I am pleased to report that we have some constructive news for ex-Organic Investment management clients. A letter is enroute to each of them noting that the two suspended Dublin-based funds are being split in early July and the liquid assets realised so that they can be released for reinvestment in ‘proper’ investments or account holders will be able to consider drawing upon their pension funds if they need them. The process should be effected towards the end of that month when funds should be available. A large element will remain in the defunct funds where all efforts are continuing to be made to pursue access but many of these will have to be written-off as they should never have been purchased by the old managers in the first instance as they were highly dubious and potentially sold with ulterior motive to ‘someone else’. We hope that the reduced values showing in affected ex-Organic clients’ accounts will be the worst possible position and that indeed, the administrator of these funds will be able to retrieve better value than we anticipate is possible. We are repeating that all of these clients MUST lodge a complaint against the original adviser to start the process of compensation claims which ultimately could fall to the FSCS, the industry body funded by all ongoing advisers. They are also recommended to register on the FSCS website too as a consequence of Organic Investment Management Ltd going into liquidation.
It makes us very angry at what these people and the firms involved were doing to their clients. We had nothing whatsoever to do with it of course, simply helping the administrator by ‘saving’ the clients going into the liquidation process where effectively things would be locked-away for a very long time (we took-over the administration on 19 December and the company went into administration at the end of that month). We are pressing the various regulatory bodies to make sure they bring all necessary action against the perpetrators of what effectively constitutes fraud where almost 1,600 people have in one way or another been abused and cheated and meantime we are doing all we can, at our cost, to try to help all these people. There are no other words.
A survey by the ‘Yardstick Agency’ found that 83% of financial advisers don’t mention their fees on their websites and even of those which do, only one in twenty go into any detail. We must be odd – we do publish generic details though sometimes this can mislead; we offer an initial appraisal without charge and before embarking on any charged work provide an estimate or quotation of what a particular job will cost. A lot of what we do is without cost and with no obligation to progress of course.
What is disturbing is that another survey (from Ernst Young) suggests that 45% of clients do not trust their wealth manager or adviser to charge them fairly (and remember these will typically be wealthier clients). Oddly enough, one of the things we have always been trying to do is to make sure that charges are transparent, fair and understandable – not opaque nor conditional on ‘doing something’ but there is still an inertia with the public generally. It is bizarre, still that too many people prefer the idea of receiving advice for ‘free’ and only to pay a fee if they proceed with the transaction recommended. If the choice between paying say a £500 fee for impartial advice which may say ‘don’t do a transaction’ or nothing but a transaction charge of £2500 if they go ahead was presented, many people would opt for the second option – now isn’t that stupid? And funnily enough, guess what, too many of the advisers who have adopted that ‘conditional’ route skew the advice towards solutions which do entail transactions rather than ‘do nothing’ as they wouldn’t be paid any fees then… or am I just cynical? The Regulator is looking at barring such terms for pension transfer advice, where the ‘commission’ can be as much as 6% and if the transfer is £500,000, that’s a cool £30,000 for the adviser on that basis. When will people learn I wonder; whatever happens, they are the ones paying that money.
That second survey also has some startling facts that might be useful to note when considering your own financial planning strategy. 60% of clients switching advisers had left a job, 50% had had a child, inherited or received a large sum, started a new business or got married, 42% separated or divorced and 38% sent children to college. What sort of trusting relationship do you have with your advisory firm – is it firm enough to support you truly through all these quite typical life changes?
Fears have been reverberating around the markets about funds and their ownership of illiquid assets. Effectively, these are investments which they hold which cannot be sold very easily. There are asset classes, like property (you can’t sell an Office Block overnight (or indeed your home) just because an institutional pension fund has asked for its money back from the fund) but even funds like Mr Woodford’s have suffered as they have been forced to sell the accessible assets when demands have been made so the illiquid assets then become a bigger proportion of the pot and so it goes on. Often a quoted fund will have a limit on the proportions of non-readily realisable stocks to protect against adverse conditions but clearly, as happened with most big property funds a few years ago, they all suspended withdrawals till things settled. They are not bad in themselves incidentally – or if not having access was bad why would you ever buy your own home… you can’t access that immediately either!
It is an often overlooked advantage of Investment Trusts in that you trade the shares of the Trust which owns them so you have to find a buyer when you want to sell so the underlying fund does not have any impact from the changing ownership of the shares in itself. The share price may fall but that doesn’t impact the underlying Trust which can merrily go about its business unaffected by the daily flows and sentiments. These should have a far better penetration anyway than they have but most advisers still fail to understand them properly.
A few quoted investments have decided to reduce their exposure to such illiquid beasts – not necessarily a good thing as they are not inherently ‘bad’ and can give great opportunities (such as ‘private equity’, development finance and bio-medical stocks). However, the manager cannot do a proper job and make ‘patient capital’ investments with that hanging over his head. I have also seen a Venture Capital Trust tell advisers and investors it doesn’t invest in ‘private companies’ – that is misleading as members of the public and funds can’t buy ‘private companies’ anyway but certainly they can buy ‘unlisted’ shares – a different thing altogether. VCTs as a sector must be very careful how they manage this as there could be a run on them and traditionally they have used surplus money from investment disposals to buy-in shares, to protect the share price but if that stopped, big discounts could open-up (and the cynic could say they want tight discounts as otherwise they could not raise big amounts of new money as new investors would buy the cheap existing shares on the market instead, with some existing ‘smaller company’ or ‘Private Equity’ Trusts having discounts bigger than the Tax Relief attraction but none of the set-up costs!).
OTHER THINGS IN THE NEWS – CRYPTOCURRENCIES AGAIN, BITCOIN & FACEBOOK’S LIBRA
Funding Circle shares have fallen even further – to below £1.80. This is a sorry distance from the flotation price of £4.40. Are things really all that bad? The principles behind the company are sound and yes, let’s expect some teething issues with bad debts where new processes might not be as dependable as established ones but surely at these levels the shares are too cheap. The company has been making losses as it spends heavily on marketing and IT but the reputation in the marketplace seems to be growing and the opportunity of borrowing from the Company is a serious contender when banks are less flexible.
Well, Bitcoin awoke from its slumbers as the speculators came out in force to push the price (I can’t call it ‘value’ – sorry!) to just under $14,000 when it had been down to just above $3,000. It has since ‘crashed’ back a little with vast daily movements and by the time you read this it could be $16,000 or $6,000. There remains no substance to the concept.
However, Facebook’s idea of launching ‘Libra’ has legs but it won’t be a speculator’s currency, simply a basket of main currencies so the ‘value’ will gyrate according to movements in the value of the underlying currencies. Facebook says that it will be backed by these real currencies so we assume for every Libra there will be real deposits of these currencies. It is funny – the principle is as worked fine for the ECU (before the Euro) and what the EU should never have changed but it could have offered ECU bank accounts in very much the same way. Of course that would have stopped it pressing for economic unity via the Euro as all the participants have had to throw even more economic policies into the hat instead… if I have read Facebook’s ideas correctly then all power to it but Facebook and it MUST be regulated, as a Bank, wherever it operates (as should these silly speculators’ crypto currencies).
The Guardian has been checking another prospective scam – run by an ebullient businessman called Gavin Woodhouse where seven investors are now attempting to put his companies into administration. I think really, all I have to say is ‘why do it’ – why ‘invest in some project where you are buying rooms in a residential care home?’ The one investor publicised placed £450,000 in ‘nine rooms’. I feel sorry for him, a doctor or consultant but why do it? What on earth possessed him when there are so many bona fide investment opportunities out there with regulated schemes and he could even have directed his investing interest towards the care sector if he had wanted. Was it ‘greed or fear’? There are so many regulated investments available that you can have those instead and have such a wide diversity of exposure to protect yourself against volatility and capital loss but ‘invest’ in something like this, sold to you by a slick, silver-tongued salesman who could be a charlatan at best and a fraudster at worst – it makes no sense. https://www.theguardian.com/business/2019/jun/26/uncovered-the-200m-theme-park-the-businessman-and-the-missing-millions
And then there is another – A1 Alpha Properties (Leicester) Ltd which involved £100million and has gone into administration. People again subscribed big sums of money or all their pensions or available cash and on the ‘promise’ of guaranteed rents from the student letting market. Please – why do people do it??? Some of those investing put hundreds of thousands of pounds into non-existent rooms but I suspect they wouldn’t put £1,000 in the ‘Stock Market’ because they think they could lose a bit of their money as that is what the regulator has been frightening everyone for too long now and yet here, they stand to lose the lot. They can access their money any time with the market too – how people ever thought they’d see their money out from these schemes anyway I have no idea!
I think our ‘industry’ has some answering to do too – it has made sensible, ‘normal’ investing so complicated, excessively pushing the ‘risks’ and failing to show the proven long-term benefits from this, the very best investment asset of all time, with all these superior options and painting them as insurmountable issues for the public to have to absorb that they end-up being dissuaded from doing what is quite boring and sensible planning many years ago. So they either do ‘nothing’ or buy some fraudulent scam and lose all their money… from hotel rooms, care home rooms, ethical forestry in Costa Rica, storage units, holiday developments in places they’d never really heard-of before they saw the glossy brochure – or even mini bonds from unregulated entities or ‘peer-to-peer’ lending with other unauthorised schemes (which are fine till they go horribly wrong, oddly enough). Please DON’T DO IT. If you really want speculative investments to chance to lose all your money there are plenty of those on the stockmarket too but frankly, most people do very sensible things and aren’t as daft as to buy ‘do or die’ investments with the majority of their money.
If you like student property, buy some shares in a range of such companies. If you like the idea of outdoor entertainment centres, care homes or residential accommodation, put some money into shares of such companies and even buy some safer quoted bonds which might specialise in such sectors – or more sensibly, allow professional investment experts to compose very diversified portfolios of different assets for you based on what they believe is good value and the right ‘risk strategy overall for you and they have the time to do it and then trust them (with your eyes open, yes!) and not charlatans who are not even regulated so you have no protection when (not if) things go bad. The best two investments you can make are checking the qualifications and experience of the person and his firm you are entrusting then investing in suitable patience for a sensible return.
Thanks again for the compliments about these eshots – TG, for example, recognises the value even if the perspective can be somewhat different to his own he says!
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To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!
If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrated our thirtieth anniversary in 2015 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.
Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.
My best wishes
Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB
Chartered Wealth ManagerFellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers