Today sparked a renewed debate on the prudence of taking financial advice from your bank. Barclay’s have been fined £7.7 million from the FSA and face a £60 million compensation bill.

The fine related to advice on policies they sold to customers with Aviva. 1 in 7 customers complained – a huge percentage unhappy with the advice they were given.

The Regulator found that Barclay’s showed no regard for their customers financial circumstances, the  suitability of the investment for their customers and the customers investment knowledge or experience. Pretty much Barclay’s failed at every level.

Barclay’s were also found to have established that their customers were improperly sold these investments and yet did nothing to put it right. When it did take action, it did not do this in a timely manner and its staff were not properly trained.

The fundamentals of financial advice mean that as advisers we must establish your current circumstances and match the financial solutions to those circumstances with emphasis on matching the risk profile of those investments to yours as a client. We have to obtain high qualifications to show we can properly advise clients.

Bank salesmen achieve the basic qualifications to enable them to legally go out and deal with clients.

We need to put this in perspective. 1 in 7 actually complained – how many didn’t complain?

For me this gives a frightening outlook for clients where often they trust their bank! Clearly many clients will be misguided with this trust.

Both John and I are Chartered Financial Planners  – in other words the qualifications we hold far exceed those demanded by the Regulator. Specifically we have taken high level exams to train us in dealing with understanding investment risk and client needs – something the bank salesman don’t have to achieve before they can recommend to clients.

For me this gives a startling reminder to clients to always seek Independent Advice and only from a Chartered Financial Planner.

The Fidelity China Special Situations Fund run by Anthony Bolton has today launched the new share offer. There was huge demand for this fund when it launched and all the available shares were quickly snapped up by investors including many of our own clients.

Given the demand, the Directors have decided to increase the number of shares in the fund. Accordingly existing investors will be offered 3 C shares for every existing ordinary share they held as at 31st December 2010. C Shares are convertible shares which can be converted into Ordinary shares in the future.

Existing Investors will also need to approve the share issue offer but I fully expect it to be approved. You should receive your voting forms shortly if you havent already but they need to be back with Fidelity by 9th February, to count. All monies need to be in by 11am Friday 15th February.

For those investors that do buy now you will not pay the share premium and you will also not incur an initial charge or have to pay stamp duty. This is a long term investment which in my view is not to be missed.  So do not delay!

As many of you are aware I have predicted no change / little change in interest rates for 2011. I expect to see any possible increases towards the end of the year if they happen and even then I only expect 1 or 2 rate rises of 0.25%. The situation remains to fragile in my opinion to lead to anything more.

I have predicted sluggish growth if slightly positive for UK, Europe and US as the credit crunch and austerity measures takes effect this year. Japan will in my view continue to offer the same as it has for the last 20 years i.e. nothing.

My favourite areas which real growth is feasible remains in the emerging markets. Whilst this will be volatile there exists a real “business model” in my view to achieve economic growth. I have stated I expect “blips” over the year, but overall if clients want decent returns then they should consider emerging markets including China, India, Brazil and Russia as the big players.

These markets are considered higher risk, but over the long term will without doubt in my view give real returns and decent growth.

This morning I received the opinions of one of the high street banks and how they see 2011 panning out. I thought I would share these views with you.

Key Points for 2011

* Global economic and corporate earnings growth was strong in 2010 but could tail-off in 2011, although we believe a double-dip recession scenario is likely to be avoided

* Global inflation is likely to be flat in 2011, although emerging markets carry a greater risk

* Commodity investments should remain supported by the flush liquidity environment and supply shortages in some cases

* Many emerging market valuations continue to look fundamentally attractive, supporting future growth

* We believe developed markets remain on-track for low-to-moderate growth in 2011

2010 brought us the beginnings of the global economic recovery, which looks set to continue making progress over the next twelve months. While we have seen positive economic indicators, conditions remain challenging and growth uncertainties persist. Emerging markets led the growth theme last year and we believe this region will remain the front-runner going forward. Our main concern here is the prospect of further monetary tightening, which could impact both growth potential in the local region and the wider world, given emerging markets have been a key driver of the global economic recovery to date.

Developed Markets

—————–

In the developed markets, the possibility of further fiscal tightening and weak consumption are the key risks on the investment horizon. Labour markets remain sluggish, particularly in the US and UK where unemployment levels are elevated. Additionally, consumption levels continue to suffer as consumers endeavour to manage personal debt positions.

The threat of double-dip recession chased investors throughout 2010, curbing demand for riskier assets, particularly in the US. Fundamental economic indicators and positive corporate earnings indicate this scenario is likely to be avoided, providing the positive trend remains on-course.

Emerging Markets

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Attractive valuations in the emerging markets helped the region to dominate in 2010. Many valuations remain fundamentally attractive, and yields look set to remain low. Inflation-risk within the region is a key concern for 2011. On a global scale, the inflation outlook for the year ahead appears broadly flat.

Commodities

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Amongst commodities, the improving liquidity environment, aided by the implementation of the US QE2 (quantitative easing) programme, should continue to support both metal and agricultural commodities. During the financial crisis, investment projects in coal, iron and copper worth US$200bn were cancelled. As a result, supply constraints should keep pricing levels high in the near term future for these resources.

So on balance, we anticipate seeing a continuation of strong growth in the emerging markets and slow-to-moderate growth in the developed markets, with a flush of global liquidity driving demand for higher-risk investment opportunities.

Summary

As you can see the views of the Bank sit not too far from mine.

Here is how I see the various asset classes performing this year:

UK Equities – 5% to 10% growth

US Equities – 3% to 7% growth

Euro Equities – 1% to 5% growth

Japan equities – not a lot! – may achieve some growth of the back of general positive views of other markets leading to improved sentiment.

Emerging markets – 8% to 12% growth – some individual sectors will perform better than this other not so well

Dividend yields on equities I believe will start to increase this year particularly if the banks dare to lend some money!

UK property – Residential 5% to 8% growth / Commercial 8% to 10% growth (subject to banks lending more!!)

Global Property – 5% to 10% growth.

Cash 0% to 1.5% – inflation meaning the asset falls in value in real terms.

Bonds / Gilts etc – stable capital values possibly some capital growth (3% to 5%) on bonds falling off towards end of year if interest rates start to push up. Yields on such funds will continue to be in the region of 3% to 6% offering attractive returns as part of a balanced portfolio.

Please note these views are my opinion and my opinion only and there are no guarantees. They are however my gut views on where the markets will go this year.

Regards

Adam

Following the recent budget the government announced further changes to pensions legislation following pension simplification, which as many of you are well aware did anything but simply pensions. Here is a brief summary of the changes:

The Government published the Finance Bill 2011 on 9^th December 2010. It gives a lot more detail of the changes that will be made to pension provision.

Lifetime Allowance (LTA)

As a reminder, this will reduce from £1.8M to £1.5M from 6^th April 2012. Note the change is from 2012, not 2011. The Government has confirmed those with savings above £1.5 million or who believe the value of their pension pot will rise to above this level through investment growth without any further contributions or pension savings, will be able to apply for a new personalised lifetime allowance of £1.8 million, providing they cease accruing benefits in all registered pension schemes before 6 April 2012. Notifications in writing for this must be received on the prescribed form (yet to be issued) by HMRC by 5 April 2012.

Annual Allowance

The annual allowance for tax years 2011/12 onwards will be reduced to £50,000. There are also a number of other changes to the annual allowance rules which will have effect on or after 6 April 2011:

• the annual allowance charge will be linked to the individual’s marginal tax rate;
• any unused annual allowance can be carried forward for three years;

• the valuation factor used to calculate the value of defined benefits pension savings will increase from a factor of 10 to a factor of 16;
• the opening value of rights under defined benefit schemes will be subject to a revaluation rate;
• the annual allowance rules will normally apply in the year of taking benefits and also for those people with enhanced protection although there will be exemptions in the year of death or where the individual retires because of severe ill health;
• inflation-linked increases in expected pensions for deferred members of schemes will not count towards the annual allowance charge; and
• transitional rules apply from 14 October 2010 where individuals have pension savings relating to a pension input period that started before 14 October 2010 and which will end in the 2011/12 tax year and is therefore subject to the new annual allowance limit. Full details are in our December 2010 newsletter/

Changes to income drawdown and the “age 75” rule

As was previously announced, from 6 April 2011 the requirement to secure a pension income by age 75 is being removed. This will be achieved through a number of changes:

• the ASP rules are being repealed for new and existing pensioners, so removing the effective requirement for pension savers to buy an annuity by the age of 75;

• the maximum income that an individual may withdraw from most drawdown pension funds will be capped at 100 per cent of the equivalent annuity (as defined above) but will apply for as long as an individual retains the fund;

• the minimum annual withdrawal amount from age 75 is abolished.

• this means that, for all ages the drawdown limits will be zero and 100% of GAD;

• the maximum capped amount that may be withdrawn will be determined at least every three years until the end of the year in which the member reaches the age of 75, after which reviews will be carried out annually;

• individuals with drawdown pensions who have a lifetime pension income (see below) of at least £20,000 a year will be able to access the whole of their drawdown funds as pension income without a limit on annual withdrawal (subject to their provider offering flexible drawdown pensions) – but of course any such drawdown income will be subject to tax at the individual’s marginal rate;

• any new pension savings for an individual once a scheme has accepted an application to access the whole of their drawdown pension fund will be liable to the annual allowance charge on all pension input amounts;

• an individual making a withdrawal from a flexible drawdown pension fund during a period when they are resident outside the UK for a period of less than five full tax years will be liable for UK income tax on that withdrawal for the tax year in which they become UK resident again;

• most of the rules preventing registered pension schemes from paying lump sum benefits after the member has reached the age of 75 are being removed;

• the tax rate for all lump sum death benefits is to be set at 55 per cent, apart from death benefits for those who die before age 75 without having taken a pension, which will remain tax free;

• unused drawdown pension funds of a member who dies with no living dependants may be donated tax free to a charity.

The changes above will also apply to members of non-UK pension schemes who have received either tax relief on contributions or funds transferred from registered pension schemes.

What is “lifetime pension income”?

It is to be defined as the following income:

(a) payments of a scheme pension or dependants Scheme pension provided by a registered pension  scheme;

(b) payments of a lifetime annuity or dependants annuity made by a registered pension scheme;

(c) payments under an overseas pension scheme which, if the scheme were a relevant non-UK scheme would fall within paragraph (a) or (b);

(d) payments of a social security pension.

But relevant income does not include.

(a) drawdown pension or dependants. drawdown pension, or

(b) any payments under an overseas pension scheme which, if the scheme were a relevant non-UK scheme, would be drawdown pension or dependants drawdown pension.

In this context social security pension means.

(a) any pension, benefit or allowance to which section 577 of Income Tax (Earnings and Pensions) Act 2003  (ITEPA) applies, and

(b) any pension, benefit or allowance which.
(i) is payable under the law of a country or territory outside the United Kingdom, and
(ii) is substantially similar in character to a pension, benefit or allowance to which section 577 of
ITEPA applies.

What about IHT?

The inheritance tax (IHT) changes proposed are as follows:

• with effect from 6 April 2011, IHT will not typically apply to drawdown pension funds remaining under a registered pension scheme, including when the individual dies after reaching the age of 75;

• with effect from 6 April 2011, IHT anti-avoidance charges that apply to registered pension schemes and Qualifying Non UK Pension (QNUP) Schemes where the scheme member omits to take their retirement entitlements (e.g. a failure to buy an annuity) will be removed;

• IHT charges that may arise where pension scheme trustees have no discretion with regards to the paying out of lump sums after the death of scheme members (i.e. where amounts must be paid to their estate) will remain subject to IHT; and

• IHT will continue to apply to all other lump sums (i.e. those in a non-Registered Pension Scheme or non-QNUP).

So regarding IHT:

whereas previously pension funds  in drawdown would have been liable to a 35% tax charge and no IHT if the policyholder was pre age 75 and a tax charge of 55% with IHT at 40% as well where the policyholder was age over 75, then now there will be a flat rate of 55%  for all and no IHT liability. What this means is those that die in drawdown pre age 75 will be worse off and those that die post age 75 will be better off.

Hope this summary helps. Remember it is crucially important to nominate a beneficiary for your pension plan in case of death to ensure the funds are held in discretionary trust  and are not payable to the estate and become potentially liable to IHT in any case. Have you all done this???? If you are in doubt give us a call and lets check it out.

2010 has not let us down from the perspective of continued news and volatility. My predictions for the year proved bang on in the sense of continued low interest rates, volatility and a continued steady recovery.

Despite many experts recommending we move client ‘s monies out of bonds into cash, with higher interest rates predicted we disagreed and sat tight. Not only did this prove beneficial as bonds recovered strongly in late 2009 and 2010, but we also protected clients from the poor returns offered by deposit accounts.

I recently received a summary of the year from an economic perspective which I feel is quite succinct and explains the year well. So here it is:

Q1

* Economic updates generally showed an improving trend, with US GDP displaying 5.6% annualised growth – the strongest performance in the last six years thanks to improving business inventories

* Eurozone news was dominated by events in Greece as its government struggled to cope with the growing fiscal deficit

* The equity market rally was led by cyclical sectors, in particular general industrials and cyclical services, while defensive sectors lagged

Q2

* Markets were driven by global macro-economic concerns, including the possibility of sovereign debt default in Europe, fears over Chinese monetary tightening and the prospect of global deflation, all of which increased risk aversion

* The equity market rally began to falter as investors became more cautious and switched into safe-haven investments

* Demand for global bonds increased

* Inflation levels in most countries began to moderate

* Commodity prices weakened with the exception of gold which benefited from safe-haven demand

* The Japanese yen was the strongest major currency of the period

Q3

* GDP numbers disappointed in Japan and the US, while strong performance in Germany helped eurozone figures to beat expectations

* The Bank of Japan attempted to stimulate growth by lowering interest rates and introducing an asset buy-back programme

* Upbeat corporate earnings and returning risk appetite prompted strong performance in the equity markets

* Generally positive European bank stress test results bolstered demand for financials

* Demand for government bonds remained despite the recovery of equity markets

* The US dollar declined on talk of further quantitative easing action

Q4 – to date

* Ireland accepted emergency funding from the European Central Bank in order to avoid default on debt repayments

* German manufacturing data showed an increase, with demand for auto stocks returning

* The US Federal Reserve launched a second round of quantitative easing with a US$600bn treasury purchase pledge

* Crude oil prices rose to a two-year high as risk appetite returned

So that’s a brief overview of the year to date, let’s hope the final few weeks prove to be smooth sailing.

2011 – what will it bring?

My prediction:

• Continued low interest rates
• continued slow recovery
• volatility will remain as the austerity measures from government budgets across the world begin to impact.

Not too dissimilar to 2010 really. I do think, however, we will see some key differences. China & India’s strong growth will continue but in a less steep curve. Currency issues and high inflation, I believe, will impact this year to slow things down. Long term, however, both countries together with emerging markets look set to outclass the developed countries like US, UK and the Euro sector.

I think we will see an improvement in the property market in 2011 – again this will be slow, as banks will announce yet more huge profits but with it a slight increase in willingness to lend. Spring will bring more buyers, as the hunger to move returns, but again this will be hampered by increased unemployment in the government sectors (offset only marginally by re-employment in the private sector).

We will see a continued switch from Employer quality pension schemes, such a final salary schemes, to the onus being on the individual. This will help companies save a lot of money and improve profits in the medium term as well.

Clients therefore beware!! Plan your own retirement because no one else will.

In the meantime have a great Christmas and New Year and may we all prosper in the years ahead.