Pensions advisers & advice...Swindon & beyond

In the old days when you wanted advice on your company pension, there was somebody you could call up or even meet to discuss contributions, investment choice & other matters.

However with cost cutting many firms outsource their pension services & employees do not have anybody to talk to.

Where can you get pensions advice?

You an contact an Independent Financial Adviser. We deal with pension everyday especially for self-employed people or those who had company pensions transferred into Personal Pensions.

The same principles apply whether you have a company, stakeholder, personal or self invested Personal Pension (SIPP).

You are looking to minimize charges and choose the right investments suited to your age and attitude to risk.

4.99% Mortgage Yorkshire Building Society...beware!

Mortgage providers are well versed in the art of getting their products to the top of best buy tables.

There is a horrific example currently from Yorkshire Building Society. It has a fixed rate of 4.99% for 2 years.

Sounds good? The reality is somewhat different

It has an arrangement fee of 3%, on a remortgage of £200 000, this is £6000!. You can also add this fee to the mortgage & pay interest on it.

You also pay a non refundable fee of 0.25% on application, £500 on the £200 000 remortgage example.

Conclusion

Avoid, truly shocking & rather misleading product.

Credit Crunch: 1 year old

It’s now 1 year since the term “the credit crunch” entered public circulation. The first signs can be dated back to February 2007 when HSBC issued a profits warning.

UK Banks made some pretty horrendous decisions taking on bad debt from the US. Unfortunately these mistakes have been passed onto customers higher mortgage & loan interest rates.

This week banking heavy weights HSBC, the Royal Bank of Scotland & Barclays issue trading updates this week. The results will be interesting. As mentioned last week the only people to lose their jobs are some Directors at Northern Rock.

What will happen next?

The Mortgage market will continue to be complicated, so it is worth getting proper independent advice before making a decision.
Banks will probably merge, we have already seen Santander (Abbey) swallow up Alliance & Leicester. Some smaller banks such as Bradford & Bingley and even some building societies could follow suite.

Negative Equity: BBC Radio Swindon

Below is a transcript of my feature with Claire Bailey on the BBC Radio Swindon Breakfast Show 1 August.

What is negative equity?

Your house is worth less than the mortgage you got to buy it.

When does it occur?

When house prices fall. The Telegraph said yesterday 1.7m home owners or 1/7 of the total were already affected ! There has been a 9% fall from last year’s peak (Halifax house price figures). A Standard & Poor’s survey predicts the market could fall by up to 26.8%.

Who is the worst hit by negative equity?

1 People who bought houses at the peak of the market last year and especially those who took out 100+% mortgages such as the infamous Northern Rock Together product. It allowed people to get houses when they didn’t earn enough.

2 Those in averagely priced homes…the top & cheap ends of the market haven’t been affected.

3 People who dabbled in Buy to let property..again bought at the top of the market

Does it happen often?

The last time was in the early 1990s.

Why have house prices fallen?

House price inflation was around 10% for most of the last decade. This is ultimately unsustainable. The people who drive the market..first time buyers can’t afford to buy.

Plus the impact of the most used financial term of the last year…the credit crunch.

First time buyers can’t get mortgages because banks aren’t lending money….certainly not 100+% mortgages.

What should you do?

Wait, sit tight. House prices will fall until the bottom is reached. At that point first time buyers will be able to afford properties.

The mortgage market will recover too…

John Templeton: Investment Wisdom

Investing legend John Templeton recently passed away at the beginning of July. In 2007 Time magazine made him one of their 100 Most Influential People.

During his long life, he made one very pertinent remark on investing.

“When people are desperately trying to sell, help them and buy. When people are enthusiastically trying to buy, help them & sell”

Thanks to Lawrence Gosling of Investment Week for the quote.

Banking chiefs should be sacked says fund manager

Fund manager James Foster of Artemis says heads of failing banks such as Fred Godwin of Royal Bank of Scotland & Andy Hornby of Halifax Bank of Scotland, "should be shown the door".

He continues, "they had forgotten the basic tenets of banking".

He was referring to their current problems, the way in which these had arisen & how the management of the banks are tackling them.

From Professional Adviser p5 24 July 2008

Northern Rock re-emerge

For the first time in many months, I have received marketing material for Northern Rock mortgages.

They are the most financially secure company to buy a mortgage or a savings product from at the moment because of government backing.

How do the mortgages compare?

The rates are fine but they still maintain a traditional feature of Northern Rock products...high arrangement fees.

Who is Warren Buffet?

Warren Buffet is probably the most famous investor in the world and may or may not be the richest man in the world.

He lives & works not in New York, Tokyo or London but Omaha, Nebraska

His investment style is basically buy good quality, profitable companies (Coca Cola, Gillette, Wal Mart) at low prices during market turbulence.

It sounds very simple like going to the supermarket and stocking up when your favourite beer or brand of beans is on discount....but it requires a lot of discipline, nerve and a long term view.

Currently markets have dipped in the last year and will continue to be low for the foreseeable future, people are scared to invest. Markets will recover the question is when. However by the time the amateur investor hears about an upturn it will be too late.

Equity Release: What is it?

Equity Release is a way of people over 55 to release money from their property to give them more money in retirement.

There are 2 main types

1. Lifetime mortgages
   
2. Home Reversion

It is heavily regulated these days and has a trade body (SHIP)

Equity release is available through specially qualified Financial Advisers. My company AP Financial Services & I have the necessary permissions.

Bank of England "gives" banks £50 billion.

Yesterday the Bank of England announced it would give UK banks £50 billion in exchange for mortgage backed securities.

It was a move designed to put more money into the financial markets.

However it is somewhat of a u-turn for the Bank of England & its governor Mervyn King who denied it would not do anything liek this a few moths ago. The bank has basically bought assets that nobody else wanted on the financial markets.

It should be noted that the big 5 banks made profits of £30 billion in the last year despite making some rather large mistakes.

Bank of England lowers Interest Rates

The Bank of England yesterday lowered interest rates to 5%.

Will this mean lower mortgage interest rates?

Hmmm...it depends

1 Lenders had priced in the likely decrease into new tracker/discounted mortgages. it's like when supermarkets put up drink prices in November to claim a massive drop just before Christmas
2 Some organisations are not passing on the full 0.25% drop, with Nationwide you may only get a 0.12% drop.
3 Other banks are "reviewing rates within the next 2 weeks"

100% Mortgages Withdrawn

Abbey became the final large lender to withdraw 100% mortgages this week.

Prior to the credit crunch, borrowers were able to borrow up to 125% of the property value. Like other riskier types of borrowings such as sub-prime mortgages, product providers have removed these loans from their books.

it will casuse probelems for 2 types of lenders

1 First time buyers who don't have a deposit.
2 Buyers who took out 100% mortgages in the good times and now won't be able to get a new remortgage deal especially those on interst only mortgages. Their mortgages are likely to increase considerably.

What is an Investment Bank?

Investment Banks have been widely discussed recently. Bear Stearns is one, as is Lehman Brothers. It begs the question, "what is an investment bank?"

Investment Banks don't offer services to normal retail customers like you or me nor do they have branches on the high street.

Basically they operate in 2 ways,

1. Helping companies and governments raise money by issuing and selling shares in the organisation or debt such as corporate bonds.
2. They also provide advice on mergers between companies & acquisitions

What are Sovereign Wealth Funds?

There are lots of stories circulating about Sovereign Wealth Funds. So what are they?

They are government funds from counties like the oil rich Arab countries & emerging markets like Singapore & China. The Chinese one is worth $1.46 trillion! ($1 460,000,000,000 ) The money is generated by the export of natural resources such as oil and gas in the case of the Gulf States and Russia and manufactured goods in the case of China. The Sovereign Wealth funds are buying assets to safeguard the financial future of their home countries these might include shares in large companies, government stocks or commercial property. One example in the news recently is Dubai International Capital owns budget hotel chain Travel Lodge and has been interested in acquiring Liverpool Football Club.

The funds have become increasingly important in Western financial markets, bailing out US banks hit by the credit crunch. British Banks such as Royal Bank of Scotland & Barclays have seen investment from Qatar and Singapore respectively.

An interesting issue is that will the funds demand a greater say in the running of companies perhaps based on political reason? Some of the US banks bailed out by Arab money have issued special share classes to accommodate the new money without the usual voting rights.

Revenue buys stolen information about tax haven

It has come to light, that the tax authorities (HMRC) have paid £100 000 for information about bank accounts in Liechtenstein. They aim to potentially get back £100 million in tax avoidance from UK residents who have stashed money there to avoid UK tax. They bought the disk with stolen data from a disgruntled former employee of the Liechtenstein Global Trust (LGT).

The German tax authorities previously had paid 5 million Euros for information about German tax payers. Tax inspectors there are going through the finances of 900 people based on the information they received.

Lichtenstein is a major financial centre with 75 000 registered companies but only 35 000 residents. The LGT offers “wealth management to individuals and companies with the promise of absolute confidentiality.”

HMRC have the power to pay informants for information and have been investigating offshore investment in tax havens like the Isle of Man & the Channel Islands. Whether the payments for the stolen data is legal will be a big question. Finally as Mickey Clarke of the Evening Standard noted, “hopefully they won’t lose the valuable disc!”

Spot the Dogs: Poor Investment Funds

Every year Bestinvest name & shame the worst performing (dog) investment funds ; those underperforming the benchmark in each of the last three years and down on the benchmark by 10% over the same period.

Scottish Widows were quoted as ‘gone to the dogs’, with over half the group’s funds underperforming.

The worst culprits in different categories were

• UK – £13m Marlborough UK Equity Growth, down 37%
• European – £355m Melchior European Opportunities, down 37%
• International – £60m UBS Global Optimal, down 14%
• North America – £9m Invesco Perpetual US Aggressive, down 27%
• Tech – £37m Jupiter Global Technology, down 11%
• Japan – £66m M&G Japan Smaller Companies, down 28%
• Emerging Markets – £59m Lloyd George Emerging Markets, down 19%
• Asia Pacific – £232m Invesco Perpetual Hong Kong & China, down 25%

Invesco Perpetual have star manager Neil Woodford but as you can see are home to 2 dogs.

Share picking, potentially dangerous for your wealth.

One area the Sunday newspapers love is share picking, it is also beloved of sites like the Motley Fool.

The problems include:

• Newspaper journalists are not investment professionals. There is no comeback on their “advice”
• They don’t consider attitude to risk or things like the need for emergency funds.
• Do you have the investment knowledge? Is the share a cheap because they company is a basket case or merely unfashionable? Can you predict Northern Rock style crises?

The solution

Invest in a good mutual fund, you eliminate a lot of the risk. A professional manager looks after your money and can taken action on your behalf in the event of a Northern Rock style crisis or take advantage of low market prices

Which ones? Speak to your financial adviser, discuss your needs, risk and how much you can realistically invest.

Northern Rock Nationalised

After 5 months, the government has finally taken action over Northern Rock. It will be nationalised after £51 billion has already committed to the ailing bank in loans & guarantees to savers.

Nationalisation become inevitable after the one potential bidder after another was rejected.

When the crisis arose, there were a number of alternatives

1 Let the bank go bust.

2 Let a high street bank like Lloyds TSB take over the bank, who were initially interested.

Probably the worst aspect of the crisis was the Chancellor being indecisive for so long & seemingly hoping the problem would go away, the delays have severely damaged the Northern Rock brand.

There is one glimmer of hope, the man put in charge Ron Sandler has a good record of previously running Lloyds & Nat West.

Norwich Union...windfall....generous?

Norwich Union have not been slow in trumpeting a £3 billion distribution of money to With Profits policy holders.

Is it a good deal for the consumer?

They actually have over £5 billion left over from fund re-organisation. This is actually customers' money. They are being coy why they can't distribute the other £2 billion ot customers

90% of the money distributed is going to policy holders with 10% going to Norwich Union shareholders. They originally wanted to give a lower figure to clients but then the government's Policyholder Advocate put pressure on them.

In context, a lot of these policies are held in underperforming endowment policies for which Norwich Union have had to pay compensation for misselling.

A final note, they aren't paying out the customers' money to customers straight away. They are doing it over a 3 year period!

New Star: fallen Star?

New Star are one of well known fund providers, they advertise heavily in the money sections of the broadsheet newspapers always launching a "new, exciting opportunity". They have a distinctive psychedelic multi-coloured logo, which apparently looks that way because the printers forgot to add any black to the printing proof.

They were founded by George Duffield, who previously built up Jupiter. He has been extremely generous in sharing his wealth by giving share options to his employees.

However things have started to come unstuck int he last year as Financial advisers have moved money out of under-performing New Star funds.

When the company was established in the early noughties, they brought in many highly paid star fund managers and continue to launch new Funds.

The perception now withing the industry is that they have concentrated too much on trying to grow rather than doing the basics of investing existing investor's money wisely. Some of the funds also have a novelty feel about them.

That said, they still have some very funds. Which ones? speak to your adviser ;).