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Financial Tips
Helping Dentists & Doctors Achieve Their Most Important Goals
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Most Investors Do Not Get Value For Money!
 At the end of 2016 we reported on the study that the Financial Conduct Authority (FCA) were carrying out into the Asset Management Market.
Why was this important?
Well, as the FCA stated:
"The asset management industry plays a vital role in the UK’s economy. Asset managers manage the savings and pensions of millions of people, making decisions for them that will affect their financial well-being.
The UK’s asset management industry is the second largest in the world, managing £6.9 trillion of assets with over £1 trillion managed for UK retail (individual) investors and £3 trillion on behalf of UK pension funds and other institutional investors.
There are around 11 million savers with investment products such as stocks and shares ISAs. These investors are willing to put their money at risk to generate greater returns than they can get through cash savings".
So, as we said at the time, these funds are there to help people save for their future security. To these people this money is crucial!
Vital stuff then...
In the article above we used the title "Better Times Ahead for Investors?"
This was certainly a hope of ours, as one of the conclusions of the FCA study was:
"Authorised Fund Managers (AFM) of authorised funds generally do not robustly consider value for money for fund investors".
So their aim was to insist on:
"A strengthened duty on asset managers to act in the best interests of investors".
In fact it seemed to be recognised that one reason these managers do not put their investors first was that it was not appreciated that AFMs had an existing explicit obligation to do so in the first place!!
So how can the FCA introduce measures to make these firms improve, particularly as there is little evidence that they compete on price?
They have responded this year with various measures including proposing:
- Value for money rule (VFM). The fund manager will be required to assess whether they are indeed providing VFM
- The Chair of the board will be personally responsible and accountable for this
- Transparency on fees and charges, with an easy to understand all in charge
We hope they follow this up in 2018.
The study also reiterated that when it came to costs, the evidence is consistent that active fund managers do not provide VFM.
These funds boast that their manager will outperform the other managers in their sector.
But reading through the study, and looking at costs, once again a key area was the failure of active fund managers to deliver higher than average performance after costs.
A review published in 2016 by the FCA concluded that actively managed investments did not outperform their benchmark once costs were taken into account.
Peter Sleep, senior portfolio manager at Seven Investment Management, a UK wealth manager, said the analysis added to “an enormous body of well-researched evidence that indicates that active management is damaging to your financial wealth”.
The evidence is quite clear, and yet by far the majority of funds are still run by active managers!
The alternative, typically called passive or indexed investing, simply buys all the shares in a particular market, then holds these and keeps costs very low.
These passive funds are being used by the more discerning advisers, and Money Marketing (a trade journal) reported that it is expected that they will surpass active funds in 10 years.
As warren Buffet’s latest Investment Letter states:
"The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.
Both large and small investors should stick with low-cost index funds…. When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”
We don’t argue with that!!
Take Action
Who are your investments with?
Have you reviewed them?
Does the FCA report concern you?
Do you expect VFM?
If so, then feel free to send an email to us here. We offer you a confidential chat with us where we'll give you a suggested course of action (there's no charge for this and definitely no obligation).
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Hot Topics Q&A: Pensions Lifetime Allowance Tax - Is It Being Scrapped?
Every week we receive questions from clients regarding all aspects of their financial  planning. So, rather than keep the answers to ourselves (and clients) we publish one key topic each issue.
Q. As a Consultant who has had to opt out of the NHS Pension Scheme in my mid 50s, I hear rumours that this tax may be scrapped.
Is there any sign of this?
A. No, we don’t see any sign that this tax will be scrapped.
In fact, HMRC are collecting record amounts of this tax - £20m in 2014/15 to £36m in 2015/16.
However, it has recently been announced that the £1m limit currently will rise by 3% in April. So we can hope to see an LTA of £1,030,000 then.
This is the first increase in LTA allowances since it was reduced to £1m!
Please send us your questions! It's easy to do. Just send an email to us here (and if we publish it we'll make it anonymous).
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Wrap-Up - Ringing In the Changes
 It’s been an interesting year to say the least!
On the work front things are going very well, helping record amounts of clients to live the life they want.
Reading the FCA Study discussed above also reminds Ray and I how far we have come in the last dozen years. We have built a financial planning proposition to be proud of, and know it is amongst the most advanced and cost effective anywhere.
In my personal life this was the year to separate from my ex, and sell the home we have shared since 2000. Not an easy thing but it was time, with daughter Charlotte now 19 and off to University next year.
It went on the market and we had serious buyers almost immediately. It was done and dusted within weeks, and of course we needed to clear the house of vast amounts of 'stuff'!
Anyway, after innumerable trips to the dump and charity shop, along with three skips and help from friends, we were out.
I'm still in the village of Rothbury, in fact now on the Old High Street, and it was wise not to change too many things at once!
I have also had my first date since 1981, and that was very interesting!
Walking into the village with the Christmas lights bright and cheerful and the church bells ringing is my idea of what this time of year is all about.
I have volunteered to host the traditional port & cheese morning with friends on Christmas morning, and have the Panto to look forward to in Newcastle.
With this as well as family events, and friend David over from Spain, I’m sure as usual the time will fly.
In fact I’m flying back to Spain with David in early January for a few days and fancy visiting Cordoba.
Warmth, history, culture and tapas!
Bliss!!
We'll see what the future brings, and I am looking forward to 2018.
From Ray and myself, to all our readers, we wish you all a very Merry Christmas & A Prosperous & Happy New Year.
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Comments made are based on current tax law and may, (in fact almost certainly will), change in the months/years
ahead. Material supplied has been carefully checked for accuracy but no responsibility can be accepted for
inaccuracies or errors or from subsequent use of this material.
Specific professional advice must always be sought based on your own individual circumstances. As always, the
buck stops with you. The information contained within this email is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
We recommend you take independent advice before making any investment decisions. The writers do not accept any responsibility for any loss suffered by readers as a result of any such decisions.
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Rutherford Wilkinson Limited
Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle Upon Tyne, NE13 6DS
Tel: 0191 217 3340
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