Financial Planning Matters Summer 2018

Transcription

1 Financial Planning Matters Summer 2018 Audit / Tax / Advisory / Risk Smart decisions. Lasting value.

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3 Introduction Welcome to the summer 2018 edition of Financial Planning Matters in what has already been a very busy summer. We have moved on to the next chapter in our history having recently changed our brand name to Crowe. You will see this reflected in a change of our logo that has been adopted by all member firms in the network. This brings with it shared knowledge and global resources in response to changing client needs, driven by digitalisation and the borderless world of modern business. This comes as we celebrate 175 years of existence under various guises and our Financial Planning reaches 21 years of trading. A business can only grow because of its clients and through being recommended. As we celebrate our past and look forward to the future, I would like to thank you for your continued support of our business and for your loyalty. Financial Planning Matters Summer

4 4 In May 2018, Crowe Horwath International, the eighth largest global accounting network, announced that the network and its member firms will rebrand.

5 The rebrand saw over 220 member firms globally adopt the name Crowe, reflecting the increasingly integrated and seamless nature of the network as well as its shared values and core purpose. Crowe Horwath International renamed to Crowe Global. The move assists in promoting the network s shared knowledge and global resources in response to changing client needs, driven by digitalization and the borderless world of modern business. The change of brand happens shortly after another significant development for the network, the appointment of a new Global CEO, David Mellor, who took over leadership as of 1 April, Under the new brand and leadership, Crowe reaffirms its determination to drive forward the profession and increase discussion of audit, tax, risk and consultancy issues at board level globally while retaining its emphasis on market-leading local expertise. We are proud to have developed a position as a recognised leader in the UK for audit, tax, advisory and risk services across our areas of focus. Coming together under one global brand marks an exciting new phase for our clients, people, firm and network. With our national presence, global reach and local expertise offering exceptional knowledge of the business environment, this creates a seamless service to help our clients to succeed wherever they choose to operate or do business Nigel Bostock, Chief Executive, Crowe UK Financial Planning Matters Summer

6 Crowe Financial Planning UK Limited comes of age This year the Crowe Financial Planning UK Limited team is proud to be celebrating 21 years in the Financial Planning industry. Established in 1997, the team has steadily grown in number to the 26 people we have today. During the first nine months, we moved from working with a handwritten red ledger to a computerbased administration system. The founding board members have now all retired, although many of them have gone on to become clients themselves. Founding Director Jocelyn Lynch took the decision to retire in 2008 and was succeeded by our current Managing Director, Phil Smithyes, who has continued the growth of the company. We have evolved through various regulatory and company name changes, starting out as Horwath Clark Whitehill Financial Services limited, through to our most recent change in name as a result of the rebrand. Our success has been as a result of repeat business, client recommendations and working closely with Crowe U.K. LLP. Over the past 21 years we have focused on developing long term relationships with clients built on trust. This is reflected in our high level of client retention and we would like to take this opportunity to say a big thank you to all our clients, introducers and stakeholders for helping us reach this milestone. Our promise, in return, is to ensure that we continue to offer the most up to date and impartial advice and never forget that our clients best interests are at the forefront of any decision we make. 6

7 Here are 10 interesting facts from in 1997 is worth today. 2. Telephones still had the curly wire. 3. On 6 November 1997 the Bank of England Base Rate was 7.25%. 4. The average cost per litre of petrol was 64 pence. 5. The birth of the world s first cloned sheep, Dolly, was announced to the world. 6. The most spectacular celestial viewing event of 1997 was the arrival of comet Hale- Bopp. It will not return to earth again until the year Channel 5 television was launched. 8. The Queen and The Duke of Edinburgh celebrated their 50th wedding anniversary. 9. Rover Group produced the final Rover 100 after 17 years. 10. The average house price was 63,085. Financial Planning Matters Summer

8 Mind the Gap: Are we facing a gender pension crisis? At a time when it is estimated that just one in 20 financial advisors are female 1, Crowe Financial Planning UK Ltd is delighted to have extended its team by attracting a new female consultant. This growth brings more than just additional expertise. Our advisors are passionate about supporting women whether financially independent, or otherwise - to better understand and manage their financial affairs. A body of research suggests there has never been a greater need, as Abika Martin explains. When I read about a 2017 survey which questioned people about their financial confidence and provision, particularly around pensions, the results were hard to digest. Researchers found that two out of three women feel they don t have sufficient financial knowledge to invest, less than a fifth have ever invested in capital markets (compared to a third of their male counterparts) and more than half surveyed have yet to start saving for their retirement 2. This behaviour compounds socioeconomic factors such as the gender pay gap, which in the UK means men on average are paid 9.1% more than women. The gap widens as women move toward retirement, reaching its peak between ages 50 to In addition, 72% of women say they do not like to take investment risks (compared with 54% of men )2 which may explain why they tend to hold around 10% more than men of their overall portfolio in cash and why men on average will have twice as much of their portfolio exposed to equities than women. 1 In short, not only are women earning less over their lifetimes, and so are able to save less, but they are leaving a larger proportion of their savings in cash, reducing their returns over the long term and therefore the purchasing power of their savings into the future. As a result, men s average retirement savings of 73,600 outstrip women s (at 24,900) by around three times. 1 The picture this paints for women upon reaching retirement is concerning. Women tend to outlive men, so their retirement savings fundamentally need to last longer. On top of this, it is an unfortunate fact that the longer we live, the more likely we are to suffer health issues and so medical costs can reduce women s finances further still. Perhaps, unsurprisingly, over two thirds of all pensioners living in poverty in the UK are women. 4 8

9 It is important to note that the potential pension shortfall isn t an exclusive domain of single women. Married women are likely to see a significant decrease in their overall income upon the death of their spouse. Planning for their unpredictable long term needs, in the context of the natural desire to see the family wealth pass to the next generation, means striking a delicate balance. The pension freedoms of 2016 have provided greater flexibility in managing this but pension legislation changes frequently and can be complicated to navigate alone. Our financial planners are able to step in as a guiding hand, helping female clients to bolster not only their retirement provision but also their financial confidence. While women may perceive themselves as less financially aware or able than men, in reality it is not the case. A recent study found that women in the hedge fund sector delivered average annualised performance of around 9% over five years, compared to the industry average of 3% 5. But when researchers spoke to 30,000 women, the interviews revealed that, even though women knew as much about investing as their male counterparts, they were less confident of their knowledge and so they were more likely to be put off by financial terminology. 1 Of course, it isn t only a matter of confidence that causes gender investment behaviours to diverge but different motivating factors. For example, women are more likely to invest based on the transparent communication of performance and risk, while men see cost as key. 2 Any investments we look to make will be part of a financial plan that will consider all aspects of your financial position such as income levels, insurance and tax efficiency. Therefore, they will be affordable to you, so that you are not overstretched but are instead balancing your financial needs of today with those of the future. It is important for you to understand how each part of your financial plan relates to your personalised set of objectives, how it helps you to afford the renovations you have been planning on the family home or how it enables you to help your children buy a home of their own. Perhaps you want to ring fence an inheritance for them or simply be reassured that your partner would be financially secure if something were to happen to you. If you believe you or your partner could benefit from a fresh approach to their financial planning needs, please do get in touch for a review of your affairs. 1 Kantar Winning over Women Report, October YouGov survey for Scalable Capital, February The Office of National Statistics (ONS) 4 Institute for Fiscal Studies, August Rothstein Kass, 2017 Financial Planning Matters Summer

10 My company pension it s worth how much? A current hot topic in the area of company pensions is the level of transfer values offered by defined benefit (often referred to as final salary) pension schemes. These values can appear very attractive, especially when considered alongside the new pension freedoms which allow you to draw on your pension funds as and when you want. Frequently people are staggered by how high the transfer value appears to be. A good example is a potential client stating I only worked for the company for a few years and can t believe my transfer value is this much. It was only when questioned that he realised he was equally surprised by the level of guaranteed pension income the defined benefit scheme would pay him for the duration of his retirement and that of his spouse. One of the main drivers to high transfer values is the high cost of buying an income for life. For example, if you are age 67 and want to buy an income equal to the state pension of 8, per year that increases with RPI, this would cost in the region of 239,000, assuming you are in good health (source: money advice service annuity comparison tables July 2018). Once an individual appreciates that the cost of buying a guaranteed income is high, the first question is typically whether the transfer value offered represents fair value in respect of the secured benefits. This can be calculated by some number 10

11 crunching that provides an indication of the rate of investment return needed in order to match the pension that would be paid by the scheme. Even if the transfer is viewed as fair value, this should not be taken as an automatic green light to transferring but rather an amber one to proceed with caution to the next stage. Although moving the benefits can increase the range of ways in which you draw on the pension fund (or not drawing on them in order to leave them as an inheritance), the basic question is whether or not you are in a position to see the level of your pension fall in retirement or, in a worst case scenario, the funds run out altogether. How the pension fund fits with your overall needs (not to be confused with objectives) and assets is probably of equal, if not greater importance, as the transfer may or may not be capable of improving your pension income. One also needs to consider what might happen if pensions legislation were to change in the future and whether sacrificing the security of a guaranteed income is a risk worth taking. in a position where you can be sure of coping with potential investment losses and resultant reductions in the levels of income payable to you. Striking a sensible balance between the options is not always an easy judgement to make. Once a transfer has been made out of a defined benefit scheme, it cannot be reversed. Indeed, the Financial Conduct Authority (FCA) recognises this and requires individuals to take specialist advice if a transfer value is over 30,000. Despite the current high transfer values, the FCA s starting position is to view a transfer from a defined benefit scheme as not a suitable transaction and advisors need to demonstrate categorically why moving to a personal pension is more advantageous. It is essential to know that any transfer from a defined benefit scheme involves a fundamental transfer of risk from the sponsoring pension scheme to the individual. Therefore, you need to be Financial Planning Matters Summer

12 Enterprise Investment Scheme (EIS) key changes for 2018 The Enterprise Investment Scheme (EIS) is designed to help smaller, higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Whilst such investments should be viewed as higher risk, the tax reliefs available within EIS give rise to attractive planning opportunities. To confirm, the current tax reliefs available are as follows: Income tax relief: 30% income tax relief either in the tax year in which the funds are invested or the previous tax year. Capital Gains Tax (CGT) deferral: on gains arising within the last three years, the current year or in the next 12 months. Inheritance Tax (IHT) exemption: qualifying investments will benefit from 100% exemption from IHT under current legislation provided the investments have been held for at least two years and are still held at the time of death. Tax free capital gains: exemption from CGT on individual holding disposal. Loss relief: loss relief to be set against deferred capital gains or income. In the November 2017 Budget, a new measure introduced a condition to EIS, Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) rules to exclude tax-motivated investments where the tax relief provides most of the return for an investor with limited risk to the original investment thus preserving an investor s capital. These schemes were previously very popular but flew in the face of the spirit of entrepreneurial risk based investments. 12

13 The condition now depends on taking a reasonable view on whether an investment has been structured to provide a low risk return for investors. Consequently, a principles-based test was introduced which came into effect for any new investment made in 2018/19 onwards. The new test ensures that the schemes are focused towards investment in companies for their long-term growth and development with particular attention on knowledge intensive companies which concentrate on innovation, research and development. Schemes must be able to demonstrate that the risk they are taking with an investor s capital means that the potential for loss is at least equivalent to the tax relief which an investor may claim. The real aim of these new provisions is to prevent EIS companies, as has been the case in the past, from raising funds where there is a pre-agreed supply and a preagreed sale for the goods produced by the company which enabled the profit to be measured with reasonable certainty in advance and minimised the risk to capital. The changes in legislation clearly show HMRC s intent for tax relief to be offered specifically for investment in genuine small, entrepreneurial businesses which have a clear intention to develop and grow the business over the medium to long term. While this is likely to mean that, in addition to an increase in investment risk, the average period of ownership of EIS shares is likely to increase (five to seven years or more may be typical, compared to three to four years in the past), the potential returns, if identifying profitable companies, are also likely to increase. EISs are highly illiquid investments and investors may potentially have difficulty in realising their investment at a given time. Therefore, these schemes should only be considered as a long-term investment, that is for more than five years. They also carry the risk of potentially losing all or part of your capital investment and, therefore, the return of your capital is not guaranteed. As a consequence, the need for advice in this area has never been greater. Crowe Financial Planning UK Ltd undertakes considerable due diligence in identifying suitable investment opportunities which may be attractive to those clients who are willing and prepared to accept the high risk nature of these investments. If you would like further information on this area or to discuss potential investment opportunities, please contact us. Financial Planning Matters Summer

14 Managing your team Life s finances are complex. While on a day-to-day basis we can deal with the multitude of money-based transactions, there are times when, like a football manager, we need to make major decisions that will impact on the future. At times like this it can be valuable to call on the advice and skills of a range of specialists to provide the guidance and help to enable us to make suitable decisions. The trick is in knowing how and when to call on this help. Goalkeeper From the range of advice options open to you, it can be of benefit to identify a single person with whom you share your long term objectives and can guide you through your financial life choices while keeping the end result in mind. Often referred to in the industry as the trusted advisor, there are many organisations that can fulfil this role for you. It is important that you identify someone with whom you feel comfortable discussing your hopes and wishes as well as their ability to satisfy any immediate short term needs. Defence Whatever stage we are at in our financial journey, there can be the need to protect ourselves from the slings and arrows of outrageous fortune. At the one level, establishing policies of insurance from a Life Assurance company can work (but how much and with whom?). However, it could be argued that secure foundations are best established though the services of a solicitor in preparing your Wills, Powers of Attorney and a host of other matters that can support and enable your plans. The trusted advisor should be able to work with you over the long term and be able to identify as and when support from other specialists should be sought. The more the advisor knows about you, the better placed they will be to provide appropriate advice. 14

15 The whole is more than the sum of its parts Aristotle Midfield A range of skills and services can be utilised to keep you moving towards your goals: Banks: can help provide cash flow solutions both for personal (house purchase) and commercial (business expansion/acquisition). Accountants: can help identify cash savings, tax efficiencies, profit extraction methods. Financial Advisors: can help design strategies, implement appropriate tax structures, recommend insurance providers, investment solutions and identify any shortfalls in your plans. Each of the above, in particular the latter two, can work with you year after year to help adjust your plans as your needs and objectives develop over time. It is common for trusted advisors to be drawn from these types of organisations. Attack After securing the foundations and core of your financial strategy, the final piece of the jigsaw is to maximise the returns you make on your investments. There is a plethora of investment solutions that are designed to grow your savings and investments to achieve your goals. Our basic belief is that identifying professional fund managers and allowing them to manage the funds in accordance with agreed risk parameters provides the best solution. The old adage of if it seems too good to be true it probably is applies today more so than ever. Ultimately, by drawing on the skills of each of these players, the end result is that you define and realise a financial plan that is cohesive and clearly focussed and allows the input from many minds to result in an outcome that is greater than each component in isolation could achieve for you. Yes, good advice comes at cost, but by working with a team of trusted advisors the savings and improved outcomes can be significant and at Crowe we have extensive experience of working alongside other professionals for your benefit. Financial Planning Matters Summer

16 New joiners In our 21st year, we are continuing to expand and, to ensure that we deliver the best client service, have recently taken on three new team members who all have extensive experience in the industry. Abika Martin Abika has joined us as a financial planning consultant to cover our Cheltenham and Oldbury offices. She spent the last four years at Investec Wealth & Investment and is qualified as a Chartered Investment Manager. Dominic Cruickshank Dominic has joined as a senior paraplanner based in our Maidstone office. He has more than 17 years experience in the industry, 12 of these have been as a qualified paraplanner. Dave Graham Dave has joined our Client Support team in the Reading office. He has significant knowledge of financial planning products and has many years of administration experience, 16 years of which were with Phoenix Wealth (AXA). 16

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18 We pride ourselves in offering a high quality service and delivering the best possible solutions for our clients. Professional team offering sound advice with a personal touch. Honest, trustworthy and thoroughly efficient and professional. Very supportive and respectful whilst helping me look after my father s affairs. 18

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20 Start the conversation Phil Smithyes Managing Director, Crowe Financial Planning UK Limited Thames Valley and London +44 (0) (0) Stuart Elder Thames Valley +44 (0) Miles Clarke Thames Valley +44 (0) About Us Crowe UK is a national audit, tax, advisory and risk firm with global reach and local expertise. We are an independent member of Crowe Global, the eighth largest accounting network in the world. With exceptional knowledge of the business environment, our professionals share one commitment, to deliver excellence. We are trusted by thousands of clients for our specialist advice, our ability to make smart decisions and our readiness to provide lasting value. Our broad technical expertise and deep market knowledge means we are well placed to offer insight and pragmatic advice to all the organisations and individuals with whom we work. Close working relationships are at the heart of our effective service delivery. Julian Hanrahan Maidstone julian.hanrahan@crowe.co.uk +44 (0) Adrian Crowe London adrian.crowe@crowe.co.uk +44 (0) Dharmesh Upadhyaya London dharmesh.upadhyaya@crowe.co.uk +44 (0) Richard Dean Cheltenham richard.dean@crowe.co.uk +44 (0) Abika Martin Cheltenham abika.martin@crowe.co.uk +44 (0) Crowe U.K. LLP is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Crowe U.K. LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Financial Planning UK Ltd is authorised and regulated by the Financial Conduct Authority Crowe U.K. LLP