June 2017 Wealth Management Update

06 Jun 2017 | Wealth Management Update |

Serious Cyber Attack

The whole world had a wake-up call regarding cyber security in May. On Friday 12th May, a computer virus was released that affected 150 countries around the world.

This particular virus was “ransomware”; it managed to take control of users’ files and would not release them unless a payment of £230 ($300) was received within 7 days, after which the files would be deleted. This effectively held users’ data to ransom. It was reported that over the affected weekend £29,400 was extorted from users, but we are sure the final figure was much higher.

This episode serves to highlight that living in the new digital age comes with dangers and vulnerabilities of its own. This particular attack seemed to target the most vulnerable institutes, closing down several A&E units across the UK.

It is thought that now this kind of “hacking” has started, it is likely to happen again. The cyber-criminals are sure to come up with ever-evolving ways to access and exploit our digital systems, attacking many industries or market places.

Unfortunately, digital and online services cannot be avoided in this day and age. Please be assured that we work extremely hard to ensure that our clients’ data are held as securely as possible. We recommend that you stay vigilant, and contact us if you have any suspicions about transactions or communications in relation to your accounts.


Barclays and HSBC security breached

Continuing the cyber security theme – following the cyber-attack two breaches of security were reported, one at HSBC and the other at Barclays.

HSBC’s voice ID recognition software was tricked into giving out balances and details of recent transactions to someone other than the account holder. To be fair, that person was the account holder’s non-identical twin, but is that an excuse? The software is supposed to avoid such situations and to be more secure than PINs, passwords and memorable phrases.  It would seem not in this case.

At Barclays, one of their chief executives responded to an email from what he thought was an employee, but which actually turned out to be from a disgruntled customer using a similar email domain as a ruse. To avoid such a situation occurring again, it is thought that more training on security is needed for the senior and executive staff, as well as tighter email controls.

Both of these incidences, whilst minor, highlight how simple it can be to trick, confuse or overwhelm computer systems and those who use them. Please remain vigilant.


Inflation is inflating

We keep our eagle eyes on inflation, and you can’t really seem to avoid it in the news. It seems that every other month there is a report on how inflation has increased, and this month is no exception.

In the April edition of our Wealth Management Update we reported that inflation had risen to 2.3%; this month it has risen even higher, to 2.7%, rising steadily higher than the Bank of England’s base rate of 2%. The latest increase has pushed inflation to its highest level since 2013. Inflation is expected to continue to rise, with forecasts suggesting it will peak at 3% for 2017.

Again, it is increases in such things as air fares, clothing and electricity that have contributed to the rise. With real wages increasing only at an annual rate of 2.3%, and with companies loathe to increase wages because of Brexit uncertainty, it would seem that 2017 may be a more challenging time than many anticipated in terms of affordability for the average household.

This is probably not great news for Theresa May as, historically, calling an election when living standards are falling and inflation is rising has not worked out well for the party in power. The last time an election was called in these circumstances was by Gordon Brown, and that certainly did not go well for him in the long run.

There is a risk that, with costs rising, savings will reduce or may even start to be eroded by the necessities of life. Mark Carney has stated that interest rates will not increase in line with inflation this month and so the rates offered by high street banks and building societies will remain at rock bottom for the time being.


House prices falling?

House prices seem to be one of the areas feeling the effects of Brexit the most. In fact, the number of residential property transactions fell 22.5% between March and April, with mortgage sales reducing by approximately 16% over the same period.

So what does this mean?

We have to take into consideration the tax changes that have affected residential property. The changes include higher rates of stamp duty for those who own buy-to-let properties, which created a surge in purchases in March – an enthusiasm that seems to have been dampened by the introduction of the higher fees since.

Purchases by ordinary buyers also fell by 15%, across all regions of the country, and any purchases that do go through are generally being settled at much lower prices.

Whilst at first this may seem like a terrible slump in the housing market, it is important to remember what has happened over the past two years. Taking this into consideration, the housing market, and in fact the general markets, seem to be holding up relatively well.

House prices are expected to fall next year as the slowdown works its way through the system, but whether or not this will be significant enough to cause waves throughout the property market is yet to be seen.


FTSE at an all-time high!

The FTSE has rocketed to an all-time high, with share prices of oil companies such as BP and Royal Dutch Shell being the cause.

The markets also seem to have quickly dismissed the recent cyber-attack, and stocks in cyber security companies have rallied in the face of adversity. This is most probably because investors expect a surge in these funds in the recovery period after the attacks.

The weakness of the dollar has also supported prices of precious metals and has caused a bounce in the price of gold and the funds associated with it.

All of this combined has meant that the markets have risen nicely over recent weeks. It will be interesting to see if this can be maintained in the long term, but I do hope it can!


Pension deficits suppressing wages?

Pension deficits in Defined Benefit schemes are holding back wages for employees, even for those who do not qualify for the schemes.

On average, 10% of the money paid into such schemes has come from suppressed wages over the past 16 years. This means that workers in companies with pension deficits are paid 0.6% less than similar workers in companies whose pensions are fully funded. Seem fair? Not really.

It is thought that increasing longevity and poor investment returns are the cause of some of the deficit, as well as long-term low interest rates.

It would seem that the choice was either to suppress wages or to make staff cuts, and many companies have chosen the former to avoid putting people out of work.

If you are already in receipt of income from your Defined Benefit scheme then the good news is that you cannot be held accountable for placing further funds in the scheme or reducing your current income.

For those of you who are still in employed with relevant companies, find out what the funding status of your company pension is, as that could be the reason why your wages haven’t increased as much as you would have hoped.


Notes on Brexit

The EU has delivered its Principles for the Article 50 negotiations and they can be viewed in full here:  http://www.consilium.europa.eu/en/press/press-releases/2017/04/29-euco-brexit-guidelines/

We will give you the short and (not so) sweet summary here. The EU wants to continue to work with us, but they will not negotiate on any of the four freedoms of the Single Market, which means no tariff-free trade without free movement of workers, nor will they negotiate with us on a sector-by-sector basis or a country-by-country basis. If campaigners or politicians continue to tell you otherwise, they have obviously lost touch with reality!

The EU has also been clear that they intend this two-year period to be a phased process. The first phase is focused on an orderly withdrawal of the UK from the EU; they will only move on to the second phase, establishing how they might work with an independent UK, once the first phase is settled. It is this second phase that will address any transitional arrangements and any subsequent treaties for the UK. Finally, they have stated a deadline for these negotiations of 29th March 2019, which does not seem to allow potential for any extension, as hoped for by some.

As and when progress is made, we will update you here.


Book of the Month

This month’s book is the autobiography of Phil Knight, the man who started Nike. Shoe Dog tells the story of how a man who clearly had no management skills at all, knew nothing about marketing, had never been in business before and had no capital to speak of built one of the largest brands in footwear. He did it purely on the basis that he was passionate about his trainers … that’s it.

The book is a very good read and gives a real sense of what it takes to build a world-beating business.


Best Savings Selections


Top Three No Notice Accounts without Bonus

Name Contact £1 Gross % £500 Gross % £1k Gross %
RCI Bank UK www.rcibank.co.uk 1.10 (min £100) 1.10 1.10
Virgin Money Via branch 1.05 1.05 1.05
 AA www.theaa.com 1.01 (min £100) 1.01 1.01


Top Three Monthly Interest Accounts

Name Contact £1k Gross % £5k Gross % £25K Gross %
Charter Savings Bank www.chartersavingsbank.co.uk 1.34 1.34 1.34
RCI Bank UK  www.rcibank.co.uk 1.09 1.09 1.09
 Paragon Bank  www.paragonbank.co.uk  1.29 1.29 1.29


Top Three Cash ISA’s

Name Contact £1 Gross % £10 Gross % £100 Gross %
Hinckley & Rugby BS 0800 774 499 n/a n/a 1.20 (min £500)
Paragon Bank www.paragonbank.co.uk n/a n/a 1.41 (min £500 and fixed rate)
Al Rayan Bank 0845 6060 786 n/a n/a 1.05 (min £250)


Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.

Source: Moneyfacts Magazine June 2017 Edition

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