Financial Advice – March 2015

We have just completed one of the financial reviews for our clients here at SSFM, with most of the communication being sent out by secure email requesting clients to give us permission to re-balance their portfolios. Whilst undertaking this process this time it got me thinking for some reason. I then found this famous quote below from a great innovator Henry Ford.

The reason it had me thinking, was about the importance of both ongoing advice as well as initial advice for clients. All of our clients have gone through the initial advice process when becoming a client of SSFM. So, most of you will know that in the first instance I try to guide and educate people in finance, as best as I can (remembering that I am not a teacher). But the ongoing advice part of the solution is also of paramount importance.

I spoke to a potential new client just recently who was considering a “do it yourself “approach to his finances, which is fine, although as I pointed out to him, it’s a bit like tending to your garden at home. Please don’t think you can just mow the grass once at the start of the year and then leave it. The SSFM model portfolios are rebalanced 3 times a year, so when your portfolio is rebalanced following one of these reviews you are getting an actively managed portfolio with funds that are measured for their quality and performance.

Then there is the initial advice or guidance as I sometimes refer to it. Now this does not apply to my existing clients. But I certainly can align myself with Mr Ford’s comment here. In my experience the public don’t always know what they want when it comes to financial advice either. In a recent survey according to the Financial Times over a third of people thought the higher the APR on a loan/credit card was better for them. And only 50% knew what an annuity was. Worryingly here, is that this means that 50% do not know what an annuity is. But, 90% knew what a mortgage was. Further evidence if we need it that people understand debt more than financial savings products maybe.

One of the biggest challenges that we are going to face I think in the coming years is volatility and therefore investment risk, and this will have a knock on effect to managing clients expectations. For example the recent bout of Quantitative Easing (QE) whilst good for the financial markets, but what QE does, is it forces us all to take more risk. Why? Because the returns on other assets such as cash and bonds diminish. The yields on offer on bonds at present are so low they almost defy economic logic as to why would anybody invest there. For example last month in Germany a 5 year government bond was issued giving 0% return. Yes I did say zero. So if you invested in this bond after 5 years you got your money back, that’s it. However, this tranche of money was over 1.7 times oversubscribed. Ludicrous. I could give you another example about a bond available in Finland, with a negative return over 3 years, but I think you will get my ‘drift’ with this.

So if you cannot get your returns in cash (your bank) or bond yields where can you go? The obvious answer then is equities. And there is the challenge I mentioned.

Just going back to the Simple Solutions Model Portfolio reviews, a really good story here. As they went out last Thursday (26th) one client came back to me on the Friday who was in New Zealand on holiday (I had forgotten) but they too gave me the authority to switch. Now if that is not the most powerful example of technology in progress I fail to see what is. Imagine being on the other side of the world but having your portfolio re-balanced in the normal way, as if you were on the other side of town. Needless to say a happy client.


Client Websites

This has settled down now with most clients being able to login successfully. Thank you to all of you for your patience in dealing with this. And special thanks to Declan in the office who has tirelessly helped people with the login process. The change was instigated by the back office service provider True Potential, and was done for security reasons. Whilst change of any kind can be a little uncomfortable for all of us. I am sure that you can understand that if it is for security reasons that we are having to undertake this, then it is worth being uncomfortable for a few minutes!

What we are intending to do is introduce Declan to clients with the sole aim of helping with the website features. There have been a lot of changes to the client websites over the last 12 months, with a goal setting tool on there, as well of course as True Potentials very own ImpulseSave. So Declan will be in touch in due course, but if you want him to meet with you earlier than simply get in touch with the team at the office.


Financial Year End April 6th

We have about 5 weeks left of the financial year so remember the ISA season. You have an allowance of £15000, if you don’t use it, then you lose it. In addition for this financial year the Annual Allowance – which is the amount that both you and your employer can contribute to a pension scheme has decreased to £40000. This is very important that you do not breach this financial ceiling, because there are penal tax consequences if you do.

And of course on the 7th April the 1st working day of the new fiscal year we have the Pensions Freedom. I intend to write a separate blog on this subject, so watch for the next communication.

Kind regards