Capital Markets Corporate

May 31, 2019

Our Weekly Newsletter


Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Empathy bonus for wealth managers

A good client relationship can tide over unexpected results, build trust and create a lucrative partnership that lasts for years. This is particularly true for wealth managers, but aside from fostering a positive relationship with their clients, they also need to hit all the right notes with clients’ families. However, for an industry focused on protecting assets for generations to come, many still fail to engage with their client’s spouse or children. This could be a significant mistake given these individuals are likely to one day inherit the wealth currently under management. (From Financial Times, 23 May 2019)

IHT: “voluntary tax” no longer?

Inheritance tax (IHT) is often referred to as a ‘voluntary tax’ by advisers, as there are several legal and legitimate ways to avoid it. But although these ways exist, not everyone knows how to use them.  A recent HMRC report shows over half of over-60s have little understanding of how IHT works or how to avoid it, with more than a million in this age group on the cusp of unwittingly falling into the IHT trap. (From The Daily Telegraph, 21 May 2019)

Closet tracker funds revealed

According to the FCA, investors could be paying expensive fees for a fund manager who is simply copying the stock market. Estimates suggest that as much as £109bn of investors’ money could be tied up in “closet tracker” funds. Such funds charge a fee for an active manager who, despite their title, simply follows the stock market. Opting for a tracker fund would have the same result but at a cheaper cost for investors. (From The Times, 26 May 2019)

Pensions freedoms trigger little-known tax charges

Retirement specialist Just Group has revealed almost a million savers might face punitive tax charges on their pension contributions. Making flexible withdrawals from pension funds can trigger a reduction in the annual contributions allowance, originally introduced to prevent people from withdrawing their savings only to immediately reinvest this money and claim extra tax relief. A range of savers could be negatively affected, including part-time workers who withdrew from their pension savings to maintain their income, those with irregular earnings and the self-employed. (From Money Week, 29 May 2019)

Facebook’s “Globalcoin”

Facebook is rumoured to be in the final stages of planning the launch of “Globalcoin”, its own cryptocurrency expected to make its debut in 2020. As well as founder Mark Zuckerberg seeking advice from Bank of England Governor Mark Carney, representatives have allegedly also spoken with US Treasury officials and money transfer companies such as Western Union. The digital payments system could be introduced in as many as a dozen countries next year. (From City AM, 24 May 2019)

The end of the dividend party?

UK share dividends are at an all-time high, but could the party be coming to an end? New accounting rules, personal tax changes and faltering workplace pension schemes may mean that shareholders could soon be seeing less from their stock investments.

Latest studies into share payouts have found that it’s never been better to hold UK stock. Dividends paid to holders jumped to a record high in the first three months of 2019, putting investors on track for £100bn in payouts this year. Seven stocks paid out more than £5bn alone in May.

In part, it may be that FTSE 100 firms have been showing too much love to shareholders and too little to pension holders. A recent study found that firms paid out seven times more via dividends than workplace pension contributions over the last 12 months. Critics also point to anaemic wage growth as a reason why big firms might be flush with cash.

But could the party be coming to an end? Cracks are seemingly starting to form in the FTSE 100 as the likes of Vodafone and M&S became two big names to recently announce dividend cuts.

One reason for the move to curb payouts is that firms are beginning to prepare for accounting rule changes which could exacerbate pension deficits and increase pressure on companies to accelerate contributions. Under new rules, firms may have to recognise an extra liability on their balance sheet over and above the normal pension liability.

At the same time, The Pensions Regulator (TPR) recently warned “weak” firms to stop paying dividends and focus on faltering workplace pensions. TPR has even begun to step in and forced one public firm to move money earmarked for shareholders into its Defined Benefit scheme. With UK firms’ workplace pensions £40bn in deficit, it’s likely the TPR will continue to look closely at dividends.

Coupled with the push to put pensions before investors, new personal tax changes may even dissuade shareholders from holding dividend-rich stock. Unwitting UK investors are likely to be stung with a £1bn tax bill thanks to a tweak in the March 2017 Budget, which came into force this tax year – cutting the amount savers can receive in dividends without paying tax from £5,000 to £2,000.

If the dividend party is over, firms will be challenged to communicate effectively to shareholders or risk them seeking income elsewhere. Cuts to dividends may be short-term and herald stronger balance sheets in future quarters – the key is to tell a story that doesn’t have dividend-chasers running for the hills.

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