M A R 2 0 12 ■ I S S U E 9
For today’s discerning financial and investment professional
BRIC DROPPING A
INDIA’S POLITICS GET IN THE WAY OF GROWTH
MORTGAGES
STILL TOO SCARCE
AMERICA RESURGENT YES, EVEN IN AN ELECTION YEAR...
DISCOUNTED GIFT TRUSTS HAVE YOUR CAKE AND BEQUEATH IT
N E W S R E V I E W C O M M E N T A N A LY S I S
Contents.indd 3
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C O N T R I B U TO R S
magazine... for today ’s discerning financial and investment professional
Neil Crossley writes for The Guardian, The Financial Times and The Daily Telegraph.
Nick Sudbury is a financial journalist and investor who has also worked as a fund manager.
17
Editor’s Soapbox
Lifer on Mars
Monica Woodley a senior editor at the Economist Intelligence Unit.
Currency Funds. Hedge them, speculate them, just don’t forget them, says Nick Sudbury
Richard Harvey a distinguished independent PR and media consultant.
03.12
Editorial Advisory board: Richard Butler, Michael Holder, Ian McIver and Mark Pullinger
THE FRONTLINE: Manmohan Singh and his government is giving a master class in how to annoy foreign investors
46
House sales are down and mortgages are scarce. Michael Wilson asks why we’re still waiting
49
Brian Tora a Communications Associate with investment managers JM Finn & Co.
News
All the big stories that affect what we say, do and think.
Kam Patel a former deputy editor at Hemscott. He is a qualified investment adviser.
Lee Werrell is the Managing Director of CEI Compliance, a leading UK consultancy.
8
How would you explain our pension system to an alien, asks Steve Bee?
Pick of the Funds
56
FSA Publications
Our monthly listing of FSA publications, consultations, deadlines and updates
The Compliance Doctor Lee Werrell of CEI Compliance looks at the top current issues of interest to IFAs
65
54 59
Thinkers: J K Galbraith
Whoops, those ideas seemed so blindingly obvious in the 1960s
The IFA Calendar
Conferences, economic summits, race meetings... All the dates you daren’t miss
66
The Other Side
Richard Harvey takes a client’s eye look at the world
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
IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2012. All rights reserved. ‘IFA Magazine’ is a trademark of The Wow Factory Publications Ltd. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.
features
regulars
This month’s contributors
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CONTENTS
features 22
COVER STORY
India – Dropping a BRIC There’s no sign that Delhi is getting any more business-friendly, says Monica Woodley. You can blame party politics for that
28
Investment Trusts
Changing times, changing perceptions, new demands. Kam Patel talks to provider Witan
32
America the Beautiful This year’s worst kept secret – America is right back on top again, says Jasper Berens of JP Morgan Asset Management
37
High Inflation, Low Interest Rates
Can India reallyc hange the way it does business?
It’s an unfamiliar fiscal situation, says Brian Tora of investment managers JM Finn. But can it last?
38
Discounted Gift Trusts How to have your cake and give it away as well. DGTs can be an ideal way of mitigating IHT, says Legal & General’s Mark Green
42
Take a SIPP
SIPP providers’ regulatory position is under FSA review, says Emma-Lou Montgomery. But that just makes them more attractive, not less
IFA Magazine is for professional advisers only. Full subscription details and eligibility criteria are available at: www.ifamagazine.com
I SN E W S R E V I E W C O M M E N T A N A LY S I S Contents.indd 5
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Octopus Portfolio Manager all round give LetforOctopus investment happiness.
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0800 316 2298 octopusinvestments.com
For professional advisers only. Not to be relied upon by retail clients. Past performance is no guide to future performance. The value of an investment in an Octopus product may go down as well as up and an investor may not get back the full amount invested. An investment may only be made on the basis of the information contained in the relevant product brochure. Octopus Investments Limited is authorised and regulated in the UK by the Financial Services Authority. FSA Registered Number: 194779. Registered office: 20 Old Bailey, London EC4M 7AN. Registered in England & Wales under No. 3942880. All information correct as at 17 October 2011. Telephone calls may be monitored and/or recorded for legal and training purposes. 1141-02-IHT-0112
01.03.12_IFA_297x210mm 1 Ed's Welcome.indd 6
21/02/2012 27/02/2012 13:00 11:00
WORDS OF WILSON
“ARE WE NEARLY THERE YET?” GOSH, HOW THOSE WORDS WOULD DRIVE MY POOR OLD DAD TO DESPAIR AS HE BATTLED TO GET US TO CLACTON OR MARGATE IN HIS OLD MORRIS. It was the sort of naïvely annoying question that only a child could ask. We kids didn’t know anything about roads or traffic density or rush hours or maps, so the only thing on our minds was how long it would be before we could get the buckets and spades out? This year, thousands of wide-eyed grown-ups will be asking us the exact same question. They don’t know much about what makes the stock market work, and they hardly understand the relationships between bonds and equities and interest rates. They’d be baffled if you told them that shrinking bond yields could ever be a good thing, because Robert Peston hasn’t got round to that part of their financial education yet. So if you’re hoping to explain to your clients why the euro crisis is driving down the gilt yield and kaiboshing the annuities that they can expect from their pensions when they retire, we can only wish you luck because you’re going to need it. All you can tell them, probably, is that the markets have been going through a complex period which has had an equally complex impact on the savings and investment market – and then, hopefully, steer them toward courses of actions that will prepare them for what you think they’re going to need soon. That’s the deep basis of trust that will secure your relationships beyond RDR. But meanwhile, strictly between ourselves, what do we think is going on? Can we persuade ourselves that the markets have already factored in the possibility of a Greek default? Do we feel confident that the 6% FTSE rise that we saw in the first six weeks of 2012 is a sure token of the market’s determination to move forward? Are we bothered by today’s low trading volumes? Do we buy Mervyn King’s reassuring messages about low interest rates and 1.8% inflation by 2014? Are we, in short, nearly there yet? Frankly, we have no idea. But by keeping assiduously informed we can surely improve our chances.
M ik e
Michael Wilson, Editor
www.IFAmagazine.com
13:00
Ed's Welcome.indd 7
Write to Michael at editor@ifamagazine.com
March 2012
7 27/02/2012 11:00
shorts
magazine
Peer to peer lending
is taking off fast this year, according to Britain’s dominant arranger Zopa. The agency said that lending in the first four weeks of January had reached £8.2 million, 42% more than the previous record month. And that amounted to nearly 2% of all UK unsecured lending in January.
What’s a Greek Urn Financial markets have recoiled in shock at the popular resistance being shown by the Greek electorate to the essential austerity measures. The measures that the Athens parliament had re-committed itself to in response to pressure from the IMF and the EU ought, in principle, open the way for further assistance under the EU’s €130 billion bailout programme, and should put an end, however temporarily, to fears that Greece might be forced into a messy withdrawal from the euro group. But it was clear that tensions were still very high. Nowhere more so than in the relationship between finance minister Evangelos Venizelos and his German counterpart, Wolfgang Schäuble, whom Venizelos angrily accused of actively trying to push Greece out of the euro.
Mr Schäuble had been one of several EU ministers who had been demanding extra written undertakings from Mr Venizelos about his country’s commitment to the reforms: Venizelos, who is set to become leader of the socialist Pasok party in April, had been muttering darkly about needing “modifications” to the austerity programme. All of which was enough to stop a respectable 6% growth in the Footsie in its tracks, as economists once again pondered the prospect of a two-speed “northern” and “southern” euro, and perhaps even the ejection of Greece. No to mention the impact of the 50% haircut that private bondholder creditors will have to take in their stride. So will we see more clarity soon? Right now, it seems hard to imagine.
ABOUT THREE DRACHMAS A WEEK
The Greek bailout appeared to hang in the balance when rumors circulated that Germany’s finance minister, Wolfgang Schäuble, was willing to contemplate a Greek default. As tempers flared, the Greek finance minister, Evangelos Venizelos (pictured left), suggested that some people were trying to drive his country out of the euro zone. For more comment and related articles visit... www.IFAmagazine.com
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China
has lent more money to Latin America since 2005 than the World Bank, the Inter-American Development Bank and the US Ex-Im Bank combined, according to a new report. Its $75 billion commitments included a $20 billion facility to Venezuela and $10 billion to Argentina after the 2008 international crisis had made it hard for emerging countries to secure traditional loans.
NEWS
Oil markets
sparked upward following Iran’s announcement that it had installed hundreds of new centrifuges in its “peaceful” civilian nuclear energy facilities. The EU declared an immediate ban on Iranian oil, while important customers like Japan and India struggled to find alternative sources.
Going Down Moodys’ surprised nobody with its announcement that it was reviewing the credit status of no fewer than 17 banks with global operations. Coming so soon after its downgrades of Italy, Portugal, Spain, Slovakia, Slovenia and Malta (because of “uncertainty” over financial reforms and “weak” economic outlooks), and its placing of Britain, Austria and France on a “negative” credit watch, nobody would have expected that the private institutions would have got off any more lightly than the governments. But the agency’s choices have still come as a bolt from the blue for some companies, because not all of the institutions that are going under the lens are based in the euro zone, or even in the EU at all. Switzerland’s UBS and Credit Suisse and America’s Morgan Stanley have all been threatened with a demotion by as much as three notches. Britain’s Barclays and HSBC Holdings, France’s BNP Paribas and Credit Agricole, Germany’s Deutsche Bank and America’s Goldman Sachs are all in line for a two-notch fall from grace. And Bank of America and Japan’s Nomura are both at risk of a one-notch downgrade. Well, at least you can’t accuse the American institution of anti-EU bias, as they did with Standard & Poors after its devastating government downgrades in January. What do these companies have in common? Partly, that they’re all world players in the investment scene, which would make them sitting ducks if the euro were ever to spiral into complete
crisis. But there were specific problems too. UBS had lost billions to a single rogue trader who wasn’t likely to be getting a Christmas bonus. The Franco-Belgian Dexia Group had been demoted simply for having too much Greek debt. Bank of America, Goldman Sachs, Merrill Lynch, Nomura, UBS and HSBC had all been planning to reduce their headcounts drastically. And BoA has been frantically beefing up its capital ratio in a way that has puzzled and rattled some investors. Nor are the 17 banks the only institutions to go on negative credit watch. An astonishing 114 European financial houses – including insurance giants Allianz, Generali and Mapfre – are under the lens. 99 of them face damage to their standalone credit assessments, 109 may lose their present long-term debt and deposit ratings, and 66 may suffer damage to their short-term ratings. Phew, that’s enough for one month.
For more comment and related articles visit...
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Robert Zoellick (right) announced
his June resignation as head of the World Bank, which he has led since taking over in 2007 in the wake of an ethics scandal. Regarded as a Republican hawk on European issues, Zoellick’s contributions often caused discomfort for Brussels. But he is credited with helping the Bank adjust to an era when bilateral aid has supplanted traditional macro-based international lending.
America
gave the world reasons to cheer with a string of healthy statistics on jobs, economic growth (a creditable 2.8% quarterly figure) and a pledge by the Federal Reserve to keep US interest rates “exceptionally low” until late 2014. US financial markets soared.
Word on the Street It isn’t surprising that clients across the world are getting more interested in income plays for 2012, given that last year showed such a solid result for fixed interest and similar investments. But other trends seem to point to a growing conviction among managers that things are warming up instead for equities and property investments. A recent survey by Aviva Investors’ multi-manager team found that a sample of 188 fund managers based in the UK, US, Europe, Asia and Latin America came out with quite a strong manager optimism for equity returns. 71 per cent of equity managers questioned said that they were expecting better results than in 2011, with 64% predicting returns in excess of 5% this year and with only 3% expecting negative returns. In contrast, only 7% of fixed income managers said they expected returns of more than 5% from sovereign bonds in 2012, and 20% said that they actually expected negative returns. (The figures for corporate bonds were slightly less doomy, with 13% predicting negative returns.) Both of these results seem to reflect a feeling that the booming bond markets of the last year have run their course and that prices are set to decline.
The beefiest outlook seems to come from real estate managers, 83% of whom believe that clients are more focused on income today than they were last year. A majority of those questioned said that they were expecting capital returns of up to 10% in 2012, with another 14 per cent predicting growth of more than 10%. But, tellingly, 17% said they were expecting capital value falls. Hedge fund managers were the exception that proved the rule, with only 9% saying that their clients were getting more interested in income. That didn’t surprise the markets, since hedge fund investors have famously thick skins. Among the hedge fund managers who expressed a view on overall returns, the expectation was for gains of between 5 % and 15%. 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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HNS2
IS
Never mind dug-out, is time to dig in.
Thinking defensively - Henderson Cautious Managed Fund Sometimes it pays to take a more cautious approach. % The Henderson Cautious Managed Fund’s goal is Historic to provide income and long-term capital growth from a yield* portfolio of equities, bonds and cash. Aiming to deliver lower volatility than a pure equity fund, it could be an attractive proposition in today’s turbulent markets.
4.2
Discrete year performance
31/12/10 - 31/12/09 - 31/12/08 - 31/12/07 - 29/12/06 30/12/11 31/12/10 31/12/09 31/12/08 31/12/07
Henderson Cautious Managed Fund %
0.8
7.8
12.6
-9.3
1.2
IMA Cautious Managed sector average %
-1.6
9.1
16.3
-15.7
1.4
The fund has been managed since launch in 2003 by Chris Burvill who has spent 20 years managing funds of this type, making him one of the most experienced in the industry. The fund’s AA rating from both OBSR and Standard & Poor’s confirm the quality of Chris’s asset allocation and stock selection decisions. Often defence can be the best form of attack. Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Yield may vary and is not guaranteed. This advertisement is for professional advisers only.
Source: Morningstar at 30 December 2011, based on discrete year performance, mid-mid, UK sterling, net income reinvested for a basic rate tax payer.
0800 856 5555 www.henderson.com
The other special manager
*The historical yield reflects distributions declared over the past 12 months as a percentage of the mid-market share price, as at 30 December 2011. It does not include any preliminary charge and investors may be subject to tax on their distributions. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE), Gartmore Investment Limited (reg. no. 1508030), Gartmore Fund Managers Limited (reg. no. 1137353), (each incorporated and registered in England and Wales with registered office 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Services Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ratings at 30 December 2011.
HNS212_CMF_IFAMag_0312.indd 1 News.indd 11
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NEWS
Spain’s economy shrank
by 0.3% in the final quarter of 2011, ending hopes that a zero growth result in the third quarter might signify it was not heading for recession. Household spending fell by 1.1% during the quarter and public spending dropped by 3.6%. But it is not alone. Germany’s economy shrank by 0.2%, and Italy and the Netherlands contracted by 0.7%.
Britain will (just) avoid a
technical recession, the CBI says, by registering a 0.2% growth rate in the first and second quarters of 2012. Whole-year growth will be 0.9%, it says, rising to 2% in 2013. But the recovery will be led by industrial investment - not by consumers, who will remain subdued.
Structured Products – The ISA season is bearing down on us like a freight train – and so, by no particular coincidence, is the Financial Services Authority. The FSA has promised that it will present feedback on its controversial structured products consultation by the end of March. Not that this unwelcome timing needs to concern the growing number of highquality providers who are vying for their share of an ISA market that has more than proved its worth over the last few years.
The last year’s stock market gyrations have been bringing investors through the doors in droves, attracted particularly by capitalprotected structured deposits. And the perceived reliability of structured products in general has been a winner – especially when combined with the tax advantages of ISA wrappers. Investec, for instance, has been running a new series of structured deposit and investment plans aimed significantly at the ISA market. Morgan Stanley’s new and “fully-protected” Accumulator deposit plan is a more complex hybrid which allows investors to lock into a fixed 6% return once a year, providing that the Footsie has closed at or above its initial level. And Privalto, part of BNP Paribas, is planning a product shortly with “80 to 100%” capital protection. (Backing assets are still to be determined.) Predictably, it’s the sharper and more convoluted products that have incurred the regulator’s wrath. One such was Banco Santander, which was fined £1.5 million in February for failing to tell its investors that some £1.2 billion of “guaranteed” stock market-linked bonds did not entirely qualify for compensation in the event of a failure. Santander had clarified its position only in 2010, some 18 months after investors had first expressed worries.
That FSA Review – What It Says The FSA’s Guidance Consultation on Structured Products (GC 11/27), of course, was initially instigated in the wake of a regulatory review conducted between November 2010 and May 2011, in which
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regulatory spotlight, as the government stepped up its efforts to regulate the sector. More than 300,000 households have made recent use of payday loans which can charge interest rates of over 5,000%. PricewaterhouseCoopers reported that consumers reduced their credit card exposure but still had an average unsecured debt of £7,900.
TISA has effectively incorporated
the Investment Funds Association, following a February merger of their activities in readiness for a renewed push on TISA’s distributor funds initiative. The IFA had been instrumental in the preparation of TISA’s November report on exploring design distributor funds solutions which are deemed RDR compliant.
NEWS
Payday loans came under the
Decision Day Looms it inspected seven major providers with regard to their product design, their chosen target markets and their after-sale practices. The study said it had found “weaknesses” in the design and approval processes for these products, which sounds a little worrying if you say it quickly; in practice, however, the alleged malpractices related more to the ways that certain unscrupulous intermediaries and/or providers were targeting inexperienced investors with products that were either mislabeled in risk terms or else contained ‘catch clauses’ that had not been properly explained to the clients. In practice, there has never been any doubt in the industry that structured products in general are beneficial and appropriate to many investors, since they provide an exceptionally convenient and cost-efficient way to track and entire market (or market sector) which is especially attractive during periods of market volatility. The problems can be resolved, the FSA says, if firms can be forced to: ■ 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.
markets so as to avoid possible confusion among less sophisticated consumers. In truth, there does seem to be a fair amount of unnecessarily panicky talk around the place. The European MiFiD II proposals failed to fulfil early hopes and fears that it would come down hard on complex products from a Brussels perspective: the UK is effectively allowed the final say in what goes and what doesn’t. And the UK Structured Products Association pointed out in November that, of the 81,301 complaints handled by the FSA in the first quarter of 2011, only 34 - less than 0.042% - related to structured capital at risk products.
The new guidelines, then, encourage structured product providers to stress-test new funds before launch so as to confirm that they can deliver fair outcomes, and to monitor the resulting products throughout their life cycles. Most importantly, though, they require providers to sharpen up their identification of the appropriate target 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
First time buyers hit the
mortgage scene in December with a 7% year-on-year increase in take-up, the Council of Mortgage Lenders reported. £2.3bn of first-time loans were advanced to 18,700 borrowers, 10% more than November. A possible reason is that the government’s 1% stamp duty exemption on inexpensive properties expires on 24th March.
Nucleus
, a fast-growing junior platform, announced that it will be launching a white label, executiononly platform in the autumn, allowing advisers to build their own direct wrap propositions for clients. The proposed wrap will offer ISA, SIPP and general account facilities and will be fund based. Real-time equity trading is planned for later in the year.
A Born Survivor You have to hand it to Mervyn King, he knows how to play a poor hand. IFA Magazine has often saluted the Bank of England Governor for his increasingly impressive ability to face down the cameras when things have got tough. But he’s excelled himself this time. The turbulent priest has sometimes made himself unpopular with Chancellor George Osborne for his tendency to speak out on unwelcome topics at times when Treasury protocol would have preferred him to hold his fire. But he went for the straight-talking real deal with the Bank’s February Inflation Report, which pulled very few punches. It was, of course, excellent news that CPI inflation had fallen to 3.6% in January, from 4.2% in December – largely because the VAT increase of January 2011 had fallen out of the annual equation – and he expressed firm hope that price rises will continue to decline. But external factors could still be a problem. Firstly there were the “substantial headwinds” coming from Europe, which he said are still hampering Britain’s recovery. “The biggest risk to the recovery stems from developments in the euro area,” he said, “where there remain concerns about the indebtedness and competitiveness of some member countries.” Then again, any disruptions to oil supplies (Iran, anyone?) could also wreak havoc. But Mr King also came as close as he dared to admitting that the Bank’s latest £50 billion round of quantitative easing (to £325 billion)
“A raise in interest rates would turn a gradual recovery into a recession” Mervyn King tells it like it is
might impact upon the scenario. By acting as a spur to growth, he managed to imply, the extra liquidity could increase inflationary pressures again. (See Brian Tora’s review on Page 33.) The Bank’s report contained an inflation forecast of around 1.8% in two years’ time - which will come as a disappointment to those who were expecting a lower figure. But he said the Bank’s relaxed monetary policy, combined with rising commodity prices, had put an end to optimistic hopes. And he was in no mood to alter the low-rate monetary policy either. “If we were to raise interest rates to such a level now, that would serve only to turn a gradual recovery into a recession, put more people out of work, and cut the value of assets on which many savers depend.”
For more comment and related articles visit...
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C512
IS
C30531.012_SP_ISA_IFA mag_1 Mar_297x210_v1_Layout 1 27/02/2012 12:53 Page 1
A modern take on investing. Structured Products in an ISA
Defined equity-linked returns in a tax efficient way Structured products inside an ISA – different and appealing. Showcasing a collection of structured investment and deposit plans, offering defined equity-linked returns in a tax efficient way. Maximise your clients’ double ISA opportunity on all these plans until 5 April. Eight plans to choose from: Investment Plans FTSE 100 Enhanced Kick-Out Plan 27
ISA transfers available. All plans can be invested in via a Cash ISA and via
FTSE 100 Geared Returns Plan 32
a Stocks & Shares ISA on our Investment Plans.
FTSE 100 Accelerated Growth Plan 32 FTSE 100 Bonus Income Plan 22 FTSE 100 6 Year Kick-Out Plan 1 Deposit Plans FTSE 100 Kick-Out Deposit Plan 27
2011/12 tax year:
2012/13 tax year:
Total annual ISA allowance: £10,680
Total annual ISA allowance: £11,280
Application deadline: 5 April 2012
Application deadline: 13 April 2012
ISA transfer deadline: 30 March 2012
FTSE 100 3 Year Deposit Plan 32
Plans close 13 April 2012.
Deposit Growth Plan 15
Plans may place clients’ capital at risk.
www.investecstructuredproducts.com 020 7597 4065 for technical enquiries 08000 890 305 to order client literature
Best Structured Products Provider 2010 & 2011
This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.
News.indd 15
27/02/2012 13:45
Shanghai, China; a booming international city, representing the dynamism of Emerging Markets.
Celebrating a year of emerging income: The UBS Emerging Markets Equity Income Fund. As it marks its first anniversary with top quartile performance, we believe the UBS Emerging Markets Equity Income Fund represents an exciting long-term investment opportunity. Why? Because in the current low interest rate environment, the Fund offers your clients access to large companies, all with the potential to pay out rising and sustainable income streams. Led by an experienced team that currently manages USD 20bn in emerging markets and asian equities, the Fund offers a current estimated yield of 5.0%¹ and provides the opportunity for clients to diversify their sources of income and exposure to emerging markets. Fund performance
Sector average
Outperformance
Quartile
3 months
6.8%
3.2%
+3.6%
1
6 months
-0.2%
-7.0%
+6.8%
1
3.3%
-7.0%
+10.3%
1
1 year
As can be seen in the table above, the Fund has outperformed its sector since launch and has consistently been ranked top quartile2. To find out further information on the Fund’s top performing first year, please visit www.ubs.com/emei or call us on 0800 587 2111.
We will not rest
ab
This advertisement is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances. ¹Source UBS Global Asset Management, as at 31 January 2012. The estimated distribution yield is a guide only. It reflects the amount that may be expected to be distributed over the next 12 months as a percentage of the current share price. The calculation does not include any preliminary charges and investors may be subject to tax on distributions. The forecast distribution yield may be updated from time to time and will be replaced with a historic yield once the Fund has recorded distributions over a full year. The Fund has yet to make these distributions and as such, the historic yield is not currently available. ²Source: Lipper. Performance is based on NAV prices with income reinvested net of basic rate tax and in Sterling terms to 31 January 2012. Yield figures and performance shown represents the A income share class. Sector is IMA Global Emerging Markets. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up, and are not guaranteed. Investors may not get back the original amount invested. Changes in rates of exchange may cause the value of this investment to fluctuate. Investments in less developed markets may be more volatile than investments in more established markets. The Fund is permitted to, and may, on occasion, hold a limited number of investments. As the annual management fee of the Fund is charged to capital, the potential capital growth of the Fund will be reduced. Issued in February 2012 by UBS Global Asset Management (UK) Ltd is a subsidiary of UBS AG, 21 Lombard Street, London EC3V 9AH. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded. © UBS 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
News.indd 16
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ED ’S SOAPBOX
A MOVING STORY TRENDS IN THE HOUSING MARKET ARE ALL OVER THE PLACE, SAYS MICHAEL WILSON. PERHAPS WE’RE NOT LOOKING HARD ENOUGH AT THE REAL ISSUES?
My next door neighbour is no fool. Born and bred in one of the neighbouring villages, and now earning quite nicely, Paul has spent the last five years raising a family of four (or is it five?) in a large rented house that must be costing him comfortably over £1500 a month while he waits for the property market to bottom. But last month, Paul announced that the family was finally taking the plunge by buying an equally sizeable house in another part of the village. So it’s official, we concluded. The market is finally about to turn. What took him so long? Now, I’ll confess that the economics of voluntarily shelling out £18,000 a year (or shall we just call it £90,000?) on a non-appreciating asset like a rented home has always been lost on me. If Paul had been borrowing instead on a base rate tracker mortgage at 2% a year, say –
“The industry is currently expecting house sales in the next three months to be at their highest level since May 2010” According to a recent report from the Royal Institution of Chartered Surveyors
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magazine... for today ’s discerning financial and investment professional perfectly possible four years ago – he’d have been at least £40,000 in pocket by the time he’d taken account of his capital repayments. Although his savings income as a cash-rich renting tenant would have mitigated that shortfall a bit. And yet Paul got it right, and I, the instinctive house owner, got it wrong. The 1012% nominal house price fall around these parts during those five years has handed him a discount on his new home that will repay him handsomely for his patience. I have little doubt that Paul’s thirtysomething outlook has beaten my traditional assumptions hollow.
A Long Haul It takes a lot of optimism right now to suppose that it’s going to be a quick return to business as usual for the UK housing market. With unemployment nudging 8.5% and with the likelihood of a second quarterly negative growth rate – the technical definition of a recession – the country doesn’t seem to be in the mood. But what’s this? A report from the Royal Institution of Chartered Surveyors says that the industry is currently expecting house sales in the next three months to be at their highest level since May 2010. It would be easy, but perhaps hasty, to attribute the rush to the return of the 1% stamp duty for first-time buyers, which is being reintroduced on 24 March for properties worth between £125,000 and £250,000. The exemption was introduced in March 2010 by the old Labour government, which was trying desperately to kick-start a flagging market at a time when job security was on the ropes and the economy was lurching into crisis. But the consensus is that it never actually made much difference to the country’s appetite for first-time property. That’s certainly what Chancellor George Osborne claimed when he announced its imminent abolition during last November’s Autumn Budget Statement.
Still, the Council of Mortgage Lenders also says that a short-term surge in first-time purchasers toward the close of 2011 might have been the result of people trying to get onto the property ladder before the concession expires. That would make more sense if it weren’t for the inconvenient fact that Mr Osborne’s announcement came rather too late in the year to be credible as an incentive for a spending splurge as soon as December. And another thing. One percent stamp duty on a house purchase of £150,000 is £1,500, which is probably not much more than some of these buyers are paying their lenders in mortgage introduction fees. Or the price of a few pairs of curtains, if you will, or a carpet for the lounge, or half a year’s insurance on a Fiat Punto if you happen to be 24. It isn’t such a big lump of money that it would ever dissuade anyone from getting serious about buying a house. And rightly so. A better explanation for the recent surge might be that first-time buyers are finding it slightly easier to get hefty loan-to-value mortgages without having to face punitive interest rate charges. And yes, there’s some evidence for this, at least at the easier end of the scale. In February 2012 you could get a lifetime offer of 2.49% above bank base rate (i.e. currently 2.99%) from HSBC if your funding requirement didn’t top 80% of the property value. But at 90% loan to value the same lifetime loan would shift to 4.09% over base, which would currently equate to 4.59%. At 95% loan to value your best lifetime option would probably be 5.29% (currently) from
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The Generation Game Now, my own reaction to this is that these rates are really pretty attractive compared with the 16% variable mortgage rates that I was paying back in the 1970s – a time when t’miners were on strike and t’milk froze in t’bottle and Opec was sending the world into 15% inflation and beyond, and gold was doing berserk things. Back in those distant panicky days of soaring prices, the only sensible thing for a young person to do was to sell your car, stop eating meat or taking holidays, buy a house - any house - and accept that your mortgage payments would swallow up half of your disposable income for five years until wage inflation lifted the burden from your shoulders and your mortgage bills became just a minor irritation. That kind of logic worked just fine for my generation, because we had good reason to expect that the evil inflationary worm would soon cancel out the pain and we’d be comfortable for life. But for today’s young borrowers the certainty of hefty price rises simply isn’t there any more. UK price rises (outside London) have basically stalled for the last five years, and in Merseyside or Wales or Scotland or Northern Ireland they’ve dropped away drastically. Add to that the fact that today’s professional first-time buyers are effectively required to move jobs every two or three years – something that would have stricken us baby boomers dumb with horror – and you can see why the attraction of short-term pain for longterm property gain has lost a lot of its glamour.
ED ’S SOAPBOX
the Bath Building Society, or 5.2% from the Newbury if you were buying through a shared ownership scheme. Five-year fixes currently tend to come in at 3.99% or thereabouts for an 80% loan to value deal (HSBC again), or 4.99% for a ten-year fix from the Woolwich (70% LTV).
The MMR Albatross But the elephant in the room, of course, is a different kind of animal entirely. An albatross, in fact. The Mortgage Market Review has been lambasted by IFAs and lauded, perhaps unexpectedly, by housing charities like Shelter for making it much, much harder for first-time buyers in tight situations to get a mortgage. But by tightening up the loan conditions to the point where many twentysomethings could hardly raise a workable mortgage at all on less than £50,000 a year (combined income), the MMR attracted the ire of not just the consumers and the would-be vendors but the CML itself. Loan shortages were killing the market, and killing property values too. That price failure, of course, didn’t happen just because of the MMR itself. The collapses of Northern Rock and Bradford & Bingley had happened because of a systematic understatement of borrowing risk, especially among buy-tolet landlords who were as firmly sold on the exponentially-rising-prices scenario as I’d been during my twenties. The disappearance of cheap fixes for buy-to-let landlords in 2007-2008 knocked the heart out of a major part of the industry and forced enough fire sales to do its own price damage to the whole property market – thus, accidentally, eliminating yet another of the last remaining buy incentives for young people. Let’s not forget, either, that Britain’s banks have been anxious (nay, obliged) to preserve their capital through the last three troubled years – and that the best way of achieving this is to lend less, and to hell with the whingeing borrowers. Lending criteria have been tightened out of 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!
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magazine... for today ’s discerning financial and investment professional recognition. And although Banco Santander has hardly surprised us with its February announcement that only borrowers with less than 50% loan to value can have an interest-only mortgage henceforth, it will have come as a bitter blow to buy-to-let landlords and those who back their property purchases with investment portfolios.
The Real Truth
But let’s go back a paragraph or two. We’ve been hearing that UK inflation in January dipped to just 3.6%, thanks in large part to the fact that the 2.5 percentage point increase in VAT imposed in January 2011 had finally worked its way through the system and out the other side. We had suffered the 2.5% step change in taxation, and we were ready to start comparing like with like again. Considering which, February’s news from the Department for Communities and Local Government (DCLG) that house prices rose by just 0.1% in 2011 - 5% below the peak of April 2008 – was actually a bit of a disappointment. Set against a 4.4% rise in the Retail Price Index for 2011, the underlying performance of housing was pretty worrying if you only had the determination to stand on the right rock and view it from the right angle. And as for being 5% below April 2008, the real house price was probably closer to 20% down by the time you’d allowed for four years’ worth of inflation. So what else has happened during those four years? Equity values have gained almost nothing – meaning, in effect, that they’ve lost around 13% to inflation. (US stocks, however, gained 20%in sterling terms, putting them well ahead in real terms.) Gilt prices have of course soared since 2008, although that heady phase has run its course now. And at no time did cash returns equal the pace of inflation unless you happened to be borrowing the money instead of lending it.
Looked at like this, the real fall in UK house prices seems overdone. The Nationwide affordability index has average house prices at 5 times earnings, down from 6.5 in 2007. But the Council of Mortgage Lenders shows the median loan to income ratio for first-time buyers slightly up, to 3.2 compared with 3.0 in 2008 and 2.5 in 2002. That implies that first-time buyers are still finding it tougher than almost anyone else. And that’s what we don’t want to see at a time when employment prospects are uncertain and the natural inclination is to reduce capital risk.
Breaking the Cycle
What’ll it take to break this cycle of despair? Well, the good news is that the government’s latest survey shows fewer surveyors than usual expecting prices to fall in the coming months. The bad news is that the resounding majority still think prices will fall than increase. I suspect, though, that it’ll take a more profound resumption of economic growth than some of the optimists are currently reckoning with. Today’s young borrowers don’t actually know that the global economic scene is in more trouble than at any time since the 1930s. (Or that it took more two decades to get out of that one.) What they do know is that their circumstances are tighter than we oldies probably appreciate. They know that they need to be a properly mobile labour force with a properly mobile housing market; that price rises for almost everything except clothes and electronics seem to be magically outstripping inflation these days, so that there’s less to spend at the end of the week; that government subsidies for families are under pressure; and that all this hurts quite a lot. The property market may be in bargain territory these days, but that doesn’t make the mortgage option very much more palatable. Does it?
“Today’s borrowers need to be a properly mobile labour force with a properly mobile housing market”
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magazine... for today ’s discerning financial and investment professional
“The usual image is of a messy Indian democracy where growth has come from lively innovation on the street” 22 India.indd 22
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CULTURE CLASH INDIA’S GOVERNMENT IS GIVING A MASTER CLASS IN HOW TO ANNOY FOREIGN INVESTORS, SAYS MONICA WOODLEY The five BRICS countries Brazil, Russia, India, China and South Africa represent roughly one-third of the world’s population, with a combined nominal GDP of US$13.6 trillion. Since 2009 there have been three BRICS summits, each hosted by a different member country. A fourth summit is scheduled to take place in India in late March 2012.
As the only two countries with over one billion people, and as the star performers among the BRICS group, China and India have been the headliners of the emerging markets story. And in many ways they seem to present contradictory stories of success. The usual press image is of contrast between a staterun Chinese economy where decisions taken at the highest levels of government have kept firm control of growth, and a messy Indian democracy where growth has come from lively innovation on the street. So much for the stereotypes, but actually India’s economy is much more tightly controlled by the state than most people realise. Indeed, the
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country’s problem right now is that, rather than effectively guiding the economy as in the case of China (well, mostly), the controls are restricting India’s growth by making it a more difficult place to do business or invest. According the Economist Intelligence Unit’s business environment rankings, India scores just 5.5 out of 10, placing it behind two of its three BRIC-counterparts, Brazil and China, and just ahead of Russia. It places 59th out of 82 countries globally, and 12th out of 17 in Australasia. Ouch.
An Uneasy Coalition Despite what many people see as an obvious need for liberalisation, the current government has failed to enact the structural reforms required to truly open up the economy and free it for growth. The United Progressive Alliance coalition, led by the Congress party, is a centreleft collective that’s hindered by the
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same problem most coalitions face – namely, that its constituent parties are brought together by political opportunism rather than by shared ideology. That opportunism has come to the fore in recent months – not least, because of the elections that are currently taking place in five state assemblies, including the assembly of Uttar Pradesh, India’s most populous state with 200 million people. Suddenly, the temptation to score political points by appealing to populist sentiment has become overwhelming. Two events from last December illustrate the point nicely.
Closed Shop First came an embarrassing U-turn on the government’s plans to open up the country’s $450 billion retail sector to foreign investment. In late November the finance ministry had announced that foreign companies would be allowed to own 51% of supermarket chains (known as multi-brand outlets) or 100% of single-brand outlets. Up until that point, multi-brands had been locked out entirely But just a fortnight later came the suspension of the entire project, as popular protests snowballed into a full-on blockage by one coalition partner. The single-brand retailers, like Sweden’s IKEA, have still got their right to own their Indian stores outright, but it has been stipulated that they are still required to source 30% of their goods from local small and medium-sized companies. Many companies – IKEA included – see this as an obstacle and are delaying entry into the market until this aspect is reviewed.
The reason behind all this backtracking is that the retail sector is the country’s second biggest employer (after agriculture) - mainly through small, family-owned stores - and there is a real fear that increased competition from bigger retailers will lead to a sharp rise in unemployment. Of course, it would also help to reduce costs for consumers which would not be an inconsiderable advantage, given the high levels of food price inflation seen over the past year – but hey, shopkeepers have votes too, and the status quo looks safer.
Curbing Corruption The other sign that the coalition government is not taking the steps needed to improve the country’s business environment was its ignominious failure last December to pass the anti-corruption legislation known as the Lokpal bill. Or rather, the bill made it through the parliament but it failed to achieve the constitutional status that would have been required to give it any teeth. This important bit of anti-corruption legislation had been largely forced onto the government’s agenda in reaction to a scandal surrounding the sale of second-generation (2G) telecommunications licenses back in 2008. Licenses had been sold on a “first come, first served” basis which had resulted in them being sold far too cheaply. Overall, the exchequer is thought to have been short-changed by about $40 billion. It was a situation which Prime Minister Manmohan Singh ought to have been well able to handle. A committed free-marketeer (by Indian standards), and a highly successful finance minister in earlier times, the premier would have been well aware of the damage such a scandal could do to India’s image. But neither he nor the legislature took any decisive action. The fact that the telecoms minister who oversaw the sale has now been jailed ahead of a corruption trial, and that the licenses have been revoked, and that the Telecoms Regulatory Authority has been told to prepare for a new auction is all down to the actions of India’s supreme court, specifically chief justice S.H. Kapadia.
Sending the Wrong Signals This very public back-tracking on the retail sector and on the 2G license sale is currently sending a negative signal to many foreign companies who might be thinking of investing in India – not to say, perpetuating an unwelcome perception of an India where economic reform is slow and where continuing corruption is still an endemic problem. Prime Minister Manmohan Singh, a highly successful finance minister in earlier times, is well aware of the damage recent corruption scandals could do to India’s image.
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It’s not just the retail sector that has been held back: the government has kept caps on foreign-held equity in many industry sectors, and the default position is still that all foreign investments
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magazine... for today ’s discerning financial and investment professional are subject to approval. Agriculture, insurance, ports and airports and some media activities are subject to stringent controls, and oil, coal, railway transport, nuclear energy and defence activities are still entirely reserved for state enterprises. Despite these limitations, foreign direct investment (FDI) made dramatic strides during the first years of the decade, peaking in 2008 at $43.4 billion – nearly twenty times as much as in 1999. FDI took a predictable hit in 2009-10 as a result of the global economic recession, but it still averaged $30.1 billion, which was a creditable result considering the global circumstances. Investment has been strongest in services, construction, property, IT and telecoms, and the government has been keen on attracting investment in infrastructure. Unsurprisingly, the fastest-growing sectors are those that are most open to foreign competition, like IT.
Economic Projections Suffering But the chill on foreign investment – along with the continuing global slump – are now taking their toll on economic growth. From earlier forecasts of 9% GDP growth, the Economist Intelligence Unit now predicts growth of only 7.1% for 2011 and a further decline to just 6.3% for 2012.
Inflation is also still an issue, although the situation is currently improving. Price rises averaged 9.4% in 2011, having peaked in September 2011 at 10%. A sharp drop in food prices brought it down to a two-year low of 7.5% in December, and the government boldly says that it expects inflation to drop further to 6% by this March. Can that really be accomplished? Well, the Reserve Bank of India (RBI) kept interest rates on hold at its last meeting in December, having raised rates 13 times since March 2010, so that’s a sign of confidence. And it also shows that the government has started prioritising slumping economic growth over inflation concerns. The central bank governor has even hinted that the RBI might cut rates soon.
Outlook There are some bright spots for investors - the government did open up domestic mutual funds to foreign investors in August, and it is slowly partprivatising state behemoths such as Indian Oil and Power Grid, increasing the opportunities for investors. And remember, slower GDP growth does not necessarily mean lower investment returns. Warren Buffett is only one of the many wealthy foreigners anxious to secure a piece of the Indian scene. His Berkshire Hathaway is pressing the government to relax the 26% cap on foreign
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insurance ownership - “I don’t consider India as an emerging market,” he’s reported to have said – but for the time being he’s been forced to settle for a sharing agreement with Bajaj Allianz General Insurance instead. Nippon Life Insurance, Japan’s biggest life company, bought a maximum 26% stake in India’s Reliance Life Insurance Co last March, and Allianz SE, Aviva and ING Groep NV are all thought to be queuing up for their share of a market that the Life Insurance Council forecasts to expand by 34% a year.
“Warren Buffett is only one of the many wealthy foreigners anxious to secure a piece of the Indian scene”
Yet the blockages and the bureaucracy continue. And the frustrating thing with India is that its problems are being seen mainly as home-grown. Whereas China has been understandably affected by the slowdown in its export markets, India’s restraining issue is that foreign firms would love to tap into its vast and growing middle class of consumers, and its strong skills base – but that, far too often, the government is still standing in the way.
Will that change soon? It seems unlikely. With those elections for five Indian states currently in progress, and with the next general election not due until 2014, it might be a while yet before any political leader emerges who is willing to move beyond short-term, populist policies and take the action needed to free India’s economy. For more comment and related articles visit...
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IF THE SH magazine... for today ’s discerning financial and investment professional
WITAN INVESTMENT TRUST’S CEO ANDREW BELL TALKS TO KAM PATEL ABOUT THE CHANGES AND THE CHALLENGES THAT RDR WILL BRING FOR CLOSED-ENDED FUNDS We don’t need telling that among the many demands RDR makes of financial advisers is the requirement that they must consider the full range of investment vehicles – a massive challenge that will call on IFAs to research and maintain up-todate intelligence in whole new areas. And, as we said last month in IFA Magazine, closed-end funds, and investment trusts in particular, are one of the areas where advisers have a bit of catching up to do. It isn’t hard to see why, historically, trusts have not been on independent advisers’ radar. Being listed in their own right, for instance, means that trusts are not easily accessible on major investment platforms, which are geared toward open-ended. Their shares can trade at a disconcerting discount
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INVESTMENT TRUSTS
OE FITS... to net asset value, which bothers investors. (Or at a premium, which probably ought to bother them more.) And, in general, trusts don’t pay commission to advisers. But RDR’s strident sounding of the death knell for commission arrangements looks set to push advisers and trusts into each other arms, like it or not. The trick is to make sure they like it.
An Under-Represented Sector Andrew Bell, chief executive officer of Witan Investment Trust, one of the largest multimanaged retail funds in Britain with assets of £1.2 billion, is in no doubt whatsoever about the opportunities that lie ahead. RDR has the potential to generate “significant demand” for the closed-end sector, he says, because the scope for IFAs recommending investment trusts to their clients is massive. Just how massive becomes apparent when you consider that IMA data shows a £571 billion universe for open-ended funds as at the end of 2011 - much of which will have been invested via an IFA – but a mere £90 billion for the investment trust sector. Trusts are now looking to improve their reach by encouraging advisers, providing them with support, and pushing for them to be provided with easier access to closed-end offerings on platforms. Bell reckons the key challenges for the investment trust sector in an RDR world relate to three major areas - product distribution, education and marketing. Firstly, he believes, trusts will either have to provide something different in the product line - such as strategies for investing in illiquid
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assets or access to unusual asset classes - or else they will have to come up with very good reasons why an adviser should recommend an investment trust over the equivalent open ended fund. These reasons, for instance, could include the fact that a trust has a more clearly defined investment story, a lower total expense ratio (a measure of what a fund costs to run), or simply a better track record.
Educational Need From an educational point of view, Bell says there is more for an IFA to understand, and therefore explain to clients, when recommending an investment trusts - such as premiums/ discounts and gearing – “factors that are potential extra levers for delivering performance, not just random sector eccentricities”, he adds. One critical area where the needs of advisers very much meet with the desire of investment trusts is in platform access. While closed-ends are already available through platforms such as Transact, Ascentric and Nucleus, the three big boys - CoFunds, FundsNetwork and Skandia, which between them manage over 70% of assets on platforms - have so far stayed on the sidelines. But there is a good deal of activity taking place behind the scenes that could encourage greater involvement by the major players. Most notably, the Association of Investment Companies, which represents investment trusts, is working hard with them to extend platform coverage. CoFunds and FundsNetwork have both announced plans to include closed-ended funds by the end of this year, leaving only Skandia to insist that demand for ITs is too small to make it a priority.
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magazine... for today ’s discerning financial and investment professional
Money Talks One of the sticking points for the three big platforms is remuneration - more precisely, how they will get paid if an adviser recommends an investment trust. But another issue is the technology itself. “Trading unit trusts once a day is relatively straightforward,” says Bell, “whereas offering investors the extra flexibility of dealing in equities and investment trusts, which can be traded throughout the day in London, is more complicated.”
the previous tailwind of trail commissions is coming to an end under the new rules. “For many investment trusts this is uncharted water, requiring extra effort to gain attention through, for example, informative websites, advertising and meetings with key advisers.”
Fighting the Fog
“The answer to this - and an answer will have to be found - may be to link up with another provider who can provide this functionality. This is what Cofunds, for instance, have done with Barclays Stockbrokers.”
Bell took over at the helm of Witan in February 2010. Formerly co-head of investment trusts team at BZW and Credit Suisse, his first year at Witan, as for any new portfolio manager, was especially intense. “The trust was doing OK before I joined,” he recalls, “ but it had dropped off the radar screen of many investors because performance had been weak in the early years of the [current] century.”
Finally, the changed landscape under RDR will also pose questions for trust marketing and sales operations, says Bell. “The sector is competing with unit trust managers who have large marketing budgets, even though
Witan’s move to a multi-manager strategy in 2004 was not well explained to investors, says Bell. By allocating around half of its assets to indextracking portfolios, it gave investors the impression that it was diluting the advantages of having
“The answer may be to link up with another provider”
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By 2009, even though Witan’s performance was improving, it was still not registering with investors as they struggled to make sense of the investment approach and fretted that drivers of performance lacked clarity. “We needed to explain what we were doing more clearly to our shareholders,” says Bell – “particularly private shareholders who do not have the same research resources as the institutions.”
Going for Growth Bell’s first year at Witan saw the trust close remaining index mandates, replacing them with active managers committed to focused stock picking. The number of specialist regional managers was reduced, and more of the assets placed with managers who were free to invest without geographical constraints in what they saw as the best companies. The period also saw Witan increasing its strategic allocation to emerging economies, in view of their superior long-term growth prospects, and money being allocated to specialist assets, such as listed private equity funds, which offered attractive recovery prospects. “We were more active in managing our geographical asset allocation and the level of gearing in the portfolio. Overall, rather than depending on a single factor to drive performance, we sought to become more adaptable and opportunistic across a number of fronts, ” says Bell. Overall, he believes, the changes have been a success: “The managers replacing the index funds have generally performed well, while also improving investors’ perception of Witan as a more entrepreneurial company.” In February Witan was able to announce a second interim payout, which meant a 10% hike in its dividend for 2011 versus the previous year: “That is twice the rate of inflation, and it reflects strong dividend growth from our newly shaped portfolio.” The progressive dividend policy is important for Witan, he says, not least because the trust has a pretty impressive record on this front that it wants to build on. It has also increased payouts every year since 1974 – a rise over 37 years of more than 30-fold in dividends per share compared to a 10-fold rise in retail prices. Witan’s total return outperformed its equity benchmark by 3.4% in 2010 but underperformed by a similar amount (-3.8%), in 2011. In money
INVESTMENT TRUSTS
the ability to choose freely from the world’s best managers. And the process of reviewing managers and managing the asset allocation was also “foggy”.
terms, he says, shareholders enjoyed a total return of just short of 19% in 2010 and a fall of slightly under 11% in 2011, though Bell notes that at the time of writing, 10 February, this had been recouped by the New Year rally. The key challenge last year, of course, was the abrupt fall in markets during early August, which made evasive action difficult if you were not already defensively positioned. This was followed by an “extended test of nerves” for Witan and its managers, as they wrestled with deciding whether to stick to their convictions in terms of gearing and stock selection or whether to change tack: “Since we felt the markets were acting over-emotionally, we kept our nerve, allowing us to recover more strongly than markets in general in early 2012.” Witan’s discount performance was steady over 2011. The trust has for many years actively bought back shares to help balance supply and demand in the market as well as helping its NAV growth. The discount started 2011 at 9.9% and ended it at 9.4%. The average discount for the year was 10.6% (down from 11.1% in 2010).
Equity Upturn in Prospect Looking ahead Bell says there are undoubtedly challenges for global economies and societies in 2012: “Structural changes in the world’s balance of power take place and past debts have to be faced. Nevertheless, we believe the world will muddle through and achieve a better economic outcome than the gloom at the start of the year implied. Growth may prove anaemic but anaemia is better than rigor mortis.” Although periodic squalls are likely to continue, Bell reckons that equities look priced to deliver positive real returns for investors - in marked contrast to low risk investment such as cash deposits and government bonds which are providing virtually no interest return and seem likely to deliver negative returns after inflation is taken into account: “They have a value as comfort blankets or as insurance, he says – but remember, bond yields in 2011 were driven down because of fear, not because of any conviction that at 2% yields they represented good value. Bell says that, going forward, the challenge for Witan is to keep its focus on long-term value, to aim to deliver capital appreciation and dividend growth for its shareholders, most of whom are private investors or advisers and wealth managers acting on their behalf. It’s a recipe which he feels can deliver growth at a time when prospects for the IT sector are picking up significantly. For more comment and related articles visit...
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The evolving role of the DFM and the Intermediary Business Park Plaza Hotel, Cardiff
Wednesday, 23 May 2012
IFA Magazine and JM Finn & Co are delighted to announce a series of seminars for the IFA community in 2012 This is the first in a series of lunchtime seminars that will bring together some of the UK’s leading industry experts and financial intermediaries to discuss the current financial environment and the evolving role of the discretionary fund manager and the IFA in the run-up to and post RDR world. Speakers and topics include:
BRIAN TORA : THE INVESTMENT ENVIRONMENT Topical insight from one of the industry’s leading commentators.
Sponsored by:
MIKE MOUNT : RDR IS EVOLVING THE ROLE OF THE DFM What options can the modern DFM bring to your investment proposition?
JM FINN & CO FUND MANAGER : Speaks about opportunities, insight and approach to investing. ALEC STEWART : Renowned international cricketer and speaker. Over lunch Alec will regale with stories and thoughts on key values of a strong team culture, independence of thought and building long term relationships. This seminar is CPD Accredited
Space is limited. If you would like to attend, please e-mail events@ifamagazine.com Sponsorships are available – please contact IFA Magazine for details alex.sullivan@ifamagazine.com
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The award winning Park Plaza Hotel is located in the heart of the city centre, within walking distance of Cardiff Castle, the Millennium Stadium and the National Museum of Wales. The events will be filmed and edited to appear on web sites and will also be distributed via BrightTALK thought leadership channel.
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I N F L AT I O N
AN UNCONVENTIONAL CHOICE OF WEAPON
LOW INTEREST RATES MIGHT SEEM A STRANGE RESPONSE TO HIGH INFLATION, SAYS BRIAN TORA. BUT THERE’S A REASON The latest inflation figures have given cause for a modest two cheers from investors. Only two, mind you, because the reason for the welcome drop – from 4.2% to 3.6% for the Consumer Price Index (CPI) – was the well signalled exit from the equation of last year’s VAT increase. Even so, the inflation rate remains comfortably above the 2% target set by the government. The future direction of inflation is hard to predict. Taxation changes can be factored in easily enough, but changes in commodity prices – whether food, raw materials or fuel and energy – are at the beck and call of global influences. The growing economic power of China and India seems certain to keep the upward pressure on such basic items as steel and oil. This means we too will have to pay more for them. Inflation clearly influences the returns that we can expect to get from investment and savings products. But something has changed in the way we need to tackle it. In the past, high inflation has generally prompted policy makers to raise interest rates, so as to dampen demand and reduce the pressure on prices. But today that approach is less likely to succeed, because the cost of many essential items in the official cost-of-living shopping basket is outside our control. Such is the influence of the global village.
Guaranteed to Lose
So today we exist in a world where interest rates are being kept artificially low to avoid damaging the economy - helping borrowers, but punishing savers. Gilts are currently delivering returns that are guaranteed to lose investors money in real terms. So what of the future? The government and the Bank of England both insist, naturally, that inflation will continue to fall. But any uptick in global economic activity could reassert unwelcome www.IFAmagazine.com
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upward influences on the prices of many commodities, which will inevitably feed through to higher prices for the domestic consumer. The cynical might also suggest that governments are not always averse to a bit of inflation. After all, debt is conveniently devalued as a consequence. But at present annuity rates are being kept artificially low as a consequence of the strength in gilts, which has pushed short yields down to just 2%.
Mind the Gap
So at present we have a yield gap – meaning that, unusually, equities are yielding more than gilts. Back before the cult of the equity gained a grip on investor psychology – more than half a century ago - this was generally the case, as it was perceived that the added risk of investing in ordinary shares demanded a premium return. But once investors came to realise that equities provided the best chance of beating inflation through superior returns, a reverse yield gap came to prevail. If inflation persists now, it might well reassert itself. While we have our present anaemic economic performance and the high levels of uncertainty generated by the crisis in the Eurozone, interest rates are likely to remain low and equities volatile. A return to more stable conditions, though, could see central banks acting more firmly against inflationary pressures by raising rates - which in turn would take much of the wind out of the sails of the bond markets. When that might happen, nobody can be sure. But it would be prudent to keep an eye on what the inflation rate is doing, and be prepared to adopt a more aggressive approach to investing. For more comment and related articles visit...
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magazine... for today ’s discerning financial and investment professional
OFFENSIVE LINE “While the UK economy remains in the doldrums and much of Europe is contracting, the US economy is showing signs of strengthening.”
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US EQUITIES
US EQUITIES ARE WELL POSITIONED IN 2012, SAYS JASPER BERENS, HEAD OF UK RETAIL SALES AT J.P. MORGAN ASSET MANAGEMENT... ...EQUITY INCOME STRATEGISTS, TAKE NOTE Many UK investors are underweight the US in their portfolios – which proved to be rather a hindrance last year as the US significantly outperformed the global markets. And this year we once again think that US equities are well positioned for strong relative performance - underpinned by an ongoing economic recovery and improving corporate fundamentals. Just look at the contrast between the US and Europe. While the UK economy remains in the doldrums and much of Europe is contracting, the US economy is showing signs of strengthening. In January, the Institute of Supply Management’s manufacturing index rose back above 50, indicating expansion, while US retail sales growth has turned positive. Crucially, US unemployment now appears to be falling meaningfully, which will underpin consumer sentiment. As a result of this improving data, J.P. Morgan estimates that the US economy is set to grow by a respectable 2.1% in 2012, compared to growth of just 0.6% in the UK, -0.2% in the Eurozone and 1.7% for Japan. Stronger economic growth bodes well for US corporate profits, and hence for US stocks.
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US EQUITIES
magazine... for today ’s discerning financial and investment professional
The Fed Continues to Underpin Growth
Several risks to this rosy outlook remain, with the US economy particularly vulnerable to renewed stresses in the Eurozone debt crisis, or a sharp slowdown in China. Political instability ahead of the November presidential election could also turn sentiment sour, as both main political parties continue to argue over deficit reduction plans. However, while these risks could cause some volatility, the US is supported by extremely accommodative monetary policy, with the Federal Reserve signalling in January that it expects to keep interest rates on hold at close to zero until at least the end of 2014. More quantitative easing is possible if the economy begins to materially weaken again.
have outperformed the S&P 500 over the last 20 years, as the chart in figure 2 shows. However, investing simply in a company because it might pay a dividend or just buying the highest yielding stocks is not a sustainable approach. Companies in financial trouble often sport unusually fat yields after their shares have fallen heavily, and their ability to maintain their dividend is questionable.
Corporate America gets Stronger
The US corporate sector looks set to be a key beneficiary of the improving economic backdrop. US companies restructured to survive the global financial crisis, cutting costs and paying down debts. They now boast strong balance sheets, high cash balances and low borrowing rates, putting them in a strong position to boost profits as the economy picks up. S&P 500 earnings per share (EPS) levels are already at a cyclical high (see chart 1) and should improve further, supported by a pickup in domestic demand and weak wage growth, as well as ongoing strong demand from Latin America and Asia. With earnings improving, valuations are looking attractive with US stocks trading on a priceto-earnings ratio of just 11.3x as at 31 December 2011 (earnings based on J.P. Morgan analyst estimates). This compares to a longterm average of 16.4x. The equity risk premium is also at extreme levels compared to corporate bonds, adding to the case for US equities.
Chart1: S&P 500 earnings per share, operating basis, quarterly
Income Strategies Bringing Long-Term Rewards
Equity income strategies are not usually associated with US equities, which have historically tended to offer only relatively poor dividends but they can in fact provide an ideal way to benefit from the long-term growth of the US stock market. Historically, dividends have been an important component of overall returns from US equities, representing 43% of the total return from the US stock market since 1926 according to data from Standard & Poor’s and Ibbotson/Morningstar. Perhaps just as importantly, companies with above average yields tend to outperform the market over the long term. High yielding stocks
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Source: Standard & Poor’s, EPS levels based on operating earnings per share
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Focus on Dividend Sustainability US equity income investors should therefore focus on companies that are able to generate stable profits and return cash to shareholders through a sustainable and growing dividend payment. The US equity market is fertile ground for these high quality dividend opportunities, boasting many of the world’s most profitable companies and strongest brands. According to Interbrand, 49 of the top 100 global brands in 2011 were American, including all of the top ten (Source: Interbrand top global brands of 2011).
Chart 2: Performance of US stocks by dividend segment, December 1991 to December 2011
US EQUITIES
As chart 2 shows, stocks with high payout ratios have performed less well over time. A high payout ratio indicates that a company may be experiencing a decline in earnings and may be forced to cut its dividend in the future. In contrast, stocks with low payout ratios have been the top performers. A low payout ratio indicates a disciplined use of capital by company managements, so these companies have ample cash to reinvest for future business growth and to sustain a growing dividend payment. The same trend was true in 2011, where the average S&P 500 dividend payer gained 1.4%, in line with the market. However, performance was much better for the S&P’s ‘Dividend Aristocrats’ — companies that have boosted their dividend payouts for at least 25 consecutive years, such as AT&T (+9%), Johnson & Johnson (+10%), McDonald’s (+35%) and Procter & Gamble (+7%).
These leading US companies are often conservatively managed and highly cash generative, providing a high level of dividend stability. Companies with a strong earnings stream can support their dividend payments through tough times and potentially increase their payments during good times. Investing in these high quality, high yielding companies may therefore reduce volatility of returns, helping to limit declines in down markets while still allowing investors to participate in the long-term growth of the US stock market.
An Ideal Diversifier for UK Investors
An income strategy can provide an ideal standalone strategy to gain exposure to the long-term growth of the US stock market. The US market also provides an opportunity for UK equity income investors to diversify their portfolios and spread risk across a greater number of companies and sectors. For example, the top ten holdings by yield in the FTSE All Share Index account for around two thirds of all income paid. This concentration can cause problems for UK equity income investors if one of these high yielding stocks is forced to reduce its dividend, as we saw in 2010 with BP. Within the S&P 500, the top ten holdings by yield only account for only around 7% of the overall yield, presenting a far lower concentration risk. The US market also provides greater potential for dividend growth. Over the past ten years more US than UK companies have increased their dividends, a trend many believe will continue with the S&P 500 payout ratio currently standing at just 28%, well below the long-term average of 40%. With US companies sitting on an estimated cash pile worth over a trillion dollars, there is certainly a lot of scope for US dividend payouts to rise in the coming years.
A Solid Prospect for Growth and Income
The US market is well positioned to continue its recent strong relative performance during the coming year, thanks to an improving economic backdrop and strong corporate sector. Investors looking to gain exposure to the US should consider an equity income strategy. Dividends have contributed significantly to overall US stock market returns in the past, while dividend-paying stocks have outperformed over the long term and provide the potential for more stable returns over time. For UK equity income investors, the US market also presents an opportunity to invest in a wider range of high quality high yielding stocks. With UK dividend opportunities concentrated into so few stocks, diversifying into the US can help investors achieve a sustainable long-term income. For more comment and related articles visit...
Source: Credit Suisse Quantitative Equity Research
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magazine... for today ’s discerning financial and investment professional
DISCOUNTED GIFT TRUSTS OFFER AN ELEGANT WAY OF PROTECTING YOUR CLIENT’S ESTATES FROM IHT, SAYS LEGAL & GENERAL’S MARK GREEN 38 LGIM.indd 38
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Here’s the problem. The IHT nil rate band is set to stay frozen at £325,000 until April 2015, after which it will rise in line with the Consumer Price Index. And unfortunately that doesn’t just mean that the real value of the nil rate band is gradually eroding. Given a reasonably healthy increase in individuals’ life expectancy, several years of inflation could easily drag an estate liable into IHT even if its value is below the tax threshold today. It’s a stealth tax by any other name. So how bad is the squeeze on estates going to be? Well, a recent Bank of England survey* revealed that people expect inflation to www.IFAmagazine.com
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IHT
FIGHT THE TAX CREEP still be at 3.5% in five years time. If that happens, the nil rate band would need to rise from £325,000 to just over £385,000 by 2016 in order to provide tax protection at its current level. But if no action is taken to mitigate this impact, the UK Taxman would receive £24,000 on the £60,000 “gap”. Research by Legal & General** shows that individuals are aware of the potential IHT ‘hit’ to their hard earned wealth, but that most take no action to reduce the potential IHT liability on their estates. The reasons they come up with sound surprisingly feeble: ■ 38% say: “It’s too far off for me to consider.” ■ 24% say: “I keep putting it off.” ■ And 15% flatly admit: “I don’t know where to start.”
Whichever way you look at it, this inertia inevitably means that people in the UK will continue to pay IHT unnecessarily. But why? Well, I sometimes come across the objection that some people, particularly retired individuals, www.IFAmagazine.com
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have concerns about gifting wealth and IHT planning. After all, trust and tax planning is about striking the right balance for each individual’s needs – people need to make their assets work to pay for retirement requirements, while also safeguarding a large estate to benefit the next generation. It’s a difficult call. Interestingly, in our latest research we found that 56% of the people we spoke to said that they want to achieve an equal balance between enjoying their retirement and leaving their family (or chosen beneficiaries/ charities) whatever is left of their wealth after they’ve gone. And one practical way to reduce clients’ IHT liability while still allowing them some access to their capital during their lifetime is a Discounted Gift Trust (DGT).
What is a Discounted Gift Trust? Normally, where someone gives something away but continues to enjoy a benefit, specific antiavoidance legislation prevents
the gift from being effective for IHT mitigation. A DGT is a special type of trust that allows an individual to make a gift that is effective for IHT purposes. Typically, a DGT involves setting up a trust with a gift of cash, which the trustees then invest in a single premium investment bond. Under the terms of the trust, the transferor has the right to receive a specified cash payment at fixed regular intervals for the rest of his or her life (or until the value of the bond is exhausted, if sooner). The level of payment will often be set at no more than 5% of the initial cash gift, in order to make use of the 5% tax deferred allowance available under the bond. For IHT purposes, the cash gift made at the outset is discounted so as to reflect the value of the right to receive the fixed regular payments that the transferor has retained under the trust. The capital value of this retained right depends
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IHT
magazine... for today ’s discerning financial and investment professional upon the amount of the regular payment selected, the transferor’s age, sex, state of health at the time the trust is established and certain actuarial assumptions agreed with HM Revenue & Customs (HMRC). Because an accurate assessment of the transferor’s state of health is fundamental to this calculation, HMRC has indicated that it expects to see medical evidence at the outset that will be sufficient to enable the transferor’s life to be underwritten to the standards required for whole of life cover. For IHT purposes, the capital value of the retained right is treated as not having been given away. So, for example, the transferor gives the trustees of the DGT say £200,000 but under the terms of the trust retains the right to receive payments of £10,000 p.a. Let’s say that this has a capital value of £85,000 (i.e. the discount.) Therefore the IHT value of the gift is only £140,000 (i.e. the discounted value of the investment - DVI.) If the transferor dies within the next seven years, the estate will enjoy a potential IHT saving of up to 40% of £60,000 i.e. £24,000. On the transferor’s death, his or her entitlement to the cash payments ceases, and so all the trust benefits are then held exclusively for the benefit of the beneficiaries under the trust.
If the transferor knows exactly who they want to benefit from the trust fund after his (or her) own death, and if he is certain that he won’t want to change his mind at a later date (or even retain the ability to do so), then a Discounted Gift Absolute Trust may well be the most appropriate choice. The person creating an absolute trust is known as the “donor”. However, if the transferor wants the individuals he has appointed as trustees to retain control over who can benefit from the trust fund - not to mention when, how and to what extent - then a Discounted Gift Discretionary Trust will be the preferred choice. The person establishing a
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*Source – the Bank of England quarterly survey of public attitudes to inflation, published on 15 December 2011 ** Research with 200 respondents from the Legal & General consumer panel from September to October 2011
BENEFITS OF A DISCOUNTED GIFT TRUST
Which Trust Works Best? Once it has been decided that a DGT is the most appropriate IHT solution for a client, it becomes necessary to consider which type of trust to use. The adviser’s role is essential in this decision, since the type of trust determines not only the IHT status of the gift but also the degree of flexibility regarding who can benefit under the trust in the future, and in what way.
settlor is making a chargeable lifetime transfer (CLT) when he sets the trust up. Consequently, there might be an immediate charge to IHT at the time the trust is established (plus the possibility of a further charge if they die within the following seven years). Furthermore, the trust is subject to the IHT relevant property regime, which means it will face an assessment to IHT – firstly, at each tenth anniversary of its creation while it remains in existence, and secondly when trust property is distributed to or applied for the benefit of one or more of the beneficiaries.
discretionary trust is referred to as the “settlor”. Although a discretionary trust affords significantly more flexibility, it does mean that the
■ It could immediately reduce the value of the donor’s estate for IHT purposes. ■ The initial cash gift will be outside of the donor’s estate after seven years. ■ Growth on the Bond within the trust is outside of the donor’s estate from the outset. ■ The individual who created the trust can receive fixed regular payments for life or until the value of the Bond is exhausted, whichever comes first. ■ The trust, if its provisions allow, can pay any IHT or income tax liabilities which arise in the Trust. ■ After the death of the individual who created the trust, the Bond in the trust fund will be held for the benefit of the people named as beneficiaries of the trust. For more comment and related articles visit...
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TIME TO TAKE A LITTLE
SIPP SELF-INVESTED PENSIONS HAVE BEEN AROUND SINCE THE EIGHTIES, SAYS EMMA-LOU MONTGOMERY. BUT SOMEHOW THEY’VE NEVER EXACTLY SET THE IFA WORLD ALIGHT. RDR MIGHT BE ABOUT TO CHANGE ALL THAT When SIPPs first came to the open market back in 1989 a predictable flood of product providers and administrators hove into view promising a new age of freedom for clients who wanted complete control of their financial futures. And quite rightly so. Their appeal to experienced investors, to business owners and to those seeking a wider universe of pension investment assets was undeniable. But sadly, SIPPs have not been without their share of controversy over the years some of it distinctly off-putting for clients.
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The Regulator Gets the Thumbscrews Out The one thing everybody knows – or thinks they know – is that SIPP providers are shortly to bear the weight of the regulator’s scrutiny, as the FSA’s henchmen tighten up the thumbscrews on providers which are suspected of being under-capitalised. As Lee Werrell of CEI Compliance points out on Page 56, not all of what you’re reading about this is actually true. But the gist of it is that the present requirement on SIPP providers to retain enough money for six weeks of overheads is considered to be inadequate, and that capital requirements are to be beefed up dramatically. Andy Bowsher, Director of Xafinity SIPP, believes there is a danger that the FSA is tarring the industry from its view of a relative few SIPP providers, “there may well be some SIPP businesses out there that have historically chased sales and allowed risky investments into their trusts with little regard to the possible consequences. We’ve always been vigilant and dig into the small print before accepting an investment, and have never accepted one on the basis that “XYZ Co has accepted it”. So the actual need for capital will be quite dependent on the risks of the individual SIPP businesses and should be dealt with accordingly.” He adds “Increased capital requirements will certainly provide a wake-up call for some, and to be candid, quite possibly put a number out of business where the bottom line is weak and the cost of capital high. This may help accelerate the consolidation the market has been waiting www.IFAmagazine.com
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SELF-INVESTED PENSIONS
There were accusations, for instance, that hidden extras meant SIPP investors might be facing heavier charges than expected. There were early concerns that advisers were being encouraged to move clients’ monies into SIPPs without considering whether they were really appropriate for their needs - a claim that sparked an FSA report into the wider issue of pension switching. More recently, there have been full-scale FSA investigations into dodgy goings-on at a couple of providers. All in all, the SIPPs industry has kept the FSA quite busy – not always for the best of reasons. And yet, scary though all that sounds, there’s really no evidence that such goings-on are in any way endemic. Indeed, there’s a consensus that advisers who ignore SIPPs are missing a useful trick. Andrew Pennie, marketing director at Intelligent Pensions, insists that the SIPP scene offers huge potential for advisers which we would be foolish to ignore. “It’s a massively growing market,” says Pennie. “You’ve got all the defined benefit schemes that are disappearing, and the onus is now on the individual. This is going to be a hugely growing area of advice.”
“Six weeks doesn’t provide nearly enough of a buffer.” Milton Cartwright, the FSA’s manager of pensions investment policy, was quoted recently expressing his doubts over whether the six week requirement would be enough time to let the provider sort itself out if it gets into difficulty. And the growing trend toward UCIS or non-mainstream investments is intensifying the problem. So what’s the new capital requirement likely to be? He’s staying tight-lipped, pending discussions this year.
for, hopefully allowing those with good product, strong customer ethics, and good governance to prevail and drive the industry forwards.” Gregory Kingston, head of marketing at Suffolk Life, believes there’s a far more positive story to SIPPs than the most negative headlines would suggest. “There is some genuine quality in the SIPP market,” he says. “Good providers are investing into their proposition to provide wider solutions for advisers and their clients, especially as they start to segment in the run-in to the RDR. But he doesn’t duck the difficulty. “Due diligence is something that has been discussed for over two years, but now is perhaps the last chance to take it seriously. Advisers must research the provider they recommend. Is the company financially sound? Are there robust controls and systems in place? Is SIPP administration a core of their proposition?”
Room for Bespoke Services All this, and the untold joys of RDR too. The new IFA regime, with its emphasis on a switch to fees and its increased regulatory costs, has put advisers under considerable strain, and some have been accused of leaving SIPP holders to fend for themselves while they grapple with RDR implementation. But for Iain Herbertson, managing director of City Trustees, RDR simply makes the argument for IFAs using truly bespoke SIPPs even more compelling. “For the right clients with the appropriate fund value and more sophisticated requirements, true bespoke SIPPs can be a really powerful tool for IFAs in the provision of holistic financial advice process, and they can provide the opportunity to build genuinely diverse portfolios for clients.” Suffolk Life’s Kingston agrees that the opportunity for advisers is self-evident. “There are over 110 SIPP providers on the market, yet around 80% of the business is concentrated
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SELF-INVESTED PENSIONS
magazine... for today ’s discerning financial and investment professional
“The RDR will favour SIPPs over GPPs because it levels the playing field.” The Personal Touch For wealth managers and IFAs with full discretionary powers, pensions can also be an ideal way to maximise tax efficiency. City Trustees’ Iain Herbertson says that the tax planning aspects of SIPPs must never be over-looked: “Not only do SIPPs allow IFAs greater access to wider and more interesting, even esoteric investments,” he says. “They also provide access to connected party transactions. For instance, connected party transactions [where an investor sells assets he holds in his personal name to his SIPP] can provide IFAs and clients with attractive tax planning and fundraising opportunities, therefore could be very attractive to entrepreneurial clients such as the self-employed or business owners, who tend to be the traditional IFA client.” Two recent regulatory developments may well also place SIPPs in an enviable position over other sorts of money-purchase pension arrangements. Firstly, if as insurance experts insist, SIPPS are considered suitable as qualifying schemes, then that will prove a fillip. Then, of course there’s the flipside of RDR, under which commission on new sales of pensions will be banned. So any current bias toward GPPs will surely go, he says, since advisers will need to agree a set fee for their services. “The RDR will favour SIPPs over GPPs because it levels the playing field.” Typically, clients want advice on which provider to choose, how much to invest, how to invest contributions, asset allocation and above all, the options for converting their SIPP into retirement income. And this is where IFAs can prove their worth to potential clients. As Pennie says: “Seeking professional advice makes a massive difference to clients, both in the run-up to retirement and afterwards. When initially choosing a SIPP, there are the usual considerations - charges, service, performance and so on, which an IFA should have a lot more knowledge about than the client.
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But as the retirement date approaches, using an adviser can really make a difference.”Advice on pension decumulation is something that few clients are qualified to decide for themselves. “The worst thing a client can do in drawdown is take the tax-free cash if they don’t need it. If they die the following day they pay tax on the whole amount. Whereas if they go down phased drawdown they keep a large proportion of their pension fund completely free from IHT. Obviously, no one wants to think about dying early, but it happens. And if you can pay no tax, as opposed to a 55% drawdown charge on death, that’s a significant difference in terms of what you’re leaving to your beneficiaries.” “The other aspect of managing your own retirement income is that a lot of people at drawdown don’t understand the term ‘mortality subsidy’. At age 60 you may only be getting half a percent. At 75-80 years old the subsidy is 2% to 3%, and it continues to grow. So it becomes more and more difficult for a client in drawdown to beat the terms that you can get via an annuity. Therefore the vast majority of clients should, at some point, if they continue to have relatively good health, start to annuitise. But the majority of DIY clients don’t know that, and it’s a massive risk to them, because drawdown by it’s very nature becomes increasingly unsuitable as clients get older. “Then, just in terms of annuities, you’ve got the open-market option. As an industry we’re still at only 50% of people taking the open market option. Which is shocking. People tend to accept the annuity rates they’re given by the company that happens to be dealing with their pension, when they can actually be 15%, 20%, 30% lower than the best in the market. And that’s cash in their pocket for exactly the same product, just by shopping around and getting the best deal.”
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SELF-INVESTED PENSIONS
into just six or seven of them. Having voiced concerns about the quality of some areas of the market, the FSA is now looking to take steps to ensure that investors are adequately protected by putting rigorous new capital requirements in place for SIPP providers. An adviser will help an investor choose a quality provider.” “Knowing when and which SIPP to use is key to an adviser,” says Kingston. “They’re increasingly trending towards using the more flexible SIPP providers, as well as those that have a proven track record and strong financial foundations. Advisers want to work with SIPP providers that can offer a solution to all of their clients - not just the expensive high end - and a provider that can work with all of the business partners they’ve already made. Platforms and wraps are becoming more and more important, and IFAs want SIPP providers that work smoothly with their choices elsewhere for their clients.” www.IFAmagazine.com
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The Outsourcing Imperative Andrew Pennie at Intelligent Pensions agrees that the time has come for advisers to step up a gear. “IFAs have to become more active in this marketplace. It’s quite a complex marketplace, and because IFAs perhaps aren’t doing it on a day-to-day basis, some perhaps shy away from this area of advice, [because] there are compliance risks. Fortunately, there are outsourcing options that can help.” “All of our business comes from IFAs who either can’t deliver the service we can, or who don’t want the risk of delivering. So there is that [outsourcing] route available to advisers. They don’t have to take on the risk in order to deliver a quality service in collaboration with someone else.” For more comment and related articles visit...
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March 2012
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THE BEE LINE
magazine... for today ’s discerning financial and investment professional
LIFER ON MARS PENSION RULES ARE STRANGER THAN SCIENCE FICTION, SAYS STEVE BEE. BLEEP BLEEP, PASS THE PANGALACTIC GARGLEBLASTER, THERE’S A GOOD CHAP I think I’m on a bit of a rant this month; sorry about that. It’s just that I’ve been thinking about our pensions industry a lot lately and how complex it is and what a shame that is really. I’ve been in and around the pensions industry for all my working life. You name it, I’ve been there, done it, and really do have the T-shirt to prove it. There are plenty of people like me in our industry; we’re the lifers, I guess, the ones who didn’t get let out for good behaviour. When I’m hanging around with other people like me, the subject of pensions and complexity always comes up; it’s our big topic of conversation. Pensions legislation in this country seems to me to have lost sight of what it’s really there for. If it’s there to keep people like me gainfully employed explaining the intricate twists and turns of Government policy to ordinary but bemused outsiders, then I suppose it’s doing a grand job. But if it’s there to help Joe and Josephine Average save for their long-term financial needs with peace of mind, then it’s doing a poor job I’m afraid. If you’d just arrived here from Mars or somewhere, and if someone tried to explain our pension system to you, you probably wouldn’t quite be able
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to believe it. Listen, this is sort of what I think it would sound like to a Martian: “When people are young in the UK they are dependent on others - their family, or the State. Once people are in their late teens, they become dependent on their own wits to drum up a regular income stream that they can live on. If they can’t do that, the State might have to support them, of course. But if most people sell their time in return for an income stream (something we call ‘going to work’), then the system works pretty well.
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THE BEE LINE
“That is, it does until people reach something called ‘old’. There’s some debate these days about what ‘old’ means; it used to be 60 or 65, but at the moment it’s heading more towards 70 or 75. But, that problem of definition of the term aside, most people will reach a point at which they’ll get to be ‘old’. “When they do, they will be unable - maybe even unwilling - to carry on selling their time in return for a regular income stream, and they will then look to the State to chip in and help them out on the income front. The problem with that is that we’re at a period in our history here on Earth where most of us live on into old age, so the cost of giving income support to a growing army of non-working old people looks a tad on the costly side. That in itself isn’t an issue, because the State could simply pay each person less and less all the time and keep its costs down. But that’s the sort of thing that causes other problems. “So our solution to all that has been to build a pension system where people can put away some of their income while they’re at work, and then those lifetime savings are used to provide them with an income when they’re old. We call that a pension. We also call that an annuity, which really confuses people. We have a lot of fun with this stuff one way or another.
“But get this. Our long-term pension system, which we need people to invest in for maybe four or five decades, is something that we change all the time. We used to change it once a year, but just lately we’re bringing in changes all the time. People saving in the system really need to keep their wits about them in case what was good for them to do last week isn’t good for them to do this week. It’s great fun really, and it quite literally fills the weekend papers with some super stories. “As a small example, the major reforms that are on the statute books and ready to go this year are already in the throes of being changed. And that’s before they’ve even been implemented! I mean, how good’s that?” Actually, having just re-read that, you don’t have to be from Mars to think it’s crazy, do you? Or do you?
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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*As we pay all running costs out of our AMC, we expect that our AMC will be the same as our TER.
This advertisement is directed at investment professionals in the UK only and should not be distributed to retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2011 Vanguard Asset Management, Limited. All rights reserved. UK11/0882/0911
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For professional advisers only
Factsheet The Xafinity SIPP is a “full” SIPP product aimed at more sophisticated investors who wish to maximise investment choice through all acceptable investment types. This includes commercial property (where we specialise, with over 900 in our SSAS and SIPP portfolio), unlisted shares and other investment types.
Xafinity SIPP product features n Unlimited number of investment types/products can be held n Investments in Funds Ð choose from the whole of market Ð Platforms, WRAPs, Fund Supermarkets, managed funds (including investment trusts, unit trusts and OEICs) n Commercial property & land investments n Unlisted company share purchases Ð up to 70% of your clientÕ s SIPP could be invested n UCIS investments accepted, subject to technical review n Joint / Family SIPPs available with shared fees for jointly owned assets n Comprehensive retirement options available including Flexible and Capped Drawdown n On-line valuations available to members and IFAs n Flexible IFA remuneration, paid monthly
Xafinity SIPP fee summary n £0 SIPP Set up fee n Annual fee of 0.24% of SIPP assets held. Minimum annual fee of £162pa, maximum fee of £530pa n Additional fees apply for establishment and administration of new investments eg commercial property n No additional fees for VAT administration & borrowing administration on property/land n Flexible & Capped Drawdown fees at £120 for set up and £11 per regular payment n Exit fee applies only if member transfers all assets out of the Xafinity SIPP prior to benefit settlement.
Further information can be found at:
www.xafinitysipp.com Xafinity SIPP Services Ltd is authorised and regulated by the Financial Services Authority, Scotia House, Castle Business Park, Stirling FK9 4TZ. Registered No SC69096. 932XSP(02/12)
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PRODUCT REVIEWS
1:06:41
POCKET MONEY
NICK SUDBURY PICKS OUT A SELECTION OF CURRENCY FUNDS THAT CAN ADD DIVERSITY TO CLIENT PORTFOLIOS
Small Change Schroder ISF Global Managed Currency The global financial crisis has had a profound effect on world markets and made many investors and advisers look at their portfolios in a new light. One area that’s undoubtedly been affecting equity portfolio returns has been the implicit impact of overseas currency exposures. And these, of course, have been extremely volatile recently. A number of investment management groups have decided to fight fire with fire by launching specialist currency funds which aim to take a view on specific exchange rates. By holding a basket of different currencies, they are able to reduce the overall volatility and provide a relatively uncorrelated set of returns. The Schroder ISF Global Managed Currency fund uses active currency management to help clients preserve - and hopefully increase - the global purchasing power of their capital. It does this by investing in a combination of short-term cash instruments and currency forward contracts. Many factors can affect an exchange rate, although in recent months the main driver has been the European sovereign debt crisis and the response by policy makers to try to sort it out. So it may seem surprising that at the end of January the euro represented the Schroder fund’s second largest exposure with a 19.1% weighting. First place, predictably, was its 54.3% holding of the
US dollar, and a further 5% went to sterling with 4.6% in the Japanese yen. The remaining balance was made up of much smaller holdings. Exchange rates are notoriously difficult to forecast, but the Schroder ISF Global FUND FACTS Managed Currency fund Name: Schroder ISF has made a reasonable Global Managed job of it. After the Currency launch in June 2009 it rose 4.44% in the Type: Luxembourg remaining half year, listed OEIC followed by a 4.69% Sector: Offshore gain in 2010. Conditions Currency fund since then have been more challenging and Fund Size: US$40.3m by early February its Launch: 2 June 2009 cumulative return had Portfolio Yield: 0.44% fallen back to just over 7%. This suggests that Charges: Initial: 5% it should be viewed Annual: 1% as a fairly consistent Manager: Schroder if unspectacular Investment diversifying core Management holding. Website: schroders.co.uk
A number of investment management groups have decided to fight fire with fire by launching specialist currency funds www.IFAmagazine.com
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PRODUCT REVIEWS
magazine... for today ’s discerning financial and investment professional
Sweet not Sour Allianz RCM Renminbi Currency Fund Last year China overtook Japan to become the second largest economy in the world, and many believe it will only be a matter of time before it finally catches up and surpasses America. China’s enviable growth rate and its $3 trillion in foreign currency reserves suggest that the Renminbi is likely to appreciate over the coming years. One way to benefit from a strengthening against the US dollar would be to invest in a new offering from Allianz Global Investors. This is one of the first UCITs IV Luxembourg SICAV funds to provide investors with access to Renminbi currency deposits. Even after the recent slowdown the Chinese economy is still expected to grow by more than 8% this year, which easily outpaces anything in the West. It also continues to have a large trade surplus with most of its major trading partners including the US. Allowing the currency to appreciate would help to keep any resulting inflationary pressure under control.
FUND FACTS Name: Allianz RCM Renminbi Currency Fund
The Renminbi is not a freely tradable currency, but the Chinese authorities are slowly relaxing their control. Helen Lam, the manager of the new fund, believes that the resulting appreciation will be 4% to 7% per annum, which would make it a good alternative, uncorrelated investment for client portfolios. The new fund aims to deliver a low risk exposure to the internationalisation of China’s capital markets by investing in a diversified portfolio of high quality Renminbi denominated deposits. These are split between 10 to 12 different banks with the parent companies domiciled in China, Hong Kong, the US and Singapore. The average credit rating is A or better and the maturity target for the portfolio as a whole is 45 to 60 days. There are very few FSA recognised funds that provide this type of exposure, with a further benefit being the daily liquidity. It should be far less volatile than a product linked to the Chinese stock market, yet still provide a way of capitalising on the expected growth of the economy. In view of this it could be a useful long-term core portfolio holding.
Type and Exchange: Luxembourg domiciled SICAV, UCITS IV Sector: Offshore Currency fund Fund Size: n/a Launch Date: 18th October 2011 Target Yeild: 0.60% TER: 0.70% Manager: Allianz Global Investors Website: allianzglobal investors.co.uk
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PRODUCT REVIEWS
FUND FACTS Name: WisdomTree Dreyfus Emerging Currency Fund (CEW) Type and Exchange: ETF listed on NYSE Arca Sector: Currency ETF Fund Size: $358m Launch Date: 5th June 2009 Distribution Yield: 5.07% Manager: WisdomTree TER: 0.45% Website: wisdomtree.com
A Word to the Wise
WisdomTree Dreyfus Emerging Currency Fund When sentiment improves and investors turn bullish, the biggest gains are normally to be found in Emerging Markets. An important element of this is the foreign exchange return with the local currencies appreciating strongly against their more developed counterparts. A product like the WisdomTree Dreyfus Emerging Currency Fund (CEW) allows investors to benefit directly from this type of scenario. The ETF provides exposure to a diversified basket of currencies relative to the US dollar and will appreciate along with the exchange rates, while also reflecting the interest rate differentials between the countries. CEW is certainly not for the faint hearted, as the returns in the last few months amply demonstrate. Between the start of August 2011 and the end of the year the fund fell almost 16%, as the crisis in the euro zone cast a shadow over the world’s markets. It then bounced back 6% in January on the hope that the politicians would negotiate a successful resolution. The overall aim of the ETF is to provide a liquid, tradable exposure to emerging market currencies. It does this by investing in an equally weighted basket of 8 to 12 suitable holdings with the selection made once a year. The exposures are then re-balanced on a quarterly basis. A currency is only included if it is liquid
and not too highly correlated to any of the other holdings. The other main requirement is that the maximum exposure to any one region is capped at 45%. At present the allocation is: Asia 41%; Europe, Middle East and Africa 34%; and Latin America 25%. The 12 currencies in question are: the Brazilian real, Polish zloty, Chinese yuan, Chilean peso, Russian rouble, Indian rupee, Mexican peso, South African rand, Indonesian rupiah, Turkish new lira, Malaysian ringgit, and the South Korean won. CEW doesn’t invest in these markets directly, but instead uses US Treasury Bills and forward currency contracts to achieve a riskreturn exposure that is economically similar to money market instruments denominated in the relevant currencies. The resulting portfolio maturity is 90 days or less. At $358m it is a decent size for a currency ETF and is pretty liquid, which helps keep the bid-offer spread nice and tight. The high interest rate differential also means there is a tempting distribution yield of over 5%, which is paid out once a year in December.
When sentiment improves and investors turn bullish, the biggest gains are normally to be found in Emerging Markets www.IFAmagazine.com
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PRODUCT REVIEWS
magazine... for today ’s discerning financial and investment professional
Buck the Trend ETFS Long USD Short GBP Sophisticated clients who want to take a view on a specific exchange rate, rather than merely hedging against volatility, might be interested in an Exchange Traded Currency (ETC). The main provider in the UK is ETF Securities, which has a whole range of these products listed on the London Stock Exchange. The ETFS Long USD Short GBP (GBUS) is designed to track the dollar sterling exchange rate by investing in a fully collateralised position in currency forward contracts that are then rolled over on a daily basis. The currency forwards are provided by Morgan Stanley & Co with the collateral supporting the contracts held in a separate custody account at Bank of New York Mellon. Daily mark to market payments keep the counterparty risk to a minimum, but in the unlikely event of Morgan Stanley defaulting on its obligations there would be no guarantee that the collateral would be sufficient to fully cover the loss. ETCs operate in a similar way to ETFs with the various market makers able to create or redeem units on demand. In theory this
should ensure that it closely tracks its benchmark, but in practice it depends how many market makers are actively involved. In the UK the market for these products is still quite small, although it is much bigger in the US, where Morningstar estimates that there is over $5bn in AUM. This particular fund is tiny with just £0.5m invested, so liquidity could potentially be an issue, but at time of writing the bidoffer spread was a reasonable 0.2%. A product linked to a specific exchange rate will always be more volatile than one that invests in a basket of currencies. But the whole point is that it allows you to take a view on where it is going. This could be for short-term speculation or to hedge a particular exposure in a portfolio. The US dollar is the ultimate safe haven and there have been plenty of times during the last few years when it has rallied sharply as a result of an escalation in the global financial crisis. GBUS is one way that clients could look to make money out of this sort of scenario..
FUND FACTS Name: ETFS Long USD Short GBP (GBUS) Type: ETC listed on London Stock Exchange Sector: Currency Fund Size: £0.5m Launch Date: June 2010 Portfolio yield: n/a Manager: ETF Securities Management Fee: 0.39% Website: etfsecurities.com
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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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OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA These listings exclude the FSA’s routine monthly handbook updates.
Sale and Rent Back Review 2011 Guidance Consultation
Ref: GC 12/02
3rd February 2012 2 pages The guidance relates to the rules for sale and rent back (SRB), which are primarily set out in the Mortgages and Home Finance Conduct of Business sourcebook (MCOB). The FSA’s thematic review of the SRB market (March 2011) found, in its own words, that poor practice was widespread among SRB firms, and that most SRB sales were either unaffordable or inappropriate. Thus vulnerable consumers have entered into agreements that have either led to a poor outcome, or are highly likely to in the future. Accordingly, the FSA is seeking opinions on ways to tighten and clarify the rules on issues such as record-keeping, disclosure, adherence to tenancy rules amd better assessments of appropriateness and affordability. Consultation period ends 29th March 2012
Finalised Guidance
Ref: CP12/3
2nd February 2012 198 pages The Paper presents the FSA’s proposed Annual Funding Requirement (AFR) for 2012/13. This is likely to be the FSA’s final Annual Funding Requirement before it splits into the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), in 2013. Overall the AFR for 2012/13 is up by 15.6% to £578.4 million, compared with £500.5 million in 2011/12. Larger firms are to bear the brunt of the increase in fees, the FSA says, reflecting the resources applied to intensive supervision of high impact firms. Medium sized firms will see a proportionate increase reflecting the type of business they conduct. But the FSA insists that currently 42% of the FSA’s authorised firms need only pay the FSA minimum fee and that the gross minimum fee for firms will remain unchanged at £1,000 for the third year running.
Ref: FG12/03
31st January 2012 12 pages Of interest to UK banks and BIPRU 730k firms.. The consultation calls for greater harmonisation of firms’ accounting approaches to the fair valuation of assets, which vary substantially at present. At present companies are required to present quarterly reports on differences in approach; the proposed new regime, however, will require a consistent format allowing greater comparability.
Unfair Contract Terms: Improving Standards in Consumer Contracts Finalised Guidance
Regulated Fees and Levies: Rates Proposals 2012/13 Consultation Paper
FSA Reviews of Counterparty Credit Risk Management by Central Counterparties
Ref: FG12/02
30th January 2012 12 pages The statement constitutes general guidance but is not Handbook text. Although addressed to firms authorised and regulated by the FSA in relation to products and services within the FSA’s regulatory scope, it is of interest to firms’ professional advisers. The guidance applies to contracts entered into since 1 July 1995. • Particular sources of FSA concern revolve around terms that give the firm : • The right to unilaterally vary the contract • The right to terminate the contract • Discretion to exercise contractual powers • The right to transfer its obligations under the contract • Terms that are not in plain and intelligible language
Final consultation period ends on 2nd April 2012.
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Proposed Guidance on Transaction Reporting Strategy Trades
Consultation Paper
25th January 2012 2 pages Since November 2011, firms with FSA transaction reporting obligations have been required to report transactions executed in financial instruments admitted to trading on Alternative Instrument Identifier (Aii) exchanges to the FSA. But the FSA has received numerous enquiries from firms who were unsure how to transaction report strategy trades entered into on Aii exchanges. This is notably in respect of strategy trades at certain exchanges which offer to execute two or more contracts that are dependent on each other simultaneously. The organisation has therefore resolved to introduce new guidelines.
Ref: CP12/2
26th January 2012 173page s Described by the FSA as a catching-up process, this paper is intended to assess the technical content of the Listing Rules. This consultation aims to identify specific areas where rules may need to be updated or clarified to reflect changes in existing market practices or the emergence of new ones. • Reverse takeovers (LR Chapter 5) • Sponsors (LR Chapter 8) • Transactions (LR Chapters 10,11, 12 and 15) • Financial information (LR Chapters 6 and 13) • Externally managed companies (LR Chapters 6, DTR2 and PR5)
Guidance Consultation
FS A P U B L I C AT I O N S
Amendments to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules
Ref: GC 12/1
Consultation period ended 22nd February 2012
Consultation period ends on 26th April 2012.
Large Exposures Regime Groups of Connected Clients and Connected Counterparties Consultation Paper
Ref: CP12/1**
26th January 2012 64page s Building on the guidelines published by the Committee of European Banking Supervisors (CEBS) on the implementation of the revised LE regime December 2009, the FSA is seeking to establish more clarity on how exposures to structured finance vehicles, such as asset backed commercial paper conduits, master trusts, covered bonds, standalone securitisation vehicles and collateralised loan obligations, should be aggregated under the LE regime. Specifically, BIPRU 10.3.8R (Connected Counterparties) of January 2007 appears to have caused anomalies by going beyond a narrow interpretation of the Directive definition. The FSA says this has had the unintended consequence of connecting entities without a single risk between them being established. Accordingly, a revision to the Handbook is required.
Implementation of the Alternative Investment Fund Managers Directive Discussion Paper
Ref: DP 12/1
23rd January 2012 102 pages Of interest to relevant to those entities that will be defined as managers of Alternative Investment Funds (AIFMs and AIFs) under the Alternative Investment Fund Managers Directive. And also to some discretionary investment managers, operators of unregulated collective investment schemes, investment companies that do not employ an external fund manager, and depositaries and custodians holding the assets of AIFs. Implementation of the Directive will significantly alter the regulatory framework under which AIFMs operate, both in the UK and across the EU. The move affects firms involved in the running of any kind of non-UCITS collective investment scheme and opens up the possibility of major structural change for the fund management industry from July 2013. Consultation period ended 22nd February 2012
Consultation period ended 26th April 2012
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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. Will 2012 be the year for Compliance and Risk Management? As we progress into 2013 with less than ten months left, RDR preparation has switched from qualifications and competency toward the more fundamental requirements of running a business in the post-RDR world. So 2012 would seem to be the year for firms to concentrate on getting their compliance and risk management procedures in order. 2012 has kicked off with a renewed FSA focus on governance, risk and control, with particular reference to SIPPs. And indeed, considering the poor standard of findings on the eight SIPP firms reviewed at the end of the last year, it is no wonder that the FSA have a bee in their bonnet about failings in one of the most important life planning areas. The SIPP study has prompted the FSA to suggest that capital adequacy would need to be increased, based on the type of assets permitted by the Provider. That capital buffer could be as much as 18 months’ worth of administrative expenditure, as it can require some considerable time to unwind some of these complex investments.
SIPP Operators Although the IFA is of course responsible for the SIPP investment advice given, SIPP operators have their own responsibilities. Starting with the following basic measures: ■
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Making sure that the adviser is FSA authorised and has the appropriate permission to carry out this type of advice;
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Agreeing formal terms of business agreements with advisory firms;
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Gathering and analysing management information, tracking where their business comes from, together with indicators as to its suitability for clients;
March 2012
Compliance Doctor.indd 56
■
Monitoring relationships between firms that advise and introduce SIPP clients; and
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Putting in place procedures and controls to identify possible instances of financial crime and risks to clients, such as unsuitable SIPPs and investments
Providers should act upon the information provided to protect consumers and to prevent the damaging effects of reputational risk that facilitating unsuitable SIPPs would bring. IFAs need to exercise due diligence before selecting the services of a SIPP Provider. A typical questionnaire ought to take in provider considerations such as background, management experience, personnel and offices, permitted assets, risk management and monitoring, communications and service, compliance, and fees (and other costs). The FSA is reinforcing the risk message by organising Business Risk Awareness Workshops for all sizes of smaller intermediaries throughout the UK. (Torquay and Bristol are next in line to host the regulators.) Naturally, the discussions will focus not just on SIPP assessments but on all kinds of risks and controls that IFAs will have to deal with. Follow-up and remediation work will ensue occurring from late summer onwards. Enforcement may follow for offenders, but there is no special focus in this area per se; it is business as normal for the enforcement referral teams. Impact: For all financial services firms, the failure or success of the FSA’s risk-based approach to firms’ governance, risk and compliance is likely to cascade through. TCF is just as visible and critical as ever and has not, as some might suggest, have disappeared off of the radar.in retrospective tax to clear the past.
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20/02/2012 21:19
C O M P L I A N C E D O C TO R
MiFID II As you may recall, 20 October 2011 saw the European Commission publish its legislative proposal to revise the Markets in Financial Instruments Directive (MiFID – see http://tinyurl. com/3jzc43k). The proposal is divided into two parts, a Directive and a Regulation, both of which are expected to enter into force in 2013. Financial institutions and users of financial services need to prepare to negotiate a wider regulatory perimeter, which captures previously unregulated and more weakly regulated business areas. And greater transparency will apply to investment banking and market conduct areas. But firms should also be aware of the wider potential interventionist powers for EU and national regulators under contemplation.
Execution-only Business
Product Intervention
by competent authorities (Articles 32-33) Competent authorities may prohibit or restrict the marketing, distribution or sale of certain financial instruments or financial instruments, or a type of financial activity. They must be satisfied that: ■
The instrument or activity raises significant investor protection concerns or poses a serious threat to the orderly functioning and integrity of financial markets;
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EU regulatory requirements do not sufficiently address the risks;
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The issue cannot be better addressed by improved supervision or enforcement;
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The action is proportionate to the nature of risks, the sophistication of market participants, and the likely effect on investors);
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Any Member States who may be significantly affected by the action have been consulted, and the action does not discriminate against services from another Member State.
(Recital 53, Article 25(3) MiFID) Under MiFID, firms are currently prohibited from making or receiving payments or other non-monetary benefits in connection with any investment or ancillary services provided to professional clients or retail clients, unless those payments or benefits fall into a specified exception. The following are excluded from the execution-only (no appropriateness test) regime: ■ ■
Granting credits or loans to investors to allow them to carry out a transaction in which a firm is involved Financial instruments, including UCITS, which embed a derivative or incorporate a structure which makes it difficult for a client to understand the risk involved.
Investment Advice
Corporate Governance
(Recitals 4, 5, 38, 39, Article 4(1), Article 9 MiFID) All members of a management body need to: ■
Be of good repute;
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Possess sufficient knowledge, skills and experience);
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Commit sufficient time to perform their duties;
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Act with independence of mind to effectively assess and challenge the decisions of senior management.
Firms must devote adequate resources to induction and training of members of the management body.
(Recital 51 -52, Article 24(3), Article 24(5), Article 25(5) MiFID)
■
Diversity (gender, age, education, professional and geographical factors).
Firms must clarify the basis of the advice they provide, the range of products considered, the question of whether advice is provided on an independent basis, and whether clients will be provided with ongoing suitability assessments.
■
Systems and controls are to be introduced, including responsibility to provide effective oversight of senior management and define, approve and oversee:
Where an investment firm is providing investment advice on an independent basis, it must: ■
Assess a sufficiently large number of financial instruments available on the market;
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Ensure that the financial instruments are diversified with regard to their type and issuers or product providers; and
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Ensure that the selection is not limited to financial instruments issued or provided by entities having close links with the investment firm.
When providing reports to clients (frequency has not been specified in the Commission proposal), a firm providing investment advice must specify how the advice given meets the personal characteristics of the client.
❚
The strategic objectives of the firm;
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The organisation of the firm;
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Policy as to services, activities, products and operations provided by the firm, and the risk tolerance of the firm and the clients, including appropriate stress testing.
MiFID is to be supplemented by more detailed principles and minimum standards in the area of corporate governance which should take into account the nature, scale and complexity of investment firms. 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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TRANSPARENCY, EFFICIENCY, LIQUIDITY THE LYXOR ETF CHARTER OUR COMMITMENT TO CLIENTS The Lyxor ETF charter is a commitment to the highest quality standards for its clients. Across Asset Management, Index Tracking, Transparency, Counterparty Risk, Primary and Secondary Market Liquidity, Lyxor aims to provide best-in-class services to its customers. Discover the full charter on www.lyxoretf.co.uk/lyxoretfcharter
T O TA L A U M O F € 2 9 B N – A S S E T M A R K E T S H A R E O F 1 5 % – L E A D I N G O N - E X C H A N G E R E P O R T E D T R A D I N G v O L U M E (24% MARKET SHARE) WITH A STRONG LIQUIDITY COMMITMENT BY SOCIETE GENERALE CIB.* − Asset Management quality: direct ownership of physical assets, no securities lending; application of best execution principles to derivatives transactions. − Index Tracking: direct index tracking. Tracking error published in monthly client reports and aims to be below 100 bps. − Transparency: daily web publication of key information: directly owned securities, collateral, counterparty risk, counterparties to all derivatives entered into by Lyxor ETF.
− Zero counterparty risk target: daily target reduction of counterparty risk to zero. − Liquidity: access for brokers to primary and secondary markets through more than 45 Authorised Participants and 15 market makers. Continuous pricing across 649 listings on more than 13 exchanges. And full transparency on creation and redemption costs.
ETF Risks: the index tracked by a Lyxor ETF may be volatile, investor’s capital is at risk and an investor may get back an amount less than originally invested.
More information on LYXOR <GO> or call 0800-707-6956 * Source: Bloomberg, Lyxor. Trading volume for September 2011, all other data as of end of September 2011. The products described within this document are not suitable for everyone. Investors’ capital is at risk. Investors should not deal in these products unless they understand their nature and the extent of their exposure to risk. The index tracked by a Lyxor ETF may be volatile. Prior to any investment, investors should make their own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively on the information provided by us. We recommend that you consult your own independent professional advisers. Lyxor and Lyxor ETF are names used by Societe Generale to promote the products of Lyxor Asset Management. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). Societe Generale is subject to limited regulation by the Financial Services Authority in the UK. Details of the extent of our regulation by the Financial Services Authority are available from us on request. Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. The funds may not be sold to US persons or in jurisdictions where such offering or sale has not been authorised. The telephone number and e-mail address are provided by the London Branch of Societe Generale for technical questions relating to Lyxor Asset Management products only. Calls to this line and other Societe Generale telephone numbers may be recorded. For further details please visit www.lyxoretf.co.uk
Thinkers.indd 58 C51298_IFA Magazine 297x210.indd 1
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THINKERS
YESTERDAY’S HERO YOU PROBABLY WORSHIPPED HIM AT COLLEGE - ALTHOUGH YOU MIGHT BE A LITTLE EMBARRASSED BY THAT NOWADAYS
“The only function of economic forecasting is to make astrology look respectable.” John Kenneth Galbraith Born 1908 in Ontario, Canada. Died 2006 in Cambridge, Massachusetts. Half sociologist, half business theorist... And actually, hardly an economist at all. Considering that he was the darling of Harvard for his thoughts on economic development, it seems remarkable that Galbraith had almost no time for the dismal science. Economics, he said, was a great way of employing economists, but that was about as far as it went. Born into a Canadian farming family, Galbraith studied agricultural economics before branching out into conventional economics. He began as an admirer of John Maynard Keynes, who believed that governments could expand their way out of cyclical crises by boosting private consumption. But he soon moved away from conventional macro theory altogether. Indeed, his eventual view was closer to that of Benjamin Graham, who said that there was no point in trying to analyse trends - rather, the trick was to work with them. Consumernomics So you could hardly call Galbraith a top-town theorist. Rather, his view on the future of the world economy arose from a bottom-up obsession with the workings of the consumer economy. The 20th century, Galbraith said, had seen a massive shift from the economic principles that had guided the 1800s. The availability of mass media, and most notably advertising, had concentrated all the power in the hands of a few super-corporations that could dictate the politics of the business world. Their position was now unassailable. Good grief, that sounds a bit1960s Indeed it was. Galbraith’s magnum opus, The Affluent Society, was written in 1958 and helped to pave the way for John F Kennedy’s new Democratic Party’s social inclusion policies in the 1960s. It developed the theory that rampant consumerism, imposed by corporations, was www.IFAmagazine.com
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dividing society into the haves and the havenots – a theme also developed in American Capitalism (1952) and subsequently in The New Industrial Estate (1967). It was exactly what the anti-authoritarian and slightly paranoid students of the Vietnam era were ready to believe. So was it right that mega-corporations couldn’t stumble? Hardly. Galbraith failed to anticipate that new media, and especially the internet, would help to democratise share ownership – which would mean that even the largest companies would need to take more care. BP’s recent disgrace over the Macondo oil spill, or GM’s pension overhang, or even IBM’s failure to hold onto its near-monopoly in advanced computer design in the 1990s, coincided with a tightening of regulatory controls that have haunted even the most powerful corporations. As for Galbraith’s idea that governments would automatically align themselves with the interests of big businesses so that the small man was effectively helpless, try telling that to Lehman Brothers or Enron or Worldcom. The growth of ‘small government’ Republican sentiment in the USA is still more proof that we have moved right away from the situation Galbraith feared. Despised by the right, disowned by the left Considering what a highly lauded figure Galbraith was in his day, it’s strange to find that he has so few supporters these days. He was panned by the monetarist Milton Friedman, who accused him of denying the masses any credit for making their own free-market decisions. But even Paul Krugman, the liberal-leaning op-ed economist at the New York Times, dismissed him as a media personality and a “policy entrepreneur” who had failed to produce any economic theories at all. Not a resounding epitaph for a man who so profoundly embodied the spirit of a generation. March 2012
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magazine... for today ’s discerning financial and investment professional
WEALTH MANAGEMENT ADVISERS
PREMIER INDEPENDENT FINANCIAL ADVISER
Our client needs a number of experienced Wealth Advisers to offer a comprehensive service to a portfolio of HNW clients in the South East of England. The job role forms part of the wider Wealth Management Sales Team therefore working in close partnership with the introducers and peers in this team will be part of any successful applicants’ day-to-day activity.
Our Client a leading Bancassurer need a number of Premier Independent Financial Advisor’s to provide professional independent financial planning services to both new and existing high value customers. This means identifying and meeting customer needs with particular emphasis on protection, pension, investment and insurance products available through the bank’s UK branch network, whilst consistently treating customers fairly. The role requires the candidates to be qualified to a minimum of Diploma level.
London, Essex, Home Counties & South East £45,000 plus excellent bonus and benefits O.T.E c£75,000
You will be responsible for achieving targets in meeting the demands of the business by converting introductions into new business, conduct interviews with new and existing clients to review and meet their immediate and on-going financial needs; actively selling and/or introducing appropriate products and services and referring to other product specialists where required.
Optimising appointments with customers to identify needs and opportunities and provide solutions in order to achieve personal and team sales targets. Ref: 2076
FEE BASED FINANCIAL PLANNING DIRECTOR
TRAINEE EMPLOYEE BENEFITS ADVISER
Our Client a well respected firm of Chartered Accountants and Business advisers based in the South East. They now require an experienced Chartered Financial Planning Director for its specialist Wealth Management division.
Our Client is an independent firm of actuaries and consultants who offer a full range of services to trustees, employers, insurance companies and individuals. They are now looking to recruit a trainee adviser for their Liverpool office. The ideal candidate will be responsible for supporting employee benefit consultants advising clients and will require excellent written and oral communication skills to be effective in this role.
Successful applicants will be required to give advice on all aspects of financial planning from pensions, Investments and annuities to inheritance tax planning and trusts to a portfolio of clients Qualified to Chartered status you will be given your own portfolio of clients ranging from private individuals to Charities and trusts and professional connections
Merseyside c£30,000 plus benefits
Some previous pensions experience is essential and attention to detail, coupled with the ability to work well in a team environment.
The successful applicant will have experience of working within a Fee based environment on a time/cost basis with HNW Clients. In return you will receive a competitive remuneration package and a defined career path. Ref: 1999
In return on offer a competitive remuneration and study package. Study towards professional qualifications (Diploma in Financial Planning) is an essential requirement and is necessary to progress to the role of an experienced Adviser. Ref: 2079
EMPLOYEE BENEFITS CONSULTANT
WEALTH MANAGER
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Employee Benefits Consultancy service with the appointment of an experienced Employee Benefits / Corporate Pensions Consultant to their offices in the London office. Primarily based in London, working alongside the existing teams you will be responsible for developing the business throughout other regions, you will be servicing clients of the organisation as well as developing new business with large corporate clients.
Our Client a well respected firm of Asset Managers with a National network of Offices who manage in excess of £10 billion of funds on behalf of Clients
London & South £70,000 basic plus benefits
You must be Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing and managing group pension schemes with c200 – 2000+ employees. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 1396
WEALTH MANAGERS
London, South Coast, Norwich, Leeds £75,000 plus benefits Our Client a National firm of Wealth Managers and Investment Advisers who give Fee based Independent financial advice to private clients need a number of exceptional individuals to service and further develop their Client proposition, based out of one of their UK offices. Ideally, you will be an experienced diploma qualified IFA already with a minimum of five years financial planning experience, covering all areas of Pensions & Investments and be familiar with operating a Wrap service. The successful applicant will be given on-going support and development to ensure they are giving their Clients the best advice.
Birmingham £40,000 plus bonus and benefits They now require an experienced Financial Planner for its specialist Wealth Management division. Successful applicants will be required to service a Wealthy portfolio of clients ranging from private individuals to Charities and trusts and professional connections You will be responsible for working with a sophisticated customer base, providing specialist advice on relevant financial products and services including full financial planning reviews and portfolio management. The successful applicant will have first hand knowledge of working within a Fee based environment on a time/cost basis with HNW Clients. In return you will receive a competitive remuneration package and a defined career path. Ref: 2077
FINANCIAL PLANNING MANAGER Reading £50,000 basic plus benefits
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Wealth Management service with the appointment of an experienced Financial Planning Manager to their offices in Reading. You will be office based; working alongside the existing teams responsible for developing the business throughout each specialist area and you will be servicing clients of the organisation as well as developing new business with clients.
In return the successful applicants will be given an excellent opportunity to develop their career within this organization Ref: 1885
You must be a minimum Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing Time Cost; Fee based business with High Net Worth Clients. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 2078
EMPLOYEE BENEFITS CONSULTANT
COMPLIANCE OFFICER
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Employee Benefits Consultancy service with the appointment of an experienced Employee Benefits / Corporate Pensions Consultant to their offices in their Manchester/Leeds office. Primarily based in the North West, working alongside the existing teams you will be responsible for developing the business throughout the North East regions, you will be servicing clients of the organisation as well as developing new business with large corporate clients.
Our client who provide a truly independent range of financial services from investment and portfolio management, through to trust and estate planning are urgently seeking a compliance officer, to carry out compliance reviews in accordance with the risk based business quality monitoring programme.
North West/North East £50,000 basic plus benefits
Manchester c£30,000
Assess the quality of advice and adherence to business standards and regulatory FSA requirements and identify material risks to clients and the company Occasional file review required to determine whether the suitability of advice against business standards and regulatory requirements and identify material risks.
You must be Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing and managing group pension schemes with c200 – 2000+ employees. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 2020
To provide effective feedback and direction of the remedial action required to manage or mitigate the material risks identified.
CASE OFFICERS
EMPLOYEE BENEFITS ADMINISTRATOR
Our Client a well respected Financial Services group, require experienced individuals to research and resolve customer complaints within agreed compensation limits and negotiate solutions to the satisfaction of all parties concerned ensuring requirements of external regulators and internal standards are met.
A London based IFA is looking for a corporate administrator to work within the Employee Benefits administration Support Team, responding to customer enquiries and carrying out administration tasks in support of the sales process.
Investigate customer records produced by the sales forces to ensure that the advice given is in line with standards laid down by the Group and Regulator.
Identification of possible new business leads from the existing client bank and liaison with the client and/or Employee Benefit adviser to maximise the opportunity.
Bristol & Huddersfield c£32,000 plus benefits
Examine standards of remedial action undertaken as a result of reviews, when appropriate, to ensure that customers have not been disadvantaged or the Group put at risk. To effectively identity, control and escalate any perceived risks which may impact customers or the group Produce effective communications to internal and external customers in a clear and concise format, ensuring that any corrective action undertaken is appropriate. Ref: 2023
For further vacancies please visit: www.shortlistme.co.uk
March 2012
Thinkers.indd 60
You will be responsible for working with a sophisticated customer base, providing specialist advice on relevant financial products and services including full financial planning reviews and portfolio management.
Successful applicants will be fully diploma qualified. Ref: 2016
South Coast £70,000 plus bonus and benefits
60
Manchester, Bristol & London c£45-£50,000 plus bonus and benefits
Minimum 2 years experience of working in a regulated financial services environment CF1-4 or equivalent Ref: 2053
London c£32,000 plus benefits
Processing of group life & group pensions schemes, including checks to ensure that documentation is correct.
Obtaining new business illustrations and policy valuations for advisers where required. Typing of letters and reports, where required. Ensure all administration is completed in an effective manner to meet the firm’s record keeping and file quality requirements. CF1-4 or equivalent Knowledge of 1st Software Exchange is preferred Ref: 1397
and
ASPECT COURT, 47 PARK SQUARE EAST, LEEDS, LS1 2NL T: 0844 248 5292 E: info@shortlistme.co.uk
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Visit our website at
www.bwd-search.co.uk Senior Financial Planner - Accountancy Practice, Berkshire
Retail Business Development Manager - Nationwide
Basic to £80,000 plus benefits and bonuses
Basic up to £60,000 with OTE up to £100,000 plus bonus, car & benefits
We are currently working with a top tier professional services firm who are seeking a senior level Financial Planner for their Berkshire offices. You will be responsible for developing business from their two practices, advising genuinely HNW clients on a time-costed fee basis. The ideal candidate will be a well qualified, accomplished financial planner and will ideally have some professional practice experience. A generous package is on offer for the successful candidate.
An exciting opportunity has arisen to join a global Financial Services organisation within their niche retail distribution division. You will work closely with senior management in developing sales of selected products through Retail sales channels, through developing business relationships with key stakeholders and providing a portfolio of support services including, training, coaching and sales management. The ideal applicant must have national/strategic account management or retail/corporate sales experience within the life, pension’s or protection product area, as well as being massively sales focused.
Please contact James at: james.woods@bwd-search.co.uk or on 01727 884 662
Please contact Gareth at: gareth.davies@bwd-search.co.uk or on 0113 274 3000
IFA - Equity Participation - North West
Financial Planner - Northern England & Scotland
Basic £40,000 plus benefits and bonuses
Package up to £80,000 plus Car
This well established, reputable and profitable boutique IFA firm is looking for an experienced IFA to join them and share in their directors’ vision and passion to provide true independent fee based advice. Their business provides tailored financial planning and tax solutions for small to medium sized owner-managed businesses and private clients, and has links with a number of top tier accountancy practices as introducers. The firm has solid growth plans and is looking for an ambitious individual to help achieve them. You will be supported by leading back office technology, support staff and access to clients and professional introducers.
Our client is a top financial services group, looking to expand. A rare and new opportunity has arisen whereby you will contribute to the overall divisional performance by supporting and working proactively with the Financial Advisers on complex financial planning cases to provide advanced sales and technical support. Candidates must have a successful track record of delivering complex financial planning cases at the highest levels of wealth and complexity. The ideal candidate should be Chartered, possessing strong technical skills and the ability to build and maintain effective relationships with Financial Advisers & Area Sales Directors.
Please contact James at: james.rhodes@bwd-search.co.uk or on 0113 274 3000
Please contact Trishla at: trishla@bwd-search.co.uk or on 0113 274 3000
Corporate Consultant - London
Retirement Consultant, Leading Financial Services Provider - South London Basic up to £32,500 plus benefits and bonuses
Basic to £85,000 plus benefits and excellent bonus structure
A leading financial services provider is currently looking to recruit a Retirement Consultant in their South London office. The role will largely focus on annuities and income drawdown markets. Additional responsibilities will also include developing business both internally and externally as well as general record keeping and administration. The ideal candidate will have completed QCF Level 4 in preparation for RDR and will also have a track record of success and proactivity preferably within an IFA background or similar.
The company, a leading and entrepreneurial professional services firm, offers advice to corporates including owner-managed businesses, large corporations and the public sector, as well as to Trustees. The role will have a new business focus and as such they are looking for a ‘hunter’ who can evidence writing high levels of business across DC/GPP/Group Risk. An understanding of DB issues and experience of dealing with Trustees is advantageous. Leads will be provided by the telesales team and you will also build relationships with other areas of the organisation to generate referral business. Diploma qualified is a prerequisite.
Please contact Danielle at: danielle@bwd-search.co.uk or on 01727 884 662
Please contact Zoe at: zoe@bwd-search.co.uk or on 0113 274 3000
Ground Floor, Mayesbrook House, Lawnswood Business Park, Redvers Close, Leeds LS16 6QY Telephone: 0113 274 3000 Fax: 0113 274 3031
Suite 4, Ground Floor, Breakspear Park, Hemel Hempstead, HP2 4TZ Telephone: 01727 884 662 Fax: 0113 274 3031
Business owner / entrepreneur THE COMPANY
A change in direction can be daunting especially when that change means a step into the self employed but taking hold of your financial future and becoming a leader of your own destiny need not be such a complicated transition when you have the support of the right network. Keillar Resourcing is working in conjunction with one of the UKÕ s leading IFA networks. With UK wide coverage and a brand name thatÕ s synonymous
with excellence you can be assured of the right levels of support along the way. Commission rates are high and you can decided on the right levels of support from a variety of choices and only pay for the support you decide to utilise and that means you donÕ t pay more than you have to. This RDR ready network can support you with everything from office to admin and might even supply the odd lead or two!
ABOUT YOU
Maybe this is the right time to take hold of your own financial future? If you think it could be, then get in touch and we will tell you how this network could be just the ticket! THE PACKAGE
With excellent commission rates up to 90% the eventual level is entirely up to you. LOCATION
Genuinely national so wherever you want it to be.
To learn more about this exciting opportunity contact Paul Mullarkey on 0131 557 9668 or 07875 341758 for the inside scoop or email him on paul@keillar.com
www.keillar.com
keillar Resourcing operates as a recruitment agency
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magazine... for today ’s discerning financial and investment professional
the financial services e-learning specialists
Get your skills up to date the easy way
Wanted: Quality financial advisers ....Only those with Level 4 Qualifications need apply More and more large groups are demanding that candidates have already achieved at least Level 4 qualification. In fact, many haven’t even picked up a book yet. Without large numbers of qualified advisers the FS sector has a difficult future to say the least. The BWD Group, an established search & selection firm, have taken action to help with the launch of a new service - BWD development. • Advisers and others taking the Level 4 exams can now access e-learning programmes and on-line mock exams. • This allows candidates to learn at their own pace - at a time and place to suit them • They can take on-line assessments along the way and take up to five mock exams to make sure they are on track to pass the live examination
If you like the sound of this, go to www.bwd-development.com where you can see a full demonstration of the service or call BWD development on 0845 850 9995 T 0845 850 9995 F 0113 274 3031 E info@bwd-development.com
0800 689 9689 NATIONWIDE
BUSINESS DEVELOPMENT ASSOCIATES Nationwide - £Negotiable CEI Compliance have been expanding recently and now need an entrepreneurial Business Development Associate to sell consultancy services to financial institutions. May suit a part time position, return to work or other business type but must be able to generate own leads, understand the compliance offering and have a broad regulatory knowledge across many disciplines from investment banking to IFA and retail banking to M&A. Please contact Lee Werrell on lw@ceicompliance.co.uk
Ref: vac-36272
COMPLIANCE ASSOCIATES Nationwide - £Negotiable CEI Compliance are a nationwide consultancy that uses the associate model to deliver a fast, flexible, professional and efficient service to all manner of financial services firms from one man bands to multi-national institutions. We use specialist for specialist work such as G60 or T&C needs, but a lot of our work is involved around compliance aspects such as S166 Skilled Person's reports, operational risk and systems and controls work. You have the people skills, you have the regulatory knowledge, to leverage both of these on a change of career, why not consider working as a freelance consultant in the financial services industry focusing on all sectors such as banking, investment etc.. These are exciting times and everything is changing on the regulatory front....CEI is on the leading edge of the changes; why not join us? Contact Lee Werrell at lw@ceicompliance.co.uk with your CV in the first instance.
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Ref: ceiass001
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27/02/2012 12:08
Private Client IFA £60-80,000 + Bonus + Benefits
Professional Practice IFA Ref: 09393
International insurance brokerage with a large UK presence has recently set up a wealth management offering to advise personal and corporate clients. They now require a senior individual to work in the City office and develop referrals internally and advise wealthy individuals of SMEs/FTSE firms that they have relationships with. You must have experience of business development and a proven record of producing both high quality and high levels of fee business.
Ref: 2000
An exceptional opportunity now exists within this medium sized Accountancy practice for a senior individual to work closely with the partners of the practice. You will ensure that a level of trust is maintained in order to refer business to you and provide high quality advice to the wealthy clients that are referred. You must have a strong sales record and ideally have experience of working with professional introducers. London based.
Wealth IFA
Wealth Manager To £60-80,000 + Bonus + Benefits
£80-100,000 + Bonus + Benefits
c.£60-85,000 + Bonus + Benefits Ref: 3244
Ref: 210104
Our client is one of the UK’s leading Investment Management firms with c£10bn under management combined with a fantastic offering in the wealth management arena . As part of a continued expansion plan they now require a senior wealth manager in London to work with the IMs and advise wealthy individuals on all areas on a fee basis. You must have experience of working with professional introducers and a record of success in a similar arena.
This small National IFA has an excellent opportunity for 3 IFA’s to join their existing team of specialist consultants in London, Herts and Surrey. The firm offers holistic and niche financial planning advice to HNWIs and you will advise a captive client base currently being dealt with by specialist divisions but seeking wider generalist financial planning advice. You should be of graduate calibre and above average technical ability. This is an exceptional springboard opportunity with no need to bring any client bank.
Associate Director, Private Clients
Executive Consultant
£70-90,000 + Bonus + Benefits
To £75,000 + Bonus + Benefits
Ref: 1303
An excellent opportunity now exists for an accomplished Private Client IFA to work within this wealth management boutique and inherit a substantial client base comprising HNW/UHNW Private Clients. You should be a Chartered Financial Planner (or progression towards) and be able to offer a background of providing fee advice to a wealthy client audience. Since you are servicing an existing portfolio you are not required to transfer any clients or funds to this role.
Ref: 5323
Private Bank with a hugely successful fee based financial services operation now requires an experienced consultant to work with retained clients and advise on all areas of employee counselling. Ideally, you should be currently carrying out a similar role at present and be familiar with pre/post retirement/redundancy counselling, mid-career financial planning and director/senior management advice. Experience of fee based work would be a distinct advantage. London based.
For further information please contact Simon Charlton, Matthew Tatnell or Gareth Blades 60 Lombard Street, London EC3V 9EA 0207 464 8429 fs@rolanddowell.com
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Thinkers.indd 63
www.rolanddowell.com
March 2012
63 27/02/2012 12:08
Just who are the best Stockbrokers and Wealth Managers? You decide.
Your vote could win a cash prize and places for the City of London Wealth Managemnt Awards 2012 dinner, at The Mansion House, hosted by the Rt. Hon. Michael Portillo TO CAST YOUR VOTE PLEASE VISIT
www.stockbrokingguide.com Voting closes at 5pm on 8th March 2012. Winners will be announced at the Awards
For todayâ&#x20AC;&#x2122;s discerning financial and investment professional
CITY OF LONDON
Wealth Management Awards The City of London Wealth Management Awards Limited Š 2012
Thinkers.indd 64
27/02/2012 12:08
I FA C A L E N D A R
e n zi
Dates for your diary a m a g
MAR - APR 2012
MARCH
RDR Final Rules due for publication
6
7 7 9
‘Super Tuesday’ (US Presidential candidate elections) in Alaska, Georgia, Idaho, Massachusetts, North Dakota, Ohio, Oklahoma, Tennessee, Vermont and Virginia
30
Unbiased.co.uk annual ‘Media IFA of the Year’ awards ceremony Berlin International Economics Conference Consultation period ends for Consultation Paper 11/29 (Distribution of Retail Investments - RDR Adviser Deposit Protection: Raising Consumer Awareness)
31
2
European Winter Finance Summit
15
21 23
Consultation period ends for Consultation Paper 11/28 (UK Implementation of Amending Directive 2010/73/EU - Simplifying the EU Prospectus and Transparency Directives) Second China eBusiness & Entrepreneurship Conference, Shanghai
6
Consultation period ends for Consultation Paper 12/3 (Regulated Fees and Levies: Rates Proposals 2012/13) Tax year 2012/2013 begins Summit of the Americas,
1415 Cartagena 22 26
UK Spring Budget Consultation period ends for Discussion Paper 12/1 (Implementation of the Alternative Investment Fund Managers Directive)
Start of reporting requirement for transactions in derivative instruments executed on the order book of an ISIN Aii derivative market, as per Final Guidance 11/12
APRIL
1114 (EWFS) 2012, Davos, Switzerland 13
Consultation period ends for Consultation Paper 11/31 (Mortgage Market Review: Proposed Package of Reforms)
26 26
International Congress on Energy and Politics, Antalya, Turkey Consultation period ends for Consultation Paper 12/2 (Amendments to the Listing, Prospectus, Disclosure and Transparency) European Business Summit, Brussels Consultation period ends for Consultation Paper 12/1 (Large Exposures Regime - Groups of Connected Clients and Connected Counterparties)
European Tax Summit 2012,
2627 Dublin, Ireland 29
Consultation period ends for Guidance Consultation 12/02 (Sale and Rent Back Review)
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IFA Calendar.indd 65
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.
March 2012
65 27/02/2012 12:46
T H E OT H E R S I D E. . .
magazine... for today ’s discerning financial and investment professional
EXOTIC GET AWAY
IT ISN’T ALL FUN ON THE CLIENT’S SIDE, YOU KNOW. RICHARD HARVEY TELLS IT LIKE IT IS Exotic Investments
Bonus Question
If IFAs are struggling to keep up with constant government tinkering in savings legislation these days, spare a thought for the poor old private investor. It’s as thankless a task as a Greek government bond salesman trying to schmooze a German banker. I hadn’t realised, for instance, that SIPP investments can no longer include assets described as ‘exotic’, such as vintage cars, wine or art. Well actually you can include them, but only if you pay the taxman sufficient loot to fund his summer holidays in Bermuda. Which is a pity, because it set me wondering what type of alternative investments might yield a plump annual return. Such as... n A percentage of fees charged by law firms to keep the boudoir shenanigans of Premiership footballers out of the tabloids; n A slice of the oil revenues which Argentina stoutly denies has anything to do with its coveting of the Falkland Islands; or n Shares in the company that makes the snowclearance kit which Heathrow Airport may one day get round to ordering. All of which are a darn sight more appealing than permissible SIPP investments, such as validated carbon credits - whatever they may be?
After the Vesuvius of righteous indignation over RBS boss Stephen Hester’s bonus finally subsided, it was utterly predictable that it would erupt all over again with the announcement of Barclays chief executive Bob Diamond’s remuneration package. Throughout all the sound and fury, wouldn’t it have been possible for just one small voice to point out that, as Barclays is entirely in the private sector, the bonuses awarded to Diamond and other bankers yield enormous tax revenues to the Treasury - thereby paying the salaries of doctors, nurses, teachers and others on the state payroll? I recently attended a dinner at which the splendid Lord Digby Jones, the former CBI Director General and Minister for Trade, said it was high time that governments of whatever stripe, the media in general and the BBC in particular, gave proper recognition to the fact that it is business taxes which pay for public expenditure. His recently-published book, Fixing Britain – The Business of Reshaping our Nation also quantifies the amount of money sucked out of private pensions - £5.2 billion a year – since the then Chancellor Gordon Brown abolished the dividend relief on shares held by pension funds in his 1992 Budget - while leaving juicy public sector pensions untouched. I knew I should have taken that assistant clerk’s job at County Hall.
Equality, my annuity! My IFA has just informed me that gender equality legislation means that in future, pension companies will be compelled to offer the same annuity rates to men and women, notwithstanding the statistical proof that ladies live longer. So, although I’m ten years older than my wife, smoked like a Scouse navvy for 40 years, and have internal pipework to sustain a suspect ticker, I can now look forward to an annuity payout that’s even more derisory than it is at the moment. Question: If annuity rates for men and women are to be equalised, who pockets the savings?
66
March 2012
The Other Side.indd 66
www.IFAmagazine.com
27/02/2012 12:55
Very good in its make up and content. Sets itsel aside from other publications in the marketplace Excellent. Thank you. Really refreshing. High qualit e production i nwith some good thought provoking article z and useful LOgOa information. Good useful content. Up-to dateainfoK useable, very good and easily read. Ver good m articles, relevant to my work. Very interesting extremely useful. Very impressive read and lots o useful Sarticles nice to see it in “magazine” style forma A N D SINN TS usual rather ANthan newspaper. A comprehensive ERS read. Very good layout and informative. Good content, appealing to the female reader as many publicationscrisiare very male driven and focused s Thank you. AUquality magazine for IFA IFA’s. ’s. Good pape S A with good content which is plain talking. Good ayout and easy to read. Not seen anything like thi for IFA market. Really AZIL Worth reading. Interesting BRgood. content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutel fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the monthsBRto please. A very readable AF TE R ITA INcome TS O RI E publication. It looksTHlike an interesting and enjoyable read that I would be happy to have delivered THE ERS V I C KKabou to the office - not something I could say ING BAN PORT E magazine manyThe financial publications! Great - look Rforward to subsequent editions. Brilliant! Very impressive the top IFAs CAL T and all interesting publication. Looked and felt like E T H IE S T M E N INV a proper magazine rather than other cheape are talking about... looking publications. Breath of fresh air and topica get your free subscriptionI’m going get it instead of the n biteTosimply size chunks. fill out the form online at: professional adviser papers and financial advise www.ifamagazine.com/ content/subscribe papers. Enjoyed the read. Keep up the good work MA
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magazine
N E W S R E V I E W C O M M E N T A N A LY S I S
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www.schroders.co.uk/incomerange For professional advisers only. This material is not suitable for retail clients. Source: Schroders as at 31 December 2011. Source for ‘Schroders has more Citywire ratings’: Citywire as at 30 December 2011. The yields quoted are not guaranteed. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Investments in less developed markets can involve a higher degree of risk. Exchange rates may cause the values of some of the investments to fluctuate. Some funds may invest in higher-yielding, or non-investment grade bonds, so the risk of the issuer defaulting may be higher. Schroders has expressed its own views and these may change. *Please note that phone calls may be recorded. Issued in February 2012 by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 2015527 England. Authorised and regulated by the Financial Services Authority. UK02273