June 2013 - Financial Planning in Wimbledon

Advantage?

As Wimbledon continues, the temptation to use more familiar metaphors is fairly irresistible. So what do I mean by “Advantage”? well in short, I believe that the investment world is largely stacked against investors like you and I. It is full of jargon and “complex arrangements” and a constant array of “winning strategies”. The plain truth is that the investment world has conspired against you in order to part you from your money, which is then often invested in a way that sees your share of the upside considerably reduced and yet your share of the downside largely inflated.

You could be forgiven for believing that investing is gambling and I’m often asked what I think will happen to…(fill in the blank). In other words a forecast or more likely a guess. I have no idea what the markets will do tomorrow, this afternoon or indeed next month. Eh? aren’t I meant to? well – only if you believe that investing is about picking the right stocks and timing the markets. The truth is that I cannot do this successfully, by which I mean repeatedly with a proven process. In my defence I would suggest that NOBODY can and have plenty of evidence to back up my claim. However it is possible to have a worthwhile (profitable) investment experience.

Investment is actually quite dull, scratch that, its actually boring. So the investment world tries to gloss things up with performance charts and star managers/performers along with lots of bright lights and noise. All but a very small proportion of this is utter hogwash. Successful investing is about applying discipline and stopping yourself from getting caught up in the ego inflamed noise that is reported across all financial media. I actually don’t care if Mr B is the best investor since 1948, it makes no difference to you or me. What counts is your investment strategy and successfully reaping the returns for the risk you are prepared to take.

One of the many advantages of proper financial planning is that we figure out what returns you need and what level of investment risk is therefore required to achieve your objectives. We then construct an efficient portfolio which has a long-term perspective and don’t meddle with it. By efficient I mean that the method of investing successfully is minimised and handled carefully, not cheap or cheapest, but considerably less expensive. We apply discipline to a process that works.

So as you read that the FTSE100 had fallen over 800 points since May 22nd what are your thoughts? panic? does it make a difference to you? Are all of your investments in the FTSE100? No (well I hope that’s your response). Investing is long-term, so why are you investing money if you need it in the next 5 years? if you are only investing in a few shares (the FTSE100) then you do not have a diversified portfolio which is very unwise unless you are a beginner in the investment world (literally starting out to build your funds). If you are tempted to sell your holdings having seen them fall, are you expecting things to get worse? and when do you expect them to recover? how would you know where the bottom is? (they don’t ring a bell). Are you tempted to sell on the way down and buy once the good news is out? (classic buy at the top, sell at the bottom, which has the only outcome of financial ruin).

Discipline and theory are all well and good, but do you possess the self-control to stay the course when all around is panic and mayhem? Isn’t it time that you reclaimed some investing advantage, by having a properly costed, diversified portfolio that is established in-line with your goals and within your risk comfort levels? Isn’t it time you had the advantage of a disciplined process with a thought through philosophy based on evidence? Its time to turn the tables on the financial services industry that have consistently failed to deliver. Hey, its your money, if it doesn’t deliver, it will be you that has to live with the consequences, not the investment world. So pick up the phone and have a conversation with me to find out what advantage Solomons can provide.

Dominic Thomas – Solomons IFA

Advantage?Dominic2023-12-01T12:23:44+00:00

Compare your life

I wonder if you have seen any of the new series on Channel 4 called “Compare Your Life”. In essence its a show where a couple would like to change their lives and using a series of questions determine the options for a significant life change. I have only seen one episode, so my observation may be rather narrow. The adviser to each couple is Carlton Hood, who used to be head of Confused.com and now marketing himself as a guru of choice elimination.

The show is useful in that the subjects get to see “real-life” options. In other words, moving to France and setting up a small town business – means going to France, selecting a small town and considering the businesses for sale. The “clients” are asked to focus on what they say they value.

My main concern is that whilst this choice reduction exercise has a place, to run a business (which is effectively what is being offered) you need a broad skill set or an awareness of the skills required so that these can be outsourced and secured. Running a business is not easy, most fail within the first 3 years. It can offer a different lifestyle, but not necessarily a better one. I have reservations about precisely how the list of choices was reduced, which seemed rather random. To make a business work, a high degree of commitment and passion are required, picking an “off-the-shelf” option doesn’t really engender either.

The episode I watched (2) involved an employed couple in their mid-forties, seeking to spend more time with their children. The end solution selected from those proposed involved both of them quitting their jobs, moving location to a smaller house, running a post office/village shop whilst increasing their borrowing considerably. This may work out very well for them, but running a retail business requires staffing most days of the week, most hours of the week. The mere fact that the business is physically part of the home, can be helpful, but of course the reality is that they would technically always be at work. The smaller living space also posed problems for growing children and the yet to come teenage years.

So whilst the premise of considering what life options you have is very valid, the argument that emotion can be removed from choice is a peculiar one, given that most of the choices exercised were based upon emotion (time with children). I also found it odd that this was really a programme about choosing a new lifestyle, without really defining what the lifestyle was and how much it would really cost. To my mind, this was not a scientific approach at all, but a guestimated hope that the short list was indeed suitable. Yes choice can be overwhelming, but failing to properly identify the lifestyle you want is the biggest and most common mistake. This is precisely what good financial planning should achieve.

Dominic Thomas – Solomons IFA

Compare your lifeDominic2023-12-01T12:23:43+00:00

Service resumes in Wimbledon

So the 2013 Wimbledon tournament is under way again. Yet again, it would take a brave soul to bet against the usual suspects from reaching the semi-finals. Mr Federer has already begun his challenge, where the grass in SW19 is perhaps his best opportunity to win another grand slam. Many will be hoping that Andy Murray will be able to draw on his success at Queen’s and the 2012 Olympics. The Bryan brothers will take some stopping in the men’s doubles, who are amongst the most successful tennis players in the last 40 years when it comes to titles (doubles specialists).

The thing about being “a great” is consistently delivering results. History is recorded by the winners and you may be surprised to learn that when it comes to greats, the greatest, by a country mile is Martina Navratilova with a combined 344 titles in singles, doubles and mixed doubles, surpassing the nearest male by nearly 200 titles (John McEnroe the most successful man with 148 titles). Martina dominated her field with Chris Evert providing a worthy opponent (186 titles).

Investing is a little like tennis, but for all but the investment greats (and there are really very few of them) the similarity is not as you might expect. By saying investing is like tennis, I mean the sort of tennis that most people play. Invariably the winner made fewer mistakes. Tennis is one of those games that to win, largely means not being beaten by yourself (rather than your opponent). Of course if you play tennis, you may be forgiven for thinking you are quite brilliant (if you win) however the truth is that you made fewer double-faults, hit the ball out fewer times and probably made fewer worse second and first serves. Like investing, taking credit for your skill may be somewhat premature, actually what counted was the number of mistakes that you made. Tennis is a very skilled game. Investing is too. However most of my job is to act more like the coach than the player. Helping clients to remain calm, to keep to disciplines, to persist, to see the bigger picture (the whole ball) and to reduce the number of errors made that are self-defeating. Errors like trying to time the market, trying to beat the market, using expensive investment strategies, not diversifying risk, failing to understand risk and being distracted by the noise. Successful investing is possible for anyone. Having clear targets, seeking investment efficiency, minimising costs and playing a game where a successful outcome is realistic. So as you watch some of this years Wimbledon and watch the professionals, think if this is winning or not being beaten. Reflect on who is likely to win the tournament titles and when you are ready to discuss a winning investment and financial planning service only a couple of miles from Centre Court, give me a call.

Dominic Thomas – Solomons IFA

Service resumes in WimbledonDominic2023-12-01T12:23:43+00:00

Remember that an apprentice has much to learn

I wonder if you watch “The Apprentice” on BBC? I’m not an avid fan, but its an interesting show about how some people “do business”. I appreciate that this is a cut down, edited version of anything approaching reality, however the episode that I saw the other evening (8/14) was rather revealing about attitudes to the over 50’s.

The task for the two teams was to design a dating website, make an accompanying video and outline a promotion or marketing plan to a group of advertising experts. Not terribly difficult one would think – the sort of stuff that many school age children do as part of their learning process and team work. Sadly, this was beyond the abilities of the two teams, or at least this is what was suggested. However, despite the collapsing team leadership, inability to think creatively or understand the purpose of market research or frankly how to “pitch an idea” what was more disturbing was that these “self appointed hot shots” had little or no understanding of anyone over the age of 50. The team that selected this group as their target audience, completely failed to gain a modicum of clarity about lifestyles for those over 50 years old. Essentially the assumption was that they were very dull and not interesting.

As someone that is closing in on a half century myself and generally works with those older than 50, I am alarmed at how short-sighted the next generation of “hot shots” are. Anyone with an ounce of understanding will probably appreciate that the vast majority of “successful” people are over 50 and by successful I could mean have achieved financial success, but frankly simply having a body of work to show for effort is generally only beginning to show at 50. Most business people, academics, medics, professionals, civil servants, politicians do not reach “fame” until in their 50’s (if fame is even sought). Even Hollywood’s most adored men Brad Pitt and Johnny Depp turn 50 this year (George Clooney already being 52). The most age biased industry (popular music) is full of people over 50 (Mick Jagger is 70 next month).

Of course, those over 50 may have a different outlook on life (they may not) but life certainly does not stop. My clients lead full and interesting lives, those that are retired often complain to me that they are busier than they ever were when they were working for a living. I don’t agree that 50 is the new 30, that seems to merely ignore the point and arguably reinforce a stereotype. 50 is 50, however old you are, attitude and lifestyle are choices. As for the young apprentices, one can only hope that they garner some wisdom quickly and perhaps reflect on the question… if you are so great at business, why are you on a TV game show?

Dominic Thomas – Solomons IFA

Remember that an apprentice has much to learnDominic2023-12-01T12:23:42+00:00

UK Pension rules are a post-modern farce

The state of the UK pension system, supposedly one of the best in the world, is a shambles. It is high time this Government got its act together and decided that either we should all be saving and encourage us to do so, or give up. The bureaucrats at Whitehall are the only winners in the pensions mess, with endless tinkering with the rules that are gradually constricting the life out of a system that is supposed to encourage and reward savers and employers alike.

You may recall that the last Government decided to draw a line under pension rules and adopt a new approach called “pensions simplification”. Well intended it may have been, but it has been a shambles. The current administration are just as bad. Pension simplification was meant to give everyone a maximum pension fund allowance (the lifetime allowance). Not easy when you consider that a lot of pensions are not real money – a final salary scheme, such as the NHS or Civil Service are not investment based pensions, but service based. Irrespective of what the employee contributes the end result is assured based upon a proportion of final salary. For the record, this has also been messed around with. Anyhow, these schemes were given a formula. Let’s keep it simple and suppose you have built a pension of £25,000 a year and the lump sum would be 3x times this amount. The formula was 2ox pension + LS. in other words £575,000 in this instance. Then this needs to be checked against the lifetime allowance, originally £1.5m – so in this case fine. The problem comes if your pension is worth £65,000 a year – which is not unreasonable in 2013 for a Consultant with 40 years of NHS service. Those with more than £1.5m at A-Day (when the new rules came in on 6 April 2006) could protect their existing funds by applying for enhanced or primary protection, essentially agreeing not to pay more in.

The Lifetime allowance has been increased and then decreased and heading to £1.25m from 6 April 2014. The amount that you can contribute has also been restricted. Severe tax penalties apply for anything over the limit. In essence there is an incentive to restrict growth and payments. Don’t forget that “the other side” of retirement, when you actually take your pension, this is taxable income. Argh! yes there are new levels of protection too, just to meet the problems of a reducing lifetime allowance and the latest raft of rules published by HMRC are out for consultation until 2nd September. These outline two more forms of protection Individual Protection (IP14) and Fixed Protection 2014 (FP14).

All of this needs very careful advice. But just in case anyone from central or any far off field of Government is bothering to listen. Here’s a question for you. Can YOU tell me what your pension is worth today? (all of them) and can you tell me what it will be worth when you retire? can you even tell me who your pensions are with? and are you aware of the potential problems for those with “workplace pension” or “auto enrolment” for those with large pension pots? No, like most people, you attempt to understand the mass of paper that may or may not arrive each year outlining the income that you might get if XYZ does something useful with your money.

If anyone in Government had a modicum of common sense the only restriction on a pension should be the amount that can be paid in that qualifies for tax relief. That is all. Have this as a fixed percentage of income – just one level, not dozens based on your age. Make it attractive. Don’t mess with it, leave it alone. YOU will get your tax relief back anyway in the form of income tax, reduced reliance upon the state and eventually in some cases inheritance tax. Here’s my suggestion after 20+ years of dealing with pensions and handling everything from the very basic questions to the most complex. Offer tax relief of 25% at source, with no need to reclaim it. Only allow those that pay income tax to receive the tax relief and restrict the amount to 25% of taxable income (in total from employer and employee). Oh, and keep the ability to have tax free cash of 25% of the fund at retirement, but no more. It bet that in 2 days you will still be able to remember my suggested fantasy rules. As for the more complex issues – allow carry back to only the last tax year and for non earners, or non taxpayers frankly there are likely to be more pressing matters for their money and a myriad of alternative forms of saving vehicles.

I wait in anticipation of the revolution that puts investors/savers/ the UK public first…. no I am not a member of UKIP.

Dominic Thomas – Solomons IFA

UK Pension rules are a post-modern farceDominic2023-12-01T12:23:42+00:00

The Clients I Work Well With

As I run my own business, I get to chose how to do things. Certainly there are many things that I have to do, many that I ought to do, but there is an awful lot that is left entirely to my own discretion. Like all good businesses (well, those that plan to be around and able to serve their clients in a sustainable fashion) I have to run a profitable company, with good systems and controls, where business risk is well managed. Those that don’t run a business take this as a given and rarely think about the importance of it. As a result I do not compete on price. Yes that means some people cannot afford our services. Competing on price only leads to one eventual outcome – a monopoly. It will not surprise you that I do not have the deep pockets to dominate financial planning in the UK.

The price of things is odd, most of us like to feel that we have spent our money wisely, but on occasion we know that we haven’t – for example, buying a new car. Mathematical madness – due to the immediate turn key depreciation, yet many of us do it – perhaps for a wide variety of “other reasons”. The actual price is only part of the value. In any industry where it is very easy to compare identical products or services, price becomes largely “all important”. However when things are bespoke, price is much more about a reflection of value.

When I take on a new client I am looking for someone that I like. That I can help, that wants and needs my help and who wants a long-term relationship. He or she needs to be comfortable with me making a profit. Obviously my job is to improve their financial well-being too – but sometimes, (with greater frequency) I advise clients to spend more and save rather less. This is because we have worked on their big picture and noted some key goals, being able to take action is more important than merely having goals. So sometimes, I actually help clients reduce their wealth.

As I have long-term relationships with clients, it is important that we like one another. If we don’t then things will not go well and frankly life is too short for me to work with people that I don’t like. This isn’t always easy to assess at the outset of course. Some think that a typical Waitrose shopper is likely to be “target client” for me…. perhaps. However, I am surprised at the rudeness that people display to serving staff. As my daughter has begun her mandatory shop floor life experience it is disappointing to hear of the abuse and rudeness that Waitrose staff regularly receive from “customers”. Yes, we all make mistakes and probably all slip up from time to time, but lacking any patience or simply being rude to those serving you as a default position, is not an attribute I like and I really don’t mind how many “ideal client” boxes are ticked, we won’t work well together, so let’s not start. This does not mean that everyone I like works with me – after all I have to be able to provide a valued service profitably, it is not for everyone. Perspective is everything.

Dominic Thomas – Solomons IFA

The Clients I Work Well WithDominic2023-12-01T12:23:41+00:00

Sometimes I despair about pension companies

Pension companies are not evil. They are often huge (almost always) and frankly, I do rather think the metaphor of dinosaur may be very apt when attempting to reflect about their future. The world of pensions has changed enormously – truly it has… well to some extent surely…yes of course, and no. Eh? Well yes of course pensions have changed in the sense that the investment choices are now almost unlimited, the amount you can contribute has altered, charges have reduced, you don’t have to buy an annuity, final salary schemes are almost non existent to new members, tax relief, tax allowances have all changed. Technology, not Government has basically caused this (r)evolution.

…and yet, essentially a pension is just a savings plan, designed to provide an income when you stop earning money. I’d suggest that the basic point of a pension has been pretty static and not exactly “revolutionary”.

If you work for or run a pension company, then I’m sure that you are mindful of the enormous changes from a company that administers a pension.. to a company that administers… well a pension. A little unfair (no, a lot) but for most people in the pension world, it has always been about administering a scheme, doing the sums, the admin, the tidying up. The quill evolved into the typewriter and then the pc… now an app? Back in time, pension companies needed to produce c0mpelling reasons to use them – everything from performance to slick admin, financial clout…commission levels and so on. Sadly most pension companies haven’t been that great at managing or investing money and some are rather better at their “slick admin” than others… financial clout… not really sure what difference this makes when there is a constant background of M&A (merger and acquisition).. the goldfish bowl seems to have shrunk… or did the fish get bigger?… and as we know commission has been banned by the regulator (largely due to bias and mis-selling).

So, whilst I can understand that “original contract terms” mean that there are penalties for ceasing payments or moving to another pension company, this still drives me nuts. I know that the future is uncertain and that charges are, but come on… where is the logic in holding a duff fund because it costs even more to move away? new “pensions” aren’t really pensions. They are investment portfolios with a pension tax wrapper. When a decent financial planner is involved, the cost of investment is being reduced (as are your mistakes). If we are serious about restoring trust in financial services, old world pension companies would be wise to waive penalties and allow investors to move, perhaps at a modest admin cost. Your job is then done… unless you can contract your admin expertise and fund management skill to “win back” the investor. So when I see yet another transfer penalty of 15% or 20% it just winds me up. It is not helpful to anyone.

The day is coming, (r)evolution.

Dominic Thomas – Solomons IFA

Sometimes I despair about pension companiesDominic2023-12-01T12:23:40+00:00

Today I found myself in a hard hat and reflective jacket

I was reminded this morning about something that is often pretty obvious to most people but seems to pass me by on occasion. The outcome you seek is not about the process, it is not about the tools, its about the result. Don’t misunderstand me, I’m a process believer and of course having the right tools for the job is vital. However I am prone (as many of my peers also seem to be) of wishing that there was “one bit of kit” that enabled me to do my job fully. The reality of being a good financial planner (let alone a great one) is that this is still a pipe dream.

I have a lot of “kit” yes it doesn’t look terribly big or significant, because it resides mainly in cyberspace and on my computer. It would be nice to have a single application for client work, in theory this is achievable, but only in theory and assuming everyone (or enough people) want the same thing and work the same way – which of course is at best a temporary condition. I have a plethora of software and a fair amount of hardware – enough to make the moon landing look like a walk in the park. I need to accept that my various tools (which are invariably fairly expensive given the industry I operate in) are suitable at different times for different jobs and different aspects of the same piece of work.

So what happened this morning to remind me of this? well the local council has finally decided that our road is worthy of proper repair (delight to the local residents). We were only given at best 24 hours notice that the road would be closed and cars needed moving – not ideal for those working abroad or on holiday. Rather like a small boy I gaped at the various trucks, diggers, scrapers… all German of course! that came together as a team to each perform their task like a… well good orchestra may be stretching it, but it was pretty impressive. “So what will you do about the cars in your way?” I asked. “We’ll lift ’em out, photograph them and put them in another road… that skip too”… if only I could do that with some of the pension companies that I have to deal with. In essence, we have a tool for the job and will get things out of the way so that we can get it done. There were, as you might imagine a lot of blokes in fluorescent jackets each operating machinery and playing a part. No it hadn’t really occurred to me to properly observe this along the motorway in the days before Sat Nav and I set staring at lines of cones. It was a helpful reminder that the single tool to dig up and relay the road properly, does not currently exist… similarly, whilst I may have to combine software applications, reports, websites and so on, the job is the outcome and having the right tools is important, but knowing which one to use, when and how to orchestrate a team is where the effectiveness really shines.

If you are a client (or thinking of becoming one) you have to put up with a lot “bits” of information, requests for it and so on, I know this can feel a little frustrating… isn’t there just an easy way to create a financial plan? I can assure you that what we ask for is necessary to get the job done to the best of our abilities. I can assure you that the end result is worth the effort, once it is neatly packaged and put into clear terms that make sense and above all, provides information to inform your decisions…we are, after all, laying a new road to your future.

Dominic Thomas – Solomons IFA

Today I found myself in a hard hat and reflective jacketDominic2023-12-01T12:23:40+00:00

Probate – The Great Tidy Up

I wonder if you have been or are an Executor for an estate. Most people will experience some degree of involvement in the Probate process at some point in their lives – for many it is the death of a parent or sibling. In simple terms Probate is the accounting for the value of an estate (upon death) of an individual. This involves proving his or her identity, residency and a full account of assets and liabilities.

To say that Probate can be burdensome is an enormous understatement. The Executor of an estate is responsible for the proper, full and fair accounting of the estate to HMRC, after all inheritance tax may apply. As a reminder, failure to to do properly can have the consequence of a custodial sentence. So it is not a task to be taken lightly.

Just stop to think for a moment. If you had died yesterday who would be responsible for being your Executor? you have of course clarified precisely who this is in your Will right? (see my guide to Wills). Anyhow back to the morbid thought of you departing yesterday… just think of all those statements, accounts, online accounts, offline accounts… have you kept your records up to date? Whether its a Bank or Amazon, Sky or a subscription to your favourite magazine, your tiddly share holding in BP or an substantial portfolio… where is it all? and all those passwords? As you may now begin to imagine, the list of “stuff” that you have can be daunting… so you pay your AA membership monthly, but why is there also a Green Flag certificate and an RAC one in your desk drawer filed under “car”. What do you do about loans or creditors? and where precisely are the Deeds for the house?

I’m sure you get the picture. Of course it would be easy to say – oh I’ll sort this out when I’m 80, but who knows how long any of us has left? If you have any life assurance you have already acknowledged this fact to yourself. So it is time to start getting prepared. A good financial planner will hold a lot of this sort of information, but many do not and even my own very thorough assessment of a clients situation is bound to have some gaps for some of these things. So without any panic, can I encourage you to think and begin taking action on this…. and by the way, if you live alone, who has the key to get in?

Dominic Thomas – Solomons IFA

Probate – The Great Tidy UpDominic2023-12-01T12:23:39+00:00