Budget 3 - The Next Generation

The third Budget in 12 months

Finishing with a flourish GO hailed his third budget in a year as for the next generation.

This Budget looked as if it would be a difficult one for the Chancellor, faced as he was with disappointing economic numbers and the need to avoid ruffling feathers ahead of June’s in/out referendum. What was to have been the big announcement – reform of pensions – was kicked into the long grass a few weeks ago. Nevertheless, Mr Osborne did spring a few surprises, including some tax reductions.

How will this Budget affect you? If you are – or want to be – a saver, then there is plenty to consider. From April 2017 a new ISA, the Lifetime ISA, will be launched for the under-40s. It looks as if it is a close relation of the recently abandoned pensions ISA. Also from 2017/18, the normal ISA contribution limit – unchanged for 2016/17 – will rise to £20,000.

Forgive my jaded cynicism, but personally, I see this new ISA as a small introduction to more and bigger changes to pension legislation over the coming years. Time will tell…

Capital gains tax (CGT) rates will fall from 2016/17 to 20% and 10%, although the current rates of 28% and 18% will continue to apply to residential property (another buy-to-let attack) and carried interests. There will be a new entrepreneurs’ relief (effectively 10% CGT) for external long term investors in unlisted companies.

Other important changes for included:

·         Increases in the personal allowance for 2017/18 to £11,500 and the higher rate threshold to £45,000. (both previously announced, of course)

·         A restructuring of stamp duty land tax (SDLT) on commercial properties. 

·         A major revamp of business rates, permanently doubling the Small Business Rate Relief.

As usual, we are on hand to help you if you would like to discuss any of the issues raised in the Spring Budget in further details. We will be pleased to hear from you. Tax tables are available on our website.

Directions to Bective House

Directions to Bective House 

10 Bective Place, Putney, London, SW15 2PZ

 

Walking Directions from East Putney tube/underground station (District Line, Wimbledon Branch)

It is a brisk 7-10 minute walk

Exit the tube, turn right, cross the road at the crossing by the Co-op.

Turn right, then turn left at Sainsburys. Follow Woodlands Way to the end and continue walking across the footbridge over the mainline railway.

Turn left at the end onto Fawe Park Road and then right into Bective Road.

Follow Bective Road into Bective Place. Green Financial is through the square white mews arch on the right.

 

Bective House is directly ahead at the end of the mews.

 

 

Walking Directions from Putney mainline station

It is a brisk 10-15 minute walk

Exit the station, turn right, turn right again at NatWest bank into Disraeli Road.

Cross Oxford Road using the crossing, then continue further along Disraeli Road.

Pass under the railway bridge, past Wadham Road then turn left into Bective Road.

 

Follow Bective Road into Bective Place. Green Financial is through the square white mews arch on the right.

 

Bective House is directly ahead.

 

 

By Bus

from Putney High Street

From Bus Stop 'R', at the head of Putney Bridge, outside the Odeon Cinema, take a 220, 270,  or 485 two stops along Putney Bridge Road to bus stop 'V' (Deodar Road).

Bective place is opposite, across the main road.

 

Green Financial is through the square white mews arch on the left.

 

Bective House is directly ahead.

 

By Car

Parking is available

 

There are two spaces. Please let us know in advance if you will be driving so we can reserve you a space.

 

The turn from Bective Place into the Mews through the square white arch can be quite tight if there are cars parked opposite. Watch out for the low wall if arriving from Fawe Park Road end, especially if you have a big car.

 

 

 

 

Bicycle / Motorcycle

The area in front of Green Financial is secure and private bicycles can be safely stored in our courtyard or chained up.

 

London Hire Cycles

There are a number of London Hire Cycles ('boris bikes', Santander Cycles) nearby.

They are marked as red dots on the map below

 

 

 

By Boat

A particularly pleasant way to arrive and depart in the summer, if you like this kind of thing, is by boat. Travelcards, cash and Oyster cards can be used. The map below shows that both Putney Pier and Wandsworth Riverside Quarter Pier are nearby.

 

 

 

The map above also shows:

Mainline Rail Stations: Putney and Wandsworth Town 

Underground / Tube Stations: East Putney and Putney Bridge

London Cycle Hire (red dots)

 

 

We look forward to welcoming you to Green Financial at
Bective House, 10 Bective Place, Putney, London, SW15 2PZ

 

Please call us on 020 8877 7890 if you have any questions about your journey or would like us to provide you with a detailed set of directions from anywhere in the world.

 

 

Sell-offs don't pay off when markets fall

 

Don't panic!
Sell-offs don't pay off when markets fall

The recent rumbling in the bond markets is a reminder that investment risk is far from a thing of the past. Combined with the volatility inherent in equity markets, it is worth investigating further my mantra of ‘time in the markets, not timing the markets’.

The remainder of this article has been written by Peter Westaway, chief economist and head of investment strategy, Vanguard Europe

Rather than trying to call the market, yet again, time might be better spent considering the right and wrong ways to manage the impact of market turbulence on an investment portfolio.

The temptation, which can seem intuitively powerful, is to adjust a portfolio in response to events or trends perceived in the market. But data show the opposite is often right: investors are typically better served by ignoring market noise and maintaining their original asset allocation through a disciplined rebalancing schedule. 

The best approach, in my view, is to embed portfolio rebalancing into an investment plan at the earliest stage, emphasising that the purpose is not to maximise returns but to manage risk.

What if the drifting investor fled from stocks after the 2008 plunge?

Source: Vanguard

Rebalancing racks up returns

A sterling investor who maintained a (hypothetical) portfolio of 60% global equity and 40% global bonds through the whole of the last market cycle, from 31 March 2003 to 31 December 2013, rebalancing twice a year, would have had a cumulative return of 140%.

An investor who switched out of equities at the bottom of the market, in January 2009, far from saving themselves or their capital, would have reduced their cumulative return for the full period to 86%.

Looking at a 60/40 portfolio over the longer term produces some interesting results when comparing a portfolio that is rebalanced with one that is not. Over the period 1960 to 2013 a portfolio rebalanced annually returned slightly more, 10.35% compared with 10.08% to one that was not rebalanced. But the volatility, as measured by standard deviation, was significantly less in the rebalanced portfolio, 19.7% against 21.97%.

An unrebalanced portfolio drifts from its allocation over time

Source: Vanguard

Emphasis on volatility

A simplistic interpretation of this result would be that the value of rebalancing is 0.27 basis points (bps): 10.35%-10.08%. This would be a misleading measure, however, mainly because the sign of this effect could be positive or negative, and on average it is likely to be negative. On the basis that rebalancing is about managing risk, the emphasis should be on the difference in volatility.

A portfolio with a similar long-term risk profile as an unbalanced 60/40, using the same portfolio constituents as above, is close to a rebalanced portfolio 70% equity and 30% bonds, the annualised volatility of these two portfolios being 21.67% versus 21.97% respectively. Over the same period, 1960 to 2013, the 70/30 portfolio returned 10.51%, a full 43bps more than the unrebalanced 60/40. Under these assumptions, the value of rebalancing can be assessed at 0.43% per annum.

Threshold rebalancing

The above example uses a simple time-only rebalancing strategy but more sophisticated approaches are also possible. A time-only strategy will rebalance on a given date, regardless of the relative performance of the portfolio’s component assets. In a threshold-only strategy, rebalancing is triggered when a portfolio’s asset allocation has drifted by a given amount, regardless of how often this happens.

A strategy combining the two will monitor the portfolio on a given schedule and have pre-set thresholds, but rebalancing will only occur when the two trigger points cross. Over the long term, the data show the optimal time-and-threshold strategy is probably to monitor the portfolio annually and to make adjustments when the drift is 5% or more, bearing in mind that rebalancing attracts costs and taxes.

The precise value of rebalancing will always depend on the behaviour of the markets and the nature of the assets in the portfolio, as well as costs. Those who maintain disciplined rebalancing through episodes of exceptional volatility will tend to gain most. But the key issue is that a rebalanced portfolio is one that remains focused on the investor’s goals.  

Peter Westaway is chief economist and head of investment strategy group at Vanguard Europe.

 

New Model Adviser Fund Manager Conference

I recently attended the 10th Citywire New Model Adviser conference. The Rt Hon Alistair Darling MP was the keynote speaker. He told an interesting story about how, in the depths of the financial crisis, he finished a meeting with bank board members and they took him aside and confidently told him "As a board, we've now agreed, that in future we'll only take on risks we understand" ! He added that if you live in the UK, you still own part of this bank!

He was also asked, during his 1,000 days in office, what was his worst moment. He started his reply by saying he was rather spoilt for choice! He said that the financial crisis problems arose when the banks didn't understand the risks to which they were exposed. It occurred to me that is a big part of what Green Financial do for clients; helping them to ensure they are only exposed to appropriate risk.

In closing, he was not confident. He says treasury officials say "The real problems will come when we hit the recovery" - ie when interest rates go up, because we (the nation) have been used to low interest rates for so long, and we still have a massive level of personal debt.

It was a black, white and blue start to the day on the Southbank of the Thames

Tom Sheridan of 7IM discussing the changing national demographic and how this interacts with financial planning and fund management

Over 20 fund managers were in attendance

The search for Income (in 2015) was a recurring theme. Here is Olivia Mayell of JP Morgan discussing that

Me, with the BlackRock team, including Mark Wharrier, Portfolio Manager, UK Equity team and a Pollyanna Harper, iShares director

Justin Onuekwusi of L&G multi-index presented 'beyond Goldilocks'

Colin Morton of Franklin Templeton telling me about one of the stocks held in the fund

F&C explaining a very busy slide


Kames, a good provider of high yield bond funds were there. This is me talking to Alex Walker, co-manager of the Property Income Fund

ISO22222 International Standards x6

BS ISO 22222

– the international quality standard for personal financial planners

I'm delighted to announce I have been awarded this charter mark again in 2014, having first obtained it in 2008.

 

This standard specifies requirements and provides a framework that applies to the ethical behaviour, competencies and experience of a professional personal financial planner.

 

As an Independent Financial Adviser providing personal financial services it is important to keep up to date with the latest best practice guidelines.

BS ISO 22222:2005 was created with the objective of achieving and promoting consumer confidence by providing an internationally agreed benchmark for a high global standard of personal financial advice.

 

 

 

 

The core six steps of the personal financial planning process are:

• Establishing and defining the client and personal financial planner relationship
• Gathering client data and determining goals and expectations
• Analysing and evaluating the client's financial status
• Developing and presenting the financial plan
• Implementing the financial planning recommendations
• Monitoring the financial plan and the financial planning relationship

To support the high level benchmark of best practice one needs to demonstrate the requirements of:

• Ethical behaviour and financial planning
• Information security, client confidentiality and data protection
• Risk management
• Continual improvement

By adhering to the requirements of BS ISO 22222 I am are able to demonstrate commitment and dedication to continual improvement  and ensure that client satisfaction is at the core of my business culture.

 

Pre-requisites of Certification to ISO22222

Qualifications

• Hold an appropriate qualification that assesses Financial Planning knowledge at an advanced level.

Experience

• At least three years experience [Ian Green: as at 2014 I have nineteen years experience] in each of the six steps of the personal financial planning process

.

BS8577 British Standards Accreditation x3

I'm delighted to announce that Green Financial has received its British Standards Accreditation for BS8577 for the third year running.

Green Financial was just the fifth firm in the UK to gain this charter mark.

What is BS 8577?

BS 8577 is the British Standard framework for the provision of financial advice and planning services for financial planning and advisory firms.

 

Rather than individual examination passes on subjects such as pensions or investments which all advisers have to have in order to practice, BS 8577 is the only professional quality standard within Financial Services to focus solely on the following key areas of business practice:

• Operational management;
• Objectives and policies;
• Management responsibility;
• Customer relationship management;
• Recruitment, training, development and ongoing competence; and
• Control of documents and records.

 

 

Developed by the British Standards Institution (BSI) with industry experts and consumer bodies, BS8577 is aimed at assisting firms and financial advisers operate efficient and transparent financial planning and advice services.

In today’s professional world thriving in business is about striving for and achieving ‘Best Practice’ and not just about delivering ‘Best Advice’.

 

The British Standards Institute (BSI) say they have "been successful in building a sustainable best practice operational framework for firms allowing them to create an environment their staff want to work in and a business their clients want to work with."

ISA IHT - Good but not great

the devil is in the detail...

As is so often the case, an announcement that seems BRILLIANT actually turns out to be less so.
So from the joy of ISAs being potentially outside of IHT, it is more a 'first death' benefit.

Still good, but not as great as I'd hoped it would be.

ISA inheritability makes 'allowance' for spouse

Details have begun to emerge on how the new inheritable ISA rules will operate. And the good news is that it will be achieved by an increased ISA allowance for the surviving spouse rather than the actual ISA assets themselves. This means you won't have to revisit their wills.

How the rules will workIf an ISA holder dies after 3 December, their spouse or civil partner will be allowed to invest an amount equivalent to the deceased's ISA into their own ISA via an additional allowance. This is in addition to their normal annual ISA limit for the tax year and will be claimable from 6 April 2015.
This means the surviving spouse can continue to enjoy tax free investment returns on savings equal to the deceased ISA fund. But it doesn't have to be the same assets which came from the deceased's ISA which are paid into their spouses new or existing ISA. The surviving spouse can make contributions up to their increased allowance from any assets.
What it means for estate planning
By not linking the transferability to the actual ISA assets, it provides greater flexibility and doesn't have an adverse impact on estate planning that you may have already put in place.
For example, had it been the ISA itself which had to pass to the spouse to benefit from the continued tax privileged status, it could have meant many thousands of ISA holders having to amend their existing Wills. Where the spouse was not the intended beneficiary under the Will or where assets would have been held on trust for the spouse - a common scenario - the spouse would miss out on the tax savings on offer.
Instead it's the allowance which is inherited, not the asset. This means that the spouse can benefit by paying their own assets into their ISA and claiming the higher allowance. And the deceased's assets can be distributed in accordance with their wishes, as set out in their Will.
The tax implications
The tax benefits of an ISA are well documented. Funds remain free of income tax and capital gains when held within the ISA wrapper. And it's the continuity of this tax free growth for the surviving spouse where the new benefit lies. It's an opportunity to keep savings in a tax free environment.
But the new rules don't provide any additional inheritance tax benefits. The rules just entitle the survivor to an increased ISA allowance for a limited period after death. The actual ISA assets will be distributed in line with the terms of the Will (or the intestacy rules) and remain within the estate for IHT.
Where they pass to the spouse or civil partner, they'll be covered by the spousal exemption. Even then, ultimately the combined ISA funds may be subject to 40% IHT on the second death.
With ISA rules and pension rules getting ever closer, it may be worth even considering whether to take up an increased ISA allowance if the same amount could be paid into a SIPP. This would achieve the same tax free investment returns as the ISA and the same access for clients over age 55. But the benefit would be that the SIPP will be free of IHT and potentially tax free in the hands of the beneficiaries if death is before 75.
What's next?
The new allowance will be available from 6 April 2015 for deaths on or after 3 December. Draft legislation is expected before the end of the year and the final position will become clear after a short period of consultation.

The new inherited allowance will complement the new pension death rules - a welcome addition to the whole new world of tax planning opportunities from next April.