Tag

Protecting Investments

Six warning signs of an investment scam

By | News & Views | No Comments

It can be a dangerous world when it comes to our personal finances.  Sadly, scammers and fraudsters are widespread, always looking for their next unsuspecting victim.

New figures highlighted by the Financial Conduct Authority (FCA) show nearly £200 million was lost to reported investment scams last year.  The average victim lost £29,000 in 2018, with common scams reported involving investments in shares and bonds, foreign currency exchange trading (forex) and cryptocurrencies.

The data comes from Action Fraud, which revealed more than £197 million of reported investment scam losses last year.  They also pointed out that scammers are resorting to increasingly sophisticated tactics in order to persuade their victims to give up their cash.

According to the FCA and data from their call centre, it’s investments from unregulated firms that are most commonly reported as scams. These include investments in shares and bonds, forex and cryptocurrencies, all from firms that are not FCA authorised.  These investment scams represent 85% of all suspected investment scams reported last year.

With the first quarter of the year considered to be a peak season for investing, with end of the tax year approaching, investors are being warned to be particularly vigilant.  The FCA warned that the profile of investment scams is changing, with more of these taking place online.  It means scammers are increasingly moving away from traditional cold calling on the telephone to find victims, although this approach does continue to exist.

Fraudsters are now contacting people through emails, professional looking websites, and social media channels, including Facebook and Instagram.

Research carried out by the FCA found that, last year, more than half of potential fraud victims did the right thing by checking first with the FCA Warnings List at www.fca.org.uk/scamsmart/warning-list.  This is a tool that helps users to find out more about the risks associated with an investment and search a list of firms the FCA knows are operating without its authorisation.

The FCA is urging investors to consider the following six warning signs when making investment decisions:

  1. Unexpected contact – Traditionally scammers cold-call but contact can also come from online sources e.g. email or social media, post, word of mouth or even in person at a seminar or exhibition.
  2. Time pressure – They might offer you a bonus or discount if you invest before a set date or say the opportunity is only available for a short period.
  3. Social proof – They may share fake reviews and claim other clients have invested or want in on the deal.
  4. Unrealistic returns – Fraudsters often promise tempting returns that sound too good to be true, such as much better interest rates than elsewhere.
  5. False authority – Using convincing literature and websites, claiming to be regulated, speaking with authority on investment products.
  6. Flattery – Building a friendship with you to lull you into a false sense of security.

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, said:

“Investment scams are becoming more and more sophisticated and fraudsters are using fake credentials to make themselves look legitimate.  The FCA is working harder than ever to help protect the public against this threat.  Last year we published over 360 warnings about potentially fraudulent firms.  And we want to spread the message so we can all better protect ourselves from investment scams.”

Director of Action Fraud, Pauline Smith, said:

“We are working with the FCA to raise awareness of investment fraud and would urge anyone who is considering in investing to check with the FCA before parting with their money.

“If you think you have been a victim of investment fraud, report it to Action Fraud.”

The FCA is advising investors to reduce their chances of falling victim to investment fraud by carrying out three simple steps. You should always reject unsolicited investment offers, whether these are made

online, via social media, or over the telephone. The recent introduction of new legislation makes it illegal for anyone to cold call you about pensions.  This should serve as a strong warning that any investment-related cold calling is likely to be an attempted scam, as legitimate firms do not cold call prospect customers.

Before investing any money, always check the FCA Register to make sure that the individual or firm involved is authorised.  You should also check the FCA Warning List to make sure the firm you are dealing with is not listed there.

And finally, you should seek impartial advice before investing.  There is never any harm in seeking a second opinion before investing your money.

There are more tips at the FCA’s ScamSmart website, which can be found at www.fca.org.uk/scamsmart.

If you’ve lost money in a scam, contact Action Fraud on 0300 123 2040 or visit their website at www.actionfraud.police.uk.

There’s still time to top-up your State Pension

By | News & Views | No Comments

Time is running out to top-up your State Pension before a price rise being introduced in April.

Paying voluntary National Insurance contributions can be a financially attractive way to boost your income in retirement.  However, filling these gaps in your National Insurance contribution record, and receiving a higher State Pension in return, is set to become more expensive from 6th April 2019.

If you reach your State Pension age after 5th April 2016, and therefore qualify for the new State Pension system, then you can currently fill any gaps in your National Insurance contribution record at very favourable rates. These concessionary rates are however due to expire on 5th April 2019, making the cost of filling the same contribution gaps hundreds of pounds more expensive.

The first step is to check your National Insurance contribution record for any gaps.  The simplest way to do this is to visit www.gov.uk/check-national-insurance-record and use your Government Gateway check your National Insurance record online.  This online check will tell you:

  • what you’ve paid, up to the start of the current tax year;
  • any National Insurance credits you’ve received;
  • if gaps in contributions or credits mean some years don’t count towards your State Pension (they aren’t ‘qualifying years’); and
  • if you can pay voluntary contributions to fill any gaps and how much this will cost.

Once you have this information, you will need to act before the end of this tax year to fill any gaps in your ‘qualifying years’ to benefit from the current concessionary rates and boost your State Pension income.

As things stand, if you’re covered by the new State Pension system and you have a gap in your contribution record for any year from 2006/07 to 2015/16, you have until 5th April 2023 to fill those gaps.  Despite this generous amount of time to fill the gaps, the current concessionary rates for making voluntary National Insurance contributions will expire on 5th April 2019.

The normal rate for buying back each week of National Insurance contributions will revert to £15 following this deadline.  Different rates are being charged for those acting before 6th April 2019.  In fact, the weekly rate varies from £12.05 for the 2010/11 tax year to £14.10 for 2015/16.

Depending on which gap of your National Insurance record you need to fill, the difference between the ordinary and concessionary voluntary rates of National Insurance contributions could represent hundreds of pounds.  For example, if you want to fill a National Insurance contribution gap for 2010/11, you will save more than £150 by doing so before 6th April 2019.

The potential saving will be more than £500 for anyone wanting to fill six years of contribution gap between 2010/11 and 2015/16.

Before deciding to top up any gaps with voluntary National Insurance contributions, it’s important to check that doing so will boost your State Pension income.  The challenge here is that a rather complex set of transitional rules mean it is not always the case that filling these gaps with voluntary contributions will result in a higher State Pension.

In order to check, you can contact the DWP Future Pension Centre on 0800 731 0175 or by using the online form at https://www2.dwp.gov.uk/tps-directgov/en/contact-tps/fpc.asp.

Commenting on this opportunity, Royal London Director of Policy Steve Webb said:

“For many people, topping up their state pension through paying voluntary NICs can produce a good rate of return because the cost of doing so is subsidised by the government.  

“But the price of voluntary NICs will rise sharply in April so those considering doing so may wish to act quickly and could save hundreds of pounds by doing so.”

Your State Pension is a valuable part of your overall retirement income, so it’s important to maximise this inflation proofed income where possible and affordable.

With this looming deadline to benefit from concessionary rates of voluntary National Insurance contribution, it’s important to take a few simple steps to understand whether you can save hundreds of pounds on the cost of topping up your State Pension income.

 

 

 

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.

How to keep your investment head during Brexit

By | News & Views | No Comments

As the old Chinese curse has it, “May you live in interesting times”.  With Brexit negotiations ongoing, it’s certainly interesting times in British politics, with likely consequences for investment markets.

There’s still a great deal of uncertainty over the outcome of Brexit. The anticipated ‘decisive vote’ has been postponed, for now, so Theresa May can seek more reassurances around the Irish border backstop.  We’ve also had confirmation from the European Court of Justice that the UK can unilaterally withdraw its Article 50 notice and effectively cancel Brexit, without seeking approval from other EU countries.

We can’t know for sure what is going to happen next.

One possible scenario is a lost vote in the House of Commons followed by the resignation of Theresa May, and then a new leadership election within the Conservative Party; possibly even a General Election in the New Year.

We do know that investment markets dislike uncertainty.  As we move ever closer to the 29th March departure date, that uncertainty only grows.  With global markets already displaying some volatility in recent months, that growing uncertainty could result in greater volatility, market corrections and (understandably) nervous investors.

Despite this uncertainty and its potential impact on investment portfolios, at Wells Gibson, we are clear about how we will navigate any choppy investment market conditions ahead.  In simple terms, our approach towards investment planning and management remains unchanged.  Here’s why.

The portfolios we recommend for clients are globally diversified. This means that we don’t recommend putting all of your eggs in one basket, instead spreading portfolios across several investment asset classes, sectors and themes.  This diversification is a really important aspect of risk management when investing money.  Furthermore, it’s probably the only free lunch available when investing.

From the perspective of any Brexit induced volatility, diversification means our clients are not overly exposed to investment assets which are most likely to respond to domestic turmoil.  It means that, when the newspapers and newsreaders are being sensationalist and screaming about billions of pounds being wiped off the value of the FTSE 100, this is only one part of your investment portfolio.

In recent years, this diversification within the portfolios we recommend and manage has moved further from the UK to include a higher proportion of global assets.  Thinking about the UK equity holdings within client portfolios, there’s an interesting consequence of the high proportion of overseas earnings from FTSE 100 companies, for example.  In the aftermath of the Brexit referendum, many investors were surprised to witness the FTSE 100 rise by more than 10% in three months.  During this time, the weakness of Pound Sterling was boosting the profits of FTSE 100 companies with overseas earnings.  Around 70% of FTSE 100 earnings come from outside of the UK, making a weak Pound Sterling beneficial for these companies.

We’re not suggesting that a Brexit meltdown, leading to a collapse in the Pound, will have the same positive impact on UK equities next time, but it’s worth keeping in mind that things aren’t always as simple as they first seem when it comes to investing money.

Our approach towards investment advice and management also remains unchanged because our clients are long-term investors.  Any increased volatility we experience over the coming days, weeks and months will likely be short-term, having little meaningful impact on the long-term performance of portfolios.  One exception could be where clients are making withdrawals from their portfolios in retirement and in this case, we can allocate a sufficient amount to cash in order to avoid needing to drawdown from invested assets during periods of extreme market correction.

We’re staying the course because we know that attempting to time investment markets is futile.  When markets are volatile, there’s always a temptation to try and sell before they have fallen to the bottom and then buy again before they rise to the top.  Nobody can do this consistently well. The more likely outcome is selling low before buying high and, if you do this on enough occasions, this can lead to wealth destruction.

We understand that it can be unpleasant to watch investment market volatility and experience falls in the value of your portfolio.  Regardless of how often we remind investors and our clients that volatility is a normal part of the long-term investing journey, our heart is bound to overrule our head on occasion, especially when the media does its level best to be sensationalist.

If you’re feeling nervous about investment markets in the wake of the Brexit news this week, talk to Wells Gibson.  We’re always happy to discuss any concerns you might have.

Investing can bring you closer to your financial goals than cash

By | News & Views | No Comments

Should you invest your money to achieve long-term financial goals or keep the money safely in cash?

This is a common dilemma and can be a difficult decision, especially for first-time investors who are yet to experience the ups and downs of stock market investing.  Yet, history tells us that investments typically outperform cash over longer periods of time.

New research has shown that those who invested in a stocks and shares Individual Savings Account (ISA) 15 years ago could have enjoyed gains of almost double those experienced by individuals leaving money in cash over the same period.  The research from Fidelity International also pointed out a gender difference when it comes to the preference to invest or leave money in cash.  Almost half of women prefer to save in cash, which could be detrimental to achieving their long-term financial goals.

This is supported by new figures from HM Revenue & Customs (HMRC) which show more women subscribing to cash ISAs than men.  More men than women were shown to invest their ISAs than open a cash ISA.

Fidelity carried out the analysis based on using the full ISA allowance invested in an index tracker fund which aimed to track the performance of the FTSE All Share and compared this to average cash savings rates over 5, 10 and 15 years.  This analysis demonstrates the cost of cash, with the investment worth £20,174 more over 5 years, £55,541 more over 10 years and £104,217 more over 15 years.  They concluded that, by investing in the stock market, women (and men) can reach their financial goals sooner.  These financial goals might include building up a deposit for a first home, paying school fees or saving for retirement.

Earlier research from Fidelity in their Financial Power of Women report found that 43% of women were likely to save using a cash ISA in the next two years compared to the 19% who said they would invest via a stocks and shares ISA.  This finding was based on a survey of more than 1,000 men and 1,000 women, who were asked about their views on money and investing.

Maike Currie, Investment Director at Fidelity International, said:

“Many women will have long-term goals and diligently stick to these whether saving for a child’s education or putting something away for a comfortable retirement.  But while we tend to be diligent and committed savers, we often steer clear of the stock market altogether.

“Factors such as the gender pay gap, time off work to cover childcare and more women engaged in part-time work already contribute to a significant gap in women’s’ earnings versus their male counterparts.  That’s why it’s important not to put yourself at a further disadvantage by not making your money work as hard as you are.  With interest rates at record lows for almost a decade now and inflation rapidly rising, anyone holding an investment in cash will struggle to achieve a decent real return – that’s a return that keeps abreast of rising prices.

“Granted, the stock market is a riskier option than cash, but it is a well-established fact that over the long-term equities tend to outperform cash.  Women risk falling into a glaring ‘investment gap’ by leaving their money languishing in cash.  Don’t lose out over the long term and run the risk of missing out on your long term financial goals – take the plunge and get invested.”

There is of course an important role for cash in long-term financial planning.  It’s usually recommended to hold a short-term cash emergency savings fund in order to cover between three to six months essential expenditure.  Cash is also often preferable to investments where there is a short time horizon for your financial goals, such as buying a property in the next few years.

As investments can go down as well as up in value, the certainty of cash is important where a known amount of money is required in the short-term however, for longer-term financial goals, including retirement planning, the buying power of cash will typically be eroded by price inflation over time.

Investing money does involve risk and exposure to volatility, so you need to have sufficient tolerance for risk, capacity for any losses and the need to experience investment returns to achieve your financial goals.

Please get in touch if you would like to talk about the difference between saving in cash and investing your money, and how to determine a suitable allocation of cash and investments within your portfolio.