Financial Planning

The rising cost of care has been hitting the headlines lately, which has placed the spotlight on long-term care annuities designed to pay out for the rest of a person’s life. But these annuities may not be the best solution for everyone.

The costs of long-term care are increasing. According to LaingBuisson, an independent provider of healthcare statistics, the average cost of residential care home fees for someone in the UK increased to £672 a week (almost £35,000 a year) in the 2019-2020 tax year, an increase of 3.0% on the average fees in the previous tax year. Over the same period, the costs associated with nursing homes – where residents receive round-the-clock care – reached an average of £937 per week, almost £49,000 a year, an uptick of 5%.

Despite recent announcements from the government that National Insurance and Dividend Tax will be increasing to help to pay for the cost of social care, most people will have to pay for their own care as they get older. And with around one-fifth of the UK population – or 12.3 million people – aged 65 or older (figures published in 2019), it’s not surprising that more people are considering taking out some sort of insurance policy to help pay the future costs of care. These products are also known as ‘long-term care annuity’ or ‘immediate needs annuity’. With both, you use a lump sum to buy an insurance policy that pays out a regular lifetime income. This income is then yours to help fund your care fees for as long as you live. While a long-term care annuity might seem like an appealing option, giving you some much-needed peace of mind, they have several limitations that everyone should be aware of before they take one out.

What types of long-term care annuities are available?

Broadly speaking, there are two options when it comes to the types of long-term care annuities currently available, depending on whether you need care funding now, or expect to need to fund care in the future. The first is an ‘immediate needs’ annuity, and the second is a ‘deferred annuity’. We explore both of these in a bit more depth below.

An immediate needs annuity

This is an insurance policy designed to pay a regular income towards the cost of your care fees over the course of your lifetime. An immediate needs annuity is usually considered appropriate if the individual has health issues or is already receiving care at home or in a care home.

The annuity is bought upfront, with a single payment. The amount you must pay to buy the annuity will be calculated based on factors such as your age, your health, and the expected costs of current and future care. If you’re in poor health, you can expect to pay a lower price for the annuity, given the length of time you will need to pay for care will most likely be shorter than for someone in good health.

Disadvantages of an immediate needs annuity

There are several drawbacks that mean immediate needs annuities may not offer the best value to someone in need of long-term care. For starters, the initial cost of the annuity can be staggering, and can eat up much of an individual’s capital assets. Whilst the average stay in care is 26 months, sadly many survive for a much shorter period of time in care, and in these cases, the return on the annuity purchased can prove to be very poor value. Usually, if an individual dies shortly after taking out an immediate needs annuity, there is no return of capital to the estate, leaving beneficiaries in the will significantly worse off.

Second, taking out an immediate needs annuity can take longer than the name would have you believe. As annuities are insurance policies, they have to be underwritten, which means the annuity provider will first collect information about your health from your GP, family and current care provider. Third, if your annuity doesn’t allow for care fee increases, it may not even cover all of your future care costs. If this happens, you will have to make up the shortfall through other means.

A deferred annuity

A deferred annuity is similar to an immediate needs annuity, although having bought the annuity, you won’t begin to receive the income payments immediately. Instead, you choose when you want to be paid income, usually between one and five years in the future. The longer the deferred period, the lower the cost of the plan overall.

The disadvantages of a deferred annuity

As you would expect, while cheaper than an immediate needs annuity, a deferred annuity still requires an upfront payment. Should you need to pay for care fees sooner than anticipated, you’ll be expected to pay these fees until the deferred annuity income starts. The worst-case scenario would be that care costs increased to levels that saw you run out of money before the deferred annuity kicks in.

It’s also worth noting that the income from your annuity will be taxed at your marginal rate and may also affect your entitlement to means-tested benefits. This applies to immediate needs annuities too.

Are long-term care annuities value for money?

The answer to this question really depends on the particular circumstances of the person who is in need of care. We would suggest that the number of people who would benefit from a long-term care annuity is actually rather small, and that it’s a specialist product for those with urgent care needs, and where leaving behind an estate is not a key factor. For the vast majority of people looking to make long-term care plans, other options might offer better value and suit their longer term objectives.

For example, instead of using capital to buy an annuity to pay for care, we often suggest an alternative where funds remain invested and capital is drawn down when required. This is a more flexible approach, and gives your money the chance to keep growing while it’s not needed. The added benefit of this is that upon death, the remaining capital is still available to form part of a person’s estate, and therefore left to beneficiaries.

If you are interested in discussing long-term care 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. 

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. 

Since the COVID-19 pandemic, we have noticed an increase in the number of people coming to us for financial advice. We see this as evidence of the real need for people to seek out professional advice to help with their financial concerns and aspirations. So, we wanted to share some of the questions that should be asked when anyone chooses to meet with a financial adviser.

1. What are your professional qualifications?

It always makes good sense to find out what professional qualifications a financial adviser has attained. When it comes to finding the right person, it is important to start with a feeling of trust. You want to feel reassured that they are professionally competent and that they have the necessary specialist knowledge, experience, and technical expertise to be able to advise you properly. Of course, a professionally qualified adviser will be pleased you asked the question and will be more than happy to disclose their credentials as they will have worked very hard to pass their exams!

One of the challenges with the UK financial services sector is that there are a number of different bodies that assist in the attainment of industry professional qualifications entitling someone to be called a ‘Financial Adviser’. These include the Chartered Insurance Institute, the Personal Finance Society, the Institute of Financial Planning, the CFA Society of the UK, and the Chartered Institute for Securities and Investment. All Independent Financial Advisers in the UK are regulated by the Financial Conduct Authority (FCA) and can be found on the FCA register.

At FAS, we are part of a relatively small group of independent financial advice firms in the UK to have been awarded the ‘Chartered Status’ from the Chartered Insurance Institute. This is considered the ‘gold standard’, in terms of commitment to professional excellence and integrity. The Chartered Insurance Institute only awards Chartered Status to firms with the highest level of advanced qualification, an overall commitment to continued professional development, and adherence to an industry-standard Code of Ethics.

2. What services do you provide?

People decide to talk to a professional financial adviser for any number of different reasons. Perhaps they have experienced a sudden change in their personal circumstances or decided that the time is right to start planning for their future.

At FAS, we call ourselves financial planners because we believe in offering our clients a comprehensive service that takes everything into account. While some financial advisers can be relied upon to recommend a particular product or service, we believe financial planning should be holistic and more about the actual advice than simply selling financial products.

Our team will talk to you and take whatever time is needed to help determine both your shorter and longer-term financial aims and objectives. This means that as well as covering more immediate issues, such as tax-efficient investments and savings, mortgages and protection and family arrangements, we will also cover a wider variety of topics such as your retirement goals, inheritance tax and estate planning, and any potential later life care needs. For example, tax planning is one of our specialist areas, and because this is such a potentially complex area, it is important that a client receives comprehensive professional advice tailored to their personal situation, rather than receiving generic advice.

Our aim is to work with you to build a well-considered, robust financial plan that can give you peace of mind and allow you to work towards the future you want for yourself and your family. We would always say that a financial plan is better than just selling a product, but this is an important discussion to have with any financial adviser you are considering using.

3. How do you get paid for providing financial advice?

This is an important question to ask anyone who provides financial advice, and it is an answer that most advisers will already have prepared in advance. We believe that the best financial advice pays for itself in the long run and that the best available advice is independent in nature.

As the name suggests, an independent financial adviser will offer you impartial, objective advice on financial products and services. This means they will carry out research across the whole of a particular market to find the right solution to suit you personally. The alternative is a ‘restricted’ financial adviser, who can only recommend products from a limited selection or product range, not from the entire marketplace. Restricted advisers are usually incentivised to recommend products or services from within the available product range.

We have noticed an increasing number of clients who have come to us because they have been disappointed by the performance of managed portfolio products recommended to them by restricted advisers. This is because in most instances the adviser can only recommend the managed portfolio service from the investment company they work for. However, if you receive an investment recommendation from an independent financial adviser or planner, they are able to research and choose the associated product from the whole of the market, not just one provider.

4. What experience do you have advising people in my situation?

One of the most common questions we hear from new potential clients is whether we have experience advising clients in a similar situation to their own. More often than not, the response is a resounding ‘yes’. We have been providing independent financial advice since 1991 so for 30 years we have been able to provide our clients an exceptional level of personal service, tantamount to what you should expect to receive from any professional practice.

We often receive enquiries from potential clients who have had a less than welcoming experience from larger financial advice firms, which has left them feeling neglected while ‘bigger’ clients are prioritised. No one wants to be made to feel like a ‘little fish in a huge pond’, which is why we have continued to expand the business to make sure that both new and existing clients remain well looked after and receive the attention they deserve.

Summary

People often make the decision to talk to a financial adviser because they have a specific issue in mind, usually one that demands immediate attention. But looking beyond that, you should look to forge a relationship with a financial professional who understands you, your personal needs, and your lifestyle goals – someone who will be able to use their knowledge and experience to turn this into a well-defined financial plan.

Above all, it is worth thinking about the relationship you have with your financial adviser. It should be capable of lasting for many years, you should feel comfortable with that person and expect to continue to benefit from their advice well into the future.

If you are interested in discussing your financial plan or 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.

With the coronavirus forcing many of us to re-evaluate our lives, and to prioritise what’s most important, thousands of people have realised the advantages of getting professional financial advice to help them reach their goals and protect their family.

The pandemic has certainly helped to focus people’s minds on things that they may have been putting off for a long time. For many, reviewing their financial situation has been a necessity, as many individuals have been put on furlough, lost their job, or chosen to retire early.

So, it is no surprise that since COVID-19 interrupted everyone’s lives more than a year ago, there’s been a sharp increase in the number of people seeking financial advice. Here at FAS, we have noticed a significant number of new clients talking to us about protection products such as income protection and critical illness cover. We have also seen a rise in demand for retirement and estate planning advice, as more people have decided that they need to make decisions now about their future.

However, the rise in the number of people seeking financial advice has been met by an expanding range of options available to individuals. In recent years, a number of large investment companies have widened the services they offer clients to include financial advice. However, it is important to recognise that there is a huge difference between financial advice designed to sell you products, and a more comprehensive financial planning service designed to look after your needs.

The meaning of ‘restricted advice’

If your high street bank or big-name investment provider tells you they now offer financial advice, you can be certain that the advice they give is of the ‘restricted’ variety. Being ‘restricted’ means an adviser can only recommend products from a limited selection or product range (usually the bank or investment provider’s own services), not from the whole of the market.

Using a restricted financial adviser doesn’t necessarily mean you’ll be getting ‘bad’ advice. All financial advisers must have a similar minimum level of qualifications and meet the same standards. It just means that the choices available to you may limited, and the advice they give you might not be in your best interests. They might only be able to suggest a pension from one pension provider, for example. Your options could be drastically reduced, because they won’t have access to the widest choice of products available. More importantly, after they’ve sold you the product, their job is done so you run the risk of experiencing a very shallow, transactional approach, when you might well be in need of more comprehensive financial planning.

The meaning of ‘independent advice’

Independent financial advisers, on the other hand, are so much more than salespeople. We believe financial planning is more important than just recommending where you should put your money. It’s our job to help you plan your goals in life, consider your personal circumstances and help you decide on the best course of action.

In the case of pension planning, an independent adviser will research every relevant pension available within the UK market to find the one that they believe is best suited to your needs. They will then make a recommendation and provide you with the reasons that justify their decision.

In fact, recommending products is just a small part of what we do. We tailor our advice to suit your needs, and we will never recommend a product that is not suitable for you. We will always provide you with clear, comprehensive reasons behind every recommendation we make.

Creating your bespoke financial plan and carrying out regular reviews

There are other advantages to be gained from talking to an independent financial adviser over a restricted financial adviser tied to a larger organisation. For example, we can help you to set clear goals and create a financial plan that covers all eventualities. And, whether you like to keep on top of your investments and finances regularly or just every now and then, we can make sure that your finances stay on track, and alert you to important changes of rules and regulations that may come with tax implications or that you may be able to take advantage of. With us, you will not end up feeling forgotten after you have signed on the dotted line.

Tax planning and tax efficiency

One area in which independent financial advisers excel over the new breed of restricted financial advisers comes with navigating the complexities of the UK tax system. Whereas financial advisers who work for investment companies or banks may be well-versed in the benefits of their own company’s products and services, they may not be so well-equipped with helping you with tax and estate planning. We can provide a comprehensive service that takes tax planning into account, and potentially reduces your tax obligations in the process.

Summary

Good independent financial advice can make a real difference to your quality of life, at any age. At a time when many people are thinking more deeply about their personal finances, as well as their goals and future plans, talking to an independent financial adviser who is capable of giving impartial, expert advice is still the most cost-effective way to help you get there. If you receive advice from an independent financial adviser at FAS, you can certainly feel confident they are working solely for the benefit of you, and no one else.

If you are interested in having a discussion with one of our experienced financial planners, please get in touch here.

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

Setting up a Lasting Power of Attorney is an important step you should take to make sure your loved ones can make the important decisions about your health and your financial wealth on your behalf, should you become incapacitated through ill health or accident.

We live in an era when people are likely to live for many more years than previous generations would have expected. But with more people living longer, it has become increasingly commonplace that many will reach a point in their life when they are no longer able to make decisions for themselves.

Sadly, this is only likely to become more commonplace. According to Alzheimer’s Research UK, one million people in the UK will be diagnosed as living with dementia by 2025, and this will increase to two million by 2050. A person’s risk of developing dementia rises from one in 14 over the age of 65, to one in six over the age of 80.

When the person who has been in charge of the family finances all their life is no longer capable, it can become increasingly difficult for their family to ensure that the right decisions are being taken. So, as we all get older, it becomes even more important to make sure we get our affairs in order, and one of the best ways to do this is to arrange a Lasting Power of Attorney (LPA).

What is a Lasting Power of Attorney?

An LPA is a legal document that lets you appoint someone you trust to make decisions on your behalf, should you become unable to make those decisions for yourself in the future. There are two different types of LPA:

1. Property & Affairs LPA – which lets the person/s you appoint make decisions about your property and finances.
2. Health & Welfare LPA – which lets the person/s you appoint make decisions about your health care and medical treatment.

You can choose to set up one or both types of LPA, and you can nominate the same person or elect to have different attorneys for each. However, just because you’ve set up an LPA, it doesn’t mean that you instantly lose control of the decisions that affect you. You can be very specific on the LPA about when the attorney acting on your behalf is able to take control. All LPAs must be registered at the Office of the Public Guardian, which is the government body responsible for the registration of LPAs before they can be used.

Who can be your attorney?

You can nominate anyone to be your attorney, provided they are 18 years old or older. However, for a Property & Affairs LPA, your attorney cannot be bankrupt or the subject of a debt relief order. Whoever you choose, you should bear in mind that they will need to be someone that you trust to make decisions for you, and will be able to act responsibly and in your best interests. It’s always worth having a conversation with the person you’re considering to nominate as your attorney, so you can explain your wishes and your preferences, along with what you expect of them.

What are the benefits of setting up an LPA?

Having an LPA in place will make things easier for you and your family should you start to become incapacitated. For example:

• Once the LPA has been set up, it will become easier to have discussions with your family, both in terms of your wishes now, and what you want to happen in the future. An LPA is a great way to make sure everyone is on the same page. It can also help your attorney to become familiar with all your financial and legal arrangements.
• With a Property & Affairs LPA, you don’t have to step away entirely from the decision-making process. You can ask your attorney for help with your decisions but still have the final say yourself.
• Arranging an LPA will make things considerably less complicated, time-consuming, and expensive for your loved ones should they need legal permission to act on your behalf in the future.

What happens if someone doesn’t have a Lasting Power of Attorney?

If you lose mental capacity and don’t have an LPA arranged, your family will have to apply to the Court of Protection to become your appointed ‘deputy’. The Court of Protection will make an assessment and appoint someone that it believes is a suitable appointee. This deputy will then make financial decisions on your behalf. It’s worth recognising that the person the Court appoints may not be the person you would have intended. It’s also worth noting that the process of appointing a deputy can take considerable time to resolve.

LPAs and Discretionary Fund Management

For obvious reasons, when it comes to managing someone’s investments, the subject of exactly what an attorney is legally allowed to do becomes more complicated. Many people who have been placed into the role of attorney may not feel qualified to make strategic investment decisions, and feel this type of responsibility is best left to professionals with the experience and qualifications to make the right decisions.

Therefore, subject to the donor’s consent, it is important that any LPA document contains specific wording that provides express permission to delegate investment management decisions to an existing or new discretionary investment manager. If the document does not provide this permission, Attorneys will need to take decisions themselves following advice from an investment professional or they will need to apply to the Court of Protection to obtain retrospective consent before they instruct any investment decisions.

How we can help

Quite often, it is the parent in need of care who holds all the family assets in their name. At FAS, we have been made aware of several cases where family members have found it difficult to make long-term care provisions for a parent who was no longer capable of making their own decisions.

In these instances where no LPA has been put in place, family members have spent considerable time and money trying to take control of the parent’s assets to pay for their care, while experiencing lengthy delays trying to get a determination from the Office of the Public Guardian. These cases have convinced us that families should really start talking about the importance of LPAs long before they think an LPA will ever be needed. We can help to ensure that any LPA drawn up contains the necessary wording to delegate investment decision-making to those best placed to manage the investments.

Summary

As with writing a will, the most important aspect of an LPA is that it gives you the power to make a decision when you choose to, rather than leaving it too late to have your say. Creating an LPA at the same time as you write your will could potentially save you and your family a great deal of money and distress further down the line.

If you are interested in discussing arranging an LPA 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.

We are living in an era of historically low interest rates, which is particularly bad news for anyone with NS&I Premium Bonds, ISAs, and other cash savings products. Now might be the time to look at getting a better return.

If you were looking for a secure and responsible home for your savings, it used to be hard to beat National Savings & Investments (or NS&I for short). For decades, NS&I was the place where people kept their cash savings, either in Direct Savings Accounts, Cash ISAs, or if you wanted the thrill of winning a possible jackpot, Premium Bonds. One of its biggest selling points has always been that its purpose is to provide money for the UK Government and that all its products are backed by a 100% guarantee from the Treasury.

A long-standing institution

NS&I might seem like a bit of a relic from a past age, and in many ways it is. This is, after all, the same establishment that issued War Bonds and Defence Bonds during the First and Second World Wars. However, today the role that NS&I plays in raising funds for the government is much reduced and represents only a small part of the government’s borrowing plans. Instead, it is far more likely to raise billions of pounds by selling Government Bonds (Gilts) on the open market.

But even if its best days are behind it, NS&I still stands as one of the largest – and most popular – savings institutions in the UK, with 25 million customers trusting it with more than £179 billion. And the problem is that the majority of these customers are being short-changed by the rate of interest they are earning on their savings. That’s because recently NS&I has been trying to discourage people from investing with them. In September, it announced sharp reductions to interest rates across its product range, and these new rates came into effect on 24 November:

• Direct Saver interest rates are being cut from 1.00% to 0.15%
• The interest rate on Income Bonds is cut from 1.15% to 0.01%
• The interest rate on Direct ISAs is reduced from 0.90% to 0.10%
• Junior ISAs don’t escape either – the interest rate is being cut from 3.25% to 1.50%
• Even the monthly odds of your numbers coming up on the Premium Bonds are being slashed – from 24,500 to 1 to 34,500 to 1.

An era of historically low interest rates

It’s worth remembering, of course, that the UK base rate of interest is currently 0.1%. The Bank of England opted to reduce it from 0.25% to 0.1% in March 2020, as part of its measures to control the economic impact of the coronavirus lockdown. So, NS&I is simply making changes that reflect the current state of affairs. But from a savings perspective, things could get worse.

Are negative interest rates on the way?

You might be forgiven for thinking that with the base rate at 0.1%, it couldn’t go much lower. But you would be wrong. The Bank of England has recently started discussing the prospect of negative interest rates, which could take interest rates below 0.0%. Negative interest rates are not unheard of and have already been put in place in the Eurozone, Japan, and Switzerland. Whether negative interest rates are any more effective at encouraging economic support and stability, is still very much open to debate.

In October, the Bank issued a letter to the chief executives of all UK banks and building societies, as well as large international banks and insurers, asking them to identify any “operational challenges” associated with the implementation of zero or negative interest rates. Dave Ramsden, the Deputy Governor at the Bank of England, recently pointed out that negative rates are “certainly in the toolbox for potential use in future”, adding that the Bank “will keep the appropriateness of all tools, including negative rates, under review”.

So, what does this mean for cash savers?

Anyone holding cash in a standard deposit or savings account should understand that their money is already earning a paltry rate of interest – and this is only likely to continue for the time being. Even though inflation is also relatively low at the moment (The Consumer Price Index measured inflation at 0.7% in September), this still means that the value of the cash you hold in the bank is being eroded – it is literally worth less than it used to be. Negative interest rates would mean receiving zero return on your savings, ensuring your money would shrink even faster as it sits on deposit.

So, with savings offering little or no value, should you be looking elsewhere for an income on your money? We think so. If you rely on your savings for an income, it is certainly a good idea to look at some of the alternatives available. For example, investing in a cautiously managed portfolio of stocks and shares could be a way of earning a better rate of return, and growing the value of your investment over time, without taking too many risks with your money. In fact, a zero interest rate environment could even be a positive for UK stocks. This is because it allows companies to borrow more, and should increase the value of its future earnings paid out to shareholders.

There are other investment options available too, so this might be a good time to work out how much cash you hold and whether it could be put to better use to keep your long-term financial plans on track.

If you have cash on deposit, we would be pleased to hear from you to discuss possible alternatives that might be more suitable. Please get in touch with one of our experienced financial planners here.

The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Trusting your finances to a digital investment platform might be cheap, but you can’t put a price on the peace of mind that personal financial advice gives you.

Technology has had an outsized impact on our lives for several years now. Every time you use a computer, your mobile phone, or take a trip in your car, algorithms are there, behind the scenes, helping to shape your decisions, whether you realise it or not. Algorithms even choose what we see on social media, they dictate which films we watch on Netflix, or what ends up in our basket when we shop online.

But when it comes to providing financial advice, algorithms are still lagging behind. Back in 2015, the introduction of ‘robo-advice’, which relied on computer-generated investment portfolios, was predicted to spell the beginning of the end for financial advisers. But five years later, although we have all grown used to doing most of our daily activities online, the machines don’t look like they’re winning this particular battle.

So, what exactly is robo-advice?

As you would expect, robo-advice is an online investment service where clients are asked a number of questions, including how much they wish to invest, how long they plan to invest the money for, and their general attitude towards risk. The answers to these questions are then used to invest the client’s money into one of several available investment portfolios. The money is then managed digitally for as long as the client wants to remain invested.

What are the positives of robo-advice?

First of all, robo-advice promises to keep the cost of the investment lower than you would expect if you tried to manage a diversified portfolio of investments yourself, or through a financial adviser. And by keeping things simple, it’s a very quick process to get a portfolio up and running. Once the questions have been answered, the client can have their funds invested within a day or so. For investors who have relatively small amounts to invest, it’s a good way of setting aside regular amounts without having to worry too much about keeping an eye on the investments.

What are the negatives of robo-advice?

Despite the name, robo advisers don’t usually offer financial advice. They use algorithms to know just enough about someone to place their money into a particular savings pot, but that’s about the extent of their ability to solve clients’ financial problems. For most people, robo-advice can only get them so far.

Why is robo-advice limiting?

If the events of 2020 have taught us anything, it is that life is unpredictable and sometimes more complicated than we would like it to be. The companies that offer robo-advice to customers want to convince people that financial advice can be stripped down to a computer-generated, algorithmic ‘paint by numbers’ approach. But the reality is that people’s needs are usually far more complex.

One of the most valuable aspects of having a relationship with a financial adviser or financial planner is that it goes far beyond just recommending and overseeing a specific investment.

It pays to have someone to talk to about money

Most people have an emotional relationship with money. Financial issues are the number one cause of arguments rows between married couples. It gives people sleepless nights, and can have a significant impact on their mental health. So, having a financial planner to talk to, someone to listen to your financial needs, hopes and fears, is still an essential part of the advice process – and not something that an algorithm can deal with (yet).

Keeping calm during a crisis

One of the ways that financial planners can really demonstrate their worth is through the value of their experience. This has been a strange year in investment terms. In the early months of the year, when the coronavirus pandemic – and subsequent lockdown – became a global threat, stock markets plunged in value. Inexperienced investors, or those without a financial adviser, often respond in times of crisis by selling their investments, and crystallising their losses.

But a good financial planner can take the emotion out of your financial decisions, help to put ‘apocalyptic’ media headlines into perspective, and make sure that your portfolio is best-positioned to take advantage of recent stock market falls, while also capitalising on longer-term trends. Financial planners can help to reduce the overall risk within your investment portfolio by recommending sophisticated investments, such as tax-efficient Venture Capital Trusts or Enterprise Investment Scheme plans, that simply aren’t available on robo-advice platforms.

In short, during volatile investment conditions, financial planners get the opportunity to get creative, demonstrate their experience and specialist skills, and to really prove their value to their clients. A robo adviser portfolio will just carry on regardless.

Financial planning that goes beyond investment

And of course, investment advice is just one aspect of what our financial planners do. The questions we ask during our fact-finding stage are not just restricted to finding out how much you want to invest and for how long. We are more interested in hearing you talk about your life goals, your plans for your retirement, the wealth you want to pass on to your children and grandchildren. We’re asking these questions because we want to help you plan your financial journey through life. All this information helps us to create a much deeper, lasting relationship with our clients throughout their relationship with us. And it means we’re ready to help when something unexpected happens.

Summary: a matter of trust

While algorithms have improved our way of life in many areas, often in areas we’re not even aware of, it’s also becoming more apparent that algorithms can themselves be flawed or contain hidden biases – after all, they are still programmed by humans.

The lack of take-up of the services offered by robo-advice companies suggests that most people are still deeply sceptical about leaving their financial future in the hands of computer programmes that don’t understand them or care about them.

For some people, using digital-only robo-advice is a cost-effective and simple way to start setting money aside for the future. But for the vast majority, there’s really no substitute to having an experienced financial planner giving you the confidence to make better informed investment decisions. When it comes to the really important questions, or those life-changing decisions, people will always prefer to talk to someone they trust. So, here’s our prediction for the future: financial planning will always be a people-first business.

If you are interested in discussing your financial plan or 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.

Do you know which is better, independent or restricted financial advice? Spoiler alert: there’s only one right answer to this… Independent advice is far superior, and we’ll gladly explain why.

What is ‘independent’ financial advice?

As the name suggests, an Independent Financial Adviser (IFA) will offer you impartial, objective advice on financial products and services. This means they will carry out research across the whole of a particular market to find the right solution to suit you personally. They won’t be biased towards any particular financial company or product, and they won’t base their recommendations on fees paid by other companies to encourage them to sell their products. If you get your advice from an independent financial adviser or financial planner, you can feel confident they are working solely for the benefit of you, and no-one else.

Being independent is a highly-valued status in the advice industry. To call ourselves independent, financial advisers must be able to prove their status to the UK regulator of financial services, the Financial Conduct Authority. If you’re not sure whether an adviser is independent or restricted, ask them. A financial adviser who can only offer restricted advice must declare this to you before making a recommendation.

How does restricted advice compare?

It all comes down to the options that the financial adviser can give you. Being ‘restricted’ means an adviser can only recommend products from a limited selection or product range, not from the whole of the market. Here’s an example that highlights the difference from a client’s perspective.

You arrange to meet a financial adviser to set up a personal pension. An independent financial adviser will research every relevant pension available within the UK market to find the one that they believe is best suited to your needs. They will then make a recommendation and provide you with the reasons that justify their decision.

With a restricted financial adviser, however, the recommendation process is different. The adviser might tell you that they are only able to suggest a pension from one pension provider, or from a select panel of a handful of different pensions. Your options could be drastically reduced, because they won’t have access to the widest choice of products available.

Why is independent better?

Using a restricted financial adviser doesn’t necessarily mean you’ll be getting ‘bad’ advice. All financial advisers must have a similar minimum level of qualifications and meet the same standards.  It just means that the choices available to you may limited, and this might not be in your best interests.

And, sometimes, getting advice that isn’t independent can be a problem. Restricted advisers will often work for a much larger financial services company – in which case they are probably keen to sell you one of their products. Alternatively, they may call themselves restricted because they only focus on one type of financial product (pensions, for example). So, if the restricted adviser recommends a pension to you, you can never be entirely sure whether it is the right pension to suit your needs, or just that he gets paid to sell this particular pension to you.

Independent financial advisers, on the other hand, are so much more than just salespeople. We believe that financial planning is more important than just recommending where you should put your money. It’s our job to find out about your goals in life, look at your personal circumstances and help you decide on the best course of action. In fact, recommending products is just a small part of what we do. We tailor our advice to suit your needs, and we will never recommend a product that we don’t think is 100% right for you, and will always give you clear and comprehensive reasons behind every recommendation we make.

Are independent financial advisers getting harder to find?

You may be wondering why advisers choose to be restricted, since being independent is clearly better for clients? The simple answer is that it is more expensive to be independent than it is to be restricted.

Being restricted makes it easier to run an advice business. A lot of smaller financial advice firms have chosen to become part of larger networks, which give them a panel of investments to sell to their clients. This makes it cheaper for them to run their business, because they can minimise their costs, outsource some of their functions and don’t have to spend so long carrying out painstaking investment research.

Being independent, on the other hand, means going it alone. This can mean paying more for professional insurance, training, and other regulatory burdens.

Don’t forget, most financial advice firms are themselves small businesses. Some have been hit hard by the coronavirus. In fact, the number of independent financial planners operating throughout the UK is shrinking. We’re not quite becoming an endangered species yet, but it’s sad sometimes to see that there are fewer of us out there flying the flag for independence. Because we believe people deserve the opportunity to get independent advice.

As for us, we have no plans to switch from offering independent financial advice to restricted. We believe that being independent means we can keep delivering better quality advice – and better quality outcomes – for our clients. We’re proud to say that all of our financial planners are highly qualified, have years of experience of financial planning – not just selling financial products – and are proud to call themselves independent.

So, if you’re ever in doubt over independent or restricted advice, remember this: a financial adviser who is independent will proudly tell you that fact, whereas an adviser who is restricted is legally required to disclose it. That should tell you everything you need to know about which is better.

If you are interested in discussing your financial plan or 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.

While coronavirus has made academic life full of uncertainty, the one thing you can be sure of is that it’s likely to prove expensive. But don’t worry, we’ve done our homework and put together some practical tips to help you start saving for university fees.

Private school fees – let’s start with the maths

The number of parents who choose to put their children into private education has fallen significantly in recent years. According to the Independent Schools Council, private schools educate around 6.5% of the total population of schoolchildren. That works out at around 625,000 children being taught in around 2,600 schools.

And of course, private education doesn’t come cheap. Based on current prices, sending a child to a private secondary school between the ages of 11 and 18 could mean spending more than £105,000 in total. Sending them to a boarding school could cost four times that amount.

So, unless you have that amount lying around, you’ll need to start investing as soon as possible. For example, if you start saving around £461 per month as soon as the child is born, assuming that you achieve growth of 4.5%, then you should be able to have set aside around £75,000 by the time they start their first year at secondary school. But the later you leave it, the more you will have to save each month (and please don’t get us started on the cost of school uniforms).

What about university fees?

Last year, a record-breaking number of young people enrolled on degree courses to UK universities. And in 2017, the average university student graduated with a debt of £51,000 (according to the Institute for Fiscal Studies). So, if you have children looking forward to university life in the not-so-distant future, expect the ‘Bank of Mum and Dad’ to be called on frequently.

And, if you want to cover their debt completely, you’d need to start investing £457 a month when they turn 10 years old (assuming a return of 4.5% over an eight-year period). Start investing from their first birthday, however, and the monthly amount you need to invest falls to a much more palatable £180.

Investing for the long term

As with any investment, the best way to reach your long-term goal is to hold a portfolio of different investments spread across major asset classes (such as UK and international equities, fixed income investments (bonds), and other assets such as commercial property). Once you’ve built up a sizeable investment pot, you might want to convert some of your investments into cash, to make sure you’re always ready to pay the school fees (a good rule of thumb is to always have three years’ of school fees in cash deposit accounts).

Make use of tax wrappers

You should always try to make use of any available tax wrappers to help you with your school fees planning. Don’t forget that each parent can invest up to £20,000 a year in a Stocks & Shares ISA. This will give your investment the chance to grow tax-efficiently, and you don’t need to declare your ISA on your self-assessment.

Making use of the Junior ISA

If you can, it’s well worth making use of the Junior ISA to pay for university fees. You can open a Junior ISA on behalf of your children and currently you can invest up to £9,000 a year. As well as being tax-efficient, you can also invite grandparents and family friends to contribute. The money can only be withdrawn by the child when they turn 18.

That’s great, but my little angel is off to university this year!

If you have children about to head towards university, don’t despair. There are tuition fee loans and maintenance support designed to help manage the expense.

The maximum amount that universities can charge in tuition fees annually is £9,250. It’s worth knowing that tuition fee loans (plus any interest) are repayable over a 30-year term. Repayments only kick in once the student has graduated and is earning more than £25,000 per annum. The graduate will be expected to pay back 9% of the income they earn over this amount, so if they find a job with a salary of £28,000, they can expect to pay £270 a year (or £22.50 per month) towards their total tuition fee debt. And, if there’s any debt left over after 30 years, it is automatically written off.

We can help you start to plan ahead

If you’re thinking about how to start setting aside money to pay for your children’s education, get in touch. One of our qualified financial planners will be able to talk through the options available to you, assess your attitude towards investment risk, and come up with a plan to help you – and your kids – achieve the best possible outcome. There’s really no better time to start than right now.

If you are interested in discussing your financial plan or 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.

Life insurance puts money in the hands of those who need it when a person dies. There are many reasons why this money might be needed. It’s not just for parents with young families. A need could arise at any age and the nature of that need could change as you get older. As such, regular reviews of your financial protection needs are essential.

If your income would stop upon your death, and you have people who depend on you financially, you should have life insurance cover. If you live with a spouse or partner and their earnings would also stop at death, they too should have insurance cover. However, if you do not have financial dependents, you may not have a need for life assurance.

Quantifying the need for life insurance

The life insurance needed to cover a loan is relatively simple to assess. You need enough insurance for the amount of the loan, and the cover should last for the time that the loan is outstanding. If you pay off some of the loan, you should be able to reduce the amount of cover earmarked for this purpose. However, if you take advantage of loan or mortgage repayment holidays as a result of Covid-19, you’ll need to review the cover you have in place as it may no longer be sufficient, unless you subsequently make overpayments. Most people also need insurance cover to replace their income if they were to die. The same principles apply but the calculations are a little more complicated.

Example – calculating needs
David and his wife Penny have a son of five who is about to start school. They have decided to send him to a fee-paying school and expect him to be there until he is 18. David and Penny are now considering life insurance to ensure that the fees could continue to be paid for the next 13 years. The first thing to do is therefore to quantify the total cost of school fees over the next 13 years, taking inflation into account.

The approach to insuring other needs is roughly the same. For example, you could calculate how much your family would need to cover the general household and other expenses, and how long they would need the funds for.

You can arrange for life cover to pay out a series of annual amounts over a set period, which is a simple approach to replacing an annual income, but most life cover pays out a lump sum. If you want a lump sum to provide £1,000 a year for 10 years, you would need life cover of about £10,000 because even if you invested a lump sum it wouldn’t have long to grow before you needed to spend it. If you needed the income for 20 years, however, you might only need about £18,500 because you could invest some of this for the longer term and benefit from growth and income.

It is sometimes hard to work out how much life cover you would require for your family, because of the difficulties of assessing your family’s needs after one or both parents have died. Your usual pattern of expenditure provides a good starting point for these estimates. Then you would have to consider the other costs that might be involved, like childcare. It can be especially difficult to assess the potential financial impact of the death of a parent who spends most of their time looking after children and the household. A good starting point is to estimate the costs of buying in these services.

Over time, your circumstances will change. Children grow up and mortgages and other loans are repaid. Your income may rise or fall, stop and restart. The same goes for your expenditure. You may take on more debt. It’s therefore a good idea to review the amount of cover you have on a regular basis, to ensure that it is still appropriate for your needs and that you are not under or over-insured.

The Right Life Insurance Policies for You

Term assurance is the right sort of life cover for most types of family protection needs. It can provide insurance at the lowest cost for the period that it is required.

It is rare that you would need other types of life insurance for family protection, because they generally involve much higher costs than term assurance for comparable levels of cover. Whole of life assurance provides cover for the whole of your life, as the name implies, and its main use is in inheritance tax planning and provision for funeral expenses. Whole of life policies can have substantial investment values that you can cash in, unlike term assurance policies.

Term assurance is the simplest form of life insurance, working in a similar way to your home insurance. The policy will pay out if you die during the term, but if you survive to the end of the term, the contract simply ends and there is no pay-out.

The cost of term assurance varies considerably according to factors such as your age and state of health. The cost of 10-year term assurance for a 30-year-old is about a tenth of the same cover for a 60-year-old. A person’s state of health is also important; poor health could mean increased premiums or even the possibility that the individual cannot be insured. Although term assurance is a simple product, there are variations that suit different needs.

Types of term assurance

Life cover from your employer or pension scheme If you are employed, you may well have life cover from your employer and you might want to take this cover into account when deciding how much insurance you need. However, you need to bear in mind that you will probably lose this cover if you leave your employer. At which point, you’d need to consider taking out additional cover.

Relevant life policies Employers can take out these policies on the lives of employees. They are not part of their pensions, but they have many of the same tax advantages.

Joint life policies There may be situations where you would want to take out a policy on more than one life. The policy could then pay out after both the insured people have died – this is sometimes used for inheritance tax planning. Alternatively, the policy might be arranged so that it pays out when the first of the insured people dies. This could be suitable for financially interdependent people, but would mean that the second person would no longer be covered by the policy after the first of the couple dies.

Ensuring the right people get the money

Generally, the best way to ensure that the proceeds of a life policy are paid to the people you intend to benefit is to arrange for the policy to be in a trust. Some types of trust give the trustees discretion or flexibility about how they distribute the benefits, but it is a good idea to get advice about this. If you die, the policy proceeds will be paid to the trustees and then the beneficiaries, not into your estate. This arrangement could save them IHT and should speed up the payment to the beneficiaries.

There are other ways to set up life policies. The person you want to benefit could take out the policy themselves – the so-called life of another basis. In some circumstances this can be a wise arrangement, especially if the potential beneficiary wants to be certain that the premiums on the policy are being paid. But mostly it is preferable to arrange for a policy to be in trust.

Covid-19 and life insurance

Many life insurance providers are reassuring those with existing policies that they will pay out in the event of a claim resulting from a coronavirus-related death. However, because each insurer has different terms and conditions, you should check your policy to ensure that pandemics are not excluded.

Applications for life insurance from new clients are being accepted, but if an applicant is currently experiencing Covid-19 symptoms, the insurer is likely to postpone processing their application until they have fully recovered. Telling an insurer that you are in a good state of health when you are not will invalidate your policy, meaning that it will not pay out in the event of a claim.

Please do give us a call if you wish to speak to one of our Financial Planners about your life insurance requirements. We have good relations with reputable providers and can possibly make preliminary enquiries with underwriting teams about certain conditions to gain an understanding of how an application may be considered.

This article is for general information and is not intended to be advice to any specific person.