The Magazine of Sense Network
Quarter 2 2013 - Issue 2
This publication is for use by professional Financial Advisers only and is not to be used with clients. talk
sense
Large DA firms
face a Capital
Adequacy dilemma
How much more will they
have to set aside?
The decumulation opportunity
Babyboomers: drawdown or annuity?
Adviser Awards
winner
Best Network
Looking after Number One
A timely look at the legacy of the 80s
talk
sense
For financial adviser use only. Not approved for use with customers.
A new opportunity dawns.
Contents
Introduction
Welcome to the June issue of Talk Sense.
Since our last issue there has been so
much happening within our profession,
it’s hard to know where to begin.
We have a new regulator who has
already banned UCIS sales to retail
investors and bared its teeth with a
record fine within the IFA sector. We have new rules for
platform providers and a new set of tougher capital rules
for directly regulated IFAs on the horizon.
Against a background of mixed economic news, markets
have moved ahead strongly, albeit with considerable
volatility. Given the collapse in deposit rates and the need
for many investors to secure higher returns, there have never
been so many reasons why investors should take
independent advice before deciding to invest.
This issue we have a great range of articles covering,
business protection, SIPPs, retirement options, costs of
investing, platforms, discretionary funds and the
opportunities within the post RDR world. Tim Newman,
Sense’s Managing Director also looks carefully at the
dilemma facing many directly regulated firms.
Now’s the time to focus on your mid-market clients.
We have been delighted by the positive feedback that we
The mid-market offers great potential if you have the right proposition. The Aviva Platform helps you
serve clients with straightforward planning needs, who want simple investments.
received following our first issue and if there are subjects
that you would like to see us cover in the future, please don’t
To profitably attract and keep mid-market clients, we believe you should look at:
hesitate to let us know at [email protected].
• minimising your costs by using technology to streamline quote, apply and management processes
• reducing time spent on admin to give you more time with your clients
• adding extra value with helpful client data, tools and reports.
sense
The Aviva Platform can help you do all of this. And, because you can now find it on aviva.co.uk/advisers,
you can conveniently do all your business in one place.
Focus on your mid-market clients with the Aviva Platform, one of the great value platforms on the market.
Find out more at aviva.co.uk/adviser/platform-campaign
T-0844 576 8737
Aviva Life Services UK Limited. Registered in England No 2403746. 2 Rougier Street, York YO90 1UU. Aviva Life Services UK Limited is authorised and regulated by the Financial Services Authority. FSA Registration No. 145452 www.aviva.co.uk
LF90018 04 /2013
#talksense
7IM
At your discretion
4-5
Be aware of the definition of discretionary
management that you are discussing.
Standard Life 6-7
The decumulation opportunity
Babyboomers: drawdown or annuity?
Zurich
Reap what you sow
8-9
Lessons from the land for the post
RDR world.
Sense
10-11
Large DA firms face a Capital
Adequacy dilemma
How much more will they have to
set aside?
LV
12
Another exciting press story!
Are you on top of the new SIPP
illustration rules?
Skandia13
Looking beyond the headline
The Total Cost of Ownership.
Bright Grey
14-15
Make the most of the business protection gap with relevant life policies.
Learn about Relevant Life Policies.
Just Retirement
Looking after Number One
16
A timely look at the legacy of the 80s.
Partnership
17
Enhanced Annuities: Demonstrating
the value of advice
Quite the prospect for the forward
thinking adviser.
Aviva
18
Are Platforms too complicated?
Remember when you had only a handful
of platforms to compare?
At your discretion
talk
sense
www.sense-network.co.uk
What is discretionary
management?
• High and opaque charges
Discretionary management
refers to a service provided by
an investment manager where
the client gives the investment
manager the discretion to make
investment decisions on their
behalf, within an agreed
mandate such as a defined risk
tolerance. It has at times also
been used or perhaps
‘mis-used’ to describe products.
• VAT payable on the service, and on the adviser charge.
Traditional
discretionary
management
Initially, discretionary management grew out of the advisory
services offered by traditional
stockbrokers, and the portfolios
tended to be bespoke individual portfolios of direct holdings.
In recent years there has been
considerable movement away
from such propositions because
of issues such as:
•Investment Managers with
in-house Financial Planning teams cutting out IFAs
• Clients with similar
requirements getting different portfolios and outcomes, hard to justify to clients and the regulator.
• The need for more diversified portfolios investing across regions, sectors and asset
classes, and needing other
investment tools within the
portfolios, such as currency hedging – very difficult to do economically within a non unitised portfolio.
• Disappointing investment
performance
4
• Poor levels of service
• CGT is triggered in non unitised portfolios when changes are made.
A bespoke portfolio can remain
a seductive message to a client
and indeed some still think that
“discretionary management”
means “bespoke client
portfolios” by definition.
Other types of discretionary management
“Discretionary management”,
however, also includes:
• Discretionary Model Portfolios /Model Portfolio Service
• Bespoke client investment strategies (as opposed to
bespoke client portfolios)
• Multi Asset Multi Manager Funds (OEICs), although such funds do not fall within the Financial Conduct Authority’s definition of discretionary
management
Confusion can arise when
clients, advisers, and investment
managers talk about “discretionary management” but each
has a different understanding of
what they mean.
What are the pros and
cons of the differing
discretionary
offerings?
Discretionary Model
Portfolios
Unlike a fund the individual
trades implemented by the
adviser are visible to the client.
Typically, the adviser is responsible for suitability, the DFM is
responsible for managing to the
risk profile. There is no need for
client permissions each time a
trade is made. VAT is payable
on the service and the adviser
charge.
There may be a more limited
range of asset classes and
instruments than within a fund.
The security selection may be
fettered in the very low cost
discretionary models. CGT
management is generally harder
in this type of arrangement
because each transaction may
have a CGT implication.
Performance measurement can
be difficult, and back-testing to
produce performance comparisons has its flaws.
Discretionary Model Portfolios
are to all intents and purposes
a product from the DFM. DFM
models sit on platforms, and the
adviser is responsible for linking
each client to the correct model. The DFM has no sight of the
client.
Multi Manager Multi
Asset Funds (OEICs)
used in Discretionary
Portfolios
The potential advantages are:
• More investment range and options than for model
portfolios,
• Economies of scale – in terms of buying power and cost reduction,
• No CGT within the fund,
• More precise currency hedging
Your clients benefit from clearly
defined investment objectives,
benchmarks, industry standard performance reporting and
fully transparent charging – all
more difficult in a non-unitised
structure. There is no VAT levied
on the fund, or on the adviser
charge (assuming intermediation
is evident).
However, it is “just a fund” with
no service such as reporting or
market commentary.
Furthermore as the trades are
not visible to the client, there
may be issues of perception of
adviser value.
Full Service
Discretionary bespoke strategies for
clients from a range of
unitised portfolios.
Typically these services contain
more risk managed institutional style portfolios with greater
diversification, currency hedging
(very difficult to do economically in a non-unitised portfolio),
economies of scale and more
sophisticated investment options
(for example smart passives,
and derivatives). Consistency
of approach to fund portfolios
across clients with the same risk
profile can make the solutions
more appealing to the client and
the regulator.
Client charges are based on
portfolio value rather than
on trading activity. VAT is not
payable on the unitised fund
portfolios. Whilst the individual fund portfolios may not be
bespoke to individual clients,
a bespoke investment strategy
is put together for each client.
Service can also be fitted exactly
to how advisers and clients want
to work.
Potential disadvantages are that
the client doesn’t get a “bespoke
portfolio”. It may also be unclear
who owns the client - does the
DFM have in house financial
planning (Chinese walls notwithstanding...)?
Beyond DFM
Many financial planners are
starting to recognise the opportunity to win higher net worth
clients from the smaller value
end of the Private Banks’ clients.
Those banks have in recent
years suffered damage to one
of their most valuable assets –
their brands. Some of this may
be deserved (undistinguished
performance, poor service) and
some may not. Many are actively moving away from the lower
end of their books (perhaps sub
£10m clients) as they see them
as uneconomic. Some are managing this process with grace
and with the clients’ best interest
at heart; however, some are not,
and resentment has built.
In many cases the banks have
often “locked” their clients in
with banking services such as
fixed term deposits and asset
backed lending. In response,
some DFMs have introduced
such lending and deposit services, integrated (for administration and reporting) into their
full service discretionary service.
This gives financial planners the
tools to allow these clients to
move away from their private
bank in pursuit of better performance, improved service and
lower charges. The challenge
here is client education – some
clients may simply not see financial planners as the providers of
such a rounded service.
Final thoughts
Be aware of the definition of discretionary management that you
are discussing. Know the potential pros and cons of each. Be
confident of your value as a true
financial planner. Financial planning is essential. So is professional money management. But
they may not necessarily best
be done by the same people,
especially if the financial planner
and discretionary manager work
in genuine partnership.
Robert Poulten
Head of Sales
7IM
5
talk
sense
www.sense-network.co.uk
The decumulation
opportunity
Retirement income
options
Traditionally, buying an annuity has been the usual way to
secure a retirement income. Of
course it is a way of getting a
sustainable income, but it fails to
meet the other priorities which
people say they want. Annuity
rates also fluctuate and having
to ‘lock in’ to a poor rate because of when you’re retiring
may be unappealing.
That isn’t to say than an annuity
is never appropriate. For many,
the guaranteed income stream
means it is the right solution.
But for some, drawdown could
be a better option as it offers
the additional features they’re
looking for. Unlike an annuity,
drawdown isn’t a permanent
decision. It can be changed or
Investing for drawdown
Any market falls will increase
the percentage of a person’s
investments spent on providing
For most of the baby boomers, a sustainable income will be a key requirement for
their retirement. But Standard Life research shows that many people want more than
this. In addition to a sustainable income, they want access to additional funds, the
ability to pass on wealth to dependants, flexibility and, most importantly, control.
But this is a significant
additional risk to take.
combined with an annuity. For
example, you could choose to
buy an annuity many years into
retirement, if your age and the
markets make annuity rates
more favourable.
When people choose to go
down the drawdown route, they
need to make sure the decumulation of their investment portfolios is carefully managed. While
there’s risk associated with any
investment, it can be even more
acute for those in drawdown
than it is for investors who are
still accumulating wealth, particularly those who need to take
a regular income.
In the UK the biggest generation ever, the baby boomers, is reaching retirement.
The impact of this is significant as they are expected to have more wealth per person
when they retire than any previous generation, representing a huge opportunity for
the industry.
this income. This leaves fewer
assets to gain in value when
markets rebound. The effects of
compounding then mean that an
investment which falls early on
in drawdown but then performs
well may have a significantly
lower final portfolio value over
time than one which rises slowly
but surely. Or course, the reverse
could be true – an early rise
could have positive long term
effects on a portfolio value.
This increased sensitivity to
market movements means the
focus of investing after retirement should move away from
simply looking at performance
onto volatility management.
Investment solutions need to
avoid sharp falls and prolonged
periods of negative returns as far
as possible to minimise the
erosion of capital and make
income withdrawals more sustainable over the long term. In a
nutshell, it’s not about the overall
performance of a portfolio; it’s
about a smoother journey.
The next step is to identify
investments which will deliver that smoother journey. Of
course some investors and their
advisers will want to build their
own portfolios. But there are an
increasing number of investment
solutions available which have
been developed specifically to
meet the needs of drawdown
investors, whatever their goals,
capacity for risk or level of assets – from lower cost managed
funds, through model portfolios,
to full discretionary fund management.
In conclusion
retirement. But to ensure they
can continue to draw down a
sustainable level of income to
meet their goals, investment
portfolios need to be carefully
managed to minimise risk. This
is where the industry can play an
important role – by developing
suitable investment solutions to
meet different customer needs
and providing ongoing advice.
Eddy Reynolds, Head of
Adviser and Investments
Proposition, Standard Life
We believe that for many in the
baby boomer generation, drawdown will be a more suitable
option than buying an annuity at
6
7
talk
sense
www.sense-network.co.uk
Reap what you sow – lessons from
the land for the post RDR world
For a farmer, autumn means
harvest time. It is the focus of
their year and the chance to
reap the benefits of their hard
work. But, as any farmer will tell
you, the end of harvest does not
mean they can put their feet up
and relax.
The completion of their harvest
signals the start of their preparations for the following year.
They look at the markets and
plan next year’s crop – based on
what they are capable of growing, where they can generate
profit and what their consumers
want.
They plough their fields ready for
spring and sow winter wheat to
get a head start; therefore guaranteeing an early crop and revenue to help see them through
the lean parts of the year.
Finally, they look at their farm’s
machinery, ensuring it is ready
for the challenges ahead. They
assess whether it’s still capable
of doing the job they require, as
efficiently as possible.
Finding the balance
Taken at face value, farming
and financial advice are completely different. However, drill
a bit deeper and you will see
that farmers have to deal with
constantly changing markets,
complex legislation and increasing overheads.
8
It has been said many times
before that in a post RDR world
Advisers will need to adopt
farming strategies – which begs
the question, what can we learn
from their experiences?
Just like a farmer we have to
balance what our customers
value and are prepared to pay,
against the cost of production
and the requirement to generate an income from our efforts.
However, unlike the farmer - we
have the opportunity to ensure
that our income is ongoing and
are not subject to vagaries of the
British summer!
The impact of
technology
To do this we need to have
planned ahead, looking to the
next harvest – considering not
just what we are going to grow
but how we will do it.
For the farmer this means good
planning and the use of technology such as the tractor, seed
drill or combine harvester to
deliver both crops and profit.
Technology has revolutionised
the farming business - a man
with a tractor can plough 30
times more than his predecessors could with a horse.
Advisers produce an intangible
product and therefore their technology is focused on creating
and delivering services. While
the technology may be smaller,
it’s no less impressive.
Most firms operate electronic
back office systems and utilise
online research tools in their
business, recognising that these
are essential to their business as
they help to deliver efficiencies
whilst making the intangible tangible for the customer. However,
just like the tractor revolutionised the process of ploughing
fields, some have also recognised that an investment platform can help revolutionise their
ability to implement and manage
their advice process.
Time for a review
Platforms, just like tractors have
been around for many years
and come in all sorts of shapes
and sizes. Tractors wear out
or become obsolete as more
efficient models become available, or become unsuitable as
the needs of the market move
on requiring the farmer to sow a
different crop in a different way.
In some cases it is possible to
adapt but the costs mean that it
is simpler and easier to replace it
with something that is designed
for the job. Platforms are just the
same.
So just like the farmer, who takes
the time to prepare the ground
for next year’s crop and to
ensure that his farm equipment
is fit for purpose. Now is the
perfect time to review the equipment that powers your business
and to consider whether your
platform selection allows you
to deliver services which your
customers value, in a way that is
efficient and rewarding for all.
At Zurich, we listened to what
the adviser wanted and needed
from a platform. We designed
and built our platform to help
shape your business, putting
your firm’s clients at the heart of
your business – helping you to
serve them better and to demonstrate the value of the advice
you provide.
Paul Hagan
National Account
Manager at Zurich
9
www.sense-network.co.uk
Larger DA Firms face a Capital
Adequacy dilemma
The end of 2013 will see the
first ratchet of the new capital
adequacy requirements with
the minimum capital required
increasing to £15,000 or
1 month’s expenditure.
practice as their capital requirement could increase to £750,000
over the next 2½ years. Surely,
the exact reverse of what the
change to capital rules was
intended to achieve.
Furthermore, over the next two
and half years, the minimum
will increase to £20,000 or 3
months’ expenditure. There are
also new requirements which
could increase this figure if the
PII cover held by the firm carries
exclusions or excesses above
£5,000. For many medium sized
DA firms this will present a genuine dilemma.
For a firm with £1,000,000 turnover and fixed costs of £800,000,
an additional £190,000 will be
needed over the next 30 months.
Especially in these straightened
economic times that is going
to represent a big challenge for
larger DA firms.
Only in March, LIFT Financial
reported that they would be
forced to concentrate on their
self-employed arm rather than
grow their employed, fee-based
So if firms don’t relish the prospect of tying up scarce capital in
low yielding deposit accounts,
what are the options?
• Inject more capital. Assuming
that the capital is available,
the biggest issue is that this capital could be used to
expand the business, e.g. through acquisition of other firms or client banks. For some firms, the opportunity cost will be too high or a major brake
will be placed upon their
expansion.
• Seek an external investor.
Assuming that one is
available at a sensible price, this will often produce
a new set of challenges around corporate governance,
dividend policy and may
require a formal change of control application to FCA.
• Reduce expenditure. For most firms, the only realistic way to
reduce costs is to reduce
salaries or dismiss staff. For most firms this will simply be
unacceptable. High quality advisers are unlikely to accept a move from a salaried to
self-employed basis and there is always a risk that HMRC will see this as an artificial way to
reduce Employers NI
payments.
• Cease trading. Recently, an Edinburgh firm became the
latest to be banned by the FCA for not being able to
provide they had sufficien
capital. We expect that the FCA will be vigilant over the increases required and will ban firms who fail to deliver the right level of capital.
10
• Join a traditional network. Appointed Representatives are
exempt from the Capital
Adequacy Requirements as this is the network’s responsi-
bility as the principal business.
Networks already have to hold
capital equal to 3 months’ fixed expenditure. For many
firms, the loss of control implied by joining a traditional network is unthinkable.
Some DA firms, faced with the
reality that they can’t or don’t
want to supply extra capital, will
approach a network. The old
traditional networks offer a “one
size fits all” service with a set
of risk avoidance practices that
may prevent the firm from being
successful. Indeed, following the
£6m fine on Sesame, it is clear
that large Nationals and
networks will need to increase
not decrease the level of
control that they exert upon their
members. Additionally, many
are provider owned and are
intent upon becoming product
providers themselves. Hardly a
home for a modern independent
financial planning practice.
But, faced with the dilemma of
how to provide capital, some
firms will seek out an alternative
solution. Over the past 5 years,
we have seen the emergence of
new, bespoke networks based
upon an entirely different set of
values. These networks have
eschewed size in favour of
having close working relation-
talk
sense
ships with their members. They
have embraced technology not
just for reasons of efficiency, but
also because it allows for more
effective systems of control.
They are often owned by
practitioners and the network
members and have no vested
interests towards individual
providers, platforms and fund
managers. Their sole raison
d’etre is to provide a robust
trading environment for member
firms which allows them to focus
on clients. The network manages the risks and ensures that
firms fully comply with the FCA
requirements.
Perhaps the biggest change is
in size. When Sesame acquired
and integrated 5 smaller
networks, its drivers were adviser numbers, premium income,
scale based efficiencies and a
belief that the resultant business
could be sold for significantly
more than the acquisition cost.
The last few years have amply
disproved that theory and a new
way forward for networks is vital.
Tim Newman is
Managing Director
of Sense
sense
‘New model’ networks may
prove to be highly attractive to
firms who have rejected the
traditional networks but who
now find themselves needing a
blend of high quality, bespoke
compliance and business
consultancy. The ability to grow
their businesses free from the
constraints of the new capital
adequacy shackles will, for
many, be a key driver.
11
www.sense-network.co.uk
Stop press: Another
exciting pension story!
Actually it isn’t. Sorry.
Sometimes an important change
to pensions comes along that
just isn’t exciting no matter how
you try to dress it up. I know you
might find that hard to believe,
but read on…
I’ve noticed a recurring theme in
financial services over the past
twenty-five years or so where a
less than ethical small minority
or individual spoils the party for
everyone else who was doing
a perfectly good job. There is
public outcry and the regulator
then wades in with a raft of new
rules, procedures and fines. The
words horse, stable door and
bolted all spring to mind.
SIPPs seem to be a recent
victim of this situation because
some firms saw fit to wrap completely unsuitable investments
inside them and thus attracted
the attention of the FCA. To cut
a long story short, the knock
on effect of this resulted in a
consultation about the levels of
capital held by SIPP providers
and a close look at many other
12
talk
sense
aspects to do with SIPPs and
how they should be presented to
clients. Not desperately exciting
stuff, so it’s perhaps not surprising that the changes to disclosure requirements that came
into force on 6th April 2013 have
largely gone unnoticed. One of
these important changes is the
way that client SIPP illustrations
are produced.
projections on personal pensions. All our insured funds are
regularly reviewed and a view
taken on an appropriate growth
rate given the asset mix of the
fund. We’re adopting the same
principles for SIPP assets.
Rather than bore you with the
full story here, more detail can
be found in our Guide to
Investment Growth Rates.
Once upon a time SIPPs only
had to produce illustrations
where the plan being set up
included an element of pension drawdown. This changed
from 6 April 2013. Now all
SIPPs will need to issue disclosure documents (illustrations)
with projections calculated on
realistic growth rates. This is a
requirement that most personal pension providers have had
to comply with for some time.
However given the diverse nature of investments that can be
held within a SIPP, this poses a
much greater challenge in terms
of identifying what a realistic
growth rate might look like.
If you’d like more details about
LV= and our holistic approach to
pensions and retirement income
solutions go to:
www.lv.com/adviser or call your
specialist telephone teams on:
From 6 April 2013, SIPP
illustrations should use growth
rates which are based on ‘best
available reasonable assumptions’, (final rules in chapter of
FSA CP12/29). In plain English
this means you should now start
to see different growth rates
for different investment types,
for example, bond type investments will be projected using a
different rate to equity backed
investments.
For some time now LV= has
used realistic growth rates for
Midlands and South West:
0800 678 1680
North: 0800 678 1682
South East: 0800 678 1681
Or visit www.lv.com/adviser
Katherine Oxenham
FCII, FPFS, MCSI
Business Development Manager
talk
sense
www.sense-network.co.uk
Looking
beyond
the
headline
Mike Barrett, Platform
Marketing Manager at
Skandia explains why it’s
important to look at the
Total Cost of Ownership
when comparing platform
pricing.
In the immediate aftermath
of RDR there was a deluge of
new platform pricing models
to compare. I soon discovered
that it was hugely challenging to
produce a meaningful and
accurate comparison.
Rather than simply focussing on
a platform’s headline charge,
I wanted to benchmark Skandia
Investment Solution’s pricing in
a way that reflected the reality
of investing. In short, I wanted
to produce a meaningful and
balanced comparison.
The transparency of pricing
and charging mandated by
RDR – with each element clearly
disclosed – has undoubtedly
increased understanding of the
costs and value of each component of an advised investment.
Customers can now clearly see
who is being paid for what, and
more easily understand the total
cost of ownership (TCO) associated with their investments.
Whilst a TCO figure can be
simple to calculate, and gives
an easy way to understand the
current costs, it’s vital that all the
charges are included, otherwise
a false picture of reality is painted. Using our example below,
there are four components to
assess in order to derive the
TCO figure, each with their own
hidden dangers to consider.
For more detail on each of these
components please visit the
Skandia website at:
www.skandia.co.uk/adviser/tco.
range of pensions and tax
planning tools, all designed to
make your life easier.
Visit our adviser tools library
here to see just what the
Skandia Investment Solutions
Platform can offer.
Having worked through the
components, you can present
the customer with one overall
figure covering the total cost
of ownership. But this is only a
snapshot in time. If or when any
of these elements change, the
TCO will change accordingly.
Now your client is clear on the
true cost of the investment, you
can really focus on your value
proposition and help deepen
client relationships.
Skandia can help with this. Our
platform has some great functionality that allows you to give
great service and value to your
clients. It provides everything
from our Capital Gains reporting
tool to risk profiling and discussion as well as an extensive
Mike Barrett
Platform Marketing
Manager at Skandia
13
www.sense-network.co.uk
Make the most of the business protection
gap with relevant life policies
Recent research shows the business protection gap at
approximately £1.35 trillion*. That’s an 18%** increase from
previous research undertaken in 2009, and again in 2011.
Whether you’re new to business
protection, or a dab hand, you
don’t need us to tell you this is
a huge gap that represents a
massive business opportunity
for you.
If you’re new to business
protection, relevant life could be
a door-opener and could be a
way to help grow your business.
What are relevant life
policies?
Relevant life policies sit halfway
between being personal and
corporate business and can
easily be embraced by advisers
who may not have the
confidence to jump straight into
complex shareholder issues.
Technically speaking they are
stand-alone, single life, and
non-registered death-in-service
arrangements for employees.
They came out of the 2006
pension simplification
legislation as a replacement to
the old ‘unapproved’
death-in-service arrangements,
but with much better tax
treatment.
14
How do they work?
What about benefits?
The process is very simple. The
employer offers death-in-service
benefits to the employee (which
includes shareholding directors). The company takes out a
life policy on the employee and
writes this under an employer
trust. This is only available for
employees – not equity partners
or members of a limited liability
partnership.
Benefits are normally paid taxfree through the employer trust.
The only possible tax charge is a
periodic and/or exit charge from
the trust. These charges apply
to all non-pension discretionary
trusts but only arise if there’s any
value to the trust on any 10th
anniversary. As an RLP is a term
assurance, normally there’s no
value. However, it could arise in
the unlikely event of an employee dying just before a 10th
anniversary and the benefits are
not paid to beneficiaries until
after the 10th anniversary. The
maximum charge is 6% of the
excess of the sum assured over
the then nil rate band. This can
easily be avoided by setting up
multiple policies and trusts on
separate days under the Rysaffe
principle, as each trust will have
its own nil rate band.
How are premiums
taxed?
The first thing to note is that
premiums paid by the employer
don’t create a P11D charge on
the employee. S247 Finance Act
2004 removed the charge that
the old unapproved schemes
were subject to, creating a highly
tax efficient vehicle.
This becomes even more efficient when corporation tax is deducted. Premiums are normally
allowable as a business expense
as being part of the remuneration structure of the employee
and therefore ‘wholly and exclusively’ for the purpose of trade.
Having it in their employment/
service contract would help to
cement this.
What benefits can be
provided?
In short – life cover. It would be
good if we could add on critical
illness and disability benefits but
the legislation won’t allow this –
not even waiver of contributions.
However, terminal illness benefit
is acceptable.
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The benefit has to be a term
assurance paid in a lump sum.
Cover can be level, increasing
or decreasing and premiums can
be for a fixed term or renewable
but can’t run beyond the age
of 75.
The only other restriction to be
aware of is that a main purpose
of the policy must not be tax
avoidance. The plan therefore
needs to be set up for genuine
protection of dependants, so
shouldn’t be used for key person
or share protection.
You can use relevant life policies
as the launch platform to find
out more about a company and
to start discussing the wider
business protection issues that
most small businesses face.
Writing RLP business is seen as
the key to the door that could
quite possibly open up other
opportunities for you.
Ian Smart
Head of Product
Development and Technical
Support, Bright Grey
*Source: 1 & 2, L&G business protection
gap report, May 2013.
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‘Looking after Number
One’: a timely look at
the legacy of the 80’s
For some, it was the era that
saw the UK go from being ‘the
sick man of Europe’ to a nation
admired for its enterprise and
opportunity… for others, it was
the decade of ‘greed is good’
and the dismantling and
devaluing of society.
Whatever your own stance,
with the recent passing of Lady
Thatcher, perhaps now is the
time to take stock of how the
legacy of the 80s has
impacted, and will continue
to impact, those approaching
or in retirement.
It is also worth considering how,
as an intermediary, you can use
that context to guide your clients
to their best options.
When we became a nation of
homeowners
One legacy is clear. The 1980s
witnessed a sharp rise in the
volume of property owners.
The main triggers were (1) the
introduction of the Right to Buy
scheme, and (2) the de-regulation that broke the cartel
of building societies, making
mortgage finance more readily
available.
The figures tell their story.
The number of loans to firsttime buyers grew from 320,200
in 1979 to a peak of 612,700 in
1986 (a rise of 91 %) (1)
which prompted a spiral in the
percentage of UK adults being
homeowner occupiers. (From
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56.6% in 1980 to a peak of
70.9% in 2003).(2)
And there is of course, another
side to the legacy of the 80s and
its credit boom – the significant
increase in house prices.
Many of those that used the two
above driving factors to become
homeowners are likely to have
also benefited from the significant increase in property value.
For example:
In 1986 the average house price
was £35,647
for retirees to take a fresh look
at their choices – and to include
their property in the mix.
When things come full circle…
with a twist
The eighties might be remembered as the decade of serious
money… of Gordon Gecko and
Loadsamoney… and of ‘looking
after number one’.
Today, many of your retiree
clients may be better placed to
do that than they realise. And
not just to look after themselves,
but maybe to release equity to
help family members.
For many, the first – and often
missing - step is to simply wake
up to the assets and the options
that they are sitting on.
And to do that, they may well
need your support.
Rising (236%) to £119,938 in
2003
And reaching £163,056 in Q1 of
2013 (3)
A new generation of haves and
have-nots
‘Cash-poor and asset-rich’.
It’s a term often heard to
describe a growing proportion of
today’s home-owners – given
the various ‘squeezes’ on their
cash flow and lifestyles.
Retirees have been hit particularly hard by the way annuity
rates have plummeted. In the
10 years up to December 2012,
standard annuity rates for a 65
year old male have fallen from
8.1% to 5.21%, and 15 year gilts
dropped from 4.81% to 2.33%.(4)
With one financial cupboard
looking bare, and another
well-stocked, it makes sense
Joanne George, Director,
Networks & Service Providers
Just Retirement
(1)
ONS, April 2012. Measuring National well-being –
households and families, 2012
(2)
Department for communities and local
government - English Housing Survey. 2011-12
(3)
House price data from Nationwide 2013:
(4)
http://www.williamburrows.com/charts/annuity10k.aspx
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Enhanced Annuities:
Demonstrating the Value of Advice
How Enhanced Annuities
can help Advisers
demonstrate the value of
advice and get ahead of
a market that’s already
grown by nearly 50% in
the last year.
Advisers seeking to clearly
demonstrate the value of
financial advice and enrich their
portfolio of services are
finding Enhanced Annuities
to be just the ticket. Last year
(2012) Enhanced Annuity sales
hit a record £4.48bn in the UK,
an increase of 49% over 2011,
which is pretty impressive given
impaired annuities only entered
the market in 1995. Yet the really
thought-provoking fact is that
this record figure represents only
20% of the total annuity
products sold – indicating there’s
still significant potential in this
market.
Industry sources suggest that
one in two adults could qualify
for an enhanced annuity yet the
above shows that only one in
five are actually buying*. Combine that fact with the kind of
pension uplifts available and you
can see the case for Enhanced
Annuities is compelling.
Take Bob, for example, a 65
year old diabetic. Bob has a net
pension fund of £50,000 and,
having carried out some online
research, the best standard rate
annuity he could find offered
an annual income of £2,695.
However, thanks to his adviser
getting involved, and introducing
him to medically underwritten
annuities, that income has been
increased to £3,370 – a 25%
uplift**. Over 10 years, that
would equate to an additional
£6,750 of income.
For more details and to find out
how much value you can add
for your client, call your Account
Team on 0845 108 0443 or email
salesandcampaign@partnership.
co.uk.
Last year, 85,000 customers
benefited from an increased
retirement income thanks to their
advisers recommending an Enhanced Annuity, however many
more did not, potentially losing
out on millions of pounds worth
of extra retirement income.
With numbers like these, the
case for advice is compelling.
Individual underwriting based
on health and lifestyle can be
explored and the value of that
advice is reflected directly in the
significant uplifts to income that
clients can then achieve. Against
a background of the ABI Code
of Conduct, the FSA’s thematic
review and a growing number
of educated clients now driving
the Enhanced Annuity agenda,
it may not be long before clients
themselves are asking about
Enhanced Annuities and
querying why they haven’t
investigated the option before.
Going back to the market
figures, if only 1 in 5 people are
buying an Enhanced Annuity, it
suggests that, in a market
currently worth about £4.5bn,
there is a huge amount of
business out there still waiting
to be written. Quite the prospect
for the forward-thinking adviser.
Gary Eastall,
National Account
Manager at Partnership
*ABI, Annuity Purchasing Behaviour 2010
**Partnership, March 2013, compared
with the best standard rate available on
the Pension Annuity Market
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Are platforms too
complicated?
Remember when you had only
a handful of platforms to
compare? With more than 30
platforms on the market, all
vying for your business, those
days are long gone.
The regulator has made it clear
it expects advisers to consider
the needs of individual clients
when choosing a platform. The
message is you can’t shoehorn
clients onto an unsuitable platform just because it means all
your clients are in one place.
Choosing platforms is a serious
business. With so many around,
it’s a big job to assess, compare and decide which one or,
indeed, which ones are right for
your clients.
To make things even more
difficult, nearly every platform
comes with a much-trumpeted
array of features and options,
ranging from the essential to the
rarely used.
More features than you need
In some ways, choosing a platform is a bit like choosing a new
camera. With the camera, you’ll
probably do a bit of research
to make sure it does everything
you want it to do. Then you’ll
start noticing features you didn’t
know about, but which sound
amazing.
Suddenly, you go from
comparing megapixels to
worrying whether 18x zoom is
really going to be enough. Do
you need vibration reduction?
Which of the 70 picture effects is
best for taking a picture of a dog
on a beach in January?
In the end, you probably don’t
use more than a handful of the
features on your expensive
camera. Most of the time, you
probably just point and click.
The simple fact is that while a
dazzling array of features may
be impressive, you don’t need
them to use the camera
effectively.
It’s the same with platforms.
Much like a fancy camera, some
platforms give you options you’ll
probably never use. If you’ll use
them, by all means pay for the
extras, but otherwise why pay
extra?
Paying the price for added
extras
facilities for unlisted shares,
overseas property and so on?
Are platform providers guilty of
using features to differentiate
their platform from others?
You need to choose the right
platforms for your clients. Some
investors will want the extra
features, but do all of them?
What about clients with simple
needs?
A different type of platform
Isn’t it better to have a simple,
low-cost transparent platform
designed specifically with
investors with straightforward
needs in mind?
There are some platforms out
there that meet this description. If you’re looking to serve
mid-market clients or even high
net worth clients with uncomplicated investment needs, it’s
worth seeking out a no-frills
platform.
Your clients will only pay for
what they use and you won’t
have to have any difficult
conversations attempting to
justify high platform costs.
In any market, cost is a
primary factor in deciding what
you need. How do you make a
proper assessment of value
rather than cost?
Ultimately, you have to pay for
those extra features. Or, more
accurately, a platform with many
bells and whistles will charge a
higher fee. And will your clients
want to pay extra for features
they’ll never use?
So why are platforms overburdened with complicated features
and funds? Do you really need
Andy Beswick
Intermediary Director
Aviva
The views expressed in this publication are those of the individual authors and do not necessarily reflect those of Sense Network
Limited. No reproduction of any information with this publication is permitted without prior written consent from Sense Network Limited.
All rights reserved. This publication is issued by Sense Network Limited, a company registered in England and Wales with the registered
number: 6089982. Sense is a trading style of Sense Network Limited. Registered office: Brookdale Centre, Manchester Road, Knutsford,
Cheshire WA16 0SR. Sense Network Limited is authorised and regulated by the Financial Conduct Authority.
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