N O V 2 0 11 ■ i s s u e 6
For today’s discerning financial and investment professional
OOPS THis is HARDeR THAN iT LOOKs
MIFID II
BIGGER, BEEFIER, TERMINALLY VAGUE….
JuNiOR isAs
sTiLL TOO MANY GAPs iN THe LiNe-uP
N e w s r e v i e w c o m m e N t a n a ly s i s
This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.
1001748.016_SP28_IFA mag_Oct11_DPS_297x420_v6_Always in play 27/10/2011 10:00 Page 2
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Contents.indd 3
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This month’s contributors
regulars
C O N T R I B U TO R S
magazine... for today ’s discerning financial and investment professional
Neil Crossley writes for The Guardian,The Independent, The Financial Times and The Daily Telegraph, mainly on technology, business, media affairs and TV. Emma-Lou Montgomery, the former editor of Moneywise, has an impressive record of print and broadcast journalism including editor-in-chief at Interactive Investor. She is a qualified investment adviser. Nick Sudbury is an experienced financial journalist and investor who has worked both as a fund manager and as a consultant. He is also a chartered accountant.
Kam Patel, formerly deputy editor at Hemscott, also brings long experience from Bloomberg and from online editorship at CityAM. He is a qualified investment adviser. Monica Woodley, senior editor at the Economist Intelligence Unit. She has previously worked on Money Management, Investment Adviser and Investment Week. Lee Werrell is the Managing Director of CEI Compliance Ltd, a leading UK consultancy. Editorial Advisory board: Richard Butler, Michael Holder, Ian McIver and Mark Pullinger.
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News
All the big stories that affect what we say, do and think.
Editor’s Soapbox
The long-awaited Mifid II report has left everybody wondering what it means
47
A Hefty Administrative Task
49
Auto-enrolment will be an ongoing challenge to administrators, says Steve Bee
Pick of the Funds
Nick Sudbury looks at some better ways of investing in China
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54
FSA Publications
Our monthly listing of FSA publications, consultations, deadlines and updates
The Compliance Doctor Lee Werrell of CEI Compliance discusses some of today’s most pressing issues.
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Thinkers: Joseph Schumpeter
65
One of the 20th century’s most influential oddball theorists
The IFA Calendar
Conferences, economic summits, race meetings... All the dates you daren’t miss.
66
And Finally...
Frederick Smythe-Allinson marvels at Mervyn’s makeover and issues a random-walk challenge
11.11
Editor: Michael Wilson
editor@ifamagazine.com
Art Director: Tony Merlini
tony.merlini@ifamagazine.com
Publishing Director: Alex Sullivan
alex.sullivan@ifamagazine.com
IFA Magazine is for professional advisers only. Full subscription details and eligibility criteria are available at: www.ifamagazine.com
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CONTENTS
features 16
Child ISAs
27
COVER STORY
Oops, This is Harder Than it Looks
Mervin King realises its harder than it looks
➹
They’re off and running, says Emma-Lou Montgomery. So where are all the favourites?
Bank of England Governor Mervyn King has found his voice. But where did he leave his calculator?
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Multi-Manager Funds
This year’s big surprise hit, says Kam Patel
36
Bring on the clowns
The US presidential election circus is throwing up some weird and wonderful candidates, says Monica Woodley
40
Independent Market Research
A remarkable source of information and feedback. Kam Patel investigates
44
The View from Ascentric
Ascentric’s MD Hugo Thorman talks to IFA Magazine on bank platforms, execution-only and cash versus units
IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2011. All rights reserved. ‘IFA Magazine’ is a trademark of The Wow Factory Publications Ltd. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.
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The sunÕ s shining on EIS Shout it from the (solar-panelled) rooftops: Octopus is one of the UKÕ s largest investors in solar and weÕ ve raised more money into Enterprise Investment Schemes than anyone else. Thanks to Feed-In Tariffs, Octopus EIS is giving investors access to predictable, RPI-linked returns, available within a highly tax-efficient wrapper (with recently enhanced income tax relief). But there are clouds on the horizon, as Feed-In Tariff adjustments and EIS rule changes are due at the end of this tax year. Octopus EIS is open now and has capacity until 31 December 2011, but after this date investment opportunities will be limited. This means investors only have a brief window in which to invest into Octopus EIS, before the sun sets on a golden opportunity.
making humans happy
0800 316 2298 octopusinvestments.com
For professional advisers only. Issued by Octopus Investments Ltd, 20 Old Bailey, London, EC4M 7AN. Octopus Investments Ltd is authorised and regulated by the Financial Services Authority.
1285-01-EIS-0911 Ed's Welcome.inddIFA 6 mag the sun is shining 297x210.indd 1
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09/09/2011 16:07 17:06 31/10/2011
WORDS OF WILSON
SLEIGHT OF HAND THE CONJUROR OPENS HIS PALM, AND PRESTO! THE £10 NOTE YOU PUT INTO HIS HAND IS NOW FOUR IDENTICAL CRISPY TENNERS. AND, AS YOU STAND THERE GAWPING, THE AUDIENCE ERUPTS WITH APPROVAL.
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es r st
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911
17:06
But you’re puzzled. You’re really not sure whether he’s given you a present, or whether it’s just an artful piece of paper folding? One thing’s for sure, though. He hasn’t created £30 of new wealth out of nowhere. The financial markets have been hugely cheered by the European summit’s 27th October agreement to quadruple the European Financial Stability Facility from around €250 billion to “around €1 trillion”. The emergency cushion is intended to protect us from further pseudo- defaults that might trash the euro. And heaven knows, we’re all gasping for an opportunity to reinvest. November and December are traditionally boom months for the equity markets, so what are we waiting for? Alas, the EFSF deal isn’t what it seems. Apart from a possible cash contribution from China, there’s no new money actually going into the facility. The €750 billion ‘increase’ is to be achieved largely by leveraging the existing sovereign bond system – specifically, by offering insurance guarantees to purchasers of eurozone bonds, so that the risk cost of borrowing goes down and the ‘value’ goes up. That’s not a terrible worry in today’s world, where we accept the value of ‘virtual’ money created by derivatives and suchlike. But, to be worth anything, it still needs to be ultimately backed by something solid. And in this case, the counterparty risk is being borne by the very same institutions that stand to lose if it all comes unwound. The system is using its own liabilities as collateral for its own liabilities. And that really doesn’t work. Unconstrained leveraging was what turned the US housing downturn into the subprime crisis that eventually sent the banking system into a tailspin. So it’s right to be suspicious now that Europe is cranking up the ratios again. By multiplying the counterparty issues, the risk merely grows that a future default could spread with extreme speed. That’s not the same thing as saying that we shouldn’t be considering going back into the markets. This is a high risk strategy. But right now, it’s the only game in town.
M ik e
Michael Wilson, Editor IFA magazine
www.IFAmagazine.com
Ed's Welcome.indd 7
Write to Michael at editor@ifamagazine.com
November 2011
7 31/10/2011 16:07
shorts
magazine
Spain
had its sovereign credit rating cut from AA to a still-creditable AA- by Standard &Poor’s, because of what the rating agency called “heightened risks to its growth prospects, due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners.” The Madrid General Index didn’t flinch, but carried on rising modestly.
The End of the Beginning? Markets put on a sudden surge in mid-October, as hopes started to rise that the endless battling over the Greek, Spanish and Italian deficits might at last be reaching an end. But traders were still jumpy about the delays to the Euro crisis, and by the third week the price volatility was still very marked. The FTSE-100 had shocked even itself with a year’s low of 4944 on 4th October, following news that
talks had stalled yet again. That was 16.2% down on its January level and the lowest level since July 2010. Days earlier, the FTSE Eurofirst 300 index had dropped below 900 for the first time in 27 months. But two weeks later the Footsie had recovered by around 11 percentage points to trade at just 6% below its January opening, and the Eurofirst had picked up by a massive 13%. The next few weeks are likely to show whether this was just another hopeless technical attempt at revival or the start of a proper fundamentals-led recovery. IFA Magazine said back in September that the revival would perhaps be extremely rapid when it came, and that IFAs’ reputations might be won and lost on the outcome. One thing’s for sure. An 11% rise in two weeks certainly counts as a remarkable recovery – and as a validation of those determined investors who sat tight and refused to panic. There will be many, many short-termists who have tried to time the recovery and got it expensively wrong.
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Auto-enrolment
pension schemes should include provision for employee contributions to be raised whenever their pay rises, according to a report by Standard Life. The report suggests that the proportion of salary going into the pension should rise above the minimum of 4% by 0.5% every pay rise. That’s going to go down well (not). But it also says employees should be autoenrolled into ISAs, which seems a better idea.
NEWS
The ramifications
of Dr Liam Fox’s resignation filtered down to the Treasury, as 29-year-old MP Chloe Smith, Westminster’s youngest MP, stepped up to replace Justine Greening as Treasury Economic Secretary. Ms Greening had moved across to Transport Secretary after Philip Hammond had replaced Dr Fox as Defence Secretary. All clear? Good.
But is it Going to be Enough? The market’s joyous romp back to a FTSE-100 level of 5700 left it only 3.5% down on the year to endOctober – a welcome revival from the 16% losses that it had been recording as recently as early October. But if anyone was expecting a stampede back into risk, they were to be disappointed – at least temporarily. The morning-after jubilation over the EU Summit’s agreement on Greece and the European Stabilisation Fund had largely dissipated within two days of the announcement, and both the Footsie and the FTSE Eurofirst 300 spent some days skulking in negative territory. Analysts expressed the view that the summit had not by any means dealt with the looming budget crises in Spain or in Italy, where Silvio Berlusconi’s government was already backtracking on its austerity pledges. More to the point, perhaps, the issue of bank counterparty risk was still foggy in the aftermath of the Greek deal, and it was likely to remain so for some time. The French/Belgian bank Dexia had already suffered a hideous run on 20th
October as the Belgian government had taken it over after it lost its access to short-term funding. Its €1.7 billion capital shortfall had been caused in no small part by its €20 billion exposure to Greek, Irish, Italian, Portuguese and Spanish bonds. Winners after the Euro summit included emerging risk markets in Asia and Latin America, all of which made significant gains as the prospect of a more stable European import base hove into view. Gold resumed its ascent toward $1,750, and depressed platinum prices staged a sharp 10% spike. One thing’s for sure. An 11% rise in barely three weeks certainly counts as a remarkable recovery – and as a validation of those determined investors who sat tight and refused to panic. There will be many short-termists who have tried to time the recovery and got it expensively wrong.
EU Summit still didn’t answer all the questions.
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Bill Gross,
the manager of the world’s biggest bond fund, is big enough to admit that he got it wrong. Pimco’s star trader apologised to investors after a “stinker” of a decision to cut his holdings of US government bonds back in February. The bonds subsequently soared as equity markets stumbled, but Gross’s investors missed out.
Scottish Life
also said sorry, as it sent out 170,000 cheques worth an average £350 to investors who had been underpaid when their with-profits endowment policies matured. The errors, on policies maturing between January 2010 and March 2011, had emerged during a review of the £3 billion withprofits fund. The fund has been closed to new business for the last ten years.
An Easy Assumption Under Fire If the turmoil of the last few months has proved anything, it’s that no assumption is too sacred to be worth challenging. And the latest candidate for the chop has been the rather bland presumption that funds of hedge funds will consistently do better than ordinary funds when times are turbulent. Well, surely everybody knows that hedgies are able to explore more options and use more instruments than ordinary funds, which really ought to make them more robust? So what could be better than to have a mixed funds-of-hedge-funds portfolio that will smooth out the risks even further? Almost anything, is the opinion voiced by the Swiss-based UCITS Alternative Index Quarterly Industry Survey, which came out at the start of October. The Index tracks the performance of 700 constituent hedge funds and funds of hedge funds with a staggering €125 billion of assets under management. And its September finding was that funds of hedge funds are well behind the pack when it comes to
exciting the investors. A chunky 60.7% of the respondents currently believe that the market environment will have a negative impact on the future growth of UCITS hedge funds. So what’s really turning the investors on these days? Macro strategies, says the survey, which are moving back from decrease to increase. And when you consider the crippling additional loading from layers and layers of fee costs, even in UCITS form, you can see why alternative directional strategies, perhaps involving ETFs, are popular. There was worse to come from an academic study by a group of former hedge fund managers which declared, in an unpublished report (“Assessing the Performance of Funds of Hedge Funds”, http://tinyurl.com/3hso9ka) that an exhaustive sample of 1,315 FoHFs between 1994 and 2009 had delivered only a negligible advantage over a purely random selection of eligible hedge funds. In fact, it said, barely 5% of FoHFs had delivered any value at all. “The results show that most FoHFs do not exhibit alpha,” said the report. “The additional layer of fees that FoHFs charge investors eats away any manager added value... and the comparison between real and artificial FoHFs shows fund picking and strategy timing skills are on average close to non-existent in the first place.”
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INVM11542_LM031111_10_11.indd 1 News.indd 11
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NEWS
RBS was also hanging its head
in shame, as it announced another 5,000 job cuts and the cancellation of its staff Christmas parties. Not to mention the end of freebies such as Blackberries, computers or mid-evening taxis home. RBS is 83% owned by the government following its bail-out in 2008.
China’s exports
grew by a mere 17% year-onyear in September, according to new figures from Beijing. The global economic slowdown had reduced the annual growth rate from 24.5% in August. Sales to Europe had been particularly badly hit, rising by only 9.8%.
Relax the Drawdown Rules Now The recent plunges in investment returns have sent many new pensioners’ expected incomes tumbling by as much as 30%, according to industry experts. And that in turn has meant that pension holders considering the option of capped drawdown as an alternative to annuities have suffered a double whammy as a result of this year’s changes which limit the available drawdown returns to 100% of what they could have had from an annuity, compared with 120% before April. It wouldn’t be so bad if the government’s calculations were based on actual annuity rates, the campaigners say. But instead, the figures that determine the allowable drawdown levels are
calculated on the returns from long-dated gilts. Bond yields have long been used by annuity providers themselves as a proxy for determining how much can safely be offered each year – but this autumn the yields on benchmark bonds have hit the lowest levels since the 1940s because of the squeeze on equity markets and the associated flight to safety in bonds. As recently as July, you could still get 4% from a typical gilt, but by early October the going rate had dropped to barely 2.75%. Yes, that’s equivalent to a 31% drop in the allowable drawdown, assuming that the rules are applied. And the impact, according to analysts, is that people in retirement are having to dig deeply into their capital savings in order to maintain their pension incomes at even vaguely reasonable levels. AJ Bell, the online investment platform and stockbroker services provider, has been campaigning for a better deal. A recent survey of 500 investors and advisers, it said, showed that only 2.55% approved of the present situation. 39.1% said the government should completely eliminate the linkage between base drawdown rates and gilts, and that it should instead introduce a flat-rate maximum – say, 8% for under-75 males and 10% for older males. 27.31% said that the gilts link was workable, but that the government should reinstate the 120% rate. Whereas 31.04% said the link should be made with a more workable mix of equity and gilt returns.
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8.1 million in August, according to new figures – the highest level seen since 1996. Youth unemployment, at 21.3%, was the highest ever. Perhaps sensing the need for some good news on the high street, the Bank of England announced another £75 billion worth of quantitative easing, bringing the current total to £275 billion. Happy Christmas.
The Euro zone got a rare
NEWS
Unemployment levels rose to
piece of good news when it was revealed that August’s industrial production was 5.3% higher than year-earlier levels and 1.2% up on July.
Please Release Me, Let Me Stay Poor experiences with certain types of equity release schemes in the past are evidently not deterring retired Britons from taking up new income plans secured against their homes... ...judging by new figures released by Safe Home Income Plans (SHIP), the trade body for equity release product providers. SHIP says that its members made new advances of £206.2 million during the third quarter of 2011, 12% more than in the second quarter and generally the highest level of lending seen since the first quarter of 2010, when loans reached £213.4 million. It said that 4,148 new equity release customers signed up, 10% more than in the second quarter. The spread of direct sales doesn’t appear to be making very many inroads into equity release schemes, to judge from the fact that only 12% of the new customers bought their equity release direct from a provider. Intermediaries still account for 88% of all new business – roughly the same as in the second quarter. 61% (£126 million) of the new business consisted of drawdown lifetime mortgages, with another 36% going into lump sum lifetime mortgages. Traditional home reversion schemes nowadays account for just 2% of the market.
At first glance it doesn’t look as though the public is being especially panicked into equity release by the difficult economic climate. The average amount released on equity release products remained stable in the third quarter, at £49,703. But SHIP points out that this was still 6% more than the year-earlier figures – and that there is no way the average property value would have increased at the same rate. SHIP’s inference is that this increase may be down to the emergence of new types of impaired life equity release products which have enabled people in ill health to raise a greater proportion of equity from their homes than would previously have been the case. But, with admirable candour, it also concedes that maybe people are just borrowing more to help them cope with the rising cost of living. For more comment and related articles visit...
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NEWS
A €200 million entrepreneur fund
Worries about
Brazil’s inflation worsened as it was reported that September’s 7.3% level was the worst since 2005. Brazilian companies already pay a crippling 12% on three month interest. 10 year government bond yields rose to 11.5%, nearly 1,000 basis points above US Treasuries.
launched by the European Union to help companies that can’t get ordinary bank loans has lent out only €8 million since it was launched two years ago, according to the Financial Times. Of this, €5 million went to Dutch companies and another €1 million to Bulgarian borrowers. Officials have blamed delays in creating the fund’s administrative structure. There’s a surprise, then.
Green for New mortgages are still incredibly hard to obtain, according to new figures from the Council of Mortgage Lenders. 23% of British adult investors say that their financial adviser or pension fund has been telling them ‘too little’ about ‘responsible ownership’, according to YouGov research released in October to coincide with National Ethical Investment Week. The proportion rises to 30% among 45-54 year olds, who are perhaps more wealthy and more focused toward their pensions. And 55% of GB adults with investments say they don’t clearly understand what principles their savings and investments support. YouGov found that 42% of the people it surveyed said they wanted to “make money and make a difference”, with 34% wanting at least 25% of their investments to include green and ethical considerations and a further 10% wanting to ‘dip a toe in the water’ by including green and ethical considerations in a smaller proportion of their investments. That’s encouraging, but it doesn’t stop there. 36% of the sample said they want to know more about ‘impact investing’. (Investments designed to yield both a financial return and social or environmental benefits.) And 22% say they would be attracted to a green and ethical bank account; 18% would go for savings and
investments that were clearly labelled as ethical; 14% would like ethical insurance and 11% would go for an ethical mortgage. “Many financial advisers already do a great job of explaining green and ethical financial options,” says Penny Shepherd, the Chief Executive of UKSIF, the sustainable investment and finance association. “But the research shows that the industry as a whole can improve.” “Over a third of individual investors are demanding more information on areas such as responsible ownership and impact investing….Meeting that demand is a challenge, but it’s also a great opportunity for the IFA industry. Advisers who go for green in 2012 can really add value.” For more comment and related articles visit...
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magazine... for today ’s discerning financial and investment professional
THE SACK JUNIOR ISAS ARE GOING TO REVOLUTIONISE THE WAY WE SAVE FOR OUR CHILDREN, SAYS EMMA-LOU MONTGOMERY, MAYBE. Well, they’ve fired the starter’s popgun now, and the early contenders are lurching their way up the first straight of an 18lap race. It’s a neck-and-neck struggle for what might easily turn out to be a juicy £100,000 worth of investment for each child. And oh dear, there are already a few rather surprising gaps in the field, with several of the favourites simply deciding not to enter. Plus a lot of spectators who seem to be looking somewhere else at the moment. Can we attract their attention? Later, perhaps - but maybe now’s not the best moment to try and sell funds? As we all know, the Junior ISA has been available since 1st November to any children under the age of 18 who did not qualify for the Child Trust Fund (either because they were born before CTF’s came into force in September 2002, or because
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they have been born since CTFs closed to new business on 1 January this year.) Government figures suggest that makes about 6 million children eligible immediately. Mmmm, tempting.
Their Future in Your Hands First, a few basics. The Junior ISA works in pretty much the same way as the adult version, with a few exceptions. Each eligible child can hold one cash and one stocks and shares ISA. There are no limits as to how much can be held in each, as long as no more than £3,600 in total is saved per tax year. That £3,600 a year limit will apply until 5 April 2013, and then the contribution limit will be updated annually in line with the Consumer Price Index. (That’s a slightly anomalous decision, by the way, since adult ISAs are due to switch from CPI indexation to the broader Retail Price
November 2011
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CHILD ISA S
RACE GETS UNDER WAY Index next year.) As with adult ISAs too, Junior ISA holders are free to move their savings and investments from one provider to another. However, unlike adults, they cannot use a new ISA provider each year, Junior ISA holders can only be with one provider at any time. Under 16s need a parent or guardian to open the account for them, and the adult retains control of the ISA until the child reaches 16. Control can then be handed over to the child, or retained by the adult. Over 16s, however, are free to open their own accounts and retain control of their ISAs throughout. Either way, no money can be withdrawn until the child reaches the age of 18. At that point the Junior ISA becomes an adult ISA, and the fund can be rolled straight into the new vehicle without needing to realise any capital gains. Having a Junior ISA doesn’t preclude that same child from opening an additional adult cash ISA at the age of 16, however, just as the child can now. And it doesn’t impact on their adult ISA allowance either. Holders of a Junior ISA will be eligible to open a full adult ISA at the age of 18, just as they can at present. In terms of regulation, simplified die diligence applies www.IFAmagazine.com
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for Junior ISAs, and they are also subject to MiFID rules, just like their adult counterparts. Unlike with CTFs, as we know, the Government won’t be making any £250 contributions at launch to each eligible child, or any other
“The major banks have shunned the launch of Junior ISAs.” None of the big six (Barclays, Halifax/Bank of Scotland, HSBC, Lloyds TSB, Natwest/RBS and Santander) plan to have a Junior ISA in place for the launch date on 1 November. Nationwide Building Society is the only major player that plans to have a product then.
November 2011
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CHILD ISA S
magazine... for today ’s discerning financial and investment professional payments in later years. Times are hard. So what can investors expect from the Junior ISA? Well, it depends. As long as a provider’s Junior ISA satisfies the overall criteria as stated already, it can set its own fees and create any age-eligibility criteria of its choosing. (Some Junior ISAs will only be available only to children under 16.) Providers are also free to set their own minimum investment levels. But the government has said that it will keep a close eye on any minimum contribution requirements in order to ensure that Junior ISAs don’t exclude people in any one income bracket.
CTFs: Gone But Not Forgotten
Michael Wilson says:
A child who already has a CTF in his or her name is not eligible for a Junior ISA, and the two cannot be amalgamated. However, the government has also said that once Junior ISAs are fully up-and-running it might consider aligning the two types of investment more closely. In the meantime, CTF holders can be reassured that they have not been left out altogether: they have also seen their annual contribution limit raised to £3,600 a year as of 1 November. (From 6 April 2013 that will also rise in line with Junior ISAs – or in other words, the annual contribution limit will follow the CPI.)
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Some Odd Gaps In The Line-Up So what’s on offer, as the Junior ISA approaches its debut? Well, not as much as you’d expect, frankly. There’s a decent smattering of types, with everything from ‘green’ funds to Shariah compliant ones. But the reticence of the high street banks to be specific has been notable right up to the last minute. By mid-October only Nationwide had properly announced the details of its Junior ISA. And rather disappointingly, it was only a cash ISA; the bank says there are no immediate plans to launch a stocks and shares version. While Catherine Penney, investment and tax specialist at Barclays Stockbrokers, acknowledges that an already-established ISA ‘brand’ will encourage investors to plump for a Junior ISA, Barclays hasn’t actually revealed its offering yet. Neither have HSBC or Lloyds – both of which publicly applauded the notion of Junior ISAs when they were announced, which makes it all the more peculiar. At the time of writing, Lloyds Banking Group and Halifax have said they are still working through the details, but they both say there are definite plans to launch a Junior ISA “in due course”.
Do Bare Trusts Still Have a Use? It’s worth mentioning a little about bare trusts here, because many investors query whether these traditional types of child investment wouldn’t do exactly the same job as a Junior ISA (or a CTF of old), but with more flexibility? The probable truth is that a bare trust will continue to have advantages for someone who wants to invest substantially more than the £3,600 a year maximum that’s currently allowed in a Junior ISA. The beauty of a Junior ISA is that it provides a simple way for parents and grandparents to put a relatively modest sum away for a child’s future – unlike the complex process of setting up a bare trust. And anyway, as Justin Modray from Candid Money explains, as long as the money each parent gifts a child does not result in income of more than £100 in any tax year, then the rigmarole of a bare trust has no tangible tax benefit over a Junior ISA anyway. Then again, investors can steer clear of the Junior ISA altogether and opt for Scottish Friendly’s My Kid’s Flexible Plan. Its four tax-exempt
savings plans do pretty much the same thing as a Junior ISA anyway, because as long as the money is invested for at least 10 years, under current tax law the profits are free from income and capital gains tax. The holders are free to access the money at any time, although in practice there might be tax payable on early redemption. And importantly, the Plan can be held alongside a CTF or Junior ISA. Investments are between £15 and £25 a month tax free and annual charges are capped at 1.5%.
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David White, head of Fidelity FundsNetwork. Even F&C, which has been one of the leaders in CTFs, has been slow to show its hand, simply stating that its Junior ISA should be launched “before the end of the year.” The Children’s Mutual, another big name in children’s investment products, also confirmed it intends to launch a Junior ISA, but details had not been released at the time of going to press. David White, head of FundsNetwork, says that providers who have failed to get their Junior ISA offering to market from the November launch are missing a trick. “We have already seen an overwhelming response from advisers since we announced that we
CHILD ISA S
“IFAs can look to a new pool of investors.”
would be offering a Junior ISA,” he said. “As one of only a small number of adviser platforms that will be offering a Junior ISA from 1 November, we are keen to support those advisers who are keen to offer this as an additional service to their clients.” He says the Junior ISA is a positive step for advisers. “It’s an opportunity to seek out the next generation of investors and help change the way the nation thinks about saving. Advisers can start a conversation with existing clients who may want to invest for their children or grandchildren, and they can look to a new pool of investors which need advice.” The providers that have so far revealed their offerings are offering a fairly wide choice. Ecclesiastical’s Ethical Junior ISA offers socially responsible investing with a strict remit to not directly invest in the alcohol, tobacco or firearms industries. Its ISA starts at £10 a month and has a 1.5% annual management fee. Shari’ah investors can choose the Junior ISA from the Scottish Widows Investment Partnerhip, which again starts at £10 a month and has a 1.5% annual management fee. Like any other Shari’ah fund, it is steered by a Shari’ah advisory board. There are quite a few fund managers and investment groups with offerings in the pipeline that had not been finalised at the time of going to press. Among them was Fundsmith, the fund launched by City veteran Terry Smith, which says it plans to launch a Junior ISA “later this year”. Ten there’s Witan Investment Trust, whose Junior Jump Isa will form part of its children’s savings plan Jump Savings, investing in the group’s multi-manager investment trust. Legal & General Investments is planning to launch a Junior ISA, while Sipp provider AJ Bell is set to offer one
www.IFAmagazine.com
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CHILD ISA S
magazine... for today ’s discerning financial and investment professional on its Sippdeal platform. It will have the same pricing structure as its investment ISAs, with no initial fee and no annual administration fee. It should be clear that not all Junior ISAs will be marketed through the IFA channel, of course: for instance, Family Investment, which runs most of the Post Office’s ISAs, will be making its junior stocks and shares ISA available through the direct channel. Shepherds Friendly is launching its own ethical Junior ISA, as is Foresters Friendly Society (part of the Treasury’s Junior ISA provider focus group). But neither could give
any further details at the time of going to press. Wesleyan could only confirm that it is planning to launch a Junior cash ISA this year.
What’s In It For An IFA? As we’ve seen, not all of the Junior ISA offerings are likely to generate income for IFAs -
“The successful IFAs will be those who offer a broader advisory service that takes in their clients’ entire financial planning situation. It won’t be about commission, it’ll be about being trusted.” 20
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CHILD ISA S
or at least, not directly - and some parents may still prefer the supermarket approach. Fidelity International’s Junior ISA allows investors to choose from around 1,200 funds from more than 70 providers. While Hargreaves Lansdown’s HL Vantage Junior Isa offers even more choice, with around 2,400 funds to choose from through its fund supermarket. But if all this sounds worrying for an adviser right now, perhaps we should go back to one of the key truths that RDR is about to
bring to the fore. Namely, that as the transition to fee-based starts to bite into the middle and lower-income clientele, the successful IFAs will be those who offer a broader advisory service that takes in their clients’ entire financial planning situation. It won’t be about commission, it’ll be about being trusted. For more comment and related articles visit...
www.IFAmagazine.com
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ED ’S SOAPBOX
A MUFFLED
THUN ER
FROM BRUSSELS THE MIFID II REVISION HASN‘T LIVED UP TO ITS DOOMY BILLING, SAYS MICHAEL WILSON. PERHAPS THAT’S BECAUSE NOBODY REALLY UNDERSTANDS IT YET Disgusted of Tunbridge Wells can heave a sigh of relief. The final draft of the European Commission’s plan for revising the Markets in Financial Instruments Directive (Mifid) is out at last, only six months late. And relax, everybody, the legislative proposal doesn’t ban structured products or exchange traded funds or execution-only stockbroking or selling derivatives to private clients - all of which Brussels was most definitely considering in last December’s rather frightening draft. Indeed, as far as your clients are concerned, none of Britain’s great investing freedoms seem to have been touched at all. In fact the “Mifid II” draft doesn’t go in for banning things very much at all. And nor does its sister report, the Market Abuse Directive (“MAD 2”)
“In fact, if there’s anybody who needs to be really scared by Mifid II, it’s probably the FSA itself... or rather it’s successors.” www.IFAmagazine.com
Eds Soapbox.indd 23
which came out on the same day. When you finally get through their combined 400 pages, what you actually find is a rather vague statement of European intent to implement certain structural reforms, most of which relate to the systems and mechanisms of the trading process itself – the derivatives platforms, the “dark pools” of concealed trading, and a general tightening up of record-keeping that’s aimed mainly at reining in the huge amount of “high frequency trading” (i.e. automated trading). All of Mifid II’s proposals will now need to submit to a year or more of arguing and lobbying, after which member countries will have two years to implement them. Which means we’ll probably be into 2015 before this shaggy monster starts to get any teeth.
Look Out, Mr Sants In fact, if there’s anybody who needs to be really scared by Mifid II, it’s probably the FSA itself. (Or rather, its successors, the Prudential Regulation Authority and the Financial Conduct Authority, both of which will be operational in 2013.) From where I’m standing, it looks as though some of London’s regulatory powers may soon be
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ED ’S SOAPBOX
magazine... for today ’s discerning financial and investment professional ceded to the European Securities and Markets Authority (ESMA), a nominally independent EU watchdog that’s only been with us since January (http://tinyurl.com/3n3qb2b) - and which is clearly taking its task of enforcing a Europe-wide system of investor protection pretty seriously. The snag being that it hasn’t properly sorted out what that task should actually entail…. We’ll also be looking shortly at how Mifid II seems to create a great big hole in Mr Sants’s plans to banish commissions for all advisers through the RDR process. And at how the revised rules on subsidiarity might change the game. So what’s it all going to cost the industry? The European Commission has boldly committed itself to some firm guesstimates. (Snigger.) If all its proposals are implemented, it says, the Mifid review will result in one-off compliance costs of €512m-€732m year, with annual costs of between €312m and €586m thereafter. The numerically astute among you will have noticed that that’s an 88% margin for error. And it doesn’t include the vast amount of national lobbying that’s going to be going on in Brussels’s opulent restaurants between now and the date when the legislation is prepared. But if you think of the ongoing costs as £3 a year for every European adult you probably won’t go too far wrong. It’s manageable.
Execution-Only Stockbroking and All That Whisper it gently, but there’s a lot that’s good in this legislative proposal. The Commission’s main aim is to ensure clarity and equality of access to all facilities regardless of who’s asking for it. So, for instance, it will force European exchanges to allow all clearing houses access to their clearing flows. That will effectively abolish the growing practice of “vertical silos”, whereby some exchanges currently allow only their own downstream clearing agencies to access their systems –
“Whisper it gently, but there’s a lot that’s good in this legislative proposal.” 24
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which in turn gives them the power to dominate what goes on in their respective platforms. Mifid II also extends the scope of the original transparency rules so that they now cover such things as bonds, derivatives, commodities and structured finance for the first time, instead of just equities as before. We’ll be talking more about derivatives in a moment. But the most important thing, as we’ve said, is that Brussels has backed off decisively from its futile attempt to stop some (or indeed all) private investors from accessing structured products, ETFs and other things that British investors understand better than their less sophisticated continental cousins. And the Commission has also abandoned its outrageous proposal that execution-only trading should be restricted to ‘experienced’ investors. The word on the Brussels streets is that it was the storm of protest over these two ludicrous proposals that caused the six-month delay in getting the Mifid II report published. Either way, there’s a great echoing void in the revised document where these proposals used to be. (Apart, that is, from a paragraph in the summary that says “the option of totally deleting the execution-only regime has been discarded as too disruptive and too costly for some categories of clients with good financial knowledge.”) So at least that’s clear.
Regulating Against Obscurity One of the key features of the Mifid review is a new determination to regulate over-the-counter trading, which has recently expanded much more quickly than Brussels would have liked – especially with regard to derivatives, which annoys America no end. In future, Brussels wants to see OTC trades moved onto a new entity, to be known as an Organised Trading Facility (OTF), which it says will force more openness and clarity onto the market. Investment banks will be barred from using their own capital to finance OTF trading, as they currently do with OTCs, and in future the only permitted offplatform trading of securities will be ad hoc sales. That didn’t go down well with Conrad Voldstad, the chief executive of International Swaps and Derivatives Association, who spluttered: “If you
www.IFAmagazine.com
31/10/2011 16:50
High Frequency Trading
“Mifid II clashes with RDR on certain key points.”
Perhaps the most obscure parts of the Mifid II documents are the ones that relate to high-frequency trading – effectively, computerautomated trading and commodities trading. As you’d expect, the Commission has struggled to contain or even to comprehend the exploding character of this market. And perhaps we’ll just leave it by saying that Mifid II substantially increases the audit requirements on these sorts of trades, many of which currently pass through some rather obscure liquidity channels. The investment banks are screaming that the new rules will drastically increase their costs. But then, they would, wouldn’t they? It seems more likely that they’re unhappy about the enhanced power of the regulatory searchlight. But hey, maybe I’m just being cynical?
Anything Else? Oh yes, there’s more, much more. The new rules will extend to so-called “structured UCITS”, which will be taken off the list of “non-complex instruments” – meaning, in effect, that ordinary investors can’t be sold these investments without advice. There’s a new regulated segment relating to carbon trading instruments, which ought to keep the experts busy for a while. And, last but not least, there’s the issue of subsidiarity. Or, if you like, the harmonised regulations that will need to apply to investment houses from outside the EU who want to trade within its borders. Up until now, the lack of harmonised rules has created many anomalies, because all an outsider had to do was get permission from the relevant member state. (Meaning, in effect, that if it passed the lax regulatory standards in some distant European outpost, that might give it a passport to selling products in London.) In future, non-EU aspirant companies will need to clear the scrutiny of every country they trade in, as well as that of ESMA itself. They’ll also need to set up proper national subsidiaries before trading. And there’ll be a four-year transitional period to allow existing non-EU companies to get the necessary approvals. But has ESMA decided on its own requirements yet? Of course it hasn’t. This one will run and run.
www.IFAmagazine.com
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ED ’S SOAPBOX
want to protect end users’ ability to access these markets, then you need a suitable range of venues on which to trade; limiting what you class as an eligible trading platform for OTC derivatives is not a good move.” (http:// tinyurl.com/6z6qxj4 )
Conflicts with RDR Okay, we promised you something of relevance to IFAs, and here it comes. Mifid II’s proposals may be wellintended, but they clash with RDR on certain key points which still have to be hammered out. One of them centres on the definition of an independent adviser. Mifid II says simply that, in order to qualify as ‘independent’, advice should merely be based on a ‘sufficiently large number of financial instruments available on the market’. That’s quite different from the definition adopted by RDR, for reasons we probably don’t need to explain. The point here is that Mifid simply doesn’t ban advisers who give restricted advice from receiving commission, whereas RDR most certainly does. The UK Treasury’s declaration on this issue has already been that Brussels needs to make the ban on commission more robust recommending especially (in September 2011, see http://tinyurl.com/3de9fj6) that it “should stop product providers from setting remuneration for all firms providing investment advice not just those whose advice is independent” That’s not a problem in itself, because Mifid II does give member states the power to do more than Brussels on non-independent advisers. So, in itself, it doesn’t put the brakes on RDR. Moreover, Britain has support from the Netherlands and from Denmark on the commissions issue. Now, if we can only get Germany and France on side we might just be in with a chance of securing some
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magazine... for today ’s discerning financial and investment professional universally workable rules. But don’t bet on it. And watch out if ESMA fluffs the subsidiarity rules. It wouldn’t be good to have nonnationals underbidding UK advisers because they weren’t constrained by the same rules. Just to round it off, there are some inconsistencies about the
“But is it a detailed and workable blueprint for a harmonised European system of investment regulation?”
appears clearer in its definitions and with a slightly broader reach. It will be interesting to see whether the UK will keep up the ‘gold plated’ criminal legislation currently in force, especially given the resources invested into criminal prosecutions by the FSA.” http://tinyurl.com/666hds3
Wordy, Worthy and Vague Put it all together, and what have you got? A well-meaning, wordy and comprehensively debated paper that aims to tackle many of the shortfalls that the first Mifid (2007) left in its wake. A belated attempt to catch up on the fastproliferating profusion of new trading patterns and styles that have characterised the last few years. And a sensible step backward from the overzealous ideas about investor protection that some of Brussels’s finest had thought we all needed. But is it a detailed and workable blueprint for a harmonised European system of investment regulation? Not yet it’s not. Come back next year, when the worst of the shouting has subsided. Or maybe the year after that. Or the year after that...
criminal offences of insider dealing and market manipulation, which are tackled in the MAD II proposals rather than the Mifid as such. As Deloitte’s Centre for Regulatory Strategy insists: “These new offences are largely similar to the current UK offences, [but] the UK legislation
Do you have a good reason for the Editor to jump back onto his soapbox? Not that he needs any encouragement, please send your requests to editor@ifamagazine.com and stand well back!
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This advertisement is directed at investment professionals in the UK only and should not be distributed to retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2011 Vanguard Asset Management, Limited. All rights reserved. UK11/0882/0911
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27/06/2011 14:53 31/10/2011 16:50
UK ECONOMIC MELTDOWN
OOPS, IT’S WORSE THAN WE THOUGHT
A NEWLY ASSERTIVE MERVYN KING IS STANDING ON A RATHER SLIPPERY PLATFORM OBSERVES KATE AYLING
Just as the Eurozone countries seemed to have got some sort of a deal thrashed out on the Greek debt problem, the Bank of England Governor Mervyn King chose his moment to lob another brick into the slowly-settling millpond. In a submission on 25th October to the Treasury Committee on the Bank’s quantitative easing (QE) programme, the Governor told the assembled MPs that he had no confidence that his latest £75 billion round of money-printing would result in any growth of bank lending to UK businesses. Well, maybe that’s a bit cruel. What Mr King actually said was that the £75 billion of new issues over the next four months might mean that new bank lending might not shrink as fast as it would have done if he’d simply sat on his hands and done nothing. So, on the clear understanding that things are getting less worse rather than more better, it seems like a good moment to review the situation. “I think the [QE] action will make a difference to the amount of [bank] lending,” Mr King flannelled, “but it certainly doesn’t guarantee that lending to the real economy is positive……Only the banks are in a position to assess credit risks for SMEs [small and medium-sized enterprises]. What we have to do is to find ways of giving incentives to the existing banks in order to lend more.”
Political Separation Aha, clarity beckons. It’s up to the government to set up the incentives that will get the banks lending, the Governor was saying– not the Bank of England itself. And up to a Mervyn isn’t so sure quantitive easing will actually lead to a growth in lending.
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magazine... for today ’s discerning financial and investment professional point, Mr King is on safe ground here. For the last 15 years or so, the principle handed down from Downing Street has been that the Bank of England should be independent from government policy. And the corollary is that the Bank is generally expected to refrain from politically-loaded remarks that might derail the public’s confidence in its elected leaders. To be fair, Mr King has been treading that line reasonably carefully. Back in early October, as the Conservative Party held its annual conference in Manchester, he waited dutifully until the conference was over before telling the BBC’s Stephanie Flanders - without too much obvious embarrassment - that the extent of the European crisis had been much worse than he’d hitherto imagined, and that it had knocked his own calculations about UK economic growth off track. That was why it had become necessary to announce the second £75 billion round of QE, in addition to the £200 billion that had already gone out in 2009. Hurrying Slowly But why hadn’t he taken earlier action to head off the slowdown, they demanded to know at his October 25 parliamentary grilling? Because the Bank’s monetary policy committee hadn’t been sure that this was the right response, he replied. There had been “a serious question of balance of risks” – which seemed to be a coded way of saying that inflationary pressures seemed likely to ease soon, and that QE might have upset a boat that was getting more stable by boosting inflation. That, too, would be fair comment. The idea of quantitative easing is that the Bank of England effectively prints new money so that the government can use it to buy back its own pre-existing debt obligations. That in turn puts new liquidity into the banking system, and with average luck it should eventually mean that banks can step up their lending to business. The risk is that, like the coinclippers of the Middle Ages, you create inflation every time that you turn five pound coins into six. And perhaps this wouldn’t be such a great moment to push up the retail price index. New figures have shown that consumer price inflation surged to 5.2 per cent in September – almost a 20-year high, And that although the BoE is adamant that inflation will soon start falling, it’s still far too high for comfort. On 19th October, a week before his address to the Treasury committee, Mr King had told a business meeting in Liverpool that the UK’s economic recovery was now “off track”, because, he said, “the problems in the euro area and the marked slowing in the world economy [had] lengthened the period over which a return to normality is likely”. What he didn’t say was that there’d been plenty of depressing news on the home front as well.
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Early October had brought some rather belated news from the Office for National Statistics (ONS) that the UK economy had grown by only 0.1% between April and June - half of the 0.2% estimated previously. And rumours that the service sector was leading the way had been unexpectedly dampened by figures showing that its output had grown by only 0.2% in the quarter, down from an estimated 0.5%. That, of course, had been ancient history by the time the news of the downgrades came out, so there was always room to hope that things might have improved in the interim. But unfortunately the most recent indicators hadn’t exactly been bursting with optimism either. The head of the British Retail Consortium, Stephen Robertson, had sent high street stores’ shares downward by declaring that the coming six months would be “characterised by very low levels of growth”, and that the industry faced “probably got another 18 months of real challenge.” That was before Tesco reported a 0.5% fall in like-for-like sales during the first half of 2011. At which point Mothercare had lopped 36% off its share price by declaring a 10% fall in its third-quarter sales. Not good. The Declining Inflation Theory So where does Mr King get his confidence about declining inflation? Partly, it seems, from the belief that most of the inflationary factors in the consumer economy don’t stem from splurging consumption. Rocketing fuel prices, a weaker pound and – lest we forget – tax increases have hurt everybody, he has said. But if we strip out these external factors, we find that underlying inflation remains “subdued”.
S
We can safely infer from all this that he sincerely believes that energy prices won’t rise any further during the coming months, and that the pound will hold its own or perhaps even strengthen again the euro and the dollar now that the European currency has been repaired. The one thing we can positively forecast is that the one-off hit from last January’s VAT increase (from 17.5% to 20%) won’t be repeated. Or, in other words, that between 1.5 and 2 percentage points of today’s 5.2% inflation rate can indeed be stripped out. A Turbulent Priest Flies on the wall of George Osborne’s office must be hearing some pretty ripe language about the Bank of England Governor these days. The importunate Mr King has been a long time in coming out as an outspoken policy commentator, but his media tutor can be proud of his recent confident appearances. Whether his judgement has been as good as his presentational skills remains to be seen. For more comment and related articles visit...
www.IFAmagazine.com
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31/10/2011 16:51
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31/10/2011 16:51
magazine... for today ’s discerning financial and investment professional
SOMETHING FOR EVERYONE MARKET TURMOIL IS TURNING INVESTORS ON TO FUNDS OF FUNDS, SAYS KAM PATEL It would be nice if even one good thing came out of the last four years’ market turmoil. A sharpened sense of awareness among clients, for example, and a renewed drive to invest wisely. Instead, however, we’ve got confusion, a bewildering lack of comprehension about global and macro market drivers, and a severe and possibly permanent blow to the public’s faith in the soundness of its own judgement. Perfect conditions, actually, for a sales surge among multi-manager funds. Clients know that they need to invest – but, with their own confidence shattered, what could be more attractive than to leave the task to someone who’ll spread the risk cheaply, effectively and with judgement? By opting for multi-manager funds, investors are clearly saving themselves considerable time and effort
30 Multi-Manager Funds.indd 30
- not only in choosing the actual funds for their portfolios from the thousands on offer, but also in keeping track of performance and making changes to the composition and weighting of their portfolio when necessary - for instance, in response to changing market conditions.
www.IFAmagazine.com
31/10/2011 16:59
MULTI-MANAGER FUNDS
And yet. Such potential positives can pretty much be taken as a given with all multi-manager offerings. And that in turn would imply that there must be a different reason for the recent explosion in demand? Yes indeed, explosion is not too strong a word. Data from the Investment Managers Association (IMA) indicate strongly that although the financial crisis of 2007/08 sent investments of every kind into a tailspin, the fourth quarter of 2008 saw a fresh surge in demand which has escalated into a positive tidal wave in the last three years.
A Sevenfold Increase in Three Years Way back in the halcyon days of 2006, when the financial crisis was no more than just a twinkle in Nouriel Roubini’s eye (http://tinyurl.com/6f6fgky), net retail sales of fund of funds totalled £3.06 billion, according to the IMA. But they almost halved to just £1.60 billion in 2007, as the financial landslide got under way - and by 2008, as the crisis went into overdrive, sales slumped to just £990 million. Indeed, in the third quarter of that year they hit a new low of just £73 million. And that, you might have thought, would be the end of that. But you’d have been wrong. Rather incredibly, the seeds for the rebound appear to have
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Multi-Manager Funds.indd 31
been sown in the fourth quarter of 2008 - perhaps the darkest period of the whole financial night. The quarter saw net retail fund of fund sales jumping back to just over £182 million. 2009 saw total retail sales soaring to nearly £3.9 billion, and in 2010 year they positively rocketed to £6.62 billion. This year has been much the same. Forget about timid investors - IMA figures for the first and second quarters show aggregate fund of fund retail sales of £3.81 billion – 21% ahead of the equivalent £3.15 billion for the first two quarters of 2010. On this reckoning, sales are now running at twice the levels of 2006.
Trust in the Professionals These figures suggest that investors who are worried about the extraordinary market volatility are opting to place their trust in the hands of professionals with their fingers on the pulse. The inherent positives of fund of funds – the handson management in very uncertain times, and the very significant savings in time and effort– have clearly assumed much greater importance. As you’d expect, the majority of fund of funds investments come with labels that place them in the active/cautious and balanced managed sectors. And now that so much detailed research about portfolio strategy, composition and asset allocation is available through sources such as Trustnet, you might imagine that all the client has to do is look up the right category and make his own choice. But as IFA Magazine discussed last month in EmmaLou Montgomery’s feature on multi-asset funds, the categorisations of terms like ‘cautious’ and ‘balanced’ can vary widely. So investors still need to be very clear in their own minds how the funds are aligned to the risk they themselves are willing to take on board. And that’s a task that a conscientious IFA should be anxious to fuilfil. Indeed, he’d be failing in his duty if he didn’t make it absolutely clear.
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magazine... for today ’s discerning financial and investment professional Investors also need to be made aware that fund of funds, in general, come in two flavours: ‘fettered’ or ‘unfettered’. The manager of a fettered fund of funds can only invest in the funds of the investment house that employs him or her. An unfettered manager, by contrast, can of course invest in whatever he or she believes to be the best funds from across the entire market place.
The Sector-Based Approach Jupiter, whose four market-leading Merlin portfolios are all unfettered, insists that allowing the managers of its funds of funds full freedom to invest in what they consider to be the best funds across the entire market place is an absolute. So would they all, given the choice. But there is still room for divergent policies when it comes to labelling the funds. Rather than asking detailed questions about the client’s risk preferences, Jupiter prefers to go start the discussion with a clear idea about market segmentation. The four Merlin portfolios are designed with differing weightings in respect of geographical issues, equity exposure and fixed interest assets - plus the option to invest in property assets. This, says Jupiter, enables advisers to direct their clients toward portfolios that best match their own investment circumstances and needs. The Jupiter Merlin Income Portfolio, for instance, holds up to 60% of its underlying funds in (mainly UK) income-focused equities, and much of the balance in fixed interest. The Balanced Portfolio invests in funds that provide exposure to international equities and fixed interest stocks; the Growth Portfolio retains a core holding in the UK but spreads its equity and fixed interest holdings across a wide range of geographical areas; and the Worldwide Portfolio has no particular geographical bias at all but focuses on international equities and fixed interest stocks across the entire planet.
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The Client’s Needs as a Starting Point Standard Life’s range of five MyFolio MultiManager funds adopt a slightly different approach to their presentation of risk to the client. Rather than focusing specifically on tactical strategies such as growth, UK or international, Standard Life prefers to present the options as a gradation of risk. Thus, MyFolio Multi-Manager I is therefore marketed explicitly at those who are “conservative” with investments; My Folio Multi-Manager II for “relatively cautious’ clients, and so on - through to My Folio Multi-Manager IV for clients who are “very comfortable” with investment risk. Of course, the risk profile for each MyFolio Multi-Manager fund is reflected in the underlying asset allocation. So MyFolio Multi-Manager I heavily geared to underlying funds that major on defensive assets, while the emphasis of MyFolio Multi-Manager V is overwhelmingly on growth assets. Like its rivals, Standard Life says it conducts regular strategic asset allocation reviews to optimise the expected return of each portfolio. Managers are free to replace funds whenever a more appropriate
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Give talented and highly experienced fund managers the freedom to back their best ideas in an unconstrained way, and you give yourself the best chance of delivering exceptional long-term results – even when markets may disappoint. That’s the strongly-held conviction behind our growing Schroder Alpha Plus fund range. In 2010, the Schroder Global Alpha Plus Fund, managed by Virginie Maisonneuve, earned a place alongside three well established funds. Richard Buxton’s Schroder UK Alpha Plus Fund, Matthew Dobbs’ Schroder Asian Alpha Plus Fund and Nathan Gibbs’ Schroder Japan Alpha Plus Fund. These have all proved more than worthy of the Alpha Plus name, delivering 1st quartile performance over three years. So unchain your investment thinking from the benchmark, and give your clients the best opportunity to break away from the pack.
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* 0800 718 777 schroders.co.uk/alpharange For professional advisers only. This material is not suitable for retail clients. Past performance is not a guide to future performance and may not be repeated. The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. The funds hold investments denominated in currencies other than sterling investors should note that exchange rates may cause the value of these investments, and the income from them, to rise or fall. Funds which invest in a smaller number of stocks can carry more risk than funds spread across a larger number of companies. Source for performance, Lipper Hindsight, bid to bid net income reinvested, data to 31/05/2011. Source for ratings, Citywire as at 31/05/11. *For security purposes, telephone calls may be recorded. Issued in July 2011 by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 2015527 England. Authorised and regulated by the Financial Services Authority. UK01287
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MULTI-MANAGER FUNDS
magazine...
RDR: Opportunities and Challenges
and effective alternative is found. Standard also has a “fund selection governance committee”, including independent experts from outside the institution, that oversees the research process used for the MyFolio funds. The full MyFolio range of 15 risk based funds (which include the multi-manager offerings) were only launched a year ago, but already they have become one of the fastest selling fund ranges in Standard’s history, with over £700m in assets under management. To grab 11% of a market from cold in twelve months is impressive, and Standard believes there are two reasons for its success. Firstly, it says that the MyFolio range delivers diversification in a “simple and cost-effective” way. And secondly, it stresses that the suite meets the essential needs of most investors and that it can easily be delivered through the IFA advice process. These two institutions are far from unique in their wish to lead the investor toward simpler decisions. Henderson, Cazenove, Russell and Legal & General Investment Management are all making significant offerings in the field of fund of funds, and more seem to get launched with every passing week. It’s clear that the growing demand comes from an increased level of concern among investors about the ongoing financial crisis and market turmoil – and, in no small part, to the suspicion that the markets are being driven by macro developments that the layman cannot hope to understand. At times like these, the maximal diversification of a fund of funds comes into its own.
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Yet there are still more factors that are helping to support the rising demand for these products. Regulatory changes such as the Retail Distribution Review (RDR) are already beginning to directly affect advisors, their work and their relationship with their clients. RDR, of course, aims to ensure that clients benefit from fairer, more transparent business and a higher level of expertise among investment advisers. Aviva Investors describes the change as “an opportunity to develop more competitive business models, principally by focusing on where they add most value and outsourcing elements which can be provided more efficiently by third parties”. As RDR forces the move away from commission-based systems to a more transparent, fee-based regime, advisers will of course find themselves under even greater scrutiny. Clients will probably want to likely take full advantage of being able to look much more closely into the service that’s being provided, and they’ll be looking to compare added-value benefits between advisers - including things like the quality of their research, how well qualified they are to advise - and, over time, their track record of success. Part of the problem is that IFAs will also be required, in theory at least, to consider the full range of funds available if they are self-selecting for clients. With literally tens of thousands of funds available, that’s a mighty tall order. And that’s before we get to the serious cost implications of all this research, which could be daunting not just for the IFAs but also for their newly-wary clients. It stands to reason that multi-manager funds offer a ready-made and proven solution for IFAs in this situation. The ability to mitigate the administrative and best-advice burden of RDR, while also leaving themselves with valuable time in which to attract and retain clients, is the other side of the equation which neatly matches the renewed demand from investors. It’s a win-win situation. For more comment and related articles visit...
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31/10/2011 17:00
The new land of opportunity is the land of opportunity. It’s no wonder that in today’s uncertain financial environment, many investors are looking towards the US once more as a land of opportunity. Since its launch, in November 2008, the UBS US Growth Fund has continually outperformed its sector, being consistently ranked top quartile1. Fund performance % 3 months 3.9 1 year 9.3 2 years 48.1 Since launch² 61.2
Sector average % 1.9 4.1 40.6 45.8
Quartile
1 1 1 1
How have we delivered such impressive performance? Through a combination of strategy and expertise. Using their established research process, our experienced team identifies companies that are attractively priced and have strong growth potential but which possess different characteristics. The portfolio manager then looks to diversify risk, whilst creating a portfolio focused on delivering performance. To find out more about this opportunity to invest in the land of opportunity, please call us on 0800 587 2111 or visit www.ubs.com/usgrowthfund
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This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances. 1 Source: Lipper. Performance is based on NAV prices with income reinvested net of basic rate tax and in Sterling terms to 30 April 2011. Sector is IMA North America. 2 Fund launched 10 November 2008. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and are not guaranteed. Investors may not get back the amount originally invested. Changes in rates of exchange may cause the value of this investment to fluctuate. The Fund is managed in a concentrated manner with the aim to optimise long-term capital appreciation. Issued in May 2011 by UBS Global Asset Management (UK) Ltd, a subsidiary of UBS AG, 21 Lombard Street, London EC3V 9AH. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded. © UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
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magazine... for today ’s discerning financial and investment professional
BRING ON THE CLOWNS WHO’S GOT A BETTER ECONOMIC PLAN THAN BARACK OBAMA? MONICA WOODLEY ISN’T SURE SHE KNOWS
Is it just me, or is the US Republican presidential primary increasingly looking like a bad episode of the X-Factor? Just when you thought it couldn’t any more exciting/painful to watch, a new candidate is introduced with a back-story told in such a way to simultaneously set his or her apart from the others and pull on the nation’s heartstrings. But soon each candidate is reduced to a one-liner description that, for better or worse, encapsulates what the American people remember about them.
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Challenging the front-runner status of Mitt Romney (a Mormon and former private equity boss, “but heck, look at those white teeth and full head of hair”), we have seen – among others too numerous to mention - Rick Perry, governor of Texas and apparently
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Comic Line-Up, Serious Issues If this absurd line-up of headline writer’s dreams wasn’t distracting us from the very serious problems the US faces, it would be highly entertaining. But this isn’t reality TV, it’s the competition to face Barack Obama in the 2012 presidential race in what is still – despite its problems and China’s rise – the most powerful country in the world. Anyone who wants to deny the power US politics still has only needs to remember this summer’s squabble over raising the country’s debt ceiling and the effect that dispute had on world markets before a grudging compromise was reached. So what are the candidates’ plans to jumpstart the economy, create jobs and avoid a double-dip recession? Romney has proposed a 59-point economic plan - the most notable points being an endorsement of the tax cuts instituted by former president Bush, plus an exemption from tax of capital gains, dividends and interest for people earning less than $200,000 a year. (Perry and Cain have both espoused a flat tax system, but both have swiftly hedged their positions when it was pointed out to them that flat taxes are generally regressive and hit the poor the hardest.) Beyond changes to tax policy, the consensus diagnosis seems to be that everything is the government’s fault - the candidates usefully forgetting that most of them are (or were) in government. But hey, if government is the problem,
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US ECONOMY
“the next George W. Bush”; former House of Representatives speaker Newt Gingrich (only in America could someone named after an amphibian do so well); representative Michelle Bachmann (“I’m not a witch”); Jon Huntsman, former governor of Utah and ambassador to China (beholden to President Obama, who appointed him ambassador); representative Ron Paul (eccentric libertarian) – and, last but not least, businessman Herman Cain, who is dubbed “the Godfather of Pizza”, having once run the eponymous chain for ten years. And who could forget the excitement when Donald Trump, business mogul and star of the US version of the Apprentice, briefly flirted with throwing his hat in the ring? Or the crushing disappointment in the media when former Alaskan governor turned reality TV star Sarah Palin finally said that she would not be running?
then surely less government is the answer? And sure enough, that seems to be the line. At the Republicans’ debate on the economy in mid-October, the candidates vied to see who could come up with the most extreme solution – “I introduced the bill to repeal Dodd-Frank!” declared Bachmann (referring to the government’s programme to clean up the financial sector). “Repeal Dodd-Frank and capital gains tax!”, responded Mr Cain. Paul tried a double-headed approach with “Dodd-Frank is a disaster, but so is Sarbanes-Oxley, repeal that too!” While Gingrich had the simple but ultimate solution: “Jail Chris Dodd and Barney Frank!”
And In the Democrat Corner… This is not to say that President Obama has all the answers. His recent proposals on job creation have received a cool reception, many seeing them as too little, too late. The Republicans are painting them as an expansion of the role of the state and are vigorously opposing them. The public doesn’t seem entirely convinced either - the president’s disapproval ratings are above 50% for the first time since he took office and the percentage of people who believe the economy is deteriorating has risen from 31% in late June to 43%. Meanwhile the president’s stimulus plan, the American Jobs Act, was recently defeated in the Senate, when the Democratic leadership was unable to secure enough votes to avoid a filibuster by the Republicans. The president now plans to introduce the various elements of the Act individually, in the hope that at least some of his ideas will win approval. Adding to the president’s challenges is the 23rd November deadline for the joint House-
The nine most terrifying words in the English language: “I’m from the government, and I’m here to help.” Ronald Reagan, 1976
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magazine... for today ’s discerning financial and investment professional Senate “super-committee” to agree on $1.5 trillion in spending cuts over 10 years. The comprehensive deficit-cutting plan was an integral part of the August agreement to raise the country’s debt ceiling. And it has teeth, and a formidable tail as well. If a plan is not agreed by the committee and passed by Congress by Christmas, automatic spending cuts of $1.2 trillion will kick in, with half of the cuts hitting defence spending. If, on the other hand, a plan is passed, then the debt ceiling will be increased enough for it to not be an issue again until after the 2012 election. So that’s all right then.
The Economy and Markets Unemployment in the US stands at 9.1%, a figure that has seen little movement since the country came out of recession. On the positive side, US companies are still sitting on piles of cash and seem to have wrung all of the efficiency gains they can out of cutting costs, so they now must invest and hire to grow. But many are still waiting for signs in the economy that now is the time to expand. Economic growth is being squeezed both by business uncertainty and by inflation – which hit a three-year high in September and which is squeezing consumer spending. Add in the effects of spending cuts from government and the knock-on effects of Europe’s mounting problems, and it is unsurprising that GDP growth forecasts have been reduced. The Economist Intelligence Unit recently cut its 2012 forecast from 2% to 1.3%. And that’s a slowdown from the predicted growth of 1.6% in 2011, rather than an acceleration as had once been expected. After months of swinging violently in reaction to every bit of positive or negative news, the financial markets seem to have gone off into their own little world. Despite cuts in growth forecasts, late October saw the S&P 500 enjoying its longest winning streak since February - hitting 1,238.25, its highest point since early August. Compare that with the situation on October 3, when the market closed within 1% of a technical bear market (a 20% plunge from its April high). Either way, the 13% surge in three weeks seemed to be in denial of the still-grim fundamentals.
At this point, getting Obama out of the White House seems more important than anything else. And, until the Republican Party settles on its presidential candidate and throws its weight behind his or her ideas, its own definitive plans to improve the economy cannot crystallise. President Obama finally seems to be taking off the gloves. He has taken his plans for job creation to the public, touring swing states such as North Carolina and Virginia to tout his stimulus and highlight the obstructionist ways of the Republicans. The first test of this strategy’s success will be how the Senate receives Obama’s first package of aid to states - intended to keep teachers and emergency workers in their jobs, but financed by a 0.5% surcharge on all incomes over $1 million. Just as Europe’s financial problems are being exacerbated by its dithering politicians, the US’s economy also seems captive to its bickering politicians. The country cannot afford to wait until the Republicans choose their man or woman next August and then decide at the last minute what they think the economy needs. If the blue corner are convinced that Obama’s job creation plans will fail, then they ought to let him put his money where his mouth is. There is a year left until the election - enough time, perhaps, to see what effect the stimulus might have and then let the American people decide.
Election 2012 – A Year to Go In the run-up to the 2012 presidential election, the economy will continue to be hostage to political brinkmanship. The Republicans seem determined to thwart President Obama’s stimulus plan – no president since Franklin D Roosevelt has been re-elected for a second term with unemployment this high, and that was in the 1930s.
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ASC
Using technology to help you reach your business destination Wrap technology is playing a key role in managing the impact of RDR on IFA businesses and supporting their transition to a post-RDR world. Ascentric stands at the heart of this change, providing an online investment administration service that is designed to help your business succeed. As one of the few platforms to own its technology solution, we deliver a fully-integrated, efficient service to your clients while also keeping your business at the forefront of industry change. Features of the Ascentric Wrap include:
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This advertisement is for professional advisers only. © Ascentric/Investment Funds Direct Limited 2004 - 2011. Ascentric is a trading division of Investment Funds Direct Limited, part of the Royal London Group. Authorised and regulated by the Financial Services Authority No. 114432. Registered Office: 9 Palace Yard Mews, Bath BA1 2NH. Registered in England and Wales with Company Registration number 1610781.
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21/2/11 09:52:53 31/10/2011 17:06
magazine... for today ’s discerning financial and investment professional
FRESH CHALL KAM PATEL IS IMPRESSED BY THE ROLE THAT MARKET RESEARCHERS ARE PLAYING
With regulatory pressures becoming more intense for the financial services sector, the importance of accurate, reliable and effective independent customer-facing research has never been greater for product providers. So it’s hardly surprising that a whole host of independent research providers are working hard to help investment houses, life and pensions providers and many others to meet the challenges ahead.
The question is, are they doing a good job? And are they now running out of new people to survey? And does that really matter anyway?
ORC International Perhaps the most experienced player in the field, ORC International, has spent more than 70 years looking at general opinion and market research activities, including two decades with the financial services sector. Pete Johnson, divisional manager of ORC’s financial services team, says the lion’s share of research conducted by his unit is on behalf of key players like investment houses and life and pensions providers, with the commissioned work being carried out among both Independent Financial Advisers and consumers. “In our experience,” he says, “independent
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market research plays a consistently important role among financial services providers in understanding the needs of their customers and measuring how well these are being met.” ORC’s current activities extend from new product development testing and the segmentation of customer databases to, most recently, the actual customer experience and the issues revolving around the FSA’s Treating Customers Fairly (TCF) principle. Of which more anon.
Regulatory Change as a Driver The clearest motivation for the entire market research sector in recent years has, of course, been the galloping progress of regulatory change – running from depolarisation through pensions reform/A-Day, and, ultimately to RDR. In considering the process by which market research is commissioned, Johnson says, ORC typically sees it originating from a multitude of different sponsor areas within financial services firms, including their product, compliance and marketing arms. In some cases, he says, several companies with similar research needs and common goals may all decide to pool
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MARKET RESEARCHERS
ENGES
to see a growing demand for research to integrate completely with the internal data that’s already held by providers: “This is a perfectly logical development,” he says, “and one which we fully subscribe to. It does, however, require research providers to be fully involved with key stakeholders from the outset of the process to ensure the full benefits of the research are secured.”
Integration is the Key Consensus Research International, based in London, also shares a long history of providing independent research to the financial services sector - most notably, perhaps, through its bi-annual Consensus Investment Funds Survey (IFS), which has been running since 1985 and which looks into trends and current thinking in the UK’s Discretionary Asset Management, IFA and private investor sectors. In this case, says Consensus, it also provides valuable insights into potential market opportunities. Consensus manages the IFS enterprise on behalf of a syndicate of leading UK fund managers. The survey modules include a quantitative reading of IFAs who regularly advise their clients on the purchase of collective investments and private investors who are holders of unit trusts, PEPs, OEICs or equity-based ISAs, as well as a qualitative snap-shot based on face-to-face, in depth interviews with IFAs, top-end IFAs, and discretionaries.
IFAs ‘Over-Researched’ their resources and share the research cost. In others, they want to go it strictly alone.
The Hot, the Cold and the Transitory ORC’s Investrack survey is an example of the former in action, says Johnson. The survey, which provides members with “a robust view of the high end investment intermediary market covering usage; views around investment performance; marketing; and sales support provided by investment houses as well as other ‘hot topics” (phew), began life in 2000 when a number of investment houses approached ORC to fill gaps in terms of information needs relating to the IFA/Discretionary Asset Manager channel. Yet some kinds of research can’t easily be shared in this way because they remain central to a single client’s business objectives –by far the most important being that of monitoring customer experience. “Clients increasingly recognise the need to measure the interactions that customers – both consumers and intermediaries – have with them,” says Johnson. “With poor service experience likely to impact on re-use, potential cross-selling and word of mouth, this is an area that is increasingly being measured on a much more regular basis.” Johnson says that in the future he expects www.IFAmagazine.com
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Andy Glazier, head of Consensus, says that in general his company’s work entails an “awful lot of research among IFAs themselves”. This, he says, can be anything from strategic programmes on how advice given to clients is changing, and how it is expected to change in the future, through to tactical pieces around reactions to marketing and communications, product literature, campaign messages and so forth. Like Johnson at ORC, Glazier observes that research topics tend to come in and out of fashion, with RDR issues very much in vogue at present. Indeed, he says, RDR may well be without precedent in terms of the level of attention that is being devoted to it: “It wouldn’t surprise me if more research had been done on the effect of this particular piece of regulation than all other topics put together,” he says. And the key challenges for research providers will be to stay abreast of a rapidly changing IFA universe, to continue to understand IFAs’ needs post-RDR, and to continue to represent their needs meaningfully and accurately.
Research Quality on the Up For Glazier, assessing the true return on investment (ROI) of research on any audience is the “holy grail for which we all strive.” Among techniques employed to try and assess the ROI accurately
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magazine... for today ’s discerning financial and investment professional
as possible is the correlation of typical research measures - such as brand recall/usage - against media spend. This, he says, can be useful for assessing the effectiveness of the research behind the marketing and communications used. Like Johnson, Glazier says he is in no doubt that the quality of the market research for providers has improved “dramatically” over recent years: “Qualitative and quantitative research is now an awful lot more than answers to questions which are aggregated and reported back. Agencies are required to act as an out-sourced function of the product provider far more than used to be the case, which is not a bad thing. The ability to add insight and value is something Consensus is particularly proud of and has worked hard on in order to remain successful.”
IFA Shakeout a Concern Over at brand strategist and research group Bdifferent, director Kim Bell believes that reduced budgets are likely to become a major issue for the future. “Most of our clients have reduced their research spend but still have the same research needs,” he says. “In some ways this has had a positive effect by forcing us to look at new cost effective methodologies. But it has also reduced the volume of research being carried out. At the same time there has also been a huge consolidation amongst financial services companies – resulting, unsurprisingly, in a reduction in the number of companies needing commission research.” Bell says another major challenge facing research providers is the reducing size of the IFA community and the fact that IFAs are ‘overresearched’ - a point on which he agrees with Glazier at Consensus. “It is really becoming very difficult to carry out research in central London, for example, with IFAs who have not been exposed to previous research. We constantly have to travel to different parts of the UK to find ‘fresh’ IFAs.” Bdifferent’s client list includes asset managers such as Schroders, Inveseco Perpetual and Ignis; life and pensions groups Kames Capital (formerly
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Aegon UK) and Prudential; and the Santander banking group. Of these, Bell says that it’s the life companies have been especially keen to use externally commissioned research as a way of winning insights into what makes their target market tick, assessing reactions to new products and promotions, and helping define brand strategy.
The TCF Trigger All three agencies agree that the advent of the FSA’s TCF principle has been a major driver for new market research commissioning - although they also add that there is some tendency for companies to use research as a “tick box exercise” to prove to the FSA that TCF principles have been adhered to. Bdifferent’s Bell says that the company’s TCF-related work has been a big issue for the company’s product provider clients over the last few years: “The work [we] carried out has proved valuable for clients - not only in understanding how far consumers understand financial services products but also in enabling them to review documents to ensure consumers understand what they are buying, the implications of charges, longevity, expectations of performance and so on.” What’s changing? Well, he says, product providers are increasingly using research these days to determine IFAs’ own views and progress. He also senses a more recent, growing trend for providers to review and track brands and advertising/ promotional activity as they slug it out for market share in a difficult environment – while also preparing, of course, for the upturn when it comes. Overall, the most noticeable trend that all three agencies agree on is that the actual quality of independent research has improved markedly in recent years. “The rise of specialist agencies,” says Bell, “that are specifically dedicated to the financial services market and that understand the market’s complex structure and needs, have led to a colossal improvement from, say 12 years ago, when we were working on the client side.” And long may it remain so. www.IFAmagazine.com
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magazine... for today ’s discerning financial and investment professional
WHAT’S WRONG WITH THE CASH MODEL ANYWAY? HUGO THORMAN, MANAGING DIRECTOR OF WRAP PLATFORM PROVIDER ASCENTRIC, TELLS ALL TO IFA MAGAZINE Hugo Thorman is proud of his company’s gleaming new headquarters in sunny Bath – a testament to the company’s growing status in the wrap community, and to its commitment to the city he has made his home. And well he might be. Only six years after starting the business – or rather, taking over a struggling Prudential/ Egg project called Funds Direct – Ascentric has grown its investor funds under management by a factor of 100 to reach £3.4 billion. The days are long gone when Thorman and his colleagues had to fund Ascentric’s development by tapping their own friends and families for support: nowadays his 200 staff are effectively bankrolled by Royal London Group, which bought a 85% stake. But the company remains committed to inventive and often forthright thinking. When Thorman appeared in September on IFA Magazine’s three-way televised interview with Alastair Conway from Cofunds and Danny Wynn, the Director of Platforms at Legal & General, he found himself fighting the wraps corner more or less single-handedly against a consensus that the FSA’s Platform Policy Statement (PS 11/9) had failed the IFA community by dragging its feet on the issue of banning cash rebates promptly. Not at all, he argued, the case for unit-based remuneration has not been proven at all - and the longer the FSA holds off, the better. We asked him to explain why.
Cash Versus Units You seemed to be fighting a lone corner in the studio there. Can you expand a little? “The great thing for us was that the FSA didn’t bring in the ban on cash rebates immediately. They didn’t bring it in because they didn’t yet know what the impact would be on client experience – which I expect to be very detrimental. That means that we can carry on operating our model.
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“All of the true wraps currently operate with rebates from a fund manager. And I can’t see what’s so complicated about asking the IFA to explain to his customer that he’s getting a 1.5% annual management charge, of which 0.75% is rebated into his investment account. The client must then pay an explicit charge for the platform and to the adviser. As long as it’s clear to the client, what’s the problem?” Is it perhaps that the FSA is looking for a completely unitary remuneration arrangement between the client and the IFA, because that would be simpler? “I don’t know, but at the end of the day it simply changes the way that the client gets access to cheaper fund management. The trouble’s going to start when the extra element of the rebate to the client is paid in units rather than in cash. He’ll have dozens of little lumps of units coming into each of his accounts every month instead of cash, and it’ll all get very complicated. “Not least, because each of those tiny units is going to generate a future CGT event of its own, and it’s going to create a lot of paperwork. HMRC for its part is going to want every little detail of those unit payments, in case it should happen to take the client over his own CGT exemption limit. “And at the end of the year the client is going to have a gigantic report of all these silly little payments, and us having to tell him whether he’s created any CGT liabilities. And that in turn makes him more likely to have to use a tax adviser because now he’s got a CGT issue that he didn’t have before. The August Policy Statement really didn’t explain at all how this CGT issue was to be handled.”
Execution-Only Platforms Moving on a little, I’m reading that some people believe the future belongs to direct-to-client
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The Banks’ Next Move? What are the chances that the banks will open up their own proprietary platforms? “Well, if I were a bank I think that’s what I would be doing. And indeed, Lloyds have already come out and said that that’s their strategic intent. But at the moment they all find it terribly difficult to focus, because their balance sheets are in disarray, which isn’t very helpful at all. “I think that, if they do decide to go ahead - and if they can’t or won’t afford to build these platforms themselves - there’s a good opportunity for us to supply them with platforms that they can use under licence. Filling in the gap between the wealth managers, which tend to be IFAs, and the private client stockbrokers, the gap is in B to B to C - which is exactly what we’re doing. Ours is much more comprehensive – not just funds, like one of our major competitors, but in the whole range of instruments including stocks and shares. “The bank’s opportunity is somewhere in the middle between these two extremes. If a client needs advice because he isn’t confident or selfdirected enough, but he can’t afford the advice from an IFA, then that’s a client who would only get into long-term savings with the help of a bank. “Now, obviously, some of these banks are in a different market from IFAs anyway. Some of them, of course, are selling tied or multi-tied products. But they still need a platform. “We do white labels, and we provide some of the bigger networks and distributors, and some of
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IT REVIEW
platforms or execution-only platforms. And what about the competition from banks? “Obviously, the vast majority of our sales are currently through IFAs, which is the way we like it. But the changing relationship between IFAs and their clients does mean that the demand for execution-only will grow after RDR. We have no intention of taking food from our IFAs’ mouths by encouraging the supply of full-on execution-only services direct to individual investors. But there’s scope for some form of execution-only through an IFA introduction for which the IFA gets paid a fee. “Unlike one of our competitors, we’re not developing a B to C platform - instead, we’re developing it as a B to B to C, where the IFA is the customer’s gateway to the platform. You’ll go to your IFA and you’ll say, “look, I’m not happy with paying a large fee because my portfolio isn’t big enough to bear it”. And the IFA can point you toward a platform that gives you some basic guidance as to how to go about choosing an investment, and some sort of a tool that helps you establish your risk tolerance. And then it’ll say something like: “What you need is portfolio number three”, and you invest there and then with your debit card. What’s in it for the IFA here is an annual introduction fee.”
those are really restricted advisers, but that’s often what suits less affluent investors. For these people, the “whole of market” idea is much less helpful. The important question for them is probably: “Is everything in one place? Can I value it easily? And can I buy it for a reasonable price?” In this situation, it can work well if the intermediary makes the decision. Our job is to supply that system. And that’s what we’re keen to do.” For more comment and related articles visit...
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YOU CAN VIEW THE TELEVISED DEBATE ON THE IFA MAGAZINE WEBSITE AT http://tinyurl.com/6dk6x6s
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45 31/10/2011 17:17
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www.bandbw.co.uk info@bandbw.co.uk 9/2/2011 4:11:16 PM 31/10/2011 17:17
THE BEE LINE
AN AWFUL LOT OF ADMIN DON’T UNDERESTIMATE THE RESPONSIBILITIES FROM AUTO-ENROLMENT, SAYS STEVE BEE For the 1.3 million employers who are about to be required to auto-enrol their eligible employees into a workplace pension scheme, the argument as to whether or not these latest pension reforms will actually succeed is, I think, largely irrelevant. We’d do better to focus our attention on the enrolment criteria. From the employer’s point of view, the reforms will of course mean that they will need to make a qualifying workplace pension scheme
available to their employees and they will then need to populate those schemes and contribute towards the pensions of employees who do not opt-out. But, whether employees opt-out or not, employers will still need to perform the same regular functions, such as auto-enrolling and re-enrolling both new employees and existing employees who are not in their pensions scheme for one reason or another.
Who’s In, Who’s Out…? Some employees won’t be in the company’s workplace pension scheme for many different reasons. There will be those, for instance, who are not eligible for auto-enrolment at all because they are either too young, too old or
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not earning enough. And conversely, some of those who are not eligible might take up the offer of voluntary membership of the qualifying scheme and thus become eligible for autoenrolment. They can do this by completing an opt-in form that the employer must respond to correctly if they wish to remain compliant. Other non-eligible employees will not be eligible for auto-enrolment into the qualifying scheme, but will still be eligible to be members of another workplace pension scheme (which an employer must have for the purpose either as a separate scheme or a separate section within their qualifying scheme) where the employer is not required to contribute on their behalf. These employees are able to complete what is called a ‘join-in’ notice if they wish to join a pension scheme. In their case, the employer will be required to facilitate their pension scheme membership by deducting contributions from salary and passing them over to their pension provider and meeting all the usual timescales that go with that. Still other employees will not be in their employer’s qualifying scheme because, having been auto-enrolled, they opted-out. Employers must set a re-enrolment date for each of these employees and ensure they re-enrol them at the right time.
And Whose Position Might Change? For those non-eligible employees who are not in the qualifying scheme - which will include those who have ‘joined-in’ to a non-qualifying scheme, or a non-qualifying part of a qualifying scheme - employers will have to look carefully at their particular circumstances in every single pay period to see whether things have changed and whether action needs to be taken if the employer is to remain compliant. For
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THE BEE LINE
instance, some employees may have become older, they might be earning more, or they might have reached a re-enrolment date.
A Hefty Compliance Cost It all adds up to a good deal of work for employers - and the load will be much the same regardless of whether or not all their employees opt-out of their workplace pension scheme. And that workload, of course, will come at a cost for employers. In fact there are three costs that I think employers will need to bear once these new reforms begin. First, of course, is the obvious cost of paying the minimum required contributions into the pensions of those employees who are auto-enrolled and stay in the pension scheme. The second cost, which is more difficult to quantify, is the cost of both the
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initial and ongoing compliance procedures an employer will need to adopt. And thirdly, there is the additional risk that further costs could be incurred if an employer gets things wrong and is not compliant. The costs arising from putting things right, and possibly in fines for having got things wrong in the first place, are impossible to quantify in advance.
Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the co-founder of www.jargonfree pensions.co.uk
31/10/2011 17:19
PRODUCT REVIEWS
CHINA CRISIS NICK SUDBURY ASSESSES THE DIFFERENT WAYS OF INVESTING IN CHINA.
Safe as Financial Houses
iShares FTSE China 25 There are dozens of Chinese equity ETFs listed on the various stock exchanges, but the global flight from risk has meant that it takes faith and courage to put your money there at the moment. The only ETFs that haven’t dropped over the last 12 months are the ones with short exposures. But there are still many different ways of looking for winners. One of the most widely held ETFs in London is iShares FTSE China 25 (FXC), which provides a cap-weighted exposure to 25 of the largest and most liquid Chinese stocks listed in Hong Kong. Its biggest single holding is a 10% investment in China Mobile - but the financial sector, amounting to around 47% of the portfolio, represents its main exposure. Companies like China Construction Bank, the Industrial and Commercial Bank of China and China Life Insurance are fairly high-risk given the current concerns about bank capitalisation and bad debt. So a concentrated index like this
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would only be suitable for long-term investors with an adventurous attitude to risk. In its first 3 years the ETF rose more than 300% before it was derailed by the credit crisis - although actually, anyone who put their money in at the launch is still sitting on a near 100% return. The TER of 0.74% is one of the most expensive in the sector – and this despite the fact that the manager uses the securities for stock lending. Hopefully the collateral should offer protection from any problems with the counterparty risk, but that has yet to be put to the test. The iShares FTSE China 25 ETF is highly correlated to world stock markets and has FUND FACTS suffered as a result of slowing global Name: iShares FTSE growth and the euro China 25 (FXC) zone sovereign debt Type: ETF crisis. It would also be vulnerable should Sector: China Equity China experience a Fund Size: $797m hard landing or a Launch: 21 Oct 2004 banking crisis. But conversely, if these Distribution Yield: n/a fears were to evaporate, TER: 0.74% it would be likely to experience a massive Manager: BlackRock positive re-rating. Asset Management Website: uk.ishares.com
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PRODUCT REVIEWS
magazine... for today ’s discerning financial and investment professional
FUND FACTS Name: China Asset Management China Opportunities Fund Type: Ucits III compliant Luxembourg-based Sicav Launch Date: October 2010 ISIN: LU0531876844 Currency: US dollars Manager: China Asset Management Co Marketing Details: From Commerzbank (http://funds. commerzbank.com )
Local Knowledge China Asset Management China Opportunities Fund Commerzbank is acting as China Asset Management’s UK partner for this Luxembourgdomiciled fund which is CAMC’s first UCITS product for European investors. CAMC isn’t well known to UK investors, but it’s the biggest fund management company in China, with a team of 170 managing AUM of more than RMB 300 billion. “In a market as complex and as fast changing as China,” says Commerzbank, “you need a manager who has the contacts, the on-theground insight and the cultural understanding to know where the real opportunities lie.” The fund’s all-cap strategy focuses mainly on large-cap, blue-chip companies but also includes small or medium selections. And incredibly, while Chinese equity markets dropped by 15% during the 10 months to November 2011, ChinaAMC China Opportunities Fund remained relatively flat and ended the period 5% ahead.
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Michael Wen, the fund’s portfolio manager, says that this is down to a flexible cash policy that allows it to hold as much as 40% in cash, enabling it to manage market volatility and help preserve capital during difficult periods. By going overweight on cash in August and September, Mr Wen’s team managed to avert the worst of the global downturn, leaving it well placed for the late October upswing. “There is no fast way to understand China but to do the fundamental work right,” says Wen. It seems the proof is in the performance.
CONCENTRATING ON COMPANIES WITH PRICING POWER www.IFAmagazine.com
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PRODUCT REVIEWS
First Class Ticket First State Asia Pacific Leaders A less hair-raising way of investing in China is to use a regional fund where the manager can dilute his risk by varying his asset allocation between countries. You’ll find funds with significant exposure to China classified in either the Global Emerging Markets sector or the Asia Pacific (ex Japan) sectors. And two asset management companies that really stand out here are First State and Aberdeen. First State Asia Pacific Leaders is a great example of a quality regional fund with a large weighting in China. It is managed by the highly respected Angus Tulloch, and it is up 221.7% since it was launched back in December 2003. Indeed, this year’s been pretty good too. In the 3 months to the end of September it only gave back 10.1%, which was no mean feat given that the benchmark was down 18.2%. The fund’s objective is to achieve long-term capital growth by investing in large and mid-cap stocks in the Asia Pacific ex Japan region including Australasia. At £5.1 billion it has significant assets to deploy, but Tulloch has opted for a highly concentrated portfolio of just 55 holdings. That’s the advantage of the regional mandate – a skilled manager can really back his convictions while still achieving a fair degree of diversification. Tulloch currently has 35.5% of his portfolio in China, with the next largest weightings being South East Asia at 20.9% and Australasia at 17.6%. The three main sectors are Financials(25.4%), Information Technology (16.1%) and Telecoms (14.2%). He says that he is erring on the defensive side by concentrating on companies with pricing power, strong sustainable cash flows and growing dividend yields.
FUND FACTS Name: First State Asia Pacific Leaders Type: UK OEIC Sector: Asia Pacific ex Japan Fund Size: £5.1bn
CONCENTRATING ON COMPANIES WITH PRICING POWER
Launch Date: 1 December 2003 Portfolio Yield: 1.07% Charges: Initial: 4%, Annual: 1.5% Manager: First State Investments Website: www.firststate.co.uk
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an Even Wider Pool
South Sea Pearl
Aberdeen Emerging Markets
Templeton Emerging Markets
Aberdeen Asset Managers has an equally impressive long-term track record. Its flagship vehicle is its Emerging Markets fund, which has a very different profile to the First State product. Since it was launched in July 2003, Aberdeen’s fund has delivered an average annualised return of 11.32%, and it has always been ranked either first or second in the sector. That’s an amazing achievement, but it results from a much more diversified approach. The Aberdeen fund aims to provide long-term capital growth from direct or indirect investment in emerging stock fund factS markets worldwide Name: Aberdeen – or from companies emerging Markets with significant activities in all Type: uK oeic emerging markets. Sector: Global That’s a much emerging Markets larger pool! At the end of Fund Size: £2.7bn August the portfolio Launch Date: July 2003 was divided between 19 countries, with Portfolio yield: n/a China/Hong Kong Charges: initial: 4.25%, representing only Annual: 1.75% 15.7% and India another 12.1%. Manager: Brazil (17.7%) Aberdeen Asset represented its Managers biggest holding, and Website: as you’ll have noticed www.aberdeenit’s nowhere near asset.co.uk China. (Although Brazil makes a lot of money from selling foodstuffs to Beijing.) That said, Aberdeen’s holding of £2.7 billion is still very large for the region. And the money has been channelled into a concentrated portfolio of just 63 holdings. The largest of these is China Mobile at 4.5%, with PetroChina also figuring in the top 10. The Aberdeen and First State funds are much more diversified than a pure China fund, but that doesn’t make them low risk. Asia Pacific and Emerging Market investments all tend to be highly volatile. Yet over the long-term it is hard to believe that a well managed exposure will not comfortably outperform the more developed markets.
The best performing regional investment trust with a significant weighting in China is Templeton Emerging Markets. Over the 10 years to the end of September the share price soared by an impressive 532.6% under the skilled management of Dr Mark Mobius. TEM is the largest Emerging Markets investment trust, with total assets of around £1.7 billion. At the end of September the portfolio of only about 50 holdings was diversified across 15 different countries, with the biggest weighting being Hong Kong/ China (24%) - followed by Brazil at 17.2%. Mobius and his team a long-term approach results in very low portfolio turnover of around 8% that helps to keep the transaction costs to a minimum. The fund has the authority to borrow up to 10% of net assets but in practice it does not tend to use this gearing facility. In the last year the shares have traded at an average discount to NAV of 5.5%, although the nervousness in the markets has currently pushed them out to more than 6%.
November 2011
Fund Facts Name: Templeton Emerging Markets (TEM) Type: Investment Trust Sector: Global Emerging Markets Market Cap: £1.7bn Launch Date: June 1989 Yield: 0.9% TER: 1.32 % Manager: Franklin Templeton Investments Website: www. franklintempleton.co.uk
If it gets too wide the Board can intervene to buy back their own shares for cancellation. Templeton has a superb long-term track record and is right up there with the First State and Aberdeen funds. Once the RDR comes into force at the end of 2012 it may finally start to get the recognition it deserves.
For more comment and related articles visit...
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magazine... for today ’s discerning financial and investment professional
OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA. These listings exclude the FSA’s routine monthly handbook updates.
Guidance on the Selling of General Insurance Policies Through Price Comparison Websites
Finalised Guidance: Forbearance and Impairment Provisions - ‘Mortgages’
Finalised Guidance
Finalised Guidance
Ref: FG 11/17
October 2011 10 pages The guidance results from an FSA study of how firms which sell regulated insurance products and services online have developed their business models, and how they are designing these models to ensure the fair treatment of consumers. Issues considered included the provision of ‘white labelled’ comparison websites where the host firm uses in its own business a price comparison tool provided by a third party. These considerations raised concerns in three particular areas: • Failures in respect of sections19 and 21 of the Financial Services and Markets Act 2000 (FSMA) respectively, and failures to obtain appropriate permissions in breach of section 20 FSMA; • Non-compliance with the requirements in the Insurance: Conduct of Business sourcebook (ICOBS); and • Non-compliance with the Senior Management Arrangements, Systems and Controls sourcebook (SYSC).
‘Dear CEO’ Letters Providing Guidance on Issues Relating to Remuneration Finalised Guidance
Ref: FG 11/16
October 2011 30 pages These letters set out how the FSA intends to assess firms’ implementation of the Remuneration Code for the coming year. The letters also contain guidance on: • Defining Code Staff; • Using long-term incentive plans; and • Using non-share instruments in variable remuneration Different letters and templates are provided for firms in proportionality tiers 1 to 4.
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Ref: FG 11/15
October 2011 41 pages Of interest to residential mortgage lenders or mortgage administrators, and to managements responsible for any aspect of forbearance activities, creditrisk reporting, finance, audit and the compliance functions of firms. The guidance provided in this document covers: • the provision of forbearance support for customers undergoing financial stress; • the recognition of impairment within the book through management committees and board reporting; and • the disclosure of impairment and its recognition through loss provisions in external reporting.
Reporting Transactions in Derivatives Conducted Through Clearing Platforms Consultation Paper
Ref: CP 11/19
5th October 2011 61 pages Proposals for revised principles to be taken into account by the FSA when determining whether the Recognition Requirement has been satisfied. The changes to the FSA’s Recognised Investment Exchange and Clearing House Sourcebook (REC, section 2.3) take account of the changing shape of various financial instruments during the last nine years, and aim to bring them all satisfactorily within the regulatory terms of the Markets in Financial Instruments Directive (MiFID) and similar measures. Consultation period ends on 6th January 2012.
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Policy Statement
Ref: PS 11/11
26th September 2011 25page s Relevant to banks, building societies and BIPRU investment firms that are part of UK consolidation groups which may have subsidiaries in jurisdictions outside the European Economic Area (EEA). The Policy Statement reports on the main issues arising from Consultation Paper 11/6 (Use of nonEEA rules in calculating group capital requirements, March 2011), and it publishes final rules. The revisions follow on from an internal FSA review of the equivalence rules, with regard to the continuing validity of the equivalence approach as a whole in the context of group capital requirements. The review led to a proposal in CP11/6, to revoke the equivalence rules by deleting BIPRU 8.7.35R, 8.7.36G and 8.7.38R from the FSA Handbook. This will mean that, for the purpose of calculating the consolidated capital requirements of a UK consolidation group, firms will use the FSA rules rather than local (i.e. non-EEA) rules in calculating the capital requirements of the non-EEA subsidiary.
Proposed Guidance on the Practice of ‘Payment for Order Flow’ Guidance Consultation
Ref: GC 11/23
12th October 2011 10page s Of interest to brokers executing client orders, and also market makers. The proposal seeks to regulate the use of ‘payment for order flow’ (PFOF) – meaning an arrangement whereby a broker receives payment from market makers, in exchange for directing order flow to them. The FSA takes the view that PFOF arrangements create a clear conflict of interest between the firms’ clients and the firm itself, so that it is unlikely to be compatible with the FSA’s inducement rules and risks compromising compliance with best execution rules. The key element of the reforms is a requirement that brokers receiving these payments must declare them to clients, and that they must be able to prove that they are (a) cost-effective and (b) consistent with the client’s best interests. Consultation period ends 9th November.
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FS A P U B L I C AT I O N S
Use of non-EEA Rules in Calculating Group Capital Requirements - Feedback on CP11/6 and Final Rules
Simplified Advice Guidance Consultation
Ref: GC 11/22
15th September 2011 78 pages Of interest to Firms who wish to offer a simplified advice service, and trade associations who are working with their members in this area. The paper provides additional guidance on simplified advice processes which are now being piloted by various firms, aims to address the issues they have faced. It also provides guidance on certain aspects of the regulatory regime suitability, adviser charging and service disclosure. Furthermore, it contains general guidance on professional standards, designing and delivering a simplified advice process, and choosing an appropriate product suite. Consultation period ends 15th November.
Transactions on Turquoise Derivatives and Derivative Markets Where Reference Data is Unavailable Guidance Consultation
Ref: GC 11/21
8th September 2011 2 pages Of interest to authorised firms with transaction reporting responsibilities, particularly those trading in derivatives. The document contains proposed guidance on transaction reporting for transactions on Turquoise Derivatives and derivative transactions conducted through clearing platforms of derivative markets where the reference data for these transactions is not made available to the FSA and ARMs. Consultation period ended 22nd September.
Quarterly Consultation Paper No.30 Consultation Paper
Ref: CP 11/18
7th September 2011 102 pages Various proposed changes, including amendments to the SYSC Sourcebook, the Training and Competence Sourcebook, liquidity rules in the Prudential sourcebook for BIPRU firms, the Collective Investment Schemes sourcebook, Perimeter Guidance manual, and Disclosure and Transparency Rules. Consultation period ends on 6th October for Chapters 3 and 9; 20th October for Chapter 2; 6th November for other chapters.
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magazine... for today ’s discerning financial and investment professional
Lee Werrell, Managing Director of CEI Compliance Ltd, gives his personal round-up of the key issues that are currently shaping the compliance agenda. Firms warned over anti-corruption rules n
Financial firms are warned by the FSA to adhere to their separate anti-corruption rules as well as the new Bribery Act. £6.895 million is a sizeable chunk of money in anyone’s terms and that is what Willis Limited have had to pay by way of fine from the regulator for anti-bribery and corruption systems and controls failings, with no hard evidence at all.
n
The FSA said in its Financial Crime September newsletter: “The FSA does not enforce the Bribery Act. FSMA-authorised firms are under a separate, regulatory obligation to identify and assess corruption risk and to put in place and maintain policies and processes to mitigate corruption risk.We can take regulatory action against firms who fail adequately to address corruption risk; we do not need to find evidence of corruption to take action against a firm.”
n
The regulator said that more information was available in chapter seven of its recent financial crime consultation, CP11/12 Financial Crime: A Guide for Firms. It added: “Our Guide is consistent with, but separate from, the Government’s Bribery Act guidance. This is because the scope of the Bribery Act is different from our rules and principles; firms should bear this in mind when reviewing the adequacy of their anti-corruption policies and procedures.”
n
The UK Bribery Act 2010, which came into force on 1 July 2011, spelt out that corruption and bribery are criminal offences. This act consolidated and replaced previous anti-corruption legislation and introduced a new offence of commercial organisations failing to prevent bribery. A full defence would be considered effective if firms can show that they had adequate procedures designed to prevent bribery.
Impact: IFAs will not normally be involved in the level of bribery and corruption that this case demonstrated. This does not mean that the principles do not apply. Bribery and corruption, unethical behaviour as well as mismanagement of trustee funds or could all fall under the FSA rules and the FSMA 2000. If there are insufficient systems and controls to ensure that clients’ money is handled properly, funds allocated correctly or prevent a bribe or facilitation payment, or at least no way to show that they were dissuaded or prevented by the rules in place then the firm could be responsible for any act of its staff. The reputational damage alone could destroy a firm.
Maximising Return n
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Following on from our piece in Unregulated Collective Investment Schemes (UCIS) back in September, readers may be struck by the poignancy of the forcing into bankruptcy of Darren John Upton after he failed to pay back over £1 million that he owed investors in a UCIS run by his firm, Upton & Co Accountants.
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n
Moving? No, not really that sad; many will feel he deserves everything he gets. His firm promised investors high rates of return on their investment, which was to be used to invest in foreign exchange markets. However, there was limited trading and very little money was returned to investors, according to the FSA.
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The FSA agreed settlement terms with Mr Upton in March 2010, in relation to civil proceedings. They had already recovered £3.6m but were still owed £1.2m, which was the remainder of the funds the firm had received from investors in the scheme. On failing to keep up the agreed payments, the regulator had insisted on 84 months’ payments of £10,000 as it believed the investors would stand a better chance of receiving their money in this way.
n
C O M P L I A N C E D O C TO R
n
The regulator claimed its primary objective was to “maximise the return of any funds to investors in the most efficient and cost-effective way” and it said it will update investors about the effect of Mr Upton being made bankrupt in due course.
Impact: Huge issues to IFAs that may have sold this UCIS to investors. If any IFA has sold any UCIS to investors, it would pay to review those cases in accordance with the rules explained in September, or contact your Compliance Professional.
(Another) UCIS Fine - FSA Final Notice n
The FSA fined Peterborough based Rockingham Independent Limited £35,000 and imposed partial prohibitions on its directors Stephen Hunt and Jonathan Edwards and adviser Gary Forster. Having found a number of failures at the firm, it said that 426 customers near or at retirement age were being potentially exposed to the risk of receiving unsuitable investment advice.
n
The FSA investigation found that 39 investors were advised to invest in Unregulated Collective Investment Schemes (UCIS), after the firm failed to understand the regulatory restriction on the promotion of these investments.
n
Hunt and Forster have been banned from holding the significant influence functions (SIF) and the controlled customer function (CF30) relating to any regulated activity promoting or recommending UCIS. Edwards has been banned from performing compliance oversight in any regulated firm and from performing the customer function relating to any regulated activity promoting or recommending UCIS.
Impact: If any IFA has sold UCIS, it would pay to review all those cases in accordance with the rules explained last month, or contact your Compliance Professional. Full details at http://tinyurl.com/6bos74v.
Business Standards n
Don’t get caught out with the changes to the Conduct of Business sourcebook (COBS) and specifically the Financial Promotions Guidance (Amendment) Instrument 2011 (FSA 2011/53) which comes into force on 22 March 2012.
n
In Chapter 5 of CP 11/11 relating to guidance on the use of certain terms in financial promotions, the following changes to the Handbook are to be made: Change to COBS 4.2.5G Addition of BCOBS 2.2.5G
n
This development contains guidance that makes it clear to firms that they should not use a term such as ‘guaranteed’, ‘protected’ or ‘secure’, or similar, unless that term is capable of being a fair, clear and not misleading description of the product, and the firm provides all the information necessary, in financial promotions or other literature, to explain what the term means for the consumer.
Impact: Any Financial Promotion that is authorised after the 22nd March 2012 or any existing financial promotion that uses these terms must be reviewed with the perspective of the new rules. Don’t get caught out. Make a diary reminder to review any specific financial promotions in a suitable time before the new rules are effected. Do not be confused that these changes involve Guidance (G) as introducing a rule would be super-equivalent to the relevant conduct of business requirements of the Markets in Financial Instruments Directive (MiFID) (in so far as the instrument covers subject matter that is within the scope of harmonisation by the MiFID). Full details at http://tinyurl.com/63784jw Remember: If you have any concerns regarding these issues, please contact your compliance department or an independent consultant who is a member of the Association of Professional Compliance Consultants (APCC), recognised as a trade body by the FSA.
See also the listings of FSA publications on Page 54 of this issue
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THINKERS
CREATIVE DESTRUCTION FEAR NOT, YOU CAN NOW BLUFF IT WITH THE BEST OF THEM, THANKS TO IFA MAGAZINE’S MONTHLY CRIB-SHEET ON ALL THE GREAT THEORISTS.
“Economic progress, in capitalist society, means turmoil.” Joseph Schumpeter Born 1883 in Trešt’, Austria-Hungary. Died 1950 in Taconic, Connecticut A riddle for the modern mind Schumpeter’s name is probably better known than his ideas – which is understandable, since he straddled the theoretical divide in a way that we find awkward these days. But his 20th century influence was massive. Schumpeter wasn’t a Marxist – he was a deeply theoretical professor at Harvard, and a bit of a monetarist – but he shared Marx’s conviction that capitalism was the destructive cause of all its own problems. The difference was that he thought the capitalist ethic was being ripped apart by its own contradictions, without any help from the revolutionary left. Was that a bad thing? Actually, no, he said, the destruction was a source of hope and progress. A fresh perspective at a time of global change Born into the declining Austro-Hungarian empire, Schumpeter arrived in Vienna in 1909, just in time to watch Lenin’s tragic Bolshevik experiment in Russia unfolding before his eyes. Originally a lawyer, he quickly became known for his densely theoretical economic works, such as his Theory of Economic Development (1911), in which he first outlined his famous theory of entrepreneurship. A theory of entrepreneurship? Yes indeed. Schumpeter said that the entrepreneurial culture within capitalism would always be a source of destructive change, and that the constant misery that this caused would always be a hallmark of the profit-making society. The manic cycles of boom and bust that this created were actively beneficial. Aren’t manic cycles a bad thing? Schumpeter said no, which was pretty brave of him, considering how bad things were to get during the 20s and 30s. His theory of Creative Destruction sounds rather too close to Marx for our modern ears, but it got a better reception in the days when other influential economists such as J.M. Keynes were also studying the problems of repetitive business cycles under capitalism. The important www.IFAmagazine.com
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difference between them was that Keynes spent his time trying to tame the cycles with government spending, whereas Schumpeter said we should just stick it out and enjoy the bumpy ride. What sort of entrepreneurship did he mean? Schumpeter had already noted how the emergence of trains and cars and telephones had revolutionised distribution and wrecked the systems of the horsedrawn era. He would have loved the disruptive revolution of microchip technology, and he’d have been onto Facebook in a flash because he adored the way these developments forced change both in business and in the economy. The great self-publicist Schumpeter wasn’t short of admirers in Vienna. (He once declared that he wanted to become the city’s greatest lover and Austria’s greatest horseman. “And perhaps, also, the world’s greatest economist.” Years later, he added immodestly that he’d achieved “two out of three”.) But by 1932 he’d taken himself off to Harvard, where he led American academic thought for a decade or more, along with Galbraith, Hansen, Harberler and Leontief. The threat from intellectuals Schumpeter’s ideas reached their frightening logical extreme with his classic Capitalism, Socialism and Democracy (1942). Eventually, said the sage, a growing mass of bourgeois intellectuals would scupper capitalism by voting for ‘soft’ social democratic governments that would draw all the teeth from capitalist entrepreneurism and leave it unable to continue with its beneficial destructive cycle. The best hope of our survival, Schumpeter suggested, would be to evolve a minimalist democracy that did nothing more than encourage capitalist competition, while keeping the pesky public largely at arm’s length from the decision-making process. At best, that’s probably a libertarian argument. At worst, it just sounds scary. Nobody’s perfect. November 2011
59 31/10/2011 17:26
magazine... for today ’s discerning financial and investment professional
Senior Paraplanner – Private Bank, London
Director/Associate Director - Nottingham
Basic to £48K plus benefits and bonuses
Basic salary between £70,000 - £100,000
Our client, a leading Private Bank, is currently looking to take on a Senior Paraplanner to join its Financial Planning team in the City. The role will initially focus on support for some of the firm’s Senior Financial Planners, who advise clients with portfolios between £1-10m, however they are looking for this individual to fast-track into a client-facing role. The position offers the opportunity to join a very high quality team, rapid career progression and an excellent package.
A top tier fee based professional practice based in Nottingham is looking for a Director or Associate Director in order to manage the financial planning arm of the business. You will be tasked with managing an existing team of financial advisors, as well as developing internal relationships within the practice. You will have experience of working in a senior position within a wealth management environment, hold the Diploma in financial services as a minimum, and have a demonstrable record of performance. Call Charlotte on 0113 274 3000 or e-mail charlotte@bwd-search.co.uk
Call Danielle on 01727 884662 or e-mail danielle@bwd-search.co.uk
Independent Financial Adviser – Private Bank, East Anglia
Platform Sales BDM (South)
Basic c£65-100K plus benefits and bonuses
To £80k + £130k OTE + Benefits
A leading Private Bank is looking to recruit a new Financial Planner for their East Anglia region, who will be responsible for advising HNW & UHNW clients across the Suffolk, Norfolk and Cambridgeshire areas, referred from both internal and external introducers. The role offers limitless access to very high quality clients and an excellent package within a highly respected and prestigious firm. Candidates must be Diploma Status (as minimum) and have experience of advising wealthy individuals on complex financial planning needs. Call James Woods on 01727 884662 or e-mail james.woods@bwd-search.co.uk
A fantastic opportunity has arisen to join a global insurance firm that will be launching its own platform later this year. Our client is looking for a highly experienced individual that is capable of demonstrating excellent management and sales skills with a strong background in platform sales. This role will involve working closely with the Head of Distribution by attending roadshows/conferences and using Business Development skills to help bring across some of the top IFA’s in the South of England. Due to the nature of this role, candidates will only be considered if they have experience within the Wrap/Platform space. Call Adam Scott 0113 274 3000 or e-mail adam@bwd-search.co.uk
Employee Benefit Consultant - Nottingham, London
Fund Manager, Investment Directors and BDM’s - North West
To £80k, excellent bonus, benefits
Potential to develop to Partner Level with equity in all roles
A leading, progressive and entrepreneurial professional services firm is seeking Employee Benefit Consultants to be based in Nottingham and London. The role will involve taking over a healthy client bank and developing business further through building relationships with other arms of the business and attending appointments set up by the telesales team. This role requires someone who is proactive and that can evidence a proven track record in developing new business. Diploma qualified preferred with a sound knowledge of DC/GPP. In return you will work for a large, leading organisation and a highly rewarding package is on offer. Call Zoe on 0113 274 3000 or e-mail zoe@bwd-search.co.uk
Call James Rhodes on 0113 274 3000 or e-mail james.rhodes@bwd-search.co.uk
the financial services e-learning specialists
Numerous opportunities exist within this asset management firm with a strong and enviable reputation in providing investment management and advice to private clients, charities and trusts. The firm is totally independent with all money managed on a discretionary basis, and offers individuals a contemporary way of conducting business, without having that ‘corporate’ constrained feel. The Fund Manager will ultimately be the decision maker on how each individual’s money is managed; Investment Directors will be client facing and must have a demonstrable track record of developing a loyal book of business; BDM’s will have a long and strong track record of developing intermediaries, particularly within the pensions market.
Get your skills up to date the easy way
Wanted: Quality financial advisers ....Only those with Level 4 Qualifications need apply More and more large groups are demanding that candidates have already achieved at least Level 4 qualification. In fact, many haven’t even picked up a book yet. Without large numbers of qualified advisers the FS sector has a difficult future to say the least. The BWD Group, an established search & selection firm, have taken action to help with the launch of a new service - BWD development. • Advisers and others taking the Level 4 exams can now access e-learning programmes and on-line mock exams. • This allows candidates to learn at their own pace - at a time and place to suit them • They can take on-line assessments along the way and take up to five mock exams to make sure they are on track to pass the live examination
If you like the sound of this, go to www.bwd-development.com where you can see a full demonstration of the service or call BWD development on 0845 850 9995 T 0845 850 9995 F 0113 274 3031 E info@bwd-development.com
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IFA Calendar.indd 60
www.IFAmagazine.com
31/10/2011 17:31
Business owner / entrepreneur THE COMPANY
A change in direction can be daunting especially when that change means a step into the self employed but taking hold of your financial future and becoming a leader of your own destiny need not be such a complicated transition when you have the support of the right network. Keillar Resourcing is working in conjunction with one of the UKÕ s leading IFA networks. With UK wide coverage and a brand name thatÕ s synonymous
with excellence you can be assured of the right levels of support along the way. Commission rates are high and you can decided on the right levels of support from a variety of choices and only pay for the support you decide to utilise and that means you donÕ t pay more than you have to. This RDR ready network can support you with everything from office to admin and might even supply the odd lead or two!
ABOUT YOU
Maybe this is the right time to take hold of your own financial future? If you think it could be, then get in touch and we will tell you how this network could be just the ticket! THE PACKAGE
With excellent commission rates up to 90% the eventual level is entirely up to you. LOCATION
Genuinely national so wherever you want it to be.
To learn more about this exciting opportunity contact Paul Mullarkey on 0131 557 9668 or 07875 341758 for the inside scoop or email him on paul@keillar.com
www.keillar.com
keillar Resourcing operates as a recruitment agency T10268 Tenet Recruitment Ad 24/05/11_T10145 Tenet Recruitment ad 24-08-10 24/05/2011 09:28 Page 1
I want to be part of a
winning team
The Tenet Group are the largest independently owned adviser group supporting over 5,500 advisers nationwide. We’re looking for Independent Financial Advisers to join our winning team.
IFA’s Scotland – Negotiable remuneration deals available.
Employed IFA Positions x 4. Midlands, North West, Middlesex, South Yorkshire.
IFA – Midlands. Renowned Business with excellent support/lead gen sources.
Employed IFA – Hove Brighton. CAS or Trainee
We are an established IFA firm with offices in Edinburgh, Aberdeen and Dundee. Due to our unique lead generation model we are looking for advisers to cover all areas of Scotland to service introduced business along with self generated referrals. Along with leads we are able to offer Paraplanner support, admin support, office space if required, back office systems and mentoring support. You must be CAS and working towards diploma.
We are a well renowned IFA business based in Leicestershire and have been serving the needs of our clients since 1982. Our business benefits from working closely with 3 substantial solicitor firms along with a number of accountancy practices acting as introducers. A further lead generation source are the seminars we run regularly to new introducers, affinity groups and IHT clients. Having recently established ourselves with the UK’s leading independent network we are now looking for additional advisers to join our business on a self employed basis.
All firms are supported by a leading financial support provider, leads are provided from existing client banks, in-house accountants, retirement seminars to professional groups and estate agent introducers. All salaries are negotiable, car or car allowance, DIS and medical care benefits provided. Office or home based with full office support provided for all positions. You must be CAS and diploma (or working towards)
We are looking for a customer focused individual to join our established IFA firm. You may be newly qualified or have been working in a tied or multi tied environment and want to make take the step into the IFA arena. You will be given access to 1500 clients, receive support from in house administration, paraplanner, compliance and sales support. Diploma study program is also available. We are also looking for advisers on a self employed basis who are looking to alleviate the business burden of trading on their own. Commission splits are fully negotiable.
Please contact Mark Ford on 0113 239 5312 to discuss any of these positions or email your cv to mark.ford@tenetgroup.co.uk
www.IFAmagazine.com
IFA Calendar.indd 61
November 2011
61 31/10/2011 17:31
magazine... for today ’s discerning financial and investment professional
You are in demand iFa: accountancy Practice: directorship Prospects n.Yorkshire £competitive basic + bonus + package
iFa: Professional Practice: managerial Prospects manchester c.£45-60,000 basic + bonus + package
Join the financial planning division of this established accountancy practice. This is an excellent long-term career move offering a future directorship. You will be responsible for continuing to service and develop an existing client base whilst driving forward the financial planning business. Experience of working as an IFA within a professional practice environment (i.e. solicitors or accountants) is beneficial. You will have excellent client relationship and business development skills together with a highly professional and ethical approach. Good quality clients are provided, therefore own client bank is not required. ref: 1368370 linda.leon@hays.com or 0161 929 7039.
This is a first-class career opportunity to work within a professional practice providing holistic and truly independent advice to a well established client bank. Ability to identify your clients’ requirements and provide bespoke advice to achieve financial goals will be recognised and rewarded. Own client bank is not a requirement as you will have good quality clients to work with. Your clients will typically include business owners, company directors and higher net worth individuals establishing their personal financial planning requirements to ensure a quality independent advisory service is provided. Managerial opportunity available if desired. ref: 1432036 linda.leon@hays.com or 0161 929 7039.
hays.co.uk/financialservices FS-03476-1_IFA_Pg_June.indd 1
Senior Financial Planner Location: Devon
Salary: £35,000 Ð £60,000
Our client is one of the South West's most foremost Financial Planning Firms, delivering creative solutions across comprehensive and bespoke financial planning, investment portfolio management, tax and estate planning. They are seeking an experienced Diploma Qualified Senior Financial Planner with a proven record of success in the field and previous management skills. This role will require some travel to Bristol for training purposes, and will involve liaising with the current incumbent with a view to running the practice upon their retirement. Skills Minimum 5 years experience in similar role Diploma in Financial Planning (Dip PFS) Competent Adviser Status (CF30) Experience of holistic financial planning, and dealing with HNW clients Ability to manage a small team and delegate tasks accordingly Excellent communication skills, both written and verbal Strong IT skills, knowledge of 1st Software would be an advantage Benefits Competitive salary, depending on experience and qualifications, 23 days holiday, Group Life Assurance scheme (4 times salary), Private Medical Insurance for employees, their spouses/partners and any dependent children, Permanent Health Insurance scheme, Employer's Pension Contribution (7% of basic salary), Free on-site parking
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02/06/2011 09:07
Heat Financial Services provides a highly tailored service to the UK Financial Services industry assisting Clients across the Banking, Life & Pensions, Mortgage, Investment and Stockbroking Markets, consistently assisting Clients to adapt and respond to the relevant regulatory and industryÊ challengesÊ inÊ partnershipÊ withÊ HeatÊ TrainingÕ sÊ FinancialÊ ServicesÊ Trainers. Heat Financial Services Specialist Consultants are consistently updating their industry knowledge to allow them to provide high level assistance to Clients in both niche areas of the industry and the general Financial Services Market, whilst working closely with Clients on each individual requirement to ensure they fully understand the organisation and the position(s) they are looking to fill. Heat Financial Services Specialist Consultants will only present relevant candidates, with the experience and knowledge that matches the Client requirements. A quality approach to business makes Heat Financial Services a key partner in the recruitment process, coupled with Specialist Financial Services Training via Heat Training. The proposition for Clients and Candidates alike is a one-stop shop for all Financial Services Industry Recruitment and Training needs. ContactÊ oneÊ ofÊ HeatÊ RecruitmentÕ sÊ SpecialistÊ ConsultantsÊ toÊ discussÊ anyÊ ofÊ theÊ above:Ê Ê fs@heatrecruitment.co.ukÊ Ê orÊ Tel:Ê 0845Ê 375Ê 1747Ê Ê Ê
www.IFAmagazine.com
31/10/2011 17:31
Private Client Consultant, London and Home Counties £55-85,000 + Bonus + Benefits
Wealth Manager £75,000 + Bonus + Benefits Ref: 9899
Well-established investment/wealth manager with an outstanding financial planning division are now in need of experienced IFAs for various locations. Your role will be to services and build on their existing HNW client contacts, liaise with their professional introducers and develop further business via client contacts and in-house marketing. You should provide a solid career track record and a commitment to providing fee based advice to HNWIs.
International asset management firm with a London base in W1 requires 2 additional individuals to join their existing team of successful Wealth Managers. The role requires you to follow up leads referred internally and develop further business from additional marketing support. Advice, in the main, is investment led so a sound understanding of this area is essential. This is an extremely lucrative role with genuine potential earnings in excess of £150,000 per annum.
Junior IFA, Private Bank
Senior Wealth Manager To £60-88,000 + Bonus + Benefits
Ref: 3233
Ref: 3242
c.£40-60,000 + Bonus + Benefits
Ref: 76867
Leading investment management firm with offices nationwide and a small but hugely successful wealth management offering now requires 2 additional Wealth Managers to work from its offices in the City. Essentially, the role involves working with the Investment Managers and advising these referred clients on all areas but focussing on IHT and investment planning.
London based private bank with an investment management and wealth planning offering now require an additional individual to assist in servicing client portfolios. You will advise on all areas of investments, pensions and IHT planning and where necessary promote the wealth management proposition internally to other divisions of the bank. You must be CF30 qualified and DipFS.
Private Client Advisor
Business Developer/ Wealth Manager
£75-85,000 + Bonus + Benefits
Ref: 4354
Medium sized boutique wealth manager based in the City requires a Client Adviser to advise an existing portfolio of wealthy City Lawyers and Accountants. This portfolio is in place and as such requires a Chartered Planner (or progression with) to service the financial requirements of a wealthy audience. You must be degree educated and able to explain complex financial solutions in a clear, simple and concise manner. Evidence of producing in excess of £200,000 fee income per annum is essential.
To £75-95,000 + Bonus + Benefits
Ref: 42134
Top 5 Chartered Accountants require a senior individual to work with existing and new Partners and leverage off these relationships to further promote the financial planning proposition. This would suit a financial planner who has had experience of working with introducers in some capacity and now looking to attach themselves to a brand name. London based
For further information please contact Simon Charlton, Matthew Tatnell or Gareth Blades Lombard Street, London EC3V 9EA 020 7461 8429 fs@rolanddowell.com www.rolanddowll.com
www.IFAmagazine.com
IFA Calendar.indd 63
November 2011
63 31/10/2011 17:31
Institute of Financial Planning THE PROFESSIONAL BODY FOR FINANCIAL PLANNERS AND PARAPLANNERS Post RDR, it will become even more important for advisers in the UK to align themselves with a relevant professional body or accredited body. Membership of the IFP offers you support and guidance whether you are a Financial Planner or Paraplanner. With a huge range of benefits, why not have a look at some of the ways in which we can help you? Support you through regulatory change Engage with a community of professionals Follow a structured career path Increase your personal and business potential Harmonise your goals with those of your clients Keep up to date with relevant issues and news
To find out more or join visit www.financialplanning.org.uk or contact us on 0117 9452470 IFA Calendar.indd 64
31/10/2011 17:31
I FA C A L E N D A R
e n zi
Dates for your diary a m a g
NOV‘11 - FEB ‘12
NOVEMBER 1 3 4 6
Child ISAs introduced. Maximum annual investment increased to £3,600. G20 Summit in Cannes, France. Halter Financial Summit,
Consultation period ends for remaining Chapters of FSA Quarterly Consultation Paper No 30.
9
Consultation period ends on FSA Recovery and Resolution Consultation Paper (CP 11/16).
9
Consultation period ends on FSA Proposed Guidance on the Practice of ‘Payment for Order Flow’ (CP 11/23).
1012 Guangzhou, China. 31
FSA restructuring process (CPMA, PRA etc.) scheduled for implementation.
31
Basel III Capital Framework - All major G-20 financial centres scheduled to have committed to the regime.
JANUARY 2012 1
Denmark assumes the EU Presidency until 30th June.
-
Japanese Investments Summit, Tokyo (date to be confirmed).
CIO and CFO Japan Summit,
9 11 Makuhari.
APEC (Asia-Pacific Economic
1213 Co-operation) Summit, Hawaii. 13
15
17 18
Start of reporting requirement for transactions in derivative instruments executed on the order book of an Aii derivative market, as per Final Guidance 11/12. Consultation period ends on FSA Guidance Consultation on Simplified Advice (CP 11/22). FT Advisor Service Awards, London. AIFA annual dinner, London.
6
23
Financial Planning Week
World Economic Forum Annual
2529 Meeting, Davos, Switzerland
Emerging Markets Investment Summit,
3031 Montreux, Switzerland. 31
-
Middle East Investments
2324 Summit, Dubai.
DECEMBER Private Wealth Management
5 7 Summit (USA), Las Vegas.
FT Managing Global Political Risk Summit, London.
www.IFAmagazine.com
IFA Calendar.indd 65
Chinese Year of the Dragon commences.
Deadline for self-assessment tax returns 2010/2011 (online only).
FEBRUARY
2027 (Institute of Financial Planning).
7
Consultation period ends for Consultation Paper 11/19. (Financial Resources Requirements for Recognised Bodies).
15
Alternative Investments North America Summit, Braselton, Georgia (date to be confirmed). Unbiased.co.uk annual ‘Media IFA of the Year’ awards ceremony Have we forgotten anything? Let us know about any forthcoming events you think ought to be in our listings. (Sorry, press and official events only.) Email us at: editor@ifamagazine.com, and we’ll do the rest.
November 2011
65 31/10/2011 17:32
A N D F I N A L L Y. . .
magazine... for today ’s discerning financial and investment professional
SWEET FSA MOVE OVER, SCHWARZENEGGER. FREDERICK SMYTHE-ALLINSON ADMIRES THE BOE GOVERNOR’S TRANSFORMATION. Mervyn’s Makeover So farewell then, Merv the Swerve, and hail to Merv the Enforcer. The man who declared menacingly that if a bank was too big to fail it was simply too big. The man who’s been telling David Cameron a few home truths about why Britain can’t fend off the euro crisis with a few easy remarks about how wise we British were to steer clear of the euro in the first place. And a man with iron in his soul and steel in his jaw. Not a man John Vickers would like to encounter down a dark alley. The Guvnor’s transformation over the last three months has been little short of magnificent. There was a time when making Mr King look uncomfortable was so easy it was almost like cheating. Fire a tricky question at him, and his earnest face would turn blotchy under the trademark desk-clerk specs as he sought to control what looked like a mix of anger and embarrassment. But his composure at the Conservative Party – and, lest we forget, under the searching scrutiny of the BBC’s own Stephanie Flanders – was a different performance. There was the confident way he sat during the interview. There was the sublimely relaxed way that he coped with the TV floodlights, thanks perhaps to a particularly thick application of orange greasepaint which hid the standing-out veins nicely. Indeed, he didn’t even flinch when Ms Flanders took him to task for having previously underestimated the size of the euro problem. “When the world changes, we change our response,” he purred. Ms Flanders, defeated, changed the subject. Somebody alert the X Files. Our Guvnor has been abducted by aliens and swapped with a doppelgänger from Alpha Centauri. The truth is out there. More Monkey Business from the Random Walk Last month, Allinson boldly investigated the theory that dumb animals might make better forecasters than most humans – not just monkeys with keyboards, but also creatures such as Bob Beckman’s dog, whose stock-picking skills earned him the 1970s equivalent of a million
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pounds. This month, Allinson takes the argument to its logical conclusion. One of the largest ever random walk experiments came to an end in 2002, when the Wall Street Journal wound up a 14-year attempt to determine whether a blindfolded monkey with a dartboard could beat a panel of stock-picking experts. In 142 six-month trials, a suitable monkey (or rather, its nearest equivalent, a financial journalist) would fire blindfolded darts at a printed sheet of stock names on a wall, while a team of professionals made their own more considered choices. Predictably, the monkeys underperformed the pros, but not by as much as you might suppose. The pros won 87 of the 142 contests, but rather remarkably the darts won 55. More embarrassingly, during the first 100 bouts the pros beat the DJ index by an unimpressive 51 wins to 49. But the fun really started during the last 30 trials (between 1999 and 2002), when a team of WSJ readers was finally invited to join the contest. The amateurs’ average six-monthly loss of 4% was embarrassing enough - but it was positively cringe-making in comparison with the monkeys, which lost only 1%. Ouch. So, the Challenge for 2012… Now fair’s fair, of course, that was a highly untypical period of stock market history. The dotcom boom of the late 1990s gave way to the car-crash of 2000-2002, and all bets were decisively off by the time the contest was dropped. But popular legend has it that the monkeys’ stocks continued to be better long-term holds than the pros’ selections, many of which turned out to be skyrockets that quickly fizzled and died. In these equally testing days, it is time to relight the touch paper. Allinson hereby issues a light-hearted FTSE-100 challenge to the industry. If you can do better than the publishing director’s two-year old daughters, who will each be armed with a great big crayon, the world will salute not just your ability but also your nerves of steel. Who’s offering? www.IFAmagazine.com
31/10/2011 17:35
Very good in its make up and content. Sets itsel aside from other publications in the marketplace Excellent. Thank you. Really refreshing. High qualit e production i nwith some good thought provoking article z and useful LOgOa information. Good useful content. Up-to dateainfoK useable, very good and easily read. Ver good m articles, relevant to my work. Very interesting extremely useful. Very impressive read and lots o useful articles SANTS nice to see it in “magazine” style forma rather than usual newspaper. A comprehensive read. Very good layout and informative. Good content, appealing to the female reader as many publicationscrisiare very male driven and focused s Thank you. AUquality magazine for if ifA A’s. A ’s. Good pape S A with good content which is plain talking. Good ayout and easy to read. Not seen anything like thi for IFA market. Really nteresting AZIL BRgood. content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutel fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the monthsBRto please. A very readable AF TE R ITA INcome TS O RI E publication. It looksTHlike an interesting and enjoyable read that I would be happy to have delivered to the office - not something I could say abou magazine manyThe financial publications! Great - look forward to subsequent editions. Brilliant! Very impressive IS all the top iFAs A LY S N A T felt like and interesting publication. Looked and MEN M O IEWC a proper magazine rather than cheape E Vother R S are talking about... NEW looking publications. Breath of fresh air and topica get your free subscriptionI’m going get it instead of the n biteTosimply size chunks. fill out the form online at: professional adviser papers and financial advise www.ifamagazine.com/ content/subscribe papers. Enjoyed the read. Keep up the good work MA
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magazine
N e w s r e v i e w c o m m e N t a n a ly s i s