Performance
Are your investments and savings performing well in comparison to their peers?
Background
Miss X had approximately £500,000 held in various investments that she had acquired over the years in a piecemeal fashion. She did not know what she had or if they were still suitable. She was concerned that her investments had fallen in value, but was unsure whether this was because of poor performance or the wrong investment strategy being used.
Results
Our analysis showed that whilst the performance of Miss X’s plans had indeed been poor, the majority of her plans were invested in equity funds, some of which had a significant exposure to emerging markets. She was unknowingly exposed to a greater level of risk than she was actually prepared to take.
Recommendations
Having established her objectives and attitude to risk, we advised Miss X to transfer her existing investments to a discretionary portfolio service. She now has a diversified portfolio that is tailored to her exact requirements. We constantly monitor her portfolio to ensure that her investments remain on track.
Charges
Are you aware of the charges you incur on all of your investments and are you receiving the service to justify these charges?
Charges can inhibit performance in a rising market and have a detrimental effect in a falling market. A typical misconception is that an individual can save money if they purchase funds direct from a fund group.
It is worth noting that any funds purchased directly with a fund group typically incur an initial charge of anywhere between 1.0% and 5.5%, depending on the fund. If these funds were purchased through a company such
as Xentum, there would rarely be an initial charge and any initial charge made would represent the cost of the financial planning carried out.
Tax efficiency
Do you have a strategy to make your investments as tax efficient as possible and utilise all allowances?
Background
Mr X is a basic rate taxpayer and had approximately £200,000 invested in a number of onshore investment bonds. He was not utilising his ISA allowance and capital gains tax annual exemption. Mr X was surprised to learn that the funds in his bonds paid income tax and capital gains tax internally. He did not know that the option to take withdrawals from his bonds only deferred tax and was not tax free.
Recommendations
Having assessed Mr X’s objectives and attitude to risk, we advised him to surrender his bonds. Some of the proceeds were used to fund an ISA and the remainder was invested in a portfolio of directly held shares and collective investments. Not only is Mr X now able to benefit from the tax-free environment of an ISA, but he is able to use his capital gains tax annual exemption and any realised losses to minimise the capital gains tax due in his non-ISA portfolio. As a basic rate taxpayer, the tax credits on his dividend payments meet his income tax liability in full.
Effective use of Allowances
Mr X pays into his ISA each year. He knows that if he does not have the money at hand to do this, then he can always use his capital gains tax annual exemption to withdraw money from his non-ISA portfolio to fund his ISA. This ensures that his ISA allowance is fully utilised and so maximises the overall tax efficiency of his portfolio.
If you would like more information about the Desktop Analysis please contact Adam Carolan on 0845 226 6971.
