Wealth Management

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"Labour has promised a mansion tax and a levy on bankers' bonuses. Ed Miliband also wants to dispossess property speculators who 'hoard' land, to control energy prices and to raise the top rate of income tax to 50 per cent, after it was lowered by David Cameron to 45 per cent. INVESTOR SENTIMENT " We'll see whether further regulation will have an impact on investor sentiment and if the recent increase in stamp duty has affected whether investors buy or sell properties, slowing the hous - ing market as a result. "I think whatever legislation is put in place, it should lean to- wards encouraging rather than discouraging investment. We must ensure we do not cut off our nose to spite our face." While accepting that the ma - jority of the wealthy want to, and should, contribute fairly to socie- ty, this concern that if politicians go "too far" in their proposals it could have a detrimental effect on the UK, is shared by others. "The UK government's adop - tion of aggressive tactics to col- lect taxes may in the short term assist in raising some extra reve- nue, but it is rather shortsighted as it is seen by many to erode the attractiveness of the UK to the in- ternationally mobile community who, both directly and indirectly, contribute an enormous amount to GDP," says Nick Warr, head of the private wealth group at inter - national law firm Taylor Wessing. "One of the main attractions of the UK for international high-net- worth individuals has been the perception of certainty and fair - ness, although the constant chang- ing of the fiscal rules, combined with the potential negative pub- licity, is beginning to make some people think twice before mov- ing here. This could be extremely damaging in the long term." Liz Field, chief executive of trade body the Wealth Manage - ment Association, says she hopes any prospective government will refrain from knee-jerk reactions to popular opinion. Instead she would want the next g overn - ment to look at increasing fi- nancial education and helping all savers. " Wealth is a relative term," she says. "We'd all like to be better off tomorrow than we are today." P ublic debate around tax- ing the wealthy often fo- cuses on "fairness" and whether the rich, especially for- eign nationals taking advantage of the UK's tax regime for non-dom- iciles, are paying their way. While this regime is entirely legal and was designed to en- courage investment into the UK, it is sometimes p r e s e n t e d i n t h e mainstream media as being decided - ly unfair. " T h e ' r e s non-dom' de- bate has be- come another pre-election football which i s a l r e a d y damaging the U K 's c l a i m it is open for business," says Ashley Crossley, a partner and head of the wealth man - agement department in London at internation- al law firm Baker & McKen- zie. "Clients are already deciding to wait for the election result before they commit to coming to the UK. "These rules have been in place for generations and were designed by Parliament to attract wealthy people and business owners to live, work and spend here. It is not a loop-hole, but what Parliament wanted and politicians should be honest with the public about that." In addition, public concern has grown around tax avoidance, using legal meth - ods to minimise tax liability. The distinc- tion between this and tax evasion, illegally hiding money from tax authorities, is seen as becoming increasingly blurred by many pro - fessional advisers to the wealthy. Against this backdrop, political parties are putting forward ways in which they would tax the rich to ensure they contribute a fair amount to public coffers. "Ed Balls is ploughing on with his mansion tax proposal, which suggests he believes himself to be on very firm ground politically," says Lucy Brennan, partner in the private wealth group at Saffery Champness. "This is despite i t s o b v i o u s bluntness and potential unfairness. Some expect - ed the recent r e f o r m t o stamp duty to steal his mo - mentum by hit- ting the wealthy hardest, but he is undeterred. "The Labour Par - ty plan to reintroduce the 50p top rate of income tax. With 2 per cent National Insurance contribution on top for employees and the self-em - ployed, workers would be pay- ing a total of 52 per cent over to the taxman. "The last time this happened in 2010, we saw some higher earners being able to defer income until it was cut again in 2013, a measure of how uncomfortable people are working for a return of under 50 per cent. However, if they face a five-year wait or longer for their income, some may resign them - selves to paying the tax." Already the government has taken action which some pro- fessionals regard as a possible p r e c u r s o r t o t o u g h e r a c t i o n post-election. "Recently, we have seen two public tax rises: the rise in remit - tance fees for non-doms and in- creasing thresholds for stamp duty on properties above £2 million," Iain Tait, partner and head of the private investment office at Lon - don & Capital, points out. "This may be just the start of it if we see a Labour government in May. Wealth Sentiment RACONTEUR.NET /COMPANY/RACONTEUR-MEDIA /RACONTEUR.NET @RACONTEUR 1 i f t WEALTH MANAGEMENT 08/03/15 EDITION #0302 P02 How wealthy individuals should be taxed has become a hot topic in the run-up to the general election, as Tristan Blythe reports TAXING ISSUE OF POLITICS AND WEALTH Two Eds: Shadow Chancellor Ed Balls and Labour leader Ed Miliband If elected Labour would increase the higher rate of income tax to 50p. The Liberal Democrats sup- port increasing the capital gains tax rate for higher earners from 28 per cent to around 35 per cent. The Conservatives have indicated they would cut inheritance tax levels so it only targets the rich. According to Chancellor George Os- borne: "David Cameron has made it clear, as have I, that we believe inheritance tax is a tax that should be paid by the rich and we will set out our further approach closer to the election." Liberal Democrats and Labour are both calling for an annual tax on properties worth more than £2 million. The Conservatives oppose this. Instead they have already reformed the stamp duty regime to ensure wealthy property buyers pay more. Critics of a mansion tax point out that not all homeowners in the £2-million-plus bracket are cash rich. Estate agent Knight Frank estimate that 36 per cent of £2-million-plus homes are detached, 31 per cent terraced, 22 per cent flats and 11 per cent semi-detached. All parties say cracking down on tax evasion and aggressive tax avoid- ance is a priority. So-called British tax havens would be given six months to open their books to main- land scrutiny or face being placed on the OECD international blacklist if Labour wins the general election. According to Liberal Democrat Danny Alexander, Chief Secretary to the Treasury, a new criminal offence should be introduced to combat tax evasion. The new offence of corporate failure to prevent eco- nomic crime would include aiding or facilitating tax evasion. Labour is reported as saying rules on bankers' bonuses are too weak. It would implement a one-off tax on these bonuses to fund schemes to alleviate youth unemployment. In addition, Labour would extend to ten years the period in which bonuses can be reclaimed from bankers who are found to have acted inappropriately. There has been controversy in the media and elsewhere about the bonuses paid to bank staff, especially since the bank bail-outs and rescue packages funded by the government following the financial crisis of 2007-8. Commercial Feature A better way to manage your money Would you like consistent returns, low costs and investment services tailored to your needs? You don't have to be a cynic to think the investment industry is riddled with bad practice. The in- dustry ombudsman says it is. The Financial Services Consumer Pan- el recently warned that buyers of retail funds, including ISAs, pen- sions and investment products, were being misled by "incomplete disclosure and poor management of conflicts of interest". The panel went further. It warned of hidden costs up to three times larger than visible charges. These are proven to have "a significant impact on returns". Performance statistics are opaque or misleading. And too often investment houses put their own profits before client inter- est. Panel chairwoman Sue Lewis says: "The problems our research has identified are long standing and need fixing urgently." So what would the ideal invest- ment firm look like? Twelve years ago a group of seven investment pro- fessionals formed Seven Investment Management (7IM) to show the way forward. "We set it up for our own money as well," says co-founder Jus- tin Urquhart Stewart. "We can look our clients in the eye and tell them our money is still invested in 7IM." Costs are transparent. "I find it horrific that our industry has re- porting charges, nominee charges, custody charges," says Mr Urquhart Stewart. "I saw one had an 'inactiv- ity fee'. You got charged for doing nothing." By contrast, 7IM charges a flat fee between 0.6 per cent and just over 1 per cent depending on the size of capital managed and cli- ent requirements. There are no other charges, not for moving funds in or out and no commissions for the firm to chase. This is precisely the model recommended by the Financial Ser- vices Authority (FSA). The reports are clear and easy to understand. "The industry tends to think the more numbers they send clients the better," says 7IM head of the asset management service David Carroll. "Some reports are 36 pages of data. For many customers, you might as well send them a page of Japanese." 7IM reports are designed to be as clear as possible. A summa- ry page details the performance of the client's capital in clear English. Detailed information is then provided, always adhering to clarity. Again, this is in accordance with the FSA's guid- ance for optimum reporting. To help clients, 7IM will soon have its own "university". This on- line resource features short videos and papers which explain concepts to clients. Some deal with the ba- sics. Others handle more esoteric investment terms. Where 7IM really distinguishes it- self is in the investment strategy. The goal is to balance risk and opportu- nity. It is typical for the industry to define a "balanced portfolio" as 75 per cent in equities. In truth, different clients have different appetites for risk. Some want to go for growth and can handle a bit of market volatility. Others want to prioritise capital pres- ervation. So 7IM offers four bands of strategy: cautious, balanced, moder- ately adventurous and adventurous. Each band has 25 per cent more equities as the appetite for gain and risk increase. The extent of usage of this allocation to equities will vary de- pending on market conditions. The approach for all bands is one of wide diversification. "You want to be predictable; dull, even,"says Mr Urquhart Stewart. "Our as- set allocation includes lots of asset types: equities, bonds, private equity, property, cash, currency and so on. If your table has four legs and one drops off, you'll go wobbly. With 12 you are stable." In each asset class, 7IM invests in funds, rather than picking individual stocks directly. "Our fund managers prefer to focus on whether to invest in the UK or Japan. This is more im- portant than whether you own BT or Vodafone," he adds. All four funds are hedged against currencies, still woefully underused in the industry. The four-strategy-band approach means all investors, from the richest and newest, to smallest and most loyal, get the same treatment. "When we trade for one investor in that band we trade for all. There is no favour- itism," says Mr Carroll. Again, this is markedly different to the normal industry model which can neglect smaller investors. The result? Since foundation in 2003, 7IM has consistently returned 6.5 per cent to 7 per cent after fees in the face of varying market condi- tions. "Ten years ago we had £300 million under management," says Mr Carroll. "In 2009 we had £2.3 billion. Today we have £8 billion." Staff now number more than 170. "Our slogan of radical common sense resonates with investors," says Mr Urquhart Stewart. The firm continues to innovate. A mobile app offers clients immediate access to their portfolio's strategy and perfor- mance. The app won Moneyfacts' 2014 Innovation Award. It is a typical move by a firm still look- ing to show the industry how it can cast off bad practices, and give clients the products and service they deserve. "It all comes down to trust," says Mr Urquhart Stewart. "If people can see exactly what we are doing and they can see it works, we can build that trust." P4 FINANCIAL SERVICES TECHNOLOGY 08/02/15 EDITION #0296 COMMERCIAL FEATURE LATEST POLL TRACKER Conservative - 33% Labour - 34% Liberal Democrats - 7% UKIP - 14% Green - 7% Whatever legislation is put in place, it should lean towards encouraging rather than discouraging investment estimated total tax gap in the UK, 7 per cent of total theoretical tax liabilities £4bn approximate cost of tax avoidance to the UK Source: HMRC October 2014 45% £35bn top rate of tax for all income over £150,000 a year WHERE THE PARTIES STAND TAX LEVELS MANSION TAX BANKERS' BONUSES TAX EVASION AND TAX HAVENS

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