Issue 131

ISSUE 131

“It is often the small steps, not the giant leaps, that bring about the most lasting change” Queen Elizabeth II

INSIDE TRACK

Why falling inflation makes investing more important The latest inflation figures show that UK inflation has reduced significantly since its high of 11.1% in October 2022. In July, inflation was 2% and current expectations are that with inflation tamed and to support GDP growth, the Bank of England’s Monetary Policy Committee could reduce interest rates from August. This is better news for our weekly shop and our mortgage payments but not for our savings. Higher interest rates over the past two years have meant interest paid on cash accounts have reached over 5% from some providers. But, as interest rates come down, we will receive less return on our cash deposits. This makes stocks and shares more appealing as a means to grow our wealth.

Data from Barclays shows that over 10 years there is a 91% chance shares will outperform cash. Having large amounts of our wealth in cash where interest payments are below the rate of inflation, reduces the buying power of our money, an effect that increases over time if we fail to act on it. There are plenty of investment opportunities, at varying risk levels, that can help us build wealth rather than see it whittled away in the inflation/deposit account rate gap.

Inflation rates (CPI) from recent peak to now

October 2022 (Recent peak) 11.1

July 2023

July 2024

6.8%

2% Source: CPI data: ONS

Longevity – planning for uncertainty Latest data from the Office for National Statistics (ONS) revealed that average life expectancy from birth in the UK has fallen marginally. For a male it is 78.6 years, compared to 79.3 years in 2019; and for women 82.6 years compared to 83 years. But, at the same time, the number of people over 90 in the UK was at its highest level at 550,835, while the number of centenarians has doubled since 2002, to 15,120. The Covid pandemic and its tragic increase in mortality, has affected the data since 2019 and as the ONS points out in its report, “average lifespan will be determined by changes in mortality rates across their lifetime – if mortality rates improve, then period life expectancy will go back up.” When financial planning we need to take into account that as we cannot predict our longevity, how we organise our finances must take that into account, for example, if we retire at age 65, we could need our finances to last for over 35 years. At Lowes we typically set our planning for age 100. We need also to factor in that we may not be in good health all our life, and some later life care may need to be financed. Another important issue to consider, is planning how we pass on our wealth to loved ones and the future generation(s). Having a financial expert to help us plan and guide us through life’s ups and downs can be invaluable. Which is why at Lowes we have advisers who have experience of long-term planning and who specialise in later life care advice.

Green shoots of investor confidence Figures from the Investment Association show that £2.8 billion was invested into funds in April 2024, the highest number since August 2021, suggesting UK investors are feeling more confident about the markets than they were. Part of this has been an influx of late money into ISAs before the end of the 2023/24 tax year – as ISAs are a ‘use it or lose it’ tax wrapper. With the number of higher rate taxpayers predicted to rise to 7 million in the next few years, there is more incentive for taxpayers in, or heading towards that tax bracket, to take advantage of tax efficient investment and savings wrappers.

If you would like to talk through any of these issues, please contact your Lowes adviser or call us on 0191 281 8811 .

This magazine is for general information purposes only and does not constitute advice or a personal recommendation. It does not consider your specific circumstances as an individual and/or corporate investor. If you wish to establish if any of the products, services or options discussed are suitable for you then you should contact us for advice. Remember that the value of your investments can go down as well as up and that you could get back less than you invest. Best endeavours have been made to ensure all information contained within the magazine are accurate at the time of writing, however they may be subject to change later. Past performance is not indicative of future results.

Covershot: Shutterstock. Eiffel Tower and Field of Mars in spring, Paris, France.

2

LOWES Issue 131 · Published July 2024

INSIDE TRACK Don’t phone a friend for financial advice A recent report shows that the lack of financial education in the UK means that those who rely on family and friends for financial advice invariably lose out, simply because those individuals will have their own biases and could have views and information that are outdated or misinformed. This can lead to missed opportunities and financial mistakes being made. Worse still, there has been a growing trend for people to take financial advice from high-profile social media names who are pedalling investment products. The UK financial regulator (FCA) recently charged nine so-called ‘finfluencers’ with giving unauthorised advice. The UK investment and savings market is highly regulated for a reason. To be able to give financial advice, Lowes advisers, for example, have to take at least six exams and be authorised by the FCA. When we are investing and saving our hard-earned money, it always pays to use professionals, who have gone the hard mile to become experts in their field. Professional advice has been proven time and again to deliver the best overall outcomes. If you know someone you feel might benefit from Lowes investment expertise, please put them in touch.

Make your money work. Best bank & building society rates

Amount

Provider

Account

Gross Rate

Contact

£1,000 - £500,000 £1 - £1,000,000 £5,000 - £340,000 £5,000 - £500,000

Personal Easy Access (Issue 1)

Unrestricted instant access accounts

Oxbury Bank

4.94%

www.oxbury.com

Principality Building Society Union Bank of India The Access Bank UK Limited – Sensible Savings The Access Bank UK Limited – Sensible Savings

Online Bonus Triple Access Issue 2 1

5.00% 1

www.principality.co.uk

Bonus/restricted accounts

1 Year Fixed Rate Bond 5.40% www.unionbankofindiauk.co.uk

2 Year Fixed Rate Bond 5.06% www.sensiblesavings.co.uk

Fixed rate bonds

£5,000 - £500,000

3 Year Fixed Rate Bond 4.81% www.sensiblesavings.co.uk

Notes: Not to be considered an endorsement for any institution or account. 1 Rate drops to 0.10% on balances under £1,000. 2 Maximum 3 withdrawals per annum, then rate drops to 2%. Measures of inflation - The average change in prices of goods and services over a 12 month period to June 2024 Retail Prices Index (RPI) 2.9% Consumer Prices Index (CPI) 2.0% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfactscompare.co.uk 18/07/2024. All accounts subject to terms and conditions..

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If you would like to receive further information on any of the subjects featured in this issue please call: 0191 281 8811, fax: 0191 281 8365, e-mail: client@Lowes.co.uk, or write to us at: Freepost LOWES FINANCIAL MANAGEMENT. Lowes ® Financial Management Limited. Registered in England No: 1115681. Authorised and Regulated by the Financial Conduct Authority.

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3

COMMENT

A time of change?

We now have a Labour Government, with a significant majority in Parliament. What might this mean for savers and investors looking to grow their wealth and not pay unnecessary tax? With the next Budget planned for the autumn, what do we know now? During the election campaign Labour committed to retaining the state pension triple lock and said there would be no rises in Income Tax, National Insurance or VAT. Currently, income tax bands are frozen until April 2028. Since the thresholds were frozen, 4.4 million more people have become liable to pay more tax, including an extra 2.1 million people who now pay basic rate tax and 1.88 million higher rate tax. Those moving into higher rate bands lose some of their personal savings allowance. They also pay higher rates on dividends and capital gains. Key taxes missing mention in the Labour manifesto and campaign were Inheritance Tax and Capital Gains Tax. This could mean they are areas being considered for change. Another area that has been flagged is pension tax relief, which is costly for Government and could be a target for reform. The Autumn Statement will no doubt bring greater clarity on these issues. What does this mean for Lowes clients? It’s business as usual, as whoever was elected, the savings and investment fundamentals remain the same. We see no need for any significant changes to financial planning or investment strategies. We will, of course, be keeping a close eye on any announcements so that we can advise clients accordingly. It is as important as ever to make use of our personal tax allowances, such as pension and ISA tax wrappers, particularly any carry forward for pensions from previous years, if applicable. It is often prudent to use these early in a tax year, particularly so in a year where changes to allowances could be introduced. Your Lowes adviser can help you understand the best options for your financial planning needs. However, looking forward, we see one of the pressing tax and planning issues as intergenerational wealth transfer. Estimates are that around £5.5 trillion will be passed down through the generations between now and 2050. Not surprisingly, inherited wealth has increasingly been a target for tax takes from successive Governments. The IHT nil rate band, the level below which no IHT is paid, has been frozen at £325,000 since 2009 and will remain frozen until April 2028. The Treasury’s IHT receipts have been increasing every year as a result, with more people affected by this tax. The Treasury’s IHT tax take for the 2022/23 tax year was £7.5 billion. The Office for Budget Responsibility has predicted this will reach £9.7 billion a year by 2028/29. So, it is ever more important that anyone with an estate valued over the nil rate band seeks professional advice.

The creation of Wills and trusts and gifting, as well as pensions death benefits are ways to help mitigate IHT. But it is not simple financial planning, especially if we want to retain some control over where our wealth goes and when. The order and timing of wealth transfers to the next generation can notably affect the amount of tax paid. What we want to avoid is beneficiaries handing over far more of their potential inheritance to the taxman than they need to. If you or someone you know would benefit from professional advice on financial planning matters, Lowes is here to help. Ian H Lowes, Managing Director

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4

RETIREMENT

What might we expect from the new Government?

tax bracket. For capital gains tax, there is now an annual tax exemption of £3,000. If you move into the higher rate band, you’ll pay 20% on gains, double that for a basic rate taxpayer. And it’s worse for dividend tax. From April 2024 the dividend tax allowance is just £500. Above that, basic rate taxpayers pay 8.75%, but higher and additional rate taxpayers pay 33.75% and 39.35% respectively. If part of your income is from dividends from non-ISA investments, moving the investments that pay the highest dividends into an ISA, as you still have an annual ISA allowance in retirement, will move those dividends into a tax free wrapper. Likewise, for gains from assets subject to capital gains tax, it is possible to sell the assets up to the tax-free allowance and buy them back into an ISA, using your ISA allowance. This moves the asset into a tax-free wrapper, so any future gains will not incur CGT. This has been termed ‘Bed and ISA’. Both these tactics are limited by the annual ISA allowance of course, currently £20,000 per annum. For anyone approaching retirement, transferring pension income into a drawdown arrangement, where you control how much pension payment you receive, is another option to be considered. Your Lowes adviser can tell you more about all these options. Where we may see change, come the autumn, is around inheritance tax and capital gains tax. Business Relief has also been highlighted as possibly coming under scrutiny, as well as pension tax relief. Labour has pledged to carry out a wide ranging pensions review. An area that requires urgent attention is the cost of long term care funding. This is a can that successive governments have kicked down the road. As we are still well within Labour’s first 100 days, in which new Governments traditionally lay out their policies, we will have to wait for further clarification and then for the Autumn Statement to find out more. There have been no knee jerk reactions to the new Government and that is the strategy we would recommend. Until we see what policy changes come in and if and how they may then affect clients’ financial plans, we will be sticking to the strategies we have in place.

While the state pension is not subject to income tax, it does count towards an individual’s tax-free allowance. At the current rate, that leaves just £1,067.60 outside of the state pension payment before tax is due. With the income tax allowance frozen at least until April 2028, for anyone receiving set pension payment(s) on top of this, typically from personal and/or final salary pensions, this state pension increase could move them from the ordinary rate tax band into paying higher rate tax. What can you do about it? When accessing your pension, taking the tax-free cash in tranches, rather than as a lump sum, means it can be used to supplement your income tax-free, thereby reducing the amount of taxed income you need to take in a year. Likewise, drawing down on investments in tax free wrappers such as ISAs for income, again can be used to reduce your taxed income. Something to watch for is how much capital gains tax and/or or dividend tax you pay, as this is dependent on your income After 14 years of Conservative Government, the election on 4th July saw the Labour Party achieve a landslide result and form the new Government. Markets had already priced in a Labour victory, on the back of the strong pre-election polling in the party’s favour, so there was little effect on the stock market. When campaigning, Labour had focused on economic growth and stability as being at the heart of everything they wanted to do, messaging which received the backing of business as well as the City of London. There will be no post-election emergency Budget and Labour has pledged not make changes to key taxes such as Income Tax, National Insurance and VAT (with the exception of charging VAT on public school fees). In addition, the triple lock will be retained, meaning the State Pension will continue to rise.

Pensioners’ tax trap and what to do about it The latest triple lock increase to the state pension of 8.5% means the State Pension is now £11,502.40 per annum. This is very close to the £12,570 p.a. tax-free personal allowance, the point at which pension income payments move from tax-free to taxed.

Lowes.co.uk

5

PENSIONS

Retiring before State Pension age – what you need to know

The thought of retiring before the State Pension age can seem appealing but there are issues that need to be considered to ensure financial stability and wellbeing over the retirement years, as Lowes Financial Planner Barry O’Sullivan explains.

aggressive investment strategy, which also comes with higher risks. Early retirees also can face a greater risk of outliving their retirement savings. With potentially more years in retirement, careful financial planning is essential to ensure that your income will last your lifetime. Lowes advisers can use our retirement planning tool to map out income against expenses to project income over the years, to help ensure this does not happen. In addition, accessing pensions and other savings before the State Pension age can have various tax implications. For instance, withdrawing from a personal pension before the age of 55 (rising to 57 in 2028) can incur tax penalties. The tax treatment of pension withdrawals can affect overall tax liabilities, which also requires careful planning to minimise potential tax burdens. And the order in which money is withdrawn from pensions, savings and investments matters for issues such as Inheritance Tax. And of course, with changes in government pension and retirement policies impacting the benefits and rules for retirees. Staying informed about potential changes in pension legislation, tax policies, and state benefits is crucial to adapt plans accordingly and ensure continued financial stability. This is where Lowes’ constant monitoring of legislation and regulation can be invaluable. If you are considering early retirement, talk to your Lowes adviser who can review your retirement plans accordingly, to help you navigate any unforeseen challenges and penalties.

For anyone thinking of retiring early, there are a number of key issues to be considered. First is ensuring you will have enough income in the early years, ahead of receiving the state pension, particularly if the state pension will form an important component of your retirement income. In the short term, this will likely mean drawing down on workplace and private pensions, as well as personal savings and investments, to cover living expenses. You will need sound financial planning to ensure that taking money out at the front end will not see you have insufficient funds or worse, run out of money, later down the line. Often people want to travel and undertake other exciting ventures early in retirement. It is important that the costs of doing so are properly balanced against ensuring retirement income resources are sufficient to maintain a desired lifestyle in the years ahead. Early retirement invariably means drawing from pension funds earlier and potentially for a longer period. This usually means settling for a lower annual income and depending on the income source, can increase the risk of depleting these funds over time. It is important to plan withdrawals and consider the impact of early access on the overall pension income. Over a longer retirement period, the risk of inflation eroding the purchasing power of savings and pensions becomes more significant. Another key issue, therefore, is ensuring your retirement savings are invested in a way that can at least keep pace with inflation. This might involve a more

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6

TAX

Navigating the IHT landscape

Lowes Chartered Financial Planner Chris Brown provides an overview of the current Inheritance Tax (IHT) regime and explains why it is affecting more and more people in the UK.

If your estate’s value is less than £325,000, you currently face no IHT bill but you should regularly monitor asset values. If the value is over £325,000, then IHT will be payable on the value of your assets over the nil-rate band. The rules for IHT differ based on marital status. Assets left to a spouse are transferred without IHT. They become part of their estate and if they are valued above the nil rate band on their death, they will be subject to tax. However, the surviving spouse’s estate may benefit from a combined nil-rate band of £650,000. Single and unmarried couples don’t benefit from the combined rate, they will have nil-rate bands of £325,000 each. In addition to the nil rate band, the residence nil-rate band was introduced in 2015 to address the IHT burden on homeowners, taking into account rising house prices. This adds a further nil rate band £175,000 per person (£350,000 per couple) to estates of those who died after April 6, 2020, if leaving a home to ‘direct descendants’. For a couple, adding the residence nil-rate band means they have a total nil rate band of £1 million. However, not all will benefit due to specific conditions, such as the requirement to leave the home to direct descendants, while estates valued at over £2 million will see their nil rate band allowance reduced on a sliding scale. Financial planning to help reduce potential IHT charges There are various means to help mitigate the tax paid on an estate and Lowes advisers can help ensure clients do not pay tax unnecessarily. Here are some of the ways we can help keep your IHT bill as low as possible. Pensions sit outside of an estate for IHT purposes and provide a useful means to pass money on to your loved ones, and any other beneficiary, free of IHT and also income tax depending on certain criteria. Contined...

Inheritance Tax (IHT) is no longer just a concern for the extremely wealthy. Rising property prices, among other factors, have resulted in more estates facing potential IHT liabilities. The Office for Budget Responsibility forecasts that IHT will raise £7.5 billion for the Treasury in the 2024-25 tax year, compared to £6.3 billion in 2019-20. If your estate incurs IHT, your beneficiaries will be responsible for paying the bill within six months of date of death. However, there are various ways forward-thinking financial planning can help mitigate IHT charges. The best options will depend on personal circumstances. Your Lowes adviser can go through the options to help you make informed choices. But here are some of the ways we can help. First, let’s outline exactly what IHT is and how it affects individual estates. IHT is paid on the value of the assets a person leaves behind when they die, and it can also apply to some gifts made before death. Your ‘estate’ includes all assets left behind. Not everyone is required to pay IHT. Only estates valued over £325,000 (the nil-rate band) are subject to IHT, which is levied at a rate of 40% on the excess. Your estate will include: • Properties • Savings and investments (excluding certain pensions) • Other assets • Life insurance policies in your name To calculate your estate’s value, add up all assets and subtract any debts, such as credit cards, loans, and mortgages, as well as the value of some lifetime gifts, charity donations, and reasonable funeral costs.

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7

TAX

Using trusts An important tool in IHT planning is the use of trusts. Trusts ensure assets are given to beneficiaries without incurring IHT. Various types of trust exist, enabling different approaches, depending on the circumstances of the individual and what they want to achieve. Trusts are often used where the person setting up the trust, the settlor, wants to ensure their wealth is passed as tax efficiently as possible to their beneficiaries and/or down the generations, but do not want to gift the money outright. Examples are where the trust is set up to leave assets to children or grandchildren but not until a certain age, or where the settlor wants to retain control of the capital in the trust in case it is needed for later life care, but may be happy for the beneficiaries to receive the growth on the capital. Other options to consider are whole of life policies and business relief. With this type of policy, you specify an amount to be paid out after you die. Your beneficiaries could then use this lump sum to pay any inheritance tax due to HMRC. While insurance policies form part of your estate, writing a policy in trust will put any payouts outside of your estate for IHT purposes. Business relief allows for particular investments to be held outside of your estate after two years. The advantages are that the money passes out of the estate after two years, the investor retains control and the process is simpler than setting up a trust. However, the investments are higher risk, so we would always recommend you speak to your Lowes adviser before considering business relief investments. As can be seen, while IHT can be a considerable burden on an estate, there are many ways to help legitimately reduce the amount of tax paid. Consulting a Lowes adviser can help simplify complex estate planning, and ensure you leave the legacy you intend and save your beneficiaries from paying IHT unnecessarily. Wills and expressions of wishes Lowes Chartered Financial Planner Helen Grieves adds: The corner stone to IHT planning is ensuring you have a Will in place. It can be surprising how many people put off making a Will thinking they will do so further down the line. But without a Will, there is no guarantee that our wealth will go where we want it to. Individuals who die without a Will, called dying intestate, could see their wealth apportioned by the state and The Crown could end up with your assets. A Will specifies where you want your assets to go, who gets what when you pass away, as well as who is to manage your estate (your executors), whose responsibility it is to carry out your wishes after your death. Similarly, expressions of wishes ensure certain assets, such as pensions, are passed on to those you want them to. Trustees of pension funds are not obliged to carry out your wishes but practically, most do. It is important to keep your expression of wishes documents up to date, especially after major life event such as marriages, births and divorces.

Defined contribution pensions, typically workplace and those you or your adviser have set up yourself, can be transferred in full or part to one or more beneficiaries on the death of the pension holder. If the pension holder dies before age 75, the beneficiaries can draw from the pension tax-free. After age 75, the beneficiaries pay income tax based on their marginal rate of tax. You can also pay into other people’s pensions, either £40,000 or 100% of their earnings, whichever is lower. Pension contributions to a child or young adult are a tax efficient gift that can help with their long-term financial security and tax relief is automatically added to the pension pot at the basic rate. This can also help reduce the value of your estate and can be preferred to outright gifts, as pensions cannot be accessed until age 55, currently. Making gifts to reduce your estate Gifting can also reduce an estate’s value but must be managed carefully and the order in which gifts are made can make a difference to the charges paid. Gifts that are IHT free are: • Those made between spouses/civil partners. • Annual gifting allowance of £3,000: Unused portions can be carried over one year. • Small gifts up to £250: Unlimited recipients, but not combined with annual allowance for the same person. • Wedding gifts: Up to £5,000 for a child, £2,500 for a grandchild, £1,000 for others. • Charitable donations. • Gifts from excess income, subject to strict conditions. Gifts made outside of these allowances become IHT-free if the giver survives seven years. If not, the gift is included in the estate. There is a sliding scale on the percentage of IHT paid from years three to seven. It pays to keep a record of any gifts made as executors of your estate will need to have this information if they are to correctly fill in HMRC’s forms.

Lowes.co.uk

8

PLANNING

Client story We spoke to one of our longstanding clients about his Lowes journey.

“We set up corporate pensions because they are more tax efficient within the business, as the contributions into workplace pensions can be offset against corporation tax. “We’ve also looked to max out our ISA investments every year, as they are free of income and Capital Gains Tax (CGT). “We’re also big fans of structured products. I dipped my toe with them about six years ago, investing in two of the products selected by Lowes. They gave me decent returns, which I could offset against my CGT exemption. Now I have twelve of them. The CGT advantage isn’t the same since the Government cut the exemption amount but they can be put into an ISA to get the tax benefits from that.” David puts the advice he got from his accountant to go to see an independent financial adviser amongst the best he has received. “As a business owner I’m always looking for the best way I can find to turn my finances to my advantage. Taking the decision to invest into pensions all those years ago, means that now, because of the tax allowances and compounding of investments over time, we have built up sizeable pension pots which we can take with us into retirement. “Our son has seen how well we have done from our pensions and is saving into his own. I think this is a message we should be passing on to younger generations.” Having been anti-pensions and investment, David says he is now a staunch advocate for them, and taking the right financial advice. “In terms of my personal wealth, I can say categorically, that it wouldn’t be anywhere near where it is now, if it wasn’t for the advice I’ve received from Lowes. If there is anyone sitting on the fence about asking for financial advice, I’d say do it now. And go to Lowes, without a doubt!” * David has asked to remain anonymous but we can confirm he is one of Lowes’ longstanding clients.

David has been a Lowes client for over 20 years, but initially, he admits, he was anti-financial advice. “I was dead set against it. I started my own business in my early twenties and to my mind, you made your money by working hard to build up the business and spending your spare cash. I couldn’t see the point in investing and I was, without a doubt, pension-phobic at the time. “That’s how I lived. But there came a crossover point where, because the business had been doing well, I had what I wanted – the house, the cars and so on - and I was building up surplus cash. “My accountant at the time, kept telling me that I should be doing more with the spare cash, I should be putting it into a pension, because of the tax and investment benefits – looking more to the future. She also said, if I wanted to do it properly, I should be talking to an independent financial adviser. “She recommended Lowes and I’ve not looked back. In fact, I’d say I’ve flipped 180 degrees on the views I had about pensions and investing.” David worked with Lowes Consultant Rod Molyneux on making the savings and investments that were right for him. They started with setting up corporate pensions for himself and his wife, also part of his company, as well as investments into ISAs and structured products. When Rod retired, Gershom Chan became his adviser. “What I’ve always felt about Lowes is that they are interested in who we are and what we do. Gershom and I can have a half hour chat before we even start talking about personal finances. I find that very re-assuring.” David is particularly mindful of the tax burden that can be suffered by small business owners, so saving and investing tax efficiently is important to him.

Lowes.co.uk

9

PLANNING

How we help clients

When a client passes on, Lowes advisers are on hand to help the family, as Rob Earl, Chartered Financial Planner, explains.

In our 50+ year history, Lowes financial advisers have often played a crucial role in helping relatives through the complex and often overwhelming financial and administrative tasks that follow a bereavement. As independent financial advisers we can help ensure that the deceased’s financial affairs are handled efficiently and according to their wishes and also offer support to surviving relatives during what can be a very emotional and challenging time. Here are five key ways we can help our clients and their families: 1. Help with settling the estate Lowes advisers have many years’ experience in guiding surviving relatives through the estate settlement process. Clients who have been through the financial planning process will have accurate financial records, which for the executors of the estate can make finding and reporting information to HMRC far easier. We can also help with applying for probate, which enables access to the deceased’s assets, such as bank accounts, property and investments. Delays in obtaining a grant of probate can cause several issues, including financial strain, problems managing the deceased’s property and the inability to pay their utility bills and debts, as well as investment risks. 2. Managing and transferring assets We can liaise with other professionals, to help ensure that the transfer of assets, for example to the beneficiaries of the Will, is carried out efficiently and in accordance with rules and legislation. 3. Tax planning Lowes clients will have a wealth plan in place but when wealth is passed on this creates a new set of issues. Setting up of trusts in advance offers more control over the distribution of assets. Trusts can also provide benefits like

minimising estate taxes and facilitate the transition of wealth to beneficiaries. 4. Financial planning for surviving relatives We can provide expert financial advice for surviving spouses, partners and other family members, who can need immediate financial planning assistance to adjust to their new circumstances. 5. Additional support from a trusted source Lowes advisers may have been advising an individual, couple or family for many years, and are often a trusted source of support and expertise. Through our experience and knowledge, we can help alleviate some of the emotional burdens around the financial aspects of loss and make them more manageable. Forward planning Thinking ahead in this way can be something which, understandably, we put off. However, in our experience planning is an essential element of any good financial outcome – because we never know what might happen and when. Three further points to consider in planning, are having a formal Will put in place, ensuring any pensions funds have an expression of wish form attached, and creating a further expression of wish that Lowes continues to help your relatives to help smooth the way forward. Lowes has many years’ experience of sensitively working with individuals and their families during these difficult times and helping in the passing on of family wealth. If you or anyone you know would like to know more or to start forward planning, please talk to your Lowes adviser or call 0191 281 8811 and we will arrange for an adviser to contact you.

Lowes.co.uk

10

INVESTMENT

How 10-year structured products have hit the ball out of the park

The original plans offering the highest potential return required the FTSE 100 to be 10% above the value at the start of the plan to deliver the return. Over the years we have been able to bring that down to 5%, increasing the opportunity for the plan to mature positively for investors. Another change has been to swap out the FTSE 100 index as the underlying benchmark for the plans and instead use the FTSE CSDI. This index was created specifically for structured products and closely replicates the performance of the same 100 companies, but accounts for dividends differently. Both of these changes have been made to help improve returns and make these plans even more attractive for investors. FTSE Autocall Maturities October 2018 - May 2024

The 120 th FTSE 100-linked 10:10 Plan matured in May 2024. The 10:10 plans were a concept developed as a co operation between Lowes and Mariana Capital, with the first plan launched in late 2015. The investments drew upon Lowes extensive experience in the structured investment sector and took advantage of a pricing anomaly, which enabled the term of an autocall product to be extended beyond the then typical six years to, in this instance, ten years. We calculated plans could be created with minimal negative impact on the potential returns, whilst increasing the number of potential opportunities for positive returns which might be achieved. Our thinking provided extra protection. All 120 of the FTSE 100-linked 10:10 plans, that have matured to date, did so with a positive return for investors. The average annualised return across the 120 plans is 8.52%. None have made a loss for investors - on average, the plans have taken three years to mature. If we break this down further, as you can see from the table, the average return for the top 25% of matured 10:10 plans was 10.97% and for the lowest quartile, 6.55% per annum. Each tranche of the 10:10 plans offers three options of potential returns. Typically, the highest returning option requires the underlying index to be at a set percentage above its value at the start of the investment; the second, to be at or above the start value; whilst the third option drops the value on a stepped basis from year two, so at year 10, the index only has to be at 82.5% of the start value for the plan to mature with a positive return for investors. Autocall structured products are celebrating 20 years of successful maturities. Over 2,000 FTSE 100-linked autocalls have now matured and they are by far the most popular of these investments on offer. In our updated guide - A Consumer’s Guide to Autocalls – A 21 Year Evolution we call them the UK’s Best Investment Secret. The guide provides an independent review of the evolution of the sector and its performance. It highlights the history and features of autocalls to help demystify them and dispel myths. Structured product autocalls are a proven, successful solution for investors. While all investment involves risk and all investors should be prepared for that ‘worst-case scenario’, 20 years of maturities and historic performance shows autocalls have largely delivered. 20 year track record

All Products

10:10 Plans

Number of maturing products

1088 120

Number returning a positive oucome

1083

120

Number returning capital only

5 0

0 0

Number returning a loss Average total gain Average term (years)

18.08% 28.01% 2.42 3.04

Average annualised returns 7.18% 8.52% Average annualised returns upper quartile 9.43% 10.97% Average annualised returns lower quartile 5.39% 6.55%

Of the 2,000 which have matured to date, thirteen returned capital only and the rest returned gains. The average annualised return and duration has been 7.6% pa over 2.2 years. With this 20-year track record, we believe structured products are a better way for many to invest, at least for an element of their portfolios, particularly, when contained within ISA and SIPP tax wrappers.

If you’d like to know more, you can download the Guide from our website – Lowes.co.uk/autocall – or talk to your Lowes Adviser or call 0191 281 8811 .

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INVESTMENT

Structured product maturities As an Independent Financial Advice firm, Lowes is able to select the best investments and products from the whole of the market without restriction. Furthermore we are able to offer exclusive plans on terms better than the mainstream market. One of the benefits of this has been that Lowes has become a recognised expert in structured products, an investment vehicle that, with few exceptions, has produced positive returns for our clients year after year. Below is a table of the Q2 2024 maturities for structured products selected by Lowes, most commonly used for clients’ portfolios. As you’ll see, more than a few of the products were developed in cooperation with Lowes, using our expertise, or were an exclusive offer negotiated for Lowes clients. All of them were autocalls and matured at the first opportunity, on their second anniversary from launch. Gains ranged from 14% to 20.5% over two years. While past performance is no guarantee of future returns, we have proven structured products can deliver value as part of a diversified investment portfolio.

Maturity date

Term (years)

Gain (%)

Counterparty

Société Générale

19/04/2024 22/04/2024 22/04/2024 22/04/2024 22/04/2024 22/04/2024 07/05/2024 07/05/2024 17/05/2024 03/06/2024 10/06/2024 10/06/2024 11/06/2024 17/06/2024 17/06/2024 17/06/2024

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

14 14

* * * *

Citigroup

Morgan Stanley Morgan Stanley Goldman Sachs Morgan Stanley

18.8 14.8

17

15.6

* *

BNP Paribas

16

Citigroup Barclays

14.5 16.4

*

Morgan Stanley

17

HSBC

14.5

*

Citigroup

16 15

Credit Agricole Morgan Stanley Morgan Stanley

20.5 16.5 15.5

* *

Citigroup

* Developed in cooperation with Lowes or exclusive for Lowes clients. Adviser and intermediation fees apply. All utilised FTSE 100 or its very close ‘cousin’ the FTSE CSDI as underlying measure and outperformed the performance of the respective index with the exception of the last where the index recorded an additional 0.55% gain.

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SPOTLIGHT

Spotlight on Lowes people Former Lowes compliance director Neil McLachlan may be indulging his passion for conservation now he is semi-retired but his commitment to Lowes continues as a non-executive director on the Board. Neil joined Lowes in 2001 as senior technician and within three years was appointed to the role of Compliance and Training Manager. He joined the Lowes Board in 2005.

He started his career in financial services as a graduate with the Nationwide Building Society and was promoted to manager of two branches in London before he decided to take some time out to travel in SE Asia. That proved to be one of his best decisions, he says, as he met his future wife, Yoshiko, while travelling. The couple returned to the UK, where Neil worked as a financial adviser for building societies and finally a bank assurer. It was there that he almost fell out of love with

Neil McLachlan Non-Executive Director

the industry. “I liked helping people but at that time everything was about targets and selling to people, whether or not it was the best product for them. By 2001, he says. “I’d had enough.” He joined Lowes and, in his own words: “I was blown away by how different it was. The focus was on building and developing a long-term relationship with the client, doing the best for them and adding value to the client’s life. That was how I had envisaged financial advice should be.” As the Compliance Manager Neil had responsibility for ensuring the firm conformed to the myriad pieces of financial services regulation and legislation. “I have to say that I was fortunate in that role, as we employed good people who wanted to do the best for clients and that made my task much easier. Much of my time was spent guiding people to ensure we met the regulations, which are very complex.” While working at Lowes, Neil also spent five years as an Examiner and later a Senior Examiner for the Chartered Insurance Institute. His retirement from his day job was supposed to be in June 2020. But, as he explains: “We were in the middle of the Covid pandemic at that time. The official day of my retirement, I think there were six of us in the office, working in separate areas, so it wasn’t the send-off I had imagined. As it was, I continued working three days a week and gradually transitioned into semi-retirement, as I am still a member of the Board.” Talking about the 20 plus years he worked within Lowes, Neil says: “I am extremely proud of the work we have done over the years. We have always worked to high standards and with the client firmly in mind. It’s why I stayed for so long with the company. There is a great satisfaction knowing the value you can add to so many peoples’ financial lives, building their financial confidence and security, especially for the post retirement community. We have been a safe pair of hands for so many people, making peoples’ lives better – I’m proud of that.” Outside of financial services, Neil volunteers for the Royal Society for the Protection of Birds – and is involved in conservation projects which have seen him mend fences, manage cattle and help raise an orphaned lamb. He has also helped turn a dumping ground into a wildlife garden, and is actively involved in conservation of bird and insect habitats. It’s a passion that, he says, never sees him leave the house now without binoculars and a magnifying glass.

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EAR TO THE GROUND

Paul Milburn, Lowes Investment Manager

‘Made from concentrate’

For other investors, however, the level of concentration seen in the top ten stocks means that the destiny of the movement in the index rests in too few hands. There are worries about a loss of diversification and concerns that inflows into index funds have contributed to the bidding up of a handful of stocks. At present, the focus is on the US, perhaps due to the dominance of the Artificial Intelligence (AI) theme within those top ten names. As our research shows, however, it is not only the S&P 500 where we currently see elevated concentration levels. In terms of the top 10 stocks, the Swiss market is even more concentrated, at 73.19% of the index, an index which includes 230 issues. It is not just at the stock level where we see concentration here, but sector level also. The health care sector accounts for 34.7% whilst the food & beverage sector is a further 21.5%. The FTSE All Share also has a top 10 stock exposure level which is greater than that seen in the S&P 500, at just over 40%. There is argument here, however, that sector concentration is not as dominant as that seen in the Swiss market, and there is no dominating theme, like that of AI in the US. Perhaps one area of the UK equity market where there is a greater level of concentration is when it comes to dividend payments. According to the Computershare Q1 2024 Dividend Monitor, 48% of total dividend paid in 2023 came from only five stocks, with the top 15 payers accounting for 83%. 2023 was by no means a one off either, with the top 15 dividend payers for 2019 through 2022 accounting for between 81% and 88%. So, are concerns justified or unwarranted? Those investors who have been allocated to a passive investing, S&P 500 tracking fund over the last few years are unlikely to have complaint. They will have enjoyed the momentum which has been seen behind this handful of stocks. For those active fund managers who have varied significantly away from the benchmark, performance is potentially hurting on a relative basis. Concentration undoubtedly means less diversification at the stock level and should those top 10 stocks in the US falter more so than others, those funds with a high active share will enjoy their time in the sun. As always, try to understand fully what you are investing in, and to come back to our fruit juice analogy, make sure no additional sugars and preservatives are added, but more appropriate accompaniments instead.

There are many people who read the above on a bottle of fruit juice and instantly decide it is not for them, the belief being that this version of the natural fruit is not as healthy. This, however, may not actually be the case. So exactly what is it? When the label reads from concentrate it means that most of the water content has been removed through a process of filtration. This retains most of the nutrients from the fruit, leaving a syrup like liquid which is full of natural sugars. If no additional sugars and preservatives are added, however, the reality is there isn’t much difference. So, what relevance is this to investing, you may ask yourself? Concentration within certain investment markets has become a hot topic of conversation and for some a concern. The most frequently discussed is without doubt what we currently see within the US equity market. The dominance in terms of share price return of the ‘Magnificent 7’, being Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta (previously Facebook) and Tesla, means that they represent an ever increasing proportion of US indices, in particular the S&P 500. Such has been the dominance of the returns of these stocks’ relative to others, what is termed as the breadth in the market is extremely narrow. Research from Ned Davis Research shows that in 2024, to the end of June, only 25.15% of companies in the S&P 500 have managed to outperform the return for the S&P 500. Admittedly there is still six months of the year to go, but to place that in some context, the current figure is the lowest seen for each calendar year going back to 1974. This includes the previous low of circa 28% seen in 1998. As a consequence, the correlation of movement between stocks in the S&P 500 is at the lowest level seen for the last 20 years. The negative share price movement of Tesla in the first half of the year meant it dropped out of the top ten constituents. The other six remain, however, and at the end of June the top 10 stocks accounted for a 35.8% weighting. According to data from Goldman Sachs, this compares to a peak of 25% seen during the tech bubble of 1999/2000 and a 35 year long term average of 20%. Whilst this level is undoubtedly high, for some investors it is more than justified given the high level of earnings which they have compared to other stocks within the index. Research from JP Morgan shows that the top 10 stocks account for circa 20% of the overall earnings generated by companies in the S&P 500.

Stock Market Index Concentration

80% 70% 60% 50% 40% 30% 20% 10% 0%

Top 1

Top 10

Swiss - SPI

France - CAC40 Australia - ASX200 Euro Stoxx 50

UK - FTSE 100

US - S&P 500

Source: Swiss SPI stoxx.com, France CAC40 euronext.com, Australia ASX2000 spglobal.com, Euro Stoxx 50 stoxx.com, UK FTSE All Share ftserussell.com, US S&P 500 spglobal.com, FTSE 100 to 31 March 2024.

Lowes Financial Management and Lowes Investment Management are authorised and regulated by the Financial Conduct Authority. Visit: www.Lowes.co.uk | Call: 0191 281 8811 | Email: enquiry@Lowes.co.uk