Category: Analysis & comment

Picture the scene.  You’re an entrepreneur / widow / recent inheritor / recent divorcee or similar.  You don’t work in financial services.  You find yourself receiving a lump sum of cash – more than you have any immediate plans for – and, as surely as a carcass on the African plains attracts vultures, you end up talking to a private banker or an independent financial adviser.

If this scene is familiar to you, then I think this blog post is the most important blog post you will find on my blog.

The charming, well-dressed and thoroughly presentable financial professional makes arguments along the following lines:

• I am a very experienced financial professional.  You can tell from the quality of the tea and biscuits, my dress code, and perhaps my accent – suggesting that at least my parents and grandparents had a lot of money.
• You are a talented and clever person.  Either because you created value some of which you have just ‘cashed out’, or because you married a very talented/rich person who sadly(/happily?) is no longer with us and/or you.
• You realise that leaving your money in cash gets it nowhere, before tax.
• You understand that all the rich people do not just leave their wealth in cash but instead have their money ‘invested’.  I invite you to believe that this has helped them to protect, maintain and increase their wealth.
• There are a lot of clever things you can do about tax.  [For the purposes of this blog post I am not going to expand on this further].
• You do not have the time and/or expertise to manage your money yourself. Picking stocks is gambling, complicated and your money can be at risk.
• I and my firm manage money for a living (therein lies a clue which I don’t want you to dwell on, and heaven forbid don’t ask what I do with my own money).
• In fact at my firm we can do various particular things for you:
  • We have many clever analysts. I can introduce you to some and ensure you have ready access to them whenever you want it.
  • We have economies of scale which allows us to negotiate better rates than you or our lesser rivals can get.
  • We can invest in overseas investments.
  • We have access to special investments  that aren’t generally available. These include investment products made by some of the most famous and successful financial services firms of all time, who do not deal with mere mortals such as you.
  • We, or some of our most trusted friends, can structure special products which turn base metals into gold eliminate all risk and practically guarantee fantastic returns.
  • We can look after whatever tax filings you need in whatever jurisdictions / etc your tax planning / divorce court / similar lands you in.
  • We will review your finances carefully against your objectives and give you professional, bespoke advice – a complete financial strategy, along with all the help you need to execute it.
• Fees? Well, since you ask, yes there are some fees but they are very modest. Essentially only just 1% of all that money we manage for you, along perhaps with occasional incidental expenses.

I invite comments about how well I have captured the thrust of a typical IFA/wealth manager’s pitch.  I have quite a bit of experience of being on the receiving end here and think I have captured the key pitch; indeed, I would even say that it does sound quite compelling.

I myself took the bait about 15 years ago. I have had a pot of money managed by a private bank since around 2000.  I did so as part of a ‘test and learn’ strategy in which I put various pots of money to work in various places – some went to private banks, some I managed myself, some went into structures I found with an IFA. I tracked all of it quite carefully with some professional investment-tracking software (alas that is no longer on the market).  Since 2013 I have been more rigorous and have done full month-end tracking which I post on this blog, but I have most of my portfolio tracked pretty accurately (albeit updated sporadically, not monthly) since around 2000.

Continue reading “Warning: private banking injures your wealth” →

Labour leadership challenger Owen Smith has proposed a ‘wealth tax’ to raise £2.8bn from ‘the top 1%’. What might this mean for financially independent people, Londoners and the like?

What are wealth taxes

A tax on wealth, literally, means a tax on assets.  The UK has no annual tax based on asset value, unlike many countries.  A surprising number of countries do tax assets, for instance:

• The USA has real estate tax – over 1% per year in most of the ‘best’ states.
• The Netherlands taxes possessions of more than €21k at 1.2% per year.
• France taxes wealth of over €800k, at rates of 0.5%-1.5%.

Owen Smith is however not proposing taxing assets.  There is a good reason for this.  Having to value your entire asset base every year is a massive amount of work.  Having to report this to the tax authorities is a major invasion of privacy, at least relative to only reporting income (akin to a business now needing to report its balance sheet as well as its profit statement).  And this being done in a way that doesn’t clog up the bureaucracy would be difficult to implement quickly.

The simple way to tax assets is to tax property.  The database exists.  Valuations are not that expensive to update. And they can’t flee the country.  More on this below.

Continue reading “My proposed Wealth Tax” →