an invitation to our wealth symposium · your family office we would like to start our new year’s...

January 2016

LE

TT

ER

N

ew

s

The Premier Partnership Limited Your Family Office

wwwpremierpartnershipcouk

We would like to start our New

Yearrsquos Newsletter with an invite

The Premier

Partnership Limited

Annual Wealth and Tax

Planning Symposium

Shortly after the Budget on 16

March we will be holding our

inaugural Wealth and Taxation

Symposium and would very much

like you our clients and our

professional connections to attend

In order to organise the correct

venue we need to have an idea of

the number of attendees Once we

know how many people will be

attending we can confirm exact

dates and times

We realise that for many knowing

the date and time will be crucial to

whether you can attend so we only

need an idea at present whether the

content of our symposium will

appeal and whether you may

attend so no commitment at this

stage just an idea

If you would like to register your interest in the first instance please contact Lewis Daniels here in the office or register via our website where Aaron has created some easy voting buttons for you It will be our intention to provide for you guest speakers from the world of taxation fund management legal and estate planning as well as our own contributions which will give you the opportunity to meet the staff as well Dependent upon timing suitable

refreshments will be served giving

everyone the opportunity to socialise

and meet old friends

So register now and we will confirm

the details as soon as possible We

look forward to seeing you then

Happy New Year

An Invitation to Our Wealth Symposium

Behavioural finance is in academic terms a

relatively new subject that really only started in

earnest in the 1950rsquos As a science it deals with the

ways in which behavioural issues can affect the

investment process because if these inhibiting

factors are not dealt with they can impair the final

investment decisions Behavioural finance is

focussed on seven or eight core theories although

Wikipedia list 91 cognitive biases and I shall

attempt to explain some of these in this article So

you can ideally make good rational decisions

understanding the pitfalls going forward

The two main types of behavioural biases

Cognitive Biases based on errors of perception

memory judgement or reasoning

Emotional The tendency to believe things that

give us a good feeling and disbelieve things that

make us feel uncomfortable

Why do they matter Well human beings exhibit

particular inherent errors in thinking when we

process information These errors are as result of

genetic predisposition that has arisen over time as

humans have evolved

The most common of the behavioural factors

are

Anchoring Becoming fixed on previous

information and using that information to make

investment decisions that are no longer

appropriate

Confirmation Allowing your preconceived

opinion to drive your analysis of an investment

Herd Behaviour The tendency to follow the

actions of a larger group of people because you

think that they must know something that you

donrsquot

Overconfidence The belief that you are better at

choosing investments than others

Prospect theory A loss hurts more than any

pleasure you take from an equivalent gain

Loss Aversion Refers to peoplersquos tendency to

strongly prefer avoiding losses to acquiring

gains Most studies suggest that losses are

twice as powerful psychologically as gains

An example of loss aversion is the TV game Deal or

No Deal

This is akin to the reluctance of a

person to accept a bargain with an

uncertain payoff rather than another

bargain with a more certain but lower

payoff For example A loss averse

investor might choose to put their

money into a bank account with a

very low but known rate of interest

rather than an investment that may

have the potential for higher expected

returns but also involves the chance

of losing value

The last couple of decades have

witnessed great advances in our

understanding of human behaviour

and decision making processes to

the extent that the UK Government

now has a behavioural finance unit

Many of these biases are counter

intuitive in that they often fly in the

face of what we have traditionally

believed influences an individualrsquos

decision making process Retailers

often use another behavioural bias

known as framing For example ldquoAt

pound350 the cost is less than pound1 per

dayrdquo

The purchase item is lsquoframedrsquo at a

cost the buyer will find attractive

Another well know retailer use of

behavioural bias is the use of

confirmation bias This is where an

advert offers you a lsquoCanrsquot miss

investmentrsquo a lsquoOnce in a lifetime

opportunityrsquo or the even more

overused DFS saying lsquoDiscounts

finish Sundayrsquo (and start again

Monday) All are examples of

confirmation bias We like to think we

all carefully gather and evaluate data

before coming to a conclusion ndash But

we donrsquot Instead confirmation bias

makes us reach the conclusion first

Only thereafter do we evaluate the

facts to see if those facts support our

pre-conceived conclusions Optimism

bias is another well-established

theme where we are only correct

80 of the time that we are lsquo99

surersquo and all the men are good

looking women are strong and all

children are above average

The most often one we see in the

investment world is probably

lsquoRecency Biasrsquo The recency bias

convinces us that our recent

experiences are the baseline for the

future In many situations this may

work fine but in financial markets it

can spell disaster

When we are watching investment

values rise we forget about the times

when values fell As far as recent

memory tells us the market should

keep going up ndash so we invest more

However the market then falls in

value and we all become

disappointed wondering why did we

not see this coming When the market

is down and is plumbing the depths

of very low values we know the

market is never going to go back up ndash

because recency bias tells us so The

effect is that portfolios are encashed

at the wrong time the money put

under the mattress and when the

markets and values do rise again we

are left laying on a very expensive

mattress thatrsquos earning nothing

Another word for mattress is a bank

Finally the herding bias is self-

explanatory and is where a group of

individuals can act collectively without

centralised direction Sporting events

religious gatherings episodes of mob

violence and generally Hedgefund

managers are all examples of the

herding bias

Behavioural biases affect us all We

are surrounded by them and respond

to them every day in our normal lives

Understanding and addressing them

particularly in the financial world can

bring a major source of added value

and a properly planned financial

framework can help address biases

and create better returns Paying

attention to your portfolio on a day to

day basis is damaging to onersquos

financial wellbeing and leaves you

open to behavioural biases So agree

a plan set objectives and then

scrupulously avoid reading or

watching financial news articles And

of course leave it to your advisers

Do you know what algorithms

or Fibonacci numbers are

No Well l am not surprised

Although these are not new

words in financial circles we

see more and more such

jargon appearing in the

financial press on a daily

basis For your assistance

here is a little explanation

Fibonacci Numbers

You have probably heard of

Leonardo Da Vinci (born in Vinci

ndash a region of Florence) but you

have probably never heard of

Leonardo Da Pisa or to give him

his real name Leonardo Pisano

a mathematician born in Pisa

around 1175 Leonardorsquos father

Guglielmo Bonacci was a

customs officer and little

Leonardo travelled extensively

with his father around the

Mediterranean coast Here he

met many merchants who used

the lsquoHindu-Arabicrsquo system of

mathematics which was to

provide him with his lifersquos work

Fibonacci is a shortening of the

Latin lsquoFilius Bonaccirsquo used in the

title of his book Liber Abaci ndash

which means the son of Bonacci

It was in this book in 1202 that he

introduced the concept of the

Fibonacci sequence of numbers

In its simplest format the

Fibonacci sequence describes a

sequence of numbers where

each number is the sum of the

previous two numbers

So you have 1 plus 1 equalling 2

then 1 plus 2 equalling 3 the 2

plus 3 equalling 5 and so on

The initial sequence is

1 1 2 3 5 8 13 21 34 55 89

So we have a set of numbers

The truth is this sequence has

become so prevalent in the

financial world that many fund

managers and traders regularly

check what are known as

lsquoFibonacci Retracement

Levelsrsquo (FRL) to see if there is a

significant number offering

support or resistance to the price

level of an index or equity The

most popular FRL are marked at

618 and 382 of the

difference between the high and

the low of the asset you are

looking at If the price of the

asset retraces to one of these

levels then many fund managers

see this as an indication that the

price is going to reverse in

direction But these numbers are

not only used in finance The

Greeks used them to build their

fantastic buildings and believe it

or not a sequence known as the

Golden Rectangle appears in the

painting of the Mona Lisa

Liber Abaci translates as the

book of calculations and these

numbers and sequences now

drive many of the Algorithms

(see article) used by Hedgefund

managers and traders in Global

stockmarkets and are said by

many to be the cause of the

volatility we now witness in

stockmarkets due to the

automated nature of global

trading where the herd

behavioural bias rules Fibonacci

numbers also appear in plants

and flowers Check out

Sunflowers that clearly have 55

spirals going right on their outer

ring and 34 spirals of seeds

going left on the inner ring If you

divide a Fibonacci number by the

one before it the ratios produce

the golden number or ratio

1618034 well known to fans of

Albert Einstein Mozart also used

Fibonacci sequences in his

music as does Stephen Hawking

in his Black Hole calculations

So whilst you may not have

heard of them until now a bit

like behavioural biases they

are indeed all around you

Jargon

OK so letrsquos start again with a

definition

An Algorithm is a procedure or

formula for solving a problem

The word derives from the name of

the mathematician Mohammed Ibn-

Mus Al-Khwarizmi (780 ndash 850AD)

whose work was the source and

identification of Algebra

Algorithms have boomed in the last

50 years particularly with their use

in the financial world and largely

due to the exponential growth in

computer power The enigma

machine used during early World

War 2 to create encrypted

messages is an early example of

the use of Algorithms The

subsequent rsquoturning machinersquo that

deciphered the Enigma Codes was

created using Algorithms and is

known as the forerunner of modern

computers Algorithms are a well-

defined process or formula that are

followed to achieve a desired result

or expected outcome Perhaps you

may now see how these could be

extremely useful in investment

markets

As technology has progressed

Algorithms have become much

more sophisticated performing

millions (even billions) of

instructions per second Modern

Algorithms now adapt to the

constantly changing world of

financial markets creating trading

patterns using buy and sell

instructions that are used by banks

and stock exchanges across the

globe This technological

globalisation has considerably

reduced costs and increased

efficiency for investors making it

possible to trade stocks at the click

of your mouse Algorithms are

frequently used in passive

investment strategies because of

the match between the well defined

asset of the passive index and the

well defined process of the

Algorithm This can drive

investment managerrsquos tactical asset

allocation strategies giving optimal

asset allocations from an

optimization process Algorithms

can also drive diversity in portfolios

ensuring asset allocations are

maintained by constant rebalancing

of assets again to achieve optimal

returns (see article) It is not only

the financial world that uses

Algorithms dating sites and loan

companies also find them most

useful

In model portfolios Algorithms are

used to create asset allocations

driven by a systematically applied

mathematical model which takes

out of the equation the

lsquosubjectivenessrsquo of an individual

fund managerrsquos decisions In

essence this is the difference

between lsquoActiversquo ndash where an

individual or team of individuals

decide on an allocation process

and select and buy separate

investments on behalf of the

investors and lsquoPassiversquo where the

Algorithms rule and apply their

mathematical formulas in their

portfolios to achieve their expected

returns This lsquopassiversquo approach

removes human biases and

emotions in investment decisions

As a result of the big reductions in

the costs of investing due to the

creation of passive investments a

growing number of new investment

solutions are arriving that provide

investors with greater choice than

ever before for their portfolios -

Totally Active (which generally have

higher charges) or Totally Passive

(which tend to have the lowest

ongoing fees) or a mixture of both

Algorithms

There is no one definitive

solution but your adviser will

help guide you to the one that

it right for you

Many of our clients have income from rental

properties and many more are looking at the

potential for creating income in retirement from

property so has the Chancellorrsquos latest

tightening of buy to let taxation changed the

game

As is always the case when the Treasury want to

release (or bury) an announcement they have

released the latest consultation documents of the

Additional Property Rules on 28 December 2015

(Nice) This consultation lasts only 5 weeks which

is not really a long period meaning give or take

what we have seen so far is going to be the broad

brush of the rules

What we do know is the additional property Stamp

Duty Land Tax will be plus 3 across all bands on

purchases

The new rates will apply for completions on or after

1 April 2016 ndash unless exchange occurred on or

before 25 November 2015

The starting point to determine whether the higher

rates apply is how many properties an individual

owns If the answer is more than one the higher

rates of SDLT will apply to the purchase transaction

- unless the purchase is replacing the main

residence which has been sold If there is a bridging

position across two main residences ie the new

one is bought before the old one is sold then the

higher rate of SDLT will be applied to the new main

residence purchase but there will be an 18 month

window during which the excess SDLT can be

reclaimed Married Couples and Civil Partners will

be dealt with as a single person (ie only one main

residence allowed) unless they are separated under

a Court Order or formal Deed of Separation

executed under seal

A big problem of this new rule is if a home-owning

parent buys a property jointly with a child (eg

Student Accommodation or first property) then this

will be deemed an additional property of the parent

and the higher rate of SDLT will be charged

However if the parent were merely to act as

guarantor to the child for mortgage purposes then

the new rule will not apply as the parent will not

own a second property using this route These rules

also affect ownership of property abroad eg Spain

France etc So someone with a main residence in

Spain would pay a higher rate on any further

purchase in the UK

There are more tweaks to these rules to come

following the end of the consultation period

(January 2016) so we will report any further

changes as they arise Watch this spacehellip

Band Property Value

pound

Main Residence

SDLT

Additional Residence

SDLT

0 - 125000 0 3

125001 - 250000 2 5

250001 - 925000 5 8

925001 - 1500000 10 13

Above pound15 Million 12 15

New Buy

To Let

Rules

Well whether this is done via a discretionary fund

manager or a model portfolio quite simply the

returns are better over time The latest Barclays

Capital Data incorporated in their Annual GiltEquity

Performance Study proves the point of re-

balancing

These results show the value of rebalancing The

table shows lsquoNo Rebalancingrsquo which means that a

50 equity and 50 fixed interest portfolio is

created day one - and no subsequent adjustments

are ever made lsquoRebalanced Annuallyrsquo means that

every year the portfolio is returned to its original

investment strategy basis of 50 equity and 50

fixed interest irrespective of which sector produced

the best returns

It can be seen that the rebalancing route

produces an enhanced return year on

year It is well documented that asset

allocation is responsible for 80 of a

diversified portfoliorsquos return pattern over

time proven in a seminal investment

study in 1986 by Brinson Hood and

Beebower

Just as important as rebalancing is the combination

of assets that are used to construct a portfolio For

example over the history of capital markets since

1900 equities returned an average 89 annually

and Bonds 53 Over the same period a 50

equity and 50 bond portfolio would have produced

a 74 average return with a fraction of the volatility

of a 100 equity portfolio

Asset allocation diversification and rebalancing are

powerful tools for achieving investment returns A

portfolios allocation among asset classes will

determine a large proportion of its return ndash and the

majority of its volatility risk Broad diversification

reduces a portfoliorsquos exposure to specific risks while

providing opportunity to benefit from positive market

movements

Because investing evokes emotions investors need

to be disciplined in their decision making

Abandoning a planned investment and rebalancing

strategy can be costly over time and as research

proves the most significant derailers of performance

are behavioural via the failure to rebalance the

temptation of trying to time the market and the allure

of choosing performance Being realistic is

essential to the investment process and investors

must always recognize their constraints and fully

understand the level of risk they are prepared to

take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio

Security selection and

market-timing

Asset allocation

Note Calculations are based on monthly returns for 294 balanced funds from January 1962

through December 2011 Source Vanguard calculations using data from Morningstar

Why do we always advocate that your portfolio

employs a system to automatically rebalance

your investment strategy regularly during the

year

The Make Up of Investment Returns

Although The Premier Partnership Limited attempts to ensure that the information contained in this Newsletter is accurate and up-to-date we

accept no liability for the results of any action taken on the basis of the information it contains

The Premier Partnership Limited is authorised and regulated by The Financial Conduct Authority

The Premier Partnership Limited is entered on the FCA Register under reference 209446

Vicarage Hill Farm Vicarage Hill Middleton Tamworth Staffordshire B78 2AT

T 01283 711222 F 01283 711444 E enquiriespremierpartnershipcouk W wwwpremierpartnershipcouk

Registered Office Court Green Eden Road Tunbridge Wells Kent TN1 1TS

Putting the correct tax wrapper around your

investments can save you considerable sums of

money by saving tax you do not have to pay

Taxation dictates what part of an investment return

actually ends up in an investorrsquos pocket Spending

possibilities may be constrained by taxation issues

and achieving great capital fund performance but in

a tax inefficient manner may nullify that performance

completely

Despite these facts much investment planning

remains almost completely blind to the issues of

taxation In real life the type of return received be

that dividends interest growth of capital values or

some other from of payment such as pension

income are fundamental to the individual investor

and with each of the above being taxed in a different

way it is easy to see why people shy away from

fully considering the effect of tax on their

investments One of the reasons for this is that

many of the portfolio modelling services used by

advisers and indeed modern portfolio theory itself

does not incorporate any lsquobuilt inrsquo tax planning and

so can sometimes be lost in the theories of portfolio

construction

For example if your tax rate is 40 (or even 45)

then any interest receivable will be taxed at that

rate Dividends receivable will be taxed at 325 or

375 Receive the same interest or dividend into

an ISA and then draw your income from that ISA

pot and magically your personal tax liability is

removed The correct use of the ISA wrapper can

radically change the effect of personal tax

From April 2016 we shall see the introduction of a

dividend tax allowance and a savings allowance

These will operate alongside the normal personal

allowance the annual Capital Gains Tax allowance

and the existing 0 (zero) band for those within the

income threshold So fundamentally there will exist

some form of tax free allowance for most forms of

investment return be that dividends interest or

capital growth The sum of these allowances can

amount to a not insubstantial pound33100 per annum

When you then add in the annual personal Isa

allowance and the pension contribution allowance

you start to create a most tax efficient picture

indeed

Investors who plan to ensure they suffer less tax on

their investment return will undoubtedly enjoy more

of that return so when they accumulate - they will

accumulate more When they start to de-cumulate

(such as drawing pension income) that income will

last longer or they may be able to take a higher

income

Developing such a strategy is not an academic

nicety itrsquos about real money needed by real

people - and its one that we can develop for you

Use your adviser today - You know it makes

sense

Make

More Of

Your

Money

Behavioural finance is in academic terms a

relatively new subject that really only started in

earnest in the 1950rsquos As a science it deals with the

ways in which behavioural issues can affect the

investment process because if these inhibiting

factors are not dealt with they can impair the final

investment decisions Behavioural finance is

focussed on seven or eight core theories although

Wikipedia list 91 cognitive biases and I shall

attempt to explain some of these in this article So

you can ideally make good rational decisions

understanding the pitfalls going forward

The two main types of behavioural biases

Cognitive Biases based on errors of perception

memory judgement or reasoning

Emotional The tendency to believe things that

give us a good feeling and disbelieve things that

make us feel uncomfortable

Why do they matter Well human beings exhibit

particular inherent errors in thinking when we

process information These errors are as result of

genetic predisposition that has arisen over time as

humans have evolved

The most common of the behavioural factors

are

Anchoring Becoming fixed on previous

information and using that information to make

investment decisions that are no longer

appropriate

Confirmation Allowing your preconceived

opinion to drive your analysis of an investment

Herd Behaviour The tendency to follow the

actions of a larger group of people because you

think that they must know something that you

donrsquot

Overconfidence The belief that you are better at

choosing investments than others

Prospect theory A loss hurts more than any

pleasure you take from an equivalent gain

Loss Aversion Refers to peoplersquos tendency to

strongly prefer avoiding losses to acquiring

gains Most studies suggest that losses are

twice as powerful psychologically as gains

An example of loss aversion is the TV game Deal or

No Deal












of losing value















dayrdquo

































can spell disaster




























herding bias




























Fibonacci Numbers


































1 1 2 3 5 8 13 21 34 55 89













618 and 382 of the














































Jargon


definition



























markets




































useful
































Algorithms




it right for you






game








brush of the rules



purchases



















executed under seal













purchase in the UK





Band Property Value

pound

Main Residence

SDLT


SDLT

0 - 125000 0 3

125001 - 250000 2 5

250001 - 925000 5 8

925001 - 1500000 10 13


New Buy

To Let

Rules






balancing









the best returns








Beebower
















movements












take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio


market-timing

Asset allocation






year

















completely















construction






















indeed







income





sense

Make

More Of

Your

Money












of losing value















dayrdquo

































can spell disaster




























herding bias




























Fibonacci Numbers


































1 1 2 3 5 8 13 21 34 55 89













618 and 382 of the














































Jargon


definition



























markets




































useful
































Algorithms




it right for you






game








brush of the rules



purchases



















executed under seal













purchase in the UK





Band Property Value

pound

Main Residence

SDLT


SDLT

0 - 125000 0 3

125001 - 250000 2 5

250001 - 925000 5 8

925001 - 1500000 10 13


New Buy

To Let

Rules






balancing









the best returns








Beebower
















movements












take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio


market-timing

Asset allocation






year

















completely















construction






















indeed







income





sense

Make

More Of

Your

Money











Fibonacci Numbers


































1 1 2 3 5 8 13 21 34 55 89













618 and 382 of the














































Jargon


definition



























markets




































useful
































Algorithms




it right for you






game








brush of the rules



purchases



















executed under seal













purchase in the UK





Band Property Value

pound

Main Residence

SDLT


SDLT

0 - 125000 0 3

125001 - 250000 2 5

250001 - 925000 5 8

925001 - 1500000 10 13


New Buy

To Let

Rules






balancing









the best returns








Beebower
















movements












take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio


market-timing

Asset allocation






year

















completely















construction






















indeed







income





sense

Make

More Of

Your

Money


definition



























markets




































useful
































Algorithms




it right for you






game








brush of the rules



purchases



















executed under seal













purchase in the UK





Band Property Value

pound

Main Residence

SDLT


SDLT

0 - 125000 0 3

125001 - 250000 2 5

250001 - 925000 5 8

925001 - 1500000 10 13


New Buy

To Let

Rules






balancing









the best returns








Beebower
















movements












take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio


market-timing

Asset allocation






year

















completely















construction






















indeed







income





sense

Make

More Of

Your

Money






game








brush of the rules



purchases



















executed under seal













purchase in the UK





Band Property Value

pound

Main Residence

SDLT


SDLT

0 - 125000 0 3

125001 - 250000 2 5

250001 - 925000 5 8

925001 - 1500000 10 13


New Buy

To Let

Rules






balancing









the best returns








Beebower
















movements












take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio


market-timing

Asset allocation






year

















completely















construction






















indeed







income





sense

Make

More Of

Your

Money






balancing









the best returns








Beebower
















movements












take

Year No

Rebalancing

Rebalanced

Annually

2010 1175 1175

2011 874 900

2012 811 845

2013 583 665

2014 914 975

Overall 5174 5462

Rebalancing a

Portfolio


market-timing

Asset allocation






year

















completely















construction






















indeed







income





sense

Make

More Of

Your

Money
















completely















construction






















indeed







income





sense

Make

More Of

Your

Money

an invitation to our wealth symposium · your family office we would like to start our new year’s...

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