For a long time our client had been taking advice from an adviser belonging to a network of advisers called Openwork - this is a firm in which Zurich have a large financial interest and which is essentially a multi-tied version of the old Allied Dunbar group of advisers (multi-tied means that they sell products from a limited range of companies though this is not the same as being independent).

Virtually all the client’s pensions and investments were tied up in Zurich Life products and for a variety of reasons the client felt he wanted to diversify away beginnng with his pension. Not wanting another Zurich pension he was introduced to someone from Zurich Independant Wealth Management to provide an alternative.

Following a series of meetings in 2005 (held jointly with both advisers, the tied and the independent together) it was finally suggested in February 2006 that the client transfer his entire pension into a new Norwich Union contract, though at the time the client raised questions about the inheritance tax position of the pension fund.

The transfer to Norwich Union went ahead and between them the two advisers shared more than £9,000 commission - more on this later.

Then in March, in a flurry of activity before the changes to pension legislation a new recommendation was made, this time to transfer the pension from Norwich Union to an offshore pension provider called London & Colonial who had a particular “open annuity” and “protected cell” structure to make the inheritance tax position better.

So, in less than 6 weeks the pension fund was transferred again, this time to London & Colonial. However it did mean that the advisers this time shared commission of more than £23,000 - because of another product they inserted into the mix, this time a Clerical Medical Offshore Investment Bond, and it was this product that paid the commission (and landing the client with yet another tier of charges).

The transfer to Norwich Union was clearly unnecessary from the client’s perspective, but let’s not forget that it did net Zurich and the advisers more than £9,000 of commission. You would think that as the money was transferred away from Norwich Union so soon they would have applied a penalty or recovered the commission, but surprisingly they didn’t. The client therefore suffered no loss over this transfer, but surely Norwich Union’s shareholders and policyholders did?

The new London & Colonial contract appears to meet the client’s needs, but we wondered why the offshore bond was included as it only served to increase charges and pay commission. Zurich and its advisers continually defended their actions and the level of commission received - in all more than £32,000 - an eye-watering amount by anyone’s standards and approximately 8% of the pension gone in commission!

The Ombudsman handling the case agreed with us and suggested that the original commission of c£9,000 was an adequate reward for the advice to transfer the pension from Zurich to London & Colonial. The Norwich Union contract, although causing the client no financial loss, was unnecessary. The Clerical Medical Bond was also unnecessary. The Ombudsman therefore ordered Zurich to undo the underling Clerical Medical Offshore Bond, along with it’s associated commission and charges, and make a payment into the London & Colonial pension as if the Clerical Medical Bond had not existed - I calculate that this comes to more than £23,000 mainly to cover commission payments as well as Clerical Medical’s own fees and charges.

This is a shocking case, not least because it looks as though the advisers abused their position of trust for their own material gain, motivated by a double helping of commission.

One client, one pension, two advisers, and four insurance companies sounds like too many fingers in the pie, with the advisers picking some particularly juicy plums!

Adding to his collection of industry awards, we are delighted to be able to say “congratulations” to our very own Dennis Hall, winner of the Investment Company Planner category.  The award was presented by Annabel Brodie-Smith Communications Director of the Association of Investment Companies.

Organised by Money Management magazine (a Financial Times publication) in association with the Institute of Financial Planning, the awards aim to “showcase excellence within the industry and reward those excelling in their field.”

To get as far as the shortlist is an achievement in itself, as competitors have to submit a case study for review by a panel of judges, followed by an interview to determine the winner in each category.

You can read more about the Financial Planner of the Year awards and Dennis’s case study on the Money Management awards website.

UK deposits in bank or building society savings products are covered by the Financial Services Compensation Scheme (FSCS).  FSCS is an independent body created by the Government to pay compensation if a financial instituion is unable to pay claims against it.  Currently the first £35,000 per financial institution is protected.  So if you have more than £35,000 where should you put your savings?     

One solution is to spread your savings around a number of accounts with different financial institutions.  With larger balances this approach becomes a little unwieldy.  For example an investor with £500,000 will need to open 14 different accounts to take full advantage of the protection offered by the FSCS.    

An alternative approach may be to invest in a money market fund. A money market fund invests in a large number of short-term debt instruments on an investor’s behalf.  As an investor this allows you to diversify your savings and spread your risk, while offering competitive interest rates. 

The money market funds we have researched in depth have all been given the highest triple-A ratings by independent credit ratings agencies.  

You can read more about the benefits of these funds and how to invest in our Money Market Funds article written by my colleague Mushtaq.

Three independent financial advisers offer Samantha their help this week including Dennis Hall of Yellowtail Financial Planning.

You can read the complete article on the Independent website.

Helen Stevens, 20, is keen to enjoy her remaining two years of student life before tackling the £30,000 debt she faces on graduation. She estimates she will owe this sum, made up of tuition fees and maintenance loans, on completion of her four-year degree in French and German at University College London (UCL). 

“We’re always hearing about how awful debt issues are, yet in doing a degree you can’t avoid it,” says Helen.

 You can read the complete article on the Independent website.

Under the new rules, if the first spouse who dies now with a nil rate band of £312,000 gifts this into a nil rate band trust as a result of their will, and then a few years later the surviving spouse dies when the nil rate band has increased to say £400,000, then the total amount of money that is exempt from 40% inheritance tax is £712,000.

Under the new rules however, if the first spouse simply passed their assets to the surviving spouse, then on the second death, the estate has the benefit of two nil rate bands, but at the then current rate. Under the same scenario of using a £400,000 nil rate band, this would equate to a total of £800,000 that would avoid inheritance tax at 40%.

Of course, if the asset was placed in the nil rate band trust and it grew at a greater rate than the rise in the nil rate threshold then it might still offer a better solution. Yet in my experience, nil rate band trusts are for couples who really cannot afford to physically give the money away, and tend to want a very low risk investment within the trust, it is after all there to provide additional income for the surviving spouse. In this regard I would suggest that the nil rate band trust is no longer needed in a number of instances. The legislative changes have brought about a similar end result, and removed the need for an additional layer of complexity that a trust brings.

As he says, “I consider [the per capita ranking] to be more meaningful than the official rankings which just reflect world power derived from economic might.”

Bill has an interesting taken on the data, but be warned he uses the unique-to-the-US ranking style, tallying the total number of medals, rather than the number of gold medals ranking used by the rest of the world.  Coincidentally Team USA are ranked first in the world on a US ranking only, not in golds won.   

According to the author the conventional view is that America’s economy has been more buoyant than Japan’s in the last few years.  The rate of growth in GDP backs this up, with annual real growth in GDP of 2.9% versus Japan’s 2.1%. 

There’s more to the story than the headline figures though, and the article argues “the single best gauge of economic performance is not growth in GDP, but GDP per person…a rough guide to average living standard.”

Looking at GDP growth per capita as it’s known between 2003 and 2007, Japan has actually done better than America because Japan’s population has been shrinking. 

With countries where politicians take credit for booming economies such as Australia, figures look less flattering through the lens of GDP per capita because population has grown rapidly at the same time.  In the 5 years to 2007 the Japanese and Australian economies have expanded at the same rate.

If we agree that GDP per person is a better measure maybe we should apply the same thinking to the Olympics – gold medals per capita anyone?

The Director of a property search company was talking about a few lucky clients who are now living rent free after selling their property.  She went on to say that her clients have, “put their money in the bank at six percent interest, and that pays their rent, so some of them are effectively living rent free.” 

I know what she is thinking – my wife and I have had the same discussion.  If you can live on the interest, you still have the capital left, so in effect you are living for free, right?  Wrong. 

Unfortunately it doesn’t work that way.  When you lend your money to a bank they will pay interest, this partially compensates you for delaying the purchase of something else with your money (new Porsche anyone?).

Go back to 1975 and we find inflation touching 25% a year.  Suppose at the start of 1975 you had £10,000 on deposit after selling your house.  With that money you could have bought 4 Porsche 911s.  But the bank is offering you 25% interest so against your better judgment you put the Porsche brochure in the sock drawer and use the interest to pay your rent.  You decide to live “rent free.”

At the end of the year, you’ve received £2,500 interest which you’ve given to the landlord.  But every time you look in the sock drawer the Porsche brochure grabs your attention and after a year you decide to dip into your savings to buy that Porsche you’ve always wanted – you saved for a year right? 

Unfortunately for you Porsche workers demanded more money, the price of oil and steel increased and Porsche were forced to raise their prices - now your £10,000 only buys 3 Porsches and a tank of petrol…oh and your landlord has decided to put up the rent, the price of his Porsche has also gone up.

Inflation isn’t as extreme today, but the same principle applies.  You can save your capital and spend your interest to live “rent free,” but the longer you do this the less you will be able to buy with your remaining capital.  And even if you save the interest the value of your money is eroded, as over the longer term the interest you earn after tax is less that you need to beat inflation.

If you are currently renting and can’t rent for free you should be praying for property prices to drop by more than your rent.  But that’s another story… 

Dennis is quoted in an article in the FT on with-profit policies.   

While the Aviva payouts announced this week are good news for some with-profits investors, those with money in other life offices may be feeling less fortunate.

Stock markets remain volatile and the Financial Services Authority is paying closer attention to the financial strength of life assurers and banks, in the wake of the Equitable Life and Northern Rock scandals.

Financial advisers say policyholders would be wise to do the same.

You can read more of the article, which explains some of the related jargon on the FT website.