Magazine Editorials
Editorial (6)
The Magazine's view
Fear Still Foremost Barrier To Achieving Goals
Financial Planning Week 2010 is almost upon us. This Week – from 22-28 November – plays a significant part in the Institute of Financial Planning’s endeavours to educate the wider world on the benefits of a proper financial plan.
It is an uphill battle all the way – as last year’s IFP research showed, more than one in four Brits are pinning their hopes of improving their financial situation on winning the lottery.
But why are people still so reluctant to embrace the concept of financial planning? Even those who do seek advice still tend to think in terms of products rather than about the goals that they want their plan to help them to achieve.
My own experience with a wide variety of clients is that fear is the main barrier to change, followed closely by a degree of chagrin that people feel that they are not managing their financial lives properly.
For some people, this fear is based on the fact that they are thrown into a situation, through death or divorce, where they have to take on the challenge of the family finances having previously been sheltered from dealing with them by their partner.
These people can be utterly terrified by money and unable to even begin to make a start on dealing with the nitty-gritty, which can include estate planning and inheritance tax issues as well as day-to-day income and expenditure. Yet a financial plan, and the process of making one, can help them to understand not only the actual figures, finances and products, but also how to deal with their own concerns about handling money.
Other people may fail to recognise how integral money is to the way they live their lives and, in broad terms, this is symptomatic of their unwillingness or inability to face up to the emotional implications of money.
There is reluctance to take even the first step of working out a household budget and a spending plan for the future, partly because it takes time to do but largely because of the fear of what going through the process will reveal.
Money is so integral to life that this process makes people face up to the way they live their lives. For some this reveals little shocks – do they really spend that much on wine ever month? – but for others it is much more painful because it brings home the fact that their life is not really the life they want to live.
There is the fear of not facing the truth of the way we are spending money today. Most people are instinctively aware that, even if they are not spending too much, then they are probably not saving enough for the future.
There is also the fear of having to face the consequences of overspending, of not saving for the future and of not taking responsibility for the longer term.
All these fear factors can cause stress. What I have found is that going through a proper financial planning process, which is not about products, but looking at your life goals, your current budgets and future spending plans, means you can achieve an understanding of your financial situation which most people do not have.
Just going through the process can be deeply liberating and provide the most amazing sense of freedom. Even if things are bad, then there is still a strong element of relief there because you are taking the first steps to deal with it. You lose the fear of money because you have an understanding of it and its part in your life. Once you reach this stage, money ceases to be a painful issue and becomes something you can work with in a way that will lead to your deepest goals being achieved.
We are into July, the weather is warm, the school holidays are approaching and it is at this time of year that many business owners take a break from their business to be with their family over the summer.
And it is certainly good to take a break from business. It’s a time to travel, re-charge batteries, reinforce bonds with other members of the family, have a good time then come back relaxed and re-charged. However its also good to take a break from your business in another way, by enrolling onto a strategic business retreat to create a time when you can regenerate your business in the same way you regenerate your mind and spirit and body as you do on the family holiday.
The Chancellor will present an emergency budget on 22 June 2010. There has been much speculation that the rate of CGT will rise, possibly up to 50%.
The alternative view to CGT is this. The 18% CGT rate was introduced in 2008 after the tax rate was decoupled from the income tax rate (prior to 2008, gains were added to income in a tax year and taxed at the marginal rate of income tax). At the same time indexation (which in effect allowed only for the taxation of gains in excess of inflation) was abolished and replaced with a taper relief depending on the time the assets were held. 18% was chosen because, relative to the 40% tax rate, it was an appropriate rate taking into account the loss of indexation and the introduction of taper relief). On this basis, 18% is still seen as a "fair" rate. That does not of course mean no increase, but we could see things like a re-basing of assets from the 1982 base to a later year, plus an increase in the 18% rate.
FSA capital concerns about the Pru are symptomatic of wider issues in the UK life industry
The Pru has announced a delay to its record breaking $21 billion rights issue, earmarked to fund the acquisition of AIA in the Far East, after the FSA expressed concerns about the insurer’s capital position.
It is only a temporary delay, and the Pru is adamant its timetable still stands. However, it will add fuel to the flames in the UK life and pensions industry and strengthen rumours that the Pru is considering pulling out of the UK, along with the likes of Skandia, Old Mutual, even Aviva.
Today the Prime Minister goes to Buckingham Palace to fire the starting gun on the general election which will take place on 6th May.
As he does, many will not be asking themselves who they will vote for in the election, but the more fundamental question of whether they will even exercise their right to vote at all?
Making advice less available and more expensive will not help the consumer
The FSA's Retail Distribution Review (RDR) has the potential to affect both the availability and quality of financial advice.
This is the view emerging in the financial planning community as it debates two RDR related issues, both of which are pertinent to Planning for Life's position in the market place, and both of which give rise to two important questions.