Tag

Financial Management

Apr 15
0

A ‘set-and-forget’ investment approach? Absolutely not!

By | News & Views | No Comments

Wells Gibson’s systematic, evidence-based approach to investing often results in very little activity in our clients’ portfolios.  However, it would be wrong to think that this is the result of a ‘set-and-forget’strategy and the Wells Gibson Investment Committee would refute such a suggestion.  Considerable effort goes on behind the scenes to allow this state of calm consistency to exist.  The fortitude and discipline to deliver ‘not much needs to be done to your portfolio except for rebalancing’advice, comes from a rigorous process of ongoing challenge to the status quo.

The broad terms of reference of the Wells Gibson Investment Committee are set out below:

Manage risks over time

  • The Wells Gibson Investment Committee is responsible for the oversight of the risk in portfolios and the wider investment process.Meetings are regular and minutes are taken, which include all action points to be followed up on. Third-party inputs and guest members – such as Albion Strategic Consulting – provide independent insight and challenge.

 Challenge the process

  • The investment process at Wells Gibson is driven by the latest empirical evidence and theory available. It is always open to challenge.  If new evidence suggests that doing things differently would be in our clients’ best interests, then we will revise our approach.  The investment process is evolutionary, but change is most likely to be slow and incremental.

Review the portfolio structure

  • The underlying characteristics of Wells Gibson’s client portfolios are reviewed, including performance and risk level attributes. Risks (asset class exposures) and their allocations within a portfolio are evaluated. Any issues are raised and resolved. Existing asset classes are reviewed alongside asset classes and risk factors that currently sit outside the portfolios.  Areas of interest are placed on a longer-term ‘watch’ list.

Review the current ‘best-in-class’ investment funds

  • The current funds are ‘best-in-class’ choices seeking to deliver the returns due to investors for taking specific market risks.Each fund has a role to play in a portfolio and its ability to deliver against this objective is regularly reviewed. Any fund-related issues are raised and resolved.

Screen for new funds and undertake appropriate due diligence

  • Although the current funds were recommended as ‘best-in-class’, new funds are regularly being launched. Tough screening criteria are in place against which new funds are judged.  New, potential ‘best-in-class’ funds face detailed due diligence and approval. They are included only when they make the grade.  Given the quality of the funds already in portfolios, the threshold for replacement is high, but not impossible for newer funds.

Reaffirm or revise the investment process

  • The Wells Gibson Investment Committee is accountable for reaffirming or revising the structure of client portfolios. Risk (asset) allocations and fund changes are approved by the Investment Committee.Any actions arising from portfolio revisions will be undertaken, after discussion with and agreement by clients.

The next time you open your latest valuation report, remember that despite the lack of activity on the surface, the Wells Gibson Investment Committee continues to paddle furiously behind the scenes to allow this be the case.

In the immortal words of the investment legend and author Charles Ellis, “In investing, activity is almost always in surplus.”  However, perhaps we should amend this slightly to, “In investing, activity is – except for the Investment Committee – almost always in surplus.’

Jan 09
0

Transferring an unused inheritance tax nil-rate band

By | News & Views | No Comments

When it comes to inheritance tax (IHT) planning, one question we are often asked is, how to transfer any unused nil-rate band (NRB). Since 9th October 2007, it’s been possible to transfer any unused percentage of the NRB from a deceased spouse or civil partner to the surviving spouse or civil partner.

This transferable NRB is available to survivors of a marriage who die on or after 9th October 2007, regardless of when the first spouse died. In the case of civil partners, the rules are slightly different, and the first death must have taken place on or after 5th December 2005. This was the date when the Civil Partnerships Act received Royal assent in the UK.

If the first death in a marriage or civil partnership happens after the couple are divorced, then no transferable NRB is available. If the first death happened before 13th November 1974, then the full NRB might not be transferable. This is because the amount of the spouse exemption was limited before 1975.

The transferable NRB isn’t automatically applied, so it needs to be claimed. The time to claim is following the second death, not when the first spouse or civil partner dies. Claims are made using the HM Revenue & Customs form IHT402. There is a time limit for claiming the transferable NRB, which is generally two years from the end of the month in which the second spouse or civil partner died.

In order to claim, the executors or personal representatives will need to send form IHT402 and any supporting documents to HM Revenue & Customs. HM Revenue & Customs offer the following example to illustrate how the transferable NRB works in practice:

A spouse died when the threshold was £250,000. They left legacies totaling £125,000 to their children with the remainder to the surviving spouse or civil partner. The legacies to the children would use 50% of the threshold, leaving the other 50% unused.

On the death of the surviving spouse, when the threshold is £325,000, this would be increased by 50% to £487,500. If the surviving spouse’s estate isn’t worth more than £487,500 there’ll be no IHT to pay on their death. If it is, there’ll be IHT to pay on the value above that figure.

Introduced in April, the new residence nil rate band (RNRB) can also be transferred between spouses and civil partners. The unused percentage of the RNRB from the estate of the first spouse or civil partner to die can be claimed following the second death. Unlike transferring the unused NRB, with the RNRB, the transfer can take place regardless of when the first death happened. In fact, the unused percentage of the RNRB can be used even if no residential property was owned at their time of death.

There will always be an additional 100% RNRB, with the exception of cases where the first spouse or civil partner’s estate was valued at more than £2million.

One last thing, it’s been said that the happiest mourner at a rich person’s funeral is the Chancellor of Exchequer, so please don’t hesitate to contact Wells Gibson if you are concerned what impact inheritance tax might have on your own estate and wealth transfer plans.

Nov 14
0

State pension age equalisation is here

By | News & Views | No Comments

State pension age equalisation has taken place in the UK.

The gradual change now means that women qualify for their state pension from age 65, the same age as men.

State pension equalisation has taken a long time, 25 years in fact.  During that time, the age rise for women was gradually phased in, with women celebrating their 65th birthday on 6th November 2018 the first to qualify for a state pension at the same age as men.   Despite equal ages for state pensions, equality of retirement income remains a long way off.  Maike Currie, Investment Director at Fidelity International said:

“The pension system is relatively equal if people follow the same working pattern from age 20 to retirement, but they don’t.  Women are more likely to have fragmented careers, be self-employed or work flexibly during their working life as they continue to bear the brunt of the childcare or take a career break to care for sick or elderly relatives.

“Of course, these factors are increasingly affecting men too, however, the average women’s pension pot is already much lower than the average man’s so women need to have the ability to catch up. As the Cridland report pointed out, in the first year of retirement women are expected to have 25% less income than their male counterparts.”

The final report from the Cridland Review was published last year and made a number of recommendations in respect of the state pension.  Report author John Cridland, a business executive, proposed an accelerated increase in the state pension age.  It is already due to rise to age 68 between 2044 and 2046, having an impact on those born after 5th April 1977.  Cridland wants to see the state pension age rise to 68 between 2037 and 2039, bringing this increase forward by seven years.  As a result, anyone born after 5thApril 1970 would have a higher state pension age.

Further rises in the state pension age seem unavoidable in light of improving life expectancy.  Without a higher state pension age, people living for longer would make the state pension unaffordable for the taxpayer.

The Cridland Review also recommended abolishing the ‘triple lock’ for increasing state pension payments each year.  This currently gives state pensioners a degree of protection from price inflation, with their state pension income rising each year in line with the greater of average earnings, price inflation or 2.5%. Instead of having this triple lock in place, John Cridland proposed that state pensions in the future rise in line with average earnings.

One group who are unhappy with the equalisation of state pension ages for men and women are 1950s born women represented by the Women Against State Pension Age Inequality (WASPI) campaign group.  They are arguing for government compensation after claiming to be unaware their state pension age would rise, as the government did not routinely write to women to let them know about the change.

Your state pension is likely to form an important part of your total income in retirement.  It’s important to understand when you will start to receive a state pension income and how much this is likely to be.  A good place to start is requesting a free state pension forecast at gov.uk/check-state-pension and then speaking to your financial planner to incorporate these figures within your overall plan for retirement income.

Jul 10
0

Three steps towards a more financially organised life

By | News & Views | No Comments

Are you managing your finances or are your finances managing you?

We’ve all got money, but how much we have is dependent on the work we do or did and the life we lead. Furthermore, managing our finances and staying organised can be a real challenge for most people.  We’re not always taught how to be financially well organised as part of our education, so a lot of us have had to figure it out as we go.

At Wells Gibson we want all of our clients to be better organised financially so we’re going to look at a few steps to help you achieve this.

Budgeting

Your biggest and perhaps best step to a financially organised lifestyle is learning how to budget effectively.  A budget is something that everyone needs as it helps to allocate funds to particular areas of your life; household bills, social events, debt repayment… they all need to be taken into consideration when it comes to you and your life.

By having a budget, you help to ensure that no matter what happens, you’re taking the time to plan out what you spend and when.

Have An Emergency Fund

You never know when a disaster will strike.  Something can easily occur which will require a lot of money.  Your car might break down, or you might find that something in the home needs to be replaced.  When this happens, it’s important to have an emergency fund, so that if you need to, you can pay for things without upsetting your main finances.

An emergency fund gives you peace of mind, stops you relying on family or friends and doesn’t leave you relying on your main finances to desperately find the money you need.

Consolidate Your Debt

Do you have a lot of debts scattered about?  Most people do.

With various loans and new items available on credit from companies, a lot of people balance multiple loans, all of which come from different places.  However, that’s a chaotic and stressful way to track them.

If you can consolidate your debt, it’s well within your interest to do so.  Consolidation means that all the money you owe to various places is condensed down into one place, which means it’s so much easier to keep track of what you’re paying, when you’re paying it, and most importantly who you’re paying to.

Overall, these are just a few of the steps that you can take to ensure that you are working towards a financially organised life.  It’s difficult at first and we appreciate that people aren’t always conservative with their funding or forward thinking with debt.

It’s so worthwhile trying to make sure you are better organised financially as you’ll soon discover that it’s so much less hassle, and also much easier to keep track of everything.  Better still, you will probably be less anxious about tomorrow.