SimplyFinance - Investments & Savings

How Green are your Finances?

2009-11-19T00:00:00Z

Ethical Finance is not currently a priority for more than half of Britons, according to research organisation EIRIS. The online survey aimed to explore the attitudes of the British public towards ethical financial products in the aftermath of the credit crunch.

One of the questions asked was whether those surveyed were interested in the ethical credentials of the products and services they buy. Only 44% said that that they were, and three-quarters of this interested number would take the ethical aspect into consideration next time they looked for financial products and services.

However, the survey seems to have raised the issue of awareness; 62% of respondents could not actually name one ethical financial product or service, and surprisingly almost half of those who said that they would consider ethics as part of their decision-making could not name any either.

So what are the reasons for the lack of knowledge or interest in ethical finance? According to the survey, 46% of people feel that "there is not enough information available on how they make a visible difference in the world", whilst 35% "do not trust the claims of financial providers".

When it comes to perception of the ethically-focused products, only 15% felt that they would perform less well than similar standard products. This shows that although there is a lack of concrete awareness about the products available in the market, people do feel generally positive about ethical finance.

Mark Robertson, Communications and Development Manager at EIRIS said: 'Our survey provides firm evidence of growing interest in ethical finance, suggesting that the message that it is possible to both make money and make a difference when investing ethically is starting to get through to consumers. But levels of awareness, trust and confidence in ethical finance are low. The industry must respond with greater transparency and provide more information on how saving and investing can make a positive difference'.

A new website launched by EIRIS, www.yourethicalmoney.org aims to make it easier for consumers to make ethical and environmentally-friendly choices in their finances. Users can search the site for bank accounts, investment opportunities, credit cards, pensions and other products that match their ethical concerns. There are also tools and letter template for those who wish to make an active difference. So if you feel that you would like to do more, but perhaps did not know where to start, now is the time to act.

Invest Time as well as Money in your Pension

2009-08-23T23:00:00Z

As many as 2 million UK adults do not know which provider is managing their pension, and which investments are being made with their money. Research by asset management company Lincoln Financial Group has also found that a surprising 48 per cent of UK pension holders do not review their pension options once the initial investment has been made. This indicates that pension holders are not fully aware of their rights and of the benefits that can be gained from shopping around. So what are you losing out on by not paying enough attention to your investments, and how can you maximise your return on the money that you have so carefully saved?

If you are a UK personal pension holder, you would usually purchase an annuity with some or all of the savings that you have accumulated through your personal pension scheme, so that you will have an annual income throughout your retirement. You don't have to do this straight away, although you are required by law to purchase an annuity product by the age of 75. The majority of pension contracts that are in place now have an 'open market option'. This means that you could buy an annuity from any provider on the market, rather than sticking with the company that provided your pension.

Although a few pensions plans will have restrictions, it is usually your right as a consumer to choose the open markets option, although these figures from Lincoln suggest that very few people exercise this right. Unfortunately, this could mean losing out on thousands of pounds in retirement income, since the fact that a company offers a good pension scheme doesn't guarantee that their annuity rates will also be competitive.

Simon O'Connor, Head of Products and Marketing at Lincoln Financial Group, said: "With people not taking the time to review their pension options, it's not surprising that the majority are still unaware of the Open Market Option and so fail to shop around to get the best annuity for them on retirement. More needs to be done by the Government and the industry to ensure consumers are aware of their annuity options and make sure they get the best retirement product for their circumstances.

O'Connor continues: "Flexible annuity products carry increasingly important benefits in the current climate, such as helping to protect a pension pot against the effects of inflation and providing the option of an income guarantee." It's particularly important to choose the most financially beneficial annuity, because you cannot change providers once you have made your decision, or even alter the type of annuity that you have chosen.

One example of where you might be benefiting from swapping providers is if you suffer from a health condition such as asthma or a heart condition. You may qualify for what is known as an Impaired Life Annuity or an Enhanced Annuity, which pays the annuity holder a higher income to allow for increased healthcare and treatment costs. Not all providers offer this, so you would be in danger of missing out on this option if you only looked at the products offered by your pension provider.

If you accept the annuity that is offered by your pension provider, you're likely to only have to sign a few forms and the rest is then taken care of for you. Providers rely on the fact that most of their pension holders are going to take this easy option, rather than going down the more complicated route of shopping around. However, for the sake of a few months of research, you could be adding significant amounts onto your retirement income, so it is well worth getting quotes from a number of providers. If you are approaching retirement and would like use your open market option to find the best annuity for your financial circumstances, we would recommend speaking to an experienced financial adviser to determine the most suitable product for you.

What to expect from a Financial Adviser

2009-12-15T00:00:00Z

At a time when you are planning your finances for now and the future, who should you turn to for the best advice? For people with both the time and inclination, the internet is a great resource, particularly for information. However, for the majority, seeking professional advice before acting is essential.

The value of consulting an expert can't be underestimated, considering the fact that since the State Pension was introduced in the early 1900s, a new piece of legislation has been introduced every single week!

Financial advisers study for many years to attain a level of knowledge and expertise. They have access to the latest information on what?s available in the market regarding financial products, funds and legislation.

When dealing with something as important as, for example, your pension, you need to be confident that the advice you get is the most current and appropriate and covers all the options available. This is because there are a variety of ways to fund for retirement, not just traditional pensions - and not all advice points to a product. Equally, people might read a newspaper and be forgiven for thinking that the only way to invest is through an actively managed investment fund, while there are - in fact - other ways. Unless your research is thorough, a little information can be a dangerous thing!

Unfortunately the relatively recent history of personal finance advice has affected the level of public trust in the advice profession. Failures including the collapse of Equitable Life, pensions miss-selling and the closure of final salary pension schemes are just some of the issues that have blighted the sector. But while some people may have had bad experiences, it's not always because of their adviser. The vast majority of consumers find professional advice an invaluable component of their long term financial planning.

Nevertheless, the Financial Services Authority (FSA) has launched the Retail Distribution Review (RDR), a process aimed at restoring consumer trust in financial services.

Two key proposals of the RDR are first, removing the potential for "commission bias", so people will pay for the advice directly rather than the adviser taking a commission from the sale of a financial product.

Second, is raising the minimum level of qualification for advisers. Research by the Chartered Insurance Institute shows that consumers expect advisers to be professionally qualified to at least degree level, whereas the current entry level is just "A" level. Of course, quite a lot of advisers are qualified beyond the minimum already and there are over 1,800 Chartered Financial Planners, which requires qualifications at degree level.

Making financial advice a more challenging profession to enter by requiring a higher level of professional expertise should give consumers reassurance that they are getting advice from a competent person. But professional standards are not just about exams. The RDR will mean tougher rules on maintaining knowledge and skills and also closer monitoring of behaviour to make sure advisers behave ethically and with integrity.

So, what can you expect in practice from an adviser?

When seeking an adviser it is important that you choose someone you feel comfortable with. Your adviser will help you plan your finances for possibly the next 30 years, so it's about building a relationship that will support you as your circumstances change. Ask friends and family for recommendations or seek a referral from another professional such as a solicitor or accountant, if you know one.

Financial advice is fast becoming a trusted profession and with thousands of advisers en route to Chartered status it is now much easier to find an adviser you can trust. Visit www.findanadviser.org to find a trusted adviser local to you. Don't be afraid to talk to 2 or 3 before deciding - a crucial factor in a successful adviser / client relationship is good communication!

See also: Mark's tips on How to Find a Financial Adviser

________________________

Mark Hutchinson MBA, Head of Marketing, the Personal Finance Society

Mark joined the Personal Finance Society in November 2008. He is responsible for promoting the organisation to a range of stakeholders, communicating the events and services available to members and delivering an overall membership package that is highly valued.
Mark's background marketing financial services stretches back to 1989. He has recently held senior marketing roles within AIG Life and Close Investments. Mark completed his MBA in 2002.

A fresh start - make money and make a difference in 2010

2010-01-12T00:00:00Z

If you've resolved to lead a more sustainable lifestyle this year, now is the time to join the growing number of people who want their money to do more than simply produce a profit.

Ethical investment has come a long way since the UK's first ethical fund - the Friends Provident Stewardship fund - was launched a quarter of a century ago and amidst some scepticism in the City. At the time, many doubted that ethical funds would attract more than a few million pounds. But over the last decade, growing consumer interest in ethical issues has continued to drive demand and there's now over Â£9 billion invested ethically in the UK.

In the same way that increasing numbers of us are recycling our rubbish, choosing energy efficient appliances, buying fair trade products and switching our utilities to a green energy provider, more of us are now also considering green and ethical options as part of our financial planning.

Increasing numbers of us are as concerned about whether or not our investments fit comfortably with our environmental and social concerns as we are about securing healthy financial returns. A recent poll of UK consumers conducted by Ipsos/MORI on behalf of EIRIS found that a third of us are likely to consider ethical issues when buying a new financial product.

More recently, the credit crunch and ensuing financial crisis has focused attention on what really happens in some of the world's biggest banks and financial institutions. Many of us are still recovering from the shock of discovering how the complex web of sub-prime mortgage debt stretched across the world's banks. An event which very nearly led to a number of well-known high street banks disappearing altogether and which highlighted how a focus on short-term financial gains can lead to some very nasty consequences.

This has meant that banks which take a more long-term approach and which are transparent about who they will and won't lend to, look increasingly attractive to new investors. As a consequence, since the start of the credit crunch green and ethical banks such as Triodos, and the Co-operative have reported significant increases in the numbers of people looking for a bank that takes a more sustainable approach to lending and investing.

This all adds up to an increased level of consumer interest in responsible, green and ethical finance - and evolving expectations around how banks and financial institutions should prioritise ethical issues within their lending and investing our money.

EIRIS' public opinion survey showed that we want banks and financial institutions to prioritise protecting human rights, tackling climate change and investing in fair trade in their lending and investing activities. Avoiding "sin" stocks such as companies in alcohol, gambling or armaments - which have traditionally been the focus of ethical investors - was of less interest.

As our own expectations of ethical investment have evolved, so too have the green and ethical financial products. With over 90 UK green and ethical funds now on offer the good news is that there's a lot more choice available. Saving and investing ethically is no longer just about screening out negative areas like tobacco producers or arms manufacturers from investments.

Ethical investment offers real opportunities to make a difference by focusing investment in companies whose activities contribute to building a fairer, more sustainable world. Many of today's green and ethical funds take a thematic approach and focus their investment on themes such as climate change, urbanisation, water scarcity and climate change.

Others adopt an engagement approach and lobby the chief executives of companies they invest in, or use their vote at shareholder meetings, to bring about positive change. Increasingly, engagement is playing a key role as fund managers use their influence as shareholders to encourage companies to respond to the various environmental and social challenges they face.

However, many of us remain unaware of opportunities which exist to help us rearrange our finances to match our own ethical concerns. EIRIS has therefore launched www.YourEthicalMoney.org - the UK's first consumer website dedicated to green and ethical finance. The new new website aims to empower consumers to make green and ethical product choices that will help build a more sustainable financial future.

From banking to investments, mortgages to pensions, credit cards to child trust funds, the non-profit site provides free, independent and unbiased information on all aspects on ethical finance.

You can use the website to search for your existing bank or building society, as well as your insurance, credit card or mortgage provider, to find out how they measures up against a set of specially-developed green and ethical criteria. You can also search for investment products, including ISAs and funds that match their green and ethical concerns; learn about how their pension scheme invests or find an ethical child trust fund. The site also features a section dedicated to student finance and guides on financial exclusion and greenwash in financial product marketing.

The good news is that there are now more green and ethical financial products available then ever before. So if you are serious about leading a more sustainable lifestyle in 2010 now is the time to consider giving your finances an ethical makeover. You don't have to tackle everything at once. In the same way that you might drink Fair Trade coffee some of the time, by choosing even one green financial product, you are proving that doing something is better than doing nothing.

Get the Most from your Child Trust Fund

2009-08-18T23:00:00Z

Although the 'green shoots' may be showing now across the world's economies, parents are clearly worried about the future effect that billions of pounds' worth of debt is going to have on the lives of their children. The Yorkshire Building Society has reported a 20 per cent rise in applications for Child Trust Funds in the past month.

A Child Trust Fund is an investment product that ensures that parents can use to provide their children with a cash lump sum when they reach 18, which will ensure that, whatever the financial climate, they have a head start with their savings.

However, the Yorkshire's research also shows that a sizeable number of parents are using other savings accounts to prepare for their children's future. Brand recognition is cited by parents in the survey as the main factor when choosing a child savings account, with 'the interest rate offered' coming in a surprising second. However, by using a well-known brand for their savings purely out of familiarity, parents could be losing out on valuable interest.

How can a Child Trust Fund benefit my child?

A Child Trust Fund is a long-term savings and investment account for children. It was introduced by the government for children born on or after 1^st September 2002. There is no tax charged on interest earned through the account, and £250 is added to the child's account when it is opened. Although the fund must be started by a parent or guardian, the money legally belongs to the child, and they can access the savings when they turn 18. Lower income families may be eligible for an additional £250 payment from the government. Visit the Child Trust Fund website for more information about this.

There are three different types of Child Trust Fund to choose between; savings accounts, accounts that invest in shares and stakeholder accounts. Click on the link to find out more about the different types of Child Trust Fund. The type that you should choose depends on whether you are prepared to take a financial risk in order to potentially see greater rewards. As with other investments and savings accounts, the highest interest rates can be found on the higher-risk accounts, but you can move between accounts at any time so your initial decision does not have to be final.

Shop Around for the Best Interest Rate

Your choice of provider does not need to be set in stone either, and therefore parents are encouraged to be proactive and shop around at regular intervals to ensure that they are getting the best possible deal for their children's savings.

Chris Edwards, Yorkshire's Head of Savings&Mortgages said: "Child Trust Funds are a really good way for parents to save for their child's future. However, we're urging parents who have existing Child Trust Funds or those who are in the process of choosing a provider, to shop around for a good deal". According to the Yorkshire's own data, over half of all parents surveyed (52 per cent) who have children eligible for a Child Trust Fund do not realise that they can transfer to another provider.

One current offering is the Yorkshire's own Child Trust Fund. According to Edwards, just £10 per week saved in a Yorkshire Building Society Cash Child Trust Fund since the child were born would be worth approximately £11,740 when the child reaches 18 but a provider paying just 1 per cent less in interest [in total, over the life of the fund] would mean that they would get just £10,870, an £800 reduction in lost interest over the duration of the fund." This example illustrates the need to be proactive in order to get the best savings - the Child Trust Fund can be moved at any time, so it's up to the providers to remain competitive. The child can themselves make decisions about how the money should be managed from the age of 16.

Check with the fund provider about any fees that you will be charged over the duration of the account. Unless you are completely certain about the type of Child Trust Fund that is best for you, it's best to consult an independent financial adviser before committing to an investment.