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UCIS Don’t throw baby out with the bath water

By guest author Damian Davies – The Timebank

Better Safe than Sorry

Advisers don’t like to be linked with ‘miss selling’ scandals, and quite rightly so.

Miss selling is when an adviser incorrectly positions a product to an inappropriate investor in order to make a ‘sale’.

However, take an appropriate arrangement and correctly present it to a suitable investor and you have something very different indeed – good service.

There are many worthy products and structures which in the past have become tainted with the concept of "mis-selling” because of the fact that unscrupulous advisers have misrepresented the arrangements to inappropriate investors. As a result, many advisers stop considering these products completely in order to avoid a potential ‘miss selling’ scandal.

The problem is that by doing this there may be arrangements which may offer an ideal solution to a specific client’s need which are overlooked.

At the time of writing there are some who feel that Unregulated Collective Investment Schemes (UCIS) will also suffer this fate, and thus should be avoided.

This is unfortunate as the UCIS universe provides access to some of the most dynamic investments, which can complement and enhance a client’s portfolio by accessing assets which are diverse, not co-related to standard assets classes and can provide low volatility.

Proceed with caution

Whilst there are potential rewards, quite often providers of these arrangements will ‘over emphasis’ these opportunities so it is important that any recommendation is made only after you have clearly demonstrated two factors.

Firstly is the client suited to this type of investments and has agreed to the perceived additional risk? In simple terms the client should be seen either as a Knowledgeable Investor, a High Net Worth investor capable of accommodating any losses or have a high tolerance for risk.

Secondly, can you demonstrate due diligence has been undertaken on the product and on the provider and any counterparty risk? At the very least, the due diligence should cover the charges, liquidity, the risks and the people involved. Beyond this, care should be applied to the procedures applied to the management of the business. As a Paraplanning company, we are regularly involved with this analysis and have a rigorous process of assessment.

Most importantly, you should not rely on the product provider’s literature and research as this can be seen as bias so your research should be entirely independent. This may seem rather a lot of work but this can either be carried out by your firm or out-sourced to an appropriate party, such as a compliance support business or a firm of Paraplanners.

This will allow you to inform the client of your opinion and explain to them in more detail the risks involved, as well proving the evidence that appropriate research has been conducted to ensure the product is appropriate for the client and their needs.

If the correct approach is completed, then you can benefit from the range of investments that UCIS offer and ensure your clients are benefiting from your Independence.

Timebank House
Plough Lane
Hereford
HR4 0EL

Phone: 01432 355322
Fax: 0845 2808777

http://www.thetimebank.co.uk


UK Residential Property as an investment asset class

Investors who want to try and get in at the bottom of the housing market will find plenty of  property funds to cater for their needs. Tony Sanchez, director of alternative investment consultancy Clara Capital, explores the prospects for UK residential property funds.

Since the beginning of the year and even before, cool-headed professional investors have been slipping quietly back into the UK’s battered residential property market to pick through the wreckage of distressed re-sales and deals from desperate developers. Now, as the monthly house price statistics finally indicate that the market appears to have troughed, private investors are starting to look with renewed interest at the potential for getting in at the bottom – and a raft of specialist property funds has been launched to cater for their needs.

The fundamentals are certainly interesting. According to Land Registry figures, average prices in England and Wales had fallen 17 per cent from their high point around November 2007 to April this year, since when there has been a small recovery. But prices are still down more than 15 per cent on the peak.

Whilst the Nationwide House Price Index disappointed homeowners with August‘s number; showing a drop of 0.6% for the month, over the last 12 months the index has been stable (just 0.4% lower) and over varying time periods this barometer of UK residential property has outperformed the benchmark FTSE 100 – most starkly since the start of the new millennium. This UK residential property outperformance vs. the FTSE 100 holds true also if you are to start the comparison from 1990 or even from the early 80s (Nationwide Index is up nearly 560% since 1984 vs. FTSE 100 up just over 500%). This outperformance has also come with lower volatility than stock market returns and volatility in the stock market is likely to persist.

Global equity markets will likely remain volatile whilst the European peripheral crisis remains unresolved and ‘the Street’ continues to reassess global growth prospects (note the recent multiple percentage point swings intraday in equity markets around key macro data points e.g. manufacturing surveys from Philadelphia and Chicago)… In Europe, near term political risks surrounding the approval of the EFSF by national governments and longer term the drag of austerity, slow growth and possible restructurings (namely Greece) could sustain recent volatility. With globalisation, free trade and free capital markets amongst other things, global stock market indices are highly correlated – the UK property market is less so and thus offers investors benefits in a multi-asset portfolio even if equity market exposure is global.

There has also been a big change in the investment market since the beginning of the year, with a substantial number of high net worth investors with cash – many of whom have never held residential property before – taking the view that bricks and mortar are now a very good investment.”

There are several other big pluses as far as investment via a collective investment scheme is concerned. First, although these funds are only available to ‘sophisticated investors’ through financial advisers, they provide access to a portfolio of properties. For relatively cautious investors, that’s vastly preferable to tying up large sums of money in a single, illiquid asset.

Second, at a time when buy-to-let investors may be deterred by the difficulties of finding a large enough mortgage deposit, some funds offer geared exposure without having to go down that route at all. And third, unlike direct property holdings, residential property fund investments can be bought and held tax-efficiently as part of a self-invested personal pension (Sipp).

What’s on offer

Walls & Futures London Growth Fund

A development fund investing in residential properties in Prime Central and South West London. It has a target return of 10.49% IRR over its five year life.

Returns are generated by adding value to period properties through refurbishment and redevelopment and further enhanced by rental income and capital growth. This approach carries significantly less risk than relying on market movements.

Rather than taking a scatter gun approach and investing throughout the UK the fund is targeting very specific locations in London where prices have remained robust despite the economic downturn. Land Registry data shows that prices in the funds target locations have risen by 29% between Jan 2007 and July 2011 while prices in England & Wales have fallen by 5.7%.

The reason for this is that Prime Central & South West London suffers from a chronic demand and supply imbalance. The Mayor of London has a target of delivering 32,250 new homes per annum until 2021, however according to the Savills, completions stand at just over 18,000.

The shortage is further exacerbated by overseas demand. An estimated £2.7bn was invested in Prime Central London and £2.2bn in South West London in 2010 from international buyers.

Joe McTaggart, Managing Director at Walls & Futures said:

"Our strategy and expertise are already paying dividends. Having successfully closed the first round of fund raising in May, we have already started making investments which have resulted in an increase in the funds value. This is obviously good news for our investors, a great number of which are IFA’s themselves”

The fund is still open to new investors with a minimum investment of £5,000. Along with direct investment, the fund is available on Ascentric, Nucleus and Transact wrap platforms and has been accepted for investment by over 25 leading SIPP providers.

WHCM UK Residential Opportunities

White House Asset Management Ltd. have created the WHCM UK Residential Opportunities LP, a growth fund, which offers IFAs clients an opportunity to invest in UK based residential property either directly or through a pension. Through exposure to residential property, the fund aims to provide investors with the opportunity to create a balanced portfolio by investing in an actively managed asset backed investment.

White House Asset Management Ltd.’s competitive advantage is derived from its Directors considerable real estate experience, which covers development, acquisitions and disposals, property appraisal and active asset management of property nationally. Combined, the Directors have over 48 years of property experience and have been involved with property deals totalling £375m.

The WHCM UK Residential Opportunities LP fund seeks to acquire UK property through auction and a network of contacts at up to 40% discount to their open market value. The property portfolio will consist of c70% rental properties and c30% refurbishment opportunities and is designed to produce a target return of 12% pa over the 5 year term.

Mark Brooker, a Director at White House Asset Management Ltd. said:

"The timing of this fund is perfect, as property values remain low and rental demand is increasing. This is largely due to the fact that many mortgage providers continue to have stringent lending criteria and low liquidity. The UK recession continues to have a huge impact on property prices. There is an opportunity to acquire properties at favourable prices. Many buyers, developers and landlords are being forced to sell properties as "distressed sellers”, so there is an opportunity to purchase properties at up to 40% below market value.”

Black Katz London Residential Property Fund

Estate agency Black Katz has unveiled plans to raise £4.5m for a five year closed-ended property fund that will aim to buy undervalued properties in London.

The fund will refurbish the properties and then let them to professional tenants to try and generate high income levels, before selling them all in the latter part of the fifth year.

The London Residential Property fund will target net returns of 12 per cent for investors.

It will be administered by Gallium Fund Solutions and will target both high income on its properties and capital growth over the investment term.

It will adopt "moderate non-recourse gearing” of £6.5m on top of the client investments, taking the total targeted fund size to £11m.

The directors of Black Katz will be invested in the fund.

Director Andrew Black said:

"We have a proven track record in the London market of sourcing and refurbishing property for maximum rental income and capital growth.”

Quantum Residential Recovery Limited Partnership

The Quantum Residential Recovery Fund (the "Fund”) offers qualifying investors the opportunity of capitalising on current market conditions in the UK residential property market. The Fund Manager is targeting a net return to investors of 20% per annum which is reflective of the attractive property stock price available to the Fund. Due to this key factor whereby the Fund Manager is buying at a discount against today’s valuation rather than any historical reference, returns are not reliant upon unrealistic growth expectations in the market.

The Fund successfully reached its first closing target on the 31st March 2011 with £465k raised from private investors. A number of acquisitions are now underway and the Fund Manager expects to be able to show interim returns on a regular basis. No payment is to be made through dividends with all gains made from rent and capital returns being reinvested back into the Fund so as to expand the portfolio and ultimately increase the return on investment at the end of the Fund term.

Structured as a five year closed end fund the minimum capital commitment is set at £5,000 and the Fund is suitable for investment through Self-Invested Personal Pensions (SIPP) and Small Self Administered Schemes (SSAS).

Urban Share Opportunity Fund

The Urban Share Opportunity Fund offers a portfolio of student and young-professional accommodation in and around the City of London & Canary Wharf. To date, £1m has been raised out of the Urban Share Opportunity Fund’s £10m target.

The properties will be bought with cash and then geared at 50 per cent to maximise the profit made, said Urban Share.

This will be used to buy around 50 below market value properties in London’s zone one and two that will then be let to students and young professionals.

The fund will run for 10 years and will target an international rate of return of 11.33 per cent with the expectation of returning investors’ money plus 70 per cent over the term of the fund claimed Urban Share.

The fund has a minimum subscription of £25,000.

Urban Share believes that the UK residential market has shown lower volatility and higher growth than UK equities over the last five, 10 and 20 years.

Richard Klin, founder and director at Urban Share, claimed there is enormous demand for this sort of accommodation and the sector has continued to return consistent yields.

He said: "The fund provides hassle-free exposure to a London residential property market predicted to increase by 38 per cent by 2015.”

Unregulated Collective Investment Schemes (UCIS)

All of the UK Residential Property Funds mentioned in this article are structured as UCIS.

Every fund structured as a UCIS must have a firm authorised by the Financial Services Authority to act as its ‘operator’. This is because establishing, operating or winding up a collective investment scheme is a regulated activity and carrying out the activity without the proper permissions is a criminal offence.

The Financial Services and Markets Act 2000 makes it an offence to market an unregulated collective investment scheme to the public. Under FSA guidance, ‘marketing’ is given a very broad construction and it can mean any communication which might lead directly or indirectly to an investment. When looking at the meaning of ‘the public’ the following types of investor are excluded:

Investment Professionals; being:

    • Authorised persons
    • Exempt persons (not including Appointed Representatives but including professional firms)
    • Investors whose ordinary activity is investing in unregulated collective investment schemes
    • Governments, local authorities and international organisations
  • High Net Worth Companies and Unincorporated Associations
  • Sophisticated Investors with a certificate signed by an authorised firm (other than the scheme’s operator); and
  • Members of associations predominantly made up of exempt investors.

There is an additional set of rules which have been created by the FSA allowing a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

  • individuals for whom the scheme is assessed as "suitable” (usually by a financial adviser); and
  • individuals for whom an assessment of experience, expertise and knowledge is undertaken (usually by a financial adviser or the scheme’s operator) and the scheme deemed "appropriate”.

In these cases, the scheme can be promoted to a potential investor on the basis that they will not be allowed to invest unless they successfully complete the assessment (which may occur after the promotion has been made). In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person. In practice, this means that an unauthorised firm using an approved document can promote a scheme beyond certified investors, as long as the operator of the scheme (or another authorised firm, such as an IFA) will make assessments of potential investors and filter out any inappropriate applications).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading. Summary documents can be used, but these also have to meet the rules and must be consistent with all of the other information given to investors.


Bridging Finance as an investment asset class

Clara Capital investigates bridging finance funds as an alternative income strategy.

Following the sharp reduction in mortgage availability and traditional secured lending streams, the demand for short term loans has increased substantially over the past two years. Known as bridging finance, the aim is to ‘lend where the banks are not’.

A classic illustration is a typical auction purchase: the purchase is made and the deposit is paid, yet a bank is not able to lend the required funds within the 28 days needed to settle.

Bridging finance companies generally complete a deal within seven to ten days, enabling the borrower to complete the purchase and repay the loan as a result of refinancing or the sale of the property.

All very well, but the short-term nature of the bridge and the speed in which a decision is made makes them expensive loans. This is where the investment potential lies.

A number of funds have been established to offer investors a share of the interest gained on each loan. With target returns of up to 12% per annum, it is a concept certainly gaining traction.

High Returns

The Montello Income fund, offered by Montello Bridging Finance, has reported significant interest of late. Managing director, Christian Faes, said this is not surprising considering the ongoing problems in the lending market.

He said: "As time goes on people realise the high street lending market is not going to open up over night. We are a number of years into the crisis yet people are still taking many months to obtain loans. The longer that goes on, the more people look for ways to capitalise on it.”

For Faes, the ideal investor is someone sitting on cash, looking for a higher return than they are getting from their bank. The fund claims to provide investors with a fixed return of 8.5% per annum, payable quarterly in arrears.

Connaught Income Fund Series 2

Similarly, Connaught Asset Management offers the Connaught Income Fund Series 2 (Series 1 is now closed to new investment) alongside specialist partner and bridging finance provider, Tiuta. According to new funds director, James Allen, the vehicle is an ideal portfolio diversifier, with low correlation to traditional asset classes and offers a gross annual return of 7.5%.

UK Secured Finance Fund plc

The UK Secured Finance Fund plc, an Isle of Man OEIC, aims to deliver the respective target return for each share class through the creation of funding for short term commercial finance to the professional property community in the UK, where major banks may also participate in the loans provided by the Fund.

Loans to be used exclusively for property investment with typical borrowers being successful property investors and professionals with extensive net worth in addition to the projects being financed.

High level of security with a maximum loan to value of 70% supported by a current RICS valuation. Rigorous lending policy overseen by an Investment Adviser comprising of experienced bank and property professionals. The finance is aimed at the professional sector and does not expect to suffer any defaults. No Sub prime borrowers or owner occupied properties will be considered under any circumstances.

The available share classes are:-

Series One, 12% Targeted Return Share Class "Series One”

Series Two, 10% Targeted Return Share Class "Series Two”

Business Lending Secured Income Fund

The Business Lending Secured Income fund is designed to provide a 9.1% gross annual income fund by making short and medium term development loans to experienced property developers. They boast a top class management team with over 100 years experience in sector and a highly experienced compliance and regulatory board. The income return is distributed quarterly.

Bridgebank Firmus Flexible Income Fund

The Bridgebank Firmus Flexible Income Fund offers prospective investors the opportunity to invest indirectly into Bridging Loans, Short-term Loans, Short-term Commercial Mortgages and Short-term Second Charge Loans. Loans in the target sectors typically offer a premium rate of interest compared to long-term mortgage loan products.  The Fund aims to pay an attractive annual return of 7% over the London Inter-Bank Offered Rate ("LIBOR”) per annum.

We also understand that Bridgebank Capital is the specialist lending partner for the following funds:

Bluegate Secured Income Fund Series 1, which aims to pay investors a target return of 9% per annum.

Bluegate Secured Income Fund Series 2, which aims to pay investors a target return of 6% in year one, 7% in year two and 8% in year three onwards.

Sycamore V Property Development Fund

The Sycamore V Property Development Fund allows investors to invest indirectly into a range of projects within the UK comprising residential developments with planning permission already in place and land sites with an identified development potential.

PM Asset Management will create a portfolio of projects through the acquisition and development of a number of sites. All sites that are acquired by the Fund with planning permission in place, will be developed. Where sites are purchased without planning permission in place, planning permission will be sought for residential, commercial or leisure usage as appropriate. The site will then be sold or developed, with a view to sale after development, whichever, in the opinion of the Asset Manager, is in the best interests of the Fund.

The fund is a seven year closed ended fund with distributions in years 3, 5 and 7. The target return for the fund is 22.5% per annum.

Unregulated Collective Investment Schemes (UCIS)

All of the bridging finance funds mentioned in this article are structured as UCIS.

Every fund structured as a UCIS must have a firm authorised by the Financial Services Authority to act as its ‘operator’. This is because establishing, operating or winding up a collective investment scheme is a regulated activity and carrying out the activity without the proper permissions is a criminal offence.

The Financial Services and Markets Act 2000 makes it an offence to market an unregulated collective investment scheme to the public. Under FSA guidance, ‘marketing’ is given a very broad construction and it can mean any communication which might lead directly or indirectly to an investment. When looking at the meaning of ‘the public’ the following types of investor are excluded:

Investment Professionals; being:

    • Authorised persons
    • Exempt persons (not including Appointed Representatives but including professional firms)
    • Investors whose ordinary activity is investing in unregulated collective investment schemes
    • Governments, local authorities and international organisations
  • High Net Worth Companies and Unincorporated Associations
  • Sophisticated Investors with a certificate signed by an authorised firm (other than the scheme’s operator); and
  • Members of associations predominantly made up of exempt investors.

If the scheme invests wholly or predominantly in unlisted companies, authorised firms can promote it to High Net Worth Individuals and Sophisticated Investors who have self-certified. However, there is no such exception for unauthorised firms or for schemes that invest in other asset classes, such as real estate. Where the investor is certified, the promoter must ensure that the certificate is current and relevant before promoting the scheme to them. For Investment Professionals and High Net Worth Companies, the promotion can be made as long as it ‘may reasonably be regarded as being directed’ only at such investors and there are procedures in place to ensure that recipients not falling into these categories are prevented from investing.

There is an additional set of rules which have been created by the FSA allowing a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

  • individuals for whom the scheme is assessed as "suitable” (usually by a financial adviser); and
  • individuals for whom an assessment of experience, expertise and knowledge is undertaken (usually by a financial adviser or the scheme’s operator) and the scheme deemed "appropriate”.

In these cases, the scheme can be promoted to a potential investor on the basis that they will not be allowed to invest unless they successfully complete the assessment (which may occur after the promotion has been made). In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person. In practice, this means that an unauthorised firm using an approved document can promote a scheme beyond certified investors, as long as the operator of the scheme (or another authorised firm, such as an IFA) will make assessments of potential investors and filter out any inappropriate applications).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading. Summary documents can be used, but these also have to meet the rules and must be consistent with all of the other information given to investors.


New bridging loan directory goes live in UK

The first ever financial directory of its kind has been launched online in the UK to help bridging and commercial loan experts to find the best deal for their clients.

Online directory www.bridgingloandirectory.co.uk is aimed at IFAs, mortgage brokers and lenders that are serious about securing fast and effective solutions for short term finance.

The site offers a comprehensive list of key companies specialising in bridging loans and interim commercial finance for a multitude of purposes – from property development to buying a new house or paying an unexpected tax bill – so that intermediaries can select bespoke solutions for their customers.

Tony Sanchez, founder of the Bridging Loan Directory, part of the Clara Capital group, said:

"A mainstream bank may take some months to put together a loan for a borrower, whereas an experienced bridging finance company should be able to advance a loan within a couple of days.

"In the current climate, demand for bridging and commercial finance continues to grow and so the Bridging Loan Directory is keen to offer brokers and intermediaries access to some of the most trusted and reliable providers in the marketplace today.”

Well-known companies featured on the ‘yellow pages style’ directory website include London-based Borro whose introducer programme allows IFA’s, mortgage brokers, accountants, solicitors, lawyers, wealth managers & tax advisors to offer short term loans of £1,000 to £1,000,000.  All loans are non-status and secured against jewellery, luxury watches, gold, fine art, antiques, luxury cars, yachts, speedboats and other high value assets.

Approval in Principle (AIP) is provided in minutes and cash is advanced within 24 hours. There are no credit checks or extension, redemption, expiry or penalty fees for clients

Bridgebank Capital – one of the UK’s leading property finance lenders in the area of Bridging and Short Term property – is another directory entry, specialising in residential and commercial property transactions.

Laurence Goodman, MD at Bridgebank Capital, of Manchester, said:

"We provide property funding when it is needed the most and this can often be arranged in just seven working days.

"The Bridging Loan Directory is the who’s who of the finance world because it brings together the industry’s most notable companies in one place – making life easier for advisers and intermediaries.”

Mr Sanchez added:

"Bridgers and commercial financers are fulfilling a real need in today’s economic environment, where appetite to lend amongst the mainstream community is still low.

"While a bridging loan is advanced to a borrower in a much shorter time-frame than a traditional bank loan, most bridging finance companies will still carry out the same level of checks on the transaction as a bank, including obtaining an independent valuation on the property, and conducting due diligence on the borrower’s circumstances.

"Bridgingloandirectory.co.uk is a quick and simple tool to assist providers in finding the right financial products for their clients – with instant decisions and direct access to funds.”

You can visit the Bridging Loan Directory here


IFAs - Treating Customers Fairly is a waste of time.....

By guest author Jon Pittham, director of Clientsfirst.

The statement on your website and in your brochure says:

'We're committed to treating customers fairly'.

What a shocking statement!  Put yourself in the prospect or client's shoes - they don't know what TCF is, why should they?  Yet they read on your website or brochure that you are 'committed' to treating them fairly.  Based on that, I bet they'd love to be a client of yours!

I suppose that treating customers fairly is kind of a good thing if they are about to trust you with their life savings, but hey, I think I'd expect a bit more than that.  After all, being treated fairly should come as standard, shouldn't it?

Can you imagine entering into a long term relationship with someone to whom you are probably going to pay a great deal of cash, for them to say they promise to treat you fairly.  Oh, well that's nice but no thanks.

I'd prefer to work with someone who will make a difference, treat me like I'm special and commit to delivering service and advice excellence.  A firm that's committed to delivering excellence perhaps - now that's more my language...

TCF is an FSA initiative aimed at advisers, not clients, yet it is regurgitated with the expectation that clients will understand it.  Scary eh, the FSA are now delivering your marketing (it's all part of their master plan)!  This is no different to taking Provider or Investment house commentary and technical updates and forwarding them on to clients as 'news', another no-no in my book...

Your clients want your opinion, your thoughts, to trust you and to feel like they're with the best adviser in the UK.  Make your marketing, proposition and communications suited to their world, not yours.

I think clients deserve to be treated a little better than fairly, don't you?

John Pittham

Clientsfirst


What is the Campaign to make pensions less boring?

                                                                                                                          





By guest author John Fox, director Liberty SIPP

As well as a blatant attention grabbing catchphrase, it is an attempt to get the message out that pensions aren’t necessarily mind-numbing and that while thoughts of growing old aren’t at the forefront of most people’s mind and can be a bit of a turn off - you’ve got to do something; nobody is going to do it for you and its quite clearly not safe anymore to say "well my home is my pension” when we’ve all seen the arse fall out of the housing market.

There is a way to build up a pension fund that is tax efficient and when clients realise (I’ve seen the penny drop on many occasions) that they can invest in assets that they understand and have a working knowledge of, developing a fund for their retirement can be quite fun.

We feel that people have been somewhat brainwashed / subconsciously drugged by the "old” pensions industry to think "well I don’t want to think about growing old but there’s a nice man over there who I can give my £100 a month to – he quite clearly knows what he is doing, I can trust him and the big insurance company he works for” – Equitable Life anybody? What about this one - Life companies heavily and lazily skewed towards the FTSE or who have put money into property funds which have suddenly become illiquid simply because the portfolio wasn’t diverse enough? Nobody saw the credit crunch coming but there were too many eggs were in too few baskets not to take a sizeable hit. 

Put quite simply people have been there, done that, been let down and are now looking for something else – and they want to do it themselves. 
 
For too many years clients have had low expectations about their pensions; they’ve put too much trust in the dinosaurs of the pension world making investments for them and effectively crossing their fingers, hoping for the best and only finding out once a year how their fund has performed – it doesn’t have to be this way.

Our clients are able to work with us and their advisors to put together a pension portfolio on their terms, at their direction and within their comfort zone.

We want to dispense with the historic haze of confusion that has been encouraged to obfuscate fees, narrow options and make the customer think that their pension doesn’t belong to them.

Participation, accessibility and simplicity is the way forward and boredom is replaced with added interest.

John Fox
Liberty SIPP

What makes a good Bridging Finance Fund?






By guest author Graf Promotions Limited.

All Bridging or Property Finance Funds are not the same. Below are a list of the features we believe are essential to help evaluate the strength of each proposition.

1) First Charges only
The first charge holder has all the control, a second charge holder has whatever is left over. A first charge holder controls the realisation of the security and acts to their own interest. This greatly exposes the top slice of the valuation and indeed interest and recovery costs may also increase the size of the loan secured by the first charge, to the detriment of the second charge holder.

2) No owner occupier loans/loans on family homes
Nobody would wish to see a family evicted and the courts may reject or defer an application rendering the security of little immediate value. The FSA regulates to ensure families are protected, therefore many lenders seek this regulation only to be able to take such security. Such protection is excellent for the borrower, not so for the provider of the finance, i.e. the Fund investors. Therefore, funds or investment advisers that can grant homeowner loans should be avoided.

3) Run by Banking Professionals with relevant experience
Not all with "banking” experience have actual decision making and loan underwriting experience. Granting loans is simple, however creating the process to do so and to ensure loan repayment is more complex and therefore it is essential that those creating and running the processes have the necessary experience.

4) Absolute maximum of 70% loan to value should be permitted
This gives the borrower a stake in the transaction, the fund a cushion against falling property values and the ability to achieve a forced sale quickly yet still clear the borrowing should the need arise. Avoid "averages”, limits should be absolute.

5) Short Term Loans should be just that, less than one year
The longer the term, the lower the liquidity, the less accurate the valuation and therefore the greater the risk. Extensions are inevitable but should be few and treated and evaluated as new loans. A clear assessment and understanding of the revised exit strategy remains paramount.

6) Loans should be repaid regularly
Short term loans need to be repaid, are these repayments in line with the number of loans granted. An established fund with 100 loans and an average term of 6 months should show approximately 50 loan redemptions per quarter, if it doesn’t, ask why not!
 
7) No misleading material
Literature should be clear, factual and meaningful without irrelevance’s that sound positive.

8) Regulatory requirements & Investor protection
Does the fund do the minimum it needs to or is it keen to have extra rules and checks in place clearly for the benefit of investors?

9) Good Corporate Governance and a majority of independent directors
Funds have a higher level of regulation than partnerships due to the essential requirement of an independent & regulated custodian. Funds should also be more transparent and as such it is easier to conduct meaningful Due Diligence.

10) No loans to connected parties
Is this prohibited and who is in place to check that it doesn’t occur ?


We believe the key to profitable bridging finance funds is that loans are well secured and genuinely short term in nature. In order to achieve an ongoing stable and sustainable return from funds which generate their profits from providing short term property finance it is essential that;

a)    the asset manager has a successful track record of decision making, underwriting in the short term lending sector and securing repayment;

b)    potential borrowers are experienced & wealthy property professionals with reputations to uphold and expertise to provide clear & reliable exit strategies rather than buy-to-let investors or members of the public,
   
 c)    acceptable security always on a first charge basis and never to exceed 70% LTV
        supported by an independent and current RICS valuation.


The UK Secured Finance Fund Plc (the "Fund”) has been established and structured to
comply with all these requirements.

For further information please contact the UK distributors:

www.gasfunds.co.uk


The points above are the views of Graf Promotions Limited, promoter to the Fund. For UK purposes, it is an Unregulated Collective Investment Scheme. This does not aim to be a complete description of bridging finance nor the Fund.

The Fund is a Qualifying Fund and complies with the requirements of the Isle of Man Collective Investment Schemes (Qualifying Fund) Regulations 2010 (the "Regulations”).

The Fund is only suitable for "Qualifying Investors” as defined in the Regulations. Shares are only available to persons whom Capital Fund Services Limited ("CFSL”), the Manager, considers to be Qualifying Investors. Investors into the Fund must sign a declaration to this effect which can be found on the application form. CFSL was incorporated in the Isle of Man with the number 123464 whose registered office is Capital House, Circular Road, Douglas, Isle of Man IM1 1AG and is licensed by the Isle of Man Financial Supervision Commission.

The value of any investment into the Fund can go down as well as up, neither investor’s capital, nor the returns are guaranteed, and that investors may not get back the original amount of their investment. Past performance is no guarantee of future returns.

This fact sheet has been prepared by the Promoter for IFA and Industry Professional use only . It does not represent an invitation to purchase shares in the Fund and investors will only be accepted on the basis of having confirmed on the application form that they have read and understood the Offering Document of the Fund dated 17th December 2010 which, in the event of any discrepancy shall prevail at all times over all other documents.

Occupational Retirement Benefit Scheme

Occupational Retirement Benefit Scheme (ORBS)

WHAT IS IT?
In its simplest form this is a pension scheme that has been designed to provide shareholding directors of a company with the maximum amount of flexibility in their pension planning at the same time generating qualified tax breaks either for the company or the individual yet still providing valuable pension benefits for retirement.

CURRENT UK SITUATION
The Government have recently introduced changes to current pension legislation, which has important consequences in particular for entrepreneurs.  As of April 2011, the maximum contribution that may be made either corporately or personally is £50,000, but with the option to carry back up to 3 tax years.
This means that up to £200,000 could be contributed to a pension plan for each director, all of which should be deductable against corporation tax in the 2011/12 tax year (Corporation tax currently at 29.75%)
As from April 2012 it has also been announced that the maximum an individual can hold in pension funds is £1.5m.

SO WHY AN ORBS FOR MY PENSION?
Traditionally most company directors and entrepreneurs have used either Self Invested Personal Pensions (SIPP) or a Small Self Administered Scheme (SSAS) for their pension contributions, but both structures are restrictive, particularly in terms of re-investing back into either their own or a new business venture.  As a consequence, any pension contributions tend to be small as often company cash flow does not permit larger contributions as capital is effectively tied up.
The ORBS helps to resolve this problem in a number of unique ways, which allows for the larger contributions without necessarily affecting cash flow, while providing an effective low risk tax planning strategy.
                                                                         
CAN I USE MY EXISTING PENSIONS IN MY BUSINESS?
The ORBS is a fully registered scheme with HMRC so can receive transfers from existing pension schemes that may be held.  These monies can then be used within the structure, to help the business grow or help with business acquisition and even commercial property purchase.  The ORBS pension structure has been designed to provide maximum flexibility whilst adhering to current pension rules.

WHAT IF I SELL THE BUSINESS OR WANT TO RETIRE?
All of the funds in the ORBS belong to the members and will have been allocated according to members direction.  All members are free to make their own investment decisions and take retirement benefits when they wish to do so, subject of course to the minimum retirement age of 55 in the UK.

DOES THE ORBS PROVIDE ACCESS TO TAX FREE CASH AND INCOME FLEXIBILITY IN RETIREMENT?
In short yes, a member can access up to 25% of their fund as tax free cash, whilst also providing access to, "income drawdown” or "scheme pension facility” to provide maximum flexibility for retirement planning.

IN SUMMARY

•    Fully registered pension with HMRC
•    Highly flexible business planning opportunity
•    Tax relief on contributions
•    Accepts transfers from existing pension plans
•    Total flexibility in retirement

For further information on how an ORBS can be used for effective low risk tax planning please contact us

Self-invested Personal Pensions

By guest author Frank O'Donnell of P3 Wealth.

Self-Invested Personal Pensions (SIPPs) have been around since 1989, but after the introduction of Pension Simplification legislation on 6 April 2006, they’ve become more accessible.

If you would like to have more control over your own pension fund and be able to make investment decisions yourself with the option of our professional help, a SIPP could be the retirement planning solution to discuss with us.

What is a SIPP?

A SIPP is a personal pension wrapper that offers individuals more freedom of choice than conventional personal pensions, however they are more complex than conventional products and it is essential you seek expert professional advice.
They allow investors to choose their own investments or appoint an investment manager to look after the portfolio on their behalf.

Individuals have to appoint a trustee to oversee the operation of the SIPP, but having done that the individual can effectively run the pension fund on his or her own.
A fully fledged SIPP can accommodate a wide range of investments under its umbrella, including shares, bonds, cash, commercial property, hedge funds and private equity.

How much can I contribute to a SIPP?

Many SIPP providers will now permit you to set up a lump sum transfer contribution from another pension of as little as £5,000, and while most traditional pensions limit investment choice to a short list of funds, normally run by the pension company’s own fund managers, a SIPP enables you to follow a more diverse investment approach.

Most people under 75 are eligible to contribute as much as they earn to pensions, including a SIPP (effectively capped at £255,000 each tax year). For instance, if you earn £50,000 a year you can contribute up to £50,000 gross (£40,000 net) into all your pension plans combined in the 2010/11 tax year.

If your total annual income has reached £130,000 since April 2008, you may experience further restrictions on the amount you can contribute and obtain higher or additional rate tax relief.

The earnings on which you can base your contribution are known as Relevant UK Earnings. If you are employed, this would generally be your salary plus any taxable benefits. If you are self-employed, this would normally be the profit you make (after any adjustments) for UK tax purposes.

Even if you have no Relevant UK Earnings, you can still contribute up to £3,600 each year to pensions. Of this the government will pay £720 in tax relief, reducing the amount you pay to just £2,880.

Even if you have no Relevant UK Earnings, you can still contribute up to £3,600 each year to pensions. Of this the government will pay £720 in tax relief reducing the amount you pay to just £2,880.

Can I transfer my existing pension to a SIPP?

Before transferring to a SIPP it is important to check whether the benefits, such as your tax-free cash entitlement, are comparable with those offered by your existing pension. Make sure, too, that you are aware of any penalties you could be charged or any bonuses or guarantees you may lose.

If you have had an annual income of £130,000 or more since April 2007 and make regular contributions to a pension, changes announced in the 2009 Budget could affect you. Switching regular contributions to a new pension may mean future regular contributions are subject to a £20,000 limit.

A SIPP will typically accept most types of pension, including:

- Stakeholder Pension Plans
- Personal Pension Plans
- Retirement Annuity Contracts
- Other SIPPs
- Executive Pension Plans (EPPs)
- Free-Standing Additional Voluntary Contribution Plans (FSAVCs)
- Most Paid-Up Occupational Money Purchase Plans

Where can I invest my SIPP money?

You can typically choose from thousands of funds run by top managers as well as pick individual shares, bonds, gilts, unit trusts, investment trusts, exchange traded funds, cash and commercial property (but not private property). Also, you have more control over moving your money to another investment institution, rather than being tied if a fund under-performs.

With a SIPP you are free to invest in:

- Cash and Deposit accounts (in any currency providing they are with a UK deposit taker)
- Insurances company funds
- UK Gilts
- UK Shares (including shares listed on the Alternative Investment Market)
- US and European Shares (stocks and shares quoted on a Recognised Stock Exchange)
- Unquoted shares
- Bonds
- Permanent Interest Bearing Shares
- Commercial property
- Ground rents in respect of commercial property
- Unit trusts
- Open ended investment companies (OEIC)
- Investment trusts
- Traded endowment policies
- Warrants
- Futures and Options

Once invested in your pension the funds grow free of UK capital gains tax and income tax (tax deducted from dividends cannot be reclaimed).

Why would I use my SIPP to invest in commercial property?

Investing in commercial property may be a particularly useful facility for owners of small businesses, who can buy premises through their pension fund. There are tax advantages, including no capital gains tax to pay, in using the fund to buy commercial property.

If you own a business and decide to use the property assets as part of your retirement planning, you would pay rent directly into your own pension fund rather than to a third party, usually an insurance company.
Ordinarily, a business property will, assuming that its value increases, generate a tax liability for the shareholders or partners. Unless, that is, you sell the property to your SIPP. Then the business can pay rent to your pension fund, on which it pays no tax, and any future gain on the property will also be tax-free when it is sold.

What are the tax benefits of a SIPP?

There are significant tax benefits. The government contributes 20 per cent of every gross contribution you pay – meaning that a £1,000 investment in your SIPP costs you just £800. If you’re a higher or additional rate taxpayer, the tax benefits could be even greater. In the above example, higher rate (40 per cent) taxpayers could claim back as much as a further £200 via their tax return. Additional rate (50 per cent) taxpayers could claim back as much as a further £300.

When can I withdraw funds from my SIPP?

You can withdraw the funds from your SIPP between the ages of 55 and 75 and normally take up to 25 per cent of your fund as a tax-free lump sum. The remainder is then used to provide you with a taxable income.

If you die before you begin taking the benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of Inheritance Tax. Other tax charges may apply depending on the circumstances.

What else do I need to know?

You cannot draw on a SIPP pension before age 55 and you should be mindful of the fact that you’ll need to spend time managing your investments. Where investment is made in commercial property, you may also have periods without rental income and, in some cases, the pension fund may need to sell on the property when the market is not at its strongest. Because there may be many transactions moving investments around, the administrative costs are higher than those of a normal pension fund.

Frank O'Donnell
P3 Wealth

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