ACCA Harrow Investment Planning
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ACCA Harrow Investment Planning Presentation Transcript

  • 1. ACCA Harrow Investment Planning 1st June 2009
  • 2. Nick Webb – Regional Sales Manager Tom Dickerson – Business Consultant
  • 3. Agenda • The regulatory environment • The framework of advice • Investment process • Tax Mitigation wrappers – IHT – Pension – Collectives – ISA • Skandia
  • 4. Regulatory Framework
  • 5. Risk comes from not knowing what we are doing Warren Buffet
  • 6. The regulatory environment
  • 7. retail distribution implementation programme (RDIP) • Clarity of Service • Professional Standards • Remuneration
  • 8. one view of 'clarity' Source: FS08/6: Retail Distribution Review, November 2008
  • 9. our view of clarity Money Guidance
  • 10. RDIP – professional standards • ‘For all investment advisers, there is a benchmark qualification of at least QCA level 4 and possibly higher levels for designated specialists, but all individuals are encouraged to opt for higher levels to suit their specific needs.’ • Blue print and mapping by mid 2009 • Diploma or AFPC Source: FS08/6: Retail Distribution Review, November 2008
  • 11. remuneration ‘For customers to understand clearly the different services being provided and to recognise the value of advice, separate disclosure is required of the costs of advisory services from product costs.’ Source: FS08/6: Retail Distribution Review, November 2008
  • 12. The FSA aim to achieve four things: • capable and confident consumers • simple and understandable information for, and used by, consumers • well-managed and adequately capitalised firms that treat their customers fairly • risk-based and proportionate regulation Source: Sarah Wilson FSA keynote Speech October 2007
  • 13. TCF Outcome 5 Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
  • 14. Investment process
  • 15. Investment process 119,000,000 results!
  • 16. robust investment process 1 Consistent Risk Assessment 2 Robust Asset Allocation 3 Fund Selection Process Outsource Fund Selection and 4 Review Fund Selection Outsource Fund Review 5 Client Review (to include re-assessment of attitude to risk)
  • 17. robust investment process 1 Consistent Risk Assessment
  • 18. Attitudes to risk • 2 – 1 on red • £1 stake?
  • 19. Play again…? • Bet your house Risk is meaningless without a consequence
  • 20. Risk – a definition High probability, low impact Low probability, high impact Probability X Impact
  • 21. Goals and consequences • What do you want to do in retirement that requires you to have money? • What are the consequences of not achieving it?
  • 22. TCF outcome 5 Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
  • 23. what do investors feel about their investments? Asymmetric utility 2 Happiness 0 -2 Wealth Utility Market Returns -4 -6 -8 -10 -12 Disappointment Utility -14 … the pain of absolute loss is greater than the pleasure of absolute gain
  • 24. risk profiling • Subjective measures? – naïve and dangerous • Risk Profiler – reflects loss tolerance of a population – Score identifies investor’s ‘rank’ • Employ a portfolio that targets that volatility – A ‘no surprises’ portfolio
  • 25. robust investment process 2 Robust Asset Allocation
  • 26. assumptions Investment Ongoing Asset returns charges correlations Volatility Tax *Watson Wyatt Ltd provide the risk profiling and asset allocation tools for Selestia Investment Solutions
  • 27. risk assessment and asset allocation ESTABLISH RATE EFFICIENT DETERMINE ATTITUDE MAKE PORTFOLIO PORTFOLIO TO ASSUMPTIONS FRONTIER ASSET ALLOCATION RISK FOR EACH WRAPPER
  • 28. optimising the asset class Source: Selestia Investment Solutions/Watson Wyatt Ltd June 2007
  • 29. risk assessment and asset allocation ESTABLISH RATE EFFICIENT DETERMINE ATTITUDE MAKE PORTFOLIO PORTFOLIO TO ASSUMPTIONS FRONTIER ASSET RISK FOR EACH ALLOCATION WRAPPER
  • 30. Fund selection • The Ruler test • Brand • The ‘star’
  • 31. Fund-picking • 1,807 funds* • Odds on randomly picking best fund three years in a row? 5,900,304,942-1 And in a portfolio? Non-Managed Funds with a 1 year track record to 19th January 2007
  • 32. Odds on picking the best portfolio? Choosing best fund in each sector 23,011,691,206,304,399,999,999,999,999 -1 Ensure the required result, rather than the best result
  • 33. Tax Mitigation
  • 34. Tax wrappers • IHT schemes • Pension • Collectives • ISA
  • 35. Inheritance tax planning • Protection contracts • Mitigation contracts
  • 36. Mitigation schemes • Loan schemes • Retained interest trust arrangements • Discounted gift schemes • Gift schemes
  • 37. Loan trust • Client decides how much capital is loaned • Access to “income” by way of loan repayments • Can demand at any time full capital repayment of outstanding loan • All growth on capital belongs to the beneficiaries free of IHT
  • 38. Retained interest trust • Access to capital • Gifted capital is a CLT • Control of capital maintained • Enhanced 5% allowance under bond
  • 39. Discounted gift
  • 40. Discounted gift • Loss to transferor’s estate
  • 41. Discounted gift • Loss to transferor’s estate • Value of what transferor gives away MINUS today’s value of any rights that still belong to him/her
  • 42. Discounted gift • Split benefit trust separating out the entitlement to distinct rights under the contract
  • 43. Discounted gift trust Settlor Settlor + Other(s) Trustees Settlor’s fund - Residual fund - based upon contribution mortality & less value of level of Settlor’s fund withdrawals Immediate CLT/PET Discount
  • 44. Discounted gift trust • Choice of withdrawals
  • 45. Discounted gift trust • Examples of discounts Age Discount* IHT saving Male 65 £46,735 £18,694 Male 85 £44,526 £17,810 Female 70 £47,613 £19,045 Female 85 £29,550 £11,820 *Based on investment of £100,000 and an “income” level of 5% p.a. Normal discount factors apply
  • 46. Discounted gift trust • Examples of discounts Age Discount* IHT saving Male 65 £65,249 £26,100 Male 85 £65,312 £26,125 Female 70 £65,490 £26,196 Female 85 £43,912 £17,565 *Based on investment of £100,000 and an “income” level of 8% p.a. Normal discount factors apply
  • 47. Discounted gift trust • Flexibility re ‘income’ – deferred start date, escalation, partial waiver, full waiver
  • 48. Gift trust • Prepared to make unconditional gift but not directly • No future access to funds in any circumstances • CLT or PET for IHT purposes
  • 49. Pensions Pensions: Limiting Tax Relief for High Income Individuals
  • 50. Overview • Clients with relevant income over £150k • w.e.f 06/04/2011 tax relief at basic rate • Immediate ‘anti avoidance measures’ • ‘Special Annual Allowance’ • ‘Special Annual Allowance charge’ • Regular ‘pension savings’ pattern
  • 51. 149k → £150k Relevant Income Limit “Special Allowance 151k Charge” ↓
  • 52. Special Annual Allowance • Individuals with income of £150k or more • Overall pension savings £20k or more • Tax relief on additional pension saving at basic rate • Special annual allowance charge (20%) • Collected via Self Assessment return
  • 53. Protected Pension Input • Value of ‘regular pension savings’ receives full tax relief even if exceeding £20,000 special annual allowance • Regular pension savings defined as benefits accruing or contributions payable no less frequently than quarterly • Where regular pension savings are less than £20,000, additional contributions can be made to £20,000 limit with full tax relief
  • 54. Opportunities • 300,000 individuals over £150k • 800,000 individuals over £100k • 2009/10 £20k higher rate relief 2010/11 £20k higher rate relief 2011/12→ basic rate relief • Make a gift to charity
  • 55. Tax Relief Restrictions on Pension Contributions • From 2011/12 tax relief restricted on pension contributions for individuals with taxable income in excess of £150,000 • Relief to be tapered from 50% to 20% for those with taxable income of £180,000 or more • Basis of tapering awaiting Treasury consultation • Transitional legislation proposed to restrict tax relief for those with taxable income of £150,000 plus for current and next tax year • Clients affected where taxable income is £150,000 or more in current or previous two tax years
  • 56. Points for Action • Is client caught by relevant income cap ? • If so, for which tax years ? • Gift aid and £20,000 personal contribution to registered pension scheme can be used for this tax year to reduce income below threshold • Significant difference in potential tax relief available if income cap does not apply
  • 57. Points for Action • Maximise the full income tax relief available for this and next tax year on pension contribution limit available • Work with professional connections essential in run up to end of tax year in determining relevant income position for clients who might be caught
  • 58. ISA Changes • Increase from £7,200 to £10,200 pa • Cash Allowance increase for £3,600 to £5,100 • October 2009 for age 50+ • April 2010 for everybody else
  • 59. Skandia UK’s proposition
  • 60. Market context: Old world moves to new model Traditional Unit linked Multi- Fund With-profits manager supermarket Platform creating innovative solutions
  • 61. Strategy : Evolving market ‘ ‘ 64
  • 62. Strategy : Approach to an evolving market New Model Advisers Skandia Investment Skandia Life Traditional/Transition Solutions Mirror funds Transition / New Model Limited open architecture Direct OEIC Bundled Total open architecture Paper + Un-bundled Protection/ Online Personal Pension/Bond Pension/Bond/ISA/ Collectives/Offshore All products 65