Newsletter January 2012

Update – what’s happening over there and in the Isle of Man

EIS and VCT

In the UK the Chancellor’s Autumn Statement contained few surprises, the main exception being changes in the rules affecting Enterprise Investment Schemes (‘EIS’) and their collective investment variant, the Venture Capital Trust (‘VCT’).

EIS were introduced in 1994 and VCTs in 1995, both with the intention of encouraging investment in small companies by offering tax concessions. EIS invest in single companies which satisfy certain criteria and VCTs in portfolios of qualifying businesses. Up to £500,000 can be invested annually via EIS, and £200,000 via VCTs; and both schemes offer up-front income tax relief of 30%. In addition, EIS provide exemption from capital gains tax if held for at least three years, and VCTs for five years.

The first change announced in the Chancellor’s statement is that the investment limit for EIS is to be increased to £1 million p.a.. The second is that restrictions on the size of companies in which the schemes can invest are being relaxed to include companies with assets up to £15 million and up to 250 employees.

The major surprise in the Autumn statement is that a new ‘Seed EIS’ (‘SEIS’) is to be introduced to encourage investment in start-up businesses. A major accountancy firm described as “astonishing” the fact that SEIS will provide 50% income tax relief in the tax year 2012/13 on investments up to £100,000 even if investors’ own tax rate is lower than 50%. In addition, if the investment is made from gains made from the sale of other assets in the same tax year, these gains will be exempt from capital gains tax.

As a result, every £1 invested in SEIS will cost the investor only 50p. In fact, the total relief will amount to 78% if gains are reinvested and account is taken of the 28% saving in CGT.

However, the benefits of SEIS could be outweighed by the very high risk of investing in start-ups, and the difficulty in conducting due diligence suggests that it is unlikely that SEIS will be available as a retail product. Investment is likely to be confined to entrepreneurs’ friends and families.

Pensions and tax

It had been suggested that the UK Chancellor might withdraw some of the tax benefits of pension saving, notably the availability of tax-free cash (usually 25% of the value of the fund) and higher rate tax relief on contributions. In the event these fears proved unfounded, but they serve as a reminder to higher rate taxpayers to take advantage of the current concessions while they last.

There were, however, other developments on the pensions front.
The State pension age is to be increased from 66 to 67 from 2026, eight years sooner than originally planned. This may cause some people to consider working longer or saving more, but one benefit is that retirees who have not yet accrued their maximum benefit entitlement will have a chance to top-up their National Insurance contributions. We understand this will also apply in the Isle of Man.

In the UK firms with fewer than 50 employees which do not have a comparable staff pension scheme in place will be required to introduce NEST (the National Employment Savings Trust) and the operative date had been set at April 2014. However, recognising the financial burden that compulsory contributions will place on such firms, the Government has announced that the operative date is to be deferred until May 2015. Larger employers are already instructing financial advisers to provide staff briefings and advice.

We see IOM government giving consideration to NEST or similar at some point in the next few years as pressure continues to be applied to Manx budgets and people are expected to save more for their own retirements rather than falling back on the state.

On the tax front, the annual UK capital gains tax allowance has been frozen at its present level of £10,600 for 2012/13. Finally and as an aside, we see the IOM review on the taxation of investments being a way by which the tax office may be able to apply capital gains tax in all but name. Watch this space.

Junior ISAs

In the UK, Junior ISAs have been available since November 2011, when they replaced Child Trust Funds. Family and friends can contribute up to £3,600 a year into either cash or stock and shares accounts, and from April 2013 the annual investment limit will increase in line with the consumer price index.

Accounts can be established for any UK resident under the age of 18, but no withdrawals can be made before the child’s 18th birthday, except in the case of terminal illness or death. When the age of 18 is reached, the Junior ISA will be converted automatically into an adult ISA.

Any method of encouraging children and young people to save, and being introduced to the concept of credit being the last rather than first resort, is to be welcomed. The lack of such options being available locally is something we hope government will consider.

Deferring annuity purchase

The income available to purchasers of retirement annuities has fallen by around 20% over the past three years and now stands at historically low levels. Consequently, many retirees are asking whether it would make sense to delay annuity purchase until rates might improve

There is a good chance that the yield on gilt-edged securities, which are the main influence on annuity rates, will rise from current levels in the foreseeable future. It is also a given that annuity rates will rise with increasing age, as also will the likelihood of declining health qualifying the annuitant for the improved rates available from an enhanced or impaired life annuities.

However, it’s not a one-way bet. Every year’s deferral is a year’s annuity income lost. And with every passing year, the period between payments starting and the reaper coming to call gets shorter.

The answer is likely to be different for each individual, but a good way for investors with larger pension pots to hedge their bets would be to phase annuity purchases over a number of years.

January 2012

No responsibility can be accepted for the accuracy of the information in this newsletter and no action should be taken in reliance on it without advice. Please remember that past performance is not necessarily a guide to future returns.
The value of units and the income from them may fall, as well as rise. Investors may not get back the amount originally invested.

Latest chance for IFA’s to keep their knowledge up to date in the Isle of Man

It’s 2 years countdown to RDR deadline in the Isle of Man for all financial advisers to reach a level 4 qualification and satisfy all the learning outcome ‘gap’ requirements and only 12 months for UK advisers. Significant ‘gap fill’ may also be required if qualifications were completed some time ago due to the pace of change in the financial services sector.
With this in mind the first of the PFS Regional Conferences is being held on Wednesday 18th January, 9am at the Claremont hotel followed by Investment Principles & Risk: Gap Fill: TBC 59-65 which is being delivered by David Brown of Jupiter during the afternoon.
Specialist sessions include ‘Economic Crisis and Investment Opportunities’ and ‘Risk profiling investment advice’ and are delivered by visiting speakers engaged and funded by the PFS
To register for either or both events visit www.thepfs.org Admission is free to members, of which there are over 130 in the Isle of Man.

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

MNA Fraser Simpson (International)

We understand that MNA Fraser Simpson (International) Limited has recently written to its clients around the world to advise that they are closing to new business on 30.06.2011 and are taking steps to surrender their Isle of Man investment license. Upon receiving this news one of their clients contacted us to request we take over as their offshore independent financial adviser. The IOMFSC website does not yet confirm this news and they were unable to comment when we rang them today (06.07.2011).

Thornton Associates Ltd are the first firm of Chartered Financial Planners in the Isle of Man with years of experience in looking after and advising British Expatriate clients from an offshore base.

If you are a client of MNAFS and require a relationship with a strong, well established and quality firm of licensed Independent Financial Advisers (IFA’s) with a demonstrable commitment to providing a reliable and ongoing service from a well regulated base such as the Isle of Man, we would be pleased to assist with your financial planning, now and in the future.

To find out more about Thornton Associates Ltd (TAL) and how we work visit our website on www.thorntonfs.com

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.

Space talk marks new Presidency for Chartered Insurance Institute

The Isle of Man Insurance & Financial Services Institute (The local branch of the CII and Personal Finance Society, PFS) recently hosted a talk on ‘Ensuring Space’ by Tim Wakeman, Executive Vice President of Aon International Space Brokers. The talk followed the Institute’s Annual General Meeting during which Sharon Sutton of Thornton Associates became the new President of CII.

Sharon Sutton, who is preceded by Nick Boon of Gough & Co., will take up the presidency for a year, which involves assuming responsibility for a number of CII events and activities. Sharon commented, “I am excited about taking on this new role for the year ahead. As a Chartered Financial Planner, being President gives me an opportunity to pass on my experience and knowledge in the sector. The CII local council is made up of a motivated group of industry professionals and we will continue to drive up awareness of the relevance of the CII and its extended family (Financial Service, General, Captive Insurers, Life Companies etc.), supporting our members to increase and maintain their professional standards. We very much embrace the challenges ahead to lead the financial services community towards higher levels of professionalism through a wide programme of activities. We believe professionalism means ethical and behavioural standards, interpersonal and business skills and technical knowledge. This will lead to the ultimate benefit of the profession and consumer alike.”

The event’s speaker, Tim Wakeman is a space insurance broker responsible for the placement and servicing of insurance programs for a large number of customers. He has 28 years of experience in the industry and has worked in the field of space risk for over 10 years. Tim gave an introduction to the space insurance industry and talked about its capacity and future trends. He commented: “Space is an area that has appeal to most people. However, many don’t realise the lengthy assessment of risk that goes on behind each satellite launch and space mission. The Isle of Man has shown focused attention on its space industry and promoted itself as a centre of excellence. A great deal of the work that is done here contributes to space development on a global scale.”

Sharon continued: “It is a pleasure to have someone of Tim’s calibre speaking on a subject that many of us know little about. However, space has been a relevant topic in the Isle of Man recently and we can all gain from some more in depth knowledge on the subject. His presentation highlighted the importance of the UK insurance markets being, globally, the largest player in insuring space”

The Isle of Man CII hosts regular industry events, training seminars and social activities for its members. For more information visit http://www.cii.co.uk/cii/localandglobal.aspx

Boiler Room Scams – preying on pride

28th March, 2011

A phonecall today prompted me to update and republish this article. If you’re contacted out of the blue purporting to offer some wonderful investment opportunity, for goodness sake, get advice locally from a licensed qualified adviser

Boiler room scams continue unabated, and Iocal residents continue to be victimised. The Isle of Man Constabulary recently recorded the second £1million loss suffered by a victim of this crime.

The following is a generic typology of the modus operandii employed by boiler room fraudsters, which may assist the finance industry in recognising potential victims.

A ‘boiler room’ is a bogus stockbroking company, usually based overseas, which cold-calls investors and pressures them into buying worthless or bogus shares, or even old shares they might have with the promise of participation in a hostile takeover bid for the shares they already own. This latter case had pressurised the individual concerned into signing a ‘non-disclosure agreement’ (NCD) which prevented him from feeling able to seek advice earlier – they were actually preying on his pride. This horror story meant £50,000 had already been sent with a further £50,000 promised and he had only contacted us to check the bank weren’t acting strangely in refusing to send a second sum to an international escrow account!

Historically, older people with previous experience of investments or share dealing are targeted. Typical local losses average around £40,000, but are increasing rapidly and when you see the extent to which these criminals will go to with false websites and bogus due diligence you will see how easy it can be to be lulled into a false sense of security.

In the current economic climate, boiler rooms are starting to target high net worth victims or those who are not experienced investors, the latter initially being asked for smaller sums of money to invest. Many victims participate seeking to supplement their pensions with interest rates remaining a record lows.

Those operating the boiler rooms have developed new strategies to target investors, such as a promise to recover monies lost to the original boiler room, or to purchase these worthless or bogus shares, once an up-front fee has been paid. In addition, investors are being encouraged to sell previously highly regarded ‘blue chip’ company shares, such as banks and financial institutions and to invest in green or new technology shares marketed by the boiler rooms, or even to take out loans to fund new investments, like warrants, possibly even in company shares they already own.

The fraudsters are usually well spoken and knowledgeable. They are also very persistent and may groom their victims for several years beforehand. They might call their victim several times with offers of research, discounts on stocks in small overseas companies, or shares in a firm that is about to float. They warn them to guard the information jealously as otherwise they may miss out. Boiler rooms make their money in one of two ways: by simply taking money and walking away, or selling ”shares” at vastly inflated prices and with exorbitant dealing charges.

Most victims purchase their “shares” by telegraphic transfer, with smaller amounts being paid by same day money transfer (Western Union, Moneygram etc). Where banks are utilised, it is evident in most cases that the victim has not sent money by this method before. Fraudsters also coach the victim in what to say to bank staff if challenged over transferring large sums of money. Generally, most payments are made to accounts in Spain and the USA but other jurisdictions, particularly in the Far East eg Hong Kong, also feature prominently. There are no known cases where the victim has sent money to the same country that the “broker” or “shares” purport to be in.

If the investor has access to the Internet, they may be directed to websites to monitor the share’s impressive performance, not realising the entire site is controlled by fraudsters. Soaring share prices often induce the investor to increase their holding. Often, when the investor attempts to sell their holding, the fraudster encourages them to reinvest their “profits” in another red hot share, and then introduces a minimum investment sum which is greater than the profit figure, so if the investor wishes to participate they are required to send more money.

If the investor insists on selling, they will then realise their shares are “restricted” – it sometimes states this on the share certificate, if the investor has one. The fraudster will demand fees upfront to de-restrict the shares and once the investor has paid these fees the fraudster disappears. It is during the selling process that victims usually realise they have been scammed. Intelligence suggests most boiler rooms operate from virtual office accommodation using virtual telephone numbers etc which are untraceable.

The IOM FSC Financial Crimes Unit kindly requests that any person identified as a boiler room scam victim or potential victim, be furnished with a copy of this Advisory Notice and advised to seek independent financial advice. In blatant cases of deception, victims should be encouraged to consider reporting the matter to police.

Victims of boiler room scams are not likely to see their money again, mainly due to the length of time which elapses between them investing and realising they have been defrauded.

Stocks and shares and other such investments should only ever be purchased from locally licensed stockbrokers, and not from strangers who cold-call them at home. If in doubt consult an impartial and well qualified financial adviser; someone who is responsible (and insured) for the advice given. Please do note that if you are cold called, this is against the rules. Do not use a firm or individual who is not authorised in the Isle of Man or the UK; you’re just asking for trouble.

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

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

Cheer for financial advisers

A FULL and varied programme of Continuing Professional Development was on offer at the Personal Finance Society’s (PFS) recent Isle of Man event held at the Claremont Hotel, Douglas,sponsored by Prudential and M&G Investments.

The PFS are the financial advisory arm of the Chartered Insurance Institute which is the largest professional body of its kind with over 27500 members across the British Isles,.

Attended by nearly 50 delegates from the Isle of Man’s leading financial adviser firms, Roger Nelson from the CII delivered an eagerly anticipated explanation of the new Retail Distribution Review’s (RDR) qualification requirement, what the CII’s new Regulated Diploma in Financial Planning looks like and how to Gap fill existing qualifications in time for the deadline at the end of 2012.

Graeme Abell and Chris Elliott from co-sponsors M&G provided an educating and entertaining presentation on just why clients need financial advice from well qualified professional now more than ever with interest rates having ‘fallen off a cliff’ and going back up again at no point in the near future. Graeme said; ‘Diversification is the only way to insure against volatility in your portfolio.’

Paul Fidell from Prudential had thoroughly ‘Isle of Man-ified’ his piece on ‘The changing climate of investment advice, UK regulatory changes and their potential impact on the Isle of Man.’

He was ably followed by regular PFS presenter, Alan Downing working through a superbly structured case study on Pensions and Divorce; a complex area of advice and demonstrating where suitably qualified financial planners should be working with advocates to provide suitable outcomes especially where a final salary (defined benefit) pension scheme is part of the marital assets.

The PFS annual conference and annual Chartered Awards was held at Warwick University last week and attended by a number of delegates from the Isle of Man including Thornton Associates Ltd, Friends Provident International and Blackrock and entitled a Golden Future for Financial Planning. The Isle of Man was given special mention in Fay Goddard’s (PFS CEO) speech as progressing well on a pilot scheme to become its own region following the success of the events held here this year.
Certainly the range of advisers attending has been well above their expectations and above the national average since the alternatives prior to this were the Liverpool or Manchester PFS Regions.

An additional point of cheer for IFAs has been the IOM Financial Ombudsman’s annual report out this week showing that only four per cent of total complaints are against investment advisers with 83 per cent of the total complaints made to the Ombudsman attributable to banks and insurance companies.

The trend has been similar over the last three years but it is particularly gratifying given the ongoing uncertainty in investment markets where complaints typically arise.

Whether this trend continues remains to be seen but it must be encouraging for the general public at large to see so many advisers looking to upskill their professional qualifications in time for the RDR deadline and not rest on their laurels.

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