Running: a metaphor for our lives

Running: a metaphor for our livesI’m writing this blog in the final few days before I run the Virgin Money London Marathon which inspired me to consider running as a metaphor for our lives, particularly our working lives.

Have you ever run on a treadmill?

I try to avoid them these days but if you have you will know how boring they can be.

Running on the same spot, looking at a wall straight ahead of you; minutes drag like hours, going exactly nowhere.

Our careers can be like that.

We leave school, maybe go to university and then start a career or we go straight into our first jobs.

From there it is a case of looking straight ahead and running on the treadmill that we believe we should be on.

Pay off debt, buy a car, start some savings, maybe get married, buy a house, pay the mortgage, maybe have kids, save for school and maybe university, save for retirement.

Now, don’t get me wrong, these are all important and significant life events but how do we get onto our own unique treadmills?

Is your career one you dreamed of pursuing or is it a result of having taken the first job you were offered because you wanted to get something to start having money coming in?

Do you now feel like you have been on the same treadmill for hours (years) and are not any nearer your true goal?

Are you just looking forward and running on a road to nowhere with the expectation/hope that it will take you where you need to be?

That you will have managed to accrue enough savings so that you can one day press the stop button and get off?

What then? Will you finish fulfilled?

Will you start a new ambitious life, fresh and eager to explore other possibilities?

Whenever I speak to clients who are approaching or are at retirement I always ask them what life will look like for them.

Invariably the answer is vague and uninspired and usually revolves around continuing to do the things they have always done but now with more time.

Of course there is nothing wrong with this at all but I believe it is born from a fear of not having enough to do anything else and because they have never considered anything else:

“I spent my whole life on a treadmill staring straight ahead, I did not consider there were alternatives”.

Of course there are alternatives.

To continue the running metaphor, I enjoy trail running and the Surrey Hill gives plenty of opportunity to explore.

Rather than sticking to a pre-planned path sometimes it is nice to follow a new path to see where it takes you.

This gives you the opportunity to have a different view and experience things differently and having the confidence to know that it won’t kill you.

Yes, there may be some hurdles along the way but nothing that can’t be jumped or bypassed and you finish the run richer for the experience rather than thankful the treadmill has stopped.

Life should be like this.

Sometimes we should look up from the treadmill and consider why were are doing what we are doing.

If we take a different path how will we be rewarded?

What fulfillment and riches might we gain from different experiences.

If life’s hurdles come up, know that they can be overcome.

If your mind has become numbed and it is hard to see the trails in front of you perhaps you need to take time to consider what is important to you and what gives you energy.

The following may help:

•    If I didn’t have to work I would……..?
•    When I die I want my obituary to include the following…..
•    If I was to travel back in time to my 16 year old self I would provide the following advice….
•    What hurdles might I find on my new trail and how might I overcome them? (you can afford to be brave with this because, for now, it is only an exercise)
•    If I was to set an example for my children I would want them to learn that……
•    Who would I need on my coaching team to help me reach my new goal?

We don’t possess all the answers ourselves and the hardest part is usually knowing what the financial implications of our decisions will be.

This is particularly true if we have family who are financially dependent upon us.

It is often easier to sacrifice our own fulfillment for the well being of others but the two need not be mutually exclusive.

Indeed,  everyone may be better off (financially, physically, emotionally and spiritually) as a result. However, it is unwise to take on a new challenge without a plan.

The first step is to understand what the future looks like and to see whether your new goals are achievable.

Here at Informed Choice we do this by helping you uncover what is most important to you and determining whether your current financial position can support you on your new route and, if it is not, what actions you can take to make is possible.

If you would like to know more please do get in touch and ask about our LifeWealth Design service.

(PS thanks should go to Sylvia Bentham of @1stcharteredFP who got me thinking of the metaphor in the first place!)

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Information, guidance and advice

Information, guidance and adviceThe Chancellor announced in his Budget a plan that would allow everyone with a “money purchase” pension plan coming up to retirement to access “free, face-to-face advice” about their retirement choices and options.

In the document Freedom and choice in pensions published straight after the Budget the word “advice” was replaced by the word “guidance”.

There is also some doubt now that it will always be delivered face-to-face.

This announcement stimulated a lot of debate in the financial services sector because the words advice and guidance are frequently interchangeable.

The Chancellor when challenged admitted that he didn’t really mean advice (in the sense of an authorised and regulated activity) but actually what he meant was guidance, but he used advice because he has a duty to communicate in plain English.

Confused? You have every right to be.

If we throw “information” into the mix you can see how people might be easily confused about what they are actually getting from the financial services sector.

So I thought I might give you a simple explanation of what we believe is meant by these words.

Information

This is factual stuff. Numbers and words.

For example it might be something like. “From 1st July 2014 you may contribute £15,000 into an Individual Savings Account (ISA)”.

You can see it is  a statement of fact (hopefully accurate).

You might read it in a newspaper, on the internet (and remember the internet is as good at providing mis-information as it is at providing information) or in a brochure.

It doesn’t seek to compare an ISA against any other savings or investment product and it certainly doesn’t advise you to invest £15,000 in an ISA – it is simply information. You chose what you do with it.

Guidance

Guidance takes information and invites you to give some thought and consideration to how it might affect you.

You could pay £15,000 into an ISA but you might also be able to pay that £15,000 into a pension plan.

Each will have advantages and disadvantages and guidance might well describe what those are.

It will ask to you to reflect upon your situation and consider which might be right for you. But it still isn’t advice.

Guidance shows you a number of different roads and asks you to consider which route to take. This is what the Chancellor was referring to when he inappropriately used the word “advice”

Advice

Advice is personal and direct. “You should invest £15,000 into an ISA and invest in XYZ fund with ABC”

It is specific and it tells you exactly the course of action that you need to take.

This is the service that is authorised and regulated by the Financial Conduct Authority (FCA) It is so much more than information and exceeds guidance by a long way.

It is also valuable and worth paying for.

Generally speaking Information and Guidance are worth less (not worthless!!).

If you take advice there are a whole raft of protections that kick in for your benefit.

So, whatever the outcome of the Chancellor’s initiative for at retirement guidance the one thing that we can pretty much say for sure is that it won’t be advice.

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Clarity over costs

Clarity over costsWhen you seek financial advice, there should be absolute clarity over costs involved.

The introduction of the Retail Distribution Review (RDR) on 31st December 2012 should have ensured this is happening.

Commission from Retail Investment Products was banned and a system of Adviser Charging was introduced, with the cost of advice agreed in advance between adviser and client.

Clarity over costs should have been secured with these two regulatory changes alone.

Unfortunately, it appears that many advice firms are still failing to provide clarity over costs.

A recent investigation by the Financial Conduct Authority (FCA) has found that 73% of the 113 firms it reviewed failed to provide the required information on the cost of advice.

These failings around clarity over costs were widespread, but worst with wealth managers and private banks which performed poorer than other firms in nearly all aspects of the thematic review.

The FCA research found that over half of firms failed to give clients clear upfront generic information on how much their advice might cost. 50% of firms failed to give clients clear confirmation on how much advice would cost them as individuals.

It’s easy to speculate on some of the reasons for these failings.

In some instances, we believe advisers feel embarrassed or insecure about their charges, so attempt to skirt the issue rather than having an upfront conversation about the costs involved.

This could be because they are unsure whether their fees represent good value. It might also be a hangover from the old days of commission where adviser revenue was, in some cases, excessive.

Some advisers continue to operate with what is effectively a commission model, with Adviser Charging simply replacing the old commission levels of 2 or 3% of the amount invested.

Where advisers are working on a speculative basis to provide their advice for ‘free’, in the hope of securing a product sale to generate ‘commission’, you can see why clarity over costs might not be a priority.

Here at Informed Choice, we take a fairly simple approach when it comes to disclosing our fees.

We publish a typical range of fees right here on our website, for all to see.

After we have offered a prospective new client an initial meeting at our expense and without obligation, we write to them with an engagement letter which confirms precisely the fees they will pay, and of course the value they will receive in return.

As we will often explain to our clients, we might not be the cheapest advisers they can find, but we are certainly not the most expensive. What we will always strive to do is deliver excellent value for money.

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Market numbers: Friday 4th April 2014

Informed Choice Market NumbersThe FTSE 100 index of leading UK company shares finished the week at 6,695.55, closing up 46.41 (+0.70%) on the day and up 79.97 points or 1.21% over the week.

The index reached a three week high off the back of a strong performance by banks and mining stocks.

Positive US employment suggested a gathering momentum in the recovery of biggest economy in the world.

Since reaching its recent peak of 6,867 in January, the FTSE 100 has slipped back following troubled emerging market equities and fears of political turmoil in Ukraine.

Over a year the FTSE 100 has risen from 6,344.10, a rise of 351.45 points or 5.54%.

£1 is worth $1.65800 US or €1.20970 Euros.

Brent Crude Oil Futures is currently priced at $106.73/barrel. Gold is $1,297.25/ounce and Silver is $19.93/ounce.

The UK Bank Rate is 0.5% and CPI inflation was 1.7% for the year to February 2014.

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Guide me to some suitable advice

Guide me to some suitable adviceIn his Budget the Chancellor announced a number of things, changes to pension plan benefit rules and ISAs being two of the key items mentioned.

Leaving aside the silly comment he made about pension plan holders no longer having to buy an annuity (that has been the case for many years) he also fell into the trap of mixing up “advice” and “guidance”.

The Chancellor has earmarked £20m of taxpayer monies to create a new service for pension plan holders reaching retirement.

He proposes to introduce a “new guarantee” that all individuals with a defined contribution pension in the UK approaching retirement will be offered guidance at the point of retirement.

This “guidance” will be;

  • Impartial and consistently good quality;
  • Covers the individual’s range of options to help them make sound decisions and equip them to take action, whether that is seeking further advice or purchasing a product;
  • Free to the consumer;
  • Offered face to face.

Now, by any measure that is an impressive package but the Chancellor having fallen into the first trap mixing up advice and guidance (he apparently has later claimed that he used the word “advice” because he has a duty to communicate in plain English) climbed out and fell into the second trap of believing that all of the bullet points above could be delivered for “free”.

Hmm, I suspect that when the Chancellor use the word “free” he means someone else will be paying for it.

£20m is one awful lot of money but hand it over to someone like the Money Advice Service and you will see how quickly it will be squandered on cringe making TV adverts and the like.

The Chancellor has a laudable goal in wanting pension plan retirees to be able to make a sound decision (shame he didn’t say an informed choice) but he would be better off giving people a voucher to redeem with an IFA the only true source of real and independent advice.

That would be a much better spend of £20m.

Oh and by the way it is available now A Guide to the Retirement Choices & Options Maze free from Informed Choice.

A Guide to the Retirement Choices & Options Maze

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How should I invest my money? Don’t.

How should I invest my money? Don't.Twice in the last week I have delivered some advice that in many people’s minds goes against what they expect from an IFA.

I know that because they have told me so.

My advice was “Don’t invest your money”. Why was that suitable advice?

In both cases we had a very detailed conversation that focused on their financial planning needs.

We examined what it was that they wanted to do with their money in the short, medium and longer term.

Both sets of people (husbands and wives together) had children who they wanted to assist in the short term.

They wanted to make money available to their off-spring to pay off University costs so that the children could enter the next stage of their life without carrying burdensome debt with them.

In my view educating children is usually one of the best investments any of us parents can make.

The second use of the money was to help children to get onto the housing ladder; admirable because let’s be honest housing in south east England is hardly cheap and yet owning property is still aspirational for many young people.

Both of these desires were short term and thus the obvious answer was not to take any investment risk with the money.

The prospect of a market correction in even a quite cautious fund would probably be more disappointing than inflation eroding the value of cash.

I know, interest rates on cash accounts are pretty dire at the moment and in most case well below the rate of inflation and yes, in many instances the interest is taxed as well.

But rubbishy circumstances like that done automatically mean that these clients should invest their cash.

As I put it to both couples “How would you feel if we were sat at this table in a year’s time and the £100,000 you had invested was only worth £79,000?”

In both cases it was abundantly clear that would not make for a comfortable review meeting (and I certainly wouldn’t have had the tea and biscuits I was enjoying at these meetings!).

It is not wrong to invest money with purpose.

It is, in my view, wrong to invest money when you don’t have to.

So if you have enough income, can afford to gift to the next generation, spend a little and have enough in an emergency fund, and not much more than that the answer to the question “How should I invest my money?” is “Don’t”

Why was that advice unexpected from an IFA?

Both parties had experienced the product sales pitch from IFAs before, both were surprised that an adviser could say “don’t buy a product”.

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Fellow of the Personal Finance Society

Martin Bamford Chartered Financial Planner Informed ChoiceAmong last-minute ISA applications and the usual insurance company correspondence arriving in our post this morning was confirmation that Martin has become a Fellow of the Personal Finance Society.

Fellowship is widely regarded as the premier qualification for those working in personal financial planning.

It is currently the highest qualification level offered by the Personal Finance Society, requiring years of study and exams to obtain.

Martin became a Chartered Financial Planner in 2007 and has recently undertaken a series of four examinations to reach Fellowship.

In November he passed the CII CF8 Long term care insurance paper, before moving on to the complete the CII ER1 Equity Release exam in December.

With a short break over Christmas, Martin continued his studies and passed the CII J10 Discretionary Investment Management exam at the start of February.

His final exam on the road to Fellowship of the Personal Finance Society was CII RO1 Financial services, regulation and ethics.

Passing this examination last month meant he qualified as Fellow of the Personal Finance Society and also completed the CII Certificate in Discretionary Investment Management.

Martin says he has no immediate plans for any additional professional qualifications, as his attention now switches to completing his first feature-length documentary and training for the two ultra marathons he has entered in 2014.

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World Autism Awareness Day

World Autism Awareness DayIf you’re passing through Guildford one night this week, you might notice the cathedral has turned blue.

Guildford Cathedral joins other buildings around the world in the light it up blue campaign to raise autism awareness.

We are very proud to support The Jigsaw Trust, a local charity which aims to improve the lives of those affected by autism through the provision of high quality, accessible, educational and wellbeing services.

This morning I attended an open morning at Jigsaw, as part of World Autism Awareness Day.

The open morning consisted of a couple of presentations; the first covered an explanation of autism and the second was about the history of the charity, along with news of some exciting plans for the future.

It was fascinating to learn more about autism. Throughout today, Jigsaw have been tweeting some of the facts they shared in the first presentation.

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You can follow Jigsaw on Twitter at @jigsawtrust.

Between the two presentations this morning was a guided tour of the school.

This was a great opportunity to see the learning facilities and also learn more about how the Applied Behaviour Analysis (ABA) methods are put in practice.

ABA is a structured teaching programme built on a discipline devoted to the understanding and improvement of human behaviour.

Jigsaw is a CABAS® school; CABAS® stands for The Comprehensive Application of Behaviour Analysis to Schooling a research-driven system-wide approach providing individualised programmes for children and young people with and without disabilities.

Later this year, at the end of November, we will be organising and sponsoring the Jigsaw Run at Dunsfold Park for a third year. This 10k race and magic mile run aims to raise funds for the important work done at the Jigsaw Trust.

I’m also taking on a personal challenge in August to raise funds for Jigsaw. On 23rd August I will be running an entire ‘lap’ of the Isle of Wight coastal path.

At 106km (65 miles) the Isle of Wight Challenge will be my longest run to date and will hopefully encourage lots of people to make contributions for a very worthy cause.

You can make a donation online here.

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Does imagination have a place in investments?

Does imagination have a place in investments?This is an exclusive guest post by Alastair Mundy, Portfolio Manager of the Investec Cautious Managed Fund.

A colleague of mine is convinced that, at some stage, many of us will be travelling around in flying cars.

He believes that human achievement has continued to surprise over time and, arguably, is happening at an increasingly quicker pace. He claims he is simply extrapolating this progress.

Certainly, while he is not the first to express a belief in new transport methods, what this thinking does is differentiate him from the mainstream by putting a tick in the box marked ‘imaginative’.

Imagination is an appealing characteristic – but does it have a place in investment management or is it just a more acceptable term than guesswork?

One way to utilise this imagination, which has been recommended by various academics, is to conduct premortems – a strategy in which a manager imagines (in this case an investment decision) has failed and then works backwards to determine what could lead to this failure.

However, the human mind is, simply, incapable of assessing all future possibilities. Rather than putting poor thinking down to investors, it is a reflection on the bizarre world we live in.

For example, anyone accurately forecasting the deterioration in UK government services company, Serco’s profitability in the past few years would have predicted — to quote from the Financial Times — “a Serious Fraud Office investigation into an offender tagging contract, a City of London police investigation into a prison vans contract, a shortfall on a detention centre contract in Australia (and) a temporary ban on bidding for UK government work”.

That would have undoubtedly pushed all investors to their imaginative limits.

In its simplest form, stock analysis can be perhaps boiled down to four main areas – where has a company been, where is it now, where is it going and how much are we paying to go there?

To answer these questions, we need to look at a company’s historic performance, its current performance (in cashflow terms, balance sheet strength as well as profitability), and its future performance.

Undoubtedly, the fun part of analysis is working out where we are going. This, depending on the investor, includes meeting senior management, ‘hobnobbing’ with industry experts and building detailed models of the future. It tends to involve less rigour, number crunching and boredom than studying and analysing the past, but in investment bank reports it often generates far more words and spreadsheets.

As we all like fun, there is a good chance excessive time is wasted on the ‘where is it going’ phase relative to the other three areas.

Having committed so much time to that phase, it is difficult for an analyst to be anything other than confident that their time has been well spent – that their imagination is accurate.

What Serco and the many other stocks that throw up surprises actually teach us, is that the future is far more uncertain than we realise. Value investors’ decision-making process is greatly assisted by valuations.

Moreover, a low rating provides great protection against our imagination overcooking (by not paying much for extremely bullish thoughts) or undercooking things (paying insufficient attention to threats), while a high valuation tells us the imaginers have already pushed the price up to levels where their new age vision of the future must be reasonably accurate to justify the price.

When panic is rife, investors are usually insufficiently imaginative. At these times, it really pays to analyse say, the benefits of a merger between two parties, the potential to cut costs significantly or when it comes to profitability, just a reversion to mean.

Additionally, when times are good, the stress-testing of a balance sheet or concerns about future actions of a company’s board of directors with a dubious past seem more worthy of an imaginary focus rather than estimates of new product development over the next 10 or 15 years.

While hoping to avoid too tortuous an analogy, it may be useful to compare our actions with that of a chess player. In essence, we are looking more than one or two moves ahead.

However, as all players will be doing the same and therefore, there is little value we can add, we will also seek to avoid analysis of 12 move combinations, as there are simply too many variables to suggest that our results will be anything other than wildly inaccurate.

Instead we are searching for opportunities in the imaginative middle ground; three or four move combinations and taking a bit of thought, but not totally reliant on randomness for a positive outcome.

IMPORTANT INFORMATION

Past performance should not be taken as a guide to future returns. The value of investments can go down as well as up you could end up with less than you invested.

All the information contained in this communication is believed to be reliable but may be inaccurate or incomplete. Any opinions stated are honestly held but are not guaranteed and should not be relied upon. This is not a buy, sell or hold recommendation for any particular security.

This communication is provided for general information only. It is not an invitation to make an investment nor does it constitute an offer for sale. The full documentation that should be considered before making an investment, including the prospectus and Key Information Documents, which set out the fund specific risks, is available from Investec Asset Management.

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FCA experiences mass resignations

FCA experiences mass resignationsFollowing the call by the Association of British Insurers (ABI) for the resignation of Financial Conduct Authority (FCA) chief Martin Wheatley to resign, all 3,000 employees at the FCA, in a massive show of solidarity with their embattled leader, have offered their resignation.

263 FCA spokespersons said:

“Our integrity and professionalism has been questioned. Whilst that normally doesn’t worry us one jot, the prospect of extended gardening leave for the next six months, just as Spring arrives, was too good an opportunity to miss.”

The cost of termination of all 3,000 FCA employees is expected to be slightly less than the £7 billion value wiped off the shares of insurance firms last week when the FCA blundered by announcing a retrospective review of 30 million insurance and savings policies.

Andrew Tyrie MP, chairman of the Treasury Committee, said:

“It’s not my fault, but then nothing ever is.”

Nick Bamford Executive Director at the advisory firm Informed Choice Ltd, paraphrasing the ex-Manchester United team boss Sir Alex Ferguson, said:

“Financial services, bloody hell.”

He then offered Rosie the Office Dog his resignation.

A spokesperson for Rosie the Office Dog said, “woof, woof.”

Experts from the University of Surrey’s canine language department believe that the rough translation of Rosie’s words are “April Fool.”

End of breaking news.

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