ACCA HarrowInvestment Planning1st June 2009

Nick Webb – Regional Sales ManagerTom Dickerson – Business Consultant

Agenda

• The regulatory environment

• The framework of advice

• Investment process

• Tax Mitigation wrappers

– IHT

– Pension

– Collectives

– ISA

• Skandia

Regulatory Framework

Risk comes from not knowing what we are doing

Warren Buffet

The regulatory environment

retail distribution implementation programme (RDIP)

• Clarity of Service

• Professional Standards

• Remuneration

one view of 'clarity'

Source: FS08/6: Retail Distribution Review, November 2008

our view of clarity

Money Guidance

RDIP – professional standards

• ‘For all investment advisers, there is a benchmark qualification of at least QCA level 4 and possibly higher levels for designated specialists, but all individuals are encouraged to opt for higher levels to suit their specific needs.’

• Blue print and mapping by mid 2009

• Diploma or AFPC

Source: FS08/6: Retail Distribution Review, November 2008

remuneration

‘For customers to understand clearly the different services being provided and to recognise the value of advice, separate disclosure is required of the costs of advisory services from product costs.’

Source: FS08/6: Retail Distribution Review, November 2008

The FSA aim to achieve four things:

• capable and confident consumers

• simple and understandable information for, and used by, consumers

• well-managed and adequately capitalised firms that treat their customers fairly

• risk-based and proportionate regulation

Source: Sarah Wilson FSA keynote Speech October 2007

TCF Outcome 5

Consumers are provided with products that perform

as firms have led them to expect, and the associated

service is of an acceptable standard and as they have

been led to expect.

Investment process

Investment process

119,000,000 results!

robust investment process

Consistent Risk Assessment

Robust Asset Allocation

Client Review (to include re-assessment of attitude to risk)

1

5

2

Fund Selection Process3

Review Fund Selection4

Outsource Fund Selection

and

Outsource Fund Review

robust investment process

Consistent Risk Assessment1

Attitudes to risk

• 2 – 1 on red

• £1 stake?

Play again…?

• Bet your house

Risk is meaningless without a consequence

Risk – a definition

Probability X Impact

Low probability, high impact

High probability, low impact

Goals and consequences

• What do you want to do in retirement that requires you to have money?

• What are the consequences of not achieving it?

TCF outcome 5

Consumers are provided with products that perform

as firms have led them to expect, and the associated

service is of an acceptable standard and as they have

been led to expect.

-14

-12

-10

-8

-6

-4

-2

0

2

Market Returns

Wea

lth

Uti

lity

Utility

Happiness

Disappointment

Asymmetric utility

what do investors feel about their investments?

… the pain of absolute loss is greater than the pleasure of absolute gain

risk profiling

• Subjective measures?

– naïve and dangerous

• Risk Profiler

– reflects loss tolerance of a population

– Score identifies investor’s ‘rank’

• Employ a portfolio that targets that volatility

– A ‘no surprises’ portfolio

robust investment process

Robust Asset Allocation2

assumptions

Investment returns

Volatility

Assetcorrelations

Tax

Ongoingcharges

*Watson Wyatt Ltd provide the risk profiling and asset allocation tools for Selestia Investment Solutions

risk assessment and asset allocation

RATEATTITUDE

TORISK

MAKEASSUMPTIONS

ESTABLISHEFFICIENT PORTFOLIOFRONTIERFOR EACHWRAPPER

DETERMINEPORTFOLIO

ASSETALLOCATION

optimising the asset class

Source: Selestia Investment Solutions/Watson Wyatt Ltd June 2007

risk assessment and asset allocation

RATEATTITUDE

TORISK

MAKEASSUMPTIONS

DETERMINEPORTFOLIO

ASSETALLOCATION

ESTABLISHEFFICIENT PORTFOLIOFRONTIERFOR EACHWRAPPER

Fund selection

• The Ruler test

• Brand

• The ‘star’

Fund-picking

• 1,807 funds*

• Odds on randomly picking best fund three years in a row?

5,900,304,942-1

Non-Managed Funds with a 1 year track record to 19th January 2007

And in a portfolio?

Odds on picking the best portfolio?Choosing best fund in each sector

23,011,691,206,304,399,999,999,999,999 -1

Ensure the required result, rather than the best result

Tax Mitigation

Tax wrappers

• IHT schemes

• Pension

• Collectives

• ISA

Inheritance tax planning

• Protection contracts• Mitigation contracts

Mitigation schemes

• Loan schemes• Retained interest trust arrangements• Discounted gift schemes• Gift schemes

Loan trust

• Client decides how much capital is loaned

• Access to “income” by way of loan repayments

• Can demand at any time full capital repayment of outstanding loan

• All growth on capital belongs to the beneficiaries free of IHT

Retained interest trust

• Access to capital

• Gifted capital is a CLT

• Control of capital maintained

• Enhanced 5% allowance under bond

Discounted gift

Discounted gift

• Loss to transferor’s estate

Discounted gift

• Loss to transferor’s estate• Value of what transferor gives away

MINUS today’s value of any rights that still belong to him/her

Discounted gift

• Split benefit trust separating out the entitlement to distinct rights under the contract

Settlor + Other(s)

Immediate Discount

CLT/PET

Settlor’s fund -based upon mortality &

level of withdrawals

Residual fund -contribution less value of Settlor’s fund

Settlor

Trustees

Discounted gift trust

Discounted gift trust

• Choice of withdrawals

Discounted gift trust

• Examples of discountsAge Discount* IHT savingMale 65 £46,735 £18,694Male 85 £44,526 £17,810Female 70 £47,613 £19,045Female 85 £29,550 £11,820

*Based on investment of £100,000 and an “income”level of 5% p.a. Normal discount factors apply

Discounted gift trust

• Examples of discountsAge Discount* IHT saving

Male 65 £65,249 £26,100Male 85 £65,312 £26,125Female 70 £65,490 £26,196Female 85 £43,912 £17,565

*Based on investment of £100,000 and an “income”level of 8% p.a. Normal discount factors apply

Discounted gift trust

• Flexibility re ‘income’ – deferred start date, escalation, partial waiver, full waiver

Gift trust

• Prepared to make unconditional gift but not directly

• No future access to funds in any circumstances

• CLT or PET for IHT purposes

Pensions

Pensions: Limiting Tax Relief for High Income Individuals

Overview

• Clients with relevant income over £150k

• w.e.f 06/04/2011 tax relief at basic rate

• Immediate ‘anti avoidance measures’

• ‘Special Annual Allowance’

• ‘Special Annual Allowance charge’

• Regular ‘pension savings’ pattern

149k →

151k↓

“Special Allowance Charge”

£150k Relevant Income Limit

Special Annual Allowance

• Individuals with income of £150k or more

• Overall pension savings £20k or more

• Tax relief on additional pension saving at basic rate

• Special annual allowance charge (20%)

• Collected via Self Assessment return

Protected Pension Input• Value of ‘regular pension savings’ receives full tax relief even if

exceeding £20,000 special annual allowance

• Regular pension savings defined as benefits accruing or contributions payable no less frequently than quarterly

• Where regular pension savings are less than £20,000, additional contributions can be made to £20,000 limit with full tax relief

Opportunities

• 300,000 individuals over £150k

• 800,000 individuals over £100k

• 2009/10 £20k higher rate relief

2010/11 £20k higher rate relief

2011/12→ basic rate relief

• Make a gift to charity

Tax Relief Restrictions on Pension Contributions• From 2011/12 tax relief restricted on pension contributions for

individuals with taxable income in excess of £150,000

• Relief to be tapered from 50% to 20% for those with taxable income of £180,000 or more

• Basis of tapering awaiting Treasury consultation

• Transitional legislation proposed to restrict tax relief for those with taxable income of £150,000 plus for current and next tax year

• Clients affected where taxable income is £150,000 or more in current or previous two tax years

Points for Action

• Is client caught by relevant income cap ?

• If so, for which tax years ?

• Gift aid and £20,000 personal contribution to registered pension scheme can be used for this tax year to reduce income below threshold

• Significant difference in potential tax relief available if income cap does not apply

Points for Action

• Maximise the full income tax relief available for this and next tax year on pension contribution limit available

• Work with professional connections essential in run up to end of tax year in determining relevant income position for clients who might be caught

ISA Changes

• Increase from £7,200 to £10,200 pa

• Cash Allowance increase for £3,600 to £5,100

• October 2009 for age 50+

• April 2010 for everybody else

Skandia UK’s proposition

Market context: Old world moves to new model

PlatformFund

supermarketMulti-

managerUnit linkedTraditional

With-profits

creating innovative solutions

64

Strategy : Evolving market

‘ ‘

65

New ModelAdvisers

All products

Strategy : Approach to an evolving market

Skandia Investment SolutionsTransition / New ModelDirect OEICTotal open architecture+ Un-bundledOnlinePension/Bond/ISA/Collectives/Offshore

Skandia LifeTraditional/TransitionMirror fundsLimited open architectureBundledPaperProtection/Personal Pension/Bond