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Monthly Archives: June 2014

Fund supermarket price wars

Fund Supermarket Blog ImageThese are trying times for supermarkets, be they the conventional kind or simply online invest-ment sites.

 

In the first instance Morrison’s, Tesco and M&S have all posted profit alerts and seen significant declines in sales, indicating that customers are becoming ever more selective and refusing to hand over money out of a sense of loyalty alone.

 

This is market economics at its best; supermarkets will inevitably respond to spending signals and innovate, offering new and more attractive goods and services.

 

The same process is occurring in the way in which we invest in funds using funds supermarkets, which have recently seen fees tumble for everyday investors.

 

In decades past when an investor wanted to place their savings in an investment fund or spread their nest egg across several funds often paid a large commission to a fund manager or a bro-ker.

 

In most instances it is hard to see exactly what investors get in return for these fees, with man-aged funds on average failing to out perform, or even worse, under performing compared to other investment vehicles.

 

A fund supermarket is a platform, normally online, that allows the investor to place their money in a range of funds.

 

The investor can use one account and invest in dozens of funds, keeping their own personal funds in an ISA or other tax efficient savings account.

 

The fund supermarket is also where fund managers or brokers also go to find funds to invest in, and previously they were able to arrange their own charges with the supermarket.

The costs of fund supermarkets have fallen recently due to new government rules forcing them to make their charges clearer.

 

Typically, a charge of about 1.5 percent (working out at £300 per £20,000 investment) was be-ing levied, which over the course of the life of an investment can work out at some considerable costs.

 

Since transparency has been introduced to the industry fund supermarkets are being forced to offer increasingly more attractive deals with the major players having to offer reduced invest-ment charges on scores of funds.

 

Knowledge in the investment world is always empowering and the customer has made the in-dustry have to work a lot harder.

 

At present it is estimated that nearly £150 billion is tied up in UK investment funds, so the over-all savings to the ordinary investor are going to be enormous.

 

The new generation of low cost funds that are coming on to the market offer the prospect of cheaper investment in the foreseeable future, which, in these still austere times is welcome news.

 

The laws surrounding financial advice and selling prohibit me here from making any kinds of suggestions or even discussing the benefits and features of individual products, I am a financial blogger, not an advisor.

 

That said, the only real suggestion I can give is to take some independent financial advice be-fore you invest, the cost of an advisor’s time will be far less in the short run than the price of an over priced fund (they are still out there, by the way, waiting to ensnare the unwary investor).

 

With more transparency comes more data so the range of options open to someone looking to buy into a fund can be quite dizzying; this is why it pays to get professional advice in order to take advantage of changes that have been set up to benefit you.

 

 

Why Do A Third Of UK Families Lack Life Insurance?

Blog Image 23 June 2014Life insurance can be the financial buffer which stops a painful bereavement becoming a financial catastrophe.  While there’s more to life than money, an effective financial plan recognises the fact that everyday actions have a financial value.  To put it another way, if we were left unable to carry out these activities, we’d have to pay someone else to do them for us.  Notwithstanding this, however, a third of families in the UK are without life insurance, which raises the question of why.

Lack Of Money

This is the single most obvious reason for people not having cover.  In one sense it’s completely understandable.  Most people are feeling the squeeze just now and for those who are struggling to make ends meet; it’s tempting to dismiss life insurance as a nice-to-have.  It’s all the more tempting for younger people who may think of it as something they can buy “in a few years”.  Unfortunately not even younger people are immune to death and when they die the effects can be particularly devastating.

Younger children are the most demanding in practical terms.  They effectively need 24/7 supervision, which can place a tremendous strain on a surviving partner.  While children require less direct supervision as they age, they have other, less tangible needs.  The most obvious of these is for a good education.  These needs can be much more challenging to satisfy with only the income of the surviving partner.

Lack Of Confidence

Some people feel deterred from sorting out their financial affairs because they think it will be too complicated.  These people are likely to get particular benefit from seeking help from a professional financial adviser.  Money can’t buy happiness but lack of money can lead to a lot of misery.  This means that most people will benefit hugely from having a financial plan to ensure that they can meet their financial goals over the years.  This is more than just exercising good money management on the family finances.

It’s about understanding what’s important in your life, which will vary depending on the life stage you have reached.  One constant however is the need to protect what really matters to you, be it your health, your children or your home.  While single people who are renting a home and have no dependents may be able to afford to ignore life insurance, for most people with children it’s a must.

Lack Of Clarity

All life insurance products ultimately belong to one of two types.  There are life policies, which are open-ended and term-assurance products which are for a fixed period.  Notwithstanding this, providers try to differentiate their products in the eyes of the public by customizing them to specific markets.  They may also offer special deals. All of this can easily confuse customers and put them off taking out life insurance at all.

Fortunately, a provider will be happy to explain exactly what their offerings do and do not provide to help you make an informed decision.

Source: 35% of British families have no financial safety net in place at all to cope with a sudden loss of income according to Legal & General research.

The Best Life Insurers

The Best Life Insurers

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life_insurers_blogBy definition insurance is something you hope you’ll never need.  If you do need it, however, then the value of a good policy, backed by a good insurer, becomes obvious.  This is particularly true of life insurance where claims are made as a result of a bereavement.  There are three key points to look for when trying to identify the best life insurers.

Financial Position

Small can be beautiful as long as it’s backed by strength.  Put quite simply in the event of making a claim, you want to be sure that having taken your premiums, your insurer will actually pay and pay reasonably promptly.  This is important for any claim and all the more so if you would like some or all of your benefit to be paid as longer-term income rather than as a lump sum.

It’s also worth understanding a company’s pedigree.  Has it been spun off from or absorbed by a larger company?  How long has it been in business overall and how happy are its shareholders/investors.  In short, you should expect an insurance company to demonstrate the sort of good money management you apply to the family finances.  If this sounds complicated, then an experienced financial adviser will be familiar with companies as well as products and will be able to point you in the right direction.

Flexibility And Diversity

Although all life insurance essentially boils down to a choice of an open-ended life policy or a term-assurance policy, there are a variety of other options available to tailor them to suit.  These include guaranteed rates (keeping your premiums the same over the whole term/lifetime of policy).  The ability to vary terms can also be useful.  It allows you to adapt your policy to your changing needs without having to start again from scratch.  Likewise the ability to vary the sum insured can be helpful, for example it can be reduced in stages as a mortgage is paid off.  This can reduce the level of payments and allow funds to be diverted to other areas of a financial plan.

Customer Services

Two little words which can make a world of difference.  Customer service isn’t just about being polite and helpful when you’re making a claim (although they certainly helps).  There are some more concrete points to check.  First of all, how quickly do they make a decision and offer a price?  For people with very specialist requirements there may be a need for an insurer to take some time out to check if cover can be provided and if so how much it will cost.

For most people however, companies should be prepared to give a prompt answer along with a price.  Once a decision has been made, do they offer cover during the underwriting process?  This is a fairly standard option, but it is not universal so it pays to check as the process can be quite lengthy.  Do they offer annual statements?  These can be a very convenient reminder to double-check that your cover is still appropriate for your needs.  Do they have a telephone number?  If so how helpful are their agents?  If not, what contact options do they have and how efficiently do they work?