March 2024

In our weekly Wealth Matters newsletter, we try to keep our readers up to date with developments in financial markets and information on financial planning opportunities. Reviewing the feedback we receive (which is always welcome!) we have been asked to provide readers with an insight into how FAS operates on a day-to-day basis. In the first of a recurring series of articles, we go behind the scenes to look at the role of the administration team at FAS and the vital role they play in providing excellence and high levels of service to our clients.

Our Administration Team

Our clients will no doubt build a strong relationship with their adviser, who they see face-to-face at review meetings or through other regular contact. FAS is, however, very much a team effort, with dedicated staff focused on ensuring that the administration of client assets runs smoothly. Our  strong administration team is office based and is split across the two offices, in Folkestone and Maidstone. Our team needs to be multi-skilled, as they handle all aspects of client administration, communication with product providers and providing business support.

Gathering Information

When we begin acting for a new client, it is imperative that we fully understand any existing financial arrangements they may have. To enable us to gather information, it is usual that we lodge a letter of authority, signed by the client, with the pension or investment provider. This authority allows the provider to forward information to us relating to a client’s existing investments, pensions, and other financial plans.

Naturally, we look to obtain this information as quickly as possible; however, the speed at which product providers respond varies from reasonable to incredibly slowly, and one of the administration team’s key tasks is to chase up outstanding information and responses from product providers. Our team are highly experienced and diligent in obtaining missing information, so that our advisers can provide the very best advice they can, based on the fullest set of information available.

Processing instructions

When a client follows our recommendations and proceeds with a financial transaction, our administrators deal with all aspects of the purchase, transfer, or sale, to ensure that the recommendations are followed precisely to those specified in the report. Our team always aim to process instructions swiftly and accurately on the relevant platform via an online interface, which ensures instructions are processed quickly.

Whilst most instructions are now dealt online via secure websites, some client instructions still require paper forms and applications to be submitted. This involves close liaison with product providers, and in the case of transfers from existing pension arrangements or ISAs, this will normally involve an element of follow-up and chasing to expedite the transfer. Given the poor level of service we receive from certain product providers from whom we arrange transfers, persistence and patience are key virtues that all of our administration team possess!

From time to time, platforms and product providers request further information or additional documentation at the time an instruction is lodged. Our administration team will contact clients directly as required to obtain further information, or if a signature is needed. As a result, some clients will get to know the administration team directly through this contact.

Preparing client reviews

When an adviser attends a client review meeting, it is vital that he or she is armed with accurate and complete information on a client’s investments, pensions and protection policies. Our client review service is fundamental to our business and ensures that clients receive a comprehensive review and regular contact at predetermined intervals. Given the importance we place on the value of regular reviews, a great deal of care and attention is afforded to the preparation of client valuation statements. The review preparation process involves dealing with product providers to obtain up to date valuations, and checking that the records we hold in respect of the number of units and holdings, prices and dividends match those records held by the product provider or platform.

Dealing with compliance

Compliance with all relevant regulations and following internal procedures are crucial to the smooth operation of the business. Our administration team have a key role to play here, confirming client identification and source of funds with product providers. By liaising with product providers directly, this frees up time for advisers to focus on their key role of providing advice.

Continuing Professional Development

All staff at FAS follow a strict regime of continuing professional development, so that staff can keep abreast of changes in legislation and reinforce their knowledge in all areas of the business. Our administration team fully participate in this professional development programme, to ensure that their knowledge is up to date. They also undertake regular training with product providers to make sure that the team are fully conversant with changes to platform services and procedures.

A team effort

The administration team at FAS play a key role in the business, supporting other staff in their day-to-day activities, and ensuring that client instructions are carried out efficiently and accurately. We hope this article helps to reinforce the collegiate nature of our business and the fact that FAS is far greater than the sum of the parts. We hope you have enjoyed this look behind the scenes, and in the next part of the series, we will look at the work of our paraplanning team.

With the end of the tax year rapidly approaching, it’s an ideal time to consider your finances and take decisions to maximise tax-efficiency. With the right planning, you can make the most of available allowances, exemptions, and reliefs, before the 5th April.

Use your ISA allowance

Individual Savings Accounts (ISAs) remain one of the most tax-efficient ways to save and invest. As the tax year draws to a close, it’s time to assess whether you have fully used your available ISA allowances. For the 2023/24 tax year, the ISA allowance stands at £20,000 per individual. This allowance can be split between a Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA (up to a certain limit). In addition, up to £9,000 can be invested in a Junior ISA, which can be held by a child up to the age of 18. This could provide a planning opportunity to make gifts to children or grandchildren which makes use of the Junior ISA allowance.

It is important to note that ISA allowances must be used in the tax year in question, otherwise they are lost. There is no facility to carry forward or make use of allowances from previous years. It is very much a case of “use it or lose it”.

Making Pension Contributions

Contributing to your pension is not only a prudent retirement planning strategy but can also be a tax-efficient way to reduce your tax bill. Personal pension contributions benefit from tax relief at the individual’s highest marginal rate. Higher-rate and additional-rate taxpayers can claim additional tax relief through their self-assessment tax return. The maximum contribution that can be made (known as the Annual Allowance) for this tax year is £60,000 or 100% of an individual’s net relevant earnings (whichever is the greater).

Pensions are complex and the annual allowances carry some quirks for higher earners, as the amount they can contribute into a pension could be limited. In addition, an individual who has flexibly accessed a pension will be subject to the Money Purchase Annual Allowance, which limits the level of contributions to £10,000 in the current Tax Year. We recommend you seek advice before making pension contributions, to ensure that allowances are not breached, as there could be tax penalties for making excess contributions above your available allowance.

Consider Capital Gains

With the annual Capital Gains Tax (CGT) allowance dropping from £6,000 in the current Tax Year to £3,000 in the next Tax Year, it is an ideal time to review an existing investment portfolio and make use of the annual CGT allowance. Whilst the rate of CGT payable on the disposal of investments is not particularly punitive (10% for basic rate taxpayers and 20% for higher and additional rate taxpayers) it may make sense to sell part or all of an investment to use the available allowance if you hold investments that stand at a significant gain over the purchase price. That being said, the decision to sell an investment certainly takes greater consideration than simply looking at the tax implications, and this is where independent advice can help you assess an existing investment portfolio to take the right decision.

Gifting for Inheritance Tax planning

The end of the Tax Year is a good time for those with significant assets to consider whether any simple planning for Inheritance Tax mitigation is appropriate. The easiest method of reducing the value of an individual’s assets is to make a gift, and gifts made within the annual gift exemption do not carry any Inheritance Tax (IHT) implications.

For the current tax year, the annual gift exemption is set at £3,000 per person, which means that you can gift this amount to one person, or make a number of gifts up to this total. Couples can benefit from making joint gifts, effectively doubling the annual gift exemption to £6,000. In addition, if you haven’t used the gift exemption in the previous tax year, you can carry forward any unused allowance; however, this can only be done for a single tax year.

Gifts with a greater value than the annual gift exemption are also potentially exempt from IHT, as long as the individual making the gift survives for seven years after the gift has been made.

The end of the tax year is, therefore, an ideal time to assess whether you wish to make gifts, so that available allowances are maximised.

Other Tax breaks

There are many other smaller tax breaks that can add up and minimise the amount of tax that you pay. As with many tax allowances, the end of the tax year presents a call to action to avoid missing out on potential tax savings.

Those who are married or in a civil partnership could benefit from the marriage allowance. This is only effective if one partner earns below £12,570 per annum, and the other pays tax at basic rate. The non-taxpaying partner could transfer £1,260 of their personal allowance to the taxpaying partner, which would mean an income tax saving of £252. You can also potentially claim the allowance for the last four tax years, if you were eligible and did not claim.

It is also worth reviewing your income position in relation to the Child Benefit High Income Charge. Making pension contributions could be an effective way of reducing net income so that a lower charge is applied, or removed completely.

Get the right advice

As we have identified, there are many opportunities to take decisions to maximise tax efficiency, many of which could be lost if not used before the end of the tax year. Successful financial planning is, however, far more involved than simply ensuring your investments and savings are tax-efficient, and this is where engaging with a financial planner can help assess your financial priorities and make sensible plans for the future. Speak to one of our experienced financial planners to carry out a review of your financial position and consider any actions that need to be taken.

It is fair to say that monetary policy decisions taken by central banks have been a leading driver of market sentiment since the start of the Covid-19 pandemic. Investors have been keenly watching for signs that UK interest rates would begin to fall, after the rapid series of hikes during 2022 and 2023 pushed base rates from 0.15% to 5.25%.

The first sign that a rate cut may be on the cards followed the Bank of England’s Monetary Policy Committee (MPC) meeting in February, which saw the vote split three ways, with six members voting to keep rates on hold at 5.25% and two members voting to hike rates further, to 5.5%. One Committee member voted to cut rates to 5%, the first such decision  since the MPC started to raise rates in December 2021.

Central banks fuel market rally

Both the MPC and the US Federal Reserve changed their language in the final quarter  of 2023, which suggested the battle with inflation was nearing an end. This led to a sharp rally in both equities and bond markets, as investors welcomed the prospect of easier monetary policy. US bond markets began to price in multiple rate cuts, with the first coming as early as March, and UK Gilt yields also fell on the prospect of imminent central bank action.

Since the start of the year, however, investors have had to temper the expectations of rate cuts. US economic data continues to prove highly resilient, with GDP growth remaining strong. As a result, bond markets have reacted to the stronger-than-expected data by paring expectations of multiple rate cuts, and pushing back the start of the rate cutting cycle to June.

It is a similar story in the UK, where Gilt yields have risen back towards level seen in November 2023. This is despite the news that the UK economy fell into recession at the end of last year, and it is clear that the higher borrowing costs are affecting consumer confidence.

Inflation – one of the primary reasons for the rate hikes seen over the last two years – has fallen back from a peak of over 10% in October 2022 to stand at 4% in January, and economists expect inflation to fall further towards the target of 2% over coming months. Recent comments from Bank of England Governor Andrew Bailey have indicated that the Bank do not need to see inflation reach their 2% target before action is taken to cut rates.

Over the medium term, the MPC’s projections show lower base rates are likely. Forward market interest rates imply a rate of 3.9% in 12 months’ time, and 3.3% by the start of 2026. These projections are, of course, subject to revision, although it is interesting to note that the rates projected for early 2025 and 2026 have been lowered somewhat from the Bank’s own projections just three months earlier.

The MPC are, however, making no comment on the pace of rate cuts, or indeed when the first cut will arrive. One reason behind this may be the potential for global events to cause inflation to spike again. In the wake of the Red Sea attacks on global freight, the cost of shipping has increased significantly since the start of the year, although costs have moderated a little over the last couple of weeks. The increased cost of shipping, and delay caused by ships using sub-optimal routes, could be inflationary. The wider conflict in the Middle East could also cause oil prices to jump, which would feed into higher prices generally.

How investors can take advantage

Prevailing and expected interest rates and inflation data have an important role in determining the performance of corporate and government bonds. Higher inflation, and interest rate increases, make bonds look less attractive, as higher rates on cash deposit mean investors will demand a higher return from bonds to compensate for the additional risk over cash.

In order for bonds to remain attractive, they need to pay a higher yield to compete with cash interest rates, and as bonds pay a fixed rate of interest, prices fall as yields rise. Both UK and Global bond prices fell sharply during 2022, as markets expected higher interest rates. Conversely, as markets now expect interest rates to fall, this may well prove to be positive for bonds, where yields become increasingly attractive compared to falling cash interest rates.

We feel that bond investors do, however, need to take a sensible approach to how their portfolios are allocated. A weakening global economic outlook could increase the rate of default on lower quality bonds, where the most attractive yields can be found. Whilst longer duration bonds may be the most sensitive to changes in interest rates, they are likely to be more volatile and susceptible to any disappointment in the pace or timing of rate cuts.

Lower interest rates also impact equities markets, but to a lesser extent. A drop in the cost of borrowing may well be welcome news for heavily indebted companies, and equities generally feed off the boost in sentiment that less restrictive monetary policy could bring. Expectations of lower rates have been the main catalyst in the sharp rally in equities this year, particularly in the US.

Diversification matters

Markets are at an interesting point in the investment cycle, where the prospects for improved performance from bond markets are competing with positive momentum in global equities. We feel these are conditions where a well diversified portfolio could perform well.  Cash will always remain an important element of any sensible investment plan; however, this brief period of strong returns from cash deposit may be close to ending. Whilst we do not expect interest rates to fall back to pre-pandemic levels in the medium term, cash is likely to be less attractive when compared to the opportunities for superior returns from asset markets.

We believe this would be a sensible time for those holding significant allocations on cash deposit to consider alternative options. Our experienced financial planners are on hand to provide tailored and independent advice on how to best construct an investment portfolio to meet your needs and objectives.