Marginal Gain – June 2019

With Trump in the UK earlier this month, his tenure as President continues to dominate the global economy as he now provoked China into further tariff retaliations on natural resources. You may have just come across the term “rare earths”. Just so you know, rare earths are a group of 17 chemical elements used in everything from high-tech consumer electronics to military equipment and Chinese production accounted for 80% of U.S. imports of the substances between 2014 and 2017!! No doubt, like BREXIT, the story will continue to run but markets seem to be resilient with the FTSE 100 trending north of 7,200 and the FTSE 250 between 18,500 and 19,000.

In this edition, we just wanted to re-iterate the services we offer within the firm; obviously our core work is financial planning but we also help clients on actually investing their funds, ensuring their “legacy” planning is in order and that we can help manage the cash and deposit savings you hold. Any questions, please do not hesitate to contact the team.

The continuing rise of low-cost trackers

Vanguard’s popular LifeStrategy funds have a new rival following BlackRock’s launch of its ‘MyMap’ multi-asset portfolio range. BlackRock has launched four multi-asset funds built using its iShares index funds, which are actively managed and rebalanced every quarter.

The Vanguard’s fund range has £13.2 billion under management, but BlackRock is undercutting Vanguard with its new funds, offering them with an ongoing charge of 0.17%, versus 0.22% for the LifeStrategy funds.

Equally the Blackrock MyMap funds offer exposure to a slightly broader spread of assets, investing not just in shares and bonds but also alternatives like gold and real estate.

We continue to run our Managed Portfolio Services – a portfolio of multi-manager ETF funds and the performance of the various risk-rated funds for the year to date is below

Risk Mandate Return Over 1 year
Cautious to Moderate 4.56%
Moderate 3.10%
Moderate to Adventurous 2.13%

With a typical charge of annual circa 0.2% for the underlying assets, a tracking passive portfolio is a very efficient method of gaining access to stock market and fixed interest returns. You can see from the figures that the volatility of the final quarter of last year (2018) dampened returns on the equity heavy moderate to adventurous portfolio. However, as we have always said a well-diversified portfolio of asset classes and cash is always the way to go to ensure you can remain invested fully taking into account your attitude to risk and key planning objectives.

Jonathan HowardAuthor: Jonathan Howard
Jonathan@carneliancpaital.co.uk
01908 487531 #6

Pension Freedoms

About a third (34%) of the 62,000 savers who accessed their pensions via drawdown for the first-time last year didn’t take financial advice, new research from the Association of British Insurers has found.

The analysis, which is based on the industry body’s six-monthly retirement income data collection from its members, found that 11% of this group received guidance from Pension Wise.

The ABI also found drawdown pots were getting larger. At an average size of £120,000 this was the highest on record, while the proportion of customers reaching retirement with more than £250,000 also doubled in the space of just two years (to 11 per cent).

The industry body warned that by not accessing financial advice, thousands of retirees each month ran the risk of making “dangerous decisions” about what to do with the cash, which could eventually lead to them running out of money too early.

This echoes two recent issues on people being mis-led by dealing directly with product providers;

  1. The BBC have investigated the activities of Dolphin Trust, now known as German Property Group (GPG) which promoted the investment of pension funds to a company redeveloping listed German buildings into luxury flats.
  2. The FSCS are investigating London Capital & Finance which went into administration at the end of January 2019, putting the funds of more than 14,000 bondholders at risk. They had been promised an 8% interest rate, but shortly before the collapse the Financial Conduct Authority had ordered London Capital & Finance to stop marketing its fixed-rate investment bonds and ISA products and the provider had its assets frozen by the regulator.

All of this just confirms the value of regular updates and reviews of what is available as an appropriate investment for clients taking into account their knowledge and experience, their appetite for risk and their financial objectives.

Author: Toby Nutley
toby@carneliancapital.co.uk
01908 487531 #7

Cash Management

The following table highlights the instant access accounts available over a number of key areas for clients. Interestingly (no pun intended) the difference between an instant access ISA account and a 1-year fixed bond ISA is marginal.

However, it is worth tying up the funds for personal or business accounts to benefit from a higher rate of interest on the 1-year accounts.

Type Best Account (instant access) Best Account (one year)
Personal Newbury Building Society – 1.75% Atom Bank – 2.03%
ISA Scottish Building Society – 1.65% Dudley Building Society – 1.71%
Business Saffron Building Society – 1.02% United Trust Bank – 1.90%
Pension NS&I 1.16% United Trust Bank – 1.90%

We have access to software that looks at every available bank account and can manage the portfolio of deposits to the maximum institutional diversification in respect of the FSCS £85,000 compensation limit.

We have built cash management portfolios for a number of clients to improve the returns on cash deposits albeit in the environment of Quantative Easing (QE) and low interest rates the improvements are not headline grabbing.

Significant increases of return are only available by taking a higher degree of risk on capital such as the structured deposits available or through Peer to Peer (P2P) lending funds such as Octopus Choice.

Author: Toby Nutley
toby@carneliancapital.co.uk
01908 487531 #7

DIY Wills vs Professional Advice

The continuous growth in the number of people who have made DIY Wills is said to be the reason for the number of inheritance disputes in the High Court increasing. Nockold Solicitors stated that in 2018 there were 227 cases heard and this increased to 396 in 2019. This is creating unnecessary disputes and costly litigation which could easily be avoided through seeking professional advice.

The popularity of DIY Wills, which are widely available to complete on the internet are frequently full of errors and ambiguous in terms of distribution. This is raising a cause for concern due to family members being increasingly likely to deal with the distribution of their loved one’s estates and assets themselves rather than seeking professional advice. The complexity of modern-day family structures, so-called ‘blended families’, are often households made up of different families brought together by new relationships. Due to the fact many families have children from a number of different relationships and stepchildren, this is resulting in increasing number of challenges to Wills.

Nickolds continue to say that ‘the rise in DIY Wills and Probate is making costly disputes in the High Court increasingly likely. It is easy for mistakes to be made. There can also be a conflict of interest if a family member is administrating an estate and is also a beneficiary.’

The Law society have stated that due to the range of different estates and circumstances that exist today, it is vitally important people consult a professional when writing their Wills. Probate law is complex and where people have made DIY Wills, they can contain simple mistakes which can make them difficult to administer and even render them void.

It is important to seek professional advice, not only for ease of distribution, but also because when writing a Will, it is vital that a record is kept for the reasoning behind every decision you make. These records should include reasons for excluding a particular family member or individuals who may think they’re entitled to a proportion of your estate. This eliminates any risk of future challenges on a deceased estate from estranged family members. However, spouses, partners, exes and any dependants are able to apply to the courts under the Inheritance (Provision for Family and Dependants) Act 1979 for a financial provision if they feel they should have been provided for by the Will.

The effect of litigation is not only expensive but can be more bitter than a hostile divorce and immediately sets families against each other at a time when they are already distressed by the loss of a loved one.

Essentially the best way to guard against a family falling out over an inheritance is to make sure you have an up to date and properly drafted Will that has been carefully thought through.

Author: Beth Mills
beth@carneliancapital.co.uk
01908 487531 #5