using financial advisors

[Quillan]

Sorry I probably didn't make my point very well. What I meant was is to put your money in say a 90 day account, a bit up from a normal savings account and having a bit more intertes but not directly based on investing in the stock excahnge or wherever.

I can't say I can remember when a large building society like the Abbey or Nationwide went under. I think I just about remember one about 30 or so years ago although I am probably wrong and anyway I couldn't even tell you who it was. Probably the most famous in recent times (well the last 20 years) was he old Bank of Cocain and whoever or whatever they were called (BCI or something like that). I have not heard of a UK big highstreet bank or building society going bust.

[Hoddy]

There was a problem in the early 1970s when Rolls Royce went bust. Many people in Derby believed that the Derbyshire Building Society was going to follow and there were huge queues as people withdrew their savings. Other building societies stepped in to help and a crash was avoided.

If my memory serves me correctly.

Hoddy

[Just Katie]

Sorry to be picky Quillan but the Abbey has had plc status since late 1980's. 

[Gluestick]

And, of course, when it de-mutalised it became a registered UK bank, licensed by the B of E and therefore subject to banking law and restrictions, which include ensuring that a percentage of all deposits taken and monies lent are to a degree, secured by Reserve Assets.

The Abbey are an interesting case study, however, as since the take over by Banco Santander, Abbey are no longer on quote: shares have been swapped and the stock is traded on the Madrid Bourse, rather than the LSE. And stockholders in theory have to account to the fiscal authorities in Espana! Just had a dividend cheque in the post this morning.

Have hung on, as I believe Santander's robust and aggressive growth plans will show a good capital increase in the stock.

 

[Gluestick]

Actually, banks and the bigger BSs left, today manage their lending risk by using derivatives: in this case by exploiting Securatised Debt Instruments. They effectively "Sell" chunks of debt, secured by the underlying property value; hence Securitisation.

So they are far less likely to go under than before. [:D]

Also means they can expand their borrowing and lending, with the same capital base.

 

[Owen]

Hello Russett House,

Do not despair. Nothing I or others will write will make a ha'porth of difference to the earning power of your sister. She is engaged in a legal activity and has obviously worked hard to become qualified. I do not begrudge her one penny of her earnings and I say that without a hint of sarcasm. But IFAs are a cog in the whole investment advisory machine and I do not retract one word of what I said in my initial mail.

Today I received the two yearly letter from the Legal and General informing me that my plan was on track to pay off my mortgage (if I had one) with the usual forecasts of 4%, 6% and 8% per year growth rates. The policy was taken out in 1986 and matures in 2011. The last two annual reports have indicated that the annual bonuses already meagre are unlikely to rise significantly and may even be reduced. I can therefore make a reasonable estimate of what the sum assured + bonuses will be in 2011.

To get anywhere near the 3 targets i will have to depend on a terminal bonus, which of course is not guaranteed. Over the last 20 years the lowest terminal bonus was 29% and the highest 93%. The average was around 60%.

So let us be really generous and say that annual bonuses between now and 2011 will double. To achieve the overall growth rate of 4% per year the terminal bonus will have to be in the order of an above average 66% and for 6% it would be in the order of 92%. I did not bother doing the projection for 8% - it would be entering the realms of science fiction.

Fortunately several years ago, that whilst of course there was valuable life assurance protection, the investment was likely to be mediocre so, without the advice of an IFA, increased my mortgage payments until the mortgage was reduced and eventually eliminated. So at least when the plan does mature it will be all mine.

Very shortly after the plan started there was the 1987 crash. Markets were generally rising until 2000, dipped until 2003 and have been rising again since. UK interest rates have been as high as 15% and as low as 3.5%. I therefore do not think a 6% per year return (a reasonable expectation according to L&G) is commendable. There were opportunities to make good returns on shares, cash and bonds during this period. By the end of the period I will have paid around £10,600 in premiums. You may like to ask your clever sister what sort of sum I could expect to have received had I paid these premiums into a simple deposit/money market account for which no specialist advice would have been needed.

I do not think the policy was mis-sold just that my expectations of the investment industry were too great.

Regards

Owen

[Gluestick]

Of course with any assurance product, as against insurance, before trying to model the possible investment return on your premiums you must first deduct the cost of Life Assurance.

In order to reduce this cost one can take out a simple Life Insurance: i.e. no Sum Assured and if you live to the end of the term there is no residual capital value.

Personally I was against these Endowment Mortgages from the beginning.

In earlier times lenders offered an interest only mortgage against a guarantee from a Life Offices Association member's Sum Assured product: i.e. the capital borrowed was guaranteed without the benefit on annual and reversionary bonuses. Endowment Mortgages tended to solely for self-employed and professional buyers: there were certain tax advantages.

Since experience showed that most endowments were doubling (with bonuses) and as assurance providers were keen to increase their sales, a growing avalanche of these new, lower-premium Endowment Mortgage products hit the market from the early 70s on: mainly on the back of new companies like Hambro Life, et al. The premise being that the expected bonuses could be added to the Sum Assured and this total would discharge the mortgage obligation. And then the stock market collapsed in the early 70s: and interest rates went through the roof.

However, after that salutary lesson, rather despite it, once again as the housing market boomed, the market was flooded with these dreadful things: and the tears eventually came.

And a historical note: IFAs, per se, were not around in the mid 80s. The first Financial Services legislation, which created the regulatory framework (i.e. SROs FIMBRA etc) was not until 1986. And FPC (Financial Planning Certificate etc) didn't commence until 1994, therefore most mis-selling of these products was by tied representatives, not IFAs. That was one of the reasons that the Financial Services Authority was set-up, since the SRO (Self Regulatory Organisation) system wasn't working too well.

One final note: simply putting savings into an interest bearing deposit means that a normal taxpayer suffers a deducation of 22% CRT (Composite Rate Tax) off the top of the interest paid! Not very tax-efficient.

 

[Just Katie]

Gluestick, IFA's were certainly around prior to the days of regulation, they were simply called life assurance agents.  These agents would represent any number of life assurance and investment providers and would often also sell general insurance.  Right to buys were the way to go in those days and this guy would make unsolicited calls around the council estates of the town selling pension mortgages whenever he could, low cost endowments but hardly ever a decreasing term assurance to sit alongside a repayment mortgage.  Although, he held an agency with most life assurance providers, most if not ALL of the business was placed with a company whose rep had a nice little apartment on Costa Del Sol!

He also had an arrangement with a local building society manager who, like most managers in those days could make lending decisions and agreed to lend to social security claimants. 

This business was set up in 1982 then, unfortunately, the government had to stick their nose in and spoil it by regulating things[:@]

[Gluestick]

Oh yes, Katie. I agree they were around. Mainly split into the broker selling mainly General Branch and the odd bit of life etc and the rather dodgy geezers working as introducers etc, as well as Life Inspectors working for one company etc. (but not the "Home Service" guys who mainly focused on Industrial Branch).

I was besieged with calls from many of them (Life Inspectors): and we worked with few!

In those days they could pay professional introducers on a split commission basis: regulation stopped much of this.

The new wave started once Mark Weinburg started Hambro Life: and the whole industry changed from there.

However, they weren't called "IFAs": this term came in after the second round of regulation, really, in the early 90s (94 on??).

Here and there, I have had some involvement with the industry since 1963.

Interesting times..............

 

[Just Katie]

Saint, that is wonderful and so true.  Starting a knew thread on the perils of our childhood is a wonderful idea.[:D]

[Saint]

Lets do it, only thing is not sure how to start a thread.....In the mean time, does anybody remember sticking playing cards onto the frame of their bikes with clothes pegs so that it "frapped" on the spokes of the wheel when you peddled? Allegedly it was to sound like a motorbike but sounded much more like a manic wheel of fortune. Thing is that you were so busy admiring the contraption attatched to your back wheel you never looked where you were going. I once flew over the handlebars having hit my best mates bike full on (he had done a broady and I was not looking, prize for those who remember broadies and wheelies) flew for about five meters which was OK but then landed and had two stitches in my chin. Oh how we laughed. I was the hero of the day and awarded the title "hard" because I did not cry (not at least until I got home, out of sight and sat on my mums Knee). Instead of a plaster, my stitches (now called "suches?"..perhaps its so children dont Know they are going to get stitches) were sprayed with something that resembled fake snow so I looked like I had been dipping my chin in white candle wax. Do they still use this stuff or has it subsequently been identified as a source of cancer, along with coffee and cling film.

Here's a question and there really is only one way of putting this, did anyone else ever dare go to the loo at school or was it just me that had a fear of being exposed to ridicule from other standing on the loo in the next cubicle and peering over the top whilst you were at your most vulnerable...sorry but we may as well get straight to the nitty gritty (nit nurse, its all coming out, apparently they have stopped this service due to human rights?!! or that could be an urban myth, only the nits will benefit and I dont mean the human rights lawyers....sorry).

Come on guys, you must have some fabulous stories and I would love to hear them all....

[Russethouse]

Saint - your Childhood thread has been moved - http://www.completefrance.com/cs/forums/823978/ShowPost.aspx

To start a new thread go to the appropriate section then click on the Post icon on the far left, just above the top red line.

You could copy and paste your post above in the 'off topic lounge'

[Owen]

Hello Gluestick,

I take your point about the life assurance element and i did acknowledge this, albeit briefly, in my previous mail. i have no idea what % of the premium would go towards this but also included in the premiums was commission to the Building Society with whom the mortgage was arranged and the costs of so called expert investment management which to date, in my view has been anything but.

This tax efficiency argument so beloved of IFAs needs to be treated with caution. Although the endowment is apparently tax efficient to the individual it is because the provider pays the tax. In 2005 the overall investment return of the underlying fund was 19% but 16% after tax. Better than CRT rates but not much. Besides I think I would rather pay taxes on very profitable investments than make losses on tax efficient ones.

Regards

Owen

[Just Katie]

[quote user="Owen"]. Besides I think I would rather pay taxes on very profitable investments than make losses on tax efficient ones. Regards Owen[/quote]

[:D] That was my argument in the old days when people in their 20's were "sold" pension mortagages because of their tax efficiency.

[Gluestick]

Owen: In fact I said tax advantages "Were": the core allowance was cancelled years ago.( But extant older policies still benefit, as tax regimes, in most cases are not retroactive).

Also, there are a number of different investment strategies which clearly can and do create specific tax advantages. One is not limited to the services of an IFA or similar to obtain them.

However, most are only normally useful when exploited as an holistic package of wealth/income optimisation and planning.

And this is the central problem: most usual people have neither the time nor the expertise to address these matters, themselves, nor do they have up-to-the-minute knowledge of tax law and the optional shelters.

That's why a good IFA, for example, ought properly to be one step in the process of exploration and decision making.

 

[Gluestick]

This thread has created significant interest and response. 91 replies and 1,553 views thus far.

I wonder, therefore, if there is a demand for a sort of "Expert's Collective" thread, like those in the House Renovation section? There would seem to be quite a good variety of potential input available, from various useful retired, semi-retired and still working professionals.

Not investment advice: that would breach financial law, both potentially in France and the UK and no good professional would care to undertake such. What I am considering is the detail stuff: for example, I'm sure many members own shares. but how much do people really know about the equities markets? Options - Puts and Calls: What's a Day Trader? What's the difference between  a Stock and a Bond? What's the difference between a Corporate Bond and a Government Bond? What about the Commodity market?

And so it goes on!

There are already copious threads advising on the search and purchase elements: and certain aspects of law relating to (e.g.) inheritance and etc.

I am thinking more basic advice on approaches, methodologies and available products which would enable members to draw up their own Action Plan and critical point list before setting up meetings with potential advisers. From personal experience, it would make the adviser's task easier too!

Perhaps Mods could kindly comment?

 

[Quillan]

Mods Hat ON.

I don't think there would be a problem in general with this. We have not got round to creating all the FAQ sections yet and are filling what we can and others will wait until something worth while comes along to put in them.

The only concern we would have is the validity of the data so I would suggest that rather write things actually in the post use URL's to point people to where the information resides. The reason for this is that things (and people) move on in our forum but links to professional bodies are good as the information there tends to be kept updated. We will from time to time check links to see if they are still active.

I would also strongly recommend that you all give advice on where to find advice , sorry about that but I am sure you know what I mean. Terminology in a general sense is also a good idea. I think you should also keep it 'basic' and not to technical so us financially illiterates can understand it. I, like many others would like some of the terms used explained so that when (or if) we do see a IFA we don't get baffled by them. Forearmed is forewarned as they say.

I would NOT give specific advice (I would give all my money to XXX Plc for example), in fact we (the moderators) probably won't allow it as ths opens the door to the advice giver and Archant getting in to all sorts of trouble if somebody takes the advice and they end up loosing loads of money.

Mods Hat OFF

 

[Gluestick]

Oh dear, oh dear oh dear![:)]

Comes to summat when even the mods don't read wot you write!

[QUOTE] Not investment advice: that would breach financial law, both potentially in France and the UK and no good professional would care to undertake such. [/QUOTE]

[:P]

Seriously, any specific advice would be a breach of various tenets of law:

I'm thinking here only the mechanics, meanings, definitions and options and agree totally about acronyms and initialisations. The curse of modern man (PC note, means Men and Women too!; tut tut, how careful one has to be nowadays).

[:D]

 

[Quillan]

Ah but I was not finking of just you old bean. Sort of pre-emptive strike as it were [:D] .

In fact you have said exactly what I was thinking about with some links so the info stays up to date.

[Gluestick]

Perhaps other retired and semi-retired professionals interested in contributing to this proposed new thread would be  kind enough to PM me and we can draw up some guidelines?

Thanks.

[mint]

gluestick

this is absolutely MARVELLOUS and it is SO good of you to be willing to organise this new service.  from a consumer/user/questioner point of view, i think the following topics would be most useful and i hope you will consider them

tax position, uk or french and how/if you are able to choose which regime

inheritance tax, how to minimise, what steps you could take (obviously in your lifetime) to ease things for when you are no longer in a position to call the shots

investment vehicles that are likely to be suitable (i do mean just point in the direction of and not providing the advice for which you are not qualified or regulated to give)

how best to make use of any legitimate tax exemptions/loopholes and what these might be

those are just a few of the points that come immediately to mind, gluestick, and i don't know whether it's the sort of things you have in mind?

[Gluestick]

Well, that's quite a wide remit your are setting me there, sweet 17!

I am hoping that some other members with specialised finance, legal, tax and investment skills - there certainly seem to be a few! - will agree to participate; this at present, I am quietly waiting to see.

As they say , Watch this Space!

 

[Owen]

Hello and a ~Happy New Year to all,

This is the season when professionals in the financial services industry make their forecasts for the coming year across a whole range of markets and there will be many who will act on such forecasts. I am in no way a professional advisor but there are certain seasonal events that my be of assistance. I will confine myself to the US Stock market as a bull or bear market on Wall Street will be reflected on most other world stock markets.

At this time of year the behavior on Wall Street can give a clue to the year ahead. First of all the last trading day before Christmas is the second most bullish day of the year. There is only one other day, the last trading day of the year, when shares are more likely to advance than any other. Both the Dow Jones Industrial Average and the broader based Standard and Poors 500 declined that day. Then there is the Santa Claus rally (or absence of one). Usually there is short rally of around 1 - 2% from the first trading after Christmas to the close of business on the second day of trading in January. Both the Dow and the S & P 500 were down on the most bullish day of the year. Overall there was a Santa Claus rally but it was a sub-standard affair with Dow up around 0.8% and the S&P 500 up 0.4%.

The next useful indicator is January. The first 5 trading days, whether advancing or declining, often indicates how the whole of January will turn out. And how January ends is a reasonable indicator how shares will perform throughout the year. This January "barometer" is not perfect at all but is nevertheless very reliable.

In summary we have had a sub standard Santa Claus rally and where shares have declined on the two most bullish days of the year. If January on Wall Street ends in negative territory then the probability is for a decline in US share prices in 2007.

Regards

Owen

[mint]

gluestick

i'm a bit disappointed that you do not appear to have been inundated with replies to your proposal!  these financial boffins cannot all be shrinking violets?

hastobe, david j and all you others, please come out and play!

[Gluestick]

Must admit I am quite surprised, too, sweets!

I am in touch with one qualified member and we have already kicked around some first level ideas for content and once finalised, I will float our ideas past the Mods and see how we go from there.

I am hoping that we can create a dedicated new area (same as Chris Head did with his "Working with Wood" section) and sub-divide this up into various key headings. We shall see.

Unfortunately, I managed to contract an awful cold virus which was galloping around the UK prior to Christmas and have been suffering ever since! Did go to our French house for five days: but it was cold! That probably didn't help too much.

Watch this space...................