The cost of advice

People seeking financial advice (for the first time or on an ongoing basis) need to “shop around” if they don’t want to be hit by high costs, a survey by reviewing service Which? has found.

According to the consumer group, which talked to 108 financial advisers in the UK regarding different client situations, the difference between the cheapest and most expensive advisers can be very significant. In the first instance, a client had a £150,000 pension pot, £100,000 in savings and the same amount in an Isa. The cheapest quote for financial advice was £500, the most expensive £5,000 and the average cost was £2,540.

Second, advisers were presented with a parent on how to pay for university education, with the help of £60,000 in savings and £40,000 invested in stocks and shares. For this scenario, quotes ranged between £300 and £2,500, with an average of £1,060. In the last case study, IFAs were to advise a 50-year-old homeowner wishing to invest a £100,000 inheritance. Financial advice costs went from £500 to £3,000, averaging on £1,980.

Weekly Market Commentary – 18th October 2019

When Hubris meets Nemesis
This week we saw the Woodford saga come to an end as fund administrator Link wound down the Equity Income fund. While it’s easy to jump on “blame the manager” bandwagon, some of it should be shared to those who continued to recommend fund even as the level of unlisted stocks held within the portfolio crept up. Yes, funds will open and close, but ultimately it will be the investors who get burnt. At the very least they should have been made aware that their star manager had turned, betting on lottery-like stocks rather than the large cap companies that had built his reputation in the first place.

Another thing investor should be aware off is that daily dealing open-ended funds aren’t always a place where you can withdraw your cash at any moment. While this is the case for most equity funds it may not be a case for all asset classes: after all it is difficult to sell a building within a day. And while there are cash buffers within physical property funds, during the bad times when there is a rush to exit, those reserves tend to quickly evaporate.

US: Banks Kickstart Earnings Results
Earnings season kicked off this week with the big US banks disclosing their results. JP Morgan led the pack as bumper investment banking fees helped the bulge bracket (comprising the world’s largest multi-national investment banks) beat expectations. It was a similar story for Citibank, but Goldman’s profits dropped 26 per cent as a string of bad investments including the likes of WeWork whose IPO collapsed and Uber whose share price has taken a U-turn since its launch in May. Broadly speaking, it’s been a mixed bag for banks struggling to adapt to a low interest environment.

While consumer America looks relatively rosy there are still fears that the corporate earnings recession could continue this quarter. The US-China trade war continues to play out but there appears to be a glimmer of hope. The latest round of tariff talks ended late last week with the US announcing it will halt its planned hike which was due to come into effect this week. However, there is a separate tariff hike that will come into effect in December which hasn’t been addressed so expect trade talks to rumble on for a while longer.

UK: Boris’s Brexit Deal is bad for the economy
Prime Minister Boris Johnson’s proposed deal, essentially a tougher version of Theresa May’s deal is estimated to cost the UK close £130bn in lost GDP growth over the next 15 years. The Department for Exiting the European Union calculated that a Canada-style free trade agreement would shave off 6.7 per cent of GDP growth leaving people £2,250 poorer per year. But this depends on if the settlement passes through parliament. Given that May’s deal was rejected three times, passing a variation of the same deal through the Commons seems to fit Einstein’s definition of insanity perfectly.

Meanwhile, Brexit uncertainty has depressed housing sales volumes as buyers and sellers alike sit tight and aim to ride out the uncertainty. In turn building supplies companies have also suffered with one of the largest groups Grafton issuing a profit warning this week. Grafton which sells timber, bricks and paint amongst other things blamed weak sales on “softening activity” and expects profits to be four to eight per cent lower than expected. Shares of Grafton fell ten per cent following the announcement.

Eurozone: Broadcom hit with antitrust order
Semiconductor manufacturing company Broadcom, a stock held by fund managers and sovereign banks, was this week slapped with an antitrust order by the European Commission (EC). Last summer the watchdog opened an investigation into the hipmaker to determine whether it held exclusive purchase obligations with its customers. This would mean the customers would either have to buy only their products or would have to maintain a minimum volume of orders. In turn they would receive healthy rebates/bundling offers.

Much like Google learnt last year, the EC doesn’t take too kindly to companies attempting to stifle innovation and competition and has put in a request to cease these additional provisions with six of its main customers this time before the investigation has even been concluded. Shares of Broadcom fell 1.3 per cent following the announcement.

Will you have to wait until 75 for your state pension?

The state pension age for men and women in the UK is in the process of increasing from 65 to 66, with further rises to be implemented over the coming decades. It’s a controversial topic with many older people unhappy about having to work later than expected. Making the subject even more contentious, a think tank has now recommended for the increases to be accelerated – with the state pension age moving to 75 in just over 15 years’ time. The Centre for Social Justice (CSJ), a centre-right, independent think tank founded by former work and pensions secretary Iain Duncan Smith, has recommended the threshold for the state pension move to 70 by 2028 and then to 75 by 2035 for both men and women.

The CSJ highlights that the first state pension schemes, with eligibility thresholds of 65 to 70 years, launched at the end of the 19th century and beginning of the 20th century when the life expectancy was about 50 years. Today the life expectancy is 81 and the current eligibility threshold is much the same. The CSJ says the state pension scheme still operates within the age thresholds set for the pioneer pension schemes over 100 years ago, revealing what they believe to be a disconnect between contemporary life expectancies and the state pension age. This raises the question of whether the state pension age is fit for the 21st century.

Bitcoin tax crackdown

People who buy and sell bitcoin and other cryptocurrencies are being warned to check if they need to pay tax on any windfalls, they make amid an HMRC crackdown. The taxman has confirmed it’s asked a number of cryptocurrency buying and selling platforms to reveal how much users are making. Experts say the move follows a similar investigation launched by the USA’s Internal Revenue System (IRS).

HMRC won’t say which firms it’s spoken to but CEX.IO told The Sun that it’s been contacted by the tax man. The crypto exchange says it’s been asked for the names and addresses of UK residents who’ve transferred cash using the site between April 6 2017 and April 5 2019 – as well as the value and dates of transfers. CEX.IO says it’s now investigating whether it has to meet the tax man’s demands. This is a timely reminder that while you don’t have to pay tax when you buy bitcoin or other cryptocurrencies in the UK, you might have to pay capital gains tax when you come to sell it.

Probate delays

Obtaining probate is taking longer owing to delays at probate registries.  The time was that Government guidance on probate said that it would usually be granted within four weeks of submitting the necessary documentation. Now, if you visit the relevant webpage on, the period mentioned is eight weeks.

In May, the slowdown in the process prompted the Law Society to complain to HM Courts and Tribunals Service (HMCTS) about the “ongoing delays to the probate service”. HMCTS offered up an assortment of excuses in response, from “technical issues across…probate infrastructure” to a “new case data management system”. HMCTS also acknowledged that their political masters had added to workload pressures by announcing a future increase in probate fees (see our earlier Bulletin). Following HMRC agreement that probate registries could accept applications without accompanying inheritance tax (IHT) forms (see our Bulletin of 1 April) the inevitable result was an increase in applications and queries.

A chase up meeting was held in June at which HMCTS requested that they only be contacted when delays exceeded eight weeks. The meeting also produced confirmation that “HMRC would not be able to apply a ‘credit’ or write off any interest that is due in relation to IHT payments”. IHT is due by the end of the sixth month after the month in which the person died (eg 31 July a for a death in January).

At the start of August the Law Society announced another meeting with HMCTS in September to review matters. Simultaneously the Law Society asked for examples of delays of over six weeks. By coincidence we know of one case involving an estate worth approximately £420,000, with no IHT liability thanks to the residence nil rate band, that took over ten weeks to receive the grant of probate.

Pensions schemes slammed for opaqueness

A report by the Work and Pensions Select Committee, chaired by Frank Field MP, has called on pension schemes to be forced to publish charges in full, including transaction costs. At present, new rules ushered in last April recommend pension schemes publish this information but disclosing was made voluntary rather than mandatory. In light of this, the Work and Pensions Select Committee is concerned that take-up will not be high and has called for disclosure of all charges to be made mandatory.

The hard-hitting report states that the government and regulators should not wait for the industry to fail to act voluntarily, as they have been done so many times in the past. The report notes: “We fully recognise that value for money is not solely about costs, but costs inevitably form an important part of the equation.

Complexity and layers of intermediaries mean that many trustees do not have access to suitable information to make judgements about the costs of managing their schemes.” In addition, the report called on the Financial Conduct Authority to cap pension charges at 0.75% for its proposed four ready-made investment solutions, so-called investment pathways. At present, there is no charge cap in place.

HMRC’s pension tax trap

Pension savers are being overtaxed at record levels when they dip into their retirement pots. More than 200,000 over-55s have clawed back nearly £500 million since pension freedoms were introduced in 2015. But the taxman is pocketing on average £2,355 too much when retirees make their first withdrawal. This is because HM Revenue & Customs (HMRC) charges them a so-called emergency rate of tax. To get their money back, savers must then fill in a complex, nine-page form, or wait up to a year for a rebate.

The amount of tax being reclaimed is at its highest level since the pension freedoms were brought in to allow savers access to their retirement funds without having to buy an annuity (a guaranteed regular income). Latest HMRC figures show around 17,000 people clawed back nearly £47 million in tax between April and June this year alone.

This is compared to £29 million claimed by 14,000 savers in the same three-month period last year. And this does not include the tens of thousands of people who could still be waiting for a rebate. Figures from City watchdog the Financial Conduct Authority (FCA) suggest more than 200,000 people a year risk being overtaxed when making withdrawals from pension savings for the first time.


Weekly Market Commentary – 11 October 2019

All Brexit Signs Point towards a General Election
This week has seen a flurry of Brexit headlines, each one both calling an end to the process and somehow extending the whole saga at the same time. While trying to guess what the government is actually doing in these talks is difficult, not least for the government, we’re of the view that despite the noise nothing has changed. The Good Friday Agreement will require more alignment to EU rules than the Brexiteers are happy with to keep the Irish border open, and the Benn act makes talk of no-deal meaningless.

We think all the activity now underway is just theatre. Talk of a work around to force no-deal ignores the illegality of such an attempt and is solely designed to keep the base from turning on the PM. There will most likely be an extension at the end of the month, followed by a general election. All of Westminster knows this, and almost everything you see and hear from now on is just election campaigning.

Autos: China’s Love for Mercedes keeps Daimler in High Gear
As demand for cars declines globally, Daimler-owned Mercedes Benz’s quarterly figures show them battling against the tide. Year-on-year sales were up 13 per cent for last quarter with much of the demand driven by Chinese consumers. In addition, Germany’s enthusiasm for Mercedes hasn’t waned either as sales for the region were up 25 per cent for September compared to last year. Mercedes enjoyed similar growth in the US, only just losing out on being number one premium selling brand to BMW by 34 cars.

Mercedes can only do so much for the German economy however. While export figures remain in the doldrums buffeted by trade tensions, the labour market remains tight and real wage continue to grow fuelling consumer appetite for spending. The auto industry represents five per cent of the German economy and if consumers are happy to spend on the likes of Mercedes and BMW – Germany may just be able to stave off a recession this year.

UK: Recession Fears Subside Despite Weak August
Economic forecasts released this week predict that the UK will avoid a recession this year. A “technical recession” would require two consecutive quarters of negative GDP growth and while the economy contracted in Q2, GDP is expected to rise by 0.5 per cent in Q3 easing recession fears. Despite the Brexit uncertainty, the TV and film industry helped to boost the services sector, but manufacturing is expected to remain weak.

Meanwhile, Pizza Express may become the next casualty in the casual dining sector. The 54-year old business has a hefty £1.12bn debt pile of which £656m is owed to bond holders and the rest to its parent company Hony Capital. The emergence of disruptors like Deliveroo along with the changing taste buds of millennials, who prefer Middle Eastern and Caribbean food, has eaten into the Pizza chain’s profit margin. Of the £543m revenue generated last year, £93m went straight to pay off its debts leaving the company £56m in the red.

Global: OECD New Tax Proposals Set to Hurt Faangs
The Organisation for Economic Co-Operation and Development (OECD) this week proposed a global shake-up of taxation rules. The aim is to ensure multinational companies pay more in corporate tax; which is set to impact tech giants like Amazon, Facebook and Google. The current rules which have stood for close to 100 years inadvertently enables corporations to exploit loopholes to artificially, yet legally, shift profits to no or low-tax countries. In order to stop this, a global framework has been set out which all countries can abide by rather than going down the unilateral route such as the digital tax sales mooted by the UK and France.

The new tax proposals will ensure that more corporate tax will be paid in countries where the most profits are generated ensuring exchequers receive a fair share of revenues generated. G8 members and developing economies stand to be the biggest winners if these changes go through, while low tax jurisdictions like Ireland and the Netherlands are set to lose out.

Pensions scam alert

The FCA and The Pensions Regulator are issuing a new warning against fraud after finding that 42% of pension savers – the equivalent of 5 million people – are at risk of falling for common tactics used by pension scammers. The likelihood of being drawn into one or more scams increased to 60% among those who said they were actively looking for ways to boost their retirement income. Pension cold calls, free pension reviews, claims of guaranteed high returns, exotic investments, time-limited offers and early access to cash before the age of 55 are all ways savers are tempted into risking their retirement income.

Yet those who consider themselves smart or financially savvy are just as likely to be persuaded by these tactics as anyone else. Pension savers were tempted by offers of high returns in investments such as overseas property, renewable energy bonds, forestry, storage units or biofuels. Nearly a quarter (23%) of the 45-65-year-olds questioned said they would be likely to pursue these exotic opportunities if offered them. Helping savers to access their pensions early also proved to be a persuasive scam tactic. One in six (17%) 45-54-year-old pension savers said they would be interested in an offer from a company that claimed it could help them get early access to their pension.