Efficient Wealth Update July 2018
Yahoo’s Costly Data Breach
The UK arm of Yahoo has been fined £250,000 by the Information Commissioner’s Office (ICO) over a data breach in 2014 that affected 500 million users.
The hackers managed to access sensitive information, including names, email addresses, and security questions and answers, all because Yahoo failed to take the measures required to protect this data.
When the ICO’s investigation delved deeper, it was discovered that Yahoo had failed in many data areas, such as failing to make sure their processor complied with regulation, and vetting employees with access to sensitive information.
To make matters worse, this breach was not even acknowledged for two years and so measures that could prevent this from happening again were not addressed.
This is one of the largest breaches of security and personal data in history, something that the introduction of GDPR (those really annoying emails you keep getting) should go some way to helping prevent in the future.
P.S. Because the breach occurred before the introduction of GDPR, Yahoo will avoid the significantly tougher consequences and penalties that GDPR imposes. Lucky for them!
Banks Making Money from Your Misery
We are both pleased and dismayed to see many articles recently about how banks and building societies are cashing in on people’s deaths: Dismayed that such a thing is happening; pleased because finally it has been uncovered what banks and building societies have been up to.
Banks and building societies who wrote Wills in the 1990s-2000s will have appointed themselves Executors, or at least included in them the right to appoint themselves as Executors. While this may seem like a good thing – a professional being around to help you with probate and the whole horrible process – that is not the case.
By allowing your bank or building society to be an Executor of your Will, you are opening up your estate to a large fee deduction. The bank or building society can charge whatever they want for dealing with the estate as an Executor, normally charging a percentage rather than a fixed fee. This means that if they charged 2.5%, you would pay out £12,500 in legal fees for probate and distribution of an estate of £500,000. The average charged by a probate specialist or solicitor in the UK is between £2,000 and £5,000, based on the complexity of the estate.
While 2.5% may seem reasonable at the time this can add up to quite a sum, especially if your estate has risen in value quite dramatically since the Will was written. We recommend that you never appoint a professional as an Executor on a Will. It would be better to appoint a friend or family member who can employ the services of a professional if needed, at an agreed fee.
More than 1.5 million Wills were written with a bank or building society as an Executor so, if you haven’t already, check your Will to make sure yours is not one of them. And if it is, get it rewritten as soon as possible.
Equitable Life to Transfer to Reliance Life
If you have a ‘With Profits’ fund with Equitable Life, then this is good news for you.
Equitable Life will be transferring all of its policies to Reliance Life to boost its capital distribution. This is set to complete at the end of 2019, with members being asked to vote in mid-2019, so keep an eye out for voting papers dropping through the letterbox.
Equitable agreed to pay guaranteed interest back at a time of high inflation in the 1970s and then got into trouble when they couldn’t stick by the agreement. In making this move, Equitable are benefiting those with ‘With Profit’ holdings as these are likely to get a substantial bonus. For this to happen, policyholders will need to agree that Equitable can remove the guarantees that were promised on the older policies, obviously.
This will be the end of Equitable Life, unfortunately – one of the oldest mutual assurers in the world – but it would seem that they want to bow out being fair and generous to their members and policyholders.
Watch this space for the outcome of that vote next year and keep an eye out if you have voting rights with Equitable Life to make sure you have your say.
Lasting Powers of Attorney – Being an Attorney
Putting in place Lasting Powers of Attorney (LPA) is highly recommended for the majority of us. For those of you who don’t know what they are, an LPA is a document or documents, put in place to be used during your lifetime, that allow individuals of your choice to step in and manage your affairs normally when, or if, you lose the capacity to do so yourself.
To put an LPA in place you need to be able to nominate at least two people to act on your behalf should you become incapacitated. The decision about who you nominate is not to be taken lightly, as increasingly frequent reports of the consequences of a poor choice of attorney attest. Investigations into the actions of attorneys have increased by 45% in 12 months, meaning that attorneys may not be sticking to the guidelines set for them. Now, while some may take advantage of their new role as an attorney, it is not always the case that they are stealing from the donor of the LPA or anything equally wicked; it may just be that they are taking their role too far, and the lack of guidance and abundance of grey areas associated with these documents can make knowing your responsibilities as an attorney all that more difficult.
There are some golden rules that may be helpful to know for both donors and attorneys of LPAs:
- Both the donor of the LPA and the attorneys should be fully aware of their role and what it entails before the document is agreed.
- Clear records should be kept by the attorney of any activity undertaken on behalf of a donor.
- Make sure your attorney knows the rules specifically on gifting on behalf of a donor, as this has been a source of confusion and ambiguity in many cases before.
If all parties understand their role and are comfortable with what they can and cannot do, then these documents are invaluable for those who become physically or mentally incapacitated during their lifetime – and remember this may be due to an unexpected event that means it’s too late to put LPAs in place in the future or after a lifechanging event occurs. These documents can be registered and sit in your drawer, hopefully never to be used, at a cost that is minimal when you consider how much The Court of Protection will charge you to manage your affairs if you don’t have them.
If you don’t have LPAs but have trusted attorneys in mind, then please get in touch and we can tell you more. Below is a link that explains the role of the attorney for those who have LPAs or are thinking about putting them in place.
Spend, Spend, Spend
It is likely that a large proportion of financial wealth will be left unspent, to be passed on to the next generation, rather than being spent in the retiree’s lifetime. We wrote about this back in May and encouraged you to spend some of your hard-earned savings on whatever your heart desires.
We understand that not everyone is so whimsical as to pop out and buy a few speedboats, a new car, go on a shopping spree and then finishing it off with a fancy holiday! Some of you are understandably more sensible and reserved than that.
It has been reported that most retirees want to leave money to their nearest and dearest when they are no longer around, and we want you, our clients, to enjoy your savings in retirement. Please speak to us about how we could put arrangements in place for you to have the best of both. We can help you combine that little bit of luxury with making sure that the kids don’t miss out when you are no longer here.
If you are a client of Efficient Portfolio you may already have a plan in place, but you may want to update it. Those who are not, please get in touch to see how we can help.
ScamSmart Website – A Scamming Education
The Financial Conduct Authority has a website dedicated to education and reporting of financial scams. There is a short quiz that tests your ability to pick out the scammer – worth a go if you think you are scam savvy, as you may be surprised!
It also has articles on how to report a scam if you think you have been a victim, and advice on how to avoid it.
It is a useful site if you have concerns or doubts over any website, email or firm. Obviously, if you are a client of ours and you are concerned, get in touch and we can help you decide whether something is a real opportunity or too good to be true – unfortunately it’s usually the latter.
Notes on Brexit
For the last few weeks we seem to have been stuck in a game of EU Withdrawal Bill ping-pong between the House of Commons and the House of Lords, with the ball passing between them with various amendments and proposals being debated and amended further before passing back to the other side of the “net” to be debated and amended again.
There are still four key areas of Brexit under negotiation: A meaningful vote; enhanced protection of specific areas of retained EU Law; refugee family unity; and the sifting committee.
The meaningful vote is the one hitting the headlines most: In summary, the House of Lords has issued a subsequent amendment (referred to as Grieve II) which proposes that the Government bring forward an amendable motion to respond to each scenario, rather than an unamendable motion (as the Government’s amendment would aim to do). The amendment passed by the Lords is ultimately intended to provide a statutory guarantee that the Commons will have the ability to debate, amend and vote upon a motion on the Government’s Brexit policy in the event that either the Commons rejects the agreements or the talks with the EU fail to produce any agreements. The Bill received Royal Assent on 26th June 2018 and is now an Act of Parliament – The European Union (Withdrawal) Act 2018, so we can assume that the dissentions are settled.
The Enhanced Protections for Retained EU laws, the Refuge Family Unit amendments and the Sifting Committee amendments have not been as highly publicised (not quite as headline-worthy!). They are differences of approach to the same issues. The Commons feels that the proposal or existing arrangements are sufficient, but the Lords wants to incorporate specifics into the Act to ensure the continuity of approach to these areas.
The good news is that the list of things which have been settled is much longer: the customs union, environmental standards, validity and principles of EU law, fundamental rights, the Irish border, exit day, implementing the withdrawal bill and many more.
Hopefully all will be settled in time to head off to the next stage with the EU: then we will see if we can reach an agreement with them!
Addendum – The Bill received Royal Assent on 26 June 2018 and is now an Act of Parliament – The European Union (Withdrawal) Act 2018, so we can assume that the dissentions are settled; relevant details in the next issue of the Wealth Management Update.
You Could Be Paying Your Mortgage Until You’re 70
Research conducted by Aegon showed that one in seven are expected to still be paying a mortgage at age 70. Research also showed 14% of people though they will still be paying a mortgage aged 70 and 42.5% of people currently renting their home thought they would still be doing so at the same age.
These thoughts on continuing to be paying of a mortgage at age 70 can be attributed to a range of different factors; for example, getting on to the ladder later in life, higher house prices and the option of borrowing later into life.
Being in this position can also open up other issues for people, either having to figure in mortgage payments into their retirement or having to work longer. There also may be difficulties around obtaining a new mortgage at this age should the individuals be required to remortgage.
As the population continues to age, real wages remain fairly flat, and house prices continue to rise, it seems there will be no let-off of this trend. As an industry, this will lead us to have to create new ways and solutions of helping those financing properties into later life.
If you feel like you could be one in the seven who may be retaining a mortgage for longer than you wish, or if you just want to gain some clarity and ensure you have the most suitable mortgage available to you, then please feel to contact our mortgage team at firstname.lastname@example.org or on 01572 898 060.
Charlie’s Mini Blog
I am lucky enough to be writing this blog from our house on the North Cornish coast. Nestled on the national heritage coastline of St. Agnes, it really is a stunning part of the UK. Lucky old me, you may be thinking, but how did I end up here, and why am I telling you about it?
I am telling you about it, not to brag, but to show you how financial planning, and more importantly life planning, got me here. You see, back in 2014 I attended a course called ‘7 Stages of Money Maturity’ by George Kinder. Known in our industry as the expert in Life Planning, I was there to learn how we could incorporate this into The Efficient Wealth Management Process, our unique approach to helping our clients.
I was lucky enough to be singled out by George himself to be ‘life planned’ in front of the other advisers attending the course. Over the course of the next 60 minutes of conversation or so, I concluded that a house in Cornwall would make a massive impact on our family life; something that we hadn’t really talked about as a family before that point. It certainly wasn’t feasible then, but using my knowledge of financial planning I was able to put a strategy in place that could deliver it, in a little over 3 years. It involved changes in my business, moving house as a family, and some specific actions with regards to our finances. All of which were achievable.
Whilst at Efficient Portfolio we will never describe ourselves as ‘life planners’ for fear of you thinking we will arrive in tie-dyed clothing, Life Planning is a fundamental part of what we do for our clients. In fact, it is the first thing we do. Life Planning, then Financial Planning, then Financial Advice. Sadly most of our industry rush straight to stage 3, missing stages 1 & 2, which is where the magic really happens!
If you want to find out more about our house in St Agnes, visit www.sandynook.com.
Book of the Month
A previous book of the month was the infamous ‘Born to Run: The Hidden Tribe, the Ultra-Runners, and the Greatest Race the World Has Never Seen’ by Christopher McDougall, still the best book I have ever read if you are into, or want to get into running. This month’s book recommendation is ‘Natural Born Heroes: The Lost Secrets of Strength and Endurance’ by the same author.
Whilst this is not the ground shattering book that is ‘Born to Run’, this book is still excellent by any other measure. Woven through the story of how Crete became a massive thorn in the side of Hitler during the Second World War, it looks more deeper at why humans evolved, and how our elasticity played such a huge factor.
Furthermore, it looks at how time and again, normal people, people that had not been expected to produce excellence, or moments of life savings strength or sacrifice, suddenly become natural born hero’s.