Le Tour de Finance Gayda October 2016
By Derek Winsland
This article is published on: 9th October 2016
On Friday 7th October, 62 invited guests attended the 113th Le Tour de Finance event, once again staged in the beautiful setting of Domaine Gayda, in Brugairolles in the Aude. This is the seventh time The Spectrum IFA Group has returned to Domaine Gayda, and after the presentations guests were able to sample some of the wines produced there.
On arrival, guests were treated to coffee and pastries before listening to six presentations on a range of financial subjects including Assurance Vie, Pensions, Financial Markets and Currency Exchange and French Tax issues. The presentations were delivered by industry professionals and commenced with a presentation by Michael Lodhi CEO of The Spectrum Group who immediately drew the attention of the attendees by addressing the issue uppermost in the guests’ minds, that of the EU Referendum result and how it would impact the expat community. Michael then went on to highlight the other main theme of the day, that of the state of the UK pensions industry, scheme deficits and the options open to pension members.
Michael then made way for Jeremy Ferguson of SEB Life International who spoke about Assurance Vie, its tax advantages in France both for income and inheritance tax, and demonstrated the product’s flexibility in adapting to changes in the policy-holder’s circumstances. This is always a popular presentation, and didn’t disappoint.
Following Jeremy, we heard a presentation on the current situation in the financial markets delivered by Robert Walker from Rathbones, who shared the ‘house’ view on the impact of Brexit on the investment markets, and on the value of the pound. Of particular interest were his views on where the true value of the pound lies and the timescales before those values are likely to be restored.
Following Robert came a short presentation by George Forsyth of Prudential who presented the Prudential International Assurance Vie and how it differs from the SEB Life International contract. Majoring on the strength of Prudential’s investment funds and how this allows the returns to be smoothed out, rather than suffer the periodical fluctuations of the investment markets, George was able to convey the view that the volatility in global markets can be successfully managed without causing the investor sleepless nights.
There was a noticeable sitting up in seats when the next speaker stood up to speak – Paul Foreman from Momentum Pensions. Speaking about the developments in pensions brought about by last year’s change in legislation, it was clear this was a subject of great importance to the attendees. There is clear concern being expressed currently and this was confirmed to us in feedback received after the event. Paul delivered a highly informative presentation that inevitably raised more questions than answers, but an opportunity to ask those questions came over lunch.
Pippa Maile of Currencies Direct then delivered a typically entertaining presentation on the different transaction opportunities available through the Currencies Direct online portal. Once again this was of particular interest to the room.
Finally, guests were introduced to Rachel Thomas-Bonnet whose company Perfide Albion provides help and support in a whole range of aspects to ex-pats, ranging from help with property purchase, entering the French healthcare system and (noticeably more reluctantly) re-registering your car in France. Rachel also helps with completion of tax returns, and through her work with Notaires coupled with her legal training she has built up a reputation as the go-to person for all aspects legal. It was clear that Rachel was a popular speaker by the comments made by the attendees and the number of people who made a bee-line for Rachel over lunch.
The presentations were then wound up by Michael Lodhi who invited all to stay and enjoy the lunch provided by Domaine Gayda and to sample some of its wines.
To all of us there, it was evident that the guests had found all the presentations highly informative and of value to them. Once again, a very successful Tour de Finance.
Every Cloud
By Derek Winsland
This article is published on: 8th September 2016
With the exception of a weakening pound and falling interest rates, we are yet to see the full impact of Britain’s vote to leave the European Union. Perhaps we may not ever see it if Teresa May and/or others decide against triggering Article 50 to herald the start of the process. We currently sit in a ‘phony’ period where no-one knows quite what will happen, causing doubt and uncertainty to set in. We await with bated breath the latest results to come out of the Treasury and the Bank of England.
The latter recently reduced interest rates to an historic low of 0.25%, at the same time announcing a new round of Quantitative Easing. Falling interest rates are either a good thing or a bad thing depending on which side of the saver/borrower fence you occupy. Clearly borrowers are happy, but for savers, especially those who rely upon their capital to supplement their retirement income, it’s not such a happy picture. Indeed, I am seeing this most days I speak to people about their finances. Thankfully, we are able to make investment recommendations that will generate higher levels of returns to counter falling interest rates, but these don’t suit everybody. But like most things I find in financial services, there’s generally a positive that accompanies a negative, if one looks close enough.
One such area relates to the impact falling interest rates has upon pension transfer values. In my last article I touched upon the way transfer values from occupational (defined benefit) schemes are calculated. Without going into chapter and verse, a fundamental part of the calculation process uses gilt interest rates to determine the transfer amount. Although the schemes have a certain amount of leeway in interpreting the rules, the bottom line is that low interest rates result in much higher transfer values having to be quoted by scheme trustees. This makes the decision on whether it suits an individual’s purpose to transfer somewhat easier to determine.
The observant amongst you will recall I mentioned TVAS in my last article, and the (somewhat out-of-date) rules that the FCA still clings on to. Remember critical yields? Well, a higher transfer value will result in a more achievable critical yield becoming attainable, so making the decision to move to a personal pension such as a QROPS, easier to make. Sure there are variables and these are more or less important depending on who you are and what your circumstances are. Carrying out a full analysis of your own particular situation, Spectrum’s advisers can place you in an empowered position to make your choices, so, if you have a defined benefit scheme that you’ve either never reviewed, or one that hasn’t been looked at for a while, perhaps now is the perfect time to do so.
Every cloud……!
Tin Hat Time at the FCA
By Derek Winsland
This article is published on: 1st August 2016
In the wake of the fourth Parliamentary Review into the Financial Conduct Authority and its handling of high-profile incidents, comes the latest criticism from the Financial Services Complaints Commissioner who accuses the FCA of “an unwillingness to face up to and address its shortcomings”. He went on to say he had seen a tendency at the FCA to find reasons for excluding cases from the complaints scheme in circumstances where they should not have been excluded. Oh dear, smacks of Big Brother getting too big for his boots and believing itself to be above the law?
It is currently squirming with embarrassment over the antics of Sir Phillip Green and the BHS pension scheme, and this is fostering the belief in the industry that it is too focussed on the advisory sector and overlooking the problems that Pension Freedoms is having on occupational pension schemes, especially Defined Benefit (DB) or ‘final salary’ schemes.
You will no doubt be aware that the legislation passed in April 2015 relaxed the rules over how benefits could be taken from pensions. Gone was the insistence that a “pension is a pension – its job is to provide your income in retirement.” Although this is true, the old-fashioned rules take no consideration of lifestyle and personal choices. A casualty of this new form of thinking is the annuity, where you handed over your pension pot to an insurance company in return for an income for the rest of your life. A great concept except that the insurance company kept your money when you died. Under the new rules, you could use your pension pot to draw income off in retirement (or even before retirement now). This ‘income’ could be regular or ad-hoc in support of other income like state pensions for example.
Crucially, the new rules addressed the world in which we live and choose to live. An example of this could be where a member of a DB pension scheme (or a number of schemes over his/her working life) may decide on a change of career, to move to France to buy a property with an attached Gite to rent out. That is a lifestyle choice that perhaps suits that individual. Personal choice.
Under current (and out of date) FCA thinking, the default assumption is that it would not be appropriate for that individual to transfer the accrued benefits from such DB pension schemes, unless it can be proven that such a transfer is in that client’s best interest. How is this tested? Through the Transfer Value Analysis System or TVAS. Results are shown in the form of critical yields and hurdle rates. Sound complicated? You bet! Except it doesn’t allow for lifestyle choices or individual circumstances, which to the member are of far more importance. As advisers we’re told we must advise and inform the client of what’s in his or her best interest, even if it doesn’t gel with that person’s view. Believe me, those conversations are not easy. The FCA, meanwhile, sits in Canary Wharf, navel-gazing while all this is going on. The more cynical amongst us think the FCA has far more on its plate like finding ways to boost its coffers now it’s been told to stop bank-bashing and fining them for their latest misdemeanours.
There is hope on the horizon, however. The new chief executive of the FCA, Andrew Bailey has promised a greater focus on pensions, hopefully this won’t be an exercise in covering their backsides, but rather a genuine attempt to move with the times, providing much-needed and valuable guidance to the people they serve, the consumer. Let’s all hope that this is sooner rather than later and that the FCA doesn’t get distracted too much wrestling with the bear called Brexit.
If you would like more information on our view of how the investment markets are likely to play out into the future, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings.
When is a guarantee not a guarantee
By Derek Winsland
This article is published on: 28th June 2016
When is a guarantee not a guarantee? Members of the BHS Pension Scheme must be wondering that after news broke that the scheme, into which both they and their employer diligently contributed into, is £571 million in deficit. Questions are being asked as to how it ended up in this situation, given that the Trustees of the scheme were supposed to operate within quite strict guidelines, within a regulatory regime that doesn’t usually miss much. It is at this point that a short history lesson is perhaps needed.
The more mature reader will no doubt remember the Robert Maxwell Affair. The former owner of Mirror Group Newspapers (under rules that were allowed at that time) regularly dipped into the wonderfully overfunded Mirror Pension Scheme to prop up his ailing business, to the tune of around £500 million. When this didn’t work, he (allegedly) took a swallow dive off the back of his boat, leaving others to clear up the mess he’d created.
Much hand-wringing in the corridors of power resulted in more stringent rules being put in place to avoid a repetition and to which pension scheme trustees would henceforth have to abide by. Bear in mind, that the employer was generally the trustee of its own scheme, being told to conform to new rules limiting what they could and couldn’t do was a challenge; in the end the regulator focused on policing the funding position of schemes….no more than 110% overfunded and no less than 90% underfunded. This led to overfunded schemes using imaginative ways to reduce its funding position such as providing contribution holidays to its members or giving discretionary increases to retiring members’ benefits for example. Another bright idea was the introduction of reporting requirements that insisted on pension fund deficits being carried through to the company balance sheet – that’ll stop those pesky company executives from massaging their company’s financial position.
Pension Protection Fund (PPF)
Fast forward a few years to the start of the millennium when three years of turmoil in equity markets had a disastrous impact on those funding positions…whoops! This resulted in the creation of the Pension Protection Fund (PPF), a funding mechanism put in place to safeguard the benefits of pension scheme members in the event of company failure. The government of the day decreed that PPF should be funded by the family of pension schemes themselves…..anyone spot the flaw in this? At some indefinable future date, it will fail because the ratio of fully funded schemes will reduce, whilst the number of failing companies increases. Interestingly, one of my colleagues in Spain has analyzed the funding position of the PPF, the results of which are on the Spectrum IFA Group’s website. To the end of January 2016, there are 5,945 member schemes in the PPF, 4,923 of which are in deficit, and only 1,022 in surplus. The average funding position across all companies is 80% (remember the ‘no less than 90% underfunded’ rule?); the deficit position of the PPF is £304.9 billion.
Perhaps, this is the real reason why Pensions Flexibility was introduced? Encourage pension policyholders including members of final salary pension schemes (also known as Defined Benefit or DB Schemes) “to take control of their own retirements”, or buy a Lamborghini if you prefer! The lure of that invitation has not been lost on the Great British pension public, which has resulted in meaningful conversations being had between them and their IFA’s. In some cases, it really is beneficial to take the transfer value offered and put it into a personal pension arrangement, but I stress this does depend on individual circumstances.
Are you a member of a Defined Benefit Pension Scheme?
If you are a member of a defined benefit pension scheme and would like us to carry out an analysis to determine how valuable it is to you and your circumstances, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings. There is also no charge for the gathering of information from your pension scheme administrator, after which we will put you in a much more-enlightened position as to your benefits.
The Spectrum IFA Group opens an office in Limoux
By Derek Winsland
This article is published on: 27th June 2016
“Out with the old and in with the new”
No this is not a reference to Rob Hesketh departing the scene (which he isn’t, he remains a very important part of the Spectrum operation here in Limoux). Rather it relates to my decision, after 20 plus years at the coal-face of UK Financial Services, to sell up and move lock, stock and barrel to this beautiful part of France.
So far the move has gone well, apart from one or two hiccups that should be expected. But I’ve been grateful for the help and support I have been given by colleagues and the wider ex-pat community who have been generous in sharing their experiences of moving here and the pitfalls to avoid. It has also enabled my fiancée and I to bring forward our wedding plans and so we return to the UK to the beautiful City of Chester to tie the knot at the end of this month.
As both Sue and I have been married before, the more acerbic reader may observe that this is another case of “out with the old, in with the new”!
“Out with the old, in with the new” also refers to Spectrum’s decision to open an office here in Limoux. This is the first office Spectrum has formally established in rural France (up until now Rob and Daphne and all the other Spectrum IFA’s in the area have worked from their homes or other informal locations), so for the company to select this area for its first venture of this kind is testimony to the brilliant work both Rob and Daphne have done over many years. Both Rob and Daphne have now decided they’d like to ease down a bit, and this explains my introduction to this area.
It’s worth noting that The Spectrum IFA Group already have offices in major cities like Paris, Barcelona, Amsterdam, Luxembourg and Rome and now Limoux joins that illustrious list!
We’ve taken on an office manager, Jaime Donkin, who will be responsible for the day-to-day operation of the office – the office is open Tuesday-Thursday 09.30-12.00 and 14.00-16.00 and Friday 09.30-16.00.
Limoux Friday Clinic
Another change is the introduction of a new service we are offering of a Friday Clinic. As you will no doubt know, Friday is market day here in Limoux, so I will be here to answer any questions you may have; you don’t need to make an appointment, just drop-in on any Friday morning and I’ll endeavour to assist. If you’re making a special journey, you can also ring in to the office and we’ll set aside a half hour appointment if you prefer, the office number is 04 68 31 14 10.
The choice of office location couldn’t be more appropriate either, situated as it is between the bank and the tax office! We like to think we offer an essential buffer between your money flowing out of your bank account and in to the taxman’s – to find out how, pay us a visit on any Friday morning or alternatively ring for an appointment, which could either be in our office or at your home.
Known Unknowns
By Derek Winsland
This article is published on: 16th June 2016
Individual investors may face many “known unknowns”—that is to say, things that they know they don’t know. The UK’s referendum on EU membership is one of them, confronting people with a large degree of uncertainty. But as we’re witnessing, it’s not just the investor that’s afflicted by this Known Unknown condition – the markets are really uncomfortable as evidenced by the fall in the value of the pound.
We have though been here before; perhaps not having to make decisions that could affect our financial stability for years to come, but as the chart below shows, major global events that have impacted on our lives to a greater or lesser effect. Through all of them, the markets have shown a remarkable resilience over the longer term and that is one of the most important lessons the individual investor can learn.
You see, it’s not necessary to “make the right call” on the referendum or its consequences to be a successful investor. Our approach is to trust the market to price securities fairly; to take account of broad expectations of future returns.
In arguing for the status quo, the “remain” campaign is able to point out familiar characteristics of membership.
The “out” campaign, however, is based on intangibles that can only be resolved after the result of the referendum is known. It is impossible for any individual to predict the implications of these unknowns with certainty.
But this is no cause for concern. While the referendum is imminent and its implications are potentially vast and unpredictable, it is not necessary for individual investors to make any judgement calls on the outcome. We have faced many uncertainties in the past—general elections, market crises, recessions, wars—and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.
And while these events have caused uncertainty, volatility and short-term losses and gains, none of them has altered the expectation that stocks provide a good long-term return in real terms.
We have a global view of investing, and we know that the market is very good at processing information that is relevant to future returns. Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to target the expected long-term return.
These events are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Past performance is no guarantee of future results. MSCI data © MSCI 2016, all rights reserved.
Research has demonstrated time and again that the best returns are achieved through ‘Time in the Market’ and not by trying to ‘Time the Market’; in other words, stay invested rather than guess the best time to invest and disinvest.
If you would like more information on our investment philosophy, please ring for an appointment or take advantage of our Friday Morning Drop-in Clinic here at our office in Limoux. And don’t forget, there is no charge for these meetings.
Stay invested and don’t try to second guess the market – Discipline is rewarded
By Derek Winsland
This article is published on: 6th May 2016
Individual investors may face many “known unknowns”—that is to say, things that they know they don’t know. The UK’s referendum on EU membership is one of them, confronting people with a large degree of uncertainty. But as we’re witnessing, it’s not just the investor that’s afflicted by this Known Unknown condition – the markets are really uncomfortable as evidenced by the fall in the value of the pound.
We have though been here before; perhaps not having to make decisions that could affect our financial stability for years to come, but as the chart below shows, major global events that have impacted on our lives to a greater or lesser effect. Through all of them, the markets have shown a remarkable resilience over the longer term and that is one of the most important lessons the individual investor can learn.
You see, it’s not necessary to “make the right call” on the referendum or its consequences to be a successful investor. Our approach is to trust the market to price securities fairly; to take account of broad expectations of future returns.
In arguing for the status quo, the “remain” campaign is able to point out familiar characteristics of membership.
The “out” campaign, however, is based on intangibles that can only be resolved after the result of the referendum is known. It is impossible for any individual to predict the implications of these unknowns with certainty.
But this is no cause for concern. While the referendum is imminent and its implications are potentially vast and unpredictable, it is not necessary for individual investors to make any judgement calls on the outcome. We have faced many uncertainties in the past—general elections, market crises, recessions, wars—and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.
And while these events have caused uncertainty, volatility and short-term losses and gains, none of them has altered the expectation that stocks provide a good long-term return in real terms.
We have a global view of investing, and we know that the market is very good at processing information that is relevant to future returns. Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to target the expected long-term return.
These events are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Past performance is no guarantee of future results. MSCI data © MSCI 2016, all rights reserved.
Research has demonstrated time and again that the best returns are achieved through ‘Time in the Market’ and not by trying to ‘Time the Market’; in other words, stay invested rather than guess the best time to invest and disinvest.
If you would like more information on our investment philosophy, please ring for an appointment or take advantage of our Friday Morning Drop-in Clinic here at our office in Limoux. And don’t forget, there is no charge for these meetings.