I could have given a direct and definitive answer; after all the product provider had stuck a label on the particular plan in question.

But I wanted to provide my client with a bit more than just a “yes” or “no” answer.

So I explained that there were a number of different types of personal pension plans and the most common labels that we come across are Stakeholder pension plans, Personal pension plans and Self Invested Pension Plans (SIPPs).

Each of them have far more similarities than differences. For example the contribution rules for each are absolutely the same.

Purists may argue that Stakeholder pension plans have slightly different contribution rules but here I was trying to point out that if my client wanted to pay a single contribution (a significant £35,000 in her case) then all of these types of pension could accept it and the HMRC maximum contribution rules apply in the same way.

Anyone who is eligible for a Stakeholder plan is eligible for a Personal pension plan and is eligible for a SIPP so no difference there then.

The age at which benefits are able to be paid is also consistent across all three types of plan.

The amount of tax free cash is the same for each and the choices about how to convert the pension fund into income are also consistent across the range.

So contribution rules, eligibility, benefit age and benefit types are the same as is the tax treatment of each type of plan.

So what are the differences? There are two of note.

First each type of plan will have different charges that apply.

Some are more expensive an others but don’t fall into the trap of believing that a Stakeholder plan is cheaper than a Personal pension plan and that is cheaper than a SIPP. This is not the case and bizarrely although Stakeholder was launched as a low cost, simple (it never was simple by the way!) product it is no longer necessarily the cheapest.

The second key point of difference is the investment choice that is available to the investor.

Now this is where the real differences lie. Some plans have a limited range of investment choices and others have a great deal of choice.

It is usually held that SIPPs have the greatest range of investment choice but this is not always the case because some SIPPs have restricted investment choice (are they really SIPPs then I hear you ask?) and some Stakeholder and Personal pension plans have a wide investment choice.

Confusing isn’t it?

So the answer I gave to my client was “Yes, it is a SIPP if you want it to be”.

The answer I wanted to give was “Does it matter?”

Or perhaps it is more accurate to say that 2011 has been a tough year for the economies around the world and that has left investor confidence at a low ebb.

The saying that “if we don’t learn from history we are condemned to repeat it” is apt.

What did we learn from 2011 and which investments should we avoid in 2012?

It doesn’t do what it says on the tin

Imagine an investment product that offers “low risk and high returns”.

The glossy brochure lures you in with the promise of an investment return consistently higher than the interest you might earn on cash.

It talks about a return some 3-4% higher than you will get by leaving your hard earned cash in a bank or building society account, but at the same time reassures you that it is low risk.

You examine the underlying investments and see such things as Private Equity and Private Finance dominating the mix of assets.

You may further be reassured that the provider of the product has some clever and innovative techniques for marrying up the two conflicting ideas of low risk and high reward.

Confused? You should be!

But sadly many clients and quite a few advisers seem to have been taken in by this heady mix- think Arch Cru.

You read the material but it is really difficult to understand

If you don’t understand it, don’t buy it.

We have a simple philosophy at Informed Choice; if we don’t understand how the investment works then what right have we got to recommend it to our clients?

Some of the opaque products out there probably are not all bad but if I am not prepared to put my money into them then I am not going to suggest that you do.

The typical adviser defence that they did not have the resources to do the due diligence on such products is really no defence at all. No adviser should recommend to you a product they do not fully understand.

Cash

Cash is not an investment. It is savings.

Saving in a cash account in the long term is not the same as investing your money.

Sure, it makes sense to have some of your money (for an emergency fund, to pay known bills in a known time frame, to spend and to give away) as cash but don’t confuse interest earned on savings with capital growth and income available from investments.

That said if you are very cautious stick with cash – you will sleep better at night!

Leave alone rebuke

Stay well away from any investment that you do not intend to review in the future.

I can tell you with a great deal of confidence that it will go wrong.

If you don’t intend to review at least yearly, or pay an adviser to do that for you, don’t invest in the first place.

It is a bit rich for your blood

Only invest in a way that enables you to match your financial planning goals with the investment. Do not take more risk with your money than you need to.

Work out based on the term of the investment the amount of growth that you will need and that will determine the amount of risk you need to take to get the result you are looking for.

If the degree of risk that is required is to much for you then take less risk and work out how you are going to get by on less money – simple really.

Photo credit: Flickr/Horia Varlan

Their previous adviser was very keen on what might be considered the more esoteric types of investment product.

Some structured products, a VCT and a some quite racy equity investments resulted in capital losses over a period of time.

Both Richard and Penny would describe themselves as “cautious investors” and the capital with which they were left needed to work hard for them because both of them are now retired and they need extra income.

We spent time with them establishing their attitude towards risk, reward and volatility and in particular their tolerance for loss.

Actually that last part was quite straight forward because whilst they understood that the value of investments can go down as well as up, that didn’t mean to say they would enjoy any kind of roller coaster ride.

One of the most important things that we have learned is that our clients are more concerned about avoiding the worst of any investment market downturns than they are about chasing the upside.

We constructed for them a low risk portfolio that was designed to do two things; first of all to generate a reasonable level of income and secondly to preserve capital value. This was done back in June 2010.

As well as providing an annual face to face review service we sense checked what was happening in their portfolio on a quarter by quarter basis.

This is of course over a short time frame in the context of investment portfolios but a 3.46% capital gain on a portfolio that is generating an income yield of 1.88% certainly has kept both Robert and Penny happy.

Robert said “My biggest concern now is inflation but at least we have both been able to sleep at night knowing that rather than an entirely equity based portfolio we now had a nicely diverse investment pot that was generating reasonable income for us”.

Would you like to find out more about our investment advice process for clients? Do get in touch to arrange a meeting with an Informed Choice Financial Planner.

In fact there really is no such thing as “free advice” when it come down to the financial intermediary.

There is however something called “cross subsidy”. This is usually seen where the adviser is paid through commission.

As an example of what happens let us say that the adviser meets two people. He then carries out work for both parties and that leads to the recommendation that the first client should buy an ISA (let’s say) and the second one should buy a pension plan.

So far so simple, but then the first client decides not to proceed. Client two buys the pension plan and the adviser is paid a commission.

Effectively the commission paid in respect of the second client pays for the advice received by both clients.

It is perceived by the first client as being “free advice” because of course they never had to pay for it. But in actual fact it was paid for by client two in the form of a cross subsidy.

Fundamentally, many of our peers see nothing wrong with this system.

In its favour is the fact that this cross subsidy allows access to the independent financial advice market for people who are not prepared to pay a fee (or not enough of a fee).

We don’t like this system. We think it is unfair to ask those who buy to pay for those who don’t (although we accept that there is an element of this in all aspects of business life).

Instead we operate a transparent and very direct system based on charging our clients for what they get.

So we don’t do things for free (or what might appear to be for free) but interestingly, and this is what gets me smiling when I come to work each day, we typically charge our clients less today by direct charging than we used to charge them when we operated on a commission basis.

Commission on investments and pensions is being abolished by the Financial Services Authority from the end of 2012. What we have learned in practice since 2004 is that transparent adviser charging is much better than the commission approach.

Within this webcast I explained the background to the Lifetime Allowance, introduced in 2006 as part of pension modernisation changes, before describing the reduction in the Lifetime Allowance from £1.8m to £1.5m taking place on 6th April 2012.

When we talk about this subject, we are conscious that the Lifetime Allowance represents some very big numbers, even when it is reduced from the current level down to £1.5m. For this reason, it is not a subject that will have an impact on the vast majority of investors planning for retirement.

However, for those investors with larger pension funds or accumulated income benefits from defined benefit pension schemes, the tax charges for pension benefits over the level of the Lifetime Allowance can best be described as penal.

This is why it is important for some people to consider Fixed Protection to avoid the tax consequences of exceeding the Lifetime Allowance when it is reduced from April.

Before applying for Fixed Protection you should seek specialist independent financial advice to fully understand the pension benefits you might be giving up.

You can watch a recording of the webcast here or by using the viewer below.

Would you like to know more? Get in touch to speak to us about protection your pension benefits from penal tax charges.

Step one is to spend time with our client asking them a lot of questions. Some of those questions are factual; in fact we refer to this process as ‘fact finding’.

Most importantly many of our questions are about feelings and attitudes. This is because it is simply not possible to deliver bespoke financial planning advice unless we have a really good understanding of our client.

After all you probably wouldn’t have much confidence in anyone who claimed to have the solutions you need but couldn’t be bothered to properly find out about you.

Step two is to carry out research about any existing financial products and arrangements that you have. We obtain authority letters from our clients and invest a good deal of time and energy in gathering a lot of detail about existing financial products.

Our administration team is very skilled at obtaining, storing and interrogating data. Our paraplanning team are highly skilled at analysing products and testing them for continued suitability.

By completing steps one and two, we are able to move onto step three. All of our clients receive a financial planning or advice report. Not only does this document our research and analysis, it most importantly documents our specific recommendations to you.

Having a permanent record of how we arrived at our recommendations provides you with a useful audit trail. It also gives you the opportunity to ask and have answered any questions that you may have.

Step four is to provide you with specific recommendations. At one end of the scale you may need to do little or indeed nothing at all. It may well be that you already have in place the necessary and suitable financial products to achieve your goals and objectives.

Sometimes our recommendations are to adjust your existing financial plans, perhaps by switching investment funds. Other times we might recommend more radical changes, such as transferring to a new plan provider. Whatever we recommend we will provide full details and justification.

We are wholly impartial and independent, not influenced by any commission or any ‘soft’ payments from a product provider. Step five is that we select products from the whole of the market. Price, financial security and service dominate our thinking when we select the most suitable pension or investment for you.

Step six bring our six steps round to the beginning again. We believe strongly in reviewing plans on at least a yearly basis, sometimes more frequently than that.

Our process ensures that we deliver exactly what our clients are looking for. The whole process sometimes takes several months to complete. Attention to detail along the way is absolutely vital to ensure our clients get really good value for money.

Of course there really can only be one reason why someone needs to build, manage and protect their wealth; that is that they need that wealth to achieve lifetime goals.

Perhaps that might be to retire early and enjoy the kind of retirement lifestyle you want. Maybe it is to ensure that you are able to financially assist your children or grandchildren.

It could well be that you are not particularly interested in managing your financial resources – perhaps you want to delegate the responsibility to a trusted adviser.

We do find that many people lack the time, or inclination, or indeed the skills, to build, manage and protect their finances.

That probably sums up why we exist; we do have the time, inclination and skill to do that for our clients.

And we are always prepared to be tested.

Way back in 2004 we decided that in the highly technically complex world of financial services, we owed it to our clients to prove that we were properly qualified. The desire to achieve higher standards of professional qualifications became part of the culture of the firm.

Informed Choice is a firm of Chartered Financial Planners. Five of us as individuals hold that title as well as the firm holding the corporate Chartered title.

But we did not want to stop there, so four of our Financial Planners (including two directors) are Certified Financial Planners (CFPs) as well. This proves we can take our technical knowledge and apply it to real client situations.

Some of our peers claim that experience is more important than qualifications. We disagree. We believe that our clients deserve the very best; high levels of professional qualifications and experience. Why settle for one or the other?

It goes without saying that we should combine those qualifications, that experience and apply it with skill and integrity.

Each year we offer up everything we do to a team of independent judges for them to determine if we represent the Gold Standard of Independent Financial Advice. We are delighted to tell you that, as four times winners of this prestigious award, we continue to seek ways to improve everything we do.

Put simply, we know we are good at what we do – we are always trying to get better.

The beauty of the way we do things round here is that any file must be at one of four stages in terms of the way we work with our clients. We have an acronym for it at Informed Choice – we call it EAIR. It stands for Engagement, Advice, Implementation and Review.

We might be in the process of working with you to find out if and how we can help you meet your goals and objectives. You might be going through the process of deciding if we are the right firm of Financial Planners for you. We call this stage Engagement.

The engagement process starts with us finding out about you and you finding out about us. It ends when you sign an engagement letter we send to you, setting out precisely what we are going to do for you and importantly what we will charge you to do it.

Only when we have agreed to our advice service delivery to you do we move on to data collection, data storage and data analysis to produce your bespoke report. This is the Advice stage in our process.

Above everything else, we believe that good quality financial advice is a very valuable thing and much more valuable than the selection of a financial product (although naturally we do that as well).

If we arrange or alter a financial product for you, we refer to it as Implementation. We select the most appropriate plans for you from the whole of the market and make absolutely sure it meets the objectives that we have identified together. Our administration team takes over responsibility for ensuring any plans are set up efficiently and correctly.

The worst investment or pension plan is not the most expensive or poorest performer (although both of those factors can be avoided) but it can be the most suitable and cost effective plan that is never reviewed. The absence of a robust review process can result in a very poor outcome. Our Review process ensures that plans are never left alone to quietly ‘fester’ in the corner.

So if you become a client of Informed Choice, you will know that at any given time your file will be going through the Engagement, Advice, Implementation or Review process.

The question is a reasonable one but sometimes the answer isn’t. Particularly because the question is often accompanied with a further question such as “How much am I going to get?”

In a relatively simplistic case, such as the sharing of the value of a personal pension plan, the answer to the timing part of the question is “usually quite quickly”. Assuming that the ceding scheme has received all the information that they require together with the necessary discharge and transfer forms from the receiving plan, 2 to 3 weeks is about typical.

That said some providers of personal pension plans are less efficient than others and we often find that they need to be “reminded”.

Of course it can take a lot longer than that; we have seen examples where people who have received a pension sharing annex have then simply sat on it for 12 months, perhaps not understanding the importance of doing something with it.

The second part of the question though is where I want to focus my comments – how much am I going to get?

When the “split” is calculated it is based on a value at some point in the past and this can be many months before the Decree Absolute has been granted.

Where the personal pension that is being shared is invested in certain assets (primarily shares) the transferred value is very likely to be higher or lower than the figure used in the sharing calculations (the percentage of course will be absolutely the one shown in the Pension Sharing Annex) so the recepient of the share may get less in monetary terms than they thought they were going to get.

Is there anything that can be done to ensure fair treatment here? If we take the last week as an example, investment markets have been incredibaly volatile, a personal pension plan that was valued at £100,000 when the split was calculated which may have produced at a 50% share a credit value of £50,000 which had been invested entirely in UK equities might have fallen 4% in value.

So instead of £50,000 the recipient would have got £48,000. That sounds to me like a substantial reduction. Imagine then a delay in applying for the transfer of one year and where the “market” had gone down by 20%. How might someone feel about a value of £40,000 compared with £50,000? Not good I imagine.

Maybe when the Solicitors are examining the share of invested pension funds they might consider asking the original owner to switch selected investment funds to cash. Of course in a rising market both parties might miss out but perhaps that is a risk worth taking?

We still have some spaces left for our pensions and divorce workshop (for solicitors) in Guildford on 11th October 2011. More information and booking links are available at www.icl-ifa.co.uk/pensions-divorce-workshop.

Photo credit: Flickr/I .. C .. U

My wife Andy and I attended the first concert at the new G-Live venue in Guildford; a superb looking modern building.

The London Symphony Orchestra was playing three pieces by Tchaikovsky. After my favourite (Romeo and Juliet Fantasy Overture) they moved onto his Piano Concerto with a quite brilliant 20 year old Russian pianist.

Into the third movement and the power supply to the venue was cut off. The stage was plunged into darkness before the generated emergency power supply cut in with emergency lighting only.

Guess what happened next?

Did the music stop and the Conductor walk forward to the edge of the stage to tell the audience that the performance would now stop? Did the audience hiss and boo? Did the Administration manager of the venue get up and say for “health and safety reasons” we would all have to leave the building?

No, the Pianist continued (he was working without a score in front of him anyway and most of the time had his eyes shut whilst he was playing!) Those in the orchestra who had some light available to them continued their performance supporting the most wonderful of performances.

The audience sat in rapturous silence recognising that a truly excellent event was unfolding in front of their eyes – well in front of their ears is possibly a more accurate statement.

The Piano Concerto finished and 1,300 members of the audience got to their feet to deliver a thunderous standing ovation which by my watch must have lasted for 10 minutes.

How easy it would have been to simply give up. There was no light on stage and the Conductor could have called a halt and walked the Orchestra and Pianist off stage. “Shame, and sorry for the disappointment, but we don’t have any light so we can’t perform. Goodnight all!”

This event epitomised what I think can only be described as true professionalism. Never disappoint your audience and go the extra mile to deliver great service.

If it ended there it would be a pretty good story. But the management and staff of the venue went out of their way to enhance what we were experiencing.

Clear communication by a number of them as to what was happening. Going the extra mile to ensure that the audience got their interval refreshments. And then as the concert came to an end an invitation for the audience to join them for a drink in the bar courtesy of the venue.

Customer centred service, true professionalism and treating their customers fairly. A shining example of great service.

Well done the staff and management of G-Live Guildford and the artists and staff of the London Symphony Orchestra for a memorable evening.