SOCIETY UNDERVALUES RETIRED POPULATION

MGM Advantage – ‘Our Retirement Nation’ report
SOCIETY UNDERVALUES RETIRED POPULATION

A new report reveals that the UK’s ‘Retirement Nation, which includes all retired people, saves the state and society at least £25 billion a year through unpaid care, community and voluntary work. But the report, ‘Our Retirement Nation’, which was commissioned by MGM Advantage, warns that the contribution made by this part of society is not fully recognised and that the government and society as a whole need to do more to understand their emotional, health and financial requirements.

MGM Advantage is calling for fundamental changes to ensure that the Retirement Nation gets the respect and support it deserves from society, the media, the financial services industry and the government. Its recommendations and key findings are:

• Respect – A change in attitude towards the Retirement Nation and greater recognition for retired people and what they contribute to the UK – only 14% of retired people feel valued by society.

• Representation – The Retirement Nation is a big part of the UK society for what they contribute (£25 billion through unpaid care, community and voluntary work), but also the help and support they need. The Retirement Nation needs a voice. MGM Advantage recommends the Government creates a Minister for Retirement.

• Education – More done to help people maximise and make the best use of their financial wealth in retirement. The first step is to help people improve their basic knowledge about retirement and finance – 31% of retired over 55s have not heard of the Open Market Option. The financial services industry, government, and media all have a role to play in achieving this.

• Simple products – Financial services and government need to continue to work together to innovate and design new retirement products that meet the needs of the Retirement Nation and are easy to understand, accessible, and offer good value – only 29% of over 55s know exactly what an annuity is.

• Ownership – People need to take ownership of their retirement planning – from building up a pension pot in their 20s and 30s to making the best retirement income decision when they retire – 54% of non-retired UK adults are not at all prepared for retirement3.

The report highlights how the UK’s Retirement Nation is collectively saving the government and society £15.4 billion a year by taking on the unpaid care of grandchildren, parents and other family members. In addition to this, retired people are undertaking voluntary work worth at least £5.6 billion a year and charitable work worth at least £3.7 billion a year.

MGM Advantage, which is a retirement income specialist, warns that the role played by this major part of society is not fully recognised. Almost a third (30%) of retired people think they are undervalued and not respected by society, while just 14% feel valued, while the balance (55%) say that they are sometimes treated badly.

Craig Fazzini-Jones, Executive Director, MGM Advantage said: “This report paints a wonderfully colourful picture of the rich diversity of the 11 million people who make up our Retirement Nation and why they deserve our respect and attention for the contribution they make to the society. However, it also portrays a worrying picture about how these people prepare for and fund their retirement and sends a clear message about our responsibility to do more to support our Retirement nation.”

With the number of retired people in the UK growing significantly, MGM Advantage says that greater consideration has to be paid to their contribution as well as demands placed on society. It also believes there should be a fundamental change to the way that retired people are treated and that more should be done to challenge the pre-conceived notion of retirement.

RDR update and dreams of an idealist

How do you really put Financial Services in the Isle of Man on the map for the right reasons when faced with such dire headlines as only this week? I refer to the “Bank denies mis-selling” story – see; http://www.iomtoday.co.im/news/isle-of-man-news/bank_denies_mis_selling_1_4074609

“RDR” is a phrase that is causing much controversy and some fear in the UK amongst those involved in providing financial advice to consumers. Not since the first UK Financial Services Act (1986) has there been such a shake up of the system of providing financial advice to consumers. The UK’s FSA has been disappointed with the results of its earlier legislation and practice on the topic and is now proposing wholesale changes that will take effect on 31 December 2012. In the mean time advisers are expected to get their houses in order in preparation for the new regime.

The proposals are wide ranging and detailed. The FSA says it wishes to push through the changes to improve consumer confidence in products and services and to address poor standards amongst financial advisers. They believe the changes will raised standards of professionalism, improve clarity and reduce conflicts of interest that have plagued the industry. Their vision is to raise IFAs’ game and to move them in to the circles of other fee paying professionals. The new rules will be in place for the start of 2011 with minimum qualifications to be achieved by 31st December 2012 and in the Isle of Man only a year later.
For an industry that is already regarded as a lifestyle choice and populated by an increasingly aged group of people, it is clear that something must be done or else the availability of financial advice will reduce as more people leave the industry and large corporations switch to a product sales model. Add into the mix the fact that currently 70% of individuals do NOT seek financial advice.

Arresting the decline in numbers of advisers, I believe can be achieved through working with government – Departments of Economic Development (DED) and Education using public/private partnerships. Broadly my ‘dream’ involves a framework of a ‘home-grown’ financial services degree with core and satellite subjects offering vocational credits and recognition towards Chartered status from certain Professional Institutes, such the Chartered Insurance Institute. After all, in these austere times, wouldn’t it make sense for the Isle of Man taxpayer to fund core subjects at higher education establishments locally, rather than non-core ones in the UK? – yes, that’s controversial I know.

However, developing the plan a stage further forward thinking companies, including IFAs, Life companies (representing the largest proportion of private sector employment in the IOM), captive insurers and General insurance Broking firms, large and small, can see a less costly and risky way of bringing in new talent to a sector where grey men in suits are the norm, where at the moment there is a dearth of young talent taking these vocational qualifications. Such a scheme would go a long way towards ensuring the future succession plans of their business, increasing profitability, especially where you throw into the mix an apprenticeship type incentive, and you have potentially the biggest ‘jobs opportunity’ advert to appear in Isle of Man Newspapers ‘job vacancies’ column. We all want the Isle of Man to succeed as a ‘Centre of Excellence’ in one form or another; most of the infrastructure needed, including mentors, both private and public is already here for Financial Services which is a vital support for all the diverse industries DED are so keen to attract and retain.

To go back to RDR, advisers need to respond to the new environment now, not least because the Island’s regulators will adopt the proposed changes and already have progress towards qualifications on their radar. UK providers changing systems to cope with RDR in time for 31st December 2012 are hardly going to go out of their way to accommodate a minority market like the Isle of Man. Does this mean those with their heads stuck in the sand need to look for another role? We’ve heard it all before about having 30+ years ‘experience’; Because, how do you know what you don’t know if you don’t know what you don’t know?

Sound financial advice will be important to all clients. In the current economic climate where negative headlines like the ‘Isle of Man Bank Adviser sells terminal cancer patient annuity’ are sadly, all too common and call into question impartiality and conflict of interest (with targets for bonuses?). As circumstances and appetite for risk change as a result of external influences, all clients should regularly review their plans and financial goals, then go and employ the best adviser for the job. You can be sure Thornton Associates Ltd, as the Isle of Man’s first firm of Chartered Financial Planners will be ready and able to help clients, both existing and new.

Sharon Sutton FPFS Chartered Financial Planner

Global Investment Markets – not for the faint hearted at the moment

Global investment markets are not for the faint hearted at the moment.

It is likely more stable conditions will return in due course –when the politicians come back from holiday in September and face up to their issues. Of course volatility is affecting even the best quality holdings as prices are forced downwards by indiscriminate sellers who need liquidity. We’ve seen it happening before not so very long ago.

I like the following commentary by Alan McIntosh, Cheviot CIO, on the latest market conditions.

“Market update – reading the mood music

The recent rally in markets evaporated yesterday on further disappointing economic data. The US Philly Fed survey, which measures business conditions, fell to its lowest in two years, when the US was last in recession. Bear in mind, however, that this survey was conducted while the US was suffering the paralysis of negotiations over the debt ceiling and may be unduly pessimistic. Nevertheless, if the US does go back into recession later this year or early next, much of the blame rests firmly with the ineptitude of the politicians. In Europe, things are not much better. The Merkel / Sarkozy meeting gave us precisely nothing other than the prospect of a financial transactions tax. As they return to the beach, the ECB is left on its own to put out the fires in euro land. Banks were particularly hard hit yesterday. They are seen as a proxy for the woes of sovereigns. Markets are registering the seeming inability of the authorities to grasp the issues facing their economies.

Stockmarkets, if not pricing in outright recession in the US and Europe, are certainly factoring in much slower economic growth next year (and therefore lower corporate profits). Gilts and US treasuries continue to see lower yields, with investors willing to accept substantially negative real yields for “safety”. One can’t help but feel, however, that this will end in tears, since the finances of the UK and US are hardly solid.

Defensive shares are holding up comparatively well, offering solid cash flows and dependable yields. The trailing yield on the All-share index is now 65% higher than that of a 10-year gilt. On any sensible assessment of value, that is surely wrong. Nevertheless, investors are extremely risk averse at present and you would be forgiven for thinking that the mood music was closer to Mozart’s Requiem than Beethoven’s Ode to Joy.”

Last week banking shares suffered the steepest losses on the FTSE 100, on mounting concerns over the eurozone’s debt crisis. Resources stocks also dominated the loser board, amid fears that weak global growth will sap demand. Meanwhile, the yield, or implied interest rate, on benchmark US 10-year treasury notes fell 12 basis points to 2.05%, after touching a record low of 1.98% in an investor flight to safety. Similarly, gold prices jumped 1.7% to $1,819 an ounce, after hitting yet another record high at $1,826.

‘The gold market is telling us that we are potentially heading towards a second and perhaps more damaging economic crisis,’ warned Ross Norman of bullion brokers Sharps Pixley.

You could be forgiven for thinking ‘lets buy gold’, but…. buy gold at its highest point in years? This is very much like all those people who purchased property at the height of the boom or all those people who got on the dot.com bandwagon at its high point. I can’t say for certain you’re wrong but buying an asset as it screams towards a ‘peak’ should be considered with extreme caution. If anything, if you already hold gold, consider taking some profits.

Surely it makes more sense to look out for those so many now undervalued companies that were cheap before and are now at below bargain basement levels. FTSE 100 is at a one year low and it seems more right to buy shares now – that is if you are in it for the long term.

If the Euro fails maybe gold was a good idea, but if, as seems more likely, we bump along the bottom for a while and the Euro survives, then buying and holding gold could cost you dear. Companies as a whole are very profitable; it’s just the lack of clarity going forward that ’causes young men to panic’ as one IFA posted recently on Citywire.

The moral; have enough money to do with in life what you want to do (for the short to medium term). For the rest; have a diversified, risk-rated, managed and monitored portfolio – and pick a team you know to be qualified, licensed and above all that you trust to provide that service for you.

FSA Approves CII as an Accredited Body

Fay Goddard, CEO of the Personal Finance Society today wrote to all members to advise that the CII has been provisionally approved by the FSA as an Accredited Body ahead of the implementation of the RDR. The Personal Finance Society (PFS) is part of the CII Group, so PFS members will continue to benefit from the reputation, backing and financial security of the world’s leading professional organisation for insurance and financial services.

The CII has almost a century of experience as a professional body, having received its original royal charter from the Privy Council in 1912. Its mission remains unchanged by maintaining the professional competence, ethical and technical standards of the profession in order to secure the trust and confidence of the public. Globally renowned for its market leading training and qualifications for the financial planning and insurance sectors Goddard strongly believe that PFS membership can continue to enhance the reputation of those committed to adhering to the highest professional standards.

She says the PFS provides a wide range of valuable benefits to members including a nationwide programme of high quality Continuing Professional Development. The PFS regional support network is invaluable for many of our 29,000 plus members and our innovative tool has already lightened the gap fill workload for thousands of members. Very soon those members requiring a Statement of Professional Standing (SPS) will be able to add this, at no extra cost, to the range of other benefits they enjoy as part of their existing membership.

She said ‘Rest assured that your professional body membership matters more than ever to your clients and recent research by JP Morgan found that consumers placed considerable importance on membership of a reputable professional body; in fact it was the third most important driver that would make them willing to pay an adviser.’

Full details about the requirements to obtain an SPS and the process for PFS members to submit their application will follow shortly.

Long Term Care; Don’t run out of money before you run out of life

We pride ourselves as being members of a caring society and many of us are now turning our thoughts as to how best to fund care for close family members in old age.

The majority of us are keen to put off such thoughts however it becomes even more of a challenge when the day is upon us and we have not thought about the expense involved. Many elderly people face selling their house because they don’t have the money to get the care they need. This article talks about how you begin to think about such an expense and the options available to you.

At Thornton Associates we often work closely with individuals to help them to manage and protect their wealth in later life and a study by Sun Life Financial of Canada’s Sense Check at 60 study suggest that very few people (around 1 in 4) are putting these plans in place for later life. This study looked at people with between £100,000 and £500,000 in pensions and savings; the sort of people we typically work with here at Thornton Associates.

Whilst we can make a big difference to the financial position of elderly clients by assisting with proper budgeting and clear succession planning, the biggest impact a financial planner can make to their client is earlier in life, with proper planning for later life and the peace of mind that can bring.

This is against a backdrop of a more complex environment for retirement planning with increased regulation, innumerable changes in legislation, to say nothing of rising inflation (6% IOM RPI as we go to press) and continuingly low interest rates for savers.

Clearly, proper planning for later life is more important today than ever before. We can see that as the increasing numbers of baby boomers retire, contrasting markedly with a decreasing working population with little job security, our society will come under increasing pressures as a result of an ageing population since we know that a large amount of government budget pays for the associated social care costs of looking after the aged. Also consider the impact of the recent global financial crisis on investment values to say nothing of the indebtedness of our governments, not only in paying back the debt, but actually meeting the interest payments of those debts.

The Daily Mail reported in early November that more than 20,000 pensioners in the UK were forced to sell their homes last year to pay for care fees and estimate that over the past five years, the cost of care fees have escalated by more than 20%.

The Association of British Insurers (ABI) states in a recent report “The costs involved can be daunting. The average cost of care in a residential home in the UK is approaching £25,000 a year. In a nursing home, if nursing care is also required, this cost rises to nearly £39,000 a year. Even receiving long term care in your own home can be expensive. Every week around 300,000 households receive nearly four million hours of home help, and people in England spend an estimated £420 million a year on privately paid home care services.”

Seeking professional independent financial advice from a suitably qualified and experienced financial planner before you retire can put you in a much stronger financial position ahead of later life but if you’re already there, all is not lost and you should still seek advice from an adviser with a relevant Later Life qualifications who can provide specialist advice on areas such asImpaired life annuities, equity releases and immediate care plans.

The Sense Check at 60 concludes ‘To successfully manage funds in retirement people need to deal with 5 key risks: the risk of living too long; the corrosive impact of inflation; the need to maintain exposure to higher risk investments; the risk of withdrawing too much income and the prospect of requiring long term care later in life. The ‘baby boomer’ generation is reaching retirement. Millions of Britons will retire over the next 10 years. It is important they make informed decisions and plan their retirement well if they are to enjoy the benefits of the

longest retirement of any generation.’

A private consultation to discuss any issues arising from the above or matters of other financial concern may be arranged by contacting Sharon Sutton, Chartered Financial Planner, Thornton Associates Ltd; www.thorntonfs.com

Thornton Associates Limited is licensed by the Isle of Man Financial Supervision Commission.

Dispelling 5 Myths About Financial Planners

You can tough it out alone; Some people have the time, ability and drive to manage all their finances, others don’t. Either way, professional advisers can provide great insight and judgment in countless instances, and not necessarily at exorbitant cost. But common misconceptions about financial planners prevent many from seeking their counsel. This article is to help you avoid these traps so you get the most value from your adviser.

Myth 1 – Having a financial planner means I don’t need to learn anything about investing.
If you take nothing else away from this article, understand that whether or not you have an adviser, the most important thing you can do is educate yourself. Having a basic understanding of investing will ensure you understand what your adviser is doing with your money, and allow you to ask the tough questions.

Imagine this scenario: you sit down for a review of your personal finances and your new adviser starts with a lecture about asset allocation and diversification and how they are recommending a certain hot new investment. If you understand the terminology you can ask questions like:

Why are you recommending this?
How am I more diversified when I already own similar funds?
What is the TER (total expense ratio) of this new fund?
What commission do you receive if you sell me this?

By asking the right questions you’ll understand your portfolio better and also protect yourself from agreeing to something you don’t need or is inappropriate.

Myth 2 – A planner or adviser only gives me advice on investing.
Picking the right investments is certainly an important aspect of your personal finances, but it’s not the only part. Financial planning takes into account all the varied financial aspects of a person’s life: taxes, insurance, retirement, budgeting, estate planning, liquidity requirements and other life goals. It considers the various and sometimes conflicting financial aspects of our lives and develops strategies and objectives to make everything work together. For example, what good is it to pick all the right investments but then see most of the return swallowed up in taxes? It’s a full-time job just to keep up with all the laws relating to investment income and taxation. With the aid of a financial planner who considers your individual situation, you’ll be able to minimize the amount of taxes you pay (legally of course) and have a stronger bottom line in the end.

Myth 3 - By law all financial planners are required to be registered with a government agency.
Actually, financial planners are not required to be individually registered, whereas financial advisers firms are. Before deciding on an adviser, you can always look up the person’s details with their registered professional body such as www.findanadviser.org or the licensed company on www.fsc.gov.im . Check to see if there are any complaints or if disciplinary action has been taken against them. You should also find out how long the person has been in the profession.

Myth 4 – Certification letters after the person’s name mean nothing.
If you are looking for an adviser, give extra credit to those who have designations such as the Chartered Financial Planner APFS or FPFS or Certified Financial Planner (CFP) or Chartered MCSI or FCSI. To attain these levels, an adviser must put in hundreds of hours of studying in order to pass grueling exams. Furthermore, members are required to undergo background checks, agree to a code of ethics and do continuing education to keep the certification. Qualifications are no guarantee of performance but it’s a good indication of commitment to the profession. The new minimum ‘level 4’ qualification post 2013 which advisers should be aiming for is Dip PFS. For your information Cert PFS or FPC is the ‘old’ level 3 benchmark; least said, soonest mended. To learn more see http://www.which.co.uk/money/tax/guides/choosing-a-financial-adviser/ifa-qualifications/

Myth 5 – Only wealthy people need a financial planner.
Last but not least, this myth is extraordinarily widespread. Financial planning is about helping people of all income levels achieve short, medium and long-term financial goals. Many assume you need to be wealthy to get professional help. For as little as a few hundred pounds you can have a portfolio assessment done by a fee-based financial planner. This breed of planner only takes compensation from the client and receives no compensation in the form of commissions (which can run into thousands) from selling certain products unless agreed by way of ‘offset’.

Conclusion
Some people are confident enough to make these vital decisions on their own. Others need a helping hand. If you do choose to deal with a planner, keep on educating yourself, understand there is more to managing your portfolio than just picking hot stocks, do the homework in terms of both background checks and certifications and don’t think that you can’t afford advice just because your portfolio isn’t seven figures. Financial planners aren’t a guarantee or magic solution but they can be of help in many circumstances.

Sources; www.investopedia.com

Sharon Sutton is MD and Chartered Financial Planner at Thornton Associates Ltd who are licensed by the Financial Supervision Commission of the Isle of Man and Registered with the Insurance and Pensions Authority in respect of General Business

See www.thorntonfs.com or follow Sharon on twitter @sharonsutton99

Charitable Philanthropy; did red nose day make you want to give?

Charitable Philanthropy: Planning for what you give

It was Comic Relief’s ‘Red Nose Day’ yesterday and we financial planners find clients are now coming to expect their advisors to help them with their philanthropy. David Cameron’s recent reference to ‘building the big society’ also has us thinking about a whole new range of projects in need of funding in an effort to work towards this common goal.

A report by think tank Policy Exchange highlights how advisers can play a role in facilitating philanthropy by setting up ‘giving circles’ which provide networks of charity contacts.

30 donors interviewed for the study said the process of identifying a charitable cause at grassroots level was one of the hardest parts of giving.

Stephen Hammersely, chief executive of the UK-wide Community Network Foundation, said high-net-worth clients were responsive to giving in times of economic turbulence.

‘In times of uncertainty people are open to conversations about things that would normally not be talked about. There may be factories closing down, people being made redundant and people may feel more aware of the issues on their doorstep and their relative affluence and position compared to others,’ he said.

He added that the downturn could actually catalyse more action than in comparatively well-off times.

‘In times of difficulty people are possibly more prepared to think about giving and engaging in philanthropy than when times are really good and people get caught up in the froth of making money,’ he added.

Hammersely said advisers were making increasing contact with community foundations and his organisation had seen the number of donors doubling over the past four years.

Mark Estcourt, managing director of London-based Cavendish Young, encourages philanthropy in his clients and uses it for tax planning.

‘It is just another form of insuring that their assets are dealt with in a logical and tax-efficient way.’

It is possible to use financial planning to help clients use their wealth to change their lives, after all ‘you can’t take it with you’.

‘As financial planners we have the ability to transform people’s lives,’ he said. ‘Good financial planning can help people achieve their goals of a dream holiday or have a more permanent impact. I don’t think that any other profession does that.’

Cash flow modelling is critical to the basis of any financial plan but it could also include philanthropy and charitable giving with a significant level of information about clients’ wealth and ambitions. Financial planning isn’t about products; it’s about budgeting, goal setting and eliminating debt – surely a message that is relevant to everybody.

In 2009 it was expected that UK charities missed out on £1.2 billion in donations because of tax-inefficient giving by donors.

New research from Unbiased.co.uk, the professional advice website, found that some simple changes to giving practices could help charities net over £1 billion a year in money that is currently being claimed by the taxman.

UK adults gave a total of £9.9 billion to charity in 2007/08. According to this research, these gifts could be boosted by nearly 12.5% if donors had made full use of the tax allowances available to them via Gift Aid which allows the charities to reclaim basic rate income tax relief on the money. It is a shame that such methodology is inaccessible here in the Isle of Man. However, here is a summary of those ‘charitable’ tax reliefs which are available;

RELIEF FOR CHARITABLE DONATIONS DEED OF COVENANT (not to be confused with the Educational Deed of Covenant)

Charitable donations made under a deed of covenant will be allowed as a deduction from total income in the tax year in which they are paid, provided the deed of covenant is:

• Irrevocable

• Not for consideration in money or money’s worth

• For longer than three years

There are currently no minimum or maximum limits for the amounts allowable. A copy of the deed of covenant should be submitted to the Income Tax Division.

OTHER DONATIONS

Smaller or informal donations to a charity are allowable as a deduction from total income. The practice note sets out ways of getting tax relief for straight forward “annual” donations. Evidence of payments made must be provided.

Relief is restricted on charitable donations to those in excess of £100 and below £7,000

Charitable trusts can be set up and these should get favourable tax treatment if set up properly and all investment income of the charitable trust will be tax free.

Isle of Man trading companies can now get £15000 relief or if greater 1% of taxable income before loss relief and capital allowances.

Further details may be obtained on the Isle of Man Government Treasury Website, Practice Note 83/00 (http: //www.gov.im/treasury/incometax/technical/practice/PN83-00.xml); the rest of the practice note still stands including no relief for investment companies.

We are seeing a burgeoning market for philanthropy advice and there is a pent up demand for people to give more effectively. At the moment, the philanthropy advisor market is unregulated, and anyone can call themselves a ‘philanthropy advisor’ without any formal training or experience. We would therefore advocate taking professional advice from qualified Isle of Man professionals.

Sources; IOM Government Income Tax Division, PKF (IOM), Citywire.co.uk

See www.thorntonfs.com or follow Sharon on twitter @sharonsutton99

More free financial planning talks planned for March and April

TLC Business Solutions and Thornton Associates, with the support of the Isle of Man Government, have arranged a series of free talks on financial planning for ordinary people. The new series leads on from the success of their first talk on the same topic, held in November last year.

TLC is a leading Manx corporate training company and Thornton Associates is the Island’s only firm of Chartered Financial Planners. The Managing Directors of the two companies, Sue Gee (TLC) and Sharon Sutton (Thornton Associates) first teamed up to provide a government backed seminar last year, which was met with overwhelmingly positive feedback. Over one hundred people attended the talk, designed to encourage people on average incomes to think about the details of financial planning, and 99% of attendees who left feedback said that they had gained something useful from it and would recommend it to a friend. One audience member said, “It was fantastic; the message was received and uncovered the steps to plan for my future – it was a great use of an hour!”

There will be a series of four talks spread throughout March and April on different subject matters, all of which will be hosted at the Claremont Hotel. They will open for coffee and registration at 5.15pm, with the seminars starting at 5.45pm and lasting one hour. They are supported by the Department of Economic Development and are open to anyone over the age of 18.

The first talk is on the 9^th of March and will feature Sue and Sharon, covering similar ground to their previous event. Sue commented on the talk: “It is a myth that only affluent, high net worth or rich people need to plan financially for the future; it is actually more important for those of us who have less disposal income because we need to make the money work harder for us. If you didn’t hear about the last talk in time or couldn’t make it along, I would really encourage you to try it out – it’s free, after all.”

Feedback from the last talk suggested that there were three areas in particular that attendees wanted to hear more about: debt management, wills and pensions. Sue and Sharon have addressed this by arranging three additional talks in this series. The second talk is on the 16^th of March and will cover the subject of wills. Sally Bolton, Principal of Corlett Bolton and Co legal practice, will lead the seminar, which will cover areas such as what your assets are and how to manage distribution via a will. Andrea Tabb will present the third seminar on the 22^nd of March. Andrea is the Advice Centre Manager at the Isle of Man Office of Fair Trading and will outline how to use credit while avoiding debt problems. Finally, Sharon Sutton will provide the last talk of this series on the 6^th of April, on the subject of pensions and how to get the most out of them.

Sharon commented on the new series of talks: “We were very pleased by the success of the last seminar and it is good to see the Isle of Man Government supporting further talks. The feedback from the last event has given us the opportunity to understand more precisely the subjects that people struggle with and we have been able to tailor this series to address some common concerns in greater depth.”

To register for any of the free financial planning talks, call Janet on 664 789.

Make sure you’re getting the right advice

Financial advisers are already subject to tighter regulations following the latest version of the Financial Supervisions Commission’s (FSC) rule book

From end 2012 the Financial Services Authority (FSA) in the UK will require all independent financial advisers (IFAs) to shun commission payments from product providers and rely on fees paid by investors instead and the Isle of Man is likely to follow suit in some way shortly thereafter. The fundamental changes followed an FSA investigation; as outlined in the FSA’s Retail Distribtion Review (RD) Feedback statement issued in November 2008, found that commission payments by insurers, banks and other financial institutions often distorted advice. The FSA’s RDR will also require other changes, such as higher professional qualifications for advisers from end 2013.

To ensure you are receiving the best advice, here are 10 tips to help you;

Hello, stranger! If you are contacted by a financial adviser you dealt with in the past but who has not been in touch for more than a year, you might ask why he or she is so keen to do business now. Much of it will be for good reasons but investors should think about why they suddenly hear from any adviser out of the blue and why haven’t they heard from them for many years?
What’s it going to cost? The amount you pay will depend on your particular needs, however an adviser should be able to provide an estimate of possible costs based on the work to be performed. As part of your financial planning agreement, the financial planner should clearly tell you in writing how they will be paid for the services to be provided. Don’t be afraid to ask whether this is in the form of commission or fees.
Don’t be lazy; apparently simple solutions can prove very expensive. Beware ‘nicely wrapped packages’ which purport to solve all problems; for example, an investment bond may look like a convenient one-stop product which offers easy, simple administration, access to managed funds and can even solve your tax problems and income requirements. An investment bond, however, can be a poor product proffered by an insurance company with little investment expertise, which is not tax efficient (for the onshore version) and can pay the salesperson up to 7 per cent commission.
Refuse to be rushed. If your adviser says he or she needs an answer now, then perhaps the answer should be “no, thank you”. A good tip is that investors should take due diligence. They should take time before buying products. Have a long term strategy and then think how buying products will meet those long term needs.
Require regular advice – and full disclosure. It’s not unreasonable to expect a financial adviser to review your investments and pensions on an ongoing basis and, if so, tell you what incentives he or she is receiving from product providers. For example, a typical trail commission would equal 0.5 per cent of the value of your investments What service are they providing to justify their fees?
What about my existing plans? Ensure your adviser is prepared to look at your existing plans in addition to any new monies to make sure any advice being given is taking into account your entire financial situation and needs. However, also beware changes to portfolios that could incur tax charges or other charges unnecessarily without receiving a written ‘reasons why letter’ first.
What qualifications does your adviser have? You may wish to ask your financial planner if they have a specialized qualification in a particular area that they are advising on, i.e. pensions or long term care. Ask them what steps they take to keep their qualifications up to date with changes and developments in the financial planning field. Whilst exams are no guarantee against bad financial advice, investors may ask advisers whether they have obtained the qualifications which will be required by the FSA after 2012, and the FSC after 2013 (possibly) – or are on track to obtain them.
Beware obfuscation. If you don’t understand what your adviser is saying, tell him or her to try again in plain English. Jargon can obscure some nasty surprises.
If it looks too good to be true, it probably isn’t true. Beware of high allocation products which may look impressive but could be concealing the initial commission. All that happens is the charge is ultimately taken out of the contract over a number of years and back end penalties will apply. Investors should look for a transparent charging structure.
Remember that ‘free’ financial advice can prove very expensive; you generally get what you pay for. Commission-driven advice is by definition not independent. So, if an individual is looking for independent advice, they should be prepared to pay a fee for it. You can avoid commission altogether and opt for time or project charged advice from a highly qualified fee-only adviser.

Sources: Ian Cowie Your Money, http://www.fsa.gov.uk/ http://www.fsa.gov.uk/pages/About/What/rdr/index.shtml http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/139.shtml

http://www.financialplanning.org.uk/pdfs/10Questi.pdf

Sharon Sutton is Managing Director of Thornton Associates Ltd who are Licensed by the Financial Supervision Commission of the Isle of Man. Registered with the Insurance & Pensions Authority in Respect of General Business

Money Matters: Reviewing Your Investments

In my view the worst type of investment advice is delivered once and then abandoned. Excellent investments need frequent reviews. Reviews are the opportunity to reassess your current investment risk attitude, rebalance the asset allocation of your portfolio to manage those risk levels, replace underperforming fund managers and to make sure you remain on track to achieve your goals.

Seeking Advice

Remember, investment advice can only come from a suitably qualified, and authorised individual working for an Isle of Man licence holder, who fully understands your financial goals and objectives before making specific recommendations.

Applying the following due diligence should help you decide what separates good investment advice from the rest.

Do your advisers have a robust investment advice process? Without such a process, the advice you receive will be subject to the whims of your adviser on that particular day. Having such a process reduces the risk that you will be exposed to the latest investment fad, simply because it is new, hip and trendy on the day you seek advice. Receiving investment advice from an adviser working to such a robust advice process does not mean the outcome from the process will be generic or any less valuable. In fact, the outcome from the process should differ for every investor. It is the process itself that should be rigid, to ensure that the way in which investment advice is delivered is entirely consistent.

You need to be satisfied that your investment advisers are fully capable of meeting such requirements. As far as investment skill is concerned a proven ability to work within defined mandates is important, along with demonstrated experience in constructing and managing multi-asset portfolios and the mastery of various investment techniques. Showing a deep understanding of investment risk within different sectors, and having a credible and repeatable investment process are important issues along with an ability to exploit alternative asset classes.

Do your advisers have a written investment philosophy? This should sum up the investment manager’s beliefs about investing money. It is a set of investment rules about which your adviser feels passionately.

There are a confusing number of differing views when it comes to investing money. Some advisers will claim their approaches are superior to others. There are usually strong counter-arguments to every academically ‘proven’ approach towards investing money. What really matters is that your investment adviser has decided themselves which views they subscribe to and they are prepared to share these with you.

Determining your risk level

Getting this right is a very important part of delivering suitable investment advice. Tolerance to risk is very subjective, therefore a thorough assessment is essential, re-done regularly. This means much more than your adviser asking you to point at your risk level on a scale of one to ten; Risk assessment involves a combination of structured questioning and more general discussions about what you are trying to achieve, your past experiences and current views of the world. You may well have a different risk profile for a different financial objective which should be catered for too.

We see many investors coming to us who have been categorised in a narrow and inaccurate risk definition. Once established always ask your adviser to describe your risk profile back to you, to ensure understanding together with a detailed description of your risk profile in writing for future reference.

Gathering information

What resources do your advisers have to enable them to deliver suitable investment advice? We make sure firms are properly resourced because the consistent delivery of excellent investment advice requires substantial resources. We strongly believe it cannot happen as a result of ‘one man’ sitting in his office reading a copy of the FT. They should have investment research software to which they subscribe and are paying for professional research tools and not simply looking at the same data you can get for free online.

There should be others involved behind the scenes in the investment advice process such as investment analysts and you need to understand the nature of their investment committees. You need to know about their experience, qualifications and role in the construction of advice. Anything that impacts upon a company’s stability, such as a takeover or movement of a team, must also be taken into consideration

Diversifying your portfolio

Based on the appropriate risk level being selected it is crucial that a portfolio is considered to be adequately diversified which means being invested in many different types of asset classes. How much diversification your adviser opts for will in turn affect the level of risk and opportunity for return or more notably avoid loss. It is not unheard of for many investors and advisers to concentrate investments in a very small number of holdings or even just one fund. Next time you review your investments ask yourself “am I diversified enough?”.

Gaining regular feedback

Once they deliver investment advice, how do we and they keep it under review to ensure it remains suitable? Choosing a fund manager may be a fairly long process, but keeping a close eye on them to ensure they are delivering what they promised is just as important. The underlying investments themselves should be reviewed and monitored on a daily basis.

Ongoing levels of service must not be overlooked. Regular reporting is very important for private clients. It is the major conduit of communication between a client and their manager, so must be agreed in advance. Reviewing your investments is a continuous cycle of looking at your investment objectives, the appropriateness of the risk profile and how the money is being run.

See www.thorntonfs.com or follow Sharon on twitter @sharonsutton99

Sources; Informed Choice Ltd, New Model Adviser

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