For today’s discerning financial and investment professional
This time next year Rodney The disruptive rise of crypto?
Februar y 2018
NEWS
REVIEWS
ISSUE 65
COMMENT
ANALYSIS
Make It Your Business
The tax efficient investment market has changed significantly in recent years. There has never been a better time to get involved, as high value clients are gaining interest in this sector and it’s exactly where you can add tangible value. Complex structures and investments with higher risk profiles mean that clients would benefit from your advice. Without it, they may invest anyway and could make ill-informed decisions, whilst dis-intermediating you from the process and reducing your revenue potential. Whether you’re already advising on SEIS, EIS, BPR or VCT products, or perhaps considering them for your clients’ portfolios then contact us at GrowthInvest. We’ll show you how you can consolidate historic investments onto our platform and build a diversified portfolio from a wide range of managed fund or single company investments. Through our intuitive online platform you’ll be able to offer your clients exclusive access to real portfolio growth, secure in the knowledge that these government-backed schemes offer unique tax efficiencies. Visit us to learn about the products, the pitfalls and how best to advise on this dynamic and evolving sector. So make it your business, before someone else makes it theirs... Find out more at growthinvest.com
CONTE NTS Februar y 2018
CONTRIBUTORS
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Ed's Welcome
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News
Brian Tora an Associate with investment managers JM Finn & Co.
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ETF Securities Mixed outlook for commodities in 2018 – ETF Securities
Richard Harvey a distinguished independent PR and media consultant.
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Ed's Rant
Mike Wilson explores the expansive world of crypto-currencies what with assets fast approaching $1 trillion
Neil Martin has been covering the global financial markets for over 20 years.
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Brian Tora Don’t overdo the gloom, says Brian Tora, because the global economy in 2018 is still fundamentally strong
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Brett Davidson FP Advance
Better Business Make 2018 the year that you experience a real business transformation by putting these tips into practice
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On balance
Michael Wilson Editor-in-Chief editor ifamagazine.com
Peter Sleep of 7IM weighs up ETFs against other options in portfolio management
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Taking your marketing to the next level
Sue Whitbread Editor sue.whitbread ifamagazine.com
Part 3 in the series from Sam Turner, on adding structure to your marketing approach
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Global Advisers 3 concepts fundamental to understanding cryptocurrencies
Alex Sullivan
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Publishing Director alex.sullivan ifamagazine.com
Tony Catt
How much regulation does it take to treat customers fairly? A regulatory update from compliance consultant, Tony Catt
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EIS – A new dawn? IFA Magazine is published by IFA Magazine Publications Ltd, Arcade Chambers, 8 Kings Road, Bristol BS8 4AB Tel: +44 (0) 1179 089686
Mark Brownridge analyses what the Budget changes mean for financial planners
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© 2018. All rights reserved ‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication. IFA Magazine is for professional advisers only. Full details and eligibility at: www.ifamagazine.com
Making the tax year-end less taxing for advisers Les Cameron discusses the range of technical support and resources which are available to advisers and paraplanners
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The Young Ones Pensions aren’t boring. A message that Richard Harvey hopes more young people will latch on to in 2018
46 Career Opportunities From Heat Recruitment
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E D'S WE LCOM E Februar y 2018
Alternative Truths Shock horror, hold the front page...
World fails to collapse as Santa Claus rally ends. Analysts distraught as rock-solid and reliable metrics all fail to deliver long-overdue global crisis. Valuations now running at twice the unsustainable ratios they were the last time that we had an unsustainable bout of unsustainability. Newspaper editors forced to choose between eating their hats and their words. America discovers that handing out half a trillion dollars in tax breaks for business is really quite a good way to put new heart into US stock prices. Bitcoin stubbornly refuses to bite the tulip-field dust, as its first-ever exposure to shorting pressure results in a worldwide epidemic of – well, nothing much, really. By the third week of January it’s still sporting a year-on-year gain of 2,000%. Back in Washington, Donald Trump breaks with his propaganda-meister Steve Bannon and gets an apology from the very same man who, a few weeks ago, called his son’s behaviour “treasonous”. State Secretary Rex Tillerson, who called Trump a “moron” last summer, now says that there’s no reason to doubt his self-proclaimed “very stable genius”. The Dow Jones index hits another record high, the S&P 500 has the best start to January since 1987.
Nearer to home, Theresa May unexpectedly fails to get removed as Conservative Party leader, and promptly signals more of the same with a largely unchanged cabinet. Sterling strengthens, UK stocks continue to climb. China’s leader Xi Jinping continues to crunch the political opposition into the ground and installs himself in the pantheon of the great, alongside Chairman Mao, by getting his personal thoughts embedded into the Chinese constitution. GDP growth projections for 2018 rise slightly to 7%. Shanghai stocks continue to climb. Germany’s leader Angela Merkel picks herself up after being pitched into an unsustainable political situation. France’s President Emmanuel Macron ditto. Euro strengthens and FTSE Eurofirst 300 continues to climb. Okay, are you getting the picture? And shall we stop embarrassing ourselves now? Are we, and the rest of the financial press, guilty of spreading the biggest bear myth since the 1970s? Is it really “different this time”?
themselves so as to rewrite the celestial horoscope? Indeed, have we somehow slipped through the space-and-time continuum so that we now inhabit an entirely different slice of time with entirely different outcomes, as Einstein postulated? The heck we have. If you’re reading this magazine in early February, and if the world is still round and the sea is still wet and two and two still make four, the chances are that the underlying logic of the old place is still intact. And that the Federal Reserve’s plans to raise rates, perhaps three times, will slow investment and restore the broken strength of the dollar, and pitch the perilously-valued bond markets into a competitive round of capital losses. And that we, the advisers and managers, are likely to find ourselves managing a rotation that’s been staring us in the face for the last three years. And that our clients will need us more than ever. Michael Wilson Editor-in-Chief
Back to the Future Have the laws of logic and mathematics turned themselves inside out, just for us? Have the stars and planets rearranged
Stocks continue to climb as North Korea’s Kim Jong Un responds to playground insults from Trump about who’s got the bigger button, with an announcement that his government is interested in teaming up with South Korea during the winter Olympics.
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N EWS Februar y 2018
Ascot Lloyd and Bellpenny to become IFA under Ascot Lloyd brand Following the merger of the two companies in July 2017, Ascot Lloyd Financial Services and Bellpenny have now become a single, fully independent financial advisory company under the unified brand Ascot Lloyd. The company says that this change will enable the business to provide a broader product set and reflects the group’s ambitious growth strategy as one of the largest independent wealth managers in the UK. Following the merger in July 2017, the business saw strong growth in the second half of the year. The combined Ascot Lloyd now has a turnover in excess of £40m, over £6bn in funds under management, 80 personal advisers and 40,000 clients. Nigel Stockton, CEO of Ascot Lloyd, commented: “At the heart of our success is a client driven business, and our move to become fully independent is in direct response to what our clients and advisers want, while also allowing us to offer a more comprehensive service. “We have now established an outstanding platform, with significant scale and a trusted brand. Going forward we have considerable opportunities to expand our client base, deepen existing relationships and welcome new, high quality advisers. We look ahead to 2018 with great confidence.”
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N EWS Februar y 2018
Property demand levelling out House prices in London rose by just 1% during 2017, according to the latest survey from the Halifax mortgage lender – the slowest increase in six years, and markedly less than the UK national average of 2.7%, which was itself around half the level of 2016. 2018 is likely to see further rises of 1% to 1.5% (according to Nationwide) or 0% to 3% (Halifax). The general slowdown has been widely attributed to the effects of changes in taxation policy, which raised stamp duty and reduced the tax reductions available on buy-to-let properties – thus encouraging a sell-off by BTL owners. But much attention has also focused on the fact that many of last year’s fastest growth areas were provincial but “classy” locations such as Cheltenham (up 13%), Bristol,
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Manchester and Birmingham. Are we seeing a long-term exodus of city types toward the less pressurised areas of the country, analysts wondered? Halifax’s managing director, Russell Galley, characterised the 2017 situation as being essentially flat, with demand, supply, construction activity and even mortgage approvals all being suppressed by low consumer expectations of the country’s economic prospects, and of rising expectations that interest rates would soon rise. It was not all gloom, however. Wales and the East Midlands both saw an 8% increase in house prices during 2017, the Halifax says, and the South West witnessed a 4.9% rise.
Scotland experienced a small/ insignificant price fall of 0.2%, but localised pressure points such as Perth saw prices dropping by as much as 5.3%. Pity, however, the Northern Ireland property owners who suffered a 5.6% drop in values. Will the situation be rescued by Chancellor Philip Hammond’s pledges of £44 billion in new money and new investment during the Autumn Budget statement, we wondered? We can certainly hope so. But we do need to remember that Hammond’s ambitious pledge of 300,000 new homes a year has been pencilled in for the mid-2020s. Right now, that seems a long time away.
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N EWS Februar y 2018
Trouble with the KIDS again The quiet (but oh, so decisive) arrival of the MiFID II rules in January has somehow managed to catch out a substantial number of funds which have unaccountably failed to meet the required KID (Key Information Document) standards introduced under the Packaged Retail and Insurance based Investment Products (Priips) regulations. As a result, Hargreaves Lansdown alone chopped 296 investment trusts from its platform within days of Priips coming into force on 1 January – and Bestinvest had sent another handful of funds to the naughty step. The Priips requirements are part of an overall package of investor protection measures
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that effectively formed part of the MiFID II programme. It isn’t clear yet how long the suspensions will last, because most of the British and European funds will now be working hard to bring their documentation up to speed. But the situation with US and Canadian funds may be different. The Financial Times reported that as many as 1,200 ETFs had been similarly struck dumb by Hargreaves, including 900 from US corporations which presumably hadn’t been keeping up to date with their European requirements. Or which (equally likely) had no real intention of complying.
The FT reassured its readers that the new measures “do not affect certain mutual funds based in the EU known as Ucits funds, which includes a large volume of ETFs.” Observers say that the failure to comply with the KID requirement will have only limited impact on UK investors., most of whom buy these North American funds through other funds or through regular savings plans. However, according to the FT, UK investors with existing holdings in such funds would find it hard to amend their savings amounts until such time as the funds produced the necessary KID paperwork.
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N EWS Februar y 2018
A Bleak Midwinter A series of disappointing Christmas trading figures from UK retailers pointed toward a general downturn in British spending patterns – at least, from the conventional store chains. Only Next, whose sales rose, could really lighten the gloom, it appeared. Toys R Us announced the closure of a quarter of its UK stores, in the face of relentless pressure from e-sales; M&S reported sharply lower Christmas food sales on top of its already lacklustre clothing sales; Tesco announced a modest rise which didn’t meet market expectations; John Lewis reported a higher Christmas turnover but agreed that it had been forced to absorb so many extra costs that profits would fall; and the mighty House of Fraser was reduced to asking its landlords for rent reductions.
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Specialist chains seemed to have fared little better. Poundland and the Harveys furniture chain were squeezed after their South African parent Steinhoff was forced to restate its accounts; Moss Bros issued a warning in mid-January; and electronics retailer Maplin, with 2018 stores, faced the partial withdrawal of its credit insurance cover as its market suffered from e-commerce competitors. Analysts agreed that the causes for the retail unease on the high street were many and various. On the one hand, inflation and a weak pound had boosted prices which had put shoppers off. On the other, many felt unwilling to extend their credit balances much further, especially while Brexit uncertainty was destabilising their job situations. Analysts said they were hopeful, however, that a successful negotiation of Brexit terms would improve the situation.
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N TITLE EWS Februar y 2018
CAPE Fear Financial markets opened the year in fine style, with nearly all the major stock market indices attaining new records during the first two weeks of January. And all this despite – or perhaps because of? – displays of occasionally brutal strength from world leaders. As detailed on page 5, Presidents Trump, Xi Jinping, Kim Jongun and his southern Korean counterpart Moon Jae-in all took distinctive steps to stamp their political authority on their respective economies, and in lesser ways so did Prime Minister Theresa May and Germany’s Angela Merkel. (By contrast, there was little to be seen of President Vladimir Putin in Moscow, where the Micex
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showed no clear sign of breaking out of last year’s turbulent slide.) The World Bank picked up on the bullish sentiment with an upgrade in its global growth projection (3.2% in 2018, rising to 4.5% in emerging markets), and it also forecast a steep resurgence in commodity prices. You can read the summary at (https://tinyurl.com/yank2gs4). But developed economies such as US were still running uncomfortably high numbers on Robert Shiller’s 10 year Cyclically Adjusted P/E (CAPE) ratio, which surpassed its 1929 maximum. Academics remained divided as to whether CAPE was still valid, or whether it should
be amended to allow a kinder interpretation of fair value, since CAPE had been signalling an over-expensive US market for the whole of the last seven years. A recent paper by Research Affiliates, entitled ‘CAPE Fear’ (https://tinyurl.com/ y9w2ydmo), had argued for a review of the mechanism; other observers, meanwhile, pointed out that the current 10 year statistics are mathematically skewed by the memory of the 2008 crisis which had seen huge short-term drops in profits. Once those had passed out of the calculations in late 2018, they said, the picture would become somewhat less perilous. At present, the jury is still out.
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N EWS Februar y 2018
Paradigm Norton continues to grow Award-winning financial planners Paradigm Norton continue to expand with the announcement of the merger between the firm and London-based The Red House Consulting Limited. Paradigm Norton now employs a team of 55 across its offices located in Bristol, Torquay and London. The merger is part of its planned strategy to build a significant financial planning business focussed
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on delivering great financial planning and life outcomes for its clients and creating a dynamic environment for its team to develop and grow. Paradigm Norton’s Chief Executive Barry Horner commented: “We are absolutely thrilled to be merging with The Red House, a firm we have watched for a number of years, who share our values, passion and commitment to delivering an excellent client experience.”
Ruth Sturkey, Managing Director of The Red House, was also delighted to join forces with Paradigm Norton. She comments: “This merger is great news for both our clients and our team, bringing greater strength, depth and continuity to our offering. The integration of our teams, each of whom have an excellent track record of delivering innovative financial planning solutions, gives our mutual clients a range of additional resources, expertise and life skills”
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Februar y 2018
Will 2018 be a golden year? Gold has begun 2018 strongly, helped by a weaker US Dollar and, amongst other factors, stronger demand for inflation hedged investments.
Access latest insights from Europe’s leading provider of gold ETPs • Physical gold ETPs with zero credit risk and London or Zurich vaulting • Currency hedged physical gold ETPs • Short & leveraged gold ETPs • Gold miners ETF
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This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). This communication is only targeted at qualified or professional investors. The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.
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This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make
any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit. Short and/or leveraged exchange-traded products are only intended for investors who understand the risks involved in investing in a product with short and/or leveraged exposure and who intend to invest on a short term basis. Potential losses from short and leveraged exchange-traded products may be magnified in comparison to products that provide an unleveraged exposure. Please refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks.
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SPONSORE D FEATU RE Februar y 2018
Mixed outlook for commodities in 2018 Advisers looking for value in the commodities sector may wish to consider exposure to industrial metals within clients’ portfolios argues James Butterfill, Head of Research, ETF Securities Commodities have enjoyed a great start to 2018, from thier low point in mid-December they have rallied 6.5%, thier performance has been broadbased too, driven not only by the Iran issues inflating the oil price but a rally in industrial/ precious metals and agriculture. We are wary of some who are interpreting this as being a positive sign for broad commodities this year. Commodities as an asset class are a very heterogeneous group and we expect varied performance from each.
Gold Although we expect the Fed to continue to tighten policy, we think the downside risks to gold prices are limited because real interest rates are likely to remain depressed as inflation gains pace in the US. However, a shock event, such as an equity market correction, could force gold prices higher. On balance we see little change in gold prices in the coming year. Investors appear to be optimistic about gold despite the rising interest rate
environment, we believe this is due to investors now seeing gold as an insurance policy from geopolitical concerns rather than investment. (Figure 1) Industrial Metals We expect the most interesting commodity in 2018 to be industrial metals. They are likely to benefit the most from improving emerging market (EM) growth, at the same time we expect supply to remain in deficit in 2018 as the lack of investment in mining infrastructure continues to bite.
Gold Price Forecast
Gold Price Forecast
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Source: Bloomberg, ETF Securities, data available as of close 20 November 2017. Historical performance is not an indication of future performance and any invstments may go down in value.
Figure 1 - Gold Price Forecast
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Source: Bloomberg, ETF Securities, data available as of close 20 November 2017. Historical performance is not an I FAmagazine.com indication of future performance and any invstments may go down in value.
SPONSORE D FEATU RE Februar y 2018
Miners Margins vs Supply/Demand 20%
3,500
Mining company margins 2yr lead (YoY%, RHS)
18% 16%
2,500
14%
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8% -500
Miners margins (in %)
Supply/Demand balance in '000 tons
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6% World Refined Metals Balance (YoY '000 MT, LHS)
-1,500
4%
-2,500 2% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Figure 2 - Miners Margins Vs Supply/ Demand
EM demand is crucial for commodity markets as they represent 70% of industrial metals demand. In this respect, we expect any weakness in commodity prices to be largely offset by solid demand growth, again led by China. Although concerns remain over the build-up of debt, Chinese policymakers have continued to show a willingness to support the financial system with stimulus to ease financial conditions. Since industrial metal prices began to fall in 2011, capital expenditure by miners collapsed. In mid-2017 capital expenditure by the largest 100 mines was 60% lower than in mid-2013. Given the long lag times behind investment and completion of mines, we don’t expect the tightness of mine supply to reverse any time soon. Miners seem to have been cautious to increase spending as they wait for
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the price recovery to prove sustainable. Historically we have seen about a yearlong lag between a recovery in price and a recovery in capital spending. It is likely in 2018, as commodity prices continue to rise, that we see capital expenditure growth turn positive, although the damage of 4 years of lack of investment in to mining infrastructure has already occurred and is why industrial metals remain in a supply deficit. (Figure 2)
We expect the most interesting commodity in 2018 to be industrial metals, They are likely to benefit the most from improving emerging market growth
Historically we have found that metal markets begin to move towards a balance two years after miner profit margins hit rock-bottom. Miner margins fell to a low of 2% at the beginning of 2016 and since have recovered to just over 7%. So if we see a repeat of historical patterns, we should see supply begin to improve in late 2018, but it could take years to move back into balance.
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E D'S RANT Februar y 2018
This time next year Rodney… Crypto-currency assets are fast approaching $1 trillion, says Michael Wilson. Anonymous, tax-untraceable and floating on a global bed of popular support. Whatever might happen next? In the inimitable words of Del Trotter himself: “This time next year, Rodney, we’ll both be millionaires…..” “Naah, honestly. Strictly kushty. You can play the system, Rodney or you can play outside it. Sort of. Just find your own sort of people who share your own youthful values, and who trust each other, and then who cares what the boring old f@rts in the central banks say? Who needs <audible sneer> “fundamental analysis” anyway? We’ve heard what them baby boomers have said, and it’s all about protecting their own fat backsides, isn’t it? What have they ever left behind for us common people, eh? Answer me that, then, Trigger?” In a weird kind of way, the crypto-currency people have a point. For the first time since the Age of Aquarius in the 1960s (“Harmony and understanding, sympathy and trust abounding, no more falsehoods or derisions, golden living dreams of visions, mystic crystal revelation and the mind's true liberation”… yeah, move along folks, there’s nothing here to see), the arrival of a wealth system based on something other than hard economic realities and cruel mathematical ratios is taking hold. And it’s making an embarrassing amount of money (sorry, Del, “wonga”) for the early believers. My Coindesk
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subscription tells me that $895 of bitcoin in January 2017 is worth $12,000 today. Having been all the way up to $20,000, and then chaotically down again. Lovely jubbly, but a bit scary all the same.
valuation on anything other than that the numbers of people who wanted to buy it; and as for fundamental value, it had none anyway, so what would happen when somebody shorted it?
Stronger than it looks
The question was intriguing. How do you short something that doesn’t have a fundamental value in the first place? If the buyer’s pitch is based on a loosely optimistic idea of future liquidity and the seller’s pitch centres around an equally intuitive but downmarket view of same, where are the two to meet?
So should we, as industry professionals, be taking bitcoin and its crypto brethen seriously? Or is it all just a disaster waiting to happen? Should we, as advisers, be bracing ourselves for the inevitable plane crash and trying to anticipate where the wreckage is going to land? And just what do we say to our clients who are absolutely slavering for this dodgy new paradigm?
The blockchain concept
I have to warn you that the following news isn’t all easy to swallow. Bitcoin has now been accepted by a number of central banks, and its “blockchain” confirmation concept is being seriously studied by big institutions all around the world. More importantly, it’s recently been opened up to the searching scrutiny of the shortsellers’ markets. And you know what? It hasn’t collapsed.
I’m going to be perfectly honest here. I’m a traditional liberal artsy type who only scraped maths O level at school because I didn’t follow the inevitable logic of what other people were calling logic. Even today, my head starts to spin when I hear people making nearly-circular arguments about why one system is better/ more logical than the others. But here’s what I’ve picked up about this thing that other people are calling blockchain.
Well, not yet anyway. There were a lot of people who said that bitcoin wouldn’t survive the opening of the Chicago futures contracts in December 2017 – because, they said, bitcoin had never needed to base its
The first thing is that blockchain doesn’t concern itself with who’s making what transactions, but focuses instead on ensuring that the identity of a unit of transaction (such as a bitcoin) is openly and publicly confirmed.
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E D'S RANT Februar y 2018
Whenever a bitcoin transaction goes ahead, the blockchain sends out a “distributed ledger” notification to all and sundry to say that it’s happened, and that the bits-of-bitcoins have changed hands. That, in turn, should be enough to ensure that nobody will be able to claim that the dog ate his bitcoin, or that somehow an imposter has got away with it while his back was turned. And therein lies the security. Who needs a gold bar in the cellar when you’ve got that kind of confirmation of your claim to title? The important thing, though, surely, is that the blockchain process doesn’t record who’s bought or sold the bitcoin. Anonymity is the absolute name of the game - which is why, unfortunately, bitcoin is still the currency of choice for fraudsters, pornographers, kidnappers, illegal Chinese currency brokers, and a whole lot of other bad people who the proponents of the New Age of Aquarius are trying to forget about. But can the system ever break that chain of anonymity? There’s rather a lot riding on it. We’ll look at this question in a moment. What’s a bitcoin worth anyway? That’s a serious question, and we’re not going to find any answers in the textbooks. As long as we can get our heads round the fact that bitcoin and the like have no intrinsic value at all, but exist only as an aspiration in the searching hearts of their admirers, then we’re on the starting point for assessing the value of this strange new mechanism. “Mechanism” is perhaps the right word. Supposedly invented by somebody called Satoshi Nakamoto, who now appears never to have existed, the general idea of bitcoin is that it floats upon the public consciousness
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and derives its value from the level of demand at the time. So [playing the young devil’s advocate here], how different is that from all the conventional currencies in the world? All right, you can plant a tulip bulb in the ground and get a flower from it, and you can wear a lump of gold around your neck, or maybe even make an electrical connector out of it. But tell me, could you say the same about a dollar, or a yen, or a euro? Aren’t they just what we call fiat currencies? (From the Latin word for “trust”) Aren’t they just a load of bull***t from a bunch of self-interested bankers who’ve set up the world to benefit their own system?” You don’t have to agree with that sentiment to see where the logic’s coming from. Buying a bitcoin is a statement of solidarity with a millennial generation which feels that it’s been passed over by the wrinklies. And the possibility that there might be a different way of floating a currency on a bed of public confidence is bound to feel attractive, isn’t it? How big is crypto? But none of these concerns are going to mean much unless we can get a proper sense of how large the crypto currency market actually is. Before we can assess the risk from the advancing army, we need to know how much gunpowder they’ve got. The answer is illuminating. According to CoinMarketCap, the total value of crypto currencies in early January was $760 billion at current exchange rates. Of which perhaps half consists of bitcoins – the others include Ethereum, Litecoin, Swiftcoin, Bytecoin, Primecoin, Blackcoin, Auroracoin and nearly 1,400 more. (Do you see where this is heading?) How does that $760 billion stack up against the global environment? It’s equivalent to a bit less than 1% of
the world’s stock market capitalisation. It amounts to around ten days’ worth of US Gross Domestic Product. Small beer, then. And when compared with the $22 trillion cost of the 2008 crash, it would be hard not to conclude that a crypto collapse would be opening up buying opportunities as soon as the losses exceeded $1 trillion or so. Except that the downforce from a bitcoin crash would vastly exceed the losses suffered by the unlucky speculators. Troubles are likely to happen because some institutions will have over-exposed themselves and will face liquidity issues, which will have knock-on counterparty effects all over the place. Bitcoin in itself won't be the cause of a financial avalanche, but it might well be the trigger for one if the preconditions are already in place elsewhere. And that’s the hard bit to calculate in advance. “No income tax, no VAT, no money back, no guarantee…” Can cryptos be taxed? Here’s an interesting conundrum, courtesy of a contributor to an internet forum which I frequent. The contributor’s son, it seemed, had been given a gift of 250 bitcoins by a friend, many years ago, as a thank you for a small bit of research that he’d done toward a project. And how, with bitcoin at $16,000, his gift was suddenly worth $4 million, and what was he to do about it? Should he be liable for income tax on what HMRC might well decide to regard as earned income? Or would tax be levied only on the value of the bitcoins at the time of transfer (probably less than $10,000). Or would the taxman be entitled to lay a top-rate tax claim to the entire sterling capital gain since the gift had been made?
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E D'S RANT Februar y 2018
Or could he simply dismiss the whole matter as a gift, and not as earnings at all? And if he did none of those things, would the taxman ever find out that he’d ever received the bitcoins, in view of the aforementioned provisions about blockchain anonymity?
So is the cryptocurrency business ready to grow up and go mainstream?
What price anonymity? That’s not such an easy question to answer as it seems, apparently. The prized anonymity of bitcoin transactions has been taken pretty much for granted up till now – not least, by the hackers and scam artists who infect people’s computers and then demand ransom payments to disinfect them – invariably in bitcoin. But the Feds are now starting to close in on the crypto-currency exchanges themselves. And that’s where the bitcoin taxation issue starts to get interesting. Last November, a court in San Francisco approved a demand by the American IRS tax agency that forces the Coinbase exchange to reveal traders’ identities whenever they trade (or simply receive) bitcoin to the value of $20,000 or more. According to the evidence considered by the court, some 14,350 Coinbase users had traded in such amounts between 2013 and 2015, but only 800-900 had declared gains to the US tax authorities.
dealings – and the court ruled, according to Bloomberg, that the company “must turn over basic identifying information, records of account activity and period statements for accounts with the equivalent of $20,000 in any one transaction type during any single year from 2013 to 2015”. However, the court held back from ordering the surrender of other identifying data such as public keys that might allow the inspection of all accounts, wallets and vaults.
bought that particular item and when you sold it. But when you’ve been adding to (and drawing from) a liquid pool of same-stuff crypto-coinage, the task of defining first in and first out becomes much more difficult. The word is that Congress is still scratching its head about how to stop taxpayers from kicking their bigger longterm capital gains down the road for as long as possible.
Courts in other countries, especially in Asia, are being less subtle about the increasing pressures that they’re bringing to bear on the exchanges to make them open up their records. Hardly a week goes by without some exchange being closed, suspended or generally leaned on. So is the cryptocurrency business ready to grow up and go mainstream?
And yet the market itself is gradually starting to see the logic of regulating itself a bit more transparently. If crypto-currencies are half-serious about taking the task of money-creation out of the hands of the world’s Central Banks (pause for effect…), and if they want to attract serious attention from businesses and bond markets, they need to ensure that the scarcity of their currencies (and therefore their value) remains tightly controlled.
First in, first out? We’ll look at that question in a minute. But first, let’s ask a rather obvious question that’s been puzzling the US tax people. If you ask people to declare their bitcoin gains for capital gains tax purposes, how are you going to stop them from preferring last-in, last-out, so as to minimise the gains on which tax has to be paid?
The market calls for regulation
I mean, if you buy a building or a distinct block of shares, or even a gold bar, it’s easy to see when you
Coinbase had opposed the IRS’s move on the grounds that its sweeping demand for information was a threat to privacy The court found that the IRS “has a legitimate interest in investigating” taxpayers who remain stumm about their
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E D'S RANT Februar y 2018
And that, of course, can be a tall order if the global fleet of cryptocurrency operators insists on hoisting the Jolly Roger. Nobody appreciates that more than the now-defunct Mt Gox, formerly the world’s biggest bitcoin exchange, which crashed in 2014 after it discovered that fraudsters had spent the last three years silently skimming off around 850,000 bitcoins to the (then) value of $450,000. A sum which would now be worth somewhere around $11 billion. Eek.
Buying a bitcoin is a statement of solidarity with a millennial generation which feels that it’s been passed over by the wrinklies
The Mt Gox fraudsters, as far as my feeble brain can decipher, had cracked the secret of persuading the trading system to give them a second go at a bitcoin transaction when their first attempt “failed” (ho ho). And by this simple strategy they had been buying one, getting one free for years while nobody noticed. Moreover, it hardly improved the market’s confidence when Mt. Gox subsequently ‘discovered’ a wad of 200,000 bitcoins that had been lying down the back of the digital sofa in a wallet where nobody had thought to look for it. The point here is that when your money’s gone, it’s gone. Nobody will know who took it, and you certainly won’t get any depositor protection. A point that you may wish to make to your clients when they enthuse about the burgeoning digital cash machine. Then there are the inside fraudsters at the exchanges themselves. Trading at one US exchange was suspended in December for what seemed to have been a classic pump ’n dump operation – ramping up their apparent turnover in readiness for offloading their shares in the exchange. Elsewhere, there have been fears that smaller crypto-currencies have also been snapped up by staffers so as to inflate their values and dump them on the unwary. And all the while, of course, the Chinese government is still battling to shut down the hundreds of illegal
exchanges which exist to export yuan wealth from the country without anyone noticing. If they ever succeed, the volume of global trading is certain to plummet. And with it will go a huge slice of the demand. How to advise your clients? And so to the crunch question. Is there anything good to be said about bitcoin? Well, for some people there probably is. As you’ll probably have heard, you can buy fractions of bitcoins quite easily (including from vending machines!), and they make nice birthday presents as long as you regard them as a speculation, not an investment. The transaction charges are eye-watering, though. You can buy into bitcoin values with an exchange traded note such as the ones marketed by Hargreaves Lansdown – and another one that focuses on Etherium instead. Other funds are available, but I am reliably informed that some of these trade at premiums of up to 35% against assets. Why? Because it can take two days to complete a bitcoin transaction, and the price can move an awful lot during those 48 hours. And finally. If I were a hardworking millennial with no hope of ever scraping together a deposit for a house of my own, I might very well be inclined to think that putting a couple of thousand pounds into bitcoin would be more likely to fulfil my dreams than investing them in Ernie. We can’t know whether we’re at the market’s peak and getting ready for a sell-off and a fatal capitulation. But viewed from a young person’s perspective, you can see the logic of the situation. The IFA’s task, I suppose, is to try and instil a sense of perspective and proportion. I’ll tell you one thing, though. If bitcoin does crash, there are going to be a heck of a lot of very disgruntled young people who've convinced themselves that bitcoin is the only kind of lottery ticket with a guaranteed 100,000 percent payout. I expect they'll find a way somehow to blame it all on the baby boomers.
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BRIAN TORA Februar y 2018
Planet Ear th 2018 Don’t overdo the gloom, says Brian Tora, because the global economy in 2018 is still fundamentally strong. But do keep an eye on the risk factors In the end, 2017 was kind to investors. The FTSE 100 Share Index ended the year at an alltime high, as did several other major markets. True, the overall increase was not as great as that seen in the US and Japan, but it was still a plus, and perhaps it leaves room for further progress in the current year. Bear in mind, incidentally, that the Footsie was only about 10% above the level that it had reached eighteen years previously when the technology boom was driving markets into what turned out to be bubble territory. So should we be drawing comparisons between then – the end of the last millennium – and now? There are some similarities, but the differences are particularly marked and worthy of examination. Both the political and geo-political landscapes are less predictable than they were in 1999. That ought to make investors more nervous, but in fact the economic picture has improved sufficiently to allow a degree of confidence to creep in. Anyone for Top Trumps? That said, there have been plenty of predictions that this long bull run, which started back in 2009, cannot last much longer. The biggest area of risk appears to be the United States, where probably the greatest political uncertainty lies. President Trump remains an unknown quantity one year in to his first term. His programme of change to deliver an America First agenda has experienced considerable
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problems getting off the ground, while controversy continues over the methods used to gain his ascendancy in the polls. While Trump’s tax cuts do seem to be on track (and they were into their final stages as we went to press), opinion is still divided as to how much of a boost this will be to markets? One effect is likely to be the repatriation of corporate cash held overseas. How businesses might use this resource is currently hard to determine, but in the past share buybacks have been favoured by boardrooms. In theory, this should boost markets by limiting supply, but past experience shows that this need not prove to be the case. Moreover, enhanced cash resources could fuel an acquisition boom – again, a potential short-term plus for investors, although again such an approach can be value-destroying for those companies launching their takeover strategies. But the overall expectation is that the US should help to lead a strong upswing in global growth in 2018. Shares on the other side of the pond certainly do need a positive profits outlook if the demanding valuation levels are to be justified.
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The end of cheap money The major risk, from my perspective, remains the ending of very cheap money. The Federal Reserve Bank has already started to reverse its quantitative easing stance, which brings us to one of the similarities with 1999/2000. Easy money made available ahead of
the new millennium found its way into technology shares, which tanked when this policy was withdrawn early in 2000. Of course, it is difficult to be certain how much influence the cheap money approach has had on share ownership, but it would be naïve to believe that higher interest rates will not have some impact on markets. While the US and the UK are the only major central banks to have started putting interest rates up, the Bank of Japan and the European Central Bank are likely to join the monetary tightening party as the year progresses - even if we may have to wait until 2019 before they feel brave enough to increase the cost of money. One effect of this change of tack must be to reinforce inflationary pressures. Already inflation has risen markedly here in the UK, although we should add that this is down to a falling exchange rate, rather than suggesting consumer-led upward pressure on prices. Indeed, consumers here remain constrained by declining living standards – a point which was underscored by the post-Christmas trading updates from some major retailers. The positive, on the other hand, must be that all this is necessarily slow burn – so that, given any unexpected shocks, markets should have time to adjust to what must be a changing environment as the year progresses.
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An uncertain planet The “known unknowns”, of course, are the many continuing geo-political issues which are as dangerous today as they have ever been in living memory. 18 years ago, Iraq was centre stage; today, however, it’s not just North Korea that casts a threatening shadow over world peace – in the Middle East, the proxy wars between Saudi Arabia and Iran, the continuing involvement of Russia in the Syrian conflict, and the evaporation of peace talk initiatives between the Israelis and the Palestinians also remind us that the cauldron that is the Middle East is as volatile as ever. Which is where we return to the unpredictability that constitutes the Trump presidency. As the arguable leader of the West, we all hope for direction from the world’s largest economy. But Trump’s decision to withdraw from climate change initiatives, and his determination to make America more protectionist, both demonstrate that the President’s priorities may not accord with the rest of the developed world. This is not necessarily a negative for investors, but it does add to the degree of uncertainty that needs to be factored into portfolio strategy. My conclusion is that advisers and their clients should not expect as benign an environment as that which characterised 2017, but that even so, the bullish sentiment that has supported markets may well have further to run. Markets tend to anticipate, rather than follow, events. A setback could occur either if a geo-political explosion occurs, or if the Goldilocks economic scenario approaches the end of its road. Sadly, neither is capable of being forecast with any degree of accuracy.
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BETTE R BUSI N ESS Februar y 2018
Better Business Do the Right Thing Making sure you work with the right clients and setting proper limits on how much time you spend at work are the ways to getting a successful financial planning business says Brett Davidson of FP Advance. Make 2018 the year that you experience a real business transformation by putting these tips into practice
Financial Planning ‘done right’ is a thing of beauty. It can transform people’s lives, which in turn can have a major positive impact on society. Does all of that sound a little too grandiose to you? Is it possible to have a strongly performing business, in the financial sense, without losing your social purpose (or soul) in the process? Of course it is. To prove this you don’t have to look much further than some of the best performing businesses in the Financial Planning space. Firms like: • Capital Asset Management www.capital.co.uk
• The Red House www.theredhousefm.com
• Cooper Parry Wealth www.cooperparrywealth.com
• Carbon Financial www.carbonfinancial.co.uk
• Paradigm Norton Financial Planning www.paradigmnorton.co.uk
All of these firms are heavily values-based. They know who they are and who they serve. They believe strongly in the
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social purpose that underlines what they do every day. If you’re still on the financial advisory treadmill where you work too hard, you don’t have a client list full of ideal clients, and some days you’re not sure if this is the right profession for you, then there are two specific areas you can work on. 1 Get clear on ‘who you serve’
It almost doesn’t matter what stage of development you’re at for this to apply. I’ll cut you some slack if you’re in the first 12-24 months as a start up, but even then, having a clear idea of who you work best with is crucial. The best firms know who they serve. That will include the obvious things like: • A minimum level of investable assets or
However, knowing who you serve is about the soft facts as well. At The Red House, in addition to some specific minimum criteria, they only work with people ‘that get what life’s about’. They know what that means when they meet a new client. It’s a way of looking at the world. At Paradigm Norton they have defined their ideal client, ‘Paradigm Pete’, with (last time I saw it) something like 25 criteria for what good looks like. At FP Advance we want to work with people that are nice. That gets overlaid on top of any other financial metrics we might use. Love is all you need It’s vital to get crystal clear on who you want to work with, rather than taking anyone who walks through the door. Why?
• A minimum level of annual earnings (i.e. the client’s annual earnings in their business, job, or profession)
Because that’s how you end up with a business full of clients you love and can help. The joy that comes from that helps you attract more of the same types of clients.
At the very least it will involve a minimum level of income the client must pay to the firm to ‘get in the door’.
It’s so much easier to go the extra mile when it’s a client you love to work with. Going that extra
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mile for someone you can’t stand is almost unbearable, especially when the pressure is really on. Freedom of choice The beautiful part of running your own business is that ‘you get to choose’ who you work with. Don’t forgo that choice on a dayto-day basis. If you do, every time you fail to make a positive choice you are sowing the seeds of your own unhappiness in the future. Don’t believe this small change can make a life-changing difference to your business? Just call any one of the firms I’ve listed here and ask. They’ll all tell you it was one of the most important steps on their journey. 2 Put hard limits on your time
When there are challenges at work, what do most of us do? We work harder and often that means working longer hours. I’m sorry to burst your bubble, but working harder and longer doesn’t work. I can say that with great authority because I’ve tried it. You might have tried it too and are sitting there wondering why you haven’t quite got to where you wanted to be. Read on. The only way to break through is to resolve the challenges that arise in your business. However, the tricky part is identifying the real issue, not just the symptom. The best way to solve this quickly, is to set time limits on the hours
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you and your team will spend at work. By setting time limits you are forced to choose. You have to consciously decide on what you will do and what you won’t, because you can’t do it all. Time matters The biggest breakthrough I had in my Financial Planning business in Sydney came after I got married to Deb. There was a two-year period before that, where I was in at 7:30am and often didn’t leave until 7:30pm or 8:30pm. I also worked most Saturdays. After getting married we decided those hours were not going to work for us. We agreed on 8:00am to 6:00pm, which is still a fair day.
in the financial sense, without losing your social purpose (or soul) in the process? Yes it is, but there are some choices to be made on a daily basis in order to do so. The two ways I’ve outlined above are a great start. Understand that not choosing who you serve and how long you work for each day, is in itself a choice to remain overwhelmed and to underperform. Set limits on who you will work with (who you want to serve), and set limits on your time spent at work. These are the two fastest ways to build a business that you love without losing your social purpose or soul.
What happened was a revelation. At first, I left at 6:00pm whether all the work I wanted to get done was completed or not. Over the ensuing weeks and months it pushed me, and my team, to get smarter. It forced our hand on making choices. As a result we actually started solving the underlying problems that were holding us back. Prior to that, working longer and harder had simply covered up those issues. For example, rather than identifying a technological solution to improve a process, we just stayed late and got nowhere. Don’t do it. Set some hard limits on your time, then let things blow up for a bit. You can then discuss the issues that cause the blow up as a team, agree on the real issue, and find a solution to it. That’s how you move forward.
Brett is the Founder of FP Advance, the boutique consulting firm that helps financial planning professionals advise better and live better. He is recognised as one of the leading consultants to financial advisers in the UK. Professional Adviser magazine has rated him one of the Top 50 Most Influential people in UK financial services on three occasions. You can follow Brett online and via social media: Twitter: @brettdavidson Facebook: www.facebook.com/ FPAdvanceLtd
Save your soul
LinkedIn: www.linkedin.com/in/ davidsonbrett
So is it possible to have a strongly performing business,
Website: www.fpadvance.com
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BALANCI NG ETFS Februar y 2018
Weighing up ETFs against other por tfolio options When it comes to portfolio construction and asset allocation, which areas do ETFs tend to have the advantage? Peter Sleep, Senior Investment Manager, Seven Investment Management (7IM) gives his opinion on how advisers can seek the best value approach for clients
A perennial question facing many advisers is how they might put together an investment portfolio for clients and use active funds or ETFs. Most advisers will agree that this is a bit like asking how long a piece of string is. It certainly doesn’t have to be an either / or scenario – as our own portfolios testify. But frustratingly, the answer is not easy and it inevitably involves a lot of tooth sucking and head scratching. We do this because it is a difficult question and there is no clear answer, not because I want to be enigmatic or evasive. Client first Advisers will know all too well that putting together a portfolio is a very personal thing. It will depend on your client’s time horizon and whether they are willing to accept losses in exchange for long term returns - even then there is a high degree of uncertainly to build in. This is why advisers spend so much time with risk tolerance questionnaires. It is also where they can really add a lot of value. Perhaps one of the great conundrums facing advisers is the fact that whilst past performance is absolutely no guide to future returns, we can still draw on the past to try to gauge how that might inform the future.
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Some of the best mathematical and computer science people in the world work in the savings and finance industry and I think they will all agree that there are no absolute correct answers for any investor or their adviser. For the purposes of this article, I shall assume that you have had a long hard think about your client’s personal situation and that they have a very long time horizon, but that they do not really want to take a great deal of risk. A “balanced” investor might invest 50% of their portfolio in bonds and 50% in equities. Even though this sounds conservative, nearly all the ups and downs you suffer will probably come from the equities in the portfolio. The risk experts at 7IM tell me that about 85% of the volatility you will experience will probably come from the equity components of your portfolio. An adviser can really add value in this area by explaining the risks upfront and by guiding their clients through the market downturns.
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Active funds or ETFs?
Advantage active funds?
Whether you should use active funds or ETFs seems to be the next question. Here I think personal preference is again key. Whilst with any age-old debate, there’s always that element of ‘six of one and half a dozen of the other’, there is much evidence to suggest that as a group, active managers find it difficult to add value. However, on the other hand, some might argue that you are guaranteed to underperform by the fees with an ETF. At least with an active manager you have the chance of outperforming and there is some value in that option.
High yield, Emerging Market bond and convertible bond ETFs are generally priced at levels close to the active managers and these are areas where good fundamental research by an active manager can really pay off, so an adviser might want to spend some time trying to find a good active manager.
Advantage ETFs? At 7IM we tend to sit on the fence on the active versus passive argument. It is very hard to find an active manager who consistently outperforms in areas like government bonds, so it seems like a good idea to save your time and reduce fees by selecting ETFs in these areas. A holding in high grade, developed market global bonds is a key component of most portfolios, despite their low yields. Not always, but usually, when equity markets go down, high grade bonds generally go up and act as a bit of a cushion for your portfolio. I say this knowing that this has not always been the case. In the bad old, high inflation days of the early 1970s, when bonds were known as “certificates of confiscation”, bonds were not great for balanced portfolios. Expect to pay between 0.1% and 0.2% for a government bond ETF and if there is an overseas component you may decide to look for a hedged ETF. To hedge or not to hedge is not clear cut, as hedging removes exposure to some of the world’s safe haven currencies like the US dollar and the Japanese yen, but on balance we believe that bonds are low risk assets and removing currency volatility through hedging can be a good thing. When it comes to corporate bonds we think ETFs tend to win out. Generally, it is very hard to find an active manager in this area and an adviser might prefer to spend their efforts in other areas with greater added value. An ETF will cost around 0.2%, whereas an active fund will cost twice that.
Equities are an area where an adviser can add value by trying to find active managers. This can be done by selecting a global equity manager or by a series of UK and country / regional portfolio managers. Historically investors have struggled to find active managers in the US – the argument being that the markets are “too efficient” for active managers to outperform. The reality may be that the market has been led higher by a few very large tech companies, whereas portfolio managers tend to prefer smaller stocks with room to grow. If you think that the large tech companies may have had their day in the sun, then it could be worthwhile looking for a US active manager who invests in smaller US stocks. The same is true for the other major markets like Europe, Japan and the Emerging Markets. We think it is generally worth spending time to find an active manager in these areas. I have given a personal outline of how I think an adviser might combine ETFs and active funds. There is a lot of room to be creative within this outline by perhaps including some of the ethical or gender equality ETFs that are now emerging and gaining traction. However, perhaps the greatest added value comes from the adviser’s relationship with their clients. By ensuring that they are in the correct risk category and keeping those clients invested in the market through thick and thin, ensures that they can benefit from the long term returns they need, in order to meet the all-important objectives of their financial plan.
Peter Sleep 7IM Senior Investment Manager, Equities Peter joined 7IM in 2007. Having qualified as a chartered accountant, Peter audited company accounts, before joining Citibank as an internal auditor. After three years in that role, he worked for 11 years in Citibank/Citigroup as fund manager and analyst. Prior to joining 7IM he worked as an analyst at Man Group. Specialist areas/responsibilities: portfolio strategy, quant funds, investment auditing, alternative assets / methodologies and Japanese equities.
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MARKETI NG STRATEGY Februar y 2018
Taking your marketing to the next level Par t 3 In this three part series, Sam Turner, Head of Digital at ClientsFirst, examines the factors that elevate marketing strategies from functional tick box exercises to plans that make a real difference for advisory firms’ bottom lines
Adding structure to your marketing approach
Establish the infrastructure
You’ve defined your marketing strategy, selected your marketing technology and possibly even chosen your niche. You’re full of exciting plans of how to reach your target audience.
Success comes from strong foundations. Take time at the outset to do some detailed planning. What are your business objectives? What assets do you currently have in place? What’s getting results for you and what could you be doing better? Think about your main challenges and how you would describe your USP. Conduct some client research to find out what they really think. At this stage, we draw up marketing personas of our client’s target audience so we can form a clearly defined marketing plan which will address their specific needs.
Unfortunately though, it’s all too easy to go off all guns blazing, full of enthusiasm, only to discover in a few months’ time that your campaigns are not producing the results you‘d hoped for. In addition, despite your good intentions, ‘real’ work takes priority or clients insist on demanding your time! We’ve learnt from experience with marketing projects that without a solid structure in place, even the best ideas will fail to get off the ground. That’s why we use a linear six stage structure which breaks up the process into useful chunks. This means it’s clear to everyone involved where you’re up to and what needs to happen next for a successful outcome.
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Develop the assets With a plan and some personas in place, you can start to think about the appropriate collateral that will appeal to your carefully defined audience. To really engage with them, it needs to be value led, engaging and helpful. If you’re developing a piece of content
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with the purpose of generating leads, consider what people will view as valuable enough to exchange their contact details for. One of our own most successful pieces of content, for example, has been an SEO guide with 47 handy tips. You have a range of options at your disposal: online: guides, whitepapers, blogs, videos, infographics, landing pages, mailshots, case studies offline: mailers, brochures, flyers, surveys, pitch documents, client facing documents Reach your audience You’ve defined your target audience and you know what you want to send them but how do you make sure your message reaches them and that they will interact with the content. It’s crucial to think about what channels are most relevant for them. Where do they ‘hang out?’ What do they read? How do they search for information? Are you going to reach them online or offline or through both? Online channels could include: SEO, PPC, email marketing, social media, outreach and banner ads, whereas offline could be: events, awards, PR. If you decide SEO is a good way of reaching your audience, a useful next step might be to conduct an SEO audit. Not that we’re structure mad but we also use the inbound marketing model ‘Attract, Convert, Close, Delight’ in tandem with our six step process. This shows what sort of content will be most successful as your prospects move through the process.
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MARKETI NG STRATEGY Februar y 2018
Engage Once the data from your contacts is safely stored in your CRM, you can start to develop those allimportant ongoing relationships with them. Your aim here is to move your contacts through the sales funnel from merely ‘interested’ to ‘invested’. Use marketing automation to make life easier for you. Triggered email campaigns, surveys, LinkedIn or Twitter engagement all come into play here. You can also use engagement tools to react appropriately with interested prospects, monitor reactions and gain valuable feedback. Create opportunities This is what all the hard work has been about. All that engagement should now start to produce new business opportunities. It’s important that you have a set of tools and processes in place to identify the hottest prospects and pass them to your sales department as quickly and efficiently as possible. Done correctly, your campaigns should be producing a steady stream of relevant sales opportunities which will result in more new business. Act on insight You might think that‘s the end - your marketing activity has been successful and produced some opportunities. Your campaigns, however, will contain lots of useful data which can help you to make improvements for future projects. Measure everything. Collect feedback via tools such as Feefo, TrustPilot or Google reviews. Use A/B testing to test different ideas on different parts of your database. The joy of modern marketing systems means they give you a clear view of your key metrics so you know exactly what is performing and what isn’t. This will lead to even more opportunity and greater ROI next time round.
Sam’s original article, on creating a marketing strategy for your advisory firm, can be found in the August issue of IFA Magazine or on www.IFAMagazine.com ClientsFirst is a marketing agency which specialises in working with financial services firms. Website: www.clients-first.co.uk
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Februar y 2018
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FORTUNE FAVOURS THE BOLD BUT YOUR CLIENTS DON’T NEED BOLD THEY NEED YOU TO DO THE RESEARCH UNCOVER THE FACTS ON CRYPTO-ASSETS COINSHARES.CO.UK
WITH OVER £1 BILLION IN CRYPTO-ASSETS ACROSS A FAMILY OF EXCHANGE TRADED PRODUCTS, COINSHARES GROUP IS THE EUROPEAN LEADER IN CRYPTO-FINANCE. FIND OUT WHY AT COINSHARES.CO.UK
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SPONSORE D FEATU RE Februar y 2018
3 Concepts Fundamental To Understanding Cryptocurrencies By CoinShares Research Team
Many traditional investors are intrigued by cryptocurrencies, but it’s difficult to determine where to start and what trends to watch. While bitcoin has captured headlines with its meteoric price increase and volatility, there are more than 1,000 other cryptocurrencies and crypto-assets; with around 50 more initial coin offerings hitting the market each month. Analyzing these can be challenging compared to conventional stocks, bonds, options, and futures. At CoinShares Research,
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we aim to help separate the signal from the noise, and provide fundamental investment research for crypto-finance investors. By way of an introduction – let’s start with a quick education on 3 core crypto-asset concepts. What is a Crypto Coin? Cryptocurrencies and cryptoassets are denominated in coins, most of which are mined as a part of the transaction
verification process. Mining exists to prove ‘loyalty’ to a system by requiring provably expensive input work in order to be allowed the privilege of verifying transactions (for which miners receive newly minted coins as a reward). As more and more miners compete for the freshly minted coins, the difficulty level automatically resets such that the block verification times always average out to the same length of time. More miners means a more secure protocol and an increased cost of
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“forging” coins by tampering with the transaction history. Traditional investors might conceptualize this as mining gold in a world where gold becomes increasingly difficult to mine as the remaining finite supply dwindles.
• History – Is the exchange credible and secure with a strong track record?
Some important factors to consider when evaluating cryptocurrency networks are:
• Regulatory Exposure – Is the exchange regulated by any governments, or do they have selfimposed regulations?
•
What is a Crypto Exchange?
What is a Cryptocurrency ‘Network’?
Cryptocurrencies are traded on various exchanges. These are online platforms that enable a person to exchange one cryptocurrency for another crypto or fiat currency.
The network represents the group of people using the coin, mining the coin, relaying and verifying transactions, and maintaining the underlying software.
One could think of these exchanges like traditional stock exchanges, currency exchanges, or brokers, but they aren’t typically regulated by governments or insured in any way. Needless to say, investors must ensure that they’re doing business with an exchange that is secure and reputable.
Traditional investors should consider a cryptocurrency’s network characteristics for the same reason that they wouldn’t invest in a company just because of its market capitalization alone. An illiquid penny stock could have a large market capitalization, but that market capitalization is meaningless beyond pure speculation if there is no underlying business to support it. A cryptocurrency’s network can be, to some degree, compared to a company’s operations – it’s the valuable asset behind the hype.
Some of the most important factors to consider when evaluating a cryptocurrency exchange include: • Liquidity – How liquid is the order book of the exchange?
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Mining – What are the relative sizes of the mining networks between coins? Are they growing?
• Creators – Who are the developers supporting the cryptocurrency? How is new code created? What is the governance model? •
Technology – What type of cryptography does the cryptocurrency rely upon? Is the technology experimental or established?
The Bottom Line Investors have become increasingly interested in cryptocurrencies, but it can be (and is) overwhelming to analyze them from an investment standpoint. That’s why we have built a professional research arm to help investors understand the complex dynamics of cryptocurrencies and help them make better investment decisions. To see the type of research we offer, read our most recent research here: H2 2017 Crypto Report.
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TONY CATT Februar y 2018
How much regulation does it take to treat customers fairly? Whilst most adviser businesses already operate on a putting clients first basis, compliance consultant, Tony Catt, talks us through current relevant regulatory changes and how they are likely to impact advisers It would seem that most of the latter half of 2017 was spent trying to translate acronyms â&#x20AC;&#x201C; MiFID II, SM&CR, IDD, GDPR. All of these represent regulations that are going to hit the UK in 2018 or 2019. Although, due to their complexity, actual adoption of them may be delayed. Markets in Financial Instruments Directive II At the time of writing, the only one of these that has come into force has been MiFID II on 3rd January.
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This brings European advisers in line with advisers in the UK as far as the receipt of commission on business. UK advisers went through most of this pain with RDR of course.
promote greater choice for clients. It may also drive down the costs as fund managers can no longer hide them.
In the UK, MiFID II has had more of an effect on fund managers, who need to report much more detail to the regulators than previously. This involves greater detail regarding the underlying costs of fund managers, including research and other costs, which have previously simply been bundled up. it is thought that this greater transparency will
What will affect advisers and fund managers more is the requirement that clients are advised when a fund drops by 10% in value. This would appear to be a good early warning and keep the clients informed regarding possibly losses, but this could be quite a problem to manage.
A 10% drop
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TONY CATT Februar y 2018
Some considerations are: • Most advisers would not be happy for the fund managers to have direct contact with their clients. • Most advisers use platforms, which leads to a further layer in the advice structure. The onus is on the fund managers to advise of 10% drops, but the fund managers will be reliant on the platforms for client information. • There may be some confusion whether the message would come from the fund manager or the platform. The onus is on the fund manager. • Most funds are held as part of a portfolio. What is the effect of a single fund within the portfolio experiencing a 10% drop? • What would be the reaction of clients? Panic? No reaction? • What about clients with different attitudes to investment risk? They will receive the same message, but treating all customers the same is not the same as treating them all fairly.
This would appear to be a wellmeaning piece of legislation that is likely to generate a lot of work without necessarily being as positive for clients as would have been intended. The cost of reviews Another aspect of MiFID II is the requirement for advisers to be more open about the costs of reviews. Previously, advisers have informed clients of upfront costs – adviser fees and often made rather vague reference to ongoing adviser fees to cover reviews. In the future, clients will need to be made aware of the costs of reviews before they happen and also what will happen at the review. This may well be a pinch point for some advisers who have not been open enough about this in the past. The FCA has been keen for advisers to detail fees in real money rather than percentages. 1% sounds like a small number, but 1% of a larger number eg. £250,000 means £2,500 - which may not seem to be good value if it’s a straightforward review.
• Does the message about a 10% drop go out with an explanation? Is the drop considered to be shortterm? Cyclical? Is it a problem? • How is the 10% calculated? From the buying price? From a fixed point in time? Compared to an index? • If a fund drops by 9.9% is that any less of a problem, except that it would not need to be reported to clients?
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Another aspect of MiFID II is the requirement for advisers to be more open about the costs of reviews
Record keeping Another interesting thing to come out of MiFID II is the requirement that advisers record instructions and discussions with clients. Originally, this was intended to be recording telephone conversations and possibly videoing interviews. Both of these would involve considerable expense for advisers having to buy new systems to enable the collection and storage of these records. This requirement was eventually watered down to advisers simply needing to take and keep notes of contacts with clients. This makes sense and would be good practice anyway. Surely, all advisers take notes when clients contact them? I was going through this with an adviser recently and was incredulous when she told me that she does not take notes. She relies on her memory! Wow! Having dealt with the adviser for a while, and experienced her confused arrangements, I am definitely recommending that she starts taking notes! Indeed, not taking notes may well put her business at risk as she will have no defence in the future if there is any dispute about a discussion. General Data Protection Regulation The EU's General Data Protection Regulation (GDPR) is the result of four years of work by the EU to bring data protection legislation into line with new, previously unforeseen ways that data is now used.
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TONY CATT Februar y 2018
Currently, the UK relies on the Data Protection Act 1998, which was enacted following the 1995 EU Data Protection Directive, but this will be superseded by the new legislation. It introduces tougher fines for non-compliance and breaches, and gives people more say over what companies can do with their data. It also makes data protection rules more or less identical throughout the EU. The GDPR will apply in all EU member states from 25 May 2018. GDPR relates to the collection and maintenance of personal data and the requirement for data to be processed lawfully, transparently and for a specific purpose. Once that purpose is fulfilled and the data is no longer required, it should be deleted. The first difference is that consent for the processing of data must be an active, affirmative action by the data subject, rather than the passive acceptance under some current models that allow for pre-ticked boxes or opt-outs. The new legislation gives individuals the right to have their data deleted, this is known as the “right to be forgotten”. This new transparency will cause many FSMA firms problems. For instance, how does the GDPR deal with the need of firms to maintain historical records? Pension transfer files need to be kept in perpetuity. Also, if firms get rid of old files, the defence against claims for poor advice becomes more difficult, if the old records no longer exist.
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Insurance Distribution Directive Originally, IDD was to be adopted in February 2018, but this has now been delayed to October 2018. The Insurance Distribution Directive (IDD) is revision of the Insurance Mediation Directive (IMD), which was introduced by the FSA in 2005. Like the IMD, the IDD covers the authorisation, passporting arrangements and regulatory requirements for insurance and reinsurance intermediaries. However, the application of the IDD is wider, covering organisational and conduct of business requirements for insurance and reinsurance undertakings. The IDD should provide an enhanced regime that ensures a level playing field for sellers of insurance, helping to prevent arbitrage with competing products and providing better protection for consumers when buying insurance. This should ultimately result in: • Consistent consumer protections across different distribution channels, preventing regulatory distortions of competition • Products being sold to consumers that better meet their needs, alongside improved product information, enabling consumers to have greater confidence in their insurance purchasing decisions
Main provisions • Requires brokers and employees of insurance companies that sell insurance to do at least 15 hours of training and CPD per year • Introduces new product governance requirements, which are largely in line with the FCA’s product governance requirements • Requires firms that sell insurance on a nonadvised basis make sure that the product they are selling fulfils the customers most fundamental needs • Imposes new duties on insurance companies that are selling products through companies that are not authorised by the FCA • Requires general insurance firms in the retail and small corporate market to provide customers with Insurance Product Information Documents, which are similar to Key Features Documents. So, the IDD is going to bring insurance sales and advisers in line with other financial services products. Weirdly, when I set up my own firm in 2000, I treated all products the same so that I would not need to remember which ones were regulated. I was 18 years ahead of the game and never knew it.
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TONY CATT Februar y 2018
Whilst each of these new ways of working will cause plenty of work for advisers, firms, compliance consultants and IT geeks, the end result should give the public more confidence in the financial services industry
Senior Management & Certification Regime
advisers are - and continue to be - fit and proper to perform their duties.
The Senior Managers and Certification Regime (SM&CR) replaced the Approved Persons Regime (APR) for banks, building societies, credit unions and dualregulated (FCA and PRA regulated) investment firms in March 2016. It is now being extended to FSMA authorised firms.
Many clients, and the public in general, rely quite heavily on the FCA register to undertake due diligence on firms and advisers. I think that it would be a considerable client detriment if they were unable to check the authorisation of advisers. Indeed, I would go in the other direction and register all mortgage and protection advisers in addition to the diploma qualified advisers as I believe that this would increase accountability of the advisers.
SM&CR will replace the Approved Persons Regime. The FCA is now consulting on how it will move firms and individuals to the new regime. There are three key parts to the senior managers and certification regime: • The Senior Managers Regime • The Certification Regime • Conduct Rules These new regimes are likely to commence in mid-to-late 2019 and are the subject of consultations. One of the main issues is that the current FCA register would be replaced by a register that only shows senior people within firms and not the individual advisers. The onus would be on firms to ensure that the
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Alternatively, the register of advisers could be outsourced to other bodies, such as CISI or PFS which already issue Statements of Professional Standing for advisers and have records of adviser qualifications. Personally, I would be more comfortable if the register remained under the direct control of the FCA,
rather than an independent thirdparty, but there does need to be a public accessible register of advisers. Adding them all together Whilst each of these new ways of working will cause plenty of work for advisers, firms, compliance consultants and IT geeks, the end result should give the public more confidence in the financial services industry. MiFID II is ushering in age of transparency for fund managers and also for platforms and advisers. The IDD brings in a more uniform method of dealing with insurance products. The GDPR gives clarity of how and why personal data is kept and gives clients more power in this respect. SM&CR gives greater accountability and responsibility for management of firms. All of these together should greatly increase the chances of advisers Treating Customers Fairly. Somehow it is quite amazing that the principle of Treating Customers Fairly needs so much legislation for an activity that should really be second nature – as indeed it already is for so many professional advisers practising today.
About Tony Catt Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers.
info@tonycatt.co.uk
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E IS Februar y 2018
EIS – A new era? With the tax year-end looming, should planners and advisers be reviewing how they use EIS with clients in the light of recent Budget changes? Mark Brownridge, Director General of the EIS Association and a Chartered Financial Planner, analyses the new environment for this exciting investment sector
So there we have it. Last November’s Budget laid clear the future direction of EIS and SEIS. Like it or loathe it, the Government has at least set out a coherent, logical future pathway for EIS and SEIS. Certainly, given the speculation before the Budget and some of the early conversations we at EISA were having with HMRC and HMT, the Budget feels like a strong vindication for both EIS and SEIS. Many of the suggested doomsday scenarios never transpired and it’s plain to see that the respondents to the review were glowing in their praise of EIS with the Budget paper quoting “government support through the venture capital schemes
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as crucial to the growth of investment over recent years”.
Firstly, it was interesting to read the Patient Capital Review Industry Panel response which was fulsome in its advocacy of EIS and SEIS quoting “The tax incentives provided for investing in start-ups through the EIS and VCT schemes have proven extremely successful in attracting funding to help stimulate a vibrant start-up ecosystem in the UK.
believe that at least one of the schemes has played a key role in their ability to start and begin to grow their businesses.” The report recommended a number of expansions to EIS and SEIS including “In 2015/16, a total of c.£2.1bn was invested via EIS and VCT. It is estimated that up to £1bn of additional capital could be raised annually through expanding or removing the cap on lifetime investment for EIS / VCT investments, especially given the enduring popularity of the schemes amongst investors.” This gives us a big clue as to where the idea for expanding the knowledge intensive limits were born (there’ll be more on that later).
Entrepreneurs view the schemes highly favourably, and many
Similarly, three of the keywords that cropped up time and again
The bigger picture Before we look at the Budget changes themselves, it’s important for us to consider the bigger picture.
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EIS and SEIS are investments for growth first and foremost with the added benefit of attractive tax reliefs
This is a positive move for EIS and should be embraced. By HMT’s own admission, at times over the past few years they have encouraged EIS investment into areas not traditionally associated with growth investment. This was done to meet specific economic and political needs and has focused attention away from the original spirit and intention of EIS and SEIS. The Budget was an attempt to turn the tide back the other way. Whilst that will mean a change of investment approach for some EIS fund managers, surely it is hard for anyone to argue against this being the correct approach. So what have we ended up with?
when we conversed with HMT were growth, innovation and technology. On reading the Industrial Strategy white paper, again it is easy to spot the origins of this. The Government is keen to help small businesses to achieve much larger scale than many currently do, certainly when compared to the US and they have identified particular sector horses to back in life sciences, AI and data, creative, automotive and technology. Thus we see new sector deals for these areas as well as a £2.5BN investment fund incubated by the British Business Bank and the seeding of a series of private sector fund of funds of scale, with a first wave of investment of up to £500m.
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Going for Growth Given this backdrop, it is perhaps easier to understand where and why the Budget has landed as it has in EIS land. The Government has identified that the UK is a great and successful place for starting up a business but that we have difficulty in scaling enough of those companies up to become the next large corporates that will drive sufficient productivity, employment growth and tax revenue. EIS and SEIS have been significant contributors to the start-up success story and it is now time for that success to contribute to building a new generation of innovative, growth-orientated companies.
In summary, the following are the main details to be aware of: • No cuts to tax relief, investment limits or holding periods and no exclusions of any investment activities or sectors. This is a good start. • Increases to the knowledgeintensive investment limits. Very encouraging. • The introduction of a new principles-based test, called the “Risk to Capital” condition specifically aimed at “taxmotivated investments, where the tax relief provides all or most of the return for an investor with limited risk to the original investment (i.e. preserving an investor’s capital)”. The condition consists of two parts and takes a “reasonable” view as to whether an EIS/ SEIS investment has been structured to provide a low risk return for investors. One to watch!
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E IS Februar y 2018
• A commitment to reduce the Advance Assurance application waiting time to 15 days by Spring 2018. Amen! It is good that we now know where we are heading but what’s still not clear is how we get there. The next few months will be absolutely crucial in assessing how the risk to capital condition will be interpreted and implemented by HMRC. There still may be a sting in the tail and if EIS providers don’t heed the specifics of the new condition, it seems likely that HMRC will refuse a significant number. No doubt a few schemes will take the opportunity to kick HMRC’s tyres and see where the boundary lies. My message to these providers is be very careful, HMRC and HMT aren’t prepared to play around at the edges. Either you are laser-focused on growing your portfolio investee companies business or you risk rejection. There will be few grey areas. So where does this leave finincial planners? For EIS and SEIS now the clear emphasis is on growth. Over the years, the EIS market has been dominated by capital preservation-type funds largely driven by adviser demand for investments that looked to mitigate as much of the risk of investing in small businesses as possible. That supply line has now been choked off.
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So financial planners now need to go back to their clients and reassess their attitude to risk. Are clients prepared to take a little more risk in return for the potential of making significantly greater returns (still with the protection of income tax, capital gains tax and share loss relief if things do go wrong) or does EIS and SEIS now become too high risk for them? Many will also need to review their EIS and SEIS panels as we head into the tax year- end period. Putting my Chartered Financial Planner hat on, I have always felt that EIS and SEIS can play an important role within a client’s investment portfolio if used to help with diversification and this can go a long way to reducing some of the risk. An allocation of a client’s investment into EIS/SEIS not only provides tax reliefs but also gives exposure to some of the most exciting and innovative small businesses in the UK. This is exposure that cannot be garnered from traditional investment portfolios. EIS and SEIS give clients the opportunity to invest in businesses at the very earliest stages of their development, businesses that may well go on to become the “next big thing”. This is already happening with businesses such as Eve Sleep and Brew Dog, transforming traditional industry models and achieving market listings within only a few years of their inception. Both were EIS funded and have provided investors with healthy returns.
For too long EIS and SEIS have been viewed as a tax product with an investment element. The Budget changes send out a very loud message which turns that theory on its head. EIS and SEIS are investments for growth first and foremost with the added benefit of attractive tax reliefs. The emphasis has shifted and EISA will be working with financial planners in the run up to tax year-end to help them and their clients understand this.
Mark has over twenty years’ experience in financial services. Prior to becoming Director General of the EIS Association, he was Head of Research and Development at Mazars, a leading UK financial planning firm. Mark is both a Certified and Chartered Financial Planner, Chartered Wealth Manager and Fellow of the Personal Finance Society. He previously sat on the CISI’s Accredited firms’ committee and TISA’s Distribution Policy Council. Mark’s involvement with EIS began 8 years ago and he has since championed EIS investing within a financial planning context. He is extremely passionate about promoting the industry, increasing its effectiveness and ensuring that EIS continues its 20 year success story in delivering £15BN of investment to over 24,000 small businesses.
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How do I stay ahead? Specialist back up for my clients’ tax year end needs
We know how precious your time is as you get closer to tax year end. Our technical team is here to help you with all your last minute queries, so you can keep on track through April and beyond.
Stay ahead at pruadviser.co.uk/taxplans This is just for UK advisers – it’s not for use with clients Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority.
SPONSORE D FEATU RE Februar y 2018
Making the tax year-end less taxing for advisers As the financial planning profession gears up for its busiest time of year, there are many excellent resources available to help advisers and paraplanners to deal with complex tax planning scenarios for clients. We talk to Les Cameron, Head of Technical at Prudential, about some of the particular ways that he and his team can provide this important help
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Tax year end is a busy time for planners, advisers and paraplanners but what about for you at Prudential? Do you see an increase in enquiries from advisers at this time of year? Yes, it’s a very busy time for us at Prudential – especially for the technical support team. In 2017, we handled 17,500 calls and emails from advisers and paraplanners, however over a third of these were in Q1. Clearly there is a direct correlation between us being busy and advisers and paraplanners experiencing one of their busiest times of the year. March was our busiest month of 2017, when we had 2,100 calls from advisers or paraplanners, with the majority of those being about pensions. Our next busiest month saw 1,800 calls. All year we are busy fielding adviser enquiries about taxation and trusts – subjects which we find generally advisers need a lot of support around. However, during Q1 it is pension queries which are in the majority ahead of the tax year.
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In the world of pensions, there are three key topics which tend to dominate at this time of year. They are:
• The annual allowance • The lifetime allowance • Tax relief The annual allowance is very complicated now. There are different variants of it depending on whether the client has accessed benefits, is a high earner etc. There’s the money purchase annual allowance, tapered annual allowance and the normal annual allowance, with carry forward thrown in for good measure. These are all areas where I believe advisers need additional support when dealing with these more complicated client situations, and we’re ideally positioned to do just that. That’s why we’re so busy!
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What specific opportunities does Prudential provide in order to help build and develop adviser core competence, their all-important technical knowledge and planning
skills? Can you give us some examples of how this is done in practice? Most of my team’s time is dedicated to supporting advisers, and this happens in many different ways: Direct contact This is the most direct way in which we support advisers. Advisers will phone our Technical Helpline with a particular query, simple or complex, and we’ll try our best to answer it for them. We also operate a CPD accredited WebEx programme throughout the year, where we aim to cover a broad mix of content on areas around the advice process as well as on more technical matters too. We sometimes feature guest presenters, for example we held a session with Rory Percival recently on DB transfers and due diligence etc. which was very well received. We’ve had over 13,000 advisers and paraplanners join us online for the programme in 2017, and delivered over 30 hours of CPD. And I’m delighted to say that 95% of attendees have told us that their experience of it has been either good or excellent.
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Oracle Quarterly Magazine My team also contributes content for our quarterly magazine called Oracle, which goes out to over 3,000 advisers. It covers a range of technical areas such as investments or pensions and is full of planning and development content to help advisers with their business. Based on adviser feedback we’ve received, there are a few format changes in store. Traditionally we’ve focused on meaty articles, and we go into these in quite some detail. So we’re now moving towards more of a magazine feel, still with some large meaty articles, but also with some shorter ones, to make it easier for advisers and paraplanners to pick up and put down. It’ll be interesting to see what feedback we get. I’ll be guest editing the January edition in the new format, so I hope that readers like what they see. Oracle Technical Newsletter This is produced online on a monthly basis. It’s emailed to all of our advisers and paraplanners, and provides a monthly digest of key legislative and regulatory changes. If we get a flood of adviser queries coming through on a particular topic to the helpline, we’ll use this insight to help us shape the content for the next newsletter. For example, if all of a sudden chargeable lifetime transfers are flavour of the month, we’ll look to do something focused on that in the following month. Both the Oracle quarterly magazine and the Oracle Technical monthly newsletter are CPD accredited. If advisers read all of them they’ll have over 14 hours of CPD, which can be a big help to them. PruAdviser Knowledge Centre This area on the PruAdviser website gets thousands of visits every month. Our general ethos here is that we’ve probably got just about every subject that advisers and paraplanners would need to know about mainstream
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financial planning from a technical point of view. For example we’ve got information on how annual allowance works, how IHT works and case studies. PruAdviser Knowledge TV Here we operate a different approach, providing CPD video box sets on topics like the annual allowance, understanding life assurance bonds etc. The videos take around five or six mins to watch and cover a range of topics. They’ve been viewed heavily by advisers over the last year and we expect that to increase going forward. I’m very pleased to see the resources we offer seem to be very popular and well received. This is great, as supporting advisers and paraplanners’ needs are very important to us. We always strive to give market-leading technical support and I strongly believe that we are doing that.
help advisers crunch the numbers and ensure the right outcome for their clients. They are always popular, but particularly so at tax year-end. For those not familiar with them, the three key tax planning calculators which are useful right now are:
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The annual allowance calculator. This is a popular one all year round. It helps advisers to do the annual allowance calculations, with carry forward and tapered annual allowance too. We upgraded this calculator last year to give an improved user experience and it’s mobile friendly.
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Tax relief modeller. This helps advisers to calculate a client’s tax bill based on the annual income which is entered. It’ll indicate where making pension contributions can mitigate or help reduce the liability. Advisers can therefore model the client’s position before and after a pension contribution is made, so the client can clearly see the impact it would make. It also shows what the effective rate of tax relief might be – interestingly, it is possible to achieve over 100% tax relief in certain circumstances. It deals with all the various types of income for e.g. from investment, earnings and capital gains, which can make the task quite complicated. This tool helps make the work much easier by crunching the numbers for you. Actually, this tool is my favourite.
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Extracting company profits tool. This is very topical given the changes to dividend taxation that we’re seeing now. The removal of the dividend tax credit, replacing it with the £5,000 dividend allowance was a significant change for many – especially business owners. It’s important to look at how they extract the profits from the business in the
Seminars We run seminar programmes in Q1 and Q3/Q4 each year, often teaming up with other organisations such as SIFA or the ICAEW, particularly if it’s topical. These are popular with advisers. The next wave of seminars start January 2018 and are called ‘Planning Matters’. These seminars concentrate on helping advisers deliver their clients’ income needs. Our CPD activities are accredited by PFS and also CISI so this helps advisers to meet their structured CPD responsibilities more easily.
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Are there particular tax planning tools that Prudential provides which advisers find particularly useful when it comes to year-end planning work? We’re very proud of the tools we provide on our PruAdviser website. They are there to
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most tax efficient way. This is a simple tool to use – you just have to input how much profit is available to spend to start with. You can then put in different options around salary, dividends and pension contributions. This should be very topical again given that the £5,000 allowance is reducing to £2,000 in April. In principle, the big change was the removal of the dividend tax credit and subsequently we have seen people changing their remuneration strategy and favouring the use of employer pension contributions as opposed to taking the money out of the business. As well as these, we have plenty of other tools online for different purposes such as IHT, OEICs and bonds, but these are not so tax year-end specific in their use.
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Estate planning strategies are always important considerations, but particularly so at this time of year. Could you talk us through some of the more interesting options which are available for advisers and paraplanners to consider as they look to help -clients minimise the IHT chargeable on their estate? Of course, it isn’t specific to tax year end, but clients do have the annual exemption of £3,000 to use. This has been frozen since the 1980s, and since then IHT has been a growing problem. The overall IHT tax take has reached £5bn for the first time in a calendar year and the Treasury is projecting that it will surpass £6bn by 2021. Advisers are regularly coming to us with questions on the topic of IHT as it can be complicated. But getting back to tax year end specifically, it makes sense to use clients’ allowances no
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matter how small – to chip away at the value of estates that would be liable to IHT. Also it pays to remember that last year’s gift allowance is available too if it hasn’t been used already, and also to make the most of the allowance for both spouses. Doing this could result in £12,000 being removed from the clients’ estate immediately. This capital could then be gifted away perhaps, outright gifts or the grandchildren’s JISA’s perhaps. How about this for a planning idea? Personally, a strategy which I think is underutilised is paying into someone else’s pension for them. Many still believe it is just £3,600 gross that can be paid into a pension for someone else, but actually what is allowed is up to 100% of relevant earnings for that person. The numbers are compelling! The person who makes the payment can use up their annual exempt amount of £3,000, thereby immediately reducing the value of their estate. The £3,000 pension contribution is then treated as if it was paid by the pension account holder so they’ll get basic rate tax relief – taking it up to £3,750 straight away. If clients are contributing to their grown- up children’s pensions – say for example a child is in their 30s and a HRT payer, they’ll get HRT relief on the contribution as the income tax benefits fall on the pension holder not the person paying.
Personally, a strategy which I think is underutilised is paying into someone else’s pension for them
You can get to a place where, with one simple use of the annual exempt amount of £3,000, you could get 90% tax relief. There is the £1,200 in IHT for starters; £750 tax relief at source on the pension contribution and then the higher rate tax relief could bring another £750 - £2,700 relief on a £3,000 gift I think it’s a great IHT planning strategy. Also, from a psychological point of view, many clients might also like the idea that the money is not accessible until age 55 so they are helping to provide for their offspring’s future rather than giving them money which they could “squander” now.
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Which tax changes taking effect in the 2018/19 tax year do you think advisers need to be particularly aware of? The key change will be the dividend allowance reducing to £2,000. There are two elements to look out for here:
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Remuneration strategy. For clients taking the same level of dividends, this means they’ll be paying more tax. There are alternative options though, invest within the business and take the dividends later on make employer contributions into a pension instead and get the corporation tax relief.
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Investment portfolios. To use CGT allowances, it is likely that many advisers will be selling clients’ holdings in OEICs to realise gains at this time of year. It is well worth considering whether to buy those back within a tax wrapper instead – be that a pension, ISA, or bond. At the moment, clients can hold in the
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region of a £150,000 investment portfolio with the corresponding dividend yield coming it at around £5,000. However, with the dividend allowance reducing to £2,000, then just a £60,000 to £65,000 portfolio is likely to generate such a tax efficient level of dividends. As advisers will know, a large part of overall return is reinvested income so sheltering that income from tax during the investment horizon could make sense for many.
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Prudential has a broad range of products to suit different client needs, but which tend to be most popular at tax year end? Our most popular ‘product’ is an investment solution called PruFund. This is a large multi-asset ‘smoothed’ fund which is available through all the main tax wrappers -offshore and onshore bond, ISA and pension. We also have a range of OEICs. The main question we should be asking is which are the most popular wrappers at tax year end. The answer to this is clearly the pension and ISA wrappers. It’s the time of year when advisers will be making the most of any unused ISA allowances and also finalising the amount of pension contributions which can be made. For many, especially business owners, it is only as we near tax year-end we know how much could be payable into their pension. Many business owners have their year-end as at 31 March. It’s such a busy time and it’s so important to get this right for clients.
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The overall IHT tax take has reached £5bn for the first time in a calendar year and the Treasur y is projecting that it will surpass £6bn by 2021
When it comes to ISAs, another key thing to consider is not just about when we use the ISA allowance but where we place the monies. There is about £270billion in cash ISAs at the moment. Inflation is running at around 3% and, generally speaking, cash ISAs will be generating interest of around the 1% mark if they’re lucky. Clients who have money invested in these accounts are losing money in real terms. They are not generating real return that way, yet the amount in cash ISAs went up by £20bn last year. No doubt, advisers will be having conversations with clients about the benefits of investing as opposed to just holding cash as a longer term holding, to try and overcome this problem.
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Are there any other things that you think advisers and paraplanners should be looking out for in the near future? Well, thankfully, the 2017 Budget was relatively quiet from a financial planning perspective, especially in the area of pensions. It was good that things haven’t become more complicated, and it has made the tax year end planning slightly easier as there were no new changes announced to factor in. There is also no Budget in March now. The Chancellor will have a spring statement, although major announcements are likely to be held back until the Budget in November so that should make things a bit easier too. There are a few things to look out for in the planning world. A consultation has been announced on trusts, and it’ll be interesting to see where that leads us. The DB transfer consultation response is due in Q1 2018 and the outcome of that is keenly awaited. Finally, tax year end is the 5th of April – things can be complicated so I’d probably not leave it that late to be trying to get things done!
Les Cameron is head of technical at Prudential, based in Craigforth, Stirling. Les covers most areas of financial planning, specialising in the pensions technical arena. Les joined Prudential in 1997 and has held various pensions technical and management roles throughout his career. Les holds the Advanced Diploma of the Personal Finance Society and has a BA in Financial Studies.
For more support around Tax Year End visit Prudential’s dedicated hub at www.pruadviser.co.uk/taxplans
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RICHARD HARVEY Februar y 2018
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I FAmagazine.com
RICHARD HARVEY Februar y 2018
The Young Ones Pensions aren’t boring. That’s the message that Richard Harvey hopes more young people will latch on to in 2018 and beyond, before they have to face the consequences of not having heeded the warnings that their future rests in their own hands
I don’t know about you, but I'm baffled by that Royal London TV advert which shows a mediaeval chap astride a tree holding an enormously long lute (and no, that’s not smutty innuendo). But to give Royal London its due, yes it is a bit of a product push but at least they’re actively marketing the concept of pension savings, presumably to a youngish market which might understand the connection between saving for their old age and malformed musical instruments. Simple sense is needed Former Pensions Minister, Baroness Ros Altmann - one of the few people who, I think, talks simple sense about pensions - said recently that more pension providers should start marketing their products, and stop demanding that the government makes the case for retirement savings for them. Quite right too. If double glazing firms and washing machine manufacturers can spend oodles on advertising and social media promoting their products, why can’t pension providers do the same? One suspects they will soon have no alternative. The announcement that more than 900,000 workers aged over 18 will be enrolled into workplace pension schemes
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should at least engage the interest of teen savers, although one suspects that Dizzee Rascal and I'm A Celebrity will always have the edge. The ad agencies charged with coming up with campaigns targeting young savers have their work cut out. An earnest plea to save lots of money or face a miserable old age won't cut it, even if it's set to funky music by Little Mix. Time Pink Floyd summed this idea up rather beautifully back in the early 70s. “And then one day you find ten years have got behind you. No one told you when to run, you missed the starting gun.” Back to modern times though, and Justice Minister (and former Pensions Secretary) David Gauke says: “For an entire generation of people, workplace pension saving is the new normal. My mission now is to make sure the next generation of younger workers have the same opportunities”. He might have - but didn’t mention that unless retirement savings are boosted big time, the alternative is reliance on the State pension. And that while we live in the fifth largest economy in the world, the British State pension is now at the very bottom of the league of developed countries, below Mexico and Chile.
Just take a second to absorb that deplorable statistic. Sir William Beveridge, the founder of the modern State pension, will be rotating in his grave like a supercharged drone. Poor Britain According to the Organisation for Economic Co-operation and Development, the average worker across OECD countries can expect to receive 63 percent of their salary as a final State-funded pension. In the UK it’s 29 percent. Britain has always been low on the list of State pensions. Right now, we're rock bottom. Armed with that information, IFAs can surely frame a persuasive argument for encouraging a new group of 18-and-overs to start saving properly for later life. These are individuals who realise that their long term financial future rests in their own hands, but will need encouragement to actively take the steps they need to ensure that they aren’t working until they receive that letter from Buck House at age 100. The power of compound interest and, for those investing, of pound-cost averaging, is not to be sniffed at. It’s down to advisers to make today’s young people realise that pension saving isn’t quite as boring as they might believe it to be, and that they don’t miss the starting gun. Good luck to you I say!
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CAREER OPPORTUNITIES Position: Chartered Financial Planner Location: Chester Salary: £40,000 - £45,000 Per annum The business: This is a highly reputable, well-established independent financial advisory practice based in Chester. It seeks to bring an adviser into their growing team due to ongoing growth within the business. The successful candidate will be given leads from the business and will be aided by a strong paraplanning and administrative team. They provide all the tools and support. Study support is also available should you want to further your qualifications and technical knowledge. So if you want to work for a Chartered firm that can offer you support and a chance to build your own client base, then this could be for you. Duties & Responsibilities: •
Managing and maintaining the service proposition to clients through regular contact.
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Identifying the most suitable service propositions for clients.
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Engaging clients and building relationships.
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Delivering formal recommendations.
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Following up new business initiatives.
What’s needed to be considered: •
Level 4 Diploma qualified.
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Previous experience in an adviser role.
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A high level of confidence, sales & presentational skills and interpersonal skills are also key.
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The ability to approach all tasks with a positive attitude, presenting yourself in a professional manner in line with the expectations of the practice.
Position: Financial Planner Location: Waltham Cross Salary: £35,000 - £40,000 Per annum The business: This is a highly reputable IFA practice offering holistic financial planning and discretionary fund management services to HNW clients across the UK. It has experienced consistent business growth over the last couple of years and has enjoyed high client retention. The opportunity: Due to business growth this practice is looking to welcome an experienced Financial Planner to the team. You will benefit from full back office support, exam support and future progression opportunities as well as inheritance of a client bank from day one.What’s needed for me to be considered? •
Have previous experience within an IFA / Financial Planning Practice.
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Must be qualified to a minimum industry standard of Level 4 Diploma Qualified.
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Previous experience dealing with High Net Worth clients desirable but not essential.
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A strong understanding of pensions and investment products advantageous.
What’s needed for me to be considered: •
Hold Level 4 Diploma in financial advice.
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Hold a current valid statement of professional standing.
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Previous experience of providing financial advice to HNW private clients.
Position: Paraplanner Location: Ingatestone Salary: £35,000 - £50,000 Per annum The business: This is a Chartered Financial planning practice that provides lifestyle planning and guidance to both private and corporate clients. Over the years this practice has developed and maintained long standing relationships that have earned them an excellent reputation in the area. The opportunity: Due to business growth this practice would like to welcome an experienced Paraplanner to the team. You will be responsible for supporting several advisers with technical support as well as having the opportunity to get involved with client facing opportunities. What’s needed for me to be considered: •
Hold Level 4 Diploma.
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Previous experience within an IFA environment.
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Previous experience supporting advisers and working with HNW clients.
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Strong technical knowledge within holistic financial planning.
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Progression towards Chartered status, or willing to work towards this.
Position: Senior Paraplanner Location: London Salary: £37,000 - £45,000 Per annum The business: This bespoke, well respected IFA practice builds long term, trusting relationships with their clients by providing financial planning services both at the outset and as an ongoing service. They embrace the use of new technology and have a well-qualified support team assisting the advisers to make the best decisions for their clients. They provide tailored financial planning advice and really go the extra mile to provide a personalised service. The opportunity: This is a fantastic position for an experienced paraplanner to join a growing firm that can offer genuine career development by allowing you to be a key part in the firms ongoing successes. You will part of a technical team and be actively involved in the back-office processes as a key member. The ideal candidate will want to have autonomy within the role and work closely with a team of experienced financial advisers. This opportunity gives you a chance to lead a team from the front, whilst working closely alongside the MD, known for being a prolific business writer. What’s needed to be considered: •
Qualified or working towards level 4 diploma is an advantage.
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Previous experience within IFA practices and paraplanning is essential.
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Understanding of FCA regulations as well as products and their practical application.
Position: Senior Wealth Management Consultant Location: London Salary: £50,000 - £60,000 Per annum The business: bespoke national independent Financial Planners, with offices across the UK. Due to an extremely fruitful period of business, this bespoke firm of independent financial planners is now looking to expand by adding a new senior member to the financial planning team. The firm has offices across the UK and has a fantastic industry name. Its focus is on providing a complete financial planning service ensuring that the client is at the heart of everything they do; this role would be fantastic for an experienced individual looking to take the next big step in their career. The opportunity: The firm is looking to appoint a senior financial adviser, who has a professional and level-headed approach to come in and help take on a number of the company’s clients. The business is looking for someone who can help grow the company’s AUM. They would like to see CVs from experienced advisers whether their clients’ portfolios are transferable or not. This opportunity would suit Level 4 Diploma qualified professionals, particularly those with strong books of business, looking to work in a highly professional and rewarding environment; with a fantastic salary and benefits package. What’s needed to be considered: •
Hold previous experience within an IFA / financial planning practice.
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Must be qualified to a minimum industry standard of Level 4 Diploma.
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Previous experience dealing with High Net Worth clients desirable but not essential.
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A strong understanding of pensions and investment products advantageous.
Position: Chartered Financial Planner Location: London Salary:£60,000 - £70,000 Per annum The business: This is a Chartered Financial Planning Practice that has a wealth of experience providing holistic financial planning advice. Built on their reputation, this practice has numerous HNW clients across the UK as well as being responsible for several niche public-sector and private sector contracts. The opportunity: Due to being awarded a prestigious contract to provide advice to staff at several high profile London-based academic institutions, this practice would like to welcome a Chartered Financial Planner to the team. You will benefit from having a lucrative and HNW client bank to service from day one as well as consistent leads and client generation as the company develops. You will have the flexibility of being home based in London, with full back office and sales support alongside a generous basic and bonus structure.What’s needed for me to be considered? What’s needed for me to be considered: •
Hold Chartered Status
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Hold specialist pensions qualifications such as AF3 or G60.
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Strong technical knowledge and experience providing financial advice around pension schemes.
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Knowledge of USS and NHS pension schemes (advantageous).
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Previous experience within an IFA environment.
Position: Financial Planner Location: Lincoln Salary: £40,000 - £60,000 Per annum The business: This is a firm of independent financial planners which is based in the heart of the Midlands. Due to an extremely fruitful period of business, the business is now looking to expand by adding a new member to their financial planning team. Their main focus is on working with HNW clients. The business has strong ties in to the accountancy profession, from where a large amount of their business leads are generated. The opportunity: This would suit an adviser who has a professional and level-headed approach, to take on the management of a number of the company’s clients alongside building and growing the number of clients still further. It would suit an existing IFA with a strong book of business, or a newly qualified adviser looking to work in a highly professional environment. All leads are provided via referrals and professional introducers and a highly rewarding salary and benefits package is available. What’s needed to be considered: •
Hold previous experience within an IFA / financial planning practice.
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Must be qualified to a minimum industry standard of Level 4 Diploma.
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Previous experience dealing with High Net Worth clients desirable but not essential.
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A strong understanding of pensions and investment products advantageous.
Position: Paraplanner Location: London Salary: £40,000 - £60,000 Per annum The business: This is a fantastic opportunity here to for an experienced paraplanner to join a well-established financial services practice working from their fantastic London city offices. The business is a chartered practice with a great industry name, focusing on providing a highly personalised financial planning and investment management service with the client at the heart of everything they do. The opportunity: Due to a period of key expansion, our client is looking for a technical paraplanner to support the successful financial planners of the business. The firm has the flexibility to mould the perfect opportunity around each person’s specific skillset, so the role can be tailored to exactly what you want. You will have the opportunity to work in a supportive team environment where progression is strongly supported. What’s needed to be considered? •
Level 6 chartered qualification or comfortable with working towards this.
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Previous experience within a fast-paced IFA practice.
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High level of analytical capability and good communication skills.
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Knowledge of intelligent office would be a distinct advantage.
Position: Senior Paraplanner Location: Guildford Salary: £40,000 - £50,000 Per annum The business: This is an award-winning practice, with a fantastic industry name. Their focus is on providing a highly personalised financial planning service, ensuring the client is at the heart of everything they do. The opportunity: During a period of key expansion, our client is looking for a technical Paraplanner to support the successful Financial Planners of the business. You will have the opportunity to work in a supportive team environment with a great office atmosphere, where progression is strongly supported. For the right candidate, there is the chance here to gain CF30 sign off, and attend a number of client meetings, with the exciting opportunity of transitioning in becoming a financial adviser in future for the right person. What’s needed to be considered: •
Minimum Level 4 Diploma qualified and working towards Chartered status.
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Previous experience within a fast-paced IFA practice.
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High level of analytical capability and good communication skills.
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Good pensions & investments product knowledge.
Position: Manager of Financial Planning Location: Chipping Norton Salary: £40,000 - £50,000 Per annum The business: A fantastic opportunity has been created with an award-winning firm of financial planners that offers independent financial planning advice to individual clients in Oxfordshire for a financial planning manager to join the growing team. The opportunity: This is a very well-established firm with a considerable client base. Following a period of particularly strong growth, they are looking to recruit a senior professional to manage and oversee the team of financial planners to ensure that the firm provides high quality ongoing service to its clients. What’s needed to be considered: The perfect candidate will be pro-active and forward-thinking as well as technically minded. An excellent package is on offer as well as exam support and a rich office culture. About the role: •
To manage and oversee a team of technical financial planners.
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Conduct 1-2-1s and actively help with the growth and development of the team to achieve ongoing success of the business.
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Work closely with other members of the senior management team within the practice to allow the business to continue to operate to a high level as well as to develop further.
Key Skills: •
Previous experience within an IFA firm.
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Level 4 diploma qualified.
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Good working knowledge of FCA regulations and other relevant legislation.
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Self-motivated and team-oriented.
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Management experience would be advantageous.
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Excellent written and verbal communication.
And also… If these specific vacancies are not exactly what you are looking for, please contact us to discuss other opportunities we may be recruiting for that aren’t necessarily advertised. Additionally, refer a friend or colleague to us and receive £200 in vouchers if we assist them in securing a new career.
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