I have noticed a real shift in mindset to the “new normal”. Advisers and paraplanners who decided to sit tight in the first lockdown have accepted that the changes to the way we work are here for the long term, if not forever.

Read more in our Money Marketing article here.

What is it?

The FCA’s Investment pathways came into force this month, meaning that pension providers are now required to offer ‘investment pathways’ to non-advised customers entering drawdown. This applies to customers moving all or just part of their funds into drawdown. An investment pathway does not need to be offered where an annuity or fixed-term product (with no capital at risk) is being used.

There is a clearly highlighted issue of clients going into drawdown on their own and, in most scenarios, staying in cash regardless of what their ‘pathway’ is. The provision of pathways for clients who cannot or would rather not access advice is a useful option for this unserved segment.

For customers with pensions held with applicable providers, they will be prompted to select one of the following options when using Drawdown:

  1. I have no plans to touch my money in the next 5 years.
  2. I plan to use my money to set up a guaranteed income (annuity) within the next 5 years.
  3. I plan to start taking my money as a long-term income within the next 5 years.
  4. I plan to take out all my money within the next 5 years.

These options will all be linked to a provider’s default investment option as a way of ensuring the client is investing, on their own accord of course, in a way that is at least broadly in line with their aims and timeframe.

The provider must also offer them the option to remain invested in their current investments if this is available, alongside the option to choose their own investments.

A comparison tool is being released by the FCA which will allow clients who choose to enter drawdown without advice to compare products and investment pathways.

What does this mean for advisers?

Before an adviser recommends a product and investment strategy, they will need to give extra consideration where the following apply:

  • The current provider offers drawdown.
  • The current provider has created and maintains a set of investment pathways.

Here, advisers should at least be outlining to a client that a non-advised route is possible by using the existing provider and one of the investment pathways made available.

What could this look like?

While there is more to it, you could broadly link one of the investment pathways to a client’s needs and consider this pathway as an option. You would then highlight the cost of this pathway and how this compares to your recommendation (not too dissimilar to how, in accumulation, you would compare the option of a stakeholder).

For those who are willing and/or able to take advice, there are likely to be a range of factors that discount the use of pathway approach.

This might be lack of flexibility (if the provider offers a limited drawdown option or restrictions on frequency/type of withdrawals).

There may also be limitations in using the pathway if circumstances will change in the coming years. This can be the case where a phased retirement path is desired but dependent on ability to continue work.

The ability to use ‘bucketing’ may also be impractical using the pathway and if this is part of your retirement proposition, this could make the use of the default provider option unsuitable.

As this is aimed at non-advised clients, this is an opportunity to detail to your clients the value of receiving advice.

What’s our thoughts?

Ultimately risk is a subjective interpretation, those non-advised clients that enter a risk profile from the provider are investing in the providers interpretation of risk, and therefore could be taking more/less risk than they are comfortable with.

Providers are also unable to interpret risk in line with the client’s capacity for loss and knowledge and experience, and therefore the client could potentially be taking an appropriate level of risk, but not one that they can afford should the markets drop.

What should you do?

Where applicable, the advice and suitability report should:

  • Outline the Investment Pathway option
  • Outline the most likely option that would match the client circumstances
  • Consider how the charges compare to the proposed solution
  • Outline why the advice is to use something different to this investment pathway option.

Grant Callaghan and Alanis Daniel

We’ve heard these mentioned a lot over the last couple of years, following the introduction of Mifid II.

However, any good adviser would have been carrying out annual reviews well before this. Mifid II just brought about some necessary tweaks to those reports, such as;

  1. Clearly assessing the suitability of previous advice given, and reconfirming this still remains suitable.
  2. Confirming costs the client has incurred over the last 12 months (ex-post costs).

Over time, thankfully, providers have worked on improving their systems and knowledge to ensure the latter is easier to achieve.

Which leaves you with the rest of the admin that comes with an Annual Suitability Report (ASR), multiply this by the number of clients you manage, and you’ve got yourself a bit of a headache to manage!

Where can time be saved you might ask?

Well, providers are required to issue an annual statement, providing the client with a current valuation, as well as a backdated valuation from one year prior. The statement will also cover off point two, and provide confirmation of all costs the client has incurred in the last 12 months. If you can time your annual reviews with the client around this then there’s half of the job done for you!

By doing this you’re not only saving time, but you’re making it simpler for the client. Preventing conflicting information, should you review the costs at a different point to the provider.

These reports can support you in one of two ways, you can either use the data within them to populate the ASR or provide it alongside. The latter being another time saver as the ASR will then purely need to assess and confirm that the plans remain suitable.

What should the ideal ASR process look like?

Having a refined process could be your saviour. What we’ll look at next is the ideal process for both you and your clients. If you have an in-house admin team, you’ll probably get some thanks from them as well!

First of all you want to look at your existing clients and establish when the provider managing their holdings will be issuing their annual statement. If you can time your annual review around this then that’s a step in the right direction. From there you can look at any non-Mifid plans the client may hold and get in touch with those providers to request the same information. This will ensure you have everything needed to assess the clients position FULLY.

There will need to be a common sense approach here, certainly if you happen to have say 100 clients all on the same platform which produces annual statements on a particular month (we know of a few who can only report for a certain period, whereas others have the capability to run off an ad-hoc annual statement whenever required). In these circumstances, I can’t imagine you’ll be able to squeeze in 100 reviews in one month! However, you can still utilise the platforms annual statement but providing this to the client and referring to the output within the ASR.

It would make sense not to review the costs again in great detail within the report (assuming it hasn’t been a great deal of time since the annual statement was produced), simply to be sure not to confuse the client, as mentioned previously.

Once you have the annual statement or the requested information to hand, it may be worth running some fund performance data, we tend to advise a FE Longscan is best to give an overview of performance and asset allocation. This will likely be particularly important (albeit slightly unpleasant to look at) in the current climate, as clients’ are very aware of the impact COVID has had on their investments.

An annual statement and performance analysis will be the perfect pack to present at a pre annual review meeting. This will give you the necessary data to discuss the clients holdings at a high level and will open up discussion to any changes they wish to make and/or any annual recommendations such as using allowances or rebalancing an existing strategy.

Once you’ve confirmed the client is happy to remain as they are, you can then pull together your ASR. Again, it’s up to you whether you summarise the ex-post costs within the report for clarification (not all providers produce this in a clear easily digestible format) or whether you simply refer to this as an addition to the ASR.

Annual Advice

You’ll usually have an idea which of your clients are serial allowance utilisers! That pre annual review meeting will allow you to clarify their wishes. Any top-ups, portfolio rebalancing and bed & ISA instructions can be covered off within an ASR as part of the annual advice process. However,  should the client wish to switch funds and/or provider completely then this must be treated as a brand new piece of advice and therefore would require a suitability report. Any plans which are being switched to a new provider, no longer require an ASR as they have essentially been assessed as ‘no longer suitable’. The clock essentially starts again for those plans and they should be factored into next year’s reviews.

Our Experience

At Para-Sols we’ve tackled a range of ASRs on behalf of our clients. We’ve experienced anything from a couple of wrappers on one platform to a client holding multiple products across a range of providers. Our admin team have developed a keen understanding of providers processes for ASRs, both on and off platform. They’ve pretty much seen it all! – So they know how best to obtain the necessary data.

Which is why our ASR service was a no brainer! Why not share that knowledge and experience with our wonderful clients and assist, where we can, with the whole process from start to finish. So, if you could do with a helping hand, why not drop us a line and we’d be happy to chat it through!

That seems to be the question now in relation to open-ended property funds. Our friends at Apricity summarised the main proposed changes under the Consultant Paper 20/15 which you can read here, including the options available to you at your firm. Here, we’ll look at some of the practical considerations.

Approach to making changes

Assuming the changes come in (or even if they don’t), you might make a decision on whether to keep or remove open-ended property from your portfolios. You may also have this forced on you if you use an MPS who can’t reconcile the rebalancing issues of a notice period. How will you approach each of the outcomes in terms of new and existing clients?

It may firstly be good practice to consider writing to all affected clients and prompting a review of their portfolio to:

  1. Outline your views and recommendations for their investment.
  2. Gather their thoughts on holding an investment with a restrictive access.

Following this, you may decide that (at least) some clients benefit from exposure to property via an open-ended fund.

If you continue to use an open-ended property fund in a portfolio

The main two that stand out are:

  • How will you manage rebalancing and portfolio drift and how will you disclose the limitations to clients?
  • How will you manage cash balances / proportional fund sales for clients with income needs?

You will need to potentially adjust your process when dealing with clients in the scenarios above.

In both the initial recommendation stage, and the annual suitability review, if a property fund is being recommended, you will need to alert clients to the fact that:

The XXXXX fund requires 90/180 days before holdings in the fund can be sold into cash. It will not therefore be possible for you to access your investment outside this notice period.

This would be followed by the risk warnings around the property fund being illiquid and more susceptible to suspension periods.

The important part here is the impact on annual suitability reviews. In the time between reviews, clients will have potentially gone from holding a fund with illiquid characteristics, to holding a fund that behaves in a similar way to a structure product or fixed rate deposit account (without the ability to ‘give up’ returns for access). It is important clients are made aware of the changes.

In the event an open-ended property is to no longer be included as part of your overall proposition, or a client’s specific portfolio, there are some things to consider.

Removing property funds

You will need to take the steps you would take with a standard fund switch recommendation, and follow the process in terms of assessing suitability.

If property is a vital part of your investment proposition, you may need to consider a closed fund if the open-ended structure with limitations on access will not work. There are a number of investment trust options for property, but there are a wide number of additional considerations you need to make before selecting these.

Alternatively, property as an asset class is not essential to achieve a diversified portfolio and we know of many an investment proposition that does not specifically allocate for property.


The consultation period is open until November and from this point, formal plans and rules are not expected until 2021. You don’t necessarily need to make changes now, but being aware of how you might approach the proposed changes, and what you can potentially do about it, will help you be prepared in the event the proposal comes into force.

Following the PS20/6 from the FCA, they have stated that when it comes to Defined Benefit (DB) transfers there are “too many instances where transfers were not in consumers’ best interests”.

The focus of the review therefore, is to empower consumers and ensure that consumers understand the advice given.

It is important then from a paraplanners perspective to understand and include the changes when working on a DB case. There are parts that must be included in the suitability report and some which are required to be retained on file. Strap in as this is quite technical, but is very important in the DB advice process. I will summarise the changes for you.    

Changes to be aware of

First of all there will be changes to the Triage process.

The aim of triage is to give a prospective client sufficient information about safeguarded and flexible benefits, to help them decide whether or not to take advice on the transfer or conversion of their pension. The new rules state:

  • Decision trees or Red, Amber and Green (RAG) status indicators in Triage are not allowed.
  • Any consideration of a customer’s circumstances which steers them one way or the other is likely to be advice.
  • Some firms did not have controls or records relating to their triage service. Therefore it is important these records are kept on file.
  • Third party services.

The FCA have now added another layer to help a client in the process called Abridged Service.

From 1 October 2020, firms advising on pension transfers will have the option of providing Abridged Service.

Simply with this process, there are only two outcomes…

A personal recommendation to the client not to transfer or convert their pension, or to inform the client that it is unclear whether or not they would benefit from a transfer or conversion based on the information collected.

Main rules:
  • You must consider the risks of staying in the scheme and the risks of transferring and losing the benefits.
  • The advice must not consider how funds might be invested if a transfer proceeded.
  • Abridged advice and full advice must be carried out, or checked, by a qualified PTS and constitutes a personal recommendation.
  • You should not charge the client for the same work twice.
  • Conduct a full fact-find.
  • An assessment of attitude to transfer risk, capacity for loss, attitude to investment risk and relevant knowledge and experience of investments.
  • You must not undertake APTA or provide a TVC.
  • You can collect further information on the benefits of the client’s existing scheme without compromising the role of abridged advice.

Please see below a diagram of the overall process if the client is offered a Triage service and Abridged service.

Contingent charging

The Contingent Charging Ban – what does it mean?

Advisers must charge the same monetary amount for advice to transfer as not to transfer. This could be a shock to the system for many advisers.

What are the new rules?

  • Conduct a full fact-find.
  • There can be no additional ‘implementation’ fees.
  • No difference in ongoing charges to make up for lost initial fees.
  • Initial fees may vary depending on the number of schemes. They should be set out in a clear and easy to follow pre-determined criteria and process.


  • Whilst there may be no product linked to the advice provided (in the event of the advice being not to transfer), HMRC have advised that VAT will still not apply.
  • An unauthorised payment charge will apply if the fees are taken from another pension arrangement.

Exceptions to the rule or ”Carve Outs”

Serious Ill Health – This is where life expectancy does not go beyond age 75. Advisers do not need to seek medical opinion – but it is expected that advisers will have seen self-evidence from the client as to their treatment plans or supporting information.

Serious Financial Difficulty – This is when the client finds keeping up with bills and repayments a heavy burden. This will be if three or more monthly bill or loan repayments have been missed in the last 6 months. Evidence is required of the above and the status is negated if the client has savings or investments or is able to meet ’non-essential’ expenditure.

Other carve outs:

Pipeline cases

Pension sharing orders

Transfers outside of the UK

Please note, all ”Carve out” clients should be treated as vulnerable. Appropriate consideration must be considered and documented as to the process followed (firms vulnerable client process/policy). What other help should be given? Such as debt counselling etc.

Workplace pensions vs alternatives

Another big change, is also that advisers and paraplanners now need to consider a client current workplace pension in more detail.

It is not enough to just consider it; if the recommendation is to go to any other pension, then you must clearly demonstrate why that is more suitable than the clients existing workplace scheme.

This will add more to your suitability reports, but it is important that WPS are covered in more detail than a simple sentence or two.

What are the FCA expecting to see?

  • You only need to compare against one of the client’s workplace pension scheme’s (WPS), not all of the previous WPS they may have been a member of to reduce the admin time spent gathering ceding scheme information.
  • They would expect to see a comparison against the clients most recently joined WPS.
  • However, if you consider a previous WPS to be a more appropriate comparison it is OK to do so, for example if the most recent WPS does not accept additional contributions or if the client is not an active member of the scheme at the time of comparison.
  • If ongoing advice is needed and would add value for the consumer, this should be considered as part of the recommendation, including the option of paying ongoing adviser charges directly, rather than through the scheme.
  • A standard paragraph to dismiss a WPS in the suitability report will not satisfy the new rules.
  • Firms should be looking to change their process to be able to undertake the required analysis as part of the APTA process also.

Auto enrolment has been with us for some time now and it is highly likely that clients could already be enrolled in a low-cost qualifying workplace pension scheme that meets the requirements of automatic enrolment, in addition to any personal pensions they may also have.

Key Considerations when looking at existing schemes:

  • Internal fund research
  • Level of employer contributions
  • Overall charging structure
  • Does the workplace provider/scheme facilitate adviser charging?
  • Reduction in yield comparison
  • Are there multiple tax wrappers available within the workplace scheme?

Disclosure Rules:

Before a firm provides any regulated advice it is important that it is personalised and distinguishable from letters sent to other customers.

This letter must be provided in ‘writing’ which also extends to non-paper methods. Details the amount the customer would pay in £s for.

Applies to:

  •  Abridged advice
  •  Full advice
  •  Ongoing advice.

You must get evidence that the client can demonstrate they understand the risks to them of proceeding with a pension transfer or conversion before finalising the recommendation, and keep a record of this evidence. Signatures alone will not always confirm understanding.

Changes being made to TVC:

  • Assume that a female member of the scheme has a male spouse or partner who is 3 years older; or a male scheme member has a female spouse or partner who is 3 years younger.
  • Reduce the pre-retirement expense assumption used in the TVC, from 0.75% to 0.4% to reflect the lower costs of investing solely in gilts.
  • Base the rate of return during accumulation on the 5 – to 10-year UK FTSE Actuaries Index or the 10- to 15-year index, and can disregard the 5- to 15-year index.
  • It is anticipated that software providers will make changes in the coming 4 months.

Please note that the system that you use for TVCs are likely to update their default settings to run them on this basis. So you may not need to worry too much about these.  

There is also an additional reporting requirement

RMAR regulatory return (RMA-M)

  • Covering data on DB and other safeguarded benefit advice.
    • Monitor the number of carve-out clients that are given a recommendation to transfer or convert their pension.
    • First submission is required by the end of April 2021.

Finally just an important note, is that Pension Transfer Specialists (PTS) are required to undertake 15 hours of CPD focused on the activities of a pension transfer specialist.

The additional CPD is broken down as follows.

  • 5 hours to be provided by an external provider.
  • 9 need to be structured learning.
  • 6 hours may be unstructured.
  • Checking and delivering advice can be included.
  • This can be aligned with the PTS’s normal CPD year and SPS,
  • Additional prescribed CPD will be compulsory from 1st October 2020.

I hope this give you a useful insight to the DB changes that are coming soon and can help prepare you and your firm whether you are a paraplanner or adviser. 

I would suggest as best practice you look to implement these changes sooner rather than later as bets practice.

I hope this has helped and provided a clear understanding of the changes and implementing these (whilst not being too boring!).

Peter Rhoden – Lead Paraplanner

In super exciting news (if you’re that way inclined, as I am) the FCA released their 2019 RMAR data recently. I’ll be going through it in a bit more depth next week, but we’ve been quickly dissecting (awful word) some of the key points from it. We’ve even popped it into a handy little infographic for you:

The good

So, on the plus side, since 2015 there has actually been an increase in adviser firms, with an additional 5% now in the market. This shows an increase in competition (which is a good thing for clients).

There had also been an increase in the number of advisers over the previous 12 months, increasing by 3% to 27,557. This shows that the extra firms are not just being made up of the same advisers moving around, but the number of individual advisers is increasing.

A note on this is the impact of SM&CR and whether these figures include everyone that is registered as a Certified Individual, which mightn’t necessarily mean they are the equivalent of the former CF30.

The bad

Despite overall revenue being up for financial advice firms, to £5.2 billion, the total profit is down, to £808 million. This varies hugely depending on the size of the firm, but as a crude measurement that’s still only a 15% pre-tax profit margin. It is very difficult to run an efficient, profitable advice company and, from these figures is getting harder.

The ugly truth

In related news, and as a surprise to absolutely no one, PI insurance premiums had increased over the year. In total, there was a 17% increase in the total amount paid, to £110.3m. That is a lot of premiums. And, not in the FCA paper, but very timely, was the FCA’s renewal fees landing on advisers this week. I think the lowest increase I heard of was 50% (lowest!). There were 100% increases and a Twitter mention of one firm whose FCA fees alone had increased by £100k.

So, when we know profits are going down and (following the market battering of Covid are very likely to drop even lower), even if all other things are being equal (when all other things aren’t equal at all) and essential fees, levies and insurances keep rising (at a crazy, non-corresponding rate) there is only one direction for these profits to go. This can only reduce that extra competition that has been built over the last five years.

An extra thought

There’s been a huge wave of consolidators, networks and firms generally buying up other firms recently. In large part driven because of the aforementioned costs and difficulties. And I’ve written before about the sentiment that perhaps the FCA would prefer a small market of large firms, than a large market of small firms, as it would be easier to monitor. Take a look at this table:

Now, I’m not a financial services regulator, and I fully appreciate the concept of these large firms investing for growth and thus being loss-making for a certain length of time. However, if I was a financial services regulator, I would be weighing up the balance between the smaller firms (that currently make up 90% of the market by the way) perhaps being a bit trickier to keep a handle on vs the larger firms, that are in one place, and can be more easily monitored, but are not making a profit and therefore have much more systemic risks to their customers.

The average loss on these firms was £10m, with the average profit, on those that did make a profit, £2.5m. It’s just a reminder that bigger isn’t always better. I’ve always believed that financial services should be a varied and diverse industry, offering a huge range of options, to allow the end client to find the one that is right for them. And the smaller firms are the way to achieve that.

This article originally appeared in the weekly newsletter from Cathi Harrison, CEO of The Verve Group. Want to receive this every week? Sign up here.

Paraplanning is still a pretty new job; I still find myself explaining to friends and family what it is I do (no, it doesn’t involve parachutes, paragliding, parasailing). However, even in that short time, the role has changed a lot, and continues to change. This is never more obvious than at the current time, when we are all finding that our job roles, and the way that we do them, are changing out of necessity.

Paraplanners have often been seen as glorified administrators, or just report writers. However, the role is branching out more and more, and looks set to continue to do so in the future.

The innovation in technology, back office systems, and report writing software, means that very simple paraplanning tasks often don’t need much human input. The value in paraplanners therefore, now and even more so in the future, is in the roles that technology cannot fulfil.

This means that the complexity of the role has increased, and is much more multi-faceted. This is reflected in that many paraplanners hold the same qualifications as advisers, and more in some cases. The relationship between adviser and paraplanner is becoming much more collaborative, with the paraplanner more intrinsically involved throughout the advice process. We find that many advisers like to simply have a sounding board when dealing with unusual cases; to have someone who will push back and bring new ideas to the table.

The advances in technology, especially during the pandemic, also mean that it is much easier for paraplanners to adopt more client facing roles. Video calling software has been invaluable in recent months, and this can also be used to allow paraplanners to easily attend adviser meetings. Previously, this has been the practice of some in house paraplanners, however it is now also an option for outsourced paraplanners too. Para-Sols has recently launched their virtual paraplanning service for this very purpose; your associate paraplanner arranges your meeting, discusses the agenda with you prior to the meeting, and sits in on your discussion with the client. Your paraplanner takes meeting notes, and is on hand for any technical queries, allowing you to focus on the client.

This brings us on to another change in the paraplanning role, which is likely to become more and more important; soft skills. As a more integral part of the advice process, and with a more client facing role, a good paraplanner needs excellent communication and listening skills to enhance the client experience; no hiding in our report writing caves! The lines between adviser and paraplanner are becoming more blurred, with paraplanners being more involved in the presentation of advice. This may be in terms of running and presenting cashflow, as part of an adviser/client meeting, or presenting the suitability reports themselves.

The suitability reports that are our original bread and butter are also evolving; as well as the changes in legislation which require report content to be regularly updated, there is also the challenge of improving how client friendly reports are. With the amount of important information that needs to be provided to the client, striking a balance between being compliant, and being easily understandable is hard. Here at Para-Sols, this is something we are always striving towards, and our traditional templates are regularly updated. However, technological advances, as well as the rise in the number of clients being tech savvy, has encouraged the creation of new interactive reports. These reports turn the traditional report structure on its head, providing all the necessary information in a format that (hopefully!) better engages the client.

To summarise, I think the lines between paraplanner and planner are blurring and will continue to do so as we all find our feet again in the new world.

Kate Hall – Paraplanner
PS Blog Header

COVID is a very bad thing, but one good thing that has come out of this is that it gave us a gift. A gift of time. And as I always say, time is the one thing that we Paraplanners need the most!

For so long I have been saying “I wish the world would pause for a moment, so I can have time to review the business properly”.  Well it did. And I did.

One of the things I’ve never had time for, and always wanted to have time for, is reviewing our suitability reports. I update them regularly; well the updates dictated by compliance or budget changes, but the fundamentals of it have always remained the same.

We all know that as paraplanners, the reports are our bread and butter; they take up the majority of our day and we’re very proud of the output.

Now, I think our reports are pretty good. We drop the jargon. We split it into three different formats, to ensure we cater to clients with different attention spans. They’re compliant. They are absolutely littered with infographics, colours, tables and charts, to make the information more digestible. They’re great, but can they be better? Can’t everything?

In addition, despite being my life’s work and having my heart and soul poured into them, deep down, I’ve always known there was a very large possibility that those reports were flipped through and popped into a drawer to read ‘later’ (at best). That no matter how many pretty colours or nice graphs we used, the majority of clients would absorb the information given to them by their adviser, ask their questions face to face, and see the report as a formality to back that up.

So, I had a ponder as to whether there was anything that could be done about that:

The vicious circle of reports is the more you try to explain a financial term, the more words you use, the lengthier the report becomes, the less likely they are to be read.

But what if we could take some of those terms, get rid of all the words, and turn them into videos? Or motion graphics? What if we could make the reports interactive, and visibly ‘pop’ so the client wants to at least have a play around with it, if not absorb every single word?

What if we could use animations to show the impact of the advice and the costs and charges, so they were as clear as clear could be? In fact, what if they got all of that information in an app, so flick through in their own time, maybe while on the tube or while in the hairdressers’ chair?

So that’s what we did. We trialled a load of programs and settled on one that can provide all the above and now we can offer “reports” which are sent to the client as a link, and is more of a presentation. Data is hyperlinked to other sites, for example the provider site, so we no longer need to add information on the platform. There are videos explaining risk and death benefits for example.

Some information is hidden until it’s hovered over and it is easily navigated around to go back and forth across the important bits.

And the best thing is?

It’s half the size.

It’s more usable and enjoyable for the client.

It feels more modern and in keeping with the technological age.

The feedback on it has been excellent and I’d like to think, that while there will always be a place in my heart for the current, word reports, that these report types will become the new norm as we drag suitability into the 21st century.

I have no doubt they will change in the future. And I hope they do. But this is a really good start.

Jo Campbell – Director

Within the 11th March budget, clarification on top-slicing investment bonds was provided. Naturally, this budget announcement was completely overshadowed by the other more pressing announcements and measures introduced to support the economy.

The top-slicing clarification can, however, have an impact on the potential tax position for a significant number of scenarios, so it is worth having a look at what the planning considerations are following the changes.

Personal Allowance and income over £100,000

When income assessable to income tax exceeds £100,000, the Personal Allowance is removed at a rate of £1 for every £2 of income above this threshold. At and above £125,000 of income, the Personal Allowance is therefore lost entirely.

For someone with £40,000 of taxable income who surrenders an onshore bond with a chargeable gain of £100,000, the Personal Allowance is therefore lost.

In this scenario, before we consider the tax applicable to the bond, the client’s current taxable income of £40,000 will be affected by the loss of Personal Allowance.

They will now pay basic rate tax on the first £37,500 of this income and pay higher rate tax on the remaining £2,500 (as opposed to paying no tax on £12,500 and paying basic rate tax on £27,500 of income).

This has not changed following the budget.

Previous use of Personal Allowance in top-slicing

What has changed is whether the Personal Allowance is used in the top-slicing calculation.

Previously, HMRC was of the view that if the Personal Allowance is lost (as a result of the high bond gain) it cannot be accounted for when working out any top-slicing relief.

If we take the onshore bond gain of £100,000 and assume this occurred over a period of 10 years, we would have a top sliced gain of £10,000.

With a top sliced gain of £10,000 you would have taken the following approach:

  • Personal Allowance is reduced to £0 due to the overall bond gain of £100,000.
  • The higher rate tax bracket, therefore, starts at £37,501 and income of £40,000 is already above this.
  • £9,500 (£500 uses the Personal Savings Allowance) falls within the higher rate bracket.

The tax charge under this calculation would be £18,000. This is based on a slice of £9,500 being taxed at 40% (£3,800) with an onshore credit of 20% applied against the full slice of £10,000 (£2,000). The difference between the two is the relieved liability relief; £1,800. Multiplied by 10 years this results in a total relieved liability of £18,000.

On the whole bond:

  • £99,500 is taxed at 40% = £39,800
  • £500 is taxed at 0% as this uses the Personal Savings Allowance

The bond has already paid tax equivalent to the basic rate, which against a gain of £100,000 would be £20,000. The difference between £39,800 and £20,000 is the total unpaid tax applicable to the bond, £19,800.

This unpaid tax, minus the total relieved liability of £18,000, equals £1,800. This is the total top-slicing relief available in this calculation.

The tax charge of £19,800 minus the relief £1,800 reduces the tax charge to £18,000.

Changes to Personal Allowance use in top-slicing

HMRC was successfully defeated in the Silver v HMRC case which was specifically focused on whether the Personal Allowance was available in the top-slicing calculation.

The outcome of this case was clarified in the March 2020 budget and now represents the approach to take. This involves the Personal Allowance being available in the top slice if the full taxable income figure plus top sliced gain, rather than the outright gain, is within £100,000 (in reality this would be the case in most instances).

So, looking back at our example, the top slice of £10,000 plus taxable income of £40,000 totals £50,000. It’s well within the £100,000 limit so we can use the top slice for the purpose of this calculation. This means we can base the tax at this stage on the higher rate bracket not beginning until £50,001 of income is reached.

  • £500 of the gain again falls within the Personal Savings Allowance.
  • £9,500 now falls within the basic rate band.

The tax applicable to the slice here would be £0 (£500 x 0%) + £1,900 (£9,500 x 20%) for a total of £1,900. As an onshore bond, basic rate has been assumed to have been paid which means a tax credit of £2,000 (the full £10,000 at 20%) applies. This results in an additional liability on the slice of £0. This is the first stage where there is a difference from the prior rules.

Looking at the overall gain, the first £500 again can be used against the Personal Savings Allowance leaving £99,500 assessed to higher rate tax (We are dealing with the overall gain here so there is no Personal Allowance available at this stage).

The tax in this part of the calculation is £39,800 (£99,500 at 40%). After allowing for 20% of the whole gain as a basic rate tax credit, this is reduced to £19,800.

There was no additional liability on the slice to multiply up by 10 segments, and £19,800 represents the top-slicing relief amount (compared to £19,800 minus £18,000 = £1,800 in the previous example).

You, therefore, take the full £19,800 figure (£19,800 minus £0) from the overall tax charge of £19,800 (£99,500 at 40% – basic rate tax already paid) to find the amount of tax due. Under this approach, there is no tax charge.

So the difference before 11th March 2020 and after is that a bond gain potentially charged at £18,000 would now have no tax liability.

A word of warning, however, is that this type of bond surrender will still cause tax implications, with a tax increase on the client’s other taxable income (as the Personal Allowance is still lost following the large gain here). So in reality, you’d need to consider whether it is worth surrendering this bond at this time in light of a higher charge to income tax on their earnings.

Ultimately, however, if you had assessed a client’s chargeable gain position in the last year or two and been put off by the tax charge, it is definitely worth reassessing now as the tax charge could be significantly lower or reduced to zero following the changes.

If the bond were offshore

The process and steps would be virtually identical. As part of the calculation on the top slice, you include a basic rate tax credit (even though no credit exists in reality).

The initial tax charge (before top-slicing) would be £39,800 (£99,500 at 40% with no basic rate tax credit given here) and from this, you take off the top-slicing relief figure of £19,800 (which is generated by the same approach as the onshore bond, using a basic rate tax credit) for a total charge of £20,000. This represents 20% tax on the full gain of £100,000.

Grant Callaghan – Head of Paraplanning
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We heard from our Client Relations Manager, Dwight to find out how lockdown has affected the working process at Para-Sols and the opportunity it presented to the business.

‘’COVID-19 has obviously posed challenges to businesses across all sectors and financial services is no different. At Para-Sols and The Verve Group as a whole, we’re fortunate that our typical desk space has the hardware to enable us a simple transition to home working. We already use laptops and internal chat groups as appropriate, so it wasn’t really a struggle to move a large team to work from home. The key though, hasn’t been just to switch to remote working, but also to maintain that team ethos and spirit that our office fosters. We’ve done this through virtual team meetings, quizzes and generally keeping up regular communication with each other. The very nature of outsourced paraplanning means we’re not located with our clients and so our working location is almost irrelevant as the whole team have access to our case submission portal and shared drives – this means for us we’re very much ‘open for business’.

Many of our clients and prospective clients have mentioned how this unique time has prompted them to review their working process, staffing and even premises. I think many firms will come out of this situation in a different shape, probably more agile, tech-heavy and adaptable to huge changes going forward. Industry-wide, I think the rise of digital signatures has been hugely accelerated by COVID-19, as has the use of video meetings for advisers and clients. Although that’s a very positive way to manage the current situation, I think it’s important to retain the human aspect of financial advice and that will be one of the challenges going forward, as will tailoring the use of technology to each specific client to ensure they receive a positive experience.

The businesses within The Verve Group have used lockdown to further develop the range of services on offer and to fast track the future of finance. It’s where we thought we’d be in 2030, but we’re going to be there 10 years early! #Project 2030 is the brainchild of Para-Sols founder Cathi Harrison. Its aim is to look at how we can adapt to meet the future needs of our clients. Several new services are being launched in early June, including:

At Para-Sols, we’ve always been pioneers in tech and when you combine that with the gift of time that has been thrust upon us, we are once again leading the revolution in paraplanning and technology. So, what happens when you combine those two elements, plus you add our innovation into the mix? You get our brand new interactive, digitally delivered Suitability Reports – which are visually interesting and super easy to use. Click here to check out the new reports.

Our new Virtual Paraplanning service offers our clients the option to have one of our paraplanners attend their client meeting virtually, ensuring we can answer technical queries and complete the meeting notes. There’ll be more coming on this soon but in the meantime, you can watch this video for a little more insight.

Our new services are being launched early June and more details will be provided at our virtual launch party, click below to register to attend.’’

As you’ll (hopefully) be aware, the world is going through a very difficult time at present due to Covid-19 (Coronavirus). This has not only had a major impact on everyday living, but it has also had a massive effect on the financial markets and you, as an adviser, when servicing your clients.

Why should I care if stock markets fall?

Many people’s initial reaction to “the markets” is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension – either private or through work – who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

The graph above illustrates the impact this is having on the main financial indices.

So big rises or falls can affect your client’s holdings, but the advice is to remember that pension and investment savings are usually a long-term bet.

Also important to remember, is the nature of investment markets. The cycles that are absolutely guaranteed to occur, over and over. Covid-19 has taken the world by surprise but, in reality, after the longest worldwide Bull market in history, some sort of downturn was expected in the not too distant future (albeit not as dramatic as has happened!).

Bull and Bear Markets

This chart shows the historical performance of the S&P 500 Index throughout the U.S. Bull and Bear Markets from 1926 through to June 2018. Although past performance is no guarantee of future results, it does show market trends and cycles.

The average Bull Market period lasted 9.1 years with an average cumulative total return of 476%.

The average Bear Market period lasted 1.4 years with an average cumulative loss of -41%.

It’s not to say things are easy. And it’s not to say the recovery will be quick. But history tells us the recovery will happen.

What should you do?

New rules introduced in January 2018 requires individuals whose portfolios are managed on a Discretionary Fund Manager (DFM) basis to be notified of a fall in value occurring that is at or above 10%.

You, as advisers, need to be aware of the effects this could have on their clients’ portfolios. This is not something that is due to the particular performance of one fund or sector, it is an issue that is market-wide.

It is therefore important to be in contact with your clients and make them aware of the situation. Good communication is important as you can help to reassure the clients of the uncertainty.

So, while everybody is out stocking up on toilet rolls and setting up remote desks we are trying to help manage expectations. We have produced a ‘10% Drop Letter’ which allows you to provide further information to your clients around the current situation and it might help to reassure them.

Click here to download the template – please feel free to use it with your clients.

In addition, there has been a special recording of That Mint Podcast which may benefit many of your clients. Click here to listen.

Finally and the most important thing… stay safe!

Peter Rhoden – Lead Paraplanner
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International Women’s Day this year was a good chance to discuss women in finance, on both sides of the coin.

Our Director, Jo Campbell, did just this in an article for Money Marketing, where she considers how treating people equally does not always mean treating them the same.

Click here to read the full article.