I know we are often surprised at how quickly time goes, but when I looked back and saw that the last News & Views was at the beginning of June, I was astonished, as I had not realised I’d left it so long and tomorrow it will be September!
On reflection, it’s been a busy few months, not only in the business sense, but on the home front as well.
Consumer Duty
You may recall that back in June I was talking about Consumer Duty, which is a whole raft of new regulatory requirements brought in by the Financial Conduct Authority in the UK, with effect from 31st July and like every other firm in the UK, we have spent many hours pulling together all of the new requirements and ensuring that not only do our processes and systems fully meet with the new standards, but, that we can also evidence that we can tick every box as required. I have to say, the biggest challenge is the evidencing and I think by now, our staff are getting fed up with hearing me use that word. Unfortunately, our Regulator has, for a long time now, had the approach that “if it’s not written down it didn’t happen”, and this is one of the reasons why we have to create so many copious notes about all that we do. Oh for that paperless society we had expectations of!
Whilst we were given the best part of a year to get all our ducks in a row for Consumer Duty with a deadline of 31st July, rather than this being a finishing line, it is a starting point and from here, going forwards, we will be evolving our processes to ensure that we stay on top of the requirements.
The most important thing to stress here is that this is all about consumer protection and ensuring that we, as Financial Advisers, not only have sufficient knowledge of the regulatory requirements, but also, that we know our clients well enough to make sure that everyone we work with is benefitting from these protections.
Ironically, one of the requirements of Consumer Duty is clarity of information and ensuring that our clients understand what is being provided to them. That goes hand in hand with an ever increasing amount of information, both technical and regulatory, that we are supposed to provide as part of the service – without doubt, this creates a conflict and one of the decisions that we have therefore taken, is that going forward, as far as possible, we will be separating the summary of objectives and advice that we are giving from all the technical and regulatory information that will be provided at the same time, but as an Appendix or Adendum to our advice document rather than creating one huge un-user friendly document. The fear here is that providing too much information in one place, can create snow blindness, such that the important factors are not clear to see.
Whilst this is a challenge for us, my message to you is that if ever you receive information from us that you are not clear about or uncertain of, please do raise your questions, as not only will this help us clarify things for you, but will also help us to learn how we can do things better going forward.
Consumer Duty is without doubt, a turning point in the financial services industry in the UK, but one, which should in time, be beneficial for all.
Markets – Sell in May and Go Away….!
‘Sell in May and go away’ is a well-known saying in the financial sector and really, is based on historical underperformance during the 6 month period from May to October. It is also often the case that the levels of trading during the summer months are much lighter and therefore, arguably thinner trading markets are more easily influenced.
Looking back over the last 3 months, whilst the UK may be showing signs of underperformance, other areas around the globe, including the US, Europe and Japan, are bucking that trend.
Taking the US as an example though, the S&P 500 Index on a year to date basis, is showing growth in the region of 18% and yet, if you strip out the top 7 Companies listed, those being Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla and Meta, the picture is somewhat different.
Those 7 tech stocks are the ones that have been driving the market largely this year and ironically, they were the biggest losers in 2022. Without these, the rest of the Index is relatively flat and arguably, looks much more like the UK FTSE 250.
The rollercoaster route of these 7 Stocks through huge negativity in 2022 and an equally huge rebound in 2023, highlights the dilemma that Investment Managers have – do they chase the big names only and accept the rollercoaster ride or is this a dangerous game to play?
The answer to my mind is clear, that for the majority of people, they need diversity and whilst these Stocks should form a part of the portfolio, either directly or through funds that invest in them, achieving a balanced and sensible return over time (without too many sleepless nights) relies on a diversity through a spread of investments, which of course, is the approach the Fund Managers we work with take.
Over the last few days, we have seen some positivity in markets globally, and as always, it begs the question as to whether this is a short term blip or the start of a rally towards sustainability. As always, that’s a question that can only be answered accurately with hindsight, but as the rate of inflation continues to fall, we will see interest rate policy take a breather at some point and there will undoubtedly come a point in time where Banks need to start lowering interest rates once more, to stimulate the economy and by association, the markets and so the cycle goes on!
Autumn Colours and Home News
I’ve always been slightly confused as to whether autumn starts on 1st September or with the autumn equinox later in the month. I thought therefore, that I would try looking up the definition of autumn and the first “helpful” answer I came across is that it’s the period between summer and winter! A little further research then went on to say that actually, it’s September to December in the northern hemisphere and March to June south of the equator.
Whichever definition you care to use, it’s clear that the evenings are getting longer and before long, we’ll see the colours turning on the trees – we’re just starting to see the first hints of that as I look out of my window at the East Sussex landscape.
We actually moved to Battle in East Sussex at the end of July, and this is the first time that we’ve lived outside Kent, so to a degree, it feels as though we’re simply on holiday, but we’ve taken all of our furniture with us!
Looking ahead for the remainder of the year, I wonder just how long it will be before I hear the first Christmas jingle in the shops, or the first advertisements will appear.
With the autumn, also brings winter flu jabs and Covid jabs for those who are eligible, and we’ve just heard from NHS England that they’re bringing forward the programme this year because of the concerns about a new Covid variant. The Covid vaccine will be available from 11th September, with a recommendation that all people over the age of 65, together with those who are considered vulnerable, should have these as soon as they are available and the roll out will probably be between 11th September and the end of October.
As the NHS website states ‘vaccinations are our best defence against flu and Covid 19 ahead of what could be a very challenging winter’ – we should also perhaps remind ourselves of the precautions we took in terms of hand washing, sanitising and mask wearing – prevention being better than cure.
My plan going forward is to be writing News & Views more often and so I will be in touch again shortly, but in the interim, take care and stay safe.
Best wishes from all at ABC.
Starting with the myths, I was chatting to a client the other day about news in the financial world and the conflicting information that we continue to see, and he really capped it all by saying really, “nobody knows”, which in many ways, I think is the case.
One of the big problems when considering financial markets and what might be in store just round the corner, very often these things are driven by sentiment and expectations looking ahead several months as to where markets might be, rather than where they are today.
Markets can appear to be very fickle at times in not reacting to bad news and yet, overreacting to short term issues and relatively benign events.
When I pass on my thoughts and express my views, my main objective has always been to steer away from the extreme views of both doom and gloom on one extreme and unrestrained bull market optimism on the other, because of course, there is no one answer to every situation.
We saw this clearly demonstrated in 2022 when most market sectors, including global Stock Markets and Bond markets (Government debt like UK Gilts and US Treasuries) all suffered greatly and yet the FTSE 100 Index appeared to outperform. This was largely because the Index was driven by Companies in the oil, gas and armaments sectors, who were beneficiaries to the impact of the war in Ukraine and associated inflation of energy prices.
It is therefore as difficult as ever to forecast the route that markets will take from here, although in recent days, we have seen quite a rally globally, largely due to the “sigh of relief” breathed following the US avoiding a debt ceiling crisis and associated default on Government debt.
Even though inflation may have peaked, it remains stubbornly high and as a result of which, we are likely to see further increases in interest rates that may in turn, peak higher than previously anticipated. Slowly the higher rates are filtering through to investment accounts, but the major impact has been on the mortgage market, particularly in the UK, with many borrowers now facing significant increases in their repayments. Much of this is yet to filter through the system and so I think it’s fair to say that we’re likely to see volatility continuing for the foreseeable future, but as one Fund Manager put it to me the other day, flat markets create little potential whereas volatile markets, whilst more challenging, can deliver greater opportunities.
On the personal scene, 2023 is a milestone year for us with Chris and I celebrating our golden wedding anniversary last weekend and naturally enough, it makes you reflect on how things have changed over that time.
Our wedding reception was a buffet lunch at a local pub for around 30 people at a cost of £1.50 each plus drinks and our honeymoon took us to the west country, where we were paying £1.25 a night for bed and breakfast! I also recall that £1’s worth of fuel, would put around 3 gallons in the tank!
Mind you, to put it in perspective, I was earning £13.50 a week!
As part of our celebration this year, we’ve recently been on a family holiday to Egypt, taking on some of the historic and cultural sights in Cairo and Luxor in addition to 7 nights on-board a cruise ship going down to Aswan.
The sheer scale of the monuments that we saw, and the number of statues created, in particular for Rameses II and the quality of some of the tombs that have been preserved in the Valleys of the Kings and Queens were all really quite spectacular.
Egypt as a country is very reliant on the revenues derived from tourism and therefore, the last 2 – 3 years have been particularly painful for them.
Egypt is certainly a country of contrast as well, with a huge desert reclamation programme underway south of Aswan, where many acres of wheat are now being grown in what was previously unproductive land. By comparison, you see people living in conditions that are reflective of Biblical times, with many small parcels of land being farmed with hand tools and oxen still being used to pull the ploughs.
I thought our Egyptologist and guide captured the sentiment very well when he said that going back in history, Egypt had nothing and achieved everything, whereas today, they have everything but achieve nothing. Whilst that’s not quite true, given my comments about the desert reclamation programme above, it is without doubt a country of huge extremes, but a great place to visit nonetheless. We came back with over 2,000 photographs – don’t panic, I won’t bore you with them all, but here’s just a couple to share.
Returning now to the theme of milestones, by the end of July 2023, the Financial Conduct Authority will have fully launched the Consumer Duty initiative, which comprises a complete overhaul of the way that financial advisory firms, conduct themselves, deliver their services and have to be mindful of a whole raft of new requirements and standards.
I am pleased to say that many of these disciplines we have in place already, but over recent months, we have been completing a thorough review of those practices and ensuring that they are fully compliant with Consumer Duty.
We have also joined the Consumer Duty Alliance, which is a not for profit organisation, specifically established to ensure that the intended improved outcomes for clients of advisory firms are achieved and maintained going forwards.
The Alliance introduces a Code of Professional Standard that we agree to abide to and is summarised below.
The Consumer Duty Alliance
Code of Professional Standards
These seven underlying principles of professional advice are designed to help consumers understand the standards and behaviours they should expect from an Alliance Member.
Members of the Consumer Duty Alliance shall:
In addition, we are also committed to the Financial Vulnerability Task Force Charter, which is a further development in recognising where changing circumstances can create vulnerability and how this needs to be recognised and handled. The following link will take you to the Consumer Guide, where you can read more about the Charter and its objectives.
Financial Vulnerability Taskforce consumer guide (260kb)
Rather than Consumer Duty being a finishing line to reach, it is actually a new milestone and the starting point for a completely new approach in the industry, which we full embrace.
If you have any questions about Consumer Duty or any other points raised, please do let us know, otherwise stay safe and best wishes from all at ABC!
6th April is the start of the new tax year in the UK and from this date, we will see the impact of the recent Budget coming home to roost in the form of a freezing of allowances for personal Income Tax, a reduction in Capital Gains Tax allowances and an increase in Corporation Tax from 19% to 25%.
On the flip side, for those receiving State Pension Benefits, these are due to increase this month by 10% and as always, there are opposing thoughts as to whether each or any of these measures are appropriate or if in fact, there is more political motivation than any other.
Talking of politics, the recent Budget also suspended the lifetime allowance, which is the cap on the amount that can be held by individuals in pension funds, with an announcement that with effect from next tax year, the lifetime allowance will be scrapped altogether. This was quickly followed within 24 hours by a statement from the Labour Party to say that in the event that they come to power, they will immediately reverse this and reintroduce the lifetime allowance once more. As the polls currently suggest that the Labour Party will form the next Government, I think we have to view the current suspension of the lifetime allowance as a potentially temporary measure although I do think that on reflection, the Labour Party might well review their initial statement as being premature and in fact, the reintroduction may not occur. Arguably, this creates a planning opportunity for those concerned during the current tax year, but of course, it has no impact for the majority of people.
More of a concern is the reduction of the Capital Gain Tax allowance for individuals from £12,300 down to £6,000 in this tax year, with a further reduction to £3,000 next tax year. This change will potentially impact on many more people and places more emphasis on the need to hold investments where possible, in tax protected environments, such as ISAs (Individual Savings Accounts), pensions and life insurance Bonds, as all of these are exempt from Capital Gains Tax.
For people with direct portfolios of Stocks and Shares and those who use collective investment funds outside tax protected wrappers, more care is going to be needed to avoid unwittingly crystalising Capital Gains Tax assessable transactions. Arguably, this could be a good time to review investments to determine whether recent market volatility has created any losses that could be crystalised and used against any other gains, with a view to restructuring investments. Early in the tax year is a good time to consider this.
Market Opportunities
Since the beginning of 2022, we’ve seen quite a rollercoaster in global Stock Markets and for most of last year, the traditional safe havens of the Bond market (Government debt like UK Gilts and US Treasuries), underperformed every bit as much as the Stock Markets, with similar reductions in values. However, during the last 6 months. We’ve seen that position reversing and the Bond market once more provides a safe haven for Investment Managers to include in portfolios.
During the last quarter of 2022, we saw improvements in Stock Markets, which spilled over into the beginning of this year, only to be tempered by more recent volatility.
The most recent jitters were caused by Bank failures, initially with the collapse of Silicon Valley Bank in the US followed very rapidly by the forced takeover of Credit Suisse by UBS. There was a concern of contagion in the banking sector, but central Banks and commentators were quick to point out that the failures with both Silicon Valley and Credit Suisse were largely driven by poor management and bad investment decisions, rather than a collapse of the banking sector in general.
Some commentators were writing that it was an over aggressive interest rate policy from Central Banks, that will continue to be aggressive until things start to break, were the root cause for both Silicon valley and Credit Suisse, but whilst this might have been a contributory factor, it was not the main reason.
Whilst there could still be some Bank failures going forwards, it is likely that the main Banks will benefit significantly from the increasing interest rates that are passed on to borrowers quickly, whilst the same is not true for savers and therefore, the Bank margins will widen, returning some to profitability that has not been seen arguably, for the last 15 years.
The expectation is that the rate of interest rate increases will slow and stop, probably at some time during or towards the end of this year, and that the rate of global inflation will continue to fall, albeit that it will not fall as rapidly as some would expect, with some forecasters saying that we will be back to the 2% or 3% inflation targets that Central Banks want by the end of this year or early 2024.
As always, it’s difficult to predict when these cycles may peak and reverse, but the general consensus is that inflation has already peaked, and the rate of inflation should fall away quite rapidly this year. Markets will be watching both this and the Bank interest rate policy closely to try to judge when the pivotal point comes and in reality, we are likely to see increasing market values long before we see the improvements in economic figures. The general consensus therefore is that over the next 2 or 3 years and beyond, we are likely to see a return to sustained market growth, but as always, there is the potential for disruptors along the way.
Attached Articles from TAM Asset Management
You will see that I am attaching 2 articles recently published by TAM Asset Management, one of which is looking at the banking situation and the second one is looking at the impact of the recent UK Budget. I think both of these articles have been written in a way that avoids too much jargon and thought therefore, that you might find them of interest.
Political Pantomimes and a Name from the Past
Once again, we are being ‘entertained’ by senior political figures on both sides of the Atlantic.
Most recently, we saw the public hearing in relation to party-gate and the investigation into Boris Johnson, but to date, no official verdict on the actions of Boris have been made just yet and so the investigation goes on.
Across the pond this week, we have seen the arrest of former President Donald Trump, with his hearing in New York on Tuesday of this week, which led to him being criminally charged, but he has pleaded not guilty to 34 charges of falsifying business records.
Only time will tell how each of these events roll out and whether Mr Trump will be able to turn these events to his political advantage, with his aspirations to return to the White House next year.
In the last few days, we have also had the news that former Chancellor of the Exchequer Nigel Lawson, has died at the age of 91. For many years (before their falling out), he was considered to have been the main architect of Margaret Thatcher’s economic reforms and whether you agreed with his politics or not, he was an old school politician and Member of Parliament for Blaby from 1974 – 1992. His other claim to fame is that he has a rather well known daughter!
Easter Greetings
Leaving all the political and financial considerations behind, I just want to close by conveying our very best wishes for the Easter weekend and let’s hope that we can enjoy a little Spring weather!
With best wishes from all at Alexander Bates Campbell
With the snowdrops and crocuses in full bloom, the daffodils starting to show and the evenings slowly getting lighter, these are all increasing hints that Spring is almost here, although of course we are not there yet and the old saying about March – “in like a lion, out like a lamb” is worth remembering as we may be in for another cold snap.
As we shake off Winter, we go into what I always feel is a very positive time of year and despite all the issues we are bombarded with on a daily basis in the news, I feel it is a time for optimism.
It is too early to judge whether the new agreements reached between the UK and EU regarding the Northern Ireland Protocol will succeed, but the markets seemed to respond in a positive way and the value of GBP also strengthened briefly. Whilst 2022 was an extremely challenging year in markets to say the least, most markets have shown positivity over the last 6 months, although we have yet to regain the values at the end of 2021 in most cases.
As always, there are opposing views as to whether we are simply witnessing a “Bear Market Rally” or the beginnings of a new “Bull Market Run”; the majority view seems to be that over the next few years we are likely to see a return to sustained growth and that perhaps in the short term, Europe and Emerging Markets will be the areas that shine.
As ever, there are no certainties when it comes to the markets and the sentiment that drives them but as we approach the end of the tax year in the UK, and a Budget statement later this month, we can be certain of one thing - tax will be in the spotlight once more. The political debate rages on about whether higher taxes or lower tax rates and greater consumer spending lead to a stronger economy, but there is a consensus that no one likes to pay more in tax than they need to and so I thought I would take a look at one particular tax which was in the headlines recently.
In 1986, Roy Jenkins, Labour politician, famously said that “Inheritance Tax, is broadly speaking a voluntary levy paid by those who distrust their Heirs more than they dislike the Inland Revenue”
If you look today at the HMRC Internal Manual (and I am not suggesting this is a top 10 best seller, must read to add to your list!) It’s opening paragraph states “Inheritance Tax (IHT) is the successor to Capital Transfer Tax (CTT), which was an integrated lifetime transfer and estates tax. Under CTT, all lifetime transfers were charged to tax when they were made. Under IHT, certain types of lifetime transfer remain taxable when made. Most are only taxable if the transferor dies within seven years of making the transfer.”
Why then I ask myself, do we see current reports quoting that HMRC receipts from IHT from April 2022 – January 2023 were £5.9 billion – £0.9 billion higher than the same period last year. Could Roy Jenkins have been right I wonder – surely not! This was quite a contribution to the total tax haul which HMRC have confirmed was £660 billion for that same period, an increase of £65.1 billion over the previous year. Mind blowing numbers!
Why though, if IHT is a voluntary levy, has it increased so much to these staggering numbers? The answer of course is more complex than the question, but I will try to explain some key factors.
IHT was first introduced in the UK in March 1986 and at that time, the threshold (Nil Rate Band) before IHT would be due was £71,000. This increased each year until it reached £325,000 in 2009 and since that time, it has remained frozen at that level. The Office for National Statistics quote the average nominal house price in the UK as £38,251 in 1986, compared to £149,709 in 2009 and £294,844 in June last year.
If you do the sums, in 1986, the average house price was just 54% of the IHT threshold but now it is nearer 91%. That, combined with the increase in second property ownership is one of the key factors for the increase in the total amount. Not forgetting, these are average house prices and certain areas of the country have seen much higher numbers; the London average for example, is nearer double the national average.
Whilst there have been some minor changes since inception, that improved allowances with the introduction of the Residence Nil Rate Band for example, which adds a further £175,000 per individual, this only applies in certain circumstances. Most other allowances have remained static with other changes like the “Pre-Owned Assets” and “Gifts With Reservation” rulers, all restricting the ability make lifetime gifts without losing control of the assets concerned.
You may start to think that IHT planning is not possible and that it is an inevitable tax after all, but that is not the case. It is worth mentioning here that in the UK, the IHT burden does not fall on the individual during their lifetime, but it is their Estate that is assessed on their death and for this reason, some people take the view that the net value of their Estate after payment of IHT is enough for their beneficiaries to receive. However, many people are alarmed at the levels of IHT that will be payable, and with planning, there are steps that can be taken to help reduce or avoid IHT, which I will touch on shortly.
This differs with some other countries, where it is the financial standing and closeness of relationship of the beneficiary to the deceased, that determines the level of tax to be paid. In that regard, the UK system is much simpler to assess.
Another reason why the IHT tax take has grown, is due to people who have moved overseas, thinking that UK IHT no longer applies to them – sadly, that is not necessarily the case. It is not a question of where the individual is tax resident, but rather where they are domiciled. Changing tax residency is relatively straightforward and is automatic, based on several factors, such as where you spend most of your time, but changing domicile is not easy to do, nor is it automatic. Worldwide assets for UK domiciled individuals are assessable for UK IHT, regardless of where that person is tax resident when they die and can be a nasty shock to the beneficiaries when HMRC hold out their hand for a payment that was unexpected!
As you might expect me to say, with some fairly straightforward planning, much can be done to improve the situation whilst still maintaining control over assets to an acceptable degree.
Maximising annual exemptions, small gift allowances, wedding gifts and regular payments (which have no actual limit) are all simple options that many people do not use. None of these trigger the seven year rule.
Something else to consider; if you have a pension fund and you have savings, many people will say they prefer to use the pension for income in retirement and preserve the savings for the next generation. From an IHT planning perspective, that is the exact opposite from the ideal solution. Not only will the pension income in all probability be taxable during the individual’s lifetime, any savings they leave will all form part of the Estate for IHT purposes, with any amounts above the threshold being taxed at 40%. A double whammy!
Most pensions operate under a Trust and except for some occupational and final salary/defined benefit schemes, any residual fund value not spent during the lifetime, can pass to nominated beneficiaries, outside the Estate for IHT purposes, as the assets belong to the Trust and not the individual.
This is probably starting to sound either complex or just plain boring, but if you have any concerns about your own family situation, this is an area where we would be able to guide you and provide the advice needed to achieve your longer-term goals.
Of course, there is one other perfect solution and that is to spend all the money during your lifetime, but that may have some practical issues to consider!
As always, stay safe!
Best wishes from all at ABC
As we’re approaching the end of January already, it seems a little late to wish you a Happy New Year, but as this is the first News Letter of 2023, I will take the opportunity to do so.
Although this News Letter will focus on ABC and some considerations that UK tax resident clients should be thinking as we approach the tax year end, I did want to make a few comments about investment markets.
As we know, 2022 turned into an extremely challenging year for markets and investment management in general. There were many factors driving uncertainties in markets, not the least of which being the war in Ukraine and the potential for runaway inflation during the year. Whilst the former shows no signs of abating as yet, at least we’re seeing inflation numbers starting to reduce. Of course, that doesn’t mean that costs are going down, but simply they are going up at a slower rate and the expectation is that this decline will continue during the current year and should be significantly lower by the end of the year.
This in turn, should take the pressure off Central Banks and we’re likely to see some easing of the interest rate policy, with some commentators forecasting that rates will start to fall in the US by the end of the year and probably elsewhere shortly thereafter.
As we know, markets tend to look ahead 6 – 9 months and therefore, during January, we’ve already seen positive movements across all major markets and whilst it’s too soon to say that we are out of the woods, it is nonetheless encouraging to see some positive regaining of values and we will continue to watch this going forwards.
News from ABC
As you may recall from earlier correspondence, rather than sending Christmas cards again in 2022, we chose to make charitable donations of £200 each to Demelza House and Chestnut Tree House and we’ve had rather a nice acknowledgement from both organisations to thank us for our small contributions.
Chris (Alexander) as some of you will know, used to work for the Kent, Surrey and Sussex Air Ambulance and was closely involved with their fund raising and other activities. From her experience, although she knows that funding is one of the most important factors for any charity, what is less known is that giving time to a charity is almost as valuable to them.
With the staff at ABC, we aim to have two main social functions a year, one being a Christmas party and the other being a mid-summer celebration, which is an opportunity for all the staff to get together. In the intervening months, we are also aiming to have some other group activities and Chris suggested to the staff earlier this month that we might think about offering our time for 1 day each to the two charities we have supported, and the suggestion was almost unanimously taken up and we are now liaising with those charities to see how we could dedicate some time to them. We understand this might range from helping in the garden through managing some events or coordinating collections, which is a good opportunity for us to have a team event whilst helping others – I will let you know what involvement we have and how that goes in later News Letters.
I also thought it might be useful to introduce you to the team by including our organisation chart, so that you can see who everybody is and where they fit in to the organisation. Some people you will already know and going forwards, there are other people that you may well have contact with in due course.
We are trying to fully integrate the teams across the various groups of clients within the firm, so that we maintain continuity and personal contact. If you phone the office now, you will be greeted with a short menu of options, but there are only 3 to direct you to either the private client team, the corporate client team or for any other enquiries. You will not be faced with a whole menu of options thereafter and you will get straight through to a person to speak to.
We are always mindful of looking for new ideas or ways that we might improve the services that we provide or the relationship that we enjoy with clients and therefore, if you have any suggestions, we’d be very pleased to hear from you.
Similarly, as the integration of the business is now well underway, we find that we have some capacity and whilst we’re not looking to go ‘empire building’, we have room to take on some additional clients. We are very fortunate that the majority of our clients come to us by way of referral and hopefully, this reflects the services that we are providing and going forwards, we would be very pleased to receive any further introductions.
UK Tax Year End 5th April 2023 – Considerations
Some of the recipients of this News Letter are overseas clients and therefore, I’m sorry to say the next section will not be relevant to you, but it might raise some questions that we could help with anyway as they relate to you.
As we know, the political scene in the UK turned into somewhat of a pantomime last autumn, with changes of Prime Minister and Chancellor of the Exchequer happening in quick succession. Having rocked the markets, things seem to have stabilised, with Jeremy Hunt, as the latest Chancellor, who has taken a much more rigorous approach to balancing the books and we know that there are a number of tax changes that were announced in the Autumn Statement, which will have an impact going forwards and could affect future financial planning strategies.
It's not my intention to turn this into a boring review of all the tax changes, but I am highlighting in bullet points key changes and things to consider as a consequence and with the tax year end approaching, which I hope that you will find useful.
I appreciate that some of these changes will not affect you, but these are the key points and probably the Capital Gains Tax and dividend allowances are the ones most noteworthy.
If you would like further information on any of these subjects or how they might affect you, then do get in touch to let us know.
As always, if you have any questions or if there are areas where we can assist, we would be pleased to hear from you and going forwards, I’m going to try to encourage other members of the team to make contributions to the News Letter, so you may well be hearing some different views and seeing some different styles included.
As always, stay safe!
Best wishes from all at ABC
I know they say that as one gets older times goes quicker, but 2022 really seems to have disappeared at an incredible pace and it’s hard to believe the year is now drawing to a close, with Christmas less than a week away.
Mind you, we started to get in the Christmas spirit right at the beginning of the month with our staff Christmas party on December 2nd. This was the first one after the merger of the business earlier in the year, so it was good to have a larger group together. Sadly, 2 or 3 people were unable to attend, but we still had a group of 14 and although we were at a much bigger function, we had a really enjoyable evening and I have to say, Martyn and myself managed a pretty good display of ‘Dad dancing’ – or we thought so anyway!
The following weekend, Chris and I took the opportunity to visit Wroclaw, which is in the southwest corner of Poland, towards the Czech border, where they were celebrating with quite an extensive Christmas market, which is where the picture below comes from. A great city with lots of history so well worth a visit. We thought it was going to be cold there, but actually, little did we know what was in store when we got home, the next day we had all the snow and the last week has been bitterly cold, although I’m pleased to say the snow has now all gone.
There was one other Christmas surprise in store for me and that was on Monday of last week, I tested positive for Covid, which left me feeling under the weather for a few days, but this morning, I have tested negative, and I’m pleased to say, normal service has therefore been resumed!
Charity Donation Rather than Christmas Cards
As you may have noticed from our email sign off, once again this year, we have decided rather than sending Christmas cards to everyone, that we will be making charitable donations and this year, we have chosen two children focussed charities in the southeast of England. These are:
Demelza House
Demelza provides clinical care, therapies, specialised activities and practical support across Kent, South East London and East Sussex.
They have two hospices and provide community based support in the home as well as a programme of on-line activities. Their end of life care for children and young people and bereavement support for family members of all ages is available to all.
£28 – keeps the hydro pool clean for a day, giving families the chance to have fun splashing around together.
£72 – keeps the soft playroom open for other siblings.
£360 – enables a child to receive a series of art therapy sessions.
Chestnut Tree House
Chestnut Tree House is a registered charity, that offers care to 300 children and young adults and their families with life limiting conditions in Sussex and South East Hampshire. Their aim is to provide the best quality of life for the children they care for and support for their families.
This care is provided free of charge, and therefore they rely on donations to support the work they do. They have a number of shops located throughout Sussex, including Arundel, Bognor Regis, Brighton, Chichester, Eastbourne and Seaford.
£10 - can pay for a memory box full of precious keepsakes for a bereaved family to cherish.
£28 – can pay for support for a bereaved family.
£50 – helps to fund a session with a child and young person’s psychotherapist or family counsellor.
With so many good causes around, it can be difficult to know which to support, but we thought children based charities at Christmas time, is where we would like our support to go this year.
Christmas Closing
We are proposing to close the office and the end of play on Thursday 22nd December and will be reopening on Tuesday 3rd January.
Market Thoughts and What can we Look Forward to in 2023
Looking back over the last 12 months, we can see that exactly 1 year ago, markets were ending 2021 on a relatively high point, but then markets turned early in the New Year and with the invasion of Ukraine in February by Russia and all the associated instability that this has caused, it has turned into a very volatile and disappointing year to say the least.
Whilst there have been a number of low points during the year, it would seem that the absolute low was at the end of September and since then, we have seen some reasonable recovery in most global markets.
As we now know, the Central Banks got it very wrong in terms of their expectation for inflation rates and that was clear even before the invasion of Ukraine, but with soaring energy costs, we have seen inflationary numbers that we thought perhaps we would never see again.
Consequently, Central Banks have been playing catch up with a series of interest rate increases over recent months, December included, and this is likely to continue for a while into the New Year. However, there is a fine balancing act to be considered inasmuch that if Central Banks are too aggressive, this is likely to compound the position with regard to recession, which in itself would be arguably counterproductive.
Last week, the Bank of England announced that in their view, inflation in the UK has now peaked and indeed, the same appears to be true in the US. You may recall that I commented last month, that in my view, this was the case, and therefore, this is pleasing to see and again, I think that inflation will continue to fall.
Ironically, with the aggressive interest rate policy and the fears about recession, normally Stock Markets would react negatively to this, but that does not appear to be the case at the present time!
Earlier this morning, I was reading an investment commentary that was looking at the situation and was talking about “deeply inverted yield curves” in both the USA and the UK, which the article argued is a tried and tested recession indicator – the article got quite technical from there onwards (if indeed, inverted yield curves are not technical enough already!), but then went on to try to explain why markets are not reacting in the way you might expect. The answer it would seem is that along with potential recession, one would not only expect to see interest rates peak, but to start to reduce once more and factoring this in could indeed, be helping to buoy markets at the current time. As the article commented, “equity markets are focussing on the interest rate cuts, since they are designed to make credit cheaper, boost loans, oil the economic engine and fuel a fresh upcycle!”
Markets have indeed proven themselves to be cyclical and I think as we look ahead to 2023, it’s fair to say that we should expect volatility to continue in the short term, but as inflationary pressures ease and perhaps interest rate policies do plateau, if not reverse, we will start to see an environment for growth materialise as the year wears on and one would hope that this time next year, we will be reflecting on a much more positive outcome.
As always, time will tell and making predictions is a dangerous game!
Let me close by wishing you and your families a very safe and Merry Christmas and with you, I look forward to and hope that 2023, will be a better year all round.
As always, stay safe and our best wishes from all at Alexander Bates Campbell
As today is 11th November, it is of course Remembrance Day and this Sunday, King Charles III will be laying the Remembrance Day wreath at the Cenotaph in Whitehall, London, with this being a time to honour those who have lost their lives in conflict and for many, it is also a time of reflection and remembrance for all those who are no longer with us. I am sure this will be very close to the heart of King Charles III, who I understand has chosen to pay tribute to his Mother, the late Queen Elizabeth II and her Father, King George VI.
It should also be a time when we remember those suffering in current conflicts around the world, including of course, the Ukraine.
When I wrote my last News Letter at the beginning of October, little did I know that pantomime season was about to go into full swing somewhat earlier than usual, and I’m thinking here about the UK political scene.
On 14th October, the Daily Star started to video a head of iceberg lettuce that had a supposed shelf life of 10 days, and they asked the question whether it would last longer than Liz Truss as Prime Minister! As we now know, the lettuce won the contest with the resignation of Liz Truss just 1 week later on 21st, having fired her Chancellor (and supposedly best political friend), Kwasi Kwarteng for his mini Budget, which of course, was as much her doing as his!
I remember raising the question in last month’s News Letter ‘do Liz Truss and Kwasi Kwarteng know what they’re doing?’ You may think the answer is now clear – what is certain, is that when they said it was too much too fast, they were right in terms of how markets reacted, and this has to go down in history as one of the most humiliating political own goals of all time.
Whilst it is good to see that markets have stabilised in the terms of the UK’s long term borrowing costs and value of Sterling, which today is back to $1.17 from its low point of $1.03 last month, it would seem the installation of Rishi Sunak as PM, with Jeremy Hunt continuing to hold the purse strings has been accepted – at least for the time being. My concern is that we will swing from the gung-ho attitude of Truss all the way back to Project Fear that we became all too familiar with previously.
In in one his first speeches as PM, Sunak said ‘the UK is facing a profound economic crisis’ – designed I think to launch Project Fear once more.
Unfortunately, this tends to lead you to believe all the problems are UK based and we know that this is simply not the case. There is no doubt that the UK is facing tough economic times right now, but this is a global problem, largely being driven by inflationary concerns, some of which clearly emanate from the war in Ukraine, but we should not forget, we are still experiencing some of the Covid legacy in supply chain issues.
Central Banks face a major dilemma, as they traditionally use interest rates as a means to control inflation but over aggression will undoubtedly lead to or deepen recessionary influences.
I have previously expressed that I believe we have already seen the peak in core inflation, and it is only a matter of time before this will be seen in the headlines.
Yesterday, Stock Markets around the world reacted very strongly in a positive way to inflation figures published in the US that were lower than those anticipated by the markets. To my mind, this demonstrates strongly how hungry the markets are for good news and whilst I’m not suggesting that we’re out of the woods yet, it does go to show how a little good news can have such a major impact and as we go forwards, I believe we will see this repeating.
Politics of course is not confined to the UK and at the time of writing, I am currently in the US, where this week, we have seen the mid term elections with results still coming in. At the time of writing, the Democrats have 48 seats in the Senate and the Republicans 49, with 3 more results to come. In the House, we have a similar position with the Democrats having 192 seats compared to the Republicans 211, with a total of 435 seats.
Whilst the Democrats are therefore looking likely to lose the House, the Senate remains too close to call, although it is being widely publicised that the Democrats have not fared as badly as they might and the red wave has not been as strong as the Republicans had hoped.
I’m pleased to say, I don’t really understand US politics and therefore, I cannot get drawn with any personal comments, even though it would appear that a stalemate is possible, and this may hamper much progress over the next couple of years. As an aside, it was interesting to see that Ron DeSantis had an overwhelming majority in Florida where we are staying, and he is flagged as being a likely candidate for the 2024 Presidential election. That having been said, Donald Trump is expected to make an announcement shortly and has taken to referring to the Governor of Florida as Ron DeSanctimonious – so it would seem the gloves are coming off already!
Moving away from markets and politics, we were reminded this week what a huge country of contrast the United States is. Whilst we were aware of very wet and windy weather back in the UK, 2 days ago, as we watched the weather forecast with Tropical Storm, soon to become Hurricane Nicole, approaching our part of Florida, they were also forecasting up to 12” of rain in Los Angeles, 48” of snow in the Sierra Nevada and tornados in Oklahoma, whilst Tucson, Arizona remains in the worst drought for allegedly 1,200 years.
The next big event in the US will be Thanksgiving and then it will be full steam ahead to Christmas, with the shops already filling with decorations and Christmas music. We’ve already seen Christmas decorations going up outside various houses where we are staying, which does seem remarkably early. I’m sure in many ways, we will all be pleased to put 2022 behind us and look forward to a brighter future next year.
As always, stay safe and our best wishes from all at Alexander Bates Campbell
I think this is probably one of the most difficult News & Views I have had to write, largely because there is so much going on, both globally and domestically, with what seems like unprecedented volumes of commentary coming from totally diverse sources – it is trickier than ever to work out where the truth lies through all the rhetoric!
I apologise therefore if this comes over as a rather “dry read” but I thought it appropriate to try to address current concerns.
As I think you already know, I see part of my role when expressing my views, is to peel back the curtain or to lift the bonnet, to see what is really going on behind the headlines and to find some central or what I would describe as sensible ground.
Where to begin?
I guess the UK is as good a place as any to start – in the last month, we have seen a new Monarch, a new PM, a mini-budget and the unfolding of the political party conference season, with plenty of sabre rattling and accusations, both within parties and on a cross-party basis.
Do Liz Truss and Kwasi Kwarteng know what they are doing? Listen to one side and “their way is the only way to see the UK economy grow”, whilst their opponents will argue the exact opposite. The truth is that only time will tell, and at the moment, there is no certainty that the mini budget will actually pass-through the process of acceptance/adoption in Parliament. I actually think, the strategy is a huge gamble from a political perspective because even if it proves successful in time, the upside is unlikely to be manifest in time for the next General Election, which has to be in January 2025 at the latest. I read an article the other day which looked at the financial strategies driven by John Major, which were unpopular but over time proved to be successful, but not in time to save him at the ballot box! Will history repeat itself; we will have to wait and see.
What we can be certain of, is that the mini budget added a huge amount of fuel in the UK, to the global fire of problems that was already raging and impacting the UK economy. This was seen most dramatically in the exchange rate, with GBP dropping to a record low against the US$ and in the cost of UK debt – (not mortgages but the rate at which the UK borrows) – this jumped to over 4% and was higher than the cost of Government borrowing for Greece.
I have extracted below, some parts of a piece written by James Penny, who is the Chief Investment Officer at TAM Asset Management, as I think he explains quite clearly how these aspects have impacted the UK.
What On Earth Just Happened?
For stock market geeks like me, yesterday will likely go down in history as a memorable moment in the UK, akin to that of a 2008 crash moment - one which people will be talking about for decades to come.
What happened? It has all spun off Kwasi Kwarteng’s “Mini Budget” which has proven akin to a fiscal hand grenade thrown into the UK bond market. UK Government bonds, under the triple threat of a massive increase in UK bond issuance to fund the energy price cap, further interest rate rises and quantitative tightening (that’s the Bank of England selling back all of the bonds they have been buying off the government for the past 13 years [started in 2009, I think]) the UK Government debt market has tanked quite spectacularly (hence the hand grenade reference). To put the selloff in perspective, in the history of the UK Government bond market, the largest single sell off was -9%. September’s sell off, as of Wednesday morning, from the highest point to the lowest, was down a touch over -30%. To call that a new record doesn’t quite do the situation justice and it’s chiefly why I have chosen to write a note explaining what’s going on.
As almost everyone knows, the backbone of the UK’s behemoth pension industry is UK government bonds and on Wednesday morning it looked like there were some very large pensions funds about to tip into insolvency from the losses being inflicted on portfolios. This is what prompted the BoE to intervene.
Shortly after the market opened on Wednesday the Bank of England got wind of the potential implosion in UK pensions and stepped in swiftly to prop up the market and essentially save a large number of UK pension savers. This came in the form of the central bank halting quantitative tightening (selling the bonds they have been buying for the last 13 years) and recommitting to buying £65 billion worth of UK government bonds at £5 billion a day for 13 days. Essentially the BoE turned from quantitative tightening into quantitative easing in a matter of minutes to save the UK pension industry. This had the desired effect. The mainstream UK bond market bounced up over 7% with long maturity bonds rallying over 18%. The positivity spread over into the US with government debt rallying over 1% and US stocks also rallying nearly 2% on the news. Great for investor portfolios.
The intervention we saw yesterday was welcome but doesn’t change our thinking when it comes to UK bonds and the UK economy. Economically it doesn’t make sense to be pumping money into the bond market at the same time as you are fighting inflation. They are opposing forces which will further clobber the pound and create unwelcome volatility - which will then need more aggressive interest rate hikes to tame. It’s a scenario which is simultaneously destroying the credibility of this government and of central bank at exactly the time as the UK population needs to be able to trust their leaders.
As with all scenarios before this and the many still to come, it’s worth remembering that it is darkest before the dawn and there will absolutely come a time for the UK to shine on both the bond and equity front and at this juncture TAM know what to invest into and in what size to capture the best value from the UK but we still see further uncertainty from here for UK inc.
James Penny
CIO, TAM Asset Management
Turning now to the value of GBP, exactly one month ago, the inter-bank exchange rate for GBP was £1 = US$1.147 and €1.157. Today the rates are £1 = US$1.137 and €1.152, so relatively small changes. In the intervening period however, we saw lows of £1 = US$ 1.03 and €1.10 at some trading points, which were dramatic falls over a short period, partly driven by the mini budget but also driven by market speculation and significant “betting against GBP”. The real story in my mind though, is that we are seeing a strengthening of the US Dollar against most other currencies worldwide and sooner or later, this trend will have to reverse as concerns grow about exports from the US, which to my mind, is the cyclical nature of markets at work.
One final comment about the UK, is in regard to the level of Government borrowing as I think there is some comfort when you look at the other G7 countries and the following chart demonstrates our relative position in relation to debt versus GDP.
That having been said, the numbers are still eye wateringly huge and will need to be controlled over the longer term.
Looking Further Afield!
The main problems for markets are still coming from a number of factors, the key ones in the headlines at the moment being the concerns over the war in Ukraine and whilst on the one hand, the successes being achieved by Ukraine are good to see, the concern is when Putin has his back to the wall, what will happen. Will he “lash out” or will he simply disappear perhaps!! (we can but hope!)
Inflation is probably the major global concern, which is of course being driven by supply shortages and escalating fuel costs and to combat this, we see increasing interest rates as the “traditional weapon” of the central banks. These are the things that are driving up mortgage rates, rather than the mini budget in the UK (which didn’t help but is not the main cause). I am not sure whether this “traditional” use of interest rate increases, is totally appropriate, after all, inflation is more typically driven by high demand rather than short supply. You could also argue that interest rates should have been increasing sooner, even before the inflationary pressures started to manifest, as rates had been held artificially and historically low for too long. That is another factor in why they are increasing so rapidly now as we are playing catch up!
But that is not the end of the story, because we need to think about what happens next?
A little research shows that the expectations are that global inflation will start to fall next year – one source, the US Federal Reserve Bank’s survey of Professional Forecasters suggests that the Consumer Price Index inflation will fall in 2023 to 3.2% and to 2.5% in 2024. This reflects other commentary I have read that suggest the back of inflation has already been broken and in due course, this will take the pressure off interest rates. Morningstar are predicting that interest rates in the US will fall back in 2023 as the inflationary pressures recede and as this trend unfolds, I would expect the UK will follow in time, but that path is less clear.
Even though UK inflation is expected to peak in October 2022, interest rate rises are likely to continue for some time before levelling off. So, analysts are then predicting a reduction in rates in 2023 and 2024.
The Impact On Investments and Investment Decisions
A frequent question and of course a major concern, is what does the near future hold and what investment decisions need to be considered now.
To my mind, there are three key factors to think about here:
• Objectives
• Timescales
• Attitude to Investment Risk/Capacity for loss
Arguably, these all overlap to a degree, because if, for example, your objective is to generate income over the longer term and your investments are structured in an appropriate risk profile for you, then the short-term capital values should be less of a concern. I fully understand that human nature says that none of us like to see reduced values, and instinct may suggest “we should run for cover” but over time, that has proven to be a bad decision in the longer term. The main reason being, that the same instinct will see you wait too long before re-entering the market and missing the best part of the upturn.
The same situation applies if you are investing for value preservation or growth; opting out at the wrong time will have a serious impact over the longer term.
As James Penny commented in his piece, when referring to the UK, specifically, there will absolutely come a time for the UK to shine on both the bond and equity front – I believe the same to be true when looking at the global position and as I have written previously, when markets do turn, they could well turn rapidly.
So What About Those Green Shoots?
Well, they are not there just yet, but I think that we will start to see them soon and with inflation peaking and interest rates slowing and even reversing next year, we will see those green shoots appearing and, in the meantime, try not to be overly influenced by the doomsayers!
As always, stay safe and our best wishes from all at Alexander Bates Campbell
After my rather lengthy News & Views last time, you will be pleased to know this one is “refreshingly short”!
Her Majesty
Many eloquent words have already been written about Her Majesty, far better than I could craft myself and therefore I will keep my words very simple and brief.
Like many people I am sure, we were taken by complete surprise at the news that unfolded last Thursday. We knew The Queen was getting progressively frailer but after seeing off PM 14 and welcoming PM 15 on Tuesday, events clearly took a rapid downwards spiral.
We would like to extend our condolences and best wishes to The Royal Family and hope that King Charles III settles into his new role – he has a hard act to follow!
Our Office Move
Whilst the closure of the Goudhurst office went fairly well and all of the computer kit etc has been up and running again without a hitch, unfortunately, the same cannot be said about the phone system which is causing some teething problems at the moment.
We are adopting an MS Teams system which will enable calls to be transferred between members of the team regardless of whether they are in the office or working remotely; at present, outgoing calls are fine but incoming is where we have the problem.
This should be resolved shortly, but if you need to contact us, the most reliable way is via email please.
Once it is resolved, when you phone, you will be greeted with a short message, advising that our calls are recorded (this is a regulatory requirement these days) and asking you to select one of 3 options:
Whilst we are not fans of automated menus, ours will be kept very short and should ensure that you connect with the right people more easily – we will keep it under review to make sure it is running smoothly (once it does start that is!!)
As always, we appreciate you bearing with us through this process.
Best wishes from all at Alexander Bates Campbell
It’s hard to believe that it’s the beginning of September already and I dare say before too long, we’ll start to see the Christmas cards arriving in the shops!
The first 8 months of this year, perhaps with the exception of July, have proven to be very challenging in investment markets and it is likely that we will see this continue through the month of September.
Even though it may not feel like it, when you consider the news headlines and the continuing negativity, it is my view that the worst is probably behind us and as we know, the hour before the dawn tends to be the darkest!
Whilst history shows that September can be a difficult month in the investment world, some commentators are suggesting that with market reductions during the preceding month of August, this may well help to minimise further reductions during September and perhaps we will see an evolution towards a stronger last quarter of the year – only time will tell of course.
Move of Office
Turning now to something I can be certain about, with the restructuring of the business, we are now approaching the closure of the small office we have in Goudhurst and in fact, our last day there will be September 9th. Thereafter, all of the business activities will be focussed from the office in Forest Row, with various members of the team either working remotely or dividing their time between the office and home.
As our main means of communication tends to be via email, the closure of the office will have no impact on this and this could be a good opportunity to update your contact details to our new email address, which for all members of the team are in the format of their first name and last name without punctuation@abc-ifa.com. For example, my email address is richardalexander@abc-ifa.com
I can confirm however that we will be maintaining and monitoring the old ra-fp.com email addresses for the foreseeable future, and therefore if you happen to write to us at an old email address, don’t worry, we’ll still receive your communication.
If you do find that you need to send anything to us by mail, the postal address is:
First Floor
Unit 9/10 Riverview Business Park
Station Road
Forest Row
East Sussex
RH18 5FS
If you need to make contact by phone, the main switchboard number is 020 3167 0880.
If you need to reach a specific individual in the firm, everybody will have their direct dial phone numbers, and these will be published on their email signatures.
Whilst overall there should be no interruption to business services due to the office move, there may be a short period of time on 9th September when computers are closed down to be moved etc, when we will be out of communication. We will however, revert to you as quickly as possible and I would like to thank you for your patience and understanding in this regard.
Regulation and Compliance – A Runaway Train!
As you know, the financial advisory world is a heavily regulated one already and it seems that we live in an age of consistent change. Whilst there are many updates on a regular basis, the last big overhaul in the UK was implemented at the beginning of 2013, with the completion of the Retail Distribution Review (RDR) by the Regulator.
This broadly moved the UK Adviser market away from a commission based structure to a professional fee based structure only. This brought huge changes in the industry for many, but I’m pleased to say, we had worked on a fee-based structure for many years prior to the implementation of RDR and so whilst there was less impact on our business at the time, we still had to embrace the new disciplines.
We now face a similar situation with the completion of the latest regulatory review, which falls under the heading of Consumer Duty.
This is a whole new raft of legislation that will affect every person working in the financial services industry and businesses of all sizes, both large and small.
There are four main areas or as the Regulators calls them, Outcomes, that they are focussing on, which are as follows.
Ful implementation of this is planned with effect from the end of July 2023, but all firms need to have a plan of action in place by the end of October 2022. I have to say, as we start to consider the implications of this and new disciplines we may need to adopt, it really does feel as though the regulatory burden is a runaway train heading towards us down the tracks, but it is something that is unavoidable and therefore, we will face up to the challenge!
In putting together our implementation plan, we will be going through a ‘gap analysis’ and as we start to look at this, I can see that we are already fulfilling many of the requirements in the way that we conduct our business, which is reassuring. One thing that we will have to change though, is how we record some of these things because evidencing the way that we conduct our business is something the Regulator is going to be looking at going forward in a rather more detailed way. (Oh the joy!)
Once again, this should not have any direct impact on our clients, other than one might hope to see some progressive improvements going forward. As always, I will keep you apprised as we progress through this and will inform you of any changes that we may need to make.
Words of Warning
Even though interest rates are increasing slowly, and whilst this might have an impact on people with mortgages and other loans, it is having little impact in terms of investment returns for people and therefore, the quest for higher returns becomes more prevalent in people’s minds and without doubt, this is an area where caution is needed.
It is worth remembering the old saying that ‘if something looks too good to be true, it probably is too good to be true’ and we tend to see this with certain types of investment products that purport to guarantee levels of return way above what the market is able to support at present.
These are often referred to as structured products and may well have a fixed term of say 5 or 6 years, with a ‘guaranteed return’ of 5% or more over that period. It is important though to “lift the bonnet” and have a look underneath to see what’s really on offer.
The word guarantee tends to suggest certainty, whereas in the context of this type of product, you would be guaranteed a rate of return, subject to a number of circumstances being fulfilled, which are by no means guaranteed. This could be the underlying performance of an index or some other tracked financial data and even where the income or rate of return is guaranteed, you will probably find that the capital is at risk and therefore, you may not get back all of your money and possibly, you could face a total loss.
We saw many of these products come unstuck during the Banking crisis of 2008 and notably, Lehman Brothers were party to many structured products that failed at that time and many investors lost out significantly.
My suggestion would be, if you are tempted by an advertisement or an investment that looks particularly attractive, do run it past ourselves or another professional, who understands the small print and can guide you accordingly.
In a not dissimilar vein, we have people asking on occasions about Crypto currency and in particular, Bitcoin, which in the past, has shown spectacular performance, but this has been as spectacular downwards as it has been upwards on occasions. This is a high-risk rollercoaster investment and is not either for the fainthearted or for the majority of your capital.
Beware the Pension Scammers
In a similar vein, one of our clients, drew my attention to an article that appeared in the Times newspaper back in July under the heading ‘The Ex-Pat Pensions that Vanished’.
Although the UK Regulator has done much over recent years to protect people with accumulated pension funds from the scammers who are trying to persuade people to transfer their pensions, there are still huge areas of vulnerability, particularly for ex-pat British nationals, who are living overseas. The same regulatory rules and disciplines do not apply to salespeople in the financial services world globally as are applied in the UK and as should be applied throughout the EU, but that’s not always the case either!
As we know, financial advice relationships rely on trust between the parties, and it is this trust that is misplaced when scammers are involved. Unfortunately, it’s a trait of human nature that we take comfort in familiarity and when Company names that we’re familiar with are being proposed, the assumption is that these are safe investments. The article refers to a number of Companies, including RL360, Friends Provident International and Royal Skandia Life Assurance, all of whom have been used by scammers, which does to my mind, raise a question of culpability. The Companies I have named are not the only ones involved, but they all take the view that they are providing products and investment vehicles and that they are not providing the investment advice. Personally, I would have thought they need to be more rigorous in their due diligence with regard to who they accept business from, but of course, it’s a commercial world and these organisations are often driven by hunger for market share.
Having said that, with each of the Company’s named, we have used these for clients and continue to use today, (Royal Skandia has now become Utmost, having gone through various name changes of Old Mutual and Quilter).
I would just like to add that there is no risk for our clients with whom we have these solutions in place, because the investment recommendations that we have made are sound.
Unfortunately, the numbers involved with pension scams are eye wateringly huge and one class action that’s quoted in the Times article, refers to 800 British ex-pats who between them, have lost between £145 million and £200 million – that is just astonishing!
The message here though, is if you are approached directly though telesales or any other means, looking to ‘help’ you with your accumulated pensions – be very careful and at the very least, take third party independent advice before committing to anything.
As always, we’re happy to receive any questions from you, but in the interim, do stay safe and we will keep in touch.
Best wishes from all at Alexander Bates Campbell