Download Suitability Letter - Margetts Fund Management

scalplevelpastoralManagement

Nov 18, 2013 (3 years and 10 months ago)

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OEIC/Unit Trust


[This letter is intended to give a basic outline only and will not cover every relevant
feature of the product. You will need to customise and expand it to include product
features and information relevant to circumstances]


Dear
[Salutation]


Further to our meeting of
[DATE],

I am now writing to confirm the outcome of our
discussions.


You will recall I provided you with a copy of my
[
list documents issued e.g. Terms of
Business Letter]

on
[DATE]
and that you have placed no restri
ctions on

the t
ype of the
products or markets

for which y
ou require advice.


I confirm that I am authorised to advise
on the areas covered within this letter.


Optional
-

where a client has refused to provide all information:


You did not wish to disclose
all details relating to your circumstances.

This was
because

[INSERT REASON].


I have proceeded on the basis of the information
provided.

We agreed that this was acceptable given that

[INSERT REASON FOR
PROCEEDING WITHOUT INFORMATION].


However, you should be aware that my
recommendations may have differed if I had been aware of all your personal and financial
circumstances.


Optional


where a client has asked to restrict advice to a particular area:


You instructed me to specifically li
mit my advice to

[INSERT AREAS]
and I have acted
accordingly.



I have, therefore, only obtained the necessary information from you to
advise on the above area.


You should be aware that my recommendations may have
differed if I had undertaken a full revie
w of your financial circumstances.


Background


You are currently
[insert any relevant background information on client e.g. age,
marital status, specifically including any relevant financial services experience or
qualifications].


We discussed your understanding of financial services products, with reference to
previous experience of advice received and products purchased, and established that you
have
[
no knowledge of investments whatsoever, as this is your first investment/
have a

reasonable knowledge of investments, as you already have an investment
or pension contract

/ have a strong knowledge of investments, with range of
investment or pension contracts, and take an active interest in following

investment markets and reviewing
your financial plans
].



We discussed market fluctuations, and how these might generate growth or income within
your investments, and also how exposure to risk means that you can lose all or part of
your investment.

You
[have/have not]

been comfortable wi
th fluctuations in the value of
your investments in the past.


Objectives


During our meeting we discussed various aspects of your personal and financial situation.


At the present time, your prime objective is to invest a cash sum, aiming to achieve
a
growth/income return greater than that offered by cash deposits over the medium
to longer term.


We have established that you have already subscribed the maximum permissible in
this tax year to ISAs

/ We have established you have not subscribed the maximum

permissible in this tax year to ISAs and wish to do so
.

[Delete as appropriate]


Attitude to Risk


I explained how, when making financial provision to fulfil
this/these objective(s),

the
degree of risk you are prepared to accept
for each one

would be a ma
jor factor in
considering the most appropriate choice of product.


[
If Margetts risk questionnaire used
]

We completed the risk questionnaire which was provided by Margetts Fund
Management Ltd. This questionnaire is intended to provide a guide to your risk
appetite. The questionnaire suggested a suitable risk rating of
[INSERT CLIENT

S
OVERALL RISK PROFILE N
UMBER]

on a scale of one to ten. In addition
,
a number
of comments were provided by this tool which is enclosed with this report. Whilst
this is a useful guide it is important that we both agree with the outcome and
consider the feedback provided
.


[
If M
argetts risk questionnaire not used
]

We established that your attitude to risk could realistically be described as
[
Defensive/Cautious/Balanced/Moderately Adventurous/Adventurous]
.



Insert appropriate definition


A Defensive Investor is looking for an in
vestment where the value of their capital should
not fall in the short term and produces returns that are comparable with those from a high
street deposit account, but have the potential for some long term growth. They would feel
very uncomfortable if thei
r investment rose and fell in value very quickly.


A Cautious Investor is looking for an investment which, while giving some potential for
real returns, produces returns that are at least as good as those from a high street
deposit account. A high level of

security of their capital is a priority. Whilst recognising
that investment values will change, they would feel uncomfortable if their investments
rose and fell in value very rapidly.


A Balanced Investor is looking for a balance of risk and reward, and w
hilst seeking higher
returns than might be obtained from a deposit account, recognises that this brings with it
a higher level of risk and that the value of their investment may fluctuate in the short term.
They would feel uncomfortable if the overall valu
e of their investments were to fall
significantly over a short period and would not be happy to see their capital eroded.


A Moderately Adventurous Investor is generally market aware and understands and is
willing to accept a higher level of risk (includin
g a small exposure to overseas markets) in
return for the potential for higher returns in the longer term. They recognise that this may
result in the value of their portfolio fluctuating, possibly significantly, in the short term.


An Adventurous Investor
is willing to accept a much higher level of risk (including a
reasonable exposure to overseas markets) in return for the potential for higher returns in
the longer term. They recognise that this may result in the value of their portfolio
fluctuating, possi
bly significantly, in the short term. They are aware that the risks are such
that a significant percentage of the capital sum could be lost.



Recommendation


We discussed the various ways you could achieve your present objective(s) as
outlined above. I recommend that
you
consider investing in a Unit Trust offered
by

Margetts Fund Management Ltd.


I am pleased to
outlin
e below

the product features of the
recommended
contract to
demonstrate why it is suitab
le for

your current circumstances and stated objective
s.



The Margetts Risk Rated funds are

u
nit
t
rusts
and
are forms
of
collective investment,
which allow individuals
to
participate in a
portfolio of funds
by pooling their money
together with other investors. This gives the individual access to a much wider spread
of
holdings than can normally be achieved with smaller sums
of
money, which in turn
reduces the risk. The fund is divided into

units which are valued on a daily basis and
reflect the underlying value
of
the fund. This value will fluctuate on a daily basis with
market conditions.


Unit Trusts are a flexible and relatively cheap way to invest in the stock market. They are
run and r
egulated in
the UK

and can
be
h
e
ld within an ISA.

A unit

trust

is

established
under trust law. The

unit trusts have two prices
-

the 'bid' price which is the lower price
you receive when you sell, and the higher 'offer' price
you
pay
to
invest. The diffe
rence
between the two prices is commonly known as the bid/offer spread.
The
Supplementary
Information Document (SID) and

Non
-
UCITS Retail Scheme

Key Investor Information

(NURS
-
KII)

Documents
explain the charges and effect of charges in detail and it is
important that you understand how and when charges are made.




The Margetts Providence Strategy fund provides i
ncome (the yield, dividend or interest)
which

can be distributed or accumulated within the fund and is paid net of basic rate tax.

The other ri
sk rated funds are not able to distribute income and therefore any income
received is accumulated within the fund
.

Higher rate taxpayers will have to declare this
income on their tax return and pay the difference between the tax deducted and either
higher

rate tax

in the case of interest, or 32.5%

/ 42.5%

in the case of dividend income.
Non taxpayers can
no
longer reclaim the tax which has been deducted at source from
dividend income but they can reclaim tax deducted from income that is classed as
interes
t, e
.
g. such as that payable from a fixed interest fund or a fund holding a
substantial proportion of interest
-
bearing assets such as corporate bonds.


When the holding is surrendered, if there is a gain, this is subject to capital gains tax.
However, each

individual has the benefit of an annual allowance
(currently £)

and as
long as the gain
,

together with any other gains you may have in the same tax year
,

is less
than the allowance, there is no tax to pay. Any gain in excess of the annual allowance will
b
e taxed at a single rate of 18%.


[
OPTIONAL

IF INVESTOR HAS NOT MAXIMISED ISA THIS TAX YEAR
]

I am recommending that you maximise your full ISA allowance and allocate part
/ all
of
this investment as an ISA
.

What is an ISA?

Any individual

who is an income tax payer and has some money to save or invest, should
know about Individual Savings Accounts (ISAs). Available since April 1999, ISAs offer an
attractive tax
-
free shelter to anyone aged 18 or over (16 or over for cash ISAs).

With standa
rd bank and building society savings accounts taxpayers normally have to
pay tax on any interest earned on their money. The tax is deducted from the interest
before it is paid out, reducing the amount received. Similarly, tax must be paid on the
income and

profits made from investments in the stock market like company shares or
unit trusts.

However, ISAs serve as a kind of 'wrapper' to protect savings from tax, allowing
individuals to put away a maximum of
£

11,520

(current tax year)
(by way of regular or
single savings amounts) each tax year in a range of savings and investments and pay no
personal tax at all on the income and/or profits received.

The main ISA benefits are:



No personal tax (income or capital gains) on any investments in an ISA.



Income and
gains from ISAs do not need to be included in tax returns.



Money can be withdrawn from an ISA at any time without losing the tax breaks.


The basics of how ISAs work

There are two types of ISA:



stocks and shares,
in the form of either

individual shares or

bonds, or pooled
investments such as
unit trusts,
open
-
ended investment
companies
, investment
trusts or life assurance investments.



cash,
usually containing a bank or building society savings account
.

All of your allowance can be invested in stocks and
shares, or you c
an split

it by investing
in cash (the maximum permitted

which is currently £5,
760
) and the remainder in stocks
and shares with either the same or a different provider.

You will also be able to

transfer money saved in

previous years' cash IS
A holdings
to

stocks and shares ISAs without affecting

your current year's allowance. It should be
noted that it will not be possible to transfer in the opposite direction i
.
e
.

stocks and shares
ISA to a cash ISA.

Existing ISA/TOISA and PEP arrangements

Mi
ni cash ISAs; TESSA
-
only ISAs (TOISAs); and the cash component of a maxi ISA will
automatically become cash ISAs.

Mini stocks and shares ISAs and the stocks and shares component of a maxi ISA will
automatically become stocks and shares ISAs.

All Personal E
quity Plans (PEPs) will automatically become stocks and shares ISAs.

Qualifying Investors

To be eligible to invest in an ISA, an investor must be an individual (i.e. not a company or
trustee) who is 18 years of age or over (except that 16 and 17 year olds
are able to invest
up to £
5,
76
0

(current tax year)

in a cash ISA
)

and who is resident and ordinarily resident
in the UK (or is a Crown servant serving overseas or the spouse

/ civil partner

of such an
individual).

When an individual ceases to be eligible
to invest in an ISA, any existing ISAs will
continue to be exempt from UK tax, but future contributions to regular investment ISAs
must be terminated and no further single contributions may be made.

Each individual may effect a stocks and shares or cash IS
A each tax year. A husband
and wife

/ civil partners

are treated as separate individuals so that although joint
ownership of an ISA is prohibited each may fully subscribe to one in their own name.


Stakeholder
S
tandard ISAs


Stakeholder standard ISAs are t
hose which meet
g
overnment guidelines regarding cost,
access and terms. Both types of ISA component can qualify for a
st
akeholder standard.
The cost limit varies with each investment type and the access and terms criteria specify
that investors must be
able to get their money back at any time without penalty and with
no other restrictions. The ISA must also offer low minimum investment limits and can only
invest a maximum of 60% in equities and property, with the remaining 40% in less volatile
assets suc
h as bonds and cash.


Because of these limits,
st
akeholder standard
s
tocks and
s
hares ISAs are designed to
meet the needs of a wide range of investors. For this reason, they may be less appealing
to experienced investors who want to maximise their long
-
ter
m growth potential and are
therefore more likely to seek specialist funds.



The presence or absence of a
st
akeholder standard cannot predict whether an ISA will
prove to be a good or bad investment. A
st
akeholder standard ISA has not received
go
vernment a
pproval of any kind, nor is

investor
money or investment return guaranteed
by the
g
overnment in any way.


The recommended contract is
not a
s
takeholder
s
tandard ISA.


Optional
-

in cases where Cash
ISA
s are transferred to
s
tocks &
s
hares ISAs

We have discussed the fact that you are transferring your
c
ash ISA to a
s
tocks &
s
hares
ISA, and that on encashment or maturity, you will not be able to transfer these funds back
to a
c
ash ISA. You have confirmed that this is not a concern for you.


Transfer regulations


ISA managers have to allow transfers, although there is no corresponding requirement for
managers to accept transfers. The following requirements apply:




if the transfer is for the current year

s ISA subscription, all of the current
year

s
subscription must be transferred in its entirety.



where subscriptions have been made in previous years, all or part of previous
year

s subscription can be transferred to another ISA manager at any time.



there are no restrictions on the number of man
agers or the number of transfers
that can be made in respect of previous year

s subscriptions.



if the ISA manager does not record the value of each year

s subscription
separately, a partial transfer in respect of previous years


subscription must not
excee
d the current value of the ISA, less any subscriptions made in the current
year.




Subject to the terms and conditions of both managers, the transfer of investments may be
in specie and/or cash. If it is not a withdrawal

it

will be deemed to have taken pl
ace.


You can also be able to

transfer money saved in

previous years' cash ISA holdings
to

stocks and shares ISAs without affecting

your current year's allowance. It should be
noted that it will not be possible to transfer in the opposite direction i
.
e
.

s
tocks and shares
ISA to a cash ISA.


Transferred ISAs do not give rise to a new subscription and tax benefits are preserved on
the transfer.



Turning then to my specific recommendation:


Term


In discussing your objectives it was appropriate to consider a

contract which was
open ended i.e. did not have a fixed term. We agreed that, given the medium to
longer term nature of this investment, it was appropriate to consider an investment
term of five years plus.


Level of Investment


Having considered both your income and expenditure we agreed that the
investment of
(£)
was affordable. This investment was selected on the basis that it
was the maximum that you wished to invest to meet your objectives at this time.


You have sufficient
surplus income or capital in the event of any short term
requirements and confirmed that this expenditure will remain affordable to you in
future.



Fund Selection


I selected the following funds

having considered your attitude to risk, as detailed above.

These funds are managed by the Margetts
F
und
M
anagement team and are designed to
be held together to meet your objectives and tolerance to risk.


I have enclosed a report based on the
below
recommended holding in each fund which
shows the current underly
ing asset allocation and the top 20 funds which will be held
within the portfolio.




Fund Name

Fund Manager

Sector

% Invested

Providence

Margetts

IMA
Mixed
Investment 20
-
60%
Shares


Select

Margetts

IMA
Mixed
Investment 40
-
85%
Shares


International

Margetts

IMA Global


Venture

Margetts

IMA
Flexible



Please be aware that there may be occasions when an individual fund or funds may have
a higher risk rating than your overall stated attitude to risk. If this is the case, then the
overall risk rating
applied to all of the combined funds being recommended is still
designed to meet your stated tolerance. I explained this during our meeting and you were
comfortable with this approach.


I have recommended
the Margetts
f
unds

which
are

“fund of f
unds”.


As
discussed, this
provides the additional benefit of a managed exposure to the investment expertise of
some of the world’s leading investment management firms.


This approach was attractive
to you because

the Margetts team are actively managing the funds at
all times. Through
this process the asset allocation of the holdings within the funds are reviewed and altered
when considered appropriate in response to global economic changes. In addition the
performance of the underlying funds
is

monitored and action

taken when considered
necessary.


The Margetts
F
und
M
anagement team publish a weekly diary so that you can follow their
views on the global economy. In addition the diary contains information regarding
changes to their investment strategy and individua
l holdings.


As we discussed, the level of management charges applicable to such funds tends to be
higher than other funds.


The charges are set out clearly in the enclosed
documents

but
for reasons of clarity are itemised again below.


[Detail all charges

applicable to the fund
: The Margetts

R

funds have an AMC of
0.75
% and
no
initial charge
I also explained that higher charges can have an effect on
investment performance.


In essence, a fund will need to perform better in order to cover
the increased
charges.


You confirmed that these higher charges were acceptable to you
and that you understood the possible effect of the higher charges on investment
performance.


You confirmed that you were keen to gain access to the additional
investment expertise t
hat such funds offer, although improved investment performance is
not guaranteed.


We also ran through other options such as
[insert details e.g. direct investment into a
portfolio of funds or Manager of Managers fund]
.


However, for the reasons set out
above, you confirmed that you wanted access to the
f
und of
f
unds management
expertise.

Provider


In reviewing your objectives we considered a number of criteria which we agreed
were important to you, including
[INSERT DE
TAILS]
.


Having undertaken appropriate research on your behalf I believe that
Margetts
Fund Management Ltd
will offer the most suitable contract given your stated
objectives and risk profile.


The name Margetts dates back to 1843 and originated from
Herbert Margetts who
chaired the Birmingham Stock Exchange. The current

Executive Chairman
, Tim Ricketts,
joined in 1982 and has the controlling interest in the company. The company has a
strong track record and recent achievements include
:




Financial Exp
ress Alpha Manager Rating 2013


Toby Ricketts an FE Alpha Manager



Citywire


Toby Ricketts named one of the top 10 most consistent managers over the
past decade (July 2012)



Financial Express Alpha Manager Rating 2012


Toby Ricketts an FE Alpha Manager



Lipper Awards 2011


Margetts Awarded Best Overall Small Group for Equities and
Non UK Equities



Lipper Award 2010
-

Margetts Awarded Best Overall Group in the Non UK Equity
Small Category



Moneywise Pension Awards 2009


Venture
a
warded Top Actively Managed

Fund



Lipper Award 2009


Margetts
a
warded Best Overall Group in the Equity Small
Category



Lipper Award 2009


Margetts
a
warded Best Overall Group in the Mixed Assets Small
Category



Citywire Team All Stars Award


Best Tier 3 Group (August 2008)



Lipper Aw
ard 2008


Margetts
a
warded Best Small Group for Mixed Assets



Lipper Award 2008


Select
a
warded Best Mixed Asset GBP Balanced Global Fund



Citywire Funds Insider


Best Small Group 2007 (Sept 2007)



Telegraph (Source: Citywire)


Best Tier 3 Group (31 Aug
2007)



Lipper Award 2007


Margetts
a
warded Best Small Group for Mixed Assets



Lipper Award 2007


Select
a
warded Best Mixed Asset GBP Balanced Global Fund



Citywire


Best Group for Consistent Performance 2005



Professional Adviser
n
ominated Margetts Best Gro
up Offering Fewer than 15 Funds
(26 Aug 2004)


The Margetts Risk Rated funds are administered by Margetts and all of the assets are
held by The Bank of New York

Mellon

that

acts

as
trustee
. All unit trusts have a
trustee
that

hold
s

the assets and provide
s

a high level of financial security. The Bank of New
York

Mellon

currently act
s

as depositary/
trustee/custodian

for approximately

$3.1 trillion
and therefore the Margetts funds offer a high level of financial security.


Every

six months a statement of you
r account and a valuation is posted to you so that
you can monitor changes in value. Interim and audited annual reports are also sent to
investors.



The funds are priced on a daily basis so it is possible to sell holdings easily and if you
wish to change
your risk profile this can also be done on any business day. It is also
possible to set up a regular monthly, quarterly, bi
-
annual or annual withdrawal in the
future if required.


The transactions undertaken by the Margetts team within the Margetts funds d
o not
attract
c
apital
g
ains
t
ax as would be the case if they were held by you directly.
Furthermore you can easily use your annual allowance for
c
apital
g
ains
t
ax in the future.
Any gains over the level will be charged to CGT at the prevailing rate (18% fr
om 6
th

April
2009)


Optional
-

if any contracts replaced


Replacement Contracts


In reviewing your objectives, I have recommended that you surrender/discontinue the
contracts outlined in the Replacement Contract Form.
[Insert any additional
instructions
e.g. do not cancel until new policy in force]


The rationale for this is also outlined in the Replacement Contract Form, which we
completed during our last meeting and a copy of which is attached to this letter.


N
on
-
UCITS Retail Scheme Key Investor
Information Documents (NURS
-
KII
Document) and Supplementary Information Document


I have provided you with

NURS
-
KII Documents and the Supplementary Information
Document
. This documentation is important and contains information regarding the
product which I

have recommended, particularly with regard to the product’s aims,
charges, the commitment which it entails, together with its legal (including policyholder
protection) and tax status. If there are any points on which you are unsure or require
further clar
ification, please contact me and I will be pleased to explain these in greater
detail.


Financial Services Compensation Scheme (‘FSCS’)


The FSCS was set up under the Financial Services and Markets Act 2000
. It exists to

protect customers of FSA authorised firms and covers deposits,
insurance and
investments. The s
cheme can pay compensation to customers who have lost money as a
result of their dealings with FSA authorised firms that are unable to pay claims against
them,
usually because they are insolvent or have stopped trading.


As outlined earlier, the limit of protection varies between different types of products and is
detailed in our
(Keyfacts about our services and costs document) (insert name of
other document whe
re you detail the FSCS coverage)
.


Details of the FSCS arrangements are outlined in the
Simplified Prospectus
.

You are
aware that where you are investing in
a Margetts fund

which

itself purchases external
investments, should one of the external investments fail to meet their liabilities, then
Margetts

may make a claim on behalf of all policy holders, the extent of
Margetts


claim is
limited.

However, as
Margetts

itself is not in default, you will not be in

a position to claim
via the
s
cheme
.

An example

would be an
individual bank cash deposit fund held within a

Margetts fund
.

You should note in this instance that the institution providing the
investment vehicle is deemed to be an institutional investor and

would only be able to
raise one claim within the agreed limits, on behalf of all policyholders.

In other words, as a
policyholder you could not raise a claim on an individual basis.


Risks


The
NURS
-
KII Document(s)
also provides you with details of risks and potential
disadvantages associated with the
investment being

recommended.
T
he full prospectus
is also available which contains further information.
We have previously discussed these,
and I would like to highli
ght the following points:




Past performance is no guarantee of future returns.



The price of units and the income from them can fall as well as rise.



The value of this investment is not guaranteed and on encashment you may not get
back the full amount inves
ted.


If upon realisation your total gains (from all sources) are greater than your annual
capital
gains t
ax allowance, there will be tax to pay at a single rate of 18%.


The sample illustration
within the Simplified Prospectus
uses certain assumed rates
of
growth, as prescribed by the Financial Services Authority. These rates are not
guaranteed. The advice provided to you is based upon the information

you have
disclosed and
if this letter does not accord with your view of the situation or you require
any
further clarification please contact me immediately.


All statements concerning the tax treatment of products and their benefits are based on
our understanding of current tax law and
HMRC
practice. Levels and bases of, and reliefs
from
,

taxation are subject to change.


Reviewing your financial arrangements in the future


We discussed the importance of regularly reviewing your financial arrangements and
[insert details on whether the client will receive pro
-
active review]
.


If will is in
place

I note that you currently have a will in place. I recommend that this is also kept under
review and updated in line with your changing financial situation.


If no will is in place

I note that you do not currently have a will in place. I recommend tha
t this is drafted as
soon as possible and reviewed and updated in line with your changing financial situation.


Cancellation rights


You can cancel your instruction at any time during the 14 days after which you receive
the cancellation notice from Margett
s which normally accompanies the contract /
confirmation note. Please note that if you decide to cancel your instruction and the value
of your investment has fallen
,

the loss will be deducted from your initial investment.
Further information is available in the Simplified Prospectus.


Conclusion


I trust that this letter, together with accompanying documents, will clarify why I believe the
contract(s)

recommended
is/are

the most suitable for your financial objectives.


Should you require further information regarding the
contract(s)

recommended please do
not hesitate to contact me.


Yours sincerely,