For today’s discerning financial and investment professional
What ’s going on with oil? April 2019
ANALYSIS
REVIEWS
ISSUE 77
COMMENT
INSIGHT
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April 2019
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CONTRIBUTORS
Ed's Welcome
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Editor's Rant Oil be blowed: Michael Wilson looks at the oil sector and what might lie ahead for investors
Brian Tora an Associate with investment managers JM Finn & Co.
10 Better Business Brett Davidson looks at the adviser pricing debate
13 Working with solicitors: Michelle Hoskin on the importance of standards
Richard Harvey a distinguished independent PR and media consultant.
Neil Martin has been covering the global financial markets for over 20 years.
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Perfecting the recruitment process Tracey Underwood, PACE Solutions.
20 Venture Capital – harnessing the future: Barry Downes, Sure Ventures.
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Investing for income
Brett Davidson FP Advance
The value of a growing income stream: Brian Tora reflects on the ups and downs of equity income funds
26 Investing for income Investing in fixed interest from QE to QT. Ryan Hughes, AJ Bell.
29 Investing for income
Michael Wilson Editor-in-Chief editor ifamagazine.com
Investing for income: keeping it simple - putting clients’ needs first by Damien Rylett, Brunel Capital Partners.
31 Investing for income Compliantly: by Tony Catt, Compliance Consultant.
34 Sue Whitbread Editor sue.whitbread ifamagazine.com
Blockchain Cryptocurrencies are just the tip of the iceberg for blockchain - Invesco
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California Dreamin':
Alex Sullivan Publishing Director alex.sullivan ifamagazine.com
Richard Harvey with an alternative look at planning to achieve life goals
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Career Opportunities
Rachel Bray Head of Design rachel.bray cliftonmedialab.com
Georgie Davey Junior Designer georgie.davey cliftonmedialab.com
IFA Magazine is published by IFA Magazine Publications Ltd, Arcade Chambers, 8 Kings Road, Bristol BS8 4AB | Tel: +44 (0) 1173 258328 © 2019. 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. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. IFA Magazine is for professional advisers only. Full details and eligibility at: www.ifamagazine.com
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E D'S WE LCOM E
April 2019
WE’RE SORRY BUT WE HAVEN’T A CLUE
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f you’re picking up this month’s edition of IFA Magazine in the vague hope of finding some detailed, sensible analysis of what is likely to happen to the UK and EU markets and economies in the near future as the Brexit shambles keeps rolling on, I am sorry to have to disappoint you. But that won’t come as any surprise. We can only hope that at some point, as the next few weeks and months unfold, as soon as the thick Brexit fog starts to lift, we’ll be able to look at the possible implications and impacts that decisions/lack of decisions will have on the investment outlook. So that’s for another day. THE BUSINESS OF INVESTING In the meantime, we’ve got plenty of good reading for you this month. We’re grateful to Damien Rylett, Ryan Hughes, Tony Catt and Brian Tora for sharing their views on different aspects of investing for income. In his snappily named rant, Oil be blowed, Mike Wilson is looking at what is going on in the oil market but whether you’re an oil investor or not , his analysis and perspective gives plenty of food for thought on markets more generally in the months and years ahead. Back in December, we interviewed Barry Downes of Sure Ventures. I’m pleased to say that we are following up on this with a more detailed look at some of the case studies which clearly show the potential which exists in this exciting investment sector. Also on a more specialist area, Invesco are highlighting the attractions of blockchain as an investment concept as part of a balanced portfolio.
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THE BUSINESS OF FINANCIAL PLANNING Building and maintaining your competence in technical and market knowledge is one thing, but when it comes to the business side of financial planning, there are always ideas and tips that can prove helpful to even the most experienced financial planner. Business development is a favourite topic amongst IFA Magazine readers. This month, we have a series of different articles on this subject which we hope will get you thinking. A fundamental part of running a successful financial planning business is getting your charging right. We’re grateful to Brett Davidson for his insight on this particular topic in his article on page 10. Another core ingredient for a successful business is recruiting the right people in your team. This topic is on Tracey Underwood’s radar as she uses her experience to give practical tips on how you can boost your success at recruiting talented individuals into your business. She also has tips for those who may be on the other side of the table – the interviewees - to boost chances of a successful “match” and a win-win situation. . If you’re keen to build relationships with professional connections – solicitors in particular – Michelle Hoskin has plenty of practical advice as she delves into the subject and looks at the importance of standards. As always, we extend our sincere thanks to all our contributors this month and hope that you, our readers, find some useful ideas as you digest the content of the pages ahead. Sue Whitbread Editor IFA Magazine
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E D'S RANT
April 2019
Oil Be
BLOWED Is that barrel half full or half empty, asks Michael Wilson? And how can you tell?
H
onestly, folks, it’s all downhill from here. The global balance between oil production and oil consumption peaked a couple of years ago, thanks to improved efficiency and better environmental controls that have reduced heat loss. The new wave of wind and solar energy development, combined with the accelerating trend toward electric vehicles, is going to wipe out much of the future demand for the black sticky stuff that has fuelled the industrialised world for the last century. We may as well face it, the rapid expansion of the global economy is set to morph into a cyclical downturn which
Look, it says so right here, in the latest report from the International Energy Agency (https://www.iea.org/ oilmarketreport/omrpublic/) . Better think again about those oil company portfolios, perhaps?
Primary energy consumption by fuel Billion toe
25
Marker Crude Prices $/bbl
will soon reduce demand for energy of all kinds. Oh, and did we mention that US shale oil is set to swamp the world’s energy markets by 2024, pushing both Russia and Saudi Arabia into also-ran status in the oil export stakes?
Renew*
2040
Hydro
90
20
Nuclear Coal
80
Gas
15
Oil
70 10 60 5
50 40
Apr '18 North Sea dated
Source IEA
6
Jul '18
Oct '18
WTI Month 1
Jan '19
Dubai Month 1
IEA 2019. All Rights Reserved.
0
2017
Evolving transition
More Less Rapid energy globalization transition
*Renewables includes wind, solat, geothermal, biomass and biofuels. Source: BP Energy Outlook 2019
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Final energy consumption in transport: By region Billion toe
3.5
Other Other Asia
3.0
India
2.5
China OECD
2.0 1.5
And that’s before we get to the distorting effect of jittery financial markets which are capable of pushing prices to absurd extremes because of simple herd behaviour. Do we really need to be reminded that oil’s horrendous spike beyond $147 dollars per barrel in 2008 was achieved on the IEA’s completely incompetent assessment that the instability of the African spring and the growth of Chinese demand would drive a ‘fundamentally justified’ surge in the oil price to $200 by the end of the year? (In practice, it was $32 by the time December arrived. So much, as Michael Gove would have said, for “experts”.) SLICK TIMING
1.0
Life as an oil investor, then, is a random walk on steroids. Back in the mid 1980s, when I started out at the Financial Times, my colleagues and I would spend many animated hours discussing whether there was such a thing as a “natural price” for the black stuff, and whether $29 a barrel for West Texas Intermediate in 1983 was it?
0.5 0.0
April 2019
2000
2010
2020
2030
2040
Source: BP Energy Outlook 2019
Final energy consumption in transport: Consumption by fuel Billion toe
3.5
Other
Life as an oil investor, then, is a random walk on steroids.
Gas
3.0
Electricity Oil
2.5 2.0 1.5 1.0 0.5 0.0
2000
2010
2020
2030
2040
Other includes biofuels, coal and hydrogen Source: BP Energy Outlook 2019
THREE-DIMENSIONAL CHESS Except that it isn’t quite as simple as that. If there’s one thing that we macro analyst types have noticed for sure, it’s that there’s a lot more to this commodity business than simple demand and supply. Prices are driven by a rich blend of political complications, security issues, trade bloc disputes, and plain old-fashioned disasters. (Macondo, anyone? Burning Kuwaiti oilfields in 1991?)
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You don’t need to be a whiz with a calculator to see that it wasn’t. $29 in 1983, when adjusted for inflation, would be equivalent to around $75 per barrel in today’s money, but that didn’t make it reasonable at that time, or sensible. Within three years WTI had dropped back to a bargain $14 (or $32 in real money), and real prices then remained at broadly the same level until 2003, when it got an attack of the crazies and spent eleven years in the $90-$100 club. Today’s $60-ish oil price might look like a relative bargain, unless you remember that the real price last December was a mere $45, having dropped by a quarter during 2018. (All figures from the estimable Macrotrends, http:// tinyurl.com/y9ao8uy9 .) So is the glass half empty or half full? Is oil a cheap bargain that’s waiting for its cyclical turn to shine again, as it did in the five years after 2009, or is it in fact broadly in line with the post-1979 mean, and nothing much to write home about? Is there any point, in fact, in wondering? Or should we simply accept, like Ben Graham, that the market is what it is, and that there’s no sense in trying to analyse its behaviour when you’d be better off taking the knocks and keeping your eyes fixed on the far distant horizon?
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April 2019
E D'S RANT
Is oil a cheap bargain that ’s waiting for its cyclical turn to shine again, as it did in the five years after 2009, or is it in fact broadly in line with the post-1979 mean, and nothing much to write home about?
There’s a lot to be said for the long term buy and hold approach - but only if we’re confident that the fundamentals of the supply and demand equation won’t change over time. Which is where the LTBH logic hits the skids. There’s been rather a lot happening in commodities over the last fifteen years or so, and some of us haven’t been paying attention to all of it. THE JOYS OF 20-20 HINDSIGHT For instance, I managed to make a 35% loss on a physical platinum ETF because I hadn’t figured that a drop in diesel car sales would substantially reduce demand for platinum-based catalytic converters. (I should have put my money instead on palladium, which is used more widely in petrol cars, and which has soared eightfold since 2008, and threefold in the last two years.) Three years ago, I should have bought cobalt, or copper, or even high-grade industrial coal, in preference to oil. But that was because I was trusting in the explosive power of Chinese demand to deliver a price surge in Brent or WTI crude, and on the whole it didn’t. So what went wrong? In a word, American oil shale. And yes, I took my eye off the ball. Between now and 2024, the IEA says in its March report, the US will account for 70% of the global expansion in crude oil and 75% of the growth in liquefied natural gas. America is already pumping more oil than either Russia or Saudi Arabia, but at present most of it is being guzzled by Texas Tonka Trucks, which is why we haven’t heard so much about it on this side of the Pond. The word is that President Donald Trump doesn’t actually know what Brent crude is, and he doesn’t care. We’d better get used to it. GEOPOLITICAL ISSUES There’s more. According to Bank of America Merrill Lynch, US shale producers in Texas alone are currently sending 3 million barrels of Permian crude to the international
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markets every day, taking the US national output above 12 million b/d. And by 2021 it’ll have grown by another 6 million b/d. Which, at a time when Russia and Saudi Arabia are reducing their own production, points toward a vast and growing US dominance of a marketplace which Mr Trump likes to characterise as rigged. That’s not much more than half the story, though. As America’s production surges, the output from rivals such as Iran or Venezuela is thought likely to shrink to almost nothing – because of sanctions in Iran’s case and economic chaos in Venezuela’s case. (Do we need to remind ourselves that Caracas owns the world’s largest oil reserves? Yes, maybe we do?) But surely, you ask, China’s colossal growth in car ownership will make sure that global oil demand remains high in the coming decades? Well, probably so – indeed, Beijing is one of Washington’s brightest hopes, not that it would be polite to mention it at the moment. China consumes about 14 million barrels per day – about twice as much as Japan – but it produces around 5 million b/d of its own oil. Last November, commodities data provider S&P Global Platts reported that the country’s monthly crude imports had exceeded 10 million b/d, with a total intake of 10.48 million b/d. And that, as it happened, was almost the same size as Saudi Arabia’s all-time record production of 10.72 million b/d in November 2016. Why am I banging on about all these statistical singularities? Because they are the changing shape of things to come, of course. And because they focus our complacent minds on what may affect oil price developments in the future. Even if the world doesn’t descend into a Trumpian trade war. (Oh yes, did I mention that one?) VOLATILITY, AND HOW TO HANDLE IT We saw a moment ago that volatility is just another part of the scene for oil and gas investors – more, generally, than for most other commodities. And that diehard oilies take the rough with the smooth, and that they’re inclined to give you lectures about kitchens and taking the heat. They’ve had decades of watching their pet high-yielders trashed by bad overnight news – a refinery in flames, a virgin forest ruined by a chemical leak, a political embargo by some West African government, or even a threat of seizure and nationalisation by a Latin American one. And yet they stay in for the dividends, which can be handsome. Oilies are, on the whole, quite frighteningly well informed. They gossip, they subscribe to expensive newsletters, and
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they can tell you in the blink of an eye what the effect of some infinitesimal shift in the bond auctions will be. They are also super-sensitive to the state of the world’s shipping markets, which they say gives them a heads-up on the state of demand, both regionally and globally. And they’re not often wrong. Part of the reason why oil markets are so volatile is that very little of the world’s oil stocks are held above ground at any one time. Oil is bulky stuff, and it’s a bad idea to let it get stolen or set on fire, so producers prefer let it stay in situ for as long as possible.
Part of the reason why oil markets are so volatile is that ver y little of the world’s oil stocks are held above ground at any one time.
Typically, less than six weeks’ worth of global consumption are available in tanks for immediate despatch, or in seaborne tankers awaiting their delivery orders. (There’s a lot of informed guesswork about the actual levels of storage, but six weeks is in the right ballpark.) The problem is that that, in turn, means that, whenever trouble blows up in Venezuela or Iran or Nigeria or the South China Sea, the urgent need for fresh deliveries can’t be met in time and a demand stampede sends the prices up faster than a Monet at Christies. Which is the point when Rocket Stage Two ignites, because the worrying effect of any shortages are immediately multiplied. Even if six weeks’ energy were to be truly on tap, that wouldn’t mean that the world could run normally for six weeks and then abruptly shut off the pipelines. Easily half of the world’s current stocks have been earmarked by national governments for strategic purposes such as defence, or for keeping the hospitals and the government offices running – and it isn’t probable that Washington would sell you its last barrel while Venezuela was in flames or the Russians were hovering threateningly around Ukraine.
April 2019
Those WTI ETFs you bought last month won’t have been based on physical ownership of a tankerful of crude, because it would make an awful mess of the basement.
tonnes of Arabian Light from Singapore, for delivery in 20 days, can get quite touchy about whether they’re paying the right price in advance for what might turn out to be a world in flames by the time it arrives. In practice, then, oil derivatives suffer from political worry in a way that spot trading doesn’t need to. What can you do about it? Well, firstly you can (and should) diversify your risk, probably through a fund that owns a good spread of companies. Or you can simply buy an ETF (or, strictly speaking, an ETC) that’s based on the MSCI oil prices, or whatever. But which won’t reward you with dividends. And which may well prove disappointing during the first months, though it will settle down. Oilies are better informed than the rest of us, remember? Secondly, it may not be a bad idea to keep your own eye on the shipping statistics, because they can contribute useful information. All those empty tankers moored off Singapore or Amsterdam or Falmouth are waiting for work, and if you can find out what the going rental rate for an empty ship is, you may have a head start as to the state of the market. Take a look at the Baltic Dry Index, and you’ll see what we mean. And finally, get yourself a copy of the BP Energy Outlook report for 2019, which was published in February. http:// tinyurl.com/y6gxdjed . The statistical projections alone will give you food for thought, and hopefully for a successful portfolio approach. It’s a bumpy sector, for sure. But the rewards for good research will be massive, and lasting.
The more potent booster rocket, though, is that the derivatives industry relies on oil swaps and futures. And for good reason. Those WTI ETFs you bought last month won’t have been based on physical ownership of a tankerful of crude, because it would make an awful mess of the basement. And the kinds of people who order in 100,000
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April 2019
BETTE R BUSI N ESS
The adviser
PRICING DEBATE What’s the ‘right’ way to charge for financial planning services? Brett Davidson of FP Advance gives some practical tips on how you can work out what is best for your firm – and your clients
T
here’s a lot of discussion around what is the ‘right’ way to charge for Financial Planning services.
I get it. We’re at another inflection point in the development of our profession and it’s right to question everything, including how your business charges. You need to be positioning your business for where things
I know some advisers who charge 1% p.a. on a client ’s investable assets, who are doing nothing more than portfolio management. That ’s getting into outrageously expensive territor y for me
are headed in the next ten years and not where we’ve come from in the last ten. In light of that, I believe the charging conversation needs to be done in context; that is, considered in conjunction with the services being provided and the value being delivered. That sort of goes without saying, but in most of the industry commentary I see, there are lots of words written and spoken about the price of advice, but almost nothing about the other side of the ledger: what’s actually being delivered. When it comes to pricing here are a few questions to consider: • Is your service expensive if you charge 0.5% of assets under management? • Is your service expensive if you charge 1% of assets under management?
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• Is your service expensive if you charge a flat fee? Clearly the answer is, “It depends”. An awful lot of financial advisers basically do portfolio management for clients. If they were charging me 0.5% p.a. of my invested assets for that I’d think they were expensive. Most of the online investment options would fall into this category for me too; expensive for what’s being done. I know some advisers who charge 1% p.a. on a client’s investable assets, who are doing nothing more than portfolio management. That’s getting into outrageously expensive territory for me. Why is that outrageous? It is simply because it is not a very value-added task. LIFTING THE LID On the other side of the coin, if you’re a genuine Financial Planning firm, and you provide a lot more than just portfolio management, then it’s possible you are too cheap at 1% p.a. The same could apply if you charge a big fat flat fee to clients. Here are a range of services that I’ve seen and heard about during my career: • Helping a client define their life goals • Holding clients accountable to their life goals • Cashflow modelling – which probably underpins many of the other services on this list • Education planning and funding • Investment advice: • Portfolio design • Portfolio management • Behavioural finance support (i.e. stopping clients from doing dumb things at the wrong time)
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April 2019
• Tax planning
YOUR VALUE PROPOSITION
• Risk management
Just listing a bunch of services doesn’t allow us to evaluate the quality or depth of those services delivered by different firms. However, ‘what’ a firm provides is at least a starting point for a better understanding of how price and value intersect.
• Life insurance • Income Protection insurance • Critical Illness insurance • Private health insurance • Partnership insurance • Key person insurance • Budgeting • Debt consolidation • Mortgage advice • One-page Financial Scorecard reporting • Social security assistance • Planning for parents of clients and aged care • Planning for clients and aged care • Estate planning • Wills • Lasting Powers of Attorney • Trusts • Inheritance tax planning • Special needs planning • Trusts • Funding • Social security assistance • Care • Charitable giving/philanthropy • Business succession planning • Career counselling • Share options planning
Your package of services, when looked at in their entirety, are often called your ‘value proposition’ and with good reason. A value proposition at its core delivers two key outcomes for your clients: 1. Peace of mind – knowing that everything is going to be alright and that a competent team of professionals has your back. 2. Tangible value in cash – the quantifiable wins that come from reducing costs, saving tax, or assisting a client to claim all the benefits they are legally entitled to. The first outcome, peace of mind, is more valuable to clients by a factor of 10 in my opinion. However, the second is also important, especially when your fees can be in the thousands or tens of thousands of pounds per year. I had dinner with a senior industry executive recently who made the comment that they wouldn’t pay an adviser £8,000 a year for the next 60 years to manage their money. They’ve got a point. However, they would be happy to pay for the specific advice that might also add value from time to time (other services from the list shown above). One might expect an industry insider, who is more comfortable with sorting their own investment management, to make this comment. But we then went on to discuss why most clients may or may not simply elect to buy a Vanguard LifeStrategy® fund or some other low-cost equivalent. GET CLEAR ON THE DETAIL AND THE VALUE ADD
What do you provide from this list for your current level of fees?
If you’re going to explain and defend your premium pricing, and I think you can for certain clients, then you have to get clear on what you do for your money, and be able to explain how it adds value to clients before they use your service.
How do you feel about your pricing now? Are you expensive? Great value? Or too cheap?
That’s the tricky bit. Services are intangible; a client may not really understand how good your service is and how
With a hat tip to Bob Veres at Inside Information for some of the services on this list, I’m sure there are more services you deliver or have seen delivered to clients.
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BETTE R BUSI N ESS
Discover Fixed Income Opportunities valuable it is, until they’ve purchased it and used it for several years. Not only that, but you’ll need to be able to explain clearly and simply to clients the difference between your services and those of your competitors. That’s also tricky, because to the casual observer all advisers look like they are doing the same thing. It also raises the question: is there an alternative business model to the premium priced offerings we see from most good Financial Planning firms, who are used to serving the at-retirement market? I think there is. We just need to start thinking more creatively, and many firms already are. What’s the next step for your business?
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About Brett Davidson Brett is the Founder of FP Advance, the boutique consulting firm that helps financial planning professionals to advise better and live better. He is recognised as one of the leading consultants to financial advisers in the UK. You can follow Brett online and via social media: You can follow Brett online and via social media: Twitter: @brettdavidson Facebook: www.facebook.com/FPAdvanceLtd LinkedIn: www.linkedin.com/in/davidsonbrett Website: www.fpadvance.com
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Official Sleeve Partner
Risk Warning and Disclaimer Your capital is at risk and Bond repayments are not guaranteed under the Financial Services Compensation Scheme. Basset & Gold is a trading name of B&G Finance Ltd and Basset & Gold Plc., which are both companies in the Basset & Gold Group. Promotion of the bonds and arranging investment is through B&G Finance Ltd. and the bonds are issued by Basset & Gold Plc, Only B&G Finance is authorised and regulated by the Financial Conduct Authority (“FCA”) in the UK as FRN 788684
M ICH E LLE HOSKI N
April 2019
Setting the
STANDARD Michelle Hoskin of Standards International looks at the importance of quality standards in financial planning and how they can be of particular help to financial planners looking to work with solicitors
T
he creation of quality standards is always demand-led; either by consumer groups, sector-specific panels or professional/ industry bodies.
Some standards are created to prevent further issues within an area of current concern. Others have a huge amount of foresight and are designed to support a sector and the possible ‘future’ challenges that it may face. I am proud to say that the standards of excellence which exist within our magical profession of financial services were designed and launched at a time when in truth, the market could never appreciate their value. Why was this? The answer is that it was because those working within the sector were simply not ready for them. We live in a time when the standards which I am so passionate about are simply too much for most of those operating in the sector to understand or to handle.
I am proud to say that the standards of excellence which exist within our magical profession of financial services were designed and launched at a time when in truth, the market could never appreciate their value
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Whilst many planners and firms continue to focus on the need for accumulating academic qualifications and quite simply getting through each day in one piece, there is a special group of individuals and firms which also holds the foresight and is driven by a view of the profession that is yet to come. It is my belief that it is this advanced approach to ‘doing business’ which will finally turn our industry into a true profession. What is even more promising to see is that in the professional services sector this special group of people are not alone. CHANGES IN THE LEGAL PROFESSION Let’s take a look at an example from another profession here. For some time the legal sector has embraced the framework and benefits of Lexcel - https://www.lawsociety. org.uk/support-services/accreditation/lexcel/. ‘Lexcel’ is the Legal Practice Quality Mark and sits positively alongside BS 8577 Framework for the provision of financial advice and planning services - http:// standardsinternational.co.uk/certification/bs-8577/. Through a full understanding and effective adherence, these standards put those accredited legal practices and those certified financial services firms - http:// standardsinternational.co.uk/certified-clients/ side by side in their professional approach and commitment to quality. This can only be a good thing for these sectors as a whole, to the consumers that depend on their services, and on the level of excellence to which they commit. The achievement of Lexcel has now become common place in the legal sector, and designed as the Law Society's legal practice quality mark for practice management and client
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care. Lexcel sets the required standard in seven different areas: structure and strategy, financial management, information management, people management, risk management, client care, file and case management. Once again, this is a positive step to increase the quality and standards of excellence. With this ‘business as usual’ approach to quality, ‘The Solicitors Regulation Authority’ (SRA) - as part of the ‘Looking to the Future Reform Programme’ proposed a number of changes to the SRA’s principles and codes. Reviewed by the Legal Services Board (LSB) these have now been given the green light and are likely to pose several issues for the financial services sector, whilst at the same time providing opportunities for those who have the foresight to see what potential lies ahead. The code includes 7 key principles for practice; these principles comprise the fundamental tenets of ethical behaviour that are expected from all those who they regulate. This includes all individuals they authorise to provide legal services (solicitors, RELs and RFLs), as well as authorised firms, their managers and employees.
THE PRINCIPLES ARE AS FOLLOWS: You [the legal practitioner] act: 1. In a way that upholds the constitutional principle of the rule of law, and the proper administration of justice 2. In a way that upholds public trust and confidence in the solicitors' profession and in legal services provided by authorised persons 3. With independence 4. With honesty 5. With integrity 6. In a way that encourages equality, diversity and inclusion 7. In the best interests of each client
‘The Solicitors Regulation Authority ’ (SRA) - as part of the ‘Looking to the Future Reform Programme’ proposed a number of changes to the SRA’s principles and codes. Reviewed by the Legal Services Board (LSB) these have now been given the green light and are likely to pose several issues for the financial services sector, whilst at the same time providing opportunities for those who have the foresight to see what potential lies ahead
Now, given our understanding of codes of conduct and ethical principles, these don’t seem too onerous, out of the ordinary or too much to ask from a professional practitioner. However, what is important is how can professional practitioners ensure that they continue to meet these principles if and when they refer one of their clients to another professional or business? The question is, should they even care? Some would say that it is not their problem, and once their client has been referred over to another business – the service standards that they receive from that source are out of their control. Some may agree. However, the new codes expect, and want, more to be done. The new code of conduct includes many positive suggestions, guides and recommendations; but in particular I’d like to draw your attention to the details below in relation to the subject of making referrals and introductions: REFERRALS AND INTRODUCTIONS 5.1 In respect of any referral of a client by you [the legal practitioner] to another person, or of any third party
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who introduces business to you or with whom you share your fees, you ensure that: (A) Clients are informed of any financial or other interest which you or your business or employer has in referring the client to another person or which an introducer has in referring the client to you; (B) Clients are informed of any fee sharing arrangement that is relevant to their matter; (C) The agreement is in writing; (D) You do not receive payments relating to a referral or make payments to an introducer in respect of clients who are the subject of criminal proceedings; and (E) Any client referred by an introducer has not been acquired in a way which would breach the SRA's regulatory arrangements if the person acquiring the client were regulated by the SRA. So, if the legal practitioner wants to prove that they act in line with the new codes and the 7 principles, then maybe it’s time to move away from a ‘Gentleman’s agreement’ style of business. This is important. An authorised firm or individual practising in the legal sector will now be held responsible for carrying out suitable due diligence on any 3rd party services to which they might refer their clients. This due diligence is recommended regardless of whether any money - in the forms of introducers’ fees, referrals or fee/revenue splits - is involved. It is all to do with the
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individual or firm acting in the best interests of their clients. Unsurprisingly, many planners to whom I have spoken about this seem dismissive of the new rules, explaining that it is unlikely that anything will change. It is felt that the solicitors who have historically introduced clients to financial planning professionals will continue to make these introductions, but without carrying out the necessary due diligence. Well, I wouldn’t be so sure about that! Therefore, unless the legal practitioner can provide evidence of due diligence checks when asked why a particular third party has been recommended, then I am not sure that the principles are being met, nor the code being adhered to. WHAT ABOUT FINANCIAL PLANNING? So, the doubters can continue to doubt, but our financial services clients who are already been certified to either BS 8577, ISO 2222 (or both) will take poll position. Why? It’s quite simply because the due diligence has already been evidenced, and the standards of quality will have already been demonstrated as a result of these certifications. Therefore, those financial planning firms with the foresight to comply with BS 8577 and ISO 22222 are reaping the benefits of their true quality, which becomes their trump card in an ever-evolving profession based on care, due diligence and integrity. These firms will be rewarded handsomely for their efforts. For more information on how to work with solicitors you can view Michelle’s video on what you can do to help embrace the opportunity - https://youtube/TVfdWvCwwpQ
With over 20 years’ experience working alongside some of the world’s most successful financial services organisations, Michelle is an internationally recognised author, speaker, coach and leading expert in the design and implementation of international framework-based best practice standards. Michelle is pioneering a drive towards increased professionalism and operational excellence through her continued work at Standards International – the UK’s premier certification body for British and international financial services standards – of which she is the founder. She also most recently led a sector committee whose objective was to develop and launch an exciting new international standard for professional paraplanners. About Michelle Hoskin Michelle Hoskin (aka Little Miss WOWW! ) is well known for her endless enthusiasm and energy, infectious personality and unique outlook on what she describes as a “magical profession”. TM
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Relentless in her pursuit of a global movement of change within financial services, Michelle is fully committed to supporting financial professionals worldwide to achieve things they only dreamed were possible, and to working with them so that they become the best possible version of themselves.
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RECRU ITM E NT
April 2019
Perfecting the recruitment
PROCESS Tracey Underwood of PACE Solutions has practical tips on how to approach the important matter of recruitment from both an interviewer and interviewee perspective – to help engage individuals who will thrive in your financial planning business
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ersonally, having sat on both sides of the interview table, more often of late from the interviewer side, I’ve experienced many different types of interviews within the financial planning profession.
Given the importance to the financial planning business of getting this process right, my aim in this article is to give you an insight into the dos and don’ts of your recruitment process. The business invests considerable time and effort in bringing new employees into the business and training them in processes and procedures. A constant turn-over of staff can be highly disruptive and costly in terms of time and the negative impact it has on team morale. Therefore, it pays to recruit with the long term in mind, so that you get the best outcome for the business and the individual. On the flip side, for interviewees, I’ll also cover what you might expect if you’re at an early stage of your career or relatively inexperienced when it comes to interviews. THE INTERVIEWER PERSPECTIVE Time Successful recruiting is not a short-cut process. As the saying goes, “nothing good ever comes out of hurry and frustration, only misery”. None of us are perfect and we’ve all cut the recruitment process short at some point. In some cases we may have been swept away by the personality, experience or skills of the interviewee or we’re desperate to fill a vacancy quickly because we’re under time pressure with other aspects of business like reports, admin
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etc. that might be demanding our urgent attention. But financial planning is a competitive profession and good people are not easy to find – or keep. It’s important to make sure you keep those who you recruit so ensuring there is a good fit at the start is crucial.
By putting in the time and effort at the start of the recruitment process, this will ensure that over the longer term cost, frustration and time are all reduced.
But, by putting in the time and effort at the start of the recruitment process, this will ensure that over the longer term cost, frustration and time are all reduced. You will boost your chances of recruiting the person who will not only do the job efficiently and effectively but who will also share the business’ values and fit in well with your business and the whole team. This requires patience as well as persistence. Make sure you don’t delay during the process too. If you do, you risk losing out as the candidates may accept other jobs. There are, of course, things that can be done prior to resorting to recruiting, such as undertaking a cost benefit analysis, process and skills review. However, this topic is
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enough for an article in its own right so here I will confine myself to talking about recruitment only. Effort To get the best outcomes from the interview process, as a minimum, you should set aside time to: 1. Write up a detailed job description including details of the duties involved and the standards expected 2. Advertise the role or speak to recruitment consultants 3. Study CVs – and consider social media profiles for candidates too 4. Filter into prospective interviewees 5. Create a set of questions for the interviews - and a scoring methodology to compare candidates 6. Create a competence test based on the role. E.g. for a paraplanner a written financial plan based on a case study would be a good starting point 7. Carry out the interviews and review the candidates afterwards 8. Filter candidates based on the results of the interviews. Generally, there should be no more than three individuals who get through to stage two 9. Set the competence test 10. Complete psychometric testing 11. Conduct second interviews, perhaps involving other members of the team
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12. Write up your final notes 13. Make your decision. Make an offer to the preferred c andidate –then follow up in contacting their r eferees quickly. 14. Once they’ve accepted the position, you can contact the unsuccessful candidates giving them some feedback as to why they were not successful Phew! Although this is only the start, then there’s onboarding to think about (we’ll leave that one for another day!). Emotion When we get caught up in the emotional state of an interview, we tend to make bad decisions. Listen to your gut and your head. You’re looking for the person who can not only do the job effectively, but who will also fit in well with the team. If there’s one unwritten rule to remember it’s this: don’t employ your friends. I have very rarely, if ever, encountered a successful outcome when recruiting a friend. There’s already an emotional connection with your friend. You know them, you trust them (right?) but when it comes to working together in business it’s a whole different ball game. When a mistake happens, because inevitably it will at some point, you will find it difficult to confront the issue without it affecting your relationship outside of work. By not treating your friend as another member of the team and by this I mean giving preferential treatment (intentionally or not), this will breed resentment to the rest of the team. Everything then becomes a political landmine blurring the
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If there’s one unwritten rule to remember it ’s this: don’t employ your friends.
lines of friendship and work colleague. In essence, this is a lose l lose situation and if you want to help your friend, help them find a job somewhere else. Money In this aspect, we’re not talking about salary here, but the actual cost of your recruitment process. Take shortcuts, hire friends it’s free you say? Well, it might be free now but it’s going to cost you a lot more in the long run. Don’t scrimp; everyone gives recruitment consultants a hard time, no one more so than me. There are good ones and bad ones out there and you pay for what you get. Work closely with a trusted agency which understands your business, agree a fee and let them do the leg work; they’ll free up some time in the process which is time better spent than from detracting you from what you enjoy doing and where you’re most productively employed. THE INTERVIEWEE PERSPECTIVE
why employers do this but the main one is to make sure you will be a good fit for their company. So, inappropriate photos, videos, discriminatory comments to name but a few, will rate highly with leaving a bad impression on your potential employer. Prepare, prepare, prepare Never ever think that an interview is going to be a quick chat over coffee. Be prepared and know your stuff about the firm you are applying to join and even the person who is interviewing you; after all they are likely to have their own social media profile (although keep your conversation to business!).
Never ever think that an interview is going to be a quick chat over coffee.
Do some reading about the company and how it operates, where the industry is going, your potential involvement and provide some views. Do this and you will have lots of ideas for questions to ask. Finally, be yourself and be honest because if you’re not, any good interviewer will see through this.
There are a few things that you can do in order to prepare yourself effectively prior to an interview.
Keep calm
Check your social media
Let’s be honest, not many people like being interviewed. The thought of being asked questions to which you may not know the answer, coupled with your desire to get the job, gets your heart racing. I can only speak from experience but if you’ve done your homework and thorough research,
Your prospective employer is more than likely going to look at your LinkedIn, Facebook, Instagram, Twitter and all other types of social media profiles. There’s an array of reasons
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it will make the process so much more relaxing for you as you have more control and it’s more enjoyable for the interviewer too. Be prepared to undertake a competence test. You will usually be told about this prior to interview. Rest assured, it’s nothing to be nervous about and generally the interviewer is benchmarking your knowledge and what skills you may already possess for the role advertised. If you know your stuff then it should be a breeze. Also, it is only one part of the overall process. For me, emotional intelligence and strong application skills rate far more highly than technical ability. The former is inbuilt and can’t be taught whereas technical ability can be.
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are going to be working on a one-to-one basis with an adviser, then potentially this could be the chance to meet that adviser and who will be observing whether this is a relationship that could work. If you’ve done all that, then you’ve instantly improved your prospect of securing the role. Final thoughts For both interviewer and interviewee, recruiting is not a quick process if done correctly. So just remember; slow down, calm down, don’t worry, don’t hurry and trust the process!
I always mention to candidates that interviewing is a twoway process. Not only are you trying to ‘sell’ yourself to the company but the interviewer is ‘selling’ the company to you. Yes, you want to find the role which suits you and your skillset but the same goes for the interviewer. They want to make sure that whoever they recruit will complement their business. If you are not getting the right kind of positive vibes from the interviewer then is this really a firm that you want to work for? Do they share your values (and vice versa)? If it is a company you want to work for and you’re successful at first interview then it is likely that you will be asked to undertake a psychometric (personality) test. Of the many tests available, it is likely these will either be Kobe, Insights Discovery or Belbin. They are all very similar and it’s not something that you can cheat. If successful, you will be invited to second interview. The second interview should give you the opportunity to ask further questions and is likely to give you the chance to meet the wider team. If you are aspiring to a role as a paraplanner then this could involve meeting other members of the paraplanner team to ask them about their experience, career route etc. If you
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About Tracey Underwood Tracey is the owner and founder of PACE Solutions. The business provides support for financial planning businesses by focusing on operational practices including; recruitment, compliance, processes, client proposition and business strategy. This is achieved not only through a consultancy process but by hands on implementation to ensure that firms achieve effective results that would otherwise not be achieved through consultation only.
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April 2019
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Venture Capital -
HARNESSING THE FUTURE Barry Downes, Chief Investment Officer of Sure Ventures, makes the case for boosting portfolio diversification – and growth potential - by investing in venture capital strategies
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here is a lot of bad news for investors out there right now. One only has to open any newspaper such as the Financial Times, or a publication such as Forbes to find headlines such as “The bad stuff that the stock market is worried about is about to happen” or “All the risks besieging European bonds are spilling over into 2019” from Bloomberg, or “Brexit could cause ‘serious damage’ for foreign investment into the UK new study says” from CNBC or “Apple’s stocks downgrade rattles global stock markets” from the Guardian or “The case why 2019 will be a bad news for the markets and 2020 will be even worse” from CNN Business.
It appears that ever ywhere one looks in the market at the moment there are pent up risks that could materialise any day and it ’s difficult to see where future returns will come from.
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It appears that everywhere one looks in the market at the moment there are pent up risks that could materialise any day and it’s difficult to see where future returns will come from. However, despite this, experienced investors know that there are always opportunities to be found, even in potentially bad times, and diversification is an important strategy to protect returns. This article will focus on one such diversification strategy, which is allocating assets to the Venture Capital asset class, as a mechanism for diversification and potentially improving the performance of a portfolio. LIFTING THE LID Firstly, let’s examine the asset class in general, and then let’s look at a specific fund, Sure Ventures PLC, to see how diversification and potential returns can be achieved. Venture Capital is a subset of the Private Equity (PE) asset class and Venture Capital (VC) funds are specifically focused on investing in high growth companies such as the software sector. A typical VC fund will invest in a portfolio of 20 – 30 companies in a particular sector and/or at a particular stage of development, with a view to realising significant returns over the medium term by selling the portfolio companies (either via a trade sale or public listing)
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The Wall St. Journal recently published an analysis from Prequin that asked the question “Does Private Equity really beat the stock market?” and the results are shown in Chart 1 below: To compare the returns, Prequin constructed an index that allowed it to analyse PE returns versus the S&P 500 index. It found that from 2005 to 2017 Private equity significantly outperformed the S&P as shown in Chart 1. Chart 1
Chart 2
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U.S. Venture Market vs. Cash-Matched S&P 500 Total Returns Average Dollar-Weighted Gross Realized Multiples
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Exit Year Includes data from Dow Jones VentureSource and other sources
U.S. VC
U.S. VC
Source: Forbes Forbes also examined VC returns and published a very detailed analysis by Correlation Ventures of nearly 8,000 Venture Capital deals which is shown in Chart 2: The analysis examined realized returns on a deal-by-deal basis using “apples to apples” cash investments in either
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venture-backed deals or public indices. Chart 2 captures overall U.S. Venture Capital performance (blue line) relative to this theoretical S&P500 investor (dashed line). Their analysis approximates the methodology of “Public Market Equivalent” (PME) analyses. One difference is that most PME analyses include the “mark-to-market” paper valuations of unrealized, illiquid private companies; whereas Correlation’s analysis focuses only on realized returns and "exits" – acquisitions, IPOs, and shutdowns. Over the period analysed, cash on cash returns for VC have been significantly higher than the S&P 500 in many years, peaking at a 2.8x multiple versus 1.2x in 2012. But how do the absolute returns of VC compare to other asset classes over the long run? Cambridge Associates analysed this over a 5 to 25-year period and the results are presented in Figure 1:
Venture Capital can produce outsized returns over both the medium term and long run when compared to other asset classes.
As can been seen from Figure 1, Venture Capital can produce outsized returns over both the medium term and long run when compared to other asset classes. For example, over a 25-year period top quartile returns for VC were 57%, compared to 10% for Large-cap equity and 8% for high-yield bonds. Of particular interest to asset allocators, Cambridge Associates also analysed the VC asset class’ correlation to other asset classes and this is shown Figure 2: The results show little correlation with Large-Cap equity (-0.06) and High-Yield bonds (-0.13), and as a result, it can be concluded that VC as an asset class can be used both to diversify risk in a portfolio and also as a source of Alpha. GETTING ACCESS TO VC WITHIN CLIENT PORTFOLIOS Given this, asset allocators might ask themselves what are the options for allocating assets to VC and what is involved? Most VC funds are closed-end private GP/ LP structures that require an investor to sign-up to a 10 to 12 year lock-up on capital, which is then called as investments in companies are made. There are fewer VC funds that are publicly listed and can be invested in via a placement or bought in the open market.
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These are closed-end public funds which are bought up front but as a result do have some measure of liquidity – being able to trade by appointment or being sold directly in the market. Such funds may provide more flexibility for asset allocators than the traditional private 10 to 12 year fund. An example of one such VC fund is Sure Ventures PLC, which is listed on the Specialised Financial Segment (SFS) of the main board of the London Stock Exchange (LSE).
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investing outside the UK. This is important for the strategy of Sure Ventures as it is looking for the best and brightest companies in three technology sectors chiefly across the UK and EU, but potentially even further afield.
THE SURE SOLUTION Sure Ventures PLC is a fund that invests only in software companies. In particular, it focuses on three key areas of emerging growth in software, namely Artificial Intelligence (AI), Augmented Reality and Virtual Reality (AR/VR), and the Internet of Things (IoT). Sure Ventures PLC provides access to this exciting sector to public market investors. It typically aims to be their first institutional investor and its companies normally have previously received prior funding from “friends and family”, Accelerator and/or Angel investment. In Silicon Valley this stage would be termed “Seed” whereas in the UK it is often referred to as “Series A”. At this stage individual portfolio companies typically have a management team in place, have brought their product into the market and have initial sales, i.e. market validation. Thus, the fund is taking minimal product and market validation risk, rather its focus is on taking execution risk – i.e. scaling up the company, over a number of investment rounds. The goal being to provide capital and know-how to help the company grow to the point of an exit for a large return. The benefit of the strategy is that Sure Ventures PLC can purchase its initial investments in these companies when they are still at attractive valuations of between £2m and £6m on average. As these companies progress over time, they can become very large and their value substantially increase. Later, the Fund aims to exit them through a trade sale or following an IPO. Of course, within the VC model individual companies can fail, but others are expected to produce substantial returns and an overall target of 30% internal rate of return (IRR) is set across the portfolio. The current Sure Ventures PLC portfolio consists of 10 companies and it expects that number to reach 25 to 30 over the next two years. Two of its holdings have already gone to IPO. INVESTMENT TRUST STRUCTURE It is important to clarify that Sure Ventures is an investment trust which invests in this sector, rather than a Venture Capital Trust (VCT) by definition. VCTs carry tax breaks for a five year hold period and have certain constraints too. The investment trust structure is also tax efficient but in a different way. It provides more flexibility. With a VCT or EIS fund all the investments must be made into qualifying UK companies. An investment trust strategy allows for
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About Barry Downes Barry Downes is CIO of Sure Ventures PLC, Managing Partner of Sure Valley Ventures and also Chairman of TSSG (previous CEO), a leading technology Research Institute, Incubator and Accelerator which has raised over €90 million to date. Previously, he was Founder of FeedHenry, which was acquired in 2014 for $82M by RedHat Inc. and also a Partner in SVG Global Inc. a leading Silicon Valley accelerator, VC and technology consulting firm. Barry was a co-founder of Phoenix Technology Group a high-growth Fintech company and Software Development Manager at Infinium Inc. in Hyannis, Massachusetts. Barry holds an MBA from Smurfit Business School UCD, a BSc in Applied Computing from WIT and has executive education qualifications from Haas School of Business at the University of California Berkeley (in VC) and also Harvard Law School. Barry was recently named one of the top Irish software superstars by Silicon Republic and he won the Enterprise Ireland ICT Commercialisation Award in 2007 and the Irish Software Association (ISA) Outstanding Achievement Award in 2014.
Sure Ventures PLC operates a rolling placement programme for the trust, raising capital every quarter. Further information can be obtained from Gareth Burchell, Director of Sure Ventures, on 0207 186 9951.
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The value of a growing
INCOME STREAM When it comes to matters of investment, it’s often easy to overlook the impact of dividend income on total returns. Brian Tora reflects of the perils of inflation and how an equity income approach can help to offset its worst effects
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ow often do you think about the purpose behind investing capital for your clients? I suggest that in many cases it is to generate an income that will provide some protection against inflation. While the rise in the cost of living in the UK has been subdued for some time now, rampant inflation has undermined living standards within my memory. In the mid-1970s the inflation rate soared above 20% - not quite Venezuelan or Weimar Republic levels, but sufficient to create real hardship for many.
After the stock market crashed in the autumn of 1987, a leading fund management house ran an interesting advertisement. M&G had launched the Dividend Fund a quarter of a century earlier. With investors shell shocked by the rapidity of the decline all around the world, M&G sought to put the dramatic fall in capital values into a longer term context. The firm pointed out that £1000 invested at the launch of this UK Equity Income fund would have generated more than £1500 of gross income the previous year. The message was clear. Forget the fluctuations in capital value. Concentrate on the income generated. THE CASE FOR EQUITY INCOME This simple statistic underscored what many in the investment industry believed to be true. This was that Equity Income – more precisely, UK Equity Income in this particular case – was a safe sector to back for the long term. Many star fund managers cut their teeth running these funds. Some of the highest regarded managers still run money in this sector. Indeed, total return statistics suggest that Equity Income funds continue to perform well against the very wide variety of sectors that are now available.
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NOT A ONE WAY BET Of course, there have been blips in the delivery of yield that many of these funds have achieved. In the wake of the financial crisis of 2007/08 major banks cut or even suspended dividend payments in order to rebuild their balance sheet. As bank shares had been a stalwart of these funds, the effect was dramatic as capital values collapsed at the same time. Unfortunately for many managers, BP also ran into trouble at around this time and was forced to cut its dividend. Income streams were decimated as a consequence. THE YIELD GAP It is worth reflecting also on the relationship between equities and government securities (gilts). In the immediate post war period, equities tended to yield more than gilts to reflect the higher degree of risk they represented. During the 1950s and 1960s there was a major shift by pension funds away from fixed interest securities into ordinary shares on the basis
Equities once more yield more than gilts but still retain the ability to deliver a rising income over the longer term.
that well managed companies were capable of raising their dividends to shareholders on a regular basis, thus providing protection against future inflation.
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Yields on equities fell below those on gilts during this period. The yield gap, as it was known, became a reverse yield gap. And so it remained until the financial crisis of 2007/08 when a combination of low interest rates, subdued inflation and volatile equity markets drove yields on gilts down and re-established the yield gap. Equities once more yield more than gilts but still retain the ability to deliver a rising income over the longer term. GOING GLOBAL While this may appear primarily to relate to the UK Equity Income sector, the greater availability of high yielding shares around the world means that there is now much more choice for investors. Even Japanese companies have become capable of delivering reasonable dividend returns, while many emerging markets also offer equity income options. It can be argued that the rationale behind the equity income sector is merely value investing, of the type promoted by Benjamin Graham and Warren Buffett. Certainly, companies that pay the investor to remain loyal shareholders by increasing dividends on a regular basis have a considerable attraction. THE COLLECTIVE APPROACH There are a number of investment trusts that have been able to demonstrate a significant record of increasing the pay out to shareholders over a prolonged period. The City of London Investment Trust, managed by Job Curtis and resting within the Janus Henderson management group, is one example of such a trust. It can point to more than half a century of increasing dividends and the shares, which admittedly stand at a modest premium over asset value, yield more than 4.5%, comfortably above the yield on government stocks.
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THE THREAT OF INFLATION While rising dividends are not quite the given they once were, the fact remains that inflation, even modest inflation, remains a threat to living standards for those on a fixed income. True, there are now inflation-linked bonds which offer a degree of protection, but longer term studies suggest a rising income stream from equities is likely to provide the best results, provided that capital value fluctuations in the shorter term can
Equity Income might have looked to be a sector lacking excitement at times and delivering little in the way of Alpha, but for many it appears a prudent investment choice.
be tolerated. Equity Income might have looked to be a sector lacking excitement at times and delivering little in the way of Alpha, but for many it appears a prudent investment choice. Brian Tora is a consultant to investment managers, JM Finn.
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Investing in fixed interest -
FROM QE TO QT What does the prospect of rising interest rates mean for bond exposure within diversified investment portfolios? Ryan Hughes, Head of Active Portfolios at AJ Bell, discusses some of the issues involved and some of the ways that they are approaching the challenge
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or many of you reading this article and for me writing it, we have known nothing else in our investment careers other than a fixedinterest bull market. With interest rates in the UK and US peaking in the 1980s, it has been, pretty much, a one way street ever since with falling bond yields and a fantastic environment for make money from government and corporate bonds alike. This has been great news for investors. It’s really just been a case of taking credit and duration risk to generate decent returns from bonds as you’ve been adequately compensated for taking risk as interest rates have fallen across the developed world. A SEA-CHANGE FOR FIXED INTEREST However, looking forwards, it seems entirely conceivable that we have entered, or are about to enter, a very different environment that could represent a sea-change in how we have to think about fixed interest investing. In the period since the financial crisis in 2008, central banks took the collective decision that the best way to navigate through the economic challenges was to employ a period of ultra-low interest rates. The idea was to try and stimulate the economies out of their slump through a process known as quantitative easing (QE). This of course meant an amazing time for fixed interest securities as rates moved lower and lower as central banks hoovered up vast quantities of bonds, helping bond yields turn negative in some instances. However, since the Federal Reserve began the end of its bond
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buying programme and started to finally raise interest rates in 2016, we have entered a new phase for fixed interest markets. In this quantitative tightening (QT) regime, duration management and credit selection are becoming much more important.
Looking forwards, it seems entirely conceivable that we have entered, or are about to enter, a ver y different environment that could represent a seachange in how we have to think about fixed interest investing.
Looking forwards, given the enormous debt pile that now hangs like a millstone around the necks of the major developed economies and markets, it appears that central banks will now have to look to somehow inflate their way out of the problem over the next few decades. As a result, this almost inevitably means a period of higher interest rates is ahead of us. This is a pretty obvious statement to make given where interest rates currently sit but with so many investors still piling into bonds regardless, it is not entirely clear that everyone has understood the implications of this.
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April 2019
DURATION RISK At the same time, we have seen a significant structural shift in the duration of the benchmark over the last decade as governments have looked to take advantage of low rates and issue longer-dated debt. As a result, the duration of the gilt index has increased from 7 years before the financial crisis to 12 years today. This has significantly increased the duration risk for investors, particularly those who are investing passively and may not even be aware of the change. But what does it all mean for investing in bonds? OUR APPROACH - GOING FOR SHORTER DURATION To try and explain this, I’ll highlight how are we navigating these challenges in the AJ Bell MPS range? Well, firstly, we believe that over the next few years, interest rates have to rise in developed markets. As a result of this, we have opted to keep our duration significantly lower than the benchmark. This means where we have exposure to UK government gilts, we are fully invested in short duration bonds; these are gilts with a duration of up to 5 years, although the weighted average is just over 2 years. This should bring significant downside protection to the portfolio should interest rates start to move up later this year and into 2020, particularly if a satisfactory resolution to Brexit is found. Given the very low fees available from passive ETFs investing in UK gilts, we have gained exposure through the Lyxor FTSE Actuaries UK Gilts 0-5yr ETF.
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We believe that over the next few years, interest rates have to rise in developed markets Away from UK government bonds, we have also recently instigated a position in US government bonds in our lower risk portfolios. Once again, this is focused on short duration bonds, this time with a duration of up to 3 years, albeit the average maturity is less than 2 years. The attractiveness of looking to the US is the yield pick-up available given the significantly higher interest rate in the US at present where the Federal Reserve have rates at 2.5% as opposed to just 0.75% from the Bank of England. In addition, we have indication from the Federal Reserve that interest rates are likely to move higher with the Fed ‘dot plot’ estimation of future rates pointing to at least one if not two rate rises this year and more in 2020. Once again, we have gained exposure passively at very low cost through the recently launched Invesco US Treasury Bond 1-3yr ETF. Clearly there is risk that growth in the economy slows and rates do not go up in the manner that we expect, but the use of short duration strategies is much more about protecting capital if rates do go up rather than making money if they don’t. We are very comfortable with the risk / reward trade off of this and expect on the balance of probabilities that over time interest rates will be structurally higher from here.
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EMERGING MARKET DEBT Another area of focus for us is emerging market debt. When we look at the portfolios that advisers operate, we rarely see an allocation to this asset class, possibly due to the perception that significant risk comes with it. However, as we look to build diversified portfolios that are efficient on a risk-adjusted basis, we see the benefits that an allocation to this asset class can bring. Importantly, these emerging economies are in a different phase of the economic cycle but also are structurally far better placed given that they don’t have the same level of indebtedness as developed markets. Gaining exposure to fast growing economies such as Brazil, Mexico and Indonesia amongst many others brings real diversification to our portfolios. It also brings a higher level of income with a distribution yield of circa 6% per annum from our preferred holding, the M&G Emerging Markets Bond fund.
environments while we have also started to look further afield to the US for yield enhancements without materially shifting the risk exposure of the portfolios. Importantly, our expectations have shifted towards a capital preservation approach to our core fixed interest exposure as the cycle shifts and central banks look to finally deal with the debt mountain that has built up through decades of loose monetary policy.
A DIFFERENT PHASE – A DIFFERENT APPROACH Overall, as we enter a different phase of the economic cycle and central banks in developed markets shift to a quantitative tightening approach, the challenge of navigating fixed interest markets has become more difficult. Duration management will become critical, particularly for lower risk investors who, for so many years, have not had to worry about capital losses from the fixed interest element of their portfolio. Our focus at AJ Bell has been on short duration strategies designed to protect capital in rising rate
Overall, as we enter a different phase of the economic cycle and central banks in developed markets shift to a quantitative tightening approach, the challenge of navigating fixed interest markets has become more difficult.
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About Ryan Hughes Ryan started his career in 1999 working for an independent financial adviser, progressing to become Head of Portfolio Management at an award-winning advisory firm. Ryan then joined a global asset management firm as a Fund Manager, where he oversaw more than ÂŁ10bn of multi-asset portfolios and also sat on the investment and global asset allocation committees. After seven years, Ryan joined a small multi-asset boutique managing portfolios for clients all around the world, before joining AJ Bell three years later to help establish our investment capability. As Head of Active Portfolios, Ryan now oversees all actively managed investment solutions and fund research
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April 2019
Keeping it simple putting clients’ needs
FIRST
When it comes to building effective portfolios for clients, Damien Rylett of Brunel Capital Partners argues the case for making sure that the portfolio fits the client’s financial plan
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any clients - retirees in particular – will rely on their investments to help fund their cash needs and lifestyle.
When it comes to portfolio management, there are generally two ways we can approach this: yield and total return. I shall consider both of these below:
generated because it does not depend on how total returns are split between yield and capital appreciation. Focusing on income-orientated investments can result in unintended biases in a portfolio. Biasing a portfolio towards stocks with higher dividend yields or bonds with increased yields will likely change a portfolios risk and return characteristics.
1. A focus on yield This first approach primarily looks to obtain interest and/ or dividends from securities and avoids touching principal in order to deliver the income required by the client. In low yield environments, investors using this approach may search for securities with higher yields to meet their cash flow needs. If yields are high enough, investors may be able to live off the income from their portfolio dividends and interest without having to touch principal. This approach may appeal to those who believe that selling principal reduces the longevity of their portfolio and who prefer the discipline of living off portfolio income rather than delivering a sustainable annual withdrawal from their portfolio. 2. Total return This alternative approach which is focused on achieving total return involves selling assets in the portfolio to synthetically create cash flow. This method reflects the idea that, from an investment standpoint, it makes little difference whether returns are delivered as dividends or capital gains. We are advocates of the total return approach. We believe that it allows greater control over the amount of cash flow
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Focusing on income-orientated investments can result in unintended biases in a portfolio.
For a total return investor, once the overall allocation decision has been made on the basis of total portfolio risk and return, the income produced becomes a by-product. Rather than letting portfolio yields determine spending rates, investors can develop a sustainable withdrawal strategy with their financial planners based on their own individual lifestyle needs. PUTTING CLIENTS’ NEEDS FIRST Identifying and quantifying the current and future cost of an investor’s lifestyle is a fundamental part of the financial planner’s role and will form the basis of a comprehensive financial plan. Through planning and the use of modelling, we can identify and calculate the investment rate of return which the client needs in order to achieve their lifestyle and other planning goals. Once this is known - and only after
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SIMPLICITY, TRANSPARENCY AND LIQUIDITY
We have a saying in our business of “no plan-no portfolio”. This means that the only basis for an investment portfolio is a plan.
a plan is in place - do we turn to constructing a suitable portfolio to help the client to achieve these goals. We have a saying in our business of “no plan-no portfolio”. This means that the only basis for an investment portfolio is a plan. A portfolio is never an end in itself, it is a means to the end of a plan.
You won’t find anything exciting in the portfolios either. If any asset class or fund fails our three mantras test of simplicity, transparency and liquidity, it doesn’t go in. Years of experience as financial planners of having to deal with clients and the fallout from the likes of structured products, commercial property funds, hedge funds etc. led to our three mantras test. Therefore, you won’t find any of these complex, unnecessary “alternative” asset classes in the portfolios. This also includes derivatives, absolute return funds, a host of other alternatives and synthetic ETFs. As a result, performance has not suffered and our aim of providing a long-term, predictable return so our clients can achieve their goals is being achieved.
KEEP IT SIMPLE
Investing should be simple and boring and do the job that it is intended to do which is to help meet the clients’ goals and objectives as part of the financial plan.
As financial planners, we are faced with a huge choice of investment solutions to meet our clients’ needs. All we need is a return to drive the plan. Surely, a simple, cost-effective, low-cost solution will do that?
IronBright portfolios are available to selected financial planning firms. For details visit www.ironbright.com
We have tended to find that most of the investment solutions on offer from traditional investment managers and discretionary fund managers (DFMs) didn’t do simple. The investment management industry has made a habit of making this simple, complex. A BESPOKE SOLUTION This is why we established our own investment management firm, IronBright, and built our own solution. The solution has been built by financial planners for financial planners and allows them to concentrate on what they do best, financial planning. The solution is evidence-based, low-cost and globally diversified. It focuses on delivering risk-rated portfolios that can be perfectly matched with a client’s financial plan. Because it has been built by financial planners, it is very different to the solutions offered by many investment houses. With patience and discipline as two of our guiding principles, we don’t believe in tactically adjusting portfolios or trying to second-guess what is going to happen. Each portfolio is strategically asset-allocated with the aim of providing a long-term return based on historical asset class returns. Once in place, it is left to do its work, aside from half yearly re-balances. If your client’s portfolio is intrinsically linked to a plan, why would you change it if the client’s objectives - and hence their plan - hasn’t changed?
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About Damien Rylett Damien is Managing Director at Brunel Capital Partners and Pilgrim Financial Planning, both Chartered Financial Planning firms. He is also CEO of IronBright Investment Management and a Director at the Financial Planning Training Academy. Damien has worked in Financial Services for 20 years, starting his career at Standard Life. Prior to establishing Brunel in September 2011, he was a director at Broadoak Group which was acquired by Chartwell in 2007 and then by Close Brothers is 2011. Damien is married to Clare with three boys, Isaac, Jacob and Noah. A rugby coach at Bristol Bears Academy and Gordano RFC, Damien says he loves making a difference to people’s lives through every part of his professional and personal life.
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April 2019
Investing for income -
COMPLIANTLY How does compliance impact financial planners’ decisions when helping clients to achieve their income goals? Compliance consultant Tony Catt takes a look at some of the main issues involved.
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raditionally, there are two main directional choices when it comes to creating an investment strategy for a client – these are investing for growth or for income, although a combination of both can often be the goal. Which of these is most appropriate for a particular client is dependent on many factors. The answer can be ascertained by basic fact finding and will include getting the following information: • Client objectives • Age • Marital status – age of partner, if applicable • Age of dependents, if applicable
will reckon that they do as a matter of course. However, at a recent FCA Live & Local Event on DB transfers, the FCA had found many fact finds to be insufficiently detailed for professional advisers to be able to provide accurate advice. MEETING CLIENTS’ OBJECTIVES The point most commonly missed covers the client objectives: • What are the drivers for the investment? • What are the client’s priorities? • What do the clients actually want/need? The want or need may be two different things
• Working status
• What would be the consequences of the client’s objectives not being met?
• Anticipated retirement age
• Can the objectives be met by the actions being taken?
• How much is being invested?
• Does anything else need to be done to achieve the objectives?
• How long is the investment expected to be in place? • Overall wealth, including all assets and liabilities
DETAILING CLIENT EXPENDITURE
• Current income and expenditure
The other most common issue is the lack of detail about client expenditure. Some advisers find this quite difficult as it may considered to be patronising or insulting to go into great detail, particularly relating to discretionary spending. It is a difficult balance between being thorough and being intrusive.
• Anticipated income and expenditure at certain life stages • Attitude to investment risk – willingness to take risk, need to take risk and capacity for loss As ever, this list is not exclusive as other personal factors may be revealed by a good fact finder. This list appears to contain basic fact finding information that most advisers
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But getting detail of a client’s expenditure is at the heart of the fact finding and advice process. It needs to be carefully
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Getting detail of a client ’s expenditure is at the heart of the fact finding and advice process.
important when considering valuations of investments or whether a breakdown of expenditure is before or after some event has happened – for example after retirement. Let’s consider an example here from the world of football (apologies if you’re not interested in football!): which of these tables below accurately shows the position of the Football Premier League?
considered both on a current basis and also looking at anticipated expenditure:
Table 1
P
W D
L
GD Points
Chelsea
28 22 3 3 38 69
• whilst working
Tottenham
28 17 8 3 34 59
• until the mortgage is cleared
Manchester City
28 17 6
5
24
• until dependants become financially independent
Table 2
P
W D
L
GD Points
• in relation to capital expenditure goals
Leicester City
29 17 9
3
21
• in retirement
Tottenham
29 15 10 4 27 55
• related to possible long-term care needs in the future
Arsenal
29 15 5 8 16 52
Table 3
P
W D
L
GD Points
Manchester City
29 23 2
4
56
Liverpool
29 21 7 1 49 70
Tottenham
29 20 1 8 26 61
Table 4
P
W D
L
GD Points
Manchester City
29 25 3
1
63
78
Manchester United 29 19 5
5
34
62
57
• after clearing other debt
As advisers and paraplanners will know, there are many interesting software programs available on the market today which help advisers to provide projections of clients’ income and expenditure. I have experience of Voyant and CashCalc in this respect although others are available too. These both provide quite detailed reporting and deliver nice looking graphics. Of course, whether these are properly understood by the client is dependent on the skills and familiarity of the adviser in using the systems and their ability in interpreting the information and graphs which they provide. If this information has not been gathered at all, it is very difficult to ascertain how much income will be needed at any given stage for the client. This leads us to a key question. Without knowing how much income is needed, what is the advice going to be? THE DATING GAME On the subject of fact finding, another issue connected with this is the dating of documents and meeting notes. The dating of documents provides context. This is particularly
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Liverpool
60
71
29 17 9 3 35 60
Actually, they all do. Table 1 is from 2016/7, Table 2 shows 2015/6, Table 3 shows the current position 2018/9 Table 4 shows 2018/7. But in isolation their meaning is diluted or even totally inaccurate, if the information needs to be up to date now.
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MAKING RECOMMENDATIONS Following the effective completion of a detailed fact find, the gathered information then enables the adviser to move to the solution stage. The solution stage will probably involve product choices such as: • Pensions • Annuity • Individual Savings Accounts • Investment bonds • Mutual funds • Structured products • Bank deposits It may well be that a client’s investment portfolio will be split between some – or even all - of these products. The combination will depend on a number of considerations, some of which I’ll outline here. If considering pension, investment bonds, ISAs or mutual funds, then the ultimate choice of funds within the wrapper will be governed by the client’s objectives and attitude to risk. The attitude to risk consideration is also prevalent in the choice of annuity and/or bank deposits. Tax is also a consideration. Investment bonds have traditionally been used for their ability to provide a tax-deferred income of up to 5% per year. Mutual funds offer the opportunity of using annual capital gains tax allowances. ISAs give tax-free withdrawals and income. Structured products can provide income whilst retaining the capital value of the investment, depending, of course, on how the underlying investment has been set up. Bank deposits pay interest without subjecting the underlying capital to fluctuations from market risk – although there is the risk of depreciation of capital – especially over the longer term - due to the effects of inflation. Currently, savings accounts are not generating high levels of interest, with rates paid tending to be much lower than the rate of inflation. Effectively, this means that the client experiences a negative real return on capital: the money in the client’s account has less buying power further down the line than it did at the outset. Of course, annuities provide some certainty as they pay a definite level of income, either for a certain period or for life. However, annuity rates are lower now than they have been historically. These are a bet on client mortality and the capital can be lost when the client dies. This pursuit of income also relates to pension transfers. For many years, the main choice for those with a personal pension fund at retirement was to buy an annuity. For some people, there was the option of income drawdown to
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provide cash withdrawals from the account up to certain levels. However, since Pension Freedoms were announced in 2014, it is now possible to use an income drawdown approach without the previous limits and to be quite flexible about when and how much income is taken at any time. Of course, tax is a primary consideration in how this is done. Looking ahead though, the main issue that may come out in the future will be when people run out of money in retirement because they have used up their pension savings. A TICKING TIME BOMB I continue to be amazed at the number of people who transfer out of Defined Benefits schemes to buy into this income flexibility in retirement - particularly those who have been employed throughout their entire career. They will have been used to being paid around the 28th of the month for their whole life and are used to receiving that regular income. Why would clients suddenly want to move to a situation where the timing and amount of their income becomes irregular? If they direct their funds into capital expenditure or debt repayment, they run the risk of exhausting their funds quite quickly. This is a time bomb waiting to detonate in the not too distant future.
There is nothing that is quite so under-rated as a good fact find.
So, as ever, when it comes to good financial planning, we come back to the dark art of fact finding. There is nothing that is quite so under-rated as a good fact find. Preferably one with lots of dated, explanatory notes giving details of client objectives. No compliance consultant will ever complain of having too much information in this respect.
About Tony Catt Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers. Contact Tony info@ tonycatt.co.uk or call 07899 847338.
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BLOCKCHAI N
Sponsored feature - for professional investors only
Cryptocurrencies are just the tip of the iceberg for
BLOCKCHAIN Blockchain was introduced more than 10 years ago, but Invesco believes the potential for this technology to change the global economy is still overlooked (and undervalued) by investors. In this article, Invesco discusses blockchain and why lettuce farmers have become early adopters The internet impacts just about every part of our lives, from the way we communicate to the way we shop to the way we conduct business. Yet, the first application was simply to share data between a few computers. Numerous applications have followed since the early emails and the rest, as they say, is history. Just imagine if you, as an investor, knew back then what you know now.
In our opinion, the potential for blockchain to change the global economy is greatly underappreciated in today ’s market, much like the internet was in the beginning, when most people couldn’t see past its usefulness for email.
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You could draw a strong comparison between the internet and blockchain. The blockchain technology was first used as the ledger for Bitcoin, but its true potential extends far beyond that. We are beginning to see it used by financial services companies in particular, but we can expect greater application of blockchain technology across a wide range of industries. In our opinion, the potential for blockchain to change the global economy is greatly underappreciated in today’s market, much like the internet was in the beginning, when most people couldn’t see past its usefulness for email. WHAT IS BLOCKCHAIN? In the simplest terms, a blockchain is a ledger – a complete record – used to capture and store every transaction related to an asset. The record of transactions is permanent, transparent, traceable and unalterable. In the context of blockchain, “asset” could be anything from a cryptocurrency that exists only in the digital world, or it could be a physical asset, medical records, legal contracts or potentially any other type of information that requires the involvement of multiple parties.
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Example of a blockchain transaction
For illustrative purposes only
All blockchains have some basic components. They will have addresses (each being unique to an individual, just like an email address) and the various transactions executed and recorded on the blockchain ledger.
While those are the commonalities, blockchains may differ in two significant ways:
Open (“permission-less”)
Closed (“permissioned”)
Who can access the blockchain?
Anyone can access the blockchain network.
Only a defined group of people can access the network.
Cryptocurrencies are examples of an open blockchain.
Corporate or bank blockchains tend to be closed networks.
How are transactions added to the blockchain ledger?
Transactions are added to the ledger through a process known as “mining”
A central entity determines which transactions should be added to the ledger.
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WHY USE BLOCKCHAIN? Companies may use blockchain to reduce costs, improve efficiencies, increase the transparency and auditability of their records, and reduce the potential for fraud. Another attraction is that it enables multiple parties to contribute
This blockchain was developed by IBM. Following a twoyear pilot programme, Walmart is rolling it out to more than 100 farms across the country and says it is now using blockchain to track other items from chicken to yogurt. 2. The use of blockchain technology in the real estate industry The problem:
Companies may use blockchain to reduce costs, improve efficiencies, increase the transparency and auditability of their records, and reduce the potential for fraud.
to and trust a record of ownership without needing to trust each other. Some of these benefits are going to be more attractive than others depending on the industry, the size of the company and complexity of the transactions involved. You can then throw in the difficulties involved with unrelated companies located in different countries and time zones. CASE STUDIES 1. Walmart’s use of blockchain technology The problem: What do they do when there is an outbreak of a potentially life-threatening bacteria? For instance, in 2018, when there was e-coli found in lettuce in a certain part of the country. Walmart has a huge supply network of farms across the country, and without a way to trace the origins of its produce, they may be forced to pull all lettuce from the shelves. Blockchain solution: All of Walmart’s lettuce and spinach suppliers are now required to record the movement of produce onto a blockchain database. By tracking it from the farm (and even the specific section of the farm) to the store location, the blockchain provides secure, permanent and unalterable traceability, helping Walmart effectively manage any contamination as soon as it’s detected.
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With any real estate transaction, there is a lot of papershuffling involved. Documents going back and forth between multiple parties by email, fax and courier is costly, inefficient and, particularly when you consider the need to transfer money at various stages, open to fraud. Blockchain solution: “Smart contracts” are being used increasingly, with the blockchain ledger providing an unalterable, permanent and transparent record between the multiple parties involved throughout the transaction. Each party could also be required to validate each transaction, which reduces the potential for fraud. HOW DOES AN INVESTOR GAIN EXPOSURE TO BLOCKCHAIN? Even though blockchain has been around for a decade, it is still an emerging technology, and most of the current opportunities are within existing companies that are not yet realised. We believe the potential for blockchain to generate real earnings for these companies is underappreciated by the market, either because investors are unable to identify it or know how to assign value, or they assume synergies may only be relevant if the blockchain ecosystem continues to grow. The variety of companies involved in blockchain technology may surprise you. There aren’t any “pure play” blockchain companies of significant size and liquidity for a meaningful investment, but you will find some small niche companies. However, much of the hidden exposure is within large household names. The universe of companies that are currently or can potentially generate real earnings from blockchain is diversified in terms of sector and geography. While the earnings potential related to blockchain is largely underneath the surface for many of these companies, their present-day real earnings are clearly visible.
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For illustrative purposes only
ACCESSING THE HIDDEN POTENTIAL We have launched the Invesco Elwood Global Blockchain UCITS ETF to offer investors access to global companies in developed and emerging markets that participate or have the potential to participate in the blockchain ecosystem. The ETF aims to deliver the performance of the Elwood Blockchain Global Equity Index by physically investing as closely as possibly in the index constituents. The index is designed to evolve with the potential growth of blockchain technology. INVESTMENT RISKS The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested. As this fund invests in companies from one or a small number of sectors, investors should be prepared to accept a higher degree of risk than for an ETF with a broader investment mandate. IMPORTANT INFORMATION This article contains information that is for discussion purposes only, and is intended only for professional investors in the UK. Marketing materials may only be distributed in other jurisdictions in compliance with private placement rules and local regulations. Information correct as at 1 March 2019, unless otherwise stated. This article should not be considered financial advice. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. All investment decisions must be based only on the most up to date legal offering documents. The legal offering documents (fund & share class specific Key Investor Information Document (KIID), prospectus, annual & semi-annual reports, articles & trustee deed) are available free of charge at our website etf.invesco.com and from the issuers. This article is marketing material and is not intended as a recommendation to
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The majority of the index is currently allocated to companies where the value attributable specifically to blockchain technology is either in the ‘developing’ or ‘potential’ phase. These are companies with assets that are well-positioned to capitalize on the emerging opportunities for blockchain. Over time, however, we would expect the balance to shift naturally to companies with more significant direct exposure to blockchain-related earnings as the technology becomes more ubiquitous.
buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. For details on fees and other charges, please consult the prospectus, the KIID and the supplement of each product. The fund is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trade mark or the Index Price at any time or in any other respect. The Index is calculated and published by Solactive AG. UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them. For the full objectives and investment policy please consult the current prospectus. Issued by Invesco UK Services Limited and Invesco Asset Management Limited, both registered at Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, authorised and regulated by the Financial Conduct Authority. © 2019 Invesco. All rights reserved | EMEA1809/2019
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RICHARD HARVEY
CALIFORNIA DREAMIN' Gone are the days when retirement signalled the time to take it easy and put your feet up. Richard Harvey considers some of the life goals that today’s retirees are prioritising – and wonders if he should be booking his ticket to California?
Helping clients to prioritise their goals in life is all part of the job of a financial planner. However, if you ever wanted an indication of how life has changed for pensioners, just take a look at Legal & General's recent survey charting the aspirations of the over-55s.
Moving abroad was the number 6 dream, but that's hardly a surprise – people will clearly do anything to get away from two years (and counting) of bickering over Brexit.
The company canvassed 2,000 homeowners of that vintage to ask them about their life goals. So what do you think they said? A bulk order of Sanatogen? Matching armchairs
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with those slidey-out bits for your feet? A new kneecap? Don't you believe it. GET YOUR KICKS Just like a radio chart show, L&G lists a Top 20, and coming in at number 5 (as Tony Blackburn would say) is to drive along Route 66 in America. Of course! All those memories of so-cool Peter Fonda in 'Easy Rider' and that Rolling Stones hit. But nary a thought that endeavouring to cruise Route 66 on a big Harley, or even a teensy Ford Ka, is likely to send your motor insurance premiums, not to mention your blood pressure, into the stratosphere. It's not the only life goal which inspires the sentiment: "Oh for Pete’s sake, grow up and get real". For instance, aspiration number 14 was to learn the guitar. To do what precisely? Embarrass the neighbours with your fumbled version of 'Born To Run', imagining yourself before an audience of adoring fans as a snake-hipped Springsteen-alike.
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RICHARD HARVEY
April 2019
More comprehensible was the desire (presumably from the ladies) to have liposuction or a tummy tuck, or (or presumably from the men) to acquire a six-pack. Neither of which are naturally compatible with eating in a Michelin-starred restaurant, number 10 on the wish list.
72 percent still have goals in life which they would like to achieve. All of this is unlikely to surprise IFAs but I’m guessing that you might still find it reassuring that these sentiments indicate that such retirees are likely to require your services for the long term.
And while you will not be even a tiny bit surprised to discover that more travel was top of the list, 'visit Australia' was number 2. You would have thought that 'Neighbours' might have killed any desire to go all that way only to be called "whingeing Poms". So before boarding the flight to Sydney, it’s probably best to get yourself tattooed and learn martial arts, which were listed just outside the Top 20.
Perhaps surprisingly, only 4 percent mentioned equity release as a way of achieving a better retirement. Meanwhile, Paul Carter, chief executive of Pure Retirement is forecasting a "landmark year" for his company's equity release products, so one wonders if there is a disconnect somewhere.
Moving abroad was the number 6 dream, but that's hardly a surprise – people will clearly do anything to get away from two years (and counting) of bickering over Brexit.
Or maybe it's simply an indication that the less wellbreeched over 55s can aspire to equity-release funded life goals like those in L&G's survey - tattoos, Route 66, liposuction and all!
MR BRIGHTSIDE On the positive side, the survey indicated that 85 percent believe they have a better quality of life than previous generations, 83 percent feel younger than their age, and
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CAREER OPPORTUNITIES Position: Junior Paraplanner Location: GLASGOW Salary: £21,000 - £25,000 Per annum The Opportunity: Due to expansion, there is a brand new opportunity for a junior paraplanner to join a highly reputable and expanding firm which has a 30 year history. The firm has an experienced team providing advice, both face-to-face and online. They also have dedicated investments and pensions teams, who have in-depth technical expertise. The firm has a strong ethos of fairness, support. They are focused on providing value to their clients and partners and do this through a range of complementary skills and specialisms including economics, law, banking, financial planning, pensions and IT. These streams work together to provide a service which is tailored to the needs and circumstances of each individual client. The key to their success is that they value their employees and focus on continuous staff education, training and development.
Responsibilities: •
Conducting valuations
•
Reviewing documents
•
Report writing
•
A range of administrative duties
What’s needed for me to be considered? •
You will ideally have previous experience working within a similar fast paced financial services environment
•
Experience in Investments would be advantageous
•
Excellent communication, both written and verbal and attention to detail is essential to succeed
•
Financial services qualifications would be a bonus
Position: Financial Advisers Location: CHELTENHAM, KIDDERMINSTER AND WORCESTER Salary: £40,000 - £60,000 Per annum The client: This is an independent firm of financial planners, which looks to expand by adding new members to its financial planning teams in Cheltenham, Kidderminster and Worcester.
The Opportunity: The opportunity here is for financial planners/advisers with a professional and level-headed approach to come in and help take on a number of the company’s clients moving forward, alongside building and growing this bank further. These opportunities would be suitable for any Level 4 Diploma qualified professionals, whether you be an existing IFA with a strong book of business, or a newly qualified adviser looking to work in a highly professional environment. In these roles, as mentioned, you will have the chance to work with a number of the firms existing connections, with all your leads provided via referrals and professional introducers, with a highly rewarding salary and benefits package.
What’s needed for me to be considered? •
Hold previous experience within an IFA / financial planning practice
•
Must be qualified to a minimum industry standard of Level 4 Diploma
•
Previous experience dealing with High Net Worth clients desirable but not essential
• A strong understanding of pensions and investment products advantageous
Position: Paraplanner Location: PENARTH Salary: £30,000 - £35,000 Per annum The client: Ever wanted to escape your mundane office surroundings? How about working in a converted cinema with a minimalistic and modern feel? This small but highly reputable advisory practice is based just south of Cardiff. In the past year they have taken on number of clients through word of mouth, due to the highly valued service they provide to their clients, of whom they have lost just one in the past 10 years.
The Opportunity: Due to organic growth within the business, an experienced paraplanner is needed to work alongside one of the Directors of the business. This is a fantastic opportunity for an experienced paraplanner to join a client focused, tight knit team, currently in the stages of major development.
What’s needed for me to be considered? •
Proven experience in a paraplanning position.
•
Level 4 Diploma qualified
•
R08 qualification is preferable
• Willingness to develop your technical knowledge
Position: Financial Adviser Location: NORWICH Salary: £55,000 - £60,000 Per annum The client: This is a multiple award -winning financial planning practice with offices nationwide. They specialise in providing tailored financial advice to private clients across the UK as well as some of its largest businesses
The Opportunity: An opportunity has arisen for an experienced adviser to join the business. You will receive a client bank which has circa £21M FUM but will also be tasked with generating leads through a Private Bank with which the business has a professional relationship, across the Norwich and Cambridge belt. In the first 3 years there is scope for additional income having validated your salary twice over and a £4000 car allowance will be provided.
What’s needed for me to be considered? •
Ideally you will have Chartered status or working towards
•
Ideally you will also have banking and IFA experience
•
Proven experience of writing good levels of business
Position: Paraplanner Location: KIDDERMINSTER, CHESTER AND HARROGATE Salary: £30,000 - £45,000 Per annum The client: This firm has an opportunity for experienced paraplanners to join a national Wealth Management Practice which provide exceptional training and study support to sustain their Chartered status.
The Opportunity: During a period of key expansion, our client is looking for technical paraplanners to support the successful financial planners of the business. The firm has the flexibility to mould the perfect opportunities 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? In order to be considered for the opportunity, candidates need to have •
Level 4 Diploma qualified and progressing towards level 6
•
Previous experience within a fast-paced IFA practice
•
High level of analytical capability and good communication skills
Position: Pensions Consultant Location: BRISTOL Salary: £38,000 - £45,000 Per annum The client: This is a highly exciting opportunity for a Pensions Consultant to join an industry-leading firm on the fringes of central Bristol where there are great transport links and a vibrant community. This client’s business activities include corporate pension consultancy, investment consultancy, scheme administration and the provision of actuarial services. They provide a boutique service to trustees and employers. Their focus is very much on the provision of a personal and professional service tailored specifically to meet each client’s particular needs.
The Opportunity: Our client is looking for an experienced pension consultant to join their small but progressive department with great opportunity for growth. This is a fantastic chance for you to establish and maintain good working relationships and managing clients. You will be responsible for a portfolio of clients, meaning you do not need to bring clients. The role is office based however you will have the opportunity to attend client and trustee meetings and events, meaning that there is plenty of diversity in the role.
What’s needed for me to be considered? •
Experience running and presenting at pension trustee meetings
•
Have strong technical knowledge of both Defined Benefit and Defined Contribution scheme governance and regulatory requirements
•
Be able to deliver information in an effective manner in client meetings and training sessions
•
Have achieved APMI or equivalent
What’s next? If you are interested in any of the above opportunities, please contact us directly. If suitable, one of our specialist consultants will be in contact with you to discuss the opportunity in detail prior to submitting your Curriculum Vitae to the client. During this discussion, we will aim to identify your specific skills and motivations and, where appropriate, can also recommend other relevant opportunities to you that match your requirements.
And finally… 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.
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