IFA Magazine October 2012 by Alex Sullivan

OCTOBER 2012 ■ ISSUE 15

For today’s discerning financial and investment professional

ST JAMES’S PLACE WHAT’S THE ATTRACTION?

BANKS AFTER VICKERS BUNGLES AND DISASTERS SPOIL THE IMAGE

THE PAIN IN

SPAIN WILL RAJOY MAKE THE RIGHT MOVES?

N E W S R E V I E W C O M M E N T A N A LY S I S

Best Structured Products Provider 2010 & 2011

This communication is for ďŹ nancial advisers only. The stated returns are paid if there is any increase in the FTSE 100 at the end of the Plan. If, at the end of the Plan, the level of the FTSE 100 is equal to the level at the start of the Plan clients will only receive back their initial investment. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.

We don’t believe so The aim of the FTSE 100 Geared Returns Plan is to offer equity-linked returns after 5 years given any increase in the FTSE 100. Up to 12.47% p.a compound return in a flat market offers significant growth potential.

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www.investecstructuredproducts.com Follow us on Twitter @Investec_SP_UK Delicious

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Contents.indd 3 C31022.016_SP_Geared Returns_IFA mag_Oct12_297x420_v2.indd 2

07/10/201215:47 14:43 21/09/2012

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.

10.12

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

THE FRONTLINE: Just when you thought it was getting safe again, events are proving us all wrong

Editor: Michael Wilson

editor@ifamagazine.com

Art Director: Tony Merlini

tony.merlini@ifamagazine.com

Publishing Director: Alex Sullivan

alex.sullivan@ifamagazine.com

News

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

Editor’s Soapbox

Taxing pensioners. Hasn’t it been rough enough for those 9.2 million voters lately?

Financial Planning

There’s no time like the present to beef up your department, says Sue Whitbread

Calendar Daze

It’s true that the stock market year has a cyclical pattern says Brian Tora

Times They Are A-Changing

Who do you turn to at a time like this? Why, Bob Dylan, of course, says Steve Bee

Pick of the Funds

Property funds are looking like good value these days, says Nick Sudbury

FSA Publications

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

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

Thinkers: Bill Gross

PIMCO’s star performer has had a bumpy couple of years, but the markets still love him

The IFA Centre

Solicitors – huh, exactly what do they know? Gill Cardy despairs

The IFA Calendar

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

The Other Side

Look out, everybody, here comes Generation Y, says Richard Harvey . And it knows its rights

features

This month’s contributors

regulars

C O N T R I B U TO R S

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

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 Pain In Spain

Reform isn’t working any better than the banking solution, says Monica Woodley. Can we ﬁx it in time?

Regulating Wine Investment

Rogue traders have got the wine investment business a bad name. Vin-X’s Peter Shakeshaft explains how a new self-regulatory body will change all that

INSIDE TRACK

Asset Allocation

Arjent’s Adam Sketchley explains why you need a long-term perspective to succeed

Vickers, One Year On

The banks might have got away with it, says Kam Patel, but for a series of PR disasters that have slammed the brakes back on

Taking the Plunge

CASE STUDY

Why so many independents are signing up with St James’s Place

Recruitment

Recruiters can learn much from IFAs, says Stuart Leaney of Recruit UK

IFA Magazine is for professional advisers only. Full subscription details and eligibility criteria are available at: www.ifamagazine.com

Declining GDP, shocking unemployment, shaky banks. Spain isn’t Greece, but what if it’s another Ireland? 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.

I SN E W S R E V I E W C O M M E N T A N A LY S I S Contents.indd 5

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Through five years of stormy seas, the Octopus Apollo VCTs have delivered

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Issued by Octopus Investments Ltd, 20 Old Bailey, London, EC4M 7AN. Octopus Investments Ltd is authorised and regulated by the Financial Services Authority. 01.10.2012_IFA_297x210mm.indd 1

Ed's Welcome.indd 6

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WORDS OF WILSON

BUILDING TRUST JUST BACK FROM THE INSTITUTE OF FINANCIAL PLANNING’S OCTOBER CONFERENCE IN NEWPORT, SOUTH WALES, AND WHAT AN EYE-OPENER IT TURNED OUT TO BE.

Three days of non-stop learning, debating, networking and eating and drinking far too much, with some 50-odd events going on in the various auditoriums and committee rooms. A chance to catch up with old friends. Downstairs in the lobby, a Fringe stage had been set up where a succession of pros and gallant amateurs honed their vital points right down into ten-minute crowd-pleasers. And the wifi system was buzzing in real time with blogging, twittering, network and forum activity. Conferences never used to be so connected as this. The clear focus of this year’s event, just in case you were expecting any surprises, was of course RDR and the way it changes the game for planners, IFAs and wealth managers alike. Due diligence, platform choice, outsourcing and – not least – the rising cost of professional indemnity insurance in the new environment seemed to have taken over temporarily from more traditional planning topics such as tax solutions and trust law. And rightly so. The conference’s theme, “Inspiring Trust”, neatly encapsulated the key dilemma that many advisers will face once the new fee structures kick in. There are those who say that Mr and Mrs Average will disappear to the execution-only platforms as soon as January arrives - and that, for all but the wealthier clients, it’ll be a matter of accepting dumbed-down financial advice from a bank instead of a properly accredited financial planner. Unfortunately, some of this is probably true. But those advisers with the necessary determination and the right mindset will find that RDR presents a huge opportunity. If planners can engage the trust, the loyalty and even the affection of their clients, the scope is there to make themselves a central part of their lives. And that’ll be a good place to be in the coming decades. But this isn’t something that will come instinctively to those advisers who still focus on the advice part of the job and play down all the rest. Tomorrow’s successful advisers are learning ‘soft skills’ - how to listen before they recommend, how to ask the right questions, and how to be sensitive to vagueness and evasiveness and turn them round so as to achieve the right result for the client, not the adviser. And it isn’t as easy as it sounds. But there’s no time like the present to start.

M ik e

Michael Wilson, Editor IFA magazine

www.IFAmagazine.com

Ed's Welcome.indd 7

Write to Michael at editor@ifamagazine.com

October 2012

7 07/10/2012 15:06

shorts

magazine

Britain’s economy shrank by

only 0.4% in the second quarter, according to a ‘final’ set of figures. The August guess had been -0.5%; the original estimate a rather worse -0.7%. Construction slumped by 3%, and manufacturing fell by 0.8%, better than the previous -0.9% estimate. The Diamond Jubilee bank holiday in June was listed as a negative factor; but the Olympics will probably boost the third quarter.

FOR A FEW EUROS As Europe’s politicians converged on Spain, intent on propping up the government in the face of growing unrest, the chances of getting a more permanent deal for the euro looked set to disappear once again into the distance. As it became clear that the Spanish banking system might need €60 billion of banking aid, and that Catalonia was getting angry about its own multi-billion ﬁscal shortfall from Madrid, the whole size of the task started to look too immense to contemplate. Even Prime Minister Mariano Rajoy’s substantial €18 cushion for regional support was starting to look inadequate. And, as suddenly as it had started, the mutual backslapping that had followed the European Central Bank’s brave announcement on unlimited bank support, just two

weeks earlier, was left faltering as the deal started looking too weak to be practicable. Oh yes, and pain’s two year bond yields, which had dipped at one point to 3%, were heading up toward 7% again as the country delivered another depressing set of results on second quarter growth. (Or, to use the correct word, shrinkage.) You can read more about Spain’s particular economic torment in Monica Woodley’s feature article on Page 22. And about why the ECB’s Outright Monetary Transactions (OMT) scheme is already looking right out of court. But for the moment, let’s return to the bigger issue. Can the euro survive at all?

The Good

The good news, for Brussels, is that the German Constitutional Court has ﬁnally given its blessing to the country’s participation in the European Stability Mechanism (ESM) – thus ending a long and nail-biting wait for Berlin’s approval. Although, we should add, Chancellor Angela Merkel is still expecting trouble from her own voters for allegedly giving in to the idle spongers from the south. The less good news comes from three different directions.

The Bad Firstly, Greece has demanded an extra two years in which to reduce its government deﬁcit target to the levels

N E W S R E V I E W C O M M E N T A N A LY S I SN News.indd 8

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NEWS

Japan’s relationship

Witan Paciﬁc

with China hit the rocks, literally, as a growing conflict about the Senkaku Islands in the East China Sea escalated into political name-calling and threats of Chinese trade sanctions. Toyota and Honda ‘temporarily’ closed down their Chinese factories. The islands are also formally claimed by Taiwan - and they are uninhabited.

announced a 2.9% increase in net asset value during first-half 2012, against a benchmark total return of minus 1%. Total shareholder return was 7.4%.

MORE... OTRA VEZ demanded by the EU and by the International Monetary Fund. And the IMF is reputed to be trying to persuade government lenders to write off some of their Greek exposure. The second cause for concern is that Spain’s lurch into troubled territory is mirrored by Italy, whose own economic performance leaves much to be desired. The Italian government admitted last month that economic shrinkage during 2012 would be twice the forecast rate. Well, perhaps ‘mirrored’ isn’t the right word. Italian and Spanish government bonds are on the two ends of a nasty see-saw at present, and whenever Spain’s bond credibility rises the resulting outrush of cash from similarlytroubled Italian bonds causes a problem for Rome and Milan. But you’ll have noticed that there hasn’t been much credibility in Madrid for a week or two, so Italian paper has been doing better. (Or at least, less badly.) The worry being expressed has been that the markets might simply tire of playing off the two big Mediterranean losers against one another and simply head off for the less proﬁtable (but safer) shores of Britain. Ugh, more foreign demand for gilts? More pressure on gilt yields? No thanks.

The Ugly But the third and most potent worry is simply that the Euro Club members are squabbling about policy again. The enthusiasm whipped up during June for a pan-European banking regulator, and for formal government support for bank bail-outs, has already subsided drastically, as the likely timetable for such a move (4-5 years) is increasingly recognised for the no-hoper that it always was. Europe doesn’t need a slow ﬁx for a fast puncture. Meanwhile, Germany, Finland and Holland are tearing into the terms of the deal itself, by declaring that the recapitalisation of Spanish and Italian banks (and Irish and Portuguese ones too) must exclude so-called ‘legacy’ assets. Can the single euro survive without a Greek exit? Frankly, that’s not the big issue any more, because it seems to have been priced into the market. It’s what happens if the rest of the Mediterranean heads for default that’s keeping the politicians awake at night. For more comment and related articles visit...

www.IFAmagazine.com

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News.indd 9

07/10/2012 13:38

NEWS

Mario Monti

, Italy’s ‘technocrat’ prime minister, disappointed the markets by declaring that he wouldn’t be standing for election in 2013. Monti had been appointed in 2011 to sort out the chaotic situation left by his predecessor, Silvio Berlusconi, who had finally quit under unstoppable parliamentary pressure. Mr Berlusconi is letting it be known that he is considering making a comeback.

Cofunds

became the second platform provider to open up its unbundled pricing model (‘Explicit Pricing Model’), following on the heels of Fidelity Funds Network, which had set out its own plans in April. Unlike Fidelity’s flat-rate scheme, Cofunds is to charge fees according to the portfolio size. Skandia’s own programme, announced in August, will go live in December.

Jam Tomorrow? Not at this rate. Savings are still on the back burner as far as most pre-retirees are concerned, according to a recent report by Aviva Investors. In fact they save even less of their earnings than the over-75s - a worrying sign, it seems, at a time when we’re all under pressure to improve our readiness for a generally tighter pensions and public spending environment in the future. Aviva’s Real Retirement survey found that the average over-55 household saved £52 a month, equivalent to 3.6% of its £1,464 net monthly income – but that the 55-64 age group put only 39% (2.5%) away, while the 65-74 band saved £62 (4.2%) and the over75s squirrelled away £61 per month (also 4.2% of a net monthly income of £1,451). A note of caution is in order here, because these ﬁgures exclude pension contributions – which means, in effect, that comparing the 55-64 cohort who may be in work with the older segments who are more likely to be retired is a little misleading. The former, 75% of whom say they have a pension plan in place, will obviously be experiencing greater pressures on their household ﬁnances than their older counterparts. And the most elderly contingent are less likely to be running complex lives with multiple responsibilities. But even so, there are other reasons for concern.

38% of the 55-64 age group say that they’re not currently saving, and an alarming 18% say they have no savings pot at all with which to pay for unexpected expenses such as car repairs or ﬁxing the boiler. The 65-74 and 75-plus age groups do rather better, with only 33% and 30% saying they don’t save, and with 6% and 8% respective saying they have no savings to draw on. The crunch period for the 55-64 age group comes at a particularly awkward time, when parents are being encouraged to open up the Bank of Mum and Dad chequebook on behalf of their home-hunting offspring. For more comment and related articles visit...

www.IFAmagazine.com

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IS News.indd 11

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NEWS

More trouble from Argentina,

The Financial

whose president Cristina Fernandez rejected the “pressure and threats” from the International Monetary Fund that are thought likely to lead to a downgrading of the country’s debt ratings. Faced with the possibility of bond defaults, a sceptical IMF has given her until 17th December to produce ‘credible’ figures on growth and inflation. Don’t hold your breath.

Services Compensation Scheme (FSCS) is to be allowed to make payouts on small claims without investigating the eligibility of claimants, the FSA confirmed. But plans to allow claims from directors of failed firms have been abandoned.

The Worst Is Yet To Come Well, that’s the way it looks for Britain’s banks at the moment. You could almost hear the knuckles clicking as Martin Wheatley, the managing director of the Financial Services Authority and the future CEO of the FCA, delivered his report into the London Interbank Offered Rate (Libor) rate fixing scandal. “The reason we are here,” he told his audience, “is that we have been misled. The system is broken and needs a complete overhaul. The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust – it has torn the very fabric that our financial system is built on.” Ouch. And that was just for starters. Mr Wheatley went on to say that the British Bankers’ Association (BBA), which runs the present Libor system, was out of a job as far as this task was concerned, and that it would be allowed “no further role” in the matter. And that he was inviting other groups to apply for the Association’s role, to include drawing up a code of conduct and carrying out regular audits. A totally new Libor structure would be needed, he said, together with new safeguards. The present flawed system, whereby banks have been allowed to volunteer their own information about the interbank rates that they’re paying to other banks (and have frequently lied) is to be replaced by a new system that relies on the actual rates paid. The size of the reporting sample itself is to be extended beyond the current group of 20 rate-

setters, so as to include many smaller banks. But the worst news, for the bankers themselves, is that Mr Wheatley is after criminal convictions. He told the BBC, not unrealistically, that society wants people who committed these sorts of acts to “pay the price” - and that “if that includes jail for the most extreme fraud in the system, then that’s what should happen”. Goodness, was that a cheer from the Occupy lobby? The report can be read at: http://tinyurl.com/bpzgmav For more comment and related articles visit...

www.IFAmagazine.com

“THE SYSTEM IS BROKEN” SAYS WHEATLEY

N E W S R E V I E W C O M M E N T A N A LY S I SN N News.indd 12

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Prime Minister

to raise income tax rates to 45% for people earning €150,000 a year, and 75% for more than €1 million. The move, which had been widely dismissed as left-wing blustering before the election of socialist president François Hollande in June, forms part of a €20 billion tax-raising package accompanied by €10 billion of spending cuts.

David Cameron let it be known that he was actively considering a UK referendum on Britain’s continued membership of the European Union. But not until after the next election.

NEWS

France has confirmed its intention

It’s About the Economy, Stupid As Mitt Romney and Barack Obama square up for the ﬁnal phase of the presidential election campaign...

...you can hear everything you might wish to hear about whether 47% of the electorate are feckless dependants who don’t pay taxes, or whether an aeroplane window ought to open. (Two of Mr Romney’s less illuminating ideas.) Or whether watching Fox News makes you stupid and stubborn. (One of Obama’s.) And about the challenger’s tax affairs too. Yes, it seems Romney failed to take all the available reliefs on some large charitable donations that he made in 2011, thus pushing his tax burden up to an unnecessarily high 13%. We now know that Romney’s donations amounted to 30% of his income, compared with

only 21.8% for Mr Obama. There’s nothing like PR to concentrate the mind on giving, is there? But you’ll still struggle to hear anybody saying anything very much about the fiscal deficit. Yes, everybody knows that the United States is scheduled to drive off a ‘fiscal cliff’ in December when George Bush’s tax cuts expire – raising standard income tax by 2%, and many business deals by much more. And everybody is aware (or at least, they ought to be) that unless the Democrats and the Republicans can come up with a lifebelt for the deficit by the end of this year, deep automatic cuts will come in that will affect welfare, medicare, and whisper it gently, defence. The overall impact of December’s slash and burn is estimated at $600 million – which is equivalent to around 4% of GDP – and seasoned pundits are guessing that the overall effect may be to wipe 3.5% off the economy. The current debt threshold, in case you were unaware, is $16.4 trillion. But oddly, or perhaps not, nobody wants to discuss it. The optimists insist that the issue can wait until the new president is safely installed. Then the White House can take special actions to forestall default until early in 2013. When it’ll start all over again. Can’t wait. For more comment and related articles visit...

www.IFAmagazine.com

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

Bank of America

Lloyds Banking Group is

paid out $2.4 billion to settle a lawsuit from investors over its acquisition of Merrill Lynch in 2008. The investors had claimed that BoA had released misleading information about both companies. Either way, it was still in trouble. BoA’s third quarter results will be hit by a $1.9 billion hit on credit spreads, plus another $800 from changes to UK corporation tax.

to withdraw its mass market investment advice service for investors with portfolios of less than £100,000. The changes, which take effect in November, follow an “extensive review” into the profitability and behaviour of less affluent investors after RDR.

ETF Sales Soar Sales of exchange traded funds have soared to the highest levels since December 2008, according to new data from Blackrock, as investors take heart from what they clearly feel to be an improving investment climate. Total sales worldwide in September were $43.3 billion, bringing the year’s tally to $182.6 billion, a 42% increase on the same three quarters of 2011, and already ahead of last year’s full-year total of $173.4 billion. And the industry believes that 2008’s record intake of $259.7 billion may be up for grabs. Blackrock says that investors have been turning to ETFs to invest quickly across a wide range of asset classes – a thought that would seem to suggest that individuals are getting more savvy

about macro factors, and more inclined to back their judgement. But Lipper research in the US says that, although US-domiciled fund sales ($12 billion in August) are surging too, it’s mainly the institutional investors that are going for equity funds. The private investors, it says, are pushing their money into bonds, both corporate and government. For more comment and related articles visit...

www.IFAmagazine.com

The stunning growth of the ETP sector is the subject of three upcoming seminars in which IFA Magazine is involved. The first, to be held at the London Stock Exchange on 31st October, is to feature IFA Magazine editor Michael Wilson - and will focus on the functions and uses of ETFs. www.londonstockexchange.com/ifa

The second, organised by JM Finn in collaboration with IFA Magazine, will be held in London on 15th November, entitled: “A Comprehensive Adviser Guide to ETFs”. The event will look at the current ETF environment, using ETFs as part of client portfolios, the best advice imperative and the issues surrounding physical and synthetic ETFs. http://tinyurl.com/8rf6gdg

A third JM Finn seminar, on the changing relationship between intermediaries and DFMs, will be held in Bristol on 4th December. http://tinyurl.com/8dcb2da

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

07/10/2012 13:39

magazine

www.jmfinn.com

www.ifamagazine.com

IFA Magazine and JM Finn & Co are delighted to present:

A comprehensive adviser guide to ETFs This event will be taking place at JM Finn & Coâ&#x20AC;&#x2122;s City of London offices.

Brian Tora

This invaluable seminar will give you a detailed understanding of the history, future trends, costs and suitability for you and your clients. Presented by the foremost experts in the ETF field.

Speakers and topics include: Open for refreshments

11am :

Seminar begins

Brian Tora :

Introduction and overview of the current financial climate

Neil Cowell :

Using ETFs in client portfolios, client suitability, cost, charges and distributions

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Whether incorporated in portfolios or not, what does FSA expect of IFAs considering ETFs for their clients?

Matt Arnold :

The makeup of the European ETF market (pastpresent-future), trends and flows weâ&#x20AC;&#x2122;re seeing

12.30pm :

Over lunch, England and Surrey cricketing legend Alec Stewart OBE will regale us with tales of cricket, football, leadership and building professional relationships

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Senior ETF Strategist, State Street Global Advisors

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BRIAN TORA : THE INVESTMENT ENVIRONMENT Topical insight from one of the industry’s leading commentators.

MIKE MOUNT : RDR IS EVOLVING THE ROLE OF THE DFM Steven Andrew

STEVEN ANDREW, M&G : INVESTMENT PHILOSOPHY AND PRINCIPLES OF MULTI ASSET INVESTING Steven will share his thoughts on the current macro economic environment and indicators and as a consequence, how he is currently positioning his own particular portfolio

Alec Stewart OBE

This seminar is CPD Accredited

What options can the modern DFM bring to your investment proposition?

ALEC STEWART : Renowned international cricketer and speaker. Over lunch Alec will regale with stories and thoughts on key values of a strong team culture, independence of thought and building long term relationships.

Add to register or for more information, visit www.ifamagazine.com/events or e-mail events@ifamagazine.com Sponsorships are available – please contact IFA Magazine for details alex.sullivan@ifamagazine.com

magazine

The Bristol Hotel is just a short stroll from Brunel’s SS Great Britain, the At Bristol science centre, the Arnolfini contempary arts centre and the Gothic splendour of Bristol Cathedral. The events will be filmed and edited to appear on web sites and will also be distributed via BrightTALK thought leadership channel.

magazine...

THE IN SPAIN IS FINALLY ON THE WANE, SAYS MONICA WOODLEY. POSSIBLY

22 Spain.indd 22

October 2012

www.IFAmagazine.com

07/10/2012 15:22

S PA I N

Another switchbacking month, and another good time for a European to ignore all the stormclouds and put on a sunny smile. On the plus side, European markets were briefly cheered in September by an announcement by European Central Bank president Mario Draghi, in which he introduced a new scheme to buy the sovereign bonds of troubled EU countries, “without limits”, in order to bring down yields. On the minus side, however, reality lost no time in bringing us all back down to earth with a bump. Sigh, it was ever thus, it seems. On the face of it, the ECB’s Outright Monetary Transactions (OMT) scheme does indeed seem to be the tangible fulfillment of Draghi’s promise in July to do “whatever it took” to save the euro. And indeed, Spanish two-year bond yields had fallen briefly to 3% even before the OMT was actually unveiled. (Although ten year paper remained at 5.8%, 4.2 percentage points above bunds.) But just look at what happened next. Spain’s government announced a worse-than-expected secondquarter result, the Catalans revolted about their taxraising sovereignty, and Europe’s markets recognized the inevitable and went back into retreat. By the first week of October the Madrid stock market was back into gloom – 8% down on the year (against London’s 3.5% rise), and those damned bond yields were almost right back where they started. Those two year bond yields had slithered back down from 3% to 4.75%. Ouch.

A Country In Denial

It’s quite hard to know how to read this scenario. There’s help being offered by Brussels and Frankfurt, but no clear message from prime minister Mariano Rajoy as to whether he really wants it.

www.IFAmagazine.com

Spain.indd 23

Unfortunately, the country’s prime minister Mariano Rajoy seems determined to studiously ignore reality. Even though the OMT was effectively designed to bail out Spain and save the euro, Rajoy continues to insist that the country may not need to be rescued after all. And by the end of September, as ECB officials sat down to try and analyse the mess, two year paper had slithered back down from 3% to 4.75%. Ouch. Part of the premier’s defiance is no doubt down to pure political fear. His government has lost a third of its popular support in six months – and, if the examples of Portugal, Greece and Ireland are any indication, bailed-out governments do not stay in power for very long.

near out of the woods, and unemployment of 25% - with youth unemployment double that level. It’s also facing a doubledip recession that looks likely to stretch well into 2013. And then there is the small problem of Catalonia. Of which more anon.

Bank Reform (Again)

Rajoy’s government has at least finally recognised the need to take banking reform more seriously - setting up a ‘bad bank’ that will force banks to admit their losses on the toxic real estate on their books – estimated at €180 billion. And the new reforms also set out steps for winding down banks that cannot be saved. That’s good. But Rajoy didn’t exactly have much choice

UNFORTUNATELY, SPAIN’S PRIME MINISTER MARIANO RAJOY SEEMS DETERMINED TO STUDIOUSLY IGNORE REALITY But another part of his reluctance is down to pure denial. Rajoy continues to claim that Spain will be able to cut its budget deficit and meet the target of 4.5% set by the EU. That is a tall order, considering that last year’s deficit was 8.9%: he will have to find another E20bn in savings or new revenue to meet the target, and he has already cut spending and raised taxes. Whether Rajoy wants to admit it or not, Spain has a banking system that is nowhere

in the matter. Spain’s fellow eurozone countries imposed the reforms as the price for providing €100 billion in badly-needed rescue funds for Spain’s banks. But the other requirement stipulated by the eurozone enforcers will be harder to stomach for Spain’s savers. You see, many of them are exposed rather more heavily to the banking system. Over the last few years, many thousands were lured by high interest rates into buying

October 2012

23 07/10/2012 15:22

S PA I N

magazine... for today ’s discerning financial and investment professional preference shares in banks, which are now certain to be hit as the banks admit their losses to the government. Many are now claiming that they were mis-sold the shares – having been cold-called by aggressive bank staff who’d claimed that the complex products were safe investments. At present, then, any banks’ losses will have a particularly wide impact, because about 60% of their subordinated debt is held by Spanish retail investors. (Excluding that of Santander and BBVA, which are healthy). So the government is in a Catch-22 situation. While it agrees that preference shares never should have been sold in this way to small savers, it is also forced to recognise the unpalatable need for these debt-holders to shoulder some of the banks’ losses. And if that sounds bad, it is. In Ireland, by comparison, losses of 80% were taken by subordinated debt-holders.

The Lost Generation

Rajoy knows that all this will hit Spaniards hard – and that they are likely to blame him for it. So he’s trying to soften the blow negotiating with the EU to reduce the hit taken by preference shareholders. His government has also extended a temporary €400 a month payment to the long-term unemployed. Overall, banking sector liquidity has improved and profitability has rebounded since 2009. Capital adequacy is strong, lending is growing and the volume of non-performing loans has started to decline. However, reforms in regulation and supervision are still needed. A stress test in 2011 by the RCB found that in a scenario similar to the crisis of 2008, almost half of Spain’s banks would have less than the required capital adequacy levels. Although a banking crisis seems unlikely while the economy continues to recover, a downturn would probably mean major difficulties for many banks.

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Spain.indd 24

07/10/2012 15:22

S PA I N

UNEMPLOYMENT STANDS AT 25%, AND IT DOESN’T LOOK LIKE IT WILL IMPROVE ANY TIME SOON As well he might. Unemployment stands at 25%, and it doesn’t look like it will improve any time soon. The Economist Intelligence Unit predicts that unemployment will hold steady through 2013 and 2014 before finally dropping to 23% in 2015 and “only” 21% in 2016. The problem is very much worse among the young. Youth unemployment is over 50% - the highest level of joblessness of people aged 16 to 25 in the EU. But talk of a “lost generation” is perhaps a little overdone. The percentage of young people

who are unemployed, looking for work and outside education or another form of activity is actually just 23% - still large, but not that much more than the total for all workers. Spanish unemployment figures have always been subject to certain distortions which have lent credence to the idea that they are understated. One explanation for the anomaly among younger workers is the pervasiveness of informal work in Spain. If young people are paid with cash in hand, they might still be counted as officially jobless. About a fifth of

Spain’s GDP may be from the so-called “submerged” economy.

The Double-Dip

With a large chunk of the population out of work – and a fifth of the economy operating outside of the tax system – it follows that tax revenues are unlikely to rise without raising rates. But Rajoy needs to realise that turning the screws tighter might actually back-fire, and might not give him the solution he needs to his deficit problem. Right now, it doesn’t look like he can count on a

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Spain.indd 25

magazine

07/10/2012 15:22

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magazine... for today ’s discerning financial and investment professional growing economy either to fill the government coffers. GDP is forecast to continue contracting through 2013 - although at the lesser rate of -1.2%, compared to -2.1% this year, according to the Economist Intelligence Unit.

A Return to Catalonia

And then there’s the Barcelona question. Catalonia, a fiercely independent-minded ‘autonomous region’ which accounts for 19% of Spain’s GDP, has reacted particularly angrily to Rajoy’s insistence that all the 17 regions must institute severe budget cuts. Catalonia has long been demanding more fiscal autonomy from central government, and its precarious situation – it currently has the highest debt of all the Spanish regions – means that it is prepared to fight. One reason why the regions are angry is that the government has changed the value added tax rules in a way that will make their 2012 fiscal targets even harder to meet than usual. Normally, the 17 regions receive half of the VAT revenues that come in, but the most recent regional funding agreement requires them instead to transfer all the additional revenues from a rise in value-added tax to the federal government itself. That’s especially painful because most of the regions are unable to access debt markets in the normal way. So they view VAT as a particularly vital source of revenue. Acknowledging the difficulty, the central government set up an €18 billion credit line in July that would help the regions through their liquidity crunch. Catalonia is one of three that have asked to tap the fund - seeking €5 billion to help pay its debts and social service providers – but you can bet that there’ll be others queuing up for the cash before long.

26 Spain.indd 26

October 2012

Catalonia’s campaign against the flawed regional financing system revolves around the claim that the regions have control over expenditure on healthcare and education, but no say over income. Accordingly, a more permanent regional funding mechanism is urgently needed. But even that might

not be enough to satisfy them. In mid-September about half a million of them marched in Barcelona demanding complete independence from Spain. That’s a call that hasn’t been heard since the 1980s. And you can bet that the Basques in the north and even the Andalucians in the south-east will be listening carefully.

SIMPLY PRETENDING THAT A BAIL-OUT IS NOT NECESSARY WILL NOT MAKE IT SO

Where To From Here, Rajoy?

With banks continuing to report losses, unemployment holding steady and the economy continuing to contract, Rajoy’s hands are tied. If he wants to avoid an EU bail-out, he must continue tapping debt markets to pay the bills. But, with each new bit of bad news, yields climb higher. At the time of writing, they stood at 5.86% for 10-year debt – horrific compared to the 1.65% paid on German bunds of the same maturity, or 1.93% for 10-year UK gilts – but still lower than they were earlier this year. The EU knows that if the eurozone could not handle Greece leaving, it certainly couldn’t survive if the markets had reason to believe that a country the size of Spain was on the brink – which is why Draghi created the OMT in the first place. Despite the political consequences of asking for a rescue, it looks as though Rajoy may need to grit his teeth and take the cash. Just as the eurozone continued to flounder due to indecisiveness, Spain is likely to do so as well until a bold move is made. Simply pretending that a bail-out is not necessary will not make it so.

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

WHY WE NEED TO SELF-REGULATE

WINE VIN-X FOUNDER PETER SHAKESHAFT, A FOUNDER OF THE WINE INVESTMENT ASSOCIATION, EXPLAINS WHY THE SELF-REGULATORY BODY’S LAUNCH IN NOVEMBER WILL BRING SOME STABILITY TO THE INDUSTRY

The growth of SWAG investments (silver, wine, art and gold) is well documented over recent years. And, on the face of it, wine in particular seems an attractive investment option for 10% of a client’s portfolio. Like other alternative investments, wine has been generally insulated from the volatility that has plagued the more traditional investment markets, and it has enjoyed double digit growth over the present Queen’s reign. But even so, the industry has been beset by issues around fraud and poor practice. At present, wine investment remains unregulated by the FSA – and, unfortunately, there have been a number of reckless firms

October 2012

who have muddied the process and not provided enough security or transparency to protect investors. As a result, it is estimated that over 50 wine investment firms in the UK have collapsed in the last four years.

A New Charter

Change is needed. We must start with, at the very least, a standard of good practice for those who introduce fine wine as an investment commodity to consumers. At Vin-X we have a number of measures in place that, we believe, could significantly reduce the risk of fraud and mis-selling for investors if they were adopted as industry standard. These measures include: n The independent auditing of wine to verify the wines bought by clients and held in storage. n The recording of all telephone conversations. n A seven-day cooling off period after sale. n A guarantee that wine sold is owned by the organisation (i.e. that there is a right of ownership title to be transferred to the investor).

www.IFAmagazine.com

A Time For Change

Change is now within reach. Over the last few months, I and other figures have been busy formulating the Wine Investment Association (WIA) – a self-regulatory body formed by a number of wine investment companies, which we believe represents a significant development in terms of protecting investors. The WIA has spent these months on developing a charter which is due to be released for consultation later this autumn, and which we hope will finally self-regulate the industry. A crucial element of the WIA charter is to form an independent commission that will rigorously oversee the compliance of the charter, without favour to its members. The Association is now looking to recruit individuals from both the legal and regulatory compliance professions - on a pro bono basis, during its first year - who will look out for those in breach of the charter and who will deal with any complaints that may arise. If managed properly, and with integrity, fine wine is an excellent option for investors and has a long list of benefits. We are getting close to proper self-regulation, and we need everyone involved in the wine industry to pull in the same direction if we are to make it a reality.

D R I N K R E S P O N S I B LY

n The provision of reference details and certificates of ownership of wine. n The ability for clients to see and move their wine n A guarantee that wine secured en primeur (i.e. before bottling) is sourced from approved suppliers only who are fully insured. We will also be launching road shows to help educate IFAs about wine investment to ensure they too give the best possible advice to their clients.

THE GOOD NEWS n The global fine wine investment market is valued at US$4 billion n Fine wine investment has outperformed almost every major financial index in the last two decades and in some periods outperformed gold and crude oil investments. n Fine wine has a low correlation to other investment classes and has demonstrated historically that it is a recognized “safe haven” during periods of recession and financial turbulence. n Growing global consumption has been strongly influenced by the new wine investment consumers from the BRIC countries. n Wine is a global and physical commodity which offers the opportunity to hedge against currency movement or, in other circumstances, against devaluation. n Fine wine is a tangible investment. You can consume it! n Wine is generally CGT exempt. (Clients should take specific advice) n VAT and Duty are not payable on investments whilst held in bond.

THE BAD NEWS n People investing money in fine wine have lost an estimated £100 million over the last four years following the collapse of unregulated wine investment firms, the BBC claims. n It is estimated that 50 UK-based vintage wine investment firms have collapsed in the last four years. n The FSA’s consultation paper published August 2012 with reference to UCIS and investment advice did note that assets such as fine wine have been sold within a UCIS and more importantly who should be allowed to invest in fine wine (HNW’s only). The fact is fine wine is unregulated, investors do not have to participate in a UCIS to invest in fine wine and it is currently available for all. n The new body’s task, therefore, will be to regulate and stabilise the market through its charter, improving standards and avoiding turbulence in future.

www.IFAmagazine.com

October 2012

Purchasing power of €100,000 of cash in 10 years (for simplicity (for simplicity assumes 2.6% inflation and no 1 interest return) :

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The investment. opinions expressed The opinions areexpressed those of BlackRock are those as of BlackRock of 10/2012 as andofare 10/2012 subject and toare change subject at any to change time due at to any changes time due in to market changes or economic in market conditions. or economicThis conditions. materialThis is not material intended is not to be intended relied upon to beas relied a forecast, upon asresearch a forecast, or investment research oradvice, investment advice, income can e and is not a recommendation, and is not a recommendation, offer or solicitation offer or to solicitation buy or sell any to buy securities or sell any or to securities adopt any orstrategy. to adopt BlackRock any strategy. has BlackRock not considered has not the considered suitabilitythe of investment suitability ofagainst investment your individual against your needs individual and risk needs tolerance. and risk Alltolerance. financial investments All financial investments involve an element involve an element not hold all s of risk. The value of risk. of your The investment value of your and investment the income and from the itincome will vary from andit your will vary initial and investment your initialamount investment cannot amount be guaranteed. cannot beOverseas guaranteed. investments Overseas may investments involve risk mayofinvolve capitalrisk loss offrom capital unfavourable loss from unfavourable fluctuation influctuation currency values, in currency from values, differences from in differenceswill in apply. Li generally accepted generally accounting accepted principles accounting orYield from principles economic or from or political economic instability or political in other instability nations. in other Emerging markets Emerging markets risks heightened related to risks therelated sameisfactors to the same as well factors as increased as well as volatility increased and volatility lower and lower volume. Investments volume.when Investments in fixed interest inanfixed interest Managemen *Source: BlackRock, DataStream, comparison based on: German 10 year bunds 1.35%, MSCInations. Europe Indexinvolve 3.96% –heightened as atinvolve 31/08/2012. Past performance not a guide to future returns and should not be atrading sole factor oftrading consideration selecting Under certain securitiesinvestment. such securities as corporate or asgovernment corporate orbonds government pay of a fixed bonds or pay variable a of fixed rate orof variable interest rate and ofbehave interest similarly and at behave to atime loan. similarly These asecurities loan. in These aresecurities therefore are exposed therefore to changes exposed into interest changes rates inintended interest which will rates affect which the will value affect any the securities value of any held. securities Companies held. which Companies which usually can recoe Thesuch opinions expressed are those BlackRock as 10/2012 and are subject to change any due toto changes market or economic conditions. This material is not to be relied upon as aofforecast, research or investment advice, income issue higher issue bonds typically yield bonds have typically an increased haverisk an increased oftodefaulting of repayments. defaulting repayments. event Indefault, the event theofvalue default, of your the value of yourmay investment reduce. Economic may reduce. conditions Economic and conditions interest rate andneeds levels interest may rate also levels impact maysignificantly also impact investments significantly the values ofinvolve the highvalues yield bonds. of high yield bonds. INVESTING andyield is not ahigher recommendation, offer or solicitation buy orrisk sellon any securitieson orIn tothe adopt anyofstrategy. BlackRock has notinvestment considered the suitability of investment against your individual and risk tolerance. All financial an element not hold all sF of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Overseas investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Investments in fixed interest securities such as corporate or government bonds pay a fixed or variable rate of interest and behave similarly to a loan. These securities are therefore exposed to changes in interest rates which will affect the value of any securities held. Companies which issue higher yield bonds typically have an increased risk of defaulting on repayments. In the event of default, the value of your investment may reduce. Economic conditions and interest rate levels may also impact significantly the values of high yield bonds.

Wine.indd 30

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07/10/2012 15:34

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THE NEW WORLD OF INVESTING ISN’T STANDING STILL. NEITHER NEITHER IS IS YOUR YOUR FUTURE. FUTURE. NEITHER IS YOUR FUTURE.

No matterNo where matter you’re where standing, you’re standing, the financial the financial world is more worlduncertain is more uncertain than ever.than Investors ever. Investors have endured have endured an exhausting an exhausting succession succession of seismic ofevents. seismicAnd events. no one And knows no one what knows thewhat markets the markets will do next. will do next.

BLACKROCK BLACKROCK WAS BUILT WAS BUILT FOR THESE FOR THESE TIMES. TIMES.

It’s no wonder It’s nomillions wonderare millions stepping are stepping away from away the from stockthe market stockand market seeking and the seeking safety the ofsafety cash or of cash or ‘safe-haven’ ‘safe-haven’ bonds. They bonds. trust They that, trust for athat, while forataleast, while their at least, money theirisn’t money going isn’t anywhere. going anywhere.

It’s a newIt’s world a new of world investing. of investing. But BlackRock But BlackRock was builtwas for these built for times these – with times the – with global the global market insight, marketrisk insight, management risk management expertise expertise BLACKROCK WAS BUILT and unrivalled and unrivalled breadth breadth of capabilities of capabilities that that are relied are onTHESE relied by some on by of some the world’s of thelargest world’s largest FOR TIMES. investors, investors, companies companies and governments. and governments. It’s a new world of investing. But BlackRock And we put Andthose we put same those capabilities same capabilities to work to work was built for these times – with the global for you. We for believe you. Weit’s believe our responsibility it’s our responsibility to to market insight, risk management expertise help investors help investors adapt toadapt today’s tonew today’s world new of world of and unrivalled breadth of capabilities that investinginvesting – and build – and thebuild new the portfolios new portfolios are relied on by some of the world’s largest theseinvestors, times these require. times require. companies and governments.

TOMORROW TOMORROW BE MAY TOO BELATE. TOO LATE.world is more uncertain than ever. Investors have endured No matterMAY where you’re standing, the financial an exhausting succession of seismic events. one knows thewith markets will low do next. Yet that’sYet just that’s it: your justmoney it: your isn’t money going isn’t anywhere. going anywhere. ItAnd maynonot It be may growing. not what be growing. And And today’s with today’s interest low interest rates, that rates, means it means may notit even may be keeping even be up keeping with up with of the living. cost of living. It’s no that wonder millions arenot stepping away fromthe thecost stock market and seeking the safety of cash or ‘safe-haven’ bonds. They trust that, for a while at least, their money isn’t going anywhere. Household Household bills and the billscost and of the further cost ofeducation further education are climbing. are climbing. Retirement Retirement is movingiscloser moving and closer is likely and is likely to be longer to be and longer cost and more. cost more.

TOMORROW MAY BE TOO LATE.

The truthThe is, to truth meet is, your toit: meet goals, yougoals, may you may toanywhere. do need more to than do more simply than preserve simply preserve what what have you today have today – Yet that’s just youryour money isn’tneed going It may not be growing. Andyou with today’s low–interest you also have you also tothat build have what to build what will need you will tomorrow. tomorrow. This mean may reassessing mean reassessing your portfolio. your portfolio. So don’t So don’t rates, means ityou may not even beneed keeping up may withThis the cost of living. put off speaking put off speaking with yourwith financial your financial adviser –adviser the sooner – theyou sooner startyou thestart better. the better. Household bills and the cost of further education are climbing. Retirement is moving closer and is likely to be longer and cost more.

“So “The what So what do I do do Iwith do with my money?” my money?” truth is, to meet your goals, you may need to do more than simply preserve what you have today –

Begin by Begin changing byhave changing yourtopoint your of view. point Look ofwill view. beyond Look today’s beyondheadlines today’s and focus and onfocus tomorrow. onportfolio. tomorrow. You’ll see you also build what you need tomorrow. This mayheadlines mean reassessing your SoYou’ll don’tsee there arethere other avenues other of avenues opportunity opportunity in this new in this world new of investing. world ofstart investing. Andthe they And canthey be yours can be if you yours have if you have put offare speaking with youroffinancial adviser – the sooner you better. a portfolio a portfolio built to take builtadvantage to take advantage of them. of them.

“So what doTHESE IFOR doTHESE withTIMES. my money?” A PORTFOLIO A PORTFOLIO BUILT BUILT FOR TIMES.

Begin by changing your point of view. Look beyond today’s headlines and focus on tomorrow. You’ll see So, start So, taking start action. takingBuild action. a more Builddynamic, a more dynamic, diverse portfolio diverse portfolio that can that workcan for work you –for based you – onbased your on your there are other avenues of opportunity in this new world of investing. And they can be yours if you have goals, your goals, investment your investment time horizon timeand horizon your and appetite your appetite for risk. Consider for risk. Consider a broadera mix broader of assets mix ofthan assets than a portfolio built to take advantage of them. ever before ever – at before home–and at home abroad. andAnd abroad. combine And combine the best of theactive best of and active indexand investments index investments to get thetoright get the right mix for your mixobjectives. for your objectives.

A PORTFOLIO BUILT FOR THESE TIMES.

It’s important It’s to remember toaction. remember that all financial that all financial investments investments involve an involve element an of element risk and offor the risk value and the of your value of your So, important start taking Build a more dynamic, diverse portfolio that can work you – based on your investments investments is not guaranteed. is not guaranteed. Moving out Moving ofand cash out and ofappetite cash ‘safe-haven’ andfor ‘safe-haven’ bonds in bonds search inofsearch higher returns will returns goals, your investment time horizon your risk. Consider a broader mixof ofhigher assets than will involve accepting involve accepting a greater arisk greater of capital risk ofloss. capital loss. the best of active and index investments to get the right ever before – at home and abroad. And combine mixadviser for yourabout objectives. Talk to your Talk to your adviser which about investments which investments are right are for you. rightHere for you. are Here someare steps some to discuss: steps to discuss:

1 2 3

It’s important to remember that all financial investments involve an element of risk and the value of your Seek Income Seek Early Income and Early Often: andCritical Often:inCritical retirement, in retirement, income investing income investing can also can be an also effective be an effective tool tool investments is not guaranteed. Moving out of cash and ‘safe-haven’ bonds in search of higher returns will to build wealth to build while wealth you’re while still you’re working. still working. But with today’s But withlow today’s yields, low you yields, may you needmay to cast needato wider castnet a wider to net to involve accepting a greater risk of capital loss. find it. Consider find it. Consider opportunities opportunities in dividend-paying in dividend-paying shares and shares corporate and corporate bonds. bonds. Talk to your adviser about which investments are right for you. Here are some steps to discuss: Focus on Focus High-Quality on High-Quality Shares:Shares: Not all shares Not allare shares created are equal. created But equal. manyBut high many quality highshares qualityare shares are Seek Income Early and Often: Critical ingovernment retirement, income investing can the alsopotential be an effective tool currentlycurrently delivering delivering twice thetwice yields the of yields benchmark of benchmark government bonds* and bonds* offering and offering the potential for for to buildConsider wealth while you’re still working. withoftoday’s lowthese yields, you may need tostrong cast asheets wider net to capital growth. capital growth. Consider dividend-paying dividend-paying shares:But many shares: these many companies of companies have strong have balance balance sheets find attractive it.growth Consider opportunities in dividend-paying shares and corporate and attractive and prospects growth prospects in faster-growing in faster-growing areas of the areas world. of the world. bonds.

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currently delivering twice the yields of benchmark government bonds* and offering the potential for traditional traditional investment investment funds or Exchange funds or Exchange Traded Funds Traded (ETFs), Fundsare (ETFs), beingare used being more used andmore moreand as more as capital growth. Consider dividend-paying shares: many of these companies have strong balance sheets essentialessential building blocks building byblocks investors. by investors. They are a They low are costa way low cost to quickly way toexecute quicklyyour execute bestyour ideas best at home ideas at home and attractive growth prospects in faster-growing areas of the world. and around and the around worldthe andworld to easily andtailor to easily yourtailor portfolio your portfolio to your individual to your individual needs. But needs. not all But products not all products and and providersproviders are the same. areSame the Now same. more Now than more everthan investors ever investors need ETFs need that ETFs arewhich built that track for arethese built for times, these the times, same the same Access the Indexing the Professionals Use: Funds a market index, whether ETFs the pros ETFs use the – pros iShares. use – iShares. traditional investment funds or Exchange Traded Funds (ETFs), are being used more and more as essential building blocks by investors. They are a low cost way to quickly execute your best ideas at home and around the world and to easily tailor your portfolio to your individual needs. But not all products and providers are the same. Now more than ever investors need ETFs that are built for these times, the same Talk toTalk your toadviser your or visitorblackrock.com/newworld visit blackrock.com/newworld ETFs the pros use adviser – iShares.

And we put those same capabilities to work for you. We believe it’s our responsibility to help investors adapt to today’s new world of investing – and build the new portfolios ASKthese YOUR ASK ADVISER YOUR ADVISER ABOUTABOUT THESETHESE times require.

BLACKROCK BLACKROCK INVESTMENTS. INVESTMENTS. To Broaden To Broaden Your Income Your Income Sources: Sources:

BlackRock’s BlackRock’s fixed income fixedcapabilities income capabilities span span ASK YOUR ADVISER ABOUT a range of a range markets, of markets, from corporate from corporate bondsTHESE inbonds in Europe, to Europe, globalto high global yield high andyield government and government BLACKROCK INVESTMENTS. bonds inbonds emerging in emerging markets.markets.

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To Take a Fresh Look at the Stock Market: BlackRock’s equity managers To Put Indexing To Put Indexing at theincome Core: at thefund Core:

aimETFs to provide income above the market iShares iShares offer ETFs theoffer ability thetoability efficiently to efficiently average with the potential for capital growth and transparently and transparently access aaccess diverse a range diverse ofrange of across markets. companies, companies, marketsmarkets and asset and classes. asset classes.

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differences in fixed interest mpanies which h yield bonds.

will apply. Liquidity is not guaranteed. Active funds may not meet their performance goals and may underperform due to stock selection. Diversification and asset allocation may not protect you fully against market risk. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: +44 (0)20 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. © 2012 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ALADDIN, iSHARES, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. Ref: 7305.

Wine.indd 31

07/10/2012 15:34

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

ALL CHANGE

TOMORROW’S FINANCIAL PLANNERS WILL FOCUS FIRST ON CLIENT NEEDS, NOT SALES, SAYS SUE WHITBREAD FROM THE INSTITUTE OF FINANCIAL PLANNING With the RDR just around the corner, the world of financial advice is facing perhaps its biggest shake-up since 1986. And, as we approach that deadline, many financial advisers and planners have been understandably guilty of focusing largely on complying with the qualifications and professionalism requirements to make sure they get their Statement of Professional Standing (SPS) in good time... …And not on the much bigger piece of work – the task of business transition, and particularly the development of new skills by advisers to ensure that they can deliver a service that their clients are prepared to pay for in the new environment. If an adviser business is to flourish in the new regulatory environment, a robust client proposition needs to be in place. Because, without it, the business will surely struggle.

A Shift of Focus Clients will need to know right from the outset what service they can expect, and what the process will be – not just what they’ll be paying. Training for advisers in core areas is therefore essential to make sure that they have the right skills to be able to deliver that service profitably. A significant part of the RDR reform lies is the way that the focus moves from products and solutions to the provision and sale of a service. Now, let me explain what I mean. At present, clients will often approach an adviser initially to talk about a specific need, like a pension or an investment. And at present, as you’d expect, the adviser will typically deal with this approach by gathering information, asking some more questions, and then recommending an appropriate solution. And then, of course, completing the transaction in a compliant and professional manner. There’s probably a lot of technical jargon involved usually, around areas like taxation, charges, flexibility etc - which, while certainly important, has the disadvantage that it takes the emphasis away from why the transaction is being considered in the first place.

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The Interview Process, Remixed But the Financial Planning process dictates that, from the very outset, the adviser has to change the direction of thinking for the client - helping them ﬁrstly to understand where they want to go, and then exploring how they may be able to get there. Many advisers will encourage – or even insist - that a client’s partner is present so that a full discussion can take place. But, whereas the adviser is keen to get an outline understanding of the client’s situation, it is more important to understand that he or she is looking to identify key areas where they can add real value to those clients’ lives. Having reached an understanding, and having established trust, the Planner will then progress to gain a far deeper understanding of the client, and of all the important goals and objectives in his or her life. In practice, very few clients will have already thought this through before coming to the ﬁrst meeting with an adviser – or even, in a number of cases, discussed these important things properly together with their partner.

Communication Skills It is essential that advisers develop good communication skills so that they can encourage their clients to give full consideration to what is really important to them. Then, a series of short, medium and longer term goals can be identiﬁed. Those advisers who have attended courses run by the likes of George Kinder and Maria Nemeth will already have learned that good listening and questioning techniques are fundamental to if they are to do a great job of planning. A range of excellent adviser training courses in these development areas are available, and they can really transform the way that the service is delivered. Not only does a course like this create value for the clients - it’s also a great way of boosting the satisfaction for advisers themselves. Knowing that you’ve made a real difference to someone’s life is a hugely rewarding and empowering experience.

www.IFAmagazine.com

07/10/2012 15:38

Interactive Modelling Approach Having first obtained a clear understanding of the direction of travel, it’s now time to gather some of the hard facts and put together the income and expenditure statement, as well as the asset and liability statement of course. The financial or cash flow modelling can then take place to see how achievable some of those goals actually are.

RDR - FINANCIAL PLANNING

A large part of the discovery process consists of looking at the various planning assumptions that must be made. The assumptions should always be those of the client, of course - but often, the client needs help and direction from the adviser to agree what they ought to be! The expertise of the adviser will help the client to reach conclusions that they can relate to as the plan develops. In the future, these assumptions can then be reviewed against changing economics and personal viewpoints.

work with the information provided. So “rubbish in” will lead to “rubbish out”. This awareness will motivate the client to provide all relevant and necessary information – leading, perhaps, to far more planning opportunities, including an agenda of actions for the next few years. No longer will clients isolate accounts from your advice because of nervousness or a lack of confidence. The other benefit of this approach, of course, is that it will lead to a higher number of referrals. The thing is, marketing has traditionally been a tricky area for many financial advisers and planners – because, while their technical knowledge is usually excellent, they often feel uncomfortable when it comes to marketing in particular, asking satisfied clients for referrals. But, because of the value that clients have gained from what has been (for most) a completely new

“Good questioning and listening techniques are fundamental if advisors are to do a great job of planning” Work will be undertaken on the client’s risk profile as the plan starts to come together. “What if” scenarios can then be considered, so as to understand the impact of different decisions, and these outcomes can then be discussed with the clients. So what are the benefits of this approach? Firstly, clients can see that the service is adding real value to them and for their family. Trust and rapport are built quickly as discussions focus on them and their goals in life, rather than on financial products and technical jargon.

Cross-Selling Opportunities The trust that this process engenders helps to ensure that business can be done in a much better environment. And the planning process - properly applied – is also going to deliver better business volumes for the firm itself. Once the client understands that process, he or she will also appreciate that they need to tell their adviser everything about their finances – or the whole exercise will be a complete waste of their own money and their own time. If financial planning software is used, of course, it’ll be clear to everyone that it can only www.IFAmagazine.com

RDR Financial Planning.indd 33

and refreshing experience, they themselves are likely to act as fantastic ambassadors for their adviser, and for the ﬁrm itself.

Summary Going down the Financial Planning route is also having a massive impact on professional connections where the focus has moved away from the product to the service and experience. All parties can easily buy into a process which aligns all interests, including of course those of the client, on the same side of the table. This is a business model that really works. It’s already been proved by Accredited Financial Planning ﬁrms - and what they’re already delivering ought to inspire others to follow at a time of such signiﬁcant change. Establishing the script and processes, along with the technology, people and skills to support it, will lead to a dynamic business providing a valuable service - for which happy clients will be more than prepared to pay the required fees. For more comment and related articles visit...

www.IFAmagazine.com October 2012

33 07/10/2012 15:38

P R I D E B E F O R E A FA L L

CALENDAR BRIAN TORA GOES ALL AUTUMNAL ON US

You know, September can be a tricky month. That was the month when Lehman Brothers went bust in 2008, kicking off the second wave of the ﬁnancial crisis and plunging us all into – well, all this mess, really. But to tell you the truth, October isn’t always a bundle of laughs either. The Great Wall Street Crash was an October event - as was Black Monday in 1987, when shares shed a quarter of their value in a single day. Now that was a day I remember all too well, recovering as I was from the hurricane that had swept through South East England the previous Friday, and which had devastated my garden. Hard to believe it was 25 years ago… But enough of such daydreams. Can investors read anything into the apparent seasonal inﬂuences on market movements? Not really, although there are certainly some reasons as to why shares might behave in the way they do at particular times of the year. Decembers, for example, show a historical preponderance of stock market rises over falls. Some people might claim that this is simply down to the effect of the festive season, with fund managers generally feeling more glowy and positive about life in general. But the reality is probably more that most institutional fund mandates are run on a calendar year basis – which means that a full report is due in early January, based upon the portfolios position at the end of December. So, you guessed it, fund managers will typically spend the run-up to Christmas adjusting their positions so as to ensure that the reports they deliver will make good reading. Interestingly, this often means spending cash that has accumulated on the account.

Spring in the step

Then there’s the so-called January effect. In America there is an old saying – “As goes January, so goes the year”. All well and good, but it didn’t appear to work this year because the gains made in the ﬁrst quarter were all handed back in the second. though markets did pick up in the summer, and it’s still too soon to make a ﬁnal judgment on the year as a whole.

34 JM Finn.indd 34

October 2012

But, rather as December appears to be inﬂuenced by the reporting calendar, so January is the time when managers can safely shake up their portfolios in the knowledge that it will be three months or more before they are held to account for their actions. As you’d expect, this can lead to some pretty wide variations in the price performances of individual companies – but, on the whole, taking too much notice of what happens in January would probably be unwise.

Slimming for the beach

As for the summer, what we can be sure of is that markets can often be driven by tiny volumes. The holiday season will leave vast portfolios under-managed, or perhaps in the hands of juniors as their bosses take themselves off to the beaches. We should be wary of taking too much notice of major moves during those periods when trading is limited by virtue of absences – but, even so, this can be a time of opportunity for stockpickers.

And so to October...

So we approach October with no real reason to fear a repeat of the upsets that have characterised this month in the past. And actually, even the swingeing falls of Black Monday 25 years ago owed a lot to sheer bad luck and a convergence of disasters. The London Stock Exchange had been closed the previous Friday, due to the hurricane disruption in London, and then on the Monday we had to contend with two grim days on Wall Street which echoed around the world and nearly bust a few banks. Not an experience I ever wish to repeat. And nor, on the balance of probability, something that’s really likely to happen again. Fingers crossed. For more comment and related articles visit...

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07/10/2012 15:40

P R I D E B E F O R E A FA L L

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JM Finn.indd 35

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October 2012

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03/10/2012 09:48

35 07/10/2012 15:49

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

UNCERTAIN At Arjent we firmly believe that asset allocation is key in order to provide an investment portfolio that generates consistent positive returns over a mediumto-long term time horizon. But it can be a difficult task deciding on the correct asset allocation in the current climate, and there are many uncertainties that we need to overcome before we gain a clear picture of how ‘the future’ may pan out - and of which asset classes and geographies are likely to provide the best returns in a given economic scenario. Right now, given the bleak global economic backdrop, the challenge is to identify the asset classes that are likely to provide a consistent and compelling investment proposition when constructing a client’s portfolio. And the reality is that, at present, generating material real returns after fees is a tough task. For example, what allocation, if any, should you give to sovereign debt given the record low yields –which in some cases have even turned negative?

New Benchmarks Needed

Many discretionary fund managers, of course, revert to common industry benchmarks to provide an asset allocation framework – but, to our minds, these benchmarks are dinosaurs of the past that really don’t stack up on a risk-adjusted basis, and a more contemporary quantitative approach to asset allocation is required. Believing as we do that clients should receive the best level of return for the minimum amount of risk, we start by analysing the performance of various asset classes over a twenty year period, so as to formulate an ‘optimum’ strategic portfolio asset allocation for a predefined level of risk. By taking a ‘strategic’ medium/longterm approach to asset allocation, we maintain exposure to asset classes that others would probably prefer to avoid in the current climate. For example, although Arjent is generally negative (‘underweight’) European equities and benchmark sovereign debt, we do maintain an

October 2012

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www.IFAmagazine.com

07/10/2012 15:47

I N S I D E TR A CK

TIMES

ADAM SKETCHLEY, HEAD OF INVESTMENTS AT ARJENT, EXPLAINS THE IMPORTANCE OF MULTI ASSET DIVERSIFICATION allocation - as indicated by our analysis of European equity and benchmark sovereign price data over the twenty-year period. Some, of course, may protest that historical performance is no indication of future performance and that hindsight is a wonderful tool. But, to our mind, historical performance actually provides a good foundation from which to construct certain strategic assumptions.

Arjent provides ten low-cost riskadjusted strategic model portfolios aimed specifically at the IFA market. The Arjent Managed Portfolio Solution is available direct to IFAs on a discretionary basis or via the company’s wrap platform providers and it can be tailored to meet various risk profiling software where required. So how does Arjent incorporate its tactical macro positioning into asset allocation decisions? Quite simply, when conducting the selection of collective investment constituents, we ensure that current thinking is reflected within a specific active investment. In Europe for example, we currently use the BlackRock European Dynamic fund, which provides us with large ‘multinational’ European equity exposure – thus helping to mitigate some of the uncertainties and concentration risk that the eurozone currently presents. Arjent’s current macro stance, based on our own top down view of the world, is discussed in greater detail below.

Eurozone (Underweight)

We accept that the European Central Bank’s recent announcement that it will do “whatever it takes” to maintain the single currency is encouraging. Better still is the Central Bank’s new programme of short-dated bond purchasing or ‘Outright Monetary Transactions’ (OMT). The OMT may well reduce the unsustainable

www.IFAmagazine.com

Inside Track - Arjent.indd 37

level of borrowing seen in Spain and Italy of late - but only if these two nations sign up to (and abide by) the measures laid out by Brussels and the International Monetary Fund (IMF). Then there’s the ‘Grexit’, and the question of how, when and whether this might take place. Ultimately, of course, a eurozone breakup would be the worst case scenario for global markets, but with the most recent ECB announcements this now appears to be a very unlikely tail event. For our mind there is no ‘short-term’ fix, but we now appear to be on the right track. For the moment, we remain ‘underweight’ on the eurozone until we see evidence of a progressive improvement in conditions.

UK (Neutral)

Closer to home, the economic picture in the UK is far from rosy. On the upside we do have our own currency – plus and a central bank that is willing to stimulate the economy when deemed necessary. Even the issue of ‘negative outlook’ statements by credit rating agencies has failed to hurt the UK’s safe haven status. But UK plc is not immune from the Eurozone troubles, because trade links can act as an umbilical cord for contagion. We continue to see low wage growth and high unemployment. Austerity measures are hurting the UK consumer - and, in turn, the high street. Government initiatives have not eased the constraints on lending to small and medium-sized business – a factor which is suffocating the UK economy. At Arjent we currently take a neutral stance on the UK, even though we’re encouraged by the nation’s monetary dislocation to the Eurozone. We don’t see a dramatic improvement, looking forward – and, like the eurozone, a protracted economic recovery is the most likely outcome here.

US (Overweight)

As we move towards the 57th presidential election, let’s not forget that we are only a few months away from a significant pre-programmed reduction in the budget deficit if specific laws are allowed to automatically expire or go into effect at the end of the

October 2012

37 07/10/2012 15:47

I N S I D E TR A CK

magazine... for today ’s discerning financial and investment professional year such as across-the-board cuts in defence and social welfare spending post December 2012. The knock-on impact of Obama’s automatic cuts could well drag the US economy into a double dip recession at in Q1 2013 - potentially wiping some 4% off US GDP in 2013. At present this issue appears to be masked by the ongoing political posturing ahead of November’s presidential election. But a wholesale extension to the current fiscal situation does not appear viable as this would cause an even greater step-off in subsequent years. For our mind, the most likely outcome here would be that Congress agrees a last minute deal to prevent the US from tipping over the fiscal cliff by delaying the difficult decision until the summer of 2013. Federal Reserve Chairman Ben Bernanke is certainly aware of fiscal inaction, and he is attempting to push this issue up the political agenda, which is a hard task. In the short term, the focus in the US will be on the Fed’s anticipated additional stimulus package, in the form of a third round of quantitative easing. If it’s deemed necessary, this central bank action will boost liquidity and support economic growth. On the whole, then, we think the economic picture in the US appears moderately attractive compared to its developedmarket peers. Consequently, on a relative basis, we currently take an ‘overweight’ stance here.

Emerging Markets (Overweight) The main talking point here is economic cooling, with the focus mainly on China. Beijing’s GDP growth for Q2 2012 came in at 7.6% on an annual basis - the slowest pace in three years. That said, when compared to anaemic developed world economic growth, China’s Q2 number still appears very attractive. At Arjent we accept that there will be a period of short-term cooling, but we remain committed to the Emerging Market medium-to-long term growth story, taking an ‘overweight’ stance in these regions generally.

Summary

Overall, we believe that certain asset classes may underperform in the near-term - such as benchmark sovereign debt, particularly if some of the question marks hanging over the global economy are lifted. But it is the asset allocation, and specifically the diversification of asset classes across multiple geographies, that ought to provide consistent positive portfolio returns over the medium to long term.

For more comment and related articles visit...

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October 2012

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*Source: Lyxor. As of the 2nd May 2012. 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. The products described in this advert are not suitable for everyone. Through Lyxor ETFs, investors are exposed to counterparty risks resulting from the use of an OTC (Over-the-Counter) Swap with Societe Generale. Investors should not deal in these products unless they understand their nature and the extent of their exposure to risk. 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. 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. Calls to the freephone number may be recorded.

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07/10/2012 15:47

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

PAST IMPERFECT, THE BANKS WERE ALL SET TO GET OFF LIGHTLY AFTER LAST YEAR’S VICKERS REPORT, SAYS KAM PATEL. AND THEN THEY WENT AND MESSED IT UP WITH A STRING OF PR DISASTERS

Believe it or not, it was only just over a year ago that Sir John Vickers, the chairman of the Independent Commission on Banking, proposed big changes in the way UK banks operate. And, at the time, IFA Magazine commented that the banks had got off lightly. Vickers’ proposals could actually have been far more profound, we said – and the banks could count themselves fortunate to have been spared the kind of drastic prescription being championed by the likes of

A Year To Forget

Alas for the banks, a stream of banking scandals since the publication of the Vickers report has ensured that banks are very much in the public eye, and very much on the back foot again. Those scandals have included rogue trading at the London arm of JP Morgan (London), revealed in May, that resulted in the US bank taking a multi-billion dollar derivatives loss. Then we had the Libor scandal, in which various banks were accused of fixing the London interbank offered rate for half

“Just over a year ago Sir John Vickers proposed big changes in the way UK banks operate” Mervyn King, the Governor of the Bank of England. Not only that, but the Vickers report gave the banks another present in the form of the 2019 implementation deadline – a massive time in which to lobby for a wateringdown of its proposals, especially with respect to ‘ring-fencing’ – by which it meant the separation of their retail and wholesale units.

October 2012

Changing Banks.indd 40

a decade. Barclays has already been fined £290 million for its role in that particular affair. More recently we’ve had money-laundering-allegations at HSBC - and, in August, the spectacle of Standard Chartered being forced to settle over charges of sanctions busting with Iran. The bank coughed up $340 million to settle with New York’s banking regulator,

after being accused of concealing a massive $250 billion of transactions with the ayatollahs. Luckily for the banks, most of these scandals emerged after they had managed to get some lobbying in over Vickers. But it did them little good. The UK government was very quick to accept Vickers’s recommendations, and in June it produced a White Paper, ‘Banking Reform: DeliveringStability and Supporting a Sustainable Economy’, which was based on the ICB’s proposals.

A Partial Victory

But Vickers didn’t get it all his own way, because the White Paper reveals a watering-down of his proposals. The smaller banks were allowed an exemption from the ring-fencing rule; the high capital requirements demanded by Vickers were reduced; and banks were to be allowed to sell derivatives to retail clients. The capital requirements issue has been particularly vexed all along, and the banks have been at pains to demonstrate they are behaving much better on this front. The British Bankers’ Association, for instance, has been stressing that the UK banks were the very first to increase the amount of capital they held - and that they not only now hold three times the capital they did at the time of financial crisis; they have also greatly increased the amount they hold in liquid deposits.

www.IFAmagazine.com

07/10/2012 15:52

BANKING

FUTURE TENSE... Everything Still to Play For With Vickers

It won’t be until May 2015 that we see the full extent to which Vickers is implemented, because that’s the deadline by which the government is due to have completed the primary and secondary legislation related to the reforms. Banks will be expected to be compliant as soon as practically possible thereafter. The snag for the banks is that the consultation period for the White Paper ended only last month – which means that the various banking scandals and bad-boss behaviours could yet mean that some of the concessions won by the sector will be clawed back again – resulting, perhaps, in a much more Vickers-oriented regime. Just how fluid the situation has become recently is manifested in the fact that, as recently as August, the Lib Dems declared that they were pushing to reopen talks on the UK banking reforms. The recent flurry of major scandals to hit the sector had changed the circumstances, they said. And, at the risk of further raising the political tensions within the coalition government, the Lib Dems want in particular to reexamine whether banks’ retail operations should be allowed to sell complex derivatives products. Vickers’s original report had recommended a ban on the banks’ retail arms being able to sell interest rate and currency

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Changing Banks.indd 41

swaps; but intense lobbying from banks had subsequently led to this proposal being rejected in time for the publication of the White Paper. So what had put them back on the agenda? Well, interest rate swaps had been at the centre of another recent scandal, following the revelation that nearly a dozen banks had mis-sold them to small and medium sized businesses that did not understand the risks. For the banks, not surprisingly, the long lead time to full implementation is not the only reason why Vickers

happen to Vickers’s legislation proposals between now and 2015, ring-fencing will remain broadly intact in some form or other. And that banks with a big exposure to investment banking are thus likely to be particularly hard hit, due to the restructuring-costs involved. Barclays, with its huge investment banking arm, looks set to be the most challenged by ring-fencing. RBS, which is 80% government-owned, is already downsizing its investment banking and is currently far more focused on cleaning up

“RBS, which is 80% government-owned, is already downsizing its investment banking” is not currently top of the agenda. There are, after all, rather more pressing problems associated with getting their own banking operations back on track following the financial crisis. And all this against a backdrop of on-going headwinds over the Eurozone crisis....

Ring-Fencing Ramifications

Yet it is absolutely certain that, no matter what changes

its balance sheet. As for Lloyds and HSBC, however, their investment banking interests have always been small-scale, so they’ll have a little less to lose. Ring-fencing in practice will throw up many new issues for banks andinvestors to consider. Clearly the non-ringfenced operations are likely to be deemed by markets to be riskier than

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BANKING

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

those that are ring-fenced, and this may prompt the ratings agencies to assess the two separately - assigning a lower credit rating to the non-ringfenced operations, which in turn would imply higher funding costs for activities within them.

Redirection, Redirection, Redirection

Amidst all the politicking and lobbying that goes with Vickers, it’s easy to forget that its primary aim is to protect consumers, clients and taxpayers from the collapse - ever again - of a bank that has taken too many risks and engaged in too many dubious practices. And that raises another issue. Aside from the operational requirements of banks in areas such as ring-fencing and capital buffers, Vickers has come up with a radical proposal that really should help encourage retail clients to exercise power when they’re dealing with banks that have failed to deliver satisfactory service. The report demands that a free current account redirection service should be set up by the banks, which will help consumers transfer their accounts from

one bank to another with the minimum of grief. At present, the complications, the paperwork, the mislaid direct debit orders and the general hassle of switching bank accounts represent a daunting hurdle to anyone who’s hoping to simply get on with a normal daily life during the transfer. And we’re not particularly surprised to hear that the average consumer changes his spouse or his partner more often than he changes his bank account provider. The new service will require an improved system to net all credits and debits going to a customer’s old, closed account, including any automated payments on debit cards and direct debits. And all this by September 2013 at the latest! What are the chances?

And Then There’s RDR...

Banks may have got time on their side with Vickers, but there are other big, pressing challenges for them to deal with, the Retail Distribution Review being one of them. No surprise there, then. It was widely accepted that RDR, as originally envisaged by the FSA, could actually have been of advantage to the advisory arms of the banks and life firms, because of the more relaxed qualification and charging rules

“Legal & General reckons the restricted advice market is set to grow as a result of RDR” 42

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Changing Banks.indd 42

that were originally proposed for them. But since the original proposals were published, the FSA has steadily toughened up its stance – with the result that RDR, as it now stands, amounts to pretty much the same regime for both independent and restricted advice. Earlier this year, the FSA rammed the point home by declaring that it would absolutely not water down the rules for simplified advice – something that the banks had been lobbying intensely for. So it’s not surprising, then, that institutions operating in the advisory arena have been busily rethinking whether the economics stack up for them to continue offering the service at all? Last year, Barclays broke ranks by announcing that it was killing off its branch advisory service. In April this year, HSBC announced that its tied advice business was being axed – although, it said, it will be keeping its whole-of-market services. In June, RBS announced that, as a direct result of RDR, it was closing its financial planning advisory unit so as to focus on restricted advice. The new RBS service is expected to launch in October 2012 and will offer a full advice service to customers under a restricted badge. The final panel proposition is expected to comprise solutions from within the RBS group as well as from a set of third party providers.

Hunting for RDR Opportunities

Among the big banks, only Lloyds appears to be bucking the trend with a declaration of enthusiasm for RDR. The reforms, it says, will result in an

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BANKING

advice gap for the mass market that it can tap into. Accordingly, it plans to split its present direct advice arm into two - with one specialising just in protection and the other on investments and protection through qualified financial advisers. Some other institutions are also upbeat about the opportunities under RDR. In August, Legal & General revealed that it had secured sole-tie distribution deals covering 70% of the UK’s building societies across 1,100 branches, as part of a move to ramp up its restricted advice business in the run up to RDR.

The life company reckons that the restricted advice market is set to grow strongly as a result of the new RDR rules - with particular growth in the consumer demand for passive funds running at low costs. It believes that building societies are particularly well placed for the efficient provision of financial advice after RDR. Clearly, there‘s a difference in views across institutions as to the likely impact of RDR. On the one hand, the likes of Barclays and HSBC have concluded that the Review will push up costs, making the economics too challenging for mass market services – and, accordingly,

they have cut back heavily on their advisory businesses. On the other hand, Lloyds and the (not strictly comparable) L&G insist that RDR presents them with solid upside potential - presumably because they have concluded that the new rules will force IFAs into focusing much more on high net worth customers, thus opening up opportunities for pile-it-high restricted advisers. Which is them is right? Only time will tell. For more comment and related articles visit...

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03/10/2012 09:44 07/10/2012 15:52

THE BEE LINE

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TRAVELS WITH MY iBOB THE FREEWHEELIN’ STEVE BEE IS ON THE ROAD AGAIN

Seeing all the recent mania surrounding the new iPhone reminds me of the time, a few years back, that I bought my iPod. We were in New York on holiday and thought it would be a good idea to go and see the Apple store that we’d heard so much about. My three top heroes during my life are Stan Lee, Bob Dylan and Steve Jobs, so that New York trip was all about Greenwich Village and Manhattan Island, for me at least.

Bringing It All Back Home Anyway, we happened to go to the Apple store on the day the iPod hit the streets. Two things: one, I’d never seen so many people in a queue in my life, and two, I joined it and ending up buying my iPod. As it turned out, though, no-one I know ever calls it my iPod - mainly because the only songs it’s got on it are my Bob Dylan records (although I do have a few tracks by other artists, but only those where they sing Bob’s songs). Instead, everyone I know calls it my iBob. So, we went on another holiday a couple of weeks ago - this time a road trip around France with our friends. And obviously, my iBob went along too, so that we could listen to it while driving. To be fair on my travelling companions, it didn’t come up as an issue until we reached Antibes - and even then it was a very mild “Surely there’s something else we can listen to?” sort of a comment. So I put it into shufﬂe mode to mix things up a bit

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THE BEE LINE

while we followed Napoleon’s route through the Alps.

Desire

Fortunately we arrived in Lyon on the 11th of September, the day Bob’s latest album Tempest was released in Europe. And I was able to get my copy in a cute record shop in the old part of town. There are some great tracks on it (particularly Scarlet Town, which I think is a classic), and it gave us something new to listen to as we headed back home through the northern lowlands. The point I’m trying to make here is that, although I’ve got older, I haven’t really changed that much. I’ve always bought Bob’s records the day they come out, wherever I happen to be, I’ll stand in line for anything made by Apple and I read Marvel comics more often than I read newspapers. It’s sort of what I do - that and the pensions stuff, of course.

That’s right, and the reforms that kicked off on 1st October will only work if they are implemented in full. The nudging of millions into saving can only be justiﬁed if every pound saved makes savers a pound better off than non-savers. I hope the government people realise they’re taking the wrong road here, and that as soon as they reach the next roundabout they’ll turn around and get back onto the road to reform again. In fact I wouldn’t be surprised if their satnav isn’t going on and on about it to them right now. Satnavs are like me. They don’t like U-turns either.

Don’t Think Twice

So, back to business. While we were away, there was a U-turn of sorts on the pensions front, which I’m sure you’ve heard about. You’ll know that the new auto-enrolment reforms will nudge millions of people into workplace pension schemes, and also that the reform of the Basic State Pension to provide a ﬂat-rate £140 a week will ensure that those savings will not be eroded in value by clawbacks to allow for means-tested handouts for the future elderly.

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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CASE STUDY

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TAKING THE

IFA MAGAZINE TALKS TO ADVISOR JULIAN HOWES

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. As you’d expect, IFAs have been adopting different solutions to the RDR challenge. Some have signed up to networks or federations; some have outsourced their compliance and technology activities so as to concentrate on the main tasks of giving advice; and some have sought new and expanded roles as chartered planners or as providers to small businesses. For Julian Howes Wealth Management, a sole practitioner operating out of Cirencester in the leafy Cotswolds, the preferred option has been to leave the worrying to somebody else and to sign up instead to the St James’s Place Partnership. The lost ability to call himself independent has been more than compensated, he says, by the sheer relief of having all that compliance backup on hand, and all that support when it comes to the finer points of financial planning.

Local Hero

On the one hand, Howes says, the St James’s Place tie-up allows his business to retain its local feel for the clients he serves in his home area; on the other, the link-up with London

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provides him not just with the aforementioned expert backup, but also with a physical base at St James’s Place’s London ofﬁces where he can meet clients from all over the south east. That’s a balance between town and country that wouldn’t have been possible twenty years ago. Howes has been in the business for some 33 years, having started out initially at the age of 19 as the “man from the Pru” and working as a tied agent for Friends Provident before becoming an IFA in 1997. “It was very clear at the time,” he says, “that customer awareness was very much pro IFA, and that I was losing business as a tied agent.” But for him, RDR has raised important questions about the viability of the independent model. The practice’s client base includes a high proportion of high-earning individuals, many of whom have been with Howes since the very beginning – and many of whom have established their own businesses and use him for various ﬁnancial transactions beyond their own personal needs. His ideal scenario, like that of so many other smaller IFAs, is to maintain this loyal client base for as long as he continues to run the business. But even with this clientele, he says, the shift to hourly based fee-charging would have brought serious consequences. “I did a small sample survey among my clients,” says Howe, “and the majority were clearly against this type of fee-based advice, which I suspected would be the case. Obviously I’d still be happy

to work on a fee basis if they required me to – but ultimately, I’m running a business, and the thought that wealthy clients might go elsewhere was clearly a worry. To put it simply, could I be sure of getting enough of an income via hourly based fees?” (Although St.James’s Place will have adviser charging fees - just like all advice ﬁrms - as a vertically integrated business, they are able to facilitate the payment of advice fees on behalf of their clients.) Accordingly, Howes says, he made the decision to join up with St James’s Place in June 2011, “having considered my options very carefully”. And so far, he says, it’s been a positive experience.

De-Risking The Business

Firstly, of course, the compliance advantages are fairly obvious. “Dealings with the FSA are purely with St James’s Place, and not with me,” he says. “So they’re taking on all the time that I would have spent on dealing with all the compliance side – or on the cost of employing somebody to deal with it. What also disappears is the ﬁnancial liability, in terms of minimum assets, because that’s down to St James’s Place as well.” More important, probably, Howes says, is the fact that the compliance procedures on offer are “incredibly robust” – more so than he found when using a network. The inhouse compliance people are professionally attuned to the sorts of things that might cause problems with the regulator,. And whenever something comes up that’s a little more complex www.IFAmagazine.com

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CASE STUDY

PLUNGE

ABOUT SIGNING UP WITH ST JAMES’S PLACE than usual – pensions transfers, for instance – the advice you give the client is pre-approved before you actually give it.

Marketing and Assistance

Equally attractive has been the ability to draw on an “absolutely brilliant” marketing service client communications from St James’s Place – newsletters, weekly market reviews, investment and performance reviews and various ad hoc articles – which can be emailed forward to clients on an opt-in basis with the adviser’s own name on the bottom. “That to me is a useful service,” he says, “because my name is in front of them and I’m giving them good, professional information that’s really useful to them.” “It’s the sort of thing I always liked to do myself,” says Howes, “but it’s very time-consuming, and that’s one less thing I have to do now. And it’s all complianceapproved, obviously.” What’s more, the support structure is always there, he says, if his ﬁrm should ever branch out into more specialist areas of services to business, or perhaps into retirement seminars and so forth. You never know where you’re going to need extra help next.

Restricted Status Issues

Has anything been lost by the ability to sell only St James’s Place’s own plans? Not signiﬁcantly, he says, because the range of plans is wider than people generally appreciate. At the core are the group’s branded investment offerings www.IFAmagazine.com

Case Study - St James's Place.indd 47

covering pensions, unit trusts, bonds and so forth, which are run by external fund managers who are contracted in for the purpose. In addition, there are dozens of external providers of products and services – all vetted by SJP – which are available to Howes and his colleagues. “I sat down and looked at SJP’s own plans, and at the managers who were running them,” he says. “People like Neil Woodford from Invesco, or Hugh Young from Aberdeen, or Jonathan Asante from First State, and I thought, “well, actually I’m recommending these people already.” It’s a different approach to the best advice issue, he agrees, but it’s no less effective from the client’s perspective. But, as we’ve said, these funds aren’t the only way forward. “If I want to do SIPPs or EIS or VCT, I have access to providers like Octopus in addition to the core branded products. It’s a lot wider than people think.” Does the St James’s Place link-up affect the way that conventional ﬁnancial planning activities progress? Not in any way, he says. “Whether I’m branded as an IFA, or as giving restricted advice, my advice is still the same. I’m not performing that activity from a productled basis, and that hasn’t changed.” But the backup from St James’s Place is valuable, particularly with regard to more complex areas such as tax and trust activity. “There’s always a departmental helpline available. And if there’s a complex total tax situation,

their tax and trust team will come in and do reports for you.”

What Did the Process Involve?

How long did the whole joiningup process take? Only about four months, he says, once the initial decision had been taken. It began with an induction course, which always needs to be completed before anything else can happen. But after that the paperwork stage itself lasted only a few weeks. At the end of it all, he says, there’s the not inconsiderable comfort of having a clear exit strategy when the time eventually comes to sell the business and move on, or perhaps to retire. Whenever a small IFA looks at this thorny issue, there are always uncertainties about how much the business will be worth, or sometimes whether it will be saleable at all. Whereas St James’s Place do have a buyout strategy, relating to the adviser’s own proﬁle, that gives him that little bit more conﬁdence about the future. Last question. Any regrets? “Only one,” says Howes. “That I didn’t do it years ago.”

If you would like more information on St James’s Place or would like to discuss St James’s Place as an option, please e-mail: HR@ifamagazine.com or telephone: 0117 908 9686

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PRODUCT REVIEWS

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A PLACE IN THE SUN WITH INTEREST RATES AT ROCK BOTTOM AND QE3 INJECTING CONFIDENCE, NOW COULD BE THE PERFECT TIME TO INVEST IN PROPERTY. NICK SUDBURY HAS A LOOK THROUGH THE KEYHOLE South facing aspect First State Global Property Securities Clients looking for a diversified and liquid exposure to property would be well advised to consider a fund that invests in global real estate securities. These have the scope to target the regions with the best growth prospects and are more nimble than a vehicle that invests in the actual buildings. One of the most successful open ended funds is First State Global Property Securities, which has consistently been ranked in the first quartile of the sector. It is up almost 64% in the three years to the end of August, and it’s currently yielding 2.5% with the dividends paid semi-annually. The fund’s portfolio is benchmarked against the UBS Global Real Estate Investors Index, with the largest geographic weightings being the 57.4% exposure to the US and the 21.4% in the Pacific ex Japan region. There are also less significant allocations to Europe, the UK and Japan. It’s only a small fund, with £160 million in assets under management that are spread across 70 separate holdings. The largest subsector is a 35.7% investment in retail, with offices making up a further 19.1%, diversified 18.8% and residential another 15.9%. The remainder is divided between industrials and hotels. First State has a well-resourced team with property specialists based in the UK, US, Asia and Australia. This gives it the local knowledge to spot the best opportunities in each of the different markets and spend a lot of their time meeting the respective companies to assess their prospects. When looking at a potential investment, the

team takes into account the value and quality of the underlying assets, as well as the ability of the managers and the ﬁnancial leverage. They then combine this with a view of the local property market and the prevailing economic conditions. It’s important to remember that a property securities fund provides a very different kind of exposure to simply investing in the actual bricks and mortar. These funds are much more liquid, which makes them susceptible to changes in sentiment and gives them a higher correlation to equity indices. This reduces their ability to diversify a client portfolio, but it all FUND FACTS helps to keep the costs Name: First State to a reasonable level. Global Property First State Global Securities Property Securities has been pretty volatile, Type: UK OEIC with double-digit Sector: returns in most years Property equities since launch. The fund has sold off heavily Fund Size: £160m in recent years, along Launch: Sept 2006 with the wider market, yet despite this it Portfolio Yeild: 2.5% has still achieved an Charges: Initial: 4%, excellent long-term Annual: 1.5% return. It’s well worth considering for clients Manager: First State who want a diversiﬁed Investments property exposure as Website: firststate.co.uk part of their portfolio.

It uses the local knowledge of property specialists based in the UK, US, Asia and Australia to spot the best opportunities 48

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PRODUCT REVIEWS

Viewing highly recommended Investors in Global Real Estate The nearest equivalent in the closed-ended sector is Investors in Global Real Estate, a Guernsey incorporated investment company that trades on the LSE. It is valued at £87 million, and it aims to provide an attractive total return from a portfolio of global listed and unlisted real estate securities. Over the last three years the shares are up 83%, and they are currently offering an enticing 4.1% yield with dividends paid quarterly. The largest geographic exposure is the US with a weighting of 40%. This is followed by 16% in Australia, 14% in Canada and 9% in the developed markets of Continental Europe. There is a further 8% exposure in the UK, with Hong Kong and Singapore each representing an additional 4%. At the end of July, the top ten holdings accounted for 36.1% of the fund. The biggest allocation was retail, at 28%, with 23% in diversiﬁed, 17% in residential, 13% in ofﬁces and 12% in industrials. One area of concern has been the discount to NAV, which has averaged 16% in the last year. But in 2011 the directors announced plans to offer a 10% annual tender at a discount of 10%. They have also recently decided to sell the unlisted securities that make up 11% of the fund. Both these measures have had an immediate impact, with the discount narrowing to less than 8%. Which isn’t bad, considering that the managers estimate that the shares of these companies trade at an average 4% discount to NAV. And they add that recent property company earnings have been in line or better than expectations, and that the fundamentals for the sector continue to show signs of improvement. The fund is managed by CBRE Clarion Securities, which charges an annual management fee of 1%, plus an additional performance fee of 10% per annum of the total return over a hurdle rate of 8% capped at 2% of NAV. This only applies once any underperformance in previous years has been made good. Despite the fact that the fund is not currently geared, it is very much a ‘risk on’ type of holding, as are most of the other vehicles in the property sector. The new measures to control the discount make it an attractive option for bullish investors, especially for income seekers, with the progressive dividend policy likely to produce a sustained increase in the distributions.

FUND FACTS Name: Investors In Global Real Estate (IGRE) Type: Investment Company Sector: Property equities Fund Size: £87m Launch: M ay 2 006 Portfolio Yeild: 4.14% Ongoing Charges: 1.62% Manager: CBRE Clarion Securities Website: igre.co.uk

An good option for income seekers, with the progressive dividend policy likely to produce a sustained increase in the distributions www.IFAmagazine.com

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

Plenty of original features F&C Commercial Property (FCPT) Funds that invest in real estate securities provide an indirect exposure to property, whereas those that own the actual bricks and mortar are much more closely aligned to the performance of the underlying premises. A portfolio of different buildings is an illiquid type of investment that is best suited to a closed-ended fund where the manager does not have to realise assets to meet client redemptions. This was vividly demonstrated during the difficult conditions of 2008 and 2009, when many open ended funds in the sector were forced to prevent investors from selling their holdings. There are no such concerns about F&C Commercial Property, with its excellent track record and first quartile performance over the last 1,3, and 5 years. This UKorientated closed-ended fund weighs in at just over £1 billion, of which £230 million is funded by debt in the form of Triple A rated secured bonds and supplemented by a £50 million secured bank loan. FCPT owns a portfolio of quality UK commercial real estate, with a focus on prime properties in Central London, especially the West End. Its top ten holdings include St Christopher’s Place, W1, and Charles House in Regent Street that together make up 18.2% of the assets. The 10 largest investments represent 61.1% of the fund, with 38.1% relating to office space and a further 25.7% in retail. In the last three years the share price has risen by an impressive 45%, and there is also a very high yield of 5.8% with dividends of 50p a share being paid

every month. This makes the fund an attractive option for those looking for a secure and regular source of income. The managers are entitled to an annual fee of 0.5%. There is also a performance fee of 20% of the total return in excess of 110% of the benchmark as measured over a rolling 3 year period capped at 0.6% of gross assets. When you take this into account, the Ongoing Charges ﬁgure is 1.64%, which is reasonable for this type of mandate. A portfolio of top quality properties provides a decent defensive exposure, especially when you take into account the high and secure level of income. The only downside is that the shares typically trade at a small premium to NAV (currently 4.7%) - whereas most of the other closed ended property funds are available at hefty discounts. This looks like a small price to pay for the extra security.

FUND FACTS Name: F&C Commercial Property (FCPT) Type: Investment Company Sector: Property direct Market Cap: £754.5m Launch: Mar 2005 Portfolio Yeild: 5.79% Ongoing Charges: 1.64% Manager: F&C Website: fandc.com

A portfolio of quality UK commercial real estate, with a focus on prime properties in Central London, especially the West End. 50

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PRODUCT REVIEWS

Convenient central location iShares FTSE NAREIT Residential Plus Capped Index (REZ) The majority of property funds focus mainly on commercial property, but there are several ETFs that diversify into the residential market. One such is the NYSE-listed iShares FTSE NAREIT Residential Plus Capped Index, which has around 48% exposure to US house prices along with a further 15% in the related area of self-storage - with most of the remainder invested in properties in the healthcare sector. The ﬁnancial crisis of 2008/09 originated in the American housing market and led to sharp falls in property prices right across the country. Initially, this was mirrored by the performance of the ETF, with the share price falling sharply – but in the last three years it has come back

FUND FACTS Name: iShares FTSE NAREIT Residential Plus Capped Index (REZ) Type: ETF listed in the US

nicely, with the fund rising 34%. If the US economy continues to strengthen, it is likely that this positive trend will continue. REZ invests in a portfolio of Real Estate Investment Trusts (REITs) that trade on the New York Stock Exchange. There are 34 holdings in total, although the 10 largest account for 65% of the fund. The main exposure is a 47.5% weighting in equity apartments, which is followed by 34.1% in equity healthcare and 14.8% in equity self-storage. The fund’s largest single investment is the 9.7% allocation to HCP Inc, a REIT linked to the US healthcare industry. This owns a portfolio of nursing homes, life science business premises, medical ofﬁces and hospitals. Another major holding, Equity Residential, acquires, develops and manages high quality apartments and has more than 400 of these properties on its books. To be classiﬁed as a REIT, a real estate company must pay out at least 90% of its taxable income to its shareholders in the form of dividends. This allows the ETFs that invest in them to generate an attractive and sustainable yield. REZ is currently paying around 2.9% with distributions every quarter, although clients will need to complete a W8-BEN form to escape the 30% US withholding tax. iShares FTSE NAREIT Residential is one of the best performing ETFs in the US property sector, with the exposure to healthcare premises giving it a more defensive portfolio than most of its peers. If the American residential market continues to recover the fund should be able to deliver a decent return.

Sector: Property equities Fund Size: $236m Launch: J an 2007 Portfolio Yeild: 2.9% TER: 0.48% Manager: BlackRock Investments Website: us.ishares.com

If the American residential market continues to recover the fund should be able to deliver a decent return www.IFAmagazine.com

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FSA Publications OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA These listings exclude the FSA’s routine monthly handbook updates.

Regulatory Reform: PRA and FCA Regimes Relating to Aspects of Authorisation and Supervision Consultation Paper Ref: CP12/24 12th Sptember 2012 302 pages The paper, compiled in consultation with the Bank of England, sets out the proposals for changes to existing regulatory rules and guidance, in the context of the Financial Services Bill in January 2012. The Bill provided for the creation of the new UK regulatory architecture, including the creation of the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). It also proposes changes to the Financial Services and Markets Act 2000 and various other Acts of Parliament. The FSA says that the creation of the new PRA and FCA rulebooks will involve substantive changes to the existing FSA Handbook, so that the new rulebooks can be aligned with the future objectives and functions of the PRA and FCA. Consultation period ends 12th December

Addressing the Implications of Non-EEA National Depositor Preference Regimes Consultation Paper Ref: CP12/23 11th September 2012 41 pages The FSA is anxious to address a problem which occurs in certain non-EEA countries, whereby domestic depositors take precedence over non-domestic depositors if a firm should become insolvent.

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The FSA is anxious to address a problem which occurs in certain non-EEA countries, whereby domestic depositors take precedence over non-domestic depositors if a firm should become insolvent. The agency is therefore calling on firms from non-EEA countries that operate these national depositor preference regimes to take appropriate steps to address the subordination of UK branch depositors (specifically) compared to those of home country depositors. Of interest to firms from nonEEA countries which operate deposit-taking branches in the UK and which are subject to national depositor preference regimes in their home countries. Consultation period ends 11th December

Client Assets Regime: EMIR, Multiple Pools and the Wider Review Consultation Paper Ref: CP12/22 6th September 2012 108 pages This discussion paper concerns the client assets regime: European Market Infrastructure Regulation (EMIR), and aims to consult on changes to the client assets regime that will be necessary to adhere to a European Regulation. It will also propose a radical change in the client money rules that may affect all firms holding client money relating to investment business. The eventual purpose is to introduce changes to CASS, so as to make it compatible with Articles 39 and 48 of EMIR; to introduce multiple client money pools; and to start a discussion on still wider changes to the client assets regime. Consultation period ends 16th October (Part 1), or 30th November (Parts 2 and 3)

Risks to Customers from Financial Incentives Guidance Consultation Ref: GC12/11 5th September 2012 32 pages Of interest to all firms in retail financial services with staff who are part of an incentive scheme and who deal directly with retail customer transactions. The FSA has flagged up its concern about incentive schemes with high risk features and the potential for sales staff to earn significant bonuses were common across the firms we assessed. Most firms did not have effective systems and controls in place to adequately manage the increased risks of mis-selling arising from their incentive schemes. The agency’s guidance aims to help firms identify and manage the risks from incentive schemes, in accordance with the relevant requirements set out in the FSA Handbook. It says it expects firms to:

• Properly consider if their incentive schemes increase the risk of mis-selling and, if so, how;

• Review whether their governance and controls are adequate;

• Take action to address any inadequacies – this might involve changing their governance and/or controls, and/or changing their schemes;

• Where risks cannot be mitigated, take action to change their schemes; and

• Where a recurring problem is identified, investigate, take action and pay redress where consumers have suffered detriment. Consultation period ends 31st October

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Consultation Paper Ref: CP12/21 30th August 2012 50 pages The Paper invites comments on the proposed amendments to the FSA Handbook relating to the EU Short Selling Regulation (SSR), which applies from 1 November 2012. The SSR introduces requirements for reporting significant net short positions in shares and sovereign debt. It is directly applicable in the UK, although in some situations involving other EU member states, discretion may be awarded to foreign authorities. Consultation period ends 20th September

Restrictions on the Retail Distribution of Unregulated Collective Investment Schemes and Close Substitutes Consultation Paper Ref: CP12/19 22nd August 2012 92 pages Of relevance to firms providing and promoting UCIS and close substitutes to retail customers through marketing materials or advised sales; firms which allow access to them through investment wrappers; and providers of certain other investments, including structured products, where they take the legal form of securities issued by a special purpose vehicle. The FSA is seeking to change its rules to ban the promotion of unregulated collective investment schemes (UCIS) and close substitutes to ordinary retail investors in the UK. It says its researches have identified significant levels of retail promotions and sales of UCIS which fail to meet requirements, exposing ordinary investors to significant potential for detriment. In particular, the structuring of certain other products through special purpose vehicles was felt to be a backdoor form of UCIS-like investment, and the FSA is generally seeking to widen out the scope of the ban to include these vehicles. Consultation period ends 14th November

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Review of the Client Money Rules for Insurance Intermediaries Consultation Paper Ref: CP12/20 28th August 2012 136 pages Of relevance to all insurance intermediaries to whom CASS 5 applies. It would also interest insurers, particularly the discussion on risk transfer. The paper follows a review of the applicable client money rules relating to how general insurance intermediaries hold client money. In particular, it aims to consider whether enhancements can be made to the regime itself or to the detailed rules. The FSA says that its review of CASS 5 showed up problems that included a poor understanding of the Rules and subsequent poor compliance, missing or incomplete documentation such as trust deeds and trust letters. This Consultation Paper (CP) contains various proposals for changes to the CASS 5 rules. Consultation period ends 30th November

Data Collection on Remuneration Practices Consultation Paper Ref: CP12/18 1st August 2012 62 pages Of relevance to all FSA-authorised banks, building societies and Capital Adequacy Directive (CAD) investment firms. Although not to exempt CAD firms such as credit unions. The FSA proposes to consult on remuneration data reporting requirements for BIPRU firms and third country BIPRU firms, in the light of amendments to the Capital Requirements Directive (CRD3). Member States are responsible for drawing up data on remuneration practices, and for transmitting it to the European Banking Authority (EBA), which produced its own guidelines in July 2012. In particular, this consultation looks at the Remuneration Benchmarking Information Report and the High Earners Report. Consultation period ends 30th September

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

Short Selling Regulation – Handbook Changes

Sale and Rent Back Review 2011 Finalised Guidance Ref: FG12/18 31st July 2012 12 pages The guidance follows on from the March review after complaints of poor practice among SRB firms, and it lists the main findings: • Appropriateness and affordability were not assessed correctly. • Disclosure was insufﬁcient, inadequate and was not given at the right time. • Record keeping was inadequate. • SRB agreements contained incorrect information and did not meet requirements for tenancy agreements. • Financial promotions were not compliant with the rules. • Sales processes did not follow the structure set out in the rules, or allow firms to gather enough information from customers to assess appropriateness. Customers were not given enough time. • Training and competence and compliance monitoring were inadequate.

Mortality Assumptions for Pension KFIs Policy Statement Ref: PS 12/14 27th July 2012 21 pages Of interest to life insurers and other providers of personal pensions and also to firms that advise on personal pensions. Also to consumers. The FSA aims to help consumers to consider the wide range of possible outcomes involved in Key Features Illustrations when buying packaged products that do not come within the scope of the Markets in Financial Instruments Directive at the point of sale. Also to help them compare the charges of different products.

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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 of the key issues that are currently shaping the compliance agenda. Risks to Customers from Financial Incentives Through good management information and business monitoring combined with an effective risk based approach to their adviser monitoring, ﬁrms should be assessing the risk arising from the features of their incentive schemes. (GC1211, http://tinyurl.com/9e5osz3) These sales driven, commission based legacy schemes are a complex issue and they contain and many unmanageable features or aspects which could provide a wide range of mis-selling risks.

Firms may need to take steps to remove features or change their incentive schemes if they are unmanageable or unclear on their impact on TCF.

All ﬁrms should consider factors and risk impacts from type of product and the method of distribution, for example, advised or non-advised, face-to-face, distance (internet calls) or telephone. Firms may need to take steps to remove features or change their incentive schemes if they are unmanageable or unclear on their impact on TCF. The FSA have found in their review that:

■

Firms reward staff through material incentive schemes based on sales volumes, fee income or similar measures;

■

Firms’ incentive schemes include features that are harder to manage;

■

Management do not understand how the speciﬁc features, complexity and value of their incentive schemes could increase mis-selling; and/or

■

Poor quality sales or mis-selling are not adequately reﬂected in the eligibility for, or level of, incentive payments.

So what areas are likely to cause conﬂicts and raise the ire of the regulator, but more importantly could lead to clients losing out on the level and impartiality of advice that they should expect to receive?

■

Most ﬁrms did not properly identify how their incentive schemes might encourage staff to mis-sell.

■

Many ﬁrms did not understand their own incentive schemes because they were so complex, making it harder to control them.

■

Firms did not have enough information about their incentive schemes to understand and manage the risks.

■

Most ﬁrms relied too much on routine monitoring, rather than risk-based monitoring, such as performing more checks on staff with high sales volumes.

■

Disproportionate rewards for marginal sales

■

Accelerators (or stepped payments)

■

Inappropriate incentive bias between products

Some ﬁrms had sales managers with a clear conﬂict of interest that was not properly managed.

■

Variable ‘salaries’

■

Inappropriate requirements to determine if incentives are paid

■

100% variable pay/commission only

■

Inappropriate levels of incentives for sales of additional products.

■ ■ ■

Clients are likely to lose out if:

Many ﬁrms had links to sales quality built into their incentive schemes that were ineffective. Some ﬁrms had not done enough to control the risk of potential mis-selling in face-to-face situations

October 2012

Compliance Doctor.indd 54

There are a number of problem areas to consider, and all are based on the qualiﬁcation for disproportionate or inappropriate rewards due to volumes or tiered rewards for volumes of sales, such as; Problem areas

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■

Thresholds

■

Incentives linked to the level or type of premium, investment amount or length of term

■

Competitions/promotions.

Clients are likely to lose out if: Many IFAs will dismiss most of the above as “bank sales force” practices or national IFA or network issues, however there are issues around higher risk features in incentive schemes the smaller ﬁrms, which include; ■

Variable pay – many small ﬁrm mortgage and investment intermediaries pay advisers purely based on the revenue they earn. This is a form of 100% variable pay, so these ﬁrms should be aware of the increased risk of mis-selling and have adequate controls to mitigate the risk. Advisers can also receive additional bonuses for exceeding a revenue threshold, which acts like an accelerator on their earnings.

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

Other scheme features that could cause issues are;

■ Reducing costs – advisers can have costs relating to compliance and T&C deducted from sales revenue, and these costs might be reduced for future business if the adviser’s revenue passes a certain threshold. This can create a disproportionate reward for marginal sales if advisers are trying to reach the threshold towards the end of any qualifying period, as the reduced compliance costs effectively increase future earnings. The Answer? All ﬁrms should ensure that they actively monitor, assess and manage; ■

Management information (MI)

■

Business quality monitoring

■

Sales managers’ conﬂicts of interest

■

Controls for inappropriate behaviour by sales staff

■

Governance arrangements.

Adviser Charging, Permissions and Disclosure Documentation Although the new rules on adviser charging come into force on 31 December 2012 it is critical that you have all of your client contact documentation up to date beforehand. The new rules will make the process of adviser remuneration more transparent, so clients will know exactly what they are paying for. The FSA’s new rules will mean consumers can be confident that the advice they receive is not biased by commission, as the adviser’s remuneration will be agreed between the adviser and customer instead of being determined by a provider. The new adviser charging rules mean that all firms such as banks, independent financial advisers, wealth managers, stockbrokers and product providers on their own products that give retail investment advice will have to: ■

set their own charging structure;

■

have a charging structure based on the level of service they provide;

■

disclose charges to clients upfront, using some form of price list or tariff; and

■

deliver an ongoing service when an ongoing fee is levied, unless the product is a regular payment one.

Many ﬁrms have already prepared their post RDR SCDD or CIDD, with some writing their own. There is a problem if this was done before the beginning of August. After this time the latest rules were published and you are

required to make sure your documents contain at least the guidance in the COBS 6 Annex 1 Guidance at http://tinyurl.com/8ll4w96 Although there are no surprises in this document there are certain areas and headings that the document should have with speciﬁc wordings within those areas. Obviously the need for minimal information in a prescribed format is necessary for the effectiveness of mass market delivery and subsequent review, but the format and remainder of the content is down to the ﬁrm concerned. The disclosure documentation needs to be ready and accurate, and this would be a good time to check other critical aspects like your permissions. Do you have the right permissions? It is important to check this, because from next year, if you hold permissions to provide advice on retail investment products you will be subject to the new RDR reporting requirements, even if you do not provide this advice. If you think this could apply to you we recommend that you apply for a Variation of Permissions. Remember: IIf 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 52 of this issue

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Compliance Doctor.indd 55

October 2012

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How can MyTouchstone help your firm? 1) Investigate ‘Hotspots’ of investor activity on Google maps. 2) Discover your firm’s ranking and market share in our IFA League Table: Per location/per specific area of advice. 3) Adviser Charging Guide: How do your fees compare with your peers in you location? 4) RDR Survey: Understand how many firms are RDR ready and the biggest hurdles still to over come. 5) National & Regional Support Services to IFAs: Rankings for networks, broker service provider, outsourced fund management, wraps and platforms. 6) New Business Trends: Discover how business is changing from one quarter to the next. 7) Access our ‘Fund Focus’ page created in association with FE & Rayner Spencer Mills gain a unique insight into the latest fund selection and performance trends. 8) View our ‘Platform Page’ to find out the latest trends in the platform & wrap market, updated quarterly with the latest stats, reports & insights. 9) Download the latest FSA RDR Guide.

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Thinkers.indd 58

07/10/2012 16:21

THINKERS

STOCKS

ARE DEAD

“We are witnessing the death of abundance and the borning of austerity.” William Hunt “Bill” Gross Born 1944 in Middletown, Ohio Currently managing PIMCO funds at Newport Beach, California America’s number two investor Behind Warren Buffett, of course. The co-founder of Pacific Investment Management (PIMCO) built his $1.8 trillion fund business substantially on fixed-income. But “the Bond King’s” often startlingly perceptive observations on commodities and macro developments have earned him an outstanding reputation. Well, mostly. Early promise PIMCO started in 1971, which was a tricky time for bonds because of the vast US government issues. But it was the 1990s that really delivered the goods – and not least because of two bestselling books entitled Bill Gross on Investing and Everything You’ve Heard About Investing is Wrong (1997). No risk of modesty there, then. But his remarkable gift for macro timing soon justified the hype. PIMCO is by far the world’s biggest and most successful fixed interest operator. How did it go in 2008 then? Well, to start with. Gross was among the first (in January) to warn about the dangers of credit default swaps, which he reckoned could cost the global banking system $250 billion, not counting another quarter-trillion of subprime loses themselves. (Aaah, if only it had been as little as that.) It wasn’t so good for PIMCO’s $25 billion of commodity funds, which lost 43% – thus taking some of the shine off a ten-year average growth of 9.4%. But hey, who’s counting? The funds had already gained a heady 24% in 2007, and they subsequently made 40% in 2009 and 24% in 2010. Not bad. And in 2011? Red faces again, unfortunately, although this time the bad news was about bonds rather than commodities. Gross started his annus horribilis with a loud recommendation to reduce exposures to government bonds like a hot brick, because he said

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Thinkers.indd 59

the ending of quantitative easing in the summer would see yields soaring and prices collapsing. Oops. Instead it was the prices that soared, as the extent of the equity and banking mess became clearer. Worse, PIMCO’s own holdings had slimmed down their bond exposures while all around were increasing theirs. And in October Gross issued a public apology for his disastrous performance. It was reported that his funds had ranked 536th out of 584 bond funds during the year to date. And 2012? It all went back into blissful reverse for the PIMCO Total Return fund. By June 2012, the entire net outﬂow from 2011 had been recouped and it had outperformed 96% of the market. August alone brought $1.3 billion of new cash, bringing the total for the year to $9.3 billion. So that was all right then? Not entirely. In July, Gross described equity investors as “cult followers”, and equity investing itself as “a Ponzi scheme”, which didn’t go down so well. By September he was proclaiming the return of inﬂation and the need for equity investors to downsize their future growth expectations to 3-4%. Permanently.... And yes, that means downsizing on corporate bonds, especially high yielders. And buying gold, because that’s where QE3 will take us. “Gold as a real asset will be advantaged if the US Federal Reserve or European Central Bank start to write checks in the trillions.” Biggest self-confessed mistakes? Not buying into Wal-Mart or Warren Buffett’s Berkshire Hathaway in 1974, he said, because they didn’t pay enough attention to appearances. And then lending $5 million to a shiny company called Itel “because I liked the carpet, and the secretaries”. Oops, it failed.

October 2012

59 07/10/2012 16:21

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

IFAS AND RECRUITERS HAVE MUCH IN COMMON, SAYS STUART LEANEY, DIRECTOR AT RECRUIT UK LIMITED

A few years ago, I ventured into the world of seeking financial advice. And, having my own links to the industry, I quickly decided that I wanted to speak to an advisor with a whole–ofmarket proposition. So I did my research, contacted various people I knew who were financial advisors, and started talking to a candidate who I had placed seven years previously. He was a very professional, courteous candidate, and this came right through in the nononsense, logical, clear and concise approach that he took toward me, my family, and our financial needs and longterm aspirations – or, as he called it, our “number”. My wife and I never once felt baffled by jargon, rushed or sold to. It really was ‘best advice’. You might be wondering why I’m telling you about our positive experience from four years ago? After all, it’s one which I’m sure a thousand others could also tell. Well, the reason is that I’ve recently been looking into the training and development of recruiters within financial services, predominantly within the regulated sales arena. And it’s struck me that how a recruiter should work carries many similarities to how I believe an IFA does work.

October 2012

Recruitment.indd 58

At this point it’s probably best to point out the obvious. Financial services and recruitment are at opposite ends of the regulatory ladder. We recruiters have a professional body that represents us (and by us I mean the 100,000 recruiters and the companies that employ them) - but in terms of how recruiters themselves work there is very little regulation. It’s rather different for advisers.

A Professional Process So let me go back to the experience that my wife and I had. An initial telephone conversation about us, our family and hobbies, our careers, aspirations - a rapport/ relationship building process, if you like – was intended to lead on to a face-to-face meeting where we could talk through the critical detail, or the “ﬁnancials” as my wife likes to call it. Now, I see no difference in how a good recruiter would approach an initial conversation with a prospective candidate. It isn’t about the end result at this stage, it’s about the here and now. Or, in other words, “How can we help?” The face-to-face meeting was relaxed but structured. It involved a fair amount of information but it was backed up by paperwork so that we could read and absorb it all in our own time. Again, a good recruiter will explain exactly what they

do, and who they recruit for, and the resources they have access to. And they will provide documentation accordingly. If you then wish to take it further, then that’s your choice. Our IFA followed up the meeting with a call to establish feedback and to answer any questions. My wife bombarded him with questions, some of which I’m sure he’d heard a million times before, and no doubt similar to the questions I’ve been asked. (“What’s the average salary for an IFA?”) All of these were handled professionally, We had a second meeting and happily signed on the dotted line, and off we went into the world of pension planning, stocks, shares and child trust funds. All of which again underlined the similarities. After all, a good recruiter won’t submit your CV to any company until you have given your permission, or signed on the dotted line...

The Continuing Relationship From there on, we weren’t left to our own devices. Our IFA was very helpful in answering further questions, updating us on paperwork and so forth - and not once did we feel he had ‘moved onto the next case’. I mean, think about it. Would you expect a recruiter to forget about you once you’ve secured

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an interview? Or would you want guidance, support and most probably some further questions answered? I meet up with my IFA now and again - over a coffee, or something stronger, or maybe over lunch. I don’t really pay much attention any more to the sales calls that I get from my bank about some offer or other, because when I really need

THE HUMAN RESOURCE

APART? further advice I know exactly who I’ll be using, and who I will continue to refer my friends to. A good recruiter will generate your trust. He will add value in your quest for a job – because if he doesn’t, why bother using one? A recruiter should act as a conduit between the two most important aspects of recruitment, the company and the individual. I’d say the parallels with IFAs are clear.

For more comment and related articles visit...

IFAmagazine.com

www.IFAmagazine.com

Recruitment.indd 59

October 2012

59 07/10/2012 16:25

KEEP YOUR OWN COUNSEL

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

HUH! SOLICITORS! ANYONE WOULD THINK INDEPENDENTS WERE A VANISHING BREED. GILLIAN CARDY ISSUES A WAKE-UP CALL TO M’LEARNED FRIENDS While financial advisers have been focused on the Retail Distribution Review for several years now, the Solicitors Regulation Authority is still (as I write) deciding how to respond to the changes which are now only three months away. The great debate of the moment is how professional connections are going to adapt their rules to accommodate the new terminology of Independent and Restricted advice? So far, they seem to be making heavy weather of it. Now, most financial advisers aspire to build connections with local firms of solicitors and accountants. In this way clients can expect to get a holistic view of their personal and business finances, taxation, trusts, wills and estate planning. ‘Holistic’, you ask suspiciously? No, it’s not some ‘new age’ term, to be dismissed as just the preserve of a set of alternative therapists. The term was first coined by Jan Smuts, the South African statesman and philosopher, to describe a society in which the whole was greater than the sum of the parts. When applied to medical or financial matters the point is well made: a group of professionals working together with their combined knowledge and experience greater than the sum of the individuals’ area of expertise.

Do We Really Need a Rule Change?

So, back to the point. The Solicitors Regulation Authority Code of Conduct currently requires those under its supervision to refer clients needing investment advice to Independent intermediaries. However, as I write, we still await the outcome of a consultation on a potential rule change on this point. The current preference, it seems, is to remove this requirement ‘such that clients are in a position to make informed decisions about referrals in respect of investment advice’. It looks as though the legal eagles’ concern - probably driven by ill-judged outpourings of vociferous doom-mongers predicting the death of the Independent adviser - is that they might be unable to ﬁnd enough Independent advisers to meet demand after RDR, but that they’d be unable to refer clients instead to discretionary managers opting for Restricted status.

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Well, my concern is whether solicitors are actually knowledgeable enough to judge what sort of advice might meet their clients’ needs? The ICAEW code of ethics points out that accountants ‘may not necessarily know enough to be able to completely assess whether the third party is the optimum choice or not’. Precisely.

A Matter of Trust

Referral to Independent advisers is the only way that professionals can continue to comply with their over-arching obligations on professional competence, independence, objectivity and clients’ best interests. And it’s not just me that thinks that. In one research project, when asked what advice services people wanted, almost all respondents rejected nonindependent advice, mainly because they wanted advice across the whole market. They quoted one ‘mass affluent’ client: “Why would you go to [a non-independent adviser] when you can go to somebody who will search the whole market?” For high net worth investors, the concept of advisers who are not able or allowed to advise on all products and services in the market was highly unappealing, with concern being expressed that customers would not receive the best advice: “I’m a bit suspicious of it: are they restricting it to their own products or something just to benefit themselves? Is it going to be the best for me?” Regardless of any rule change allowing referral to Restricted advisers, clients repeatedly express a clear preference for Independent advice. And clients should insist on nothing less from all of their professional advisers, legal, tax and financial. For more comment and related articles visit...

www.IFAmagazine.com

07/10/2012 16:37

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

Visit our website at

www.bwd-search.co.uk Senior Financial Planner - Investment Management firm, The City

Senior Financial Planner - Gloucestershire

Basic to £80,000 plus benefits and bonuses

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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

www.IFAmagazine.com

IFA Centre.indd 61

October 2012

61 07/10/2012 16:37

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A renowned Private Banking and Wealth Management company. With offices in the UK, the Americas, Middle East and Europe they have a reputation for delivering highly evolved financial services to Business owners, Sportspeople amongst a valued client list of UHNW clients.

An award winning Chartered Financial Planning firm who provide a comprehensive, innovative and practical fee based wealth management service to individuals and businesses currently has a unique opportunity in their Edinburgh office.

My client offers two in-house discretionary management services; the first a groundbreaking service offers 6 risk profiled strategies to clients with modest sums to invest and the second a prestigious service for clients with 100k+ A holder of the prestigious ‘Chartered Financial Planners’ title, my client is committed to reinforcing the highest standards of professional practice in their business dealings and with continued growth and success, they are looking to expand their Bristol based team with an investment driven IFA to provide quality advice across the local area and the UK. Ideally you will be a fully level 4 qualified IFA with CAS status, or have a minimum of 1 exam to completion of the diploma. In return, my client is offering a basic salary of up to £38k with bonus of 75% of business written (minus costs and salary e.g. 100k = OTE 65k) an excellent office in a prestigious part of Bristol, full paraplanner support and quality client/leads provided with investable assets of £100,000+, so own client base is not essential. This is an exciting opportunity for a financial professional who is seeking an opportunity to enhance their client base and work within a true RDR ready IFA practice.

IFA Centre.indd 62

Although this company has a strong historical background, they have moved significantly with the times and have embraced forthcoming regulatory change becoming RDR ready; this is in tandem with an ongoing commitment for quality and product development. As part of their continuing expansion they are seeking candidates with a strong academic background, with experience of both regulated advice and Investment management, who are adept at providing regulated financial advice. Chartered with PCIAM or soon to be qualified is important; however there may be exceptions for the right candidate. Working alongside a Private Banker, you will have responsibility for providing regulated advice across a wide spectrum of products with an emphasis on Tax, Trust and Pensions. A natural communicator, you will be able to articulate complex financial solutions and work with other professions assuming authority when the need arises.

My client are seeking a Chartered and experienced IFA to join their growing and well regarded Team and provide a Holistic planning service to HNW clients in line with the requirements of the company. This is a unique position that will offer the successful individual an established HNW Client bank with trail income in of £100k plus a new group scheme. Salary depends on experience/qualifications, but will be circa £50k and you will be eligible for 30% bonus payments upon 100k being reached (trail is taken into consideration) which will increase when income reaches above target revenue of £200k. To be considered for this role, my client requires a fully chartered advisor who has no less than 5 years relevant industry experience. You will have substantial experience in relationship management and lead generation as you will be developing a client bank of your own and maximising opportunities. A proven track record in exceeding targets and expectations is essential. In return for expertise and commitment, my client offers the successful individual the opportunity to work within a mature and driven team environment with full administration and paraplanner support.

07/10/2012 16:38

T 0844 371 4031

Director IFA

Business Development Manager

E ifa@recruitukltd.co.uk

Employed IFA

Manchester

London

£60k basic (negotiable) + equity + bonus

£50k + bonus

Up to £70k basic + Bonus

Are you currently an IFA who is concerned with the direction of your current employer? Worried about RDR? An entrepreneur who wants to be part of a business not just and adviser!? If this sounds like you then my client a boutique IFA based in south Manchester want to speak to you.

A Private Client Investment company with a reputation for high quality personal service and prudent investments. They can trace their history back to the very beginnings of the industrial revolution and have been witness to the political and economic upheavals of the 20th century.

A self funded Boutique IFA practice who specialise in Wealth Management, my client has a strong reputation within the market as a fi rm offering a high degree of service to Ultra HNW individuals across a multinational and multi cultural environment.

An opportunity has arisen within this practice for a successful IFA with a trail of circa 100k to join the business as a director. You will be responsible for the growth of the company, contribute towards the management of staff, compliance, FSA issues and have a vested interest in running and growing this business over the next 5-10 years. You will benefit from a wealth of Entrepreneurial and creative experience from the existing Adviser Team and a strong fee based business model.

Obviously there have been a number of changes within stock broking and commerce in general during that time, but there are inexorable values which are as true then as they are now which contribute greatly to the continuing success of this organisation.

My client has been established for over 7 years they are RDR ready, debt free, and have an increasing high net worth client base, professional introducers and a realistic and credible business plan of increasing trail to £1million in 5 -10 years. The practice is FSA directly regulated offering the full range of Tax and Investment solutions enabling an adviser to satisfy HNW clients demands fully . In return my client is offering a basic salary of circa 60k, bonus and future equity. You will be based within their modern offices, benefit from a personal individual office, full paraplanning/admin support and the realistic long term prospect of a lucrative, secure career and credible exit strategy. An exciting opportunity for the right IFA who wants more control over the direction of their business and future earnings.

A personal approach to doing business is a constant thread which runs the length of the organisation; this is coupled with experienced, knowledgeable Investment managers who take the time to understand client’s financial goals and objectives fully. To complement this, there are award winning Investment products on offer, with three nominations in this year’s share awards. As part of their continuing growth they are seeking business development managers to grow their established DFM proposition to IFA’s and Wealth Managers throughout the UK. There are over 20 offices in the UK who can support you with everything you will need. The expertise and sales ability will come from you and your knowledge of the IFA Market. Ideally you will have a background in intermediary sales and be qualified with an IMC or similar qualification. Experience building robust relationships with IFA’s is a prerequisite for the position, as is the determination and drive to further your goals and ambitions. If you are seeking a long term position with a private client stockbroker that is RDR ready and a reputation for personal service, Please apply in confidence.

IFA Centre.indd 63

Currently looking for experienced and RDR compliant IFA’s who have a signifi cant amount of business to bring with them, my client is offering a basic salary of £65k and they will pay a 1% transfer bonus on assets transferred across to their discretionary management service and a further 25% bonus on all recurring fee’s through your clients. Alongside an employed package, the firm operate a specialist technical support function that includes paraplanners and administrators, enabling each adviser to focus on their clients and write excellent levels of business. Other benefi ts include; ■ Unique offering for advisers with client funds under management which provides a sound secure future for the adviser. ■ Highly competitive salaries with generous benefits. ■ High quality level of advice covering whole of market. ■ Fee based business. ■ Ability to advise clients who wish to direct their own portfolios. ■ Consistent returns provided by Investment committee who have a clear objective to maintain low volatility. ■ Highly ethical organisation.

This is a boutique practice that is situated in a great central London location that also offers the opportunity to work from home. They have an aim to become a chartered practice in a short timescale therefore they need professional, teamorientated individuals with the passion, drive and creativity to undertake this role to the standard expected and with the outlook to advance qualifi cations.

07/10/2012 16:38

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

IFA Calendar.indd 64

07/10/2012 16:38

I FA C A L E N D A R

e n zi

Dates for your diary a m a g

OCT - DEC 2012

OCTOBER Institute of Financial Planning

1 3 annual conference

Newport, South Wales

Changes to the UK Corporate Governance Code and the UK Stewardship Code come into effect

New Conduct of Business Rules come into operation on pensions World Economic Forum Meeting

1214 Moscow, Russia 17

Consultation period ends on CP 12/14 (Tracing Employers’ Liability Insurers - Historical Policies)

European Council Meeting Brussels, Belgium

Consultation period ends on CP 12/16 (FSCS Funding Model Review)

Consultation period ends on CP 12/17 (Packaged Bank Accounts)

Deadline for self-assessment tax returns 2010/2011 (paper only)

NOVEMBER 1

Solvency II – new regime takes effect

Presidential and Congressional Election Day USA

Money Management Financial Planning Awards

Retail Distribution of Unregulated Collective Investment Schemes and Close Substitutes) Financial Planning Week

26 1 (Institute of Financial Planning) 22

Financial Advisor Service Awards winners announced

Consultation period ends on CP 12/22 (Client Assets Regime: EMIR, Multiple Pools and the Wider Review)

Consultation period ends on CP 12/20 (Review of the Client Money Rules for Insurance Intermediaries)

DECEMBER

Private Wealth Management Summit

2 4 Las Vegas, USA 11

Dubai, United Arab Emirates

AIFA annual dinner London

Consultation period ends on CP 12/19 (Restrictions on the

www.IFAmagazine.com

IFA Calendar.indd 65

Consultation period ends on CP 12/24 (Regulatory Reform: PRA and FCA Regimes Relating to Aspects of Authorisation and Supervision) EC Directive on the ending of gender-based insurance premium differences comes into force

Retail Distribution Review operational from midnight

New rules on SIPP disclosure come into force

World Economic Forum Summit

1214 on the Global Agenda

Consultation period ends on CP 12/23 (Addressing the Implications of Non-EEA National Depositor Preference Regimes)

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.

October 2012

65 07/10/2012 16:39

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

magazine...

BETTER BUNKER DOWN IN THE HR DEPARTMENT, SAYS RICHARD HARVEY. THE FACEBOOK GENERATION KNOWS ITS RIGHTS

SAVE YOURSELVES

As the glorious summer sporting triumphs of Jess and Mo, Jonnie and Ellie, and – at last – Grumpy Andy momentarily took our minds off the longest double dip recession since Methuselah was a lad, it’s back to chilly reality as millions of workers are about to see a drop in their take-home pay.

Pay now, enjoy later Picture the scene at the end of this month, as employees of big companies which have introduced the new National Employment Savings Trust scheme open their salary slips and realise that, along with tax, National Insurance and the social club subs, a few quid has also been docked for pensions. Folks working in HR departments should buy their tin hats and ﬂak jackets now, because although the deduction will be minor – somewhere in the order of £22 a month for an employee earning the average wage of £26,200 – the reaction is likely to be as hostile as that accorded to Messrs Cameron and Osborne when they handed out the Olympic gongs. Because NEST – as laudable in concept as it is ﬂawed in ambition – is particularly aimed at encouraging younger workers to save for their retirement. We’re talking here about Generation Y, the 30- and 40-somethings who sociologists will

October 2012

The Other Side.indd 66

tell you are accustomed to free internet, cheap mortgages or living at home with Mum and Dad. They’re keenly aware of their rights, and that includes not having their pay-packets pillaged. They will understand that, although everyone is automatically opted-in to NEST, there’s an opt-out available too. After all, many will reason, would I prefer to save a few bob each month towards a pension - or spend it on a gym subscription or a night out clubbing? No contest.

Off-message The introduction of NEST also ignores the fact that many savers prefer putting any surplus cash into ISAs, where at least they’re guaranteed a tax-free return. The Institute of Directors recently highlighted the ISAs vs Pensions anomaly, blaming a “failing pension architecture” which they condemned as complex, unattractive and lost “in a forest of regulation”. To its credit, the government understands that any publicity campaign which forecasts a miserable old age for those who fail to save just won’t work. Instead, Downing Street launched a public competition to promote the beneﬁts of NEST, eliciting slogans such as “Do you want to be a grandma or a glam-ma?” “Saving for a sunny day” and “Life’s full of little pleasures – why not make sure it stays that way?” I sent in an entry which read “If the Danes can pay a decent State pension, why can’t we?” I don’t think it’s going to win. www.IFAmagazine.com

07/10/2012 16:42

Very good in its make up and content. Sets itsel aside from other publications in the marketplace Excellent. Thank you. Really refreshing. High qualit e production i nwith some good thought provoking article z and useful LOgOa information. Good useful content. Up-to dateainfoK useable, very good and easily read. Ver good m articles, relevant to my work. Very interesting extremely useful. Very impressive read and lots o useful Sarticles nice to see it in “magazine” style forma 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 pape S A with good content which is plain talking. Good ayout and easy to read. Not seen anything like thi for IFA market. Really AZIL Worth reading. Interesting BRgood. content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutel 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 KKabou 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 SIS E T H IE S T M E N L Y like A N INV NTA Echeape M a proper magazine rather than other M O are talking about... IEWC V E R looking publications. Breath ofN fresh air and topica EWS get your free subscriptionI’m going get it instead of the n biteTosimply size chunks. fill out the form online at: professional adviser papers and financial advise 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

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.

Important legal information: The information in this document is given for information purposes only and does not qualify as investment advice. 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.