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Investment Bulletin – January 2016

22 Mar

From a momentum perspective, the pessimists were clearly in charge since mid-2015. On the other hand, the sheer size and scope of the setback opens the door to a possible market bounce… a volatile mode the market has been in for recent times. Only time will really tell if this oddly excessive poor start to the New Year was a fluke or the shape of things to come. It’s best to prepare for both possibilities. I’m pleased to say – this is part of our core philosophy.

 

We have been very busy reviewing and reassessing your portfolios, considering the impact of the recently and sometimes violently changing market conditions. The general outcome of our review so far, there are possible changes required and we will speak about this on a one-to-one basis.

 

The results so far indicate, a seriously vulnerable market but I’m pleased to report, we have seen excellent results relative to the general market. We’ve had the panic phase, so is it now time for the panic to subside? I believe there are strong indicators and potentially positive scenarios but as always, only in certain market geographies, sectors and themes.

 

Market Outlook

We believe the key catalysts have been :

 

  • concerns about Chinese exchange rate policy and associated GDP
  • a renewed collapse in oil prices
  • the problems in the Middle East have led to a dire refugee situation
  • the rate hike in the US followed by increased fears of a slow-down in the US economy.
  • the news that Brexit might become a reality after the June Referendum.

 

Macroeconomic and geopolitical factors look certain to play a key part in investor thinking again in 2016, and the outlook is as mixed as it was a year ago. Most western economies are improving slowly, with the US Federal Reserve finally raising its interest rate in December after holding it at an historical low for seven years. European economies also appear more steady, even on the periphery, it appears 2016 will see the continued divergence of central bank monetary policy, with the European Central Bank (ECB) and Japan both continuing their quantitative easing stance.

 

Fixed income was one of the stragglers in 2015, with low yields forcing many investors to seek alternatives, or to move higher up the risk spectrum. The expected divergence in monetary policy between the US and Europe will be a key theme in bond and currency markets.

 

Unless there is some surprise from central banks, it seems clear that the momentum for an even stronger dollar is likely to persist into 2016.

 

An increase in volatility is expected in the months ahead given the shift in the US monetary stance and the increasingly accommodative strategy of the ECB. If there is any sense that the Federal Reserve may be more aggressive than currently priced in, this could possibly lead to higher bond yields and a more negative reaction from credit markets.

 

In Europe, a sharp fall in the euro could trigger a steeper bond curve if inflationary expectations start to build, and this may be temporarily negative for credit spreads.

 

Pseudo-Economics

To paraphrase the late Jude Wanniski – the history of man is a battle between the creation of wealth and the redistribution of wealth. Jude was a Supply-Sider, which means an economist who believes that entrepreneurship and supply (not demand) drives economic growth.

 

Many pseudo-economists have sprung up since the recession voicing opinion rather than understanding, fuelled by a misunderstanding of 2008. They have clearly, used selective excerpts from Economists (such as, Hyman Minsky and the Minsky Cycle), have created an entire theory that the US economy (for example) is in a “crack-up boom.” The boom, according to these “pundits”, has been suggested to be solely caused by the Federal Reserve (Fed), Quantitative Easing (QE) and 0% interest rates, and now that the Fed has tapered and started hiking rates, it’s over and a bust is on its way.

 

These Pseudo-Economists have focused almost solely on money; they’ve forgotten the entrepreneur. We believe quantitative easing did not boost economic growth because banks shovelled that money straight into excess reserves.  We also believe in new technologies – simply, good old entrepreneurship is driving profits and economic output inexorably upward.

 

Volatility in The Markets

Most people think of volatility as a bad thing. It is assumed that higher volatility leads to higher risk of a negative outcome and as it is in our nature to be risk-averse, this tends to take the form of trying to avoid or hedge a loss.

 

Volatility can, however, be an investment opportunity and there are strategies that focus on exploiting bouts of market uncertainty to capture a return premium. Investors need to treat volatility like any asset that has a long-term expected return and a risk profile.

 

Investors should also bear in mind that periods of high volatility are usually short-lived. It is therefore key, to focus on the important developments and ignore the transient ones.

 

Summary

Maintaining a nimble and responsive portfolio is more important than ever. We have chosen to employ a systematic investment approach and diversifying across a number of underlying volatility strategies has the potential to add value to an investor’s portfolio. Particularly in this high-volatility environment, a number of different risk strategies to achieve the desired risk/return outcome to meet investment objectives is considered.

 

We have found the most effective and successful approach to investing, is to focus on the macro-backdrop potentially identifying short-term investment risks and with the potential of tactical advantages. The short-term volatility helps to provide longer term buying opportunities. We see these recent events as a superior opportunity to add value through the service we provide. Our wish is, within your attitude to investment risk, to target potential returns while focusing on capital preservation, where possible.

 

This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

(If you require personal advice based on your circumstances, please contact me.)

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Investment Bulletin – October 2015

12 Nov

2015 has been a poor investment period so far, seeing the most significant losses since 2011. The question I’m asking – are we about to see a similar outcome to 2011 with the investment markets rallying and posting significant returns? The answer I have is “maybe” – no one knows but what is clear is the markets have been in the grip of panic, leading in my opinion to being oversold. I believe that this will offer opportunities in certain investment markets for the future.

 

In recent years, the investment markets have been “trading in a range” and this has seen a fall from the top of the range. So, if the markets follow a similar model this could realistically lead to positive returns.

 

It has been our strategy to position your portfolio, within your risk profile, with the focus of relative capital preservation and real total returns. Relative to the market situation, we have performed above expectations and produced pleasing returns.

 

Our portfolios are well diversified and where relevant, we have already made recommendations leading to changes in the asset allocation and some of the fund selections.

 

 

Market Overview

It has been impossible to ignore the recent dramatic sell-off in the Chinese markets and the subsequent falls in other equity markets around the world. Despite the opening up of the Chinese economy its impact on the developed world is fairly limited as regards first round effects, with exports of goods and services to and from China a very small part of GDP (Gross Domestic Product) for all mainstream economies.

 

 

 

I think it is economies that kill markets not the other way around so I believe the current decline is overstated.

 

On a more positive note, lower commodity prices are, of course, producing a significant boost to the western consumer and we are seeing an acceleration in consumer spending across the US, Europe and the UK in 2015. Inflationary pressures are also likely to remain muted for longer and interest rate increases which, until recently, seemed almost a certainty over the coming months could well be pushed back. The US rate increase heavily tipped for December.

 

It is also worth noting that although we have seen sharp falls in equity prices, the moves in bonds have been much less pronounced.

 

Whilst we shouldn’t be complacent, bearing in mind that equity markets can often be a good signal of trouble ahead, I think weakness in China is not sufficient to bring down the global economy. We maintain a modest preference for equity markets but do expect volatility to remain. I am inclined to think the recent drama has been a bit of an over-reaction and is unlikely to have a significant impact in a raw economic sense.

 

 

Summary

We are expecting the prospect of the first interest rate rise since June 2006 and we await the December Federal Reserve meeting. The Fed’s actions in the coming three-to-six months could have wide-reaching implications for the global economy. We expect that if (and based on the Federal Reserve’s commentary and dialog, a rate rise is imminent), this will be closely followed by the Bank of England to raise rates. In both cases, we are expecting small incremental steps based on the strength of the economies. So do not expect large or quickly followed further increases. The expectation is this will not lead to a rise in bank interest rates paid to the consumer, as banks based on recent results and the multitude of fines and legacy problems are not anticipating paying a higher base to account holders.

 

We do expect more volatility but anticipate buoyant equity markets in the near future but with clear risks in several sectors, themes and geographies.

 

Therefore, we reaffirm our focus on valuation discipline and total return strategies, where care and attention is and will always be needed. This focus has allowed us to achieve above average returns in less than average markets over a longer term, always with a clear relative focus on capital preservation, targeted returns and risk profile.

 

This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

(If you require personal advice based on your circumstances, please contact me.)

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Pension Freedoms – Is Buy to Let a Stupid Option With My Pension Fund?

22 May

 

 

I have been investigating this due to the discussions in the tabloids but rarely with clients. If I cash in my pension fund, pay the tax and invest the residue in a property – is this a good idea? I have heard that near a university there are student flats available with a guaranteed rental for the first 12 months, etc etc

The details below are for all of those thinking of entering this market….

Image result for buy to let pictures confused

Since the change of Pension Legislation in April 2015, the press has been fully of “spiffy” ideas – why not use your pension to buy a Property and let it out. Much better than one of those silly ‘pension’ things. How can you lose? Property prices always go up??? Hurray for pension freedom! – if I made these statements in my professional life, I’m sure I’d be strung up …. seems madness just focusing on what might go right; what about the risks??? – there I go – typical financial adviser trying to offer a balanced representation – naughty, naughty

Firstly, unless you are going to get involved in timeshare and fractional ownership, we are talking about proper money here. I’d say £200,000 and more.

At that level, we can assume that the client is a higher rate taxpayer, and will probably have other assets.

So let’s run the numbers. Let’s see what this looks like.

If we accept the premise that pensions do and will perform worse than property, and that property can never fall – ‘stupid’ assumptions, but go on – then the simplified figures go something like this

£300,000 pension pot, assuming 6% gross growth, minus 1% fund and platform charges, and 1% adviser charge. A bit high, but OK.

Value of pot in 10 years is a bit under £447,250.

Instead, attracted by the publicity, we take the £300,000 and cash it in. That makes it worth £211,250, using the ‘tax free cash’.

Not great, but we are looking at higher returns. So 4% year on year compound capital growth and 5% income yields – both gross, but 9% total return as a starting point, 50% more than a pension portfolio.

Assuming that the client is a higher rate taxpayer throughout, and that the property is always occupied, and that there are never any capital events required (boilers, roof painting), there are no legal fees, there are no ‘void’ periods, that all tenants pay their rent and look after the property, and the property is sold at the imagined market value, then the net total value returned to the client – including income is… (drum roll) …. just under £399,438. So another £47,812 loss after the original £88,750 tax take.

So I guess the revenue will be supportive of this particular brilliance. Always remember there are other fees to consider, such as, Agents fees (they can be chunky as well), Stamp Duty, Legal Fees,m Contracts, Tenant Vetting, Property Maintenance, Property and Landlord Legislation, costs due to voids and periods of the property being empty, utility costs, tenants non-payments maybe, etc.

As a point of interest, any idea what the gross return needs to be for the Buy To Let to actually break even with the pension? A ‘critical return required?

Its actually nearer 14.5%.

Can you imagine if I tried to take this plan to our compliance for approval?

“I’ve got this great idea! We take a well diversified, flexible and secure portfolio, and cash it in. The client then pays at his highest marginal income tax rate (mainly 40% tax but a bit in the additional rate of 45%) and then invests in a single illiquid asset, which may well require them to add further funds, and take time to manage the asset themselves. There may be court costs involved at some point and we get to pay lots of agents fees and tax. And to match the boring, diversified portfolio, in a low inflation, low risk environment, this single, risky asset only has to grow by at least 14.5% every year to break even!! What a great wheeze!

Excuse me, why are you ringing the FCA……?”

In all the above I have ignored the effects of Inheritance Tax. Promises have been made. They have been before. This time they may be kept. Who knows?

But the BTL is assessable for Inheritance Tax, the pension is not. So if we look at Inheritance Tax, then an additional 40% tax knocks us down by another lump. A real and substantial loss after 10 years.

If your belief is, we all need to give extra coppers to the national pot – then this could be a good option – not only a loss through initial tax payable of £88,750, relative loss in capital value net of Capital Gains Tax of £47,812 but if Inheritance Tax applies then a further £159,775. This could provide £296,337 of tax and relative losses that you could have avoided.

I believe emotionally, some clients will be vulnerable to this suggestion, and clearly some will actually do OK. The numbers are brutal for the majority and I see my role must be to make people aware and protect them from the circling speculators, who are not held responsible for their wild and ill though through counsel.

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Investment Bulletin – September 2014

30 Sep

 

2014 year to date has behaved more or less as expected, trading in a range with the FTSE 100 bouncing from (circa) lows of 6450 to highs of 6850 (data until 15.09.2014).

 

We have made good returns, especially relative to the market – so far in 2014. 2 January 2014 to 15 September 2014, the FTSE 100 Index rose 1.2% in total (and 16 September 2013 to 15 September 2014 rose 2.7%). If we keep this as a consideration of market performance – this explains my opinion.

 

Our forecast of challenging markets has been correct and our approach of diversity is serving us well and I expect positive relative performance for the remainder of the year and beyond. Markets change, the risks and potential outcomes of these markets will change. This will lead to our further discussions around funds selected and asset allocation – I expect that this will lead to some fund selection recommendations and changes.

 

Our portfolios are well diversified, but we are carrying out in-depth risk return analysis and taking into account your outlook to investment risk linked to your investment portfolio(s).

 

Market Outlook

Our plan is for your portfolio to combine growth stock, with income/yield generating assets and defensive assets to help protect the capital value during periods of market decline.

 

Our prediction based on the market so far, and our asset allocation and expectations are on track. The market will remain weak and trade within a range, we will see subdued economic growth globally, but with pockets, countries and some economies slipping into negative figures and possibility returning to recession.

 

I expect the remainder of the year to be beneficial from an investment perspective, leading to high hopes for 2015. So far, there has not been any unexpected fears entering the market and the optimists have not been able to lead a break or up-surge through market barriers. The UK economy continues to exhibit signs of sustained recovery, however, interest rates are now widely tipped to rise – and signs of dissent among Bank of England policymakers have fuelled speculation about the timing and scale of such an increase.

Market Round-Up

Signs of growth within the US economy has supported the idea that one of the world’s largest economies was on the path to recovery. Further ammunition was provided by the US Federal Reserve’s (Fed) statement that it would do whatever it took to be accommodative until economic data showed significant improvements.

 

Asian markets are becoming quite attractive, in part this is due to valuations and associated negative performance, especially in 2013. It seems reasonable to assume that many associated economies have bottomed out (key anticipated markets are possibly India, Indonesia and possibly China).  Outlooks are starting to improve – or so we believe.  In the long run, it is a common belief that these economies have better growth potential than developed economies.

 

When looking at sectors with the best growth potential, this seems to favour technology, small cap, commodities, Europe and healthcare. True, this is assuming that the overall economic global growth story continues, at least as strongly as predicted – now that is a big assumption.   There are vulnerabilities to the scenarios and is a key reason why we combine asset classes and consider both positive and negative associated correlation.

 

On the macro side, economic data remained mixed. Inflation in the eurozone

slowed further, unemployment remained constant. GDP figures showed the German economy shrinking, France’s stagnating and Italy falling back into recession. Yet, fundamentals remain constructive. Lead indicators still point to expansion in the eurozone, albeit at a slower rate. The fiscal drag in Europe has been significantly alleviated and the economic revival in some peripheral countries is still well on track. In Spain, latest total mortgage lending

figures showed a growth of 13.2% year-on-year. Corporate earnings have also improved in Quarter 2 and are set to grow in 2014, helped by a pick-up in global economic activity. Despite the latest headwinds, various economic forecasts still imply a strengthening of activity in the eurozone going into 2015.

 

Your portfolio is being monitored closely and should there be fundamental movements, economic date or expectations away from the planned – I will be in contact and changes where suitable recommended.

This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

 (If you require personal advice based on your circumstances, please contact me.)

 

 

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Investment Bulletin January 2014

6 Feb

Market Outlook

This may be the first year since 2007, where the market’s attention is not being dominated by a major tail risk. No double dipping, no fiscal cliff, no life or death moment for the Euro. It seems that the risks are more mid-term as in the problems bubbling away underneath the surface of the Chinese financial sector but this is not generally believed to be an imminent threat.

I agree it is the key medium-term risk to monitor in the global economy but this should not prevent you from being a bit optimistic currently. Instead, the relative normality in the global economy as we begin 2014 means developments in the good old belly of the probability distribution, rather than excitement or doom in the tail, are what matter for the markets.

Okay, fair to say, the markets are well poised for a short-term correction in the first half of this year but I believe we are prepared for this through your portfolio structure, asset allocation and funds selected. Although, as always, “watch this space” as I am constantly reviewing our assumptions, stress testing portfolios and recommending changes as and when suitable.

What Are The Important Questions for 2014?

1.  Will US capital expenditure (capex) pick up from its weak trend so far during the recovery?

The consensus expects US consumption to accelerate in 2014 and capital expenditure to modestly improve.

2.  Will forward guidance stop working?

It makes sense to us that the US Federal Reserve and the Bank of England are cautious by maintaining low policy rates as economies continue to normalise over the course of the year and this is reflected by current policy.

However, the crucial question is – will Janet Yellen and Mark Carney be able to convince markets that the Fed and the Bank of England are themselves not moving towards pre-emptive inflation fighting mode? This is crucial for equity markets.

3.  Which of the so called ‘Fragile Five’ emerging markets (India, Indonesia, South Africa, Turkey and Brazil) will adjust relatively smoothly in 2014 to tighter financial conditions and which won’t?

India is making the best progress so far with the current account deficit falling and its superstar central bank head Raghuram Rajan is following enlightened policy to help the adjustment. In Turkey and South Africa, however, things are looking potentially uglier. All five countries have political elections in 2014, which look likely to act as catalysts.

4.  Where to for the Yen exchange rate?

I expect further Yen depreciation while we are this side of 120 Yen to the US dollar. The rationale being I believe that Yen depreciation and higher inflation are the core components of Abenomics, and still have much more work to do.

Market Round-Up

So it seems fair to say, there seems to be encouraging signs that Europe is now in a recovery phase (maybe), the UK economy is clearly on the mend, the US is seeing possibly a return to productivity; with Asia and Emerging Markets seeing a more contrived situation.

My guess is, we will see periods of expectations running ahead of reality – although the general outcome still potentially looks positive overall but with more volatility and clear periods of panic and decline; and of course the reverse, with signs of underlying growth and optimism.

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Gold – the ultimate hedge, or an increasingly irrelevant asset?

4 Jun

Whether or not you are a gold bug, as followers of the yellow metal are sometimes known, the reality is that gold remains a popular investment asset. More than any other precious metal, gold is where investors turn at times of economic, political and social unrest or as a hedge against currency crises and stock market weakness. Just recently the returns have been less than golden, but opinion is as divided as ever over what the future may hold in store. 

However, the swift reversal in the fortunes of gold – down from a high of over $1900 in 2011 to just above $1,300 this year – has led to technical analysts calling a new bear market. Yet conditions around the world – conflict in Syria, problems with North Korea, continuing concern over economic strength and low-interest rates – set a scene that many would consider conducive to continuing demand.

The recent collapse in the gold price owes much to the increasing level of speculation that surrounds this asset, an approach made easier through the introduction of sophisticated instruments allowing exposure and the use of futures contracts and derivatives. The severe fall in April – the largest for 30 years – was put down to margin calls brought about by recent weakness in the price, thus triggering a further wave of selling. Hedge funds, which are often active in this market, bore the brunt of the blame, though there was some speculation that Cyprus might have to sell some of its reserves as part of the restructuring demanded by the providers of the bail-out fund, perhaps setting the scene for other indebted nations to sell.

However, it is hard to view such concerns as being the reason behind gold’s fall from grace. Cyprus’s stock of the metal is small in international terms, while some governments, such as Sri Lanka, have even indicated that they could take advantage of the decline to add to their reserves. Perhaps a more credible explanation is that the price was driven higher through the availability of cheap money from central banks – itself a response to the financial crisis which gripped the developed world which was just the kind of background that has investors flocking to buy gold as a hedge against uncertainty – and that this will come to an end at some stage.

 

What is the reason for holding gold as an investment?

Make no mistake, gold is currency in its purest form. Until comparatively recently many currencies were convertible into gold – the so-called “Gold Standard”. Globalisation and competitive exchange rates have rendered this particular aspect of gold as an investment largely irrelevant, but it is worth remembering that convertibility into gold was only abandoned by America in 1971.

Perhaps one of the principal reasons for considering gold as a potentially important investment is the limited quantity of it around. It is estimated that all the gold ever mined totals only around 160,000 tonnes – a quantity which veteran investor Warren Buffett once remarked could be held in a cube with sides measuring just 20 metres. The reality, though, is no-one knows for certain how much gold is around, though its durability and the fact that central banks hold a lot of it suggests that most of the gold ever mined is still around in one form or another.

 

Because supply is relatively inflexible (which itself creates a reason for wishing to hold it), price fluctuations are most likely to occur through changes in sentiment. Two macro aspects will influence the price on a regular basis, though. Because gold does not pay dividends and actually costs money to store, interest rates can affect demand, with high interest rates likely to depress the price and low to encourage investing. Recent low-interest rates will certainly have helped the price, with fears that at some stage quantitative easing must come to an end a reason to turn a seller.

 

Similarly, the value of the dollar influences sentiment. Gold is priced in dollars – as is oil, which arguably enjoys some correlation with the gold price – so a weak dollar encourages a rising gold price, just as the recent reversal of the fortunes of the greenback could well have added to the selling pressure. However, gold’s position as a global currency means that some holders will always wish to retain a physical holding in case local upsets render their other assets of limited or unrealizable value. Gold is the ultimate hedge against fear.

 

How might investors gain exposure to gold?

The options available today are far wider – and arguably purer – than those which investors could utilise in the past. Back in 1974, when a global economic and financial crisis on a scale not too far removed from that which gripped the developed world recently brought our stock market to its knees, renowned investor Jim Slater remarked the ideal investment portfolio was shotgun cartridges, tins of baked beans and Krugerrands. This South African minted gold coin closely followed the gold price in value and was much in demand by investors during these difficult times

Gold coins remain an option today, as do bullion bars for the seriously wealthy, but Exchange Traded Funds are now arguably the easiest option for an investor seeking exposure. The first of these to be issued – SPDR Gold – is one of the largest ETFs available, worth around $50 billion. It is also possible to purchase gold certificates, which demonstrate ownership without the costs associated with storage, while derivatives, including CFDs, also provide an option. Gold can easily be included in a portfolio if so required.

 

What about gold mining shares?

One of the less easy to understand aspects of gold investment is that gold shares often do not move in line with the price of the metal. Mining shares, for example, peaked ahead of the gold price and have suffered a torrid time of late. The best known fund, BlackRock Gold & General, includes the term “General” in its title at the insistence of the first manager, Julian Baring. He contended that, while opportunities to profit from gold shares would arise, at times they should be avoided en bloc – hence the ability to purchase other mining assets.

Just recently there has been evidence that the surge in the price encouraged some mining companies to develop higher cost options, which the recent fall in the gold price has rendered uneconomic. Comparing valuations of gold mining shares with those of companies extracting other minerals suggests that this sector of the market’s problems may not yet be over. However, the most important point to make is that mining shares do not automatically confer performance of the gold price to the investor and need to be considered totally separately.

 

Is the future direction of the gold price any easier to forecast than for any other asset?

This is an easy question to answer on the face of it, though what is happening elsewhere in the investment world can give an important steer to how the price might behave. The performance of gold, like any other asset, cannot be forecast with any degree of accuracy. Gold remains an option for those seeking a hedge against the uncertainties that can develop both financially and geopolitically, but is hardly an appropriate investment for anyone seeking income.

That said, there will always be gold followers and gold traders. Watch interest rates and the dollar if gold is an area you seek to follow, but do not expect any silver bullet when it comes to knowing when to buy and when to sell.

Remember, diversification should always be the wise investor’s mantra. So be a gold follower or not, remember not to rely any specific asset class, single strategy or geographic region too heavily – otherwise you risk a higher potential to losses. You could also argue, a higher potential to profits – true but I believe the art of investing is to minimise market losses and enjoy fair potential to market gains. All I would say, is this is a more defensive strategy and has been a successful approach over the last decade or two (showing my age now).

 

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So What’s All This About Adviser Charging

29 Apr

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).

business man writing investment concept or investment plan on white board Stock Photo - 13224684

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.

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Launch of Waverley Court Consulting Ltd – Website www.waverleycc.co.uk

18 Dec

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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The Launch Of My Corporate Website

11 Dec

We are almost there !!!

I expect within a few days my website will be up and available.

The official corporate Financial Services site for Welshmoneywiz is Waverley Court Consulting Ltd.

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Autumn Budget Statement

10 Dec

You have to give George Osborne his dues…we all knew there were failings in the assumptions from the Summer Budget. He didn’t duck the bullet. Rather than just guidelines and review of the Summer Budget (normally what seems to be the Autumn Budget), it was more an introduction to the Spring Budget 2013, giving details of  some of the fiscal changes ahead.

A benefit of knowing about tax policy to be introduced from a future date is, it gives us a chance to plan now.

Registered Pension Schemes

George Osborne made proposals to cut back on the tax advantages of registered pensions.

The bad news :-

• Annual allowance to be reduced from £50,000 to £40,000 from tax year 2014/15.
• Lifetime allowance to be reduced from £1.5m to £1.25m from 2014/15

The good news :-

•  Allowances to remain unchanged for 2012/13 and 2013/14 (at up to £50,000)

• Carry Forward remains unchanged for tax years 2010/11, 2011/12, 2012/13 and 2013/14 (at up to £50,000)

• Fixed protection available – enabling benefits to be taken up to the greater of the standard lifetime allowance and £1.5m without any lifetime allowance charge

1.  Election by 5 April 2014

2.  Protection lost where further accrual/contributions on or after

      6 April 2014

• Personalised protection option – a possible additional transitional protection

1.  Provides a lifetime allowance of the greater of the standard lifetime

     allowance and £1.5 million, but without the need to cease

     accrual/contributions on or after 6 April 2014.

2. Available to individuals with pension benefits with a value of at least

     £1.25 million on 5 April 2014.

• Maximum capped drawdown income to be increased from 100% to 120% of the relevant annuity rate determined from the GAD tables – date to be confirmed.

Planning Opportunities

The reduction in the annual allowance was expected and was only to £40,000 (it could have been worse). The reduction doesn’t apply until tax year 2014/15. Carry Forward of unused annual allowance of up to £50,000 for each of tax years 2010/11, 2011/12, 2012/13 and 2013/14, is available.

It gives a high earners the chance to maximise contributions before the reduction in the allowance bites. Also, for very high earners, if action is taken before the end of this tax year, they may be able to secure the 50% tax relief.

The changes to the lifetime allowance will mean that any one likely to be affected by the reduction and looking to retire in the near future will need to consider all means to reduce/avoid any lifetime allowance charge. This includes :-

  • Electing for fixed protection and/or, if available, personalised protection.
  • Considering drawing some or all of their benefits in 2012/13 or 2013/14 when these will be set against the current £1.5 million lifetime allowance.
  • Consider how benefits are taken.

Income Tax

So, it seems fair to say, there is actually only a very small change in the potential tax bill payable. Personal allowance has increased and the basic rate band has shrunk. The unlucky few are worse off but in most cases the situation seems to either be neutral or possibly a slight improvement.

The personal allowance is to increase by £1,335 to £9,440 in 2013/14 – an improvement in the terms announced in the Summer Budget.

In 2013/14, the basic rate tax limit will reduce from £34,370 to £32,010. This is offset by the increased personal allowance.

The result of these changes is that all taxpayers who are fully entitled to a personal allowance (where net income is less than £100,000) will be better off. At the lower end, the extra increase in the personal allowance will lift a quarter of a million people out of tax altogether.

From 6 April 2013, additional rate income tax will reduce from 50% to 45%. This rate applies for those who have taxable income of more than £150,000. For those affected, there is an incentive to make investments before 6 April 2013 and defer the resultant income until after that time.

In terms of planning for married couples/registered civil partners, this will mean that:

• There is scope to shelter income from tax if a higher/additional rate taxpayer is prepared to transfer income-generating investments (including possibly shares in a private limited company) into a non-taxpaying spouse’s name

• There is an incentive for lower rate taxpayers to make increased contributions to registered pension plans with a view to ensuring that any resulting pension income falls within the personal allowance.

Age Allowance

As the personal allowance increases, the age allowance is gradually being phased out. The amounts of age allowance are frozen at £10,500 for those born between 6 April 1938 and 5 April 1948 and £10,660 for those born before 6 April 1938.

For those who satisfy the age conditions, the age allowance is still currently worth more than the personal allowance. However, the allowance is cut back by £1 for each £2 of income that exceeds the income limit. The income limit will increase from £25,400 to £26,100 in 2013/14.

For those who are caught in this income trap, you should take appropriate planning i.e. reinvesting income-producing investments into tax-free investments (ISAs, VCTs, EISs, SEISs) or possibly tax-deferred investments (single premium bonds) or by implementing independent taxation strategies.

Business Tax

The Government will reduce the main rate of corporation tax by an additional 1% in April 2014 to 21% in April 2014.

The small profits rate of corporation tax for companies with profits of less than £300,000 will remain at 20%.

The capital allowance known as the Annual Investment Allowance will increase from £25,000 to £250,000 for qualifying investments in plant and machinery for two years from 1 January 2013. This is designed to encourage and incentivise business investment in plant and machinery, particularly among SMEs.

A simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013/14 to allow:

Eligible self-employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. Businesses with receipts of up to £77,000 will be eligible and will be able to use the cash basis until receipts reach £154,000. They will generally not have to distinguish between revenue and capital expenditure.

All unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis.

Tax Avoidance and Evasion

As expected the Government unveiled a bundle of measures aimed at countering tax avoidance and tax evasion.

Areas of particular interest are:-

•  The introduction of the General Anti-Abuse Rule. This will provide a significant new deterrent to people establishing abusive avoidance schemes and strengthen HMRC’s means of tackling them. Guidance and draft legislation will be published later in December 2012;

•  Increasing the resources of HMRC with a view to:

•  Dealing more effectively with avoidance schemes

•  Expanding HMRC’s Affluent Unit to deal more effectively with taxpayers with a net worth of more than £1 million

•  Increasing specialist resources to tackle offshore evasion and avoidance of inheritance tax using offshore trusts, bank accounts and other entities, and

•  Improving technology to help counter tax avoidance/evasion

•  Closing down with immediate effect for loopholes associated with tax avoidance schemes.

•  Conducting a review of offshore employment intermediaries being used to avoid tax and NICs. An update on this work will be provided in the Budget 2013.

•  From 6 April 2013 the Government will cap all previously unlimited personal income tax reliefs at the greater of £50,000 and 25 per cent of an individual’s income. Charitable reliefs will be exempt from this cap as will tax-relievable investments that are already subject to a cap.

Inheritance Tax

The inheritance Nil Rate Threshold is to increase, although by only 1% in 2015/2016 to £329,000. Currently, the Nil Rate Threshold is £325,000 and has been frozen since 2009 until 2015. This means, from 6 April 2015, if the first of a married couple to die does not use any of his/her nil rate band, then the survivor will have a total nil rate band (including the transferable nil rate band) of £658,000.

We await the outcome of the consultation on the taxation of discretionary trusts which is due to be released in December. Hopefully this will incorporate some simplification to the current complex system.

Capital Gains Tax (CGT)

The CGT Annual Exemption (£10,600 in 2012/2013) will increase to £11,000 in 2014/2015 and £11,100 in 2015/2016. We do not know what it will be in 2013/14.

Gains that exceed the annual exempt amount in a tax year will continue to be subject to CGT at 18% and/or 28% depending on the taxpayer’s level of taxable income.

Trustees pay a flat rate of 28% on gains that exceed their annual exemption.

Individual Savings Account

The current maximum investment in an ISA is £11,280 in a tax year (maximum of £5,640 in cash). With effect from the tax year 2013/2014, the maximum will increase to £11,520 (with the cash content not to exceed £5,760). Use of the allowance should always be maximised as any unused allowance cannot be carried forward.

The Junior Isa and Child Trust Fund maximum annual contribution limit will move from £3,600 to £3,720 from 6 April 2013.

The Government will consult on expanding the list of Qualifying Investments for stocks and shares ISAs to include shares traded on small and medium enterprises (SMEs) equity markets such as the Alternative Investment Market and comparable markets. This could lead to ISAs becoming even more appealing as a tax shelter.

Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS)

The rule changes, mostly approved months ago, revolved mainly around opening up more companies for investment from VCTs and EIS, and increasing how much can be invested.

The size of companies that the schemes can invest in has been increased from £7 million to £15 million and the number of employees from 50 to 250.

The limit on the amount an individual can invest in an EIS has increased from £500,000 to £1 million, while the amount an EIS or VCT can invest in an individual company has increased to £5 million.

Ian Sayers, director general of the Association of Investment Companies (AIC), commented, ‘The proposed rule changes allow VCTs to invest in a wider range of companies which is a welcome boost to the sector and businesses desperately seeking finance.

‘The Chancellor’s removal of the £1million limit on VCT investment in a single company will ensure more efficient support to smaller businesses in the UK.’

However, the Budget also finalised plans to subject VCTs and EIS to further scrutiny in relation to the investments that they make.

The government will introduce a ‘disqualifying purpose test’, designed to exclude VCTs or EIS that do not invest in qualifying companies and are set up solely for the purpose of giving investors tax relief.

Although the schemes escaped any changes to their individual tax benefits, the Budget introduced a cap on tax relief, in an effort to prevent high income taxpayers getting away with very low tax rates.

The new rules will set a cap of 25% of income on anyone seeking tax relief of over £50,000 but, while the proposals are not particularly clear, it appears EIS and VCTs will be exempt.

Paul Latham, managing director of Octopus Investments, explained, ‘The good news is that the government’s new cap only applies to tax reliefs which are currently classed as “unlimited”. This means that tax-efficient investments, such as EIS and VCTs, are unaffected by this legislation.’

 

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