That old sales technique…

We’re not selling, we offer an opportunity to buy… eh?

I had to laugh, sorry. I was listening to an item on Radio 4 about how temporary workers are being sold insurance that they either don’t need or won’t pay out. Now we’ve all heard this stuff before… PPI springs to mind for starters. I admit that I know nothing about this sort of insurance (accident cover, for temporary workers) but of course I do have a pretty good handle on financial protection. Anyway I was amused to listen to the defence that to the effect that “it is not being sold…. it is being offered” the “offering” techniques seem to be the same as any sales technique, but I hadn’t heard this excuse before. The important issue being that insurance being sold is a regulated activity and therefore needs proper disclosures etc to meet standards set by the regulator.

Call a spade a spade

Admittedly, I am have witnessed the process reported. Indeed I am reliant upon the information provided by the reporter, but frankly, the way it looks… if it walks like a dog, smells like a dog, barks like a dog, looks like a dog…. it probably is a dog. if not, then I think the regulator is in for some testing times ahead… what would stop all advisers simply saying that they are offering pensions, investments etc… and therefore not selling them (arranging may be a more palatable term). I imagine that the regulator would have something to say and demand compliance and payment of their fees. So I assume and hope that the FCA apply similar logic to those merely making such “offerings” or “opportunities to buy”.

Everyone sells, but there are still lots of grubby sales techniques

It seems that many people don’t like the term “selling” yet we all do it. Yes all of us. Selling is merely persuading someone to make a choice. Ethical or good or “proper” selling is therefore persuading people to make choices to their personal or collective advantage. We all do this a lot of the time as Daniel Pink illustrates so well in his book “To Sell Is Human”. Without actual “selling” nothing much would happen and we certainly wouldn’t have a recognisable economy. However clearly there are many that sell (or try to) unethically. I was disappointed to receive an email this week offering to sell me names, addresses and full contact details of people that may have had PPI “second use PPI hot key leads” . In fact it made me cringe (ok perhaps range)… I can buy (anyone can) 100,000 for £6,500. I don’t buy leads, but of course what arrives in my email box (initially) is open season. If you are anything like me, you are fed up with the banks that sold it and the claims companies that keep texting, emailing or phoning. They are an utter nuisance and ought to be banned.

Dominic Thomas: Solomons IFA

That old sales technique…Dominic2023-12-01T12:23:56+00:00

Business Owners – Fake Complaints

Vicious Viral Email to Business Owners

If you are a business owner you may have received an email that appears to come from Companies House. The email suggests that a complaint has been made about your company. This is bogus. Companies House, whilst making use of webfiling services do not issue emails about complaints, which they, like you, take very seriously. Complaints against companies are always handled in writing when dealing with organisations such as Companies House. So the best advice is to simply delete the email – however be warned that you will get more. It is not clear what the intention is, be it placing trojan software into your computer or something else, perhaps as inane as wasting everyone’s time.

What if it wasn’t bogus?

Running your own business is a time consuming occupation and one that comes with many stresses, risks and rewards. However malicious the email, it does remind us all that taking the future well-being of your business for granted could be a little naive. Many business owners see their business as their pension, which may be entirely appropriate, but please remember some of the potential pitfalls – such as an inability to sell at the price you want, a radical change in your market, significant competition, timing and misfortune due to accurate (or otherwise) coverage of your business/sector/market in the media. Of course there is that insurance industry phobia – death or serious illness, that will or may prevent you from making decisions about your own business.

Plan your exit or exit your plan?

All of these issues can be addressed, as well as when you wish to finally leave the office. The best time to sell a business is always when you don’t need to. So if you are business owner or partner in a business, then it may be time for some proper planning to ensure your business works for you and not you for it.

Dominic Thomas: Solomons IFA

Business Owners – Fake ComplaintsDominic2023-12-01T12:23:55+00:00

Your Dream Home? Building a Property Portfolio

The Luxury Property Show

If the “dream home” is something you desire, then you may be interested to learn of the Luxury Property Show which is to be held again at the Hurlingham Club in south west London (near Putney). Admission is free by registration. This is a global show, so includes pretty much any destination you can think of, be it a villa in Europe or a beachfront in the Caribbean. Ski lodges or chateaux, rural or state of the art city penthouse.

The Hurlingham Club

Of course you may be thinking of property as an investment, any investment into property needs careful consideration, but naturally any property outside the UK has further complexities which need to be understood. There will be a mixture of sellers, agents, advisers and buyers all making their way over to the Hurlingham Club on Tuesday 29th and Wednesday 30th October 2013. The show opens at 11am each morning and closes at 6pm on Tuesday and 7pm on the final day.

Investing in Property

There are, of course, lots of ways to invest in property – directly buying the property or a share in one or within an investment fund. There can be a variety of pros and cons which each approach and advice about this is rather important. One of the main challenges will always be that of taxation – wherever the property is located is merely one aspect, more importantly is where you are domiciled and therefore assessed for inheritance tax, or where you are resident for both income and capital gains taxes.

Dominic Thomas: Solomons IFA

Your Dream Home? Building a Property PortfolioDominic2023-12-01T12:23:54+00:00

The Fear of Missing Out – can financial planning help? From your Financial Advisor Wimbledon

The Blog and ramblings of a Financial Advisor Wimbledon

Perception is everything isn’t it?

I wonder if you are concerned about the amount of time you spend using social media. I know that when I think back to not very long ago, this wasn’t even an issue for me or my business, but things have changed – or have they? I certainly believe that social media can play an important part in helping others or just keeping in touch, but is has lots of obvious problems.

I use social media to interact with clients and potential clients

The recent terrorism in Kenya was disturbing enough, but to learn that the terrorist were actually tweeting at the same time seems to take the matter to entirely lower level for some reason. I use social media to interact with clients and potential clients, as well as industry “experts” and a variety of others, in whom I have an interest for a various of reasons. I have long believed that the internet has the power to democratise the world, it can surely only be so long, before dictatorships find themselves outed by their own population, who can see what a liberated (or more liberated) world enjoys. This does however prompt the question of envy and our culture often portrays our lifestyle as all rather easy to achieve. Invariably we know that this is not the case, for every “instant success” there are many thousands that struggle. You and I probably take our basics for granted, others clearly do not and I do wonder whether the internet also creates a very real sense of lack and envy by many millions of people who “see” what we enjoy.

Fear of missing out.

This in mind, I read a piece about what I understand to be a new term – FOMO – fear of missing out. This is another form of anxiety created by social media, that seems to be growing in prevalence. There has been a little “research” done into this in the US by mylife.com though given the result and the objectives of mylife.com I would suggest a sceptical approach to the “data” is taken. Never-the-less, social media can overwhelm and there is a growing sense of missing out on “stuff”. You can even partake in the test (click here).

Confidence to face the noise of the financial media.

As a possible antidote, I find that providing clients with the space to reflect and verbalise what it is that they value and the lifestyle that they want tends to help keep focus on the important things. Reviewing this is a helpful way of ensuring that this accurately reflects your values and also reminds you of what has been achieved and done that brings about a sense of contentment – that often illusive state. I’m not suggesting that financial planning will prevent feelings of envy or a sense that somehow you are missing out on something, however it should provide the necessary confidence to face the noise of the financial media and a world where someone else always appears to have it better and provide reassurance that you are building and living your life, not someone else’s.

Dominic Thomas: Solomons IFA

Dominic Thomas is the founder and Principal of Solomon’s An Independent Financial Advisor Wimbledon and the surrounding area. He has now been advising clients for over 20 years. He formed the company in 1999. At the time we were one of only a handful of IFAs operating on a proper fee system. Dominic can be contacted at info@solomonsifa.co.uk to arrange a meeting to discuss your financial plans.

The Fear of Missing Out – can financial planning help? From your Financial Advisor WimbledonQuentin2023-12-01T12:23:54+00:00

HMRC in focus on landlords… that’s you Rigsby!

Landlords, the taxman cometh… HMRC is beginning to focus on landlords that are not properly (fully) declaring the income that they receive from rental property. HMRC estimate that 1.5m landlords may have underpaid or failed to pay up to £500m in tax between 2009-2010. The campaign is fairly general, but emphasis will be placed on those with more than one let property. They will also focus on specialist landlords – such as landlords to students.

Please remember that if you are going abroad and let your home, this is still potentially assessed as UK income and would therefore need to be fully disclosed. The HMRC campaign, like those before it gives taxpayers the chance to come forward and declare the income and voluntarily put their affairs in order. This is therefore an opportunity for many landlords to come clean about income. Obviously, those that wait for HMRC to come knocking on the door will face a rather more sanguine attitude to non compliance – and remember non payment of taxes can carry a custodial sentence…. not something that anyone wants “by mistake”. So make sure that your Accountant has provided the right information.

Dominic Thomas: Solomons IFA

HMRC in focus on landlords… that’s you Rigsby!Dominic2023-12-01T12:23:53+00:00

It happened on the way to Essex (warning: dangerous information)

I was in the car, on the way to a client listening to the radio. Possibly I should have stuck with my own music, but decided to listen to some “news”. It was Thursday (yesterday) and the media was agitated about pension charges. The panel discussion was about as badly informed as it gets and if this was designed to reduce or remove confusion about pensions, then it failed spectacularly even on explaining the difference between a Defined Benefit and a Defined Contribution pension and proving the adage “a little knowledge is a dangerous thing”. Why a sensible IFA wasn’t asked to speak I have no idea. So I had better explain.

Firstly there are broadly two types of pension. A Defined Benefit, so called because it defines what you will get. More commonly known as a final salary scheme. This sort of pension is based entirely on your service and your final salary. Each year of service in such a scheme is built up at the rate of a fraction each each. So take a doctor or nurse, 1/80th each year. So a doctor or teacher that works for 30 years, the sum is 30/80ths (37.5%) of their final salary = annual pension (for life). Ok these schemes are changing, but the principles are remaining pretty much the same.

The other type of pension is an investment based pension. If you are employed and in such a scheme it is often called a defined contribution scheme… it won’t surprise you to learn that it is aptly named, because the contribution (the amount paid in by you and/or the employer) is defined – eg 5% of salary. However as its just an investment, the value of the pot will change… daily. So the value you end up with is based on what the pot is worth.

The row is over the charges applied to investment based schemes and whether they actually offer value for money as a result. A lot of hot air on the radio resulted in my exasperation fogging my windscreen, not a good idea on the M25 when it is grey and wet. There were a lot of inaccurate statements and very little placed into a context. So at the risk of boring you, I will attempt to do so.

Back in the 1980’s investment based pensions began to take the place of final salary schemes. Why? because of the liberated stock market (big bang) and a desire for people like you and I to capitalise on capitalism. There was also a growing (albeit muted) appreciation that people are living longer and therefore the old style final salary pensions were going to have to pay out for longer, costing employers a lot more money. Divorce rates were also rising, meaning that the spouses (and ex-spouses benefits) might also last a very long time. The rise of retail investment funds (Unit Trusts) which only began life in 1931 (thanks to M&G) became more widely available. Pension companies (a considerable number back then) ran their own investment funds using their own fund managers. Financial advisers were largely sales people that worked for pension providers. They were paid to sell pensions (and other products) from commission in the same way that pretty much every other type of selling works… the more you sell the more you earn (as a salesman/person)

Now you and I might think it a pretty bad idea that people are paid a commission to sell financial products. The advantage of hindsight is a wonderful thing isn’t it. However, most people, even in 2013, do not wake up and think that they should start a pension, or take out life assurance and sadly some people (most) need to be “sold” the wisdom of doing so (unless it isn’t appropriate for them = very few people). So “advisers” needed an incentive to incentivise the public. Yes it was a silly system, but in January it all changed. Every adviser must charge fees – properly. Surprisingly people are not jumping up and down with enthusiasm about this (on both “sides”).

Taking a step back in time, commission was paid based on the products type, the premium and the term of the “policy”… more for more. Then factor in some pension companies thought that they could offer a bit more for the “same thing” . This led to bias (you are not surprised). Bias between financial product and also financial provider. Simple example… you have £300 a month to invest. You could do so into a variety of “products” a pension, an endowment or a PEP (old form of ISA). The commission might range from £5,000 to £9 for a PEP.

Eh? well endowments paid very large commissions, they were generally 25 year policies and if I recall paid more than a pension. A pension though has tax relief but couldn’t be touched until 50 (back then) most though retired at 65, an extra 15 years on the policy term (commission is related to policy term too). A PEP, well it doesn’t have a term, its not a policy. It was a single investment of £300 that happened to recur. 3% of £300 is £9… each month. Not many advisers were going to advise a PEP not because they thought it was bad, but you would have to sell a lot of them to make a living. Other products though were “contracts” so you were agreeing to pay for 25 years. The product provider (names you know and possibly loathe for a variety of reasons) had a separate agreement with the adviser (well the adviser firm). Rather than pay £9 a month, they paid it upfront (£9x12monthsx25years = £2,700) for example. How? (with only £300 a month going into the pot)… it would surely take 9 months before £2,700 was even in the pot right? Well thats where some very “clever” accounting and charges and types of units comes into play. The details varied from provider to provider, making it hard for even good advisers to accurately compare one with another. In short, the commission was really a loan, if the investor (you) reduced or stopped paying, the commission loan would have to be back in full or in part.

This approach led to two key things. Firstly, people took out policies that they didn’t need or couldn’t afford. As a result advisers had to pay back commissions, invariably leading to a very high rate of staff turnover. Secondly there was an obvious pressure to sell, sell, sell… which meant a focus on new business and not servicing existing clients. The regulation at the time was as divided as the industry, independent advisers regulated by FIMBRA and Tied advisers by LAUTRO. The latter working for the insurance company, the former doing your shopping. However, even being independent did not prevent bias between solution (product) and provider selected. So in 1995… that’s 18 years ago! commission disclosure was introduced and at around the same time a single regulator was introduced (the Personal Investment Authority – PIA). You (and the adviser) could both see what the adviser would be paid. However both relied on standard projected rates of returns to work out which provider was cheaper than the other. Still smoke and mirrors, but in all honesty, nothing to do with the advisers.

Stay, with me…if you can. The regulator then decided that advisers should write proper reports, “reasons why letters” and also provide better data about who they were placing business with. The profession of advice began to evolve (slowly catching up with the IFP Institute of Financial Planning, born in the UK in 1984). The PIA became the FSA in 2001 and with it decided to end polarisation (tied/IFA) and added a third option “multi-tied” which confused things even more and enabled certain high street Banks to give the impression that they weren’t only peddling their own stuff. However to be independent, you had to at least offer clients the option of paying a fee rather than a commission. In January 2013, advisers were to be defined as either Independent or restricted and with both options, if you are arranging any form of investment, a fee must be agreed and paid – not a commission. Hooray, we finally got there and with another version of regulation – the FCA. In practice the regulator has said, your advice must not be biased and your client must agree the amount they pay for it. The results are yet to be seen, but in reality, most people cannot or will not pay for financial advice, because most people’s experience has been bad, sold duff products, that didn’t deliver and weren’t serviced.

The role of the adviser has altered dramatically, for all but the dinosaurs or stupid. A financial adviser is ADVISING you what you should do. A good adviser will be doing proper cash-flow planning, working with you on your actual goals and figuring out what you need to do to get there. A great adviser will also be helping you to assess risk and the returns you need, adjusting your portfolio and minimising the number of bad decisions you would otherwise make. A brilliant adviser will also keep you disciplined and focussed on what your goals are and help you avoid the 98% of the financial media that is a complete red-herring to your goals and life story. These people tend to call themselves financial planners, wanting to emphasise the planning work and disassociate themselves from selling products.

In short the skill set has evolved. You wouldn’t believe the level of research that is done these days. This is possible because of better technology and frankly better skills and a much better context. The truth, as painful and sad as it may be is that we have all messed this up at some point. Investors in believing in “free advice” and advisers in not being clear that it wasn’t, perhaps afraid to be. The product providers are guilty of making highly complex charging structures in order to pay for sales, and they have also effectively bought and bribed business. The fund management industry has overcharged and underperformed, manipulated data and set in motion a system that rewards big bets. The regulator has invariably focussed on the wrong things and hasn’t evolved as quickly to cope with some very complex financial instruments. In fairness though, it has had to take on more and more – now it is also taking on regulation of consumer credit – everything from a washing machines to a Ferrari (or Aston to Zanussi). However, the myth that is still perpetuated is that investing is easy and it is cheap. It is neither. I don’t care what massive “discount brokers” say or “money saving experts” they have all come from the same place and are focussing on the wrong things.

So (if you are still with me) back to the radio show. Statements about charges on pensions are very flawed, as flawed and silly as the charging structures themselves. Old style pensions were very pricey by today’s standards. Sometimes it is worth getting out of them, sometimes it isn’t. This needs careful consideration. Suggesting that 25% of a fund will be wiped out by charges is a foolish thing to say. It won’t, because you cannot invest for free. The charges are projections about a future that will not even happen. Returns are unknown. You are unlikely to have the same investment in 30 years time that you have now. The real menaces to investors are these:

1. Not reviewing your portfolio at least annually (and not being disciplined)

2. Not having clearly defined goals and objectives

3. Not assessing your attitude to risk and ability to cope with market volatility and therefore figuring out what returns you can accept and therefore what it will produce.

4. Running out of time, or money.

5. Not having a proper financial plan, that tells you when you have reached your goal and have “enough” (by your definition of “enough”)

6. The utter rubbish talked,written, recorded,filmed about money and investing

7. What the FTSE does is largely irrelevant to you

8. Government policy that messes with and creates a tax regime so complex that you need to pay an expert’s expert to decipher it.

9. Inflation, inflation, inflation, inflation…

10. The myth that you can get something for nothing, falling for the latest investment fad or fear.

You can have a successful investing experience, but you also need to be realistic. There are, and always have been some good advisers, some good fund managers, some good product providers and some good regulation. Life is not as binary as many would like to suggest. Over the years I have met some thoroughly decent people from all these camps. I have met advisers that I would trust with my own money – or my widows/children’s.

What’s more, this is not new. I set up my firm 14 years ago. I created a product neutral playing field, charging the same fee structure for investing in any form, in any product. I removed commission from new protection policies (which by the way is still available to advisers). I began to develop a proper investment philosophy and service and gradually began to use proper cash-flow planning. I have evolved, grown and learned. I made mistakes along the way, taking too long to improve in some areas and doing others too soon. That’s life. However I have remained consistent to the notion that my job is to improve my clients position, not make it worse. My long-term interests are best served by serving yours. Yes the financial services industry has a lot to answer for, it is miles from perfect.

One final point, here in Britain we seem to think that someone else will pay, that things are actually without cost. The very real and difficult truth is that we don’t really want to acknowledge that things have a price. Whether this is social security, care of the elderly, good education, quality teachers, good government, protecting children on the internet, a watchdog for the police, media, government, NHS, utility companies, stock market, financial advisers…or helping refugees and decommissioning weapons. Everything has a price and pretending that it doesn’t or it can be cheap is… well its like that big river in Egypt…. denial.

Footnote: By the way, the regulator does not think investors are capable of working out charges in a percentage format. They want charges expressed in monetary terms. So what hope do we have if people cannot even calculate what 1% is?

Dominic Thomas – Solomons IFA

It happened on the way to Essex (warning: dangerous information)Dominic2023-12-01T12:23:53+00:00

The Broccoli and Pizza Portfolio

I think its accurate to say that to date everything that has appeared in the blog has been written by me. It is probably well past the time someone else put something here. So, here is a piece by Jim Parker, the Vice President of Dimensional.

For some of us, it’s hard to give up on the idea that investment should be exciting. Picking stocks can be fun, after all, and there’s nothing like getting your timing right and bragging about it later with friends.

For all the accumulated wisdom about asset allocation and understanding risk, and about diversification and discipline, some people seem bound to see investment as an end in itself rather than as a means to an end.

For these folks, picking stocks is a hobby. They follow the gurus and soak up the financial media. Despite evidence to the contrary, they’re convinced they can build a consistently winning strategy from exploiting perceived mistakes in market prices.

Part of the reason for this is the natural human tendency toward over-confidence. For instance, we all like to think of ourselves as above-average drivers, when that’s simply not possible. Likewise in investment, many of us believe we have powers of foresight not evident in the wider population.

A Duke University study of corporate executives, published in 2010, found a dismal record of prediction from a group you might have thought would do well. Indeed, of 11,600 forecasts of the S&P 500 index over nine years, the survey found executives’ estimates of future returns and actual outcomes were negatively correlated. (This is a technical way of saying the executives were hopeless forecasters).¹

Research also suggests this tendency to trade a lot and make confident forecasts about stocks has a gender bias. Whether it’s a testosterone-driven instinct among men to big-note or something else, study after study shows the male of the species finds it harder to accept that they are unlikely to “beat” the market.²

For these red meat eaters, an investment approach that advocates working with the market, diversifying around risks related to an expected return, trading efficiently, exercising discipline and watching fees and taxes is going to sound like the financial equivalent of a broccoli and walnut salad – healthy but boring.

Surely the point of investment is to try hard and, Don Quixote-like, to charge at those market windmills? Are we not men?

There are a couple of ways of confronting this mindset. One is to hope for a change in human nature and convince each would-be master of the universe to separate his urge for ego gratification from his need to build wealth patiently and efficiently.

This is not impossible, of course. But one suspects it would take some time and would require an awful lot of face saving.

A second approach is to separate the investment nest-egg from the play money. If someone really wants to speculate on the market, they can be allowed to do that on the proviso that their long-term retirement money be invested the boring way.

This way the investor can buy some (expensive) entertainment and accumulate a few war stories to share at his next golf game without compromising the asset allocation painstakingly designed for him and his family.

It’s understandable that for some people investing is a kind of a hobby. After all, this is what keeps much of the financial services industry and media in business.

But in separating the concepts of speculation and investment, you can still enjoy the odd treat while ensuring a balanced diet overall.

Call it the broccoli and pizza portfolio.

Jim Parker: Vice President Dimensional

1. Ben-David, Graham and Harvey, ‘Managerial Miscalibration’, Duke University, July 2010

2. Barber and Odean, ‘Boys Will be Boys: Gender, Overconfidence and Common Stock Investment’, Berkeley, 2001

The Broccoli and Pizza PortfolioDominic2023-12-01T12:23:52+00:00

Anti-social media?

I haven’t posted anything to the blog for a couple of weeks, largely because I was on holiday and taking a rest in southern France. However, whilst I was on my break I had the misfortune to come across a “troll” one of those people in life that seem to spend a lot of time moaning at everyone and anything in a fairly mean-spirited fashion (this one had even been convicted for her trolling activities). It wasn’t that big a deal, I deflected the conversation (or rather actively chose to ignore the insults). Anyone that knows me will appreciate some obvious erroneous statements in the rant. You can have a look for yourself on twitter feed, but frankly I am sure you have better things to do.

Anyhow, it got me wondering if I had made a mistake in my use of social media. Now, I do understand that it isn’t everyone’s “cup of tea” but perhaps if you are reading this, it is more likely to be yours. Yes a lot of what goes on in social media world is inane, but then that could be said of “real life” too. My take on this has been to embrace it as a tool to help people that I work with and for, whilst letting others know that I exist and perhaps could help them too. As my work can be pretty “up close and personal” these days I only work with people I like, in fact I make it a rule. This is a two way street of course. So in fairness, presumably clients or potential clients want rather more from me than the glossy marketing that every other financial firm produces by the bucket load (especially the ones most focussed on your money and not you). So in the interests of giving a fair reflection I tweet and post as me and not as corporate identity man. Perhaps a mistake, but frankly who knows? I don’t hold myself out as an expert in many aspects of life, financial planning yes, but not in most other areas, but I do have an opinion and I’m old enough to know that I can change it. The Myers Briggs types have me as an ENTJ… perhaps its changed a bit since I did mine, but in short, I do a lot of my thinking and thought forming out loud with collaboration of others…. which does not mean that I cannot be self-reflective.

My troll experience caused me to pause and reflect further. Firstly am I wasting my time? Is this helping anyone? Are my views nothing more than more noise? or does it genuinely help clients see that, surprise surprise, I am a person, say some daft things as well as insightful things. The jury’s still out, but a piece I read this morning suggests that I’m on the right lines, so I will persist. However if you think I’m nuts or need some helpful suggestions, then I’m listening to you. Honestly.

For the record, I had a lovely holiday in southern France, the weather was perfect. I managed to finally get to see the hairpin bend at Monaco and take a stroll along the seafront at Cannes, there are some fantastic medieval towns and the region seems to be rammed with artists, of course the food and wine were excellent – particularly a lovely little restaurant in Valbonne called “le Bistrot du Sommelier” which is worth a visit if you are ever in Valbonne.

Dominic Thomas Solomons IFA

Anti-social media?Dominic2023-12-01T12:23:51+00:00