Professional Adviser Awards 2015

I have to admit to being pleased that we have been short-listed to the last 7 firms in the “Best financial adviser in London” category again – for the second year in a row! The award ceremony isn’t until mid February next year which is when we find out who won. If you are interested, the entry involved selecting one of three case studies and outlining how we do what we do for our clients, though in this instance, it was obviously a fictitious one.

I know some of the firms and I am very pleased to be on the short-list, whatever the outcome it is not bad for a very small financial planning firm to be down to the last 7 in London. Its a good way to sign off the year and I’m pleased for the whole team and of course our clients.

Dominic Thomas

Professional Adviser Awards 2015Dominic2023-12-01T12:39:43+00:00

Financial Planning Week

Its that time of year when members of the IFP (Institute of Financial Planning) open their doors or put on events, pitch up to radio stations to discuss matters of financial planning for the week. This is really an opportunity to ask questions and gain better understanding of the financial planning process.

I was somewhat pleased to see a faily favourable item in a national newspaper that was expressing the view that financial planning is worth paying for, even though it may seem expensive. One of the great problems within the system is one of cost and it may not surprise you to learn that most financial planners work with a very select group of clients, who make up a tiny fraction of the overall population. There are around 20,000 financial advisers, of which only 2,000 are members of the IFP (as I myself am).

The IFP would certainly welcome and encourage as many as possible of the remaining 18,000 to become financial planners. That’s not to say that the other 18,000 aren’t doing a good job, but its probable that they aren’t doing financial planning, but rather providing good (hopefully) financial advice – which tends to be rather more reduced to a particular issue of focus – such as “arranging a pension” or “making an investment”. All good things, but not necessarily financial planning, which involves planning all of your finances around all of your life, now and into the future, ensuring that your money doesn run out before you.

One of the hot topics at the moment is that of pensions. The once dull-as-dishwater pension plan has now been given a new lease of life thanks to the Chancellor. It would be a masterful understatement to say that anyone with an investment based pension now has more options to think about. However, for some people reviewing the decisions made is also going to be pretty vital to ensure the very best arrangements. Here is a very short video from the IFP for those not yet retired – there is some sound.

Dominic Thomas

Financial Planning WeekDominic2023-12-01T12:39:39+00:00

Walking With Dinosaurs

Walking with Dinosaurs

You may remember the programme “Walking With Dinosaurs” which was first broadcast on the BBC in 1999. It was a ground-breaking award winning series due to the technical special effects that some clever people at Framestore achieved. One of my clients worked on the series and has since had a succesful career in Hollywood doing similar things with monsters in movies. Anyway, interest in dinosaurs seems to have been re-kindled ever since, despite the efforts of the character Ross the palaeontologist from “Friends” who attempted to bore everyone to death.

It was only a few days ago that I was blogging about a video suggesting that IFAs will become extinct in 2014 much like the dinosaur. So it was some degree of irony that on Thursday night I was at an award ceremony run by the Financial Times Financial Adviser magazine held, you guessed it, in the Hintze Hall of the Natural History museum in Kensington. If you’ve been there, you will know features a huge Diplodocus. I’d been invited along (noted in our inducement register) by a company that we have used successfully with a number of our clients, very much a new world technology focused company, a company of tomorrow – or at least as far as we can see ahead. I hadn’t been to this annual event before and to be honest, probably wouldn’t hurry to return again.

This was a night for service awards, which frankly I thought might have extended beyond “Product Providers” the majority of whom were life and pension companies or mortgage lenders, but it didn’t.

The awards are voted for by advisers, the results were very surprising and seemed to contradict my own experience of dealing with some of the organisations over the years. I have to admit that we don’t arrange mortgages, so I have no idea today who is a good lender when it comes to service, though I have my suspicions.

Whilst I wouldn’t wish to pour cold water on the achievements of those that won, (seriously – congratulations!) it did make me pause to wonder, why advisers voted in a such a way, suggesting that many are still rather trapped in the old world and the old ways of doing things, in fact being advisers that arrange stuff rather than holistically plan, perhaps I’m wrong on this (it wouldn’t be the first time) but the results and event itself were rather… enlightening. I left wondering how many might find themselves in trophy cabinets rather than those that they clutched…. there weren’t any awards for advisers, so its not that I’m a sore loser… its just that I genuinely think the days of the giants within the life and pension industry are seriously numbered. The news on Friday that one giant (Aviva) is seeking to swallow another (Friends Life) for an initial £5.6 billion merely adds weight to my assertion that cannibalism within the financial services industry is still the main diet. Still, it was a fun evening and the people I was with, who were good company, certainly echoed similar feelings to mine.

Dominic Thomas

Walking With DinosaursDominic2023-12-01T12:39:38+00:00

The End is Nigh

We’ve all seen some rather sad looking types, clutching signs declaring that the end is nigh, if not on a high street somewhere, perhaps within a film. Occasionally I ponder what makes anyone do this, but most of the time, I dismiss it as a form of madness and delusion. Yet, I suppose there is a sense that the end is always here. Something or someone is always at the point of extinction. Death is very much a part of life, albeit an often unacknowledged one.

In commercial terms, innovation is the lifeblood of a thriving business, of course I really mean the right type of innovation. Kodak and Polaroid were innovative, but not in the right places. Similarly the F1 racing teams are all innovative, but two have failed to complete the season due to financial woes and being unable to remain solvent. The world moves on.

So it was with a degree of mirth that I came across a new advert about the extinction of the Independent Financial Adviser. I can take a joke (I hope) and am not criticising Beagle Street for their advert, but as with most things, getting some facts right invariably helps. For starters, pretty much anything that helps the UK public to look after themselves financially is a good thing and certainly life assurance is a financial product. Cost is often the main criteria for term assurance, but there are also questions about Trusts and how the cover is set up… knowing a little can sometimes be more dangerous than knowing nothing. Sadly, the content of the Beagle Street advert suggests that they neither understand the market or those within it, which does rather patronise the audience. Admittedly there are some valid points – jargon, bureaucracy, complexity and waste… though much of this was (and still is) due to regulation (designed to protect) and Government – designed to… well… distract.

Beagle Street are right in asserting that the days of advisers arranging life assurance as they used to are over, but then those that arrange products have had their days numbered for many years. The adviser that they seem to describe is someone from a bygone age and probably is more representative of “the man from the Pru” who used to turn up on your doorstep to collect a few pennies for a savings plan. That was way before my time (1991). In a world that has shifted from “Buyer Beware” to “Seller Beware” (Dan Pink – To Sell Is Human) anyone simply selling “Product A” is unlikely to be successful, even comparing A with B and thinking others cannot do that for themselves is definitely looking at a short career. Advisers are at the hub of the money relationship, providing contextualised, accurate, professional, independent advice – and paid for doing so. Admittedly I tend to only attend events with high calibre advisers, most of whom would call themselves planners – so my experience is possibly not entirely representative of all 20,000 advisers. Anyway, news of my death has been exaggerated…

Oh and for the record, Beagle Street are not independent, they are a representative of an insurance company. So for all the talk of evolution, they haven’t even evolved as much as those adorable meerkats… also what is the current obsession with things that look like “monsters” or “gremlins” in TV adverts these days… have the Ad Agencies really got so few ideas?

Dominic Thomas

The End is NighDominic2023-12-01T12:39:35+00:00

When will the penny drop?

I regularly meet people that have bought a variety of financial products from their Bank or Building Society. For some reason, some seem to think that a Bank is particularly trustworthy and I never really understand why this is the case. I wonder if it has something to do with the appearance that other types of savings account are just “better rates” than a current account and its all free of charge. Whether it is appreciated or not; an account with a Bank is a product, which generates revenue for the seller.

Santander fined £12.4m for bad investment advice

The news that Santander has been fined £12.4m by the regulator doesn’t surprise many financial advisers. I have had to explain what it is that people have, invariably not what they thought. What annoys me is that this continues to go on and however much training Banks supposedly do, the problems persist. It takes the regulator considerable time to build a body of evidence to have a clear case and the fines to Banks are inconsequential.

Would Jensen, Rory and Jessica approve?… I doubt it

The advantage that Banks have is their huge marketing and PR budgets, let alone high street presence. Paying very likeable celebrities or stars to appear in adverts tends to create a warm, trusting feeling towards the brand itself. The reality is that of course there is little or no real connection between the star and the business and any feelings are frankly misplaced based upon the overwhelming evidence.

Get commercially real, Banking 1-2-3

The biggest delusion is the notion of free banking. Nothing is free; it’s paid for by someone. If all Banks charged for providing proper administration of day to day cash management, and this more honest, transparent approach was continued into other elements of their business, I would be very happy. Banking is a business, an important one, as we all need it. I am not knocking the core business of banking, but why they are allowed to offer financial advice on anything other than lending and deposit taking is beyond me. This is its core business, not arranging investments that are dressed up to look like deposit accounts. If Government and Regulators are serious about addressing the savings gap, it should not use Banks and frankly should ban any advertising that contains anyone vaguely famous. The wrong financial products can do a lot of harm, we warn people about smoking or drinking, but the penny really hasn’t dropped about the risks of Bank products.

Dominic Thomas: Solomons IFA

When will the penny drop?Dominic2023-12-01T12:39:06+00:00

What Doctors can teach investors

Today’s guest blog is from Andrew Webb, who is a writer, marketing and communications expert. He currently works for Dimensional and used to work for Fidelity. Here he highlights why at Solomons we use evidence based investing, not the latest fad. You may know that I advise quite a lot of medical consultants and I imagine you will find his topic title amusing.

What Doctors can teach investors

Newspaper reporters who interview centenarians on their landmark birthday cannot seem to avoid the temptation to ask how they have lived so long. Because most people haven’t the faintest idea how they have reached 100, they tend to attribute their good health to something like a weekly tea dance.

Medical professionals will say that the most likely reason for a long life is a combination of favourable genetic and environmental factors, access to reliable medical care and a healthy dose of good luck. It follows, therefore, that anyone serious about improving their chances of a long life is better off seeking the credible advice of a doctor, not taking speculative tips from a pensioner.

But these facts rarely get in the way of a good story.

The treatments doctors use to keep us healthy are tested by a process of empirical research and clinical trials. Considering health and wealth are both high on the list of priorities for many people, it is a shame that the investment industry is typically less rigorous than the healthcare industry.

Most people turn to the investment industry to help them research their investments. This is the same as asking a pensioner how they have lived so long. The industry’s self-analysis can range from outlandish to plausible, but it will almost never be based on scientific study.

We take a different approach; one that is based on scientific rigour and hard evidence. This approach identifies the sources of investment return and we aim to deliver them to you. This gives us confidence that we understand why your investments behave the way they do and why we are more able to design investment portfolios that suit your needs.

Andrew Webb

What Doctors can teach investorsDominic2023-12-01T12:39:04+00:00

“What have I missed about auto enrolment?”

What have I missed about auto enrolment?

Yesterday I suggested that auto enrolment was not really about pensions, that’s because despite it being about setting up a pension, the real emphasis is much more about communications with staff and with Government agencies. The new system is rather like PAYE, though nothing quite as simple. I have come up with 11, that’s eleven, key issues where auto enrolment will challenge your business or charity.

Contracts of employment

Contracts of employment will need to be altered reflecting the new pension arrangements; this may be a difficult discussion depending upon your type of business and workforce. Do you need to get the help of HR or even legal advice to do this properly?

Pay reviews and salary sacrifice

Some employers may use this as an opportunity to consider “salary sacrifice” or “salary exchange” this is a bizarre scenario where having a reduced gross income with the reduction paid into a pension, saves both employer and employee national insurance contributions and PAYE, yet invariably the net pay is a bit more, with more money going into a pension. Odd but true.

Payroll integration, live and up to date

Your payroll software will need to be able to integrate the new scheme, if you are a small firm and outsource this to your book keeper or Accountant; they need to be up to speed and have software that does the job.

IT overhaul

Schemes will be managed online and the Pension Regulator may demand data going back 6 years in a format that they can readily use). This therefore has implications for your IT systems and security and in particular how you hold and backup your data about staff.

Garbage in, garbage out?

Communication with staff is also a big deal. You need to be able to evidence that you have provided all of the relevant information to your staff, email is the most obvious and cheapest delivery option, but we all know that not everyone uses email or has provided you with an up to date email address, so do you need everyone in the business to have a company email address, and what happens when they leave? Do you maintain records properly?

Money Laundering

As a pension is an investment, there are issues about possible Money Laundering and politically exposed people. As an employer do you have evidence that you have done thorough identity and residency checks? Can you prove this? This will also identify any illegal immigrants or visa’s that have expired.

Staying silent and impartial

You might see auto enrolment as a valuable part of your staff package, however some see it as another tax and a whole lot of bureaucracy. You are not permitted to give advice about pensions or entice or discourage staff from joining the scheme. This isn’t just frowned on, it carries hefty financial penalties if revealed.

Disgruntled employees

Non compliance with the rules is a dangerous approach. You may believe that you know your staff, but perhaps you should reflect on what could go wrong for you if a member of staff falls out with you, or is just plain awkward anyway (these people do exist in 2014) so make sure you have complied and that you can demonstrate that you have done so. It is pointless to ask for a bullet proof vest after the event.

Tax triggers

You may not be aware that some people have very large pension scheme benefits. The Lifetime Allowance has reduced and will reduce again in April. Some people have protected their larger allowances, but should they accidentally enrol into a new pension, this would scupper their plans. This could trigger enormous tax penalties (55% of £1m for example) and you won’t be terribly popular with the employee that is presented with such a bill because you didn’t communicate well enough.

Honest guv….

The cynic in me might suggest that this is another way to join-up the Government agencies, which is fine if you are doing everything properly (unless you have concerns about information flow) but of course will catch out more people that have undeclared earnings anywhere.

Impacting your budgeting

Finally, don’t rely on your costs being 3% of your payroll. It is likely that contributions levels will be raised above 8%, in Australia (where they have had compulsory pensions since 1992) employers now contribute 9.25%. You ought to allow funds for the scheme and your systems to be reviewed and of course you might be wise to provide seminars or meetings for your staff to ensure that they understand their pension.

So, auto enrolment is about pensions… well yes, but it is also about rather more besides.

Dominic Thomas: Solomons IFA

“What have I missed about auto enrolment?”Dominic2023-12-01T12:38:57+00:00

I have plenty of time to sort out auto enrolment right?

Love it or loathe it, auto enrolment is under way. The biggest companies and organisations are now running their schemes. As an employer you may be thinking that you have plenty of time to sort out your auto enrolment, you don’t. On the face of it one would think that setting up a pension for everyone to be opted in from the outset would be straight-forward (if I were King…) however there are all manner of obstacles to overcome, many of which employers are not terribly aware of. The truth is that this is not really about pensions, but about compliance and communication. Whilst the process is dressed as a pension, the reality is that the pension bit is probably the easiest element to resolve.

The real issue is to ensure you are compliant with the rules. This means not being late for your date, that is your staging date (find it here). If you are a small firm with 4 or fewer staff the fixed penalty is £400 and then £50 a day. If you have 5 staff its £500 a day, rising to £10,000 a day for firms with 500 or more staff. So it simply isn’t worth being late and in practice the entire process is likely to take 12 months from start to “implementation” and rather like having a baby, the pregnancy and then birth is not the end of the job… its an ongoing process, requiring a lot of time, effort and understanding.

So in preparation (the pregnancy part) quite a lot needs doing, this is where a financial adviser can help, though many employers will hope that they don’t need assistance, they probably will. In this analogy (and I don’t want to stretch it too far) the financial adviser is rather like the local GP, who is involved with the care, monitoring and progress and the life-long after care, but the parents (the employer) carry the responsibility.

To make matters harder there are a lot of companies all trying to do the same thing at the same time. Staging dates have been staggered, but there is a genuine problem with capacity. An estimated 1.4million firms will be attempting to bring their schemes into life. This is not going to be easy and most of the pension companies that you have heard of are alarmed at the prospect and cherry picking those that they want to work with, some are also simply closing the doors. This will leave pensions that you haven’t heard of as your main choice. Here is a chart showing the staging dates over the next 3 years by quarter. So you are just going to have to trust me on this – get on with the process, wave of applications is going to cause all sorts of capacity problems for pension companies.

So, let’s see how far I can get away with the analogy…whilst you have be currently of the view that you are searching for a new date (Valentine’s is shortly upon us) you are actually already in an arranged marriage and fairly stern in-laws have planned the baby-shower and booked a hotel to be near your local maternity ward…. Well maybe it doesn’t work too well as analogy, but you get the point. Time is running out whilst auto enrolment provides the opportunity for opting out (by employees) employers are not permitted to do the same and under no account permitted to influence employees.

Tomorrow I will outline some of the key issues that have little or nothing to do with pensions, but everything to do with compliant auto enrolment… after all how many small firms can afford fines of £15,000 a month?

Dominic Thomas: Solomons IFA

I have plenty of time to sort out auto enrolment right?Dominic2023-12-01T12:38:57+00:00

What is the best way to save for retirement? Part 4

This is part 4 in the series “What is the best way to save for retirement?”

Property as an investment strategy

It is a widely held view that property is a safe form of investing. Everyone needs a home right? The property boom was created by a credit boom. Its essentially fake money backing fake property prices. We all know houses are overpriced but are caught in the cycle of needing property values to rise in order to “move up” or “along” the property ladder. So whether this is right or wrong, sustainable or not, it has been our general experience.

Its all about the yield

In essence with a property strategy you are buying houses or flats that then provide a rental income. Let’s keep with the target we had yesterday, needing £20,000 a year as income from the age of 65. We might say that rental yield (the ratio of rent-to-property value) is around 5% a year. So the simple sum is that to generate £20,000 a year you need a property or properties worth £400,000. Lets also assume that you have a 25 year mortgage ending when you are 65. Let’s assume that you spend the first 10 years building a 20% deposit (£38,210) for a buy to let property which you buy for £191,000 so that with 3% inflation it is worth £400,000 at 65 (you may be detecting an alarming theme).

Deposit and mortgage

So you save £214.71 a month growing at 5% (as you want the money out for your low risk investment into property). As before we increase this by 3% a year, so you actually save £29,941 to have your £38,210 deposit. You then borrow £152,800 at commercial rates of an average 6% over 25 years (yes rates are lower now, but ask anyone over 40 what they once were). Your average monthly mortgage repayment costs you £996.09 (which is taxable income, though you are able to offset interest costs). A total outlay of £298,827 on the mortgage (nearly double what you borrowed). However you are letting the property at the 5% yield, so you are getting £9,550 a year, rising by 3% a year so your rental income is £352,950 over 25 years – which covers the mortgage cost completely. Assuming that there are no empty periods. So all you have really paid for is the deposit… and quite a few costs.. but not as much of an outlay as a pension or ISA.

The cost of being a landlord

Setting aside the costs of annual insurance for the entire time (45 years) the evident repairs and improvements, some tax deductions and payments (income tax, stamp duty) and perhaps letting agent fees. Let’s just say that your cost is the cost of getting the deposit together (£29,941), the mortgage is cleared and you have an asset appreciating by 3% a year and generating £20,000 a year. So on paper you have paid considerably less for your £20,000 income. However you have had a mortgage liability and the costs of insuring are probably at least £500 a year as a landlord over 45 years (£46,360 over 45 years). Then there is the cost of accountancy, repairs and given it’s a 45 year period, probably some major plumbing and re-wiring over the years. Still the principle is quite clear – getting someone else to pay for the mortgage and of course you still have the asset (which is appreciating in value). You always have the advantage of being able to sell the property (assuming good market conditions). There would be capital gains tax to be paid on gains. Over a 45 year period naturally one would not expect constantly favourable property prices, but the same is true of investments. However it is certainly true that when it comes to property the most important feature is location, location, location. I have also excluded the possibility of improving the property, increasing both its value and rental income.

Applying leverage

Now, its no walk in the park being a landlord anyone that has been one will tell you that its all about the quality of the tenants, but what I hope to have demonstrated is the power of leverage. That is to say borrowing money with your money, which places you into a high value asset which then appreciates at the same rate as a lower valued asset. Financial advisers are generally not keen on this form of investing, largely because there is little in it for them (no money to manage) however a financial planner is paid for designing and reviewing your financial plan – so ought to be completely impartial about this. There are risks as there are with anything, but this is a valid way of providing for your retirement. The kicker though is that all important inflation factor which I will reveal makes something of a mockery of all my numbers (but I will explain why and how to plan with this in mind).

There are lots of factors to consider with this option, rental income is taxable and may cause you to pay considerably more income tax, you might also have serious problems with tenants and need expensive legal advice and of course if you let through an agency, typically you will see a 15% fall in your income, hopefully in exchange for continued good tenants. Each case needs assessing on its own merits.

Tomorrow – Down to Business – yours as your retirement fund.

Dominic Thomas: Solomons IFA

What is the best way to save for retirement? Part 4Dominic2023-12-01T12:38:52+00:00

What is the best way to save for retirement? Part 2

This is the second in the series “What is the best way to save for retirement?”

The Alternatives to the Big Annuity Gamble

Thanks to some new(ish) rules, you don’t have to buy an annuity. In fact to be clear, just because your pension is set to mature at 60 or 65, does not mean that you have to take it then anyway. You can decide to take money out of your pension from the age of 55. Doing so beforehand will break the pension rules and get you into serious problems with HMRC. So don’t be tempted by firms promising “pension release” or “pension liberation” this is a load of rubbish and you are being lied to, it’s a scam to get money out of your pocket (or rather pension pot).

Delayed gratification

Ok, so you could defer taking the annuity. Why would you? Well because you reckon you don’t need the money now and annuity rates should rise the older you get (because you have left time to live). This is a truism. True in theory, but in practice over the last 20 years annuity rates have fallen from around 15% to around 5% for a variety of reasons which I won’t bore you with (you and I cannot do anything about it anyhow).

Have your cake and eat it..

You could phase your retirement, taking a slice of the pot (much like cutting a cake). As before, 25% of the slice will be tax free, the remainder is used to buy an annuity. The balance (rest of the cake) remains invested and hopefully growing. You can take slices gradually, or just take the balance when you want, same principles applying. Why do this? Well you might be gradually stopping work and want to plan how you take your income and in particular how your income is taxed – so it can be a helpful tax planning tool.

Drawing what you want

Another option is to go into “DrawDown”. This is where you can take the tax free cash bit, and then income. The balance is left invested. Not much different from phased retirement, but meaning that you could take all of the tax free cash now. The amount of income you can take is restricted based upon, wait for it, quango speak coming “GAD rates” this is a rate set by the Government Actuarial Department, who figure out a rate for everyone. It changes, but its not far off the same as an annuity. Alternatively, if you are lucky enough to have guaranteed income of £20,000 from pension sources, then you can do whatever you like with the balance of the pot, take it all out at once, or over the rest of your life. You have to prove you have £20,000 a year mind you. Once its gone..well its gone. This is a really useful feature, but doesn’t apply to most people (who do not meet the £20,000 a year requirement).

Temporary annuities

A newer and evolving option is temporary annuities. These are really DrawDown pensions, but paying an income for a fixed period, typically 5 years. The remaining fund is invested and usually has a guaranteed level of growth (which means using derivatives) so that you can elect to buy a full annuity or do the same again at the end of the term. I have lots of reservations about anyone in the investment world guaranteeing anything, but it is an option.

Life is like a box of chocolates…

All of these options give you more choices. Invariably you have more control over how and when the income is paid to you. As a result you can do some tax planning to hopefully keep your taxable income within your control. You are also keeping your options open that should your health worsen you could then buy an enhanced annuity, or worse if you die, the balance of the fund is passed along to your spouse or possibly your estate, depending of tax charges being met and some other rather dull criteria that we don’t have time for here.

So these are all options. You aren’t being forced to buy an annuity, you can control the income. Tomorrow I will look at other options to pensions – other ways of investing to achieve the same result, income in retirement.

Dominic Thomas: Solomons IFA

What is the best way to save for retirement? Part 2Dominic2023-12-01T12:38:51+00:00

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