Recently we have been helping a client transfer to a leading alternative investment platform to consolidate his assets. The client wanted to retain all his existing holdings (wise decision and cost effective) but upon progressing the transfer, it came back to him declining to take several stocks!
There was and is nothing wrong with the holdings at all but clearly, some platforms are restricted on what you can hold on them and that’s not good. In a nutshell, we can and do buy ‘anything’ which is quoted and tradable through the London Stock Exchange – end. So whilst a platform somewhere may be cheap, one of its frill-less qualities may be that you can’t do what you might want to do upon it and that’s not good! That restriction could cost you the whole annual fee saving you thought you might be making. If we aren’t managing your money for you, what platform are you using?
We have just been appointed as the interim manager for a small, defunct Company’s funds. We don’t know the clients but today we received a request to encash the full pension, worth over £80,000. We should have just executed the instruction but instead, at our cost as we are not his adviser, we sent an immediate response to try to ask if that was really the best thing to do. He replied – he has not been working and furlough is coming to an end and they have a big mortgage which the plan ‘will clear’. I noted that he would pay High Income Tax rates on the encashment as only 25% is tax-free. He rang back and my colleague Mrs Vicky Webb spoke to him and took him through my offer of a free short overview of where they are altogether and to try to ensure what they do is the best thing for them. He agreed and has cancelled the withdrawal for now. At the end of the conversation he said he had had “more help from our company than from anyone else in 20 years”. How humbling but well done Vicky – we are just trying to help someone who has had not the best experiences in the past. We aren’t perfect, we can’t make miracles happen and yes, things can go down as well as up but we try our very best and we care. If we had just ‘done’ the liquidation as we were meant to do under ‘due execution rules’ he would be tens of thousands of pounds down. Sadly though, as hard as we try, we can’t save everyone from themselves like that.
FEES TO YOUR BROKER
We provide a comprehensive service to all the clients for whom we manage money. For this, we charge a fee and it covers all those activities and it is shown on clients’ statements. However, most advisers don’t do the investment management themselves, they engage other firms and funds to do that for their clients and instead, they charge a fee for their own interactions for the client but typically taking the cash straight from their clients’ investments – anything between 0.5% and 1%pa. That does tend to become somewhat hidden, I have to say, so clients forget about it but it is still occurring.
In 2014 the FCA issued a factsheet reminding advisers that they can only charge a fee if they are doing something. Sending-on an investment report from the management company doesn’t constitute ‘value’ and this has been confirmed by a recent Ombudsman judgement where a large financial advisory firm had not been doing ‘anything’ for the client for the year between December 2015 and November 2016 since it recommend the original sale and took an initial £600 fee and 0.5%pa hereafter. The Ombudsman asked for evidence of what the firm had done and there was none – no update reviews, no contact of a salient nature at all and it told the firm to refund £764.26 plus 8% interest (that is a ridiculous and inequitable interest rate however).
Sadly, too many investors out there assume their broker, the salesman who sold the initial product, is overseeing their investments all the time and would contact them if there was reason for change. The reality is that this is not the relationship at all and for most, there is no system of investment updates aside from say an annual review at best. It is in fact why we changed our model in 1987 – most people seeking our advice wanted that guidance and care to be continuing and as we now do manage their investments for them, we are doing that all the time (constant oversight not constant change!) and doing what we believe is in their best interests all that time. Most advisory brokers can only write personally every so often and suggest the odd change for you… not really satisfactory in our view.
WHAT VALUE EMOTIONS?
Most people do not realise that their perception of risk changes according to a whole raft of factors. If asked independently of ‘anything’ most would imagine that their propensity to take risks is the same throughout their lives and for all situations but clearly that is not the case and we can take more risks according to the more we know and understand. Before you say you don’t take risks, if you boil the kettle, cross the road, jump in a car or an airplane… or even get out of bed in the morning you are taking risks!
Past patterning affects our decisions too. If you were gambling and had a purely random but big winning streak, it often increases confidence to gamble more and bigger but it is not usually based on anything but sheer chance and not special skill or anything. In converse, if you have suffered a bad experience and lost something or money, that may encourage you to be risk averse, whereas really that result is not a reflection of what the future may bring to you from the same decision. In fact if an asset has halved from an over-valued position, arguably it is far lower risk now than it was when you were happy to hold it before! Of course too, we need to realise that if we have suffered some trauma, great stress or anxiety (which can be linked to a financial loss or some other life loss), then that can imprint itself upon how we see things going forwards, even if that is totally irrational when considering a particular financial decision – but it is understandable.
We have to all try to help manage these things in our decisions – in life as with our money. One way of helping is actually to recognise these factors in the first place and that realisation alone can release us to make better decisions and to help rationalise our judgements. Remember too, especially with money, that it is not quite the same as crossing the road. We can take different views with different parts of the whole of our finances and indeed, the more we spread our money around and in different baskets, the lower we make the overall risks which could impact us.
This is where a good financial adviser can help and if you can build a trusting relationship with one as they can help to balance your biases and guide you into the type of strategy that is best suited to your needs and future requirements. They cannot avoid risk as you can’t either even if you do ‘nothing’ but they can help you recognise the types of risks which exist and also how to help manage those risks and to avoid them having a catastrophic impact on you should the unexpected occur.
MUTUALS ARE GOOD FOR YOU – AREN’T THEY?
NFU Mutual is recruiting financial salesmen. So, their projection is a basic projected £100,000 a year and uncapped earnings linked to sales. It is frustrating, is it not, when mutuals, owned and run for their members allegedly, pay what is effectively very heavy commissions, paid by the members who buy those products in trust and also when they reward their executives so heavily too and really with no concept of ‘relationship’ with the very membership they represent? Building Societies which are still mutuals are the same and sorry but the argument of ‘we have to pay big salary packages to attract the best calibre of people’ just don’t hold water.
With the salesmen, you don’t receive the ‘salary’ if you don’t sell stuff to people, in this respect the very limited range of products (still dominated by ‘with profits’ which are so opaque and allow the disguise of so many costs before ‘declaring bonuses’, unfortunately, just as Equitable Life did as well). Would I recommend NFU investment or pension products? No. Would their salesmen recommend anything else if it was more suitable than their limited range? No – even when the regulatory rules demand that curiously. Is there an interest in selling you a product to pay for his attendance on you – yes. Do we reward any of our advisory team on their sales’ results? No. Have we ever recognised ‘commission’ to any of our professional advisers? No. Draw your own conclusions and please don’t be duped – again.
MR WOODFORD AGAIN
We are now told that in the last year, poor investors locked into the Woodford Income funds have lost perhaps £1billion. There are lessons for investors – and don’t forget that for many years Mr Woodford produced exemplary results so those who chose him were not totally foolish but then things started to change… I repeat, we didn’t have any at all and indeed we tried to dissuade investors from subscribing when he launched his funds. https://citywire.co.uk/wealth-manager/news/woodford-investors-face-1bn-fund-wipeout/a1384582?re=76549&ea=517077&utm_source=BulkEmail_WM_Daily_Single_EAM&utm_medium=BulkEmail_WM_Daily_Single_EAM&utm_campaign=BulkEmail_WM_Daily_Single_EAM
What are the lessons? Don’t rely so heavily on star fund managers as much as you may be – yes that includes the present bunch, however good their results and how popular they may be. If they have done so remarkably well, trim your exposure. Then, generally spread your eggs very widely indeed. There are loads of great funds and managers and as long as you choose an investment administration system which ensures you are helped with the administration and you don’t complicate things to make life so difficult for yourself, then go down that route. Of course, make sure too you are not penalised on costs of lots of smaller holdings. And, if you can’t do this all yourself and aren’t sure you know what you are doing, then engage a firm like ours. Why?
We’ll take your money and if it’s without advice, without a subscription fee. Then we’ll create a portfolio for you along your chosen requirements (whether in ‘Pension’ ISA’, ‘Portfolio’ or ‘Offshore Bond’) and our charges are simply annualised percentage investment management fee and percentage brokerage (with an upper cap). Then, what we put inside your pot is what we think offers the optimum potential for achieving that part of the overall strategy mix and we cover any and everything, with no ulterior motive to buy one thing over another – aside from the client’s optimum outcome. For example, we have been buying the old Woodford Patient Capital Investment Trust after it fell heavily from grace and are continuing to buy it at really depressed levels. A £20,000 client may have all of say £300’s worth so it won’t break the bank on a limp outcome but just imagine what the other £19,700 is within! If that £300 doubles (which it has the potential to do) then that £300 profit is worth 1.5% of the whole investment pot!
We are always looking for ideas and opportunities. Perhaps there are too many great ones at the moment as panic and uncertainty create so many anomalies. Here’s an example of one I am adding. It’s a fund of secure loans. It doesn’t have any retail or hospitality debt in its nigh £100million portfolio and all the borrowers are behaving themselves and paying their interest and making their loan repayments. So why the opportunity? It is quite small and that does limit how many institutions can buy it (they can’t buy enough nor sell easily). So, in March its shares were trading above the value of its assets, reflecting the generous income. Now they are trading at 73p for £1’s worth of assets and are still paying income to its investors of what is over 8%pa. In a couple of years, its shareholders can vote to close it down so if everything else is equal, we’ll receive £1 after costs then – so 37% higher than what each share costs us today. So let’s say that happens, all its debts continue to behave and in two years it closes. That means our investors earn 22.5%pa and with amongst the lowest of risks as these things go. That said, even if we went in fully for us, I suspect we’d only have say £3million of our total assets in it (under 2%) – spreading our money as far and wide as we can and looking for more of these all the time. Conversely, we shall be buying shares from someone who is selling them because they feel they have had it as a bad investment, a loss of 27% and they want to put their money in Tech stocks as they always only go up – of course. Sadly too, sellers can be other advisers who don’t like showing their investors that the holding is still down 27% since March compared to other nice things which have all recovered (of course they all have, haven’t they). Would I be selling? Certainly not, whether I have lost money on it at this point or not.
Lloyds Bank announces yet more ‘impairments’ in its results and the shares drop yet again – to a paltry 26p. Yet in the same breath, it announces how it wants to be one of the Country’s leading financial planning firms by 2023. I have to ask – who would trust an adviser which can’t put its own house in order, isn’t paying dividends (as we know no banks are so fair enough) and continues to limp along? If your financial adviser can’t manage his own finances what sort of message is that presenting to the prospective client… ‘ah but that’s different sir, you can trust the integrity of the decisions we shall be making with your money, it’s just that we aren’t very good with any of our own’. Of course I am being tongue-in-cheek and of course you can trust that your money is safe with the big banks but why don’t these firms realise that everything they do and say is a marketing exercise to their clientele? It sure wouldn’t be filling me with confidence to entrust my finances to entities with such awful records – and yes, we have all been suffering as a consequence of the Covid 19 issues and this isn’t that. Maybe this organisation would do better putting its own finances into better order before preaching how well it would be able to put other people’s in good positions…
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 celebrate our 35th anniversary in 2020 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