Auto enrolment – fools rush in?

If you are not drawing your State pension, then by now you should have picked up that pensions are changing – again! This time rather than making employers set up a pension that nobody might use, they have decided to force employers to set up a pension that everyone in that firm will use (unless they have an exemption or opt out). This will include mandatory contributions, which will be 3% from the employer and 5% from the employee (eventually). Whilst the employee can opt, he or she will be opted back in after 3 years (with the option to opt out again) – the ideal being that eventually you will forget and naturally begin building up a pension. Auto-enrolment is the path of least resistance.

Employers have begun (well some months ago) asking about AE. To say that there have been teething problems for the first of the large schemes would be an understatement. So today Steve Webb has intimated that SMEs will have a more simplified approach – now please note that AE is already meant to be a “no brainer” with no question asked other that “do you want in or out?”. I am left perplexed at what other new idea could be so simple… perhaps reforming NI and collecting payments directly would be sensible? I suspect that such “radical thinking” would be rather unwelcome. Anyhow when any Government uses terms like “simplified” or “simplistic” my cynicism really kicks in, as invariably this is code for “we have no idea of the consequences” but someone at a think tank thought this would work.

I am attending another presentation on AE next week, I am hoping that this will provide better insight into the latest “alteration”. I freely confess that it is better to change and adapt based upon experience, but for once, it would be nice to have some firm guidelines so that we all know where we stand..

Auto enrolment – fools rush in?Dominic2023-12-01T12:23:27+00:00

Those shares you have…

Tax may be due on those shares that you have

As you know, shares are an asset (well they should be) and many provide income in the form of a dividend. This is taxable. Dividends are generally taxed at source at 10% but sadly the tax does not stop there. You have to declare the income so that any additional tax, based upon your other UK income is paid across to HMRC which could be 32.5% or 42.5% depending whether you are a higher rate taxpayer or additional rate (50%) taxpayer. You submit this information via your self assessment return. Anyhow, you may have a few shares that you bought or were “given” many years ago. It is entirely possible that the share is in a company that no longer has the same name. You may have found some old certificates in a dusty old box and assumed that they were worthless.

Checking if “old shares” still exist

It is entirely possible that they are worthless. However it is definitely worth checking first. Despite the advent of technology, tracing shares is a little tricky. Shares listed on the London Stock Exchange are invariably held by one of three registrars. These are Equiniti, Capita and Computershare. If you click on their name it will take you to their website. You can then find out if they look after the company you hold shares in. Alternatively do a search for the original company or check with the LSE, who may be able to provide some assistance (depending on the age of the shares).

Think carefully – CGT may apply

If you decide that the few shares you hold are more hassle than they are worth, please remember that as an asset, they are subject to capital gains tax. In essence you need to know the price you paid for them and the price you sell them for, the difference (the gain or loss) may be taxable. You have a personal capital gains allowance (CGT) which in 2012/13 is £10,600 and would need to be used by 5th April 2013. This allowance means that you can realise gains of £10,600 and pay no tax. The vast majority of people in Britain rarely use their CGT allowance, yet it is highly valuable. The maths is complicated if you have used dividend income to buy more shares automatically, as you will have a series of purchase prices and different “chunks” of shares. You are now in Accountancy dreamland.

There are other options for your shares besides simply selling them, but you should seek personal advice about this as it will depend on the sums involved, your appetite for risk and your requirements for income and capital.

Those shares you have…Dominic2023-12-01T12:23:27+00:00

PPI is taxing

Taxing interest in PPI refunds

As you will have gathered, I’m not a fan of Payment Protection Insurance and never have been. However if you come across someone with this and they have had a successful refund with interest, be warned. Leading accountants are suggesting that the interest is liable to taxation and will need to be declared as income as part of your self-assessment returns. Now, given that 31st January is the deadline for tax payment without a penalty this doesn’t leave much time. However, acting honestly with HMRC is frankly the only approach worth taking. Honesty is clearly not a word associated with the Banks and insurers that sold millions of these policies and as we all know, the PPI claims companies are largely just as dishonest, it is hard to work out who really wins in these situations – even good advisers that didn’t sell this (myself included) have all had numerous calls and queries from people double checking and reassuring them that Income Protection is very different from PPI. Here’s a short video from Which? explaining the nuts and bolts.

PPI is taxingDominic2023-12-01T12:23:26+00:00

The art of investing in Lichtenstein or is that Liechtenstein?

There are lots of ways to invest and you may know that Liechtenstein (with a population of less than 40,000) is one of those countries that provides the opportunity for “offshore investing”. Offshore investment is essentially a decision to defer paying tax until it suits the investor to do so, often when their income or assets or both mean that they do not pay tax at the highest possible rate. You may have read reports that some well-known French have decided to leave their country due to a 75% rate of tax. Be warned though, HMRC have become increasingly concerned about tax evasion and the distinction between tax avoidance and tax evasion seems to be deliberately blurred by Government making advice to use “tax avoiding schemes” considerably more prone to investigation by HMRC.

Liechtenstein has entered into an agreement with HMRC called LDF -or Liechtenstein Disclosure Facility, essentially an initiative to report income to HMRC if it is believed that UK tax is thought to be payable. In short, this is a window of opportunity for those with assets held in Liechtenstein to report their upaid tax to HMRC. In other words, people that know tax is due but have not declared income or assets to HMRC can do so and not suffer the usual penalties for tax evasion (which can include a spell in prison). The window of opportunity closes on 5th April 2016 – so plenty of time for the moment, but I would advise anyone in this position to get on with the process.

This should not be confused with an entirely different opening for a different Lichtenstein, the American pop artist Roy Lichtenstein. The Tate Modern are showing a new exhibition from 21st February and you can now book tickets. Lichtenstein would have been 90 this year. As an investment, Roy Lichtenstein is very collectable, in May last year a piece called “Sleeping Girl” sold for nearly $45m at Sotheby’s in New York. So making sure that you don’t muddle your Lichtenstein with Liechtenstein will make a significant difference to your wealth. If you fancy a look at Sotheby’s in action, there is a significant evening auction in London on 12th February with works by Basquiat, Richter and Bacon.

The art of investing in Lichtenstein or is that Liechtenstein?Dominic2023-12-01T12:23:26+00:00

Cash ISA rates

It has been a while since I updated information about various deposit rates. I’m providing a list here of some of the top rates available. This is not advice, just a list. Importantly with cash accounts the FSCS only cover up to £85,000 per person per bank and be warned that this really means per banking license. Many banks (and building societies) share the same banking license due to mergers. The table below shows instant access deposit accounts, then fixed and variable rate Cash ISAs.

INSTANT ACCESS	Best online	West Bromwich BS	2.30%
	Best High Street Bank	Virgin Money	2.00%
	Best Building Society	West Bromwich BS	2.26%
FIXED RATE CASH ISA	Best online	NatWest	2.30%	3 year fixed
	Best High Street Bank	Santander	2.50%	2 year fixed
	Best Building Society	Derbyshire BS	2.25%	2 year fixed
VARIABLE RATE CASH ISA	Best online	Monmouthshire BS	2.50%	30 day notice
	Best High Street Bank	Virgin Money	2.00%
	Best Building Society	Earl Shilton BS	2.70%	90 day notice

So it is important that this is checked carefully. Please also note that I am generally fairly suspicious of any bank or building society offering particularly high rates, this suggests that they need your money rather more than other banks do and this is generally not a good prospect.

Quite obviously interest rates are pretty dreadful. As RPI is currently 3.1% and CPI is now 2.7% (according to ONS figures) the above all represent below inflation rates. This means that your money devalues in real terms. In plain English – the money in your pocket is worth less due to inflation. Here is a good short video from the Bank of England about inflation with some useful historical reminders. Note that as this is a Bank of England video, whether or not the MPC (Monetary Policy Committee) has been successful or not is probably best judged by others. At the moment the Bank of England base rate is 0.50%.

Cash ISA ratesDominic2023-12-01T12:23:25+00:00

The new rules about independent financial advice

Independent financial advice

This morning I attended a mini-conference run by the ICAEW helping financial advisers to ensure that if they hold themselves out to be independent, that they do indeed provide independent financial advice. This is a hugely important issue and so I was a little surprised to find that there were not many in attendance, perhaps because it was a pay-for event, or of course, perhaps many advisers felt that this was not a pressing issue for them.

New rules are black and white

Independent financial advice is important to me, because I believe it enables me to provide a far better set of solutions for clients – being unrestricted and therefore the widest number of options. The new year saw a clear regulatory distinction between the types of licensed financial adviser – either independent or restricted, not a mix or a fudge. There was helpful legal insight from two Barristers who helped unpack the nuts and bolts and attempted to put this into plain English. One would have thought the distinction should be fairly straight-forward, but as ever, words and phrases are open to interpretation. One position might argue that to be truly independent, the adviser must consider all forms of investment products from the entire planet – including those not written in English. The FSA define independent financial advice as:

“a personal recommendation is based on a comprehensive and fair analysis of the relevant market and unbiased and unrestricted“.

This it the litmus test for independent advisers. This is built upon a series of basic principles of being a faithful fiduciary and legal test cases of what constitutes a professional adviser (in any field). This is of course what I do have done for clients – the main issue being one of applying a degree of common sense and filtering out options that are either certainly or highly likely to be unsuitable investments for a client. By way of a silly example, a ponzi scheme would be an unsuitable form of investment in my opinion.

Independence should not be compromised

The problem with all advice is that the end result takes many years. One of the many reasons I spend time with clients reviewing their planning, is precisely because things change and we need to revisit assumptions. We have to apply common sense and frankly a high degree of transparency and not hide the reality of performance, charges or choices. The new rules don’t really make a lot of difference to our clients in terms of our transparency, however many firms are unable or unwilling to do the work to be independent. I admit that the work can be onerous, but be warned that dismissing the new terminology as “nonsense” is a mistake and folly on the part of any adviser. Sadly many of our “trade bodies” are now also fudging the issue of independence, which is why I do not belong to them and joined IFA Centre, which promotes the value of independent financial advice.

Going deeper and further

I would suggest though that the issue of independent advice doesn’t really go far enough for me, impartiality is more difficult to achieve as it precedes investing. I would suggest that it is not only vital to be independent, but also vital to be impartial – by which I mean, being open to the notion that paying off debt might be a better use of funds, or making “investments” into a variety of “things” that don’t come under the remit of financial advisers – such as buying art, residential property, a business or even giving the money away. This is why I attempt to distinguish between financial planning (creating solutions and options to solve problems or objectives) and investment advice, which by its very nature assumes that investing in traditional financial instruments – stock markets and bonds is the appropriate solution. I want bigger, deeper and wider conversations with clients about their values and priorities so that impartial advice can be provided. This is, to my mind a better result.

The new rules about independent financial adviceDominic2023-12-01T12:23:24+00:00

Irish Medical Organisation makes Fred Goodwin look cheap

When 1 + 1 = €!!!!…. now that is leverage!

There is something very “Orwellian” about a story that was brought to my attention. This is yet another story of poor management and a dreadful lack of attention to contractual detail. Doctors in Ireland are said to be “angry” by the severance package agreed with the former CEO of the Irish Medical Organisation. It would appear that the former CEO is retiring after 30 years of service, a little early. Now don’t get me wrong, I have no idea if Mr McNeice has done a good job or a fantastic job, but for a relatively small organisation his settlement does seem somewhat large. The 2011 annual accounts for the IMO report an income of €3.8m and around €6m of balance sheet assets. So it may come as a surprise that Mr McNeice has a package of €20m+, which has forced the IMO into negotiations with him. The IMO is meant to be a doctors union, to represent them. This package dwarfs Fred Goodwin’s when you consider the money on the table.

That thing… risk and reward

I don’t have a problem with people earning large sums of money, (at least I think I don’t). We need entrepreneurs to create jobs and wealth. However this is invariably linked to risk – the prospect of losing all of an investment into a business venture. Good entrepreneurs can reduce risk through skill and knowledge and looking for the predictable that others cannot see. I’m not convinced that a union really falls into this category. Whilst the job may be difficult (I simply don’t know) I find it hard to understand why someone is remunerated in quite this way.

Are you being served?

The IMO had a 2011 membership of 5,339 (a 13% reduction on the previous year from 6,143) these members subscribe to be represented (see the latest fees here) which generates about 95% of all of the income for the IMO. There are only 24 employed staff. This is a small organisation. The 2011 staff bill was €2.1m which includes pension contributions. That’s an average of €87,500 per member of staff and of course I suspect that most of the 24 are paid considerably less than this. Little wonder that the parting €4.5m pension fund, €1.5m termination payment and further deferred payments taking his package to over €20m. One wonders what the staff feel about their former CEO now.

Play to your strengths

So Irish doctors are somewhat livid, as you might imagine. Indeed without a re-negotiation and increased fees, the organisation must surely make the remaining staff redundant and close its doors. A very sorry tale indeed. However this is a clear reminder to all that paying attention to the numbers is vital, frankly those on the Board either lack the experience or knowledge to see the wood for the trees, which is understandable if they are trained doctors, why should they also be experts in finance? As has been repeated many times before – play to your strengths. If you spend all your life working on your weaknesses, all you end up with is a stronger set of weaknesses.This is why successful business people and professionals come to me for advice. Not because they can’t plan or don’t understand money, but because it really is not their strength – and frankly the vast majority are not interested in “money”. They delegate this stuff to me. Its my job to do the numbers, however this prompts a vital question about trust and control, which of course is a question that only my clients can really answer for themselves.

As for the IMO and its parting CEO to quote “Tough decisions need to be taken… ” and many other words that come back to bite.

Irish Medical Organisation makes Fred Goodwin look cheapDominic2023-12-01T12:23:24+00:00

Adapting to the weather

What opportunities does the snow offer?

It has been a cold weekend here in London. My team managed to plan around the snowfall successfully. Adapting to things we have little control over is one of my mantras and you will have gathered from a couple of posts last week, that my challenge is often to continually adapt, improve and grow. I have sympathy for those forced to use roads that have become blocked or treacherous. The public transport system has many challenges when it snows and whilst these are great frustrations to many, one has to consider that here in Britain we really don’t have enough “adverse weather conditions” to make the significant investment to cope a little better with the 2% of working time that is threatened. Frankly the resources could be used more effectively elsewhere. However, the snow does provide an opportunity to reflect on working patterns and the way we live our day-to-day lives.

Technology – touch screen is so last year

Perhaps you have been contemplating the alternatives to commuting to an office each day, by use of some clever technology that doesn’t (mainly) rely on good weather. Certainly when life becomes more difficult, we tend to reach for alternatives. Technology can offer some solutions, however the main disadvantage of technology is that it constantly evolves. If you have a smart-phone, an ipad or tablet…well, you will be familiar with a touch screen and recognise that perhaps you don’t always need a mouse and keyboard. Sadly this is now rather old hat. Touch screen is so last year. Make way for motion detection. Those with a games console from the last few years will understand this a little better. Have a look at the video below. This is the next thing that your home or office technology will demand. The knock on effects are yet to be understood, but I imagine web designers will need to be considering the impact as will anyone involved in using a computer to engage or interact, which will be most of us, but particularly those running a business.

Limited by a lack of imagination?

Now clearly you cannot motion every task – certainly the act of shovelling snow is unlikely to be directed from your computer with the wave of a hand…but then again, perhaps I’m not being imaginative enough – we are about to get an influx of remote control devices, primarily used for CCTV purposes – perhaps we could have a fleet of remote control helicopters to grit our roads and streets too. The NASA Rover explored Mars, yet we have a road network of potholes. I’m sure someone can put these devices together. The successful businesses of the future (and therefore investments) are those that identify problems and provide solutions using technology to its full advantage.

Adapting to the weatherDominic2023-12-01T12:23:23+00:00

Another Blockbuster?

It was not that widely reported, but on Wednesday, Blockbuster went into administration. This will come of little surprise to anyone. Whilst Blockbuster launched in the UK in 1989 and successfully dominated the video rental market, wiping out most of its competition, the tables have turned against them in an overcrowded market. The purchase price of DVDs has not helped those renting them – the difference between the cost of ownership and the cost of rental being very marginal.

Blockbuster has around 500 stores across Britain employing around 4,000 staff, which is a statistic that tells another story as well – an average of 8 staff per shelf-stacking store cannot be a sustainable business. The internet offers huge opportunity to those that know how to build businesses and more importantly, not forget what the purpose really is. I have to admit that I am not going to miss Blockbuster and have not set foot in one for many years, there is a sense of reaping as you sow about this one. As you may have gathered, I am rather more enthused by unique, bespoke, individual and independent businesses providing a great service. Deloitte has taken over the running of the business until a buyer can be found, though I cannot imagine why anyone would want the business as it is.

Another Blockbuster?Dominic2023-12-01T12:23:23+00:00

What Can We Learn from HMV?

Adapt or perish

We have seen the demise of HMV and Jessops in the last few days. OK, administrators may prolong the agony, but these are companies that are deeply flawed for 2013 with their current business model. Before we all wag a finger and say “well you could see that one coming”… well ok then.. but the real lesson is that plans need to be reviewed because the world changes. So what can we learn from HMV and others like them?

Certain of what you do?

Change is constant. If you run a business and you do not adapt to the marketplace (or create a new market) your days are certainly numbered. Technology as we all know has changed what is possible. It has happened to retailing, but it will (and does already) happen in most aspects of life. Technology leverages effort and the rewards for getting this right can be enormous. Getting technology wrong or failing to understand its implications can lead to ruin, just ask Kodak, Polaroid, Jessops, HMV… sense a theme? yet it isn’t just the obvious. Many are now viewing and trying goods on the high street, but then buying them online. Admittedly this is easier when products are identical, but of course the web does also help compare. Where I believe businesses like HMV and Kodak went wrong was not only to fail to identify the change quickly enough, but also to fail to understand what they do. Eh? Kodak make film, cameras, inks right… yes, but no. Kodak captured or recorded images, memories, moments – precisely how they did so was always going to alter. HMV sold records… well tapes, CDs…hold on calendars, DVDs, videos etc etc. What HMV actually sell is entertainment – sound and image, precisely how is almost a red herring.

The technology leverage

I cannot think of an example, where technology cannot alter the delivery of what is done. Certainly in my own field of financial services – technology has made a massive difference. When I started, policy documents were like ancient scrolls, eventually making way for typed documents yet today many are electronic documents. Still the same essential thing… but not if you are a copperplate writer. Financial planning is not about providing financial products. Anyone want one? no, of course not. Financial planning is about solving the problem of maintaining or improving your lifestyle. So whilst there are changes in IFA land, many “advisers” still sell products thinking that this is the solution… you know the story… I want to retire at 65… oh, here’s a pension plan for you then. The truth is that pension plans are just savings plans with tax relief. They might be very good at building a pot of money, but then again, this is only one way of many options available. That’s why I believe that what I do is different. I focus on helping clients to think about their lifestyle and offer thoughts and questions about it and how it might alter if certain things happen, some obvious and some highly personal and unique. I’m sure that one day a computer will be able to perform most of my work for the mass market, but I very much doubt that it will pick up the body language, tone and expressions in a way that is meaningful. In other words the essence of being a person not a robot. Mind you, I’m sure some would prefer that robots did. I doubt that you are one of them.

What Can We Learn from HMV?Dominic2023-12-01T12:23:22+00:00

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