Spring 2022 thepfs.org
PROFESSIONAL
Guiding the way HOW FINANCIAL PLANNING PROFESSIONALS CAN PROMOTE THE VALUE OF ADVICE
ONGOING ADVICE
TIME TO ENGAGE
THE YEAR AHEAD
Update on the FCA’s retail investment market review
Help clients make the most of tax year-end planning opportunities
What’s in store for the mortgage market in 2022?
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Busi Bu s ne ess ss & Culltu ture re • En ng gag ge & De eli l gh ht Cl Clie ie ents • (E Effic fficie cie ien n ) Proc nt) ces e s •A Adv d ic ce & We Wea alth h Man anagem ag ge em men ent
An exciting, immersive and fun experience…
Birmingham 1-2 November 2022
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CONTENTS Spring 2022
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Sector Focus 10 Regulation The latest updates on legislation and regulation across the UK and Europe 18-19 Investments Latest guidance from the FCA retail investment review
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24-29 Planning End-of-year tax-planning opportunities 41 Tech Refresher
33 Trusts Advisers must review if client trusts need to be registered
48 Tech Q&A
Business Focus 12-14 Membership Early findings from the CII Group consultation 15-17 Advice process How financial planners can promote the value of advice 20-21 Mortgages Engaging with clients during record levels of remortgaging 22-23 ESG The current regulatory environment for responsible investing 30-31 Chartered Financial planners reveal their journey to Chartered status
34-35 Technology How new ways of working can help serve clients 36-37 Inclusion Helping the growing number of customers in vulnerable circumstances
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38-39 Funds Where advisers can look for investment returns in 2022
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News & Opinion
44-45 Events The return of face-to-face PFS Regional Roadshows
04-05 Opinion Events, networking and learning that members can look forward to in 2022
46 Education Meet the award-winning Education Champions
06-09 News National and regional news
49 The Big 10 Test your knowledge with our Q&A
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50 President’s opinion Sarah Lord on why now is the time for the profession to show its value
CONTACT US
Personal Finance Society 20 Fenchurch Street, London, EC3M 3BY Tel: (020) 8989 8464 Fax: (020) 8530 3052
Cover illustration: Nan Cao
Personal Finance Professional is the magazine of the Personal Finance Society (PFS). Members receive a copy as part of their membership. The cost to non-members is £7 per copy. Views expressed by contributors or advertisers are not necessarily those of the PFS. The PFS will accept no responsibility for any loss occasioned to any person acting or refraining from action as result of the material included in this publication. Reading issues of Personal Finance Professional can be included as part of members' CPD requirement (35 hours per year).
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EDITORIAL Communications director: Emma Ann Hughes Editor: Luke Holloway luke.holloway@cii.co.uk Contributing editor: Liz Booth DESIGN Art editor: Yvey Bailey Picture editor: Claire Echavarry Production: Jane Easterman Printing: The Manson Group
PUBLISHER Redactive Media Group, Level 5, 78 Chamber Street, London E1 8BL Tel: (020) 7880 6200 ISSN 1754-8055 © Personal Finance Society.
For sales and advertising please contact us on pfs-sales@redactive.co.uk or 020 7880 7661
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MEMBERSHIP
MAKING THE MOST OF
MEMBERSHIP Mark Hutchinson gives members a month-by-month guide to what’s coming up in 2022 4 e have a wide variety of activities planned for members in 2022, including the return of our regional continuing professional development (CPD) programme, face-to-face. Our community missed essential networking opportunities during 2021, so we are delighted to welcome you back from February. With specialist events, good practice guidance and a packed Power of Financial Planning programme, there is a lot to look forward to this year, even the return of the Festival of Financial Planning. Here are some of the highlights to make the most of during 2022:
JANUARY ● Power webinar – Five themes that will be critical in 2022, by Brett Davidson (25 January). ● Catch up on a wide variety of CPD recordings via your PFS digital library. ● Conversations with George Kinder and our 2021/2022 Chartered Award winners – catch up on a wide variety of financial planning insight recordings via your Power digital library channel at www.pfspower.org ● Start 2022 by finding or becoming a mentor through our e-mentoring platform Connect at www.thepfs.org/connect. Now with video-chat functionality. ● New year health kick? Check out your member Perks to see if you can benefit from discounted gym membership.
FEBRUARY ● Professional indemnity (PI) insurance – we will be continuing our work with government, regulators and insurers to create a new model for PI cover. ● Q1 Regional Conferences: Sussex, Surrey and Kent. ● Power webinar – How to politely screen clients, by Melissa Kidd (2 February). ● Power webinar – How to get a million in revenue, by Brett Davidson (15 February). ● Power webinar – The value of financial planning part one, by David Scarlett (23 February). ● Catch up on Power webinars: Commercials part one – what and how to charge for your financial planning service; and Commercials part two – pitching your financial planning service and fees, and overcoming objections at https://bit.ly/3qCmqe7
MARCH ● The Financial Conduct Authority (FCA) and the Customer Duty – how dynamic is your compliance process? The PFS will be issuing a good practice guide for members. ● Q1 Regional Conferences: East Midlands; Birmingham; Staffordshire and Shropshire; Thames Valley; Herts, Middlesex and Bedfordshire; London; Yorkshire; Lancashire; Merseyside and Cumbria; Greater Manchester; Jersey; Bristol and Cheltenham; South Wales; North Scotland; Central Scotland; and Tyne Tees. ● Retirement and later-life specialist Roadshows: Exeter and North Devon, Sussex, Thames Valley and London. ● Power webinar – The value of financial planning part two, by David Scarlett (1 March). ● Power webinar – Finesse your first meetings, by Melissa Kidd (16 March). ● Power webinar – Practitioners explore the value of paraplanning (23 March).
thepfs.org | Personal Finance Professional | SPRING 2022
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SEPTEMBER
● Pension transfer CPD – we will be launching a new series of webinars for members active in pension transfers.
● Q2 Regional Conferences: Sussex, Surrey and Kent. ● Accumulation and investment specialist Regional Roadshows: Central Scotland; Tyne Tees; Norfolk; Herts; Middlesex and Bedfordshire; and London. ● Q3 Regional Conferences: East Midlands; Birmingham; Staffordshire and Shropshire; Jersey; Thames Valley; Herts; Middlesex and Bedfordshire; London; Yorkshire; Lancashire; Merseyside and Cumbria; and Greater Manchester. ● Power webinar – The importance of knowing your client well (7 September). ● Power live webinars with FP Advance and Dimensional (14, 27 September).
APRIL ● We will continue our series of consultations with the Financial Services All-Party Parliamentary Group, with a focus on the value of advice. ● Cybersecurity and technology – a good practice guide for advice firms. ● Q1 Regional Conferences: Norfolk, Stamford, Essex, Northern Ireland and Isle of Man. ● Q2 Power begins monthly webinar series with practitioners about the practicalities of constructing a financial plan and the use of cashflow modelling. ● Power on-demand – ‘Back of a napkin’ financial plan part one and part two. ● Power webinar – Planners and paraplanners sharing how they construct a financial plan (25 April).
OCTOBER ● Q3 Regional Conferences: Bristol and Cheltenham; South Wales; North Scotland; Central Scotland; Tyne Tees; Norfolk; Stamford; Essex; Northern Ireland; and Isle of Man. ● Accumulation and investment specialist Regional Roadshows: Northern Ireland and East Midlands. ● Q4 Power webinar – Building robust processes and deepening client relationships.
MAY ● Q1 Regional Conferences: Plymouth and Cornwall; Exeter and North Devon; and Hants and Dorset. ● Retirement and later-life specialist Regional Roadshows: Birmingham, Yorkshire and Greater Manchester. ● Q2 Regional Conferences: East Midlands; Birmingham; Staffordshire and Shropshire; South Wales; and Bristol and Cheltenham. ● Power on-demand – How to blow your clients’ minds, by Brett Davidson. ● Power webinar – Practitioners show how they use cashflow live with clients (25 April).
NOVEMBER
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● Q3 Regional Conferences: Exeter and North Devon, Plymouth and Cornwall, and Hants and Dorset. ● A Festival of Financial Planning – NEC Birmingham (1-2 November). ● 2022/2023 Personal Finance Awards winners announced. ● Power continues a series of webinars focused on building robust processes and deepening client relationships (9, 15, 23 November).
JUNE ● FCA retail investment policy work podcast. ● Q2 Regional Conferences: Thames Valley; Herts; Middlesex and Bedfordshire; London; Northern Ireland; Sussex; Bristol and Cheltenham; Kent; North Scotland; Central Scotland; and Tyne Tees. ● Purely Paraplanning Conferences: Central Scotland; Tyne Tees; Greater Manchester; East Midlands; Bristol and Cheltenham; Stamford; and London.
DECEMBER ● Power webinars – Last words of 2022 from FP Advance & Dimensional (6, 14 December). ● Mark Hutchinson is membership director of the PFS
JULY ● Consumer vulnerability – what are the implications for professional advice? ● Q2 Regional Conferences: Norfolk; Stamford; Essex; Yorkshire; Lancashire; Merseyside and Cumbria; Greater Manchester; Plymouth and Cornwall; Exeter and North Devon; and Hants and Dorset. ● Q3 Power begins a webinar series about first contact and great conversations with clients.
FIND OUT MORE ● Events: thepfs.org/events ● Power of financial planning skills: pfspower.org ● Statement of Professional Standing: thepfs.org/sps ● Member Perks: thepfs.org/perks ● Connect e-mentoring: thepfs.org/connect
● While the boss is away – Power live webinars exploring client engagement, writing processes and creating an easily referable client experience (3, 10, 16, 24 August).
● PFS – Our Story: thepfs.org/ourstory ISTOCK
AUGUST
SPRING 2022 | Personal Finance Professional | thepfs.org
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NEWS
MEMBERSHIP
CII GROUP CONSULTATION CLOSES The Chartered Insurance Institute’s (CII) Shaping the future together consultation closed for responses on 17 December 2021. Shaping the future together gave CII and PFS members the chance to share their views on the CII’s proposals for areas including the qualification framework, membership structure, professionalism, learning and assessment. The CII Group is collating members’ input on how it can best equip them with the skills, knowledge, insight and networking opportunities to thrive. Sian Fisher, exiting CEO of the CII, said: “We know that the expectations
of the clients our membership serves – and swift pace of technological developments – will continue to change in the months and years ahead. “As with the pandemic, our profession will rise to the challenge. Going forward,
we want to be by your side, helping you every step of the way.” Read our latest article on Shaping the future together on page 12 of PFP.
A P P OI N T M E N T S
CII ANNOUNCES INTERIM CEO FOR CONTINUITY IN 2022 The Chartered Insurance Institute (CII) has announced that Jonathan Clark has been appointed interim CEO. As a former president of both the CII and the Chartered Institute of Loss Adjusters, as well as CII treasurer between 2003 and 2007, Mr Clark brings a strong understanding of the CII and extensive sector expertise, which will allow him to step easily into the interim position, bringing immediate benefits to the professional body and its members. Mr Clark takes over from Sian Fisher, who announced last October that she would be stepping down on 31 March 2022 after more than six years at the helm of the CII. Ms Fisher will stay with the organisation as planned until 31 March to ensure a smooth and orderly transition.
Tweet Tal k
@Kris_Amliwala I am continually inspired by “Success is a journey not a destination” - Zig Ziglar & have to give huge thanks to all those who have supported me over the years. I am now a Fellow of the @pfsconf
Commenting on his appointment, Mr Clark said: “It is an honour to be appointed interim CEO of the CII and I am pleased to lead our professional body until the new permanent CEO is in place. I am deeply committed to the insurance and personal finance profession, and believe professional development is central to supporting our valued members as they serve the public day in, day out.” Mr Clark has a wealth of experience and technical expertise, given his extensive career in the insurance sector, most recently as global head of single risk claims at SCOR, before he founded JC Consulting in 2021. He will stay with the CII until the permanent CEO is in place, a process that is well underway and being led by the chair, Dr Helen Phillips, and the CII board.
@jillfuturelife The @pfsconf strapline - Standards. Professionalism. Trust - is entirely aligned with that of @FutureLifeWM We’re honoured to be an Associate Firm #PFSAssociateFirm
PHOTOGRAPHY: JON ENOCH
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@theprogenygroup Luke Norman, financial planner says everyone in financial services should work together to tackle the #educationgap and speaks about volunteering with @pfsconf as an Education Champion
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NEWS
P E R S ON A L F I N A NC E S O C I E T Y
PFS REVEALS PLANS FOR 2022 A key focus for the PFS for 2022 is building a strong, sustainable and profitable profession, to ensure financial planners continue to empower people to have confidence in managing and planning their finances. Faced with changing client needs and technology advances, Sarah Lord, president of the PFS said the profession must support clients with both human and tech-enabled services. So, in the year ahead, the PFS will continue to provide webinars, articles and good practice guidance to its members. In addition to considering how we best promote the value of financial advice to a changing demographic, Ms Lord said there is also a need to explore and evolve training programmes, including those provided by the Chartered Insurance Institute (CII).
The CII’s Shaping the future together consultation provided an opportunity for all PFS members to have their say about the networking, skills and knowledge development they require from the professional body in the years to come. Ms Lord noted: “Moving forward, it remains important to focus on new generations of clients, building a clear understanding of they want from their relationship with a financial planner. “The intergenerational wealth transfer is upon us now, so we need to be on the front foot. We must ensure we can offer appropriate client experiences for the next generation of clients, so we sustain our client base for the future. “Only by securing our own financial futures through a clear focus on attracting
fresh talent, building resilient business models and focusing on the client relationship, will our profession be well placed to empower more individuals to manage their money and achieve their financial goals.” How to overcome these challenges and make the most of these opportunities will also be explored at the PFS Festival of Financial Planning, which will take place at the Birmingham NEC in November 2022.
7 R E G U L AT ION
FINANCIAL PLANNERS IDENTIFY REGULATION AS BIGGEST CHALLENGE Regulation is the biggest challenge to the way financial advisers work in 2022, according to a PFS poll. A social media survey of 169 PFS members in December 2021 revealed two out of five financial planning professionals felt further rules and red tape from policymakers and the Financial Conduct Authority (FCA) are the biggest hurdle they face in the next 12 months. One in five felt changing client expectations would be the most significant obstacle they need to overcome in 2022, while 21% cent felt getting to grips with
hybrid working would be the greatest challenge they face. One in five stated that improving their skills and knowledge to best serve clients would be their biggest challenge in the year ahead. Sarah Lord, PFS president, said: “The FCA’s review of the Retail Distribution Review and the Financial Advice Market Review saw the regulator acknowledge that financial planning can help improve people’s lives and that access to our profession’s services ‘at the right time’ is important. “The PFS is committed to continuing
@IFA_Dan A full day of financial education today. Taking 5 classes of year 7 students through the @pfsconf ‘Staying Safe from Scams’ workshop. Hopefully, they will come out with the tools to protect themselves and spread the word
@PFSParaplanHQ The very first @PFSconf #Paraplanner Virtual Networking session is a go! We’ll be talking all things #mentoring - benefits, sharing experiences and how to get involved as mentor/mentee
dialogue with the regulator and policymakers, to ensure that rules for the profession increase access to financial advice by allowing companies to grow and innovate to meet consumers’ needs. “The pandemic has transformed the way clients expect to receive advice, resulting in growing use of virtual-meeting technology, plus electronic sharing of documents. It is vital that regulation keeps pace with the new ways clients expect us to engage with them and that rules enable the profession to safely continue to help them make informed financial decisions to secure their futures,”
Twitter followers 9,716 PFS President’s Thinktank 3,940 members PFS Chartered Financial Planners 1,597 members SPRING 2022 | Personal Finance Professional | thepfs.org
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NEWS
MEMBERSHIP
CII CONFIRMS LOCAL INSTITUTE GRANTS FOR 2022
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The Chartered Insurance Institute (CII) has confirmed it will reinstate its historic funding model for local institute (LI) funding for 2022. This model seeks to share the available funds – £1.5m as signed off at the CII’s 2021 AGM – equitably, as a payment based on the annual assessment completed by each LI’s members during the summer months. The CII’s network of 56 LIs is run by dedicated groups of insurance and personal finance professionals, providing members with a programme of services including technical, market and regulatory CPD events, soft skills and businessrelated training, student career guidance, mentoring, social and networking activities. Sian Fisher, exiting CEO of the CII, said: “We are delighted to confirm local institute funding for 2022 is being restored
to the historic funding model. “Earlier in 2021, when it was clear that institute operating costs would be lower as a result of the ongoing pandemic, the CII asked all local institutes to consider a revised funding proposal for 2021, one that would allow for rapid financial recovery while also ensuring that the CII could continue to invest in and develop its membership proposition for the future. “As part of this, we also asked the local institutes that had significant financial reserves to voluntarily utilise those reserves, where possible, before taking additional grant payments. This led to an overall reduction in the grants paid by the CII in 2021. “The important network of local institute ‘hubs’ across the UK, the Channel Islands and the Isle of Man play a critical role in the experience of our members
throughout their careers, and we are very grateful for the support shown by the local institutes during such a challenging and unprecedented time for the profession. “As the findings from the CII’s ‘Shaping the future together’ consultation emerge, we look forward to continuing our work together to support our valued membership,” concluded Ms Fisher. Accordingly, and in line with the approach taken in previous years, payment of 50% of each LI’s ordinary grant will be made in January 2022. Further, as set out in the reserve policy, where an institute’s reserves exceed 12 months’ operating costs, the second tranche of the ordinary grant will be adjusted to ensure reserves are kept at the appropriate level. The payment of this second tranche will be made in July, following receipt of each institute’s annual financial returns.
S O C I E T Y OF M ORTG AG E P ROF E S S ION A L S
SMP APPOINTS NEW CHAIR AND VICE-CHAIR Carlos Thibaut, formerly CEO of 360Dotnet, is the new chair of the Society of Mortgage Professionals (SMP). Mr Thibaut, who was group managing director of Lifetime Group before his role as CEO of customer relationship management software provider 360Dotnet, first joined the SMP board in 2019. He replaces David Thomas, who is stepping down from the role after two years. When asked about his plans, Mr Thibaut said: “Following the illustrious David Thomas as chair of the SMP will be a considerable challenge but one that I am looking forward to. “We have an important role to play in supporting and promoting professionalism. Championing the benefits
CARLOS THIBAUT
of seeking out professional advice must be at the heart of what we do. We have an extremely talented, experienced and skilled board, and I am genuinely excited about the opportunities for advisers, professional advice and the society over the coming years.” Alongside Mr Thibaut’s appointment, Liz Syms, CEO of Connect Mortgages and Connect for Intermediaries, has been
named as vice-chair of the SMP. In 2012, Ms Syms set up the specialist mortgage network Connect for Intermediaries, which supports more than 250 mortgage advisers who operate not only in the mainstream market but also provide advice in specialist areas such as complex buy-to-let, commercial and bridging. LIZ SYMS The SMP is a professional body dedicated to those working within the mortgage sector. The society provides continuing professional development, good practice guidance and offers members the opportunity to give back to their local community through pro bono initiatives such as Forces Moneyplan. For more information visit: www.smp.org.uk
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NEWS
V U L N E R A B L E C U S TO M E R S
MORE THAN A THIRD OF FINANCE PROFESSIONALS ‘VULNERABLE’ IN THE LAST 12 MONTHS A recent Chartered Body Alliance (CBA) global survey has revealed the realities regarding the treatment of customers in vulnerable circumstances, including that 33% of respondents working in financial services considered themselves to be vulnerable within the last 12 months. The survey was undertaken by CBA members between 4 August 2021 and 8 September 2021. A total of 1,637 responses were received. During the past 12 months, the majority of respondents (61%) said they had either directly or indirectly supported a customer in vulnerable circumstances, while 75% had discussed the issues facing
such customers within their team, either frequently or on occasion. Respondents were asked if they had seen any examples of bad practice towards customers in vulnerable circumstances. Detailed, anonymous examples were provided by 356 respondents and included: ● Elderly customers being directed to online complaint forms ● Pushy salespeople ● Overuse of automation and AI, along with a lack of availability of telephone contact ● A lack of empathy for bereaved customers ● Poor response to instances of scamming and fraud
Lack of sensitivity to customers’ physical disabilities. When asked about their firms’ policies and procedures around the treatment of customers in vulnerable circumstances, almost four fifths said their organisation does have policies and procedures in place, while only a little more than 10% did not. However, a significantly lower percentage (58%) had received formal, structured training on the fair treatment of customers in vulnerable circumstances. Of those who had undergone training, only half (51%) had received it in the six months prior to the survey. ●
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MEMBERSHIP
PFP GOES PLASTIC-FREE Our PFS membership magazine has now gone plastic-free. Personal Finance Professional and the envelope it is mailed in are now 100% recyclable. If you have moved from working from home to being back in the office, you can still opt in to receive a printed copy of your PFS member magazine. To receive Personal Finance Professional on your desk, all you need to do is visit the PFS preference centre, opt in to receive the publication in print, and check your postal address is up to date. We hope many of you will continue to save trees and lower carbon emissions by instead visiting the enhanced, more interactive Personal Finance Professional website, but we want members to
COMING SOON We are currently hard at work on plans to deliver an exciting, immersive and fun experience for all financial advisers later this year. Keep an eye on the Personal Finance Society’s social media channels during March for a further announcement!
still have the freedom to choose how they wish to engage with Personal Finance Professional. To receive a printed version, visit: www.thepfs.org/my-pfs SPRING 2022 | Personal Finance Professional | thepfs.org
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R E G U L AT I O N
WHAT’S ON THE RADAR? In this issue, Matthew Connell looks at the FCA’s Consumer Duty and post-Brexit changes to regulation
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n December, the Financial Conduct Authority (FCA) published its draft rules on the Consumer Duty. At first sight, this can look like a rearrangement of the deckchairs – after all, the FCA already has principles for business and the requirement to act in the best interests of clients is already baked into core rules, like Conduct of Business. However, the Consumer Duty is different to what has gone before, in three key ways. First, it is connected to outcomes that are very clearly baked into the rules. The four outcomes that have been written into the rules are: products and services, price and value, consumer understanding, and consumer support.
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PFS ONLINE POLICY CONTENT Briefings Briefings, updates updates, research papers and much more are available for download at: www.thepfs.org/insight
Second, the FCA is promising to supervise against these standards more than ever before. Third, what makes the FCA’s promise around supervision more credible than similar promises made by other regulators in the past, is that it has promised to supervise against a dynamic model of compliance that is more powerful than the traditional, audit-based method of sifting through files to find evidence of conformity with prescriptive rules. Instead, the FCA has said that it wants to see firms go through a process of developing a proposition, monitoring how that proposition is working, analysing the results, learning from them and then applying that learning to develop a better proposition. It is a model that was initially developed as part par of the FCA’s guidance on vulnerable consumers, c but it can be applied to organisational culture more widely. The FCA has said that it will be less tolerant to firms that are not learning from experience than it has been in the past.
PPOST-BREXIT CHANGES Wh the FCA has been focusing on the While supervisor elements of legislation, HM Treasury supe has b been redesigning the architecture of the llegislative basis of regulation in the wake legisla off Brex Brexit. Them emes that the Treasury is considering include making mak king rregulation more focused on international competitiveness com mpetit p and climate change, which will have h implications for the investment space, as the e regul regulatory regime develops to encourage activity ti it i th that promotes both UK competitiveness and sustainability. In addition, the Treasury has said that it wants to delegate more rulemaking responsibilities to regulators than the European Union (EU) authorities did while the UK was a member of the EU, to “allow the regulators to ensure that the rules are properly tailored for the UK markets, and appropriately reflect their objectives”. This does provide the scope for UK regulators to take overprescriptive EU legislation, for example around the Markets in Financial Instruments Directive (MiFID) reporting during market downturns or through the production of Key Investor Information Documents, and create something that is better for both practitioners and clients. The PFS will be looking for opportunities to use this process to improve regulation for the public, in a way that will make it easier for professionals to serve their clients effectively and efficiently. ● Matthew Connell is director of policy and public affairs
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FINE TUNE YOUR SOFT SKILLS
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MEMBERSHIP
A VISION FOR THE FUTURE 12
How feedback from the Shaping the future together consultation will inform the CII strategy for the next five years, ensuring the professional body is fit for the future
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MEMBERSHIP
T
he Shaping the future together consultation – which closed on 17 December 2021 – outlined a vision for how the Chartered Insurance Institute (CII) will work to raise public trust across a number of key areas. In addition to the dedicated PFS chapter, which invited views on the relationship between the CII and PFS, the consultation set out proposals for making learning provision more userfriendly and that more be done to recognise previous attainment and experience as part of CII qualification pathways. The consultation also looked at evolving the current membership model with three levels of membership and considered amendments to the CII’s governance structure to enable greater clarity and efficiency. Finally, it explored options to strengthen support for those practising internationally with a focus on core technical proficiencies and continuing professional development.
We are grateful for all the contributions we received, both quantitative and qualitative input. The consultation feedback will help inform how we shape our strategy for the next five years and ensure we are fit for the future Sian Fisher, exiting CEO of the CII, said: “When we launched the Shaping the future together consultation in October last year, we gave members and stakeholders the opportunity to have their say on how we can best inspire public trust and confidence in our family of professions. We know that, as a professional body, we can only provide our members with the support and services they want, if we truly understand their needs and expectations. “As part of the consultation process we invited feedback via the website and through our series of meetings where we listened to the views of local institutes, individual members, inclusion and diversity champions, trade associations and consumer champions. We are grateful for all the contributions we received, both quantitative and qualitative input. The consultation feedback will help inform how we shape our strategy for the next five years and ensure we are fit for the future.”
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DEDICATED PFS SUPPLEMENT The CII and PFS have achieved a great deal in concert together, and there are many positive aspects to the ways in which this has been done. Shaping the future together reflected this, developing a vision of a unified professional body, while also recognising and respecting the differences, unique culture and needs of each segment of its membership. Acknowledging, however, that some members are not satisfied with
the current relationship, the consultation provided the opportunity for members and other stakeholders to share their views on governance and the working relationship between the CII and the PFS, in as much detail as they wanted. 2022 is an important year, particularly as the world starts to emerge more fully from the impact of the global pandemic, so a key focus for the PFS in 2022 is building a strong, sustainable and trusted profession that ensures ensure financial planners continue to empower people to have confidence in managing and planning their finances. Sarah Lord, president of the PFS, said: “As a profession our key challenges in 2022 continue to centre on changing client needs and technology advances. It remains important to focus on new generations of clients, building a clear understanding of they want from their relationship with a financial planner. The inter-generational wealth transfer is upon us now, so we need to be on the front foot. We must offer appropriate client experiences for the next generation of clients, so we sustain our client base for the future. “Only by securing our own financial futures through a clear focus on attracting fresh talent, building resilient business models, and focussing on the client relationship, will our profession be well placed to empower more individuals to manage their money and achieve their financial goals. “Shaping the future together gave →
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MEMBERSHIP
members the chance to share their views on the CII’s proposals for areas including the qualification framework, membership structure, professionalism, learning and assessment. It was also an opportunity for every member to have their say on the strengths and challenges of how the CII and PFS currently co-exist, and ideas for how this might be improved for the future.”
ANALYSING CONSULTATION FEEDBACK
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The consultation took place from 15 October to 17 December last year. At the time of the Personal Finance Professional going to press, the process of collating, reviewing, analysing, and evaluating the feedback received throughout the consultation is well underway. Early responses to the consultation showed that members want the CII to drive deeper engagement between the financial services profession and the wider public, government and regulatory bodies. Initial evaluation of the qualitative feedback shared by those responding
to the dedicated PFS supplement of the consultation indicates that, when asked about the advantages in the way the PFS and CII currently operate, there are a few common themes. Respondents acknowledged the benefit of the economies of scale provided by a shared operational infrastructure, while also recognising that the existing governance structure enables a targeted proposition suited to the needs of each sector. Further, early feedback shows that there is more strength in working together towards shared goals like increasing public trust and improving professional standards, while wanting, at the same time to be able to tackle bespoke agendas with a clear and determined focus. Respondents also recognise the value of the Chartered status, and see access to exams, continuing professional development (CPD) and provision of a statement of professional standing (SPS) as distinct advantages too. Early review of responses has also revealed respondents’ thoughts on how the PFS and CII can best co-exist
and work together, with an emphasis on taking steps to preserve the elements of the organisation that have secured success for the PFS since it was founded in 2005. Public outreach remains top of the agenda for both personal finance and insurance respondents on how the organisation can raise trust in the profession.
THANK YOU, AND NEXT STEPS The CII values and appreciates all feedback that has been received and thanks all those who took the opportunity provided through the consultation to help the CII shape the future of the organisation, ensuring it is fighting fit for the future – providing members with the support and services they need to thrive professionally and strengthening public trust in the profession. A summary of findings will first be shared with members and stakeholders towards the end of February 2022. Consultation findings will be used to inform the CII’s strategic plan to be implemented from 2023. ●
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A DV IC E P RO C E S S
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SHOWING OUR
T
VALUE
Aamina Zafar considers how financial ue planning professionals can promote the value of advice to the wider public
he benefits of financial advice can be compared to fitness training, says one Chartered financial planner – the more bespoke the programme, the better the results. Kusal Ariyawansa believes strongly in the value of financial planning and insists that clients can achieve their goals sooner if they enlist the help of a professional independent financial adviser, rather than attempting to do it themselves. →
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A DV IC E P RO C E S S
However, these people have not sought or received help with their finances that would allow them to make better investment decisions. As such, the FCA is now championing the need for further innovation to help even more consumers make better use of their finances. Sheldon Mills, interim executive director of strategy and competition at the FCA, says: “We want consumers to have access to highquality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions. “Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers.”
UNTAPPED MARKETS So why has the advice market remained untapped in the UK? According to IFA Anna Sofat, the profession has only targeted the very rich or elderly. This is echoed in research by her firm Progeny, which found that only one in four of 2,000 UK respondents quizzed in November 2020 said they had a financial adviser. Sadly, of the three quarters polled who said they do not have an adviser, 83% felt that a financial adviser ‘wasn’t for them’, while a third believed it was too expensive. Ms Sofat, associate director at Leeds-based Progeny, says: “The industry has traditionally targeted only certain segments of the population, typically the wealthier and the elderly. Meanwhile, regulation is fragmenting products and services, which has also not served the public well. “We need a lifestyle advice service that helps people to save for financial independence, commencing when people get their first job and continuing until they retire. Services aimed at improving financial
£47,000 INDIVIDUALS IN THE UK WHO TAKE ADVICE ARE ON AVERAGE £47,000 BETTER OFF AFTER 10 YEARS Source: Royal London 2021
wellbeing rather than focusing on financial products will be the future of financial advice, in my view.” IFA Martin Bamford, director of client education at Informed Choice, also believes high cost is a major hindrance as many financial advice practices focus mainly on serving wealthy retirees, who have already accumulated significant wealth. He adds that while his firm does not have a minimum level of asset
ILLUSTRATIONS BY: NAN CAO
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The Chartered financial planner at Manchester-based Appleton Gerrard Private Wealth Management says: “There are many ways in which you can achieve your financial goals sooner if expert help is sought and held to account. For example, to keep fit and strong I go to the gym at least once a week. The equipment there is self-explanatory. Unfortunately, after several years I noticed I was exactly where I was before, so I thought I’d take the plunge and paid for 10 sessions with a personal trainer. The change in me was shocking. In little more than a month, I had achieved more than in the previous two years. Doing exercise routines bespoke to me led to better results than picking activities at random. This is the same with your finances.” His unusual analogy comes after Royal London research in April last year estimated that there are 39 million UK adults that fall into the advice gap. Interestingly, the study estimated that those who take advice are on average £47,000 better off after 10 years. It also follows the Financial Conduct Authority’s (FCA) recent evaluation of how the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) have sought to improve the distribution of retail financial services products. The good news is that adviser numbers have increased from 35,000 in 2012 to 36,400 in 2019. Theoretically, more advisers should mean more Brits are accessing advice. Thankfully, this was reflected in the regulator’s findings, which stated that more people are now accessing advice – although the market still remains largely untapped. Only 4.1 million UK adults, which is a mere 8% of the population, have received financial advice. Although this is an increase from 6% in 2017, when just 3.1 million UK adults had accessed financial advice, it is only a small increase. So, it comes as no surprise that the analysis found that many consumers are still holding their money in cash, which could instead be invested to provide potentially greater returns.
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As a profession, we can take steps to address the advice gap by evolving business models to meet the needs of some demographic profiles, with technology-driven solutions that provide both financial education and advice at a cost-effective price point for the consumer requirement, its clients typically have in excess of £500,000 in their pensions and investments. He says: “Reluctance to seek financial advice is the result of a combination of factors. Proper, regulated advice remains too expensive, in large part thanks to the spiralling costs associated with regulation and compensation. If the regulator genuinely wanted to close the advice gap in the UK, it would be a more effective regulator and stop the activity that piles on additional costs through Financial Services Compensation Scheme funding and professional indemnity insurance premiums.”
REPUTATIONAL ISSUES The profession’s reputation is also a factor in why many Brits are unable to appreciate the value of financial advice. Chartered financial planner Haresh Raghwani believes there is still a feeling of public mistrust, going back 20 to 30 years. The director of Berkshire-based Craufurd Hale Wealth Management says: “Recent media coverage regarding defined benefit advice with British Steel and peer-to-peer bonds means clients generally are wary. Trust plays an important part. “The industry and the regulator need to educate people on the value of advice via social media channels, adverts, seminars and national campaigns. Advisers can help; however, it needs to be the whole industry and the regulator
technology-driven solutions that provide both financial education and advice at a cost-effective price point for the consumer.”
DIGITAL TRANSITION
needs to get involved more. If RDR and FAMR are to be successful, the FCA needs to drive discussions with product providers, investment firms and advisers, to come up with a solution that means the public finds it easier to access advice.” As new Chartered Insurance Institute president Peter Blanc was elected this January, he highlighted the importance of exploring customer needs that are not currently being fully met by the insurance and financial planning profession. Mr Blanc said: “As a profession, it is vital that we get to grips with the cause of the expectation gap and how to better educate consumers around coverage. Having cover in place is essential if our customers are to do and achieve more in the years to come.” Sarah Lord, president and member director at the PFS, echoes the importance of bridging the advice gap to help more people achieve their financial goals. She says: “As a Chartered financial planner, I find it so rewarding to see clients empowered through advice to have confidence in their financial situation and, importantly, achieve their goals. There is such a need in society for financial education and financial advice, but sadly there continues to be a significant advice gap. “As a profession, we can take steps to address the advice gap by evolving business models to meet the needs of some demographic profiles, with
The Covid-19 pandemic has sped up the profession’s move to a more digital world. At the same time, the FCA Advice Unit has focused on helping firms develop new automated advice models. This has proved to be popular, as the regulator has received 137 applications for support, but it has only accepted 65 so far. Although offering more online services has the power to reach a wider audience, limited knowledge in inexperienced hands can also prove to be problematic, according to Chartered financial planner Ricky Chan. He believes the rise of ‘robo-advice’ and online investment DIY platforms have meant that many people try to manage their own investments, which often incorrectly places a low value on financial advice. He adds: “The benefit of working with an independent financial adviser is often perceived as something for the very rich and the benefits of financial planning are not as well known, compared to in the US. The rise of online investment DIY platforms and investment managers mean that many will try to manage their own investments, and often incorrectly have a low value placed on financial advice.” The director at London-based IFS Wealth & Pensions adds that reducing red tape is the key to narrowing the current colossal advice gap. Mr Chan says: “Reducing red tape and cost would make financial advice more accessible. Also, the government should consider using some of the fines paid by financial services firms to improve financial education of the public and subsidise financial advice for the less well-off. For example, a £500 financial health-check voucher, instead of HM Treasury simply pocketing it.” ●
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Aamina Zafar is a freelance journalist
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R E G U L AT I O N
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t may feel as though the Financial Conduct Authority (FCA) has been reviewing retail investments forever, but its most recent work on the sector is a radical departure from everything that has gone before. The retail investment review began with a call for evidence in September 2020. Since then, it hasn't received the kind of attention that FCA initiatives usually get, mainly because it has not been accompanied by a huge raft of new rules that are meat and drink to the compliance project brigade.
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RADICAL REVIEW Matthew Connell reveals the regulatory challenge advisers face from the FCA’s retail investment review
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R E G U L AT I O N
However, the scope of the investment review is enormous – it includes cash savings, mainstream investments, highrisk investments and investment scams. It is probably the first review of investments that has looked at every possible destination – legal and illegal – for investors’ wealth. The review is also groundbreaking because the FCA strategy identifies very clear and measurable outcomes. For example, it targets a 20% reduction in the number of consumers with higher risk tolerance holding £10,000 in cash by 2025 – this is a very ‘SMART’ objective that is designed to prevent consumers having their savings eroded by inflation when they should be investing for the medium to long term. Many of these problems arise from a lack of financial advice. For example, in 2018 the FCA observed that nonadvised investors had “often not thought about the investment choices of drawdown”, adding: “As a result, we have seen some customers remain in low-risk assets after following lifestyling strategies. We have seen others stay in cash funds because they have had to enter into a new contract to access drawdown. Both these options increase the risk of customers running out of money in retirement, or having less money than they were expecting.” The FCA acknowledges the problems arising from a lack of advice, conceding that “advice is not reaching all parts of the market”. However, it goes on to say that it thinks that one-off transactional advice, not ongoing advice, is the answer, saying: “Revenue from adviser charging continues to be dominated by ongoing advice services (76%), with only a quarter (26%) accounted for by one-off advice. Transactional advice is an important service for consumers investing smaller amounts of money.”
As long as clients struggle to articulate the costs and benefits of the advice they receive, the regulator will always question the value of ongoing advice
DUAL CHALLENGE So, the regulatory challenge for advisers is quite subtle. On one hand, the FCA believes that advice is the best way forward for people who need to take investment risks with part of their wealth, but it believes that an increase in transactional advice over ongoing advice is the answer. For advisers to ensure that ongoing advice is seen in the proper light, it is important to explain the benefits of ongoing advice to clients in a way that they can understand and repeat to anyone who is looking to challenge the relationship they have with their adviser. In a research document in December 2020, the FCA stated: “The evidence from our consumer research suggests that consumers who get financial advice do not always have a clear understanding of what financial advice
costs. The consumer research shows that advised consumers think advice provides value for money. However, many were unaware how much they were paying and assessed its value by looking at the performance of their investments (which is distinct from the charges they are paying to have been placed in them).” While it is, of course, important to disclose the cost of advice, it is also important to take time to ensure that the benefits are also understood. This includes: ● Advice given during a market downturn, where avoiding the temptation to sell at the bottom of the market can make a huge difference. ● Ongoing advice on the tax treatment of pensions and investment, where the wrong approach to disinvestment can lead to unnecessary tax costs. ● Advice on avoiding scams, and on higher-risk investments that may be advertised without effectively highlighting the full extent of the risks involved. The FCA has shown that it believes that advice is an important element in achieving good outcomes for consumers, but it has also expressed scepticism around the extent to which consumers should rely on ongoing advice. The key to winning this argument is to create a population of clients who not only benefit from the undoubted advantages of ongoing advice, but who can articulate those advantages in the context of the fees that they are paying for advice. As long as clients struggle to articulate the costs and benefits of the advice they receive, the regulator will always question the value of ongoing advice. It is only when clients can advocate for ongoing advice to the regulator that the FCA will be convinced of the need for a service that has undoubtedly delivered enormous benefits for consumers during the last decade. ●
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Matthew Connell is director of policy and public affairs at the PFS
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M ORTG AG E S
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ith £38.9bn worth of mortgages up for renewal in 2022, according to research company CACI, the year is set to be extremely busy for mortgage brokers and financial planners alike. However, the figures also show that mortgage brokers lose 60% of renewal business to direct providers. So, how can mortgage intermediaries make sure they retain a greater number of remortgaging clients?
FIXED FOR NOW
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According to UK Finance, the trade association for the lending profession, “for most mortgage borrowers, the change in the bank rate will have no effect on their mortgage rate in the short term. Currently, 74% of homeowner mortgages are on fixedrate deals, with 96% of new borrowers choosing this option since 2019. Therefore, a sizeable majority of borrowers will see no immediate increase in their monthly repayments.” Furthermore, the proportion of fixed-rate mortgage borrowers opting for five-year fixed rates has increased significantly in recent years, from fewer than three in 10 borrowers in 2017, to around 45% of borrowers in 2021. UK Finance adds that the Bank of England’s base rate announcement will most likely affect mortgage borrowers who have variable rate mortgages. Approximately 850,000 mortgage borrowers have a tracker mortgage currently – with UK Finance estimating that a rise in the bank rate of 0.15 percentage points will lead to an average increase in repayments of £15.45 per month. For those who are on a standard variable rate (SVR) – approximately 1.1 million mortgage borrowers – this rise translates to an estimated increase of £9.58 per month on average. However, there are some borrowers still trapped in expensive mortgages – a legacy from the 2008 crash. A report from the FCA found there are 47,000 homeowners stuck on expensive home loans they cannot afford to get out of. In its review, the FCA found 195,000 people who have
2022
A YEAR IN FLUX? Liz Booth explores how mortgage intermediaries can ensure that record levels of remortgaging increases engagement with clients
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mortgages with inactive firms, and 47,000 who are defined as ‘mortgage prisoners’. However, 34,000 mortgages were omitted from the overall number because they are in arrears.
RENEWALS BOOM So, with all that in mind, how should advisers address the upcoming boom in renewals? Though CACI had released figures showing October was the biggest month of 2021 for remortgage maturities, they also estimated that January would exceed that, with £39.6bn of remortgage business expected to mature, while 2022 as a whole is forecast to be “one of the biggest product cessation years for a long time”. Mortgage Solutions recently reported Alex Beavis, a mortgage and later-life lending propositions director at Sesame Bankhall Group, as saying: “As the legacy of Covid endures, many clients will find their circumstances significantly altered by the pandemic – increasing the need for advice. Work the back book early and look beyond product transfers where circumstances allow. “There are some excellent low loanto-value remortgage rates and many clients may want further funding for home improvements and renovations. A good client contact strategy in the run-up to maturity is key.” Martin Reynolds, chief executive at SimplyBiz Mortgages, adds: “We know
that lenders have a duty to contact the customers but we need to ensure that when that letter arrives, the first thing they do is call their broker. “We have all seen the statistics around customer retention at the end of a product term and we can improve on this. The number of technology support solutions now around to help means this level of remortgage business is a positive, perfect storm to make 2022 the best year yet for the intermediary market.” Having a strong customer relationship management (CRM) system and communicating with your clients is essential if advisers are to maintain their relationship with customers and keep mortgage business at renewals, warns Carlos Thibaut, chair of the Society of Mortgage Professionals. “It is really simple,” he says. “Have a robust CRM system and constantly review your clients. Don’t wait until the 11th hour or else you will find they have already gone direct to the mortgage provider.” He adds that having an active customer portal helps the adviser to better understand their client's needs, as well as helping the customer by allowing them to engage with the adviser at any time to become better informed, build trust with their advice professional and ultimately get a positive outcome. ●
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Liz Booth is contributing editor of PFP
PROPORTION OF NEW HOMEOWNER MORTGAGES TAKEN OUT ON A FIXED RATE IN THE UK 100% 90% 80% 70% 60% 50%
06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21
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40% Source: UK Finance
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ESG
SUSTAINABLE
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Sam Barrett examines the changing regulatory environment for responsible investing and ramifications for the financial planning profession
G
rowing engagement with environmental, social and corporate governance (ESG) issues is driving demand for responsible investing, with figures from the Investment Association showing that nearly £90bn was invested in these funds at the end of October 2021. But, as the market grows, regulators are taking steps to ensure consumers and their advisers have the clarity they need to be able to invest in line with their principles. The regulators’ concerns stem from the fact that responsible investing is a very subjective term. “The challenge is that the ESG universe is large, diverse and complex,” explains Jessica Robinson, founder of Moxie Future and author of Financial Feminism: A Woman’s Guide to Investing for a Sustainable Future. “And, at the same time, the needs and expectations of clients will vary widely.”
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ESG
To illustrate the potential for an investor to put their money in an investment that does not reflect their ESG values, Mikkel Bates, regulations manager at FE fundinfo, points to a fund tracking one of the Dow Jones sustainability indices. These invest in best-in-class companies, which can include tobacco firms, mining companies, airlines and car manufacturers. “The firms selected may be looking to make a difference, which will suit some responsible investors, but investing in an oil company is never going to meet the expectations of a traditional ethical investor,” he explains. “Words such as ‘sustainable’ and ‘responsible’ mean different things to different people and, without any consistency, it creates something of a spider’s web for consumers and advisers.” The number of responsible investment funds is also growing rapidly. As at the end of November 2021, 254 funds were included in the Investment Association’s responsible investment data, up from 199 at the end of 2020.
IKON IMAGES: VALERO DOVAL
REGULATORY REVIEW To address this potential for confusion, regulators are looking at how to create more clarity and transparency around responsible investing. The EU is widely regarded as being at the forefront in this area, especially through its Sustainable Finance Disclosure Regulations (SFDR) and the EU Taxonomy, which creates classifications for ESG activities to enable greater transparency. Mr Bates says the taxonomy is a particularly hot topic. “It concerns me that there is very little likelihood of a single world taxonomy, as there are just too many differences in opinion over what is and isn’t sustainable, but it’s really helpful to have classifications.” This need has also been recognised
by the Financial Conduct Authority. It has been monitoring the market for responsible investing for several years, releasing a discussion paper, Sustainability Disclosure Requirements and Investment Labels, in November 2021.
ADVISER ACTION
landscape means that advisers can face challenges when meeting their clients’ ESG requirements. Louisiana Salge, senior sustainability specialist at EQ Investors, says it can be difficult. “The best approach, in my view, is to provide the client with some basic education on the different components of sustainable and responsible investing, and then explore their intentions and preferences through a set of open questions and examples,” she says. “This can then be used to propose a suitable portfolio strategy.” With demand for responsible investing continuing to grow, Mr Medlock says the time is right to prepare for these opportunities. “Adviser firms are at different stages with responsible investing. For those looking to move into this area, I would recommend growing your knowledge, especially around the terminology, and making it part of your conversations with clients,” he says. “Even simple questions such as whether they are interested in getting an electric vehicle or they like to donate to charity can start the conversation.” There is also plenty of support for advisers wishing to build their expertise in this area, including tools such as FE Analytics and FE Investments Responsibly Managed Portfolios. Professional qualifications are also available from the Chartered Body Alliance, a joint initiative by the Chartered Insurance Institute, the Chartered Banker Institute and the Chartered Institute for Securities and Investment. It recently launched a Certificate in Climate Risk designed for financial services professionals. Change and new regulations are certainly coming to the responsible investing space, but with appetite for these investments unlikely to wane, it is a market well worth exploring. ●
While greater transparency may be on the horizon, the current
Sam Barrett is a freelance journalist
254 FUNDS NOW FEATURE IN THE INVESTMENT ASSOCIATION’S RESPONSIBLE INVESTMENT DATA – UP FROM 199 IN 2020 The initial consultation closed in early January, with a consultation paper expected in Spring 2022, followed by new rules on disclosure and investment labels. Ryan Medlock, senior investment development manager at Royal London, hopes these will be in place by the end of the year. “It is a good thing,” he says. “I expect it will be very similar to the EU rules but it is an evolving piece.” Some of the regulatory activity seen in the EU will also influence how the UK moves forward. As an example, Mr Bates says the introduction of three fund categories – under SFDR Article 8 for funds that promote environmental and social characteristics, Article 9 for those with sustainable goals as their objective, and Article 6 for everything else – have influenced behaviours. “There has been a rush on the continent to label funds as Article 8, as this is where investors are putting their money,” he explains. “There is already talk of it being too broad and the need for new categories. The FCA is looking at having more levels.”
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Niki Patel examines tax year-end planning opportunities ow is a good time to engage with your clients to ensure they have taken advantage of any tax year-end planning opportunities available to them. Each individual’s circumstances will differ, so the options available to them will undoubtedly vary depending on the assets and investments they own, together with ensuring their overall planning objectives are met. It is, however, important to note that maximising use of allowances, exemptions and reliefs is at the forefront of any tax planning, especially because some of these may be lost if unused before the start of the new tax year. In this article, I provide a general overview of some of the planning options available, which can be explored with your clients. →
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INCOME TAX Most individuals are entitled to a personal allowance (PA), personal savings allowance (PSA) and dividend allowance. For the 2021/2022 tax year, the PA is £12,570, the PSA is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, and the dividend allowance is £2,000. It goes without saying that maximum advantage should be taken of using each of these allowances where possible. The PA of £12,570 for 2021/2022 is reduced by £1 for every £2 where an individual’s adjusted net income exceeds £100,000 (broadly, income after deductions for pension contributions made gross, the grossed up value of any relief at source pension contributions and any charitable donations made by Gift Aid). This means that once income exceeds £125,140 it is totally lost. Income that causes the loss of the PA is effectively taxed at 60% (non-dividend income). Example: Tamira has earnings of £122,500 in 2021/2022. This means that without any planning, her PA would be reduced to £1,320.
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This is calculated as follows: £122,500 - £100,000 = £22,500 £22,500/2 = £11,250 £12,570 - £11,250 = £1,320 Her income tax liability would therefore be as follows: Income £122,500 Less PA (£1,320) £121,180 £37,700 x 20% £83,480 x 40%
£7,540 £33,392 £40,932
If she were to make a gross personal pension contribution of £22,500 (£18,000 net) this would mean that her adjusted net income would reduce to £100,000, so she would benefit from a full PA and in addition the basicrate threshold would be extended from £37,700 to £60,200, providing her with higher-rate tax relief on the contribution. Income Less PA
£60,200 x 20% £49,730 x 40%
£122,500 (£12,570) £109,930 £12,040 £19,892 £31,932
The difference of £9,000 (i.e. £40,932 - £31,932)
simply illustrates the further 20% tax saving on the pension contribution (£22,500 x 20% = £4,500), plus the higher-rate tax saving on retaining the lost PA (£11,250 x 40% = £4,500). Therefore, the total tax relief on the £22,500 contribution is £13,500, an effective rate of 60%. Other planning strategies would include the following: ● All individuals should seek to use their PSA and dividend allowance to maximise tax-free income. ● Consider reducing taxable income below £150,000 to avoid 45% tax. Pension contributions are one of the few ways to reduce taxable income and, following the increases in thresholds for taper relief from 6 April 2020, more high earners may be able to take advantage of this. ● Reinvest in tax-free investments, such as ISAs, to replace taxable income and gains with tax-free income and gains, or investment bonds that can benefit from valuable tax deferment. ● Couples (whether married or in a civil partnership) should consider making full use of their PA. Remember it is possible to transfer up to 10% of the PA from one spouse/ civil partner to the other, provided neither spouse/civil partner is a higher or additional-rate taxpayer. The maximum that can be transferred for the 2021/2022 tax year is £1,260, which means couples can reduce the income tax they pay by up to £252 (i.e. £1,260 x 20%). ● Consider redistributing investments between couples to potentially reduce the rate of tax suffered on income and gains. No income tax or capital gains tax (CGT) liability will arise on transfers between married couples or civil partners living together, or where the asset to be transferred is an investment bond. However, any transfer must be made on an outright and unconditional basis with ‘no strings attached’. This effectively means investments must be fully transferred with no entitlement retained by the transferor. ● Where possible, couples should try to ensure that they both have adequate pension plans in place to provide them with an income stream in retirement, which will enable them to use their PA.
CAPITAL GAINS TAX The annual CGT exemption is £12,300 for the 2021/2022 tax year and will remain at this level until 2025/2026. From a tax-efficiency perspective, where possible individuals ought to use the annual exemption (AE) each tax year as, if unused, it cannot be carried forward. The AE is deducted before determining how much of the capital gain is taxable. The rate of CGT payable will depend on the individual’s
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other taxable income. Gains falling within the basic-rate tax band are taxed at 10% and any amount falling above that will be taxed at 20%. This means that use of the AE in 2021/2022 can save up to £1,230 for a basic-rate taxpayer and £2,460 for a higher/additional-rate taxpayer. Gains incurred on residential property that are not covered by the private residence exemption are taxed at 18% for a basic-rate taxpayer and 28% for a higher/ additional-rate taxpayer. Again, a planning option could be to make a pension contribution to a registered pension scheme to extend the basic-rate band, which is also effective in saving CGT. Example: Clara has earned income of £51,500 in the 2021/2022 tax year. She also realised part of her unit trust portfolio, which gave rise to a capital gain of £26,270. The basicrate threshold for this year is £50,270 (including the PA of £12,570), which would mean some of her income would be taxed at 40% and any taxable capital gain would be taxed at 20%. To reduce her tax bill, Clara could consider making a gross personal pension contribution of £15,200 (£12,160 net). For income tax purposes, this will increase her basicrate tax band from £37,700 to *£52,900 (and her basic-rate threshold from £50,270 to £65,470). This would mean that all of her income is taxed at 20%, so she would benefit from some higher-rate relief and her taxable capital gain is taxed at 10%. Taxable income Earned income Less PA
£51,500 (£12,570) *£38,930
Taxable capital gain Gain £26,270 Less AE (£12,300) *£13,970
Income tax
Without pension contribution
Income tax
With pension contribution
£37,700 x 20% £1,230 x 40%
£7,540 £492 £8,032
*£38,930 x 20%
£7,786
CGT
Other planning strategies would include the following: ● While it is advisable to use the CGT AE, it is not possible to crystallise a capital gain by selling and then immediately repurchasing an investment – i.e. the so-called ‘bed-andbreakfast’ rules – as the seller must not personally reacquire the same investment within 30 days of disposal. However, there are other ways of achieving similar results: - Bed-and-ISA. An investment can be sold, e.g. shares in an OEIC, and bought back immediately within an ISA. For 2021/2022, the maximum ISA subscription limit is £20,000. - Bed-and-SIPP. Here the cash realised on sale of the investment is used to make a tax relieved contribution to a self-invested personal pension (SIPP), which then reinvests in the original investment. This approach may also offer a higher reinvestment ceiling than an ISA, depending on a person’s earned income and other pension contributions. - Bed-and-spouse. One spouse/civil partner can sell an investment and the other spouse/civil partner can separately buy the same investment without falling foul of the rules against bed-and-breakfasting. - Bed-and-something similar. This involves the sale of shares in one fund with a purchase in a similar fund. ● Making use of losses. Current-year losses must be deducted from capital gains of the same tax year, before deducting the CGT annual exempt amount. However, where the loss is a carried-forward loss, the taxpayer need only use so much of the loss that reduces the taxable gain by an amount that leaves the CGT AE amount intact. Any balance of losses can be carried forward. Using losses in this way can therefore be tax efficient, particularly for those who are higher/ additional-rate taxpayers and so pay CGT at 20% (or 28%). ● Where someone is considering making a disposal now that will trigger a capital gain in excess of £12,300 (2021/2022), it may be worth spreading the disposal across two tax years if possible, to use two years of AEs. ● A spouse/civil partner could make an outright and unconditional transfer (as mentioned above) of assets into their partner’s name to make use of their AE on subsequent disposal. This will mean that, between them, they can realise capital gains of £24,600 in 2021/2022. This should not generally give rise to any inheritance tax (IHT) consequences or CGT implications. Indeed, it may even be worthwhile transferring an asset showing a gain of more than £12,300 if the asset is to be sold, as it would mean the surplus capital gain is taxed at 10% rather than 20%.
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INHERITANCE TAX
CGT
£13,970 x 20%
£2,794
*£13,970 x 10%
£1,397
Total
£10,826
Total
£9,183
The IHT nil rate band and residence nil rate band are frozen at £325,000 and £175,000 respectively until the 2025/2026 tax year. Remember that the residence nil rate band is tapered by £1 for every £2 where the total estate exceeds £2m, so clients ought to consider their own circumstances and consider whether they can carry out any planning to prevent any lost residence nil rate band. From a general IHT planning perspective, much will depend → SPRING 2022 | Personal Finance Professional | thepfs.org
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on what assets the client has, however, as wealth continues to increase, planning to mitigate IHT should be considered as soon as possible, especially given that in many cases clients do not make full use of the exemptions available to them. The primary starting point for anyone wishing to carry out IHT planning is to consider using their exemptions: ● Annual IHT exemption – each individual can give away £3,000 each tax year, and they can use the previous tax year’s exemption if not already used; but it must then be used after the £3,000 exemption for the current year. ● Small gifts exemption – up to £250 can be given to any number of individuals (note this exemption cannot be combined with any other exemption in favour of the same person). ● Gifts in consideration of marriage/ civil partnership – £5,000 if the donor is a parent of one of the parties to the marriage/civil partnership, £2,500 if the donor is one of the parties to the marriage/civil partnership or a grandparent, and £1,000 for any other gift. ● Normal expenditure out of income – any gift is exempt from IHT if: - It forms part of the donor’s normal expenditure - Taking one year with another, it is made out of income - It leaves the donor with sufficient income to maintain their usual standard of living. ● Unlimited gifts to registered charities, political parties or for national benefit. Planning in this area is often overlooked, with few clients using these exemptions to the full potential – even though regular use of these exemptions over time can result in large IHT savings.
●
is no limit on the amount which can be gifted. Provided the individual survives seven years from making the gift, it will generally fall out of account. If the gift does become chargeable, it will first use any available nil rate band and then taper relief may apply to reduce any IHT payable, provided the donor survived at least three years. In cases where clients wish to retain control and flexibility, they could consider setting up a discretionary trust. However, in order to ensure no lifetime IHT is payable, the client can only settle up to their available nil rate band, taking account of any chargeable lifetime transfers in the seven years prior to creating the trust. Remember that a discretionary trust is subject to the ‘relevant property regime’, so exit (when capital is appointed out of the trust) and periodic (10-year anniversary) charges apply. Although, in practice, with careful planning it is possible to mitigate these charges. ● There are also a number of other types of trusts that are widely available for IHT planning purposes, which can be used where the client may wish to retain access if they require, for example, a loan trust and a discounted gift and income trust. Advice should be sought to determine which (if any) of these options are likely to be suitable. ● While not directly related to tax year-end, those who have received an inheritance within the last two years could consider entering into a deed of variation, provided all of the relevant conditions are satisfied. Broadly, the variation must be made within two years of death, it must be in writing, it must contain a statement that section 142 of the Inheritance Tax Act 1984 applies, and it must not be for consideration.
The IHT nil rate band and residence nil rate band are frozen at £325,000 and £175,000 respectively until the 2025/2026 tax year
Example: Over the past 30 years, Maria has always made use of her annual IHT exemption of £3,000 in favour of her son and she has also gifted £250 to each of her three grandchildren. In doing so, she has gifted £112,500 (£90,000 using the annual IHT exemption and £22,500 using the small gifts exemption), which has saved her £45,000 in IHT. So, using these exemptions – which may seem nominal to many – provides a good outcome for family members. The tax year-end is also a good time to generally consider a client’s IHT position with a view to making larger gifts and, as mentioned above, those who wish to mitigate IHT should consider forward planning. Other planning strategies would include the following: ● Clients could consider making outright gifts either directly to another individual or via an absolute trust. The gift will be a potentially exempt transfer for IHT and there
PENSIONS Investing in a pension is a tax-efficient way of saving for retirement and also provides other tax benefits as illustrated above. Therefore, it is vital for clients to maximise pension contributions where possible. Planning strategies would include the following: ● The carry-forward rules (see page 41 for more detail) allow unused annual allowances to be carried forward for a maximum of three tax years. Thus, 5 April 2022 is the last opportunity to use any unused allowance of up to £40,000 from 2018/2019. ● Those caught by the tapered annual allowance, with sufficient carry forward, may be able to make additional pension contributions to reinstate their full annual allowance for tax year 2021/2022, by reducing their threshold income to £20,000. This would mean more pension savings may be possible.
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Pension contributions can also help families recover their child benefit, which is progressively cut back if one parent or partner in the household has income of more than £50,000 in 2021/2022. Child benefit is totally lost when income reaches £60,000 in 2021/2022. ● Individuals could consider making a net pension contribution of up to £2,880 (£3,600 gross) each year for members of their family, including children and grandchildren, who do not have relevant UK earnings. The UK Government will add £720 basic-rate tax relief. Such payments would normally be gifts for IHT unless covered by an exemption. ●
TAX-EFFICIENT INVESTMENTS For all clients it is important to consider making use of taxefficient investments where possible. ISAs The maximum annual ISA subscription limit is £20,000. This means a couple could, between them, invest £40,000. A child aged 16 or 17 can invest £20,000 in a cash ISA in 2021/2022. While no tax relief applies on an ISA subscription, income and capital gains within the ISA are free of tax. This means that for those whose dividend income could exceed their dividend allowance of £2,000, tax freedom on dividend income within the ISA will save tax at 7.5%, 32.5% and/or 38.1% as appropriate. Where a spouse/civil partner has died during the 2021/2022 tax year owning an ISA, it is advisable to check whether an additional ISA allowance exists. Junior ISAs (JISAs) Broadly speaking, JISAs are available to any UK resident child, under age 18, who does not have a Child Trust Fund (CTF) account. Any individual may contribute into a JISA on behalf of a child and the maximum subscription limit is £9,000 this tax year. Those aged 16 or 17 can also invest £20,000 per annum in an ISA. For those who have a CTF, it is still possible to subscribe up to £9,000 into the account.
Growth-oriented unit trusts/OEICs Rates of income tax are higher than the current rates of CGT, so it can be advisable, from a tax perspective for a higher/additional-rate taxpayer, to invest in collectives geared towards capital growth as opposed to income. This would enable the individual to make use of their annual CGT exemption on a later encashment. Single premium investment bonds Bonds (onshore or offshore) are nonincome-producing investments, so are useful investments to defer tax payable by use of the 5% cumulative allowance. This can be valuable for a higher/additional-rate taxpayer, especially where they are likely to become a lower-rate taxpayer in the future. Enterprise Investment Scheme (EIS) For tax year 2021/2022, an investment of up to £1m or £2m (provided anything above £1m is in knowledge-intensive companies) can be made to secure income tax relief at 30%, with tax relief being restricted to the amount of income tax otherwise payable by the investor in that tax year. The relief can be carried back to the previous tax year. In addition, unlimited CGT deferral relief is available, provided some of the EIS investment potentially qualifies for income tax relief, but investors considering deferral should remember that CGT rates may increase in the future.
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Venture Capital Trust (VCT) The VCT offers income tax relief for tax year 2021/2022 at 30% for an investment of up to £200,000 in new shares, with relief restricted to the amount of income tax otherwise payable by the investor in that year. Dividends and capital gains generated on amounts invested within the annual subscription limit are tax free, so again these investments may appeal to higher/additional-rate taxpayers. Because dividends from qualifying VCT investments are tax free, the 1.25% increase in dividend tax rates due to apply to dividends received on or after 6 April 2022, could make VCT investments more attractive.
SUMMARY As can be seen, there are numerous tax planning options that could be considered. However, approaching the end of the tax year is a good opportunity to ensure clients have maximised use of the allowances and exemptions available to them as discussed above. It is also a great time to fully review their overall financial planning needs to ensure they are on target to meet any short-term and long-term objectives ahead of the new tax year. ● Niki Patel is a tax and trust specialist at Technical Connection SPRING 2022 | Personal Finance Professional | thepfs.org
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C H A RT E R E D
BECOMING
CHARTERED Lindsay Hallford speaks to Kirsty Stone about her journey to becoming a Chartered financial adviser
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B
Lindsay Hallford
Kirsty Stone
ecoming a Chartered financial adviser ensures that a personal finance professional is recognised by their peers, their employer and, most importantly, by those seeking advice. Independent research confirms that the public places huge importance on talking to a professional and that Chartered status is the most respected indicator of professionalism. Lindsay Hallford and Kirsty Stone are financial advisers at Chartered financial planning firm The Private Office. The Private Office has been a Chartered firm for almost eight years, with an average adviser age of 38 and a focus on encouraging more women into the profession, The Private Office is a team of independent, financial planning experts working together to protect and grow their clients’ wealth. Ms Hallford – who has recently been certificated as an adviser with The Private Office – has studied for various qualifications within the profession. She has recognition of prior learning towards the CII Advanced Diploma and is about to complete her journey towards personal Chartered status.
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Here, Ms Hallford speaks to colleague and Women in Financial Advice Awards finalist, Kirsty Stone, about what being Chartered means to her and what it takes to get there.
MITCH BLUNT / IKON IMAGES
Lindsay Hallford (LH): Chartered financial planner is one of the most highly recognised qualifications in the profession – why did you decide to become a Chartered financial planner? Kirsty Stone (KS): I am proud to say I have now been Chartered for three years and saw Chartered status as a clear marker to confirm my competence as an adviser. Exams and qualifications are crucial to evidence your expertise, particularly at the beginning of your career, when you have limited live client examples to evidence this. I knew I wanted to obtain Chartered status as quickly as possible and was able to achieve this within five years of joining the profession. The exam process provided me with a great structure to build my career but also challenged my knowledge to ensure I was building the correct foundations to be a great adviser for my clients. LH: As with most people, work-life balance is important to me. Do you think it is possible to fit everything in? KS: The trickiest part of becoming Chartered is the time it takes to prepare for the exams. It is important to understand how you learn and be smart about timing the exams you book. I realised that as soon as I became an established adviser, my time would become consumed with establishing and maintaining client relationships, which is why I feel trying to tackle some of the exams before becoming an adviser is crucial. I also chose to complete one coursework-based module, which allowed me to manage my time better rather than having a hard-stop exam date in the diary. It certainly consumed many of my weekends and evenings but I took the view that it was worth doing, as I saw the value and credibility it could offer
Although I am now an experienced adviser, continuing with exams ensures I remain up to date with changes in legislation and stops me forgetting an intricacy that could be detrimental to my clients if missed, so I continue to enrol in exams despite having my Chartered status secured me and my clients. It is important not to be too hard on yourself or put yourself in a situation where your day-to-day work or personal life is too compromised. LH: Typically, four Advanced Diploma exams are needed to achieve Chartered status. Luckily, due to recognition of prior learning, I only have two Advanced Diploma exams to pass. How long did it take you to study for each exam? So myself and others have an idea of how long the journey may take. KS: I too was able to claim credits for prior learning because of my degree, which was great news. I know that I study best by writing notes on each chapter and then dedicating a lot of time to past papers. I would always try and have notes ready at a minimum a month before the exam, and then allow myself the month prior to the exam to complete as many past papers as possible. LH: What are the benefits of achieving Chartered status? KS: When I joined The Private Office two years ago as an adviser, I had spoken with several firms and interviewed with a range of businesses. I have no doubt my Chartered status acted as a good indicator of why I was a suitable candidate for the roles and got me through the door to an interview. In my experience, the expectation of an adviser now is that they are Chartered
or working towards Chartered to progress their careers. The biggest part of a client relationship is trust, so where I can quickly reassure them that I am technically knowledgeable with my Chartered accreditation, it immediately ticks one box on the question: ‘Can I trust this person with my life savings?’ This leaves me to build a rapport and relationship with the client using softer skills and applying my knowledge to their circumstances.
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LH: Finally, what would your advice be for someone who is at the very start of their journey towards Chartered status? KS: A great adviser will already have the knowledge and it is therefore a matter of focusing on the exams and applying the knowledge you already have. Although I am now an experienced adviser, continuing with exams ensures I remain up to date with changes in legislation and stops me forgetting an intricacy that could be detrimental to my clients if missed, so I continue to enrol in exams despite having my Chartered status secured. I am incredibly proud to be a Chartered financial adviser and would say it is definitely worth the time commitment. To find out more about Chartered status, visit: www.thepfs.org/ chartered and for more information about The Private Office, visit: www.theprivateoffice.com ● SPRING 2022 | Personal Finance Professional | thepfs.org
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TRUSTS
TRUST REGISTRATION
TIME TO ACT! Nick Edwards and John Woolley explain why recent HMRC changes mean advisers should discuss with clients whether their trusts need to be registered
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ecent changes mean that financial advisers who have helped their clients to establish trusts must now give serious thought to discussing the need to register the trust to comply with money laundering regulations. Until recently, only trusts with a tax liability needed to be registered and, of course, as trusts holding life policies and pension plans rarely cause a tax liability on the trustees, they did not need to be registered. Recent HMRC changes now mean that almost all express trusts – irrespective of whether they are taxable or non-taxable and irrespective of when created – need to register and provide the information required. For the many advisers who use trusts in financial planning, this is therefore a serious issue. An express trust is one that has been created deliberately by the settlor. Most cases will be clear cut but uncertainties can arise. For example, when a client sets up an investment plan as a designated account, there will be no trust deed but the arrangement will be treated legally and for tax purposes as a trust (assuming the donor’s intention at the time of designation was to make an outright and absolute gift). The investor will be regarded as the donor/settlor and trustee of the trust. HMRC has confirmed that these ‘trusts’ are express trusts that need to be registered under the Trust Registration Service (TRS). For designated accounts established in Scotland, special formalities need to be satisfied for the arrangement to be treated as a trust under the law of Scotland.
Trusts that need to register must do so by 1 September 2022 or within 90 days of the creation of the trust
EXCLUDED TRUSTS HMRC provides a list of trusts with a perceived low risk of being used in money laundering (‘excluded trusts’), which do not have to be registered. An example is a trust that holds an insurance policy that only pays out on death, terminal illness or to meet healthcare costs of the person assured. But what if a surrender value is payable under the policy? HMRC has now confirmed that if the surrender value can only be accessed on the full surrender of the policy, the trust can be regarded as an excluded trust. If, however, the life policy is designed to provide regular or periodic payments to the policyholder in the form of part surrenders with a small life assurance element payable on death, which is incidental to the benefits provided through the surrenders, then the trust holding the policy cannot be an excluded trust. This means that trusts of single premium bonds and/or capital redemption policies – including gift trusts, discounted gift trusts, loan trusts and flexible reversionary interest trusts – will all need to be registered. ‘Pilot trusts’ are frequently used in spousal bypass trust planning. These trusts will only be excluded from registration if they were created before 6 October 2020 and currently hold assets of no more than £100. While most of these types of trust will only hold nominal sums – at least until death benefits are paid – this means that all such trusts established since 6 October 2020 will need to be registered. Trusts that need to register must do so by 1 September 2022 or within 90 days of the creation of the trust, whichever is the later. It clearly makes sense to register sooner rather than later and, for existing trusts, definitely not later than 1 September 2022. Trustee Support Services can assist trustees with registering their trusts on the TRS. PFS members and their client trustees can access these services at the launch price of £200 per trust until 1 July 2022. Please email your PFS membership PIN when registering an account on our website and we will provide a code to use when submitting the trustee questionnaire. For more details, visit: https://trusteesupportservices.com or email contact@trusteesupportservices.com ●
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Nick Edwards and John Woolley are directors of Trustee Support Services SPRING 2022 | Personal Finance Professional | thepfs.org
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TECHNOLOGY
T 34
he Covid-19 pandemic saw everyone from school children to pensioners grasping the nettle of Zoom, Teams and other videoconferencing platforms. But what is the next step? Has this shift become irreversible and what does it mean for the financial planning sector? Ian McKenna, director at the Financial Technology Research Centre, is bullish about the new opportunities, believing the pandemic has resulted in a sea-change in attitudes towards the use of technology. “It has moved from a very active debate to a reality,” he says. “I know of advisers who now pride themselves on never planning a face-to-face meeting again.” It seems the switch is not scaring clients either, with Mr McKenna reporting a surge of interest from new clients who prefer to be able to interact with advisers whenever and wherever it suits them. “Research shows that clients are most likely to contact their adviser during the commuting hours (whatever those are now) and also in the evenings and weekends. So, unless advisers are happy to man their offices out of hours, it seems technology is the way forward,” says Mr McKenna. He points to the other advantages of using technology, such as saving time, reducing time spent in the car and hence helping the planet. Mr McKenna believes we will see an ever-increasing use of technology across the board, from platforms to cashflow modelling.
FORWARD THINKING
SIGNIFICANT CHANGES His views are supported by advisers themselves. Carla Brown, newly crowned PFS Chartered Financial
Liz Booth examines how technology is changing the way advice is delivered
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TECHNOLOGY
unfounded as they were quick to change and embrace the new way of working, according to Ms Brown. “Our clients had to get used to Zoom and Teams very quickly at the start of the pandemic, and we found that even our older clients were happy to adapt and start using the new portal,” says Ms Brown. The company offered clients online tutorials to help them make the changes and offered extra support to any of those who might have been deemed vulnerable. In fact, says Ms Brown, the portal has helped them to identify any vulnerabilities more quickly and allowed them to respond appropriately and in a faster time. She explains: “Not only did it speed the process up for everyone but it has given us a clear audit trail, which provides us with another level of safety.” She does not underplay the level of investment needed but says it has been repaid extremely quickly in terms of new and expanded business, as well as in terms of the environmental impact. “You cannot overestimate the environmental issue,” says Ms Brown. “Our clients are increasingly asking us about responsible investing, so being able to show a reduction in our own carbon footprint is extremely important.”
MORE TO COME Looking forward, the use of technology will not slow down, says Ms Brown. “This year we are planning a major refresh of our website – it is the right time to do that, now that we have made all of these other changes successfully. “Part of that process will be to smooth the transition between the website and the portal, all of which should encourage more use of the portal,” she believes. Changes within the offices are also making a difference, she says, with the company’s carbon footprint set to fall still further thanks to the use of more energy-efficient lighting, computers and even the installation of electric charging points for clients who do visit the office in their cars. Finally, Ms Brown says she feels it is important for advisers to talk to one another. “We cannot operate in a silo,” she says, “we need to share information so that we can help one another on this journey.” Mr McKenna agrees, pointing to an upcoming conference, hosted together with the PFS, which will encourage advisers to take the next steps (www.advisersoftware.com/ eatt-2022-tickets). He also points out that technology is constantly evolving and its important for advisers to keep up to date with what is happening. “Advisers should not fear technology,” he concludes. “While technology might replace some roles, in terms of financial planning it is a perfect match. Let the technology crunch the numbers and let the advisers continue to work empathically with their clients – no machine can replace that human touch.” ●
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Let the technology crunch the numbers and let the advisers continue to work empathically with their clients – no machine can replace that human touch
Planner of the Year and founder of Oakmere Wealth, is among those to have benefited from the overnight shift to video conferencing during the pandemic. She explains: “We made some significant changes in the past two years, introducing a client portal in July 2020 that allowed our clients to interact directly with us online.” The impact was immediate, she says, transforming the way the firm did business and attracting new business along the way. There was a slight nervousness about how the clients would adopt the new system but that proved
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Liz Booth is contributing editor of PFP SPRING 2022 | Personal Finance Professional | thepfs.org
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INCLUSION
ENGAGING WITH VULNERABLE CLIENTS 36
Simoney Kyriakou explores how the financial planning profession can identify and engage with the growing numbers of clients in vulnerable circumstances
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ulnerability is a significant issue. In February 2021, the Financial Conduct Authority (FCA) estimated the number of vulnerable adults in the UK was now at 27.7 million. This is more than one-third of the entire population of the UK (67.1m). According to the FCA, there are four key drivers of vulnerability: ● Health (such as physical or mental conditions or disabilities). ● Life events (such as bereavement or divorce). ● Resilience (in terms of low income or indebtedness). ● Capability (such as low financial literacy or little access to support). Given how varied vulnerability is, it should come as no surprise that financial
advisers have cited increasing numbers of clients with vulnerabilities. Tom Conner, director at Drewberry, says: “Firms have undertaken a lot of work on vulnerable clients. We now consider more than 25 different causes of vulnerability, as vulnerability isn’t always obvious.” In 2021, the Chartered Body Alliance, which includes the Chartered Insurance Institute and the Chartered Institute of Securities and Investments, surveyed its members. Of the 1,637 respondents, 61% had either directly or indirectly supported a customer in vulnerable circumstances. Many cited examples where vulnerable clients had experienced poor service.
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INCLUSION
27.7M
GETTY
ADVISER RESPONSE For Mr Drewberry, the first step is to identify vulnerability and the second step is to establish with the client the best way to help them. Alan Knowles, managing director of Cura Financial Services, which specialises in providing access to insurance for people with disabilities or existing conditions, says a key way to make sure clients in vulnerable circumstances don’t slip through the net is training. A good start is to speak with your firm’s compliance department to get up-to-date guidance and education on vulnerability. “The next step is to look further afield,” he says, highlighting the training Cura has done with Purple, which provides webinars and bespoke training on vulnerability. Mr Knowles adds: “Vulnerability processes should be at the heart of any financial services firm. There are some clever pieces of software that can analyse phone calls and flag potentially vulnerable customers.” He says these can provide a “good monitoring and backup tool”. In terms of monitoring, one way would be to create a vulnerability register and adopt measures such as ‘tell us once’. Mr Knowles says: “Every firm should have a vulnerability register, monitored by senior, trained staff. Vulnerability doesn’t mean we shouldn’t help the customer; it just means we become more aware of the potential harm they could be susceptible to and prevent this.” But Sarah Lord, president of the PFS, thinks that while a register could seem like a good move, she anticipates “challenges in implementing it”. She explains: “Many individuals do not recognise they are vulnerable, or are reticent to admit that they
VULNERABLE ADULTS IN THE UK - MORE THAN ONE-THIRD OF THE ENTIRE POPULATION Source: FCA 2021
are. Also, accessibility to the register would need careful consideration and monitoring, otherwise it could just form a database for the unscrupulous to prey on.” Sir Johnny Timpson – recently knighted in the New Year Honours List 2022 for his work on improving access to insurance for people with disabilities – has been encouraging companies to do more to improve their services and thinks a register would help deliver better customer care. He would also like companies to adopt the ‘tell us once’ model. For example, someone who is bereaved should not have to repeat the same thing every time they interact with a company. Mr Timpson commends the life insurance sector for providing bereavement support to clients, but thinks this should be “best practice across all sectors”.
MORE STEPS NEEDED Ms Lord believes adviser awareness of vulnerability has improved, particularly during the pandemic. She says: “We have made significant strides in our approach to advising vulnerable individuals, with significant investment in training and improvement to
advice processes to identify and record vulnerable clients, but as with everything, we can always be striving to do more.” As far as Mr Timpson is concerned, while advisers have stepped up to the plate, financial services providers have generally fallen short. He says: “We have had Treating Customers Fairly since 2006 and if we had been putting this in place properly, and done our duty as we should have, then we would not have an issue. Clearly, we in financial services should take a good look at ourselves, because there have been failures in the past 15 years that have been identified by the regulators.” Therefore, Mr Timpson says firms should go above and beyond in the way they approach vulnerability. Ms Lord applauds the FCA’s 2021 vulnerability guidance and various communications that have helped provide clarity around expectations for ensuring vulnerable customers are treated fairly. However, she adds: “One challenge when dealing with vulnerable customers is getting them to recognise they are vulnerable and what, if any, interventions and actions would be appropriate to help them protect their position and get positive outcomes.” She would like to see the regulator focus more on “lived experiences” such as periods of illness or disability, as well as intersectionality – whereby someone is affected by more than one of the many factors affecting vulnerability. Ms Lord says this would help avoid “blanket labelling” and would refine definitions of vulnerability. Ultimately, this would help deliver better services to clients. ●
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Simoney Kyriakou is senior editor of FTAdviser
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INVESTMENTS
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ooking back, 2021 combined an accelerating demand for sustainable funds with significant outperformance for the ‘old’ energy stocks they shun. Below, we dive into where the returns came from last year, where the money went (not the same thing) and discuss what that means for this year’s fund market. The top-performing Investment Association (IA) sector was India/Indian Subcontinent, one of six new sectors launched in September 2021 (Table 1). It delivered an average return of 27.5% during the year. Capital flooded into the Indian market in 2021, attracted by the country’s initial public offering boom, particularly around its tech companies. That said, not much of it has come from UK retail investors, with the IA sector recording outflows of £120m. What’s more, the good times may already have rolled – for now, at least – as Indian equities look expensive in both relative and absolute terms, with a price to earnings (PE) premium to other emerging markets at a multi-decade high, according to analysts.
The sector’s top-performing fund was Alquity SICAV-Alquity Indian Subcontinent, with its Lipper-designated primary share class returning 38.2%. It is a large-cap growth fund, with quite a lot of concentration, as the top five stocks make up more than 30% of the fund. The second- and third-placed sectors demonstrate a return to favour for oil and gas stocks, which have been beaten up during previous years. Commodities and Natural Resources’ outperformance demonstrates that the sun has not set on these companies, despite the burgeoning popularity of environmental, social and governance (ESG) funds. The sector’s top performer during the year, the iShares Oil & Gas Exploration & Prod UCITS ETF USD A, delivered 70.8% as reviving economies were choked by supply bottlenecks, further elevating prices for what is still the mainstay of global energy. The chequered performance of sustainables is also indicated by the fact that the dispersal of
FUND FOCUS Dewi John examines last year’s investment returns and looks ahead to 2022 thepfs.org | Personal Finance Professional | SPRING 2022
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INVESTMENTS
returns in the sector was driven by the strong performance of oil and gas, while the worst performer, a cleanenergy ETF, posted losses of more than 20%, with alternative energy funds plummeting last January after a stellar 2020. This is also reflected in the topperforming North American fund share class – the SPDR S&P US Energy Select Sector UCITS ETF Acc, returning 53.9% during the year. Its top holdings, Exxon Mobil and Chevron, make up more than 40% of the portfolio. Financials have also driven North American returns, with the iShares S&P500 Financials Sector UCITS ETF USD AGBP placed third and returning 35.7%. Fourth-placed UK Smaller Companies has continued its strong run compared to the previous year, as has Property Other, which invests in property securities or non-UK based direct property. This is in contrast to UK Direct Property, which, while returning 7.6% for the year, has seen outflows of £4.7bn. Investors remain scarred from the gating of funds – post-Brexit referendum in 2016 and in 2020 especially – and are looking for more liquid alternatives. In contrast, the sector that has attracted the most assets is Global (Table 2). Four of the top money takers were ESG funds, with all but one of the rest being passives tracking broad global
indices such as the MSCI World. That trend to ESG funds is likely to continue, given both investor pressure and the state-level drive for net zero. However, in 2021, that is not been where the returns have been made. And, yes, there’s a theme here – as with natural resources and North America, it’s oil and gas stocks driving returns. The first and second-placed funds very much fit the bill – Schroder ISF Global Energy EUR Z Acc and SPDR MSCI World Energy UCITS ETF. Of the 21 sectors that lost money last year, 16 are bond. However, the only two that fell more than 10% are emerging markets – Latin America and China/ Greater China.
LOOKING AHEAD It is unlikely that 2022 will be a much better year for bonds. If supply chain issues persist, as looks probable, so will inflation. Fixed-income portfolios need to be positioned accordingly – lower duration, greater inflationlinked exposure – and this will be a period of avoiding fixed income losses rather than positioning for outperformance. It is also far from clear that bonds will display a reverse correlation to equities, as this is not a stable relationship. However, as a defensive asset they are still important – although some have suggested they be edged out by property, that is far
from the consensus. You may not like bonds – they pay little and are deeply unsexy at the moment – but you still need them for diversification and to dampen volatility. On the positive side, in an inflationary environment, global equities’ popularity may serve investors well, as company earnings tend to rise and fall with inflation. That is, of course, a massive generalisation. Winners and losers will be determined by several factors, not least by the degree that individual companies have pricing power. Finally, it is clear from both the flow and performance data that the decision to include ETFs in the IA sectors was the right one. Not only have we seen strong flows into these vehicles, but they have delivered sector-leading returns in many instances. You might expect the passive funds that make up the bulk of ETFs would be, almost by definition, mid-table. But sectors are not indices and the latter offer access to increasingly specialised strategies, such as energy or financials, which have benefited from this year’s market drivers. Last year has shown that passive management is giving active managers stiff competition on more than cost. ●
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Dewi John is head of research, UK & Ireland, Refinitiv Lipper
TABLE 1
TABLE 2
ISTOCK
Top-performing IA sectors of 2021 IA sector
One year
Three years
Five years
IA top money takers
India/Indian Subcontinent
27.5
35.7
57.1
Global
£35,513
Commodities and Natural Resources
26.2
51.4
49.1
North America
£13,790
North America
25.6
77.8
94.1
Global Emerging Markets
£10,360
UK Smaller Companies
21.9
63.4
83.0
Property Other
20.9
30.1
36.1
Source: Refinitiv Lipper. To 31/12/21
£m
Mixed Investment 40-85% Shares
£8,335
Global Mixed Bond
£ 7,245
Source: Refinitiv Lipper. To 31/21/21
SPRING 2022 | Personal Finance Professional | thepfs.org
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PROFESSIONAL DEVELOPMENT
CONNECTIONS THAT MATTER How mentoring has made a difference to the paraplanning profession
M
GUIDANCE
I have had is from people outside of my team and it can bring a different perspective. “As a mentor, it is great to see other people grow, develop and take the next steps in their career; and to feel you have helped with that process can be very rewarding. Knowing that there are so many young, talented people who are enthusiastic about financial services also gives me confidence that financial planning has a bright future.” Alan Gow, paraplanner at Argonaut Paraplanning, takes up the theme: “If you don’t have a mentor, you are kind of working in the dark. Your mentor will not only answer your questions, but they can also bring the answers to life, giving you an insight beyond what you can gain from a textbook or website. Without my mentor I wouldn’t be where I am today. I learned not just about the technical side of the role but also about what it really means to have integrity. That insight really helped me grow. “Becoming a mentor yourself is rewarding because you are passing on your expertise, helping someone else to develop and grow, which is really fulfilling. This can benefit not only the individual but also their family, their employer and their clients.” If you have been inspired by our members’ experiences and would like the opportunity to mentor or be mentored, visit thepfs.org/connect to learn about our Connect e-mentoring programme. ● Sabrina Toofanny is marketing executive of member development at the PFS
If you have time to give back to individuals in our community, then mentoring is one of the most satisfying things you can do
Catherine Esland, senior paraplanner at Succession Wealth, says: “Having someone to be able to discuss ideas with and having a source of guidance and support outside of your line manager can be vital in building professional confidence. Some of the most useful feedback
GETTY
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entoring can open doors, inspire, support and encourage people to realise their true potential and achieve their goals. It is our belief that by investing in the next generation we are helping to shape the advisers of a better tomorrow. We spoke with several members to discuss their journeys as both mentors and mentees, and the positive impact it has had on their careers. Rebecca Tuck, financial planner at Paradigm Norton Financial Planning, winner of the 2020/2021 Chartered Financial Planning Firm of the Year, says: “I have never had a formal mentor but when I started out, I was lucky enough to connect with some excellent experienced paraplanners at events who became my ‘go to’ people and some of my most valuable resources when I was developing my role and career. I am now in a position to be able to return the favour and can vouch for how rewarding it is to help the next generation come through. Designated resources to take away the luck and guesswork, as well as to facilitate connections with great people, is exactly what paraplanning needs.” Sasha Wakefield, Chartered financial planner at Paraplanning Hub, says: “Being mentored provides a safe environment for an individual to grow when learning a new skill or role and in turn can be extremely rewarding for the mentor, while allowing them to improve their own coaching and mentoring skillset. “Having mentored previously, it has given me an avenue to give back to the paraplanning profession, to which I owe so much. Finding paraplanning and the community of amazing individuals that are behind it has really changed my working life for the better. If you have time to give back to individuals in our community, then mentoring is one of the most satisfying things you can do.”
thepfs.org | Personal Finance Professional | SPRING 2022
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PENSIONS
T
he standard annual pensions allowance is currently £40,000 a year. Carry-forward allows individuals to carry forward any unused allowances from the three previous tax years and add these to the allowance for the current year. This means that, potentially, up to £160,000 could be payable in one tax year without breaching the annual allowance. To be eligible for carry-forward, the individual must have been a member of a registered UK pension scheme in the tax year(s) they wish to carry forward from. There is no requirement to have made any contributions in those years and deferred or pensioner membership provides eligibility. The annual allowance for the current year must be used first and then carry-forward relief is used in chronological order, with the earliest year first.
EXAMPLE Sam has paid the following contributions and wants to know the maximum additional contribution they could make in the current tax year.
Year
Annual allowance
Contributions
Carryforward
2018/2019
£40,000
£24,000
£16,000
2019/2020
£40,000
£20,000
£20,000
2020/2021
£40,000
£40,000
£0
2021/2022
£40,000
£20,000
Sam has £20,000 of annual allowance still available for the current year. They can then add the £16,000 available from 2018/2019 and the £20,000 from 2019/2020 to give a total maximum additional contribution of £56,000. If Sam doesn’t pay more than a further £20,000 in the current tax year (i.e. £40,000 in total), the £16,000 available from 2018/2019 will be lost. Note that, if they are making personal contributions, they would need relevant UK earnings of at least the total contribution amount, i.e. £76,000 in the current tax year, to
PAYING IT FORWARD Technical Connection examine how pensions carry-forward allows individuals to carry forward any unused allowances from previous tax years be eligible for tax relief on the full contributions. It is not possible to carry forward unused earnings, only the unused annual allowances. Where the individual exceeds the annual allowance in one of the two previous tax years, then you need to look back further to determine if any excess can be offset against earlier years. For example, if the contribution in 2020/2021 had been £50,000 rather than £40,000, the contributions for 2017/2018 would need to be checked to see if the £10,000 excess could be offset with any carry-forward available from that year. Where an individual is a high earner and is, or has been, subject to tapering, their tapered annual allowance will need to be calculated for each of the relevant tax years. The current limits of £200,000 threshold income and £240,000 adjusted income apply from tax years 2020/2021 onwards, whereas the annual allowance and any carry-forward for earlier years will be based on the lower income limits for tax years prior to 2020/2021, i.e. threshold income of £110,000 and adjusted income of £150,000. Where an individual has triggered the money purchase annual allowance, their annual allowance for money purchase (defined contribution) pension contributions reduces to £4,000 a year and no carry-forward is available. However, carry-forward is still available in respect of accrual to a defined benefit (final salary) pension scheme. ●
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SHUTTERSTOCK
Technical Connection
SPRING 2022 | Personal Finance Professional | thepfs.org
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There’s a revolution coming to the lifetime mortgage market and we want to make sure you and your clients are at the forefront of this change. Our Just For You Lifetime Mortgage range now includes medical underwriting. We estimate that by answering some simple health and lifestyle questions six in 10 people could achieve a better deal. ĉ ×Ï ·Ð·Ð¯ ă·ò´ ę¤Ĉ· ɤ ´×· ¤ ×® ×ãò·×ÐêĹ Ă·ê¤æê Ð Ð×ă ¤ê·¯Ð ã¤æê×Ð É·ê¤ Ĺ ò ·É×æ¤ solutions for every client – as unique as they are. For more information call 0345 302 2287Ĺ ¤Ï ·É support@wearejust.co.uk or go to justadviser.com.
2 1 =`I P`L Z=VKZDV D`Ie>R>VJ{ 0 + . " 0 , / ) " 1 Untitled-2 All Pages PFP.Spring22_042-43.indd 42
31/01/2022 09:27
For Financial Intermediary use only. Not for use with customers.
More people could benefit from medical underwriting than you think The best advisers know the importance of offering a personal service. Advances in medical underwriting mean your clients considering a lifetime mortgage can now receive a bespoke offer reflecting their unique personal, health and lifestyle circumstances.
Age and, especially, life expectancy are not just important for pensions and insurance but for borrowing in later life too. A lifetime mortgage lender uses a client’s life expectancy to estimate the length of the loan and calculate the likelihood of the total amount owed becoming greater than the property’s value, triggering the no negative equity guarantee.
This is such a leap forward that we fully expect medical underwriting to become the norm across the industry within a few years, just as it’s now normal among retirees seeking secure incomes from their pensions. People will often have more than one ongoing health issue. More than a fifth (21%) of 50-64 year olds in England have one long-term health condition while 15% have three1. The proportion of people with multi-morbidities aged 65-74 rises to 46%, then 69% for those aged 85+2.
Until recently, life expectancy has been based on calendar age meaning two clients of the same age with similar homes were likely to be offered similar deals. But our medical underwriting expertise has enabled us to focus in on each client’s unique situation, allowing us to better understand their medical age and more accurately calculate their life expectancy. If a client’s medical age is more than their calendar age, their life expectancy reduces and they may be able to borrow more or pay less in overall costs of borrowing. Our experience suggests around six in 10 of those considering lifetime mortgages could benefit from medical underwriting. We’ve introduced medical underwriting across our Just For You Lifetime Mortgage range so clients could have this option.
These facts reinforce the value of taking a client’s health and lifestyle into account when considering a lifetime mortgage. Gathering this information is not onerous and requires no medical expertise – we’ve developed a set of easy to answer questions that can be used by all other lenders offering medical underwriting. Finding the most suitable deal for clients is important and going through the medical underwriting process will help you design a solution that really does reflect their circumstances, potentially achieve a better deal and help you meet the regulator’s challenge for personalised advice. To find out more about how medical underwriting can help meet your clients’ needs, visit the Just For You Lifetime Mortgage page. 1
Office for National Statistics analysis of Annual Population Survey data 2019. 2 Kingston, A., Robinson, L., Booth, H., Knapp, M., & Jagger, C. (2018)
for more information Call: 0345 302 2287 Email: support@wearejust.co.uk Or visit: justadviser.com Lines are open Monday to Friday, 8.30am to 5.30pm Please contact us if you would like this document in an alternative format. Please note your call may be monitored and recorded and call charges may apply.
JM 00925
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21/01/2022 31/01/2022 11:37 09:28
REGIONAL CONFERENCE PROGRAMME
RETURN OF FACE-TO-FACE EVENTS 44
The Personal Finance Society is delighted to welcome members to face-to-face events throughout 2022
thepfs.org | Personal Finance Professional | SPRING 2022
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REGIONAL CONFERENCE PROGRAMME
Q1 REGIONAL CONFERENCE PROGRAMME REGION
DATE
VENUE
SUSSEX
22/02/2022
AMEX STADIUM
SURREY
23/02/2022
EPSOM DOWNS RACECOURSE
KENT
24/02/2022
MERCURE MAIDSTONE GREAT DANES HOTEL
EAST MIDLANDS
01/03/2022
HILTON EAST MIDLANDS AIRPORT
BIRMINGHAM
02/03/2022
ASTON VILLA FOOTBALL CLUB
STAFFORDSHIRE & SHROPSHIRE
03/03/2022
MERCURE TELFORD CENTRE HOTEL
THAMES VALLEY
08/03/2022
READING FC CONFERENCE & EVENTS
HERTS, MIDDLESEX & BEDFORDSHIRE
09/03/2022
THE AUCTION HOUSE
LONDON
10/03/2022
GRAND CONNAUGHT ROOMS
YORKSHIRE
15/03/2022
RUDDING PARK, HARROGATE
LANCASHIRE, MERSEYSIDE & CUMBRIA
16/03/2022
MERCURE DUNKENHALGH HOTEL AND SPA
GREATER MANCHESTER
17/03/2022
MERE GOLF AND COUNTRY CLUB
JERSEY
17/03/2022
POMME D'OR
BRISTOL & CHELTENHAM
22/03/2022
ASHTON GATE STADIUM – CONFERENCE CENTRE
SOUTH WALES
23/03/2022
THE VALE RESORT
EXETER & NORTH DEVON SPECIALIST REGIONAL ROADSHOW
24/03/2022
SOMERSET COUNTY CRICKET CLUB
NORTH SCOTLAND
29/03/2022
THE ABERDEEN ALTENS HOTEL
SUSSEX SPECIALIST REGIONAL ROADSHOW
29/03/2022
AMEX STADIUM
CENTRAL SCOTLAND
30/03/2022
CROWNE PLAZA GLASGOW
THAMES VALLEY SPECIALIST REGIONAL ROADSHOW
30/03/2022
READING FC CONFERENCE & EVENTS
TYNE TEES SPECIALIST REGIONAL ROADSHOW
31/03/2022
RAMSIDE HALL HOTEL & GOLF CLUB
LONDON SPECIALIST REGIONAL ROADSHOW
31/03/2022
CONGRESS CENTRE
45
DIGITAL EVENTS
Find out more information and book your place at: www.thepfs.org/events
View future events listings and discover previous CPD events here: https://gateway.on24.com/wcc/ eh/2726442/personal-finance-society
ISTOCK
We host a wide range of educational, topical and informative content, delivered digitally to the profession. Watch live and on-demand digital events to help keep yourself informed and your skills up to date.
SPRING 2022 | Personal Finance Professional | thepfs.org
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All-you-can-eat training
Pick MortgageAssess and take your organisation’s training and level. development to the next level With over 80 courses, including 35 regulatory specific courses, diagnostics, gap analysis, assessments and recruitment tests, MortgageAssess has it covered. Sign up to your 14-day free trial at mortgageassess.co.uk or email business.enquiries@cii.co.uk for more information. Powered by Chartered Insurance Institute
PFP.Spring22_046.indd 46
MortgageAssess Catering for your training needs.
31/01/2022 09:29
OUR EDUCATION CHAMPIONS George Tsounias speaks to Robert Boland and Hazel Bowen, recent winners of the Education Champion of the Year award at the 2021 Personal Finance Awards
R
obert Boland and Hazel Bowen were crowned joint winners of the Personal Finance Award that recognises outstanding contributions to the My Personal Finance Skills initiative. Despite the ongoing pandemic, Education Champions continue to deliver financial education workshops either in-school or remotely. In the first months of this academic year, Education Champions delivered more than 200 workshops, reaching upwards of 6,000 students nationwide. A big well done to all nominees who entered and a thank you to all Education Champions who collectively deliver these sessions. Following their joint win, we caught up with Mr Boland and Ms Bowen to find out a little more about their experience.
ROBERT BOLAND Chartered financial planner, Cotswold Independent Financial Services Since Mr Boland first joined, the programme has grown significantly. “We started with a board game in schools,” he says. “Thinking back to then and comparing it to where we are at now, [the difference] is remarkable.” The pandemic did not stop Mr Boland, who saw this as an opportunity as, suddenly, the programme started to deliver sessions remotely nationwide. He was able to support the initiative and even had other Education Champions shadow his own sessions. “Schools themselves were looking for content to share with pupils and largely welcomed my contact. It drove me on to give something back that would resonate and be useful to these students,” explains Mr Boland. The award promises to deliver wider benefits too. “My two company directors had faith in me and were very supportive. As a business, we’ll use it in our newsletter and when clients read about it, I hope it opens further doors in schools around Coventry and Warwickshire,” he says. “I have always been a big supporter of the initiative and receiving this recognition from my peers is tremendous – it means a lot to me personally,” adds Mr Boland.
HAZEL BOWEN FPFS Chartered financial planner – Tilney Financial Planning Ms Bowen has been an active supporter of the My Personal Finance Skills from inception and is incredibly passionate about educating the next generation, as well as showing the way for more females into the profession. “Being an Education Champion aligns with my professional purpose to educate, empower and inspire people to engage with their finances,” she says. “I embraced the concept of championing the programme. As well as delivering sessions, I contacted schools cold, trained and mentored new champions, while also creating bespoke sessions for schools,” continues Ms Bowen. “Being crowned joint winner is recognition for the commitment and energy I have had for the programme since it began. It is lovely to know the work is having an impact,” she adds. Her dedication has not gone unnoticed by colleagues or clients either. “It is good for my firm – clients care about working with a business where people use their commercial experience to benefit the wider community,” says Ms Bowen. “I would add that the student interaction is really inspiring – this shows how well the sessions are received and that the students benefit, which is what it’s all about.” To watch highlights of the awards, scan the QR code below on your phone. To find out more about the initiative, visit: mypersonalfinanceskills.org or email: volunteers@ thepfs.org ●
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George Tsounias is education relationship manager of the PFS
SPRING 2022 | Personal Finance Professional | thepfs.org
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01/02/2022 11:16
TECH Q & A
TALKING TECHNICAL This issue’s tech Q&A looks at inheritance tax and Junior ISAs
Q
I have a mother and daughter who have a joint bank account. Please can you confirm the inheritance tax treatment? I would assume 50:50?
A
If the account is owned on a joint basis by the mother and daughter, then should the mother die first, any amount held in the account will pass to the daughter under the laws of survivorship and vice versa. It is important to note, however, that the deceased’s share of the jointly owned asset will still form part of their estate for inheritance tax (IHT) purposes. With a joint account it is usually half the value which would need to be accounted for in the IHT return. Note that the amount will not pass exempt between the mother and daughter. In this case, however, it is also important to point out that for IHT purposes, lifetime transfers from the joint account may occur when one of the holders withdraws funds from the account.
48
According to HMRC’s guidance, a transfer of money into a joint account does not automatically involve any immediate gift of a beneficial interest. So, where one party (say, the mother) adds money to the joint account and the daughter withdraws the money for her own use, the mother is treated as having made a lifetime transfer for IHT at the time the daughter effects the withdrawal. However, should the mother withdraw the money for her own use, no lifetime transfer of value for IHT occurs.
Q
When setting up a Junior ISA for a child, can both parents make contributions into the account? For example, the mother will be the registered contact, but the father would like to make regular contributions. Is this possible?
A
Yes, it would be possible for both parents to pay into the Junior ISA for their child, provided total subscriptions in a tax year do not exceed the subscription limit of £9,000. It is important to note that the money will belong to the child and the child can take control of the account once they attain age 16 and can withdraw the money once they attain age 18. Any payments made into the account will be treated as gifts for inheritance tax (IHT) unless specifically covered by an IHT exemption – for example, the annual exemption of £3,000 or by the normal expenditure out of income exemption. Although it should be noted that any amounts paid by a parent into a Junior ISA for their child will not be subject to the parental settlement provisions under section 629 Income Tax (Trading and other Income) Act 2005. As a reminder, these rules broadly apply if gross income exceeds £100 in a tax year from all gifts made by the same parent – the income is assessed on the parent(s) in respect of any beneficiary who is aged less than 18 and unmarried, or not in a civil partnership. ●
ISTOCK
→ Taken from the Technical Connection Techlink Professional question bank. To find out more, visit: www.techlink.co.uk/techwise
thepfs.org | Personal Finance Professional | SPRING 2022
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STUDY ROOM
The CII Financial Assess training package tests your knowledge of key financial topics QUESTION 1
QUESTION 5
QUESTION 9
Ethical behaviour is difficult to evaluate and so it is necessary to employ proxy measures, such as: Analysing the social background of each member of staff Audio and video recordings of staff interaction with customers Sales statistics compared with other organisations offering similar products and services The persistency of problems and the number and nature of complaints received
Which of the following scenarios would, generally speaking, ensure a will is valid? Although written 10 years ago, the recently married testator's will is in writing, signed and witnessed The will is in writing, signed, witnessed by two or more people who are 18 or over and the testator has not remarried since The will was signed, and the testator has not remarried since The will was witnessed by two individuals
What event will result in a member losing enhanced protection? A transfer from a defined benefit (DB) scheme to another DB scheme that is part of a business transfer A transfer from a defined contribution scheme to a DB scheme A transfer split between three different schemes Establishing a new plan to take a transfer value from another registered pension scheme
QUESTION 2 Where must a lasting power of attorney normally be registered for the attorney's powers to come into force? HMRC The Department for Work and Pensions The High Court The Office of the Public Guardian
Systemic risk can be best described as the risk of: A government being unable to repay an interest payment A single financial institution defaulting The collapse of an entire market The counterparty to a transaction failing to settle
QUESTION 3
QUESTION 7
Who executes a deed to create a power of attorney? The attorney The donee The donor The settlor
Which of the following is true about annuity protection lump sum death benefits? They are always tax free They are always taxable as income They are normally tax free if death occurs before age 75, but taxable thereafter They are normally taxable as income if death occurs before age 75, but tax free thereafter
QUESTION 4 In England and Wales, how much does a widow currently receive outright under the rules of intestacy if there is no issue, but the deceased's parents are alive? £270,000 £270,000 plus half the residue £450,000 plus half the residue The entire value of the estate
QUESTION 6
QUESTION 8 Stamp duty land tax (SDLT) on residential property is paid at a zero rate up to a threshold of: £125,000 £150,000 £250,000 £500,000
QUESTION 10 What is the main difference between a retirement interest-only (RIO) mortgage and a conventional lifetime mortgage? Interest is paid each month by the customer on a RIO Interest rates are always variable on RIOS RIOs are only available through life insurance companies RIOs have a fixed term whereas lifetime mortgages are open-ended
49
YOUR SCORE »
1–3 POOR 4–6 GOOD
7–8 VERY GOOD 9-10 EXCELLENT
ANSWERS 1D Proxy measures employed to evaluate ethical behaviour include the persistency of problems and the number and nature of complaints received. 2D The Office of the Public Guardian. 3C The donor is the individual who establishes a power of attorney.
4D The widow would receive the entire value of the estate outright. 5B For a will to be valid, it must be in writing, be signed and witnessed by two or more people who are 18 or over. The testator must not have remarried since.
6C Systemic risk can be best described as the risk of the collapse of an entire market rather than the failure of individual parts of the market. 7C They are normally tax free if death occurs before age 75, but taxable thereafter.
8A SDLT is paid at 0% up to £125,000 on purchases. 9B A transfer from a DC arrangement to a DB or cash balance arrangement is not a permitted transfer. 10A Interest is paid each month by the customer on a RIO.
SPRING 2022 | Personal Finance Professional | thepfs.org
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PRESIDENT’S OPINION
PFS president Sarah Lord looks ahead to the ways in which the PFS can help advisers to assist their clients with building better financial futures
BRIGHT FUTURES
E
very year I am so pleased to get out of the month of January and into February. January always seems like a long, hard month of short days and grey cold weather! The year ahead will no doubt bring its own challenges but it is a year when we must continue to focus on all the great things we do as a profession. Since the beginning of 2022, the news has been filled with details of how the actions and behaviour of certain MPs during Covid-19 lockdowns are impacting public trust and confidence in the government. This has focused my mind even more greatly on the importance of ensuring that, as a profession, we continue to strengthen and deepen our relationships with key stakeholders such as policymakers, the regulator, the press and, most importantly, the customers we serve. The PFS’s Articles of Association state that our objectives are, first and foremost, to promote and facilitate the provision of financial advice. Therefore, as a board we will continue to focus on the ways in which this is done, as we always have.
CRUCIAL FOCUS
to demonstrate the need for and benefits of financial advice, with a relentless focus on deepening consumers’ engagement with their finances, their financial resilience and, importantly, our profession. However, one of the hardest things to do is measure engagement at this level. It is often intangible, particularly given that there are so many layers to it and so many key stakeholders that can have an influence. Just because it is hard, however, does not mean it is impossible. As PFS president, I am keen for us to explore ways in which we can improve our understanding of the public perception of the work we do, measuring the impact of the initiatives and activities we undertake to promote and facilitate the provision of financial advice. I have said it a fair few times in the last 12 to 18 months, but will say again, due to the impact of the Covid-19 pandemic there is a need now more than ever for financial advice and financial planning to rebuild consumers’ confidence in their own financial futures. As a profession, we are brilliantly placed to drive good client outcomes through the advice we provide and, collectively, we must continue to demonstrate the power and value that financial advice brings to consumers’ lives. Let me finish by wishing all our members a happy, healthy and successful 2022! ●
One of the most crucial ways to promote and facilitate financial advice is to continue to engage with consumers
Sarah Lord is president of the PFS
As a profession we are brilliantly placed to drive good client outcomes through the advice we provide
ILLUSTRATION: LUKE WALLER
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thepfs.org | Personal Finance Professional | SPRING 2022
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