Rising inflation, a new Prime Minister, faltering markets, the continuing war in Ukraine and the passing of the country’s longest-serving monarch…a lot’s happened since the last review in June.
It’s been a turbulent time during which we’ve witnessed no shortage of discussion about what it means for people’s finances. Yes, as a country we’re on course to see living standards fall, but according to Graeme and Paul, clients are taking events in their stride and remain relatively sanguine.
Graeme says clients have avoided any knee-jerk reaction to what, after all, are external events beyond their control. “Our clients have been through these kinds of cycles before and as long as they have their income coming in, their financial plans haven’t really changed.”
While markets have faltered in recent months, Graeme says he’s seen no move for clients to withdraw their investments. Similarly, in response to inflation, currently running at just under 10%, he says, clients have resisted the temptation to switch to assets which, while potentially offering higher returns, are also more volatile.
Paul acknowledges that while over the past three months, all Courtiers Funds bar the Corporate Bond Fund are in negative territory, all but one are also in the top quartile over five years and those that have been running for more than 10 years (the Courtiers Multi-Asset Funds) are in the top quartile over that period.
As for inflation and rising bills, Graeme says that while some clients might be “a little worried” about the spiralling cost of living, particularly energy bills, “it doesn’t have a huge impact on what they do day-to-day.”
Even if inflation was to increase to 22% as Goldman Sachs warned in August, Paul says that income strategies and cash reserves put in place as part of the financial planning process should mitigate the effects.
Rather than concerns about the general economy, Paul says he and the rest of the Private Clients Team have been busy fielding enquiries regarding the recent introduction of the Trust Registration Service (TRS). “Our Advisers have been liaising with an accountancy firm on behalf of clients and the accountancy firm are then registering the trust. We are also keeping clients up to date with the process and developments.”
With inflation forecast to go higher, Graeme acknowledges that those clients with final salary pensions even if they include a degree of indexing for inflation “won’t see their payments keeping pace”. However, he says a lot of clients have accumulated a cash buffer over the last couple of years, which will mitigate the impact. He says he doesn’t “see a huge issue at this stage” although if these high rates of inflation “are sustained for a few years” this could change.
For clients with a Defined Contribution (DC) pension, Graeme says that’s where financial planning comes into its own. Using cashflow modelling, Advisers can simulate different scenarios to help clients work out the appropriate level of income to take.
Graeme regards the current levels of inflation and indeed interest rates “as a small correction” from what in both cases are very low bases.
Graeme says one of clients’ top concerns is how best to support their children and grandchildren financially, and particularly how to help them onto the property ladder. “We’ve had a number of clients gift from their investments for these events.” Even though a grandchild won’t be able to access the money before their mid to late 50s, Paul says Junior SIPPs (Self-Invested Pension Plans) are one option. The grandchildren benefit by not having to put aside so much for their pension allowing them “to spend more on housing costs,” he explains.
As for the arrival of Liz Truss in 10 Downing Street, Graeme is sceptical that her commitment to cut taxes will actually be delivered. “I don’t see how they’ve got any leverage to cut tax given the amount they spent on keeping the economy going during the pandemic, and also against the backdrop of fiscal packages to assist with the rising cost of energy economy. The government will need to borrow more over the coming months to fund their expenditure plans.”
Paul also questions whether tax cuts will be possible following a review carried out last year, which proposed changes that would result in higher levels of Capital Gains Tax as an area of possible concern for clients. We wrote about the government’s response to this in January this year.
Paul says, it’s a case of wait and see. “Clients have been through this sort of scenario before and they “know and trust that we’ll do what’s right for them whatever the changes.”
A special ‘fiscal event’ due to take place tomorrow, Friday 23 September, should provide the first real evidence of how committed Truss’s new administration is to honouring those promises. Look out for our coverage of this important event.