Lansdown Place Magazine Q3 Finance

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The exclusive magazine for Lansdown Place Financial Management

ISSUE #9 | OCTOBER-NOVEMBER 2012

FLEXIBLE DRAWDOWN

HIGHLAND FLING

THE INVESCO PERPETUAL ADVENTURE

NO ANNUITY REQUIRED

Financial Focus A DEDICATED ISSUE ON THE FISCAL FUTURE

PROTECT THE THRONE

FINANCIAL FORECASTS

FAMILY AND BUSINESS PROTECTION

EXPERTS JUDGE OUR ECONOMIC FUTURE

GROWTH FUNDS WHAT ARE THE GUARANTEES

PENSIONS

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INVESTMENTS

FORECASTS

FUNDS

CRITICAL COVER

F L E X I B L E D R AW D O W N

08/11/2012 16:46

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Letter LetterFrom FromThe TheEditor Editor

Letter from Letterfrom from Letter

r r o o t t i i d d E E hee tth

Hello, good evening and welcome.

Doesn’t really month.” have theHe same impact on paper, does it? Since It was T. S.are Eliot who said that “April thecountry cruellest was, ofeffects course, speaking ironically ofI last These frugal times.

With isthe still feeling the of a doublewrote to you, much has been happening the Forlooking starters, hit a double-dip recession. springtime – how rebirth and rejuvenation is metworld. by bleakness andwe uncertainty.

Am I applying dip recession, now more than ever,in people are for more efficient ways Eliot’s toFurther west, American is gearing upmoney. for its2012? nextWhile presidential and of suggested course, the new Olympic Games modernist musings to a their precarious Well, as we election. head intoOh, thehave first season of the year, one manage and invest recent statistics that the areeconomy about can’t help to butbegin. reflect on these unsteady yet exciting times: austerity tightening, elbow UK is recovering, it will take more robust rates ofmeasures growth are to fully closebut the patches are reports back in; there’s a double-dip, but we’ve got an exclusive interview with Donaldwill gap.

Other have risk notofbeen so optimistic, suggesting that the UK economy It was four years ago these things were lastWho uponwould us. In fact, I remember Obama’s Trump.

See, the world has way of balancing everything out. remain stagnant forwhen thea all foreseeable future. have thoughtwatching that, when the inauguration like it was yesterday. fascinating, for the reasons may think. Asfour Americans economy plummeted back inIt was 2008, we’d stillbut benot experience theyou aftershocks welcomed theirTrump, messianic with the biggest celebrations in presidential grim subtext fan So, yes, Donald onepremier of the world’s most famous entrepreneurs, builder ofhistory, hotels,anot-so-secret years later. was unravelling 300(American) miles awayApprentice, on Wall Street.

While Obama in time front out of an irrepressibly of wrestling, star just of The and friend to the took stars.his PJRoath takes in New York to convivial of twoof the Dow plummeted 4%of – its lowest ever travel readingand for inauguration meet the crowd man himself – million, inbringing Trump Tower no less.usualby As such, instead you the mix cars, food, products, day.

Irony get more thanwith that.

Yetdoesn’t again, I failed to go jaunting the team.

It’s ato hard life for them, publishing: stylin’ and profilin’, we have decided toacerbic dedicate this issue solely finance, providing an essential So, this issue, weflyin’, make sure to cover the global situation asget thoroughly and impartially as limousine jet wheelin’ and dealin’, sons economic of guns.

Next time,situation I’ll my as actthoroughly together.

Thisand primer forridin’, the year ahead.

We’re covering the economic possible, notas least BlackRock’s overview.

Also, and Ithat discuss the economic future with issue, however, thewith focus iswith Flims advice – a insightful placefrom so market good, so under wraps, you’ve probably impartially possible, leading experts companies onnever suchheard Gerald Celente, ayou trends forecaster whose predictions areI sit yetdown to bewith wrong. of it. But trust me, really should’ve.

Speaking ofthe travel, John Kennedy.

No, not topics as: the current investment climate; global economy and the effect ofthe the We didn’t forget the but Olympic Games either, which, for to the first time since 1948, finally arrive back in assassinated president, the Aussie entrepreneur who, after years the travel industry, became an sovereign debt crisis; behavioural finance; how fund a in comfortable retirement; London. We celebrate the start of the Games withthe a look backluxury at some ofrest itsaboard most memorable ambassador for Noble Caledonia, providing folk with unique, cruises small ships.moments. pension advice; flexible drawdown; and outlook for the of the year.

Speaking memorable moments, the hereour pooled recount their mostinsight beautiful places Gettingofdown to the nitty-gritty, Huwteam Thomas, fiscaltogether shaman,togives his remedial on holistic toWe wake-up, and Graeme Morpeth takes aesoteric look at small withfinancial aAdventure tour aboard Caledonian Sky. finance.

Asalso he points out, there’s aboutship it – cruises, just sound planning.

TLT gives us an will be looking at nothing the Invesco Perpetual Highland Race, which Continuing our entertaining look attook legalWards matters, Wards reveal the world’s most bizarre offbeat yetfrom practical look at pensions, and letsearlier loose on themonth. unusual clauses found indivorce wills. the team Lansdown Place part in this This annual charity settlements, including man whohiking acquired his ex-wife’s petacross goat.

No kidding...

I’d also like to take We haven’t forgotten indulgence, don’t worry.

Resident road warrior Graeme Morpeth takes race involves a mix one of the cycling, and canoeing Scotland.

We will see howthis opportunity to welcome our new Bristol’s favourite stylist, David Minn’s.

Inmany hiswhich first column, the BMW Series-6 640to forbe awriter, test drive (nothe thanks to sartorial Hartwell Jag for messing-up; thanks the team did in Coupe its effort crowned winner of this important event, David asks thefor question: ‘Do I still have it?’ to Dick Lovett not), Emma Hare meets the Managing Director of Cartier UK, the enviably raises money for Theand Mitchemp Trust.

And Francois finally, ofLe course, Peter Robinson with the broadcasting legend David named Troquer, to discuss 165speaks years of jewelling.

Also, PJR visits StyleSir Advisor Frost – Minns anext manto who the for term ‘national treasure’.

Peter turns tables on the David get defines measured a new suit, and we take a look atthe Crombie’s newest Until time, world’s most collection for famous women.interviewer; a tête-à-tête on Frost’s past, present and future, plus his thoughts on the media, journalistic integrity, See, spring isn’t looking so bad after all. and the current socio-political landscape.

Until next time, enjoy.

Laith Laith Al-Kaisy Al-Kaisy Laith Al-Kaisy Laith Al-Kaisy Laith Al-Kaisy Editor-in-Chief Editor-in-Chief

Laith Al-Kaisy Editor Laith Al-Kaisy Editor Laith Al-Kaisy Editor Andrew Hobson Art Director Andrew Hobson Art Director Andrew Hobson Art Director Peter Robinson Director Peter Robinson Director Peter Robinson Director Adam Wood Director Adam Wood Digital Director Adam Wood Digital Director Dan Wall Client Services James Billett Photographer

laith@gmmpublishing.com laith@gmmpublishing.com laith@gmmpublishing.com andrew@gmmpublishing.com andrew@gmmpublishing.com andrew@gmmpublishing.com peter@gmmpublishing.com peter@gmmpublishing.com peter@gmmpublishing.com adam@gmmpublishing.com adam@gmmpublishing.com adam@gmmpublishing.com dan@gmmpublishing.com hello@jamesbillettphotography.com

Lansdown Place

GMM Publishing 1st Floor, Prudential Buildings GMM Publishing 11-19 Wine Street, Bristol, BS1 2PH T: +44 (0)1171st 3702 471 Floor E: peter@gmmpublishing.com Prudential Buildings www.gmmpublishing.com

11-19 Wine Street Lansdown Place Bristol, BS1 2PH Lansdown T: +44 (0)117 3702Place 471 2 Oakfield Road E: peter@gmmpublishing.com Clifton, Bristol, BS8 2AL www.gmmpublishing.com T: +44 (0) 845 30 50 222 www.lansdownplace.co.uk

Lansdown Place a trading trading style of Lansdown Place Financial Management Ltd which authorised and regulated by the Financial Services Authority.

Our Lansdown Place is a style of of Lansdown Place Financial Management LtdLtd which is authorised and regulated byby the Financial Services Authority.

Our Lansdown Place isis trading a style Lansdown Place Financial Management which isis authorised and regulated the Financial Services Authority.

Our Financial Services solely through the kind support advertisers.

The views Financial Services Authority Registration Number is 126762.

Lansdown Place Magazine is funded solely the kind support of advertisers.

The views ex-exFinancial Services Authority Registration Number is 126762.

Lansdown Place Magazine is funded designed bythrough Andrew Hobson Design.

Allof rights reserved.

Lansdown pressed in this publication necessarily those of publisher.

The publisher cannot accept responsibility any errors omissions relating to advertising pressed in this publication areare notnot necessarily those of thethe publisher.

The publisher cannot accept forfor any errors or or omissions relating topublisher. advertising Place Magazine is funded solely through the kind support of advertisers.

The views expressed inresponsibility this publication are not necessarily those of the The or editorial.

The publisher reserves right to change amend any competitions prizes offered.

No part publication may reproduced without or publisher editorial.

The publisher reserves thethe right change amend any competitions or or prizes offered.

No part of of thisthis publication bebe reproduced without cannot accept responsibility forto any errors or or omissions relating to advertising or editorial.

The publisher reserves the may right to change or amend any prior written consent from publisher.

No responsibility is may taken for unsolicited materials or return of these materials whilst in transit. prior written consent from thethe publisher.

No responsibility is taken for unsolicited materials thethe return ofconsent these materials in transit. competitions or prizes offered.

No part of this publication be reproduced withoutorprior written from thewhilst publisher.

No responsibility is taken for unsolicited materials or the return of these materials whilst in transit.

Financial Advice: Independent & Impartial Financial Advice: Independent && Impartial Financial Advice: Independent Impartial

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JUNE OCTOBER 2012 1 11 MARCH 2012

20/06/2012 11:50:57 07/11/2012 16:06 07/03/2012 15:12

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Contents

This issue 04 An inconvenient Truth with M&G 06 The Highland Challenge 12 Investment Risk 14 Doctor Feelgood with James Scrimshaw 16 Flexible Future with Liverpool Victoria

Brewin Dolphin’s Chief Strategist, Mike Lenh the effect of the sovereign debt crisis 18 Growth with Brewin Dolphin 20 Financial Future with AXA A gainst a backdrop of slowing global and employment. growth and discouraging news, Mr Bernanke, the C 24 Dividend Growth with one

feature stands out more than any as a US Federal Reserve, h Invesco. hopeful sign of better prospects ahead. similar point in referri The leading Wall Street indices, such financial crisis of 2008 26 Cruise Control, leadership with

as the S&P Composite Index and the that followed has weak William Montgomery.

Dow Jones Industrials, have not only through which US mo

Lansdown Place is printed on FSC-certified grade paper. Please recycle this magazine when you have finished reading it.

2 OCTOBER 2012

Contents_v1.indd 2

risen to new highs for this year but also effect. But he has not s to new post-financial crisis highs. This Bernanke also pointed is in spite of plenty of profit warnings, uncertainties created b which reflects the slowdown so evident sovereign debt crisis. S throughout the global economy and Governor of the Bank should come as no surprise. The surprise his more graphic descr instead is the extent of the slowdown cloud of uncertainty’. throughout the globalwww.lansdownplace.co.uk economy, The upshot, no mat especially in view all the effort on the looks, be it in and amo part of the central banks that has gone developed or developin into sustaining the economic recovery. that the growth of cor 07/11/2012 14:51 slowi It would be wrong to heap all has been rapidly

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07/11/2012 15:12 29/02/2012 15:13

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Facing an Inconvenient

h t u Tr

Investors are sometimes described as their own worst enemies – but this maxim is closer to the mark than we might realise. Dave Fishwick, Head of Macro and Equities Investment, and Fund Manager Eric Lonergan, both of M&G’s Multi Asset team, explain behavioural finance.

A sizeable proportion of market movements are based on human emotion rather than the fundamental attributes of an investment.

Behavioural finance recognises this inconvenient truth at the heart of investment, turning the spotlight on the factors driving investor behaviour and using them to make positive investment decisions.

It is not enough to understand how we feel as individual investors; we need to understand how the wider investment community feels, and identify the factors driving the markets. Behavioural finance recognises the emotions involved in making investment decisions under conditions of euphoria or panic, and enables astute investors to profit from this behaviour.

It is worth noting that an approach based on behavioural finance is not the same as a contrarian approach.

Behavioural finance is not about going against the crowd.

Instead, it helps the investor assess the extent to which the crowd’s emotion has moved prices inappropriately and then to use this information in the decision-making process.

Mob mentality Many investors base the price they are willing to pay for an asset on their perception of its immediate potential, focusing on short-term news-flow and forecasts. However, these factors distract from the fundamentals, preventing the investor from viewing the investment as a long-term asset.

Decisions are based on individual investors’ perceptions of risk and reward, which are, in turn, often dictated by broader sentiment-led trends of fear and greed.

Windows of opportunity Human behaviour can influence markets over both the short and the long term. For example, the Dubai debt crisis of 2009 was short and sharp, while the European sovereign debt crisis has yet to conclude. Looking further back in time, the effects of the dot-com boom and bust can still be felt.

A notable episode of behavioural finance at play came in 2011 when an earthquake and tsunami hit Japan. While it could be expected that Japanese equity markets would fall

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M&G Facing the truth.indd 52

‘A sizeable proportion of market movements are based on human emotion rather than the fundamental attributes of an investment.’

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Inconvenient Truth

after the disaster, European equity markets dropped equally sharply – even though investors had little information on the likely impact of such a far-flung event on, for instance, German companies. Such episodes can offer investors a window of opportunity.

The courage of your convictions The principles behind behavioural finance sound straightforward enough, but how can they be used to construct and manage an investment portfolio?

One approach is to be objective and investigate scientifically how much one is being paid to invest in a particular asset. By comparing the yield provided by, say, a government bond to that of a company share, an investor can objectively evaluate the relative attractiveness of each asset. However, this process has to be disciplined; the investor cannot then be swayed by the sentiment surrounding each asset (everybody may be buying government bonds at the moment, believing company shares to be too risky). This approach requires investors to have the fortitude to stick to their strategy. Not every investor is comfortable following behavioural finance techniques. It can be challenging to take decisions that appear to fly in the face of ‘normal’ investor behaviour.

Nevertheless, the principles of behavioural finance can be harnessed by any investor willing to accept that a sizeable proportion of market movements can be attributed to noise rather than hard fact. They can provide a valuable reality check, forcing investors to examine their decisions.

Ultimately, behavioural finance does not seek to ignore the human factor. Rather, it seeks to recognise it, acknowledge its important influence, and then strip it out of the analytical process in order to make successful investment decisions.

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M&G Facing the truth.indd 53

Key Investment Terms Equity: Shares of ownership in a company.

Equity investors have a claim on a company’s assets and profits (the latter in the form of dividends), but only after its debts have been paid.

Bond: A loan, usually taken out by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the loan is repaid.

Yield: This refers to the interest received from a bond and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

Contrarian: An investor who does the opposite of what most investors are doing at any particular time.

We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

The views expressed in this document should not be taken as a recommendation, advice or forecast. Prices may fluctuate and you may not get back your original investment.

For further information on M&G Investments, visit mandg.co.uk This Financial Promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No. 90776

OCTOBER 2012 05

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d n a l h g i e g H n e l l a h C The

The Invesco Perpetual Highland Race is held annually in September to raise money for the Mitchemp Trust. The Race is a team event, consisting of up to six participants. Just like last year, the team from Lansdown Place Financial Management cycled, hiked and canoed 60 miles, from east to west Scotland, in an effort to take first place

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07/11/2012 14:54

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Day One: 36 miles mountain biking over rugged terrain, cycling from Inverness Castle on the east coast to Fort Augustus, covering varied terrains from good tarmac to off-roading, which will challenge the teams’ cycling abilities. This leg of the race usually takes

anything between 4 and 8 hours. Canoeing along the Caledonian Canal is next. From Fort Augustus, it is a 700 metre walk (or run!) for each team to pick up their canoe. Teams will then travel along the Great Glen, including paddling along the canal and the full length of Loch Oich to the Great Glen Water Park, covering 9 miles. The estimated time to complete this section of the race 2 to 4 hours. Breaking up the race is overnight camping. Though staying in tents, the teams are treated to a little luxury – toilets, showers and a bar – as well as access to a medical clinic and sports massage therapists.

Day Two is the big one: hiking Ben Nevis, the highest point in the UK, at 4,409 feet. 13 miles,

following tracks and the burn, the teams make their way towards Lochan Meall an t-Suidhe until it joins the standard ascent on the west side of Ben Nevis up to the summit. The teams then descend to Fort Williams on the west coast to complete the race, which is estimated to take anywhere between 4 and 8 hours to reach the finish line. Certainly not for the fainthearted!

Steve Brice, Senior Consultant at Lansdown Place Corporate Benefits, explains more: “What a weekend it was. The weather could not have been better – hardly a drop of rain all the time we were racing. It was pleasant, but not boiling hot, with a breeze to keep us cool – especially when the going got really tough. I say ‘breeze’, it was a 15mph headwind when we were canoeing, which didn’t help at all.

Our time last year was 14 hours and 47 minutes (from memory), and we came sixteenth. I am pleased to say that our time this year was 13 hours and 17 minutes! That was good enough to see us take eighth place in the league table – and a very credible result, Take my breath away

On me head

too, we thought. Yet we can’t help but feel a little disheartened. You see, there was a plot-twist during the cycling: we, as well as three other teams, ended up taking a wrong turn on the course. On this part of the course, the signage was a little suspect, to say the least, and had we not taken this detour, our time would have been 12 hours and 47 minutes. That would have been quick enough to secure third place overall!

Sadly, I think that this will be my last year taking part in the challenge, but I am sure that Lansdown Place will find other unsuspecting employees to take part in future. However, I like to take this opportunity to thank everyone who supported us by way of sponsorship, and to those who donated raffle prizes (I believe winners have been notified

by Joe Cooper under separate cover). A special

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10/11/2012 08:36

Highland Race

mention has to go to the team at Lexus, who kindly donated our support vehicle.”

The Charity

Camel On

The Mitchemp Trust is a registered youth development charity, which works with vulnerable young people aged 11 to 14 years old from across Wiltshire. The vision of the Mitchemp Trust is to give young people the hope and confidence to meet challenges in their lives. Trust and motivation is built via experience and adventure.

The trust was established in 1992 by David Hempleman-Adams and Major Richard Mitchell, both well known for their record breaking Arctic, Antarctic and mountain climbing expeditions.

They agreed that early experiences in challenging themselves, through the outdoors, had shown that they could achieve more than they thought.

This idea led to the realisation that many young people, for a variety of reasons, often do not have the opportunity to start the ‘believe – achieve’ process and make the most of their lives.

The Mitchemp Trust’s flagship programme is the Youth Adventure programme, which is designed to challenge and inspire young people, helping them develop their self esteem and confidence. The course emphasises the importance of team work, communication, social skills and learning about taking responsibility.

These are the essential building blocks to help young people grow into individuals who are able to make a positive contribution in the future. << For further details visit www.mitchemptrust.org.uk and www. highlandrace.co.uk Lexus Team Wagon

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OCTOBER 2012

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us “Thank you to everyone that helped raise over £3000 this year.”

Basic Toilets

8th place

“We couldn’t of done it w ithout you.”

10 OCTOBER 2012

Highland Challenge.indd 16

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10/11/2012 08:58

Some companies are allowed to choose from all the investment options out there.

Some companies aren’t allowed to choose from all the investment options out there.

There, that should help you choose.

At Brewin Dolphin, we don’t have anyone telling us what to do. We’re independently owned, and have none of the restrictions that can be associated with the big banks. Our investment managers are free to search the whole of the market to find the most suitable investments for their clients.

So if you’re looking for impartial, expert investment advice, make Brewin Dolphin your choice. You’ll find that the first thing we earn is your trust.

The value of your investment may fall and you may get back less than you invested.

0207 246 1000 brewin.co.uk/250 follow us on Twitter @BrewinDolphin Brewin Dolphin is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority No.124444

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Risky

s s e n i s u B

Cash deposits currently provide poor value for money and with inflation hovering at 3%, many people are quite rightly assessing their actual need for instant access cash, and allocating more capital to purchase ‘real assets’ that have a fighting chance of keeping up.

Ed Holder explains more.

Investing in the current environment, though, presents a number of challenges. The choice of retail investment options is mind-blowing, with new ways and routes to invest seemingly springing up every day.

Online stock brokerage services provide an easy way to purchase everything from shares in FTSE100 companies to derivatives and CFDs to buying an index through ETFs. The thrill of watching the daily price swings is attractive to some, and a small portfolio of handpicked shares can, in the right circumstances, produce stellar returns. Stock broker charges and their often limited research capabilities also increase the risk of lower total returns.

Other investors prefer the relative safety of open-ended collective investment funds such as unit trusts and open ended investment companies (OEICs) that also provide access to real assets, but have large professional fund management teams making the daily buy-sell decisions.

From low cost passive funds to more expensive, highoctane UCITSIII absolute return funds, there are literally thousands of retail collectives to choose from, most with daily liquidity.

Another big consideration is whether to appoint an adviser, and if so, whether the adviser should have discretionary powers or maintain a consulting advisory relationship and include the investor in changes to investment strategy or assets. A good adviser comes with years of experience and specialist knowledge, while taking liability for the advice. However, advice comes at an

12 OCTOBER 2012

Investment Risk.indd 38

additional cost, so regular assessment of the value added should be undertaken to see if a change or removal of this ‘outsourced specialist’ is warranted.

Before appointing an adviser, it is essential to check technical qualifications and FSA permissions. Even today, many so-called ‘investment advisers’ or ‘wealth managers’ are trading off the back of tick-box qualifications from decades ago. Entrusting your cash with a safe pair of hands might sound obvious, but many people fail to properly investigate the qualifications of a potential adviser. Finding a chartered financial planner is a good starting point in this respect.

Regardless of your chosen route to investing, understanding and taking into account the risk of your chosen assets is essential.

Systematic and non-systematic risk Unsystematic risk can be thought of as the risk generated by factors specific to the stock or share, such as a poor management team, changes to regulation or other event-driven risks. By investing in a number of different companies, this ‘specific risk’ can be significantly diversified away. Increasing the number of holdings reduces risk only so far. Studies have shown that there is little to no additional benefit in holding more than 35 companies in different sectors.

Systematic risk, often called ‘market risk’, is deemed undiversifiable as it pertains to the financial system as a whole. Sentiment will drive markets up or down as measured by changes to an index. The change in price to an individual equity on any given day will, in part, be a reflection of these market fluctuations. Professional investors measure market risk using beta (β) – a share with a beta of 1.0 is expected to move exactly in line with the market.

Risk Adjusted Performance Measures Considering outright performance in isolation is a

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Risky Business

common but dangerous behaviour. Provide most novice investors with a list of investments with the attaching performance figures for each, and ask them to select their top-ten picks. Most would select the investments that have performed the best over the previous one, three or five years, without taking care to analyse and assess the varying aspects of risk taken to achieve those returns.

Risk adjusted measures factor in both the performance and the relative risk of an investment to give a more useful value with which to make buying decisions. The share of a company that marginally outperformed over the past three years, but whose management team took huge gambles to deliver profits, is unlikely to be able to continue to outperform. Conversely, an investment that has marginally lower risk characteristics than its sector average but delivers consistently high returns indicates a sustainable process, and is perhaps a safer bet.

‘Sharpe Ratio’ shows the excess return per unit of risk associated with the excess return. The benchmark used is the ‘risk free’ rate of return. The higher the ratio, the better the risk adjusted performance – a useful ratio for investors comparing the relative returns of an asset over cash.

Another useful ratio when looking at investment funds is the ‘Information Ratio’ (IR) which factors in the outperformance of a portfolio and the tracking error (how ‘off-piste’ the manager skied from the benchmark). A high IR indicates the manager used the information about markets to identify prices anomalies better than his peers.

Quantifying and understanding ‘total risk’ A measure commonly used to quantify the volatility of returns an investment is the standard deviation (SD) of its returns around its ‘mean’ or expected return. SD gives us a feel for the ‘total risk’ of an investment (systematic risk plus non-systematic risk equals total risk).

If an investment behaves ‘as expected’ producing returns, year on year, close to the average return of the investment, then we consider this ‘low risk’. Conversely, if the returns fluctuate widely around the average return the investment can be considered as ‘higher risk’.

If a given investment has a high expected return, then it usually carries a higher than average degree of risk rendering it inappropriate for people wanting to take a cautious stance. By the same token, if two potential investments have the same expected return, but one is half as volatile, then this ‘lower risk’ investment is perhaps more attractive.

If your time horizon is short for a given investment and the standard deviation value is high, then the risk of having to crystallise a loss at the point of encashment is elevated.

Reducing Investment Risk There are broadly three ways to reduce the total risk of a portfolio:

Financial Advice: Independent & Impartial

Investment Risk.indd 39

1. Hedging out the risk 2. Simply buy only ‘low risk assets’ 3. Diversify the portfolio holdings (different assets, sectors, geographies etc.)

Hedging usually involves using financial instruments such as derivatives to take opposing positions on actual assets within the portfolio that increase in value if the values fall.

For example, a degree of hedged protection can be achieved for a portfolio of FTSE100 equities by buying a FTSE100 ‘put option’. However purchasing and dealing in derivatives is a complex and potentially expensive business and is perhaps not suitable for a non-professional or retail investor without professional advice.

Purchasing low risk assets inherently means expecting low returns, so unsurprisingly, this route is not always attractive to the investor.

Diversification allows the investor to hold a portfolio of risk assets with desirable expected return characteristics while reducing the overall risk to less than the average risk of the individual investments/securities. Diversification works best if the investor can identify stocks or shares that negatively correlate, i.e. they move in opposite directions under the same market conditions. Therefore only ‘nonsystematic’ risk can be effectively removed through diversification of assets.

Finding two assets that negatively correlate in the ever converging global economy is no mean feat.

In conclusion, a good advisory firm can assist in assessing the risk of a current portfolio and advise on restructuring, or simply provide expert knowledge on how best to invest new capital for the best risk-adjusted returns.

Technically minded advisory firms can also carefully introduce alternative strategies and assets such as venture capital, derivatives, hedge funds and commodities.

Risk is only one factor that needs to be carefully considered when swapping your hard earned cash for real assets. Investors of course need to equally consider inflation, taxation, charges, timing, holding structure, access requirements, inheritance, reliefs and allowances to name but a few other important influencing factors.

Understanding the known risk characteristics and the expected returns of potential investments, investors can assess if a given security is suitable for their needs and is likely to perform as required. Knowing the likely maximum potential for loss over a given timeframe before you buy an asset should help avoid nasty surprises. Equally, knowing the likely possible upside of an investment gives valuable insight as to whether an investment objective is possible to be hit.

Considering risk adjusted return measures further narrows down the selection process by weeding out securities that carry unnecessary amounts of risk relative to others available.

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d o o g l e e F

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Lansdown Place

Health insurance is a valuable resource. It not only manages your sickness, but better acquaints you with your body. Insurance, if used proactively, can help pick up the signs of deteriorating health, before your body even gives the symptoms. With a little forward planning, you can get the most out of life, whilst maintaining optimum health. And the key to good health is balance, as chiropractor James Scrimshaw explains.

I’ll start by being honest: I can’t profess to give you the true meaning of life. The very question doesn’t make sense to me. Meaning? Why does it have to have one at all? Are we not just here? We humans are a funny bunch, always looking and searching for something else. It is part of what makes us who we are; a remarkable species that has done remarkable things.

Whatever faith I may or may not have, one thing I know is I’m far more comfortable talking to my patients about things I’ve seen, smelt and touched; people I’ve helped and listened to; and things I’ve done.

In my 17 years treating a hundred patients a week as a chiropractor in Bristol, I have learnt a thing or two about the human body and human behaviour, and how we respond to our environment, otherwise known as our day-to-day lives.

The overriding factor, which becomes apparent each day I work, is how remarkable the human body is. Okay, admittedly on a Monday morning, after a weekend with friends and family, it’s not the first thing I think of. In fact, sometimes I wish the human body was a bit more remarkable, so that Mr Smith’s groin strain would heal naturally, without me having to administer a huge blob of ultrasound gel.

As a chiropractor, I spend my time trying to diagnose, treat and prevent people’s pain, and then encourage a healthy lifestyle. The two most important words to me are ‘prevent’ and ‘health’. Most of you reading this article will feel good at the moment. A small amount of you will have a headache, others some back pain, others a cold or infection, and sadly some may have a more serious illness.

Some of what we suffer from is out of our control. Genetics do have a large, yet unquantifiable, part to play in our health.

How do we avoid catching a cold? (Answers on a postcard please!) Some of it is just bad luck. A lot, however, is completely under our control. The problem we face is how to live our lives with the right balance of health and fun.

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Two years ago, I suffered from deep vein thrombosis in my left calf. I initially thought ‘calf strain’, but ultrasound did nothing. The next day, the pain was worse. The day after that, I was limping. Then, on the Thursday, my busiest day of the week, with thirty patients to see, it was killing me. I looked down and – boom! – it hit me. I couldn’t believe it: it was swollen and discoloured, and I knew exactly what I had. The wife drove me down to A&E, I had the tests and – yes – I, a 38-year-old, relatively fit health practitioner, had a DVT. Important headlines of DVT: first two weeks, 1:100 chance of dying from embolism/travelling clots. After injections, the risk went down to 1:1000. Still way too much for me! The internet became my nemesis: every time I Googled something simple – like ‘How long until a clot heals’ – a blog would come up, with someone declaring that their entire family died from a tiny clot. And they were younger and fitter than me. Basically, I was doomed.

Once I got over the paranoia and stopped Googling anything vaguely health-related and just got on with life, the clot healed slowly.

Now here is the confession: it was all my fault. I was very dehydrated. I remember my urine was luminous the week before. I went out that Friday night, had a lot of drinks with my old mates, and smoked my usual five ‘social’ cigarettes. The next day, I woke up, had a fry-up and watched eight hours of Six Nations rugby slumped on the sofa. I was as immobile as on a long haul flight. Totally dehydrated and having smoked; perfect ingredients for a clot. And boy, did I feel like one!

As a chiropractor and a human being, my revised philosophy of life is simple: balance. Balance in your diet; well-thought-out work stations; getting your blood pressure and cholesterol checked by your GP; knowing your health before it shouts at you; exercising for 30 minutes, at least three times a week; offloading your worries to friends, your partner, spouse or counsellor; turning the phone off; cutting the smoking down or ideally stopping; having days without alcohol; drinking plenty of water. The list is endless.

I don’t believe in extremes. I’ve met some dull people who go too far the other way. We need to be naughty, lazy, gluttonous, gregarious, hardworking and downright irresponsible at times. Life is for living – but try to have a strategy. 80-20 sounds about right to me. What’s right for you?

James Scrimshaw is a doctor of chiropractic, who specialises in the diagnosis and conservative management of spinal and peripheral joint conditions. at the House Clincs - www.thehouseclinics.co.uk

www.lansdownplace.co.uk

07/11/2012 14:57

THE NEW M&G EPISODE MULTI ASSET RANGE

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28/09/2012 11:03

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Flexible

By Ray Chinn

e r u t u F

The introduction of Flexible Drawdown (FDD) as an option for people in retirement means individuals now have greater scope than ever with their retirement income planning options. Working with their financial adviser, they can look at retirement in a whole new way.

Historically, the traditional image of ‘retirement’ was being called into the boardroom on your sixtieth birthday and being given a carriage clock and a glass of warm champagne by your boss. Over ten years ago, I read a report from the McKinsey organisation that challenged this assumption. It talked about retirement being a journey that could potentially last years, rather than a single one-off event. It’s something that has stuck in my mind throughout the intervening years.

It’s taken a long time, but with the recent introduction of a new pension option called Flexible Drawdown (FDD) we can safely say that the idea of a long and rewarding retirement journey can now become a realistic prospect.

What’s more, the future for people now approaching their retirement years has suddenly become much brighter.

Over recent months, I have had conversations with a lot of financial advisers and other professionals in the pensions industry about the potential of Flexible Drawdown.

Reactions have been varied, but over time I have seen more and more people move from an initial position of scepticism to one of acceptance and in some cases (the enlightened ones) to a feeling of optimism – and I’m also hearing a lot of very positive stories about how individual clients have benefited from FDD. Those who are now more positive can see the opportunities which Flexible Drawdown provides from a more holistic perspective. Assuming clients can meet the £20,000 minimum income access requirements – based mainly around the level of pension in payment from other sources such as an occupational scheme and state benefits, then FDD offers so much in terms of tax, income death benefit planning opportunities.

It effectively creates an open framework within which clients and advisers can plan income strategies to meet aspirations and requirements – both at outset as an overarching plan, and then on an annual basis to take into

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account changing circumstances and needs.

This was brought home to me at a recent meeting where an adviser who had previously been sceptical about the opportunities around FDD had a near Damascene conversion as he suddenly started realising the positive implications for many of his clients who will be reaching their planned retirement age in the near future. We looked at the circumstances of several clients who would have previously been handcuffed by the income restrictions around ordinary Income Drawdown, but now were in a position to take their income planning to a new level of flexibility.

So finally, all those years on from the McKinsey report, I believe that the Finance Act and in particular the birth of Flexible Drawdown has provided a real opportunity for advisers to guide clients through the retirement journey without detours or cul-de-sacs en route – carriage clock unnecessary – much more exciting prospects where the champagne will be served at the right temperature – possibly on a beach in the Caribbean!

For further information, please contact your advisor at Lansdown Place: 0845 30 50 222

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07/11/2012 14:59

For Financial Advisers only. Not to be distributed to, or relied upon by, investors.

Why just recommend a guaranteed income rate when you can recommend the highest unit-linked guaranteed lifetime income rate?

Secure Advantage Lifetime Income Plan

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Secure Advantageâ&#x201E;˘ offers the highest unit-linked guaranteed lifetime income rates on the market. Your clients can take advantage of the highest rates and you also have the benefit of access to our sales and service teams, who are specialists in unit-linked investments with guarantees.

Compare our income rates now at www.axa-secureadvantage.com or call us on 0800 358 0510.

The Lifetime Income Plans guarantee your client an income for life; they do not guarantee the capital invested, which can go up or down based on the performance of the underlying investments.

The guaranteed lifetime income rate is based on the age of the client (or the younger of the client and their spouse/civil partner in the case of the Joint Benefit option) when income starts. We take a charge from the Plan for providing the Lifetime Income guarantee. The date and source of the comparison to support the claim are available at www.axa-secureadvantage.com. The guarantees provided by this Plan are provided only by AXA Life Europe. If AXA Life Europe were to become insolvent, the benefits from the Plan could be affected. AXA Life Europe is authorised and regulated by the Central Bank of Ireland.

Registered office: Wolfe Tone House, Wolfe Tone Street, Dublin 1, Ireland (no. 410727). Member of the AXA Group.

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07/11/2012 15:20

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growth Brewin Dolphin’s Chief Strategist, Mike Lenhoff, on the state of the global economy and the effect of the sovereign debt crisis A gainst a backdrop of slowing global growth and discouraging news, one feature stands out more than any as a hopeful sign of better prospects ahead.

The leading Wall Street indices, such as the S&P Composite Index and the Dow Jones Industrials, have not only risen to new highs for this year but also to new post-financial crisis highs. This is in spite of plenty of profit warnings, which reflects the slowdown so evident throughout the global economy and should come as no surprise. The surprise instead is the extent of the slowdown throughout the global economy, especially in view all the effort on the part of the central banks that has gone into sustaining the economic recovery.

It would be wrong to heap all the blame for this loss of ‘economic momentum’ on the eurozone but the sovereign debt crisis has had much to do with it. Aside from the directly adverse impact of the eurozone’s economic stagnation on global trade, the destabilising influence of the debt crisis on financial markets has also inhibited global growth. Certainly sentiment has been affected but, as we also know from Mr Draghi, President of the European Central Bank (ECB), the crisis has reduced the effectiveness of monetary policy, which has added to the uncertainty as well. All of that is more than enough to discourage investment

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and employment.

Mr Bernanke, the Chairman of the US Federal Reserve, has made a very similar point in referring to how the financial crisis of 2008 and the recession that followed has weakened the channels through which US monetary policy takes effect. But he has not stopped there. Mr Bernanke also pointed a finger at the uncertainties created by the eurozone sovereign debt crisis. So too has the Governor of the Bank of England with his more graphic description of the ‘black cloud of uncertainty’.

The upshot, no matter where one looks, be it in and among the major developed or developing economies, is that the growth of corporate profitability has been rapidly slowing. Despite this, equity markets are holding up reasonably well. Moreover, in focusing on the broad investment background and the outlook for say some six to twelve months down the road, there are three reasons for thinking they will continue to do so.

First, while the eurozone remains a long way from resolving its difficulties and achieving debt sustainability, progress is being made. The ECB has now introduced a new initiative, which it has labelled Outright Monetary Transactions, OMTs for short. It aims to support sovereign bond markets and in the process help to improve the effectiveness of monetary policy. A

major obstacle to its implementation has now been removed by Germany’s Constitutional Court which ruled favourably on the legality of the European Stability Mechanism (ESM), a key agent in the programme for helping to bring down yields.

This support should be beneficial for the eurozone. However, it should also be beneficial for global growth when you consider that the sovereign debt crisis has put at risk the stability of the financial system by weakening the financial position of the commercial banks.

The latter has had much to do with the weakening of the normal channels through which central bank policy takes effect. It was Mr Draghi himself who said the system needed repairing.

If it is widely perceived that the ECB can now do this, and there is reason to believe it is – indeed, bond yields for Spain and Italy, for example, have fallen a long way already, even before implementation of the new initiative – then the financial position of the banks should improve. Not only should the destabilising influence of the crisis diminish but subduing it should also foster an environment less fraught with uncertainty and hence more conduce to growth. This would be positive for equity markets and provide less reason for the flight to safety that has pushed yields in the quality in government bond markets www.lansdownplace.co.uk

07/11/2012 15:00 28/09/2012 17:43:

Growth on the Horizon

on the horizon to record lows.

A second reason for being hopeful is that, in contrast to the fiscal austerity of Europe, government policy on spending and taxation is, by and large, supportive of growth outside of Europe, and so are central bank policies. Of the major central banks, the US Federal Reserve has indicated in no uncertain terms its commitment and readiness to provide additional stimulus as needed to support the economy and ensure steady improvement in the labour market. To that end, the Fed has recently announced additional stimulus. The risk for the US economy, and global trade, is the so-called ‘fiscal cliff’ of spending cuts and tax increases due to take effect at the start of 2013. That is, unless Congress is able to agree on postponing it all, at least temporarily. We think this is likely and while it will not resolve what has proven to be an intractable policy issue, postponement at least avoids what could be another recession at a time when the unemployment rate remains uncomfortably high and consumer confidence uncomfortably low.

Third, in looking at the developing world, the key is China, where the authorities are committed to stabilising growth ahead of the transfer of authority to the country’s new leadership next year.

It is easy to forget that the target for China’s growth rate for 2012 was lowered

Financial Advice: Independent & Impartial

Brewin Dolphin.indd 13 Mike Lenhoff DPS Advertorial.indd 2 /09/2012 17:43:41

“Global economic growth should pick up modestly in 2013”

to 7.5 percent and that policy aims to stabilise the economy rather than to stimulate it.

That said, China’s leaders are determined to hand over an economy that is not heading for the rocks. To this end the policy response to the slowdown has been mixed with the authorities more ready to support domestic demand with fiscal stimulus than through monetary policy. The country’s major economic planning commission has just given the go ahead for a number of big infrastructure projects. The expenditure will be huge, though not quite up to the size of the gargantuan stimulus undertaken in the post-Lehman days.

Even so, the projects are labour intensive, which means they should make a difference and help lessen the risk of hard landing. If it needs to, the central bank

has scope to take out insurance with more cuts in reserve requirement ratios and/or in interest rates and is very likely to do this.

In returning to the starting point, the bottom line is that global economic growth should pick up modestly in 2013 and help raise, albeit equally modestly, expectations for corporate earnings. Equity markets are not at levels associated with hard times but at levels that anticipate hopeful prospects. Wall Street owes its resilience as much to the central bank’s support for the economy as to anything else. It might even be said that equity markets are taking on board the significance of the collective force of monetary policies by the major central banks that, in one way or another, are geared towards financial stability and the eventual reflation of aggregate demand.

The ‘look ahead’ by equity markets exists here in the UK too. This is less obvious with the FTSE 100, the leading index of the big international companies, than it is with the FTSE 250, the index of midsized companies, an index far more allied to the growth of the UK. Yet the latter has reached a new high of the year. Not bad going considering the UK economy is still in recession!

The value of investments can fall and you may get back less than you invested.

OCTOBER 2012 19

07/11/2012 15:00 28/09/2012 17:43:4

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Securing your

Financial Future Retirement on the horizon? Your investment choices in the few years before you retire are crucial. It’s essential to secure your future retirement income as soon as possible, as Ellis Axton explains.

If you’re within 10 years of retirement, you’ll want to ensure that your savings are working as hard as they can now, so that you will have the income you want in the future. At the same time, you may want to protect the retirement income that you can create from the savings you have already built up, because falls in the investment markets could happen at any time. If the markets fell at the moment you wanted to retire, the income you would receive from your savings could be less than you expected.

Traditionally, pension funds are converted into a lifetime annuity on retirement, to provide a guaranteed income that will last a lifetime. However, people are living longer, and the rates offered by annuity providers have been falling. One of the reasons for this is to compensate for the fact they now need to pay out income for a longer period of time. Currently, annuity rates are around 45% of what they were 15 years ago – and they

may be even lower in the future.

Current annuity rates are not a reliable indicator of future annuity rates. As life expectancy continues to increase, many more people will have a retirement that lasts 25 years or more. Today, there is nearly a 50% chance that at least one person in a couple aged 65 will live until aged 89, and a 25% chance that one of them will live to the age of 93. While this is great news for all of us, it does present a challenge to ensure that you have sufficient income to fund the lifestyle you want throughout your retirement, no matter how long it may last.

But what are your pre-retirement investment options?

There are three main investment strategies that you could follow at this point, which are summarised in the table below.

(Figures calculated by AXA Life Europe using mortality tables PCMA00 and PCFA00 provided by the Institute and Faculty of Actuaries.)

“He tumbled to the floor, and his mate promptly tripped over him. As they lay sprawled in a heap, the pursuing police apprehended them”

1 William Burrows Annuities, – Annuity rates, gilt yields and FTSE 100 since 1990 www.williamburrows.com/charts/ annuity10k.aspx?period=1900. Current annuity rates are not a reliable indicator of future annuity rates.

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FINANCIAL FUTURE

We will concentrate on the third option, and explain how the AXA Secure Advantage Retirement Solution – Lifetime Income Plan could help you prepare for the retirement you want in the future.

The previous table is not meant to represent a comparative analysis of all products and features available with these types of products. It does not represent advice and you should always consult a financial adviser when considering if this Plan or any other retirement product is suitable for your specific needs.

A guaranteed income for life, however the market performs?

The Secure Advantage Retirement Solution – Lifetime Income Plan is available to customers aged between 45 and 75 years old, with an existing pension Plan valued at a minimum of £25,000.

Your funds remain invested in a range of assets, so if your investments perform well, your income could increase over time. However, if the value of your investments were to fall, the amount of income you receive is protected and won’t go down. This is unless you take any partial transfers, lump-sum payments or additional withdrawals from your Plan.

If you choose to delay taking an income from the Plan, you will also benefit from our deferral bonus feature to boost your future income payments.

While the Plan guarantees an income for life, it does not guarantee that the money you invest in the Plan will be protected. This is because the value of the Plan will rise and fall depending on the performance of the underlying investments. If you were to transfer your Plan, you could get back less than you invested. The guarantees are provided at an additional charge, which will reduce the growth potential

of your investments.

The Secure Advantage Retirement Solution – Lifetime Income Plan gives you the security of knowing the minimum amount of income you can expect in the future for the rest of your life (provided you don’t make any transfers or additional withdrawals from the Plan).

This is because when you start taking income, the notional amount used to calculate your payments (called the Benefit Base) will always be the higher of: the amount of money you invested in the Plan, reduced to take account of any transfers, lump sum payments or additional withdrawals; the deferral bonus amount; or the highest Plan value on any business day before the anniversary of the day you started the Plan, reduced to take account of any transfers, lump sum payments or additional withdrawals.

Key terms to know Benefit Base is the notional amount used to calculate your guaranteed income payments. The Benefit Base is not a commitment on our part to a minimum full surrender value.

It is used only to calculate your guaranteed income payments Deferral bonus amount is the sum of your payments into the Plan, increased by a 2% simple interest rate every year you delay taking an income from your Plan. It will stop when you start taking an income, or make a transfer or additional withdrawal, or 20 years after you start the Plan. It is only used to calculate your guaranteed income payments and is not actually added to your payments into the Plan.

Taking an example A 58-year-old customer invests £100,000 in the Lifetime Income Plan, and delays taking an income until age 65.

What happens if the investments perform well for the next seven years?

The guaranteed annual income rate is 4.5% if it is taken between the ages of 65-69. The guaranteed annual income rate varies depending on the age of the customer when they start taking income.

Financial Advice: Independent & Impartial

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OCTOBER 2012 21

07/11/2012 15:01

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In the following hypothetical example, as the markets performed well, the Plan value on each anniversary date is higher than the amount originally invested, and the deferral bonus amount. Therefore the new Plan value will be ‘locked in’ on each anniversary as the new Benefit Base. This will be used to calculate the guaranteed income amount. When the customer is ready to start taking an income, the amount of income they will receive each year is the equivalent of 6.0% of their original investment.

falls over the next 7 years?

In the hypothetical example below, the Benefit Base will be based on the deferral bonus amount, as it is higher than the Plan value and the amount originally invested. As a result, even though the value of the Plan has fallen, the amount we guarantee to pay will increase during the deferral period. When the customer is ready to start taking income, the amount of income they will receive each year is the equivalent of 5.1% of their original investment.

What happens if the value of the investments

The Guaranteed Annual Income Rate is 4.5% if it is

Case Study: David and Jane

to transfer David’s £200,000 pension fund into the Secure Advantage Retirement Solution – Lifetime Income Plan.

They choose to set up the Plan on a joint benefit basis at an additional charge. They don’t want to take any income until they are aged 65, and therefore benefit from the 2% simple interest deferral bonus each year.

From the day they start the Plan, they know that the minimum guaranteed income they can expect from the Plan when they retire at age 65 is £10,260 p.a. This is the equivalent of 5.1% of their original investment.

However, as their retirement fund remains invested in the markets, if their investments perform well this future income could increase above this figure, and will be reviewed annually. If at any point their guaranteed income is higher than the maximum limit set by the Government Actuary’s Department, we would add notional reserve units to their Plan to make sure they can receive their income in full.

Before they start to take income from the Plan, they have the flexibility to take any tax-free lump sum they are entitled to from the Plan. This would reduce their benefit base, guaranteed income payments and death benefit proportionately. As they set up their Plan on a joint benefit basis, the guaranteed income payments would continue for the rest of David’s and Jane’s lives, without reduction (unless any transfers or additional withdrawals are made) David and Jane also have the flexibility to transfer their fund at any time to another pension arrangement or buy an annuity with their pension, should their circumstances change. As the investment value of the Plan isn’t guaranteed (it’s the income which is guaranteed), they may get back less than they invested as the Plan value goes up and down in

David is 58 and married to Jane, also aged 58. They are both looking to retire at age 65.

David’s existing £200,000 pension fund makes up a large proportion of their overall retirement savings. They are anxious to protect the future pension income they will create from the savings they have already built up, but like many other couples, they need to continue to have the potential to grow their savings over the next seven years before they retire, as their fund is not sufficient to meet their future income requirements.

They have three investment strategies to consider: • Keep their pension fund invested and try to grow their retirement fund if their investments perform well, but face the risk their investments lose value; or • Select less risky assets to try and protect their existing investment, but potentially reduce their exposure to any future market growth; or • Guarantee a future level of income from their existing investments today, but remain invested to benefit from market growth, potentially increasing their future guaranteed income.

After discussions with their financial adviser, they choose

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10/11/2012 08:34

FINANCIAL FUTURE

line with the value of the underlying investments. Surrender charges may also apply. If they transfer their entire Plan, the Plan and the guaranteed income payments will end. <<

Key considerations when transferring your pension fund: • Your existing pension arrangement, or buying an annuity with your pension may provide you with a higher long-term income • Your existing pension arrangement may offer guarantees and protection that other plans cannot match • If you were to transfer your fund away from this plan in the future, you could receive a lower income, if you subsequently buy an annuity with your pension, or you could get back less than you would have under an existing arrangement. This may happen if investment returns have been poor, if you have been taking an unsustainable level of income from the plan, or if annuity rates had worsened over time.

Please note the tables are hypothetical examples and are in no way what we think future fund performance will be. They also assume that no partial transfers, Additional Withdrawals or a tax-free lump sum have been taken.

The information is provided only to show how the features of the Secure Advantage™ Retirement Solution – Lifetime Income Plan work. It is not a projection of likely or possible benefits and it in no way constitutes advice or a recommendation of any sort.

AXA Life Europe Limited is authorised and regulated by the Central Bank of Ireland, and subject to limited regulation by the financial Services Authority. Details about the extent of our regulation by the Financial Services Authority are available from us on request.

Registered Office: Wolfe Tone House, Wolfe Tone Street, Dublin 1, Ireland (No. 410727). Member of the AXA Group.

with this Plan are set out below. Your Plan is termed “guaranteed” because AXA Life Europe will continue to pay the Guaranteed Income Amount for life, regardless of the value remaining on the Plan (note that transfers or Additional Withdrawals will result in a proportional reduction in the amount of income paid).

You should be aware that the guarantees provided under the Plan are provided solely by AXA Life Europe.

The only circumstances in which the guarantees would not be available would be if AXA Life Europe were to become insolvent. If this were to happen, the benefits from the Plan might be affected. You can find out more about this in the Plan Key Features Document.

Whilst a lifetime income is guaranteed from the Secure Advantage™ Retirement Solution – Lifetime Income Plan, the value of your Plan is not. If you transfer all or part of your Plan you may get back less than you invested as your Plan Value can go down as well as up in line with the performance of the underlying investments and there may be Charges payable for making a transfer or Additional Withdrawal. This will reduce the Guaranteed Income Amount and Death Benefit that you will receive.

The Charges deducted in order to provide the guarantees and manage the Plan will reduce your Plan Value and will impact potential growth.

CHARGES ASSOCIATED WITH THE SECURE ADVANTAGE™ RETIREMENT SOLUTION – LIFETIME INCOME PLAN The Charges associated with this Plan include: n A charge applied for managing your Plan; n Fund Management Charges for the Fund you invest in; n A charge for providing the Guaranteed Income Amount and Death Benefit; n A Surrender Charge may be applied for all transfers and Additional Withdrawals out of the Plan within the first 5 years; n Fees or Commission paid to your financial adviser. For further details, please see the Plan Terms and Conditions and Key Features Document which your financial adviser will be able to provide. Full details of the specific Charges are also outlined in your Personal Illustration and Plan Schedule.AXA

WHAT ARE THE RISKS ASSOCIATED WITH THE SECURE ADVANTAGE™ RETIREMENT SOLUTION – LIFETIME INCOME PLAN? For a complete description of the risks associated with this Plan you should refer to the Plan Key Features Document. The main risks associated

Financial Advice: Independent & Impartial

Axa Securing your future_v1.indd 33

OCTOBER 2012 23

10/11/2012 08:34

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Dividend growth on a

l a b o l scale

G

Equity income investing is not just about earning income; it’s also about reinvesting the income received and then letting the power of compounding drive total return.

Invesco Perpetual fund managers Paul Boyne and Doug McGraw tap into the company’s expertise to complement their own 30-plus years of joint experience as global equity investors.

Conventional stock market logic has tended to suggest that in bull markets, investors chase soaring share prices; in bear markets, they look for large-cap stocks with attractive yields. But using the state of the economy as a barometer to measure the attractiveness of investing in dividend-paying stocks is, we believe, an oversimplified and rather short-term strategy.

In our view, investing in high-quality dividend-paying stocks can offer an attractive long-term investment opportunity. Moreover, we believe that uncovering stocks with the potential for dividend growth is key to delivering sustainable returns throughout the economic cycle.

In our view, the case for dividends as a component of total return remains paramount – in all economic conditions – and there are a number of good, logical reasons for this.

Dividend growth is generally a good and reliable indicator of corporate health. A clear dividend distribution strategy typically shows the presence of a disciplined, consistent and long-term approach by company management. It provides transparency and accountability, and, most importantly, it is tangible evidence of a company’s self-belief.

However, it is important for investors to bear in mind that focusing solely on dividend yield – calculated by dividing the share price by the dividend per share – rather than dividend growth potential, can be a dangerous strategy. This is because a dividend yield can appear high (albeit temporarily) when a

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company becomes distressed. The combination of a falling share price and a historical dividend payment can, for many, create an oh-so-attractive illusion.

Global growth The advantage of having a global strategy in place when it comes to equity income investing is that it can open up more opportunities within the various sectors; it can also, therefore, offer greater diversity in terms of the income stream itself.

There is a world of choice when it comes to dividend-paying stocks across the globe – from companies with high and sustainable dividends to companies with low and fast-growing dividends.

Here at Invesco Perpetual, we try to identify companies with the potential to offer a combination of an attractive, sustainable and growing dividend yield, alongside the equally important potential for capital growth.

But while these kinds of companies undoubtedly exist, our experience shows that it takes exhaustive research and a bottomup approach to stock picking – where we use detailed analysis of companies to identify attractive stocks, attaching less importance to the economies and industries in which they operate – to be sure that they are bought at the right price. We look for companies with strong financial characteristics, strong franchises

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Dividend Growth

or brands, and a management which is focused on disciplined capital allocation and returning cash to shareholders.

We believe that only businesses which can generate a return on capital above their cost of capital throughout the economic cycle – or those that we feel have the ability to do so in future – are worthy of investment. These companies will usually demonstrate a share of their respective markets, strong pricing power, and a sustainable ability to generate free cash flow.

In order to try to ensure that we buy the right companies at the right price, we spend hundreds of hours every month analysing and modelling the fundamental value of potential stocks. Only those businesses that we conclude offer a significant premium to our estimate of their fair value will ever be included in our portfolios.

Bottom-up approach

“We believe that uncovering stocks with the potential for dividend growth is the key to delivering sustainable returns throughout the economic cycle.”

All of which raises an excellent question: how do we define fair value? Our investment approach is to undertake detailed analysis of companies’ fundamentals to identify those that we believe offer the best risk-adjusted upside opportunities.

We do not rely on country or sector weightings. Both country and sector exposures are a result of our bottom-up stock selection process. The portfolio reflects the most attractive riskadjusted share price upside opportunities that we have identified through our research process.

In the same way that we approach income investing as more than just a ‘yield maximisation’ strategy, so we apply qualitative analysis – the research we carry out on economies and businesses which focuses mainly on ‘hard’ actual data and statistics – to stock price valuation measures in order to come to our investment conclusions. In other words, we seek to invest in high-quality businesses at attractive share prices which have the potential to increase, rather than just looking for companies that

Financial Advice: Independent & Impartial

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are, apparently, ‘going cheap’.

Our analysis is exhaustive, and it focuses on valuation measures relative to a company’s peers as well as relative to its history to achieve as full a picture as we can get. It is only by doing this that we can possibly draw a conclusion about whether an investee represents good value, and that means that we painstakingly scrutinise businesses for their ability to deliver sustainable returns on capital (today or in the future), looking also for strong and stable profit margins, attractive cash flow and disciplined management teams.

Timing, as they say, is everything. So, when we are finally ready to invest in any company that meets our exacting criteria, we make the actual investment only when we feel that the time is right and the market has underestimated their value. <<

BIOGRAPHY: Income investing forms the foundation upon which the Invesco Perpetual business has been built. The Global Equity Income team is a key part of this unrivalled franchise. Fund managers Paul Boyne and Doug McGraw tap into the company’s expertise to complement their own 30-plus years of joint experience as global equity investors.

Important information The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns.

Where Paul Boyne and Doug McGraw has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals.

Invesco Perpetual is a business name of Invesco Asset Management Limited Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK , Authorised and regulated by the Financial Services Authority

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The Exclusive Magazine For

Lansdown Place

l o r t n o C e s i u r C Leadership affects every facet of our lives. Now more than ever, people are looking to unlock the skills needed to steer them through these tempestuous times. Daniel Bryan explains how William Montgomery has been helping companies – from sole traders to multinationals – to do just that.

Leadership has slowly crept into the public consciousness again. At a time when our politics, our businesses, and our individual lives are embroiled by the chaos theory of finance, solid leadership has never seemed more imperative for stability and survival.

When things get messy, everybody takes the blame.

Issues of austerity and security are relevant on every socio-economic level, from the food on our table to the national debt. Our problems are no longer hypothetical or inconceivable, they’ve arrived and they’re personal.

This is why leadership mentor William Montgomery is more in demand than ever. The former GCHQ codebreaker and navigator of HMS Ark Royal is right when he claims that leadership impacts every single person – it’s in every facet of our lives, in every decision we make.

You may not have heard of William, but his work is globally renowned, helping some of the world’s most prominent companies, entrepreneurs and politicians.

Leadership has been in William’s blood from a young age, when he was forced to fend for himself on streets of Liverpool; an alcoholic at the age of just 14. After leaving school with no qualifications, he joined the Royal Navy in 1978 – a move that, in his own words, “really saved my life”. And it was in the Royal Navy that his fascination with leadership was nurtured, setting the precedent for all that followed. He soon qualified as a high-speed Morse code operator, but soon went on to train as a cryptologist at Bletchley Park and was stationed at GCHQ in Cheltenham as an Arabic linguistic. It wasn’t long before promotion came knocking, and William rose to officer rank, specialising in navigation and naval intelligence. He retired from service after 16 years in 1994, gained an MSc in Management at Sheffield, before going on to study Psychology at Harvard.

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Leadership

It was the late Steve Jobs of Apple who said “You are not going find anyone who will give you more practical advice and ongoing support, resulting in measurable improvements to your personal and business life, than William Montgomery”. And it’s these “measured improvements” that separate William from the hundreds of two-a-penny pundits currently riding the leadership bandwagon, most of whom offer the same generic advice, with the same ineffectual results. So, what makes William’s work different? For starters, it was at Harvard where he crafted his ‘Ten Actions of Effective Leaders’, which now form the basis of his mentoring programme. So effective is his approach, in fact, that he was asked to be the principal advisor for David Cameron’s initiative to measure the UK’s happiness. His annual leadership cruise is the stuff of legend, too, attracting such guest speakers as Liverpool Football Club MD Ian Ayre, Yo Sushi’s Simon Woodroffe, and Admiral Sir George Zambellas. And it’s this year’s cruise that William is currently putting together to help a wider audience of people who are serious about making positive changes in their lives and their businesses. And though space is limited, anyone’s invited.

You’re probably thinking “Do people still go on cruises?” Well, you’d be forgiven for assuming that cruises went out of fashion when Love Boat went off the air, but nothing could be further from the truth. That’s not to say some cruises aren’t populated with your typical insufferable vacationers. You know the ones: amateur bores who spend their time recounting holidays past, complaining that it was too hot, the cabin was too small, the food was mediocre, and it wasn’t like England. It’s folk like that who inspired Agatha Christie’s Death on the Nile. These trips do indeed exist, but the point is, cruises don’t have to be P&O and OAP. Believe it or not, some cruises do actually provide the elusive ‘dream holiday’, with sophisticated company to boot. Queen Mary 2, the world-famous ship that will host William’s next mentoring programme, is one of them.

QM2 was built in the French port of Cherbourg and made her first voyage in 2004. At the time, she was the largest passenger ship ever constructed, accommodating around 2600 people, as well as 1000 crew. Often described as the most fantastic ocean liner ever built, her every detail recalls the golden age of sea travel, as well as offering a modern and discerning luxury cruise experience. From bow to stern, Cunard’s flagship liner offers extravagant accommodation, fine dining, thrilling entertainment and exceptional service. The activities on board reflect the proclivities of the passengers: the daytime is highlighted with lectures by historians and journalists, as well as wine tasting sessions; whereas the evenings are appropriated by light music, bars and even a casino. Or for those who like to imbibe the spirit of the sea, just sit on the deck, read a book and contemplate the ever-changing seascape.

It’s not hard to see why William has chosen QM2 for his next leadership cruise. The voyage itself is enticing enough: leaving Southampton on December

15, and arriving in New York on December 22, the cruise is a perfect pre-Christmas getaway, and includes flights back to the UK. There’s plenty of opportunity to get some last-minute Christmas shopping done, as well as experience New York at its most enchanting time of year. For £2,500, each delegate on the mentoring programme can also bring a friend, colleague or partner, who can either take part in the course or simply relax for seven days. What’s more, because of the government’s new Growth Accelerator scheme (an initiative designed to aid businesses and help employers fund development opportunities for senior leaders and management) each delegate can get a £1,000 reduction off the price, providing they book before October 31. This means the cost of the mentoring cruise is actually a mere £1,500 for two people. Who said you can’t mix business and pleasure?

Don’t be fooled, though – there’s serious work to be done. Five group training sessions punctuate the voyage, all of which are grounded in William’s proven ‘Ten Actions’ theory: Learn Leadership; Take Responsibility; Enable Communication; Deliver Strategy; Encourage Creativity; Set Goals; Make Time; Understand Emotions; Inspire Motivation; and Manage Change. Complementing this is William’s one-to-one sessions, where he works to solve individual leadership conflicts or problems in a tailored and targeted way. Because of the highly-focused nature of the programme, space is limited to twenty delegates per trip – highly exclusive, but extremely personal.

Before taking the trip, everyone is invited to complete a personal profile analysis, which provides both individuals and William with the necessary foundational information (such as strengths, limitations and behaviour) on which mentoring can be built. It’s very clever stuff. Each person is also asked to read one leadership-themed book and watch one leadership-themed film from a list carefully selected

by William. This isn’t essential, but provides an interesting basis for insight and debate, helping to aid learning and development. Personal growth doesn’t just stop upon arrival in New York either – beyond the programme, William keeps in touch with all delegates, creating individual action plans to help them stay focused and motivated in their search for excellence in leadership.

Times are changing. We can no longer rely on the prosperity and security of the past, and must be prepared to adapt to a changing social and economic world. But just because our surroundings are precarious, doesn’t mean we have to be too. Overcoming the odds is all about remaining headstrong and decisive – the hallmarks of any great leader.

William doesn’t claim to impart some esoteric knowledge that’s kept guarded by the few who have made it to the top. The first thing he will say is that all the knowledge and ability you need to succeed is already within you, waiting to be unlocked. Just as the Scottish novelist John Buchan once said “The task of leadership is not to put greatness into people, but to elicit it, for the greatness is there already”. « For further details, visit: www.askten.co.uk

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IN AN UNCERTAIN WORLD, OUR GLOBAL EQUITY TEAM ISN’T. The last ten years have been anything but predictable for the world’s stock markets. But our 13 - strong1 team of global and regional equity experts have more than held their own.

With an average of 20 years’ investment experience across the team 1, they’re well versed in a wide range of global equity strategies.

And, with a wealth of resources and research capabilities supporting them, they’re encouraged to follow their convictions wherever the most promising opportunities arise.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

To find out more, scan the code below with your smartphone or visit our site.

www.invescoperpetual.co.uk/global TAKE A LONGER VIEW

Source: Invesco Perpetual as at 30 September 2012. Where Invesco Perpetual has expressed views and opinions, these may change. Further information on our products is available from us at Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH. Invesco Perpetual is a business name of Invesco Asset Management Limited. Authorised and regulated by the Financial Services Authority.

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OCTOBER - NOVEMBER 2012 #9