November 2011 - Financial Planning in Wimbledon

The Joke Economy? Not Quite So Easy

I received this as an email this morning and thought I would share it with you on a day that probably requires some humour – with my own thoughts.

1949: Always Leave Them Laughing

Suggestions for fixing the UK Economy:

The Patriotic Retirement Plan

There are about 10 million people over 50 in the work force. Pay them £1 million each severance for early retirement with the following stipulations:

1) They MUST retire.

Ten million job openings – unemployment fixed

2) They MUST buy a new British car.

Ten million cars ordered – Car Industry fixed

3) They MUST either buy a house or pay off their mortgage –

Housing Crisis fixed

4) They MUST send their kids to school/college/university –

Crime rate fixed

5) They MUST buy £100 WORTH of alcohol/tobacco a week …..

And there’s your money back in duty/tax etc

Whilst the above is amusing, sadly life is not quite as straight forward as that for the Government (of any persuasion).

1. For example, making everyone over 50 retired, would create a significant gap – there are nothing like 10m unemployed people in Britain. It would also be folly to ditch anyone over the age of 50 who has a wealth of experience and value. It also smacks of ageism and a lack of understanding that skills are honed over years. There are also plenty of people unemployed over the age of 50. There are roughly 29m people in work, roughly 25m employed and 4m self-employed, 107,000 unpaid family workers and 87,000 in Government training and employment programmes. Of roughly 29m in work, 7.8m are part-time. (aged 16+) of a population of 62.3m.Of the 29m people working in Britain 86% were born in the UK. The average public sector employee pay is £24,804, in the Private sector it is £23,920.

2. If it were simple to fix the British car industy, this would have been done. The sad reality is that British Companies do not really make mass market cars. “British” cars are rather rare and even Top Gear might think that they wouldn’t be suitable for everyone. The UK has about 2% of the global passenger car production. Of car production (which is a wide term) 75% is exported. Last year (2010) Nissan produced the most cars (432,262), Mini BMW (216,302) Land Rover (179,165) Honda (139,278) and Toyota (137,054). Whilst we may think of Land Rover as British, it is owned by Tata Motors from India, who also own Jaguar.

3.The housing crisis is not solved by repaying mortgages or buying homes. The problem is that property is over-priced and “out of reach” of many people. The declared income of average First Time Buyers in 2010 was £44,464 who took an average 68.9% mortgage. There is a lack of homes to buy where people want to live, which is why prices have soared in certain areas. In 2000 there were 25.2m dwellings across the UK by 2008 this had risen to 26.9m. Price increases have largely been fuelled by all home owners, myself included, who want to maximise the value of their home. This has been worsened by Estate Agents who price property by comparison to other properties not on what they are worth (but what real choice do they have in this). Similarly Surveyors are caught in the same game. The price problem is made worse by anyone that owns more than one property.

4.Education does not make people honest. Crime is generally related to a perception of lack. There are plenty of very well educated individuals that have committed massive financial crimes. A thoughtful reflection about war/conflict might cause one to consider who actually financially benefits. A University education does not by default create a model citizen. Emotional intelligence is grossly undervalued and largely ignored. Since the 1970’s the number of people in higher education has almost quadrupled from 621,000 to 2.5m in 2007/08. In the same year having attained a first degree only 60 percent moved into UK employment within 6 months. Crime levels of all types have remained reasonably static at around 11m reported incidents. More sophisticated crime in terms of plastic card fraud has increased in value from about £130m in 1998 to over £600m in 2008. The Prison population has increased from about 40,000 in 1978 to about 85,000.

5.The notion that excise duties are in some way a tax back is deeply flawed. The spending on healthcare in 2009 was £136.4bn compared to £54.8bn in 1997 an increase of nearly 8% a year. As a proportion of GDP this has risen from 6.6% to 9.8%. The Private sector spending on healthcare has remained relatively stable at between 1.3% and 1.6% of GDP. Few people actually pay in tax what it costs for the NHS to care for those with drink, drug or alcohol problems, let alone the associated costs where lives have been wrecked. In 2009 there were 8,664 alcohol related deaths, two thirds of whom were male. However coronary heart disease is the major cause of death, breast cancer and lung cancer follow closely in the tables for those that died between the ages of 35 and 79 in 2009.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

The Joke Economy? Not Quite So EasyDominic2023-12-01T12:48:31+00:00

Grim Reality of Tall Tales

2005: Brothers Grimm – Terry Gilliam

Today is St Andrew’s day and a day of strikes across the country, which will be loaded with opinion depending on which side of the argument you sit and probably where your pension fund is currently held. I am not going to get into this one as I think I have already said enough about pensions.

On Monday I wrote a piece “Missed Target – The Cost Of Failure“. Well the price tag of this failure has now been released, with the FSCS drawing up a £58m hitlist. Whilst this is more akin to the shopping budget of some Premiership football teams, this is in fact the amount of money that the FSCS are now chasing from IFAs across the country that advised and arranged Keydata products. The lawyers for the FSCS (Herbert Smith) have taken the highly unusual and arguably unhelpful step of publishing the list, which will obviously not do the reputation of those firms any good. There are 437 firms listed, sharing the collective bill of £58m, nearly 100 of them have exposure of over £100,000 and I would be surprised if this didn’t turn into a list of firms going into administration, which would be a very sad turn of events, 15 of the companies are being chased for more than £500,000 with Chase de Vere having a massive £8.5m (nearly 14% of the total).

This is not good. It is rarely good when a business fails, but for those that do, all that will happen is that the outstanding bill is passed to the remaining IFA firms – who are not even on the list because we didn’t sell Keydata products. This increases operational costs considerably, reducing profitability and therefore sustainability. I’m sorry, but I just don’t understand the wisdom of the system that eventually simply punishes good practice by default. There’s also more to come of similar products (also rubbish) that it is reported has a list five times as long.

Sadly, the failure of Keydata is a failing at lots of levels, but above all, surely the structure of the industry is now very much shown for its failings. Research into products needs to be done not just by the IFA but also by the regulator and professional indemnity insurers and arguably industry journalists. If Enron taught us anything, it was to ask awkward questions when the supposed professionals (Arthur Andersen) were blinded by a story. Everyone knows that you shouldn’t judge a book by its cover, but of course in today’s culture it seems that this is harder to remember.

The link between those selling and buying Keydata products and the strikes today to my mind seems to be one of defying the sad, but real constraints of life, ultimately the price has to be paid. Any Government that takes a responsible approach to public finances, needs to research the commitments that it takes on. To do otherwise is like the IFAs that didn’t look under the bonnet of Keydata. Caught in time means that the pain is less than it would have been, but it was always going to hurt because expectations were wrong. We have myths and fairytales to remind us of truths. Beans are not magic.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Grim Reality of Tall TalesDominic2023-12-01T12:48:32+00:00

Autumn Statement – deckchairs on the Titanic?

1997: Titanic – James Cameron

Perhaps its me, but my impression of the Autumn Statement today was frankly underwhelming. In fairness, bar a complete change of policy the Chancellor has worked himself into a corner. The growth forecasts are cut, public sector pay has been more or less frozen. The hope is that for UKplc this is not a case of rearranging the deckchairs on the Titanic. The Chancellor seems upbeat, but then he has to. He wasn’t dealt a terribly good hand and he is now stuck playing it as well as he can. The economy and frankly Parliament are short on good ideas to get us out of the recession.

One of the positive announcements was the provision of £40bn to small businesses. Whilst this is a big number, by comparison to the NHS Budget of £106bn it is relatively small. This after all is the Budget to help our ailing nation and where wealth and job creation are supposed to begin (in the private sector). There was as a case of deja vu – with social tennants given the opportunity to buy their homes at a 50% discount on a right-to-buy basis – something that we have certainly seen before with council homes.

Many of us will be receiving a State Pension later (if there is any money left by then) and the £1m limit of Venture Capital Trusts will be removed. This has little real benefit to the vast majority of the population directly and I have my reservations about the genuine long-term business plans of VCTs.

Most of us probably would have expected this sort of Statement. There isn’t money around and there’s not a lot of festive joy to be gained, save altering an petrol price increase, which has not even happened yet. So whilst I attempt to digest the 98 page statement, I don’t think there’s an awful lot to write home about, but I will keep you posted. I assume that the strikes by Public Sector workers will proceed tomorrow.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Autumn Statement – deckchairs on the Titanic?Dominic2023-12-01T12:48:33+00:00

Missed Target – The Cost of Failure

1941: Target for Tonight

Sadly I have heard that yet another IFA firm has gone into administration, this time from my old stomping ground in Bath. This was primarily due to the compensation claims levied against them for selling clients Keydata products. The compensation claims seem to have run to £6m. The firm concerned (Target Financial Management) was part of a group called Target Chartered Accountants and both have now gone into administration according to the financial press.

This is a very sorry tale – in January this year all IFAs were invoiced for the collapse of Keydata by the FSA to the tune of about £93m. This levy was applied to all adviser firms, irrespective of whether they had advised/arranged/sold Keydata products. So even firms like us, that didn’t think Keydata were any good, were still caught up in the fiasco.

As we approach the deadline for RDR on 1st January 2013, IFAs will only be able to use the term “independent” if they genuinely consider the entire market of funds – duff ones and unregulated ones as well. The problem with this is that many IFAs are concerned that unless they sell these sort of products the regulator may withdraw their ability to use the term “independent”. I can see many old problems reappearing. Even today the regulator has expressed grave concerns about “Life Settlement Funds” which they describe as “toxic” and having no benefit to investors – again nothing we have ever sold to clients, but undoubtedly will have to pick up the bill for those that have.

So contrary to the view that a “competitor” going bust would surely be welcome news – it really isn’t. Fewer advisers means the public have less choice and probably higher costs. Yes when mistakes are made redress should be made, but investors must also share the responsibility when things don’t go well. Advisers should be better informed and clearly have the ability to investigate products more thoroughly, but investors must also ask questions. Clearly not enough questions were asked and few actually remembered the adage – if its too good to be true… it probably is.

The changes that are coming are likely to see more Accountant firms link up with IFA firms. This can work well, but as today’s news from Bath highlights, one mistake can take the entire house down. So this should serve as a warning to those firms considering joint-ventures or attempting to operate in a field of expertise which they lack. Better each to his/her own. So if your Accountant is considering this, or you are an Accountant, please may I encourage you to learn from the mistakes of others like TCA and not repeat them, because I’m fed up of paying for the mistakes of others, particularly when I thought that the investments were daft.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Missed Target – The Cost of FailureDominic2023-12-01T12:48:33+00:00

Cash ISA and the Bait Rates

1954: Bait – Hugo Haas

Here are some of the better rates of interest being offered by Banks and Building Societies in the UK. Please remember that you should check the detail – have a look at Moneyfacts. Beware of headline rates which are really little more than bait (or in current parlance “marketing”) for an investment product not really a deposit account (I still don’t understand why this has not been properly prevented by the regulator). It almost seems too obvious to say it, but we are in fairly precarious economic times, so I would urge you not to hold more than the FSCS protected amount of £85,000 with any single bank unless it is absolutely necessary. What we took forgranted as “safe” only a few years ago has been rightly questioned.

One Year Deposit

Online: Yorkshire Bank 3.60%

Bank: Santander 4.20%

Building Society: Barnsley 5.00%

Two Year Deposit

Online: Vanquis Bank 4.05%

Bank: Clydesdale 4.01%

Building Society: National Counties 3.76%

Instant Access

Online: Coventry 3.15%

Bank: Santander 2.50%

Building Society: Nottingham 3.25%

Cash ISA Fixed Rate

Online: Governor Money 4.50%

Bank: Halifax 4.40%

Building Society: Barnsley 5.00%

Cash ISA Variable Rate

Online: AA Savings: 3.05%

Bank: Santander 4.00%

Building Society: Newcastle 3.05%

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Cash ISA and the Bait RatesDominic2023-12-01T12:48:34+00:00

NEST: In a Flap about Pensions?

1951: Love Nest – Joseph Newman

There is speculation that the Government will announce that the auto enrolment (NEST) will be delayed for firms with 40 or fewer staff, perhaps by a year. This is political kudos, which would be seen as helping small businesses, by reducing the cost of implementation and ongoing additional pension costs. As this is little more than a “quoted source” there is no substance to this information until the Treasury says something rather more concrete. On Tuesday we may find something in Mr Osbourne’s Autumn statement, but until then, assume that nothing has changed.

If you would like to know when your firm has to comply with NEST (its currently intended staging date) then click this link. You will need the last two letters of the firms PAYE code if your firm has fewer than 50 staff.

There are now a growing number of organisations interested in running NEST qualifying schemes, even one from Denmark. The auto enrolment process is a fairly “involved” process. The largest employers – which includes the State institutions are due to begin NEST in October 2012. It isn’t until a year later that firms with fewer than 1,000 staff must set a scheme up (or have a compliant one). At the moment, the earliest a small firm (fewer than 50 staff) would need to have implemented a scheme is August 2014. In practice The Pensions Regulator will contact the employer a year before their outlined staging date. If you need help with your pension at work or what to know about the implications for your own existing pensions do get in touch.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

NEST: In a Flap about Pensions?Dominic2023-12-01T12:48:34+00:00

When Digging A Hole Works

1985: King Solomon’s Mines – Thompson

Antofagasta announced their Q3 results today, showing a 28% increase in profits. Not heard of them? well anyone with a UK index tracker will have holdings in this Chilean mining company, specialising in copper. In fact the company have been part of the UK’s 100 top companies for some time – since 2004. This is a reminder that whilst investing in the UK would on the surface appear to be investing in Britain, in reality the world is rather smaller and indeed something like 70% of revenues of the FTSE100 are generated on a global basis on a UK basis. There’s nothing particularly bad or wrong with this, but it needs to be understood that the the UK market is heavily linked with the global market, whilst we are a geographical island, our financial and commercial systems reveal very different realities.

In the case of Antofagasta, roughly 95% of their revenue is derived from mining, the vast bulk (65%) of which over the last 9 months was from Los Pelambres, in Chile. Suddenly the connection to the Chilean miners rescued last year becomes a little closer. In fact all of the mining revenue comes from Chile, with mines in – El Tesoro, Esperanza and Michilla making up the remaining 35% of revenue from mining. Yet this is a UK listed company and part of the FTSE100 index – a small world indeed.

Turning to some of today’s news, the Germans are contemplating the implications of a poor showing in the Bond auction. The Americans are taking the day off as it is their Thanksgiving. The UK economic data for Q3 revealed growth of 0.50% which was probably better than many expected and British supermarket giants are expected to begin a Christmas price-cutting war and the Portuguese have gone on strike in relation to austerity measures and Portuguese Bonds have been downgraded to junk status. Meanwhile Iceland (the country) have been given a revised (upward) outlook as “stable” by credit rating agency Standard & Poors. Nervousness continues and caution is advised – noises are being made about global contagion, not simply European contagion.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

When Digging A Hole WorksDominic2023-12-01T12:48:35+00:00

Who Cheques Which?

2011: The Adjustment Bureau

Today, Which? have announced that they plan to become one of the largest mortgage advisers in the UK. They propose offering a “free” service. Here’s my two bits worth.

Firstly, I think that for an organisation like Which? to become a product supplier is counter-productive if they wish to remain an independent assessor/evaluator of products and services. Secondly and frankly more importantly, to use terms like “free” is decidedly misleading. Which? currently employ staff (advisers) to provide mortgage advice and have presumably regulatory, PI and operational costs. The mortgage companies pay them a procuration fee for placing a mortgage (which is related to the size of the mortgage), but some (a small number) do not. Which? currently take this “on the chin” which in their speak is their own reserves (their own money). At the moment this is about 20% of the mortgage cases that they place. This model is not sustainable in an environment where the client has to be (finally!) told what the costs are. The procuration fee is effectively a cost built into the mortgage, which if removed (often it cannot be) would reduce the cost of the mortgage. I believe that any consumer champion should be advocating that mortgages, one of the biggest financial commitments, are transparent in the same way. This means lenders will have to pull apart their pricing structure, separate out the parts and then put them together again in a clear fashion. This is precisely that is happening to investment products from 2013 – with all of the “costs” separated out.

Which? normally berate companies that say things are fee, when in reality there is a cost. Here they seem to have become blinded by their own ambition. Certainly set up a decent mortgage broking company, but please do so in way that applies business practices and accounting principles that demonstrate a viable, sustainable approach. Frankly this smacks of yet another media outlet protesting its independence, whilst actually being paid to sell products. Most, if not all of the main newspapers have a cut of commission from selling insurance in various guises to its readers, yet failing to disclose this rather fundamental point.

I wonder, if given that a mortgage is going to be arranged, whether Which? will provide proper advice regarding relevant and suitable protection products – which the FSA would expect any other adviser to do, ensuring that should problems befall the borrower, they are not unprepared. If so, Which? would have to become a proper financial adviser – but under RDR rules, they would be restricted, not independent, unless they also offer the full range of investment advice. The term independent is one that I assume that Which? regard rather highly. Oh dear, it seems as though they have not really thought this through. Another mess waiting to happen.

As I don’t arrange mortgages and any protection policies arranged has all commission removed, I think I’m probably in a position to cast justifiable doubt on what Which? are proposing.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Who Cheques Which?Dominic2023-12-01T12:48:35+00:00

Happy Birthday to…

2008: The Dark Knight – Nolan

The markets are in the doldrums today, news generally is bleak with further anxiety about the Eurozone. The FTSE100 is close to 5,100 and the Dow Jones has fallen 200 points today at the time of writing.

So how about a couple of Happy Birthdays. According to IMDB, Diana Quick is 65 today. Daniel Pinder, from Wimbledon is celebrating his 40th birthday. He is a music editor with a very impressive resume working on a variety of films like the Batman film The Dark Knight, X-Men First Class, The Boat That Rocked and The Holiday.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Happy Birthday to…Dominic2023-12-01T12:48:36+00:00

Best Cash ISA – The “Good” Bankers?

Banks have been hammered by the markets of late. You may have seen Ian Hislops programme on the BBC this week “When Bankers Were Good”. You can still see this on the BBC i-player. In the meantime, here are some of the best rates available.

One Year Deposit

Online: Yorkshire Bank 3.60%

1970: Scrooge – Ronald Neame

Bank: Santander 4.20%

Building Society: Barnsley 5.00%

Two Year Deposit

Online: Clydesdale 4.01%

Bank: Yorkshire Bank 4.01%

Building Society: National Counties 3.76%

Instant Access

Online: Coventry 3.15%

Bank: Santander 2.50%

Building Society: Nottingham 3.25%

Cash ISA – Fixed Rates

Online: Governor Money 4.05%

Bank: Halifax 4.40%

Building Society: Barnsley 5.00%

Cash ISA – Variable Rates

Online: AA Internet 3.05%

Bank: Santander 4.00%

Building Society: Newcastle 3.05%

Don’t forget that this is not advice, merely a current list of top rates. You need to check the details and I suggest looking at Moneyfacts. Also remember the limit on protection for financial deposits as outlined by the FSCS.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Best Cash ISA – The “Good” Bankers?Dominic2023-12-01T12:48:36+00:00