance that they could loose all of their money, a pertinent question though, is what is the difference between business risk and carelessness? The two are obviously quite distinct.

So as fans of Rangers come to terms with the harsh reality that football is a business (however hard many try to present this reality as "inaccurate") some investors may need to come to terms with "looking under the bonnet". Investments can be incredibly complex, with all sorts of attractive promises, they should be designed to make money, but remember that the investor is only one party that seeks to do this, so too does the Product Provider and the businesses that are held within the portfolio. Certainly everyone makes mistakes, but the stockmarket is no place to learn life lessons, unless you really do have money to burn. Financial planning when done well involves considering investments carefully, looking under the bonnet and exposing the possibility of nasty surprises and coming to terms with the reality that there is risk in everything, but minimising these to a sensible level. Importantly reviewing and challenging assumptions in the light of real experience is also a vital part of the "work in progress" that a financial plan will include.

FUNDS: Blackrock - UK Fund Repeating Performance Is Not Easy

1947: Repeat Performance - Werker

Financial Planners are often caught up attempting to select the best Fund Managers and funds, anyone that knows much about me will appreciate that this is a game that I'm reluctant to play, information about my approach can be found within the resources section of the main website. In essence as a financial planner I believe that my primary task is to help clients achieve their goals, not to beat the market. Those that simply attempt to beat the market are bound to deliver disappointing results as no one has consistently been able to do this over the long term (at least no one I know of).

Today a very well known and highly respected Fund Manager from a good Fund Management Group (Blackrock) announced that he would be stepping down from his role as lead manager on the Blackrock UK Fund. Mark Lyttleton has run the fund since September 2001 and will hand over to Nick Little. Mark will continue to run the rather more successful Absolute Alpha Fund and the Dynamic Fund. His performance with the UK Fund has not been anything like as spectacular (well we can't all be good at everthing) but when it comes to investment returns, this means that by most measures the UK Fund underperformed its peers and indeed its benchmark of the FTSE AllShare, though admittedly this does depend on which set of data is considered. This move does tend to add some weight to my assertion that consistently outperforming the market is very difficult indeed, something that this AA rated Fund Manager has not achieved with this fund, and remember Mark Lyttleton is one of the better Fund Managers.

Work in Progress - Development of the Spotless Mind

2004: Eternal Sunshine - Gondry

Another day, another training session. Financial Planners have to complete a minimum of 30 hours of CPD (Continuous Professional Development) each year and from January will have to obtain a certificate of professional standing which evidences qualification and CPD. Fortunately this is not an arduous task for me as I am regularly improving my knowledge and attend numerous seminars and events that ideally help me to do an even better job. I think it best left that I simply overachieve the CPD requirements by a significant factor. Anyway, today I'm at events which explore the pension rules that are impacting many of our clients in Final Salary Pension Schemes and returning to the office via tucking into a little heavy economics at the IOD. This is of course all part of most professions these days, but when I do count my time spent going to what I consider to be helpful training events (often they are very good) this makes the 30 hour target look rather a dim and distant target. This is all valuable time that admittedly helps me do a better job (well most of the time) but is also rather costly in terms of not being available to clients, anyway my purpose in sharing is that a day in the life of.. is often about ongoing development, which is rather necessary in a world where economics, stockmarkets, law and taxation issues change on a frequent basis and another reason why conducting a review of your financial planning, is vital, even though it may feel rather familiar. However another reason for reviewing your planning is because things change, sometimes unexpectedly and sometimes because mistakes happen and need correction. Despite the continuous development and thorough training, I have yet to meet the perfect adviser or for that matter, the perfect client.

MPs pushing for More Pension Smoke and Mirrors

2011: The Sunset Limited - Lee Jones

Financial Planners remain unimpressed with moves to further restrict pensions. As I blogged on Monday, the Chancellor is being petitioned by various MPs to reduce the annual allowance from £50,000 to a lower sum both £30,000 and £45,000 have been mentioned.  Don't forget that the annual allowance was £255,000 and was reduced to £50,000 from April 6th 2011. So dramatic actions are now a precedent. The amount of tax saved in not providing tax relief, can be used to justify raising the personal allowance to £10,000. This is decidedly bad news for pensions as I outlined in my piece on Monday "Pensions and the Muppet Show". This is more of the same. However examined, this is not about saving tax, it is about appearing to do so. It is all to do with appearing to help lower income earners. The personal allowance has been raised, true - for everyone, true, but higher rate taxpayers have not benefited as the amount of earnings required before a 40% tax rate applies has been reduced. Anyone earning £100,000 or more can see their personal allowance completely removed and those with incomes over £150,000 pay 50% tax as it is.

What the politicians have not thought about is that Occupational Pension Schemes - in particular final salary schemes do not apply the actual amount contributed towards the pension as part of the annual allowance. Indeed the rather daft calculation involves working out how much the pension has increased, making an adjustment for inflation and then multiplying by a factor of 16 to calculate the element of the annual allowance used. This makes planning very difficult as most Final Salary Schemes are not geared up to provide the information in time for tax year end deadlines. Further messing around just makes things harder and ends up making additional work accounting for things rather than doing anything productive. I hope that George Osbourne will see sense and not introduce further restrictions on pensions. If he wants to make changes, my suggestion would be to scrap the lifetime allowance and restrict tax relief to 20% of all contributions, irrespective of earnings. This would at least make funding a pension a worthwhile exercise.

In the meantime, expect the media to be full of articles this weekend about ending higher rate relief or the annual allowance being reduced. Pension companies will be quick to point out that if you have money for investment, now is the time to act, use the allowance now before it gets removed (before 5th April 2012 presumably). Nothing quite like a fire sale and I've known this industry to create a few and invariably nothing changes. However, this time the current general antagonism towards those with large incomes despite the economic recession, is holding court with politicians who seem to be very concerned about appearances. 

Nest: Auto Enrolment - Defining the Worker



2006: Employee of the Month -Coolidge



Financial Planning has not yet seen the day when pension schemes are compulsory, but that day is surely closer as auto-enrolment outlines some of the hurdles that employers must jump. As an IFA, my role is to help both employers and employees to make best use of pension arrangements.

The new auto-enrolment pension rules come into effect at the end of October. There are three categories of employee that must be automatically enrolled into a pension scheme by their employer. I draw your attention to use of the word "must" - which means must. The first and easiest group to identify are those that are eligible, this means aged between 22 and State retirement age, working in the UK and earning more than £7,475 a  tax year. Note though that this sum will probably be revised (upwards) by the Government and is likely to be linked to national insurance levels or the personal allowance. The second category is what might be described as "keen savers" - employees that fall outside of the automatic criteria, earn between £5,035 and £7,475 but want to join the scheme and have a right to do so. Employers must make it easy for these people to opt in and must also contribute along the same lines. Finally a group that the Pensions Regulator call "Entitled Workers" who earn below £5,035 and don't qualify for auto-enrolment. The employer doesn't have to make payments and can offer a different pension scheme. Confused? well here's a diagram from the regulators website.

Thoughts - the limits will be revised annually, so in reality employers have to keep an eye of eligibility rules. The easiest solution is to simply make the scheme available to all under the same terms, this should prevent breaching any rules.

Inflation Falling Down to Two Percent

1993: Falling Down - Schumacher

Yesterday data about inflation, that is rather key to any forward-thinking financial planner, was published. This recorded the UK's rate of inflation in January 2012 at 3.60% (CPI) and 3.90% (RPI). These figures suggest that inflation is back under control, although frankly the maths behind the numbers would imply that inflationary figures were bound to reduce. Previously you may have read that a figure of 3% was mentioned for March 2012, well now the Governor  of the Bank of England (Mervin King) is suggesting that by the end of 2012 the figure will drop below 2%. This will come as a relief to consumers who have seen the prices that they pay for many items rise considerably, although I suspect that most of us never experience inflation quite in the same way the Government statistics suggest. Now I'm not sure what hacking rules apply to the Bank of England, but you can legitimately read the letter from Mr King to the Chancellor Mr Osbourne dated 13 February 2012. I think the Governor got a little carried away signing the letter. You can also see the Chancellor's response, in which he is a little more friendly and doesn't suffer from bigsignaturitis.

Honesty is the Only Policy Worth Having

1939: Panama Lady - Jack Hively

Financial Planning may involve providing sufficient financial protection for your family and perhaps your business, but it is a rare event when someone returns from the dead. You may remember the case of Mr and Mrs Darwin, who faked the death (lost at sea in his canoe) of Mr Darwin resulting in life assurance and pension policies providing his "widow" with funds of just over £500,000. The extent of the deception was such that it even included pretending that the death was genuine to their own children, which of course raises lots of questions.

The couple, who had begun to make a new life for themselves in Panama  (nothing quite like the cliche is there!) were eventually tracked down and their deception exposed. They were both convicted of fraud in 2008 and are currently forming part of the numbers residing at her Majesty's pleasure. The CPS have now announced that they have fully recovered all of the proceeds of the fraud and are due to return this to the pension and life assurance companies concerned. The numbers are of course one part of this story, the other is the costs - both to the legal system and the family and friends of those connected to the Darwins. A sad tale of very poor decisions. Of course, should either of them now want life assurance any application would be declined due to their track record.  This reminds me to remind clients, that when you complete an application form, you need to answer honestly. If you smoke, make sure you state this - even if you consider it a rare occurrence, this could be interpreted as a false statement and will make any future application somewhat difficult to secure. Amnesia is not a very compelling excuse.

Funds: Henderson Cleaning Up

2007: Code Name: The Cleaner - Mayfield

As an IFA or Financial Planner, one of my tasks is to assess funds and select them. Clients will appreciate that I have particular views on this subject. These can be found within the resources section of the main Solomon's IFA website in a document called "Our Approach to Investing". Anyway, today Henderson have informed advisers that following their takeover of Gartmore and New Star, they plan to merge a considerable number of their funds. Anyone with holdings will be written to in the not too distant future, starting at the end of this month. The funds under the spotlight of consideration are as follows. All funds would begin with the Henderson brand name, so please take that as a given.

Diversified Absolute Return Fund

Higher Income Fund

European Value Fund

US Opportunities Fund

UK Strategic Capital Unit Trust

Extra Monthly Income Bond Fund

High Yield Monthly Income Fund

Managed Distribution Fund

International Fund

Industries of the Future Fund

Global Care UK Income Fund

UK Strategic Income Unit Trust

European Smaller Companies Fund

Global Dividend Income Fund

The plan, assuming approved by investors and the regulator will be executed between May and the end of July this year. Like many Fund Management Groups, there has been a serious danger of having too many funds to look after well and investment, we all know that focus is everything. This, whilst probably not great news for some of the Henderson staff, is probably the right thing for investors and Henderson. Obviously for any client with holdings in any these funds, I will keep you posted.

Thanks for visiting the Blog

1961: 20,000 Eyes - Jack Leewood

Today the Solomons IFA blog has reached 20,000 page views, which is very encouraging. The information within the blog is meant to be helpful and also to provide a voice and opinion about aspects of financial planning life. I'm delighted with the progress being made. Whilst 20,000 is very small beer for many mainstream websites, for a small boutique firm of financial planners it is a pretty big deal, particularly as the views have doubled from 10,000 since 21st September - a little under 5 months ago. The blog began rather half-heartedly in June 2009 and in the first year I only managed 48 posts.It wasn't until August 2010 that I took up the challenge more seriously and now report that this is post 523. Thank you if you have been one of those that have checked out the blog. Let me know if there are topics you would like to be covered. I am always happy to put something on the blog that will hopefully be of benefit and interest to others. The more suggestions the better.

Final Straw for Final Salary Schemes?

2003: Lost in Translation - Coppola

OK, so my last post was about how pensions are being made increasingly less attractive as options for building financial security and independence. As a financial planner that seeks to utlise what is available, I have to admit to having something of a "moment" when I come across things that seem to be contrary to the best interests of anyone. No sooner had I published "Pensions and the Muppet Show" when a Gonzo  the Great cannonball-like email arrived in my inbox. This time suggesting that Defined Benefit (Final Salary) schemes are likely to become extinct due to Solvency II. This initiative, was (is) meant to primarily ensure that Banks don't lend too much money and that they keep bigger reserves. Most of us would probably think this is a sensible measure. However, it has been taken a step further reports William Robins of Citywire. The National Association of Pension Funds (NAPF), the CBI and the TUC have written to  Jose Manuel Barosso, President of the European Commission. Their letter signed by Joanne Segars (NAPF), Brendan Barber (TUC) and Katja Hall (CBI) makes it clear that new proposals (from Europe) will force final salary pension schemes to make even bigger contributions. This, all three organisations agree, will lead employers to divert money that was otherwise for investment in growth, job creation and R&D. In addition the way investments are made would alter to hold an even greater proportion of low risk, low return asset classes. In addition the need to switch investment (some €3trillion) would have an immediate catastrophic impact on the stability of European financial markets. The proposals as they stand will lead to the death of Final Salary schemes and perhaps the death of a few businesses as well, many of which on paper are effectively a pension scheme with a smaller business bolted on.

Final Salary schemes are without doubt the best type of pensions available. Leaving one or not joining one is invariably not a good idea (unless you are retiring). It seems rather daft that in essence Solvency II might end up just being a raising of the bar rather than any change in behaviour by Banks. One of the main problems with European legislation about pensions is that the UK is so much further ahead (developmentally) than most European nations and as a consequence, they simply do not appreciate the implications.

This stems from the 500 page EIOPA (European Insurance and Occupational Pensions Authority) report stating that employers need to hold pension qualifications and should also hold greater reserves for operational risk. At the moment European law is actually what counts here in Britain, we have to comply.

Pensions and The Muppet Show

2012: The Muppets - James Bobin

Financial planning done well means that a client will be financially independent and not reliant upon the State. This means setting aside income in a thoughtful way so that when earnings cease or reduce, there are sufficient funds to provide an ongoing sustainable resource.This often involves taking full advantage of inducements to save where appropriate.

Pensions have been a political football for many years. Rules about them have never been terribly well thought through, indeed some of them can only be described as idiotic. As pensions receive tax relief they are an attractive way to invest. However, the tax relief is the only attraction about them. The previous Government introduced us to pensions simplification, which frankly was anything but simple. The way pensions operate (largely) is becoming increasingly daft - investors are restricted on the amount that they can contribute, the amount of tax relief, the size of the fund and the amount they take out and the amount that can be passed on. The auto-enrolment regime will also provide another raft of rules. This is a mess.

From April 6th 2012 the lifetime allowance (the amount that can be held in pension funds without being subject to extra tax charges) will reduce from £1.8m to £1.5m. The amount that one can contribute has already been restricted to £50,000 and how contributions are calculated for final salary scheme members (those few that remain) are also made more awkward.

Enter Danny Alexander MP, interviewed in The Telegraph is attempting to propose restricting higher rate tax relief further still and seems keen to make it very difficult for anyone earning over £100,000 to receive tax relief. Many words come to mind, but wisdom is not one of them. This is the time when backbenchers will be making their petitions to the Chancellor ahead of his Budget in March. Whilst many (the majority of the population) do not earn £100,000 and few invest £50,000 a year towards pensions, many do pay higher rate tax. The sad reality is that for anyone earning over £80,000 a year, to maintain their standard of living in retirement considerable sums need to be saved.  Suppose they require an income of £40,000 - a pension fund of £1m will be required in all probability - which clearly needs a lot of money put into the pot plus growth to get there. Yes, I know that for some people a £40,000 a year pension is very nice thank you very much, but remember that this is about creating people that are not dependant upon the State so that State taxes can be used to fund our welfare system, economic structure and so on. The Welfare State should not be shaped by those green with envy (and no I'm not referring to Kermit). Hopefully a modicum of common sense will prevail and pensions will not lose higher rate relief unless other restrictions are lifted (contribution levels, lifetime allowance), otherwise there will be little incentive to save or use pensions, which is hardly the message to be sending out prior to introducing auto-enrolment. I know the Muppet movie was released here on Friday, but one begins to wonder if they might be running a different show, though if the real Muppets were running things, I'm sure it would be an awful lot more amusing and at least we would be smiling.

Something for the Weekend - Winning Awards

2011: The Artist - Hazanavicius

As you will be aware, it is award season and the BAFTAs are held on Sunday. As a financial planner based here in south London it will be interesting to see who picks up the awards which are perhaps a pointer towards the Oscars at the end of the month. Hopefully it won't be too cold for those seeking to have a chat with a movie star along the red carpet.

Investing in film is not for those unwilling to take investment risk. Rather like actors at award ceremonies, it doesn't always go as planned. However, unlike the awards, investing is not necessarily about winning - it is about getting the results you need from your portfolio to achieve other rather more interesting things - which is really what money is for. So whilst the prizes are handed out on Sunday night, remember that to become a winner at investing you don't have to beat everyone else, in fact you don't even compete. A good financial plan is designed to achieve the right results for you - the only ones that are actually important.

Critical Difference in Financial Protection

2011: The Good Doctor - Lance Daly

As Independent Financial Planners that protect our clients, it is important that there is a good understanding of the different types of financial protection. Those that cause the most confusion tend to be Income Protection (unhelpfully sometimes called Permanent Health Insurance - PHI) and Critical Illness Cover (CIC or sometimes called Serious Illness Cover).

In simple terms, Income Protection would provide you with a regular monthly income if you are unable to work due to a long-term or serious illness. It would pay this until you are better or you reach the policy end date (normally your retirement date) whichever is the soonest. It does not cover all of your income - as this might be a deterrent to attempting to return to work (perhaps the State system could learn from this). The benefits are paid directly to you personally if you took out the cover, if your employer did, then it pays the employer who then passes it on via payroll. Typically claims are due to back problems, long-term illness such as depression, ME and disability.

Critical Illness cover is completely different, it provides (generally) a one off lump sum of money. This can be used however you like. Some would use it to clear a mortgage or debts, thereby reducing financial pressure. It could be used for a variety of things - medical treatment, care, something you always wanted to do, providing income - whatever - it is up to you. The reason it pays out is because you have a serious illness - by which I mean something like cancer, heart attack or stroke. Life threatening.

The two types of cover might overlap - the thing about medics these days is that they are very good at their jobs and keep us alive, which is good surely... well of course, but being seriously ill and unable to work is not that great unless you have resources. This is where you either have insurance (as above) or you use your savings and investments to do the same job - we call this "self-insuring". The problem with financial protection insurance is simply that you need it most when you can least afford it. Sad reality. I have never met someone that wanted to claim against a policy when taking one out - but its there if they need the cover. Of course how much cover is needed is a different discussion and something that needs to be thought through. After all, what would you do if you were told your spouse has cancer and 6 months to live? you may want to reflect on life, your values, commitments and your work.  This is also where our advice is invaluable.

NEST: News from The Pensions Regulator

2009: Bureaucracy - Mark Perreault

As an independent financial planner based in Wimbledon (well only a mile away) I am working with a number of employers to ensure that they are ready and properly set up for auto-enrolment or NEST. This is in essence the Government's long overdue introduction of compulsory contributions towards a pension. Well, not quite - actually all it means is that you will be automatically enrolled unless you opt out. The contributions will eventually work the way to 3% from the employer and 5% from the employee. More can be contributed, but not less - unless you opt out. Many financial planners are not getting involved with this sort of work as it is fairly time consuming and not terribly profitable - but that's not really an issue for advisers that operate on a fee basis, which is  something we do at Solomon's - so there's no issue about ensuring you get the right and best pension arrangement for staff.

The Pensions Regulator has published some up to date information, quite a lot of pdf's to download and read - remember that this is a system that impacts every employer, even those with a single member of staff. Importantly as the work will be primarily conducted online and records of contributions need to be maintained properly (like PAYE)  this has implications for IT and virus software at every business in the land. So make sure you get some decent IT advice.

Figures and Ships that Pass in the Night

2006: Cargo - Clive Gordon

Financial Planning done well, takes a long-term perspective, however it is within the context of the short-term. I have now added the figures for what happened in January across global markets. As an Independent Financial Adviser it is important that we remain mindful of the current economic climate globally. In January the FTSE100 rose 2.1%, the largest gains were made in China and the Emerging Markets. The Baltic Dry index fell 60% in January which is an indication that demand for global shipping halved (and some) which of course eventually filters through to imports and exports, although clearly impacting differently across nations. The thing about huge cargo ships is that they take a very long time to turn and require an excellent captain.  We all witnessed what can happen when a Captain gets this wrong in January. However one of the other lessons that a cargo ship might also offer is that small adjustments along the way lead to successfully reaching the desired destination, much like a good financial plan, which should be regularly reviewed to ensure that it is on track and adjusted to correct the course, making allowances for "choppy conditions". Other than the Baltic Dry Index, the world markets had a pretty good January 2012.