M A Y 2 0 12 ■ I S S U E 11
For today’s discerning financial and investment professional
THE SIPPS DEBATE
OUR READERS FIGHT BACK
EMERGING MARKETS INTO BARGAIN TERRITORY
ALAN GREENSPAN WHERE DID IT ALL GO WRONG?
THE
SIGNS ARE STILL LOOKING GOOD DOWN UNDER
N E W S R E V I E W C O M M E N T A N A LY S I S Cover 11.indd 1
02/05/2012 13:37
C30509.003_SP_Objective Returns_IFA mag_297x420_v6_Objective thinking 27/03/2012 10:59 Page 1
This communication is for financial advisers only. It should not be relied upon by retail investors. The value of an investment in the fund can go down as well as up and investors may get back less than originally invested. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.
Cover 11.indd 2
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C30509.003_SP_Objective Returns_IFA mag_297x420_v6_Objective thinking 27/03/2012 11:00 Page 2
Objective thinking Objective Returns plc. A new structured fund from Investec Structured Products Investec Structured Products has launched its first UCITS fund – Objective Returns plc. The FTSE 100 Enhanced Kick-Out Series 1 is the first sub-fund. The aim of this fund is to provide investors with a predefined return dependent on the performance of the FTSE 100 Index. The fund is accessible through both wraps and platforms and a minimum investment of £3,000 is required.
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Contents.indd 3
01/05/2012 21:43
C O N T R I B U TO R S
magazine... for today ’s discerning financial and investment professional
Emma-Lou Montgomery is a broadcaster and finance journalist and qualified investment adviser. Nick Sudbury is a financial journalist and investor who has also worked as a fund manager. Kam Patel a former deputy editor at Hemscott. He is a qualified investment adviser. Monica Woodley is a senior editor at the Economist Intelligence Unit.
Lee Werrell is the Managing Director of leading UK consultancy, CEI Compliance.
Brian Tora a Communications Associate with investment managers JM Finn & Co. Richard Harvey a distinguished independent PR and media consultant. Gillian Cardy managing director of The IFA Centre.
05.12
Editorial Advisory board: Richard Butler, Michael Holder, Ian McIver and Mark Pullinger THE FRONTLINE: A fair wind blows for Prime Minister Julia Gillard. Lucky Country indeed
17
Emerging Markets are dead? The hell they are, says Michael Wilson
Sell in May?
And why it could teach us all a thing or two about investing, says Steve Bee
Commodities. Steady ones, boring ones and nice shiny ones. Nick Sudbury is your guide
Our monthly listing of FSA publications, consultations, deadlines and updates
56
The Compliance Doctor
Lee Werrell of CEI Compliance looks at the top current issues of interest to IFAs
Thinkers: Al Greenspan The wonder of the nineties. What went wrong?
66
49
Pick of the Funds
FSA Publications
59
32
There’s some logic in the old rubric, says Brian Tora. But it’s too old to be relevant these days
The Tour de France
54
News
All the big stories that affect what we say, do and think
Editor’s Soapbox
46
8
65
The IFA Calendar
Conferences, economic summits, race meetings... All the dates you daren’t miss
The Other Side
Sacré bleu, it’s 1968 all over again, says Richard Harvey. Pass the cobblestones s’il vous plaît
Editor: Michael Wilson
editor@ifamagazine.com
Art Director: Tony Merlini
tony.merlini@ifamagazine.com
Publishing Director: Alex Sullivan
alex.sullivan@ifamagazine.com
Luxury Account Director: Nick Edgeley nick.edgeley@ifamagazine.com
IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2012. All rights reserved. ‘IFA Magazine’ is a trademark of The Wow Factory Publications Ltd. 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.
features
regulars
This month’s contributors
N E W S R E V I E W C O M M E N T A N A LY S I SN Contents.indd 4
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CONTENTS
features 22
COVER STORY
Diggers Retrench
With mineral prices down, Australia has some adjusting to do, says Monica Woodley. But it’s looking good
26
What’s in a Word?
Quite a lot, says IFA Centre’s Gillian Cardy. And a good thing too
28
Multi-Asset Funds You think it’s just uncertainty that’s driving sales? Think again, says Kam Patel
GUEST INSIGHT
34
United We Stand, Divided We Optimise
Paul Thompson from Canada Life outlines a nifty IHT planning trick
37
Fund-of-Funds
There’s life in the old safe option yet. Nick Sudbury explains
GUEST INSIGHT
42
Not such a rocky road. Oz’s rounded economy is becoming a bit of a beaut.
SIPPS – The Fightback Starts Here
Our recent article was too downbeat for some readers. Hornbuckle Mitchell, Suffolk Life and Xafinity sound the charge for the counter-attack
IFA Magazine is for professional advisers only. Full subscription details and eligibility criteria are available at: www.ifamagazine.com
I SN E W S R E V I E W C O M M E N T A N A LY S I S Contents.indd 5
01/05/2012 21:44
An Octopus IHT solution that makes the whole family happy Business Property Relief (BPR) was originally introduced to allow families to pass businesses down generations without incurring a tax liability. But what if the next-in-line doesnÕ t want to run their familyÕ s BPR-qualifying car dealership, shipyard, or manufacturing empire? Our BPR inheritance tax solutions, investing in either AIM or unquoted businesses targeting capital preservation, allow the familyÕ s wealth to stay outside the estate so the kids are free to find happiness elsewhere.
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For professional advisers only. Not to be relied upon by retail clients. Past performance is no guide to future performance. The value of an investment in an Octopus product may go down as well as up and an investor may not get back the full amount invested. An investment may only be made on the basis of the information contained in the relevant product brochure. Octopus Investments Limited is authorised and regulated in the UK by the Financial Services Authority. FSA Registered Number: 194779. Registered office: 20 Old Bailey, London EC4M 7AN. Registered in England & Wales under No. 3942880. All information correct as at 19 April 2012. Telephone calls may be monitored and/or recorded for legal and training purposes.
01.05.2012_IFA_297x210mm.indd 1 Ed's Welcome.indd 6
18/04/2012 16:53 01/05/2012 21:49
WORDS OF WILSON
PHONEY WAR
WHEN THIS MAGAZINE WAS LAUNCHED, BARELY MORE THAN A YEAR AGO, FEW WOULD HAVE DOUBTED THAT THE BIG STORIES IN 2012 WOULD ALL BE ABOUT THE RETAIL DISTRIBUTION REVIEW.
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16:53
How impotently we raged at Mark Hoban when he rejected grandfathering and insisted that the government wouldn’t give an inch on the Level 4 deadline. How loud were the Bronx cheers we gave to Hector Sants as he delivered the promised crackdowns. And now? Well, right now we’ve got more on our plates than mere regulation. For one thing, the euro crisis and the UK budget squeeze have concentrated our minds quite wonderfully on the day job. But as for all that evening study, well, we seem to be getting on with it. The FSA says that 93% of the industry has either acquired the necessary qualification level or is well under way to get there by December. Smaller IFAs, meanwhile, are proving to be more inventive than most of us expected. Many are joining networks which will allow them to share resources that they don’t currently possess. A booming new market in outsourced services is transforming the world of compliance, pensions and so forth. And a subtle graduation of the distinctions between restricted and independent advisers has persuaded a surprising number that the non-whole-of-market idea might not be quite the anathema we thought. Instead, a new raft of packaged portfolio options is finding a new outlet for the outsourcing skills of wealth managers, many of whom are getting deeply into IFA territory for the first time. All of which is quite fortunate really, considering that the full panoply of investment trusts, ETFs, full mortgage coverage and detailed tax advice is more than an embarrassing number of IFAs can properly cope with. And what about the platform providers themselves? It should have been a pushover to get them specced up for investment trusts and so forth, but it’s gone strangely quiet in the blue corner. Fidelity FundsNetwork, Cofunds and Skandia are all promising to get some sort of unbundles systems running this year, but none of them are expecting to cover more than the most liquid funds. And we haven’t even started talking about the pricing model, or trail, or fixed-price services. That’s a thorny pleasure that we’ll defer till next month. December will be here soon enough.
M ik e
Michael Wilson, Editor IFA magazine
www.IFAmagazine.com
Ed's Welcome.indd 7
Write to Michael at editor@ifamagazine.com
May 2012
7 01/05/2012 21:49
shorts
magazine
Blackrock
saw its funds under management rise by 5% in the first quarter, to $3,684 billion, the company reported. And its diluted earnings per share were up 3% on the quarter and 7% on the year since first quarter 2011. iShares generated $18.2 billion of net new business, equivalent to 12% annualised organic growth – the strongest first quarter result on record.
Apres Moi, Le Deluge France’s President, Nicolas Sarkozy, sent the European markets into a spin by failing to secure a convincing firstround win in his bid for another term.
EN PASSANT
Marine Le Pen, the far-right leader of the National Front, got an unexpected 18% - which effectively meant that she would turn out to be the king-maker in the second round of polling
Well, no, that wasn’t exactly correct. Absolutely as expected, centre-right Sarkozy’s 27.1% share of the vote was trumped by his Socialist Party adversary François Hollande’s 28.6%. Sarkozy’s problem was that Marine Le Pen, the farright leader of the National Front, got an unexpected 18% - which effectively meant that she would turn out to be the king-maker in the second round of polling on 6th May, when only Sarkozy and Hollande would be left to slug it out. And what would happen then? Well, Hollande could absolutely depend on the 11% vote of his further-left rival, Jean-Luc Mélenchon, who had agreed to support him. It was less clear whether Sarkozy could count on the far right – or, for that matter, whether he would
want their anti-foreigner support anyway? It was, in short, a mess, and that is the last thing that Europe needs at the moment. Hollande has pledged to renegotiate France’s relationship with the EU, which could put the skids under the euro rescue package and much more besides. Practically everybody except Sarkozy has sworn to dump the tougher pension rules on which France’s fiscal security depends. And all of this has gone down like a lead balloon with the French markets, which greeted the election result with a 3% one-day plunge. In other countries, Sarkozy might manage to scrape together a weak coalition that would keep him in power for a while. But French politics don’t work that way, because governments are separate from the presidency – the presidential winner’s victory is absolute. Whether that’s a good thing or not is what’s worrying the market right now.
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N E W S R E V I E W C O M M E N T A N A LY S I SN News.indd 8
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NEWS
Boiler room
fraudsters are getting more persistent, says the FSA, but they are having less success. 2011 saw a 19% rise in complaints about these telephone hucksters. But as far as the FSA can see, the numbers who fell for the scammers were down by 7%. How can we verify that figure, then? Your guess is as good as ours - and probably better than the FSA’s.
Gold
will perform well this year, according to a new survey of IFAs by Legal & General Investments, which found that 19% of its respondents expected to see $1,800 per ounce by December, with another 32% looking for more than $1,600. But the jury is divided: almost a quarter are expecting no improvement, and 15% are expecting a fall to below $1,400.
Hey, Guess What’s Happening Next December? Never accuse the FSA of missing an opportunity to state the blinking obvious. With less than seven months to go before RDR, the regulator has issued a reminder that some of us need to get a move on. But by the look of things, those warnings might not actually go amiss. The speech given by Head of Investments Linda Woodall at the FT Intermediary Forum - ‘Getting ready for the Retail Distribution Review (RDR)’ (full text at http://tinyurl. com/d77luby) contained a few surprises for anyone who thought the RDR process should have been running on rails by now. Of the IFA firms surveyed by the FSA during recent months, she said, 69% had “developed and begun to implement a plan to be RDR compliant across all the requirements”, she said. 71% of advisers were “already qualified with an appropriate qualification, with a further 22% studying for it”; and 69% of firms had said they had “begun to tell their clients, or had told all of their clients”, about the changes arising from RDR.
MIND THE GAP
Linda Woodall, Head of Investments at the FT Intermediary Forum warns gap-fill is still one of the weaker areas So, if 93% of advisers were either at Level 4 or at least heading that way, then that left 7% who didn’t seem to be interested in the idea of staying in business after December. And we’re hearing from our readers that surprising numbers are taking a couple of attempts to get through some modules, so maybe they’re cutting it a little fine for comfort? Hmmm. Especially since, as Ms Woodall said, gap-fill is still one of the weaker areas; 67% of advisers needed gap-fill, she said, but only 39% had actually completed it, with 42% still in the process of doing so and 19% yet to start. There was better progress on the charging front, with the FSA’s readiness survey showing that 59% of firms are already relying totally or predominantly on an adviser charging model. Oddly, the smaller firms are doing better here than the larger firms, only 32% of whom were up to speed. And apparently only 36% of larger firms have started telling their clients about the changes after RDR, compared with that 69% average across the profession. Gulp. Better get a move on, people. For more comment and related articles visit...
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I SN E W S R E V I E W C O M M E N T A N A LY S I S News.indd 9
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NEWS
America’s presidential race line-up was finally decided as Rick Santorum gave up his bid for the Republican nomination. Which leaves Mitt Romney facing Barack Obama in November, barring slip-ups. Slip-ups? Yes, Romney’s private equity background, and his low tax bills, are still bothering middle-class voters.
European banks
will deleverage their balance sheets by around 7% by the end of next year, the IMF reports. In real money, that means that around €2,600 billion of assets will need to be written off or stripped out of their books via sell-offs. Or, if you prefer, €5,000 for every citizen of the EU, or €8,000 for those in the euro zone. At the same time, credit will shrink by 1.7%. It’s going to hurt.
North-South Divide IFAs are expecting to have to reduce the fees they usually charge for clients with pension pots worth less than £50,000, according to new research from MetLife. A nationwide study of 100 IFAs, all of whom normally obtain at least a quarter of their business from pensions, showed that 64% would be prepared to drop their fees if required. But it isn’t all gloom and doom. 63% of the advisers said that they thought people with sub-£50,000 pots would still be willing to pay at some level for advice, with only 27% insisting that they wouldn’t. There was a very clear geographical split between those IFAs who were willing to talk turkey on fees and those who wouldn’t. In the moderately affluent South West, fully 81% said they would be willing to cut prices. But in London only 17% of IFAs said they were prepared to make price concessions for those with smaller pension pots. That might in part be due to the fact that only 17% of IFAs in London say they see clients with smaller pots, and that their clients’ average pension pots are somewhere around £86,700 - whereas in the South West an average 57% of clients are reckoned to have less than £50,000 in their pension plans.
For the country as a whole, the average pension pot was around £68,000, with 37% of all clients holding less than £50,000. But sadly, the average pot fell to £54,000 in the North West, implying that few clients indeed will be keen to pay full prices in future. For more comment and related articles visit...
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N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 10
01/05/2012 23:01
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News.indd 11
01/05/2012 23:01
NEWS
Oil prices
Unemployment in
eased back in early April as the US government let it be known that strategic reserves from the Cushing repository might be released if the squeeze on supplies got any worse. But by the 30th the market price for Brent crude had rebounded to $120 per barrel, and a return to last spring’s $125 seemed in prospect.
Britain fell by 35,000 in the three months to February, bringing the jobless total to 2.65 million, or 8.3% of the workforce. But living standards are still being squeezed. Average earnings growth fell to only 1.1% against a year earlier, thanks largely to a 6.2% drop in bonuses.
Tilting at Windmills? Eurozone financial markets took a hit in April, as worries about a possible Spanish debt crisis continued to haunt the bond trading floors. In March it had been Portugal’s turn to worry the dealers’ this time, however, it was the news that Spain’s government bonds were yielding above 6% that put the cat among las palomas. Sentiment eased a bit in mid-month, after the government managed to shift €5.7bn in new short-term bonds – more than the targets. And that in turn made everyone feel a little easier. Benchmark 10-year yields fell by 18 basis points on 17th April alone, to 5.89 per cent.
SAN MIGUEL
Bank of Spain Governor Miguel Angel Fernandez Ordonez warned that the reforms undertaken so far by the Spanish government were insufficient and more needed to be done But that still didn’t get round the blunt fact that Spain’s benchmark bonds are yielding three times as much as British gilts – or, if you want to see it that way, they’re worth only a third as much. And although there was comfort to be drawn from the April auction, analysts warned that these were only short-term bonds, and that Spain has issued very little long-term paper recently. Although the country says it has now raised almost half its total funding
needs for 2012, the general effect has been to reduce the maturity profile of the country’s debts – meaning that it will have to restructure and roll over the same debts more and more frequently in future. The government is subsisting on snack food, not square meals, and it will get hungry again twice as fast. Unfortunately that’s not all. A bigger worry, for both Spain and Italy, is that their banks seem to be getting to the end of their entitlements to borrow cheap money from the European Central Bank. And that this might well make them less willing to buy government bonds in future. Now, pay attention at the back there. As you might recall, last December the ECB set up an offer whereby EU banks could borrow up to €489 billion central bank, for three whole years, and at a bargain interest rate of 1%. All they had to do was purchase government bonds, which should have been a no-brainer if they could get 5% or even more income from those bonds. More ECB money was released at the end of February, but Italy and Spain lost no time in snarfing up their allocations, and it looks like Madrid may now have completely exhausted its entitlements. So where does that leave the country’s future bond sales? Harder to finance, that’s where. For more comment and related articles visit...
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N E W S R E V I E W C O M M E N T A N A LY S I SN N News.indd 12
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in March, boosted by a spectacular 33.6% year-on-year rise in car sales, the government announced. However, imports soared by 10.5%, largely due to a 21.8% increase in the bill for liquefied natural gas. The resulting trade deficit of about $1 billion is in marked contrast to the usual surpluses, but reflects the closures of nuclear power facilities since last year’s crisis at Fukushima.
The IMF
announced that it had raised another $320 billion of funds to help deal with the eurozone debt crisis. Of this, Europe had volunteered $200 billion and Japan had pledged another $60 billion.
NEWS
Japan’s exports grew by 5.9%
Cheer Up, It Could Be Worse Good news, perhaps, although maybe not for Spain. The International Monetary Fund has raised its forecasts for global economic growth. The IMF revised world economic growth for 2012 to 3.5%, up from its previous forecast of 3.3%. And that’s not all. Britain’s own growth rate is set to rise from 0.6% to a whopping 0.8%. The reason, said Christine Lagarde, is that things seem to be moving along faster than expected. Especially in the United States, where unemployment has fallen to 8.2%, the lowest rate since 2009. And yes, said Ms Lagarde, this development justifiably raised hopes for a recovery in the world’s largest economy. But that was about as far as it went. Indeed, it was quite hard not to remember that Ms Lagarde was being publicly pilloried in the US last autumn over the Eurozone bailout. So could it also be that she was trying to polish her Stateside image a little? Surely not? One thing that hasn’t changed is that Britain’s growth forecast for 2013 is still at 2%, reflecting the fact that the IMF considers that “the financial sector was hit hard by the global crisis”. But again, look on the bright side both. Even this was more upbeat than the majority of independent economists in the UK, who are expecting economic growth of about 1.6% next year. “In the United Kingdom, with inflation expected to fall below the 2% target amid weaker growth and commodity prices, the Bank of England can further ease its monetary policy
stance,” the IMF said. Well yes, we’ve heard that theme from the Chancellor too. IMF or no IMF, they haven’t needed much encouragement to get all optimistic in the States recently. ‘Austerity fatigue’ has been the watchword in America’s business papers during the last month, as hardcore spenders have been back in the shops buying high fashion and luxury goods.(See, for instance, http:// tinyurl.com/7kxq8o5 ) Of course, the fact that the Fed has pledged to keep bank rates “extremely low” until 2014 might be a factor there. If so, it suggests that Mr Bernanke might still have a few tricks up his sleeve to show those dozy Europeans.
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I SN N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 13
01/05/2012 23:02
NEWS
The Serious Fraud Office
Some 11% of FSA staff
left their jobs last year, according to new figures which show that 430 employees quit in 2011, up from 330 in 2010 and only 129 in 2009. It was not clear whether the current shake-up was behind the exodus, but most leavers are thought to be moving to the private sector. For some reason, an analogy about poachers and gamekeepers springs to mind.
faced a major upheaval as chief executive Phillippa Williamson stepped down from her role, just days before SFO director Richard Alderman (pictured right) was due to depart. His successor, David Green, will be trying to restore confidence after a battering from the media over dropped and inappropriate prosecutions.
Mamma Mia! In the same week that Spain announced a string of swingeing austerity measures aimed at reducing its budget overspend, Italy’s premier Mario Monti found himself with no option but to concede that his chances of balancing the books by 2013 are no more than pizza pie in the sky. Speaking on 18th April, Mr Monti confessed that the official forecasts of a 0.4% contraction in GDP during 2012 had now been amended to a 1.2% shrinkage, and that the government’s best guess for a balanced budget is now 2015. (The International Monetary Fund, by comparison, is still pinning its money on 2018 at the earliest. And it reckons that the overall economy will contract by 1.9% in 2012, not 1.2%.) It gets worse, unfortunately. The government’s forecasting document predicts that Italy’s debt will increase from 120% of GDP in 2011 to 123.4% by 2012. Which will probably not be that far adrift of what Chancellor George Osborne is forecasting for Britain.
Mario Monti and his government have tried their hardest to put a upbeat spin on the whole sorry situation. Italy’s primary budget surplus, it says, will rise to 5.7% of GDP in 2015 from 3.6% of GDP this year and 1.0% last year. Well yes, but what exactly is this primary budget surplus? It’s the figure you’d get if you factored out the entire cost of servicing the existing public debt. Call it EBITDA for treasuries, if you like. It’s about as useful as Piaggio putting an ashtray on a Vespa.
FULL MONTI
Italian Prime Minister Mario Monti attests that longer-term financing initiatives designed to boost infrastructure should be considered, involving mixtures of private and public funding
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N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 14
01/05/2012 23:02
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News.indd 15 HNS307_inc_IFA_070512.indd 1
01/05/2012 23:02 24/04/2012 13:18
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News.indd 16
02/05/2012 06:51
ED ’S SOAPBOX
WHAT’S SO WRONG WITH EMERGING MARKETS?
THE WORLD IS JUST A GREAT BIG ONION, SAYS MICHAEL WILSON OR WAS THAT MARVIN GAYE? Forgive me if I sound more than usually exercised this month, but I’ve been wanting to get this one off my chest for a little while now. And yes, I’ll freely admit that there are all sorts of reasons why the situation is more complicated than I’m going to make it sound. We always forget at our peril that for every willing buyer there has to be a willing seller, and that the leading industrial powers are always going to have their own investing dynamics, and so on. And that the euro crisis has got most of us looking out for potential knock-on fiscal effects that could easily override the simplistic assumptions of mere large-scale economics. And blah blah blah... But it’s a terribly simple point that I want to make this month, and it goes like this. Over the last 28 months, since the halcyon days of January 2008 when all seemed to be (relatively) all right with the world, UK shares have become 11% cheaper if
you measure them in terms of their price/earnings ratios. America’s S&P 500 companies have actually become 4% more expensive. But look beyond these markets and a different picture emerges. India’s shares are now 36% cheaper than they were in January 2008, Brazil’s are 31% more affordable, and China’s are a colossal 67% easier to acquire. Yes indeed, my unashamedly partisan (and unweighted) selection of ten major stock markets has clocked up a collective 33.5%
“Despite the downward rotation of the smaller wheel, the bigger wheel is still quietly cranking up the pressure for the next upward shift.” www.IFAmagazine.com
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ED ’S SOAPBOX
magazine... for today ’s discerning financial and investment professional price deterioration in those 28 months, when measured in terms of its p/e ratios. And if we’d tried to apply a weighting factor we’d almost certainly find that Shanghai’s considerable size would have made the number larger still. In fact the only one of our ten emerging markets to have upped its cost to investors during that period has been Thailand, although South Korea runs it close with a mere 5% cost deterioration during the same period. (Of which more anon.) So here’s the question. Given that every single one of these emerging markets is set to see its economy outgrowing the developed world by a significant margin this year, should we be taking more notice of this apparent undervaluation? Let me say right away that there are contenders here which certainly merit extreme caution, mainly for overtly political reasons – Russia, for one, whose business credibility is fast slipping away under the newly-reappointed President Putin. Or Argentina, which seems hellbent on frightening foreigners with its current attempt to expropriate a Spanish oil company’s assets. Buenos Aires has seen its average p/e ratio almost halving from 14.2 to 7.2 in the last two
years alone. Its ability to pay its debt creditors is more than slightly doubtful at present. Turkey’s fall from grace has coincided with a period of tricky relations with the EU and a correspondingly warm embrace of Iran’s foreign ministry – although that phase now seems to be falling apart over Iran’s support for Syria’s president Assad and his ongoing assaults against his own people. It’s not the kind of situation that a western investor would be leaping into unless he had a pretty good reason. But consider this. Would Instanbul’s p/e of 10.4 tempt you if you had the option of buying UK stocks at the same price? The bad news, for Turkey, is that you do. Other emerging markets are looking flawed but still worth exploring. In the March issue of IFA Magazine we described how India’s government has fallen back into a pattern of protectionism, while also backtracking on efforts to stop corruption. And its recent decision to introduce retrospective liabilities on foreign –owned joint ventures (such as the so-called Vodafone case) has undoubtedly blunted foreigners’ appetites for Bombay stocks. But even so, a p/e of 17.7 is a lot more attractive than the 27.6 that you’d have been paying two and a half years ago.
A Mighty Mark-Down Jan 2008 P/E Yield
April 2010 P/E Yield
April 2012 P/E Yield
% change 2008-12 (in p/e terms)
% GDP growth 2012 (f’cast)
Argentina
15.8
1.2
14.2
5.9
7.2
8.6
-54.4
3.8
Brazil
17.3
2.1
17.4
3.2
12.0
3.5
-30.6
3.3
China
25.2
1.4
15.1
2.6
8.3
3.5
-67.1
8.3
India
27.6
0.8
20.8
1.0
17.7
1.5
-35.9
6.9
Indonesia
21.2
1.9
18.9
2.0
16.8
2.1
-20.8
5.9
Mexico
13.4
1.8
17.5
1.6
18.3
2.0
36.6
3.4
Russia
23.1
0.5
13.4
1.3
6.0
2.8
-74.0
3.5
South Korea
13.4
1.6
19.9
1.3
12.7
1.3
-5.2
3.2
Thailand
14.8
3.1
13.0
3.8
15.1
3.5
2.0
6.0
Turkey
15.3
1.9
12.7
2.5
10.4
2.4
-32.0
3.5
Unweighted average
18.7
1.6
16.3
2.5
12.5
3.1
-33.5
3.5
UK
11.7
3.7
12.7
3.0
10.4
3.4
-11.1
0.5
US (S&P 500)
16.9
2.3
17.7
2.2
17.6
2.2
4.1
2.1
There are contenders here which merit extreme caution, mainly for political reasons 18
May 2012
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01/05/2012 23:25
It is, of course, always dangerous to make direct comparisons between emerging and developed markets. On the positive side, the historical p/es that we see in the above table are likely to look positively lavish against prospective p/es during a period of what is likely to be rampaging economic growth. Buy a stock today at a p/e of 20 and it’ll seem cheap in five years’ time when (or if) its sales and profits have trebled. That’s one thing that you won’t see happening so much in the UK – or at least, not across an entire market sector. Conversely, emerging market investors face the potential problems of disruptive political interference, inflationary pressures and currency instability, and in some cases downright market rigging. No sane investor would ever fail to make allowance for these factors. Nor should we discount the likelihood that local accounting and reporting standards are unlikely to be as squeaky clean as we might expect in a major market. This is why the most successful funds operating in China, for instance, deploy small armies of Hong Kong and Shanghai analysts who will be streetwise enough to know where the bodies are likely to be buried.
ED ’S SOAPBOX
The Growth Imperative
be hard pressed to name more than a handful of large emerging markets that produce more commodities than they consume. China and India are both enormous net buyers of imported raw materials, and getting larger all the time. With only a few exceptions, these countries are obliged to import most of their oil and gas. China has coal, certainly, but it isn’t the highgrade stuff that you need to make top-strength steel. For that, it has to look to Australia. That’s one reason why Australia’s economic prospects are looking better than most of the developed world these days. (See our feature on Page 22.) So is that a good thing or a bad thing? I’d say it’s both. At present, of course, the global commodities markets are in the doldrums - unless you count oil, that is. Steel, aluminium, even
The Old Commodities Argument For some odd reason there seems to be a belief that emerging markets are exciting because of all the lovely raw materials that they produce. Which is rather odd, because by the time you’ve counted South America (metals and foodstuffs), Russia (oil and gas) and Indonesia (mining), you’ll
“Unless you’ve got your money invested in soya and wheat – in which case I bow to your intuitive skills – you probably won’t have been making all that much out of your commodities portfolio recently.” www.IFAmagazine.com
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magazine... for today ’s discerning financial and investment professional coal have been plateauing for long enough to have knocked 28% off the MSCI commodities index in the last year. And, unless you’ve got your money invested in soya and wheat – in which case I bow to your intuitive skills – you probably won’t have been making all that much out of your commodities portfolio recently. I’m still going to stick my neck out, however, and say that I still hold a candle for the supercycle theory. That’s the one that says that there’s a bigger cyclical destiny that shapes not just our ends but all our short-term cycles too – and that, despite the downward rotation of the smaller wheel, the bigger wheel is still quietly cranking up the pressure for the next upward shift. Let’s return to our argument, though. Is it logical to ask why a country that’s going to be producing 8% more wealth next year than it did this year should find it harder to afford the raw materials that its industrial producers demand? I wouldn’t bet on it. Even though China’s export markets are losing ground, especially in the US, I’d take a bit of convincing that this is a seriously dangerous trend. And even if the renminbi yuan should rise by 15% against the dollar – something that the US Government is very anxious for it to do – that’ll still mean that a plastic toy made in China is only 70% cheaper than its US equivalent, instead of 85% cheaper. People will still demand it. And that’s another reason why I’ll take some convincing that the present downturn in emerging markets is justified.
Volatility and Risk On/Risk Off The volatility of emerging markets, of course, is something that we’ve come to expect. From China to Israel, from Pakistan to Colombia, the limited liquidity of the local stock markets tends to send them in great cyclical swings between boom and bust, feast and famine, as limited free floats and shortages of stock condemn investors to a succession of overpricings and underpricings, with long catching-up periods in between. That’s why it takes either immaculate timing to profit from switchbacking emerging markets, or else the patience of a Buffett to sit it out while a great prospect goes temporarily down the Big Dipper.
“I’m going to carry on whistling hopefully. And keeping my eyes firmly on the middle distance.” 20
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Eds Soapbox.indd 20
It’s equally obvious that today’s volatility is being fed, and constantly informed, by the need of foreign investors to repatriate cash at short notice – probably the biggest single reason why even the prosperous parts of Latin America have been struggling. The dominance of risk on/risk off trading in recent months has been the ultimate proof of that. It won’t change until the day when Europe finally gets the euro sorted out. If there’s one thing that’s denting stock market confidence in China, it’s the prospect that a poorer Europe with a devalued euro will be hard pressed to buy as much. But do I really think it’ll reduce the profitability of Chinese companies even if it happens? In the long term, no, because soaring domestic economies will take the emerging markets to a new and higher plane. That being the case, I’m going to carry on whistling hopefully. And keeping my eyes firmly on the middle distance.
My Calendar for 2012 I’ll be looking carefully at China’s transition to its new presidency, which is due to start soon. I’ll be watching India’s state elections for more of the same problems that have been surfacing recently. (And I’ll certainly be keeping an eye on the Vodafone case.) I’ll keep an eye on Venezuela’s October election, when the cancer-stricken President Hugo Chavez is hoping to squeeze one more term of office out of an increasingly unhappy electorate, and on Mexico, where government troops are losing control to drug traffickers in parts of the north where all the border industries are. I’ll be hoping for a quieter year in central and west Africa, where unrest in Democratic Republic of Congo, Somalia and Nigeria are still worsening; in the Middle East, where Syria’s unfinished business still casts a cloud over everything; and on Russia, whose ability to spike the oil price is bigger than it seems. And in between times, who knows, maybe I’ll find time to stake a few pounds of my own on some of these amazingly exciting prospects.
Do you have a good reason for the Editor to jump back onto his soapbox? Not that he needs any encouragement, please send your requests to editor@ifamagazine.com and stand well back!
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01/05/2012 23:25
Sparkling investments || JULIUS BAER LUXURY BRANDS FUND Swiss & Global Asset Management (Luxembourg) S.A. UK Branch 12 St James’s Place, London T +44 (0) 20 7166 8176 funds@swissglobal-am.com www.swissglobal-am.com The exclusive manager of Julius Baer Funds. A member of the GAM group.
Julius Baer Multistock - Luxury Brands Fund is a sub-fund of Julius Baer Multistock (SICAV according to Luxembourg law) and it is admitted for public offering and distribution in the UK. Copies of the respective prospectus and financial statements can be obtained from Swiss & Global Asset Management (Luxembourg) S.A., UK Branch, UK Establishment No. BR014702, 12 St James’s Place, London, SW1A 1NX, as a distributor of the aforementioned fund (authorised and regulated by the Financial Services Authority) or by the Facilities Agent: GAM Sterling Management Limited, 12 St James’s Place, London, SW1A 1NX, United Kingdom. Swiss & Global Asset Management is not a member of the Julius Baer Group..
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KANGA magazine... for today ’s discerning financial and investment professional
AUSTRALIA’S RELIANCE ON COMMODITIES HAS ALWAYS CREATED STOP-GO BUSINESS CONDITIONS, SAYS MONICA WOODLEY. BUT JULIA GILLARD’S GOVERNMENT IS WORKING ON A BETTER RECIPE Here’s another one for you acronym watchers. Russ Koesterich, the managing director and chief investment strategist at iShares, is currently tipping what he calls the CASSH countries - Canada, Australia Singapore, Switzerland and Hong Kong – as one of the most attractive investment choices for 2012. With low systematic credit risk, small debts, no government addictions to deficits, and with markets competing on a global scale, he reckons that this very special group of countries has potential for strong future growth – not just this year but on a multi-year basis.
Indeed. And high up in that list is Australia, whose eminently palatable combination of responsible government and world competitiveness makes it well worth a closer look. There are problems, for sure, and some of them are potentially serious. But there’s also a will to get it right. The question is, where does Canberra stand on the scale between the BRICs and the PIIGS? Well, Australia’s finances are certainly considerably better than most developed markets. Compared to Europe, where even “safe” countries like the UK have budget deficits of 8.3%, Australia’s deficit came in at just 3% in 2011 and is expected to fall a little over 1% in 2012.
Compared to Europe, where even “safe” countries like the UK have budget deficits of 8.3%, Australia’s deficit came in at just 3% in 2011 and is expected to fall a little over 1% in 2012 22
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AUSTRALIA
ROO STYLE Then there’s the fact that the country’s pensions system is in much better shape than other developed countries. After a decade of compulsory contributions, Australian workers now have over $1.2 trillion of funds, which means that they have more invested in managed funds per capita than any other country. This is going to make a massive difference to future public finances, as other developed countries struggle to keep their pension obligations - which are ballooning as baby-boomers start retiring – under control. And whilst it might not have the eye-watering GDP growth witnessed recently in emerging markets, the Australian economy still
expanded by 2.3% in 2011. This was short of the 2.75% forecast by the Reserve Bank of Australia, for reasons we’ll explore shortly, but it was still better than most other developed economies. Koesterich says all CASSH countries have the potential to grow somewhere between one and a half and two times as fast as the larger developed countries, on average.
Coping with the Commodity Cycle
As every history book will tell you, economic growth in Australia has always been driven by its role as a key exporter of commodities to emerging markets - including, notably, China. Mining companies are
“Five years ago a shipload of iron ore bought 2,200 flat-screen TVs. It now buys 22,000 of them” Glenn Stevens, governor of the Reserve Bank of Australia (central bank), put the value of the prolongued Australian commodities boom into very easy-to-understand terms.
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AUSTRALIA
magazine... for today ’s discerning financial and investment professional
China has coal, certainly, but it isn’t the high-grade stuff that you need to make top-strength steel For that, it has to look to Australia. That’s one reason why Australia’s economic prospects are looking better than most of the developed world these days.
riding high on the commodities boom, and the terms of Australia’s trade—the price of its exports, relative to the cost of its imports— improved by a whopping 42% between 2004 and 2011. Glenn Stevens, governor of the Reserve Bank of Australia (central bank), puts that concept into very easyto-understand terms. Five years ago, he says, a shipload of iron ore bought 2,200 flatscreen TVs. Now buys 22,000 of them. No commodities boom in Australia this strong has ever lasted this long. But, as everyone knows, even strong commodities booms are never a steady, everupward trajectory. Figures from the National Australia Bank’s Monthly Business Survey show that the mining sector appears to have felt the impact of a slight fall in global commodity prices during February, with business conditions deteriorating marginally.
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Credit Squeeze That might not be such bad news as it sounds, however. The country’s strong commodity export performance has strengthened the Australian dollar beyond what we might otherwise have expected – a fact which has made life difficult for sectors beyond mining, which need to keep prices competitive to survive. The snag, however, is that right now a strong domestic currency is needed to keep inflation in check. Because prices are rising fast in Australia’s booming industries and regions, the RBA’s ability to meet its inflation targets will depend only if prices elsewhere can be persuaded to fall. If it fails, we might see a repeat of the cyclical inflationary busts that have been associated with previous commodity booms. The last hedonistic burst in the 1980s resulted in a bust that took five years and a lot of to hard work to clear.
But the authorities haven’t been relying solely on domestic demand. Over the 18 months to March 2011, the central bank raised its key interest rate by 1.75 percentage points from 3.0% to 4.75%, before backing off in December to today’s typical 4.25% level, in the teeth of complaints from manufacturing and construction firms about the unfavourable position it was putting them in. Consumers have found themselves in much the same sort of bind, except that they haven’t felt the benefit of December’s rate cuts. Borrowing costs for most borrowers actually rose again in February, as the country’s commercial banks raised their rates. And with housing loans at 7.5% and unsecured personal loans at 14% plus, things are tougher than at almost any time since the late 1990s. That may account for the fact that GDP grew just
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managed to push through. (Another idea that Rudd proposed but then grievously mismanaged before his eventual fall from grace.)
Taxing the Bigger Diggers
Trade Winds
One convenient way that the government has looked to rebalance the economy - by sharing the wealth of the commodities boom – has been the Minerals Resource Rent Tax (MRRT). This controversial tax, approved in March, will impose a tax of up to 30% on profits made by large coal and iron-ore mining firms above a threshold of A$75 million. It will be implemented from July 1, 2012 and is expected to raise A$11 billion in its first three years. The windfall will be used to fund a cut in corporation tax, higher contributions to pension funds and infrastructure spending. The final approval of MRRT was a huge victory for the embattled Labor Prime Minister Julia Gillard, who has had a tough time since she swept to power in June 2010 after her leftist rival Kevin Rudd stomped off the political stage to leave her in sole charge. Rudd himself had aroused so much business opposition with the original version of his bill that it had brought an early end to what had actually been a rather do-nothing political record. But Gillard was fnally able to pass a watered-down version by offering concessions to the Greens and independent MPs. That might not be the end of the story, of course. The leadership of the LiberalNational opposition coalition has pledged to repeal the MRRT if it manages to get re-elected at the next general election, which is due in late 2013. The liberals are also threatening to dump a new carbon tax that Gillard has
But as the government gleefully rubs its hands together at the thought of all that lovely revenue coming in from the MRRT, it should pause to consider the potential headwinds facing Australia’s mining industry. Its main customer, of course, is China, whose seemingly unrelenting economic growth fuelled an infrastructure splurge dependent on the commodities that Australia supplies. But Chinese growth is now slowing as its own exports are hit by Europe’s economic woes: its exports to the EU in March were 3.1% lower than March last year. And although China enjoyed a $5.4bn trade surplus with the EU in March, compared with a $31.5bn deficit in February, that’s not necessarily good news. Beijing’s economy slowed to 8.4% in the fourth quarter of 2011, compared to 8.9% in the same quarter of 2010.
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AUSTRALIA
0.4% in the fourth quarter of 2011, instead of the expected 0.8% - leading to the lowerthan-forecast GDP result of 2.3% for the year as a whole.
Accordingly, Australia’s exports have been feeling the pinch. Total exports fell by 10.6% in January, according to the Australian Bureau of Statistics, and then by another 1.8% month-onmonth in February, to just A$20.4 billion. Almost all of January’s decline had been due to a decline of A$1.1 billion for metal ores and minerals and non-monetary gold. And its total exports to China had fallen by 23% month-on-month. Ouch. Exports to China don’t look likely to improve any time soon, because China is sitting on a stockpile of copper. The metal’s price, often seen as a bellwether for the global economy, fell by 7% in the first few weeks of April, dropping below $8,000 a tonne for the first time since January. And the Economist Intelligence Unit currently predicts that Australia’s mineral exports will increase by only 9% in 2012, after a 13.7% gain in 2011. For more comment and related articles visit...
IFAmagazine.com
The final approval of MRRT was a huge victory for the embattled Labor Prime Minister Julia Gillard Gillard was eventually able to pass a watered-down version of MRRT through the Australian parliament by offering concessions to the Greens and independent MPs.
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INDEPENDENT ADVICE
magazine... for today ’s discerning financial and investment professional
WHAT’S IN A WORD? QUITE A LOT, SAYS IFA CENTRE’S GILLIAN CARDY. AND A GOOD THING TOO How times change. 25 years ago, we got to grips with the new concept of tied advisers disclosing that they only sold products from their own company. For those people, at that time, you couldn’t comment on products from another provider even if you knew about them. And if it was not “best advice” to sell them something from your own product range, clients were told to go and find an independent adviser instead. There was no regulatory definition of an independent adviser in those days, of course, but the “i” word was still valuable enough for direct sales people to use - usually in the context of running their own “independent” businesses. “Multi-ties” introduced a creative way to enable firms to advise on products from a limited range of providers, accepting that the best term assurance provider might not be the best personal pension provider (although whether they were indeed “best of breed” or merely commercial arrangements was never clear). Later still, you could only describe yourself as an independent adviser if you offered clients a fee option to pay for their advice, while whole-of-market advisers continued working on commission only.
A Binary Choice
But here we are now with RDR around the corner, and it looks like the whole current miasma of tied, multi-tied, whole of market or independent will finally be replaced with a simple binary choice : Restricted or Independent. The return to this simple distinction is reassuring. Either you’ll have ties, special deals, reduced ranges, favourable terms, contractual arrangements, limited research, or panels which prevent you advising clients on the full range of products and providers. Or you won’t. Now, some people (not entirely without vested interests) suggest that Independence is no
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longer important to advisers or their clients. But review the websites of a number of advisory firms, and it’s stunning quite how many column inches firms devote to describing Independent Financial Advice and explaining why it’s important. I quote : ■ “Independence is the only way you, the client, can get a truly objective view of your finances.” ■ “It’s ‘altogether individual’. We create strategies tailored to client needs, using every possibility available. Independent in thought, in action, and independent of any product provider.” ■ “Because all our advisers are independent ...their advice is truly impartial.” ■ “One size doesn’t fit all. Clients are individuals.” ■ “The firm’s only allegiance is to the client, not to any product provider.” ■ “IFAs only ever work in the client’s best interest.” When you put it that way, why on earth would a client aspire to anything else? Well, the converse works as well. Let’s try turning all those grand statements round, inserting a few negatives, and then decide what would make those propositions appealing to clients? Create a Restricted offering, and you have effectively decided that your clients, some of whom will face dramatic changes in their lives and finances, and some of whom you haven’t met yet, will never need advice on certain products or arrangements from certain providers. Quite simply, the client did not set the advice agenda. You did. It’s simple to explain how Restricted advice is in the firm’s best interest (easier, cheaper, quicker, more profitable). But how can it be in a client’s best interest for advisers to have decided what solutions they will need, months or years before they walk through the door? Independent advisers aren’t irrational or emotional, unsustainable or dinosaurs. They have decided it cannot be in a client’s best interest to provide less tailored, less bespoke, less individual, less impartial, less objective, not Independent, Restricted advice. And, quite simply, their clients come first. For more comment and related articles visit...
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01/05/2012 23:32
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An Investment & Pensions Market Briefing
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15 May 2012 RIBA London 66 Portland Place London, W1B 1AD 8.30am – 10.30am or 3.00pm – 5.00pm overview ning and informative Join us for an enlighte dscape. ent and pensions lan of the current investm JP Morgan, organisations, such as Industry experts from x, will offer S Bureau and AML Ta Carey Group, QROP insight into the al and unparalleled delegates a technic could affect how recent updates markets and explain you and your clients. s running on the two-hour session Choose from one of for more information: the day. To register or balsolutions.com Visit: http://rsvp.amlglo Call: 01624 651977 tion.com Email: info@amlevolu
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11/4/12 13:19:24 01/05/2012 23:32
magazine... for today ’s discerning financial and investment professional
FUNDS FOR ALL S THERE’S MORE THAN JUST A CLIENT FEAR OF VOLATILITY BEHIND THE SURGE IN MULTI-ASSET SALES, SAYS KAM PATEL It doesn’t take a lot to work out why the demand for diversification is so strong at the moment. Market volatility has been back with a vengeance since March, thanks to worries over global growth prospects and the fact that the eurozone has hit another crisis point. So now, with the smart money on yet more turmoil ahead, investors and financial advisers alike are showing increased appetite for funds that offer both diversity and control over asset allocation. And that’s where multi-asset funds score, of course. Because they can boast such remarkable freedom in allocation, both in terms of asset classes and geographical spread, it follows that their appeal to investors is considerable. But this is not to say that all multi-assets are simply homogenised safety vehicles. The very spread of possibilities allows providers to offer a huge range of risk/return strategies for clients with widely varying risk tolerances. And this in turn means that it can be a tricky business assessing their global uptake. But fund data provider Lipper has come up with some helpful figures that offer a decent, proxy assessment of the multi-assets’ popularity in recent years. The Lipper data relates strictly to funds which have no asset restrictions – they can invest in cash, bonds, property, alternatives, commodities and so on – and which consequently follow a benchmark only rarely. But what a ride it’s been. In 2006, sales of these funds in the UK totalled just £514 million. But by 2008 sales had soared to £1.44 billion as the unfolding global crisis sent investors clamouring for diversity and a focus on asset allocation to help minimise risk. Lipper’s data show that they more than doubled to £3.28 billion in 2009, and again to £8.26 billion in 2010. Last year’s reduced total of £6.26 billion probably a wider retrenchment of the whole savings system, but the panic seems to be receding. By March 2012, sales had regained £1.4 billion.
Thank you MAM As you’d expect, new launches are coming along all the time. On the runway for early May, for instance, is MAM’s Miton Global Diversified Income Fund, a new fund that aims to generate attractive levels
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of income in a low yield environment by investing across a wide spectrum of regions and asset classes. Initially targeting a yield of 4%, Miton Global will have the flexibility to invest in equities, debt instruments such as corporate bonds, property and other asset classes. Fund co-manager James Sullivan says that it is likely to be fully invested at all times – because, he says, the right blend of all these asset classes and more can provide additional diversification and the potential to reduce portfolio risk. But, while Sullivan cites market volatility and global economic uncertainties as major factors in driving sales he is also keen to highlight the increasing importance of the Retail Distribution Review as a demand driver. “With RDR, financial advisers are likely to come under pressure to outsource their stockpicking to established DFMs or multi-managers. That being the case, the opportunity for us is really quite terrific.” “For IFAs to stockpick a balanced portfolio, monitor it on a daily basis, and make changes quickly when needed …well, it’s a big ask. A big house, though, will be looking at it all daily and it will have the infrastructure to easily make those changes. Moreover, those changes [when made by us] are tax exempt for IFAs and their clients. If an independent adviser tried to make similar alterations, they’d risk triggering a taxable event.” The Sullivan-Gray team can certainly lay claim to experience of delivering handsomely having made Miton Special Situations, another multi-asset fund they co-manage, a big success. Miton Special was one of the very few funds that generated a positive return in 2008 - a year which saw equity markets slump by nearly a third. As well as having posted positive returns over the last five years, it boasts a superior long term record of return – 150% over the last ten years, double that delivered by the FTSE All Share.
Critical Asset Decisions Meanwhile, over at Barings, managers have just marked the third anniversary of their own offering. Barings Multi-Asset, managed by Andrew Cole, aims to generate a capital return in excess of UK inflation over the medium to www.IFAmagazine.com
01/05/2012 23:34
M U LT I - A S S E T F U N D S
SEASONS long term. And so far the results have been pleasing. On a rolling 12 months to February 2012 the fund returned 7.2%, and since its inception in March 2009 the fund has returned 12.3% against a target of 7.5%. Key exposures currently include UK equities (25.8%); global ex-UK bonds (25%); global ex-UK equities (21.6%) and specialist equities (7.6%) and cash (7%). “We are focused on dynamic asset allocation,” says Cole, “in recognition that in volatile markets - which we believe are here to stay - the key determinant of your performance will be which asset you own at any moment in time.” Cole is clear however that, in a highly uncertain environment, relationships between assets have become increasingly less stable and that finding good portfolio diversification has become more challenging. Portfolio theory suggests that a combination of government bonds and equities should give investors a better risk-adjusted portfolio. But, while that is probably true in theory - and indeed, most of the time - Cole points to the recent experience of Greek and Irish investors to highlight the danger that what is theoretically supposed to be the safe, secure asset in a portfolio can suddenly become highly correlated and as risky as the riskiest asset: “That might be an extreme example, but investors generally got caught by such changes in correlations in 2008, when the perceived portfolio diversifiers failed to deliver that characteristic.” With such perils lurking, Cole says the key challenges for his team are, firstly, to identify what it reckons are going to be the best performing assets, and then, secondly, find effective portfolio diversifiers. He adds: “As investors have experienced over the last few years, we have seen extraordinary market behaviour and previously unimaginable responses from the authorities in terms of the conduct of monetary and fiscal policy. Fund managers tend to think about a return to the norm and mean reversion. So perhaps the challenge is to imagine what might still be regarded as unimaginable.” www.IFAmagazine.com
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Rod Aldridge, head of UK retail distribution at Barings, is also keen to stress the impact of RDR. “The regulation is leading independent advisers to review how they build investment propositions for their clients,” he says. “And that’s forcing them to rethink their business models. As a result, many are looking to third party solutions to help them manage client portfolios.” Not all decide to outsource the whole job, though. Aldridge says that Barings has been seeing a trend where some IFAs offer their clients a more bespoke, value added construction consisting of a 50% exposure to established multi-asset offerings, with the remaining 50% allocated by the advisers themselves to distinct asset classes such as high yield and agriculture. He anticipates that such hybrid IFA strategies will increasingly become the norm in the post-RDR world..
Ahoy, More Turmoil Ahead! Mike Turner, head of global strategy & asset allocation at Aberdeen Asset Managers, believes that Aberdeen’s unusually wide spread of activities gives its managers extra room in which to respond to changing market conditions. “Because our investment universe is unusually large,” he says, “we have a wide range of asset classes and geographical locations which fit within our mandate.” One of the institution’s current offerings, Aberdeen Multi-Asset Fund, aims to deliver long term total return from a diversified portfolio that might include transferable securities, units in collective investment schemes, money market instruments, warrants, cash and derivatives. Major holdings currently include UK equities (40%); UK alternatives (10%) Europe exUK equities (9%) and UK bonds (13.5%) The fund has done well against its peers, too, attaining the top quartile over one, three and five years. Over the last three years it has generated nearly 19%, against 15.8% growth from its benchmark – a composite that includes the FTSE All Share (40% weighting) and the MSCI World ex-UK (25%). Over the last twelve months the fund has delivered 4.6% compared to 3.1% for the benchmark. But Turner and his team are not resting on their laurels: “That’s all the past. Our focus now is on ensuring the fund is well positioned to deliver continued long-term performance to investors.”
INVESTMENT TRUSTS
Hybrid Propositions
multi-asset sector in general, Turner worries over its very disparate nature - something that has always bedevilled the industry and shows no sign of being resolved anytime soon: “It has meant we have needed to develop sophisticated forms of categorisation in order to compare performance between competitors. A key challenge, therefore, is to ensure that clients understand the way the fund works and the way in which it is categorised.” As for potential hurdles to sector performance going forwards, Turner reckons that funds could be hampered by developed markets experiencing sub-par growth rates, given unemployment levels that remain at historically high levels. He is also worried about the US housing market, noting that although it may be stabilising, it is doing so from a very low level. Also, given that it is election year in the US, he believes a move to improve the American fiscal situation is unlikely to be forthcoming in the near term. Another big concern for Turner is the outlook for oil, since any sharp increase in its price would pose a major threat to the recovery in real incomes. Tensions in the Middle East are therefore a real risk to the global recovery: “Our view is that it would require a return to the $150 a barrel level, last experienced in 2008, before a major impact was felt on economic growth.” Indeed, Turner is sufficiently concerned about the near-term outlook overall to say he would not be surprised to see a significant market correction as the summer approaches. He is confident, however, that Aberdeen has the personnel, creativity and experience to navigate more bouts of turmoil: “We’ve managed multi asset portfolios for over 10 years and the key challenge is always to deliver great performance no matter what the market conditions. “Those who have been with us for a long time have had a good experience, and we’ve got to know them well. It’s likely that we’ve been through downturns together but delivered to their expectations. I always want to be able to continue to deliver for all clients, old and new.” For more comment and related articles visit...
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Future Challenges In considering the challenges ahead for the
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HORSE CHESTNUTS
magazine... for today ’s discerning financial and investment professional
NUTS IN MAY
DON’T TAKE THE STOCK MARKET MANTRAS TOO LITERALLY, SAYS BRIAN TORA “Sell in May and go away”. There can be few stock market adages better known than this one. And what do you know, it’s May again. So should we sell? Is there any evidence that such a strategy works? And what of the other half of this wellworn saying – “Buy again St Leger day”? For those not familiar with horseracing, the St Leger is run at Doncaster on the second Saturday in September, as it has been for over 230 years. (Although this year, just to be awkward, it’s happening on the 15th September, the third Saturday.) One of the most important races in the flat racing calendar, the St Leger is the culmination of the four-day St Leger Festival. I have never attended this meeting, preferring National Hunt racing, but by all accounts it’s a spectacular event. But why should this piece of stock market lore come into being? My best guess is that it relates to the days when ownership of shares was dominated by the wealthy. The dominance of today’s so-called investing institutions – the pension funds, insurance companies and fund management groups on share registers is actually a relatively recent phenomenon. When I started in this business, nearly half a century ago, nearly 60% of all shares in this country were owned by individuals and their trusts. Today, however, only around 13% is in private hands – and that figure has been even lower in the recent past.
The Summer Season
Back in the days when the landed gentry were likely to be the principal owner of shares, the “Season” would have played an important part in the life of the wealthy and privileged. Come May, London houses would be closed as whole families decamped to the country to enjoy the sports and social events available to them. With communications less comprehensive then, it was not unreasonable to expect activity on the Stock Exchange to decline during the summer months, with so many of the main players absent.
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As an investor, it would make common sense to sell those shares of which you are less certain or likely to be subject to volatility before you turned your attention to more pleasurable activities. Once in the country, it might prove difficult to keep abreast of developments and take any necessary action. But come September, the opportunity to engage with your broker would return and buying recommence. So perhaps this phrase has its origins in the way in which the rich were likely to live their lives back before the Second World War. This hardly suggests it would carry much currency today, with the professional investor community now dominating activity on stock markets and a truly global environment resulting in trading taking place literally 24 hours a day.
Judge Each Year On Its Merits Yet, intriguingly, on balance it does appear to work. Statistics suggest that the period between January and April is likely to prove more profitable for investors than May to August. Perhaps this has to do with the fact that more important company news emerges in the first third of the year, while the tax year end also stimulates activity? Moreover, even investment managers do need to take holidays – and the summer is more likely to see them joining the bucket and spade brigade than the spring or autumn. So words of perceived wisdom, like “Sell in May”, often contain a grain of truth. Sir John Templeton, no less, gave a useful phrase to the investment world: “Never trust the man who says this time it’s different.” And I once read guidelines for why a company’s shares ought to be sold, which included the fact that the chairman was buying his local football club. You can understand both these viewpoints. But selling in May and going away must be a judgment taken each year, and not treated as a given. For more comment and related articles visit...
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01/05/2012 23:38
200_
For professional advisers only
Factsheet The Xafinity SIPP is a “full” SIPP product aimed at more sophisticated investors who wish to maximise investment choice through all acceptable investment types. This includes commercial property (where we specialise, with over 900 in our SSAS and SIPP portfolio), unlisted shares and other investment types.
Xafinity SIPP product features n Unlimited number of investment types/products can be held n Investments in Funds Ð choose from the whole of market Ð Platforms, WRAPs, Fund Supermarkets, managed funds (including investment trusts, unit trusts and OEICs) n Commercial property & land investments n Unlisted company share purchases Ð up to 70% of your clientÕ s SIPP could be invested n UCIS investments accepted, subject to technical review n Joint / Family SIPPs available with shared fees for jointly owned assets n Comprehensive retirement options available including Flexible and Capped Drawdown n On-line valuations available to members and IFAs n Flexible IFA remuneration, paid monthly
Xafinity SIPP fee summary n £0 SIPP Set up fee n Annual fee of 0.24% of SIPP assets held. Minimum annual fee of £162pa, maximum fee of £530pa n Additional fees apply for establishment and administration of new investments eg commercial property n No additional fees for VAT administration & borrowing administration on property/land n Flexible & Capped Drawdown fees at £120 for set up and £11 per regular payment n Exit fee applies only if member transfers all assets out of the Xafinity SIPP prior to benefit settlement.
Further information can be found at:
www.xafinitysipp.com Xafinity SIPP Services Ltd is authorised and regulated by the Financial Services Authority, Scotia House, Castle Business Park, Stirling FK9 4TZ. Registered No SC69096. 932XSP(02/12)
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27/2/12 11:06:41 01/05/2012 23:38
GUEST INSIGHT
magazine... for today ’s discerning financial and investment professional
UNITED WE STAND, DIVIDED WE OPTIMISE PAUL THOMPSON OF CANADA LIFE SAYS SOME ESTATE MATTERS ARE BEST TACKLED AS SINGLES
Homer and Marjorie Simpkins are in their early 60s. They are married with three adult children and six grandchildren, and they’ve built up life savings of £300,000 which are currently invested in a cash savings account in their joint names. Together with their other assets (house, cars, jewellery), their total joint estate is £640,000. And that’s how they do everything – as a couple. All that might be about to change. Homer and Marjorie are thinking about entering into some form of estate planning, using some form of trust arrangement to mitigate future liabilities after they die. So should this be done using a traditional joint arrangement? Or would it be preferable, just for once, for each of them to create a separate trust? Well, on the face of it a joint arrangement will certainly be easier, because there’ll be less documentation to complete, and the administration will also be simpler. But in this instance there’s a strong case for married couples, or civil partnerships, to think more flexibly.
The Problem
As we’ve said, Homer and Marjorie are worth exactly £640,000 between them. But both are conscious of the fact that, if this figure increases in the future, it might exceed their inheritance tax (IHT) nil rate bands, which are currently £325,000 each. Bearing in mind that the nil rate band will not increase until April 2015 at the earliest, and that even then it will be linked to the Consumer Price Index, not the Retail Price Index, they decide to consult their professional adviser to see if there is anything that they can do to keep the value of their total estate within their nil rate bands. One potential solution, of course, would simply be for Homer and Marjorie to make gifts to their children. Provided that they survive the gifts by more than seven years, no IHT will be payable. However, this would simply shift the IHT problem onto the children. And as it happens, the kids are now wealthy in their own right and have no real need to receive substantial gifts anyway. Such gifts might remain in the children’s estates and be subject to IHT when they die - or
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perhaps the children might make further gifts, meaning that there would be a danger that they could be subject to IHT twice. Shudder.
Skip a Generation?
The professional adviser therefore considers whether gifts could be made to the grandchildren, thus skipping a generation. In view of their young age, outright gifts would not be appropriate, but a discretionary trust could certainly be considered. Indeed, this could be created with both the children and the grandchildren as potential beneficiaries, since the trust fund would not form part of the estates of either the children or the grandchildren for the purposes of IHT. However, the professional adviser quickly establishes that Homer and Marjorie are very reluctant simply to give cash away. They feel that they have worked hard all their lives to build up their life savings, and - particularly bearing in mind that they are approaching retirement - they do not want to lose access to cash that they might need once their income is reliant on pensions alone. What they need, then, is some kind of arrangement that freezes the current value of their savings for the purposes of IHT, yet still allows them access to the capital.
Gift & Loan
The Professional Adviser therefore suggests a Gift & Loan Discretionary Trust. This would be based on a discretionary trust being created for £10, with both Homer and Marjorie being the settlors jointly. They would need to appoint at least one additional trustee to act with them (Homer and Marjorie decide to appoint their next door neighbour, Edward Flanders), and then they would lend the trustees £300,000 which the trustees would then use to take out an investment bond. Homer and Marjorie would each need to complete a suitable loan agreement for the sum of £150,000 each. The terms of each loan would be that it was interest-free and repayable on demand. In order to protect the trustees from personal liability should the value of the investment bond decrease in the future, the loan agreement includes a “limited recourse” clause. This specifies that, if the trust fund is less than the outstanding balance
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01/05/2012 23:41
GUEST INSIGHT
of the loan when a demand for full repayment is made, the trustees will only need to repay the value of the trust fund in most circumstances. So, what would be the effect of such an arrangement? Firstly, it should be noted that the only transfer of value, for the purposes of IHT, would be the £10 initial gift (£5 from each). This would undoubtedly fall within their annual £3,000 exemptions. The loans of £150,000 each would not be transfers of value; since they would be repayable on demand, the whole £150,000 would still be an asset of each estate, meaning that the value of their estates would not be reduced at all. However, any future growth on the £300,000 total of loans would accrue within the discretionary trust and, therefore, would not form part of Homer and Marjorie’s estates. This would mean that the value to be included in their estates for the purposes of IHT would never be greater than £300,000. In addition, they can rest safe in the knowledge that, should they ever need to fall back on their savings, they can always demand a repayment of all or part of the outstanding loan.
nine partial repayments of £15,000, meaning that the outstanding balance of the loan is now £300,000 – (£9 x £15,000) = £165,000. The value of the trust fund is therefore £450,000 less the outstanding loan of £165,000 = £285,000. Homer’s will leaves the whole of his estate to Marjorie, including his share of the outstanding loan. Marjorie decides to continue to take £15,000 loan repayments every year. 11 years later, the whole loan has been repaid. As she is one of the settlors, Marjorie could not be a beneficiary without creating a gift with reservation, meaning that Marjorie can now take no further benefit. This leaves her with very little other income and, as a result, she has to make significant adjustments to her standard of living.
Loan Repayments
Homer and Marjorie like this suggestion, and they enter into a joint settlor Gift & Loan Discretionary Trust on 1 May 2012. They take no loan repayments to start with, but, soon after their retirement, they decide to ask the trustees to repay 5% of the loan (£15,000) to them each year. As time passes, the value grows to the extent that, by the time of Homer’s death on 1 February 2027, the investment bond is worth £450,000. There have been
The similarities and differences in the two approaches: Date
Event
Joint Settlers
Homer Settlement
Marjorie Settlement
1 May 2012
Loan
£150,000 x 2
£150,000
£150,000
1 Sept 2018
Loan repayments start
£7,500 x 2 a year
£7,500 a year
£7,500 a year
1 Feb 2027
Homer dies
Homer’s share of outstanding loan passes to Marjorie, who continues to receive annual repayments of £15,000
Homer’s outstanding loan passes to Marjorie, who continues to receive annual repayments of £7,500
Annual repayments of £7,500 to Marjorie continue
1 Sept 2037
Final loan repayment
Final loan repayment
Final loan repayment
After 1 Sept 2037
No further benefit can be paid to Marjorie
Marjorie appointed as a beneficiary and money is lent to her as and when needed
No further benefit can be paid to Marjorie
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GUEST INSIGHT
magazine... for today ’s discerning financial and investment professional
“A joint arrangement will certainly be easier but there’s a strong case for couples to think more flexibly.”
Two Singles?
What would have been the position had Homer and Marjorie each taken out a £150,000 Gift & Loan Discretionary Trust? In other words, instead of them both taking out a joint settlor arrangement, Homer could have created a single settlor discretionary trust for £10, appointed Marjorie and Edward as trustees and lent them £150,000, and Marjorie could have created a similar arrangement, appointing Homer and Edward as trustees. Initially, there would be little or no difference in treatment. There would be two loan agreements, as before, and each of Homer and Marjorie could take loan repayments on demand, as before. However, what would be the position on Homer’s death in 2027? Again, the outstanding balance of Homer’s loan would pass to Marjorie under the terms of Homer’s will and Marjorie could decide to continue to take 5% repayments (£7,500) each year, just as Homer had done during his lifetime.
Loans to Marjorie
The big difference in treatment, however, occurs eleven years later, when both loans have been fully
repaid. In these circumstances, the trustees of Homer’s Gift & Loan could make an appointment in favour of Marjorie, since she can now be a beneficiary of Homer’s trust. This would mean that she could continue to receive benefits. Indeed, the trustees might decide to lend money interest-free to Marjorie as and when she needs cash to spend. On Marjorie’s eventual death, this would result in there being a debt on her estate. This would have the effect of reducing the value of her estate which, in turn, would mean that her estate’s IHT bill would be lower. The benefit of both trusts, however, would be outside of Marjorie’s estate and could therefore be paid to the beneficiaries free from IHT. For more comment and related articles visit...
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27/03/2012 17:49 01/05/2012 23:41
MULTI-MANAGER FUNDS
OFF THE PEG FUND-OF-FUNDS OFFER A READY MADE SOLUTION FOR CLIENT PORTFOLIOS, SAYS NICK SUDBURY You won’t exactly need reminding that the last decade has been one of the most turbulent in living memory, with investors enduring a succession of sharp stock market crashes and protracted recoveries. Or that complex policy responses like quantitative easing have added to the confusion and made it difficult for any mere mortal to know where he ought to invest. Against this backdrop, then, it’s perhaps not too surprising that the one area of the market that has grown consistently is the fund-of-funds sector. (Otherwise known as multi-manager.) And what a growth curve it’s been. At the end of 2002 these investments accounted for a mere £21 billion of assets under management – but ten years on, the figure has risen to almost £96 billion. Indeed, the Mixed Investment 20% to 60% Shares category has headed the retail client best seller list in 5 of the last 7 years. From a client perspective, the beauty of investing in a fund-of-funds is that it enables him, in effect, to delegate the whole process to a seasoned professional. This means that he no longer needs to select which funds to buy, or worry about how to combine them into an effective portfolio. Better still, he won’t need to lose any sleep if something happens or the market changes, because he knows his manager will react accordingly. There are also attractions from the adviser’s point of view. A successful fund-offunds could potentially provide a ready-made solution to the post-RDR challenge of delivering best advice from across the many thousands of funds available in the market. The task of deciding which products would be most suitable for a given client has suddenly become a lot more manageable.
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So much for convenience, then. But what about performance? Well, the Mixed Investment 20% to 60% Shares category has generated an average return of 46.2% over the last decade, which compares quite nicely with the Footsie’s very turbulent ride to a 15% gain. (Although, for comparison’s sake, I suppose the Footsie figure should properly receive an additional sum for dividends.) Indeed, this growth rate has been further hampered by the extra cost, of course. So it’s clear that the better managers have more than made up for the double layers of fees. It is also striking how much variation there is in the spread of the underlying portfolios. Some multi-managers make a virtue of diversification and hold 20 or even 30 different funds, while others concentrate their money in just half that number. So who’s getting it right? Well, one obvious problem with investing in too many funds is that you can diversify away all of the alpha and end up with a very expensive quasi tracker fund.
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magazine
like a Who’s Who of the industry, with the roll call including the likes of Neil Woodford, Adrian Frost and Richard Woolnough. As a result, the rolling three year performance results have always ranked in the top quartile.
Nice Little Earner A Bit of Magic from Merlin One of the most popular products in the sector is the range of four fund-offunds known collectively as the Jupiter Merlin Portfolios. These each cater for a different investment objective, but are managed by the same experienced team headed up by John Chatfeild-Roberts. The largest of the four is the £3.5bn Jupiter Merlin Income Portfolio. This aims to achieve a high and rising level of income with the potential for capital growth. The underlying funds mainly consist of UK-based, income generating investments, with up to 60% in equities and the majority of the balance in fixed interest. Algy Smith-Maxwell, one of the comanagers at Jupiter, says that a fund-of-funds is an appropriate and versatile structure that allows them to combine a top down macro strategy with bottom up fund selection. “We spend our time analysing managers and markets, then back our convictions,” he says. “Historically, around 50% of the portfolio has been invested in the top 5 holdings.” Jupiter Merlin Income has built up an amazing track record with a return of 108.6% since the current team came together in 2000. It has a concentrated portfolio of just 13 funds and historically yields 2.8% with the dividends paid on a quarterly basis. Smith-Maxwell says that the team’s overall aim is to increase the real value of its investors’ wealth over time. And, to do that in a logical way, you have to minimise the downside. “The vast majority of the managers that we invest in have to have a consistent strategy, and to have made money through an entire economic cycle. They are typically willing to underperform in a bull market as long as they don’t underperform in a bear market.” The people Jupiter have money with reads
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Legal & General is perhaps best known for its index trackers, but the company also has a range of three fund-of-funds - an income, a growth and a balanced mandate fund. These have the freedom to invest in managers from across the industry, as well as in their own in-house products. Of the three, the largest is the L&G Multi-Manager Income Trust with assets under management of £245m. This has returned 45% in the last 3 years, and it has a historic yield of 2.7%. Considering the dual-layered nature of the fund, it has a very reasonable TER of 1.8% - although there is also a performance fee that applies in certain conditions. Tim Gardner, one of the co-managers, says that the team uses active asset allocation and fund selection to add value via both disciplines. “In our view multi-asset doesn’t mean holding all asset classes at all times,” he says. “We look at the fundamental drivers of return, and then react accordingly.” The Income Trust currently invests in 18 separate underlying funds, including highly regarded products such as M&G Optimal Income, Invesco Perpetual High Income, Artemis Income and M&G Recovery. Its largest geographic exposure is the UK, with a weighting of 28%, followed by the US at 14% and Europe at 9%. The main focus, Gardner says, is on qualitative research which enables the team to assess the decision-making process. That will entail looking at various factors, such as who is generating the investment ideas, the remuneration structure, and also the capability of the organisation to support the fund. “We think it is very important to meet the managers face to face so that we can understand the investment process and whether it is repeatable in the future,” explains Gardner.
One Stop Shop The Witan investment trust was established way back in 1909 and is now worth over £1.2 billion. It has been using an independent multimanager approach since 2004, with the underlying portfolio having a minimum 80% exposure to world equity markets. The strategy has resulted in the share price increasing by 67% in the last 10 years. www.IFAmagazine.com
01/05/2012 23:43
Tailor Made One of the toughest challenges facing advisers is to come up with a decent portfolio that matches the clients’ objectives and attitudes to risk. If anything this is going to become even more problematic post RDR, when the fund selection process will necessarily have to take into account the full range of options from across the market. Russell Investments is one of a growing number which aim to meet the challenges of RDR by providing products that will allow advisers to create their own customised investment solutions that can accurately reflect their clients’ objectives. By starting out with a series of model portfolios, and then adding further tailoring to suit the individual’s personal circumstances, they aim to deliver maximum flexibility without overstretching the adviser. “Advisers’ time is limited,” explains Russell’s Greg Stark, “and they are naturally keen to make sure they can provide the best possible value for their clients. We are finding that more and more advisers are now turning to outsourced investment propositions - and especially to the ones that are highly customisable.” Like Legal & General, Russell believes that the only effective selection method is to meet the managers in person. “Asset management is a people-orientated business,” says Stark, “and we do not believe it is possible to identify those managers more likely to perform well without meeting with them - not just once but on numerous
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MULTI-MANAGER FUNDS
“The multi-manager approach enables the trust to appoint a number of specialist fund managers, with specialist abilities in an individual area, with the aim of reducing individual manager risk and hence enhancing returns for the Trust’s shareholders,” explains Andrew Bell, CEO of Witan. And sure enough, the fund has no less than 11 separate managers as well as a segregated portfolio of direct holdings. The present incumbents include respected firms such as Artemis, Veritas and Lindsell Train, as well as specialists like Trilogy who run the Emerging Markets exposure. Bell argues that the investment trust structure has three main advantages over an open-ended fund-of-funds. The first, he says, is the cost. Witan’s TER last year was just 0.87%, which compares well with many of the big retail openended multi-managed funds costing 2% or more. He also explains that the Trust is able to gear the portfolio to take advantage of rising markets and can use its accumulated dividend reserves to support future dividend growth. This has enabled it to increase the payout in each of the last 37 years.
“A successful fund-of-funds could provide a readymade solution to the post-RDR challenge of delivering best advice from the many thousands of funds available.” occasions - and also with everyone else within the firm who is important to the investment process,”. It’s quite an undertaking. Russell has 200 investment professionals in its multi-manager team, who set up and conduct around 4,400 manager meetings a year all over the world. Only in this way, he says, can the company narrow down the tens of thousands of products available to the much smaller number that it eventually uses. There’s little doubt that, with so much consumer uncertainty still out there, the demand for funds of funds will continue to grow exponentially. “RDR represents a great opportunity for the investment trust sector to expand its appeal to the adviser market,” stresses Witan’s Bell. “We expect this to lead to increased interest in those trusts which can deliver good investment returns at a competitive cost, while also addressing concerns over dealing liquidity and discount management.” For more comment and related articles visit...
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May 2012
39 01/05/2012 23:43
CASE STUDY
magazine... for today ’s discerning financial and investment professional
SHIP-SHAPE AND BRISTOL FASHION A NEW STRUCTURAL APPROACH IN THE RUN-UP TO RDR HAS ALLOWED ADVISER LANSDOWN PLACE TO OPTIMISE ITS IN-HOUSE EXPERTISE FOR THE BENEFIT OF ALL ITS CLIENTS. IFA MAGAZINE TALKS TO LANSDOWN’S MANAGING DIRECTOR NICOLA MOULD
With less than eight months still remaining before the Retail Distribution Review gets under way, Bristol-based advisory firm, Lansdown Place, has all hands on deck to make sure it will all be plain sailing come January 2013. That’s a challenge that has prompted the firm to completely rethink the one-on-one client relationships that have tended to dominate up till now. The problem, as managing director Nicola Mould explains, is that many fear that the new fee structures after RDR might leave the private wealth sector looking like the exclusive domain of the super-rich. Lansdown Place is setting out its stall to ensure that that won’t need to be the case. To meet the challenge, the 20-year-old business has refocused its existing strengths in two key divisions - corporate benefits for businesses on the one hand, and private wealth for individual advice on the other. And it turns out that the two are not as mutually exclusive as you might have supposed. Nicola says the success of the private wealth division is not merely dependent on the corporate wealth division – rather, it’s an intrinsic part of it, going forward. For Lansdown Place in particular, this was a natural and commonsense strategy for a firm that has always excelled in offering holistic advice to its client base. “We’ve always provided corporate benefits advice, but have never promoted it as a standalone offering. If one of our private wealth clients happens to own a business, we have always offered our services. But the restructure has meant that we are now targeting businesses directly.” And this is where the private wealth
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division comes into its own; in providing bolton personal wealth services to both company executives and their employees. “We don’t just deal with their corporate pension,” Nicola says. “We’ll also sit down with them and look at other issues they may have - protection, investment, IHT planning and so on.” “Post-RDR, there will be a lot of people without an adviser, because of cost (or perceived cost); and what we are trying to do here is to have an offering that will make it financially viable for us to deal with those individuals who fall into this category. That’s a challenge for any IFA firm in a non-commission world. Both sides of the company must support each other. That is very important to us.” And that in turn has meant investing in people and keeping the well-being of the company’s clients firmly at the top of the agenda. “As with most IFA firms, the big issue is in restructuring the culture of the business and looking at the client proposition. The service provided to clients has always been a focus – now it is an imperative.” With a move to new, larger offices in October, the focusing of the company, the appointment of a further three advisers, bringing the total number of RIs to 15, the tail-end of 2011 brought about some big changes for Lansdown Place. As Nicola explains: “We have a phenomenal wealth of expertise at Lansdown Place. There are different individuals within the business who have particular strengths in different areas, whether in IHT planning, or corporate benefits or investment. And if, for example, a client has a particularly complex tax issue to
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CASE STUDY
deal with, we will make sure that is dealt with by the most appropriate person in the office. “Naturally it’s important that our clients should want to have a relationship with one individual, as before. But if there’s someone else in the office who’s better equipped to deal with a particular issue, then that’s where it will be referred to. We fully support the integrated team principle, because it allows them to help and support one another. It’s been a culture-change for them to do that, because IFAs can be very protective over their own business. However, we have found that clients enjoy this multi-expert approach, and that it has never detracted from their relationship with their usual adviser.” The team ethic is such that the firm has started a series of seminars with professional introducers. Working with solicitors, accountants and actuaries it both builds relationships that can lead to an enlarged client base, but also shares the valuable knowledge that each of these professions holds. Nicola says: “With RDR or auto-enrolment, many professionals are not fully up to speed yet with what’s going on. It may be some years away [until auto-enrolment], but people need to be getting prepared for it. It’s going to have a big effect on their payroll, and on the way they manage their HR departments.” Not surprisingly the new ethos of how business is done at Lansdown Place also extends to how it recruits new advisers to the highlyexperienced team. “There are some fantastically knowledgeable new IFAs looking for a role in a successful company, but without portfolio it can be difficult to provide them with that role. There are also a number of IFAs looking to leave the industry and retire. We like to team them up.” “If an IFA is retiring, we bring them into the business for a one or two year period. They get to know us, we get to know them. And when they are ready to leave the industry, we do the handover of clients. The adviser taking over has the benefit of the experience of the retiring IFA, which is usually vast, and the clients are happy. “It has a cost associated with it, certainly. But for us the client is key, and if the client’s happy then we’re happy, because it means that we secure that client for the next ten or 15 years, or however long it may be. “We allow the retiring IFA to retire in the full knowledge that their client is being well looked after, and that is often most important to them. Quite often these people are their friends. In the retirement packages that we’ve completed, we’ve had a 100% success rate.” There can be little doubt that Lansdown Place is now superbly positioned to sail into the brave new post-RDR world just over the horizon.
“The service provided to clients has always been a focus – now it is an imperative”
Lansdown Place 2, Oakfield Road, Clifton, Bristol BS8 2AL Phone: 0845 30 50 222 Fax: 0845 30 50 333 General and Private Wealth Enquiries: info@lansdownplace.co.uk Corporate Solutions Enquiries: corporate@ lansdownplace.co.uk
Lansdown Place are actively seeking IFAs with Portfolio to join their dynamic business. If you would like an informal and completely confidential discussion to explore your options, please contact Nicola Mould: nicolamould@ lansdownplace.co.uk or telephone 0845 30 50 222
May 2012
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magazine... for today ’s discerning financial and investment professional
SIPPS
THE FIGHTBACK BEGINS WHOOPS, WE STIRRED UP A HORNET’S NEST WITH OUR MARCH ARTICLE ABOUT SIPPS, WHICH MANY OF YOU THOUGHT WAS TOO GLOOMY ABOUT THE POSSIBLE IMPACT OF TIGHTER RULES ON CAPITAL SOLVENCY What you’ve been telling us is, essentially, that there are certainly a few black sheep around and that diligence and tighter control are justified. But that it’s still quite wrong to strike such a cautionary note as we did. Some of you have also pointed out that there’s no need for clients with straightforward needs to enter into complex arrangements involving convoluted products. So, to that extent, some of the cautionary talk from the regulators and elsewhere falls wide of the mark. So here we are, back this month with some contrasting opinions. And we want to hear your thoughts on the subject too.
Write to us at editor@ifamagazine.com, or log into our website at www.IFAmagazine.com and we’ll do the rest.
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SELF-INVESTED PENSIONS
Greg Kingston - Head of Marketing at Suffolk Life There’s no doubting that the flexibility SIPPS can offer has resulted in a broad appeal to both financial advisers and direct investors. Considering the generally higher service levels, the greater flexibility in drawing out benefits, and the fact that they are probably the widest, most accessible investment choice of any tax wrapper in the market, it’s no wonder the market has grown at such an astonishing rate. Naturally, that growth has brought a few challenges as more firms enter the market. The issue of whether SIPPS need to be better capitalised has been well-discussed this year, and it is widely accepted that the current requirements - maintaining just 6 weeks of expenses - would be insufficient to wind up a SIPP business containing many complex investments. More firms does mean more choice for advisers and investors - and that’s why, more than ever before, it is important to understand the nature of the SIPP provider that you’re dealing with. It is of little use offering a wide choice of investments or flexibility if the SIPP provider’s own service is not up to scratch. Similarly,
an increasing number of SIPP providers are having to answer awkward questions about their role in promoting acceptance of some well-publicised investments that have failed. That isn’t good for the industry as a whole, and it is worse for the firms in question. Just as an insurer that fails to pay claims as expected will struggle to attract new business, it is inevitable that some advisers and investors will be put off from using a SIPP wrapper because of the bad news that sticks to some of them. They shouldn’t be put off, for all the reasons already listed. The greater investment choice, the service, the enhanced flexibility and so forth mean that a SIPP is excellent choice for a retirement vehicle. Advisers and investors for their part would do well to make sure that they select one that’s going to deliver on all their promises and still be there into their retirement. They’d be brave to choose a provider that values short term growth and any quality of business to deliver it, over a stronger, sustainable provider with a solid and proven reputation.
Andy Bowsher - Director of Self Invested Pensions at Xafinity SIPPs, with the right providers, have huge flexibility. And a SIPP is not a SIPP until it has ‘self investment’. That sounds all too obvious, I suppose, but it was getting forgotten. Particularly since the recent regulatory interest in SIPPs, IFAs are telling us that if a Pension Provider is all that the client needs, then that’s exactly what the client gets.This simple situation is good news for the client, who gets what he needs. It’s good news for the SIPP industry, which doesn’t get tarred with the mis-selling brush. And it’s good news for the IFA, who wins the long-term trust of his client. If you really want flexibility, for the reasons already outlined, there is no beating the SIPP. Except that sometimes the client’s circumstances will lead him instead toward the related Small Self-Administered Schemes (SSAS) - which are arguably even more flexible than SIPPs, perhaps involving loans back to the employer. Yes, commercial property and land
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investments remain at the core of self investment here. We continue to see this area grow. Where else can a client buy into an asset that he quite often personally knows, literally, inside and out? With this choice and complexity comes the greater need for advice. IFAs are central to continuing the success of the SIPP, and to perhaps a lesser extent vice versa. The IFA is not only uniquely positioned to really understand the needs of his clients: he is also vital in undertaking the Provider due diligence that is, by all accounts, becoming more and more central. This is a complex area where providers like to tell their own story. All that is ‘big’ is not necessarily strong or indeed ‘well capitalised’. And all that is small is not expert or personal. The right model might well be a truly specialist provider with depth and personal service, which has the weight of a strong established business backing it into the future….but then, I would say that, wouldn’t I?
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magazine... for today ’s discerning financial and investment professional
Stewart Dick - Head of Sales at Hornbuckle Mitchell There are very few financial products in the last 10 years that have captured the imagination of the public in the way that SIPPS have. Founded on principles of investor flexibility, choice, control and freedom, it’s hardly surprising that around 800,000 Britons have put billions of pounds into Sipp plans. A significant milestone on the road to SIPPS’ pre-eminent position in the adviser’s retirement planning toolbox was 2006’s A-Day changes, which revolutionised the way contributions could be made. A-Day also removed the requirement for those in occupational schemes who wanted to make extra payments into a pension to do so into Additional Voluntary Contribution schemes, opening SIPPS up to even more investors. But while regulatory changes have made it possible for more people to save more of their money in SIPPS, it is the almost bewildering level of choice that SIPPS offer that has been at the heart of their growth. Before the Sipp revolution, individuals in mainstream personal pensions had been stuck with a limited choice of inhouse life office managed funds or a pre-defined list of external funds. Suddenly, SIPPS offered access to a massive range of asset classes and investments. And not just to thousands of investment funds, gilts, land, investment trusts and other asset classes. SIPPS can also be used to hold and trade shares, benefiting from tax relief on contributions and with no CGT on profits. Owner-managers can use Sipp vehicles to buy their business premises, for instance,
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employing borrowed money to fund acquisitions and then paying rent into their pension. Many small business owners find that the thought of paying rent into your own pension has massive appeal. But SIPPS’ benefits are not just limited to the accumulation phase. Whereas regular personal pensions typically direct their investors toward converting their entire pot into an income on a single day, regardless of how poor the annuity rates were on that day, SIPPS have allowed investors to make the most of the increasingly flexible income drawdown rules - allowing individuals to draw their income in the way that makes the best financial sense to them, and making it easier to avoid the ‘cliff-edge of retirement’ in favour of a more phased approach. For pension investors, SIPPS have taken the genie out of the bottle. Far from being a sector in crisis, SIPPS are for many investors the future of pension saving. Many of the negative headlines SIPPS have attracted have been as a result of their success. This has included providers attempting to market products as SIPPS when they are not really what the purist would describe as self-invested personal pensions. And there have been concerns over small, undercapitalised players looking to get onto the Sipp bandwagon. These players may indeed have problems – but, as the UK pensions market continues its drift from DB to DC, and as tough markets force investors further afield in the quest for innovative investment propositions, it is hard not to envisage continued growth in true SIPPS.
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The evolving role of the DFM and the Intermediary Business Park Plaza Hotel, Cardiff
Wednesday, 23 May 2012
IFA Magazine and JM Finn & Co are delighted to announce a series of seminars for the IFA community in 2012 This is the first in a series of lunchtime seminars that will bring together some of the UK’s leading industry experts and financial intermediaries to discuss the current financial environment and the evolving role of the discretionary fund manager and the IFA in the run-up to and post RDR world. Speakers and topics include:
BRIAN TORA : THE INVESTMENT ENVIRONMENT Topical insight from one of the industry’s leading commentators.
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Space is limited. If you would like to attend, please e-mail events@ifamagazine.com Sponsorships are available – please contact IFA Magazine for details alex.sullivan@ifamagazine.com
magazine
The award winning Park Plaza Hotel is located in the heart of the city centre, within walking distance of Cardiff Castle, the Millennium Stadium and the National Museum of Wales. The events will be filmed and edited to appear on web sites and will also be distributed via BrightTALK thought leadership channel.
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THE BEE LINE
magazine... for today ’s discerning financial and investment professional
THE RAT RACE STEVE BEE SHOWS US WHAT A TRAIN OF THOUGHT REALLY OUGHT TO LOOK LIKE
So my handheld communications device beeped on the way to the station this morning and I started a very wet and windswept Monday with a panic note from the editor of this esteemed magazine that could best be summarised as “Where the hell’s your copy for this month?!!” (or something similar). And that concluded with: “We go to press in an hour!!!!!!!” before ending with the usual pleasantries and customary sign-offs etc. and just a few more exclamation marks for luck. Not the best start to what is already shaping up to be a stressful week, but I did get the chance to quickly fire off a text to say that I’d send it within the hour, no bother. And as bad luck would have it, at that very moment I heard the not-so-surprising news over the Tannoy that the trains are on the blink today. Again…. The plan I hatched was in two parts. One, get a seat on the train at any cost, and two, write my stuff on the handheld while the packed train takes its place in the miserable queue of rusting technology between here and London. Meanwhile, my secondary objective was to get not just a
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seat, but an aisle one if at all possible. That’s because someone is bound to open the windows (our trains are like ovens at this time of year), and I don’t want to get soaked like I did on Friday.
All-Round Endurance
So that’s what I’m doing right now. And the subject matter I’ve chosen for this month is a happy blend of pension investments and the Tour de France. It’s a blissful combination of two of my most enduring interests - and anyway, I was reading about the Tour last night, so it’s on my mind What makes the Tour de France so interesting is that it’s held over a number of
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THE BEE LINE
different stages, some of them short and some long, and in a number of different terrains. There are sprints, long-distance endurance stages and some gruelling mountain climbs. It’s a race that tests its participants to their limits. Being a good sprinter is one thing, but being able to hack it in the mountainous tracks is quite another. Some riders, of course, are good sprinters and others have the power and endurance to dominate in the high-altitude climbs. But the winner of the race, the guy who gets the yellow jersey, won’t be the one who leads from the front and wins all the stages. That’s not the way it works - not by a long chalk. No, the eventual winner is the rider who is there or thereabouts in the sprints, the longdistance slogs and the extreme endurance tests at high altitude. You need to be able to cut it with the best of breed in each of the classes, to be in the top few whatever the conditions, if you want to be the one who wins out overall.
“Yeah, well we’re pretty much TDF-focused here you know...” that sort of thing.) It’s easy when you’re picking investments to spot the sprinters as they race across the staging-line finishing points, or to admire the tenacity and skills of those who eke out great results when the going gets tough. But in the long term it’s the strategy that keeps you up with the leaders whatever the conditions that pays off. That’s what the Yellow Jersey is all about. So that’s my parable for a wet Monday morning, I guess. Pensions need a TDF approach if you want any hope of getting a YJ outcome. And now, if only I can find a couple of bars - the mobile signal kind, not the other sort - I can send this off to the editor. And then maybe I can catch up with my sleep like everyone else in the carriage? And the driver as well, for all I know.
Stay In It to Win It I think investments, particularly those backing pension savings, should be thought of in TDF terms too. (By the way, did you see what I did there? Made up a new acronym on the spot so others can talk about my idea without necessarily understanding it. As in
Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the co-founder of www.jargonfree pensions.co.uk
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PRODUCT REVIEWS
3:01:42
THERE BE GOLD IN THEM THAR FUNDS NICK SUDBURY UNEARTHS A SPARKLING COLLECTION OF NATURAL RESOURCES AND COMMODITY FUNDS Little Gem BlackRock World Mining We might as well get this over with. It’s been a difficult period recently for natural resources, and for the many companies that extract them. The HSBC Global Mining index has fallen by almost 28% in the last year, as worries about falling demand in both the developed and the emerging world have coincided with worries about sovereign debt and a general tendency toward risk reduction. And yet there are two sides to every coin. Investors with their eyes on the long term might be inclined to the present situation as an ideal opportunity to add to their exposure. BlackRock World Mining (BRWM) is, by some distance, the largest specialist investment trust operating in this area, with a market value of £1.1 billion. The fund’s shares are currently down around 18% on the last 12 months (ouch), but the long-term record is still absolutely superb, with a 10 year gain of over 450%. More to the point, perhaps, the fund is currently trading on an attractive 12% discount to NAV. BRWM aims to maximise total returns by investing in a broad portfolio of mining and metal securities, and it has the ability to further diversify with up to 10% in physical metals. It currently has 65 different holdings, which between them provide an 83% exposure to mining activities and a 17% commitment to resources. The fund has large positions in Rio Tinto, BHP Billiton and Fresnillo, and around half of the portfolio is invested in the UK. The fund has been run since April 2009 by Evy Hambro, a manager whose track record has been outstanding over the last three years – and whose experience has evidently enabled him to limit the impact of the weak market
conditions last year. He is still bullish about the prospects for the sector, because he believes that the US commodity decline is bottoming out and that China’s economy will continue to grow. As a result, the fund is overweight in copper and iron ore and underweight in gold. When the final results for 2011 came out in February, the Board announced that they were increasing the dividend by 133%. They also said that they would be charging more of the costs to capital and less to income to enable them to make higher payouts in the future. The idea is that the attractive yield, which could rise to around 3%, will increase the demand for the shares and lead to a reduction in the discount to NAV. It is unusual for funds in this sector to pay a decent dividend – and, although the new strategy is unlikely to lead to an immediate narrowing of the FUND FACTS discount, it certainly Name: BlackRock suggests another World Mining (BRWM) reason to invest. Type: Investment Trust In spite of this, the main attraction is Sector: Commodities the fantastic capital and Natural Resources growth and clients Market Cap: £1.1 bn who can tolerate the high volatility might Launch: Dec 1993 be well advised to Yield: 2.08% find room for it in Manager: BlackRock IM their portfolio. TER: 1.43% Website: blackrock.co.uk
BRWM aims to maximise total returns by investing in a broad portfolio of mining and metal securities www.IFAmagazine.com
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PRODUCT REVIEWS
magazine... for today ’s discerning financial and investment professional
The Appliance of Science First State Global Resources One of the main risks of investing in a specialist fund is always that clients might be exposed to a dangerously narrow mandate. But that is less of an issue with First State Global Resources, which aims to provide long-term capital growth by investing in both the natural resources and energy sectors. At present its benchmark is split 75:25 to reflect this broader remit. The bad news is that the fund has fallen by around 23% in the last 12 months. The good news, however, is that it is up by over 230% since its launch in October 2003. (Pause for effect.) It has one of the most experienced teams of managers operating anywhere in the sector, and it has been under the control of the company’s head of global resources, Dr Joanne Warner, since 2006. Perhaps the most unusual and encouraging aspect of this fund is that some of the people running it have specialist scientific training. This is because the management team includes mining and petroleum engineers, as
well as experts in physics and chemistry. With knowledge like this, it is easier to understand the risks and opportunities associated with these types of businesses. Warner and her colleagues target good quality companies with excellent growth prospects. This means looking for attributes such as: long potential project life, larger than average profit margins, strong balance sheets, organic earnings per share growth, and experienced management. The £766 million portfolio currently comprises 84 separate holdings. It’s top 10 account for 45.9% of the total and include well known companies like BHP Billiton, Rio Tinto, Xstrata, Exxon Mobil and Antofagasta. Around 45% are listed in the States with a further 26% in the UK, which helps to ensure good corporate governance. In many ways, the diversification is more apparent when you look at the underlying sector exposures where the biggest weighting is the 32% in Diversifieds. This is followed by 22% in Energy, 20% in Gold and Precious Metals, and 7% in Coal. The benefit of such a broad cross section is that it reduces the systematic risk with the managers looking to add value via their stock selection skills.
FUND FACTS Name: First State Global Resources Type: UK OEIC Sector: Global Fund Size: £766m Launch: October 2003 Portfolio Yeild: 0% Charges: Initial: 4% Annual: 1.5% Manager: First State Investments Website: firststate.co.uk
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PRODUCT REVIEWS
Going for Gold
FUND FACTS Name: Investec Global Gold Type: UK OEIC Sector: Specialist Fund Size: £226m
Investec Global Gold Investors looking for a different type of exposure may prefer one of the gold and precious metals funds. These are more constrained in their scope, as they invest solely in gold, mining and precious metal related shares - although in fact this can make them a good diversifying holding in a fairly broad based portfolio. Investec Global Gold is one of the most successful in the field. Since it launched in April 2006 it has achieved an impressive average annualised return of 13.5%. And that’s more than 5% a year better than its HSBC Global Gold benchmark. But investors do need to be mindful of the high volatility. Investec Global Gold is able to invest up to a third of its assets in companies that mine other minerals and metals, but currently it’s 91.7% committed to gold producers. The top 10 holdings account for 57.1% of the fund, which shows that it is a very concentrated portfolio. Its largest individual exposures are Goldcorp, Newcrest Mining and Randgold Resources. These are very different holdings to the broader natural resources funds, a fact that is reflected in the geographic allocation. Over half of the £226 million portfolio is invested in Canadian companies, with stocks listed in the UK accounting for a further 17%. The other main countries represented are Australia, the US and South Africa. And then there’s the fact that gold mining companies don’t perform in line with the
Launch: April 2006 Portfolio Yeild: 0% underlying commodity. Charges: Initial: 4.5% Investors need to be Annual: 1.5% especially aware of Manager: all the extra risks Investec Asset that can affect these Management companies – including productivity problems, Website: investec poor management, assetmanagement.com bad weather, and, yes, political intervention. From South Africa to Venezuela, mining companies have always been an easy target for hot-headed nationalists intent on seizing back what they regard as ‘theirs’. Back in 2005-06, many gold miners traded on forward PE ratios of 30 to 35 times earnings, which was around twice the value of the market as a whole. Since then they have suffered a number of setbacks, including high cost inflation that has led to disappointing earnings announcements. As a result, they now typically have a PE ratio of just 10, with the wider market on 12. The performance of Investec Global Gold depends on 3 main factors: the price of gold, general equity market sentiment and stock specific issues. This is a complex and volatile combination, but investors who have stuck with it from the start have been richly rewarded. Unless you expect the price of gold to collapse, the fund offers an interesting niche exposure to a potentially lucrative area of the markets.
Performance depends on 3 main factors: the price of gold, general equity market sentiment and stock specific issues www.IFAmagazine.com
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PRODUCT REVIEWS
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Mint condition ETFS Physical Gold One reason for the poor recent performance of gold mining shares is that a large number of investors have been switching their allocation into physically backed gold ETFs. These provide a pure exposure to the price of the precious metal and are backed up by allocated bars stored in a secure vault, so there is no counterparty risk to worry about. The biggest of these products is the US-listed SPDR Gold Trust, which holds an incredible 1,286 tons of gold worth over $67 billion. In the UK the largest equivalent is ETFS Physical Gold (PHAU) with assets under management of $7.3 billion. The main reason to invest is that it provides a cheaper and more convenient way of owning gold than buying the actual metal, but to fulfil this role it has to be absolutely secure with no hidden risks. In the case of PHAU the gold bars are held by an independent custodian and physically segregated in the vault where they are stored. There is also an independent audit to make sure that everything is in order. Each individual ETFS Physical Gold Security has an effective entitlement to gold, and that entitlement changes daily to reflect the accrual of the management fee. The company also has a similar product called Gold Bullion Securities (GBS) that actually allows investors to go and collect the underlying metal, but because of this it cannot be held in an ISA. One of FUND FACTS the beauties of Name: PHAU is that ETFS Physical Gold it closely tracks Ticker: PHAU the spot price of the metal less Type: Secured, the fees. This undated d ebt s ecurity means it is just Sector: Precious Metals about as secure and transparent Fund Size: $7.3bn a product as you Launch: April 2007 can get, with each share being TER: 0.39% worth close to a Manager: ETF Securities tenth of an ounce of gold - which at Website: the time of writing etfsecurities.com
gave it a value of $162.4. Gold peaked last August at over $1,900 an ounce and since then has fallen back to around $1,650. If there is no need for any further quantitative easing by the Fed, it could slip back further – but conversely, a re-emergence of the sovereign debt crisis might well push it higher again. Either way, most investors should probably have a small allocation in their portfolio and a physically backed ETF like PHAU offers a costeffective and convenient way to do it.
With PHAU the gold bars are held by an independent custodian and physically segregated in the vault where they are stored 52
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TRANSPARENCY, EFFICIENCY, LIQUIDITY THE LYXOR ETF CHARTER OUR COMMITMENT TO CLIENTS The Lyxor ETF charter is a commitment to the highest quality standards for its clients. Across Asset Management, Index Tracking, Transparency, Counterparty Risk, Primary and Secondary Market Liquidity, Lyxor aims to provide best-in-class services to its customers. Discover the full charter on www.lyxoretf.co.uk/lyxoretfcharter
T O TA L A U M O F € 2 9 B N – A S S E T M A R K E T S H A R E O F 1 5 % – L E A D I N G O N - E X C H A N G E R E P O R T E D T R A D I N G v O L U M E (24% MARKET SHARE) WITH A STRONG LIQUIDITY COMMITMENT BY SOCIETE GENERALE CIB.* − Asset Management quality: direct ownership of physical assets, no securities lending; application of best execution principles to derivatives transactions. − Index Tracking: direct index tracking. Tracking error published in monthly client reports and aims to be below 100 bps. − Transparency: daily web publication of key information: directly owned securities, collateral, counterparty risk, counterparties to all derivatives entered into by Lyxor ETF.
− Zero counterparty risk target: daily target reduction of counterparty risk to zero. − Liquidity: access for brokers to primary and secondary markets through more than 45 Authorised Participants and 15 market makers. Continuous pricing across 649 listings on more than 13 exchanges. And full transparency on creation and redemption costs.
ETF Risks: the index tracked by a Lyxor ETF may be volatile, investor’s capital is at risk and an investor may get back an amount less than originally invested.
More information on LYXOR <GO> or call 0800-707-6956 * Source: Bloomberg, Lyxor. Trading volume for September 2011, all other data as of end of September 2011. The products described within this document are not suitable for everyone. Investors’ capital is at risk. Investors should not deal in these products unless they understand their nature and the extent of their exposure to risk. The index tracked by a Lyxor ETF may be volatile. Prior to any investment, investors should make their own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively on the information provided by us. We recommend that you consult your own independent professional advisers. Lyxor and Lyxor ETF are names used by Societe Generale to promote the products of Lyxor Asset Management. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). Societe Generale is subject to limited regulation by the Financial Services Authority in the UK. Details of the extent of our regulation by the Financial Services Authority are available from us on request. Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. The funds may not be sold to US persons or in jurisdictions where such offering or sale has not been authorised. The telephone number and e-mail address are provided by the London Branch of Societe Generale for technical questions relating to Lyxor Asset Management products only. Calls to this line and other Societe Generale telephone numbers may be recorded. For further details please visit www.lyxoretf.co.uk
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magazine... for today ’s discerning financial and investment professional
OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA These listings exclude the FSA’s routine monthly handbook updates.
Assessing Suitability: Replacement Business and Centralised Investment Propositions Guidance Consultation
Ref: GC12/6
4th April 2012 2 pages Applies to firms providing personal recommendations to retail clients; and firms either currently or considering offering a Centralised Investment Proposition (CIP). The report considers: • The factors firms must consider when deciding whether a recommendation to switch a client’s investment is in the client’s best interests; • The steps firms should take when designing or adopting a CIP; and • The FSA’s expectations of firms to ensure that individual recommendations to invest into a CIP are suitable Consultation period ends 4th May 2012 Please see also the Compliance Doctor article on Page 56 for further details.
Ref: FG12/11
30th March 2012 9 pages Following on from the FSA’s consultation on promoting financial products and services, this report goes through what firms should avoid and where more information can be found. It deals, among other issues, with image advertising and past performance for fund managers, and it gives information on the feedback received.
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Guidance Consultation
Ref: GC12/5
29th March 2012 2 pages Applies to firms that are subject to the FSA’s financial crime rules in SYSC 3.2.6R or SYSC 6.1.1R. And also to electronic money institutions and payment institutions within the FSA’s supervisory scope Relates primarily to Rues SYSC 3.2.6 R and 6.1.1R, PRIN 1, 2 and 3, and APER 2.1.2P. The FSA proposes to update chapters 2 and 6 of Part 1 of our FC Guide, with new guidance and examples of good and poor practice drawn from these findings. It also proposes to include a new Chapter 13 in Part 2 of the FC Guide, which will consolidate all examples of good and poor practice highlighted in the thematic review. Consultation period ended 29rd April 2012
Financial Promotions, Fund Performance and Image Advertising / Advertising ISAs & Adverts for Investment Professionals Finalised Guidance
Anti-Bribery and Corruption Systems and Controls: Proposed Guidance and Amendments to ‘Financial Crime: A Guide for Firms’
Simplified Advice Finalised Guidance 29th March 2012
Ref: FG12/10
9 pages
Following on from the FSA’s consultation on simplified advice, this guidance outlines how the regulatory regime applies to simplified advice processes, with particular focus on professional standards and the suitability, adviser charging and disclosure requirements. It also outlines considerations for firms in choosing an appropriate product suite.
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Consultation Paper
Ref: CP12/7
27th March 2012 50 pages Of interest to firms, consumers, consumer representative bodies and advice agencies. The FSA’s proposals include measures to enable the FSCS to handle claims in a more streamlined way in cases where consumers have lost money because of the failure of a financial services firm. The proposed rule changes are intended to help the FSCS when the value of a claimant’s investment is uncertain. They give the FSCS additional flexibility in appropriate circumstances to pay full compensation where, under present rules, consumers would have to wait an excessively long time to receive full compensation. Consultation period ends 26th June
The Cass Resolution Pack Policy Statement
Ref: PS12/6
26th March 2012 29 pages Of interest to investment firms to which Chapter 6 and/or Chapter 7 of the CASS rules applies by virtue of their holding safe custody assets or client money. This Policy Statement reports on the main issues in relation to the CASS Resolution Pack arising from Consultation Paper 11/16 (Recovery and Resolution Plans) and publishes final rules.
Structured Product Review Finalised Guidance
Ref: FG12/09
23rd March 2012 53 pages The report publishes finalised guidance based on the feedback received in the November 2011 Guidance Consultation – which in turn was based on an in=depth investigation of seven major providers. The report had found a lack of robustness in firms’ product development and marketing processes, which could have increased the risk of poorly designed products and led to misselling, or to mis-buying by consumers.
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FS A P U B L I C AT I O N S
Financial Services Compensation Scheme: Changes to the Compensation Sourcebook
Distribution of Retail Investments Policy Statement
Ref: PS12/5
22nd March 2012 79 pages Of interest to firms advising on retail investment products and to product providers offering these products. The Solvency II changes to the COBS product disclosure rules will be of interest primarily to insurers. The Policy Statement reports on the main issues arising from Consultation Paper 11/25 (Distribution of Retail Investments: RDR Adviser Charging and Solvency II disclosures) and publishes final rules. Rules on the facilitation of payment of adviser and consultancy charges come into force on 31st December 2012. Rules on reporting investment amounts, where payment of adviser charges or consultancy charges is being facilitated, will apply to firms’ first full reporting period after 31st December. Solvency II rules are expected to come into effect on 1 January 2014.
Regulating Bidding for Emissions Allowances under Phase Three of the EU Emissions Trading Scheme (ETS) Consultation Paper
Ref: CP12/6
15th March 2012 100 pages The Treasury is consulting on legislative amendments that would make bidding on EU emissions trading auction platforms a regulated activity, under certain circumstances. This means, effectively, that the FSA will be required to specifically authorise certain firms intending to bid; namely investment firms, credit institutions and a category of firms that are exempt from the Markets in Financial Instruments Directive (MiFID). British practice will differ from the standardised European platforms, and will involve a Recognised Auction Platform (RAP), applying a regime similar to that applicable to Recognised Investment Exchanges. Consultation period ends 19th April
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magazine... for today ’s discerning financial and investment professional
Lee Werrell, Managing Director of CEI Compliance Ltd, gives his personal round-up Reducing your Inheritance Tax bill by Giving to Charity HM Revenue & Customs (HMRC) has explained that in order to qualify for a reduced rate of inheritance tax, you must leave at least 10% of the net value of your estate to a qualifying charity. Therefore, if your net estate is worth over £325,000 when you die, Inheritance Tax may be due. But since 6th April 2012, if you leave 10% of your estate to charity the tax due may be paid at a reduced rate of 36% instead of 40%. This article explains the main rules. http://tinyurl.com/7eeowfg
the three components of the estate. However this does not apply to those who benefit from a trust.
The net value of your estate is the sum of all the assets after deducting any debts, liabilities, reliefs, exemptions and the nil-rate band.
Step 1 Work out which assets fall into each component. Remember, not all estates have all three components.
To work out whether the reduced rate applies, your estate and your assets are broken down into three components as follows: ■
Assets that you own jointly with someone else that pass by ‘survivorship’;
■
Assets in trust;
■
Assets that you own outright or as tenants in common with someone else.
A qualifying charity is an organisation that is recognised as a charity for tax purposes by HMRC. The status can be checked by asking the charity to confirm that it has an HMRC charity reference number.
Instrument of Variation If you haven’t left assets to a qualifying charity, or if the donation in your will doesn’t pass the 10% test when you die, the beneficiaries of your estate can arrange an ‘Instrument of Variation’ to make or increase a donation to charity. Doing so may mean that your estate can then qualify to pay Inheritance Tax at 36%. According to HMRC, it is possible that one part of your estate may pay inheritance tax at 36% and another could pay tax at the full rate of 40%.
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Key steps in calculating the 10% test The steps below explain how you work out the calculation. The calculation is complicated and the easiest way to work out whether an estate will qualify to pay Inheritance Tax at 36% is to use the reduced rate calculator. http://tinyurl.com/76xnznd
Step 2 Add up the assets, then deduct any debts, liabilities, reliefs and exemptions that apply to each component. Step 3 Apportion the Inheritance Tax nil rate band - including any transferable unused nil rate band from a spouse or civil partner - between the number of components being used and any assets classed as ‘gifts with reservation’. Step 4 Deduct the apportioned value of the nil rate band from each component. Step 5 Add back in the value of the donation to charity - this result is the ‘baseline amount’ for each component. Step 6 Divide the baseline amount by 10. Step 7 Work out whether the charitable donation is more than the result of the sum at step 6.
HMRC revealed that it is possible to merge one or more components to gain the maximum benefit from the reduced rate.
Impact: For most advisers: This change can have a huge impact on those who are planning IHT mitigation for clients or have recently done so. There are many examples on the HMRC website for you to consider and review and I would urge you to make sure that all Registered Individuals are aware of the new rules, especially with the first item in this round-up regarding assessing suitability.
Assets that are classed as gifts with reservation may also qualify to pay tax at the reduced rate, but only if they are merged with one or more of
Remember: If in any doubt as to the implications of this paper, please consult your compliance consultant.
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C O M P L I A N C E D O C TO R
GC12/6 Assessing Suitability: Replacement Business and Centralised Investment Propositions Guidance Consultation 12/6 (Assessing suitability: Replacement business and centralised investment propositions http://tinyurl.com/bnp2bzw) was issued on 4th April. The closing date for comments on the paper is Friday 4th May 2012.
Background to this consultation As the Retail Distribution Review (RDR) effective date of 1st January 2013 rapidly approaches, many firms are, as a prudent measure, re-examining their business models - and a good number of them are opting to offer a Centralised Investment Proposition (CIP). While CIPs give benefits for both firms and clients, the FSA is concerned that, in some circumstances, they may be unsuitable for retail investors. The regulator therefore carried out a thematic review into the use of CIPs. CIPs include; ■
Portfolio Advice Services;
■
Discretionary Investment Management;
■
Distributor Influenced Funds
The results of the thematic reviews produced a total of 181 investment files from 17 firms which recommended a CIP. They assessed both the quality of advice and the quality of disclosure. And the results were as follows: ■
Quality of advice was found to be to be unsuitable in 33 cases;
■
Quality of advice was unclear in 103 cases;
■
Quality of disclosure was unacceptable in 108 cases.
Summary of the Key Issues The paper has been published as a result of the concerns raised during the FSA’s recent themed review of the impacts of these changes about CIPs and about preventing poor consumer outcomes. It hopes to help firms improve the standards by which they are providing investment advice to retail customers. The underlying FSA review of CIPs identified suitability failings of wider relevance relating to replacement business (i.e. switching any existing investment into a new investment solution). The paper also draws attention to the paper it issued in March 2011, “Assessing Suitability: Establishing the Risk a Customer is Willing and Able to Take and Making a Suitable Investment Selection”, particularly Chapter 4, “Investment selection”. http://tinyurl.com/cw5ppe9
The paper shows: ■
The factors firms must consider when deciding whether a recommendation to switch a client’s investment is in the client’s best interests;
■
The steps firms should take when designing or adopting a CIP; and
■
The FSA’s expectations of firms to ensure that individual recommendations to invest into a CIP are suitable.
The FSA expect all firms to maintain robust systems and controls to mitigate the risk of providing unsuitable advice. A firm’s proposition and business mix are likely to affect how it approaches risk management. Firms are responsible for ensuring that systems and controls are fit for purpose and effectively mitigate the risk of unsuitable client outcomes. Where firms operate a higher risk business model, they need to ensure systems and controls are effective in mitigating any additional risks. The FSA emphasises that it expects “all” firms providing investment advice to act in their clients’ best interests (clients best interest rule COBS 2.1.1R). As part of the FSA’s supervision, it will look to see how firms are behaving in this area and will take tough action where it identifies poor practice.
Will the FSA Handbook be changed? There are no planned changes to the Handbook in this consultation, but the guidance relates to Conduct of Business Sourcebook (COBS) rules 9.2.1 and 9.2.2 that require firms, when making a personal recommendation or managing a client’s investments, to obtain the necessary information about the client’s investment objectives. Impact: Chapter 3 will be relevant to firms providing personal recommendations to retail clients. Chapter 4 is relevant to firms either currently or considering offering a CIP. If in any doubt as to the implications of this paper, please consult your compliance consultant. Remember: If you have any concerns regarding these issues, please contact your compliance department or an independent consultant who is a member of the Association of Professional Compliance Consultants (APCC), recognised as a trade body by the FSA. See also the listings of FSA publications on Page 54 of this issue
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THINKERS
YOU CAN CALL ME AL
HIS ‘ROCK STAR’ STATUS MAY BE TARNISHED BUT IT WAS GOOD WHILE IT LASTED
“I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I said.” Alan Greenspan Born 1926 in New York, and still keeping busy. Six presidents Count ‘em. Greenspan’s early campaigning work for Richard Nixon (1968) was followed by a post on Gerald Ford’s Council of Economic Advisers (197477), before Ronald Reagan signed him in as Fed Chairman in 1987 during his second presidential term. George H W Bush, Bill Clinton and George W Bush also kept him on. Indeed, the only president to keep him at arm’s length was Jimmy Carter.
As indeed he would have been, if only he hadn’t then changed his mind. As the S&P rose from 700 to 1,500 in the next three years, the Chairman forgot his worries and started to collect the credit for the boom which was to end so catastrophically in 2001/01 and then peak in 2007 on a tide of easy money before plummeting again in 2008. Since when his reputation has never really recovered.
That’s a pretty big spread of policies It certainly is. Although he was an instinctive monetarist with Republican leanings, Greenspan could turn his hand to loose money as well as tight-money policies. His generous expansionism under Bush senior gave way to deficit reduction in the 1990s under Clinton’s Democrats, then back to expansion under Bush junior. At which point it all came disastrously unwound... The budding musician History might have gone a different way if the Fed Chairman had stuck to his scales. Greenspan played sax with Stan Getz and Woody Herman before studying the clarinet at the Juilliard, but he decided only with reluctance that economics and not jazz was his personal way forward. Instead, it was his fascination with the essentially libertarian ideas of his friend Ayn Rand that determined his thinking. Whatever else, Greenspan remained a firm fan of unrestricted capitalism and a practical minimum of regulatory constraints.
Blamed for the bust Although Greenspan had already quit in January 2006, it was the implosion of the US subprime mortgage market in 2007 that finally destroyed his halo. It wasn’t just that Greenspan’s laisser-faire credit boom had encouraged many millions of low earners to extend their stake in the capitalist system of ownership, beyond their probable ability to pay. And it wasn’t even that the man himself had presciently talked about a 2007/2008 recession, as early as February of that year. It was also that the ex-Fed Chairman had spent a considerable amount of time since 2004 on persuading home-owners to decouple from the traditional fixed-rate mortgages in favour of variable-rate loans. And that the subsequent rise in the fed funds rate from 1% to 5.25% in 2006 had broken a lot of backs. Time magazine subsequently declared him the third most eligible culprit for the financial crisis of 2007-2008. Oops.
“Irrational exuberance” Greenspan’s most famous one-liner, delivered in December 1996, is also the most frequently misquoted. His very public worry was not that too much optimism had unduly escalated asset values, as was widely reported at the time – but that it might then produce unexpected and very damaging contractions. For which insight he should really have been congratulated instead of pilloried.
A hard act to follow? Well, that’s what the press used to think. During his latter years, Greenspan developed a sophisticated language of heavy hints about future policy trends which was clear to the cognoscenti but conveniently obscure to everyone else. It took his successor, Ben Bernanke, several years to match his sophistication. Or shall we call that, with hindsight, his tactical evasiveness?
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magazine... for today ’s discerning financial and investment professional
WEALTH MANAGEMENT ADVISERS
PREMIER INDEPENDENT FINANCIAL ADVISER
Our client needs a number of experienced Wealth Advisers to offer a comprehensive service to a portfolio of HNW clients in the South East of England. The job role forms part of the wider Wealth Management Sales Team therefore working in close partnership with the introducers and peers in this team will be part of any successful applicants’ day-to-day activity.
Our Client a leading Bancassurer need a number of Premier Independent Financial Advisor’s to provide professional independent financial planning services to both new and existing high value customers. This means identifying and meeting customer needs with particular emphasis on protection, pension, investment and insurance products available through the bank’s UK branch network, whilst consistently treating customers fairly. The role requires the candidates to be qualified to a minimum of Diploma level.
London, Essex, Home Counties & South East £45,000 plus excellent bonus and benefits O.T.E c£75,000
You will be responsible for achieving targets in meeting the demands of the business by converting introductions into new business, conduct interviews with new and existing clients to review and meet their immediate and on-going financial needs; actively selling and/or introducing appropriate products and services and referring to other product specialists where required.
Optimising appointments with customers to identify needs and opportunities and provide solutions in order to achieve personal and team sales targets. Ref: 2076
FEE BASED FINANCIAL PLANNING DIRECTOR
TRAINEE EMPLOYEE BENEFITS ADVISER
Our Client a well respected firm of Chartered Accountants and Business advisers based in the South East. They now require an experienced Chartered Financial Planning Director for its specialist Wealth Management division.
Our Client is an independent firm of actuaries and consultants who offer a full range of services to trustees, employers, insurance companies and individuals. They are now looking to recruit a trainee adviser for their Liverpool office. The ideal candidate will be responsible for supporting employee benefit consultants advising clients and will require excellent written and oral communication skills to be effective in this role.
Successful applicants will be required to give advice on all aspects of financial planning from pensions, Investments and annuities to inheritance tax planning and trusts to a portfolio of clients Qualified to Chartered status you will be given your own portfolio of clients ranging from private individuals to Charities and trusts and professional connections
Merseyside c£30,000 plus benefits
Some previous pensions experience is essential and attention to detail, coupled with the ability to work well in a team environment.
The successful applicant will have experience of working within a Fee based environment on a time/cost basis with HNW Clients. In return you will receive a competitive remuneration package and a defined career path. Ref: 1999
In return on offer a competitive remuneration and study package. Study towards professional qualifications (Diploma in Financial Planning) is an essential requirement and is necessary to progress to the role of an experienced Adviser. Ref: 2079
EMPLOYEE BENEFITS CONSULTANT
WEALTH MANAGER
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Employee Benefits Consultancy service with the appointment of an experienced Employee Benefits / Corporate Pensions Consultant to their offices in the London office. Primarily based in London, working alongside the existing teams you will be responsible for developing the business throughout other regions, you will be servicing clients of the organisation as well as developing new business with large corporate clients.
Our Client a well respected firm of Asset Managers with a National network of Offices who manage in excess of £10 billion of funds on behalf of Clients
London & South £70,000 basic plus benefits
You must be Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing and managing group pension schemes with c200 – 2000+ employees. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 1396
WEALTH MANAGERS
London, South Coast, Norwich, Leeds £75,000 plus benefits Our Client a National firm of Wealth Managers and Investment Advisers who give Fee based Independent financial advice to private clients need a number of exceptional individuals to service and further develop their Client proposition, based out of one of their UK offices. Ideally, you will be an experienced diploma qualified IFA already with a minimum of five years financial planning experience, covering all areas of Pensions & Investments and be familiar with operating a Wrap service. The successful applicant will be given on-going support and development to ensure they are giving their Clients the best advice.
Birmingham £40,000 plus bonus and benefits They now require an experienced Financial Planner for its specialist Wealth Management division. Successful applicants will be required to service a Wealthy portfolio of clients ranging from private individuals to Charities and trusts and professional connections You will be responsible for working with a sophisticated customer base, providing specialist advice on relevant financial products and services including full financial planning reviews and portfolio management. The successful applicant will have first hand knowledge of working within a Fee based environment on a time/cost basis with HNW Clients. In return you will receive a competitive remuneration package and a defined career path. Ref: 2077
FINANCIAL PLANNING MANAGER Reading £50,000 basic plus benefits
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Wealth Management service with the appointment of an experienced Financial Planning Manager to their offices in Reading. You will be office based; working alongside the existing teams responsible for developing the business throughout each specialist area and you will be servicing clients of the organisation as well as developing new business with clients.
In return the successful applicants will be given an excellent opportunity to develop their career within this organization Ref: 1885
You must be a minimum Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing Time Cost; Fee based business with High Net Worth Clients. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 2078
EMPLOYEE BENEFITS CONSULTANT
COMPLIANCE OFFICER
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Employee Benefits Consultancy service with the appointment of an experienced Employee Benefits / Corporate Pensions Consultant to their offices in their Manchester/Leeds office. Primarily based in the North West, working alongside the existing teams you will be responsible for developing the business throughout the North East regions, you will be servicing clients of the organisation as well as developing new business with large corporate clients.
Our client who provide a truly independent range of financial services from investment and portfolio management, through to trust and estate planning are urgently seeking a compliance officer, to carry out compliance reviews in accordance with the risk based business quality monitoring programme.
North West/North East £50,000 basic plus benefits
Manchester c£30,000
Assess the quality of advice and adherence to business standards and regulatory FSA requirements and identify material risks to clients and the company Occasional file review required to determine whether the suitability of advice against business standards and regulatory requirements and identify material risks.
You must be Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing and managing group pension schemes with c200 – 2000+ employees. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 2020
To provide effective feedback and direction of the remedial action required to manage or mitigate the material risks identified.
CASE OFFICERS
EMPLOYEE BENEFITS ADMINISTRATOR
Our Client a well respected Financial Services group, require experienced individuals to research and resolve customer complaints within agreed compensation limits and negotiate solutions to the satisfaction of all parties concerned ensuring requirements of external regulators and internal standards are met.
A London based IFA is looking for a corporate administrator to work within the Employee Benefits administration Support Team, responding to customer enquiries and carrying out administration tasks in support of the sales process.
Investigate customer records produced by the sales forces to ensure that the advice given is in line with standards laid down by the Group and Regulator.
Identification of possible new business leads from the existing client bank and liaison with the client and/or Employee Benefit adviser to maximise the opportunity.
Bristol & Huddersfield c£32,000 plus benefits
Examine standards of remedial action undertaken as a result of reviews, when appropriate, to ensure that customers have not been disadvantaged or the Group put at risk. To effectively identity, control and escalate any perceived risks which may impact customers or the group Produce effective communications to internal and external customers in a clear and concise format, ensuring that any corrective action undertaken is appropriate. Ref: 2023
For further vacancies please visit: www.shortlistme.co.uk
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You will be responsible for working with a sophisticated customer base, providing specialist advice on relevant financial products and services including full financial planning reviews and portfolio management.
Successful applicants will be fully diploma qualified. Ref: 2016
South Coast £70,000 plus bonus and benefits
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Manchester, Bristol & London c£45-£50,000 plus bonus and benefits
Minimum 2 years experience of working in a regulated financial services environment CF1-4 or equivalent Ref: 2053
London c£32,000 plus benefits
Processing of group life & group pensions schemes, including checks to ensure that documentation is correct.
Obtaining new business illustrations and policy valuations for advisers where required. Typing of letters and reports, where required. Ensure all administration is completed in an effective manner to meet the firm’s record keeping and file quality requirements. CF1-4 or equivalent Knowledge of 1st Software Exchange is preferred Ref: 1397
and
ASPECT COURT, 47 PARK SQUARE EAST, LEEDS, LS1 2NL T: 0844 248 5292 E: info@shortlistme.co.uk
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Tailored Platform Solution A low-cost, scalable outsourcing solution that integrates discretionary investment via wrap platform ●
Integrate a long-established investment management company into your proposition
●
Model portfolios built and managed to your philosophy and specification
●
Fund selection process incorporates both the passive and active fund universe
●
Your Firm retains the client relationship and custody of assets
●
We will manage and rebalance the portfolios so you can focus on your clients
JM Finn & Co is one of the UK’s leading investment management companies with £5.9bn funds under management or administration (as at end 2011). Contact Mike.Mount@jmfinn.com T 029 2055 8800 LONDON
BRISTOL
LEEDS
BURY ST EDMUNDS
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JM Finn & Co is a trading name of J. M. Finn & Co. Ltd which is registered in England with number 05772581. Authorised and regulated by the Financial Services Authority. Registered Office: 4 Coleman Street, London EC2R 5TA.
Visit our website at
www.bwd-search.co.uk Senior Financial Planner - Accountancy Practice, Berkshire
Retail Business Development Manager - Nationwide
Basic to £80,000 plus benefits and bonuses
Basic up to £60,000 with OTE up to £100,000 plus bonus, car & benefits
We are currently working with a top tier professional services firm who are seeking a senior level Financial Planner for their Berkshire offices. You will be responsible for developing business from their two practices, advising genuinely HNW clients on a time-costed fee basis. The ideal candidate will be a well qualified, accomplished financial planner and will ideally have some professional practice experience. A generous package is on offer for the successful candidate.
An exciting opportunity has arisen to join a global Financial Services organisation within their niche retail distribution division. You will work closely with senior management in developing sales of selected products through Retail sales channels, through developing business relationships with key stakeholders and providing a portfolio of support services including, training, coaching and sales management. The ideal applicant must have national/strategic account management or retail/corporate sales experience within the life, pension’s or protection product area, as well as being massively sales focused.
Please contact James at: james.woods@bwd-search.co.uk or on 01727 884 662
Please contact Gareth at: gareth.davies@bwd-search.co.uk or on 0113 274 3000
IFA - Equity Participation - North West
Financial Planner - Northern England & Scotland
Basic £40,000 plus benefits and bonuses
Package up to £80,000 plus Car
This well established, reputable and profitable boutique IFA firm is looking for an experienced IFA to join them and share in their directors’ vision and passion to provide true independent fee based advice. Their business provides tailored financial planning and tax solutions for small to medium sized owner-managed businesses and private clients, and has links with a number of top tier accountancy practices as introducers. The firm has solid growth plans and is looking for an ambitious individual to help achieve them. You will be supported by leading back office technology, support staff and access to clients and professional introducers.
Our client is a top financial services group, looking to expand. A rare and new opportunity has arisen whereby you will contribute to the overall divisional performance by supporting and working proactively with the Financial Advisers on complex financial planning cases to provide advanced sales and technical support. Candidates must have a successful track record of delivering complex financial planning cases at the highest levels of wealth and complexity. The ideal candidate should be Chartered, possessing strong technical skills and the ability to build and maintain effective relationships with Financial Advisers & Area Sales Directors.
Please contact James at: james.rhodes@bwd-search.co.uk or on 0113 274 3000
Please contact Trishla at: trishla@bwd-search.co.uk or on 0113 274 3000
Retirement Consultant, Leading Financial Services Provider - South London
Corporate Consultant - London
Basic up to £32,500 plus benefits and bonuses
Basic to £85,000 plus benefits and excellent bonus structure
A leading financial services provider is currently looking to recruit a Retirement Consultant in their South London office. The role will largely focus on annuities and income drawdown markets. Additional responsibilities will also include developing business both internally and externally as well as general record keeping and administration. The ideal candidate will have completed QCF Level 4 in preparation for RDR and will also have a track record of success and proactivity preferably within an IFA background or similar.
The company, a leading and entrepreneurial professional services firm, offers advice to corporates including owner-managed businesses, large corporations and the public sector, as well as to Trustees. The role will have a new business focus and as such they are looking for a ‘hunter’ who can evidence writing high levels of business across DC/GPP/Group Risk. An understanding of DB issues and experience of dealing with Trustees is advantageous. Leads will be provided by the telesales team and you will also build relationships with other areas of the organisation to generate referral business. Diploma qualified is a prerequisite.
Please contact Danielle at: danielle@bwd-search.co.uk or on 01727 884 662
Please contact Zoe at: zoe@bwd-search.co.uk or on 0113 274 3000
Ground Floor, Mayesbrook House, Lawnswood Business Park, Redvers Close, Leeds LS16 6QY Telephone: 0113 274 3000 Fax: 0113 274 3031
Suite 4, Ground Floor, Breakspear Park, Hemel Hempstead, HP2 4TZ Telephone: 01727 884 662 Fax: 0113 274 3031
www.IFAmagazine.com
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magazine... for today ’s discerning financial and investment professional
the financial services e-learning specialists
Get your skills up to date the easy way
Wanted: Quality financial advisers ....Only those with Level 4 Qualifications need apply More and more large groups are demanding that candidates have already achieved at least Level 4 qualification. In fact, many haven’t even picked up a book yet. Without large numbers of qualified advisers the FS sector has a difficult future to say the least. The BWD Group, an established search & selection firm, have taken action to help with the launch of a new service - BWD development. • Advisers and others taking the Level 4 exams can now access e-learning programmes and on-line mock exams. • This allows candidates to learn at their own pace - at a time and place to suit them • They can take on-line assessments along the way and take up to five mock exams to make sure they are on track to pass the live examination
If you like the sound of this, go to www.bwd-development.com where you can see a full demonstration of the service or call BWD development on 0845 850 9995 T 0845 850 9995 F 0113 274 3031 E info@bwd-development.com
HELLO! WE KNOW YOU’RE OUT THERE As IFA Magazine celebrates it’s first anniversary, following intense interest and prolific growth, we have a need to expand our team.
Senior Sales/ Ad Manager to manage/sell print and digital advertising, event sponsorship and bespoke projects. Selling to finance businesses, asset managers, agencies and related companies. London based, you will be expected to develop existing contacts and represent the magazine. A great opportunity for an established sales person to step up and benefit from business growth.
News Journalist to work alongside the Editor in producing and co-ordinating financial features and news for both the web and print magazine.
Sales Executive selling a portfolio of advertising and sponsorship solutions across print media, events and online for fast growing company.
Events Manager
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To register your interest, please send cv in full confidentiality to HR@ifamagazine.com
ag magazine
az
in
As we develop our range of seminars, round tables and IFA events, we are looking for an experienced events and sales manager to join our senior team
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Professional Practice IFA
Private Client Wealth Manager
£60-80,000 + Bonus + Benefits Ref: 23423 We currently represent two large accountancy practices that each requires additional advisers in Central London, North London and Surrey. As always the key to success for these roles is your ability to develop relationships with the tax and audit partners and then in turn advise their clients on all areas. Your technical knowledge must include sound knowledge of pensions, investments and IHT planning. Ideal candidates will be IFA at present and experienced in liasing with accountants or business introducers.
To £60-70,000 + Bonus + Benefits Ref: 3366 Our client is a well-established Investment Management firm based that provides a wide range of wealth management services to wealthy individuals and Institutions. They now require a senior consultant to advise these clients on equity investments as well as pension, trust and investment advice. Candidates must have a proven track record in sales and a genuine interest in the investment market. London based.
Senior Private Client IFA £45-65,000 + Bonus + Benefits Ref: 03232 Newly established investment brokerage requires 2 additional advisers to join an existing team based in London, SW1. You will be required to work with the founding Directors and follow up leads and relationships referred from these individuals. As such you will be employed to advise clients and not hunt for new business. Evidence of producing at least £100,000 per annum in fees is essential with a view to increasing this to in excess of £150,000+ over time.
Private Client Adviser
Private Client IFA £50-70,000 + Bonus + Benefits Ref: 09393 International risk and insurance brokerage with a large UK presence has recently set up a wealth management offering to advise personal and corporate clients. They now require 2 senior individuals to work in the City office and develop referrals internally and advise wealthy individuals and SMEs/FTSE firms as necessary. You must have experience of business development and a proven record of producing both high quality and high levels of fee business.
Associate Director, Private Clients
£60-80,000 + Bonus + Benefits Ref: 0809 A well-established Actuarial & Benefits Consultancy with an expanding personal financial planning division requires two experienced IFA’s for their London operation. Your role will be to build and expand on their existing HNW client contacts by working with their in-house Actuaries and in addition develop new business through their marketing, technical and brand support. You must be an accomplished IFA at present and Diploma qualified.
To £70-80,000 + Bonus + Benefits Ref: 1303 An excellent opportunity now exists for an accomplished Private Client IFA to work within this wealth management boutique and inherit a substantial client base comprising HNW/UHNW Private Clients. You should be CFP/Chartered qualified and be able to offer a background of providing fee advice to a wealthy client audience. Since you are servicing an existing portfolio you are not required to transfer any clients or funds to this role.
Independent Consultant
Wealth IFA
£65-75,000 + Bonus + Benefits Ref: 3009 A long established, fee-based IFA Practice based in London requires further holistic Independent Financial Planners at the top end of their profession, to service the considerable number of enquiries from their HNW client base, deriving from solid historical introducer arrangements with many Accountancy & Legal firms. You must have a proven, in-depth track record of financial planning for the wealthy and be at least DipFS qualified.
To £75-90,000 + Bonus + Benefits Ref: 0504 An outstanding opportunity has arisen for an exceptional individual to carry out a unique role for this private bank based in Mayfair. The role requires a senior consultant of graduate calibre to advise an existing UHNW client portfolio on all areas of investments, pensions and IHT planning. You must be familiar in working on a fee basis and comfortable working with professional introducers
For further information please contact Simon Charlton, Matthew Tatnell or Gareth Blades 60 Lombard Street, London EC3V 9EA 0207 464 8429 fs@rolanddowell.com
IS
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Thinkers.indd 63
www.rolanddowell.com
May 2012
63 02/05/2012 00:41
Institute of Financial Planning THE PROFESSIONAL BODY FOR FINANCIAL PLANNERS AND PARAPLANNERS Post RDR, it will become even more important for advisers in the UK to align themselves with a relevant professional body or accredited body. Membership of the IFP offers you support and guidance whether you are a Financial Planner or Paraplanner. With a huge range of benefits, why not have a look at some of the ways in which we can help you? Support you through regulatory change Engage with a community of professionals Follow a structured career path Increase your personal and business potential Harmonise your goals with those of your clients Keep up to date with relevant issues and news
To find out more or join visit www.financialplanning.org.uk or contact us on 0117 9452470
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I FA C A L E N D A R
e n zi
Dates for your diary a m a g
MAY - AUG 2012
MAY 4
6
Consultation period ends for Guidance Consultation GC12/6 (Assessing Suitability: Replacement Business and Centralised Investment Propositions) Consultation period ends for CP12/5 (Quarterly Consultation Paper No.32)
Consultation period ends for Consultation Paper CP12/7 (Financial Services Compensation Scheme: Changes to the Compensation Sourcebook)
26
European Pensions & Investments
1416 Summit 2012
Noordwijk aan Zee, Netherlands G8 Summit
1819 Camp David, Maryland, USA NATO Summit
1819 Chicago, Illinois, USA 23
International Trade and Finance Association 22nd International Conference Pisa, Italy
JUNE 4 5
May Bank Holiday (delayed) and Jubilee Bank Holiday
1
Implementation of the Alternative Investment Fund Managers Directive
4 8
Royal Henley Regatta Week US Pensions Summit
2325 Chicago, Illinois, USA 27
2012 Olympic Games opens
Prague, Czech Republic
12
2012 Olympic Games closes
27
Republican Party presidential candidate to be formally conďŹ rmed Tampa, Florida, USA
Earth Summit 2012 Sustainable Development) Rio de Janeiro, Brazil London 2012 Festival Wimbledon 2012
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IFA Calendar.indd 65
Cyprus assumes the EU Presidency (until 31 December 2012)
AUGUST
2022 (UN Conference on
25
1
Emerging Markets
1920 Investment Summit
21
JULY
Have we forgotten anything? Let us know about any forthcoming events you think ought to be in our listings. (Sorry, press and official events only.) Email us at: editor@ifamagazine.com, and weâ&#x20AC;&#x2122;ll do the rest.
May 2012
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T H E OT H E R S I D E. . .
magazine... for today ’s discerning financial and investment professional
VIVE LA RÉVOLUTION IT’S PARIS, IT’S SPRING, SO PASS THE COBBLESTONES. RICHARD HARVEY CAN ALMOST SMELL THE TEAR GAS To the Barricades
The current eruption in the politics of envy might lead you to believe you were living in some kind of post-revolutionary Soviet state, in which all those with plump waists and wallets ought to be hauled from their beds and stoned in the streets. Ken Livingstone, a man apparently unable to separate the word “rich” from “bastard”, leads the way (even though he is strangely reluctant to disassociate “income” from “tax efficient savings vehicle” when discussing his own financial affairs). Even David Cameron has seen fit to parade his equality credentials by promising to clobber fat remuneration packages for top business leaders. And who would want to be an IFA nowadays in France? Virtually all the candidates in the recent presidential election are clearly living in a blissful state of fiscal unreality, with manifestos demanding an ever-greater transfer of personal income to the State. Most were promising to re-impose a retirement age of 60; one candidate said he would confiscate all annual earnings above £300,000; and even the favourite, François Hollande, was proposing a punitive 72% tax rate on incomes above £820,000.
I’m Alright Jack
You’ll know which of these undesirables has got the top job by the time you read this. But in Britain, too, the politicians wilfully ignore the reality that the rich (or at least, the honest ones) pay such disproportionately large sums to the Exchequer that it’s sometimes tempting to join the street protesters with their banners and bullhorns. For instance, the Institute for Public Policy
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Research has revealed that chief executives of FTSE 100 companies have trousered a 40-fold increase in take-home pay since 1982, and that they now typically earn packages worth £5 million a year. These include a dazzling array of goodies, such as paying for the kids’ school fees, tax advisors’ bills, removal costs, chauffeur-driven cars, air fares for wives and partners – and, in one case, business class travel for the nanny. According to The Sunday Times, the new boss of struggling Premier Foods was even bunged £400,000 as part of a signing-on fee for presenting a plan to revitalise the company. Isn’t that what he is paid a salary to do? Pass the red flag and pikestaff. I’m off to the barricades.
O, Woe is Me
While our leaders exercise themselves so vigorously in deciding how much we can tuck away in pensions and savings, they might more usefully turn their attention to how much verbiage comes attached to investment plans and insurances. We all know that the vast reams of terms and conditions which accompany almost any contract nowadays are written a) in direct proportion to the fees charged by the lawyers drawing them up in the first place, and b) to deter us from getting past the first para, so that we simply tick the box saying we’ve read, and agreed, the lot. I was recently offered a combined liability insurance policy with T&Cs which ran to some 11,700 words. About the same as a short novel, but not remotely as engaging. But at least that’s less onerous than iTunes, which has (according to a sad character I know who actually calculates these things) 19,972 words of contractual rhubarb attached. Or the 36,275 words you’re supposed to read before signing up to PayPal. Apparently, it would be quicker to read Hamlet.
www.IFAmagazine.com
02/05/2012 00:46
Very good in its make up and content. Sets itself aside from other publications in the marketplace. Excellent. Thank you. Really refreshing. High quality e production i nwith some good thought provoking articles z and useful LOgOa information. Good useful content. Up-todateainfoK useable, very good and easily read. Very good m articles, relevant to my work. Very interesting, extremely useful. Very impressive read and lots of useful Sarticles nice to see it in “magazine” style format A N D SINN TS usual rather ANthan newspaper. A comprehensive ERS read. Very good layout and informative. Good content, appealing to the female reader as many publicationscrisiare very male driven and focused. s Thank you. AUquality magazine for IFA IFA’s. ’s. Good paper S A with good content which is plain talking. Good layout and easy to read. Not seen anything like this for IFA market. Really AZIL Worth reading. Interesting BRgood. content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutely fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the monthsBRto please. A very readable AF TE R ITA INcome TS O RI E publication. It looksTHlike an interesting and enjoyable read that I would be happy to have delivered THE ERS V I C KKabout to the office - not something I could say ING BAN PORT E magazine manyThe financial publications! Great - look Rforward to subsequent editions. Brilliant! Very impressive the top IFAs CAL T and all interesting publication. Looked and felt like E T H IE S T M E N INV a proper magazine rather than other cheaper are talking about... looking publications. Breath of fresh air and topical get your free subscriptionI’m going get it instead of the in biteTosimply size chunks. fill out the form online at: professional adviser papers and financial adviser www.ifamagazine.com/ content/subscribe papers. Enjoyed the read. Keep up the good work! MA
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N E W S R E V I E W C O M M E N T A N A LY S I S Cover 11.indd 3
02/05/2012 13:37
Portfolio oomph If your clients are looking for potentially stronger performance in their portfolio, weigh up the new Schroder Small Cap Discovery Fund. Here’s why: • Packing a real punch for their size. Smaller companies in Asia (ex. Japan) and emerging markets have outperformed large companies over the last decade. • Heavyweight fund manager. Matthew Dobbs is AA rated by Citywire and by OBSR. He has proven his strength with the Schroder Asian Alpha Plus Fund, which has 1st quartile performance over six months, one and three years and since launch.1 • Powerful opportunities. Smaller companies are less heavily researched, providing rich, alpha-generating opportunities. Schroders has had a local presence in Asia since 1969, with nine offices throughout the region. Find out more at www.schroders.co.uk/discovery Weigh up the new Schroder Small Cap Discovery Fund now. Download the free Aurasma Lite App, then point your smartphone at the statue to access special, extra content.
Schroder Small Cap Discovery Fund
* 0800 718 777 www.schroders.co.uk/discovery For professional advisers only. This material is not suitable for retail clients. Sources: 1 Micropal, Morningstar universe: UK Registered Investment Funds, Asia Pacific ex Japan, Equity, bid to bid in GBP, as at 31 March 2012. Source for AA ratings: Citywire and OBSR, as at 31 March 2012. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Emerging equity markets may be more volatile than markets of well established economies. Foreign currencies entail exchange risks. Schroders has expressed its own views and these may change. *Please note that phone calls may be recorded. Issued in May 2012 by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 2015527 England. Authorised and regulated by the Financial Services Authority. UK02893
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