It’s That Time of the Year Again!

As we approach the end of the 2021/22 tax-year, thoughts inevitably turn to end of year tax planning and any unused allowances (ISA, Pensions etc.) that may be available.

The ISA allowance for 2021/22 is £20,000 and if you have not made a subscription (or perhaps you have only made a part subscription), there is still time to use this allowance if you have the funds available.

Since 6th April 2016, in addition to the subscription, it has been possible to top-up ISAs by any amounts withdrawn during the tax-year, including any charges deducted. This means that even if you have not made a subscription this year but have ISAs from previous years, your personal ISA Allowance may be more than £20,000 because of charges deducted during the year. If you made a subscription at the beginning of the tax-year, you may still have a residual allowance left because of these deductions which can be utilised by 5th April 2022.

If you have a Standard Life Wrap Account, the scope for top-up (in addition to any unused subscription) does not apply, unless you take physical withdrawals from your ISA. This is because Standard Life deduct ISA charges from the cash held in your Portfolio and not from the ISA itself.

If you have a Transact Wrap Account and you would like to know your personal ISA allowance for the remainder of the 2021/22 tax year, you can access this information on the Transact website. From your home page, select reports and from the drop-down menu, select ISA Subscriptions.

If you would like to use the balance of your allowance before 5th April, please ensure you advise us of your intentions before the end of March; we will be very pleased to assist.

Just for information, the ISA Allowance for 2022/23 is likely to remain £20,000 each, so £40,000 per couple.

Capital Gains Tax (CGT)   

Currently, rates for CGT are 10% for Basic Rate Taxpayers and 20% for Higher Rate Taxpayers, where property assets are concerned (excluding the main residence) the rates are 18% and 28% respectively. There is an allowance each year (currently) of £12,300 before CGT becomes payable.

Income Tax rates of course, are 20%,40% and 45%, so quite a bit higher than taxes on capital gains!

It might be sensible to at least consider using this year’s CGT allowance before the end of the Tax Year. If you do wish to look into this, please do let us know and we will try to assist.

If you have a General Investment Account (GIA) with us worth more than £250k, we will be contacting you individually over the course of the next couple of weeks or so.   

Many of our clients will not need to take any action, as most assets are held within ISAs and Pensions, where CGT does not apply.

As always, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Recent Market Volatility 2

A very short missive this time.

I completely neglected to mention in my previous round robin on market volatility that these market setbacks, as they occur from time to time, do provide excellent ‘buy in’ points. If we accept the wisdom that markets always recover (which I hope we all do), then it must make sense to buy on the dips.

If you are currently sitting on a lot of cash that is not needed in the short-term and is probably earning only a pittance in interest, then investing in a balanced, highly diversified portfolio could be a good way of trying to overcome the higher levels of inflation we are currently saddled with. It could make even more sense now that the investments are available at something of a discount!

Markets could still go lower of course, and that is why it is only sensible to commit funds that can remain undisturbed for say, 5 years or so.  

If this is something you would like to have a chat about, please do not hesitate to get in touch.  

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Recent Market Volatility

Firstly, a very Happy New Year to you all, I do hope you had a less constrained and consequently more enjoyable Christmas and New Year break than last year.

As January draws to end, I just thought I would write a few lines of comment on the volatility we have seen in markets since the beginning of the year.

To give you an idea of what has been going on I have included some charts below. I have used the S&P 500 Index in the US to demonstrate, as it has been one of the worst affected markets.

This first chart takes a look at what has happened to the S&P 500 Index since 1st January 2022, up until the close of business last night:

These are quite sharp falls and inevitably this has taken the shine off some the rapid recovery we have since the worst days of the pandemic; so what has been going on?

Well, there are a number of headwinds battering the markets at present and when we look at these, recent market falls become a little more understandable. I will summarise the key factors below:

Firstly, we have been experiencing a significant uptick in inflation across the world, as global economies emerge from the pandemic. As an example, that you have probably spotted in the news, the latest CPI figure for the UK is 5.4% per annum, set against a Bank of England target of just 2.0% per annum. Higher inflation was perhaps inevitable, as supply chains that were wound down during the pandemic take time to spool up; not only are supply chains struggling but consumers are sitting on significant levels of cash (money they haven’t been able to spend over the past 2 years), which is now being deployed in the economy, creating the classic ‘too much money chasing too few goods scenario.’

It is not necessarily inflation in itself that is having an impact on the markets, it is more the expectation that the way central banks will attempt to combat it will be through the use of higher interest rates and a reduction in market support through quantitative easing (QE). This potentially makes it more expensive for firms to service their borrowing and restricts their ability to expand, all at a time when they are trying to get back on their feet following the pandemic. Some of the volatility, particularly in US markets, has been caused by concern over what the US Federal Reserve might announce regarding interest rates and a reduction in QE, at their meeting later in the week. The expectation is that an interest rate rise will be announced in March and the tapering of the reduction in QE will be accelerated, and markets don’t like this.  

In addition, President Putin has amassed what looks suspiciously like an invasion force on Ukraine’s lawn and this is causing a great deal of global tension. Assuming he does invade, what will the response be from NATO and how will this affect stock markets? It seems unlikely that troops will be sent in, the response is more likely to be coordinated sanctions and the question then becomes, what will Russia’s reaction to these sanctions be? Will it weaponise its gas supplies, restricting or even cutting off supplies to Europe? This uncertainty is weighing on markets but as the resolution of these tensions is unlikely to involve global conflict, it is questionable by how much.   

Finally, we have a significant sell-off in tech markets (almost all major tech companies are listed in the US) as earning expectations fall, as we emerge from the pandemic. As an example, the rate of increase in subscriptions for both Netflix and Peleton did not meet 3rd Quarter expectations (not by much) and their share prices fell immediately by approx. 20%! It could be argued however, that this 20% fall is just some of the froth being wiped off the top of valuations, following amazing years for both of these companies – can’t go to the cinema, I’ll sign up to Netflix – can’t go the gym, I’ll subscribe to Peleton; the pandemic wasn’t bad for everyone!

Having looked at the causes behind the volatility, how worried should we be and what does the future hold? The short answer (as it always is), is I don’t know and neither does anyone else! A longer answer involves looking at these falls in a longer-term context. The following chart shows the S&P over the past 12 months:

The recent sell-off is clearly significant but it is not catastrophic and it certainly does not constitute a crash (yet), when looked at over a 12 month period.

If we look over a full 5 years, just to make sure we include the major falls that occurred early in the pandemic, recently volatility is put into its proper perspective, see below:

Falls of this type are not unprecedented, we have seem them before and we will see them again; over even longer time periods these corrections can be described as part of the normal market cycle.

The advice, as always during these periods of uncertainty, is to sit tight if you can and ride out the storm, markets have always recovered from even the biggest crashes but sometimes we have to be patient. The most important thing to remember is that falls in your portfolio are not ‘real’ unless you sell, if you can hang on, you are likely to lose nothing and hopefully earn a decent, inflation beating return.

I hope I have been able to provide a little bit of reassurance, but if you are concerned and you feel that a chat would be helpful, please do not hesitate to call, there is nothing I like more than speaking with my lovely clients!

Rest assured, further Round Robin e-mails will follow, as things develop.     

Wishing you and all those you care about, all the very best for the rest of 2022.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Festive Greetings!!!

Adam, Kim and I would like to take this opportunity to thank you for your continued support and of course to wish you and your family a very Merry Christmas and a Happy New Year!

Who could have imagined at around Christmas time in 2019 what was soon to follow? A global pandemic that in some way or another has affected all of us and those we hold dear. It has taken many good people far sooner than they had a right to expect and, as a result, it has altered the way those left behind prioritise what’s important in life; a brutal way to learn such an important lesson. I do hope we remember what we have learned when COVID in all its mutations and variants finally abates, and we are no longer smiling at people in supermarkets from behind face coverings (it is amazing how you can still recognise a smile, just from the eyes).   

2021 has been another difficult year for everyone and yet all my wonderful clients and indeed family and friends have continued to face the challenges of living in the middle of a pandemic with good humour and pragmatism!

As with quite a number of years now, in lieu of sending individual Christmas cards, we have again decided to make a donation to a worthy cause.

One of my longest standing (well over 30 years) and lovely clients is currently undergoing treatment for breast cancer and in support of her and in memory of all those we have lost to this disease; our donation will be to Breast Cancer UK.

Cancer of course, is not a disease that affects the sufferer only, husbands, wives, children and extended family are all along for the difficult and emotionally draining ride. The more we can do to get on top of this illness in all its forms, the better.

I am sure you will approve of my decision to support this important charity.

I do hope 2022 brings you all you would wish for and, of course, an end to COVID.

With very best Christmas wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Don’t save it all for a rainy day!

I was reflecting on the recent death of the brilliantly funny Sean Lock and was watching a few clips of him at his best, including the show just after the news broke about Jimmy Carr and the tax avoidance scheme with which he was involved.

Lock’s line was: "We all like to put a bit of money away for a rainy-day Jimmy, but I think you are more prepared than Noah."

It reminded me of many clients I have worked with over the years who have managed their money extraordinarily well and are therefore very well prepared for those ‘rainy-days’, when they come along. The problem is that, as in the case of Sean Lock’s joke aimed at Jimmy Carr, many are possibly almost too well prepared, and they may have achieved this state of excessive financial security at the expense of enjoying life along the way.

After all, how many rainy days are there going to be beyond the age of say, 75?  

As a wealth manager I think I am only doing half of my job if I just look after people’s money and help to make them more cash. They may gain comfort from becoming wealthier, which they can perceive as being happier, but few people are actually truly happy just by having even more money and looking at a bigger number on a piece of paper – well, unless they are Mr Burns from the Simpsons perhaps.

As a Financial Planner I try to explore with clients what they really want from life, discuss their hopes, dreams and aspirations for them and their family and then help them plan their finances to achieve as much of it as possible. Yes, that will involve managing the money, but it will be to achieve what the clients want, and not just to maximise returns.

I believe financial wellbeing is achieved when we help a client to live a life full of meaning and purpose, fully exploring with them what will bring them real happiness and a sense of fulfilment in their lives. Not just being able to buy the latest shiny thing or nicest car (even though that can be great fun too), but real, long-lasting self-worth.

That will be different for every single client, for some it may even be to carry on working for as long as they can; I have been amazed over the years by the number of people who, when informed they can comfortably afford to retire, decide not to! It’s usually because they are no longer working just for the monthly pay-check but because their job gives them a sense of purpose and a great deal of satisfaction. Let’s be clear, I have also had plenty of clients who can’t wait to get off the treadmill too!   

Once we truly understand each client, and what makes them tick, then we can help them attain as much of that as possible and help them manage their finances and give them the freedom and permission to enjoy life.

It’s all about balance of course, some of our clients are only just starting on the wealth creation journey and the idea of ever having too much seems but a distant dream. However, it can be difficult to identify when on the journey you have saved enough for all the rainy days that are ever likely to come along and you can relax a little.     

True financial planning should be about making clients lives richer, not just their bank balance and I really hope that’s what or clients would say we help them achieve.

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Yesterday’s Budget

I listened to yesterday’s Budget with more than a degree of trepidation, after all this was the first real opportunity for the Chancellor to have a crack at balancing the heavily unbalanced books following the Covid pandemic!

Adding to my state of high anxiety was the fact that over the past few weeks there has been talk of Sunak attacking tax relief on pension contributions (again), of removing the ‘indefensibly generous’ tax-free status of pension death benefits and of bringing Capital Gains Tax into line with Income Tax. Imagine my surprise and relief then when none of these issues were even mentioned!

Make no mistake this was a big Budget, with £75bn of giveaways over the next five years, and yet the chancellor was still able to pay down debt.

Some of this was funded by previously announced policies, such as the new health and social care levy, and the downgrading of the state pension from a triple to a double lock.

A lot of this money, around £35bn a year, comes from improved economic forecasts which have given the chancellor an enormous amount of wriggle room.

Those upgraded forecasts have delivered even more than usual for the Exchequer, because of the Chancellor’s decision to freeze income tax allowances at the last Budget.

This means of course, that almost everyone in the country should be on high alert for fiscal drag because wage increases will result in workers paying much more income tax.

On a positive note, fiscal drag clearly elevates the case for tax planning and bolsters the value of tax shelters such as ISAs and Pensions.

As previously mentioned, savers and investors can breathe a sigh of relief over some of the things that didn’t happen in the Budget. There was no rise in CGT, and no cut to the CGT allowance. Pension tax relief and Inheritance tax remain unscathed too.

Some of the Chancellor’s policies however, notably the rise in the national minimum wage, will clearly add fuel to the inflationary fire.

The Chancellor also took time during his Budget speech to reference the Bank of England’s inflation target, and that will only crank up pressure on the MPC to raise rates when they meet next week. Interest rates are often used as something a blunt instrument in combating runaway inflation but many of the inflationary pressures we are facing relate to supply side cost increases and I struggle to see how increasing interest rates is likely to help.

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Premium Bonds – Are they worth holding?

Clients and friends often ask me about the wisdom, or otherwise, of holding Premium Bonds and I usually direct them to the excellent article by Martin Lewis on the subject on his website moneysavingsexpert.com. Last Sunday however, there was a really helpful article in the Money Section covering the odds of actually winning, which I thought you might find of interest (see below).   

“A saver with £1,000 stashed in Premium Bonds would have to wait more than 200 years before they had a 50/50 chance of winning £50.

You would have to hold the same stake for 1,155 years to have a 50/50 chance of a £500 prize, 3,466 years for a 50/50 shot at £1,000 and more than 60,000 years before an even chance of winning £5,000, according to Andrew Zelin, a data scientist.

Approximately £111 billion was saved in Premium Bonds in March — half of all the deposits in the Treasury-backed National Savings & Investments.

Premium Bonds, which have been around since 1956, give holders the chance to win money in monthly prize draws. The money the bank would have paid out in interest is pooled and paid out in prizes ranging from £25 to £1 million. Most customers do not win; there are 3.3 million prizes each month and more than 21.4 million Premium Bond holders. Fewer than 100 monthly prizes are worth more than £5,000.

The Premium Bonds are advertised as having an annual prize rate of 1 per cent, indicating that for every £100 paid into the bonds, an average of £1 is paid out.

You buy £1 bonds and each has an equal chance of winning — the more you buy, the more your odds improve.

NS&I says you have a 1 in 34,500 chance of winning £25 from a £1 bond. The same bond has a 1 in 56.2 billion chance of winning £1 million. The maximum you can hold is £50,000.

Ernie (the NS&I’s electronic random number indicator equipment) generates random numbers for the prizes.

According to Zelin you would wait eight and a half years before £25,000 of Premium Bonds had a 50/50 chance of winning £50. You would have to hold them for 46 years for a 50/50 chance of winning £500 and 139 years for £1,000. If you saved £25,000 in an easy access account over nine years, getting the average interest rate each year, you would have made more than £1,000.

Even those with the maximum £50,000 stake would need to keep them for 23 years to get a 50/50 shot at winning £500, 69.3 years before you had the same chance of winning £1,000 and 1,215 years to get a 50/50 chance of the £5,000 prize. If you held them for 64,398 years you would then have a 50 per cent chance of winning one of the two monthly £1 million jackpots.

Zelin, who analysed the figures on behalf of the Family Building Society, said: “There is nothing wrong with Premium Bonds, but savers need to know the true chance of winning and the fact that the 1 per cent return rate is not really an interest rate at all.”

The main benefits of Premium Bonds is that they are easy to understand and to access and also, because NS&I is a government-backed bank, your money is 100 per cent protected, however much you deposit across the bank. Other institutions have deposits up to £85,000 guaranteed by the Financial Services Compensation Scheme.

In a low-interest-rate environment the fun aspect of the prize draw is the reason that many parents and grandparents choose Premium Bonds for children. You can buy them in a child’s name.

Quilter, a wealth management company, said a child’s savings would have grown at more than double the rate if they had been invested in a stocks and shares Junior Isa (Jisa) over the past ten years, rather than Premium Bonds.

If £3,600 (the maximum allowed at the time) had been invested in a stocks and shares Jisa in 2011, it would be worth nearly £10,000 now. A Premium Bond stake of the same amount is likely to have won just £400. Even a cash Jisa, with an average rate of 4.3 per cent in 2011, would now be worth £5,258.

“It’s natural that parents and grandparents want to give their children the best start in life, and many are thinking about gifting their lockdown savings to brand-new members of the family,” said Rachael Griffin from Quilter.

“Some people remain worried about the volatility of investing, but with an 18-year horizon, putting money to work in the market can give significantly higher returns than more popular products such as Premium Bonds.”

NS&I said that the bank had paid out more than 3.2 million prizes worth more than £93 million in the September 2021 draw, from £25 to £1 million.

In August a winner from Devon bagged £1 million with a holding of £1,001, and a month later a winner from Hertfordshire won £25,000 with just £55 saved.

NS&I said: “The odds are currently fixed at 34,500 to one and the fund rate is at 1 per cent. The rate and odds are subject to change. The number of eligible bonds change each month, which makes comparisons to other financial products difficult.”

The smallest stake to win £1 million was held by a woman from Newham, east London, who had just £17 worth of Premium Bonds. She won in July 2004.

In the past ten years seven children under 16 have won the £1 million Premium Bonds jackpot.”

In summary, I believe Premium Bonds have a place for guaranteed, instant access savings but I don’t really regard them as investments ……… unless you do win big, in which case they could turn out to be the best investment you’ve ever made, unlikely though that is.

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Inflation; some interesting numbers!

We all know that inflation erodes the purchasing of one’s money over time and that compounding of even seemingly small rates of inflation can have a big impact over many years.

Here are a few numbers…

• The UK inflation rate has just hit an annual rate of 3.2%. That’s up from 2% in July. It’s the biggest monthly increase since the ONS began measuring inflation in this way (i.e. using the Consumer Prices Index – CPI) in 1997.

• But that is only one aspect. The chart below tracks (broadly) the hike in prices across a range of goods and services since 1970 (Source: MoneyWeek).

Wages over the same period have broadly risen by 20x. House prices have gone up more than 65X over the same period. If wages had gone up by as much as house prices over the period, the average salary would be around £95,000.

• Cheap debt has (at least) in part fuelled this rise in prices…think house prices and “top-end” motors. House prices have also been pushed northwards by a limited supply.

• If you consider other items such as a washing machine, these are not financed (typically) by debt and hence we see a lower multiple. Globalisation and the deflationary pressure on labour costs may also have an impact.

Inflation is of course, the enemy of the saver, particularly one who is risk averse and who sees investing in the stockmarket as akin to gambling.

The following statistics are taken from a video from Dimensional Fund Advisors (DFA) entitled the Impact of Inflation; although the DFA stats refer to the US, the same principles apply here in the UK:

In order to have kept up with inflation, an investment of $1 in the S&P 500 Index in 1926 would have needed to have been worth $14 by the end of 2017. By 2017 that investment was actually worth an incredible $533!

The same investment in One Month US Treasury Bills (a proxy for cash) would have only been worth $1.51 by the end of 2017, representing a significant reduction in purchasing power over the period.

Investments in stocks and shares might suffer from volatility from time to time (perceived risk) but over the long haul, they have proven to a be more than effective hedge against inflation. Surely the real risk comes from being too cautious and watching inflation chip away at one’s wealth in real terms, as the years roll by.

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Why is the tax system such a mess?

This is a question I have often asked myself, wouldn’t it be simpler just to tear up the current system and start again? I have been thinking about this over the past couple of weeks as we learned of the introduction of the new National Insurance levy or ‘Social Care Tax’. We will all have own views on whether a rise in NI contributions is the fairest way to tackle the Social Care problem and I don’t intend to get into that here but on the central point of how messy our tax system is, I read the following article in the Times on Monday with great interest.

The article was written by Paul Johnson, Director of the Institute for Fiscal Studies.

The mess of our present health and tax systems is a product of history  

“History casts a longer shadow than we might suppose. The modern A1 largely follows the route of the old Roman road, which itself followed ancient trackways, in use for perhaps thousands of years before. I’m sitting writing this in London because ancient peoples recognised the advantages of its defensible position on the Thames convenient for trading routes between England and the Continent. So ran my thoughts as the prime minister spoke on Tuesday last week, announcing a reform to the funding of social care.

It is not merely our roads and our cities that are where they are as a result of decisions made long ago. The same is true of the structure of our taxes and of the welfare state. Why are we in the mess that we are in on social care? Because of decisions made back in 1946, which themselves harked back to a previous era. As Nick Timmins, the country’s foremost authority on the history of the welfare state, has written: “Why is it all so hard? Partly thanks to history. The modern origins of what we now call social care lie in the National Assistance Act of 1946. Its opening sentence — passed in the same years as the legislation that established the NHS — boldly claimed to ‘abolish the poor law.’ But it didn’t quite.

The NHS remains largely free at the point of use and open to all, with entitlement to treatment still essentially dependent only on a clinician’s judgment that you need it. Social care, by contrast, remains first needs-tested and then means-tested — the shadow of the infamously stringent poor law relief lingers on.”

The NHS, meanwhile, exists in its present form because of how it was originally conceived and legislated back in the 1940s: paid for by general taxation not, as in much of continental Europe, through a system of social insurance; GPs never fully part of it, self-employed contractors to the NHS, the original privatisation, consultants, powerful and largely self-regulating. It is as it is because it is, and it seems impossible to challenge or unpick despite ample evidence that other systems work just as well, if not better.

Our university system is still in thrall to Oxbridge because the Stamford Oath of 1333 effectively made it impossible to establish other universities until its abolition in 1827. Other countries, including Scotland, have more ancient seats of learning and hence a less hierarchical higher education system, because they imposed no such duopoly. Our largely pointless and disruptive national exams at age 16 exist because that’s when most young people used to finish education. A-levels replaced the broader Higher School Certificate in 1951 and have remained much the same ever since.

The same principle applies on the other side of the ledger — how we raise taxes. National insurance contributions were first introduced in 1911 and were, in the 1940s, central to Beveridge’s idea of a contributory pension and benefit system. I still recall NICs being referred to as “the stamp” (perhaps they still are) after the stamp cards that recorded flat-rate contributions on the basis of which entitlement to flat-rate benefits were earned.

The remnants of that flat-rate system remain today in the form of the upper earnings limit. The historical relationship between contributions and entitlements is now just that: historical. No such relationship now exists, yet the folk memory lingers on, one of the reasons that national insurance is, supposedly at least, still a relatively popular tax. Which, in large part, is why it was effectively NICs that were raised to pay for last week’s announcements.

No doubt the newly minted “health and social care levy” will take on a life of its own over the next decades and perhaps centuries. Commentators will be stroking their chins in a hundred years wondering why the chancellor decided to raise this rather cumbersome and inequitable levy rather than raise the basic rate of income tax to 10p in the pound.

William Beveridge’s 1942 report served as the basis for the welfare state

Tax years run from the start of April because William Pitt followed the precedent set by the window tax when he introduced the first income tax in 1799. The date itself derives from the old quarter days. Many curiosities in the tax system date back to the 19th century. Other parts exist for quite different reasons than you’d think from economics textbooks. We economists are taught that there is a high tax on petrol because of the environmental costs that driving creates. That was not in the mind of David Lloyd George when he introduced petrol duty in 1909 — it was there to pay for the road network. Many of the bizarre rules about exactly what is and is not subject to VAT date from well before VAT was introduced in 1973 to replace the old purchase tax, itself introduced in wartime with the aim of reducing wastage of raw materials.

Things change, of course. William Beveridge must have spent decades turning in his grave as his vision of a welfare system based on contributions has been completely unpicked. Who, 50 years ago, would have predicted the virtual end of public sector housebuilding or the creation of a whole new leg of the welfare state through rights to free childcare? All services and taxes adapt as the country grows richer and as priorities change.

Yet, as the past week has demonstrated, you can’t understand present policy unless you understand history. Our social care system is the unfinished business of 1946 and the direct descendant of the poor law of 1834; the decision to fund it through a levy is a throwback to a time when we had a social insurance system. And that’s the trouble. If you want a rational system for tax, welfare and public spending, best not to start from here.”

I completely agree with Paul’s final point, we need a radical overhaul of the entire tax system to ensure fairness to all and to reduce complexity, the endless tinkering with a system that was designed for another time, helps no one. I think most people, including politicians from all parties would agree BUT, who is going to have the courage to take up this challenge?

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

ESG; Client Perceptions

As you know, we have recently been transitioning our clients into the new ESG range of portfolios offered by our preferred investment advisers, EBI. Speaking to many clients it has become clear that most had not heard anything about ESG prior to us bringing it to their attention. This did come as a surprise to me because it has been a very hot topic for Financial Advisers and our regulator, the Financial Conduct Authority (FCA), over the past 2 years or so.

Accordingly, I thought you might find the findings of a study by Invesco into the attitudes and perceptions of customers when it comes to the subject of ESG, of interest.

The following is by Invesco fund manager Clive Emery, it was published on 30th June 2021.

“2020 was the year environmental, social and governance (ESG) investment demonstrated it was as much about delivering outperformance as meeting personal values. Returns from some ESG funds exceeded those of their traditional counterparts by as much as 20 percentage points during the first nine months of that year1.

It is no wonder then that $45.6bn of new money poured into ESG funds during the first quarter of 2020 at a time when $384.7bn of investment was pulled out from the overall fund universe2. This trend looks set to continue.

Invesco recently surveyed 161 financial advisers and 201 advised investors3 to get their views on ESG and found a considerable and widespread appetite for these strategies.

The new reality is that every client is an ESG client, with nearly four out of five (79%) investors declaring that sustainability is important to how they invest. More than half (52%) of those not already investing sustainably plan to start doing so over the next 12 months.

It is clear that interest in sustainable investing is strong among all generations of investors, but it is also clear that the next generation exhibits the highest levels of interest; 90% of respondents aged under 45 say it matters that their money is invested responsibly, versus three-quarters of the over 60s. Undoubtedly then, the role of the financial services industry must be to support investors in meeting their responsible investment goals today, and also in the future.

The survey confirmed that knowledge levels are nascent, with inconsistent terminology making it harder for investors to get on board. More than two-fifths of investors say a lack of knowledge is the biggest barrier to sustainable investing and that there is too much jargon or confusing language.

Both advisers and their clients admit to struggling with the multitude of terms employed to classify the general landscape of ESG. Those surveyed were comfortable using adjectives, not acronyms. Responsible, sustainable, ethical and green were well used but perhaps less understood. While these terms are distinct, they are often used interchangeably. Interestingly, only 14% understood the term ESG.

In addition, terms used to describe the investment approach of sustainable funds were not well understood. Negative screening was the only ESG approach well understood by advisers and surprisingly this was the least understood phrase by investors. Conversely, sustainability focus was the only investment approach that the majority of investors understood.

It is apparent that investors could benefit from more guidance on sustainable investing, but the survey reveals that while advisers are enthusiastic about advising on ESG, that message may not be getting through, given that nearly 60% of investors say their adviser has not mentioned sustainable investing despite two-thirds (62%) of advisers having a framework in place for discussing the topic.”

In light of the very clear interest in sustainable investing, it was surprising to see in the last paragraph, that 60% of investors say their adviser has not mentioned it; clients of Clearwater do not now fall into that cohort.

I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter. 

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

1. Source: www.trustnet.com/news/7466122/esg-funds-beating-their-conventional-rivalsin-most-sectors-this-year

2. Source: www.morningstar.co.uk/uk/news/202274/investors-back-esg-in-thecrisis.aspx

3. Survey conducted January 2021. The quoted number of participants all responded/ participated in the research