Lowes Magazine Issue 115

Animated publication

Issue 115

“The two most powerful warriors are patience and time.” Leo Tolstoy

INSIDE TRACK

10 years proof of Structured Products’ worth LOWES HAS PUBLISHED AN IN-DEPTH GUIDE ON THE structured product market, which looks in detail at the growth and performance of the market over the past decade. Lowes has been researching and utilising structured products in portfolios for over 20 years and has been instrumental in developing new products which have changed the market demonstrably. We are recognised by the industry as independent experts in this area and therefore, perfectly positioned to conduct this review. As you can imagine, it was no mean task to collate and review a decade’s worth of investment history covering over 4,000 investments. What the report reveals, quite clearly, is that investors who utilised structured products over the last decade have, with few exceptions, achieved favourable outcomes, very well aligned with expectations. We believe that structured products are under-valued by the market but that the sector can continue to deliver better outcomes than various other asset classes, throughout more turbulent market conditions than in the years which this review has covered. If you would like a copy of the report, you can find it at: Lowes.co.uk/SPdecade

Lowes wins another Best Investment Adviser award WE ARE DELIGHTED ONCE AGAIN TO HAVE won Best Investment Adviser at the 2020 Money Marketing Awards, adding to our growing list of accolades over the past few years. Lowes previously won this award in 2018 and this year we were finalists also in the Best Retirement Adviser category. The Judges’ comments included: “Lowes Financial Management once again stood out as leader of the pack for Best Investment Adviser. The company prides itself on being “fiercely independent” with experts and specialists in the field.” The judges added, they “were in awe at the progress made in the last 12 months” and also “pleased to see how satisfied clients are with the service they receive.” Lowes has won or been a finalist in 12 industry awards over the past three years, reflecting the considerable efforts of everyone at Lowes from our Consultants, through our Investment, Pensions and Technical teams, to all Lowes staff supporting the work we do for the benefit of our clients.

Lifetime ISA withdrawals HMRC RECENTLY ANNOUNCED THAT SAVERS and investors whose income has been affected by the Coronavirus and who withdraw from their LISA between 6 March 2020 and 5 April 2021 (inclusive) will only have to pay back 20%. The Lifetime ISA offers a 25% bonus, paid monthly, on up to £4,000 of savings each year. The early withdrawal fee was 25% of the amount withdrawn and was set to disincentivise people from using LISA funds for a purpose other than buying a first home or for retirement. However, care should be taken when withdrawing from stocks and shares LISAs, due to recent stockmarket falls. If the value of the ISA has been reduced, withdrawing now could mean there is less capital to grow when stockmarkets rise and any losses to date become permanent.

2 LOWES Issue 115 · Published July 2020 The content of the articles featured in this publication for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Covershot: Comet Neowise over Stonehenge 14 July 2020 Next passing will be in 6,800 years Photo: Declan Deval

Make your money work. Best bank & building society accounts Type Amount Provider Account Gross Rate Contact Unrestricted instant access accounts Online 1 £1 + NS&I Direct Saver 1.00% 1 www.nsandi.com Accounts with first year bonus / restrictions

Easy Access Savings Account

Online and telephone

£1+ - £100,000

Saga

0.75% 2

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Fixed rate bonds

1 Year Fixed Term Deposit 2 Year Fixed Term Deposit 3 Year Fixed Term Deposit

Online, telephone or postal

£1,000 - £85,000 QIB (UK)

1.05% www.raisin.co.uk

Online, telephone or postal

£1,000 - £85,000 QIB (UK)

1.25% www.raisin.co.uk

Online, telephone or postal

£1,000 - £85,000 Gatehouse

1.2% www.raisin.co.uk

Notes 1 Can be opened online or by telephone, but must be managed and accessed online. 2 Rate includes 0.2% bonus payable for the first 12 months. Your money is deposited with Goldman Sachs. Only available to those aged 50 and over. An email address is required to open the account be telephone. Measures of inflation - The average change in prices of goods and services over a 12 month period to June 2020 Retail Prices Index (RPI) 1.1% Consumer Prices Index (CPI) 0.6% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfacts.co.uk 23/07/20. All accounts subject to terms and conditions.

Helping clients during lockdown AT THE START OF THE COVID-19 PANDEMIC WE were very conscious that some people may not have the support of family members and friends, let alone company at this time. We understood that it can be hard to change to a new normality of online shopping, video conferencing and new ways of communication. Although modern technology has proven to be more than just a blessing during the current crisis we understand that not everyone is as up-to-date with the latest technology. In our last edition of the Lowes magazine we offered support by way of a team of willing volunteers, to anyone who felt they needed assistance. The offer of support was well received and we had several calls requesting help for a variety of matters. These ranged from setting up video conferencing, to creating Facebook accounts to help people connect with family and friends, to solving IT issues with their personal devices and helping to open accounts to arrange grocery deliveries. We are delighted that we have been able to provide this help to those who needed it during this very unusual period. The offer still stands, whilst we can’t perform miracles if there’s something that you think we might be able to help with, why not get in touch – we’re a resourceful bunch and love a challenge as much as we enjoy helping.

Grid n°17736 easy magazine why not try your hand at this issue’s Sudoku. To complete the puzzle fill the grid so that each row, column and 3x3 block contains the numbers 1 to 9. The solution to the puzzle ca be found on page 14. Sudoku When you’ve finished reading the Lowes

1

123 4 5 678 9 1 2 3 4 56 7 8 9

12 3 4 5 678 9 1 2 3 456 7 8 9 1 2 3 45 6 7 8 9 1 234 5 6 789 1 2 3456789 12345678 9

5

8

1 2 3 4 56 7 8 9 1 2 34 5 6 7 89 12 3 4 5 678 9 1 2 3 456 7 8 9 1 2 3 45 6 7 8 9 1 234 5 6 789

12345678 9

6 2

5 1

123 4 5 678 9

12 3 4 5 678 9 1 2 3 456 7 8 9

1 2 3456789 12345678 9

8

123 4 5 678 9 1 2 3 4 56 7 8 9 1 2 34 5 6 7 89 12 3 4 5 678 9 1 2 3 456 7 8 9

1 234 5 6 789 1 2 3456789 12345678 9

8 7 5

12 3 4 5 678 9 1 2 3 456 7 8 9 1 2 3 45 6 7 8 9 1 234 5 6 789 1 2 3456789 12345678 9

1

3

2 4

1 2 3 4 56 7 8 9

12 3 4 5 678 9

1 234 5 6 789 1 2 3456789 12345678 9

4

2

8

4 1

123 4 5 678 9

1 2 34 5 6 7 89

1 2 3 456 7 8 9 1 2 3 45 6 7 8 9

1 2 3456789

1 6

123 4 5 678 9 1 2 3 4 56 7 8 9 1 2 34 5 6 7 89 12 3 4 5 678 9 1 2 3 456 7 8 9

1 2 3456789

7

3

2 5

1 2 3 4 56 7 8 9 1 2 34 5 6 7 89

1 2 3 456 7 8 9 1 2 3 45 6 7 8 9 1 234 5 6 789

A number may not appear twice in the same row or in the same column or in any of the nine 3x3 subregions.

Source: www.printmysudoku.com

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.

We have all the free sudokus you need! 400 new sudokus every week. Make your own free printable sudoku at www.PrintMySudoku.com

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COMMENT

Staying positive WHEN THE CORONAVIRUS PANDEMIC FIRST impacted the UK, I think few of us expected it would be affecting our lives to this extent mid- year, let alone for much of 2020, as now looks likely. In more ways than one we are far from out of the woods as yet. The human impact has been devastating not just in the UK but across the globe and our thoughts remain with those who have lost family and friends wherever they are. Lockdown’s material effects on the economy mean the UK is now in a recession. How deep that will be will depend on the government’s ability to sustain the support schemes it has put in place and how quickly all businesses can return to some semblance of ‘normal’. Stockmarkets have partially recovered from their dramatic falls earlier in the year and portfolios are looking healthier than they were in the Spring. With nearly 50 years of investment experience, our advice to clients is hold firm and look long term with your investments. While not guaranteed, history shows the stockmarkets do recover over time. Should an unexpected spike in the number of infections occur then aside from the human impact, there will be further effects on both the economy and the stockmarkets. We must hope that does not happen but should it do so, then again, looking beyond the immediate impact on our portfolios will be essential. In his recent Summer Statement, Chancellor Rishi Sunak outlined measures aimed at helping to support the economy, much of which is being funded by government borrowing. Whilst currently it has capacity to do so, there is no doubt that the Chancellor will be looking at ways to help rebalance the books. Inflation can help government debt by reducing the percentage of total tax revenue required to service the debt, making it easier for governments to pay it off. But currently inflation is 0.6%, which is low from historical standards, and well below the Bank of England’s target of 2%. Other ways the Chancellor will look to redress the debt is through spending less – he has already announced a spending review – and, of course, through taxation. He has also commissioned the Office of Tax Simplification to review Capital Gains Tax (CGT), including the current reliefs, exemptions

and allowances. Come the November Budget, we can expect CGT rules will be changed – there may be other tax measures introduced also. Lowes Consultants and our technical teams will be keeping abreast of any measures and how they may affect our clients’ financial planning. Whilst we are impacted by many external factors at the moment, in this environment it is important that we stay positive. From the start of lockdown, Lowes has remained as operational as possible, helped by effective use of technology – we are now all used to conducting meetings via video-conferencing software. We have also been delighted to be able to assist clients with their technology queries, helping them stay in touch with loved ones and friends. Our offer of help remains open if you need it. Our spirits also have been lifted by once again being named Best Investment Adviser at the annual Money Marketing Awards. These are hard won awards and winning this award for a second year is a pleasure. We were particularly proud of the judges observation that: “Lowes combines the intimacy and client care of a small firm, with big firm efficiency and process.” I hope that you and your families remain safe and well.

Ian H Lowes, Managing Director

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ADVICE

Why people seek advice The reasons that people first seek advice differ but often they are because someone has experienced a life event or they are about to enter a new phase of their life and they need help in sorting their financial situation as a result. Common reasons revealed by the research were a desire for a financial health check, a change in family circumstances, like marriage, and the need for advice on saving for a child or grandchild. From an investment perspective, some of the key benefits of Independent Financial Advice highlighted were that advice focuses investors on their long-term return expectations keeping them calmer in the face of short- term market events; use of tools when building portfolios that can incorporate the potential for extreme events, showing their effect on a portfolio and the recovery and growth periods that tend to occur after those events; and how having a carefully thought through financial plan put investors in the best position to achieve their longer term objectives. A benefit less talked about than the financial advantages of advice, but of equal importance, is the emotional wellbeing of investors. The Dynamic Planner/Henley Business School research faced savers with a market crash scenario which saw a decline in their pension values. The results showed that 58% of respondents who had experience of financial advice were concerned, while 25% were still optimistic about their financial situation. However, of those without experience of financial advice, 74% were concerned and only 12% were optimistic.  It is the feeling of wellbeing, or peace of mind, in itself which is a valuable benefit that many of our clients’ attribute to having the support of an Independent Financial Adviser.

More people see value in financial advice

THE IMPACT OF THE CORONAVIRUS, WHICH caused widespread financial uncertainty, has served to highlight the need for Independent Financial Advice. Two sets of research have identified the growing recognition of the value of advice. Assurer Aegon and investment risk company Dynamic Planner, in conjunction with Henley Business School, discovered that advised investors are better off financially and in terms of their emotional wellbeing. The Aegon research found that a quarter of those interviewed said they had sought financial advice for the first time. When we start off saving and investing, initially there will be fewer investments to manage. As our portfolio grows, either in terms of its overall value or the number of investments, then it becomes more difficult to manage and to know if we have made the right decisions. In addition, the wealthier we become the more we need to assess the potential impact of tax, both short-term and long-term, on the value of the investment wealth we are accumulating. Good Independent Financial Advice has been proven to be more effective in building wealth than the DIY route. Research conducted by the International Longevity Centre-UK over a number of years has shown that advised individuals were in general around £40,000 better off than those who did not receive advice. We would urge anyone who has a portfolio and feels they need help in how best to manage their money and to build up substantial savings either for their retirement or specific goals – school fees, helping family get on the property ladder, leaving a legacy for beneficiaries and so on – to seek Independent Financial Advice, so please do not hesitate to put friends and family in touch with Lowes.

LOWES CONSULTANT Stephen Hoggarth says: I was interested to read in the survey results mentioned, that people said they had delayed seeking Independent Financial Advice until now because they thought they had to have a lot more savings and investments to make it worthwhile.

One of the primary aims of Independent Financial Advice is to help people to build their wealth over time. In my experience there are two main hurdles to overcome in this respect. The first is starting to invest and regularly. The second, having grown your investments and savings to a certain point, is being able to continue to manage the portfolio and knowing when to seek advice to ensure your wealth is invested and maintained effectively and tax efficiently. The focus of Independent Financial Advice is as much about helping to preserve wealth as it is building it. A second reason people cited for not seeking advice was a lack of confidence or fear of being judged on the investment decisions they had made thus far. My response is to say as advisers we are not here to judge; we are here to help. Seeking Independent Financial Advice is not only a sensible option but will ensure your wealth is professionally managed, relieving you of the day-to-day task and stress of doing so.

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PENSIONS

Advice and divorce

Options for pension assets division Offsetting Where the pension assets can be offset against other assets owned by the couple – so one of the couple might stay in the marital home in lieu of receiving part of their ex-spouse’s pension rights. Pension sharing orders Pension assets are divided at the time of divorce, effecting a clean financial break. Pensions attachments orders Here one individual’s pension provider pays an agreed amount direct to the former spouse when the pension payments start being drawn. The former spouse could lose out with this option if the person with the pension rights dies before retiring or the former spouse remarries. If you know anyone close to retirement who would benefit from advice on these important aspects of pensions, please have them call 0191 281 8811 to arrange a free consultation with a Lowes Consultant.

THE DIVORCE, DISSOLUTION AND SEPARATION bill, which proposed ‘no- fault divorce’ passed into Law following Royal Assent on 25 June 2020. This makes it possible for a divorce to be obtained without the need to prove “adultery, unreasonable behaviour or desertion” and will also prevent a divorce from being blocked by one party. Commentators have raised concerns that this will see a rise in people wanting to expedite ‘quick’ divorces. Where a couple’s joint assets are of a reasonable amount, seeking professional financial advice prior to, during and after any divorce case can help both to ensure any settlement is fair for all parties involved and with an individual’s financial position post divorce. The focus for couples is often on tangible assets but division of pensions is an area that can be overlooked and can have significant and long lasting financial implications. Women who have had a career break often have less ability to pay into a pension and so will be more dependent on their spouse’s pension in retirement.

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PENSIONS

More people able to access their pension NEARLY A MILLION PEOPLE IN THE UK WILL turn 55 this year, which is the age at which most people can legally access their personal pension. The increased flexibility offered by the Pensions

Our standard advice is to not touch your pension until retirement, possibly later, unless absolutely necessary. These are tax efficient wrappers that should be used for the purpose for which they are intended, i.e. accumulating assets to help provide retirement income. For anyone who must access their pension, it is important they do so knowing the implications. They need a clear perspective on what their options are, how long their money may last them in retirement, what they need to keep paying into a pension to achieve the retirement lifestyle they want and, importantly, how they access their pension in the most tax efficient way, so they don’t end up paying the taxman more than they need to.

Freedoms, introduced in March 2015, means there are now greater options to choose from depending on an individual’s personal circumstances, including the ability to continue working, work part-time and part access their pension, or retire and fully access their pension. Yet many people are not seeking financial advice but are making complex decisions on their own, often unaware of the potentially serious implications on their retirement wealth and tax situation. In addition, they are at increased risk of falling victim to scams.

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PLANNING

Making the right financial decisions in a crisis

MAKING THE RIGHT FINANCIAL PLANNING decisions during and post the Covid-19 crisis is essential to ensure that, as much as possible, we protect our wealth and help it grow again. The impact of lockdown first on the stockmarkets and now on the UK economy is one of the most serious events in recent memory. Certainly, there will be many investors and savers who will never have known stockmarkets to drop as far as they did in March 2020. Even those who experienced the financial crisis 11 years ago may well have been spooked by the recent falls. Stockmarkets have since recovered a little and certain areas such as technology – and the FAANGs (Facebook, Apple, Amazon, Netflix and Google) – have seen considerable interest – a new tech stock boom of which past experience warns we should view with caution. Fear, panic and concerns around income have helped create a situation where people are sucked into making the wrong decisions, some of which could seriously affect their future wealth. It can be argued that it can be not so much what we do as investors and savers but rather what we don’t do which will have more of an impact on protecting our wealth. Taking money from pensions Reduced income brought about by the current crisis, including reduced payments from income funds and cuts and suspensions to investment dividends, has seen many savers and investors who are reliant on that income to maintain their lifestyle, consider drawing lump sums from their pensions. This is done to shore up their finances and, in some cases, to help out others in difficult circumstances. While flexible pensions have made it easier to access retirement savings, there are serious disadvantages and tax traps involved in taking money from pensions, which mean anyone should think carefully about if and how they withdraw money. First, pensions are designed to build a pension pot

for your future. They are one of the most tax efficient savings investments you can make. They work on the basis of accumulation, with capital paid in and returns made and reinvested, which means the money is constantly compounding, with returns building more returns and working for you over the years. Taking money out of a pension fund ahead of when it is needed for its actual purpose, i.e. providing an income in retirement, will reduce the pension’s ability to make money going forward. With recessions in place and stockmarkets volatile, there is no guarantee a depleted pension fund will return to the position it was in when the money was taken out, let alone grow further. This is particularly so if a pension fund is drawn from in the run up to retirement. There are considerable advantages in terms of inheritance planning for retaining money in a pension, as should the pension holder die before age 75 their beneficiaries can receive the pension free of income tax. After age 75, the beneficiaries pay tax at their marginal rate. Removing money from a pension will trigger a tax event, which can seriously deplete the amount received. HMRC considers that pension withdrawals will be undertaken for the same amount every month. So, when a lump sum is taken from a pension, the taxman assumes that same sum will be withdrawn every month and applies the appropriate tax rate to the lump sum – this can see people on standard rate tax paying higher rate tax. The tax can be reclaimed but takes some form filling and months to achieve. HMRC repaid over £166 million in overpaid tax in 2019/2020. In addition, taking money out of any pension held, then limits the individual’s maximum pension contributions per year from up to £40,000 to just £4,000 – again reducing the ability to build pensions savings in the future. As you can see, taking money out of a pension has to be carefully considered, not least in the context of its potential impact on the saver’s future income needs.

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PLANNING

Fear and the stockmarkets Lowes has written many times before about how fear of losses lead to investors making the wrong decision in times of stress. Investor behavioural studies have shown that losses have far more effect on us than our wins. Hence, when markets fall, the biggest threat to an investor’s wealth can be themselves. The knee- jerk reaction to stockmarket crashes is to take money out of the markets. However, often by the time that is executed the worst is over and all the investor is doing is cementing their losses – hindering their ability to recover from them when markets rise again. This hit to overall wealth can be particularly devastating where retirement income is involved. Chasing quick wins Equally as dangerous is chasing the stocks and sectors that are burning brightest at this moment, along with the rest of the herd. This can result in paying over the odds for investments and risk losing money as the market in that sector corrects. If we take the technology sector as an example, one very successful technology fund recently had to soft close its doors on new investments to protect existing investors because it couldn’t effectively place the new money. Trying to time the markets by jumping on and off investment bandwagons at exactly the right time to maximise returns is very difficult to do and rarely executed successfully. With both these scenarios, we advise our clients to think long term, to accept that stockmarkets will go up and down and not to panic or take extreme actions but to stay invested, to catch the eventual uptick in the market and benefit from what history tells us, that over time stockmarkets rise. Intergenerational wealth transfer The UK economy has been significantly impacted by the Coronavirus crisis and months of lockdown. UK GDP has fallen dramatically and Government debt has increased through furlough payments and other expenses related to combating the virus. With GDP down, effectively the wealth of the nation, the Government’s ability to borrow money reduces as does its bargaining power on interest rates. Consequently, it is almost certain we will be facing rises in taxes, or reduction in reliefs and exemptions in future Budgets. This invariably prompts people to pre-empt hikes in tax rates by transferring wealth between generations under the current tax rules – on the basis of better the devil you know. While this may seem a good tactic, actions driven by fear of an event often are not the best ones. There are three fundamental issues that need to be considered. Firstly, the result giving wealth away can have on an individual’s long-term finances and their looked for lifestyle in coming years, and particularly in retirement. Giving away capital now will reduce a person’s ability

to create wealth over time. Calculating potential growth based on past performance cannot be done with any certainty – we should remember that the global markets have experienced an 11-year bull market, where markets have risen year-on-year, and corrections are always possible. Hence, any consideration of gifting should only be made with money totally surplus to future requirements – if that certainty exists. Secondly, the tax implications of giving money need to be considered, for example in terms of inheritance tax, as the gift will be seen as part of the individual’s estate for seven years after it is made. Other tax efficient investments, such as Business Relief, may be worth considering, as money does not form part of an estate for inheritance tax purposes after two years. Thirdly, gifting money usually means that the person, if over the age of 18, has access to the money now to do with what they want. Use of certain trust arrangements can help here, in terms of exercising some control on when the money is accessed, nevertheless it can be an important consideration. These are just some of the considerations (and mistakes we see made) and which, as Independent Financial Advisers, we are able to help people navigate, particularly in the current economic and financial situation. Seeking advice is about keeping your head while everyone around you may be losing theirs – which is where financial expertise is invaluable. Why a cash buffer makes sense The recent fall in the stockmarkets – alongside dividend payments cuts or suspensions, such as by high profile traditional dividend payers such as Barclays, BT HSBC and Shell – have affected many people’s income streams in the past few months. Uncertainty of this kind underlines the value of holding a set amount of your assets in an accessible cash account. The nature of the markets means that at some point, income derived from our investments will go down, and so may not meet our expenditure needs, which can be particularly significant in retirement. This may force us to draw on capital, which is something we may not want to do as it can reduce our ability to produce the income we need in the future. In addition, if we are forced to sell, this can be when markets are at their lowest, meaning we transact at a loss and we have to sell more of what we own to get the income needed. A sensible option, therefore, is to hold money to cover several months’ expenditure – typically six months to two years – in a cash account. While this won’t be earning much in the way of interest and will be subject to effect of inflation, it enables income to be taken from that account when needed rather than extracted from capital, which will help those investments return to producing the required levels of income when stockmarkets recover.

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INVESTMENT

A Change of Pace

Paul Milburn, Senior Investment Analyst, examines accelerating trends in the market and how Lowes is capturing them in the Changing World portfolio

THE COVID-19 PANDEMIC has had a significant impact on the way in which we go about our lives, both from a personal and work perspective. Social distancing and lockdown have meant changing the way we communicate with one another. From my

Whilst all but two of the funds within this portfolio have outperformed the sector and index above, those with a greater focus towards technology and biotechnology have been the strongest performers. This is unsurprising given the strong performance we have seen from these sectors. Focussing on the US, where these sectors are most prevalent, the Nasdaq Composite index (a technology focussed index) is up 24.69% in US dollar terms. This compares to 1.58% for the broader S&P 500. The S&P 500 Biotechnology sector meanwhile is 16.8% higher over the same period. There are some concerns building around the recent aggressive rise in share prices of technology companies and also how focussed this has been in certain stocks, in particular the larger companies. The Nasdaq 100 index, which is the top 100 companies in the Nasdaq by company value, has outperformed the broader index by over 5%. If we equally weight the stocks on the Nasdaq 100, rather than having them in proportion of their size as is usual, the domination of the larger names becomes even more noticeable, with this adjusted index underperforming the normal Nasdaq 100 by almost 11%. According to the latest figures from Bloomberg, the combined value of Apple, Microsoft, Amazon and Alphabet is now greater than the entire Japanese equity market. Even within the US, Apple, Microsoft, Amazon, Alphabet and Facebook, the current five largest companies in the S&P 500, account for in excess of 20% of the index, a concentration which we have not seen over the last 25 years. Whilst these companies are at the forefront of technological and social change, some investors are understandably nervous of the price you are expected to pay today to benefit from their future earnings growth. However, assessment of the earnings potential for these companies can be difficult to gauge, particularly as they continue to heavily reinvest in new technology and projects. Megatrends are exactly that and are expected to play out over many years. Whilst pullbacks in share price are certainly possible in the short term, for now these sectors remain at the forefront of these trends and are likely to remain so for some time to come. On that basis, we are comfortable with the broad exposure within the Changing World portfolio. As far as the individual stock selection decisions go, however, we will continue to leave those to the respective fund managers. [Source for all performance figures: FE Analytics]

perspective, an important part of my day-to-day role at Lowes involves meeting fund managers face-to- face. Lockdown caused a quick rethink on this. While video conferencing facilities have been available for some time now, they have been costly and, I think fair to say, underutilised. We are now however able to use desktop conferencing facilities such as Zoom, a company most people had probably never heard of before March. Advances in technology has enabled online shopping to take an ever increasing market share. With just a click of a few buttons we can now view almost any product online. Those companies which have embraced this change have continued to thrive, those who haven’t have suffered greatly, the problem compounded by the inability of the public to visit stores. In April we saw Amazon launch a recruitment drive to employ a further 75,000 staff worldwide, having just employed 100,000 in March to cope with demand. These were trends which were already established prior to COVID-19, but the pace of adoption has undoubtedly increased. To quote JW Gardner, former US Secretary of Health, Education & Welfare, “we are continually faced with a series of great opportunities brilliantly disguised as unsolvable problems.” Termed by others as megatrends, these are influences which have the potential to be key drivers of change, including technology, the environment, social behaviour and demographics. In recognition of these megatrends, a number of years ago Lowes created the Changing World portfolio, the primary focus being to gain exposure to the potentially high growth areas of technology, biotechnology/healthcare, sustainability and innovation. In the year to date, the increase in the pace of change has stood this portfolio in good stead. From the 31 December to the 21 July, the portfolio has returned 23.25% on a total return basis, significantly outperforming the broader IA Global equity sector average (4.35%) and MSCI All Countries World Index (3.25%).

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INVESTMENT

How we help clients

Interest in Possession Trusts These are trusts where individuals can receive the income from assets (an income beneficiary) but do not have access to the assets themselves. The trustee passes on all trust income to the beneficiary as it arises (less any expenses). As an example, someone may put assets in an Interest in Possession Trust which, after they die, pays the income from the assets to their spouse and after the spouse dies the assets go to named children. Discretionary Trusts Discretionary Trusts, as the name suggests, allows for some control over assets and payments. The trustees can make certain decisions over how trust assets are distributed and who to, depending on the trust’s beneficiaries. This can include what gets paid out (income or capital), how often payments are made, and any conditions imposed on the beneficiaries. Discretionary trusts are sometimes set up to put assets aside for beneficiaries who are not capable or responsible enough to deal with money themselves. Other trusts, such as discounted gift trusts and flexible reversionary trusts can enable the settlor to take payments from the trust and have certain aspects of control while also taking advantage of IHT benefits. Taxation Tax treatments differ depending on the type of trust and considerations need to be made for Income Tax, Capital Gains Tax, and Inheritance Tax. In some cases, money is taxed when placed into the trust, and others have a tax review and charge applied every 10 years. As can be seen, trusts are a complex area and this can only be a high level look at them. Which trust is used (or more than one, as trusts can be combined) will very much depend on individual circumstances and what the settlor(s) is trying to achieve for themselves or their beneficiaries. They can be a useful tool for intergenerational financial planning as well as tax planning, but I would recommend anyone considering putting money in a trust first consults an Independent Financial Adviser to ascertain which may be the most appropriate for their needs.

LOWES CONSULTANT John Walton outlines one of the situations where a client may require advice and Lowes is able to help. Our discussions with clients around

leaving money to their beneficiaries, can revolve around a range of issues. These include reducing their estate’s liability for inheritance tax, or other complex areas, such as investing for a child’s future in a tax efficient way, providing their partner with a lifetime income but passing on the assets to children, and putting money aside for children but wanting to retain some control over it. Likewise, some want to gift the money outright; some want to derive an income from or have access to it in the short term. Trusts can provide a solution to these issues but they can be a difficult area to navigate. There are several types of trusts used when planning our finances but the three most commonly used are Bare Trusts, Interest in Possession Trusts, and Discretionary Trusts. Each allows for a different level of access by the person setting up the trust (the settlor) as well as different tax treatments in respect of tax paid by the person paying the money, and the beneficiary, the person(s) receiving the money or income from it. Trusts are managed by trustees, which can be the settlor(s) or independent individuals, who look after the assets and investments. Bare Trusts This is the simplest form of a trust, with assets held by a trustee for the benefit of the beneficiary. They are often used by parents and grandparents to pass money down to children of the family. As money paid in is classed as a gift, which is a Potentially Exempt Transfer (PET) for tax purposes, if the settlor lives for seven years after the gift is made, it sits outside their estate for inheritance tax (IHT) purposes. As a gift, the child has an absolute right to the funds and can access them when they turn 18. Before then the parents, or grandparents, look after the funds as trustee(s) and invest the funds accordingly. The funds can also be accessed before the child turns 18 if required for the benefit of the child, such as for school fees.

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PLANNING

LOWES CONSULTANT Gershom Chan says: Wherever possible Lowes Consultants will advise clients to invest as much as they can afford into an ISA each year, simply to benefit

The ISA IHT trap The amount that can be invested for the 2020/21 tax year is £20,000. While, as mentioned, ISAs are a tax efficient means of investing in respect of income and capital gains tax, they are not entirely tax free. One tax they are not exempt from is inheritance tax (IHT). Having £100,000 invested in an ISA potentially could generate a tax bill of £40,000, which is not a problem we would want to pass on to our beneficiaries. This is where getting advice from an Independent Financial Adviser can help. Efficient financial planning will include a blend of ISA savings and investments, pension savings, and the use of trusts which can move the money outside of an estate for IHT purposes. If you have built up substantial ISA investments and are concerned about a potential IHT bill, Lowes Consultants can help advise on the right strategy for your circumstances. Call 0191 281 8811 to arrange a consultation. What is important is the selection of the investment types held within the wrappers and we advocate having a spread of investments, primarily mutual funds but also structured products for the capital protection and the known returns they offer. from the tax advantages – i.e. no income or capital gains tax on income or gains made by savings and investments within the tax wrapper. For the past few years we have steered clients away from cash ISAs other than as a repository for their ‘emergency’ cash fund (noting that cash ISA interest rates are often inferior to other savings rates). With interest rates now at or close to zero, despite the recent falls in stockmarkets, stocks and shares ISAs should prove to be the best way for investors to make money using these tax efficient wrappers.

MANY ISA INVESTMENTS ARE MADE IN THE run up to the end of the tax year on 5 April. All too often this can result in hasty decisions and suffering the hassle and stress of having to ensure all documents and payments are completed before the deadline. We recommend taking a different approach, one that is less rushed and potentially stressful, which is to invest earlier in the year, either with a lump sum, or monthly investment amounts. This allows for a more considered approach to the research and investment decisions being made. It also means your money can be invested for up to a year longer, with the benefits of accumulation. Alternatively, drip feeding money into the markets through a monthly contribution into chosen funds creates a useful habit of regular investment and can help smooth out the ups and downs of the market by capturing price rises when they occur as well as potentially reducing the overall effect on a portfolio of market falls. The benefits of long-term compounding apply here also. Is now the time to invest in a stocks and shares ISA?

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INVESTMENT

Chancellor’s Summer Statement IN HIS SUMMER STATEMENT, CHANCELLOR Rishi Sunak set out the Government’s measures to help kickstart economic recovery and reduce unemployment as the country moves out of lockdown. The measures were largely focussed on keeping people in jobs as companies assessed their situation on All eyes now will be on the Autumn Budget, which usually takes place in November. While the details will be affected by how effective the fight against the Coronavirus has been at the time, any spike in Covid-19 cases may stall recovery measures, the Chancellor has already said this will include spending and tax reviews and measures to help pay down the cost to the Treasury of the schemes being used to support jobs and the economy during the current crisis.

furloughed staff in the wake of lockdown and creating new jobs, in particular for young people entering the employment market. They also looked to boost the leisure and hospitality industries through a six-month reduction in VAT, and to re-vitalise the housing and building markets through a temporary increase in the nil rate band for residential stamp duty from £125,000 to £500,000. These were supportive measures which government is funding in large part through further borrowing.

Tax Tables 2020-2021 Our free tax table booklet is updated yearly to help ensure you have the information at hand to manage your taxes effectively If you would like copies for family, friends or colleagues, please call 0191 281 8811 or email enquiry@Lowes.co.uk

SP ‘Preferred’ plan maturities THE STOCK MARKET CONDITIONS HAVE understandably resulted in several potential

Maturity Date

Index Link FTSE 100

Index Change

Plan Gain

Provider

structured product maturities being deferred until a subsequent anniversary, when the potential gains will be higher but unfortunately this was not the case for some fixed term plans. During the quarter, eight such plans that had been utilised in client portfolios reached their maturity date and whilst the results are in some regard disappointing, none of these structured products recommended by Lowes matured with losses, despite some double digit falls in the underlying indices to which the investments were linked. The structured products recommended by Lowes can offer equity-like returns, whilst protecting capital from all but the most adverse market conditions and although positive results are of course the objective, this quarter’s maturities demonstrate the value of the capital protection element of these investments. The table shows the performance of the Lowes ‘Preferred’ structured products held by Lowes clients that matured in the second quarter of 2020. All of these maturities were fixed, six-year term products.

Morgan Stanley

-16.97% 0%

22/04/20

FTSE 100

-12.97% 24.25% 1,2

Investec 28/04/20

Euro Stoxx 50

Meteor

12/05/20

-8.47% 0%

Société Générale

FTSE 100 FTSE 100 FTSE 100 FTSE 100

-11.77% 0% 1

01/06/20

Investec 09/06/20

-6.86% 28.50% 1,2

Morgan Stanley Morgan Stanley

10/06/20

-10.24% 0%

-10.24% 0%

10/06/20

Euro Stoxx 50

Meteor

22/06/20

2.25% 22.48%

1 Deposit based; 2 Income plan

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SPOTLIGHT

Spotlight on Lowes staff

BARRY STRATHEARN JOINED LOWES IN 2018 as the Head of Compliance before being appointed to the board in 2020 and becoming Director of Compliance. Barry has a long history in financial services, beginning his career as a cashier with Nationwide Building Society in 2001 and quickly rising through the ranks, performing a number of advisory, supervisory and managerial roles within Nationwide, Halifax and the Cumberland Building Society. While he enjoyed success in each of the roles, Barry says he wanted to expand on his leadership, consultancy and team building skills outside of the banking sector. With this in mind, he began taking the qualifications he needed to qualify as a financial adviser - but he didn’t stop there. He now has a wide range of qualifications to his name, with more than one qualification body, having achieved Chartered Associate status with the London Institute of Banking and Finance (LIBF) and also becoming a Chartered Financial Planner and a Fellow of the Personal Finance Society, the highest accolade granted by the Chartered Insurance Institute (CII). Barry believes having that depth and breadth of knowledge is key to his compliance role. “Financial services is one of the most heavily regulated markets in the UK but by its nature, regulation is not so much black and white as grey, so much of my role day-to-day is providing answers to questions on the regulation, rules and guidance put in place by the regulators.” Having a comprehensive knowledge of the Financial Conduct Authority’s (FCA’s) Conduct of Business handbook and the many documents and papers issued by regulators every year helps. “If I don’t know the answer off the top of my head, I know where to look to find it.” The compliance team oversees Lowes operations to ensure they always conform to the appropriate regulations, rules and guidance relating to financial services and in particular, providing financial advice. “Regulation is constantly changing and we need to ensure we keep up-to-date,” Barry says. “As an example, in the past week I’ve read over 600 pages of regulatory documents. We will absorb that information and pass it on to Lowes Consultants and staff and ensure all our processes and procedures are updated to reflect the new rules and guidelines.”

Having good compliance and appropriate systems and controls in place, leads to

better client outcomes, Barry points out. “By making sure all our staff are following the necessary rules and guidance, and through regular training and testing, as well as continuous professional development, we are ensuring Lowes clients are being served by people with up-to-date knowledge and skills.” He adds: “Compliance is part of our quality control, if you like. As well as ensuring we conform to the regulations, we are Involved in training and coaching and we provide feedback to Lowes staff that can help them execute their roles and help Consultants explain complex matters to clients in ways they can understand.” Barry leads by example, in this respect. Not only does he undertake continuous professional development in excess of what is required of him by the overseeing body but to add to his long list of qualifications, he is currently undertaking a Masters degree in Financial Planning. He encourages others to take extra qualifications. “In our roles I think it is good for people to take exams and there is nothing better than seeing the smile on someone’s face and their sense of pride when they pass.” Outside of work Barry is a keen footballer. “I’ve played 11-a-side football all my life. I find it’s a great release at the end of a working week. And when I can’t run around anymore, then I’ll move onto walking football. It’s a big part of my life.”

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Sudoku solution We hope you enjoyed the Sudoku puzzle we published on page 3 of this issue of the Lowes magazine. Here is the solution to the grid.

14 Lowes.co.uk

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