FAS

Irrespective of our age, financial obligations shape the decisions we reach on a day-to-day basis. For those with young families, the cost pressures of mortgage or rent payments, childcare costs and household bills undoubtedly take priority, and it is easy to consider longer term financial objectives, such as retirement planning, as being something that can be put off until later in life.

This is reinforced by the results of a survey carried out by the Department for Work and Pensions, published in 2022, where 2,655 people aged 40-75 were asked a series of questions relating to retirement and providing income in later life. Of those surveyed, 24% did not hold a private pension at all, and 16% had not started saving for retirement.

The reality is that failing to take control of your financial future at an early stage can lead to missed opportunities, which could compound over many years, and potentially lead to a less comfortable retirement. There are, however, a number of steps you can take to improve your financial future, and working out a financial plan with a regulated financial adviser can help you achieve your longer-term goals.

Take control of pensions

With the introduction of auto-enrolment, most employed individuals now hold and contribute to a workplace pension scheme. Indeed, as individuals move jobs, most accumulate a number of pension arrangements during their working life. Holding multiple pension plans can make understanding the overall value of pension savings, and the potential income in retirement they could provide, more complicated. Furthermore, keeping abreast of the performance of defined contribution pension funds is more difficult across multiple plans.

This is a crucial point, as the difference between strong performing investment funds, and those offering an average performance, can compound over years and lead to a significant difference in the accumulated value of your pensions, and the level of income that can be generated, at the point of retirement.

Default pension funds tend to produce broadly similar returns irrespective of the pension provider; however, taking an active role in selecting good performing investment funds can produce a significant improvement over the performance of the default pension option. Many pension arrangements now offer “lifestyle” options, which automatically reduce the level of risk as you near retirement. This automated approach may not be appropriate for the options you wish to consider at retirement and doesn’t take into account prevailing investment market conditions or economic prospects.  By engaging with a financial planner, an impartial assessment of your arrangements can be undertaken, which can help identify weak performing funds and allow changes to be made to improve performance or align the portfolio with your tolerance to risk and other preferences.

Performance is only one aspect where financial planning can assist in producing a better outcome. The charges levied by some pension contracts, particularly older style arrangements, can be expensive compared to modern platform-based plans, and these additional costs can be a further drag on investment growth within the pension fund.

Plan ahead to retire earlier

The State Pension age continues to increase and in our experience, many do not wish to continue working until their State Pension becomes payable. Engaging in the financial planning process at an early stage can make the possibility of retiring early a reality. Increasing the amount contributed earlier in life means that the contributions have longer to grow, and working with a financial planner can help adjust the contributions over time to ensure that they are affordable and invested appropriately.

Tax planning throughout your life

Tax relief received on pension contributions is one of the key benefits that sets pensions apart from other methods of retirement planning. Most individuals can get tax relief at their marginal rate of tax on pension contributions up to the annual allowance, which is currently £60,000 or 100% of relevant earnings if lower, although lower allowances apply to higher earners or those who have drawn a flexible income from their pensions.

Not only does the tax relief received on contributions provide a boost to growth in pension value, it can also help you avoid falling into a tax trap. One such example is the income tax charge that applies to people in receipt of Child Benefit, where either their income (or their partner’s income) is more than £60,000 per annum. Pension contributions made by an individual will have the effect of reducing the adjusted net income amount and potentially help avoid the income tax charge. Similarly, the 60% tax trap on income between £100,000 and £125,140 per annum can be avoided by making pension contributions to reduce adjusted income.

It isn’t just pensions where careful planning can yield tax advantages. Many people are finding they are paying more income tax on savings and investments due to static tax bands, and the reduction of the Capital Gains Tax (CGT) annual exemption is leading to more individuals paying CGT on the disposal of investments. By using tax advantaged vehicles, such as an Individual Savings Account (ISA), savings and investments can be sheltered from Income Tax and CGT.

Engaging with a financial planner can help identify opportunities to save tax throughout your working life, with each step towards greater tax-efficiency ensuring that your assets work as hard as possible to achieve your financial goals.

Don’t forget protection

One area of financial planning that is often overlooked is the need to protect your family’s finances, should an unforeseen event, such as death or serious illness, occur. Focusing on planning for retirement is all well and good; however, the best laid plans could be seriously compromised should the worst happen. It is important to ensure that adequate life cover is in place, and other forms of protection, such as Critical Illness cover, should be considered, too. It is also important to make a Will, to ensure your wishes are laid out, and ease the burden on loved ones. What is often not considered is that your Will can be a powerful tool that can be used to aid tax and estate planning.

Summary

With life’s pressures, younger people may be tempted to put off planning for retirement until later; however, in our experience starting a sensible financial plan at an early age could provide a more comfortable retirement. Engaging with a financial planner can also bring peace of mind that your financial circumstances are being reviewed regularly and promote tax-efficiency across your financial arrangements.

Our expert financial planners are independent, and can provide unbiased advice using a holistic approach, which takes into account retirement savings, investments, protection and other financial planning objectives. Speak to one of the team to arrange a review of your retirement savings or investments.

Decisions taken by central banks have been one of the main drivers of global market direction over recent years. Following the outbreak of the Covid-19 pandemic, interest rates around the World fell to ultra-low levels as policy makers attempted to stimulate demand amidst the global lockdowns. Just over a year later, interest rates began rising across Western economies to combat an inflationary spike, that saw UK Consumer Price Inflation (CPI) peak at 11.1% in October 2022.

As expected, inflation has fallen to more modest levels in most Western economies, and the UK is no exception. In the 12 months to April 2024, CPI has returned to 3.2% and is expected to continue to fall over the course of this year, potentially moving lower than the Bank of England’s own target of 2% by the autumn, although risks remain that inflation could modestly rebound in 2025.

Given the expected course of inflation, pressure is mounting on the Bank of England Monetary Policy Committee (MPC) to reduce the cost of borrowing and ease the burden on households and business alike. Of course, inflation isn’t the only indicator that the Bank are closely monitoring. The UK returned to growth in the first quarter of 2024, and GDP growth expectations have increased for the remainder of this year. Recent unemployment data was worse than expected and retail sales for April were very disappointing, suggesting consumer confidence remains weak. Understandably, the Bank do not wish to cut rates substantially, only to stoke the inflationary fire once again.

On balance, taking recent data and central bank comments into account, there is a large consensus that base rates will be cut in the next quarter.  Indeed, at the last meeting of the MPC on 9^th May, two members of the Committee, including the deputy governor Sir David Ramsden, voted to cut rates by 0.25%, with the other seven voting to keep rates on hold.

Source of Data: Bank of England

Bond markets are already beginning to price in a series of rate cuts over the next 12 months, with yield curves implying one or two cuts to the base rate in 2024. The outlook for rates has impacted the mortgage market, where lenders have been making modest cuts to five year deals, and in fixed-rate savings bonds, where rates being offered on one and two year fixed-rate bonds have also fallen from their peak.

The impact of rate cuts

When interest rates move lower, media focus will be targeted on the impact of the cuts on households. The outcome of falling interest rates on household budgets is generally well understood. For those with variable rate mortgages and loans, cuts in the base rate could lead directly to a fall in interest payments on a monthly basis. In turn, this could have a positive impact on discretionary expenditure, and lower rates could also encourage consumers to take on credit, from mortgages to car and personal loans. Consumers also feel more comfortable carrying a higher debt burden when interest rates are lower.

Those with savings begin to see a fall in the interest they receive on their variable rate accounts, and this may encourage those with accumulated savings to spend, potentially providing a boost to economic growth.

What is less understood is the significant impact underlying and future interest rates have on business, and in turn the health of the economy. Whenever the base rate changes, this affects the rates charged by banks on commercial loans, which tend to be arranged using a variable interest rate. The rapid succession of rate increases from the end of 2021 to August 2023 not only raised interest costs on existing business borrowing, but also has the effect of deterring businesses from taking on additional debt, further suppressing economic expansion.

How markets may react

Monetary policy decisions taken by central banks are one of a number of variables that dictate the progress and direction of financial markets. Cuts to base interest rates are generally perceived as being positive for both equities and fixed income securities. Equities benefit as companies can reduce their borrowing costs and more easily fund expansion. Depending on the sector, company profits may also benefit from more buoyant consumer confidence. Those companies who carry the highest level of borrowing tend to benefit the most from falling interest rates, which helps explain the recent strong performance of high growth companies, such as those involved in new technology, who tend to be highly geared.

The performance of bonds is directly linked to the future path of interest rates. As base interest rates increase, existing bond prices tend to fall, as investors can choose other options that offer a higher rate, such as newly issued bonds, or cash. The rapid increase in base rates during 2022 and 2023 proved to be very painful for bond investors, and saw bond prices retreat. The inverse is true when rates fall, as existing bonds offering higher rates look increasingly attractive compared to cash or bonds issued at a lower rate.

It is important to note that markets are forward looking, and have long been anticipating interest rate cuts in the US, UK and Eurozone. Indeed, markets have been frustrated by the slow march toward the expected rate cuts, although some of the concern has been offset by consistently stronger US economic data over recent months. Some of the positive impact of easing monetary policy has, therefore, already have been taken into account.

What action should investors take

As interest rates fall, investors would be wise to consider reviewing their existing financial arrangements in light of the changing landscape. Whilst cash has provided savers with attractive interest rates over the last 12 months, it is likely that savings interest rates will fall over the next two years, and those holding excess deposits on cash may do well to consider alternative options.

We feel a falling interest rate environment should prove positive for both equities and bond markets, and despite the strong performance seen since last autumn in anticipation of central bank action, the prospects over the medium term remain positive. Given the expected impact of a shift in monetary policy, this may be an ideal time to take another look at how your investments are positioned. Speak to one of our experienced financial planners to discuss the impact of falling interest rates on your investment portfolio.

In a little over a month, the UK will head to the polls in a much-anticipated General Election. The announcement by Rishi Sunak to call a General Election for 4^th July caught many observers off guard. Whilst not unprecedented, summer elections are rare, and many were expecting the Tory leader to call an election in the autumn or winter.

Thus far, market reaction has been muted, which is not surprising, given the relatively limited impact domestic politics can exert over global markets. It is important to recognise that global factors carry greater significance, with the Middle East, Ukraine and US economic policy decisions likely to provide greater direction than political decisions at home.

As both major parties begin to firm up their manifestos ahead of the election, one major theme adopted by both sides will be the importance of financial prudence. Whilst the economic outlook is improving, with UK GDP returning to growth in the first quarter of 2024 and inflation falling, the adverse market reaction to the mini-Budget in 2022, which caused Sterling to fall heavily and gilt yields to rise sharply, will be fresh in the minds of both parties when making spending pledges. Whether Jeremy Hunt remains as Chancellor of the Exchequer, or Rachel Reeves takes up the role, both are likely to tread carefully when announcing policy decisions over coming months.

Can history provide any clues?

To help understand how markets have reacted historically in the period immediately after UK General Elections, we have undertaken research looking back at the performance of the FTSE All-Share Index, which is the broadest measure of performance of UK quoted companies and captures 98% of the UK market capitalisation.

Our analysis shows that UK markets have historically produced a similar performance over the longer term under both major UK political parties. Looking at the tenure of each major party since 1997 (and not including the coalition government from 2010 to 2015) the average total return per annum (including dividends reinvested) from the FTSE All-Share index has been broadly similar under both a Conservative and Labour majority government.

The FTSE All-Share index has returned an average total return of 7.54% per annum under the Conservatives and 6.94% under Labour. Naturally, each period of control has encountered factors that have influenced global markets, such as the Global Financial Crisis of 2007-8, or the Covid-19 pandemic; however, it is interesting to note the broadly similar trend over time, irrespective of whoever is in power, which indicates – at least historically – that politics has little influence over the longer-term market performance.

A short-term boost for UK equities?

We have also looked at historic data to understand the potential for the General Election to be a catalyst for stronger domestic market performance in the short to medium term. In theory, an incoming government may be able to introduce greater fiscal stimulus, or boost public spending, as a result of their policy decisions. The same could, however, also be said for an incumbent government, who are emboldened to carry out manifesto pledges.

Our analysis of the UK stock market performance immediately after an election shows a similar trend, with the performance under both major parties being broadly similar; however, what is notable is the historic strong performance seen in the 12 months immediately after a change of government.

In 1997, when Tony Blair won a large majority for Labour, the FTSE All-Share index produced a total return of 35.6% over the 12 months immediately after that landslide victory. Similarly, under the coalition formed by the Conservatives and Liberal Democrats following the hung parliament in 2010, the FTSE All-Share produced a total return of 17.8% in the following year.

Comparing the returns in election years where power changes hands, to those where the incumbent party remains in power, indicates a marked difference in performance, with an average total return of just 2.5% being achieved by the FTSE All-Share index in the 12 months following a General Election when the ruling party retains power. This does, therefore, suggest that a change of government could prove beneficial for UK equities, at least in the short term.

Should investors be concerned?

Naturally, a General Election can cause uncertainty, particularly when considering any potential changes that will be implemented over the course of a parliament that could affect financial planning decisions. When it comes to market performance, however, we feel the upcoming General Election will have a limited impact, as the direction of UK equities markets continue to be dominated by geopolitics and global events, together with decisions taken by the Federal Reserve in respect of US interest rates. Indeed, we feel the US election in November has far greater potential to influence the direction of UK Equities than our own General Election on 4^th July.

That being said, we feel investors should take the opportunity to assess how their portfolio is positioned, both in terms of asset and sector allocation. Our experienced advisers can take an unbiased look at an existing investment portfolio, to make sure that the portfolio provides adequate diversification and meets your needs and objectives. Speak to one of the team if you have any concerns about the impact of the General Election on your portfolio.

In the first two parts of our “Behind the Scenes at FAS”, we gave an insight into the work of our adept administration and paraplanning teams, who fully support our team of financial planners. This collegiate approach ensures that advisers are afforded the time to spend with clients and pools the many areas of expertise across the firm to provide the best advice and service to clients.

Our team of advisers

The FAS adviser team is office based, although they tend to split their time between the office and attending client meetings, which can either be held at the client’s home or business address, or one of our two offices in Folkestone and Maidstone.

Led by the Directors, our FAS adviser team is made up of highly qualified and experienced individuals, the majority of which have at least twenty years or more experience in advice roles across the industry. We will continue to expand our dedicated team of financial advisers in line with our continued business growth.

Importantly, all of our advisers are employed by FAS on a salaried basis and none of our advisers are set targets for achieving certain levels of fee income. We feel this is of fundamental importance, as it allows our advisers to focus on providing the most appropriate advice and removes any notion of “sales” bias.

We appreciate that the adviser-client relationship often strengthens over time, and each client’s dedicated adviser is their usual main point of contact. It is, however, important to recognise that FAS is a team effort, and if an individual’s usual adviser is not available for any reason, another member of our advisory team will happily step in assist in their absence, wherever possible.

A team of all rounders

Working for an independent advice firm, our advisers need to be able to provide holistic financial advice, drawing on extensive knowledge in many different areas of financial planning. None of our advisers are “specialists” as each needs to be able to provide a high level of technical advice in a range of diverse areas, depending on the needs of a client. Typical planning requirements are pensions, investments, tax planning, divorce planning, trusts, and business planning. Other areas of expertise are also required, when client circumstances call for planning advice on personal and business protection, funding care fees or school or university fee planning.

An adviser’s role

As the name suggests, the primary element of an adviser’s role is to provide financial advice! This is either given during an initial, or review meeting, which is conducted face-to-face or through Zoom or Teams. During a client meeting, advisers make contemporaneous notes of the conversation and complete a detailed fact find, gathering the necessary information to be able to provide the most suitable advice. These notes and information are then logged as an ultimate record of the meeting.

Advisers also spend time each day dealing with client email correspondence and telephone calls. They regularly speak to Solicitors, Accountants, and other professionals in relation to queries which are relevant to mutual clients. We are strong advocates of this collaborative way of working, as it ensures that clients receive cohesive advice across common areas.

Working closely with our paraplanners and administration team, our team of advisers assist in the preparation of client reports following meetings, and ensure that comprehensive meeting preparation is undertaken before a client meeting takes place.

Highly qualified advice

To provide advice of the highest quality, the Directors place significant emphasis on study, learning and the achievement of relevant industry examinations.

The majority of our advisers have achieved Chartered status, which means that they have attained the highest standard of qualification in the industry, with others on a study path to achieving Chartered status. Being Chartered is not only an indication of technical competence, it also signifies an individual commitment to professional standards. Only a small proportion of the regulated financial advisers in the UK have achieved this status.

FAS follow a strict regime of continuing professional development, so that staff can keep themselves fully abreast of changes in legislation and reinforce their knowledge. Advisers are subject to an enhanced continuing professional development requirement and need to undertake a prescribed number of hours of learning each year, which includes structured learning.

FAS has also been awarded Corporate Chartered status in recognition of our commitment to professional excellence and integrity. Industry gold standards are not awarded lightly; the Chartered Insurance Institute sets this benchmark at the highest level based on advanced qualifications, an overall commitment to continuous professional development and adherence to an industry standard Code of Ethics. Our corporate title is not simply recognition for passing examinations or paying an annual fee; it is a public declaration of our commitment to excellence and quality in everything we do.

Product knowledge

A key element of an adviser’s role is to ensure that the most appropriate solution is recommended for a particular individual set of client circumstances. As an independent firm, we can recommend solutions without constraint, and therefore our advisers need to have an extensive knowledge of the features of products from across the marketplace and keep up to date with product and industry developments.

FAS – a team effort

Our diverse team consists of experienced, high qualified Advisers, Paraplanners and Administrators who, over the years, have been handpicked for their dedication, team spirit and client-centric focus. We all work closely together for the good of our clients. We prioritise client relationships, ensuring our focus is to always provide quality advice and exceptional service. All staff are integral to the running of the business and there is a mutual respect amongst colleagues for the role everyone plays.

Our experienced adviser team are committed to providing sound holistic financial planning advice. We are proud of our independent status, which enables our advisers to recommend the most appropriate solution to suit the needs of our clients. Whilst the advisers will be the main point of contact for our clients, the advice process is a team effort, requiring the skills and input of our paraplanning and administration teams.

We hope this article helps to reinforce the collegiate nature of our business and welcome any comments or queries you may have.

Many outside of our industry may not be familiar with the role of a paraplanner within a financial services firm. The National Careers Service defines a paraplanner as an individual that helps a financial adviser with technical and administrative tasks. Whilst this may be true, this definition barely covers the varied and highly skilled work undertaken by our own paraplanning team, which is integral to the continued success of the business.

Our paraplanning team

The FAS paraplanning team is office based and consists of seven staff split across our Folkestone and Maidstone offices. Boasting many years of combined industry experience, the team provide vital support in all aspects of the business, from report writing to financial analysis and calculations. We continue to strengthen our dedicated team of paraplanners to support growth in the business.

FAS paraplanners

It is fair to say that the paraplanners at FAS need to be skilled in several areas, as these various strengths are called upon daily depending on the nature of the job in hand. Primarily, the FAS paraplanning role is to compile client recommendation reports following adviser meetings. Working closely with the advisory team, our paraplanners have a major input in the preparation of the report letter, together with the collation of supporting documentation, such as illustrations and key features documents.

Our paraplanners often engage with clients in relation to reports that have been issued, and as a result, many FAS clients may well become familiar with some of our paraplanning team through direct contact.

A key element of the paraplanner’s role is to undertake the necessary research and analysis to support the recommendation being made to a client, involving the use of industry leading financial research software. The team often liaise with product providers to discuss how an investment is implemented whilst obtaining the necessary forms or documentation, as required.

As an independent firm of advisers, we can recommend financial solutions from across the whole of the market. Our paraplanning team take full advantage of our independent status when preparing recommendation reports by comparing a wide range of product costs and features, which are then discussed with advisers before completing the report.

Once a client proceeds with a recommendation, it is the responsibility of the paraplanner to check the returned signed documentation and notify our administration team of any important considerations, so that the implementation stage goes as smoothly as possible. There is ongoing daily communication between our paraplanning and administration teams to ensure adviser/client needs are adhered to and service standards remain high.

Qualified support

To ensure that the highest level of technical knowledge and support is given, all our paraplanners are at least Diploma qualified – the Chartered Insurance Institute’s Diploma requires the student to pass six examinations, covering all areas of financial advice, including regulation and industry ethics.

In fact, several of our paraplanners have reached Chartered status, which means that they have attained the highest standard of qualification in the industry. This helps demonstrate the importance we place on delivering the very best advice from highly qualified individuals.

FAS follow a strict regime of continuing professional development to ensure its staff keep themselves fully abreast of changes in legislation and reinforce their technical knowledge. Our paraplanning team are required to undertake a prescribed number of hours of learning each year, covering a wide range of topics. This ensures our paraplanners keep up to date with any changes in taxation rules, as well as regulatory requirements and compliance.

Meeting preparation

Our paraplanners often assist advisers in preparing the necessary documentation for a client review meeting. We provide a robust review service, and preparation is needed in advance of a meeting, so that an adviser has access to detailed performance return calculations and supporting evidence to aid discussion with a client. The paraplanner’s role here is not just limited to gathering and collating data, as advisers and paraplanners will work together to discuss financial planning opportunities that may require discussion at a client meeting, and the preparation of a meeting agenda.

Technical expertise

We often find that our clients have complex financial circumstances, where finding the right solution and strategy is key to successful financial planning. Our paraplanning team use their technical skills to prepare tax calculations, cash flow analysis and formulate strategic plans, in conjunction with the lead adviser, to ensure that the most appropriate recommendation is made to a client. Often specialist knowledge is required, for example where Trust planning or Inheritance Tax mitigation is the desired course of action.

Dealing with compliance

Compliance with regulatory requirements is a vital and necessary part of the role of a paraplanner. Our paraplanners need to ensure that recommendation reports are produced in a compliant manner, and that record keeping of the analysis and research undertaken to support a recommendation is correctly documented.

A team effort

The paraplanning team at FAS play a key role in the business, assisting advisers with key research, analysis, meeting preparation and the writing of recommendation reports issued to clients. Working in conjunction with our administration and adviser teams, our paraplanners also provide vital support to all other areas of the business, such as collating tax return information for accountants and portfolio details for probate cases.

We hope you have enjoyed this further look behind the scenes, and in the next and final part of the series, we will focus on our adviser team.