The Informed Choice Personal Finance Blog

Do we place too much emphasis on UK equities?

2008-07-25T12:02:00.002Z

Informed Choice joint managing director Martin Bamford was quoted today in Professional Adviser magazine, in an article looking at the emphasis placed on UK equities when compared to international equities.

The article started with a claim from another firm that advisers place too much emphasis on UK equities when constructing investment portfolios.

In response, Martin explained that there are some very good reasons to favour the UK equity sector:

"For the UK investor, there is no currency risk and it is a market they are more likely to understand. It is also lower cost and subject to better regulatory protection than some other global equity markets. We do weight our client portfolios more heavily towards the UK equity sector but this is a conscious decision rather than a hangover from traditional investment models."

He continued: "It would be wrong for advisers to look to global equity markets for potential higher returns without fully explaining to clients the additional risks associated with this move. UK equity market performance has been disappointing over the past 12 months and, if you exclude dividends, has basically resulted in zero growth over the past decade, but that in itself is not sufficient reason to shift focus and portfolio weightings towards global markets."

You can read the article in full here.

Martin is responsible for the Informed Choice investment committee. He is also the author of Brilliant Investing: What the best investors know, say and do (Prentice Hall, £12.99).

New Professional Connections Workshop

2008-07-25T07:54:00.002Z

Informed Choice is pleased to announce the date for our next investment workshop for solicitors and accountants.

This takes place on 30th September 2008 at The Manor House in Godalming, Surrey. We will be running a morning session at 10am and an afternoon session at 3pm.

The topic of these workshops is Brilliant Investing and we aim to inform our professional connections about the key elements of this important subject.

For more information and to register your place at one of these workshops, please visit www.informedchoice.ltd.uk/workshop.htm.

Space at each workshop is strictly limited to a maximum of ten delegates, so please register your place as soon as possible.

The real impact of tax and inflation

2008-07-23T10:19:00.003Z

Some interesting research has been published by National Savings & Investments, suggesting that most people do not understand the impact of inflation or tax on their savings.

A third of people understand what inflation is but do not understand the impact this has on their savings. Nearly one in ten do not understand what inflation is. More than a quarter do not understand the impact tax has on their savings.

It is easy to be tempted by the very attractive looking headline rates of interest on cash deposits. Several banks are now offering gross interest rates over 6%, which exceeds the Bank of England base rate. High headline interest rates look particularly good during a period of investment volatility.

It is important to remember that the combination of inflation and tax can significantly reduce, and often completely remove, the returns from cash savings. Basic rate tax payers lose 20% of their interest to income tax, with higher rate tax payers suffering a 40% bill. This reduces a 6% gross interest rate to 4.8% and 3.6% respectively.

Inflation then reduces the real value of your capital over time. The Retail Price Index (RPI) is just one measure of inflation and it has averaged 3.98% over the past twelve months. Many analysts suggest that the real rate of price inflation is significantly higher than this, if you exclude many of the goods and services that have fallen in value from the basket used to calculate these figures.

An independent financial adviser can help you to understand the impact of tax and inflation on your savings and investment portfolios. Do speak to us if you would like a comprehensive review of the structure of your capital assets, along with ongoing support and advice.

Performance fees are a waste of time

2008-07-22T08:24:00.003Z

Some new research from Grant Thornton has concluded the performance-related bonuses paid to fund managers are largely a waste of time, as those managers perform worse than those who do not receive this form of bonus.

The study looked at the results of 240 firms between 2003 and 2007. It found that, on average, funds without performance fees performed slightly better than those with them.

The funds in the sample with performance fees beat their benchmarks 53% of the time. Those without performance fees delivered above benchmark performance 59% of the time.

We have always been wary of recommending funds with performance fees, but for a different reason. There is a chance that the manager will take more risks with the management of the fund in an attempt to outperform their benchmark and earn a larger bonus.

As risk management is an integral part of what we do here at Informed Choice, exposing our clients to this fund management structure has never been something we were comfortable with.

Investment advice for HSBC Private Bank discretionary clients

2008-07-21T13:51:00.004Z

Citywire recently reported that HSBC Private Bank is closing its stockbroking business with effect from 1st October 2008 for clients on an advisory basis who have assets under £1m invested all or partly in direct equities.

They also plan to ditch discretionary clients with assets of less than £300,000.

HSBC are writing to their clients who meet this criteria and suggesting that they start using one of five alternative wealth managers.

Informed Choice is a firm of Chartered Financial Planners based in Surrey. We can offer ex-HSBC Private Bank clients one of two investment services:

-An advisory service where we work with you to create a bespoke investment asset allocation model and then recommend collective investment funds. We review this together on at least an annual basis to ensure that they remain suitable to meet your investment objectives.

-A discretionary service, in partnership with a discretionary manager, where we work with you to challenge their recommendations and ongoing service. We help you with the initial selection of a discretionary fund manager and then attend review meetings with you.

Informed Choice offers an attractive alternative to traditional stockbroking services from the private banks, such as HSBC.

We offer a free initial consultation to discuss your financial and investment objectives. After this first meeting we will draw up a detailed proposal for the provision of advice, implementation and review services.

To arrange your free initial consultation simply call us today on 01483 274566 or email hello@icl-ifa.co.uk to request a new client welcome pack.

Informed Choice appoints new Associate - Andrew Neligan

2008-07-21T11:46:00.002Z

We are pleased to announce the appointment of Andrew Neligan as an Associate. Andrew previously worked as an Account Manager for Standard Life.

Commenting on his appointment, Informed Choice joint managing director Martin Bamford said:

"We are delighted to welcome Andrew on board as a valuable addition to our team. Andrew will be a tremendous attribute to our firm because he cares about the quality of advice and service delivered to clients. We are very much looking forward to working with him."

Andrew commented:

"I am very happy to be joining a forward thinking firm like Informed Choice. As a firm of Chartered Financial Planners the company seeks to offer the highest standard of advice and service to its clients. That is a culture I want to be part of."

Would you reject a £100,000 pay rise?

2008-07-15T08:15:00.004Z

Mervyn King, the Governor of the Bank of England has, it was revealed this morning, turned down a whopping £100,000 pay rise. This 40% increase was proposed by an independent consultant in 2006 who concluded that he was not paid sufficiently for the size and responsibilities of his role.

By turning down the £100k pay rise, King sends a clear signal that moderation over salary increases is necessary if we are to all avoid fueling rising inflation.

Inflation figures for June are due to be published later today. We expect to see consumer price inflation, continuing to rise and heading towards the 4% level that some analysts have predicted we will reach by the end of this year.

New private client newsletter and investment outlook now available

2008-07-10T19:46:00.002Z

Our latest private client newsletter and investment outlook report are now available on our website.

The July edition of Best Advice, the quarterly private client newsletter from Informed Choice Ltd, includes the following:

-The implications of a growing number of people leaving no inheritance for their children
-An 'ultra safe' money market fund losing millions
-High savings rates but still no real return
-Is it time to replace your financial adviser?
-Protected rights in SIPPs from October

You can find this newsletter at informedchoice.ltd.uk/bestadvicejuly2008.htm.

Our latest investment outlook report contains our general outlook along with commentary and views on each of the main investment asset classes.

You can find this investment outlook report at informedchoice.ltd.uk/committee.htm.

Martin Bamford elected as Chairman of IFP Surrey Branch

2008-07-09T13:09:00.003Z

We are pleased to announce that Informed Choice joint managing director Martin Bamford has been elected as chairman of Institute of Financial Planning (IFP) Surrey branch.

Martin will take over this high profile role from the current chairmen - Nigel Green and Peter Buckle - at the beginning of 2009.

Martin will be joined by another local IFA, Keith Churchouse of Churchouse Financial Planning, who has been elected as vice chairman.

The Institute of Financial Planning (IFP) is the UK professional body of those committed to the development of the multi-disciplinary profession of Financial Planning and represents and assists Financial Planning practitioners in the UK.

In the UK, the IFP is the exclusive licensing authority for the Certified Financial Planner certification, which is an internationally recognised certification awarded to individuals who fulfill the stringent requirements and have been appropriately tested.

Martin is one of fewer than 800 Certified Financial Planner certificants in the UK, as well as being a Chartered Financial Planner.

Informed Choice starts 'Tweeting'

2008-07-08T15:18:00.002Z

Informed Choice has become one of the first firms of Chartered Financial Planners to join Twitter and post regular 'Tweets'.

Twitter is a new micro-blogging service that allows users to send updates (also known as tweets) which are very short text-based posts. These updates are then displayed on our profile page and also instantly delivered to other users who have signed up to receive them.

By choosing to follow Informed Choice on Twitter, you can receive instant updates on the web, on your mobile phone and or your instant messenger account.

We plan to post regular updates about what we are getting up to here at Informed Choice and also our views on news from the world of personal finance.

Time to review your pension as house prices continue to fall?

2008-07-08T14:02:00.002Z

Some research from Baring Asset Management has found that 2.3m people in Britain have reviewed their pension plans during the past twelve months. This is against a backdrop of falling property prices. However, the research also found that one third of the working population has no pension provision at all.

One worrying finding within the research was that 7.5m people still plan to rely on their property to fund part or all of their retirement. This is a fall from last year when 13.2m were found to be following this often unwise retirement planning strategy.

Informed Choice joint managing director was quoted in New Model Adviser yesterday, in an article looking at the effect of falling house prices on retirement plans. Martin said:

"Relying on property to fund retirement is a risky strategy. If you are expecting to trade down there often isn't much left after you have bought a new property and if you are tied into selling at retirement or a specific time, you can get caught out by the market."

How will your finances score if you reach 80 not out?

2008-06-29T09:20:00.000Z

We are, on average, living for longer. Whilst this initially sounds like good news, it does pose some extra challenges when planning for income needs in retirement.

This is a huge market in the UK; with around £14bn spent each year on financial products to convert a lifetime's savings into an income in retirement.

Advisers working in this market have long had the choice between a conventional annuity (a financial instrument to convert a pension fund into a guaranteed income for life), an investment-linked annuity (income is linked to investment returns and can fluctuate, but has the potential for future escalation) and income withdrawal options (pension fund remains invested and investor draws their income directly from the fund).

It's a complex market, with multiple options and combination of options making it important to seek professional independent financial advice before making a decision that could literally last for a lifetime.

Informed Choice joint managing director Martin Bamford was quoted in The Observer today, in an article looking at a new retirement income product aimed at addressing the issue of increasing longevity.

The Longevity Income Plan is an innovative plan from Life Trust which aims to provide investors with a rising income for a maximum of 20 years, starting from either age 75 or 80, in return for a single premium investment.

As you will see from the article, the adviser community is approaching this and other similar new products with a degree of caution and scepticism. That is not to say that this sort of retirement income product is not potentially useful, but there are some important drawbacks to consider carefully before tying up your money for such a long period of time.

SIPPs can hold protected rights from October

2008-06-27T11:23:00.002Z

It has been formally announced today that Self Invested Personal Pensions (SIPPs) will be able to hold protected rights from this October.

The announcement, made by Minister for Pensions Reform Mike O'Brien, was issued in response to the Department of Work and Pensions draft regulations.

Informed Choice joint managing director Martin Bamford said:

"We welcome this news. It will mean that investors have greater control and flexibility over their plans for retirement, as well as making it easier to hold all pension funds in one location."

You can read the full DWP press release here.

Working with professional firms

2008-06-25T08:49:00.003Z

Here at Informed Choice, we work closely with other professional advisers, particularly Chartered Accountants and Solicitors, to provide financial planning services to compliment and enhance their own areas of advice.

This morning we have published a short video presentation explaining how we work with other professional firms and why they should choose to work with Informed Choice.

You can view this video presentation on our website at informedchoice.ltd.uk/professionals.htm or directly on YouTube at youtube.com/watch?v=m1cIvEBOIBs.

High savings rates but still no real return

2008-06-21T11:41:00.002Z

With a new high fixed interest rate of 7.15% now available from Principality Building Society (2 and 3 year fixed-rate bonds, only available to over 50's and minimum deposit of £10,000) you would be forgiven for thinking that cash was the only sensible investment option. However, these savings accounts are still failing to provide a real return, over and above price inflation, particularly for higher rate taxpayers.

The Retail Prices Index (RPI) is now running at 4.3% which means that a higher rate taxpayer would need a gross interest rate of at least 7.17% to beat inflation. A basic rate taxpayer would need a gross interest rate of 5.38% before beating inflation. The majority of savings accounts still fail to offer rates in excess of these amounts.

A better chance of obtaining 'real' returns comes from cash Individual Savings Accounts (ISAs) where the interest is paid free of income tax.

In a higher inflation environment it makes real sense to consider a well diversified portfolio of investments across all of the major asset classes, invested in line with your attitude towards investment risk, reward and volatility.

Inflation hits older people hardest

2008-06-18T10:03:00.002Z

New research from the Alliance Trust Research Centre has found that inflation rates for older people continue to exceed those for the rest of the population.

Only yesterday Government figures showed that consumer inflation has risen to an annual rate of 3.3% . During May the average inflation rate for over 75 year olds increased from 4.1% to 4.8%.

It appears to be basic costs that are contributing the most to this fast rise in the rate of price inflation. Food inflation is around 9% over the past year and utility prices are up 11%. Petrol prices have increased by 20%.

It is possible to look at the 'official' rate of inflation published by the Government and draw little real comparison with the price rises you are experiencing personally. This is because every person spends their money on different goods and services.

Personal inflation assumptions are far more important to use within your own Financial Planning than any headline rates published by the Government. In fact, there is a very useful personal inflation calculator available here from National Statistics Online.

The bestselling investment sectors in May 2008

2008-06-18T07:35:00.002Z

Data just released shows the ten most popular investment (IMA) sectors in May 2008 on the FundsNetwork fund supermarket platform.

This list shows that investors are continuing to show a preference for cash and bond funds, but European equity funds are starting to show increased demand. The Europe ex UK sector was the only investment sector to see an increase in sales when compared with April.

1. Specialist
2. UK Equity Income
3. UK All Companies
4. Cautious Managed
5. UK Corporate Bond
6. UK Other Bond
7. Global Growth
8. Europe Excluding UK
9. Active Managed
10. Balanced Managed

Whilst it is always interesting to see how other people are investing their money, it is important to remember that the best approach to investing is to ignore the herd and stick to your own strategic investment plan. Focus on investing in line with your attitude towards investment, risk and reward, as well as to meet specific financial objectives.

Our investment advice approach at Informed Choice places a great deal of emphasis on risk profiling and strategic asset allocation. A number of high profile academic studies have shown that investment returns come largely from asset allocation (the broad investment asset classes you select) rather than individual stock or fund selection.

Market timing - trying to second guess where an individual investment market is going to go next - is a sure fire way of missing out on potential investment returns and simply crysallising any losses within your investment portfolio.

Do speak to us if you would like to find out more about applying our robust investment advice process to your investment or pension portfolio.

Cover stars: It’s a family affair

2008-06-17T07:45:00.003Z

Nick and Martin appeared as Cover Stars in leading retail financial services magazine New Model Adviser (a Citywire publication) this week.

Martin and Nick Bamford of Informed Choice have continued to build on their professional image and are now proud owners of a prize winning, chartered business.

You can read the feature in full here.

Rethinking retirement solutions

2008-06-10T08:39:00.002Z

Informed Choice joint managing director Nick Bamford is delivering a speech at the Westminster & City Conference 'Rethinking Retirement Solutions' in London this afternoon.

His presentation looks at the individual's perspective on holistic accumulation and new decumulation solutions. Within this presentation Nick will ask how individuals approach retirement planning and what drives their choices.

Who are you going to call?

2008-06-09T21:54:00.003Z

It was reassuring to see some new figures published today, suggesting that the majority (79%) of people arranging their personal finances have taken some form of financial advice. Of those who sought advice, a third used the services of an independent financial adviser.

The research also found that one in four people expect to use a private pension to help fund their retirement. Amongst these people an IFA was the most common form of advice (42%).

The type of advice that we seek changes as we get older - with four in ten (41%) of those over the age of 55 who have sought advice on money matters having used the services of an (IFA).

Intelligent investing - using your head

2008-06-06T14:01:00.002Z

Various academic studies have shown us that it is 'time in the market' rather than 'timing the market' that leads to the greatest investment returns.

During a period of stockmarket volatility it can be tempting to make a 'judgment call' and move your portfolio into cash for a time, but chances are you will do so too late and then miss the right opportunity to invest your money again.

We all know that intelligent investing is a result of investing with our heads not our hearts. Forming a strategic asset allocation model for your investment portfolio and then rebalancing to the original position on at least an annual basis is one recipe for success.

Figures from the Investment Management Association have shown significant outflows from investment funds in recent months. This demonstrates that investors continue to react to market movements rather than form a long-term plan and stick to it.

Do speak to us if you would like our assistance in creating a more suitable strategy for your investment or pension portfolios. We can help you invest with your head, not your heart.

Investing for income

2008-06-03T15:51:00.003Z

Informed Choice joint managing director Martin Bamford was quoted in The Telegraph today, in an article about investing for income during the current turbulent market conditions:

"Cash is not a very sensible place to be for the long term, because there is no prospect for capital growth, and rising levels of price inflation will eat away at the value of cash over the long term."

and later in the article:

But it is Bamford who comes up with the most compelling argument for looking beyond the bank or building society. "The common-sense approach is to diversify by creating a portfolio that contains cash, fixed-interest securities, income-producing equities and property. Backing a single asset class in the search for income creates high levels of risk to your capital, and also the potential for disappointment if income levels are not sustainable."

You can read the article in full here and find links to all of our national press mentions during 2008 here.

Is it time to replace your financial adviser?

2008-06-03T12:55:00.003Z

A lot of the new client enquiries we have been receiving recently have been people who are seeking to replace their current financial adviser. The reasons always vary, but here are some of the most common we have heard.

You know it might be time to replace your financial adviser when...

...you never hear from them.

Some advisers run a business model whereby they sell a financial product, earn their commission and then move on to the next prospect. If you never hear from your adviser then you need to think carefully about why you continue to have a relationship with this individual or firm. At the very least they should be keeping you up to date with news from the world of personal finance. When was the last time you received their client newsletter or ezine?

...you only hear from them when they want to sell you something.

We have a client who is a busy Chemist and the only time he used to hear from his previous financial adviser was when the chap showed up at his work with a briefcase full of investment application forms to sign. It might be time to consider replacing your financial adviser if they only show up to sell you a financial product.

...they claim to be able to always pick the 'best' investment funds.

Unless they have a crystal ball, nobody can consistently pick the 'best' investment funds. If the ability to pick investment funds is their sole investment advice methodology then you need to question where your financial adviser actually adds value to your financial planning. Various academic studies have demonstrated the importance of asset allocation for investment portfolio construction. Fund picking can add value, but only to a tiny degree compared to more important factors.

...they give you advice before asking you any questions.

Everyone has different circumstances, needs and objectives. If your financial adviser launches straight into their sales presentation before taking the time to understand where you are and where you want to be, then you should consider replacing them. It is a sad fact that many financial advisers love the sound of their own voice and are eager to demonstrate their considerable knowledge. Two ears, one mouth - if your financial adviser is not using them in at least that proportion you should have cause for concern.

...they don't review your policies at least once a year.

Circumstances and objectives change over time. That investment or financial policy you started five years ago is unlikely to remain suitable for you unless your adviser has taken the time to conduct a review on at least an annual basis. If your financial adviser is receiving ongoing remuneration from the product provider in the form of commission that you are paying for out of product charges, they should definitely be providing you with some form of ongoing review service.

...nobody at their offices knows who you are when you call them.

Very often small financial adviser firms are consumed by larger regional or national organisations. There is a lot of consolidation within the financial advice sector and it is often the client that suffers. Small is best when it comes to the sort of personal relationships which are required to deliver suitable financial advice. If you call your financial adviser and their staff do not know who you are, you need to question the quality of your relationship with this firm.

...they used to be independent but now that isn't so clear.

Many independent financial advisers change direction at some point during their career to become a tied or multi-tied adviser. You might have become their client when they were fully independent and acting on your behalf, but the lure of better commercial deals (more commission) or a smaller product range often attracts good quality independent financial advisers to an environment where they can no longer offer you such a comprehensive service.

...they are getting old and don't have a succession plan.

The average age of an Independent Financial Adviser is somewhere in the mid-50's. Clearly your adviser has to retire at some stage in the future so you should ensure that they have a formal succession plan in place to ease your transition from one adviser to another at this time. The worst case scenario is that you will simply be 'sold' (as a client) to another advisory firm who may or may not wish to continue the relationship in the future. Ask your adviser about their plans for retirement and make sure you will not be flogged to another firm.

...you don't know how much you are paying them for their services.

Disclosure of commission and other remuneration is a regulatory and legal requirement for all financial advisers. Even so, it can sometimes become unclear how much you are actually paying for financial advice, implementation and review services. Your adviser should be ready and willing to produce a summary of the amount you have paid them for these services over the past twelve months. Any remuneration they receive from your investments or financial products (in the form of commission) is being funded by the charges you are paying, so you have every right to expect a decent level of service in return.

Is it time to replace your existing financial adviser? Click here to request our new client welcome pack, containing more information about our services and fees, and to arrange an initial consultation without charge or obligation.

Bradford & Bingley - another Northern Rock?

2008-06-02T11:22:00.003Z

The Financial Services Authority (FSA) were forced to suspend trading in Bradford & Bingley shares this morning, as a profit warning caused them to fall by nearly 30%.

Their need for additional capital meant they have turned to US private equity firm Texas Pacific Group who have taken a 23% stake in the former Building Society for £179 million. This follows the resignation of Bradford & Bingley Chief Executive Steven Crawshaw at the weekend, who was reported as having a serious heart condition.

The profit warning has reduced expected profits for the year from around £250 million to around £150 million. It is therefore important to note that they still expect to make a healthy profit, just not as large of a profit as originally predicted.

The main problem faced by Bradford & Bingley has been the downturn in the buy-to-let mortgage market. This is a £120 bn mortgage market and Bradford & Bingley have a large market share of around 20% of this lending. More borrowers have been having difficulty meeting their repayments which in turn is causing financial pressure on Bradford & Bingley.

Is this another Northern Rock waiting to happen? Early indications suggest that is unlikely, as the business models differ dramatically. Northern Rock relied on borrowing from other financial institutions whilst Bradford & Bingley has a large (and quite loyal) base of savers.

The precedent set by the Government in bailing out Northern Rock would also surely apply to any 'run' on Bradford & Bingley, or they would certainly face accusations of unfair treatment of the savers of the latter organisation.

Unfortunately this incident comes at a time when savers remain very nervous about the financial strength of banks and building societies. Anyone who is concerned about this should still consider spreading their savings between different financial institutions to take advantage of the compensation limits of the Financial Services Compensation Scheme.

The emergency expenditure that could trigger a financial time bomb

2008-05-29T21:47:00.004Z

Some research has found that only half of all UK workers could live off their cash savings for four months. This is the typical size of an emergency fund suggested by experts - enough money to cover typical expenditure for between three and six months.

The research, released today by online bank Egg, shows that a quarter of people in Britain have little or no money set aside for emergency situations.

In addition, the research found that more than two thirds (69%) of Britons have in the last ten years needed a cash injection to cover an unforeseen expense and a third of Britons have found themselves in this situation more than once, with repairs to the family car being the most likely.

This highlights the importance of having an emergency fund to cover this sort of unforeseen financial emergency.