23rd February 2012

“A cunning plan indeed” IFA letter of the week”

Between 1974 and 1985 I did Financial and Management Accounts work and this took in Salaries and Wages routines and even Auditing tasks.

On 1 July 1985, I went self-employed as a Financial Adviser.

In November 1994, I sat my Financial Planning Certificate exams. I sat all three papers (seven hours’ worth) in the one day and passed all three. I’m mentioning that to help you appreciate (and take advantage of) the technical knowledge I have built up over so many years.

Most of my clients know me as a Mortgage Specialist with a particular interest in interest-only mortgages – no pun intended.

Over the years, I have continued to offer clients accountancy services and currently help with getting around 80 Self Assessment Tax Returns processed every year and with varying levels of bookkeeping thrown in. None of my clients ever pick up fines for late submission.

Where am I at today?

The Financial Services Authority (FSA) are taking steps to move Financial Advisers that want to remain Independent to a system where clients mostly pay fees for advice and all other advisers outside of this regime are going to be restricted to providing ‘limited’ advice.

The FSA seemingly want to phase out the term IFA (Independent Financial Adviser) and phase in something like Chartered Financial Planner – a person that will want to only deal with ‘High Net Worth’ clients.

Well I don’t want to charge fees, I don’t want to provide restricted advice to anyone and I am happiest trying to help ‘Nil or Minus Net Worth’ clients become ‘Medium Net Worth’ clients.

So this is what I have decided to do …

• I have always been Independently minded
• Clients are always asking me for second opinions and information on Financial matters
• Clients regularly Consult with me on a very broad spectrum of subjects

It seems logical to deduce that I am an Independent Financial Consultant.

Fred Bloggs, Independent Financial Consultant.

I’ll get used to it.

On the basis that I have two sources of income which are independent of Financial Services, I am offering my consultation time free of charge – if there is some distance for me to travel, covering fuel costs would be helpful.

Did you know that the FSA has set up a Money Advice Service (MAS) to help people with financial education and decision making and they advertise that their service offers free and unbiased advice?

There was uproar from the Financial Advising community about its own regulator setting up a service that competed with them and appeals in 2011 to the Advertising Standards Authority (ASA) resulted in the following which I have copied from the ASA website …

“The ASA considered that most consumers would understand the references to ‘advice’ in the ad to mean that the advertisers offered general information, guidance and advice on financial issues and products in a general sense, rather than providing ‘advice’ in the specific, technical and commercial way that IFAs offered.

We noted that the TV ad did not claim to offer specific or technical advice about specific areas of financial planning or particular products, but stated MAS could ‘help you make the most of whatever you've got’.

We considered that it would be clear to those consumers who made use of the free service from MAS that the general information, guidance and advice offered was general advice about how to manage their finances in general terms and noted that it did not prevent them from seeking more specific or technical advice about particular financial products or services from IFAs and the financial services industry.

Because we considered that consumers would understand the references to “advice” in the context of the ad to relate to general information, guidance and advice regarding financial matters, and because that reflected the service offered by MAS, we concluded that the website name ‘Money Advice Service’ and the claim that MAS offered ‘advice’ were not misleading.”

On a second ruling …

“We understood that MAS did not recommend specific products or services to consumers and considered that viewers would understand the claim ‘our advice is independent and unbiased’ to mean that MAS was not affiliated with any particular service provider and would not promote or sell a particular financial product to consumers.

We therefore considered that consumers would not expect the information provided by MAS to be covered in the same way as the specific and technical advice, particularly concerning specific financial products, given by IFAs and other financial professionals. Because of that, and because we understood that MAS had the appropriate indemnity cover and insurance for the general information service they offered, we concluded that claim ‘our advice is independent and unbiased’ was not misleading.”

Brilliant, why be regulated? From now on I’m not going to bother being regulated and my service is exactly going to copy the MAS!

The staff at MAS are untrained and read from scripts. How do I know that? I telephone them occasionally and put them to the test.

As part of my ongoing research, I had put on my do list to give them another call. I telephoned them on 7 February 2012 at 1.00 pm and this is how part of the conversation went. I actually have proof of this because a friend happened to call in for a cuppa and, not believing what he was hearing, decided to record the conversation …

This is how good they are with providing general information …

“Hi, I’m trying to find out more about the tax advantages of a stocks and shares ISA when compared to an identical non-ISA investment”

“The advantage is that it’s tax free”

“I want to know what tax it’s free from”

The young lady said she was going to refer to some notes and there was a pause …

“The annual allowance of �£5,340 is tax free”

“But that doesn’t tell me what tax it’s free from?”

The poor young lady then disappeared for nearly 3 minutes to ask a senior colleague (who obviously didn’t know either) …

“If you want more in depth information, speak to the Inland Revenue or Tax Aid.”

This is the answer that I should have been given … the primary advantage of investing in stocks and shares through an ISA product is that, on surrender, any Capital Gain from the proceeds will always be free of Capital Gains Tax (CGT). That is the big tax advantage.

Not even a ‘Senior’ Colleague knew that simple answer.

Why do I bother to ask such tedious questions? Did you know that every person in the UK has a CGT allowance of �£10,600 PER ANNUM (2011-12 allowance) and this makes it impossible for about 95% of the UK’s investing population to pay any CGT on non-ISA investments anyway?

That makes a mockery of the annual rush in February/March of each year. In any case, it is a well known rule that investments should never be taken up solely because of a tax break – it should be on the prospect of investment returns.

That makes the seasonal rush to use up the annual allowance a total nonsense for about 95% of the UK’s investing population.

By the way, just to be precise, there is one more tax advantage – higher rate tax payers don’t pay higher rate tax on dividend income received within an ISA but do on investments held outside an ISA.

Changing the subject, an old client telephoned to say that he and his partner wanted a general financial planning meeting but he said in passing that he just had to get her tax return done by the end of January deadline. This surprised me because, since he was self-employed, I assumed that his accountant dealt with her return as well.

I just said off the top of my head “Make sure you take up the 10% Wear & Tear Allowance”.

“What 10% W&T Allowance”.

By the time I had finished the exercise I had offered to take on, the lady of the house was able to reduce her tax bill on lettings income to zero in the current year and she could look forward to utilising a further �£10,800 worth of brought forward losses. So, my little comment, born out of years of experience, will save the client more than �£4,300 of Income Tax at higher rates over the next few years.

You never know what my second opinions will lead to. Here’s another really good recent example.

A client asked me if I had any ideas how he could reduce his tax bill because he had had a really profitable year in business sandwiched between really poor ones. I discovered that the previous accountant hadn’t been taking the Annual Investment Allowance into consideration and I was able to convert a �£3,600 tax bill into an �£800 rebate.

To summarise, the FSA offers a Money Advice Service which is totally unregulated and manned by very poorly trained staff. There is absolutely no reason therefore why I cannot redesign my service to follow the FSA’s example.

So from now on, I’m Fred Bloggs, Independent Financial Consultant, totally unregulated by the Financial Services Authority.

I don’t have to charge fees for information because I am largely self-funded and I don’t have massive regulatory overheads to pass on to clients – no FSA fees, no Financial Services Compensation fees, no Compliance fees, no Network Support fees and I have no need of Professional Indemnity Insurance. I also no longer have the overheads associated with operating a high street office and I don’t have the bother of the horrible administration.

I can talk to you until 2 in the morning about all aspects of Financial Services including providing generic information about all the regulated products like Pensions and Mortgages. I can get you to understand your current financial situation and tell you how things could be improved – I am happy to offer advice within the confines of the FSA’s Money Advice Service and if you require regulated product advice and recommendations, I can recommend several excellent IFAs that will be pleased to help you.

What you’ll get from me is the experience I have developed from actually MEETING with thousands of people and it’s that aspect of providing a service that the FSA will never be able to catch up with. My main sources of income will remain from charging (very reasonably) for helping some of my clients with accounting, bookkeeping and tax return work.

Adviser Letter of the Week, FSA/FCA, Panacea Comment