Self Managed Investment Solutions
By Peter Brooke
This article is published on: 21st May 2015
CIFA Forum – Monaco April 2015
Peter Brooke, one of our Investment Team Strategists and senior Financial Advisers attended the 13th International CIFA Forum in Monaco at the end of April 2015. The forum allows for presentations, discussion and debate about many aspects of financial regulation, advice and management all with far reaching opinion and outcomes for the future of financial advice across Europe and the world.
Peter was invited to sit on an expert panel in order to provide some of his own insight as an adviser to European based clients on how they choose between self-managed investment solutions as opposed to going through an IFA and secondly, how we, as an advisory industry, can best fulfil this role and what is the fairest way for clients to pay for it.
The main points were:
Should the payment for investment management services be separated from the costs for financial advice?
YES… Financial advisers, as opposed to ‘investment advisers’, should have a more fiduciary role and should look after all matters of client finances; how the investment part (which is really just one of the “tools in the box”) is then paid for is a separate discussion.
What is a reasonable cost for investment management services?
This answer wasn’t reached… some believed a flat fee should be appropriate as the same process is used if you are managing €1000 or €100 000; but this would then dissuade people without significant assets from accessing investment advice.
If we have a percentage basis approach then one could argue that the people with more assets under management would be paying significantly more for the same service… the debate ended with the idea that IFA firms need to decide what their core capabilities are and therefore who their core clients are and should focus on pricing their service to attract only those clients.
The amount of client involvement also needs to be considered when pricing the advised solution. This discussion will continue to run and run as different regulation affects how different jurisdictions provide investment management services.
What are other things that clients need to consider when buying investment services?
Peter very much banged the drum on client engagement and education. In his opinion trust between the client and the adviser is built through spending one-on-one time together and also being completely transparent with costs, legal structures and the processes being employed to select and advise upon investment solutions.
For example Peter pointed out that some retail clients in Europe are still being sold Sophisticated Investor Funds which are completely inappropriate; with better awareness of these sorts of issues problems like this will be avoided in the future.
A lot of this change can be lead by IFA firms helping clients self-educate to question, review, challenge and scrutinise the advice they are given and the firms who are giving it. Clients should be encouraged to do their own due diligence and self-educate wherever possible.
The more transparent this industry is with the people who are asking for our guidance and advice, the better the relationship between the finance industry and the general public will be; this in turn will help close savings gaps around the world, reduce poverty in later life and reduce reliance on states for retirement benefits. It all starts with our daily behaviour towards our clients and we can truly make a difference as an important industry.
A brief interview with Peter following his panel session can be found below:
http://www.southsouthnews.com/special-coverage/13th-international-cifa-forum-2015/player/234/4029
http://www.southsouthnews.com/special-coverage/13th-international-cifa-forum-2015/player/233/4002
The Spectrum IFA Group Economic Forum
By Spectrum IFA
This article is published on: 2nd February 2015
We have just had our annual conference, The Spectrum Economic Forum. We had presentations from leading investment managers including BlackRock (the world’s largest investment house), J P Morgan Asset Management, Rathbones, Kames Capital, Jupiter Asset Management and Henderson Global Investors.
The conference is a great opportunity for us to hear directly from some of the investment management companies, which we recommend for the investment of our clients’ financial assets. Their collective forward-looking views on markets and key issues for 2015 provided us with a valuable insight, so that we are better able to advise our clients.
We also had presentations from several product providers, including Prudential International, Old Mutual International (formerly Skandia International), SEB Life International and Tilney Best Invest (who also provide discretionary asset management services). All companies gave interesting presentations on developments in their products, which are focused upon the needs of expatriates.
The conference is always a good opportunity to get together with colleagues from the six countries in which we operate. It’s a chance for us to exchange views and discuss issues that are common to all our clients, wherever they live.
There was agreement amongst us that one of the biggest potential ‘issues’ that the financial services industry is facing this year is the subject of pensions, as a result of the forthcoming UK pensions reform. Many Spectrum advisers expressed concern about predatory companies that are already operating, which could result in people unwisely cashing in their UK pension pots. The importance of obtaining professional advice from qualified advisers, who are regulated by the authorities in the country where the pension scheme member is living, was highlighted.
We were fortunate to have Momentum Pensions present to us, which is the first company to be able to offer a truly multi-jurisdictional pension solution for clients. Like us, Momentum has their clients’ best interests at heart and they understand that expatriates can move from one country to another. Therefore, Momentum has now added a UK Self Invested Pension Plan to their range of international pension solutions, which means that even if the client moves back to the UK, they can have a smooth transfer of the pension benefits from the overseas pension scheme back to the UK.
As can be seen from the above, we are constantly working closely with investment managers and product providers to find the best solutions for our clients, whether this is for the investment of financial capital, using tax-efficient solutions, pensions or inheritance planning. This forms an important part of our Client Charter
Planning for Le Tour de Finance 2015 is also now underway. As many people reading this know, this event is a perfect opportunity to come along and meet industry experts on financial matters that are of interest to expatriates.
We are now taking bookings for May 2015 events, please contact us here:
- Perpignan – 19th May
- Bize-Minervois – 20th May
- Montagnac – 21st May
Le Tour de Finance is an increasingly popular event and early booking is recommended. So if you would like to attend one of these events, please contact me to reserve your places.
Investments: The Unconsidered Risks
By Peter Brooke
This article is published on: 17th January 2015
Many yacht crew have made the excellent decision to invest some of their hard earned money into an investment scheme for their future financial security. There is often much discussion about investment risk, be it bonds, equities, property, commodities or alternative investments.
What is not considered and discussed enough are the structural risks of buying into an investment scheme. It’s important to understand all of the risks to your capital, not just to what can happen to the value through poor investment performance.
Policyholder protection:
Most yacht crew investment schemes are set up via insurance policies; these often have significant tax advantages and offer levels of policyholder protection not provided by banks or investment/brokerage accounts. Unlike a bank the insurance company model means that a life company is required to hold all the assets underlying its clients’ policies at all times plus an additional amount of its own capital for a “solvency margin.” If the insurance company is put into liquidation, then the client assets are ring-fenced, and the company can pay for all of the costs of transferring the “book of business” to another insurance company or return the money to its policy holders.
The better the jurisdiction (eg EU) in which the life company is based, the stronger the regulation tends to be (eg UK FCA or Central Bank of Ireland) and the more capital it must have; therefore the less likely it will be become insolvent. Big is beautiful!
Credit Rating:
When it comes to most financial institutions, it’s important to understand the solvency of the financial institution, i.e. how likely it is to make its financial obligations. This is often measured via a credit rating from one of the rating agencies (eg Standard & Poors).
Custody:
Most life companies and investment “platforms” add another tier of protection by using a third party custodian, which avoids conflicts of interest and helps segregate your assets from those of the company. This custodian should be well rated too.
Investment Fund Structure:
Very careful consideration should also be given to the actual structure of the investment you choose. There are thousands of collective investment funds in the world, and where they are registered and how they are regulated can vary enormously.
Consider liquidity – (daily priced is vital), domicile (EU, inc Lux and UK are normally better regulated) and regulatory structure (look for SICAV, UCITS, OEIC – for most stringent reporting standards).
Rating – check the funds have been rated by one or two independent companies (Morningstar, TrustNet, etc.) and check the fact sheets of the funds carefully for SIF, EIF or QIF; these are Specialized, Experienced or Qualified investor funds that should not be bought by anyone who is not a professional or very experienced investor. If you want to buy one you should sign a disclaimer to that extent.
If in doubt take at least two opinions from properly regulated advisers (oh.. and check their regulatory structure too!!)
Smoothing: Reduce Volatility and Increase Growth
By Jonathan Goodman
This article is published on: 15th January 2015
Investment Smoothing
Investment Smoothing is a process used in pension fund accounting by which unusually high returns in a given year are spread over a multi-year period. By taking an average of all the different values, smoothing can deliver a constant figure for shorter time periods.
Instead of simply sharing out what the fund makes or loses each year, a smoothed growth fund aims to even out some of the variations in performance. This process is what we call ‘smoothing’.
How Smoothing Mitigates Volatility
The logic behind smoothing is that it lowers the volatility of profit and loss credit from pension fund returns. During positive markets, some profits are retained by the underlying fund manager as reserves to be paid out during market downturns. This process dampens the volatility typically seen when investing in other types of long term mutual funds.
Smoothing from the Pru
The PruFund funds are designed to deliver smoothed growth by investing in many different investment areas. By investing in a range of assets the fund is less exposed to significant changes in the values of individual assets.
Prudential’s investment specialists will constantly look for the best opportunities for growth within a wide range of investment areas. Prudential apply a unique smoothing process to these funds to provide a more stable return, than if you were directly exposed to daily changes in the fund’s performance.
Prudential Smoothing: Reduce investment volatility, but keep the potential for growth.
Risk – Simply a Box of Chocolates?
By Jonathan Goodman
This article is published on: 7th January 2015
What is financial risk, and is it all down to chance?
Whether you are investing for your retirement or for more immediate financial needs, there are three factors that could keep you from achieving your goals: inflation, taxes, and risk. It is easy to plan for inflation and to reduce taxes, but risk is another matter as it is so unpredictable.
Types of financial risk to watch out for include:
Investment Specific Risk:
Risk that affects a very small number of assets.
Geopolitical Risk:
Risk of one country’s foreign policy unduly influencing or upsetting domestic political and social stability in another country or region.
Credit Risk:
Risk that a borrower will default on any type of debt by failing to make required payments.
Interest Rate Risk:
Risk that arises for bond owners from fluctuating interest rates. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market.
Inflationary Risk:
The possibility that the value of assets or income will decrease as inflation shrinks the purchasing power of a currency.
Currency Risk:
Risk that stems from the changes in the valuation of currency exchanges. Fluctuations result from unpredictable gains and losses incurred when profits from foreign investments are converted from foreign currencies.
Volatility:
Risk of a change of price of a portfolio as a result of changes in the volatility of a risk factor. Usually applies to portfolios of derivatives instruments, where volatility is a major influencer of prices.
Liquidity Risk:
Risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).
Diversification Risk:
Allocation of proportional risk to all parties to a contract, usually through a risk premium.
Leverage:
The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
Counterparty Risk:
The risk to each party of a contract that the counterparty will not live up to its contractual obligations.
Overcoming Risk: Prudential & Smoothing
Prudential Multi-Asset funds work by spreading your money across a number of different types of assets. Funds are designed to deliver smoothed growth through a number of investment options, such as company shares, fixed interest bonds, cash and property, balancing the risk being taken. So if one asset is falling in value, another may be increasing.
Risk: Simply a Box of Chocolates?
Understanding the importance of risk is a central pillar of financial planning. Risk can be measured and assessed; it can be managed. Learning how to do this is an invaluable aspect of becoming a successful investor.
Risk may be uncertain but it’s no box of chocolates. If you prepare for the uncertainty – do your research and seek relevant and informed advice – you can be fairly confident of what you’re going to get. It’s not all down to chance.
Looking forward to 2015
By Spectrum IFA
This article is published on: 9th December 2014
The end of the year is always a good time for reflection and this year we have had much to think about for our clients. However, as well as managing current financial risks for our clients, we are also forward looking. So I thought it would be a good time to do a quick review of some of the things that are on the horizon for 2015.
The UK Pensions Reform is big and we now have a reasonable amount of certainty of the changes taking place in April and it is unlikely that there will be any more changes of substance between now and then. The reform brings more flexibility, which is good, but the reality is that for many, the taxation outcome will be a deterrent against fully cashing in pension pots. This is likely to be even more so in France, where it is not just the personal tax and possible social contributions that are an issue, but also whatever you have left of the pot will then be taken into account in valuing your assets for wealth tax, as well as being potentially liable for French inheritance taxes.
The EU Succession Rules will come into effect in August. While the EU thinking behind this is good, i.e. to come up with a common EU-wide system to deal with cross-border succession, the practical effects will still have issues. The biggest issue for French residents is, of course, French inheritance taxes. Therefore, it may not necessarily be the case that the already tried and tested French ways of protecting the survivor and keeping the potential inheritance taxes low for your beneficiaries should be given up in favour of selecting the inheritance rules of your country of nationality. More information on the ‘French way’ can be found in my article at https://spectrum-ifa.com/inheritance-planning-in-france/ and on the EU Succession Regulations at https://spectrum-ifa.com/eu-succession-regulations-the-perfect-solution/
There is the UK General Election in May and who knows whether or not that will actually be followed at some point by a referendum on the UK’s membership of the EU. Nor do we know what the outcome of such a referendum would be and so there is really no point in speculating, at this stage.
For UK non-residents, we are expecting the introduction of UK capital gains tax on gains arising from UK property sales from April, subject to there not being any changes in the next budget. We had also expected that non-residents would lose their UK personal allowance entitlement for income arising in the UK, but we now know that this will not happen next year. The Autumn Statement confirmed that it is a complicated issue and if there are to be any changes in the future, these will not take place before 2017. Of course, there could be a change in government and so it might be back on the agenda sooner!
We will also have the usual round of French tax changes, although this year the expected changes are much less extensive than in previous years. The French budget is still winding its way through the parliamentary process and I will provide an update on this next month.
Turning to investment markets, my personal opinion is that the main factor that will have an impact in 2015 is central bank monetary policy. Whether this results in tighter or looser policy from one country to another, remains to be seen. What is clear is that the prospect of deflation in the Eurozone remains a real threat and not only needs to be stopped, but also needs to be turned around with the aim of eventually reaching the target of being at or just below 2%. Other central banks around the world have a similar target and in areas where recovery is clearly underway, the rate of price inflation and wage inflation also needs to increase before we are likely to see the start or interest rate movements in the right direction.
Last but not least, with effect from 1st January 2015, under the terms of the EU Directive on administrative cooperation in the field of direct taxation, there will be automatic exchange of information between the tax authorities of Member States for five categories of income and capital. These include income from employment, director’s fees, life insurance products, pensions and ownership of and income from immoveable property. The Directive also provides for a possible extension of this list to dividends, capital gains and royalties.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.
If you are affected by any of the above and would like to have a confidential discussion about your situation or any other aspect of financial planning, please contact me using the details or form below.
Certainty and Predictability for your Investments
By Jonathan Goodman
This article is published on: 1st December 2014
The PruFund range of funds are designed to spread investment risk by investing in a range of different assets, such as company shares, fixed interest bonds, cash and property – from both the UK and abroad.
Prufunds are managed by Prudential Portfolio Management Group Ltd (PMG), dedicated multi-asset fund managers with a team of over 30 economists, investment strategists, analysts and mathematicians, specialising in different areas of the investment world.
How PMG Manage Your Money
PMG believes that investment success should be built on clear philosophy, demonstrable processes and a team based approach. They believe that this will not only deliver superior returns, but also provide greater continuity and dependability.
They believe in the importance of asset allocation and the key role that multi-asset funds play as an investment solution for many investors. They also believe that asset allocation is a specialist skill which should, to avoid conflicts of interest, exist separately from the other investment activities in any fund.
PMG takes many factors into consideration when managing your money.
They focus on:
- Minimising reliance on economic forecasting
- Looking for irrational behaviour
- Taking a long-term approach
- Fund management
- Asset-liability management
PruFund Growth Providing Smoothed Returns
PruFunds offer a unique smoothing process designed to help protect an investment from some of the daily ups and downs associated with direct investments, providing less volatile and more stable returns over the medium to long-term, in line with each fund’s objective and allowable equity parameters.
The Prudential PruFund smoothing process has two elements:
- Expected Growth Rates (EGR) applicable to each of the funds, normally applied on a daily basis. The EGR is the annualised rate that is normally used to increase the value of your unit price each day, and they are set quarterly by the Prudential Directors having regard to the expected long-term investment return on the underlying assets of the funds.
- Upwards and downwards pre-defined unit price adjustments are applied in line with fully transparent process requirements.
For more information on PMG and the PruFund range of funds or to contact one of our Financial Advisors to arrange a full financial review of your current situation please use the contact form below.
Should I stay or should I go?
By Spectrum IFA
This article is published on: 25th November 2014
Quite frankly I’ve been struggling to think of what to write about this week, but then it suddenly struck me that there has been a recurring theme in a number of my client meetings recently. That theme put simply is, ‘Where will I end my days; in France, or in England?’ This isn’t a popular topic of conversation amongst vibrant, exuberant, middle aged expatriates, but we’re not the only people here. We are in the company of many seasoned expats who’ve been here longer than we have; seen it all; done it before we did, and are feeling a bit tired. Many of them are ‘going home’.
We should pay a lot of attention to this group, because we are going to inherit their shoes. We need to learn from their experiences, and take the opportunity to plan for the time when we will experience what they are going through.
Five years ago, when writing on a similar theme, I think I proffered the theory of the three ‘D’s as the principal reason to return to the UK: death, divorce and debt. I still think that they are valid causes, but I now think that there are many subtle variations to be taken into account, and the biggest addition to the equation is age. Age changes your perceptions; often for the better, but age often also brings insecurity and loneliness. Add to that illness, and maybe bereavement, and you have a powerful reason to examine your reasons to continue to live hundreds of miles away from a family that (hopefully) continually worries about you. In short, no matter how much we pooh-pooh the idea now, the chances are that we may eventually end up being cared for in our final years in the UK rather than in France.
OK, that’s enough tugging at the heartstrings. Why is a financial adviser (yours truly) concerned about where you live, and where you may live in future? The answer is currency, specifically Sterling and Euro. In a previous existence, I was responsible for giving advice to corporate and personal clients of a major High St bank regarding exposure to foreign exchange risk. The basic advice was simple – identify and eliminate F/X risk wherever you can. F/X risk is for foreign exchange dealers; it is gambling. Don’t do it unless you know what you’re doing, and even if you do, prepare to lose money.
On a basic level, eliminating exchange rate risk is easy. Faced with a couple in their 50’s relocating to France with a healthy investment pot behind them and good pensions to support them in the future, I will always ask ‘Where do you intend to spend the rest of your days?’ The answer is usually an enthusiastic ‘France, of course. We have no intention of going back to the UK. In fact wild horses wouldn’t drag us back.’ I know this for a fact – I’ve said it myself.
The foreign exchange solution is simple. Eliminate your risk. Convert your investment funds to Euro (invest in a Euro assurance vie). Convert your pension funds to Euro (QROPS your pension and invest in Euro). Job done! Client happy, for now! But what happens 25 years later, when god knows what economic and political shenanigans have transpired, and the exchange rate is now three Euro to the pound and the surviving spouse wants to ‘go home’?
As it happens, I will no longer be his or her financial adviser. The chances are that I will have popped my clogs years ago, but If not, I will most likely be supping half a pint of mild in a warm corner of a pub somewhere in the cheapest part of the UK to live in. (In fact that is poetic licence, as I know full well that I’d probably be being spoiled rotten in my granddad flat in one of my sons’ houses). To draw this melancholy tale to a close, I’d just like to round up by saying that things are rarely as simple and straightforward as they seem. My job is not always to take what you tell me at face value. I know people who’ve been here longer than you. My advice may well be ‘hedge your bets, spread your risk’. I will give you the best possible investment tools for your money and pensions, but I might just surprise you with my recommendation as to what currency those funds should be invested in.
Do You Fear For Your Financial Future?
By Jonathan Goodman
This article is published on: 24th November 2014
How do you choose your investments when you are an expatriate?
International investors face many choices, and taking personalised advice can be vital, especially in the current economic climate. With high inflation and record low interest rates, volatility, complexity, uncertainty and a huge amount of change sum up the current state of the global economy.
Picking the right investment opportunity with maximum return objectives can be a risky and complicated process, and mapping a financial strategy that enables you to better navigate these turbulent financial times is a must.
The International Prudence Bond (Spain)
The International Prudence Bond (Spain) is a medium to long term bond designed with the needs of international investors in mind. Tailored to each market and sold via professional Independent Financial Advisers, it allows access to a range of unit-linked investment funds with the aim of increasing the value of the money invested over the medium to long term.
The PruFund Range of Funds includes guarantee options where the choice of guarantee can be linked to the anticipated year of retirement. The funds utilise the asset allocation expertise of the Portfolio Management Group and offer a truly global investment perspective.
Benefits
- Funds denominated in euros, sterling and US dollars
- A minimum investment of only £20,000, €25,000 or $35,000
- A minimum allocation rate of 100%
- No set investment terms
- Top-up facility from £15,000, €20,000 or $25,000
- Cumulative allocate rate on top-ups
- Flexible withdrawal options so clients can access funds when it suits them
- PruFund Protected Funds guarantee
How Spectrum Can Help
Spectrum’s role is to provide Insurance Intermediation advice and to assist clients in their choice of Investment Management Institution. Our Financial Advisors can help you decide which investment opportunity is right for you.
For more information or to contact one of our Financial Advisors to arrange a full financial review of your current situation please use the contact form below.
What New Year’s Resolution can I make for 2015?
By Amanda Johnson
This article is published on: 18th November 2014
As 2014 draws to an end and we look forward to spending the festive period with family and friends, there is one New Year’s resolution that you can make which will benefit both you and your family and that is to make sure that you review your finances in 2015.
2014 has seen the UK Government make changes to pensions, the French Government levy Social Charges on areas not previously charged and a joint agreement on Wills which is due to come into effect during 2015. On top of this, there is constant media concentration on whether the UK is better off in or out of the EU. Bearing all of this in mind, it is worth taking advantage of a free financial review to ensure your savings, investments & pensions are working for you in the most tax-efficient manner and that they match your goals and aspirations for the future.
A free financial review will include the following areas:
- Investments – to ensure they are as tax efficient as possible
- Inheritance tax – to minimise the amount of inheritance tax imposed and increase your say in where you money goes after you die.
- Pension planning – putting you in better control of planning for your future
Whether it has been a while since you last looked at your finances or you are unaware of how changes both in the UK & France could affect you, a decision to take a free financial review could be one of the best New Year’s resolutions you can make.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below and I will be glad to help you. We do not charge for reviews, reports or any recommendations we provide.
Have a Merry Christmas and a very Happy New Year.