I’m not suggesting that you insure against life and everything but rather to evaluate and make sure the most important at least there is a ‘B’ Plan and possible even a ‘C’ Plan…rather than hoping everything will always be fine.

OK, I accept that as a Financial Planner I consider the options, scenarios and possible outcomes more than most but if you never consider – what happens when things go wrong? And in life, things always go wrong at some point – SO BE PREPARED!!!

Protect your income

The Daily Mail quoted a survey showing that 2 in 5 families could not survive more than 8 weeks without their main household income. Only 5% of employees have insurance that will pay out if they are off work through illness – but one in five workers will be off work for at least three months before they reach retirement.

The Mail surveyed the costs of protection, citing Family Income Benefit as a cheap form of life cover (£10,000 a year for 25 years at age 35 for under £10 per month) and Income Protection insurance to provide a long-term replacement income if you are off sick (at age 35, £1,500 per month to age 60 after 6 months off work costs under £25 per month).

For healthy young people, protection is cheap and can make all the difference to the family’s well-being if disaster strikes.  But do get proper quotes and beware the small print (don’t miss vital points, constraints, terms and conditions).

Cash Savings and Inflation Can Imposes 12% Losses

The Daily Mail reported that only 7 of 868 available UK savings accounts pays an interest rate above the latest annual inflation rate of 2.8% after the basic rate of tax (20%) is taken into account. Over the past 5 years, the spending power of £10,000 in the average savings account has dropped to £8,870 because inflation has persistently been above the interest rates paid on these accounts.

The insidious effect of inflation on the value of savings accounts really is a form of water torture for savers. And nobody expects interest rates to rise any time soon. If you rely on capital related income, such as deposits, income portfolios or alternatives – talk to us about income generation, investment and planning strategies, and alternatives.

Take Advantage of The Tax Amnesty

A  ‘tax amnesty’ for people with undisclosed bank accounts in offshore tax havens ends at the end of May 2013, as warned in the Daily Telegraph. Those who disclose before then will face lesser penalties, but the recent imprisonment of people on charges of tax fraud also sends the message that HMRC is steadily getting tougher and tougher on evaders.

HMRC has specific agreements with Switzerland, Lichtenstein, Guernsey, Jersey and the Isle of Man. Information-sharing agreements mean HMRC will be able to track down evaders more easily, so tax consultants advise coming clean before carrots are replaced by sticks.

Property Sales – Did They Shrink The House I’m Buying? 

The Financial Times ran an alarming story about buyers of properties discovering that the floor area of their homes was less than shown on agents’ particulars. It claimed discrepancies of up to 10% existed between the floor areas shown in different agents’ particulars about hundreds of London properties. Such differences are more than enough to make a significant difference to the market value. Experts advise you request your own surveyor to measure as part of their survey, and to query the floor area figure with an agent if you suspect it is wrong.

Make the Most of Retirement Savings

The Financial Times ran a 2-page feature on how to make the most of retirement savings. There is now a wide range of alternatives to the traditional annuity, including fixed-term annuities, investment-linked annuities, with-profit annuities, and the capped drawdown and flexible drawdown schemes. While some of these pose risks, the conventional level annuity also carries the risk that its real spending power will shrink in line with inflation.

 For many people, it makes sense to review all the options before making a decision. 

Annuity Service - DIY or Professional Advice ?

The Sunday Telegraph warned that DIY online ‘enhanced annuity’ services, where buyers seek the best income for life from their pension fund but do not technically get any advice, can be risky. The amount of ‘enhancement’, or extra income for life you get from your annuity, depends on the degree of ill-health you suffer. But you need to be quite precise about your condition, and slight variations can make large differences to the amount of income payable. It’s easy to get it wrong thanks to the medical jargon used in many applications. 

The Telegraph suggests that getting personal advice from a qualified adviser is the best way to ensure you get the best possible deal.

About to retire? Changing Terms Of Your Company Scheme Or Options Available – So What’s The Best Choice?

The Sunday Times reported that many companies are targeting employees approaching retirement with pension offers that could leave them much worse off.  Typically, this comes in the form of an offer of a higher pension provided you give up the right to all future increases. In one example, a man of 65 might be offered a starting pension of £26,000 instead of £20,000, which sounds terrific – but if he lives for the average 22 years and inflation averages 5%, he would be £240,000 worse off as a result of taking the offer.

Offers of this type are hard to evaluate, so we recommend you seek our advice before making a decision.

Is Gold Still Worth Buying – Or Are All Commodities Best Avoided?

A sudden 8% slump in the gold price to $1,400 per ounce prompted many newspapers to ask if the 12-year bull market in gold  – the price was just $263 per ounce in January 2001 – was over. Experts and fund managers cited fears about an impending sale of gold by Cyprus, big sales by some hedge funds and the end of worries about inflation as reasons for the slide. As ever, a minority of investors have kept faith in gold and still expect the money-printing efforts of central banks to result in rising inflation at some point, with gold seen as the best form of insurance against this possibility.

This may no longer be a good hedge against inflation, and with the weakness in global growth and the phenominal growth over the last 12 years in the value of this asset are we in for a period of stagnant growth or possible a decline in value. On a risk adjusted return basis, I believe there are alternate assets where the potential returns are higher and more expected and defined.

Don’t forget the taxman – when buying and selling online

A survey cited by the Sunday Times claims as many as 8 million people buy and sell items online. That’s twice as many as the number officially self-employed, so it may be that many of these people haven’t yet registered with the taxman. The self-employed section of the HMRC website sets out the basic rules – for example, you need to pay Class 2 NI contributions to qualify for the State pension. It’s important to remember that because you pay income tax (on your profits) in arrears, you need to set aside money for the tax payments that become due at the end of January and July.

Investors That Turn to Buy To Let Properties 

According to a specialist lender cited by the Sunday Times, over 29,000 landlords entered the BTL market for the first time in 2012, attracted by returns much higher than those available on deposit accounts. As a recent Financial Times feature on BTL made clear, the best net returns are secured by those who use borrowings to finance their purchases and offset mortgage interest against rental income.  Both papers featured the wide regional variations in rental yields available.

The pity was, they forgot to mention the work involved, the risks, the lack of liquidity, this is a long-term investment. There is no guarantee the rent is paid and that capital value will increase. Sadly, many actually lose money on the investment or could have made better returns in a fixed term deposit account.

Property as an investment can generate good returns. I suggest it is only suitable for some and the actual returns are precarious. I speak as both an experienced IFA (Independent Financial Adviser), so I have seen the success stories and the failures; and also, as a landlord myself – with all the problems, costs and hopefully successes in the future.

Okay, I think it is important to talk about this. From the beginning or 2013, how advisers charge for the services provided has changed; and the service provided has now changed. There is now Independent or Restricted Advisers.

There has been so much focus on what is paid and the general terms are typically, either an hourly rate (average from what I can see around £175 per hour) or where investment advice takes place it’s typically 3% initial (based on the investment amount) and an ongoing servicing fee circa 1.0% (but some institutions will charge more and few less).

Personally, I believe the big issue is - a fair price is charged for the work done or being done -  what you receive for what you pay. Should Restricted Advice charge the same as Independent Advice? The answer to this is in the detail – so what is the difference?

What is Independent Advice?

The rules set out a new definition for independent advice, which is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market. This is designed to reflect the idea of genuinely independent advice being free from any restrictions that could affect their ability to recommend whatever is best for the customer. To reflect the range of products that a consumer would expect an independent firm to have knowledge of, and in line with work the European Commission has undertaken.

What is Restricted Advice?

This advice that is not independent and will need to be labelled as restricted advice; for example, advice on a limited range of products or providers.

Where a firm providing restricted advice chooses to limit their product range to certain range of investments or providers, there will be clients for whom this is not suitable. It is not acceptable for a firm to make a recommendation for a product that most closely matches the needs of the consumer, from the restricted range of products they offer when that product is not suitable.

I am an Independent Financial Adviser and have specialised in investments and tax planning with the focus on a high level of service, expertise and support. My view on the argument between the different advice type is simple but then again I am very technically focused targeting tax mitigation and investment returns, profitability and success.

My question to you is should you, as the consumer, pay the same for a Restricted Service as for an Independent Service? 

The first point is be aware of the service being provided – make sure if you are paying for the service being provided and in my opinion that should be a fully comprehensive service. Restricted advice is simply that “Restricted” and Independent is “Independent”. An IFA - Independent needs to take into consideration all available contracts, both packaged and unpackaged, available in the UK Markets – assess, consider, review and recommend from every available structure; whereas a Restricted Adviser will sell you a contract from their permitted range.

Clearly, the time and effort and expertise required under both designations should carry a cost reflective to the service provided. I personally believe that the charge for Restricted Advise should be the less expensive option. It seems that many institutions are not differentiating – I assume they are hoping/expecting the consumer not to notice the difference.

Perhaps also worryingly, a number of institutions and banks have declined to disclose their adviser charges with some saying they would not make their limits public (as reported by Citywire, Investment Adviser, Money Marketing, The Telegraph, Financial Times, amongst others).

Of those who have disclosed mandated adviser charges, there is a typical initial charge of around 3% with ongoing charges ranging up to 3% per annum.

I did think of putting together a list of the institutions and the fees paid but felt that this is not constructive. I believe it is wiser to weigh up the pros and cons of what is being offered and the price you are being asked to pay.

Remember, now you agree to a contractual fee arrangement and as with all contracts the terms are binding both ways. If you are paying for annual reviews, on-going investment advice, portfolio stress-testing and your adviser is remunerated relative to their level of success….make sure you get what you pay for. I know my clients do…and it creates very close and personal relationships where my financial interest and their financial success are aligned i.e. I need my clients to be successful and see positive returns on their investments.

All I suggest is take care and consider your options – what you receive for what you pay.

The Government surprised many in the Autumn Statement, the maximum drawdown limit on income that can be taken in capped drawdown was increased from 100% back to the 120% level. However, investors currently in a drawdown year will remain on the 100% GAD rate until their new drawdown year starts. 

Drawdown allows retirees to keep their pension fund invested and take an income from it each year. The amount of income that can be taken from an income drawdown policy is based on calculations made by the Government Actuary’s Department (GAD), known as GAD rates.

Even prime central London may be on the brink of retreat as property specialists claim tax reforms could hit the market in the coming year.

Knight Frank, which currently places the UK in the middle of the longest housing market recovery on record, says it expects the prime central London market will undergo no further price moves in 2013. It attributes this impending slowdown primarily to tax changes; namely the introduction of a 7% Stamp Duty Rate on properties valued at £2 Million or more in March as part of the Budget.

This view is shared by property agents Savills, although its research shows the prime central London market has already started to slow. 

World research director Yolande Barnes says: “Buyers should now expect price growth to hover around zero in 2013, particularly as the prime central London market absorbs the impact of increased taxation.

Nationwide chief economist Robert Gardner suggests an improvement in the overall situation in the Eurozone could also present a contributing factor since the prime central London market has benefited so prominently from foreign capital inflows.

He says: “Part of London’s out-performance is reflected in safe havens of money flows from the Eurozone, which has disproportionately benefited London, especially the top of the market. Whether or not that is maintained over the next year will depend on the developments in the Eurozone and the market stability of other EU states.”

There is optimism for the super-prime property market and growth is expected to continue, the prime London property market is expected to stall (at least for 2013) and the majority of the rest of the UK is expected to see nil or negative growth. Regional factors will affect the housing valuations, such as corporate failure, Public Sector shrinkage and weakness in demand and the valuations could see serious declines.

If property is your investment focus expect poor returns in 2013.

It’s official, HM Revenue & Customs is doubling its team tackling potential tax avoidance of wealthy individuals. The number of inspectors has increased to over 200 inspectors.

The Affluent Compliance Team is to begin recruitment of 100 additional inspectors. The focus of the unit has expanded from those with annual incomes from £150,000 and accumulated wealth of £2.5 Million to £20 Million; to include those with wealth above £1 Million.

HMRC has reported that the unit had received additional tax receipts of £75 Million (by the end of December 2013). This is expected to rise to a target of £586 Million by the end of 2015.

Exchequer Secretary David Gauke says: “The team has made a great start by bringing in £75m in additional tax that would otherwise have been lost to the country…… Dodging tax is immoral, illegal and unaffordable and the minority who cheat are increasingly finding that, thanks to the work of the Affluent Team, they have made a big mistake.”

Director of the Affluent Team Roger Atkinson says: “Good quality intelligence is central to catching the cheats and so we are expanding our Affluent Intelligence Unit fourfold. This is very good news for all honest taxpayers.”

Neil Woodford has warned investors to expect further downgrades to profits forecasts for those companies more sensitive to the economic cycle.

Neil Woodford (manager of the Invesco Perpetual Income and High Income funds) paints a pessimistic story for the rest of 2013. He has grave concerns pertaining to the existing problems (eg the ongoing crisis in Europe, a possible slowdown in the US and reductions in borrowings across the western world) will limit the pace of global economic growth. Conversley, in his monthly update, he states he believes there is a “population of stocks that can grow consistently through this difficult period”.

Bill Mott (manager of the Psigma Income fund), has always raised his concerns over the effect of central bank policies,  he has warned that these have raised the chances of increasing inflation by continually introducing unprecedented policies into the market. He believes that these have increased the expectation of a growth in inflation.

“To some extent, inflation is already with us. The Bank of England has exceeded the middle of its target inflation range for 38 months in a row. What is remarkable is that despite this persistent inflation, the UK gilt market is trading at such low yields. Real interest rates on bonds have been negative for some time. Are low gilt yields telling us that the bond markets are relaxed about the inflation numbers? Or is it rather that the same target-busting Bank of England has been the most enormous buyer of gilts and has successfully subverted all price signals?”

Bill Mott has avoided investing in bank shares through the portfolio he manages, Psigma Income Fund. This has caused poor returns (short-term) against his peers. Time will tell if his decision is correct, as there has been a recent period of price rallying in this sector but is this a “true” rally or rather a “relief” rally. The latter will see the prices collapse, or could the pricing be sustainable?

Personally, I have concerns over the banking sector as there are several unknowns which carry a huge risk and could derail the recent optimism, One major issue with this sector is the lack of clarity of information and the continual fiascos constantly being unearthed. I see the comments about RBS and Libor, where the fines could be significantly worse than those suffered by Barclays (but expected not to be as large as those suffered by UBS). This is just an example and who knows what next?

The Retail Distribution Review (RDR) comes into force from Monday 31 December 2012, but what does this mean for those who are paying for advice?

I am pleased to announce the launch of my website - http://www.waverleycc.co.uk

After much work, reviews, re-writing and editing my website is now live. Let me know your thoughts on the content, design and presentation. Personally, I am most pleased with the Testimonials sections – every one who kindly provided their comments presented their views of our relationship.

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