Q. I have received a letter from my ISA provider stating that the number of funds in which I can invest has increased, however I cannot tell which additional funds have been added.  Can you offer any assistance, please?

A. It is impossible for me to tell you which funds have been added without seeing the information you have received from your ISA provider.  If you are unsure which funds have been added and/or that you can hold with your ISA, I recommend that you speak to your ISA provider.

However, I suspect that the letter has been prompted by a recent change in the investments which can be held within an ISA wrapper.

With effect from 5 August, it has been permissible to purchase AIM shares via a stocks and shares ISA (it had not been possible to hold AIM shares within an ISA before that date).  AIM (which used to be known as the Alternative Investment Market) is a sub-market of the London Stock Exchange with a more flexible regulatory regime.  It is intended for smaller and start-up businesses, allowing those companies to access equity funding in a manner historically reserved for the largest public companies only.

Most people within the financial services industry had expected the expansion of permissible investments to take effect from April 2014, at the commencement of the new tax year and when all investors benefit from a new ISA annual allowance.  However, the Chancellor, George Osborne, introduced the amendments sooner than expected in the hope of providing a boost to smaller and juvenile businesses and aiding the UK’s economic recovery.

Q. I read an article recently, in one of the broadsheets, which stated that the majority of consumers do not understand the difference between an “independent” adviser and a “restricted” one.  Can you explain the difference, please?

A. Yes.  I suspect that the article to which you refer was reporting the findings of a recent research campaign, commissioned by the Financial Conduct Authority, to test the level of understanding among consumers about what is meant by “independent” and “restricted” advice.  Unfortunately, that research demonstrated that a minority of consumers appreciate the difference and few seek to “decode” what “restricted” means.

An independent adviser must provide advice on products and services from the whole of the market and will need to provide unbiased and unrestricted advice based upon a comprehensive and fair analysis of the market.

In contrast, a restricted adviser may provide advice on a restricted number or type of products rather than from the whole of the market. For example, when advising a client they may have elected to exclude certain products or services from their considerations, e.g. advice in respect of occupational pensions or VCTs. The client cannot be certain therefore that the product or service recommended is the most appropriate one for them. Under new rules, effective from 31 December 2012, if an adviser cannot meet the requirements to be considered independent they will be deemed to be “restricted”.  The new rules require also that all advisers state clearly the type of advice they are offering before any advice can even be provided.

Interestingly, the Institute of Chartered Accountants in England and Wales (one of the leading professional organisations for chartered accountants) argued recently that restricted firms ought to be under an obligation to inform their clients that they may be “materially disadvantaged” as a consequence of the limitations of a restricted firm’s advice (as their client cannot be certain that the advice they receive is the most appropriate available to them, due to the exclusion, by the adviser, of certain products and/or providers from their considerations).

However, regardless of whether the firm you use is “independent” or “restricted”, I recommend that you consider whether they are “chartered”, as this is arguably a much better indication of the quality of their advice, their adherence to a code of ethics and the extent of their professional qualification.

Q. I am the Finance Director of a local business with a defined benefit pension scheme.  The scheme closed to future accrual in 2002 but the company continues to make contributions in order to eradicate the scheme’s historic deficit.  We are approaching our financial year end and we were contemplating making a significant contribution (out of this year’s profits) to reduce the scheme’s deficit.  However, I saw a newspaper headline recently that seemed to suggest that making such contributions might inflate our PPF levy.  I can’t understand why this would be the case.  Can you offer any assistance?

A. Yes.  Many employers who are seeking to fund a defined benefit (often referred to as “final salary”) pension scheme make one-off deficit reduction contributions towards the end of their financial year, in order to reduce both the scheme’s deficit and the company’s taxable profits.

There has been some discussion within the pensions industry recently about the potentially perverse consequences of making such deficit reduction contributions, particularly the possibility of increasing significantly a company’s Pension Protection Fund (“PPF”) levy (the money paid to fund the PPF, a “lifeboat” fund intended to support members of such pension schemes in the event that their employer becomes insolvent).

The PPF levy is supposed to take account of the chance that a particular employer becomes insolvent and the consequential risk/cost to the PPF.  It may seem perverse therefore that, by making significant contributions to reduce a scheme’s deficit, a company may inadvertently increase its PPF levy.  This can happen however because the PPF calculates its levy by assessing a company’s credit rating.  A significant reduction in cash at the bank and/or profits can reduce a company’s credit rating and thus inflate its PPF levy.

I recommend that you seek advice from you pensions consultant before making a significant deficit contribution, as there are steps that you can take (including liaising with the PPF) to ensure that any reduction in your scheme’s deficit is reflected in your PPF levy.

If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.

0191 217 3340