Richard’s Investment Commentary – May 2013

Posted on 03/05/2013 by andyjervis

On the day when UKIP brought the festering issue of Europe under the political spotlight, Andy interviewed our Investment Director, Richard Urwin, to find out how we are dealing with the inevitable risks that arise. Richard comments on why shares might be the safest asset, how Chesterton House are protecting clients against the likelihood of rampant inflation, and the biggest mistake that investors make and how to avoid it.

You can listen to the full interview here, but if you don’t have 12 minutes to spare why not just sample the edited soundbites below?

listen to Richard Urwin Investment Interview May 2013 on Audioboo

listen to Richards Investment Soundbites on Audioboo

Chesterton House Values Recognition Awards Scheme

Posted on 23/04/2013 by andyjervis

2013 is a great year for Chesterton House – we have many new ideas for developing the business and driving it forward. One new development is the introduction of the Values Recognition Awards that is founded on our Company values.

The scheme’s purpose is to encourage, acknowledge and reward exceptional behaviours that go above and beyond what is expected as part of our day to day roles, and encourages everyone to recognise and show appreciation for their colleague’s exceptional behaviours, creating a really fantastic sense of pride, and trust and respect for one another as well producing a positive attitude and boosting morale, which creates a fantastic environment to work in.

Before we could launch the scheme we needed to establish what we agreed our Company values are. At our annual Team Day in January we worked through an exercise to choose a shortlist of values that helped to describe who we are:

Client Focus

Professional

Teamwork

Integrity

Trust

Commitment

Reliability

Pro-Active

Passion

We worked together to define what these values looked like in terms of behaviours. To see what we came up with Company Values.

Knowing what better behaviours look like has helped us to notice when our Team-mates are doing something really great, and to tell them so. The Values Recognition Award scheme allows Team members to nominate each other to receive recognition and reward for doing those really great things. There are 5 Awards each year – one each quarter and one overall Annual Values Champion at the end of the year. The winner is decided by a judging panel and each winner receives a voucher and a shiny trophy!

Quarter 1 2013 was brilliant – there were 15 nominations put forward, with some people being nominated 2 or 3 times from different colleagues! Judging the winner was
extremely tough, but basing the decision on the criteria of ‘an action that went above and beyond what is expected of the Team member in his or her daily tasks’ and the strength of the written nomination, helped to whittle it down.

So, congratulations Jackie! Jackie won Q1 because of the nominations she received for demonstrating the values of Teamwork and Commitment.

Paying For An Education – A Quick Guide to Student Finance

Posted on 18/04/2013 by andyjervis

By David Jones, Dip PFS

If your child is heading off to university soon, or if you’re thinking of taking your first degree or diploma course (there’s no upper age limit for student loans), it’s important to understand how you – or they – are going to pay.

We often get asked for advice on the best approach to student finance; if you’re a parent, should you pay the costs yourself and help your child avoid taking on debt, or encourage them to take out the loan and then pay it off in full for them, or take the loan and then let it run, perhaps on the basis that the child’s income may be below the repayment threshold?

As always with Government benefits this can be a complex area, and there’s lots of helpful information at www.gov.uk/student-finance. The following notes provide a brief overview of the main rules, together with our suggestions for how to make the most of them to get the best value.

Please note that this factsheet only applies to those students beginning courses in 2013/14 or later; different rules apply for those already at University.

The Financing Available

There are three main components to student financing:

• Tuition Fee Loan – of up to £9,000 for a full-time student.

• Maintenance Loan – designed to help pay living costs,

• Maintenance Grant – also for living costs but not repayable.

Other means of support are available in some circumstances, including financial hardship or disability, but in the majority of cases support will be restricted to these three.

Tuition Fee Loan

The loan is paid directly to the educational institution in instalments at the start of each term to cover the cost of the course. The loan is repayable as part of the overall student debt.

Maintenance Loan

This is paid into the student’s bank account at the start of each term and is intended to pay for living costs. The amount payable varies depending on living arrangements, as follows (all figures assume full-time courses):

Living at home	£4,375
Living away from home, outside London	£5,500
Living away from home, inside London	£7,675
Studying abroad for a year as part of a UK course	£6,535

The loan is repayable as part of the overall student debt.

Maintenance Grant

This is also paid to the student at the beginning of each term to help pay for living costs. It does not have to be paid back and the amount claimable does not depend on
living arrangements, but it is means tested.

The full grant of £3,354 (for 2013/14) is available to students with a household income of £25,000 or less, with a sliding scale in place as follows:

Household income	Grant available
£25,000 or less	£3,354
£25,001 to £30,000	£2,416
£30,001 to £35,000	£1,478
£35,001 to £40,000	£540
£40,001 to £42,611	£50
£42,612 or higher	No grant

Any Maintenance Grant received will reduce the Maintenance
Loan available by the same amount.

Hint: If your income is likely to exceed the threshold, you
could consider making a pension contribution, as this will be deducted from
your income in arriving at your entitlement. However you’ll need to plan it in
advance, because the income figure used is usually the one for the previous
year. For example, grants for 2013-14 academic year are assessed on household
income in the 2011-12 tax year.

Repayment

Repayments will begin once the individual’s income from all sources exceeds £21,000 gross per annum. If income drops below this level again in future, the repayments will be suspended until this threshold is exceeded again.

The repayments are calculated as 9% of the individual’s income above the £21,000 limit and are deducted by the employer each month via PAYE for employees, or must be made as part of their Self Assessment tax return for the self-employed or anyone who completes a return for other reasons.

As an example, if gross earnings are £30,000 per annum, the
repayments would be:

(£30,000 – £21,000) x 9% = £810 per annum or £67.50 per month

Notes

The loan can be repaid in part or in full at any time without any additional charge.

Any loan outstanding 30 years after repayments first became due will be written off.

The £21,000 earnings threshold will rise each year in line with average earnings.

Any individual moving abroad will continue to be liable for the debt, which will be repaid with reference to an equivalent minimum income in their new country of residence.

Interest

Interest on the debt is charged from the date that the student or student’s educational institution receives the first instalment.

Interest is charged at the following rates, dependant on the borrower’s position:

Studying	RPI plus 3%
Course complete but income below £21,000	RPI only
Income between £21,001 and £41,000	RPI plus up to 3% on a sliding scale
Income £41,001 or higher	RPI plus 3%

What Should You Do?

The best course of action will depend on individual circumstances but in many cases the debt will begin to be repayable once employment has been found and, if we assume inflation (RPI) of 2.75% a year, the total interest payable will be between 2.75% and 5.75% per annum. Of course, inflation could be significantly higher or lower than this.

Let’s assume that you have enough cash to repay the outstanding loan. Should you do so?

Well, if you are a basic rate (20%) taxpayer, you would need to earn gross interest of between 3.44% and 7.19% on the cash to profit from keeping the loan in place. At the time of writing, even the best available five year fixed rate bond from a UK based bank would only produce 2.90% annual interest, so using the money to repay the loan would make sense.

In fact, if you have the cash available it may be better to either avoid the debt altogether, or repay it as quickly as possible, given that no early repayment charges apply. It should be borne in mind that interest begins to accrue from the date that the
first instalment is received, rather than the date at which the loan first becomes repayable.

Wait and See?

The interest cost is reasonable during the study period, though not cheap. However if you or your offspring takes up a career which attracts a relatively low salary – below
£21,000 this year – then the interest charged is only equivalent to RPI. Part time working or family career breaks might also reduce both the interest charged and the repayments for lengthy periods. Remember that any outstanding debt is written off after 30 years.

If you have the means to fund your children’s higher education you might consider asking them to elect to take the loans and wait until they have qualified before making a decision to perhaps pay them off.

Other Considerations

The cost of higher education isn’t the only thing that many of our clients would like to provide for their children, and a choice might need to be made between funding this or perhaps providing them with a deposit for their first property. If you use your available resources ensuring that your offspring leaves university with no debt then their options for getting onto the property ladder might be limited especially with the level of deposit currently required. First time buyers are currently putting down an average of over £30,000 as a deposit, and although the interest charged on the student loan isn’t cheap it might be less expensive than the cost of mortgage finance if that’s required later on. So this decision depends partly on your financial situation and future expectations.

If as a parent you have set aside funds for your children’s higher education and, possibly, to help them get onto the property ladder, you might consider keeping your options open by encouraging them to take the loans available. You will then have the choice post qualification to help them clear the accumulated student debt or to buy a
property.

It’s Not Just About Money

It’s important to recognise that these decisions aren’t always simply about money (in fact, they rarely are). You might feel that an approach which makes clear to your children the cost of a university education will help focus their minds more on study and help foster a spirit of self-reliance – one of the reasons for going to university in the first place. As always, clear intention and good communication is paramount, and it’s here that your adviser at Chesterton House can really help. Our expertise in ‘Values-Based’, family-oriented financial planning and long experience in helping people to make great decisions about complex issues can be really helpful in formulating a successful plan.

Let us know if you think we can help. You can contact us on 01509 610472, or at www.chestertonhouse.co.uk.

Factsheet Dated: 17th April, 2013

Written by David Jones, Dip PFS © Chesterton House Financial Planning Ltd 2013

Your Personal Pension – the last true Tax Haven

Posted on 15/04/2013 by andyjervis

In recent times personal or private pensions have had a pretty bad press, and it’s no wonder that they haven’t been taken seriously by many people. Some of the criticism has been justified, with early schemes plagued by high charges and restrictive clauses. More recently, pensions seem to have come under attack from successive governments seeking to curb valuable tax benefits and deter the wealthy from shielding their assets inside their pension scheme.

But unless your own pension is valued in millions, these changes shouldn’t deter you from investing in this most valuable of opportunities.

Why valuable?

Pension schemes benefit from highly attractive tax treatment that means that any other form of saving will need to sprint fast just to keep up.

For a start, every £1 you invest in your pension will immediately be increased by a quarter by the Government (yes, the same Government we mentioned earlier!) in the form of basic rate tax relief. This gives your savings a massive headstart compared to more traditional ways to save. And if you pay tax at higher rates you can get
sizeable additional refunds of the tax you’ve paid, or are due to pay.

Secondly, all interest and growth on the money in your pension plan is free of tax, allowing your savings ship to travel in full sail, without the usual impediment of having your sails massively tied back by tax.

The effects of these tax freedoms shouldn’t be underestimated. Compare the position with, for example, investing in a rental property, often cited as an alternative to pensions, where tax of up to 40% is payable on the rent you receive, and when you sell the property capital gains tax takes another huge bite of up to 28% of your profit.

Important recent changes to pension rules mean that you can now have both a company and a private pension. Often your company pension, if one is available, should be your first choice, especially if your employer is putting money in too. But
there remain lots of great reasons why having your own personal pension plan
could be a really good move for you.

Establishing your own private pension plan is now considered mandatory by leading financial experts. And as general economic uncertainty continues to plague the nation and looks set to continue doing so, considering a private pension is more vital than ever before.

Why is this?

Put simply, private pension schemes are different from company pension plans as while both are ultimately designed to help save up cash for retirement, a private pension
allows the policy holder to vary their contributions. Or to put it another way,
it’s possible to increase contributions to a private pension when circumstances
allow and also reduce, or even suspend payments during troubling financial
periods.

And as none of us know what next week, let alone next year will bring, this kind of
flexibility really is a godsend.

In addition to the above, private pension schemes allow the policy holder to
withdraw a healthy lump sum of the total balance upon retirement – up to 25% of
the amount saved. This again can be of huge value to anyone that may need to
get their hands on a decent chunk of the retirement fund, as opposed to
sticking with the standard monthly or weekly payments that would otherwise be
delivered.

And what’s more, a private pension stays with the policy holder no matter where they go or where their career takes them. Company pension funds can often become very
complicated or may be withdrawn altogether should the policy holder leave their
job and move to another company – private pensions on the other hand are 100%
consistent for life.

The list goes on, but it’s pretty easy to see why in such troubled times of economic
uncertainty, a private pension offers the kind of long-term consistency and
stability that really cannot be overlooked in its importance. It’s simply a
case of finding the ideally suited provider with a reputation that speaks
volumes and ultimately choosing a product to suit – there’s no better way to
cover all bases for retirement in advance.

And here’s an interesting thing. In all of the decades of combined experience of
the financial planners at Chesterton House, we’ve never yet met anyone who,
when they reached retirement, wished they hadn’t saved so much in their pension
plan.

But as you might guess, we have experienced many people who fervently wish that they had saved more.

For more details on private pensions and the various options on offer, get in touch with Chesterton House today or visit the company’s website at www.chestertonhouse.co.uk.

Tax Year Start Actions 2013

Posted on 06/04/2013 by andyjervis

As we move into a new tax year on 6 April, it’s time to spring clean your finances and take advantage of all of the tax breaks that are available to you. Here are a few things that you might want to consider.

How much are you going to earn this year?

Before we start thinking about tax, perhaps you should consider how much you intend to earn in the coming year and whether it’s enough. We work with our clients to help them make more money so that they can have more choice and experience more life, and your income is something that you have plenty of control over if you’re prepared to do the work required to make the change. If you would like some help in adjusting your income to a new level, you could start by scheduling a conversation with us. Maybe you ought to consider paying more tax before you think about how to pay less?

What do you expect your tax bill to be?

It helps to have some idea of what to expect in the year to come, so that you can plan ahead and arrange your affairs to keep more of what you earn. If you’ve been watching the news lately you may have noticed that various politicians and prominent people have been using perfectly legitimate devices to reduce their tax liability, for example channelling revenue through a private company or involving family members in their enterprise. There are well-established rules on these activities and we can point you in the right direction if you think this applies to you.

Making an estimate of your expected earnings will give you an idea how much tax you are likely to have to pay, and will help to confirm whether it’s worth taking any action or not. Our tax calculators can give you an instant assessment of your position, and you should speak to your usual financial planner for help.

Shifting income

If you are likely to be paying tax at higher rates it might make sense to rearrange your affairs so that income is split between, for example, yourself and your spouse or partner. If your income is from investments you’ll need to do this before it is received, so now is a good time to address this issue. If you’re in business or self-employed, you need to be able to show the taxman that your spouse or partner had an active interest in the business, so this is also the right time to be taking action.

Shifting capital gains

If you’re expecting to sell something that will give rise to a taxable capital gain in this tax year, whether it be an investment, a property, a business or some other asset, you should consider whether to transfer the asset into joint names before you dispose of it. This means that you will double up your tax-free allowance (£10,900 per person) which could save you a lot of tax.

Individual savings accounts (ISAs)

Transferring money into your ISA at the start of the tax year makes much more sense than scrabbling around at the last minute next April. You will be earning tax-free income for the whole year, as well as avoiding capital gains tax if the asset rises in value. With some investment funds currently yielding over 10% income a year, a 40% taxpayer transferring such an asset into an ISA up to the maximum £11,520 allowed could save over £450 in tax this year by investing now.

Child trust funds/Junior ISAs

If you are saving money for your children similar comments apply, in that it is much more sensible to use your allowance at the start of the tax year rather than at the end. You can invest up to £3,600 each year per child.

Pension planning

Ever since April 2006 when the government introduced ‘Pension Simplification,’ pensions have become progressively more complicated. Nevertheless, they remain one of very few personal tax havens available to the individual and can help you to save significant amounts of tax. If you know how much you are likely to earn this year it makes a lot of sense to make your pension contribution early, because the funds that you invest will be growing free of tax, and you will get the extra growth on the basic rate tax credit that will be added to your pension scheme by the taxman.

If you would like to consider making a pension contribution we can give you guidance on the best way to go about it to maximise the benefits.

Making gifts

You can make gifts of up to £3,000 each year, as well as up to £250 to as many individual recipients as you wish, and these gifts are treated as free of inheritance tax and aren’t added to the value of your estate on death. It’s possible to backdate a gift to the previous tax year, so if you didn’t use your allowance last year you can still do so now. In addition, gifts to registered charities are normally subject to Gift Aid, and benefit from tax relief.

If you are thinking that you might make such gifts later in the year, why not do it now? In the (hopefully unlikely) event that you die before the end of the tax year you will have reduced your estate value by these amounts, but more importantly you will have the pleasure of seeing the joy on the recipients faces when you share your good fortune (and good tax planning) with them.

If you are an employer

If you employ people and operate PAYE, you’ll need to update your employees tax codes and make sure that you’re using the current data. If you’re not sure how to do this you can find a helpful set of guides by clicking here.

Sorting out last year’s tax return

Of course one of the main tasks for most of us at this time of year is to start to gather the information we will need to submit our personal tax return. If you’re taking advantage of our tax return service, we will be in touch soon to explain exactly what is required.

If you’re doing it yourself, there is lots of helpful information on the HMRC website, click here to go to the relevant section.

If you’re one of our clients

We will have addressed the items above that are relevant for you at our previous Progress Meeting, or will be tackling it at your next meeting. If you think there’s something we’ve missed, or you have any questions about tax planning, please get in touch and we’ll do our best to help you.

If you’re not one of our clients

We hope that the notes above are helpful in planning your affairs. If you have any particular questions please drop us a line and we will try to answer them.

The Chesterton House Team

April 2013

Hire great people, then get out of their way!

Posted on 05/04/2013 by andyjervis

listen to Hire great people and then get out of their way on Audioboo

Sometimes the content for these blogs gestates over a period of time with various ideas coming together. Other times it just springs out of somewhere, often a conversation I’ve had with someone, and that was what happened today! So this blog is dedicated to you, David. I hope you find it useful.

We were talking about the problems of running a business and in particular finding really good people to be able to drive things forward for you. He had found a potentially really good candidate who could really take his business forward with lots of knowledge and industry expertise; but the asking price was too high. So what is reasonable to pay for a highly productive member of staff?

To help answer this question I turned to some of the people that I’ve found helpful in my quest over the years and the first one of those was Jim Collins. Jim has written a couple of books, one of which I found extremely helpful in formulating some of the philosophies in my business. It’s called ‘Good to Great,’ and it’s a classic. Some of the key ideas from the book are listed on Jim’s website at www.jimcollins.com . Let me take just one of those for you now.

It’s headed ‘Disciplined people – ‘Who’ before ‘What” and the way that Jim Collins describes it is to imagine yourself as a bus driver. The bus – your company – is at a standstill and it’s your job to get it going. You have to decide where you’re going, how you’re going to get there, and who’s going with you. Most people assume that great bus drivers (read: business leaders) immediately start the journey by announcing to the people on the bus where they’re going; by setting a new direction; or by setting out a fresh corporate vision. In fact the leaders of companies that go from ‘good to great’ start not with ‘where’ but with ‘who’. They start by getting the right people on the bus, the wrong people off the bus and the right people in the right seats; and they stick with that discipline - first the people, then the direction – no matter how dire the circumstances.

Collins illustrates this principle by telling the story of the CEO of Fannie Mae, the big mortgage Corporation in the States, David Maxwell. Fannie Mae was losing $1 million every business day and the board wanted to know what he was going to do to rescue the company. Maxwell’s response was to say, you’re asking the wrong question. To decide where you want to drive the bus before you’ve got the right people on it, and the wrong people off it, is absolutely the wrong approach.

He told his management team that there would only be seats on the bus for ‘A-level’ people who were willing to put out ‘A-Plus’ effort. He interviewed all of his team and told them all the same thing; this is going to be a tough ride, it’s going to be demanding. If you don’t want to go along, that’s fine, just say. But now is the time to get off the bus. No questions asked, no recriminations.

When he put that to all of his executives, 14 out of 26 got off the bus. He replaced them with some of the best, smartest and hardest working executives that he could find, and with the right people on the bus in the right seats he then turned his attention to the ‘what’ question, and only then did he try to address that. By the end of his time with Fannie Mae, Maxwell had turned a performance of losing $1 million a day into earning $4 million a day at the end. Getting the right people on board was crucial to that success.

Here’s another article by Jim Walton, President of Brand Acceleration Incorporated in America. He describes how a great business friend of his was running a highly successful organisation with just two support people in his office. When asked how they managed that work load the boss had one simple answer; ‘These are the best people in the industry. I make it a point to hire great people, pay them very well, and then get out of their way.’

He gives the example of another boss with a similar style. On one particular day, he says, he had a management related question that he reluctantly took to the boss. After asking his question, the boss calmly walked across the room, closed his office door, and came back to his desk. Sitting down he said, ‘Jim we hired you because you’re very good at what you do. You’re paid very well and I’m pleased with your performance. However; if I have to handle management issues for you then I don’t need you. Other than our regular P&L meetings and occasional chitchat at the coffee machine, we don’t really need to talk. Do we?’

That’s what it means to hire great people, pay them well, and then get out of their way. If you can find someone who can be creative, productive, intelligent, efficient – and those people are out there – how much are you prepared to pay them? That’s the question I would ask. Because when you find someone like that you really don’t want to stint.

So really there are two questions here. Firstly how deep are your pockets; but secondly -and this is actually much the bigger question – are you the sort of person that can pay them well and then get out of their way? That takes a lot of confidence, a lot of trust, a lot of discipline, but in my experience it’s the way to riches.

Welcome to the Financial Conduct Authority

Posted on 03/04/2013 by andyjervis

listen to Welcome to the Financial Conduct Authority on Audioboo

Andy met with the incoming Chairman of the Financial Conduct Authority, John Griffith-Jones, in March. Here he offers a (cautious) welcome to the new Regulator as it opens for business. The transcript of his audio blog is reproduced below.

It may not have escaped your notice that Chesterton House is 25 years old this year. In the year when we began, 1987, a new era was just dawning for financial services with the first ever industry regulator. It was known as FIMBRA, the Financial Intermediaries, Managers and Brokers Regulatory Association, and I remember it well. In fact there had been earlier regulators, most of which were voluntary trade bodies like NASDIM which covered securities dealing and investment management in the City, but didn’t really cover life assurance and pensions and that sector of the market.

When regulation came in FIMBRA was designed to cover the intermediaries and brokers, whereas LAUTRO was the Life Assurance and Unit Trust Regulatory Organisation. FIMBRA and LAUTRO eventually merged into the Personal Investment Authority, the PIA, but then when there was a change of Government of course, like most Governments they decided to change the regime and so we ended up with the Financial Services Authority with the grand idea of combining three different regulatory functions into one body.

However it doesn’t seem to have worked too well does it? So now we are in a situation where, as from 1 April 2013 we now have a new body regulating the retail side of the investment market, the Financial Conduct Authority, and a separate body, the Prudential Regulation Authority, regulating the insurance companies and institutions and of course we have the Bank of England covering bigger matters and sort of overseeing the whole thing.

For us at Chesterton House an immediate consequence is that you will see that our letterhead will change. Where it used to say ‘Authorised and regulated by the Financial Services Authority’ it now says ‘Authorised and regulated by the Financial Conduct Authority.’ Not much of a change, but we are going to scrap all of our letterheads to be able to accommodate it – although in fairness they have given us until October to make the change in practice.

So what can we expect from the new regulator? I was privileged to be invited with a small group of independent financial advisers to a meeting with John Griffith-Jones, the Chairman Designate as he was at the time for the new Authority, at a private meeting at the Belfry in Warwickshire. Mr Griffith-Jones is an accountant by profession. He had a stellar career with KPMG before being asked to head up the new Authority.

John Griffith-Jones, FCA Chairman

It’s been clear for a number of years that being a regulator is a somewhat difficult line to tread. On the one hand you need to be seen to be hard on stamping out market abuse and problem areas in the financial services world, of which there are many. On the other hand you don’t want to be stifling innovation at a time when technology and market forces are creating lots of opportunity to be able to deliver new services that will be hopefully very consumer friendly.

Mr Griffith-Jones was very keen to hear the views of advisers around the table and was obviously running an open shop with regard to ideas for the new regulator and really trying to understand the role, how it was perceived, and what advisers were really looking for. On the other hand of course he was also making it clear that they have a job to do and he wants to be able to do that in an open and sincere way; but it also needs to be effective. In that I very much support the notion of the regulator. I think it’s essential to have a strong body that can look at what’s happening in the market and be able to winkle out problems before they start to become too damaging. There is no question that financial services is an area with lots of innovation, but also lots of the same old stories being repeated with people being taken for idiots by financial institutions who don’t tell them all the facts.

The new rules that have come in with the Retail Distribution Review on 1 January this year hopefully will resolve a large part of this, with a real striving towards greater professionalism, and of course the banning of commission payments in favour of explicit remuneration agreed between the client and adviser; something that we’re very much in support of, and hopefully which will stop a lot of the abuse, particularly by the major players such as the banks who, frankly, have abused their position and taken lots of commission out of products that left consumers considerably worse off.

So it’s a cautious welcome for the new Financial Conduct Authority from me and I wish them all well. Let’s hope that they can do their job in a way that gives them the solidity that the industry requires, that builds the confidence that the consumer wants, and keeps an eye on the market abuses and problems that are out there, whilst still allowing good quality advisors to flourish and be able to innovate and bring new ideas to the marketplace that will ultimately be in the consumers benefit. It will be interesting to report back in a year or two’s time and see how things are progressing .

Golden Rules for Trustees

Posted on 02/04/2013 by andyjervis

We often recommend using trusts for a variety of purposes, from safeguarding money for a child, to ensuring that families are protected on the death of a breadwinner, to ensuring that wealth is passed down through generations most effectively.

Taking on the role of trustee brings its own responsibilities, however, and it’s important that you are aware of the relevant legislation and duties in fulfilling your role. Trust law in the UK is highly developed, and there are a number of safeguards designed to protect trust beneficiaries that you need to respect. We are members of SIFA, a body representing financial advisers working with the legal profession, and they recently issued this helpful checklist for trustees.

These items form a normal part of the work that we do with our clients, and we will address them over the course of our relationship. If you are a trustee and you need help with some of these items, please contact us and we will do what we can to guide you.

The Trustee Act 2000 details the main responsibilities of trustees but does not address the practicalities of trust administration, The following tips may assist trustees in the performance of their duties:

Obtain a copy of the trust deed, because this sets out the objectives of the trust and provides the mandate for the trustees, including their investment powers.
Find out whether the settlor of the trust has executed a letter of wishes, which would be read in conjunction with the trust deed and provide non-binding guidance as to the settlor’s intentions. It is often considered desirable to have a letter of wishes where beneficiaries could have conflicting claims on the trust.
Diarise important dates such as the dates on which interest in the trust will vest, the 10-year anniversaries of discretionary trusts and dates for agreed distributions of trust funds.
Check to ensure that all the trust assets are in the names of the trustees or under their control.
Ensure that investment advisers are properly briefed as to the objectives of the trust and any letter of wishes, and that in the case of discretionary investment managers, a policy statement is agreed which accurately reflects the risk profile of the beneficiaries and the need to balance their interests.
Hold regular meetings between trustees, investment managers and, where appropriate, beneficiaries. Ensure that the meetings are minuted so as to provide an audit trail to demonstrate compliance with the requirements of the Trustee Act. If there is a power to accumulate funds, it might be wise to record whether or not this power is being exercised.
Keep accounts which can be considered by the trustees and supplied to beneficiaries, so as to demonstrate transparency and reduce the risk of possible criticism by a disgruntled beneficiary.
Keep records of beneficiaries and their addresses up-to-date, so as to avoid the cost of having to locate missing beneficiaries at a later date.
If any beneficiary could be vulnerable, for example on account or youth or age or infirmity, ensure that no one is exercising inappropriate influence. It may be necessary to request receipts, to prove how monies distributed from the trust have been spent.
Check from time to time that beneficiaries to whom payments are being made are not subject to bankruptcy orders.
Be mindful of the requirement of Section 4(2) of the Trustee Act to review trust investments regularly. The seminal case of Nestle v NatWest Bank provides a salutary warning of the consequences of neglect.
If the trust has made a loan to a beneficiary which is subject to interest, make sure that the interest rate which is being charged is competitive and that other beneficiaries are not being unfairly prejudiced.
Ensure that full use is made of the trustees’ annual capital gains tax exemption, but check first that the settlor has not created more than one trust, because the value of the exemption will be divided between all relevant trusts.
Report investment losses to HM Revenue and Customs to ensure that these can be set against capital gains.
If the trust has a ‘tax pool’ of tax paid by the trustees in earlier years on income which they had received but had not distributed to beneficiaries, consider whether this might be used to distribute income to beneficiaries who either are not subject to income tax or pay income tax at the lower rate, so as to allow some or all of the tax which had previously been paid to be reclaimed.
If the settlor could stand to benefit from the trust, liaise with the settlor or their accountant to find out if they have received a tax reclaim which is now due back to the trust because the trustees have paid tax at the higher rate which is applicable to trusts.
Be aware of the tax implications of distributions of capital made by the trustees from the trust funds or assignments of interests under the trust. If a trust is being wound up it might not be appropriate to pay monies if the would-be recipient is receiving means-tested benefits or might be involved in divorce proceedings or be assessed for nursing home fees or face an increased liability to inheritance tax.
Where the trust assets include property, make sure that this is properly insured and that the insurance company has noted the trustees’ interests. Also, ensure that the property is being properly maintained; and make sure that any life tenant is complying with any requirement to meet the costs of repair and insurance.
Finally, lay trustees need to be aware of the responsibilities which trusteeship entails, and the risk of personal liability if these are neglected or paperwork is ignored. Those who do not feel able to take on these commitments might be invited to step down.

The Journey from FSA to FCA – A Tale of Two Regulators

Posted on 02/04/2013 by andyjervis

From 1st April 2013 the Financial Services Authority (FSA) has ceased to exist and has been replaced with two separate agencies – the Financial Conduct Authority (FCA) and the Prudential Regulation Authority. The main role of the FSA in protecting consumers will now continue under the umbrella of the FCA.

This short video has been produced by the new Authority to introduce itself and its work. For more information about the FCA, go to www.fca.org.uk.

The FCA’s website states:

We want consumers to use financial services with confidence and have products that meet their needs, from firms and individuals they can trust.

To achieve this, we regulate firms and financial advisers so that markets and financial systems remain sound, stable and resilient. We also encourage transparent pricing that’s easy for everyone to understand.

Our aim is to help firms put the interests of their customers and the integrity of the market at the core of what they do.

At Chesterton House we’ve always prided ourselves on being ahead of the game – going above an beyond what is required of us as a financial planning firm. You can rest assured we’re working hard to help you achieve your goals in the best way possible, and we always have your best interests at the forefront of our planning process.

If you’d like to know more about the FCA and the changes that it’s initiation brings, you can read the FCA document: Journey to the FCA.

Money is a reflection of love and service

Posted on 19/03/2013 by andyjervis

The following is a transcript of the above audio post. Click here to see our AudioBoo page and listen to our other broadcasts.

Hi. I’m Andy Jervis and this is Chesterton House Radio.

A year or two ago my coach, John Dashfield, introduced me to the work of Steve Chandler (www.stevechandler.com). Steve is a very interesting guy and I’ve learned a lot from him over the last couple of years. He is a coach’s coach – in other words,
he works with other people in the coaching field to teach them how to be more successful and he has a lot to say on that subject. He’s also written some books which describe how to run your life in a more effective and efficient way, but the difference with Steve’s books is that they’re not how-to manuals, they are about coming from the heart; about the core principles of creativity and giving, which is where wealth starts. Many people have that back to front.

Steve Chandler said something in one of his books I was reading the other day. He said, “Money is a reflection of love and service.” That made me think. “Money
is a reflection of love and service.”

Now that sounds a bit ‘out there’ to those of us who are grounded in numbers and facts and data and consider ourselves a bit more practical, but actually there is a huge amount behind that sentence.

The reason why that particular phrase resonated with me was because I read it shortly after I’d had a discussion with a lady who just absolutely fits that description. She’s, on
the face of it, done pretty well in life, and she’s made quite a return. But most importantly what she’s done is given a huge amount.

This lady creates jewellery and the jewellery that she creates is undoubtedly an act of love, because when she picks up these pieces that she’s made, she describes them not
just in terms of the piece and where it came from, and where that particular stone was mined and the conditions that pertain to the place from where it came, but she’ll tell you the history of who’s owned this particular piece and why it was made.

In the company I was in there were people who had purchased items from her. What’s fascinating to me was that she wanted those people to remind everyone of their back story: how that piece came to be created, why it was important to them and the significance of the work that she’d done. The relationship and the imagery, or the connection, the reason why that piece was made in that way – that’s a huge world of
difference away from the average jeweller who just sells stuff, but it’s a message
to all of us can take into our working lives.

Are you passionate about what you do you? Do you create things other people really value? Do you understand the back story? Do you care about the back story, because when you do, when you invest the work that you do with that level of passion and interest and understanding, it comes alive. And when it comes alive people want to buy from you. Creating wealth is a reflection of love and service and it’s fascinating to meet someone who embodies that in the flesh.

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