My pension has deducted too little PAYE tax?

Question
I have just received my first monthly pension payment from a previous employment, which has been taxed as if it is my only income. I am still working and paying tax at higher rates on my salary. How will this be adjusted on PAYE or will it only be resolved with my annual return?Answer
It sounds as though your previous employer's pension administrator is using the wrong tax code - it should have been the same code as used by your current employer.

If you pay too little tax via PAYE then your first step should be to contact HMRC and tell them. They will normally revise your tax code for the current tax year to ensure the correct amount of tax is deducted moving forwards then adjust your tax code for the following tax year to collect the underpayment(s) (effectively by reducing your personal allowance). There is also the option to pay the tax owed as a lump sum now, which would probably mean the tax code used by your current employer being unaffected.

Either way, once you've sorted this with HMRC you should tell the pension administrator the tax code to use so that they deduct the correct amount of tax in future.

Yes, you could instead pay the tax owed via your tax return, but in this instance it's probably simpler to just get a revised tax code.

Just for reference, underpayments of £2,000 or more can't be collected via PAYE, HMRC will likely ask you a lump sum or series of instalments in such cases.

Note: it's not unknown for HMRC to make mistakes when issuing tax codes, so it's always worth checking any codes they send you. Read my article here on how to do this.

Read this Q and A at http://www.candidmoney.com/questions/question403.aspx

JPM UK Active Index Plus Review

When you buy an actively managed UK stockmarket fund your goal should almost always be to beat the index, for example the FTSE All Share. The trouble is, many such funds charge 1.5% or more in annual fees and fail to deliver. The alternative is low cost tracking funds, but then you're unlikely to ever beat the index after charges.

JP Morgan appears to be trying to plug the gap, if there is one, with its new UK Active Index Plus fund (by renaming its existing UK Active 350 fund on 1 February 2011 and revising charges and investment strategy etc).

The idea is simple - offer a low cost fund that generally tracks the FTSE All Share Index but let an active manager make a few tweaks here and there to try and beat it.

Let's start with the charges. The annual management charge is 0.25% but other costs push total annual costs (as measured by the total expense ratio - TER) to 0.4%. There is also a performance fee calculated as 10% of returns above the index, but this is capped at 0.15% a year so the TER can't exceed 0.55%.

The 0.4% annual charge is a bit more expensive than the cheapest FTSE All Share trackers, which are available with TERs of 0.3% or less these days, but very low compared to the typical 1.5% actively managed charge.

The performance fee doesn't have a 'high watermark', which means you could end up paying it even if the fund is losing you money (but falling by less than the index). However, you won't pay a performance fee if the manager is simply 'clawing back' earlier periods of underperformance versus the index.

JP Morgan's aim is for the fund to have a 1% - 1.5% tracking error - that is to perform up to 1.5% better or worse than the FTSE All Share each year. It looks as though the manager is trying to achieve this by more or less tracking the FTSE All Share but increasing/decreasing exposure to some companies/sectors in an attempt to beat it.

At the time of writing the fund's factsheet suggests around 5% of the fund is held in cash and a 2.7% underweight position in the financial sector versus the index. Otherwise the variances look minor.

All told, this fund looks little different to quite a few so-called 'closet trackers' in the UK All Companies sector (i.e. funds where the manager takes only small bets against the index). The key difference being this fund is not trying to get away with steep 'active management' charges.

So is the JPM UK Active Index Plus fund a good idea?

The answer boils down to whether the manager, Michael Barakos, can consistently beat the index. If he can then this fund will prove great value, even after the performance fee. If he can't then the fund will end up little more than a slightly overpriced tracker or, more worryingly, a 'dog' if his bets against the index mostly backfire.

However, judging Michael Barakos's abilities is difficult as he currently has little track record of managing investment funds. And JP Morgan's generally indifferent track record of running funds in the UK All Companies sector doesn't fill me with confidence.

Overall I think JP Morgan deserves credit for trying to bring down the costs of active fund management. But the manager's bets against the index will be small and as he's yet to demonstrate he can consistently beat the index using this technique I'd be more inclined to opt for a low cost FTSE All Share tracker fund instead. Nevertheless, this is one to watch and I'd welcome similar fund launches with more proven managers at the helm.

Read the full review at http://www.candidmoney.com/candidreviews/review54.aspx

Latin Amereica fund within Skandia?

Question
I recently asked a question about a Skandia Capital and Income Bond which you answered in simple and understandable laguage for which I thank you. Posted on the your site at the same time was a question concerning a forthcoming fund launch for Aberdeen Latin American Equity for which you gave a quite favourable review. Having recently returned from South America I decided to instruct my IFA to switch funds within the Skandia Bond to hold some of the aforementioned Aberdeen LAE stock.

The IFA forwarded the necessary paperwork to document and affect the switch which was duly signed and returned.

To my dismay I have just received the current allocation list direct from Skandia to discover that my instructions were not carried out. My IFA latterly informing me that the Aberdeen LAE Fund could not be accessed as it was not available as mirror structured holding. This explanation I find to be perplexing as I already hold within the Skandia CAB a percentage of Aberdeen Emerging Markets stock.

Would it be possible to shed some light here?Answer
I'm afraid the answer is very simple, Skandia doesn't currently offer the Aberdeen Latin America fund within its investment bonds (or ISAs and pensions). Your financial adviser really should have spotted this before sending you a form to switch, but I suppose mistakes do sometimes happen.

As it's a recent fund launch Skandia might feature Aberdeen Latin American Equity in future, but if you want to invest in the region meanwhile within your bond then your options are limited to Invesco Perpetual Latin American Growth and Threadneedle Latin America. Invesco Perpetual's fund is probably the better of the two, but I wouldn't rate the management team as highly as Aberdeen's.

Bear in mind Aberdeen Emerging Markets is around 30% invested in Latin America at the moment, so you do already have some exposure to the region.

Read this Q and A at http://www.candidmoney.com/questions/question401.aspx

How will RDR affect charges and service?

Question
This question is about the effects on the consumer of the impending so called "Disribution Review" : I hope I have got the right term for these changes. As I understand it ,at present , with investment like unit trusts , the monies gained from the consumer as charges are split 3 ways : between firstly the fund manager , secondly the fund supermarket (if there is one) and thirdly the discount broker (if there is one) . I appreciate that this split may not always apply to every customer but it I think it is quite a common arrangement.

With this set up the fund supermarket gets the smallest slice ( I think) . From a consumer perspective they are , arguably at least , doing the most work . So should we feel fairly lenient towards them and forgive them the numerous mistakes that will inevitably occur as they are covering so much ground , and working for the smallest slice of the cake?

This complicated structure effects not only charges but also the way complaints or mistakes are handled . Mistakes or anomalies can occur as broker feeds his "analysis" into one holdings in a fund supermarket so that you get 2 potential sources of analysis : firstly the fund supermarket's own analysis and secondly the broker's own feed into the fund supermarket which provides a second source of analysis . An example of an anomaly ( or mistake) that could occur under these circumstances would be where the fund supermaket shows an individual fund holding as , for example , say 1% of the portfolio whereas the brokers analysis shows it as 10%. When pressed for an explanation the answer may be something like "well we can only work with the information we are given: And we will let you know if we ever get an answer" . Its not seriuos because I spotted it . But what would happen if an investor made serious investment decisions on the basis of incorrect information . Who would be responsible , the investor , the discount broker or the fund supermarket?

So the customer's relationship with supermarkets and brokers is a bit like that of a patient in the NHS . You would only seriously complain if there was a (death) serious anomaly or fraud and anything else is relatively OK.

Will the Distribution Review re-establish consumer priorites and control or will the financial services industry distribution priorites continue to predominate? Is the apportionment or the "split" of the charges likely to change significantly?Answer
The main objective of the FSA’s Retail Distribution Review (RDR) appears to be preventing remuneration from product providers (i.e. sales commissions) biasing financial advice.

A key proposal is replacing sales commissions with ‘customer agreed remuneration’. This means that if a financial adviser takes their fees from the product they sell (rather than you paying them directly) customers will need to agree this in writing beforehand. In theory their fee for specific advice should be the same regardless of the product sold, removing the risk of bias that inherent with the existing commission system.

RDR will also probably affect the way investment products are priced. At the moment a typical unit trust might charge 3% initially and 1.5% a year, from which 3% initial and 0.5% annual sales commission is paid to financial advisers. Fund supermarkets/platforms might also receive about 0.25% a year, leaving the fund provider with 0.75% annual revenue.

Based on FSA announcements so far it looks like private investors might be offered funds at ‘institutional’ pricing (basically stripped of commissions/platform fees), typically no initial charge and a 0.75% annual fee (with any platform fees payable on top), or at existing levels with the potential for built in ‘commissions’ to be rebated in the form of extra units (net result is similar to reduced charges).

The FSA’s original proposals would have prevented funds from building in fund platform costs, instead charging consumers directly if they opt for this route. But they’ve now u-turned so the c0.25% annual cost can continue to be incorporated within fund charges. I find this disappointing and illogical – far better to have ‘clean’ fund pricing and let consumers choose if they want to pay more for extra services like fund platforms.

Coming to your point about who does/is responsible for what. Always assume that fund platform information is the most accurate. If they make mistakes (e.g. they list wrong fund or number of units), which sometimes happens, then there’s likely a problem with your underlying investments which needs to be sorted out.

Some financial advisers/discount brokers plug this information into their own systems rather than simply re-badging the fund platform web pages/paper valuations as their own. While useful for adding extra information or consolidating holdings from several platforms, it gives scope for errors. These are more likely to be a glitch in the adviser’s/broker’s system rather than actual underlying errors, but can be annoying.

In my view if you use an adviser or broker then they should take responsibility for sorting out all errors and glitches, liaising with fund platforms where necessary. While fund platforms appear to do a lot, the tasks are mostly administrative and should, to a large degree, be automated. Fund managers and financial advisers have the greatest scope to provide good or bad value for money depending on what they deliver in return for their potentially hefty fees.

Read this Q and A at http://www.candidmoney.com/questions/question395.aspx

Question
if profits are taken from investment funds within a tax year up to the tax free allowance of 10,100, for capital gains. Are the profits taken then still liable to ordinary income tax? If they are can any losses from investment funds be used to reduce any gains and tax owed.

Regards

Simon.Answer
Capital gains tax and income tax are two separate taxes, I can’t think of any situations when both would apply to the same profit – it’s either one or the other.

The gains you make when selling most investments, e.g. shares, funds and second homes, are subject to capital gains tax. Gains up to the annual £10,100 allowance are tax-free, any excess is taxed at 18% or 28% depending on whether you’re a basic or higher/top rate taxpayer.

Income tax is more likely to apply to any income you receive from the investments, e.g. dividends, interest or rental income.

[note: income tax can apply to gains from some offshore fund investments that don’t have ‘reporting’ or ‘distributor’ status, but you’re generally unlikely to encounter these with the exception of some exchange traded funds (ETFs)].

If you make losses on investments then they can be offset against future gains, but you must notify the taxman (HMRC) of the losses if they occurred in a tax year previous to the one in which they’re being used to offset gains. Take a look at my answer to this earlier question for more details about this.

Read this Q and A at http://www.candidmoney.com/questions/question399.aspx

Are FSA regulated currency brokers safe?

Question
Since Crown Currency went into liquidation I have been searching for a safe way to transfer funds abroad safely and at a reasonable cost.I have posted a question before on the subject and if I remember correctly your advice was to look for a company that is FSA authorised rather than registered.

I came across a company called Caxtonfx and they are both regulated and authorised.All seems ok until I came to the link-About Us and security.Under the heading "Is my money safe?" I was troubled when I read that only money from businesses are segregated.

For individuals the money is not segregated.This is a copy of the sentences that I find alarming: "It is important to note that spot and forward foreign exchange transactions are not regulated activities. This means that during the actual settlement process for your fx transaction, your funds are not held in segregated Client Money accounts and is not deemed to be Client Money at that time.

I think what I want to do is buy foreign currency and transfer to an account abroad.This would be classed as spot foreign exchange transaction and is not segregated.Therefore not safe if the company should fail like Crown.

My understanding of the two sentences may not be correct.I would therefore appreciate your understanding of the sentences and if you would still consider foreign exchange companies that are authorised as safe for individuals?Answer
Caxonfx should be one of the safer foreign currency brokers given they are authorised and regulated by the FSA. And they appear to be following FSA rules by holding client money in a segregated client account. But your question highlights a loophole as far as the security of your money is concerned. And I believe this applies to all foreign currency brokers, not just Cantonfx.

The problem arises when Cantonfx passes your money across to a third party (called a ‘counterparty’) in settlement for the foreign currency purchased. At this point it is no longer held in the ‘safe’ segregated client account so if either Cantonfx or the counterparty supplying the foreign currency were to go bust you could, in theory, lose your money. This is what the terms and conditions you’ve highlighted refer to.

Is this likely? In the case of Cantonfx. probably not. They appear to a sensibly run company and currently use Royal Bank of Scotland as the counterparty for their foreign exchange transactions. But this is a worrying issue nonetheless, as any losses will not covered by the Financial Services Compensation Scheme (FSCS) and if there’s one thing to be learned from the last few years it’s never assume never when it comes to large financial companies collapsing.

So, just to clarify. When you send money to Cantonfx it will initially be held in their client bank account, where it should be safe in the event they go bust. Once the foreign exchange transaction takes place with RBS then your money leaves the client account and is sent to RBS for settlement, at which point it is potentially at risk if Cantonfx or RBS goes bust. Once RBS sends your foreign currency back to Cantonfx it will once again be held in the client account, ready to be paid to you.

I hadn’t thought through this issue before so many thanks for raising it with your question. While it might not be sufficient reason to avoid using foreign currency brokers, it does highlight just how careful you need to be when choosing one if you’re not getting your cash over the counter.

Read this Q and A at http://www.candidmoney.com/questions/question396.aspx

Why is the FSA banning fund cash rebates?

Question
What's the logic behind the proposed FSA ban on cash rebates suggested by this Money Marketing article?

I presume this refers to commission rebates that platforms such as Cofunds and H-L provide. It strikes me that rebates are in the clients' interest so what are the downsides of rebates for the client? Answer
This is all part of the FSA’s Retail Distribution Review (more info in my article here) which, amongst other things, aims to stop financial advisers from receiving commission as payment for financial advice.

In an ideal world this would mean private investors enjoying ‘institutional’ fund charges (i.e. without commission built in) and then paying an explicit fee to an adviser for advice, if required. For example, fund A might charge 3% initially and 1.5% annually from which 3% initial and 0.5% annual commission is paid, as well as a 0.25% annual fee to fund supermarkets/platforms (where relevant). The institutional version of fund A would probably have no initial charge and a 0.75% annual management fee (i.e. 1.5 – 0.5 – 0.25).

But life might not be that simple. For starters, the FSA will allow fund providers to continue paying fund supermarkets/platforms for their services, which would likely continue to be incorporated into fund charges. So there would need to be another fund share class in addition to institutional units (which don’t normally incorporate platform fees). Institutional units also tend to have minimum deal sizes, which might not be practical for platforms when dealing low volume niche funds.

So it seems the FSA is happy for providers to continue building ‘commissions’ into their fund charges, but this will not be allowed to be paid to customers in the form of a cash rebate for fear some advisers might then take that cash as their advice fee – i.e. the commission system would basically persist. Allowing this system risks advisers recommending funds with the biggest rebates then taking that as their fee.

The FSA instead proposes that rebates may be given in the form of extra fund units, which achieves a similar result to reduced fund charges. So in the above example fund A could charge 3% initially and 1.5% a year but rebate 3% initially and 0.5% a year via additional fund units, effectively giving zero initial charge and a 1% annual charge (which is a similar net result as using the cheapest discount brokers currently).

Bottom line, you should still be able to benefit from using discount brokers, but rather than cash rebates you’ll receive additional units (assuming institutional funds aren’t used).

In my view it would be far simpler to ban extra potential fees from being included within fund charges altogether and simply offer rock bottom cost institutional units to everyone. Any platform fees etc would then be paid directly by consumers, which should create greater competition between platforms and provide better overall transparency.

Read this Q and A at http://www.candidmoney.com/questions/question394.aspx

Post Office Inflation Linked Bond review

The new Post Office inflation linked savings bond is similar the BM Savings bond that I recently reviewed, except that it pays a higher rate of interest over and above inflation.

The bond, launching on 22 February, runs for 5 years and pays 1.5% plus inflation (measured by the Retail Price Index) each year before tax.

Interest is calculated annually on 27 May, based on inflation over the year to the prior April. However, it's only paid out at maturity and you don't benefit from interest on interest (i.e. compounding) meanwhile. And this latter point could cost you around 1% in total over the 5 years versus receiving annual interest and earning 3% a year on it elsewhere meantime.

The key detractors are that returns are taxable and you can't withdraw your money before maturity - which may make the bond irrelevant for some.

But if you are happy to tie up your money for 5 years and have concerns over rising inflation then is the Post Office Bond likely to be worthwhile?

The 'best buy' 5 year fixed rate savings account (Principality Building Society) is currently paying 4.85% a year, so for the Post Office Inflation Linked Bond to deliver a higher return average inflation would need to exceed 3.35% over that period.

Is this likely? Possibly, but it's by no means certain. The last published RPI figures show an annual increase of 5.1% to January 2011. But the majority of this was due to higher oil/food prices and the VAT rise, all of which might not rise by as much in future (see our article for more info). If it's any help, markets seem to be predicting average RPI of 2.94% over the next 5 years based on index-linked gilt prices at the time of writing.

You also need to bear in mind that the current 5.1% RPI figure relates to price rises over the last year, whereas what matters with this bond is the extent that prices rise in future.

But if you do believe inflation (RPI) will average more than 3.35% over the next five years then this Post Office Inflation Linked Bond looks very appealing, especially versus competitors.

Taxpayers will be disappointed this bond isn't available within a cash ISA, as they'll very likely lag inflation after the taxman's taken his cut. Higher rate taxpayers in particular might do better opting for a cash ISA (assuming they don't want to save more than the annual ISA allowance).

For example, the Northern Rock cash ISA paying 4.3% fixed for 5 years equates to 7.17% gross taxable interest for higher rate taxpayers. RPI would have to average 5.67% for the Post Office bond to match returns, after tax. The equivalent RPI rate for basic rate taxpayers is 3.88%.

The bond is available by Internet or phone between 22 February and 27 April (it could close earlier if demand is high) - there's no bonus for applying early, sp you could lose a little interest meanwhile. The minimum investment is £500 and maximum £1 million.

Although inflation is hard to predict, I'm pretty certain it won't remain as high as current levels for the next 5 years. So I wouldn't pile into inflation-linked savings bonds on the basis of 5%+ inflation.

Nevertheless, the Post Office Inflation Linked Bond looks very competitive versus the BM Savings variant and could make sense for non/basic rate taxpaying savers who wish to hedge some of their cash against rising prices. After all, beating inflation, after tax, should be the ultimate goal for all savers.

Read the full review at http://www.candidmoney.com/candidreviews/review53.aspx

Good website for fund performance?

Question
Can you recommend a website which lists funds in order of return over the past 12 months [or similar],preferably per sector. Many Thanks.Answer
Yes, of course, all the following sites (all free) list unit and investment trusts by sector and you can sort on both cumulative and discrete (i.e. yearly) performance.

Trustnet - updated daily and includes information on how the fund is invested and dividends.

Morningstar - provides more extensive statistics and data than Trustnet, although I find it more clunky to use.

Bestinvest - stats only updated monthly but includes research resulting from analysts speaking to fund managers (i.e. qualitative) as well as the usual quantitative stuff, which might prove helpful. Bestinvest also produces stats relating to fund managers, not just the funds they run.

Citywire - also includes manager stats like Bestinvest in addition to funds. Quite a lot of information but takes more effort to extract versus Trustnet and Morningstar.

Hopefully you'll find at least one of the above sites suits your needs.

Read this Q and A at http://www.candidmoney.com/questions/question390.aspx

Savings bonuses - fixed or variable?

Question
You have referred to the use of 'Introductory Bonuses' on some savings accounts as a marketing trick, which in principle I understand, namely the requirement to watch the 12 month anniversary date when the rate drops.

My questions relate to the possible implications of how these offers are worded, for example:

1. On the Egg website, I found this wording:

On balances up to £1,000,000* - 2.80% gross pa/AER variable (including an introductory 12 month fixed bonus of 1.55% gross pa from the date the account is opened).

On balances up to £100,000** - 2.50% gross pa/AER (variable) for first twelve months (includes 12 month variable bonus rate of 1.25% gross pa from the date the account is opened).

Obviously, the amount on which interest is paid is increased, however I also noticed that there is a subtle change in the way in which the bonus is worded, one is a fixed bonus and the other is variable - I wondered if you had a view on which of these is potentially better - I presume the future direction of interest rates is relevant?

2. I also wondered whether there is any relevance concerning the size of introductory bonus in relation to the total AER, in other words whilst the total rate is the same the bonus is markedly different?

(i) Post Office: Rate: 2.9% variable AER, inc 1.25% bonus. Online Withdrawal restrictions: None.

(ii) Santander Rate: 2.9% variable AER, inc 2.4% bonus for 12 months. Withdrawal restrictions: unlimited

Thanks for your help.Answer
Thanks for raising a very good point. Fixed savings account bonuses are normally preferable to variable because you know exactly what you're getting.

The trouble with variable bonuses is that the bank might reduce the rate during the bonus period, leaving you with a lower return than expected. While this may not be problem provided you can move the account elsewhere, penalty-free, it's a potential hassle as you'll have to regularly check the bonus to ensure it's not been cut.

The only exception I can think of is when the bonus applies to ensure a minimum rate during the introductory period, in which case it would probably need to be variable in case the underlying account rate falls.

Interest rate movements probably won't make that much difference to variable bonuses, it's more likely to be a case of whether the bank thinks it's profitable to reduce the bonus in light of customers they might lose and the negative publicity it may generate.

Anyway, other things being equal, I'd plump for a fixed bonus over variable.

The size of the bonus relative to the overall rate has a couple of potential implications. On the one hand a large fixed bonus is good, because even if the underlying rate falls you should still receive a reasonable return during the bonus period. The downside is that when the bonus does end you'll be earning a lot less interest, which could prove costly if you don't swiftly move the account to a better rate elsewhere.

Putting all this together. If you watch your savings closely and can move elsewhere quickly, without penalty, then I'd be fairly relaxed whether the bonus is fixed or variable and the extent that it comprises the overall interest rate. But if not then you may be best off opting for a fixed bonus that is high relative to the overall rate and try to remember to move elsewhere when the bonus expires.

Read this Q and A at http://www.candidmoney.com/questions/question387.aspx

Good time to buy copper?

Question
I understand there's a worldwide shortage of copper. Is copper a good investment now?Answer
As with most commodities I think the prospects for copper over the next 20+ years are very good, thanks to growing demand from emerging countries as they continue to develop.

Copper is widely used in electronics and construction, so benefits from countries that are building their infrastructure and demanding more electrical goods. If we see a growth in electric cars that could help too, as these use 2-3 times more copper per car than standard vehicles.

So there's little doubt that demand will increase over time, but what about supply?

While there's enough copper on Earth to last for millions of years, at the moment it's only economically viable to extract a fraction of that. And currently demand seems to outstripping supply - by around 250,000 tonnes last year and an estimated 500-600,000 tonnes this year. To put this into perspective, annual output is currently about 19 million tonnes a year.

So provided demand continues to outstrip supply the prospects look good. Is this likely?

The growth in demand has primarily come from China, with estimates suggesting China accounts for around half worldwide copper demand. While demand from china (and other emerging countries) will almost certainly grow long term, there is a risk that rising inflation in China will prompt the Chinese Government to slow things down for a while, which could reduce demand for copper.

On the supply side, it seems there's not much scope to increase supply over the next couple of years (although solving labour disputes could help a bit), but the investments copper miners are making to increase capacity (they're tempted by high coppers prices) could start to boost supply significantly by around 2014-15. Copper can be recycled very efficiently and accounts for around 1/3rd of supply, but it seems unlikely this will increase in a major way.

We also need to bear in mind that some of the recent demand growth is due to investors, which tends to be far more fickle than 'real' demand. If these investors decide to keep buying or dump their holdings, this will also affect demand for better or worse.

Putting all this together there's a reasonable argument that prices might continue to rise for the next couple of years then start to wane for several years, as plenty more supply comes on tap, before rising again as demand growth starts to outpace the increased supply.

However, these things are difficult to predict as there are lots of unforeseen factors that can affect supply and demand along the way. So while it's tempting to bet on copper, I'd keep the stake fairly small.

Read this Q and A at http://www.candidmoney.com/questions/question386.aspx

Time to sell Latin America fund?

Question
I have some money invested in Invesco Perpetual's Latin America fund which has performed very well but has recently lost significant value.

I originally attributed this to the problems in Egypt which seemed to affect emerging markets generally, and have sat tight in the belief that the fund would recover, but I have just read an article saying that emerging markets are now out of favour - although they were being tipped as a growth area at the start of the year - and that fund managers are now moving massive amounts of money out of emerging markets, and will continue doing so which will precipitate further falls.

I was wondering if this is true and if sentiment has now moved against emerging markets?

Some pundits are still waxing lyrical about the sector and Latin America in particular.Answer
I wouldn't take newspaper articles predicting which markets will be hot or not too seriously, as the views often seem to change far more frequently than the fundamental prospects for the underlying markets themselves. Such articles might make entertaining reading, but I'm not convinced they'll always help us all become better investors.

And, even if they are right, when it comes to emerging markets I'd really suggest investing for the long haul (i.e. at least 5-10 years, ideally longer) and not losing too much sleep over shorter term volatility.

In my view, investing in emerging markets is all about believing in the big picture and not getting too distracted by the multitude of unpredictable factors that will affect these markets along the way.

Of course, in an ideal world I'd love to be able to spot trouble on the horizon, cash in my chips, then re-invest once markets have fallen. But even professionals who spend their lives studying markets often struggle to do this, so you need to be realistic about your chances of success when trying to time markets - especially emerging.

Invesco Perpetual Latin America has fallen about 7% over the last month, although it's still up around 10% over the last six months. While this kind of volatility isn't good for nerves, it's not unusual for emerging markets.

The likely cause of the recent setback, as yiou suggest, is investors selling off investments in the region due to fears over the Middle East and rising emerging market inflation. High inflation is seen as negative because it might prompt central banks to raise interest rates making it more expensive for companies to borrow - which could reduce profits and/or reduce investment in the future. But trouble in the Middle East could hurt oil supply and push its price, which is arguably good news for Latin American oil producers, so I'm less sure why this is causing investor panic (other than the obvious global risk of reduced Middle Eastern political stability).

Will either de-rail the long term Latin American growth story? I doubt it. The world will still likely demand more energy and materials over years to come, which is music to Latin America's ears (because it produces a lot of both). And the resulting growth in local prosperity creates a bigger market for domestic financial services and consumer goods.

It's this story that fund managers like Invesco Perpetual are trying to tap into - over half your Latin America fund is exposed to the materials, energy and financial sectors.

Will there be further falls short term? Probably, but difficult to predict when and by how much. If you are nervous then don't be afraid to sell. But bear in mind that spotting a good time to re-enter the market could be difficult, which runs the risk of missing the boat if these markets bounce back quickly.

Read this Q and A at http://www.candidmoney.com/questions/question385.aspx

Do expensive stockbrokers get better prices than cheaper ones?

Question
There is enormous variation in the charges for buying shares to put in an isa. x-o.co.uk can do it for only £5.95 per trade and nothing for the ISA wrapper. The Share Centre charge 1% (so £102 for a maxi ISA) plus £10 pa for the ISA.

My question is: will I get as good a share price with the super cheap one? There is no point in saving a bit on dealing charges if the share price paid is higher.Answer
Thanks, as although this is an obvious question I don't remember ever remember being asked it before and I've had to do a bit of brain scratching to come up with an answer.

Most companies on the London Stock Exchange main market (i.e. FTSE All Share) are traded electronically using SETS (the Stock Exchange Electronic Trading System), in which all buy and sell orders are matched up on price to execute a trade. So on this basis you should be offered the same prices whichever stockbroker you use. When you trade online a brokers system taps into SETS to get the best price and gives you 15-20 seconds to accept or decline.

Less traded shares, for example most companies listed on the Alternative Investment Market (AiM), are generally traded via a modified version of SETS (called 'SETSqx') in which market makers quote firm prices for these shares (combined with periodic auctions) in order to provide some liquidity, so this works in the similar way as above. Otherwise shares will be traded by the stockbroker getting quotes from a range of market makers for the shares you wish to buy or sell (often with high spreads between buying and selling prices). In the latter instance I guess price could vary between stockbrokers depending on how many market makers they have a relationship with, but I wouldn't generally expect there to be much of a difference between brokers.

Stockbrokers are also obliged to adopt a 'best-execution' policy, which basically means they must try and get you the best price they can given the size of your order and likelihood it'll complete.

In summary: when trading FTSE All Share companies there should be very little/no difference in the price offered by brokers unless the share is very illiquid (i.e. very few buyers/seller/market makers). By the same token you might expect a greater likelihood of variation when trading AiM shares and other less liquid securities, but even then electronic dealing systems should ensure prices are mostly consistent.

So that's the theory. But in practice I've never tried checking this out as I only ever seem to have had one stockbroker dealing account at any point in time. If anyone has anecdotal evidence that either supports or rubbishes my answer, please let me know below...

Read this Q and A at http://www.candidmoney.com/questions/question384.aspx

Has the FSA admitted failure?

There's no question that the financial services industry has consistently failed its customers. Greedy salesmen must take some of the blame, but is the FSA finally taking some responsibility too? .

I’ve argued for years that the Financial Services Authority should regulate the product and its presentation, not the sales process. Through those years, the scandals have carried on mounting up, and each time the regulator has come along, sometimes years after the horse has bolted, to shut the stable door.

19 April 2002, a letter from me to the Financial Services Authority, responding to a Consultative Paper about scrapping the then ‘polarisation’ rules:

“Regulation has failed to ensure that product risks are understood and failed to secure honesty in product presentation…the FSA should place much more emphasis on the regulation of the product and much less on the distribution.”

April 2008, my article in Money Management:

“However, if the contortions associated with segmenting a market by types of advice lead nowhere, which seems at least possible, the FSA may have to turn back to the product complexity issue and address it at source.”

14 February 2011, a letter (unpublished) to The Economist:

“Most of the so-called mis-selling scandals of the past few years could have been avoided if the FSA had regulated the product itself, and made more extensive use of the permitted activities regime to make sure that sales people really did understand what they were selling.

The standard approach to consumer protection is to make sure the product is safe when it leaves the factory or shop. The FSA approach is the equivalent of passing responsibility for the Motor Vehicles Construction and Use Regulations to thousands of back street second hand car dealers.”

January 2011, Adair, Lord Turner, FSA Chairman, in the introduction to a Discussion Paper entitles ‘Product Intervention’

“In the past the FSA’s regulatory approach was based on the assumption that effective consumer protection would be achieved provided sales processes were fair and product feature disclosure was transparent. But this approach has not been effective in preventing waves of severe customer detriment.”

A page or so on in the same document:

“So, while we have made clear that firms have responsibilities to design products appropriate to the needs of the intended target market, we have in practice focused on the point-of-sale – including financial promotions, product disclosure and selling practices – to try to prevent mis-sales. This approach has not always achieved the right customer outcomes: in some high-profile cases, consumers have suffered significant detriment. We believe a new regulatory approach is needed to avoid these large-scale episodes of consumer detriment.”

In my view, these two statements are Civil Service speak for WE HAVE FAILED. I suppose we should be pleased that the FSA has now admitted that for all of ten years it has been barking up the wrong tree.

You don’t need to read the Discussion Paper to guess that the solution is of course to climb up another couple of branches and bark a bit louder.

The answer is for the regulator to pre-approve the product and its presentation. But the FSA is having none of it. Oh dear, they say, we’d need more staff and the costs would have to be passed on to consumers. And we’d probably be far too cautious, and so restrict consumer choice. Worse still, products would be delayed.

Baloney. They could divert staff from the activities that have failed. They would be able to approve risky stuff, but control it through making sure that it could only be sold by qualified people, with risk warnings plastered all over it. And it takes ages to get a product to market anyway, so there would be no additional delay.

The reality is that the FSA does not want to be accountable. It is much happier wringing its hands and saying that it has done everything in its power to prevent abuses. In the meantime, it is costing all of us an absolute fortune.

Wouldn’t it be nice to know that: a product and associated risk warnings had passed regulatory scrutiny; the person flogging it to us understood it; and that the charges would be disclosed to us in regular intervals, in cash.

It ain’t going to happen.

Read this article at http://www.candidmoney.com/articles/article199.aspx

Should I worry about tracker fund performance fees?

Question
This is a question about performance fees and trackers. Should I embrace this new charge or treat these fund providers as pariahs to be avoided whenever possible. Do these, initially low fees represent a bargain compared to actively managed funds or are these initial charges just "the thin end of the wedge" which will get much worse over time? I suppose this sort of question needs a "crystal" ball but I think it is worth asking as could these fees potentially end up over time being much worse than actively managed funds?

I first came across this problem a few months ago when I hurriedly did some switches and one of these was into an HSBC American Index tracker. I did not even bother to check the detail as I assumed there were no fees with trackers. But, I later found from the general information provided by the supermarket that I had got caught out by these new fees. But I did not pursue it further at that time ,but merely noted that it would be a suitable candidate for switching later on. In this week's Sunday paper I noticed these performance fees for trackers were discussed: they were not ruled by the journalist out as it seems their charges are currently lower than most active funds. So I now have a dilemma as to what to do (come April).Answer
I think your question refers in part to the recent launch by JP Morgan Asset Management of 'active' tracker funds with performance fees.

I'll cover that in a moment, but first a quick overview of annual fund fees. All funds, even trackers, charge an annual management fee, which is deducted by the fund manager on a daily basis from your investment. Tracker funds usually charge 0.5% or less a year while actively managed funds tend to charge around 1.5%. This fee represents revenue to the fund manager, but they may pay sales commissions (c0.5%, less or zero on trackers) and fund supermarket charges (c0.25%) from this depending on how the fund is sold.

On top of this annual management fee there will be other charges paid directly from the fund, such as trustee, auditor and registrar fees, which typically add a further 0.1% - 0.2% to total annual charges. The impact of these fees combined with the annual management charge is reflected by a total expense ratio (TER) figure - which you should see quoted on fund factsheets/literature etc.

The fund will also pay dealing charges when buying and selling shares. These are seldom explicitly listed and simply reflected in actual fund returns. Some estimates suggest they could add several percent to overall costs on funds that trade particularly frequently, but the bottom line is whether a manager can beat a comparable index after all costs.

Performance fees are normally on top of these annual charges and typically charged at a percentage of overall returns or returns in excess of a pre-agreed amount (called a 'hurdle' rate). They can be a good thing provided the fund manager reduces their usual annual management charge, as it gives the manager a greater financial incentive to perform and leaves them worse (than usual) if they don't. However, most performance fees to date have been very greedy, with managers simply sticking them on top of their usual fees - a win-win for them but far less appealing for you. It's also important to check whether a performance fee has a 'high watermark', meaning the fee can't be charged on performance that doesn't exceed the fund's previous highest value. Otherwise the manager could, for example, return 20% and pocket a performance fee, lose 25% then recover 10% and charge another performance fee, even though you've lost money overall.

The JPM UK Active Index Plus fund is essentially a FTSE All Share Index tracker fund that allows the manager to actively tweak holdings a small amount versus the index, with a view to beating it.

The annual management charge is 0.25% with other costs of 0.15% to give a TER of 0.4%. The performance fee is charged at 10% of returns above the FTSE All Share Index (without a high watermark), but is capped to ensure the TER does not exceed 0.55%. I'll try and review the fund in more depth soon, but on the surface this seems a reasonable deal. However, the annual charge doesn't include any sales commission, so don't expect financial advisers to be overly enthusiastic about the fund.

The HSBC American Index fund charges 0.25% a year with 0.03% of extra costs giving a TER of 0.28% - a pretty competitive deal for a US tracker fund. There is no performance fee despite Fidelity FundsNetwork's website suggesting otherwise (I assume this is an error).

I agree that fund charges are a big issue. Far too many active fund managers charge far too much and fail to deliver. Some tracker funds also charge excessive amounts (e.g. the Virgin Index Tracker at 1% a year). But there are also many, good, low cost tracker funds that can be worthwhile.

I would be concerned if tracker funds start to levy performance fees, but this is very unlikely given they mostly, by definition, underperform the index a little due to annual management charges (assuming they track the index 100% accurately).

Read this Q and A at http://www.candidmoney.com/questions/question383.aspx

Should I invest in an ISA or wait?

Question
As we approach the end of one ISA season and the beginning of another, as always we are told by the Fund Managers to use it or lose it. At the same time they tell us the economic global recovery is good and that the UK recovery is ongoing with the majority predicting an end of year FTSE of 6500. ( I think you went for 5500).

My question is:- With revolutions going on in the Middle East States is now the time to hold back and just wait and see what transpires?

Whilst I appreciate that ISA investments should be for 3, 5 and 10 year terms nobody wants to invest £10,100 in March for it to become £8,000 a month or so later due to unrest in the Arab world.

The financial "experts" are the first to sell up at the slightest hint of problems leaving the rest of us wondering what hit us.

They say a week is a long time in Politics, I feel it can be a great deal shorter in Economics.Answer
This is always a difficult question to answer. You're quite right, there seems little point in investing £10,000 if it might fall to £8,000 within months, even though it could recover to more than £10,000 in future. Much better to wait for markets to fall then buy at a lower price.

The problem, as ever, is market timing. No-one can accurately predict when and by how much markets will fall. You could wait and find markets rise, or maybe they'll fall off a cliff allowing you to snap up some bargains.

I've been fairly pessimistic about the UK stockmarket over the last 3 years, taking less exposure than usual (mostly via equity income funds). My caution saved me from big losses during 2008, but has cost me since then as the market bounced back by more than I expected. I'm still cautious and believe there could be some painful falls ahead - but whether I'm right or not is another matter!

For what it's worth I'd be inclined to hold off investing for a few months and see how the UK economy and other global issues pan out. But bear in mind I might be wrong - my guess is probably no better than anyone else's - it's ultimately a decision you need to make yourself.

There is another issue to consider. if you can afford to use your ISA allowance each year and stand to benefit from the tax advantages then is it worth securing the allowance anyway? Provided ISAs (or an equivalent tax break) remain in place long term, which seems likely, then you might feel relaxed about missing one year's allowance. But if you're worried about losing a potentially valuable tax benefit then whether to secure this is another decision.

If you want to use your ISA allowance you could opt for a cash ISA (allowing you to use £5,100 of the overall £10,200 annual allowance), as this can be moved into a stocks and shares ISA at a later date if you wish. Alternatively, some ISA managers allow you to invest a lump sum now and drip feed it into the market over a period of time (sometimes called 'phased investment'). This allows you to use your allowance without having to invest everything markets now.

Read this Q and A at http://www.candidmoney.com/questions/question382.aspx

Which discount broker should I choose?

Question
This is a follow up to a question about Hargreaves Lansdown. I've decided to invest DIY and not appoint an adviser. From your experiences which is the best discount broker from a point of cost and service?

I'm initially dealing with funds, maybe in the future I might deal in shares. Briefly the plan is to leave 50% in cash building society fixed interest bond, 10% in strategic bonds and 40% in medium to high risk funds. Also I am using my maximum stocks and shares ISA allowance. All suggestions gratefully received. Thanks.Answer
You can view a comprehensive list of the various discount brokers (including services and discounts) via our ISA Discounts Action Plan. I know it refers to ISAs but the discounts are usually the same for funds held outside of ISAs too.

I believe the cheapest discount broker for funds (excluding pensions) is currently Cavendish Online, who charge a one-off £25 fee and rebate all initial and trail commissions provided the funds are held via the Cofunds or FundsNetwork fund supermarkets. Their service extends to processing your investment application(s) and ensuring the correct funds are purchased. Once set up you can manage the investments yourself, online, via your chosen fund supermarket.

Fund platform Alliance Trust Savings i.nvest also rebates all commissions and allows shares to be held, but charges £12.50 per deal (for funds and shares), so a little less attractive if you'll only hold funds but a very competitive all-round deal.

If you're seeking more in the way of information and research then Hargreaves Lansdown might fit the bill. They rebate about the half the annual trail commission and also allow shares to be held (although their stockbroking dealing charges can be a bit on the high side compared to other low cost stockbrokers). Like Alliance Trust, Hargreaves Lansdown runs their own fund supermarket (or 'platform' as it's sometimes called) which means you'll also deal with them directly should there be any administration issues, rather than a third party.

If you want very thorough fund research with low cost advice then Bestinvest offers a fund investment advice service in return for the annual trail commission (typically 0.5%) on portfolios of £50,000+. So more expensive than the above options but you might find the advice worthwhile and they still rebate initial commission in full.

Finally for shares only x-o.co.uk is currently the deal to beat, at just £5.95 per trade with an ISA wrapper thrown in for free if you want it.

Although in theory it's simpler to hold everything on one platform, in your case I think there's an argument for using a few routes in the first instance to help gauge which is the best for you longer term.

For example, you could split some money between Cavendish Online, Hargreaves Lansdown and Bestinvest (or, obviously, whoever else you want) for a year or so and see how you get on. You might decide research and/or advice is invaluable or a waste of time, but at least you'll then know which option will likely work best for you moving forwards. And if you decide to buy shares in future you could simply add a low cost account like x-o.co.uk alongside.

You can look at reader reviews on some of these companeis in our User Reveiws section and if any readers have other suggestions please post them below, thanks.

Good luck.

Read this Q and A at http://www.candidmoney.com/questions/question381.aspx

What happens to loans on death?

Question
Not sure this is one for you....but if someone who has taken a loan out then dies and leaves an amount outstanding what is the position of the estate's executors with regard to paying the outstanding amount?Answer
The simple answer is that the estate's executors need to repay the loan before any remaining monies and assets can be distributed to beneficiaries.

There are small potential complications in that debts must be repaid in a certain order if the estate can't afford to settle them all and the issue of what happens to goods on a hire purchase contracts.

The order for repayment of outstanding debt is:

Mortgage
Rent arrears
Water rates
Council tax
Fuel bills
Hire purchase
Personal loans and credit cards

If debts were held jointly or guaranteed by someone else then the joint holder or guarantor will be responsible for continuing the debt repayments. Otherwise the deceased's estate is responsible for repaying money owed.

If the estate doesn't have enough cash to repay debts then assets, including property, will have to be sold as necessary. In the case of a property owned as tenants in common the deceased's share must be used, if necessary, to repay debts. When property is owned jointly, ownership automatically passes over to the survivor, but creditors can apply for a 'Insolvency Administration Order' to forcing the property to be split in half and sold, allowing them to reclaim money owed.

If all assets have been used and there's still outstanding debts then the lenders will have to write them off as they've nowhere else to turn to get the money.

If the deceased purchased goods via a hire purchase agreement they wouldn't have owned them until the last payment had been made, so the estate will have to either return the goods (making good any damage) or pay any outstanding balance. However, if over one third of the agreement has been paid, the hire purchase lender needs a court order to get the goods back.

Read this Q and A at http://www.candidmoney.com/questions/question380.aspx

Is P2P Lending worthwhile?

The number of P2P lending companies is growing. Is this a great way to grab the profit banks would otherwise make? Or might you end up struggling to beat a savings account?.

What is P2P lending?

The concept is really as simple as going into the pub and asking if anyone wants to borrow some money from you. The difference is, P2P lending uses the Internet (and not your local) to help you find willing borrowers. And there's a company in between to help vet potential borrowers and chase them if they don't repay your money.

Is it risky?

Like any type of lending, if a borrower doesn't pay you back then you'll lose that money. In this way P2P lending is more similar to corporate bonds than savings accounts. But, unlike corporate bonds, you'll know next to nothing about the person you're lending to, so P2P loan companies carry out credit checks to try and categorise the riskiness of each borrower.

If a borrower doesn't pay, the company arranging the transaction will normally chase the money on your behalf and seek to recover it via the courts if necessary. But if the cash isn't forthcoming you'll have to write it off as a bad debt - you won't be covered by the Financial Services Compensation Scheme as you are with savings held in a bank or building society.

P2P companies encourage you to split your money across a number of borrowers to reduce the impact of a specific borrower defaulting - some do this automatically. Nevertheless, depending on who you lend to, the risks can be high and trying to quantify these is one of the most important considerations when lending in this way.

What sort of return can you expect?

With typical headline rates of 8% or more, annual returns, on the surface, look very appealing. But you need to factor in fees charged by the P2P loan company and, more importantly, the impact bad debts might have. Based on estimates, annual returns net of bad debts and fees seem to be in the region of 5-7% before tax at the safer end of the scale. But bear in mind your return will ultimately depend on the actual level of bad debts.

How high might bad debts be?

How long is a piece of string? P2P loan companies usually publish estimated bad debt rates (if they don't be wary) but, as with any guesstimate, they might be wrong. Use their figures as a broad guide, but accept that the actual level could end up a lot higher or(if you're lucky) lower.

The trouble is, P2P lending is a relatively new concept so there's little past data on which to base expectations. The longest running company is Zopa and their bad debt estimates on 5 year loans taken out 2-3 years ago have, with hindsight, proved rather conservative.

	Percentage of loans that defaulted
Borrower category	A*	A	B	C	Y
5 year expected	0.96%	1.92%	3.84%	7.70%	7.18%
5 year actual#	0.00%	6.36%	5.70%	21.05%	8.26%
Source: Zopa. # includes actual defaults and expected defaults from loans already in arrears.

These figures show the proportion of loans in default, so the impact on annual returns could be higher still. In fairness the default rates on Zopa loans issued within the last 2 years are generally within their estimates. But the above figures should still sound a warning: they reflect loans that have been through the credit crunch and the trend that defaults are more likely to occur in the latter half of a loan - arguably relevant given the current economic outlook.

Of course, the impact a bad debt has on your overall return depends on what proportion of your loan portfolio it represents and when it occurs. You'll lose more money from a loan that defaults early on than one later, when more of the loan will have already been repaid.

How long must you lend for?

Loan periods tend to be between 1 and 5 years, but vary between P2P loan companies (e.g. Ratesetter offers a rolling 1 month rate). Borrowers are often allowed to pay off the loan early, without penalty, reducing your potential return unless you can re-lend that money at a similar rate. If you want your money back sooner some P2P loan companies provide a marketplace to sell it on to other lenders, albeit for a fee. But in general you should be prepared to tie up the money for the duration of the loan - although as monthly repayments include some capital (unlike corporate bonds or savings) you'll gradually get access to the money over the loan period.

What's the tax position?

Any interest payments you receive are paid gross but subject to income tax. Unfortunately bad debts can't be offset against the interest, which is disappointing.

P2P loans can't be held within ISAs or pensions - a downside for taxpayers. So when comparing potential returns to other investments bear this in mind.

What happens if a P2P company goes bust?

As your contract is directly with borrowers they'll still owe you the money. And there should be provision for a third party company to take on the collection of the debt. But, if this happens, you can bet some borrowers will become more reluctant to repay the money so expect an increased risk of bad debts. As P2P lending is not currently regulated by the Financial Services Authority (FSA) your only protection will be via UK law.

So is P2P lending a good idea?

P2P lending is a great concept - why borrow from banks when we can cut out the middleman and borrow from each other? Trouble is, therein lies a potential problem. Banks can offer competitive loan rates by paying paltry average rates on their savings accounts - P2P lending is more transparent and relies on the rates demanded by lenders being competitive for borrowers. If there's a mis-match then there'll be more of one than the other - so you might face a long wait to lend or borrow at appealing rates.

I'm also wary that a difficult economic period could push up bad debts to the point returns for lenders lag a decent savings account or, worse still, lose you money overall. Of course, I may be wrong and returns turn out to be excellent thanks to minimal bad debts - but I suppose that's the point, none of us knows what will happen in future.

Overall I think P2P lending is worth considering, albeit with a healthy dose of cynicism over whether you'll actually enjoy a decent return (given the current economic outlook). Estimate a realistic worst case scenario and make sure the interest rate you can get (after fees) adequately compensates. If it doesn't then look for another home for your cash.

If you do decide to lend I'd suggest dipping your toes in the water with a small amount to start with. This will give you a feel for how the system works and if it goes wrong your losses will be limited.

Comparison

Below is a list of all the current UK P2P loan companies I could find. They're not paid links or recommendations, just a list you might find helpful.

Company	Borrower type	Typical current annual returns (before fees & bad debts)	Annual fee	Estimated impact of bad debts on annual returns	Loan period
Funding Circle	Business	7-9%	1%	0.6% - 2.3%*	1 or 3 years
Quakle	Personal	7% -25%	Nil	N/A	1-3 years
Ratesetter	Personal	4% (1 month) 7.8% (3 years)	10% of interest received	N/A**	1 month or 3 years
Yes Secure	Personal	10% - 25%	0.9%	3% - 25%***	1-5 years
Zopa	Personal	6.4% - 12.1%	1%	0.5% - 5.2%	3 or 5 years
* Some loans backed by personal guarantees. ** Provision fund intended to reduce risk of bad debts. *** Actual default percentage, impact on annual returns could be higher.

Read this article at http://www.candidmoney.com/articles/article195.aspx

Skandia Capital & Income Bond ok?

Question
In March 2007 I purchased a Skandia Capital and Income Bond. The purpose being to grow capital and take tax free income up to 5 pc of the bond value.

Whilst I am satisfied with the income the value of the bond has obviously decreased beyond the market entry value. I realise that annual charges and withdrawals are applied but the current share index is some 20 pc higher now than when the bond was purchased i.e. 5250 March 07 - 6000 now. and yet negative growth stills applies.

Can you give a simple indication of any broad percentage growth that might apply purely as a measure for the aforementioned period

Are there any more viable options even within Skandia.Answer
Your Skandia Capital and Income Bond is a standard insurance company investment bond. This means that all income and growth is taxed within the fund at basic rate and you can withdraw up to 5% of your original investment each year.

It's important to recognise that the 5% annual withdrawals don't reflect the income produced by investments within the bond (which may be higher or lower), but is simply a withdrawal of capital. Investment bonds are also not tax-free - the fund has already paid basic rate tax and you might have additional higher rate tax to pay when the bond is eventually sold (probably only likely if you're a higher rate taxpayer at that time, see our life investment page if you want a full explanation of how the tax works).

Let's suppose the investments within your bond return 4% growth and 3% income a year, a total of 7%, you'd expect the bond to increase in value by around 2% a year after the 5% withdrawal (ignoring charges). Likewise, if the investments return 4% growth but don't pay an income then you'd expect the bond value to reduce by about 1% a year after the withdrawal.

One of the advantages of using Skandia is that they offer a choice of around 500 investment funds to hold within your bond (list here). So your bond's performance will obviously depend on which fund(s) you hold. Even if you're invested in UK stockmarket funds it's unlikely their performance will have mirrored the FTSE 100 (hopefully it's better!), so it's difficult to apply a broad expected percentage growth for the period since buying the bond.

If you want to check the funds held in your bond and list them in the comments section below I'll take a look and try to gauge whether you should be concerned about performance to date. And, more importantly, whether they're appropriate for you.

Meanwhile, a very rough calculation based on FTSE 100 returns over the period. Let's assume you invested £10,000 4 years ago. I'd have expected about 5% to have been deducted as an initial charge (it might have been different depending the adviser's commission terms/deals applying at that time), so your £10,000 becomes £9,500. Since then the index has fallen from about 6200 to 6000 - a 3% fall. Annual fund management charges of around 1.25% plus Skandia's annual bond charge of 0.75% will have wiped c8% off the value, although annual dividends of around 3% will have added c12%. Take off annual 5% withdrawals and your initial £10,000 investment might be worth around £7,700.

Assuming an investment bond is an appropriate investment for you then Skandia is not a bad place to be, but it's important to ensure you're invested in decent underlying funds that are suitable for your needs. It's straightforward and free to switch funds within your bond, if need be.

Read this Q and A at http://www.candidmoney.com/questions/question378.aspx

Frontier Fund information?

Question
I have a collective investment bond with 2 funds in which are both suspended.

One is the Frontier Commercial Property fund which is still run by Frontier Capital and has information readily available even if it is bad news. The other is the Frontier Fund (euros) but I am unable to find out any information via the internet. I thought it had been taken over by Valais investments but have found nothing on their website.

Can you help and tell me where to look and also what is happening to it as I know it re-opened and then closed again almost immediately.

Thanks in anticipation.Answer
Information on the Frontier Fund seems to be in short supply. I got in touch with the fund's administrators, IFG Fund Administration (01624 661020 / investorservices@ifgfund.com) who emailed me copies of letters confirming the manager change and suspension of the fund - which I've forwarded onto you (although I guess you may have already received them).

The letters aren't particularly helpful in establishing how the fund is currently invested or when you might get access to your money again, but suggest that:

- Valais Investment (a Swiss-based investment manager) took over management of the fund from Frontier Capital/Corazon Fund Management in early 2010.
- The fund's board also changed at the same time, with the resignation of existing directors and the appointment of two new ones.
- Redemptions from the fund were allowed from 3 May 2010.
- The fund once again closed its door to redemptions on 4 January 2011 due to the illiquidity of its underlying investments.

Other than this I'm failing to uncover further information on the fund. I would suggest getting in touch with IFG Fund Administration to ensure they send you updates. They might also be more forthcoming on Frontier Fund information given you're an investor in the fund.

Sorry I can't be of more help.

Read this Q and A at http://www.candidmoney.com/questions/question375.aspx

Stakeholder pension discounts?

Question
Can you please elaborate with regards to the difference in annual fund charges when applying through Cavendish Online versus applying directly to pension companies? How much of a saving could be made overall?Answer
Because stakeholder pensions tend to pay lower sales commissions than unit trusts there's usually less of a saving to be made via discount brokers. Nevertheless, it can still be worthwhile.

As the mechanics of stakeholder pension discounts are often a bit different to unit trusts, let's compare the two:

Unit trusts
Whether you invest directly with a fund provider, via a financial adviser or a discount broker like Cavendish Online, a unit trust's annual charge will normally be the same, e.g. 1.5%.

However, fund providers typically pay an annual sales commission of 0.5% from the 1.5%, so if you can get some of this back it will have a similar affect to reducing the annual charge.

Buy direct from the fund provider or via a financial adviser and they'll usually keep the 0.5%, although the adviser should provide advice in return, which might be of benefit.

Buying through certain discount brokers allows you to reclaim some, or all, of the 0.5%. You won't get any advice, but if you're comfortable making your own investment decisions it could save you a lot of money over time. (see our ISA Discounts Action Plan for a list of discount brokers).

Unfortunately it's not generally possible for discount brokers to actually reduce fund annual charges, so they'll usually rebate the annual commission to you in cash - either directly to your bank account or into a fund supermarket cash account (if relevant). This leaves you with the hassle of re-investing the money (assuming you want to), but if you do the net result will be similar to a reduced annual fund charge

How much difference might this make?

Let's assume you invest £10,000 for 10 years in a fund charging 3% initially and 1.5% a year, paying 3% initial commission and 0.5% annual commission - average annual return of 6% before charges.

Buy direct from the provider and the projected final value is £15,064.

Buy via a discount broker who rebates all commissions in return for a one-off £25 fee (e.g. as charged by Cavendish Online) and the projected final value is £16,248.

So the difference in this example is a £1,184 saving over 10 years from using a discount broker.

Stakeholder pensions
Stakeholder pensions are not allowed to levy initial charges and annual charges are capped at 1.5% for the first 10 years then 1% thereafter. This reduces the scope to pay sales commissions, which tend to be no more than around 0.3% a year. As a result few financial advisers are willing to give advice on stakeholder pensions as it's not profitable for them to do so. And the savings via discount brokers are generally lower than for unit trusts.

However, unlike unit trusts, stakeholder pension providers convert the waived commission into lower annual pension fund charges, which makes life simpler.

For example, Scottish Widows charges 1% a year on its stakeholder pension if you apply directly, falling to 0.8% a year if you apply online.

Purchase the same pension via Cavendish Online and the annual charge falls to 0.64% for regular contributions and 0.55% for single contributions (in return for a one-off £35 fee).

But there are restrictions: to benefit from these discounts the minimum investment must be at least £120 (net) per month or a £4,000 (net) lump sum - and the discount will reduce if less than 15 years until retirement. Go direct to Scottish Widows and you can invest from £20.

[I'd guess Scottish Widows applies these restrictions to reduce the risk of them being out of pocket after paying commission]

To give an idea of how much these discounts might save let's assume a £150 per month gross contribution over 30 years with an average 6% annual return before charges.

Buying directly from Scottish Widows online (0.8% annual charge) gives a final projected value of £127,239.

Buying via Cavendish Online (0.64% annual charge and £35 one-off fee) gives a final projected value of £130,717.

This gives an estimated saving of £3,478 - well worthwhile provided you meet the criteria for receiving a discount.

Read this Q and A at http://www.candidmoney.com/questions/question376.aspx

Is your ISA stuck with fund supermarkets?

If your ISA is held with a fund supermarket you might get an unpleasant surprise should you decide to transfer it elsewhere..

Fund supermarkets (or 'platforms' as they're sometimes called) are a genuinely useful innovation. They allow you to keep your investments in one place, even though he underlying funds may be run by a variety of different management groups.

The end result is far less paperwork, simpler and faster fund switching, a single valuation showing your whole portfolio and potentially better deals via some discount brokers. You can read more in our Using Fund Supermarkets Action Plan.

But there's a potential flaw that affects ISA investors with Cofunds, FundsNetwork and Skandia, three of the largest supermarkets. They won't let you move your ISA investments 'as is' to another supermarket or platform. And, worse still, FundsNetwork also refuses to offer this option for non-ISA investors when their investments total less than £40,000 - even though the other major supermarkets and platforms are all happy to do so with no minimum.

The process of transferring investments 'as is', without having to sell then repurchase, is usually referred to as 're-registration' or an 'in specie' transfer. And while all fund supermarkets and platforms are more than happy to accept ISA re-registrations from elsewhere, Cofunds, FundsNetwork and Skandia are not so obliging should you want to leave. Being cynical, there's little incentive for them to do as it increases the risk of losing business to competitors.

These supermarkets will only let you transfer your ISA elsewhere as cash, so you'll have to sell the investments then repurchase on the new platform. Not only is this inconvenient and potentially expensive if you get clobbered with a new set of initial charges, but you run the risk of your money being out of the market for a few days.

And some of those that do allow ISA re-registration away from their platform will charge you for doing so.

The FSA has said that all fund supermarkets and platforms must offer re-registration to other platforms by the end of 2012, but that's little consolation if you're stuck with a supermarket you don't like meanwhile. Annoyingly, if you find yourself in this situation then the only thing you can (aside from moaning loudly at the offending provider) is to sell the investments and re-invest the cash elsewhere (using an ISA transfer form from the new provider).

Here is where the main fund supermarkets and platforms currently stand on re-registration to other platforms:

Supermarket/Platform	ISA Re-registration out?	Charge
Alliance Trust Savings i.nvest		£15 per fund/stock
Ascentric		Free
AXA Elevate		Free
Cofunds		N/A
Fidelity FundsNetwork		N/A
Fundsdirect		Free
Hargreaves Lansdown Vantage		£24 per fund/stock
Nucleus Financial		Free
Skandia		N/A
Transact		Free

 

A final thought. Even where re-registration is allowed it can be a very slow process, sometimes taking up to two months - tedious. The platforms are apparently working with fund groups to develop an automated system that should speed this up, but I'd expect a long wait before this sees the light of day.

Read this article at http://www.candidmoney.com/articles/article194.aspx

Invest in Aberdeen Latin American Equity fund?

Question
How would you rate Aberdeen's new Latin American fund, due to be launched on 9 February, and would you consider it too risky for a 65-year-old who already had exposure to Emerging Markets funds in a well-diversified portfolio but who intended to stay invested for at least the next 5 to 10 years?
Answer
Latin America is very fortunate in that it sits on a vast supply of natural resources, including energy and metals, while also having a good climate and plenty of space to grow crops. Political troubles and lack of demand have, at times, stifled economic growth in the region. But soaring demand for oil, metals and food in recent years has led to a Latin American boom, while more robust political systems have, to some extent, helped translate the commodities boom into more income for a growing proportion of the population.

This last point is a really important one moving forwards. As Latin American populations become more prosperous, then so will their demand for consumer items such as phones, bank accounts, credit cards, food, cars, white goods and other consumer goods and services. This growth in domestic consumer demand often gives emerging economies a 'second wind', helping to stimulate further economic growth in addition to their bread and butter industries.

But while the longer term argument is quite convincing, there's a lot that could go wrong meanwhile.

Much of the increased demand for commodities has come from other emerging countries, predominantly China. If a global slowdown causes these countries to reduce the pace of their infrastructure development then demand for commodities will fall. This would hurt Latin American revenues which in turn could slow the growth in domestic demand as the population will have less money to spend.

Latin American countries are also at the mercy of the US dollar exchange rate, as commodities are usually traded in dollars. For example, a weak dollar means these countries earn less when dollar revenues are exchanged into their local currency.

And while political stability has improved, it would naive to think Latin American countries are anywhere near as politically robust as developed countries in the West. There's still scope for corruption, poor management and civil unrest to derail their ascent from time to time.

Provided you're comfortable riding out shorter term storms, then I think an investment over 10+ years is very sensible - as even the above issues probably won't do much to affect long term growth potential in Latin America.

As you've already invested in emerging markets funds then check how much of that is invested in Latin America (Brazil, Mexico, Chile and Peru are the likely markets). If it's over one third of your emerging markets exposure then I wouldn't see a compelling reason to invest more unless you're particularly bullish about the region.

As for the fund itself, it's a unit trust that will primarily invest in Brazil and Mexico (estimated at 65% and 25% exposure respectively). It will be managed by Fiona Manning, who has not had direct responsibility for a fund before. But I'm not too concerned about this as Aberdeen runs funds on a team basis and is pretty successful at doing so in emerging markets. Their existing track record in Latin America is good based on a US listed fund, albeit the named manager on that fund is different.

As with other Aberdeen emerging markets funds, the focus will be on investing in high quality companies that are likely to weather storms better than others, which is re-assuring. But make no mistake, this is still a high risk fund in the scheme of things, so don't bet your shirt.

If you want to invest in Latin America I don't see a reason not to use this fund. Annual charges are steep at 1.75%, but then worthy alternatives such as First State Latin America charge the same so it sadly seems to go with the territory.

Aberdeen's own Latin American Income investment trust is also worth considering as an alternative, as the income yield of around 4.3% (and around 1/3rd fixed interest exposure) should help reduce volatility. Charges are still high (1.9% TER despite an annual charge of only 1%) and at the time of writing the trust's share price is trading at a premium of nearly 6% to its net asset value, but neither should be a big hindrance long term. You can read more about this investment trust in my earlier answer here.

Aberdeen is launching the Latin American Equity fund on 9 February, although Hargreaves Lansdown has an exclusive allowing you to invest before then. Unlike investment trusts it makes little difference whether you invest at launch or thereafter for unit trusts/oeics, so I wouldn't feel rushed into making up your mind.

Good luck whatever you decide!

Read this Q and A at http://www.candidmoney.com/questions/question374.aspx

How to pick a perfect stockbroker?

Question
I know you are unable to make recomendations but could you suggest a good stockbroker that is able to provide good advice on both individual shares and collective funds.Since my Father's stockbroker retired I have tried 2 firms and both have disappointed. I have a reasonable size portfolio which includes shares, investment and unit trusts, and my 2 sisters have relatively modest portfolios of individual shares which I feel would be better invested in investment trusts, because this would provide a better "spread" in relation to the size of the portfolios and with a reduced number of holdings would be easier for them to monitor.

My sisters are realistic enough to realise their portfolios considered individually probably arent sufficiently large to get a stockbroker excited, but mine would probably meet most stockbrokers minimum criteria for a fully managed service, so on this basis I would have thought a stockbroker would be happy to take all 3 of us on, which is what my Fathers stockbroker did, and as I help my sisters with their portfolios, we would all like to deal with the same adviser.

Geographically my eldest sister lives in the South while I and my other sisiter live in the Midlands but we have used stockbrokers in London and the Midlands, so we dont feel the location of the stockbrokers is a constraint.

I know my sisters could use an IFA as an alternative to a stockbroker if they want to invest in funds, but I prefer the transparency you get with a stockbroker and their charges.

Thank you if you can helpAnswer
I'm probably not the best person to help you find a good advisory stockbroker or financial adviser as I've never used either (having always advised myself).

So if any readers have suggestions or recommendations perhaps they'll be so kind as to post them at the bottom of this answer.

Meanwhile, I can hopefully give you some pointers that might help.

My initial thought is that the chances of finding a stockbroker who can provide high quality advice on shares, funds and tax planning are probably slim. From what I've observed, many stockbrokers who also advise on unit trusts tend to do so as an afterthought (perhaps because fund trail commission can be more profitable for them than share dealing), so funds are seldom their core expertise. This might be fine if they're recommending straightforward trackers, but less satisfactory if you're looking for someone to thoroughly research and monitor investment funds. Any tax planning would probably be outsourced to either an accountant or IFA.

As you've highlighted, many IFAs work on a commission basis which runs the risk of adversely influencing the quality of their advice. Plus, in my view, only a minority of IFAs have either the inclination or resource to deliver high quality investment research and advice. Some outsource this function (which can work well provided the IFA uses the research wisely), some use expensive funds of funds and others simply give basic investment advice. Also bear in mind that most IFAs don't include investment trusts and exchange traded funds in their recommendations and, of course, they're not allowed to recommend individual shares.

While keeping everything under one roof is appealing, you might find you can harness better overall advice by using a stockbroker for individual shares and a good investment-orientated IFA for fund investments. In theory, it should be possible to hold everything on the same platform (see our Using Fund Supermarkets Action Plan for more details), although in practice this might be tricky as most advisers use just one or two preferred options (offering more is unlikely to be cost effective or practical for them).

Whatever you decide, try to avoid stockbrokers and IFAs who make a lot of money upfront (via either commissions or fees), as this gives them less incentive to provide a good ongoing service. Most unit trusts pay ongoing annual trail commissions (of about 0.5%), which fee-based stockbrokers and IFAs should refund to you. If they pocket the trail commission themselves then ensure you're getting advice and service to justify this.

When speaking with potential stockbrokers/advisers then ask for specific details as to how they carry out their investment research. Ideally this will be a separate team of analysts - as the broker or adviser you speak to will likely to too busy looking after clients to carry out proper research themselves. if they struggle to provide a convincing answer then be wary.

Also ask to see example portfolios and past performance data. This should give you a feel for how independent and pro-active the broker/adviser is, as well as whether they've delivered acceptable performance. For example, when recommending funds have they suggested changes following fund manager moves or periods of underperformance? And, specifically re: investment trusts, do they monitor the discount/premium of the share price to the net asset value (NAV)? When recommending shares do they adopt a 'buy and hold' approach or are they more active (which could be a good or bad thing depending on their abilities!). And are their portfolios well diversified, being spread across a range of diffeent assets?

Good luck with your search and I do hope you get some helpful feedback from other readers. If you want any subsequent views on specific companies (i.e. on their charges/proposition etc) just post below and I'll do my best to oblige.

Read this Q and A at http://www.candidmoney.com/questions/question372.aspx