Ifa3 lores

For today ’s discerning financial and investment professional

Paraplanners Don’t Leave Home Without One What Low Yields are Really Telling Us Osborne’s Tradable Annuities

PARITY LIKE IT’S 1999 €1 = $1 AGAIN?

MARCH 2015

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ISSUE 38

19/03/2015 14:35

CONTENTS C O N T R I B U TO R S

Brian Tora an Associate with investment managers JM Finn & Co. Lee Werrell a senior compliance consultant and industry adviser.

Richard Harvey a distinguished independent PR and media consultant.

Nick Sudbury known for his columns in many leading financial magazines.

Neil Martin has been covering the global financial markets for over 20 years.

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

03/15

THE FRONTLINE: What goes around, comes around. If you wait long enough, that is. So what happens now?

Editor: Michael Wilson editor@ifamagazine.com

Art Director: Tony Merlini

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

14

Parity and the Euro It’s been a long time for the undervalued greenback, says Michael Wilson

19 UK Equity Income Funds Nick Sudbury says the current popularity of UK plc is entirely rational

25 Paraplanners And why you need one. Sara Arthur, MD at the Parahub, explains

29 It’s All About the Timing Pensions expert Steve Bee takes some lessons from Tom and Jerry

33 Landscape Artist Neil Martin talks to Mike Parsons, of JP Morgan Asset Management, about the joys of the open road

36 Low Yields, Clear Hints There’s a lot you can tell from the current state of risk aversion, says M&G’s Caitlin Hughes

38 Indexing Error Are you sure you know what’s in that index you’re tracking, asks Brian Tora?

41

tony.merlini@thewowfactory.co.uk

Rethinking the Adviser Model

Publishing Director: Alex Sullivan

Neil Martin talks to John Spiers, the head of crossover adviser EQ

alex.sullivan@ifamagazine.com

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PART

CONTENTS

March 2015

44 Plain Talking Defaqto’s Gill Cardy is back!

46

Still the Big Country

Our panel of senior analysts tells us that America is far from being structurally overvalued

55

Compliance Doctor PS 15/4 is important but it’s been cobbled together at high speed, says Lee Werrell

65 FCA Publications and IFA Calendar In the news, in print and in court. Our monthly listing of what’s new in FCA-land

65 Thinkers: Thomas Malthus The world is not enough, he said.

Was he right?

65 The Other Side Life’s a gamble, says Richard Harvey.

But has the government rigged the odds?

‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. 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 published by IFA Magazine Publications Ltd, The Old Wheelwrights, Ham, Berkeley, Gloucestershire GL13 9QH Tel: +44 (0) 1179 089686 ©2015. All rights reserved

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

IFAmagazine.com

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Ed's Welcome.indd 4

Job No: 49694-2

Publication: IFA Magazine

Size: 297x210

Ins Date: 01.03.15

Proof no: 1

Tel: 020 7291 4700

19/03/2015 14:23

WORDS OF WILSON

March 2015

Look on the Bright Side It’s not every day that I acknowledge a profound debt of gratitude to the inimitable Ken Fisher, the chief executive of Fisher Investments, who writes periodically in the Financial Times about all things transatlantic

I suppose it’s probably the sunny Fisher grin and the annoyingly perma-bull approach to life that grates slightly on a poor jealous Englishman stuck in Wiltshire on a grey day in March. But the other weekend Mr Fisher came up with something that made me properly sit up and take notice. In fact, I’m still trying to work out now whether he’s onto something eternally profound, or just a long run of historical coincidences? You decide.

We are getting our venerable English knickers in a proper twist, Mr Fisher said (I paraphrase him slightly), about the dire financial prospects that are likely to arise from the forthcoming election. It currently seems next to impossible that any of the major parties can hope to form a government without having to sacrifice its bold autonomy to some sort of a messy coalition that will stop it from doing anything decisive.

Lessons from History And that will be just terrible for stocks. Won’t it? Actually,

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Ed's Welcome.indd 5

says Mr Fisher, no it won’t. The markets only thin that they hate an indecisive government with no scope for bold innovation.

In practice, they absolutely love it. And history provides an endless sequence of incredibly profitable stock market runs that have happened during periods of political gridlock.

There was the infamous Lib/Lab pact of 1977-79, which saw a 60% resurgence in the Footsie. There was the awful second Clinton term in the late 1990s, when a powerless Democrat President presided not just over a Republican Congress, but also over one of history’s longest bull markets.

There’s Germany’s toothless grand coalition, which is currently turning in a fantastic Dax performance. There were all those bickering, incompetent European administrations in the 1980s, all of which managed to outperform the UK even though we had Margaret Thatcher running the show.

The point, says Fisher, is precisely that a badly hamstrung coalition can’t do much damage through being clumsy. It can’t pitch its economy headlong into a bold new ideology. I’d personally add that it can’t get away with starving the economy into recovery, as George Osborne has tried to do. nifie , cti e o ernments re li elier to o thin s stoc s h te, says Fisher. ch s ch n e ro ert ri hts, re r re l tions n re istri te reso rces n c it l... h rli ments cre te inners n losers lore, ri in le isl ti e ris ersion n h rtin stoc s.

I wish I’d said that, Oscar. But is he right? We’ll find out soon enough.

Mike Wilson, Editor

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NEWS

Pension Conversions:

The Knives Are Out We shouldn’t have been surprised, or course.

With the general election barely six weeks away, and with one of the tightest run-ins for half a century on the cards, the fighting was bound to get dirty sooner or later

On the one hand was the UKIP leader Nigel Farage, offering to strike up a ‘support arrangement’ for a future Conservative government - while absolutely ruling out a coalition with the Tories because, Mr Farage said, “most of the people sitting around the cabinet table are ghastly”. And all that on condition that David Cameron, or preferably the chief whip Michael Gove, agreed to hold a referendum on Europe this year. (“Total nonsense” was Chancellor George Osborne’s official line on a Tory deal with UKIP.)

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On the other was the fix that shadow chancellor Ed alls got himself into over a collaboration approach from the Scottish Nationalists – an idea that his boss Ed Miliband had already rejected. ut if, as he claimed, the S P wants to break up the nited Kingdom and cannot stand up for the whole of the K , how did he find himself conceding to the ’s ndrew Marr that he was “not going to get involved in speculation about post-election deals, because we are fighting for a majority.

Desperate Times, Desperate Measures There were, then, obvious signs of

desperation coming from both camps. ut what should we make of the hancellor’s preudget statement on 15 March, to the effect that pensioners with existing annuity contracts might still be allowed to participate in the April pension freedoms, despite having signed on the line for a lifetime income rather than unlimited capital freedoms t certainly did look like a late attempt by the Tories to round up the grey vote and stop it running away to K P. nd it seemed a logical extension of last ecember’s other panic measure, which had allowed efined

“From April 2016, the government will remove the restrictions on buying and selling existing annuities”

Chancellor, George Osborne

IFAmagazine.com

19/03/2015 14:30

NEWS IN BRIEF

UKIP Leder, Nigel Farage

enefit pension holders the prospect of cashing in their benefits for -style lump sums. ut how might the new idea work in practice The government’s statement was confident enough The hancellor has announced that the government will extend its pension freedoms to around 5 million people who have already bought an annuity, it began.

From pril 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract ..

Pensioners will then have the freedom to use that capital as they want just as those

to use the proceeds more gradually .

Industry Reactions Tish and pshaah, the industry’s response seemed to say. To sell an existing annuities contract for cash, you’re going to have to find a buyer for it. Which won’t be easy, given that its financial outcome, and

“It’s clear to see how this fits with this Government’s agenda for pensions, but what is less clear is how savers will be protected”

Joanne Segars, CEO National Association of Pension Funds

who reach retirement with a pension pot can do under the pension freedoms announced in udget 2014. They can either take it as a lump sum, or place it into drawdown

IFAmagazine.com

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therefore its value, depends entirely on how long you’re likely to live. re annuity holders looking for a conversion really going to have to bare every detail of their health

to the prospective buyers, like slaves in a marketplace oanne Segars, the hief Executive of the National Association of Pension Funds, put it a little more subtly. t’s clear to see how this fits with this Government’s agenda for pensions, she said, but what is less clear is how savers will be protected. full consultation will be essential . which would need to look at how the buy-back price of an annuity would be calculated so people selling their annuity could be assured of good value and also consider a prescribed process for introducing buyers and sellers to avoid excess costs, which would inevitably be carried by the consumer. ot a good start, coming from the country’s biggest federation with over 1,300 pension schemes covering some 17 million people. ut ndrew Tully, pensions technical director at MGM dvantage, rammed home the point rather more forcibly. t was, he seemed to be saying, nothing less than robbing people twice instead of only once

QE Gets Under Way Quantitative easing in the euro zone got under way, as the European Central Bank started buying in Eurozone government bonds, often at low or even negative yields. Greek bonds are not eligible for support within the current scheme.

Falling Down UK construction output fell by 2.6% in January, sharply below economists’ expectations of a 1.2% rise. It was the biggest fall since November 2013, and contrasted with a 0.6% increase in December.

Housebuilding activity fell by 5% over the month, commercial building by 6.6% and new infrastructure work by 2.7%.

“There are significant risks, he said, and two wrongs won’t make a right. eing sold a poor value annuity and then being offered a poor value cash lump sum, which is taxable, will not address the issue of an inappropriate original sale. uite so. This one’s going to take a bit of sorting out.

7

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NEWS NEWS IN BRIEF

Fool’s Gold The FTSE-100 finally beat its end-1999 record in late February – in nominal terms, at least, In real inflationadjusted terms it would have needed to be 53% higher.

16 Million Orphans?

Yakkety Yak

As if the response to the pension freedoms wasn’t enough,

More than a billion smart phones were sold worldwide in 2014, according to Gartner research.

Global champion Samsung faced tightening competition from Apple after the iPhone 6 was launched.

there was more bad news for the Chancellor, and for the FCA, from Garry Heath, a former Director General of The IFA Association and the eponymous founder of the Heath Report.

And half a cheer for the sceptics who had always lamented the loss of the old commission model.

The true scale of the RDR disaster was only now becoming evident, it seemed.

“23 million UK Citizens used to be able to access advice through

banks or the IFA sector,” it thundered.

But, “thanks to the regulator’s obsession with creating a commission free market 16 million no longer have access,

and if they persist with removing Trail Commission the 7 million consumers still advised will at best drop to 5.5 million, and at worst 4 million”.

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IFAmagazine.com

19/03/2015 14:30

NEWS IN BRIEF

Never a man to mince his words, Mr Heath affirmed that 13,500 advisers have left the industry since the announcement of and that nowadays the only consumers likely to receive advice are the seriously wealthy. Which made it a mystery how this could be seen as consumer protection Institutional Evasion We have a regulator who derives its power from a statute passed

by Parliament but is not responsible to anyone particularly the Parliament that created it, he declared.

This allows the F to embark on this act of vandalism in the sure fire knowledge that no one can stop it. t is an abuse of power - pure and simple .

n

n

The separate disclosure of the advisers’ compliance and compensation costs so that consumers can see the costs they are paying for - over which the adviser has no control.

n

The creation of a oyal ommission to define what citi ens can reasonably expect from the state and what they should provide for themselves.

Garry Heath

The annual cost of is £340 million, Heath insists - and rising. nd the failure of the regulator to define Simplified dvice’, as it promised the Treasury Select ommittee 4 years ago, means that there is no sign of alternative distributions big enough to take up the 16 million abandoned consumers.

The Heath Report therefore proposes n

New legislation to restore proper Parliamentary accountability in Financial Services egulation.

The suspension of the F ’s plans to remove Trail commission in 2016.

My Old China China announced plans to raise the retirement age for both men and women, with effect from 2017. The over60s are expected to grow from 15% of the population today to 40% by 2050.

theheathreport.com

Yee Haw

Wise words or in ammatory rhetoric? Let us have your thoughts please. Email editor@ ifamagazine.com

The Nasdaq, a bellwether for confidence in US tech stocks, closed above 5,000 for the first time since March 2000. The S&P 500 had long been in record territory.

Lord Green

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IFAmagazine.com

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9

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NEWS NEWS IN BRIEF

Stamp of Success Stamp duty revenues on UK residential house sales grew by 24% in 2014-2015 to a record high of £8bn, according to figures from the Halifax building society. But revenues have fallen since the changes contained in the December autumn budget statement.

Grexident Apologies to readers of a more sensitive disposition for what surely must rank as one of the most teeth-grinding puns of the last twelve months

Gone Fishing Russia cut its interest rates to 14%, the second drop in two months, as concerns grew about the viability of economic growth in view of its heavy dependence on depressed oil and gas prices.

The central bank has estimated that GDP will fall by as much as 4% this year. Meanwhile, President Putin’s apparent absence from the public sphere set tongues wagging both at home and abroad.

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But ‘Grexident’ was the word of the moment in mid-March, after Germany’s finance minister, Wolfgang Schäuble, told an Austrian broadcaster on Thursday night that the lack of progress over Greek austerity was increasing the chances of an accidental Greek exit from the euro. ccidental et’s put it like this. The Greek authorities have been up to their armpits in difficult negotiations with russels and the troika’ the European ommission, the European entral ank and the International Monetary Fund), over the levels of austerity that will be required to maintain Greece’s 2011 bailout.

Or, for that matter,

to negotiate a third round of finance when the existing package expires in une 2015.

The problem being mainly that Greece’s new premier, lexis Tsipras, signed up in February to a package of measures that will get him lynched in his own streets if his finance minister anis aroufakis goes back to Athens with very much less than a total climbdown from russels.

Something which he’s most unlikely to get. To quote aroufakis We will succeed in living up to the expectations of the Greek society, the popular mandate and our oath to honour these fights and give popular sovereignty, independence and prosperity back to our country.

Even European president eanlaude uncker’s

appeals for northern European i.e. German) solidarity’ with the errant southern ank of the euro one seemed to be falling on deaf ears unless you count a grudging nod from Germany’s hancellor ngela Merkel. We have, then, an irresistible force meeting an immovable object, which of course is how you generate an explosion.

So what did Sch uble say to upset thens asically, this s the responsibility, the possibility to decide what happens only lies with Greece, and because we don’t exactly know what those in charge in Greece are doing, we can’t rule out an accidental departure Truthfully, of course, it would take a deliberate act of disunion from the E in Frankfurt to activate any such an ejector

IFAmagazine.com

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NEWS IN BRIEF

Wolfgang Schäuble

seat, and there’s surely no reason to suppose that the explosive charges in the release mechanism haven’t been deactivated long ago. ut if you’re looking for the reasons

Germany’s finance minister, Wolfgang Schäuble, has hinted that the lack of progress over Greek austerity was increasing the chances of an accidental Greek exit from the euro

why the euro has slumped close to dollar parity during the last month, the Grexident factor wouldn’t be a bad place to start.

Taxing the Patience Meanwhile, a little counter-intuitively, the first signs of a turnaround in the Greek economy seem to have been tentatively happening. Greece’s statistics service E ST T published an initial estimate for G P growth during 2014 last year which it reckons improved by 0.8 , rather better than the 0.6 that its own forecasters had been predicting. ut don’t hang out the bunting yet.

Preliminary estimates showed that the thens government missed its 1.4bn budget surplus target during the first two months, managing only 1.2 bn because

of a painful shortfall in tax revenues.

Tax revenues, the finance ministry said, totalled 7.3bn around 14 below the targeted 8.5bn.

Undercover Mission? nd that was what prompted aroufakis’s pretty extraordinary plans for a new network of governmentsponsored amateur tax snoopers, each of them wired for sound and video, to seek out Greece’s many millions of serial tax evaders.

Alexis Tsipras

aroufakis confessed, in a leaked memo, that the backlog of tax arrears currently stood at 76bn £55bn) about £5,000 for everyone in the country - but that only 8bn of this was ever likely to be recoverable. Given, he said, that the state’s tax inspection service was demoralised and understaffed, it might be an option to recruit large numbers of hourlypaid non-professional inspectors , including tourists, to check up on his countrymen.

Tourists es indeed, and many of them German, apparently. erlin has already offered to send 500 tax inspectors to thens if need be but the massed hordes of German tourists who head south every summer would also provide excellent cover for the investigators. las, as long as ritain’s climate remains coldly northern, alas, George Osborne can only dream of doing the same.

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We Interrupt this Service…

Bitcoin values sulked around the $285 mark in mid-March – a significant improvement on the $175 level of mid-January but still 35% down on the values of last November. Bitcoin miners had been hit by a wave of denial of service attacks during early March.

Real Pain The Brazilian real continued its worsening slide against foreign currencies, having now lost more than 40% against last summer’s dollar rates.

There were riots in many cities against perceived corruption and political incompetence in the government, which only began its new term in January.

Meanwhile, the central bank’s forecasts of a 0.66% economic shrinkage in 2015 are looking too rosy for comfort.

11

19/03/2015 14:30

NEWS NEWS IN BRIEF

Looking Good Strong US growth was also hinted at by encouraging employment statistics. Meanwhile the Federal Reserve was thought to have advanced its plans for a raising of US interest rates, probably by mid-year.

ETF Assets head for $3 Trillion Clear evidence

Fuhr’s ETFGI

toward passive

consultancy,

moving faster

The spring budget, announced on 18 March, included a new ISA for first time house buyers which would attract £50 of government cash to match every £200 they saved toward their deposits. It was expected to be popular.

The government also relaxed the intra-year withdrawal rules for ISA accounts, allowing investors to draw down cash without losing part of their annual entitlement.

Sweet Harmony The Chancellor also announced various changes to EIS, VCT and SEIS arrangements, which basically harmonised the eligibility rules with the European rules on state assistance. He also abolished the rule requiring SEIS funds to spend 70% of their start-up cash before they were eligible to graduate to EIS status.

12

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to Debbie

that the trend products is

Free Money

According

than expected

we’re looking to break through the $3 trillion milestone for ETFs and ETPs

Only this January, PwC issued a report projecting that global ETF assets under management would double to $5 trillion by 2020. And already, according to Debbie Fuhr’s ETFGI consultancy, we’re looking to break through the $3 trillion milestone for ETFs and ETPs in the first half of .

All of which was rather timely, given that March marked the 25th anniversary of the very first ETF listing, in anada.

Pass the birthday cake and the champagne Total global AUM at the end of February, Ms Fuhr said, came to a colossal 2. 1 trillion some $110 bn more than in ecember 2014. The global ETF ETP industry had 5,632 ETFs ETPs, with 10, 02 listings, from 245 providers listed on 63 exchanges in 51 countries.

in the first half of 2015

Debbie Fuhr

ut traffic was also phenomenal.There were 50.7 billion in net new asset ) in ows during February alone, she said the second largest NNA month on record, after the 61.5 billion recorded in ecember 2014.

Equity Trackers in Favour Where was the money invested Equity ETFs ETPs accounted for the largest net in ows

30.4 bn, or 60 ), followed by fixed income ETFs ETPs with 15.6 bn 30.7 ) and commodity ETFs ETPs with 2. bn in net in ows 5.7 ). On a year to date basis the net new asset ows into all sectors are at record levels - 28.8 bn into fixed income, 8.0 bn into commodities, 2.7 bn into active ETFs and 62.0 bn globally. iShares gathered the largest net ETF/ ETP in ows in February with 1 . bn, followed by anguard with 5. bn and SP ETFs with 4.3 bn net in ows. On a T basis, iShares gathered the largest net ETF/ ETP in ows with 26. bn, followed by anguard with 15.7 bn and WisdomTree with 6.8 bn net in ows. nvestors allocated the majority of net new assets to equities, said Ms Fuhr, as the S market rebounded from a difficult anuary to end February with both the S P 500 and the ow up 6 for the month. olatility declined during the month. eveloped markets were up 6 for the month, while emerging and frontier markets were up 3 .

IFAmagazine.com

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19/03/2015 14:30

March 2015

SOAPBOX

First Among Equals?

It’s been a long time coming, says Michael Wilson, but the dollar is finally reasserting itself over the upstart euro

We were just getting the March issue of IFA Magazine together when the dread news came over on the radio. For the eleventh day in succession, the euro/ dollar exchange rate had slid back (or soared, depending on your viewpoint), and one dollar would now cost you a whole 93 euro cents, compared with 89 euro

14

Ed's Soapbox.indd 14

cents on 3 March. Yes, in the space of seven days the currency had lost 6% of its value. nd, for the first time since 2003, one American dollar was starting to look like it would buy you a euro.

Five days later, as we got to the finalisation phase for IFA Magazine, the situation had attened out a little but it had in no way improved.

nd you could almost hear the satisfaction coming in across the airwaves from Washington and ew ork. t’s been a long time coming, Europe, the voices said, but we got there eventually. So you really thought your puny little lashed-together raft could outperform the mighty S battleship in the long term

IFAmagazine.com

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March 2015

Even though your crew members have been threatening to push each other overboard for the last five years, and the only one with the keys to the engine, Germany, had been refusing to keep those Greeks on the team if they accepted half rations and paddled twice as hard ou couldn’t make it up, pal. ritons are also celebrating. ast summer the pound was trading at 1.20, meaning that holidaymakers were paying 83 pence for every euro coin in mid-March, however, the rate had soared to 1.40 for the first time since ecember 2007, meaning in effect that

IFAmagazine.com

Ed's Soapbox.indd 15

their holiday spending power in the euro one had improved by 15 in nine months. nd what was more, this was happening against a generally negative in ation rate, which meant that their bonan a was even bigger in real terms.

What’s causing this collapse in the euro’s value ou’d have to have been living in a cave to have missed it. On the one hand, city analysts are saying that continued fears over a Greek exit

Grexit ) from the Euro one has put the skids under the common currency. nd on the other, this month’s 60bn commencement of the scheduled 1.1 trillion quantitative easing has opened up the very real likelihood that in ation will pick up, and that the sheer mass of new money being printed will devalue what’s left. The forward currency markets will have got their calculators round this likelihood some time ago.

E Pluribus Unum The cynics in Washington do have some pretty good reasons to be feeling smug about all this.

The euro and the dollar are both federal’ currencies which are shared by large-ish groups of states 1 in Europe, 50 in merica), but that’s where the similarities end. We could no more think about ew Mexico being forced out of the union, or alifornia demanding a better

15

19/03/2015 14:30

SOAPBOX

March 2015

exchange rate, than we could imagine Russia joining. ecause the political ties holding the 50 states together at every level are too powerful.

The euro one, on the other hand, does not have a fully political union of its own yet) and nor does it have the sense of shared cultural values that the nited States can call its own. More than 20 official languages, 1 central banks plus a central entral ank, of course), and perhaps most importantly 1 separate national finance ministries with 1 sets of bond markets.

That’s not the kind of mess that Washington would ever be prepared to tolerate. s it, now t a time when policy differences between Europe and the nited States are sharpening, and when merica’s perception of its ties to Europe is under strain particularly from the epublican direction, the troubles in Europe are being

taken as a welcome boost to stock market confidence.

Who cares if the cyclically adjusted p e on the S P 500 is in record territory around 28), and if corporate profits are set to shrink sn’t this simply a confirmation that Washington’s unified approach at every level has once again proved itself to be a better way to go than all that squabbling over there in Europe

EUR per 1 USD 13 Mar 2005 00:00 UTC - 10 Mar 2015 15:34 UTC USD/EUR close: 0.93189 low: 0.62597 high: 0.93223

What Can Negative Bond Yields Mean?

One of the weirdest illustrations of the very special situation in Europe this year has been the emergence of negative nominal bond yields among certain European lenders, notably Germany, ustria, and euro non-members enmark and Swit erland. The situation was laid horribly bare in midMarch, when the European entral ank began its first 60 bn round of bond buybacks and ended up having to pay prices that represented yields of below ero percent. Ouch. es, we’ve got the very real scenario of even very large lenders paying the borrowers simply for the privilege of being able to park their cash in the borrowers’ bank vaults. nd in the E ’s case, it’s a pretty impressive indicator of just how awkward its rescue for southern Europe is going to be.

(Source: XE)

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Try looking at it this way. f you’d had your money in a Greek

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March 2015

people must be feeling. lready, commentators are wondering just how much of the 1.1 trillion E programme can be achieved if prices are this high.

That’s something that’s been happening not just to the rocksolid Euro one countries, of course, but also to ritain, where the competitive overseas pressure for gilt ownership has kept ritish yields so pathetically low over the last few years much to the chagrin of pension annuity buyers, whose contracts are based on the prevailing gilt rates at the time they buy their annuities.

bank’s vault for the last six years, the fact that it was in euros wouldn’t amount to very much consolation if you thought there was even a chance of a default by the Greek Treasury, or even just a delay in getting your money back. Which is also considered a default.) nder these circumstances you might very well be willing to accept a ero return, or even to pay a safe keeping’ fee to the undesbank for the privilege of knowing that you could get at your cash whenever you needed it.

That’s understandable enough for the Greeks, of course, but this time it’s the E itself that’s the lender. y the way, Greek bonds don’t qualify for the E bond-buying programme because the necessary safeguards aren’t in place.) f even the boys in Frankfurt can’t do a bond buy-back at reasonable rates, that’s a pretty scary measure of how panicky other

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nfortunately it’s also been happening in merica, where the ight to quality’ has been driving down Treasury bond yields at just the time when Fed hairman anet ellen had been talking about raising mid-year interest rates. That puts her in a tricky position should she hold off with the increases to prevent further dollar appreciation, or would she be better advised to restrain further growth ever so gently nd what will happen if S yields then suddenly rebound - because, for instance, the European entral ank suddenly starts to look like it’s got its act together so that demand for S bonds suddenly abates That’s not such a fanciful scenario as it looks. For the last few weeks, S bond yields have been swooping and switchbacking in a very unsettling manner, as the relative merits of European and merican bond markets have been tested by an endless succession of twitch-making news. s recently as February, 10 year yields were ranging between 1.65 to 2.05 in the space of a day. nd in case you need reminding, that apparently

small uctuation in yield equates to a 24 uctuation in the value of the bonds themselves.

There are other reasons to worry about the sudden strength of the dollar. t’ll be great for S tourists in Paris, but bad for anyone hoping to sell cars or computers or Smart watches in Europe. t’ll make this the perfect year to buy a Porsche, if you’re merican, that is, and maybe the iper can wait till next year. t’ll severely damage the merican tourism trade.

The Size of the Slide ut we digress. ast month, IFA Magazine asked our urning ssues panel for their views on where the Euro one economy was headed, and the overwhelming sentiment was that most of the bad news was already priced in, and that this might just be an ideal time to make an entrance.

Five weeks on, some of the panel’s confidence has been rewarded. ut only if you happen to be denominated in euros.

On the plus side, the FTSE Eurofirst 300 had gained 5 during the month to mid-March, but the sterling euro exchange rate had nearly taken the gloss off the gains for a sterling investor - and much more for a S investor, who’d seen the equivalent of 8 knocked off the dollar value of his Euro one holdings during the month.

Going Forward?

That, of course, is an overly simplistic view of the situation. n time, the enhanced currency competitiveness of Euro one manufacturers ought to bring them significant benefits in the export markets, notably to the nited States itself. nd those benefits won’t be in the figures yet. s long as a Grexident’ doesn’t take Greece out of the euro and it would take a mighty act of perverseness from Germany to give it a helping shove there is every possibility that Europe may once again outperform. ut the risks are not to be underestimated.

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PRODUCTS

March 2015

UK Equity Income – The Best of All Worlds?

Dividend yields in the UK Equity sector can exceed 3.5% per annum, but there is further upside for investors who can accept more risk. Nick Sudbury reports

UK Equity Income funds have been the best-selling sector of the market for a staggering eight months in a row. The Woodford effect has undoubtedly had a lot to do with it, although the strong demand also re ects the increasingly desperate search for yield.

In spite of its enduring popularity, a number of high profile constituents have recently moved out of the sector including funds

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run by nvesco Perpetual, Henderson’s and St James’s Place. The reason for this unusual move was the unwillingness to comply with the high income requirement at the cost of compromising on the capital growth. ll the funds in the sector are required to invest at least 80 in K equities and to achieve an historic yield on the distributable income in excess of 110 of the FTSE All-Share yield at the fund’s

year end. The test is applied over rolling 3-year periods with the current income benchmark being around 3.6 .

There are about 60 funds in the sector that are paying out at least this amount, but the risk is that they are effectively being forced to invest in high yielding blue chips that have been bid up in value. This makes it more important than ever to assess the investment process and to satisfy yourself that the manager is up to the job

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PRODUCTS

March 2015

The Midas touch n its first months eil Woodford’s new UK Equity Income fund has attracted a staggering £4.7bn in AUM. This remarkable achievement is a testament to his success running a similar mandate at Invesco Perpetual and also re ects one of the highest profile marketing campaigns the investment world has ever seen.

33 allocation comprising holdings such as stra eneca, GlaxoSmithKline and oche.

Its other main overweight position is in Industrials, where companies such as apita and E Systems make up a 17 exposure, which is well in excess of the 10 representation in the benchmark. The main underweights are Oil & Gas, Financials, onsumer Services and asic Materials.

Woodford’s nvesco Perpetual ncome fund generated an annualised cumulative return of 14.3 over his 23-year tenure, which was a full 500 basis points more than the sector average. t will not be easy to replicate this sort of outstanding performance, but he has started well, with his new venture up more than 15 since launch compared to the 2 increase in its FTSE ll-share benchmark.

It’s an interesting portfolio, because although the top 10 blue chips make up almost 50 of the fund there are plenty of smaller holdings to provide long-term capital growth. These include several biotech firms, the peer-to-peer investment trust, P2P Global nvestments, and the active investment fund Crystal Amber. Other

The portfolio is massively tilted in favour of the Healthcare sector, with a

CF Woodford Equity Income Type:

UCITS (UK)

Sector:

UK Equity Income

holdings such as Game igital and rax have struggled, but have been retained because the business case remains intact.

Woodford is very much his own man and not afraid to be different - which should ensure that the fund is relatively uncorrelated with the rest of the sector. s with his previous mandates, there is a big emphasis on capital preservation, and clients will also appreciate the fact that the new fund is targeting a competitive starting yield of 4 with quarterly distributions.

The F Woodford Equity ncome fund has attracted a massive amount of capital in a very short space of time, but it is up and running in impressive fashion. Woodford has shown himself to have a safe pair of hands and there is no reason to doubt that he will continue to deliver. t is difficult to see what could go wrong unless something was to seriously undermine the global healthcare sector.

Fund Size: £4.7bn Launch:

June 2014

Yield:

4%

Ongoing Charges: 1% Manager: Woodford Investment Management

woodfordfunds.com

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March 2015

Hidden Gem One of the best performing funds in the sector is the little known Evenlode Income, which is up 95% in the last 5 years. It is run by ise nvestment, a firm based in rural Oxfordshire, and has just £252m in AUM. Since it was launched in October 2009 the fund has achieved an annualised return of 13.8%, a full 500 basis points ahead of its FTSE All-Share benchmark.

Hugh Yarrow, the lead manager, who looks remarkably like Hugh Grant, looks for good quality companies that are asset-light. He aims to identify businesses with high returns on capital and strong free cash- ow that can generate sustainable real dividend growth. The portfolio bears very little resemblance to the index with holdings retained for the long-term.

At the end of January there were just 31 positions, with the top 10 accounting

for 52.1 of the fund. These included the likes of nilever, GlaxoSmithKline, iageo, Sage Group and stra eneca. The largest sector allocation was the 34.6 weighting in onsumer Goods, followed by 15.7 in Healthcare and 10. in Media stocks. lmost three-quarters of the money is invested in blue chips, with the balance in midtier companies, although for most of the period since launch there has been a significant small cap exposure that started off around the 50 mark.

Evenlode Income Type:

OEIC

Sector:

UK Equity Income

Fund Size: £252m Launch:

October 2009

Yield:

3.58%

Ongoing Charges: 0.99%

arrow is conscious of the fact that the higher valuations mean that future returns are likely to be lower than in the recent past. He believes that revenue growth is harder to come by, and that this makes it more difficult for companies to grow their dividends.

That is why he looks for businesses with sustainable free cash ow, as these have a safety buffer to protect them against a slowdown in the economy or any company or industry specific setback.

The fund offers a decent 3.58 yield with quarterly distributions, and despite its relatively small size it has a competitive ongoing charges figure of 0. for the clean share class. t is an interesting offering and Yarrow’s willingness to move between large caps and small caps differentiates it from many of its peers. Would make a decent diversifier to one of the larger funds in the sector.

Manager: Wise Investments

evenlodeinvestment.com

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PRODUCTS

March 2015

Ticks All the Right Boxes Most of those investing in the sector typically want to be able to rely on a steadily increasing income stream with long-term capital growth and as little volatility as possible. Clients that fit into this profile are likely to find that Tro an ncome from Troy Asset Management ticks all the right boxes.

The ÂŁ2.15bn Trojan ncome fund was launched in September 2004 and by the end of anuary had achieved a cumulative return of 164.6 , which was comfortably ahead of both the sector average and the FTSE ll-Share at 117. and 127.3 respectively. ts annualised volatility of .4 was well below the 13 plus recorded by both benchmarks, and the maximum drawdown a full 20 less. alculations by FE nalytics suggest that it has one of the best risk-adjusted performance records in the sector.

Trojan ncome has successfully raised its dividend

every year since it was launched with the annual payments going from just over 4 pence per share in 2005 to around 6.5 pence in 2014. This represents an average annual increase of 5.1 , which is particularly impressive given that it straddles the period encompassing the 2008 0 financial crisis. The fund now has an attractive net yield of 3. , although the distributions are only made twice a year rather than quarterly like some of its peer group.

Francis rooke, the manager, invests in solid businesses with good cash ow

Trojan Income Type:

UCITS

Sector:

UK Equity Income

Fund Size: ÂŁ2.15bn Launch:

September 2004

Yield:

3.9%

and sustainable yields. This is a fairly diversified portfolio with 42 holdings, and with the largest, nilever, only making up 4.1 . The rest of the top 10 include the likes of mperial Tobacco, GlaxoSmithKline, P and HS , and together they represent just under a third of the fund. ts largest sector allocation is the 22 exposure to Financials, followed by 21 in onsumer Goods, and 14 in tilities. There is also a holding in cash.

This solid, no nonsense approach, has generated consistent, market beating returns, at a much lower level of volatility than the benchmark.

The last 12 months were particularly good, with the 14 gain elevating it into third place in the sector, but it will not always top the table like this. The fund would make an ideal core portfolio holding for income seeking clients with a reasonable level of risk aversion.

Ongoing Charges: 1.02% Manager: Troy Asset Management

taml.co.uk

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March 2015

Keeping Up Appearances Clients who are willing to give up some capital growth in return for additional yield may be interested in an innovative product like the Schroder Income Maximiser fund. This consists of two elements. There is a valuebased UK equity portfolio that provides a yield of 3.5% with the potential for long-term capital growth and an option overlay strategy to take the yield up to the target level of 7%.

The fund was launched in ovember 2005 and has attracted a creditable ÂŁ1.2bn in M. Over the intervening years the accumulation units are up around 100 , which is well in excess of the FTSE llShare, but the income units are broadly unchanged. These have paid out the target yield of 7 each year with the dividends distributed on a quarterly basis.

Thomas See, the manager, has put together a predominantly large cap

portfolio of 46 holdings of which the 10 most significant make up 45.6 of the fund.

These include companies such as GlaxoSmithKline, Friends ife, odafone and P. The key sector exposures are 2 .8 Financials, 20 onsumer Services and 17.4 Healthcare. n order to increase the yield he is allowed to sell short dated call options in the underlying securities. This covered call strategy generates upfront premiums from the sale of the options, but limits the potential capital gains. He can also sell out-of-the-money put options

Schroder Income Maximiser Type:

Unit Trust

Sector:

UK Equity Income

Fund Size: ÂŁ1.2bn Launch:

November 2005

Yield:

6.98%

on securities or indices not held by the fund, which is another way of boosting the income.

It is interesting to note that although the way derivatives are used should reduce the risk, the fund has in fact recorded an annualised volatility of 10.5 , which is slightly above the sector average. ess surprising is the higher than usual ongoing charges of 1.66 . This is most likely because of the extra cost of buying and selling the options.

The manager invests in robust businesses with the prospect of sustainable dividend growth. His aim is to sell just enough capital growth across the portfolio to meet the high income requirement, while still benefitting from the first part of any share price appreciation. t is a tough balancing act, but income investors should be pretty pleased with the performance to date as it is hard to think of any other sustainable way of earning a 7 yield.

Ongoing Charges: 1.66% Manager: Schroder Unit Trusts Limited

schroders.com

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G U E S T F E AT U R E

March 2015

Paraplanners

Can you afford not to have one, asks Sara Arthur, MD at the Parahub?

We have all been there: those days when the mountain of paperwork never goes down, and you are sat tackling your administration in frustration, bemoaning the workload before you. Or perhaps you have a queue of leads, which you need to follow up, but you are too busy writing reports to do so.

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What is your role? What part of your job do you love the most? For the majority of advisors, this will be sitting in front of a client and aiding them in securing their future, not sitting in front of a computer screen writing letters, and chasing providers for information. Would you like the time to focus more on

building client relationships and gaining new business?

The Right Skills in the Right Places Step forward, the Paraplanner.

The very name means that these people are there to come alongside you and share the burden. The role of a Paraplanner has arisen because advisers saw the need

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to delegate important parts of their workload in order to maximise profit making ability and make the best use of their resources. A Paraplanner can use their analytical strengths and abilities to write clear, compliant, documents which back up the strategies you have constructed with your clients.

The time they spend writing reports is ultimately time you can spend in front of clients.

Think of using a Paraplanner as a business strategy tool: making your processes more streamlined and efficient and making that return work for you.

For small F firms, this can be a life-saver. One man band F firms can find it hard to take the strain of servicing clients, attracting new business and dealing with the administration that the process entails. There are a finite amount of hours in a day, after all! So, where do you start?

G U E S T F E AT U R E

train and nurture staff in the ways of financial planning but also save expense by spotting errors”. Having a chain of responsibility to reduce risks can only be a positive step.”

The Outsourcing Alternative

Help yourself maximise time for profit. Sit in front of a client, and leave the paraplanning to the people who do it best.

How To Use a Paraplanner?

There are a great many ways to use paraplanning services, depending on the size of your firm and your requirements.

In-house paraplanning is a great way of building a relationship with a Paraplanner, and crafting a strong team with the option of the Paraplanner being the point of contact in-house. This lubricates the process and frees up your time from dealing with clients’ day-to-day contact.

Paraplanner, I was always the secondary point of contact for clients. If ever clients couldn’t get hold of the financial planner, they would contact me. It was reassuring for clients to know there was someone else who knew their circumstances and was there to help”.

“Paraplanning is an integral part of our process,” says Mark Jeffs, a Financial Planner from Citimark. “It’s a benchmark of our company ethos, and the Paraplanners are more than qualified to deal with any queries that come their way from clients When I was a

Dan Atkinson, senior Paraplanner at EQ Investors and IFP Paraplanner of the ear, adds The reason we find Paraplanners so useful at EQ is objectivity around advice, and the ability to spot new business opportunities. It’s a virtuous circle, where we can

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Outsourcing paraplanning is an alternative that may suit smaller firms who aren’t ready for the commitment of a full time member of staff, or the expense. Outsourcing is a major factor in the paraplanning industry, and a bevy of very talented paraplanning firms have sprung up to take the burden off your shoulders.

Where do you look for them?

The ParaHub is a network of Paraplanners and financial administrators that serves as a basis for facilitating networking, educational resources and job prospects. You can advertise for a Paraplanner in the place where they congregate, bridging the gap between Advisers and the people they need.

Whichever way you look at it, maximising your resources has the potential for exponential success. Be kind to yourself and make your life easier; paraplanning is the way forward. Having been elected on the Government steering group for the Paraplanner Apprentice scheme, I can see that the role is growing more defined and being honed into a destination in it’s own right.

Taking on an apprentice Paraplanner may be a more cost effective way forward, being helped by government grants of £10,000 per Paraplanner.

Help yourself maximise time for profit. Sit in front of a client, and leave the paraplanning to the people who do it best.

IFAmagazine.com

19/03/2015 14:43

Invest in energy companies through an EIS. Another bright idea from Octopus.

At Octopus we’re a big admirer of bright ideas. That’s why we love the Enterprise Investment Scheme (EIS), a government-backed initiative which gives investors a number of ways to save on their tax bills. We also love the investment potential of the UK energy sector, which is undergoing a huge transformation. So why not combine these two bright ideas into one? We have. It’s called Octopus EIS. To find out more, talk to your Business Development Manager on 0800 316 2067 or visit octopusinvestments.com

Important Information For professional advisers only and not to be relied upon by retail clients. This financial promotion has been issued by Octopus Investments Limited which is authorised and regulated by the Financial Conduct Authority. Your capital is at risk and you may not get back the full amount invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change. Past performance is not a reliable indicator of future results and any forecast is not a reliable indicator of future performance. The availability of tax reliefs also depends on the investee companies maintaining their qualifying status. Octopus EIS invests into small unquoted companies which are likely to have higher volatility and liquidity risk than shares quoted on the London Stock Exchange Official List. This promotion does not offer investment or tax advice and as this product is not suitable for everyone we recommend you seek independent investment and tax advice before investing in our products.

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23/01/2015 14:50 16:39 19/03/2015

ADVERTORIAL

Peter Georgi of Halo Films talks about why IFAs need an “About Us” Video The About Us page is the second most important page on your website – only behind the home page. This is your one chance to talk about yourself, and not about your customers. This is the opportunity they give you to impress them. Your “About Us” is your audition - Seems self-evident to make it quality, right?

1 – Make your Branding Message Who are you? What do you do? Clients want to have a deeper understanding of the people who they will be dealing with if they select your company. And remember, it’s also a chance for you to talk about areas of speciality and identify who your ideal client is – this can be a good way of weeding out the unsuitable clients at an early stage.

2 – For Potential Employees When people hear about your company’s job openings, they will almost assuredly visit your website and check out your About Us page. Having a video that prospective applicants can watch is a great idea. They can get a feel for who you are and who you serve.

They should also gain a greater understanding of your values and your mission. It’s also a great idea to include your staff in the video so that the job seekers get a feel for your company’s diversity and the attitude and demographics of the people working there.

Prospective clients and job seekers should also learn the history of the company. Through all of this subtle information, the applicant finds out whether they might be a good fit for your company and whether your company is a good fit for them. Today’s employers realize the value of recruiting someone who feels at home and will stay. The About Us video is another tool for engaging prospects and helping to reduce the wasted time of interviewing someone who really wouldn’t be a good fit and doesn’t realize it until they show up at your office.

3 – For Current Employees Having an About Us page isn’t just about new employees.

It’s to help focus and align your current ones as well. A good About Us page gives your employees identity and a sense of proudness to be working for this company. It’ll also help your employees explain who they work for and what they do.

With thanks to Kirstie of WarroomInc.com

For more information on how we can help with a home page video, or any other aspect of video marketing, please get in touch: phone: 01453 810914 email: info@halofilms.co.uk You can also view examples of our work at: www.halofilms.co.uk

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STEVE BEE

March 2015

Comic Timing Kapow! Steve Bee reaches for the popcorn

I have a bunch of grandchildren these days who, I am glad to say, share some of my interests. Two of them are just as keen to watch old Tom and Jerry films as was when was young. Mind you, they both watch them in colour on their own iPads, whereas I used to watch them in ickering -line black and white on our TV at home (as long as it didn’t overheat of course, in which case the screen went completely grey - but on the plus side you could still hear the soundtrack). I did get to see them in glorious Technicolor once a week, more often

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than not at the Saturday morning pictures (I was a Junior of the ABC, and I still have the badge to prove it).

Quite unsurprising really.

The humour in Tom and Jerry is apparently timeless: the little chaps who are the latest in our family to appreciate slapstick laugh in all the right places and absolutely howl when things go badly awry for Tom. Punch Lines The problem that Tom has - as I said when trying to explain the essence of humour to them (absolutely pointless as it turns out) - is that he’s always in the wrong place at the wrong time.

In his world, that means that he will more often than not turn a corner, only to tread on a rake that immediately whips up and smashes him in the face as Jerry makes his getaway.

Even when things seem to be going his way, Tom’s luck always seems to run out. He is often just seconds away from finally hitting erry on the head with a massive mallet or something, only to find that, when he brings it crashing down on what he supposes to be Jerry, it turns out to be the foot of Spike the bulldog. And once Spike has Tom by the neck, even his over-the-top charm

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STEVE BEE

cannot ever save him from the most dire consequences.

And I’ve simply lost count of the times that Tom eventually catches Jerry and holds him gleefully while looking directly at the camera, without the slightest clue that the anvil all we viewers had earlier seen launched skyward in a freak accident at the nearby Acme building site is, even at his moment of glory, heading straight for the very spot where he has chosen to stop and savour his triumph.

Wrong place, wrong time. Always.

Jerry, on the other hand, has the knack of usually being in the right place at the right time, or at least being in the wrong place at the right time when he might see the trap Tom may well fall into if he simply stops to either whistle to him or poke his tongue out while waving his hands with his thumbs in his ears.

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March 2015

Stage Fright Being in the right place at the right time, or even being in the wrong place at the right time is clearly preferable to being in the wrong place at the wrong time. I’ve been thinking about that a lot lately, while thinking about the million or so smaller employers who are soon about to reach their staging dates.

All the experience thus far, as the larger employers

have staged, has shown that auto-enrolment, while hard enough to comply with, is doubly difficult if firms do not leave themselves enough time to prepare for things. million or more firms are right now rushing at headlong speed into autoenrolment. Some are well aware of that, and are well prepared for what they must do. For others though, autoenrolment might well turn

out to be the rake on the oor just around the next corner.

And that’s not funny.

I don’t think it is yet too late for people to help such firms, but can’t help wondering whether a Government advertising campaign warning employers to watch out might be more appropriate than the current ads that focus on employees being ‘in’.

Perhaps Tom and Jerry could even star in the ads?

Being in the right place at the right time, or even being in the wrong place at the right time is clearly preferable to being in the wrong place at the wrong time

IFAmagazine.com

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Welcome to London Capital Club

Your space in the heart of the City for meeting, dining and networking

A Space for Meeting

Events & Networking

London Capital Club is the perfect location for meeting with clients over an informal coffee, a spot of lunch, or in one of our sumptuous private meeting spaces.

We host a range of networking events, as well as keynote speaker events. We have spaces for members’ events and can accommodate up to 150 delegates in a variety of room set-ups.

London and Beyond

Restaurant Fine Dining

Club members receive the same exceptional service in over 250 clubs worldwide, which make up the IAC network, as well as access to further benefits, such as discounts at some of the country’s best golf courses and hotels.

Enjoy the brasserie-style ambience in our public bar and restaurant, @15, formal dining in our members’ restaurant The Walbrook Grill, or hold a private function in one of our historic rooms for an outstanding fine dining experience.

We look forward to welcoming you to London Capital Club T: 0207 717 0088 E: enquiries@londoncapitalclub.com A: 15 Abchurch Lane, London EC4N 7BW W: www.londoncapitalclub.com Find Us:

Bank

Cannon Street

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INSIDE TRACK

March 2015

All Mapped Out Neil Martin talks to Mike Parsons, Managing Director, JPMorgan Asset Management

Managing Director Mike Parsons, who is Head of UK Sales at JPMorgan Asset Management, provides a quick and somewhat concise snapshot of his abilities after studying geography at Exeter University. could read maps, do the colouring-in and add-up in numbers, he says. Skills which have obviously stood him well

throughout his career, as he progressed from Fidelity, into Schroders and then landing at P Morgan in 2007.

He had three interviews when he left university, he says, and he decided that the job in financial services looked the most interesting. nd he actually started in a Fidelity call centre, dealing directly with clients and getting what he described as a fantastic start in the sector.

“You absolutely get to understand, and it’s the one thing that’s drilled into us here at JP Morgan, that this is a fiduciary business. That we are managing other people’s money, and we put their interests first. ou can never lose sight of the fact that there is an endinvestor, and we’re investing their money and we’re entrusted to look after their money, and generate returns for them.

Get With the Programme Whilst at Fidelity, Parsons moved from the consumer end of the business to dealing with F s. Some 20 years later, he

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March 2015

INSIDE TRACK

to meet thousands of F s throughout the year and are each built around the particular insights of one of P Morgan’s global strategists.

now heads up a number of teams that deal with F firms, life companies and stockbrokers.

Perhaps the best well known of the current roster is former Economics Editor Stephanie Flanders, who’s

The thing with Stephanie is that she’s asked to speak all over the world, so it’s not always possible to get her out to every venue, every quarter. ut we try to make sure that she gets good air time with all of our clients over the course of the year.

ndependent financial advisors are taken very seriously indeed. We have very strong relationships with the larger regional F s, where we look to have regular meetings, and very in-depth, one-on-one relationships. would expect my team to see their client base at least every quarter and sometimes it’s once a month, where the firms are sophisticated in their needs. They might have five or six people doing fund selection within that firm, so we have to go and see a lot of people to understand their business.

Parsons says that a great deal of contact comes at the quarterly roadshows which form part of the P Morgan sset Management Market Insights Programme. This programme is a framework of research and current market analysis that is delivered to K advisers.

The idea is to illustrate an array of market and economic histories, trends and statistics through clear, compelling charts and graphs that advisers can share with their clients.

Started some ten years ago, Parsons says that the programme has gone from strength to strength. nd at the core of it all is what’s known as the Guide to Market. This is a markets-based chart book, of which there are five regional versions. t is translated into 12 local languages distributed in 25 countries.

Hit The Road The roadshows, held in more than 20 cities held each quarter, allow P Morgan

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Having someone of Stephanie Flanders’s standing and reputation must surely prove a big draw for P Morgan es, without doubt. ut we also have another group, within Stephanie’s team, who are bright and really good strategists, and are good at articulating the message.

s you’d expect, the roadshows are also an important channel for selling the house’s products So whenever we take one of the strategists out, we

currently P Morgan’s chief market strategist for the K and Europe. She and her team produce market research and issue bulletins to advisers about key market developments, aiming to place investment implications into context.

Parsons is a firm believer in their guides and road shows. We give our insights into capital markets, and that really is one of the best ways to help IFAs, interpreting the key trends and nuances of capital markets.

We are able to articulate what’s going on in a relatively simple format which is useful for their end-consumer.

Obviously markets move very quickly and they are incredibly complex. So what we’re trying to do is bring clarity to the markets, so advisers can a. formulate their own thinking about asset allocation and b. articulate that to their clients.

There is no shortage of comment and information that its around from fund groups and the internet - the idea of this is that we can bring it all together in one place.

then also talk about a product, a fund that we think is topical, or interesting, and relevant to the audience. So that should help to make it a commercial success for both parties.

RDR and Afterwards s for how the F industry has moved on after , Parsons is upbeat: “I think that almost all of the firms we talk to, are saying that business has never been better. Obviously there are fewer advisers these days, so the simple economics of supply and demand indicates that those that are still trading should be in a better position. nd pretty much everybody we’re talking to is saying that there are issues about capacity. ’m not saying that all F firms want to grow their capacity, but they can afford to be choosy about the clients they bring on board, which is a phenomenally strong position to be in. n terms of F s’ development during the 20 years that Parsons has worked in the sector, he is also very

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impressed. t has moved from a very transactional industry to a much more relationshipbased profession, he says. ust from a simple point of view, the questions we are getting asked and the analysis that is done on our funds is so much more advanced than it was five years ago, and very much better that ten years ago - and almost unrecognisable from 20 years ago.

Developing the Adviser Market Further s to the future, Parsons is also upbeat. ut, he adds, the one thing we will all have to do - and this is not just specific to F s but everyone in the industry - is work on consumer trust. nd while that sounds simple, it’s phenomenally hard for an industry, or a

profession, to rebuild trust. t’s very clear that the clients who use an F , must be able to trust them implicitly. One of the reasons why people don’t use an F is cost of course, but the other is trust.

The key question for Parsons is how collectively the industry can get consumers engaged with the financial services industry and how it properly demonstrates its ability to add value.

Market Direction sked what advisers are currently focusing on, Parsons says that Europe and the S loom large. Particularly important is how the new QE programme in Europe will affect the long term prospects of the euro currency and certain asset classes.

He added that IFAs are currently most nervous about the fixed interest market, as rates are at incredibly low

levels which will obviously need to rise in the future. also think you can expect that capital markets will be a bit more bumpy going forward than they have been. dvisors are aware of this and are positioning in diversified funds to mitigate what might happen in the future.

Spare Time?

The interview finishes with the inevitable question about how Parsons spends his leisure time. ou might think that given the intensity of his job, winding down with a gentle pastime might be in order, but Parsons says his favourite sports are those that require a liberal squirt of adrenaline. lthough he admits, as a father of three young children, he gets less time to indulge in such activities than he used to. He now has to settle for a single mountain bike ride every week. nd that, together with heading up the team of intelligent people who sit within JP Morgan, ought to be enough adrenaline for anyone.

“There is no shortage of comment and information that flits around from fund groups and the internet - the idea of this is that we can bring it all together in one place”

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GUEST INSIGHT

The Yield Anomaly It is interesting to think about how much investors have been surprised in recent years, perhaps often without realising it. For example, the performance of mainstream government bonds over the past 18 months or so has brought yields in some parts of that market to a level that, some time ago, most people would have considered not just unlikely, but impossible.

Now, the consensus seems to believe that negative real bond yields are perfectly plausible.

This is because most investors’ frameworks are based on their most recent experience, which can make them quite easily forget what they used to believe.

For us in the M&G Multi Asset team, the key is to approach investment decision making with humility. That means being honest with ourselves about how much unique insight we can really have, and accepting how much there is that we cannot know or be sure about.

This allows us the mental exibility to expect to be surprised, even if we cannot know when or how. We believe it is rarely a surprise when market forecasts turn out to

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be wrong. t is very difficult to get these things right on a consistent basis, because there is really very little anyone can know about the future.

Focus on Valuations, Not Forecasts Therefore, most predictions are actually based on investors’ most recent experience of the past. In our view, investment decision making should avoid forecasting and focus instead on what valuations today are signalling about how attractive different assets may be, in the current environment.

This process can be more difficult than it sounds. The temptation to try and forecast markets may exert a powerful emotional pull on investors.

It can be very uncomfortable to admit that we do not know what the future has in store.

We believe the best chance we can give ourselves of navigating such uncertainty is through disciplined adherence to an investment process that focuses on the facts.

For us, a framework based on observable facts about where asset valuations are today versus where they have been in the past creates rigour and discipline.

Just focus on the facts, say the M&G Multi Asset Team, and an important perception begins to dawn

However, it should not mean trying to create a mechanistic perspective. There is danger in being too anchored. Therefore, we overlay our valuation analysis with questions about why valuations might have moved away from long-term averages.

Sometimes, it is a shift in the fundamental economic facts.

But more often, we feel it is a shift in sentiment - which is less likely to be permanent.

The Yield Conundrum When we look at the value on offer across the global investment landscape today, the immediate question for us is: with real cash rates negative, why would anyone still be happy to hold cash, when it costs them money to do so?

Some real bond yields, even at the long-end, are also very low nominal, or even negative real.

Yet, even today, we still see huge demand for perceived ‘safe haven’ government bonds. Even credit yields are not particularly attractive relative to historical norms. In fact, in developed markets today, only selected equities are offering attractive real yields. Even though equities have performed well over the past couple of years, valuations

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March 2015

in many regional equity markets remain attractive with real yields still higher than historical trends and consensus forecasts suggest they should be, according to our valuation framework (see chart).

Equities at a Discount to Risk In our view, the global fundamental picture today points to continued gradual recovery, albeit with much regional dispersion, rather than another likely recession. Trends in terms of profits and growth are positive in most places, while global policy remains largely very accommodative and the recent collapse of the oil price could provide a very meaningful boost to growth. Therefore, our central observation in terms of strategic positioning at the moment is that equities are currently being offered at a

significant discount, at a time when the global economy is actually doing just fine. We think this situation is the result of risk aversion, short-termism and a lack of willingness to wait for opportunities to pay-off over a medium-term time horizon.

The Mental Scars from 2008 We believe the reason for the ongoing distortion in risk premia shown in the chart below is attributable to behavioural factors. In our view, investors continue to struggle with the mental scarring of the 2008 financial crisis, which is causing them to demand too much compensation to hold so-called ‘risk assets’. Macro uncertainty persists and over the past 12 months or so, we have observed a notable shift in investor sentiment.

While the facts about the global economic outlook have been broadly improving, investors still seem to be struggling to accept that a well-seated recovery is indeed underway, because they are anchored by their recent experience in a fragile global outlook. This means, even while maintaining a positive economic outlook, we should except a considerable degree of volatility across financial markets over the period ahead. One thing we can be fairly certain of is that we will be surprised this year. Most likely by factors that no-one has even thought of yet. However, in our view, short-term volatility should not be confused with genuine risk (which we believe is the potential for permanent capital loss), and may actually present some compelling investment opportunities.

Yields, February 2015

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B R I A N TO R A

Numbers, Just Numbers Brian Tora says it’s stupid to get fixated on indices

With more of a whimper than a bang, the FTSE 100 Share Index eventually clambered over the peak set back in December 1999.

And, clinging on with its fingertips, it was not too long before this benchmark index slid back down again.

It was all a rather dispiriting sight. There must be many who, like me, had hoped the Footsie would storm past 7000. Well, perhaps it has since then – because you, unlike me, have the blessed gift of hindsight on your side - but as market highs go, it did not look too convincing to me.

Should we really read so much into these truly artificial barriers, though? And how reliable an indicator of a market’s performance is an index anyway?

The misleading nature of these oft quoted benchmarks was brought home to me when I read that at last Apple is to join the Dow Jones Industrial Average.

And why not? It is the world’s largest company in terms of market capitalization, after all.

Not that this apparent elevation means a thing. It

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will be replacing American Telephone & Telegraph – or AT&T – for no better reason than both are considered to be ‘technology stocks’. The Dow Jones is meant to cover all major industrial sectors, but that is where any meaningful representation of what is going on in corporate America ends.

Selection by Bulk This index is weighted according to share price. In other words, the greater the price of the shares, the greater the in uence on index performance. Other indices, like the S&P 500 or our own FTSE 100, are weighted according to market capitalization – a far better representation of what is going on in the underlying market.

And just imagine what happens when a company decides to split its shares, effectively halving its share price?

Believe me, it has happened.

Not that the way in which our own indices are compiled is without fault. Most people consider the FTSE 100 to be an index of the 100 largest companies listed on the London Stock Exchange. Well, it is, but only sort of. You only gain automatic admission if you rank 90 or higher in capitalization terms, and you will only be

expelled if you drop below 110.

There is considerable discretion allowed between the rankings 10 either side of 100. And the rules even allow for a few more or less than 100 to be included.

Rules Are Made To Be Broken This discretion is intended to ensure that companies do not drop in and out of the index on a regular basis, and also to allow changes to be confined to the four quarterly reassessments of the year. But the nature of which companies actually go to make up this magic group is another kettle of fish altogether.

You might wonder how it is that the FTSE 250 and major indices in both Europe and the US managed to set new highs several years ago, while we had to wait more than 15 years to see the Footsie do the same? The problem is twofold.

First, it is companies listed here that qualify, regardless of whether their business is conducted in the UK. And of course, such is the prestige of a London listing that all manner of companies have their primary quotation in the square mile.

Curse of the Mega-Zombies Second – and even more relevant has been the in uence of certain sectors on index performance. Back in the days before the financial meltdown, it was banks that exerted the

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March 2015

Tiger Tales

greatest in uence on our indices.

So when Northern Rock went to the wall and Lehman Brothers expired, the share prices of these financial eviathans evaporated.

Markets all over took a tumble, of course, but the banks - now beholden to British taxpayers - failed to enjoy the recovery that was seen elsewhere.

Initially, their place was taken by resource stocks – those mining and oil companies that

were benefiting from a buoyant China. And when those too turned sour a few years ago, the Footsie foundered. Little wonder that it has taken it so long to play catch up.

At times, the composition of an index has proved highly misleading. Back at the turn of the millennium, a current joke was to ask what do you call a Finnish market tracker?

Answer, of course, Nokia. (At one time it represented up to 90% of the Helsinki market’s capitalisation.) And where is Nokia today? It’s all over the papers, and it isn’t good reading.

In the 1980s I was a director of a fund management group that launched a so-called Tiger tracker aimed at replicating the performance of seven small Asian markets. It consistently underperformed its benchmark in the early days - not that anyone noticed….

The message here is clear.

Don’t be led into believing that passing barriers like a previous high are important in themselves. And always remember that index trackers need as much careful research as any other type of fund.

Brian Tora is an associate with investment managers, JM Finn & Co

An individual approach At JM Finn & Co, we understand the importance of treating you and your client as an individual. This is why our Tailored Platform Solution is a discretionary service that can integrate seamlessly into your proposition.

Mike Mount T 02920 558800 E mike.mount@jmfinn.com

www.jmfinn.com 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.

Registered Office: 4IFAmagazine.com Coleman Street, London EC2R 5TA. Authorised and regulated by the Financial Conduct Authority.

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A D V E R TO R I A L

Exciting Times Are Ahead Exciting times are ahead for The Wealth Care Partnership (TWCP) as they plan significant growth of their business, building on their already impressive credentials

TWCP is a successful practice specialising in holistic financial advice to mainly the pre and post retirement market, including people in later life, covering ong Term Care, investment, ta planning and quity Release.

With a focus on providing high quality financial and tax planning to people with property and savings and who value their personal service, their marketing activities attract high levels of new enquiries to the firm.

Investing in the development of their brand, TWCP are working in conjunction with their branding and marketing company

on a number of initiatives including the launch of a new website and the publication of new client literature which draws on their deep understanding and experience in the later life market.

Building on the success and expertise of their existing advisers, they want to expand their adviser and client base whilst preserving the very things that set TWCP apart from other financial advisers.

Two recent hires are helping to put the building blocks in place for the growth of the business.

Richard Knowles has joined as Client Relationship Manager, and will be the first point of contact for all enquiries to the firm. With ichard’s experience as a ank Manager for many years, he is well positioned to support both the advisers and the clients to ensure the process from enquiry to business is a smooth and positive experience for all parties.

Lucy Fenwick has joined from JP Morgan, as Strategic Growth Manager and she will be working closely with the whole team to implement the

ambitious expansion plans as well as developing other strategic opportunities on offer to support the planned growth of the business.

The company was established in 2007 to provide specialist advice to older people and their families, and the advisers are recognised as leaders in the field of later life advice.

The Founding Directors, Karen Rayner and Tim Anstee, are both members of Society of Later Life Advisers (SOLLA) and Tim is SOLLA Regional Co-ordinator for Hampshire and SOLLA Joint Regional o-ordinator for orset.

SOLLA is committed to raising the standards of practice of those engaged in advising older people by promoting the highest levels of professionalism in financial advice.

TWCP has recently won the “The Best Long-Term Care Intermediary� award at the Health Insurance Awards for the third time in four years and has been shortlisted every year for the last seven years.

S E E PA G E 6 4 FOR OPPORTUNITIES

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I FA V I E W

March 2015

Rethinking the Model Neil Martin talks to John Spiers, CEO of Crossover Wealth Manager EQ

ou get the sense from ohn piers, founder of estinvest and now C of , that he’s going to en oy being at the helm of his new vehicle.

EQ? That’s ‘Emotional Quotient’, and it’s the rebadged financial planning arm of Truestone, which Spiers bought in October 2014. t that time Truestone had an estimated £500 million of assets under management and a staff of 45. nd it’s now a stand-alone, full service wealth management and financial planning firm with a full re-launch happening in May. Top Billing The company has just announced a number of top level appointments, with many of Bestinvest’s stars crossing over into new roles at E .

The Bestinvest incomers at EQ are Mike Neumann (previously director of investment management at Bestinvest);

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Andrew Rees (formerly associate director and investment manager); Katharine Lindley (Bestinvest’s director of financial planning, and a multiple prize winner); Sophie Muller (associate director and fund research analyst) and Kate West (senior investment administrator). nd finally there’s aniel Bland, who moves from his previous role as investment manager at uilter heviot.

Okay, we had to ask the obvious question. What does Bestinvest think of losing five of its senior staff ack came the equally obvious reply: “You’d best ask them that. Okay, point taken...

Moving on quickly, Spiers admits that he was very pleased to be able to recruit such top staff: “I’m attered that such top people are joining me. t’s starting to feel very interesting. ’m absolutely delighted to have been able to assemble such a strong team to support the launch of this company.

“The people we’ve hired today are all well known to me, and I know they are the right people to launch this service. t’s a tremendous vote of confidence in E .

Two Organisational Arms s you’d expect, E will have two main divisions. ut instead of the conventional management/advisory split, the company has gone for a vertical segmentation. On the one hand, EQ Wealth will focus on a bespoke investment service that offers face-toface financial planning and is aimed at private clients, companies and charities with lump sums of £750,000 or more. nd on the other, EQ Direct will be providing a low-cost discretionary service which is aimed at those with £15,000 to invest, or around £1,000 to save.

Spiers points out that the new approach will allow EQ

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I FA V I E W

much greater customisation of portfolios to cater for individual client preferences and tax optimisation. The aim, he says, is always o deliver clients’ long-term investment needs by allowing them to build a portfolio that is customised to their needs.

Owned By Its Staff EQ describes itself as a different kind of company in more ways than one. t is owned by the staff, and it has no external shareholders.

Which means that it can be built, says the company, around delivering clients’ ambitions, rather than having to compromise to meet short-term targets.

The lack of shareholders might relieve the staff of EQ of being answerable to outsiders, but does it put pressure on the staff when having to fund further growth themselves, or guard against a lower fee turnover?

Spiers is adamant that this is a better position to be in: “We are very fortunate, in that we don’t have to please external investors.

The business is in a positive position and I have no intention of selling it. f we need funds for acquisitions, or other deals, we will raise it internally. We can focus our attention on the clients.

EQ, whose 50 staff will be based in new offices at entennium House, aims to have a highly ethical approach and will, it says, base its business on achieving the highest standards of integrity, client service and investment returns.

The advisers are mostly chartered and the company has the same status. Spiers said that around 45% of the equity will be released to staff in the future to act as an incentive.

Going Back A Long Way Spiers’s record with

Bestinvest goes back as far as in 1986, when he started the company selling it in 2007 to 3i, which made him a reputed £100m.

By 2008 he had re-joined the company, but he left again when Permira became the new owners.

That EQ is independent and master of its own destiny is crucial for Spiers. He believes that the time is now right for a change as to how people are advising on managing their finances and wealth. He says that people are wary of the bigger financial institutions who do not always put their client’s interests ahead of their own.

The Ethical Imperative But Spiers also believes that being ethical is more than just attaching a label to your marketing. He is committed to continuing to develop EQ’s socially responsible vehicle, the Positive Impact Portfolio, which currently has assets of £20m under management.

The company has also created a charitable institution, the EQ Foundation, which plans to raise money for good causes nominated and supported by both staff and clients.

The Way Ahead Spiers is confident that he can cater for the growing number of people that he believes are demanding a new kind of wealth advice, one that matches the times. He is disappointed that, at the very time when regulation has made financial advice only available to the very well-off, people are in need of guidance more than ever.

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March 2015

E , he says, is meant to fill the widening gap and provide a genuine alternative within the financial services sector. His aim is to make

quality advice more accessible.

The focus, he says, has to be on offering value for money products driven by the efficient use of technology. t has to be all about concentrating on maximising returns.

Perhaps some idea of its growth plans comes within the official announcement of the appointment of its new staff.

t said about its new offices which are opposite the Shard: “…on a 10 year lease with capacity to double current staff numbers.

So there we are.

How’s that for confidence

“We are very fortunate, in that we don’t have to please external investors. The business is in a positive position and I have no intention of selling it.

If we need funds for acquisitions, or other deals, we will raise it internally. We can focus our attention on the clients.”

John Spiers

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G U E S T F E AT U R E

March 2015

Platform Overkill Platform Diligence is essential, says Defaqto’s Gill Cardy, but there’s such a thing as too much complexity

I expect that this isn’t the first article and it certainly won’t be the last on the sub ect of due diligence, given that the inancial Conduct uthority is going to be talking to us about it in 2015.

However, it’s worth taking a look at what exactly due diligence is, given that the F is typically vague, or principles-based, about what it expects from the regulated community on the subject.

There will be particular areas where the regulator will focus high risk or complex products, and those which add costs for the client. nd it is in this last area where platform due diligence is particularly relevant.

Paying for More Than You Can Use t’s an unfortunate urban myth that the F hates higher cost products or services. But there are two things about costs that the regulator really does hate with a passion n

That consumers do not know about or understand higher costs; and

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n

That consumers do not benefit from the extra services provided for those higher costs.

One client was recommended a self-invested pension to benefit from the investment exibility, but was then invested into one single balanced managed fund. nother example that might relate more specifically to platform advice would be the client who was recommended to invest on platform for all tax reporting functionality, but for whom the ability to undertake apital Gains Tax calculations was irrelevant, given that all his investments were held in ISA and pension wrappers.

A Matter of Definition So what exactly is due diligence? t is, of course, the research and analysis of a company, person or investment which is routinely done in preparation for signing a contract or entering into an agreement or a transaction. t serves to confirm all material facts, including actual or potential risks, relating to the proposed transaction.

nterestingly, some definitions refer to the duty of each party to confirm each other’s expectations and understandings, and to each independently verify the abilities of the other to fulfil the conditions and requirements of the agreement.

This raises the intriguing prospect of a product provider undertaking due diligence on the firms or clients who introduce business to them. couple of providers already do this - mainly in the model portfolio and discretionary fund management space - but making it a widespread practice would be an interesting concept.

Learning to Be More Forthcoming y now we might be getting closer to understanding the thrust of the F ’s thematic review.

We already know that this will focus on the adviser’s role in the due diligence process, looking at how advisers assess products and services and what barriers they may face in the process. t’s comforting to realise that the regulator does at least understand that advisers may face difficulties in undertaking proper due diligence. Advisers will

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G U E S T F E AT U R E

welcome a clear statement of the regulator’s expectations of product providers when being asked about their products and services.

Good due diligence implies one party asking the right questions and a second party giving the right answers.

However, in our regulated world, due diligence shouldn’t be a parlour game where providers only answer the questions they are asked, no more and no less.

It should not be up to advisers to frame exactly the right question in precisely the right way in order to get the information they want.

Providers who react in this way to due diligence enquiries could face a backlash from advisers unwilling to do business with such taciturn companies.

Focus on Client Outcomes The regulator has also sought to remind us that in their view, some advisers are failing to put client outcomes at the heart of due diligence, and platform due diligence in particular. This is because the platform is paid for by the client, with the F clearly expecting advisers to be acting in the client’s best interests, and getting the client a good deal.

The F knows that adviser firms collect information packs from platform providers, to evidence undertaking due diligence.

There are two problems with this. Firstly, having received the information, we should do something with it. We should be inquisitive about its real meaning, and critical about what we are being told - not just collecting reams of brochures and reports.

The second problem is that, even if we do undertake proper analysis and research, it

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March 2015

should be on the right subjects.

For the regulator, the right subjects are those which relate the product research and eventual recommendations to the suitability of the proposed transaction for the firm’s clients, not the firm.

online functionality, discretionary fund manager links).

Cost Considerations

Other information may be harder to find, including more qualitative information such as the provider’s target client segment, or future plans for product development.

es, of course a firm may benefit from the advantages of platform use - but so should the client.

More radically, if the platform saves an advice firm time in investment administration, portfolio construction, reporting and reviews, how does the firm pass on those cost savings to the client who has paid the price for all these facilities So what should advisers be asking First, take a step back and ask yourselves what you consider the purpose of the due diligence to be. eveloping your research process requires a preliminary exercise in deciding within your business in general and for your clients in particular what good and bad) looks like.

These are the characteristics which you then deliberately seek out, or seek to avoid.

Key Questions Setting high level research criteria with strong clientfocused logic will focus the mind on what questions to ask, and what answers may or may not be acceptable. gree features, some of which would be applicable to all firms with which you do business financial strength, years in business, profitability) and others which may vary according to the product being considered annualised volatility,

Some information, particularly factual data on pricing and product terms and conditions, is easily and cheaply available from commercial research providers.

Finally, agree a review schedule for this process. eview frequency is especially sensitive for platform advice where switching clients from one provider to another can be costly for both client and adviser, in term both of the time and the transaction charges involved.

Constant Change is Here to Stay Platforms change, just like any other product. Features are added, and pricing inevitably changes - and suddenly a proposition that represents a good deal for the client now might be very different in five years’ time. However, a platform which suitable for new clients may not be sufficiently different in terms of features or charges to merit switching an existing platform client to the new preferred provider.

We have to wait to see what the F considers to be good or poor practice in adviser due diligence. ut keep your client and what is right for their individual circumstances front and centre of your recorded platform due diligence process and you may not be too wide of the mark..

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BURNING ISSUES

March 2015

Still The Big Country There’s plenty of room for more growth, says our Burning Issues panel This year’s impressive performance from US financial markets has got analysts on this side of the ond worried. tateside e perts assure us that a prospective price earnings of on the - and a cyclically ad usted p e of – is nothing to worry about.

Why not? Because America’s core strengths are coming through, they say. A healthy population structure and a high level of policy stability are combining to set America aside from the worries that are now clouding the horizon in Europe or in Asia.

Meet the Panel Tom Elliott

International Investment Strategist at deVere Group

Wouter Volckaert

Fund Manager of Henderson Global Trust

Kerry Craig

Global Market Strategist at JP Morgan Asset Management

Jaisal Pastakia

Investment Manager at Heartwood Investment Management

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Question 1: Some Wall Street traders are calling this “the most hated rally in history”. By which they presumably mean that they feel February’s boom in equity values is being driven by something other than corporate fundamentals. Your thoughts?

Tom Elliott February’s rally was perfectly rational. Against a background of Janet Yellen’s assurance that the Fed would be ‘patient’ in introducing its long-awaited hike in interest rates, the equity bulls could enjoy the good growth data coming from the US and the UK, and signs of improving business confidence in the beleaguered euro zone. To cap it all, the ECB was set to launch QE, putting pressure on the euro and boosting euro zone exporters and stock markets in general.

Other market participants were nervous of this rally, warning that the Fed’s statements on monetary policy were not as clear as the bulls would have us believe. Their chief exhibit was the minutes of the last Fed meeting, that showed the average forecast amongst Fed monetary policy committee members for interest rates at the end of 2016 was 3.5%. This contrasted

with the market pricing in just 2% by end 2016.

As Simon and Garfunkel said, ‘A man hears what he wants to hear and disregards the rest’.

This week we have seen the penny drop, triggered by last Friday’s strong non-farm payrolls.

Kerry Craig There certainly isn’t a lot of euphoria surrounding the US equity market at present. It is natural for investors to question how much juice can be squeezed out of a market that has just entered its seventh year of a bull market run, and is up over 220% during that time.

However, both economic and corporate fundamentals remain strong in the US relative to other regions and while the valuations are no longer as attractive as they once were neither are they screamingly expensive. A combination of earnings growth, share buy backs, M&A activity and higher consumer confidence will continue to support the market.

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March 2015

All the same, investors should temper their return expectations in a market this elevated, and should focus on the attractive sectors and companies rather than the broad market while expecting higher levels of volatility.

Wouter Volckaert The S&P500 has gone up threefold in USD terms since bottoming on 9 March 2009 and is trading near an all-time-high level. We are six years into a market rally, and by now you would expect your mother-inlaw to be bragging about her latest investment triumphs and your cab driver to be a source of hot trading tips.

However, none of that is happening. We are seeing some behaviour that is associated with being well into a market cycle – for example a burger chain with less than 100 stores coming to the market with a value of over $1bn – but we are not hearing many people talk about newfound riches in the stock market.

That is why I would call it the most unloved bull market I have ever witnessed.

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The disparity between share price returns and investor sentiment can largely be explained by the fact that the stock market has mainly gone up on the back of multiple expansion.

I like to think of the stock market as a mathematical formula: P = P/E x E. The market (P) can go up on the back of growth in the earnings generated by the companies listed on the stock market (E), and on the back of the multiple that investors are willing to pay for this (P/E). The E is correlated to the economy, and therefore hasn’t expanded that much over the past six years. Instead, the market has gone up on the P/E going up, or so called multiple expansion. The key driver for this multiple expansion has been excess liquidity. Quantitative easing and low interest rates have created surplus capital which chased asset classes worldwide – from equities to bonds, London property, vintage cars and fine wines.

So excess liquidity leading to multiple expansion has been the key driver behind equities.

That doesn’t feel as comfortable

to people as a booming economy, big salary increases and rosy newspaper headlines. And we’ve had quite the contrary – austerity talk, the threat of de ation and the possibility of a break-up of the European.

That explains why this is the most hated rally in history.

Jaisal Pastakia We do not believe that the US market is fully pricing in declining earnings expectations.

The speed and the severity of the fall in earnings expectations since the start of 2015 have been unusal (EPS growth estimates have fallen from 9% to 2%.) Of those companies that have announced disappointing earnings results, almost all have highlighted the strong dollar as the main factor holding back earnings.

It is important to remember that, at a market level, in the short term, there is little correlation between earnings growth and market performance.

However, at some point earnings do have to come through to support higher valuation multiples, which are moving up to levels last seen in 2007.

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Question 2: The numbers suggest that the US economy has shown remarkable resilience recently: the Q4 GDP growth of 2.5% was better than expected, and it seems to indicate an even stronger 2015. Industrial production was up 4.8% year-onyear in January.

Isn’t there genuine reason for optimism there?

BURNING ISSUES

Jaisal Pastakia

Tom Elliott

We are cautiously optimistic on economic growth. The US economy is growing but only at a moderate pace relative to previous recovery cycles.

In fact, data releases in the first quarter have been mixed.

Regional manufacturing survey reports have disappointed and retail sales have been weak.

The bright spot has been the labour market, which is showing robust job creation.

US economic growth looks robust.

But the headwinds from higher US interest rates threaten sock markets in two ways.

February capped a one year period of successive monthly job gains exceeding 200,000.

A tighter labour market bodes well for wage growth, which has been lagging (around 2% yearon-year), and should support consumption, already benefiting from as lower oil price. Headline in ation remains very low, although core in ation excluding food and energy) had its strongest increase in January since October (+0.2% month-on-month). Over the longer term, we expect in ation pressures to reach the Fed’s target of around 2%.

Wouter Volckaert The end of quantitative easing in the US and the outlook for interest rate hikes means that excess liquidity will gradually disappear, and so the years of multiple expansion driving equity markets are over.

Economic momentum and corporate earnings growth now need to take over as a market driver.

Fortunately the latter is recovering and therefore there is indeed genuine reason for optimism. fter five moderate years, we are finally seeing a more meaningful pick-up in corporate investment and credit growth. Unemployment has fallen to the level where we are starting to see wage growth.

And a lower oil price should provide a nice tailwind for oil importing countries such as the US.

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First, high dividend ‘bond proxies’ such as utilities, pharma and other sectors associated with generous dividend yields but slow profits growth, may suffer as investors look for income from less risky sources. A dividend yield of, say, 2.5% may look good if you can only get 0.01% on your bank deposit account and a 10 year government bond yields 2% but with no opportunity of capital growth. But what if the bank account cash, or the 10 yr Treasury yield, goes to 3.5%?

We can almost hear the sucking sound of cash leaving the ‘bond proxy’ part of the stock market, with large, mature defensive sectors particularly badly hit.

The second headwind caused by higher US rates will be on currency, as the USD rallies in response and hurts export earnngs from US companies.

Kerry Craig The recent economic data from the US has come in below expectations and forecasts for first quarter economic growth have been revised down.

Some of this is due to one off weather impacts, but also concerns about weaker than expected consumer spending even with lower energy costs.

Despite this, the economy should see respectable growth at close to 3% this year, largely driven by the consumer. The labour market continues to tighten and on average 288,000 jobs have been added each month for the past three months and the unemployment rate has fallen to 5.5%. Wage growth has been stubbornly slow to increase, but as the labour market tightens wages should start to increase – and, more importantly real wages will rise because in ation is at low levels providing a consumption boost.

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March 2015

Question 3: Fed chairman Janet Yellen has strongly intimated that US interest rates are likely to head upward in the next nine months. The markets seem to have taken that as good news, since they were expecting the tightening to come earlier. Is that fair comment? And are they just setting themselves up for a bigger downturn when it eventually comes?

Jaisal Pastakia At the start of the year, all the focus was on the European Central Bank, but in early March that has started to shift back toward the Fed. The ending of the Fed’s zero interest rate policy is nearing reality as we approach midyear, and it is being most prominently played out in the foreign exchange markets with the rise of the US dollar.

While Fed tightening is not a surprise, the ramifications of a strong dollar are undermining the profitability of some of the larger USbased global corporates, as well as creating uncertainties across asset classes, particularly in emerging ,markets and commodities.

Wouter Volckaert The equity market always takes a break when the interest rate cycle turns, but the break tends to be short and the correction not that large (less than 10% on average). Once we move past the initial uncertainty, the market

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tends to focus on the fact that the interest rate hike happened because the economy has strengthened and equities resume their upward path.

The bigger risk would be if the FED tighten too much too quickly, which I would define as anything more than 150bp tightening in the first 18 months of the cycle.

Kerry Craig The timing of the first rate hike by the Federal Reserve is the most anticipated event of the year. There will be increasing speculation and market volatility as we get closer to any potential lift of date around the middle of the year but the exact date will be very much dependent on how the economic data develops over the coming months.

Markets hate uncertainty and history shows us that in the lead up to the start of the interest rate cycle equities have not performed well. However, once the uncertainty is removed and the hurdle of the first rate increase since 2006 is past the focus will once again be on an economy that is healthy and no longer needs a zero interest rate policy. This should see equities continue to move higher.

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BURNING ISSUES

Question 4: OPEC is currently working on ways to improve the oil price.

Although its efforts are not guaranteed to succeed, how vulnerable do you feel that the US might be to a rapid rise in prices?

Kerry Craig Consumption accounts for nearly 70% of the US economy, so any factor which in uences consumption will impact the economic outlook and drastically higher oil prices would act as a brake on economic growth through higher fuel prices.

However, with a global excess supply and the long lead times to reduce production a sharp rise in price is less of a threat than a drastically higher US dollar in the near term. A strengthening currency will create disin ationary pressures in the economy and has the potential to undermine corporate earnings outlook de ating equity markets..

Tom Elliott I see USD 60 a barrel by year end, in response to closure of some shale production in the

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US and increased demand from the euro zone as economic recovery continues. The Saudis are unlikely to cut production to boost the oil price, any rise will be market forces at work – exactly as intended by the Saudis when they began raising output last summer.

Wouter Volckaert We don’t worry about this.

The supply of oil continues to outstrip the demand and the worldwide storage capacity for oil is now close to being full. Once the excess capacity hits the market rather than storage, we actually expect the oil price to take another

leg down. OPEC requires unanimity in its decisions and Saudi Arabia is keen not to subsidise the development of a US energy market, so we don’t expect OPEC to step in and cut production. Saudi Arabia is willing to take a shortterm hit if it might benefit them over the long term.

Jaisal Pastakia The US economy is much more insulated from the oil price, with the shale oil and gas revolution significantly reducing the country’s dependence on foreign oil since 2005. Imports are at their lowest level (around 30%) since 1985.

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Three

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INVESTMENT DOCTOR

March 2015

Analyse This What, if anything, can we learn from analysts’ forecasts?

Neil Martin, city editor of IFA Magazine, in association with Aviva Investors, considers the possibilities

Long, long ago, brokers’ analysts were the invisible face of investing. Hidden away in broom cupboards, they performed their slightly tedious task without ever getting any glory. But with the Big Bang revolution of the 1980s and the superheated equity cult of the 1990s they shot to media stardom.

And yes, there was a glorious period when the teenage ‘scribblers’ properly ruled the roost. We even got used to reading about ‘sellside’ and ‘buy-side’ analysts, who could be relied upon to strike predictable sparks off one another at any moment.

But more recently their stars have waned, with many fund managers now using their own internal research - preferring their ‘house’ stamp on what they are being told. So does this mean that brokerage research is of no use? And what value should we place on analysts’ forecasts?

Tied Agents?

Well, let’s start by remembering that sell-side analysts – those who work for the investment houses – are there to stimulate trades and earn commissions with their recommendations.

Analysts’ reports are very

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often circulated beyond their intended audience, including the media, and they can become widely read. They certainly sound authoritative – they’re usually highly detailed, and they’re prepared by individuals with a great understanding of finance and their particular sector. But, ultimately, how should we judge them?

Probably the best approach is to view all this Buy, Sell, Hold, Outperform business with a degree of friendly, healthy cynicism, in the same way that we treat many other arguments put to us in the financial sector.

Yes, they are the products of minds who should know their onions; yes, they do originate from firms who have reputations to protect and build; and yes, if the analysts continually get their views wrong, they won’t last in the job.

But here’s the crucial thing.

Analysts are part of the system.

Given the highly regulated City environment, they are not privy to special information, and nor do they have unique relationships which gain them the upper hand.

Yes, admittedly, they will have the numbers of CEOs and CFOs in their contact books and they do enjoy greater access then the private investor. But, they should only be told things that are widely known, or have access to information that is readily available in the public domain.

The directors have a responsibility to ensure that the consensus opinion out there is based on fact and not excitable conjecture. This is especially true with the larger companies, with analyst forecasts tending to come within a tight range. In the smaller company sector, of course, coverage is thinner and forecasts can be less accurate but even so, the market works hard not to allow surprises with any public company.

Furthermore, analysts with a particular strong sector/company knowledge, or reputation, can provide key pointers and snippets of background information that it would be hard to find elsewhere.

Analysts who have been around the block a few times and with hard-won reputations are the ones that should be followed.

But it is essential that these are not the only signposts you need to read. They make up a piece of the overall jigsaw. An important piece, yes, but not the only piece.

So, yes, if a piece of brokers’ research lands on your desk, give it a good read. But don’t as they say, bet the house on it. Or anybody else’s for that matter.

Fundamental Strengths Where they are hugely beneficial is that they provide the best reference material into a company, or a sector. They will give you the basics the building blocks of information on which a judgement can be formed.

And their forecasts will have been vetted by a company’s management.

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Compatibility: Requires IOS 6.0 or later. Compatible with iPhone, iPad, and iPod touch. This app is optimized for iPhone 5. Available on Android.

Compliance Doctor.indd IFA Magazine App.indd 154

Twenty Four Seven IFA Magazine, Britain’s premier online portal and print publication for financial advisers, has launched its ver y own app designed to help you stay up to date with all the latest financial and economic news as it happens.

Main Features: Reviews Features Funds Market and Economics Trading Expert FCA Compliance Jobs

19/03/2015 21/11/2014 15:06 09:43

COMPLIANCE DOCTOR

March 2015

Thank You Sir...

That will do nicely, says Compliance Consultant Lee Werrell

won’t need reminding, mean that customers are able to:

PS 15/4 Retirement Reforms and the Guidance Guarantee: Retirement Risk Warnings www.fca.org.uk/ static/documents/ policy-statements/ ps15-04.pdf

It’s obvious that consumers must be given personalised retirement risk warnings when they would like to access their pension savings. But the FCA does not intend to treat these communications as regulated advice, the regulator has confirmed in this Policy Statement.

PS 15/4 is another of those FCA statements which turn out to be more significant than a seemingly banal headline might seem to suggest. It follows on, of course, from the 2014 Budget announcement on proposals for fundamental changes to the options that consumers will have for accessing their DC pension savings at retirement.

And those options, as you

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n Take their pension savings as cash (in a one-time payment or perhaps smaller amounts over time); n Buy an annuity (or another income-generating guaranteed product); n Select a drawdown pension without having any limits applied; n Use any combination of these.

Why No Consultation?

The rules have been published without consultation because of the fact that a delay involved in consultation could well be detrimental to consumers’ interests. The regulator is planning for a consultation on updating rules within the pension and retirement area in the summer of 2015, after a thorough review. The FCA will consult at this time on whether or not to retain, modify or enhance the rules outlined in this Policy Statement.

So What’s Required?

Under the new rules, Providers and platforms must ask the customer set questions to identify whether risks exist, and present appropriate retirement risk warnings in response to the answers to these questions.

You should read the whole document to learn exactly what is required; but I highlight the actions below.

Firms will be required to identify the main risk factors related to the pension decumulation products they

provide to consumers and make preparations for accurate questions that will assist them in identifying and establishing the existence of those risk factors in relation to each one of the pension decumulation products offered. Risk factors for the purchase of a single life annuity would include whether an individual has a partner or dependents, with the warning explaining that they may not be provided for on the individual’s death.

The new rules will pertain to providers holding the consumer’s pension assets, including SIPP operators and execution-only firms, and providers contacted by a consumer looking to purchase a decumulation product using a provider.

As with any uncrystallised fund pension lump sum, risk factors include tax implications, sustainability of income in retirement, charges, debt, and impact on means-tested benefits or the prevalence of investment scams. Drawdown risk factors include all of these, plus a question asking whether or not the consumer has shopped around?

Risk Warnings Retirement risk warnings are expected to be provided in whatever way the customer is in contact with the company.

There are no exclusions or caveats. Additionally the risk warnings must be given even where consumers happen to have been through Pension Wise guidance, although they aren’t going to be necessary where an individual has received full advice.

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COMPLIANCE DOCTOR

March 2015

The regulator says that the most recent rules will not require firms to replicate the Pension Wise service.

Instead, and in addition to Pension Wise, the rules ensure firms will ag specific risks to customers, and give them appropriate warnings about the choices they have in accessing their pension savings. These warnings might include setting out options the customer has, for example, shopping around.

The FCA says that these retirement risk warnings can be given without providing regulated advice; they are not requiring firms to tell consumers what to do or implying that the consumer’s decision will be wrong. They are simply requiring firms to ensure the consumer is aware of the risks of the course of action they are seeking to take. The new rules are laid out in the PS Appendix of the “made rules” to become COBS 19.7.

The retirement risk warnings must be given to the consumer regardless of whether they have already received “Pensions Guidance” from “Pension Wise” (see PS 14/17) or taken regulated advice. See Section 3.4 for further details.

4:

The Retirement Risks Identification Process The Process is simple although there can be misunderstandings.

1.

Trigger Event: Customer decides to access their pension.

Risk Warnings

1.1 Question if they have taken pensions guidance or received regulated advice 1.2 If Yes - go to step 2.

1.3 If No or unsure - direct to Pensions Guidance or take regulated advice; if accepted they go back to step 1.

1.4 If they decline advice or guidance and want to proceed - continue.

2.

Based on how the Customer wishes to access their pension pot, set questions need to be answered to identify which risk factors are present.

3.

Firm to provide appropriate risk warnings in response to answers to the set questions.

Expected risk warnings will depend on the product selected and will include those in the table below, Firms may add additional warnings if their product requires it.

Other - Risk factors relevant to how the consumer has decided to access their pension savings.

Retirement risk warnings are expected to be provided in whatever way the customer is in contact with the company. There are no exclusions or caveats.

Additionally the risk warnings must be given even where consumers happen to have been through Pension Wise guidance, although they aren’t going to be necessary where an individual has received full advice.

Conclusion The new rules lay out a simple process to ensure that customer detriment should be minimalized, but obviously will need application by firms and advisors across the retirement spectrum.

If you have any issues with this Policy Statement, please refer to your qualified Compliance Professional or go to www. complianceconsultant.org See also the listings of the latest FCA Publications on Page 58

How a consumer may access his or her pension savings Risk Factor Consumer’s state of health Whether the consumer has a partner or dependants The effect of inflation Whether the consumer has shopped around Loss of any guarantees Sustainability of income in retirement Charges (if the consumer intends to invest their pension savings) Debt Impact on means-tested benefits Investment scams Tax implications

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Annuity

Lump Sum Drawdown

x x x x x

x x x x x x x

x x x x x x

Other

? ? ? ? ? ? ? ? ? ? ?

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COMPLIANCE DOCTOR

March 2015

The Questions The main considerations are covered in Section 3.34 of the Policy Statement and are replicated here n CONSUMER’S STATE OF HEALTH: Are there aspects of the consumer’s health or lifestyle that would make them potentially eligible for a better value annuity – for example, an enhanced annuity? n WHETHER THE CONSUMER HAS A PARTNER OR DEPENDANTS: Does the consumer have a partner or dependents who might benefit from a joint life annuity (where they are not already purchasing one)? n INFLATION: If the consumer is seeking to buy a level annuity, do they understand that inflation will erode the real value of the income they receive from their annuity? n WHETHER THE CONSUMER HAS SHOPPED AROUND: Has the consumer shopped around different providers before choosing to buy the product? n LOSS OF GUARANTEES: Will the consumer lose any guarantees attached to the pension? n SUSTAINABILITY OF INCOME IN RETIREMENT: Is the consumer expecting the money they take from IFAmagazine.com

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the pension to help provide an income in retirement? n CHARGES (if a consumer intends to invest their pension savings): Has the consumer considered how the charges they may face when investing their pension savings elsewhere compare with those on their pension savings? n DEBT: Is the consumer aware that creditors may have a call on any money taken from pension savings? n IMPACT ON MEANS-TESTED BENEFITS: Is the consumer aware that taking money from their pension may impact on any meanstested benefits they receive? n INVESTMENT SCAMS: Is the consumer aware that investment scams exist, and that they should be careful where they invest money taken from their pension savings? n TAX IMPLICATIONS: Does the consumer understand the tax implications of taking money from their pension savings?

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March 2015

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

FCA Publications

OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS Quarterly Consultation Paper No. 8

Proposed Changes to Pension Transfer Rules

Consultation Paper

Consultation Paper

Transaction Costs Disclosure: Improving Transparency in Workplace Pensions

Ref: CP 15/8

Ref: CP 15/7

Discussion Paper

6 March 2015

4 March 2015

Ref: DP 15/2

71 Pages

53 Pages

2 March 2015

The regulator is proposing minor amendments to CASS and CONC; to remuneration reporting submission methods’ and to various matters that impact AIFMs and AIF depositaries.

The FCA is consulting on proposed changes to its rules that will make advising on the conversion or transfer of safeguarded pension benefits into flexible benefits a regulated activity.

The FCA already regulates advice on transfers to personal pensions, but the new regime will bring advice on transfers from defined benefit (DB) schemes to occupational defined contribution (DC) occupational schemes into the FCA’s remit.

The new regime will also make advising on pension transfers significantly more complex, so we now wish to require the Pension Transfer Specialist qualification for advice on all transfers from DB schemes to DC arrangements, regardless of when the transferred benefits are being accessed.

In particular, the regulator proposes to:

53 Pages

Consultation period ends 6 April 2015 (Chapter 2) and 5 May 2015 (chapters 3 and 4) Structured Products: Thematic Review of Product Development and Governance Thematic Review Ref: TR 15/2 4 March 2015 32 Pages The regulator’s recent work in the structured products market has focused on better understanding consumer behaviour and the way that firms approach product development and governance.

In particular, research has shown that retail customers generally struggle to understand the complex features common to many structured products and frequently overestimate the potential returns available from them. This can have a negative impact on the quality of their decision-making.

Accordingly, the reports published suggests that firms’ senior management must do more to put customers at the forefront of their approach to product governance. A range of specific proposals are set out.

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n Amend the rules to incorporate the new specified activity of advising on conversions or transfers of safeguarded benefits to flexible benefits, and n Require that all advice on DB to DC pension transfers be provided or checked by a Pension Transfer Specialist.

Consultation period ends 15 April 2015. Final rules to be published in June 2015

A Call for Evidence on improving the reporting and disclosure of information about transaction costs in occupational and workplace personal pension schemes. It explores: n How improved transparency in the reporting of information about the transaction costs and charges incurred by members of workplace pension schemes can be achieved; n What costs should be included in transaction costs reporting; n The basis on which costs should be captured and reported; n Whether other factors that influence investment returns should also be provided; n How Independence Governance Committees (IGCs) and trustees will receive transaction cost information; n When, how and in what format information should be provided and to whom?

Consultation period ends 4 May 2015

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March 2015

Final Rules for Charges in Workplace Personal Pension Schemes and Feedback on CP14/24 Policy Statement Ref: PS 15/5 2 March 2015 48 Pages The FCA has published rules to implement a charge cap on default funds for automatic enrolment and bans on certain charging practices in workplace personal pension schemes that it regulates.

The changes arise from the October 2014 consultation on the proposed rules. These required firms that operate workplace personal pension schemes used for automatic enrolment to implement a charge cap within the default funds of those schemes. They also prevent providers from using differential charges based on contribution status and from paying commission and other banned remuneration to advisers for services not initiated by scheme members in workplace personal pension schemes.

These rules form part of a package of measures aimed at improving governance and value for money in workplace pension schemes.

The charge cap will apply from 6 April 2015, or the date from which a scheme becomes a Qualifying Scheme for an employer.

payments, including all other mechanisms for members paying for services they have not initiated, from Qualifying Schemes by 6 April 2016.

Retirement Reforms and the Guidance Guarantee Policy Statement

Dates Diary for your

APRIL 2015 1

FCA due to start regulating additional benchmarks (CP 14/32)

6

UK Tax year 2015/2016 begins

6

New rules for Independent Governance Committees (PS 15/3) come into force

6

UK Pensions deregulation begins

9-12

The Masters Augusta National Golf Club, Georgia

15

Consultation period ends for CP 15/7 (Proposed Changes to Pension Transfer Rules)

Ref: PS 15/4 27 February 2015 27 Pages

n Ensure compliance with the charge cap from 6th April 2015 onwards;

During 2014 the FCA produced ‘near-final’ rules requiring firms to tell their customers about Pension Wise, and to include a recommendation, in customer communications about retirement options, that consumers consult Pension Wise or take regulated advice.

The FCA has since reflected on the protections offered in the rules, and considered wider feedback on the impact of the new pension flexibilities.

It now considers that the risk to consumers in this area is great enough for additional protections to be required before the April 2015 changes.

The new rules described in this Policy Statement will come into force on 6th April 2015. Firms operating personal pensions, stakeholder pensions, selling pension decumulation products or facilitating the access of pension savings on an execution-only basis must make any changes necessary to comply with the rules before they come into force.

The FCA plans to consult in summer 2015 on potential changes to these rules.

n Remove consultancy charging from Qualifying Schemes by 6th April 2015;

Consumer Credit Proposed Changes to Rules and Guidance

25-27 Parliamentary elections in Egypt (second round)

n Amend any differential charges on the basis of contribution status in Qualifying Schemes by 6th April 2016;

Consultation Paper

MAY 2015

Ref: CP 15/6

4

n Remove commission and the remaining banned remuneration

The FCA has been responsible for regulating the consumer credit market since April 2014,

Firms affected by these changes will need to:

24 March 2015 123 pages

Consultation period ends for DP 15/2 (Transaction Costs Disclosure: Improving Transparency in Workplace Pensions)

Continues overleaf IFAmagazine.com

FCA Publications and IFA Calendar.indd 59

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

March 2015

Dates Diary for your

5

Consultation period ends for CP 15/8 (Quarterly Consultation Paper No. 8)

6

Consultation period ends for CP 15/6 (Consumer Credit Proposed Changes to Rules and Guidance)

6-7

European Business Summit Brussels, Belgium

7

UK General Election

17-19 Global Tax Summit 2015 Monte Carlo, Monaco (to be confirmed) 22

Consultation period ends for CP 15/4 (Whistleblowing in Deposit-Takers, PRADesignated Investment Firms and Insurers)

JUNE 2015

6

UEFA Champions League Final Berlin, Germany

7

Parliamentary elections in Mexico

7-8

G7 Summit Schloss Elmau, Germany (Russia’s participation in G8 currently suspended)

HAVE WE FORGOTTEN ANYTHING? Email editor@ifamagazine.com

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FCA Publications and IFA Calendar.indd 60

and it is now consulting on changes intended to address potential areas of harm to consumers that have been observed in the market.

The broad scope of this Consultation Paper relate to: n Credit broking: To consult on whether to retain the rules made in PS14/18, and to seek views and evidence more generally on appropriate remuneration structures for brokers; n Guarantor lending: To require firms to provide adequate explanations to guarantors, assess their creditworthiness and treat them with forbearance; n High-cost short-term credit: To remove the exemption from the requirement for firms to include a risk warning in financial promotions; n Financial promotions: To amend the rules regarding the relative prominence and representative APRs; n Arrears, default and collection: To allow firms to introduce continuous payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance; n Mortgages: Consequential changes to the rules in relation to the implementation of the Mortgage Credit Directive and the transfer of second charge mortgage regulation.

Consultation period ends 6 May 2015

Non-Executive Directors in Banking and Solvency II Firms Consultation Paper Ref: CP 15/5 23 February 2015 113 pages This paper sets out the regulator’s revised approach to independent non-executive directors in banks, building societies, credit unions and PRA-designated investment firms and Solvency II firms.

Consultation period ends 27 April 2015 Whistleblowing in Deposit-Takers, PRA-Designated Investment Firms and Insurers Consultation Paper Ref: CP 15/4 23 February 2015 71 Pages The regulator proposes, with the PRA, a package of measures to formalise firms’ whistleblowing procedures. This consultation paper proposes a set of rules that will apply to banks, building societies, credit unions, PRAdesignated investment firms and insurance and reinsurance firms, within the scope of Solvency II, and to the Society of Lloyd’s and managing agents. It does not, however, propose to impose its requirements on small credit unions with under £25m in assets.

Consultation period ends 22 May 2015 UK Listing Authority Fees: Covering the Cost of Regulation Discussion Paper Ref: DP 15/1 15 January 2015 25 pages This paper sets out some options for discussion on how the FCA should recover the costs it incurs when carrying out its duties.

The regulator says it expects to consult on proposals in October 2015, for implementation from 1 April 2016.

Consultation period ends 20 April 2015

IFAmagazine.com

19/03/2015 15:07

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How can MyTouchstone help your firm?

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3) Adviser Charging Guide: How do your fees compare with your peers in you location?

4) RDR Survey: Understand how many firms are RDR ready and the biggest hurdles still to over come.

5) National & Regional Support Services to IFAs: Rankings for networks, broker service provider, outsourced fund management, wraps and platforms.

6) New Business Trends: Discover how business is changing from one quarter to the next.

7) Access our ‘Fund Focus’ page created in association with FE & Rayner Spencer Mills gain a unique insight into the latest fund selection and performance trends.

8) View our ‘Platform Page’ to find out the latest trends in the platform & wrap market, updated quarterly with the latest stats, reports & insights.

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Independent financial advice is changing. Wisdom is knowing what to do next…..

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FCA Publications and IFA Calendar.indd 61

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Technical Advisor The Role

❚

The role of the Technical Advisor is to support the Financial Planner in informing and advising Clients on financial strategies, plans and products.

Compiling financial planning recommendations and advice reports

❚

Providing support for the Financial Planner to allow the Financial Planner to focus on Client relationships and meeting business targets

❚

Ensuring that all regulatory and compliance standards are met

❚

Liaising and building professional relations with product providers and other relevant third parties

❚

Ensuring that all Client requirements are followed through to the appropriate conclusion

❚

Managing the preparations for client annual reviews on behalf of the financial planner

Key Responsibilities and Outputs ■

Supporting the Financial Planner in research and analysis to meet the Clients needs and objectives

■

Supporting the Financial Planner in preparing Client Financial Plans and Advice Reports

■

Developing and maintaining internal relationships to help maintain business flow and meet agreed targets

■

Promoting the profile of Trentham Invest within the profession and wider communities

■

Continuous professional development to meet regulatory requirements and personal development needs

■

Ensuring that any business conducted is done in a responsible and compliant manner, meeting all legislative requirements, both internally and externally

Nature and scope of responsibilities Reports to:

Technical Manager

Direct Reports:

None

In particular, the role holder will have primary responsibility for: ■

Managing and supporting the Technical Administrator

■

The technical aspects of preparing for Client meetings including: ❚

Overseeing the collation/collating any financial data from the client or third parties

❚

Financial data analysis

❚

Analysing Client data and preparing cash flow analysis

❚

Overseeing the research/researching any products to support recommendations

■

Assisting the Financial Planner with Client presentations and any other activities as agreed with the Financial Planner

■

Provide support and information in order for Trentham Invest to deal with any client queries, with the aim of exceeding their expectations

■

Individual workflow and task delivery

■

Assisting the Technical Manager with annual technical reviews of services and products

The role holder may be required to travel for Client visits.

This may involve working outside office hours.

The role holder will keep up to date with legislative and industry changes which affect the business and its Clients.

The role holder may from time to time be required to undertake reasonable additional or other duties as is necessary to meet the needs of the business.

Salary: c£35k+ depending on experience

trenthaminvest.co.uk

Investing in our future to better help our clients invest in theirs

Client Service Manager – Ongoing Client Monitoring The Role

Nature and scope of responsibilities

The role of the Client Service Manager – Ongoing Client Monitoring is to assist in providing administrative and technical support to the Technical Advisor within the business.

Reports to:

Technical Manager

Direct Reports:

None

Key Responsibilities and Outputs ■

Supporting the Financial Planner in preparing for review meetings

■

Supporting the Financial Planner in the implementation of post-review communications

■

■

Support the Financial Planner in the preparation of client valuations

■

Support the Financial Planner in the ongoing maintenance of client records

■

Support the Financial Planner in client review meetings

■

Developing and maintaining internal relationships to help maintain business flow and meet agreed targets

■

In particular, the role holder will have primary responsibility for:

Contributing to the smooth running of the technical administrative function within the business

■

Promoting the profile of Trentham Invest within the profession and wider communities

■

Continuous professional development to meet regulatory requirements and personal development needs

■

Ensuring that any business conducted is done in a responsible and compliant manner, meeting all legislative requirements, both internally and externally

■

Managing, recording and monitoring Client annual reviews on behalf of the Financial Planner

Inscape House, Ansell Road, Dorking, Surrey RH4 1QN Telephone: 01306 881999 Fax: 01306 881699 Email: enquiries@trenthaminvest.co.uk

Managing ongoing business processing: ❚

Recording changes to client data

❚

Preparing for review meetings

❚

Completing ongoing client compliance checklists

❚

Tracking and concluding investment management portfolios

■

Communicating and recording financial contract maintenance

■

Liaising with product providers and other relevant third parties

■

Individual workflow and task delivery

■

Assisting the Technical Analyst in respect of: ❚

Preparing paperwork for client review meetings

❚

Planning and product research

❚

Technical filing on to business systems

The role holder will keep up to date with legislative and industry changes which affect the business and its clients.

The role holder may from time to time be required to undertake reasonable additional or other duties as is necessary to meet the needs of the business.

Salary: c£24-£28k

Independent Financial Adviser Fordingbridge, Hampshire The Wealth Care Partnership (TWCP) is currently seeking high calibre IFAs to join their expanding team. Based in a rural setting in the New Forest, 10 miles from Salisbury, they are currently taking the business to the next level. Seeking professional, ambitious IFAs to share in their success and who want to be part of an award-winning and dynamic team. As they enter this exciting period of growth it is important to TWCP that they attract IFAs who share their values, put their clients first and provide the best financial solutions according to their clients’ individual needs.

TWCP encourage applications from IFAs with proven success in their field. They are willing to consider different employment structures including salary based and self-employed contracts with rewarding financial packages on offer.

In addition there may be the opportunity for a discretionary bonus structure and in the future, an equity stake in the business for the right candidate.

For the successful candidate, a robust infrastructure with a high level of administration, paraplanning and business support, including strong marketing and lead generation will be available.

TWCP was established with a vision to build a centre of excellence with a focus on a clear goal; to give personal quality advice and guidance to people serious about maintaining financial independence and protecting their assets in later life. Since being established in 2007 the business has grown substantially. The firm has been shortlisted every year since 2007 for the Health Insurance Awards and has won the Best Long-Term Care Intermediary award four times being the current winner for 2014.

The team have utilised their combined experience to become pioneering leaders in the field of later life advice and their current advisers are members of the Society of Later Life Advisers (SOLLA) which is accredited by the Financial Services Skills Council.

The role will specialise in holistic financial planning for affluent clients on investments and tax planning, so proven relationship management experience within an IFA role and a broad knowledge of financial services is essential.

The ideal candidate will be an established, professional IFA with an existing client base or the potential and ability to build one. You will have experience of writing high levels of business and in addition be able to demonstrate: •

A high volume of trail income;

•

•

The ability to sustain and nurture long-term relationships;

Experience in client advice which is compatible with TWCP’s services;

•

The ability to challenge constructively;

•

Seminar experience would be advantageous, but of more importance is the confidence to present and network with individuals and groups.

•

Capability to work with the support team in a collaborative way;

•

The inter-personal skills required to deal with complex family dynamics and older clients;

To discuss this role, in confidence, please contact Sam at Tamar HR on 01579 343700 (sam.davey@tamarhr.co.uk) or to apply please send a CV and covering letter to jobs@tamarhr.co.uk

THINKERS

March 2015

Natural Limits Thomas Malthus Born 1766 in Guildford, Surrey Died 1834 in Bath, Somerset idea of introducing “preventive checks” to population growth – including forced limits on birthrates and a higher statutory age for marriage. Only thus, he argued, could a higher standard of living be achieved for all, while also increasing economic stability.

Terminally Misunderstood It seems slightly quaint to find the Reverend Thomas Robert Malthus listed so frequently among the most eminent economic thinkers of all time. Didn’t he become famous for claiming that the human species would rapidly outgrow its ability to provide enough food for itself – resulting in a so-called Malthusian Catastrophe that would periodically knock it back down to size through starvation and disease?

Couldn’t he have foreseen that selective breeding and other farming technologies would eventually produce the ability to rescue the human race, and largely to eliminate starvation?

Yes, he did say all those things. And, living as he did in the age of the steam engine and the cotton mills, you might have expected a more forward-looking view.

Hadn’t Adam Smith’s study of Europe’s industrialising economy, The Wealth of Nations, been published when he was only ten?

Indeed it had. But Malthus the clergyman was at odds with Malthus the economist.

The former had set his face against the fashionable theory that society was improving as the world became more wealthy – he said that “the power of population”, which was indefinitely greater than the power in the earth to produce subsistence for man”, was in fact a God-given test designed to teach man about virtuous behaviour.

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Devil’s Advocate?

“The power of population is indefinitely greater than the power in the earth to produce subsistence for man”

To Hell In A Handcart Virtuous behaviour had its costs, though. Malthus opposed the Poor Laws, and he stood up (almost uniquely) for the Corn Laws, which penalised British imports of wheat and which drove up the price of basic foodstuffs to the point where they eventually caused riots in many places. His insistence on moral sobriety and propriety, even at the costs of short-term comfort, formed the fundamental underpinnings of his signature work, An Essay on the Principle of Population, which he updated no less than six times between 1798 and 1826.

The impoverished social classes didn’t fare well in other ways either. Having established that low and immoral practices were the main reason why the poor multiplied so prodigiously during the good times, Malthus tinkered with the now-poisonous

ather than scoffing, we might do better to re ect that Malthus’s views were taken very seriously indeed by even his bitterest adversaries. Contemporaries like David Ricardo, John Stuart Mill and later Charles Darwin treated his theories with respect - this was, after all, a period of enormous leaps in social and economic understanding, and of political turmoil in Europe. The Origin of Species and the seminal plant-genetics research of Gregor Mendel wouldn’t happen until some 25 years after Malthus’s death.

Malthus’s long public exchanges with David Ricardo on the political economy were probably the most important of these. Ricardo was himself an opponent of ‘easy money’ – he had successfully campaigned against letting the Bank of England print extra banknotes, which he was sure would destroy the currency and leave the working man no better off. But in the end they agreed to differ, with Ricardo focusing until his untimely death on the economic dimensions, while Malthus stuck to his insistence that the broader moral and political plane should form a central plank of thinking on the political economy.

The smart money decided that Malthus had lost the debate. And in an important sense, he had.

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T H E OT H E R S I D E

March 2015

Rigging the Odds Mesdames, Messieurs, Faites Vos Jeux, says Richard Harvey.

Are you feeling lucky?

Traditionally, governments have been ambivalent about gambling. On the one hand they see it as a useful source of revenue, but on the other they saddle the industry with rigid restrictions because they don’t want us to end up as down-and-outs after we’ve blown all our poppy in the betting shop.

Bizarre, then, that this government doesn’t mind behaving as the nation’s croupier when it comes to the State pension.

To wit: we oldsters now being invited to top-up our State pensions by handing over lump sums, in return for which we will receive an enhanced monthly payout.

Dodgy Maths The official bumf quotes an example of a pensioner reaching 68 in October.

He or she wants an extra fiver a week - that’s £260 a year. The Exchequer says it will happily pay out the additional £5, in exchange for an upfront lump sum of £4,135.

Er, hold on a minute. I was always a duffer at maths, but unless I’m entirely wrong, it will surely mean that the pensioner has to survive until he or she is almost 84 until they begin to see a return of an additional £5 a week they haven’t already paid for themselves?

According to the life expectancy figures quoted on the Office for National Statistics website,

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The Other Side.indd 66

we male pensioners will be lucky to make it to 83, while the ladies could hang on for another couple of years or so.

(A strange anomaly in the equality agenda which the chatterati rarely talk about).

So you don’t have to be Stephen Hawking to realise that you’d probably be better off splurging your top-up money on Knackered Knees in the 4.30 at Kempton.

Particularly if you live somewhere like Glasgow, where a life spent munching deepfried Mars Bars and downing pints of heavy means you’ll be lucky to make it out of your 70s.

(Note to Scottish readers: ahem, only joking).

The House Always Wins There’s probably a calculation to be made of just how much profit the government will make from their top-up offer. Because, just like every casino in the world, there will be considerably more money coming in than going out.

Just which shady, Caponeesque character in the Treasury dreamed up this little deal?

No wonder social media has erupted with scornful Tweets and Facebook postings from those who have rumbled the sort of racket which, had it been perpetrated by IFAs, would have been condemned by politicians as exploitative.

Fish Out the Rose Tinted Spectacles Meanwhile, on another subject: With the Stock Market frothing over like a glass of the aforementioned Scottish heavy, and brighter economic times ahead (what? you mean you’re cynical about all these pre-election claims?) investors are now eyeing improved returns.

My IFA mate Nigel reckons that an annual return north of seven percent is a perfectly reasonable expectation. So, for the embattled saver, it would appear that happy days really are here again.

Providing, of course, that Putin keeps his tanks at home.

And the Eurozone doesn’t go belly up. And the incoming government doesn’t start caning the wealth creators. Glass half empty? Who - me?

IFAmagazine.com

19/03/2015 15:09

For authorised financial advisers only – not for retail clients

WHEN BRIAN RETIRED AS SALES DIRECTOR HE NEVER EXPECTED TO GO BACK.

Your clients risk going back to work in retirement unless you make sure they’ve got enough to cover the basics.

Things like food, utility bills and running a car.

An enhanced annuity could still be the cheapest* way to secure their basic income needs – and don’t forget, this is guaranteed for life. And with our Target Income Calculator you can give them an indication of how much of their pension fund they will need to set aside to cover the essential living costs, as well as the income they could receive from a Partnership annuity.

That way, once you’ve got their money working, you can rest assured your clients will never have to.

For more details call 0845 108 0443 or visit partnership.co.uk

*Source: Partnership data 2014, Compared to a standard annuity and depends upon individual circumstances. Telephone calls may be recorded for training and monitoring purposes.

Local call rates will apply. Partnership is a trading style of the Partnership group of Companies, which includes; Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261). Partnership Life Assurance Company Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The registered office is 5th Floor, 110 Bishopsgate, London, EC2N 4AY.

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