Reflecting on Normality

I must admit, the past two weeks have felt a little surreal. After 18 months of enforced screen time and virtual meetings, seeing the world come back to life in a major way has been a real pleasure.

We hosted our client event the week before last and it was wonderful to meet and greet everyone in person (and share a glass of wine) after so long.

What was equally apparent was the benefit of new technology that we have discovered during the pandemic. We had never considered this pre-covid, but we took the decision to livestream the event and we are so glad we did – over 140 of you tuned in to watch the event live (a recording of which you can watch here for anyone who missed it). I must admit, when we decided to give the greenlight to the livestream, I was under the impression that perhaps a handful of people would watch – how wrong I was!

If we account for both the people in the room and the people able to watch online, something like 3 times more people were able to enjoy the event compared to previous years which can only be a good thing. Suffice to say, I think the livestream is something we will offer in the future as well.

Equally satisfying was our return to the seminar room last week. These were the first seminar sessions we have run in around 18 months and it felt great to be ‘back in the room’. It was equally pleasing to see some existing clients who we have worked with virtually during the pandemic take the opportunity to come along and join us in person (just a reminder that all existing clients are very welcome to join us at our seminar or webinar events whenever you wish). Upcoming webinar details can be found here.

In addition, the past few weeks have seen a very notable uptick in the number of clients wishing to come into the office to hold their meeting in person, rather than on Zoom. Although we will certainly keep the Zoom option available indefinitely, it is really nice to be able to see clients face-to-face and share a cup of coffee together.

All in all it has been a busy two weeks, but it has been a real pleasure and I couldn’t be happier that we, finally, seem to be returning to some degree of normality.

We shall have to see what the winter holds, but, for now, I am enjoying every second!

Care Fees Update, National Insurance & Dividend Tax & Budget Date

Care Fees Update

We have this week finally seen the much-hyped changes to care fees announced.

This is an issue that has been ignored and deferred by successive governments. There have been countless consultations and suggestions over the years, but none of them have really moved far off the starting line. But now we have a new care fees system.

I think most people will now be aware of the key points which are as follows:
The ‘full fees capital means test’ limit will be increased to £100,000. This means that if you have over £100,000 of capital assets (including the family home, unless it continues to be occupied by a partner, relative or dependent aged over 60), you will be responsible for your care fees in full.

There will also continue to be a lower limit of £20,000 below which assets will not be taken to fund care fees.

For those with assets between £20,000 and £100,000, there will be a partial contribution required towards care fees, with this increasing the closer you are to the £100,000 asset limit.

In addition to the above, there will remain a (very significant, but far less publicised) income based means test that says that if you have sufficient income to pay your own care fees (regardless of capital), then a contribution could still be required.

All of the above will be subject to a cap on what an individual will be expected to contribute to their care fees. The cap will initially be set at £86,000. Beyond this point, no individual will have to pay towards their care costs.

So far so good, however, as usual, we have been looking beyond the headlines to try and find some of the devil in the detail.

The most significant point not really being covered in the mainstream media is that the whole set of rules above only apply to your personal care costs, not your ‘hotel’ costs (‘hotel’ costs being the cost of staying in accommodation, food, utilities etc).

As such, the amount an individual could pay in their lifetime for how they would view their ‘care fees’ could well be much greater than the £86,000 cap when you factor in the ‘hotel costs’.

Now, to be clear, this has always been the case. Hotel costs have always been assessed separately from actual personal care fees, but people often don’t appreciate that there is this distinction.

As such, the new proposals are a welcome addition to the care fees system and at least provide some degree of certainty.

What is perhaps more interesting is that these proposals could well pave the way for insurers to re-enter the long-term care market and produce the first real insurance products for long-term care in several decades.

We will continue to monitor developments and will of course report on anything significant that becomes apparent in the months ahead.

National Insurance & Dividend Tax

In order to pay for the above, the government has introduced an additional 1.25% levy to be added to national insurance as an interim measure and then split out as essentially a third kind of tax on employment income.

Moving forward, you should see your income tax, national insurance and a ‘health and care premium’ on your payslips.

In addition, the dividend tax rates have also had 1.25% added, meaning the basic rate of dividend tax will rise from 7.5% to 8.75%. Dividends will still represent a tax efficient income source for most people, although of course these changes make them slightly less attractive.

What they also do is increase the relative attractiveness of capital gains as a form of ‘income’, especially when levied on shares and bonds, as this is charged at a basic rate of 10% and a maximum rate of 20%, even for higher rate taxpayers.

Budget Date

Finally, we do now also have a confirmed budget date of 27th October 2021. This budget will be particularly telling as the UK continues to recover from the Covid pandemic.

We will of course continue to monitor any proposed tax changes and will report to clients anything that might be relevant to their financial planning.

Into The Unknown

As I have returned from holiday, it has become increasingly clear to me just how divided people are in terms of their feelings around the ongoing Covid-19 pandemic.

On the one hand, some clients are effectively ‘back to normal’, having been making the most of our newfound freedoms by eating out, attending shows and enjoying international travel for example.

On the other hand, there are some who are still very worried about the virus, perhaps informed by their own experiences or those of a close friend or family member.

Nowhere was this more apparent than in the survey we ran recently to ask whether clients wanted us to hold our annual client event in person this year at the RAF club, or online as we did through necessity back in 2020.

We ran the survey hoping to gain some clarity and guidance on what our client base wanted. The result – almost a dead heat. A 50/50 split right down the middle.

We appreciate each and every one of our clients and respect the differing views around this highly sensitive topic, so we have decided to try and deliver the best of both worlds.

For those that would like to join us in London for the usual evening of wine, canapés, conversation (and a little presentation from yours truly), then you are very welcome to do so.

For those of you who would rather not make the journey (due to the Covid risk or otherwise) we will be live-streaming the event so that you can enjoy it from the comfort of your own home.

What does seem clear, is that any notion that we were going to get back to ‘normal’, is clearly out of the window. Of course we will find a ‘new normal’ over time, but unlike with lockdown, there won’t be an announcement or a government briefing. There won’t be a BBC news report announcing that we have arrived at this ‘new normal’.

Instead, we will most likely experience very gradual change over the coming months, until, one day, we wake up and realise that things have settled. Things have stopped changing.

I want you to know that whatever happens, we are here for you, our valued clients, whenever you need us, in person, on Zoom or on the phone. We will continue to adapt and innovate in this brave new world.

Here we go … into the unknown!

Monthly Vlog – July 2021

*July’s Vlog*

In this month’s Vlog, as usual, Matthew provides updates on the market and the performance of the Buckingham Gate Portfolios. Matthew also speaks about how US technology companies continue to dominate the markets. He asks for your thoughts on your preferred format for the Buckingham Gate Client Event this year, and lastly Matthew discusses the potential Budget push-back speculation. We hope you enjoy!

Strategic vs Tactical Asset Allocation – What’s the Difference?

Article written by Mel Abplanalp, Paraplanner

This week I’ll explain the differences between Strategic and Tactical asset allocation. You’ll often hear fund managers and financial advisers talking about the importance of asset allocation when investing, but what are the differences?

The natural first step is to discuss what assets are – simple answer – they can be anything! In day-to-day life, most people would describe assets as their homes, cars, boats, paintings or even their jewellery collections. In the financial world we talk in asset classes with the two main ones being equities and bonds.

The theory behind asset allocation is relatively simple: choosing a model to diversify investments in order to achieve the objectives of a fund or portfolio. There are countless papers on the theory of this and it is recognised as an important part of the process of building a portfolio. This could be an investment return target or a target to manage risk effectively. Managers will not only break down by asset classes but also by geography or sector. For example, you could invest 10% in UK equities, 5% in overseas property etc etc.

Strategic Asset Allocation

This is more of a long-term target of how you would like the fund to be run now and in the future. Its the bare bones structure of the fund and is often a starting point to fund construction. As an example, the Buckingham Gate Balanced Portfolio’s allocation is 5% cash, 32% bonds (of which 16% are UK government and 16% UK corporate), 25% UK equities and 38% Global Equities (20% US, 6% Europe, 4% Japan, 4% Asia and 4% Emerging Markets).

Crucially it doesn’t consider what is happening in the short term. Square Mile, who currently run our portfolios, review the strategic asset allocation of all our portfolios every three years.

Tactical Asset Allocation

The main difference here is about being reactive. Tactical asset allocation is about changing to suit what is happening in the shorter term. Tactical changes normally happen very quickly and could be in reaction to unforeseen events. The recent market drop at the start of the pandemic last year is a fantastic example of something that you couldn’t account for in a strategic asset allocation and could merit fast-paced changes being made. Our Buckingham Gate Balanced Portfolio has the flexibility to change the equity portion from 63% up to 68% or down to 53% (5% above or 10% below the equity allocation within the strategic model) and its this 15% difference that represents the tactical element. When valuations are seen as cheap, this would be when equities would be at 68% but when things are more volatile this would be when equities are at 53%.

These two different methods are therefore complimentary and can be used in tandem to produce the best returns or a smoother journey.

I’ll finish off with a real-world example here. I’ve often likened asset allocation to being similar to making a cake… bear with me… Strategic asset allocation is your go to recipe; you have all the ingredients that you need at home and you are making the cake for the perfect recipient on the perfect day.

My mother-in-law makes the perfect chocolate brownies, they come out the same every time & are exactly how she likes them. The recipe was passed down the generations and she has not changed it in years. Tactical allocation is for those days that you have pecans in the cupboard instead of walnuts and the normal recipe just will not work. In the case of my mother-in-law’s brownies – she had to change her cooking time when her oven started to play up and the temperature dropped a few degrees. These are the things that you just can’t plan for.

Monthly Vlog – June 2021

*June’s Vlog*

In this month’s Vlog, as usual Director Matthew Smith provides updates on the market and the performance of the Buckingham Gate Portfolios. Matthew also explains some changes that have been made to the Buckingham Gate Portfolios recently and lastly he addresses the speculation in the news surrounding pension tax relief potentially being reduced. We hope you enjoy!

What’s the Difference?: ‘Green’ Investing

Financial planning is an industry that tries to make the complicated more simple but I always tend to find that it fails to do that in the realm of investing sustainably. In writing this article I had to consider what to put in my title: green, ethical, sustainable, responsible, socially responsible, ESG, impact, thematic… the list goes on! How then can we go about breaking down the differences to make it easier for everyone to understand and more importantly: to provide solutions in line with people’s views.

Monthly Vlog – May 2021

– Market Performance Update
– Buckingham Gate Portfolio Performance Update
– Crypto Currency – Our Thoughts
– Office Reopening – Our ‘Roadmap’