Wednesday 29 September 2010

ISA portfolio reviews


I have written to all clients with ISAs within the Skandia Investment Solutions platform today. I have advised making some changes to the funds within the portfolios. Please respond as requested by 18th October 2010. It would be of value if you would read "Our Approach to Investing" together with the emailed document "Investment Portfolios Summer 2010". Do let me know if you need a new copy.
Many thanks.

Tuesday 28 September 2010

Mortgaged Britain


After the election and the attempts of the new Coalition Government to tackle the UKplc debt mountain, we have finally reached the point where we now know who will be leading the opposition party. It remains to be seen how Ed Milliband positions the Labour party for debate and shinanygons (?) at Westminster.


I would certainly hope that he brings a fresh approach and helpful challenges to keep the Government thinking creatively about solutions to our problems. We all know that the last Government overcommitted itself - which massive increases in Public spending, however I'm not seeking to apportion blame here. Given the credit crisis, the actions that Mssrs Brown and Darling took certainly cost us all a lot of money in bailing out the Banks and yes it would be accurate to say that the Government are utlimately responsible for regulation, so there is a degree to which I can go with the notion that they have themselves to blame. Nevertheless, depending on your point of view they were rather forced to bail out the banks.


Of course the other public finances are certainly the responsibility of central Government and it would appear that these have swollen out of control and that there will be ample opportunity to "bring these back into line". That said, cuts need to be made carefully and responsibly otherwise we may find ourselves in dire straights.


I certainly believe that we must get public finances under control and ensure that our public servants are serving the public good and not merely a glittering career in "nice things to do". But there is a danger of throwing the proverbial baby out with the bathwater.


I'm not sure why we must adhere to a strict 4 year timetable. Imagine the debt as a mortgage (which is close to the truth), you can do several things with a mortgage - reduce the repayments so that only the interest is paid, leaving a big sum to find at the end (not a good plan for anything other than the short-term). Alternatively set the repayment schedule over 25 years and clear the loan - it ends up costing around twice as much as the debt borrowed, but is a more manageable monthly repayment. There's also the problem of variable interest rates - so the total cost of the debt could increase rapidly, but provided payments are not missed, the debt will be cleared.


As financial planners, we try to encourage clients to reduce the cost of borrowing by high-speed funding their mortgage payments. This is akin to what the Coalition are trying to do. In practice very few can clear a mortgage in 4 years. Often we can get the term down to 10 years - paid from bonuses, income and perhaps getting rid of some rubbishy old savings policies. The point being that the process won't be easy, but it should be possible.


As much as I would like to see the UK back on favourable terms as soon as possible, doing this over 4 years does seem to be more than a triffle optimistic. The depth of the cuts could do more damage than good.. think of the mortgage analogy - ok you may reduce spending on your holidays or car or whatever, but sometimes you do need to spend money on "normal" things to ensure that the journey of life is enjoyable and not just a pursuit of a number.


For the record, so far pretty good. My impression is that the Coalition are putting a lot of work into rising to the challenge. I just hope that every solution isn't simply cut cut cut. Much like the sea snake that lies still, even whilst others take small bites of it.. suddenly it springs into life.


Monday 27 September 2010

What's in a Name


Pretty much since the 1988 Financial Services Act Independent Financial Advisers have been staunchly defending the term "independent". The FSA have rightly critiqued this, suggesting independence can only really mean providing impartial advice, considering the entire market. As we know, impartiality is pretty difficult to define in a real and lest face it "honest" way.


To my mind, impartiality is a difficult term to really use well. Let's take the example of me. Well I have a vested interest in getting clients to invest money - I get paid more as the fund grows. I might actually lose money if I advise someone to surrender an investment or take their pension or repay their mortgage. This is where personal ethics come into play, because frankly it is a matter of context and subjective opinion whether one should take the pension now, cash in an investment or pay off the mortgage. There may be other valid factors, perhaps largely with attempting to help a client pay less tax. Sometimes it is obviously the right and best thing to do.


I concede that this is a difficult area for regulation, which wants to be precriptive (by nature) but is well minded enough to appreciate that this can lead to folly in practice. However, set in the context of long-term client relationships it seems entirely counter-productive to fleece wealthy, intelligent people in order to make a quick buck (I would suggest that it morally reprehensible, to fleece anyone regardless of wealth or education). I fail to see the sense in anyone doing so.


Surely the key is to create a scenario where the adviser is not better off for reccomending using company X over company Y or product A over product B. Ideally a client should pay a fee for the advice as this makes the financial product cleaner and cheaper, but not everyone can afford this, so I'm not against commission - when there is a truly level playing field.


The FSA want RDR to redefine independence - this will mean to be an "IFA" the adviser MUST consider all options - including unregulated products (for which there is no investor protection) and structured products (which exist to make a very lazy product provider very rich and the client poor if things don't work out) as well as investment trusts (which are really shares) in which case why not just reclassify us as stockbrokers. Anyone that fails to do this, irrespective of the way that they charge, how many exams they pass, what their professional indemnity insurance covers and how much "bail out" money they hold on deposit - will not be permitted to use the term "independent". They would have to use the term "restricted".


Unless this badly thought through plan is altered, I would suggest that notions of a 20% reduction in the IFA community are likely to be woefully inaccurate - more like 20% left (if that). An IFA does not want to be a stockbroker (although I know a few that think they are) and they certainly do not want to sell rubbish products (at least those that I know). So at this stage it would appear that many may end up being labelled "restricted advisers" which is perhaps the most stupid term for someone that searches the entire regulated market and will be the same term used for Banks.


In conclusion I can see an outcome where a small number of IFAs exist that can smugly call themselves independent, advise only the wealthiest of clients and potentially be about as impartial as some of our daily newspapers.


What a complete mess.






Friday 24 September 2010

£50,000 Compensation limit is not being cut


Recent reports in the media have suggested that the FSCS plans to cut the compensation cover for investments. This is inaccurate. The FSCS has no plans to reduce compensation protection for investments as suggested, nor is it able to do so. The rules that the FSCS applies when assessing clams are made by the FSA. These include rules that set the FSCS compensation limits. The FSCS cannot depart from these rules.


The FSCS compensation limit for investment claims is currently £50,000 per person, per authorised firm. The European Commission is considering harmonisation of compensation limits across Europe to €50,000 for investment claims. This proposal is currently set out in a draft directive which is subject to debate amongst member States. A final decision has not yet been made by the Commission.


The currrent limit for deposits is £50,000. The FSCS limit for deposits will increase on 31 December 2010 following European legislation. The FSA plans to issue a consultation shortly on increasing the coverage limit to the equivalent of €100,000 .

Dramatic Rise in Pensioners - Baby Boomers

When the country is celebrating the Olympics in 2012, baby boomers will be turning 65in record numbers. Over 800,000 of them - a staggering 150,000 more than in 2011 – will reach this key milestone. This massive increase corresponds to the post-war spike in births in 1946 and 1947, and presents a challenge for the Government as many of those turning 65 will also start claiming their state pension.

Since the first of the baby boomer generation started to draw their pension at age 60in 2005/06, DWP spending on people over working age has risen by almost £14 billion. By 2012 spending will have risen by nearly another £4 billion.

With the latest research showing that many people can expect to spend around 20 years in retirement, the Government is currently looking into bringing forward increases to the state pension age. It also wants to ensure that older workers who want to keep working are able to do so, by phasing out the Default Retirement Age.

The three urban areas that will see the greatest increase in 65-year-olds over the next two years are Aberdeen (33%), Hull (30%) and Kingston upon Thames (26%).

I wish I was kidding...


Wills & Co, is a stockbroker that the FSA took action against. This was for selling high risk investments (penny shares) and the FSA say that Wills & Co failed to properly explain the high level of investment risk involved. As a consequence the FSA fined the firm £49,000 and removed their license in February 2010. A floodgate was opened for people that had lost money to obtain compensation. Wills & Co acted very quickly to satisfy the FSA and as a result had a discount on their fine. The FSCS has already awarded over £650,000 in compensation costs to their clients which has pushed the firm into the position where they have had to close.

I have no idea if the FSA are/were right, whether Wills & Co explained risk properly or not - that is not my gripe. There is certainly an interesting video on the Wills & Co site which provides their point of view.

My gripe is that the tab for the clean up is passed around IFAs - who have nothing to do with this. We (the IFA community) will meekly roll over and cough up... or eventually run out of funds ourselves in the process.

The costs are inevitably passed on to clients. The system is completely wrong. I can just about come to terms with the notion that as an IFA I have to put my hand in my pocket to pay for the errors of complete sharks that are IFAs... but stockbrokers too? our financial system is daft.

A PAYEn in the NEST


Following many of the problems with collecting taxes and a general cost cutting review by the Government, not helped by the error in calculations by HMRC for some people within the PAYE system; a review is under way of the PAYE system (Pay As You Earn). A number of senior politicians and civil servants have been complaining about the out of date computer system that HMRC operate. One of the suggested options is that all PAYE is calculated by HMRC and gross payment details are sent to them by employers.

Anyway, long story shorter this has a knock on effect on NEST - the proposed automatic opt in pension scheme. It is suggested that as the two will inevitably tie-up this may result in further delays in launching NEST.

At this stage, if I were a betting man, I'd say that NEST probably won't start until after the next UK election.

Thursday 23 September 2010

It's an Equitable Life...


The current CEO of Equitable Life has told those caught up in Equitable Life's collapse that they should accept a smaller pay out by the UK Government. Now, I have to say that the way that the figures are banded around you begin to wonder if there will ever be any real justice. Anyhow, the Parliamentary Ombudsman Ann Abraham recently advised that proposed payouts of between £400m-£500m were too small (about £250-£350 per policyholder) and suggested between £4bn-£4.8bn (a significant increase I think anyone would agree).

The CEO, Mr Wiscarson recently appeared on TV and basically did what I can only assume to be something akin to schoolboy maths. It goes like this... if we take the lower end of £4bn and we know that the Government are cutting costs by around 20-45% then £2bn seems like a reasonable number...for starters.

Whilst the logic is of course reasonable (from a numbers perspective) it doesn't exactly deal with what has been actually lost by policyholders.. which is the point. The cynic in me is somewhat concerned that given the above average age of Equitable Life policyholders, the longer this drags on the more of them die off and the smaller the compensation cost.

If you are an Equitable Life policyholder or know somebody that is.. please review the "urgent" letter posted on the Equitable Life website.

Is it any wonder that people lose faith in the financial services industry!

Wednesday 22 September 2010

Name Changes - Pioneer


Pioneer and Exeter Friendly Society are finally dropping the Pioneer brand name following their merger in 2008. They will soon be known simply as the Exeter Family Friendly.

They believe and state:

"We now see ourselves as an integrated healthcare company that provides a range of complementary protection products for the benefit of our customers and their families, enabling them to minimise the impact and cost of ill-health.

Our company is a mutual friendly society and we only work for our customers. Mutual organisations are not owned by external shareholders (like a PLC) but work for, and only answer to, customers like yours.

We believe this is important because:

With no shareholders to pay, mutual insurers like us can ensure that their profits are reinvested to give policyholders better returns, better value and higher levels of service. In contrast, a PLC has to pay shareholder dividends from the profits it makes each year.

We believe that our staff want to try that bit harder because our customers are members of the organisation they work for. We are proud of the fact that we provide protection products that paid 98.1% of all claims received during 2008"

Pioneer was formed in 1888 and whilst being a small organisation, certainly seemed to punch above its weight.

Source: Pioneer Website

Ethics: Christian Aid


Christian Aid report that poor nations are missing out on an estimated $160bn in tax revenue because unscrupulous corporations can hide their financial transactions. They argue that this money could be spent on essential services like health and education.

At the start of the summer Christian Aid lobbied members of the FTSE 100 to respond to a survey which helped them gauge opinion on tackling tax dodging. The campaign has been pretty succesful with 63 FTSE 100 companies providing a response. The campaign moves on to a new stage, the Trace the Tax campaign focusses on four FTSE listed companies: Vodafone, Unilever, TUI Travel and Intercontinental Hotel Group. Christian Aid want them to support their call for greater financial transparency because they believe that this will help end tax dodging.

In an age where tax dodging is certainly unhelpful to the wider economy and our public services, perhaps you would like to get involved. Have a look at their site if it is of interest.

Tuesday 21 September 2010

Investment Bonds

Investment Bonds are a useful part of an investors armoury - providing a degree of flexibility. In essence a lump sum investment into an Investment Bond (life assurance bond) can provide investors with some good options.

1. You can take up to 5% of the original amount invested each year without giving rise to any tax liability. This is in part taking back part of your original capital, but makes a very useful tax and income planning option. You can also roll up any unused 5%'s - so that you could take several years worth at once. Note that a year is a policy year and not necessarily a tax year.

2. There is no capital gains tax to pay, funds are switched without giving rise to any capital gains. This is currently 18% or 28% depending upon your income.

3. If your Bond has grown after a number of years and you have not withdrawn money from it, it may be in your interests to surrender it and then invest into another Bond. There are some issues here - firstly you might be subject to income tax if you are a higher rate taxpayer at the point of surrender. Secondly this smacks of "churning" replacing a policy with another to generate a commission. That's why we don't apply any initial charge on the new Bond. My thinking is that we are already being paid to look after the investment, and that this is merely a part of that "looking after". The reason you would do this, is simple - the 5% allowance is based upon the original investment. So if your Bond was worth £80,000 and your 5% was therefore £4,000 a year, but you left it to grow - and it is now worth £160,000 the new 5% Bond is £8,000 a year.

I have recently reviewed portfolios within Bonds and sent my advice to clients. These were sent out yesterday. I have advised some fund changes and these need to be returned by Monday 4th October 2010.

Friday 17 September 2010

Email to clients


I've tried to send a prompt to clients this afternoon via email. Look out for it in your inbox. The subject heading is "Message From Dominic Thomas At Solomon's IFA - Word Doc Attached".

The problem is that my usual signatire isn't there - so it may be confused as spam. So please also check your junk/trash file within your email application. There is a word document attached, it starts with the letter D and then has some numbers after it. You will see the Word icon.

I'd value your feedback.

Funds: Investec


With effect from 1st October 2010 several Investec funds will have higher charges. On the Skandia Investment Solutions platform the following will apply:

Investec Cautious Managed
AMC increasing from 1.25% to 1.50%

Investec Global Bond
AMC increasing from 0.75% to 1.00%

Investec Managed Distribution
AMC increasing from 1.25% to 1.50%

Investec Monthly High Income
AMC increasing from 0.95% to 1.25%

Investec Strategic Bond
AMC increasing from 0.75% to 1.00%

On the old Skandia Life platform charges have also risen for:

Skandia Investec Cautious Managed
TER up from 0.90% to 1.15%

Skandia Investec Monthly High Income
TER up from 1.10% to 1.40%

Skandia Investec Strategic Bond
TER up from 0.80% to 1.00%

Mumbo jumbo... AMC = Annual Management Charge. TER = Total Expense Ratio. The latter represents the annual cost an investor can expect to incur. It is actually the sum of the Fund Managers annual management charge and all other expenses incurred directly by the fund.

These funds are not currently within our portfolios, however some legacy clients may have these funds. The good news is that there are no fund switching costs within any of the Skandia products should you wish to switch away from these funds.

I have written to those that hold these funds.

Wednesday 15 September 2010

Schmarketing

The changes that are being imposed on IFAs by the FSA as a result of RDR that is due to begin from 2013 are wide and varied. Perhaps the most obvious question to ask is "at the end of all this, who will use an IFA?". Therein lies a question prompting a plethora of responses and business models. An equally important question is - who will not be able to use an IFA? (because we will all be charging fees). The short answer is - most people and probably anyone that doesn't pay 40% (or more) income tax. This is of course an issue that I have had at the heart of the business since I formed it in 1999, but new for most IFAs.

So I was intrigued by one of todays PFS topics about segmenting your client bank a strategy apparantly an outcome of RDR. I can't stand being put in a marketing box and frankly doubt anyone else can either. Yet marketeers continue to attempt to redefine what we all know by meeting people and frankly I think that most of it is complete hogwash. So much is read into consumer spending and responses to telephone surveys that ask questions like "do you have a private pension?" yet I dare say that most respondents are fairly flippant in their answers... "Do you have any investments?" asks the market researcher... something tells me that I'll say what you want to hear or say no, just to stop you from flogging me something.

Surely people are alike and different. We are much more complex than the surveys would have us reduced to. Who would I prefer to advise? well surely its obviously people that WANT my help and can afford to pay for it. People like my existing clients, who knows people like my existing clients?... my existing clients. Surely that is the marketing (based upon delivering results and service) that any business needs.. or am I being too simplistic?

Anyone fancy a mailshot?.... give me strength.

Monday 13 September 2010

When Insurance isn't Insurance


It may sound very odd for me to say, but today I have learned some very sad news about "my competitors".

Today I learned that "thousands of IFAs are facing bankruptsy" this is the headline in this mornings trade paper "Professional Adviser". As IFAs we all have to take out professional indemnity insurance each year and are not permitted to trade without it. Much like car insurance, we have to pay the excess which is typically between £2,500 and £10,000 per complaint. PI cover is expensive. Unfortunately many IFAs appear to have failed to realise that this is per claim and not per "type of claim". This has come to the fore due to the ongoing saga of Keydata - a firm providing investment products that has since gone bust. I have commented about this before so won't bore you with further detail. In summary it would appear that many IFAs who advised their clients to use Keydata may now themselves become bankrupt if they receive a spate of claims.

I meet quite a lot of IFAs these days and ok, they tend to be people at the top of the industry, I have not met one that would deliberately rip someone off. There are good and not so good advisers for sure, but the FSA is working hard to get everyone to the same sort of standard and moving advisers away from a sales culture (at last!)... though that is pretty much all PI insurers and the FSA are actually interested in within their forms. So I have to say that I'm not rubbing my hands with glee that others face bankruptsy. This merely is yet another indicator that the industry is poorly structured and the redress system is somewhat ridiculous. No one goes through life without making mistakes...at least no one that I know or have ever met in person.

We have got to get away from this puerile litigious culture and move towards a considerate and more mature approach to how we deal with wrong doing, deliberate or accidental. I fully accept that where someone has lost their entire wealth due to the unscrupulous behaviour of an adviser - such as Mr Maddoff serious redress needs to be provided for. However giving your life's wealth to one fund manager is painfully suggestive of folly.

There has got to be common sense and reasonableness. Our industry must reimagine itself and not just adopt another set of rules that someone, somewhere will inevitably find loopholes.

We all make mistakes, it is what we learn from them that is actually rather more important so that we don't get tempted to make them again. So whilst our clients have not been subject to any such problems and I adhere very closely to the simple notion of not advising on anything that I don't clearly understand, like everyone else I am prone to error... there but for the grace of God go I..

Ethical Investment


For those of you that are interested in ethical investment, here is a very good summary of the main issues provided by Skandia. Skandia act as a platform or "supermarket" enabling access to hundreds of funds, including ethical funds, hence the interest and the information - which is very well put together.

Of course the problems in selecting investment funds still has two main problems - assessing which fund manager is likely to provide acceptable performance and add advantage, the other being charges. Whilst my crystal ball is no better than yours, clearly I have some valuable experience and insight that will assist in this process.

Have a look at the mini site provided by Skandia if this subject interests you.

Friday 10 September 2010

FUNDS: Skandia Life Pension


Skandia Life have decided to close the Skandia Fidelity Managed Fund from 21st October 2010. Those with holdings in the fund will be automatically switched into the Skandia Fidelity Flexible Managed Funds. Investors can of course select any fund from the 300 or so available on the Skandia Life pension range.

The replacement fund is more expensive with a total expense ratio of 1.3% as opposed to 0.9%. However the fund will be run without oversight from Skandia - i.e. letting Fidelity do what they do best.

This is the latest fund sheet

This has been a consistently second quartile fund and is over 24 years old but seems rather "old school" by comparison to other fund alternatives these days. This has been a successful long-term working partnership between Skandia and Fidelity - two of the top companies within the multi-fund world and certainly with the longest UK track records.

Talking Money


We have mailed the hard copy of Talking Money to clients today. If you would prefer to cease this (as it is now available via our website) please let us know.

Thursday 9 September 2010

BBC interview with stressed HMRC employee


The BBC managed to persuade a tax collector to talk to them (albeit in disguise) about the pressures that HMRC are under. Listen to this 5 minute interview, the inspector says that there are over 1 million pieces of unanswered post.

Email Update


I am planning to email clients requesting feedback and to act as a test for future emails. Unfortunately our email system will not put a signature on the email, so I hope that by completing the subject line you will receive it properly. There is a Word document attached.

Tuesday 7 September 2010

Tax Mess


It appears that a P800 is not just a mobile phone, but also an HMRC form. Today a significant number of people have received a P800 from HMRC which outlines their taxation for the last two tax years (2008/09 and 2009/10). This is due to an error in calculating the tax due via the PAYE system (for employed people). Many have underpaid, some have overpaid their tax.

As you know, tax is not optional, although in certain circumstances one might conclude that it is (if you were to believe everything that the financial services industry says). So it is important that you deal with the matter quickly if you are the recipient of such a form.

If you have paid too much tax, HMRC will automatically send you a repayment, usually within a week or so.

If you have paid too little tax and the amount owed to HMRC is under £2,000, this will automatically be reflected in your new tax code for 2011-12. This spreads the collection of the underpayment throughout the year. If the result is that this causes financial hardship, you are able to ask HMRC to collect the balance over a longer period of time.

If the amount owed more than £2,000, expect a letter asking for full payment. It is possible to agree to spread the payments, but it is likely that HMRC will want this cleared up before 5th April 2011. If you need assistance because of the amount HMRC have a hotline, which doubtless is fairly busy - 0845 3000 627.

For further information have a look at the HMRC site.

A new computer is to blame for the error (naturally!). In this increasingly cost saving society, there are new calls for an overhaul to the PAYE system. I would imagine that the postal cost alone must be fairly enormous - particularly as tax coding notices often change several times in the space of 12 months.... I sense change and the inevitability of further new computer system errors.

Monday 6 September 2010

Back to School and the Importance of Failure


I imagine that most of us would like to remove pain from life, pain is a natural part of life and reminds us of our humanity and invariably strengthens our character. Unfortunately our society is very much set up to despise "failure" and to view it as a "least favourable outcome" or something to be avoided at all costs.

Our culture has become ever more "protective" and I would argue that this short-changes us all of the valuable life lessons that can be learned. Financial advice is subjective, rarely is there only "one way" to do anything - of course sensible controls should be in place and advisers should act with integrity, but reality says - we are all human and in every sphere of life there are "broken" people getting it wrong - some deliberately, others unintentionally.

Obviously like all decent IFAs my job is to provide clients with the best advice I can. Sometimes I get it wrong. The key question is what has been learned? and not to give up at the first sign of difficulty.

As many children return to school today, I wonder how much freedom we grant them to fail - as opposed to being continously caught up in the cycle of academic "success". I hope that my daughters know that they are free to fail - that its not just ok to fail but also quite important...that failure can be good. After all, the road to success is one of failure. Just a thought... here are 3 great "failures" or more accurately - people that had "failed" but chose not to give up:

1. Donald Trump was once $1billion (billion!)in debt in the 1990s.
"I refused to give up. Defeat is not in my vocabulary".

2. Winston Churchill lost every election for public office until he became Prime Minister.
"Never give in, never give in, never, never, never, never - in nothing, great or small, large or petty - never give in except to convictions of honour and good sense"

3. Michael Jordan was once dropped from his high school basketball team
"I've failed over and over again in life. That is why I succeed".

Industry News


You may have gathered that the FSA are implementing something called RDR (Retail Distribution Review). The long and short of it is that to be called "independent" advisers must have a clear fee charging structure. In addition firms have been told to have higher reserves on deposit and have more exams. This all gets implemented from 1st January 2013.

Long story short, there are around 20,000 financial advisers in the UK and this is expected to reduce by 15% according to the FSA. A new survey places estimates at similar levels but with a further 17% unsure if they will continue to operate. The main sticking point is the general problem for clients to pay direct fees. Something that our clients have always done, but most firms have "fudged" this issue using commission to offset a fee.

Working through the maths, with a population of 60m the average adviser: client ratio is 1:3,529 as a conservative estimate. The obvious and unavoidable conclusion is that most people will be left to the mercy of online comparison sites or the Banks, who make up the lionshare of complaints.

Applying some fairly simple economics to the price of financial advice - supply v demand. There will be a much reduced supply, so in general expect prices to rise for most IFAs.

We have now had 11 years of experience advising in this way and will not find the new regime problematic. Our model has proven to be successful and sustainable.

Friday 3 September 2010

Our Approach To Investing


Here is one of the guys that I rate tremendously. He is a really good and very entertaining speaker - one of those senior American guys that just seems to be full wisdom.

He has written many books and articles on investing and finance. He taught advanced investment courses at Harvard and Yale and has advised of some very large institutions

Charlie Ellis who wrote "Winning the Loser's Game" provides a shortish video that may be of interest. Here he talks about the role of financial advisers or financial planners... people like me.

https://www.vanguard.co.uk/public/portal/uk/uk-en/home/Library/Interviews__video_Ellis.jsp

Sorry, but I don't seem able to imbed the video into my blog. Its definitely worth a look.

Thanks Vanguard for granting me permission to link this to my blog.

Investing: Great visual web tool


Here's a great visual tool - demonstrating what I have been banging on about for many years now. Have a play - the key thing is the mix of equities & bonds (diversifying a portfolio). The Vanguard guys are pretty plain speaking, which I like a lot. They have a very good and clear way of presenting information that helps investors get to understand the bigger picture.

Thanks Vanguard.

Thursday 2 September 2010

Annuity Rates


Annuity rates have continued to fall much in-line with Gilt yields. In the early 1990s annuity rates were above 12% for makes aged 65 - meaning that a £100,000 pension fund would secure a lifetime income of £12,000 a year. Now annuity rates are closer to 6% - effectively halving the income that a £100,000 would produce.

The main problem with annuities is that once you have decided to have one, you are stuck with it for life. This is a big decision to make just at the point you are considering all your possibilities upon retirement.

There are few rights and wrongs with annuities as only in the fullness of time will the decision be proven "right" or "wrong" - essentially it is is gamble on how long you will live.

The only really "wrong" decision is to accept the annuity that is quoted by your pension company. This is often very poor when compared to getting the best deal on the market - which is where an IFA helps. However importantly, another aspect to consider is the income planning - and tax liability that might be generated. This is where a good financial planner can add significant value (such as ourselves).

The more "bells and whistles" that are added to the annuity the worse the initial deal looks. However, for most people it makes sense to maximise any guarantees and have the annuity pay to a suriving spouse if appropriate. It may be worthwhile to have an annuity that increases in line with inflation each year - though it may take many years to reach the same monthly income as a level annuity, taking even longer to match the accumulated total income paid.

So it is vital to get good advice that reflects your requirements and retains flexibility wherever possible. There's a document within our resources section of the website that covers the main options.

If you know anyone approaching retirement or about to agree an annuity please ask them to get in touch, we might make their retirement income considerably better.

State Pension Forecast Forms


These have been mailed to our clients today.

Wednesday 1 September 2010

State Pension Forecast


We will be sending clients a BR19 form to complete in order to obtain an up to date State Pension forecast. As you may be aware, the State Pension has become something of a political punchbag over the years with the retirement age increasing for many people.

The State pension is a valuable source of income and I estimate worth nearly £130,000 if it were a pension fund in 2010. Most of us would probably welcome an injection of this sort of sum into our pension pots, so it is important that you know what to expect and be prepared for what may one day become means-tested....though not exactly a vote winning option.

The "Big" Saving News


Research from NS&I (the post office to you and I) has suggested that people are saving more now than before the recession. They have found that the average Briton is now saving 6.9% of monthly income.

NS&I calculate that savings have risen to £85.21 a month as opposed to £81.94 a month (an increase of £3.27 a month).. which I calculate to be a 4% increase. They go on to say that this is despite a decline in monthly net income which has now fallen to £1,235 from £1,310.

I'm not entirely clear where NS&I obtain their data or indeed how they are calculating an average income, whether this includes children and those that are unemployed or retired etc. However the figures are calculated, the sums are merely a testament to two truths that UK plc needs to face:

1. "We" are not saving enough
2. Income levels are seriously out of line with property prices which can surely only lead to reducing property prices.