Stick to what you believe in

SEPTEMBER 6TH, 2010 By DOMINIC
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It has been well over a month since I last wrote the blog when we decided between us that it would be interesting to alternate it amongst the team. Since that blog at the end of July, the summer has almost drawn to a close and business is gearing up once again for the final quarter of the year – traditionally a fairly busy time for us as clients return from their summer holidays and put financial planning back on their agenda.

Now that September is upon us, it is back to business as usual which means spending plenty of my time attending events in the professional and business community. I am fortunate enough to be invited to a wide array of different events hosted by businesses within our professional community.

Last Thursday, I attended the North West Leaders Dinner hosted by Insider at The Lowry Hotel. This was an invite only audience of regional business leaders and Xentum was delighted to be a co-sponsor of this prestigious event. Over two hundred guests had the pleasure of listening to guest speaker, Dave Whelan, founder of JJB Sports and Chairman of Wigan Athletic. His warm northern charm filled the room as he told his personal tale of rags to riches. Very few figures in business and sport have achieved his success and to have remained so grounded having done so is testament to his humilty and, I suspect, his northern roots. He displayed a great combination – he was evidently proud of his achievements yet he told his success story without a hint of arrogance. It is always inspiring to hear a rags to riches story and never more so when it is told with such candour.

One theme he touched on was the austerity of the war time generation. He recalled the weekly ration of 2oz of meat per person. This single fact alone served as a poignant reminder of the plentiful times that we now live in. My little boy, Jensen, who is three, probably eats that in a single meal. The austerity faced by the wartime generation coupled with the personal hardships many endured clearly built incredibly strong and resilient characters, of which Dave Whelan was a fine example.

Dave Whelan also shared a valuable lesson with us which he had learnt early on. His entrepreneurial career began with a stall on Wigan market that amongst other things sold pharmaceutical products which had previously been the preserve of a large chemist. After a few years of a flourishing trade, he was taken to court by the chemist on the basis that certain products were only permitted to be sold from ‘shop’ premises and not a market stall. After an initial victory at the county court, he found himself summoned to the High Court in London where he represented himself. He managed to win the right to continue to trade from his stall. The lesson that the experience taught him, which he shared with us, was that when you think you’re right, you should believe in yourself and not be afraid to fight your corner. It clearly paid dividends for him over the years.

When I reflected on this, it struck me that whilst Xentum is only a minnow in comparison to the business empires created by Mr Whelan, the idea of being determined to fight your corner is not unfamiliar to us. A large part of our role is to ensure that our clients receive the best possible solutions for their circumstances on the most favourable terms. This involves a fair amount of determination and focus, not least to convince clients at times that our advice really is genuine and worth taking. Whilst a far cry from being challenged in the High Court, I can certainly relate to the idea of not giving in and sticking to what you believe in.

A different world

AUGUST 27TH, 2010 By ANDREW
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Being tasked to write my first blog since joining Xentum has given me the opportunity to compare working for large financial institutions and a bespoke, family office wealth management company.

I have been involved in financial services for 21 years now and 20 of them working for well respected high street names here in the UK and Switzerland. So what is different here at Xentum?

Advice

My roles over the years have always involved advising clients, be it on wills, trusts, estates or financial planning. In light of the advice being provided I spent many hours/days/weeks on technical training courses and seminars, one theme always appeared on such training courses; sales techniques. I have been shown how to read body language, facial observation (interesting when you can tell from a person’s eye movements if they are being honest), how people understand things (be it in pictures or words) and how to follow a process to close a sale.

The above is all well and good but I always thought if the advice you give is technically correct and appropriate then why do you need to be taught how to sell? That is key here at Xentum, we do not have any products to sell in order to meet sales targets for line managers, area directors or shareholders. We do what our clients and professional connections ask of us, that is provide the appropriate advice and source the solutions if required.

Independence

I have never been a tied adviser, the investments and other areas of financial planning I have been able to offer have always been what is called “open architecture” or “whole of market”. A majority of the investment strategies I have been involved in for clients have included discretionary portfolio management, i.e. clients trust the institution to manage their long term money within an agreed timescale, risk tolerance and objective. Recently, I have been reviewing such portfolios and what has become apparent is how much independence really takes place in such portfolios. A majority of the portfolios I have looked at have highlighted that over 75% of the value are invested into “in house” funds or investments. Now unless these funds can demonstrate they are “best of breed” over a reasonable timescale, then the discretionary managers should be proactive in reviewing and replacing if appropriate. I wonder how often this happens?

Xentum has no such offering, we deal with a number of high quality discretionary managers who have no in house funds - they research the whole of market and buy/hold/sell such investments if their research suggests action. Xentum’s role is to monitor the discretionary managers and compare their performance and service for our clients, if we feel the client is not getting what they are paying for then we will move the portfolio to another provider, no biased advice here.

Professional Referrals

My final comment on working at Xentum is my surprise at the quality of introductions from high end professional companies who actually refer their clients to us for holistic financial advice. I have observed in my short time here referrals from PwC, Pannone , Addleshaw Goddard and Grant Thornton. Such referrals at my previous companies were as frequent as a good performance from England at a major football tournament.

Everyday financial risks to watch out for

AUGUST 20TH, 2010 By ADAM
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After a week off on holiday, without a finance journal or newspaper in sight I picked up the Sunday papers with my goal to find something to write this blog about. I was not particularly surprised that I was spoilt for choice.

It seems that every newspaper these days has a finance section that offers tips and advice. Although these sections are helpful, it pays to know about your subject as the journalists are often more interested in a story than displaying the facts.

I thought I would therefore become a journalist for an afternoon and after a fair bit of research, I have written my own list of common financial hazards to watch out for:

• Free Banking is never free. Free banking is a gimmick used by banks to market their services. Every banking customer pays for banking whether it is through low interest rates, overdraft charges, monthly fees or even investments that you have to buy to receive a free banking account, there is always a price to pay. Obviously some are more competitive than others so make sure you shop around.

• Watch out for underlying charges on funds. The AMC (annual management charge) is often the published figure for a fund, however this only represents the charge for managing the investments. This charge often does not include the charges for the underlying holdings and dealing fees and details of these can be found in the TER (Total Expense Ratio) which represents the true cost of holding a fund.

• Where is your investment based and who is it regulated by? This is vitally important as there seem to be more and more funds that are based offshore these days, however this has serious implications on investor protection and tax treatment.

• The “vogue” investment at the moment is an ETF (Exchange Traded fund). Primarily based offshore, watch out for the distributor status of these funds as if they are non-distributor funds then any gains could be taxed as income possibly up to 50% dependent on your tax situation. Blackrock recently published research suggesting that up to 25% of ETF’s could be non distributor status.

• Watch out for structured products marketed as fixed term deposit accounts. The banks will often market attractive headline rates (e.g. 8%pa) that are really stock market linked products. The word “guaranteed” and “capital protected” will often be used but structured products carry significantly more risk than a deposit account therefore make sure you check exactly what your investing in.

• Headline rates offered by banks on fixed term deposits will often be rolled over into poor rates. It is important to continually shop around for the best deals for your cash and avoid the poor rates on offer in the majority of deposit accounts.

These are just some of the more common problems that I have come across recently. Of course I could be much more detailed than this, but I didn’t want to get too technical in this article. I would, however, be delighted to answer any questions you may have if you want to email me or leave a comment.

Is the worst over for BP?

JULY 29TH, 2010 By DOMINIC
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With £11 billion losses, a pledge to set aside £21 billion to cover the costs of the oil spill and a dramatic falls in shares, is this the time to take a punt on BP shares?

Even when the UK was in the grip of an economic mire and the FTSE 100 had tumbled to one of its all time lows my positive comments on how a volatile market can bring great gains would have irked those who had taken a painful hit on their investments. But I still stood by it and indeed it was a time when canny investors made great gains.

I have to say, I’ve been reluctant to place such a positive spin on the ensuing BP crisis; yesterday’s announcement that chief executive Tony Hayward is to step down combined with the monopoly money figures of losses and recouping of costs and the fact the oil disaster is being used as a political football, Stateside, means for the first time I’m questioning if every cloud does have a silver lining.

Peter Botham who is chief investment officer of private bank Brown Shipley offered me his thoughts on the BP issue: If investors should learn any lessons from the BP debacle it is that just because a company is big doesn’t mean that it’s safe. Nobody could have foreseen the oil well tragedy (let’s not forget 11 people lost their lives) that would spark the dramatic demise of BP – made so alarming by the fact it’s the biggest company in the market and perceived to be very safe.

Sadly, the same message reverberated after individuals lost 90% and in some cases 100% of their investments when RBS and Lloyds imploded through high level recklessness. Just because a company is big doesn’t mean it is safe.

Peter is keen to push the message of diversification. It’s simply far too high a risk to place your nest egg in one basket. A spread of investments across the spectrum of risk will put your finances in far better position in the long run.

So, is it the time right to invest in BP shares? Peter’s succinct initial response doesn’t indicate a firm no, but a cautionary approach. After all, this is a company which has cancelled dividend payments for the last six months, potentially for another year and as November elections loom in the USA, the political mud slinging will continue which will unsettle the market.

Though in conclusion Peter is more upbeat. We now know the extent of the problem and he believes the recovery will be gradual with the share price appreciating over a year or two, although it is unlikely to reach the previous 650 high for a very long time. He is optimistic dividends will also be restored in a year’s time. BP is a diverse company and it will still generate plenty of cash to recoup costs over the next two years further bolstered by the selling of £10 billion in non core assets. Fast returns are not on the cards but for those taking a long term view the share price will recover.

Please note these are the views of the author and Peter Botham and the material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

Post Budget highlights

JUNE 23RD, 2010 By DOMINIC
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We all listened with interest to the Budget which did not throw up too many nasty surprises although the Coalition Government’s announcements are significant.

The devil they say is in the detail and there were a few top line announcements which we are yet to see the finer points.

I’ve highlighted a few key points below:

Capital Gains Tax (CGT)

- CGT has risen today for higher rate tax payers to 28%.
- The annual CGT exemption remains at £10,100 and will continue to be indexed.

Given all the speculation this comes as a welcomed announcement for most investors (who will continue to pay CGT at 18%). This will provide much relief for those who have retired.

- An increased limit for Entrepreneur’s Relief qualifying gains from £2m to £5m.

Small to medium sized businesses are the life blood to any economy so this is positive news for entrepreneurs and minority shareholders as it rewards enterprise.

Pensions

- The previous Labour Government outlined changes in 2009 aimed at reducing the higher rate tax relief it gives on pension contributions for those earning over £150,000. While the Coalition Government have not said they will reverse this decision they have announced that they would like to create a much simpler way of achieving the desired outcome such as reducing the annual allowance.

We welcome the decision not to abolish higher rate tax relief outright which was one of the Liberal Democrats manifesto pledges and hope that the system they propose to introduce will be easier to understand and implement than the one Labour had outlined.

Annuities and retirement age

- The existing rules which effectively require you to purchase an annuity at the age of 75 will end in 2011 meaning you’re not obliged to exchange the fund for an income stream until age 77.

We welcome this as it will give individuals more choice and flexibility as does the ending of the default
retirement age of 65.

Basic state pension

- The current basic state pension rises in line with inflation.

Traditionally it rose in line with earnings, however the link was broken by the previous Conservative Government and since then earnings have increased at a higher rate than inflation.

From now on the basic state pension will rise each year in line with the higher of either; 2.5%, inflation or earnings.

This is a much fairer system and is good news for those who rely more on the basic state pension.

Over the next few weeks we’ll dig up some useful examples of how we’ve managed these announcements for our clients. Tax efficiency measures will become key.

Is there any reward for customer loyalty?

JUNE 9TH, 2010 By DOMINIC
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There are some organisations that do it exceptionally well and others that do the polar opposite, so I have to say when I was mightily let down by the Automobile Association (AA) this week I was shocked and more than a little disappointed.

Customer loyalty no longer seems a priority to this once great British institution. In brief, I’d received my
annual renewal reminder which was £260. After receiving various direct mailers I knew competitors could offer me a similar package for £80 but I’ve always had peace of mind with the AA and have been a customer for 11 years and didn’t really want to change. After a cursory look over the AA’s website I could become a new member for £160 for exactly the same package. How could this be? My loyalty was essentially being rewarded with a vastly inflated annual bill. I was furious.

I pointed out the injustice to one of the call centre staff and after conversing with a supervisor they promptly agreed to offer me the new customer rate. Result. But that wasn’t the point.

They could have so easily got away with this, as they probably have in previous years. We’re all busy people, and many companies operate this automatic renewal procedure, which is fine, apart from the fact the fees ratchet up year on year and largely go unnoticed as our lives are too hectic to do our homework, read the small print and research alternatives.

I wanted to flag this issue up as unfortunately I constantly see examples of this practice within my industry. When we take on new clients we carry out a full assessment of their finances. We find case upon case, where various investments have been taken out on the basis of lucrative returns but year on year percentage returns are depleted, yet annual fees gradually creep up. Of course, it’s all there to see in black and white but busy people don’t get the time to scour the small print and look for an alternative.

This is where the advantage of a private office really comes into its own. It’s our business to take the time to carry out exhaustive research on all of the investments and build a true picture of your finances as well as find the best investment options out there to suit your needs. We can stand back and take an unemotional view based on black and white hard facts. Maybe if I’d done the same with the AA I’d no longer be a member. Another case of misplaced loyalty and this time I’m guilty.

How to beat inflation

MAY 20TH, 2010 By DOMINIC
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Savers have been dealt a crippling blow this week with the consumer price index (CPI) official measure of inflation leaping to 3.7% and the Retail Price Index (RPI) rose to a staggering 5.3%. The rise has been attributed to the price increase of women’s clothes, food and excise duty on tobacco.

A significant jump in inflation such as this is terrible news for savers, particularly those who rely on the returns from their invesments to boost their income. Investors are further compromised with the abysmal interest rates on savings accounts. The onus is really now on the individual to research more competitive rates of return to beat inflation. For example, if you’re a higher rate tax payer you would need to find an account paying 6.17% to see any kind of fiscal benefit. Frustratingly, these are few and far between.

As a team we’re really focusing on researching inflation proof investments for our clients such as; structured products, index linked corporate bonds, national savings and cash accounts. It is also not surprising that some equities thrive from inflation such as consumer giants Tesco and utility company BT. A diverse portfolio always remains the key to long term investing.

Inflation is the carbon monoxide of finance, a silent killer which has the ability to gradually wipe you out without much warning. Be pro-active and ask your financial adviser about inflation proof investments. Don’t be caught out.

On a lighter note, we’re hosting our first clay pigeon shoot for our professional connections tomorrow and it looks like it’s going to be an excellent day for it. I’ll report back next week.

Kissing tonsils and a wobbly economy

MAY 13TH, 2010 By DOMINIC
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There’s nothing like the gut wrenching experience of seeing your child being prepared to go into an operating theatre to put the irritations and challenges of everyday life into perspective.

In the last week our three year old son has spent a short spell in Macclesfield General recovering after having his tonsils and adenoids removed. A common childhood procedure, which many of us have endured, lived to tell the tale and now probably only hazily recollect. Until, it was my son having the operation. All of a sudden it didn’t seem so minor after all.

Seeing my most precious possession so vulnerable unsettled me to the core and I was beginning to feel increasingly helpless with the situation that confronted us. The next couple of hours while he was on the operating table were completely out of my control.

To claw back a degree of control I had to be sure I trusted the surgeon and team working on him. Reports back were very positive, with other medical professionals conceding that they would have no qualms in him operating on their child. I just needed to meet him, look him in the eye and get the measure of the man to be sure. This duly happened and I was able to meet the anaesthetist and other members of the medical team who would be looking after him while ‘he was under’. I had to understand what their roles were and be confident in their abilities. I have to say they were excellent and allayed my anxieties. Of course, they were always going to be true professionals but I still had to look them all in the eye to seal it.

One week on, Jensen is almost back to his normal self and for him it is already a distant memory but for me it reaffirms how trust is the bedrock to our being. Whether it’s in a marriage, friendships, business, driving down the street, crossing the road…we have to trust those around us.

With a confirmed coalition government, crisis in the Eurozone and a fragile economy the FTSE 100 is volatile. It’s now more important than ever to trust who is giving you financial advice. Be diligent. Probe and disturb the adviser. If you’re not sure, walk away, get a second opinion. Don’t feel pressured.

In uncertain times it’s human nature to shun away from making financial decisions but volatility does bring opportunity. Diversification is absolutely key; property, equities, structured products, gilts, national savings and cash.

Unlike the medical sector where professionalism and experience should be a given, unfortunately, the financial services industry isn’t on a par. While it’s improving, you really need to do your homework.

Don’t be ripped off beyond the grave

MAY 5TH, 2010 By DOMINIC
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Last week I met with some potential clients who are yet to sort out their wills. The conversation led to what is an acceptable fee for will writing and it reminded me to share a word of caution with regard to free will writing offers.

It’s quite common to see free will writing services offered by high street banks, solicitors and will writing firms but they do have to recoup their costs somewhere and this is usually where they take the long term view.

It’s often the case that it’s the beneficiaries who end up paying hefty fees later on as some of these
organisations advise clients to appoint them as executors and levy fees of up to 4.5% on the estate on death.

Considering many of our clients have assets in excess of £1 million their beneficiaries could potentially be paying as much as £45,000 which is a vastly inflated expense on what it realistically should be.

Barclays Bank is one of the worst culprits who charge up to 4.5% as an executor. This is an exorbitant fee considering a highly experienced solicitor can do it for a quarter of the cost. What makes Barclays tactics particularly unsavoury is that they allegedly out source some of their work to an unregulated firm which charges clients with much larger estates 1% if they are instructed directly.

Also, be aware of will writing companies and banks insisting on writing themselves in as joint or sole executors in the hope of getting a fee for the estate work later on.

Really it’s far better to have a trusted family member and friend as an executor. If you are an executor and find that the complexity and responsibility of it is overwhelming and you need professional support, agree a fee in advance that you consider fair. It certainly shouldn’t be in the realms of 4% of the estate value.

Marathon runners and different perspectives

APRIL 29TH, 2010 By DOMINIC
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Seeing the pain etched on the faces of last weekend’s London Marathon runners took me back several years to when I ran it but this time I had a totally different perspective – as a volunteer helping to reunite the young runners with parents at the finish line.

Taking part in the marathon was an amazing experience but actually being involved in a behind the scenes capacity was phenomenal as I’d never appreciated what a logistical feat it is to ensure the smooth running of one of the most popular marathons in the world.

It’s the first year my good friend and client Richard Kyte led the team responsible for the safe repatriation of 2000 youngsters to their team managers and parents. What a mammoth task! I was part of a team based on The Mall in a sterile area which greets the runners and shepherds them off the course. Considering there are nearly 40,000 runners including child participants the magnitude of the operation is colossal.

When Richard first asked me to help I didn’t envisage what a fascinating day it would be. I reunited one anxious mother with her daughter who’d had an asthma attack and assisted another first aider to quickly locate a nine year old diabetic girl who needed urgent medication after the race. All this while hundreds of runners were pouring over the finish line every minute, all needing to be congratulated, looked after and ushered safely off the course. It was manic.

The banks of St John Ambulance was a sight to behold, it was all hands to the deck as the bulk of four to five hour runners flooded in. All those years ago I’d completely taken for granted how my bag was miraculously waiting for me at the finish line. I had no idea it involved a convoy of 40 articulated lorries ferrying 37,000 bags to the finish line with each and every one off loaded by volunteers and ordered with military precision.

The organisation was absolutely phenomenal and it was great to be part of such a memorable day for so many people.

I did get chance to have a quick word with fellow volunteers as we were all interested in what had brought us to the event and what we all did for ‘day jobs’. I explained that I ran a private office for families many of whom have between one to £20 million in assets. I was met largely with blank looks with some asking the question – “what’s a private office“?

Such encounters proved useful as it made me realise that beyond the realms of the financial world it’s not a term readily understood. I explained that Xentum runs a family office arrangement for clients encompassing all their financial affairs, from co-ordinating with solicitors, accountants, bank managers, fund managers, stock brokers etc.. ensuring a consistent and holistic approach is given to their affairs. Often, it involves looking after three generations within one family to ensure they reach their financial objectives. It’s common for super wealthy European families to have a private office in place but now we can give this service to families where there is considerable wealth and complexity in their arrangements who wouldn’t ordinarily be able to fund such a set up. It was refreshing to see that people were genuinely interested in the concept as they do tend to switch off a bit when the words finance and advice crop in the same sentence.

I’ll refer to the term private office more from now on as I think it’s important to raise awareness of its role and how useful it can be.

Finally, I’ll go back to where I started and congratulate all those who took part on Sunday. It was amazing to watch all your achievements. Well done.