May 2012 - Financial Planning in Wimbledon

What If …. It all goes wrong?

1996: Portrait of a Lady – Campion

This afternoon I met with a long-term client that really gets what we are doing for her. She is a very fit 80 year old lady with a sharp mind and a lovely sense of humour. Inevitably we turned to the awkward topic of life expectancy and discussed her family history and her opinions about potentially needing assistance and long-term residential care. We clarified her thoughts about leaving and selling her home should she require care. We also talked about her desire to help her wider family and the possibility of needing to spend money on her own healthcare. Naturally she also has concerns about the state of the world and global stockmarkets, how much should she hold in cash as an emergency fund and so on.

I do some sums, adjust her financial plan and reveal that allowing for her current rate of spending and estimated giving and medical bills, she can afford her portfolio to achieve a return of -0.51% a year. In other words, she can afford to achieve no (negative) growth and still have sufficient funds. If there is a dire stockmarket crash of 35% that doesn’t bounce back, but is simply marked as a “correction” her returns need to achieve 2.86% a year. Now nobody wants a crash and I have yet to meet someone that wants to enter residential care rather than living in their own home, but this sort of analysis and information is vital to providing peace of mind. Certainly we can adjust some of the assumptions, even the most apocalyptic assumption of a 65% crash that doesn’t recover, would mean that her investments need to generate 7.89% a year. The important ingredient going forward will be to review her plan carefully, balancing risk and reward with needs and making sure that she is within her own budget (not ours). This is the power of good financial planning.

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

What If …. It all goes wrong?Dominic2017-01-06T14:40:02+00:00

Double or Nothing? Reality Check?

1993: The Assassin – John Badham

Continuing on the theme of financial planning assumptions, today the FSA have launched a consultation process on reducing investment assumptions. Taking guidance from PWC, the FSA are reflecting on advice to cut investment assumptions about future returns. Unless there is a form of proper explanation, I fear that many will be more confused and deterred from investing – precisely the opposite objective of the FSA.

Assumptions about investment returns boil down to some fairly basic maths. For example, let’s take the “endowment mis-selling scandal”. Suppose you need to build a fund of £100,000 over 25 years to repay a mortgage. Whilst there is an element of life assurance (which has a price) and investment charges, tax and commission (all of which gave rise to the mis-selling). How much you are asked (or quoted) to contribute depends upon your initial assumption. Setting aside the costs etc as mentioned, just considering the maths to build a fund of £100,000 over 25 years the following would apply.

A 5% growth rate results in £170.03 a month (total outlay £51,010)

A 7% growth rate results in £126.99 a month (total outlay £38,097)

A 9% growth rate results in £93.87 a month (total outlay £28,161)

As you can see, for many people attempting to keep costs to a minimal amount, you will appreciate why they were lulled into using assumptions about higher rates of return, particularly when at the time, the longer-term average returns were fairly similar. Sadly returns have not held up to the assumptions in the majority of cases and one might argue that the long-term economic picture has altered to the extent that lower rates of growth should be assumed. Hence the PWC advice to the FSA.

The problem is that the proposed rates of return being suggested for a pension or ISA (which have tax advantages) are being reduced from 5%, 7% and 9% to 2%, 5% and 8%. In other words slashing the projected rates 60%, 28% and 11% respectively. This is primarily because of low interest rates and low inflation, anticipated (assumed) for the long-term. Let’s take another example… building a pension fund over 30 years to a size of £1m.

Old Rate 9% = £583.31 a month (outlay £209,991)

New Proposed Rate 8% = £705.40 a month (outlay £253,945 = 20% more)

Old Rate 7% = £850.30 a month (outlay £306,109)

New Proposed Rate 5% = £1,221.46 a month (outlay £439,725 = 43% more)

Old Rate 5% = £1,221.46 a month (outlay £439,725)

New Proposed Rate 2% = £2,032.23 a month (outlay £731,604 = 66% more)

Just reflect on these numbers for a moment. You are a bright person and know that actually we have no way of knowing what the future returns will be in practice. We need to make sensible assumptions, which need to be based on experience of reality. Setting aside the problem that some investments are overpriced and some managers are rather poor, do you believe that the “average” person will interpret these figures as guidance and will simply assume that its better to give up before starting, becoming ever more reliant upon the State. It is an irony that the regulator asks us on the one hand to treat past performance as an unreliable guide to future performance, but then stipulates the rules about projections. In truth it would be more grown up to have a proper conversation about individual and personal expectations, attitude to risk and capacity for loss, but this takes time, something which also needs to be paid for. Something that will be a bridge too far for most UK investors from 2013, when their financial adviser is finally forced to ask for a fee – something that we have always done with our clients, so that they are shown the truth about money.

Oh and by the way, if inflation is 2.5% a year, a £1m fund over 30 years is equivalent to roughly £480,000 today. It is the link to inflation that needs exploring very carefully indeed. The problem with the proposed rates, is primarily not that context is everything, assuming a return of 2% when most savings accounts can provide more, will lead people to draw the conclusion that there is no purpose to investing. We will have reached the point of no return – particularly with inflation higher than 2%. Whilst having a realistic assumption is clearly sensible, without explanation, the FSA risks putting off millions of people from making provision for their future – which will inevitably be linked with ours.

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

Double or Nothing? Reality Check?Dominic2017-01-06T14:40:02+00:00

Financial Planning – Life and Death?

1937: Dead End – William Wyler

Predicting the future is a pretty difficult task. There is a degree to which we probably all hope that someone knows what is going to happen, though of course we actually know rather better in practice. The media seem to love speculating about tomorrow, indeed the more I watch the output from media outlets, including the BBC, I’m struck by how much of the “reporting” is no more than speculation, obsessing over what might happen, rather than seeking to clarify the choices and consequences.

Financial planning has a degree of future prediction about it, which for some can feel all too like crystal ball gazing. Cards on the table, I don’t believe that crystal balls have anything to tell us about the future. Indeed one might suggest that more can be revealed by someone’s body language, tone and general demeanour about how the future is likely to look for them, something that an accomplished “reader” can interpret to their own advantage.

However, financial planning is about attempting to address estimates about the future. Starting with the end in mind, some very awkward thoughts about when you die (not a terribly British conversation) is going to frame your financial plan. None of us know when this will be (unless we are determined to end our own life). This is perhaps the most significant assumption of all when it comes to financial planning. Assuming you live to 100 but then only living to 85 has implications. For example, your savings were assumed to be required for a further 15 years, which may have meant that you couldn’t spend, give or have quite as much as you would have liked to have done. As your income was assumed to be needed for a further 15 years, perhaps your investments were assumed to need “to work” harder than they actually had to – by which I mean taking more investment risk for a higher return. Perhaps out of concern for a long life, you deferred some spending that was actually rather important to you. As you can see – lots of questions and resulting choices from a single assumption about when you die.

This is why a great financial planner will not only raise the issue (most don’t seem to) but also explore the implications with you and revisit the agreed assumptions each year as part of the review/refocus process. Starting with the end in mind is vital when designing your financial plan. I wouldn’t want to be a guest at your 95th birthday party if we had only planned for your money to last until 95. So think carefully about your assumptions, as many have said, to ass-u-me, can make an ass of you and me. Of course, living each day as though it were your last may have other implications too.

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

Financial Planning – Life and Death?Dominic2017-01-06T14:40:02+00:00

Lessons from Greeks – Stay the Course

1954: Ulysses – Camerini

One of the great things about being a financial planner and member of the IFP is that I get to hear a lot of really good talks from very well informed people. Last night’s local London IFP branch was no exception. The topic was behavioural finance from a leading author and speaker on the topic, Greg B Davies. I won’t be able to any justice to the content of his talk in a few words, but he played some “behavioural theory” mind games with us – helping us to see the different ways in which people perceive risk and the behaviours that they adopt. Importantly, he suggested that how questions are “framed” can manipulate behaviour, which is something that every impartial financial planner needs to be aware of.

Whilst there are many exceptions, Greg was very clear that solid psychometric testing for risk is the logical and most preferred way to asses your attitude to risk – in essence a ringing endorsement of our approach and use of FinaMetrica risk profiling with clients. However, this is part of the story and as an adviser, I need to be mindful of the reluctance of clients (investors) to realise a loss – even though it may be sensible, logical and beneficial, realising a loss is something that as humans, we struggle to do. As many others before him have suggested, to be good investors we need to remove emotion from our decision making. However, he recognised that this is not an easy discipline, we can have very good and rational reasons for “selling at the bottom”, although such a decision will not serve us well in the long-term.

Greg warned of the problems of short-term thinking and investment strategies focused on the short-term. We need to be mindful of the fact that in general, we as humans tend to dislike losing money twice as much as we like making money. He also argued that whilst there are flaws in Modern Portfolio Theory, it is currently the best model that we have to help investors achieve an appropriate balance between risk and returns. Greg reminded me that perhaps the most important role a financial planner plays is helping clients reduce the number of mistakes that they would otherwise make. He reminded us of the image of Odysseus, (Greek version of Ulysses) who knowing that he was going to be lured by Sirens, bound himself to the mast of this ship, and stopped the ears of his crew with wax so that they would not hear. A familiar story, but what I hadn’t reflected on before was the practical limitations that running a ship whilst being tied to the mast, providing direction to people that cannot hear. This (discomfort) was the “price that needed to be paid” to avoid the limitations human nature (to succumb). So as markets remain “nervous” remember the long-term perspective, stick to your goals, and take heed of Odysseus who was thoughtful enough to defend himself from himself.

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

Lessons from Greeks – Stay the CourseDominic2017-01-06T14:40:02+00:00

Cash ISA Update

1935: The Irish In Us – Bacon

A quick update to the Cash ISA rates. Remember this is not advice, just a list of some top rates – however you should do your own checking of the detail (I suggest looking at MoneyFacts) and remember the compensation limit of £85,000 per person per banking license.

The only real change on last week is the Post Office, who have made a bit of a play for online savings, (Issue 5) which can be accessed “24/7/365″… which is asking for trouble! Now paying 3.17% it is better than a considerable number of Cash ISAs. However, be warned that the Post Office Ltd (not the same as National Savings) is an appointed representative of the Bank of Ireland (UK) Plc. If you would like to see their latest credit report, just click here. Though be warned, the data only goes to June 2010, which is pretty useless as its nearly 2 years out of date. So be warned, if you are able to place the maximum of £2m into this account, only £85,000 of it will be protected by the FSCS.

Otherwise rates look fairly unchanged. Kent Reliance have altered their fixed rate Cash ISA to 4.00% for their 5 year fix, which is probably good for a mortgage or loan, but not for your savings – locking in for 5 years at 4% seems like a very gloomy outlook for interest rates over the next 5 years.

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 UpdateDominic2017-01-06T14:40:02+00:00

The Value of Memory Lane

2006: The History Boys – Hytner

Financial Planning comes with baggage (a lot). We have all probably had some bad experiences with money, perhaps a tale or two about being ripped off. Childhood experiences of money – right from our family approach to reward and affirmation to the holidays we took and our pocket money budgeting skills (or lack of). In essence our experience of money in our formative years invariably provides the backdrop for our adult experience. Our relationship with money is complex and I am always intrigued by it.

This weekend was a family celebration for my family. We decided to meet up in the west country, where I grew up. I had booked a B&B for the weekend, and rather surprised to find my old History teacher welcome us inside (thankfully History lessons and exams hold good memories for me). We met up with several long-term family friends, many of whom I had not seen for over thirty years, yet the memories came flooding back. Its funny what we can remember. I was aware of how much I had changed, but also how my own childhood seemed so relatively simple. It also seemed that life was also much more straight-forward. Most people probably had little if any financial planning back then, financial products were certainly fewer and appeared to be quite simple (from today’s perspective). Now there is a huge amount of complexity and potential for disaster from an enormous array of financial products. Yet, the reality is that little has really changed. Today people want what they wanted then – a life that involves enjoyment, fulfilment, meaning, and as little anxiety as possible. Yet we seem to have complicated this to the point of paralysis with information overload. Things change – most obviously in the purchasing power of a pound (which was a paper note in my childhood). It was amusing to listen to my brother attempt to explain inflation to his son – which of course is often explained in terms of the price of sweets.

However, the past is the past. It is the backdrop, it is not our future. Certainly the predictability of domestic family life has an element of repetition. It has lessons to teach us and warnings to heed as well as reminding us of our roots and providing a “grounding”. However, the role of a good financial planner is to help make the complex rather more simplified. To keep the focus on what is important to you (not the market and certainly not the media). Predicting the future is folly, we all know that life can deliver an unhelpful curve ball or two, however, being prepared, being able to know what you value not “what your valued” can have a very liberating and anxiety reducing effect. To your future!

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 Value of Memory LaneDominic2017-01-06T14:40:02+00:00

The Hunt for Decency

2007: The Hunting Party – Shepard

The financial services industry has a poor reputation I admit. In the 1990’s it was quite common for me to come across people that had been mis-sold policies and this left me and those that I worked with at the time somewhat vitriolic in our distaste for others in the “industry”, we saw ourselves as the good guys in a fight to help people get decent financial products. My view was that most advisers were liars, cheats and thieves. Since then a few things have changed. Most importantly, I have altered, I have matured and have also been able to see my own short-comings. This, I am told is how it is.. the more you know, the more you know you don’t know. Back in the 1990’s I was still selling products like almost all other “advisers” at the time. I still don’t believe anyone was disadvantaged, but with the benefit of experience, I can say that things could have been better. Hence in 1999 when I started my own firm, things would be very different. They were. I was better at my job and charged less for doing it (eh?) I was vastly more efficient (funny how running your own small business does that), clients were better off, the products were better. Turning up to training seminars, I was still seething at the way many “advisers” operated on a commission basis still (the car park told its own story) and whilst I came across fewer examples of mis-selling, was of the opinion that it was still a product driven industry full of crooks.

It wasn’t until I joined the IFP and began what I would now call proper financial planning, that I found my own attitudes changing towards other advisers. Finally it seemed that we could work collaboratively, seek out each others help and experience. I was also aware that some of them are actually really rather clever and very good advisers, not to mention holding high standards of practice and ethics. Over the last 5 years or so, I have had renewed faith in my own industry, with a real sense that advisers and their advice (and how they charge for it) has been improving dramatically. I had been wrong about many of them. The new RDR rules have helped this process too, catching far more advisers up in the transition to decency than would otherwise have happened, left to their own devices. Ok, I still meet some that simply don’t get it and fail to or lack the ability to think, but this is rarer than it was. Most are engaged with the change.

So it particularly grates on me when clients are hassled by people from claims companies attempting to get them to complain about PPI. I have had two clients in the last 2 weeks double check with me (having been hassled to the point that they thought it wise to do so) that they have not got PPI (they hadn’t). The claims “adviser” was adamant that they had a valid claim and had exerted considerable pressure to get them to appoint him to make a claim on their behalf. Let me be clear. These claims consultants are ruining what remains of any faith in financial services. They are scoundrels. They have broken the data protection laws in obtaining information about people, they have then lied about what they know, and lied about what they charge for their “service”. They are exactly the sort of people that mis-sold PPI, which for the record does not include me. They are wasting vast amounts of time and money, chasing claims that do not exist, making false promises and in it only for themselves. Much like the deer that sought out and attacked my dog (without provocation) as we walked in Richmond Park this morning, these claims consultants will meet with the same short sharp response from me….”go away!”.

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 Hunt for DecencyDominic2017-01-06T14:40:02+00:00

Cash ISA Update

2010: Conflict of Interest – Manning

As usual, for the sake of the hard of thinking, I need to state that this is not advice, but a list of some of the better rates available “out there”. You should always check the detail and I recommend doing so via the Moneyfacts website as your starting point. Remember the rules about consumer protection – only the first £85,000 is covered by the compensation scheme (FSCS) and be warned that there are a number of Banks that come under the same Banking license. I would be unwise to speculate about which Banks may have liquidity problems, but a glance at the media would suggest you are more circumspect of those that from within Portugal, Ireland, Greece and Spain, which may provide you with a conflict of interest.

Instant Access Accounts

Online: Coventry 3.15%

Bank: Virgin Money 2.60%

Building Society: Nottingham 3.25%

Cash ISA Fixed Rate

Online: Bank of Scotland 3.80% (4 years)

Bank: Halifax 4.25% (5 years)

Building Society: Kent Reliance 3.75% (5 years)

Cash ISA Variable Rate

Online: Santander 4.00%

Bank: Barclays 3.05%

Building Society: Nationwide 3.50%

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 UpdateDominic2017-01-06T14:40:02+00:00

Half Year Valuation Statements

2003: The Statement – Jewison

Most investors will have received a half-yearly valuation statement at some point over the last couple of weeks based on values at 5th April 2012. These half-yearly statements are dull but important and are required by the Regulator. A problem that sometimes occurs is understanding what they say. In short they provide an overview and the detail of alterations in your holdings since the previous half year statement (October 5th).

You will observe that new lump sums or regular payments are shown, including the purchase date and price of assets/funds that were bought. Income payments of two forms – either income from dividends generated by your investments and/or income paid directly to your bank as you take it from the portfolio. There will also be a note of fund changes due to switching and/or rebalancing funds, so that your portfolio remains appropriate to your attitude to risk and your requirements from the fund.

Finally, you should also see our charges and fees clearly highlighted. Remember that these vary depending on the service level that you have from us and your total funds under management. If you have any questions about this please get in touch. You may also see a fee for the platform where appropriate, this is the charge for having your assets on the selected administrative platform, enabling improved information and management of your holdings.

In most cases there is an overview and then a breakdown of all the costs – it is not both, merely an attempt to show the layers of charges and activities conducted on your behalf. An important point to note is that the valuation is now wrong – it was the value at the 5th April 2012, not the value now. So if you have made changes since that date they will not be picked up in the statement until next time.

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

Half Year Valuation StatementsDominic2017-01-06T14:40:02+00:00

Solomons: Truth Required – Dispelling Myths

2010: Clash of the Titans – Leterrier

When the Bank of England and politicians talk about the possible problems as a result of Greece leaving the Euro, one is only left to wonder if they have looked at their own finances. Here in the real world, the “possible problems” are a reality, with falling stock/share prices, which everyone has some exposure to – be it directly in their own portfolios or as people that live on planet earth and make use of products and services provided by business. Unless you live in a handmade tent and self sufficient, you are being impacted by the Eurozone nonsense that has been rumbling on. The markets are in reaction to indecisiveness. Here are a few facts which may help provide some perspective for a longer term view.

Financial planning is partly about dispelling myths about money. As we know Greece and China are two ancient nations with a great history for mythology, whether its Dragons or Gorgons, Minotaurs or Xiezhi, but their present day financial stories seem to be taking centre stage. However, these two ancient nations would provide a very uneven match for each other, this is no clash of the Titans. Today, Greece has an estimated population of 11.3m (about 20% of the size of the UK population) and GDP of $301,083m (about 14% of the UK’s GDP) which has been shrinking each year since 2008. At the same time its public debt has been rising rapidly since 2008 from 99% of GDP to over 150% of GDP. However, whilst the debt is certainly “bad” the percentage figure can be rather misleading when you consider the size of the economy against others.

Compare this to China, where GDP has been growing year on year. The population is a staggering 1,338.3m (over 100 times bigger than Greece) with GDP of $5,926,612m (20 times bigger than Greece) and growing by about 9% a year (almost twice the size of the Greek economy a year). The US has GDP of $14,586,736m about 3 times the size of China (as the world’s most developed economy) and has a population of 309.3m (about a quarter of the Chinese population). Here within the British Isles, collectively known as the UK, we have a population of 62.2m and GDP of $2,261,713 equivalent to about 15% of the US and now less than half of the Chinese GDP.

These “facts” are from the World Bank’s own data, which anyone can look up online.

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

Solomons: Truth Required – Dispelling MythsDominic2017-01-06T14:40:02+00:00