Category: Financial Adviser Blog

The first half of 2018 had no shortage of political tussles and diplomatic standoffs to deliberate on. Here, we consider some of the big economic events across the globe that have kept us busy, including incidents that have come completely from leftfield.

UK
Brexit has understandably dominated the headlines, and no doubt will continue to be the big topic of conversation for many months to come. In March, it was announced that the UK and EU had agreed terms for the Brexit transition period, which lasts from ‘Brexit day’ on 29 March 2019 until 31 December 2020. The EU will allow Britain to sign its own trade deals during the transition, and the UK will give full free movement rights for EU citizens who arrive during the period.

Also in March, chancellor Philip Hammond used his Spring Statement to unveil upgraded UK growth forecasts. Office for Budget Responsibility (OBR) figures have revised the UK growth forecast for this year upwards from 1.4% to 1.5%. However, growth was just 0.1% for the first three months of the year, in part due to the impact on the economy of the so-called ‘Beast from the East’.

US
Some of the tax reforms passed by Donald Trump at the end of 2017 came into play on 1 January, including a ‘market friendly’ cut of corporate tax rates. In the long-term, these changes are predicted to mean businesses spend more and lift wages. It is of course a gradual process, though a positive ‘earnings season’ for US businesses in the spring has arguably brought some degree of cheer for those looking to invest in the country.

The president has generated plenty of press coverage in other areas too, including his surprise meeting with North Korean leader Kim Jong-un in June. From a stock market perspective, it is the tech giants that continue to have a huge influence. However, the likes of Facebook and Amazon have not had it all their own way, given the former’s Cambridge Analytica data scandal and Trump’s attacks on the latter’s pact with the US Post Office.

Latin America
Argentina was in the headlines in May with its central bank rising interest rates to a whopping 40% as its currency, the peso, fell sharply. The country’s economic vulnerabilities were highlighted by a reform programme under president Mauricio Macri. Later in the month, it emerged the government had been in touch with the International Monetary Fund for a credit line that would help restore confidence in the country’s economy.

Elsewhere, economists have been speculating that Latin America could be an unexpected winner should trade tensions escalate between China and the US. Brazil, Argentina, Chile and Mexico are among the region’s economies that already have extensive trade agreements with China and the US, primarily trading soybeans, iron ore, crude oil and copper into China and manufacturing products into the US.

Europe
After months of uncertainty in Germany, a grand coalition was finally formed between the CDU/CSU and SPD parties and the new government took office in March. However, as one country took steps towards a stable government, another, Italy, was facing its own political stalemate. At the end of May, two populist parties, Five Star and League, formed a new ruling coalition.

In France, president Emmanuel Macron came up against opposition to his pro-business economic reforms, which meant nationwide rolling train strikes in dispute over government’s planned overhaul of state-run railway SNCF.

Someone who seemingly has never had a problem with popularity in his country is Vladimir Putin, who took more than 76% of the vote in a landslide victory in March’s Russian election. His fourth term as president will extend until 2024, much to the ire of many in the West who see his regime as a malicious influence on global diplomacy.

Asia
A key event of the first half of 2018 from a markets perspective was posturing towards a ‘trade war’ between China and the US. What exactly is a trade war? In simple terms it is when countries try to attack each other’s trade with taxes and quotas. In introducing tariffs on a country’s imports, which is what these two nations have been doing on certain products, the intention is to push people to buying cheaper local products instead, thus boosting your domestic economy. However, in truth there are no real winners from a trade war, and so it seems common sense that officials from both countries have been discussing compromises.

Still, the Chinese economy evidently remains in good shape, with growth in the first quarter of the year coming in at an impressive 6.8%. In Japan, however, there have been some problems brewing for prime minister Shinzo Abe, who saw his public support fall off dramatically having been caught up in a political scandal.

Correct as at time of going to print

If you’re concerned about how global events could impact your investment portfolio, please get in touch.

The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.

If you overheard a conversation about the gender gap, you might automatically think about it in terms of pay, given the relatively recent requirement for firms with more than 250 employees to disclose their pay data.

What is less well known though is the gender pension gap. In the UK, this is thought be between 30 and 40 per cent and down to two principle reasons:

  1. women need more money in retirement
  2. women tend to save less than men.

More money needed in retirement
So why would a woman need more money in retirement than her male counterpart? In part, it’s down to mortality; women are more likely to live longer than men (estimations suggest by 2.5 years from age 65), which means they will need a bigger pension pot to secure the same level of income throughout their retirement. Because women are more likely to out-live their male partner, they would also effectively lose that second income and potentially have to shoulder things like healthcare-related costs on their own.

Less likely to save as much as men

Women also typically have shorter careers than men; given they are more likely to take career breaks to have children. They are also likely to earn less – as we know from the gender pay gap reports.

What’s more, women typically save less than men and are likely to be more cautious when it comes to investing – which means, although there’s less risk to their capital, they would lose out on the higher rewards that more adventurous investments have the potential for.

Bridging the gender pension gap
There are a number of ways women can boost their income in retirement:

  • Get Advice! Research published in 2017 by the International Longevity Centre for Royal London found that people who received financial advice in the 2001-2007 period were around £40,000 better off than their unadvised peers by 2012-14.
  • Start saving more, earlier. The longer you save the more time it has to grow.
  • Find a way to increase your pension contributions by budgeting elsewhere
  • If you come in to some extra cash from a lottery win to bonus you can pay a lump sum in to your pension – basic rate tax payers could get 20% tax relief

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

If you’d like to know more about investing for retirement, please talk to us for advice

You may have read in the press that markets have been particularly volatile in 2018. But what does this mean for your investments?

While stories about stock market falls are guaranteed to make headlines, the subsequent rebounds in prices get less coverage; and that’s when the best investors can often make their money. While the great financial crisis of 2008 and the stock market lows of March 2009 are still fresh in many people’s memories, it’s worth noting that an investment then in global stocks would have grown more than twofold more than a decade down the line*.

That might be an extreme example with those kinds of returns never guaranteed, and those who try to second-guess markets or try to time when to invest their wealth often get it wrong. However, it does go some way to illustrate the benefits of investing over a long-term time horizon and riding through the peaks and troughs of market movements.

Investing for the long term
Indeed, the investment propositions we can recommend to you (our Graphene models and the Omnis Managed Portfolio Service), are designed specifically with a long-term investment in mind – a minimum of at least five to seven years.

The portfolios are also designed depending on your specific attitude to risk and aim to deliver lower volatility than the wider stock market; dampening extreme spikes in prices. How do we do this? The key is what we call ‘asset allocation’. This is smoothing out returns through diversification across different investment types, from stocks to bonds, and alternative types of investments, such as property or natural resources like oil or precious metals.

Volatility in markets has many varied causes; from political shifts and central bank actions through to modern media, for example tweets from world leaders like Donald Trump. Rather than focus solely on these, often random factors, the Omnis fund managers responsible for your investment are looking at specifics that determine the real value of stocks and shares, and overarching thematic trends, such as long-term changes in demographics or spending habits across the globe.

Embracing volatility
The key takeaway here is that short-term movements in stock markets, as sharp as they may be, are part and parcel of investing, and volatility is often welcomed by professional investors looking for new opportunities to put money to work. Those with their wealth in

well-managed and well-diversified portfolios should, in most cases, have little to fear as long as they follow their adviser’s recommendations in investing over a sensible timeframe and their investments correctly reflect their attitude to risk and capacity for loss.

*MSCI World Diversified Financials Index

The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Past performance is not a reliable indicator of future performance and should not be relied upon.

If you’d like to know more about our approach to wealth management, please get in touch.

The financial products and services we need to navigate through life will change with our circumstances. In the early years, our financial needs are likely to be more straightforward, getting increasingly complex as whatever your circumstances.

20 – 30’s: From single and sorted to settling down
Ah, those carefree days of being young, free and single; possibly still enjoying student life (albeit probably with a loan), starting an apprenticeship, or moving onto and along the career ladder.

Our financial needs at this point might be fairly basic: an inflation-beating savings plan for those starting to think about homeownership, income protection for the workers. If budget allows you might even think about cover that helps to pay the bills in the event of an accident or illness. And when you meet someone and start a family, or take on your first mortgage, the need for protection insurance becomes essential.

40 – 50’s: Accumulating wealth and paying off debts
For most of us, financial wellbeing will depend on whatever it is we do to earn money. At this stage in life, as well as securing good living standards while we’re working, it’s important to think carefully about putting some of our income aside for the future.

Generally speaking, and subject to investment performance and charges, the earlier you start saving and the more you save, the better shape your financial assets are likely to be in when you need to draw on them. But deciding on the right investment strategy is complicated because of the various factors that can influence it. For instance:

  • your investment objectives – what do you want from your money?
  • the level of risk you’re prepared to accept and the potential level of loss your finances can tolerate
  • the types of investments you should consider in view of your objectives and risk profile
  • the tax-efficiency when it comes to holding these investments
  • the ongoing management of your investment

Over 60: Taking your pension; enjoying retirement
When the time comes to draw money from your pension, you’ll need to decide how and from where.

Self-evidently, the greater the value of your investment, the better the prospect of a financially rewarding retirement. But the more investments you have, the more important it will be to think very carefully about where you take money from when the time comes, and how you continue to manage your money throughout your retirement.

It’s also wise to make sure your estate is in good order for any potential beneficiaries. Successful estate planning is all about helping to control the amount of tax you pay on the wealth you create and there are a number of key areas to consider as part of this:

  • A will
  • Lifetime gifts
  • Trusts
  • Use of exemptions and reliefs
  • Tailored investment products
  • Pension arrangements
  • Life assurance

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

The will writing service promoted here is not part of the Openwork offering and is offered in our own right. Will writing is not regulated by the Financial Conduct Authority.

We can provide high-quality financial advice whatever your circumstances. Please talk to us to find out more.

According to a survey by Lloyds Bank, 45 per cent of empty nesters have no plans to downsize, despite the potential windfall moving to a smaller place could create.

For these empty nesters then, life seems pretty comfortable, but their new-found wellbeing could be at risk if a study by the London School of Economics (LSE) is anything to go by.

Boomerang offspring
The LSE study is based on findings from people over 50 from 17 European countries taken between 2007 and 2015. It suggests the boomerang population is growing because of the increasing costs of housing and rising job insecurity causing kids to return ‘home’ as adults.

About a quarter of young adults in the UK now live with their parents, and in many cases, will be a source of emotional and practical support for their parents. But it’s clear from the study that some empty nesters view the return of their kids as hampering the exciting new stage of life they had just started to enjoy; creating stress and conflict in the family home and making downsizing seem a more attractive option.

The benefits of downsizing
It could be a more attractive option too when you consider a potential windfall of up to £110,000 for the 55 per cent in Lloyds Bank’s survey who did choose to downsize. This is typically the equity released from moving to a smaller property and something that makes a nice lump sum to top up the pension pot or indulge in a long-dreamed-of holiday of a lifetime.

And if you are thinking of downsizing, you don’t necessarily have to compromise on space. You could find a cheaper property that’s as big as your previous home by:

  • Finding a property in a less expensive location
  • Avoiding a property in the catchment area of a sought-after school
  • Buying a ‘fixer upper’ to work on in retirement
  • Looking for property at auction

If your kids have flown the nest and you’re thinking of downsizing, we can explore your options and discuss changes to your financial plan that can help to make more of your new circumstances.

Interesting theory in the Investors Chronicle.

It argues that thematic portfolio diversity (investing across themes) can be just as, if not more, important during times of macroeconomic stress than regional diversification. The idea is that it dilutes the influence that GDP and other economic conditions can bare on a portfolio’s performance.

‘Between 2007 and 2010 the correlations between major equity markets, with the exception of Japan, ranged between 0.77 and 0.99’

 

Business Protection is a crucial element in a company’s financial future, but how many have cover in place?

According to a study from Legal & General, 53% of the UK’s small businesses think they would cease trading in less than a year, should a key employee die or be diagnosed with critical illness and unable to work.

These figures ought to concern most business owners – especially given that the Federation for Small Businesses also reported around 50,000 SMEs go under each year because of late loan repayments – and it’s a trend that could continue given the uncertain economic climate. Worryingly, approximately 60% had dipped into their personal savings to fund their business.

Protecting the most important assets

You may have covered the tangible assets of your business, but have you protected your most important assets: the people who directly contribute to your profits?

If the answer’s no, ask yourself:

  • How would your business cope if a key employee suddenly died?
  • Would the business have to find the money to pay back any loans?
  • What if you became critically ill?
  • Can the business afford to fund a suitable replacement until you’re fit to return?

If the unexpected happened, it could pose a serious risk to your business.

Taking out Business Protection can help to cushion the financial impact of these unplanned events, including:

  • Repaying, or part repaying, an outstanding business debt
  • Funding the recruitment of specialist staff
  • Purchasing the shares from a deceased business partner or director’s estate

Every business will have different protection needs depending on their size and nature, so it’s important to get advice on the cover available and how it might suit your circumstances.

Smaller business; greater risk?

The loss of a key employee is likely to have a much greater impact on the running of a small business compared to a larger organisation, because there will be less resource to pick up the pieces and keep everything running smoothly. But despite the risk, smaller companies are least likely to have business protection in place, yet these are the very businesses who may need this protection the most.

If your business would be financially impacted by an unexpected event, or you’d like to review your current level of business protection, please get in touch.

Financial wellbeing is an important factor when it comes to being able to enjoy life. While we’re earning, it’s possible to secure the living standards we want for ourselves and our families, but it’s also important to put some of that income aside to build up your pension fund.

Generally speaking, and subject to investment performance and charges, the more you save and the earlier you start saving, the better shape your financial assets are likely to be in when you need to draw on them.

When work reduces, or ends, your pension fund will be an important (but not necessarily your only) financial asset. You could have money on deposit and investments in some, or all, of the following:

  • ISAs
  • Collective investments
  • Stocks and shares
  • Insurance-based Products
  • Buy to Let property

… to name a few!

The decision on where to draw funds from when you achieve retirement will be an important and potentially complex decision and there are many factors that can influence it:

  • Whether, and if so, how and when to access pension savings held either in a personal or workplace pension
  • How to make your pension last through retirement (given most of us are living longer)
  • How to protect your retirement income against the effects of inflation

The State Pension

For many the income the State provides will form a key part of their retirement income. The amount of State Pension you’re entitled to usually depends on the National Insurance (NI) contributions you’ve paid.

If you reach your State Pension age after 6 April 2016, you may be entitled to the new state pension, the full amount of which is £164.35 a week (2018/19). The full state pension is payable with 35 years NI contributions or credits.

State Pension Age for women is gradually increasing and will reach 65 by November 2018. State Pension Age for both men and women will then increase to 66 by October 2020 and then to 67 and eventually 68 by 2046.

Ensuring good decision-making

Clearly, the greater the value of your investments, the greater chances you’ll have of a financially rewarding retirement. But the more investments you have, the more important it will be to think very carefully about where you take money from when the time comes to take it.

The various investments mentioned above will have different tax rules applying to them so having a good understanding of these rules, or seeking advice from a tax specialist, will be helpful to good decision making. You’ll also need to think about the relative importance of certainty of income, access to capital and preservation of capital for your family, as well as the degree of risk you’re prepared to take to achieve your required level of return on the investments that remain in your pension fund.

If you’d like expert advice on your retirement choices, please get in touch.

The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

How many times have you heard the phrase “It won’t happen to me” when it comes to the chances of suffering a serious illness? Unfortunately, given that 1 in 2 people born after 1960 in the UK will be diagnosed with some form of cancer during their lifetime we should perhaps adopt the lottery approach and assume “it could be you”.

If you have a mortgage, or people who rely on your income, you should have some sort of protection cover in place in the event that you have to stop work. We can advise you on a range of policies designed to either pay out a lump sum, or provide a temporary regular income.

Critical Illness cover

Following a successful claim, receiving a lump sum on diagnosis of a specified critical illness can give you precious breathing space; space that allows you and your family to overcome the initial shock and begin a potentially gruelling treatment regimen without the added strain of mounting debt.

But it’s not just your finances that a critical illness pay out could help with. What if you wanted to pay for treatment that’s not available on the NHS, or you needed to make structural changes to your home as a result of your illness? And after the treatment, wouldn’t it be lovely to take the family away so that you could all relax and spend some quality time together?

Income protection

According to research from Macmillan Cancer Support, four out of five cancer patients face a monthly expense of £570 a month as a result of their illness, due to the impact of reduced earnings and additional expense including hospital visits and higher utility bills. When you consider that the average weekly household spend in the UK in 2017 was £554.20, it’s clear that even a relatively short time off work could have an immediate impact.

Income Protection can replace part of your income if you’re unable to work for a long time due to illness or disability. This can help you keep up your regular outgoings such as rent or mortgage payments and the usual household bills and expenses. Some plans have the facility to add unemployment cover and some offer additional benefits like counselling services which can ease the burden during a potentially difficult and stressful time.

Will your policy pay out?

If you’re put off buying protection because you don’t think it will pay out when you need it, think again. According to the Association of British Insurers £4.7bn was paid out on protection claims in 2016, the equivalent of 97% of

all protection claims received during the year.

Did you know?

The average age of a critical illness policy claimant is 47, and 54 for a terminal illness claimant. – Legal &

General Claims Department 2017, based on critical illness and terminal illness claims paid in 2016

If you’d like to talk to us about critical illness cover and income protection as part of a protection portfolio, please get in touch.

Let’s be honest. Seeking advice on how to look after your money may not be as fun as the immediate thrill of spending it, but it could be a rewarding decision in the long run.

Research published last summer by the International Longevity Centre for Royal London found that those who received financial advice in the 2001-2007 period were around £40,000 better off than their unadvised peers by 2012-14. The report also found that 9 in 10 people were satisfied with the advice received, with the clear majority

deciding to go with their adviser’s recommendations. 

Advice is crucial

The UK’s regulator for financial service firms and financial markets, the Financial Conduct Authority, has also been keen to promote the value of professionals. In a speech late last year, the regulator’s supervision director Megan Butler stressed that financial advice is of “unprecedented importance” in the UK today.

This is particularly relevant in the context of the pension freedoms introduced in 2015, which means anyone

aged 55 and over can take the whole amount of their pension as a lump sum. With so many legitimate uses we can put our savings towards today, Butler said “the role of the financial adviser is today more important than ever”.

This is also true in the context of uncertainties; around Brexit, prospects for the UK economy, and the future

direction of investment markets. As we all know from the last global financial crisis, things change very quickly and can catch us off guard. Professional advisers, like us, are no different in this regard, but with your financial wellbeing at the heart of what we do, together we can create a plan aimed to help you profit in the good times and weather the storm against any possible downturns.

We’re here to help

So how can financial advice work best for you? As well as managing your wealth through investments, you may

also need specific help arranging a mortgage, or making sure you and your family are protected in the event of

something unexpected. We’re here to help advise on any, or a combination, of these.

That you are reading this article suggests you already have, at the very least, made the first step in seeking advice. Indeed, you may well have had a relationship with us for many years. Either way, we’re here to help you take the right steps helping to safeguard your financial future.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

If you’d like to set new financial goals or review your existing plan, please talk to us.

Your home may be repossessed if you do not keep up repayments on your mortgage.

November 2017 saw the Bank of England raise interest rates for the first time in a decade, from 0.25 per cent to 0.5 per cent, causing a number of lenders to increase their mortgage rates.

The Bank of England has indicated there could be further rate rises, so if you’re on a Standard Variable Rate (SVR) or Tracker mortgage you might start to question whether now is the right time to fix your mortgage rate.

When will interest rates go up?

With the UK experiencing high inflation but weak economic growth, opinions are split on how the Bank

of England will react, making it very difficult to predict when interest rates might rise.

Should I consider moving to a fixed rate mortgage?

The attraction with a fixed rate mortgage is the certainty it gives to your monthly mortgage repayments over a set period. This is useful if you’re on a budget because it gives you peace of mind that if the interest rate goes up, your repayments will stay the same for the period of the fixed rate.

Whatever type of deal you’re on, it’s a good idea to take any increase in the base rate as an opportunity to review your current mortgage, particularly as lenders will be launching deals to entice new, and retain existing, customers. As the base rate and mortgage rate are often closely linked, many experts believe now is an ideal time to get a new deal, especially if you’re currently on a high SVR.

If you are considering changing your mortgage deal, make sure you’re clear on any fees and charges that may be due when remortgaging, as these can reduce any potential savings made. Some lenders have exit fees and early repayment charges as high as 5 per cent, so if you’re coming to the end of your term, check that you’re not switching out during the penalty period.

When looking for a new mortgage deal, it’s sensible to start reviewing your options between three and six months before your mortgage deal is due to end.

 If you’re not sure whether moving to a fixed rate is right for you, please get in touch.

Your home may be repossessed if you do not keep up repayments on your mortgage

When buying a property, you can do so either on a leasehold or freehold basis and there are important differences to be aware of before you sign on the dotted line.

With a leasehold property you own the property and its land for a fixed period, depending on the agreement

you have with the landlord. This effectively makes you a tenant and means you could be liable for things like ground rent or property maintenance bills.

Freehold means you own the property and the land it sits on.

Generally, leasehold is the ownership structure that’s in place when you buy a flat, apartment or maisonette

in England, Wales and Northern Ireland. Most houses are sold on a freehold basis.

A bad press for leasehold ownership

You may have seen some negative headlines about leaseholds in the press last year, featuring a number of homeowners who face seemingly unfair terms and unexpected costs once they’ve moved in. In recent years developers have increasingly been building and then selling houses on a leasehold basis; exposing homeowners to additional costs they wouldn’t normally need to worry about with a freehold house purchase.

What’s more, these leasehold agreements can include terms which may have been overlooked by the buyer

during the purchase, such as the doubling of ground rent every 10 years. In these cases, developers have often sold the freehold of these properties without the homeowner’s knowledge, and the new landlords have increased the charges.

If a landlord wants to sell the freehold of a block of flats, they are legally required to give the leaseholders

the opportunity to buy it. However, this law doesn’t apply to leasehold houses.

Will the law change?

With 1.4 million leasehold houses across England and the number of leasehold sales growing rapidly, the government is taking action to make the leasehold market fairer. In Dec 2017, Communities Secretary, Sajid Javid, announced new measures to cut out these unfair practices within the leasehold system, including a ban on leaseholds for almost all new build houses.

What to do if you’re concerned

If you’re purchasing a property or have purchased a new build property recently, and you’re not sure if it’s a freehold or leasehold ownership, speak to your solicitor. They will be able to find out and give you more guidance.

If you’re looking to buy your first home, or move up the property ladder, please contact us and we’ll advise you on a range of mortgage deals, including exclusive rates that might not be available on the high street.

Your home may be repossessed if you do not keep up repayments on your mortgage.