Spare A Thought? Referring The Right People

1948: Speed to Spare - Berke

One of the advantages of the internet is that some tasks are made considerably easier. My dishwasher seems to demand salt on a fairly regular basis and I imagine that this is the reason for the speed at which some of the moving parts had decided that enough was enough. A quick check about my model number and an online search took me to several sites for spare parts. I am happy to report that the washing machine now works as it should and the service, as brief as it was, worked well. However a disadvantage of technology and a society obsessed for "feedback" has meant that I receive a regular stream of emails asking me how things went. As I tend to have enough to do in the course of a working day, I haven't got around to responding. However, the latest email suggests that if I recommend eSpares to friends, I will get £5 off my next purchase. I'm sure this is well intended, but I am hoping that I'm not going to need that many spare parts for my dishwasher in the near future and frankly when I next do, I'm almost certain to find that they are out of date or I've lost the code.

This got me thinking, what is a good way to get clients to refer me. Frankly I don't know the answer to that question. I occasionally remember to ask clients if they wouldn't mind writing a line or two explaining how they have benefited from using me or why they do. This can be found on the testimonial section of the website. I don't edit these, hence a few typo's. Beyond this, I ask clients if they have benefited and when they become aware of someone that they think may "fit" perhaps I may be able to help them too. If I'm honest, I find this rather awkward and whilst I've had many advise me not to be so daft / shy stating that if I'm doing something that people find to be of genuine benefit, why wouldn't they want to recommend me? The thing is that people need reminding. I'm not so sure. Financial planning is a bit of a taboo subject and many people struggle with their relationship with money, its often only at a moment of crisis that people talk or after an event - the market crashing. Financial planning can be liberating and something of an epiphany moment when done properly. However, sometimes it isn't always good news, which of course is often what is suspected, hence the natural inclination to avoid facing uncomfortable truths.

So if you have any bright ideas about how I might help more people I'd be interested to hear from you. Providing an incentive is always an option, though it does lead to more questions about motivation. For example, if you go to eSpares and use this code: LXY0XW3E I will get a £5 voucher for my next purchase from them... something in it for me, but really, am I likely to use the voucher?

FSA: RDR Consumer Guidance Commission Ends

1968: The High Commissioner - Thomas

The FSA has today updated its information to the general public about the Retail Distribution Review (RDR).  This can be found within the FSA website. This is meant to explain the changes that will effect all UK investors from January 2013.

The 6 page pdf booklet is brief and frankly I'm left wondering how on earth something that appears to be so simple has cost the financial services industry millions to adapt and prepare for. In short, we have reverted back to a "not quite" polarised industry - with "restricted" advisers and "independent" advisers. The definitions of each are still far from clear. I would also argue that the issue of how advice is paid for has been really poorly handled, though this is in part due to the vast number of computer systems with different approaches to the same fundamental problems. My stance has always been to be clear about the charges that we apply and to have these on a fee basis, so that they can be agreed and are not open to manipulation by advisers or product providers. Sadly I do not believe that this document conveys the issues well enough, rather "downplaying" the significance. Most people will not be able to afford financial planning because this process was started too late and made the fundamental mistake of banning commission. This is not an issue for our clients, but it is for millions of people who have been under the impression that their adviser works for free and occassionally collects a bit of commission. The FSA are aware of this problem, hence the links to the Money Advice Service, which indicates the advent of the online DIY approach that most will believe to be the only option...after all we can't trust the banks can we?

Clegg's "Emergency Wealth Tax"

2010: Fair Game - Liman

The media is full of stories that Nick Clegg is about to suggest an emergency wealth tax. The proposals seem to focus on taxing wealth rather than income. He will be outlining his thoughts next month at the LibDem annual conference (not that urgent then!). It is difficult to remain even handed when politicians come out with headline grabbing statements. Mr Clegg, as we all know has somewhat lost the shine that surrounded him during the last election, though quite how fair an assessment this really is remains to be seen. I have to admit that I tend to be pretty sceptical of most politicians, but in particular the three party leaders. All of whom purport to have "family values" yet applied for jobs whilst they have young families that would certainly require longer working hours than most of us would contemplate, removing the ego from a career is not an easy task, in politics it appears particularly difficult.

Returning to the issue at hand, a fair tax system is relative to what you believe "fair" to be. One could take the view that fair, would be everyone having the same and therefore paying the same tax, or simply a fixed sum. Alternatively fair might be paying the same proportion of income as tax (rather than the multitude of different rates of tax on different forms of income). As I have said before, there is needless complexity in the UK tax system. As a financial planner I am duty bound to help reduce tax payments, which we accept is not the same as "tax dodging", because deep within us, we are probably of the view that our taxes are not spent wisely, much is wasted and we should be paying a lot less. The problem as I have said before is that there is an incentive to arrange your affairs in a manner that results in as little tax being paid as possible. This is true of the self-employed nanny to the large multinational. This is daft, but nobody (no politician) wants to address this basic problem. Instead they focus on how taxes will be spent (or not) and shifting the rates of tax by millimetres once a year.

There is no doubt in my mind that the system does not work well. The really wealthy tend to pay very small amounts of tax, whereas those earning between £100,000-£1m pay huge amounts of tax proportionally. I don't profess to have all of the answers on this, except that I do firmly believe that a single rate of tax applied to all forms of income, however they are derived, would make much more sense and would be an awful lot fairer. Wouldn't it be better to live in a country where we all felt a sense of fairness and perhaps joy in paying our taxes that contribute to the society in which we want to live.... I know, I must be dreaming.

Golden Polish Lessons

1912: Gold and Glitter

What can the Polish teach us? Well quite a lot I'm sure (as can every culture). However, I'm referring to the current Amber Gold financial scandal that has rocked Poland. Long story short, lots of people invested lots of their money into a fund that appears to have invested into a single asset class - gold. As if that weren't bad enough in itself (all your eggs in one basket) then matters seem to have been compounded by the fact that this was in fact a scam, another pyramid ponzi scheme, whereby the new invested money was used to pay out the original investors. This apparently fooled investors into believing that the scheme "worked" and that the double digit returns were as marketed "guaranteed".

As some of the media rush to chastise the Polish for their lack of regulation, financial education etc, I cannot help but point out that "there but for the grace of God..." (and by this I am not implying that we are somehow "blessed" and other nations are not...) what I mean is that, put simply, we can all fall for this trap and frankly many do on a daily basis, its simply that the scam is a little better hidden.

These sort of financial products play into people's fears about the uncertainty of investing, offering "guarantees" and suggesting that they are nothing to do with the stockmarket. To their huge credit the Polish regulator black-listed Amber Gold almost from its outset, but lacked the clout to close the company. I know several Polish people and am always struck by how hard they work. I mustn't get into sweeping generalisms, but suffice to say I like Polish people.

So what can we learn? be very wary of anything that promises a guarantee. The only guarantee in life is death - and some would say that even that certainty is open to interpretation. It used to be said that there are only two certainties - death and taxes. We know the latter is not at all certain. Don't put all your investments into one asset class (shares, property, gold, commodities, cash) history has taught the wisdom of diversification and those that suggest otherwise are not typical investors, but gamblers. As for the criminals like Marcin Plichta, one can only hope that justice will eventually prevail. As for the rest of us, well be guarded against believing what you want to believe and make sure that a proper assessment is conducted and don't forget that a criminal rarely looks like a masked man carrying a bag with "swag" written on it. I cannot guarantee the translation, but try this in a translation site: wszystko, co się świeci, nie jest złotem.

Deceit Is Hiding In Plain Sight

1994: True Lies - Cameron

I do recognise the problems that the regulator has. The difficulty for investors or the public at large is to understand what game they are playing - sometimes it really is not clear. Take Saga for example. They have been criticised for sending mixed messages. On the one hand they have been advocating shopping around for a better annuity, using an open market option, yet on the other they have a marketing arrangement to offer Legal and General annuities. Which? have cited this double standard and of course Saga have put their PR machine to work.

Annuities are a "problem area". Most people don't have very big pension funds so the scale of the problem may not be fully known. However many people simply opt for what their employer or pension provider offer as an annuity. A proper review of all of your pensions together with a proper assessment of your required income for the remainder of your life is pretty vital when making an often irreversible decision about which annuity to pick. I'm often perplexed at how many companies (big ones) get away with a very reckless approach to these sort of decisions - bar of course the "catch all" disclaimer form that excuses them from any responsibility.

We have been doing some work for a client on this and were surprised to find that the employer's own annuity was better than anything we could find. This has never happened to me before. So my advice was to go with the better option offered by the employer (because my job is to secure the best deal for the client). However we weren't informed of an error that the employer had made (an honest one) which we hadn't made, (our figures were right) this made a significant difference and resulted in the best deal that we secured being 6% better each month for life. So the client has now been able to "switch horses" to get the best possible deal.

Frankly, there was a degree of luck that this was caught, for many hundreds or thousands of people out there, they don't get a second chance with their financial planning. The jargon is often baffling and I'm sorry to say that I find little to suggest that this is not deliberate. The big scandal in financial planning is not the charges on pensions or PPI but on the deliberate mis-information spewing from the marketing departments of large organisations that is taken at face value. This is not restricted to more complex elements of financial products but even on the very simple ones, such as "guaranteed bonds" that are taken out in conjunction with an investment. Sorry, but this is not good enough and people are being ripped off.

Beware of "Do It Yourself" Lessons from Spain

1929: Painted Faces - Rogell

The Bank Holiday weekend approaches and many will be hoping that the traditional BBQ in the rain will be avoided this weekend. Many will also take advantage of the additional day to attempt some of those awkward jobs around the home with thousands making trips to DIY stores across Britain. Putting up your own shelves is one thing, but even in these more challenging times, it is worth remembering that if the job is beyond your current ability and is important, it is worth seeking someone that is proficient in the relevant task. D-I-Y is for many a pleasure, for others it is a perceived way of saving money. When it comes to financial planning there are those that spend time to save money (DIY) and those that spend money to save time (our clients). A key factor is the complexity of your financial planning and your ability to know how to navigate the industry. Clearly I don't work with people that want DIY financial planning, not that they aren't bright enough, they simply value their time and want to focus on things that they are good at or enjoy doing. Its also the case that I "carry the can" as the one responsible for the advice.





So it perhaps a timely reminder in today's news of the pitfalls of attempting those "irritating little jobs" with the best of intentions, but lacking the relevant skills. A parishioner in her 80's was concerned about the deterioration of a fresco of Jesus at her local church near Zaragoza and decided that enough was enough and that she would attempt to repair the painting "Ecce Homo" by Elias Garcia Martinez. The result has caused considerable bewilderment and presumably significant cost to correct. Whilst I am sure most would not have even attempted this DIY job, it does prompt the question about whether we are really aware of how limited some of our own skills are and how long it takes to become accomplished in them. This story has of course caused much attention across the internet, but perhaps it is worth seeing as a lesson from Spain, that skills are learned over many years.

Fairly Sensible Approach: UCIS on the ropes?

2007: On A Tightrope - Lom

Whilst I have many concerns about how the financial services industry is regulated and promoted, I have no illusions about how difficult a task this is for the regulator, the FSA. I have a significant amount of sympathy for them as they attempt to separate the wheat from the chaff and prevent the two being mixed or confused by the general public.

Today the FSA announced that it is considering changing their rules in relation to UCIS (Unregulated Collective Investment Schemes). You would think that this is straight-forward enough, after all, the tell-tale feature is in the very first word of the product name. However, its a little more complex and as with most things, not every UCIS product is "bad". The RDR changes from 2013 means that to be classified as an Independent Financial Adviser, the adviser firm has to be able to assess and arrange UCIS products. This has given many of us some concerns, as this is a highly specialised field and one that is easy to get very wrong. The FSA themselves, would not expect that UCIS is appropriate for more than 2-3% of the population.

Recent scandals, that have resulted in many firms becoming insolvent and threatening the access to professional indemnity insurance resulting in much higher costs for those that know what they are doing. This has given IFAs serious cause to consider not being independent from 2013. So today's news is probably welcome and I await to see the detail of the Consultation Paper. It should mean that there will be fewer advisers thinking that they need to arrange the odd UCIS without doing any proper research. UCIS products can be very complex or they can be realtively simple. However, assessing them can feel more like being a business angel from Dragons Den than a financial planner. However, the FSA need to tread with care so that they do not become "product approvers" resulting in reduced innovation. However, I am more than willing to concede that in this instance, the greater good is served by preventing access to products where both investor and adviser can lose it all.

I'm not a huge fan of UCIS, partly because I receive loads of emails from promoters which have the hallmarks of disaster - offering "guaranteed returns" and "high commission", I have my own name for them, Unique Commission Incentive Scam.

Successfully Failing? or Edited Highlights?

1958: Les Bijoutiers du clair de lune - Vadim

As I was on my way to work this morning, I was reminded that today is “D-Day” - Debussy day. He would be 150 years old today (born 22nd August 1862). Those that know his story will find a familiarity with that of many other “passionate artists”. I don’t want to compare the impact or quality of the work, but it is perhaps surprising that we are still “shocked” or “surprised” when current “artists” find their lives in turmoil. Our celebrity obsessed culture is full of stories that often suggest a deep unhappiness with life and the social conventions of the day. Debussy was from a very poor background and began piano lessons at the age of 7, by the time he was 18 he was showing considerable promise and was assisted by a Russian patroness Nadezha von Meck.

As with most historical figures, we are left with the edited highlights, the great moments or works, a legacy. Clair de Lune is perhaps Debussy’s most popular or well-known piece. It is believed to be inspired his love for Blanche Vasnier, a married woman with whom it is understood he had a long-term affair. It would be fair to say that he had a colourful personal life and living up to many of the stereotypes of passionate French male artists.

Debussy was diagnosed with cancer at the age of 47 and was one of the first people to undergo a colostomy operation. He died as a result of the cancer, but at the same time, the German army was bombing Paris, where he was living at the time. He was 55 when he died.

One of the great advantages of time is the ability to edit. This reminds me of the Olympics and many of the comments that I heard or read. I have no desire to undermine the significance of the achievements British athletes made, but spare a thought for those that did not make the team, either by a fraction of time or due to injury. Suggesting that a gold medal can be reduced to 4 years of hard work and the right funding is not terribly accurate, as many have access to the same resources and apply the same amount of training. A degree of luck or good fortune is required, timing is everything. It is not the case that whoever trains best wins, there are certainly similarities between those that “win” and focus is often cited as a key aspect of a winning mentality. Our media has a tendency to forget the daily struggles, (ok they will probably compensate for this with the Para-Olympics) yet it is the struggle that invariably produces the result, as Debussy’s life seems to typify. This applies to art, sport, economics and financial planning (and most aspects of life) achievement comes from pain and struggle, failure is the route to success.

Elite Financial Planning

2007: Elite Squad - Jose Padhila

Financial planning and the Retail Distribution Review are under scrutiny again. Today a letter in the Financial Times but Conservative peer Lord Howard Flight is highly critical of the regulator and RDR. He believes that the new rules being introduced by the FSA will mean that most people will no longer receive financial advice, except those with savings over £100,000. This is not a new point of view, indeed the vast majority of advisers cannot afford to provide advice going forward to most of their commission based clients. This is not an issue for our clients, who have always paid us fees for the work that we do. Our clients are admittedly a bright bunch and able to recognise the value of good financial planning and understand that there is no such thing as a free lunch.

Delusion that financial planning costs nothing or very little is a national condition. Frankly I don’t believe that the regulator really appreciates how expensive it is to provide. JP Morgan, who have been doing a fair bit of work on fees for the last couple of years have today published a report suggesting that only 13% of consumers are interested in seeking out ongoing fee-based advice. It wasn’t an enormous survey (2,028) and most will know my lack of regard for surveys, but this was one aimed at higher rate taxpayers. This is concerning as in general I suspect that the regulator was happy that those paying little or no tax could be adequately helped with low cost products that they can source themselves or employer arrangements. This survey suggests that even the more affluent are struggling to understand the value of financial planning advice.

To my mind this suggests that collectively as financial advisers, we have failed to educate people on the benefit of financial planning. Indeed it is evident from the reckless handling of national finances, that most world leaders and politicians also do not understand some of the basic principles. Thankfully I am not tasked with saving the world, but in helping clients that want proper financial planning. Our clients are elite, because they are amongst the small group that “get it”. So as we celebrated our 13th birthday a few days ago, I am please that at least our clients are getting great value for money and understanding the value of money.

Summer Holidays Come To An End

2010: Insane – Jacobsson

I doubt that I am the only one that wonders why politicians think that each failed bailout for a failing Euro zone member must be met with yet another pile of money. If the problems are bad now, then surely simply throwing more long-term debt for future generations to struggle with is folly. In fact, I read somewhere that the definition of insanity is continuing to repeat the same mistakes expecting different results. It seems to me as though this is the perfect description of those that are more bothered about their next election than about the legacy that they leave us all.

I am deeply concerned for the younger generation who will be working longer, earning less, buying a home later, having to look after elderly parents that have run out of money and have tax rates that make ours look playful. It is beyond the point of a discussion over a glass of Pimms, but a deeply distressing situation that needs resolving. Here and in Europe, we need to stop funding the ridiculous and start funding enterprise that employs people from within their own borders. We need to rediscover self sustainability and work collaboratively with our neighbours to ensure mutual prosperity.

Importantly, I also believe that we need to abolish financial instruments that enable some to bet against a nation and effectively magnify a crisis. This facility may be part of the “investment piece” but it is deeply flawed in its connection with people. Economics should serve society, not the other way around. Markets are meant to be a place to swap things at a negotiated fair price, not murder the seller.

The Cable Guy Delivers KO To City

1996: The Cable Guy – Stiller

It seems that the Government has produced some research that endorses what many advisers have known for some time. That investing needs to have a long-term horizon to work properly. Diversification is really important to successful investing and if you are determined to use an active Fund Manager, make sure that they have a process that enables them to deliver the outperformance (alpha) rather than simply hug a benchmark and watch rivals, so that they are not out of step with their peers which is short-termism at its worst or perhaps most timid.

Last year Vince Cable, the Business Secretary (at the time of writing this blog) commissioned a review – The Kay Review of UK Equity Markets and Long-Term Decision Making. The 133 page report has now been published and will doubtless add further fuel to fire surrounding the issue of what Fund Managers charge for and how do they get away with it. I appreciate that it takes a Government report to generally weigh this information properly (and I’m guessing that this won’t be the last one). However anyone that visits the City of London, New York or any other major financial centre, will appreciate that despite the expensive land price, there is an awful lot of room given over to a marble-floored foyer. It should be no surprise that this has a price tag which needs paying for. I’m all for a smart office, particularly when I have to work in it, but I do remember one very successful Fund Manager that used to run a “special situations” (i.e. undervalued) type of fund say to me that he would apply some very early filters to his process. On a visit to a company, if the car park was full or cars with personalised number plates he wouldn’t even enter the building. If he found a fountain in the foyer he would turn around and leave. It served him rather well, because he knew that sometimes the ego is simply too big to accept necessary change.

I shall be working my way through the report in the coming days. However the key themes from it have a resonance that I quite like. I quote.

• Restore relationships of trust and confidence in the investment chain, underpinned by the application of fiduciary standards of care by all those who manage or advise on the investments of others.
• Emphasise the central function of trust relationships in financial intermediation and diminish the current role of trading and transactional cultures
• Establish high level statements of good practice
• Improve the quality of engagement by investors with companies, emphasising and broadening the existing concept of stewardship.
• Shift regulatory philosophy and practice towards support for market structures which create appropriate incentives, rather than seeking to counter inappropriate incentives through the elaboration of detailed rules of conduct.
• Tackle misaligned incentives in the remuneration practices of company executives and asset managers, the disclosure of investment costs, and in stock lending practices.
• Reduce the pressures for short-term decision making that arise from excessively frequent reporting of financial and investment performance (including quarterly reporting by companies), and from excessive reliance on particular metrics and models for measuring performance, assessing risk and valuing assets.

It’s as if he read my blog and website!

The Offshore Treasure Island



1950: Treasure Island – Haskin



I have to admit to being a little amused by some of the comments in the media about offshore tax havens. Most amusing of all is the political nonsense that seems to gush from every quarter. Politicians have known that offshore investing and saving is available and has been for many years. HMRC has the role of collecting tax and interpreting the laws agreed and set by the Treasury. These need to be democratic, so that we don’t have a country that is effectively a tax dictator.

Government (and it really makes no difference who is in power) tweak and tinker at the edges, claiming that they are making adjustments for our general good. Governments attempt to encourage or discourage investment, to encourage or discourage enterprise. Now we may be entering the realm of political philosophy, but the purpose of this exercise is to find a balance for all citizens to live in a degree of harmony, rewarded for enterprise and not rewarded for laziness; providing good care, education etc for all of us and a welfare state for those that are truly unfortunate.

An element of financial advice will consider reducing or minimising someone’s tax. This can be done to varying degrees depending upon the complexity of the person’s affairs. So an ISA is a tax avoidance – of future capital gains and income tax. A pension is a tax avoidance, in that there is a tax reducing element (tax relief) to encourage saving and there is a tax free lump sum upon retirement. The scale of products or solutions grows. Placing money offshore can be perfectly legitimate as a place to hold funds, but once they are returned (repatriated) to the UK tax might be payable (depending one the personal allowance etc).

There are of course all sorts of offshore schemes that are deliberately set up to minimise tax. These invariably carry other problems (for example, not being tested in law – so the tax avoidance may prove pointless). You can also find that the investment is plainly “rubbish”.

If politicians were genuine about wanting to change the tax system they could do so easily. All that we need is a single rate of tax. At the moment there are volumes of tax rules. There are lots of tax rates. Taxing income, gains, profit, dividends, inheritance, and so on. It is a badly thought through system, providing motivation (legitimately) to find a way of reducing tax on “income” depending how the income is derived. This is not a difficult problem to resolve. All income earned in the UK should be subject to UK tax, all income and assets bought in the UK should be subject to UK tax. A single tax rate would work. It is fair, it is proportionate. So there’s my challenge to HMRC, Treasury and Parliament.

Rising Interest In Equity Release

1952: High Noon – Zinnemann

It is amusing to read commentary from industry experts sometimes. The Equity Release Council have issued figures that show an increase in the number of equity release products sold. Whilst the numbers are relatively small at a little over 4300 in the first quarter of 2012 it represents cash advances of £224.8m advanced by equity release providers to homeowners.

The experts say that these numbers “signal a return to positive growth” and that 2012 should be a better year for equity release than 2011. It does rather depend on how you view the increase in debt and the sale of equity release products. They certainly have their place, but from my perspective, they are invariably the product of last resort, at which point they are of course invaluable. Essentially you would only use such a product when you have run out of other resources, which of course is symptomatic of other problems (lack of income, increased costs due to inflation and spending more generally). Therefore it is vital that to ensure that your financial plan reveals if you will run out of money. Equity release is not an area that we get involved in as we tend to have clients that have adequate resources. I’m not suggesting that these products are bad, merely that seeing increases as “growth” is an understandable, but odd way of looking at life. Rather like in a western movie, where the undertaker is measuring up the population and expecting a boom in business.

Alarm Bells For Charity Accounts

1998: Lock, Stock – Ritchie

This is a very odd tale. It is reported that a Bristol Accountant was sacked for forging a charity’s fire alarm certificates. However after his departure it emerged that over a period of about 5 years he has misappropriated over £560,000 from the Charity “Above and Beyond”, a reasonably large sum of money. Mr Brendan Joyce from Bristol used the money to fund his lifestyle which surprised many. He was something of a car collector, but perhaps not the sort of cars you might expect, his choice was more run of the mill Vauxhall Carlton type. It is reported that he kept over 100 cars in lock-up garages across Bristol and had eventually found the monthly rental payments beyond his means. Mr Joyce has been sentenced to three years in prison.

The Above and Beyond Charity does some really great work raising money for nine of Bristol’s hospitals to improve the hospital environment, fund research, support and train staff and provide equipment. The charity provides over £3m to hospitals in Bristol each year, with 11 employees and over 400 volunteers. It is perhaps due to the financial cunning of Mr Joyce that the theft was not discovered sooner. However, this should be another reminder to business owners and charities to ensure that the Accounts are understood and checked thoroughly, which is also the responsibility of the auditors for charities, which in this case was Grant Thornton. As someone that serves on a charity Risk and Audit committee, the importance of this no small undertaking.

Banking On Full Information

1958: The Whole Truth – Guillermin

I put in what I believe to be sensible caveats about a list of top rates being paid by Banks and Building Societies. The regulator’s own website is fairly brief when it comes to checking the Banking licenses. They have several points at which you can access information, though it would be more helpful if they could simply provide pdf, word or excel document that lists all banks and their licenses. The website “UK Banking Brands and FSCS Cover” at the moment (in July 2012) simply shows the main banks in Britain. These are the Bank of Scotland, Barclays, The Co-Operative, Halifax, Lloyds, Nationwide, NatWest, RBS and Santander. These are some of the biggest names, but of course often not shown as those that pay the highest deposit rates. Not exactly “whole of market”.

The important thing to remember is that the FSCS cover is up to £85,000 per person, per banking license. So generally it is not advisable to hold more than this amount, in fact to be on the safe side £80,000 before any interest is paid.

Another Good Win?

1959: No Name on the Bullet – Arnold

The FSA recently fined and banned a commercial insurance broker who used clients’ insurance premiums to fund his business. The Lancashire based adviser, Stephen Goodwin, was fined £168,000 and had to replace the funds that he has misappropriated. This is the largest ever individual fine that the FSA has handed out. The total fine amounting to £471,846. Between 2008 and 2012 the firm used over £300,000 of money that should have been paid to insurers for their own purposes. One client attempted to claim against the insurance that they believed was in place, only to discover that it was not. It appears that this was a clear case of fraud. To my mind the FSA were right to ban and fine him.

The name of the culprit did remind me of another Goodwin, Sir Fred. Who made a mockery of the UK banking system by buying ABN AMRO without proper due diligence (as far as can be gathered) at a point when the financial crisis made it apparent to almost anyone that such a purchase would be unwise. This cost shareholders and the British public billions, and of course the legacy still rumbles on. The regulator even admitted that they could have done better. The fine for this Mr Goodwin….. well a pay off that most people would class as a lottery win. Whilst Fred may not have misappropriated funds in the same way, frankly the issue is really one of corporate governance and response to financial pressures. I find it very hard to disagree with many of those within the financial adviser community that believe that they receive far harsher treatment than those that really create a very big mess.

The story about Stephen Goodwin is another opportunity for me to remind you that we do not handle client money. All payments to us are for our fees. If and when we advise investments of any description the payment is made to that organisation. This is something that I believe is very important for the security of both our clients and our business.

Permission To Carry On Doctor

1967: Carry On Doctor – Thomas

Doctors have to be revalidated. In other words, they have to regain GMC approval to practice. This is a result of the Government’s decision to have a revalidation process beginning from the end of this year. I understand that the revalidation will need to be reviewed every five years, which whilst being an irritation to many already over-worked doctors, will be a relief that at least it will not be an annual process. A part of the RDR (Retail Distribution Review) is that advisers must effectively attain an annual Statement of Professional Standing certificate, provided by one of a few organisations licensed as a provider.

Doctors will get six months notice of their revalidation dates. The GMC have advised that revalidation dates for currently licensed doctors would likely be within the next three years to March 2016, with this possibly stretched over a five-year period for trainees.

Whilst there is clearly merit in ensuring that skills and competence is maintained and kept up to date, one does begin to wonder if we have simply created more form-filling and form vetting jobs without actually ensuring any significant improvements. This isn’t just an issue for doctors or financial advisers, similar principles are being adopted in many fields. I suspect that the cost of all this validation is fairly significant. I have tremendous respect for doctors, but I really don’t believe that revalidation will make any difference to the confidence I have in them and I imagine that my SPS will not provide greater confidence in me.

Beware of Average

1969: Beta Mathematics - Goddard

The average London house price is on a slow rise according to the research and data from the BBA (British Banking Association). The average London property is now worth £409,447 (May 2012) which is the highest average figure that has been achieved on record. This is helping equity levels within property, but of course is only a part of the picture. The reality is that inflation has accounted for a significant part of the improving property prices which slumped or devalued, whichever your preference, from around 2007. However since then, prices have recovered in most London Boroughs to levels above the 2007 peak. Indeed the average property price in Hammersmith and Fulham (4th) is now £649,114, Richmond is now 5th at £599,311, Wandsworth is 7th at £499,492, Merton is 11th at £423,689, Kingston 17th at £361,362,. The highest average property price being found in the Borough of Kensington and Chelsea at £1,439,897. The lowest average price of all London Boroughs (33rd) was in Barking and Dagenham at an average price of £175,235.

This is where statistics can often be used to suit your argument and much caution is required. Whilst it may be true that the average price of property in London is rising this and is now £409,447 the mid-point average property is actually £364,411. This is because those Borough’s at the top end distort the average number significantly by 11%. Indeed the majority (60%) of Borough’s have an average price below £400,000. All I’m really saying is that the adage location, location, location very much holds true when buying property. Of course, your residence is your home and not an investment.

 

Blurring The Ethical Code?

2000: Code Unknown - Haneke

A private hospital which accepts NHS work seems to be in the firing line. It is reported that the hospital in question instructed doctors to artificially delay operations on non-paying patients. The hope was that this would encourage them to pay fees for private treatment. It seems that this has now set the cat amongst the pigeons. It would appear that some are willing to massage their figures to boost their numbers.

This leads nicely into all that is the Retail Distribution Review. You will recall from 2013 advisers will be either independent or restricted. At the moment, other professionals are meant to refer their clients only to independent financial advisers. Here we see another set of massaged numbers as a leading Accountancy trade body has decided to redraft its code of ethics, to potentially allow Accountants to refer their clients to restricted advisers. The ICAEW seem to now be reviewing their general principle. I have some sympathy, the FSA have made a pigs breakfast of the terminology and definition of independent and restricted, but never-the-less I am wary of changes to codes of ethics, where these have no real basis of necessity. The head of the ICAEW’s financial services faculty is suggesting that Accountants must assess whether a restricted adviser can cover enough of the market that is relevant to the clients needs. The code will remain fundamentally unchanged; we are simply altering the terminology.” I guess he has a point, if the Accountant is simply looking to get a pension set up, but missing the holistic element of financial planning is often an extremely costly mistake. Solicitors are similarly softening their stance as well (Solicitors Regulation Authority). I’m sure that this has nothing at all to do with representations from firms with links to advisers that won’t be independent, that provide some rather generous payments for introductions.

Paying In Cash And Nothing To Declare?

1960: Morals Squad – Mahon

I’m sorry to go on about this, but avoiding tax is perfectly legal. Politicians lecturing about the morality of paying in cash are displaying a misunderstanding of the law (despite a Law Degree from Oxford). Anyone can pay in cash for anything. The reason most of us don’t is because we don’t carry it around, though research tends to show that those that pay for things with cash are far better at budgeting. I also do not believe that a discount for payment in cash is “morally wrong”. Payments made by credit card or cheque all carry additional charges which are not applied to cash payments. If someone pays cash in order to avoid VAT, then that is illegal. The law is not about morality. The law requires that I pay my tax, which is then used by Government to fund all sorts of things which I may personally find morally dubious – but that is for the electorate to assess at the ballot box.

The issue is whether or not the recipient of the cash declares the money as income (they should). This then forms part of their turnover or revenue. It is perfectly right to then be able to offset the cost of trading against this revenue, the one less the other is what is left (a profit of loss). In Britain we do not tax a loss, we do tax a profit. If this profit is a business, they are subject to corporation tax, if they are an individual (sole trader or partnership) then its personal income tax.

Tax evasion is illegal. In essence tax evasion is breaking the rules and not declaring the relevant income or profit for tax purposes. It is certainly true that there are tax avoiding products available which sail pretty close to the breaking the law and becoming tax evasion. It is the role of HMRC to determine this. There will always be some clever and cunning Accountancy firm etc that attempt to find new ways to avoid tax. It is my belief that a single rate of tax based on and form of income derived from the UK should be taxed in the UK. This would overnight remove the need to search for ways of paying less tax, because it could not be done. This is why I do not believe politicians or HMRC or the Treasury are actually serious about “clamping down” on tax. What they really mean is that they want to appear to do something. Some of the conversations I hear on the radio or read in the press are misguided and based on little but envy. A fair tax is proportionate to all. There is nothing fair about a higher rate of tax. Sorry, but there really isn’t. One person paying more tax than another is irrelevant unless they have identical incomes/gains etc.

10 Things The Olympics Teaches Investors - Part 4

1981: Chariots of Fire – Hudson

This is the final part of my 10 point list for investors.

#9.Security

OK, we all know about the chaos that G4S have had with aspects of providing security staff for London 2012. It is a sad reality of life today that we even need security, but we do. The event organisers obviously want both athletes and spectators to enjoy the Games safely. This means spending money on things to reduce the impact of risk, but hope that the expense is actually wasted. We don’t want the security systems to be needed, we don’t want a disaster. Financial planning means also reflecting on the risks that you face to your future. This can be obvious things such as being unable to earn due to illness or loss of a job. These risks need to be identified, quantified and adequately met.

#10.Olympic Tickets

Many people may have been disappointed not to get Olympic tickets. Whilst the system has had its critics, tickets are something that can be traded and can be bought at the right price. Of course you could simply watch your television. Whilst the price of tickets will vary, there is something that each ticket includes. You won’t see it printed on the ticket, but it’s there, it is a factor of the price, at least if the organisers have done their planning properly it will be. The price will include provision for pension benefits. I know you cannot see it, but its there. Much like your airline ticket price, there is an allocation towards the pilot’s pension fund. It’s priced in. One of the most important lessons of financial planning is to pay yourself first, not with what is left over. By pay yourself, I mean set funds aside for your future. Hey, even the Government figured out that it is best to collect tax before you get your hands on your money, otherwise you will spend it (by you I mean the collective you, which includes us all). A financial plan needs to be automatic and properly priced, so that the “sacrifices” you make are largely unseen. We will witness Olympians competing and performing, but we haven’t witnessed the years of training, blood, sweat and tears that went into that moment. Remember that the picture you see is the final edited version, not the full story.

10 Things The Olympics Teaches Investors - Part 3

1981: Chariots of Fire – Hudson

#7.Inspiration and Perspiration

Sport often has inspirational moments, stories of courage. The Para-Olympics demonstrates this very obviously as the athletes have invariably overcome what many of us may have believed to be defining disabilities. Yet these individuals find the courage and inspiration to use this to their own advantage. Financial planning can often feel overwhelming, the jargon, the disasters, the stress, the constant problems and hurdles that are reported in the media. However keeping to the path, keeping to the programme; applying the discipline, will lead to the results that at times seem far off. It is not all “plain sailing”, there are difficulties and there will be disappointments, but great financial planning is looking at the long-term, the really big story.

#8.Personal Best

Only one person can win the gold medal (unless it is a team event). That’s one. Many will compete, but one will win. The hope of winning gold is illusory in financial planning terms. Your financial plan should be unique to you, not the benchmark for others to pass or fail. It is your life and the only personal best that matters is your own. A great financial plan will be grounded in your values and have very personal, specific goals that you want to achieve. This is your life, it is not a practice. So own the journey as well as the destination. Unlike the Olympics, financial planning actually offers the possibility that everyone wins.