Financial Planning

Falling interest rates

Much of the rally over the last two months of 2023 was predicated on market expectations that interest rate cuts will begin earlier than expected in 2024. Some economists have suggested the first cut by the Federal Reserve could come as early as March; however, this could prove to be a little optimistic, and we are mindful that markets could be prone to disappointment if the anticipated cuts are delayed. The last Federal Reserve meeting of 2023 indicated that there may be three 0.25% base rate cuts in the US during 2024, and further cuts to follow in 2025 as the global economy slows.

We expect a similar story of rate cuts in the UK. The Bank of England, who were slow to begin raising interest rates as inflationary pressure began to build towards the end of 2021, may well have hiked base rates above what is necessary to cool inflation, and given our expectations for growth and outlook for the UK economy, we anticipate the Bank of England will be cutting rates, potentially aggressively, in the second half of 2024.

The end of the hiking cycle will provide some respite for mortgage borrowers, although the housing market is likely to remain under pressure. Falling interest rates will also change the outlook for cash savings, which have been attractive compared to other assets over the last year. We have already seen longer term fixed savings rates begin to taper, and this trend should continue during 2024.

Slower Growth

We expect global growth to slow during 2024. Growth was stronger than anticipated in 2023, despite concerns over the financial strength of US banks in the Spring and ongoing monetary tightening by central banks. As inflation continues to fall away over the first half of the year, the restrictive policies are likely to lead to more muted growth in the US and global economy. Whilst the US may manage to avoid a recession in 2024, the same fate is less likely for the UK, where growth has been negligible for much of the last 12 months and indeed, October 2023 saw the UK economy contract by 0.3%.

Geopolitical and political risks remain

Investors need to be alert to a number of potential geopolitical risks in 2024. The conflict between Israel and Gaza could spill over into a broader Middle Eastern conflict, which would have an unwelcome effect on Oil prices. Investors would be wise not to ignore the ongoing war in Ukraine, although much of the economic impact of the conflict was felt last year.  Any increase in tension between China and the US over Taiwan would be viewed negatively by risk assets, and lead to a flight to safety.

2024 will be a big year for elections, with a UK General Election forecast to be any time between May and December, and the US Presidential election in November. The outcome of the UK elections are likely to have a lower impact on market sentiment, and a clean outcome from the US election in November would also be well received by markets. A constitutional crisis, similar to that seen four years ago after the disputed Biden-Trump election of 2020, would not be good news and may see volatility spike sharply higher.

Asset class outlook

After a very strong final few weeks of 2023, we would not be surprised to see markets take a pause for breath in the first quarter of this year. A broad based rally in both Equities and Bonds since November has undoubtedly priced in some of the potential that monetary loosening could bring in 2024. It also means that some vulnerability now exists should central banks not deliver the expected rate cuts, and markets will remain keenly focused on key economic data as the year progresses.

In the battle of growth versus value, stocks that display strong growth potential – particularly large cap US technology stocks – clearly dominated 2023. This trend may continue in the short term, but this leaves interesting opportunities in more value orientated stocks, who have been largely ignored for much of the last 12 months.

Careful geographic allocation may well prove pivotal in the coming year, as economic performance diverges. We remain positive on the prospects for US Equities, and also favour Japan and the wider Asia-Pacific region. UK and European markets appear to offer relatively good value, but given that we anticipate weaker growth from this region over the coming year, we would prefer to keep allocations relatively light.

After a dismal year in 2022, Bond markets produced a better performance last year and we expect this to continue through 2024. Markets may, however, have moved a little ahead of themselves given the strong rally seen over the last few weeks and there may well be some consolidation during the early stages of the year. Yields look attractive, although we prefer investment grade to high yield debt, given that growth will slow and the higher cost of debt servicing and tight lending conditions could see default rates rise.

Commercial Property produced very disappointing returns in 2023, and although the landscape should improve over time, continued low occupancy of office space and a tough retail environment are factors that keep us away from the property sector for the time being. Other alternative investments, such as infrastructure, may see improved conditions during this year as the high interest rate headwinds subside.

Time to review your portfolio strategy

As we enter a new year, we feel this is an ideal time to review existing portfolios to ensure that they remain appropriately invested for the year ahead. Uncertainty continues, and therefore holding a diversified portfolio will remain as important as ever as we navigate 2024. Speak to one of our experienced advisers to discuss your existing portfolio strategy.

As 2023 draws to a close, we can reflect on a year when relative calm returned to investment markets after an extended period of market turbulence due to the pandemic, war in Ukraine and global inflationary spike. The level of volatility – that is to say the amount markets move up and down over time – has fallen as the year progressed and has recently touched record low levels not seen since 2020.

There have, however, been moments when market volatility has spiked. The failure of Credit Suisse and Silicon Valley Bank in March briefly threatened another banking crisis, although regulators stepped in and took appropriate action to avoid contagion spreading. The start of hostilities between Gaza and Israel also temporarily put markets on the back foot. Market direction has, however, largely been dictated by expectations that central banks would look to change tack, and begin to cut rates after a rapid series of hikes. Economic data – particularly in the US – has been stronger than expected throughout the year, which has led to the Federal Reserve and others raising rates further than many market participants had expected.

Recent comments by central bankers, particularly in the US, have suggested that the long awaited “pivot” is finally here. Investors have been eagerly anticipating the point at which central banks call time on the hiking cycle which has dominated sentiment since early 2022. This has led to a strong return over recent weeks as markets end the year in an optimistic mood, with the expectation that rates will be cut next year.

Technology dominates returns

The so-called “Magnificent Seven” technology stocks have been responsible for a good proportion of the gains achieved by markets during 2023. The performance of Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla have not only driven US market returns, but also global markets, due to their combined market capitalisation. Our portfolio strategies have continued to hold good exposure to these tech giants, despite challenging valuations in one or two cases.

Inflation back under control

Inflation, which was the major cause of the market gyrations last year, appears to be back under control. As we entered 2023, inflation stood at 10.5% in the UK and 6.5% in the US. Partly due to actions taken by central banks, inflation has more than halved in both the US and UK. Whilst the current rates of inflation continue to run at elevated levels when compared to the target rate of 2%, the trend is firmly lower, and we feel that central bankers run the risk of inflation undershooting medium term targets if they maintain restrictive monetary policies for too long.

Bonds fight back

2022 will be recorded as being one of the worst performing years for fixed interest investors since records began. The rapid series of rate hikes and inflationary spike led to yields rising substantially over the course of the year. Whilst the early stages of this year saw Bonds move sideways, recent performance has been more encouraging, as markets look to a change in direction from the Federal Reserve, Bank of England and European Central Bank in 2024.

London loses its’ lustre

The London stock exchange appears to be losing its’ appeal for companies who wish to list on public exchanges. Chip designer ARM holdings made the decision to list on the New York Stock Exchange earlier this year and other significant moves overseas have included Irish building materials company CRH. In our opinion, this only reinforces the importance of taking a global approach to investment and to avoid investment strategies that are too concentrated in domestic Equity funds.

Geopolitical tensions

Geopolitical events have continued to have an influence on markets over the course of the year. The conflict in Israel and Gaza, which commenced in October has, to date, had a limited impact on market sentiment. Naturally, any escalation in the conflict could have a significant impact on oil prices, which in turn would increase volatility in global markets.

The Russia-Ukraine conflict continues, although it is becoming more evident that the economic damage was caused last year, and investment markets have paid less attention to events in central Europe over the course of the year. Another possible area of concern is the potential for China to invade Taiwan. This threat should not be ignored, and again, this would have a significant impact on market sentiment in the event of increased tensions between China and the US.

Whilst external events have had less of an impact this year than say in 2020 or 2022, investors always need to be mindful that events beyond the control of markets can influence sentiment and momentum. For this reason, we recommend that investment strategies are reviewed regularly so that they remain appropriately invested in response to global events.

What is in store for 2024?

Unless we see a significant turnaround over the remaining trading days this year, global markets will end the year higher and investors will be able to reflect on a more representative market performance, after a difficult period of volatility in recent years. Compared to the tentative mood twelve months ago, markets are showing a degree of confidence that the worst may be behind us.

We will take a look at our thoughts for the year ahead in the first edition of Wealth Matters in 2024. We take this opportunity of wishing all of our readers a pleasant Christmas break and good health and happiness in 2024.

The run up to the festive period is traditionally a busy time for many; however you may find time over the Christmas holiday period to sit down and review your financial position.

Data from H M Revenue and Customs suggests that this is precisely how some individuals use their down time over the Christmas period. Last Christmas saw 22,060 individuals file their Self Assessment Tax Returns between Christmas Eve and Boxing Day last year, with 3,275 filed on Christmas Day itself.

With the festive season looming, we thought it would be a good opportunity to take a brief look at 12 ways you can bolster your financial plans over the Christmas period and into the New Year.

Think about this year’s Individual Savings Account (ISA) allowance

In the current Tax Year, each UK resident is entitled to save £20,000 into an ISA, where those savings or investments are exempt from tax on interest and capital growth. The increase in cash interest rates over the last year could lead to many more individuals paying tax on interest from savings held outside of an ISA. Using the ISA allowance will shelter cash from both Income Tax and Capital Gains Tax.

Consider your protection policies

It is a sad fact that many people have insufficient financial protection in place to safeguard their loved ones. Research undertaken by Direct Line Insurance in 2022 found that only 35% of those questioned hold life assurance. Separate research from Charles Stanley suggested only 7% of individuals have either a Critical Illness or Income Protection policy in place.

The end of the year can be a good time to take stock and ask yourself some honest questions about the robustness of your financial plan. Would your spouse and children cope financially if you suddenly died or became seriously ill and could no longer earn? Are your current protection policies still up-to-date and appropriate for your needs?

Review your CGT allowance

The Capital Gains Tax (CGT) allowance has already more than halved this Tax Year and is expected to halve again from 6^th April 2024. Making best use of the allowance is now more important than ever, and it would be sensible to undertake a review of an existing investment portfolio to consider whether any action is needed.

Make use of annual gift exemptions

You are allowed to gift up to £3,000 in each Tax Year, without considering the Inheritance Tax (IHT) implications. There are additional exemptions that may be available, depending on your circumstances. If you are looking to reduce the potential impact of IHT on your Estate, making regular gifts can be a useful way of mitigating an IHT liability, in conjunction with other tax planning strategies.

Review your pensions

Assuming you are not affected by rules such as the Money Purchase Annual Allowance (MPAA) or Tapered Annual Allowance, you can contribute up to £60,000 into your pension (or up to 100% of your salary – whichever is lower) in the current Tax Year. It may also be possible to carry forward unused allowances from previous tax years.

Pension contributions can be a great way to save towards your retirement in a tax-efficient manner, and as pensions are usually exempt from IHT,  a pension can also shelter funds for loved ones on death outside of your Estate.

Take stock of your mortgage

For many people, their mortgage is their biggest liability and monthly outgoing. The hike in interest rates over the last year has led to increased payments for those on a Standard Variable Rate mortgage. For those currently on a fixed rate deal, it would be sensible to start to consider your position when the current deal expires.

Consider joint tax allowances

If you are married or in a civil partnership, then it is possible to transfer assets to your partner to make use of their allowances if available, as well as your own, or to be taxed at lower rates, if applicable. For instance, CGT can be avoided or reduced by using both allowances to share a capital gain.

Check emergency funds

Whilst everyone has a different view about the balance that would ideally be kept in a current account, we feel it is sensible to keep at least three to six months of outgoings accessible to cover any emergencies that could arise. Take time over Christmas to consider the level of cash you are holding to see if you feel comfortable. If the balances you hold are higher than you need, could you move some of the surplus cash to another home where it could be more productive?

Review your credit rating

Checking your credit score at various points throughout the year can be a good idea, as it can affect important areas of your life such as mortgage applications. There are a number of useful online resources that allow you to check your credit score.

Make sure you have completed an Expression of Wish

If you have a workplace or private pension, completing an Expression of Wish form with your provider will let them know who you’d like your pensions savings to go to if you die. It is worthwhile reviewing the nomination regularly to make sure that it continues to reflect your wishes.

Check your State Pension forecast

By using the Government Gateway service you can receive a State Pension forecast, which will indicate your likely State Pension and the date at which it is payable. It will enable you to identify any gaps in your National Insurance record, and check whether any action is needed.

Speak to one of our advisers

Make it a New Year resolution to undertake a comprehensive review of your financial circumstances. Speaking to an independent financial planner can help identify areas that you may have missed, and undertake a comprehensive and holistic review of your current position and whether you are on target to meet your needs and objectives. As a Chartered Firm, our advisers are highly experienced and can take an impartial review of your finances. Speak to one of our advisers to arrange a review.

According to recent research carried out by Canada Life, half of the UK population has not made a Will. Whilst uptake in the older generations is understandably higher, one in three people aged over 55 do not have a Will in place. These statistics are alarming, as dying without a Will can place an additional burden on loved ones at a difficult time. Where a Will has been left, this usually provides clear instructions, including such matters as funeral arrangements, or how possessions are to be distributed, which can ease the burden on family members. Dying without a Will also leaves no named executor to deal with the estate, and family members or other individuals will need to decide amongst themselves who will be appointed as administrator.

Intestacy rules

Many are also not aware of potential issues that can arise by relying on the laws of intestacy, which are a standard set of legal rules that apply in England and Wales if an individual dies without having made a valid Will.

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 £322,000 of the estate and an absolute interest in one-half of the remainder above this level. The other half is divided equally between surviving children.

For those who are not married or in a civil partnership, the situation is even more complicated.  If the deceased had children, they receive everything split equally between them. For those without children, assets first pass to any surviving parents, then to siblings (if parents are deceased), then to grandparents (if alive), and then to wider blood relatives, such as aunts and uncles. Where an individual dies without any surviving blood-related relatives, the estate is deemed to be Bona Vacantia, and assets are passed to the Crown.

Modern life

The laws of intestacy are particularly complicated, and not widely understood. Indeed, couples that have lived together for many years but are not married or in a civil partnership, can often 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 entitled to anything under the intestacy rules.

As financial planners, we see this as a key risk that many are exposing themselves to unnecessarily. The best-laid financial plans for the future could be changed in an instant by the death of a partner who hasn’t made a Will and can leave surviving partners in financial difficulty at a time of great distress. 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. It could also lead to investments and savings being left to surviving blood relatives of the deceased partner.

Making a Will can also deal with important aspects such as guardianship of children, and how funds that children inherit are dealt with. Whilst the legal age of majority is 18, many would consider this too young an age to inherit assets. It may be a good idea to consider whether this should be delayed to, say, 21 or 25 when the beneficiary is potentially more financially aware and in a position to use the funds wisely for further education costs, or a house deposit.

Business owners at risk

Irrespective of the business interest you hold, not holding a valid Will can have serious implications in the event of the death of a sole trader, partner, or director. This could mean that the business assets could be passed to someone who may have no interest in running the business or lack the necessary ability, leaving the business at significant risk. It could also lead to conflict and disputes amongst business partners.

The link to financial planning

Whilst we do not write Wills, we regularly remind our clients of the need to prepare a Will or ensure an existing Will is up to date 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.

We recommend speaking to a suitably qualified solicitor when making a Will. This should ensure that the Will is drawn up correctly to reflect your wishes, as mistakes and errors in a Will, which are usually only uncovered after the death of the individual, can lead to disputes and legal expenses in rectifying the position.

Getting over the inertia

Most people understand the importance of making a Will, though many do not see it as a priority, or feel uncomfortable thinking about their own mortality. Given the potential risks many are facing, potentially unwittingly, by not holding a valid Will, we recommend everyone takes the time to make a Will or review an existing Will to make sure that it still reflects your wishes.

Please speak to one of our experienced team here if you would like to discuss the implications in more detail.

Whatever your plans are for retirement, it pays to begin planning well in advance, to give you the best chance of meeting your goals in later life. We often meet clients who are beginning to consider the end of their working career, but find choosing the right path difficult, for fear of making the wrong choice. Financial decisions taken at retirement are one of the most important many people make. This is largely due to the fact that the path chosen can have lifelong implications.

When beginning to consider retirement plans, there are a number of fundamental questions that need to be answered.

When to retire?

Deciding on the right time to retire may be down to personal choice, or it may be as a result of changes in the workplace that push you to reach a decision. For some, decisions will need to be reached some time in advance of the retirement date, due to contractual obligations, or the need to train a new member of staff to fill the role. In other instances, the decision may sadly be reached due to ill-health or inability to continue in the role.

An increasingly common choice is to reduce working hours gradually over time and ease into retirement, and this is where financial planning can help in determining alternative income sources that could be accessed to fund the reduction in salary or self-employed income, and maintain your lifestyle. Tax planning is often vital at this stage, as individuals are juggling employment and retirement income at the same time.

What kind of lifestyle do I want?

The most important factor that often determines the point at which an individual retires is affordability. The ongoing costs of maintaining the home, paying utility and other bills, and covering necessary spending such as food and transportation need to be considered. In addition, some may need to clear any outstanding debt prior to retirement, such as a mortgage, whilst others may wish to undertake home improvements.

Retirement introduces significant change, and one important point to remember is that many will have more time on their hands, which may be filled with hobbies, pastimes or travel. These will all have costs attaching to them, which need to be taken into account.

Calculating a monthly budget is a useful first step to see what regular and discretionary expenditure is likely to arise. It is also a good idea to build in a contingency for unexpected outgoings.

What income can be generated?

It is important to start looking at existing pension arrangements well in advance of a planned retirement date, to begin to determine what income could be generated in retirement. As a result, any gaps can be identified and this will allow time to make further pension contributions, or other savings arrangements to help plug the gap.

State Pension provision is usually the starting point from which to build a retirement income, and obtaining a State Pension statement is a good idea. This will provide an estimate of how much State Pension you are likely to get, which will be based on your National Insurance contributions. It will also let you know the date at which State Pension becomes payable.

For those who wish to retire earlier than their State Pension age, thoughts turn to producing an income from elsewhere to fund ongoing living costs. It is important to note that State Pension alone is unlikely to provide a comfortable retirement, and making the most of existing pension arrangements built up through employment, or personal pensions, will be a key building block of your retirement income.

An important step to take is to understand what pension arrangements are held. Obtaining up-to-date valuations can assist; however it may well be necessary to undertake further research and analysis to get the full picture in respect of the options for drawing a pension income, and to discover if there are any special features within the pension contract that could affect the decision making process.

It may also be worth considering whether you have any additional pension plans that you have lost touch with during your working life. We often meet clients who provide documentation relating to an old pension, which turns out to provide additional retirement benefits that they were not expecting.

As part of the retirement planning service we offer, we write to a client’s existing pension providers, and obtain full details of their arrangements. We take the time to fully analyse the plan, which can often reveal features which may not necessarily be apparent. These can include guaranteed annuity rates, guaranteed plan values or protected levels of Tax Free Cash.

Retirement income can, of course, come from other sources, too, and at this point, we can review other savings and investments held to consider how best to generate an income. By making changes to an existing portfolio, we can look to generate a sustainable income, in a tax-efficient manner.

Financial advice can help define your plans

Once existing pension arrangements have been analysed, the question of when to retire has been answered and a target income identified, it is time to start to consider how these goals can be reached.

Taking financial planning advice can make a real difference to the decision-making process, as we can take a holistic and impartial view of existing pensions and other assets and begin to set out a plan to reach your goals and objectives. We can assess what income can be generated from existing pensions, in conjunction with other savings income or property income. Other important aspects, such as tax-efficiency can be considered, together with wider planning issues, such as Inheritance Tax concerns.

Speak to one of our experienced advisers here to discuss the options and start to formulate your retirement plans.

The start of a new school year brings the cost of education into focus. As financial planners, we are regularly asked to assist clients when planning to fund University or further education costs. Some parents take the decision to privately educate children, and budgeting and saving for these expenses also need careful planning. It is often the case that older generations want to lend a helping hand, too, and there are a number of factors that need to be considered when providing gifts to help with the costs.

We take a detailed look at some of the factors parents – and possibly grandparents – need to consider when planning to fund the costs of further education, or private education.

Meeting University costs

When a child goes to University, financial assistance is available in the form of Tuition and Maintenance Loans. The Tuition Fee loan covers the cost of the course, and as University Tuition fees are capped at £9,250 per annum, a three year course will mean a debt of almost £28,000 will accrue (assuming the cap remains in place).

The actual cost of the course is only one aspect of the overall cost of further education. Accommodation, food, travel, study material, and entertainment all need to be covered whilst a student is at University. Whilst the Tuition Fee loan covers a fixed amount, the Maintenance loan is means tested and based on household income. The amount a student can borrow via the Maintenance Loan is highly unlikely to be sufficient to cover all of these living costs, and parents or grandparents will need to make up the shortfall. The maintenance support loan has only increased by 2.8% for the 2023/24 academic year, and given that increases in the cost of living far exceed the increase in the allowance, this may well mean parents need to help cover a larger proportion of living costs.

Around the time that a child goes to University, there are likely to be competing demands on parents’ finances. It may be the time when a parent is starting to plan ahead towards the end of their career, and this is the time when maximising pension contributions typically takes a higher priority.

By establishing a regular savings plan years in advance of a child’s education starting, you will have more time to build the value of the accumulated savings, and ease the financial pressure at the time a child is ready to attend University. Selecting the most appropriate method of saving depends on a number of factors, such as the time horizon for investment and tolerance of investment risk. Cash savings accounts may be an appropriate method for some, but investing in a broad range of assets, such as Global Equities and Bonds, could mean that greater returns are achieved over time.

Tax efficiency is another important consideration. An Individual Savings Account or ISA is often a good choice, as the investment held within the ISA can provide returns that are free from both Income Tax and Capital Gains Tax (CGT). Exemption from CGT may be particularly valuable, given the need to draw down lump sums from investments at regular intervals to fund ongoing costs.

Whilst students do not need to start paying back loans until their earnings exceed £25,725 per annum, the rate of interest charged by the Student Loan company now stands at a minimum of 6.25% per annum. This means that students may well be saddled with debt for an even longer period of time due to the interest charges.

Building a university fund from when a child is very young is an ideal way of looking to meet tuition costs and the costs of living during further education. By planning ahead early, parents could also potentially reduce the debt burden on their children, by reducing the amount of Student debt carried forward into their working life.

Funding private education

Parents – and grandparents – always want the best for their children or grandchildren, and for some this means choosing to give them a private school education. Evidence suggests that students from private schools outperform national and global academic averages, and the cost of private education can be seen as an investment in the child’s future.

Meeting the costs of private education can, however, look daunting, when you factor in not only the fees, but also the additional costs of school uniforms, and other activities such as trips, sports, and music lessons. For this reason, parents who wish to send their children to a private school need to start planning ahead, and build a strategy to save sufficient funds over time to cover the expected costs. In the same manner as saving for further education costs, ensuring that funds are appropriately invested, and in a tax-efficient manner, are key considerations.

Grandparents are often keen to help fund school fees as a way to invest in their grandchild’s future, while also making sure the parents don’t shoulder all the financial burden. It is, however, important to consider the Inheritance Tax implications of any gifts made. Annual gifts of up to £3,000 in total should be exempt, but additional gifts could be liable to Inheritance Tax unless the donor lives at least seven years from the point the gift is made. An alternative approach is to gift funds into a Discretionary Trust, with the grandchildren named as potential beneficiaries. The Trustees can then draw from the Trust to fund ongoing educational expenses.

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. Speak to one of our experienced financial planners here if you would like to discuss how best to plan for future education costs.

Firms have until 31^st July 2023 to fully implement the Consumer Duty requirements for new and existing products and services. The Financial Conduct Authority (FCA) introduced the new requirements last year and undoubtedly these are significant pieces of regulation that aim to improve how firms serve their clients.

In recent years, the FCA has considered several provider services and products unfit for purpose because they fail to provide fair value, ongoing support or exploit customer loyalty. To combat this, the FCA’s Consumer Duty aims to create a significant shift in culture and behaviour to ensure all firms offer a higher standard of care for its clients.

Underpinning principles

The underpinning principles of the new regulations set out how the FCA expects firms to act. In essence, a firm must act to deliver good outcomes for retail clients by acting in good faith and supporting them in pursuit of their financial objectives. The FCA wants to see these new principles applied to products and services, price and value, consumer understanding and consumer support. When designing a product or service, providers should also avoid negative barriers and anything that could impact on a consumer experience such as exit penalties or unreasonable terms that may make it difficult for a client to move to an alternative provider in the future.

FAS Consumer Duty analysis

Whilst it may be labour intensive and somewhat consuming at times, we welcome any regulatory change that raises the bar within our industry, which has come a long way over the past 20+ years. Far too often, we still hear and read about poor consumer experiences where clients have perhaps been “sold” a dubious product or service, have been charged an extortionate fee or are continuing to pay for a service they do not receive.

At FAS, good client outcomes are at the core of our everyday operations, and we are confident that the depth of what we do here is way above the industry standard. So, we hope it will come as no surprise to you that having undertaken a fair assessment of the services we provide in line with the new Consumer Duty regulations, incorporating the Concepts Discretionary Managed Portfolio Service, it has been comfortably demonstrated that FAS does indeed provide fair value and good outcomes for its clients. Furthermore, we will be reviewing the services we provide each year to ensure that this continues.

As part of our Due Diligence, we will also be monitoring the platforms and product providers we recommend to our clients to make sure they too meet all the new Consumer Duty requirements for clients.

Independent v Restricted

As many of you will know, there are two types of financial adviser, an independent adviser and a restricted adviser. At FAS, we choose to be completely independent so that we can research and recommend financial products spanning the whole of the market. In doing so, our advice is unbiased and unrestricted which contrasts with a restricted firm where advisers are limited to certain products from certain providers. In some cases, restricted advisers can only recommend products from a single company, which in our opinion is not providing a comprehensive service to clients or good value.

We are very proud of our independence, and the ability to recommend the most appropriate product or service from across the marketplace helps us to achieve our aim of providing the best advice to clients. By being independent, we can also aim to provide good value for money, by being able to access potentially more cost-effective options from across the industry.

Client awareness of restrictions?

Consumer Duty throws a shadow over a restricted advice service, and we wonder how such firms are faring with this regulatory review. Consumer Duty requires firms to demonstrate that they are providing good outcomes for clients, and value for money. There is a greater emphasis on the need for clients to understand the precise nature of the service they are receiving so we would be interested to know what percentage of restricted advice clients truly understand the restrictions they are faced with and the impact these can have.

By not being able to select funds from across the marketplace, this can dampen investment returns from the chosen investment funds, as a single fund house or manager is unlikely to be “best of breed” in all areas of the market. We have undertaken own our analysis and research of fund performance of the in-house funds offered by firms offering a one-stop shop and discovered that in many cases fund performance over the long term can be disappointing. Also, despite the restricted nature of the advice, clients opting for a restricted service may not receive good value for money, as fund solutions and management fees may be higher than those charged by firms that are independent.

We believe Consumer Duty gives independent firms such as FAS a distinct advantage and as our day-to-day operations focus on providing a responsive, independent advice service, we feel confident that our business easily meets the requirements of the new regulations.

If you have any questions regarding our internal review or any other matter relating to your financial arrangements, please do get in touch here.

When we consider what the future may look like, many would place financial security high on their list of priorities. Once financial objectives have been set, it takes forward thinking and planning to achieve those goals. Whilst it is possible to create a plan yourself, using a financial planner can provide expert advice and reassurance, help identify areas that you may not have considered and save time too. In this article, we look at some of the key ways that financial planning can help achieve investment goals.

Setting the objectives

When people first engage with a financial planner, one of the key areas to agree upon are the financial objectives that need to be considered. Identifying a priority order is an important step to take, to obtain a clear view of the most important areas to tackle first. Objectives can change over time, and at different stages of our lives, our priorities will evolve. For example, a young family looking to purchase their first home may well be focused on obtaining a mortgage or protecting their family in the event of death or ill-health. Whilst long-term saving and pension planning would naturally be desirable at this time too, affordability may well dictate that these areas take a lower priority for the time being. Other life events that can lead to a significant shift in financial priorities are reaching retirement age, getting married or facing divorce.

Identifying opportunities

Financial planning is a personal process. Everyone has a different set of circumstances, goals and attitude to risk, and it is therefore not possible to create a financial planning template that best suits every possible situation. Engaging with a qualified financial planner can introduce solutions and opportunities that may not immediately be apparent. These solutions and ideas can vary from ways at which income tax liabilities can be reduced, to investment advice to reduce risk and diversify an existing investment portfolio. Taking a holistic view can also identify gaps in a financial plan, such as the need to arrange additional protection, to establishing a plan to fund school fees or university costs in the future.

Regular review and planning

None of us know what the future holds and even the best laid plans may need to adapt to a change in circumstances. Advice is perishable, and a particular course of action may need to be altered as circumstances change. This is why reviewing your finances on a regular basis is so important, as it provides the opportunity to consider whether you’re on track to meet your goals, and understand how existing plans and arrangements may need to adapt.

Holding a formal financial review at least once a year can also be the ideal time to look at annual planning opportunities, such as using the Individual Savings Account (ISA) allowance, making additional pension contributions, or selling assets to use your Capital Gains Tax allowance. It can also make sure that your finances are not affected by any changes in legislation that have occurred since the previous review.

Reassurance in difficult market conditions

Investment is a long-term process and markets will go through bouts of volatility from time to time. Behavioural finance studies show that investors can make rash decisions to sell investments when market conditions are difficult, which may not be the correct course of action to take. It is at this point that the true value of financial planning advice can be found. Speaking to an adviser can provide reassurance and a calm voice through market turmoil, helping you focus on the longer term and taking an impartial view of your overall financial position. A good adviser can also suggest changes to asset allocation if appropriate and highlight opportunities.

Saving time

Whilst some people are happy to create and manage their own financial plans, many would prefer to work with a financial planner to help achieve their investment goals. Life is busy and it can be difficult to find the time to properly review and consider existing financial arrangements. Engaging a financial planner can lighten the burden and provide peace of mind that a professional is keeping abreast of financial markets and reviewing the investment plan.

The value of advice

Holistic financial planning can add significant value in terms of guidance, planning and reassurance. Over the longer term, it could also boost returns. A study carried out by Vanguard in 2020 found that working with an adviser can help increase investment returns over time, through added value achieved by behavioural coaching, rebalancing of portfolios and use of annual tax exemptions. Vanguard estimate that these factors could potentially add around 3% per annum in additional returns. Naturally, there are some caveats, in that investment market performance can vary from year to year, and the monetary benefit of using an adviser will vary accordingly. The study is, however, an interesting attempt to quantify the benefits of engaging with a financial planner.

Engage the right adviser

Using a financial adviser to create a plan, and undertake regular reviews, can provide many benefits, from tax planning to guidance and reassurance. Using a Chartered firm brings further comfort that the advisers are highly qualified, and the business will aim to deliver the highest standards of professionalism.

Contact us here to start a conversation with one of our experienced financial planners.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The diagnosis of any serious illness can be physically and emotionally draining for families, however, being diagnosed with dementia can be particularly challenging. As cognitive decline tends to be a progressive illness, the burden on finances over time can be significant and losing the ability to make decisions can lead to difficulties in managing money on a day-to-day basis. Any financial risk can be reduced by thinking ahead, as forward planning can keep your affairs in order and help family members organise your finances effectively, if you are unfortunate enough to lose capacity and the ability to make decisions for yourself.

Sobering statistics

Sadly, dementia cases are rising rapidly. According to figures commissioned by the Alzheimer’s Society, there were 900,000 people living with dementia in the UK in 2019. This figure is expected to almost double to 1.6 million by 2040. Looking at global figures, it is estimated that 139 million people around the World will be living with dementia by 2050.

Whilst often considered to be an illness developed by older individuals, 42,000 people under the age of 65 in the UK are living with dementia. Early-onset dementia can pose particular risk for family finances since those developing the illness may still be working and need to consider how to cover mortgage costs and pay for the upkeep of dependent children.

Make a Lasting Power of Attorney

It is important to consider what would happen to your affairs, if you suffered from cognitive decline, and were unable to make decisions that impact your finances or well-being. This is particularly important when an individual holds investments, property or other assets that cannot be managed easily.

Given the stark figures for dementia cases, it is important that individuals take responsibility and get their affairs in order by creating a Lasting Power of Attorney (LPA). This is a legal tool that lets you appoint someone (an attorney) you trust to make decisions for you if you are unable to make those decisions yourself.

There are two different types of LPA. The first covers your Property and Affairs and the second covers your Health and Welfare. In both instances, the attorney steps into the shoes of the individual granting the power and has the same legal status. For example, an attorney can undertake relatively simple tasks such as paying a bill or collecting benefits, as well as dealing with more complex decisions, such as selling a property or managing investments.

An attorney is duty-bound to always act in your best interests and consider your wishes in any decisions they make on your behalf. For this reason, most people will appoint a family member as their attorney, as this is someone who knows you well and you trust to make the right decisions for you.

Once the LPA has been created, it needs to be registered with the Office of the Public Guardian (OPG). In the case of the Property and Affairs LPA, this can be used as soon as it has been registered; however, the Health and Welfare LPA can only be used once you are unable to make decisions yourself.

It is not too late

Whilst forward planning can provide reassurance that your affairs are in order, many people do not make a LPA in advance of the diagnosis of dementia. It is important to note that a diagnosis does not prevent an individual from making a LPA, but it is advisable to get the documents prepared as soon as possible. A medical assessment by a qualified professional is likely to be required to ascertain whether the individual has the mental capacity to make an informed decision to be able to create the LPA.

The consequences of not taking action

If an individual loses capacity, and no LPA has been prepared, then typically an application is made to the Court of Protection, who will appoint a deputy to manage your affairs on behalf of the Court. Whilst a deputy has similar powers to an attorney, the deputy is appointed by the Court, and not by you. This appointment may, therefore, not concur with your wishes. Furthermore, the process of appointing a deputy is costly and long-winded and this could lead to considerable delays in being able to make financial arrangements, such as paying for care costs.

In addition, a deputy is placed under greater control and supervision by the Court, and needs to prepare an annual set of accounts, covering decisions and financial transactions taken. A deputy may also need to arrange a “security bond”, which is an insurance policy that protects the assets of the patient.

Keep your Will up to date!

In addition to preparing a LPA, everyone should make a Will. This sets out an individual’s wishes on death and helps make life a little easier for family members at a time of great stress and sadness. As with the LPA, the diagnosis of dementia would not prevent an individual from making a Will; however, it may well be advisable, or even necessary, to obtain expert medical evidence that an individual has the capacity to make the Will.

How FAS can help attorneys

At FAS our advice is that all individuals should consider making a LPA. It is sensible planning which can avoid significant cost, delay, and worry for loved ones. You can either prepare LPA documents through the Government web service or contact a Solicitor who can provide advice and prepare the documents and application for you.

We are very familiar with providing advice to attorneys, where planning decisions such as covering the cost of ongoing care, or managing existing investments are needed. Our financial planning team have extensive experience in dealing with dementia cases. If you have any queries or concerns, please do give us a call.

If you would like to discuss the above in more detail please contact one of our experienced advisers here.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The start of each tax year brings a new set of tax allowances and is traditionally a time when investors take stock of their existing arrangements and look for planning opportunities. The series of measures announced in the Budgets in November and last month herald some significant changes that will now come into effect, with a number of potential planning opportunities to consider.

Pensions overhaul

A range of new pension legislation comes into effect from 6^th April, and provides significant opportunities for individuals looking to accumulate their pension pots, anyone whose pensions are close to the Lifetime Allowance, or indeed those who have already begun drawing a pension flexibly.

The pension Annual Allowance, which is the maximum that an investor can contribute to a pension each tax year, has increased from £40,000 to £60,000. It is important to remember that any contributions made are always capped by the level of relevant earnings (salary or self-employed income). The new allowance of £60,000 provides much greater scope for individuals to make a higher level of contribution, and in particular, provides a valuable opportunity for Directors to arrange substantial Employer Pension contributions.

Anyone who has flexibly accessed a pension in the past, has seen the limit for further pension contributions limited to just £4,000 each year, as they are subject to the Money Purchase Annual Allowance. This allowance has been increased to £10,000 from 6^th April 2023, and provides scope for those returning to work after taking retirement to make a more meaningful level of pension contribution.

The biggest single change in the March Budget was the announcement that the Lifetime Allowance for pension savings is to be scrapped. In the 2023/24 tax year, this allowance remains in place; however, the tax charge for breaching the Lifetime Allowance has been reduced to 0%. The level of Tax Free Cash available when taking a pension hasn’t been increased, but the removal of the punitive tax charge for breaching the Lifetime Allowance provides new opportunities for those wishing to pay more into their pensions, or for anyone with pension savings above the allowance, to draw more out of their pension. As ever, planning around these areas can be complex, so we recommend speaking to one of our experienced independent financial planners for advice.

Investment tax changes

Anyone who holds investments outside of an Individual Savings Account (ISA) should look to consider how tax efficient their portfolio is, as changes to the taxation of dividends may lead to more individuals paying tax on their dividends. The Dividend Allowance, which covered the first £2,000 of dividends in the 2022/23 tax year has been halved to just £1,000 for 2023/24 and a further halving of the allowance will follow in the 2024/25 tax year.

Consider the position of an individual who holds £30,000 in investments (either directly held stocks or Unit Trusts) outside of an ISA, that generate a dividend yield of 4%. In past tax years, the Dividend Allowance would have easily covered this income, thus avoiding any tax liability. With the smaller allowance now in place, this would mean that £200 of the dividend income would be subject to tax at 8.75% for a basic rate taxpayer, or 33.75% or 39.35% for a higher or additional rate taxpayer respectively.

By placing the investments inside an ISA, dividends would be tax free; however, investors need to be even more careful to consider the Capital Gains Tax (CGT) consequences of any actions taken, as the CGT allowance has more than halved from £12,300 to just £6,000 in the new tax year.

The start of a new tax year is also an ideal time to consider the existing investment strategy, and if you hold investments that have not been reviewed for some time, now would be the ideal opportunity to overhaul an existing portfolio.

Tax tune-up

Whilst the amount we can earn in a tax year before paying Income Tax hasn’t changed, more people may well find themselves subject to Income Tax on their earned income, or from pension sources, from the start of the new tax year. Pensioners in particular need to pay attention to the impact of the 10.1% increase to the State Pension coming into effect, on the amount of Income Tax they could pay on other income, such as private pension or investment income.

Other tax traps exist, including the lowering of the starting point where Additional rate Income Tax is paid. The reduction from £150,000 to £125,140 will mean that higher earners will end up paying an additional 5% Income Tax on income between £125,140 and £150,000. Coupled with the taper on the Personal Allowance (which isn’t new, but is nonetheless painful) this is the ideal time for higher earners to take stock of their financial position and consider planning opportunities to reduce their tax bill.

Take a holistic view

We have outlined just a handful of the most important changes that come into effect from 6^th April, but there are more that should be considered, depending on your particular circumstances. This is where holistic financial planning can provide significant value, in assessing the bigger picture and taking into account your personal circumstances to look for ways to improve tax-efficiency and streamline investment strategies. A conversation with one of our experienced independent planners could well help identify changes that take full advantage of the new opportunities.

To discuss the above in more detail please contact one of our experienced advisers here.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.