Ferguson Oliver

Market Round-Up: 24th June, 2011

2011-06-27T03:50:00.000-07:00

UK - Despite the initial retreat, UK equities ended higher on Friday. Mining stocks were among the risers, recovering from a broad sector sell-off in the previous session, with Antofagasta, Randgold, Xstrata, Kazakhmys, Fresnillo and Rio Tinto among the big gainers. On the downside, the Bank of England’s warning over the continuing sovereign and banking risks dampened the mood and sent bank stocks firmly in the red.

US - Wall Street was in reverse gear on Friday as investors took a rest from woes over Greece and worried about Italy instead, after credit ratings agency Moody’s placed Italian banks and government-related institutions on review for a possible negative downgrade. Meanwhile, some better-than-expected economic news-flow failed to lift the mood. In company movements, memory chipmaker Micron was unwanted amid weak demand for PCs.

Europe - European bourses retreated on Friday, as concerns over the debt crisis were re-ignited. European Union leaders conditionally pledge funds to Greece provided the Greek parliament pass a package of austerity measures next week. Meanwhile, in stocks news, software consultancy Cap Gemini was a notable performer after peer Accenture, lifted its full-year revenue and earnings guidance.

Asia/Emerging Markets - Asian markets remained subdued on Friday amid concerns over Greek debts. Notable fallers included Sony Corp. and Toyota, due to exposure to the weakening European market, while Samsung Electronics of South Korea, also fell amid a legal challenge from Apple over patent infringement. On the upside, airline stocks soared after oil prices plunged following an increase in production.

Source: HSBC

Interest Rates Latest

2011-05-03T01:31:00.000-07:00

The Bank of England will not hike interest rates until 2013 as the economic recovery remains "pretty weak," former Treasury adviser Roger Bootle has said, a day after Governor Mervyn King dismissed an early rise due to the "sheer volume of debt in the economy."

Bootle, who is now an economic adviser at Deloitte & Touche, added in a report by the auditor it is "not out of the question" the Bank will need to issue more quantitative easing, according to Bloomberg.

He said in the report: "The underlying momentum of the economic recovery looks pretty weak. My central forecast is still that rates remain on hold throughout this year and next."

"It is not out of the question that the MPC will eventually need to give more support to the economy. But additional asset purchases, if they do come, are perhaps unlikely until 2012."
GDP will increase 1.5% this year and next, according to the report. Inflation will average 4.4% this year before falling to 1.8% in 2012.

Bootle's comments come a day after Bank governor King said high debt levels pose "massive" economic challenges that would be exacerbated by higher interest rates.

"The economic consequences of high-level indebtedness now would become more severe if rates were to rise," King said yesterday at a committee of the European Parliament in Brussels.

"It is the main reason why interest rates are so low." He said the problem of leverage, "the sheer volume of debt in the economy, is still very large and this poses massive macro-economic challenges."

King added: "I think these macro-economic challenges will last many years."

Bank of England policy makers are split four ways over monetary policy.

The central bank probably will leave the key interest rate at a record low of 0.5% at the next rate meeting on 5 May, according to the median of 43 forecasts in a Bloomberg News survey of economists.

Source: Mortgage Solutions.

Investment Outlook for 2011

2010-12-17T03:59:00.000-08:00

The following statements are a selection of fund manager's investment outlooks across investment sectors and offer an insight into where we should consider investing in 2011.

Emerging markets:
Devan Kaloo: Head of emerging markets, Aberdeen Asset Management

Robust economic growth in the developing world and continued monetary easing in advanced economies are expected to continue supporting emerging equities. To prevent the flood of foreign capital inflows from exacerbating inflation and pushing up exchange rates further, more governments are likely to implement capital controls. But it is unclear if these will be effective. We remain cautious in our outlook.

Global:
James Thomson: Fund manager, Rathbone Global Opportunities.

Market activity is likely to remain volatile and it will become harder to outperform consistently. Companies that are not closely tied to the performance of developed economies, but have products and services in high demand, should outperform in 2011.

Japan:
Ian Heslop: Fund manager, Old Mutual Japanese Select

The Japanese equity market remains cheap and the political pressure on the Bank of Japan to loosen monetary policy bodes well. Continued earnings improvement points to good performance for Japanese equities in 2011.

Europe:
Richard Pease: Fund manager, Henderson European Special Situations.

We enter 2011 with government debt looking poorer value and arguably riskier than some European equities. The turmoil in the sovereign debt markets has held back the advance of European equities, so European equities have the potential to perform surprisingly well in 2011. We enter 2011 with government debt looking poorer value and arguably riskier than some European equities. The turmoil in the sovereign debt markets has held back the advance of European equities, so European equities have the potential to perform surprisingly well in 2011.

Fixed income
Richard Hodges: Fund manager of Legal & General Managed Monthly Income Trust

The only thing you can be certain about for bonds in 2011 is uncertainty. With sovereign credit weakness and consequential concerns about banks spreading further through Europe, and the US employing increasingly desperate measures to stimulate growth, news on the success or failure of policy will involve different segments of the bond market oscillating between euphoria and panic. It will be a year when having breadth of choice for asset selection and being nimble in changing position will be at a premium.

Commodities
Bradley George: Fund manager, Investec Natural Resources

The outlook for 2011 looks promising for certain commodities where there is investment demand and improving fundamental demand. In the precious metals space, demand for gold from different sectors is likely to force a peak that is nearer $1,700/oz in 2011 with $1,100/oz becoming the long-term floor. Crude oil markets have tightened significantly over the past three months and oil prices are likely to average around $100 per barrel on a long-term basis. We also have a bullish view on grain prices over the next six months.

Asia ex-Japan
Allan Liu: Fund manager, Fidelity South East Asia.

South East Asia, with its generally healthy financial systems and solid fundamentals, remains attractive. Domestic demand is robust, supported by increasing affluence, low debt and high savings rates, all of which are likely to support a multi-year growth cycle

UK
Philip Matthews: Fund manager, Jupiter Growth & Income

There are big differences between parts of the market exposed to Western economies and those exposed overtly to emerging markets. Corporate balance sheets are in robust health and we would expect continued corporate activity, especially in the context of subdued global economic growth. We expect equity markets to remain underpinned by their high levels of free cash flow relative to the low levels of return on offer either from government bonds or corporate bonds.

US
Michael Brewis: Fund manager, Baillie Gifford American.

I am optimistic about the outlook for North American equities in 2011. The US economy should continue to recover; the recent upturn in capital spending is an encouraging indicator. Corporate sector profitability and cash generation have been restored, and productivity growth has been excellent, but many companies now need to invest and hire to grow. The housing market is the main negative but should not derail the recovery

SOURCE: Citywire - December 17, 2010.

Economic Review November 2010

2010-12-06T03:01:00.000-08:00

The latest edition of our economic review is reading for viewing. To obtain a copy please forward an e-mail to ifa@ferguson-oliver.co.uk and one will be sent on straight away.

This months review covers the following subjects: -

Crisis in Ireland
PIGS at risk
UK Economy
Markets
Interest Rates and Inflation
Business
China

Positive Market Performance

2010-10-13T08:51:00.000-07:00

On entering the early weeks of Q4 2010, we can see global stock markets enjoyed improving performance between July and September. Fears of a double-dip recession have begun to ease and equity markets have displayed positive performance, supported by generally strong corporate earnings.

Q3 2010 Index Returns

FTSE 100 - 12.85%

DJ EuroStoxx 50 - 6.78%

Dow Jones - 10.37%

S&P 500 - 10.72%

FTSE Government All Stocks - 2.32%

Volatility Index (VIX) - -34.66%

(source: Bloomberg, 30 Sept 2010)

Everyone wants to take advantage of positive market performance, while being mindful of the costs associated with investing. So now could be a great time to think about Index Tracking Funds as a low cost way of holding equities.

We would be pleased to form a no-obligation recommendation should you want to consider such an investment as alternative for surplus funds perhaps sitting on deposit and currently failing to maintain pace with inflation, never mind accumulating growth.

Please contact us for further information.

A Closer Look At Emerging Markets

2010-08-18T03:18:00.000-07:00

We hear the use of the term ‘emerging markets’ almost daily in the investment world, but what the region can offer investors and where the geographic boundaries lie, is often unclear.

There is no one fixed definition of the emerging market region but we can use the constituents of the MSCI Emerging Market Index as a general guide. See the red areas on the map above for a visual overview.

In terms of regions; the CIVETS, BRIC, LatAm, MENA and EMEA currently lead in terms of visibility and investor accessibility. Let’s take a closer look:

CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South America): The new kids on the block in terms of growth potential. The CIVETS have been grouped together for their potentially superior growth capability over the next 10 years. Each country has a large young population and a diverse, dynamic economy.

BRIC (Brazil, Russia, India, China): These markets are arguably the most well known within the region. China and India have significantly increased their dominance over the past 5 – 10 years to become global players in terms of economic growth, market capitalisation and business activity.

LatAm (Latin America): Spanning 20 countries within Central and South America and 14.1% of the world’s land mass, the region enjoys a vast and diversified geographic territory. The positive economic development of Brazil has brought attention to the region which in turn has become increasingly more accessible and attractive in comparison to previous years. (source: Wikipedia)

MENA (Middle East and North Africa): This diverse geographic region has historically been subject to political instability but a strong focus on improving corporate governance has helped to move it forward, enabling financial markets to become more stable and attractive.

EMEA (Europe, the Middle East and Africa): Capturing both the investment hub of the Middle East alongside the more newly founded regions of emerging Europe and Africa, the EMEA region is a little more established in the emerging market scene. Fast-moving political and technological activities in Dubai are spearheading the region’s development, which is supported by the vast wealth held in the Middle East.

Why Invest? The investment case for the emerging market region is supported by a broad range of factors. The market’s track record over the past 10-years is appealing in itself as the graph above illustrates. In summary the region offers:

Rich resource reserves – such as oil, gas and soft commodities

Supportive demographics – large, young populations

Strong growth potential – financial markets are growing alongside business activity

Stabilising political systems – emerging markets are adopting more transparent political structures and addressing corporate governance issues

Accessible financial markets – rising foreign capital inflows

The investment case for the region is compelling but it is important to remember that new markets are less stable than developed ones. The key risk considerations include:

Higher market volatility

Political instability

New indices - short track records

Barriers to investment entry and exit

If you are interested in investing in the region please contact us for an independent assessment and recommendation.

SOURCE: HSBC Global Asset Management

2010-08-10T01:59:00.000-07:00

For those of you that like to follow current data and statistics here are a few hot of the press from Fidelity relative to UK production and output:

June industrial production was down 0.5 percent and up 1.3 percent on the year. Manufacturing however was up 0.3 percent and 4.1 percent on the year. The sector as whole was held back by earlier than usual oil and gas rig maintenance closures which saw output in this area sink 6 percent on the month. The decline here was compounded by a 5.7 percent drop in the equally erratic mining and quarrying sub-sector. Within manufacturing the best performers on the month were chemicals (2.0 percent), metals (2.1 percent) and food (1.6 percent). Advances here were partially offset by declines in engineering (1.3 percent) and textiles (0.8 percent).

July input prices declined 1.0 percent and were up 10.8 percent on the year while output prices edged up 0.1 percent on the month and were 5.0 percent higher on the year. Factory gate prices were supported by a 0.7 percent monthly jump in food costs that alone added 0.1 percentage points to the headline index. Other smaller positive impulses were to be found in textiles & clothing, paper, metals & electrical and optical goods (all up 0.3 percent). The largest negative impact came from petroleum products (down 1.0 percent) which essentially offset the positive effects of higher food costs. Core output prices edged up 0.2 percent on the month and were up 4.7 percent on the year. Input prices, down 1 percent, were dragged lower on the month by sharp declines in home food materials (4.0 percent), crude oil (2.3 percent) and imported parts & equipment (0.5 percent). The only increase in prices of note was in fuel (1.9 percent

Double-Dip Fears: Justified or Scare-Mongering

2010-08-09T07:51:00.000-07:00

Just as soon as the war against recession was apparently won along come the infamous "double-dip" fears.

If the month of June was anything to go by we at Ferguson Oliver were extremely nervous that double-dip might just be more of a possiblity than had previously been considered. That said after attending investment seminar after investment seminar it became clear that there was still a bullish air hanging around and despite all the negative news appearing on our TV screens most economists I listened to were remaining up-beat mainly in the hope and belief of strong corporate results.

July & August appear to support the bulls with a strong bounce back and numerous healthy corporate returns. So has the fear of a double dip left our shores or should we still be wary.

With a wide range of different opinions I will leave it to far brighter minds than mine to express where we sit at present.

A recent consensus of business minds quoted the possibility of a double dip at 10%-15%.

This morning an e-mail arrived in my inbox quoting Schroders house view as "While we expect growth to moderate, we also believe that there is now enough momentum built up to avoid a double-dip recession".

As we all know by now we cannot count anything for certain and bad news might just be lingering around the corner. There is no doubt balance sheets are strengthening and with dividend income on the rise the stronger corporate sector might just manage to help us win the next battle.

So we will watch the next phase of the recessionary curve with great expectation.

What went wrong with the markets in the second quarter?

2010-07-01T00:34:00.000-07:00

The optimism seen after the European Central Bank’s May bailout package has evaporated with the FTSE ending the quarter down 12.8%.

It had all started so well with the ECB agreeing a €750 billion rescue package and European governments signing up to tighter fiscal policies. The news that China was to accept a revaluation of the renminbi also added to the positive vibes that many expected to help send markets into a June rally.

Instead, markets have tanked and investors have been running pushing US Treasury yields below 3% for the first time since August 2009. Virtually leading indicators have taken a major turn for the worse with sell-off pushing most indices into death cross territory as their 50 day moving averages fell below their 200 day moving averages.

‘One explanation is that most economic data releases have been, at best, disappointing,’ says GaveKal economist James Barnes. ‘Take the past 24 hours as an example: in Japan, we witnessed a rise in unemployment, a large increase in hours worked relative to output (implying weak productivity growth) and a roll-over in industrial production.’

‘In Europe, we saw weak eurozone surveys from retail to construction to services, a negative Spanish CPI release and a drop in UK M4 monetary aggregates.’

In the US, the news has been as bad. Weak Case-Shiller housing data for April and a 10 point drop in consumer confidence have both tested investors’ nerve and raised fears of a double dip recession.

Indeed, the ECRI Weekly Leading Index has declined to -6.9% and Dr. John Hussman, manager of the Hussman Strategic Growth fund, warns that if the ISM Purchasing Managers’ index falls back to 54% from 59.7% currently, history suggests that this will be sufficient to tip the US back into recession.

‘Taking the growth rate of the WLI as a single indicator, the only instance of when a level of -6.9% was not associated with an actual recession was a single observation in 1988,’ he says. ‘Of course, the evidence could be incorrect in this instance, but the broader economic context provides no strong basis for ignoring the present warning in the hope of a contrary outcome.’
‘Indeed, if anything, credit conditions suggest that we should allow for outcomes that are more challenging than we have typically observed in the post-war period.’

The credit markets remain very much at the forefront of investors’ concerns with Spain and Portugal having vast amounts of debt to rollover this week and Barnes says that many are worried that the ECB will not play ball.

He believes that the ECB will have to allow these countries an extension on their due payments, but the mixed messages being sent out from policymakers in the meantime are unsettling investors.

‘Combine that uncertainty with disappointment at the emptiness of the G20 meeting and the upcoming summer holidays and the usual desire to reduce risk and positions before heading to the beach and this is more than enough negative news to push the markets lower,’ he says.

Source: Citywire

Pension Savings Hit By Downturn

2010-06-29T00:54:00.000-07:00

The number of people saving enough for their retirement has fallen by 6% to 48%, according to a survey by Scottish Widows.

The Edinburgh-based life and pensions provider said the figure was the lowest since 2006. The economic downturn was blamed by 41% of people in the UK for saving less.

The study, carried out in April, found women over 50 were worst hit with 38% putting aside enough for retirement, compared with 52% last year. Scottish Widows said although the credit crunch began two years ago it was only now that the effects were trickling through to pension savings. While the previous three years had seen a rise in the number of people saving adequately, the latest research showed a reverse of this trend. A fifth of those that could and should be saving were found not to be putting anything by at all.Retirement on hold.

The results showed that the gender gap had fallen compared with last year, with 52% of employed men saving at adequate levels, compared with only 43% of women. Scottish Widows said the group hardest hit was those over 50, who should be saving the most for their retirement.

In particular, 26% of women in this age group were not saving at all, compared with 22% last year. In contrast, 60% of men over 50 were saving adequately for their retirement.

The whole nation is feeling worse off than a year ago and this is really starting to take its toll on pensions savingsIan Naismith Scottish Widows. The economic downturn was found to have affected peoples' attitudes towards saving. Two-fifths had saved less because of the recession and nearly a third of people with a pension and not yet retired thought the size of their pension pot had been reduced. The recession had led to 18% putting retirement lower on their list of priorities.

Ian Naismith, head of pensions market development at Scottish Widows, said: "The whole nation is feeling worse off than a year ago and this is really starting to take its toll on pensions savings.
"While there are signs that the economy is recovering, the nation's saving habits paint a very different story."

He added: "There is still a great deal that needs to be done from both the government and the industry to better encourage pensions savings for the long-term."

The poll of more than 5,000 people found 37% of those questioned fitted the target group of being of working age and earning more than £10,000 per year.

Source: BBC/Scottish Widows.

What now.....

2010-05-12T03:52:00.000-07:00

As David Cameron settles in to Number 10 and the shape of the coalition government between the Conservatives and Liberal Democrates emerges, here is an overview of the areas expected to feature in the oncoming Emergency Budget.

- The planned rise in national insurance is unlikely to go ahead

- The proposed £6 billion of cuts to non-front line services to go ahead

- Capital gains tax (CGT) is likely to rise on 'non-business' assets.

- The Lib Democrats's 'mansion tax' on houses that are over £2 million is likely to be scrapped.

- Plans to increase the inheritance tax threshold to be put on hold

- The introduction of Liberal Democrats' proposed cut to income tax for lower paid workers on the first £10,000 of earnings.

- Marriage could be recognised in the tax system. The Liberal Democrats have agreed not to block the Tories' proposed tax break for married couples, but do not support the policy.

More comment……..

As we wake up to a new coalition government – at last – it looks as though we may be able to look forward to a reasonable future, perhaps the best of all possible worlds.

Lower income families can look forward to an extra £700 in their pockets as one of the main planks of the new coalition is that the Conservatives will support the Lib Dem’s proposals to raise personal income tax allowances to £10,000. We don’t yet know when it will happen but it is something to look forward to. There might, however, be clawback of the higher tax allowance - as currently exists with the higher personal allowances given to the elderly which progressively brings their allowances back down to the same level as the under 65s as their income rises.

We won’t be seeing the inheritance tax starting point going up to £1 million any time soon – but that was never really on the cards anyway. With a transferable allowance of £325,000 per person, very few families pay IHT anyway and numbers will fall. As a quid pro quo we almost certainly won’t see the introduction of the ludicrous ‘mansion tax’ of 1% a year on the value of properties worth more than £2 million proposed by the Lib Dems.

We might see the abolition of the much disliked Home Information Packs (although it is an EU requirement to produce an Energy Efficiency Certificate and that will remain). This costs nothing and the abolition of HIPs would be a help to get the housing market moving again. This is not likely to be a priority however.

But don’t start celebrating. A £10,000 personal tax allowance costs around £12 billion to implement if there is no clawback – coincidentally almost exactly what a rise in VAT to 20% from its current level of 17.5% would raise. Neither the Conservatives nor the Lib Dems ruled out such an increase in their respective manifestos.

Reforming Stamp Duty, due to rise to 5% on property valued at £1 million and above, won’t be a priority either although there might be a suspension of the 5% rate, due to be introduced in 2011. In the March Budget, Alistair Darling said that he would use the extra revenue from a permanent increase in the top rate of Stamp Duty from 4% to 5% to fund a two-year suspension of the 1% rate on homes bought by first-time buyers that are worth between £125,000 and £250,000.

It will be interesting to see how quickly the new coalition moves to produce a Budget. Cameron committed the Conservatives to producing one within 50 days but it might come sooner. Depending on how soon public spending cuts are introduced – which incidentally don’t need new legislation and could have been introduced by a minority Conservative government without support from the Lib Dems – we might also see tax rises in VAT and Capital Gains Tax, which is likely to rise from the current 18% closer to 40%.

The abolition of higher rate tax relief on pension contributions – a Lib Dem Proposal which raises a very useful £5.5 billion to replenish the Treasury coffers – is a very real possibility and redresses a very unfair situation where most of the tax relief goes to wealthier individuals who pay higher rate tax. This could be tempered with a promise to introduce more incentives for lower income families to save at a later date - such as an increase in Child Trust Fund vouchers paid to families on benefits or a new saving scheme – which has been piloted by Gordon Brown’s government – of matching savings, pound for pound.

One thing is certain we are in for interesting times ahead as not only a new government but a new style of government hits the UK.

Top financial goals !

2010-05-10T04:57:00.000-07:00

Here follows five top financial goals everyone should have

1. Pay off your debts:

If you have any outstanding debts paying this off should be one of your main goals. While saving is great, any interest rate you earn will be less than the interest you will have to pay on any loans you've got so the golden rule is to pay off debt before saving.

2. Sort out a rainy day pot:

While it is tempting to spend all the money you've got on specific goals such as going on holiday or sprucing up your home, it's important to build up a savings buffer to cover for any unexpected events.As a minimum, this should be equivalent of three months' salary but ideally it should tie you over for at least six months.

3. Start a pension to ensure you can retire:

Even though this might be far away for some of you, when it comes to saving for your retirement the earlier you start the better. If possible you should start as soon as you start work as long as you haven't got debts to pay off. The longer you leave it the more you will have to pay in each month to be able to enjoy your retirement.

4. Get onto the property ladder:

While we've seen the property market drop over the last couple of years, buying a property is still an investment so long as you consider it a long-term one, and you get to live in it too.

5. Protect your finances:

While buying insurance is not the most exciting financial goal to have, it could be one of the most important decisions you ever make.If you have dependants make sure you've got life insurance, should something happen to you and if you are relying on your income to make ends meet it could be worth taking out income protection insurance that will cover you in the event of getting ill or injured and unable to work.

The most common reasons we fail to meet our goals:

1. The more grandiose your goal, the less likely you are to achieve it. At the end of the day, we're unlikely all to become millionaires by the age of 30. But we might be able to pay off our mortgage by the age of 45.

2. Our goals don't reflect the 'real' us. Sometimes you don't need much money to achieve a particular goal. For example, one adviser found that his clients' long-desired goal was to attend the Chelsea Flower Show, which only cost a train ticket, a night in a London hotel and a few pounds for admission.

3. We don't plan thoroughly enough. It is possible that you will never face redundancy. But experience suggests it makes sense to factor potential job loss into your goals, as they determine how much you may want to spend of your income right now and how much more you set aside for a rainy day.

4. We fail to review our goals regularly. Circumstances change, what was important five years ago may not be today. Stockmarkets can fall sharply, or mortgage rates may have gone up, or an annuity - the annual income paid from a pension lump sum - may be worth less now than it was.

5. We don't take expert advice. Good independent financial advisers can be worth their weight in gold. They can find the cheapest mortgage, the best pension, the most appropriate insurance policy and help choose the best investments - all allowing you to meet your goals more quickly and more easily.

First Time Buyers Better Off

2010-04-19T07:44:00.000-07:00

First-time buyers who scrape together a 10% deposit are in a better financial situation now than if they had bought in autumn 2007, according to analysis from Moneynet.co.uk.

The website agrees lenders’ demands for a large deposit are making it hard for first-time buyers to access the housing market.

But it calculates that due to corrections in house prices and the raising of the Stamp Duty threshold for first-time buyers to £250,000, first-time buyers are now paying less on their mortgage payments than they would have at the peak of the market in 2007.

Based on Nationwide’s house price calculator, Moneynet works out that a property worth £130,000 in Q3 2007 has now fallen 11.5% to £115,000 in Q1 2010.

A first-time buyer in 2007 would have needed a 5% deposit of £6,500 and had to pay Stamp Duty costs of £1,300. This would given access to a three-year fixed rate deal with Britannia Building Society at 6.19% with a £399 fee. But although a first-time buyer in 2010 would require a higher 10% deposit of £11,500, there would be no Stamp Duty to pay.

The equivalent three-year fixed rate deal has dropped to 6.03% from Nationwide with a £995 fee. This gives a monthly repayment of £675.18 for the 2010 first-time buyer compared to £812.73 for 2007’s first-time buyer.

A spokesman for Moneynet says: “The lower repayments mean that borrowers would recoup the extra £3,700 upfront deposit costs in just 27 months and the total cost of mortgage payments over the term of a three-year fixed rate mortgage work out to be £4,950 lower.

“Raising a 10% deposit may still be too much to ask for some would-be home owners, but if they can make the effort to save the sum required their efforts will be rewarded with lower monthly mortgage costs for the next three years at least.”

But the difference between rates at 75% LTV and 90% LTV still remain stark. Data from Defaqto shows that the average two-year fixed rate deal at a maximum 90% LTV is 1.90% higher than a deal at 75% LTV, while the average two-year tracker is 2.16% higher at 90% LTV compared to 75% LTV.

Source: Mortgage Strategy

Cash ISA's Deemed Unfair

2010-03-31T01:28:00.000-07:00

Over the past few months as we have entered the ISA season we have been encouraged by the number of clients willing to consider transfering Cash ISA funds into stocks and shares ISA's mainly through the use of fixed interest style funds.

We have for some time identified the fact that many Cash ISA's are not offering value for money and the following report released today seems to back this up.

Banks are not giving consumers a fair deal on cash ISAs, campaign group Consumer Focus has told the Office of Fair Trading (OFT) today. Consumer Focus has attacked the cash ISA market for the:

Difficulty in switching. Very few people are switching between ISAs despite the apparently large number of products available on the market. This is because it can take weeks to go through an unnecessarily bureaucratic and inefficient switching process.

Lack of transparency. It is often unclear how much interest people are earning on their savings. Rates are hidden in complex tables and it is often hard to find interest rates on old accounts.

Relative decline in interest rates. Interest rates on cash ISAs have fallen much further than what homeowners pay on their mortgages or even the rate of interest paid on other savings accounts.

Banks are ‘bait pricing’. Many providers are using ‘bait’ or ‘bonus’ interest rates to attract savers, but after the initial bonus period has finished there is little competition and the products often offer poor value. Meanwhile, banks are secure in the knowledge that when rates plummet consumers are unlikely to switch.

The Financial Services Consumer Panel has welcomed Consumer Focus’ complaint, comparing the way banks sell cash ISAs to payment protection insurance sales and unauthorised overdraft charges.

Adam Phillips, chairman of the Consumer Panel, said: ‘Here is yet another example of banks being more interested in making money than in their customers getting a fair deal’.

‘We will press the FSA to take action. It cannot be a fair outcome for consumers – or what the Government wanted to achieve in providing this tax incentive – that people end up with little more interest from their tax free account than they would get from an ordinary account,’ he added.

However, the British Banker’s Association criticised Consumer Focus for not discussing its complaint with the banking sector, claiming if it had been given the chance it could have explained the work it is already doing with the regulator to help ISA customers.

(Source: Citywire 31/03/2010)

If you are sitting on dormant Cash ISA funds and would like to explore alternatives please contact us and we will be pleased to present some options.

Good News !!

2010-02-26T03:23:00.000-08:00

The UK economy emerged from its 18-month recession at a faster pace than expected, figures released by the Office for National Statistics (ONS) show.

Britain's gross domestic product (GDP) grew 0.3% in the final three months of 2009, up from its first estimate of 0.1% and stronger than the 0.2% revision made by City economists.

It follows better-than-expected showings from most parts of the economy.
The services sector, the biggest part of the economy, grew 0.5% instead of the 0.1% initially estimated; manufacturing was also revised upward, with industrial production growing 0.4% instead of 0.1%. Elsewhere, Government spending increased 1.2%.

2010-02-23T07:36:00.000-08:00

There was further bad news for savers last week after figures released from the Office for National Statistics showed that inflation had increased to 3.5pc. The rise means that in order to beat both tax and inflation, standard rate tax payers need to find a savings account earning 4.38pc a year, while higher rate tax payers need to earn 5.83pc.

The only savings products on the market at present that will achieve such a level are selected regular ones, where savers can invest only a restricted amount per month, and fixed rate bonds, but then only if you're prepared to lock your money away for at least two years.

Meanwhile, the situation is unlikely to get much better anytime soon for savers. Mervyn King, the Governor of the Bank of England, warned that the bank base rate was likely to remain at its all time low of 0.50% for the rest of the year and into 2011, leaving savers with little chance of any significant increase in the rate of interest they can earn on their money.

As providers increasingly compete for saver's tax free ISA allowances, savers can at least expect these rates to increase in the coming weeks.

However to really track down accelerated returns investors might have to turn to more traditional investment routes such as fixed interest, corporate bond or even equities. I list below the most recent sector performance which gives an indication of what has been going within investment sectors of late. When studying the figures please remember past performance cannot be used as a guide for future perofrmance.

Sector Performance – Cumulative

Sector 3 months % 6 months % 1 year %

£ Corporate Bond 2.33 12.08 22.44
Absolute Return 0.71 4.63 8.48
Europe excl. UK -1.38 12.90 21.34
Global Bonds 0.22 7.46 6.93
Global Emerging Markets 1.07 13.47 56.75
Global Growth 1.86 12.73 22.89
Japan 4.79 6.28 3.14
North America 4.13 13.56 17.56
Property 1.92 13.97 17.83
UK All Companies 2.59 16.54 31.38
UK Equity Income 2.54 16.02 25.72
UK Equity Inc & Growth 2.91 15.36 22.82
UK Index Linked Gilts -1.32 6.67 7.49
UK Smaller Companies 1.51 21.24 51.76

Source: Financial Express
29 January 2010

Hose prices continue to rise

2009-12-01T00:58:00.000-08:00

Around 27pc of those aged over 50 said they planned to use money tied up in their home to provide themselves with a retirement income, such as through downsizing or releasing equity, according to life insurer LV=. The average homeowner in this age group believes around £27,000 has been wiped off the value of their property during the downturn.

But despite this only 2pc of people said house price falls had put them off using their home to fund their retirement. The research also found that previous house price booms have left many people reliant on the wealth tied up in their property, with 12pc admitting they had saved less into a pension because of the rising value of their home.

A further 13pc claimed they could not afford to buy their own property and invest in a traditional pension because house prices were so high. A third of homeowners think it will take between three to five years for house prices to return to their former values.

Around 17pc of people hope to recoup some of their lost equity by carrying out home improvements, while 21pc will save extra and 29pc will wait for house prices to recover.
Vanessa Owen, head of equity release at LV=, said: "In the decade leading up to the credit crunch, more and more homeowners saw their property as a potential cash cow to aid retirement. "But in a matter of months millions of pre-retirees have seen both their property and pension fund values battered. Despite this, their confidence in the long-term value of bricks and mortar remains."

It is perhaps encouraging therefore to hear the latest news from the Nationwide. The cost of a home increased by 0.5pc during the month, pushing average property prices up to £162,764 - a level last seen in August 2008.

Martin Gahbauer, Nationwide's chief economist, said: "The monthly rate of house price inflation was unchanged in November at a seasonally adjusted 0.5pc, leaving the average price of a typical property 2.7pc higher than a year earlier."

But there are signs that house prices are rising at a more moderate pace than in the spring and summer, with the 0.5pc rise recorded for both October and November, the smallest since prices stopped falling in April.

The three month on three month growth rate, which is generally considered to be a smoother indicator of the underlying trend, also moderated during November to 2.8pc, down from 3.5pc in October and 3.8pc in September.

Today's figures come the day after the Bank of England reported that the number of loans approved for house purchase had increased for the 11th consecutive month in October, rising to 57,345, their highest level since March 2008. The housing market has recovered quicker than expected during 2009 as a shortage of properties on the market has pushed up prices.
However, many economists are predicting a return to price falls during 2010 as more homes are put up for sale.

Nationwide said the housing market remained "crucially dependent" on labour market conditions. It added that while unemployment had increased noticeably, the rise had not been as rapid or as pronounced as previously feared. Mr Gahbauer said: "Despite continued uncertainties about the future, the better than expected performance of the labour market has probably contributed to the surprise rebound in house prices this year.

"Together with the fact that mortgage rates have fallen sharply as a result of base rate cuts, this has meant that far fewer borrowers have fallen into arrears than would normally be the case in such a deep recession. As such, the downward pressure on house prices from distressed sales has so far been significantly lower than expected."

Savers Rates

2009-11-03T03:46:00.000-08:00

Despite no change in bank base rate since March 2009, savings rates across the board have risen steadily as providers moved to fund more of their lending activities through their savings book and the FSA declared that providers must hold increased savings reserves.

The sharpest increases have been on fixed rate bonds, where providers can lock savers money in, but those looking for easy access accounts or ISAs have also seen rates increase. However, it seems that the demand for savers deposits has started to wane as a number of top deals have been withdrawn in recent weeks.

The average rate on a one year fixed rate bond peaked at 3.23 per cent at the start of October, but has fallen to 3.17 per cent today. Similarly, those looking to lock in for longer have seen rates fall from 4.77 per cent at the start of October compared to 4.66 per cent today, but the rates being offered are still significantly higher than those on offer back in March.

Once again the Coventry Building Society has launched its Poppy Bond in partnership with the Royal British Legion. The bond pays a market leading rate of 4.30 per cent and donates 0.20 per cent of all funds invested to the Poppy Appeal. Between £500 and £250,000 can be invested in the bond, with a monthly interest option available for savers looking for a regular income. Access to funds are not available during the two year term.

Savers looking to fix the rate on their money for two years are being offered a rate of 4.00 per cent from Abbey, Alliance & Leicester and Bradford & Bingley. Savers can invest between £10,000 and £2 million into the 2 Year Fixed Rate Bond, which is operated in branch or online. Once opened, further additions are not permitted and access to funds is available on closure only subject to a loss of 120 days’ interest.

National Savings and Investments (NS&I) has just launched a range of Guaranteed Growth and Income Bonds paying rates of between 3.85 per cent and 4.60 per cent, depending on the term of the bond selected. The Guaranteed Growth Bond Issue 48 is topping the best buy tables for one year bonds paying 3.95 per cent. Savers can invest between £500 and £1 million into the bond, which is operated online, by post or telephone. Access is available during the term of the deal, but will be subject to 90 days’ loss of interest.

The latest issue of the Hinckley & Rugby Building Society Tracker Savings Bond is paying 2.00 per cent and guarantees to pay 1.50 per cent above Bank of England Base Rate until 31st August 2010. After this date the bond guarantees to pay at least equal to Bank of England Base Rate until 31st August 2013. Savers can invest between £2,500 and £300,000 into the bond, which is operated in branch or by post. Savers must give 7 days’ notice to make a withdrawal or forgo 7 days’ interest for earlier access.

Source: Moneyfacts.

2009-10-26T08:25:00.000-07:00

Britain’s women are leaving themselves dangerously exposed to financial risk in later life a new report says.

The research also shows that almost half (42%) of women aged 30-59 are living in fear of what their retirement might hold.

HSBC Insurance's The Future of Retirement report makes grim reading for the nation's female population who appear far less prepared for their retirement.

It highlights that women may be leaving themselves open to financial hardship in later life should their circumstances change, and notes that fewer women than men have addressed their long-term financial security.

Twice as may women (17%) as men (8%) say they have no retirement planning, while almost twice as many men (32%) as women (18%0 feel prepared for the long term.

Christine Foyster, head of premium wealth proposition at HSBC, said: "Often women do not consider long-term financial planning early enough, leaving them at risk of being under-prepared in later life.

"There is also a tendency to have unrealistic expectations about how much to save and therefore to put saving off," she added.

Source: Cover Magazine

2009-10-23T00:48:00.000-07:00

On the countries leading and most respected fund managers, Fidelity's Anthony Bolton has said the bull market could run for a 'considerable' time.

According to the Telegraph, Bolton (pictured), who is in Seoul mentoring Fidelity's emerging Asia portfolio managers, said: 'The bargain phase is over but, despite the fact the market is well off lows, we expect the bull market to go one. It's a multi-year bull market,' the Telegraph reported.

Bolton, tipped technology and consumer sectors to lead the next leg on the bull run.

He also remains bullish on banks and insurers, alongside property based on the their cheap valuations, although he expressed some concern over how regulation could impact these sectors.

'I still think it is right to own financials. I generally found after financial crisis that you can own financials [for] two to three years,' Bolton said, according to a Reuters report.

He also told the Korean media he expected China to continue driving world economic growth, although the Chinese stockmarket could suffer a setback in the short term.

'For China's market there's a possibility of a correction, but the long term outlook is still bright,' Bolton said. 'The relative growth being seen in some emerging markets is going to look particularly attractive against the low growth in the West.'

He believes emerging economies will benefit from rises domestic consumer spending. He said: 'I particularly like emerging markets that can be driven very much by domestic demand, by the internal dynamics of their economy.'

Source: Citywire.

Child Trust Funds

2009-09-07T09:07:00.000-07:00

With tighter public spending expected from the Government this Autumn, the child trust fund could be one of the "less unattractive" options for cuts, says Institute of Fiscal Studies deputy director Carl Emmerson.

In an IFS observation last week Emmerson assessed the pros and cons of abolishing the initiative. He says the need in the medium-term to reduce public borrowing makes it natural to try to identify areas of public spending that could be cut with the least pain and that the CTF is a possible candidate.

CTFs were launched in 2005 but were backdated for children born on or after September 1, 2002, to help boost long-term savings for children. All children receive £250 at birth or £500 for those in lower-income families with a second payment from the Government of £250 made shortly after the child’s seventh birthday.

Emmerson says abolishing the CTF would make “a small but not insignificant contribution” to the £26bn spending cut estimated to be required by 2013-14 under the Government's spending plans.

He says: “When the time for tough choices about public spending arrives abolishing the child trust fund could be one of the less unattractive options.”

Child trust fund supporters argue the saving initiative complements existing spending on schools and cash transfers to families with children and that it could help improve their ‘life chances’ through a stronger saving culture. But Emmerson says though abolishing CTFs would make newborns worse off in 18 years time, spending cuts in other areas could be even more detrimental.

He says cuts to benefits or tax credits would reduce the disposable cash parents have to spend on their offspring during childhood and public services cuts could reduce the quality and quantity of the services on offer. He says: “Both could reduce the quality of life and the future life chances of children by more than the abolition of the child trust fund.”

Watch this space as more public spending cuts loom large……

Source: Moneymarketing

Banks receive 50 times more complaints than advisers

2009-09-03T08:35:00.000-07:00

Banks are facing more than 50 times as many complaints as financial advisers, according to figures released for the first time by the Financial Services Authority (FSA).

The aggregate complaint figures show how many complaints regulated firms have received and how they have dealt with them.

In the second half of 2008, banks received 988.702 complaints, more than 53 times as many complaints received by advisers, which received a total of 18,633.

The figures show the extent of consumer dissatisfaction with bank advice and support figures released earlier this year showing advisers are the most trusted of the financial services profession.

The figures show an upward trend in bank complaints, which increased 8% between the first and second half of 2008 compared to adviser sector, where complaints fell 5%.

Advisers also trumped bankers in the percentage of complaints that they handled, closing 20% of complaints they received, compared to just 11% of the complaints banks received.

Dan Waters, director of retail policy and conduct risk at the FSA, said the publication of the figures for the first time would help consumers better inform themselves of how the industry operated.

‘This is stage one of our drive to say more about how the industry handles complaints and builds on our recent proposals, currently out for consultation, about the publication of firm-specific data,’ he said.

We expect firms to treat customers fairly by dealing with complaints promptly and efficiently. We are focusing even more attention, particularly through intensive supervision, on ensuring that firms are dealing with complaints properly.'

House Prices Continue To Rise.

2009-08-27T02:13:00.000-07:00

House price bounce extends into August.

• House prices rose by 1.6% in August
• Year-on-year decline slows from -6.2% to -2.7%
• Low interest rates helping to underpin prices for the moment

Average UK House price now £160,224

Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said:

“The price of a typical house rose for the fourth consecutive month in August, increasing by 1.6% on a seasonally adjusted basis. The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – rose from 2.7% in July to 3.3% in August, the highest level since February 2007. At £160,224, the average price of a typical UK property is still slightly lower than 12 months ago. However, the annual rate of change rose further in August, from -6.2% to -2.7%. Over the first eight months of 2009, the seasonally adjusted index of house prices has risen by 3.2%, though relative to the October 2007 peak it is down by 14.4%.

For further information and to see this month's full report click here.

Working In & Through Retirement

2009-08-27T00:49:00.001-07:00

More than two thirds of UK retirees are estimated to be either working, considering a return to work, or upping their hours as a result of the downturn.

A survey, conducted by financial technology group 1st - The Exchange, who questioned 2,000 people in retirement age, found that 70% of them were either working or considering working in retirement, directly because of the double whammy of the ongoing recession and a lack of pension savings.

The results are a timely reminder of the dire straits that many retirees and pension savers are presently in.

Paul Yates, at 1st – The Exchange, said: 'With news this week that a further one million workers are facing inadequate retirement provision due to the closure of many final salary pension schemes by 2012, the situation is only likely to get worse.'

A separate study from annuity group MGM Advantage has found that the impact of the economic downturn on pension pots has forced more than a third of people of 55 – almost 2m - to put off their retirement plans and continue working.
In its research, 1st - The Exchange, found that more than half of retirees, at 53%, are already working full or part time in order to supplement their pension, of which 10% are looking to extend their hours.

Another 17% are considering returning to work because their existing pension is not enough to see them through retirement.

In addition, 28% of men expect to work for 10 years after retirement until at least the age of 75 and 13% of these expect to work for longer, almost half, at 49%, of women anticipate that they will have to work 10 years after retirement up to the age of 70.

Source: thisismoney

Fund Managers Optimism

2009-08-20T08:56:00.000-07:00

Fund managers' optimism about the global economy is at its highest level in nearly six years, according to the Merrill Lynch Survey of Fund Managers for August. Now I know you would expect them to be optimistic but this time I think they might actually believe it.

Seventy-five per cent of respondents said they believed the world economy would become stronger over the next 12 months, up from the 63 per cent recorded in July and the highest figure since November 2003. Further, 70 per cent of respondents expected global corporate profits to increase in the coming year, up from 51 per cent last month.

The survey showed managers were also putting their cash back into equities. Equity allocations have risen sharply, with 34 per cent of respondents now overweight in the asset class compared with 7 per cent in July.

Michael Hartnett, chief global equities strategist at Banc of America Securities-Merrill Lynch Research, said: "Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March. But with four out of five investors predicting below-trend growth for the year ahead, a nagging lack of conviction about the durability of the recovery remains. "We have yet to see investors fully embrace cyclical regions such as Japan or Europe, or Western bank stocks."

Within Europe, 66 per cent of respondents expected the European economy to improve in the next 12 months compared with 34 per cent in July. Investors in Europe took overweight positions in basic resources and radically reduced their overweight in pharmaceuticals. The survey also found that European managers had increased their cash positions, while their overall sector conviction esd near record lows.

Separately, global equity fund managers are waiting for fundamentals to catch up with the recent market rises before making any substantial policy changes, according to the latest annual review of global equity funds from Standard & Poor's Fund Services. The firm said the market upheaval led to a general move toward developed markets, defensive sectors and larger companies.

Flash Floods Insurance Risk

2009-07-30T01:48:00.000-07:00

Householders face higher building insurance premiums after a sharp increase in property damage blamed on climate change. A rise in insurance claims has been caused by flash floods and storms in areas of Britain previously immune to severe weather events.

The AA, which produces an insurance premium index monitoring costs, reports a 15% rise in claims in the first six months of 2009 over the same period in 2008 "in the number and cost of payments for buildings damaged by flash floods and storms in areas with little or no previous record of such claims."

It cited one village, Carbrooke in Norfolk, where homes were damaged by giant hailstones during an ice storm in late spring. The storm also caused the roof of a supermarket to partially collapse, and when the hailstones melted, a local school was flooded. "It happened in an area with no previous record of severe weather events," said the AA.

Insurers are now demanding higher premiums to meet the cost of such freak weather, linked to climate change. The AA found that, in the 12 months to June 2009, the average quote for buildings insurance had risen by 10% — though customers who shopped around were able to limit the increase to 5%.

Insurers are beginning to reflect concerns about climate change in their premiums. The industry is expecting rising cost and frequency of claims for flooding, subsidence and storm damage.
Meanwhile, tighter building regulations mean repairs must meet modern standards for such things as electrical wiring and insulation. As a result, the cost of meeting a claim — particularly for older properties — has been rising steadily.

At the same time households are benefiting from a fall in the cost of home contents insurance to a 15-year low. The AA said that despite reports of a recession-related rise in the number of burglaries, there is little evidence of this from the industry.

One reason is that insurers are making more specific calculations of premiums based on local crime rates. So although the average cost of home contents cover is falling, the figure masks a growing disparity between high and low crime areas.

Fraudulent claims are also contributing to a steep rise in car insurance costs, which are growing at their fastest rate for nearly a decade, said the AA. Drivers are typically being charged £526.42 for fully comprehensive cover, up 10% over the past year — the fastest increase since 2000.
The industry continues to suffer underwriting losses, which are predicted to be in excess of £240m this year," said Douglas. "Although the number of accidents on Britain's roads is thankfully falling, the cost of claims continues to rise — particularly personal injury claims and legal expenses. During the current downturn, fraudulent claims are also putting pressure on premiums, leading to an increase in the number of people who drive without insurance, currently estimated to be 1.6m.

The burden of claims involving uninsured drivers unfortunately falls to honest drivers, to the tune of £30 per policy.

Worst hit are drivers under the age of 21. The average premium for third party, fire and theft cover, typically bought by young drivers, rose 4.6% in the second quarter of 2009 over the first to £968.22.

With rising insurance costs contact us today for an independent quote backed up with a full locally based service.

Pensions: Worrying signs

2009-07-30T00:59:00.000-07:00

Some 16% of workers paying into a pension have reduced or completely halted contributions to their scheme in the last five years, Prudential research reveals.

The study said the decision to stop contributions could lead to an increase in future pensioner poverty.

The research showed the number of people planning to rely mainly on the state pension to fund their retirement is set to rise over the next 10 years to 27% - compared with 22% of those retiring this year.

Prudential director of defined contribution solutions Martyn Bogira said: "It's worrying that many people who have been working for years and saving for retirement seem to have given up hope and stopped paying into their pension. This is the last thing they should be doing. "It's also really worrying that many people either planning to retire imminently or within the next decade still believe the state will support them when we know that, for many people, this just won't be the case."

The research also found 42% who said they planned to retire this year will have the majority of their pension savings in a final salary scheme, while the figure falls to 35% for those due to retire over the next 10 years.

In addition, Prudential said a worker who puts off paying into a pension until they are 35 could end up with a pension pot at age 65 worth nearly £40,000 less than if they had started paying in when they were 30.

It added delaying 10 years could double the amount needed to save, which means these people may have to save more later in their working lives, if affordable, or get much less to live on when they retire

Investors return to equity funds

2009-07-27T09:01:00.000-07:00

Retail investors are starting to pile back into equity funds at the end of a record quarter for sales, according to the latest IMA monthly figures.

The retail sales total for June of £2.5bn is almost equally split between bonds and equity funds with £990m going into equity funds and £897m into bond funds.

However, Corporate Bonds is still the most popular UK domiciled net retail sector with an inflow of £533.3m. It is the eight consecutive month that corporate bonds have topped the chart. Investors continue to pull out of money market funds with the sector recording the highest net outflow in June of £13.4m.

IMA chief executive Richard Saunders, comments: "Investors have been coming back to the market in recent months and June saw a continuation of this trend. "Retail investors have begun over the last two months to put money into equity funds, particularly international equities, as well as bond funds. As a result net retail sales in the second quarter were the highest on record and net ISA sales the highest for six years."

However, on a monthly basis ISAs' popularity fell with a net inflow of £246.9m, down from the previous month's total of £310.7m. The most popular ISA sector was Cautious Managed, which accounted for 22% of gross ISA sales.

Funds under management also dropped slightly in June to £389.3bn from May’s total of £391.6bn. Demand for overseas funds rose over the month with net retail sales reaching £44.2m compared to outflows of £183.2m during the same month last year.

Are the UK Banks Safe Again ?

2009-07-03T00:59:00.000-07:00

With the UK domestic banks shares up between two and five-fold from their spring lows, how safe is it investing in the sector again?

That is a question we have been regularly asked as investors start to stock pick as risk appetitite returns.

Here is a helpful article prepared by Richard Buxton, Head of Equities at Schroders: -

http://talkingpoint.brighttalk.com/files/banks%20quickview.pdf

Product of The Week

2009-06-08T08:28:00.000-07:00

With interest rates so incredibly low and markets starting to show the first signs of settling down a cautious confidence has started returning to investor’s thoughts.

Over the past months we have received numerous requests from investors seeking an investment offering high returns with low risk and a short investment term. So far it has proven very difficult to find such a product but through perseverance I am pleased to say we believe we have tracked down a very credible solution worthy of consideration.

What is the AVIVA Defined Returns Fund?

It offers growth dependent on the performance of the FTSE 100TM Index* and is a way of gaining potential growth without investing directly in the stockmarket.

The Aviva Investors Defined Returns Fund 1 has a maximum 3 year term with the potential to mature early on its first or second anniversaries, subject to certain conditions.

The return is dependent on the FTSE 100TM Index being equal to or higher than it was on 7 August 2009 at either one of the anniversaries, or at maturity.

If at the first anniversary the FTSE 100TM Index is higher than it was on 7 August 2009, the Fund aims to return your initial investment plus 8% and the Fund will mature early.

If the Fund hasn’t matured at the second anniversary and the FTSE 100TM Index is higher than it was on 7 August 2009, the Fund aims to return your initial investment plus 16% and the Fund will mature early.

If the Fund doesn’t mature early, at the end of the 3 year term, the Fund aims to return your original investment plus 24% if the FTSE 100TM Index is higher than it was on 7 August 2009. If the FTSE 100TM Index falls by up to 50% of its level at 7 August 2009, the Fund aims to return your initial investment only. If the FTSE 100TM Index falls by more than 50% of its level at 7 August 2009, you will lose more than 50% of your initial investment.

I believe this investment offers the potential for a greater return than cash whilst providing significant downside protection from further market volatility.

Timing of this style of investment is key. It is important to invest at a time when market prices are low, as they are at present. By doing so you limit the potential for any further downside and at the same time enhance the opportunity for upside returns.

This product may be suitable for you if you wish to:

1. Use your ISA allowance for the new tax year
2. Improve the potential for return on your existing cash ISA’s
3. Build some protection into your existing stocks and shares ISA
4. Improve the potential for return on your cash deposits.

5. Suitable for Trustee and Sipp monies.

I would ask you to give this investment your consideration and let me know if you would like any further information or to arrange a meeting to discuss this opportunity in more detail. I can be best reached on 01356 625285 or ifa@ferguson-oliver.co.uk

More Green Shoots.......

2009-06-01T04:01:00.000-07:00

Upbeat manufacturing data has helped push UK equities higher again as commentators increasingly suggest the economy may be growing by the autumn and even the long-term bears are running out of reasons to be miserable.

Coming in at 45.4 in May, the seasonally adjusted CIPS/Markit Purchasing Managers’ Index remained below the no-change mark of 50.0 for the thirteenth successive month. But it also posted it third consecutively monthly rise - from an upwardly revised figure of 43.1 in April - and is now at its highest level for 12 months.

'At this rate we would hit the no-change 50.0 PMI benchmark by autumn – significantly earlier than economists initially predicted,' said Roy Ayliffe, director at the Chartered Institute of Purchasing & Supply. Production and new orders continued to decline in May, but at the slowest rates for twelve and fourteen months respectively and the orders-to-inventory ratio rose to a thirty-two month high - which is why Ayliffe and others are suggesting their could be economic growth within three months.

The news comes on the back of an upbeat report from the Engineering Employers Federation.
James Knightly, economist at ING, a long time bear on the UK economy, says even he might have to review his forecasts. 'Despite our worries concerning the impact of the bursting of the house price bubble and the implosion of the banks on a household sector that is the most indebted in the world, it appears that the slashing of interest rates and support from quantitative easing is generating a tangible improvement in the economy,' he says. He still sees a number of reasons to be cautious and thinks the leap in PMI may in part be down to re-stocking that could soon run out of steam. Nonetheless, he thinks today's data is another strong argument to start being less pessimistic about the UK.

Howard Archer, UK economist at IHG Global Insight agrees today's data is clearly good news and boosts hopes that the economy could start growing before the end of the year. Earlier, better than expected Chinese PMI data helped lift the mood on global markets. All eyes are now on the US ISM figures.

If - as expected - they come in with a positive number, an increasing number of market watchers might be arguing the recession is over in the US and that will boost hopes we'll be back in growth mode by the end of the summer.

Source: Citywire

Held To Ransom: Borrowers Beware

2009-05-26T01:30:00.000-07:00

It’s a clear case of buyer beware as four out of ten people 42 per cent will come off a fixed rate mortgage this year and risk falling prey to inflated Standard Variable Rates SVR being offered by the majority of mortgage lenders. The exclusive research and analysis carried out by leading comparison site, Moneyextra.com shows that the current average SVR is a staggering 4.19 per cent above base rate, compared to only 1.9 per cent in Q2 2008, representing a colossal 120 per cent rise in income.

However the majority of people surveyed are oblivious to the meaning of SVR and its impact on their finances, with a whopping 85 per cent ignorant to the actual definition of the term. Amusingly, one cited the meaning of SVR as ‘Saving for Retirement’.

Once explained, over a third of people 32 per cent whose fixed mortgages are ending soon, are unaware that the current average SVR is more than 8 times higher than the base rate 0.5 per cent. The research indicates that customers possess a misguided sense of loyalty towards their lender and trust them to adjust SVR’s inline with the base rate; however in reality banks have intentionally held their SVR’s proportionally high.

On average, people think their lenders SVR is 1.77 per cent which is in stark contrast to reality. Only 5 per cent of people surveyed had any idea that the average SVR is currently between 4 and 4.5 per cent. Compared to this time last year, the average SVR was 6.9 per cent or 1.9 per cent above the base rate.

Six out of ten 64 per cent mortgage holders are concerned what will happen to them and their finances once their fixed deal comes to an end. A third 33.5 per cent has suffered a recent drop in income or is unemployed and are consequently worried about being saddled with their lenders high SVR. One in ten believe their poor credit rating will put them at risk of securing a new mortgage deal, another 17 per cent cite high personal debt on credit cards and loans as creating an additional pressure, and ten per cent are struggling with negative equity.

Typically, SVR’s from prime lenders are never normally higher than 1 or 2 percentage points above bank base rate, however some SVR’s are currently as high as 5.99 per cent. In the last twelve months, lenders have increased the differentiation between the base rate and their SVR’s by an average 120 per cent. Such a high-margin is unheard of and it’s scandalous that lenders are allowed to continue fleecing their customers.

It’s not unreasonable for mortgage holders to expect that if the base rate drops, so too will their lender’s rates decrease – however current SVR’s are entirely out of proportion and we implore the banks to bring down their extortionate lending rates to a level that is fair and just to the consumer.

Top tips to unsuspecting homeowners:

Make sure you are aware what your mortgage rate is and when it ends so that you can move onto another discounted rate as soon as possible.

Clean up your credit record – currently there are only 27 mortgage deals available to buyers who have less than 10% deposit; however you’ll need a good credit history to take advantage of one of them.

If you are struggling to get credit why not consider getting a guarantor or sharing with siblings or friends. Pooling your money will enable you to get a better mortgage deal.
Always shop around – if you have a reasonably sized deposit, lenders are typically more flexible and can offer great incentives.

There are still some good deals to be had, Alliance and Leicester, for example, are offering a fixed rate mortgage at 3.49 per cent for a 25 per cent deposit.

Some good news (maybe)

2009-05-06T03:23:00.001-07:00

For those of us looking for some good news out of all the gloom and doom around in the news these days I would refer you to the graph which shows what has been going on in the FTSE-100 and the FTSE-250 indices over the past month.

Maybe, just maybe all the recent speculation that the markets have bottomed out might have some justification. Then again it might be too early to make any formal predicition but what is the harm in getting some good news now and again.

We will continue to monitor the situation and keep you informed as the picture becomes that bit clearer.

Bolton calls the start of the bull market

2009-05-01T01:16:00.000-07:00

Source: Citywire 30/04/09

In his latest prognosis on the market Anthony Bolton believes the equity bull market has begun.

Speaking in an interview on Bloomberg television, Bolton said: 'Things are in place for the bear market to have ended. When there’s a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I’d like to bet against that.' See interview here

Bolton highlighted financials, technology, consumer cyclicals and value plays such as retailers, automakers and construction-related shares as some his most favoured areas of the market.
His views come after HSBC Private Bank turned positive on equities on a 12 month view.
With concerns over the lack of liquidity and bubbles developing the corporate bond market and gilts sliding on the UK's spiralling debt position, is it time to make a fundamental shift back towards equities?

In the news

2009-04-30T01:14:00.000-07:00

The Clerical Medical brand is to be dropped in favour of Scottish Widows. One of the lesser known facts arising from the Lloyds TSB/HBOS merger was that need for the coming together of the countries leading investment houses Scottish Widows (part of Lloyds TSB) and Clerical Medical (part of HBOS).

A single product range will be created with Scottish Widows pension plans sitting alongside the investments and offshore products of Clerical Medical. There will be no change for existing policyholders but new business will fall under the Widows brand from July. More on this story can be found here: http://www.citywire.co.uk/adviser/-/news/other/content.aspx?ID=339144&Page=1

With Swine Flu ever present in the news here is a video presented by Sky news setting out in their opinion the economic consequences of a swine fever pandemic. Scary stuff and not to be sneezed at: http://www.citywire.co.uk/personal/-/video/market-and-shares/content.aspx?ID=338809

The mortgage market is heating up with some vary strange going on's. Taxpayers will be horrified to discover that Halifax Bank, now in government control, is offering mortgages to first-time buyers in the Irish Republic at half the rate at which they are available in the UK.

Halifax, part of the Lloyds Banking Group, is charging 2.74% for a two-year fixed-rate deal to first-time buyers in Dublin. A two year fixed rate first time buyer loan for an English borrower would cost 4.19% at a 60% loan to value up to 6.4% for an 85% LTV.

Meanwhile over at the Nationwide they have moved to improve its profit margins by introducing a new ‘standard mortgage rate’ at a higher rate than its existing ‘base mortgage rate’ – otherwise known as the Standard Variable Rate by other lenders.

Customers taking out a mortgage after April 30th with Nationwide will no longer revert to its base mortgage rate when their deal expires, but will instead go on to the society’s new 3.99% standard mortgage rate. This compares with its current base mortgage rate of 2.5% - an increase of 1.49% for all new borrowers.

The society says it will maintain its base mortgage rate, currently 2.5% for existing customers, but any new customers whose mortgages come to an end will revert to its new rate – which it can vary at will. It does not track Bank Base Rate. This is a retrograde step as Nationwide has always promised that customers on its base mortgage rate would pay no more than 2% above BBR.

On the savings front with money coming off fixed term deposits needing to be reinvested, an increasing number of savers are looking at easy access accounts as a short-term home for their money while they decide whether the high yields available now on some good quality shares are a better long term bet. They are likely to want to wait a while to see if the old adage ‘sell in May and go away’ holds true this year.

Savers have to be very picky as the highest rates paid on instant access accounts all have bonuses which are generally not paid unless you leave your money in the account for at least a year – which won’t suit everybody. Ing Direct, for example, is paying 2.75% for money on instant access. But 2.2% of it is a bonus only payable after one year - although it does have the advantage that the bonus is fixed.

Probably the best no-frills instant access account is Nationwide’s ESaver Plus which is paying 2% gross for sums of £1 or more with no penalties for withdrawal. Sainsbury’s Internet Saver is paying the same 2% but minimum investment is £5,000.

Budget Brief

2009-04-23T03:20:00.000-07:00

In the gloomiest Budget on record there was little or nothing to cheer cash strapped families while higher earners face swingeing increases in income tax for those earning £150,000 or more.

Labour has reneged on it manifesto pledge not to increase the top rate of tax and in a speech reminiscent of Labour Chancellor Dennis Healey’s threat to squeeze the rich ‘until the pips squeak’ Alistair Darling increased the top rate of income tax from the proposed 45% to 50% and brought it forward to 2010-11.

From April 2010, an additional rate of income tax of 50% will apply to income over £150,000, and the income tax personal allowance will be restricted and clawed back down to zero for those with incomes over £100,000. These changes replace the 45% income tax rate and the two-stage taper of the personal allowance announced in the 2008 Pre-Budget Report. Tax on dividends will also be increased to 42.5% rather than the 37.5% announced in the pre-Budget speech in November 2008 for those with incomes above £150,000.

And there is more pain for high earners. As widely predicted, tax relief on pension contributions will be restricted for those with incomes of £150,000 and over, and tapered down until it is the basic rate of 20% for those with incomes of £180,000 a year. The Chancellor justified this by pointing out that a quarter of all tax relief for pension contributions goes to just 1.5% of the top earners.

To prevent high earners from making massive pension contributions to take advantage of the existing 40% tax relief on contributions, the Government is also introducing legislation to prevent individuals cashing in on this window of opportunity. Those who have never earned in excess of £150,000 are unaffected, as are those who continue with their regular pattern of contributions. This could be hard to enforce however as many self employed and high earners make irregular pension contributions.

The Institute for Fiscal Studies has already warned that income tax at 45% which hits the richest 1% of top earners will raise little extra revenue because the rich will simply take avoiding action by turning capital gains taxed at only 18% into income, or leave the country – or worse, work less. At a top rate of tax of 50% the incentive to leave the country or avoid income tax will be even greater. But the Chancellor reckons to raise an extra £1 billion by closing any tax loopholes which the rich might choose to use.

Holders of offshore accounts are being offered a ‘new disclosure opportunity’ which will run until March 2010. This will give holders of these accounts the opportunity to disclose, of their own accord, if they have unpaid tax or duties and to settle debts. The tax man will also be issuing more notices requiring financial institutions to provide information about offshore account holders.

And in an attempt to round up more tax revenue Her Majesty’s Revenue & Customers will be publishing names of serious tax defaulters – both corporate and individuals who have incurred a penalty because they have deliberately understated over £25,000 of tax.

On a brighter note, there is marginal help for savers and some pensioners. The limit on ISA savings at £7,200 for the 2008-09 tax year will be raised to £10,200 – for the over 50s – in the current 2009-10 tax year and for the rest of the saving population in 2010-11. The first higher contributions won’t be available until October 6th for the over 50s. As now, half this allowance can be invested in cash or the whole amount in an equity based ISA.

There is also some relief for pensioners with small savings. The disregard for qualifying for Pension Credit, Housing Benefit and Council Tax Benefit will be raised from its current level of £6,000 to £10,000. The Treasury estimates that this will increase the income of around 540,000 Pension Credit claimants who have savings above the current disregard level of £6000 by around £4 per week.

In addition, Pension Credit recipients who may have overpaid tax on their savings income in the past six years will be contacted as part of a taxback campaign. This will encourage people to claim back overpaid tax on savings income and, where possible, register to avoid overpaying tax in future. Those who claim are expected to receive around £200 on average. This is in response to the fact that millions of elderly taxpayers are paying too much tax but have not been notified of this in recent years by the tax man.

The Chancellor confirmed that if inflation remains in negative territory by September as expected, State pensions will increase by a minimum of 2.5% - but this is simply confirming the existing situation. There will however be an additional payment of £100 to households with someone aged 80 or over and £50 to households with someone aged 60 or over, to be paid alongside the existing Winter Fuel Payment in 2009-10.

Families with children will see Child Tax Credit go up by an extra £20 a year above indexation from April 2010 and there is an extra £100 a year which will be added to the existing £250 Child Tax Credit vouchers – for disabled children - and an extra £200 a year for severely disabled children. The CTF increase will be implemented in April 2010.

For those facing redundancy the maximum income on which redundancy payments are based will be raised from £350 a week to £380 a week. This is still well below average full time earnings of around £24,000 a year.

The concession on Stamp Duty exempting properties purchased for £175,000 or less is to be extended until December 31st of this year which will benefit many first time buyers. The Treasury estimates that around 60% of purchases are currently exempt from paying Stamp Duty as a result of the tax holiday.

The most controversial aspects of the Budget are the tax changes raising the top rate to 50%. Higher taxes for the rich also threaten to raise a major political problem for David Cameron, who has pledged to retain the higher rate, in defiance of many Conservative members.

Cameron last month confirmed that a Tory Government will not repeal higher income tax rates, saying that the richest in society ‘must bear a fair share of the burden’ of paying off Labour's debts.

But the IFS calculates that the current 40% is the optimum rate to maximise Treasury revenues from income tax on the rich. The Treasury disputes the IFS calculations, arguing that rich people are less responsive to higher tax rates than the institute's economists believe.

Has the market turned ?

2009-04-17T03:56:00.000-07:00

In recent days we have witnessed a number of bullish statements from fund managers. Here is one that arrived this morning from Ian McVeigh, Manager of the Jupiter UK Growth Fund: -

"The valuations I see now offer a great opportunity for long-term investors. I think when a rally comes, it is likely to be a sharp one." Ian McVeigh

Optimistic or wrong again, only time will tell but with numerous similar comments appearing of late maybe, just maybe we are starting to see markets turn.....

FTSE 100 Winners

Change as at 12 noon Fri. 17/04/09

Lloyds TSB Group PLC
10.03%
BT Group PLC
9.44%
Aviva PLC
6.37%
Barclays PLC
6.01%
British Airways PLC
5.72%
Man Group PLC USD0.03428571
4.97%
INVENSYS ORD 10P
4.90%
ICAP PLC Ord 10p
4.82%
Royal Bank of Scotland Group (
4.20%
Lonmin PLC
3.9

Market Thoughts

2009-04-09T04:56:00.000-07:00

We are often asked what sector should I invest in to catch a rising market as, when or if markets start to pull out of recession. Simple enough question but a tough one to answer.

If we based our answer on tradition then the poorest performing sectors during the recession would most likely be the strongest out of recession. Accordingly we would be driven towards UK Smaller Companies, Global Emerging Markets, UK All Companies & UK Equity Income.

On the other hand many commentators favour North America given that America was first into recession and could reasonably be expected to be first out. With dividends being maintained at reasonable levels UK Equity Income is often a favoured section as any company that can manage to maintain a strong dividend policy through the troubled times should be in a stronger position as the economy pulls out of recession.

Then we have the advocates of corporate bonds believing they will offer attractive returns more akin to the cautious investor looking for a higher return on their deposit based investments.

You can start to see the dilemma we as advisers face when challenged with the opening question. However it is our job to try and make some sense of everything that is going on and perhaps for the first time in months we have been given the briefest of indicators where to turn.

The month of March was a welcome respite from the continual downward spiral of falling prices. Many sectors produced positive results during a time when the news was still full of gloom and doom.

If we analyse the figures we can see that the six top performing sectors during this positive month were Asia Pacific Ex Japan, Global Emerging Markets, Asia Pacific Inc Japan, Technology & Telecoms, Europe Excl’d UK and the Specialist sector which includes commodities and financials. Source: Citywire April 2009

Perhaps surprisingly at the bottom of the table with negative returns are GBP Corporate Bonds, GBP High Yield, GBP Strategic Bond, UK Equity & Bond, UK Equity & Growth and UK Equity Income. I believe these figures are the most relative and should set certain alarm bells ringing. Many investors have been encouraged towards Corporate Bonds on the strength of their conceived low risk nature. However low risk is not no risk and with defaults a realistic threat I believe investors should be cautious when committing significant portions of their portfolios towards Corporate Bonds for the short term at least.

If the month of March is anything to go on for those investors willing to accept risk in the search for greater reward Global Emerging Markets, Asia Pacific or indeed Specialist funds would appear to offer the greatest opportunity albeit it must be appreciated that investment in these sectors are normally deemed as higher risk. That said whether we are in “normal” territory is questionable and risk must be quantified against market positions. With fund prices near to all time lows it could be argued that risk has been reduced due to the cheaper buying price.

With many investors seeking to recoup positions in investment and pension funds I am certain this question will arise again and again. We will continue to monitor the situation and keep you informed as events progress. If you would like to speak with an adviser to discuss all the options open to you please do not hesitate to get in touch.

M.S. Ferguson
Managing Director

Into Retirement

2009-04-06T07:58:00.000-07:00

Effectively, retirement for most people involves using the pension fund accumulated over many years into an income (usually plus a tax free lump sum). The problem is that many people think that they have to use the same company that they have invested with all along, to provide their pension income. And the companies do not appear too keen to tell them that they do not have to, largely because it is good business for them, to hang on to the money, rather than letting it go to another provider.

But in fact almost everyone has the right to exercise that the financial services industry calls and ‘open market option’. In plain English, this means take your money and buy a better pension elsewhere.

In almost all cases, specialist annuity providers can offer a better income than the company with which you built up your retirement fund. The exception to this is where you have a guaranteed annuity rate. But beware; this normally only applies at a set age and on a level, single life basis. So if you want to retire earlier – or later – and to provide an income for your spouse as well &/or to have an increasing income, then the guarantee is lost.

There is another consideration that you need to look at. If you are a smoker, or have a severe medical condition – or these days, even if you just live in certain parts of the country, you cold also secure a better income, by picking the right type of annuity. For example the best income for a 65-year-old non smoker wanting to use £100,000 to buy a level income for himself would have been £6,406 a year (late March 2009). A smoker in the same position could have boosted his income by £20 a week to £7,452 a year. So shopping around is well worthwhile.

With annuity rates currently so low, although there is no guarantee that they will not fall further, many people are considering delaying buying one by taking their tax free cash and then leaving their pension fund to grow, possibly (but not necessarily) drawing an income directly from the fund. The hope is that fund values and interest rates rise, producing a better return as you get older when annuity rates tend to rise anyway. But beware, you are still running an investment risk and this is not suitable for everyone.

Once again, this reinforces the importance of each one of us taking personal responsibility for our retirement planning.

It's a confidence thing !

2009-03-31T01:18:00.000-07:00

UK consumer confidence spiked higher in March although it remains subdued, a new survey has suggested.

'This month consumer confidence jumped quite significantly to levels not seen since May last year,' said Rachael Joy of the consumer confidence team at survey compiler GfK/NOP. 'It still remains historically very low, but suggests that lower interest rates and a better picture for household bills are restoring some confidence among UK consumers.'

'Certainly, when looking to the future, consumers are feeling better about the likely performance of the economy over the next 12 months.'

The overall index score this month has risen five points to -30, eleven points lower than this time last year. The rise this month has been driven by an increase in confidence over the economic situation over the next twelve months. The annual moving average continues its downward trend and has dropped one point to -32. The score on personal confidence ticked up to -13 from -14 in February.

The forecast for personal finances over the next year has risen two points to a score of -6. This is ten points lower than March 2008

The effect of 0% RPI on Pensions

2009-03-26T08:38:00.000-07:00

Deflation or falling prices have a mixed effect on pensioners and some could lose out. The latest Retail Prices Index figure is 0% and in the coming months some prices are expected to fall further taking the index into negative territory.

So what does this mean for pensioners? There is no need to worry about State pensions because although they are linked to changes in the September RPI, there is a minimum increase every year of 2.5% and State pensions cannot go down.

Next month, April, the basic state pension rises from £90.70 a week to £95.25 a week for a single person, a 5% increase. But because pensioners spend a higher proportion of their disposable income on food and services like household repairs, where prices have been rising, pensioner inflation runs much higher than average inflation. While the January RPI figure was almost 0%, estimates put pensioner inflation in the same month at above 5%.

But the news is not so good for those who have taken out inflation linked annuities. These pensioners could find their income falling if inflation turns negative. ‘Annuities from Prudential and Standard Life could fall, while those from Norwich Union and L&G will not decrease but then will not rise until RPI has reached its previous level.

For those in receipt of a company pension from former employers, most schemes will not reduce the income to pensioners in the event of deflation. But the income will not rise, meaning that they face a rising cost of living without a rise in their income.

Pensioners suffer higher inflation than the general population yet in many cases their income will remain static because it is linked to the headline RPI figure. The current deflationary environment could well be short lived despite low inflation those who are about to retire need to give serious thought to how to hedge against inflation seeing as they could be drawing their pension for upwards of 40 years.

Retiring investors need to inflation-proof some of their pension income – where possible splitting their pension three ways between a level annuity, a 3% escalating annuity and an RPI linked annuity. Drawdown is an alternative for those with larger pots. Whatever they do it is imperative they do not ignore the inflation risk.

State pensions are to be linked to earnings by 2015 – although whether or not the government will honour this pledge remains to be seen. There have occasionally been times when inflation has outpaced average earnings in the past and there could be again in the future. The government might avoid an own goal here by linking the state pension to the higher of average earnings or inflation.

Meanwhile, those coming up to retirement and purchasing an annuity should make certain they are getting the best deal by shopping around and checking with an independent adviser who specializes in annuities. Everyone has the right to the Open Market Option which means they can buy an annuity from a provider other than the company with which they had their original pension savings scheme. Many providers rely on savers’ apathy and offer poor rates for annuities on maturing pension contracts. The difference between the best annuity and the worst can be as much as 30%.

In addition, those with health or lifestyle problems can get a higher income. New research from life insurer LV= shows that over 150,000 people who could qualify for an enhanced annuity, purchase a standard annuity instead and lose out on thousands of pounds of income. A 62-year-old man with an enhanced annuity could receive an extra £7,300 in retirement income over his lifetime.

Enhanced annuities can give people with certain medical or lifestyle conditions – for example people with high blood pressure or those who smoke or are overweight – a higher level of income in retirement. This is because enhanced annuity rates are calculated individually, based on the applicant’s personal circumstances and those with an unhealthy lifestyle or chronic medical conditions have a shorter life expectancy.

Despite the UK enhanced annuity market growing by one third in 2008, this is still a long way short of the four out of ten annuitants that LV= estimates could qualify for some form of enhancement, and a higher annual income in retirement.

Thousands of annuitants are still missing out on a higher income in retirement. Just 27,482 annuitants purchased an enhanced annuity in 2008, whereas research shows that a further 150,000 people could have qualified for one. People simply can’t afford to miss out on the chance of increasing their income in retirement.

A 62-year-old male could receive, on average, an extra £369 in income each year from an enhanced annuity, an increase of 22.7% compared with the average income from a standard annuity. This could equate to an additional £7,380 over the rest of his lifetime.

It is imperative investors seek independent advice when considering or deciding upon retirement options.

Premium Bond Prizes Slashed

2009-03-18T02:38:00.000-07:00

The total value of prizes available to premium bond holders is set to nearly halve as National Savings & Investments changes its prize structure in response to the Bank of England’s rate reductions.

While this month’s prize pot totals some £58.9 million, in April just £32.2 million is expected to be dished out.

In addition, the chances of winning a million pound prize on the premium bonds has halved. The government backed body will now offer £25 prizes, but will only give away one - rather than two - monthly £1 million jackpots as it seeks to increase the number of winners.

Overall, it is cutting the annual payout rate from 1.8% to 1%. The prize money is a percentage of the funds committed to Premium Bonds and NS&I links the percentage payout to Bank of England Base Rate.

The new level of Premium Bond payouts will be held for at least three months.

While very popular – at the end of November 2008, about 23 million people had some £39 billion stashed in Premium Bonds – they are not without their critics who suggest people view Premium Bonds as a gamble and not an investment.

NS&I says that despite its changes, the current odds of each £1 Premium Bond number winning any prize will remain unchanged at 36,000 to 1. ‘We always aim to reward as many of our customers as possible from the prize fund available, together with having the right mix of prizes,’ Peter Cornish, director of customer offer at NS&I said.

Mortgage funds start to re-appear !

2009-03-16T09:43:00.000-07:00

As house prices continue to fall, every month sees an improvement in affordability for first time buyers. But few can afford the big deposits which lenders are now demanding.

Latest figures from the Council of Mortgage Lenders reveal that the average FTB is putting down a deposit of 24% - way out of reach for all but those who can borrow the deposit from their family.

But although there is not a lot of choice, 90% home loans are still available for first time buyers, and with mortgage rates at an all time low, they are affordable too – even if FTBs have to pay more than existing owner occupiers.

One of the best buy's comes from Clydesdale Bank which is offering loans up to 90% of the property’s value at a very competitive 4.59%. The rate is variable and is the same as Clydesdale Bank’s Standard Variable Rate. The arrangement fee is £999 and there is no higher lending charge to pay. There are no early repayment penalties so you can make unlimited overpayments.

Maximise your ISA allowance

2009-03-13T08:31:00.000-07:00

Every year, each person has an ISA allowance available to them. An ISA is one of the most tax-efficient methods of saving, but if your full allowance is not used within the tax year, the valuable benefits are lost for good. The reason I am writing is that time is running out to make the most of this year's ISA allowance and to make plans for 2009/10 ISA allowances.

I appreciate that the continual bad economic news has knocked investors confidence considerably. There are however several key factors that should be considered at this time: -

Interest rates are at all time lows resulting in cash deposit investments failing to maintain pace with inflation.

Equity based markets are cheaper than have been for a number of years offering significant financial opportunity for the investor willing to accept a degree of risk.

Corporate Bond funds are offering an attractive alternative for risk adverse investors

What else do you need to know?

We are currently recommending clients invest in the FundsNetwork 2008-09 Maxi ISA. I am certain you are quite familiar with the investment principles governing ISA’s however as an aide-memoir the enclosed brochure offers detailed information.

BASIC FEATURES

The aim of the FundsNetwork Maxi ISA is: -

To give you the opportunity to increase the value of your capital and/or provide a tax-efficient income.

To provide access to over 1,100 funds from 65 leading fund managers to maximize investment performance.

To give you the flexibility to spread your investment among different investment funds with different aims.

FundNetwork Limited is regulated by the FSA is the UK’s largest investment platform with over £15 billion assets under administration (14/08/08).

Spreading investments decreases the risk of a fall in value across your whole portfolio - it is the investor's way of living out that old adage 'don't put all your eggs in one basket'. FundsNetwork give you freedom to change your investments as circumstances change – be it a change in your needs, or a change in the effectiveness of a fund manager. FundsNetwork also give you the ability to change managers, assets and sectors easily, a facility included in the price of their products.

We would be pleased to forward an extremely helpful brochure prepared by FundsNetwork which not only describes the funds we have selected for recommendation but also presents significant information relative to investing in ISA’s.

If you would like to view our ISA pack please forward an e-mail to ifa@ferguson-oliver.co.uk

ISAs are intended as a long-term investment which means you should be prepared to keep it for five years or more. You should read the brochure before you decide to invest to ensure you are aware of the risks associated with the investment. The funds selected may fluctuate in value, and any return is not guaranteed as the value of your investment may fall as well as rise.

As we near the tax year end I would also take this opportunity to emphasise the importance of maintaining pension contributions in the current economic climate. With depressed values many investors might be put off from making pension contributions however I would suggest now is an attractive time to be making contributions. With fund prices offer tremendous value and tax relief of 20% (basic rate) or 40% (higher rate) secured against all pension contributions made I would argue what other form of investment is offering such certain returns currently.

If you would like to discuss this opportunity further, please contact me on 01356 625285 or by e-mail to ifa@ferguson-oliver.co.uk

Spring Clean Your Financial Arrangements

2009-03-13T08:23:00.000-07:00

Retirement – it’s in front of you – oh yes it is!

Less than half of the total workforce is saving enough into a pension fund. A further 13% are doing some saving in a pension, but not enough for a decent retirement income. It seems the remaining 9.6 million working adults (34%) are just hoping for the best – with their head in the clouds

Apparently almost half of us have ‘no idea’ how much of a state pension the Government will provide and a further third have only a vague idea. Despite this, almost a quarter of working adults expect most of their retirement income to come from the state pension. Women are more likely than men to become widowed, becoming even more reliant on the state pension.

There is, for many of us, a substantial gap between the retirement income that we would like and that which we are on course to achieve. The message ‘you have to save for your retirement’ is simply not getting through. We are staring at a whole generation of pensioner poverty.

It’s simple, we can save more or we can retire later. Most people don’t relish the thought of working longer than their parents or grandparents did, and hardly anyone admits to being happy to accept a much lower standard of living in retirement. But if you want to plan for your future financial well-being the first step must come from you.

IFA’s can’t wave a magic wand but we can show you just what Retirement looks like for you to decide what action you need to take. Pension saving is a long-term commitment, so you need as much time as possible to build up the required funds.

Now is also an ideal time to review your mortgage arrangements. With base rate falling to 0.5% new mortgage facilities are gradually working their way into the market place with a number of attractive rates and terms starting to appear. With rates so low now might just be the time to take a long term outlook and fix rates for stability over the next few years. Borrowers with decent levels of equity are particularly attractive to lenders and should review existing arrangements to catch current rates.

Make this spring the time you spring clean your financial arrangements. Contact a qualified IFA for free, no-obligation review meeting.

A Breath of Fresh Air

2009-03-13T08:18:00.000-07:00

We all let out a huge, collective sigh of relief as we sat in the packed-out auditorium listening to the king of the FTSE addressing this year's National Association of Pension Funds investment conference in Edinburgh yesterday.

Why? Because Anthony Bolton (above), the man who so often gets it right, is optimistic – he was all green shoots.

Detailing his thoughts to the 800 or so pension schemers, the Fidelity fund guru said he believes this washing machine-style turbulence in stockmarkets the world over is coming to an end and that we are at or near the bottom of the market – hallelujah, where’s the champagne?

He said, during his key note speech: "I am optimistic. I think we are at or near the lows in stockmarkets. I think there are some very tentative early signs that things are improving."
Bolton added that supremely negative consumer sentiment generally signals a turning point and that at the moment it was the worst he had seen it since the 1970's.

He said: “In the past, you can see that when consumers are very negative it has nearly always coincided with turning points or bottoms in the market. The consumer is very negative today and I think this will again coincide with a low. I have not seen negativeness like this since the 1970’s.”

And who would have thought he would be touting banks as a good place to get back into the market?

He said: "Financials have very much led this downturn. I think they will be very much at the heart of the upturn as well. Although banks over the years have been generally a place that I have been underweight, because I think they are very difficult to analyse and that it is very difficult for an outsider to know the true position of a bank, I actually think if you buy a basket of banks today you will do well over the next few years.” A refreshing thought given the state the banks are in at the moment.

A further interesting point that came out from the Q&A session. When quizzed at the conference as to who was to blame for the financial crisis, Bolton reaffirmed his view that the FSA should take the brunt.

He said: "There are a lot of people to blame for this crisis. It is a crisis that has had many ingredients, but I have to say that when it comes to the UK banks the person who had the best information and whose job it was to regulate them was the regulator, therefore I think the most blame has to go with the regulator."

2009-03-03T04:38:00.000-08:00

Source: Defaqto IABN

Shares crashed again yesterday and are falling as I write this today, this time the FTSE 100 fell to its lowest level since March 2003. But actually, even that comparison understates the extent of the fall. The FTSE 100 reached its all-time high of 6930 on the 30 December 1999; last night it closed to within a hundred or so points of half that level.It was news from HSBC and AIG that did it this time. The US insurer, which is now largely owned by the US government, revealed further losses of $61.7bn in the last three months of last year. It was the biggest loss in US corporate history, the sums of money involved are simply staggering, and yet it all came in just one quarter. No wonder the markets were all of a tizz.

By contrast, HSBC was something of a hero. It did after all turn in a profit of $9.3bn. Okay, that was 62 per cent down on last year, but even so, it was still an enormous profit. The thing that got the markets running scared over HSBC was that the bank revealed plans for a £12.5bn rights issue. Now, when banks reveal plans to raise that kind of money, they must be desperate, or so goes the reasoning. HSBC has of course been one of the globe’s star banks during this crisis. Not for this bank, a need to dip toes in Troubled Asset Relief Programs; not for this bank, any need to help itself to government bailouts, and give up equity in return.No, despite being the first bank to warn of subprime related difficulties, HSBC has come through all of this with its reputation intact. But, then again, if this crisis has taught us anything, it is that things are unpredictable.

The HSBC rights issue price is at a 40 per cent discount on the HSBC share price at the time it was announced. The snag is, at one point yesterday, shares in HSBC were down 20 per cent. If it suffers from many more falls like that, then the rights issue may look expensive, and that really would be catastrophic. HBOS suffered from that very problem, before it had to rush into the safety of the UK government’s arms.HSBC also has its shareholders who are not impressed. Banks need confidence. And if you take a pessimistic view on anything, it will look bad. So, if shareholders start looking at the worst all the time, confidence will just run away. If you value all HSBC assets at fire sale prices, then the bank is in trouble. If the bank was forced to sell off its assets in a hurry, then it would probably head into oblivion, or somewhere close by. But the point is, HSBC does not need to do these things.

In fact, as was argued, HSBC is, if you take a different view, in an incredibly strong position. With the cash from the rights issue, its balance sheet will be strong. Many of its rivals are government owned, or at least virtually government owned, and this means they pose less competition.Right now, a bank like HSBC, with its tentacles spread around the world, especially in China, has the opportunity to carve itself a massive share of the global market.It you look at things from a pessimistic point of view, HSBC is potentially in big trouble. If you look at things from an optimistic point of view, it is sitting on extraordinary opportunity.

It’s like that with the markets. Back in 2003, the collapse in markets represented a new buying opportunity. If you had bought in March 2003, and somehow, via remarkable prescience, sold in the spring of 2007, you would have made a very nice profit. The cheaper stocks fall, the greater the opportunity.

But then again, if we really do plunge into global depression, markets could fall a lot further still.But, honestly, there are good reasons to think depression can be avoided. For one thing, it seems that many of the world’s most influential people have learned the lesson of the 1930s. In all the talk of doom and gloom, very little reference is made of the fact that the world’s ability to produce has reached unprecedented heights, too.

Alternatives to cash investments

2009-02-06T03:31:00.000-08:00

Firstly please accept our apologies for not posting items to this blog since the turn of the year. We have been fully occupied reviewing clients investments and following market events. We are certainly in for a challenging yet exciting 2009 and as a starter for ten here are our current views on investment alternatives for cash deposit based funds. With interest rates at all time lows and market positions offering tremendous potential now could be the maximum point of financial opportunity for many.

With interest rates at all time lows and further reductions in base rate almost certain it explains why we have been inundated with requests for alternative forms of investments. The requests are simple; higher returns without increasing risk (significantly), the solutions are more difficult to find. However difficult is not impossible hence the purpose of this letter.

As I say we have received numerous requests from clients with different sets of priorities and ambitions. Therefore in order that we can cater for the various requests I list below several options that are currently proving popular with investors.

Firstly a quick reality check on just how low interest rates have fallen. A quick survey tells us that cash ISA’s from several leading banks have fallen as low as 1% (before the recent 0.5% cut) and when you consider inflation is still above 3% funds in these accounts is actually depreciating in value. Here are few examples: -

Alliance & Leicester Easy ISA = 3%
HSBC Cash e-ISA = 2.8%
Abbey Direct ISA = 2.3%
Clydesdale Bank Cash ISA = 1.5% - 2.75%
Royal Bank of Scotland Cash ISA = 1.15% - 2.20%
Lloyds TSB Cash ISA = 1%

Enough bad news let us move on to the solutions……….

Corporate Bond Funds:

Corporate Bond investment is proving extremely popular as investors strive to secure higher yield investments to replace lost income from falling interest rates. In terms of risk weighting Corporate Bond sits one step up from cash but with anticipated returns ranging from 5% to 8% the potential additional benefit is outweighing the additional risk for many clients. It is widely predicted that Corporate Bond funds will prove to be one of the best performing sectors in the current year.

Corporate bonds are issued by companies to raise capital. They are an alternative to issuing new shares on the stock market (equity finance) and are a form of debt finance. A bond is basically an IOU - a promise to pay back your original investment (the 'principal') at a maturity date, plus interest payments (the 'yield' or 'coupon') at regular intervals between now and then. The bond is a tradable instrument in its own right, which means that you can buy and sell it during its life, and its value will tend to rise and fall as interest rates change.

For private investors, the safest way into corporate bonds is to invest in a corporate bond fund which spreads the money from lots of investors across lots of corporate bonds, thus diversifying the risk. As with all funds, you need to choose the one that matches your investment objectives and risk profile. Some bond funds aim for 'high yield' (i.e. high income) but to get it they may have to invest in riskier companies. Other bond funds will aim for more modest income, and will only buy bonds of the most dependable blue-chip companies.

We believe Corporate Bonds offer an ideal alternative to cash based investments, particularly Cash ISA monies, and we have identified several core funds to recommend to clients that we believe will offer quality yielding products backed by capital growth potential.

In a number of cases we have been able to secure Corporate Funds with no initial charge and no exit charge making the complete package highly competitive and attractive.

Capital Protected Plans: -

With market positions offering exceptional value many investors are keen to take advantage of this point of financial opportunity but perhaps are fearful of the associated risk with so much doom and gloom still in the daily news.

Capital Protected products might be the solution for this style of investor as long as you are willing to tie up the funds for a number of years, normally 5 or 6. Capital Protection offers you the peace of mind to know that your investment is protected.

There are currently a multitude of Capital Protected plans open to investors reflecting the fact that investment houses believe now is a good time to be investing, but with protection wrapped around the investment. The key is finding the plan that is best suited to you and that will depend on your specific investment ambitions.

Typically a plan will offer at least 100p per share, regardless of the markets, plus 150% of any positive Final Performance of the Index it attaches to.

We believe Capital Protected plans will appeal to those investors whose objective is to achieve capital growth linked to any positive performance of the index over the investment term in the understanding that the investment will be 100% protected up to a fixed maturity date.

Accordingly investors will benefit from Capital Protection and from the potential growth of the markets to receive a return superior to an ordinary deposit account. We believe Capital Protected plans are attractive alternatives for investors looking to re-coup positions or re-energise flagging investments, particularly equity based ISA’s.

If Capital Protected Plans are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Distribution Funds:

Moving up the risk scale ladder a little further (but still on the bottom rungs) Distribution Funds have proven themselves time and time again in and out of recession.

Distribution funds are structured so that capital growth and income can be separated from each other. In most cases, a significant part of the portfolio is invested in fixed interest stocks (corporate bonds, gilts etc.) to provide the underlying income. The other main investment is usually in income-bearing equities to provide further income and give capital growth potential.

Saying that, there are some major differences between funds, which need to be recognised. Such as inclusion of property, UK or global based, bias towards equities or fixed interest, etc.

Distribution funds are typically used by investors seeking income. However, as income can be reinvested, they can also be suitable for investors looking for growth on a total return basis. There are number of income withdrawal options available to investors, these are:

A percentage of the initial investment paid monthly, quarterly, half-annually or annually. Under this option all distributions are reinvested to purchase additional units and then regular withdrawals are made by cashing in units. By using this method the 5% rule can be utilised to maximise the tax deferral facility and in most cases ensure tax free income payments.

A specific cash amount on a regular basis. This works very much along the same lines as the above option. It should be recognised that in adverse market conditions, both this option and the above option are likely to erode capital from the fund.

The full distribution where investors take all distributed income, generally on a six-monthly basis. The withdrawals will vary depending on the size of distributions but should provide a rising income over the long-term, as the fund benefits from capital growth. In addition, these withdrawals are taken from the distributions and so units are not cashed in.

Deferred income (no withdrawals) where income is automatically reinvested and used to purchase additional units in the fund chosen. Generally an investor can choose to take an income at any time in the future.

As I say Distribution Funds, whether deferred or income producing, have proven themselves time after time with the fixed interest element of fund offer some protection through these troubled times and the equity element offering real growth potential particularly given the current market positions.

If Distribution funds are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Investment Bonds:

Finally we have traditional investment bonds offering no protection but unlimited upside potential. Through the ability to spread investments over a wide range of funds covering assets classes and sectors investors can take advantage of the lowly market positions yet maintain a degree of caution through diversity.

With unlimited funds covering all asset classes, sectors and geographic areas available through investments bonds with no initial charge and no exit charge exciting opportunities arise for the more risk orientated investor and we would be pleased to consult, review, research and recommend individual solutions for the bolder investor.

If Investment Bonds are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Pensions:

Don’t forget about pension contributions. Now is probably one of the most attractive times to make additional pension contributions. What other form of investment guarantees a 20% (or 40%) immediate return on capital with or without risk depending on your fund selection. The tax relief associated to pension contributions is more attractive than ever and should not be dismissed lightly.

When you add the tax relief to the potential growth through cheap markets and the enhanced flexibility options now available within pension contracts we foresee pension arising from the ashes as a highly tax efficient and productive form of investing.

If Pension Contributions are of interest to you please tick the appropriate section on the reply slip and we will be pleased to submit a detailed recommendation for your consideration.

Summary:

If no one solution meets your requirements or a number appeal to you then we can “pick & mix” to arrive at the most efficient solution for you. It is however a fact that interest rates are at all time low’s and alternative investment solutions whether for income, growth or a bit of both must be at the very least be considered. We believe we have come up with a number of practical and attractive solutions and we would welcome the opportunity to advise you in this regard.

If our comments are of some interest to you and you would like to explore matters further please contact us at ifa@ferguson-oliver.co.uk and we will contact you to progress matters further. As always our advice is free of charge and you are under no obligation or pressure to pursue matters further if you do not wish to do so.

Thank you for taking the time and effort to read this letter.

Festive Greetings

2008-12-23T01:33:00.000-08:00

The Management and Staff wish all customers old & new a very merry Christmas and a happy New Year.

2008 has been one of the most difficult and testing times in recent memory. Whilst time will only tell whether 2009 will be any kinder we are starting to see the first signs of stability returning to the market.

With markets normally six months ahead of the economy whilst it may take some time yet for the economy to recover indications suggest sentiment is swinging towards buying back in while prices are low.

Whatever the future holds we hope everyone has a great time over the festive period.

2008-12-15T06:53:00.000-08:00

Fidelity fund guru Anthony Bolton believes the new year will usher in a fresh bull market for investors. Bolton says that although this is the worst financial crisis he has seen in his 30 years in fund management, all the indicators like cheap valuations show that the bottom is there.

He says that a bull market is likely in the first quarter of 2009 followed by a period of consolidation.

Bolton, who ran Fidelity's flagship special situations fund from 1979 to 2007 has also called the bottom of the hugely troubled commercial property market.

He says: "Prime property is yielding 7.5 per cent at a time when there is a shortage of yield elsewhere. There are risks, but long leases protect you in the short term - unless the tenant goes bust. Some will go under but even if you lose 5 or even 10 per cent of your income, that's still 90 per cent that's protected for the next 10 years.

As for next year's rally Bolton tips financial stocks and consumer cyclicals to lead the bounce. He also believes owning a basket of banks is the best option.

"In 28 years I have nearly always been underweight in banks. They are opaque and impossible to analyse so I have generally been against them. However, sentiment has become extreme and governments have strengthened their balance sheets. One or two may have to raise additional capital, but that is why you should own a basket."

Cost to live !

2008-12-08T08:25:00.000-08:00

A typical eighteen year old will need just over £1.7m to sustain an average standard of living until death, according to a survey by Axa designed to shock people into saving.

The study also found, a 25 year old will need just over £1.5m in today’s money, a 35 year old, £1.25m, a 45 year old, £0.9m and a 55 year old £0.6m to maintain an average standard of living.
Axa surveyed approximately 2,100 people to calculate the monthly expenditure of everything from accommodation, transport and groceries to pets and holidays.

The average person spends about £240 on groceries, £68 on going out, £24 on hobbies and gives nearly £10 to charity every month. With essential outgoings added, this amounts to an average annual expenditure of approximately£28,455, worryingly higher than the median average annual pay for full time employees, of £24,908.

Axa believes better financial planning could reduce the average total expenditure considerably; calculating people could save as much as £737 by focusing on their money worries, while regular monthly reviews of finances could shave tens and thousands of pounds off lifetime expenditure.

The firm has launched a suite of financial planning tools as part of its My Budget Day campaign. The tools are designed to help people manage their day-to-day finances and to plan for a comfortable retirement and are available from: www.axa.co.uk/mybudgetday

Mother of all bear rallies

2008-11-28T06:15:00.000-08:00

Here is an interesting take on current events. I must admit to some sympathy with the writer as I can identify with signs that managers are starting to find value in certain markets.

"Earlier in the week we read that Barton Biggs, the former market strategist for Morgan Stanley for 30 years, is warning the ‘mother of all bear market rallies’ is going to happen imminently. So far his timing has been spot on with the Dow Jones Industrial Average Index rising 16% since the intra-day lows last Friday.

Some market professionals I’ve spoken to agree with this view and are looking for a move 30% higher from the recent lows to the end of December. If we equate that with the recent lows on the FTSE, we could be looking at somewhere between 4,800 and 5,000 points, about 675 points higher than Thursday’s close."

Only time will tell but for those investors keen to catch markets at or near the bottom now might just be the time to start considering suitable investments that meet individual risk profiles and investment outlooks.

We have a number of such opportunities on the table and would be pleased to discuss them with any interested parties.

JPM Natural Resources

2008-11-24T12:42:00.000-08:00

A few investors might be interested in reading the most recent fund managers update in resepct of the JPM Natural Resources Fund.

One of the most popular funds in recent years it has hit hard times of late but the medium to long term outlook looks brighter.

Click here to read more.........

http://www.jpmorganassetmanagement.co.uk/vgn-ext-templating/jpmf-extensions/StaticFiles/English/Webcasts/JPM%20-%20Natural%20Resources%20Fund%20Summary%20[11%20Nov].pdf

Beware Cold Callers !

2008-11-18T08:41:00.000-08:00

Cold called and offered a red hot share tip? Be very aware, it could turn out a lot hotter than expected. So hot, in fact, that the shares (and your money) vaporise in the intense heat of this boiler room trading scam.

You may be disenchanted with current investment opportunities and performance in these credit-straitened times, but don't let your enthusiasm to reassess and realign your investment portfolio turn you into the perfect prey for a smooth-talking, ever so convincing salesperson.

Yes, we are in a bear market and an exciting share offer will always have a 'grass looks greener' feel to it. Yet that grass will not only be just as tough to mow, it could also dry up and become your very own financial dustbowl. Boiler rooms are high pressure sales firms, unauthorised and often based offshore, that specialise in worthless investments. They target investors illegally, offering overpriced, non-tradable and often non-existent shares. Collectively UK investors donate upwards of £500 million to such hucksters each year. The average individual loss is around £20,000, although the Financial Services Authority (FSA) has reported a case where the investor lost £500,000 and it believes many others are too embarrassed to admit being swindled by boiler room activity.

Not that it would do them any good. Because such sales outfits are unauthorised, the Financial Services Compensation Scheme cannot offer redress to victims of boiler rooms. Hence the FSA has now teamed up with the main company registrars to warn investors. Together with the Institute of Chartered Secretaries and Administrators (ICSA) Registrars Group, the FSA is urging stockmarket-listed companies to include warning leaflets about boiler room scams in their communications with shareholders.

Shareholder lists are sold and resold by boiler rooms, although from October this will be more difficult to implement; new Companies Act provisions will force buyers of lists in stockmarket companies to state the purpose of their purchase. "This won't stop the old lists circulating but they will become less valuable as time goes on," says Andy Cotter, chair of the ICSA. "No company wants its register used to target unsuspecting shareholders with high-pressure sales pitches."

What you should do: If you pick up the phone and get some smooth patter about the benefits of investing in shares of a company you've never heard of, get the caller's company name and say you will phone back. Ignore protestations about 'time is tight and the offer could be withdrawn.'
Then check the FSA website to see if the company is authorised or whether it is on the black list of some 500 known financial rogues. Report to this City watchdog any firms that cold call you offering to sell shares. The FSA in the past 18 months has taken action against seven firms operating as boiler rooms or working on behalf of such scams. Its recently updated leaflet explains how to identify and what to do about them should they contact you.

The message should be clear: don't buy from a boiler room unless you really do have money to burn.

Inflation, Deflation... Where next

2008-11-06T03:38:00.000-08:00

First it was oil, now it’s the goods we buy on the High Street. It’s funny. While all around doom and gloom is the staple diet, the best bit of economic good news we have received for a very long time has barely been noticed. The latest data out from the British Retail Consortium (BRC) revealed that both food and non-food inflation turned negative in October.

The annual figures are still well into positive territory, of course, with the BRC recording the annual rate of food inflation at 7.5 per cent. Non-food annual inflation stands at 0.7 per cent and the combined rate at 3 per cent. But you need to bear in mind, 12 months’ worth of data make up the annual figures and, therefore, it takes a year before changes work their way out of the system.

Annual food price inflation peaked in August, hitting 10 per cent, whereas month on month food inflation peaked in the previous month when prices rose by 1.9 per cent in just the one month. But ever since then, the trend has been down. Food inflation rose by just 0.3 per cent in August and turned negative in September. But October was the first month which saw negative month on month food and non-food inflation for a very long time. Overall, prices were down 0.1 per cent in the month, the first fall this year. But, expect the decline to accelerate. We could be just six months or so away from seeing the annual rate of food and non-food inflation go negative.

That the next year or so is going to be tough, is patently obvious. But for those who can hold on to their jobs, affordability is set to improve significantly. Every penny will stretch a lot further.
Falling food and oil prices will also afford the Bank of England greater leeway in cutting interest rates – of course. By the time you read this, you will probably know how much the Bank of England has chosen to cut interest rates.

The time is now right to cut rates in a big way. The UK’s central bank could easily justify knocking 1.5 percentage points off interest rates. It probably won’t, a half a per cent is far more likely, given the bank’s usual cautious approach. In any case, the full extent of rate cuts won’t be passed on by the banks. But the trend is clear. Interest rates, and in turn the monthly amounts mortgage holders have to fork out for their payments, are all set to fall.

0% Interest Rates !

2008-10-30T04:59:00.000-07:00

Zero interest rates are on their way. They could be days off in Japan, weeks off in the US and, maybe, months off in the UK. The decade beginning in the year 2000, and finishing in 2010, may be known as the noughties for more than one reason.

Yesterday, the Fed cut interest rates to 1 per cent. And its chairman, Ben Bernanke dropped a big hint they will be cut again. “Downside risks to growth remain,” said the official Fed statement, and then talked about “levels consistent with price stability.”

Rumours that the Central Bank of Japan is set to cut rates back to zero have been doing the rounds for a couple of days now. In fact, it is these rumours that have lain behind the surge in stock markets around the world over the last couple of days, with the Dow enjoying its second-highest daily rise ever, on Tuesday, and the FTSE 100 its third-best day ever, yesterday.

And what about the UK? Yesterday, Capital Economics said: “Extraordinary circumstances require extraordinary actions. With the current recession likely to be deeper than that in the early 1990s and the credit crunch impairing the effectiveness of monetary policy, we now expect UK interest rates to fall to an all-time low of just 1 per cent.”

Earlier this week, former MPC member and extremely illustrious economist, Charles Goodhart, told Channel 4: “Interest rates will go down from now, by how far and how fast nobody knows… They could go to zero. They went to zero in Japan in the 1990s when the Japanese had a recession or depression which went on for a long time and was quite severe.”

Irish Government Extends Guarantee to I of M.

2008-10-27T09:08:00.000-07:00

Further to our previous postings in relation to the security offered by The Irish Government we are pleased to see today's announcement lifting some of the uncertainty floating around just now.

The Irish government has confirmed four banks and two building societies will be protected by its bank guarantee scheme safeguarding offshore savers in the Isle of Man.

Irish Minister for Finance Brian Lenihan signed the order on Friday night after the six lenders agreed to be in the scheme, which will protected 100% of depositors’ savings. The guarantee makes the protected Irish banks more attractive than other Isle of Man deposit takers, who are only covered for the first £50,000 by the Manx Depositors Compensation Scheme. ‘The guarantee has as its central objective the removal of any uncertainty on the part of counterparties and customers and gives absolute comfort to depositors and investors that they have the full protection of the state,’ said Lenihan. The four Irish banks with Isle of Man branches protected by the scheme are:

Anglo Irish Bank Isle of Man
Bank of Ireland Offshore
Irish Permanent International
Irish Nationwide Isle of Man

Annuity Rates Set To Fall

2008-10-23T08:45:00.000-07:00

We have seen annuity rates decouple from bond markets in recent months, as annuity providers have held back from passing on the full extent of rising yields. The benchmark rate for a 65 year old male is currently 7.7 per cent, we think that there is a strong argument for rates dropping well below 7 per cent over the next year.

Along with gilts, corporate bonds form the underlying investments used to pay annuities. With the credit market seizing up, the yields on corporate bonds have spiralled to unprecedented levels and this in turn has allowed insurers to increase annuity rates. Government measures to inject liquidity in to the market and kick start lending again will hopefully bring interest rates down. When the market does start functioning again, bond prices could jump as yields drop back. This is likely to bring downward pressure to bear on the annuity rates.

In addition, we believe that increasing longevity is constantly forcing insurers to lower rates as annuities will have to be paid for longer. Annuities are also undergoing a rapid evolution towards an individual pricing approach where the actual rate is dependent on the investor’s health and lifestyle, as seen by the rise of enhanced and postcode annuities. This drags down rates for the healthy and those living in more affluent neighbourhoods.

In as much as it is possible to be certain about anything at the moment, there appears to be a strong possibility that annuity rates will fall over the next year.

Value in Corporate Bonds ?

2008-10-21T01:15:00.000-07:00

BlackRock's head of credit Paul Shuttleworth believes corporate bond default rates are likely to rise despite the UK Government's huge recapitalisation of banks improving sentiment towards the asset class.

However Shuttleworth thinks the current yields on corporate bonds are far too pessimistic and that the asset class is offering good value over the medium term. Shuttleworth said that a proliferation of new bond issues from financial companies was now likely as until recently the prevailing conditions had made the issue of new bonds almost non existent, but the deteriorating economic environment would make further company failures and subsequent defaults more likely. He said: 'Investor sentiment changed for the better once it became clear that the UK Government's bank recapitalisation would leave bank bondholders intact.'

'As the British lead has set a global template it is likely that sentiment will continue to improve but the flies in the ointment are that we will see financial institutions issue more bonds in the future - which they haven't been able to do until recently. With a slowing global economy company failures and subsequent bond defaults may increase.'

Despite this, Shuttleworth believes the corporate bond sector has stabilised since the recapitalisation and that the current default risks are priced in. He said: 'Historically the worst cumulative default rate for 'investment grade' bonds (BBB and above) over any 10 year period since data started being collected in the early 1970s, was 5.2%. The average default rate over any 10 years is actually 2%.'

He added that the yields currently being paid out annually on corporate bonds were pricing in a 50% default rate over the next 10 years for financials, and 30% for non-financials which he sees as hugely pessimistic. 'The pessimism in the pricing of corporate bonds is overdone - over the medium term they offer real value

2008-10-20T01:09:00.000-07:00

It has been reported in recent press articles that Norwich Union may abandon plans to pay windfalls to its policyholders after the stock market slide slashed the value of its spare capital. The pay-outs were to be made by NU's parent Aviva from surplus capital that had built up in its with-profits funds over many years. Last year, the insurer approached policyholder advocate Clare Spottiswoode to help decide what to do with the spare cash. Spottiswoode lobbied hard for significant payouts to policyholders and Aviva said in July it would hand out windfalls averaging about £1,000. But the plan could be scrapped after the crash in stock market values hit Aviva's capital assets and eroded the pile of surplus capital.

We will continue to monitor the position and keep clients informed however in the interests of protecting terminal bonuses and in the knolwedge that TB's are already starting to fall due to the prevailing economic climate more immediate action may be necessary in certain circumstances.

Half of UK adults have no pension plan

2008-10-20T01:02:00.000-07:00

Nearly half of adults in the UK are failing to contribute anything towards a pension scheme, despite the continued trend of people living longer. New research shows that 46pc of the working population aged over 18 are not setting aside any money for pensions. A similar number (45pc) of people aged between 55 to 64 are also not currently paying towards their retirement funding.

The Society of Pension Consultants, the representative body for the pensions industry, which commissioned the research, said it was "worrying" that virtually half of the working country is failing to save towards retirement, especially as the credit crisis had eaten into the value of homes.

What Next

2008-10-15T06:11:00.000-07:00

Having returned from a weeks vacation I am now busy trying to bring myself up to date with the events of the last few days albeit the news was never that far away between e-mails and television. Of all the numerous articles appearing in our in-boxes the following link is perhaps one of the more opinionated I have had the pleasure of reading. As we grapple with the events of the past days and look for signs of where things are moving next we will try and post as many of the "professional" articles we come across for those interested in finding out more from those directly involved in market decisions.

To read more follow this link: -

http://defaqtoblog.com/iabn/2008/10/15/what-next/

A different prospective

2008-09-16T07:53:00.000-07:00

As we trawl through the heaps of reports winging their way into our in-boxes, in an effort to make some sense of the last few days, I append below some of the more interesting comments for those clients who can summon the courage to refelct on events.

Defaqto say "Speculators, who for so long pushed up the price of oil, pushed it down.

In all the hullabaloo of recent months, two laws have been forgotten. Rule 1: In the long-term, price is determined by demand and supply. Rule 2: Demand falls with price. (Or as an economist would say, the demand curve slopes downwards from left to right.)

In the short-term, demand, for oil and, as it also appears, for houses, is quite inelastic – meaning that demand is not affected by price. But in the long-term this is not the case. As price goes up, demand stays put, the economy suffers. Then demand falls, and price begins to fall too. The economy recovers.

Some said that the bail out of Fannie Mae and Freddie Mac marked the turning point of the credit crunch. Events of the last few days have surely shown how wrong this view was.

Some said the failure of Lehman Brothers heralded the turning point. Yesterday’s fall in shares surely shows how wrong that piece of analysis was.

But yesterday’s fall in oil is a different matter altogether – and provides the single biggest reason to expect recovery."

Edward Bonham Carter of Jupiter comments: -

"These events are likely to shake confidence in the financial system and lead to a fall in inflation. One would expect economic confidence to take another knock as a result, and the probability of interest rate cuts to increase. Without rate cuts, the coming economic recession will be significantly exacerbated.

History will judge whether the Fed's decision not to save Lehman proves to be the correct one. Such inaction suggests that for the effective operation of shareholder capitalism, firms must be allowed to fail.

The authorities are placing belief in the proposition that an investment bank such as Lehman can go out of business without triggering widespread panic in the rest of the system. At the same time, it remains the key role of authorities in the US, Europe and the UK to ensure that while shareholders are exposed, individual depositors and the banking system are protected. Confidence in these must be maintained above all else.

As yet, it is too early to establish what the full consequences of these events will be. However, the stock market is likely to remain volatile and investor confidence fragile as the true impact of these events and the wider effect on economic growth is assessed.

However, while the investment environment remains volatile, investors should recognise that it is in these sort of conditions that significant investment opportunities can emerge. As such, they can present a buying opportunity for those prepared to take a long term view. It is also in such volatile conditions that the practice of drip-feeding investments into the stock market through regular savings schemes can prove beneficial."

After studying column after column it is clear that going forward the outlook remains extremely difficult to call. Over the next twenty four hours we may have further significant events from policy makers with aggressive US interest rate cuts now being priced in by markets, starting from tomorrow’s FOMC meeting. The market has moved to a near certainty that rates will be cut. If this is the case, it is likely that the Bank of England and the ECB will follow, in part to avoid currency overvaluation and even bigger internal economic problems.

Liquidity is being pumped into the financial system but, like similar previous occasions this and last year, it’s not enough – risk and borrowing aversion remains at high levels. In the short term, it is likely that risk assets will continue to suffer while safe haven bonds will benefit.

In summary we believe that the short term will be tough for equities and credits and there is a good chance of further downside in prices in coming days. Lehman Brothers has proven that the bar for those ‘too big to fail’ has just been raised.

For the majority of our clients we are still recommending "sit tight" as long as investment are diversified across asset class and sectors. We appreciate the concerns everyone is facing just now.

Bouncy, Bouncy Oil

2008-09-10T03:55:00.000-07:00

Oil was down again yesterday, falling to just $102. That was the lowest price since April and $43 dollars down on the year high.

For several months now, it has been predicted here that oil was near peak, and would soon begin a steady decline. But when the fall did occur a few weeks later, we were taken a tad by surprise. It had come so quickly. But then if the credit crunch of 2008 has one overriding characteristic it is that it has all happened quickly. House prices are falling faster than the most bearish commentators would have believed, so why shouldn’t oil fall as fast too?

There is plenty of evidence, discussed here on innumerable occasions, to show how demand for oil in the US, UK and Eurozone is falling. But then this morning, OPEC reduced oil supply. “All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” said an OPEC statement.

“Actions will be taken by members as soon as they can, that means in the next 40 days,” said the Algerian Oil Minister Chakib Khelil, who chaired the OPEC meeting. The parallels with the housing market are clear. The housing market has been characterized by both suppliers and customers running a mile, and we end up with a kind of race to the bottom, with price determined by which falls the most, demand or supply. At the moment, of course, there is a limit to how much demand for oil can fall. This black liquid has, after all, been the lifeblood of the global economy for the last one hundred years or so. Even so, it seems unlikely OPEC will cut supply sufficiently to stop further falls in oil in the longer term.

Yesterday, the black stuff fell by over $4; within a few hours of the OPEC announcement it was up a couple of dollars. But, markets do tend to overreact, so the trend for oil is still likely to be down. OPEC would, in any case, be making a huge mistake if they cut supply so much that the price went shooting up again. There are alternatives to oil out there, it will just take a lot of money to develop them. But once this money has been spent, and more and more of us use these alternatives, the cost will fall. New technology works like that. Once the initial development cost is funded, price falls rapidly.

OPEC’s best interests are not served by trying to prop up the price of oil. Take into account the threat of global warming, however, and it could be argued that the world’s best interests are served by expensive oil forcing the development of renewable alternatives.

Now is not the time !

2008-09-05T01:51:00.000-07:00

Now is not the time to ignore your life assurance and protection arrangements. In fact during these difficult times it is probably more important than ever that you can relax in the knowledge that your business and/or personal life can continue should the worst happen to you, your partner or your business partners whether by way of early death, illness or accident.

The credit crunch has had a huge impact on the lending market. Homeowners are trying to borrow more money against their homes, business against their business’s and lenders are increasing the cost of borrowing, as a result of falling property prices, finances are becoming a strain for many. For some, life insruance is offering a short term solution to their financial woes. Homeowners with young families are cancelling Life Insurance policies and hoping the worst doesn’t happen, businesses are also running unwarranted risks. This could not be a worse idea. Often a new policy will cost more because the older you are the more expensive life insurance becomes, you may also lose out on some benefits and features included in your current policy.

It is far better to use alternative means to reduce outgoing and think about sacrificing things that might be putting more of a strain on your finances thank you might think. For instance, smokers who quit buying a 20-pack of cigarettes a day this time a year ago would now be £3,108 better off. Due to the increased health risks from smoking, most life assurance companies charge smokers over 50% more than they charge non-smokers. Smokers who’ve quit should ask their life assurance company to re-evaluate their original policy and charge them the cheaper ‘non-smoker’ rate once they pass the qualifying period.

Cashing in life insurance is not advisable in such situations of stress like the credit crunch. Life insurance is vital. The first step to getting life insurance is to find out what you might already be covered for. If you have an endowment mortgage, for example, this will include an element of life insurance to cover repayment of the loan on your death. It will only cover the amount originally borrowed, so if you've extended the mortgage over the years then this extra borrowing won't be paid off by the policy. So work out how much money will be needed to pay off all debts, including the mortgage, credit cards, business loans and personal loans.

Also the life insurance market is one that you can rely on during the credit crunch. Fierce competition in the life insurance market has kept premuims at reasonable levels at a time when all other household bills seem to be going up. For example, a 32-year-old male non-smoker could buy £100,000 of cover over 25 years for less than £8 per month. Even £500,000 of cover over the same period would cost less than £30 per month at current prices.

Unfortunately, in an effort to save cash, homeowners and business owners are ditching life cover. Just 20% of new borrowers are opting for life cover to protect their loans. This is not advisable and just because everyone is trying desperately to save money, this is no reason. They are underestimating the importance of life insurance and see is as non-essential.

While it might be hard to make ends meet in the current financial climate, it will be a great deal harder for one person to manage the mortgage repayments on their own should their partner die in the future.

The same argument applies for business partners. With so much pressure on keeping the business ticking over imagine the additional burden were a senior or key member of staff to suffer a critical illness or die prematurely. Apart from the tragic consequences for the immediate family, what would happen to your business? Profits, clients, business loans, responsibilities to staff, plans for the future – would all be affected in one manner or another. Business protection gives you peace of mind knowing that if anything happens to your people, plans are in place to protect.

Time to fix that rate?

2008-09-02T03:40:00.000-07:00

With the base rate on hold for another month and some major lenders reducing their fixed rates, is now the time to switch to a fixed rate mortgage?

Probably not, say the experts who predict that fixed rates may fall further in the next few months and suggest that trackers are a better punt at the moment. Amongst the lenders that have already cut their rates Nationwide has dropped rates on all its mainstream fixed-rate mortgages and some of its tracker deals for new customers by up to 0.46 percentage points and Newcastle building society has lowered its two-year fix for borrowers with a 25% deposit from 6.20% to 6.12%.

Halifax also announced cuts of up to 0.15 percentage points to its fixed deals last week. Its five-year fix for customers with a 25% deposit has gone from 6.49% to 6.34%. BM Solutions, Bank of Scotland and Intelligent Finance, which are part of the same group as Halifax, have also made cuts as have both Cheltenham & Gloucester and Abbey.

Swap rates, the starting point that lenders use to determine the price of their fixed rates, have fallen dramatically over the last few weeks, coming down 0.7% from their peak a month ago. Even the bad news on inflation has failed to dent their progress downwards, and now lenders are, theoretically at least, able to offer better priced products. Although this sounds like good news there are still a couple of factors that might prevent fixed rates dropping straight away. Firstly, lenders have been looking to increase margin rather than market share, so have priced more profit into their products. Secondly lenders are concerned about being inundated with applications so they don't want to appear too competitive.

However with swap rates likely to decrease further with expectations that bank rate would be cut before the end of the year there may be more cuts in the next few months so borrowers that can hold out before locking into a new fixed rate might be wise to wait before they do so. Those lenders that haven't reduced their fixed rates yet also have some catching up to do. At the moment trackers and variable rates appear to be the best bet for borrowers looking for a new deal although these will be still be more expensive than most deals coming to an end.

Borrowers coming off fixed deals taken out two or three years ago will have to cope with a significant "payment shock" and find extra money each month whether they revert to their lender's standard variable rate (SVR) or remortgage. For example, someone who took out a £100,000 two-year fixed rate with Nationwide two years ago at 4.65% could see their payments increase from £570.70 a month to £682.55 when they revert to the base rate of 6.49% assuming they have taken out a repayment mortgage over 25 years. Nationwide has recently reduced the price on its tracker mortgages with the most significant movement on its lifetime tracker, coming down an impressive 0.36% to bank rate +0.98% for those with a 25% deposit - albeit with the introduction of a modest £599 arrangement fee. Meanwhile Woolwich has decreased the rates on its lifetime tracker product. The best rate available is now 0.69 per cent above base rate with a £995 fee and early repayment charges for the first three years.

However only borrowers with a decent deposit or plenty of equity in their property will be eligible for the deal as it comes with a maximum loan-to-value (LTV) of 60% although according to Council of Mortgage Lenders data this accounts for 50% of the mortgage market. Homeowners with a smaller deposit or less equity will be charged more, both by Woolwich and rival lenders.

Tightened criteria, such as insisting on a large deposit or large amount of equity, is a side effect of the credit crunch as lenders are becoming more fussy about who they lend to. Those with a slightly dodgy credit history or borderline affordability will also find it more difficult to get a good deal.

2008-08-22T07:35:00.000-07:00

More than 13 million people in the UK have never reviewed their pension plan, according to new research from Baring Asset Management, but it is vitally important for clients to keep tabs on their pot to help prevent a serious shortfall in later life.

Attitudes many people showed towards retirement planning have to change, such as keeping track of pensions and investigating options. It is important that people are keeping a check on how their preparations for the future are progressing and realise at the earliest possible moment that they have got a potential problem – when they are able to do something about it. If you realise a couple of years before you retire, it can be a bit too late.

People are losing out by not keeping their records up to date with their pension provider. People move addresses and do not notify pension providers, so they are not receiving their annual statement. Accessibility was not the only hurdle to pension awareness; apathy and a lack of trust also played key roles. In the past few years, the shocks we have had in the equity market, coupled with the adverse tax changes that have been made by Gordon Brown have generally made people more wary about pensions than they were before.

Barings’ research found that 13.6 million people in the UK had never reviewed their pension plan and a further 2.2 million had not done so in the last five years. And the results showed gender differences when it came to choosing funds, with 53% of women not knowing if they were in the default fund compared to 29% men. Marino Valensise, chief investment officer at Barings, said the low number of individuals reviewing their pension on a regular basis was ‘concerning’ and could spell a shortfall for those that were not lucky

2008-08-20T03:45:00.000-07:00

The explosive conflict between Russia and Georgia has exacerbated some fund managers’ reservations on investing in the country while others believe the region is offering historically cheap buying opportunities on the back of a further sell off.

Jupiter’s Eastern European Opportunities manager Elena Shaftan, who holds a position in Bank of Georgia within her Global European Euro Select Sicav, said the events of the past week would increase Western investors’ concerns over Russia but should ultimately have little long-term impact on returns. She said: ‘Having already suffered a 20% fall since May the Russian stock market has dropped a further 10% in the past two days on the back of the military action. It is clearly a very upsetting event that has led to indiscriminate market selling and Russia’s perception in the West will suffer as a result.’

Baring’s Citywire AA-rated Eastern Europe manager Dr Ghadir Abu Leil-Cooper also did not expect the conflict to have a significant long-term impact. She said: ‘The South Caucasus is not a major economic centre for Russia, and none of the firms we invest in have significant operations in the region.’

However, Aberdeen Asset Management’s head of global emerging markets Devan Kaloo reiterated why the group was underweight Russia. He said: ‘Recent headlines haven’t really affected our view of investing in the country.

'We have been significantly underweight Russia for some years, largely due to concerns regarding corporate governance, financial disclosure, treatment of minorities and the growing role of the state in the private sector.’

Global Insight

2008-08-19T03:18:00.000-07:00

On a similar theme to my last posting I attach a link to Standard Life's most recent market report.

Given that the report is set-out in a more presentable manner than most I thought it might be of some interest to those clients looking for some insight into where markets are heading, at least in Standard Life's opinion. http://pdf.standardlifeinvestments.com/exported/pdf/GS_Insight/GS_Insight_M08_08.pdf

Credit Crunch - Stage 2 ?

2008-08-15T04:34:00.000-07:00

It is just possible we have now reached that stage in the credit crunch when the bungee jump that is the global economy has reached the bottom for the first time. This does not mean, of course, that the world is set to boom again. The bungee jump has several more rises and falls yet before it finally stops. In any case, it all happens in very slow motion.

But it appears that something very significant is happening about now. There are good reasons to believe the credit crunch has reached a new stage – the last few days have seen some of the most dramatic developments to date. It was told earlier this week that the world appears to be re-aligning; well even stronger evidence has now emerged to support that view.

Has credit crunch stage 2 has begun. Demand for oil in the West is falling. And it is falling fast. Global demand is still growing, but by nowhere near as fast as was recently expected. It seems that at last we may be seeing the consequences of what happens when oil becomes too expensive.

According to the International Energy Agency (IEA), the OECD is on course to consume 48.6 million barrels of oil per day this year, compared to 49.2 million in 2007. Across the globe, oil consumption per day is likely to be around 800,000 barrels a day higher than last year. According to an article by Ed Morse, chief energy economist at Lehman Brothers in the FT earlier this week, last October, the International Energy Agency expected global demand for oil to be 2.1 million barrels a day more than in 2007. In other words, growth in demand this year is barely a third as fast as previously forecast. Demand from the OECD is 600,000 barrels a day less than last year.

Ed Morse said in the FT: “In our judgment, the IEA’s forecasts for emerging markets will turn out to have been far too optimistic by year’s end and OPEC countries will again complain about the inability of oil importers to guarantee sufficient demand growth to warrant investments in expanded production capacity.”

Mr Morse went on to expand on the theme that when prices get too high, demand falls. We start looking for alternative products. We start looking for efficiencies. Sometimes there are false dawns before a bubble bursts. The Dotcom boom saw many mini crashes followed by new peaks after the point when people started fearing a crash was inevitable. In 1928 and 1929, the stock market had several big falls that were then reversed before the crash. The current sell off in oil may well prove to be temporary, but sooner or later the oil and wider commodity bubble is set to burst.

But in the slow tick–tock of economic change, the path will be gradual. First to feel the benefit will be those who were first to feel the pain. It seems that just as the Eurozone and Japan have surprised all by seeing GDP contract before the US and UK, they are likely to recover first.

A place in the sun?

2008-08-14T04:13:00.000-07:00

And the rain in Spain jumps out of the drain.

Right now, things in Spain seem to be a lot like the UK, only more so. While we fret about inflation going over 4 per cent, in Spain the 5 per cent mark has been breached. Spanish inflation in July hit 5.3 per cent, from 5 per cent in June and a Eurozone average of 4.1 per cent. But the big concern relates to Spanish house prices.

Over the last ten years, Spanish house prices rose by 175 per cent, but in the second quarter prices fell, the first negative quarter in over ten years. Meanwhile, retail sales recently fell by 7.7 per cent, consumer confidence has fallen off the edge of a steep cliff and unemployment is rising fast. Now Capital Economics has revised its prediction for falls in Spanish houses – it now reckons prices will fall by a total of 25 per cent.

Its European economist Ben May said: “The downturn in the wider Spanish economy will not be short lived. With house prices set to fall sharply throughout 2009, we doubt that there will be any meaningful pick-up in GDP growth until the start of 2010 at the earliest.”

To fix or not to fix that is the question.....

2008-08-12T15:12:00.000-07:00

With the base rate on hold for another month and some major lenders reducing their fixed rates, is now the time to switch to a fixed rate mortgage? Probably not, say the experts who predict that fixed rates may fall further in the next few months and suggest that trackers are a better punt at the moment.

Amongst the lenders that have already cut their rates Nationwide has dropped rates on all its mainstream fixed-rate mortgages and some of its tracker deals for new customers by up to 0.46 percentage points and Newcastle building society has lowered its two-year fix for borrowers with a 25% deposit from 6.20% to 6.12%. Halifax also announced cuts of up to 0.15 percentage points to its fixed deals last week. Its five-year fix for customers with a 25% deposit has gone from 6.49% to 6.34%. BM Solutions, Bank of Scotland and Intelligent Finance, which are part of the same group as Halifax, have also made cuts as have both Cheltenham & Gloucester and Abbey.

Swap rates, the starting point that lenders use to determine the price of their fixed rates, have fallen dramatically over the last few weeks, coming down 0.7% from their peak a month ago.

Even the bad news on inflation has failed to dent their progress downwards, and now lenders are, theoretically at least, able to offer better priced products. Although sounds like good news there are still a couple of factors that might prevent fixed rates dropping straight away. Firstly, lenders have been looking to increase margin rather than market share, so have priced more profit into their products. Secondly lenders are concerned about being inundated with applications so they don't want to appear too competitive.

Equity release for cash poor predicted to grow

2008-08-08T05:53:00.000-07:00

Equity release is becoming increasingly popular. Safe Home Income Plans recently reported equity release business by its members rose by 14% to £275 million in the second quarter of 2008.

We are hearing more and more that pensioners and those approaching pensionable age are going to face poverty because they have not provided enough for their retirement. As a result I think equity release is going to be something we hear more and more about and the credit crunch had boosted the appeal of equity release products. At the moment a lot of equity release rates are better than mortgage rates.

A lot of people are very asset rich but cash poor and people have often got hundreds of thousands of pounds tied up in property but a very low pension equity release could be used not only to fund retirement but also to pay off other debts such as credit cards and mortgage repayments, and even to finance holidays.

It is however a specialist area of business requiring specialist and carefully thought out advice. We advise clients to take time and fully consider all options before rushing in to an equity release arrangement. That said when it does fit the bill and all aspects are fully considered it can prove worthwhile and offer clients options they perhaps had not considered previously.

Stamp duty in for a licking

2008-08-06T03:07:00.000-07:00

So the government is considering temporarily lifting stamp duty on the first £250,000 of the price paid for a home. So that means no stamp duty for homes less than a quarter of a million. And stamp duty on the value of the home minus £250,000 for the rest. It is a desperate gamble. The move will be expensive, and if it doesn’t work, it is money down the drain.

Actually, the move from the government will be the equivalent to it handing people buying properties an amount of money worth 1 per cent of the home’s value. Or if it is worth more than £250,000, £2,500. So that means buyers find themselves getting closer to the deposit they need all the quicker.

The snag is this. It is only 1 per cent. House prices are falling by more than that each month – it is not difficult to see why this may not work. In the last house price crash, John Major tried something similar – his move failed. But a more pertinent question is this. Why does the government want to do this? When house prices were rising too fast, it stayed clear. If you believe the current housing market turmoil is all a little odd, and solely down to this credit crunch which had nothing to do with us, then the move makes sense. If you believe house prices are falling because they are too expensive, and the credit crunch is down to lending that was too high, based on property valuations that were not sustainable, then reducing stamp duty would be a fool’s errand. It seems more likely that this move will just result in a short pick up in opinion polls, followed by the loss of taxpayers’ money – never to be seen again.

Quite frankly, the government would be better off using the money it would spend on reducing stamp duty, giving us all some kind of tax credit. Vince Cable, the Liberal Democrats’ shadow chancellor, said: “The falls we are seeing in the housing market are painful, but necessary, if homes are to become affordable once more for those not on the property ladder. “Ministers allowed house prices to get hopelessly out of control. They must not now artificially prop up the market for political expediency.”

And as for the markets…….. well they had another day of celebrating yesterday – although when you drill down and examine the reason why, it does seem a tad daft. The Dow Jones soared 331 points, one of its best days of the year. The FTSE 100 rose a healthy 134 points, the German DAX index was up 168 points. But the news in the US, UK and Germany was hardly the stuff booms are made of. In fact, you could say all three economies saw a catalogue of woes yesterday.

So why did markets celebrate? Well, for one thing, the Fed stopped talking about “continued increases” in energy prices, and merely said they were “elevated.” As for growth. Last time, the Fed said the downside risks to growth “appear to have diminished somewhat.” This time it merely said “the downside risks to growth remain.” All we can conclude is that the markets are only a slight guide to what is going on, but for those interested in what is actually going on whilst equities were performing well certain popular commodities had a tougher day with Oil down 2.16% and Gold also down 14.1%.

A year on - credit crunch

2008-08-05T02:43:00.000-07:00

What is a credit crunch?
A credit crunch is a situation in an economy where there is a sudden decrease in the availability of credit from banks and other lenders in order to reduce their risk. They may also increase the cost of obtaining credit by raising interest rates. It is a time of mild recession as the growth of debt if forced to slow, money is tied up in debt and not immediately available and there fewer liquid assets.

How did it start?
The global credit we’re now experiencing was caused when people with poor credit ratings (or “subprime credit risks”) were unable to meet higher debt higher repayments to US mortgage brokers due to rising interest rates. As more mortgages were foreclosed in America (so properties could be repossessed and then sold on for a profit), their previously buoyant housing market nosedived. These subprime losses started in early 2006 and continued to worsen throughout 2006 and into 2007.

Debts often get sold to other financial companies around the world to help create one of their sources of money which can then be invested or lent to people or companies. With little debt being paid off, financial institutions like mortgage providers and banks have been unwilling to take on more debt themselves and have little money to lend, and so these effects have spread around the world. Some firms, like Northern Rock, have been too dependent on this source of finance and have suffered as a result. There is quite some debate about whether the blame lies with consumers for putting too much on credit and overspending or whether banks are the culprits for irresponsible, high-risk lending.

How does it affect me and what can I do?
To make sure they are no longer at risk, these companies have made it harder to get loans, mortgages, and plastic by tightening their lending policies, charging higher fees, and increasing interest rates. This affects you as it means you may have fewer methods to get out of debt, spending may be cut, and your repayments may increase. The credit crunch even affects job seekers as companies are less willing to take on permanent employees in case they have to make job cuts.

Now is the time to check your credit rating because if you want to borrow money, get a mortgage or remortgage then banks are more likely to lend to someone who is not deemed as a risky investment.

Be careful with credit cards and balance transfers. Try to pay them off or reduce the debt on them as interest rates are high. It’s also more difficult to get cards for new 0 per cent rates now and any cards you get may have lower credit ratings as banks are unwilling to be as generous as before.

The main market where the credit crunch is felt is in housing. Now is a good time to either improve your home so it’s ready for when the market improves too, buy a home at auction which has been repossessed, or get a mortgage with the lowest rate possible if you’re coming to end of a fixed-rate mortgage. If you’re looking to sell your home to move or use the money to pay off debt then shifting to a smaller property or even until the economy recovers may also be a good idea.

A year on !

A year in to credit crunch and where are we at. If you want to read on I will refer you to the BBC webpage which I believe presents the clearest opinion on where we are at focussing on specific areas of concern:

http://news.bbc.co.uk/1/hi/business/7521250.stm

Property or Pension ?

2008-07-30T07:42:00.000-07:00

Falling property prices mean people may not get as much cash for retirement as they think and should consider making other provisions.

Research by Friends Provident found a third of consumers were depending on property or equity release for their retirement income. However, if property prices fall to the same extent seen in the last house price crash in the early 1990s, the average homeowner could see themselves out of pocket by £89,850 based on the Council of Mortgage Lenders’ average mortgage figures.

If house prices continue to fall, people could find themselves in serious financial difficulty with negative equity on their property and no personal pension. This is a dangerous situation to be in if people don’t have any savings or a pension to purchase an annuity for their ‘winter’ years.

Further research suggest 65% of UK consumers have yet to start saving for their retirement.
Research shows a potential crisis for some people in the future. People have depended on the property market in the past to fund their retirement, but with the uncertainty over the past few months and the current credit crisis they should not put all their eggs in one basket.

CARE: Assessable assets.

2008-07-28T08:55:00.000-07:00

There has been discussion for some considerable time as to whether the definition of life assurance for the purpose of the local authority means test includes an investment bond.

Indeed, in the past, some local authorities have sought to take investment bonds into account as assessable assets despite the fact that, strictly speaking, most investment bonds (other than capital redemption policies) are policies of life assurance.

The latest version of the Charging for Residential Accomodation Guide or CRAG as it is more commonly known (issued on 04/07/2008) confirms the clarification of the treatment of investment bonds which was first issued over four years ago. The guidelines are quite clear that where an investment bond is written as a policy (or policies) of life assurance, the value should not be brought into account as an assessable asset.

The key points are as follows:

• Investment bonds issued as life assurance policies should normally be disregarded as a capital asset, although capital redemption policies will be taken into account.
• “Income” from investment bonds will be taken into account when making assessments.
• Care should be taken to ensure that the deliberate deprivation rules are not invoked.

Investment Bonds are clearly a worthy consideration when conducting CARE financial planning exercises.

2008-07-24T00:49:00.000-07:00

Inheritance Tax has fallen under the radar for many following the Chancellor’s announcement in the 2007 Pre Budget report when he made a useful change to the IHT legislation for married couples and civil partners to ensure that they benefited from two Nil Rate Bands without the need for IHT planning on the first death.

This is a welcome change to the legislation but should not be relied on as the solution to a couple's IHT liability. Having easily introduced the legislation, it could just as easily be withdrawn or altered. Inheritance Tax (IHT) concerns more of us than ever before. Mainly this is because the sharp rise in the value of houses over the last 10 years (by far the biggest asset for most people) has been much greater than what is known as the 'Nil Rate Band'. Below this key level (currently £315,000) you pay nothing on estates you pass on when you die. Above it, you pay 40% tax.

There are a number of exemptions to IHT such as transfers between spouses or civil partners, gifts of up to £3,000 a year and gifts to charities and political parties. An individual’s IHT liability will also depend on other factors such as if he or she has made a will, and whether assets are wholly owned or jointly owned.

So get the basics right.

Make sure that assets are owned in equal parts by a couple, and that a valid will is in place which includes suitable trust arrangements to ensure full use of the Nil Rate Band on first death. Nonetheless many people will still have significant IHT liabilities, mainly because of the price of their home. Some will say ‘Do nothing, the children can pay’, while others will take measures ranging from simple life cover/savings plans to more aggressive tax planning strategies. There as many solutions as there are individuals with an IHT liability.

Generally speaking, the more straightforward the solution, the more flexible and robust it is. We have in the past seen very complex and convoluted IHT mitigation strategies that then fall foul of future changes in the law.

IHT planning is made more complex as it has a very long tail. The earlier you start to plan, the easier it is to implement, but the longer it needs to be monitored and reviewed. Flexibility in any plan is essential. IHT and trust legislation has changed significantly over the past few years and this rate of change is likely to continue.

Diesel fuel theft

2008-07-23T15:01:00.000-07:00

The number of incidents of theft of fuel from vehicles has doubled since the beginning of the year, it was revealed today.

"We are urging drivers to be more vigilant to both protect their own fuel stock and also report anyone who is trying to make money by selling on stolen petrol." The RAC offered motorists the following tips to help reduce fuel thefts:

1. Park in well lit and preferably off-road areas whenever possible - fuel thieves don't want to be seen
2. Ensure your fuel cap is locked and secure
3. Don't encourage fuel theft - if you are offered fuel you think could have been siphoned from another vehicle, call the police. Apart from it being illegal, the fuel could be contaminated, causing damage to your vehicle's fuel system - some companies place dyes and covert marking into fuels, so you could be tracked
4. Check fuel levels when you switch off your engine and check again before you use your car again - if the level is suspiciously lower than expected, look around the vehicle for signs of theft prior to turning the key
5. If you smell fuel when returning to your vehicle, or see a puddle of liquid, keep away from the car, and don't turn on the ignition. Call your breakdown organisation, and whatever you do, don't light a cigarette whilst you're waiting!

Diesel theft:

Meanwhile, West Yorkshire Police has reported a 265% increase in diesel theft. They advised hauliers to tighten up security of their storage tanks, vehicles and commercial compounds and urged the public to be vigilant and report anyone who offered them cheap diesel.

Officers said a wagon depot in Skelmanthorpe, Huddersfield, had lost thousands of pounds of fuel over the last 12 months, most recently being targeted by someone entering the compound and siphoning diesel. Kirklees Crime Reduction Officer Dave Whitteron said: "Although the police do everything they can to catch the culprits, we need the help of hauliers and motorists to prevent it from occurring." He recommended that owners of commercial compounds installed CCTV, security lighting and alarm systems, examined and secured fencing, and locked access gates out-of-hours.

Vehicles left in compounds should be fitted with lockable fuel caps and drivers should park hard up against a fence or wall to prevent easy access to the fuel cap for thieves, the officer said.

2008-07-21T04:22:00.000-07:00

(GRAPH: FTSE-100 Index At Midday Today - 21/07/08)

As we continue to reach out for any good news I was quite intrigued by the following article from JP Morgan Asset Management which along with several others of late are starting to come from other angles. Still early days but maybe the start of some light.......

"The start of the great summer bounce? Weaker oil prices were the spark for a resurgence in equities this week. It provided a catalyst for a summer rally from deeply oversold levels. Indeed, our short-term timing indicators suggest there is scope for some follow through on this rally. Stocks are oversoldvs. bonds, while positioning data show that investors have savagely cut their equity weightings. Indeed, according to the Merrill Lynch Fund Managers’ survey, they are now running the highest cash weightings in the history of the series(see COTW). Moreover, sentiment is very depressed, judging by low levels of risk appetite, while global sector breadth has fallen to levels that suggest a bounceis due. Add to that an encouraging start to the Q2 US earnings season and further signs that the US economy is set to grow by an annualised 2%-2½% in Q2, with signs that restocking could partially offset the post tax rebate slump in consumption in Q3 and the markets have taken the view that the world is not about to end…yet.

However, for us the key investment question now is whether thereis a case for buying equities for more than a summer trade. We will address this question in the coming edition of the World Market Outlook, which will be released on Tuesday. We have updated analysis we undertook in March, when the market last bottomed, using a checklist of conditions required to be met to justify a higher strategicweighting to equities. Then we judged that the strategic case for risk assets was building but was not compelling.

We have updated and expanded our checklist, looking for evidencethat: (1) the credit crisis is improving; (2) that banks have done the bulk ofthe heavy lifting in recapitalising themselves; (3) that central banks are willing and able to ease further to support activity; (4) that the economic outlook for growth and inflation has become clearer, with clarity on the extent of the economic slowdown and some visibility about the peak of the inflation cycle and realism regarding 2009 earnings; and (5) that investors are paid to take equity risk. As in March, we find that the strategic case is still not compelling, although there are glimmers of encouragement on the valuation and bank recap fronts. The great summer bounce could welbe underway and indices could run further into the coming weeks, but we would not chase it from a strategic perspective."

Still on the subject of Oil

2008-07-21T02:38:00.000-07:00

Citywire AAA-rated Nicolas Komilikis of Amiral Gestion believes it is incredibly unlikely that the oil price will go down and says $250 a barrel by next year is not beyond the realms of reason.

Contrary to the views of Dr Hendrik Leber of German boutique Acatis, who thinks there is a correction looming and that the oil price could fall to $50 in the next two years, and BlackRock CIO Bob Doll, Komilikis believes the oil price will remain high due to supply-side pressures and the strong depletion of oil reserves. 'We need to fill the decrease that is coming from depletion. This is why production hasn't increased since May 2005,' he says. 'Country by country it is difficult to see where the growth in production is going to come from,' he says.

He highlights decreases in Norway and Mexico and is also wary that Russia, which he says has been one of the only growth areas among non-OPEC countries, may have reached its peak in terms of production.

The Paris-based manager also believes it is unlikely that Saudi Arabia will spend a huge amount of money to increase production which could cause the price to go down. 'Saudi Arabia is happy to earn money and is aware that they have to keep oil in the ground for the next generation,' he says.

The AAA-rated manager cannot envisage significant falls on the demand side, particularly as oil-exporting countries such as Russia and the OPEC countries, are experiencing growing domestic consumption. 'Unless China goes into a major recession, it is difficult to see how consumption could decrease at a worldwide level,' he says.

It is a topsy-turvy world

2008-07-17T02:10:00.000-07:00

Yesterday was one of those busy days. The news came in from every front. In the world of banking, just for once, good news was the order of the day, but in the UK and Europe it was another day of worry.

Good news hit the price of oil too, as it emerged inventory levels in the US were much higher than expected, suggesting US demand for oil is falling fast. And from beyond the Great Wall, a truly promising set of data was revealed. Yet disaster also came and dealt a blow yesterday too, both in the US with news on inflation – which was just awful, and in the UK with the latest alarming job data.

In this day of pluses and minuses, the bulls won; at least they did in the US, and then in the Far East with markets seeing big daily rises. Is this the sign that bottom has been reached? Or merely one of those freakish days you get from time to time?

Market whispers...

2008-07-16T03:47:00.000-07:00

Oil sees biggest one day fall since early 1990s

From peak to trough oil fell by over $10 a barrel yesterday, and this morning when we took our daily reading stood at $138, that’s 6.8 dollar a barrel lower than the same time yesterday. (Prices from the New York Mercantile Exchange). Admittedly, in early June oil was cheaper than this. For that matter, until five weeks ago the current price would have been an all-time record. Even so, these days we need to make the most of falls like this, and ask, is this the first stage in the fall in the price of oil to more sustainable levels?

Strange days indeed, as plans develop for government to prop up house prices

“Strange days indeed,” said John Lennon once. Yesterday saw two new ideas for government intervention to prop up the housing market. The Council of Mortgage Lenders wants to see the Bank of England provide guarantees for mortgage-backed securities and covered bonds. Meanwhile, housing Minister Caroline Flint wants to see a scheme introduced to help would be first-time buyers save up for a deposit. Both ideas are interesting, but is it not the case they miss the point?

Inflation surges again, but wages go nowhere

And that devilish dilemma got a lot more devilish. Inflation is up again. Now the CPI rate is 3.8 per cent. The highest level in 11 years. The retail price index was up to 4.6 per cent, and even core inflation with alcohol, tobacco and food taken out hit 1.6 per cent.

Remortgage challenges

2008-07-16T03:36:00.000-07:00

If you are remortgaging today, you will face a new set of challenges. Until six months ago, anyone could arrange a mortgage, but today it is the job of a seasoned professional who specialises in mortgages. All the general criteria lenders use to decide who to lend to have tightened up, and competition has virtually disappeared, so there are fewer options available to you.

Perhaps the biggest issue is for the person coming off a fixed rate from two years ago. If they are forced onto a standard variable rate, they may see payments rocket by up to 64%. Even if they are offered the best two year fixed rate, they will face a deal 35% more expensive than the one they are currently on.

Nationwide announced recently that they are now moving to quality rather than quantity in deciding which mortgage advisers they work with. A specialist Independent Financial Adviser (IFA) will know exactly how to position your case with a lender and will invariably have clout because of their buying power. A fee-charging IFA is a better option as some lenders don't pay commission, and a financial adviser not charging a fee may be less likely to use them as they will not get paid.

Ensure you look at any mortgage package in its entirety. The rate is just one part of it and other add-on fees could prove expensive. They are often added onto the loan, and whilst that is less painful, it all adds up. Watch out for being tied into your mortgage beyond the normal term at a higher rate. It is a common ploy that catches many people out. Also, if you find a good deal, act quickly, as rates are disappearing almost as they appear.

Ask your IFA to negotiate with your existing bank. A good fish that's getting away is more attractive to a fisherman than the cost of finding another.

Investors decisions

2008-07-15T08:18:00.000-07:00

The phones have been hot with clients wanting to speak to their advisers about their investment options in light of the depressing news coming out of the marketplace almost on a daily basis. It really has been a torrid last few months.

I believe the main options are either to sit tight and ride it out or run to cash based funds to protect the capital and at least guarantee some form of return. Or you can of course do a bit of each and hold some funds and switch others into cash. It really all depends on where you position yourself. If you believe markets will eventually correct themselves and you are willing to sit tight until they do then riding it out is a suitable option as long as the funds incorporate a decent level of diversity. The old adage of turning paper loss into physical loss.

If, on the other hand, you are fearful of where markets are heading and do not want to experience any further falls then you should perhaps switch into cash which can be accomodated without incurring buying and/or selling costs depending on which investment vehicle the funds are currently invested in.

There are risks attached to both strategies. If you ride it out and markets keep falling then it might prove extremely difficult to recover positions. On the other hand if you run to cash and markets respond favourably you might miss out on any resulting sharp inclines. It is all about which is the lesser evil at the moment I am afraid.

Then there are guarantee funds many of which are being publiced within the wider press. I sit on the fence here. Insuring your investments as you would insure your car or house is a great idea however as with any form of investment insurance comes at a price. You must therefore weigh up the price of the guarantee against the potential benefit. One commentator recently likened the chance of calling on the guarantee as akin to rolling seven straight sixes - not very likely.

On a final note I should also mention that some funds might not let you switch out at the present time such as Property funds but your adviser will keep you right on this one.

We are happy to discuss matters with clients and administer changes where necessary.

Changing times: income drawdown

2008-07-11T08:09:00.000-07:00

Times change and people now want more flexibility and control over when and how they take retirement benefits. This is a complex area so do enlist the help of a financial planner who is qualified in pensions and investments as your guide. Provided you do not require a cast-iron guarantee for your income in retirement, and are comfortable to continue to invest your funds, then you can use what is known as Income Drawdown, or the Alternatively Secured Pension in official language. Think of this as adding a tap at the bottom of your pension pot. After taking a tax free lump sum, the tap can then be opened and closed (within government limits) depending on the level of income required. Before age 75, this can be up to 120% of the annuity available.

As people stop work they could be looking forward to a further 20-30 years of life. It is possible they will continue to work in some capacity. They may go part time or take up a new career. If they can open and close the tap on the pension fund, they can then draw down income to supplement any reduction in earnings from other sources. And they can do this on their terms rather than having to buy an annuity on an insurance company’s terms.Consequently clients are loath to make a decision on how they wish to draw an annuity at their date of retirement, for the rest of their life and cast in stone with no ability to review the decision. Income Drawdown offers far more flexibility about how much and when income can be drawn down from the fund.

The decision over whether to accept an annuity would be an easy one – if we knew the date we were going to do. However most of us cannot claim to have this insight and the bald fact about an annuity is that we die early, the insurance company gets to keep the fund.There can of course be some guaranteed period or joint life basis built into the annuity. But this means you have to take less income.But under income drawdown, the fund remains invested. If you die before you are 75 the entire fund can be repaid to your family or dependents less tax at 35%.

Another great advantage us that your fund would remain invested, so can still grow in size and offer the chance of an increase in maximum income in later years. Of course there is risk – the value of your fund can go down as well as up. But if are comfortable with that, Income Drawdown can be a very appealing alternative to buying an annuity in the right circumstances. But don’t forget to ask an expert for help.

Market comment

2008-07-09T06:08:00.000-07:00

I have long been a fan of Edward Bonham Carter Chief Executive of Jupiter Asset Management. He has spoken wisely through difficult times in the past. Here therefore are his most recent comments on the current market volatility for all investors to consider.

“Growing fears that the global economy is heading toward recession have resulted in heightened levels of stock market volatility in recent weeks. While stock markets have been enduring increased volatility since the emergence of the sub prime crisis in the summer of 2007, markets had staged something of a recovery between March and May this year as investors believed that the losses caused by the crisis were being fully quantified by financial institutions.

However, since mid May, investors have become increasingly nervous and in the past week a number of stock markets, including the Dow Jones and the FTSE 100, have formally entered bear market territory (defined as a drop of 20% from the most recent peak). At the time of writing, the FTSE 100 index is back to February 2005 levels, while the Dow Jones is down to around August 2006 levels at 11,230.

Key to these heightened concerns has been worsening economic and corporate data, including continued write-downs by banks in relation to subprime loans and a deteriorating outlook for house prices. The UK has borne the brunt of some particularly negative corporate data over the past week, with Taylor Wimpey failing to raise additional funds from investors and, together with rival builders Persimmon and Barrett Developments, announcing significant job cuts. In addition, the British Chambers of Commerce warned on Tuesday that the UK is facing a serious risk of recession in the next three months.

Inflationary pressures are also a major global issue, with investors grappling with uncertainty over the extent to which central banks can keep interest rates low in the face of rising food and oil prices. Emerging markets have been particularly badly affected. Inflation has reached 30% in Vietnam, 11.6% in India, 11% in Indonesia and the Philippines, 9% in Thailand and 7.7% in China. It is worth noting that the longer oil prices remain high, the greater the likelihood that manufacturing will become more localised. Shipping costs, for example, have almost trebled. In 2000, when oil was $20 a barrel, it cost $3,000 to ship goods from China to the West. At current oil prices, that has risen to more than $8,000. If the oil price hits $200 a barrel, shipping will cost $15,000. At that level, it could dent Asian manufacturing economies that have profited from globalisation.

We are still of the view that consumers are suffering a squeeze on their real disposable incomes. This is unlikely to be alleviated in the short term. The implications for markets as a result are that the number and severity of profit warnings will increase and stock market volatility will remain high until there is greater certainty on the outlook for growth, inflation and interest rates.

While one should expect corporate earnings in general to deteriorate, the balance sheets of many companies remain, on the whole, in sound condition. High quality businesses with strong management teams and pricing power will retain the ability to grow and gain market share from their rivals despite the poor economic environment. It is these businesses that our fund managers are focused on identifying. Such difficult periods can prove nerve-wracking for investors. However, it is worth noting that in an inflationary environment, equities remain a better place to seek capital protection than bonds. So, I believe investors should hold their nerve and view these sharp downturns in share prices as a long term buying opportunity - with the proviso that selecting the right investments remains key to achieving strong returns over the long term."

Nothing new or particularly startling I fear but it is straight from the horses mouth.

The average cost of retirement

2008-07-04T00:38:00.000-07:00

It has been revealed that the average cost of retirement in the UK is £413,000, according to the first Cost of Retirement report by Life Trust Insurance. Calculating an average life expectancy, an estimated rate of inflation and the typical weekly spend of a 65 year old; the report warns that this figure could easily double if you are the one in seven people who are predicted to live to 100.

The Chief Executive Officer of Life Trust said: "People are living longer, healthier lives. This is great news but only if people have the finances in place to really enjoy their post-career years. The combination of rising life expectancy and the impact of inflation over time can have huge financial implications, and this report allows us, for the first time, to see the scale of these trends."

IFA's preferred for retirement advice

2008-07-03T05:48:00.000-07:00

IFAs remain the preferred source of information about retirement planning and finances, above bank managers, solicitors and brokers, according to new research from LV=

The LV= State of Retirement report shows that people facing retirement in the UK are more confused than ever about the complexity of current tax legislation and rules. It also reveals that almost half (49pc) of people facing retirement have chosen to consult an IFA, compared to just 4pc who have consulted a solicitor or a broker, and 16pc who have consulted their bank manager. According to the research, seven out of ten (70pc) over 50s surveyed admitted they are uncertain about what legislation is correct, equating to an anxious majority of almost 7m people facing retirement.

Despite their doubts, the majority of those facing retirement (56pc) haven't taken professional financial advice at all about their overall financial situation, level of savings, and income in retirement, which equates to 5.5m people in around 3.5m households. Rodney Cook, LV= life & pensions managing director, said: "Our research shows that there is a massive opportunity for financial advisers in the UK. Around 3.5m pre-retired households are yet to take any professional financial advice, which is worrying as so many people facing retirement admit that they don't understand financial planning rules and legislation.

"And this is set to be a real growth area for the financial advice industry, as people are living longer than ever before, so will need effective retirement solutions to maximise their income. This research highlights how important the role of the independent financial adviser is in helping the over 50s in the UK to make the most of their money, as too few people are taking proper advice on how to manage financially in retirement. With an ‘anxious majority' of seven million pre-retirement people admitting they are confused by the legislation surrounding pensions and retirement planning, it is clearly vital that people take advantage of professional advice to maximise their retirement wealth, to help ensure their comfort in old age."

What more can we say.......

Come on the City.....

2008-07-03T01:09:00.000-07:00

As I am certain many of our clients are fully aware through Ken Ferguson we have a close affinity with our local football team Brechin City FC. Ken is currently Chairman of the club and dedicates a great deal of his "spare" time to the smooth running of the club.

On Tuesday night the club held's it's annual AGM and by all accounts it was a successful meeting with the club moving back in to the black. For a more detailed report of the meeting click here:
http://www.brechinadvertiser.co.uk/

From Ken's point of view he was delighted to be re-appointed as Director & Chairman and is looking forward to driving the club forward.

Ferguson Oliver are also proud to continue with the sponsorship of the Executive Lounge and we would take this opportunity to wish Manager, Michael O'Neil and the entire squad best wishes for the forthcoming season. Come on the City.........

Power of Attorney - Why bother

2008-07-03T00:49:00.000-07:00

In recent times we have, on numerous occassions, advised in situations when a Power of Attorney would have been most welcome to expidite clients wishes timeously and in some instances save considerable time, stress and un-neccesary trouble.

A Lasting Power of Attorney (LPA), which replaced Powers of Attorney in October 2007, becomes important in the event of you becoming mentally incapacitated perhaps through Alzheimer's disease or an accident. You need someone to help you make the decision and organise the special care that you may need and to attend to your finances as you will not be in a good state to sort this out yourself.

A Lasting Power of Attorney is a legal document that ensures someone you trust will handle your property affairs and/or personal welfare in the event of you becoming unable to sort out your own affairs through mentally incapacity or disability. If it is never used, so much the better. However, once registered it can be used straight away. This means that your attorneys can, for example, look after your affairs whilst you go on holiday or it can be stored away and only put into effect in the event of a loss of your faculties.

There are two types of Lasting Power of Attorney. You can choose one or the other or you can have both if you prefer:

• LPA for property and affairs: This allows your attorney to operate bank accounts, make investments, sign tax returns, and purchase property for your main place of residence. This power can be used before you lack mental capacity unless you restrict this power.

• LPA for personal welfare: This covers matters such as where you live and who should provide your care and medical treatment. This power does not extend to refusing life sustaining treatment unless your LPA expressly says so and can only be used after you lack the capacity to make the decision for yourself.

The time to do this is now. It really is too late to do it if the worst happens.

We all know we should make a will, but we all have need of a Lasting Power of Attorney as well. People can become unable to manage their own affairs at any stage of life. An accident or the onset of mental illness may make the everyday routines of paying bills, managing a budget and making financial decisions difficult and stressful and in some cases impossible; like selling your home or cashing in investments that need both signatures.

The LPA has been created to ensure that whilst you are of sound mind you can appoint someone you trust to look after your affairs if it becomes necessary and it also means you won't have to pay unnecessary expenses in the future. If you don’t have one, close friends and family (including your spouse/partner) do not automatically have the right to take over.

Instead, the Office of the Public Guardian will appoint a Receiver to act on your behalf. This process takes time whilst bills cannot be paid, affairs cannot be looked after and the cost of this process is expensive when compared to the cost of making your Lasting Power of Attorney. With an LPA in place there would be no Office of the Public Guardian charges or solicitor's fees payable and no annual fees charged by the court. This could mean a possible saving of many thousands of pounds over the years.

Benefiting from volatility

2008-06-30T15:39:00.000-07:00

Pound cost averaging is a fancy term which describes how you can build up a capital sum by investing a fixed amount of money in a particular investment vehicle (shares or fund) on a regular, usually monthly, basis. It is most often used with equity-based investments rather than bonds or fixed income assets that tend to be less volatile.

The key point about pound cost averaging is that you invest small amounts on a regular basis. This means that when prices are high your monthly contribution may buy fewer shares or fund units but that when prices are low your investment buys more shares or fund units. This continuous drip-feed method of purchasing your investment means that the average purchase price paid over any given period is going to be lower than the arithmetical average of the market price. It also instills a useful discipline in the investor, creating the saving habit. Pound cost averaging takes the worry out of investment decision-making - you do not need to panic when the price falls because you will merely be buying more of your chosen investment and because you are committing funds on a regular basis you need not worry about investing all your savings at the top of the market either.

While pound cost averaging can reduce your risk, it is a strategy that does benefit from volatile markets. The more the market swings the greater the benefit to somebody using pound cost averaging. For example, if the market swings down every other month then on each downturn you would buy more shares or units, which would be worth yet more on each upturn. In a bear market, pound cost averaging allows you to build up an investment poised to benefit from a recovery without having to worry about trying to work out when the bottom of the market will occur. However, the strategy will mean you would lose out on the best of the growth in a rising market, although this is a small price to pay for the added security that pound cost averaging brings to investment decision-making.

The diagram above shows how the share price of a theoretical investment (represented by the dots) can fluctuate over time. As can be seen from the bars, an investment of £100 per month buys a lower number of shares when the share price rises but a higher number of shares when the share price falls.

Something for a wet weekend

2008-06-27T08:17:00.000-07:00

With the government looking for 1,000 extra intelligence officers have you ever wondered if you have what it takes to be a real life James Bond?

The Psychological Research Foundation studied MI5's websites and recruitment advertisements to try to identify what personality traits and behaviours are associated with success in the Security Service. They then related those traits and behaviours to The Big Five Personality Model and created a short psychometric test to measure them.

Do you think you've got what it takes? Find out ... take the test. Plus, get a free in-depth personality assessment - delivered confidentially and immediately - for your eyes only!

Take the test now

Do I need a private pension

2008-06-27T07:27:00.000-07:00

It's an interesting question. Pensions have come in for a lot of flak in recent years: company schemes going bust or not having sufficient assets; mis-selling of private pensions; Gordon Brown’s tax on dividends; lousy returns from with profit funds; insurance companies closing funds to new business and selling them off to ‘asset strippers’; rafts of legislation that most people don’t understand; excessive charges; poor investment returns – to name but a few!

Not surprisingly, pensions is a dirty word to many people and indeed evidence suggests that many of us don’t bother, or make alternative arrangements to plan for their retirement – relying on the value of their home or business, investing in buy-to-lets, for example.So, do you really need a private pension?

Let’s look at the basics. Retirement planning is all about making sure you have enough to live on when you decide to stop working; either because you are too worn out to go to the coal face every day or because work is getting in the way of other things you want to do with your life. If you don’t plan ahead, you will largely be relying on any assets you have built up during your lifetime – these might include property, the sale of a business, savings, inheritances and, if you are lucky, a decent company pension scheme (although these are an endangered species). In the absence of these, you will probably have to rely on state benefits. These are fine as far as they go but, for most of us, they don’t go far enough. In addition, successive Governments have cut state benefits in real terms (adjusted for inflation) because they are proving to be unaffordable.

Where do private pensions come in? Well, they are certainly a tax efficient way of building up funds which can be used to provide income in retirement.The main benefits are:

· Contributions qualify for tax relief at the highest rate you pay;
· Investment returns are tax-free, except for tax deducted from dividends on shares, which are not reclaimable
· When you draw benefits, you can take up to 25% of the accumulated fund as a tax-free cash sum;
· After taking the cash, the residual fund can be used to provide an income, either by purchasing an annuity, which basically means you select a fixed or increasing income for your lifetime, or
· Alternatively, you can leave the fund invested and draw an income to suit your circumstances. For many people this is preferable because you have much more flexibility and control. It’s worth noting that any income drawn is taxed as earned income, but this doesn’t detract from the fact that you will have had decent tax breaks along the way;

Of course, choosing a suitable vehicle for your hard earned savings is crucial.You basically have three choices:

· A ‘packaged’ product offered by an insurance company; these are often simple products with low charges but limited investment choices;
· A ‘wrap’ arrangement, which may be more expensive to administer, but gives you a great deal of control over where to invest your pension fund. This means that you can build a well balanced portfolio based on your financial objectives and appetite for risk;
· A Self Invested Personal Pension Plan (SIPP); a bit like a wrap really, but useful for investing in assets such as commercial property, land, specialist shares etc. Watch the charges and the quality of administration though.

Despite all the misgivings, I reckon a private pension is worthwhile as part of an overall retirement program because you get some valuable tax breaks plus a high degree of flexibility in terms of investment choices and the amount you can invest.

Business Practice Assessment

2008-06-26T04:00:00.000-07:00

The Management of Health and Safety Regulations 1992 and the Health and Safety at Work Act 1974 state: 'All employers are required to have a health and safety policy, carry out risk assessments, and provide health and safety training for their employees. Where employers have five or more employees they must record the significant findings of their risk assessment'.

All work situations expose individuals to electrical, toxic and mechanical hazards which are present in business premises. It is important therefore that the business has a full understanding of health & safety issues and complies with its legal obligations.

HOW CAN WE HELP
Ferguson Oliver through our network partner, Broker Network, has designed a simple in-house questionnaire to help you assess your attitude towards health & safety and employment law.

HOW BUSINESS PRACTICE ASSESSMENT WORKS
This questionnaire allows you to quickly assess your awareness of, and complance with, health & safety and employment law. It is particularly useful for small businesses, where there is no site visit and is especially beneficial at quotation stage. These can result in more competitive terms for your insurances. To view the questionnaire please follow this link: -

https://secure.brokernetwork.co.uk/Members/insurers/RiskInnovations/docs/BusPracAssessQuest.pdf

Economic climate updates

2008-06-26T01:03:00.000-07:00

Cost of Fixed-rate deals rises.....

Three major lenders have put up their mortgage rates as the cost of fixed-rate deals continued to rise. The move by Bradford & Bingley, which is its second increase in just under three weeks, sees the cost of its residential fixed rate loans rise by between 0.5 per cent and 0.7 per cent, while its lifetime variable mortgage rate has risen by 0.1 per cent. It also increased its buy-to-let deals by 0.3 per cent and its fixed rate self-certification mortgage rates have soared by 0.95 per cent.

More of us choosing to improve, not move.....

The struggling property market is fuelling a huge rise in home improvements as householders opt to make more of what they have rather than move. Homeowners who need more space but cannot sell their homes are extending them instead. And those who couldn't wait to move out and see the back of that old kitchen or those draughty windows are replacing them. With house prices predicted to fall by up to 35 per cent over the next two years, the instinct to sit tight is growing by the day. Instead of browsing the property pages and websites, restless owners are turning to builders and decorators.

Fed holds interest rate at 2%.........

The US Federal Reserve held its key interest rate at 2% last night as its concern about rising inflationary pressures outweighed worries about sluggishness in the American economy.

The central bank last cut the federal funds rate in late April, having lowered it from 5.25% since last September in an attempt to prevent the credit crunch and housing slump tipping the world's biggest economy into recession. The Fed said: "The committee expects inflation to moderate later this year and next year".

How much do I need to retire on?

2008-06-25T08:11:00.000-07:00

This is likely to be one of the most important questions any of us have to consider and one which is taxing the thoughts of thousands of post war ‘baby boomers’ at or approaching retirement. To answer ‘as much as possible’ is of little help. Some fairly detailed planning and number crunching is likely to be necessary with numerous variables needing to be factored in the mix. The starting point is really ‘How much annual income do you require each year to at least maintain the standard of living you desire?’ So, how much do you spend on the essentials - food, clothes, utilities and then consider all other items such including holidays, transport, entertainment, hobbies, books, gifts and so on. It all adds up!

Now to consider how long you will need the income for – the rest of your life basically which few of us (thankfully) know. The good news is most of us in reasonable health will live to a fairly old age. The bad news, however , is also that most of us will live to an old age as it all has to be paid for! For example: a couple reaching age 65 has a 50% chance that one of them will live beyond 92 and a 25% chance that will make it past 97! That’s potentially over 30 years of living to fund for from somewhere.

The other crucial element to consider is the effect of inflation – a relatively low rate of inflation (by historical standards) of 4% will almost halve your purchasing power over 15 years. Most retirees actually have a personal inflation rate well above that figure as they spend more on items such as utilities and healthcare which tend to increase faster than many other commodities.

Those who retire from generous index linked final salary pension schemes (especially from the public sector) are likely to feel most secure; for the rest of us however, serious thought needs to be given to what assets and resources we have or hope to have to ensure that we can enjoy our twilight years in comfort and dignity. Selecting the correct blend of investments using the main asset classes of shares, bonds, property and cash together with the most effective tax wrappers (including approved pensions and ISAs) to minimise exposure to tax where possible will be vital in ensuring that we don’t run out of money before we run out of life!

The idea of many of using their property as their pension is seriously flawed as last time I checked Tesco didn’t accept bricks or mortar as payment for groceries. Yes you can downsize to a smaller house if you had to but for many the equity released is unlikely to produce anything like the desired level of inflation adjusted income needed. It is difficult to be precise but if you needed an annual inflation proofed income of say £20,000, had a life expectancy of 25 years and were prepared to effectively exhaust the capital you would need a capital sum (excluding property) of around £600,000 – probably more.

Most western economies are facing a demographic time bomb as people live longer and longer. It is therefore essential that we don’t ignore it and hope the problem will go away.

Surviving a business disaster

2008-06-24T08:22:00.000-07:00

According to the Home Office nearly 1 in 5 businesses suffer a major disruption every 5 years. Your business could be next and with no Business Continuity Plan your chances of survival are considerably reduced.

A recent Department of Trade and Industry survey suggests that 7 outof 10 small businesses would go out of business within a year if they experienced a major disaster. The same survey adds that if computer systems were unavailable for 10 days or more, 50 per cent of businesses would cease trading immediately with 93 per cent going bankrupt within 1 year.

The unthinkable disaster can happen and will cause healthy businesses to fail. Disasters create missed opportunities, cash flow problems and can often result in bad publicity. All this can lead to a loss of client confidence and yourcompetitors will take advantage.

For a free helpful fact-sheet from Norwich Union on setting up a Business Continuity plan click here: -

http://www.nurs.co.uk/document-library/files/10/10003_an_introduction_to_business_continuity_planning_v3.pdf

What to do following a road accident

2008-06-19T07:19:00.000-07:00

Almost a third of drivers don't know what to do if their vehicle is involved in a road accident, with many feeling pressured by other motorists to "take the blame".

A survey of over 1,500 drivers by Norwich Union also showed that 40% had suffered symptoms of "post-traumatic stress" following a crash. Of these, 15% had recurring memories and 17% felt distressed when recounting what had happened to them. With one in three (32%) drivers unsure of what to do following a crash, Norwich Union urged motorists to "be prepared" - not only to avoid taking the blame unnecessarily, but to help cope with the stress of such situations.

Driving behaviour expert Dr Cris Burgess, who helped with the research, said: "It's normal to react differently to how you would usually in a high stress situation like a car crash, because when you're in shock your sense of logic and reason can be impaired. "That's why it's so important to be as prepared as possible for a crash - the more you know, the better you'll be able to deal with the situation, whatever your feelings at the time.

To read more follow this link: http://www.nurs.co.uk/news/articles/cms/1211377919212694732197_1.htm

Stability in uncertain times

2008-06-18T08:51:00.000-07:00

For clients who believe the FTSE 100 Index is reasonably cheap at present, following all the recent market upheaval, and would consider directing some free capital towards it, but don't wish to expose the capital to any downside risk, then perhaps this is for you.

The Norwich Union Capital Protected Plan is a 3 or 6 year fixed term plan. It offers 100% capital protection if held to maturity and is available until 5th August 2008. Investments can take the form of direct investment, ISA's or SIPP funds. Direct investments are subject to income tax on the gain on encashment. Investors will get back a return linked to the FTSE 100 index with every 1% growth the FTSE 100 achieves over the term of the plan, growing at 2.5 times that rate, up to a maximum of 24% growth for the 3 year plan and 60% growth for the 6 year plan.

It is a way of investing in the stockmarket indirectly without the risk. Money will be pooled together with the money of other investors to purchase a medium term note from a AA rated institution. A medium term note is a promise to provide the return outlined in the agreement between Norwich Union and the Note's issuer.

Investors have to be aged 18 or over and the minimum invest is £1,000. If this is of interest to you please contact us for further details