IFA Magazine June 2012

J U N E 2 0 12 ■ I S S U E 12

For today’s discerning financial and investment professional

STAY SHARP

SMARTER THAN AVERAGE BEAR MARKET STRATEGIES

STRATEGIC METALS RARE, PRECIOUS AND PROFITABLE

EUROPE

BUY COMPANIES, NOT COUNTRIES

TAXI FOR OBAMA?

THE BUCK ALWAYS STOPS WITH THE PRESIDENT

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 12.indd 1

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Cover 12.indd 2

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Contents.indd 3

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C O N T R I B U TO R S

magazine... for today ’s discerning financial and investment professional

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.

06.12

Editorial Advisory board: Richard Butler, Michael Holder, Ian McIver and Mark Pullinger

THE FRONTLINE: Any which way, driver, but make it quick. There’s a budget deficit on my tail

17

Is Hollande’s warm reception enough to send David Cameron back to Mrs Merkel?

Whither Europe?

It’s a great year for soccer, and for pensions too. Steve Bee kicks a few ideas about

49

Pick of the Funds

Nick Sudbury’s selection of strategies for a bear market

FSA Publications

Our monthly listing of FSA publications, consultations, deadlines and updates

59

32

Brian Tora isn’t sure either, but he knows the answer matters enormously

A Double Hat Trick

54

News

All the big stories that affect what we say, do and think

Editor’s Soapbox

46

8

56

The Compliance Doctor

Lee Werrell of CEI Compliance looks at the top current issues of interest to IFAs

Thinkers: Nikolai Kondratiev The biggest capitalist thinker ever to come out of Soviet Russia

66

65

The IFA Calendar

Conferences, economic summits, race meetings... All the dates you daren’t miss

The Other Side

Just put down that shotgun, grandma, says Richard Harvey

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

The Buck Stops in Washington America may be deluding itself on growth, says Monica Woodley. But it’s Barack Obama who’s got to take the blame

28

Oeics and Ucits

An endangered species after RDR? Kam Patel doesn’t think so

34

GUEST INSIGHT

Buy Companies, not Governments Blackrock’s Andreas Zoellinger says there’s a solid income story in continental Europe

INSIDE TRACK

America’s healthy growth looks increasingly like an exercise in self-deception.

But Obama will still have to pick up the tab in November

38

Suits You

How one financial planner is using outsourced investment management to great effect

41

Yields – The Outlook John Greenwood of Creechurch Capital says this is an ideal moment to commit

46

Strategic Metals

An alternative investment with a difference. Helen Clague of Schweizerische Metallhandelsgesellschaft explains

IFA Magazine is for professional advisers only.

Full subscription details and eligibility criteria are available at: www.ifamagazine.com

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01.06.2012_IFA_297x210mm.indd 1

Ed's Welcome.indd 6

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WORDS OF WILSON

THE AGE OF TECTONICS THERE ARE TIMES WHEN THE MARKETS BELONG TO THE ACTIONS OF MEN... ...and other times when everything simply succumbs to the brute force of unstoppable natural forces. Unfortunately, this year seems to be one of the brutal ones.

It’s hardly surprising that nobody is making much money at the moment, because so many asset classes are moving in lockstep with each other and the opportunities for profitable allocation are slim. Rather, it’s the massive grinding of the colliding continental plates under our feet that’s calling the tune - not the mere mortals whose colourful actions normally give things such a profitable spin.

Consider this. We’ve had no shortage of personnel changes at the political top table. The new French president, François Hollande, is urging us to emulate the Americans by ripping up the austerity book and splurging our way to growth. US politics is as lively as it’s been in the last five years.

There are new leaders in Italy and Spain. But ironically, the only person whose actions really seem to matter is the German chancellor Angela Merkel - who has chained herself stubbornly to the austerity rock and won’t dispense the European rescue cash for fear of reawakening Germany’s own folk-memory of hyperinflation.

All the while, the subterranean collision forces continue. The euro is distorting and buckling under the built-in tensions that have been there ever since it was so badly mis-designed in the 1990s. The USA is moving with all the frozen certainty of a descending glacier toward the November elections. Japan’s prime minister is screaming uselessly that he’s being crushed by uncontrollable government debt. And China’s powerful elbows keep on getting steadily wider – as the energy markets are starting to discover.

The visible symptoms of these tectonic stresses so far have been small but telling. A bank totters and goes down in Spain or France. A small seismic tremor brings down a Dutch government, and a couple more in Greece. Gilt yields turn minimal under the pressure from Greek outflows, and Germany’s bonds actually go negative. A minor volcanic eruption threatens in Italy as the budget goes sour.

And still the market senses that we’re waiting for the The Big One. This isn’t over yet.

M ik e

Michael Wilson, Editor IFA magazine

www.IFAmagazine.com

Ed's Welcome.indd 7

Write to Michael at editor@ifamagazine.com

June 2012

7 29/05/2012 22:41

shorts

magazine

Platform provider Cofunds recorded a £7.1 million

pre-tax profit for 2011, with its assets under administration rising by 17% to £36bn from the £30.3bn in 2010.

Revenues grew by 14% to £70 million.

The result was 10% less than the £7.9m profit posted for 2010, but this was largely because 2010 had included a £12.3m tax credit.

More, Bigger, Faster, Cheaper... Now! Just when you thought the bank rate couldn’t get any lower than 0.5%, the International Monetary Fund has produced an answer.

If only the Bank of England could be persuaded to drop the rate just a little bit more, it said, we might be in with a chance of getting our economic growth back on the upward path.

More to the point, the IMF’s Managing Director, Christine Lagarde, declared on 22nd May that Britain should consider another round of quantitative easing in an attempt to revitalise growth and lower the cost of borrowing for UK businesses. Well, maybe that’s not such a bad idea for struggling firms hoping to get some investment going. But it would be less good news for gilt holders, because it would probably have the effect of driving up yields.

This is itself wouldn’t be such a bad thing, insofar as sterling-denominated bonds are being

PLAN B

George Osborne must adopt an economic “Plan B” and slow the pace of public spending cuts if the British economy remains weak, the International Monetary Fund warned the Chancellor in May. The managing director of the IMF, Christine Lagarde, went to the Treasury to deliver the sobering news: that the Government should consider slowing spending cuts if recovery stalls.

inflated out of all recognition by the continuing crisis in the euro zone. But it would hurt the value of sterling itself, which is only just struggling upward again after three years of horrifyingly undervalued status against the braggart euro.

And it’s a good job nobody has asked Chancellor George Osborne what he thinks of that idea.

Nor will Ms Lagarde’s message necessarily go down well with Bank of England Governor Mervyn King, who has spent most of the last month blaming the slowdown in the euro zone for Britain’s economic woes. The Governor had said...

“Unfortunately the economic recovery in the UK has not yet taken hold and uncertainties abound,” Ms Lagarde insisted. “The stresses in the euro area affect the UK through many channels. Growth is too slow, and unemployment - including youth unemployment - is too high. Policies are needed to bolster demand before low growth becomes entrenched.”

Still, there was one thing on Ms Lagarde’s side. The IMF’s report came on the very same day as the latest UK inflation figures, which showed a sharp drop in the annual rate to just 3% in April - the lowest rate since February 2010. Now admittedly, IFA Magazine readers will know that the reason inflation is falling is that the step-change resulting from the January 2011 introduction of 20% VAT is still being flushed out of the pipework.

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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

29/05/2012 22:42

Aviva

reported that its UK life and pension sales had been £2.4 billion in the first quarter of 2012, marking a 12% rise in pension sales and a 20% growth in protection sales. General insurance sales were generally flat year-on-year at £2.2 billion; but life and pension sales in Italy and Spain had fallen by 23%, and French sales by 14%.

NEWS

The euro zone

is the biggest single threat to the global economy, the OECD reported. The 17 nations which use the euro will see their economies shrink by an average 0.1% this year, before returning to 0.9% growth in 2013. By contrast, the US economy will expand by 2.4% this year and 2.6% in 2013. And even the UK will grow by 0.5% this year and by 1.9% in 2013. Heady stuff.

Good and Bad News Over 1.2 million people launched complaints about financial services in the 2011/12 financial year, according to new data from the Financial Ombudsman Service, the independent organisation that settles disputes between consumers and financial companies.

And the proportion of these front-line enquiries and complaints that went on to develop into formal disputes grew by 28% to reach a record 264,375 new cases.

But against that, we do need to remember that the proportion accounted for by payment protection insurance (PPI) rose drastically, prompted by a surge in activity from professional claims management companies, which accounted for 69% of all PPI claims.

The good news for IFAs is that the number of complaints referred to the FOS actually fell from 3,260 to just 3,092 last year, representing only 1.5% of all FOS complaints in 2011/12 and the number of investment complaints also fell by 13%, from 3,784 in 2011 to 3,308 in 2012 – apparently because fewer people were complaining in a gently more optimistic market environment.

Stockbroking and portfolio management complaints also fell by 19% to just 1,842, although the FOS says it is having to deal with more complaints about unregulated collective investment schemes.

Against that, the number of mortgage

complaints grew by around 35% during the year, with administrative errors representing the largest focus for complaints.

Things get more interesting when you drill down into the statistics. The FOS says that the numbers of people using the ombudsman from “C1/C2” (skilled/semiskilled) and “DE” (unskilled) backgrounds have risen by 50% and 140% respectively over the last five years, while complaints from “AB” professionals have fallen by 42%.

21% of complainants said they had some form of disability, and PPI complaints made up an enormous 62% of cases from the North East of England compared with only 48% from the South East.

Let’s leave it on an upbeat note. 75% of the UK population say they’re aware of the Financial Ombudsman Service, and fully 70% say they’d trust the ombudsman. Not bad.

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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

Healthcare

is one of the prime candidates for an M&A boom this year, according to a report from Swiss & Global Asset Management. Global M&A activity in the sector amounted to $211bn in 2011 - the third-highest year since 2000, and twice the annual average - and the current number and size of deals already announced this year suggests a new record for 2012. Large cash balances, valuations at historical lows and favourable financing conditions are all positive signs.

Hedge funds

fared poorly in April, according to a report from EDHECRisk Alternative Indexes, which said that every sector except short-selling and fixed income arbitrage had seen a reverse in its fortunes – caused, it said, by a global stock market setback. But it wasn’t all bad news. Long-short equity funds had achieved 5.5% growth in the year to date, and emerging markets 5.6%.

Pensions? Save Them For Later In the month when it was revealed that more people are saving through ISAs than pensions, there was more gloomy news to come from Scottish Widows.

The provider’s 2012 survey of 5,200 UK adults found that only 46% of UK residents are saving enough for their retirement in any form, and that 22% are not saving anything at all. This compares with the 54% who were considered to be saving enough in 2009.

Well, you could probably have guessed all this much from the current uncertain mood in the public arena about the pensions industry in general. A welter of changing legislation, a series of penalties and restrictions on more adventurous drawdown options and a plummeting of annuity values have combined with a period of general belt-tightening to militate against saving in any shape or form.

But even so, Scottish Widows’s discovery that people are expecting more from their retirement is especially unsettling. The company said that, despite the decline in pension savings, expectations of a final pension income level had increased by £200 in the past year.

The survey’s findings show that the average level of annual income people would feel comfortable living on at 70 years old is now £24,500 compared to £24,300 in 2011. This would necessitate a £450,000 pension pot, the company says. But in practice the average saver has a pot of just £150,000, which would give him or her a projected pension of £13,000 including the state pension entitlement.

So what comes above pension saving in the average consumer’s breast? Well, the Scottish Widows survey found that 73% thought that other financial commitments were more important. 30% said that their main priority was paying off debts, 40% said that general living expenses made it impossible, and 16% said they would pay for holidays and travelling before getting round to saving.

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29/05/2012 22:42

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News.indd 11

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NEWS

Pay rises are a foreign language

to 65% of Britons who have never even asked for one, according to a new survey by the payday term lender Wonga.com. This is especially weird since 80% of pay rise requests are successful. And, the study says, 17% of those employees courageous enough to ask walked away with more than they expected. Cheaper than a payday loan.

47% of IFAs are planning

to obtain qualifications over and above the minimum level required

by RDR by 2013, according to Defaqto.That would be an increase of 11% who currently hold qualifications above Level 4.

Defaqto’s survey of 161 advisers says that 89% intend to have attained Level 4 by new year.

Chartered Insurance Institute: Operating on a Higher Plane Whatever your personal feelings about RDR, it’s been a positive boon for the Chartered Insurance Institute, which has just revealed a 24% surge in the numbers of chartered financial planning firms belonging to the organisation.

The CII’s annual review for 2011, published rather late in May, shows that the total membership rose from 372 chartered firms to 468, as members tooled up to meet the increased regulatory demands after RDR. Total individual membership rose from 96,617 to 102,221 during the year, and the numbers of chartered individuals increased from 20,175 in 2010 to 20,690. Members are now found in 150 countries, with 12% of the membership based outside the UK. And there are 94 chartered insurance brokers and 12 chartered insurers.

But the growth emphasis here is firmly on the firms. “Those companies that are approaching RDR-readiness in terms of qualification progress have switched their attention to the broader aspects of professional standards,” said CEO

SANDY’S SURE

Dr Sandy Scott, CII’s CEO, said the requirements of the Aldermanbury Declaration “undoubtedly contributed” to an increase in demand for CII examinations.

Dr. Alexander Scott as the report was published.

“This is focused on membership of the CII or Personal Finance Society (PFS) and, in particular, the provision of accredited body services.”

“Equally, there are numerous firms introducing study programmes to encourage advisers to go beyond the regulatory requirements by becoming Chartered financial planners.

The Chartered brand is seen as a means of differentiation for prospective customers, staff and other professional firms: a recent survey among Chartered firms found that 82% believe their Chartered status has enhanced perceptions of the firm among existing staff and potential new staff, while 76% believe their status has enhanced perceptions of the firm among prospective customers and 45% believe their Chartered status has helped them win new business.”

The Institute’s total income was 12% up on 2010 at £38.1m, driven largely by growth in general insurance qualifications. But international revenues increased by an mpressive 20%, and demand for RDR-related exams inevitably contributed more to the coffers.

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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

29/05/2012 22:42

The double dip

came back with a vengeance as it was announced that Britain’s first quarter output had shrunk by 0.3%. And the Office of National Statistics revealed that household consumption had risen by just 0.1%, compared with a 0.4% increase in final-quarter 2011.

NEWS

Facebook

, the social networking organisation, got a stormy welcome to the stock market as its $38 IPO price in New York rose to $45 and then plummeted the next day to $31. Founder Mark Zuckerberg faced questions after dumping 30 million of his shares at the peak on day one – and also allegations of failing to publish an underwriter’s forecast that profits were weakening.

Snakes and Ladders Typical. In the exact month when Japan’s economy seems to be getting back into gear, the country’s bonds get a downgrade from Fitch which adds insult to injury.

The ratings agency issued its two-notch downgrade, from AA to A+, in late May in view of what it called “growing risks for Japan’s sovereign credit profile as a result of high and rising public debt ratios.” It also warned that further downgrades may be on the way. “[Japan’s] fiscal consolidation plan looks leisurely relative even to other fiscally-challenged highincome countries, and implementation is subject to political risk,” it added.

Japan’s government debt mountain is famously running at 214% of GDP (OECD estimate) - a level which would have had even the

Greeks running for cover. The difference is that the great majority of this debt is held by Japanese householders, who are happy with tiny yields that foreign bondholders wouldn’t tolerate. They get little more from their share portfolios, that’s for sure. And this insulation from international pressure is why worries about the debt don’t go that deep in Tokyo.

Yet the economy remains sluggish, partly because of power shortages caused by the nuclear shutdown that followed the Fukushima meltdown last year. First-quarter GDP growth came to 1.0% compared with the previous three months, which equated to an annualised 4.1%.

That probably looks good until you realise that you’re comparing it with the post-Fukushima, post-tsunami wipeout of a year earlier, which would make almost anything look good.

Much of the recent economic growth has been due to post-earthquake reconstruction spending, funded by the government. But that, of course, is only adding to the debt burden. Meanwhile, consumers have been spending healthily. But even there, not everything is as it seems. The government is considering doubling its sales taxes from 5% to 10% in the next couple of years. Hurry, hurry, before they decide to actually do it.

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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

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NEWS

Germany’s two year bond

yield hit an impressive record low of 0.02% in late May, prompting concerns that the yield might actually turn negative. The reason appeared to be that the inflow of Greek investors seeking solid German deposits had meant that they would settle for bonds that paid nothing at all, rather than keep them in Greek instruments.

Barclays Bank is to sell its

$6 billion holding in Blackrock, which it had held since during the 2009 deal that had transferred Barclays Global Investors to Blackrock. Of this, Blackrock will itself be buying £1 billion worth. The Basel III banking rules will soon make it more expensive for a high street bank to hold equity as part of its capital base.

Free Banking and the Tooth Fairy Britain’s consumers might not exactly welcome the imposition of mandatory charges on their bank accounts that they currently get for free... ...but that’s the way it might turn out, according to Andrew Bailey, the executive director at the Bank of England.

Mr Bailey, who is hotly tipped to head the new Prudential Regulation Authority, told IFA Magazine that the supposedly free current accounts enjoyed by the British public are actually costing them deceptively large amounts of money because of the extremely low rates of interest paid on balances. And, indeed, that socalled free banking is a “dangerous myth” that might even be fuelling product mis-selling.

How so? It seems he was thinking of the way that non-charging accounts made it harder for banks to understand the cost of the services that they themselves provided, which may have contributed to the mis-selling of financial products. Or that, by enticing loyal customers into

a close relationsionship, they might have found it easier to sell products such as PPI insurance.

The ‘big four’, Barclays, Lloyds, Royal Bank of Scotland and HSBC are currently understood to be paying some £9 billion in PPI compensation.

“In short, I think that the reform of retail banking in this country cannot move ahead unless we tackle the issue of free in-credit banking, and have a much better sense of what we are paying for and how we are paying.”

And yes, Mr Bailey did say it might be necessary to intervene so as to force banks to charge – but he was understandably coy on how. He did, though, concede that banks’ reluctance to impose charges was understandable – because they knew that the first to take the plunge would lose customers fast.

BAILEY BRIDGE

Bank of England Executive Director Andrew Bailey said the free banking enjoyed by customers in Britain when not overdrawn makes it hard to link costs to products and services received.

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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

29/05/2012 22:43

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Sterling Bond

92.4

44.3

3.7 distribution 3.7 underlying

Strategic Bond

56.9

44.5

6.1 distribution 4.8 underlying

UK Property

26.1

21.7

4.4 historic

Yield %**

Source: Morningstar at 30 March 2012, based on cumulative performance, UK sterling, mid-mid, net income reinvested for a basic rate taxpayer. Note: The Property sector average returns are based only on the 15 bricks and mortar funds within the IMA UK Property Sector.

The other special manager

*% growth since managing the fund. 1 January 2005 for the Henderson UK Equity Fund, 3 February 2003 for the Henderson Cautious Managed Fund, 9 April 2009 for the Henderson Sterling Bond Fund, 24 November 2003 for the Henderson Strategic Bond Fund and 4 May 2009 for the Henderson UK Property Unit Trust. **Yields at 30 March 2012. Yields are shown net except for bond funds which are shown gross. The Historical Yield reflects distributions declared over the past 12 months as a percentage of the midmarket share price, as at the date shown. The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the midmarket share price of the fund at the date shown. The Underlying Yield reflects the annualised income net of expenses of the fund as a percentage of the mid-market share price of the fund at the date shown. Due to the specialist nature of property investment, in certain circumstances there may be constraints on the redemption or switching of units/shares in the Henderson UK Property Unit Trust. The Henderson UK Property Unit Trust invests in a specialist sector that may be less liquid and produce more volatile performance than an investment in other investment sectors. The value of capital and income will fluctuate as property values and rental income rise and fall. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Issued in the UK

by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no.

2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no.

962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE), Gartmore Investment Limited (reg. no. 1508030), Gartmore Fund Managers Limited (reg. no. 1137353), (each incorporated and registered in England and Wales with registered office 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Services Authority to provide investment products and services. Telephone calls may be recorded.

News.indd 15 HNS307_inc_IFA_070512.indd 1

29/05/2012 22:43 24/04/2012 13:18

News.indd 16

30/05/2012 18:13

ED ’S SOAPBOX

DIAL ‘M’ FOR MERKEL BRITAIN’S RELATIONSHIP WITH FRANCE IS GETTING TRICKIER, SAYS MICHAEL WILSON. SUDDENLY EVERYBODY WANTS TO BE THE NEW PRESIDENT’S BEST FRIEND. TIME TO MAKE UP WITH GERMANY?

E 7 D E C 2 0 11 ■ I S S U

Six months ago, IFA Magazine had one of those strokes of luck that only come along rarely. We’d run a cover picture for our December issue that showed David Cameron wearing an EU interpreter’s earpiece and looking utterly confused, which we’d captioned ‘Lost in Translation’. How opportune, then, that by the time the magazine hit the nation’s doormats the Prime Minister had declared war on perfidious Brussels by exercising a rather crude veto last-minute against a series of measures that had been helpfully intended to pull the EU closer together.

Cameron’s December veto had been a diplomatic disaster. Everything had stopped instantly, the Brussels meeting had failed, and the Prime Minister had been consigned to the European political doghouse, where he still largely remains. The veto, it seemed, had been applied because of a tragic misunderstanding to the effect that France’s centre-right President Nicolas Sarkozy might try to impose a Europe-wide tax on financial investments. It had wrecked one of Europe’s best chances to get itself out of a mess, his detractors said.

So was it all such a misunderstanding? Let’s set the record straight. Sarkozy would certainly have

financial For today’s discerning and investment professional

A CHEE R FOR THE REGU LATO RS IT MUST BE THE SEASON OF GOODWI LL

CH INA

RISING COSTS CAUSE A STRATEGI C RETHINK

GET TING

LOST

NSL ATIO N IN TRA S EUROPE AN BRITAIN’ D MESSAG E GOES UNHEAR

Cameron’s veto last December was a diplomatic disaster and he’s been in the European political doghouse ever since

EXCH ANGE TRAD ED FUND STHE BAFFLING AND THE GOOD, THE BAD

NEWSREVIEWCOM

M E N T A N A LY S I S

www.IFAmagazine.com

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June 2012

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ED ’S SOAPBOX

magazine... for today ’s discerning financial and investment professional loved to enforce the Europe-wide tax – because anything that dented Britain’s predominance in financial circles would have been great news for France or Germany, both of which would be hoping to hoover up new business on the back of higher trading costs in London. But crucially, the problem for Sarkozy would have been that such a measure could only have been approved by a separate unanimous vote in Brussels - and that Cameron could have blocked that move quite separately without needing to trash the entire European consensus on so many other fronts, as he appeared to have done with his veto.

Britain had fired off its very biggest naval gun against an enemy that hadn’t even rigged up the right sort of sails, let alone tried to sail in the right waters. Germany’s Christian Democrat Angela Merkel was spitting teeth about what she plainly saw as Britain’s provocative behaviour. So has that changed?

New number Six months on, and the roundabout has travelled 180 degrees, and now there are different people riding the galloping horses. The pragmatic French centrist Sarkozy has been swept away by a socialist, François Hollande, who could hardly be more diametrically opposed to Messrs Cameron and Osborne’s own ideas. The new president wants to reflate the French economy, abandon the austerity message, reject the growing dominance of the Brussels political machine, hammer the banks, postpone the pain of a tougher social security regime in France, go large on the subsidies and generally go for growth at all costs – all of which will not only infuriate the austere Mrs Merkel but will also drive down France’s bond credit ratings still further.

In theory, then, this ought to be Merkel’s big moment. The Federal Chancellor’s dour demeanour has hardly shifted since this time last year, when most of her exasperation was being vented at Greece’s bizarrely inconsistent government - and, to a lesser extent, at Italy’s Silvio Berlusconi, who seemed intent on abandoning his own country’s austerity measures and thereby condemning his own southern country to retribution from the provident north.

Germany, after all, can fairly claim to be Europe’s banker. The Bundesbank is stacked with cash - the result of Merkel’s own care and economic good planning, and of several years of impressively strong growth. Frau Merkel knows more than almost anybody about how to turn a faltering economy round.

Add to that the fact that the odious Mr Berlusconi has also lost power since the last time they talked. And that Greece’s politicians have been squabbling as the nation’s voters have come out

18

June 2012

Eds Soapbox.indd 18

on the streets against their own Brussels-ordained austerity package. And that Spain and Portugal and who knows how many other countries are now teetering on the brink of needing bailouts, just as Germany had predicted. And that the Dutch government collapsed in May amid more bickering of its own about economic austerity.

Shouldn’t all that have given more power to Mrs Merkel’s instinctively conservative elbow?

Transatlantic call Alas, it seems not. At the G8 summit meeting in Camp David on 18th May, it was the reprobate Monsieur Hollande whose hand President Barack Obama was keenest to shake. It was all a bit forced: there were some rather cringe-making remarks from the Prez about how cheeseburgers and French fries were just made for each other.

But while Obama was piling on the cheese, Mrs Merkel was left alone with her sauerkraut as the two lefty-liberals declared a kind of transatlantic solidarity that few would have expected only a few months earlier. Why, even David Cameron was forced to splutter out a few words of collegial admiration for his gallic counterpart. It was a good job that George Osborne wasn’t on the platform, or he’d have choked on his pretzels.

What’s all this about? Well, partly it’s just that Mr Obama needs his own people to see him acting as a statesman who can welcome even the most intransigently wrong-thinking head of state into the fold. America’s press has no particular love for France at the best of times - but hey, there’s an election coming up. There are French-speaking voters in Louisiana. And by the way, wasn’t it France that gave America the Statue of Liberty?

Secure line There is, however, a more pressing issue to be considered here. Mrs Merkel has acquired a certain European notoriety during the last twelve months

www.IFAmagazine.com

29/05/2012 23:01

ED ’S SOAPBOX

for her refusal to assign Bundesbank funding to the European rescue package. She has, of course, okayed Germany’s share of the official bailouts, but beyond that she has made enemies by failing to volunteer further assistance. Indeed, it has become commonplace to accuse her of deepening and worsening the European political crisis by failing to show strong pro-growth leadership.

Mrs Merkel is well within her rights, in principle, to refuse the hand of northern largesse to the profligate southerners. She is worried about her falling poll ratings, and she has no wish to annoy her own voters by handing out their money willy-nilly. More to the point, she could make a good case for saying, absolutely truthfully, that neither the European bail-out fund nor the imposition of austerity measures in Greece, Italy and Spain have made the slightest bit of difference to the way that those countries’ economies have nosedived.

Spain’s recent plunge might well have been due to the fact that, as far as anyone can see, its banks have now snarfed up all their entitlements of the 1% cheap-rate loans that the European Central Bank offered last Christmas so that national banks could soak up as much of their countries’ sovereign debt as possible. So what happens once Santander and the rest can no longer afford to buy Madrid’s bonds? The prices will go down, the yields – already above 5% - will rise further, and the banks themselves will come

under pressure. As, indeed, they may have done by the time that you read this.

Pay as you go Now, consider how America has tackled its own version of the recession problem. Washington’s government deficit is as large as almost any of the European administrations, at least in per capita terms. Its unemployment is above 8%, and its property market has been half wiped out by the events of the last five years. And yet its retailers are now reporting a wave of ‘austerity fatigue’ that’s seeing tens of millions of people suddenly out there in the malls buying cars and clothes.

Quite impressive, considering that a raft of expresident George W Bush’s tax breaks are due to expire in the next twelve months.

What are we to make of this?

Could it be that the US answer – which boils down to “never mind the future, we need the jobs and the demand now” - is working better than the austerity medicine that so obviously hasn’t worked for Greece or Spain?

Personally, I have my doubts. But that’s certainly the message that François Hollande is demanding that his European neighbours should consider.

Ronald Reagan proved back in the early 1980s

Blue is the colour!

David Cameron celebrated Chelsea’s penalty shootout win over Bayern Munich in the Champions League final with arms aloft and clenched fists. A couple of feet away stood a ‘stonyfaced’ Angela Merkel. He admitting that the pair did “hug and make up afterwards.”

www.IFAmagazine.com

Eds Soapbox.indd 19

June 2012

19 29/05/2012 23:01

magazine... for today ’s discerning financial and investment professional that it was perfectly possible for the United States to inflate its way out of recession with massive demand subsidies – although, in his case admittedly, the President accompanied those subsidies with some quite outrageous import quotas and tariffs, export subsidies and other free trade interference that wouldn’t be tolerated today. Either way, in the end the enlarged US debt didn’t matter: people wanted the dollar bonds anyway, and so the greenback stayed strong.

Emergency calls only So, if that reckless spending tactic has worked for America, both in the past and in the present, could it work for Europe? That’s a harder question. The US dollar is still mightier than the euro, at least as far as attracting Asia’s attention is concerned.

And the buck has the additional advantage of being backed by a federal system that doesn’t allow its 50 states the fiscal freedom to mess things up. You don’t find poor states like Mississippi or beatendown places like Detroit being publicly accused of endangering the dollar with their errant behaviour.

And yet. The euro is the world’s second most important currency, which isn’t bad from a standing start twelve years ago. It has overtaken the dollar as the world’s favourite denomination for corporate bond issues. Its place in China’s trade relationships is already such that the tremors in Brussels and Frankfurt are causing aftershocks in Shanghai and Chongqing. Its banks are deeply enmeshed in

Cameron’s unwillingness to identify with his centre-right EU contemporaries such as Mrs Merkel is proving to be a big problem 20

June 2012

Eds Soapbox.indd 20

counterparty arrangements that will make things very messy if even one of the euro club members is forced to quit.

In short, if the euro goes down the consequences are all but unfathomable. You could make a good case for saying that the European currency is too big to fail. But then, the last time we said something like that – about the banking system – only some of us actually meant it. This time, we had better be serious.

Poor signal So where does this leave David Cameron and George Osborne? Alas, one reason why their names are still mud in Europe is their ostentatious unwillingness to identify with moderate centreright EU contemporaries such as Mrs Merkel. (They pulled out of the European People’s Party grouping in 2009, under pressure from the Tory right wing, for which they haven’t been forgiven yet.) But what Europe ought to have noticed is that Cameron and Osborne are also running the continent’s most successful austerity programme – a sweep of government cuts so breathtakingly deep that it’s probably safe to say that no other EU member state would have accepted them without rioting in the streets.

So far, Mr Cameron’s commitment to austerity is working, albeit painfully and at the cost of low growth. But now that Hollande is yelling for a Europe-wide abandonment of the austerity principle and a return to higher-risk growth, they probably need to warm up their slightly frosty relationship with Mrs Merkel. Neither of them will find that easy.

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!

www.IFAmagazine.com

29/05/2012 23:01

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 in English 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.

Eds Soapbox.indd 21

29/05/2012 23:01

magazine... for today ’s discerning financial and investment professional

TOO FAST, TOO Rightly or not, the president is held accountable for the state of the economy...

...and many people vote as much by their feelings of optimism for the future as they do for their political beliefs. And on this reckoning, on the official figures, President Obama has some cause to be proud.

It might lack the drama of the next Greek election with everyone currently on edge waiting for a wave of resulting euro exits and certain ďŹ nancial Armageddon - but the forthcoming US presidential election hinges every bit as much on the economy as the Greek one. Which makes it rather inconvenient that things in the States are not quite as optimistic as they might appear.

The Headline News Rightly or not, the president is held accountable for the state of the economy, and many

22

May 2012

US Elections.indd 22

www.IFAmagazine.com

29/05/2012 23:04

US ELECTIONS

,

AMERICA IS BOUNCING WITH PUBLIC CONFIDENCE, SAYS MONICA WOODLEY. BUT ITS POLITICIANS ARE KICKING A VERY IMPORTANT CAN DOWN THE ROAD

FURIOUS people vote as much by their feelings of optimism for the future as they do for their political beliefs. And on this reckoning, on the official figures, President Obama has some cause to be proud.

Employment is higher than when he entered office, with over 3.7 million jobs added since the labour market bottomed in early 2010. The private sector actually added 4.3 million, but the public sector has cut jobs—not a bad thing for a Democratic candidate to have done, actually, as the opposition usually tries to cast the Democrats as big government lovers.

And the economic news isn ‘t bad either. While much of Europe has slid back into recession – even supposedly safe countries like the UK - the US economy has avoided a double dip, growing by 1.7% in 2011 and continuing at an

www.IFAmagazine.com

US Elections.indd 23

annualised rate of 2.2% in the first quarter of 2012.

Industrial production also looks positive, rising by 5.2% year-on-year in April and by 1.1% month-on-month - the largest monthly gain since December 2010. The data shows improvements across all industrial sectors and suggests a robust 2012.

Households also look like they are in a better position than they were just six to nine months ago, with private consumption starting off the year strongly. Cars, household durables and clothing are all selling well as the so-called ‘austerity fatigue’ sets in.

But Is the Picture That Rosy?

While employment is up, total employment is still 5 million jobs short of its peak and unemployment (8.1%) is still high by American standards.

Some of the apparent drop in unemployment has actually come from people who have just given up the job hunt.

And there are many more who may be technically employed

but are “underemployed” working part-time or at lower salaries than before. Job growth actually decelerated in March.

The economy did indeed grow at 2.2% in the first quarter – which is impressive compared to the stagnation in Europe - but that was still less than expected, and lower than the 3% growth it managed in the fourth quarter of 2011.

GDP is now heavily reliant on private consumption - it represented the bulk of the first quarter growth. It’s been happening because of strong GDP and jobs figures in the final quarter of last year, along with increases in consumer credit, which have increased consumer confidence in the first quarter of this year. Pent-up demand for vehicle purchases also played a contributing role to the boom, because supply chain problems following the Japanese earthquake in March 2011 had disrupted sales into the second half of last year.

But, with that pent-up demand spent for a while, and consumer confidence fickle, it can’t be relied on to carry

June 2012

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US ELECTIONS

magazine... for today ’s discerning financial and investment professional growth for the rest of the year.

Investment by businesses can no longer be relied on to pick up the slack. Nonresidential private fixed investment—essentially investment by businesses— declined by 2.1% in the first quarter of the year, the first drop in nine quarters.

That decline in business investment does not bode well for the prospects of economic recovery, which relies on companies becoming more confident about investing.

Companies periodically become cautious about the durability of the US and global recoveries, with recession in Western Europe weighing on business confidence and exports. And this in turn will hold back growth in industrial production for export.

Looking to Government for Leadership A recent report by the Economist Intelligence Unit, Search for Growth, which surveyed institutional investors around the world, found consensus in the belief that growth in 2012 depends more on political leadership than anything the private sector can do. Considering the lack of apparent will by either

political party to take decisive policy steps in the run-up to the election, this is a major concern.

Congress has been mostly deadlocked since the mid-term elections in 2010, which gave the Republicans control of the House of Representatives and left the Democrats running the Senate. Fiscal policy has been the biggest source of conflict: whereas the Republicans refuse to consider tax increases of any kind, demanding unprecedented spending cuts instead, the Democrats insist that they will not consider any plan that does not include tax hikes on the wealthy, and they refuse to accept deep cuts in social programmes.

The rise and rise of the Tea Party has been a particularly potent factor behind the increasingly uncompromising position being taken up by the Republicans.

The recent defeat of Indiana Senator Richard Lugar in the Republican primaries— after 36 years in office—by a Tea Party candidate has got other Republicans running scared that they too will lose their seats if they are seen to accommodate Democrats in the slightest way. So until the election, the legislative process will remain severely dysfunctional.

“I don’t remember a time when so many topics have become politically unmentionable,” bemoans Indiana’s outgoing Republican Senator Richard Lugar after suffering a resounding 20-point defeat at the hands of challenger, Richard Mourdock, a 60-year-old state treasurer who has promised never to compromise with Democrats and was backed by millions of dollars of advertising paid for by outside Conservative action committees, or “Super PACs”.

24

May 2012

US Elections.indd 24

Hobbled by the Election Earlier this year, President Obama won an extension of the payroll tax cut that has been boosting demand - but that tax break still expires at the end of the year, as do the Bush-era income tax cuts.

And then there’s the federal borrowing limit, which will also need to be increased - and who could forget the trouble this caused last summer, when the US government was driven to the brink of default by bickering politicians?

The stakes here are probably higher than they look.

Under the budget deal that was hammered out last August, any failure to agree on raising the debt ceiling, or of finding a way to reduce the budget deficit, will set a series of preprogrammed events in motion and neither party will be happy with the result. For a start, those income and payroll tax cuts, along with an investment tax credit and enhanced unemployment insurance, will expire. And then there’ll be across-the-board cuts to both domestic spending and defence spending that will cut about $100 billion from government spending next year. Democrats shiver at the prospect of shedding entitlements such as government-funded pensions; Republicans, on the other hand, fume at the thought of defence cuts.

To put it bluntly, this automatic series of events would be disaster. The combined effect of spending cuts and what would effectively be tax hikes would knock about 3.6% off GDP in 2013. And that’s just what the Congressional Budget Office says - independent analysts reckon it could be as much as 5%. Even the lower end of that spectrum would be enough to tip the economy back into recession. And yet the parties have no incentive to try to deal with this developing disaster until after the election.

www.IFAmagazine.com

29/05/2012 23:04

So what will happen if Barack Obama is re-elected in November? He will presumably be more willing to let the Bush income tax cuts expire than he was before. He may also not have to worry about hitting the debt ceiling until February 2013. The Republicans will probably still control the House of Representatives and possibly the Senate, but they may be more ready to strike a bargain if they realise this fact.

But the likelihood of anybody passing complex changes by the end of the year is slim. The best that can be hoped for is probably that the parties can agree a framework, extending some tax cuts and delaying the pre-programmed events they both dread, and generally buying some time.

Things will be no better if the Republican contender Mitt Romney wins in November.

The Republicans will have no obvious incentive to negotiate with a lame-duck president (Obama), who would still be in the White House until January 2013. That’s a delay that America can only barely afford.

The Best of a Bad Bunch Whoever wins in November, the political situation is likely to remain murky because there is little agreement between Democrats and Republicans on the future fiscal path. And there is no guarantee that credit-rating agencies will not lose patience with the bickering and downgrade US debt.

But considering the situation in Europe, investors who want to stick with developed markets have few alternatives. GDP growth of 1.7% in 2012 and 2.2% in 2013, as estimated by the Economist Intelligence Unit, is not to be sneezed at compared to Europe’s rather pathetic outlook, and American companies are proving fairly resilient and profitable after years of cost-cutting.

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US Elections.indd 25

US ELECTIONS

Things will be no better if the Republican contender Mitt Romney wins in November

And When It’s All Over?

The Republicans will have no obvious incentive to negotiate with a lame-duck president (Obama), who would still be in the White House until January 2013. That’s a delay that America can only barely afford.

At the same time, yields on US Treasuries have been falling, as concerns over repercussions from a possible Greek exit from the eurozone have increased the demand for a safe haven. And that’s the way it’s likely to stay for some time yet. The US may stay the best of a bad bunch by default.

For more comment and related articles visit...

IFAmagazine.com

June 2012

25 29/05/2012 23:04

A FIGURE OF SPEECH

magazine... for today ’s discerning financial and investment professional

PEOPLE WHO LIVE IN GLASS HOUSES...

THE FSA IS LECTURING US ABOUT ACCOUNTABILITY, SAYS IFA CENTRE’S GILLIAN CARDY. SO LEAD US FROM THE FRONT, PLEASE It’s been a busy time for the regulatory speech writers. Hector Sants delivered his last speech as Chief Executive of the FSA and Martin Wheatley, his successor at the FCS spoke twice, all in the space of a fortnight.

We used to fear “regulation by speech”.

It was hard enough to divine the meaning of rules in the ever-expanding Handbook without having to check the speaking engagements of FSA managers of varying seniority to work out what was expected of us. But FSA speechwriting does provide strong clues as to the real thoughts, concerns and motivations behind the specific rules and decisions that the regulated community has to grapple with.

Mr Sants’ speech was not merely a contemplation on his years in charge, but a clear statement of future intent, presumably agreed with his successor. And I’m afraid.

“Constructive Tension”

Sants told us that a company board must “set the right tone” for the organisation and must be constructed to avoid “group think” and “herd mentality”. Yet his analysis of corporate governance and organisational culture in firms that failed in the financial crisis could also, shockingly easily, be applied to governance and culture at the FSA - especially inadequate understanding of aggregation of risk - and regulators without appropriate technical competence in authority over the regulated. Let he that is without sin...

We need, apparently, a sufficient understanding of the issues and the confidence to speak up so that debate can be enhanced, with the Chair creating an environment where this confidence and debate is encouraged and valued. Physician, heal thyself?

Mr Sants clearly expects leaders to be driven by the desire to ‘do the right thing’, or integrity in other words, but he also recognises that this isn’t going to happen. He argues there should be a “constructive tension” between regulator and firm, yet continues to maintain we should be frightened of the FSA. Fear often leads to tension, but it’s rarely constructive.

The Right Sort of Fear?

Fear is also an extremely bad basis for any relationship, regulatory or otherwise. It has unintended consequences. People will not own up to failures and will hide their mistakes.

They will not ask for help if they are unsure, in case their confession of ignorance is itself punishable. They will say and do the right things publicly but behave differently in private.

But no-one works (or lives) well in an environment of fear.

Furthermore, constructive tension implies two things, joined, associated, linked, but pulling in different directions. Good and bad. Profit and social responsibility. Sales targets and treating customers fairly.

So, where is the regulatory dividend for those who are doing the right thing, whose organisational culture does display all the right characteristics, who do care about their clients, whose incentives are driven by integrity, not financial reward?

So Mr Wheatley, as you settle in to your new office, two things : Firstly, please understand that we want to “do the right thing” but we do not want to be afraid (and, frankly, you don’t want us to be afraid either).

Secondly, you have standards, but so do we. We are accountable, but so are you.

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www.IFAmagazine.com 26

June 2012

IFA Centre.indd 26

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29/05/2012 23:05

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magazine... for today ’s discerning financial and investment professional

OPEN-ENDED It isn’t too difficult to see why Open Ended Investment Companies and unit trusts have been so popular for so long with independent financial advisers. Their ready availability on platforms and their huge range have given them a distinct advantage over alternative, closed end investment trusts, for instance. Most importantly, of course, advisers have benefited from being paid a commission by providers for recommending them to clients.

The introduction of RDR from next year will of course mark the general end of commissions and impose a demand that properly independent IFAs should consider the full range of investment funds that might be suitable for clients - including the likes of investment trusts, exchange traded funds, life insurance funds and offshore funds, as well as UK-based unit trusts and Oeics.

For obvious reasons, investment trusts in particular are excited by the potential of RDR to open up demand for their vehicles. But the limited range of offerings could be a problem.

And there might also be issues relating to transparency - with ratings agency Morningstar recently bemoaning a general lack of holdings disclosure across the sector, and pointing out in particular that 80 such funds with a combined

28 OIECs.indd 28

June 2012

ADVISERS ARE RISING TO THE WHOLE-OFMARKET CHALLENGE, SAYS KAM PATEL. BUT HOW WILL IT SEEM AFTER RDR?

£16 billion in assets are still not revealing a full portfolio listing at least once a year.

This lack of disclosure, says the agency, will mean that advisers will lack some of the critical information they need if they are to carry out accurate comparisons between open-ended funds and investment trusts. And it warns that, for investment trusts to truly compete alongside open-end peers, they need to be much more transparent. So it looks as though the closed-ended sector may have a while yet to run before advisers can be tempted away.

But First, a Little History Oeics, which were launched in the late 1990s, are widely (and rightly) regarded as successors to unit trusts, but with more freedom. Indeed, many unit trusts have converted to Oeics especially in recent years. Since both types of fund are open-

www.IFAmagazine.com

29/05/2012 23:06

OIECS

QUESTIONS ended, they can expand and contract in response to demand and withdrawals, and so there is never any need for a premium or a discount.

A key difference between the two, however, is that, rather than issuing units, as with unit trusts, Oeics issue shares and can even list on the stock exchange if they choose, rather like an investment trust. Furthermore, Oeics are valued daily and a single price is quoted for both buyers and sellers alike - unlike unit trusts, which operate on a bidoffer spread basis. Oeics can incorporate subfunds, for instance based on geographical regions, which allows investors to sell units of one sub-fund and buy those of another – all of which helps to minimise dealing costs.

The single pricing of Oeics and the resulting additional liquidity are a major plus, because it allows providers greater flexibility in terms of offering these types of products as part of larger portfolios. What’s more, because Oeics are companies rather trusts, no trustee is involved, which means a modest saving on administration costs. But of the two, Oeics arguably offer a more transparent charging structure.

The UK launch of Oeics in 1977 was, in turn, a direct response to a 1985 Brussels directive to allow cross-border promotion of

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funds within the European Union. Called Undertakings for the Collective Investment in Transferable Securities (Ucits) funds, these products too were always intended to be openended, able to invest in a wide range of securities including fixed income and equities. But the launch was, frankly, shambolic because of the wide divergence of laws between EU member states, and it wasn’t until 1998 that the so-called Ucits III directive was produced. (Don’t even ask what happened to the stillborn Ucits II…) Suffice it, for the moment, to say that Luxembourg and Dublin have established themselves as major domicile centres for Ucits of every kind – largely due, in Dublin’s case, to a particularly generous tax regime.

The Ucits IV rules, which were approved in 2009, cemented the regime further by establishing a set of Key Investor Information (KII), a system of co-operation between Member State Supervisory Authorities, and a Management Company Passport which has significantly improved liquidity.

These days it’s nothing unusual to find Ucits domiciled from as far away as Malta being sold on the UK market. And one office in Paris, say, will be enough to let a fund manager control not just UCITS from several Member

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OIECS

magazine... for today ’s discerning financial and investment professional States, but also a Luxembourg SICAV, a French Fond Commun de Placement, and an Irish VCC or unit trust. Now that’s efficient.

All Conquering Oeics The effective harmonisation of Oeics with Ucits and their attractive, hybrid unit trust/ investment trust structure has certainly helped to ensure their resounding success versus unit trusts so far. According to Lipper data, UK sales of Oeics across classes including bonds, equity, mixed assets and fund of funds in 2009 and 2010 totalled just over £35 billion for both years, but fell to £15.5 billion over the difficult 2011. This year has seen a modest rebound, with first quarter sales hitting nearly £6 billion. Oeic assets under management currently total nearly £419 billion.

If that sounds impressive, it is. Unit trust sales totalled just £8 billion during 2009, rising to £12.7 billion in 2010 but slumping to a catastrophic £2.1 billion in 2011. Alas, that wasn’t the end of it. Sales for first quarter of 2012 totalled just £429 million - barely one fourteenth of the equivalent levels for Oeics - and total unit trust assets under management currently stand at £239bn - more than 40% less than for Oeics.

Ucits Show Mettle But if you think that’s a lot, wait till you see the market in Ucits. Carne Group, the specialist provider of fund governance and support services for the global asset management industry, estimates that by the end of 2011 Ucits funds accounted for assets of US$5.6 trillion. Yes, that’s right, nearly 14 times as much as Oeics, accounting for well over three quarters of the EU’s collective fund purchases.

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But by no means all of the Ucits interest from European Union countries. Carne points out that Ucits have also become a global brand - being widely sold outside of the EU in Switzerland, Asia, South America and South Africa. Indeed, according to Carne’s research, 7080% of publicly sold funds in Asia are now Ucits.

Like Oeics, modern-day Ucits are openended funds that deliver simple, transparent pricing and the absence of any bid-offer spread. And new Ucits funds are now being launched at regular intervals to meet growing demand in the UK. In May, for instance, Investec Structured Products launched its first Ucits fund. Called the Objective Returns Fund, it aims to providing investors with targeted equity-linked returns, daily liquidity and protection from counterparty risk.

And in April, as reported by IFA Magazine, Russian firm Troika Dialog Asset Management hailed the launch of two Ucitscompliant funds aimed at enabling international investors to gain access to Russian equity and fixed income opportunities. One of the launches, The Russian Long Term Capital Appreciation Fund, will hold a diversified portfolio of Russian equities, including blue chips, mid and small cap stocks. The other, the Russian Fixed Income Fund, will invest in a portfolio of rouble-denominated sovereign, municipal and corporate bonds with medium to long term duration and high credit quality.

Other notable launches have included the UK Autocall fund from Citigroup’s retail structured product arm CitiFirst. This Ucits vehicle, made available in late 2010, was designed especially with the UK IFA community in mind and accessible through fund platforms and offshore insurance bonds.

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OIECS

To Be Or Not To Be Clearly, the growth of Ucits demands everyone’s attention as advisers come under pressure from RDR to consider such funds, along with the whole host of alternatives including ETFs and investment trusts. That is, of course, if they wish to remain classed as ‘independent’ - implying that they must consider the whole of the market when recommending products to clients.

Indeed, the whole matter of adviser classification is building up a head of steam as formal RDR enforcement comes into view – requiring, as it will, that advisers state clearly and upfront the type of advice they are offering, and whether it is ‘independent’ or ‘restricted’. And that’s before we even talk about the impending abolition of the commission system under RDR and its replacement by adviser charging.

The RDR Issue Ah yes, you’re probably saying, but what about the task of comparing open-ended with closed-ended funds? How does the market intend to achieve comparability, given thattheir charging structure is so different?

The truth is, we don’t know yet. But the Association of Investment Companies (AIC) has altered its charge methodology this year to allow easier comparison of its members’ closed-end funds with open-ended rivals such as investment trusts during the run-up period.

The AIC announced in May that its website will stop publishing Total Expense Ratios (TERs), and that it will replace them instead with what it calls an “Ongoing Charges” figure.

This new figure is to be calculated by the aforementioned Morningstar, employing AIC’s own algorithms and methodology. AIC is also suggesting that its members use the

same methodology when preparing ‘ongoing charges’ figure in their own publications and their own client communications. The hope is that the new ‘ongoing charges’ routine is that it will meet the expected new European rules on investment companies when they produce Key Investor Information Documents (KIIDs).

Meanwhile, providers themselves have been busy preparing new products that will give their existing Oeics the characteristics of conventional open-ended shares after RDR. In May, for instance, Investec Asset Management announced the launch of some 39 ‘clean’ share classes ahead of the year-end RDR deadline, which will effectively provide an alternative means of accessing its £10 billion UK Oeic range.

One of the attractions here is that the new ‘clean’ shares will carry an annual management charge of only 0.75% – which is about half what retail investors usually pay. The new funds will sit alongside the existing share classes, which charge 1.5%, “to support our historic book of business”, according to managing director David Aird.

We’re going to see a lot more of this sort of thing happening between now and January.

Indeed, the question on some people’s lips is now the traditional investment trust sector can respond. Will the spreads narrow as the newcomers move in? Will we see a reduction in premiums? (A drop in discounts seems strangely improbable.) And how easily will the IFA community adjust to the new situation?

We don’t know, But it’s going to be fun finding out.

“The effective harmonisation of Oeics with Ucits has certainly helped to ensure their resounding success versus unit trusts so far” For more comment and related articles visit...

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EURO CONFUSION

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BEWARE OF GREEKS THE JURY IS STILL OUT ON THE SINGLE CURRENCY, SAYS BRIAN TORA Flying home from a relaxing holiday in the sun and trying to catch up with the news, there seemed only one topic in the general, let alone the financial, press – the future of the euro. Given that I’d just spent two weeks spending euros in a country that was already in hock to the European bail-out fund and the IMF, it felt rather strange to contemplate the potential ending of one of the greatest financial experiments of our times.

When the single European currency was first mooted, one of my colleagues – Tim Congdon, a leading economist who had been adviser to a number of Chancellors of the Exchequer – stated that it wouldn’t happen. In formulating this view, he clearly underestimated the political will present in Germany and France.

But when it actually came to fruition, he still said it would not work. He may still be proved right.

Greek Bust

The failure of the Greek political leaders to form a government and the election of a new president of France has unsettled markets in no small fashion. And right now, all the talk is of a Greek exit from the single currency. Certainly, the austerity visited on Greece as the price of the rescue package has taken a significant toll on the country and its people. Unemployment among the young approaches 50%, the economy has shrunk by 20% in just four years, and there are soup kitchens on the streets of Athens.

But surely, the sceptics say, the Greek economy is just a small proportion of the Eurozone? Dumping the euro and re-embracing the drachma can’t be that difficult – can it? And just think how such a move could stimulate the economy there.

Tourism would suddenly be competitive again. Aaah, would that life were that simple.

Counterparty Culture Whatever the rights and wrongs of economic management in Greece, the fact remains that we are all intertwined through the financial system. Banks borrow from each other and from their central bank. The central banks also have relationships with similar organisations in other countries and, of course, with the European Central Bank. A Greek withdrawal would have a knock-on effect of incalculable proportions.

And that’s only the start of it. The exit of even the least important member of this club raises the question - is membership of the euro now optional? The very idea that other countries might follow suit would see a flight of capital to those countries deemed to be most secure.

And this is the reason why the demand for sterling is strong – although it damages the competitiveness of our exporters and hurts our pension annuities.

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EURO CONFUSION

BEARING GIFTS Already, there are straws in the wind. Kent County Council recently withdrew its short-term deposits from the UK arm of Santander. The Council had been damaged by the Icelandic banking collapse, and it was unwilling to take the risk that the Spanish banking system might be in trouble if Spain were also to be forced out of the Euro.

Strength from Austerity?

But there is a real debate now taking place – at last, you might think! – as to whether or not austerity can really restore growth. This is Francois Hollande’s stance (he says no, by the way) and it will almost certainly be the approach of any Greek government ushered in by the upcoming elections in Athens. Angela Merkel (who says yes) will be mindful, too, of the Bundesbank’s

exposure to the weaker, southern European states – which is believed to amount to the equivalent of a quarter of Germany’s annual GDP. In the meantime, all this uncertainty is damaging sentiment, tainting economic prospects and unsettling markets. With disagreement amongst Europe’s leaders and the absence of any magic wand to wave, the volatile situation could continue for a little while yet.

Much will depend on the voices of the people, as they square up to the demands of political leaders for continued belt-tightening. It might all prove to be a wonderful investment opportunity, but it’s a brave adviser that stands out against the crowd in these conditions.

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GUEST INSIGHT

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EUROPE: BUY COMPANIES, NOT COUNTRIES

ANDREAS ZOELLINGER, CO-MANAGER OF THE BLACKROCK CONTINENTAL EUROPEAN INCOME FUND, SAYS THAT MAJOR COMPANIES HAVE STRENGTHS THAT GOVERNMENTS DON’T

Although investors may have breathed a sigh of relief after the eurozone confirmed this month that it had narrowly escaped recession, political risk still looms large over European equity markets.

Greece has of course again taken centre stage after failing to form a government, prompting members of the European Central Bank to air the issue of a potential Greek exit from the euro for the

first time. But in the eurozone core, the new Socialist French president François Hollande was elected on an anti-austerity mandate which may threaten the European fiscal stability pact.

The re-emergence of the eurozone debt crisis has caused the FTSE Eurofirst 300 to fall to the level at which it began the year, wiping out all the gains of the risk-on rally of the first quarter.

For many investors, a relatively stable income is at the top of their agenda.

21 high-yielding telecoms companies including household names like Deutsche Telekom and Vodafone

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Avoid Europe? Not Necessaily

The problems faced by Europe do not necessarily mean investors should shun stocks in the region – perhaps the contrary.

European dividend yields are currently the highest in the world at above 4.8%. How so?

Europe boasts some of the biggest brands in the world –solid companies that may be able to withstand recessions thanks to their global franchises and strong cash flows. Experience has shown that some big companies tend to at least maintain, and usually increase, their pay-outs during recessions, while their core share prices tend to hold up better during market routs due to balance sheet strength.

Part of the reason for the cash flow strength of European companies lies in the fact that more than 50% of their revenue is generated outside of the continent, with an increasing proportion from high-growth emerging markets.

GUEST INSIGHT

However, today’s environment is making that increasingly elusive. The search for yield has been notably thrown into the spotlight as interest rates remain at historical lows. This factor, combined with anxious investors, has driven the yields on “safe haven” sovereign bonds below 2% in many cases. Earlier this month, the flight-to-safety pushed the yield on the benchmark 10-year German bund below 1.5% for the first time.

As always, stock selection is key to picking the winners. The recent firstquarter earnings season was tough for many companies, so the art of income investing means looking for longer-term resilience rather than chasing quick returns. And there is no shortage of such stocks to choose from: ■

Europe contains more than 195 companies with a market capitalisation above €1 billion that also have dividend yields of above 4.5%.

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The continent is home to 21 highyielding telecoms companies including household names like Deutsche Telekom and Vodafone.

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A world that has become over-reliant on service industries, Europe has 10 high-yielding, high quality industrial companies including names such as BASF and Bilfinger Berger.

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Smoking may well be bad for your health, but it isn’t bad for your dividend payments. Some of the best dividend payers have consistently been Imperial Tobacco and Swedish Match.

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Given the spate of recent disasters, from the Japanese tsunami to the New Zealand earthquakes, you would be forgiven for avoiding insurance companies. Yet

10 high-yielding, high quality industrial companies including names such as BASF and Bilfinger Berger

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GUEST INSIGHT

■

■

companies such as Swiss Re and Zurich are not skimping on their dividends.

Likewise, not all banks are facing problems. The Nordic region is a particular haven of stability, seeing strong dividend payments from Swedbank and Handelsbanken.

Other European companies are also global franchises. Many American brands, for example, are no longer owned by Uncle Sam, but by European powerhouses. Budweiser is now owned

by Belgian company Anheuser-Busch Inbev while Ben & Jerry’s ice cream is owned by Unilever.

Are High Yields Sustainable?

Our favoured sectors in the high-yield space include the traditional defensive staples such as tobacco and telecoms but also energy, infrastructure and insurance. Yields for these sectors in Continental Europe (excluding the UK) in 2012 are expected to be 3.7% for pharmaceuticals, 7.0% for utilities, 4.1% for construction and materials companies, and a whopping 9.7% for telecoms companies..With oil prices remaining high, the energy sector also now possesses a ‘high quality’ tag – Société Générale expects dividends from the oil and gas industry to yield 5.4% in Continental Europe this year.

A perhaps surprising addition to the high-yield list has been financials, which have recapitalised since the 2008 credit crunch crisis. Dividend yields of 5.4% are expected in the sector this year, though my own fund remains highly selective in this volatile part of the market where the risk of dividend cuts remains high and are currently significantly underweight financials.1 Can high dividend yields be sustainable? After all, the continent is facing a low-growth environment, and despite their large levels of overseas business, European companies still sell in the domestic economy.

The short answer is ‘yes’, due simply to the vast amounts of cash that European companies are currently sitting on.

At the end of March, members of the STOXX Europe 600 Index had €614 billion of cash on their balance sheets, equivalent to almost 11% of their stock market capitalisation. This has been accumulated as companies have deleveraged and retained profits as cash rather than engage in expensive M&A on which returns may be low or unpredictable. Due to this balance sheet strength, dividends for 2012 are forecast by Société Générale to grow in Europe by 6.6% this year, or more than twice the April rate of eurozone inflation.

1 Société Générale, ‘Global Equity Market Arithmetic’, January 2012

magazine... for today ’s discerning financial and investment professional

Income strategies outperform in a low growth environment

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A Proven Method

To sum up, successful dividend investing can be achieved by focusing on high-quality companies with sustainable business models which can pay and increase dividends over time. That doesn’t mean that investors should always look for the dividend stocks with the

GUEST INSIGHT

Consider also the currently low pay-out ratios in Europe – the proportion of a company’s net profit that is paid in dividends. Ratios peaked at 75% in 20082009 before the effects of the financial crisis caused companies to conserve cash. They are currently at about 45%, allowing cash-rich companies scope to become more generous to their shareholders, particularly given the recent reticence to engage in M&A. Meanwhile, European stocks remain cheap by historical standards, as the equity market has been dragged down by eurozone fears that reflect concerns over debt and austerity rather than company fundamentals.

The market is currently trading on a price/ earnings multiple of just under 10 times compared to the long-term average of 13.5.

The following two charts show how income strategies can outperform in downturns, as dividend payments have proved to be less volatile than falls in earnings in previous crises or recessions:

highest yields: such companies can form the classic ‘dividend trap’ where dividends are artificially high because there are operating issues at the company that may prevent profits, and therefore share prices, from growing as well. Investors may subsequently experience lower risk-adjusted returns over time, with a higher risk of a dividend cut.

BlackRock’s strategy is to typically avoid those companies – because, if it sounds too good to be true, it usually is!

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Europe contains more than 195 companies with a market capitalisation above €1 billion that also have dividend yields of above 4.5%

Equity income investing is well suited to current European conditions

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CASE STUDY

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THAT SUIT IS BEST THAT BEST SUITS ME TAILORED INVESTMENT OUTSOURCING TO A DFM CAN BE A FAST AND COST-EFFECTIVE SOLUTION FOR ADVISERS. IFA MAGAZINE TALKS TO DAMIEN RYLETT FROM BRUNEL CAPITAL PARTNERS

At a time when the pressure is growing on advisers to beef up their service levels to clients while also meeting tighter regulatory standards post-RDR, there are many who are opting to outsource various parts of their operations to expert services – whether it’s risk assessment, back office management, compliance, you name it.

But few have gone quite so far - or so fast - as Brunel Capital Partners, a newcomer to the wealth and planning scene, which has recently opted to bring in Discretionary Fund Management specialist JM Finn as its main investment provider. By buying straight into JM Finn’s investment expertise, Brunel says, it has left the way clear to focus on its own particular strengths, which lie primarily in financial planning.

The logic here seems flawless. Of all the changes that are likely to arise from the switch to fee-based services, it’s the personal planning angle - and the ability to convey to clients that you’re completely in touch with their own personal aims and requirements that will probably make the critical difference in retaining their loyalty and stop them from disappearing off to the execution-only websites.

Not that retaining a long-standing customer base is a particular priority for Brunel. The partnership was only formed last September by Damien Rylett, formerly at Chartwell Private Client and Broadoak Group, whose key idea was to tear up the conventional IFA ideas about combining investment expertise with planning acuity, but to outsource the investment aspect from the start.

The DFM outsourcing idea isn’t new, of course. Brewin Dolphin, Quilter, Brooks Macdonald or Investec Wealth & Investment have all been providing these kinds of services to advisers for many years. But the challenge for Rylett was to find a manager which could supply

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a fully tailored solution, rather than simply proposing a range of off-the-peg packages.

“JM Finn were the first firm we spoke to who told us, you tell us what you’d like us to do, and you tell us your principles and your philosophy, and we’ll build around those,” says Rylett. “As distinct from ‘here’s what we do, here’s our range of off-the-shelf portfolios, take it or leave it’. And yes, Finn told us that they were happy to talk to a small number

“Simplicity, transparency and liquidity are our mantras”

Damien Rylett, MD, Brunel Capital Partners

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CASE STUDY

of firms like us, even though they realised it wasn’t a hugely scalable approach. But as it happened, they had neatly anticipated the way that the FSA was going to send the market. [by prompting a wave of outsourcing interest]”

Bespoke Tailoring at Budget Prices The deal with JM Finn, which finally got under way in April, is that Brunel supplies Finn with its asset allocation requirements for each customer, based on results obtained from their risk profiling and planning process - together with the types of assets it wants included. And that Finn will then populate the client’s portfolio based on its own tailored research, using the Ascentric Wrap.

If that sounds expensive, it probably would have been if it weren’t for two basic provisions which Brunel firmly insists on. “Firstly,” says Rylett, “we stipulate that the portfolio should consist only of simple asset classes – equities, bonds, cash, property or commodities.” So there are no complex products, no hedge funds, no derivatives, absolute return funds, no multiple fee layers, and above all no need to keep swapping and chopping in line with the shifting tide of the markets.

The second priority, which will seem pretty radical to many advisers, is that the portfolios are only rebalanced once a year on their twelve month anniversaries - barring significant developments, of course, such as a manager leaving a fund, or if they find an index fund that’s cheaper. Finn have absolutely clear instructions not to be tactical or to change the asset allocation.“We believe in modern portfolio theory and the efficient market hypothesis. Most of your return is driven by the mix of assets, and there’s no value to be had by trying to time markets.”

The upshot of this emphasis on continuity, says Rylett, is that Finn’s charges can be kept at significantly lower rates than many alternative providers could manage.

“And all of this means we can come in at much lower final costs to the client,” says Rylett. “Everybody gains.”

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Brunel Capital Partners Broad Quay House, Prince Street, Broad Quay, Bristol BS1 4DJ Phone: 0117 9758691 Enquiries: info@brunelcapital partners.com www.brunelcapital partners.com

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YIELDS - BETTER THAN THEY LOOK JOHN GREENWOOD, CEO OF CREECHURCH CAPITAL, ASSURES US THE OUTLOOK IS DECEPTIVELY DELICIOUS With interest rates at an historic low - and likely to stay at these levels for the foreseeable future - investors are increasingly looking at different options to generate yield. And the search is most acute within pension portfolios, where the ability to generate new capital is often constrained.

Faced with such a challenge, there’s a temptation to seek alternative routes.

But the answer could actually be very simple - and what’s more, it’s available from more traditional sources.

The Political Background Last year the news stories were dominated by a natural disaster in Japan, political change as a result of the Arab Spring and the ongoing economic debt issues in the US and Europe – all of which provided a powerful backdrop to volatile financial markets.

Whereas 2012 has been confronted by the three ugly sisters – the eurozone crisis, the US debt ceiling and China’s hard/soft landing.

“It’s easy to get caught up in the emotion of the situation” warns Creechurch Capital CEO, John Greenwood

The Eurozone With an ongoing question mark around the fate of the Euro and the current Greek debacle, it’s easy to get caught up in the emotion of the situation. However, if investors take a step back, they will see the long term evolution of Europe from a collection of independent countries to an economic bloc dominated and controlled by Germany.

This transition comes with a risk attached, because Germany must allow the situation to worsen so as to gain concessions, as debtor countries cry out for financial handouts. Meanwhile, Germany is growing stronger by the day and is sufficiently disciplined to play the long game. Palatable or not, Europe will be a stronger economic bloc with Germany at its head in the long term.

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magazine... for today ’s discerning financial and investment professional

The US Elections The US elections are helping to mask the continuing debt spiral – something that is proving a success at the moment. But as soon as the elections are over, the debt debate will be reignited. (See also Monica Woodley’s feature on Page 22.) Remember, it was the US that triggered market jitters in 2011 by playing the political game rather than looking at the impact on the real economy. It’s always a dangerous tactic when minor politicians get a taste for being in front of the cameras!

China

the investor receives a higher yield than gilts or cash while they’re waiting – so removing the income ‘cost’ of equity investment.

Incidentally, it’s worth considering that gilts are far from a risk free investment –the only guarantee from current yields is that of ‘locking in’ disappointing real returns.

It’s also worth remembering that a portfolio requires diversification - and that this can also be achieved with corporate bonds. Unlike gilts, the corporate sector still offers value to fixed interest investors, with income yields currently above

China really does pose a conundrum. It’s far too complex to accurately predict, but in reality its influence will be far more powerful than the Greek situation. On balance, it’s likely that China will surprise us in a negative way in the coming years.

Overall, the markets are difficult - but then, there’s nothing new there. However, volatility can actually provide opportunities. Ever since the stock markets began, there have been highs and lows. The only thing that’s undisputable is that it’s all about playing the long game.

Playing the Long Game The 25 years-plus trend has seen gilt yields falling. This has been on the back of lower interest rates and inflation – plus the flight to safety. On the charts, there has been a critical crossing of gilt yields below equity dividend yields. This is a major signal, as for the first time in over 25 years investors are getting paid more income by investing in UK equities than UK gilts.

It’s inevitable that this will arrive at some point in the future. The 115 year history shows four bull and four bear markets. We’ve had 12 years of disappointing equity returns now - but now that we’re moving closer to a change in sentiment, we will undoubtedly see this improve. What’s more, corporate earnings are growing in the current environment, despite the financial pressures being felt by governments and individuals.

Another factor to consider is that central bank policy is devaluing cash. This will ultimately be inflationary, and it will reward investors in real assets such as equities. Equities are also attractive, because

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Interest rates to remain at historical low

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Gilt yields artificially low

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Central bank policies devaluing money

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There are more opportunities than capital available

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Corporate bond yields offer attractive, risk adjusted, returns versus cash

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Equity markets moving towards another prolonged period of growth

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Equity dividend yields are attractive and well supported.

With interest rates at an historic low investors are increasingly fi shing for different ways to generate yield www.IFAmagazine.com

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the psychologically important 5% level for investment grade and even more for subinvestment grade bonds. With default rates running at low levels, and with the aforementioned strong corporate balance sheets, the allocation to corporate bonds provides capital stability and strong cash flows – an ideal combination for diversifying an equity allocation.

Fear is a strong emotion, and too many investors shy away from opportunities such as these because they’re looking at historic performance rather than the

current facts. By understanding the facts, investors can ensure they receive the correct reward for the risks that they’re taking.

Rounding It All Up Pensions in particular need cash flows to meet liabilities and enable them to grow. The reality is that there are more opportunities in the world today than capital to invest in them. As a result, risk returns remain at an attractive level.

With the current state of interest rates, together with gilt yields being artificially low, ccorporate bonds and equities can provide attractive cash flows to meet an investor’s requirements. In addition, equities provide protection against the inevitable market change that will arrive in the future.

The clear message here is that successful investment will always take a long term approach and with the re-emergence of extreme value in mainstream equity and corporate debt markets, now is the time to keep it simple!

For more comment and related articles visit...

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This advertisement is directed at investment professionals in the UK only and should not be distributed to, or relied upon by retail investors. It is designed only for use by, and is directed only at persons resident in the UK. Charges exclude purchase and redemption fees where applicable. 0.15% is the AMC for the Vanguard FTSE UK Equity Index Fund and excludes 0.5% SDRT charge. Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Issued

by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2012 Vanguard Asset Management, Limited. All rights reserved. UK10/0430/0711

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27/03/2012 17:49 30/05/2012 00:00

THE BEE LINE

magazine... for today ’s discerning financial and investment professional

THREE LIONS THREE IS THE MAGIC NUMBER, SAYS STEVE BEE Right, that’s the home football season over, so now let’s get on with the Euros. The summer’s shaping up nicely on the soccer front, I think, and 2012 is turning into one of the all-time great years. It also happens to be the year of the London Olympics, which thankfully also features a football tournament, so I’m pretty much in my element right now, all things considered.

In fact I suppose I’m more in my element than ever, because 2012 is also a big year on the pension front - the only subject I’m more interested in than football. This year, as you’ll doubtless know, is the year when our new pension reforms come in and we enter the age of auto-enrolment.

That’s big - big enough for one year, anyway.

At least, that’s what I thought until we got to hear the Queen’s Speech the other week.

As if my year wasn’t already full of momentous events, that speech contained three big new changes to pensions! I know, I was pretty much speechless. I mean, how good’s that?

Three More in the Second Half

One of the three big extra pension changes is that the whole issue of public sector pension reform is going to be addressed. Basically, the Government is looking to make the public sector pension system sustainable, with costs shared ‘more fairly’ between employers, workers and taxpayers. This is obviously something we’re going to hear quite a bit about as the details start to emerge.

The second big change is that the state pension system is being completely overhauled, and that new pensioners in the future will receive a higher flat-rate pension aimed at providing a subsistence level of income. That’s something that I and many

others have been demanding for years now, and it’s something I really didn’t think would ever happen. (Like England winning the World Cup again, that sort of thing...)

I am very pleased that the Government is now committed to ending the system of meanstested handouts to elderly people and replacing it instead with a higher pension. The old meanstested system had the crazy knock-on effect of acting as a disincentive to saving for millions at work. After all, people said, why bother saving if you stand to lose 40% of the value of your savings if you don’t get a good enough state pension? But thankfully that’s a decision that the 13 million people about to be auto-enrolled into pension saving will now not have to make. At last, we have a level playing field for pension savers.

Extra Time The third big pensions change is that the Government is going to look at ways to increase the state pension age in future, in line with increases in longevity. So, as we live longer and longer, the idea is the pension age will go up and up to allow for it. That’s pretty mega too - and what it means is that those saving for a pension in future will not always know with certainty quite when they will qualify for their state pension.

The weird outcome of all this, of course, is that we’ll get a level playing field at last for pensions - but that, at the same time, the retirement goalposts will keep moving.

It’s a funny game, pensions. Even Gazza would have struggled with that...

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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30/05/2012 00:03

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

C51298_IFA Magazine 297x210.indd 1 Steve Bee.indd 45

01/12/2011 11:55 30/05/2012 00:03

STRATEGIC METALS

magazine... for today ’s discerning financial and investment professional

RARE, PRECIOUS STRATEGIC METALS CAN OFFER AN INTRIGUING ALTERNATIVE TO TRADITIONAL INVESTMENTS LIKE BULLION. HELEN CLAGUE, MANAGING DIRECTOR OF SCHWEIZERISCHE METALLHANDELSGESELLSCHAFT (UK), EXPLAINS All things considered, it isn’t very surprising that gold is still being tipped in many quarters as a solid investment in these troubled times.

Throughout recorded history - and indeed, prehistory before that – the yellow metal has been prized as a ‘safe haven’ asset that will endure and perhaps appreciate when all else is falling apart. It’s estimated that around 95% of all the gold ever mined is still in existence today.

Increasingly, though, sophisticated investors are now turning to rare and socalled strategic metal assets, which provide a new opportunity for wealth protection and perhaps a solid prospect of capital gain.

What do we mean by rare and strategic metals? We’re talking about elements such as bismuth, chromium, cobalt, gallium, hafnium, indium, molybdenum, tantalum, tellurium, tungsten and zirconium – all of which are becoming basic necessities for the world’s more modern industries.

From high-tech aircraft electronics, aerospace industry, storage media, medical diagnostic imaging techniques to less obvious applications in paint and pharmaceuticals, these metals are everywhere in modern everyday life.

They originate in high concentrations in the earth’s crust, with pockets occurring only in certain parts of the world. But they are difficult and costly to extract. Like silver, which is also used extensively in various industries, the great majority of these metals are consumed rather than being stored like gold. That’s a critical difference, because demand is constantly renewing itself.

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June 2012

What Drives the Prices of Strategic Metals?

Like all natural resources these days, rare strategic and industrial metals are in diminishing supply.

Growth in the world’s developing and newly industrialised economies means that demand is high, causing metal prices to increase. Countries such as Brazil, Russia, India and China are consuming massive amounts of rare industrial and technical metals – with the consequence that their value is rising. And developed industrial powerhouses like the USA, Japan, Germany, and Korea also need ever-increasing amounts of these scarce minerals.. Many of the metals are mined exclusively in China, whose rare and strategic industrial metal exports are not meeting current global demand.

Increasing Demand Where does the demand come from?

Let’s consider the example of the mobile phone, something we all take for granted. A single device contains around 14 different metal elements. There are currently 5.9 billion mobile subscribers worldwide – and that’s 87% of the world population, by the way, and a 490% increase from the 1 billion subscribers recorded in 2002). Not surprisingly, mobile growth is led by China and India, which now account for over 30% of world subscribers (Source – Mobithinking.com) Touch screen technologies such as iPads, iPods, iPhones or satellite navigation systems all require indium; indeed, they may soon need more of it. A recent breakthrough in monitor technology involves the use of indium gallium zinc oxide (IGZO) to prime larger monitors for even higher resolutions. IGZO allows smaller transistors and circuit elements, thus allowing more light through to give a thinner, more power efficient display.

www.IFAmagazine.com

STRATEGIC METALS

-

AND PROFITABLE Every modern computer chip needs hafnium - to the extent that Silicon Valley, a term coined in the 1970s is now becoming known as Hafnium Valley. Intel, the world’s leading chip manufacturer, uses hafnium in its chips because it allows the transistors to be even thinner. The transistor walls are stronger and leak less electricity thus making them smaller more energy-efficient, so computers ccan become faster. These new chips use transistors so small that 30 million will fit on the head of a pin. Smart phones will soon be using these hafnium chips to support our ‘Internet On The Go’ culture. And gallium, another rare metal, is essential to the power supplies of satellites.

In short, no future technology is conceivable without these sought-after strategic metals, which are often irretrievably integrated into consumer goods and high tech products and therefore cannot be recycled.

That’s an important point. As the Federal Institute for Geosciences and Natural Resources recently commented: “As the trend toward miniaturisation continues so the need for rare metals increases to hundreds of tons per year.“

The China Syndrome As technology becomes more integrated into our daily lives, demand for these resources inevitably continues to increase. But this is creating a geopolitical supply squeeze which delivers a whole new dynamic to the price factor.

The global market requirement for strategic metals is currently expected to reach 200,000 tonnes by 2014, but China’s own requirements are forecast to exceed supply by 2012. The issue here is that more than 95% of the global supply of rare earth metals is produced by China itself. We are already seeing the consequences: export quotas are being slashed to meet the country’s own industrial needs. The total quota of rare earth exports granted by the Chinese Ministry of Commerce dropped by 65 % year-on-year in the first three quarters of 2011, to just 12,000 tons,.

Why does China dominate strategic metal mining? The answer is largely due to its lax environmental policies. Mining inevitably causes pollution and environmental concerns which, in western countries, would make mining these resources a very much more costly proposition even if the deposits existed.

There are alternatives, certainly: Japanese researchers and explorers have recently found a huge deposit of rare earth reserves www.IFAmagazine.com

in the muddy floor of the Pacific Ocean, but sadly the technology to exploit these deposits has yet to be developed. The Wall Street Journal recently quoted an official from a Japanese rare-metal trading house as saying that commercialisation could take up to 20 years. Substitutes are inferior or unknown.

As you’d expect, new mining operations around the world are rushing to try and contribute to the global supply of rare strategic and technical metals. But even so, if and when start-up mines ever do come on line, it is likely that they will unable to meet an exponentially growing demand. This supply and demand scenario will ensure that the metals will continue to increase in value.

The Green Issue Rare and strategic metals are ‘enablers’ of sustainable energy initiatives, with wind turbines and solar energy products being key users of strategic metal resources. The creation of permanent magnets, a key component in so many green technologies, is a vital contributor to making the new generation of wind turbines more efficient and reliable. Andmany of the new hybrid and electric car batteries contain rare earth metals, using up to 25 pounds of these precious metals in their advanced electric motors in order to increase efficiency.

Strategic metals are environmentally friendly, reducing CO2 levels. And, as governments support renewable energy initiatives and impose further energy efficiency measures, renewable energy will be a major driver of new demand.

The Advantage of Physical Metal Assets Investing into mining stocks has always been risky, especially where reserve quantities are uncertain or where mining production has not yet begun. Political issues, disputes and rough behaviour from speculators have always clouded the prospects. But direct investment into strategic metals has not been available to the retail market before, because the minimum quantity available was a metric tonne, a dauntingly large investment.

However, an alternative is available.

Physical ownership of strategic metals is now available in the retail space and is one of the best ways to preserve wealth and provide offshore asset protection from inflation and currency devaluation.

June 2012

47

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20/1/12 13:01:42 30/05/2012 00:07

PRODUCT REVIEWS

3:01:42

STAY SHARP

FED UP WITH CLOSE SHAVES? NICK SUDBURY HAS SOME IDEAS FOR INVESTORS IN A LATHER Taking the Rough with the Smooth Ruffer Investment Company

are severely undervalued. This is an unusual Yes, it’s been a rough old year for the euro zone, and contentious decision that embodies RICA’s and right now it looks as though the risk of an idiosyncratic investment approach - with most of the unravelling financial pact has put everybody rest of the fund being held in UK and US shares. on their guard for the foreseeable future. Yet funds that put capital preservation at the RICA has a concentrated portfolio of only 54 heart of their investment process should still stocks and 8 bonds, with a total value of £273.5m. be able to limit the potential loss from a crisis It has an excellent track record with annual of confidence like we’re seeing at present. increases in the NAV over the last 5 years to the end of March of 14.1%, 9.4%, 29.6%, 8.7% and 3.9% One firm that applies this approach respectively. The consistent performance has resulted to all of its products is the Ruffer Limited in a high demand for the shares which currently Liability Partnership. The group’s abiding aim trade at a 3.1% premium to the net asset value. is to make consistent returns for its clients and not to lose money, while still striking the Ruffer Investment Company has right balance between risk and reward. And served investors well and has acquired a the Ruffer Investment Company (RICA), a cult following amongst those in the City. Its closed-ended fund that trades on the LSE, is ability to deliver consistent returns despite the a particularly good example of the genre high market volatility makes it an ideal core portfolio holding during difficult periods.

RICA is currently the top performer in the global growth sector, with an impressive return of 90.7% over 5 years, and it has preserved capital far better than most in the last 12 months. Its objective is to achieve a positive total annual return, after all expenses, of at least twice the Bank of England Bank Rate. This reflects the firm’s view that cash is the true benchmark, because it involves no risk.

The fund’s managers FUND FACTS have the freedom to invest in Name: Ruffer Investment UK and international shares Company (RICA) as well as in government and corporate bonds. They Type: Investment Co. have taken advantage of the Sector: Global Growth mandate to put together a highly Market Cap: £273.5m unusual portfolio, with the largest weighting being the 31% allocated Launch: July 2004 to different types of index linked Yield: 1.57% securities. This reflects their view that the various policy responses will Manager: Ruffer LLP eventually lead to higher inflation.

TER: 1.2% The next most significant Website: ruffer.co.uk holding is the 23% in Japanese equities, which the firm believes

Ruffer Investment Company has served investors well and has acquired a cult following amongst those in the City www.IFAmagazine.com

Product Reviews.indd 49

June 2012

49 30/05/2012 00:07

PRODUCT REVIEWS

magazine... for today ’s discerning financial and investment professional

A Defensive Mindset Invesco Perpetual Income A fund that mainly invests in the UK stock market would not be expected to protect investors’ capital as effectively as one with a more flexible mandate, unless the manager can successfully foresee the likely course of events. But this is certainly one area where the legendary Neil Woodford can boast a better record than most.

Back in March, it was Woodford who warned against the wave of warm fuzzy optimism that was then sweeping the markets. And ahead of the recent sell-off he said that global growth was likely to remain sluggish, and that the recovery from the 2008 financial crisis might still be some way off. Alas, the subsequent re-emergence of the problems in Greece suggests that he could well be right.

Woodford’s Invesco Perpetual Income fund has built up an amazing track record, with a 10 year return to the end of March of almost 123%. This has enabled it to attract more than £9bn in assets under management - but that doesn’t seem to have hindered Woodford’s ability to add value.

The fund aims to achieve a reasonable level of income, together with capital growth. It mainly invests in companies listed FUND FACTS in the UK, with Name: Invesco the balance held Perpetual Income overseas. By the Type: UK OEIC end of March the 114 stock portfolio Sector: UK Equity had an historic Income yield of 3.72%.

Fund Size: £9,035m Woodford believes that there Launch: J une 1979 are certain types Portfolio Yeild: 3.72% of companies than can thrive Charges: Initial: 5% in the current Annual: 1.5% environment, Manager: primarily those Invesco Perpetual that can deliver Website: sustainable invescoperpetual dividends and .co.uk earnings growth.

Pharmaceuticals

are a prime example, with GlaxoSmithKline, AstraZeneca and Roche all among his top 10 holdings. Tobacco stocks are also well represented, as are telecoms like Vodafone and BT. Invesco Perpetual Income is different to most UK Equity Income funds in that it currently has a much lower weighting in utility companies (8%) than you might expect. This follows a decision by Woodford to slash his exposure, on account of the problems that he sees arising in the sector.

There have been times when the star manager’s individualistic approach causes him to lag behind the peer group - as was the case during the last three years, when he returned “only” 58% compared to the average increase in the sector of 63%. But over the last twelve months his defensive positioning has come good. His return of 11% dwarfs the average 2% result achieved by comparable funds. All of which makes Invesco Perpetual Income one of the safest ways for worried clients to remain immune to the uncertainties of a volatile international situation.

One of the safest ways for worried clients to remain immune to the uncertainties of a volatile international situation 50

June 2012

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PRODUCT REVIEWS

Hedge your Bets BH Macro One obvious way for clients to benefit from the current turmoil in the euro zone is to invest in a hedge fund. Because these use different short-term trading strategies to make FUND FACTS money from the volatility, they do not depend on a Name: BH Macro Ltd rising market to produce positive returns.

GBP shares (BHMG) BH Macro is one option that gets round the problems of accessibility and lack of transparency Type: Investment Co. that normally bedevils the hedge fund sector.

Sector: Hedge funds It’s a closed-ended investment company, registered and Fund Size: £825m incorporated in Guernsey but Launch: M arch 2007 listed on the LSE, which invests all of its assets directly into the Portfolio Yeild: 0% Brevan Howard Master Fund.

Manager: Brevan Howard is a large, Brevan Howard diversified hedge fund worth TER: n/a around $25bn that is listed in the Cayman Islands. Launched Website: in April 2003, it uses a combination bhmacro.com of global macro and relative value trading strategies, mainly in credit, interest rates and FX markets.

The fund also has long positions in volatility measures that are designed to offer protection against sharp movements in the markets.

The hedge fund uses a range of trading strategies with attractive risk/return profiles to take advantage of expected events in particular markets. Each trader’s contribution to the overall profit or loss is closely monitored, with losses cut early and profits allowed to run.

BH Macro’s board of directors is independent of the Brevan Howard Group and is responsible for safeguarding the interests of shareholders. The directors keep in close contact with the investment team and have extended discussions with them during each of their quarterly board meetings. above 6300 when it first came to the This enables them to evaluate whether the risk market and is now substantially lower. management is being maintained to a high standard.

The beauty of this sort of The BH Macro feeder fund launched in hedge fund is that it provides an March 2007, and in the 5 calendar years since uncorrelated exposure that can then has returned: 20.67%, 23.25%, 18%, 1.03% increase in value even when the and 12.34%. That’s market falls. During the 61 pretty impressive, months to the end of March 2012 especially when you the underlying NAV was up in take into account 46 of them and down in only 15. that the This makes it a great diversifying FTSE was holding for more sophisticated clients. trading

Each trader’s contribution to the overall profit or loss is closely monitored, with losses cut early and profits allowed to run www.IFAmagazine.com

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PRODUCT REVIEWS

magazine... for today ’s discerning financial and investment professional

Greek Tragedy ETFS Short EUR Long USD If the turmoil surrounding the euro zone continues, it seems reasonable to assume that one of the likely beneficiaries will be the US dollar-euro exchange rate. And, for sophisticated clients with an appropriate risk tolerance, one way to play this trend would be to buy into the ETFS Short EUR Long USD Exchange Traded Currency (ETC).

This London listed ETC from ETF Securities is designed to track the USDEUR exchange rate, and it will reflect the interest rate differentials between the two currencies. It is benchmarked against a total return index that reflects the performance of a fully collateralised position in currency forward contracts that are then rolled over on a daily basis.

SEUP is structured as a debt security and is backed by currency transactions entered into with Morgan Stanley & Co. The collateral is held in a separate custody account at Bank of New York Mellon with daily mark to market payments keeping the counterparty risk to a minimum.

All exchange rates are highly volatile, and USDEUR is no exception. Between its low in August and the high in January, the ETC tracking it rose 22% mainly on account of the signs of recovery in the American

economy. It has since fallen back before spiking up again in response to the renewed possibility of Greece leaving the euro.

ETCs are very much a niche product, which explains why this particular vehicle only has assets under management of £109.9 million. Trading is quite light, with recent weekly turnover of a mere £551,000. The average trade size during this period was £10,800 and the bid-offer spread a reasonable 0.18%.

What’s the risk? Well, exchange rates are driven by a whole range of different factors, and as long as the Greek politicians deliberate over whether to stay in the single currency, it is the fate of the euro that will determine which way these particular markets move.

What we can say for sure is that the US dollar is still the ultimate safe haven at present, and that it would be sure to benefit from any panicky mood in the euro zone. All of which makes ETFS Short EUR Long USD an interesting possibility for clients looking to make money out of the crisis.

It is not as liquid as the underlying currency but it’s a lot easier to invest in and the trading costs are not unreasonable.

FUND FACTS Name: ETFS Short EUR Long USD (SEUP) Type: ETC Exchange: London Stock Exchange Sector: Currency Fund Size: £109.9m Launch: Nov 2009 Distribution yield: n/a Manager: ETF Securities Management Fee: 0.39% Website: etfsecurities.com

The US dollar is still the ultimate safe haven at present, and would be sure to benefit from any panicky mood in the euro zone 52

June 2012

Product Reviews.indd 52

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30/05/2012 00:07

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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:

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200_Sipp_ad.indd 1 53 Product Reviews.indd

27/2/12 11:06:41 30/05/2012 00:07

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.

Transaction Reporting of Strategy Trades

Guidance on the Practice of ‘Payment for Order Flow’

Finalised Guidance

Finalised Guidance

Ref: FG 12/14

16th May 2012 7 pages This guidance follows on from a consultation in January 2012, and it applies to exchange traded strategy trades whereby two or more legs that are dependent on each other are executed simultaneously. The guidance applies only to transaction reports submitted to the FSA: other authorities may have different rules.

Essentially, the guidance is that all transactions that include the combined execution of multiple legs should be reported with each reportable leg logged as an individual transaction at the FSA. The new guidance will be effective from 15th August 2012.

Recovery and Resolution Plans Feedback Statement

Ref: FS 12/1

10th May 2012 3 pages This Feedback Statement reports on developments from the Consultation Paper 11/16 (Recovery and Resolution Plans). Of interest to banks, building societies and investment firms.

The statement aims to provide firms with clarity regarding what they are expected to do during the interim period while final rules are being adjusted to take into account developments in the international arena – most notably, in view of an expected proposal by the EU Commission for a forthcoming directive on recovery and resolution.

In the interim period, the FSA is publishing this feedback statement, along with draft ‘core’ rules and an updated information pack.

Final rules will be published in the autumn.

The feedback statement is relevant to all UK incorporated deposit-takers and significant UK investment firms with assets exceeding £15 billion. In addition, the FSA intends to consult at a later date, on applying RRP rules to the UK branches of non-EEA firms without UK subsidiaries.

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FSA Publications.indd 54

Ref: FG12/13

14th May 2012 13 pages The FSA takes the view that certain market makers make payments to brokers that direct order flow to the market maker – either as a direct payment per order or as another form of incentive. Thus, PFOF creates a conflict of interest between the broker and its client, because the broker has an incentive to direct order flow to market makers offering PFOF arrangements over the interests of its clients.

This paper, therefore, sets out the FSA’’s view about payment for order flow (PFOF) arrangements.

Essentially, it says, such payments can only take place where all three tests of the inducements rule are satisfied and both the best execution and conflicts of interest rules are complied with.

Consumer Redress Scheme in Respect of Unsuitable Advice to Invest in Arch Cru Funds Consultation Paper

Ref: CP 12/9

30th April 2012 128 pages The FSA has concluded that some 15,000-20,000 clients who invested in relevant Arch cru funds received unsuitable advice and suffered losses as a result. Having reviewed sales files from various advisers, the regulator found that that there had been widespread mis-selling, and that a structure for consumer redress needs to be implemented.

The FSA proposes to establish a template allowing advisers to decide whether sales were in fact unsuitable, and to use an online calculator to determine any redress payable.

Consultation period ends 31st July

www.IFAmagazine.com

30/05/2012 00:08

Policy Statement

Ref: PS12/8

27th April 2012 29 pages Of interest to firms advising on pension transfers and employer sponsors of defined benefits schemes, employee benefit consultancies and pension providers receiving transfer business.

This Policy Statement reports on the main issues arising from Consultation Paper 12/4 (Pension transfer value analysis assumptions) and publishes final rules. Major points: • Rules for calculating mortality will be aligned with those used for personal pension holders.

• Annuities will be calculated without regard to gender, as per the March 2011decision of the European Court of Justice.

• CPI-linked benefits will be valued using a CPI-linked annuity rate. This rate will be consistent with the CPI assumption determined for CPI in deferment.

• Explicit LPI-linked annuity rates are being introduced for valuing LPI pension increases.

• The annuity interest rate (AIR) will be reviewed more frequently, and a 12 month rolling average must be applied in between the standard reviews.

• The comparison provided to the member will be illustrated on growth rates that take into account the likely returns of the pension fund assets.

See also the Compliance Doctor article on Page 56.

Regulatory Prudent Valuation Return Policy Statement

Ref: PS12/7

27th April 2012 38 pages Of interest to banks, building societies and certain investment firms with sizeable fair value portfolios that fall within the scope of the new reporting requirements.

CP11/30 consulted on changes to the GENPRU and the SUP, with a view to creating a new reporting requirement to complete a regulatory return that will show, in a standardised format, the range of uncertainty that exists around the accounting fair values and the difference between those fair values and the regulatory prudent values.

The new requirement comes into force in respect of reporting periods that end on or after 30 June 2012.

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FSA Publications.indd 55

FS A P U B L I C AT I O N S

Pension Transfer Value Analysis Assumptions

Traded Life Policy Investments (TLPIs) Finalised Guidance

Ref: FG 12/12

25th April 2012 9 pages Interim guidance (rather than final) in respect of product intervention Discussion Paper (DP11/1, November 2011).

The FSA takes the view that that Traded Life Policy Investments (TLPIs) should not reach the vast majority of retail clients, because of significant problems with the way in which these high risk products are designed, marketed and sold to UK retail clients.

As part of its review of the rules relating to unregulated collective investment schemes, the FSA intends to consult on a ban of all marketing – including marketing delivered in the context of financial advice – of TLPIs to the vast majority of retail clients. Final rules via consultation is likely to take time, hence the interim measure.

Changes to the Training and Competence (TC) Sourcebook Consultation Paper

Ref: CP12/8

24th April 2012 24 pages The FSA proposes to add three qualifications to the ‘appropriate qualification tables’ in the Training and Competence (TC) sourcebook, and to amend the details for three qualifications on the ‘appropriate qualification list’ in the Training and Competence sourcebook.

Consultation period ended 31st May

Financial Promotions, Fund Performance and Image Advertising / Advertising ISAs & Adverts for Investment Professionals Finalised Guidance

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.

June 2012

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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 Absolute Return Funds In the Retail Conduct Risk Outlook (RCRO) 2011 (http://www.fsa.gov.uk/static/pubs/other/ rcro12.pdf) , the FSA has noted that absolute return funds form part of a growing trend whereby asset managers were developing more complex investment strategies and promoting them to retail investors. The regulator’s latest RCRO paper says that consumers might not understand the complexities of absolute return funds, and that they might believe there is an element of capital protection, or even a guarantee of a positive return. It adds that complex strategies and structures used in absolute return funds “raise questions about their suitability for all types of retail investors”.

An Absolute Return Fund (ARF) is, in general, a fund that seeks to provide returns that are better that its peers, its fund category, or the market as a whole. This type of fund management is referred to as a ‘relative return’ approach to fund investing. As an investment vehicle, an absolute return fund seeks to make positive returns by employing investment management techniques that differ from traditional managed funds. ARFs are commonly referred to as a type of hedge fund.

Despite the success of some funds in delivering positive returns for investors, the FSA says that ARFs pose a potential retail risk. Consumers, it says, might not understand ARFs. They might believe there is an element of capital protection, or a guarantee of a positive return. And they may also suffer significant unexpected financial loss if they are sold funds that fail to perform.

The FSA is currently undertaking work to assess the extent of the risk posed by the funds. Fundweb’s Brian Tora stated in April 2012 that “certainly, the aim should be to offer a lower risk, less volatile environment to investors. The reality, though, is that a wide variation in performance is likely, while a lack of consistency among this group of funds is also evident.” (http://tinyurl.com/7enx27y)

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Techniques Absolute return investment techniques include using complex tools and instruments, short selling (soon to be heavily restricted in the UK), futures, options, derivatives, arbitrage, leverage and unconventional assets such as: ■

Non-public REITs

■

Structured notes

■

Long-short funds

■

Managed futures

■

Long-short bond funds.

Marketing Issues Unfortunately, the FSA is concerned that many financial advisers themselves do not understand how conventional derivatives work.

The following are singled out as weak areas: ■ Futures and options ■ Derivatives (Credit Default Swaps/Baskets// Interest Rate Options/ Exotics such as MonteCarlo simulation, Asian options etc.)

■ Leveraging (borrowing to support investment) ■ Arbitrage – (ultra high speed transaction through to regular market inconsistencies) Without a thorough knowledge of the above, and even without the more hedge fund specific unconventional assets, demonstrating suitability for a sale to a retail investor into these funds would be a challenge.

Suitability, Suitability, Suitability As with all sales, an IFA has to demonstrate the suitability of the product. Following COBS 9.2, when recommending an ARF you would need to demonstrate that the client has knowledge, understanding and experience of; ■

Non-public REITs

■

Structured notes

■

Long-short funds

■

Managed futures

■

Long-short bond funds. www.IFAmagazine.com

30/05/2012 00:09

Potential FSA Hotspot

As with all sales, an IFA has to demonstrate the suitability of the product. Following COBS 9.2, when recommending an ARF you would need to demonstrate that the client has knowledge, understanding and experience of;

To ensure suitability and compliance with COBS 9.2, the questions advisers need to ask are:

■

■

Can I satisfactorily state that the product - with the various elements that the managers can use as alternative strategies and investment options - is suitable to my client’s objectives and current situation?

■

How does this recommendation meet their investment objectives? Is it such that they are able financially to bear any related investment risks consistent with their investment objective? And is it such that they have the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of the portfolio?

Equities (Including Short-selling)

■

Futures and options

■

Derivatives (CDS/Baskets/Exotics/IROs – Monte-Carlo simulation, Asian options etc)

■

Leveraging (borrowing to support investment)

■

Arbitrage – (ultra high speed transaction through to regular market inconsistencies)

■

Unconventional assets.

C O M P L I A N C E D O C TO R

Suitability, Suitability, Suitability

PS 12/08 Pension Transfer Value Analysis Assumptions On 27th April the FSA published the final rules for Pension Transfer Value Analysis Assumptions and the feedback from CP 12/04 (www.fsa.gov.uk/static/pubs/policy/ps12-08.pdf).

These changes will be of interest to both regulated and non-regulated firms involved in pension transfer value analysis. In particular, financial advisory firms advising on pension transfers and software providers specialising in pension transfer software for advisory firms will need to be aware of the revised rules and guidance.

The main changes introduced by the Policy Statement are as follows: ■

The rules for calculating mortality will be aligned with those used by the Board for Actuarial Standards. This will make them consistent with annual pension statements that all personal pension holders receive once a year.

■

Annuities will be calculated on a gender equal mortality rate, in line with the European Court of Justice’s decision in March 2011.

■

A Consumer Price Index (CPI) assumption will be introduced for re-valuing pensions in deferment, reflecting legislative changes made by the government in 2011. We will consult on the CPI rate to be used in our consultation on projection rates.

■

CPI-linked benefits will be valued using a CPI-linked annuity rate. This rate will be consistent with the CPI assumption determined for CPI in deferment.

■

The new rules introduce explicit LPI-linked annuity rates to be used to value LPI pension increases (please refer to the policy statement for details on the new rules for this).

■

The annuity interest rate (AIR) will be reviewed more frequently. In addition to the standard review of the AIR on 6 April each year, the Policy Statement introduces a 12-month rolling average which must be applied in between the standard reviews.

■

The comparison provided to the member will be illustrated on growth rates that take into account the likely returns of the pension fund assets. The comparison will not need to take into account the transfer of risk from the DB scheme to the member, but guidance has been introduced which clarifies the need for advisers to communicate these risks with members.

Impact: The changes clarify and update the assumptions and guidance a firm must use when it compares the benefits likely to be paid under a DB pension scheme with the benefits provided by a personal pension or stakeholder pension. If your firm is in any way involved in pension transfer value analysis, then you must be aware of the changes and apply them accordingly.

The New rules are effective from 1st May 2012.This means that elevant firms need to familiarise themselves with the changes and start applying them when carrying out pension transfer analysis immediately and from any cases calculated since 1st May. 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

www.IFAmagazine.com

Compliance Doctor.indd 57

June 2012

57 30/05/2012 00:09

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Thinkers.indd Banking.indd 33 58

30/05/2012 00:16 28/09/2011 11:44

THINKERS

1:44

WRONG TIME WRONG PLACE “Every new phase of the cycle is predetermined by factors of the preceding phase.”

Nikolai Dmitriyevich Kondratiev Born March 1892 in Kostroma, near Moscow.

Shot by Josef Stalin in September 1938 Cyclical theory pioneer The early Soviet Union didn’t produce many theorists with anything worthwhile to say about capitalism. Most simply scoffed that the internal contradictions of the profit system would inevitably bring the West crashing down without even a push. But Kondratiev, a key figure in Lenin’s New Economic Policy team (1917), was later to find himself a cult figure in the West, thanks to an introduction from Joseph Schumpeter.

Kondratiev was, of course, dead by then - having fallen out with Stalin and having spent a decade in the gulag before his eventual execution. But his rather crude Kondratiev Wave theory, which tries to explain the so-called ‘long wave’ behaviour of economies, still still gets a respectful nod from academia today.

So it was a half-baked idea to begin with?

Give the man a chance. Back in 1917, hardly anybody had achieved anything much more than empirical observations of economic cycles. Keynes had yet to start work on his counter-cyclical ideas, and Ben Graham’s inclination was to suffer cyclical turns rather than try to second-guess them. There simply hadn’t been much data to go on.

Kondratieff’s theory said, essentially, that industrialised economies tend to move in 50 to 60 year ‘long waves’ of boom and depression, which are overlaid with shorter cycles – the most important drivers being the technology cycle and the shorter credit cycle.

Predictably, the arcane ‘wheels within wheels’ nature of this cyclical system has a pseudotechnical appeal which still gets “supercycle” commodity buffs all sweaty today. Now, if only they could all agree on what stage of the various cycles we’re at, we’d be getting somewhere...

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Thinkers.indd 59

But we digress…

As far as Kondratiev was concerned, the great mover behind cyclical behaviour was technological innovation. He parcelled up Britain’s experience in terms of the Industrial Revolution (peaking in 1771), the arrival of the railways (1829), the steel and heavy engineering boom (1875), and the arrival of big oil, cars and mass production (1908 onwards). More recently, his acolytes count the age of information and telecommunications (starting 1971) as the latest of these innovation waves. All quite nicely spaced, time-wise.

Kondratiev’s ideas about credit cycles are closer to our own standard perceptions – essentially, the boom-bust sequence of growth, over-supply, falling demand and slump, followed by eventual recovery and regeneration.

Sounds good It wasn’t. Kondratiev’s tidy British model (a fastmoving industrialised economy) was one thing, but the relatively agricultural French model or the feudal Japanese model were quite different - and America’s growing economy was always in a different cyclical place from everybody else.

Kondratiev’s world picture became a cacophony of clocks running fast and slow, and it proved hopeless trying to assemble a coherent global view. Today’s globalised marketplace requires a more systematic predictive system, which is probably why Kondratiev fell out of favour.

Still a great way to start a fight You’ll still find long wave fans explaining why the 1990s dotcom mania was an expression of Kondratiev’s prediction of a late “frenzy” stage, and why this always leads to speculative excesses before the cycle moves heavily downward. The 2007/8 banking crisis was inevitable, then. And bond yields? Kondratiev says they’re about to soar. Oh yes he does. Sorry chaps.

June 2012

59 30/05/2012 00:16

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

June 2012

Thinkers.indd 60

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

60

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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30/05/2012 00:16

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www.bwd-search.co.uk Senior Financial Planner - Investment Management firm, The City Basic to £80,000 plus benefits and bonuses

Basic to £70,000 plus benefits and bonuses

Our client, a highly respected Investment Manager with a very established wealth planning division are currently looking to appoint a new Financial Planner to their London office.

Working closely with the discretionary team, you will be responsible for offering independent, holistic advice to the firms existing client base, mainly consisting of private clients with between £2-5 million. The ideal candidate will have exceptional interpersonal skills, HNW client exposure and be qualified to Chartered Status.

This is a fantastic opportunity for a highly skilled and experienced Financial Planner to work within a vastly reputable wealth management firm. No requirement for a transferrable client bank as you will be capitalizing on internal business sources as well as developing a presence in the local area. This opportunity would suit a proactive and dynamic individual; preferably at Chartered status. You must feel comfortable dealing with wealthy individuals and have experience in meeting their exacting demands.

Please contact James at: james.woods@bwd-search.co.uk or on 01727 884 662

Please contact Danielle at: danielle@bwd-search.co.uk or on 01727 884 662

Sales Proposition Trainer - London Based/UK Travel

Head of Corporate - Midlands

Highly competitive package

Excellent package including bonus

Are you an experienced Financial Services Sales Trainer? BWD Search & Selection are working with one of the UK’s leading Platform providers to recruit a ‘Sales Proposition Trainer’ in the South East. Candidates must be in easy reach of Central London and be able to demonstrate significant experience in delivering training to support the Proposition and Sales Development team. A highly competitive package is on offer, along with the opportunity to join a market -leading Financial Services organisation.

An employee benefit consultancy is seeking an experienced hire to grow the Midlands. You must have an EBC background with knowledge across Trust and Contract based pensions (DB and DC) and ideally Risk and Flexible benefits and be accustomed to working on a fee basis. Your technical knowledge must be strong. You must also have experience of building, managing and coaching a team of corporate consultants and exceeding revenue targets for both new business and retaining existing clients. Level 4 is expected as a minimum whether APMI/ACII/DipPFS/FIA qualifications.

Please contact Adam at: adam@bwd-search.co.uk or on 0113 274 3000

Please contact Zoe at: zoe@bwd-search.co.uk or on 0113 274 3000

Employed Financial Planner - North West

Regional Admin Manager - Accountancy Practice, East Midlands

Basic to £50,000 plus car allowance, flexi benefits and bonus

Basic to £35,000 plus benefits and bonus

This well established, reputable and profitable IFA firm is looking to recruit a QCF level 4 financial planner as it looks to continue expansion plans into 2012. The business model is RDR ready and also provides full support in terms of admin and paraplanning. There will be additional client allocation and leads provided as and when, as well as the opportunity to link in with other areas of the business and account manage and take and develop lead provision from them. A great opportunity to develop yourself, your client base and consequently your earnings further.

Our Client is a top tier accountancy practice with a widely respected Wealth Management arm who seeks to appoint a Regional Administration Manager. The role is to provide management and leadership to the local Administration Managers & support teams within each region whilst achieving the Group’s wider business targets and service standards. Knowledge of managing support teams and experience within financial services is essential as well as exceptional communication and leadership qualities. This is a key hire and you will be expected to travel to the Group’s regional network. A rare opportunity not to be missed.

Please contact James at: james.rhodes@bwd-search.co.uk or on 0113 274 3000

Please contact Gary at: gary@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

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Thinkers.indd 61

Senior Financial Planner - Gloucestershire

June 2012

61 30/05/2012 00:16

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

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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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N E W S R E V I E W C O M M E N T A N A LY S I S Thinkers.indd 62

30/05/2012 00:16

Private Client IFA £60-80,000 + Bonus + Benefits Ref: 09393 International insurance brokerage with a large UK presence has recently set up a wealth management offering to advise personal and corporate clients. They now require a senior individual to work in the City office and develop referrals internally and advise wealthy individuals of SMEs/FTSE firms that they have relationships with. You must have experience of internal business development and a proven record of producing both high quality and high levels of fee business.

Wealth Manager To £60-80,000 + Bonus + Benefits Ref: 3244 Our client is one of the UK’s leading Investment Management firms with c£10bn under management combined with a fantastic offering in the wealth management arena. As part of a continued expansion plan they now require a senior wealth manager in London to work with the IMs and advise wealthy individuals on all areas on a fee basis. You must have experience of working with professional introducers and a record of success in a similar arena.

Associate Director, Private Clients £70-90,000 + 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 a Chartered Financial Planner (or progression towards) 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.

Professional Practice IFA £80-100,000 + Bonus + Benefits Ref: 2000 An exceptional opportunity now exists within this medium sized Accountancy practice for a senior individual to work closely with the partners of the practice. You will ensure that a level of trust is maintained in order to refer business to you and provide high quality advice to the wealthy clients that are referred. You must have a strong sales record and ideally have experience of working with professional introducers. London based.

Wealth IFA Up to £60-85,000 + Bonus + Benefits Ref: 210104 This small National IFA has an excellent opportunity for 3 IFA’s to join their existing team of specialist consultants in London, Herts and Surrey. The firm offers holistic and niche financial planning advice to HNWIs and you will advise a captive client base currently being dealt with by specialist divisions but seeking wider generalist financial planning advice. This is an exceptional opportunity with no need to bring any client bank. Chartered status preferred.

Executive Consultant Salary: to £75,000 + Bonus + Benefits Ref: 5323 Private Bank with a hugely successful fee based financial services operation now requires an experienced consultant to work with retained clients and advise on all areas of employee counselling. Ideally, you should be currently carrying out a similar role at present and be familiar with pre/post retirement/redundancy counselling, mid-career financial planning and director/senior management advice. Experience of fee based work would be a distinct advantage. London based.

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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www.rolanddowell.com

June 2012

63 30/05/2012 00:16

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

JUNE - SEPT 2012

JUNE May Bank Holiday (delayed)

4 5 and Jubilee Bank Holiday 17

General election in Greece

Emerging Markets

1920 Investment Summit

27

Earth Summit 2012 2022 (UN Conference on Sustainable Development) Rio de Janeiro, Brazil

31

Prague, Czech Republic

21 25 26

30

1 4 8 1017

AUGUST

Wimbledon 2012

12

2012 Olympic Games closes

Consultation period ends for Consultation Paper CP12/7 (Financial Services Compensation Scheme: Changes to the Compensation Sourcebook)

15

Finalised Guidance FG12/14 (Transaction Reporting of Strategy Trades) comes into force

27

Republican Party presidential candidate to be formally confirmed Tampa, Florida, USA

Policy Statement PS12/7 (Regulatory Prudent Valuation Return) comes into force

SEPTEMBER 3

Cyprus assumes the EU Presidency (until 31 December 2012) Implementation of the Alternative Investment Fund Managers Directive Royal Henley Regatta Week Legislative elections in France US Pensions Summit

2325 Chicago, Illinois, USA www.IFAmagazine.com

IFA Calendar.indd 65

Consultation period ends on Consultation Paper CP12/9 (Consumer Redress Scheme in Respect of Unsuitable Advice to Invest in Arch Cru Funds)

London 2012 Festival opens

JULY 1

2012 Olympic Games opens

12 15

Democratic National Convention confirming Barack Obama as the official candidate Charlotte, North Carolina, USA General elections, Netherlands St Leger’s Day race, Doncaster.

Unofficial start of the autumn stock market season 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 we’ll do the rest.

June 2012

65 30/05/2012 00:18

T H E OT H E R S I D E. . .

magazine... for today ’s discerning financial and investment professional

MA MA MA MA MA BARKER MOBSTERS IN TWINSETS AND CARDIES? RICHARD HARVEY WOULDN’T BE SURPRISED Grabbing The Customer’s Interest Pensioners of Britain, rise up! Mount your mobility scooters, pack your cheese-and-pickle sandwiches, and take to the streets. You have nothing to lose but your puny savings rates.

Encouraging OAP delinquency might be reprehensible, but it was an understandable reaction from those who witnessed an elderly lady enquiring at our local Lloyds Bank as to what interest rate she was earning on her savings account, because she wanted to pay for her annual holiday. The answer she got from the cashier – 0.1%.

I rather hoped that this would trigger a Ma Barker-style response, and that she would pull a machinegun from her handbag, snarl “OK, wise guys, hand over the moolah”, and spray everyone with invective and bullets.

She didn’t, of course, meekly accepting that the annual interest on her savings might just pay for a cup of tea and a stick of rock. Or perhaps she might have been deterred by the notice stating that “aggressive and abusive behaviour by customers will not be tolerated”.

(Question: are controlled protestations of righteous fury permitted, then?)

In similar vein, and in an idle moment, I recently completed one of those “How are we doing?” customer surveys from NatWest, my business and personal bank. A couple of weeks later, I received a follow-up phone call from an account manager asking why I’d only given the bank a niggardly 5 out of 10 rating on overall performance.

I assured him it was nothing to do with the staff at my local branch. The ladies behind the counter are unfailingly polite and pleasant, and, as the late John Le Mesurier might say, really rather lovely. (Sadly, there wasn’t a tick box in the survey allowing me to record that aspect of customer satisfaction).

No, it was solely to do with the laughable interest rates offered on deposit accounts. And then I gave him both barrels, with a sulphurous

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The Other Side.indd 66

rant about bankers’ bonuses, paltry business lending and wimpy share performance.

The sound of a choking sob came from the other end of the phone, so I consoled him by saying that the same applied to every bank on the High Street.

Come back, Ma Barker, all is forgiven.

But then, she was the matriarch of a gang of bank robbers. And, in this case, who’s robbing who?

Communication Breakdown Was that a collective groan I heard from IFA-dom over the statement by the Institute of Directors that millions of people are abandoning pensions in favour of ISAs? The latest figures from the Office for National Statistics and HMRC show that while Britons invested £22.9 billion into private or company pension schemes in 2009, down on the previous two years, they stuffed almost double that, £44 billion, into ISAs during the same period.

It’s partly the result of the industry failing to explain, particularly to younger investors, that this is not an ‘either/or’ choice. Yes, take advantage of tax-free ISAs, but also remember that a pension still offers the best long-term value.

Not a simple message to deliver, but essential if pension savings are to return to an upward trajectory. www.IFAmagazine.com

30/05/2012 00:19

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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magazine

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 12.indd 3

30/05/2012 00:32

Monthly income, beautifully balanced Broaden your clients’ income horizons with the new Schroder Managed Monthly High Income Fund: – Catch some air. With an income aim of 5.5%* p.a. or around 0.5% paid each month.

– Keep your balance. With four well diversified income sources, bond coupons, dividends from shares, property income and Schroders’ proven Maximiser income enhancement strategy.

– Stay on top. With multiple investment strategies run by highly rated Schroders’ fund managers including Thomas See, Gareth Isaac, Nick Kirrage, Kevin Murphy and Richard Sennitt, with a single fund management fee.

Make your income seeking clients smile.

Be the first to get on board.

Schroder Managed Monthly High Income Fund

** 0800 718 777 www.schroders.co.uk/highincome For professional advisers only. This material is not suitable for retail clients. *The expected yield of 5.5% per annum is not a reliable indicator of future performance. The income and return of your clients’ original investment is not guaranteed. As the annual management charge is deducted from capital, this may be eroded. Past performance is not a guide to future performance and may not be repeated.

Investment in bonds and other debt instruments including related derivatives is subject to interest rate risk. The value of the fund may go down if interest rates rise and vice versa. The fund will not hedge its market risk in a down cycle. The value of the fund will move similarly to the markets. A security issuer may not be able to meet its obligations to make timely payments of interest and principal. This will affect the credit rating of those securities. Non-investment grade securities will generally pay higher yields than more highly rated securities but will be subject to greater market, credit and default risk. The fund invests in other funds and its liquidity depends upon the liquidity of those underlying funds. If underlying funds suspend or defer the payment of redemption proceeds, the fund’s ability to meet redemption requests may also be affected. 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. UK03009

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