The Spectrum IFA Group attends the Fund Forum International in Monaco
Since its launch in 1989, FundForum International has grown in tandem with the fund management industry on its journey from small regional performers to dynamic global industry. FundForum International has built up a formidable reputation as the world’s leading asset management event for both cross-border and boutique players, bringing all the top performers, global leaders and industry trailblazers together every year to discuss the most pressing issues concerning their market. It offers delegates an unsurpassed level of networking with the most well-respected industry heavyweights from across the globe.
Michael Lodhi and Peter Brooke from The Spectrum IFA Group attended numerous key note speaker sessions. Commenting on this recent event, Peter Brooke says “Keeping a close eye on the global fund management market is vital for Spectrum and in turn our clients. This forum allows us to talk to a wide variety of funds managers and gain further insight into their strategies. This year the emerging markets, frontier investments and especially Africa got a lot of attention.”
This year’s conference also had a more positive slant to it than previous post crisis years The main issues are no longer the market crisis, but how the turbulence changed regulations for the industry. In his opening comments Tom Brown, Global Head of Investment Management at KPMG, said “The industry is in good shape. Investors are investing. The markets and the economies seem to be growing. And asset-management businesses are feeling optimistic and positive about the future.”
There was still very much a focus on how we as an industry (advisers and fund managers alike) need to engage with our customers to help them invest for their long term financial health. Demographics aren’t changing, we live longer but save little and won’t be able to rely on government. This is a major issue for many millions of us. Fortunately this is also a big opportunity for high quality companies to work closer with their clients to fill this enormous gap[Gallery not found]
More pain and no gain from interest rates
The European Central Bank made headline news again at the beginning of June, as it reduced its main interest rate from 0.25% to 0.15% and lowered its deposit rate into negative territory from 0% to -0.1%.
The reduction in the interest rate makes it less expensive for other banks to borrow from the ECB and ‘in theory’ this should result in credit flowing out to the wider Eurozone community. At the same time, the negative deposit rate means that the ECB will charge banks for keeping their excess liquidity on deposit with it. The thinking is that this should discourage the banks from making the deposits and instead, make the money available for lending to households and business thus, encouraging growth.
These measures are part of a package that also aims to increase the rate of inflation in the Eurozone, which continues to fall, as demonstrated by the change in the Harmonised Index of Consumer Prices for May, when the annual rate of inflation fell from 0.7% to 0.5%. However, there are many who think that the current measures are insufficient to turn the trend from continuing towards deflation and feel that more aggressive action should have been taken by the ECB, including an expansion of Quantitative Easing.
What does this mean for savers? There is only one answer and that is “bad news”. Even if the banks do start to lend more money into the wider community, since they can borrow from the ECB at 0.15% to do this, why would they borrow from the public (i.e. the savers) at a higher rate?
We have been living in a very low interest environment for several years now, although this is the first time that the Eurozone has gone into negative territory in ‘nominal’ terms. In ‘real’ terms (i.e. taking into account inflation), we have already experienced negative returns from bank deposits and even the most cautious of investors are now prepared to look at alternatives.
One such alternative is a particular fund in which many of our clients have already invested. Despite the fact that the fund is conservatively managed, over the last four years to the end of May, the Sterling share class has still been able to grow by more than 36% and the Euro share class by 30%. After taking into account annual management charges on the fund, the three year annualised return is around 7% for Sterling and around 5.5% for Euro. A growth fund is also available for those investors who wish to take more risk and USD share classes are available for both the cautious and the growth funds.
The funds are part of those of a large insurance company, which has a history going back for more than 160 years. The company is well capitalised and so clients feel comforted by the safety of investing with such a solid company.
One of the unique features of the funds is the delivery of a smoothed investment return. On a daily basis, each of the funds grows in line with an expected growth rate, which is the rate of return that the company expects the assets in which the funds are invested to earn over the long-term. This approach aims to smooth out the usual peaks and troughs of investment markets and so is particularly beneficial to investors seeking an income from their capital.
It is a well-known regulatory requirement for product providers and investment managers to tell investors that “past investment performance is not a guarantee of future performance”. Whilst this is true, in reality it is only by looking at the past investment performance of a fund that one can really judge the skill of the fund manager. This is not just about how good the manager is at picking stocks – but more importantly – about how risk is managed, particularly through market downturns. Happily, when I am discussing the above funds with clients, I am able to demonstrate the skill of this insurance company by showing a sixty-year history of positive investment returns on an annualised basis over 8, 9 and 10 year periods. This is another reason why cautious investors – who would have previously only ever placed their capital on bank deposit – are very comfortable about switching to this alternative choice.
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.
The Full Spectrum
Having recently started working for the Spectrum IFA Group I thought it time I start a weekly Newsletter covering issues important to all of us, one way or another. Especially for expats who have made Italy their home/spend much of their time here. The main thrust/focus of my Newsletter is to impart in an easy-to-understand, but not too lengthy outline, important matters and up-to-date information to expats residing in my area on matters such as investments, tax and general financial planning issues. And being part of the Spectrum Group means I also have access to professionals in various fields of expertise.
So, taking the above into account, I thought a very good and apt place to start would be to give a broad overview of current happenings in world markets, as we are all affected one way or another, especially with the speed at which events are communicated.
Probably 95% of people I have assisted or advised has had or still has capital in the markets in one way or another. There are many ways this could occur, viz a Pension Fund, a Money Market Fund, an Insurance Policy, Unit Trusts (Mutual Funds) or direct Share Investment.
Markets go up and down, and likewise interest rates. And then we have inflation to factor in. We may not be affected by these movements in the short-term, but are almost certainly going to be in the longer term (five years onwards).
Hence the extreme importance of reviewing your finances on a regular basis, at the very least once a year, in order to ensure your investment aims and objectives are still on course. We are all told to have a thorough medical check-up once a year so as to ensure all our parts are functioning correctly. And we are willing to pay for this because we can appreciate the need – after all, we want to be on planet earth for as long as possible.
Likewise the common sense of having a proper financial check-up at least once a year. And in most cases this involves no fee but at the end of it one wants to walk away knowing everything is alright but, if not, then to be able to change the doctor’s prescription! And this gives us peace of mind.
Unfortunately many are the cases where we come across people who consult an advisor, but then forget to review or the advisor disappears and they fail to take remedial action to consult another.
There is so much “doom and gloom” about these days, so it is wonderful to read of or hear about news filtering through regarding the economies of the UK and EU which are quite positive, and this augers well for investors who have experienced a bit of a bumpy ride over the last 18 months and which offers potential for new would-be-investors or those who have been waiting. Matthias Thiel, market strategist at Hamburg-based M.M. Warburg, which is bullish on southern European assets. “The recovery story is playing out as expected,” he said.
The European Commission had, inter alia, the following to say in its Economic Forecast for EU countries……
- United Kingdom: Recovery takes hold, fiscal imbalances still sizeable
- Italy: A slow recovery is underway
- France: Recovery remains slow amid sizeable budget deficits
- Germany: Accelerated growth in the offing
- Portugal: Gradual economic recovery
- Greece: First signs of recovery
- Spain: The recovery becomes firmer while the re-balancing of the economy continues
It is very important to remember that markets experience upturns/good times (good times) as well as downturns (negative periods).
And economic experts never all agree! So when times are prosperous, out of, say, 100 experts, a third will have a certain view or opinion, a third exactly the opposite, and the remaining third will be neutral. And all will have convincing arguments to prove their respective outlook. But true, experienced economists, when asked what they think about a certain economic outlook will be honest enough to simply say “I do not know!”
Economies throughout the globe are all intrinsically linked together, and what happens in one country can impact on another, even if they are miles apart. Like that old adage “If America sneezes we in UK or Italy catch cold.
So, in conclusion, there is much to be positive about but with it comes a caveat: Do not put all of your eggs in one basket but spread your resources across the various asset classes.
In my next Newsletter we will focus on the different asset classes and what it means to diversify.
Until next time, ciao!!
Witholding tax on overseas money transfers to Italy
I would like to bring up the subject of the 20% witholding tax on profit from investment, for Italian residents. This piece of legislation that Italy was going to introduce in February and has now postponed until July. This seemed to be one of the main causes for concern amongst attendees at the recent Tour de Finance Forum events in Italy and so I thought I would write the little that I know of it to assist in preparation for its, possible, return.
To recap, the introduction of the law was aimed at automatically stopping 20% on any monies brought into Italy, from overseas, (for personal account holders only) on the assumption that this money was ‘profit from investment’ and not other types of income. Profit from investment can be clarified as rental income on properties overseas, sales of shares, bonds, or other types of financial assets.
Of course, stopping 20% on ALL transfers into Italy would also catch those who are legitimately bringing in pension income, income from employment, banks savings etc, and therefore to avoid the fiscal authorities automatically witholding 20% on these monies a self certification, in the guise of a letter, would need to be submitted to your bank to declare that this was NOT profit from investment. If you submitted the letter then your personal details would be passed to the fiscal authorities (who we can assume would then start to track your money movements through Internationally agreed exchange of information controls)
Now it is worth noting before I continue, that in essence the law itself was a smart move from the Italian fiscal authorities, in that it would force those who do not wish to be caught in the witholding tax to announce to the Italian authorities that they are bringing money in and out of the country. Hence, they are more easily trackable. In addition, and I think this is the more likely target, it would also force those who have not yet registered assets overseas with the Italian authorities, to do one of 2 things.
1. Carry on regardless and therefore run the risk that when they are found out they could be fined anywhere from 3-15% of the undisclosed assets, and should those assets be located in black list territories then those fines are doubled from 6 – 30% of the undisclosed value. Not advisable!
2. They self certify with the bank and as such are submitting a legally signed statement of intent. Should they then fail to report income from profit, when it enters the country, they have actually ‘knowingly’ broken the law.
Of course, all this is based on the assumption that someone is not declaring assets that they have overseas and for most this is not the case. So what about those of you who are doing what you should be doing?
Then, I believe, it becomes no more than another administrative headache. What I mean is that with a self certification letter the bank will not stop the witholding tax and so income can move freely into the country as it had previously done. However, let’s assume that you do want to bring some money in from an investment overseas, which has already been declared through the correct channels. Does this mean that you have to go back to the bank and request that this one transaction is treated differently, just this time and what if this is a regular occurence?
Also, what if you fail to declare that money is coming in from overseas profits on investment but this money is, once again, already declared legally on your tax return? Are you in breach of rules and therefore subject to fines?
Finally, so as not to drag the point out too much, what if the bank mistakenly witholds the tax on pension income, for example, which you need to live on? Can you easily reclaim this back? Doubtful! Or do you have to wait up to 2 years for a tax credit?
As we can see the legislation had some trivial issues which they needed to iron out, but, fundamentally it was an interesting move. The first of its kind that I have seen in Europe, where a direct attack on profit from investment overseas has come under the spotlight. Until now the main focus has been on bank interest payments and rental incomes for homes overseas. On March 24th 2014 the 2nd phase of the EU Savings Tax Directives was submitted for final approval which will now bring monies held in overseas investments funds, OEICS, SICAVs, Unit trusts etc, in the EU and outside, into an automatic exchange of information agreement. Additionally, Luxembourg and Austria will now be subject to full exchange of information agreements as of 1st January 2015 and other dependants states, such as the Isle of Man, Jersey, Guernsey, Dutch Antilles, San Marino etc will be required to share more information with the EU.
Lastly, and most interestingly, the proposed 20% witholding tax in Italy will likely raise its head again in July this year. But, in what shape or form, I cannot say. The report from Brussels in the aftermath of the first proposals was not as you would expect, a damning of the law. But in fact they openly supported the idea and suggested different ways of looking at implementation. Can we expect to see this Italian model being the model that Europe will use in the future?
So, for those who are not quite ‘in regola’ yet, time is of the essence. The transparency agreements are effectively opening the doors to hidden assets, bank account interest is tracked, rental income on overseas properties is tracked, now investment in foreign investment funds is under scrutiny. It is only a matter of time before income payments from direct investment in shares and bonds are fully disclosed, Capital gains, i.e profit on investment, is now under scrutiny, as detailed above and that only leaves Limited companies and other more obscure and substantially more speculative investments.
It is worth noting that one of the speakers on our Tour de Finance Forum events was Andrew Lawford from SEB Life International. He was explaining how it is perfectly possible to keep assets outside Italy, but be compliant with the laws of Italy, and remove the need to keep abreast of these changes in Italian law by employing the use of an insurance wrapper in which to house your assets. It acts like a tax efficient account whereby SEB Life International, in this case, will act as a witholding agent to ensure you do not pay more tax than you need to and that they become legally responsible for reporting the assets correctly.
It removes the worry of reporting error, keeps monies out of Italy and most importantly, whilst the money is held in the wrapper, it is never subject to Italian income or capital gains tax. Only at the point of withdrawal (partial or full) would any Capital Gains tax liability only, (not income tax) occur, which would be paid automatically on your behalf.
Finishing up on the new legislation, in whatever form it takes, will likely be no more than an administrative headache for most, but for those who, as yet, may have undisclosed assets, then more difficult decisions lie ahead. If you think anyone else might find this article useful, please do feel free to pass the information on and if you would like to speak about this or any other financial matter as an expat living in Italy, then plese get in touch.
Producing Income from Your Investments
If you’ve managed to put aside money for your retirement, good job — no one else has been saving for you. But how do you change the balance of your assets to be able to draw an income to supplement a smaller, land-based income or to pay for your lifestyle into retirement?
* Restructure your investments before you need the money. This gives you time to ride out any difficult market years before you retire or move ashore. Crises in stock markets always affect stocks in pre-retirement worse, so protect the value of your funds in the few years running up to taking an income, but keep one eye on inflation as this will reduce the buying power of the “pot” of money you’ve built up.
* Consider the total value of your retirement assets — shares, pensions, funds, investment properties, cash and bonds — as one entity. Then ask yourself, “If I had all of this as cash today, what assets would I buy to give me the income I need?” This question helps you reassess all your assets and bypass any loyalty to a certain asset type, such as property. If Dave bought an apartment nine years ago for €180,000, rented it out and paid off the mortgage, and the apartment is now worth €280,000 with rent at €1,000 per month, after management charges, this works out as a 3.8 percent yield. Dave may do better using the money from the property elsewhere, perhaps by reinvesting in bonds.
* Once the income starts, look at each asset class in terms of income stream and cash flow rather than capital appreciation. It’s important to try and grow the “pot” to beat inflation, but the income is paramount. Yields on equities today are outstripping most government bonds; the capital may fluctuate but the income will remain. To draw an income of €3,500 per month, you need an asset pot of approximately €900,000. With €42,000 per year, a proportion of the cash can be put in longerterm assets (property, equities, etc.) to help grow and replace the funds you withdraw.
Many yacht crew have a large proportion of their assets inside insurance bonds, as they offer tax-advantageous growth and income. However, some don’t offer a way to take a “natural income,” as the funds are all accumulating-type funds. The income that you draw down by cashing in fund units affects the underlying balance and needs to be rebalanced with a steady internal income stream.
Should I use a Financial Adviser?
Creating a financial plan is not complicated; it’s an audit of where you are today, financially, and where you want to be at different life stages. This requires creating a list of what you have, earn, own and owe and deciding to put something aside to cover different goals for the future.
I have met yacht crew who have worked for 20 years without implementing a financial plan, and when they want to leave yachting, they have no pensions and minimal savings or investments, leaving them with a simple choice: live on very little or keep on working.
We can agree that having a financial plan, however simple, is important, but why have (and pay) someone to help you bring this together?
The process: Although creating a plan is quite simple, a financial adviser will ensure that all areas are discussed and re-examined so nothing is left out. All of the horrible “what if” questions should be covered.
Implementation: A good adviser will have access to thousands of products for different clients with different needs. The more choice available, the more assistance you will need in choosing the best ones, but also, the more independent the advice will be. A small advisory firm is likely to have only a few products to choose from and will display less independence.
Professionalism: If we are ill, we go to a doctor — financial advisers have qualifications to diagnose our financial problems and help put together a plan to make us better. And as with a doctor, a financial adviser should have qualifications in his or her trade, even specializing in certain areas.
Regulation: A financial adviser will be regulated by a government body and will have to display a certain competency and have insurance in order to practice.
Knowledge: Qualifications don’t guarantee knowledge; good advisers should continually improve their knowledge and should be able to prove this through their ability to explain complex issues.
Humanity and perspective: Most importantly, you need to trust your adviser. This person or firm should be your trusted adviser for most of your life; they need to be able to empathize with the different situations in which you’ll find yourself over the years. They should be able to draw on experience from other clients to help solve issues you face; they should be able to offer perspective on the decisions you make.
This last point is the hardest to prove and is probably best achieved through a combination of your own gut instinct and referrals from friends and colleagues. Do your own research on all of the above factors, ask around, and keep asking around until you have a short list of advisers to meet. Then follow your own feelings about whether you can trust them; the relationship should be a long-term one, and you will end up telling them a lot of very personal information over time.
Investments can have too much structure
What are structured products?
Structured products are usually set up as an investment of a lump sum in exchange for a return based on the performance of an underlying index such as the FTSE100. They are arranged as fixed term contracts of, normally, 5 to 6 years although some can pay out earlier under certain circumstances. They can be bought from a variety of sources and are particularly popular with banks.
Structured products could be suitable for someone who is willing to buy and hold, understanding that if markets fall sufficiently, then the return could be less than what was paid in. Some structured products offer capital guarantees. This ´promise´ of the return of your initial investment can be somewhat veiled in that the guarantee could be based on the particular underlying index not falling below, say, 50% of its starting level. For example, the initial investment is made and the FTSE100 and that point stands at 6000. 5 years later, the end of the contract, the FTSE100 is at 5700. In this case, the client would receive the full initial investment even though the index level has fallen. Some suggest that the FTSE100 falling by 50% is not likely thus selling the product as risk free. The FTSE100 certainly has fallen by more than 50% in the past (eg. 1999 to 2003).
The people offering any guarantee could be a third party. This is where we have another level of risk, known as counter-party risk. If the third party fails then the guarantee could be worthless.
Another risk is people wanting to access their money before the fixed term is up. The problem is that these products often have no secondary market which could mean you may not be able sell it without suffering a significant loss.
As with all types of investments, there are varieties on a theme, some suitable, some not, depending on one´s risk profile. Complete understanding is essential from the outset.
For more information on how we can protect your savings whilst offering low risk, liquid investments, contact one of our advisers.
Suspended – 20% tax on overseas transfers into Italy
Suspended – 20% tax on overseas transfers into Italy
The witholding tax of 20% on overseas transfers into Italy has been suspended.
No sooner had the law regarding the 20% withholding tax on transfers from overseas been introduced, than it is suspended. Until July 2014.
The main isssue with the law was one of distinguishing between transfers from abroad that were ‘profit from investment’ and those that were income from other sources, such as pensions. And if you made an auto certificazione’ with your bank to state that you were not bringing money into the country, from profit on investment, then would you have to sign another auto cetificazione when you did? and what happens if you forgot but still declared the asset on your Unico’? These are just some of many questions which needed answering. In the end the law was just another example of very badly thought out policy which really should have been planned more carefully. (Interestingly I have just seen a report that the EU has not condemned the law but says that it needs more thought, essentially)
Athough, the more I think about the law itself, as a way to catch those who were not making accurate declarations, the more I admired it. But once again it came down to implementation and even the best laid ideas are doomed to failure without adequate planning and thought.
That all being said it now seems that, at least for the meantime, Italy will be resorting back to the, what now seems the almost historic, share of information agreements with co-operating countries.
As you may or may not know the EU has an open share of information agreement. Some UK rental property owners found this out to their chagrin in 2012 when the Guardia di Finanza went knocking on doors asking why rental income from a UK property (which interestingly was already being declared and tax being paid in the UK) was not being declared on the Italian tax return. Some of the fines which I heard of were astronomic.
Luxembourg and Jersey have now signed up to a free exchange of information on interest payments, in the EU, from 1st January 2015. Austria will likely follow as the 1st January 2015 marks the entry into force of the mandatory exchange of information agreement across Europe.
The Isle of Man and Guernsey have already agreed a full and open share of information agreement with the EU on income from interest and so the information on offshore bank account holders is fully reported.
And the USA has already entered into agreement with Italy under its FATCA law (Foreign Account Tax Compliance Act) which allows for a free exchange of information on resident individuals in either country. In fact there is a new acronym doing the rounds: GATCA. Global Account Tax Compliance Act.
One of the most interesting points about the Italian move to withhold 20% at source was that it was an open attack on profit from investment.. The share of information agreements, to date, have been mainly focused on interest from savings. Could this mean that the EU is about to enter the next phase of tracking down mis-reported incomes and/or gains from investment. Probably! The mandate has been clear since the implementation of the EU Savings Tax Directive that ultimately the EU will have an open information policy across all EU states on all incomes and profits from savings and investments. We may laugh at the inadequacies of the Italians to implement a law, which on the surface of it seemed ridiculous, but it would not surprise me to see this being the first of many steps throughout the EU to open the information exchange channels even further and to exchange information on almost every financial asset you can think of.
As I have said many times before, if you are a resident in Italy, now is the perfect time to be planning to stay ahead of the game. Many things can be done now to limit losses, limit potential fines, and plan efficiently for tax and it needn’t be painful or frightening.
If you have income and assets in Italy or overseas and want to know how to potentially reduce your tax liabilities and plan more effectively, whilst ensuring you are ‘in regola’, then you can contact me on email@example.com or call me on 3336492356
Minimum reporting threshold for funds held abroad – clarified
If 2013 was the year for confusion about how to report assets held abroad then, at least, in 2014 the Italian Government is offering some further clarity.
As of 2014, there will no longer be any minimum threshold when reporting assets held abroad. Previously, any amount below €10000 in investments and €5000 in cash deposits was not expected to be reported. From 2014 all amounts, no matter how large or small, will be expected to be reported on the RW form as of 31st December.
If you would like to know about this or, other taxes that apply to Italian tax residents, how to plan to reduce your own Italian tax liabilities, or want to know how you can find new sources of revenue to supplement that which the Government keep stealing away, then you can contact me on firstname.lastname@example.org or call me on +39 3336492356. We are here to help.
Legge di Stabilita 2014
Legge di Stabilita 2014
There have been some interesting points from the new economic laws introduced in 2014 The main ones that might affect you are below, and for some of you, you might wish to hold your breath..
Rentals – Goodbye Cash
From 2014 owners of properties in Italy, which they rent, will be expected to have the rent paid only through trackable methods of payment. i.e through a bank account. (I assume that means Italian or overseas bank as long as it is trackable) Penalties of sanctions against both parties (renter and owner) can be made if they are not adhered to and subsequently found out. The only thing that seems to be excluded is public buildings, such as Case Popolare. I have not seen nor found the supposed sanctions that they intend to impose for non compliance and neither can I find information on how they intend to police it.
In 2014 the imposa di bollo on securities and deposit/bank accounts in Italy will continue at €34.20 per account. Great news I hear you say! Maybe, but then a new rate of IVAFE (the tax on overseas assets) has been announced of 0.2% on the amount (at 31st Dec) that will replace the previous 0.15% in 2013.
Minimum reporting threshold for funds held abroad
If last year was the year for confusion about how to report assets held abroad then, at least, in 2014 they are offering some further clarity.
As of 2014, there will no longer be any minimum threshold when reporting assets held abroad. Previously, any amount below €10000 was not expected to be reported, but from 2014 all amounts, no matter how large or small, will be expected to be reported on the RW form as of 31st December.
Those are the main points that will be affecting you in the years to come. Certainly for anyone with any financial assets the increased bollo is a blow. As always seems to be the case in Italy, at the moment, most of these taxes are self defeating in that they pull more money into the Government coffers and pull it away from the pocket of those who could spend it and create future economic growth. Incentives are being offered to business owners and start ups to stimulate business growth in Italy, but, honestly, at the current levels of taxation it is impossible to see why an entrepreneur would want to set up in Italy when the chances of success due to tax and red tape burden are so great.
The sad truth is that it is going on all over Europe to reduce National debt levels and will continue for some time to come. We will all have to swallow the bitter pill for the time being and just plan to be more effective and reduce tax liabilities where possible.