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Businessman at a crossroads

Sticking to the Path may not be the best option

By | Investments

Investment Pathways for Retirement Planning is a new initiative launched by the Financial Conduct Authority (FCA) in February 2021, designed for people who wish to draw their pension under a Drawdown arrangement, without first obtaining regulated financial advice. As we will explore, one size does not fit all, and forging your own bespoke path, whilst taking ongoing advice, may well lead to better outcomes.


Taking a flexible approach

Flexi-Access Drawdown is an alternative to the purchase of an annuity, which provides much greater flexibility in terms of how income is drawn in retirement. It is increasingly popular, as it can offer the potential for individuals to use their pension savings to best fit their needs and objectives, but unlike a pension annuity, does not provide a guaranteed income for life. As the pension fund continues to be invested throughout retirement under Drawdown, investment decisions and careful management of the fund are critical components of a successful Drawdown approach. Personal responsibility for the long-term viability of the pension drawdown plan rests with the pension holder, hence the importance of receiving initial advice on the level of income drawn and investment options, and reviewing the plan regularly to ensure that it continues to meet the initial objectives.


Choose a Path?

The idea behind Investment Pathways is to create four default investment routes for individuals who have already taken Tax Free Cash from their pension, leaving the remaining funds in Drawdown. The FCA hope the initiative will reduce the number of individuals, who decide to enter Drawdown without receiving advice, making poor investment decisions, such as leaving significant funds in Cash for the long term, or taking excessive investment risk.

Four Paths have been defined, with the first being aimed at those who have no intention of drawing an income in the next five years. This strategy is largely aimed at growth over the medium term. The second Path is designed for those who wish to purchase an annuity in the next five years and will aim to preserve capital. The third is for those who are considering drawing income in the medium term and will aim to provide a balanced approach. The final Path is for those who are looking to draw the full value of their pension in the next five years, and again aims to preserve the capital value.

For each defined Pathway, pension providers will produce a ready-made investment portfolio which aims to meet the objective of the Pathway, which is where we feel the proposals may begin to fall short of their objectives.

The majority of providers offering these Pathways are using a single passive investment fund, with no ability to vary the investment options within the Pathway selected. This limits the scope for an individual to select alternative funds within an individual Pathway, or to access funds that meet their own preferences, for example, to invest in a socially responsible manner.


Bespoke is best

But more importantly, the Pathways do not take into account an individual’s financial circumstances, objectives or attitude to investment risk. This is a vital element of the advice process that is missed by using this automated approach. Take an individual who prefers to take a cautious approach to investment as an example. They choose the third of the fourth automated pathways, as they are considering drawing income from the pension in the next five years. In this scenario, they could experience an increase in investment risk and volatility over their existing arrangements they held before entering the Pathway approach, which they may not be aware of, or may be contrary to their wishes.

Conversely, an individual who chooses the Pathway towards taking the full value of their pension in the next five years (option four) would be placed largely in a Cash fund with most providers, where negative real returns are more than likely to be achieved when charges, and the eroding effects of inflation, are taken into account. We don’t imagine someone who is planning to draw their fund out in five years’ time will be pleased to be missing out on the potential for investment returns over this period, even if they were taking a cautious investment approach.


Tailored to your needs

We understand the Regulator’s concerns. Without proper advice, individuals could leave their pensions in Cash over the longer term or take excessive risk with their pension arrangements, neither of which are likely to be appropriate. However, we feel that Investment Pathways are too rigid and inflexible for most individuals with at least modest sized pension plans, who are considering Flexi-Access Drawdown as an approach to retirement planning. For these individuals, we believe that Investment Pathways are no substitute to taking an alternative path, via independent advice, that is tailored to their own circumstances and objectives. Furthermore, regular reviews of any Drawdown are of high importance, to ensure the approach remains appropriate to any future change in circumstances.


If you are considering your retirement planning and would like to discuss your options with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice. 

Yellow note pad with 'Intestacy' on the front

Intestacy rules – why making a will is so important

By | Financial Planning

We often see situations where individuals haven’t made a will and are unaware of the potential consequences of leaving the laws of intestacy to determine the destination of their estate. As October is Free Wills Month, we thought this an ideal opportunity to remind our readers of the importance of making a will.

Free Wills Month is an initiative where a number of leading charities offer members of the public over the age of 55 the opportunity to prepare or change a simple will free of charge, by using a participating Solicitor.

Just under half of the UK population have not made a will, which is a frightening statistic given the potential issues that can arise by relying on the laws of intestacy, which are a standard set of legal rules that apply if an individual dies without having made a valid will. Who benefits from an intestacy depends on a strict order based on family connection, rather than which family member is most in need. It is important to note that these rules differ for estates covered by Scottish Law.


Intestacy rules

For those who are married, or in a civil partnership, the surviving spouse or civil partner will receive the full value of the estate, unless there are surviving children. In this instance, the surviving spouse or civil partner will receive the first £270,000 of assets, with the remainder of the estate being divided in half. The surviving spouse or civil partner receives an absolute interest in one half of the remainder, with the other half divided equally between surviving children.

The situation is even more complicated for those who are unmarried. For anyone dying intestate with children (either biological or adopted), the children will inherit the estate at the age of 18, with the estate divided between children equally. For anyone dying without being married or in a civil partnership, and without children, assets first pass to any surviving parents, and then to siblings (if parents are deceased) and then to grandparents (if alive) and then to wider blood relatives, such as aunts and uncles. An individual who dies without any surviving family will see their estate being left to the Crown.


Potential complications

As you can see, the intestacy rules are complicated enough, without considering how they haven’t kept up with the way modern families are living. A particular issue we come across regularly is couples that have lived together for many years but have not married, and wrongly assume that this affords each other protection under the law. It is crucial to remember there is no such thing as a common-law partner under UK law, and in this situation an unmarried partner of an individual dying intestate would not be left anything under the intestacy rules. This can leave surviving partners in financial difficulty at a time of great distress, and lead to outcomes that differ wildly from expectations. For example, this could mean the unmarried partner being forced to move out of the family home, or funds being left to an estranged spouse.

A will can also deal with important aspects such as guardianship of children, or how funds are left for minor beneficiaries so that they benefit from any inheritance at the right time. The legal age of majority is 18, however, many would consider 21 or 25 as being more appropriate dates for beneficiaries to receive funds when they are potentially more financially aware and in a position to use the funds wisely for further education costs or a house deposit.

Intestacy also leads to further complications in dealing with the estate. Where a will has been left, this usually clearly sets out the wishes of the deceased, including such matters as funeral arrangements, or how possessions are to be distributed. This is a great help to executors and family members in dealing with arrangements at what is a difficult time. Dying without a will leaves no named executor, and family members or other individuals will need to decide amongst themselves who will be appointed as administrator of the estate.


Ensure your will is up to date

At FAS, holistic financial planning is at the heart of what we do. Whilst we do not write wills, we regularly remind our clients of the need to both prepare a will, or ensure an existing will is up to date and reflects an individual’s wishes as part of a wider review of their financial planning objectives. Not having a valid will, or holding a will that is out of date, could potentially undermine financial planning strategies, or potentially lead to higher levels of tax being paid.

In conjunction with reviewing existing wills, or preparing a new will, it is also very important to ensure that an ‘expression of wish’ for any existing pension arrangements is similarly up to date.

On the death of anyone holding a personal pension arrangement, it is a common misconception that the residual pension also passes in accordance with their will. This is not the case, and the pension trustees can choose who will benefit from the pension arrangement. They will, however, consider an ‘expression of wish’ left by the deceased pension holder, which sets out how the pension holder would like the benefits to pass in the event of their death, when deciding who receives benefits from a pension.


Make a will this month

Make this month the time to make a will. As part of our holistic planning service, we constantly remind our clients of this important step, ensuring assets accumulated during a lifetime are left in accordance with your wishes. Leaving matters to the laws of intestacy may not achieve the desired outcome and could cause financial distress at an already difficult time.


If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only. It does not constitute investment advice or financial advice. 

Woman looking at investment figures on her mobile phone

Why time in the market is better than timing the market

By | Investments

Since the advent of electronic day trading, it has become increasingly popular among do-it-yourself investors to trade stocks on a short-term basis, hoping it will lead to spectacular returns. But trying to time the market is a risky gamble where the odds are seldom in your favour.

We’ve probably all thought about what life could have been like if we had invested a few thousand pounds the day after the ‘Black Monday’ stock market crash in 1987, or after the global financial crisis in 2008, or even during the lowest point during the COVID-19 pandemic in March of 2020 when stock markets fell heavily due to concerns about the global economy shutting down. These are the kind of hypotheticals that get people excited about the rewards associated with investing, and they are all examples where ‘timing the market’ would have paid off handsomely.


What is ‘timing the market’?

Timing the market is an investing strategy where investors hope to make profits by identifying the best times to buy investments, and the right times to sell them. The most popular advice associated with timing the market is the well-worn catchphrase: “buy low, sell high”. While that advice isn’t wrong exactly, the difficulty with trying to follow it is this: how can you be sure of when prices are low enough to buy, and high enough to sell? The simple answer is you don’t. You can only make a judgement based on your limited knowledge at the time. Just because you think something is priced at its absolute lowest, that doesn’t mean it won’t get any lower. Similarly, plenty of people have sold stocks at a point where they felt their value couldn’t get any higher, only for it to do precisely that.

The other great piece of advice about market timing comes from Warren Buffett: “Be fearful when others are greedy, and greedy when others are fearful”. The challenge with this wisdom, of course, is that it’s incredibly hard to do the exact opposite of what everyone else is doing.


Is timing the market achievable?

Cheerleaders for timing the market will tell you that it is possible to forecast the highs and lows of investment markets and that doing so will result in greater investment returns than available through more conservative strategies. However, in our view, timing the market is a risky strategy that leaves investors potentially exposed to volatility and unpredictable events that a more sensible investment approach will navigate relatively easily. At FAS, we work closely with our clients to help them grow their wealth by staying invested in the market, and we discourage our clients from thinking they can simply buy and sell their way towards long-term wealth.


Why is timing the market risky?

One of the biggest downsides to timing the market is that the timing is fiendishly difficult to get right. Getting it wrong means potentially missing out on the days when being invested in the market works firmly in your favour.

One of the most common market timing ‘missteps’ DIY investors often make is to pay attention to negative headlines and sell their equity investments ahead of an expected market ‘correction’ (a correction usually occurs when investments appear overvalued and subsequently fall by more than 10% but less than 20%). But the timing of a correction is never easy to predict. While the investor is sitting on the sidelines waiting for markets to fall, they could be missing out on a period when investments continue to rise.

This market timing error is often compounded by the investor – who has grown increasingly frustrated at missing out on returns – deciding to jump back in and start rebuying equities at the higher prices, only to then suffer even greater losses when the correction occurs. In such instances, staying invested and riding out the correction would have been a wiser, more profitable – and less stressful – course of action!


So what’s the alternative?

In our view, buying and holding a well-diversified collection of investments is a much more effective strategy over the longer term, and the research confirms it. A recent study by investment firm Schroders calculated the benefits of staying invested in the market over long periods, compared with attempting to time the market by dipping in and out. Their research included looking at the performance of the FTSE All-Share and FTSE 250 indices since the beginning of 1986.

If an investor had invested £1,000 evenly across the companies listed on the FTSE 250 back then and held their investment to January 2021 (a 35-year holding period) according to Schroders that grand could have been worth £43,595. Over the same period, if the investor had timed the market, and missed out on the FTSE 250’s best 30 days, Schroders estimated the same initial investment would be worth just £10,627, a shortfall of £32,968 (not adjusted for the effect of investment charges or inflation).

Schroders also revealed that buying £1,000 of FTSE All-Share stocks over the same timeframe would have resulted in the investment increasing in value to £19,452 provided it was held throughout the period. Alternatively, dipping in and out of the market, and missing out on the best 30 days means that £1,000 would only be worth £4,264 some 35 years later.

Of course, no one has a crystal ball that can tell them whether tomorrow will be one of the best days or worst days. And the irony with stock markets is that many of the ‘best’ days in return terms have followed shortly after some of the worst. That’s why the most sensible approach, and to prevent you from missing out on valuable potential returns, is to stay ‘in’ over the longer term, along with reviewing your investments regularly to check on their progress.


Staying the course

So, when it comes to managing your wealth, and investing with the aim of achieving long-term objectives, we think it’s important to take luck out of the equation, and that ‘staying the course’ will give you every chance of success. Choosing to ‘buy and hold’, doesn’t mean ignoring your investments, instead it’s about having a plan and sticking to it, even when things look rocky. The best way to do that is to agree on a long-term financial plan with us, that gets reviewed on a regular basis to ensure it remains on track.


If you are interested in discussing your investment strategy with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only. It does not constitute investment advice or financial advice. 

Close up of someone's hands planting a tree in the soil

NS&I Green Bonds – worth the wait?

By | Investments

This year’s Budget saw Chancellor Rishi Sunak announce the Government’s intention to start raising finance to fund projects designed to tackle climate change, and make the environment greener and more sustainable, by issuing Green Bonds. But are these Bonds worth the wait, or should environmentally conscious investors look to alternatives?


Ready to launch

Following the initial announcement of the Green Savings Bonds, further details have emerged over the Summer. The Bonds will be issued by NS&I (National Savings) later this year (although no firm date appears to have been set for the launch) and will have a fixed three-year term. It appears there will be no option to access funds during the fixed term, following an initial cooling off period of 30 days. The Bonds will be open to investors aged 16 or over and will require a minimum investment of £100 and allow a maximum investment of £100,000. The Bonds will not be available through an Individual Savings Account, and interest will be paid gross. This means for individuals who have already used their Personal Savings Allowance to cover other savings interest, interest could be liable to Income Tax.


An interesting proposition?

The key announcement that investors are waiting for is the interest rate that will be offered by the Green Savings Bonds. Despite the green credentials, we feel this factor alone will largely dictate the success or otherwise of this initiative.

Many savers and investors will recall the Guaranteed 65+ Bonds, which were the last major product launch by NS&I. Forming a major part of the 2014 Budget announcement, these Bonds were launched in January 2015 and were only open to investors over the age of 65. The Bonds were offered for terms of one and three years, and were a roaring success, selling out in a matter of weeks. The reason for their success was the attractive rates of interest offered, with the one year issue paying a gross rate of 2.8% and the three year issue paying 4% gross per annum. At the time, this placed the Bonds way ahead of the competition, providing over a third greater interest over the best paying accounts of similar terms.

The Treasury have a difficult decision as to where to pitch the interest rate offered on this three-year issue. At the moment, the highest paying three year Bonds are paying 1.75% per annum and this is significantly higher than the current interest paid by the Treasury on other forms of Government borrowing, such as Gilts. This is one key reason why we suspect that the rate offered by the Green Savings Bond will be less headline grabbing. Furthermore, there are other factors that need to be considered by all cash savers in the current climate.


Inflating away

Increasing inflation is becoming a growing concern for all savers. The Consumer Price Inflation figure for August caught our attention, recording an increase over prices seen in August 2020 at 3.2%. This was a large jump from the 2% announced in July, leading some economists to predict higher inflation still later in the year. There are particular reasons for the spike in the August reading, particularly when you consider that August 2020 saw the “eat out to help out” scheme provide subsidised dining to help the economy recover from the pandemic. Beyond food prices, however, increases in energy and petrol costs, plus supply shortages, may well add to inflationary concerns over coming months.

For savers, this simply heaps more misery for those who have suffered from record-low interest rates since March 2020. Indeed, the landscape for individuals who rely on savings income has been bleak for some time, and there are no signs of the pain easing any time soon.

It has traditionally been difficult for savings income to match the prevailing rate of inflation, leading to a small “real” loss in value for savers. However, the jump in the cost of living seen over recent months means that savers are now set on receiving a deeply negative “real” rate of interest, meaning their savings are rapidly losing their spending power.


Look to alternatives

We have been contacted by many prospective clients, who find themselves in a position where cash savings just aren’t providing adequate returns. For those investors willing to take on a modest level of investment risk, there are alternatives that can look to produce attractive levels of income, with some prospect of capital appreciation over time, which aims to offset some of the effects of inflation.

These strategies tend to hold a good proportion in Fixed Interest securities – Corporate and Government Bonds – which usually offer a fixed interest for the term of the Bond. Whilst these Bonds are not without risk, prospective returns are more appealing than cash savings, and those who wish to invest with a conscience can concentrate their investment in Socially Responsible Bond funds. These Bond funds use screening to only provide loans to companies that meet stated objectives, from avoiding investing in fossil fuels, intensive farming and oppressive regimes, to focusing on those companies that make a positive impact to the environment, community, or human rights.


Stick or twist?

So, should savers hold on for the NS&I Green Bonds, or look to alternatives? As we wait for the announcement of further details from NS&I, the situation for cash investors generally gets more difficult due to inflation. It is, of course, possible that the Treasury offer a very attractive rate on the NS&I Green Bonds, compared to the savings market generally. We think this is unlikely as it could question the prudence of such a move by the Treasury, given that the Green Bonds are essentially another form of Government borrowing.

Perhaps the bigger question is whether cash savers should consider alternative options to try and generate better returns in this period of low interest rates. For those who have a wish to support green issues, alternatives certainly exist to allow investors to try and achieve returns in line with inflation, whilst investing with a conscience.


If you are interested in arranging a review of your existing cash savings or would like to discuss investing with a conscience with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Man and woman at tablet device reviewing finances

The importance of keeping your portfolio under review

By | Investments

Investing for the long term is a mantra that most investors understand, and therefore selecting good performing investments, and deciding on an appropriate asset allocation at the outset of any investment strategy, are fundamental to how the portfolio will perform in the early stages.

However, whilst the initial portfolio may well be appropriate for the conditions of the day, the world keeps turning. As the saying goes “nothing ever stays the same” and that is certainly true for investment markets. It is also the case for our lives, where our priorities, goals, and objectives change over time. For these reasons, reviewing an investment portfolio and strategy on a regular basis is key to ensuring the strategy remains current and appropriate in achieving those objectives.


Investment cycles

One of the main reasons we recommend regular reviews is that market economies revolve around an investment cycle, which means that underlying investment conditions are always evolving. In very simple terms, economies start to grow and move out of recession and then expand to a peak. At this point, the economy becomes overheated leading to a downturn, and eventually falls back into recession and then the cycle starts again. Of course, the mechanics of market economics are far more involved than this, and many factors can affect the length of each economic cycle, the severity of a recession, or the pace of growth during the boom years.

Think back over the last 25 years, and the different market conditions we have seen over that period, from the over-exuberance of the Dot Com boom at the turn of the Millennium to the depths of the Financial Crisis of 2007-2008. Over this time, we have seen very different conditions, from periods that are friendly to risk assets, to times where taking a more risk-averse approach is appropriate to protect portfolio values. And these can change at varying speeds, with the rapid plunge into recession at the start of the COVID-19 pandemic being a recent example.

Clearly, any given investment portfolio is unlikely to perform well in all of these different conditions, and therefore it is important to make sure your portfolio structure is well suited to the conditions of the day and those that are expected to follow, by reviewing the investment mix, structure, and assets held. Simply holding the same basket of investments during all these conditions is unlikely to be optimal and could lead to underperformance over time, together with exposure to higher levels of risk.


Keeping peak performance

Just like economic trends, choosing the right investments is a decision that needs to be revisited regularly, particularly when funds are actively managed. Over the years, fund managers’ reputations are built on their performance, and some achieve star status, having outperformed a particular sector consistently or achieving a stellar performance over a short period of time. But reputations can be damaged just as quickly, and the fund management industry is littered with names of former star managers who have fallen out of favour with investors. Similarly, individual fund managers often move between fund houses and fund objectives can alter significantly over time from their initial brief. In short, following an individual fund irrespective of performance is not likely to achieve a good outcome, and by regularly reviewing your choice of investment funds, underperformance can be weeded out with better performing funds taking their place.


What is your goal?

Every investor has a goal at the outset of an investment strategy. They could be looking to build a long-term investment fund towards retirement, start saving for children’s university costs, or generating an income in retirement. Each of these life stages has different priorities and a single investment approach is unlikely to be suitable for each stage. By keeping the investment strategy, fund choice and approach under regular review, you can help ensure that the appropriate funds are held in your portfolio to help achieve the goal at that particular stage in life.


Tax rules

Over the years, successive governments have made significant changes to the way investments are taxed, and introduced several different tax wrappers, from the TESSA to the ISA, Junior ISA, and Lifetime ISA. By regularly reviewing the structure of your portfolio, as well as the investments, you can take advantage of the most tax advantageous investment approach or undertake a re-structure to make a portfolio more tax-efficient in light of changes to rules and legislation.


Achieve your (re)balance

In a well-tended garden, plants that thrive begin to dominate their space and encroach on others. This is why regularly pruning and re-shaping is needed to keep the space tidy. The same is true for investment portfolios, where funds that perform well get bigger and take on a greater proportion of the portfolio. This can often lead to an increase in risk, and portfolios can quickly move out of line with the original goals and objectives.

By ‘rebalancing’ a portfolio, any positions that have grown too big can be pruned back into shape; however, a good rebalancing exercise needs to adopt a methodical approach, taking into account relevant factors before deciding to proceed.


Time for a review?

Many factors, such as underlying economic conditions, individual fund performance, and changes in circumstances, can knock a particular strategy off course; however, reviewing investment portfolios and strategies regularly can be beneficial in helping you to achieve those ultimate goals and objectives.


If you are interested in arranging a review of your existing investment portfolio or strategy with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Grandad, Dad, and child playing on the sofa

Using trusts for Inheritance Tax planning

By | Tax Planning

If you are thinking about estate planning and passing assets to different generations, establishing a trust is one way of ensuring your wishes are carried out in a tax-efficient manner.

According to the latest figures published by HMRC, Inheritance Tax was one of the few revenue-generating taxes that increased in the 2020-2021 tax year. Inheritance Tax receipts increased to more than £5.3 billion in 2020/2021 compared to the previous year (although below their 2018/2019 peak of £5.4 billion). According to HMRC, this increase is likely in part due to the higher number of wealth transfers that took place during this tax year, and the higher than the usual number of deaths, in part due to COVID-19.

Given the higher tax take and increasing asset values, Inheritance Tax planning is becoming relevant to more and more families. When it comes to Inheritance Tax planning, there are a number of options, which are all worthy of consideration in most circumstances. Each has positives and drawbacks, which is the primary reason why taking independent advice tailored to an individual’s precise situations, needs and objectives, is particularly important in this area. Establishing a trust during an individual’s lifetime is one option that is often a suitable solution.


The history of trusts

Trusts are one of the older forms of English financial and property law, having started life in medieval England, around the 12th century. Historians will tell you that when knights went off to war, a trust was required to implement the stated will of the knight, while at the same time granting power to the person chosen to manage the knight’s estate in his absence.


Common uses for trusts today

Today, trusts are used either to pass assets during an individual’s lifetime or to help determine what happens to someone’s property or assets in the event of their death. Trust arrangements can be particularly useful where large sums of money are involved, or where the family relationships are complicated, for example after divorce or remarriage, or where children and stepchildren are involved. And above all, trusts place controls over who can receive the assets or property, and when they become eligible to receive them.

Lifetime Trusts are useful when individuals wish to ringfence funds for future generations or to make a gift to family members who maybe cannot receive funds due to their age (i.e. if they are under the age of 18). A common use of a trust is to set aside funds to cover university costs or provide a house deposit for younger relatives.

An important concept to consider is that placing assets into a trust, with the intention of being effective for Inheritance Tax purposes, will mean that those funds will be out of reach to the person making the gift, who is known in law as the “settlor”. This means that trusts tend to be inflexible and careful planning is needed to ensure that funds gifted into a trust will not be needed by the settlor in the future. In addition, the monies placed into a trust will not fully leave the settlor’s potential estate for seven years after the date the gift has been made.

When gifts into a trust are made during an individual’s lifetime, there are different types of trust arrangements that can be used. A Bare Trust is a simple form of trust that is often used for beneficiaries (i.e. the person or people nominated to receive funds from the trust) who are under the age of 18. There is no need for decisions to be reached as to who receives funds from the trust, as the beneficiary is established at the outset and once the beneficiary reaches 18, they are automatically entitled to the funds under law.

Discretionary Trusts are more flexible, in that the trust wording establishes a “pool” of potential beneficiaries. This is often all members of the settlor’s immediate family, including grandchildren and great-grandchildren, but excluding the settlor and spouse. This type of arrangement doesn’t specify who receives the trust fund and allows the ultimate destination of the funds to be decided at a later date. This flexibility comes at a price, however, as this type of arrangement is potentially subject to Inheritance Tax charges every 10 years.


Trustees’ duties

In both cases, trustees are appointed to administer the trust. This is often the settlor but other family members, trusted friends or professionals, such as solicitors, can also be appointed. Ideally, there will be at least two trustees, with a maximum of four being appointed. Trustees must ensure the trust is administered correctly, decide how the trust fund is invested, ensure the correct amount of tax is paid and submissions to HMRC are completed, and in the case of a Discretionary Trust, make decisions as to when sums of money are paid to beneficiaries and how much is paid.

The Trustee Act 2000 sets out comprehensive guidance as to how trustees need to act, when they need to take advice from professionals, and how they reach their decisions. Being a trustee is an important role that carries significant responsibility, and therefore careful thought is needed as to who is appointed as trustee when a trust is set up.


Trusts have their limitations

While setting up a trust gives you much greater control in determining where your assets will eventually go, they do have some limitations. For instance, they can often carry a higher burden of tax and greater levels of administration.

In the right circumstances, however, Lifetime Trusts can be an efficient way to plan ahead, by ensuring funds are set aside for future generations and potentially reducing the Inheritance Tax burden on an individual’s estate.

But setting up a trust can be complicated, so it’s always worth talking to an experienced professional who can talk you through the process in determining which type of trust is right for you and your family.


If you are interested in discussing estate planning arrangements with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Businessman clicking on fraud prevention button

How to protect yourself against financial scams and fraud

By | Uncategorised

There continues to be an alarming rise in financial scams since the first coronavirus lockdown. Here’s what you need to know about the different types of scam, and how to defend yourself.

In an effort to get around increased security measures from banks and other financial services firms, scammers are developing increasingly clever ways to persuade people to part with their personal details and even hand over their money themselves.


Impersonation frauds

One of the most popular ways is through something called ‘push payment fraud’. This occurs when the fraudster manages to convince the victim in ‘real-time’ to make a payment or transfer money from their bank account into another account controlled by the fraudster.

Here’s how this particular scam works. You receive a friendly phone call from someone claiming to represent your bank, HMRC, or a utility provider. The caller knows personal details about you, and the number they call from appears to be genuine (it could be the number on the back of your debit card, for example). The caller will tell you there has been some suspicious activity on your bank account – which means you need to open a new account and transfer all your money into it immediately.

In most instances, the first part of the fraud has already happened. Victims might have had their post intercepted or clicked on a ‘phishing’ email that handed over some of their financial or personal details to the scammer. That’s why they already know so much about you and your finances during the phone conversation.


A cunning confidence trick

The call is designed to make you feel anxious, or that you will be in trouble if you don’t take immediate action. It’s a psychological ploy, backed up with modern technology that convinces people the call is coming from a legitimate and trustworthy source. Before you know it, you’ve willingly handed over all of your money directly into the scammer’s account.

These impersonation scams were particularly prevalent during the early months of lockdown. Perhaps people were already more vulnerable than usual, had added money worries or scammers simply had more time to phish for people’s details and follow up with the impersonation part of the scam.


Investors need to be careful too

There are other impersonation scams out there to be aware of. The Financial Conduct Authority (FCA) has been warning people about the rise of “clone firms”, where criminals copy the names, websites, and literature from established investment companies and use them to target unsuspecting victims on sponsored links on search engines and through social media. Fraudsters will also ‘cold call’ investors directly, claiming to be from a company that the victim already has an investment with. In some instances, fraudsters have even set up email addresses in the names of actual staff members at investment management firms they are pretending to represent.

The fraudster will quickly gain the confidence of the investor and persuade them to make new investments or transfer existing investments. These new investments eventually turn out to be wildly over-priced, impossible to trade or they don’t even exist. Many investors only realise they have been conned when they contact the authentic investment firm to chase payments that haven’t arrived.


Pension freedoms have opened the door to fraudsters

Pensions have also become a target for criminal scams, especially since the introduction of pension freedoms that mean people can access their pensions early. People now have far more flexibility in what they do with their pension pot. For the fraudsters, this is an opportunity to get their hands on previously untapped wealth, and to rob people of their life savings.

The FCA and The Pensions Regulator estimated that more than £30 million had been lost in pension scams since 2017. Victims of pension scams, where fraudsters have managed to persuade the pension owner to transfer their pension to a fraudulent pension scheme, have lost an average of £91,000, and some unlucky victims have been robbed of more than £1 million of their hard-earned pension.


What can you do to protect yourself?

There are some common-sense steps you can take to help defend yourself against financial scammers. Here are some of the most useful ones to remember:

  • Don’t automatically trust an unexpected communication from your bank, HMRC or a company you’ve done business with, and don’t ‘confirm’ your personal details or agree to transfer any money.
  • Pay alert to messages from your bank or other service provider that ask you to click on an email link – they could be phishing for your personal details.
  • If you’ve been called by someone claiming to be from your bank, end the call and then phone the official bank number from a different phone (scammers can keep the line open if you call back from the same phone).
  • Reject ‘out of the blue’ investment offers, and remember that if something sounds too good to be true, it usually is.
  • Be wary of cold callers trying to flatter you, pressure you, or scare you. Don’t allow yourself to feel rushed into making a financial decision.
  • Trust your instinct. If something feels suspicious, report it.
  • Always get professional financial advice between switching investments or making changes to your pension arrangements.



The Citizens Advice Bureau has repeatedly warned that the most vulnerable people are often at greater risk of being contacted by a scammer. But the reality is that these are sophisticated, ruthless criminals who go to great lengths to present themselves as genuine. It’s easy to be deceived, especially when the scammers know so much about you and are preying on your personal fears. But knowing how the fraudsters operate is an important first step to ensuring you don’t give them what they want.


You can report potential scams by calling ActionFraud on 0300 123 2040, or visiting

If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Female small business owner

Why smaller companies can mean big rewards for investors

By | Investments

If you are considering adding extra growth potential to your investment portfolio, it’s worth taking a look at UK smaller companies. Smaller companies offer greater potential for long-term growth than their larger counterparts, although this potential does come with greater investment risk.

A few years back, the then Prime Minister David Cameron called small companies “the lifeblood of the UK economy”. It’s not hard to see why. While large companies dominate the headlines, small businesses drive growth, create employment and encourage competition through innovation and disruption. According to the Department for Business, Innovation & Skills, small and medium-sized businesses (businesses with less than 250 employees) make up three-fifths of the employment and around half of the turnover in the UK private sector.

One of the key attractions of investing in smaller companies is their ability to adapt quickly to change. The events of the last 18 months have seen UK smaller companies stay resilient during the heightened uncertainty caused by Brexit and the Coronavirus pandemic. Even more crucially, because of their size, smaller companies are typically more innovative and agile. This means that they can rapidly adapt to new distribution methods or respond to changing customer needs. If they spot an opportunity, they can quickly capitalise on it.


The Alternative Investment Market

Of course, one of the challenges with trying to invest in smaller companies is that it is much harder to know where to find them. The London Stock Exchange is the natural location for larger, more established companies to list their shares, but if you are interested in investing in outstanding – but less well known – British smaller companies, the Alternative Investment Market (AIM) is really the best place to start.

AIM was established in 1995 as a route to market for smaller, growing companies seeking access to capital. Over the years, it has become home to a broad and diverse range of smaller companies operating in a variety of different sectors and at different stages in their own development. Today, AIM is widely recognised as the best smaller companies market in the world – home to innovative, entrepreneurial companies that are challenging their large cap competitors.


Smaller doesn’t always mean small

Despite the name, most smaller companies are probably much larger than you think. For example, companies listed on AIM include well-established household names such as Hotel Chocolat, Naked Wines, and Fever Tree. Although the regulatory requirements for AIM are less stringent than for LSE-listed companies, it is still a highly-regulated market, and companies hoping to list on AIM must meet certain strict criteria before being granted a listing.

Investing in AIM also offers exposure to lots of innovative and fast-growing sectors, including  healthcare and bioscience, media, technology, and financial services.


Are smaller companies more risky?

Because of their high-growth nature, smaller companies, including those listed on AIM, are considered at the higher end of the risk/return investment spectrum. Their shares can be more volatile, particularly during general stock market downturns, and carry a higher risk of company failure. Smaller company shares can also be harder to buy and sell, as the market for the shares is considerably smaller. Because of this, AIM is considered as a market that requires an appropriate amount of investment knowledge and equity trading experience.

So, when we talk to clients about the investment potential available from smaller companies, we tell them that investing in AIM is better suited to investors who have a longer-term investment horizon, and are prepared to have their money invested for several years. Investors also need to be mentally prepared for the likelihood that some companies will not succeed, and that they are willing to accept the higher risks associated with investing in such companies.


What else should investors know?

For those investors prepared to accept the higher risks associated with investing in AIM-listed smaller companies, there are tax benefits to consider. For example, AIM shares can be held in an Individual Savings Account (ISA), and there’s no stamp duty to pay on AIM shares, whether they are held in an ISA or not. Also, most companies on AIM benefit from a government-approved tax incentive known as Business Relief, which means that the value of the shares in these companies should become exempt from inheritance tax when the investor dies, subject to minimum holding periods. However, as we’ve noted, investors should remember these tax incentives are intended to offset some of the risks of investing in AIM-listed companies. In other words, investors should think of the tax benefits as an added bonus, not the only reason to invest.


Is now a good time to invest in UK smaller companies?

There are lots of reasons to be positive on the future for UK smaller companies. With most of the world still recovering from the pandemic, central banks and governments are still providing support for their respective economies. As a result, there’s a good chance of a stronger recovery for the rest of this year, and into 2022 and beyond.

And as we have seen over the last 18 months, the pandemic has helped to accelerate a lot of the changing trends in society, increasing the need for remote working, more efficient technology, and a greater focus on health. These are all important trends that smaller companies are arguably best placed to capitalise on. Another important aspect to consider is that lots of successful smaller companies could get ‘snapped up’ by larger competitors, which could greatly increase the value of their shares. Of course, given the higher failure rate of smaller companies, it’s a good idea to find  a dedicated portfolio manager who is able to spot those smaller companies with potential and that stand the best chance of long-term success.


Final thought

Investing in smaller companies is a great way to add a dash of excitement and high-growth potential to an investment portfolio. Within the smaller companies universe, especially on the Alternative Investment Market, there are lots of outstanding companies – and entrepreneurs –that are on an exciting growth journey, and would welcome further investment to realise their ambitions. But it’s important to recognise the risks, and to appreciate that not all these great British companies will prove to be great investments. When it comes to smaller companies, finding the right companies is an art in itself.

If you are interested in discussing investments with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only. It does not constitute investment advice or financial advice.

Man calculating finances with laptop and paperwork

Reducing the capital gains tax liability in an investment portfolio

By | Tax Planning

You don’t know what you’ve got till it’s gone, and investors would be wise to make use of their annual capital gains tax allowances while they’re still available.

Making a good return on investments is one of the reasons why people come to us for help with their finances. But while choosing the right investments is an essential part of the process, it is just as important to make use of any tax allowances that are available. One particular allowance worth taking advantage of is the capital gains tax annual allowance.


What is capital gains tax?

Capital gains tax (CGT) is the tax that can be charged on the profit or gain made when selling, gifting, transferring, exchanging or disposing of an asset. CGT doesn’t apply in all cases, such as selling your home or any personal belongings worth less than £6,000, which are not subject to CGT. However, ‘chargeable assets’ – which includes shares, investment funds, and second properties – that generate a capital gain when they are sold will generally be liable for CGT.


What’s the CGT annual allowance?

When selling investments, basic rate taxpayers will be required to pay CGT at a rate of 10% on gains made on chargeable assets, and higher and additional rate taxpayers can expect to pay 20%. But the good news is that everyone has their own personal CGT allowance available every tax year (6 April to 5 April), which can be used to reduce or eliminate a CGT liability. For the current tax year, the CGT annual allowance is £12,300. This means you can make a profit or capital gain on chargeable assets up to that amount before any CGT is due, and you will then pay CGT at your tax rate on the remaining gain over that amount. Of course, if you have made several gains over the course of the tax year, the CGT liability will be calculated based on the total gain made in the year, with any losses crystallised offsetting the gains made.


How can people end up with a surprise CGT bill?

Although current CGT rates are historically low (CGT was as high as 40% in recent years) and most individuals will never pay it, it does catch investors out from time to time. In our role as financial advisers, we are often asked by new clients to review their existing investment portfolio arrangements.

Where investments have been held for many years, we often discover portfolios laden with investments that carry significant capital gains, that have accrued over a long period of time. Often investors haven’t made use of the CGT annual allowance in past years, and with CGT, it is a case of using the allowance each year or losing it, as unused allowances cannot be carried forward to be used in future years.

So, one of the first things we do is to make sure that the client’s investments are being managed wisely, and with due consideration to the tax implications that come with it. Careful management at key times in the tax year mean we can limit the gains payable on an investment portfolio, ensuring that gains are realised each year to use up the CGT allowance. In most cases, carrying out this practice of limiting the gains payable on an investment portfolio can have a significant positive long-term impact on the total return on the investment.

Will CGT rules be changing soon?

Towards the end of last year, Chancellor Rishi Sunak commissioned the Office of Tax Simplification to look at simplifying the CGT rules, and also asked it to consider specific areas where the existing rules distort people’s behaviour. In response, the Office of Tax Simplification published a report that recommended the annual CGT exemption should be reduced from the current level of £12,300 to between £2,000 and £4,000. Their report also suggested realigning CGT rates to income tax, which would take them from 10% and 20% on investments (for basic and higher rate taxpayers) to 20% and 40% respectively.

Should these proposals be adopted, this would mean lots of people would suddenly face considerable CGT bills. For example, under the new proposals, a higher rate taxpayer who made a capital gain of £12,300 (which is currently exempt from CGT) would find themselves stuck with a CGT bill of somewhere between £3,320 and £4,120. That’s clearly a significant tax hike for anyone to pay.

At present, there’s no indication that the recommendations published by the Office of Tax Simplification will be implemented. But given the unprecedented levels of government support offered during the pandemic, there is a good chance that changes to CGT will arrive in some form. For now though, it’s a good idea to take a look at your investment portfolio and make sure that your annual CGT exemption is being used to the fullest extent.


If you are interested in having a conversation about your investment portfolio with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only. It does not constitute investment advice or financial advice. 

Person calculating private school fees with calculator

Tax-efficient school fees planning

By | Tax Planning

A private school education is often considered as an investment in a child’s (or grandchild’s) future. With the right planning in place, and by taking advantage of available tax incentives, it is an investment that could well be within your reach.

Parents – and grandparents – always want the best for their children or grandchildren, and for many this means choosing to give them a private school education. The evidence suggests that students from private schools here in the UK outperform national and global academic averages, and that most children who attend private school go on to get a university education.

However, attending a private school is a privilege that doesn’t come cheap, which can often put parents under increased financial pressure. A Lloyds Banking study from a few years ago found that four out of ten private school parents had struggled to meet school fee payment deadlines and six out of ten parents were worried they might not be able to afford fees in the future.

How much does it cost to send a child to a private school?

According to the 2021 Annual Report published by the Independent Schools Council (ISC), the average fee for a child to attend a private day school is currently £15,191 per annum, which works out at £5,064 per school term. Naturally, day school fees vary depending on where the school is located, average term fees are more than £6,000 in London and £3,700 in the Northwest of England. As you would expect, it costs considerably more to pay for a child to attend boarding school, where the ISC estimates the average cost per term stands at £12,000.

Are private school fees going up?

Afraid so. According to the ISC, UK school fees have increased at an annualised rate of 3.9% since 2010, which is well above inflation. However, while COVID-19 has had a considerable impact on every school, and private schools are no exception, the latest ISC report suggests private schools have only increased their fees by an average of 1.1% in the past year – with average day school fees rising by just 0.9%.

But the school fees themselves are really just the beginning when it comes to counting the costs of a child’s education. You will also need to think about the costs of school uniforms, trips, sports activities (and equipment), and music lessons. When all those costs are factored in, parents might be looking at total costs of between £150,000 and £200,000 per child who attends a private day school, and maybe double that for a boarding school.

Investing to pay for school fees – the mathematical journey

Of course, when it comes to paying for school fees, the sooner you put a plan together – and start setting money aside – the better. If you plan ahead, you can give yourself five to ten years, or perhaps even longer, to build up a savings pot that could help to fund school fees when they become due.

One of the most important aspects of creating a plan to pay for school fees is to calculate the costs of private education, including some of those ‘miscellaneous’ costs that it’s easy to forget to include, and the education time horizon (the number of years the child will be attending the school). Once this is known it becomes considerably easier to create a strategy that will take advantage of the power of compounding, and generate enough investment growth from start to finish.

Tax-efficient school fee savings strategies

Given that interest rates on cash savings accounts remain so low, investing within a tax-efficient savings vehicle is likely to be the best starting point when it comes to saving for school fees – especially bearing in mind you will have to withdraw a large sum from the investment pot every year once the school terms start.

With a Stocks & Shares ISA, individuals can invest up to £20,000 each year, or £40,000 per couple. This would be a good way of constructing a diversified portfolio that contains a broad range of assets and is designed to achieve growth over the targeted investment horizon.

Tax-efficient strategies for grandparents

We are also seeing more grandparents talking to us about investing for school fees for their grandchildren, out of their excess after-tax retirement income. This is a good way to give children a great education while also making sure the parents don’t have the financial burden.

Setting up a discretionary trust can be a tax-efficient way for grandparents to pay the cost of private education. Once the trust has been set up, the grandparents can make a series of regular ‘gifts’ into the trust, and this money is invested according to the arrangements specified by the grandparents.

A valuable benefit of setting up a discretionary trust to pay for grandchildren’s school fees is that the gifts made into the trust should be declared outside of the estate for inheritance tax purposes, provided the donor lives for a further seven years after a gift. Also, annual gifts of up to £3,000 per grandparent are deemed instantly exempt from inheritance tax, as long as this annual exemption has not already been used.

Talk to us about school fees planning 

If you are a parent or grandparent who wants to send their children or grandchildren to a private school, the best way to pay for it is to start the financial planning process as early as you can. When you’re ready, we can help you by giving you a realistic assessment of the costs involved, and to put together a tailored plan to help you reach your savings goals.

If you are interested in discussing school fee arrangements with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only and does not constitute investment or financial advice. Tax rules are subject to change, and tax benefits depend on your personal tax position.