PENSION FEES


Dear Friend

Included in this edition of our e-newsletter …

PENSION FEES

TRUSTS

LLOYDS BANKING’S NEW SERVICE

INHERITANCE TAX

WORKING AT CHRISTMAS

DAILY MAIL SHARE COMPETITION

METRO BANK PLC

RISK WARNING

Well, despite the weakness of Sterling (so higher imported prices), CPI (inflation) only rose 1.7%pa in August – the slowest rate since August 2016.  What is curious is that this follows the August pay figures which notes a 4% annualised increase including bonuses so a vibrant (and very tight in fact) labour market and the strongest figures since mid-2008.  For the consumer, this means that their pay is growing more than twice as fast as inflation.  For the Bank of England, it means Mr Carney is missing his Inflation target of 2%, as heinous a sin as exceeding that figure!  Regardless of Brexit, so what do we read within these – higher inflation to come from bigger employment costs being passed-on in due time (and a consumer base with more money in its pocket to spend) or recessionary influences in that businesses have not felt able to increase prices of goods and services?

Then we hear that London has cemented its place as the world’s capital for trading foreign currencies and interest rate derivatives and it has to be said, this is really ‘despite Brexit’ fears and indeed, the UK has taken an even bigger slice of the euro-denominated derivatives’ business (now seeing 86% of all trades) despite the EU demanding that these must be traded in the Eurozone if there is a no-deal Brexit.  According to the Bank of International Settlements, more than $3.5trillion of foreign currency is traded every day in the UK, giving the UK 43% of the global market (up from 37% in 2016).  The US is next with 16%, down from 20% in 2016.  No EU centres feature in the top five, despite their efforts to attract trade after the UK’s Brexit referendum.  On derivates, Britain is even further in front of its rivals, trading $3.7trillion every day and taking 50% of all trades and again, with no EU country in the top five (the best there only counting for 2% of trade).  In 2016, three-quarters of all such trades took place in the UK and now it is seven-eighths.  However, in ‘financial centre’ terms, sadly London has slipped from the top spot (which it held again for five consecutive years) dropping behind New York in the last two years.

And now, what is anyone to make of the Supreme Court’s ruling (some might say interference!) in the matters of governance of our Nation?  Curiously (again) the markets and currency have taken that in their stride.  There is a big part of me which says – what does the Commons need to debate which it hasn’t had all opportunity to do these last three years but some might see that as asinine too…  maybe the best we can hope that it will finally fuel the opportunity of a proper deal from the EU which the government can commend and the majority in the Commons approve – or is that asking too much?

PENSION FEES

Something which may not see the popular press but a well-respected institution has discovered that ‘low charges are no guarantee of receiving good value when saving for a pension’.  The independent research group The Pensions Policy Institute suggests savers should consider other things than simply the headline annual charge.  https://www.ft.com/content/67f0c744-d544-11e9-8367-807ebd53ab77 There is no excuse for charging obscene fees and paying big commissions to salesmen (sorry ‘transaction fees’ and ‘bonuses’).  However, regular readers will know the maxim ‘it is only a fool who knows the price of everything and the value of nothing’.  We believe our fees are very fair to all parties but boy, don’t we work hard on the investment management to extract the best possible value we can in everything we do and indeed whatever we acquire!  Indeed, some of the best value we have seen over the last several years has been because too many inexperienced advisers simply concentrate on the ‘TER’ (total expense ratio) of the underlying investment they buy.  When it comes to an Investment Trust for example, how do they match that against the better value for example through the availability of a big discount to the underlying value?  Let’s say a tiny Trust’s TER is 5%pa but it provides access to underlying assets which are impossible to find in the same way elsewhere. Let’s say there is a 20% discount to the underlying asset value and the Trust decides to wind-up in five years.  That would mean that we pay no charges over that hypothetical five years… now let us say too it has some borrowings for which it is paying 2%pa and it invests that money and makes 7%pa on it.  Who does best – the investor or the one who declined even to consider the investment because they saw a ‘5% TER’?  I should add that it makes no difference to us – well it does – we try to buy from the universal world of options according to what we believe is likely to do the best job for that small part of clients’ portfolios – as simple as that.  Do clients realise what we are trying to do in the construction and management of their portfolios – perhaps not but do they appreciate that our best interests are our clients’ and that they know that?  We hope so, very much so, even if it is never a perfect science!

Curiously, we have a staff pension scheme but we could not use the underlying funds to meet the auto-enrolment rules (a maximum all-in charge of 0.75%pa).  We don’t charge staff any management fees, so the fees are what the underlying investments charge.  We had to create a separate fund, not as diverse and suitable at all compared to our mainstream ones and we had to place quite a few direct stocks within (no underlying management fees, you see) to offset the few we have kept which do charge.  Isn’t that silly…  oh I should add too – there are no other charges within our pensions for clients or staff like ‘plan charges’ as most pension plans levy – only an all-encompassing percentage-based management fee (so very tiny on small pots) and capped percentage charges for underlying purchases and sales within accounts, when they take place.

TRUSTS

Are you involved or connected to a Trust?  Have you registered it yet because if you don’t there could be some hefty fines!  https://moneyage.co.uk/Advisers-warned-to-take-action-as-trust-registration-deadline-looms.php    It doesn’t matter if there is a tax liability either – it is simply an obligation that all express trusts must be registered by 31 March 2021.  So if you are living in a property owned by a Trust, a beneficiary of a Trust portfolio, owning assets on behalf of someone else, you are likely to be caught.  Indeed, if you should have registered already, there are penalties of £300 or 5% of any tax bill, whichever is biggest.  Registration is all to do with money laundering obligations.  We have just published a handy guide on trusts generally and their uses – if you would like one please do ask.  We are specialists in the field!

LLOYDS BANKING’S NEW SERVICE

So what do readers and the market think of the new service Lloyds Banking is launching?  After effectively withdrawing totally from the selling of financial products after such shambolic service to clients (as with most of the other bancassurers) and the wrong products sold by highly rewarded salesmen it has been tempted back into the field.

Will customers remember the past and the hordes of compensation payable ultimately to so many for mis-selling?  The service will only be available to those with over £100,000 to invest and the advertisements for the staff note the generosity of bonuses for sales – so does that mean the service will concentrate on converting people into sales targets and not ongoing servicing as a priority afterwards?  Thus, it is suspected to be a charging package related to an initial transaction fee for subscribing your capital, high annualised fees (some of which will continue to reward the salesman it is suspected) and less concentration on the aftercare but more on seeking new targets for the salesman to convert.  This sounds more like the model adopted by St James’s Place and Openwork, amongst others.

This is considered the ‘mass affluent’ market and whilst customers may be swayed by the ‘size’ of the institution which is advising them, at the end of the day the past reputation of distrust may have tarnished the banks and building societies for some decades to come yet – and are they engaging salesmen to sell product rather than financial advisers to care about their clients’ needs into perpetuity, instead of simply the buck for the sale?

An independent article has suggested that: “Internal research from Schroders Personal Wealth, the joint venture with Lloyds, seen by the Financial Times, indicates customers should pay some 3.65% in up-front fees, put up against SJP’s 7.95% and Brewin Dolphin’s 4.7%.”  I have to say that compared to charges which we levy, these all seem excessively high and do their clients really realise that is what they are paying – so if you invest £100,000 (the minimum target for this new service) it will cost you a starting fee of £3,650 (or £7,950 with St James’s Place!)?  The ongoing charges are not cheap for these groups either, either towards the company or the salesman regardless of levels of ongoing servicing provided to the individual client.  “The Paper also says that ongoing fees will be some 1.9% all-in, while SJP’s and Brewin’s both come in above 2.7%, according to the Schroders’ Personal Wealth analysis”.  The service is also ‘restricted’ rather than independent so you will not have access to or be recommended to use investment funds from the whole marketplace but sold internal linked funds.  We are staunchly independent and could not be anything else – the best investment component for you may be one which is just available next week…

INHERITANCE TAX

So, the numbers of rich people paying tax on their deaths have more than doubled since 2009/10 and are at an all-time record and despite the bigger reliefs available.  Yes, the levels of wealth generally (despite the rhetoric) have increased in size and of course people’s homes are now very dear too but perhaps there is a complacency?  There are still plenty of ways where sensible planning can save 40p in every Pound at the top end of your estate and without great cost nor losing you control of the underlying assets or income.  It doesn’t have to be all or nothing either – if you shield £10,000 from the Tax, you save your Family £4,000 – it’s as simple as that.  Seek advice if this concerns you!  Remember too, not many of us choose for our hard-earned money to go to HMRC rather than our families and chosen beneficiaries! https://www.ftadviser.com/investments/2019/09/19/number-of-estates-paying-iht-hits-record-level/?utm_campaign=FTAdviser+news&utm_source=emailCampaign&utm_medium=email&utm_content=

WORKING AT CHRISTMAS

So, we weren’t the only ones doing inane letters on Christmas Eve and Christmas Day (well, in the case of the attached!) to satisfy a silly EU directive under MiFID2. https://www.ftadviser.com/investments/2019/09/24/mifid-rule-forces-brewin-boss-to-work-christmas-day/?page=1.  Thankfully, not a single client reacted incorrectly to the letter and as the article says, the bounce-back was almost immediate but the regulations don’t allow for that.  For the handfuls of clients who were affected, invariably those are the same ones for whom the bounce-back is the strongest too – that which falls the most usually rises the most too but of course you cannot rely on pure superstition for that alone.  The rule was or is truly one of those ‘seems like a good idea’ things but actually would benefit from practical experience to realise it was and is not helpful to anyone in the least and as I have said before, diligent advisers and managers with good relationships with their clients at the heart of what they do write to their clients universally anyway when things are difficult, to share their views for the future and whether clients could or should do something.

DAILY MAIL SHARE COMPETITION

Well, yes, I picked some stocks and left them untouched throughout.  I didn’t win but came a credible 270th out of 3971… and a credible 58% overall gain for my ‘portfolio’ (against the worst which was a loss of 843% somehow and that included some stocks which had done really well giving their selectors weekly prizes too – one such was Thomas Cook Plc….  Most of the holdings I chose will be featuring in clients’ accounts somewhere (albeit small quantities of them) so that’s reassuring to know!  So yes, being on the second page of twenty contestants (the top decile) is not bad.  My biggest loser is one I haven’t acquired for clients yet – Funding Circle Plc – has the falling knife stopped falling yet – maybe it has hit rock bottom now.  I’m tempted I can tell you – and at less than £1 having floated at £4.40 September last year it’s probably cheap enough…

METRO BANK PLC

I want Metro Bank to succeed but after floating at a cool £40 a share in March 2018 supported by all those fine City institutions which look after your money (as with Funding Circle Plc above), they plummeted this week to £1.75 as they could not raise additional capital to satisfy the Bank of England it had adequate reserves.  It is a shame and I hope somehow it survives and climbs-back but it does remind me of how a popular concept one day can be loathed the next and after such a short amount of time too.  It was about to raise £200million in a bond and as it fell marginally short (only marginally) it cancelled the whole thing (which seems inappropriate but there we are – reasons no doubt).  Anyway, that is how to wipe-off £3.3billion of capital value in your business in a short period.  It is a liquidity issue rather than anything else but it must be quick to do something to avoid confidence walking out of the door too.  The bigger lesson perhaps is to watch for some of these unicorn (typically technology) companies – there are plenty of those which are not generating profits nor sales to warrant their heady valuations and the music can stop – any time too.

RISK WARNING

Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.

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 Manager

Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers