FOR PROFESSIONAL INVESTMENT SPECIALISTS
M AGAZINE
A special supplement in association with
May 2020
GOVERNMENT BACKED - GREAT BRITISH INVESTMENTS - EIS - SEIS - BR - SITR - VCT
YOUR ALL-IN-ONE GUIDE TO STELLAR ASSET MANAGEMENT Over the last few months, we have published a range of informative articles in association with Stellar, focussing in particular on the emergence of the ‘Inheritance Economy’ and the benefits to your clients of Business Relief. We have pulled them all together into this single handy supplement which we think you will find useful and hope you will keep for future reference.
CONTENTS Page 3
The Inheritance Economy “The generation cohort”
Page 16 The attraction of physical assets: invest without involving the stock market
Page 5
A video introduction to Stellar ICENI
Page 18 Utilising Business Relief is the safer option for less experienced investors
Page 6
A new era for estate planning
Page 10 An introduction to Stellar Asset Management Page 12 Preparing for ‘The Inheritance Economy” Page 14 Three client challenges every adviser will face
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Page 20 Maximise ISA tax efficiency for your clients even in uncertain times
THE INHERITANCE ECONOMY “THE GENERATION COHORT”
Introduction Over the next 30 years some £5.5 trillion is expected to be transferred from the baby boomer generation to their beneficiaries in what represents the largest transfer of wealth in history.1 This inheritance economy creates opportunities for advisers and wealth managers to actively engage with both this generation and those inheriting (the inheritance generation) to ensure that this wealth is transferred tax efficiently to minimise the effects of Inheritance Tax (IHT). By participating in this economy and capturing more of this wealth cascade, financial advisers can significantly improve their service level offering to clients, develop strong referrals and grow substantially their assets under management. It also creates opportunities for advisers to connect with those inheriting this capital who may have inheritance tax considerations of their own. Capturing this wealth cascade and planning for each generation enables financial advisers to significantly develop both their client base and their assets under management. Let’s examine where Stellar perceives these opportunities are across the generations. Baby Boomers: An intergenerational wealth divide This term refers to those individuals born between 1946 – 1964. They have benefited the most from capital appreciation after the second war. This is most evident
in soaring house prices and generous pension plans that have resulted in huge intergenerational wealth divides. Now in their 70’s, they represent the wealthiest element of our society. Research suggests that 70% of all UK household wealth is currently held by the over 50’s, meaning that there is high concentration of wealth in this demographic.2 This issue has been compounded further with the UK’s aging population – with the number of UK over 50’s increasing by 3.3 million in the past 15 years.3 The majority of Baby Boomers have advisers of some description but crucially their beneficiaries often have no relationship with them. Therefore, when they pass, their wealth moves outside the control of the financial adviser, and the adviser loses not only their revenue that their investment was generating, but also their beneficiaries (and future referrals). This creates both opportunities and threats for those advising this generation. Creating solid foundations To ensure this generation can pass on a lasting legacy and suffer minimal taxation, it is crucial for advisers to ensure they have a valid will and a Power of Attorney in place. These are the sort of essential foundations that should serve as the first port-of-call in preventing any misunderstandings and disputes over the transfer of wealth to a client’s beneficiaries.
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This is an invaluable step, because it allows the adviser to identify the client’s next of kin, beneficiaries and executors and should begin to establish relationships with the significant members of the family.
This poses a real threat for advisers with an older client base, particularly as one of the main reasons given by advisers for this was that more clients were choosing to manage the money themselves.
Once the wealth has been transferred, there are plenty of opportunities for financial and estate planning for those inheriting, particularly if they don’t have a financial adviser themselves.
By creating a family inheritance plan and including the beneficiaries in the planning stages can be an effective method of cementing the role of primary adviser, with more likelihood of being retained by the next generation.
One such opportunity is researching the types of investments you can make which can qualify for Business Relief (BR) in just two years instead of seven. Business Relief investments will not be counted as part of your taxable estate, and is effectively a tax free legacy. Find out how you can make Business Relief a part of your Estate Planning strategy here.
Becoming an Intergenerational financial adviser
Generation X: “The Inheritance Generation” This term refers to those born between 1965 - 1980, who can also be referred to as the Inheritance Generation as they will largely be the main recipients of the Baby Boomer wealth as it cascades down to them. Now in their 50’s and 60’s, this percentage of the population is much more technologically savvy than the Baby Boomers, and often prefer to manage their financial affairs themselves. This demographic may also have a current inheritance tax liability and require some planning to mitigate. Maximise the opportunity To ensure this generation can inherit successfully and suffer minimal inheritance tax it is crucial for advisers to ensure the parents of this generation (the baby boomers) have a valid will and Power of Attorney in place. This is an ideal opportunity to talk to parents of this generation to ensure that their current planning is robust and that your client will inherit with minimal inheritance tax. Once an inheritance has been received a surprisingly high 66% of beneficiaries dispense with their parents’ financial adviser.4
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A financial adviser who has done a good job in preserving the wealth of the Baby Boomer should be in a strong position to manage the financial affairs of the next generation, this is far easier if the financial adviser has already established a relationship with the key family members, and beneficiaries. Developing these relationships early in the process means they are aware of their needs and able to provide a more tailored and personalised service for them. Some estate planning services have been designed specifically for the beneficiaries to be able to maintain once they have inherited, such as personal trading companies and AiM portfolios. GBI Sources 1 Kings Court Trust - Passing on the Pounds (2017) Page 2 2 http://www.saga.co.uk/newsroom/press-releases/2016/january/over- 50s-contribute-more-than-6-trillion-to-the-uk-economy.aspx (2016) 3 Kings Court Trust - Passing on the Pounds (2017) Page 8 4 Liz Skinner, InvestmentNews survey of 544 advisers - The great wealth transfer is coming, putting advisers at risk (2015) (https://www.i nvestmentnews.com/article/20150713/FEATURE/150719999/the- great-wealth-transfer-is-coming-putting-advisers-at-risk) 5 https://www.statista.com/statistics/528577/uk-population-in-millions- by-generation/ (2016) 6 https://www.professionaladviser.com/professional-adviser/ news/3077971/young-people-awaiting-inheritance-to-make-major-life decisions-killik-co (Killik & Co survey)
A VIDEO INTRODUCTION TO
STELLAR ICENI Estate and succession planning and management are highly complex specialist operations.
King’s Court Trust and Stellar Asset Management themselves.
Through Stellar ICENI, collaborative relationships have been developed with a number of professional service providers to create a framework of partners for advisors to call upon to support all aspects of their clients’ estate planning needs.
Advisors will be able to see for themselves how a seamless network of partner services will massively enhance the range and quality of advice they can offer their clients. You can find the full video at https://www.gbinvestments. co.uk/article/a-video-introduction-to-stellar-iceni/
This 3.5 minute video features opinions from wealth managers Helm Godfrey, legal experts Farani Taylor, specialist tax advisors Obsidian, estate administrators
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A NEW ERA
FOR ESTATE PLANNING Stellar Asset Management is offering financial advisers the chance to build a family office solution for their clients with its new estate planning service, Stellar ICENI.
Advisers can turn their businesses into family offices with the help of a new planning service, Stellar ICENI, that provides indepth investment services to clients and allows them to tap into a rich seam of inter-generational tax planning. Stellar Asset Management is best known to advisers for its specialist estate planning services, including its Stellar AIM Portfolio Service, Stellar Income Portfolio Service, Stellar Growth Portfolio Service and Stellar Business Service that provide tax-efficient investments using the premise of ‘business relief’ (BR) to allow investments to become inheritance tax (IHT) exempt after two years. Stellar recently expanded its service to fill the ‘huge gaps’ in the estate planning services being offered to clients. Estate planning is more than just reducing an IHT bill, it often involves the need for power of attorney, specialist tax advisers, probate services, and advice for family members who have been bequeathed sums of money. Stellar’s Business Development Director Matthew Steiner said the company and its directors have been creating and managing services that qualify for BR for 20 years, which is a preferable way to tax plan for IHT as gifting money or using trusts means the person gifting
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the money needs to survive for seven years before it is exempt from IHT. Over the last five years, Steiner says he had seen ‘massive changes in the way these services are used’ as a ‘legitimate financial planning tool’ rather than a quick-fix investment ‘for the death bed’ in order to remove capital from an estate. ‘It’s not just older clients that advisers are using us for,’ says Steiner. ‘They are starting to split out their services, and we have AIM portfolio, Growth portfolio, and Income portfolios. We also have a single company portfolio that turns the investors into a shareholder in a qualifying business.’ As well as thinking about IHT planning earlier, advisers are also thinking about where else they can help their clients plan around death. ‘High-net-worth investors need tax advice, and business owners need tax advice. If you do not have a power of attorney in place or a will, it will undermine the whole rationale for financial planning in the first place,’ says Steiner. This is where the new Stellar ICENI Service is aiming to fill the gaps, by providing advisers with access to specialists that will enable fuller financial planning for their clients.
Stellar ICENI offers tax advice from Obsidian, legal services, and estate administration from Kings Court Trust through its new service, as well as its own investment solutions. Advisers can choose the levels of involvement they have with each of the partners, adding to the services as and when they are needed. It may be that advisers start with an investment solution from Stellar and then involve the legal services and tax service at a later date, then finally the estate administration. ‘The service can be matched to the needs of the underlying client,’ says Steiner. ‘Maybe they need to think about power of attorney, maybe they have a big IHT liability. It could be that they only take legal advice. We have a lot of interest in the tax advice partners for clients who have businesses, overseas properties, or complex tax affairs. ‘They may be looking for an interpretation of the law in a specific area.’ While advisers will be familiar with the work of legal and tax specialists, estate administration may be a new area for them. Steiner describes it as a ‘concierge service for grief’. ‘You have probate but administration is a third of the cost of a solicitor and they will sort everything out: the transfer of utilities at a property, they will even get someone to
mow the lawn of a property so it is easier to sell… A solicitor oversees the probate but is not skilled in being a financial detective and hunting down every aspect of a person’s finances. However, estate administrators will, and they will take care of everything.’ All of these additional services mean ‘financial advisers are confident they can offer the highest level of service and give their clients the best outcome’, says Steiner. ‘It’s a family office solution for many firms,’ says Steiner. ‘For some advisers who work for larger firms, Stellar ICENI may not be the right thing because they may already have the infrastructure to deal with it, but if you are a small or medium-sized business where you do not have the infrastructure of larger firms, you can call on the partners to facilitate the services.’ By offering clients a holistic service, advisers will be able to take better advantage of what Steiner calls the ‘largest transfer of wealth in 30 years’, as the baby boomers pass down their accumulated wealth to their children. ‘If you are a really good financial planner, you spend your life optimising your clients’ financial position and you want to continue doing that for the next generation and become the architect for the next of
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kin - that is a great business model for an advice firm,’ says Steiner. He says Stellar ICENI has shaped the partners service proposition as an ‘inter-generational wealth transfer’, which puts advisers ‘in a strong position’. ‘The other big benefit is helping financial advisers to develop and identify not just the next generation of clients but other members of the family that are important – the executors of the estate, family who will inherit money, friends that will inherit, who has power of attorney,’ he says. ‘If the adviser is able to build a strong picture of the family and the other key people, they have a better chance when the money is transferred to the next generation to retain the investment.’ Steiner says after the death of a client, the ‘vast majority’ of money leaves a financial adviser - around 90% of assets are lost, and two-thirds of spousal benefits leaves advisers’ control. Stellar ICENI creates a ‘collaborative service’ that ‘keeps clients at the centre of the advice process’ and not only allows advisers to retain the next generation of business but gain reciprocal work through the other partners. ‘The adviser works in a connected way with other partners,’ says Steiner. ‘The tax advisers will be making sure the financial adviser is in the loop all the time.’ In order to explain the proposition to advisers and help them explain it to their clients in turn, Stellar ICENI is developing a toolkit to provide introductory letters to accountancy firms, and regular seminars and workshops with the specialist partners. Education is key for both advisers and clients and Stellar wants to expand adviser knowledge of tax-efficient investment solutions. Advisers may be more aware of the benefits of EIS and VCT, the latter of which raised a record sum of £728 million in the 2017/18 tax year, the highest amount raised at the current level of 30% upfront tax relief. However, less is known about BR. Steiner says that VCTs and EIS require clients to invest in small companies and ‘put their investment capital at risk to get upfront tax relief’. ‘You are going to have some people switch off from this,’ says Steiner. ‘You cannot just get tax relief for the relief’s sake. ‘Business relief acts like a much wider investment. It is asset-backed with physical assets that do not have the same risk profile. A lot of the education we do is encouraging financial advisers to separate EIS and VCT from BR because it’s not the same.’
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Steiner adds that the portfolios with single companies that make clients the only shareholder provide a bespoke arrangement designed for each client’s needs. “The rules from HMRC in BR qualifying activities are clear and our structures are robust and stand up to scrutiny.” ‘With single company portfolios, clients become shareholders in companies and undertake qualifying business actions and then they get the tax relief in two years. We are a nation of shopkeepers; there are investments in UK forestry, hotels, and residential property developments.’ Steiner says the investment that BR provides for British business is ‘great in light of Brexit’ and in terms of investing, Stellar ‘knows a lot of sectors very well’. ‘We have the widest range of physical asset choices in the industry,’ he says. ‘Whether that’s hotels in Scotland, residential developments, renewables, or construction finance.’ Steiner maintains that the Stellar portfolios provide a great way for advisers to add diversification to their clients’ portfolios as well as gaining valuable tax reliefs. The AIM Portfolio Service, which is available on platforms such as Transact and Standard Life, is well diversified, holding an average of 40 companies in the funds compared to the industry average of 25. ‘We are steady and cautious and will diversify, and we have been doing this for over 20 years,’ he says. While EIS has been under the microscope in recent year and Steiner believes much of this is to do with the upfront tax relief received, the tax reliefs are different around BR as it is only offered on the death of the investor as long as they have held the investment for at least two years, with no upfront reliefs and no ‘advanced assurance’ that they will qualify, as with EIS. ‘The client is assessed for BR on their estate on death and you cannot get any advanced assurance,’ says Steiner. Stellar ICENI is aiming to take advisers into a new realm of financial planning, not only using BR but with its estate planning service. ‘We do not think there is any such thing as IHT planning,’ says Steiner. ‘You create an estate plan to pass money down to the next generation. It is a reallocation of capital into into something more tax efficient. ‘Death and wills scare people - we are adjusting a portfolio and re-allocating assets to protect wealth.’ GBI
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STELLAR ASSET MANAGEMENT Phone: 020 3907 6985 Email: enquiries@stellar-am.com Website: www.stellar-am.com
COMPANY OVERVIEW: A portfolio of Inheritance Tax Services
Matthew Steiner, Corporate Director
Stellar Asset Management is an experienced manager of investments which seek to provide 100% relief from Inheritance Tax after two years. Their portfolio services offer investors exceptional diversification and choice across asset class areas that provide a high level of security. Both their chairman and CEO have been at the forefront of tax-efficient investment in the UK since the early 1990s, when they first established Close Brothers Investment Limited. They quickly became market leaders in the creation, promotion and management of tax planning products for private investors. In 2007, they formed Stellar Asset Management, where they have continued to develop innovative and robust services that are underpinned by longstanding government legislation with emphasis on the mitigation of inheritance tax. KEY PERSONNEL OR FUND MANAGER Jonathan Gain Chief Investment Officer and CEO Jonathan has been involved in financial services since 1993 when he graduated from Bournemouth University with a BA (Hons) in Accountancy. He joined the then newly formed Close Brothers Investment Limited in 1993 and was appointed Finance Director just five years later. Jonathan established Stellar Asset Management in 2007 and drawing on his wide-ranging experience has created a business which is focused on estate planning and which offers investors maximum choice and diversification across a wide number of sectors.
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Enhanced Profiles
Jonathan is chief executive and the majority shareholder. Craig Reader Chairman Craig’s career started at Thornton and Baker, which later became Grant Thornton where he trained as a Chartered accountant. He joined Chancery PLC in 1985 and quickly became a leading figure in the development and promotion of Business Expansion Schemes. In 1991 he set up Close Brothers Investment Limited (part of Close Brothers Group Plc) to specialise in tax planning products and grew the division to £3.5bn FUM over 15 years, with innovative products in such as EZTs, VCT, Film Schemes, EIS and sectors of the property market including the UK’s first property ISA. In his role as Chairman, Craig draws on his extensive investment and tax experience to guide the direction of the company and oversee the Investment Committee’s process. Matthew Steiner
of Stellar’s services is designed to provide investors with full control and access to their capital throughout their lifetime and achieve relief from Inheritance Tax after two years. Their portfolios are designed to provide Inheritance tax freedom for individuals and business owners and to create a legacy for the next generation. Key features • Wide range of diversified services for adviser to choose from • Impressive track record of delivering real returns • Transparent robust structures • Choice of growth or (distributed) income strategies • Uncapped upside • Low fees • Our award-winning service, Stellar ICENI supports financial advisers in delivering a more holistic business offering (see below)
Corporate Director
BUSINESS ACTIVITIES:
Matthew has worked in the financial services industry since he graduated from Kingston University in 1997.
In addition to AiM, Stellar offers investors access to a wide range of business relief qualifying, asset backed investments.
Immediately after university, he trained as a financial adviser and spent two years advising private investors before joining Close Brothers Investment Limited in January 2000, where he became Business Development Manager. His experience from this role includes a wide knowledge of property investment funds and tax efficient products.
They continually source and develop new sectors to ensure that investors benefit from exceptional diversification in business activities that provide investors with a high level of security. Examples include:
After a short sabbatical in Nepal, he undertook consultancy roles within boutique tax and property investment companies before joining Stellar as a director and shareholder in 2012. Matthew has been instrumental in the development of Stellar’s estate planning services and is the driving force behind Stellar ICENI.
• Hotel Management • Commercial Forestry • Care Home Management • Residential and Commercial Property Development • Golf Course Management
UNIQUE SELLING POINTS: Stellar is a specialist manager focused on Inheritance Tax and estate planning services that use Business Relief. Each
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PREPARING FOR
‘THE INHERITANCE ECONOMY’ Experts are estimating that over the next 3 decades in the UK, a quite staggering £5.5 trillion will be passed down through the generations. This isn’t just good news for the ever-growing numbers of heirs and heiresses, it also offers unprecedented opportunities for financial advisers and wealth managers.
Matthew Steiner, corporate development director at Stellar Asset Management, updates us on how advisers can explore this potentially fertile landscape. Back in 2019, we launched Stellar ICENI. Most people probably associate ‘Iceni’ with Boudicca, and the ancient meaning of the word was indeed ‘tribe, family and lineage’. We thought this was a highly appropriate name for a new programme designed to preserve wealth and to keep it in the family by passing it on to future generations. It occurred to us that there are too many areas of specialist advice, with no overlap, to reasonably expect a financial adviser to be 100% conversant with all aspects of estate planning business. After all, the key disciplines of estate planning to support financial planning include investment management solutions, legal services, tax advisory services and estate administration – all specialist sectors. So we created Stellar ICENI with input and co-operation from a panel of leading independent financial advisers to provide a complete and collaborative estate planning service to advice professionals.
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It offers advisers one-stop access to the vital tools they need in order to: • significantly increase planning business
their
volume
of
estate
• strengthen existing and build new relationships with the heirs of their clients • create a business continuity plan for assets under management • identify and connect with the wider client family and their advisers, and • strengthen and grow their client base. In addition to Stellar’s expertise using Business Relief qualifying activities for Inheritance Tax planning; Stellar ICENI’s service provider partners include: • Legal services expertise in family and inheritance law, offering wills, Power of Attorney and Trusts • Bespoke Tax advisory expertise; important for complex cases or where businesses are involved • Estate administration services - to ensure the tax efficient transfer of wealth to the next generation
SIX MONTHS LATER... Interest and uptake have been gratifying. We launched the scheme to IFAs via a series of seminars across the country, explaining how they can use estate planning as a business tool, and that both young and old can benefit – not just the advisers themselves, but their clients too. They quickly saw how working together could make them much stronger, and right from the start the feedback was that the scheme was long overdue in a sector which requires so many different facets of specialist knowledge; it brings it all together. We learned a lot too – for example, we were startled how many advisers simply don’t discuss Inheritance Tax with their clients. And while it may not be a forensic examination, a show of hands at one seminar revealed that an extraordinary 80% of advisers have never used Business Relief before.
This year we will be developing a toolkit for advisers who want to develop their estate planning skills. We will help them harness the power of Business Relief and provide their clients with robust planning for their estates. We will provide visual aids, infographics and case studies for them to present to their clients, and we’ll help them with spotting opportunities in their client base and among their professional connections. We’ll enable them to drill down into their clients’ needs and wishes and see what aspects of estate planning will help leverage their business. We also intend to go out on the road in partnership with IFAs, so Stellar ICENI and advisers can together present directly to a wider client base. GBI
FURTHER ACTIVITY FOR 2020 Stellar ICENI is all about delivering specialist estate planning cohesion to the benefit of advisers’ clients, while unshackling IFAs to deliver what they do best.
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THREE CLIENT CHALLENGES EVERY ADVISER WILL FACE IN
THE INHERITANCE ECONOMY We are living in an ageing society. In the UK, it is estimated that 1.2% of the British population passes away each year. This equates to over 750,000 people per annum – and deaths are expected to rise over the next 10 years. Unfortunately, the amount of inheritance tax (IHT) being paid by families is rising. This is often as a result of beneficiaries who are not properly advised. The Financial Times reported that the value of IHT receipts to HMRC last year was a massive £5.4 billion. This number is expected to double by 2030 to more than £10 billion. This amount of inter-generational wealth transfers is unprecedented in UK history. Known as The Inheritance Economy, it has created a once in a life time opportunity for financial advisers.
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But what are the main hurdles advisers need to overcome to reduce wealth cascading outside of the client’s family? CONTROL & ACCESS Firstly, there is a huge misconception that estate planning only involves setting up trusts or gifting inheritance. While these traditional solutions may work for some, they involve clients giving up control or access to their capital. There are increasingly popular alternatives emerging. These are tax-efficient and provide clients with flexibility and capital growth, without capital falling outside of their estate. One of the most effective is Business Relief (BR); a piece of government legislation offering IHT relief. Investing in assets which qualify for BR such as British forestry, hotels and residential developments, or stocks
on the AiM Index, will fully relieve any IHT liability after just two years, providing they are held at the time of death.
PROVIDING HOLISTIC INTER-GENERATIONAL ADVICE
In contrast, gifts and trusts, require seven years before they qualify for IHT relief.
What has become increasingly apparent to us is that no matter how good an adviser, they cannot offer a complete financial planning service on their own in the Inheritance Economy.
For advisers who have clients whose financial circumstances are likely to change as they grow older and require long-term care, BR has the advantages of speed, control and an income stream to bequeath to their heirs. IT’S GOOD TO TALK There can sometimes be a real reluctance for families to discuss money and longer-term plans with each other. Older generations may be reluctant to discuss sensitive topics like The ‘M’ Word (aka: money) with their spouse or children. Here, financial advisers will have a crucial role to play in removing this taboo. Advisers are uniquely positioned to deal with sensitive issues at a delicate point in their clients’ lives. We often meet advisers who say they get push back from clients on this subject. However, perhaps it is the way the subject has been presented to them, rather than the subject itself.
In most cases, clients will also need legal services for wills, Power of Attorney, probate and tax advisory services for end of life estate administration to facilitate the smooth transfer of wealth to their beneficiaries. To help advisers, our award winning service – Stellar ICENI – is primarily designed to widen the breadth and scope of advice that a financial adviser can offer. By collaborating with other specialist experts in estate planning, advisers can unlock new opportunities within their existing client base. Remember: every client will have children, parents or grandparents, so who is advising them? Offering a holistic service, whist facilitating communication within the family can be what sets your approach apart from the competition and put you in the best position to advise a client’s other family members – transforming the role of the financial adviser into the family adviser. GBI
Building meaningful relationships with your clients and their family is an effective method of preserving clients during the inheritance economy, as you handle their household finances and get to know their families. If the client has a spouse, arrange a meeting between the three of you in order to work through these details together.
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THE ATTRACTION OF PHYSICAL ASSETS: INVEST WITHOUT INVOLVING THE STOCK MARKET
As the Novel Coronavirus (COVID-19) spreads across the globe, so too does growing uncertainty pervade across the stock markets. In addition, worldwide issues such as Brexit, US trade wars and conflict in the Middle East highlight the many ways in which world events can unsettle the economy. Such challenging market conditions mean investors must continue to look outside of traditional stocks and bonds for reliable sources of growth and income. As a result, it is worth exploring asset classes that don’t involve the stock market. After all, there is a high chance stocks will eventually head into a bear cycle, and investors may be grappling for reliable alternatives. As more and more people are choosing to invest in these assets classes over more traditional sectors, there is value in knowing that potentially risk-mitigating investments are available across the UK and many are backed by the government. WHAT IS AN ASSET-BACKED INVESTMENT? An asset–backed investment is one that has a physical or tangible asset such as land or property underpinning it. Asset backed investments comprise of either freehold or long-leasehold ownership of the land or property. BENEFITS OF PHYSICAL ASSETS As well as having value in and of themselves, physical assets can also be considered as a tax-efficient investment, with greater security because of their tangible nature. Investing in UK physical assets – such as renewable energy, forests, care homes or hotels – offers performance that is significantly less dependent on the wider markets
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to deliver attractive returns finely tuned to minimise risk. Moreover, the government has said it will prioritise investment into renewable energy. This commitment will focus on improving economic and environmental futures for local communities that are becoming increasingly reliant on these sources of energy. Additionally, land value continues to remain stable across the UK. Therefore, as the country still does not build enough houses to meet demand, the government has pledged £600 million for new homes. which will further help residential developments across the country. STELLAR GROWTH IHT SERVICE: A DIVERSIFIED PORTFOLIO With a discretionary managed portfolio such as Stellar Growth Inheritance Tax Service, wealth preservation, risk mitigation and capital growth are the primary focus with in-depth, specialist knowledge in each of the investment sectors that qualify for Business Relief (BR). Our highly diversified portfolio spreads the investment across multiple sectors, granting investors access to more asset backed markets that typically require great capital to invest. This access does not come at a cost of increasing risk, as each sector is uncorrelated to one another, as well as global economic events. This means that we manage our portfolio to generate income returns of at least 5% per annum for investors. For clients or investors seeking long term, stable projects as well as a range of other benefits. GBI
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UTI LISI N G BUSI N ESS RELI EF IS
THE SAFER OPTION
FOR LESS EXPERIENCED INVESTORS STELLAR CAN OFFER STABILITY FOR ADVISERS AND THEIR CLIENTS For many people looking to shelter their finances from Inheritance Tax (IHT), capital preservation and volatility management are crucial. This means that less experienced investors are likely to favour a safer option. In practical terms, this means that investing in a diverse portfolio and retaining full control of their capital will be vital for most clients. At Stellar, we specialise in investing in business activities that qualify for Business Relief (BR). With a BR qualifying investment, the client maintains full control and access to their capital throughout their lifetime. In addition, by investing in a range of assets, we effectively mitigate the risk of each investment. This is achieved whilst providing full relief from inheritance tax after only two years. RECENT FCA NEWS FURTHER HIGHLIGHTS A NEED TO MATCH INVESTOR PROFILES WITH SUITABLE INVESTMENTS Many clients place a huge importance on mitigating
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risk when managing their exposure to IHT. Despite this, higher risk alternatives to BR are regularly being offered to less-sophisticated investors. The Financial Conduct Authority (FCA) recently announced they are increasingly seeing potentially safer options being overlooked in favour of investments with more substantial risk. For example, higher risk options such as Venture Capital Trusts (VCTs) are being made available to investors who are unfamiliar with the market. These options can offer high growth potential and a number of tax benefits. However, VCTs are also higher risk and may feature reduced liquidity. Therefore, they are not appropriate for every investor. As a result of these practices, the regulator is preparing for a crackdown on poor advice and unsuitable products. This review will focus on retail investor exposure to alternative investment products. With the FCA’s focus now firmly on this sector, advisers must be more certain than ever that clients fully appreciate the conditions of their investment.
Another higher risk alternative to BR, the Enterprise Investment Scheme (EIS), comes with a high risk of illiquidity and share dilution by investing in early stage businesses. The scheme also requires that capital must be held for a minimum of three years to benefit from tax relief. Many funds aim to offer exits for investors within four to seven years. However, investments can be tied up for much longer. IFA’s need to be confident their client can afford to be without their capital for this extended period. The FCA have previously taken a hard-line stance on industries offering inappropriately risky products to consumers. This has included a ban on retail investors investing in mini bonds. BUSINESS RELIEF: THE SAFER OPTION All of these factors demonstrate that, as the FCA continues to inspect the marketplace, BR’s suitability for many investors is likely to only become clearer. If you have clients who do not want to give away control to large sums of money but still want to protect their capital from IHT and give their inheritance the best chance to grow, BR investments can be a solution. Effective wealth planning needs to be carefully designed to suit the requirements of each individual. However, IHT planning using BR not only offers greater security than other options, it also enables assets to obtain relief faster with qualifying assets only needing to be owned for at least two years. This makes BR an effective choice for a range of investors regardless of their investment experience level. If you have any questions about our services or how they could work for your clients, click here to get in touch with an expert member of the Stellar team. GBI
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MAXIMISE ISA TAX EFFICIENCY FOR YOUR CLIENTS EVEN IN UNCERTAIN TIMES
A growing proportion of the population is finding that, unless they take appropriate action, Inheritance Tax (IHT) will reduce the financial legacy they can leave for their loved ones.
Shares held in certain AiM-quoted companies within an ISA qualify for Business Relief and can provide full relief from IHT after two years, in addition to the normal ISA tax benefits.
IHT is potentially chargeable on an estate worth over £325,000. An estate is the total value of a person’s assets including property, investments and cash. IHT is deferred when an estate is left to a spouse or civil partner. However, the next beneficiaries will be responsible for settling that IHT.
AiM is sometimes perceived as being more volatile than the markets for larger companies. However, the right portfolio manager can deliver real value for their clients by careful stock selection. This in turn can potentially offer better capital preservation and the prospect of growth.
This can be a problem. There is a possibility those beneficiaries do not have access to the capital required to pay the liability. While stocks and shares can be sold, other assets – like artwork or property – can have emotional as well as financial value and are less liquid and often harder to sell. However, there are some easy ways to reduce or remove IHT using established government legislation. Traditional methods of mitigating IHT include placing money into a trust and making gifts. While these are well established routes, they are not always suitable as they involve relinquishing control of capital. There could be more suitable alternatives available for your clients. ISAS ARE NOT FREE FROM IHT A common misconception is that ISAs are exempt from IHT. This is not usually the case unless the investments therein qualify for Business Relief.
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GB Investment Magazine · May 2020
ISA CONSOLIDATION ISA consolidation can be a very effective planning strategy. It means that you can recommend a client transfer all or part of the value of their combined ISAs into one AiM portfolio. The benefits of doing so are: • Removal of IHT liability after two years • Easier to manage • The prospect of continued growth ADDITIONAL PERMITTED SUBSCRIPTION ISAS The Additional Permitted Subscription (APS) ISA was introduced in April 2015. This allows the surviving spouse of a deceased ISA holder to acquire an additional ISA allowance, based on the value of the deceased person’s ISA(s) as of the date of birth.
In April 2018, an update to ISA rules created an opportunity for additional tax savings. Investors who pass away on or after 6th April 2018, can have their ISA reclassified as a “Continuing ISA”. The APS allowance can be one of two values. Either the value of the deceased’s ISA(s) as of date of death, or the value when it is closed and stops being a continuing account. This is subject to a cut-off of three years after the date of death. No money can be paid into it from this point onward. However, it will continue to benefit from the tax advantages of an ISA, so growth inside the wrapper remains tax-free. This hugely simplifies the tax rules and means that ISAs retain their tax efficiency after an investor has died. HOW WE CAN HELP IMPROVE ISA EFFICIENCY Our AiM Portfolio Service offers all of the above benefits, and returns are completely free of income and capital gains tax if held within an ISA. Some of our key benefits include: • Highly diversified portfolio • Capital preservation focus • Low fees • 12-year performance history For further information on our range of estate planning services and how they could work for your clients, please call a member of our business development team on 020 3907 6984. GBI
GB Investment Magazine · May 2020
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The complete estate planning solution Establishing the adviser at the heart of the client relationship, today and in the future A new service that seamlessly combines the key elements of specialist investment management with external expert estate planning professionals, to support advisers in providing the most tax efficient, intergenerational wealth strategy for their clients.
If you are interested in growing your estate planning business, and offering a more complete service to your clients please contact Matthew Steiner or one of the adviser team at Stellar, to see how we can work together. Matthew Steiner - Director 020 3326 0682 | 07786 930 360 matthew.steiner@stellar-am.com Switchboard - 020 3907 6985 stellar-am.com
Multiple elements. One estate planning service.
Stellar Asset Management Limited Kendal House, 1 Conduit Street, London, W1S 2XA +44 (0)20 3195 3500 | enquiries@stellar-am.com | www.stellar-am.com Authorised and regulated by the Financial Conduct Authority (FCA) under No. 474710.
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GB Investment Yearbook ¡ September 2018
