A Financial Planner’s Frequently Asked Questions
If you have never consulted with a Financial Planner, you may not know what to expect, which is why we have endeavoured to answer some of our client’s most frequently asked questions here.
What is a platform?
A platform is somewhere where you can invest your money in one place in several different tax wrappers if appropriate.
Historically, if you wanted to invest money with two separate investment banks, you had to approach each investment manager individually and receive two separate statements. Now you can approach an investment platform and invest your money with both in the one place. This also provides you with more options to diversify.
- Emma, DipPFS – Financial Planner
What impact will Brexit have on my fund?
Nobody knows, but what we do know is that we could face a period of market uncertainty and it will be the first one the new population of investors has seen. This is the reason we globally diversify clients’ portfolios to try to minimise the effects of local or geographical short-term volatility. Not only do we give global diversification, but we also diversify across asset classes and sectors. Again, globally, the goal here is to try to minimise short term localised volatility.
By giving a well-diversified portfolio to a client we are confident that over the longer term, they will see a smoothed and positive return versus inflation. Obviously, you can never completely mitigate short-term losses and uncertainty but over the longer term, this diversification should give the required returns aligned to the clients’ expectations, goals and risk profile.
- Rod, DipPFA – Financial Planner
How risky are my investments in light of events such as Woodford Equity Income Fund?
Unless you have been hiding under a rock for the last couple of months, chances are you have already heard the news about the Woodford Equity Income Fund, which is now suspended for dealing (and whilst writing has now been closed). It’s extensive coverage in the media means it’s an event that has launched 1,000 headlines – but what does it mean?
The Woodford Equity Income Fund has been a firm favourite with direct investors for some time. Thanks to the strong track record that its fund manager, Neil Woodford, has built over a long career, investors entrusted him with over £10billion of their investments at one point in time, but recently that love has waned and assets have fallen back to around £4 billion.
As investors in the fund decided to take their money elsewhere, the ability of Mr Woodford to sell down holdings to give people their money back has been impaired – particularly in the non-listed, private equity elements of the portfolio.
To avoid having to sell positions at any price, on 3 June 2019 the fund ACD Link Fund Solutions took the decision to suspend dealing in the fund to allow a more orderly sale process to take place. That means investors can’t buy or sell the fund (or its feeders) at all, and won’t be able to until the suspension is lifted.
How does stopping clients getting access to their money act in their best interests?
Given the exposure to illiquid and even non-listed shares within the portfolio, it’s hard to know with any certainty what the true value of those positions are, especially in the event of a forced ‘fire’ sale. If these stocks were sold at distressed prices, the value of the fund would probably fall significantly.
Through the suspension, the Woodford team had the ability to dispose of their positions in a more orderly fashion, meaning they’re likely to sell them at more realistic valuations than would have otherwise been the case. That’s the theory anyway: in truth, no matter when the holdings are disposed of, the buyer on the other side of the trade will undoubtedly know the position Mr Woodford is in, and will bid accordingly. It’s similar to the difference in values when companies are considered a ‘going concern’ and when they’re in administration.
So, what happens now? As operators of the fund, Link Fund Solutions will regularly assess how much money investors want back and compare this to the ability to sell portfolio holdings to meet those redemptions. It was previously thought, when those two figures come into balance, the fund will be open again, allowing investors to have their money back. However, the fund is now closed and will not reopen.
It is, for this reason, we do not invest our clients’ money in just one fund. Whilst we have not recommended the Woodford fund historically it would have been difficult to predict something like this happening for the ‘man on the street’.
At gpfm, and as mentioned by Rod when discussing Brexit, our investment ethos is to spread our clients’ money across as many different funds, asset classes and sectors globally. The goal here is to try to minimise short term localised volatility and by constructing a well-diversified portfolio for a client we are confident that over the longer term they will see a smoothed and positive return versus inflation.
- Scott S, DipPFS – Financial Planner
Why are your fees percentage based?
Quite simply it is the most workable fee model in our industry and accommodates the associated costs and risks of providing regulated financial planning advice. The higher the amount of money we are advising on the higher the risk and therefore the percentage fee model is appropriate. The amount of income we receive is higher for delivering advice on larger portfolios, even if the amount of work involved may look similar to smaller portfolios because the associated risk costs are higher.
Also, a lot of the costs of running our business are percentage-based and the fixed costs are also linked to percentage inflation. The more money we manage for our clients, the higher these costs get.
It also makes it understandable for our clients that we want to grow their assets in line with their objectives so that the revenue we receive increases each year. This provides our inflation protection and covers the inflation increases in our business running costs each year, which can be much higher than the advertised level of inflation. Obviously, we can’t guarantee increases in the portfolio value each year but over time our portfolios deliver the returns expected and are constantly reviewed with our clients, at least annually.
- Scott A, APFS – Director and Chartered Financial Planner
If you would like to speak to an adviser about your finances, please get in touch by calling 01992 500261 or emailing us at firstname.lastname@example.org.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
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gpfm are an independent financial planning company dedicated to the provision of personal, professional and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.