Month: May 2015

IFAs and their fee’s

I recently had the pleasure of being part of the panel debate, at the International Adviser Expert Investment Forum in Kuala Lumpur. The main discussion was on the future of the advisory industry and how fee’s should be levied.

Here is an extract from the article

“Stuart Yeomans, chief executive of the Farringdon Group, thought the Labuan Financial Services Authority was only taking “baby steps” to widen and strengthen regulation, and agreed that changes were being driven by the industry.  “I know there are a couple of companies that are taking a fee-based approach,” he said. “I think that’s a good thing for the industry.” Yeomans said he didn’t think LFSA was going to shake up the industry by insisting on fee-based remuneration soon. “Never say ‘never’, but I don’t think it’s going to happen, certainly in the next three to five years,” Yeomans said.”

20150408_Expert Investor Forum-0285-X3

We should not even need this type of discussion if firms were reasonable and open about their fees in the first place. The only reason this is in the limelight, is because of firms that take platform fees, trail fees and then bolt on hidden fund fees too; whereas in my opinion, it should be either or.

In addition to this, many firms feel that a 25 year plan, is the best and right advice for everyone they meet and not just a handful of individuals. I’m not saying a 25 year plan is not right for a 25 year old, but there are too many companies that sell this advice, to every person that they meet; whether they are 25 or 65!

To reiterate …..

  1. My first point is that a client should pay a fund fee upfront or a platform fee ongoing and not both
  2. The second issue is the up front fees from a regular premium contract

One of our unique selling points at Farringdon Group, is that we never take hidden fund fees and even when these were available, we would credit them back to the client.

These so called boutique funds, have harmed most IFA firms and more importantly the client. In my opinion, any fund that offer these hidden fee’s, should be steered clear from by every advisory firm. We have in the past used a handful, with no fee taken; but decided a couple of years ago, that we should not consider them at all, because they always end in the same way. We have even gone further and do not let any fund manager into our office, if they offer a hidden fee.

I know that we are not the only firm that have taken this stance and find it horrific that some firms only invite these type of fund manages in, so that they can earn more money from the client……these companies are the ones that give us all a bad name!

The decision to not use these funds was taken and has served us very well and we believe that Farringdon Group has one of the lowest change of broker rates in the industry. This is mainly due to the fact that we use transparent, daily liquid funds from the worlds biggest institutions.

If a client can ensure that the funds used have the following criteria:

  1. have over USD 1 Billion in their funds
  2. is 3 or 5 star rated by Morning Star
  3. is daily liquid/traded
  4. with no penalty on exit
  5. From a fund company that you have researched and understand the size of

Then they should rest well at night, knowing that their investments should be safe.

Being transparent with fees, is what we already do and it does not effect our business model, where a fee comes from……. an upfront option or an ongoing one, it simply does not matter and we can adapt to either.

Any consultancy firm that feel that they must hide their fees; is more than likely layering more charges and hence should be avoided.

One individual in the audience, at the panel debate, even stated that we should all hide our fees, because he does not want his clients to know how much he earns……..

This type of comment is worrying to say the very least!

Another fee issue, that I see every and every week, is for the longer term regular premium policies. A consultant can get paid a large sum of money up front for a plan, that can last up to 25 years or more and the client may not even know that IFA for more than 18 months!

In my opinion this type of fee, should be split over a number of years, so that the client is proactively managed and not forgot about after a short period of time. The difficulty is that, this can only be led by the regulator, product provider and broker agreeing to such.

This has already happened in multiple jurisdictions and I feel that this needs to happen globally, as soon as possible.

There are too many clients in this world, that think that they are in 18 month flexible plans, when in fact, they are in 25 year policy, which they no longer fund! Some of the worlds biggest firms have got to that size, because of miss-selling these policies or withholding information from their clients.

I have presented at many seminars globally and have teamed up with the likes of KPMG and CBRE to offer the insider knowledge, of what a client should be looking for. If you would like some additional information or feel that the above has happened to you, then please get in contact with me.

The full article can be found below.

http://www.international-adviser.com/news/1019436/malaysian-ifas-switch-fee-service-model-experts

Stuart Yeomans

CEO

Farringdon Group

Kuala Lumpur : Malaysia

   

The UK’s election result and what may happen to Inheritance Tax (IHT) and pension tax, after the Conservatives and David Cameron were successful?

Most people including myself got the General Election wrong and the predicted hung parliament turned out to be an all Blue Conservative government.

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So what will this mean for pension and IHT planning?

One big change that will not materialise, is the plan to scrap the non-domiciled tax which was proposed by the Labour Party and I can’t see the Conservatives adopting this moving forward, so any planning for this area of non-domiciles is now null and void.

One of the most interesting results was across the Scottish and English border and all but three seats ended up going to the Scottish National Party. This in hindsight should have been expected; however, such a large swing was certainly the main result that got most people talking.

 

It will be interesting to see how those last three seats fair in the next general election? This result has reinvigorated Scottish nationalism and should in fact mean a revisit to a Scottish referendum; which many, including myself, see as being successful this time around.

In addition to this, a number of longstanding MP’s have now lost their seats and parliament will be brimming with fresh new and happy faces. This can only be seen as a positive, by the fact that MP’s holding seats for decades, can become too comfortable and a fresh view can be what is needed to improve the government.

Now that the election is over I feel that we can see a more aggressive movements to hit higher rate tax earners with assets inside the UK. But before we get onto this, let’s begin with some positives.

Cameron’s did pledge to increase the IHT threshold, but not by its usual figures seen below; it will be by allowing families to pass on their family homes, worth up to GBP1 million tax free! This slightly unusual increase is long overdue and below shows how the nil rate band has changed since the turn of the century.

 

FROM TO IHT THRESHOLD /NIL RATE BAND
6 April 2009 – £325,000
6 April 2008 5 April 2009 £312,000
6 April 2007 5 April 2008 £300,000
6 April 2006 5 April 2007 £285,000
6 April 2005 5 April 2006 £275,000
6 April 2004 5 April 2005 £263,000
6 April 2003 5 April 2004 £255,000
6 April 2002 5 April 2003 £250,000
6 April 2001 5 April 2002 £242,000
6 April 2000 5 April 2001 £234,000

 

As you can see, the rates have not changed since 2009 and to allow a GMP1 million home to pass freely is a very attractive tax incentive indeed. So although the higher rate tax earners may be getting hit with more taxes, they will certainly be looking to take benefit from the above.

More positive news is the fact that the Conservatives have pledged to raise the 40% income tax threshold to GBP50,000 and to keep National Insurance contributions the same, along with the VAT rate. It is sometimes difficult to ascertain who to vote for, with regards to taxes, but the Conservatives really have promised a positive stance.

Now onto a negative for pensions…..

 

The Conservative Party had proposed restricting tax relief on pension contributions for those earning in excess of £150,000 a year.

Previously you could utilise your allowance from the previous three tax years and it will be interesting to see whether this will now be curbed moving forward. This is one area the wealthy get hit, however with the new IHT plan, I feel that they will accept this without too much pain.

 

So in my opinion, what’s next…..

 

A referendum on staying within the EU is promised for 2017 and I personally don’t know which way this will go. There are positives and negatives on both sides of the fence and Nigel Farage has played a positive role in getting the Conservatives to address the immigration issue, which is what I feel most Brit’s have a grievance with. UKIP got the third highest votes, even though they only obtained one seat and these votes were mainly gained by the immigration issue that Britain has been deemed to have.

Angela Merkel has made it very clear that we can’t opt out of the freedom of movement act, but maybe the UK can opt out and take up a more Norwegian stance on this matter!

Norway are part of the economic area, but not part of the EU and in my opinion is the perfect model for Britain.

 

This will not happen for a couple of years, but could give rise to volatility and uncertainty in the GBP and its markets. This being said, many companies on the FTSE are global and should not be greatly affected by either result.

 

Facts and figures…..

 

There could be changes to the way the voting system is done in the future, again this is because of Nigel Farage’s UKIP, which had 3.86m votes for its one seat in Parliament, as opposed to SNP who had an average of 26,000 and the conservatives with 34,000. Labour had 40,000 and the Lib Dem’s 299,000.

An interesting fact is that 24.2% of the seats would be held by a different party if a proportional voting system were implemented. Even more worrying is that 63% of the total votes were for losing seats, hence a change in the system maybe warranted.

 

I hope that you have enjoyed reading this post.

Stuart Yeomans

CEO

Farringdon Group

Kuala Lumpur : Malaysia