Granite guidance

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. 

Further endorsement for the merits of index investing comes from Warren Buffett, the chairman and CEO of Berkshire Hathaway and one of the most successful investors ever.

In 2007, Buffett offered to bet any taker $1 million—with the money to go to charity—that over ten years and after fees, an S&P 500 index fund would outperform ten hedge funds of the taker's choice. Protégé Partners, a New York money management firm, accepted the challenge. Its entry consisted of five funds of hedge funds, while Buffett selected Vanguard 500 Index Fund Admiral™ Shares.

According to Fortune, from the start of the contest on January 1, 2008, through the end of 2015, the 500 Index Fund returned a cumulative 65.67%, compared with 21.87% for Protégé's picks. Although there's more than a year left to go, Buffett clearly holds a sizable lead and appears to be on track to win his indexing bet.

Buffett's confidence in index funds is also on display in his 2014 annual letter to Berkshire shareholders. On page 20 of the letter, he notes that his estate plan calls for putting 90% of his bequest to his wife in "a very low-cost S&P 500 index fund (I suggest Vanguard's)" for her benefit.

Granite Financial Planning offer a portfolio review service. If you would like a second opinion on your portfolio please get in touch.

Many are aware that a personal pension contribution attracts 20% tax relief when paid, and potentially a further 20% or 25% for higher earners. For a minority of individuals, though, the available tax relief will be as high as 60% - and without the need to resort to 'clever' tax planning. The other side of the coin is that some won't be entitled to tax relief on all of their contributions at their top rate of tax. 

A personal contribution made to a personal or stakeholder pension will usually be paid net of 20% tax relief. An individual pays 80% of the total contribution; the Government adds the remainder. This can be done each tax year up to 100% of earnings, although annual allowance restrictions may apply.

Higher earners can claim an additional 20% or 25% through their tax return or by an in-year adjustment to their tax code. Either way, this additional relief is returned to the client rather than paid to their pension.  The mechanism by which the additional relief is calculated is an increase in the basic rate tax band of the value of gross contributions. For example, the basic rate tax band – which sits 'above' the personal allowance - is £32,000 in the 2016/2017 tax year. A gross contribution of £10,000, say, increases the band to £42,000. The effect of this is to tax £10,000 of income at 20% instead of 40%, generating the additional 20% relief due.

A further benefit of personal contributions is that they reduce the client's 'adjusted net income'. Adjusted net income above £100,000 causes the gradual loss of the personal allowance at a rate of £1 for every £2 of excess income. Taxable income of £110,000, then, reduces the personal allowance by £5,000 – from £11,000 to £6,000. A personal contribution of £10,000 gross would, in this instance, restore the personal allowance.

This is the source of 60% tax relief:

  • 20% tax relief available when the contribution is paid to the provider;
  • an additional 20% tax relief through self assessment for higher rate taxpayers; and
  • a further 20% tax relief for those clients who can restore some or all of their personal allowance

Those in this position – those with taxable income between £100,000 and £122,000 – should be encouraged to make a personal contribution, provided that it is affordable and the annual allowance implications have been checked.

That's one very positive aspect of tax relief. Another that should be highlighted is the limitation of tax relief at the higher rates. A 40% or 45% taxpayer is not automatically entitled to this much tax relief on all of their personal contributions. Instead, it is limited to the amount of tax paid at those rates. Income in the year of £45,000 currently breaches the higher rate tax threshold by £2,000, so only that amount suffers 40% tax. Consequently, a contribution of, say, £20,000 attracts basic rate relief on the full contribution, but only £2,000 attracts higher rate relief.

If you require assistance with retirement planning strategies please get in touch. This email address is being protected from spambots. You need JavaScript enabled to view it.





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We are delighted to announce that Banchory based Paul Gibson has been named Money Management Financial Planner of the Year 2016, at the 21st annual Financial Planner Awards in London. 

He retains the title he won in 2015 when he became the first ever Scot to win the title. 

To be eligible for the overall award, financial planners had to submit detailed answers to case studies set in at least three financial disciplines.  

Paul was judged to have demonstrated “high-quality understanding” across numerous disciplines.  

He was presented with the top accolade by BBC presenter and former Strictly Come Dancing Winner Chris Hollins at the black-tie Awards dinner held in Mayfair, London. 

Paul commented, “To retain the title for a second year is fantastic news and is a huge endorsement for the type of work we undertake. Having recently set up our own business it is great to be recognised at such a high level in the UK and demonstrates that high quality advice can be offered locally by a boutique firm.” 

Paul is one of the best-qualified financial planners in the UK. He is both a Chartered Financial Planner and Fellow of the Personal Finance Society, and a Chartered Wealth Manager and Certified Financial Planner of the Chartered Investment & Securities Institute. 

If you have any financial questions, or if you would like help and advice, Paul can be contacted on 01224 781280 or This email address is being protected from spambots. You need JavaScript enabled to view it.


The introduction of pension freedom in April 2015 was much heralded and has brought about a huge change in consumer behaviour.

Prior to April 2015 the majority of pension funds were used to purchase lifetime annuities.


Recent research from Legal & General has highlighted how long people in Scotland could survive financially if all they had to rely on was their savings, friends or family, or minimal state benefits.

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Granite Financial Planning Ltd is Authorised and Regulated by the Financial Conduct Authority | FCA No. 734432.
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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 Cookies are used on this website to record visitor numbers for analytics purposes.