Financial goals 2022: how to prepare your money for the year ahead

2022 is here, so it’s time to sit down, put the kettle on, and think about the year ahead for your money.

While it might seem a bit hackneyed setting New Year’s resolutions and such, thinking about how you want your financial situation to develop will give you a good head start in achieving both short-term and long-term goals.

But what should that thought process look like?

It can be easy to get bogged down in the minutiae of financial decisions, but this should be primarily a big picture process.

Is this the year you buy a house or move up the ladder? Is it time for retirement? Or are you just looking to continue growing your wealth as much as possible?

There’s no doubt you’ll have an idea already, and life can also get in the way, but a solid direction of travel is key.

Once you’ve got that ‘big picture’ in mind, then you can set yourself targets, goals and outcomes you’d like.

Reaffirm your goals

When it comes to financial planning, wealth growth and management, it all ultimately comes down to what your goals are.

Without goals, you can have no direction in your planning. It is likely you have a goal, or at least an idea in mind to begin with.

Think about what it is going to take to achieve that goal. If it’s a long-term aspiration, one year ahead might just be a minor part of that bigger picture.

But ultimately even the small choices we make have profound effects. Whether it’s putting money down on a new car, or socking it away in an ISA instead, that will change your outlook and strategy.

Be it a new car, retirement or a house, or any other financial goal, being clear what it is, is massively important.

Having this in mind will help define important aspects of wealth building such as timeline, risk appetite, and structure of your wealth.

Review your costs

Once you’ve got a clear idea of what you want from your personal finances and wealth in the next year, it’s time to look at how you can eke more out of what you’ve already got in front of you.

It is true that every year prices go up – but in 2022 we’re under particularly significant price pressures from inflation, and now the added issue of rising interest rates too.

Reviewing your spending in light of these problems is a tried and tested method for inoculating your money against shocks.

Reviewing bills, bargaining new deals, cancelling unused subscriptions, finding ways to be more frugal with everyday and non-essential spending – these are just some of the things you can do.

Think of it as a Spring cleaning for your finances – you make decisions every day of the year that accumulate and end up changing the face of your budget over a year.

Taking time to review and reset that is essential.

Reallocate resources

Once you’ve thought carefully about your costs, where cuts can be made or money spent more efficiently, you’re ready to look at how to reallocate what you have left each month.

This also counts for what you’re already saving. Is it going into the right place?

Cash is a viable place to keep wealth, but only if you plan on using it on a short time horizon. Everything else should be invested in one way or another.

But investing is an ever-changing beast to tackle. You should have long time horizons in mind when investing, but making adjustments and reassessing investment cases regularly is important, even if you don’t make any changes.

And where it goes matters too. Pensions may be a good long-term vehicle but having an ISA, or even a LISA can be really effective for wealth growth too. Thinking about the best way to allocate to those different accounts can make a big long-term difference to your wealth growth.

Get a check up

Once you’ve got a clearer idea of your costs, and your resources that you’re ready to deploy through savings or investments, consider getting a financial health check with an adviser.

Independent financial advisers have the benefit of being able to take an overarching view of where your wealth is, and what needs to be done to maximise its potential.

Get in touch with your financial adviser and talk about the above discussed topics, and you’ll be well-set for the year ahead.


Interest rates are going up – how it can affect your finances

The Bank of England surprised everyone in December by raising interest rates.

It did so from the all-time low of 0.1% to 0.25% – still a relatively low level by historic standards. For example, look back to 1990 and the bank’s interest rate was 15%.

More recently though – pre-2008 financial crisis – rates hovered above 5% for nearly a decade. So we’re starting from a low base with rate rises now.

But this will still affect your finances. And the Bank of England could keep hiking this year, with rises up to 1% possible.

Why raise interest rates?

The Bank of England’s primary objective for its ‘monetary policy’ is to keep inflation at bay. Unlike the US, it has no particular mandate regarding employment.

It is tasked by the Government to keep inflation to as near to 2% as possible. At the time of writing, inflation is a wallet-busting 5.1% on the consumer price index (CPI) measure.

By hiking interest rates in response to this, the Bank of England is attempting to quell demand. The ‘real world’ effect of this is that borrowing becomes more expensive, leaving businesses and households with less money to spend – forcing people to tighten their belts and slow down consumption.

At least, that is the economic theory. In practice the economic picture is more complicated. But for the purposes of our personal finances, this is the most important element to have in mind.

Impact of inflation

When thinking about how interest rate rises might affect your money, it’s first essential to consider why those rates are going up.

As mentioned above, rates are hiked because inflation is intolerably high. Inflation is the measure of how fast consumer prices are increasing, based on a balance of supply and demand.

You can have two core feeders into rising prices – either demand goes up, or supply becomes constrained. We have inflation now because of a mixture of both.

Lockdowns in 2020 and 2021 saw household spending plummet, leading to people having bigger than usual savings pots. Plus, the financial assistance from the Government in the form of the furlough scheme and other aid helped keep a lot of workers’ incomes relatively stable. This means when the economy opened up people had more money to spend.

This in turn caused a surge in demand for products and services which complex supply chains around the world struggled to fulfil. In combination then, the two effects have forced inflation much higher, quickly.

The net result of this is a range of goods and services we buy every day have become more expensive, faster than anyone expected. Everything from grocery bills, to clothes, fuel for our cars and energy supply to our houses has shot up in cost.

With this the state of the economy then, hiking interest rates becomes inevitable. But how does that in turn impact your personal finances and wealth?

Essentially, unless your earnings are rising to match the rise in the cost of living, you will find it harder to pay for the things you need each month.

It is likely that inflation will fall back down as a result of the rate hikes, and goods and services will rise in price less quickly. But it takes time for the effects to be felt in this sense.

There is however a more immediate impact of interest rate hikes on our personal finances.

Debt

The first, and usually most immediate impact of a rate rise, is to make the cost of debt rise.

When the Bank of England hiked rates in December, banks almost instantaneously announced they were hiking mortgage rates on new products, and those products which had tracker rates.

The same is true for personal loans without a fixed rate (although these are uncommon), and credit cards too. It is unfortunately quite cynical, but like when petrol and diesel prices rise, the banks pass on rate rises almost immediately to their customers.

It can be tricky to avoid these rises. If you have a mortgage which tracks the base rate, now would be an excellent time to consider remortgaging to a fixed rate. If you’re looking to get a new mortgage, then there really isn’t much you can do other than making sure you try to get the best deal possible, or have the biggest deposit you can to minimise the debt you take on.

If you have unsecured debts such as credit cards, try to pay off as much as you can as soon as possible. This will save you significant future costs to servicing that debt. Typically, providers have to give you 30 days’ notice if they do hike their rate, and you have 60 days to pay off the balance before it kicks in.

Savings rates

When interest rates go up, savings rates should go up too. Indeed, before the bank rate was hiked, savings rates were beginning to rise.

But there is a big caveat in this. The part of the cash savings market that saw rises was only in the top end with niche smaller providers.

Big retail banks such as HSBC, Lloyds and NatWest have continued to keep their average rates on offer extremely low. The current rate of interest offered by NatWest, for example, is 0.01% in its Instant Saver account, an extraordinarily miserly offer.

That compares with the current top rate instant savings account (at the time of writing) which is offered by Harpenden Building Society and comes with a rate of 0.75%.

Essentially the message here is that savings rates will go up now the bank rate is going up too. But if you want your money to work harder, it has to be placed somewhere where it will get the best rate possible.

For comparison of rates, a useful resource is Savers Friend, which is operated by financial data firm Moneyfacts.

But in reality, unless it is short term cash or a rainy-day fund, it’s likely to be better placed in investments to grow over time.

Investments

Finally, although indirectly, rising interest rates affect investments.

This happens through a more surreptitious process though and isn’t as obvious as a bank hiking rates. But some investments will begin to underperform once interest rates rise.

This happens for a multitude of reasons, but largely comes down to the bulk of investors moving away from fast growth stocks, such as tech, and into companies that benefit from rising rates, including (ironically enough) banks, manufacturers which benefit from lower material prices, home builders, and others.

Ultimately predicting how interest rates will affect particular investments is a difficult process. If unsure, then speak to your financial adviser who can help you figure out the best solution to your investment needs.


Money in 2022: tax allowances and other changes you need to be aware of

With a new year brings changes to the tax system, and other areas affecting our personal finances.

With inflation soaring, interest rates rising and the cost of living reaching extraordinary levels, it pays to keep an eye on all the big changes that might affect your wallet in 2022, but that you can plan and prepare for.

Here are changes you need to know about.

Income tax threshold freeze

The Government is set to freeze the income tax rate bands at their current levels.

As a result of this, more than 1.3 million people could be pulled into a higher tax band according to a study from the Institute of Fiscal Studies (IFS).

At the moment just 8.5% of workers’ pay the higher rate, but this could increase to 11% by tax year 2024-25 according to the IFS.

The personal allowance is currently £12,570, with anything between this and £50,270 taxed at the basic rate of 20%. The higher rate of income tax on anything above this is charged at 40%, up to £150,000. Finally, the additional rate is charged at 45% over £150,000.

So what does freezing these bands mean?

With inflation soaring it is likely you’ll be looking to earn more income to be able to keep up with the cost of living. But any pay rise you get could tip you into a higher band.

Plus, with any hikes to the bands now cancelled, you’ll miss out on the extra tax free cash from the personal allowance.

Other allowances are also frozen – the pensions lifetime allowance will stay at £1,073,100, the ISA allowance will stay at £20,000 and the inheritance tax threshold and nil-rate band will stay at £325,000 and £175,000 respectively.

National Insurance hike

Not content with holding back allowance rises, the Government has also decided to hike National Insurance (NI).

The new so-called Health and Social Care levy will raise an extra 1.25% in NI payments from anyone earning a salary, employers on their NI contributions, and on self-employed NI payments.

This means someone on a wage of £20,000 a year will pay an extra £130 in tax per annum. Someone on £50,000 a year will pay £505 more.

There is more too – the hike also affects dividends, meaning anyone taking an income from dividend payments will also see their tax bill increase by 1.25%.

Above an income of £2,000 the rate will be 8.75% for income within the basic rate band, 33.75% on the higher rate and 39.35% on the additional rate.

Energy prices

Already a big issue for many household budgets, energy prices have skyrocketed in recent months.

This led to a big hike in the price cap for energy bills, and this is likely to increase again, by up to £700 according to some estimates.

The current price cap is currently £1,277. While most analysts expect a rise of around £400, some think it could go as high as £2,000 depending on the state of the market by February.

The soaring prices have led to a swathe of energy firms going bust. If you’ve been affected by this, hold tight and wait for Ofgem to tell you which firm is taking over your supply, before attempting to change provider.

Unfortunately though, higher prices mean there is little price competition at the moment. If you want to save on energy bills, the best thing you can do right now is reduce your consumption, or make your property more energy efficient.

Loyalty penalty

New rules came into force for motor and home insurance customers on 1 January which mean anyone renewing their policy will not have to pay more than would be offered to a new customer.

These rules are designed to prevent the so-called ‘loyalty penalty’ – where a customer stays with the same insurer for years and sees their premium increase every time it comes to renew.

While those with policies to renew won’t see their prices increase, what is now likely is new policy prices will rise, and insurers could then offer higher prices to existing customers.

ISAs and pensions

Fortunately, this is one area where the Government has decided not to tinker with – for the moment at least.

Normal ISAs remained with a £20,000 annual allowance, while tax relief on pensions is still available with basic rate and higher rate relief.

This makes the two products still a great place to work to build wealth, and a great area to focus on for the year ahead.

If you would like to discuss any of the themes mentioned in this article, don’t hesitate to get in touch with your financial adviser.

block.


Life expectancy reversal: State Pension age could be rising too fast

The State Pension age could be rising too quickly as life expectancy rates grind to a halt.

Analysis from pensions consultancy LCP suggests that life expectancy has stopped increasing. The rise in State Pension age, first from 65 to 67 and later to 68, may not be needed as a result.

The increase in State Pension age, cost aside, was predicated on rising life expectancies in the UK. But LCP’s analysis suggests life expectancy is now in fact decreasing, making the rise in age for State Pension unnecessary.

The Government had decided to increase the State Pension age on the basis that no one should spend more than a third of their life earning a retirement income from the State. It decided the State Pension age should rise to 68 by 2039.

The Government based its review of the State Pension age on average UK life expectancy. For example, as part of its analysis the Government predicted a woman aged 66 in 2014 could expect to live to age 89. But estimates from LCP suggest that women can now only expect to live to 87.

As a result, the increase in the State Pension age from 66 to 67, which is currently scheduled between 2026 and 2028 could be pushed back by 23 years – to 2049-51. Those born between 1961 and 1984 would enjoy much earlier receipt of their State Pension.

But the sheer cost of reversing the age rise could be too much for the Government to bear. Before the secondary impacts of taxation, reversing the State Pension age increases could cost the Treasury some £195 billion, with more than 20 million people potentially affected by the changes.

Commenting, Steve Webb, partner at LCP said: “The Government’s plans for rapid increases in state pension age have been blown out of the water by this new analysis.

“Even before the pandemic hit, the improvements in life expectancy which we had seen over the last century had almost ground to a halt.

“But the schedule for state pension age increases has not caught up with this new world. This analysis shows that current plans to increase the state pension age to 67 by 2028 need to be revisited as a matter of urgency.

“Pension ages for men and women reached 66 only last year, and there is now no case for yet another increase so soon.”

If you’d like to know more about what a change to the State Pension age could mean for you, then get in touch with your financial adviser.


How regular reviews can reduce the uncertainty of retirement

While planning for the future will always carry a degree of uncertainty, regular reviews can help to avoid any nasty surprises.


How to handle the FCA's crackdown on home working

Our Risk and Compliance Director, Steven Poulton, shares some of the key conversations with our own advisers on the dos and don'ts of remote working to handle the FCA's crackdown on home working.


Women must save £185,000 more during their careers to match men’s retirement income

Women have to save up to £185,000 more than men during their careers to match what men will earn in retirement, according to research from Scottish Widows.

The £185,000 figure can be broken down into £100,000 extra to bridge the savings gap, £50,000 to cover women’s’ longer life expectancy and £35,000 to pay for the extra care needs that this entails.

Scottish Widows has published its annual Women and Retirement report since 2006, looking at the differences between the sexes when it comes to retirement outcomes. In its latest report it has found women in their 20s today will save around £250,000 on average by the time they retire, while men will typically save £350,000.

Life expectancy for men and women also differs. A man aged 25 today is expected to live to age 86 on average, while a woman can expect to live to 89. It would take a £400,000 pot for the woman to match retirement incomes thanks to this longer life expectancy.

What is causing the discrepancy?

Looking at why there is a gender gap when it comes to retirement outcomes is not down to one simple thing.

Women can expect to earn around 40% less than men during their working years according to recent research from the Institute for Fiscal Studies (IFS). While this gap has decreased by around 25% in the past 25 years, it is difficult to close as typically, women fall behind in income terms when they take time out of the workforce to have children. The majority of gains according to the IFS are down to improvement in education among women in the past quarter decade.

As a result of these lower income expectations, savings and retirement outcomes are also negatively affected, causing the aforementioned savings gap. This is compounded by the fact that women tend to live longer too.

What can be done about it?

It is a difficult issue to resolve, especially as the only way to really avoid the shortfall is to not take time out from work. And with societal changes that reflect the discrepancy unlikely to be forthcoming any time soon, women need to take matters into their own hands.

In the situation where female workers are taking maternity leave or even breaks from careers, they should consider trying to contribute to a pension while off work or get a partner to contribute on their behalf. Anyone not working can still put in up to £2,880 each year. If someone is on paid maternity leave, ensuring they continue to pay in to a workplace pension is essential too.

Other potential measures to consider include increasing workplace pension contributions, deferring State Pension payments as long as possible and getting started with saving at as early an age as feasible.

Other than that, the best solution for women’s wealth is to have it working as hard as possible. This means making sure wealth is kept in a savings vehicle which will enable it to grow over time and ensuring any investment portfolios are structured for the best long-term outcomes.


reducing tax liability

Retirement planning: the key to being well-prepared for your golden years

Planning for your own retirement is a tricky topic. There are many variables to consider, and each individual has a specific set of circumstances and goals to achieve.

But there are a few key areas of planning for your golden years that can help you to have clear in your mind what needs to be done, and how you can aim to achieve your ambitions.

Here are four key areas to consider.

  1. Time horizon

Thinking about when you would like to retire is perhaps the most fundamental consideration when planning for retirement. Essentially, every decision you make depends on when you actually plan to stop working.

There are a lot of variables to it as well. Retirement is not the straightforward end day and handshake it once was. Evermore frequently people decide to go on what is called a ‘glide path’ to retirement, reducing hours or days in the office until eventually stopping completely.

You’ll need to consider your age now, and how old you’ll want to be when you retire. The younger you are and the further away your retirement date, the more time you’ll have to save and invest to grow that wealth.

If you’re happy working until an older age other considerations such as State Pension entitlement become relevant, as you’ll likely have access to it from age 67 (or later depending on your current age).

  1. Risk appetite

Once you have set your goals for retirement age – or glidepath to retirement – you’ll want to consider how you’ll get there. There’s a good chance you’re already building wealth through a variety of resources such as property, pensions and ISAs.

Depending on your time horizon you will need to accept certain levels of risk within your portfolio in order to reach those goals.

While being able to save set amounts is key, the compounding effect of growth and regular contributions will have the biggest impact on how your retirement funds grow. Ultimately it is ok to be more conservative with your tolerance for risk, but that may have an impact on the point at which your wealth reaches a size at which you feel comfortable enough to retire.

  1. Spending needs

You also need to estimate how much you’re likely to spend in retirement. Again this is very subjective, as each individual has a different idea of what their golden years will look like. For some it looks like world cruises, nice cars or even moving to somewhere sunnier. For others it is staying at home, helping with the grandkids and pottering in the garden.

Either choice – or anything in between – is totally fine. But both carry very different kinds of cost implications.

On top of that, age and longevity is something important to consider. Although not a hard and fast rule, retirement spending is often ‘U’ shaped, if plotted on a graph. At the beginning of retirement people tend to enjoy some of the good things, going on trips or spending some pension cash on home improvements.

Then as time goes on many settle into a rhythm that is generally lower cost (the bottom of the U). Finally, as people enter advanced ages costs such as help around the home (gardeners, cleaners etc) and even care costs, start to mount up.

All this is to say it is hard to establish what an ‘average’ income should look like for any individual. With these different costs in mind it is important then to think realistically about what you’ll need, and how long you’ll be able to sustain it for.

Our financial advisers can help you create a financial life plan ’, which can be a great way to properly visualise how this might work.

  1. Estate and tax planning

Finally, a really important consideration is how all of this is structured. As mentioned before we’re given access to a variety of wealth building tools such as pensions, ISAs or property.

In the first instance it is essential to plan how much of your money goes where to make it as tax efficient as possible. Then you’ll need to think about the tax implications of this wealth once you’re gone – and how to make that process as tax efficient and simple for your loved ones as possible.

With the inherent complexity of these issues though, it pays to have the help of a qualified financial adviser to plan for the best outcomes possible.

 

 

 


Treasury drops Capital Gains Tax and Inheritance Tax reform plans – here’s what you need to know

The government has ditched plans to reform and possibly hike Capital Gains Tax (CGT) and Inheritance Tax (IHT), in a move that would have likely hit wealthier households.

In its update on the function of the Office of Tax Simplification (OTS), published at the end of November, the Treasury appears to have quietly scrapped mooted changes to both CGT and IHT.

The OTS initially proposed changes to IHT that would have seen the tax radically simplified. Currently, the system for taxing inheritance relies on a series of exceptions, allowances and other rules that make it difficult for families to negotiate.

It has also been criticised for the increasing number of families liable to the duty every year since its creation. Of CGT, the OTS suggested aligning the allowances with income tax, making it less attractive a way for many to take earnings.

Current rates of 10% for basic rate and 20% for higher and additional rates would have been moved to align with 20%, 40% and 45% rates of income tax respectively. The first £12,300 of capital gains earnings each year is currently tax-free.

Instead, the government accepted some minor changes to CGT rules, including the amount of time divorcing couples are allowed to transfer assets between each other before becoming liable for CGT.

Married couples and civil partners are able to transfer assets between each other without incurring any CGT liability. But for divorced couples this perk expires at the end of the tax year in which they divorce. This time limit is set to be extended.

What now for CGT and IHT?

The decision by the Treasury suggests the reform of CGT and IHT is dead in the water – for now at least. But that is not to say that the taxes might not come in line for reform in the future.

In the Treasury’s response to the OTS, financial secretary to the Treasury Lucy Frazer wrote: “These reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC.

“The government will continue to keep the tax system under constant review to ensure it is simple and efficient. Your report is a valuable contribution to that process.”

Indeed, according to an article  in The Times newspaper, Rishi Sunak is planning to make sweeping changes to taxes ahead of the next General Election.

According to the report, part of his plans include increasing the threshold for IHT. This would have the impact of making many less families liable to the tax and would likely be a popular measure among Conservative voters.

 


The new social care cap: how does it work, and how much will I pay?

After years not addressing the issue, the government has finally moved to implement new rules for the funding of social care.

While the government faced a significant rebellion from its own MPs, the measures passed Parliament on 23 November, making them all but inevitable. The new rules will see a cap of £86,000 for anyone in England to pay for care in their lifetime. This means that no one will ever have to pay more than £86,000 towards the cost of their own care.

The upper capital limit – which determines eligibility for care support – will also rise. It is currently set at £23,250 but will increase to £100,000 under the government’s plans. This means anyone with personal wealth and assets worth less than £100,000 will be eligible to receive additional financial support and will never pay more than 20% of these assets per year.

Anyone who has more than £100,000 in assets will receive no financial support from their local council.

The lower capital limit – which is the threshold below which people will not have to pay anything – will increase from £14,250 to £20,000. However, if someone is earning an income of some sort, such as from a pension or other investments, they may have to draw upon this to pay some costs.

The new rules will be enforced from October 2023, so for now the existing system remains in place and any contributions made before then won’t count towards the cap. In terms of what is covered under ‘care costs’ – it is anything relating to the everyday needs of someone who is unable to perform basic tasks for themselves, such as cooking, washing and dressing. It does not include day to day living costs such as buying food or bills. In the case that someone is no longer able to live independently and has to move to a care home, this would be covered by the new caps and allowances.

There are some further complexities to the new rules too. Only savings and income contributions towards care costs count towards the £86,000 cap. Any contributions from the local council or other financial assistance won’t.

The plans also don’t protect people from having to sell their house to pay for care. However, anyone who faces this situation can apply to delay the sale of their home until their death – when the bill for the care would come due and leave family members to settle the estate.

 


Chairman's Blog

Key considerations before launching your own advice firm

This article first appeared in Professional Adviser.

I implore budding advice business owners to ask themselves some hard truths before they embark on the journey of starting their own firm. I highlight three key things one should consider...

It will come as no surprise to anyone that I speak to a lot of financial advisers in my line of work. But whether someone is a one-man-band IFA or an adviser working within an existing practice, there's one key question that continually crops up: ‘What would I need to do to start my own business?'

Any aspiring business owner will need to figure out how much income they'll need and where the launch capital is coming from, but my first piece of advice is always to be brutally honest with yourself about why you want to go it alone and whether or not you are genuinely equipped to withstand the pressures that come with being a business owner - in all of its forms.

Creating a business plan is the easy part; building a workable life plan that fits around it is much more difficult. Over the years I have seen financial advisers make a smooth segue into running their own business, while others have had to learn the hard way that they simply aren't cut out to be a managing director.

In my experience, there are three key questions to consider before deciding to go it alone.

What am I actually going to get out of this?

The first thing to consider is what the motivations are behind setting up a business. It's important to be brutally honest here - is it because you see a better way of doing things, because you don't like being told what to do all the time, or is it more about earning money or status?

All of these motivations are valid, but it's important to be clear on them from the outset as your ambitions - and how strong they are - are ultimately going to be what keeps you in the game when times get tough.

Neil Moles: Five pillars of a future-proofed advice firm

Don't be afraid to reach out to others in the industry when considering this. Discussing others' experience and learnings on what to avoid will help you make a far more balanced and informed decision. And if you do decide to set up alone, having a go-to person to soundboard against and discuss growth plans with will be extremely valuable.

How well can I manage people?

I've seen even the most talented and charismatic financial advisers come to the conclusion that they don't enjoy managing people. There will be times when dealing with people issues, combined with time-consuming back-office tasks, will hold you back from focusing on clients and developing the firm, and this can be frustrating for many business owners.

Aside from this, if you're someone who's been working alone for many years it can be hard to adjust to a new way of working where others want to have a view. Fresh ideas and perspectives can bring huge benefits to any company but, particularly in the early stages, you need to make sure you're open to employees challenging the way you do things.

On the subject of people, it's also important to consider if you're happy to give part of what you earn away to entice quality talent into the business - by offering equity, for example. In my experience, too many IFA firms fall down by being overly generous with how much equity they give away in the early stages. The business may not be worth much at the start, but the idea is it will be one day, so any decisions surrounding remuneration should be considered as part of your long-term strategy for the business.

Is this really what I want?

People often look at me like I've gone mad when I suggest this, but one of my key pieces of advice is to have someone to interview you about what it is you're wanting to do and why.

If, when put on the spot, you struggle to provide coherent responses that hang together, this should be considered a red flag. Being a business owner can be a lonely place sometimes, so it's important to stress-test your own ambitions to ensure you truly believe them and that you are genuinely equipped to deal with any challenges that may lie ahead.

 

 


Rishi Sunak’s Autumn Budget: what it means for your money

The Chancellor, Rishi Sunak, has delivered the government’s Autumn Budget.

The measures contained within it set the tone of the UK’s finances for the next 12 months. And while there are some fresh measures in there, it is the distinct lack of action on many issues that may have the biggest effect on household finances.

Here are some of the big changes, and several things that weren’t touched, but will affect your finances.

National Insurance and dividend tax hike

Not announced in the Budget per se, but perhaps the biggest shift in government taxation in many years, National Insurance and dividend taxes face a 1.25% hike to help pay for health and social care.

The hike will add £130 a year to someone on an income of £20,000, while those on a higher income of £50,000 will see an extra £505 come out in taxes.

With the dividend tax hike there’s no tax to pay on the first £2,000 of earnings, but beyond that you’ll pay an extra 1.25% on top of the current rates. That means 8.75% for basic rate payers, 33.75% for higher rate payers and 39.35% for additional rate payers.

There were a raft of other personal finance-related measures including:

  • A hike in the living wage to £9.50 per hour
  • A cut to the Universal Credit taper rate to 55%
  • An alcohol duty reform to simplify the way beer, wine and other drinks are taxed
  • Fuel duty being frozen for a 12th year

But perhaps more noticeable was the absence of certain provisions.

What was missing from the Budget?

Sunak avoided making certain changes that are in and of themselves a form of taxation. There was also a distinct lack of help in regard to economic issues that are plaguing households at the moment.

Perhaps the biggest aspect of the tax system that Sunak left untouched was allowances. This has the effect of creating a form of stealth tax. But how does that work?

By leaving an allowance for say, Income Tax, at the same level for multiple years isn’t an out and out tax rise. But as the general earnings of the working population increase over time – be that from becoming more productive or purely to keep pace with inflation – it means progressively more and more people fall into the higher bands for tax purposes.

Take the example of Inheritance Tax (IHT). The banding of IHT has remained static at £325,000 for years. The Office for Budget Responsibility (OBR) predicts 6.5% of estates will be liable to pay the duty by 2026 – up from 3.7% in 2020. By simply ‘doing nothing’ the government is increasing its tax take over time.

The same is true for a raft of other allowances which remain static – from pensions annual allowances to ISA limits, capital gains tax and others. The more they stay the same, the more the government rakes in.

This is all more pressing than ever in the current economic climate, which is accelerating the issue, namely inflation. In order to keep up with inflation, households are having to seek higher earnings or cut their costs. Sunak did nothing to assuage inflation fears, despite hints he might cut the VAT rate on energy bills.

Overall, the impact of squeezing allowances and rising inflation could leave household incomes stretched for the foreseeable future.


NS&I Green Bonds – what are they, and is there a better alternative?

National Savings & Investments (NS&I), the government-backed savings provider, has launched its first ever green bonds.

So, what is the deal with these brand-new ethical savings accounts?

Anyone saving via the bond will receive 0.65% AER, fixed for three years. You can save a maximum of £100,000 but start with as little as £100 if you like. The money is locked away for a three-year minimum. Because it is a bond rather than an ISA, interest on the savings is taxable when the bond matures.

What’s green about them?

The bonds are the first directly offered to the public with a ‘green’ focus. The government, with climate change high on the agenda, has begun issuing green gilts to institutional investors, but saw the opportunity for private citizens to get involved as well.

The money raised for the green bonds will go directly towards investments in government green projects and initiatives. Any money the bonds raise will be matched by HM Treasury too.

At the time of writing, there is no further detail on exactly what projects this includes. But the government says it intends to update on this in due course.

How it compares

Savings rates are poor across the board at the moment. But even by these standards, ethical considerations aside, the NS&I green bond is an awful offer.

For a three-year bond the current top offer comes from JN Bank, which offers 1.81% interest over three years. This is followed by Zenith Bank at 1.78% and United Trust Bank at 1.75%.

Ultimately, then, the only reason why you should consider investing in the green bonds is if you are highly motivated to lend your money to the government to aid green projects.

What you should do instead

In reality, even the aforementioned savings rates are poor. The Bank of England recently warned that inflation is headed to 5% by the Spring, which means that any money growing by these rates is still losing value in real terms.

Instead, money that isn’t needed in the near future should be fully invested in markets. While the returns aren’t guaranteed, generally speaking, it is a better long-term approach to wealth growth.

Ethical considerations in investing are an increasingly popular and sought-after approach. Please do get in touch with your adviser if you’d like to learn more.


Rishi’s rising tax burden makes good wealth management a top priority

With the new Budget delivered by Chancellor Rishi Sunak, the tax burden on ordinary citizens of the UK is now at its highest level in 70 years.

From frozen personal allowances to National Insurance and dividend hikes, at no other time since the 1950s have we paid so much of our livelihoods to the state.

The ethical, political, and moral arguments around this are for a different blog, but there is an important overarching theme to respond to such changes – how to make the most of what we’re left with after the state has taken its levies.

Good wealth management has always been about making the most of your money in any given situation. If that situation changes, so too it is an adviser’s job to help you adapt to those shifts.

Just because the burden is now higher on paper doesn’t mean you can’t continue to benefit from good planning for your wealth.

Tax planning

A critical aspect of this comes down to good tax planning. Tax planning is a catchall term that describes several activities.

First and foremost is ensuring all your personal allowances are properly used. This includes everything from ISA limits to pension contributions and dividend allowances. Maximising your allowances is extremely important. The ISA limit is relatively generous and everything inside this is extremely favourably treated in tax terms.

Likewise, your pension has major contribution benefits in the form of tax relief. The issue for pensions is that tax treatment can become complicated when drawing down from your pot, making advice and rigorous planning essential.

There are longer-term considerations too, such as inheritance tax (IHT) planning. IHT is a booming tax that ensnares more and more households every year. While ultimately not ‘avoidable’, there are a series of allowances such as gifting and seven-year limits that let you give away wealth tax free.

Where planning comes in is through careful forecasting and management of your income and outgoings. Careful projection of how much you’ll need at any given age will be key in ascertaining how much you can give away early.

Investment

The other key aspect of good wealth management, which ultimately feeds from the above tax planning considerations, is how to grow your wealth once it is correctly sheltered.

Inflation, transitory or not, is running away at the moment. And while it may return to more typical levels later in 2022, the long-term 20-year average is still around 2.8% according to the Bank of England.

What that means is that your money has to work harder to grow in value or return an income that stays ahead of rising prices. This is a key area where good wealth management comes in to protect and grow your money via the stock market, bonds, and other financial assets.

The truth is, doing nothing is a disastrous alternative. Be it through taxes or inflation (often called a tax on saving), the forces looking to erode your wealth are too strong to ignore.


Rising bills: here’s what to look out for to keep you on financial track this winter

With the economy roaring back to life as we emerge from the pandemic, household costs are rising fast to meet rising demand for certain goods and services.

Building wealth, while a long-term priority, can be hampered if a family’s budgeting gets off track. With inflation rising - 2.9% according to the most recent Office for National Statistics data – and expected to peak above 4%, now is the time to take stock of your finances and look again at where you can save money.

Inflation isn’t the only current worry. The tax burden, as set out by the Chancellor recently, is set to rise to a 70 year high.

So, what can you do to rein in spending, or cut costs where possible? Here are a few ideas.

Energy bills crisis

The hike in energy bills has perhaps been the highest profile issue for households in recent weeks. Rocketing gas prices has led to the collapse of a slew of energy providers, while surviving firms have pulled any cheap deals available.

The days of energy switching to get a better tariff, are for now at least, over. This makes heating and electricity one of the standout cost rises households now face.

While households are protected by the energy bills cap, currently £1,277 per year, that could also be set to rise to over £1,500 in the Spring. It is essential then instead to look at how to cut the actual costs of those bills.

Basic measures should be taken to ensure your house is as energy efficient as possible. Draft excluders, radiator foils and even just turning the thermostat down a few degrees and wearing woolly socks can make a big difference.

Of course, if you’re older or not in perfect health, it’s not advisable to leave your house cold. If you’re in this position, making sure you have access to the Winter Fuel Payment could be a big help.

Cut unnecessary costs

Now is the time to look at your spending habits and decide if anything can be cut out. Gym memberships you don’t use, streaming services you never watch, delivery subscriptions you don’t maximise, should all go.

While taken individually these costs may seem minor, collectively and annually they can add up to thousands of pounds.

Another area where costs are rising are weekly food shops and dining out. Lowering costs in this area can be challenging, but it’s important to be vigilant with changing costs. Food prices can swerve up and down one week to the next, so having a spending limit and trying to stick within it is key.

Make your savings work harder

The more long-term aspect of the issue of rising costs is ultimately how to maintain wealth growth while keeping your saving levels up. Working hard to keep your costs under control is the starting point for being able to maintain good habits with regards to savings and investing.

Over and above that, ensuring strong wealth growth is essential too. Inflation is eating away at more of our savings’ value, so keeping money in low interest savings accounts is essential. Thankfully with good wealth management in place, this is eminently achievable.


Autumn Budget 2021: With Britain at a critical juncture, here are 16 things to watch out for in Rishi Sunak's budget speech

From pensions and council tax to student loans, there are 16 things to watch for in Rishi Sunak's budget speech.


Scrapping the office permanently? Four ways to grow your business remotely

This article first appeared in Professional Adviser.

Most of the financial advice community made a remarkably smooth transition into remote working when the first national lockdown hit last year. I take a look at ways adviser businesses can grow without an office…

We're all aware by now of the huge time and cost savings working from home can bring to IFA businesses, but adopting such arrangements for the longer term means making some fundamental changes to how firms generate leads and keep existing clients feeling happy and valued.

For those thinking of scrapping the office altogether, there are a four learnings to factor into the company's growth strategy.

  1. Face-to-face client entertaining isn't any less important

It can be tempting to think that remote working means it doesn't matter where you or your clients are located, but that simply isn't the case. Regardless of the adjustments being made to a firm's business model, some clients will still want to be wined and dined by their adviser in person.

There's no one-size-fits-all approach here but, ultimately, if a client has become accustomed to lots of face-to-face contact, then you need to find a way of maintaining that over the long term.

We should challenge the notion that anyone younger than a baby boomer is only interested in an online/digital service. That clearly is not the case, or at least, not yet. Most clients still value human interaction.

  1. Don't underestimate the importance of client comms

Client communication is still seen as something quite fluffy by many, but will prove absolutely essential for those attempting to engage clients and prospects in a virtual world.

Newsletters and blogs are an age-old and effective means of staying in contact, while highlighting a firm's key areas of expertise, but it's those who think outside the box who will really set themselves apart from the crowd.

We all need to be more imaginative about client engagement outside of a normal meeting. I have seen some great events hosted online with entertainment packs being sent to clients beforehand. Some have been upmarket Champagne and goodies, others have been more ‘home spun'. I would bet that pretty much every firm has a client involved in wine sales or perhaps an artisan food producer. Using them can be a good way to be seen as supporting local business.

The excuse to host something doesn't always have to be directly advice related. For example, some of our own advisers tell us they have achieved particularly strong engagement through events that help people understand how they can strengthen their mental wellbeing.

With a growing number of people in the pre-retirement market engaging with platforms such as Facebook and Twitter, there's also an argument for upping the ante on social media. Of course, every follower isn't going to be a potential lead, but you need to have a presence to engage regularly with those who may need support.

Social channels should be monitored regularly so that you are able to interact if people get in touch, but also offer a great way of directing traffic towards client communications.

  1. Professional connections are key

Having a strong bank of professional connections has long been a valuable means of building up a business and its client base, but this will become even more important as we move forward.

The pandemic has triggered a real growth in demand for services such as estate and inheritance tax planning, which are both clear examples of where it would be beneficial to have strong partnerships with other professionals.

People rely on lawyers, accountants and IFAs at crucial milestones in their lives, with every decision having overlapping requirements. With this in mind, establishing strategic relationships presents a surefire way of generating a stream of clients you are well-equipped to support.

We have found that professional introducers have been very enthusiastic about joining online workshops and seminars.

  1. Working remotely makes it ‘easier' for staff to leave

Undoubtedly, the ability to employ someone who is geographically miles away has been a real bonus but it can also make retention more difficult. Working from home provides benefits for staff and the business alike, but it will be much easier for employees to lose their emotional connection with a business. An employee who is largely unrestricted by geography has a much wider range of opportunities and salary scales.

Business owners need to be thinking carefully about how they ensure engagement and productivity remains high. Regular Zoom check-ins cannot replace the feeling of a business's culture you get while sat in the office, just as it's nigh on impossible to remotely train people from scratch to become top-notch advisers.

As soon as is safe, bring your team together - even if it's only once a month or quarter - to sit around a table and generate ideas or go out for a few drinks. It will be a vital means of maintaining connectivity and ensuring that staff remain happy and engaged over the long term.

It's clear that things will never be the same again for a lot of advice businesses but, through careful planning, firms needn't have a conventional office to be able to thrive in their new normal.


Expert advice from a Chartered Financial Planner on what to consider before joining an IFA network

In a recent interview, Douglas Harley, Chartered Financial Planner and MD of Beaufort Financial Forth Valley shared his experience on selecting and joining an IFA network.

What made you decide to join a network?

Regulatory and PI insurance pressures were both major drivers, but the key thing for me was that I needed more support as a business owner. I was regularly working 60-hour weeks and wanted to pass over some of the back-office responsibilities that were holding me back from putting full focus on clients.

I’m also not getting any younger, so wanted something that would offer me an exit strategy when the time comes. I knew I could get this with a network but was determined to find a firm that would support my independence and allow me the autonomy to keep developing the business I had worked so hard to build.

You’ve been with the Beaufort Financial IFA network for just over a year now, what made you choose this firm?

It was clear Beaufort Financial could provide all the above, but what I really valued was that they interviewed me just as much as I was interviewing them during the discussion stages. They weren’t simply trying to get me in the door, and this gave me confidence that it was the right fit for both sides.

Even now, myself and the rest of team feel like we’re part of something rather than just a cog in the machine. I have regular calls to discuss how things are going which isn’t something you get with many networks.

What advice would you give to an adviser who’s currently considering joining a network?

Thorough due diligence is an obvious one, but you really do need to interrogate what you’re paying for – and what you’re getting in return.

The key thing I would suggest is to list out all the jobs you don’t want to keep doing and ask if the network is prepared to take all of them off your desk. Every firm will offer a different level of support, so this a good way to find out if you’ll be genuinely getting value out of a relationship.

Leading on from this, be sure to find out how much direct access – if any – you will get to specialist in-house expertise. One of the things we’ve really come to value is being able to get expert input from Advice and Compliance experts on those cases that are a bit more out of the ordinary.

Aside from COVID-19, what do you see as the biggest challenge facing IFAs right now?

A big area for me is robo-advice. Of course, most people using robo-advisers are younger and don’t have much wealth, but there’ll come a point when this market also needs looking after. Those advisers without some form of online advice offering will find it tough to engage with these individuals owing to a lack of relationships and the different regulatory hurdles in play.

How to start engaging this audience and help them understand the value of advice from a personal adviser is an issue that will become increasingly prevalent as the younger generations begin inheriting money and growing their own wealth over the next few years.

Beaufort Financial Forth Valley is a team of chartered financial planners providing wealth management services to clients in and around Falkirk.

Looking to join an IFA network? Find out more here