AUTUMN 2014

Ultimate explorer

maKiNG CaSHFloW

CoUNt

GoalS-baSed iNveStiNG GoeS maiNStream

Sir ranulph FienneS OBe, talkS excluSively tOSucceSS Magazine aBOutteaMwOrk, adventureS, recOrd-Breaking challengeS, lOve and legacy.

the increasingly attractive approach of goals-based investing.

a SucceSSiOn grOup client tellS uS hOw Financial planning changed hiS liFe

03 peNSioN SaviNG david lane gives us his views about changes to pension saving rules.

04 aNd tHere’S more additional services for clients.

05 raNUlpH FieNNeS: Ultimate explorer sir ranulph fiennes obe, talks about teamwork, adventures, record-breaking challenges, love and legacy.

06 maKiNG CaSHFloW CoUNt Why it is so important for financial planners to be aware of the bigger picture.

08 GoalS-baSed iNveStiNG GoeS maiNStream tom Williams looks at the increasingly attractive approach of goals-based investing.

09 paYiNG For UNiverSitY how to fund university costs.

10 HoUSiNG reCoverY a look at how the speed of recovery in the UK housing market took most analysts by surprise and the effect it’s had.

11 tHe laSt Word: trUStS, Not dead Yet! steven howells tells us why trusts have become an intrinsic part of the way that we live our lives today.

a very warm welcome to our new look solutions Magazine. in this Winter issue we discuss how, with the right technology and expert support, succession Benefit Solutions can benefit you, the employer, as well as providing a powerful motivational and retention tool for your staff.

Auto-enrolment will be in effect throughout all firms by 2017, and presents a huge challenge to all employers. on page 4, we explain the effects and implications the workplace pension reforms will have on firms, and provide you with information on how we can help you meet the compliance challenge that comes with it through a workplace pension scheme.

on page 6, we analyse the importance of succession’s corporate wrap, explaining how with a secure, easy-to-understand, online tool your staff can manage their pensions and other investments in one place, before revealing how Succession Benefit Solutions can help you promote the benefits of group income protection.

finally, turn to page 7 to see how, with the help of your succession group financial planner, you can offer employees a cost-effective private Medical insurance scheme, tailored to your business, to maximise value from this important benefit. By guaranteeing employees pMi you can increase the engagement, retention and recruitment of staff. also on page 7, we offer you some relief from the financial world with our own review on the eagerly awaited f-type Jaguar.

We very much hope you enjoy this issue of solutions Magazine and please let us know if any of your colleagues or friends wish to receive a complimentary copy. should you require your succession group financial planner to call you, or have any queries on any of the articles in this magazine and how they may impact upon you, please feel free to contact us by phone, e-mail, or by the ‘contact us’ button on our website.

Sanjay ShahManaging directorSuccession Benefit Solutions LLP

02 www.successiongroup.co.uk

CoNteNtS

IN THISiSSUe

success Magazine is designed and published by succession group limited. no part of this publication may be reproduced without the permission of the publishers.

Welcome to this issue of success Magazine.

Our lives, and our family’s well-being, are influenced to a large extent by our finances. On page 6 we look at exactly what is meant by lifetime cashflow planning and why it is so important that your financial planner is aware of your bigger picture to help you achieve your life goals. succession Group client Phil Robinson shares how cashflow planning has helped him enjoy a good retirement, even though he sold his business in a depressed market.

our range of services has expanded rapidly and page 4 spells out some of the additional solutions available from your financial planner. Whether you are looking for protection, insurance or to act as a buffer to mitigate the impact of inheritance tax, we have the right solution for you.

succession group works with a range of experts across many disciplines. lucian cook, director of residential research for savills, gives his unique perspective on the UK’s housing market and foot anstey’s steven howells explains why after more than 900 years, trusts are still hugely relevant given the complexities of family life.

sir ranulph fiennes shared some remarkable tales of his expeditions and record-breaking challenges when he attended the succession group annual conference. He is most definitely not a spender – revealing that his jacket was 48 years old and that he also owns a suit from the same vintage. read what drives him, and what he believes to have been his greatest challenge.

And finally, on page 8, one of our investment partners, sei, looks at how human behaviour and instinct can affect our financial decision-making.

We hope you enjoy this issue. should you require your planner to contact you about your own investment portfolio, or if you have any queries about the articles in this magazine and how they might impact on you, please feel free to contact us.

Simon Chamberlaingroup ceo

succession group

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budgets come and go and for many of us they pass in a blizzard of economic data and sterile political argument.

however, the budget george osborne delivered earlier this year does not easily fit this mould, with the chancellor providing a series of announcements that signposted a radical shift in the way pensions and savings in general will be treated in the future.

the proposed changes have been seen by many commentators as a bold attempt to re-invigorate the savings culture in the UK. they not only allow people a greater freedom in the way they save but also critically how those savings can be accessed. others are not so sure and have real concerns that the economic and social consequences of these reforms, particularly with regards to pensions have not been properly thought through.

The penSion revoluTion?

in a range of reforms, including an overhaul of the individual savings account, the stand out proposal has to be the relaxation in how people can access their defined contribution or “DC” pension pots.

essentially, anyone who wishes, can take their whole pension fund in cash from age 55.

The Chancellor re-affirmed his commitment to retaining a tax-free cash entitlement of 25% with the remainder being taxed at the pension member’s marginal income tax rate. these changes apply to “defined contribution” schemes such as personal pensions and do not apply to final salary or defined benefit schemes.

Queen’S SpeeCh ConfirmS penSionS Tax Bill

the government has undergone a consultation on these proposals and announced in the recent Queen’s speech that it will be introducing a new pensions tax bill in the autumn session of parliament. however, as we wait for this to appear, what are the main talking points as to how these proposals will change the pension landscape?

annuiTiSaTion vs moral hazard

firstly, from 6 april 2015, there will be absolutely no requirement to buy an annuity at retirement. that does not mean that an individual should not purchase an annuity, it is just that the requirement to do so will entirely disappear. on the face of it, this relaxation is a big win for investors with smaller pension pots.

Critics of the policy have cried “foul” and cited the danger of “moral hazard”. There are concerns that people with pension savings could pay themselves too much too early in retirement and underestimate their own life expectancy, leaving themselves with little or no provision later in life.

opponents of this view call this patronising nonsense, arguing that the tax implications of withdrawing large amounts from a pension fund would put a natural fiscal break on this type of behaviour.

as Merryn somerset-Webb writes in Money Week, “those who hold pensions aren’t idiots, likely to turn from diligent believers in the future to spendthrift short-termers on the turn of 55”.

danger of re-inveSTing penSion poTS inTo properTy

the other concern is that investors will cash in their pension savings and re-invest the net proceeds into alternative investments such as buy-to-let properties, fuelling a potential further spike in prices in a market that is showing some signs of overheating, particularly in london and the south-east. Whatever the outcome - advice will be essential.

new penSion ruleS

however prior to these proposals becoming law, the chancellor has tweaked the existing rules. for those who are already drawing from their pension plans the new drawdown limit will rise from the current 120% to a new limit of 150% of the equivalent annuity.

The rules for flexible drawdown are also to be reformed. currently, you are able to drawdown as you please as long as you are able to prove that you have a minimum

guaranteed annuity of £20,000 per annum; the new minimum will be only £12,000 of annuity per annum subject to pension scheme rules.

in addition, for those individuals with smaller pension pots, the size of those pots that can be taken as a lump sum, regardless of total pension wealth, will increase from £2,000 to £10,000. additionally, the number of small pots that can be taken as lump sums will increase from two to three. lastly, the amount of total pension wealth that can be taken as a trivial commutation lump sum will be increased from £18,000 to £30,000.

huge opporTuniTieS?yes, but these changes also come with certain challenges which will take some time to work through and there are a number of questions you need to ask yourself.

• How, and to what extent, do these new rules affect you and your current and future financial planning?

• Will the manner in which you save change?

• How you will access your savings in the future?

• Have your future retirement plans altered?

to help you answer these questions an early engagement with your succession group financial planner is critical. a valuable tool in bringing to life the impact of these reforms is Succession Group’s cashflow modelling which allows you to meaningfully assess with your planner all the financial and tax implications for you and your family.

this is the crucial step in making these new opportunities work for you in the most effective and tax efficient way possible. it is only by liaising with your planner that you can ensure that you maximise the benefits and minimise the risks that flow from these announcements. ■

David Lane is Business Development Technical Director for Vestra Wealth LLP. David specialises in providing technical consultancy services to Independent Financial Advisers, lawyers and accountants focusing primarily on UK pensions, tax and trusts and general financial planning. David is a Chartered Financial Planner, a Fellow of the Personal Finance Society and a full member of the Society of Trust and Estate Practitioners.

This document is for informational purposes only and does not constitute advice or a personal recommendation or take into account the particular investment objectives, financial situations or needs of individuals. This document is not intended and should not be construed as an offer, solicitation or recommendation to buy or sell any investments. You are recommended to seek advice concerning suitability of any investment from your Financial Planner.

The information and opinions expressed herein are the views of Vestra Wealth LLP and are based on current public information we believe to be reliable; but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information herein is given in good faith, but is subject to change without notice. No liability is accepted whatsoever by Vestra Wealth LLP.

peNSioN SaviNGTax ExpErT DaviD Lane givEs us his viEws abouT changEs To pEnsion saving and cauTions ThaT financial advicE is criTical.

proTeCTion planSWhen the unexpected happens, such as not being able to work through sickness or injury, or because of a premature death, what really matters is knowing that you have a protection strategy in place to give you and your family financial peace of mind should any of these circumstances arise.

With limited government support available, few of us could cope financially if we were unable to return to work. protection insurance gives you and your loved ones reassurance that your family’s lifestyle is protected in the event of a change in income due to premature death, illness, accidents or unemployment.

Whether you need a cash lump sum, or regular payments to help meet the everyday cost of living, succession group offers a number of comprehensive solutions to help you deal with the aftermath of unexpected life events.

properTy purChaSeThe house you buy, improve or aspire to – whether as your home or an investment - is probably the single biggest investment you will make. tougher rules requiring lenders to look at spending habits, rather than income, came into force earlier this year following the financial conduct authority’s review of the mortgage market.

it is not just a question of who you borrow the money from, but also about the type of mortgage and whether the capital amount can be secured by an existing asset such as pension or investment savings.

succession group will give you access to a panel of mortgage lenders offering market-leading, specialist deals to deliver a cost- effective solution to meet your needs*. your home may be repossessed if you do not keep up repayments on your mortgage.

aT reTiremenTthe 2014 budget saw further changes and restrictions to the amount that can be contributed tax efficiently into a pension scheme without incurring punitive tax charges. it also gave people options for pension draw down and there was an increase to the state pension age.

few companies now offer generous retirement pensions and individuals are increasingly on their own if they want more than a subsistence pension of some £7,000 a year during the last 20 or so years of their lives.

the choices for a comfortable retirement are looking less rosy – especially for those without a plan in place. With fewer people working, and more retiring, it is only a matter of time before the value and availability of even a basic state pension – already described in the daily telegraph as one of the meanest state pensions in the western world - is eroded or removed entirely.

our priority is to ensure you receive the best possible advice, with expert financial planners working with you to review your retirement plan regularly and implementing alternative strategies if the lifetime allowance – the maximum amount of tax-relieved pension savings built up over your lifetime - is likely to be exceeded.

houSeholdConTenTS inSuranCea recent report from the association of british insurers states that 20% of UK households are at risk of being underinsured as a result of the value of belongings increasing. Underinsurance usually results in a reduction in the settlement of a claim and at a time when personal items have been lost or damaged, this can come as a very unwelcome surprise. but the good news is, it’s something that can be avoided.

to avoid disappointment, it is highly recommended that your policy is reviewed at least once a year. reviewing the value of any new personal items purchased during the year, as well as the rise in value of more precious items such as jewellery, art and antiques, can help remove any uncertainty over whether you will be covered should you have to make a claim.

Building inSuranCean accurate estimated ‘rebuild cost’ for your property is just as important, factoring all materials and labour. this cost will naturally vary depending on property size, age and type of property.

even with helpful online tools, it’s widely acknowledged that reviewing insurance cover can be time consuming and may seem complicated for those not up-to-date with the current prices of their most valuable items.

banks, direct offers and comparison sites might seem appealing, but succession group’s general insurance panel proposition offers clients value-for-money cover that is complementary to our client’s other financial solutions. ■

* a fee of 1% of the loan, subject to a minimum of £250 and a maximum of £500 is payable once a decision in principle has been secured from the recommended lender.

aNd tHere’S more

www.successiongroup.co.uk04

sUccession groUp noW offers an extended range of financial advice solUtions coMpleMenting oUr independent investMent advice and financial planning services. entirely tailored to yoUr risK profile and personalised financial plan, the additional services inclUde Mortgages, protection, pension and insUrance.

As part of our service, Succession Group’s Financial Planners take the time to understand your unique needs and circumstances. If you would like to discuss the additional services now available please contact your Financial Planner.

raNUlpH FieNNeS:Ultimate explorer

Sir ranulph TwiSTleTon-wykeham-fienneS oBe, 3rd BaroneT, talKs exclUsively to sUccess Magazine aboUt teaMWorK, adventUres,

record-breaKing challenges, love and legacy.Sir ranulph “ran” fiennes is, according to guinness World records, the world’s greatest living explorer. he was the first person, with Charles Burton, to reach both north and south poles on foot. he also made it into the record books by completing seven marathons on seven continents (including antarctica) in seven days. taking up climbing following a lifelong fear of heights, ran became the oldest briton to conquer everest on his third attempt at an age when most people are expecting their bus passes.

as well as holding a number of endurance records, ran is also one of the UK’s top celebrity fund raisers and to date has raised £16.2m for UK charities in his 40-year career as an adventurer.

The early yearSUntil the age of 24, i only wanted to do one thing - command the fantastic royal scots greys regiment, as my father had. i served eight years in the british army in my father’s regiment, and was seconded to the sas becoming the youngest captain in the british army. i spent my final two years seconded to the army of the sultan of oman, and was awarded the sultan’s bravery Medal from hM the Queen.

Many british explorers have died in their attempts to reach the north or south poles and it was a great shame that we were beaten to the north pole by an american team in 1910, and then by the Norwegians who were first to reach the south pole in 1911. sixty years later, over breakfast, my wife came up with the idea of being first to both Poles in the course of a single journey.

That challenge over the cornflakes resulted in me leading a three-year, 52000 mile odyssey between 1979 and 1982, and becoming the first person to reach both Poles, the first to circumnavigate the world along its polar axis, and the first to cross both the Antarctic and arctic ocean.

my greaTeST Challengebut the expedition that took longest and i suppose i was most happy to eventually succeed in - because otherwise we would have wasted 26 years – was to find the lost city Ubar, sometimes called the atlantis of the sands.

By the fifth expedition (there were eight in total each taking a long time to organize and find sponsors) having discovered a pillar in the desert, but not the lost city, and racing against a german team that was also searching for it, I was beginning to think we would never find it. Whether an expedition goes well or not is immaterial, although we always try to keep the sponsor happy. but my wife, who spoke arabic, was very, very keen to discover it, and we persisted.

eventually, having begun the search in 1968, we discovered Ubar in 1992. that was my greatest challenge and if it sounds like an indiana Jones story, the archeologist on the team dr Uri zarins did in fact wear the same hat.

whaT driveS meafter leaving the army, my career as an expedition leader, travel writer and fund raiser evolved, and now age 70, i remain busy with lectures, mentoring, fund raising, farming on exmoor, and continued involvement in expeditions.

having experienced more than 30 expeditions over a 40-year period, i have learnt that inspiration for new expeditions can come from anywhere. however, it has to be proven that there is an unbroken record before we will go for it (and even now, there are still a number of polar records yet to accomplish). our team gets motivation from our own competitiveness. We’ve been known to rapidly pull a polar team together

to compete against a rival explorer’s challenge. even the opportunity to conduct scientific research by linking together a number of challenges excites me.

More recently, expeditions have included the additional element of fund raising for charity, which is above and beyond the significant sponsorship necessary to fund the expedition. charities such as seeing is believing, Marie curie and the Multiple sclerosis society have been the primary beneficiaries. We have found that climbing everest and running marathons is a much easier way to raise funds than holding a jumble sale, and to date we have raised £16m for charity.

The righT TeamOver the years, a magnificent expedition team of

more than 50 unpaid volunteers has grown to meet the challenges of raising sponsorship, finding the right team-mates, and navigating the political, geographical and physical barriers and complexities of our trips. that is why a team with the right balance of character and attitude is essential. personality is most important because “expedition fever” is inevitable, making even the most peaceful person gloomy, spiky and rash. skills can be taught. being kind is a gift.

We use everything available to make our expedition more comfortable, and part of our trip involves testing the latest kit and equipment in extreme conditions, at the same time conducting scientific research. Today’s expeditions contrast starkly with our early expeditions of the ‘70s and ‘80s when there was no sat nav, gps, or sat-phones, which meant we had to rely on the same type of theodolite or sextant to navigate as shackleton and scott had used at the turn of the century.

i’m a CeleBriTy?I have yet to be approached about a film of my life, although i did audition with cubby brocolli for the role of James bond (roger Moore got the role). the BBC’s World About Us series did film our Headless Valley expedition depicting the first complete journey by water from the northern borders of the yukon, through the rockies, to the southern border of the Us in vancouver via nine rivers but to date, that has been my only foray into the world of broadcast.

my life learningexpeditions pale by comparison when you have someone you love, and live with for most of your life, and i have been very lucky having two wonderful wives. i was happily married for 38 years to ginny, and now to louise and we have a daughter. i’m very proud of that, but recognise that it was my good fortune.

any viCeS?i used to go for chocolate in a very big way but have cut down because of diabetes. ■

are you a Spender or a Saver?i take advice and trade shares that i like the sound of.

My wife has a horse business, and we are hoping for great things, but at the moment i need to do quite a lot of lectures.

i don’t smoke, party or drink; my car cost £9000 – although i am a land rover ambassador. this blazer is 48 years old. i have a pin stripe suit of the same vintage.

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SucceSSion Group placeS Great emphaSiS on face-to-face financial planninG. We take the time to Get to knoW you Well, underStand your GoalS, and the key financial mileStoneS in your life to create a tailored plan that Will Secure your financial ambitionS. SucceSS maGazine aSked MalcolM Stone, SucceSSion Group’S director of caShfloW planninG, to explain Why it iS So important for financial plannerS to be aWare of the biGGer picture.it’s often not until we reach our 60s, facing the prospect of retirement and the termination of a regular income, that we start wondering how to make best use of a lifetime’s savings over the decades ahead, that we appreciate the benefits of a visual cashflow forecast more clearly.

the decisions for today’s retirees are more complex than for previous generations. this is partly because we live longer and therefore retirements last longer, but also because there are no longer generous pension schemes on offer. Without the right guidance, this has meant that people reach their mid-60s with a collection of assets, typically including several work pensions, savings and the family home and no idea whether it is enough to live out the rest of their days.

some would suggest a software tool or online research engine is sufficient to plan your long term financial security. I certainly don’t believe that a complex estate planning problem, or a finely balanced drawdown case, can be solved using a set of advice algorithms. not yet anyway.

But similarly, I don’t believe that financial planning without using lifetime cashflow forecasting is accurate enough to provide a professional service. planners who don’t use it are in danger of making judgments that lack any framework.

a new dawnA new dawn of financial planning – where professional, qualified Planners oversee the whole of a client’s financial circumstances – twinned with new technologies that help people to model their expected, or hoped-for, expenditure over their remaining lifetime is beckoning.

Tremendous benefits accrue from using technology with clients and it is more than merely a back-office tool. there are a variety of software options being used by financial planners but once you have ‘seen’ your financial future displayed visually on a lifetime graph, you will certainly understand the impact of your financial decisions – no-one wants to be in the ‘red’.

at initial meetings clients can see what we do by using financial planning software to illustrate our process - from initial data entry through to a lifelong cashflow forecast. This is done by entering approximate figures for the clients’ capital, income, and expenditure.

Lifelong cashflow forecasts are prepared, based upon prudent assumptions regarding future cash inflows and outflows, future inflation, and future investment returns. additional forecasts are developed to identify ‘what if ’ moments eg the premature death of either spouse or if either spouse became disabled and in need of long term care.

inTer-generaTional planningincreasingly, inter-generational planning is a major element - and not just to mitigate tax. lifelong cashflow planning is used to identify the extent to which clients could help family members without prejudicing their own financial security. Helping children or grandchildren with education expenses, to pay off student loans or to fund deposits for their first homes are high on the list of most clients’ priorities.

clients are fully involved in deciding what planning assumptions would be appropriate and what changes should be made if cashflow modelling demonstrates that the initial assumptions are unlikely to achieve their objectives.

ConfidenCe for The fuTureThe questions that underpin everything are “how long are your assets likely to last, and how long do you think you are likely to live?’

i’m quite sure that most of us fear that we will run out of money too soon. or, if too cautious, will we end up having not used our assets to their full potential?

the latter case is not so uncommon. Many people have saved carefully during their working lives. they are frightened of running out of money, sometimes unnecessarily. We carefully model their future outgoings and often point out that they have scope to spend more than they thought.

the modelling enables clients to look 15, 20 or even 40 years ahead. it makes clients feel more confident – that they have choices and options.

Entering your outgoings – or hoped-for outgoings – to cover everything from essential costs, such as heating or council tax, through to discretionary spending on travel, car replacements or gifts to grandchildren is the necessary input before a series of graphics and charts is then generated, showing whether you will outlive your money, or vice versa.

The visual representations of cashflow allow for different scenarios to be pictured alongside each other. this can spur clients to take action, as they can see graphically when their current situation will cease to support them. there are multiple scenarios for which this can be useful, from varying retirement dates and life projections to budgeting for a child at university. ■

Have your circumstances changed since you last saw your Financial Planner? Call us now and book an appointment for review.

maKiNG CaSHFloW CoUNt

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retirement is a very personal choice. i remember a friend of my father’s working well beyond retirement age so that he could enjoy a good retirement, but sadly we attended his funeral a short time later. From an early age, I knew I wanted “a good retirement”, and for me that meant retiring when i was 55.

as a business owner i needed to be certain that the one real asset that would fund my retirement could create enough capital to ensure that i would never run out of money.

That kind of lifelong cashflow forecasting is not something that can be done on the back of an envelope, so over a period of six months my financial planner used detailed expenditure analysis and forecasting to demonstrate that i could live the life i wanted with the funds available to me.

My family has farmed for generations. My grandfather bought the family farm, in Madley, near crewe, in 1948, and four years later my father took over the tenancy. i farmed in partnership with my parents until my father passed away. livestock farming is a challenging career choice and the last 15 years in particular took a great toll on us all.

neither of my two daughters wanted to pursue a career in farming, and Joan and i decided to sell. at this time i had no idea how much money i would need to sustain a happy retirement and support my family.

Malcolm has been my financial planner for 20 years, supporting me both professionally and personally with a financial plan designed to achieve my goals. he was aware that i was keen to retire and worked with me over a number of months to help me understand “how much is enough?”

Using sophisticated software, Malcolm brought my financial position to life. I could see clearly the impact of different lifestyle choices; i could ask lots of ‘what if ’ questions, and, crucially, get meaningful answers that enabled me to make real time decisions.

The cashflow forecasts showed me how much i needed from the sale of the farm in order to meet my retirement goals. this proved invaluable and even showed me that i might be able to retire earlier than previously anticipated.

crucially, it meant that i wouldn’t have to hold out in a depressed market for an optimum price, potentially delaying my retirement date.

after much discussion, Joan and i agreed the financial plan and put it into action. Malcolm attended the auction with me in november 2006 and the farm was sold for a fair price. Without doubt, i would not have had the courage to go to auction if it were not for the cashflow.

i was able to retire at 53 and working with Malcolm consolidated my assets, maximized tax advantages and created an investment plan using isa and other investments. Without Malcolm’s input, i might still be waking at the crack of dawn to milk the cows instead of being out on the golf course 3 or 4 times a week.

i have just turned 60 and Joan and i have built one house and are now in the process of building a second. lots of farmers don’t know that there is a life beyond the farm and now i truly am enjoying life in a way i couldn’t have even imagined before. being able to take spur-of-the-moment trips to paris cer tainly is a luxury.

cashflow planning changed my life and meeting with Malcolm every 6 months to review my financial situation ensures that i am always on top of my finances. i can’t understand why more people don’t use it. ■

CaSHFloW CaSe StUdY: pHil robiNSoN

life long CaShflow foreCaSTing iS noT SomeThing ThaT Can Be done on The BaCk of an envelope

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GoalS-baSed iNveStiNGGoeS maiNStreamAs investors heightened their focus on personAl investment goAls, goAls-bAsed investing is emerging As An increAsingly AttrActive ApproAch sAys sei’s Tom Williams.

Coming out of the “Great Recession,” investors want to know how to navigate an ever-changing investment landscape in a world where there’s a new crisis on every horizon. investors are looking for assistance in defining their unique personal financial goals and are seeking strategies designed to help get them there. such needs are a far cry from product-only sales that entail a cookie-cutter approach and often ignore the fact that all investors are different.

in building a portfolio to meet their unique needs, they are less likely to concentrate on portfolio returns in relation to a benchmark and more likely to focus on how they will meet their many financial objectives (including saving for retirement or saving for their children’s education).

sei has been on the cutting edge of goals-based investment strategies since 2003. after publishing a ground breaking paper entitled “Goals-based Investing: Integrating Traditional and Behavioural Finance” we introduced our first goals-based strategies in the UK.

The STudy of Behavioural finanCein 2002, professor daniel Kahneman, of princeton University, won the nobel prize for economics, based on his work in the area of behavioural finance. Kahneman and others put modern portfolio theory to task by studying how investors actually think and behave, rather than how financial theories and theorists suggest they should behave. the study of behavioural finance has challenged the very foundation of modern portfolio theory, for once abandoning the assumption that investors are always rational.

the work of Kahneman and others helped form the basis for a new approach that is focused more on achieving investors’ specific financial goals.

Unlike modern portfolio theory, where the goal is to manage the trade off between risk and its expected

return, behavioural finance can help explain why many investors tend to buy high and sell low.

redefining The inveSTmenT approaChsei’s work in this area led to a belief that not all investors make decisions based on the trade off between risk (standard deviation) and return. aggressive investors, or those with long time horizons, may desire a portfolio with risk defined relative to broad equity and fixed-income markets—electing a point along an efficient frontier to capture the returns of equity and credit. however, a more conservative investor, or one with a more time-sensitive goal, may not want always to assume the full risk of global equity and fixed-income markets. this investor’s concept of risk is a one-way street (unlike standard deviation), with the emphasis on the downside. More conservative investors view risk in terms of how much money can be lost. risk, in this sense, is more absolute than relative. sei’s goals-based investment strategies were designed to account for such differing needs and views of risk.

Goals-based investing redefines investment objectives. rather than using measures of return and standard deviation to define success, results are instead measured in terms of the investor’s ability to meet personal financial goals. Risk is viewed in terms of the probability of falling short of those goals, as opposed to simply outperforming or under performing a benchmark index.

goals-based investing is a more intuitive approach for investors because it centres on meeting tangible objectives. the focus changes from exceeding the return of a given benchmark to achieving the tangible - the pursuit of specific and personal goals. A portfolio solution tailored to better align with an investor’s view of a goal and measure of risk becomes more easily understood and relevant, leading to more meaningful, personal discussions of wealth management.

because goals-based investing incorporates the principles of behavioural finance, it can help change investor behaviour by creating a more rational framework for expectations. it can also help investors avoid traditional mistakes, such as making snap decisions to pull out of the markets during volatile periods. When the focus is on a particular financial goal, and not on a benchmark return, investors may be more likely to ignore the many whims of the market.

Sei aT The forefronT of goalS-BaSed inveSTingWhile sei was an early proponent and early adopter of goals-based investing, we did not completely dismiss modern portfolio theory. instead, we believe that traditional financial theory and behavioural finance need not be an all-or-nothing proposition; there is value in both approaches.

however, the long-held industry practice of aggregating all client financial assets into a single portfolio, and then measuring the success of that portfolio relative to a given benchmark, was replaced by a more focused approach. Since investors have multiple financial objectives with differing time horizons that have varying degrees of importance, financial assets are instead broken out in separate portfolios, specifically designed to meet an individual goal.

in this context, the measure of risk that guides our allocation process will vary across our portfolios, as we view risk as relative to the ultimate goal. With the tenth anniversary of SEI’s first goals-based offering getting closer, we are pleased to remain at the forefront of this not-so-new type of investing — delivering practical strategies to help investors achieve their personal financial objectives. ■

The information and opinions herein are the views of SEI. If you would like to discuss goals based financial planning call us now and book an appointment for review.

www.successiongroup.co.uk 09

It’s now three years sInce student fInance In england was radIcally overhauled wIth unIversItIes In scotland and wales sImIlarly affected. yet myths, panIc and confusIon are stIll wIdespread. success magazIne steers clear of the polItIcs to focus on the practIcal Impact on students’ pockets.

paYiNG For UNiverSitYHoW to FUNdUNiverSitY CoStSa university education is priceless. but today, parents and students know exactly how much it costs. tuition fees of up to £9,000 a year for full-time students (and £6,750 a year for part timers)as well as accommodation and living expenses (including food, travel and leisure) of more than £12,000 outside london and more than £13,000 in the capital (source: NUS.org.uk).

for a typical three year degree course, the cost will be at least £63,000, and according to the Money advice service, the average student now expects to graduate with £39,000 of debt. but it may be a price worth paying. According to the Office for national statistics, graduates will earn £12,000 a year more than those without a degree. While the government insists that 60% of students will be able to clear their debt through the course of their working lives, 85% will never repay their student loans according to research conducted for the Mail on sunday in 2013.

parents will inevitably bear some of the cost burden of a child’s university education. after all, education and childcare have remained the biggest single expenditure for parents, with the costs doubling over the last ten years.

so what do you need to know if your child is about to embark on higher education? and when should you start planning to support them?

paying for univerSiTy

the good news is that students don’t have to pay university fees upfront. they can get a tuition fee loan to cover the full cost, which is paid directly to the university or college. the loan does not have to be repaid until the course is finished and the borrower is earning more than £21,000 a year. if they never earn more than that, they won’t have to repay a penny. however, interest accrues at 3% above inflation as measured by rpi even while they are studying. and once earning, the interest rate is dictated by their salary bracket.

student loans are still the most cost-effective way to fund university. the interest rate is competitive compared to a bank or building society loan and the government has agreed to wipe out any unpaid loans after 30 years.

scholarships and bursaries are available from most colleges and universities and details can be found on thecompleteuniversityguide.co.uk

students may be able to apply for a maintenance loan to help pay for everyday expenses such as food, travel and accommodation. it gives the average london student around £7,750, while students elsewhere in england receive around £5,550. the loan is partly means-tested and is repaid in the same way as the tuition fees loan.

there is a shortfall and the chances are that you as a parent or grandparent may have to help fund it.

HOW YOU CAN HELP

Working out a financial plan that can help your child manage their university finances will be a valuable exercise. Just like your own financial plan, they will need to write a list of all the income they’re likely to receive and when they’ll get it, and then do the same for all outgoings, including phone bills, clothes, rent and food. then you should be in a position to work out how much they have to live off each month.

They will need other financial services too. A good student bank account with a generous interest-free overdraft facility is a must, contents insurance is essential although it might be more cost-effective to add their Uni possessions to your own home policy rather than taking out a specific student insurance. talk to your succession group financial planner about your household insurance.

you could consider helping your children through university by purchasing a property for them to live in and as an investment for you. again your succession group financial planner can advise you on the most appropriate mortgage options available.

Saving for univerSiTybuilding up the sums of money that a university education entails requires some forward planning to ease the burden.

your succession group financial planner may have already discussed your children’s or grandchildren’s higher education costs as part of your life goals.

even with the simplest of savings plans, you would be looking at investing £91 per month from the day your child was born (assuming a gross annual interest rate of 3.5%) to achieve £27,000 - the amount needed to meet three years’ worth of tuition - by the time they turn 18. if you don’t start saving until your child turns 10, you would need to save £245 to reach the same target (source: Money Advice service savings calculator). ■

If you would like to discuss how to fund university costs call us now and book an appointment for review.

10 www.successiongroup.co.uk

HoUSiNGreCoverYLucian cook, Director of resiDential research for savills looks at the Uk’s hoUsing market.

Conjuring up a houSing markeT reCoverythe speed of recovery in the UK housing market in 2013 took most analysts by surprise. on the one hand conjuring up a housing recovery has positive benefits for consumer sentiment and the wider economy. on the other, the experience of 2013 has also caused economists and politicians to express their concerns over the threat of a new housing bubble forming. certainly what we saw in 2013, is quite different in nature to the short lived bounce in 2009 and 2010, in that it has been accompanied by a more meaningful improvement in transaction levels and mortgage lending. there are strong indications that prices, transaction levels and mortgage lending will continue to increase in the short term at least.

raTe riSeS?What then is the risk prices will rise to such a degree that future interest rate rises cause severe financial stress across overly indebted households? our annual valuation of the value of UK housing stock provides insight into these issues. overall the value of UK housing stock rose to £5.2 trillion at the end of 2013. While it rose by £186 billion over the course of the year, it is still some £344 billion below the value in 2007.

perhaps more instructive is the geographical distribution of growth. although almost all other regions saw growth in the value of their housing stock, london continued to lead the way.

however, across london there has been a big variation. the value of housing stock in the boroughs of Kensington and Westminster may be 15% more than that of Wales but in percentage terms the biggest value growth was in the boroughs of hackney, lambeth and Wandsworth. here growth, that has been well into double-digit territory, has been fuelled by high levels of domestic equity, much less so mortgage debt. at the other end of the scale newham, one of britain’s most indebted housing markets, saw price growth of just 3.9%. in this borough the value of housing stock has risen £1.2 billion in five years, less than 10% of the gains seen in, say, islington. geography leSSonSbeyond london the pattern has been repeated. the markets showing the most growth over the past five years have been the likes of Elmbridge, Brighton & Hove, St. Albans and Guildford, all affluent and all attracting plenty of equity. on this basis it is not surprising that aberdeen, bath and ne somerset were amongst the highest risers in 2013. of course there is a wide disparity between the best performing areas within and outside of london. in 2013 the value growth of london’s 10 most valuable boroughs at £55 billion was four and a half times that seen in the 10 local authorities that saw the biggest value growth beyond the capital.

it is clear that equity is driving the recovery, something which we expect to continue though with different equity rich markets in different regions leading performance at different times during the recovery.

The role of equity is not confined to different geographical areas but also has relevance to different segments of the market. across the UK housing market as a whole the level of equity (as opposed to mortgage debt) is high. Outstanding mortgage debt stands at £1.27 trillion – roughly one quarter of the value of housing. debt pays the smallest part in the rented sector. that means a lot of the housing occupied by our younger households is relatively lowly geared in a private rented sector now worth just short of £1 trillion. That figure has increased by £277 billion over 5 years. by contrast during this time the value of housing stock in the mortgaged owner-occupied market has fallen by £172 billion reflecting a significant ongoing shift in the distribution of housing wealth between generations.

markeT SegmenTS none of this means that the market is entirely free of risks from increases in interest rates. even though levels of lending at high loan to value ratios has been heavily constrained post credit crunch, in that part of the housing market where there are mortgages, loan to income ratios are relatively high. amongst these mortgaged owner-occupiers the level of mortgage debt accounts for 54% of the total value of stock owned, up from 43% ten years ago. so we are left with a housing market that continues to be driven by equity rather than debt, one where future price growth is likely to be greatest in equity rich markets, where transaction levels are constrained in the lower rungs of the housing ladder in which debt requirements are greatest but which is still sensitive to future interest rate rises. ■

The information and opinions expressed herein are the views of Savills.

900 years and counting. Foot anstey’s Steven HowellS writes exclusively For success Magazine about why trusts are still hugely relevant, given the coMplexities oF FaMily liFe.

tHe laSt Word:trUStS, Not dead Yet!born in the 12th century, when crusaders transferred their estates to others to hold for them during their absence, trusts have since become an intrinsic part of the way that we live our lives today. We see them all around us: in the co-ownership of land; in the way that we provide for vulnerable people; the way that finances are arranged on second marriages and new relationships; as well as their use in conjunction with broader wealth preservation and investment strategies.

over the last few decades though, successive governments have sought to attack trusts through the use of taxation. in the early 1970’s, they were viewed as tax avoidance devices for wealthy families wishing to escape the exceptionally high rates of income tax in force at the time, and as such the additional rate of tax was introduced - with the income of discretionary trusts and the suchlike being taxed at much higher rates. history repeated itself at the turn of the last century when the incumbent paymaster general was revealed to have an interest in a tax free offshore trust valued at £12.5 million. as a consequence, the way that UK residents were taxed on their interests in offshore trusts changed radically. likewise, in 2006, that year’s finance act again introduced sweeping measures to dissuade people from putting too much into trust under an all-encompassing banner of “harmonisation”.

taking all of this in the round then, we can conclude that (a) trusts are not going anywhere, anytime soon; and (b) the only effective way for parliament to attack them is to change the way that they are taxed from time to time. so where does this leave us?

Two words: flexibility and review. We need structures which are flexible enough to adapt to an ever changing taxation environment and evolving family circumstances. We need to review what we have and question whether, in their current form, existing family trust structures remain appropriate.

Take the examples below:

inSuranCe produCTS wriTTen in TruST

Many people have bought investment / insurance products over the years and transferred them into trusts for family members. Usually – but not always – a single premium product, many families I deal with have had these for decades. absolutely the right tax planning devices at the time, and in many cases, there have been significant Inheritance Tax savings.

But – don’t just look at the investments; look at the trust which wraps around it. What is the impact of that trust on your beneficiaries, who in all likelihood may not now be far from the age you were when you did your tax planning! do those trusts need to be “moved on” a generation? Are those trust wrappers still fit for purpose?

ExistiNg disCrEtiONArY trUsts

Mitigating tax is all well and good, but replacing tax with cost is another thing all together. Many families have discretionary trusts, established for one reason or another. With income being taxed at higher rates, tax returns, accounts and beneficiaries usually having to complete tax reclaim forms as well, it’s not surprising that cost and complexity becomes a major source of irritation.

But – need the status quo remain? In many cases, trustees could give one or more beneficiaries a revocable interest in possession. those beneficiaries would then be able to receive the trust income net of the standard rates of tax (10% or 20%) as opposed to the trustees’ rates (37.5% or 45%). such a move can often simplify trust arrangements, as well as improve beneficiary cash flow and reduce administrative cost. depending on the underlying investments, an annual tax return may not even be necessary in future years.

miTigaTing CapiTal gainS Tax

a consequence of a successful investment portfolio is often a potential liability to capital gains tax and the effect that has on a client’s investment philosophy. trustees are generally taxed on their gains at the rate of 28% but there can often be ways of mitigating this – if families are willing for wealth to be held outside of the protective wrapper of a more conventional trust. Bare trusts are trusts where the beneficiaries are absolutely entitled to the assets. Usually used for children, the downside is that the beneficiary can demand the trust assets at the age of eighteen, but the upside is that they can be an effective way of utilising a child’s possibly unused income and capital gains tax allowances.

nine hundred years in, they’re still here, and still hugely relevant – maybe more so than ever before, given the complexities of modern family life. Many are absolutely fine, and wholly fit for purpose, but some may no longer be: a periodic review could pay huge dividends over the longer term! ■

www.successiongroup.co.uk 11

The information and opinions expressed herein are the views of Foot Anstey. If you would like to find out more about trusts call us now

and book an appointment for review.

Head Office

Succession Group LimitedDrake Building, 15 Davy Road,

Plymouth Science Park Derriford, Plymouth, Devon PL6 8BY

Tel: 01752 762140Email: info@successiongroup.co.uk

this magazine has been written for information purposes only and does not constitute advice or a personal recommendation. it does not take into account the particular investment objectives, financial situations or needs of individuals. The information and opinions expressed in the articles are those of the relevant authors and based on information which they believe to be reliable. they do not represent that they are accurate or complete and they should not be relied on as such. any information is given in good faith but is subject to change without notice. no liability whatsoever is accepted by Succession group ltd.