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Benefits of financial advice


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Benefits of financial advice.

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Benefits of financial advice

  2. 2. <ul><li>Why independent financial advice? </li></ul><ul><li>Investment planning </li></ul><ul><li>Protecting your loved ones </li></ul><ul><li>Retirement planning </li></ul><ul><li>Mortgage Solutions </li></ul><ul><li>Inheritance Tax planning </li></ul><ul><li>The next steps </li></ul>TODAY’S <ul><li>AGENDA </li></ul>
  3. 3. <ul><li>Choice </li></ul><ul><li>As a client of Positive Solutions you will benefit from impartial, independent advice from the whole of the market place </li></ul><ul><li>You can be safe in the knowledge that the advice you will receive will be provided by highly qualified, professional Independent Financial Advisers </li></ul><ul><li>As an IFA Partner of Positive Solutions I am dedicated to providing clients with the highest level of service, technical expertise and impartial advice possible </li></ul><ul><li>The advice you’ll receive will be truly tailored to your particular financial needs and goals. </li></ul>WHY INDEPENDENT <ul><li>FINANCIAL ADVICE? </li></ul>
  4. 4. <ul><li>We believe everyone is an individual so our Partners will spend a considerable amount of time getting to know you and your personal circumstances </li></ul><ul><li>Only then are we in a position to fulfil our legal and moral obligation to search the whole of the market to find the right advice for you </li></ul><ul><li>Our whole-of-market approach means that we can offer holistic financial advice that includes: </li></ul><ul><li>Investment Planning </li></ul><ul><li>Retirement Planning </li></ul><ul><li>Protecting Your loved Ones </li></ul><ul><li>Inheritance Tax Planning </li></ul><ul><li>Mortgage Solutions </li></ul>HOW CAN WE <ul><li>HELP YOU? </li></ul>
  6. 6. <ul><li>The key to successful investing: </li></ul><ul><li>Spread your money across the right types of investment </li></ul><ul><li>Invest at the appropriate level of risk </li></ul><ul><li>Protection against inflation, ensuring it’s spending power </li></ul><ul><li>Understanding the basics </li></ul><ul><li>Returns from different investment strategies are generally linked to the amount of risk involved. </li></ul><ul><li>High risk investments have the potential for higher growth or income </li></ul><ul><li>Low risk investments where money is more secure, usually deliver a lower return </li></ul>BALANCING RISK <ul><li>AND REWARD </li></ul>
  7. 7. <ul><li>Establish your attitude to risk: </li></ul><ul><li>Can you afford to risk part of all of your initial investment? </li></ul><ul><li>Is your capital ear marked for your impending retirement and requires protection? </li></ul><ul><li>Are you comfortable taking a little risk in return for potentially higher rewards? </li></ul><ul><li>Your investment portfolio should be based on your attitude to risk and your long-term aims. </li></ul>WHAT TYPE OF INVESTOR <ul><li>ARE YOU </li></ul>
  8. 8. <ul><li>What are bonds? </li></ul><ul><li>Bonds are like loans issued by companies and government to borrow money </li></ul><ul><li>Pre-specified maturity date in which the borrower must pay back the capital </li></ul><ul><li>Bonds are distinguished from other kinds of loans is that they can be bought and sold on the stock market </li></ul><ul><li>Benefits </li></ul><ul><li>Higher Income – can provide higher income than cash deposits </li></ul><ul><li>Regular Income – can offer regular and fairly predictable income </li></ul><ul><li>Potential for capital gains – portfolios can provide scope for limited capital growth </li></ul><ul><li>Risks </li></ul><ul><li>Changes in value – as with stock market investments, the price will rise and fall </li></ul><ul><li>Government bonds – considered to be low risk </li></ul><ul><li>Corporate bonds – considered to be higher risk </li></ul>INVESTMENT SOLUTIONS <ul><li>BONDS </li></ul>
  9. 9. <ul><li>What are equities? </li></ul><ul><li>An equity represents a share in ownership of a company </li></ul><ul><li>Shareholders carry full risks and rewards of ownership </li></ul><ul><li>Most shareholders have limited liability </li></ul><ul><li>Benefits </li></ul><ul><li>Growth – typically shares have produced higher returns than either cash or bonds over the longer term </li></ul><ul><li>Rising income – opportunity to benefit from a rising income </li></ul><ul><li>Protection against inflation – over the long term, shares have historically offered greater protection against inflation than cash or bonds </li></ul><ul><li>Risks </li></ul><ul><li>Volatility – share prices can rise and fall depending upon company performance </li></ul><ul><li>Timing – price changes can be dramatic and unexpected </li></ul><ul><li>Past Performance – be aware that past performance will not necessarily be repeated </li></ul>INVESTMENT SOLUTIONS <ul><li>EQUITY INVESTMENTS - SHARES </li></ul>
  10. 10. <ul><li>What are collective investments? </li></ul><ul><li>A collection of individual assets held within a wrapper </li></ul><ul><li>You buy an interest in a collection of assets, not in the component parts, known as funds </li></ul><ul><li>Benefits </li></ul><ul><li>Diversification – offers a diversified basket of investments in a single holding </li></ul><ul><li>Professional management – each fund group employs a large number of specialists </li></ul><ul><li>Access to global markets – collective investments overcome the difficulties a private investor faces such as high dealing costs and limited research </li></ul><ul><li>Risk profiled funds – manages both asset allocation and diversification </li></ul><ul><li>Risks </li></ul><ul><li>Volatility and timing – unit prices can move sharply both up and down within a short period </li></ul><ul><li>Currency risk – overseas investments carry the additional risk of fluctuations in foreign exchange rates </li></ul><ul><li>Past performance – past performance will not necessarily be repeated and should not be considered a guide to future performance </li></ul>INVESTMENT SOLUTIONS <ul><li>COLLECTIVE INVESTMENTS </li></ul>
  11. 11. <ul><li>What are structured products? </li></ul><ul><li>An alternative way of gaining exposure to financial markets. </li></ul><ul><li>Common features of structured products are: </li></ul><ul><li>Fixed term – you know exactly when your holding will mature </li></ul><ul><li>Capital protection – some products guarantee to return at least 100% of your original investment </li></ul><ul><li>Formula based returns – value on maturity is based on a formula defined when you initially invest </li></ul>INVESTMENT SOLUTIONS <ul><li>STRUCTURED PRODUCTS </li></ul>
  12. 12. <ul><li>Benefits </li></ul><ul><li>Flexibility – something to suit everyone </li></ul><ul><li>Capital protection – some guarantee to protect some or even all your initial investment. Suitable for event the most risk-adverse investor </li></ul><ul><li>Risk management – share in the growth of specific markets at the level of risk for you </li></ul><ul><li>Portfolio diversification – access to assets not typically available via traditional investment vehicles </li></ul><ul><li>Risks </li></ul><ul><li>Risk to your returns – depending on the level of capital protection, investors risk achieving a return that is less than the original amount invested </li></ul><ul><li>Credit rating of issuer – you assume the full credit risk of the product’s issuer </li></ul><ul><li>In some cases your money may be locked in for the fixed term of the investment </li></ul><ul><li>Benefits only apply at maturity. If you withdraw early, you may get back less than you invested </li></ul>INVESTMENT SOLUTIONS <ul><li>STRUCTURED PRODUCTS </li></ul>
  13. 13. <ul><li>Investing for income or growth ? </li></ul><ul><li>Growth; medium to long-term investors have the opportunity to choose solutions that can aim to provide a degree of growth for your capital. </li></ul><ul><li>Income; alternatively you could choose an income solution to top up your regular income. Your savings could bolster your income now or during retirement. </li></ul><ul><li>Investing to protect your capital? </li></ul><ul><li>Attitudes to risk vary from person to person and an IFA can help you choose investment strategies at a level of risk, versus potential return, that is suitable for you and that you’re comfortable with. </li></ul><ul><li>Lump sum or regular saving? </li></ul><ul><li>Decide whether to opt for a regular savings plan or a lump sum investment, depending on your financial circumstances and objectives. </li></ul><ul><li>An IFA can help you make the decisions that are right for you and your short, medium and long term goals </li></ul>INVESTING TO SUIT <ul><li>YOUR NEEDS </li></ul>
  15. 15. <ul><li>Will your family be financially secure if you die? </li></ul><ul><li>How would your family cope if something happened to you? </li></ul><ul><li>If you are sick or unable to work can you pay your mortgage and bills? </li></ul><ul><li>How long will your income last if you can’t work through illness? </li></ul><ul><li>What provisions have you made to protect your family? </li></ul>PROTECTING YOUR LOVED ONES <ul><li>CAN YOU ANSWER THESE QUESTIONS? </li></ul>
  16. 16. <ul><li>Injury and serious illness are issues that can affect us all and unfortunately even the most conscientious workers can sometimes face the threat of redundancy. </li></ul><ul><li>Therefore it is wise to take steps to protect your standard of living, and that of your family, in case of an unexpected event. </li></ul><ul><li>An independent financial adviser can assess your needs, circumstances and existing arrangements and provide you with guidance on how to protect your finances and family in the event of redundancy, sickness or death. </li></ul>HOW CAN YOU PROTECT <ul><li>YOUR LOVED ONES? </li></ul>
  17. 17. <ul><li>Three events fall under the topic of Protection: </li></ul><ul><li>Death </li></ul><ul><li>Inability to work </li></ul><ul><li>Major (critical) illness </li></ul><ul><li>Financial advice could help you protect against the consequences of: </li></ul><ul><li>Dying too soon - (life cover) </li></ul><ul><li>Living too long (pensions and investment) </li></ul><ul><li>Plus </li></ul><ul><li>Major illness or incapacity in between (critical illness and income protection) </li></ul>PERSONAL <ul><li>PROTECTION </li></ul>
  18. 18. <ul><li>What does it provide? </li></ul><ul><li>Capital to pay off your mortgage </li></ul><ul><li>Capital to pay off other debts and provide a ‘rainy day’ fund for emergencies </li></ul><ul><li>Future income for dependants – spouse/partner/civil partner, children, elderly relatives </li></ul><ul><li>What is it? </li></ul><ul><li>There are 2 main types of cover: </li></ul><ul><li>Decreasing – to clear mortgage </li></ul><ul><ul><li>Decreases in line with outstanding mortgage capital (capital & interest repayment only) </li></ul></ul><ul><li>Level – benefit remains same throughout </li></ul><ul><ul><li>Provides lump sum to clear debts (can include mortgage), ‘rainy day’ fund and future income </li></ul></ul>LIFE <ul><li>COVER </li></ul>
  19. 19. <ul><li>What does it provide? </li></ul><ul><li>Critical illness cover provides protection against financial effects of major illness e.g. Heart attack, Cancer, Stroke, MS </li></ul><ul><li>It can allow you to clear your mortgage and other significant debts, adjust your lifestyle (e g shorter working hours) and adapt your home) </li></ul><ul><li>What is it? </li></ul><ul><li>There are 2 main types of cover: </li></ul><ul><li>Decreasing – to clear mortgage </li></ul><ul><ul><li>Decreases in line with outstanding mortgage capital (capital & interest repayment only) </li></ul></ul><ul><li>Level – benefit remains same throughout </li></ul><ul><ul><li>Provides lump sum to clear debts (can include mortgage), ‘rainy day’ fund and future income </li></ul></ul>CRITICAL ILLNESS <ul><li>COVER </li></ul>
  20. 20. <ul><li>What does it provide? </li></ul><ul><li>An income if you are unable to work due to illness or accidental injury and suffer a loss of earnings </li></ul><ul><li>Benefit provides a proportion of earnings or mortgage instalments and related expenses </li></ul><ul><li>Benefit is paid tax free </li></ul><ul><li>What is it? </li></ul><ul><li>There are 2 main types of cover: </li></ul><ul><li>Level benefit – through the period of cover </li></ul><ul><li>Increasing benefit – increases each year to meet the cost of living </li></ul>INCOME PROTECTION <ul><li>COVER </li></ul>
  21. 21. <ul><li>Will your family be financially secure if you die? </li></ul><ul><li>How would your family cope if something happened to you? </li></ul><ul><li>If you are sick or unable to work can you pay your mortgage and bills? </li></ul><ul><li>How long will your income last if you can’t work through illness? </li></ul><ul><li>What provisions have you made to protect your family? </li></ul>PROTECTING YOUR LOVED ONES <ul><li>CAN YOU ANSWER THESE QUESTIONS? </li></ul>
  23. 23. <ul><li>When do you want to retire? </li></ul><ul><ul><li>How many years in retirement do you think you will have? </li></ul></ul><ul><li>Where do you want to live when you retire? </li></ul><ul><li>What will you spend your time doing? </li></ul><ul><li>What standard of living are you expecting? </li></ul>HOW DO YOU WANT TO SPEND <ul><li>YOUR RETIREMENT YEARS? </li></ul>
  24. 24. <ul><li>As an example </li></ul><ul><li>Male age 60 assumed non smoker </li></ul><ul><li>Income required £20,000 a year </li></ul><ul><li>Increasing each year by Retail Prices Index (RPI) </li></ul><ul><li>50% of income to be provided to partner (assumed 3 years younger) in the event of death </li></ul><ul><li>Fund required £593,100 </li></ul><ul><li>If maximum tax free cash of 25% (i.e. £197,700) was also to be funded for, the total fund required would be £790,800 </li></ul><ul><li>Source: FSA Comparative Tables 1 November 2006 </li></ul>WHAT PROVISIONS WILL YOU <ul><li>NEED TO MAKE? </li></ul>
  25. 25. <ul><li>Some potential options </li></ul><ul><li>Downsizing property </li></ul><ul><li>Existing investments </li></ul><ul><li>Selling your business </li></ul><ul><li>Expected future inheritance </li></ul><ul><li>State pension/benefits </li></ul><ul><li>Employer sponsored pension provision </li></ul><ul><li>Private pension provision </li></ul>HOW WILL YOU FUND <ul><li>YOUR RETIREMENT YEARS? </li></ul>
  26. 26. <ul><li>Existing pension provision </li></ul><ul><ul><li>Benefits held in a previous employer’s pension scheme </li></ul></ul><ul><ul><li>Benefits being built up in a current employer sponsored pension scheme </li></ul></ul><ul><ul><li>Benefits held in a personal arrangement to which you are no longer contributing </li></ul></ul><ul><ul><li>Benefits being built up in a personal arrangement which you are currently contributing to </li></ul></ul><ul><ul><li>State pension benefits </li></ul></ul><ul><li>Are you aware of what these pension arrangements will provide you in retirement? </li></ul><ul><li>Do you know whether these benefits may work better for you in an alternative pension arrangement? </li></ul>BRIDGING THE <ul><li>PENSIONS GAP </li></ul>
  27. 27. <ul><li>Income tax relief on contributions paid in at highest rate paid (max 40%) </li></ul><ul><li>Employer contributions get tax relief as a deduction against profits </li></ul><ul><li>Investments within the pension fund grow virtually tax free </li></ul><ul><li>A tax-free cash lump sum </li></ul><ul><li>But pension income is subject to income tax at highest marginal rate </li></ul>WHY <ul><li>PENSIONS? </li></ul>
  28. 28. <ul><li>No need to actually retire to take benefits </li></ul><ul><li>Pension age increasing from 50 to 55 in 2010 </li></ul><ul><li>Women’s State pension age will rise from 60 to 65 for women born on or after 6 April 1955. This will be phased in over 10 years from April 2010 </li></ul>WHEN CAN PENSION BENEFITS <ul><li>BE TAKEN? </li></ul>
  29. 29. <ul><li>Tax-free cash lump sum </li></ul><ul><li>Lifetime annuity </li></ul><ul><ul><li>Open market option </li></ul></ul><ul><ul><li>Enhanced, impaired, investment linked </li></ul></ul><ul><li>Income withdrawal </li></ul><ul><ul><li>Unsecured pension before age 75 </li></ul></ul><ul><ul><ul><li>Short term annuities </li></ul></ul></ul><ul><ul><li>Alternatively secured pension post age 75 - There is some doubt about the availability of this feature in the future because of the perceived misuse of it. An announcement is expected in the pre-budget report. </li></ul></ul><ul><li>Combination including phasing </li></ul>OPTIONS WHEN TAKING <ul><li>PENSION BENEFITS </li></ul>
  31. 31. <ul><li>Buying a new home? </li></ul><ul><li>Re-mortgaging or switching your mortgage? </li></ul><ul><li>Borrowing additional cash for home improvements or a special occasion? </li></ul><ul><li>Looking for a buy-to-let mortgage? </li></ul><ul><li>Thinking of buying a property abroad? </li></ul>WHY DO YOU NEED <ul><li>MORTGAGE ADVICE? </li></ul>
  32. 32. <ul><li>There are many mortgage options </li></ul><ul><li>Fixed Rate Mortgages; give you the security of a set monthly repayment for a specific period, regardless of how interest rates perform. Perfect if you’re planning ahead or working to a budget. </li></ul><ul><li>Tracker Mortgages ; give you options. Could be ideal for you if you want a mortgage that moves in line with the lenders base rate. So when their base rate falls, your monthly repayments fall. If the rate rises, so will your monthly mortgage repayments. </li></ul>MORTGAGES <ul><li>WHAT ARE THE OPTIONS? </li></ul>
  33. 33. <ul><li>Options continued </li></ul><ul><li>Offset Mortgages; mean the more you save the more you could save on your mortgage payments. An Offset Mortgage is a way of using what’s in your savings and current accounts to reduce the mortgage balance you are charged interest on so by offsetting you could reduce your mortgage term or your monthly mortgage repayments and still keep instant access to your savings. </li></ul><ul><li>Buy-to-let Mortgages; more competitive in recent years and now almost as much choice as ordinary mortgages. An important decision is whether to go interest only or repayment as interest payments can be deducted from rental income for tax purposes. However, if you have a repayment mortgage, any capital payments can't be offset. </li></ul>MORTGAGES <ul><li>WHAT ARE THE OPTIONS? </li></ul>
  34. 34. <ul><li>Make sure you don’t over-stretch yourself </li></ul><ul><li>Make sure you can keep up your repayments the warnings are true, “Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.” Beware of additional costs, like stamp duty, survey, legal fees and monthly expenses, including insurance policies (life, sickness, buildings and contents, etc.) A rule of thumb is not to spend more than a third of your disposable income on your mortgage. </li></ul><ul><li>It doesn’t pay to be loyal </li></ul><ul><li>Loyalty may not do you any favours when it comes to your mortgage and other financial products. Why limit yourself to dealing with a single mortgage lender, when there are around 150 lenders to choose from. Being loyal can cost you a fortune. Chasing the best rates and finding a better deal whenever you can should save you tens of thousands of pounds over the life of your mortgage. </li></ul>THE TOP 5 <ul><li>MORTGAGE TIPS </li></ul>
  35. 35. <ul><li>Get the best deal possible </li></ul><ul><li>Lenders compete for your custom and re-mortgaging is big business. Before you move your business speak to your current lender as all the major UK lenders have a ‘team’, whose job it is to hang onto your custom. If you have a good payment history, you could be able to squeeze a much better deal from your lender by threatening to take your business elsewhere. If you lender can’t offer you the deal you’d like, an IFA can help you search the entire UK marketplace for the best deal. </li></ul><ul><li>Interest only or repayment? </li></ul><ul><li>Interest only mortgage means monthly payments to the lender are all interest. You don't pay off any of the capital during the term of the mortgage - you do it at the end, having made simultaneous monthly payments into some sort of investment fund By the end of the term, if your investments performed well you have accrued enough funds to pay off the capital sum of the mortgage, and maybe even a little extra. The risk is your investments may not perform well enough to cover the final payment. </li></ul>THE TOP 5 <ul><li>MORTGAGE TIPS </li></ul>
  36. 36. <ul><li>Repayment mortgages guarantee that the property is yours at the end of the term. The monthly payments could be larger but you pay off a bit of the interest due and a bit of the capital until the debt is completely and utterly finished </li></ul><ul><li>The benefits of over-paying </li></ul><ul><li>Taxpayers who save money in taxable savings accounts have to pay tax on their interest: a fifth (20%) for basic-rate taxpayers and two-fifths (40%) for the UK’s three million higher-rate taxpayers. So, a gross (pre-tax) rate of 5%, would fall to 4% or 3% after taxis deducted. However if you overpay your mortgage, you effectively ‘earn’ tax-free interest at your mortgage rate. So, if your mortgage rate is, say, 6.75%, your tax-free return is also 6.75%. </li></ul><ul><li>An IFA can help you decide which options are correct for your personal circumstances </li></ul>THE TOP 5 <ul><li>MORTGAGE TIPS </li></ul>
  38. 38. <ul><li>Combined Gift Tax and Death Duty </li></ul><ul><li>Can apply to gifts you made during your lifetime, in addition to the value of your estate on death </li></ul><ul><li>Nil Rate Band </li></ul><ul><li>2009/10 tax year band is £312,000 for individuals (£624,000 for married couples and civil partners </li></ul><ul><li>As a UK resident, your estate is valued as the total of everything you own, including those things which you have only a share in or simply derive benefit from (including income). </li></ul><ul><li>Inheritance Tax then becomes payable on everything valued above the allowance by those to whom you leave your estate when you die. </li></ul><ul><li>If you make no plans in advance, this liability will be met through sale of assets before the inheritance is passed on. </li></ul>INHERITANCE TAX <ul><li>WHAT IS IT? </li></ul>
  39. 39. <ul><li>If a person dies leaving the following assets: </li></ul>INHERITANCE TAX <ul><li>SIMPLE EXAMPLE </li></ul>Asset House Cash Investments Total Value (£) 400,000 100,000 100,000 600,000 Liability = (£600,000 - £312,000) x 40% = £115,200
  40. 40. <ul><li>Step 1 : Reduce the estate’s value </li></ul><ul><li>Consider Deed of Variation for any inheritance received within last 2 years </li></ul><ul><li>You could also create a trust by Deed of Variation and be a potential beneficiary if required </li></ul><ul><li>Step 2: Make a Will </li></ul><ul><li>Or – if you already have one – update it </li></ul><ul><li>Consider utilising Nil-Rate Band allowance </li></ul><ul><li>Consider use of discretionary will trusts </li></ul><ul><li>Step 3: Utilise exemptions </li></ul><ul><li>Use IHT exemptions where appropriate </li></ul><ul><li>Maximise Nil-Rate Band planning </li></ul>TAKE STEPS TO <ul><li>MITIGATE IHT </li></ul>
  41. 41. <ul><li>You’ve now seen how PS works and the quality of our independent financial advice </li></ul><ul><li>Speak to me to ensure you benefit from advice that is truly tailored to your particular financial needs and goals </li></ul><ul><li>A service that is impartial, independent and personal to you </li></ul><ul><li>A service that really is ‘altogether individual’ </li></ul><ul><li>Registered Head Office: Positive Solutions (Financial Services) Ltd, Riverside House The Waterfront Newcastle upon Tyne. NE15 8NY. Positive Solutions </li></ul><ul><li>(Financial Services) Ltd. is authorised and regulated by the Financial Services Authority. Registered as a Limited Company In England And Wales No. 3276760. </li></ul>THE NEXT STEPS <ul><li>INDEPENDENT FINANCIAL ADVICE </li></ul>