Retirement planning for individuals
In principle, the concept of retirement planning has not changed dramatically over the years - people need to make arrangements to provide themselves with sufficient income to allow them to continue to live after they retire. The planning needs to take into account what provisions an individual might have built up so far, what they are likely to accumulate in the future, when they are likely to wish to start to receive an income and what other sources of income they might have. Various other factors need to be taken into account, for example, their tax position, both now and in retirement, the affordability of additional funds and their attitude to risk.
There are now limits to the amount an individual may contribute to a pension fund and relieve tax relief. These limits have changed quite substantially over the past few years and caution is required with large contributions to avoid unintended tax consequences. Additionally, there is now an upper limit to the amount an individual may build up in a pension fund before suffering punitive excess tax charges. Once again, the limits have changed frequently over the past few years as successive governments view previously sacrosanct pension funds as a means of raising additional tax revenue. Extreme care is required in this area, as the magnitude of the numbers under consideration can mean that the potential for tax charges is much greater.
An adviser should be able to collect relevant information and construct an efficient plan to assist a client in meeting their aspirations. Frequently there will be changes to this plan and so regular reviews are necessary. For example, economic conditions could change as could the individual's attitude to risk as they become older; further funds might become available, possibly from an employer; an inheritance could be received, which could be used to meet some of the target income in retirement; or, more importantly, legislation could change.
It is this last aspect where thinking on retirement planning has had to change. Broadly, in the past most people would have paid into a pension contract or contracts throughout their lives, taking advantage of the tax relief granted by the government, and at retirement would take their tax-free cash sum and draw a regular pension income in the form of an annuity; there was little flexibility in the choices available.
It is now relatively rare for an annuity to be bought and there is great flexibility in the way pension benefits can be taken. For example, it is possible to take the tax-free cash entitlement and not immediately draw an income; benefits could be staggered to accommodate other events in someone’s life, say a redundancy payment or a business sale; or from this year onwards, amazingly, the full pension fund can be withdrawn. Another aspect of this year’s changes is that a pension fund can now be passed down the generations, which means that a pension fund can now be considered in the context of Inheritance Tax planning.
In each of these permutations, tax is a very important factor, both when paying contributions to build up a pension fund and also at the point of drawing benefits. It is therefore vital that an individual’s pension funds are considered alongside their other financial affairs. As Chartered Financial Planners, we are skilled in this area and will be able to guide you through the complexities of pension planning.
Estate & succession planning
The subject of Inheritance Tax can be a thorny one with many people finding this tax to be particularly unfair, since they will have already paid tax on their earnings and investments throughout life. With the rises in property prices over the years, many families now find themselves potentially liable to Inheritance Tax; recent announcements by the government have sought to assist with this issue but in fact the topic remains complicated.
This is especially so when the concept of Long Term Care is also considered. Most people who are in the Inheritance Tax bracket are unlikely to receive much support from the State in the event that they require to enter the care system in later life; indeed, many such people will need to use their accumulated assets to fund the cost of care, which can have a substantial effect on their overall estate’s position.
The dilemma for most people is that, having worked hard to build up assets of the years, they generally wish to retain sufficient assets to be able to meet their own liabilities in later life, especially care costs, but do not wish to leave an Estate of such significant value that substantial Inheritance Tax liabilities become payable. There are a variety of mechanisms that can be employed to minimise the potential effects of Inheritance Tax. These range from having an efficiently structured will, potentially using trusts and of course the outright gifting of assets. Careful planning is required in this complex area and we will frequently need to correspond with clients' other professional advisers.
Most families would rather have their assets passed on to their beneficiaries rather than allow Her Majesty’s Revenue & Customs to collect more tax and in virtually every case we are likely to be able to have a positive effect on an individual’s Estate and their likely Inheritance Tax liability. Many people find the simple act of discussing their views and concerns in this area to be illuminating.
It is likely that the consideration of a range of solutions will provide peace of mind. For example, some solutions allow clients to retain access to capital and/or income whilst others offer positive benefits within a much shorter period of time than others. In some cases it may be the costs of mitigating all the likely Inheritance Tax liability is either unpalatable or prohibitively expensive but comfort can be gained by mitigating at least some of the tax. An acceptable solution for many is simply to arrange insurance which, rather than avoiding the tax, simply provides an amount of money to allow beneficiaries to settle some or all of the tax liability. It is worth making reference to the recent changes to pension legislation – in essence, a pension fund might now be considered as an efficient Inheritance Tax planning vehicle as the rules now permit certain types of fund to be passed on down the generations.
All our advisers are adept in this complex area and our considerable experience can be brought to bear. Quite frequently we will be involved in advising individuals and their families and our advice can reach across many generations, potentially also involving the use of powers of attorney.
Cashflow modelling & scenario analysis
Cashflow modelling is a relatively new innovation in wealth management and financial planning in the UK. With the aid of the sophisticated system we use, we are able to analyse a client's financial affairs and represent these graphically, so that decisions can then be made.
In most people's finances, there are many moving parts and making sense of these can be a daunting job. Most will have at least one pension plan, possibly more depending on previous employments and will also have an entitlement to a State Retirement Pension; things become more complex when some pension benefits operate on a 'defined benefit' basis, whilst others are investment-related ’money purchase' arrangements. What if there is also property rental income and income from different investments, all of which might be taxed differently?
These are perhaps just basic permutations and matters can become a lot more complex if specific plans or scenarios are being contemplated: for example, a major capital expense or receipt of an inheritance, the downsizing of property in retirement or possibly building in the cost of Long Term Care.
- We are able to identify whether a client will have sufficient assets to last them throughout their lifetime given their particular objectives; if not, we are then able to consider plans to make up the projected shortfall
- We can determine whether a client needs to achieve a higher return on their invested assets and then deliver advice on how to meet this shortfall; on the other hand, if there is a projected surplus of assets, then perhaps a lower level of return and therefore risk in their investments could be adopted
- Similarly, if a client wishes to undertake Inheritance Tax planning, a Cashflow model will allow us to determine how much of their assets they are likely to need for themselves and therefore how much might be gifted on to their beneficiaries.
- One particularly interesting use is in the Corporate Finance space, where the sale of a business might be being contemplated; a properly constructed cashflow model will allow us to determine whether the suggested sale value is likely to be sufficient for the client's needs in the context of their individual, particular objectives.
Financial planning for businesses, including shareholders & keyman assurances
The area of financial planning for businesses is one in which a financial adviser needs to be able to demonstrate a wide variety of skills. For example, the business as an entity may have a variety of needs:
- protecting itself from the loss of profits that may arise as a result of the death or disability of its key individuals;
- providing pension, employee benefit and incentive packages for its staff, which may range in complexity, cost and flexibility depending on the seniority of the staff under consideration; and
- the efficient management of any excess reserves it may build up, either by way of cash management or in appropriate investment markets.
Additionally, the owners of the business may actually work within it and may have additional requirements for their retirement and financial planning than merely providing for the future. For example, given that such individuals are often remunerated directly via the profitability of their company, there are personal and corporate tax advantages available via contributions to pensions and other retirement planning instruments.
Furthermore, it is becoming increasingly popular for the owners of a business to collaborate and use their pension funds to purchase trading premises for the business. This can prove to be an extremely tax-efficient means of operation, but one which can be fraught with difficulty if not handled properly.
The new mandatory legislation regarding ’auto enrolment‘ means that all companies have to put a scheme in place to accommodate the compulsory enrolment of their staff into a pension plan. The state will provide a default option but this comes with a limited set of funds and does not provide any advice or guidance. Many employers are opting to put a recognised scheme in place which will ultimately provide a satisfactory arrangement for their members; and one which comes with advice on how to set it up and operate it on an ongoing basis.
There may also be a desire to consider succession planning arrangements for the business to ensure that an efficient transfer of ownership can take place in the event of the death, serious illness or long-term incapacity of one of its principals. There is also likely to be a need for succession planning in the run up to either an exit by means of retirement or by way of a sale of one of the shareholders or partners in a business.
Frequently, the needs of the business and its owners are interlinked and careful consideration, possibly involving discussions with other professionals, is necessary. Working within the fast moving professional practice that is French Duncan, with many of our clients being serial entrepreneurs, our advisers are well-versed in modern planning mechanisms and will prove to be a useful addition to a business’s armoury of trusted advisers.
Investment management & investment consultancy services
The rates of return on offer from banks and building societies are at a historically low level. Given the current rate of inflation, funds held in many accounts will in fact be losing money in real terms. The fundamentals of financial planning state that once immediate cash requirements and those likely to cause a call to use capital over the short to medium term have been dealt with using deposit based accounts, any excess funds not necessarily required within the medium to long-term can be considered for investment.
This can be a troublesome matter, as most like the potential for greater returns provided by investments, but most also do not enjoy the potential downsides. In particular, the volatility associated with investing is, for most, not a pleasurable experience. An efficiently structured investment portfolio should meet the expectations of the investor, whether it be a controlling of the volatility provided by a greatly diversified portfolio or a particular level of income to allowance a particular financial planning need to be met.
It is only by gaining a detailed understanding of an investor’s requirements in the short, medium and long term that an adviser can provide suitable investment advice. For example, an investor may have an identified need for a reasonably high return to allow them to meet a stretching financial target, but may not necessarily have the financial wherewithal to withstand the magnitude of loss associated with the portfolio required to deliver the return. For some trust and charities, there is a need to separate out income from capital returns, which can cause difficulties if not handled properly.
There is a growing trend in investment management for the use of platforms and it is no exaggeration to say that investment platforms have revolutionised the relationship between advisers and their clients, allowing for a greatly improved client experience. Investment platforms are online services where an adviser can administer clients’ portfolios and where both parties can obtain valuations and other information at any time.
A platform allows an adviser to report, arrange transactions and monitor the performance of a client’s portfolio from one centralised online platform. Transactions can be performed easily and efficiently, such as withdrawing a lump sum, setting up an income, or switching funds. Additionally, a variety of investments from different fund management groups can be brought together for reporting purposes, which allows for planning decisions to be taken smoothly and efficiently and for the production of consolidated statements.
The foundations of a good investment portfolio are centred around the right asset allocation, but it is not always easy to control this across a range of products. An investment platform can be used to hold Individual Savings Accounts (ISAs), pensions, investment bond wrappers and general investment accounts as well as direct shareholdings, which allows an overall asset allocation approach to be applied across a portfolio, regardless of the owner or the investment type or ‘tax wrapper’ being used. Portfolios held on an investment platform can easily be rebalanced at regular intervals. Research has shown that this has the twin benefits of increasing the long term returns and controlling the risk of the portfolio.
Another substantial benefit associated with platforms is in the area of tax-efficiency. The availability of consolidated income and capital gains tax statements should not be underestimated, which helps to simplify the completion of tax returns. Annual ISA and pension allowances can be used by means of new investment or by switching funds.
It is fair to say that, despite the obvious benefits, platforms might not be for everyone. For example, some older investment plans cannot be facilitated and the only option might be to surrender the plan, which might not be in the client’s best interests. Inevitably there is of course likely to be a cost consideration, which needs to be taken into account in a client’s affairs.
We are also able to offer advice and guidance to clients who may have a specialist need. Prime examples of this are in the area of tax-led investments or in the investment consultancy arena. For those in this latter category, through our day to day interaction with fund management groups and risk consultants, we are able to provide advice and guidance on the selection and monitoring of managers, a service which most advisers cannot provide and which most clients are not aware exists.
Tax-led investment services
The current environment for tax planning, it is fair to say, is relatively restricted. It is not too long ago that certain clients would actively consider ways of mitigating their tax liabilities using reasonably convoluted structures investing into variously complex areas like the production of films, technology start-up businesses and carbon credit trading schemes, with any number of more outrageous or wacky arrangements (for example, the purchase of loan notes against the eternally depreciating Turkish Lira) The current government has deemed this type of planning to be either immoral or against the spirit of the legislation which has meant that less money is seeping out of the Treasury on an annual basis.
On the other hand, successive governments have conveyed tax advantages to those making investments into certain approved areas – for example Business Expansion Schemes, Venture Capital Trusts, Enterprise Investment Schemes and the more recent SEED Enterprise Investment Schemes. Generally investments qualifying for these allowances are of a higher risk nature and for those willing to shoulder the risk, there can be substantial tax benefits. These can be in the area of income tax, capital gains tax or even inheritance tax.
Clearly, such investments will not be for everybody but for those individuals, and potentially companies, who wish to take a considered approach then this can be a beneficial exercise. French Duncan Wealth Management are skilled in these areas and can provide practical guidance in this area.
With an uncertain business outlook, holding cash in reserve at your bank may seem a prudent financial strategy; but with interest rates lower than the rate of inflation this strategy is corrosive.
We are expert in formulating and delivering cash management strategies that place monies in financial institutions, generating higher rates of return.
Why should you review your cash management strategy?
- Achieve a higher rate of return
- Spread your risk across a number of institutions
- Define and employ the right liquidity strategy for your business
- Using our service reduces the burden on you to research and source the best returns available from the major banks
- It demonstrates that you have a sound cash management process to investors and are actively managing your deposits
How do we achieve greater returns?
- We can provide advice to spread your money across a number of institutions to generate greater returns and reduce your risk
- We can leverage on our position, ensuring you benefit from competitive rates and superior service
- It is our business to understand economic trends and offer appropriate advice
Our cash management service offers professional assistance in the management of your long-term cash holdings. By focusing on the cash that is not required for the immediate day-to-day running of your business, we aim to increase the overall interest rate achieved, whilst reducing your risk. We will work with you to understand what strategy is appropriate to you; one of the key factors being the duration of the holding - weeks, months or years. Our cash management service ensures that you have regular updates on where the monies are deposited, what rates are being achieved and forthcoming maturities. Our service is focused on removing the barriers that prevent effective cash management and deliver greater returns, year-on-year, to your bottom line.
Expertise that works for you
- Researching the market to find competitive rates of interest
- Using our network of contacts within the major deposit taking institutions to negotiate rates
- Assistance with account opening procedures
- Advice on the use of (non-contentious) offshore structures to access higher rates of interest
- Providing our views on trends for cash management
Our service is focused on removing the barriers that prevent effective cash management and deliver greater returns, year-on-year, to your bottom line. Every quarter we will provide a valuation of the accounts you hold through the service. In addition, the report provides an analysis of credit risk exposure, duration of holdings and interest rates achieved. We also take the opportunity via the valuation to make you aware of any upcoming maturities so that you can plan for the quarter ahead.
The provision of wealth management advice has changed quite dramatically over the past 5 to 10 years. Many of the insurance and investment companies with whom clients might have originally invested will have changed, either through merger or by acquisition.
Additionally, there have been significant changes in legislation and most people accept that further changes are yet to come. Take, for example, the area of pensions: the changes have been so substantial that the Chartered Insurance Institute now offers an examination on the changes alone!
After the Retail Distribution Review in 2013, the manner in which advisers charge their clients is now likely to be different for most investors. This has forced wealth management businesses to focus on the services they deliver, both at the start of a relationship and on an on-going basis. Commissions are finally being phased out, which means that client fee arrangements need to demonstrate value for money.
These issues can present a substantial dilemma for clients and it is easy to see how somebody might lose track of their finances. We pride ourselves in the clarity of our advice and how we deliver this to you. Quite frequently, we will be dealing with complex subjects and our intention is always to put clients in an informed position so that they can take decisions.
The delivery of proper, professional wealth management advice can be a time-consuming process. If you are dealing with French Duncan Wealth Management, you will always know how much you are being charged, and from where the charges will be met.
Our engagement process usually involves an initial discovery meeting, which will be at our expense. Once engaged, our advice will always be in writing but we will not lose sight of the fact that more often than not, our clients will wish to meet their adviser to discuss the advice.
We will provide you with an estimate of the likely fee, and frequently this can be agreed as a flat fee. We need to account for VAT on our fees and we will guide you on whether your costs will be accompanied with a VAT charge. We provide a specific information sheet detailing our fees and costs.
Our normal practice is to seek to render a fee for undertaking research on your affairs and for providing recommendations. This fee will be calculated according to the likely time we will need to spend on your affairs. If you then wish us to proceed to implement the recommendations, we may charge you a value-based fee, which will reflect the type, complexity and value of the business being undertaken. Most clients find this to be an extremely fair method of working.
In many cases, we can agree to have our fees settled from within your investments or pensions. This avoids the need to ask you to write a cheque or transfer cash and again most clients prefer this way of working. Depending on the work, it may be more efficient to charge part or all of our fees to different 'vehicles'. For example, it may be preferable to preserve the tax-efficiency of the funds held within an Individual Savings Account (ISA), trust or a pension fund, or perhaps a company may seek to settle fees for advice for an employee, which might allow VAT to be reclaimed.
It is possible that commissions may still be a factor in your affairs, although these are likely to diminish over time. Our view is that commissions belong to the client and can be used to offset any fee charges.
We can of course work on the basis of an hourly charge and our rates for each individual are published annually. In all cases, we will demonstrate to you that the fees and any costs associated with our services will represent value for money. This is fundamental to our principles.