Tax, Votes, Spending and Debt

In the UK, despite our unpredictable and often disappointing weather we are undoubtedly in a very privileged position, some of the richest people on earth. We can easily forget our liberties and the many advantages we enjoy and should be unsurprised that others might wish to come here to create a future for their own families. Whilst we clearly need to exercise care in who we allow into Britain, we are all here largely by chance.

Tax

I’ve been reflecting on history and taxation and to be blunt, was surprised by my own naivety. As taxpayers, at least here in the UK, we get to vote (unless you pay tax and are under 18). This is perhaps the best example of “money talking” if you pay tax; you have an interest in how it is spent and why. One might build an argument for those that do not pay tax, should not have a vote (remember that there are various forms of taxation, not simply income tax – VAT, stamp duty, road tax, council tax and so on)… fairly hard to see how any adult in Britain would possibly be a non-taxpayer (unless they don’t live here).

Votes

Anyway, what I had forgotten or perhaps not appreciated was the involvement of suffragettes in the taxation system, who argued that taxation without representation (political) was unjust. Today it seems hard to imagine a counter-argument or why women would have been prevented from voting. Yet many women today are paid less than their male colleagues for doing precisely the same work. On occasion this is obvious, but sometimes it isn’t and frankly this is seriously out of order with where we ought to be by 2014.

May I ask you a question? When you initially read “those that do not pay tax should not have a vote” did you have a reaction to a fairly bold statement? Most people would think immediately of income tax and recall that not everyone pays income tax… many of the elderly, the infirm, unemployed and of course some parents looking after children. To deny these of the right to vote would be somewhat outrageous right? But most people pay tax, invariably through “indirect taxes” that we tend to forget about when we consider our actual net income. We are now in a period of confusion about tax avoidance, when terms are being quite deliberately muddled or misrepresented. Who really believes that the state should fund nothing? (or very little? or conversely everything?). There is a societal dynamic to taxation, yet our disconnection from community and engagement in politics tends to repress this social (not socialist) memory. Tax is good for us, but that does not mean that we should assume that paying less tax is “bad”. We are encouraged to save for our own futures by having some tax advantages (pensions and ISAs) or to encourage entrepreneurialism – which hopefully creates jobs and greater wealth. These are designed ultimately to reduce reliance upon the State.

Spending

However I am concerned by politicians that seem to think that reliance upon the State can be reduced before independence is even achieved. The new pension rules are undoubtedly liberating, but please remember that “once it’s gone it’s gone”. This isn’t a “bad” thing, it is simply the reality of living within our means. The main problem being that most people don’t and the reason they don’t is due to the cost of living and an inability to say “no”.

I am conscious that it is very easy for a financial planner with wealthy clients to say this. Surely just a bit of self-discipline is required. Just say no… which I believe, but am also aware of my own hypocrisy. I am just as inept in some aspects of self-discipline. The most obvious for me is my fondness for wine and good food (which sadly in middle age does not mix well with an Adonis physique). I also have the ability to spend money on things that I don’t really need, but would like. Again, there’s not much “wrong” with this, but when I use a credit card that I don’t repay straight away, I am really in denial about my own unhealthy habits – and perhaps delusional. However more significantly, is that the wealthier I become, the more readily I can spend and the more I forget what it was to have less. I am lucky. Yes I work hard, have taken “commercial risk” but lucky even so.

I don’t judge how my clients spend their money, merely help them account for it and create planned spending. It is a very worthwhile exercise, but invariably a “painful” one…. If I asked you to sit down now and account for your spending in the last year/quarter/month, I dare say I would meet with some resistance. I often wonder why, after all, it is little more than historic information that cannot be changed. Yet it often reveals information which we probably know but would rather not see. As a nation we are quick to point to politicians claiming expenses that we think unfair, or companies that “charge too much” or “make too much profit”; how much aid is “wasted” but where does this come from? It is simply envy? Shouldn’t we start with getting our own affairs in order first?

Debt

Look, I’m not trying to be “political”. I am merely attempting to reveal that simply saying “no” is only a partial answer. I have more questions than answers and I have already confessed to you my own hypocrisy. Despite this, (perhaps in spite of this) I do believe that as a nation we need to consider why we feel the need to overspend and how we handle our own money…of course when its other people’s money, we are even more detached from it (hence the problems within financial services)….where “bankers gamble with your money” (I am repeating a phrase I have heard many times, not necessarily an accurate one)…I do know that some of my clients are very good at running a budget and sticking to it, some get frustrated with those that don’t. However, we all have our failings and whilst I am not excusing parents (for example) for failing to say no and somewhat arm-twisted by commercials aimed at children, closely followed by adverts for loans, it is a modern-day pressure which not everyone has experienced in precisely the same way. I’m not sure that banning things is a mature approach to life, but I can see an argument for banning adverts for loans during children’s TV programming, which is why I support the #DebtTrap campaign that The Children’s Society are running (which I came across over the Bank holiday weekend.

If I might therefore make a suggestion or two. Firstly, that we start with ourselves, regain control (if it was lost) or at least proper knowledge of how we spend our money. If you would like an easy to use spreadsheet for this exercise, just email me for one. Secondly, have a proper personal spending plan and if this is exceeded be prepared to ask why this was… and not just dismiss the incident as “of little significance” you may find much can be learned from your own chequebook. Do let me know how you get on…. As a final request, do check out the Children’s Society Wall of Debt campaign.

Please note that I do not provide debt advice. Despite being a financial planner, this is not my area of expertise (negotiating with creditors). If you require debt advice or someone you know does, please visit the Money Advice Service website (paid for by financial planners). Oh.. and a film currently in production with a fairly stellar cast “Suffragette” is in production.

Dominic Thomas

Tax, Votes, Spending and DebtDominic2023-12-01T12:39:29+00:00

Skandia Close OId Woodford Funds

Skandia Close Former Woodford Funds

Its all change at Skandia – soon to be renamed Old Mutual Wealth. On Friday they (OMW) took action which is rather unusual. Funds (INVESCO High Income and INVESCO Income) that had been previously run by one of the most successful fund managers (Neil Woodford) were closed. This follows the exit by Neil Woodford from INVESCO Perpetual who then formed his own investment company (Woodford)… genius name right? Anyhow, Skandia have argued that a lot of investors and advisers are following him getting out of his old funds at INVESCO and moving to his new ones….well his new one (Woodford Equity Income Fund). This is undeniably true. There are costs involved in running the new funds (naturally) and keeping the old ones running (also… naturally). What is exposed in practice is the lack of extra juice squeezed from the annual management charge from INVESCO by Skandia.

The CEO of Old Mutual Wealth (Paul Feeney) believes that they “have been between a rock and a hard place with regards to how we manage Neil Woodford’s resignation from these funds and the demand we have seen to move investors into his new offering. We have discretion over these assets being in our life book and therefore have a fiduciary duty to do what we believe is the right thing”. He goes on to state “Whilst theoretically we could have kept the funds open, the demand we have seen from advisers for Woodford would have resulted in even greater redemptions from the INVESCO Perpetual funds. This would have resulted in the TER of the funds increasing and ultimately the Skandia funds becoming untenable”.

(TER is the Total Expense Ratio…or charges in plain English).

So what?

Well, the wisdom of this action will only be seen in hindsight (not a great comfort) and my main objection is the lack of notice. Those that have been happily using the INVESCO Funds concerned (not all INVESCO funds) are being forced to change. This does rather create the impression of selling at a low point and perhaps buying at a high point. The truth is we won’t know until much later. However, what it does expose once again is the problem with “Star Managers” who are a rarity. The only UK Fund Manager more well-known is probably Anthony Bolton, who ran the Fidelity Special Situations Fund very successfully for many years then retired, only to find retirement somewhat unsatisfactory, (I presume) so launched a Chinese fund… which has, not met with the same success. Unlike Mr Bolton, Neil Woodford is sticking with what he knows and can avoid blaming the Chinese for their lack of corporate governance*. This all stems from the belief that investment out-performance is repeatable and sustainable. I don’t subscribe to such a belief when it comes to the long-term (which is the only worthwhile measure of “repeatable” or “sustainable”).

In practice this has exposed the problem of chasing the curve, hoping that because of the past, the future will yield similar results. It is pretty difficult to dissuade most investors from this sort of “top of the pops” behaviour given the tide of marketing and “evidence” of out-performance (by which I mean rather meaningless charts, designed to show certain events in their best possible light).

Is this the best way to invest? Yes if you are in first and out first…but to do that requires courage, conviction and perhaps some inside knowledge, most lack the first two sufficiently and the last is illegal. For those impacted by this move, we will be in touch (as will Skandia… sorry I mean Old Mutual Wealth).

Dominic Thomas

* CityWire 2014-04-01 “The Chinese Are Great Liars“

Skandia Close OId Woodford FundsDominic2023-12-01T12:39:28+00:00

CoCo Nuts

Despite it being Coco Chanel’s 131st birthday yesterday, this is nothing to do with fashion. I’m also not talking about coca-cola (Coke), cocoa beans or Cocaine, or indeed coconuts. I’m referring to what I believe to be a wise move from the regulator, the FCA to ban the sale of CoCos (Contingent Convertible Securities). Now this may be a new one to you (and indeed most of us) however this is yet another example of a “clever” investments tool that brings with it the likely prospect of profit only in the direction of the product manufacturer and unlikely to be suitable for any normal investor. Cocoanuts

The story is familiar – potentially high returns. However these products are highly complex (to put it mildly). The regulator is concerned about financial advisers that use Discretionary Fund Managers (DFM), where sometimes these products are used. It is likely that the adviser does not realise – and almost certain that the investor doesn’t either. So the regulator has called time… or will do on 1st October 2014 for a year whilst restrictions about who can use these investments are carefully assessed.

This is not an issue for our clients. It is an issue for those with holdings managed by a DFM or stockbroker to manage their wealth. Great care is needed and this is precisely why you need a good IFA to assess portfolios, what your attitude to risk really is, along with obviously helping to figure out what returns you really need and why. It is my belief that the financial world is too complex and too treacherous for most investors to “go it alone”.

Contingent convertible instruments (commonly known as CoCos) are hybrid capital securities that absorb losses when the capital of the issuer falls below a certain level. They are risky and highly complex instruments.

Dominic Thomas

CoCo NutsDominic2023-12-01T12:39:27+00:00

Tempus Fugit

Tempus fugit – time flies

One of the things that age affords us is the ability to remark how quickly time passes, so when my daughters begin to talk of how quickly the year has gone, I am given cause for reflection. These days we seem to measure pretty much everything – because we can, as though the measurement will reveal the secrets to success. Sport has taken this to an incredible level – as we begin yet another football season, how many passes, kicks, assists, false starts… blades of grass… all of it is turned into “big data”. Financial services is a world obsessed with measurement and metrics and as I begin the tedium of another annual return for my professional indemnity insurance I note how what is being measured changes. The Freudians amongst you might have an inkling about why so much time is spent measuring – pretty much anything.

The belief that “you get what you measure” is rife in our culture, but is it even vaguely accurate? We are nationally obsessed with house prices, inflation, GDP and the national debt and momentarily the number of A’Level passes at A*-C. Are we measuring the right things? David Cameron attempted to introduce a “happiness” measure, which I think was well-meaning but many have mocked. My in-box, twitter account and pretty much every form of media is deluged with data. Performance indicators, past present and future, but are they any good really?

So, somewhat controversially I am going to suggest that most of the data probably isn’t very important or useful at all. It tells us what happened, rarely why. If you are a client, you will have gathered that I have an enjoyment of history. We print our own birthday and Christmas cards, which we design. I fill these with what I hope are interesting “historical facts”… interesting to me anyhow. Why? well… if I’m serious about “lifestyle financial planning”, yes numbers are important, but surely life itself is rather more important. What we should measure is the content of our lives, not the content of our pension funds. I have never been to a funeral, where the focus was on how well someone managed their money or how much time was spent at work.

I think it fair to say that we are all largely unable to escape 24/7 reporting, yet a great deal of wisdom is required to determine what is actually important. My children will tell you that a phrase I use all too regularly is “everybody dies”. This is not meant to minimise death, quite the reverse, it is the great leveller and a part of life, yours and mine. I am merely trying, probably poorly, to point out that life is brief, so live it well, but it is the content of life not the accumulation of stuff, or social position that I believe is where a life well spent resonates.

So of late, I have tended to tweet simple facts. Reminders of people that are alive or perhaps dead, but who have done something extra-ordinary, none of them are perfect (nobody is right!). Of course, the irony is that many of these people are famous and don’t appear to be “ordinary”. I’m also mindful of a white, western male perspective, which I have grown up in. Its also a reminder that life is brief, that change is often painfully slow and the present is built upon the past. So as we see yet more racial trouble in Ferguson the not-so United States, where arms manufacturers seem to be equipping police forces for wars as opposed to communities, I am reminded of the struggles of the civil rights movement in the US and how the struggle is clearly not over and how much more there is to do in the world…and timely that Rosalynn Carter is celebrating her 87th birthday today…another inspirational woman who has been waging peace, fighting disease and building hope – for a lifetime.

I know its possibly “commercially dangerous” to comment on politics, religion, gender, race…. but whilst I don’t expect everyone to agree with me (heck, I often don’t!) it does reflect rather more about who I am, rather than some glossy, corporate sanitised version of who I am. I’m told that I should build my “brand” which is well-meaning advice, but seems to somehow miss that I run a small (tiny) company, primarily serving local people to make better decisions about their money so that they can get on with living their lives more fully. I don’t know the future, don’t promise huge rewards, merely to remain disciplined to sensible principles that work, all in the context of a world of options, which we can sift through together calmly.

Dominic Thomas

Tempus FugitDominic2023-12-01T12:39:27+00:00