Loz Gee

Okay, let’s get going. A very, very warm welcome to you all this morning. This is our second ever webinar, and the first one for 2021, we’re really excited to talk to you today.

We’ve got a little bit of disjointedness because none of us are together at the moment, as I’m sure you can understand. So thank you, Tim for clicking through the slides. So here’s the small print. So we’ll just leave this up here for a little bit so you can see our disclaimer, and then we’ll go on to the interesting stuff. The agenda today, we’re looking at about 30 minutes to speak with you and we’ve got a little section on about us. For those that aren’t currently working with us, or haven’t spoken to us before. I think it’s really nice for you to understand who we are, what our goals are as a business and there’s a beautiful photograph of us all so you can put faces to names. We’re looking at half an hour, this may run over if we have lots of questions, which I hope we do. There is a question and answer section that you can post your questions to so I’ll keep my eye on that and I’ll ask those questions to the guys towards the end of the webinar. So as I say, please do post those on there. First of all, we’re going to have a session with Adrian Mee on our financial planning looking at how we conduct a financial planning session. I know some of you that are on the webinar today have experienced this and we’ll show you the document that we use to run through a financial plan and then Ben Wattam will be going through an investment piece and talking through how he sees the world at the moment, looking back at 2020. Really interesting session coming up with Ben and then I’ll go through the question and answer session and we’ll summarize at the end. So a little bit about us. Here’s that photo I did warn you. So if I go from left, if far left and far right if we go by the company name or the bottoms. They’ve got 70 plus years combined experience in the financial services industry and they established Wattam Kirby Mee in April last year, set up offices in Leicester, which is where I am right now. Unfortunately, we’re not able to all be together right now but we can’t wait to get back together in the office and crack on and feed ideas off each other. Our goal as a business is to help our clients, friends and family to achieve their financial freedom, enjoy their lives, and this could be to retire early, to work less I think we all like the idea of that, create a legacy or grow wealth or any of those or all of those. We, as I say the guys have 70 plus years combined experience. So they’ve got a lot of experience in doing that for clients that they’ve worked with before. I’m their first employee, I started in September last year, and I’m on board as the operations manager so really letting the guys focus on the client piece and I’m gonna get more involved in that as time goes on. So some of you may have already heard from me, and I’ll continue to help however I can. We really proud as a business to be part of the 1% pledge initiative, if anybody hasn’t heard of that, that’s where we give 1% of our time, product and profits. If you’d like any more detail on this, it’s on our website and we’re really proud to be part of that pledge. So moving on to Adrian Mee, where he’ll talk through our financial planning.

Adrian Mee

Good morning, everyone. This is my first virtual seminar webinar. So I’m hoping it goes well, for me technology side. What I wanted to look at today is look at financial planning. I started in financial services in 2001 and financial planning was markedly different, we just did not have as much technology around us back then, as we do now, which is assisting financial planning low end. But also that assistance can sometimes lead to some quite quick decisions that maybe we kind of regret later in life. So what I would like to do is just go through how I approach financial planning for clients, I’ll highlight some key areas that have changed most recently, and then we’ll move into some sort of look at ways of how that planning can be basically implemented over the next few months and years. So if we have a look, first off slide, number one, this is our financial plan. It’s a very simple document, but extremely powerful. It’s roughly six slides long and it’s not designed to be for one person. Very commonly, I have clients who are the individual in the family who takes control of family finances, and it tends to be that they kind of bear that on their shoulders, and they run with that plan but the plan isn’t really shared amongst the family. And it just seems a little bit sort of disjointed, that we would really like everyone in the family to know ‘a’ there is a financial plan, and ‘b’ what that kind of entails. We we do get instructed sometimes whereby the individual of the family has passed away and then we’re brought into to see exactly what they had, where they had it, and how it’s performing for those new beneficiaries, that kind of succession piece. Where we come from at Wattam Kirby Mee is that we really value that succession planning for clients and we want everyone in the family to understand exactly what the plan is, and what it’s designed to do. There’s no good having a plan that you think is very, very good for when it comes down to it. If no one knows how to implement it, it can be quite difficult. So first off, want to have a quick look and have a light-hearted example. We’ve cut Forest and Jenny Gump. I quite like my Tom Hanks movies. So I’ve just taken a couple of characters. This is an actual real live enquiry we are working with now at Wattam Kirby Mee. Two very successful individuals, mid 30s and have already amassed quite a lot of capital. And this slide here is just designed to almost eyeball their financial life in one go. What we have behind this is technology that if they become clients, we’ll be able to populate this document very quickly via our app where the client can actually load in their details for us. And we can actually then translate that into this sort of document. Even if they’ve got ISA’s with the likes of St. James’s place, it doesn’t matter, it will all feed through into our system, and we can see exactly where they are because sometimes having assets with different providers can work really well. In this example, you’ve got the pension pots of Forest and Jenny. They’ve got the classic mix, Forest has got about four personal pensions. He’s had a couple from previous employments, he’s put some of his own funds in as well and Jenny’s got two old company pension schemes. At a very young age, they have amassed quite a big chunk of capital. But what you’ve got there are six different companies involved for those clients and very likely six different investment strategies, which can be really, really difficult to kind of keep track of if you’re the client. If you look at 2020 with the investment returns. You’re looking at some very disjointed stock markets right now. You’re looking at the UK market being still 10%-15% below its peak of January 2001. Yet the American market is 10% above and naturally if your pension parts aren’t actively managed, and taken advantage of opportunity. It can be quite tricky. In the same breath, we can’t just transfer pensions around just to seek better performance because if we have something that has a very good intrinsic value for the future, we need to understand that because keeping it wherever it is, might just make sense and here we’re thinking of guaranteed annuity rates, anything with a defined benefit connotation for a final salary pension scheme, their transfer values might value very high at the moment, but their future value might be even greater. What we like to do is review those policies and understand exactly where we sit and translate it into this slide. I also put here in the bottom right hand corner, income, because without income, this planning doesn’t really work, because for this client, especially they have no life cover. So if anything went wrong, what happens to the assets in the family pots, and you’ll see that they’ll get rapidly drawn down against in that period of stress. So whilst they might be quite fortunate in having cash, ISA’s of £100,000, right now, and personal cash in the bank of £120,000, they’ll become quite constrained and quite cash poor, if that were to be an event. Just looking at the next slide, I like to put down some objectives and this is kind of on the softer side of life, you know, what do you actually want to achieve? I meet quite a few clients who actually understand that they know where they want to be from an age perspective and then most of them put this together by saying, well hey, I want to retire at 60 or 65, or 67. What if you could retire early, and still have exactly the same income you thought you were going to have, or maybe sometimes even more, I do have a running joke with some of my clients that I tell them, you could have retired last year. Now I understand if the passion in your life is running the business and keeping employed and doing what you do, because that is a very nice feeling to have, to be fully valued in the company that you’re either running yourself or you’re working for, but understand the value of how things can pay back to you and understand the tax system that’s working around you. Whereby we all know that when we’re receiving income from an employment, the tax on an income can be quite hard, you know, we’re going to see most likely in the budget, a small increase to the personal allowance, come budgets. Now, what that will mean is that when you earn above £100,000 now and you lose that personal allowance, that’s a 60% tax on income between £100,000 and £125,000 a year. If the personal allowance has expanded to say £15,000 a year, that tax trap will expand itself as well, to capture income from £100,000 to £130,000 a year taxable at 60%. That’s very expensive. It’s unusual, we’ll meet clients that have a need for a gross income of more than £100,000 pounds a year when we think of their expenditure. So actually making pension contributions to reduce your gross income below £100,000. If that’s saving you 60% tax, then that sounds like a really good idea. Factor in that when you come to retire from that employment, and you’re no longer receiving an income to your financial planner, all of those tax rates are now nicely come back into the four. So we can then start drawing pension income from your SIPP, or your SSAS or your Aviva personal pension for that matter, using those basic rates allowances. What would be quite handy would be to have them coming back to you and maybe only 10% 15% marginal tax rate, but you’ve saved at the 60% level. So before you’ve even made a start with the investment returns, as Ben will talk about later, you’ll have made some significant gains. Considering where you are now with cash ISA’s versus stocks and shares ISA’s, it isn’t as straightforward as saying, well, we just need to move our cash assets into equity ISA’s because cash ISA’s now the returns are so low, perhaps below 1% for a majority of cases and that might be the continuation for the next four or five years that Central Banks don’t really have an ability or an appetite to increase interest rates because they’re looking a bit apathetic about inflation. So if we consider the cash ISA’s will be low returners. Do we want to move them into equity ISA’s. And if we’re taking a 5-10 year view, with a medium risk client, maybe that’s something we’d entertain, we need to make sure that cash is there as an emergency assets. And there’s nothing wrong with having your cash ISA’s as your emergency pots. But for this example, in this client, it would not make sense to carry a personal cash account as well. So here looking at the next slide, we’ll kind of look at what do we think this client needs? Now at 36, it’s very difficult to kind of envisage what you’d be spending at the ages of 55 and beyond. But if we look at a pension pot example, if we had a hypothetical £1.6 million pot, split between two people, that becomes tax perfect. Because we have an £800,000 pot each, which will allow £200,000 tax free lump sum, then we have the residual fund of £600,000. Now, if we assume that we want to receive a 6% income from that pot a year, that’d be £36,000 pounds gross a year. If the pension scheme was growing at an investment return of 5% a year, which we’d hope to think will still be consistent for the next 25 years, that capital that £600,000 would last 36 years. So every year you’re spending some growth but also spending some capital. Again, that decumulation side of your retirement planning can be quite alien, because you’re now decumulating capital rather than increasing your capital base, which is what you’ve done your entire working life. That £36,000 worth of income at current rates, £12,5000 will be tax free, then the balance will be taxed at the basic rate tax. Add in the most people receive a state pension of circa £10,000 a year in retirement, their gross income in this example becomes £46,000 a year. So you’re not a higher rate taxpayer. You receive 60%, 40% or 45% tax relief in building the pension fund and you’re now paying a marginal tax back in retirement a 15%, 10%, sometimes even as low as 5%. Which is for me, that the whole nub of why we push into pension schemes, yes, tax exempt growth over that duration of its investment life is important but so is the tax system to draw the money back, factor in the pension funds are outside of your estate for inheritance tax, you can then sit quite nicely with this. Alongside I would advocate building up an ISA portfolio because whilst ISA’s don’t receive an upfront income tax relief, they will receive exemptions from income taxes and capital gains taxes throughout that life of the client. Again, yes, they’re inside your estate for inheritance tax planning. So perhaps that will be the first pot that we will draw against because everything we spend from that part, if we’re worried about inheritance tax is saving the next generation 40%. In this example, I’ve just put in red, the life cover, there is £500,000 worth of need here, because as we can see from their income, everything’s coming from the company and the company has no life cover for the key individuals, which is a bit of a red flag for us as planners, that if the company does not continue to do well, because the death of one of the key stakeholders, everything could be derailed in this financial planning and we wouldn’t be looking anything like these numbers in retirement. So here looking at that capital decumulation piece, again, not to go into the numbers, but to show that what we have here are four distinct areas of capital, we have a very small current account, because we appreciate that cash won’t make as much of an investment term moving forward. But this client, we have a general investment account, which is something that we’re investing capital into, above their pensions, above their ISA allowance into a portfolio where we can harvest their annual capital gains allowance. So as we’re taking use of that £12,300 annual capital gains, so is when we come into wanting that money back, we aren’t paying taxes to have it back. Here we can see these four kind of areas of capital, growing from ages 36, all the way up sort of 57/55, which is when we assume this client will start to retire. And then you can see the gradual progression of capital decumulating throughout that client’s life. This graph is not to predict the future. It won’t be what you experienced in retirement, but it’s to simply say, are we on track? If you’re receiving this amount of money from your pension scheme, this from the ISA’s, this from the investment account? Are we going to run out? Because I’ve only got two questions that clients should ever ask me. One, do I have enough capital to retire? And two, will the capital ever run out? Running this software through your existing investments and pushing it forward? With the tax planning, we can answer those two questions. So the last slide for our clients is looking at next steps. I love giving people homework. My clients will kind of echo with that kind of sentiment and it is serious that I need to hand over things to you to pass back to me. If you mentioned you’ve got a will and a power of attorney. Well, I want to see it. I want to review that every year. And I want to make sure that that still is a fit for purpose document. I am going to be an advocate of discussing more life cover, is there something that I’ve missed in that equation? Is there something else that we need to look at and evaluate? Do we need that much cash? Cash historically has been a great diversifier for the clients where the return was better than inflation. We’re entering an environment or maybe we’re going through an environment where the return on Cash is lower than inflation. So in a real world sense, cash is now costing us every year. Factor in that you never know we could have, rather than negative bank interests, we could have charges implied on cash accounts in the future, which would then make it even harder to hold cash. Lastly, really key is the engagement with other professionals. On my own, I’m good. As a financial planner, when I work with your accountant and solicitor, we’re unbeatable as a team, because we all know different parts of your history as an individual. So putting everything together creating a plan that’s been tested. and the idea of this document is so it can be shared with other professionals. So as you can see, whereby everyone’s on the same page understands their involvement, and understanding the end objectives. I hasten to add, this is a bit of a new document that we have created. So for some of my clients, you’ve not yet seen it yet, you will be seeing this in your next meeting. So now I’d like to hand over to Ben Wattam, who will go through his updates on the markets.

Ben Wattam

Thanks, Adrian, hopefully, you can all see me and hear me. Now, when are you presenting at these sorts of things, usually, I’m quite relaxed about it but yesterday I was I was showing a survey of people who had been on webinars. The participants said that 32% on the survey, people had fallen asleep during webinars, and 20% said that they’re actually prefer to book an appointment at the dentist than sit through another one. So that’s a pretty low bar, actually, for us to beat. So as long as the feedback we get less than 20% of you have booked a dentist appointment off the back of it, I’ll take that as a positive outlook. So we’ll start with just a review of 2020. 2020 was pretty much unlike anything we’ve seen before and there’s some really big lessons that we’ve had from looking back at 2020. The first one is just behavioural finance. I’ve talked about it before, it’s so important to understand your emotions when investing, because we saw markets fall really aggressively back in March and emotionally, it’s actually quite difficult to deal with. It’s actually more difficult last March, because of everyone was so concerned about health and the health of your friends and family. So almost your investing often became secondary and I think even if you look to time this really, really well and got out of markets last early February, I would argue the more important part and maybe the more difficult part was actually to get to reinvest, we saw loads of clients, when we launched last April, May, June time, putting the brakes on. A lot of clients didn’t feel comfortable with investing at that point and it’s often that short term emotion that holds people back. Also, 2020 was a very strange year, from an economic point of view, and one of the strangest bits of data you can find is on bankruptcies. So this shows UK and US bankruptcies going back to the 70s and in the UK, bankruptcies fell by about a third last year and they actually had the lowest number of bankruptcies since the 1980s in the UK. Clearly the level of government support has been really positive. But it’s creating problems, it’s going to create issues for us, because there’s lots of companies now out there that I would call zombie companies that are only surviving because of the level of government support they’ve got. We need whilst it’s really hard and harsh, we really need bank companies to fail, for people to retrain for new companies to form. So we do actually need this kind of creative destruction to happen over the next couple of years. I expect bankruptcy to pick up quite strongly in the next couple of years. Now, as I kind of mentioned a little bit earlier that you speak to a lot of clients, and everyone’s really concerned about downside risk. Everyone’s really, really focused on how much could I lose? How much could I lose? What I think a lot of people need to be more focused on is, the potential of loss from not engaging in the upside. 2020 was a really good example of that actually, because we had some really, really strong growth in 2020. Now on the chart you can see on the screen, every blue and green bar on here is one of the assets held in our growth portfolio at the end of 2020. The orange bar on the far left is the total return calendar year for the UK equity market. The purple bar is the global equity market and the grey bar is our actual growth portfolio just calendar returns for the portfolio. The green bars are the holdings we have with technology assets and you can see the strong performance we had from technology in 2020. I want to point out the one on the far right, which was actually the best performing asset we held in 2020 in our portfolios. It’s the Bailey Gifford US growth trust. So going to the next slide, we can show you the pictures of it. So this is a listed company, listed in London and invests in the US equity market and public and private companies. The chart on the last year, the calendar return in green, the red line is the S&P 500. The blue line is the average peer performance of US equity managers. So you can see it was an absolute stellar year for this fund and you can see some holdings on the right. A lot of them you’ll know, the technology enabled businesses, take Shopify at the top if you’re like me and have done the odd impulse purchase on Facebook or Instagram in the last year, Shopify is usually the platform used to do that. They had profit growth last year of 88%. A business at the bottom stripe that you might not be aware of it’s a private company set up by two Irish brothers doing global payments, that’s now a $35 billion business that’s privately held. With Bailey Gifford US growth trust there’s actually quite a small number of holdings that produce quite a lot of that growth. That’s not actually uncommon. There’s this report that has been done in 2017, that shows the value created from the US equity market from 1926, to 2016. So this is 25,000 companies that were listed in the US over that period and there’s $35 trillion dollars of value created by those businesses. But interestingly, 90 firms, 90 companies of that 25,000 created half of the wealth of the US equity market. So very small number of firms actually created a majority of their value in the US equity market. You’ve got to be aware of capturing some of the upside in those really strong growth businesses, because it’s so important to try and capture that growth. Not everything did well in 2020. The red line is the UK equity market. So it’s down just over 11% in 2020. The blue line is commercial property markets in the UK, the green line is actually what we call value parts of the UK market. So that’s cheap areas such as things like oil and gas at the minute banking really struggled. What now, where are we going to this is a really nice little quote from Jerome Powell who is chair of the US Federal Reserve. I completely agree with him. The economies around the world are recovering, but their economy that we’re heading into is very, very different to the economy that we have pre pandemic. The economy we’re moving to is very, very different, you got to be aware of the changes that we’re moving into. And as I said earlier, we are recovering. We’re in a recovery period at the minute. Now, when we have economic recoveries, they often result in very bumpy market performance. Just look at some of the recovery years on this chart. So what this chart is the grey bars is the calendar returns from the UK equity market. Going back to 1986 The red dots is the fall of the market at some point during that year. So we take 2020 the UK market fell 12% but at one point, the UK market was down 36% with the red dots, look at the previous recovery. So just take 2009 as a great example. 2009 UK equity market was at 25%. At one point it was down 23%. Look at 2003 it was up 17&. At one point it was down 17%. 1991 is another great year, 15%. At one point it was down 12% is going to be bumpy but we generally think that over the next couple of years, we’re going to see strong returns from a lot of asset classes. So where are we investing? Unsurprisingly, one area that we really like is tech. Tech is changing, it’s becoming ingrained in our lives and I think a lot of technology it’s almost becoming common place, not really tech anymore. They used to be called virtual meetings and now just meetings, isn’t it? Cloud computing is another great area to to be investing in and it provides really strong growth, but it’s becoming the norm. So we really like tech, but it’s not going to be Apple, Google and Facebook of the world is going to be much further down and much broader. The environment is something you got to be aware of we’ve been investing with, we think one of the best teams that does this impacts since last April. This is taken from a letter by Larry Fink who is the Founder and Chief Exec of Blackrock. Blackrocks the world’s largest investor they’ve got just short of 8 trillion assets that they manage, take note of what the saying just read that last sentence, they’ve got a commitment to make sure their clients are invested in the right way. It’s coming, it’s already here, you’ve got to be aware of the changes that’s happening. The last area we like is actually the UK equity market. It’s been really poor. It’s been really weakened over the last few years, but we think it’s slowly turning a corner, the companies on the left have all been bid for in the last six months, most of them been taken over most of it by overseas buyers or private equity. They’re seeing the value in UK equity markets. We don’t think the public markets are seeing it yet, but we think it will come. The chart on the right shows the UK market against its global peers from a valuation point of view. So the UK market is now at a 30% discount to the global market, we think is too cheap. Earnings Growth in 2020-2021 is expected to be about 42%. So we think it’s going to be a good for years for the UK market.

I just want to finish on one area that’s a bit more difficult we find is actually for low risk clients because I think hopefully what I’ve portrayed is there’s lots and lots of areas we’re excited about for higher risk investing. The low risk is the difficult part. Now this chart shows investors expectations for interest rates over the next 30 years. The orange line is what the exceeds expectations were in March last year and the blue line is what the expectations are as of a month ago. You can see the expectations for the next five years is that we’re going to have negative interest rates, interest rates aren’t moving. But even going out 30 years, interest rates are going to be under 1% for the next 30 years, that’s investors expectations. That causes a bit of a problem because traditional low risk assets, Adrian spoke about it earlier, cash, government bonds, we think they can be quite a dangerous long term asset to have in the next 5 or 10 years because any sort of inflation is going to erode your real wealth. So we’ve been working hard to try and find alternative assets for low risk clients to build a cautious portfolio. I’m conscious of time. So on that I will pass back to Loz for a Q&A.

Loz Gee

Hello again. So we’ve had a couple of questions come through thank you for those. So firstly, we’ve talked about cash but the question is I have cash sitting in premium bonds and would like to know, if it’d be better to invest that money elsewhere?

Adrian Mee

It’s very interesting. Premium Bonds have historically been a solid performer. For all of us. Think about risk. Think about your own attitude to risk. Have you really thought that through lately and have you re evaluated how much risk you feel like taking post 2020. You may be old enough to remember 2008. And we we can see that the UK market is still 10% down but a well run active portfolio can do significantly better than that. Think about your capacity for loss. Are you in that ability of saying well look, if I if I did have a loss on this capital of maybe 10 or 15%? How does that affect all of my planning? What we can say and which came out of a call we had yesterday with our analyst is saying that central banks are very apathetic about inflation for the next five years, they will not be fighting it, the Fed have just moved to an average target rather than a discrete target of 2%. So if they run warm at two or 3% a year, they’re absolutely fine and that is going to be a real danger to premium bonds. I would have a look around and reassess your appetite for that level of risk. If you’re taking a 5 or 10 year plan, our house view is that we’re still very much risk on for returns and we think there’s enough return out there for the risk more so now than the start of the calendar year of 2020.

Loz Gee

Secondly, I’m currently paying twice minimum payment on my mortgage to pay it off quicker should I be investing that money instead?

Adrian Mee

I mean, I guess this is a follow on question to the previous one. And again, have a think about your own capacity for loss. Now if you’re paying double your mortgage, I’m going to assume that you’ve got some nice level of income coming in, so maybe have a little look at your pensions if you’re earning above £50,000 a year. Is there a company based pension scheme you can look into most employers now match contributions up to quite a nice chunky level. I was speaking to my partner last night, and her new employer is offering a 5% matching contribution. As she’s a higher rate taxpayer, she puts in 3%. When the money hits the pension scheme, it becomes 10%. That that is absolutely sound financial planning to begin with, and then look into the investments of where it will go into if your mortgage is on a very low rate of interest, and you have the ability to accept that loss, and you have a bit of a risk that is above cautious. So you’re imbalanced or a high risk environment for yourself, I probably would look at doing something different with those premiums. I think in five years time your capital value will thank you, but just get the money into the right wrapper, ISA’s, pension or GIA.

Loz Gee

Final one is not really a question so much as understanding your thoughts on biotech, especially COVID related, as I believe we are in Moderna as a fund.

Ben Wattam

Yeah, I can say that. So we’re pretty positive on biotech, probably more broadly, I would say life sciences rather than specifically biotech, we have quite a bit of exposure in life sciences, especially with some of the startups, I think we do have Moderna in some of the portfolios as well. I think the main benefit, actually, it’s not so much COVID as such, but we’ve seen the speed of vaccines created through the new technology in biotech, that has got huge potential for so many other drugs and diseases that we’re seeing that some of that come through now. So we think it’s a really exciting time to be invested in not only biotech but life sciences, more generically. Just be aware of valuations, because some of them are very, very rich, but if you’ve got a longer term, time horizon, we would advocate for a decent chunk of portfolios to be invested in that space.

Loz Gee

Okay, back to me and wrapping it up, really. So, in terms of next steps, we will make this webinar available so you can watch it back. If you’ve not been able to attend live today, we will put that on our website, Facebook, LinkedIn, and other sites. The next webinar is on the 5th May. Hopefully you can join us then and hopefully you’ve got something out of today’s session, any feedback we’re always really welcoming of, we will also send a copy of the deck upon request. So if you’d like a copy of that, then please do get in contact with us and there are our details if you’d like to do so. Many thanks, everybody for dialling in and I hope you have a lovely Wednesday.

Adrian Mee

Thank you, Loz and thank you everyone for attending. If you have anything that you’d like us to consider for the next webinar, please let us know. I’m aware that occasionally I have a tendency to deep dive into some very technical areas and I was conscious of not doing so this morning, but please let us know and we’ll cover those areas next time.