IFA Magazine April 2013 issue

HOW SHE TRANSFORMED THE CITY

A P R I L 2 0 13 ■ I S S U E 2 0

THATCHER’S LEGACY

WEB VIDEO

For today’s discerning financial and investment professional

FOR ADVISERS

ALL

WELCOME TO THE

FCA

ABOARD

THE ETF EXPRESS

N E W S R E V I E W C O M M E N T A N A LY S I S Cover 20.indd 1

22/04/2013 12:54

This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.

Cover 20.indd 2 C32009.003_SP_RDR_IFA mag_Apr13_297x420_v1.indd 1

22/04/2013 04/04/2013 12:54 17:52

The perfect fit.

Our business and yours Investec Structured Products New ways of working demand new strategies. Whichever combination of distribution models your business uses, we’ve aligned our products to fit your business needs.

Offer Structured Products your way, by choosing from the following options: ■

Investments – Adviser Fee Option, 4 plans available

■

Investments – Execution Only, 2 plans available

■

Deposits – Adviser Fee Option, 4 plans available

■

Combination – a mix of all of the above

For more information on how we’ve aligned our business to fit yours, visit:

www.investecstructuredproducts.com Follow us on Twitter

Contents.indd 3 C32009.003_SP_RDR_IFA mag_Apr13_297x420_v1.indd 2

@Investec_SP_UK

22/04/201317:56 09:36 04/04/2013

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.

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.

17

Why do ITs get so little attention, asks Michael Wilson?

After Cyprus

An ethics code is for life, says Gill Cardy, and not just for Christmas

We can’t tell what the future holds, says Steve Bee. Maybe we should plan accordingly?

US Equity Income Funds. There’s no sign of any slowdown, says Nick Sudbury

04.13

THE FRONTLINE: ETFs are quick, easy, flexible, cheap. And deservedly popular.

Lee Werrell of CEI Compliance takes a good look at the FCA and its new website

Our monthly listing of recent publications and the IFA Calendar

65

52

Compliance Doctor

FCA Publications

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

46

Lessons From Nature

Pick of the Funds

56

28

Brian Tora wonders where the euro is headed after Cyprus bailout Mk 3

The IFA Centre

48

News

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

Editor’s Soapbox

44

8

60

Recruitment

Agencies aren’t just for employers, says Sam Oakes

Thinkers: Paul Krugman Probably the most controversial economic columnist in the United States today

66

The Other Side

Editor: Michael Wilson

editor@ifamagazine.com

Art Director: Tony Merlini

tony.merlini@thewowfactory.co.uk

Publishing Director: Alex Sullivan

alex.sullivan@ifamagazine.com

There’s too much snake oil around for Richard Harvey’s comfort. What’s a poor client to do?

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 S Contents.indd 4

22/04/2013 09:36

CONTENTS

features 22

Thatcher’s City Revolution

The Iron Lady loved a scrap, says Michael Wilson. And she didn’t always choose her fights wisely.

But her legacy is indisputable

30

INSIDE STORY

Video for Your Website

Peter Georgi of Halo Films explains how a simple interview video can say more about you than mere words can ever express

36

COVER STORY

Exchange Traded Products

ETFs, ETCs and ETNs are breaking new ground, says Kam Patel. And sales are soaring in the wake of RDR

42

Wildly popular among private investors in the US, but still dominated by institutions here in Europe.

A wave of imaginative new offerings will change all that.

Deborah Fuhr on ETFs

New research has revealed a fine uptrend in sales, says the doyenne of ETFs

IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2013. 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.

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

N 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

22/04/2013 09:36

Ed's Welcome.indd 6

22/04/2013 10:07

WORDS OF WILSON

SPRING FEVER I’D SAY WE OWE A VOTE OF THANKS TO RICHARD III, PERSONALLY Digging the poor maligned old soul out of a car park in Leicester seems to have coincided most agreeably with the winter of our discontent finally turning into glorious summer. Maybe we just cheered him up?

Whatever it is that we’ve done, I hope we can carry on doing it. This year’s impressive equity market growth has come in the face of worries about eurozone stability, US economic sustainability, a Chinese slowdown, a slowmotion disaster in Brazil (and a faster one in France). And just a soupçon of nuclear Armageddon from Indochina, where an inadequately socialised 30 year old was still waving his nuclear missiles above his deranged head as I wrote this.

It isn’t over yet in North Korea, obviously. And if the madman were to feel himself so boxed in that the only way he could prove himself a proper man was by turning a few million people to dust and despoiling a subcontinent, it might still destroy much of what we regard as the global balance of civilisation. That would happen in an instant, and there’d be no way of preparing for it unless you’d got a shotgun, a stash of tinned food and a few gold bricks buried in the garden.

And that’s the point. When there’s a 1% chance of total economic apocalypse, the only logical course is to focus on the other 99% because there’s nothing you can do about the 1% situation anyway.

Keep Calm and Carry On – as yet another overworked cliché has it.

In practice, of course, that’s not so very different from where most clients are coming from. Because there’s no real point in planning toward failure, illness and disaster, the natural bent of any portfolio is toward an optimistic view.

Hopefully a well-hedged one, of course.

And it’s that sense of positivity that continues to drive this allterrain recovery vehicle forward.

Humans are naturally optimistic creatures – that’s how progress happens, after all. And it’ll take more than a few dark corners – indeed, very dark corners – to stop it.

M ik e

Michael Wilson, Editor IFA magazine

www.IFAmagazine.com

Ed's Welcome.indd 7

Write to Michael at editor@ifamagazine.com

April 20143

7 22/04/2013 10:07

shorts

magazine

The Financial Conduct

Authority took over most of the functions of the old Financial Services Authority, with all the relevant rulebook powers in respect of financial advisers and small or medium-sized providers. The largest providers are now regulated instead by the Prudential Regulatory Authority. The FCA’s website is at www.fca.org.uk

At long last, the Financial Conduct Authority is safely installed in the FSA’s old headquarters at Canary Wharf Hector Sants has got his knighthood, the phone lines are open, and even the website is looking good. (See Lee Werrell’s review on Page 52). So what has the new regulator got to say about the way it intends to do business?

Well, you’ve got to hand it to FCA chief executive Martin Wheatley, he doesn’t mess about with mixed messages. “The creation of the FCA,” he told the London School of Economics on 10th April, “is a direct response to what hasn’t worked. Time and again over the last 20 years, we have had major scandals – pensions, endowments, insurance, savings – every one is a blow to confidence in finance.”

LIVE LONG AND PROSPER 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 8

22/04/2013 10:15

Luxembourg announced

And every single time, it seems, we got it all wrong. Our mistake, said Mr Wheatley, was that each time a mis-selling scandal happened, we stepped up our disclosure requirements. Somehow we thought that, if you give rational people more information, they’ll be better able to take rational decisions.

Wrong, wrong, wrong, said the D-G. The trouble is, financial decisions generally have too many moving parts to make a sound assessment

“A more pragmatic, sophisticated approach to regulation. To be a little more like Captain Kirk, perhaps a little less like Mister Spock.”

FCA chief executive Martin Wheatley

possible for the average person. Multi-year scenarios, unknown interest rates, deferred consumption and the joys of compound interest will all go right over his head. And when it comes to complex stuff like structured products, the consumer has almost no chance at all.

a clampdown on illicit banking activities, declaring an automatic exchange of information about interest payments made to other EU residents, from 2015. The aim, it said, was “to ensure taxation according to the laws” of the customer’s home country. It also pledged a separate deal for US citizens.

NEWS

26% of UK

bank account holders had problems with their banks last year, according to the Consumers Association magazine Which?

Of those who proceeded with a complaint, 22% said they had failed to get an adequate result.

The British Bankers’ Association said moves were under way to improve complaint handling, and that a panel of consumer advocates and industry figures was being created to identify problems and head them off more effectively.

To Boldly Go...

“The FCA is, and will be, much more consumerfocused,” he went on. “But consumer-focused does not mean consumer-biased. We still need to reach good judgments, weighing up the actions and interests of both firms and consumers.”

Yes, that’s all very splendid, but what does it mean in practice? Let’s leave it to Mr Wheatley to explain. “I want the FCA to use its new powers and remit to bring a more human face to the regulation of financial services,” he told the LSE. “A more pragmatic, sophisticated approach to regulation. To be a little more like Captain Kirk, perhaps a little less like Mister Spock.”

Any clearer? Not exactly. But if it helps, the D-G did tell us on 21st March: “You won’t hear from us a ‘be afraid’ tone. That is not how we want to act.” “It’s not just enforcementled. We’ve got to use the full range of tools.”

“Our primary objective is to make markets work well,” FCA chairman John Griffith-Jones added, “rather than to raise a fine or issue a ruling.” It’s all being taken as a bit of a rebuff to Mr Sants, who took the previous regulator from light-touch to heavyweight bruiser and still didn’t spread much illumination around the room.

You can read the whole of Mr Wheatley’s speech on the FCA’s website at http://tinyurl.com/d2qr9ao For more comment and related articles visit...

www.IFAmagazine.com

The Arjent Managed Portfolio Solution The Arjent Managed Portfolio Solution offers intermediaries a discretionary management service across a range of ten discrete multi asset 'strategic' portfolios which are risk graded 1-10.

The aim of the Arjent Managed Portfolio Solution is to achieve a total return over a medium-to-long term time horizon consistent with the risk grade of the underlying model portfolio.

KEY FEATURES:  DIVERSIFIED – Multi geography and asset classes  RISK ADJUSTED – Optimal asset allocation  HIGHLY LIQUID – Daily trading  RISK – 10 portfolios designed to cover a spectrum of risk appetites (low through to high)  TAX WRAPPERS – Fully compliant with all tax wrappers  THOROUGH RESEARCH & DUE DILLIGENCE PROCESS  PERIODIC REBALANCING  DISCRETIONARY MANAGER OPTION – Annual charge 1% +VAT (discounted for IFAs), reducing above £1m  WRAP PLATFORM ACCESS – Available on number of well regarded platforms (Standard charge 0.30%+VAT)

For more information please contact: Adam Sketchley (sketchley@arjent.co.uk) or James Hutson (hutson@arjent.co.uk) Telephone: 0207 965 0615

N E W S R E V I E W C O M M E N T A N A LY S I S LONDON | BRISTOL Arjent Limited is authorised and regulated by the Financial Services Authority (FSA no. 197330). Arjent Limited is registered in England.

Registered No. 4077864. Registered office: Arjent Limited, 25 Christopher Street, London, EC2A 2BS.

News.indd 9

22/04/2013 10:15

NEWS

Margaret Thatcher, the

architect of Britain’s economic revival during the 1980s and the instigator of London’s most important financial market reforms, died in London. Her funeral proved to be as politically controversial as her life, being marked by public protests in many parts of the UK. Most of her political opponents called, however, for respect.

Japan’s central

bank announced a vast bond buy-back programme which is expected to prove substantially reflationary. Prime Minister Shinzo Abe’s so called Abenomics theory is that only by achieving positive inflation can consumers be persuaded to buy things now rather than later. Speculator George Soros worried publicly that a big growth in Japan’s money supply could start a panic.

On Borrowed Time Meanwhile, if anyone’s expecting a heavier touch on the vexed subject of payday lending, the signs are that we aren’t going to see it for a while yet In principle, the 2012 Finance Act allows the FCA a lot of powers to rein in the sector with effect from next April. But the new regulator is showing little sign of any appetite to use them.

A recently-published behavioural economics report from the FCA – now you wouldn’t have got that sort of thing from the FSA, would you?

– declares that if we start

reining in the terms and availability of payday loans, many people who need quick cash could find themselves out of luck and might even suffer. And the Office of Fair Trading is carrying on with its crackdown on lenders who can often charge 4,000% or more.

But the FCA says: “Many consumers use payday loans because, despite high APRs, that is the only source of credit available to high-risk borrowers in emergencies... They might be made worse off by caps on APR, or by restrictions on how often they can borrow...

Indeed, usury laws and similar provisions have been cited as an example of regulatory failure driven by regulators’ own behavioural biases.”

“Usury” is one of those biblical terms that still strikes us as quaint. That doesn’t trouble the United States, where there are statutory usury legislation caps on lending rates in all 50 federal states. (13 states ban payday lending altogether.) And there’s also a blanket ban on charging more than 36% APR to the family of any serving US army officer.

In other words, it can clearly be done if the will is there. But the FCA’s paper is sticking to its guns, even though it concedes that

forcing payday lenders to disclose their APRs has done nothing to improve borrowers’ understanding of what payday loans are really there for. Or stopped them from letting their loans roll over from one month to the next, which is where they get expensive.

Meanwhile, the profitability of payday lending seems to be diminishing. Wonga revealed back in January that it had written off £76.8 million in 2011 - equivalent to 41% of its £185 million revenues – mainly because of “ customers who are in unexpectedly difficult economic situations”.

For more comment and related articles visit...

www.IFAmagazine.com

N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 10

22/04/2013 10:15

FOR ADVISER USE ONLY – NOT APPROVED FOR USE WITH CLIENTS.

! t o l e h t lan has

P t n e m e e Retir

l b i x e l F Our

There’s no need to compromise.

Our comprehensive package offers some security and potential for growth, flexible income options and 5 star service plus the tools, technical expertise and support you’ll need in a post-RDR world.

Call your Account Manager to find out more or click on pruadviser.co.uk/pensions.

2013

SIPP

News.indd 11

22/04/2013 10:15

NEWS

Bitcoin mania joined tulips in the

annals of speculative market crazes, as the unofficial electronic currency saw its value surge from around $15 in January to $260 on 12th April – before then crashing back to $130 in the space of six hours. The currency, which can only be used between consenting users, was the brainchild of a mysterious individual called Satashi Nakamoto. He was not available for comment, and may not ever have existed.

A triple dip recession is looking less likely for the UK, the Organisation for Economic Co-operation and Development confirmed. Official figures quoted by the OECD’s chief economist showed that the services sector, which shrank at the end of 2012, had returned to growth in January. The OECD now says that the UK probably grew at an annual rate of 0.5% in the first quarter and it predicts 1.4% growth in the second.

Euro Millions It’s not quite a jackpot payout, exactly. More of a credit extension that just might allow three of Europe’s most indebted countries to postpone their grief for longer The Eurozone’s 17 members, meeting in Dublin in the guise of the Ecofin group, agreed “in principle” on a deal that effectively gives Portugal and the Republic of Ireland another seven years of grace. The deal – technically an undertaking to lengthen the maturities of Ireland’s European Financial Stability Facility and European Financial Stability Mechanism loans- was contingent on “continued successful programme implementation,”, and would “smooth the debt redemption profile of both countries and lower their refinancing needs in the post-programme period.”

In real terms, the deal – which still needs to be approved by the International Monetary Fund – is a reflection of much better economic results from both countries. Dublin and Lisbon are now getting much better prices on their government bond issues than when they were first rescued in 2010/2011.

Jeroen Dijsselbloem, the Dutch finance minister who leads the euro zone ministers, said that the ministers had “congratulated the Irish authorities for the continued steadfast implementation of the programme and their successive steps taken towards a full return to market financing at the end of the year.”

“Ireland is a living example that adjustment programmes do work, provided

there is a strong ownership and genuine commitment to reforms,” he said.

Meanwhile, Back to Cyprus As for the countries that don’t have that commitment (yet), the Eurozone ministers also prepared a further €10 billion EU bailout loan for Cyprus, for later approval by member states. That was on condition that Nicosia managed to find €6 billion of its own toward the bailout. Which is to be achieved partly by winding up Popular Bank and also writing off much of the secured debt and uninsured deposits in the Bank of Cyprus. That hasn’t stopped the tongues wagging that another €6-7 billion may be needed. What’s next in line for the chop? Gold reserves, the whispers said.

For more comment and related articles visit...

www.IFAmagazine.com

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 12

22/04/2013 10:15

downgrade since 1999, as Fitch cut its standing by one notch from AA- to A+.

The agency cited the burgeoning public debt as a reason for the downgrade – claiming that the true level may have reached 198% of gross domestic product

by December 2012, up from 125% in 2008. But no-one is sure, it said, because China’s banks are hiding bad loans.

UK house prices staged their first

upturn in 13 months, said the Nationwide building society. The 0.8% annual average growth during March masked wide variations, however, with London prices rising by 6.3% while Yorkshire and Humberside saw a 0.9% fall. The Chancellor’s spring Budget provides equity-share help for buyers of new properties, and loan guarantees for many more from next January.

NEWS

China’s credit rating took its first

Personal Savings Rebounding Shock, horror, hold the front page. As the new ISA year gets under way, Britons are displaying an unnerving addiction to saving A new quarterly report from NS&I shows that the average UK resident is saving £104 per month, or 8.09% of his or her income.

And yes, that’s the largest amount recorded since the survey began in 2004. Only a year ago, the equivalent savings were £90 a month or 7.66% of income. The proportion rises to 9.29% of income, or £125 a month, among 25-34 year olds, and falls slightly among the 35-44 age group.

What can we read into this? Mainly that younger savers are getting aspirational again, while middle-aged savers with established families are feeling the squeeze. And the numbers of Britons who don’t make any savings each month has decreased to just 20%, from 25% in the previous quarter.

Goal-Oriented Success Of the 25-34 year old segment who were actively saving, 42% said they were using savings goals to help them save – compared with 28% for the population as a whole. 59% of this age group said they were saving for a home, a mortgage or for home improvements.

Overall, among those savers of all ages who said they had a plan, the average savings level was £150 per month – compared with £111 for those who said they weren’t saving for anything specific.

Across all groups, 38% of savers declared that they were saving for a holiday or special occasion, with women (42%) the most keen to save for that sort of thing, while 26% stated that they were saving in case of an emergency.

Londoners were found to be saving the most, at an average £142 a month (including those who weren’t saving at all), and those in Wales saved the least, at £87 per month, or almost 8% of income.

Expressed as a proportion of income, the South West came out bottom of the league with just 7% saved, or £90 a month. And Scotland saw the biggest savings level in two years, with the average individual saving just under 8% of his or her income, or £103 per month.

For more comment and related articles visit...

www.IFAmagazine.com

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

22/04/2013 10:15

NEWS

France’s socialist

The SIPP industry

government reeled from the shock revelation that the finance minister in charge of pursuing tax evaders, Jerome Cahuzac (right), had been charged with fraud for allegedly running an undeclared Swiss bank account. Cahuzac resigned, and President François Hollande counter-attacked with a demand for all tax havens to be abolished.

consolidation continued as Dentons, a specialist provider and administrator of selfinvested pensions, acquired RSM Tenon’s bespoke SIPP arm Tenon Pension Trustees Limited. The deal will see Dentons adding approximately 650 SIPP plans to its existing book of high value SIPPs. New rules on capital adequacy for SIPPs will apply from next year.

Was That a Wobble?

The S&P 500 and the Dow Jones Industrial Average both ploughed on into record territory during early April, with the Dow comfortably beating its 2007 high of 14,125 Final statistics from the Department of Commerce had shown that the US economy had grown by 0.4% in the final quarter of 2012, comfortably beating forecasts. But, in the midst of jubilation, Wall Street thought it felt a chill. Was that small stumble on Friday 12th a sign of something?

It might, of course, have been that sensitivities had been momentarily tweaked by the emerging missile crisis in North Korea, where Pyongyang moved medium-range rockets into reach of America’s Guam military base while also vowing to rein nuclear death on Washington.

It might have been worries about the euro zone. It might have been the effects of shock from the Tokyo central bank’s super-QE move, in which it as good as said that it would enlarge the money supply by up to 30% of GDP over the next few years. All of which would savage the yen, reduce the price of Japanese exports and damage US competitiveness.

It might even have been the iffy employment statistics, or the news that retail sales had fallen by 0.4% during March 2013 alone. In fact, considering all these pressures, it was actually pretty impressive that the bull run was still strong.

Somewhere in the market’s mind was an awareness that the President’s Budget proposals for 2014, which repealed the so-called ‘sequester’,

had substituted a revised plan that will effectively cut around $1.1 trillion of expenditure over the next ten years, while also increasing taxes for citizens with incomes over $400,000 a year.

Now, that in itself isn’t so bad. $1.1 trillion of cuts over 10 years is only about 0.7% of US GDP, after all. But it was still far from clear that the Budget would get through the Senate at all. Big battles still lie ahead over the very principles of this thing.

You might, of course, have seen better news by the time you read this. That’s one of the hazards of monthly magazine publishing. But, with the S&P 500’s cyclically adjusted Shiller p/e on 19 – the highest level in 40 months - there are those in the markets who wonder whether things aren’t getting a little toppy?

For more comment and related articles visit...

www.IFAmagazine.com

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

22/04/2013 13:02

Leverage the strength of Wells Fargo

Partner with us As part of Wells Fargo’s 160-year legacy of integrity and service, Wells Fargo Asset Management offers you a broad range of investment products and services worldwide to help your clients meet their financial goals.

Turn to Wells Fargo Asset Management for: ■

■

■

Autonomous investment management teams employing time-tested strategies Independent risk management to ensure alignment between investment processes and our policies and procedures Collaborative client partnerships to help you navigate complex business and investment environments

Get a closer look at our management teams’ individual strengths and processes Management Story

Wells Fargo (Lux) Worldwide Fund

Fundamental Growth Equity team

Managers’ philosophy The Fundamental Growth Equity team believes that because the equity markets are inefficient, a disciplined, bottom-up individual stock selection process provides the best approach for taking advantage of this inefficiency and consistently adding alpha. The team’s rigorous research process is designed to “surround the company” through multiple perspectives that result in a superior level of insight and a clear, 360-degree understanding of each investment opportunity. The team also believes that successful investing is the result of focusing on companies with favourable underlying fundamentals, strong growth potential, and solid management teams, and that owning different types of growth companies is necessary to achieve a balanced return profile and manage risk. Finally, the team maintains a strict valuation discipline to help mitigate the emotion of investing and prevent mistakes from becoming costly.

Competitive advantages: What makes the team stand out Informational advantage gained through “surround the company” research The Fundamental Growth Equity team’s rigorous research process “surrounds the company” and provides multiple perspectives, resulting in a superior level of insight and a clear, 360-degree understanding of each investment opportunity.

Markets evolve and reveal new exploitable tendencies, as investors react to new data in different ways. In response, the team makes 4,000 contacts per year with companies and other information sources (an average of 100 contacts per quarter by each portfolio manager and analyst) in an effort to understand a company’s business model and its prospects for strong, sustainable growth from all angles.

This intensive research process includes in-depth conversations with senior management, as well as middle managers and employees.

It also includes additional research and discussions with suppliers, competitors, customers, and industry contacts. The team scrutinises balance sheets, income statements, and cash-flow statements to understand each company’s capital allocation decisions and its drivers of revenue and earnings, while paying close attention to cash flow and return on invested capital (ROIC).

Subadvisor Wells Capital Management Management team Thomas Pence, CFA Michael T. Smith, CFA Team headquarters Indianapolis, Indiana (USA)

Investment team The 22-member investment team is led by Thomas Pence, CFA, who founded the investment strategy in 1991. He is joined by two coportfolio managers, a product specialist, three senior relationship managers, a client service manager, nine research analysts, three research assistants, and two dedicated traders.

Learn more about what our asset managers can bring to your clients and your practice.

The portfolio management team’s history of working together for nearly 20 years, while consistently executing its repeatable investment process, provides the discipline and expertise that result in the greatest potential for outperformance.

Fundamental Growth Equity

1

Get copies of our Management Stories by calling our freephone number at 00 800 80050803

Wells Fargo Asset Management c/o Wells Fargo Securities International Limited One Plantation Place, 30 Fenchurch Street, London EC3M 3BD +44 20 7149 8362 Lines are open Monday through Friday from 9 a.m. to 5 p.m. U.K. time, excluding U.K. bank holidays.

Call costs may vary—please check with your telecommunications provider. Calls may be recorded for security purposes and so that we can monitor the quality of our service.

worldwidefund@wellsfargo.com Wells Fargo Asset Management is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Securities International Limited is authorised and regulated by the U.K. Financial Services Authority 214600 01-13

News.indd 15

22/04/2013 10:15

FE_MM_AW1.qxd:FPM

26/9/12

16:40

Page 2

SEARCH NO MORE...

Looking to outsource your fund research and analysis?

FE Research has everything you need. You’ll be able to provide a complete, client focused investment service with high quality, cost effective research and institutional quality analysis that delivers all the expertise of a market leading in-house investment team.

For more information go to www.feresearch.net or call 020 7534 7623

This document is aimed at Investment Professionals only. All content is intended as general information only and does not constitute advice, recommendation or investment research. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Ltd, an appointed representative of Trustnet Ltd which is authorised and regulated by the Financial Services Authority. For our full disclaimer please visit www.financialexpress.net/uk/disclaimer.

News.indd 16

22/04/2013 10:15

ED ’S SOAPBOX

A Matter Of Trust UNDERVALUED, MISUNDERSTOOD, AND CRIMINALLY NEGLECTED BY PLATFORM PROVIDERS. WHO’D BE AN INVESTMENT TRUST BUYER THESE DAYS? MICHAEL WILSON WOULD, FOR A START

Now please don’t get me wrong, I’ve got absolutely nothing against exchange traded funds. They’re the fastest growing area of the whole investment scene, at least here in the UK, and that’s why we’re featuring Kam Patel’s special five–page ETF feature on Page 36 of this www.IFAmagazine.com

Eds Soapbox.indd 17

April 2013

17 22/04/2013 11:26

ED ’S SOAPBOX

magazine... for today ’s discerning financial and investment professional month’s issue. As our experts from Blackrock, ETFS and db X-trackers all make very clear indeed, a portfolio of standardmodel ETFs can fulfil practically all of an average long-term saver’s tracker wishes.

All except for two, that is. First, they generally can’t outperform. Indeed, it would be a kind of failure if they did, because it would imply that they’d stepped outside their authorised parameters, which are to passively track whatever index it is that they’re tracking.

And second, they don’t exactly thrill the soul.

Now, for many investors that’s fine. The recent explosion of open-ended, passively-run ETF funds that don’t require as much as a moment’s human thought has all the advantages of roundthe-clock real-time pricing, slim TERs, and a complete immunity from the liquidity issues that can make life so interesting for the rest of us.

But it’s at special times like these, when global confidence is building and when markets are in generally bullish mood, that closed-ended investment trusts – which is to say, all investment trusts – get a chance to really show their computer-generated rivals what they’re capable of. Because an activelymanaged IT is free to cherry-pick its component parts without fear or favour, it gives the managers a chance to deliver their very best.

A Timely Opportunity And they do! By even the most modest estimates, ITs have outpaced their open-ended rivals by up to 2 percentage points since the start of the year – or, if you like, they’ve grown by a quarter as much again compared with their open-ended UK counterparts. And there seems to be no end in

sight to this trend. For all the shortcomings that we normally hear about active managers – that only 6% of them ever beat their benchmarks, blah blah blah – it’s during bull phases that the handson guys get to show us why they’re getting paid.

That’s not all, because the investment trust universe is moving increasingly out of its familiar base in UK-domiciled investments toward broader mandates with wider and more adventurous horizons to take advantage of new trends. Not that this is anything particularly new, by the way – as Annabel Brodie-Smith of the Association of Investment Companies reminded me, investing in the emerging markets of the day was pretty much where UK investment trusts originally started out before they expanded the UK equity bases.

One star performer, JP Morgan’s Japan Investment Trust, has achieved a remarkable 40% growth in total return over the last six months – and that’s at a discount of nearly 12% to net asset value! And a dividend yield as well.

Not all funds manage things as well as that, of course. The Fidelity China Special Situations fund, run by former superstar Anthony Bolton, has beaten the MSCI China benchmark by a goodly ten percentage points over the last twelve months, with a 13% gain that suggests that its bottom-up, active management strategy is coming good at last. But the operative phrase is that ‘at last’. Bolton’s wonder fund got into a terrible mess after its 2010 launch, apparently because it underestimated the little local difficulties that can afflict Chinese listed companies (dodgy accounting, corrupt local authorities), and it’s still well below its issue price today.

So I hope that’s cleared at least a few things up. Active IT managers aren’t superhuman, and

“It’s at special times like these, when global confidence is building and when markets are in generally bullish mood, that investment trusts get a chance to really show their computergenerated rivals what they’re capable of”

18

April 2013

Eds Soapbox.indd 18

www.IFAmagazine.com

22/04/2013 11:26

You Don’t Understand how ITs Operate?

Relax, you’re not alone. What makes this year’s reticence among advisers especially odd is that many advisers still haven’t really got the hang of investment trusts and seem unsure as to how to use them. What makes that seem odd is that the new whole of market rules post-RDR make it absolutely mandatory for them to consider ITs alongside all other types of funds when you’re weighing up the best options for your client.

So where’s the uncertainty coming from?

In part, I think, it’s force of habit. The fact that ITs don’t pay commission, and never have, has left them operating below the radar as far as many advisers are concerned. The fact that they don’t advertise in the consumer media – indeed, apart from wrapper products and savings schemes they’re not allowed to – has hardly helped matters. And it’s also reinforced the old impression that ITs are for experienced investors who don’t need their products to come in expensive packaging.

www.IFAmagazine.com

Eds Soapbox.indd 19

ED ’S SOAPBOX

they do mess up sometimes. But with the right skills they have the potential to outperform in a way that normal ETFs can never hope to do.

When researching these IT managements, especially in emerging market funds, it’s worth going the extra mile to find out exactly how good the teams are and how well they know the area. That’s one thing that you don’t have to worry about with a bog standard ETF. But conversely, you’ll never outperform either.

But ultimately, some aspects of the IT business take a little more explaining to clients.

And although everybody’s done their regulatory homework on investment trusts – how could you have got to Level 3 without it, never mind Level 4? – a little revision can come in handy.

There are around 400 investment trusts in the UK, valued at just over £100 billion in total (source: Association of Investment Companies). That’s a mere fleabite compared with the assembled 2,000 unit trusts and so forth that are available to UK investors, but it’s growing awfully fast.

Closed-Ended Arguments There is, of course, the fact that ITs possess one characteristic that doesn’t always endear itself to clients who may be trying to create long-term investments that they can leave undisturbed for long periods. Namely, that their values can fluctuate far more extensively than ETFs or open-ended funds like OEICs. That’s because, being closed-ended, their shares are open to the same short-term pressures of supply and demand as any other kinds of shares. And when the herd is running determinedly in one sectoral direction or the other, the result can be a fair bit of volatility.

April 2013

19 22/04/2013 11:26

ED ’S SOAPBOX

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

Give and Take Then there’s the awkward little matter of premiums and discounts, which can be quite hard to explain to some clients. “Why”, some will ask you, “am I getting this trust for 10% less than the net asset value?

I know what my old dad taught me about things that seem too good to be true.” And so on.

And you have to sit them down and explain to them that the discount to NAV is there because the market makes an allowance for the likely cost of disposing of those assets, in the unlikely event that the trust should ever have to be wound up and dismantled in a hurry. Will they really have to be flogged off at 10% below the market value, they’ll ask?

Well, possibly, you say, because if the trust sells off its entire holding in a midsized company in one go it might swamp the market and drive down the share price excessively. So the chances are that we’d have to proceed gradually over a longish period of time so as to mitigate the price reduction. And that would also cost brokers’ fees and a lot of expert time.

“Okay”, says the client, “I get that bit. So, assuming that the trust doesn’t get dismantled, which isn’t likely anyway, I’m getting £100 of assets for every £90 I pay. Where do I sign?” And you have to tell them again, ever so gently, that they’re probably not going to achieve the NAV when they sell, but only the discounted price, just like when they bought it. The discount is likely to be a fixed feature of the investment unless something really amazing happens – such as that the world decides to beat a path to the trust’s door, thus driving up the price so much that there’s no discount to NAV any more.

And after that? Well, maybe the trust will make it all the way from a discount to a premium over NAV. That’s when we get to the interesting bit. Because, although everybody loves a winner, there are going to be some clients who flatly refuse to pay ‘over the odds’, as they’d put it, for a bunch of shares in a portfolio. You can’t win

Simplicity vs Results So an investment trust is a good, honest, straightforward vehicle that holds stocks and doesn’t do anything fancy? Well, almost. For one thing, most trusts have the ability to hold cash as well as investment assets. Indeed, it often takes 12 or even 24 months before a newly-created IT has actively invested all the money that it started out with. There’d be no point in blundering into the marketplace all at once with an open cheque book, because you’d only distort the market and end up paying too much for your assets.

But there’s also the small question of whether the mandate allows for leverage. Some IT managers can crank up their exposure in relation to their investors’ cash by buying high-yielding bonds, property and sometimes private equity.

The higher the leverage, the more chance that an IT can outperform if it gets its positions right.

“Determination to improve on the returns that can be easily had in the UK will shift the burden of responsibility firmly toward more unfamiliar markets” 20

April 2013

Eds Soapbox.indd 20

www.IFAmagazine.com

24/04/2013 11:51

Platforms And so to platforms, the one problem that really doesn’t look like coming to a resolution any time soon. Incredibly, two of the UK’s largest platforms – Cofunds and Skandia - don’t carry ITs at all, while Fidelity FundsNetwork only carries its own funds.

At the time of writing, they were all insisting that there simply wasn’t enough demand to justify the general inclusion of these funds. And although Hargreaves Lansdown does now carry ITs, it makes a controversial 0.5% annual charge for the privilege.

We’ll have to take it on trust that the reasons quoted for these awkward policies are good enough to justify the loss of business. But,

ED ’S SOAPBOX

But it’s fair to say that hedge-fundstyle aggressive positions don’t happen in the IT sector – not least, because if the shareholders ever got the wind up and fled, the effect on the funds’ share prices would be disproportionately large. The incentive to use leverage aggressively just isn’t there.

The Association of Investment Companies estimates that the average level of leverage for UK-domiciled trusts is around 7% at present, and that only 26 funds hold more than 15% - although many of these are built around non-equity activities such as property, which is inevitably leveraged.

(Equity funds are generally far less exposed.)

Only nine trusts held more than 24% at the end of 2012, of which all but four were global or countryspecific funds: one of these was Anthony Bolton’s China Special Situations, with 25% gearing.

at the last count, you could choose from Alliance Trust, Ascentric, James Hay, Novia, Nucleus, Raymond James, Winterflood, Transact.... Yes, there’s plenty of choice. Take your pick.

And the Future?

James Budden, director of retail marketing and distribution at Baillie Gifford, is clear that the current trend toward international trusts will continue. And that managers’ determination to improve on the returns that can be easily had in the UK will shift the burden of responsibility firmly toward more unfamiliar markets where managers can make better use of their bottom-up skills.

At the same time, Budden feels, the one-off marketing opportunity provided by RDR mustn’t be wasted. On 1st April the company cut the fees on its Pacific Horizon Investment Trust, Edinburgh Worldwide Investment Trust, Baillie Gifford Japan Trust and Baillie Gifford Shin Nippon.

Witan’s approach, by contrast, remains firmly committed to the multi-manager principle, which it believes can help to reduce volatility during a difficult period. And with some justification, it would seem: the group announced in March that its net asset value had risen by 15.6%, easily outstripping the 13% growth in its international benchmark. (A composite consisting of 40% UK equity, 20% North American equity, 20% Europe (ex UK) and 20%.).

Do you have a good reason for the Editor to jump back onto his soapbox? Not that he needs any encouragement, please send your requests to editor@ifamagazine.com and stand well back!

www.IFAmagazine.com

Eds Soapbox.indd 21

April 2013

21 24/04/2013 11:51

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

THATCHER’S MICHAEL WILSON REFLECTS ON A REMARKABLE AND SOMETIMES FLAWED LEADER WHO CHANGED BRITAIN’S ECONOMY FOREVER It’s really very doubtful whether Margaret Thatcher would have been shocked by the angry masses who converged on London on the day of her funeral. Or by the thousands who gathered on downtrodden estates around the country to celebrate her passing with beer and tasteless internet downloads. Because the Iron Lady was never in any doubt that her own pivotal role in British society was as divisive as it was cohesive. There was, as she would have said, No Alternative.

As her arch-antithesis Lenin was supposed to have said, you can’t make an omelette without breaking eggs. (Actually the Russian leader was quoting Bismarck, which would probably have been worse.) But one way or another, Britain was in an undeniably scrambled state when Mrs Thatcher came to the Premiership in 1979 – indeed, some of the eggs were simply stinking– and by the time she left Number 10 in 1990 she had cleared away the last of the post-war ration cupboard and created a whole new menu for a newly-empowered society.

Not least in the City, where Thatcher’s determination and insight put her at the forefront of a liberalisation process that was 15 years ahead of either continental Europe or America. The fact that some of her ground-breaking initiatives, such as multi-banking, have had to be reversed by the Vickers inquiry is hardly her fault. Her positive legacy endures – much to the chagrin of Brussels, which is still trying to get even through such measures as the uniform European financial levy.

Nobody’s Perfect

But, looking back, it’s also remarkable that some of Mrs Thatcher’s commitments were built on complete misunderstandings. Her opposition to Germany’s 1990 reunification, for example, was based on a genuine belief that Berlin would

22

April 2013

Maggie Thatcher.indd 22

soon return to its old ways and that the panzer divisions would start rolling westward again.

Her rejection of continental Europe’s borrowand-spend strategy in the 1980s was based on her own committed monetarism, certainly – but somehow she never quite noticed that her biggest American fan, the Republican Ronald Reagan was in fact a closet Keynesian who had no problem at all with splashing public money on reflationary projects.

And she never quite got the hang of how the European Union worked. But more of that anon.

Pensions – An Overdue Reform

It was already four years into Thatcher’s first term when I first came to the City in 1983, having landed a lucky job at the Financial Times. And it was a different world, and harsh in ways that anyone under 50 will find rather hard to believe.

I was fresh from the dole queue, at a time when there were 3.5 million like me. My previous employer had closed down my whole department, and it had celebrated the occasion of my P45 by seizing back my entire company pension. It was legally entitled to do this, back in the bad old days before Robert Maxwell’s demise finally focused the Thatcher government’s attention on the need for a better pension system.

Mrs Thatcher didn’t just abolish that sort of rubbishy behaviour by employers. Her vigorous espousal of the flexible personal pension scheme also felled two birds with one stone.

On the one hand, pension reform did away with the post-war corporatism under which people like my father would work for a single employer from leaving school until retirement day. Portable pensions freed people to move fearlessly around between employers (the so-called portfolio career), which young people take so much for granted.

www.IFAmagazine.com

22/04/2013 11:40

T H ATC H E R ’ S L E G A C Y

LEGACY The Iron Lady was never in any doubt that her own pivotal role in British society was as divisive as it was cohesive

www.IFAmagazine.com

Maggie Thatcher.indd 23

April 2013

23 22/04/2013 11:40

T H ATC H E R ’ S L E G A C Y

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

At the same time, it created a pension funds network that was free in every sense of the word – free to buy whatever securities it liked (unlike Maxwell’s pensioners), and with no need for deference to the employer who was footing part of the bill. That in turn helped to free up the stock market and to drive demand for equities in a way that continental Europe’s pension industry is still grappling to comprehend today.

Big Bang, Big Advantage

But of course, pensions were only the smallest part of the revolution that Mrs Thatcher unleashed in 1986. In pre-Bang London, jobbers jobbed, marketmakers made markets and brokers helped people go broke - and none of them was allowed to do the

very existence of LIFFE (now part of Nasdaq Europe) was an affront that still rankles today.

LoadsaMoney

But the Iron Lady still had the bit between her teeth. Part of Big Bang’s success was down to the FTSE-100 index (1984), which had been brought in to progressively replace the outdated All-Share Index – the point being that, for the first time, thanks to the power of computers, it was possible to maintain a continuously-quoted index on a fully-weighted basket of all the market leaders.

This, and the simultaneous transition away from physical trading, helped to secure London’s advantage in a way that left New York looking badly out of date. The NYSE still retains some physical trading today. And the Dow Jones still isn’t weighted at all.

The innovations continued. The Unlisted Securities Market (1986) created a marketplace for small and high-risk stocks which still exists in the form of the Alternative Investment Market. Germany didn’t have anything like that until the late 1990s.

And so we came to the Banker Culture of the late 1980s, when sharply dressed yuppies leaned out of their Porsches to wave their Rolexes at us, and Harry Enfield created probably the best and most unpleasant characters of his career. It was just a little unfortunate that London football club fans chose to taunt their impoverished northern counterparts at away matches with the same appalling ‘Loadsamoney!’ gestures that helped to properly confirm the North-South Divide.

Part of Big Bang’s success was down to the FTSE-100 index (1984), which had been brought in to progressively replace the outdated All-Share Index other’s job. The very idea that a broker could make markets on the side was absolutely taboo. Why? Because that was the way it had always been.

The same restrictions applied to banking, where there was no way that a high street bank could get directly into securities trading or investments. And where the distinctions between banks and building societies were rigid. Thatcher did away with most of that.

Big Bang, predictably, created a period of initial bloodletting in which the big banks swallowed up the brokers and the entire system consolidated at the same time as it deregulated.

And America, where banks were still restricted by the Glass-Steagall Act, could only look on with amazement as we let our organisations do things that had been illegal for them since 1932.

And so it came about that Thatcher’s London, to the consternation of Wall Street, “stole” a whole lot of bond and derivatives business that the US regarded as rightfully its own patch. The

24

April 2013

Maggie Thatcher.indd 24

Back To The Frying Pan

We’ve said that the Blessed Margaret, as The Guardian called her after her somewhat preachy manner, post-Falklands, had had some tough old eggs to break. By the late 1970s, it wasn’t just British industry that was stuck in the postwar mould. So were industrial relations..

From the Post Office to British Leyland, from British Steel to ICI, from Rolls-Royce to the Coal Board, from the Post Office to the Water Boards, our society was still built around the same monopolistic leviathans – many of them stateowned - that had done so well for us during the reconstruction era after World War Two. Much of continental Europe is still in that statist era now.

Thatcher’s insight was that we could grow more rapidly and flexibly if we split these profoundly uncompetitive organisations into smaller and more fleet-footed units that would

www.IFAmagazine.com

22/04/2013 11:40

A new dawn Solar 350 is now launching SEIS, EIS and Institutional Offers to fund 20mw of installed solar capacity in 2013 with a target of 100mw each year thereafter.

350 PPM and Grue og Hornstrup have joined forces to create: Solar 350 Ltd 350 PPM Ltd was the number one Executive Developer in 2012 www.350ppm.co.uk

For further information please call 0203 151 1350 or email nickd@solar350.co.uk

Solar 350 Ltd, c/o 350 PPM Ltd, 22 Hanover Square, London. W1S 1JP. Tel: 0203 151 1350 Fax: 0203 151 9350 Solar 350 is registered in England and Wales under company number: 07678367

Maggie Thatcher.indd 25

Grue & Hornstrup A/S is a AA-rated Danish Engineering Consultancy www.g-h.dk Offer Open: 22th April 2013

www.solar350.co.uk 22/04/2013 11:40

T H ATC H E R ’ S L E G A C Y

magazine...

slug it out between themselves for a better consumer service. All we had to do was turn over the state-owned dinosaurs to private ownership.

For the Prime Minister, it was a win-win.

Not only would privatisation bring in huge wads of much-needed cash, and relieve the government of the cost of maintaining a lot of rather creaky old infrastructure. It would also cement Mr and Mrs Working Public into the capitalist system which so many of them professed to despise. It would undermine the immense power of the trade unions – because, hey, why would you want to strike against a company that you owned a piece of?

The measure of Thatcher’s privatisation success came in 1995, when even the Labour Party gave in - scrapping Clause IV of the party’s constitution (“the common ownership of the means of production”) and, by definition, accepting the inevitable. It was a sweet moment for Mrs T, even though she was five years out of office by then.

Meanwhile, Out On the Streets

For many industries, then, and particularly for the trade unions, the writing was on the wall by 1987.

The powerful print unions had been smashed, and Red Robbo’s Trotskyites at British Leyland had been silenced. But the miners and the steelworkers were a different matter. Not least, because their industries were still in the public sector.

The bitterness still felt today by many northerners, and by much of South Wales, goes back to the sheer physical force with which the mines and the steel mills were closed down – all too often removing an entire town’s reason for existence at a stroke. And although most towns have long since rebuilt and repurposed themselves, it was the Iron in the Lady that permanently set them against her.

It’s here that we get to one of the real oddities.

Thatcher was only obeying orders when she closed the coal mines and the steelworks. The European Commission had decided in the early 1980s that every major country should sharply reduce its productive capacity in these dirty old sectors. But it was only Britain that went ahead and did it.

In Germany, coal and steel were quickly declared to be part of the national heritage, and it became politically impossible to close the pits. In northern France and Holland, likewise.

Apart from Luxembourg, which closed its filthy steelworks and became a tax haven, we were a lone beacon of compliance with EU law in a situation where everybody else was fudging it.

The Gap With Europe

Thatcher’s puritanical commitment to correctness, then, had led her to misjudge the squishy and slightly disreputable way that European

26

April 2013

Maggie Thatcher.indd 26

Thatcher was only obeying orders when she closed the coal mines and the steelworks politics worked. Her housewifely insistence on monetarism – refusing to let her government borrow and spend – put her at odds with a continent that was building roads, power stations, housing and airports with Keynesian money while Britain was in uptight austerity mode.

Okay, it didn’t exactly help that Britain was paying far more than its share into the European Budget, and that it fell to Mrs T to demand a refund. (Which she duly got.) But the sense of Britain as a bluntly antagonistic European outsider was what finally made the Iron Lady an embarrassment, not just among her European counterparts but also her own Cabinet.

By the time that Michael Heseltine, improbably assisted by “Dead Sheep” Geoffrey Howe, forced the Iron Lady from office in 1990, she had started to descend into that shrillness, shouting and intransigence for which too many people still remember her. It was time to go.

The Last Laugh

Mrs Thatcher is also entitled to a posthumous laugh at the state of the euro zone, which is mired in exactly the debt she tried to avoid, and which has proved many of her monetarist forecasts correct.

But that won’t make it all right that so much of the nation spent the 1980s and 1990s gazing enviously at a European society across the water that seemed to be having a better time than us.

It also seems marvellously appropriate that her funeral service should have been held in St Paul’s Cathedral – built by one Sir Christopher Wren, who wanted his own epitaph to read (in Latin): “If you require a monument, look around you.”

Quite so.

For more comment and related articles visit...

www.IFAmagazine.com

www.IFAmagazine.com

22/04/2013 11:40

For professional advisers only

Xafinity – for all your SIPP and SSAS needs, trust the experts n This “full SIPP” has achieved a 5 Star rating from Defaqto since its introduction in 2007 n Full investment flexibility, specialising in commercial property & land investments n Free SIPP set up service and annual administration fees starting at £166pa (+vat)

n n n n

n Low cost, single investment SIPP with whole of market investment flexibility n Set-up fee now just £150 + vat n Fixed annual administration fee £250pa (+vat) and Flexible and Capped Drawdown available n Free, simple “promotion” to the xafinitySIPP if additional investments are subsequently required

Free new SSAS Set up and Free SSAS Takeovers of existing schemes Full investment flexibility, specialising in commercial property & land investments Scheme Administrator and Scheme Practitioner services available Up to 50% of net scheme assets available as a loanback, subject to interest of 1% above “bank base rate”.

Contact Xafinity I 01786 434288 I SIPPteam@xafinity.com www.xafinity.com Xafinity SIPP Services Ltd is authorised and regulated by the Financial Services Authority. Registered in Scotland (No 69096).

Registered office is at Scotia House, Castle Business Park, Stirling FK9 4TZ. Part of the Xafinity Consulting Group.

Maggie Thatcher.indd 27

064XSP(01/13)

22/04/2013 11:40

HERE’S ANOTHER NICE MESS

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

THE BAIL-OUT OF CYPRUS HAS SET SOME WORRYING PRECEDENTS. BRIAN TORA HAS SOME ISSUES WITH THE WHOLE APPROACH

Firstly, part of the cost will be borne by depositors in the country’s two largest banks, instead of by their bondholders and other creditors, as has been the previous practice. This goes right against the normal property rights – although, admittedly the arguments put forward by those who are promoting this solution rest on the nature of the financial situation in Cyprus, where the size of the banking industry dwarfs the nations gross domestic product. (Not so long ago, it was estimated that Cypriot banks were holding eight times the country’s annual GDP.)

Uber Alles The driving force behind the terms of the rescue package would appear to be Germany. In this case, Chancellor Angela Merkel doubtless has more than half an eye on the general elections that are due to be held in her own country in less than six months’ time, and which she has no certainty of winning. The thing is, Germany’s taxpayers are becoming tired of shelling out for what they see as profligate southern states that have spent unwisely and borrowed too much. The fact that much of that bank lending appears to have been channelled into the purchase of German goods does not seem to comfort them much.

That Cyprus is something of a special case cannot be denied. More than 40% of the nearly €70 billion that was on deposit when the banks were shut in mid March comes from foreigners – the greater bulk of it being Russian. It is estimated that some 50,000 Russians live in Cyprus - not all oligarchs by any means. Indeed, it is highly likely that some of the more ‘suspect’ cash that found its way into this offshore banking centre has already been channelled elsewhere - leaving genuine, retired, middle class residents in the firing line.

28 JM Finn.indd 28

April 2013

Setting A Precedent The snag was that the ballooning of Cyprus bank deposits, encouraged in part by a less-than-rigid regulatory culture, had required the banks to find homes for all this cash. And unfortunately, one of the destinations was Greece. When the German finance minister Wolfgand Schäuble, claims that the Cypriot banking model is bust, he is simply stating the obvious. So perhaps there is some justification for depositors bearing some of the pain to keep Cyprus from going bankrupt and leaving the single currency zone? www.IFAmagazine.com

22/04/2013 11:45

YOU’VE GOTTEN ME INTO

EXAMPLE But the real message of all this is that those wealthy nations with pockets deep enough to finance these rescue packages want to see the burden of the cost shifted from their own taxpayers to investors. No wonder bank shares took a tumble when the details of the bail-out were made public in late March. Investors in bank bonds, depositors and shareholders will all take a hit when the rescue finally takes place. Cyprus might be a tiny economy, but it is certainly making its mark on the financial scene.

So what are the implications for investors? While those behind the Cyprus scheme insist that it doesn’t set a precedent for other such deals, the weakness of the Euro tells you that not everyone believes that.

And the most vulnerable institutions, if this is indeed the way of the future, must

be the banks themselves – arguably the very architects of the problems being faced in Europe. Piling back into this bombed-out sector does not appear sensible just yet.

As for collateral damage, no doubt Luxembourg must be comparing the size of its financial sector with the rest of its economy and wondering whether it has the right business model?

In democratic states, it is the will of the people that dictate events. The electorate in Germany clearly wants less exposure to these potentially bankrupt nations. But it remains to be seen whether those on the receiving end will take these dictated terms lying down, regardless of the merits.

For more comment and related articles visit...

www.IFAmagazine.com

ETFs. You may know a little. You may know a lot. To become an ETF expert, visit our e-learning centre and discover the A-Z of ETFs in plain and simple terms. Complete the learning modules at your own pace, in a way that best suits you:

How can I become an ETF expert?

(Simple – visit our e-learning centre)

• Face-to-face workshops • Videos • Guides • Online tutorials As well as building your knowledge, you can earn CPD credits too. Visit the address below to become an ETF expert. www.vanguardlearning.co.uk 0800 917 5508

Learning. It’s the Vanguard Way.™

This advertisement is directed at investment professionals in the UK only and should not be distributed to retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2012 Vanguard Asset Management, Limited. All rights reserved. VAM-2012-10-05-0177

www.IFAmagazine.com

VAN_2238 ETF Expert Simple IFA 122x155mm v1.indd 1 JM Finn.indd 29

April 2013

29

27/02/2013 15:16 22/04/2013 11:45

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

VIDEO KILLED THE COPY WRITER IS YOUR WEBSITE JUST AN AVALANCHE OF FACTS AND FIGURES? PETER GEORGI SAYS THERE’S AN ALTERNATIVE TO TIGHTLY PACKED TEXT IF YOU WANT TO CONVEY THE REAL ETHOS AND PERSONALITY OF YOUR FIRM 30

April 2013

Video Linking.indd 30

www.IFAmagazine.com

22/04/2013 12:10

VIDEO LINKING

“55% of communication is visual...”

In finance, like everywhere else, the world is changing.

RDR is fundamentally altering the way many IFAs must do business, and it has created a reappraisal of the relationship that advisers have with their customers. The industry, in every way and at every level, is being forced to adopt a more professional look.

As an adviser, how can you capitalise on this forced change and communicate your new approach to your customers and potential customers? One clear route is to use video.

Video is the medium of the moment. It seems as though the world is entertained - and occasionally informed! - by YouTube, and our children are so comfortable with it that it’s almost frightening. What’s more, 4G will be here at the end of the year, and every phone, tablet and laptop will be able to stream high definition films constantly.

And that’s when things will really change.

Down With Static Websites I’d argue that video is the absolutely most powerful way available for a company to communicate. It’s three dimensional - mixing sound, pictures, music, text and time. When it’s done well, it projects a professional image and gives a human face to an organisation. A company that has gone to the effort of creating videos for the web site is clearly serious about what it does. Video, by definition, shows real things happening.

You have to actually film something to make a video...

By contrast, the world of static websites is downright drab. Too many companies have web sites full of tightly packed text, containing avalanches of facts and figures that fail abysmally to convey the ethos and personality

www.IFAmagazine.com

Video Linking.indd 31

April 2013

31 22/04/2013 12:10

VIDEO LINKING

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

“38% of communication is vocal...”

of their firms.

With a site like that, your customers have no way of getting a ‘feel’ for what you are about, or how you operate, and whether they would like to do business with you. Now, that might not have mattered in the past – but, in the new world of fee based advice, it is the relationship that you build with your customers that is going to make the difference between failure and success.

Now, suppose that, instead of all this, your web site presented them with a small documentary film about your company?

Suddenly, the dynamic of your communication is changed in many ways. It adds a little bit of movie magic, and it shows that there are real people behind the corporate façade. Video conveys passion and enthusiasm, and it allows viewers to create a bond with the people they are seeing on screen.

Fidelity Global Dividend Fund

Lots of exposure to glo b equities. Less to risk.

Find out more today

fidelity.co.uk/ forgedtolast 0800 368 1732

While recent months have seen more positive sentiment returning to equity markets, the economic outlook is still uncertain. As you look to realign your clients’ portfolios, it could pay to take a conservative approach to risk.

The Fidelity Global Dividend Fund does just that. It offers exposure to opportunities worldwide but focuses on high quality, dividend-paying stocks.

This can provide good long-term returns with less volatility than the wider equity market.

And investing globally provides the flexibility to go wherever dividends are growing, giving access to a vast range of good quality companies paying well-covered dividends.

Dan Roberts, Portfolio Manager of the fund, aims to find the strongest of these companies – aided by our team of over 300 portfolio managers and research analysts around the world. What’s more, Dan builds in a margin of safety, by carefully filtering out stocks that are overpriced,

This advertisement is for Investment Professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. Past performance is not a guide to future returns. Source of performance: Fidelity and Morningstar as at 31.01.2013. Basis: bid-bid with net income reinvested. Sector ranking copyright © 2013 Morningstar, Inc. All Rights Reserved. Investment professionals reflect the resources of FIL Limited and its subsidiaries, source: FIL as at 31.12.2012. Data is unaudited. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document, current annual and semi-annual reports free of charge on request by calling 0800 368 1732.

Issued by FIL Investments International, authorised and regulated in the UK by the Financial Services Authority. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and the F symbol are trademarks of FIL Limited. IFA0213/2054/SSO/0513

Job No: 46909-10 Video Linking.indd 32

Publicaton: IFA Magazine

Size: 122x390

Ins Date: March 2013

Proof no: 3

Network

Tel: 020 7291 4700 22/04/2013 12:10

VIDEO LINKING

That’s where you get the edge. The new post-RDR world will be all about building and maintaining personal bonds and using video is going to get you one jump ahead of the rest.

Professionalism Pays So, video is good for you. But not all videos are the same. The internet is awash with homemade movies, and everyone with a mobile phone has the ability to capture some form of moving image. I like to think that video today is at the same stage web sites were 5 years ago. Everyone knew that they wanted one, but there wasn’t enough supply. People went to their cousins, nieces, next door neighbors or friends. They didn’t want to pay properly for them, and if they got one at all it often ended up being just a few static pages. Now, however, web sites are an essential part of every successful business.

You could always get the local media

o bal

1st quartile since launch

30.01.12

or companies whose dividends are at risk. It’s an approach that’s proving highly successful: the fund has delivered top-quartile performance over the 12 months since launch.

Our Global Dividend Fund is one of a range of funds cast in the Fidelity income mould. All backed by our proprietary prietary research. All actively managed. All designed to deliver iver sustainable and growing returns over the long term.

For an income approach that’s forged to last, call or click today.

Video Linking.indd 33

22/04/2013 12:10

VIDEO LINKING

magazine... for today ’s discerning financial and investment professional student to make a film for you, but it’s unlikely to present you in the best light.

They may have a flash show reel, but that’s likely to be the only film they have ever made.

Business communication is complex. You have a brand, a message, and a need to convey professionalism and detail - but you also need your film to work as a film. All of us have been watching TV and movies for as long as we can remember, and we’re very good at judging what works and what doesn’t. We might be happy to watch badly-made films on Youtube, but when it comes to professional-grade video we will compare the showpiece of a professional services company with well-made television.

So, when you’re commissioning your video, you have a choice. You can go for the one man band, the person who shoots, edits produces and directs all by themselves.

They’ll be able to make a film all right, but it won’t be as good as one where a crew of people skilled in each job is used.

There are many roles needed to make a good film.

“Only 7% of communication involves actual words – but those are all you can see on a website” 34

April 2013

Video Linking.indd 34

You need to research it, and to decide what the film is trying to do. You need to write it and plan the filming, and you need to film and direct it. And then it needs to be crafted in the edit, the stage where music and graphics are added. In my 25 years in the industry, I have never come across one person who can do all these jobs as well as individuals who spend their lives doing them.

The Intercasting Advantage One type of film that we find works well for professional services is the Intercast. These interview-based films can be thought of as interview podcasts - and they can offer a chief exec, a company representative or anyone who wants a public persona the chance to put his or her message across in a personable and engaging way.

It works like this. In one half-day sitting, we conduct an interview about three or four thoughts and topics that you might want to put across. Each one is edited into a separate film - and when they’re on your site they create a direct link with the audience and convey passion, enthusiasm and expertise in a way that

written words never can.

Watching an honest interview, where the person on screen is given time to talk, to express themselves and even to think, lets the audience know an awful lot about them.

The way they use language, the topics they talk about, the things they leave out – all give an incredible insight. In fact, a recent Business Week article noted that 55% of communication is visual (body language, eye contact) and 38% is vocal (pitch, speed, volume, tone of voice).

Only a small percentage of communication involves actual words 7% – this is all you see when you read copy on a website.

As a way of starting out with video for your web site, an Intercast can be an effective option. Filming is less complex and time consuming than a full scale corporate film, and you can end up with a range of films that you can place on your web site and disseminate in digital form across the wider world web.

For more comment and related articles visit...

IFAmagazine.com

www.IFAmagazine.com

22/04/2013 12:10

26205

AVIVA INVESTORS MULTI-ASSET FUNDS

5 RISK-TARGETED FUNDS FOR EVERYONE FROM JOGGERS TO SPRINTERS. Guiding your clients through risk profiling is simple. Finding a mix of funds and assets that match their needs – and checking the funds regularly – is not. By offering your clients our Multi-asset Funds, you’re leaving the monitoring of the funds to us, freeing a substantial part of your working day. Each fund is actively managed to aim to stay within a risk range whilst maximising returns over the medium to long-term through unconstrained asset management. So finding an investment solution that keeps pace with both regulation and your clients’ expectations is now easier. Harnessing investment intelligence for the outcome you need.

avivainvestors.co.uk/maf fund&salessupport@aviva.co.uk 0800 015 4773*

For investment professionals only. Not to be viewed by or used with retail clients. * Calls may be recorded for training and monitoring purposes. Calls are free from a BT landline. Call charges will vary from other networks. The value of an investment can do down as well as up. Investors may not get back the original amount invested. Aviva Investors is a business name of Aviva Investors UK Fund Services Limited. Registered in England No. 1973412. Authorised and regulated by the Financial Services Authority. FSA Registered No. 119310. Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk MC2753-V001-262050-CI062359 10/2012

262050-MC2753-V001-AdvertÐ Maf_CampaignÐ Full_PageÐ Runners_&_SprintersÐ Ifa_Magazine-CI062359 1 Video Linking.indd 35

20/02/2013 22/04/2013 15:47 12:10

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

IT’S FULL STEAM AHEAD FOR ETFs, SAYS KAM PATEL, AS INVESTORS CONTINUE TO STOKE DEMAND

With markets showing every sign of a sustained surge, investors have been pouring cash into equities. And one of their most favoured targets has been exchange traded funds - their popularity underpinned by a rich spectrum of solutions and two key advantages over mutual funds: low cost, and the ability to trade intraday just like a conventional stock.

As Deborah Fuhr explains later in this feature, the growth in demand for exchange traded products (ETPs) has been remarkable – and that, of course, is an umbrella term that covers ETFs, exchange traded commodities and currencies, and exchange traded notes.

According to Blackrock, owner of iShares, the world’s biggest

36

April 2013

ETF Special.indd 36

ETF provider, the global ETP industry experienced record net new inflows of $262.7 billion during 2012 - up by 28% on 2011.

And the juggernaut keeps rolling: the industry globally has recorded in bestever first quarter this year, amassing inflows of $70 billion compared to the previous best of $65.5 billion during the same period of 2012.

Matt Johnson, head of distribution for EMEA at ETF Securities, is clear about the reasons for this explosive growth. Efficient portfolio construction in traditional assets, such as shares and bonds, has been augmented by access to previously restricted sectors such as commodities or emerging markets, he says. And when you add to that the ease with which they can be traded, and their low cost, high liquidity and transparency, and you have a killer combination.

ETF Securities saw its global investor assets under management jump by 22% last year to reach $28.9 billion. And although it covers the usual stock indices, its best claim to fame is probably as Europe’s largest commodities ETP provider - offering everything from precious metals and industrial metals, to energy and agriculture, both individually and in baskets. And with short and leveraged commodity exposure if required.

Currency is another major channel for the firm – it offers Europe’s broadest range of currency ETPs, with all G-10 currency pairs available, as well as select Chinese yuan and Indian rupee exposure.

www.IFAmagazine.com

22/04/2013 12:28

ETFs SPECIAL

EXPRESS The RDR Imperative

It is, of course, RDR that has really changed the game for most ETP providers. On the one hand, IFAs are required to consider ‘whole of market’ solutions for clients in order to remain ‘independent’.

And on the other, the banning of commissions under RDR means that IFAs are open to taking on ETPs over actively managed funds -

especially given the famously inconsistent returns of the majority of active funds, and the increased cost pressure from clients.

Kris Walesby, Head of Capital Markets at ETFS, says that IFAs still need to be aware that different product structures have different risks. They should be fully alert to which risks their investment is exposed to, he says, and they need to stay tightly aware of liquidity.

The issue here is that ETPs are not restricted to on-exchange liquidity, but can also source liquidity from their underlying assets. This means, in practice, that large transactions can be executed even if on-exchange volumes seem to suggest otherwise just as long as the underlying situation is sufficiently liquid.

Smart Beta, Better Beta?

Although ETPs look to be neatly tapping into the fast-growing interest in passive solutions recently, there has been a lot of investor interest in “alternative” or “smart” beta indices. These

www.IFAmagazine.com

ETF Special.indd 37

April 2013

37 22/04/2013 12:28

ETFs SPECIAL

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

“The growth in demand for exchange traded products has been remarkable” Deborah Fuhr is partner and co-founder of ETFGI, a independent research and consulting company for the global ETF/ETP industry and its investors

new kids on the block are based on indices that are constructed according to criteria other than market capitalisation.

The theory behind smart beta ETFs is that market capitalisation indices

are inefficient, overweighting expensive shares. Instead, under alternative beta, market capitalisation indices are compared against benchmarks constructed using other criteria, with the “alternative” index ostensibly outperforming the market capitalised index.

Walesby says it is still difficult to make judgements about “alternative” beta products, given their relatively short history. But he urges advisers to be wary about investment strategies that promise to beat the market pointing out that, while there is about $28 trillion invested in mutual funds globally, the majority of these funds are embarrassingly unable to beat market capitalisation indices over extended periods of five years and more.

Since that’s the case, he says, it seems a bit anomalous that ”alternative” beta can be claiming to beat market capitalisation indices over such

IFA Magazine is pleased to announce, in association with Plutus FX, the launch of a brand new FX service for IFAs and their clients

Life can be a...

Imagine - if everytime one of your clients went on their summer holiday or took a foreign business trip; goes skiing in Italy or bought a property overseas; indeed any kind of international payment - you could help them save money!

Following regulatory changes brought in with RDR, you are no longer able to claim the usual trail and commission on fund investments. But FX falls outside this new regulation and represents a useful and significant revenue stream.

This is a specialist foreign exchange service for IFAs and their clients, with Plutus FX providing an outstanding boutique style service combined with access to exceptionally competitive prices.

For more information on the services we can offer you and your clients please don’t hesitate to contact us on 0203 178 3299 to speak to your specialist consultant or email us at FX@ifamagazine.com

ETF Special.indd 38

22/04/2013 12:39

A Widening Marketplace

periods. What exactly have all those active fund managers been doing, he asks, with one eyebrow raised, if almost any index weighting methodology would have beaten the benchmark?

“If markets could really be beaten with simple rulebased systems,” he taunts us, “then surely it would not have taken so long for someone to notice? Markets would seem too efficient to allow such easy outperformance.”

In fact, he says, “alternative” beta sounds suspiciously like active in disguise. “Investing in securities according to a strategy with the goal of outperforming

Walesby and Johnson aren’t alone in seeing a bright future for ETPs. They cite a study, published last April, by consultant McKinsey & Company which predicts that the amount invested in ETPs globally could reach $4.7 trillion by 2015 in a high case scenario, or $3.1 trillion in a low case.

As far as they’re concerned, future growth will come primarily from continental Europe, where ETPs account for just 9% of passive investment versus 20% in the US. And retail demand is set to be a particularly major driver. Whereas retail investors and their advisers in the US hold around 50% of all ETPs, the proportion in Europe falls to 15% of ETPs and only 10% in the UK. That’ll change, they say.

Institutional demand is also expected to underpin strong the growth. “The most sophisticated clients have had limited use for ETPs,” says Walesby, “given that

they could already access all the asset classes that ETPs currently cover. But other ETP benefits, such as enhanced liquidity and convenience, are beginning to grab the attention of these increasingly sophisticated clients.”

ETFs SPECIAL

the index. Does that sound like something familiar?”

Better Asset Allocation Over at Blackrock’s iShares unit, Pollyanna Harper, head of intermediary sales, points to growing awareness and understanding of ETFs among investors and increased recognition of the importance of asset allocation when devising a portfolio as key reasons driving demand.

Like Johnson at ETF Securities, she stresses the simplicity with which ETFs can be managed by investors, ensuring a high degree of control over their investments. “With ETFs, investors know exactly what they are investing in, because you have daily visibility into what securities the fund holds, how it’s performing, and its costs. ETFs can

beach Get rates of up to 4% better than the high street banks ...and still take a commission!

ETF Special.indd 39

magazine

22/04/2013 12:39

ETFs SPECIAL

magazine... for today ’s discerning financial and investment professional be bought and sold as easily and efficiently as any blue chip stock in one single transaction in a low cost manner.” iShares boasts of “a broad and deep range of ETP solutions”, ranging from core exposures to single countries and designed to implement an investor’s investment views with ease. The firm’s Dublin range, for instance, offers more than 140 products, ranging from fixed income equity based exposures, all which can be accessed via a stockbroker or platform. And overall, the group’s 500 funds across such diverse fields as equities, fixed income and commodities probably make it the global brand leader at present.

Increased interest from advisers contributed to a 52% increase in iShares’ platform ETF assets under management between the end of 2010 and the end of 2012. Last year the firm saw $85.3 billion in new flows across all regions and investor types, says Harper. And at the asset class level, fixed income was a key driver of flows, with investors of all kinds adopting ETFs to access bond markets.

Most recently, Blackrock has launched four minimum volatility ETFs which provide access to equity markets with the aim of smoothing out some of the volatility that is often associated with stock market investing. But it says demand is still strong for fixed income based products, which recorded their eight consecutive quarter with inflows of over $10 billion.

40

April 2013

ETF Special.indd 40

Active Versus Passive – The Debate Continues On the merits of active versus passive, Harper believes that the focus for debate has changed over the last few years, and that it’s now about the combination of both strategies. “The financial crisis was a key turning point, she says, because one of the main takeaways has been the perceived need for greater diversification to seek returns and manage risk.

As a result, investors are focusing on the range of tactical strategies available to them in order to access different markets, and at the same time looking at how to reduce the cost of investing.

These two factors combined are driving investors to look at blending index products with active funds in their portfolios.”

Harper is upbeat about the outlook for the industry, pointing out that at present index investing through mutual funds and ETFs accounts for just over 11% of AUM in the European asset management industry: “That represents a doubling over the last six years, and iShares expects this figure to continue to increase.”

David Patterson, head of wholesale distribution for the UK at Deutsche Asset & Wealth Management, agrees with Harper that the financial crisis has played an important role in giving ETFs a fillip. “Because ETFs are tightly regulated,” he says, “and because in Europe most ETFs, and all db X-trackers ETFs, meet the strict UCITS regulations –we’ve found more investors starting to use ETFs post-2008.”

www.IFAmagazine.com

22/04/2013 12:28

The Cost Equation But Patterson believes that the critical factor underpinning growth has been the fact that ETFs are low cost, easy to access products for taking simple market exposure. “More investors are starting to see the benefits of low cost passive investment – and, for them, ETFs are the natural product to turn to.”

Yet if there’s one thing that db X-trackers and ETF Securities are very much agreed on, it’s that reports of a price war in the industry have been much exaggerated.

“The ETF industry is highly competitive,” says Patterson.

“Which certainly benefits consumers - but we don’t see anything in the way of a price war.”

“It’s important for potential investors be aware that, when they’re examining the true costs of holding their ETFs, they need to look beyond the total expense ratio and, ultimately, how closely the product tracks its index annualised tracking

difference is therefore key.”

Johnson at ETFS puts it rather differently. Pricing is only a useful differentiator for identical products, such as “vanilla” benchmark indices, he says. Rather, “when investors purchase ETPs, their focus is on the product’s return. Price is a significant component of that return, but not the only one.”

And in any case, Johnson says, the sheer and growing variety of ETP products means that a price war is rarely appropriate, since aside from “vanilla” indices, there might be little overlap in product offerings anyway. ETF Securities has a large number of unique ETP offerings that are provided by no other market participant.

And the same goes for Blackrosk and db X-trackers.

Like iShares and ETF Securities, db X-trackers is also seeing more investors using ETFs to access markets that have traditionally been difficult to access. “We have Europe’s largest range of emerging markets ETFs.” Says Patterson, “which allows investors to take exposure to, say, Vietnam’s equity market, just as easily as buying and selling the stocks of a company listed on the London Stock Exchange.”

How to Choose?

Patterson advises any IFAs considering ETFs to firstly be aware that so rich now is the variety of solution that it possible to create a portfolio of ETFs that can meet any client requirement in terms of risk or exposure appetite. db X-trackers itself has over 230 ETFs listed, providing exposure to all the major asset classes, across different countries, regions, sectors and so on.

ETFs SPECIAL

A tighter control of operational risks such as counterparty risk has been improving confidence, and most recently the bull market in equities has been bringing many investors back into the equity market via ETFs.

“The key factor to be aware of is the choice that is out there. If your client wants a diversified core portfolio of developed market equities but also wants some element of emerging markets exposure, then with just a few of our ETFs that can be achieved quickly and easy, delivering exposure across hundreds or even thousands of stocks via just a few ETFs.” Others key points IFAS should be aware of include currency hedged products: “Do consider them...they are often overlooked but can be very useful,” he stresses. He also advises IFAs to check the tracking performance versus the index; check the costs of buying and selling; make sure the index being tracked is fully understood in terms of its underlying constituents and the nature of the market risk; and be aware of the fund’s trading currency.

One way and another, Patterson is sure that more and more investors will switch to ETFs in coming years as they see the benefits of taking low cost, highly diversified market exposures quickly and easily through a tightly regulated fund product that is transparent.

“Every now and again we see the emergence of an innovation that endures because its users truly benefit from its existence. ETFs are one of those rare examples. In Europe, assets in ETFs still represent only around 3% of mutual fund assets overall, so there remains significant room for growth.”

For more comment and related articles visit...

IFAmagazine.com

Now read Deborah Fuhr’s views on ETFs www.IFAmagazine.com

ETF Special.indd 41

April 2013

41 22/04/2013 12:28

ETFs SPECIAL

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

Hard Proof that ETFS are Winning Deborah Fuhr, head of ETF research group ETFGI, provides some rare insights into the expansion of ETFs and ETPs in Europe I’ve been looking recently at EdHec’s European ETF survey 2012 of institutional investors, asset management firms and private wealth managers, and a very interesting picture has emerged.

ETFs are a democratic product – or, as some have called them, a disruptive product offering the same array of exposures - to developed, emerging and frontier markets and various asset classes. Transparent, liquid, cost-efficient and with a minimum investment size that makes them appeal to institutional, financial advisors and retail investors too, they occupy a very unusual place in the financial industry.

The Institutional View Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) are used across a wide spectrum of asset classes - but that the largest areas of use are for equity and commodity exposures. 96% of EdHec’s respondents said that they use ETFs and ETPs for equity exposure and 89% for commodities. But Equity ETFs typically account for only 34% of their overall equity exposure, while commodity ETFs and ETF-like products were reported to account for 43% of their overall allocation to commodities.

Edhec’s new European ETF study 2012 found that 67% of the institutions surveyed planned to increase their use of ETFs and ETPs, while only 4% of the respondents expected their use of ETFs and ETPs to decline. Investor satisfaction with their use of ETFs is high, they say, and has been high throughout the seven years that the study has been conducted.

Indeed, investors’ expectations for the future use of ETFs is much more positive than for other alternative index products. 30% of the institutions surveyed said they expected to reduce their use of total return swaps, while 11% expected to increase their use; 26% expected to increase their use of index funds while 24% expected it to decrease; and 28% expected to increase their use of futures while 9% expected to reduce their use.

As we’ve seen in the previous article, performance and costs of active funds have been major factors driving investors to embrace ETFs and ETPs. The new SPIVA Scorecard, which has served as the de facto scorekeeper of the active versus

42

April 2013

ETF Special.indd 42

passive debate, found that most active managers in the United States in all categories - except largecap growth and real estate funds - underperformed their respective benchmarks in 2012. Performance lagged behind the benchmark indices for 63.25% of large-cap funds, 80.45% of mid-cap funds, and 66.5% of small cap funds. The performance figures are equally unfavourable for active funds when viewed over three- and five- year horizons.

6,222 Listings in Europe The first ETF was listed in the US in 1993, and the first ones arrived in Europe in 2000. And after that there was no stopping them. According to ETFGI’s Global ETF and ETP industry insights report for Q1 of this year, the European ETF and ETP industry had 1,962 ETFs and ETPs, with 6,222 listings, assets of US$376 billion, from 47 providers listed on 23 exchanges.

During the quarter, ETFs and ETPs listed in Europe received net inflows of US$7.6 billion. Equity ETFs and ETPs gathered the largest quarterly net inflows, with US$7.2 billion, followed by fixed income with US$1.7 billion, and active ETFs and ETPs with US$664 million, while commodity ETFs/ETPs experienced the largest net outflows with US$1.9 billion.

Equity ETFs and ETPs in received net inflows of US$7.2 billion. North American equity ETFs and ETPs gathered the largest net inflows with US$3 billion, followed by developed Asia Pacific equity with US$2.2 billion, and global equity ETFs and ETPs with US$1.6 billion, while developed European equity ETFs/ETPs experienced net outflows of US$192 million.

Fixed income ETFs and ETPs had net inflows of US$1.7 billion. Emerging market bond ETFs and ETPs gathered the largest net inflows with US$803 million, followed by high yield with US$590 million, and corporate bond with US$550 million, while money market ETFs/ETPs experienced the largest net outflows with US$897 million.

Commodity ETFs and ETPs had net outflows of US$1.9 billion. Precious metals experienced the largest net outflows US$1.9 billion, followed by energy with US$116 million, while industrial metals ETFs and ETPs gathered net inflows of US$143 million.

www.IFAmagazine.com

22/04/2013 12:28

An invitation

New Era, New Strategies

Equipping Advisers for a Profitable Future IFA Magazine, in Association with Rathbones Investment Managers, is pleased to invite you to an event to help advisers interpret and articulate the modern investment proposition.

Bristol, Aztec West Hotel 8th May 2013, 9am – 11:30am The seminar will examine the role that a well-defined DFM strategy can play in an adviser’s future development and look at alternative options available for your business.

8:15am Breakfast & Registration for 9:00am Start: • Michael Wilson, Editor IFA Magazine: The post RDR Climate and economic overview • Gillian Cardy, Managing Director of The IFA Centre: The Adviser’s perspective • Addresses by managers and advisers from leading fund management groups, including David Coombs, Head of Multi-Asset Investments at Rathbones Unit Trust Management

11:30am close CPD-accredited

RSVP: alex.sullivan@ifamagazine.com - 0117 9089686 or visit: www.ifamagazine.com/?p=59493 magazine

From 0.09% (Treat your clients to something inexpensive)

The ongoing charges for our index funds and ETFs range from 0.09% to 0.55%, some of the lowest in their class. You could call it reassuringly inexpensive.

Just another way we put your clients first. vanguard.co.uk/advisers 0800 917 5508 Exceptional Value. It’s the Vanguard Way.™

This advertisement is directed at investment professionals in the UK only and should not be distributed to, or relied upon by retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

It is designed only for use by, and is directed only at persons resident in the UK. Additional costs and charges will arise including purchase and redemption fees or charges levied by the product provider for funds or commissions and bid/offer spreads incurred when trading ETFs via a broker. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2013 Vanguard Asset Management, Limited. All rights reserved.

VAN_2238 0.09% 122x155mm IFA_v1.indd 1 ETF Special.indd 43

27/02/2013 16:16 22/04/2013 12:28

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

DOING THE R IS IT REALLY THAT HARD, SAYS GILL CARDY? Being asked to give a presentation on Ethics and the FSA’s Principles for Businesses proved to be one of the most difficult things I’ve ever been asked to do.

Since content covering ethics has been introduced into the core qualification syllabus, I’ve been collecting a variety of materials and articles on the subject, and drawing from wider than discussions relating to financial services.

The FSA’s own content extends to eleven Principles for Businesses, seven Statements of Principle for Approved Persons, a Code of Practice for Approved Persons, and the Fit and Proper Test for Approved Persons.

Additionally, Accredited Bodies who verify that Investment Advisers have met qualification standards and professional development requirements must have a code of ethics.

And the Reality?

Well, obviously. But the reality doesn’t always shape up to the ideal. One study I found observed that people who had signed up to observe their own institutions’ code of honour stood by it when challenged, even though those institutions in fact had no code of ethics. As compared to people who were not invited to commit to the real codes that their institutions had in place, but who still cheated when tested.

Behavioural economist Dan Ariely observes that we notice other people’s dishonest behaviour whilst

44

April 2013

IFA Centre.indd 44

failing to spot similar flaws in ourselves.

He describes this as the ‘fudge factor’.

Being less charitable, I call it hypocrisy.

This is apparently greatest when there is a distance between act and consequence, and where there are financial incentives to act against the interests of clients. The most insidious form of this ‘fudge’ (hypocrisy) is in persuading ourselves that the act of dishonesty is for the good of our colleagues.

A recent Harvard Business Review blog noted that employees’ personalities are much better predictors of engagement than their salaries. I’ll go further than that, and will suggest that personalities are much better predictors of how they will respond to ethical challenges, at home and at work.

www.IFAmagazine.com

22/04/2013 12:24

BUILD THEIR TRUST

R IGHT THING Awkward Questions Panorama, the epitome of investigative journalism at the BBC, has recently had “issues”.

One programme investigating the Harlequin property scheme was withdrawn following allegations of ‘promises’ made to a contributor.

And now we learn that BBC journalists forbidden from entering North Korea joined a university trip to gain access to that country.

The programme-makers’ rationale?

“We can’t get into the country any other way, and anyway, everyone got back safely so what’s the problem?”

Meanwhile, as someone else wrote: “The vast rewards, skewed incentives high pressure and extreme opacity of modern finance

“The market economy needs trust... without it, it will fail”

combine the maximum of temptation with the maximum of opportunity ...the market economy needs trust and, without it, it will fail... until morality returns to the markets, we will continue to pay a heavy price.”

It just so happens that the author was the Chief Rabbi (http://tinyurl.com/c5d35zn).

But let’s not confuse the matter with religious beliefs, or confine the discussion to financial services alone.

No Fudging The biggest temptation is to ‘fudge’ by moderating our language.

Promises, or bribery? Borrowing, or stealing? Fudge, or hypocrisy?

Diddled, or defrauded? Silence, or complicity? White lies, or lies?

If every single person committed to a bit more direct speaking and a bit less ‘fudge’ we would collectively travel a long way towards restoring trust in financial services, and other areas of public and private life.

For more comment and related articles visit...

www.IFAmagazine.com www.IFAmagazine.com

IFA Centre.indd 45

April 2013

45 22/04/2013 12:24

THE BEE LINE

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

A PLAN FOR ALL SEASONS YOU CAN’T ALWAYS KNOW WHAT WILL WORK, SAYS STEVE BEE. BETTER TAKE SOME LESSONS FROM THE WILDLIFE

I think I might be turning into Monty Don. I’ve been looking at our frozen garden through the conservatory windows for most of February and March, just wondering when this long winter would ever end. I saw Monty on the telly the other night and he said not to worry, things’ll get better soon and then all hell will break loose in your garden with everything blooming at once.

That was pretty inspiring – and sure enough, last weekend the weather was finally mild enough

46 Steve Bee.indd 46

April 2013

to venture outside without doing a Captain Oates, so I put on my boots and gardening hat and set to sorting out the lawn as job numero uno.

That turned out to be more problematic than I’d imagined it would be, because the whole lawn was covered with weird little single-stemmed plants every six inches or so spaced out almost uniformly in every direction. They looked a little like saplings - small trees - a nascent forest maybe. I dug a few up, and as it turned out that’s exactly what they were. Every one of them sprang from hazel nuts buried just a few inches under the ground.

www.IFAmagazine.com

22/04/2013 12:31

T

I realised then that the fun we’d had all winter, watching the cute squirrels that live in our old tree running around the garden, wasn’t so funny after all. Brian next door has a massive hazel nut tree in his garden that he says he keeps for ornamental reasons and that he’s never ever had a hazel nut off from.

I now know why. Our squirrels have stripped it bare and buried the nuts all over my lawn. That’s why.

In the end, I spent the whole weekend going around digging up each and every one of the nut trees with a trowel. It was hard work, and colder than I’d hoped it would be. It was windy too, and not at all like watching Monty on the box ambling around his immaculate garden with his wheelbarrow and cute dog and pausing every now and then to plant a fabulous shrub in a well-tended plot. Digging up a forest of hazel nut trees one at a time with a blunt instrument in a windswept garden doesn’t make for riveting TV programmes, I guess.

A friend of ours came around on Sunday evening and asked if we had moles? And I said no, we’ve got squirrels, and I went through the whole story of my wasted weekend with him. He

THE BEE LINE

The Curse of Squirrel Nutkin

said he thought squirrels put all their hazel nuts in one place, one big store, that sort of thing?

Diversify and Thrive Well they don’t. In a way, they’re like investors I guess. Putting all their store of nuts into one place would be running the risk of losing the lot in one go, I can see that; one chance raid by another nut-eating rival, or some natural disaster could strike at any time and wipe out the whole pot.

Better by far to diversify, and to spread the risk of losing everything. Even after a weekend’s work I can still see hundreds of little stems I missed when I was out there with my trowel. Some of their investment has survived.

I think when I hear someone talking about squirreling their savings away in the future I’ll know exactly what they’re talking about.

Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the Founder and CEO of www.jargonfree pensions.co.uk

Tailored Platform Solution A low-cost, scalable outsourcing solution that integrates discretionary investment via wrap platform ●

Integrate a long-established investment management company into your proposition

●

Model portfolios built and managed to your philosophy and specification

●

Fund selection process incorporates both the passive and active fund universe

●

Your Firm retains the client relationship and custody of assets

●

We will manage and rebalance the portfolios so you can focus on your clients

JM Finn & Co is one of the UK’s leading investment management companies with £5.9bn funds under management or administration (as at end 2011).

Contact Mike.Mount@jmfinn.com T 029 2055 8800 LONDON

BRISTOL

LEEDS

BURY ST EDMUNDS

IPSWICH

CARDIFF

JM Finn & Co is a trading name of J. M. Finn & Co. Ltd which is registered in England with number 05772581. Authorised and regulated by the Financial Services Authority.

Registered Office: 4 Coleman Street, London EC2R 5TA.

www.IFAmagazine.com

Steve Bee.indd 47

November 2012

47 22/04/2013 12:31

PRODUCT REVIEWS

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

SO YOU THINK NORTH AMERICA DOESN’T DO INCOME? THINK AGAIN, SAYS NICK SUDBURY

US EQUITY INCOME FUNDS

And the Star-spangled Banner...

JPM US Equity Income Let’s be honest, America isn’t normally noted for its high dividends. But the recent improvements in earnings and a generally growing confidence in the economy have been changing all that. Last year, US dividends rose by 16%, with companies such as Apple and Cisco announcing their first ever distributions.

It says quite a lot that, of the 100 or so North American equity funds available to investors, an income mandate has posted the second highest return over the last three years. JPM US Equity Income is designed to produce a regular stream of dividends, whilst also offering long-term capital growth. It is now in its fifth year and has attracted an impressive £1.26 billion in assets under management.

Clare Hart and Jonathan Simon, the FUND FACTS fund’s co-managers, Name: invest in US large and JPM U S Eq uity I ncome mid cap value stocks Type: OEIC with the aim of beating the yield of the S&P Sector: N orth A merica 500 by more than Fund Size: £1.26bn 1%. Their focus is on companies with durable Launch: D ec 2008 franchises and strong Portfolio Yeild: 2.45% management teams, since they believe that these Initial Charge and should be able to deliver AMC: 3 %, 1 .5% Manager: JPMorgan Asset Management Website: am.jpmorgan.co.uk

48

April 2013

Product Reviews.indd 48

superior long-term returns and a rising income.

Just over half of the portfolio is invested in stocks with a market cap of between $10 billion and $100 billion, with a further 30% in mega caps and no exposure whatsoever to companies worth less than $1 billion. The top 10 holdings account for just over a quarter of the fund, and include the likes of Wells Fargo, Pfizer, Merck, Exxon Mobil and Johnson & Johnson.

In terms of sectors, the largest exposure is in Financials, which makes up a quarter of the portfolio though it only accounts for 16% of the S&P 500 benchmark. Other key positions are in Consumer Discretionary, Energy and Healthcare – and the most significant underweighting is in Information Technology.

JPM US Equity Income is currently yielding 2.45%, with the dividends paid quarterly. Since its launch in December 2008 it has achieved a cumulative return of 80% against a benchmark gain of 91% - with most of this underperformance coming during the growth led stage of the market recovery in 2009/10.

In the last 3 years JPM US Equity Income has outperformed the S&P 500 by around 3%, which is a decent achievement given the efficient nature of the American stock market. The large exposure to the Financials sector is certainly a risk, but if you expect the economic recovery to continue and are looking for a regular source of income, it may well fit the bill.

Designed to produce regular dividends, whilst also offering long-term capital growth www.IFAmagazine.com

22/04/2013 12:32

PRODUCT REVIEWS

...In Triumph Shall Wave Neptune US Income Clients who are looking for a higher yield may prefer Neptune US Income, which is paying 3.53% with quarterly distributions.

The fund, launched in September 2010, aims to produce a rising level of income together with the potential for capital growth. It does this by investing in US and Canadian companies, as well as overseas stocks that derive a significant proportion of their business from North America.

The manager, Rebecca Young, has put together a concentrated portfolio of stocks that she believes will be able to significantly grow their dividends. These can include small and medium sized businesses, although the emphasis on income reduces some of the additional risk associated with these types of holdings.

Young is positive on the outlook for the American economy, and she points to the strength of the manufacturing sector where large multinationals like Intel and Caterpillar have announced significant expansion plans. She also believes in the durability of the recovery in the housing market.

Young expects the general trend of dividend growth to remain strong over the next few years - and if she’s right it ought to make these sorts of companies even more attractive to investors.

Another interesting point is that the dividend payers are not all located in the low growth parts of the market like utilities, but can also be found in higher beta areas such as Energy, Financials, IT and Industrials. All of these sectors are well represented in the portfolio: together they comprise almost 53% of the fund.

FUND FACTS As a relatively young fund, Neptune Name: Neptune US Income is still US Income very small with Type: OEIC just £14.1 million in assets under Sector: North America management. But Fund Size: £14.1m it has a decent Launch: Se pt 2010 performance record, with a second quarter Portfolio Yeild: 3.53% ranking. Its main Initial Charge and appeal is the high AMC: 5%, 1.75% yield, which is around 1% more than most Manager: of the other income Neptune Investment funds. Clients who Management need the extra Website: money may well be neptunefunds.com prepared to overlook its diminutive size.

As a relatively young fund, Neptune US Income is still very small with just £14.1 million in assets under management www.IFAmagazine.com

Product Reviews.indd 49

April 2013

49 22/04/2013 12:32

PRODUCT REVIEWS

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

O’er The Land of The Free...

SPDR S&P US Dividend Aristocrats UCITS ETF The main risk when investing in a high yielding stock is that the company might run into difficulties and have to reduce or suspend its distributions.

When this sort of thing happens it usually results in a sharp plunge in the share price, leaving investors with a large capital loss and a lower income.

One way to try to avoid this situation is to only invest in companies that have successfully managed to increase their dividends for a long period of time which is exactly the approach taken by FUND FACTS the SPDR S&P US Name: SPDR S&P Dividend Aristocrats US Dividend Aristocrats ETF. USDV UCITS ETF (USDV) provides exposure Type: ETF listed in to constituents of London the S&P Composite 1500 index that have Sector: US Equity grown their payouts Fund Size: $946m every year for at least 20 years.

Launch: Oct 2011 Stocks are only Portfolio Yeild: 3.05% included if they have a free float market TER: 0.35% cap of more than $2 Manager: State Street billion and a 3-month Global Advisers average daily trading Website: volume of $2 billion, spdrseurope.com which together ought to ensure that there is

sufficient liquidity. The benchmark is rebalanced quarterly, based on the dividend yields, subject to a maximum 4% weighting, with the constituents recalculated once a year in January.

There are around 80 individual holdings in the fund, with the top ten including the likes of AT&T and Johnson & Johnson alongside less well known names. These companies have both growth and income characteristics, and an average market cap of $46 billion. The main sector exposures are Consumer Staples, Industrials, and Financials, with the portfolio yielding 3.05% and having a PE ratio of 15.5 times earnings.

Since its launch in October 2011 the ETF has risen by 27%, which is equivalent to an annualised return of 19%. The timing was extremely fortunate, but that’s not the whole reason for its success - the benchmark index has been back tested to the end of 1999, and over that period it has significantly outperformed the S&P 500.

SPDR S&P US Dividend Aristocrats has proved extremely popular, attracting assets under management of $946 million. It uses physical replication to track its benchmark, with the dividends distributed every quarter, and it has a competitive TER of 0.35%. Essentially, this is a smart beta ETF which combines low cost with the ability to outperform a general market index. Income seeking clients may want to use it as one of their core portfolio holdings.

The benchmark index has been back tested to 1999, and over that period it has significantly outperformed the S&P 500 50

April 2013

Product Reviews.indd 50

www.IFAmagazine.com

22/04/2013 12:32

PRODUCT REVIEWS

...and The Home of The Brave!

Middlefield Canadian Income Trust And now for a non-American alternative.

Clients who are seeking steady high dividends as well as long-term capital growth might like the diversification benefits of investing in the Middlefield Canadian Income Trust. This fund provides exposure to a diversified but actively managed portfolio of Canadian equity income securities.

MCT is an investment company incorporated in Jersey which trades on the LSE. It is run by Middlefield, a specialist firm with expertise in the oil, gas, mining, real estate and equity income sectors. Their asset managers use a dual decision making process that combines a top down asset allocation strategy with bottom-up stock selection.

Middlefield has put together a concentrated portfolio of around 60 holdings with the top 10 accounting for 30% of the fund. The largest sector exposure is Energy Producers with a 20% weighting. This is followed by Utilities, Real Estate and Financials, which are all around the 10% mark. Gearing is used tactically and is capped at 25%, but is currently close to zero.

The managers are positive on the longterm outlook for oil and expect prices to be in the range of US$80-$100 per barrel over the next 5 to 10 years as new supply remains expensive to develop. They are also bullish on the prospects for the Canadian Real Estate sector, due in part to the relative strength of the economy and the low unemployment rate.

Since its launch in July 2006 the fund has achieved a cumulative return of 75.4%, leaving its equity income benchmark growth of 57.8% for dead. And remember, over the same period the FTSE All-Share has risen just 12.9%. Yet, despite the strong performance, we need to remember that the underlying holdings make this a lot more volatile than a more traditional income fund.

MCT pays a quarterly dividend of 1.25 pence per share, which gives it an annual yield of 4.4%. Last year the fund successfully raised additional capital and FUND FACTS it retains the flexibility Name: Middlefield to issue more shares Canadian Income to meet the demand. It Trust (MCT) ) currently has a market Type: Investment value of ÂŁ121.8m and Company is trading on a 3% premium to NAV. Sector: US / Canada Middlefield Income Canadian Income Market Cap: ÂŁ121.8m Trust provides a very different exposure to a Launch: J uly 2006 normal equity income Yeild: 4.4% fund. This makes it a great diversifier for Ongoing Charges: 1% clients that are looking Manager: Middlefield for long-term capital International growth, while the high Website: and regular dividends middlefield.co.uk provide an attractive source of income.

This fund provides exposure to a diversified but actively managed portfolio of Canadian equity income securities www.IFAmagazine.com

Product Reviews.indd 51

April 2013

51 22/04/2013 12:32

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

Lee Werrell, Managing Director of CEI Compliance Ltd, takes a tour of the FCA’s new website and discusses the new authority’s powers New Dawn, New Regulators?

The new regulators have now taken over, and they have already starting firing their warning shots across the bows of those that are considered to be less than professional with their business dealings.

The changes to the section 166 of FSMA now enable the FCA, PRA and Bank of England to appoint a Skilled Person directly, where appropriate, to provide a report on any regulated firm or recognised investment exchange.

We also enter into a new era of S166 Skilled Persons Reports, where the firm will no longer be tasked with finding suitably qualified persons to put forward a proposal, and with selecting the company that the firm feels they would like to do the work (usually the cheapest). Under the guise of the EU Procurement Directive, the regulators have now moved onto the world of panel selection for your skilled person reports.

Dealing with a S166 Requirements Notice has always been traumatic and testing for the recipient, and now that firms will have little or no say in who is going to conduct the work, there is a greater need to understand how best to deal with the notice and act in compliance with the regulations.

Further to this, there are certainly right and wrong ways to manage a S166 request - and most firms usually get it wrong, leading to a toxic atmosphere and huge resentment and to awkwardness on both sides.

The New FCA Website – A Quick Overview The new FCA Website, if you haven’t found it yet it is at www.fca.org.uk, is laid out a little differently to the old FSA website.

Obviously, the colour change to claret from that strange melon sorbet pastel green of the former regulator is a welcome change. But that is not the only one.

The navigation bar at the top provides a panoramic array of actually helpful links depending on the perception of the viewer.

52

from scamming, the information they may need before borrowing, opening accounts or investing.

The “Firms” tab is a really useful innovation that allows you to access information that is pertinent to your type of firm. If you look under the “Systems and Reporting” sub menu, you will find a trail to lead you to the FCA Register, which is a re-branded FSA URL of www.fsa.gov.uk/register/home.do

The “About Us” is informative, and it provides a good view of the regulator and its place in the governance of financial services in the UK. There is even a nice half page explaining about international involvement.

You will probably also find most information you will need to run your firm under the “Being Regulated” header, especially for things like www.fca.org.uk/ firms/being-regulated/meeting-your-obligations/ financial-promotions/financial-promotion-faq

The “Consumers” tab provides a wealth of information and help for financial services customers to read all about complaints, protection

Under the “News” tab you will find details of the latest releases as well as press releases, consultation papers and speeches.

April 2013

Compliance Doctor.indd 52

www.IFAmagazine.com

22/04/2013 12:37

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

The “Events” tab covers seminars and a useful area of upcoming information, but currently little else.

The “Your FCA” tab is probably of most interest for compliance people as it contains consultation papers with a “Preview” or “Download” option. There is also the final notices, finalised guidance and handbook notices, all with a search and filter resource box, which is handy.

Overall the setup is one of a “blog” style, and is relatively easily navigable. But there is no sign of the link to the handbook until you go to the footer of the pages where you will find a handbook link www.fca.org.uk/handbook

It would be easy to pick fault with the layout, but it appears that a concerted effort has gone into making the site user friendly and easy to find the most information you need quickly and relatively easily.

It might be a foible of running duplicate sites, but I found that if you clicked on a link before the page had fully loaded (which in internet terms is slightly slow) you often get a 404 Error “Page not found”. You need to be patient and pause for a couple of seconds before clicking through. The major letdown is that there is no favicon on the browser tab - only the page with a corner turned down standard browser graphic; I am sure it won’t be the only trick they miss during their tenure.

The FCA’s General Enforcement Powers Due to the changes in the Financial Services and Markets Act 2000 (FSMA), the Financial Conduct Authority (FCA) has an extensive range of disciplinary, criminal and civil powers to take action against regulated and non-regulated firms and individuals who are failing or have failed to meet the standards the regulators require.

Examples of these powers include being able to:

www.IFAmagazine.com

Compliance Doctor.indd 53

n

Withdraw a firm’s authorisation;

n

Prohibit an individual from operating in financial services;

n

Prevent an individual from undertaking specific regulated activities;

n

Suspend a firm for up to 12 months from undertaking specific regulated activities;

April 2013

53 22/04/2013 12:37

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

magazine... for today ’s discerning financial and investment professional n Suspend an individual for up to two years from undertaking specific controlled functions; n

Censure firms and individuals through public statements;

n

Impose financial penalties;

n

Seek injunctions;

n

Apply to court to freeze assets;

n

Seek restitution orders; and

n

Prosecute firms and individuals who undertake regulated activities without authorisation.

The FCA will work very closely with other law enforcement agencies.

The Enforcement Procedure for Disciplinary Cases Under FSMA, the FCA is legally required to follow a prescribed enforcement procedure.

In addition, the FCA are required to comply with the Human Rights Act 1998.

The flowchart (right) featured in this guide (http://tinyurl.com/c8hhm29) shows the process of a typical FCA enforcement case where the matter is dealt with through the FCA administrative powers under FSMA. The FCA also has powers to prosecute some offences through the Criminal Courts (e.g. insider dealing) and/or to bring proceedings in the Civil Courts (e.g. injunctions and restitution proceedings).

These procedures are not covered in this guide, but the FCA can provide further information if needed.

Publicity and Enforcement Cases the person to whom the notice is issued.

The FCA does not normally comment on whether it is investigating an issue. The FCA may if appropriate publish information about certain Warning Notices, having consulted

However, it is required to make information public, if appropriate, when it issues a Decision Notice or Final Notice.

The FCA and Mediation The mediation process involves a neutral mediator helping parties to negotiate a settlement.

The mediator will not offer an evaluation of each party’s case, but will purely assist the negotiation.

If the parties consent, mediation may take place at any stage of the enforcement process.

However, mediation is unlikely to be appropriate in cases where we are contemplating bringing a criminal prosecution, or where the FCA needs to take urgent action.

Full Details can be found at www.fca.org.uk/static/documents/ enforcement-information-guide.pdf

See also the listings of FSA publications on Page 56 of this issue

54

April 2013

Compliance Doctor.indd 54

www.IFAmagazine.com

22/04/2013 12:37

M I N T

M E D I A

I N T E R N A T I O N A L

P R E S E N T S :

EMG Previously only available to Banks and other Financial Powerhouses

EQUITY MINIMUM GUARANTEE Thanks to our new personal EMG, banks have never had it so bad!

THIS WILL UNDOUBTEDLY TRANSFORM YOUR INVESTMENT PORTFOLIO ★ ★ ★ ★ ★ Matchless Target Returns ★ ★ ★ ★ ★ Tax Free Profit ★ ★ ★ ★ Incredible Profit Drivers

★ ★★ ★ All Films AAA Insured ★ ★ ★ ★ ★ Low Risk ★ ★ ★ Investment Term 3 Years

THIS IS NOT A TRADITIONAL MOVIE INVESTMENT! THIS IS A EMG INVESTMENT INTO A SELECTION OF BLOCKBUSTER FILMS AND TV MINI-SERIES, WITH LAST MONEY IN FIRST MONEY OUT ★ ★ ★ ★ Professionally Managed ★ ★ ★ ★ ★ Diverse & Affordable ★ ★ ★ ★ ★ Capital Gains Tax Freedom

★ ★ ★ Capital Gains Tax Deferral Relief ★ ★ ★ ★ ★ Inheritance Tax Exemption ★ ★ ★ ★ ★ Income Tax Relief

“The smartest investments are sometimes the most obvious ones” Contact us NOW for your FREE investor Pack, and see what everyone is talking about!

Web: www.mintmediainternational.com Email: ifa@mintmediainternational.com Tel: +44 (0) 20 3384 6363

Compliance Doctor.indd 55

22/04/2013 12:37

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

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

FCA Publications OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FCA

Note: The former FSA’s notification service for smaller firms and advisers has now transferred to the Financial Conduct Authority Larger bodies are now covered by the Prudential Regulation Authority based at the Bank of England

Complaints Against The Regulators

The New FCA Handbook

Policy Statement Ref: PS 13/07 25th March 2013 32 pages

Policy Statement Ref: PS 13/05 25th March 2013 88 pages

In November 2012 the Financial Conduct Authority (the FCA), the Prudential Regulation Authority (the PRA) and the Bank of England (the Bank) (together known as ‘the regulators’) published proposals for the new complaints scheme.

Contains rules and guidance following legal cutover (LCO), when the PRA and the FCA formally came into existence.

With the exception of the former FSA’s statement of approach on qualifying parent undertakings, all other rules and guidance published with this PS will form part of the FCA Handbook, except for the provisions in the instruments that have only been made by the PRA Board (and are designated as ‘PRA’ only)

The document provides giving feedback on the responses received and setting out the final Complaints Scheme.

The Regulation and Supervision of Benchmarks Policy Statement Ref: PS 13/06 25th March 2013 58 pages

Of primary interest to the administrator of LIBOR and the LIBOR-contributing banks. Also to firms that administer or sponsor other benchmarks, and firms that contribute information to benchmarks.

The paper summarises the responses received to the benchmark consultation and sets out a view of those responses. It also presents the Handbook text (rules and guidance) that applies to benchmark administrators and submitters to benchmarks.

The new rules came into force on 2nd April 2013

56

April 2013

FCA Publications + IFA Cal.indd 56

The PS also provides feedback on the consultations it covers.

A separate PS is being published to provide feedback from a PRA perspective on the same relevant instruments.

The new rules came into force from 1st April 2013

FSCS Funding Model Review – Feedback on CP13/1 Policy Statement Ref: PS 13/04 25th March 2013 46 pages

Of interest to all firms regulated by the FSA, and the FCA since 1st April 2013.

The document contains

the revised decisions on the funding arrangements for the FCA retail pool, which had been resubmitted for discussion in January (CP13/1).

The regulator had originally proposed that, as well as the five FCA FSCS funding classes already included in the FCA retail pool by CP12/16, all FCAregulated deposit takers, general insurers, life insurers and home finance providers should also contribute to the pool when it is triggered by costs arising from the intermediation classes.

Making Temporary Product Intervention Rules Policy Statement Ref: PS 13/03 25th March 2013 45 pages

The announcement outlines the process that the FCA will use to make temporary product intervention rules (TPIRs), which may be required in the new regulatory environment after 1st April.

Of interest to all product provider and distributor firms regulated by the FCA, and industry associations. It will also interest consumers and consumer groups.

The new rules came into force from 1st April 2013

Final Rules for Inflation-Adjusted

Illustrations for Personal Pensions and New Guidance on Preparing Product Information Policy Statement Ref: PS 13/02 21st March 2013 49 pages 25th March 2013

Of interest to life insurers and other providers of personal pensions, and firms that advise on personal pensions. Also to consumers, since the new rules govern providing point-of-sale illustrations which take account of the effect of inflation will help them to plan more effectively for their retirement.

The document contains Feedback to Chapters 3 and 4 of CP12/29 and final rules. Changes are described by the former FSA as ‘minor’.

Implementation of the Alternative Investment Fund Managers Directive Part 2 Consultation Paper Ref: CP 13/09 19th March 2013 306 pages

Of interest to investors (both retail and professional), fund managers (including UCITS management companies), depositaries, MiFID firms and non-UK fund managers wishing to market and/or manage EEA or non-EEA funds in the UK,

www.IFAmagazine.com

22/04/2013 12:41

The paper is the second stage of consultation on rules and guidance to transpose the AIFMD. The first Paper in November 2012 had originally intended to cover the whole process, but continuing European transposition work on the AIFMD, and the closure of the FSA on 1st April had created delays. The FCA says it will work with the Treasury to ensure full transposition by 22 July 2013.

Consultation period ends 10th May

Code of Practice for the Relationship Between the External Auditor and the Supervisor (‘the Code’) Guidance Consultation Ref: CP13/03 19th March 2013 6 pages

Relevant to regulated firms and their auditors.

This Guidance updates the May 2011 Code of Practice for the relationship between theexternal auditor and the supervisor, so as to reflect the changes in the statutory objectives of the FCA under the Financial Services Act 2012.

The alterations to Code mainly centre on substituting the FCA for the FSA, but they also stipulate, in respect of SUP 3.8, in particular, that: n To fulfil 3.8.2, an auditor should attend meetings with and provide information to the FCA (3.8.3G). n Within legal constraints, the FCA may pass on relevant information to the auditor (3.8.9G, this guidance simply summarises the position under Part 23 of FSMA and regulations made under FSMA (S.I. 2001/2188)). n An auditor has a statutory duty to report certain matters to the FCA (3.8.10G); this guidance simply summarises the

www.IFAmagazine.com

FCA Publications + IFA Cal.indd 57

position under FSMA (sections 342 and 343) and regulations made under FSMA (S.I. 2001/2587))

Publishing Information About Warning Notices Consultation Paper Ref: CP13/08 18th March 2013 32 pages

The consultation paper sets out proposals on how the newly-formed FCA intends to publish information about the subject-matter of a warning notice, if it should consider it to be appropriate at any time.

Dates for your diary APRIL 2013 22-24

European Pensions & Investments Summit 2013 Montreux, Switzerland

24

Consultation period ends for CP13/01 (How the FCA Could Be More Transparent)

29

Final FSA deadline for advisers contacting investors regarding redress for the Arch Cru funds

Consultation period ends 18th June 2013

Consumer Credit Regulation – Proposed Regime Consultation Paper Ref: CP 13/07 6th March 2013 201 pages

A broad-ranging paper with relevance to all types of bodies involved with consumer credit, and to individual consumers as well as not-for-profit bodies providing debt advice.

The paper discusses how the FCA will carry out its new functions and powers, and at this stage it is merely requesting reactions to the proposed framework and rules for the new consumer credit regime. The FCA will consult again later in 2013 on the details of the new regime.

Key elements include: n An interim permission for OFT licence holders to continue to carry on regulated consumer credit activities. n The authorisation process, including a proposal that interim permission holders will need to apply for full authorisation from late 2014, and a proposal

I FA C A L E N D A R

or elsewhere in the EEA.

MAY 2013 1

Consultation period ends for CP13/07 (Consumer Credit Regulation – Proposed Regime)

8-10

World Economic Forum on Africa 2013 Cape Town, South Africa

10

Consultation period ends for CP13/09 (Implementation of the Alternative Investment Fund Managers Directive Part 2)

13

European institutions to submit first data on new European Capital requirements regulation

13

Conference on The Impact of EU Membership since 1973 London, UK

13-14

Global Tax Summit 2013 Montreux, Switzerland

15-16

European Business Summit Brussels, Belgium

18

Heineken ERC Cup Final Dublin, Republic of Ireland

22

European Council Meeting Brussels, Belgium

25

Aviva Premiership Cup Final Twickenham, UK April 2013

57 22/04/2013 12:41

I FA C A L E N D A R

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

JUNE 2013 3-4

5-7

6-7

Emerging Markets Investment Summit Warsaw, Poland World Economic Forum on East Asia Nay Pyi Taw, Myanmar G20 Finance Ministers and Central Bank Governors Deputies Meeting St Petersburg, Russia

17-18

G8 Summit Enniskillen, Northern Ireland

19-23

Royal Ascot Ascot, Berkshire, UK

22

Australia v British & Irish Lions – 1st Test Brisbane, Queensland, Australia

24-7

Wimbledon Tennis Championships London, UK

n The supervision of credit advertising being subject to the FSMA financial promotions regime. n Prudential requirements for debt management firms. n A number of the Consumer Credit Act (CCA) provisions being kept as part of the new FCA credit regime (e.g. S75CCA). n The supervision of – and reporting by – firms. n How the regime will be funded.

Consultation period ends 1st May 2013

27

European Council meeting Brussels, Belgium

How the FCA Could Be More Transparent

29

Australia v British & Irish Lions – 2nd Test Melbourne, Victoria, Australia

Discussion Paper Ref: DP 13/01 29th June 2013 34 pages

JULY 2013 1

Lithuania assumes the EU Presidency

6

Australia v British & Irish Lions – 3rd Test Sydney, New South Wales, Australia

3-7

Royal Regatta Henley-on-Thames, Oxfordshire, UK

10-14

England v Australia – 1st Test Trent Bridge, Nottinghamshire, UK

18-22

England v Australia – 2nd Test Lord’s, London, UK

22

Projected implementation date in EU Europe for AIFM directive

22-24

US Pensions Summit Chicago, USA

HAVE WE FORGOTTEN ANYTHING? Let us know about any forthcoming events you think ought to be in our listings. Email us at editor@ifamagazine.com and we’ll do the rest.

58

that new entrants wanting to begin consumer credit regulated activities after 1 April 2014 will need to apply for authorisation.

April 2013

FCA Publications + IFA Cal.indd 58

Of interest to individuals and organisations who are interested in how transparency of the newly-formed FCA – and transparency by financial services providers – can generate good outcomes for consumers, firms and the market.

Key areas: n How the FCA could be more transparent: ♦ whistle-blowing; publishing more about enforcement and supervisory activities, and supervisory outcomes. n Information that could be released about firms, individuals and markets: ♦ transparency of the authorisations process, the redress process ♦ transparency of the regulator’s thematic work and early interventions.

n Information that firms could be required to release: ♦ improved transparency in the annuity market; ♦ contextualisation of complaints data; ♦ publication of claims data for insurance products.

Discussion period ends 26th April 2013

The Use of the Group Exclusion and the CREST Regulated Activity Finalised Guidance Ref: FG 13/03 5th March 2013 2 pages

This Guidance clarifies Article 69(7), here referred to as ‘the Group exemption’, of the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO), which has caused some CREST sponsor firms to misread the regulatr’s meaning. Specifically, it clarifies under which arrangements a firm can reasonably rely on the Group exemption.

Primary Market Bulletin No. 5 Guidance Co nsultation Ref: GC 13/02 22nd February 2 013 19 pages

Of interest to the issuers of transferable securities, their advisors and other persons who interact with the UKLA. This Consultation is in connection with the creation of the Knowledge Base, which was launched in December 2012 as the UKLA’s repository of formal guidance for assisting issuers, sponsors and other practitioners advising issuers in interpreting the Listing Rules (LR), the Prospectus Rules (PR) and the Disclosure and Transparency Rules (DTR).

Full details are available at: http://tinyurl.com/a7ngxap Consultation period ends 8th April 2013

www.IFAmagazine.com

22/04/2013 12:41

M AY

m

Very good in its make up and content. Sets itself tfoaside from other publications in the marketplace. l i o oo mph Excellent.

Thank you. Really refreshing. High quality production with some good thought provoking articles useful information. Good useful content. Up-toMonand thly inco m , eaudate tifully ba einfo useable, very good and easily read. Very lanced good articles, relevant to my work. Very interesting, extremely useful. Very impressive read and lots of S N nice to see it in “magazine” style format useful articles Monthly incIoG me, S beautifullythan rather balanced usual newspaper. A comprehensive read. Very good layout and informative. Good content, appealing to the female reader as many TAXSvery publications are ISE driven and focused.

IUNRmale Thank you. A quality magazine for ’s. Good paper with good content which is plain talking. Good layout and easy to read. Not seen anything like this for IFA market. Really good. Worth reading. Interesting content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutely fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the RED please. A very readable same in the months to come publication. It looks likeC an interesting and enjoyable D AR read that I would be happy to have delivered to the office - not something I could Tsay about HE PAIN IN magazine manyThe financial publications! Great - look forward to subsequent editions. Brilliant! Very impressive the top IFAs and all interesting publication.

Looked and felt like SIS a proper magazine rather than other cheaper N T A N A LY E M M O C arepublications. talking about...

W EWSREVIE looking Breath of Nfresh air and topical get your chunks. free subscription in biteTosimply size I’m going get it instead of the fill out the form online at: professional adviser papers and financial adviser www.ifamagazine.com/content/subscribe papers. Enjoyed the read. Keep up the good work!

2 0 12

■ IS SU

E 11

ag

2 01 2 ■ ISSU

na l

M AY

Fo r to da an d in y’s di sc er ni ve stm en t pr ng fin an of es sio

cia l

az

E 11

FRO

M TH E

If yo ur perfo clients ar rman e loo king ce in Schr fo oder their Small portf r potential olio, Cap • Pa weigh ly strong Disc cking over er up a real y Fu comp nd. He the new punc anies h for re’s in As marke why: their ia ts ha size. ve ou (ex. Japa over Small n) an tpe the las er d em t deca rformed • He erging lar de ge co av yw . mpan AA rat eight fu ies nd m ed by anag his str Cityw er. Ma ength ire an tthew d Fund wi , which th the Sc by OBSR Dobb s . He hrode month has 1s has pro is r Asian s, on ven e and t quartile Alpha • Po pe three werfu years rformance Plus l oppo are les and sin over rtunit s heav six ce ies. launc 1 alpha ily res h.

-gen earch Smaller co eratin ed mpan , g op Schro ies portu providing ders nities rich, has ha 1969 . , wi d out mo th nine offi a local pr esen ce re at ce in ww w. s through schr out the Asia since oder reg s.co. uk /d ion. Find Weigh iscov Dow up the new nload er y Sch sm the N U ND

ER

For tod ay’ s dis cer nin g fina nci and inv est al me nt pro fes sio nal

EME M A R G IN G IN TO R K E T TE RR BA RG AI S IT O RY

AL A GRE N EN W

N

THE

S PA N

H ER G O E D ID IT W RO N G ? AL L

AR G O O E ST IL L LO D DO O W N K IN G UND ER

STAY SH A R P

Broaden your clien ts’ income horiz ons with the new Schr oder Managed Monthly High Income Fund :

SM AR TER TH AN AV BE AR MAER AG E STR ATE GI RK ET ES

– Catch some air. With or around 0.5% paid an income aim of 5.5%* p.a. each month. ged Month – Keep your balan ce. With four well ly High Inc incom diversified e sources, bond ome Fund coupons, dividen shares, proper ty ds from income and Schrod ** ers’ Maximiser incom e enhancement strateg proven y. uk /high – Stay on top. income With multiple investm ent strategies run by highly rated not suitab Schroders’ fund le nnual mana for retail client manag including Thoma s. *The expec ers gement charg ding related s See, Gareth Isaac, ted yield of 5.5% derivatives e is deducted from ove similar per Nick Kirrage, is subjec Kevin Murph ly to the marke t to interes capital, this may be annum is not y and securities Richar t rate risk. eroded. Past a reliabl ts. A securi e indica d Sennitt, with a will The value tor of performanc fund manag f those undergenerally pay higher ty issuer may single e is not a future performanc fund may ement not be able of the guide e. The fee. go s and these lying funds. If under yields than more to highly rated meet its obligations down if interest ratesto future performanc income and return Authorised may change. **Plea lying funds suspe securities to make nd or defer timely paymerise and vice versa. e and may not be of your and regula but will be se note that Make your repea the payme ted by the subjec The fund incom nts of interes phone calls Financial greater will not hedgeted. t and princip may be record nt of redemption teto seekin g clients Services its proceeds, market, credit and smile. al. This will Be Authority. ed. the Issuedto fi defau the rst affect UK03 in May fund’s ability get 009 2012on board

by Schro . to meet lt risk. The fund invest the

AUGU ST 2012 ■ ISSUE 13

IN’ THE NEWS

VIEW

A U G U S T 2 0 12 ■ I S S U E 13

SRE

S TA R T S PREAD

NEW

For today ’s discer ning financ ial and invest ment profes siona l

DE LAYE D

ST R ATE M ETA LSG IC

8 777

RA RE , PR AN D PR EC IO US OF ITA BLE

OI L MA RK ETS

30/05/2012

00:45

O C TO B E R

GUIDED SALES

A HYBRID SOLUTION FOR ADVISERS?

S S U E 15 2 0 12 ■ I

THE MOD EL ISN’T IT’S JUST EVO LVIN DEA D G

PUTIN IT ABOUT

d.indd 1

RISE OF THE ARMCHAIR DRAGONS

MO RT GA GE AD VIS ER S

NEWSREVIEW

IFA13_Cover_Sprea

CROWD FUNDIN G

N

UE 15 2012 ■ ISS

ighincome

For professional advisers only. This clients’ original investmen material is not suitable t is not guaranteed for Investment in bonds . As the annual managemeretail clients. *The expected yield and other debt instrument of 5.5% per annum nt charge is deducted market risk in a down is not a reliable indicator s including related from capital, this cycle. The value of derivatives is subject may be eroded. Past of future performan credit rating of those the fund will move to interest rate risk. ce. The income and similarly to the markets. securities. Non-inves The value of the fund performance is not a guide to future return of your other funds and its tment grade securities A security issuer may performance and may go down if interest liquidity depends may not be repeated. not be able to meet will generally pay rates rise and vice upon also be affected. its obligations to make versa. The fund will Schroders has expressedthe liquidity of those underlying funds. higher yields than more highly rated timely payments of not hedge its securities but will London EC2V 7QA. If underlying funds its interest and principal. be subject suspend or defer Registered No: 2015527 own views and these may change.

This will affect the the payment of redemptio to greater market, credit and **Please note that England. Authorised default risk. The fund phone calls may n proceeds, the fund’s and regulated by invests be recorded. Issued the Financial Services in May 2012 by Schroder ability to meet redemption requests in Authority. UK03009 may Investments Limited, 31 Gresham Street,

PL AT FO RM RE -RE GI STR AT IO

WHY IT WILL WOR DESP ITE EVER YTHI K NG

OC TOB ER

08 00 718 777 ** uk/h

www.schroder s.co.

me Fund

IS THIS JAPA N’S MO MEN T?

For today’s discerning financial and investment professional

SLIPP ERY STUF F

Monthly High Inco

SEPTEMBER 2012 ■ ISSUE 14

EVIEW

HOUSE OF TH E RISING SUN

NEWSR

FO O B A M AR ?

TH E BU CK ALWAYS ST OP S TH E PR ES WI TH ID EN T

S E T E M B E R 2 0 12 ■ I S S U E 1 4

EU R O PE

BU Y CO MPAN IES , NO T CO UN TRI ES

redem s ments Limite ption requests in may d, 31 Gresh am Street ,

der Invest

Schroder Managed

e

ome air.

With d 0.5% paid an income aim of 5.5%* each mon p.a. th. ur balanc e. ources, bon With four well dive rsifi d operty inco coupons, dividend ed me s income enh and Schroders’ from proven ancement strategy. p. With mul tiple inve y rated Sch stm roders’ fund ent strategies Register oma ed See managers ure perf s Investm, entGar arkets ormance Funds,eth Isaa ymay and may and may Rich c, Nick Kirr Asia not be be recobe more ard ific ex age, SenPac y.

Japan, UK0289 rded. volatile than repenitt, men ated. with t 3fee.Issued in May markets Equ The valu a ity,sing of well e of inve bid tole 2012

by Sch establish stmentsbid in come see rode r Inve ed economand stments king clients ies.

Limited o get on smile. , board.

JUNE 2 012 ■ I S S U E 12

JUNE 2 0 12 ■ ISSUE 1 2

D D OW

THE S IP P D E B AS TE

O UR FI G H RE AD ER S T BA CK

in

LAN

roder free e at the Aurasm Small Cap statue a Lite App Discov ery to acc , ess spethen point Fund now your . cial, extra conten

artphon

t. n your clie e new Sc nts’ income ho rizons hroder Ma naged Mo come Fun nthly d:

nci al dis cer nin g fina For tod ay’ s nal nt pro fes sio and inv est me

Sparkling investments || JULIUS BAER LUXURY BRANDS FUND

S T JA M E S ’S P L A CTHEE WH AT ’S N? AT TR AC TIO

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.

NISH B L U E S PA

PUTIN RUINS A PROMISING OPPORTUNIT Y

NEWSREVIEW

EYES

of Julius advice. It is given for information purposes only. Julius Baer Multistock - Luxury Brands Fund is a sub-fund Important legal information: The information in this document constitutes neither an offer nor investment from Swiss & in the UK. Copies of the respective prospectus and financial statements can be obtained in English Baer Multistock (SICAV according to Luxembourg law) and it is admitted for public offering and distribution the Financial Place, London, SW1A 1NX, as a distributor of the aforementioned fund (authorised and regulated by Global Asset Management (Luxembourg) S.A., UK Branch, UK Establishment No. BR014702, 12 St James’s Baer Group.

London, SW1A 1NX, United Kingdom. Swiss & Global Asset Management is not a member of the Julius Services Authority) or by the Facilities Agent: GAM Sterling Management Limited, 12 St. James’s Place,

IFA14_Cover_Spread.indd 1

|| JULIUS vestments Sparkling in ND BRANDS FU embourg) S.A. agement (Lux al Asset Man Swiss & Glob UK Branch don Lon e, Plac 12 St James’s 7166 8176 T +44 (0) 20 om global-am.c funds@swiss obal-am.com www.swissgl r Funds. of Julius Bae e manager usiv excl The group. of the GAM A member

RY BAER LUXU

BANKS KERS A F TESRANVD IC DI SA STE RS BU NG LE IM AG E SP OI L TH E

05/09/2012 11:33

SPAIN E Y M AK E TH W ILL RA JO T M OV ES ?

RI GH

Baer a sub-fund of Julius & y Brands Fund is Swiss Multistock Luxur in English from advice. Julius Baer ial statements can be obtained Financial y as investment financ regulated by the and does not qualif prospectus and (authorised and Group. ation purposes only the UK. Copies of the respective utor of the aforementioned fund er of the Julius Baer inform for memb a given in not is is distribution document 1NX, as a distrib l Asset Management information in this is admitted for public offering and St James’s Place, London, SW1A om. Swiss & Globa information: The 12 1NX, United Kingd Important legal bourg law) and it nt No. BR014702, Place, London, SW1A according to Luxem S.A., UK Branch, UK Establishme d, 12 St. James’s ) Multistock (SICAV ement (Luxembourg g Management Limite Global Asset Manag by the Facilities Agent: GAM Sterlin or Services Authority)

07/10/2012

17:00

indd 1

er_Spread.

IFA15_Cov

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 FCA Publications + IFA Cal.indd 59

22/04/2013 12:41

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

THE AGENCY CALLS

RECRUITMENT AGENCIES AREN’T JUST ABOUT FINDING NEW STAFF, YOU KNOW. RECRUIT UK’S SAM OAKES ASKS WHAT AN AGENCY CAN ALSO DO FOR JOB-SEEKERS I don’t think I need to say that a serious investment requires the inside knowledge and advice of someone experienced. If you wanted to buy a house, you probably wouldn’t just look at pictures on the internet and make a blind purchase. You want someone who can tell you about a faulty foundation, who your neighbours are, and what’s great about the house that you might not realise on your own.

That’s why home buyers use an estate agent. And it’s also why job-seekers use a recruiter.

A good recruiter can present you with multiple opportunities at different companies that you wouldn’t find on your own.

If you are planning to stay with your current employer, then what is your first reaction when you receive a phone call from a recruiter? Do you quickly cut them off and claim that you are not currently looking, or do you take the call and wonder where it may lead?

Believe it or not, even if you are not currently seeking to leave your current employer, it could still be more beneficial than you realise to have that 5 minute conversation with a recruiter.

60

April 2013

Recruitment.indd 60

Below are a few reasons why you should maintain that contact: n By discussing things when you are not ‘actively’ looking, you can gain objectivity and clarity on your current situation. n You can use your recruitment consultant as a sounding board about where you are on your personal career map. n By speaking to a recruiter who offers a ‘consultancy’ service, it keeps you up to date with the job market and salary trends. n Even if you are not interested in new opportunities, what if one of your colleagues or friends is? Perhaps there’s an incentive for you: some recruiters, for instance, will even offer referral fees for anyone who introduces a successful applicant. n Nobody knows what the future holds, so by keeping that relationship open with your recruitment consultant, you are more likely to keep your options open if uncertainty should come up in your current role A main factor of maintaining a good relationship with your recruitment consultant is by being honest about what kind of job you’re looking for and also honest about whether

you’re interested in a job that’s being pitched to you.

If you’re not interested, just say so. This will help refine the kinds of jobs you are approached with, and it will help your recruitment consultant to learn more about your aspirations.

Talking to a recruiter can help you define career goals before you go in for an interview.

Consultants such as Recruit UK have developed strong relationships with their clients, and they can give you inside knowledge of not only the exact criteria that is sought, but also the recruitment process itself thus allowing them to provide you with help in preparation before an interview so you know what your goals are, how they align with what the company wants and how you can sell yourself.

So developing an ongoing relationship with a recruitment consultant can be very advantageous from all sorts of perspectives. But don’t wait until you’re ready to change jobs.

Like most relationships, building good ones can take time.

For more comment and related articles visit...

IFAmagazine.com

www.IFAmagazine.com

22/04/2013 12:44

THE HUMAN RESOURCE

“By discussing things when you are not ‘actively’ looking, you can gain objectivity and clarity on your current situation.” www.IFAmagazine.com

Recruitment.indd 61

April 2013

61 22/04/2013 12:44

Financial Services Recruitment Specialists

Chartered IFA

Self-Employed IFA

Employed IFA

Edinburgh and surrounding areas

Nottingham location

London

Fee based service for individuals and businesses. HNW client bank provided and excellent back office support.

Excellent support towards building your client bank. Generous business split.

Marketing that generates REAL LEADS!

Chartered IFA firm. In house support provided. Active client bank to work from. Fantastic City based office.

My client is a whole of market IFA, they offer true holistic financial advice to their clients.

They have excellent support in place for compliance, a very attractive website that generates 20,000 hits per month and a huge amount of new enquiries per week for at retirement business, annuity, SIPP and Flex draw down business. All leads are passed onto the self-employed advisers and generate £1750+ in fees per case.

My client is a fee based financial planner, they specifically work with clients that hold 250k+ of investable assets. The business is run by two successful partners who also advise and is supported by Para planners and a strong administration team.

The business is set up to offer passive advice not active, so the IFA that comes on board needs to fit this criteria they also no longer advise corporate clients.

My client is focused on supporting IFAs, with experienced administrators, REAL LEADS and the backing of a truly whole of market proposition along with on the job training and support. My client will offer up to 70/30 splits without any on-going charges, a fantastic office, computer desk etc, advertising and marketing that truly works! All FSA fees and PI ongoing costs are covered by the client.

My client is working with top accountancy firms and has a strong presence within the local area; a large amount of business comes through personal recommendations.

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 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 the region of £100k plus a new group scheme to service. Salary depends on experience/ qualifications, but will be circa £50k and you will be eligible for bonus payments, 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.

Ideally candidates will be based in or around Edinburgh where the corporate clients are based, with the remaining clients all within a 25 mile radius.

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.

We understand how hard it is to become an IFA, with very limited opportunities to enter the market, especially when you are unlikely to have any existing clients of your own.

This role would suit an existing IFA who is perhaps disillusioned with their current home, requires a fresh challenge or is not receiving market support, however our client is also eager to meet other financial professionals such as Bancassurance advisers, Paraplanners, Trainee IFA’s or Mortgage Advisers who are qualified to Level 4 Diploma and see this as their next step in their career.

To be a fit for this client you need to have your own client bank, and advising private clients with 250k minimum investable assets. Clients below this are accepted but need to be paying fees of £2500 per year to meet the business model.

Professional and secure my client is a great home for an already established IFA that is able to win new business, requires the backing and support of an administration team and a competitive basic salary.

Our client has an existing team of IFAs who have all held a variety of positions before they joined, so they have a proven transition model for individuals who are not currently in a financial adviser position.

They require an ambitious and client orientated professional who can embrace the constantly changing environment that is financial services today. All FSA fees and PI ongoing costs are covered by the client.

This is a very unique opportunity, contact Sam Oakes at RecruitUK, in confidence.

Thinkers.indd 62

22/04/2013 12:46

Contact us to discuss our latest opportunities:

T 0844 371 4031

Employed and Self-Employed IFA

E HR@ifamagazine.com

Employed and Self Employed IFA

Hertfordshire location

UK wide

Competitive basic salary / business splits. Excellent connections in place with stockbrokers, solicitors and accountants.

Basic 40k - 70k + bonus.

Paraplanner and Admin support with full home set up or modern and professional office to work from.

My client is a well regarded wealth management firm who are representatives of a FTSE 250 organisation. They are currently recruiting for an experienced financial adviser to work in their prestigious office on an Employed or self employed basis.

Recruit UK Ltd are exclusively working with a whole of Market IFA who are offering a basic salary of 40k – 70k for advisers who have a business plan and established client relationships. They offer a leading x2 salary validation that triggers 50% bonus of all business written (recurring income goes towards yearly target)

My client has an enviable reputation for delivering whole of market holistic advice to High net worth and corporate clients and they have created a loyal client base.

Their core business is investment orientated, specialising in pre-retirement planning, IHT, Pension and long term care and they are consistently seeking new ways to expand the business of their specialist advice, including building connections with local estate agents to help with the selling of property for long term care.

An individual who can bring their own client bank is advantageous however you will generate client through connections and introducers and existing clients. Possibly suit an adviser under restricted covenant.

This is clearly an attractive opportunity and you will join a motivated team but the key selling point is the list of introducers you will pick up as my client have developed strong connections with a firm of stockbrokers, solicitors and accountants, so there is great potential to really open up leads and self generate.

The firm has a strong track record of turning talented individuals with a limited supply of clients into high performing and high earning advisers.

For more information on this and others roles we’re recruiting for please contact Sam at RecruitUK .

Thinkers.indd 63

You don’t need 100’s of clients, what’s more attractive is ‘low number of clients high level of investable assets’ Think about your top 25 clients and the relationship you have with them.

Below is an over view of the proposition and a guide to who qualifies; E.g of earning potential; £40k basicx2 validation = £80k target.

Year 1 n You write 120k of total business = 40k + 20k Bonus n

You attract 4 million AUM in first year @ 1% recurring income = 40k recurring income (for next year).

Year 2 n Target 80k you write 120k new business (on top of 40k recurring income) = 40k basic plus 40k bonus n

You attract a further 4 million AUM in second year @ 1% increases recurring income to 80k.

Year 3 n Target 80k you write 120k new business (on top of 80k recurring income). n

You now earn 50% bonus of everything that you write!!

40k basic plus 60k bonus!!!

Who would be a fit for this company? n

Bancassurance Advisers with strong relationships with existing clients (transferable) who need a basic salary and a route into IFA

n

Hunters able to generate own business, working with own introducers and own clients.

n

Existing IFAs with clients who require support

n

Anyone looking for an industry leading buyout option.

n

Someone who wants to remain in control of their clients.

n

Diploma qualified and competent adviser status along with SPS

n

If you want employed to self-employed (up to 80/20 split).

On top of the excellent levels of business you could be writing, our client offers full support in terms of a dedicated administration team and paraplanner. They have excellent training, point of sale tools and full marketing tools with an online CRM. This is a unique opportunity for the right adviser, if this is of interest please contact Sam Oakes at RecruitUK to discuss in confidence .

22/04/2013 12:46

... An excellent event, intensive, well-organised and well worth attending!

C

M

Y

CM

MY

CY

MY

K

Pension Manager, House of Fraser

22 – 24 April 2013, Fairmont Le Montreux Palace, Montreux, Switzerland www.epi-summit.com

Thinkers.indd 64

22/04/2013 12:46

THINKERS

AN AWKWARD LIBERAL “The most hated and also the most admired columnist in the US.” Paul Robin Krugman Born 1953 in Long Island, New York. Currently teaching at Princeton.

A good way to start an argument There can’t be many people with such an attractive ability to annoy. Krugman’s op-ed columns in the New York Times (“The Conscience of a Liberal”) are considered unmissable even by those who hate him, which is surely some sort of an accolade. His 20 books and his 200odd academic papers are respected for their rigor even by his adversaries.

Essentially a Keynesian, Krugman has tackled far too many macro-economic topics over the years to list. But his Nobel Prize for Economics was for his pioneering work on the free trade principle. In between, he found time to teach to Harvard, Yale, Stanford, MIT and the LSE. Phew.

New Trade Theory and the Nobel Prize Krugman’s Nobel Prize-winning study of the free trade principle was a re-thinking of the relationships between rich and poor nations.

Until then, it had been assumed that most trade happened between unequal countries – with under-developed countries selling basic goods to rich ones in return for manufactured goods.

But in the late 20th century the reverse had become apparent – with much trade occurring between relative equals. Krugman said this was because consumers in both rich and poor nations demanded a diversity of product choice even among low-value goods.

Krugman’s ‘New Trade Theory’ used the same consumer choice argument to explain the inconvenient fact that minority brands of (for example) cars could survive even when better ones were being cheaply produced by the million. He concluded that this oddity opened the way for some countries to become niche producers to the worldwide market by achieving efficient economies of scale.

Falling out with four presidents Krugman first cut his political teeth in 1982/83 as

www.IFAmagazine.com

Thinkers.indd 65

chief economic advisor to the Republican Ronald Reagan, which he described as “thrilling, then disillusioning”. Having left, he later supported Democrat Bill Clinton’s economic programme in the 1990s, but failed to get a government job because he was considered too unpredictable.

But it was his increasingly polemical hostility to President GW Bush’s Republican policies that finally sealed his vilification among the right wing. He was also sharply critical of outgoing Fed chairman Al Greenspan for having failed to head off the 2007 mortgage crisis more courageously.

The Obama administration has not escaped his acid tongue. He called Obama’s stimulus plan after the 2007 crisis far too small and inadequate, and he lambasted the president for “spending too much to help large financial institutions”.

This “money-for-nothing financial policy” would “eventually deplete [his] political capital.”

Falling out with the anti-globalisation lobby Krugman’s support for the free trade principle has tested his popularity among liberals to the limit. Anti-globalisation protesters have accused him of helping to subjugate the developing world to the wishes of developed nations. No easy liberal, then.

Just to complete the awkward policy set, he has advocated a “surcharge” on Chinese imports to the US in response to Beijing’s cheap currency policy. Accusations of protectionism have been lightly brushed aside.

Tokyo, I told you so A key thread in Krugman’s theory has been his claim that Japan has spent two decades in a liquidity trap from which there were few escapes as long as its interest rates were close to zero.

The Tokyo central bank, he claimed, had no hope of incentivising growth through cheaper loans, so it must necessarily print lots of new money. It has just agreed to do exactly that.

April 2013

65 22/04/2013 12:46

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

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

SNAKE OIL AT LAST THERE’S A SECTOR THAT RIVALS THE MEDIA IN THE PUBLIC’S ESTEEM, SAYS RICHARD HARVEY. UNFORTUNATELY IT’S US

One of Walt Disney’s most memorable characters was Kaa, the snake in Jungle Book, which slithered up to Mowgli, eyes revolving like the spinners on a fruit machine, hissing: “Trussst in me......”

Unfortunately, while many IFAs appreciate that earning a client’s trust is crucial to establishing a long-term relationship, many are failing as badly as the swivel-eyed serpent.

The proof comes in the ‘Trust Barometer’, an annual survey published by international PR company Edelman, which gauges how much faith the public has in business, government, media and NGOs. This year’s report has one startling statistic for IFAs. While 50% of the general public trust the financial services industry, you don’t have to be a mathematical genius to see that, on the flip side, half of your potential clients consider you as trustworthy as an Istanbul carpet salesman.

Now before you choke on your coffee and cast mocking aspersions on the legitimacy and veracity of PR folk – Alastair Campbell has an awful lot to answer for - the Trust Barometer is copper-bottomed. It’s based on independent research, and the figures don’t lie.

Although a second piece of research indicates that 80% of high net worth individuals do trust their wealth managers, it’s still reasonable to assume that the rest of us looking for advice on a modest savings plan (as opposed to retirement in the Bahamas) are distinctly suspicious.

With the switch from commissions to transaction-based dealings, the time has never been better for IFAs to consider what they have to do to earn client trust?

According to HNW research specialists Ledbury, communication is critical. A big beef among clients is the lack of regular, pro-active contact from their IFA - updates on portfolio

66

April 2013

The Other Side.indd 66

progress, advice on new investments, and an explanation when a particular product doesn’t perform as well as expected.

We all make misjudgements, but a client will often forgive a duff investment recommendation if they have a trusting relationship with their IFA. Although you can only hope your clients haven’t read 19th century Prime Minister Lord Salisbury’s advice: “Never trust experts”.

Bunch of Bankers Mark you, if you ask the man on the number 9 bus, he’ll tell you that IFAs are reputational paragons compared with banks.

Did the Bank of Ireland really factor in public and media outrage when it made the decision last month to increase its mortgage tracker, pegged to the 0.5% bank rate, so that some customers will see their repayments increase fivefold?

“Read the small print in your mortgage agreement” seems to have been the bank’s justification, and technically they’re right.

But methinks the ombudsman is going to have his work cut out over the next few weeks...

www.IFAmagazine.com

22/04/2013 12:46

Beyond Active vs Passive Investment Strategy for the Modern Adviser IFA Magazine, in association with JM Finn & Co, is proud to announce a series of events across the country that will help advisers interpret and articulate the modern investment proposition.

Today’s better-informed adviser has already moved past the traditional ‘passive versus active’ argument: instead, these events are designed to help advisers develop and understand blending strategy, and the benefits of adopting a unified approach.

Dates and Venues JM Finn & Co, Coleman Street, London City Tower, Piccadilly Plaza, Manchester Venue TBC, Birmingham JM Finn & Co, Coleman Street, London

24th April 2013 14th May 2013 12th September 2013 14th November 2013

Provisional schedule:

10:30 am : Open for refreshments 11:00 am : Seminar Begins: Brian Tora - Chairman’s welcome 11:05 am : Gillian Cardy, IFA Centre: The IFA perspective on Passive and Active Funds.

The regulatory environment, and what the modern IFA needs to know.

11:30 am : Mike Mount, JM Finn & Co: The DFM approach to blending.

Examples of real world mandates, filtering and demand.

12:00 am : Panel discussion and expert insight from leading providers

Topics to include:

• Hands On or Hands Off? This seminar is CPD Accredited

Passive/Active Balance and the Client Profile

• Passive and Active Strategies How Much More Can an Active Approach Achieve?

Control Versus Cost, and Finding Solutions for Every Client

12:45 pm : Lunch:

2:00 pm :

Alec Stewart

Entertainment will feature an address and Q&A by international cricketing legend Alec Stewart, the most capped England Test cricketer of all time.

Close

Add to register or for more information, visit www.ifamagazine.com/events or e-mail events@ifamagazine.com magazine

The events will be filmed and edited to appear on web sites and will also be distributed via BrightTALK thought leadership channel.

Cover 20.indd 3

22/04/2013 12:54

START HERE

Henderson European Focus Fund

If you think finding investment opportunities in Europe is worth the journey

For many investors, Europe is a market that appears to offer little potential. However, the gloom masks the quality and strength of European companies, many of which benefit from global sales. Managed by John Bennett, the Henderson European Focus Fund aims to achieve long-term capital growth and take advantage of the excellent investment opportunities this market has to offer. The fund has the freedom to invest across the European universe, excluding UK, adding value from out-of-favour stocks, as well as benefiting from larger European companies that have a strong track record.

For a different view on investing, follow us online at HGi. It’s your direct link to the latest thinking from our industry experts and can be accessed from your desktop or on the move from your tablet or smartphone.

Since managing the fund

Fund performance

1yr

Quartile ranking

1st 1st 1st 1st

2yr

3yr

Source: Morningstar at 29 March 2013, based on cumulative performance, UK sterling, mid-mid, net income reinvested for a basic rate taxpayer. Note: John Bennett started managing the Henderson European Focus Fund on 14 January 2010.

Please note past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

0800 856 5555 HGi.co/STARTHERE This advertisement is for professional advisers only.

Ratings at 28 February 2013. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no. 2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.

C32018.008_HGI_Euro Fund_IFA mag_Apr13_297x210_v1.indd 1 Cover 20.indd 4

17/04/2013 12:54 10:33 22/04/2013