Best Advice
WINTER 2010 EDITION
JANUARY 2010
Informed Choice Ltd Special Points of Interest: • Now is the perfect time to make resolutions for the year ahead. We share eight to consider. • The Pre-Budget Report made changes to the pension tax relief rules for higher earners. • From 6th April 2010 the minimum retirement age will be 55, up from age 50. • We expect 2010 to be a year of mixed fortunes for our clients.
We are proud to be a Welcome to the latest edition of our quarterly client newsletter—Best Advice. In the first edition of our newsletter in 2010, we share with our readers eight personal finance resolutions for the year ahead. You will also find information about the anti-forestalling measures introduced to restrict higher rate income tax relief on pension contributions for higher earners. From 6th April 2010, the minimum age for taking pension benefits goes up from 50 to 55. We explain the advantages and disadvantages of taking pension benefits early.
A key part of the Retail Distribution Review is higher professional qualification standards. We describe the proposed changes and what it could mean for your financial adviser.
firm of Chartered Financial
We hope you enjoy reading our newsletter. Please do let us know if you have any questions and consider passing it on to a friend or colleague.
and ethical good practice.
Regards,
resolutions
Mar tin
Martin Bamford CFP APFS Chartered Financial Planner Managing Director
Last year was challenging for world economies and 2010 looks set to be a year of mixed fortunes but with inflation and interest rates remaining low.
Following feedback from our clients and professional connections, we engaged with a leading web development firm to construct a new website worthy of an award-winning firm of Chartered Financial Planners. The new website is based on a cutting edge design and is packed full of features. It includes:
have satisfied rigorous criteria relating to professional qualifications
Inside this issue: Personal finance Pension tax relief for
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an integrated blog with the ability to comment and share content across the various social networks
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a dynamic search facility
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simple navigation with the various website pages organised in five different areas
Please do take a look and let us know what you think.
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higher earners The age 50 question
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Outlook for 2010
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Team based
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Have you seen our new website? In November we relaunched our main website at www.icl-ifa.co.uk.
Planners. This means we
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Best Advice Eight personal finance resolutions for 2010 This is the perfect time of the year to make resolutions. During such tough economic times, it is understandable that so many people stick their heads in the sand when it comes to their money. By considering a few simple personal finance resolutions, it is possible to transform your personal finances and get to the end of 2010 with a much healthier financial position. Here are our eight top personal finance resolutions for 2010. 1 – Work out your budget. It continues to amaze me how many people simply don’t know how much money they spend each month (and where this money goes). Working out and sticking to a monthly budget is all about spending less than you earn. If you achieve this, month on month, you will be in a better financial position at the end of 2010 than you were at the start. 2 – Get out of the red. If you have short term debt (credit cards, store cards, overdrafts, etc) you will know that debt is a drag on your ability to meet other financial objectives. It’s also an emotional drag on your attitude towards money and personal finances. Make clearing your short-term debt a priority before starting to save for other financial plans. 3 – Make a plan. This action ties in closely with your monthly budgeting. When you are working out what you are going to spend your money on each month ensure that you prioritise debt over savings. Stop taking on more short-term debt. Mark a debt-freedom day on your calendar and stick to it. 4 – Look to the future. Starting a pension is likely to be a big priority for many people in 2010. We recently heard proposals from the main political parties on the subject of pensions, all suggesting we will need to save more and work for longer. You cannot rely on the State for a sustainable level of income in retirement and that means you need to use a pension or another investment vehicle to create your own sources of income for later life. 5 – Pay less tax. No one enjoys paying tax but many of us fail to take the simple steps that enable us to pay less tax. Each and every year we waste an average of £132 per taxpayer because we don’t take some simple planning steps and maximise our tax allowances. The simple steps you can take to pay less tax include making sure savings and investments producing taxable income are held in the name of the lowest earning spouse and using your annual Individual Savings Account (ISA) allowance. From 6th April 2010 we can each invest up to £10,200 each year into a tax-efficient ISA. 6 – Review your mortgage. The ‘credit crunch’ has made getting good mortgage deals more challenging, yet it remains important to review your mortgage regularly to ensure you are paying a competitive rate of interest. If you are on your lender’s standard variable rate (SVR) then you might be able to access a better product, saving you money each month which can go towards your other financial objectives. 7 – Sort out your financial affairs. If you don’t have a Will, get one. You can write your own Will but there are some major risks involved with this DIY approach, so meet with a solicitor to get this organised. If you die without a Will, your estate will be distributed according to laws created in 1925. It is no surprise that these laws probably do not reflect modern thinking on inheritance! Don’t risk dying ‘Intestate’. At the same time give some thought to family financial protection, particularly what would happen to your family from a financial perspective if you were to die, lose your income or contract a critical illness such as cancer. It is possible to insure against these risks but you need to quantify them first. If you have existing life assurance plans, review them to make sure they remain competitive and appropriately structured. 8 – Meet with an Independent Financial Adviser. Make 2010 the year that you carry out a comprehensive review of your personal finances and Financial Planning with an impartial professional who has access to the tools and knowledge needed to improve your current and future position. Most IFA’s offer a free initial consultation with no obligation so they can identify areas that they can help you with and you can grill them about their qualifications, experience and charges.
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Pension tax relief for higher earners The Pre-Budget report in December contained a few pension related changes, including a tightening of anti-forestalling measures limiting higher rate income tax relief on pension contributions for higher earners. Originally introduced in the April 2009 Budget Report, the anti-forestalling measures are designed to penalise higher earners who make substantial pension contributions, effectively limiting the amount of higher rate income tax they can receive. The anti-forestalling measures are far from simple. High income individuals were originally defined as those earning at least £150,000 in this or either of the previous two tax years (2007/08 and 2008/09). The definition was updated in December, reducing the income threshold to £130,000. This is income from all sources. Once defined as a high income individual, you receive a special annual allowance which is one of three numbers, starting with a basic allowance of £20,000. It is also possible to have an enhanced special annual allowance of up to £30,000 based on infrequent pension contributions or a protected pension input amount based on regular (at least quarterly) pension contributions. If your total pension contributions (including those from your employer and accrual within a defined benefits pension scheme) exceed your special annual allowance, the excess is subject to a special annual allowance tax charge of 20% or possibly up to 30% from 6th April 2010. These anti-forestalling measures will remain in place until 6th April 2011 when the new restrictions on higher rate income tax relief on pension contributions come into force. You should seek professional independent financial advice if there is a chance you have been caught up in these new or interim rules as some planning opportunities continue to exist.
The Age 50 Question The 6th of April 2010 will, for many, mark a key date in their retirement planning. Anyone who will be 50 before the beginning of the next tax year will have to make the decision whether it is appropriate to take their retirement benefits in whole, in part or to wait for up to a further five years. Changes to the minimum pension age will mean the loss of access to pension benefits until age 55 with people at or approaching age 50 the most affected. The advantages of taking retirement benefits now include access to a tax free lump sum, flexibility of income, continued investment growth, and the ability to continue contributing in order to accumulate a larger retirement fund for the future. There are also some important warnings to consider carefully. Death benefits from a pension are significantly worse once you have taken retirement benefits, there is the loss of tax advantaged growth on the cash and income withdrawals, income from your pension benefits is added to your taxable income and withdrawing income erodes the capital value of your pension fund. Do speak to us if you are between 50 and 55 and need advice on your pension options ahead of these changes in April 2010.
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Best Advice The Outlook for 2010 2009 was a challenging year for the world economy, after the near total collapse of the banking system in 2008. Governments around the world responded quickly with a massive injection of cash and by cutting interest rates to historic lows. Against this backdrop, the stockmarkets had a good year in 2009. The FTSE 100 index of leading UK company shares finished the year around 50% higher than its low point in mid-March. Looking ahead to 2010, analysts are predicting a year of mixed fortunes, with continued recovery in the first half of the year being balanced by harder times in the second half. Clearly the timing and pace of any recovery will be influenced by the outcome of the General Election. We expect to see interest rates maintained at a very low level throughout 2010, even with the expected short term spike in price inflation. We also expect to see unemployment continue to rise as this is a lagging economic indicator. It is due to keep rising until at least the summer. The financial challenges faced by our clients in 2010 will, as always, vary depending on personal circumstances and objectives. As we have witnessed in 2009, we expect to see a year of mixed fortunes in 2010, with those in secure employment or with businesses starting to prosper again as a result of economic recovery benefiting the most from continued low inflation and interest rates. There is good news for those approaching retirement in 2010, as gilt yields recently reached their one year high and we expect them to go even higher as a result of an anticipated gilt sell off.
Raising qualification standards A key part of the Retail Distribution Review (RDR) proposals from the Financial Services Authority was raising the minimum benchmark qualification level for all Financial Planners. From the end of 2012, the minimum standard will be raised from QCF Level 3 (equivalent to an A Level qualification) to QCF Level 4. This means that all financial advisers, even those offering restricted advice, will be required to hold a Diploma level qualification if they want to keep advising their clients. We recently saw the publication of core standards for the QCF Level 4 benchmark Appropriate Examinations for retail investment advice. These new standards are open for consultation until the end of February. Here at Informed Choice, our team of Financial Planners have already largely satisfied (and in some cases far exceeded) these new benchmark qualification requirements. Four of our seven Financial Planners have obtained the QCF Level 6 Advanced Diploma in Financial Planning (and Chartered Financial Planner status). Another holds the QCF Level 4 Diploma in Financial Planner is awaiting results which will take him to QCF Level 6. The other two who are not yet at QCF Level 4 are making good progress towards achieving this level ahead of time.
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The team based approach One key point of difference between Informed Choice and other IFA firms is our team based approach for the provision of advice, implementation and review services to our clients. The traditional IFA business model revolves around the adviser and the administrator. In most firms, the adviser is responsible for all aspects of the advice process; including research, formulating recommendations and presenting these to the client. The administrator then takes over to complete the processing of paperwork and other back office functions. We do things a little differently around here. Our advisers tend to fulfil the dual roles of providing services to existing clients and acquiring new clients. Other functions, including advice construction and research, is a support function which is fulfilled centrally with a consensus approach leading to the provision of best advice. What this means for our clients is that they have a personal relationship with one Financial Planner and the advice they receive has been carefully formulated by a team of people, all with appropriate levels of experience and qualifications. This team based approach might not be unique in retail financial services, but it remains a relatively new way of doing things and is now being adopted by other firms as they start to understand how it can improve the quality of advice and levels of service on offer to clients.
Profile: Lizanne Doyle In the first of a series of profiles on the team at Informed Choice, we introduce you to Lizanne Doyle. Lizanne joined the Informed Choice team in August 2006 as a Client Services Administrator. Her main responsibilities are to provide administration support to our Financial Planners and their clients. She first started working on retail financial services in July 1990 with the insurance company NPI. In 1996 she made the move to working with independent financial advisers in an administration role and has continued to do so ever since. Working within an IFA firm in an administration capacity results in many different responsibilities which Lizanne enjoys, as well as speaking to clients which adds a great deal of diversity to the working day. On a typical day, Lizanne might be allocating the post to active files, arranging meetings for Nick and ensuring instructions are properly processed by insurance companies. Unlike many administrators in retail financial services, Lizanne holds the Certificate in Financial Planning. Outside of work, Lizanne enjoys participating in her husband’s self-defence club and is an assistant martial arts instructor. She also has a keen interest in motorsport and follows the Moto GP championship, in particular the legend Valentino Rossi!
Finalists for IFA of the Year We are pleased to announce that Informed Choice has reached the shortlist stage for the Money Marketing Financial Services Awards 2010 in all three of the categories we entered, including for the coveted IFA of the Year title. These adviser awards seek to recognise adviser firms for both the quality of their advice and the business acumen covering both general IFAs and specialist advisers. Informed Choice has reached the shortlist stage for IFA of the Year, Best Investment Adviser and Best Use of Technology by an Adviser. The next stage is interviews in January 2010 to decide the final placings and winners. The awards will then be announced on Thursday 25th March 2010 at the Grosvenor House Hotel, Park Lane, London.
Andrew Neligan is Best Newcomer We are pleased to announce that Informed Choice Chartered Financial Planner Andrew Neligan has won Best Newcomer at the FT New Breed Adviser Awards 2009. The award ceremony took place in October at the Sheraton Park Lane Hotel in London. Andrew received his award from BBC business presenter Declan Curry. The New Breed Adviser Awards are designed to recognise best practice, innovation and service across the advisory community in the wealth management industry. The awards programme was focused on the achievements of the 'new breed of advisers' that are helping to shape the future of retail financial services in the UK. Andrew was named Best Newcomer; the adviser who has made considerable achievements within the first two years of joining a firm.
Remember to visit our new website: www.icl-ifa.co.uk Important Note:
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This newsletter is provided for general consideration only and the
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