Why you are an investor – 7 things to remember

1. The current crisis (however you define it) is temporary, crises always are. Whether Greece remains within the Eurozone, whether the Euro survives, whoever is elected or re-elected in the USA, whatever the upshot of the Arab Spring, these matters will be resolved and largely forgotten by newspapers/broadcasters within a relatively short period of time. Most are political and politicians are always working the shortest of short-term horizons. You are an investor because you have a long-term outlook and a long-term investment horizon.

2. Whatever is being predicted currently will be wrong. Human beings just aren’t very good at predicting the future and nobody, but nobody, has a consistent track record in doing so. The smartest gurus make large numbers of predictions, hedged interminably, so that whatever happens they have some way of retrospectively presenting it as correct. Think Nostradamus. His predictions can be read and interpreted in any way that suits the reader to fit any event in history. As an investor you know the future is uncertain and that is why you are paid a premium to be an investor.

3. It is never different this time. Human nature doesn’t change; people make things or serve others adding value along the way and exchange their skills, products and services, by way of money, for the skills, products and services of others, at a profit. While this continues to be the way of things markets will provide capital to businesses and those businesses will pay dividends to shareholders. The world will grow wealthier and so you, as an investor, will grow wealthier also.

4. Newspapers, broadcasters, commentators and all other components of the mass media have no interest in good news and will continue to disseminate bad news for the simple reason that human beings enjoy hearing it. This is no place for an analysis of why, but, as an investor, it is almost your duty to ignore the media, where very little of any practical use is ever found, particularly for investors.

5. The business of doing business is doing well. Those businesses which have come through the credit crunch of 2008 are strong and well capitalised; US and UK companies have more cash on their balance sheets than ever and there are strong signs that they are reinvesting both organically and by acquisition. You invest in businesses.

6. Markets work. Risk and reward are related. Without risk there is no reward. You are an investor because you understand this relationship and know that it works.

7. These are the times when you get paid. Anyone can invest in good times (and many do) and many ill informed investors leave markets when times are tough. As an investor, you are handsomely rewarded for the periods of time when being an investor can be uncomfortable. You are an investor because these periods of time occur, not despite them.

Where there’s a will…

 Part of the watching brief we keep for clients is to keep up-to-date with the work of other professionals, so that we can advise appropriately. Speaking to  a private client lawyer recently, it became apparent that his firm had dealt with a number of disputed estates over the past few months. You might expect that some of these cases involve those with no Will and you would be right, but a surprising number of Wills are challenged by distant relatives, ex spouses, those claiming dependency or those who feel a promise made during the deceased’s lifetime has not been kept. Lawyers refer to these cases as “Contentious Probate” and it would appear they are on the increase.

Whilst we advise always making a will, there are steps you can take to ensure that “Contentious Probate” will not affect how your assets are distributed among your loved ones: –

• A letter of wishes can give voice to your preferences, where there is room for doubt.
• If there is a possibility of dispute, then setting out the reasoning behind your bequests will be a great help.
• Reviewing your Will regularly with your lawyer, to take account of any changes in the law or your own circumstances.
• Discussing with your family how your estate is to be distributed on your death, so that there are no surprises.
• Appointing at least one executor who will have a great deal of knowledge about you, your wishes and preferences.

Whilst few of us wish to actively contemplate our own mortality, paying attention to the above and taking these common sense steps may well save time and anxiety for your beneficiaries.

Survival of the Fittest?

Below is a diagram representing the “evolution” of financial advice.

The flowchart above left represents the current situation for many of the clients of advisers. A product is manufactured, loaded with commission to incentivise the salesperson (variously referred to as a planner, adviser etc); the salesperson then finds a customer and shoehorns the customer into the product.

The chart above right represents best practice all over the world and is soon to be imposed in the UK when everything changes for advisers and clients on 1 January 2013. We have been fee advisers for many years and this chart represents our working practice; fees are agreed between client and adviser and the adviser then sources independent investment solutions, which expose the client to suitable asset classes for their investments.

The attached document (click here) tells the story of an adviser working under the “old model” and demonstrates the pitfalls for clients and adviser of that process. Not only could the adviser not develop her own strategies, she consulted a manufacturer for a product which turned out to be totally unsuitable and pinned this product on the clients. In this case the manufacturer (Zurich) shared the subsequent liability for the unsuitability, but all parties have suffered, due to the inherent weaknesses of a system which does not put the client first.

Index exceeds the reaches of international financial planning best practice

At Index, we are always looking for ways to test our systems and processes to ensure we are providing the best possible service to our clients. As well as being Chartered Financial Planners and an IFP Accredited Financial Planning firm, we are tested annually by certification body Standards International.

Standards International provide an internationally agreed benchmark for a global standard of financial advice. Our systems are rigorously tested over a two day period against the international benchmarks and we are provided with a gap analysis giving us ideas and observations for improvement. At this year’s assessment, the certification was met without any gaps or observations for improvements, which is an incredible achievement.

Michelle Hoskins at Standards International comments:

“It was a pleasure to award Noel Farrelly and Les Phillips of Index Wealth Management their ISO 22222 certificates. They both achieved ISO 22222 certification without any minor non-conformities or observations for improvement. Assessment outcomes like this are very rare and only come after a huge amount of thought and effort has been put into creating a management framework which truly exceeds the reaches of international financial planning best practice.”

Despite our achievement, this is no time to rest on our laurels. We want to continue to demonstrate our commitment and dedication to clients, ethical good practice and professional development. We will constantly review and improve our services so you can be confident that you are dealing with one of the UK’s leading firms that is wholly committed to providing you with the best possible advice, service & support.

First to set standards – yet again!

We are delighted to announce that we have been awarded the Accredited Financial Planning Firm™ status by the IFP (Institute of Financial Planning).

This accreditation is only awarded to firms who have been assessed by the IFP as demonstrating the highest professional standards of financial planning service and advice.

This title, which has only been awarded to 25 financial planning firms to date, is recognition of our commitment to developing and maintaining the knowledge and capability of our people so we can deliver the highest quality advice to you, our clients.

Why should you use an IFP Accredited Financial Planning Firm™?

• As an accredited firm, we must follow a demanding code of ethical practice
• We work in a principled manner that places our clients interest at the heart of our advice
• We demonstrate a clear charging structure
• We have a clearly defined investment process
• We have efficient systems and processes
• We show commitment to the ongoing professional development of our staff
• Our overwhelming priority is to provide the best possible service to clients. This simple ambition drives everything we do.

Both Directors Noel Farrelly and Les Phillips hold the Certified Financial Planner (CFP^CM) certification, the only globally recognised mark of excellence in financial planning.

What the IFP says…

“When looking for professional financial planning firms in the UK, consumers should look for Accredited Financial Planning Firms as the hallmark of quality, and to find the services of CERTIFIED FINANCIAL PLANNER^CM  professionals, the only globally recognised standard of professionalism for Financial Planners. When seeking objective, expert and trusted financial planning advice, consumers should always look for the CFP mark.”

Something ventured – nothing gained

Venture capital trusts can currently take investments of up to £200,000 and the investor will receive tax relief at 30%, with a five-year holding period required if you are to avoid tax clawback. In these days of 50% tax rates, many beleaguered taxpayers will find them an attractive home for some of their spare capital. Returns are usually made between the 5th and 10th year, often in the form of tax-free dividends paid over a period of time. Returns are free of capital gains tax and income tax.

A recent piece of research, however, of 91 funds found that there is a good reason for these tax reliefs, the major one being that the average performance of the funds was a loss of 8% and fully 70% of venture capital trust managers fail to make money for their customers. Given that we are operating in an area where very small companies are selected for investment perhaps these results are not surprising, but they are another example of why the tax tail should not be allowed to wag the investment dog. The results gel with a piece of research in the US which suggests that venture capital investors rarely make money, even taking into account the tax reliefs.

Anecdotal evidence suggests that where the investor can take a “hands-on” approach and introduces potential advisers and customers there is a great deal more opportunity for returns. If this sounds more like working than investing you are right and it also means that your investment, rather than being spread (which doesn’t appear to do much good) is more of a rifle shot, the other side of the coin being that there is more potential for losing your money.

Our conclusion is that venture capital trusts cannot make a case for inclusion in investor portfolios, but an eyes open approach to “Angel” investments may be more satisfying.

How much is enough?

According to the introduction of John Bogle’s latest book, “Enough”, Kurt Vonnegut, the American novelist, attended a party with his friend and fellow novelist, Joseph Heller; the party was given by a billionaire hedge fund manager.  At some point during the party,  Vonnegut informed Heller that the hedge fund manager had made more money in a single day than Heller had earned from his hugely popular novel, Catch-22, over its whole history.

Heller’s response?

“Yes, but I have something he will never have………….. enough.”

Isn’t it an interesting concept, enough? Joseph Heller was certain he had enough, although we are not told how he knew that.  It raises some  interesting questions.  The most basic question many of us have is, “will the  money run out before I do?” Can I afford the world cruise? The long haul holiday  for all of the family? n The holiday home we have always wanted?  The yacht I have longed for?  If we are contemplating a deal which will bring us capital, will this deal be the only one required to fund financial      independence? Additionally, we might be interested to know whether we have more than enough and what the  surplus might fund; can I help my children with house  purchase or grandchildren with education costs?

All these questions and more can be answered if you know your Magic Number.

Your Magic Number is made up of many factors, but answers the very basic question of how much capital you will need to fund your and your family’s lifestyle for the rest of your life. Many of these factors are mundane, such as inflation, returns, basic family expenditure, but the process of discovering your Magic Number is extremely exciting.  It answers all of the questions  posed     above and more, but much more importantly once you know you have  enough, you have the invaluable gift of peace of mind.

If you don’t know your Magic Number make it your mission in life to find out as soon as possible.  Having enough is better than wanting to have it all.

Spend more… worry less

It would be natural for people to believe that the main object of financial planning is to help people save and invest, but we believe something quite different.

Saving and investing are extremely important, of course, and we would never minimise their importance; without setting money aside, one way or the other, you will not have the “core capital” you require to provide quality income for you and your family now and in the future. We have observed, however, over the years that our clients get wealthier as they get older; this is almost inevitable, with rising asset values. The other factor at work is that those who build their wealth grow into a lifestyle with which they are very satisfied. This means you are in danger of leaving a huge chunk of your wealth to the taxman.

The vast majority of our clients are those who have accumulated capital, often by selling a business, and who need help identifying their Magic Number. An integral part of identifying the Magic Number™ is to build an expenditure programme. There are many ways of going about this, such as a round figure approach, best guess, analysing credit card statements etc but it really becomes fun when you start to include those things you would really like to do.

We find these often include fabulous or exotic holidays with the family or
close friends, weekends away in foreign cities, making gifts to children or
grandchildren that really make a difference, attending a course on a subject you’ve always really been interested in, but never followed up, etc etc. The key here is to find really memorable experiences that mean something to you personally and will give you great memories.

Modern financial planning tools allow you to build in all of these things and more to identify that they are (usually easily) affordable. The next step is to involve the people you love and make the arrangements! Cue happy memories – beyond price.