Interview

  • Author : Mick Jones
  • Date : June 2010
ABOUT THE INTERVIEWEE: Mick Jones is Managing Director of thewealthworks
Q. What do you see as being the current business issues most affecting STEP members?

Time management and client care. On the assumption that trust and probate specialists want to grow their business and maximise profits, they need to find time to add more clients and deal more efficiently and cost-effectively with their current portfolios.

This has to be balanced by demonstrating their client care credentials and ensuring that long-standing clients are not lured away. Finding the time to increase ‘value added’, and therefore more profitable, services, is the key issue and it’s a combination of all these things that is prompting leading practitioners to examine their systems and processes, and this includes software solutions.

Q. What do think are the biggest challenges facing STEP members today?

There are increasing numbers of individuals and groups with complex investment portfolios and transnational financial commitments and there is going to be a growing demand for accurate financial information and advice delivered quickly and accurately.

I know that some trust professionals have trust portfolios tainted by unsuitable individual equity holdings. These can be high-risk in themselves. The risk is compounded by insufficient diversification and they are almost certainly not tax efficient.

Reasons given by trustees for not wanting to reorganise such portfolios focus on there being gains which have been locked-in over many years and that the capital gains tax (CGT) charge on disposal would be too great, or too difficult to explain. This is problematic. It is generally accepted that the UK’s current 18 per cent rate of CGT is unsustainable and that it wasn’t increased in the March 2010 Budget for political and not economic reasons.

Trustees who do not take advantage of this window of opportunity will have difficulty in demonstrating to their beneficiaries that they have satisfied the standard investment criteria laid down by the Trustee Act 2000. On-going reviews of portfolios are now a necessity.

STEP members are very well placed to lead clients into new models of wealth management and to attract new clients on the back of it

One of the longest felt legacies of the credit fuelled boom and the lengthy recession that has followed is the reduction in confidence in the banks and I see this as an opportunity for STEP members to raise their profile and market the services they offer.

STEP members are already active in developing family limited partnerships as an alternative to trusts. There are also interesting developments in the area of personal injury trusts.

This is also true of the high-net-worth market. In the case of thewealthworks, we have seen an increase in enquiries about our family office software and it is becoming clear that the benefits of using a family office model are no longer just the preserve of the mega-rich dynasties, but are attracting less wealthy (but still wealthy nonetheless) clients because of the independence of the advice they seek and the transparency and comparative value for money that they offer.

STEP members are very well placed to lead clients into new models of wealth management and to attract new clients on the back of it.

Q. Do you detect any other trends in post-recession financial markets?

I think inflation is back on the menu! In the 21 years between 1950 and 1970 inflation in the UK reached a peak of 9.2 per cent in 1952 and was at its lowest at 0.6 per cent in 1950. In all but four of these years the annual rate of inflation was below 5 per cent.

Move on now to between 1971 and 1991. Inflation reached a peak in 1975 at 24.2 per cent and in all but four of these years inflation was more than 5 per cent. After a period of high inflation during the years from 1992 to 2007, inflation didn’t reach 5 per cent. It peaked at 4.3 per cent in 2007 and apart from that it was below 4 per cent throughout the period.

Most recent investment strategies therefore have been based on relatively low inflation.  All this is about to change. So what are the drivers for inflation? Oil prices are currently too low. They will increase with the obvious implication for transport costs. The fundamental question is how is the UK government going to deal with such huge amounts of debt, without allowing inflation to eat away at it? The UK government could actively promote inflationary policies.

If I am right then any investment strategy in the first phase of the so called ‘new capitalism’ has to be based on an assumption of consistently higher inflation than we have been used to. Think ‘70’s’ rather than ‘90’s.’


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