Marginal Gain – December 2019

We waited to issue this month’s edition of Marginal Gain until after the General election and there you have a resounding Conservative victory, an affirmation of BREXIT and hopefully now the ability for a Government to function and govern. Markets were happy on Friday last week and it does now appear set that UK equities will perform well in 2020.

So, as we come to the end of 2019, we have again grown our top line organically and are now advising on circa £80m of client assets. Dawn Stafford has been appointed as a Director of the firm as we continue to work through the continuing regulatory burden of being an authorised financial planning firm in the UK; we remain only a handful of firms who are Chartered and independent!

For, 2020, our main focus is the roll out of technology; a significant investment in a back-office system which should power a client portal via our website at and access to a document site for valuations and reports. We will look also to roll out a cashflow management service – a full version with interactive scenario planning or a lite version with a static report.

It just remains to say, have an enjoyable festive season and we look forward to catching up in the New Year. The office will be closed over the break but obviously if something urgent crops up one of us will be able to assist via phone or email.

Investment Management costs under the spotlight

Discretionary fund managers have questioned a report claiming to highlight the most expensive wealth firms on the market.

The report, compiled by accountancy firm Grant Thornton and dated September 2018, was leaked to the Sunday Times last month.

The analysis, described as the first of its kind, has been constructed by information available to the public, alongside direct and ‘mystery shopper’ exercises.

Its calculations are based on the cost of investing £100,000 with 20 of the UK’s largest wealth firms. It then shows the impact of each firm’s charges over 10 years, based on the assumption that underlying investments grow at 5% a year.

This cost, which is known as the reduction in yield (RIY), is an attempt by Grant Thornton to shed some light on the notoriously complex and opaque world of wealth fees.

The findings put Investec as the most expensive, with an RIY of 3.8% followed by Rathbones at 3.4%. Barclays Wealth, Standard Life’s advice arm 1825 and Smith & Williamson sat in joint third at 3.2%.

St James’s Place, which is widely criticised for the lack of transparency on its charges, is the fifth cheapest on the list with a RIY of 2.4%, followed by Coutts at 2.5%, Hargreaves Lansdown (2.6%), Brooks Macdonald (2.7%), Quilter (2.8%), Brewin Dolphin (3%) and Tilney (3.2%).

In addition, the survey found that complexity and inconsistency were creating huge hurdles for consumers looking for information on fees.

As part of the investigation, The Times examined a range of firms and found that private banks such as Coutts and Weatherby’s, along with several advice firms such as Brooks Macdonald, Openwork and Chase de Vere, do not disclose full details of their charges online for all investors to see. When asked to respond, the businesses said that all costs were made clear to clients once their circumstances had been assessed.

Jonathan HowardAuthor: Jonathan Howard
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Mini-Bonds put on hold

The Financial Conduct Authority (FCA) last month announced a ban of all marketing of mini-bonds to retail investors ahead of the upcoming ISA season.

In a dramatic step, the regulator announced a temporary ban of 12 months of all mini-bond promotion to any investors who are not sophisticated or high net-worth. All marketing material approved by an authorised firm will also have to include a risk warning and reveal any commissions paid to third parties which are taken from the money raised from investors.

Mini-bonds are investments where investors’ money is lent on to third parties, invested in other companies or used to develop properties. They are often promoted on the internet with promises of high-rate fixed returns often exceeding 8% and without offering any Financial Services Compensation Scheme protection.

A number of these schemes have ended in huge investor losses, most notably the £237 million collapse of London Capital & Finance earlier this year.

The regulator said it has limited powers to take action over unregulated mini-bonds, which are often promoted or issued by unregulated firms, but it can act if a regulated firm is involved.

The FCA is also worried about the increasing risks in this sector for retail investors.

‘There is evidence of a growing incidence of promotions which are frauds or scams and involve no attempt to meet financial promotion rules. The marketing ban does not apply to such frauds and scams because they are illegal in any event,’ the FCA said.

The regulator said the average amount investors are putting into these high-risk mini-bonds schemes is £25,000 which could cause ‘significant losses’ if the scheme fails. This risk is ‘sufficiently serious’ to merit banning their promotion without consultation, the regulator said.

The FCA’s chief executive said the part of the reason the regulator is banning the marketing of mini-bonds is because the arrival of ISA season means they are likely to be highly marketed once more.

As a result, the next article concentrates on the growing use of cash management research and software to provide clients with a stronger perspective and control over their bank cash deposits and building society accounts.

Jonathan HowardAuthor: Jonathan Howard
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Cash Management

Cash management is a service in financial planning that is really beginning to gain traction with many large firms starting to offer their services to clients who have an eye on growing their cash. This also allows them to distance themselves from the low interest rates usually associated with a typical savings account from the banks.

St James’s Place (SJP) is the most recent firm to roll out their own facility alongside some of the veterans of the cash management service, Octopus cash and Hargreaves Lansdown who are citing a growth in the uptake of their own services. Since they rolled out their facility SJP have received ‘sustained inflows’ of customers since they began with a £50,000.00 minimum deposit. Hargreaves Lansdown reports that on their platform they have around 30,000 clients alone, with over £1bn under management as of the end of June this year.

This shows that demand is not slowing down and clients as well as advisers are viewing this as a viable option to grow their cash amidst uncertainty surrounding Brexit. In addition, recent circumstances such as Woodford has driven people to look for a safe place to increase their existing capital.

In this article we will touch upon what Carnelian are able to offer in terms of cash management and diversification of your portfolio; we have access to software that allows us to compare every available bank account, whether that be personal, pension or business accounts and beyond. This therefore allows us to find you the best interest rate to suit your needs and grow your cash in fixed rate accounts without the need to worry about risky investments or the uncertainty surrounding particular events. For example, as per the below table, we can see the top 5 accounts for each fixed term personal deposit account, with the highest interest rate being offered over a two-year period at 1.86%. All of this comes protected by the Financial Services Compensation Scheme (FSCS) up to a maximum of £85,000.00 per account, meaning that should a bank go bust then your capital is not at risk!

Personal Savings Allowance

The Personal Savings Allowance is an undervalued aspect of financial planning despite being introduced in April 2016. Previously, for every £100 of interest earned, basic-rate taxpayers lost £20 in tax and higher-rate taxpayers £40. Now, the personal savings allowance means every basic-rate taxpayer can earn £1,000 interest per year and higher-rate taxpayers can earn £500. For additional-rate taxpayers there is no personal savings allowance.

It is estimated that it takes 95% of savers out of paying any tax on their savings. The personal savings allowance does not just apply to savings accounts but includes current accounts, credit union accounts, building societies, corporate bonds, government bonds and gilts. It also includes interest earned on other currencies held in UK-based savings accounts and Peer-to-peer lending interest.

The allowance is not affected by tax free interest earned for example on ISAs or Premium Bond “winnings”.

Where cash savings are held in joint names both allowances are available although they will be applied proportionately. For example, if a savings account paid £1,000 in interest it would be treated as each holder earning £500 and both could use their personal allowances.

Cash Management coupled with the Personal Savings Allowance can generate significant tax-free returns even at today’s low interest rates. Below is a table that shows the rates available through Carnelian’s cash management service and how much is needed for an individual to maximize their personal savings allowance.

For further information, please click on the following link

If you have any queries regarding any of the above, then please don’t hesitate to get in touch and we’ll be happy to assist and answer any questions that you may have.

Author: Toby Nutley
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Legal Protection for cohabiting couples

Research from the Office of National Statistics has recently revealed that the traditional household of married couples living with their children is now giving way to cohabitating couples. 2017 recorded 19 million families living in the UK, of which 3.3 million are cohabiting couples. Out of all family types, cohabiting couples were the fastest growing family type from 1.5 million to 3.3 million since 1996.

Of the 3.3 million cohabiting couples many of them have an expectation of what would happen in the event of death. The actual outcome of this expanding arrangement where couples do not get married or enter into civil partnerships is that there is little to no legal protection in place when a cohabitee passes away. Many people seem to have a belief that they are protected as a common law couple, however this is not a term that has a basis in current UK law and categorically they do not have the same legal protection as married couples.

Research from Direct Line Life Insurance recently found out that more than a third of cohabiting couples do not understand their legal rights in the event of the death of their partner. 1 in 10 believe that they would automatically inherit their partners share of the property, even though that may only be the case if there is a Will that specifically states that.

With that said it is concerning that only 26% of cohabiting couples have a Will in place. If you own your property with your partner as tenants in common and do not have a Will in place, then your partner will not be automatically entitled to your share of the property. Your estate administration will be governed by the Law of Intestacy.

The Law of Intestacy

If you are married or in a civil partnership your partner is entitled to the first £250,000 of what you own and 50% of what you own above that figure if you have children.

If you are not married or in a civil partnership, your partner isn’t legally entitled to anything when you die. It does not matter how long you have been together as a couple, neither does it matter how long you have lived together, or how many kids you have together.

This is a major implication of living together as an unmarried couple and something which many people are not aware of. Millions of cohabitees are of the false impression that they will have the same legal and financial security as married couples.

Having a Will is vital for cohabiting or unmarried couples, otherwise there is no guarantee that the property and assets will be passed to the survivor, and they may inherit nothing.

Author: Beth Mills
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