Wealth planning issues of various kinds have been a real feature of our conversations with High Net Worth Individuals in recent weeks.
Affluent individuals are making the most of the summer lull to examine their financial position and ensure they are being proactive enough about savings rates, pension planning and fees.
The summer holidays may be a time for relaxation, but our users are proving to be no slouches when it comes to getting the most out of their savings. In recent months more and more banks and building societies have moved to slash the interest rates on their current and deposit accounts – many by as much as 3% and in some cases leaving savers earning nothing at all on their money. In fact, the Centre for Economics and Business Research now estimates that an incredible £170bn is now languishing at 0% in the UK today, a 70% increase from 2010.
Derisory or non-existent interest rates are bad enough in themselves, but of course with inflation taken into account those doing nothing to get a better deal are in effect losing money over time
Derisory or non-existent interest rates are bad enough in themselves, but of course with inflation taken into account those doing nothing to get a better deal are in effect losing money over time. Inflation is currently running at around 2% and less than half of the big banks are paying interest in excess of that. It’s no wonder that frustrated savers are coming to our site in their droves to explore alternatives.
There are a few scenarios where keeping large amounts of your wealth in cash is fine – at least for the short term – and it is understandable that simple deposits may feel safe in a tumultuous world. However, inflation, rock-bottom interest rates and the limits to the Financial Services Compensation Scheme mean that cash may well be anything but.
There are several investment options for the risk-averse saver to explore, many of which are “near cash” in their risk and liquidity profile. In reality, however, the safest – and most lucrative – way to hold wealth outside of your main property is invariably in a diversified, well-managed investment portfolio. Our Guide to alternative safe havens for your capital will provide much food for thought that you can discuss with a professional money manager to see which options suit your financial objectives.
We’ve seen a significant rise in enquiries from women worried about the gender pension gap that has been highlighted in the press recently.
Shockingly, a new report from the Pensions Policy Institute has revealed that the average woman in the UK will have 28% less in their pension pot than a man when approaching retirement, due to the likelihood of them having taken career breaks or scaled back on work in order to look after children and the older generations.
Depending on their circumstances and timeframes, women may need to start putting more money into their pension or pursuing a more aggressive investment plan to make up any shortfalls
This is an issue we and the wealth managers on our panel have long sought to shine a spotlight on – and the frightening prospect that women might have a third less to retire on than men is made even more so by the fact that females generally live longer too. It’s been really gratifying to see female users getting in front of this potential disaster to take positive action. Depending on their circumstances and timeframes, women may need to start putting more money into their pension or pursuing a more aggressive investment plan to make up any shortfalls. There is also a lot that can be done by viewing spouses’ wealth in tandem, or taking a more holistic view on family wealth.
Whether retirement is decades away or close at hand, it’s never too late to make your money work harder so that you can have the golden years you deserve – and, of course, that message isn’t gender specific at all. Why not arrange to discuss your pension plans free of charge with a professional wealth manager? It may be one of your best ever moves.
Also on the subject of pensions, we are continuing to see a high volume of enquiries from retirees agonising over whether to transfer defined benefit pensions – and which companies to choose if so.
The Financial Conduct Authority has recently come out to warn that pension transfer schemes are costing UK savers up to £4bn each year, with numerous offshore companies persuading credulous investors to put their hard-earned money into high-risk or entirely bogus schemes.
While increased pension freedoms have doubtlessly been a good thing in many ways, they do mean that savers face very difficult questions over large sums that are vital and irreplaceable for most people
While increased pension freedoms have doubtlessly been a good thing in many ways, they do mean that savers face very difficult questions over large sums that are vital and irreplaceable for most people.
As one of the leading wealth managers on our panel recently warned, transferring a final salary pension is seldom the best option, and any move to do so should only be taken after wide-ranging conversations with a professional, not least due to the tax implications involved. Discussing your situation with a financial planner won’t cost anything through our matching service, and could save you a huge amount long term.
Last month, we highlighted how annoyance over obscure fee documentation had spiked traffic to our site. This month, we’re seeing that trend continue but with a greater appreciation on how fees act as a drag on performance.
We have long advocated that investors think in terms of the Total Expense Ratio incurred for the management of their investments. A combination of new regulatory standards for reporting and relentless media coverage of the issue seems to have finally rammed that message home. We’re seeing investors increasingly appreciating that seemingly small amounts really do add up over time to eat into their investment returns – and taking their providers to task over excessive charges.
We’re seeing investors increasingly appreciating that seemingly small amounts really do add up over time to eat into their investment returns – and taking their providers to task over excessive charges
As we explain in our Guide to what to expect from wealth management fees, managing investments is a complex business that necessarily entails many underappreciated costs, such as for administration, transactions, custody and so on. These may be entirely legitimate (and certainly shouldn’t be hidden), but you should take advantage of the new standards of transparency that have been imposed to ensure that you really are getting the best deal for your money.
Even a 0.5% saving in fees will compound over time to make a huge difference to your final financial position. Really focus on the pounds and pence you are paying an investment manager and how these charges impact your returns year after year. Then, compare both charges and performance against similar organisations to ensure your money is working as hard as it might.