Lowes Magazine Issue 124

Issue 124

“Autumn carries more gold in its pocket than all the other seasons.” Jim Bishop

INSIDE TRACK

DIY wills causing family disputes THE RECENT RISE IN DIY WILL WRITING HAS RESULTED IN AN INCREASE IN family disputes. Attempts to block the legal process of dealing with someone’s assets on death increased by 37% between 2019 and 2021, according to a freedom of information request made by law firm Nockolds. The law is complex and the issue is that unfamiliarity with the process and terminology of will writing can invalidate a will or leave it open to challenge. This is particularly so in current society where divorce and extended families can make things more complex to address. Having a will is one of the key elements of life and financial planning and ideally should be professionally written. Producing a DIY will may seem like a way of saving money but it could lead to problems and cost further down the road.

Lowes does not offer a will writing service, however, we can put you in touch with a professional who can help.

Look to LISA in tough times THE LIFETIME ISA (LISA) COULD BE A BOON FOR certain savers as the UK’s economic condition worsens. The LISA offers anyone between the ages of 18 and 40 a government uplift on their savings. But the savings have to be accumulated either for a deposit for a first home (bought with a mortgage) or for retirement. Any savings up to £4,000 a year receive a 25% government bonus. This can significantly boost contributions into the savings wrapper in a similar way to basic rate pension tax relief and is particularly advantageous when compared to rates for normal savings accounts. Unlike personal pensions, the savings are accessible if needed, but due to the terms of the bonus, money taken out other than for a first home or retirement will be subject to a 25% withdrawal charge.

Lowes exceeds industry satisfaction ratings RETIREMENT PRODUCT PROVIDER EMBARK GROUP recently undertook its annual Confidence Barometer amongst advisers and advised clients. This showed average client satisfaction for financial advice at high levels: 85% for advice received; 86% for ability to understand my needs, 84% for communications received and 81% for investment recommendations. We are pleased to say that Lowes’ client satisfaction ratings, carried out biennially, have been consistently much higher than this over many years. In our most recent survey of clients Lowes achieved above 96% ratings in the seven key areas of our advice service. If there is any way you think we can help you or someone you know who would benefit from Independent Financial Advice, please let us know.

Lowes ratings Level and quality of contact

96.34% 96.49% 97.54% 97.90% 97.83% 98.48% 97.15%

Client service

Integrity

Depth of knowledge Professionalism Staff helpfulness Investment Advice

2 LOWES Issue 124 · Published October 2022 The content of the articles featured in this publication is 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: View of Windermere in the Lake District on a frosty Autumn morning. Photo: Shutterstock

INSIDE TRACK

Regulator issues scam warning THE FINANCIAL CONDUCT AUTHORITY HAS ISSUED a warning that it expects financial services scams “to become even more prolific” as criminals exploit people’s vulnerability during the cost-of-living crisis.

Criminals contact people via telephone, emails and social media and are highly sophisticated in the tricks they use to deceive, confuse and panic people into making hasty decisions. Please be cautious about any communications that you weren’t expecting, especially those designed to make you take immediate action. Remember, you are in control. The top three scam communications purported to be from trusted sources, HMRC, banks and Royal Mail. People aged 60+ are the most likely to be victims of fake calls or texts. We live in a different world to the one many of us may have been used to, which requires us to take new and different precautions to keep our information and assets safe.

It highlights fraud committed through apps, pension scams, through to selling of fake car insurance (ghost broking) as examples. More than seven out of 10 savers and investors have been approached by scammers in the past three months, according to the regulator. Those who are able to access their retirement pot – potentially the biggest asset they own – are a prime target.

Make your money work. Best bank & building society rates Type Amount Deposit taker Account

Gross Rate p.a.

Contact

Unrestricted instant access accounts Online

£5,000 - £1,000,000

Al Rayan Bank

Everyday Saver (Issue 3) Freedom Savings Account

2.35%* 2.00%

www.alrayanbank.co.uk

Online

£100 - £250,000

RCI Bank

www.rcibank.co.uk

Fixed rate bonds Online 1

£1,000 - £100,000 £1 - £5,000,000 £1 - £5,000,000

Saga 1

1 Year Fixed Rate Saver

4.5%

www.sagasavings.co.uk www.nationwide.co.uk www.nationwide.co.uk

Online Online

Nationwide 2 Year Fixed Rate Online Bond Nationwide 3 Year Fixed Rate Online Bond

4.50% 4.75%

5.5% + additional 0.5% in year 4 if FTSE higher

4 year Fixed Annual Income Deposit Plan

Call Lowes on 0191 2818811

Structured Deposit

£10,000 - £1,000,000

Barclays

Notes: 1 Available to those aged 18 and over and run via the Atom banking app. * This is the Expected Profit Rate (EPR). You may also wish to consider Premium bonds offered by National Savings and Investments (NS&I), maximum £50,000. Whilst no guaranteed interest is earned, they do offer the opportunity for tax free winnings and monthly access. Current Prize Fund Rate is 2.2%. Measures of inflation - The average change in prices of goods and services over a 12 month period to September 2022 Retail Prices Index (RPI) 12.6% Consumer Prices Index (CPI) 10.1% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfacts.co.uk 13/10/2022. 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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COMMENT

THERE HAVE BEEN PLENTY OF ARRESTING headlines since the last edition of the Lowes Magazine but perhaps none more so than the death of our late Queen Elizabeth II. Her Majesty’s long reign represented stability in the UK, on which civilised society and economic prosperity can be built. Currently, we are going through a period of turbulence in the economy and in the stock markets, which those of us with many years’ experience know will happen from time to time. We are seeing headlines on the UK economy, recession, rising inflation, increasing interest rates and the cost of-living crisis daily. Understandably, this causes concern and sometimes panic. The way to deal with the next year and what it may bring, is to batten down the hatches where necessary, and be confident that robust financial planning, a diversified portfolio and a long-term view is the best way to weather this storm – and others like it. Lowes 50+ years’ experience of advising clients means we have seen every recession and stock market fall in that time, as well as every rally and are well placed to help our clients through this tricky period. It’s important also, while addressing the bigger picture items, that we do not lose sight of the smaller but equally important areas of financial planning which can get overshadowed in these times and which if not addressed, risk storing up trouble further down the line. One of these is the gradually growing tax revenue which HMRC is receiving from inheritance tax payments. If we look at tax receipts from April to September 2022, HMRC received almost £3 billion purely from IHT payments, around £0.3 billion more than the same period in 2021. This is a rising trend we have been seeing for the past few years. The data quite clearly shows that freezing the inheritance tax (IHT) nil rate band for over a decade has helped to fill HMRC coffers. The nil rate band has been frozen at £325,000 since the 2010/2011 tax year. The Residential Nil Rate Band (RNRB) introduced in 2018/19 tax year has improved the situation by potentially adding another £175,000 per person to the Nil Rate Band, meaning an individual could pass on up to £500,000 before their estate Rising IHT issue

is subject to 40% IHT. But the RNRB is also frozen until 2026 and, as the average house price in the UK now stands close to £300,000 according to the Land Registry, and will be substantially more in some areas of the country, it is easy to see how even modest investments and savings can make an estate liable for IHT. This makes IHT planning more important than ever. Pensions are now valuable estate planning tools as the capital wealth accumulated in them can be passed on free of tax – if other assets can be used for retirement income. On the other hand, having too much wealth invested in ISAs (which are free only of income and capital gains tax), or other funds and securities, can leave an estate vulnerable to IHT. HMRC data shows older and wealthier individuals tend to have more realisable assets and so contribute a large proportion of IHT revenue. Everyone’s circumstances are different and balancing a sensible financial plan with pragmatic IHT planning is now essential and where Lowes Advisers and technical teams can help. If IHT could be an issue for you please talk to your Lowes Adviser or if you know anyone who you feel could benefit from Independent Financial Advice, please give them our telephone number. We will be delighted to help.

Ian H Lowes, Managing Director

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PENSION

How to take money from your pension tax efficiently

Passing on a pension Lowes consultant, Rob Newton says: It is now possible to leave your pension where it is and pass it on to your beneficiaries. There are distinct advantages to doing so as currently pensions lie outside an estate for inheritance tax liabilities so beneficiaries might receive it tax free or, if the benefactor dies after age 75, at their marginal rate of tax. If you have a pension you would like to pass on in this way it is important to remember that pensions are not covered in wills and you will need to let the trustees know who you want to receive it. This can be done via an Expression of Wish form, which can be obtained from the pension scheme administrator. It is so named because it lets the trustees know who you wish to benefit from your pension. It is not an instruction and the trustees can overrule it, however, in most cases they adhere to the pension holder’s wishes. It is important to keep these details up-to-date, particularly where the pension holder may have divorced and have an extended family. circumstances, size of pension pot and how much income you wish to draw down from your pension each year. Annuities provide a guaranteed sum each year for life, and with interest rates rising it is possible to get better annual payments per £100,000 than for many years. But the money is then gone from your pension and any benefits it offered. Currently, we find most people prefer to keep their pension invested, known as flexible drawdown (income), so they have more control over what they can take in income and their capital can benefit from long-term market growth. while maybe drawing down on ISA investments (which are tax free) or using growth assets and using your capital gains tax allowance to supplement your income, could help retain more of your pension money during your retirement. The best course of action will depend on individual

HOW WE TAKE MONEY FROM OUR PENSIONS IS AS important as how we build our wealth over time. In fact, it could be considered more important, as for most people there is no way of replacing the money once it’s spent or paid in tax. Taking time and advice to make sure we don’t make mistakes and pay more tax than we need to is core to how we decumulate our retirement wealth. Currently, if you have a personal pension (also known as a defined contribution pension), you can take out your money in the way you choose from the age of 55 (this will increase to age 57 from 2028). For most people their pension will be core to their retirement wealth and, alongside the state pension, will be a main source of income. This can be taken in the form of flexible income, where the retirement pot is kept invested and drawn from according to needs, bearing in mind it should last a lifetime; taking 25% out as a tax-free lump sum; or using it to buy an annuity. Knowing how you will be taxed will influence how you draw the income. The first thing to know is that you do not have to take the 25% tax free portion of your pension in one go. Many people think of it as the money they will spend on enjoying the first few years of retirement and take it out all at once. But provided you are over 55, you can take it how and when you want. There can be advantages to leaving it in your pension, as the longer it remains invested the longer it has time to grow through investment, boosting the overall value of your pension pot. Or you could take in smaller tranches over a number of years. This can be used to help supplement your income when needed. In addition, there are tax advantages to passing on pensions to beneficiaries as they fall outside of IHT liabilities. So, how we take our tax-free cash is an important consideration. Pensions receive tax relief when accumulating, but the income we take in retirement is taxed in line with our marginal rate of tax. Taking a lot of income from your pension each year could take you into a higher rate tax band. Remember, your state pension counts as your income too, it is not tax free. Most people will have a personal income tax allowance, which means they don’t have to pay tax on the first £12,570 of their income (tax year 2022/23). By taking pension income to keep you in lowest tax band possible,

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LOWES

Options when inheriting a pension

earnings, as they would receive more tax relief this way. Also, if they are in a workplace scheme where the employer matches their contribution this could further boost their pension. If the workplace pension is taken pre-tax, they could also save on Income Tax and National Insurance contributions. The downside to this is that they would be using up accessible cash while paying into a pension that cannot be accessed until retirement age (55 or over). For beneficiaries who are already in retirement, decisions may be harder, given their particular circumstances. They could for example, use the tax-free lump sum for income, to boost their spending power in early pension years and reduce the amount taken from their own pension. Considerations they will have to take into account include issues around tax, such as whether the inherited pension money will be taxable or tax free (this will be determined by whether the benefactor was under or over age 75 on death), as well as how to make the best use of their income tax allowance and tax bands. Also, if they were to keep the pension how they could pass it on to future generations. The pension freedoms were introduced just seven years ago and the death benefits only apply to personal pensions, not final salary pensions, which have their own rules. This is an area we expect to grow, particularly as personal pensions are now the norm over final salary schemes. But, as can be seen, this is not a simple area and people can be caught out if they make a wrong decision. If you are the beneficiary of a personal pension and you require help in making the right decision, please call 0191 281 8811 and we will arrange for an Adviser to contact you.

SINCE THE PENSIONS FREEDOMS WERE INTRODUCED, it has been possible to pass on a personal pension (defined contribution, including a SIPP) to whomever we wish. This has distinct advantages for inheritance tax (IHT) planning as pensions fall outside of the estate for IHT liability (see box opposite). So what happens when we inherit a pension? What might beneficiaries need or want to consider when they receive their inherited funds? The death benefits rules offer various advantages, but also are complex and if benefactors don’t plan carefully, beneficiaries find they have issues to deal with which were never intended. The main consideration for benefactors is the rules as to whether beneficiaries’ drawdown is permitted (i.e., whether an individual is entitled to draw income from the pension). It is important that the benefactor makes clear who they want to benefit from their pension in their expression of wish form. Dependants as per HMRC’s definition should be eligible for beneficiaries’ drawdown, as should beneficiaries named in the expression of wish. Another sticking point can be the pension providers. They all have their own rules and conditions, which may not offer beneficiaries’ drawdown. Working on the basis that the pension moves into the beneficiary’s control, what are the options, first for someone still working and second for someone already in retirement? Someone who is still working, could leave the money in the pension to grow over time, maybe to supplement their own pension saving in due course. For others, it may be more tax efficient to use withdrawals from the pension as income, and to increase their contributions into their own pension from their

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INVESTMENT

Financial planning in a recession

With a UK recession predicted, Lowes consultant, Craig Moffat looks at how investors and savers can take action to help protect their wealth and invest for the future in more turbulent times.

times and bad – and we can expect the odd curved ball like the pandemic – will help enable you to weather all conditions. Retirement income which depends on investment performance can suffer in turbulent periods. Drawing more income than is being produced through investments can deplete the capital required to keep on generating income in the future. Clearly, this is something to be avoided and it is this kind of situation where keeping some of your wealth for everyday spending and in an emergency cash fund can be of benefit. Lowes clients will be holding different levels of emergency cash, but this fund can help supplement income where needed and so protect retirement pot capital. With interest rates rising, it is worth also looking at whether you can improve the interest rate on your cash fund by switching accounts. Remember, you’ll need to ensure you can access your cash if you need to draw on it and without incurring a penalty. This may mean you can’t get the top rate of interest on your money, nevertheless, it will be worth shopping around. Investment in a recession It is in turbulent periods like this, that we believe active fund managers show their metal. During recessions businesses suffer, particularly those reliant on consumer spending. With the recessions well flagged in advance, active managers will have been adjusting their portfolios accordingly. As well as weighting towards more resilient companies within their investment remit, they will be looking for businesses which have sound fundamentals but whose share price may be discounted because of short-term investor sentiment. Indeed, recessions can be one of the best times to put your faith in professionals whose day job is investment and who have the knowledge, experience and resources to spot the opportunities in the markets.

THE PERFECT STORM OF RAPIDLY RISING INFLATION higher interest rates and the prospect of an economic recession is currently facing UK households and investors as we head towards the end of 2022. The Bank of England (BoE) now believes the rapidly rising inflation rate will reach 11% rather than an earlier prediction of 13% (due to the Government’s recently announced cap on energy bills) but others predict it could go higher. The Bank is trying to counter inflationary pressures by increasing interest rates, a strategy which aims to reduce consumer spending in the short-term and so bring prices down. But in August, the BoE predicted that the UK could face a recession from Q4 2022 to the end of 2023. A recession is a temporary period when the performance of an economy falls for several months in a row. This is usually indicated by a contraction in the Gross Domestic Product (GDP) of a country, higher unemployment rates and lower consumer spending. The technical definition of a recession is when a country’s GDP has fallen for two successive quarters. At its September meeting the BoE’s Monetary Policy Committee (MPC) said it expects the UK’s GDP to have declined by 0.1% in Q4, which will mean the UK will be in a recession, although at time of writing the BoE has not said officially that is the case. So, what does this mean for us as investors and savers? No-one can accurately predict the length or severity of a recession. But if we look at the length of recent recessions since the 1980s, this has been roughly 1.25 years or five quarters, as the Bank of England has suggested will happen this time around. Lowes clients have the advantage of having received advice from an Independent Financial Adviser, with over 50 years’ experience of guiding clients through recessions and stock market volatility, as well as a dedicated, award-winning investment team. Staying on top of your finances through prudent planning in the knowledge that economies and markets go through good

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Recent recessions

Length (years) Cause

Dates

Oil crisis, stagflation, inefficient production, high inflation, industrial disputes over wages Continuing oil crisis and three day week Deflationary govt policies incl. spending cuts, govt controlling money supply, switch to services economy Crisis in US savings & loans, high interest rate in response to high inflation, policy for Britain to remain in the Exchange Rate Mechanism.

Q3 1973 – Q1 1974

0.75

Q2 1975 – Q3 1975

0.5

Q1 1980 – Q1 1981

1.25

Q3 1990 – Q3 1991

1.25

Financial Crisis; subprime mortgage crisis and rising global commodity prices

Q2 2008 – Q2 2009

1.25

Q1 2020 – Q2 2020 0.5

Covid 19 pandemic

Key points from recent Government fiscal statements On 23rd September, the then Chancellor of the Exchequer Kwasi Kwarteng unveiled a series of tax cuts and economic measures in a ‘mini’-Budget. On 17th October the new Chancellor, Jeremy Hunt reversed most of them. Lowes Consultant, John Walton picks out key points and what they mean for personal investors and savers. One of the main policies Chancellor Kwarteng announced in his ‘mini’-Budget, was a cut in the basic rate of income tax from 20% to 19%. This was already planned but was to be brought forward from April 2023. Also, the 1.25% rise in National Insurance implemented in April 2022 was to be reversed from 6 November. In addition, the Chancellor initially abolished the 45% additional rate of tax from April 2023. However, this was almost immediately reversed following market and Conservative Party MP opposition. Then followed a period of market reaction to the Budget in general, in which, amongst other areas, Sterling and gilts (UK government bonds) were negatively affected. The upshot was the sacking of the Chancellor and Jeremy Hunt taking on the position. In his ‘fiscal statement’ on 17 October, the new Chancellor reversed most of the earlier announced tax policies, including the cut to income tax, now deferred indefinitely. The key plans he kept were the cut to National Insurance and an increase to the thresholds over which Stamp Duty on property is paid. So where does this leave us? Income tax cuts effect pension saving as they reduce the amount of tax relief which can be claimed; so pension savers will continue to receive a higher rate of tax relief with this reversal of policy. On the other hand, tax on dividends will stay at the existing rate: 8.75% for a basic rate tax payer, 33.75% higher rate and 39.35% additional rate, for all dividend payments over the £2,000 dividend tax allowance. What is certain is that inflation and interest rates will continue to have wide-ranging implications on savings and investment decisions, as well as income requirements. Lowes is here to help guide our clients through these times. Please contact us if you have any concerns.

It is never wise nor particularly successful to try to time the markets. Long-term thinking and diversifying your investment portfolio are key to help protect and grow your wealth. The simple equity and bond combination isn’t currently working as an investment strategy because both are reacting to markets in the same way, i.e. their performance is correlated. Professional investors are now looking to widen their portfolios to include investments such as structured products. As clients will know, Lowes has specialised in using structured products to both successfully diversify and generate returns in portfolios for some 25 years. Using structured products can work well in these types of uncertain economic periods. Simply put, a structured product will pay a pre-defined amount if at a stated monitoring point the underlying (typically an index) is at or above a set target point. For example, let’s take a structured product, which will generate a defined annual return of say 10% a year, paying out from year two if the FTSE 100 is at or above 6,900. No matter what happens to the equity markets in the meantime, if at the monitoring point in year two, the index is above 6,900 the investment will pay 20%. If the index is still below that point, the payment rolls over until the monitoring point the following year when 30% is returned. Should the index still be down, the same happens until either the product matures or the end point of the investment is reached. At that stage capital can be lost if the index is still down by set percentage – typically 30-40%. But as structured products typically run for between five and 10 years, using the right structured product, we would hope to both protect the capital within the investment and to see a positive return for investors along the way. Over the length of a recession we may have to cut our cloth to meet our needs but through financial planning the impact can be reduced and where appropriate, prudent investment can be made to take advantage of the post-recession recovery.

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PLANNING

How we help clients

pension), investments and property wealth. It also needs to factor in inflation and should be reviewed on a regular basis. In terms of a financial planning strategy, again this will be down to an individual’s circumstances. Where someone has sufficient wealth accumulated, a proportion of it can be put aside and ring fenced for if/when it is needed. Where a lump sum cannot be apportioned, a strategy to actively save and build up investments with a later life care goal in mind, can also help relieve concerns around this issue. Another important point to stress, is the need to discuss the issues with family members. Money spent on later life care can affect inheritance expectations, which can also cause anxiety for people when planning for later life care. We find when talking things through, families are more often very supportive, relieving this anxiety. The possibility of having to pay for later life care is now a crucial part of retirement planning. If we plan ahead, we have the peace of mind of knowing that if needed everything is in place. New later life care rules New financial arrangements around later life care are due to come in from October 2023. The rules are not simple and will affect people differently depending on their individual financial circumstances. However, in brief, the key points are: • There will be a lifetime cap on the amount someone will pay for their ‘personal care’ of £86,000. • Anyone with assets under £100,000 will be eligible for some financial support. • Anyone with less than £20,000 of assets will not have to pay for care. • The personal care cap does not apply to daily living costs, i.e., food and accommodation, which the Government has set at a notional £200 per week. So, for an individual paying £700 per week to a care home, £200 of that amount will be deemed to be living costs and the remaining £500 will count towards the £86,000 personal care cap. If you would like help considering your options and making a plan for later life care, please talk to your adviser or call 0191 281 8811 and we will arrange for someone to talk to you. 9 Lowes.co.uk

LOWES ADVISER, ADAM MCLACHLAN looks at ways we help clients consider planning for later life care. One of the concerns we have seen increase over time is around the possible need for paid for care in later life.

Many of us are living longer, but unfortunately, not everyone does so in the best of health. Which means many more of us will need to factor in to our financial planning, the potential cost of paying for care. Yet in a recent survey, the assurer Canada Life found that seven in 10 of people over 60 have not thought about planning for later life care, despite the demoghraphics pointing to the fact that many more people are likely to need it. The main reasons for a lack of care planning found in the assurer’s survey were a desire not to think about it until it is needed or happens to a family member; the emotional anxiety of considering ill health; and the financial anxiety of considering the financial arrangements. There is no doubt this can be an emotive subject. We tend to think of our retirement days through a positive lens and considering that we may become frailer and have ill health as we get into later life often doesn’t fit well with it. However, Lowes’ experience is that planning for the possibility is far better than trying to work things out when it becomes necessary. This is particularly so where we want to have some control over the choice of our care, in terms of type, location and quality. As you might expect there are different experiences depending on cost. So, what can we do to prepare? A first step is to know the costs involved for in-house support and for a care home. This is an area where Lowes can assist as we are helping clients with their care planning on a regular basis and have a working knowledge of care costs. These can differ significantly between different parts of the country, with costs in the South/South East, for example, often far higher than in the North East of the UK. There are new rules coming in from October 2023 which will cap ‘personal care’ costs (see box) but not for food and accommodation in a care home, for example. Direct nursing costs are covered by the NHS. A financial plan looking ahead to care costs should look at how to utilise an individual’s assets, such as pensions (including the state

PLANNING

RESEARCH BY FINANCIAL SERVICES COMPANY ABRDN has revealed that four in five retirees have not sought any professional financial advice about how to make their money work best for them in retirement. This was despite nearly half of them admitting they are worried about potentially running out of money before they die. When asked why, two reasons came to light. First, people thought they would not be able to afford advice. Second, they thought professional advice was not worth the money. These seem to be common perceptions; both are misconceptions. There is plenty of evidence to show that talking through your financial situation with an Adviser and taking action, where appropriate, invariably leads to better investment and retirement decisions, both financially and emotionally. Successive research undertaken by the International Longevity Centre and Royal London which compared the financial results of people receiving financial advice and those who were non advised – found that when comparing their wealth over two set periods for investment and pension wealth, the advised cohort were better off by nearly 40% over the non-advised cohort. Such was the difference that receiving financial advice had on individuals’ wealth that the ILC/Royal London stated: “The results strongly demonstrate the positive value of financial advice for consumers… adding real value to consumer’s financial circumstances over the long run.” Furthermore, it is now firmly recognised that improving our financial wellbeing not only gives people feelings of greater control and confidence in respect of their financial future but it can have a positive influence on people’s mental and physical wellbeing too. The cost of Independent Financial Advice is not prohibitive and the benefits, in terms of greater wealth generation and financial wellbeing, are demonstrable. We strongly believe that independent advice delivers the best performance. This is because we are not tied to recommending a limited set of investments or pensions, we genuinely select from across the spectrum of products in the market as that means we can find the best opportunities for our clients. Tell a friend

5 reasons DIY investors regret their decisions DIY investing can be attractive both from the point of view of saving money and because it’s an exciting thing to do – until it goes wrong. Here are five reasons it’s been reported that DIY investors say they regret their decisions. 1. Not doing enough proper research before investing 2. Following an investment opportunity heard from a friend/social media without checking the credentials of the source 3. Taking risk beyond what they were comfortable with 4. Making a snap decision/falling for time-restricted offers 5. Falling victim to a scam If you know someone who could benefit from our Independent Financial Advice, please put them in touch on 0191 281 8811 and we will arrange for an Adviser to call. To conclude, we cannot agree more strongly with the conclusion from the ILC/Royal London report, which stated: “Since advice has clear benefits for customers, it is a shame that more people do not use it.” There is evidence that, in fact, since the pandemic, more people are recognising the need for Independent Financial Advice and seeking professional help to manage their financial futures. We know they will benefit from it. Lowes conducts a biennial client survey across our entire client base, to ensure we are delivering what our clients want, and to keep us on our toes to improve year on year. In our latest survey (2021) over 97% of our clients said they would recommend Lowes to a friend, colleague or family member.

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INVESTMENT

What is a balanced portfolio?

This is where Independent Financial Advice can bring a discipline to help a portfolio achieve its intended results. We work from the viewpoint that investments should generally be made with a long term horizon, and portfolios should be diversified, for example, with a mix of asset classes, sectors and geographic regions, depending on investment goals. This will provide balance and a better chance for long-term growth, with a smoother journey and hopefully, very few if any sleepless nights along the way. Traditionally, portfolios were balanced by holding a mixture of funds, primarily invested in stocks and bonds. But sometimes this simple balancing doesn’t work. A good recent example is when central banks began winding down quantitative easing. This had supported both bonds and stock markets and when the banks changed direction, both bonds and stocks dropped. Normally these asset classes are uncorrelated in that when one moves down the other counterbalances it, to larger or lesser extent. The current correlation in performance between stocks and bonds is unusual. As a result, investors with high exposure to previously top performing areas, such as the technology sector or government bonds, found their investments were hard hit. Investors that maintain a diversified portfolio are likely to have fared better, and relatively speaking, are more likely to have had a better investment experience. One of our key tasks as Independent Financial Advisers is to keep a balance within our clients’ portfolios in relation to their risk profile. A strategy of balance through choosing a range of investments and investment managers, and a long-term outlook means our clients should not have to worry about short-term volatility in the markets. Their eyes will be on the horizon.

AS THE NAME SUGGESTS A BALANCED PORTFOLIO offers a carefully weighted set of investments, which ensure the portfolio is not skewed to an investment style or a particular set of investments. Most investors, no matter what their risk profile, will want to have some degree of balance in their portfolio. Why do we need that balance? The primary reason is to give the portfolio the greatest chance of growing. It’s also to give it the best chance of protecting capital when markets shift. When constructing an investment portfolio, it is important to ensure that it does not become overweight in one or more particular area(s), which can work against the portfolio when markets change dynamic. It can be easy for investors to skew their portfolio over time, even when it starts off as balanced. Bias, sentiment, an over optimistic viewpoint, fear and inertia can overload a portfolio with investments of the same or similar kind and that can lead to trouble further down the line. This can be seen particularly when markets fluctuate; as they become volatile, many investors sell out of the markets, and when markets are at their high, they pile in. This is a short term approach which can create an imbalance in a portfolio as investors try to time the market. This is a tactic even professional fund managers steer away from, and it probably leaves those investors with many sleepless nights. Other not to be followed traits include overweighting current top performing areas, thinking their strong performance will continue (few if any do), and hanging on to previous winners long after they are past their best in the hope that the market will take a turn for the better.

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INVESTMENT Lowes recommended structured product maturities

The table below shows the performance of the structured investments most commonly held by Lowes clients that matured in the third quarter of 2022. These were all autocalls linked to the FTSE 100 Index. The thirteen plans shown utilised six separate counterparty banks and eight of the plans were designed in conjunction with Lowes either exclusively for our clients, or for our clients and the wider advice market.

IN OCTOBER, THE 1,500TH FTSE 100 LINKED capital at-risk autocall matured in the UK retail market. It did so after four years, returning investors original capital in full plus a gain of 27% – an annualised return of 6.15%. For context the FTSE 100 fell 4.47% over that same investment term. Of the 1,500 maturities so far, 1,492 delivered a gain for investors, eight returned capital only and not one matured at a loss. This level of performance, with the added value of protection to capital in all but the most extreme circumstances, Lowes uses alongside our considerable expertise and experience in the structured products market, to help diversify and balance investment portfolios. This, in turn, continues to help us protect and improve the wealth of our clients.

If you know someone who could benefit from Lowes expertise in this or any other field, please do not hesitate to put them in touch.

Maturity date

Gain (%)

Counterparty

Term (years)

Barclays

01/08/2022

2

17

Investec Bank

10/08/2022

2

19

Investec Bank

28/09/2022

2

16.5

Goldman Sachs

15/08/2022

2

20

Goldman Sachs

15/08/2022

2

17.5

Goldman Sachs

23/08/2022

3

27

Natixis

17/08/2022

4

30

HSBC

11/08/2022

5

37.5

Goldman Sachs

15/08/2022

2

14

Goldman Sachs

23/08/2022

3

43.2

Natixis

18/08/2022

5

44.7

Investec Bank

16/09/2022

3

16.5

Société Générale

12/09/2022

4

36

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SPOTLIGHT

Spotlight on Lowes people

CONTINUITY IS A MAINSTAY OF LOWES AS A BUSINESS. Matthew Henry joined Lowes four years ago to become Technical Analyst to Consultant Michael Stowe. Michael in turn had been the Technical Analyst for Barry Hopper, taking responsibility for Barry’s clients when he retired, and Barry had succeeded his father as a Lowes Consultant. That continuity within Lowes is one of the reasons Matthew believes families of clients stay with Lowes for the long-term, with each generation being served by someone they know and trust to advise them on their finances. “It really is dealing with people’s personal finances personally,” Matthew says. “Lowes is very well established and has built its reputation on providing Independent Financial Advice to a very high standard. Everything is designed to give sound, solid and reasoned advice that clients can understand and that will help them best manage their finances. Matthew joined Lowes straight from the University of Northumbria where he graduated in Finance and Investment Management. “I wasn’t particularly focussed on finance and business at school but when I saw a talk on the course at the University, which included analysing the stock markets, I was very interested,” he says. Having spent summers whilst at University working in accounts departments, Matthew says he knew he wanted to use his degree in a more people-orientated role. “I knew I didn’t just want to be working with numbers on a screen.” A chance meeting with Michael Stowe, who talked to him about the Technical Analyst role piqued Matthew’s interest. “I didn’t know that the role existed until I spoke to Michael but it immediately sounded interesting,” he says. Following that talk, Matthew joined Lowes in 2018. Day to day, Matthew is now Michael’s number two. “Michael has a client bank which has grown over the years, with new clients and family members coming on board. So I am there to provide support and be a point of contact for clients when Michael is not in the office. “Michael will see the clients, many of whom he knows very well, and he will have a very good idea of what we will recommend as the best course of action for their situation. My job is then to look at the recommendation and undertake the technical analysis on the products, the investment portfolio and so on. It’s good team work.” In the current financial environment, with volatile markets, rising inflation and recessions globally, clients have naturally become more concerned, Matthew says. “But having just come through the pandemic and seen that markets do rebound, I think many people are now more assured because they have been through the experience. And, of course, many Lowes clients have been invested for decades and have seen how volatile markets can be in the short term. They understand that is the nature of investing and it’s about looking medium to long term and planning in that way.” Matthew has just successfully passed his Diploma in Financial advice and now is studying for the advanced qualifications. His intention is, in time, to become a Lowes Adviser and be a further part of Lowes continuity. Outside of work, Matthew enjoys most sports and is a keen golfer. “ I’m known for it at work as well as in my family. Birthday and Christmas all my presents are usually to do with golf.”

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DOUG’S DIGEST

Unintended Consequences government) and as the chart shows, the yield on a 10-year gilt rose quickly as a consequence. This rise in gilt yields and the corresponding fall in

FOR OVER A YEAR NOW THE HIGH LEVEL OF INFLATION has been a focus of attention for economists around the world. Initially this was expected to be transitory, as economies around the world opened up again following Covid lockdowns, while supply lines were not up to speed for the same reason. The start of the conflict in Ukraine changed this, however, with shortages in energy and commodities moving the drivers behind inflation from demand to supply and making higher inflation more persistent. Ever since, central banks have been following their mandates to keep inflation under control, including the Bank of England who have raised interest rates from 0.1% in December last year, to 2.25% in September this year. The idea is that as interest rates rise, not only are we encouraged to save money in the bank, earning higher levels of interest, but also have to commit more money to financing existing debt, such as mortgages or business loans, so have less capital to spend. Spending less reduces demand for goods and services, preventing manufacturers and providers from raising their prices further if they wish to stay competitive in a smaller market. This was thrown into turmoil in September, however, when the (then) new Chancellor presented the UK government’s mini budget, revealing personal and corporate tax cuts along with reversing the National Insurance increase, on top of introducing an energy price cap. All these policies were viewed as being inflationary, with the government’s objective to put cash in people’s pockets for them to then spend, boosting the UK economy. This was at direct odds to the mandate of the Bank of England, and as one commentator described it, it was like the government pressing down hard on the accelerator when the Bank of England was already pressing on the brake. With the Bank making it clear it would continue to focus on bringing down inflation markets started to price in the expectation that interest rates would quickly be increased further, and by a larger margin that was previously expected. In addition, the plans laid out by the government did not include any measures to raise revenue to fund the cuts. Instead, they intended to increase government borrowing, with the theory that increasing the growth in the economy would lead to an increased tax intake, which in turn could be used to cover the additional costs of borrowing. Although it is unlikely that the UK government will ever default on its borrowings, suddenly increasing the amount being borrowed without an increase in income does increase this possibility, and so lenders require a higher reward for the increased risk. As such higher yields were required from gilts (loans to the UK

gilt values had two major effects. First, as the cost of borrowing rose for the government it also rose for everyone else. The gilt yield is considered as the “risk free” rate for most investors in the UK and so any other borrowing will usually come at a higher level as lenders expect to be rewarded for the extra risk. This quickly manifested in the mortgage market, with the typical two-year fixed rate mortgage going from 2% to over 6%, ruling out many potential home buyers. If they remain at these levels it will also become a problem for those currently on a fixed rate mortgage as they come to the end of those deals and see their monthly payments increase dramatically. This has already led to a predicted fall in property prices. The second effect occurred in the gilt market itself, driven by a sell off from pension providers. For those running final benefit schemes, where the pensioner’s income is based on their final salary, the future liabilities are known, and the investments made by these schemes are made accordingly, often using what are known as liability driven investing (LDI) funds. Rather than fully matching the liability, these funds make use of derivative contracts, where collateral, usually gilts, is pledged against their value. The sudden drop in value in these gilts saw these types of investment sell their holdings to quickly shore up these collateral levels. Having large redemptions being put into the market when very few were looking to buy simply pushed down the price further, forcing the Bank of England to intervene, acting as a buyer to maintain liquidity in the market. It should be noted that this was not a problem with the pensions themselves which remained secure. It did, however, cause the Bank of England to increase the size of their gilt holdings at a time they were planning to begin reducing them month by month. No matter what changes or policy U-turns happen in the coming weeks, this whole episode has given us a reminder of a very important lesson. One misstep by a politician, central banker or other official can throw the best laid plans into turmoil which then feeds into investment markets. Perhaps not even a misstep, but simply an unexpected side-step which engenders uncertainty. Events like these cannot be prepared for, other than making sure our investments are well diversified and accepting that at times their value will go down rather than up. The important thing to remember is that the uncertainty will pass, and markets will recover. As ever, patience is the most important tool in the investor’s toolbox.

10 Year Gilt Yield

4.6 4.4 4.2 4 3.8 3.6 3.4 3.2 3

Percentage Yield

Source: tradeweb.com

9 Sep

11 Sep

13 Sep

15 Sep

17 Sep

19 Sep

21 Sep

23 Sep

25 Sep

27 Sep

29 Sep

1 Oct

3 Oct

5 Oct

7 Oct

9 Oct

11 Oct

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

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