The Value Of Financial Advice: How It Helps Wealth Grow
Measuring the impact of financial advice can be difficult. However, research and our own experience highlight that it can have a positive impact.
The value of financial advice is something we talk about a lot at Beaufort Financial. We see the benefits it brings clients on a regular basis, whether that's the confidence to forge ahead with retirement plans or understand what they'll leave behind for loved ones.
However, measuring the impact into ways our clients can easily grasp can be complex.
After all, whilst we might help their wealth grow or minimise tax, it's difficult to show what impact this has over the long term. In some cases, clients may even wonder if they'd have achieved the same results without the use of a financial planner.
Measuring The Financial Gains Of Advice
Research from the International Longevity Centre has highlighted how taking financial advice can help wealth grow at a faster pace.
The latest report - What it's worth: Revisiting the value of financial advice - looked at the value of taking financial advice on overall financial outcomes over an extended period of time.
The research found that individuals that received financial advice between 2001 and 2006 benefitted from a total boost to pensions and financial assets of £47,706 in 2016/16 on average. This was split into:
- £30,991 in pension wealth
- £16,715 in financial assets
Interestingly, the research highlights the difference among those that did receive advice.
Those defined as 'just getting by' actually have a greater potential to benefit than those considered 'affluent'. The former saw a 24% boost in pension wealth compared to the 11% increase among those termed 'affluent'. Those that are 'affluent' are more likely to seek advice, but the report highlights it can be beneficial to those that would typically take a DIY approach. In contrast, 'affluent' individuals were more likely to benefit from growth in financial assets, though the gap was smaller.
Commenting on the findings, Steve Webb, Director of Policy at Royal London, said: Many of those who receive financial advice can testify to its value, but it has always been difficult to quantify. The research uses the latest statistical methods to identify a pre 'advice effect' and it is strikingly large. If financial advice can add £40,000 to your wealth over a decade compared with not taking advice, it is incumbent on government, regulatory, providers and the advice profession to work together to make sure that more people are sharing in this uplift.
One-off vs Ongoing Advice
There are points in life where one-off financial advice can be useful, typically coinciding with big life events. This could be as clients approach retirement, a relationship breaks down, or they start to plan for the next generation's future.
Yet, the report highlights that ongoing financial advice delivers further benefits. It found that building an ongoing relationship with a financial adviser could help grow wealth even further. Those that regularly took professional financial advice had nearly 50% higher average pension wealth than those that only received one-off advice.
Ongoing financial advice gives individuals a chance to review their financial plans and ensure they remain on track. Even smaller life changes, such as a pay rise, may change the best way to make use of money with long-term goals in mind. Regular meetings with a financial planner can help ensure these are taken into consideration.
David Sinclair, Director of the International Longevity Centre, said: The simple fact is that those who take advice are likely to be richer in retirement. But it is still the case that far too many people who take out investments and pensions do not use financial advice. And only a minority of the population has seen a financial adviser. We must now work together to get more people through the 'front door' of advice.
The Non-Financial Benefit Of Advice: Confidence
The report clearly highlights the financial benefits of working with a financial planner. However, the true impact of financial advice goes beyond simply how much money you have in the bank or your pension.
One of the key areas where financial advice really benefits people is the confidence it gives them.
Clients often seek out financial advice because they're worried about the future. They may be concerned about their retirement position, what would happen if the unexpected were to occur or how they can improve the financial security of the next generation.
We often find that, with some careful planning, clients already have the means to achieve their goals and aspirations. What clients need is the technical knowledge of financial planners to make their savings, investments or other assets work for them, and the confidence it delivers.
Our goal is to ensure each Beaufort Financial client has the confidence to make lifestyle decisions, safe in the knowledge that their finances are in order with their plans in mind. These lifestyle decisions could include:
- Retiring from work five years early
- Dipping into savings to help children or grandchildren get on the property ladder
- Make big-ticket purchases to achieve dreams, such as travelling the world
Whilst increasing wealth is part of what we do, the true impact of financial planning can change lives and we hope to give people the confidence to pursue their dreams.
If you'd like to discuss how we can work together, please get in touch with us.
How Financial Advice Can Help Business Owners Prepare For The Future
Business owners will often engage the services of an accountant, but they're less likely to review their own financial situation with a professional. We explain seven reasons they should.
Whilst business owners may be focused on short-term financial goals, it can be difficult to plan for the future. Those striving to grow a business can find their priorities revolve around their work, whether it's growing a client base or finding new opportunities to innovate. It can come at the expense of their own financial security.
It's common for business owners to engage the skills of an accountant, but how working with a financial planner can help them can be overlooked. But there are plenty of benefits that business owners can take advantage of when working with a financial planner, particularly when it comes to considering the long term. Among them are these seven.
- Defining Long-Term Personal Goals
With a business to focus on, some owners find their personal goals are pushed aside. But it can mean the future they want is out of reach when they arrive at that point or they head in the wrong direction.
Financial planning goes beyond simply suggesting where investments should be placed or how much to put into a pension. It starts with understanding individual goals and aspirations, using this as a guide to making financial decisions that are right for each individual. As a result, seeking financial advice can be the catalyst for setting out long-term personal goals. With a sense of direction, these dreams are more likely to become a reality.
- Understanding Personal Tax Liability
Organising finances can be difficult for anyone, but there's often an extra layer of complexity for business owners. This is true when it comes to tax liability.
There are numerous regulations and allowances around tax, and it's easy to overlook some that a business owner can take advantage of. For example, are they making full use of their dividend allowance each tax year or how they can take an income from the business in a way that minimises tax? A financial plan can highlight where these issues lie and create an efficient plan with the individual in mind.
- Saving For Retirement
Business owners need to take greater responsibility for their financial future; this includes saving for their retirement. But with other decisions to make, pensions can be something that slips their mind. Other reasons for not saving into a pension is concerns over how their financial security may change in the future.
Working with a financial planner can help business owners understand how their current situation can be used to improve financial security in the long term. It's a step that can keep them on track for goals that may still be several decades away.
- Making The Most Of Savings And Investments
We all know we should be saving money for the long term and that investments can help assets grow. However, it can be complicated to understand where the best place to put money is. A financial planner can offer business owners advice on how to make the most of their wealth, with their goals in mind. For some, this may include building up a financial safety net to provide peace of mind. For others, it may be building an investment portfolio that reflects their risk profile.
- Providing Financial Protection
Many people will take out insurance policies to protect assets, such as contents insurance, but fail to protect themselves. It's something business owners may have overlooked too. If they were to become too ill or involved in an accident, for instance, would they still be able to maintain their lifestyle? An appropriate insurance policy can provide a safety net.
There may be circumstances where insurance policies can protect the business too, such as key person insurance. Financial planning gives business owners an opportunity to assess what's most important to them and take steps to protect it where necessary.
- Building An Exit Strategy
What happens when a business owner is ready to move on to the next chapter? Whether they want to retire or take on another project, considering their lifestyle and how to achieve it.
Exit strategies often focus on the business and sale price where applicable. However, financial planning can help put the business owner at the centre of the plans. For example, how much would they need to sell a business for to achieve their long-term financial plans? It's a step that can help give business-related decisions a personal perspective and ensure they're the right ones for the individual.
- Benefitting Business Goals
Personal finance doesn't just benefit the individual, it can help them work towards achieving business goals too. For example, a Self-Invested Personal Pension (SIPP) can be used to invest in business premises. This can add to a retirement fund and provide diversification. It can also provide the business with security and the space to grow if needed. There are rules around using a SIPP for business premises but in the right circumstances, it can be very useful.
Working with a financial planner gives business owners a chance to voice concerns or aspirations they may have and explore how personal finances can be used in an effective way that considers their lifestyle too.
If you work with business owners and would like to speak to our team about how we can work together, please contact us.
5 Tips For Helping Your Children Get On The Property Ladder In 2020
Aspiring homeowners often face a struggle to secure a deposit. It's a challenge that may be affecting your children and grandchildren. But there are things you can do to help them get on the property ladder in 2020 and improve their financial security in the future.
The good news is that research from Post Office Money suggests first-time buyers are saving a deposit quicker. Yet, it's still taking an average of 3.6 years to save the lump sum required to act as a deposit. When you look at the sums involved, it's not surprising that first-time buyers are taking years to save. The average deposit for a first home in the UK now stands at £43,585. This varies significantly between regions. The lowest average deposit for first-time buyers is £21,696 in Blackpool. This compared to £170,003 in London.
First-time buyer households are putting away £843 a month when building up a deposit. This is the equivalent of 21% of their combined income. They're taking a number of steps to achieve their goal, including:
∑ Working overtime (33%)
∑ Selling items online (25%)
∑ Finding a new, higher paying job (18%)
∑ Using credit cards to cover everyday expenses (15%)
However, just 29% of first-time buyers did so without financial support. With huge growth in property prices over the last couple of decades and more stringent checks from mortgage providers, more people are turning to the Bank of Mum and Dad (or even grandparents).
Why Help First-Time Buyers With A Property Deposit?
Where possible, lending a helping hand with a property deposit can get loved ones on track for financial security.
In many cases, mortgage payments are lower than rental costs. Providing support to help children or grandchildren get on the property ladder that bit quicker can improve their finances immediately. It's a step that can improve their financial security in the long term too. Being able to start paying off a mortgage sooner can help free up income later in life.
Helping The Next Generation Secure Their Deposit
Do you want to help the next generation get on the property ladder? There is more than one way to do it.
1. Gift Loved Ones A Deposit
The most common way parents and grandparents are helping the next generation is by gifting a deposit.
According to Legal and General, the average contribution towards a deposit is £24,100. In total, the Bank of Mum and Dad is estimated to have lent up to £6.3 billion in 2019 alone. It's a gift that can make the dream of homeownership a reality.
But you need to assess the impact on your own finances here too. How would taking a lump sum out of your current wealth affect you in the short, medium and long term? Could it mean that retirement aspirations are no longer feasible? Speaking to a financial adviser can help you understand the impact of gifting a home deposit. It's a step that can give you peace of mind as you help loved ones purchase their home.
2. Loan The Money Needed
When gifting isn't an option, loaning a deposit can be an alternative. If the money isn't needed now but will be in the future, it's an option that may be right for both you and your loved ones.
It's important you take both financial and legal advice if this is an option you're considering. Remember, circumstances can change and having a formal contract in place can provide both parties with security.
3. Research Family Mortgages
It is possible to secure 100% mortgages, meaning homebuyers don't need any deposit at all. However, these are often offset mortgages that need support from family.
For instance, some family mortgages allow you to deposit savings into an account earning interest which then acts as security if repayments aren't made. Others will allow loved ones to take out a 100% mortgage if your own home is used as security.
These options can seem like a simple way to lend a hand. But it's important to keep the risks in mind. If your child or grandchild doesn't keep up with repayments, it's possible you'll lose your savings or even your own home. It's wise to discuss with the homebuyer about what's affordable and what financial safety nets they have before proceeding with a family mortgage.
4. Point Them In The Direction Of Government Schemes
There are several government schemes that can boost efforts to save a deposit that may be right for your children and grandchildren.
First, the Lifetime ISA (LISA) can give a 25% bonus on contributions. A LISA can be opened by individuals between the ages of 18 and 40, and deposits can continue to be added until account holders are 50. Each tax year, £4,000 can be deposited, leading to a maximum bonus of £1,000 a year. Deposits can either be held in cash or invested. The drawback here is that withdrawals before the age of 60 for a purpose other than buying a home will lose the bonus and incur an additional penalty.
Second, a Help to Buy equity loan is also an option. Aspiring homeowners can purchase a new build home with just a 5% deposit, with the equity loan providing a further 20% boost (40% in London). As a result, a 75% mortgage will be needed to make up the rest. It's a scheme that can help first-time buyers secure a property with a lower deposit and one that may have been out of reach otherwise.
However, it's important to keep in mind that the loan will have to be repaid. This can be repaid when the house is sold or the mortgage term ends, whichever is first. Homebuyers that use the Help to Buy scheme should also be mindful of changing house prices. The amount owed is tied to the amount of equity the loan helped you buy. So, if house prices have increased, so will the amount that needs to be repaid. Interest also starts to be added to the equity loan after five years.
5. Speak To Them About The Process
The process of saving a deposit and buying a house can seem complex if you've not done it before. Simply, speaking to children and grandchildren can help get them on the right track.
When calculating how much was needed for a deposit, for example, 23% of first-time buyers took advice from an independent financial adviser. A further 10% asked a parent for help. Having someone to talk to about goals and where extra savings can be made could help first-time buyers achieve their aim that bit sooner.
If you'd like to help children and grandchildren get on the property ladder, it's natural to have some concerns. You may be worried about how taking a lump sum out of your wealth would have an impact or want to ensure those not yet ready to purchase have some help if you're no longer here. Please get in touch with us to discuss how you could help and the short, medium and long-term impact.
Estate Rent Charges: The Charge To Look Out For When Buying Freehold
The potential charges you could face when buying a leasehold property have been covered in the press. We all know that leaseholders are likely to face ground rent, as well as service and maintenance charges, that could rise rapidly. But you might overlook estate rent charges when purchasing a freehold.
When you purchase a leasehold property, you own the property for a fixed period but not the land it stands on. It's often used for flats. As a result, extra charges on top of mortgage payments are to be expected. However, when purchasing a freehold property, you own the house and land with no time limit on the ownership. Usually, this means there aren't any further charges. But some freeholders are finding they have to pay estate rent charges.
What Are Estate Rent Charges?
Usually, when private developers build homes, the local council will 'adopt' the estate. This means taking responsibility for the upkeep of public spaces, maintaining roads and paying for other costs. But the local council aren't forced to do this. With budgets coming under pressure some authorities won't 'adopt' new developments. It's becoming more common for this to happen.
The services a local council would usually provide need to be paid for in some way. As a result, developers establish a way to cover this; estate rent charges.
Paying for the service you'll be benefitting from as a freeholder may sound fair. But estate rent charges are criticised for two key reasons:
1. Freeholders have typically little say in the process and the charges. Often, what they are paying for and whether the decisions made offer good value for money are not transparent.
2. Legally, developers or management companies can take possession of a property if homeowners fall just 40 days behind on their payments. Whilst used rarely, it could mean homeowners effectively lose thousands of pounds due to forgetting to pay a relatively small bill.
If you're considering buying a property with estate rent charges, it's something that should be picked up by your solicitor. During the purchase transaction, your conveyancer should inform you of the charges and how these could change.
3 Problems Estate Rent Charges Can Cause
Even if you're happy to pay rent charges on a property, it's important to consider where it may cause problems in the future.
1. Securing A Mortgage
There have been instances of mortgage applications being declined due to rent charges. Often, it's related to the fact that developers or management firms could take possession of a property, rather than the cost.
If you'll be using a mortgage to purchase your home, it's worth understanding if it'll be a problem for lenders. Checking the criteria of lenders can help you pick a provider that's right for you and the home you want. A mortgage application being declined, for any reason, could have a negative impact on your credit score.
This may not be an issue for you. For instance, you may be a cash buyer or have already spoken to your mortgage provider about the issue. However, you should consider what will happen if you want to sell in the future. Sales could fall through if the interested party is unable to secure a mortgage. This doesn't necessarily mean you shouldn't buy the property but it's something to keep in mind.
2. Selling The Property
Whilst you may be happy to pay rent charges, remember other people may not be. When selling the property, you may find that the pool of potential buyers is smaller. As a result, it's wise to anticipate that it'll take longer to sell your home when the time comes.
An additional cost that they don't have control over could put some prospective buyers off. Being transparent about what you pay, how it's changed over time, and potential increase can help ensure time isn't wasted on those that will be put off. It's a step that can also highlight how it differs from the fast-rising costs that have become associated with leasehold properties.
3. Escalating Estate Rent Charges
Compared to the overall cost of running a home, estate rent charges are usually nominal. However, you should always check how long they'll be payable for and how they could increase in the future. This allows you to make an informed decision about whether purchasing the property is right for you and make allowances for potential costs that may arise long term.
Whilst transparency is an issue, with rent charges some management companies offer freeholders more insight. Being able to see how your money is spent and voice concerns can give you peace of mind about the future.
The Value Of Financial Advice
When we think about the value of financial advice, it can be hard to quantify it. After all, you often can't be sure how your fortunes would have fared, or if your circumstances would be different if you hadn't worked with a financial adviser. But research has shown that it does have real, tangible benefits for clients, as well as being valuable in other areas too.
Despite evidence demonstrating that financial advice can be valuable, nearly half (48%) of adults in the UK have never taken advice. Whilst the cost of advice may be a factor for some, this isn't always the key factor. A third believe that they can manage their finances perfectly well themselves, with this rising to 57% of over-65s.
The Financial Benefits Of Advice
Research completed by the International Longevity Centre highlights how financial advice can help your wealth grow:
∑ Those that received professional financial advice between 2001 and 2006, on average, saw their pensions and financial assets grow by £47,706 in 2014/16
∑ Pension savers classed as 'just getting by' saw a 24% boost to their pension fund, compared to 11% of those considered affluent
∑ Focussing on financial assets, the benefit of financial advice was £16,715 in 2014/16 compared to £13,888 in 2012/14, with a greater impact for 'affluent' groups
Whilst the cost of financial advice may be a prohibiting factor for some, the results show that the benefits can outweigh the initial and ongoing costs.
Whether you choose to receive ongoing advice, with regular reviews, or advice at key moments in your life, both can be useful. For example, you may choose to review your finances with a professional when you start a family or as you approach retirement. However, the research found that individuals who saw a financial adviser several times throughout the research period had nearly 50% more pension wealth on average than those that seek advice only once.
Financial advice can help you make the most of your wealth and put you on the right path for achieving aspirations.
The Non-Financial Benefits Of Advice
The research clearly highlights why financial advice can be useful in terms of growing your assets and pensions. But it's far harder to measure the non-financial benefits. Often, these are intangible, but they can be just as important as the increased value of assets.
Among these benefits are:
∑ Time-Saving: Ensuring you're getting the most out of your money can be time-consuming. You may not have the time or inclination to keep track of your investment performance, forecast your pension income or find the best place to put cash savings. Working with a financial planner can take these responsibilities out of your hands. Your time is valuable and by handing over some of the financial decisions and research to an adviser, you're able to focus on what's most important to you, whether that's your career, family or something else.
∑ Confidence: Financial decisions can have long-term impacts. As a result, it's not surprising that some people can feel apprehensive about their decisions or worry that they've made the wrong choice. Having someone to talk through your decisions and the different options can provide peace of mind. Knowing that a professional has looked at the pros and cons can give you confidence, knowing you've picked a path that's right for you and your goals.
∑ Security: Often when we make financial plans ourselves, we forget to look at what will happen if something doesn't go to plan. Would you still be on track if your income were to stop for six months? Could you still leave an inheritance if care were needed? As part of the financial planning process, we'll help you consider what kind of safety net can provide you with security. For some, this may be holding a greater portion of liquid assets, for others, it could include taking out some form of financial protection.
∑ Keeping Up To Date With Changes: Legislation and regulation are constantly changing. If this isn't part of your job, it can feel impossible to keep up with these and know how to incorporate them into your financial plan. Working with a financial planner can take this weight off your shoulders. As part of your annual review, we'll explain how change has had an impact on your initial plan. You'll also be able to access advice if you have concerns following changes too.
If you'd like to review your financial plan or learn more about how advice can benefit you, please get in touch. Our goal is to create bespoke financial solutions that reflect your aspirations.
Bank Of England Base Rate: Why Does It Matter To You?
When it changes, the Bank of England base rate is something that's featured heavily in the news. But why is it important and when does it matter to you?
The base rate is the interest rate that the Bank of England sets, in turn, it affects the interest rates that banks, building societies and other financial services offer. The base rate changes depending on economic conditions and influences the way consumers behave:
- Low interest rates mean that borrowing is more affordable, encouraging consumers to spend more. When interest rates are low, we're more likely to consider buying a car using finance or take out a larger mortgage
- In contrast, high interest rates mean you'll earn more on savings and pay more when borrowing. As a result, it encourages people to save rather than spend
The Bank of England's monetary policy committee sets the base rate, with members voting to leave base rates as they are or change them.
How Has The Base Rate Changed Over Time?
In recent times, we've become used to low-interest rates, but this hasn't always been the case.
The current Bank of England base rate is 0.75%. It's been low for over a decade, following the 2008 financial crisis. In April 2008 the base rate was 5%. However, this was slashed several times over the course of a year in an effort to improve the economy and encourage consumers to spend and support businesses. In August 2016, it was cut even further, to 0.25%, taking it to a historic low. Over the last two years, it has increased but at a very slow pace.
Whilst we've experienced low interest rates for over a decade, this isn't the historic norm.
During the late 80s, the base rate was far higher. In fact, the interest rate reached 15% in 1989. There are many factors that led to this decision but one of the key reasons was that it was seen as a way to reduce inflation.
The current interest rate and that of the late 80s are extremes. Looking at the historical average, interest rates have usually fallen between 4% and 6%.
But how will the Bank of England base rate change in the future? It's impossible to say with certainty, but economic turbulence caused by ongoing Brexit uncertainty could mean that interest rates will fall even further; good news for borrowers but bad news for savers.
At the last monetary policy committee meeting in November, the base rate was held. However, it was the first time since June 2018 that this wasn't a unanimous decision. It could signal that the base rate will be cut further if the UK leaves the EU in a bid to support the economy.
The Impact On Your Finances
The base rate set by the Bank of England affects the interest rate commercial banks will lend money. It's used as a benchmark when lending to businesses and individuals.
Saving
You've no doubt noticed that savings have been benefitting from poorer interest rates over the last decade. If, since the financial crisis, you've been a saver rather than a borrower, you're probably worse off.
For much of the last decade cash savings are likely to have grown by only small amounts. In fact, once you factor in inflation, your savings have probably declined in real terms. This means the spending power of your savings has been reduced.
In the past, cash savings may have offered you a way to grow your wealth safely over the long term. But lower interest rates may now mean it's more appropriate to invest in order to outpace inflation.
Borrowing
In contrast, borrowers have benefitted from the low interest environment. It's cheaper than ever before to borrow money. The interest rates for credit cards, loans and other forms of borrowing are competitive.
One of the areas you may have noticed this in is your mortgage. Our mortgage is often the largest loan we'll ever take out and interest payments can be significant. If you had a tracker mortgage, which tracks the Bank of England base rate, at the time of the financial crisis, you'll have noticed minimum payments fell.
Lower interest rates make borrowing more affordable. They also present the opportunity to overpay and reduce debt quicker, whilst paying less interest.
The Bank of England base rate may affect the best way to use your money. At some point, it's wise to quickly pay off debt but in others, it can be more prudent to save or invest your capital. If you'd like to discuss how to get the most out of your wealth in the current low interest environment, please contact us.
How Cashflow Modelling Helps Clients Plan For The Future
Financial confidence can have a hugely positive impact on lives. We wanted to share with you one of the methods we use to give individuals we work with confidence in their financial future; cashflow planning.
As financial advisers, our goal is to give each client confidence in their financial future. There are many stages in life where financial circumstances and priorities can change, from experiencing divorce to retiring. One of the tools we use to help clients understand how their finances may change over the short, medium and long term is cashflow modelling.
What is cashflow modelling?
Cashflow modelling is a way of showing how finances can change over an extended period of time depending on the decisions made today, as well as how circumstances out of a client's control can have an impact.
It starts by collecting data that represents a client's current situation. This may include how much they hold in pensions, income compared to lifestyle expenditure, and the size of an investment portfolio. By inputting this information, we're able to create a visual representation of wealth over time.
The visual aspect of cashflow modelling is one of the key benefits. It can often be difficult to understand wealth and the impact on lifestyle when you're talking about numbers. A client may know their investment portfolio is targeting growth of 4% per annum, but what will that mean in five- or 20-years' time?
Whilst incredibly useful, cashflow modelling goes beyond this. It allows you to manipulate the data to show how decisions will affect short, medium and long-term wealth. As a result, it can help answer questions like:
- Will I have enough income to achieve my desired retirement lifestyle if I give up work five years early?
- Will my partner be able to cope financially if I were to pass away?
- How much can I expect to leave to my loved ones as an inheritance?
- What if my investments under-perform?
- How would taking a lump sum out of my pension at 55 affect future retirement income?
Giving clients confidence in the long term
Cashflow planning helps clients answer 'what if?' questions and allow them to put appropriate measures in place where necessary. For example, a client that is worried about how well their family would cope if something were to happen to them may decide it's appropriate to take out life insurance or income protection policies to act as a safety net.
Understanding how wealth could change over the long term can help give clients the confidence they need to live their life.
The drawbacks of cashflow planning
Cashflow planning can be incredibly useful to a wide range of clients. However, there are drawbacks to the tool that should be kept in mind and balanced with other methods of ensuring financial confidence, including:
- It's only as good as the information used: Effective cashflow modelling relies on the information that is added. If there are inaccuracies or omissions are made, it can mean the analysis delivered falls short.
- Unforeseen factors: You can use cashflow modelling to predict the impact of events outside of a client's control. However, you do need to consider these in the first place, sometimes unforeseen events can have an effect that hasn't been calculated.
- It needs to be regularly reviewed: The unexpected does happen and financial situations can change significantly over even a short period. As a result, to continue being useful to clients, cashflow modelling, and the information used, needs to be reviewed regularly.
- No guarantees: Finally, it's important to remember that guarantees can't be made. Whilst we can model how wealth would change if investments delivered 5% returns, markets could under-perform and affect the actual returns.
If you would like to learn more about cashflow modelling and whether it could be useful to your clients, please get in touch. One of our team members would be happy to chat with you.
5 Ways Professional Connections Help Your Clients
Creating a network of professional connections can help clients access the joined-up advice they need at different points in their lives. We believe partnerships with other client-facing professionals are essential.
Building up a network of professional connections can be excellent for business and building up our client base. But it's also helpful for your clients too. At different points in their lives, having access to knowledgeable professionals in a range of industries can be valuable.
Relationships are an important part of the service that we deliver as financial planners. Whether you're a solicitor providing support through an emotional divorce or an accountant advising on business matters, relationships play a critical role in your service too. Clients might first contact you with a problem they want solving, but expertise and guidance need to be backed up with excellent relationships.
Of course, there will be times when a client needs expertise that falls outside your remit. As a trusted professional they may come to you directly for advice or be able to offer carefully selected referrals when an issue comes up. This is where professional connections can add value to both you and clients.
Having a bank of go-to professionals you can confidently refer clients to help cement your business as one that operates with clients' best interests in mind. Among the benefits to clients are these five:
1. Accessing a range of services needed
There will inevitably be times in their life when clients can benefit from different types of advice and service. Perhaps you've been working with a small business owner for decades, but as they think about selling their firm, they may need to start considering planning their financial future. This is an area we could help with. Alternatively, clients that receive financial advice may need the knowledge of a solicitor for a variety of reasons, from writing a will to going through a divorce.
Working with other experts in their fields allows you to put clients in touch with a comprehensive range of sources when they're needed.
2. Creating a joined-up approach
Working with multiple professionals can be stressful, not least because clients can be left feeling like the middleman and finding it difficult to keep track of where things are. An efficient, professional network can take some of this burden away from clients. Having solicitors, financial advisers or accountants that you regularly work with can mean processes and handling of information is smoother, as you'll understand how they operate. From a client perspective, it can make potentially challenging or time-consuming issues far easier to deal with.
3. Having confidence in the services offered
When you work with someone new, there may be some apprehension about the services they offer and whether they can be relied upon. Referrals from professionals they are already familiar with and trust can give clients confidence as they seek advice.
Often, recommendations of friends and family are sought after first. But if no one has needed the services they're seeking, it can leave them feeling at a dead end. Of course, the internet offers plenty of review sites but how much can you trust what you find on these? As a result, clients will often seek a personal recommendation to give them confidence in the services being offered.
4. Ease of finding appropriate professionals
This links to the above point. Whilst there are numerous professionals to choose from, understanding whether the service they offer is right for you can be difficult for clients. With a professional connections network that you frequently work with, you're in a position to take this weight from your clients. By referring clients to professionals, you know can provide the necessary support, you can help set them up to make a decision that's right for them.
5. Confidence in the future
When individuals seek the services of a financial adviser, accountant or solicitor, it's often because they have a specific problem or concern. Professional referrals can help clients to take control of their current situation and have confidence in their future, whether they're retiring, getting married or starting a business.
Professional connections as a source of business
Of course, it's not just clients that benefit from professional connections; your business could too.
Prudential's 2018 Adviser Barometer highlights the positive impact it has for financial advisers:
- Nearly six in ten (57%) financial advice firms expect more business from law firms and accountants
- Accountants and solicitors are rated as the second-best source of new business behind existing client referrals
- The relationship between financial advisers and accountants and solicitors has been increasing in recent years, potentially linked to the rise in clients seeking advice on Inheritance Tax and retirement Income Tax which can be complex. Vince Smith-Hughes, Director of Specialist Business Support at Prudential, said: Advisers pride themselves on delivering excellent service and support to existing clients and that is reflected in the fact clients remain the best sources of new business.
However, partnerships are becoming more important to help drive business and working with lawyers and accountants is clearly a good way for advisers to expand their existing clients and attract new business. Growth in demand for Inheritance Tax and retirement income taxation highlight areas where advisers are likely to be working in conjunction with other professionals.
If you would like to learn more about how Professional Connections can help your clients, please get in touch. One of our team members would be happy to chat with you.
Ethical Investing On The Rise: 3 Investment Strategies To Consider
More people are considering ethical investing. If you're thinking about incorporating values, there are three key strategies that are used, read on to find out which one might be right for you.
The amount of assets that are invested whilst considering the impact it will have has increased. More investors than ever before are taking ESG (environmental, social and governance) factors into consideration to align their portfolio with their values. But what investment strategies are there that allow you to reflect this?
The 5th - 11th October marked Good Money Week, an awareness week that aims to showcase the sustainable and ethical options when it comes to banking, pension, savings and investments. If ethical investing is something you've been thinking about and you want to incorporate your values into financial decisions, now could be the perfect time to do so.
Choosing investments for reasons other than financial gain has been a trend that's gradually gaining traction. Of course, this doesn't mean that you disregard returns, it's about taking multiple factors into account. As a result, ethical investing is sometimes referred to as having a 'double bottom line'; the return it delivers to you and the positive benefit.
According to research:
- Just three in ten men with investments only care if they make money, this figure drops to 15% for women
- However, there is a lack of awareness, just 69% said they had no idea they can request investments that have a 'positive social impact'
So, if you do want to invest with ethics in mind, what are your options? There are three key strategies to be aware of:
- Negative screening
When people talk about ethical investing, this is often the first strategy that springs to mind. It involves divesting and avoiding investing in companies that don't align with your values.
For example, if you're seeking to ensure your portfolio has a positive impact on climate change efforts, you may decide to no longer want to invest in companies with activities in fossil fuels. Alternatively, if human rights are a key concern, you may decide to avoid retailers that have exploitative practices within their supply chain.
When you see 'ethical funds' this is usually the top strategy they'll use, although the criteria can vary significantly between funds. One of the issues with this strategy is that large, multinational companies will often derive profits from multiple industries, particularly when you consider subsidiaries. As a result, funds will often allocate some leeway, for instance, avoiding companies that derive more than 5% of their profits for certain activities.
In terms of your investment and returns, negative screening will potentially mean cutting out entire industries. As always, it's important to keep in mind how balanced your portfolio is and how it aligns with your financial goals.
- Positive screening
In contrast to the above, you don't avoid investing in certain companies when using a positive screening strategy, but actively seek to invest in certain firms. It means investing in businesses that are championing the values you have.
Going back to the climate change example, with a positive screening strategy, it may mean investing in companies that are operating in renewables or researching new technologies that could help. Often, investors will allocate a portion of their investment portfolio to supporting their values.
This has both pros and cons. One advantage is that it means you don't miss out on potential investment opportunities, as you may with a negative screening process. On the other hand, it may mean investing in companies that don't align with your values.
- Engagement
Finally, an engagement strategy is about using shareholder power to encourage change within a company. Due to needing significant shareholder power to influence, this strategy is more commonly used by institutional investors, such as pension funds. However, that doesn't mean it's irrelevant to you. It's still possible to engage with your pension provider, for example, to encourage them to use their influence.
Which strategy is right for you?
It's important to keep in mind that there's no right or wrong answer here.
You may have a preference about which strategy you'd prefer, or maybe you want to blend them. However, it's just as important to look at your wider financial circumstances and how investment decisions will affect your goals. This is an area we can help with. Looking at your existing assets and how these can be adapted to reflect ethical views, can lead to a portfolio that supports both your ethics and aspirations.
Setting out your values
If you're beginning to consider incorporating ethical investing in some way, the first step is to consider your values. What's important to you?
One of the challenges with ethical investing is that it's a highly subjective area. What you may consider unethical, may be acceptable to others. This can make it difficult to find funds that align with your views. Setting out what your priorities are can give you a starting point. According to research from Triodos Bank, the top five industries investors would want to avoid are:
- Manufacturing or selling of arms and weapons (38%)
- Worker/supply chain exploitation (37%)
- Environmental negligence (36%)
- Tobacco (30%)
- Gambling (29%)
Do you agree with these? Before investing your money through an ethical fund, take some time to look at the criteria. There may be instances where you need to compromise, so you should also think about how comfortable you'll be with this.
If you'd like to discuss your current investment portfolio, please get in touch. We'll help you understand how it's currently invested and potential changes that could be made, reflecting your views and financial position.
Please note: The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
7 Things To Review When Looking At Your Pension
Regularly reviewing your pension is important for ensuring you're on the right track. We've got a checklist of seven things you should know or check about your pension.
Research suggests thousands could be missing out on investment returns in their pension because they haven't updated their retirement age. Remaining engaged with your pension can help you create a retirement income that meets expectations. So, what should you review when looking at your pension?
- What fund are you invested in?
Typically, a Defined Contribution pension will offer several different fund options for you to choose from. When you first join the scheme, you'll automatically be enrolled into one and this will remain so unless you change it.
There are a few reasons why you may want to change which fund your pension is invested in. Often, they will have varying levels of risk, allowing you to choose one that suits your attitude and goals. In addition, many pension providers also offer an 'ethical' fund if you want your pension to be invested in a way that reflects your values.
It's usually easy to change which fund your pension is invested in, either by updating it through an online portal or contacting the pension provider.
- What does it assume your age of retirement is?
Pensions are usually invested. Traditionally, the level of risk these investments take decreases as you approach retirement age automatically. However, if the assumed retirement age doesn't align with your plans, you could miss out on returns.
According to analysis from Aviva, an average earner in an automatic enrolment scheme could miss out on more than £4,000 in their person by sticking with a default retirement age of 65, when they intend to retire at 68. If the default retirement age is set at 60, this rises to almost £10,000. With retirements becoming more flexible, this could be a growing issue.
It's also worth noting that, depending on your assets and retirement plans, de-risking investments as retirement approaches may not be the best option.
- Are you receiving the correct level of tax relief?
Tax relief is one of the aspects that makes saving into a pension valuable. It's a helpful way to boost your contributions. The amount of tax relief you receive on pension contributions is linked to the highest rate of Income Tax you pay.
The basic-rate of 20% tax relief is automatically applied. However, if you're a higher or additional-rate taxpayer, you will need to claim the additional tax relief through tax returns. It can seem like a chore, but it's one that's well worth doing. To increase your pension by £100, you'd need to add £80 if you're a basic-rate taxpayer. However, this falls to just £60 and £55 for higher and additional-rate taxpayers respectively.
- How much are you contributing?
If you're not sure, it's a good idea to look at how much you're paying into your pension each month. Under auto-enrolment, this will be a minimum of 5% of pensionable earnings. However, you can increase this. Even a small increase can have a big impact over the long term, particularly when you factor in tax relief and investment returns.
- What is your employer contributing?
Your employer will also be making contributions to your pension. As a minimum, this will be 3% of pensionable earnings. However, some employers do pay in more or will increase their contributions if you do. It's worth checking what your company policy is on this as employer contributions are essentially 'free money' that could boost your future income.
- What returns are investments delivering?
As stated above, pensions are usually invested. The returns these investments deliver can help your contributions grow over your working life. As a result, taking a look at how investments are performing at part of a regular review can help you see whether the investments are right for your goals.
It's important to look at the bigger picture here. Investments are often volatile when looking at just a snapshot of figures. Instead, you should look at how your investments have performed over the long term to gain a more accurate understanding.
In addition to returns, take some time to look at the fees you're paying, as these will eat into the returns.
- What is the projected value at retirement?
Finally, how much will your pension be worth when you want to access it? Your pension provider should give you an estimate of this figure, although it's important to keep in mind that this can't be guaranteed.
Understanding what your pension is projected to be worth gives you an opportunity to see if expectations align with reality. If there's a shortfall, the earlier you spot it, the better the position you're in to make necessary changes. Alternatively, you may find you're in a position to retire earlier than expected if you want to.
If you have any questions about your pension or other assets that will be used to fund retirement, please get in touch. Our goal is to help you get the most out of your finances and have confidence in your financial future.
Please note: A pension is a long-term investment. The fund value may fluctuate, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change in the future.