D E C 2 0 11 ■ I S S U E 7
For today’s discerning financial and investment professional
A CHE E R F OR T HE REGUL ATORS
IT MUST BE THE SEASON OF GOODWILL
CHI NA
RISING COSTS CAUSE A STRATEGIC RETHINK
G ETTING
LOST
I N TRANS LATIO N BRITAIN’S EUROPEAN MESSAGE GOES UNHEARD
EXCH AN G E T RADE D F U N D S
THE GOOD, THE BAD AND THE BAFFLING
N E W S R E V I E W C O M M E N T A N A LY S I S Cover 07.indd 1
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Contents.indd 3
01/12/2011 17:06
C O N T R I B U TO R S
magazine... for today ’s discerning financial and investment professional
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.
12.11 Editor: Michael Wilson
editor@ifamagazine.com
Art Director: Tony Merlini
tony.merlini@ifamagazine.com
Publishing Director: Alex Sullivan
alex.sullivan@ifamagazine.com
Luxury Account Director: Nick Edgeley nick.edgeley@ifamagazine.com
27
ETFs can be more complex than some IFAs think. It’s a good job the clients are clued up.
46
Are Your Maths Okay?
Pension plans for employees don’t stack up? Check your assumptions, says Steve Bee.
Pick of the Funds
In search of ETFs. Nick Sudbury explores some of the wilder shores.
56
News
All the big stories that affect what we say, do and think.
Editor’s Soapbox
49
8
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.
59
Thinkers: Milton Friedman
65
The man who put the money supply theory into monetarism.
The IFA Calendar
Conferences, economic summits, race meetings... All the dates you daren’t miss.
66
And Finally...
Frederick Smythe-Allinson goes all Latin on us.
features
regulars
This month’s contributors
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
COVER STORY
Allo Europe?
David Cameron is getting a cool reception in Europe for Britain’s independent take on the euro crisis. Michael Wilson asks whether things can improve?
20
Europe’s Reluctant Leader
31
Angela Merkel is also stuck over the fate of the euro, says Monica Woodley. Too little too late would be putting it rather mildly.
Regulators, and Why We Need Them Matthew Williams of Prudential’s Portfolio Management Group says the regulator is doing a good job.
35
Global Income Funds
They’re solid, they’re predictable, and they’re doing great business, says Kam Patel.
40
China: The Next Stage Starts Here
The world’s fastest-growing exporter is rethinking its manufacturing structure, says Commerzbank’s Ashley Davies.
➹
Sprechen Sie Englisch?
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.
I SN S E W S R E V I E W C O M M E N T A N A LY S I S Contents.indd 5
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1141-01-IHT-0911 Ed's Welcome.inddSTEP 6 Journal ALL THREE 210x297mm.indd 1
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WORDS OF WILSON
THE GHOST OF CHRISTMAS FUTURE HERE WE ARE, ENTERING THE FINAL TWELVE MONTHS OF THE RDR COUNTDOWN WITH EVERYTHING STILL TO PLAY FOR. SO LET’S EAT, DRINK AND BE MERRY... ...because by Christmas 2012, we know, we’ll be leaving the office party with not just an incipient hangover but also a whole bunch of jangling concerns about the future. There’ll be a new set of financial regulators, great waves of new compliance, new platform requirements, a new Level 4 requirement and a whole new fee system. Indeed, some of the old guard won’t bother coming back into the office at all. Better, they’ll say, to sell out early than hang around looking increasingly out-of-date. It really doesn’t need to be like that. The next twelve months will see an explosion of interactive networking, contracted-out services, white-label pension facilities and other activities specially designed to ease the survival of the smaller practitioner. We’ll see our platforms offering integrated CRM services that are still barely a gleam in the programmers’ eyes, and ways of making money even from execution-only sales. On the minus side, of course, there’ll be tougher competition from the banks, some of which are desperate to get into cut-price wealth management for the middle income earners. But new forms of savings – not least, auto-enrolment pensions and workplace ISAs – will create entirely new sources of revenue for those IFAs who have the will and the determination to gear up for them now. What’s on my personal Christmas wish list? A positive lending environment that can restart the stalled engine of personal savings and get the jobs and property market moving. Signs that the government is really serious about that overhaul of the tax system that it promised 18 months ago. And strong political leadership, both at home and abroad. And perhaps - just perhaps the beginnings of a more practical and conciliatory approach from a continental Europe that isn’t finding things any easier than we are. Happy Christmas!
M ik e
Michael Wilson, Editor IFA magazine
www.IFAmagazine.com
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Write to Michael at editor@ifamagazine.com
December 2011
7 01/12/2011 17:11
shorts
magazine
US economic growth
disappointed in the third quarter, with GDP figures revised downwards from .5% to just 2%, the Commerce Department reported. Okay, that was better than the Eurozone, which managed only 1.4% growth – and it certainly beat the UK, with 0.5%. But it had prompted companies to cut inventories for the first time in almost two years.
¡Hola!
Europe’s third new government in three weeks made an ignominious entrance in November after a sweeping electoral win by Spain’s conservative Popular Party, led by Mariano Rajoy.
The Popular Party secured 186 seats in the 350-seat lower house of parliament, giving it a comfortable working majority over the Socialists, who ended up with only 110 seats. The financial markets were clearly less than impressed by Mr Rajoy’s victory. Madrid stocks greeted his arrival with a 2.8% fall as ten-year government bond yields soared to nearly 7% - a reflection of the worsening loan terms that Spain commands. This was only slightly less than the yields being demanded of Italy, where prime minister Silvio Berlusconi had resigned only a week earlier The election campaign itself had been a largely policy-free zone as far as Mr Rajoy’s party had been concerned. A studious avoidance of hard commitments to austerity had alarmed commentators who were looking for long-term answers to the country’s woes. Economic growth is running at less than 0.5% and appeared to have been zero during the third quarter of 2011.
The current account deficit in the year to August was $61 billion, about 50% worse than Britain’s own $40 billion, and although the budget deficit is “only” 6.5% of GDP (barely worse than France and somewhat better than Britain’s 8.8% of GDP), it was regarded as dangerously high because there were so few jobs being created. And also because tax revenues limited by a black market that is reputed to account for 25% of GDP Spain currently has more than 5 million unemployed, representing 23% of the workforce, and fully 46% of the under-25s (excluding students) are jobless. This may not be unconnected with a report, newly issued, that said it ranked 134th in the world for the ease with which a new business could be started. Earlier this year the World Bank declared it to be the 49th easiest place in the world to run a business, behind Kyrgyzstan, Armenia and Colombia. Ouch. For more comment and related articles visit...
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been promised a better deal by the creation of a mortgage indemnity scheme which will put £400 million of backing into place for buyers of new properties. Under the scheme, house builders will deposit 3.5% of every sale into the indemnity fund, while the government will provide another 5.5% worth of cover.
UK public sector
net borrowing declined to £6.5 billion in October, down from £7.7 billion in October 2010, and bringing the total borrowing in the year since April to £68.3bn - apparently on course to meet the government’s target of £122bn for the full financial year. But analysts still fretted that slowing growth might spoil the party soon.
NEWS
First-time buyers have
Creative A ccountancy Every Little Helps Britain’s rail and road infrastructure is to receive a massive £30 billion boost that will help to prepare the country’s economy for fast regeneration, according to Chancellor George Osborne in the Autumn Budget Statement that he delivered to the House of Commons on 29 November. The M25 is to be widened to four lanes in its north-eastern sector; rail improvements between Manchester and Leeds will shorten long-distance journey times; the Tyne and Wear Metro is to be extended, as is the Northern Line in south London; and various carriageway improvements on the M3 and around Manchester airport will speed up journey times. Additional money will go into expanding the country’s broadband infrastructure. But relax, only £5 billion of the money will actually be coming from the cashstrapped government itself. Another £20 billion is to be pledged by UK pension funds, and the China Investment Corporation is to put up another substantial sum. The government also announced a two-year plan for a national loan guarantee scheme that will underwrite some £20 billion of loans to companies with turnovers of less than £50 million a year. This, Mr Osborne hopes, will make it possible for lenders to cut their loan charges by up to 20%. And another £20 billion worth of cover will be kept in reserve. As far as anybody can tell, the Treasury’s £40 billion worth of cover will come from the sums that the Bank of England didn’t
use from its 2009 buyback programme. Doubtless more details will have emerged by the time you read this article. But what all the Chancellor’s projects have in common is that most of the infrastructure money will come from the private sector. And that £40 billion of business cover won’t actually cost £40 billion, because that’s the exposure, not the outlay. Isn’t accountancy wonderful? Other autumn statement highlights included a 1% cap on public service pay rises, the scrapping of a planned 3p fuel duty in January, and the advancing of the age 67 retirement date from 2034 to 2026. Basic pensions and working age credits are to rise by 5.2% in 2012. £1.2 billion of new money is to be spent on education. But the bad news was that this years’s GDP growth forecast has been slashed from 1.7% to 0.9%, and next year’s from 2.5% to 0.7%. The 2011/12 borrowing forecast is now £127 billion, falling in 2012/13 to £120 billion and £53 billion in 2015/16. Thus missing the government’s reduction target significantly. For more comment and related articles visit...
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NEWS
Middle East financial markets were hit by new protests on the Egyptian streets – this time, against the interim military rulers who had stepped in back in February to replace the toppled regime of Hosni Mubarak. The Egyptian stock market dropped by 15% - some 48% down on the year to date - while Dubai hit its lowest levels in seven years.
Vince Cable,
the business secretary, had another bruising experience as it was announced that the scheme he had launched in March to promote exporting by small and medium sized enterprises had attracted just four sign-ups from UK businesses in eight months.
Shock Horror: Pension Funds are Short-Termist “Levels of transparency are shockingly poor.” Warns SCM’s chief investment officer Alan Miller
Most pension fund customers accept that their managers need to trade assets at regular intervals, but many would be surprised at the frequency with which it happens. A study of 1,287 ten year old UK individual pension funds by wealth manager SCM Private has found that excessive churning by pension fund managers is costing British consumers as much as £3.1 billion a year over the odds. The average pension fund holds assets for a mere nine months on average, SCM says - which means that its hidden trading costs (including bid/asset differentials) account for 0.7% of the average fund’s assets every year – the equivalent of £3.1bn across the industry.
SCM estimates that this figure, in addition to the average administration fee of 0.3% and the average annual management charge (AMC) of 1.34%, amounts to a real cost of 2.34% a year. Which would be enough to demolish more than half the long-term growth from a typical unit trust, which comes in at 4.2% a year. The average portfolio turnover is 128% every year, the organisation reports. “The hidden pension fund dealing costs could be removed simply through investing via index funds,” said chief investment officer Alan Miller. “If we had an efficient, open and transparent savings industry in the UK maybe people could retire without having to face their later years in comparable poverty. “Levels of transparency within the savings industry are shockingly poor both in terms of transparency of fees and transparency of investments,” said Mr Miller. And he demanded action from the Financial Services Authority to force a fuller disclosure from fund managers on the full costs of trading within pension funds.
For more comment and related articles visit...
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N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 10
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IS INVM11542_LM031111_10_11.indd 1 News.indd 11
27/10/2011 01/12/2011 16:31 17:20
NEWS
Greece’s new government,
led by Lucas Papademos, won its first vote of confidence in the Athens parliament. The new government had been hastily assembled to replace the disgraced administration of Andreas Papandreou, which quit over its mismanagement of the economy. Elections are due in February.
The Occupy St Paul’s campaign seemed to be flagging by late November, as its Occupy Wall Street equivalent was broken up by New York police. The London campaign, which has generally avoided specifically anti-capitalist rhetoric, is one of dozens of similar protests around the world.
£1.4 Billion a Year in New Compliance Costs Excessive red tape will cost the City up to £1.4 billion a year in additional compliance costs, from now on, according to brokers Hargreaves Lansdown. The Bristol-based organisation reported in November that a study of FSA consultation papers during the year to October 2011 had shown that the regulations introduced or proposed solely during those twelve months would create compliance costs of £1.1 billion to £1.4 billion a year, on top of once-only costs of up to £323 million. Hargreaves Lansdown said that the FSA has launched 18 separate consultations on changes to the law during the period in question, relating to issues including capital requirements, data collection, the handling of consumer complaints and financial crime. HL’s disenchantment with the FSA may have been intensified, however, by a sharp fall in its share price during early August, following worries that changes to the commission structure (as per the FSA’s Platforms Policy statement) would impact badly on its revenues. Coincidentally, the 21 November announcement about the extra compliance
costs came on the same day as another announcement that Hargreaves Lansdown was to charge investors a platform fee of £1-£2 per month for certain low-cost tracker funds, including the HSBC FTSE All Share Index fund. Hargreaves insists that the fee will only apply to those funds where it gets no significant share of the managers’ own management charges; more than 97% of the funds on its platform will remain uncharged, it insists. The new fees will begin from 31 December.
“The FSA has launched 18 separate consultations on changes to the law during the year to October 2011.” For more comment and related articles visit...
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Northern Rock, the failed bank that first sparked the panic about UK bank solvency, was sold to Virgin Money for a reported £747 million – about £400 million less than its bail-out cost to the taxpayer.
NEWS
Warren Buffett,
who is famously averse to technology stocks, surprised the world by announcing that he had been quietly building a 5.5% stake in International Business Machines since the start of the year. Buffett says that IBM, which is often regarded as uncompetitive in key markets, had impressed him with its long term strategy and its “reverence” for its share price.
No Deal The bipartisan congressional ‘Super-Committee’ that had been charged with reducing the US federal deficit by $1.2 trillion (£760 billion) ended its sittings in late November without managing to reach an agreement. The news is a crushing blow to President Barack Obama, whose success in obtaining a raising of the federal debt threshold in August had been dependent on a successful outcome. The panel of six Republicans and six Democrats confirmed on 21 November that its work had ended without a deal. And that in turn will mean that the ten-year programme of automatic cuts outlined in the August bill will come into play with effect from 2013. The cuts will affect both the domestic budget and the defence programme, though they are not expected to impact on social security or Medicaid. President Obama blamed the failure of the negotiations squarely on the Republicans, accusing them of refusing to contemplate tax increases. Although actually that’s not a fair account of things. Some Republican members of the committee had supported a $1.2 trillion reduction deal supplemented by around $300 billion of new tax changes, on condition that the top rate of personal tax came down from 35% to 28%. (A sore point with the Democrats, which objected to what they regarded as favouring the rich.) More predictably, a late Republican proposal to reduce the cuts by just $650 billion instead of $1.2 trillion had also run into the sand. What happens next? Our money would be on a last-ditch deal. But we’ll have to wait and see. Meanwhile the debt has exceeded $15 trillion for the first time. For more comment and related articles visit...
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I SN N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 13
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NEWS
UBS,
the Swiss bank that also took a pounding in 2008 during the banking crisis, announced that under its new corporate strategy its investment banking arm would be reined in, in favour of a renewed focus on its core wealth management activity
Japan’s economy showed a
surprise 6% third-quarter bounceback as the country’s reconstruction efforts kicked in during the aftermath of the March tsunami. The Tokyo government said that the annualized figure reflected an impressive 1.5% GDP growth during the single quarter. And that consumer spending had grown by 1% during the quarter.
Only One in Five... ...people feel confident that they are saving enough to meet their future needs, according to new research conducted on behalf of the Institute of Financial Planning. And fully 47% say that they’ve not saved enough to live comfortably when they retire. The proportion rises to 55% among women. The new research, prepared by YouGov, found that 14% of respondents had never made any pension contributions of any sort, and that another 31% were not currently contributing to a pension plan, although they’d done so in the past. To some extent, the results are unsurprising under present market conditions. But it was revealing that 66% of women and 54% of men said that they worry about money “either always or most of the time”. 39% of the respondents said that they currently have outstanding credit card balances (compared with 40% in 2010), and 24% are running an authorised overdraft, compared with 23% in 2010. 22% of respondents say that they are paying off personal loans. So was anybody feeling really happy? Only 23% of men and just 14% of women said that they were “satisfied” with their current financial position – a slight drop
compared to those who’d said yes in 2010. When asked how they could improve their lot, 33% said that debt reduction was the key and 30% thought that saving more would be the answer. In 2009, by comparison, 41% had mentioned saving more, and 40% had opted for debt reduction. A slightly alarming 29% of respondents say that they are still pinning their hopes on a lottery win, compared to 33% in 2010. And finally, 77% of the survey respondents believed that they would be happier if they had more money. No surprise there, then..
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N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 14
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IS News.indd 15
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magazine... for today ’s discerning financial and investment professional
NOT A VERY SPEC I AS A TENSE YEAR DRAWS TO A CLOSE, MICHAEL WILSON TAKES AN ENTIRELY PERSONAL LOOK AT WHERE BRITAIN’S RELATIONSHIP WITH THE EURO ZONE IS ACTUALLY HEADING Much has been said in the media this year about David Cameron’s increasingly difficult relationship with his European partners. And that’s not so surprising when you think about it. Cameron’s November meeting with Germany’s Chancellor Angela Merkel at which he told Mrs Merkel that the European Central Bank should be prepared to act as a lender of last resort to all euro zone countries - was reported in Britain as positive evidence of how Britain’s nonmembership of the euro group gave it a fresh perspective. But in Germany the Cameron lecture was seen as a blatant piece of interference by a non-participant. That was pretty much Frau Merkel’s personal viewpoint too, although she was diplomatic enough not to let it show. This is all a particular pity, because Britain genuinely does have a unique vantage point in this matter. As it happens, British financial institutions are much less heavily exposed to the Greek
debt situation than France, where the French/Belgian Dexia Bank fell over in October after losing its ability to raise capital because of its Greek exposure. What’s awkward is that, a non-euro club member, Britain is inclined to underestimate Germany’s worries about how a major issue of bond debt by the European Central Bank might put the skids under the currency and leave the successful northern countries supporting the feckless southern contingent.
and Washington, and one which they would both like to restrict if they possibly can. These are dangerous waters in which to make enemies by appearing insensitive, as Mr Cameron managed to make himself look during his meeting with Frau Merkel.
An Ever Closer Union? But the single most important point about the Prime Minister’s Berlin encounter, surely, was that it left the euro club’s members feeling vaguely but perhaps justifiably annoyed with a London whose own sophisticated financial trading environment just happens to dwarf its European rivals - especially with regard to derivatives trading. A sore point with both Brussels
“Many Tories still regard the European Union as the work of the devil.” But cabinet members such as Foreign Secretary William Hague have been moderating their positions noticeably in recent months.
16
December 2011
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01/12/2011 17:24
EURO ZONE
IAL RELATIONSHIP That is a travesty of the situation, of course. Since his appointment as Conservative Party leader exactly five years ago, the British Prime Minister Cameron has probably moved further toward a properly Europhile stance than any of his contemporaries. Mr Cameron is still grappling with a sizeable Eurosceptic rump within his own party: there’s not much question that the bulk of the party’s grassroots membership still regard the European Union as the work of the devil. But on the positive side, cabinet members such as Foreign Secretary William Hague, a former Eurosceptic, are toeing the euro-friendly Cameron line with more public enthusiasm. A noticeable exception so far seems to have been Chancellor George Osborne, who hasn’t been allowed very much airtime on European topics
since July, when he unwisely declared that Britain wouldn’t be contributing to a Greek bail-out because it was entirely a eurozone problem, so yah boo sucks. (I paraphrase his sentiment lightly.) Let us say right
away that diplomacy is not Mr Osborne’s strongest suit. But there’s no doubting that George the blunt instrument has been singularly successful in enforcing an austerity programme that is the envy of continental Europe. And that’s got to be worth listening to?
Certainly, the parlous state of the southern European bond market has brought a welcome flood of foreign money into gilts recently – driving up the value of the pound and forcing benchmark gilt yields down sharply. That’s good, of course, although it has also had the unfortunate side-effect of kaiboshing UK pension annuity payouts, which are based on gilt yields and which are reckoned to have fallen by 40% since August. But, that aside, has George got anything useful or relevant to say about the euro and its problems? We don’t know. At present, the Prime Minister’s instinct seems to be to keep him away from the foreign policy microphone.
“Has Osborne got anything to say about the euro problems?” We don’t know. So far, the Prime Minister seems to be keen to keep him away from the microphone.
www.IFAmagazine.com
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EURO ZONE
magazine... for today ’s discerning financial and investment professional
The View from Europe Mr Cameron’s frosty exchange in Berlin has put the relationships between Britain and Germany to a particular test. Of all Europe’s major economic leaders, Angela Merkel is probably closer than most to the British government’s idea of what a centrist right winger should be. The daughter of an East German Lutheran pastor, she knows what it is to be an outsider, and how to stand up for her principles. But right now, she’s having trouble with her own voters. The German public has accepted the need for financial support to Greece with reasonably good grace, but it’s currently drawing the line at shoring up other, larger miscreants like Italy or Spain. Merkel’s back is against the wall.
The same can be said of her French counterpart, the equally endangered centreright winger Nicolas Sarkozy. The days are long gone when Super Sarko energised the French scene with his schemes to take on the country’s trade unionists in a bid to tighten working conditions and reduce the crushing future burden of state pension subsidies. These days he’s slipped back into less controversial territory. The impending social security crisis can wait for a while, and never mind the mounting domestic debt. At heart, though, Mr Sarkozy is still closer to the committed European standpoint than Frau Merkel – hardly a surprise, since France is ultimately a beneficiary of
the EU’s budgetary largesse whereas Germany is a net donor. Unlike Germany, he is also looking down the barrels of the credit rating agencies, which have been threatening to downgrade French bonds for some time because of the parlous state of his country’s banks. Sarkozy has a lot to lose if the euro crisis continues
Mifid II, the Tobin Tax and Beyond… And so to the sizeable herd of elephants in the room. The awkward issue of Britain’s socalled interference in the euro zone’s affairs has so far been kept reasonably separate from the other issue that’s annoying our European partners – the thriving growth of London’s financial markets, and our unusually heavy dependence as a nation on service industries. Call me a pessimist, but I have a hunch that this separation will be a good deal less pronounced by the time we get to next December. The long-awaited Mifid II report, which finally arrived in late October, is one part of a long-term structural review of Europe’s financial market system that makes no secret of its intention to create a uniform playing field across the EU area. To quote the first draft of the document, published last December: …The EU has committed to minimise, where appropriate, discretions available to Member States across EU financial services directives. This… will contribute to establishing
a single rulebook for EU financial markets, help level the playing field between Member States, improve supervision and enforcement, reduce costs for market participants, and improve conditions of access and competition across the EU. Eventually, as it happened, the final version of Mifid II wisely ducked out of the most contentious of its original proposals, which had included restrictions on consumer access to sophisticated derivative products and a wholesale ban on execution-only trades for all but the most experienced investors. And the report also made it plain that it respected the right of sovereign states to impose their own regulatory standards on their national markets, as long as they weren’t weaker than the bare minima. But what’s this? Suddenly, the European air is full of talk about a universal trading tax (the so-called ‘Tobin tax’), which would help to stamp out ‘parallel banking’ while also generating some useful extra funds by levying a 0.1% charge on every stock transaction that takes place in any major trading centre, or 0.01% on every derivative transaction. So guess what – the loudest support comes from an envious France and Germany, which have the least to lose from half a billion new tax levies, and the loudest complaints are being heard from London, where around 80% of the tax would be levied. Mr Osborne objects, not unreasonably, that such a tax would handicap London’s
“France is ultimately a beneficiary of the European Union’s budgetary largesse whereas Germany is a net donor.” Mr Sarkozy is still closer to the committed European standpoint than Frau Merkel - hardly a surprise really.
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01/12/2011 17:24
predominance in the billions of high-speed trades that take place every day. (The NYSE EuroNext Liffe office in London processes $2 trillion of derivatives business every day.) Ex-premier John Major, usually a europhile, declared in late November that the FrancoGerman plan would ‘hit London like a heat-seeking missile’. Are their concerns justified? Technically, no, because Britain could use its Brussels veto to stop the tax applying to all 27 members of the EU. But the Lisbon treaty would allow France and Germany to use so-called “enhanced cooperation” powers, which would effectively mean that the tax was applied to any bank that was registered in a country where the tax applied. That would mean, for instance, that any German-registered banks in the City of London would have to levy the tax. Which wouldn’t be good for London at all.
German Finance Minister Wolfgang Schäuble ominously declared that all EU members would eventually have to join the single currency.
“More quickly than some people in the British Isles believe.” Maybe it’s just me, but I can’t help feeling that our European partners are telling us they’re intent on overriding Little Britain and other objectors. Or ‘caucusing’, as Mr Cameron is said to call it. That’s how the unpopular kid in the playground gets treated, even if he happens to be the clever one. Do we have proof? Well, Mr Cameron’s speech in Berlin was greeted by headlines declaring that if Britain wasn’t prepared to join with the combined European economic effort, including euro membership, then it should simply forfeit its right to be
considered a key player in other areas of EU policy. And Finance Minister Wolfgang Schäuble declared that all EU members would eventually have to join the single currency. “More quickly than some people in the British Isles believe,” he added, darkly. Put it all together, and you have what the Americans call a situation. So where do we go from here? Your call, Mr Cameron. For more comment and related articles visit...
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magazine... for today ’s discerning financial and investment professional
EUROPE’S RELUCTANT SAVIOUR ANGELA MERKEL IS THE ONLY PERSON WHO CAN STILL RESCUE THE EURO. BUT DOES THE GERMAN CHANCELLOR REALLY UNDERSTAND THE ISSUES? MONICA WOODLEY WORRIES In an ongoing drama with no shortage of characters, two pairs of powerful individuals have emerged as the potential saviours of the euro. First, of course, there’s been the twinning of Mario Draghi, the newly-appointed president of the European Central Bank (ECB), with Mario Monti, the former EU Commissioner and the new Italian prime minister who has been tasked
with sorting out the diabolical finances left by the departing Silvio Berlusconi. But, while the two Marios might have a lot on their plates, it is the other pair – Angela Merkel and Nicolas Sarkozy – who must ultimately make the hard decisions that will determine the future of the Eurozone. The Angela and Nico show has been in the makings for a while. As the heavyweight seaanchors of the Eurozone, the French and Germans have long been seen as leaders in the European Union. So, when crisis struck, these two countries with their large, stable economies were also the place most people looked to for solution. And so the unlikely pairing of Angela and Nico was cemented.
“Nicolas wooed Angela with his vision for a unified Europe led by France and Germany, but she mainly shied away from his advances.” 20
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The Family Doesn’t Approve And yet, in order to stay together, the two leaders have had to convince the people back home of the necessity of their alliance. Merkel, in particular, has faced opposition at home. The Eurozone debt crisis represents her coalition’s
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01/12/2011 17:33
GERMANY
toughest challenge, and she looks to be reaching the limits of what she can obtain from it. That would be bad enough, but unfortunately the current resolution mechanisms look unlikely to solve the crisis, and it seems that further domestic legislation will be needed. While Mrs Merkel won support for policies that include a further cut for Greek public debt held by banks, EU bank recapitalisations and an attempted leveraging of the firepower of the EFSF, the euro area rescue fund, as well as an increase in the EFSF’s size, German’s voters and politicians are hesitant to give Merkel the full authority she needs to take decisive action. Indeed, the German leader barely managed to scrape together the necessary majorities from her own ruling coalition. German voters fear that if extraordinary measures should become necessary to save the euro, monetary stability and central bank independence could be compromised. (They’re also worried about how Europe’s new bond issuances might spark severe inflation – a concern that won’t be properly understood by any country that doesn’t have the terrifying hyperinflation of the 1920s and 1930s embedded in its cultural memory.) Either way, there’s
a real risk that the short-term fix for the euro might result in the long-term loss of German public support for the EU – and for the government that supported the fix. But why is the fate of the euro resting on the political mood in one member country? Why is Germany in this position of power? The short answer is that its economy has been a rock through the financial crisis, the recession, the incipient recovery and now the sovereign debt crisis.
“The German economy has been a rock through the financial crisis, the recession, the incipient recovery and now the sovereign debt crisis.” www.IFAmagazine.com
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magazine... for today ’s discerning financial and investment professional
A Remarkable Economic Recovery When the financial crisis hit in 2008, Germany was in a position of strength because it had already dealt with many of the tough economic issues that had been dogging it since its reunification in 1990. The previous Social Democrat government, led by Gerhard Schröder, had courageously cut social benefits and persuaded the trade unions to reduce their demands, so that efficiency had been improved and a resurgence of export activity had begun. Between 1994 and 2009, Germany’s
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unit labour costs fell about 20% compared to the rest of the EU. But the immediate effect was not nice – unemployment rose to a peak of 12.1% in 2005 – and in that year Schröder’s government was forced into an awkward coalition with Merkel’s Christian Democrats and their Christian Social Union allies. Further elections in 2009 gave the boot to Mr Schröder, whereupon Merkel launched a centre-right coalition with the liberal Free Democrats. The rest, so far, is history. Unemployment is at a 20-year low, and workers are starting to see the rewards for their past sacrifices. Wages are expected to rise by 5% this year and by about 3% next year. Disposable income, adjusted for inflation, is expected to increase by 1% in 2012. Germany, for so long an export-led economy, is now seeing domestic consumption contributing to growth as well. But it wasn’t just austerity that has helped the German economy to grow. Since the introduction of the euro in 1999, Germany
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has gained competitiveness not only against other major industrial nations, but against all other members of the euro zone. Indeed, it was the relatively poor performance of all those other Eurozone members that held down the appreciation of the euro against international currencies - thus increasing Germany’s industrial competitiveness against the rest of the world. This currency advantage has increased still further since the start of the debt crisis. Between mid-2009 and mid-2011, German exports jumped by 18% - but economic studies have shown that would only have been 10% without that currency advantage. But it all looked rather
different from the perspective of many other Eurozone countries, which lost competitiveness because their own unit labour costs had risen more rapidly, but which had been unable to devalue their currencies because of their euro club membership. For Greece, Ireland and Portugal especially, the single currency morphed from a blessing to a curse in barely half a decade. There were more reasons why Germany moved forward while others were falling back. German companies were able to take advantage of government subsidies that helped them to keep skilled workers working at reduced hours during difficult times – a policy which allowed them to respond quickly when demand eventually returned in 2010. More recently, they have also benefited from increased access to financing, as domestic investors have pulled their money out of ailing economies such as Greece and Italy, and looked for safer areas to park their cash.
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magazine... for today ’s discerning financial and investment professional
Can It Continue? But the good times may be coming to an end. German consumption might be picking up, but the economy is still dependent on strong exports, and those are expected to decelerate from the high growth rates of 2010 and 2011. Many forward-looking indicators have worsened recently - such as the influential business confidence index from the Ifo Institute, which covers 7,000 companies in manufacturing, construction, retail and wholesale trade. The confidence index reached a record high of 115.4 points in February, but since June it has dropped sharply, falling to 106.4 points in October. The decline points to a sharp deceleration in economic growth. Indeed,
the Economist Intelligence Unit predicts that the German economy will return to recession in late 2011 or early 2012, with a contraction of 0.2% in 2012, before growth returns in 2013 at 1.1% and an average of 1.6% in 2014-16. The hope is that Germany’s downturn will be short and shallow - but that depends largely on the outcome of the euro crisis. Germans seem hesitant to contain the crisis, feeling that if they step in to bail out countries such as Greece and Italy, they are condoning the reckless behaviour that got those countries in trouble. They seem not to realise how they have benefited from the effects of that behaviour – and how intertwined their own prosperity is with the rest of the Eurozone. The question is, how much of this does Merkel understand?
Angela Takes the Lead It has often seemed as if it is Sarkozy who has been pushing a reluctant Merkel towards stepping up the EU’s powers and the Eurozone’s monetary union. Nico wooed Angela with his vision for a unified Europe led by France and Germany, but she mainly shied away from his advances. Now, with France looking next in line as a target of a paranoid bond market, Nico is losing his position of strength and it is Angela who must take the lead.
“The good times may be coming to an end.” It’s being predicted that the German economy will return to recession in late 2012 or early 2013.
Worrying times ahead for traders at the Frankfurt Stock Exchange
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05/12/2011 15:05
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ED ’S SOAPBOX
ETFS?
NO MYSTERY SURPRISE, SURPRISE, SAYS MICHAEL WILSON, SOME CLIENTS KNOW MORE ABOUT THEM THAN SOME OF US If there’s anybody out there who still thinks that exchange traded funds and exchange traded commodities, are just a temporary fad that will evaporate as soon as this blurry market gets back to its stock-picking fundamentals, the latest ETF survey from Morningstar (http://tinyurl.com/cktm5v9) has a few surprises in store. UK private investors aren’t just learning fast about the advantages (and also the pitfalls) of ETFs. They are also making intelligent choices that reflect an increasingly sharp awareness of the differences between various kinds of products. And I suspect there are going to be a few IFAs who’ll have their work cut out to keep up with the clients.
The Raw Numbers Morningstar’s November survey of 593 UK investors was remarkable, not least, for the fact that 501 (84%) of the respondents were individual investors and only 92 were professionals – mainly advisers. 44% said that their total portfolio,
“I suspect there are going to be a few IFAs who will have their work cut out to keep up with the clients.” www.IFAmagazine.com
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including all types of investments, was worth less than £100,000, though another 34% had at least £250,000. Perhaps tellingly, only 9% said that they were currently investing through an adviser – with 88% saying that they managed their own portfolios. (The remaining 3% said they weren’t currently investing at all.) 53% of the respondents said that they had personal experience of trading in ETFs, and 49% had ETFs in their portfolios at the time of asking. (By comparison, 81% said that they also held ordinary stocks, 22% were holding bonds, and 63% were holding open-ended funds.) The majority weren’t frequent traders – 42% said that they expected to trade an ETF “between every few months and a year”, 16% said they made one trade per month, and 19% said they made a purchase and held it for years. 39% said they’d first found out about ETFs from a conventional newspaper or magazine, 25% from online media, and 10% directly from Morningstar’s own web site. Only 5% had been directed to the sector by an adviser! The respondents were also quick learners. 72% felt that it was “very” or “somewhat” important to know the domicile of a UCITScompliant ETF, and only 11% said they didn’t know it was an issue at all. (We’ll talk more about foreigndomiciled funds shortly.)
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ED ’S SOAPBOX
magazine... for today ’s discerning financial and investment professional
Physical Versus Structured But perhaps the most telling statistic to emerge from the survey is that fully 90% of Morningstar’s respondents said they preferred physical ETFs to synthetic structures – compared with only 74% in 2010! - and only 2% said that they definitely preferred synthetics. 50% said it was “very important” to understand the difference between structured and synthetic, and 33% deemed it “somewhat important”. Judging by my own conversations with some smaller IFAs, who I won’t name, the fact that there’s an important distinction at all may come as a bit of a shock. Having never stood to make any commission from selling ETFs in the past, the levels of IFA awareness in some benighted quarters are still eyebrow-raising. If the Level 4 requirement achieves nothing else (and it will), I reckon the obligatory revision exercise in all things ETF will prove more than slightly beneficial. But anyway, back to the present enlightened company….We’re all aware, of course, that a physical fund will hold actual shares (or the equivalent thereof), and that it will juggle them so as to emulate the underlying index as closely as possible – whereas a structured fund aims to achieve a similar goal by placing a proportion of its funds in an elaborate confection of swaps or other derivatives while retaining the bulk of the cash in bank CDs or some other fail-safe interest-earning vehicle. Both systems provide the private investor with a convenient way of trading an index – and this at a time when indices and macro developments are routinely trumping fundamental analysis. The investor probably knows that they’re open-ended, they’re passively managed, they’re liquid, and they’re efficient because they don’t attract stamp duty. Add to that the fact that they shadow net asset values pretty closely, and they’re constantly repriced, whereas a unit trust price is only recalculated once a day, and you’ve got a pretty convincing argument.
“Many of the most interesting ETFs are traded only outside the UK.” 28
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Key Players Key providers, as far as the UK is concerned, include Blackrock, which runs the iShares family of ETFs that still carry the old Barclays tag in some quarters, (got that?), and which came top of Morningstar’s 2011 list of ‘favourable impressions’ among the UK public. Closely followed by Lyxor, the ETF arm of France’s Société Générale, which offers a huge range of international index and commodity funds; by UBS and ETF Securities (heavily dollar-denominated, on the whole); and by Deutsche Bank’s DB X-Trackers.
Exotic Creatures So far, so good. But what makes ETFs interesting to somebody like me is not just that they’re traded on dozens of exchanges, both in London and abroad – but that many of the most interesting ones are traded only outside the UK. And that’s where the real learning curve begins. In this month’s Fund Selection, Nick Sudbury takes us into exotic territory where some of us probably won’t have been before. I’m talking about VIX volatility index trackers which can be used either to ramp up your leverage or else to cast soothing oil onto boiling, turbulent waters. There are ETFs which will aim to get you an 8% yield from junk bonds. There are funds that will let you speculate on tradeable carbon permits. There are leveraged ETFs and short ETFs and leveraged short ETFs as well. And there are so many variants on commodity derivatives, with so many possible outcomes under so many conditions, that you’re going to need some triple strength coffee and a good magnifying glass to get through the fine print. In principle, going outside the UK these days is simple. Er, usually. In Switzerland you might find that your ETF is priced in either Swiss francs or euros depending on how you bought it. In America, you’ll probably find that the equity “content” of a leveraged index-tracking ETF is a bigger proportion of the fund than would probably be the case in Europe. (Even before Dodd-Frank, the US had tougher rules than us on how much meat should be in the sausage. And that’s a consideration, by the way, which still rankles among US managers who resent Europe’s regulatory advantage in all things structured. ) The US is also more open to innovative structures, and these can sometimes catch you unawares unless you’re reading the small print carefully. Many of the Invesco Powershares “Intelligent ETFs”, for example, aren’t weighted according to the market capitalisation
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ED ’S SOAPBOX
“Where there’s a derivative contract, there’s always somebody backing it. ”
of their constituent companies, the way you’d probably expect in Britain. Instead, the weightings may be deliberately skewed so as to prefer bigger companies – or smaller ones. The Powershares Dynamic Biotechnology & Genome Portfolio, for instance, is based on the Dynamic Biotechnology & Genome Intellidex Index. Which sounds straightforward until you learn that the Intellidex Biotech (DZO) index is a privately-run affair that focuses on minnows with fast-growth potential. If you were expecting to find market leaders like Pfizer or Monsanto there, forget it. And even if you did, they’d be downsized so as to stop them swamping the others. This is a heavily-engineered index. And none the worse for that, as long as you understand exactly what you’re buying.
Commodity ETFs It’ll be clear enough to anybody that for many purposes you can’t hold a physical commodities ETF. A fund manager would need an awfully big cellar to hold a shipful of crude oil, and the sight of all those pork bellies in the fridge would soon see him into the divorce courts. So, unless you’re trading in precious metals, it’ll be some sort of a structured product that your client is buying. We could go into the finer points of commodity ETFs, but we’d soon run out of space and we need to make this article fit the magazine somehow. The differentials between a Brent crude fund or a West Texas Intermediate pale into insignificance beside the sheer horrors of contango or the political influence of the changing US strategic reserves at Cushing. There’s the hideous volatility of commodity derivatives – not to mention the uncomfortable fact that there’s probably more ‘paper gold’ in the world than the quantity of actual bullion that would be required to honour it all if everybody tried to cash in at once. You soon start to see why Morningstar’s respondents are wary of structured ETFs. And for once, they’re showing us that they’re ahead of some of us.
Back to counterparty risk One of the harshest lessons to have emerged from this year’s Greek crisis was that you can’t have a structured product without at least the possibility of counterparty risk. When the French/ Belgian Dexia Bank folded under the weight of its capitalisation obligations, because of the dead weight of its Greek bond exposure, it brought back a horrible memory for me. Where there’s a derivative contract, there’s always somebody backing it. And where that somebody is in
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trouble, you have a counterparty issue that might otherwise never have appeared on the radar at all. My harsh lesson about counterparty risk came when I was running a dummy portfolio for an upmarket newsletter. The ETF in question had looked safe enough – it was simply a tracker from the eminent ETFS fund house that shadowed the progress of the DJ-MSCI grain index in Chicago. And what could be more mainstream than that, I asked? Dow Jones and Morgan Stanley (as in MSCI) were respectable giants of the investment world. Little did I know that this particular ETF had a secret. Unbeknown to me, several of the MSCI indices were effectively being guaranteed by AIG, the world’s largest reinsurer. And if that name rings a bell, it’s because AIG became temporarily insolvent during the panic of 2008 and was eventually rescued by the US Federal Reserve only because it was literally too big to fail. (If AIG had folded, the argument went, half the western world and quite a large of the east would have found itself without valid insurance.) Anyway, the crisis at AIG had an immediate effect on my portfolio. Many of the ETFS MSCI ETFs became literally untradeable overnight, and they remained frozen for about a fortnight while Ben Bernanke decided whether AIG should live or die. Eek! It was time for a very large whisky when the Fed funding came through and the ETFs finally became liquid again. But even with the benefit of hindsight, I think I’d have been hard pressed to make the AIG connection since its name didn’t appear prominently on the ETFS documents. Would you? Not without a very powerful magnifying glass, you wouldn’t. Maybe those clients are wise to be wary after all? 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!
December 2011
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INSIDE TRACK
A NECESSARY EVIL MATTHEW WILLIAMS, INVESTMENT DIRECTOR AT PRUDENTIAL’S PORTFOLIO MANAGEMENT GROUP, SAYS THE REGULATOR IS ONLY DOING HIS JOB. AND A GOOD THING TOO As fund managers, we have an instinctive desire to be given an absolute free reign to do exactly what we want, and exactly what we think is right, in the pursuit of performance. As such, from time to time we inevitably butt up against the regulations – stopping briefly to furrow our brows and curse the hostile regulator before we knuckle down and get on with the job in hand. And yet, deep down, we know that the interests of the regulator and our own interests ought to be aligned. The point being that, whilst operating in a regulated environment can at times be frustrating, it’s really not true that the interests of the regulator are diametrically opposed to ours - or those of the investors with whose money we’ve been entrusted. Quite rightly, the regulator is trying (amongst other things) to protect investor interests.
impact on the investment decision-making or implementation, they do impact on the proportion of time that the fund manager spends on managing money against the increasing amount of time doing record-keeping or attending oversight committees and so forth.
Thinking for Yourself None of these is necessarily a bad thing, and indeed they should already be at the heart of sound investment portfolio management. The decisions that Prudential made on its with-profits fund in the late 1990s serves as a useful example. At that time we were in the middle of the telecoms, media and technology (TMT) bubble. (Well actually, it was near the end, but nobody was to know that at the time.) Equity markets had been rocketing ever skywards for the previous few years, and for many people the
Four Main Regulatory Areas For us fund managers, the regulations bite in various different ways. We can broadly group them under the headings of “clarity and marketing”, “investment and borrowing powers”, “financial strength”, and “systems and controls”. Of these, the first category doesn’t really impact much on the day-to-day investment of funds. But the second, “investment and borrowing powers” (in various guises), does impact on us by setting down some often prescriptive rules on what assets can and can’t be bought, and in what proportions. “Financial strength” regulations tend to make their presence felt more profoundly for insurance funds, where assets are not explicitly segregated and where the company’s ability to meet its obligations is clearly important. And although the requirements around “systems and controls” don’t necessarily
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“As fund managers, we have an instinctive desire to be given an absolute free reign to do exactly what we want, and exactly what we think is right, in the pursuit of performance.” December 2011
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INSIDE TRACK
magazine... idea of the new technology paradigm was taking hold. Bonuses declared on with-profits policies were generous at that time, and much store was being placed in the high proportions of risky assets that these funds were able to hold. In regulatory terms, at that time funds looked solvent and weren’t investing in “outlawed” assets: they just had a big bias towards equities. And yet, during all that optimism, Prudential made some changes - not because of any regulatory pressure from above, but rather because our assessment of the balance of risk and return told us that we shouldn’t be relying too heavily on equities in our fund investment strategy, and that we should be declaring bonuses commensurate with a reasonable expectation of return - not an exaggerated one. We made our decision because we wanted to ensure the continued strong solvency of the fund – not necessarily because of any specific regulatory measure, but upon our own assessment of the risks to the “true” financial strengths of our fund. And at the time, our move was unfashionable among our investors and their financial advisers. But with hindsight it was exactly the right thing to do. In the market fallout which soon followed, Prudential’s With Profits Life fund remained stronger than many of its rivals. It was a good example of where the sound management of the fund and the regulations around solvency did not trip up over each other.
Accepting the Limitations Unfortunately, of course, this isn’t always the case. Sometimes the regulations themselves can encourage or force behaviours which make the sound management of funds harder. That’s an inevitable fact of life in a world of changing regulations. We just have to live with it.
“Sometimes regulations can make the management of funds harder. That’s an inevitable fact of life in a world of changing regulations. We just have to live with it.” 32
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We’ve seen the move from rules-based to principles-based to outcomes-based; the harmonisation of rules across different jurisdictions; and the “arms race” of regulators trying to keep up with more and more sophisticated instruments and strategies – a battle which is often played out in the banking rather than the investment management arena. So, whilst we believe that the ultimate intent of the regulations is sound and proper, and that it’s aligned with our funds’ interests, there are often less than perfect elements in the regulatory detail which we don’t agree with or like. It’s just a fact of life. In describing the impact of these, it is worth thinking separately about insurance funds and collective schemes. In some senses, insurance funds tend to be the innovators finding benefit, for example, in derivatives use for matching particular liability streams, or being able to hold privately negotiated assets without the need for day-to-day pricing or liquidity. Collective instruments have generally tended to be rather simpler, with the more complicated funds arising only recently under the “wider powers” available under the FSA’s COLL rulebook based on the UCITS directives. But for standard collectives investing in equities, bonds and even property, the investment and borrowing powers rules are hardly a significant hindrance. Generally they limit investors to buying assets only on recognised or approved exchanges – something which fund managers would surely have been doing anyway? - and they ensure a spread of investments by limiting the maximum exposure to any one asset or instrument. Think about a collective Fund of Funds, where the manager is buying a UCITS compliant scheme. This is perfectly acceptable as long as the underlying fund doesn’t significantly buy other schemes (triple layering) and as long as no more than 35% is invested in any one such scheme. Of course, there might be times where a manager would have preferred to invest, say, 40% - but, ultimately, the rules are broadly sound and sensible, and easy to work with.
It Isn’t Always Perfect Collectives do, though, have to tread more carefully around the use of derivatives, and this is one instance where sometimes the regulatory impacts are not perfect. The reason being that more complex derivatives strategies contain non-linear pay-offs, and potentially other features such as gearing. And each over the counter (OTC) derivative is potentially unique, as distinct from the simplicity of buying equity shares or the standardised structure of exchange traded derivatives.
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INSIDE TRACK
Nonetheless, whilst managers may find their wings clipped by these rules at the margins, they generally find that they have sufficient scope and opportunity to run their funds to meet their scheme objectives and deliver sound returns. As ever, the systems and controls overhead in these more complex areas is high. But apart from this, I believe the managers run collective schemes broadly as they would want to. Where the regulations do bite, it is more often at the edges than at the centre of the investment decision.
Matthew Williams, Investment Director at Prudential’s Portfolio Management Group
Changing Solvency Requirements Insurance funds, though, might be a different story. We have already seen speculation that new regulations will bring about wholesale changes to insurance fund investment strategies. The reason is that the cornerstone of the new regulations concerns fund solvency - which, simply put, is the extent to which a fund’s assets exceed its liabilities. Recognising that assets are volatile and behave differently to one-another, the new regulations contain a “capital charge” for each type of asset, which is the amount you have to set aside and not count as part of your solvency surplus. There are some subtleties about using the “standard model” (off the shelf built by the regulator), or an internal “model” (built by insurance companies bespoke to their own needs but requiring approval by the FSA). But early indications are that some assets types will be very “expensive” in capital charge terms with others being less so. Therefore, as things currently stand, there may be wholesale shifts from, say, long dated corporate bonds to short dated corporate bonds. As ever, much useful discussion has been going on between the industry and the FSA in an attempt to avoid throwing out any babies with the bathwater. And remember, not all aspects of the changes are fully nailed down yet. But we hope that wholesale shifts in investment strategy won’t be required; after all, as of now under the current system most insurance companies have a clean bill of health and it would be a bit odd if, without changing anything their apparent solvency became challenged. Till now, though, we’ve managed both insurance and collective funds to achieve the best results for our clients. Certainly, the distractions of demonstrating systems and controls have increased. But for investment decision-making, we’ve generally focused on the best way to run the funds absent the regulations, with marginal modifications then required to ensure regulatory compliance.
“The ultimate goal of the regulator should be the same as ours – to offer good performance to customers without taking undue risk.”
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And the Future? Going forward, we know that the ultimate goal of the regulator should be the same as ours – to offer good performance to customers without taking undue risk, without obfuscation, and in a controlled environment. And to ensure that we (and more importantly the funds) will still here be here in the future to meet our obligations to clients. So, if the regulator sets the rules sensibly, we should be able to focus on our main objective of managing funds in our clients’ interests: we should both be pulling in the same direction. But of course, as fund managers, we will continue to be vocal about where we believe the regulator doesn’t set the rules correctly. And even when they do, I think we’re entitled to at least let slip a “harrumph” on those occasions when we find our wings clipped. For more comment and related articles visit...
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05/12/2011 14:29
G LO B A L I N C O M E
LOOK EAST, YOUNG MAN Yes, it’s been a nasty couple of years for income-seeking investors in the UK. No doubt about it, the global financial crisis and the economic downturn in the G20 zone have forced a heavy retreat on the corporate equity yield front. Banks have been famously horrible places for an income investor to be – a particular irony, since only five years ago they were regarded as safe but boring institutions that paid big divis simply to stop their shareholders from yawning. But the missed divis from giants like BP have focused everybody’s mind on the fast-changing situation. (It’s quite hard to recall that, before the disastrous Gulf of Mexico oil spill in 2010, the company accounted for as much as a sixth of all the Footsie dividends paid to investors. )
...OR WEST, OR ALMOST ANYWHERE BUT THE UK, SAYS KAM PATEL. IT’S TIME FOR INCOME INVESTORS TO GO GLOBAL www.IFAmagazine.com
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Things are shifting gently back into more positive territory - at least nominally, now that index prices are down so low. The 3.5% yield on the Footsie can still show a clean pair of heels to most larger markets. (6.6% from Spain, anyone? Or 10% from Portugal? No, they’re no competition in ¬terms of safety.) But when you stand the UK up against properly growing markets like China (with a 3.5% yield), Brazil (4.5%), Taiwan (4.5%) or even Japan (2.5%), it’s clear that Britain’s heyday as a prime attraction for income providers is at least in question. There’s better money to be made abroad. And the result has been a surge in investor demand for properly global equity income funds.
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G LO B A L I N C O M E
magazine... for today ’s discerning financial and investment professional The reasons aren’t hard to figure out. As Jacob de Tusch-Lec, manager of the Artemis Global Income Fund, points out, recent years have seen a “dramatic” improvement in the levels of dividend yields in overseas markets – thanks not just to a concerted effort by companies to attract new income investors, but also to the trend away from high-risk equity strategies and toward the relative comfort of reliable incomes. Why, even US companies pay an average 2.7% yield these days. As recently as the late 1990s, the yield had fallen toward 0.7%. Artemis estimates that around the world over the coming 12 months, some $1 trillion will be paid out by larger companies in dividends. But it cautions that, of the world’s 6,000 largest global companies, only 10% are in the UK. That’s a lot of lost opportunities for a Little Englander who doesn’t raise his game. Of the 550 large companies worldwide that are paying a yield of more than 3% at the moment, only 60 are in the UK. And, according to TuschLec, those worldwide companies are likely to increase their payouts by 5% or more next year. That’s not to say that UK focused income funds have lost all their allure - or that domestic economic woes or the financial crisis have made UK equities a complete no-go zone for investors. Global income funds, as distinct from UK funds, are growing in popularity among the UK public, for all the reasons we’ve already mentioned, to be sure. But they’re still an under-cherished sector in relation to UK equity income funds. And that’s going to change.
Far Eastern Promise Let’s take a closer look at Britain’s preference for UK investments. Recent research by the Investment Management Association shows that around half of the UK investors who say they are planning to take out a new investment product intend to invest their money in equities. But over half (51%) of these people planning to invest in UK securities over the next 12 months, whereas only 11% have their eyes on euro zone securities. Well all right, that’s probably understandable under present European conditions, but it gets more interesting when you look beyond Europe’s shores. The IMA says that, although only 21% of UK investors say they currently plan to invest in the Far East, fully 30% say that it will produce the best investment return over the next twelve months. It’s not just income that interests them, of course: the expectation of faster capital growth adds an important extra incentive. That’s a message that’s not being lost on the industry. There are around 208 funds in the IMA
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G LO B A L I N C O M E
“Financials won’t be allowed to make proper market-based profits as there is so much hostility towards the financial sector.” Jacob de Tusch-Lec, manager of the Artemis Global Income Fund believes, having been bailed out by taxpayers, the banks will now have a hard time making money going forward.
Global sector, with Artemis Global Income Fund about a quarter of the way down the performance rankings. Other notable global equity income funds include Smith & Williamson Millennium, M&G Global Dividend, Newton Global Higher Income and Veritas Global Equity Income.
launch.) And over a three year period (to October 2011) the top performer has been M&G Global Dividend with a total return of 72.9%, followed by Veritas Global Equity Income (67.2%), S&W Millennium (64.7%) and Newton Global Higher Income (60%).
Over a one year period (to October 2011) these four produced total returns of 8.1%; 7.1%; 6.9% and 6.4% respectively, according to Lipper data. (Artemis, a relatively recent newcomer, produced a total return of 11.7% in the 15 months since its July 2010
August 2011 saw the highest-ever sales of global funds (including global equity income offerings), the Association says. And, according to de Tusch-Lec, the outlook for broader-based global income funds over the medium/long term
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This advertisement is directed at investment professionals in the UK only and should not be distributed to, or relied upon by retail investors. It is designed only for use by, and is directed only at persons resident in the UK. Charges exclude purchase and redemption fees where applicable. Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2011 Vanguard Asset Management, Limited. All rights reserved. UK11/0696/0811
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G LO B A L I N C O M E
magazine... for today ’s discerning financial and investment professional is “very positive”. He identifies two main drivers for the trend. Firstly, he says, demographics alone are “very strongly” in the global income sector’s favour. Longer lifespans, especially in the developed economies, imply an ongoing need for income to support everlonger retirements. And secondly, interest rates, which are already at record lows, are likely to stay ‘lower for longer’ in response to weak economies and sovereign debt. That in turn will push people away from fixed-interest securities and into the welcoming arms of companies that can offer chunky dividends. Unsurprisingly, the major investment houses have been busy creating and launching new funds to meet demand during the last year. And if they are not creating new global income vehicles from scratch, institutions have looked to reshape existing offerings and strategies so that they can accommodate the broadening of income sources investors are looking for.
The Rediscovered Joys of Low Debt Despite the turmoil on markets and the endless euro zone saga, the corporate sector in general has come out of the crisis relatively well. In the US, for instance, corporate profits as a percentage of GDP are now almost back to pre-
“If anything, companies have almost too little gearing and too much cash.” Observes de Tusch-Lec
crisis highs. Corporates have cash on their balance sheets, and generally they seem to have done the right thing by cutting costs quickly, moving production to cheaper jurisdictions and so on. In fact, says de Tusch-Lec, “if anything, companies have almost too little gearing and too much cash. So at present they are faced with the choice between giving it back to shareholders, reinvesting it in their business or M&A. And these factors should become a key determinant of stock selection.” In the present environment, investors might be tempted to be ‘long debt, short cash’ as inflation will eat into cash. But de Tusch-Lec believes that the prudent investor will prefer
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DESPITE THE TURMOIL ON MARKETS AND THE ENDLESS EURO ZONE SAGA, THE CORPORATE SECTOR IN GENERAL HAS COME OUT OF THE CRISIS RELATIVELY WELL companies with low debts and even cash on their balance sheets. Ten years ago, he says, corporate tax rates in Europe were some 10 percentage points higher than today. And that means that any reversion to the historical mean would put after-tax earnings growth under pressure. If inflation continues to eat into profits, as he expects, it will also drive up savings rates and will even out the equation for lower-risk investors. “Stockmarkets in countries that are in good shape, boast decent levels of employment, have government finances in order and have no need to raise taxes should be trading at a premium,” says de Tusch-Lec. “Not only that, but their currencies should continue to strengthen. Consider countries like Switzerland, Singapore, Korea, Norway, Israel and Poland, where growth is driving tax receipts higher. There’s no doubt that national differentials are critical issues when making stock selections. For instance, a government that routinely interferes with structural corporations like utilities will make them much less attractive as investments than one with a hands-off approach. The ongoing turmoil on markets and worries about the economic outlook has led to the lamentable, growing fashion in some ill-informed quarters for labelling equities in general as “risk assets”. de Tusch-Lec, however, begs to differ: “On behalf of our investors, we would rather own equity in a company with a sound balance sheet and a sustainable dividend than own bonds of effectively bankrupt governments.” We’d guess that not very many people would disagree with that. For more comment and related articles visit...
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05/12/2011 14:42
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The Guardian. October 2011
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The Sunday Telegraph. October 2011
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£78,000
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£90,000
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Ethical Forestry is not regulated by the Financial Services Authority and does not offer any advice about any regulated or unregulated investments, either within this advertisement or elsewhere. Please consult an Independent Financial Advisor prior to making any decision to buy our products. Our products are not regulated investments. Their value may rise or fall and no guarantees of future performance in respect of income or capital growth are given either expressly or by implication, and you may not get back the full amount you pay for them. Ethical Forestry shall not be held liable to anyone for any errors, omissions or inaccuracies within this advertisement under any circumstances or for any loss or damage which may arise from the use of any of the information or detail contained herein.
05/12/2011 14:42
magazine... for today â&#x20AC;&#x2122;s discerning financial and investment professional
THE GREAT OVERHAUL OF CHINA
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CHINA
CHINA’S SURGING INDUSTRIAL ECONOMY IS UNDERGOING IMPORTANT STRUCTURAL CHANGES SAYS ASHLEY DAVIES, SENIOR ECONOMIST AT COMMERZBANK Recently we met with a number of German equipment manufacturers based in and around Shanghai. The stories they told us reflect broader macro themes that aren’t always well reported in the Western media – but which we feel should be more widely appreciated. China’s impressive growth shows no sign of stopping, but there are significant structural changes taking place these days.
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Wages are rising rapidly in China, the manufacturers told us, and orders for factory equipment are at record levels. Many, including especially textile manufacturers, are moving production in search of lower labour costs, mostly to more western regions within China. Meanwhile, the factory equipment manufacturers are experiencing an increase in orders from other emerging market economies, such as Indonesia and Turkey. This phenomenon reflects a bigger trend of shifting production trends as rising costs in China causes a rethink in sourcing strategies. Tight monetary policy is also constraining production by reducing access to credit. The upshot is that China’s economy should slow and other low cost, labour abundant economies in the region should benefit at the margin from increased investment in their respective manufacturing sectors. There are two obvious reasons for the phenomenon of rapidly rising wages. The first is simply demographics. China implemented its one-child policy in 1978, and as a consequence it is now experiencing a gradually shrinking pool of young workers. Moreover, Chinese families tend to prefer boys over girls, and the ratio of male to
December 2011
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CHINA
11:44
female workers on the factory floor has reportedly tipped in favour of men – whereas, in the past, factory work would be more female-dominated. The other likely reason for rising wages is simply that China’s mega cities are getting too expensive to live in. Shanghai has a population of around 23 million people, about the same as Australia, while Chongqing has a population of 28 million people. There eventually has to be a point of diseconomies of scale for cities - and this would be reflected in the cost of living being too expensive for wages to cover. Manufacturing companies either have to pay wages sufficient to meet living costs and rising aspirations, or else move out. This is a trend encouraged by both the local and central governments. Shanghai and surrounding cities would prefer to have the higher wage jobs that come with high end manufacturing.
But is China the next China? Moving out doesn’t necessarily mean moving overseas. China’s urbanisation ratio is still at around 45%. While urban
700
1
China faces a shrinking population of young people Population age 0-24 in China and India (million; projections)
600 500 400 300 200 100 0 1950
1965
Source: UN; Commerzbank Research
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factory workers typically earn wages of around US$2 per hour, factory workers in smaller towns and villages just 64 cents. The over 600 million people who live in rural regions typically earn even less. Moving to inner provinces might mean lower labour costs and these are offset by increased freight costs and the time it takes to get to market. Accordingly, the cost structure of firms operating in China is increasing and it is natural for alternatives to be sought. There is evidence to suggest that rising costs in China are contributing to a loss of market share in labour intensive industries globally. Chart 1 shows US imports of textiles (apparel and footwear under SITC classification). Over the 12 months to September 2011, China accounted for 46% of US imports of apparel and footwear, down from 48% in late 2010. A modest decline to be sure, but worth monitoring. The data corroborates with various reports from major global sourcing companies that are diversifying their sources away from China.
1980
1995 India
THE GR OVER OF CH 2010
2025
2040
China
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magazine... for today ’s discerning financial and investment professional
Where is the next source of cheap labour? There are a variety of considerations to take into account when locating production to reduce labour costs. Clearly, labour intensive products are the most sensitised to rising wages. Hence, economies where labour is abundant and cheap immediately spring to mind for labour intensive products like clothing. Countries like Bangladesh, with its large young population and low labour costs, are ideal for basic textiles manufacturing. Accordingly, a growing share of US textile imports is coming from such countries. Bangladesh is also reportedly investing heavily in infrastructure to support its textiles industry. Moreover, with manufacturing still only 18% of Bangladesh’s economy, compared with 34% for China, there is scope for further growth in the manufacturing industry. However, there are a number of caveats to re-locating production. Not everything can be shifted or shifted quickly. Infrastructure and logistics are important – China has nine of the world’s top 50 ports by volume. Logistics are important for speed to market. A major global fashion brand that we have spoken to in the past said that it was keeping production in China as fashions change with the season and any hold up in customs for instance risks slowing their ability to reach market. For that reason the firm preferred to leave production in China rather than spread over several countries, raising the risk of expensive hold-ups in customs. Another consideration for locating production is the complexity of the product. China is pretty much the only country where every conceivable part can be sourced locally. The more complex the product, the less likely it is that production will shift out of China. Still, rising costs in China raise the incentive to shift production to other countries. Where
50
Some useful indicators for various South / Southeast Asian economies
3
Countries by age, population, GDP / Capita and manufacturing as a percent of GDP Country
Population (mn)
Median Age
GDP/Capita (US$bn)
Manufacturing % of GDP
Bangladesh
164
25
1566
18
Cambodia
14
22
2086
15
China
1338
34
5745
34
India
1171
25
3291
16
Indonesia
233
28
4380
28
Malaysia
28
26
14600
25
Pakistan
173
21
2790
17
Philippines
94
23
3726
20
Sri Lanka
20
31
5104
18
Thailand
68
33
8644
34
Veitnam
88
29
3123
20
Source: KPMG; Commerzbank Research
infrastructure is lacking it raises the motivation for the host country to increase infrastructure spending. Either way, investment and exports for other low cost labour abundant economies in Asia will benefit from this trend in the years to come.
Conclusion We can conclude with the following summary points: • Chinese growth will likely slow due to a shrinking labour supply and increased costs in tapping its labour supply. • Presently, tight monetary policy is exacerbating this tendency. We are comfortable with our pre-existing relatively bearish forecast for Chinese GDP growth to slow to 7.5% in 2012 from a likely 9.2% in 2011. • Investment in other low cost, labour abundant economies in Asia (and indeed other emerging market economies globally) should benefit from production at the margin shifting out of China, boosting investment, exports and employment.
2
Evidence of China losing market share in textiles? China’s share of US textile imports (apparel and footwear; %; 12mma)
GREAT ERHAUL CHINA 45 40 35 30 25 20 5
1997
1999
2001
2003
2005
2007
2009
2011
Source: UN; Commerzbank Research
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THE BEE LINE
magazine... for today ’s discerning financial and investment professional
MORE GIFTS FROM THE TAXMAN YOU DON’T THINK PENSIONS ARE A GOOD WAY TO SAVE? CHECK YOUR LOGIC, SAYS STEVE BEE Well, and apropos nothing I suppose, I thought I’d write down why I think pension saving through auto-enrolment ought to appeal to Joe and Josephine Average. Apropos nothing? Well no, not exactly. The truth is, I’m getting a little bit fed up with reading here, there and everywhere at the moment about how likely it is that these new pension reforms will fail - and about why saving in a pension might not be such a good idea any more, and all that kind of negative stuff. You’ll know what I mean; you’ve read it all too. And don’t get me wrong; I know that things that drag you down are easier to get sucked into than things that lift you up. Negativity is like that. But, just for once, humour me and step back a bit and look again at the pension proposition that’ll be on offer when the auto-enrolment scheme kicks in.
Free Money First, auto-enrolment doubles your money before you’ve even started. An auto-enrolled employee will of course be required to save 4% of his (or her) qualifying earnings each year in the employer’s workplace pension scheme. But employees sometimes forget that that 4% will have become 8% by the time we’ve added in the 3% contribution that’s required from the employer, plus an extra 1% that’s added by the taxman.
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To put it another way, a £4 payment becomes £8; a £40 payment becomes £80; a £400 payment becomes £800; a £4,000 payment becomes £8,000; and a £40,000 payment morphs instantly into a life-changing £80,000. That simply doesn’t happen with any other type of investment. If you put £40 into a building society account, you’ve only got £40. No contest.
EET, Think and Be Merry Pension savings are said to be EET, which stands for Exempt, Exempt, Taxed. That’s to say that the money paid in is exempt of tax, after which the fund grows (mainly) in a tax-free environment, but the pension, when drawn as retirement income, is subject to tax. Building Society savings, on the other hand, are TTE: the savings paid in are made from taxed income, and the account grows in a taxed environment, but the money saved is not taxed when it is eventually drawn from the savings account. And an ISA is described as being TEE – but heck, you can probably work that one out for yourselves. The big point with all this is that the more Es you get in your three-letter acronym, the better. What’s more, the Es near the front of the acronym are generally better than Es near the end, because they allow the magic of compound interest to work on the full, untaxed body of your savings.
A Triple E Rated Investment But here’s the bit that I really don’t get with all this negativity. If you save money into a pension plan, www.IFAmagazine.com
01/12/2011 18:09
THE BEE LINE
you’ll be able to take out 25% of your pension pot as a tax-free cash sum when you get older. (Under current rules, obviously.) Think about it. That’s EEE – Exempt, Exempt, Exempt. Now how many people have ever looked at it that way? It really doesn’t get any better than that.
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Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the co-founder of www.jargonfree pensions.co.uk
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magazine... for today ’s discerning financial and investment professional
AND NOW FOR SOMETHING COMPLETELY DIFFERENT NICK SUDBURY LOOKS AT SOME DISTINCTLY OFF-THE-WALL ETF IDEAS THAT CAN ADD COLOUR, DIVERSIFICATION, AND, OH YES, SAFETY TO A PORTFOLIO
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01/12/2011 18:18
PRODUCT REVIEWS
Cheap Insurance S&P 500 VIX Futures Source ETF Strictly for sophisticated clients, this one. The last three months have seen some pretty hair-raising price volatility in the equity markets, with daily changes of up to 3% and weekly shifts of 8-10%. But for investors with the right aptitude, an ETF based on the VIX volatility indices in the US can provide a substantial degree of protection against further sharp falls in the markets. But only if it’s used correctly! The VIX is a measure of the expected volatility of the stock market as implied by S&P 500 index options. It is often referred to as the ‘fear index’, and it has a high inverse correlation with the underlying equities. This makes it a good candidate for short-term portfolio insurance. But the VIX is itself very volatile. Between the start of August and the end of October when the eurozone was at crisis point, the VIXS ETF that we’re looking at rose almost by almost 150%. Because of its disproportionate power, the trick is to use it in tiny quantities as insurance against a normal portfolio. The S&P 500 VIX Futures Source ETF (VIXS) is by far the most liquid VIX product you’ll find in London . It aims to replicate the performance of the S&P 500 VIX short-term futures total return index, and its benchmark is designed to mirror the expected level of the VIX in one month’s time - which involves rolling the associated first and second month futures contracts. This sort of ETF would not be suitable for a long-term holding, as it would tend to wipe out the gains made elsewhere in the portfolio. The ETF is denominated in US dollars, which isn’t unusual in London, and it replicates the benchmark by investing in swap contracts with one or more counterparties. It offers a cheap and liquid form of portfolio insurance whenever the markets are in imminent danger of a crisis.
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FUND FACTS Name: S&P 500 VIX Futures Source ETF (VIXS) Type & Exchange: ETF listed in London Sector: Volatility Fund Size: $29.7m Launch Date: 18 June 2010 Distribution yield: 0% Manager: Source Investment Management Management Fee: 0.6% Website: www.source.info
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PRODUCT REVIEWS
magazine... for today ’s discerning financial and investment professional
Textbook Defence PowerShares S&P 500 Low Volatility Portfolio While we’re on the volatility kick, here’s a standard-pattern ETF that plays the safety game a different way - by simply avoiding volatile stocks. And so far it’s working! Invesco PowerShares’ new S&P 500 Low Volatility Portfolio (SPLV) has been one of the most successful launches of 2011, outperforming the S&P 500 by an impressive margin. SPLV is designed to provide more cautious investors with a less risky way of maintaining an exposure to the US stock market. The way it works is by investing at least 90% of its assets in the companies that comprise the S&P 500 Low Volatility Index. This consists of the 100 stocks from the broader benchmark with the lowest realised volatility over the past 12 months. As you’d expect, this approach produces a very different pattern of exposure. At the time of writing, the three largest sectors were Utilities (33%), Consumer Staples (22%) and Financials (10%). By comparison, the main S&P 500 weightings were Information Technology (20%), Financials (14%) and Energy (12%).
The fund’s cautious approach has had a huge impact on its performance, with the ETF rising by 1% during its first 6 months, compared to a drop of 7% for the S&P 500. The main risk is that it will underperform when the market recovers, so clients would need to appreciate the defensive nature of this investment. SPLV has had such a positive start that it has encouraged BlackRock’s iShares to launch four new low-volatility ETFs of their own. These track the MSCI Minimum Volatility Indices, and predictably they offer a different set of regional exposures. If markets continue to struggle, we can expect to see more ‘smart beta’ solutions in the months to come.
FUND FACTS Name: PowerShares S&P 500 Low Volatility Portfolio (SPLV) Type & Exchange: ETF listed on the NYSE Arca Sector: US Equity Fund Size: $577.6m Launch Dates: 5 May 2011 Distribution Yield: 3.31% Manager: Invesco PowerShares TER: 0.25% Websites: www.invescopower shares.com
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PRODUCT REVIEWS
Junk Sale iShares Markit iBoxx $ High Yield Capped Bond ETF Here’s another one for the more adventurous investor. The paltry returns on investment-grade bonds in the last six months have turned many investors’ minds toward the relative attractions of high-yield corporate bonds with correspondingly lower ratings. These bonds, of course, have a higher risk of default or downgrade than their investment-grade counterparts – not to mention smaller issue sizes, reduced liquidity and wider bid-offer spreads. Hence the bigger coupons, obviously. But these days some are arguing that the threat of default has been exaggerated, and the much higher yield more than compensates for the risk. That’s a strictly personal decision for the investor, and it will be absolutely wrong for the risk-averse. But there aren’t many other investments that pay out 8% these days. The new iShares Markit iBoxx $ High Yield Capped Bond ETF (SHYU) offers an impressive yield to maturity of 8%, with semi-annual distributions. SHYU invests in the most liquid US dollar denominated corporate bonds with sub-investment grade ratings. It has a diversified portfolio of 130 individual holdings with an average maturity of 5.23 years and a modified duration of 4.78 years. More than 80% is invested in bonds with a credit rating of B or BB. The high yield corporate bond market is of course dominated by US dollar-denominated issues – which is why it’s surprising that it’s taken until now to find a UCITS-compliant physical based ETF available on the LSE. It makes a good complementary holding for the European equivalent, the iShares iBoxx Euro High Yield Bond ETF (IHYG). SHYU only recently came to the market, and it is still seeking UK Reporting Fund Status. At the moment it is quite small, but the US domiciled equivalent HYG has attracted over $8 billion of assets since it was launched in 2007. www.IFAmagazine.com
Product Reviews.indd 51
FUND FACTS Name: iShares Markit iBoxx $ High Yield Capped Bond ETF (SHYU) Type & Exchange: ETF listed in London Sector: High Yield Debt Fund Size: $34.5m Launch Date: 13 September 2011 Yield to maturity: 8% Manager: BlackRock Advisors (UK) ltd. TER: 0.5% Website: www.uk.ishares.com
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PRODUCT REVIEWS
magazine... for today ’s discerning financial and investment professional
Location, Location, Location
iShares FTSE EPRA/ NAREIT Asia Property Yield Property ETFs are a familiar way of diversifying client portfolios. These provide a global or regional exposure based on Real Estate Investment Trusts (REITs) and other property securities rather than the actual bricks and mortar. And this one, which carries a solid 3.93% yield, focuses on the Far East. The iShares FTSE EPRA/NAREIT Asia Property Yield (IASP) is currently the best performing property ETF in the Far East sector, with a 3 year gain of 47%. (Pause for effect.) Like other ‘risk’ assets, however, most of this return came early in the period, with the last 12 months seeing a fall of around 18%. IASP provides exposure to listed real estate companies and REITS from developed Asian countries that have a one-year forecast dividend yield of at least 2%. There are currently 30 holdings, with the main geographic weightings being Australia, Hong Kong and Singapore. Arguably these are some of the strongest economies in the world, and they ought to offer excellent longterm growth prospects. And there’s also a good chance that the associated currencies will appreciate against the pound – thus further enhancing the returns. In the meantime, of course, the most immediate reason for investing is the attractive distribution yield of 3.93% which IASP pays out on a quarterly basis. These payments, like the fund itself, are all denominated in US dollars. iShares FTSE EPRA/NAREIT Asia Property Yield offers a cheap, liquid and diversified exposure to property related securities. The performance is likely to be a lot more volatile than investing directly in bricks and mortar - but at least the holding can be sold quickly and easily if and when required. I would expect it to offer a fairly steady recovery play.
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FUND FACTS Name: iShares FTSE EPRA/NAREIT Asia Property Yield (IASP) Type & Exchange: ETF listed in London Sector: Property - Asia Fund Size: $178m Launch Dates: 20 October 2006 Distribution Yield: 3.93% Manager: BlackRock Asset Management Ireland Ltd TER: 0.59% Websites: www.uk.ishares.com
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02/12/2011 10:04
FS A P U B L I C AT I O N S
OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA. These listings exclude the FSA’s routine monthly handbook updates.
Enhancing Frameworks in the Standardised Approach to Operational Risk – Policies and Documentation
Thematic Feedback on the FSA’s Reviews of the Regulated Covered Bond programmes
Finalised Guidance
Finalised Guidance
Ref: FG 11/21
November 2011 20 pages The latest in a series of papers intended to assist firms and supervisors in understanding, assessing and enhancing the adequacy and effectiveness of operational risk (OR) frameworks used by firms to implement the standardised approach (TSA) to OR.
Distribution of Retail Investments - RDR Adviser Charging and Solvency II disclosures Consultation Paper
Ref: FG 11/25
10th November 2011 45 pages Of interest to firms advising on retail investment products and product providers, as well as consumers and consumer bodies. Chapter 4 will be of interest primarily to insurers. The consultation deals with three matters of interest to IFAs: two of them relating to the FSA’s Adviser Charging rules (published in March 2010), and the third concerning the implementation of Solvency II disclosure requirements. Consultation period ends on 10th January 2012.
RDR - Accredited Bodies Consultation Paper
Ref: CP 11/24
10th November 2011 20 pages A consultation on the proposal to confer FSA Zaccredited body status on two applicants – the Institute of Chartered Accountants in England and Wales, and the Pensions Management Institute. The proposal will enable advisers to decide which body they wish to approach to validate their qualification gap-fill (if required), and to issue their Statement of Professional Standing. Consultation period ends on 9th December 2012
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Ref: FG 11/20
November 2011 2 pages Notes on good conduct. Sets out the following objectives: • Clearly defined and documented mandate and terms of reference related to the programme and regularformalised interaction with the programme. • Ongoing monitoring of the programme (e.g. checks accuracy of regulatory and investor reporting, aware of and monitoring breaches). • Clear understanding of RCB requirements, and the role of the compliance function in relation to the programme. Appraised of relevant regulatory developments, and able to provide advice internally as appropriate. • Adequate and skilled resource, with appropriate depth of expertise in covered bonds, evidence of ability to challenge management. • Clearly defined escalation process i) from first line to compliance and ii) from compliance to independent risk oversight committees.
Solvency II and linked longterm insurance business Consultation Paper
Ref: CP 11/23
9th November 2011 42 pages Of relevance to consumers with linked long-term insurance policies, their advisers, and consumer groups. The consultation paper presents proposals for changes to FSA rules and guidance relating to the operation of unit-linked and index-linked insurance business, primarily in the Conduct of Business Sourcebook (COBS) 21, Permitted Links. The proposed changes are intended to reform the current rules, so that they are consistent with the requirements of Solvency II. Consultation period ends on 15th February 2012.
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magazine... for today ’s discerning financial and investment professional
Transposition of Solvency II - Part 1 Consultation Paper
Ref: CP 11/22
6th November 2011 208 pages Of primary interest to all insurance firms captured within the scope of Solvency II. It will also be of indirect interest to non-Directive firms, representative trade bodies, business advisers and consultants, and other financial advisers serving in or linked to the insurance industry. This is the first of two consultation documents relating to the proposed changes involved in the Solvency II regime. Although primarily a European Union issue, involving the European Commission, the European Insurance and Occupational Pensions Authority and the FSA, it is also important in the context of the domestic regulatory reform to move to a twin peaks regime, split by prudential and conduct issues. The FSA recommends that this document should be read in conjunction with the FSA’s Conduct CP11/23 which includes proposals on some of the limited requirements relating to conduct issues in Solvency II (specifically Chapter 10). Consultation period ends on 15th February 2012.
Data Collection: Retail Mediation Activities Return and complaints data - feedback to CP11/8 and final rules Policy Statement
Ref: PS 11/13
8th November 2011 75 pages Proposed changes to the Retail Mediation Activities Return (RMAR) and complaints data, which will be of interest to both advisers and providers active in the retail investment and corporate pensions markets. Consumers and consumer bodies are also expected to be interested in finding out how the FSA will use data to help it supervise and enforce the new Retail Distribution Review (RDR) regime and ensure that the new rules are properly implemented the limited requirements relating to conduct issues in Solvency II (specifically Chapter 10). Consultation period ends on 15th February 2012.
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Strengthening Capital Standards 3 - Feedback and Final Rules for CRD3 Policy Statement
Ref: PS 11/12
3rd November 2011 75 pages Relevant to banks, building societies and certain investment firms caught by the Capital Requirements Directive (CRD) from the European Commission’s CRD3 package of amendments. It will also be of particular interest to those firms and their advisers. Essentially, the statement concerns itself with the responses to questions in CP11/9. But it also contains finalised guidance on the Supervisory Formula Method (SFM) and Significant Risk Transfer (SRT) following the Guidance Consultation in May 2011. The general background concerns the Basel Committee’s finding that the financial crisis had exposed gaps in the European CRD capital requirements for re-securitisations, and that risks arising from credit risk and illiquidity in the trading book had been underestimated. It aims, therefore, to correct the capital requirement levels for such positions in both the trading and non-trading book.
Proposed Guidance on the Practice of ‘Payment for Retail Product Development and Governance - Structured Products Review Guidance Consultation
Ref: GC 11/27
2nd November 2011 50 pages Of interest to firms involved in the manufacture of structured products. Much of the guidance may also be relevant to a wider population of firms, involved in the manufacture of other retail products. The FSA feels that, although structured products are rising in popularity, the growing number of structured product sales, as well as increasing product complexity, is placing a strain on firms’ systems and controls. A lack of robustness in a firm’s product development and marketing processes can increase the risk of poorly designed products and lead to misselling or mis-buying by consumers, the regulator says. The proposed guidance says that firms should: • Identify the target audience and then design products that meet that audience’s needs • Stress-test new products to ensure they are capable of delivering fair outcomes for the target audience • Ensure a robust product approval process for new products • Monitor the progress of a product throughout its life cycle Consultation period ends 11th January 2012
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01/12/2011 18:22
Guidence Consultation
Ref: GC 11/26
1st November 2011 32 pages The proposal seeks to limit the proliferation of products with properties similar to Payment Protection Insurance (PPI), which has been curtailed during the last year after many abuses. The FSA is aware that some firms are developing new forms of protection that aim to meet similar consumer needs, which it feels may pose similar risks to PPIs. The document sets out risks which may arise in the design of payment protection products. In particular, the risks around: • Identifying the target market for the protection • Ensuring that the cover offered meets the needs of that target market • Ensuring that the product does not create barriers to comparing, exiting or switching cover It discusses ways of managing these risks, both through firms’ distribution and marketing strategies and through their governance arrangements. Consultation period ends 13h January 2012
Guidance on the Selling of General Insurance Policies Through Price Comparison Websites 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).
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FS A P U B L I C AT I O N S
Payment Protection Products
‘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
Packaged Bank Accounts: New ICOBS Rules for the Sale of Non-Investment Insurance Contracts Consultation Paper
Ref: CP 11/20
27th October 2011 38 pages Of interest to firms selling insurance as part of a packaged bank account, insurers, and retail intermediary firms selling general insurance products. The consultation concerns a proposal for tightening up the regulations for firms selling insurance as part of packaged accounts. • In particular, the proposed rules require sellers to check that a customer is eligible to claim the benefits under each policy, and to tell the customer if he would be ineligible to claim. • There should be an annual eligibility statement, and a recommendation to the customer that he should review his eligibility regularly. • All records of the sale and eligibility assessment should be retained for at least three years. • The FSA is also seeking suggestions on how to achieve price transparency for packaged bank accounts
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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. The FSA Regional Assessment Program started November 2011 In February of this year, the Small Firms Website was updated with details of a new regional review programme. Since March 2008, of course, the FSA has already been assessing whether small firms can demonstrate that they treat their customers fairly through a regional programme. And that assessment has covered all financial advisers and mortgage brokers, as well as some general insurance intermediaries selling high risk products across the UK. The FSA conducts its assessments either through a face-to-face visit or a telephone interview. Up to 25% of the assessed firms receive follow-up visits to verify the assessment, and to follow up any issues. The new Regional Assessment Programme started at the end of November 2011, with the North West being the first region to come under the lens. This programme of course is separate and additional to the RDR implementation reviews being carried out by the FSA from the start of 2012. The Regional Assessment Programme consists of Business Risk Awareness workshops to which all smaller retail firms will be invited – followed later by a regulatory review (the Proactive Regulatory Review) on the firm. n
n
The Workshops are intended to give regulated firms a clear insight into the key messages of the regulatory review – and, through case studies, to examine examples of good and bad practice as regards governance, culture and controls. The Proactive Regulatory Review will look principally at Governance, Culture and Controls (GCC) within the firm - and, under current proposals, this will be a two hour assessment of the firm, either through a face to face interview or through an online/
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paper based assessment. Feedback to the firm will follow quickly thereafter, and it will focus on both its good and its bad practices. The FSA is also planning to put in place a verification process, in which a selection of firms will receive a half-day visit to confirm the FSA’s own assessment of the firm (i.e. to confirm the FSA’s assessors’ assessment), and also to verify the responses provided by the firm during the assessment process. In cases where the FSA considers that the responses of the firm provided during the assessment process indicate poor governance, culture or controls, the plan is to follow through with a more thorough full day supervision visit. The focus here will be on four key areas; n
The firm’s business model
n
The firm’s business management
n
The firm’s controls
n
The firm’s prudential arrangements
The FSA wants to establish how firms manage their risks, and to check that they can demonstrate that they have appropriate and adequate procedures. Under the common platform extension, all firms are to be aware of their requirements under the FSA handbooks and therefore the areas the FSA will focus on are: n
Controls
n
Procedures - will focus on the advice a firm gives, its decision making and its complaints
n
Monitoring - of a firms directors, advisers, staff and third parties to ensure policies and processes are being followed
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01/12/2011 18:25
Analysis - of management information about products, advisers, financial issues and compliance issues
n
Quality Checking - of processes and procedures, controls, advice to customers, accounts and FSA reporting
n
Culture
n
Escalation of issues
n
Remuneration policies for staff and services
n
Transparency of decision making
n
Clarity of accountability
n
Demonstrating what is acceptable
n
Governance
n
Definition of risks and responsibilities
n
Definition of controls
n
How the firm provides oversight of its business and controls
C O M P L I A N C E D O C TO R
n
Impact: For most small firms of less than three advisers, there is nothing to be overly concerned about, as a small company like that is more likely to have day to day contact with each other and discuss events, cases and issues as they arise. It is important to remember that proportionality is the greatest defence for overly complex requirements. For larger firms, and for those with support staff, there is a potentially larger impact as if they do not demonstrate a clear and satisfactory understanding of their risks in 1 and 2, they could then be required to have a full day supervision visit, 3. Adding this up could not only provide a drain on management and staff resources but also the situation could be added together, where 1 + 2 + 3 = S166 Skilled Persons Report. For details of preparing for a regulatory visit http://bit.ly/udVJ9h or contact your compliance provider.
Details of the visits can be found at http://tinyurl.com/d8ceoqv .
Policy Statement 11/14 – “Product Disclosure: Retail The FSA’s product disclosure rules are designed to mitigate the information imbalance which exists between customers and providers of retail financial services. Retail products are often considered complex and opaque in terms of the way they work, and customers will typically have little or no experience of the products, as they do not buy them regularly. With this in mind, the FSA proposed changing some aspects of their rules on product disclosure, as part of the Retail Distribution Review (RDR). The regulator proposed changes to the key features illustrations (KFIs) that firms must give clients arising from the RDR rules (i) on Adviser and Consultancy Charging, and (ii) on SIPPs. Thirdly, it considered the potential replacement of monetary projections by inflationadjusted projections for personal and stakeholder pensions (both individual and group). The regulator is now giving feedback on the responses to the consultations on the first and third of these issues. In the light of the responses to the first issue, and also following discussion with trade bodies and individual firms, the FSA has have made some changes to the rules it consulted on. The second issue consulted on – to change the disclosure requirements applying to SIPPs – produced a wide divergence of views, and it raised
further issues and concerns. On reflection of these responses, and in order to best achieve the aim of a fairer, more transparent and competitive personal pension scheme market, the FSA has decided to re-consult on revised disclosure requirements. In other words, the disclosure rules for SIPPs will not alter with effect from April 2012 as originally proposed. They are, however, likely to be amended later. Impact: There are changes occurring to the Point of Sale documentation from 2012. Some GPP KFI changes have already been implemented in the rules in COBS 13 Annex 4 regarding adviser and consultancy charging when occurring at the same time. The main impact for all advisers in the GPP space is the inclusion of Generic Illustrations for KFIs with a transitional rule available from October 2012. It is vital for all advisers to keep a weather eye out on these changes and handbook updates issued by the FSA from time to time. PS11/14 details: http://tinyurl.com/cq9s975 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
THE MONETARISM MAN ANOTHER OF THOSE INTELLECTUAL GIANTS WHO YOU NEVER QUITE GOT AROUND TO READING. RELAX, YOU’RE AMONG FRIENDS.
“Inflation is taxation without legislation” Milton Friedman Born 1912 in New York. Died 2006 in San Francisco Milton without the Keynes It’s coincidental, but ironic, that Britain’s most famous new town should have combined the two big names of the monetary debate. Although Milton Friedman never denied the early influence of John Maynard Keynes (who favoured government using spending programmes for creating economic growth in difficult times), the two fell out quite early in Friedman’s career as he accused Keynes of getting his economic principles completely upside down. Keynesian subsidies didn’t create proper growth, said Friedman – instead, they were doomed to fuel inflation without any lasting effect. Cometh the time, cometh the man As the free-spending 1960s and 1970s ended, Friedman was to become the voice of the libertarian right wing, working for Presidents Richard Nixon and later Ronald Reagan (198088) - and also influencing Britain’s own Margaret Thatcher, who was fighting her own monetarist battles against free-spenders in Europe. Friedman’s political star still waxes and wanes, but today’s small-government movement within the Republican Party reads a lot of Friedman. Credit where it’s due It would be wrong to give Friedman all the credit for inventing monetarism. That honour properly belongs to the Austrian Friedrich Hayek (18991992), whose fiendishly intellectual fusion of economics and philosophy would have baffled most ordinary mortals. Suffice it to say that Hayek got his richly-deserved Nobel Prize for Economics in 1974, and Friedman followed in 1976. The basics? Both Keynes and Friedman cut their teeth on Franklin D Roosevelt’s New Deal – Keynes as an influential economist, Friedman as a bright but struggling student. Unsurprisingly, their experiences differed. Keynes was sure that printing money had helped to generate
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growth, because if you gave people cash they’d always spend it. But Friedman said that handouts had made no difference to spending patterns, because people would always judge their consumption according to what they expected to earn (their “permanent income”) - not what they were currently earning. Either way, Friedman was desperate to disprove the theory that price inflation could be caused by a rise in the oil price, or by increases in wages. That would come as a surprise to many modern economists – but hey, it was the corner he chose to fight. And he rejected the view that governments should get involved, because he said that ultimately there wasn’t that much they could do anyway. (The Quantity Theory of Money, 1956). So what? Bear with us. Printing money is doubly evil, Friedman insisted– not just because it increases prices without having any longterm effect on output. Worse, he claimed, the increases in money supply growth caused employment and output to rise in the short term – and that decreases in money supply growth would have the opposite effect. You mean lower unemployment is a bad thing? Yes, in a way. Friedman insisted that there was such a thing as a “natural” rate of unemployment, and he argued that governments could only increase employment above this rate if they were prepared to risk letting inflation rip. So that’s why Margaret Thatcher was a monetarist? Absolutely. Having hauled Britain out of the 20% inflation of the 1970s, she was prepared to sacrifice job creation in the UK for demand stability in the 1980s. They sniggered at her in France and Italy, where Keynesian expansion was rampant, and where growth was much faster than in Britain. But in these days of euro debt crisis she’s probably having the last laugh.
December 2011
59 01/12/2011 18:26
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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01/12/2011 18:39
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 UKê s leading IFA networks. With UK wide coverage and a brand name thatê 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 donê 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
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December 2011
61 01/12/2011 18:39
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 ÿ £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
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 industryÿ challengesÿ inÿ partnershipÿ withÿ Heatÿ Trainingÿ sÿ Financialÿ Servicesÿ 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.
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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01/12/2011 18:39
Fee Based Wealth Consultant £60-80,000 + Bonus + Benefits
Ref: 5434
Our client is a London based wealth management firm that manages £1 billion of client money and advises on a further £2 billion. Typically, clients are six figure earners with seven figure portfolios. The fee based wealth management arm is now looking to add to its small team and as such requires one more senior consultant this year. You should be CFP qualified and have experience of working to a fee model. Short listed candidates will have experience of providing of providing holistic advice to the wealthy for at least 5 years.
Private Client Wealth Manager To £60-70,000 + Bonus + Benefits
Ref: 3366
Our client is a well-established Investment Management firm based that provides a wide range of wealth management services to wealthy individuals and Institutions. They now require a senior consultant to advise HNW individuals, Pension Funds and Charities on direct equity investments as well as pension, trust and investment advice. Candidates must have a proven track record in sales and a genuine interest in the investment market. London based.
Sales Director – Accountancy Practice To £100,000 + Bonus + Benefits
Ref: 9912
Top 10 Accountancy Practice requires a senior individual to join its wealth management division based in London. You will initially take responsibility for a team of chartered financial planner and develop further relationships with the Partners. Ideally, you will be a Chartered Financial Planner (or progression towards) and have experience of working with professional introducers on a fee basis.
Senior Wealth Manager To £80,000 + Bonus + Benefits
Ref: 3342
Leading investment management firm with offices nationwide and a small but hugely successful wealth management offering now requires 2 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 focusing on IHT and investment planning. Clients in the main are wealthy, financially aware and at times demanding - so candidates need to be familiar with this type of individual.
Private Client Adviser To £75,000 + 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. This portfolio is in place and as such requires a Chartered Planner to service the financial requirements of a wealthy audience. You must be able to explain complex financial solutions in a clear, simple and concise manner. Evidence of producing in excess of £200,000 on a fee basis per annum is desirable. 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
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December 2011
63 01/12/2011 18:39
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 Dec ads.indd 64
01/12/2011 18:40
I FA C A L E N D A R
e n zi
Dates for your diary a m a g
DEC‘11 - FEB ‘12
DECEMBER Private Wealth Management
5 7 Summit (USA), Las Vegas, USA. 7 9
FT Managing Global Political Risk Summit, London. Consultation period ends for Consultation Paper 11/24 (RDR - Accredited Bodies) Consultation period ends on FSA Recovery and Resolution Consultation Paper (CP 11/16).
Halter Financial Summit, 1012 Guangzhou, China.
31
31
FSA restructuring process (CPMA, PRA, etc) scheduled for implementation. APEC (Asia-Pacific Economic Co-operation) Summit, Hawaii. Basel III Capital Framework - All major G-20 financial centres scheduled to have committed to the regime.
JANUARY 2012 1 6
6
10
11
Denmark assumes the EU Presidency until 30th June, 2012. Consultation period ends for Consultation Paper 11/19 (Financial Resources Requirements for Recognised Bodies). Consultation period ends for Consultation Paper 11/21 (Regulatory fees and levies: Policy Proposals for 2012/13), except Chapter 2. Consultation period ends for Consultation Paper 11/25 (Distribution of Retail Investments - RDR Adviser Charging and Solvency II disclosures). Consultation period ends for Consultation Paper 11/27 (Proposed Guidance on the Practice of ‘Payment for Retail Product Development and Governance Structured Products Review).
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13
23
Consultation period ends for Consultation Paper 11/26 (Payment Protection Products). Chinese Year of the Dragon begins. World Economic Forum Annual
2529 Meeting, Davos, Switzerland. 27
Consultation period ends for Consultation Paper 11/20 (Packaged Bank Accounts: New ICOBS Rules for the Sale of Non-Investment Insurance Contracts). Emerging Markets Investment
3031 Summit, Montreux, Switzerland. 31
Deadline for self-assessment tax returns 2010/2011 (online only).
FEBRUARY 2012 -
6
15
Alternative Investments North America Summit (Braselton, Georgia, USA – date to be confirmed). Consultation period ends for Chapter 2 of Consultation Paper 11/21 (Regulatory fees and levies: Policy Proposals for 2012/13). Consultation period ends for Consultation Paper 11/23 (Solvency II and Linked LongTerm Insurance Business) and CP 11/22 (Transposition of Solvency II - Part 1).
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.
December 2011
65 01/12/2011 18:40
Very good in its make up and content. Sets itself aside from other publications in the marketplace. Excellent. Thank you. Really refreshing. High quality e production i nwith some good thought provoking articles z and useful LOgOa information. Good useful content. Up-todateainfoK useable, very good and easily read. Very good m articles, relevant to my work. Very interesting, extremely useful. Very impressive read and lots of useful S articles nice to see it in “magazine” style format A N D SINN TS usual rather ANthan newspaper. A comprehensive ERS read. Very good layout and informative. Good content, appealing to the female reader as many publicationscrisiare very male driven and focused. s Thank you. AUquality magazine for IFA’s. IFA ’s. Good paper S A with good content which is plain talking. Good layout and easy to read. Not seen anything like this for IFA market. Really AZIL Worth reading. Interesting BRgood. content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutely fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the monthsBRto please. A very readable AF TE R ITA INcome E RI O TS publication. It looksTHlike an interesting and enjoyable read that I would be happy to have delivered to the office - not something I could say about magazine manyThe financial publications! Great - look forward to subsequent editions. Brilliant! Very impressive S the top IFAs L Y S Ilike A and all interesting publication. Looked and felt N TA MEN M O WC a proper magazine rather than other cheaper EVIE R are talking about... S W E looking publications. Breath of Nfresh air and topical get your free subscriptionI’m going get it instead of the in biteTosimply size chunks. fill out the form online at: professional adviser papers and financial adviser www.ifamagazine.com/content/subscribe papers. Enjoyed the read. Keep up the good work! MA
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