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Sensible Investing

The hidden value of proper financial planning

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Almost everyone worries about money, what the future may hold, and the decisions and choices that they will face along the way; yet few realise that proper financial planning is the key to sorting it all out.  At Wells Gibson, we believe it is the world’s best kept secret.  Everybody needs it, but only a few have unlocked its true value.

For those who have, the equation between the value that they receive from their financial planner and the fees that they pay needs to make sense.  Yet, because the benefits of good financial planning and advice are often received in the far-off future, it is sometimes easy to miss, or dismiss, the value received along the way.  Market noise, emotions and periods of what may seem like inactivity on a financial planner’s behalf, can also impact on the perception of value.  It is often easy to appreciate the value received in the first year, and easy to forget or appreciate the value on an ongoing basis. The financial planning relationship can be broken down into three key phases of value.

Sorting out the mess and designing the plan

New clients often arrive with a bag of bits and pieces collected over the years, such as a number of pension plans, with-profits bonds, endowment policies, life insurance and a stock broker or IFA managed portfolio.  This collection of ‘stuff’ often has little structure and rarely provides comfort that the future will be bright.  That’s a stressful place to be.

The first and most vital step is to help clients to set out their vision for the future, both in terms of lifestyle goals and the money needed to fund them.  Next comes the analytical work, which may involve using financial forecasting tools, to help empower clients to make sensible strategic choices.  The resulting ‘plan for the future’ becomes a joint effort between client and planner.  Once sorted and implemented, the client is then back in control of their future and their finances.  The value is easy to see.

Plan progress and progressing the plan

Financial planning is not a ‘set-and-forget’ process, far from it, in fact.  Progress Meetings, normally annually, help to provide clients with an insight into how things are going relative to the plan.  What is more important is the future and how the plan needs to progress from this point forward.  Some issues and consequent decisions faced may relate to events in the client’s life or may be more technical or could relate to market issues that sit in the financial planner’s knowledge base.  It’s fair to say, clients have better things to be doing with their time than trying to understand and tackle these issues alone.

Some years may be quite uneventful, while others are momentous.  In the former, not much may appear to happen, but that does not diminish the value of the financial planner, who is – behind the scenes – constantly on the lookout for issue that may threaten the successful outcome of the plan, or ways in which it can be refined.  At times of crisis, understanding the issues faced, finding a solution that makes sense, facilitating decisions that need to be made and having the fortitude to execute under pressure, is where great financial planners come into their own.

Long life, death and immortality!

There are also some more subtle areas of the value of a long-term relationship with a trusted financial planner.  For many people, living longer is a two-edged sword.  On the upside, we can all now expect to live materially longer than our grandparents’ generation.  On the downside, we also know that with longevity comes attendant health and financial challenges – long-term health care costs are rising rapidly and simply knowing that they can be met is a great comfort to many.

A financial planner, who knows the family and their financial circumstances well, is well-placed to provide advice, support and to facilitate the financial consequences of the new change in circumstances, when it is needed.

Many clients, often one of a couple who takes more interest in the finances than the other, worry about what will happen to their partner on their death.  Having a trusted financial planner (and an up-to-date plan), allows them to be confident that, in the event of their death, their partner will be well cared for financially and that their affairs are in order.   Administering an estate and applying for confirmation too, is a far easier process when everything is organised.

Most people would like to feel that they will, in some way, leave behind a lasting legacy.  For some, that can mean spending time and money supporting their philanthropic works and for others it may mean passing on wealth from one generation to the next.  The Pension Schemes Act 2015 created the opportunity to pass on wealth to future generations in a tax effective manner, for example.  Again, financial planners can play an important role in helping clients to make decisions surrounding such issues.

In conclusion

It is easy to forget when you meet with your financial planner for your annual Progress Meeting that the scope and value of the relationship is far deeper and more important than worrying about the 12-month market noise that has resulted in the value of your portfolio (pensions and investments) going up and down, or the fact that neither your portfolio nor the plan has changed much.

Meeting your lifestyle and financial goals, feeling confident in the future and having the time to enjoy the opportunities that your money provides you, your family and your community are what really matter.

Perhaps, contentment and being less anxious about tomorrow, is the goal, consequence and value of proper financial planning.

 

 

Top 10 tips for surviving inevitable market falls

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Although we previously considered these top 10 tips for surviving market falls, we feel it is worth revisiting them as they can’t be overstated.

When it comes to investing, it’s worth stressing that just as turbulence is a characteristic of flying, volatility is a characteristic of capital markets. Market falls and therefore a fall in the value of your portfolio are inevitable – your portfolio might include a personal pension, stocks & shares ISA and a general investment account.

Market falls can often be alarming and at an unexpected degree.  The last bear market (when share prices are falling), saw the S&P 500 Index (American stock market index based on the market capitalisations of 500 large companies),peak on 28thSeptember 2018 but fall 20% by Christmas Eve – other global indices fell by similar amounts.  As investors, we should expect further falls however, when and at what magnitude, no-one knows so as a client of Wells Gibson, remembering the following should help:

  1. Embrace the uncertainty of markets – that’s what delivers you with strong, long-term returns.
  2. Don’t look at your portfolio too often. Once a year is more than enough.
  3. Accept that you cannot time when to be in and out of markets – it is simply not possible. Resign yourself to the fact.  Hindsight prophecies – ‘I knew the market was going to crash’– are not allowed.  Time in the market is what counts, not timing the market!
  4. If markets have fallen, remember that you still own everything you did before (the same, lower-risk, bond holdings and the same higher-risk shares in the same companies).
  5. A fall does not turn into a loss unless you sell your investments at the wrong time. If you don’t need the money, why would you sell?
  6. Falls in the markets and recoveries to previous highs are likely to sit well inside your long-term investment horizon, in other words, when you need your money.
  7. The balance between your lower-risk, defensive assets (high quality bonds) and higher-risk, growth assets (equities / shares) was established by Wells Gibson to make sure that you can withstand temporary falls in the value of your portfolio, both emotionally and financially, and that your portfolio has sufficient growth assets to deliver the returns needed to fund your longer-term financial goals.
  8. Be confident that your (boring) defensive assets will come into their own, protecting your portfolio from some of equity market falls. Be confident that you have many investment eggs held in several different baskets.
  9. If you are taking an income from your portfolio, remember that if equities have fallen in value, you will be taking your income from your bonds, not selling equities when they are lower value.
  10. Last and by no means least, we are available to talk to you at any time and as your wealth partner, we will urge you to stay the course and be a source of fortitude, patience and discipline. In all likelihood we will advise you to sell bonds and buy equities, just when you feel like doing the opposite.

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

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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.’

Comparing your spending with others

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Our clients are often interested in how their household spending compares to others.  Do they spend more than their neighbours, about the same, or less?  This financial curiosity has been satisfied with the publication of new official figures reporting on household spending across the UK.

The latest Family Spending Survey from the Office for National Statistics (ONS) offers an insight into the spending habits of UK households, broken down by household characteristics and types of spending.  At a headline level, it shows that average weekly spending is up to £572.60 for the year ending March 2018.  This is the highest level of weekly spending since 2005, when adjusted for inflation.

According to the ONS, this rise in UK household spending is correlated with an improvement in the employment rate, which reached a record high of 75.6% in the first quarter of last year.

The ONS reports that the biggest outlay for households was transport.  The average household is now shelling out £80.80 a week on its transport costs.  A further £76.10 per week was spent on average on housing costs, fuel and power.  This was followed by an average of £74.60 a week on recreation and culture.

In addition to spending habits, the report also looks at how much we are saving.  It found that our savings ratio has fallen to its lowest level since records began, to just 3.9%.  Such a low savings ratio suggests that households are dipping into their savings, and even taking on new debt, in order to spend more and keep up with their lifestyle costs.

Looking at spending habits across different parts of the UK, the ONS report found some interesting differences.  Perhaps unsurprisingly, London households are spending the most each week with an average weekly spend of £658.30 in the City.  Other parts of the country to report above average levels of weekly spending were the South East, South West and East of England.

In contrast, the lowest average spending was reported in the North East of England, where households were spending an average of £457.50 each week.  There was also below average spending in Scotland, Northern Ireland and Wales, at £492.20, £488.50 and £470.40 a week on average respectively.

Another trend identified in the report was less of an outlay on alcoholic drinks.  It’s not the first time the ONS has spotted this downward trend.  Households are now spending an average of just £8 a week on alcohol.  A decade earlier, this figure was £10.90 a week, when adjusted for price inflation. More is being spent on food and non-alcoholic drinks compared to a year earlier; £60.60 a week now compared with £58 a week (inflation adjusted) back in 2008.

Commenting on the figures, Helen Morrissey, pension specialist at Royal London, pointed out they represent a home maintenance time bomb for the over 50s.  She said:

“Today’s figures show that just because people may have paid off their mortgage it doesn’t mean they stop spending on their house and many are facing a home maintenance time bomb.

“The stats show almost a quarter of all housing expenditure in households headed by people aged between 50-74 was on alterations and improvements such as central heating installations and double glazing. This figure is much higher than the average for all households which is more like 14%.

“It demonstrates the importance of having the necessary savings to meet these sizeable and often unexpected expenses for those approaching and in retirement. Being unable to meet these expenses as we get older can lead to people being forced to move from much loved homes because they no longer meet their needs.”

Of course, how you allocate your own household spending each week is likely to vary from these national averages.  What matters is that expenditure is intentional and forms part of your overall financial planning, helping you to achieve and maintain your desired lifestyle.

At Wells Gibson we put your life at the centre of our conversations and design a Wealth Plan which makes it easier for you to visualise and achieve the life you want; answers your big questions and helps you prepare for your life’s transitions; and gives you the greatest chance of a successful investment outcome and fulfilled life from the money you have and will have.

Six warning signs of an investment scam

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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.