Philippa Gee Wealth Management Ltd

Most products have different advantages; some might offer greater potential, others might attempt to limit the downside, others may be low in charges and others may claim to add tremendous value which more than covers their extra costs.

Recently I came across a product claiming to be a “cash alternative” which led certain people to assume that this was a low risk product. Let’s be perfectly clear about this, a product allegedly offering an income of 9% with opaque charges and various conditions of contracts is not low risk, particularly if it is unregulated. If something looks too good to be true, it invariably is.

For some clients it is just as important to steer them away from the dangerous products as it is to construct the correct new investments, damage limitation is a valuable commodity.  Protecting that which has been built up over time, even generations, can take prime importance and there is absolutely nothing wrong with that. Are you about to invest in a howler? Stop and get advice quickly, it would be far better to double check matters now, than to leave it too late.

Recently I was asked to write a blog for a website used by investment advisers. I decided to do a rather “punchy” piece, to really get the message across. Apologies in advance for the strong opinions viewed, but I felt it was necessary!

BLOG: Are some financial advisers that gullible?

Picture the scene; it’s the strategy day for an investment provider and they are busily coming up with new products to flog. They propose an investment offering high levels of income (and a risk to match) but camouflaged with some pretty fantastic marketing material. Their concern is how to attract investors? How on earth can they convince the end investor that this high voltage product is actually “safe as houses”?

Ah, but that’s the point, they don’t need to convince the investor, they simply need someone else to spin the lies for them, so they can hold their hands up as the innocent party when it all goes wrong. How do they convince someone to do that for them? Is it to come up with a product that actually delivers, that won’t become illiquid and that will provide the level of risk stated by the marketing material? No, don’t be ridiculous, They just offer advisers a commission of 10% and their work is done.

Well, that is how it appears to me. I see a good proportion of new clients coming to me to help them unravel various investments their previous advisers have set up. This is often a challenging task as not only do you have the financial effects to consider, you also have the emotional impact on the client. For many they have trusted someone with their financial livelihood and had that trust completely destroyed, along with their means of retiring, as the products have lost considerable value and in various cases are now completely illiquid.

I find this sickening. That an adviser can hold the trust given them by the client in such contempt (that they feel no responsibility for their actions) is despicable and how can the investment provider, coming up with this sort of nonsense, sleep at night? It’s just wrong.

Shame on you.

Here we are after another set of significant falls in global markets and while the picture is very slightly better this morning, there is still time for it to unravel further. But what does it actually means for investors and are further falls really likely? Well I remember being on maternity leave in 2008 and watching the TV reports of the market falls at that time. I can clearly recollect the images shown of the Great Depression and the reporter stated that it was likely that by 2009, a lot more people would be living on the streets and unable to even feed their family. It was alarming but clearly didn’t happen in the way it had been portrayed and clearly markets started to recover.

So what are we facing? It’s fair to say that markets have dropped considerably in the last 24 hours, however we are still at a level very similar to that of last month and therefore the moves in between have simply been the results of some very limited trading and people over reacting or under reacting to announcements. Frankly I’ve been surprised by previous days rises and the ignorance of the fundamental bad news, so in many ways it is a relief to see that now priced in and an acceptance of the more serious situation we are in. But is this going to end in Armageddon? Even if we were to face a very significant fall in the value of the stock market (far more than we’ve seen in the last day or so) just remember that the economy still keeps going, people still go out to work, people still need to shop, save, invest and borrow. The model is not under threat but the assumption that ‘good times’ last forever has had to be addressed.

I am not trying to ignore the fundamental economic problems many countries around the world now face. It will take time to unravel and to factor in the many ripple effects that this contagious view will cause. But I would rather we deal with this problem now and get as much of the bad news factored in, rather than the slow and constant drip feeding. We are not children, give us the bad news and we can deal with it and move on, otherwise this negativity will last a lot longer than it needs to.

So what should you do? Well of course these are just my general views and not in any way specific advice, but overall you should probably be sitting tight (of course it depends on your circumstances and your need to access capital) make sure that you are in the right investments, that you have a financial plan in place which remains right for you and then you wait. Yes these falls are worrying and very difficult at the time you experience them, but prices will rise, prices will fall and in a number of year’s time I believe we will simply look back on this as another (large) blip on the graph. Give it time.

Friday 23/9/2011 9.30am.

We have seen exceptionally volatile markets and it is unlikely that this will suddenly change to a more positive outlook. The financial worries are contagious, so instead of it applying to one region only, it instead is spreading all around the globe. Whether the problems will be short-lived, or (as the pessimist in me worries) it will take longer to restore. But you can’t spend forever waiting for the market to turn, so what should you do in the meantime? What are the do’s and don’ts of investing?

DO

1.  Make sure that the investments pass the ‘sleep at night test’. There is no point staying awake and worrying. When markets fall, instead you should make sure that when you look at the level of risk that you spend more time considering the potential impact of a fall in value rather than concentrating on the potential return.

2.  Do make sure that you have enough money that is accessible. This may mean earning some pretty poor interest rates on that proportion of money, but it helps to pull the overall level of risk down and means that you won’t need to access cash that needs a longer time frame.

 3.  Do make sure you review  your investments. Circumstances change and markets certainly do, so it is unlikely that investments that you have set up will always be right in the future. You service your car, you service your boiler, so please do service your portfolio.

 4.  You would expect me to say this, but do get professional advice. You may have enough time to research what investments to make, but do you have enough time to continue that and decide when is best to sell out of a holding? We are all busy with enough commitments and outsourcing is the way to keep on top of many key responsibilities, so using a professional advisor not only helps to reduce your workload, but means that your investments should be looked after and monitored by someone with specific expertise.

 5.  Do understand that times when the markets are falling significantly are not unusual and are perfectly normal. Prices will rise, prices will fall, prices tend to rise again.

 DON’T

 1.  Sell your investments which are falling in value. This is absolutely the worst time and you will allow people to make money out of you.

 2.  Be scared of investments so much that you only invest in cash – opportunities remain and the return of cash can be low compared to inflation. Cash does not tend to be a long term solution.

 3.  Be too focused in your investment approach. Even the most aggressive of investor needs to have a spread and balance of different holdings.

 4.  Listen to your next door neighbour. Many people complain of hearing a story by someone at a dinner party or over the garden fence, where ‘so and so made 300% and you should do it too’. This is utter nonsense and any investment that might be of interest to someone else is not guaranteed to suit you. Indeed your circumstances, outlook and requirements could be completely different.

 5.  Ignore your ‘worry monster’. If you are presented with an investment and cannot shrug off a concern or worry, follow it up and don’t just accept that you are wrong. You know your circumstances best and therefore you should be concerned about something that rings a ‘worry bell’.

 Investment portfolios require careful monitoring and management. This is what we do. Call us.

It’s time for a change. For too long investors have been paying high levels of charges on investments irrespective of their performance. It is unacceptable.

Now let’s be honest, I do not agree with high charges even if the asset is delivering strong performance, unless there is a particular reason that marks it out against all the rest.  With tens of thousands of investments to choose from you have the range and choice to exclude those with a high charge.

But it is not just the basic charges you have to be aware of, for example with an investment fund it is typical to take a regular percentage, known as the annual management charge (AMC) as well as the deductions for additional expenses, which when combined together are referred to as the Total Expense Ratio (TER). Never accept the AMC as basis to compare funds, and if you manage to dig a little deeper with the information readily available, you should find the TER quite easily. But I will stop there with the technical overload! 

What is not typical, or in my view appropriate, is to also take additional amounts for simply doing the job you should be doing in the first place. For me, performance fees are one example where fund managers rip off investors and stretch the boundaries of what is acceptable.

Performance fees are basically where the fund manager sets out a benchmark and if the fund delivers above this line, they will take an additional charge from your investment, even up to 20%! Watch out for those that use the lowest benchmark possible, to make it easier to trigger their bonus, for example cash is used by some and although this is extreme, it is not an acceptable level to use.  This just doesn’t sit well with me and I certainly wouldn’t tolerate it for my clients. 

If a fund manager performs well they will naturally receive a higher income as their standard charges are a percentage – if they deliver good performance and attract further investment as a result, their income will increase anyway – so why should they effectively double charge for simply doing that which you would expect?

There are many superb funds, run by quality institutions with the depth and range needed by investors, which carry lower charges. Indeed as there is more pressure to keep costs down with a greater awareness and transparency, so more funds of this type are launched.

So, if you have had your investments set up for some time, you may need to review them, not just in terms of whether they are still risk appropriate for you and delivering the quality of returns expected, but whether you are paying over the odds for the privilege.  

Of course there are other factors to consider when choosing an investment, but cost is an important one. It can effect whether your fund over or under delivers and therefore has a direct impact on your personal or family wealth.

Yesterday I was talking to someone well known in the financial industry, about the approach I take with clients and how I charge my fees. They asked me what happens with those people who didn’t need any new financial products? My response was so what? Whether they need products or not is irrelevant, its whether they need advice.

For me, recommending National Savings or cash accounts, may be the only ‘products’ necessary, or even making no changes at all could be the best route. The time, work and hand holding in that instance could be just as much as with taking on a client needing an investment portfolio, along with Inheritance Tax and Care Fee planning adivce. So for me, I tend to avoid the word ‘product’ and focus more on ‘planning’ and ‘purpose’. The person I was talking to seemed genuinely shocked about this approach and asked me to write a blog on it. I have to say that I wouldn’t be surprised if many other IFAs are taking the same view, which is why I would never have thought a blog was necessary. Certainly the approach works for me and my clients.

Let’s consider some examples:

One client came to me with details of what she had in place – she was making good use of various investments and had accurately recorded her assets on various spreadsheets. But despite this she was worried about her money and whether it would last her lifetime. My work involved various discussions about what she was planning to do in retirement, the impact her assets could have on this and included showing her how she should be able to achieve this and more – indeed it allowed her to see that she was able to set up a charity to help combine her retirement objectives together with her ethics and approach to life. The first time she  realised the potential of what she could achieve was very emotional and humbling. For various reasons it was not necessary to change that which she had in place, but just work with her to see, with some planning, what the purpose of the money would be.

For another client, in serious ill-health, it was more about planning for them and their family by making subtle changes to that which they had in place so that they could enjoy the time they had together without financial concerns.

Yes there are many times when a product of one sort or another is needed but to get the reaction of significant surprise from someone that it doesn’t always have to be the case astonished me, so here is my blog as promised.

Planning and purpose are the two key elements for me when dealing with clients, if a product is needed that is fine, but planning and purpose must come first.

There are many elements that apply to my role as an investment IFA, as much today as they did twenty years ago, such as portfolio construction, attitude/tolerance of risk and tax efficiency, all delivered with integrity and impartiality.

But one particular aspect which has emerged as having much greater importance than before is the cost, not just for the advice but also the charges of the investment product themselves. Never before have I had clients so interested in the cost of their underlying holdings, and rightly so. While the initial investment costs should always be 0%, the emphasis is also on the Annual Management Charge (AMC) and additional fund expenses, which need to be examined in great detail. Once charges have been dealt with, we then have the issue of fund returns and there is simply no where for fund managers to hide poor performance.

So when you combine these aspects of transparency of charges and performance concerns, and as this focus grows, so does this understanding of fund managers that they need to do something about this situation.  The array of passive funds increases, yet the launch of new investment trusts is unfortunately reducing and we are also now faced with a range of funds which look to merge an overlay of an active approach with then an underlay of passive investments in one form or another, and I have no doubt that there will be many others.  I support these launches and while there are many occasions when they will not be relevant, they will help to address certain investor’s concerns and that has to be positive news. Equally important is the launch of a greater range of purely passive funds, which is developing at a faster rate.

So, fund managers take note: Above average charges and below average performance will no longer be tolerated. Reinvent yourselves fast – or the market will leave you behind.

And so the dust has settled on another budget. But what does this mean for investors? There was some good news with Inheritance Tax and Gift Aid, as well as slight improvements elsewhere. Now this is all fine, but the basic problem many face of trying to make their wealth last their lifetime continues. Can they afford to stay in their home? Will inflation eat away at their income? How can they improve on low interest rates without taking high levels of risk? Will they have a choice in terms of the provision of care and will that leave any money they can pass on to others?

Yet again we have a budget which muddies the water. Where a pound is taken from here and a penny given there, but does that directly help investors who need radical changes? Absolutely not. None of these announcements help my clients cope with the financial impact of their retirement in the current investment environment.

None of these changes help them with their financial worries and so I offer up an alternative; a “Philippa Gee Budget”. This is where I will work with clients on an individual basis to help them address their financial concerns. I will come up with solutions to help them achieve the goals they aspire to, I will make the most of tax efficiencies where possible and I will make it a much more positive experience than the budget witnessed today. I will not produce data that defends rather than inspires, I will not make matters more complicated than they need to be and I will certainly not brandish a red briefcase.

Philippa.

More often than not, a good proportion of the news that fills my inbox tends to relate to new fund launches. This situation becomes much worse around this time of year, when there is a stronger demand for ISAs. But does it make the world a better place? I am not convinced. In the twenty years that I have been dealing with investments, I have to admit that I have never sat down and thought “oh no, what a shame there aren’t more funds to choose from”.

I understand that as a fund management group grows, it tends to focus on extending the range of funds, so that there are offerings which will suit different market conditions, will appeal to most investors and will gain the valuable commodity known as “funds under management”. But is it right to continually keep launching products?

I believe many fund management groups ignore the risk of constant reinvention and the following are five points I wish to make to them:

1. You will be better regarded, by advisers and investors alike, if you all your offerings are best of breed. For example four great funds out of a total offering of four is far better than six great funds out of a total of fifteen funds.

2. One of the worst traits is when you launch ‘me too’ products. It smells of desperation.

3. Remember that one bad fund has the capacity to damage the whole fund range for years to come.

4. Consistency is so important, whether it be investment objective, fund manager and team, or the process. If it works, protect and preserve it.

5. ‘Brand stretch’ is not a phrase I use frequently, but if an investment house has a strength, a unique point that makes them specialists in their field, why on earth move into another area where the talent is not there. It would seem destined for failure.

There are rare occasions when a new fund launch is necessary, for example there is currently a major focus on the cost of a product and therefore I understand that the odd new fund launch might be necessary, but not as an everyday occurrence.

Fund management groups need to understand that they are dealing with money that people have worked extremely hard to save and invest. It is a responsibility that should not be treated lightly.

Focus on what you do best. Please.

I met with someone today who was housebound (mentally they were very very sharp indeed) living on their own, with no immediate family in the area and have never used a computer.

I can’t imagine this situation is uncommon, but there was a problem – she simply couldn’t access her money. The bank accounts and investments she had were with a bank that would only offer services to those who could walk in to the branch or could access the details online. The situation was made worse as the bank were based in a listed building, which while lovely to look at, meant that no wheelchair access could be created, so even with someone helping her in the wheelchair, this lady couldn’t actually get in her bank.

I went in to speak to the bank to see what help they could provide, but gone are the days when someone from the bank is allowed to visit customers at home, unless they use the Private Banking service of course. What do you do? Have power of attorney when it really isn’t needed, or trust someone living locally for to go in and access your money?

I really feel that this is a major issue, which could leave someone feeling unintentionally helpless and I can only imagine that this problem is going to get worse. How incredibly frustrating for someone to have money which they have saved up hard to accumulate during their working life, to be left without access to these funds at the time when they need it?

For younger generations, I am sure that they will remain ‘online’ well into retirement and in their quieter years, but for now, we have decades left with people who have never used a computer and they are being forced into difficult situations when trying to manage their money.   There may be growing virtual communities, of that I have no doubt, but that still leaves many without the human contact and comfort they are used to and still need.