Last week we were delighted to announce the addition of LGT Vestra to our portfolio of discretionary manager partners. We are currently working with them to add information about their propositions to the Compare tool. In the interim, we met with Michael Moss (MM) to talk about the investment offering from LGT Vestra and in particular the new multi-asset funds.
DISCUS. Michael, what investment propositions do you currently offer to advisers and why the new funds?
MM. To date we have offered two key services to our financial adviser partners, bespoke portfolios and model portfolios available on a range of platforms.
When we set up LGT Vestra in 2008 our aim was to offer a fresh approach to Wealth Management and put advisers’ clients first through the provision of a high quality service with a transparent charging structure designed in a bespoke manner to fit individual requirements.
We have been turning that vision into a reality and as part of the ongoing evolution of our investment proposition we are also now delighted to launch a new range of four multi-asset funds to offer financial advisers an additional solution when making their client recommendations.
These funds will be known as the ‘Volare’ funds which is Latin for ‘to fly’ and we believe expresses the hopes and ambitions of clients and advisers when investing.
DISCUS. How many funds are you launching?
MM. There are four new funds, three of which (Cautious, Balanced and Growth) will be managed to a band of volatility. The Volare Strategic Income fund will be targeting a yield of 3.5% which could be attractive for those investors looking for a sustainable level of income in a risk-adjusted environment.
The funds are all mapped to the main risk profiling tools which we believe is an important feature for financial advisers.
We have also built case studies which can help an adviser to consider whether the funds might be appropriate for specific financial planning circumstances.
DISCUS. Can you take us through a case study?
MM. Yes, the provision of tax efficient income in retirement is important to many clients and we usually talk about the role of pensions, ISAs and single premium bonds but perhaps less understood is how collectives can be used and we believe the Volare funds can play a key part.
For example, as part of a client’s retirement planning, it is decided to invest £15,000 per annum excess income into the Volvare balanced fund. The client is aged 50 and intends to start ‘drawing down’ at age 65. The Volare Balanced strategy has a back-tested range of return of 5.2% – 7.5% so for this example, we will use a mid-point return of 6.0% p.a. (net of all charges and adviser fees).
At age 65 the accumulated fund is £370,888 of which £225,000 is capital with the balance of £145,088 being growth and the client decides to take ‘withdrawals’ of £20,000 p.a.. Let’s assume the client’s full Capital Gains Tax (CGT) annual exemption will be available and assuming the current level of £11,100 increases by 2% per annum, this would be set at £15,000.
The client makes a withdrawal of £20,000 of which £12,159 is capital and £7,841 is ‘gain’. Clearly this sits well with the client’s CGT annual exemption and therefore no tax would be payable. Indeed there is more headroom should a larger withdrawal be required.
The long hand method of calculating this outcome is the CGT part disposal formula:
PP x A/A+B
A= Value disposed
B= Value of remaining investment
£225,000 x £20,000/£20,000 +£250,088 = £12,159
The ‘gain’ is therefore £20,000 – £12,159 = £7,841
In this calculation we have used up £12,159 of the client’s original capital which means that any subsequent withdrawals will need to reflect the reduced amount of remaining capital. However, based on the assumptions we have used the client could continue to take withdrawals of £20,000 and his fund would never run out nor would any CGT be payable.
So using the Volare balanced fund in this context provides the client a proven multi-asset investment solution and a framework specifically aligned to the client’s risk profile/capacity for loss coupled with the ability to efficiently manage their CGT position and broader retirement strategy. As an adjunct to more conventional pension savings this planning also comes with less baggage in terms of tax regulation (no lifetime allowance and/or annual allowance issues) and greater flexibility in terms of gaining access to the remaining fund.
DISCUS. Michael – thanks for that example, looking for tax efficient income strategies is something we know that DISCUS readers look for and we also look forward to the information for all your investment propositions being made available on the Compare tool.