THE F-WORD

TODAY’S BLOG

THE F WORD

The F-word in my world is fees. Today we received news that the Financial Services Compensation Scheme (FSCS) has increased its “levy” on financial advisers to a whopping £516m which is a hefty increase on the £468m previously.

There are many reasons for the increase, but the main one is that many investors have been duped into moving their pension into a SIPP (a Self-Invested Personal Pension). There is nothing wrong with a SIPP in principle, it is just another pension wrapper and the vast majority are perfectly good, indeed arguably rather brilliant. However, it’s also what is inside.

A SIPP can hold lots of investments, remember in 2005 Gordon Brown opening the way and then back-tracking on allowing people to put a private residence in a SIPP (thank goodness!). The “Self-Invested” bit of the SIPP really is an opening to put anything into a pension that “qualifies”. Anyway, some “advisers” have encouraged people to use all manner of weird investments, everything from storage pods, to teak farms in Thailand, car parking spaces to any hairbrained idea. These are “unregulated” investments – clue on the tin.

Solomons IFA Blog: Sorry to bother you

The backstop agreement

These investors have a genuine grievance for bad advice. Well… more scamming than advice. Therefore, they can turn to the FSCS, who in turn “approaches” (demands) payment from the rest of us upright advisers to cover the cost of the miscreants that peddle this rubbish. There are about 5,300 adviser firms in the UK, one or two huge ones and the rest are small businesses. The bill is shared between us (feel free to do the sums). In short that means we cannot keep stomaching the lion-share of a bill for which we are not culpable and so it is reflected in our charges to clients. Hardly a fair system, indeed, like others it is miserable and broken.

Look inside

For the record we arrange SIPPS for our clients, with proper SIPP companies and ONLY hold regulated investments within them. You hold properly listed funds which are composed of shares and bonds of great companies of the world.

If you are a client with a SIPP arranged through us, do not panic, all that’s in your pension is good stuff (unless you mucked around with it or “gave the keys” to another adviser). I recently took on a client who has a SIPP, but his adviser put some awful stuff in it. We have been able to unpick some of it, but not all. Totally unnecessary, unhelpful and illiquid.

Cold Calling Ban – Stop them at the gate

As a final note, anyone (you don’t know) that calls or emails you out of the blue is breaking the law – NO COLD CALLING. Some of you helped us with this initiative, started by another decent adviser (Darren Cooke) in Derbyshire and this eventually became law on Wednesday 9th January 2019. So hopefully this will reduce cold calling (I’m not naive enough to assume it will end). Some interesting issues about cold calling, greed, ethnicity and capitalism were raised in the film “Sorry to bother you”..  it went a little off point and lost its potential purpose, well that’s what I thought. Here is the trailer, it raised some interesting questions. WARNING: its rude.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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THE F-WORD2019-01-31T17:56:06+00:00

Empty Box – Part 2

Empty Box – part 2

As an update to the post “Pension Scams – The Empty Box” in December, you may wish to catch up with the Radio 4 show “You and Yours” of Wednesday 20th January 2016 which exposes the “problems” with investments into storage pods by Store First.

As if things were not bad enough, it transpires that many of the pods aren’t useable due to the shape, design and construction of the “pod”. Not only that but, the cost of renting a pod is largely made up of compulsory hugely inflated insurance, the rental income is a very small proportion of the overall cost and it is only this that “investors” are entitled to…. And according to the programme, many of the investors are even receiving this. The “occupancy rate” was also brought into question with the suggestion that rather than being 80% let, the real figures are closer to 14%.

Have a listen for yourself. It’s all rather sad and whilst I really do understand that many people are fed up with the volatility of the stock market, or loathe investment people, any sort of alternative investment must always be properly understood. This isn’t even a case of jumping from a frying pan into a fire, but more like not coping with the heat of a kitchen and deciding to burn the house down

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Empty Box – Part 22017-01-06T14:39:20+00:00

Pension Scams – The Empty Box

Pension Scams – The Empty Box

Yesterday I outlined that 2015 has been a poor year for investors. I also pointed to not making a bad situation worse by making further mistakes. Invariably and sadly, many are tempted by high returns elsewhere in an effort to recoup losses and/or an unwillingness to accept the reality of life.

Unfortunately, there is always a willing con-man to part you from your money with promises that tempt some to make some dreadful decisions. The BBC radio 4 programme “You and Yours” which can be found on the iplayer which aired 2 weeks ago (3rd December) is worth listening to. It’s a 45 minute show, so put it on whilst you are wrapping gifts for Christmas. You can find it here. (click)

This story has been around for a while, the regulator warned about it some time ago. In a nutshell, this is the story of pension liberation, though I don’t think the term is used anywhere (it ought to be). The brief version is that investors were encouraged to move their pensions into a SIPP (Self Invested Personal Pension) and once there, the money was invested into a “fund” which is unregulated. The fund was actually a “dead cert” of an investment, which was actually storage units or “storage pods” with Store First. One might hope that most people would think at least twice before making such an “off the page” investment, but it doesn’t help when a well-known person from the media appears in the commercial suggesting the implausible is possible… in fact guaranteed.

The Empty Box

Recap: the investment actually went buying a storage unit, then hoping that it will be rented and that the pod will appreciate in value. The price of the pod does not appear to be a market rate and attempting to sell the pod at anything like the purchase price is… well something about snowballs and hell freezing over. Note there are many similar “opportunities” arriving to your spam mailbox.

Let me be clear, there is nothing wrong with anyone renting or offering to rent or run a business that rents storage space. However as a direct investment, you are essentially becoming a business that rents storage space, so do you have all the facts to hand? and even if that is the case, of all the business opportunities “out there” do you really want to rent a box to others for profit? How much of such a business strategy is actually within your control?

There are lots of problems with what happened, for starters the advisers were not authorised (qualified, vetted, approved and regulated) advisers and they breached all sorts of regulatory standards. The processes involved were corrupted and frankly anyone doing even a modicum of research would probably conclude that this is not typical investing.

Unfortunately as the “fund” is unregulated, there is no compensation, despite appearing within a pension.

Tomorrow I will conclude by outlining some of the facts and part-truths from the Radio 4 programme, so that you don’t fall victim to something similar.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pension Scams – The Empty Box2017-01-06T14:39:21+00:00

Pensions – more needless headaches the Lifetime Allowance

Pensions – more needless headaches

You may recall that Mr Osborne in his great wisdom has decided to reduced the current lifetime allowance even further, just to clarify – the Lifetime Allowance is the value of your pensions, either in payment or being built up. It currently stands at a figure of £1.25million but from 6th April 2016 will reduce to £1million.

It is very easy to calculate the value of your pensions, provided that they are purely investments pensions, such as personal pensions, SIPPs (self-invested personal pensions). You can also exclude the value of your State pension.

However, if you have an annuity in payment or old final salary pensions or perhaps simply a current final salary (or career average) pension (called a defined benefit pension scheme) such as the NHS or Teachers Pension, the sums are considerably more complex.

Long story short, once the value of your pensions has been calculated you may find that you have exceeded the lifetime allowance – which is reducing. So you will need to do something about this, which may well involve some uncomfortable decisions about future membership of pensions, even or perhaps especially, good ones, which is utterly daft.

Another bonkers pension policy

Yes, I did say bonkers. Despite what Mr Osborne may say about helping people to help themselves, he is actually restricting the amount that you can build in your own pension, actively discouraging saving, which does seem to be rather at odds with any historic Conservative policy in history, unless you count the lamentable decision by Norman Fowler to remove the rule that enabled employers to make membership of an occupational pension scheme a condition of employment, allowing the employee to contract out and not join the pension scheme. In fairness to Mr Osborne, with the benefit of hindsight, Mr Fowler probably takes the prize for arguably the most loopy pension decision for generations.

Mr Fowler was under the misguided impression that this brought about freedom for employees to decide if they really wanted to be in their employer’s pension. Mr Osborne can only be motivated by collecting more tax as there are 55% tax charges applied to amounts that exceed the lifetime allowance, unless you have the relevant protection, which is also not really guaranteed.

We are not talking about small sums of money here. So you need to gather your information, for two specific dates 5th April 2014 and 5th April 2016. This creates a headache for you, a massive task for me and in my opinion the lifetime allowance is one of the worst pension ideas in history – penalising both those that save and a successful investment strategy. This is a subject that I will return to frequently before 6th April 2016.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pensions – more needless headaches the Lifetime Allowance2017-01-06T14:39:22+00:00

Pension Exit Charges

Pension Exit Charges

I wonder if I can be honest with you about pension exit charges? I freely admit that I probably spend too much time concerning myself with what others within my industry think. I spend a lot of time improving my knowledge and this involves reading both technical papers and opinion. Yet I find myself increasingly perplexed by the comments on industry media outlets.

THIS IS A LONG ITEM, BUT PLEASE STICK WITH ME…

Like it or not, the financial services industry regularly gets berated for being nothing short of self-serving. Often different or indeed competing elements of the spectrum that make up the financial services get lumped together, frankly this is our collective fault for not clearly defining or explaining the differences, invariably made harder by really rather poor regulatory clarity.

However I was utterly exasperated with my peers on yet another comment section within the “trade press”. This concerned the issue of exit penalties on pensions. At the time Mr Cameron, the Prime Minister was expected to outline his frustration with pension companies that apply high exit fees… for the sake of simplicity, let’s call them what they really are – transfer penalties.

Old World not New Model Advisers

The comments appeared in a publication that I respect by Citywire – New Model Adviser, the article written by a very thorough journalist, Will Robbins. The publication aims to high-light good or best practice and aims to help improve the advice sector and thus help achieve better results for the investing public. So one would hope that the readers and their comments are towards the front forward-thinking end of the adviser population.

The King is dead, long live the King

On the topic of exit penalties it seemed to me that commentators reverted to their historic stances as salesmen, not advisers, preferring to defend high penalties rather than lead a revolution to have them scrapped or at least capped.

Investors are being ripped off

Yes it is true that pensions set up were contracts and that contract law is therefore under the microscope…. but there are times to simply admit that enough is enough.  I have seen some horrendous penalties (the difference between the actual value and the transfer value of a pension)… some taking well above 30% of the fund. That is simply not good enough. OK there was a contract, but neither “adviser” nor investor could have anticipated these penalties which have become increasingly pertinent as investors and advisers seek better, more efficient and cost-effective solutions. Something that I regularly do to great effect for our clients.

Analogies have flaws but…

However suggestions that imposing a cap were largely greeted with derision. I was under the impression that it is the advisers job to represent the client, not the pension company and if engaged by them, to seek the most suitable solutions. I would like to think that it is in the collective interest to allow someone to move their money elsewhere with minimal fuss and cost so that it can grow better (hopefully) – and yes it cannot be guaranteed…. at least it cannot be guaranteed in a way that your life is not guaranteed by the protection that the airbags in your 2015 car should deploy if you have an accident, as opposed to your 1986 car that doesn’t have any of the current safety features. Yes you may be maimed or even die in the accident, but which do you think is likely to provide a better journey?

Aren’t we meant to put you, the client first?

In an industry steeped in scandal and mistrust this ought to be an opportunity for pension companies and advisers to put clients interests first. I find this even more frustrating as in reality it is all to do with commission and the lie that advice is free. Old style policies are those that typically paid high levels of commission, which the pension company advanced to the adviser as payment for arranging the pension with them. Of course it didn’t help that some pension companies offered more commission for using them as opposed to others, thus bringing into question the independence of the advice and adviser. If you went to a Tied Agent or Bank, you didn’t even get any option to compare costs…. which was the job of the IFA at the time.

Thinking that is so last century…

This has been going on for years, yet alternative approaches have also been available for those willing to face some truths. In 1999, 16 years ago I formed Solomons, removing commission, charging 1% on any investment or pension product – no matter who… a level playing field. 16 years ago! The regulator eventually caught up and banned commission on investments from 2013 called RDR so since then all advisers have had to charge fees properly.

Vive la revolution

Why does this vex me so? well as someone still in their 40’s I expect and plan to remain advising clients for many years to come, so I’d like to see things improve. I would like to see the standard of advice improve and the number of scandals and complaints decrease… not least because invariably the way compensation works is that those left working within the sector pay the compensation levy, even if they had nothing to do with it. This summer I had yet another regulatory invoice for this levy, an increase of 64% on last year…there comes a point when I and many (thankfully) like me, simply cannot absorb all these costs without jeopardising our own sustainability.

If you are fed up with your pension or not even sure what its worth, please check out my free guide, which  will help you regain control of your pension planning. There ought to be a box below to download this, if not just email me.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pension Exit Charges2017-01-06T14:39:25+00:00

Pensions: New Freedoms

Solomons-financial-advisor-wimbledon-blogger

Pensions Freedom

Have you heard about pensions freedom? Are you approaching retirement and thinking that this is excellent news, you can have your entire pension? Well you are right, but as ever there is a catch. You are free to self-destruct, it is your right to do so (and I’m not being patronising).

On the one hand freedom is good right? but with it comes responsibility (why do I sound like a Spiderman scriptwriter). By responsibility I mean, once you spend it, whether thats taking it as a lump sum or buyng an annuity or leaving it as a Flexible Access Drawdown pension, once it has gone – that’s it. Nothing left… except any other pension income you may have such as the State pension.v_for_vendetta

So this is all about knowing what you have and what you need. Something that no British Government has ever managed to get right for themselves, yet here we are, with new freedoms. So you have to figure out how long you will live to work out how much you can afford to take out each year. Actually rather more than that, you have to predict future inflation rates, mortality rates, investment returns and tax rates…. to name a few “elements”. Of course you could get a financial planner like me to help by doing some cashflow modelling and explaining the options and reviewing progress regularly or you could do it yourself.

Today I learned about a term called the IKEA effect. This is when we place a disproportianately high value on something that has been partially made us. Go on look it up. This is precisely what happens to DIY investors… that portfolio I built, its not bad. Actually the truth is rather different. I mean no disprect to IKEA or DIY investors. This is about a price-point in the market – what you can afford. Arguably you will have to live with both (furniture and your DIY portfolio) but your portfolio has to last your lifetime. I’m all for consumer empowerment and the removal of elist jargon and ivory towers, but information is not the same as experience or indeed knowledge. I wonder if you remember the John West tinned fish TV adverts? its the fish that John West rejects that make them the best. In other words, selection, some might call it curation – is vital.

Building the right portfolio to last for life is a fairly daunting challenge, for a few this isn’t going to be much of a problem, but for the vast majority of people it will be. Most people do not pay attention to the holdings in their ISAs or pensions. Most are in the funds or more likely single fund, that the adviser put them in when they started their pension. Little attention has been paid to assessing the level of contributions needed, frankly its more like lucky dip… and who can blame them! the jargon is a huge barrier, statements are fairly unclear and the rules keep changing, little wonder people don’t spend much time looking after one of their largest assets. Yet suddenly at the point of retirement, they are expecting to become investment experts. Whilst the Government may say that people should be trusted with their own money, thats fine if it relates to the straight-forward stuff of running a budget and basic banking, but when it comes to understanding asset allocation, volatility, sequencing risk, safe withdrawal rates, reductions in yield… well frankly its taxing even for the experts. Your pension is not a shelving unit from IKEA, its more like fitting a pace-maker, one that has to keep you going.

My advice is to get advice – don’t get sucked into short-term thinking and getting some degree of satisfaction from raiding your pension to show your displeasure with the pension company.  Certainly there are better pensions, but you really need to get sensible advice to explore your options properly. You wouldn’t build a house without architectural plans (I hope)… the same is true when it comes to designing a portfolio for life.

Dominic

Pensions: New Freedoms2017-01-06T14:39:28+00:00

Is Financial Services like gun crime?

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Is Financial Services like gun crime?Gun_Crazy

Here in the UK we have some gun crime, its horrible, but it is still thankfully rare. In North America the obession with guns is perplexing, the rising death toll and increasing militarisation of police forces is alarming. We have seen further mishandling and stereotyping lead to deaths in police custody and now further riots in some American cities. I’m not anti-police, I am anti-stupidity and I don’t think I’m telling you anything you don’t already know. America has almost no gun control, you can wander into a gun store or general department store (heck, sometimes they even give them away for opening a bank account -see Bowling for Columbine) and buy a firearm and ammunition. No real checks. We tend to think this is insane.

Yet here in the UK we have an equally perplexing situation which has collectively blind-sided most people. Its in the form of pension advice. Yes that rather dull topic (believe me I know how dull). Anyway it seems that your neighbour – the one that’s tempted by all those offers of too good to be true (because it isn’t true) high investment returns is wreaking havoc with the rest of us, like a loaded gun.

Garbage in, garbage out..

Despite warnings from the regulator, or there being a regulator, believe it or not, there are some “advisers” out there peddling all sorts of… well…”junk”. These always promise high returns, but actually pay high commission (something that is meant to be banned). So I can only assume that the person that does this is greedy, gullable or vulnerable. If the latter, then they have my sympathy and support, but those that are gullable, well it may sound harsh, but at some point in life you have to take some responsibility for your actions. As for the greedy… why should the rest of us pay for your gambling habit? eh?

Back to the gun analogy. Say I am a shop keeper, I don’t sell guns, in fact I sell books, but the guy nextdoor does. Guess what? his customer went on a rampage in the mall and shot 60 people. Being a shopkeeper I am sent a bill for compensation because I am a shop keeper.

What do I mean? Well pensions are regulated products and in theory should be arranged by regulated advisers. However in some products (SIPPs – Self Invested Personal Pensions) you can hold “uncoventional” funds… or what I might call “stuff you shouldn’t ever touch”. The regulator (FCA) would call this “non-mainstream funds” and in fact categorise them as “unregulated” in other words not regulated and therefore not actually protected by compensation. However because they were bought through a SIPP (regulated) and arranged by an adviser (regulated) therefore when it predictably goes wrong (it will) anyone that is an adviser gets to pay for the compensation. Now I don’t know about you, but I thought being an adult involved taking responsibility for your actions, so being one, I don’t sue people every time decisions I take don’t work out right.

Yes inflation is 0% but fees increase 75%

I tell you this because on top of a £20million levy a few days ago in March, the new annual levy has been set, increased from last years £57million to £100million for those that arrange pensions (shop keepers). This levy always comes with 30 days to pay (thanks). This is only a fraction of the full regulatory fees that I and other adviser firms have to pay.

Nobody to blame… but the good guys can pay up right?

The pension companies that allowed these investments in their pensions claim “not guilty – the adviser did it”, the regulator claims “We can’t use our product intervention powers on unregulated investments”… so cannot stop the funds being sold (or bought).

Those that sold these things have scuttled off elsewhere, probably to re-emerge in a different guise, leaving the dwindling number of firms (now about 5,300) and advisers (now around 24,000 from about 250,000 20 years ago) to pay the bill. The bill is paid by the firm and is enough to wipeout some firms, meaning that next year….the numbers reduce, so the share of the bill increases. There is only so much “cost” that a small firm can manage before needing to pass this on to their clients. I therefore predict that as a consequence, many advisers will be “forced” to put up their fees… which means you are also coughing up for the greed of your neighbour, because they cannot be bothered to take any responsibility for believing in fairytales…

Sorry to moan, but seriously… this isn’t fair is it? Of course people that have been ripped off need compensating, but seriously, you didnt think investing in a timeshare via your pension was normal did you? Your comments would be very welcome…. perhaps I am missing something, perhaps my entire profession is… in which case I’d like to know so that I have a snowballs chance of improving it.

Dominic Thomas

Is Financial Services like gun crime?2017-01-06T14:39:28+00:00
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