One of
the most common questions I get asked when on my visits to Advisors is - “What
are people doing with the money once they’ve set up an ITC self-administered
structure?”
Let me
state first that what follows is an observation
of movement of existing and new money. As you know, ITC does not offer
investment advice, so please don’t confuse the following as a recommendation. If you require any advice in relation to the following, please contact your Advisor.
With
our compliance department now satisfied, I think the best way to answer the
above question this is to look at the main areas of client interest in 2012.
Area 1 - Deposits
The
banks thirst for deposits during 2011 and average inflation at 1.65%, made it
very easy for investors to achieve “Real” growth with little or no risk.
It was
noticeable in 2012 that the banks had changed their tune and were pushing
headline rates down and this is expected to continue throughout 2013.
Despite
the downward pressure on deposit rates, demand from clients has remained strong
and an expected inflation rate for 2013 of 1.3% (HICP) is unlikely to dent this
demand.
What
we have seen, however, is a shift from short term deposit accounts to the more
long term.
These
trends are backed up by statistics from the Dept. of Finance.
- Deposits from Insurance Corporations and Pension funds increased by 6.9% in 2012.
- Shorter term deposit rates (less than 2 years) reduced from 3.57% in Jan 2012 to 3.35% in Nov ’12.
- Longer term deposit rates (more than 2 years) increased from 2.37% to 2.42% over the same period.
It’s
no surprise that ARF clients are the biggest supporters of deposit strategies.
Their age profile means that they have less appetite for risk. This has
resulted in over 60% of ITC ARF funds being held in deposits.
We
contacted the insured companies towards the end of 2012 regarding the charging
structure of their ARF products. An annual management fee of 1% is very common.
This
probably explains the inflows to the ITC ARF. Choosing an annual management
charge of 0.5% gives most clients a reduction in fees, full access to the
deposit markets and covers the Advisors continued work of research,
recommendation and implementation.
Area 2 - Broker Portfolios
What
I’m talking about here is where the Advisor has built their own offering for
clients through the use of insured funds, stockbroking accounts and funds,
deposit agencies etc.
The
ITC products work really well in providing Advisors and clients the structures for
choice and control of investments.
The
Advisor assists the client in understanding their attitude to risk/loss, and
then builds an agreed portfolio around their goals and objectives.
The
strengths of this approach are obvious. The client has a better understanding
and more involvement in the process. This gives the client more clarity and
control. There are more touch points with the client which, results in a much
stronger relationship between the client and Advisor.
For
many reasons (to be covered in a future blog), we believe that this type of
strategy will continue to grow in 2013 and beyond.
Area 3 – Property
We’ve
seen a significant pick up in activity for both Commercial and Residential
property and the following gives an indication why we have had this activity
from existing clients and new clients moving away from traditional insured
funds.
- The consensus from the major estate agents is that for prime commercial property in the major cities, prices have stabilised.
- Residential property continued to fall in 2012. In Dublin it was down 2% and down 9% for the country as a whole. But South County Dublin saw an average increase of 3.1%. (Daft.ie)
- Rental yields are averaging 8.8% and the average residential property price was €140k. (Allsop Space/Goodbody 8/12)
The
one thing we haven’t seen is leverage. The lenders experience of negative equity
and overall impairments has obviously affected their appetite to lend. Will
lending to pensions happen again? Yes, I believe so, but in prime property and
with lower loan to value ratios.
Martin
Glennon QFA CFP®
Thank you Independent Talk author for this nice interesting information.I think we should consider retirement living whether we are younger or old.So it will be a good idea if we think about our retirement from young age retirement planning
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