FSCS Compensation Scheme

FSCS Compensation Scheme – TV Advert

The FSCS are about to launch a new TV advert to remind everyone that the first £85,000 of savings are protected. This is per person per Bank – however please be aware that some banks share banking licenses and as a result you are only covered per person per Banking license. There are a few obvious ones that you will know, but there are several that you might not, so do check.

The FSCS £85,000 limit applies to cash, not investments, which are protected under different rules. Anyway, here is Fearne Cotton, talking about her earlier financial life, I imagine that £85,000 of protection is probably rather small beer for her these days. So if you have an account with a large sum in it, say £500,000 you are only protected for the first £85,000. I don’t wish to be alarmist, but this is really little more than a comfort blanket. Whilst FSCS has protected some investors with large payments (I’m thinking of the Icelandic banks) in practice if one of the big four UK banks collapsed, I don’t really think it is going to be much of a guarantee.

If you would like to check banking licenses for Banks, click here. If you wish to check licenses for Building Societies please click here. Don’t forget, unless you are an existing customer, each Bank or Building Society will need to verify your identity and residency. For the record, the FSCS is funded by financial advisers and financial institutions as part of our annual fees and levies. So for those that are minded to lobby for higher levels of protection (than £85,000) be advised that ultimately it is the saver that pays.

Dominic Thomas

FSCS Compensation SchemeDominic2023-12-01T12:39:31+00:00

Broken Promises – the pie crust promise

Broken Promises

At a recent client meeting I attempted to convey the issues regarding perception of financial advice. In the past most of my industry has lured investors with the promises of riches or security. Whilst both of these are possible to some extent, in practice they have tended to be un-bankable promises, or as Mary Poppins might say “a pie crust promise, easily made, easily broken”. Mary Poppins in mind, my industry is in need of some saving… and its an excuse to use a play on words and suggest a very good film to see “Saving Mr Banks”.

We have certainly seen our fair share of broken promises within financial services, not simply those of servicing but of delivering results. Little wonder so many have such little faith or trust in my industry. So as I am as much part of the system, I too must take some responsibility for the collective failure; indeed regulatory fees ensure that I am constantly aware of the failings of others. Together with all remaining firms, I pay towards the compensation for their failure, which certainly feels like punishment by association. So within this context of “self-awareness” I bring to your attention one inescapable truth.

You probably do not need to achieve huge returns to achieve riches or get too concerned about your security… I appreciate that there are bound to be some exceptions. However for most people, financial planning is about ensuring that your existing lifestyle continues for the remainder of our life, however long or short that may be. In short, that you have enough to live the way you do and ideally the way you would like to. The important thing is to know what return you need to achieve, not simply to “go for it”. Pause to reflect on the athlete, that trains for the 100m. He or she doesn’t simply stroll up to the race without having prepared… for months, perhaps (probably) years. There are hours of preparation in the technique, rest, diet and so on.. then knowing what is required to compete… little point if you run the 100m in over 15 seconds (still a very impressive feat).

Financial planning is largely about discipline, there is some preparation. Practice is perhaps the harder analogy, there is a sense in which this is very much a live learning exercise…so there is no real “practice”. Yet thinking a little larger, today’s personal budget control is an important prelude to one further down the track. The value that clients derive is partly from the experience of the adviser, much like a doctor, each case is new, but years of experience help provide the most effective course of treatment.. but sometimes we need to do a fair amount of research and ruling out to help inform a best judgement.

Life is uncertain, there are no guarantees… even death has its question marks. Financial planning can offer guidance, shape and focus, however it cannot provide guarantees. Here is the official trailer for the fabulous “Saving Mr Banks”.

Dominic Thomas

Broken Promises – the pie crust promiseDominic2023-12-01T12:39:30+00:00

Seeing is believing?

Investor scams are nothing new and I was surprised to learn of one scam last week which conned some investors out of their hard earned money, with what seemed to be a rather obvious fake name Goldman Shaks (instead of Goldman Sachs). The regulator is aware of criminals mis-spelling names that are “close enough” (apparently) to lure unsuspecting victims. Indeed even the FSCS were victims (2011) to criminals using their name, cold-calling people, suggesting they may qualify for compensation and requesting bank account details. Later the same year the Ombudsman’s name was also taken in vain and even this summer, someone had the gumption or stupidity to use the name of the FCA. By the way the FCA have some useful guidance on how to avoid being scammed here.

Sadly fraud is not always obvious. Never hand over your cash to someone claiming to be a financial adviser. All financial advisers are regulated in the UK by the FCA. Cold calls are generally not something that most financial adviser firms do, we certainly don’t. A confidence trick is generally one where you are caught off guard by someone that appears to be helping you, providing good news and then robs you blind..such as standing at the cash-point ATM and someone asking if you dropped a £10 note as you turn his or her accomplice grabs your card and cash from the ATM.

Something doesn’t ring true

In an age of digital technology it is hard also to verify something that appears genuine. You may have come across a video of a man going down a large water slide, (megawoosh) jumping a huge distance and landing in an inflatable “paddling pool”. This is now quite “old” but is doing the rounds again. The mathematics alone would take some impressive calculating for the physics involved. However this is not, despite some very good editing, a genuine video, although it is rather fun and nobody was scammed out of any money. The full story is here.

So, as with most things, exercise caution. We can all fall victim to a scam, when we are off guard. Importantly, when investing or moving home or selling investments, we will apply additional checks to make sure the request really is from you. Of course the oldest tip still remains the most helpful… if its too good to be true, it probably isn’t.

Dominic Thomas

Seeing is believing?Dominic2023-12-01T12:39:30+00:00

Keep it Real

If one were to believe the media, there are many reasons for none of us to sleep at night through anxiety of our impending doom. However, whilst I wouldn’t wish to trivialise any of them, few in practice will have much impact. However for investors, there is one enemy that will do more to damage a portfolio than many other threats. That is “inflation”. This is a topic that I regularly discuss with clients, particularly someone new to our approach.

Hold cash, but not too much

Many people mis-manage their wealth by holding too much in cash or not being bold enough with their investments. I say this as someone that believes that holding cash is a good thing – wise, as cash provides liquidity – or at least it should in the normal course of life, providing for emergency funds and planned and unplanned expenses. However cash generally provides a poor return and one that few people can really afford.

The price of a cup of tea

Inflation is, at its most simple, the rising cost of living. I was reminded of this yet again on Friday as I attended the London Philharmonic Orchestra screening of the David Lean 1945 film “Brief Encounter” at the Southbank Centre. Much has changed in society since 1945 (a mere 69 years ago) particularly the days of buying two cups of tea and a couple of buns for 7 pence. I do appreciate that this was pre-decimal, but you get the point. So if building a portfolio it is helpful to know how long the portfolio needs to last, the longer its duration, the more likely the negative impact of inflation. The regulator has attempted to alert investors to this problem, by making providers quote returns with allowance for inflation. Invariably this makes the numbers look somewhat depressingly low and even negative, prompting the obvious sensible question “why invest?”.

Long-term impact

If you have our APP for i-phone, i-pad or Android, you can use it to review inflation in a specific year or over a particular timeframe. The calculator goes all the way back to 1949. I usually show investors the rate of inflation in their year of birth and then the average rate since then. Inflation has only really come “under control” since the early 1980’s as the longer-term rate remains within 2.7%-3.7% range. So for real growth to happen, investments must beat inflation, otherwise they are either simply keeping pace or falling behind. Of course investments will rise and fall in value so even in a conservative portfolio if inflation is 2% and returns are -3% over 12 months, then you are making considerable losses, over that time – however a longer-term perspective must be taken to have any practical use for investment assessment. In order to ensure the value of your pound increases, it must keep pace with inflation. To grow wealth beyond this, we are left with few choices, investment being the most obvious. A good investment experience, will provide returns above inflation, commensurate with the amount of risk associated with it (and how much risk you are prepared to take). As a result, returns that are above inflation are actually “real returns”. As a consequence, we model financial plans in “real numbers”. I believe that keeping it real is vital for any worthwhile assessment of a portfolio.

Dominic Thomas

Keep it RealDominic2023-12-01T12:39:29+00:00