Review of the Markets – 11th December 2018

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Developed markets displayed heightened volatility during November. Deutsche Bank track over 70 distinct asset classes and by mid-November over 90% of these classes were negative for the year to date, which is the highest level since 1901. But by month end, the MSCI World Index was up 1.3%, US equities were up 1.9%, Europe was off -0.6%, the UK -1.5%, and Japan up 1%. Emerging Markets were up 3%, with Asia up 4%, and Latin America 0.2%.

The trigger for the falls had been the rising yields on US Treasury bonds due to further hikes in short term rates by the US Federal Reserve, and fears of the US-China trade war. The OECD said global growth has peaked and will slow down during 2019. Meanwhile, back home the UK and EU signed the draft Withdrawal Agreement to ensure a ‘deep and flexible partnership’ as they laid the ground for the trade negotiations to continue after the UK leaves the EU on 29th March 2019. However, the Prime Minister endured a torrid time presenting the Agreement to Parliament.


The FTSE 100 was down 1.5%. The market is now yielding over 4% and the Price Earnings ratio is down to 12 and stands at attractive valuations below its historic averages.

Brexit has dominated the headlines as Theresa May’s Withdrawal Agreement was brought back to Parliament. Mark Carney, governor of the Bank of England, stoked fears of a UK recession when he presented research on the effects of the various Brexit outcomes. His research indicated that a disorderly ‘No deal’ Brexit could be worse than the Global Financial Crisis of 2008. GDP would shrink by 8%; house prices could crash by 30%, commercial property by 48%; the Pound would fall; inflation and interest rates would have to go up to 4%; and unemployment could rise to 7.5%. The
UK would be £100bn worse off.

The research also revealed that a disruptive Brexit would see GDP down 3%, house price falls of 14%, unemployment up to 5.7%.  A ‘close’ deal would affect GDP by 1% and a ‘less close’ deal would mean a GDP fall of 3.75%. Under May’s deal, the UK economy would be 3.9% smaller over 15 years.

Finally, Carney showed that under a ‘No deal’ the economy would be 9.3% smaller. The overall conclusion was that any deal would leave the UK worse off than its current position remaining in the EU. The report was dismissed by Brexiteers as the resurrection of ‘Project Hysteria’.

The crucial vote on the deal was postponed as it was expected to be voted down, so the prime minister declared she would go back to Brussels to obtain assurances regarding the temporary nature of the Irish backstop. The hope that May’s deal will be passed by Parliament faded and the probability of a ‘No-deal’ scenario and a second referendum has risen.  A second referendum runs the risk that the original referendum vote would be reversed and there would be no Brexit at all. A softer deal termed ‘Norway Plus’ in which the UK would re-join the EEA and yet retain membership of the customs union and the single market has been muted.

The outlook for UK investors remains complicated. UK equities are weighed down by raised fears of a ‘No-deal Brexit’, although the sterling weakness that would accompany such an outcome would boost the value of overseas profits.  There is also the risk of a Labour government which would put pressure on a range of utility and transport company shares which Labour has promised to renationalise. A ‘soft Brexit’ would remove much of the Brexit risk premium but likely cause a rally in the pound, possibly to as high as $1.40 according to J P Morgan. The Pound slipped back to $1.27
by the end of the month.


During November the market sold off heavily but ended the month up 1.9%. Valuations were ignored as both Growth and Value stocks fell. Defensive and low beta stocks were sought as much as cyclical stocks was avoided. However, earnings were still on the up as prices were down. Thus, Price Earnings multiples have been compressed. Hardest hit were any special situations companies and those in turnaround mode. The market is buying the safest haven stocks now at any price. Banks and Consumer Staples sectors were affected but Healthcare benefitted as did defence stocks.  US factory production has fallen but is well above crisis levels. Labour shortages in the house building sector have pushed up wages.

Facebook dropped on news it would face legal action over misuse of user data, election interference and the introduction of new digital taxes. Apple shares slid 24% on news that sales of the latest iPhone had slowed prompted by reports from key suppliers Lumentum (facial recognition) and Japan Display of reduced production orders. The $265bn loss on their $1trillion market cap is equivalent to the GDP of Bangladesh.

Following the midterm elections on 6th November, the Democrats won a majority in the House of Representatives, but the Republicans held on to their majority in the Senate which should not cause too many problems for Trump to continue implementing his agenda. There are some views the Democrat majority will curtail his spending plans. For instance, he had threatened to withdraw from the 1980s nuclear non-proliferation treaties of the Reagan-Gorbachev era which could lead to increased defence spending.

US Federal Reserve chair Jerome Powell said in a speech to the Economic Club in New York that interest rates may not have to rise as far as previously expected next year, maybe only one or two rises. This was warmly received by the  markets and led to a sharp rebound in the Dow Jones and S&P 500 because he had earlier indicated that up to four rises were due during 2019. Future interest rate rises, Quantitative Tightening (QT) as it is called, has the effect of draining liquidity from the system and has raised premature fears of a recession.

At the end of the month further tensions with China emerged. Trump tweeted that he hoped for positive talks with China at the G20 meeting in Argentina. The tariff rate is scheduled to increase in January if a deal cannot be reached and tariffs maybe imposed on all of China’s exports to the US. Although the recent Asia Pacific Economic Summit ended in acrimony, a 90-day tariff truce was declared. However, Meng Wanzhou, Chief Financial Officer of Huawei was then arrested in Vancouver. The arrest was seen as a diplomatic blow against China. Huawei is now the 2nd largest producer of smartphones behind Samsung and ahead of Apple. The US is concerned that Huawei has been stealing US technology under instruction from the Chinese government and infringing intellectual property rights. John Bolton,National Security Adviser, expressed enormous concerns over their business practices. However, Canadian PM Justin Troudeau said the arrest was not politically motivated.


The EU Summit in Berlin discussed the Brexit deal. France had issues about fishing rights in UK waters. Spain raised issues over the border with Gibraltar. Of particular note, the European Court of Justice has issued a ruling that the UK could reverse the Article 50 process and stop Brexit altogether.

In Germany, the economy shrank 0.2% as a consequence of the impact of the US-China trade wars affecting exports.  GDP was expected to fall to 1.5% from 1.8% next year. Much of the weakness appears to have come from a sharp slowdown in exports to China and German industrial production. Car manufacturing has been affected by the car emissions scandals. German banks were also in trouble. The offices of Deutsche Bank in Frankfurt were raided as part of the investigation prompted by the Panama Papers scandal of papers leaked from law firm Mossack Fonseca in 2016.

China and Emerging Markets

The APEC summit ended unusually with no joint agreement amid tensions between China and US over trade and tariff wars as mentioned above. On China’s Singles Day on 11th November Alibaba alone recorded sales of $30.8bn, over three times the total amount of Black Friday/ Cyber Monday in the US.

Brent crude oil prices fell some 30% during the month and ended as low as $58 having recently peaked at $86 on 3rd October. Saudi agreed to cut oil production to support prices. The US has now become the largest oil producer due to the doubling in production of shale oil over the past decade. Falls in oil prices are like a tax cut and support large oil importer countries, particularly those whose currencies have fallen sharply, and will decrease the cost of imports in local currency terms. This is good news for China and India and should be a positive for world GDP next year.

Uncertainty and fear drive down markets

Overall, global growth remains positive. In the near term, the main risk appears to be that the US-China trade conflict will escalate and the extent to which the US and the rest of the world can withstand the impact of ‘trade war’ tariffs.  In the medium term, the primary risk is that the US economy is in the late stages of the business cycle and very sensitive to rises in the interest rate cycle. There has been increased buying of US Treasuries which has reduced the yields from 3.25% down to 2.8% as investors seek safety.

Our View

We are aware that short term sentiment and over reaction to geopolitical events has worried investors but we remain convinced that the economic fundamentals have not changed all that much. We are casting our eyes over undervalued areas of markets for further opportunities to invest, such as domestic companies in the UK, as well as select Emerging Markets. Our allocation to alternatives, property, and bonds funds offered the portfolios important downside protection during the recent period of volatility.

Andrew Graham

NOTE: This material has been written for information purposes only and must not be considered as financial advice.

Data as at 30th November 2018.

Best Financial Advisers To Work For

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NLP Financial Management are delighted to announce that we have made the list of one of the best  places to work in Professional Adviser’s “Best Financial Advisers to work for 2019” awards.  Only a select few companies reach the list so we are very proud to have achieved this accolade and look forward to the winner being announced early February next year.

The process included our employees completing a survey giving their honest opinions and feedback on their working lives at NLPFM which was then analysed by the Best Companies Group to see if we made the grade.

This recognition underpins our commitment to being both financial planners and employers of choice and the efforts we have already made and will continue to make, to further grow and develop our business.

Learning how to make your money work for you…

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Financial Education is now compulsory in all secondary schools throughout the UK (and in some areas, primary schools as well).  Whilst this is a very positive step for school children, there are generations of adults who will not have benefitted from this kind of education and who therefore lack the knowledge to make effective financial decisions during their lifetime.

With 62% of employees aged between 45-54 years not knowing how much they’ll have to retire on* and one in 5 working Brits with no retirement savings at all** , it’s becoming increasingly important for us all to gain a greater education in how to make our money work.  This education could be found in the workplace with 38% of employees claiming they’d consider moving to a business that prioritised their financial training.  Final salary pensions are now a rarity and with the average pension pot standing at £50,000, relying on companies’ auto-enrolment schemes may not provide sufficient income as we’re living longer, with no guarantees that the state pension will offer a future security blanket.

Gaining a financial education will vastly increase individuals’ wellbeing, sleep and stress levels.  Knowing that you’re making a solid provision in later life also provides a level of security and comfort so you can just get on with living your life more comfortably without any nagging worry about the future.

So if you think you could benefit from learning how to make your money work what can we do?

  • We can consider developing a strategy to achieve your long term financial goals, to realise your anticipated lifestyle. This can include your pension, property and other forms of investment
  • It’s possible to avoid unnecessary tax payments by utilising allowances that are very infrequently used. Only 700,000 people in the UK used their Capital Gains Allowance in 2017 to generate tax free returns of £11,300
  • We can advise on how to mitigate the 60% tax rate for earnings over £100,000 p/a
  • It’s important to know the part that pension schemes can play in your longer term financial goals, as well as the legal limitations on pension contributions and the benefits they provide, (e.g. the 55% tax charge on pension funds, in excess of the Lifetime Allowance)
  • There are many benefits and disadvantages to the wide range of investment options that are available to assist you in building capital savings outside a pension fund
  • We can look at ways to ensure maximum capital goes to a family, if they were to die in employment

Being forewarned is to be forearmed.  If we gain enough knowledge to plan early, then retirement can be approached positively.  After all, you don’t know what you don’t know.

*Source: research by LV

**Source:       five-brits-no-later-life-savings


Millennials warned to plan ahead as intergenerational wealth gap widens.

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Britain’s younger generation are likely to get left behind due to debt and high house prices creating an inequality of wealth, according to a new report.

Commissioned by Channel 5, the report revealed that fewer than half of millennials (those born between 1981 and 2000) are expected to own their own home by the age of 45, while debt amongst this group is also rising.  This also poses issues for the children of these millennials who will have no property inheritance passed down to them and a greater need to focus on saving for retirement.

A separate study recently conducted by the Financial Conduct Authority (FCA) found that 25-34 year olds have above average debts.  On top of this one fifth of 25-34 year olds have no savings and a further third have less than £1000.

According to the IPPR (the Institute for Public Policy Research), “every generation since the post war baby boomers has accumulated less wealth than the generation before them and at the same age.  The next generation is set to have less wealth, largely due to housing inequalities.”

Home ownership has been falling across all age groups since the mid-2000s and is at its lowest in nearly 30 years.  For 25-34 year olds, it has fallen from 59% in 2003 to 37% in 2015.  In fact in London house prices are now over ten times the average salary for first time buyers.

This makes it “increasingly hard” for the younger generation to share in the UK’s wealth, according to the report, unless they have “substantial” support from family.  A survey undertaken by YouGov/Royal London, shows a growing intergenerational divide where wealth is held by older generations (aged 75-85) who are keen to pass some of this wealth directly to their grandchildren, split on average between 4-5 recipients.   However, less than a quarter of those aged 25-44 (4 million out of 17 million) will inherit from grandparents, leaving many younger family members excluded altogether from inheritance,  especially as their parents are in many cases already part of the “Generation Rent” with private renters accounting for more than 20% of the housing market.  It is this “sandwich generation” (aged 45-64) who feel under more pressure to pass on any accumulated wealth as they can see for themselves the pressures their children are and will be facing.

Whilst the Government will be called upon to take action over this generational  wealth gap, experts also agree that it is down to individuals to review their savings and focus on building a financially secure future.  Talking to an independent financial adviser such as NLP Financial Management Limited will allow people to explore options they may not have previously considered to enable them to build a financial nest egg to either help with the purchase of property or go towards their retirement in later years.




2018 Adviser Firm of the Year (London)

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We Have Achieved Another Award!

At NLP Financial Management we are proud and delighted to have been awarded Adviser Firm of the Year – London – at the 2018 Professional Adviser Awards held on 8th February at The Brewery in London.

In their 13th year, these awards not only celebrate “excellence in financial advice” but also recognise companies that go above and beyond in providing outstanding client service, engagement, multi-asset investing and platform provision.  In total, more than 200 advisers, firms and providers were taken into consideration.

We pride ourselves on putting our clients at the centre of everything we do; leading, supporting and assisting them in their financial planning throughout all stages of their lives.  We take a transparent, professional approach to help guide our clients to reach their financial goals and they in turn benefit from a secure, personalised service tailored exactly to their individual needs.  It is therefore particularly rewarding to see our dedication publicly acknowledged.

We would also like to take this opportunity to congratulate all the winners and runners-up whose professionalism was recognised at the event and to thank the judges and everyone involved with the Professional Adviser Awards.  Winning this award for the second time in 5 years acknowledges our consistent drive to be a leading firm of advisers within our industry and we look forward to adding more awards to our portfolio in the future.

Adviser Firm of the Year 2018 - London

NLP Financial Management’s Directors Adam Katten and Lee Pittal with Consultant Elliot Gothold at the 2018 Professional Adviser Awards dinner.


Women Nearing Retirement have Half the Savings of Men

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A committee of MPs has been told by a leading economist that women aged between 60 and 65 have on average less than half the pension pots of men of the same age.

Michael Johnson, research fellow at the Centre for Policy Studies, told the Treasury Select Committee that only 3.5 million women had defined contribution pensions – less than half the number of men and that their male counterpart had “more than double” the pension pot of the average female saver (£55,000).

Mr Johnson gave evidence of household savings alongside economists Ashwin Jumar of the Joseph Rowntree Foundation and Torsten Bell of the Resolution Foundation.  All three of the economists believe that the disparity in savings and pensions between various groups in society was significant.

People do not have enough pensions savings,” said Mr Jumar. “There are probably about a third of pensioners who are just doing well, but there are also probably about two thirds of people – owner-occupiers or renters – with low pensions.”  The panel also told the committee that Government incentives to help savers were only currently being used by those who were already in the upper percentiles of wealth.  “We need to ask ourselves the question why is it that approximately 70 per cent of the Treasury’s total investment in incentivising people to save goes to 15 per cent of the income distribution who are in least need of it,” Mr Johnson said.

The economists recognised that young people had experienced 15 years of stagnant wages, and increased living costs, which may lead to many opting out of planned increases to contributions in auto-enrolment pensions over the next few years.




What Does MiFID II Mean For You?

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There’s been a lot of noise in the media this week about MiFID II or to give it its full name “Markets in Financial Instruments Directive” but what does it mean for UK consumers?

The principle behind MiFID II is to produce a transparent, level playing field for all EU residents when purchasing financial products listed in the EU, such as stocks and shares ISAs and pensions.

The focus is on the underlying investments and funds that sit within these financial products, the details provided about what costs are incurred, as well as how suitable these investments are for you, the consumer. The companies providing each investment need to decide on the target market – in other words the types of clients who would be most appropriate for each investment, and the Independent Financial Adviser (IFA) then needs to ensure these are the right fit for clients that fall into that category.

If you’re an existing investor with investments managed on a discretionary basis, then your portfolio  valuation updates you receive periodically will now be provided on a quarterly basis. You may only see your adviser once or twice a year, but under the MiFID II rules, you will receive information on your investments each quarter giving you greater visibility over your finances.

If you’re still yet to take the plunge into the world of financial investment, MiFID II will, put simply, allow you greater transparency, confidence and protection.

There are several other measures introduced by MiFID II that are “behind the scenes” improvements aimed at providing additional security for investors, allowing the regulatory bodies the ability to monitor transactions more closely and identify any that look suspicious.  As a client you’re also likely to hear more messages stating “your telephone call is being recorded”, providing greater clarity in the event of any confusion, with records being maintained for a minimum of six years!

If you are a charity, trust or other form of corporate entity you may also be required to apply for a Legal Entity Identifier (LEI).  If you are buying or selling certain investments you will need to provide your LEI before the transaction can take place. For consumers this is typically your National Insurance number that is used as your unique identifier, the LEI is the equivalent for corporates, although it is 20 digits not 9!

Although MiFID II started on 3 January 2018, there will over time undoubtedly be additional aspects to follow, and clarification on how some elements were expected to be interpreted.

The main message for clients is not to worry! There may be some additional information required before investments can be made, but this is based on increasing the protections you receive on an ongoing basis.

Apprenticeships within the Financial Services Industry

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With the BBC’s “The Apprentice” show in its thirteenth series, it isn’t just Lord Sugar who hires apprentices.  With university students facing ever increasing debt and many school leavers not wishing to go onto higher education, apprenticeships are proving to be an ideal stepping stone between academia and the work place.  Whilst the perception of apprenticeships tends to be “trade” orientated, many more sectors are now seeing them as ideal opportunity to boost their workforce with record levels of apprenticeships – 491,300 – starting in the 2016/17 academic year*.

Within the financial services industry, the NLPFM group, consisting of Birchwood Investment Management Ltd and NLP Financial Management have between them taken on 4 apprentices over the last 4 years, 3 of whom are now full-time employees.  All 4 apprentices said that whilst at school, the emphasis was purely on university places with little or no advice for those students who wanted to work straightaway, or were unsure of where to take their career.

Charlie Ferry joined Birchwood in 2013 age 17, as an apprentice through John Laing Training (JLT).  Initially he worked as a paraplanner support administrator.  After passing his GCSE’s with the costs involved of going to university he decided to build on his entrepreneurial spirit (he still sells Christmas trees during the festive season) and apply for an apprenticeship to earn as he learned.  Fast forward 4 years he’s worked hard to develop his position and is now an established member of the team, storming through his para-planner exams with his eyes firmly focussed on eventually qualifying as a financial adviser.

As Charlie moved up in Birchwood, his original role became vacant, so following advice from Charlie, Sam Rafferty applied through the same apprentice scheme and started at Birchwood in mid 2014.  Sam, who was 24 when he joined, had already worked in a few companies, but had also experienced redundancy and zero-hour contracts and credits the apprentice scheme for giving him a pathway into the financial industry that he would never otherwise have found.  Like Charlie, Sam became a permanent member of the team after his first year and is now half way through his studies to become a fully qualified para-planner and then financial adviser.

Whilst Dom Mason was at school, he knew he didn’t want to go to university so after a stint working at a ‘well known’ DIY retailer, he started looking around for roles that would provide him with more prospects.  Having not initially thought of financial services, in 2016 aged 18, he applied for an administration apprentice position (also via JLT) that Birchwood needed to fill and has never looked back.  Now permanently employed as an administrator, Dom loves the responsibility of his role and sees his future firmly within Birchwood and the world of finance.

Denise Amagyei had started university to study accountancy but felt it wasn’t the right fit for her.  Following retail work she needed a full time role and applied for a JLT administration apprenticeship at NLP Financial Management starting in March 2017.   Although she’s still unsure of her future, Denise has learnt invaluable skills working within an office environment but would highly recommend her experience of earning whilst receiving “on the job” learning.

For the NLP FM group, working with apprentices has been a positive and mutually beneficial experience.  They’ve secured 3 new team members who have had bespoke training from the bottom up and gained helpful insights from the perspective of younger people entering the workplace.

*Source –