Traditionally a mortgage broker was probably the most effective way to access the best mortgage deals available. True, there were a few lenders, e.g. HSBC, who only dealt direct, but mortgage brokers still gave the most comprehensive access to the mortgage market. Additionally, the Investwise policy of both researching the market and making clients aware of any direct deals to pursue, aimed to give the best of both worlds.

Following the recent financial crisis, mortgages became more difficult to secure, lenders became more selective and the whole process became more complex, forcing more borrowers to turn to price comparison sites, independent financial advisers and mortgage brokers.  In response and to attract more general business, banks introduced mortgages with lower interest rates to certain types of client if they apply directly in branch.

These direct mortgages are usually targeted to attract business from selected borrower types, e.g. employed borrows with significant cash deposits.  or those most likely to be attracted to other accounts or products offered by the lender. They may be a route to a lower cost mortgage, but there are important considerations:

• Considerable time and effort will be involved finding an applying for these direct deals.
• Progressing a completed application via some bank service centres can be frustrating indeed – moving can be stressful enough without this.
• The whole process takes time – weeks – to secure an offer; or a refusal.
• You have no way of knowing in advance if you are in one of the target groups and a surprise refusal will mean applying all over again with another potential lender.
• It is unlikely that the important mortgage related insurance products will be the most competitive, so you may still need advice.

Even when successful, you may not have secured the best deal around and arguably it can be far more efficient to have an independent financial adviser apply your behalf. 

The Investwise approach has considerable advantages:

• As fee based independent financial advisers, we will always include appropriate lender direct deals in our recommendations.
• We also have access to negotiated exclusive deals, not available at Bank branches.
• We have access to the lenders criteria prior to your application, so check to ensure you fit the lenders target client group for direct deals.
• Where you apply through us, we progress the application for you through to a formal mortgage offer.
• Any mortgage related products will be researched independently of any lender.

We believe that our approach is even more relevant in today’s complex market and provides a most valuable service to borrowers.

The information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information.

12/04/2011.

Our summary and thoughts on the proposed changes.

The government has announced proposed changes in the post-retirement rules for pensions. These changes, which are due to come into force from April 2011, affect personal pensions or SIPP arrangements, not final salary schemes, and impact your options for taking income from your pension.

The key changes:

Annuities - you will no longer be forced to buy an annuity at the age of 75 (currently, at 75 you are forced to buy annuity or enter into an Alternatively Secured Pension which has strict income limits and an onerous 82% tax on cash paid on death). Importantly, money back / guaranteed annuities will be allowed after 75.

Drawdown - the two options will be available at whatever age you take your pension after age 55 and additionally will replace existing Drawdown or Alternatively Secured Pension arrangements. On death, remaining funds can be used to provide income for a spouse or dependent or passed to a beneficiary as a lump sum subject to a 55% tax charge.

1. Flexible Drawdown – a new option for those who meet a minimum income requirement (MIR) of £20,000 a year from other sources (the basic state pension, additional state pension, final salary pension and annuity income qualify), will not have any limits on the lifetime withdrawals. You will be able to take money from your fund as and when you want.
2. Capped Drawdown – the only option for those who do not meet the minimum income requirement (MIR) of £20,000 a year from other sources. Allows annual withdrawals between 0% and 100% of the Government Actuary’s Department (GAD) limit, which will broadly equate with what an annuity would pay. The GAD limit will be reviewed every three years before age 75 and every year after age 75.

Tax free cash – the 25% tax free cash option will remain and continue as an option after 75.

Un-crystallised funds – On death before age 75, untouched pension funds are paid out free of inheritance tax.  After age 75 untouched pension funds are taxed at 55%.

Our views:

Annuities – the changes will be good news for those calling for the removal of the age 75 threshold. However, annuities give a guaranteed income for life and we continue to believe that they should provide at least part of any pension income. For smaller funds and those who are risk averse, annuities remain the only sensible option.

Drawdown pensions remain a higher risk option than an annuity and are not suitable for everyone, however overall the new proposals are a welcome development.

Flexible Drawdown – a much improved drawdown option for those with the qualifying income, giving near complete control of your fund, but potentially complex and carry a significant burden of risk.

Capped Drawdown – the only drawdown option for those who do not meeting the minimum income requirement (MIR) of £20,000 a year from other sources. Those with larger funds could use a proportion to meet the £20,000 MIR requirement and thus qualify for the more controllable Flexible Drawdown pension for the balance of their fund; those with smaller funds may be more suited to an annuity.

Who is affected:

Saving for a pension – or considering saving for a pension – We have always strongly recommended saving for a pension. These changes are positive developments which further strengthen the case and give you a wider range of options with potentially more flexible access to your funds after retirement.

Approaching retirement – A careful review is essential, of the options and the timing. You may be well advised to wait for the new choices and also it may take insurance companies some time to fully update their systems to encompass the new options. Given the timing, a full review should consider your funds, your requirements and your attitude to risk, before choosing the best option or mix of options.

Already in drawdown – You will be moved to the new Capped Drawdown which allows annual withdrawals between 0% and 100% of the Government Actuary’s Department (GAD) limit – lower than the present 120% of the GAD limit, so potentially reducing your income. Switching to an annuity remains a viable alternative or if you have (or can use funds to buy annuities generating) the minimum income requirement (MIR) of £20,000 a year from other sources, then the new Flexible Drawdown option may be considered.

Approaching 75 – The range of options available for under 75s are available to you after you pass 75.

Over 75 and already in an Alternatively Secured Pension – the new, more benign, drawdown rules will apply.

Not affected – If you have a final salary pension, or have already fully vested you pension funds into an annuity, then these changes have no impact.

These changes and our thoughts will be part of the background to our next round of reviews with clients. If you wish to discuss them or anything else before our next meeting, please call.

Please note, this information is based on announcements made in the December 2010 autumn tax updates which may change before becoming law. The information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information.

30/12/2010.

There have been many significant developments since our last newsletter:-

• The sovereign debt crisis - Threatens to replace the banking crisis with southern Europe as the focus, although the US and the UK have comparable debt levels.
• Dividend income - Those relying upon dividend income, having been severely hit by their holdings in banks, have now been hit by BP.
• Retirement - Pension costs have been forced up the agenda, so many (all?) will soon face later retirement and less generous provision.
• New Government - In the UK a new Government and new budget give food for thought.
• Risk - The world economy, recently surrounded by doomsday warnings, continues to avoid the worst of the predictions, yet there is still concern about risk, but there always should be as risk is always present – the difference now is that the risks seem more identifiable.

We always advise: “establish the level of risk you are comfortable with and stick with it” - but that does not mean do nothing.

• The sovereign debt crisis - growth will be limited by actions to reduce spending, but for the adventurous, depressed European asset prices and a weakened Euro may be an opportunity to increase exposure to Europe. Suitable funds are the easy way for most and there are several available.
• Dividend income - chasing “safe haven” dividend yielding stocks is always more risky than it seems for the individual investor and if you are “in” when the crisis hits (e.g. Banks, BP), you are trapped. If you need income, funds tailored to produce dividends are a safer way to minimise your risk.
• Retirement - Always the most important consideration and yet so often ignored. Cost pressures, lower returns, reduced tax allowance, delayed retirement, longevity, reduced annuity rates, etc. conspire to form a gloomy picture, but do not strengthen the case for doing nothing. Doing something is better than nothing, always. Keep retirement high on your list for your planning or for discussion with your adviser.
• New Government – Actions to reduce the deficit probably mean that interest rates will remain low for longer and growth/income elsewhere risky to chase. Cash is an essential element in any plan, and the closer you are to retirement, generally the more proportionally you should hold. Therefore, make the best of it. Move savings (and importantly ISAs) around to maximise interest. Make the most of tax free savings if you are a taxpayer (NS&I, ISA’s) to minimise the effect of tax upon already low interest rates.
• Risk - Low returns are tempting many clients to consider significantly increasing their risk exposure. We are never comfortable with this, particularly now. Always we return to our two key guides:

“establish the level of risk you are comfortable with and stick with it” – move within your level by all means, but not outside it without the most careful consideration.

“timing for a single sum is always difficult, so a gradual move over several months/years is always recommended”  This gradual approach has served many clients very well.

These thoughts will be part of the background to our next round of reviews with clients. If you wish to discuss them or anything else before our next meeting, please call.

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information. 02/07/2010

Investwise Group’s Further Reflections and Thoughts on the Global Financial Crisis. 

What will happen, where will the financial markets go now? Many professional investors have struggled with the convolutions of the past couple of years, so what chance is there for the average person planning for the future, their family, their retirement?

In March, our last article on this subject, we felt that the bottom of the market was close:

“…significant participation now is only for the adventurous, or those with very long horizons. For the adventurous, many asset prices may be considered a "bargain". For those with a more moderate approach to risk and with cash returns falling, then some increased participation may be considered.”

Also we suggested, as we consistently do:

 “…timing for a single sum is always difficult,… so a gradual move over several months (or years) is always recommended”

Since then, most markets have recovered by 20%-30%, so many who held their nerve a year ago (when it was too late to react anyway) have seen their investments recover to some extent and those who increased their participation should be showing pleasing gains (certainly far better than cash with interest rates at record lows).

This “recovery” has been against a background chorus of, “bear rally” “it won’t last”, “double dip recession”, etc. etc…. Valid arguments, but many analysts who “predicted” the 2008 collapse were calling it for years and had to be right eventually. Certainly true is the fact that the recent rally means some of the immediate “sizable” market gains have occurred and the chance of value reductions is possibly greater than it was in March.

Recently many clients, attracted by the recent rally, have been considering greater participation. This is a common reaction, but not a course we are comfortable with. An investor not comfortable with the potential market fluctuations in March, should be no more so (arguably less) now.

Our view remains: establish the level of investment risk you are comfortable with and stick with it. Individual levels of risk can be discussed and agreed with the help of your adviser and there are many factors – your circumstances (e.g. those close to retirement usually need to avoid uncertainty), the time horizon over which you want to invest, your investment objectives be they income, capital growth or a combination of the two, whether you want to invest in funds that take account of ethical or environmental issues or not, your personal attitude to investment risk.

Having established a risk level then some variation may be appropriate e.g. a little more participation in March when values were good, perhaps reducing now that a rally has been enjoyed. Timing however remains the issue and one that is difficult to call hence our ongoing advice is worth repeating:

“…timing for a single sum is always difficult,… so a gradual move over several months (or years) is always recommended”   

This remains our view. 

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information. 05/01/2009.

A financial adviser should be viewed like any specialist; they provide a service that you could probably do for yourself (e.g. an accountant or a plumber), but your affairs will normally proceed more easily and effectively if you use them.

A good financial adviser will have knowledge of the market, legislation, taxation and administration that would take considerable time to research for yourself before you make informed decisions. Additionally, there are some areas of financial planning that can only be conducted through a qualified financial adviser (or example, there are product providers who do not sell directly to the public).

If you use a professional financial adviser then you are entitled to expect that the adviser:

• Is someone you feel you can trust, who inspires confidence and is a discrete “sounding board” for discussion of any concerns or issues
• Holds a QCA Level 4 qualification or equivalent (mandatory by 2013) 
• Is able to recommend products from across the whole market (some will only be able to recommend products from a limited range of providers)
• Is fully authorised and regulated by the appropriate authority – The Financial Services Authority (FSA)
• Keeps fully informed and  up to date with all relevant markets/products/providers
• Keeps fully informed and  up to date with all appropriate legislation, taxation and administration
• Demonstrates a clear understanding of your needs and objectives
• Provides you with a clear plan to meet your needs or achieve your objectives
• Offers a clear open charging structure, with options to pay for advice either on a fee basis or a commission basis (where the fee is deducted from any subsequent investments).

Importantly, you should believe that your financial objectives are more likely to be achieved as a result of the services of your chosen adviser.