Queen Elizabeth II becomes longest reigning British monarch
By Spectrum IFA
This article is published on: 9th September 2015
Congratulations to HRH Queen Elizabeth II who, today on September 9th 2015, becomes the longest serving monarch in British history, beating the record set by her great-great-grandmother Queen Victoria. The exact time that she will set this new record is not known because her father King George VI passed away in his sleep in the early hours of February 6th, 1952.
Our 89 year old queen, who has been our monarch for an amazing 63 years and 7 months, will spend the day on official duties in Scotland and has reportedly said “she doesn’t want a fuss”. There will be a salute along the River Thames with a flotilla of historical vessels taking part in a procession between Tower Bridge and the Houses of Parliament. Business at The House of Commons will also be postponed by 30mins so that MP’s, lead by Prime Minister David Cameron, can pay tribute.
Congratulations Your Majesty on 23,226 days of reign!
Why a Pension audit is vital for your wealth Part 1
By David Hattersley
This article is published on: 25th August 2015
I have been trained in the UK and have been specialising in Pensions since 1987. As well as keeping up to date with the subsequent (and numerous) changes in legislation, I also have a good understanding of the variety of pensions offered since then. In this article I am concentrating on Pre-Retirement Planning ie. those people that have yet to take their pensions. With ever changing careers in private industry and the end of the idea of “jobs and pensions for life”, which was part of the revolution in the late 70’s, most people acquire a number of pensions and different types of pensions over a period of 30 to 40 years. In some cases, they are not even aware of their entitlement, in particular, Defined Benefits Schemes to which the rules changed from the late 80’s (my Father in Law being a case in point who was not aware he was entitled to benefits under such a scheme until well into his retirement) and Contracting Out of SERPs plans.
Since the Finance Act of 2004 pensions have come under that legislation. The general wording of this legislation was “Pensions Simplification”. As advisers at the time, we knew full well that this would not be the case and we have been proven correct, with the subsequent attacks on pensions by a variety of governments seeking to raise revenue and reduce tax advantages at the same time.
Since moving here to Spain, I have come across many clients who were not aware of the benefits that they were entitled to. It has required a vast amount of work tracking down both providers and employers that no longer exist. In some instances it has proved to be fruitless, but others have benefited from plans that they are not aware of. That is the first stage of my role as a Financial Adviser, which is to question a potential client’s work history and seek full details. That however is the easy bit as the options available at retirement have been given greater flexibility, but the irony is that independent advice is hard to come by in the UK unless you are prepared to pay a fee on a time cost basis.
The first question is, do you plan to become tax resident in another European country? For those that plan to still maintain a home in the UK (even as a holiday home), that is further complicated by ever changing rules regarding residency in the UK vs tax residency in the chosen country.
What do you need to do before you leave the UK and become tax resident in an EU country? A simple question perhaps, but the tax free lump sum available in the UK now referred to as “Pension Commencement Lump Sum” or PCLS (one can see the tax free status of that being restricted in the future) is liable to be taxed certainly in France and Spain once you become tax resident. There are legitimate rules reducing this, but once again, these need advice. How does one therefore get your PCLS to take advantage of the current UK tax free status, without having to take the pension too? Perhaps you want to stagger your pension income as a result of continued part time work or “consultancy”. Many of my generation want to still work past normal retirement age, but at a slower pace.
Currency also has an impact, within the last 5 years the £ to the € has gone from 1.07 to 1.42 Euros. If one thinks that will be maintained, consider that in 2002 when the Euro was launched the £ to Euro was as high as £1 to 1.56 Euros. The impact to those that budgeted on that basis over the ensuing 8 years was detrimental to their wealth, so how does one hedge against currency fluctuation?
Does all your pension come from a UK source or have there been earnings and pension entitlements from overseas employment? Do you have a mixture of Final Salary schemes and personal money purchase pots? Is there a need to consolidate these, or treat each individual arrangement on its relative merits?
With recent legislation, trustees of Final Salary schemes (Defined Benefits), with the exception of transfers less than £30,000, now need the involvement of a fully qualified UK financial adviser who has passed his recent exams. This is all very laudable but how can that adviser be aware of the tax rules in your new country of residence? In any analysis carried out by a Spectrum Partner, it is vetted and checked by a Spectrum Fully Qualified Chartered Financial Planner, and if need be by a UK Financial adviser if part of your pots are as above. It is important to note that no UK Government funded pension eg. Civil Service can be transferred.
Then there is the reduction in the Lifetime Allowance, the passing of your pension pot to your chosen heirs and beneficiaries, the correct selection of good quality properly regulated funds and fund managers dependant on an individual needs, regular reviews as needs change, and the changes to the amount one can take on an annual basis due to recent pension flexibility rules. These are all areas that are vital to consider.
Even after the audit, and a decision to potentially transfer part or all of one’s pots, care needs to be taken in the selection of the QROP/SIPP Trustee and the jurisdiction that it comes under.
Having mentioned the above it may be in some cases that not all your pension pot should be considered for a transfer.
It may be beneficial to consider the purchase of a Lifetime Annuity from a UK provider as these have substantial tax advantages over pension payments in Spain. This will have to be carried out before one moves abroad on a permanent basis and, as stated earlier, for every potential client advice is given on a case by case basis.
In many cases, a lifetime of pension saving can result in funds being equal to or greater than the value of a property purchased abroad. Should one not take the same planning, care, advice and due diligence when planning your retirement for an income that may have to last 30 years? That is where we can be of help.
Impending changes to French inheritance laws
By Graham Keysell
This article is published on: 17th August 2015
In England, we are used to being able to decide who should inherit our assets when we die. However, once you are considered a French resident, the ‘Code Civil’ stipulates that a set proportion should go to your ‘protected heirs’ (i.e. your children).
For example, if you have two children, they are entitled to 2/3 of the value of your estate. It is only the remaining proportion that you have some control over. If you are not married, and there is no will, the entire estate will pass to the children.
Whatever your will might say (e.g. leaving 100% to your spouse or a friend), these ‘protected heirs’ can insist on receiving their percentage. It is possible to insert a clause in a will whereby your spouse has lifetime ‘use’ of the matrimonial home. They can also continue to receive income from any investments for life, but they cannot sell any assets, (or spend any money), destined to go to the children (e.g. money in a bank account).
Unmarried couples face a tax bill of 60% of any inheritance, after an allowance of the first 1,594 euros. The same applies to anyone you are not directly related to.
‘PACS’d couples have the same rights as husbands and wives and are not liable to pay inheritance tax.
Recent changes in legislation have improved the rights of the spouse to a certain extent, but the situation is still far from ideal.
The good news is that France has signed up to a recent EU law under which citizens of other countries will be allowed to opt for the inheritance laws of their country of birth. This is due to take effect from 17th August 2015.
Providing you have written a will stipulating that your estate should be disposed of under English law, you are at liberty to leave your assets to anyone you want (and in any proportion). This will take precedence over the Code Civil and completely eliminate the question of ‘protected heirs’.
It is worth mentioning that Scottish inheritance law has some similarities with the French ‘Code Civil’. Anyone born in Scotland would still have some restrictions on whom they could leave their estate to (although the limits are far more generous for spouses and it would almost certainly be preferable to take advantage of the new laws).
For reasons best known to themselves, the UK and Irish governments have not signed up to this EU legislation. Nevertheless, this in no way prevents UK citizens living in France taking advantage of the new rules.
If you have any assets (e.g. a bank account) in the UK, it is usually advisable for you to have both English and French wills. Whilst not compulsory, it does make the winding up of the estate far simpler (and cheaper!).
Wills do not need to be complicated and it is quite likely that a standard version for both English and French wills would suit your purposes. Anyone who would like to discuss this with me can contact me on graham.keysell@spectrum-ifa.com.
There are other factors to bear in mind before deciding whether it is in your interests to take advantage of the new legislation. If you have a ‘classic’ French will and are on good terms with your children, they can simply sign away their rights to the inheritance. Mentioning the new law may confuse the notaire in charge of winding up the estate.
Also, you could lose the valuable tax-free limits that your children would otherwise be able to take advantage of.
Personally, I believe the people most likely to benefit from the change in legislation are those who have children from previous relationships, those who want to leave money to their beneficiaries in unequal shares and those who want to leave money to people other than their direct descendants.
You should bear in mind that this new ability to leave your money to anyone you wish in no way affects the inheritance tax rates. As previously mentioned, there is no inheritance tax between spouses. However, after an allowance of €100,000, children will pay a sliding scale of tax (usually with the majority of the excess being taxed at 20%). If you leave your money to third parties, or charities, they can expect to pay 60%.
Assurances Vie policies are frequently used to avoid inheritance tax. Providing these are set up before age 70, each named beneficiary can inherit up to 152,500 euros, totally tax-free, and it is not considered part of the estate. Any sum in excess of this is taxed at a flat rate of 20%. This is particularly beneficial if you were leaving money to an unmarried partner, a charity, nieces and nephews, etc where they would avoid paying the 60% tax!
This is one of the reasons that these policies account for the majority of the investments in France (as well as being the nearest thing the French have to a UK ‘tax-free ISA’).
This report is intended simply as a summary of some aspects of French succession law and inheritance tax. It is based on my understanding of current legislation, which may be subject to change. No liability can be accepted for any change of interpretation or practice relating to any tax or legislative measure that may affect the accuracy of the content.
The Spectrum IFA Group and Cogs4Cancer
By Spectrum IFA
This article is published on: 5th August 2015
In October 2015, the COGS4CANCER riders are saddling up again. This year is even bigger with a two team format. 26 riders will cycle 850km from Barcelona, Spain to Antibes, France in just 5 days.
The Spectrum IFA Group are once again delighted to be sponsoring
Lee Mutch on this epic ride.
The are four main charities that will benefit directly from this years ride; Cancer Research UK, l’Archet Hospital Nice, Cancer Support Group 06 and Clinique Tzanck Wellbeing.
The ride in October will be the third for the Cogs4Cancer team that have so far raised €399560 since 2013 and at this point in time, the 2015 event has raised a massive €106680.44.
Everyone at The Spectrum IFA Group wishes Lee and the other 25 riders all the very best of luck.
To follow the event and riders please visit the Cogs4Cancer website
QROPS – Qualifying Recognised Overseas Pension Schemes
By Spectrum IFA
This article is published on: 4th August 2015
I’d like to revisit the topic of pensions this month; specifically QROPS pensions. I’m sure you remember that it stands for Qualifying Recognised Overseas Pension Schemes. I spend a lot of time talking to clients these days about QROPS. I don’t want to bore you with loads of technical detail here; I want to concentrate on the core reason why you should consider a QROPS if you are non UK resident or are considering becoming so. Much has happened this year in the UK pensions industry, and it has tended to cloud the picture regarding expats and their retirement savings. Let’s try to regain some clarity.
If you’ve moved to France, or are considering a move here, you need to at least consider a QROPS as an option. It gives you the right to move your pension fund out of the UK jurisdiction altogether, and have much more control over your pension pot, and protect it from internal taxation and other forms of interference from the UK system which is focussing more and more on how to tax your assets.
I’m talking to a client in this position at the moment. His name isn’t Steve, but we’ll call him that anyway. He has a £400,000 pension pot made up of four different pensions accrued over his working life. He and his wife are UK resident, but intend to be French resident soon. I’ve given him all the background information, and he has come back with a very succinct question:
‘I think it quite likely that I will live in France for many years, but equally likely that I will return to the UK at some stage in the future. As my pension will revert to UK jurisdiction when that happens, is it worth my while paying the overseas trustee fees while I am outside the UK?’
Steve is 65 years old, and he thinks he will return to the UK when he is 80. Let’s also assume a modest net return of 5% per annum of the QROPS pension. This of course cannot be guaranteed, but is the current performance of my preferred investment fund over the past 5 years. Let’s assume that he decides to do a QROPS transfer.
Now let’s move forward in time by 10 years. Steve’s pension fund is now worth £550,000. (the mathematicians amongst you will of course realise that he has been drawing down some of this pension to supplement their other sources of income) He’s quite pleased with this, but would be less pleased to learn that in two weeks’ time he will be killed in a tragic car accident.
As tends to happen in later years, Steve and his wife had discussed what they would do if one of them died. Steve thought that if he was the one left, he would stay in France, but his wife, we’ll call her Jane, thought it more likely that she would go back to the UK to be with the children and grandchildren. This is indeed what Jane decides to do, and to facilitate this, she decides to take the full pension pot as a capital sum to enable her to buy a decent house back in Cambridge. She will invest the proceeds of the sale of the French house when, and if, it sells.
Because Steve decided to transfer under the QROPS system out of the UK pension jurisdiction, Jane will get every penny of the £550,000 pension lump sum. If Steve’s decision had gone the other way, and he had decided to keep his four pensions in the UK, Jane would be looking at a tax bill from HMR&C of 45% on the majority of the money if she took it as a lump sum. Her tax bill would be in the region of £210,000 at current rates.
There will have been additional costs in having a QROPS pension, principally to remunerate the overseas trustees who take on responsibility for the administration of the pension under HMR&C rules. There will also have been savings. UK pension funds are subject to UK Dividend Income Tax. The rebate of the 10 per cent credit (ACT) was withdrawn by Gordon Brown, costing pension funds billions in tax.
It is therefore difficult to quantify how much extra a QROPS costs, if anything at all. What we can say with a fair degree of certainty is ‘not as much as you might think’. In Steve’s case it probably cost about £9,000 over the ten years in trustee costs, but £8,000 of this was recovered immediately when he invested his pension money into the QROPS bond. That doesn’t happen with all QROPS, but it can currently with Spectrum.
As far as insurance goes, and I regard this as an insurance policy for while you are abroad, the cost/savings ratio looks pretty impressive. I always practice what I preach; my own pension fund is safely housed in two separate QROPS, well away from the UK tax–grabbers.
With regard to the changes that have erupted on the UK pensions scene this year – Pension Freedom – as the chancellor likes to call it; I think my views are well documented. I see this as a tax raising scheme, nothing more and nothing less. It may be that in the future QROPS schemes will be forced to fall in line with the new UK stance, but that has little to do with the many compelling reasons to look at a QROPS transfer.
QROPS is one of the topics that we will be featuring at our next ‘Le Tour de Finance’ seminar. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- Pensions/QROPS
- Structured Investments
- Currency Exchange
The date for the seminar is Friday, 9th October 2015 at the Domaine Gayda, Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and so early booking is recommended. Please complete the reservation form here
The EU Succession Regulations
By Spectrum IFA
This article is published on: 20th July 2015
What a month it has been since I wrote my last article. The Greek crisis has waxed and waned and as the prospect of increases in UK interest rates comes closer, now the Sterling Euro exchange rate has hit new highs. All of this while the temperatures continue to soar in France and the effects of the canicule are felt!
August is almost upon us and this means that the long-awaited EU Succession Regulations will come into effect. From that point, as French residents, we will be able to opt for the succession rules of our country of nationality to apply (whether or not that country is within the EU). If you do nothing, the default position is that the succession rules of your country of habitual residence will apply. However, regardless of which country’s succession rules are to apply, this will not change the tax situation. French succession taxes will still be due, which can be up to 60%, depending upon your relationship to your beneficiaries.
I am not going to go into the detail of the EU Succession Regulations here, as I have done this before and so I invite you to read my article on this at: spectrum-ifa.com/eu-succession-regulations-the-perfect-solution
As the months have passed since writing that article, I have discussed the implications of the Regulations with several legal professionals who operate at an international level and so they are already highly experienced in dealing with cross-border succession situations. Unfortunately, the further clarification on the practical application of the Regulations that we were hoping for has not appeared and so still we can only wait for the results of actual cases.
What is clear though is that if you elect the succession rules of your country of nationality, then your French property and any other assets that you own would be administered by a French notaire trying to apply another country’s law and this is likely to cause complications, delays, additional expenses and delays. So I, like many other professionals, hold the view that if there is a tried and tested ‘French way’ to achieve your objectives, then this should still be used. The ‘French way’ is another subject that I have written about in detail and the full article can be read at: spectrum-ifa.com/inheritance-planning-in-france
There will be cases where the EU Succession Regulations will be welcome for some couples. Typically, this might include situations where children are estranged from parents or step-children just will not accept the step-parent, regardless of the length of the relationship. The Regulations will be a relief for couples in such situations, as they will be able to circumvent the French forced succession rules, but they will still need to address the taxation issues that may occur. As concerns financial assets, this is an area where we can help.
Everyone’s situation is different and this is why it is very important
to seek professional advice on this subject.
Are you concerned about the EU Succession Regulations and how this affects you? If you would like to have a confidential discussion about this please contact me from the contact box below.
Don´t slip up with over “Greece”ing
By John Hayward
This article is published on: 15th July 2015
The original cash machine?
With events in Greece taking prime news position, certainly the east side of the Atlantic, the main question that I am being asked is, “How will the Greek debt problem and referendum affect my investments?”.
It is said that, back in the BC years, Greece invented finance and all the baggage that it carries. It had the first financial crisis, with bad debt. Debt was subsequently written off and the currency devalued. Unfortunately this has not been an option for Greece now as they are part of the Euro.
Greece has defaulted on loans many times before, yet this never brought the rest of the world crashing to the floor. The word contagion is used an awful lot as the assumption by many is that the rest of the PIIGS (Portugal. Ireland, Italy, (Greece) and Spain) will follow suit. If this was to happen and Spanish banks, in our case, had problems, then there would be major concerns for those who had money with them. Bank risk in Spain has been around for a while and keeping a whole lot of money in a Spanish bank makes little sense. Here are some reasons:-
- Little or no interest paid.
- High charges for little or no gain.
- Inheritance tax liability for Spanish residents.
- Even greater inheritance tax liability for non-Spanish residents.
For those who are brave enough, a financial crisis is a brilliant opportunity to make money. Many are not prepared to be so brave with hard earned savings and, for these people, we have a proven solution with a household name. Very few people like volatility. In reality, volatility means that your money can go down in value, sometimes sharply. With the right approach, we can do away with volatility. Take a look at this graph illustrating the difference between the truly managed approach, the average cautious fund, and the FTSE100. See how consistent the managed fund has been compared to the roller-coaster ride of the others.
Greece is the word at the moment but this shouldn’t mean that all our lives should be dependent on what happens there. Living in Spain, being part of the Euro is the one that I want.
What holds you back from investing?
By Charles Hutchinson
This article is published on: 14th July 2015
Investing for some can be a very difficult task and yet for others it is both easy and immensely satisfying. Those in the former group would just love to be in the latter. So what is the problem? Why are they so different?
The underlying problem is fear but there are ways to reduce these anxieties.
The most fearful are the beginners and yet it is surprising how many “mature” investors go through a similar experience. There is no doubt that that without that leap of faith, you will not achieve the return you so much seek. If your overriding desire is to obtain real growth on your capital, however big or small, you must rethink your approach. For “from small acorns, grow great trees”.
Probably the best antidote is to look back through history – look at what our forebears were faced with when they were poised to put their capital at risk. I should add at this point that without risking your capital to some degree or other you will never experience real wealth creation. “There is no gain without pain”. Here at The Spectrum IFA Group, we look to do this in a controlled and disciplined fashion to insulate the client as much as possible from the stress and concerns of investing.
But we should go back to the basic instincts which create these fears and are the barriers to wealth creation. Someone once said that “The brain is a massive sabotage machine” which interferes in a negative fashion with every important decision we make. I could go into all the reasons for not making an investment decision but I would like to zero in on just one of the many. If you look for reasons for not making the decision to invest then you need to remain in your “comfort zone”. The older we get, the more we want to be in that place because the alternative is too stressful.
Probably the greatest excuse we come up with is the current situation: the Greek debacle, the threat to the Euro, Putin’s bellicose posturing, the state of the EU and its future, whether the UK will stay in, the collapse of the Chinese stockmarket, increasing terrorism, our old favourite secure backstop the Bond Market in total disarray, bank interest rates at all time lows, global warming, global overcrowding, shortage of food and water – need I go on? In fact these are all the excuses for not investing. The fact of the matter is that the only way to beat inflation and actually create wealth is to invest in capital markets, whatever they are, whenever. There is no good or bad time to invest. In fact, if you are a contrarian like the all time most successful fund manager, Anthony Bolton, you invest when everyone else is selling. And to put it another way, fund managers wait with anticipated glee for markets to fall, so that they can get back in at a lower level. Using people like us is the least stressful way to invest as we have already done the research on your behalf as to who are the best managers and for which investment houses they work!
Let us now look back in history and see all the reasons why we shouldn’t have invested at that time. And yet, those who ignored these doomsday factors went on to achieve amazing growth on their capital – not through some rocket science wizard scheme but by just investing in the top stocks in their respective stock markets. An internationally renowned global investment house has produced figures over decades to show that if you had ignored the gloom merchants and just invested * when you had the capability, you would be a wealthy person now. For example, if you had invested just £1,000 in 1934, it would today be worth today over £4,000,000; just £4,000 invested in 1960, would have grown to £1,000,000. If you had invested £10,000 in 1989, it would have grown to over £90,000 today. How could this have happened with all the appalling crisis’s which have occurred in the meantime? Simple, global capital does not just disappear in times of crisis, it has to have a home, it cannot evaporate and like seasons and the rise and setting of the sun every day, capital markets just continue on, regardless of war and pestilence.
(*invested in a portfolio of investment funds or top stocks actively managed by a competent regulated investment house with good past performance.)
Ah, but that was then, there is too much going on the world to de-stabilise the markets. Oh yes? What has changed in the last 80 years? NOTHING!
Let me show you:
1934 Depression
1935 Spanish Civil War
1936 Economies still Struggling
1937 Recession
1938 War Clouds Gather
1939 War in Europe
1940 France Falls & Britain is blitzed
1941 Pearl Harbour & Global War
1942 British Defeat in North Africa
1943 Heavy defeats continue in the Far East
1944 Consumer Goods Shortages in the U.S.
1945 Post-War Recession Predicted
1946 Dow Tops 20 and London market too high
1947 Cold War begins
1948 Berlin Blockade
1949 Russia Explodes A-Bomb
1950 Korean War begins
1951 U.S.Excess Profits Tax
1952 U.S. Seizes Steel Mills
1953 Russia Explodes H-Bomb
1954 Dow tops 300 – Market Too High
1955 Eisenhower illness
1956 Suez Crisis
1957 Russia Launches Sputnik
1958 Recession
1959 Castro seizes power in Cuba
1960 Russia downs U-2 Spy Plane
1961 Berlin Wall Erected
1962 Cuban Missile Crisis
1963 Kennedy Assassinated
1964 Gulf of Tonkin incident
1965 Civil Rights marches
1966 Vietnam War Escalates
1967 Newark Race Riots
1968 USS Pueblo seized by North Korea – fear of renewed war.
1969 Money Tightens – Markets Fall
1970 Cambodia invaded – Vietnam War Spreads
1971 Clouded Economic Prospects
1972 Economic Recovery Slows
1973 Energy crisis & Market Slumps
1974 lnterest Rates Rise & steepest markets falls in 4 decades
1975 Oil Prices Skyrocket
1976 lnterest Rates at All-Time High
1977 Steep Recession Begins.
1978 Worst recession in 40 Years
1979 Oil prices sky rocket
1980 Record Federal Deficits & Interest rates at all time highs
1981 Economic Growth Slows
1982 Worst recession in 40 years
1983 Largest U.S. Trade Deficit Ever
1984 Energy Crisis
1985 Economic growth slows
1986 Dow Nears 2000
1987 Record-Setting Market Decline. Black Monday and UK Hurricane
1988 U.S. Election Year
1989 October “Mini Crash”
1990 Persian Gulf Crisis &1st Gulf War
1991 Communism Tumbles with the Berlin Wall
1992 Global Recession
1993 U.S.Health Care Reform
1994 Fed Raises lnterest Rates Six Times
1995 Dow Tops 5,000
1996 Dow Tops 6,400
1997 Hong Kong Reverts to China
1998 Asian Flu sweeps the Globe
1999 Y2K Millennium Bug Scare
2000 Tech Bubble Burst
2001 9/11 Terrorist Attacks
2002 Recession
2003 War in lraq
2004 Rising lnterest Rates
2005 Hurricane Katrina & destruction of New Orleans. London bombings.
2006 U.S. Real Estate Peaks
2007 Liquidity Crisis & Subprime Lending crisis spreads to Europe
2008 Credit crisis /Financial Institution failures globally
2009 U.S. Double Digit Unemployment Numbers
2010 European Sovereign Debt Crisis
2011 U.S. Credit Downgrade
2012 Fiscal Cliff Issues-/European Recession
2013 U.S. Government Shutdown/Sequester
2014 Oil Prices plunge 50% & Malaysian Airliner shot down in Ukraine
2015 Greece, Terrorist attacks, ISIS rampaging all over Middle East, etc.,etc.
So against this seemingly grim litany of disasters and cyclical market falls, the global financial wealth continued to increase at a remarkable pace over the last 80 years and before that. It will continue to do so into the future. The only thing to stop it would the total annihilation of the Human Race where wealth & money would be useless anyway!
I hope I have illustrated that fear of exposing capital to a perceived risk has no foundation! For those who are still not convinced, they should leave their money in the bank where it will continue to earn nothing, its real value will erode with inflation and possibly disappear with the collapse of the bank they have so carefully chosen to safeguard it!
Reflecting on Gains
By Gareth Horsfall
This article is published on: 12th July 2015
I was recently struck by the ‘musings’ of a fund manager based in London and his take on the world of global economics.
The funny thing is that what we read in the papers, online and listen to from so called experts can literally be taken with a piece of salt. It really doesn’t have a lot of value for the man in the street and it all just goes to prove that no one really knows what is going on. That includes Janet Yellen of the FED and Mario Draghi of the ECB. They seem to be playing a game of ‘trial and error’ to achieve the best short term outcome in the race to make consumers consume again and for economic growth to start apace once again. The indiscriminate use of quantitative easing has only served to push up the cost of asset prices (property, shares, Bonds). In fact it has taken all these 3 asset prices to new highs in recent months and so now might be time to look at reviewing your investments once again.
We, at The Spectrum IFA Group, have been, for some time, looking at the investment fund space, given that stock markets have been moving upwards for the last couple of years. This often signifies that volatile times are ahead.
We are now starting to look at the markets with a more negative stance and believe that it might be the right time to start taking profits from your funds that have made good capital gains during this time and secure those in a less volatile investment.
(For our clients who are using Rathbones Investment Managers and Tilney Best Invest Discretionary fund management services, profit taking and reinvestment will be being taken care of at a micro managed level on a day to day basis).
We, The Spectrum Group, have identified a range of Absolute return funds which are designed to protect capital in volatile markets. And in addition, we believe that cash and Gold will have great value in the next market meltdown.
Absolute return funds, whilst not perfect, aim to protect against market falls and can allow for reinvestment back into undervalued assets at the right time, such as equities, which may be valued considerably less in a crisis. We have to accept that despite Greece and other world worries, the markets could keep on advancing for some time to come (at least while quantitative easing continues from the ECB) and therefore to remain largely un-invested due to fear, could be to lose out on further capital protection opportunities. Absolute return funds offer the option to stay invested with reduced risk.
(A word of warning. Not all are made equal, and absolute return funds need to be carefully assessed to their exposure to underlying assets which may not serve to protect capital so well in volatile markets)
If you would like to know more about these funds, protected capital investments or other low volatility investments then you can contact me on gareth.horsfall@spectrum-ifa.com or on my cell 0039 3336492356.
And so onto the musings of a London based Fund Manager. This makes for interesting reading.
- There is approximately $3.6 TRILLION of government debt, in other words nearly a fifth of all global government debt that is now trading with a negative yield (basically you pay the Bond holder for the right to hold the Bond as an investment, rather than them paying you an interest payment to hold it) and yet money is still being invested in Bonds to the tune of roughly $16 BILLION – the highest investment in Bond funds on record going back to at least 2008.
- €1.5trn of euro area government bonds over one-year maturity have negative yields, and yet Mario Draghi thinks if he can just get interest rates down a bit further, he can turn the European economy around.
- The fact that the American stock market closed on highs recently would tell you the US economy is firing on all cylinders, and yet the Federal Reserve seems frightened to raise interest rates seven years in to the recovery.
- In 2007, global debt of $142 TRILLION was enough to nearly blow the financial system to smithereens but, seven years later, global debt stands at $199 TRILLION, and nobody seems to believe this is such an issue.
- This year British Telecom issued shares to buy EE for £12.5bn, a firm it previously owned before it spun it off in 2002 (a year in which it also issued shares).
- You can now see another coffee shop from the window of nearly every coffee shop in London, and yet Costa Coffee owner Whitbread is valued at 25x earnings.
- In 2009, General Motors emerged from government backed Chapter 11 with a final cost of the GM bailout to the US taxpayers of $12bn. A group of hedge funds have recently taken a stake in the company and have come up with the brilliant idea of GM gearing itself up again.
- If there is any value left in the UK stock market it is certainly in the large-company part of the index and yet many fund managers have little exposure to this area.
- As two thirds of the world might be close to deflation, oil demand has naturally dropped causing a fall in the price. However, most investment bank economists seem to think this fall in the oil price will lead to an increase in demand.
- While bond yields, commodity prices, the Baltic Dry Index, and inflation expectations are all collapsing and suggest deflation could be an issue, equities continue to rise, suggesting it is not. Inflation on the way?
- As the yield on corporate bonds of companies such as Nestlé and Royal Dutch Shell goes negative, money continues to flow in to corporate bond funds.
It is always good to have a contrarian opinion about markets. I hate reading the usual financial press which leads you to believe that which is probably in the interests of some large corporation/person and not our own (the conspiracy theorist in me).
Whilst we are on this topic, my own personal experience (and which could be of no merit whatsoever) is that when I first started out in this business I attended many seminars which were frequently attended by big fund managers, one of which was the then respected HSBC Bank. I have to admit that there were 3 occasions when they were marketing very specific investment funds in specific sectors which, very shortly afterwards, seemed to be the assets which were in crisis. Whether it was HSBC pushing something they wanted to dump at the top of a market or whether it was purely them following the crowd we will never know. What this has taught me is to never never follow the crowd!
All this is why at The Spectrum IFA group we have a fund selection committee who are constantly in touch with fund managers from the big investment houses that we work with (including HSBC). If you would like to read more about our selection criteria for our clients then you can do so Here.
Remember our old friend the Assurance Vie?
By Spectrum IFA
This article is published on: 10th July 2015
In last month’s article I maintained that you can’t please all of the people all of the time. Whilst that met with general agreement, it did provoke some interesting responses; mainly exploring the ‘Should I stay or should I go?’ theme so loved by fans of The Clash. Here is an excerpt from a mail I received from a regular critic of my articles. I left the first line in, out of vanity:
Just for a change, I rather liked your piece in the A&A. Very sensible.
Although for me this is home. Eventually cremated here and ashes scattered over France. It’s in my last wishes. But here’s a thought for another piece for you, progression from your current article. Although I myself have no intention whatsoever to return to the UK – I intend to die here – I read that one of the things that can go, as you get really old, is your ability to speak a second language. If that happens, and should I finish up in a care home, it will be difficult both for me and my carers. In that case my family, most of whom do not live in the UK, might reasonably consider I would be better off in the UK………….
And so be it; let’s explore this theme a little. I’m sure Charles Green (not his real name) would never be packed off back to the UK by uncomprehending carers and uncaring children, but it is an important point. I for one would not relish spending my bath chair days in what I perceive to be the alien environment of a French care home. Coincidentally, I met a couple last week who have retired from UK care home ownership to live in France. I put it to them last week that if they were to open a home in France solely for UK elderly clients, they might be very successful. Unfortunately my idea was shot down in flames. They retired from the business due to increasing bureaucracy and paperwork in the UK, and certainly wouldn’t dream of trying to recreate the same nightmare in France. Can’t blame them I suppose, but it still sounds like a nice idea to me, from a future consumer point of view.
For obvious reasons, I need to steer this article towards financial concerns. I talk to virtually all my clients about retirement provision. It’s not uncommon to hear that actually people would quite like to spend all of their money before they ‘shuffle off’. The problem, I always point out, is timing. It’s one thing to put in place a programme of concerted spending that will exhaust your funds when you reach the age of say 85, but most inconvenient to yourself and others when you last until you are 103. Life can of course be great fun, and we should always enjoy it while we can, but let’s be under no illusion here; none of us gets out of this alive. Money comes in very useful while you are living, and my view is that if there is any left after you die, it might be put to good use elsewhere.
My average client couple; Mr. E. and Mrs. X. Pat, have worked hard during their lives and have garnered enough cash to see them through to the bitter end. I use the word ‘bitter’ deliberately, as I don’t think life has many happy endings. Some of my clients take a rare and altruistic view of their legacy. They may not have children or close relatives, or maybe they just don’t like them. They feel totally at home with the concept of their residual wealth being assimilated into the French national coffers as their contribution to society. Thankfully, to my mind anyway, this approach is rare, and could even be a sign of approaching mental frailty. The vast majority of the people I talk to would much rather that anything left be put to somewhat better use; any use in fact that doesn’t involve the word ‘tax’.
Without any tax planning at all, anything you leave to your spouse will be free of succession tax, and your children will get a moderate allowance before paying the tax, but can end up paying 45% on large sums. Pretty much everyone else need a tin hat to protect themselves from the onslaught from ‘le fisc’. Step children; your best mate; your ex-wife (?), they will all pay 60%. In anyone’s language, that’s a lot of tax.
There is a better way. Remember our old friend the Assurance Vie? He keeps your investments away from the prying eyes of the tax man, and when you eventually need to draw income, he may be able to get you a very good rate on the tax you will then pay. He also happens to come in pretty handy with succession tax. In theory even the richest of investors could manage to pass on all of the invested wealth free of succession tax; all he would need would be a lot of beneficiaries. Each one of them could take away €152,500 without paying a centime in tax. For we mere mortals, this sort of tax generosity should solve the problem quite easily. All you have to do is get your act in gear in good time. You must set up your policy before you get to 70 to get the full benefit.
A bit more thought needs to go into how you pass on property, but it can be done. For now though, I’m just going to concentrate on the ‘spare’ cash. Bank accounts; premium bonds, ISAs; PEPs; National Savings, your old Pru bond that you’ve had since Adam was a lad… They are all manna from heaven to the French succession tax system, and it will swallow them up. Only Assurance Vie has that nasty tasting Teflon coating that it doesn’t like, and spits out again.
And all you need to do to get an assurance vie is talk to your financial adviser…
In the few days since I wrote this article I have learned of the tragic death of one of my earliest clients; a good and kind man, fallen victim of the carnage so often seen on French roads. This sadness only reinforces my view that life rarely has a happy ending.