Chris Thorpe, Author at Agile IFA

Hello out there. It’s nearly the weekend again. I hope you’re all still well and safe, spirits up and eager to learn of your next investment opportunity. This week, I’m going to take a look at tax and more importantly saving it. It’s been topical recently after a very well known figure across the pond and what seem like a great team of advisers he has! Firstly though I must make one thing clear – I am no magician and I’m not prepared to be ‘creative’ with the truth. That would be illegal! So, if you are a billionaire expecting me to cancel your tax bill this year, you will be sorely disappointed.

For most people out there however, spanning from those with a modest nest egg to those with millions, there is hope. Plenty of ways exist in which you can very legally keep your hard earned cash away from the dreaded tax man. This isn’t dodgy. This is just about making use of the allowances available to each and every one of us.

This list certainly isn’t exhaustive and should not be taken as individual advice, but here are a few of the main ways that you could get a little bit closer to paying tax like Trump…

1. Use your ISA allowance

OK, cash ISA’s offer very little return at the moment. I know. In fact, in some cases if all you can do is cash, you may be better off without the ISA – but only if you have relatively modest savings and don’t invest outside of cash at all. Otherwise, you should consider making use of your full allowance if you can do so. Why? Two reasons.

Firstly, because it’s a use it or lose it situation. You may not think the ISA is worth it now, but the returns will always be tax free (subject to no rule changes). That’s a very valuable benefit for those that have managed to, or are likely to, build more substantial sums.

Secondly, ISA’s can make use of many more investments than just cash. Most offer you a much better potential for return if you are prepared to accept even a cautious amount of risk and invest for a little bit longer. This can substantially increase tax free income.

2. Use your pension allowances and tax reliefs

By using a pension to save for retirement, you’ll also avoid paying some tax. That’s because your pension contributions qualify for tax relief. So if you’re a basic rate taxpayer, you’ll qualify for tax relief at a rate of 20%. Meanwhile, higher rate taxpayers qualify for tax relief at a rate of 40%.

Do you own your own private company? Great news, pension contributions in most cases will count as a business expense, therefore a saving of 19% corporation tax can be made.

You should note that the amount you can contribute to your pension is now limited to £40,000 a year, but your allowance for a limited number of previous years can be carried forward, so where funds exist this can be a substantial win. But this again could be classed as a use it or lose it situation.

Pensions grow tax free too, so they are are a great way to build up a tax-free nest egg for your retirement. That said, once you start to claim your pension income, you will have to pay income tax. Don’t worry! You do get the first 25% of your pot to withdraw tax free and you can structure your income appropriately – more later.

3. Use your personal income tax allowance.

Every one of us currently has a personal tax allowance, a nil rate tax band if you like, of £12,500. If you are part of a couple (that is in a good place I should add!) this presents you with a couple of opportunities to use it!

Firstly, just taking the pension issue a little further, it may be useful to structure some of your contributions to reflect that this allowance can be used by you both when you start to draw retirement income, but only if you’ve got sufficient funds to draw. This could be a useful tool for example if you are both directors of a family company or have excess income.

Secondly, if you are married or if tax and personal circumstances allow, you could transfer any income producing assets to his/her name and receive a nil or lower tax rate by using his/her personal allowance.

This means that for a couple, with the right investments and structuring of contributions to pensions, in retirement you could bag yourself an income of £25,000 before you start paying any tax and this could be drastically increase by also having a properly structured investment portfolio.

You can find info about personal tax allowances here.

4. Use your other allowances – all of which most people have!

Savings Allowance

Since April 2016, savers have been able to grow their money tax free, thanks to the ‘personal savings allowance’. This allows you to earn interest up to £1,000 interest tax-free if you’re a basic-rate (20%) taxpayer, or £500 if you’re a higher-rate (40%) taxpayer. Additional-rate taxpayers don’t receive a personal savings allowance, so if you earn more than £150,000 each year, you’ll need to pay tax on all your savings.

All interest from savings is now paid gross, which means tax will no longer be deducted by your bank or building society. At today’s rates you could have a fair amount invested in cash before you start paying tax on the returns. I would of course suggest that this is a terrible idea given inflation would eat away at your capital quite readily. All is not lost however, as some investment funds offering higher potential returns (with some risk) are also ‘interest’ producing. This means you can structure your investment portfolio accordingly to make use of this allowance.

Dividend Allowance

Everyone has a tax free dividend allowance of £2000 per year. This means that for owners of private limited companies taking company profits as dividend, or investors in public shares receiving dividends this is a valuable allowance.

Taking regular dividends over time from an income producing share portfolio or share based fund portfolio can add a healthy amount onto your retirement income. These could be phased into ISA’s over time, further reducing tax and giving you a slice of the profit from the great companies of the world. For the well informed investor this strategy is a must.

Capital Gains Tax Allowance

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The Capital Gains tax-free allowance is £12,300. This gives you the opportunity to purchase investments with readily available capital at any time and then phase them, as detailed above, into more tax efficient environments such as ISA’s.

This also gives you the ability to realise amounts of capital for one off expenditure, such as those kitchens, cars and cruises!

So what now?

OK so that’s it. Nothing hard there at all?! But even with some of the more experienced savers and investors out there, in most client meetings I can usually manage to save some tax. It’s all about structure and it’s all better off in your pocket than with the tax man.

If however what you’ve just read means nothing to you, but you have pensions and other assets that you’ve worked hard to build over time, you could probably use some advice. Structuring your future wealth and income properly could quite literally save you thousands and I always find it is well worth it.

I appreciate some of you may like to see this in practice, so at the end of this post I’ve added a case study example. It’s an easy one I know and I fully appreciate that everyone is different and the world is not ideal. So why not drop me a line? I am always on hand to answer any questions you may have – just email advice@agileifa.co.uk or use our contact form and we will gladly contact you.

Thanks for reading . Until next week.

Chris @ Agile

Case Study David & Rachel, both 66. Target after tax income – £30,000.

David and Rachael are ready to retire, they have just celebrated their 66th birthdays. They each have money purchase pension pots, David has a sum £200,000 whilst Rachael has £150,000. Their children left home a while ago and since then they have done a great job at saving. They also inherited a small amount from parents. Having managed to fund ISA’s to some extent for a number of years they recently decided these should be invested rather than held in cash given terrible cash rates. They are currently worth £75K each. They like to keep a cash buffer too, so have £50,000 in a savings account paying 1%.

Knowing that their spending habits will change now that they are no longer working, Rachel set out to create a budget that would fit their lifestyle in retirement. They no longer have a mortgage so it’s really as simple as day to day spending, the occasional holiday and social. This comfortably comes within £2500 per month.

The zero tax solution…

	David	Rachael	Tax	Notes
State Pension	£9,110	£9,110	£0	Within Tax Free allowance
Pension Drawdown Income	£4,520	£4,520	£0	Uses remainder of personal allowance as taxable income and includes the tax free cash available on the payment.
ISA 3% Withdrawal	£2,250	£2,250	£0	Income and capital gains both tax free
Savings Interest	£250	£250	£0	Within personal savings allowance.
Total Income & Tax	£32,260		£0

This allows them to live comfortably to their lifestyle and have money left in pensions and investments for the ‘big things’. Of course, if you are younger than state pension age great – just replace it with private pension withdrawals. They’ve even got a little Brucie Bonus on top of their desired 30K. Happy days!

Hello out there. It’s the weekend again. Where did that go?! I hope you’re all well and safe, spirits up and eager to learn of your next investment opportunity. This week I’m going to take a look at tax and more importantly saving it. It’s topical this week thanks to dear old President Trump and what seems like a great team of advisers he has. $750 income tax for a man of his wealth. Wow! Firstly though, I have a confession to make. The title of this post may be a little misleading. I am no magician and I’m not prepared to be ‘creative’ with the truth – that would be illegal. So, if you are a billionaire expecting me to get you a £750 tax bill this year, you will be sorely disappointed.

This list certainly isn’t exhaustive and should not be taken as individual advice, but here are a few of the main ways that you could get a little bit closer to paying tax like Trump…

1. Use your ISA allowance

2. Use your pension allowances and tax reliefs

Do you own your own private company? Great news, pension contributions in most cases will count as a business expense, therefore a saving of 19% corporation tax can be made.

3. Use your personal income tax allowance.

You can find info about personal tax allowances here.

4. Use your other allowances – all of which most people have!

Savings Allowance

Dividend Allowance

Capital Gains Tax Allowance

This also gives you the ability to realise amounts of capital for one off expenditure, such as those kitchens, cars and cruises!

So what now?

Thanks for reading . Until next week.

Chris @ Agile

Case Study David & Rachel, both 66. Target after tax income – £30,000.

The zero tax solution…

	David	Rachael	Tax	Notes
State Pension	£9,110	£9,110	£0	Within Tax Free allowance
Pension Drawdown Income	£4,520	£4,520	£0	Uses remainder of personal allowance as taxable income and includes the tax free cash available on the payment.
ISA 3% Withdrawal	£2,250	£2,250	£0	Income and capital gains both tax free
Savings Interest	£250	£250	£0	Within personal savings allowance.
Total Income & Tax	£32,260		£0

Hello again readers! I hope you are all well and getting to grips with the second new normal. Over the last few months we have been trying to ‘control the virus’ and I have been trying, probably with more success, to ensure that this temporary blip in the road doesn’t lead to irrational investor behaviour. What I’m failing at is the urge to link these posts to coronavirus. I’ll stop soon I’m sure, but for now, here’s another insight that could help you to use the impending further lock down to take positive steps for your financial future. This week the topic is inflation, the silent killer of your nest egg.

What’s your number?

Everyone should have a number. For everyone it’s different. What number? Your number. The one that represents the amount of money you’re going to need for retirement. The one that let’s you answer ‘yes’ to the question ‘am I going to be OK’? The number is the answer to the sum of your life. It’s based on the lifestyle you want in the future and have become accustomed to after your years of toil. So what if slowly and silently the value of the money it represents was siphoned off? So sneakily and slowly that you never realised, until all of a sudden you hit 70 and find that your three weeks in the Caribbean have turned into a caravan in Cleethorpes?

There are a few predators that can deviously devour your retirement nest egg if they aren’t kept in check. Some of these you can control, such as the charges on your investment portfolio. There are others such as tax, which you can control to a certain extent, by making use of your tax efficient allowances such as ISA’s and pensions. Don’t worry, I intend to delve deep into these topics on future blog posts so sit tight! For today however, I will concentrate on one killer that you unfortunately have absolutely no control over – and that’s inflation.

Headline returns

Every investor hopefully wants to generate real returns after charges and tax and should do everything in their power to keep these as low as possible. This is just a no brainer. But what else? The media spends much of it’s time giving us headlines and never more than over the last few months. I’ll give you two examples of this.

Savings rates

We are always aware of changes in the Bank of England rate and the subsequent change in savings rates. During the first few weeks of recent government support for firms and individuals, some of the best rates around could be found at National Savings. I never thought I would be saying to clients that for funds held in instant cash (and this should only be your emergency funds people!) they should use premium bonds. Alas, the amazing return of 1.4% has now come to an end and has reduced to a mere 1%. It was only kept high because the government needed your money. Now it appears they want it less and last week has seen commentators jump all over this.

The markets

For the investors out there (and even if your only asset is a workplace pension you are an investor) you may have been paying more attention to the level of the stock market. We have recently had daily headlines of ups and downs, sometimes in the region of 9%. You always hear about the downs more than the ups! Of course you shouldn’t have been giving this more than a passing glance. These are temporary falls. If this ever isn’t temporary, capitalism will have failed. We will have much more to worry about.

For the financially informed, the stock market (and by this I mean global businesses) represent the best long term return available. You just have to be well behaved and accept the ups and downs, but I invite you to look around you right now. You are surrounded by everyday products that represent your support for global businesses. Do you plan to stop buying things? Do you think anyone else does? Why wouldn’t you want your share in the profit of all of our spending, magically compounded over time? I’ll leave that thought with you.

Inflation should be much more of a worry for you now, but we don’t tend to spend a lot of time talking about inflation rates. BBC and Sky news don’t show us a lovely inflation graph every day, but they should. Why don’t they? Because it’s not a headline, it’s just there every day, slowly and sneakily stealing the buying power from your wealth.

Inflation isn’t like it used to be

The 1970s to the 1990s were a time of high inflation, but by and large this has been off the table as an issue for investors since then. Just have a think back to this time though. In 1990 the rate of inflation was a whopping 9.46%, but if you were savvy you could get interest on a bank account of 14%. That is a real return. From cash. Who would believe that now! Let’s take a look at today. We have an RPI inflation rate of 1.5% and the most you can get from a bank account (if you are lucky) is 1% and that’s for premium bonds or locking your money away for a lengthy amount of time. The majority of cash accounts now pay next to nothing.

I refer to RPI specifically, because this is the rate of inflation more related to the things we spend on a day to day basis. You may also hear the term CPI also used. Why is this important? CPI usually measures lower, but RPI is your main concern! Confused? Check out this handy ONS explainer.

Why you should be concerned

A lot of savers these days are holding large cash balances in the hope of riding out current market volatility. The problem is, with the return on cash hovering around 0% in nominal terms and -1.5% in real terms, this puts investors in a pretty deep hole. If you believe the inflation predictions this will only get worse.

The reality is unless you are getting over 1.5% net (current rate of RPI) then you are guaranteed to lose money. So, if you’ve got your maximum £50K in premium bonds this means a real loss per year from now of at least £250. This may not seem so bad to you. But if your remaining 50K is paying no interest at all, in total you are losing £750 a year in real terms. £100K in a normal savings account paying nothing? You’ve lost £1500.

Inflation is by far the biggest investment risk over your lifetime

Take a step back and say to yourself. “I put my money in the safest place I thought I could and I’ve lost a grand.”

Does this sound mad? Are you hearing yourself right? Yes, you damn well are.

This is money that would and should have been spent on you. It was part of ‘your number’ and was for whatever makes you happy. It’s been stolen. It hasn’t been taken away from your balance on paper, but ‘your number’, that amount you need for a great life, just went up. Same difference. This is the wrong kind of compounding, the reverse of what you have become accustomed to.

The answer

So, what can you do about it? This is very simple in principle. You can have a proper financial plan. A plan which carefully considers your current and future lifestyle. One with a carefully selected set of investments designed to provide you with access to capital and income exactly when you need it. A plan which includes a long term investment strategy that can allow your nest egg to create real returns. It should pin down and focus on what you want out of life and make certain that you’ll have ‘your number’.

It doesn’t matter where you are in your financial life or where your capital is invested at present. A plan is a mandatory, crucial and responsible thing to do if you want to ensure the continued prosperity of your family isn’t pilfered by inflation. If you’re thinking about getting something together you can find some things to think about in our retirement blog post.

The best time to make your plan was 20 years ago. The second best time is now.

Thanks for reading.

Until next week…

Chris @ Agile

I’ve been trying to think of things you might associate with the number six. Six eggs. Six pack – ha I wish! Six geese a laying. Six of one and half a dozen of the other. Some readers, I’m sure, will remember spending a sixpence in their younger years, otherwise known as a ‘tanner’. Given that’s the number of the now, we should all try and remember it somehow.

I wouldn’t want any readers to inadvertently breach the new rule of six and bag a £100 fine. That would be a terrible move for the health of your finances and the nation. Even if you think that’s a price worth paying to visit grandma with the kids, or the local rave if that’s your thing, I wouldn’t recommend it. So, in order to keep the number firmly on your mind, here are six things to (potentially) avoid if you want to maintain healthy finances for a lifetime…

1. Slacking on saving

Most people tell me that they have managed to save more recently, perhaps more than ever. We obviously haven’t had as much to spend our money on! Holidays are a risk, there was no point in new summer clothes and getting out and about to shop or socialise has been much more of a chore. But as the new normal starts to materialise, we are all going to be compelled to loosen the purse strings a little.

It doesn’t matter how rich you are, your fear of missing out on the best phone, best car, best clothes and other important (?) luxuries can have a serious affect on financial planning for the future. You may have heard the wise Chinese proverb that says “The best time to plant a tree was 20 years ago. The second-best time is now.” Well that pretty much applies to saving too. While the best time to start saving may have been 20 years ago, don’t panic. There’s plenty of time to control the FOMO and direct some of your cash into a long term savings plan.

I’m all for having a great lifestyle now, but as humans we are compelled to black out the future. Thinking of today and putting off until tomorrow creates one thing – uncertainty. It’s my job to remove it. So read on…

2. Prioritising other people

Only you are responsible for your financial future. That’s it. Fact. There are fewer final salary pension schemes these days. The state pension gets further into the future by the year, and if you haven’t already, I advise you to check when you will get yours here. To top it all off, your company pension usually needs to be invested with care and diligence in order for it to provide you with the retirement you deserve. That’s because it’s got risk attached to it and guess what? The risk is yours.

Why then do people often set priorities that are the total opposite of good financial planning? I often see people paying tens of thousands for children’s education, weddings, house deposits, cars and so on. Are you creating a future problem?! Yes, if you are forced to move in with those kids to survive in later life or if your holidays move from Barbados to Blackpool!

I’m not saying that you shouldn’t help out the kids, far from it, but the ‘bank of mum and dad’ needs a prudent manager. One that can put the outlay into the context of your wider financial planning, make sure it’s affordable and won’t affect your future. There are ways to fund education, such as student loans. There are government incentives to fund housing, such as help to buy. Then there are of course the more traditional ways to fund this stuff like good old fashioned responsible saving… theirs I mean. These options can all be exhausted before your nest egg is.

3. Declining to defend

“It will never happen to me.” Well maybe it won’t, but as we are all too aware these days, it can and will. No-one knows how or when. That’s why you need to consider two key things that can soften the blow when disaster strikes.

Firstly, you need an emergency fund. A few months expenditure in a relatively accessible place that can help you deal with a disaster. If you lose your job this will give you some breathing space. If your boiler packs in, you need the money to sort it.

Secondly, you should consider insurance to cover anything that can’t be paid for with your emergency funds. If you will eat into your retirement savings to fund a disaster, such as loss of income or in the worst case due to a death in the family, then it should be covered with insurance. Why? Because if it isn’t covered and the worst happens your retirement could end up looking much less rosy.

Yes you will pay a monthly premium and it’s a cost. Put that cost into the bigger picture and in the majority of cases, if something does go wrong, it will be a much lower cost. You don’t want to affect your retirement through spending your nest egg. You shouldn’t be forced to damage your health further by the need to work to pay the mortgage. Cover it.

4. Selling not staying

What is a ‘paper loss’? Let me explain. Let’s say you buy a house for £300K and then 6 months later it’s valued at £250K. Have you lost £50K? No. You still have the house and the loss is on paper. You’ve only made a loss if you sell the house!

This also applies to investments. Often when investments fall in value people panic, their gut instinct tells them to sell and without someone (like me) to steady their nerves their paper loss turns into a real one. What’s more, they typically then try to time the markets, miss out on gains and are left in a much worse position. Do this a few times in your investing life and your financial plan will catch more than a cold! You can read more in my post on timing the investments markets here.

The main thing to remember is that you should only be selling investments to create cash that you will absolutely need in the short term. Otherwise sit tight and do absolutely nothing!

5. Living too much life

We all become accustomed to a lifestyle. It’s inevitable that as we hopefully increase our income we will use some of that to enjoy the finer things in life. However, once you’ve got this lifestyle you are going to want it to continue, for life.

The problem is that one day you are going to want (or need) to slow down a bit. Less work means a loss in income and that needs to be replaced. That’s going to have to come from savings or pensions, both of which need to be contributed to now.

Some of you may have heard of a famous investor, the one and only Mr Warren Buffet. His quotes get banded about quite often but always aid good financial planning! I make no apologies for highlighting the following two…

“Do not save what is left after spending; instead spend what is left after saving.”

“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date.”

Thanks Warren. Enough said.

6. Passing on the professionals

This can be a big problem. There’s a reason why we use professionals to do jobs we think we might be able to do ourselves. My oven recently decided to start indiscriminately burning everything to a crisp – so I bought a new one. It was lockdown, it could not be fitted by the well known appliance firm for health reasons and to top it all off they would only leave it at the bottom of the drive. “OK Chris” I said to myself, with the oven up the drive and steps, two coffees down and much head scratching later, “you can do this.”

I enthusiastically began work removing the old oven. Three hours and many expletives later I had finished the whole task. Along the way there was an argument with my other half re positioning, the unnecessary removing and then refitting of the cabinet housing and the dislodging of the gas pipe to the hob. After the final screw had been turned and the oven was proudly in place, I found the protective plate, to be fitted to the electrics at the back, right there on the kitchen side. This was as well as all the other minor issues, you know the ones, “where is that screw?”. You get my point. I’m a great financial planner but I’m terrible at fitting ovens. This would have been a safer and shorter job with a pro.

A less stressful alternative…

Many people go it alone when it comes to financial planning, but often they don’t know what they don’t know. As a result, they can’t fix what they don’t see. Like the oven debacle, it could cause much stress, mistakes and in the case of financial planning , retirement doom. Luckily I could hear and smell the gas. You can’t hear and smell lost investment returns.

In client conversations I often uncover blind spots in estate planning, tax and investment strategies that were hiding in plain view. That’s as well as acting as a great sounding board for all of the financial decisions that get thrown at me, whilst always making very clear the effects of these on the longer term plan.

A good financial planner can serve as a guide to help you see your blind spots and help you avoid sabotaging your financial future. It’s about helping you make the right decisions and avoid costly mistakes. If you’re thinking that’s a great idea, I know a good one.

Thanks for reading.

Until next time…

Chris @ Agile

A good financial planner could be your most valuable asset. OK, I would say that I know, but it’s true – I promise you! I often take on new clients who don’t understand what financial planning involves or the benefit it can bring. It’s very simple – financial certainty.

This post should help you understand the benefit of great financial planning. I will look at the different types of adviser and some pro’s and cons. You should find this useful whether you need help for the first time, or if you want to know yours is up to scratch.

Firstly, I think it would be best to manage expectations and dispel some myths about what the best financial planners do.

What they will do…

Understand you, your family and the life you want.
Work with you to put a financial plan in place to achieve it.
Simplify your financial affairs and make them easy to understand.
Hold your feet to the fire when it comes to the plan and check progress regularly.
Filter all of the financial ‘noise’ and help you focus on what’s important.
Tell you how it is rather than what you want to hear.
Make your finances as tax efficient as possible.
Be agile and work with you to change the plan when needed.
Be a sounding board for any of your future financial decisions.
Ultimately give you peace of mind and increase your long term prosperity.
Oh… and…ensure you have all the right financial products at the right time.

What they should never do…

Recommend products without understanding you and your financial plan.
Time the investment markets.
Recommend the latest investment craze or hot pick.
Allow you to sell investments in a declining market – unless absolutely necessary.
Claim to be able to provide high returns with low risk.
Find reasons to sell you a product.
Tell you they know which way the markets are going to go.
Recommend you do anything that they would not do themselves.

So, if you’re thinking “crikey what they do sounds good” read to the end. If not, just bear in mind the next bit…

The do it yourself option

Tiny little rant alert. Please hear me out for a few seconds…

Unless you know your stuff in all things financial or are prepared for the probability of having less money, please don’t do this!

Over the years I’ve seen numerous DIY investment plans go miserably wrong – it’s seriously counterproductive to try and save money here. Those that I have seen go well have mainly been due to a certain amount of luck and have been singular events in a wider plan that doesn’t usually exist.

If however you remain fastidiously DIY, just please remember three things…

You don’t know what you don’t know.
Investment craze’s and hot picks end in disaster. Don’t put all your money in them.
If it seems too good to be true it probably is!

I know that might all seem like a no-brainer, but you would not believe the number of normally sensible people who turn into the Mad Hatter when it comes to financial planning. It’s complex. Don’t use google to plan your retirement – you could end up old and broke.

OK, mini rant over! And breathe…

Seeking out some good financial planning advice

Still reading? Great! So, how do you find the right adviser? Google can now be your friend! Well, maybe. A local search will undoubtedly pull up hundreds of options including local firms and other directories with hundreds more advisers. Too much choice!

The problem is there are vast differences in advice offerings and quality. As a result, I regularly take on new clients who have had an experience which was less than ideal or quite frankly rubbish. This often comes at significant cost in time and stress.

Another quick note – not all advisers do everything, so make sure you have found one who can help with your initial problem (mortgage, retirement, inheritance etc) and remember the old saying ‘jack of all trades master of none’.

Questions to ask

Now I obviously think that, if we specialise in your area, Agile would be the best choice. I am unbelievably biased of course – and quite rightly so! However, everyone is different and you should always, always make an informed decision on your planner. It’s got to be someone you are comfortable with because a poor relationship won’t be good for either party. It’s also easy to get on like a house on fire with an adviser that has a terrible offering and ultimately you’ll probably be worse off financially.

Five words to remember here – Independent, Qualified, Transparent, Genuine. Let me explain using a few questions you should ask about an adviser…

Are they independent or restricted?

An ‘independent’ adviser must make a search from across the market to make sure you have suitable financial solutions for your needs. They are therefore on your side. They can focus on your life, your plan and getting the best outcomes for you. Importantly, it means policies can usually be changed in future as your life does, without the need to move firm. Yes!

Other advisers are ‘restricted’ and in the worst case you may have someone that only recommends their own products or a very short selection. Whilst it isn’t always the case, the adviser can be compelled to recommend their product knowing full well that you could do better elsewhere. Undoubtedly they will tell you theirs is the best to ever grace this earth and that this will be true forever. Why? Because otherwise they won’t get paid. No!

I reckon you’re getting the gist here. When you add up the cost (more on this later) independent financial planning isn’t more expensive than restricted. There are plenty of independent firms of all sizes to choose from if that’s a concern for you. So why wouldn’t you use them? It’s better advice and better value for money. Think of it like this – would you ever want to see a doctor (no matter how good they might be) knowing they could only prescribe a limited range of medicine? In my view there is absolutely no need to use a restricted adviser – but don’t just take my word for it. You can find the views of BBC 4’s money man Paul Lewis here, but ask most financial commentators and they will tell you the same thing.

A firms website and introductory documents should make their independence or the detail of any restriction clear.

Do they hold higher level qualifications? Are they Chartered or Certified?

I will start by saying this isn’t the be all and end all. I know many very experienced planners without a raft of letters after their name. But, just like many other professions, higher qualifications would in most cases indicate quality advice and a good level of knowledge and experience.

The minimum standard for financial advisers in the UK is DipPFS (or similar) which is a level 4 diploma. More qualified advisers will hold titles such as APFS or FPFS which are level 6 and equivalent to a degree.

A Chartered or Certified financial planner has shown a commitment to getting to level 6 and that they have experience. The status is awarded by their professional body and you can be sure this means the adviser has been put through their paces. It can help you to differentiate those who are passionate about giving the right advice from those pesky product pushers.

More information on adviser qualifications can be found here and you would usually find all this info displayed on a firms website or literature. The good news is that in lots of cases this won’t increase advice costs, but ask my next questions to be sure…

What are the costs for initial financial planning?

Good financial planning advice costs money and is well worth it for those who need it. It’s sometimes a pain to compare costs as there is a big difference between advisers. Things are much more transparent than they used to be, although unfortunately some still fall way below the mark.

For initial advice you could pay a fixed fee, hourly rate, percentage of assets advised upon or a mixture of these. Your adviser should always highlight costs in ‘pounds and pence’ so you can compare. Unfortunately, some of the more expensive advisers are the more restricted and least transparent. It’s quite frankly scandalous. You could be paying £1000’s more for less – be very careful and always get a full picture of the cost of advice and implementation.

To confuse things more, some firms only charge if you go ahead. This might be explained to you as a great thing but it certainly isn’t. This is known as ‘contingent charging’ and again, its bad. The adviser is compelled to recommend a solution that means you need to change things in order to get paid. Be wary and avoid if possible! There are plenty of firms that charge fairly and provide better advice.

What are the costs for ongoing financial planning?

Understanding what you will be charged on an ongoing basis is very important. Higher ongoing charges mean fewer pounds in your pocket in the long run. Just half a percent difference in total ongoing costs per year would reduce an average pension pot by tens of thousands over a working life. This would be compounded much more with a poor investment.

What you need to understand is the total ongoing expense of your solution. This is important, because some firms quoting lower ongoing advice fees will actually be charging higher investment fees on their own products. The total ongoing expense should include the ongoing advice, product, fund manager and any extra expenses or transaction costs in the fund. You should receive this in both percentage and ‘pounds and pence’ terms for comparison on an illustration.

My advice – get a piece of paper and table all of the costs. Scrutinise it all. If you are concerned about your current situation we offer a free second opinion service to compare your plans on an independent basis.

Can I work with this adviser now and in the long term?

Most advisers will offer a free initial meeting and I advise you to take it! Make sure you will get along, whilst asking as many questions as possible. First impressions count and your adviser will hopefully be with you for life. Most initial meetings will give you lots of useful information and you’ll leave with a much better understanding of what’s on offer and the costs.

It’s worth speaking to two or three firms to get a feel for how they work, considering all of the questions above. You’ll then be able to choose which one is a fit for you. Why am I telling you to speak to other advisers? Because it’s about you not us! I want our clients to work with us because they know we are a good fit for them and we get along.

It’s also important to understand the type of firm you are using and where the adviser is in their career. Many firms see clients as a commodity and their business structure relies on advisers selling clients to each other internally. They probably also have high sales targets and a high adviser turnover to go with it. No! Both of these things are bad and mean you get passed from pillar to post. I have more than a few clients with me now who have experienced this with previous firms.

In Summary

For a good adviser, and there are many, the focus is the client and their plan. They will always be transparent and will always give value for what they charge. That means being independent and making sure they know their stuff. Choose carefully.

As always, you can contact us for a chat about any of the above, whether you want to use Agile or feel like another firm or specialism would be right for you. We will always be happy to point you in the right direction.

Thanks for reading, I hope this was helpful and good luck with planning your financial future!

Until next time…

Chris @ Agile

A common saying in financial planning is “it’s about time in the markets, not timing the markets.” But why is this?

When investments start to fall I often take calls from clients who are rightly worried and want to try and time the market. Some reassurance on how markets operate can often put their mind at rest. In this post I’ll take a look at why timing the market is something I would rarely recommend.

The ups and downs

Markets carry a lot of unknowns.

While steep falls can be unnerving, it’s important to bear in mind that ups and downs are actually a good thing. Short-term volatility is the price you must pay for the chance of higher long-term returns. Extremely low volatility is worrying – it often suggests investors are being complacent.

Short-term market movements are often the result of changes in sentiment – how investors feel about the stock market. You need a crystal ball to predict this! Particularly recently, we’ve seen volatility on a daily basis.

This is in contrast to long-term market movements, which are the result of changes to companies’ fundamental worth. This is more predictable.

What is timing the market?

Nobody I’ve ever met wants to lose money, so it’s natural to feel uneasy when markets move significantly. This is why some people suggest trying to time the market.

Timing the markets involves trying to second-guess the ups and downs in the hope that you will buy when prices are low and sell when they are high. This can be lucrative if you get it right consistently, but this is very difficult to do. Getting it wrong means locking in losses and missing out on gains and I rarely find this strategy goes well.

Selling out of volatile markets

Some people prefer to sit out during periods of volatility, waiting for conditions to improve. This could be by selling all of your investments or holding back from investing new money. I’ve had more requests for this, particularly political issues such as Brexit or the Covid-19 pandemic causing stock market volatility. I don’t believe this is a good idea for most people. Here’s why…

Missing the best days when timing the market

Not only is timing the market difficult to get right, it also poses the risk of missing the ‘good’ days when share prices increase significantly. Historically, many of the best days for stock markets have occurred during periods of extreme volatility and straight after falls.

Anybody who pulls money out in the early stages of a volatile period and particularly after a fall could miss these good days and will be locking in losses. For instance, between May 2008 and February 2009 in the depths of the global financial crisis the MSCI World index dropped by -30.4%. By the end of 2009 it had bounced back +40.8%.

The risk of inflation when timing the market

Inflation is a risk when keeping your money out of the stock market. It’s power can be seen in the steady increase in the price of goods – from a pint of milk to a brand new car.

When your money is kept in cash, it will not keep pace with inflation. You won’t lose money on paper, but you’ll actually be losing in ‘real’ terms via a loss of spending power. Investing money outside of cash has the potential to outpace inflation and give you a ‘real’ return over the long term.

‘Time in’ the market is important

“The best time to plant a tree was 20 years ago. The second best time is now.” Chinese Proverb

The quote above also rings true for investments. Instead of trying to time the market, spending more ‘time in’ the market is likely to give you better returns over the long term. At Agile, our investment decisions are based on what works long-term, rather than short-term market noise.

This does mean experiencing the ‘rough with the smooth’, but markets and wider economies have a tendency to go up over time. This applies to everything from share prices to the price of goods.

The following chart shows the long term performance of the FTSE World Index, FTSE All Share Index (UK), UK Retail Prices Index and money market cash. Look around you right now, I guarantee that you are surrounded by products of companies who’s shares will be found in some of your pensions and investments. It might not be surprising, therefore, that global shares have been the better performer. This of course cannot be guaranteed to happen again in the future.

The chance of losses reduces over long periods of time

Although the past can’t be taken as a reliable indicator of the future, investing for longer periods of time decreases the chance of overall losses. On top of this, it suggests that short-term stock market volatility tends to cancel itself out over longer periods of time. This gives the possibility of more consistent long-term returns.

Compounding is your friend!

“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Albert Einstein

One of the reasons that long-term investing has the potential to deliver such great returns is the power of compounding. It’s essentially the snowballing effect of your returns generating more returns over time.

It is mainly seen through the reinvestment of dividend payments into more shares – to subsequently receive more dividend payments and buy even more shares. However, you can also see its effect when companies reinvest their profits in advertising, more staff or better services and subsequently see their profits increase.

How we invest at Agile…

I believe in the power of investing for the long term, and the key aspects of the investment philosophy are that we…

Take the long view, analysing the long term fundamentals. Timing the market is something we refuse to get involved in!
Use our investment committee to set asset allocations aligned to our clients view on risk.
Independently research the market to find the leading fund managers and review these constantly.
Look to find our investors real returns, bearing in mind effects of inflation, fees and tax.
Don’t let emotions, cognitive bias or short term noise cloud our judgments.
Believe in designing portfolios that have the highest potential returns for a given level of risk.
Find the level of risk that clients are comfortable with, we will never encourage more than is necessary.

If you would like to understand more about how we manage our investments and how we may be able to help you create a long term investment strategy then please get in touch. Alternatively, I’m always happy to give an opinion on how you have things set up. Our initial discussions are completely free, but may just result in a strategy that can stand the test of time!

Thanks for reading!

Chris @ Agile

I love helping clients on the journey to retirement! With the right plan it can be one of the most fulfilling times of life. In this post I’ll take a look at some of the things to think about. There are only two things I ask of you. 1) Put aside some time. 2) Get a pad and pen dedicated to only this.

A number of retirement transitions

Retirement for many is no longer about hanging up their boots and hitting the rocking chair. You can now expect to live a third of your life after what would have traditionally been considered the age of ‘retirement’. That’s means income needs to be found for a lot of years.

As a result, more and more people are mixing a gradual slow down in work with an increase in leisure and family activities. That might be in the same job, or if it’s likely to increase their wellbeing, a completely different challenge!

This style of transition means more people can continue to afford their desired lifestyle for longer, but with all the purpose and social activity that work can give.

Being prepared for retirement

People are busy. So much so that I find most don’t sit down early enough to have a good think about how their future might look. Crazy! A good set of starting ideas, even if they become unrealistic over time, can be immensely useful. It’s much better to be in the picture about the future you would like, whether you can afford it and if you need to consider things differently.

Here are some questions. The answers should certainly set you on your way to a good plan…

What would you like to do with your time?

What will your days actually look like? How will you spend the time you would have spent at work? When I ask this question some common themes include helping with grand kids and more holidays. That’s fine, but actually looking at your time and considering how much will be spent on each activity can be a really beneficial exercise.

If you work a full time role you will spend at least 1800 (but for lots of people many more) hours a year at work, plus all of the travel time and lunch breaks. That’s some time to fill! A thought provoking task can be to draw up a week planner – try to fill it with the daily activities that would fill a week in your ideal retirement. This could be harder than you might think.

Other than daily life, I always encourage thinking big! What are the things you’ve always dreamed of doing and why do you want to do them? If you’ve always fancied a trekking the Inca Trail, owning that Harley Davidson or adding that dream extension now is the time to get that on a list. You might just find that what seemed like a pipe dream becomes all the more possible with good planning.

How much will you spend?

An expenditure planner will help you understand how much income you will need to create. I know this sounds really boring – I get it.. but trust me this is the most important bit!! This should include a potential spend for absolutely everything but you can pretty much break it down into three categories – essential, luxury and aspirational.

Start by reviewing your statements and have a think about how your current spend may change. It’s worth creating a ‘before and after’ list for the first and second phase of retirement. Things like the cost of travel will undoubtedly change with fewer days in work. Tip – once you’ve done this put it to one side, leave it for a couple of weeks and then pick it up and review it… and then do that again! Without a doubt there will be things you have forgotten. I can’t stress how important it is to be strict with yourself on this one. That occasional coffee, window cleaner and haircut all adds up to what can be a substantial sum.

Finally, think about your answers to my first question– what would the rough cost of those bucket list items?

What does the pension pot look like?

Get together a value or income projection for all of your pension schemes. You can get a state pension forecast by visiting www.gov.uk/check-state-pension. For your workplace and private pensions things can be a little more tricky, as many now retire after having several employers. I can’t count the number of times I’ve dealt with 10+ pensions for a single client and found other lost ones in the process. As pension schemes can change management many times, this can be a task in itself. This is where the expertise of an adviser can be invaluable.

Are things looking healthy or do you need to do more? Are all of the pots invested in the right place? Do you understand all of your schemes?

This is of course where people like me come in handy and can help to take away the complexity, but it’s definitely worth getting things together and taking a look. Most people who tell me ‘they haven’t got a clue about pensions’, when it comes to it should give themselves more credit.

What are you worth?

Besides pensions, I always encourage people to keep track of their net worth. It’s important because it will highlight what you’ve got to work with for retirement.

Make a list of all your other assets and their value, whether that be bank accounts, investments, property or premium bonds. Everything of value can form part of the plan and make a big difference to your retirement lifestyle. Those accounts that you’ve been putting off sorting out will need to work as hard as they can.

If you have any, also make a list of your liabilities. That could include mortgage, loans and credit cards. Prioritising which of these can be cleared will be an important first planning step.

How’s your health?

This is an area that people often put off, but ‘health before wealth’ is a good motto to have. The point of retirement is a good time to make sure you are fully MOT’d, so you can enjoy everything that you’ve planned for. Make sure you’ve taken up the offer of your free NHS health check. This is important, because health conditions can increase the retirement income you will get should you take certain forms of income. Importantly, you can ensure there are no nasty surprises ahead.

Your health situation will also form part of the plan in other ways, such as if mobility could cause a necessity to move house or if you may need increased care at some stage.

Who’s important?

You may need to depend on family or friends at some point in retirement. This could be as you get further into old age or particularly as health can change rapidly. Discussing this with them can be a good idea and formally appointing them via a power of attorney is always something I would recommend you consider.

You’ll also need to make sure you know who will receive your assets when you’ve gone and made sure it’s in your will. Getting all of this sorted early will give you peace of mind it’s done and out of the way.

I know this is something that many don’t want to think about, but this can cause your family lots of pain and stress! When care is required, there is more death tax being paid than necessary or when no will causes a family bust up many wish they had just done it!

Do you need retirement advice?

Putting all of the above together can sometimes seem quite complex but getting the initial ideas and outline of plan is so important. Speaking to an adviser can help you to understand what position you are in and how you can model your cash flow. You might be surprised at the opportunities you have to live the perfect retirement.

If you feel like you need to speak to someone about any of your answers, I’d obviously love to have a chat. I can’t count the number of times it’s been my pleasure help my clients map out all of the above and say the words ‘relax, you’re going to be OK!’