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Navigating the finances of aged care

As a financial adviser I have yet to come across anyone who actually wants to move into aged care.

The prospect of moving out of the family home and leaving behind the comfort and familiarity of one’s home is truly daunting. It’s always a step closer to ‘the end’ as no one ever moves from aged care back to home. As a result, many people simply do not wish to discuss the subject…until they have to.

Many of the conversations I have had regarding the finances of an elder family member follow an ‘incident’, such as ‘Dad falling over in the bathroom’. It then becomes glaringly obvious that the individual simply cannot remain in the family home.

In such a scenario, planning how to fund the upfront and ongoing costs associated with moving into aged care is often ‘done on the run’, which is unfortunate because it’s a ‘financial labyrinth’.

Typically, people tend to only plan for upfront costs (which usually range anywhere between $300,000 to $1,000,000). However, there is a myriad of ongoing costs that can run into the tens of thousands of dollars per year as well as the ever-increasing costs associated with moving into aged care.

As you may be aware, a Royal Commission into Aged Care was commissioned in October last year and is currently hearing submissions. Some of these are truly heartbreaking. The Commission is due to hand down its recommendations early in 2020 and if the recent Hayne Commission into financial planning is any guide, regulation and compliance in the sector will increase, followed closely by expenses.

I’d encourage people to have the conversations about aged care and if necessary, speak to your Investment Collective adviser. We can help.

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When should I seek financial advice?

When should I seek a financial planner?

Who should see a financial planner?

  • “I don’t have any money to invest so there is no point in my seeing a financial adviser.”
  • “We manage our own finances so we don’t need to see a financial planner.”
  • “We struggle to make ends meet so we haven’t got any spare income to do anything else so we won’t be seeing a financial adviser.”
  • “I’m only in my 20s, 30s, I don’t need to see a financial adviser.”
  • “It’s too late for me to see a financial adviser as I’m retiring in 6 months’ time.”

All of these thoughts are far from the truth.

When should I seek financial advice?

There is a general perception that financial planning is only for people who have money to invest. That if I don’t have any spare cash and I’m having difficulty in making ends meet, financial planning is not for me. Having a personally tailored financial plan will assist you in every facet of your financial lives regardless of your current financial situation.  In fact, your financial plan will help you achieve other personal goals simply because these goals are planned for.

Your financial adviser will fully assess your current financial situation. This means that the adviser will be obtaining information on your earnings, what it costs you to live, the value of all your assets including superannuation, and of course, what you owe.  The adviser will also assist you in identifying what you want to achieve, both now and into the future.  We consider your life risk requirements so that your family and wealth are protected in the case of death, serious injury or illness.

Once the data has been collected and analysed, the adviser will write your financial plan.  The plan will include a summary of the current situation and this in itself can be an eye-opener for the client because many of us do not take stock of our overall financial picture.  Taking into account your goals and objectives and the things that have been identified during the collection and analysis step, the adviser will make recommendations to improve your situation and to help you to meet the goals you have identified.

Sometimes the recommended strategies can be confronting, but always valuable.  For example, if cashflow is a problem for you, the plan will include budgeting advice and strategies.  If you have surplus funds for investment, the plan will include recommendations as to how those funds should be invested.  If you are nearing retirement, the plan will address streamlining and consolidating your financial affairs ahead of retirement and strategies to maximise potential Centrelink payments.

If your superannuation investment option does not match the risk profile identified during discussions, there will be recommendations to adjust the investment option. If you have debt, there will be advice as to how best to manage that debt and if a restructure is required, the plan will address that point.  If your life risk protection is inadequate, we will include recommendations to bring this protection to the correct level.

Your financial plan will also contain information on any ongoing costs you may incur if you accept the proposals, and there will be comparisons and projections between the current situation and the recommended strategies, including current and future costs.

To answer the question posed above as to when you should see a financial adviser – the answer is – as soon as possible!

For young people, a tailored financial plan will set them on a path to growing their wealth, perhaps via a savings plan.  For pre-retirees, it is essential that you consult with a planner to ensure that what you have worked a lifetime for will support you in the way you want during retirement.  Centrelink payments and health care cards are very important and this is a major part of the planning for those either in or nearing retirement.

If our recommendations are accepted and you proceed with the plan, we manage the implementation of the plan and if there is an ongoing component, this activates. Centrelink management is part of the ongoing work and it can be invaluable to retiree clients to have this onerous task managed.

Beginning the process of seeking financial advice is very simple.  It is a matter of contacting either our Rockhampton or Melbourne offices with a request to see an adviser.  Your meeting confirmation includes a list of things to bring with you to your meeting and from there the adviser will lead and guide you through the process.

What are you waiting for?

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How To Pay Off Your Home Loan ASAP

If one of your new financial year’s resolutions is to start paying off your home loan as quickly as possible, here’s a few tips to get you on your way.

1. Interest rates are at record lows due to the consecutive RBA cuts in June and July. Most lenders have passed on the reduction in their home loan rates.  One strategy to pay off your home loan faster would be to maintain the repayments which applied before your lender reduced their rates in June and July.

2. If your lender didn’t pass on the full rate reductions, contact us to refinance with an alternate provider with a lower rate/ongoing fees than your current loan. Some of the lenders on our panel are offering owner/occupier principal and interest rates as low as 3.29%.  If you are not considering refinancing, at a minimum, you can ask your lender if they will match the rate, or reduce your home loan interest rate and/or fees.  Your bank may be willing to reduce your home loan rate and ongoing costs as an alternative to losing your loan to another lender.

3. On a principal and interest loan, in the first five or so years, most of your payments go towards paying off the interest. If you are able to make additional payments during this period, or at any time during the loan term, this will reduce the interest payable, and decrease the lifespan of the loan.   If you receive a bonus payment from your employment, or a tax refund, resist the temptation to splurge and put it to work for you by making an additional repayment on your mortgage.  If you are able to increase your regular repayments, this will save you thousands over the life of your home loan.  For example, by paying an extra $100 a month, a typical $400,000 home loan could be reduced by nearly 3 years, with a saving of almost $30,000.  Before making additional repayments, check if there are any conditions or limits on extra payments.

4. One of the quickest ways to save on your home loan is to make more frequent payments. If your home loan is on monthly repayment, switch to a fortnightly repayment.  Split your existing monthly repayment in two, and make these payments on a fortnightly frequency.  You won’t notice the difference in your cash flow, but it will save you time and money on your loan.  Repaying your home loan on a fortnightly basis means you are effectively making 13 monthly payments every year.

5. If you have an offset account with your home loan, ensure that your savings and ongoing salary are deposited into the account. An offset account can accelerate paying out your debt as the balance will reduce the interest payable on your home loan.

6. Be disciplined with your discretionary spending! Every dollar you save by cutting back on some of your luxuries can be put to work by making additional repayments on your mortgage, and saving you more in interest repayments over the life of the loan.  I’m not suggesting that you adopt a monastic existence and abandon all of your pleasures, but as an example, if you reduce your daily take away coffee consumption by 1 cup a day, you will easily achieve the previously mentioned saving of almost 3 years and $30,000 on a $400,000 mortgage!

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. Please contact us today for a confidential, cost and obligation free discussion about your lending needs.  We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.

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What You Need To Know About Your Credit Score

As of 1st July 2018, under Comprehensive Credit Reporting (CCR) it is mandatory for credit providers to provide positive credit data to credit reporting agencies.  Prior to July 2018, credit reporting agencies only obtained negative data such as defaults with utility providers, bankruptcies, and court judgements in order to compile your credit report, and determine your credit score.  CCR will ensure that additional information such as the type of credit applied for, amount of credit applied for and repayment history for the last two years will be included in your credit report.

Lenders use your credit score to assist in the assessment of a loan application or credit card.  Your credit score will help a lender decide the potential risk of lending to an applicant, and the likelihood of being repaid on time based on your credit history.   The higher the score, the better the credit risk you are to a provider.

Some of the key factors that impact your credit score include:

  • Your total debt.
  • Personal details.  Your score will take into account your age, time at current address and length of employment.
  • Types/size of credit accounts and relationships, eg. Home loan, personal loan or credit card.  Mortgages have a different level of risk when compared to a credit card.
  • If you have credit relationships with specialty finance providers such as debt collection agencies or payday lenders.
  • The date your credit file was established.  A newer file may present a higher level of risk when compared to an older file.
  • The number of credit enquiries made on your file.  This may have an impact on your score as credit enquiries remain on your file for up to 5 years.  If you’ve shopped around for credit and applied with several providers, you are seen as a higher risk.
  • Late payments, defaults, serious credit infringements, court judgements and bankruptcies.

There are a number of ways you may be able to improve your credit score:

  • Firstly, obtain a copy of your credit score.  You may be able to get a copy by opening an account via several providers such as:
  • Once you have obtained the score, check which range your credit score falls under.  Typically your score will range from below average to excellent.  If you have a low score, consider reducing your credit card limits, and check for any incorrect negative listings.  You may be able to apply to remove an incorrect negative listing from your credit file.
  • If you have multiple personal loans &/or credit cards, consider consolidating the debt under one loan.
  • If you have overdue accounts >$150, pay them off as soon as possible.
  • Limit the number of credit applications you make.
  • Ensure that your loan repayments are always made on time.

Checking your score and getting your finances back on track will be an important step to improving your chances of being approved for a loan.  If you have a low credit score and you are looking to borrow, a rejected application will further reduce your score.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored credit advice, please contact us today for a confidential, cost and obligation free discussion about your lending needs.  We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.

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Developing Saving Habits

You can’t teach an old dog new tricks, or can you?

Who we are today is a reflection of our past experiences and as we age we become more set in our ways. Our habits, what we enjoy and how we respect the people and material things we have rub off on those around us, especially children. What financial habits are you teaching your children?

Adolescence and teenagers are not taught how to manage money at school and it is left to parents to provide them with the knowledge and skills to be good money managers.

I remember at school buying my lunch from the canteen on a rare occasion, the lunch was something of a treat and not the norm. It’s not like my parents couldn’t afford it and at times I felt angry that my friends always bought lunch and I couldn’t.

On reflection, I now understand what my parents were unknowingly teaching me. Preparing my lunches the night before school was a habit they taught me and preparing my lunches has continued into my working life. However, now my wife and I prepare lunches on Sundays for the working week, we eat more nutritious food and avoid the costly takeaway lunch expense.

The $15 to $20 daily work lunch and coffee might not seem like a lot but, preparing our meals saves us thousands each year. Thank you, Mum and Dad, for teaching me how to make good financial decisions on a daily basis.

This is only one example of how my parents taught me to respect and spend money. The only way to save is to spend less than you earn and a bit of frugality is key. What financial habits will you teach your children?

Please note this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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EOFY Checklist: What A Year It’s Been!

And we’re not even halfway through it…

It’s certainly been an interesting few months, with the threat of potential changes to the financial planning landscape that would probably have occurred if the federal election result had gone the other way.

As the great Ronald Dale Barrassi once said, “The only constant in life is change.” It’s fair to say everyone in our industry; from clients to those earning a living in it, are looking forward to some stability for the time being.

With the election now a thing of the past and the end of the financial year upon us, it’s time to review some of the strategies that assist with our wealth accumulation objectives.

1. Give your super a free kick

Now is a good time of the year to make additional contributions into super, especially if you intend to claim those contributions as a tax deduction.

Any surplus cash you have sitting in a bank account earning the current abysmal rate of interest can be contributed into super before June 30 as a ‘personal’ contribution and claimed as a tax deduction.

Providing you haven’t exhausted your $25K concessional contribution cap, that increased tax deduction will most likely result in you obtaining an increased refund from the ATO.

The benefits are twofold; you get an increased tax refund which can be directed however you wish whilst also increasing the wealth you have accumulating in super.

2. Utilising unused concessional contributions

From 1 July 2018, if you have a total superannuation balance of less than $500K as at 30 June the previous financial year, you will be able to contribute more than the general $25K concessional contributions cap for that year by topping up the contribution with the ‘unused’ concessional cap from prior years.

Here’s how it will work:

In the table above, this individual in the 2019-20 year could potentially make a concessional contribution of up to $47K because they had used $3K in the prior year thereby having an ‘unused’ balance of $22K that can be carried forward into the next year.

In the 2020-21 year, because the balance of their super was above $500K on 30 June 2020, the concessional contributions cap is limited to the yearly amount of $25K.  In the subsequent year, 2021-22, the ball game has really opened up due to the super balance dropping below $500K at 30 June 2021 which has provided an opportunity to contribute up to $94K in that year.

This potentially allows for realised capital gains to be ‘transferred’ into super and be taxed at the 15% contribution rate, as opposed to a higher marginal tax rate because the concessional contribution can be claimed as a tax deduction.

This is a strategy to keep in mind over the coming years especially if you’re approaching retirement and have a sizeable amount invested outside the super environment that has significant unrealised capital gains.

3. Check in on your goals

It’s a good time of the year to check in on your life and financial goals to see if you’re on target to making your dreams become a reality.  Similarly, expectations may need to be revised to take account of changes to your circumstances over the last 12 months that have impacted on your wealth accumulation strategies.

At the end of the day, your super is your money and you are ultimately responsible for how it performs and grows.  You need to ensure it is being invested wisely and in line with the timeframe you intend to access it.

Here’s hoping for more stability and certainty on the financial planning front over the next 12 months, at least!

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial or superannuation advice, please contact us today. One of our advisers would be delighted to speak with you.

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Quintessentially Australian

It was 2006, Grade 12 English and the latest assignment was a 10-minute speech on something that was ‘quintessentially Australian’. I remember being told that there was no right or wrong answer, but we had to show cause and enlighten the audience as to who or what made Australia iconic. There were about thirty of us in the class and only a few that I still remember, so I guess they got something right.

For example, one of my classmates gave a 10-minute history lesson on the Melbourne Cup and how the ‘race that stops the nation’ is the single greatest horse race in the world. All Australians come to a complete standstill on the first Tuesday in November at 3 pm. The entire nation watches the 3-minute race, why? Because we love an underdog. Phar Lap, Makybe Diva, can it get any more iconic than that?

Now I must admit, I felt pretty clever at the time and I thought my topic was unique, but still represented Australia. I don’t remember much of the speech, but it went a little like this… Remember, I was 17 at the time so don’t judge too harshly!

What is it to be Australian? Is it a lifestyle, a destination, a feeling or a thing? Something that is so ingrained in our daily life, that we overlook it, and don’t even give it a second thought. Our history is what makes us who we are and we often forget that our currency tells a story. The $50 note depicts Edith Cowan, Australian first female parliamentarian. AB “Banjo” Paterson is a feature on the $10 note, arguably Australia’s most famous poet. The Man from Snowy River appears in small text in the top left-hand corner. The $20 note, or Redback as it is affectionately known, has a portrait of Reverend John Flynn. He pioneered the world’s first aerial medical service, now known as the Royal Flying Doctor Service.

Illustrated on our coins are native Australian animals, such as the echidna, lyrebird and platypus. Our national emblem, which includes the Australian Coat of Arms, Australian floral emblem (The Wattle) and native kangaroo and emu are depicted on the 50-cent coin. The $2 coin features a traditional Aboriginal tribal elder, the Southern Cross and Australian flora.

I did manage to prattle on for 10 minutes about our bank notes and the different icon Australians depicted on each one. I still stand by my initial argument, that our history makes us who we are. I wonder as we move into a digital age, how do we keep our history alive? We are moving away from physical money and into an era where you can pay for groceries on your watch. Do we have a sentimental attachment to currency, because it is part of our national history and culture? With so many different currencies all over the world, wouldn’t it be easier to be completely paperless? But then, what daily reminder will we have of where we come from and who shaped this great nation?

If you are interested in tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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What Does My Super Statement Mean?

“I’ve just received a letter from XYZ Superannuation Fund saying I have an account with them. What does this mean and how did I get any money in the account?”

This is the annual benefits statement provided each year by all superannuation funds.  It is a report to members of the fund that tells the member:

  • How much their employer has paid into the fund during the last financial year
  • How much was paid to the fund for the administration of your benefit
  • What insurance is held through the fund
  • How the investments performed during the year
  • What investment option your benefits are invested in
  • Your total balance
  • Whether you have made a beneficiary nomination

“I can see all of that stuff but I don’t know what it means. Can I draw this money out for a holiday?”

No, superannuation is accumulated through compulsory contributions made by your employer during your working life, and you can’t draw from it until you reach at least 60 years of age.

“Wow that’s a long time, and a bit of a waste of time if you ask me.”

Yes, it is a long time but it is not a waste of effort.  Your employer must pay 9.5% of your salary every year into the fund of your choice – imagine how much that might be in 40 years’ time!  Let’s say that your salary is $55,000 per year now – that means your employer has to add at least $5,225 to your fund every year, and the contributed amount will increase every time you get a pay rise. Some of the amount contributed is paid out in tax, and the rest is invested with the object of growing over time. How much it grows will depend on the investment option or asset allocation that you choose.

The Fund must advise you how much you have paid to them in administrative fees during the year. This section is important.  Take some time to compare the fees you have paid in your account with fees in other funds. If your fund is very expensive compared with others, then consider switching funds.

You must compare ‘apples with apples’ – don’t look at a High Growth fund and compare that with a Moderately Conservative fund. The rate of growth may be significantly different and the fees may also be different.

Has your fund performed as well as or better than the fund you compare it with? For example, if your Balanced fund has returned 7.8% in the last financial year and other Balanced funds you have checked are returning 10% for the year, it may be prudent to look a little closer at your own fund and potentially consider a switch.

Check performance over a longer timeframe – 1 year out-performance is good, but has your fund outperformed over 5 years or more?  If not, you may want to look more closely and potentially find a fund that has a better longer-term performance.

Switching decisions should be based on long term performance coupled with the rate of fees you pay each year. Remember that switches come with a cost so you need to have good reason to do so.

“How did I get all of these super funds?”

When you begin a job, you should advise your employer where you want your contributions paid. If you don’t do this, then the employer will send your contributions to the fund it uses by default and that creates a new super account. If you have had a number of jobs and you now have more than one account, you should research all the funds to discover the better performing or lower cost fund, and consolidate (rollover) your benefits into the one account. Make sure you advise your employer if this account is not the one where they are currently paying your contributions.

Here’s an example comparison between 3 funds, made on these assumptions:

  • Salary $55,000
  • Starting balance $10,000
  • Life, TPD & Income Protection insurance in each fund

You can see a big difference in the ending balance between the 3 funds because of the rate of fees, the 1-year performance and the insurance premium paid. If you are invested in Fund C, should you be rolling over to Fund A? You must do the homework to ensure that the long-term performance of Fund A is consistently good. You want to have your benefit invested in a fund that can give you a good and consistent return over a longer period than 1 year.

“Why am I paying for insurance?”

Have a look at the insurance section on your statement so that you know what insurance coverage you have.  You may have a default amount of life and/or total and permanent disablement (TPD) cover.  Life insurance pays a benefit to your family in the event of your death, but TPD will pay a benefit that you can draw on if you are totally and permanently disabled. Be aware that the sum for which you are insured is likely to decrease as you age. This is important, as you may be grossly underinsured at a time where it is most needed.

The other type of insurance you may have is income protection – this one replaces part of your salary if you are unable to work through illness or injury.  Check the premium on your insurances, and check waiting and benefit periods on the income protection policy.

If you consolidate funds, you will lose insurance benefits in any of the funds you roll out of so be aware you may then not have sufficient, or any, insurance. You should consult a qualified professional for insurance advice.

Nominating a beneficiary to receive your benefit upon your death, and keeping this nomination current, is important. Many nominations lapse in 3 years from when they were made, so you should regularly check your nomination remains current. Another thing to look out for is a nomination made to an ex-spouse. If you separate from your partner, you should make a new nomination. If you don’t, then your benefit is going to be paid to that ex-spouse, even if you have entered another marriage.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial or superannuation advice, please contact us today. One of our advisers would be delighted to speak with you.

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What’s Your Most Valuable Asset?

If I asked you, “what is your most valuable asset?” would your answer be your house, investment portfolio, motor vehicle? Maybe. But what about your income? Assuming an increase of 3.5% per annum and continuous income, if your current annual salary is $80,000, over the next 15 years your income is worth up to $1,544,000 or over 30 years it’s worth an incredible $4,130,000.

Now what do you think is your most valuable asset? That’s right, it’s your ability to earn income!

According to TAL Life, the top 5 reasons for claims on Income Protection are, injuries and fractures, mental health, musculoskeletal and connective tissue diseases, cancer and diseases of the circulatory system (heart attack and stroke). These injuries and illnesses are nothing to be messed with and unfortunately no one knows what the future will hold.

Two of my clients never expected to be on an income protection claim, let alone for over 12 months! Both clients have received peace of mind that every month they will receive their benefit to help towards the mortgage, bills and general living expenses. By knowing that they have this regular income, they are able to focus on their rehabilitation without the stresses of money.

There are many factors to consider when taking out an income protection policy. Speak to one of our friendly advisers today to see how your policy stacks up, or if you’re looking for a new policy.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, contact us today.

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What’s In A Name?

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has seen the Big 4 Banks come under fire for a number of things, including their ‘take it or leave it’ attitude to the Anti-Money Laundering (AML) and Counter-Terrorism Funding (CTF) Act. In 2017, the Australian Transaction Reports and Analysis Centre (AUSTRAC) brought charges against the Commonwealth Bank of Australia (CBA) for contravening the Act, and were treated to a cool $700 million penalty which barely made a dent in CBA’s fiscal 2018 cash profit of $9.9 billion.

The fallout from these charges and others alike, has resulted in an industry-wide crackdown on the enforcement of AML/CTF policies. Among other things, the Act mandates that you must identify and verify a customer’s full name, residential address and date of birth. While this seems pretty straight forward it’s causing headaches for customers who have used aliases in the past. John or Jack, Anthony or Tony, Amanda or Mandy, James or Jim and Susan or Sue are just a few examples of common aliases which have caused problems when adhering to AML/CTF obligations.

Different spelling variations of the same name have also been put under the microscope and in some cases, have required statutory declarations to confirm that the likes of Anne or Ann and Marie or Maree are one and the same person. Some financial institutions have gone as far as requiring your share holdings to be updated if your middle initial is only noted as ‘A’ on the registry, but your identification spells out your full middle name of ‘Albert’.

Locally, one of the problems we have had in the Rockhampton office is the change in suburbs as the city continues to expand. What was once Rockhampton is now broken up into several different suburbs such as Allenstown, North Rockhampton, Koongal etc. Although identification documents (Drivers Licence) might reflect the correct suburb of ‘Allenstown’ long standing bank accounts or shares acquired many moons ago may reflect the original suburb of ‘Rockhampton’. This small difference causes issues under the Act when identifying and verifying a client’s residential address.

It might be a good idea to do a bit of a tidy up of your financial affairs if you’ve had issues in the past with the spelling of your name or if you use an alias. Ensuring your address is up to date and your personal information matches your identification is another good habit to keep. A few places where we have encountered discrepancies include Wills, Power of Attorney documents, Holding Statements and Bank Statements.

Please note this article is provided as general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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