The threat of rising mortgage rates, funds for volatile times and over-50s funeral plans - here's our weekly heads-up on the financial stories that may have caught your clients' attention over the weekend …
Forget stockmarket volatility - the biggest threat to your wealth is rising mortgage rates
Your clients may - understandably enough - be concerned with the volatility investment markets have been experiencing this month but, argues this Telegraph article, the Bank of England's rate rise warnings are more significant.
After the UK's central bank flagged the possibility of multiple rate rises in 2018 and its climbing "swap rates", the piece explains, homeowners should be bracing for rising costs. As an example, broker London & Country reckons someone with a £300,000 mortgage with a standard variable rate could end up paying £400 more each year if rates rise by just 0.25% in May.
"I've warned people rate rises will start to take hold," says John Charcol product technical manager Nick Morrey. "The only thing that will temper it slightly is the number of transactions is massively down on the pre-crisis average. This means lenders will be under pressure from their own shareholders to get more customers on to the books and deliver a profit."
Funds to pick for volatile times
Market volatility is also to the fore in this Financial Times column, where Merryn Somerset Webb sets about
picking what she calls the "interesting active funds du jour" that could help investors in volatile times. First, however, she notes how so-called ‘closet tracker' funds are "slowly dying" - to the extent that, according to research by recent multiple PA Awards winner Premier Asset Management, some three-fifths of the fund universe can now be considered active or highly active.
Somerset Webb picks out emerging markets funds as worthy of attentions on the basis developed markets look overpriced and will be in the frontline as central banks unwind monetary policy. Awkwardly, her first choice - HMG Global Emerging Markets - is not open to individual investors so "you will have to bully your wealth manager into buying it for you".
Cadence Strategic Asia and M&G Global Emerging Markets also feature among her emerging markets suggestions while, outside the sector, two investment trusts are highlighted - Aurora Trust for its "pretty clear active management" and Scottish Investment Trust for its global, high-conviction and contrarian strategy.
How not to pay for your funeral
The focus of this Sunday Times article is what it describes as the "incredibly bad value" of insurance policies taken out by the over-50s that pay out a lump sum after death to help towards funeral costs. According to the piece, the plans - held by some two million Brits - are both inflexible and poor value, paying out less than total contributions made and, it claims, "rarely even covering the cost of the funeral".
Research by the Co-op has suggested families face an average shortfall of £1,525 when using over-50s plans to pay for a burial or cremation. The analysis found, for example, a 50-year-old paying £15 per month for a policy with Post Office Money can expect to receive £3,493 on death, whereas the cost of the average funeral is £3,800.
The average cost of funerals rose by 3% last year, notes the article, thus outstripping inflation. The analysis found if funeral charges continue to rise at 3% a year, a customer could be £912 short if they die in five years' time, as the average funeral then could cost some £4,712. This could grow to a shortfall of £2,427 if the policyholder dies at 65 and £7,199 if they have a more normal life expectancy and die at 85.
Fairer Finance co-founder James Daley told the Sunday Times: "Over-50s plans can be incredibly bad value as most people end up paying in more than they get out — and the guaranteed sum generally doesn't increase with inflation so, unless you're saving a lot into these plans, you're unlikely to end up with enough to cover the cost of your funeral."
Our weekly heads-up for advisers
The Financial Services Compensation Scheme (FSCS) declared 11 adviser firms in default between 1 August and 31 October.