Granite guidance

Granite Financial Planning are delighted to be a nominated finalist in the Professional Adviser Awards 2018 for the category ‘Best Adviser Website’. 

In 2017, more than 200 advisers, firms and providers were under consideration for the awards, which seek to reward excellence within both the financial advice community and among the broader financial services sector.  

Now in their 13th year, the Professional Adviser Awards continue to search the whole of the UK to select Financial Adviser firms who showcase their knowledge, skills and commitment to client care.

It follows the recent success of Managing Director Paul Gibson in the Financial Times Money Management awards 2017 when for the sixth consecutive year he was amongst the prize winners. 

He was named Runner Up in the Multi Asset Planner of the Year category following on from winning the overall Financial Planner of the Year award for the previous two years.  

Managing Director, Paul Gibson said: “To be a finalist in this category is fantastic as we are up against far larger national and regional firms with budgets to match.  Our aim is to offer a first-class service to a limited number of clients at a price that represents real value for money.”

Paul is pictured receiving his award from Sky Sports presenter Hayley McQueen.

 

Granite Financial Planning are delighted to announce that Managing Director and Chartered Financial Planner Paul Gibson has once again been shortlisted in the FT Money Management Financial Planner of the Year awards.

Paul has won the overall award for the past two years and has this year been successfully nominated in the Multi Asset Planner of the Year category. He has also been a category winner or runner up on 6 separate occasions.

He said " I am delighted to once again be recognised in the most prestigious adviser awards which I have been very fortunate to win for the last two years. Having set up the business a year ago I have been delighted with the level of new client enquiries and winning awards is undoubtedly a great advert for the business. As a new business we still have capacity to take on new clients who appreciate our alternative approach to most other firms."

The awards ceremony takes place at Avenue on St James Street in Central London on 19 October 2017.

Granite Financial Planning was formed on 1 July 2017 and prides itself on it's personal service, fair charging structure and planning led approach.  

 

 

 

 

 

Does paying more in investment management fees lead to better performance? The answer seems to be overwhelmingly no. Read my comments in the Press and Journal on the FCA's Final Report on the Asset Management Industry.

“The market hates uncertainty” has been a common enough saying in recent years, but how logical is it?

There are many different aspects to uncertainty, some that can be measured and some that cannot. Uncertainty is an unchangeable condition of existence. As individuals, we can feel more or less uncertain, but that is a distinctly human phenomenon.

Rather than ebbing and flowing with investor sentiment, uncertainty is an inherent and ever-present part of investing in markets. Any investment that has an expected return above the prevailing “risk-free rate” (think Gilts for UK investors) involves trading off certainty for a potentially increased return.

 

Consider this concept through the lens of stock vs. bond investments. Stocks have higher expected returns than bonds largely because there is more uncertainty about the future state of the world for equity investors than bond investors. Bonds, for the most part, have fixed coupon payments and a maturity date at which principal is expected to be repaid. Stocks have neither. Bonds also sit higher in a company’s capital structure. In the event a firm goes bust,bondholders get paid before stockholders. So, do investors avoid stocks in favor of bonds as a result of this increased uncertainty? Quite the contrary, many investors end up allocating capital to stocks due to their higher expected return. In the end, many investors are often willing to make the tradeoff of bearing some increased uncertainty for potentially higher returns.

 

MANAGING EMOTIONS

 

While the statement “the market hates uncertainty” may not be totally logical, it doesn’t mean it lacks educational value. Thinking about what the statement is expressing allows us to gain insight into the mindset of individuals. The statement attempts to personify the market by ascribing the very real nervousness and fear felt by some investors when volatility increases. It is recognition of the fact that when markets go up and down, many investors struggle to separate their emotions from their investments. It ultimately tells us that for many an investor, regardless of whether markets are reaching new highs or declining, changes in market prices can be a source of anxiety. During these periods, it may not feel like a good time to invest. Only with the benefit of hindsight do we feel as if we know whether any time period was a good one to be invested. Unfortunately, while the past may be prologue, the future will forever remain uncertain. 

STAYING IN YOUR SEAT

 

In a recent interview, David Booth of Dimensional Fund Managers was asked about what it means to be a long-term investor: 

 

“People often ask the question, ‘How long do I have to wait for an investment strategy to pay off? How long do I have to wait so I’m confident that stocks will have a higher return than money market funds, or have a positive return?’ And my answer is it’s at least one year longer than you’re willing to give. There is no magic number. Risk is always there.” Part of being able to stay unemotional during periods when it feels like uncertainty has increased is having an appropriate asset allocation that is in line with an investor’s willingness and ability to bear risk. It also helps to remember that, during what feels like good times and bad, one wouldn’t expect to earn a higher return without taking on some form of risk. While a decline in markets may not feel good, having a portfolio you are comfortable with, understanding that uncertainty is part of investing, and sticking to a plan that is agreed upon in advance and reviewed on a regular basis can help keep investors from reacting emotionally. This may ultimately lead to a better investment experience.

 

The new Inheritance Tax (IHT) Residence Nil Rate Band (RNRB) was introduced on 6 April 2017.

It is in addition to an individual’s nil rate band of £325,000 and is conditional on the property being passed down to direct descendants, e.g. children, grandchildren. It will also be available to adopted, foster or step children.  

It will save as much as £140,000 in IHT when the family home passes to children on death.  

It is being phased in over 4 years and the full £175,000 allowance will not be available until April 2020.  

The RNRB will start at £100,000 and will increase by £25,000 each year until 2020.  

The rates will be £100,000 for 2017-2018, £125,000 for 2018-2019, £150,000 for 2019-2020 and £175,000 for 2020-2021.  

These are the maximum amounts and the allowance will reduce if the value of the property is less than this. The value of the home for RNRB purposes will be the open market value of the property less any liabilities secured on it such as a mortgage.  

The nil rate band will be frozen at £325,000 until the end of the 2020-2021 tax year and when combined with the full RNRB of £175,000 this will provide a married couple with the promised £1million nil rate band.  

The RNRB will be transferable between spouses and civil partners on death, in a similar way to the standard nil rate band.  It is the unused percentage of the RNRB from the estate of the first to die which can be claimed on the second death. 

Those with estates exceeding £2million may not actually benefit at all. The RNRB will be reduced by £1 for every £2 that the deceased’s net estate exceeds £2million.  

Therefore, a deceased’s estate exceeding £2.2 million in 2017-2018 tax year will find that they have no RNRB available. This will increase to £2.35 million in 2021-2022 when the full £175,000 allowance is effective.  

Protection will be provided If the family home has been sold due to downsizing or moving into a residential care home.  

The RNRB will still be available if the downsizing or disposal of the property is after 8 July 2015 provided that the property disposed of was owned by the individual and it would have qualified for RNRB had it been retained by the individual.  

The replacement property or assets must form part of the estate and pass to descendants.  

Only one residential property will qualify and any properties which were never a residence of the deceased such as buy to let properties cannot be nominated.  

Whilst the new rules are to be welcomed inheritance tax planning remains as complex as ever and guidance should be sought from a suitably qualified professional who specialises in this area. 

Paul Gibson is a Chartered Financial Planner and Managing Director of Granite Financial Planning who operate in Aberdeen and Banchory. He can be contacted on 01224 781280. 

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The Financial Conduct Authority (FCA) recently published an interim report on the “Asset Management Market”. 

The scope of the report is wide ranging and extends to 200 pages but some of the findings will be of huge interest to anyone with savings in a pension or Individual Savings Account (ISA) as it is estimated that over three quarters of UK households have exposure to the asset management industry.

The UK’s asset management industry is the second largest in the world, managing £6.9 trillion of assets. 

Active fund management comes in for great criticism in the report. Active fund management dominates in the UK and accounts for 74% of assets under management. 

Actively managed funds typically charge higher fees than passive or tracker fees, reflecting the higher costs of managing an actively managed fund. The annual disclosed fee for actively managed equity funds is 0.90% of the assets under management and the average passive fee is 0.15%. 

Transaction costs are normally higher for active funds. Investors are not being given information on transaction costs in advance, meaning that investors cannot take the full cost of investing into account when they make their investment decision.  

These costs can be high and add around 0.5% on average to the costs of active management for equity investments.  

Overall, the FCA evidence suggests that actively managed investments do not outperform their benchmark after costs. 

The report also highlights that many active funds offer similar exposure to passive funds, but some charge significantly more. They estimated that around £109billion is invested in expensive funds that closely mirror the performance of the market and are considerably more expensive than passive funds.  

The report is also critical of price competition in the asset management industry.  

The FCA evidence indicates that as a fund size increases, prices do not fall, suggesting the economies of scale are being retained by the fund manager rather than being passed onto investors in these funds.  

Their analysis shows that charges for actively managed funds have stayed broadly the same for the past 10 years in sharp contrast to passive funds which have fallen over the last five years. 

Fund managers do not appear to compete on price and there is price clustering for active equity funds, with many priced around 1% and 0.75%. 

The final report from the FCA will be published later in the year and I will be very interested to see the final version. 

I hope that it does lead to a shake up in the industry as fees for active fund management have been far too high and lacked transparency. Funds that are effectively “closet trackers” have no place in today’s investment world.  

An investor should be provided with the total cost of investing to make an informed choice prior to investing. 

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The general financial planning guidance provided in this website is based on our understanding of current law and HM Revenue & Customs practice, which are subject to change in the future. Whilst every effort is made to ensure the content of this website is correct, it does not constitute personal financial advice and Granite Financial Planning Ltd cannot accept any responsibility for it. There is a risk that investment returns may not achieve the desired result. Investments can go down as well as up. The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk. Cookies are used on this website to record visitor numbers for analytics purposes.