10 Things The Olympics Teaches Investors - Part 2

1981: Chariots of Fire – Hudson

#4.Scaling New Heights

Whether you are a pole vaulter or doing the high dive, gravity is a much needed reality here on earth. The saying what goes up must come down, has nothing to do with investment. Markets rise and fall, but do not fall because they rise. Markets are nothing other than a collection of numbers based upon opinion about how much assets are worth today, tomorrow or perhaps some point further into the future.

#5.A Cool Head

The most successful sports people seem to have focus and a cool head (in their field). It doesn’t matter what your sport or discipline, this is a very common observation. The game or event is won in your mind. Financial planning is something that must begin in your mind as well as your bank account. A shift often needs to be made in relation to budgeting and spending wisely. Those that live as though tomorrow will never come only need to look at the problems of continual denial of reality in many European national financial statements. Sure, not everyone lives to retirement age, but most do. Not having resources when you are not able to earn is no laughing matter. Most people spend more on their mobile phone and internet connection than they invest into their own future.

#6.A Supportive Coach

How many athletes or sports people generally can you think of that do not have a coach? Indeed there is often a large team of people around them, providing a variety of vital support to help improve performance and bring out the best in an athlete. Don’t forget the supportive family at home too. Successful people do not “do it alone”. Success, as is perhaps best revealed in the cycling, is a team activity, each having a role to play. A financial planner is much like a coach, helping to provide clarity, focus, experience and encouragement all with the aim of helping you get the results you seek.

10 Things The Olympics Teaches Investors - Part 1

1981: Chariots of Fire – Hudson

I’m told that we all like lists, I’m not totally convinced, I suspect that sometimes research can be confused by popularity. Anyway, as it is Olympic season, I wondered if there is anything that investors can learn from the Games.

#1.Planning Is Everything

London 2012 was at least 7 years in the making, but given the preparations for the bid, which was originally won in June 2005, London 2012 did not simply “happen”. Successful investing involves planning for a Specific, Measurable, Achievable, Realistic, Timed (SMART) goal.

#2.Sensible Budgeting

We have all read about the legacy of a badly planned Olympic Games. The event itself becomes bigger than the point behind it. As it is the summer and as a father of two daughters, I am aware that is also the wedding season. The cost of a wedding can be many thousands of pounds. I don’t begrudge the celebration, (I love them) but one has to question the wisdom of spending vast sums of money on the first day of marriage but then failing to invest successfully into it from the second day onwards. All great financial planning makes provision for one off events, but should be based on a long-term perspective and built upon your personal values.

#3.Timing

World records may be smashed in London, the fastest man or woman over 100 metres (which starts on 4th August) is not the same as the one that wins the marathon. Financial planning is more like the marathon (5th and 12th August) than the 100metres. It is about staying the course, endurance, pace and gradually working towards the finish line. Great financial planning has nothing to do with trying to time when you play the game, but is all about how you play the game.

Responsible Consumer Education

1943: Stormy Weather – Stone

There is a little bit of a storm brewing over how RDR is being communicated. The regulator, the Financial Services Authority is being accused that to date, little has been done to inform the public about the sweeping changes that will be upon us all from January. In essence the FSA is calling time on the myth that most financial institutions, many advisers and a significant proportion of the UK population have believed – that financial advice is free. Now of course the truth is that nobody really believed this, but behaved as though they did. This is why and how commission became the way that advisers got paid (from the policy). However, forward thinking advisers, clients and financial institutions have been saying for years, that “the Emperor is not wearing any clothes” or to put it bluntly, there is no such thing as free financial advice.

Fay Goddard, head of the Personal Finance Society has a few choice words for the 2 page online leaflet that the FSA issued a few months ago, yet still appear to have communicated little else to the public. She is reported to have said, “It was an insult in the broadest sense in the way it was worded and didn’t recognise the journey many advisers have been on”.

I have to say that I’ve been talking about RDR (as much as I don’t wish to bother you with dull stuff) within this blog since September 2010 nearly 2 years ago. Clients had been advised before this and anyway, we have been effectively a commission free firm since we set up in 1999. I firmly believe that our clients “get it” and it is little more than a minor detail. However for many people, their advisers are struggling to figure out how or what to charge for their advice, which with a little over 5 months to go, does not bode well.

Indeed on the consumer information page of the FSA site, I cannot see anything about RDR today. It seems mainly to be about PPI and Banking. RDR is a massive change. It means that advisers will have to seek a fee from you. This is something that for many will be a sharp wake up call that they will simply not want, yet as far as I can tell, you would have to search for RDR on the site to even know it exists. To save you (the consumer) the bother here is the link that seems very badly promoted. Whilst it is true that there is “nothing” for consumers to do, it is not entirely accurate, as consumers will have to pay a fee. Colin Wilcox, from the regulator has responded to criticism saying that from August “we do have plans to ramp it up from next month and we’re hoping to get a bit more traction within the national media”. Another 2 page document would be a 100% increase.

Olympic Torch Signals The End Of Line For Many Advisers

2012: Consultation Paper 12/16

I spent the early morning in Kingston watching the flotilla and “The Gloriana” bearing the Olympic torch for tonight’s opening ceremony. The final leg of the journey to the opening ceremony is underway. Financial planners have been viewing the Olympics as a benchmark for the changes that are also being brought in from the end of this year. It will not be something that has much ceremony, but marks the end of the myth of free financial advice within the UK. I know that our clients never believed this myth and understood our approach to charge fees way back in 1999, well before Y2K and the Sydney Olympics in 2000.

The London 2012 bid was won back in 2005 when Tony Blair was still Prime Minister. It has involved 7 years of planning. A year later the regulator launched what we call RDR, so advisers have had 6 years to prepare. Like the G4S mess, I’m still somewhat shocked that for people that are meant to be planning finance for others, many adviser firms are not yet ready and will be unable to meet the 31st December 2012 deadline for “RDR”. Remember this is something that we have been ready for (bar a few tweaks) since our formation in 1999. Four Olympics will have come and gone in that time. I admit that it is no small task for commission based firms to change their business model, which for many involves completely changing the way they operate, but there has been ample time to get ready.

One of the obstacles that all adviser firms share is the rising cost of regulation which has risen dramatically. Regular readers of my blog will know that advisers have a very odd compensation system. Essentially bad advice is paid for (compensated) by the FSCS when a advisory firm collapses often because their professional indemnity insurance fails to pay up. Sadly there has been a lot of bad advice, mainly from the main Banks, but not entirely. This has involved selling products that were nothing like “what it said on the tin” (for which I have some sympathy for the advisers) but also some really bad advice too, which I simply fail to understand. The problem is that the rest of us have to pay into the collective bucket to cover this cost, which runs into many millions.

However, the regulator is reviewing how they (we as advisers) fund the FSCS. The Consultation Paper was published yesterday and by inference, input is requested. Some advisers believe that an additional product charge, like a form of insurance (yes insurance on insurance!) is the way forward. I’m not totally convinced by this. My main objection is the spiralling costs and the fact that good advice is effectively punished. To make matters worse, I believe that many firms are lumped together in a category of advice that doesn’t reflect how they work or what they do. Sadly some are suggesting that due to costs alone 30% of advisers will cease to exist within the next year. I think this is likely when combined with the other changes that start from January. So whilst I’m looking forward to the opening ceremony this evening, I’m mindful of the fact that my costs will be rising significantly, that our good advice is punished by the regulatory costs which are shared by a reducing number of firms. It also signals the end of good financial planning advice for most of the public who will simply find the process too expensive – something that we hope is not the same fate of London 2012.

As With Many New Year Resolution...

The Guernsey Literary Society

Resolution, the company that swallows life insurance companies for breakfast, lunch and dinner, announced last week that they would not be paying £250m back to shareholders. They describe the reason for this decision  due to the uncertainty over the capital requirements of one of its many subsidiaries (one of the few working  companies - Friends Life). Resolution are currently restructuring their UK life and asset related management sectors in what they call the "UK Life Project". You may have seen Resolution appear at the centre of a Channel Four Dispatches documentary, which attempted to suggest an unhealthy relationship with HMRC and Guernsey. Sadly the reporting was somewhat confused and left many unanswered questions. I also had sympathy for some of the HMRC Board whose faces were shown in a way that implied that they were also somehow "involved", which had that been me, I would have been rather livid at the inference. What disappoints though, is the sense that one gets when a Board member of Resolution said there was no tax reason for having the company based in Guernsey, well there may not be at the moment, but the only purpose of going offshore is to defer tax. For goodness sake just be honest about it. By the way, the wonderful Kate Winslet is due to star in a new Kenneth Branagh film based on the book "The Guernsey Literary Society and Potato Peel Pie Society" a bit of a title! The film is scheduled for next year in 2013.

Banks Should Make Fewer Promises

2010: A Screaming Man - Haroun

Banks, anyone have anything good to say about them? Nationwide customers had problems with their accounts being double debited, which is not exactly a helpful experience when many people will be enjoying the summer holiday, possibly unaware of the glitch that is playing havoc with their balances. I’m afraid that I have to admit to losing my temper with my own Bank. Like many banks it has “special” accounts although I cannot see the point of most of the additional services except for those relating to identity theft and fraud, which frankly ought to be the responsibility of the Bank not me. Anyway I lost my patience with them having failed to get even the vaguest of useful website access which kept looping around back onto itself, offering the hope of delivering useful information but failing miserably. So I gave up in order to try the telephone service. Considering that this is meant to be “exclusive” (yes, I’m not that naïve) after 5 or 6 minutes of waiting to speak to a human I gave up. Banks cannot even get the very basics of what they do right. Sadly all this really does Is alienate customers, which is a salutary reminder that having an IT system does not replace personal service.

Mind you, I'm fairly sure that some people do get a great service from their Bank. Take Jerry de Missier, the former Chief Operating Officer at Barclays, who is reported to have been able to withdraw £8.75million in cash. He is accused of being one of those involved with the LIBOR rate rigging scandal that seems to engulf more Banks by the day. We all know that there is no such thing as "free banking" but it seems that Adair Turner the current Chairman of the FSA, thinks everyone should pay for current accounts. He is one of the people in the running to become the next Governor of the Bank of England. Meanwhile European shares are on the rise because the European Central Bank or rather Mario Draghi has promised "to do whatever it takes" to support the Euro. Whilst to some this provides much needed confidence, I remain very dubious about anyone that makes such a statement, which smacks of desperation and gives the appearance of having bottomless pockets, which is of course utter nonsense. I would prefer Europeans to restrict their flamboyance to their design and creation of wonderful cars, clothing, food and wine. Perhaps the sudden hot weather in London has gone to my head, but are Banks really this bad?

Another Bumper Apple Harvest

1967: Thee Bites of the Apple

As Apple seem to be the benchmark in technological coolness, it seems appropriate to keep you posted on their financial numbers too. Yesterday they announced the Q3 results (only Apple could make 30 June mean third quarter). This revealed $35bn revenue for the quarter and a net profit of $8.8bn, which by my maths is a 25% net profit margin. These numbers are an increase on the same period last year.

All those gadgets that we are buying – amounted to 26 million iPhones (up 28%) and 17 million iPads (up 84%). Apple’s original product – the Mac, well they only sold 1 million desktop macs and 3 million portables, an increase of just 2%. Read into that what you will, but my suspicion is that the portable device market is the clear, big winner for Apple. However, this is a market with increasing competition and of course impact of the death of Steve Jobs on the direction and innovation of the company remains to be seen. If you have Quicktime, you can see the presentation here. The lion share of the revenue is derived from the US and Europe. It should also be noted that nearly half of the total revenue was derived from iTunes – some $16.2m.

Doctor, Doctor...I Feel Like the BMA Aren't Listening

1939: The Return of Doctor X

There is more woe for doctors that are members of the BMA. The union organisation had a huge amount of support from its membership who voted overwhelmingly in favour of industrial action due to reforms of the NHS pension scheme. However, the BMA seem to have backed down and decided not to take any action. There are a considerable number of doctors who are now fairly fed up that not only did the BMA get a decisive "yes" in their online vote, but this was also approved at its Annual Representative Meeting. So many doctors are feeling as though they are not being listened to by either the BMA or the Government.

The NHS Pension Scheme is a really good final salary scheme, but it has undergone some serious changes, which mainly result in  increased costs for its members, particularly Consultants. There are many of us that are envious of having a scheme like the NHS, but changes to employment terms and conditions is no small matter and many Consultants are paying well over 10% of their income towards the NHS Pension scheme and many are paying 50% tax and some will even get additional tax charges for remaining in the pension, despite this being in their interests to do so. Advice to leave the NHS Pension scheme should be considered very carefully indeed.

A Great Long Term Commitment To Clients

1985: Out of Africa - Pollack

I'm in the process of trying to design a new brochure for potential new clients. We shall also be upgrading the website and blog. Most clients will appreciate that we have improved our look, feel and functionality considerably over the years and hopefully the effort we put into our material is understood. Anyway, I'm doing lots of thinking about how we explain why we are different and why we have clients at the centre of what we do (and not simply pay lip service to the idea). However, my experience is that great financial planning has to be experienced rather than discussed or watched. There is always a question of whether or not "marketing" works for small firms. In reality most of our new clients come from existing clients who act as great advocates for us. Of course our service isn't right for everyone and I can only work with certain people with specific needs. As our service is deliberately exclusive, it is important that we attract people that  want to know the truth about proper lifestyle financial planning and not simply want a financial product to be sorted out. We are seeking to build long-term relationships with our clients on a win-win basis. As you probably know, we work with entrepreneurs, business owners, professional partners, people in the media and performing arts and medical Consultants.

As I went searching for ideas, I came across an amusing little advert by Allan Gray, a South African investment company. They have several adverts which I think convey a sense of what I am trying to communicate. I would welcome your thoughts and input into my deliberations. The advert below was made in 2007.

Spinning The Records - The Truth About GDP

1939: Tail Spin – Roy Del Ruth

There is further bad news for the Government, which will note the growing criticism that current actions to stimulate the economy do not appear to be working. The ONS data reveals that the UK economy contracted by 0.7% in the second quarter of 2012. This is of course only an estimate, but means that the main way we measure the growth of the UK economy has shrunk for a third successive quarter. This is obviously unwelcome news. However, once again I would like to remind you of how politicians from all sides and our rather lazy media will report this.

Total seasonally adjusted GDP for the UK has data collected since 1948. Then it stood at £276,458m and last year reached £1,437,909m. A big number I’m sure you will agree. Remember that GDP naturally rises due to inflation (or should do). If I were to reveal that GDP reached its highest point in 2007 before the credit crunch, this may help provide a fuller picture.

We don’t know yet how 2012 will end, but if things remain as they I estimate a figure of £1,428,328, which would be better than 2010 and 2009 but not quite as good as last year £1,437,909. This would represent a decline in GDP by 0.66% against last year. I would remind you, not that you need it, that the crisis in Europe and world economies is probably the most serious in living memory. For the record, the top ten largest actual quarterly falls in GDP were as follows:

1958 Q2 -2.5%

1974 Q1 -2.4%

1979 Q3 -2.3%

2008 Q4 -2.1%

1980 Q2 -1.8%

2008 Q3 -1.8%

1975 Q2 -1.6%

2009 Q1 -1.5%

1975 Q4 -1.2%

The latest figures are the 22nd worst out of a possible 230 recorded. Negative or no growth is recorded in 51 of the 230 quarters. That’s about 22% of occasions. Growth under 1% is recorded in 101 quarters (44% of the time) and growth of 1% or more is recorded on 78 quarters 34% of the time. You may be interested to also know that there has been only one incident of quarterly growth of 2% or more in the last 33 years (since 1979), which was in Q3 of 1987 when 2.4% was recorded.

Whilst the media may talk of this as the worst economic data since the wheel, five successive negative quarterly periods were “achieved” from 1990 Q3- 1991 Q3 and again from 2008 Q2- 2009 Q2. The latest media feeding frenzy that this is news of a third consecutive negative quarter also occurred in 1973 Q3-1974 Q1 and 1980 Q1-Q3, and only just avoided 1974-1975. The uncomfortable truth is that we have not really recovered from the credit crunch, which anyone with a pulse knows. Certainly things are not good economically, but the way information is presented is not exactly helpful. Of course a reality check will not prevent the markets from behaving foolishly, but frankly in the short-term that is pretty much all we expect anyway. The wise proceed with caution.

Journalism That Scares Pensioners

1976: All The President's Men

Sometimes I really do wonder about the level of “financial journalism” which seems largely to simply frighten people and create an environment where people are simply too worried about doing the wrong thing that they end up doing nothing. The Daily Mail website, which calls itself the financial website of the year (though precisely why, how many were even considered and who presented this award is anyone’s guess). I also know that as a source it is unlikely to rank very highly, and is only like to provoke anger, but I’m told a lot of people do actually read the Daily Mail.

Anyway, on Wednesday they published a story about a couple who took out a whole of life policy with Providence Capitol in 1994. They recently had a policy review and the Insurer wanted to increase their £50 monthly payment for cover of £18,429 to £92.77 or the cover would be reduced to £9,800 which they were shocked to see. They state that the adviser didn’t tell them that the premium could rise, or would be reviewed.

I have some sympathy, if it is true that they were not told that the increase could happen that is disappointing. However they are attempting to remember a conversation from 1994 and frankly I doubt that they can. In any event the policy document will also state what the policy does, not to mention that they would have had a review of the premium before now (these sorts of whole of life policies are reviewed every 10 or 5 years). However the “journalist” who is now warning 4.5million policyholders of the same fate is as badly advised as Mr and Mrs Spratt.

Financial planning needs reviewing. Making a decision about how much life assurance you wanted in 1994 and not reviewing it is plainly daft – sorry to be so blunt. In addition, the cost of cover has fallen dramatically over the years, so reviewing may save money. In addition, there are lots of types of life assurance policy and a good adviser will outline which is the most appropriate. I would question why someone aged 70 even needs life assurance anyhow, unless it is for a possible inheritance tax bill, in which case a joint-life second death whole of life policy can be ideal (in the right circumstances).

However, I do have sympathy for the lack of clarity. I helped many people get out of these policies many years ago. Many of the “advisers” correctly said that the policies could be adjusted between an investment element and life assurance element, to take account of a family’s needs. This is true but misleading, though frankly I doubt that they knew this themselves. The amount of investment is minimal and is really only there to avoid the need to increase premiums in the future. There are only really two premium options – minimum (pay the least amount for the maximum cover, but the premiums will be reviewed and highly likely to rise). This can be a very good option, if there is a reasonable chance that you don’t want the cover for ever, but want a flexible policy, so that cover can be adapted. Alternatively you pay a standard premium schedule, which relies upon investment growth, but if achieved should mean that premiums are maintained at the same level. It’s a risk, it is also much more expensive (perhaps ten times as much). So, given the options, most would take the risk of something cheap and flexible that they need now, but perhaps the need for cover in 10 years time is reduced anyway (an ageing family and reducing liability). Certainly if this was arranged as though it were a savings plan, it is a very poor way to save money indeed. Sadly because these policies paid higher commissions, I suspect that many “advisers” did not really consider alternatives properly. I should add that we have always removed commission from protection policies (which reduces the premiums).

However, surely there is a limit to how long an Insurance company or adviser can be held responsible for something that was done 18 years ago. It is not as though the couple had not had the opportunity to think, read and ask questions and more importantly decide whether the cover was still necessary. Indeed the regulator now makes it part of its Treating Customers Fairly mandate that people should not have restrictions on changing things fairly easily. This is relatively new, but it is operational today. We learn from our mistakes and progress is made on the back of them.

What really annoys me though is the sensationalist journalism. Illustrations are illustrations they are not predictions. Anyone that has an illustration can see that there will be at least two possible outcomes showing different rates of growth. The purpose of this is to show the impact of different returns (which are clearly not guaranteed). I’m sure that like me you don’t possess a crystal ball that will tell you what returns will be achieved over the next 20 years, or frankly over the next 20 seconds. It is amazing to me that journalists are not regulated as if ever there was a case for misinformation, it is when advice is taken out of context, by which in this instance I mean the circumstances that Mr & Mrs Spratt were in during 1994 and the available financial products, markets and regulation available at the time. So please, can we have some responsible journalism, that has the possibility to make society better? The world has moved on enormously which is why IT IS IMPORTANT TO REVIEW YOUR PLANNING.

Pru - Could Do Better

2008: Witless Protection - Carner

I’m wondering how you might react to something that occurred on Wednesday morning. We recently sent an application to Prudential following advice to implement some cover for a client. Now admittedly we do not do lots of protection business with any company, let alone Prudential, but this time they “won” the business (by having the best value for money quote). Anyhow, I was informed by my team today that they (the team) are struggling to retain their composure. Why? Well the business was originally sent at the end of May (once we received the application from our client) unfortunately it didn’t arrive with Prudential, despite the fact that we sent it to the correct address. Our own internal checks identified this problem.

We then sent our scan of the original application (we always make copies) to Prudential, who could not handle email attachments after numerous attempts. So after eventually getting through their call system, we were asked to send it by fax, which we did on the same day 2 weeks ago. We have now been told that because we don’t submit much business to them (none in the last 6 months) they had removed us from their records. As a result the application has not been processed and they require us to sign a form (which they have now emailed – funny how they can send but not receive). Obviously we don’t want to restart the process, though it is tempting. Their form is two pages and essentially asks us how we want commission paid and who we are and what sort of business we do. Let me remind you that we remove commission from protection products (we always have) and they have all these details already, we have been running since 1999. Having explained this, they still want our bank account details and indeed proof of my identity and of the business bank account. Eh? we are a firm of financial planners, we can be found on the FSA website. How much effort and thinking do these bureaucrats put in? I am also left wondering why I even bother to put a section on my website called "Industry" which explains in terms that providers understand what we do. This is from a company that says that they offer innovation and service excellence (advert in Financial Adviser 12 July 2012. However perhaps this explains why roughly every 6 months I get an email from someone at Prudential telling me that they are my new “Account Manager” (and it’s always someone new and we update our records). I’m sorry, but this is not good enough. This is 2012 for goodness sake.

M&S Offers Tempting Alternative Bank

1994: Shopping - Anderson

The Banks continue to come under the microscope. HSBC had a rather awkward week, with a time in the proverbial frying pan after failing to prevent significant Money Laundering. This was followed by the exit of David Bagley the head of Global Compliance at HSBC who resigned. The CEO of HSBC Stuart Gulliver apologised to the US Senate, following the revelation that HSBC had allowed drug money to be laundered though its accounts. HSBC has done a Mexican waive..not the type that we will see in the Olympic stadium shortly, its just Visa (the credit card, not the visa that you won't get if you get stuck in passport control strikes and Lloyds  [hey don't we all own that and get entitled to corporate tickets?]  that are the banking sponsors) Sadly a small firm like ours cannot get away with an apology, we have to follow protocols laid down by the regulators and EU to ensure that proper identity and residential checks are done on clients as well as the source of their funds. If we mess this up, then the consequences for me is far more significant which does little to quell suggestions that Banks are favoured over IFAs by regulators.

Another Bank that has been in the news is RBS due to its system failure. One of its subsidiaries Ulster Bank had prolonged problems with customers unable to access funds from their accounts. They now seem to have largely corrected problems saying that 99% of its 1.9m customers’ balances are now up-to-date.

The failure of a bank system like this is a real problem and it may be worth considering an alternative. Marks & Spencer have also revealed their new current account which will be available in October. It will have a monthly fee of £15 or £20 if you want travel insurance as well. It is designed for M&S shoppers rather than the general public. The account will provide access to a savings account that pays 6% along with a £10 birthday gift, two £20 store vouchers, a 20% discount per month for the first year on clothes and homeware. There’s also an M&S point for every £1 spend on the debit card (much better than a credit card – unless you clear the monthly balance). They are also throwing in four “Treats and Delights” worth £45 and a further 48 M&S café hot drinks vouchers worth £127. So if you are an M&S shopper, this looks like a pretty good option.

How Deep Is The Rabbit Hole?



1999: The Insider - Mann

As with many things in life, sometimes you simply don't know who or what to believe. It seems that the IMF are under the spotlight for some criticism (normally they dish it out). Peter Doyle who left the IMF sent them a fairly scathing letter about their leadership and oversight, suggesting that he was even ashamed to have worked for the organisation. It is not unusual for an economist to disagree or frankly be wrong far more often than they are right, but his criticism of the IMF is something of a revelation about the organisation. It was CNN that "broke" the story which the BBC picked up. Mr Doyle, is fairly forthright in his opinion about the lack of direction and implies a significant degree of blame at the door of the IMF for the deepening crisis in Europe. If this were not so deeply concerning and real, it would make a thrilling plot line for a film.

Whilst these are very unusual times, we still believe that diversified portfolios with a long-term outlook remain the best proven strategy for successful long-term investing.

Mortgage Comparison Tool

2009: Which Way Home - Cammisa

Which? Money has launched an interactive mortgage tool. They claim that this covers the whole of the market, which by my definition means every possible mortgage available. I’m not entirely convinced, but it is certainly a good place to start your research once you have spoken to your existing lender.

 

Frankly my advice is to speak to a mortgage broker and I do know a good one that I can refer you to (we don't arrange mortgages). You can spend hours doing your own research only to find that the lender doesn’t really deal with people like you because of something about your income, credit history or the property. If you are happy spending your time doing this sort of thing, then fine, but for those that want to spend their time enjoying life or otherwise working on your life, then a mortgage broker can be a very worthwhile investment. Which? freely admit in their FAQs that their results may differ from those of a mortgage broker as “they will reflect things like availability and affordability in their advice”- which is surely the point of a mortgage search to my mind. However, this is a helpful tool.

Business Owners - NEST news

2011: Nesting - Chuldenko

Pension planning is complicated and despite good intentions, this remains the case. The Coalition Government have delayed the review of the State Pension and this week have announced yet even more changes to NEST which alters the staging or more accurately, implementation dates. As you may imagine this is often about the detail and meaning of words, something that I discussed on Wednesday.

It seems that greater clarity was required to define employers and organisations by the size of their PAYE scheme. It was possible under the previous definition that existing pensioners could be captured by the original definition (not the intention). In addition, the “full time equivalent provision” is also being dropped and allows small employers who share a PAYE scheme with a larger firm to move their staging date.

The alterations mean that there will be an increased number of smaller firms who will have their staging date pushed back as a consequence. If this is all Greek to you, don’t worry. Forward thinking employers are getting on with implementing decent pension arrangements for staff. I suggest you keep things simple. As the end result will be a pension that forms part of the employee package, make it attractive and get on with setting something up that enables you as the employer to rewards staff and provide further reason to be loyal. For more information about auto-enrolment and NEST have a look at the Pensions Regulator site.

Please be aware that auto-enrolment is likely to be the biggest shake up for your pension planning in memory. Despite assurances, it has all sorts of problems with administration, which will be a very laboured task for most small firms. that lack an HR department. I was at an all-day training event yesterday to get the latest on this, frankly I don't think many advisers will want to get involved. The knock-on impact is significant.

Financial Advisers Double Your Wealth? Wrong.

2001: Lord Of The Rings- Jackson

I was amused to read a piece in my trade press that was based on a survey of 2,000 adults (readers of my blog will be familiar with my views about surveys). Anyway the research for Unbiased and Standard Life suggests that people that sought independent advice were better off – by over twice as much. This is the great beauty of a headline of course – using an IFA will make you double your money. Well you may be surprised to learn that I don’t agree. Hang on, I’m an IFA (though I call myself a financial planner these days), yes I am. However will using me make you twice as well off? I’d really like to think so, but its nonsense, life is not that simple is it.

Its nonsense, because how much you save and therefore the size of your pension pot (or whatever it is) is not a way to assess a financial planner. All my clients take their financial planning more seriously than the average person – of course they do, because they pay me for the advice. Most people are still living in a fairytale where financial advice is free or costs next to nothing (for which I include Mr Miliband and his really very dreadful set of “advisers”). By definition, my clients are more pro-active, thoughtful and able to see the wood for the trees. They know that maths is maths and financial planning is not wizardry, I am not Gandalf the Great. Inevitably, these “smarter” people have more money or certainly are better at not spending all of it. It is no wonder therefore that they have larger funds and thus more income.

Great financial planning is not about the size of your funds or even how well they perform. It is about making sure that you have enough money to provide the lifestyle that you want – and not run out. It is about thinking and planning carefully for the future, but also ensuring that life today is not ignored. It may be that with great financial planning, you are no “better off” at all than average Jo, but then again, you could be tenfold, or a hundredfold “better off”. It is about the process of planning and getting there. Engaging a great financial planner should make a massive difference, not just “twice as much”. A massive difference – because you will know what you need and what you need to do. There are only three types of people when it comes to financial planning. Those that don’t have enough, those that do and finally, those that do but don’t know they do. Great financial planning is about M-A-K-I-N-G-I-T-C-L-E-A-R.

What Can Surgeons Teach IFAs?

1944: The Tree Surgeon - Gordon

You may be aware that, whilst I work with many people from different walks of life, I have advised Consultant Doctors for over 20 years. I was interested to read an article that outlined the problems that surgeons are currently having which resonate with independent financial advisers. It seems that surgeons are also in a bit of a battle to protect the use of a word that describes what they do. A surgeon is someone that has a medical Degree and has undergone postgraduate surgical training. Yet there are a variety of people that also use the term “surgeon” such as a podiatrist surgeon, who is unlikely to hold a medical Degree, but may have spent 12 years training in the surgical and no-surgical treatment of the foot.

What I had not realised was that at the moment, anyone can call themselves a surgeon but are not able to portray themselves as a registered medical practitioner. There was I worrying about how the term independent has been abused and from 2013 will be further confused. I have a great deal of sympathy for medical surgeons on this matter, but probably the ability to use a title to describe a skill is best clearly defined, with room for the term to be applied to other disciplines too, only a fool would want open heart surgery from a tree surgeon. In January financial advisers will be either independent or restricted. Sadly a Bank adviser can be a restricted adviser in the same way that a really good financial planner that does not arrange or advise on “unregulated collective investment schemes” will also be a restricted adviser, yet there is a huge difference between the two.

The power of words and their usage is always important, but as one very sensible commentator wrote, “This all demonstrates the importance of ‘language’ - and the correct use of words; so that people can understand one another, knowing what specific words actually mean. Sadly today, our press and politicians seem adopt the Humpty Dumpty attitude towards words: “When I use a word, it means what I chose it to mean”! But then are they in the business of portraying clarity or confusion?”

The law (and regulator) needs to be very clear about definitions and sadly this is not the case at present for either financial planners or surgeons. It also needs to be remembered that there are some that will always seek to exploit vagueness in terminology. An independent licensed credit broker, is able to offer loans and mortgages, but it does not mean that they are independent and able to offer mortgages from the entire (or whole) market. As ever, caveat emptor – even when you are going for surgery. For the record, from 2013 my firm will remain Independent.

 

More Pain For Doctors - Breaking Trust

1963: Doctor in Distress - Thomas

As you may have gathered, I advise quite a number of medical professionals. I came across a concerning piece of news that was published in “Hospital Doctor” today. It seems that your pay is under threat from cash stretched hospital Trusts. The report suggests that this is being considered in some Surrey hospitals with potentially renegotiated terms for those earning over £55,000 – which is pretty much all senior doctors. The “cards on the table” negotiations also include changes to overtime, weekends and Bank Holidays as well as reductions in sick pay and annual leave entitlement. It would appear that the NHS continues to be a political punch bag and clearly there is increased concern about good Trust management following the first NHS Trust to be placed into administration (last week South London Healthcare Trust which is the old Princess Royal Orpington, Queen Mary’s Sidcup and Queen Elizabeth in Woolwich). It seems that having a Royal title will not save hospitals, who seem to be facing the equivalent prospect of the guillotine.

The Pay Review bodies are due to report to the Government this week on the impact of introducing regional pay rates after the public sector pay freeze, which is due to end in April. It needs to be said, that Doctors and Consultants in particular have been hit very hard by cuts and tax increases over the last three years. I imagine that many of you will be feeling rather “frustrated” at yet further meddling with a system that seems to have less to do with providing high quality medical care and more to do with budget manipulation by whoever is in office.

Slippery Big Fish

2002: Whale Rider - Caro

It is always a “bit concerning”, when those paid to look after money get their maths badly wrong. However it seems that JP Morgan has taken this to a new level. They announced that their losses were double the amount previously stated. We aren’t talking small sums or the odd decimal point, but £2.8bn.

The "London Whale" (not the Olympic stadium) was a JP Morgan trader called Bruno Iksil who had got his positions significantly wrong. He was trading in the more “awkward end” of financial products – credit default swaps. However it appears that other traders were also concealing the scale of their own losses as well. As a result, just 45 minutes before releasing the Q2 results, the Q1 statement has been revised or “restated” in their language (which seems like spin if ever there was to me). Now frankly, I don’t see much difference between this and fixing Libor, the issue is one of deceit. At a corporate level, there appears to be a complete lack of robust systems and controls that are worthwhile. I know that many traders are very clever people and under the wrong pressure may seek out loopholes or weaknesses in the system. This begs the important question, why is it so difficult to be honest in some of these large investment banks, where the premise is that markets rise and fall, they are in the business of risk and surely know that all decisions cannot be right. I suggest that they re-read their own business principles document and apply them.

It may not surprise you to learn that it doesn’t matter to me how “great” a fund or product is that is marketed by organisations such as these. I will not be deliberately exposing clients to the investment “expertise” of organisations where there is continued suspicion about behaviour and the integrity of vital numbers, and yes I don’t really care how many “ring fences” are in place, it isn’t on.

The Robin Hood Banker?

1991: Robin Hood Prince of Thieves

Whilst some investment bankers may get away with what often looks and smells like theft, one commercial manager at a local HSBC branch in Norwich was recently sent to prison for two years for theft and false accounting. It seems that he moved money from healthy business accounts to help businesses that were struggling with repayments on loans that he had agreed. It is also reported that he also siphoned off some of the money to fund some relatively minor expenses. He pleaded guilty at Norwich Crown Court to theft and false accounting over a 7-year period from 2004-2011. He falsified customer bank statements to cover his tracks. He admitted that he moved money to disguise bad loan decisions that he had made to failing clients. The Court learned that he benefitted by more than £45,000 personally, but the HSBC losses were closer to £200,000.

This is an unusual case, one where it appears that the theft was mainly used to help ailing businesses. One might ask why? I would suggest that this may have something to do with internal commercial targets set by the Bank, which presumably includes an element of “negative scoring” for loans that default. To my mind, this is probably the root cause of the crime, which is based upon a culture of sales targets rather than good lending or indeed good banking. It would be wrong to single out HSBC here, as a similar problem is faced by most bank staff. It is also concerning that it took so long for the Bank to identify the problem and indeed several businesses from whom he stole, failed to identify the theft at an early stage. This is more evidence of the need to check your bank statements very carefully. I have to admit to being somewhat perplexed by the time it took to notice this crime, one would have liked to have thought that an Accountant or business owner would have been able to spot a glaring hole in their business account. As a footnote he asked for a further 46 other offences of false accounting to be taken into consideration.

Transparency is a key issue in financial services, as is trust. This is something that I have spent years attempting to provide.

Feeling Horse Whipped?

1926: The Great K&A Train Robbery

Banks have been taking a hammering of late in the press. Co-Operative look set to swoop in on the fire sale of 630 or so branches of Lloyds TSB (who don’t forget also have Halifax and C&G branches). This will obviously increase the presence of the Co-Op, who will, if successful, control around 10% of UK branches, which will almost triple its current share of the high street. The sale was originally priced at £1.5bn, but it is widely reported that this will be significantly discounted. Remember that Lloyds are still heavily owned (40%) by the UK taxpayer. Personally, I would imagine that Lloyds would welcome being forced to get rid of branches, they are invariably expensive cost centres and with the advancement of online banking, it is hard to justify why (beyond local community reasons) they are maintained. The banking system is undergoing the equivalent revolution that the steam railway faced. You may have seen the Lloyds "for the journey" high speed train adverts, perhaps not an intended link - the internet is certainly the future of banking, which  is admittedly about user experience, but not exactly about the journey. To add a little fuel to the fire, the Office of Fair Trading has begun another review of the market, this time with emphasis on current accounts. The last OFT review was in 2008, which was mainly concerned about overdraft charges. I couldn't resist using the image of this film poster despite it not being a black horse.

The Labour leader, Ed Miliband has been complaining about the charges on pensions. I’m not sure where he has been getting his information, but the sort of charges that he is citing (5%)are for old style pensions and he may have forgotten that whilst charges are an important element of building a pension fund, they are by no means the most vital part. The ABI and many advisers are rather cross. Stakeholder pensions, with charges capped at 1% were introduced by the Labour Government and have been a complete disaster in terms of the number of people using them. Sadly, it is hard to get the majority of people to plan for their futures and however cheap the pension, does not lead to improvement in the numbers doing so.

I don’t have too much of a problem with his basic gripe, though his information does seem very out of date. Anyone that has a more modern pension will have far lower charges than he is suggesting, and frankly it seems a little bit like posturing rather than offering solutions. Successive Governments have made a complete mess of pension legislation, which has become more complex and more restrictive. The Coalition have delayed the review of the State Pension, which could get kicked into the long grass for some time. Sadly, these matters are important and reliance on politicians to sort the system out is about as good an idea as a chocolate teapot. One thing he is right about though is, “A lot of people are going to say, when they retire, I had no idea what was coming my way”. This is why financial planning is important, coupled with financial education (to reveal the future with the chance to change it if you don’t like how it looks). Taking responsibility is the first step towards planning for your retirement, finding a good financial planner to help figure out what you need to support your lifestyle and offering different ways of achieving this is what we do for our clients.