Ifa 31 June 2014

J U N E 2 01 4 ■ I S S U E 3 1

For today’s discerning financial and investment professional

WILD FRONTIERS LESS VOLATILE THAN YOU THINK

WORK YOUR DATA HARDER ETFS – THE BURNING ISSUES FCA GETS TOUGH ON ATTESTATIONS

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20/06/2014 10:22

Its strength is in our experience Introducing the new Invesco Perpetual Global Distribution Fund 15 years after launching the first of our successful mixed asset funds, we’re going global. The Invesco Perpetual Global Distribution Fund offers your clients access to quality income and capital growth opportunities worldwide.

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Find out more at invescoperpetual.co.uk/gdf

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The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns. Where Invesco Perpetual has expressed views and opinions, these may change. The securities that the Invesco Perpetual Global Distribution Fund invests in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to buy or sell securities. These risks increase where the fund invests in high yield bonds and where we use derivatives. The fund has the ability to make use of financial derivatives (complex instruments) which may result in the fund being leveraged and can result in large fluctuations in the value of the fund. Leverage on certain types of transactions including derivatives may impair the fund’s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the fund being exposed to a greater loss than the initial investment. The fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents and the Supplementary Information Document, the ICVC ISA Key Features and Terms & Conditions and the latest Prospectus. This information is available using the contact details shown. Invesco Perpetual is a business name of Invesco Fund Managers Limited. Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

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05/06/2014 10:23 09:26 20/06/2014

WORDS OF WILSON

FAIL SAFE

RULE NO. 1: DON’T LOSE MONEY RULE NO. 2: NEVER FORGET RULE NO. 1 Oddly, nobody seems to know for sure whether Warren Buffett really said that, or whether it was just attributed to him by his acolytes. (Although we do know that it made it into The Tao of Warren Buffett, written by his ex-daughter-in-law.)

And in a way, it doesn’t matter. Buffett has always had a rare sense of humour, and it would be hard to think of a better way of shaking off the wannabes who dog his every step than to send them up this particular blind alley.

Because a blind alley is what it is. Yes, it’s always been a tempting notion that you might be able to ratchet up your wealth, notch by irreversible notch, until you came out on top of the pile. And there are many people who’ve lost money by trying. Or failed to make any. Buy yourself a gilt or a bank deposit or – worse still - an annuity, and hope that inflation won’t rob you of whatever paltry yield it brings you.

For most consumers, the wisdom still holds true that the market rewards risk. You hardly need to look at the Barclays long term gilt/equity study to guess that over the last 90-odd years equities have yielded 8% returns over 2% or thereabouts for bonds. And anyone who voluntarily locked into bond yields now would need their heads examining.

Except, of course, that that’s exactly what the annuities system entails. Which is why the new generation of funds now being developed, in readiness for next April, have the potential to be useful not just to pensioners but also to other cautious investors. The funds are still largely under wraps, but most of them will aim to provide income combined with a hefty degree of capital protection. I mean, if structured products have been able to pull off that 0%-downside, 100%-upside trick for the last 30 years, why shouldn’t it work?

With the added benefit, of course, that for a pensioner the fundholder hangs onto the capital – or much of it, anyway – to the grave. And, in a sense, also beyond. With competition like that for a risk-free or low-risk investment, the outlook for annuities seems bleak indeed.

Past tion that ncial ons curs und the s& ark,

M ik e

Michael Wilson, Editor IFA magazine

www.IFAmagazine.com

Write to Michael at editor@ifamagazine.com

June 2014

3

6.14

09:26

Ed's Welcome.indd 3

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Brian Tora a Communications Associate with investment managers JM Finn & Co. Steve Bee founder of JargonFree Pensions, and of JargonFreeBenefits.

Lee Werrell a senior compliance consultant and industry adviser.

Richard Harvey a distinguished independent PR and media consultant.

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

Gillian Cardy Network Development Director at ValidPath.

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

16

Oil prices might be down, says Michael Wilson, but don’t dare to think that’ll last

Chilling Statistics

You think we’re back to the 99 peak, says Brian Tora? Think again

54

Nick Sudbury’s pick of a sector that’s doing just fine

Compliance Doctor

The FCA is tightening the knot on senior executives’ liabilities, says Lee Werrell

06.14

Editor: Michael Wilson editor@ifamagazine.com

Art Director: Tony Merlini

tony.merlini@thewowfactory.co.uk

Publishing Director: Alex Sullivan alex.sullivan@ifamagazine.com

66

56

FCA Publications

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

Gill Cardy examines the limits of caring, sharing companies.

THE FRONTLINE: Less volatile than emerging markets, but a long term view is essential

48

Pick of the Funds

“Inclusive Capitalism”

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

44

Auto-enrolment doesn’t mean changing your payroll system, says Steve Bee

The FTSE on the Brink

60

News

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

Editor’s Soapbox

46

8

65

Thinkers: Thomas Piketty

This year’s rock star economist, and why statistics aren’t what they used to be

The Other Side

Richard Harvey wonders whether his Saga share application is hiding down the back of the sofa?

IFA Magazine is published by IFA Magazine Publications Limited The Old Wheelwrights, Ham, Berkeley, Gloucestershire GL13 9QH Telephone: +44 (0) 1179 089686

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‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.

features

This month’s contributors

regulars

C O N T R I B U TO R S

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

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GUEST INSIGHT

Mining Your Client Data There are hidden gems in there, says Peter Welch from Equifax.

All you have to do is use them

24

GUEST INSIGHT

Conversations With Clients

Stewart Quayle from IFAShops.com on the art of finding the right communication channels

27

CONTENTS

features 20

Last year’s headlong surge has faded, and the differentials against conventional EMs are shrinking fast, but the prospects are still excellent

COVER STORY

Frontier Markets

City Editor Neil Martin talks to three specialist fund managers

32

GUEST INSIGHT

The China You Don’t Know

IFA Magazine talks to Jupiter’s Philip Ehrmann about what’s really going on

36

Burning Issues - ETFs We ask four major providers about their very different feelings on current and future trends

INSIDE TRACK

40

Pensioners – A Hot Property

M&G’s Joffy Willcocks talks to IFA Magazine about why oldies are a ‘phenomenal’ opportunity

IFA Magazine is for professional advisers only.

Full subscription details and eligibility criteria are available at: www.ifamagazine.com

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11/06/2014 23:02

EUROPE, NUL POINTS The people have spoken, and it’s up to the politicians to listen. Last month’s European Parliament elections, in which anti-EU parties triumphed in many countries, have left Brussels stunned. But will it make a difference to the financial establishment?

shorts

magazine

The European Central Bank reduced its base lending rate from 0.25% to 0.15%, in an attempt to restart the consumer economy by making it cheaper for banks to lend to borrowers. Just to ram home the message, it announced that any spare money they banks parked with the ECB would no longer attract attract 0% interest.

Instead, they would have to pay 0.1% for the privilege of lending the ECB their money.

In Britain, as we know, Nigel Farage’s Ukip scored more votes than either Labour or the Conservatives, with 4.4 million votes (27.5% of the vote) and 24 European Parliament seats. That was more than four times the turnout for the Lib Dems, by the way. Labour won 20 seats and the Tories held onto 19, compared with the Lib Dems’ one seat.

In France, Marine Le Pen’s Front National secured another 24 seats, beating both the main parties comfortably; and in Holland Geert Wilders’ Party for Freedom scored four seats, only one less than the ruling Christian Democrats. Greece’s far-left Syriza took 26.5% and Denmark’s People’s Party scored another 26.6% All except Syriza had campaigned for tougher anti-immigration laws, and all railed against excessive power being wielded by Brussels and

by Strasbourg, where the parliament itself sits.

All very well. But will the eighty-odd seats won by the leave-us-alone parties in the 751-seat parliament make a difference? After all, the centreright European People’s Party bloc and the centreleft Social Democratic Alliance bloc still hold 214 and 189 seats respectively – not counting the nonconformist UK Conservatives, who have 19 of their own - while the Liberals and Democrats hold 65 seats and the Greens another 52. Could it, in fact, be a good thing for democracy if one tenth of the Euro Parliament is sitting on the sidelines heckling?

Consequences for the Markets?

That’s an interesting question, but it probably underestimates the size of the financial task that still awaits the European political elite. It’s not just that the European Commission is still making heavy weather of its efforts to stabilise and regulate the European financial markets, via the MiFID II package which is running extremely late, and which will still need to be ratified by the dissident Parliament when it’s finished.

It’s also that the EU’s brave banking reform initiative – which will effectively tighten the European Central Bank’s control over Euro Club banks – will still come to little unless Brussels can get various enabling legislations through the assembly. And without further approval, the ECB will have no mandate to issue the bonds on which it is counting if it is to stave off future banking crises. And how secure is that prospect, now that nationalists wield so much influence at home?

The election probably won’t impact on the proposed financial transaction tax, a market

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bid to take over pharmaceuticals giant AstraZeneca failed after being rejected by the AstraZeneca board on price grounds. But politicians and shareholders were also concerned that it might result in the downsizing of the company’s activities in favour of job creation in the United States.

levy which a group of 11 member states have agreed among themselves to enforce on their own various markets; at present, however, the talks are being stymied by disagreements on whether to tax all derivatives, or just equity derivatives, or maybe no derivatives at all.

(Britain’s position, if you remember, is that any attempt to tax derivatives across the board will drive derivatives business back to America and will cost London trillions of lost transactions.)

Separatist Britain

But the biggest fears seem to revolve around Britain’s membership itself. For Germany, Chancellor Angela Merkel’s instinctive response to the bad polls has been to become even more EU-minded than usual – as witness her support for Luxembourg’s arch-bureaucrat JeanClaude Juncker for the European Commission presidency. That in turn has incensed David Cameron so much that he’s dropped a heavy hint that he might bring forward the planned

UK house prices grew

by an alarming 8% in the year to March, according to new figures from the Office of National Statistics. But price rises in London may be starting to moderate, the ONS says, after a frightening 17% annual growth. Outside London and the South East, the average increase was a slightly saner 4.7%.

NEWS

Pfizer’s £70 billion

UK referendum on Europe from its original 2016 date to – well, any time soon really.

Of course, the fact that Ukip smashed into the Conservatives’ political lead might very well have turned his head. But the same kind of logic is also appearing in France, where a very worried President Francois Hollande is now railing against the very European regime which has been supporting his farmers so generously for the last sixty years. Suddenly it’s Brussels interference, the unwelcome free movement of labour and swingeing controls on government spending which are raising French hackles.

The EU Commission is of course stunned at the thought of losing Britain. But it’s probably much more worried about the encroaching Euro-scepticism elsewhere. If Britain and France are having to make concessions to the eurosceptics, how much longer before other key members have to do the same thing?

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NEWS

Pope Francis sacked the entire board

of the Vatican’s financial regulatory body, in the course of a review of banking practices that followed a corruption scandal within the city state, and an arrest for money-laundering. The five-member board was replaced by a team of four international experts, including Juan Zarate, a former national security adviser to US President George Bush, and Joseph Pillay, an adviser to the president of Singapore.

Bitcoin prices

rebounded from April’s low of $360 to $666 on 3rd June – still barely half of December’s $1,150 peak. But the sector is still expanding. Coindesk reported that the first five months of 2014 saw $113 million of venture capital raised by bitcoin startups, around 30% more than in the whole of 2013.

The Tipping Point Over half of all UK financial advisers are now outsourcing their clients’ investment management to Discretionary Fund Managers, a new report from Investec Wealth & Investment shows

54% of all the advisers polled said that they were placing client investments to DFMs – compared with 48% in 2012.

So does that mean it’s game over for the old way of working? Hardly, says Investec. Although 84% of the IFA sample who use DFMs say that they do it to reduce their potential exposure to regulatory risk, they also make it clear that they expect to retain a high degree of control.

Under their existing DFM relationships, 97% of the advisers say that they still insist on remaining responsible for assessing the overall suitability for each client, based on their tolerance to risk and capacity for loss. And 66% said that they take

overall responsibility for agreeing the client’s investment strategy – suggesting in most cases, for instance, that a DFM’s mandate may cover only part of their overall portfolio.

17% of the sampled advisers said that they remain responsible for asset allocation decisions – implying, Investec says, that for certain clients IFAs still retain a high degree of involvement in the investment management process while working with a DFM. It’s also clear that advisers employ a variety of structures to underpin their DFM working relationships, and that they often employ more than one structure, depending on the DFM. 45% dais that they use outsourcing agreements, 36% use an adviser as an agent, and 35% favour tripartite agreements.

“This study clearly shows that the needs of advisers and their clients are far from homogenous,” said Mark Stevens, Head of Intermediary Services at Investec Wealth & Investment.

“And DFMs have to adopt a flexible approach if they are to develop successful partnerships.”

“DFMs that take a ‘one size fits all’ approach to working with advisers ignore the often complex and varied requirements of their clients that is only properly exposed through providing suitability advice.” Flexibility is required, he says, if the IFA is to be able to determine the mandate, and if the DFM is to focus successfully on managing each client’s portfolio in accordance with what has been agreed with the adviser.

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11/06/2014 23:23

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Job No: 48350-10

Publication: IFA Magazine

Size: 297x210

Ins Date: June 2014

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11/06/2014 23:23

NEWS

The International Monetary Fund

Bank of America

was reported to be close to agreement on a new $12 billion package of fines and compensation in respect of a Department of Justice investigation into misselling of mortgage-backed securities. The Wall Street Journal said that the bank had already paid out $25 billion.

warned the world’s major banks that they had done too little to reform themselves since the 2008 crisis.

Director Christie Lagarde (right) said that too many banks were still “too big to fail”, and that another bout of trouble could pose a systemic risk to the international system.

Upside Down How should the Eurozone respond to fears of deflation?

By encouraging growth, of course. It’ll help consumers to buy things that they want for their homes, instead of putting the money in a deposit account till next year – when you never know, it might have got cheaper.

Which would have been terrible, for the manufacturers if not actually for them.

And how do you encourage that consumer spending growth that will get you out of the vicious circle? Easy, you cut interest rates, so as make it less worthwhile for people to save, while also cutting the costs to businesses of investing in new job-creating opportunities.

It’s a win-win strategy, and it’s been a staple of fiscal management for centuries.

But things get rather more interesting when you actually turn the interest rate into a minus number. Yes, the European Central Bank declared on 5 June that from now on, not only will banks get no interest on the spare money that they park with the ECB. They’ll also have to pay interest at 0.1% to the central bank for the privilege of lending it their money.

Work that one out if you can. The idea, of course, is to make it uneconomic for banks to hold spare money – instead, ECB president Mario Draghi (above right) decided, the idea is to force them to lend the cash to borrowers. And yes, we’ll agree that that sounds a little off-message, given that the European Commission is simultaneously stepping up its urging that banks should hold greater cash resources so as to shore up their capital ratios. But what the heck, the economy is more important than the banking solution.

Slicing the Benchmark Rate

At the same time, the ECB voted to cut the benchmark bank rate – the rate at which it lends money to central bankers – from a puny 0.25% to an even more minuscule 0.15%. Compare that with the 0.5% that we’ve been paying over here since 2008 (?), and you’ll get an idea of just how twitchy Frankfurt is becoming about low growth.

But then, The ECB’s low rate strategy hadn’t been boosting consumption as expected. Eurozone inflation was (and is) still stuck at around 0.8% - massively below the ECB’s 2% target.

So what does it mean for investors? A weaker euro, for a start, because it’ll depress bond yields. Which will be good for business.

And, in theory, a faster rate of Eurozone growth. But for that we’ll have to wait a little longer. Or, if we’re unlucky, a lot.

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NEWS

Terry Smith (right), the ebullient

China’s economic

founder of asset management business Fundsmith, is to leave his post as CEO of Tullett Prebon, in what the interdealer broker is calling a “well advanced” succession planning process. Smith will be concentrating his activities on Fundsmith, which is currently raising funds for a £250 million emerging markets fund to be known as Fundsmith Emerging Equities Trust (FEET). Nice one.

growth forecast for 2015 was lowered from 7.3% to 7% by the International Monetary Fund, because of worries about a possible correction of the overheated property market and a build-up of private credit.

But the agency stressed that the prospects were still good.

Regulatory Costs?

Half a Billion The financial advice industry is spending £170 a year per client on regulatory duties... ...a new report by the Association of Professional Financial Advisers (APFA) has found. And that’s £460 million a year in total. .

Which means that, for firms with annual incomes of under £1 million (i.e. 90% of the survey’s respondents), the overall cost of regulation equates to 12% of their income. Rising to 20% for those with annual incomes of below £100,000.

Although those with incomes of between £100,000 and £250,000 are also paying out 19% of income.

“This research has uncovered the scale of the indirect costs borne by advisers in their efforts to comply with the current volume of regulation,” Director General Chris Hannant, said. “Smaller firms in particular tell us much of these costs come from hiring external compliance support, or from using internal resources on regulatory matters.”

“As individuals face greater responsibility for managing their financial affairs, they will need affordable advice…… This isn’t about compromising on standards, this is about cutting the burden of compliance and the cost to clients.

A lower cost of regulation could also help bring professional financial advice into the financial reach of a greater proportion of the UK’s population - a desirable goal, given the changes to the retirement market announced in the last Budget” The FCA needs to find ways of streamlining the data it asks advisers to provide, said Mr Hannant, and it should also give them more time to provide it. “It needs to simplify and consolidate the sheer amount of information advisers have to get through in order to be compliant, via the handbook, seminars and elsewhere. We also need to see clear action on introducing a long stop, to help reduce the cost of PI insurance.”

“Good compliance is essential for the industry and for consumers, but the overwhelming feeling at present is that the regulatory burden on advisers is bloated, unnecessarily onerous and potentially damaging to the future health of firms.”

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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 Arjent Limited is authorised and regulated by the Financial Conduct Authority (FCA no. 197330). Arjent Limited is registered in England. Registered No. 4077864.

Registered office: Arjent Limited, 25 Christopher Street, London, EC2A 2BS. VAT Registration No. 888 5631 63. Past performance is not a guide to future performance.

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11/06/2014 23:23

NEWS

Britain's trade

Britain’s economic growth looked

deficit for non-oil goods rose in April to £8.4 billion, compared with £7.7 billion in March, the ONS reported. The deterioration was partly due to a 1.9% fall in non-oil exports.

more cheerful as the British Chambers of Commerce (BCC) raised its forecast for 2014 to 3.1%, from its earlier prediction of 2.8%. Meanwhile the CBI said its May survey of 700 manufacturers, retailers and service sector firms showed the economy growing at its fastest pace since its records began in 2003. But the BCC warned that households were under strain, and that it expected growth to slow to 2.7% in 2015, and further to 2.5% in 2016.

We’re All Better Off There are no surprises in the latest ONS data on regional gross disposable household income – yes, Londoners are wealthier than northerners – but the detail is interesting

GDHI per capita annual growth:

spending power per person – or 27.7% more than the UK average. Whereas Northern Ireland had a GDHI per person of only £13,902, or 17.2% below the UK average of the UK.

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2011

2012

United Kingdom 3.9 2.0 3.3 North East 3.7 1.9 4.0 North West 3.7 1.6 3.4 Yorkshire & Humber 3.5 1.9 3.3 East Midlands 3.4 2.5 3.2 West Midlands 3.9 2.1 3.0 East of England 3.4 2.0 3.2 London 3.8 1.3 3.4 South East 4.7 2.2 3.2 South West 4.6 2.3 3.0 Wales 3.9 2.5 3.8 Scotland 4.0 2.1 3.3 Northern Ireland 2.8 1.6 2.7

You can read the report at http://tinyurl.com/o6mpkxh

In 2012 (sigh, that’s officialdom for you), every single one of the 37 regions studied by the ONS saw a growth in gross disposable household income (GDHI).

In fact, says the ONS, GDHI per person grew by a rather impressive 3.3% for the UK as a whole. And the highest per capita growth was in the North East (4.0%), with the lowest growth in Northern Ireland (2.7%).

But if we’re talking about the biggest increases in the growth rate since 2011 – the rate of acceleration, if you like – then London still took the prize with a rise from 1.3% growth in 2011 to 3.4% in 2012.

Followed by the North East, whose growth rate accelerated from 1.9% in 2011 to 4.0% in 2012.

Beyond that, the results are fairly predictable. London had the highest GDHI per person in 2012, with £21,446 of

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IS

For financial advisers only. Not to be viewed by or used with retail clients. The value of an investment can go down as well as up. Investors may not get back the original amount invested. Issued by Aviva Investors UK Fund Services Limited. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310.

Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk MC2917-V006-296372-CI062715

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NEWS

50% of all consumer retail

transactions by value are now being conducted with cards, a survey by the British Retail Consortium found. In volume terms, however, cash still accounted for 53% of the number of transactions in 2013 - with debit cards accounting for 32%. The BRC says that cash use has fallen by 14% in the last five years, largely due to online purchasing and the arrival of contactless cards. Debit card use grew by 11% during the same period.

Buy, Robot It’s hard to know whether to be encouraged or afraid No less a person than Martin Wheatley, the FCA chief executive, has said he can foresee a future where computerised advice will be handed out to the public.

A future where software developers, computer programmers and economists.will have as much sway in investment decisions as human beings. That’ll be one cheap way of tackling the advice gap, then.

Not that he put it like that, of course. Rather, his speech, given at a Lansons conference in London, focused on a wider question. Namely, can consumer advice be safely automated so as to deliver returns and security for consumers with straightforward needs?

To his credit, Mr Wheatley did present both arguments. On the one hand, he said, the wave of global technology and innovation “opens up a new wave of possibility in financial services…. a 21st century answer to all that the industrial revolution accomplished in the UK.” And on the other, he conceded the concern “that financial services become a kind of tech-led Wild West, if you like. Full of cybercrime; data losses; runaway algos; flash crashes and hash-crashes of the type we saw last year, when hackers took over the twitter feed of AP.” The regulatory challenge, then, would be to establish an oversight “that’s able to reduce the risk of the latter, dystopian scenario without damaging the possibilities presented by the first. A delicate balance that will no doubt hinge on a multiplicity of complex questions and assessments in the years to come.”

Mr Wheatley’s speech left little doubt that he favours the tech approach. “Priority areas here might include the likes of mobile banking; P2P (now a £500m business); online investment; money transfer; wearable tech; big data; and next gen data processing – in many of which London is already a leader... In fact, the UK and Ireland are today the fastest growing fin-tech incubators in the world, developing at an annualized rate of some 74% since 2008 – as against 23% in Silicon Valley.”

“Key potential opportunities to explore here, as I see it, include: more direct interaction for consumers with products and services; customised offerings; greater efficiency; better information; and of course the possibility of increased convenience.”

At the same time, he was careful to leave the back door open.

“At what point does the risk of disruption or damage simply become too high?” Will he tell us? Will we know?

For more comment and related articles visit... www.IFAmagazine.com You can read the report at http://tinyurl.com/mdexty3

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Something Sticky in the Pipeline THE PRIMACY OF THE OIL PRICE ISN’T OVER YET, SAYS MICHAEL WILSON. WHATEVER WASHINGTON MIGHT THINK

Okay, I admit it. What follows is going to sound a bit like sour grapes. A couple of years ago, this column carried what you might call a stout defence of the oil industry and its long-term staying power.

Just look at all those Chinese and their cars, I said, and then think of all the Indians who’ll soon be following them onto the roads, and all the airliners that they’ll soon demand. Look at the dwindling quantities of crude oil and gas that still remain under the earth’s crust, and tell me that you’re not just a teensy bit worried about what will happen when we start to run short?

And did anybody listen to me? Nope.

The Brent crude price just dawdled along in its own sweet way, never more than 10%

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adrift of its $110 average. Petrochina and a few other hot prospects went into a doze and then slipped away from $150 to below the $100 mark. And even my trusty Royal Dutch Shell became just another middling-grade income stock. Huh, so much for that bright idea.

A Good Idea, In Theory The reasons for all this, of course, are more than apparent. Or at least, we think they are.

Shale oil and gas have brought America’s dream of returning to oil and gas self-sufficiency very much closer now - and also very much faster than anybody had really expected. (Right now, 2030 seems an achievable date.) That, in turn, has reduced the pressure on global supply.

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And the halting return of democracy in parts of North Africa and the Middle East has proceeded, despite setbacks, a little more encouragingly than some of us had expected. Meaning that supply disruptions, of the kind that persuaded the International Energy Agency to forecast a wild $200 a barrel by Christmas 2008, are largely off the cards. (A laughable mistake, as it happened – by December Brent had dipped to a terrible $48 before settling around the $75 mark, where it stuck for 20 months.)

ED ’S SOAPBOX

The manufacturing slowdown in China turned out to be deeper and more seriously intended than most of us had expected.

In Europe, the manufacturing slowdown and the slow but impressive march of new energy technology has been reducing the energy deficit with every passing year.

The Worrying News And yet... And yet...

This year’s news has been dominated by oil and gas developments. Nigeria, the world’s 10th largest oil producer, was losing half the oil in its pipelines to local thieves even before Boko Haram started carving up the country with its Islamist insurgency. Iraq won’t stay quiet for very long at a time, and Egypt still hasn’t settled its fight with the militants. Anyone who thought that putting Al-Qaeda back in its political box would calm things down hadn’t reckoned with the ease with which it could morph its way out again.

Most importantly for us Europeans, though, has been the Ukraine business. When Russia annexed the Crimean peninsula back in March, things swiftly deteriorated to the point of an energy stand-off.

Ukraine refused to pay the roughly doubled gas price that Moscow had started demanding for its supplies, and Russia decided instead that Ukraine wouldn’t be getting any gas at all unless it paid in advance.

Oil n Proven ‘extractable’ world oil reserves rose from 1.017 trillion tonnes in 2000 and 1.355 trillion in 2010 to 1.525 trillion 2012.

So the growth in reserves is real enough.

n Current global oil production is around 64 million b/d from nonOPEC sources, plus another 32 million b/d from OPEC members.

n Iran, Iraq and Venezuela have massively increased their known reserves in recent years, but Mexico’s production is drying up, and Canada’s may not last very long.

n But the IEA warns that non-Opec production has been disappointing because of political turmoil in South Sudan and Colombia, and as well as continued delays in the vast offshore field in Kazakhstan.

Accordingly, the agency has cut its 2014 estimate for non-Opec supply growth by 100,000 b/d to 1.5m b/d.

(Roughly a 2.3% growth rate.)

n US known reserves are barely 25 million tonnes, which is a tiny proportion of global resources, but the figure is growing fast as new discoveries come on line. n US oil production, including natural gas equivalent, will rise from 9.2 million barrels a day in 2012 to 11.6 million in 2020, says the IEA, up n Britain’s North Sea oil is drying up fast – some estimates give it as little as five years.

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n This year the IEA is forecasting a global requirement of 92.6 million b/d, up from 90 million in 2012.

The close correlation between consumption and production is clear.

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ED ’S SOAPBOX

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

Barack’s Bungle US President Barack Obama boldly decided that the best way to show his country’s displeasure was to threaten a European boycott of Russian gas. That’d show the Kremlin not to tangle with an ally of the West, he declared. The only snag was, unfortunately, that Russia supplies a third of Europe’s natural gas, and that Western Europe would need to find another supplier in double-quick time if we weren’t to go into next winter in a Cold War of words.

So it was obvious, wasn’t it, that Obama would organise a massive shipment system for getting American liquefied petroleum gas (LPG) to Europe? Well, no, actually, he hadn’t got any such thing on his policy agenda, so sorry, it wouldn’t happen. When he was pressed by his European partners to suggest a way through the problem, he went oddly quiet.

You can see the President’s point. For one thing, America is still using more oil and gas than it produces, and there was a definite strategic need – or so the papers said – to defend the country’s oil security in the face of shrinking supplies from Canada and Venezuela, not to mention a wobbly political spell in Saudi Arabia, still the world’s largest oil producer, which seemed to be losing the western-friendly plot just a little bit.

And anyway, America couldn’t export LPG in bulk even if it wanted to. The necessary terminals and the specialist pressurised shipping carriers are still a couple of years away from completion. It all leaves us in a bit of a quandary, frankly, because we’ve entered the summer months not knowing exactly where next winter’s gas is going to come from. Vladimir Putin’s Realpolitik is working just fine, worse luck.

And let’s also remind ourselves why it’s so volatile. Sure, America has its own strategic oil reserve, at Cushing, Oklahoma, which is intended to be there in case of war or government emergency – but for the rest of us, we prefer to leave the oil in the ground until just before we need it. Oil is messy, flammable, heavy, and a complete beast to store for any period of time. (It’s also a magnet for terrorist attacks, but that’s another story).

So we don’t maintain much of a global buffer stock. Which means that when trouble strikes we often get caught short in the supply chain. It doesn’t take a very big earthquake or a colossal military stand-off – or, heaven forbid, a sudden nuclear switch-off – to put panicky new life into the energy auctions.

This Year’s Big Problem The IEA’s latest report, published in May, noted that OPEC oil production had improved slightly in recent months, with output growing by around 405,000 barrels a day in April. But it warned that a significantly bigger increase will still be needed in the second half of the year, when consumption picks up after the northern hemisphere summer.

Some Proper Figures?

But we’re getting off track a little here.

Having paused briefly to remind ourselves that the International Energy Agency couldn’t count its own toes with any statistical accuracy, let’s at least try and tangle with some of the projections in what is, by any reckoning, a rather volatile kind of market.

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ED ’S SOAPBOX

Gas n The BP Statistical Review for 2013 estimated that US natural gas production in 2012 had amounted to 619 million tons of oil equivalent, or 20.4 percent of total world output. The Russian Federation produced 533 million tons of oil equivalent, or 17.6 percent of the world total.

n Poland pays more than any other EU country for its gas, because it imports 60% from Russia, largely via Ukraine. But it is sitting on Europe’s biggest shale gas reserves, estimated at 346 billion to 768 billion cubic metres, but still unexploited.

The Future n America will be fully self-sufficient in oil and gas by 2035, the IEA estimates.

“But this does not mean that the world is on the cusp of a new era of oil abundance. Light, tight oil shakes the next 10 years, but leaves the longer term unstirred. The Middle East, the only large source of low-cost oil, remains at the center of the longer-term outlook.” n Total world consumption by 2035 is estimated at 790 billion barrels a day, a huge increase. But this will be in the face of declining output from mature deposits, the IEA says. It is normal for output from a conventional oil field to shrink by 6% a year once it has passed peak production.

It also warns of a deteriorating situation in West Africa (including Nigeria) and in Angola, where technical troubles have been getting in the way. And other political worries in Sudan and especially Libya.

All of which looks like a case of bad timing, considering that the IEA is expecting a major surge in second-half demand. “Upside risk to oil markets, from both the supply and the demand sides, is proving remarkably persistent,” said the report. And it left us in no doubt that the combination of stronger demand with a range of unresolved supply problems might push prices higher.

Is it any wonder that Germany is keeping its coal mines open?

Well, wouldn’t you?

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

WORK THOSE RECORDS! DON’T LOSE OUT ON HIDDEN GEMS IN YOUR CLIENT BANK, SAYS PETER WELCH, INTERMEDIARY DIRECTOR AT EQUIFAX

The advent of the Retail Distribution Review (RDR) has created much discussion around client segmentation.

Indeed, in the last year and a half most firms have undertaken some form of analysis of their client bank in order to ensure they’re delivering the most relevant service and fee model to their active clients.

Opportunity Cost Any segmentation model must put the needs of the customer at its heart. But can any firm truly quantify how much revenue or profit is left untapped from clients who would both benefit from the advisory services on offer and can afford them?

If you think of an IFA practice like a family household, over its lifespan it’s not unusual to move property several times; children arrive, grow up and leave home, or there may be separation, divorce and bereavement.

As these life stages occur, a home will inevitably gather numerous possessions, many of which will become unwanted, unfashionable, unloved and sometimes unusable. Some are retained for sentimental reasons while others are kept because it is perceived they will become useful in the future. Of

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How To Value Clients?

In the run up to the RDR, segmentation has generally has been carried out to establish the service proposition and fee level offered. Using only the data available to the firm, this will probably be based on historical commission and fees earned, together with assets under management. It is also likely to be affected by a subjective view

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U S I N G D ATA

course, others are simply in the home because the householder can’t be bothered to get rid of them. There are very few attics, garages or cellars that don’t hold a collection of old and unused household items.

Now, in a domestic setting there aren’t many consequences for keeping all this ‘stuff’ apart from the space it takes up. But if we see the household as a business and the ‘possessions’ as clients, then there are financial consequences or costs for just ‘warehousing’ what are essentially ‘assets’ of the business.

The trouble is, those costs aren’t explicit. They appear in the management accounts of a business as ‘opportunity costs’ and, by taking no action, that is revenue lost.

If we think about the life of an IFA practice, then inevitably it has evolved over time. Business premises may have changed, advisers, partners and directors have all come and gone, mergers or acquisitions may have occurred - and, because of numerous regulatory and market changes over the years, the core proposition will have developed too.

Inevitably any segmentation of customers will have changed over time with customers classed as ‘A-grade’ fifteen years ago now possibly categorised as ‘unadvised’.

However, for those firms that have not been totally rigorous with their client management over the years there is still likely to be hidden value.

of the client relationship: “How much am I likely to earn from this client, and do I like them?”

This analysis is likely to leave a group of customers who are effectively not profitable to service, even though at some point they probably were. They have done business in the past but for whatever reason they are not active now.

So what to do with this group? If they aren’t getting ongoing service, it’ll be difficult to ever spot their changing circumstances and establish whether they are now profitable to service again. Add to this the fact that many may have moved, divorced or died, and the practice has not been advised.

Technology Triumphs But all is not lost. The technology and data insights available now allow firms the ability to profile and cleanse their client data in a more objective way. This insight enables firms to more easily identify the ‘hidden gems’ in their client bank that can generate additional value.

If a firm has identified its profitable clients, I would suggest a simple exercise of profiling them using an external wealth scoring model. This then provides an objective reference or ‘label’ that can be used to determine other ‘non-active’ individuals within the client bank that, in all respects, look like the most profitable clients.

This gives a means of executing a strategy to win back value from these ‘hidden gems’.

At the same time it is very simple to cleanse data to understand which clients are now deceased or have moved, as well as append new addresses for those who have moved.

Missed Opportunities I can cite a real example that proves the value of this approach: a client who invested in a small PEP in 1996 with a current value of £9000. The IFA was still June 2014

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U S I N G D ATA

magazine... for today ’s discerning financial and investment professional receiving trail but had not been in contact with the client who has since moved twice and divorced. Yet this client had investable assets today of more than £250,000 sitting on an unadvised Investment Platform.

A quick and simple profile and cleanse of this IFA’s data would have established this client’s current address and identified him as someone with a high likelihood of being an “experienced investor” with “early retired wealth”. I’m convinced that most IFAs would have little difficulty educating this client as to the benefits of their fully advised service.

These types of opportunities are missed by firms because, traditionally, the only way to find such clients would be to trace and contact all ‘orphans’. This clearly isn’t cost effective, as it’s a bit like looking for a needle in a haystack. Using intelligent data cleansing and segmentation

means a firm can do the equivalent of holding a large magnet near the haystack and letting the needles come to it.

Cash In The Attic Returning to the unloved household items analogy, one way to establish their true value would be to check them all on eBay to see what similar pieces have sold for.

Thankfully with client data it’s much less time consuming than that. If a firm can provide an excel file of the names, addresses and postcodes of their clients, a marketing and data analytics specialist can easily cleanse and enhance that data as well as place a wealth score or wealth indicator against each client record.

This allows a firm to make a judgement about what contact strategy to adopt for various client segments ranging from adding contact details to a newsletter mailing list to a personal letter or phone call from the original adviser

Get away.

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

For more information on the services we can offer you and your clients, please don’t hesitate to contact us on 0800 612 9625 to speak to your specialist consultant or email us at FX@ifamagazine.com

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U S I N G D ATA

or another relevant specialist suggesting a review meeting.

Sometimes a change of adviser within the same firm can be the key to rekindling a dormant client relationship.

In the post-RDR world the firms that will thrive are those that adopt best practices used across a range of industries and adapt them to suit their own business needs. In my experience, IFAs have only started to scratch the surface as

far as managing customer data and segmentation is concerned.

This seems ironic, as the future competition to this sector will come from those businesses that, at their core, use data and the insight it provides to better predict consumer behaviour to spot the ‘hidden gems’ first.

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magazine

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Conversations with Clients

STEWART QUAYLE FROM IFASHOPS.COM LOOKS AT HOW ADVISERS CAN TRANSLATE THEIR EXPERT KNOWLEDGE INTO A FORMAT THAT CLIENTS WILL APPRECIATE AND UNDERSTAND In ‘an always’ on world, advisers are bombarded by information through the media, events and online - but how much of it really engages and is therefore useful? IFAs need to have their finger on the pulse to impart real-time market insight to their clients, yet this can often only be found diluted across many different sources and in an uninspiring format. It’s hardly surprising that, with this to contend with, IFAs can struggle to interpret and distil the key to communicating clearly with their clients.

and professionalism within the industry.

These changes have largely been welcomed by advisers and clients alike. So now really is the time for advisers to show off the clever stuff.

IFAs should endeavour to access the latest ideas, inspiration and expertise so that they can easily pass it on to their clients and ensure they’re well looked after. In a social media age, we can quite literally tap into bite-size brainwaves about new products and themes that mean IFAs can keep a finger on the pulse.

Clever Content

Surprise your clients with updates and insights. Such as when you call a client with an update like: “Just wanted to let you about this article I read in [super relevant media outlet], and I thought it would be of interest for you to hear about [interesting new investment opportunity]. I’ll find out more.” So if you’ve just read about a new classic car fund, for example, and you know the client has an E-type Jag on the driveway, your call will definitely tick a box.

It seems obvious, but of course the content of what you say is always important. Advisers are jaded from endlessly hearing about how in a post-RDR environment; there has never been a more important time to communicate well with your clients. It’s almost become a cliché, but then again it’s always been true.

RDR brought about a renewed focus on giving a fairer deal to clients, and on raising the standards of both formal qualifications

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line is that you need to choose the right channel for the message you’re looking to communicate.

TOP TIP: Ask clients what they want, and how they want it.

Channels

Clever companies sit creativity alongside every other commercial discipline. When you consider the fact that your clients are bombarded by brands around the clock, you need to try and feel as glossy and appealing as the other companies who are vying for some of your clients’ attention.

Of course, the subject matter of what you’re looking to communicate is more serious.

But I’d argue that’s that’s even more reason to find a way to tell your story, or to convey your message in a more interesting manner.

Scientific studies show that we remember 10-20% of what we read, in contrast to 5080% of what we see. Think about telling your story in pictures. Visual data is processed 60,000 times faster by the brain than text, and 65% of your audience are visual learners.

This is evident in the rise of video and infographics as a way of visual storytelling. In this way, communication has gone full circle. You only have to look back to the days of hieroglyphics to understand the psychology behind why this would be the case, yet for years we’ve blitzed clients with reams and reams of heavy text to get across a portfolio or investment update.

TOP TIP: It ain’t what you do, it’s the way that you do it. Don’t just opt for what you’ve always done. Think creatively about how you can communicate with clients in a compelling way.

Everyone has an opinion on this, but which channels really are the best methods of communication when it comes to speaking to your clients? The face-to-face meeting always goes down well, of course. Or is a phone call preferable to some of your clients?

Where do you stand on emails versus letters, and how exactly do newsletters and social media fit into all this?

The world we are working in is getting ever more complex. One-size-fitsall solutions are no longer suitable, and a single closed ecosystem can never deliver everything a client needs. You need to get to grips with your clients’ lifestyles and how you can best match them to make sure you’re getting through to them.

It doesn’t have to be as formal as a survey, but do ask clients how they live their lives. Where and when do they like to receive information? It’s crucial to the mood they’ll be in as they engage with you.

One thing that’s for certain is that we’re all living our lives online - and that even goes for the older generation, with a proliferation of so-called silver surfers. And businesses are responding to this. Last year, more than half of marketers increased digital budgets because they know the secret to getting to clients is getting online.

That said, research from the Direct Marketing Association (DMA) has found that 79% of people will act on direct mail immediately, compared to only 45% who say they deal with email straight away. So there’s certainly a place for paper. The bottom

GUEST INSIGHT

The point is, you need to be receiving information in this way to pass it on in the same way.

TOP TIP: Block out the noise. Only read relevant content that you can make the most of.

Creativity

So, to Summarise

It’s not complicated, but it is all about the other three Cs. If you question on Content, Channel and Creativity, then you’ll be taking the right steps to offering your clients more engaging content that ultimately builds confidence and stronger relationships.

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ACQUISITION AND SALES

O F I FA BUSINESSES Retirement?

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There are countless reasons to dispose of an IFA business, just as there are countless reasons to get hold of one.

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We work with leading companies looking to grow and develop their businesses by acquiring or partnering with financial advisory firms.

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FRONTIER MARKETS

FRONTIER FUNDS MIGHT BOLDLY GO WHERE SOME OTHERS FEARS TO TREAD, BUT THAT DOESN’T MEAN THEY SHOULDN’T BE PART OF A BALANCED PORTFOLIO. CITY EDITOR NEIL MARTIN REPORTS

Not Such a Wild Frontier No, we won’t deny it. The very name ‘frontier markets’ has a frisson which is variously thrilling or terrifying, depending on your point of view. And, considering that the majority of candidate countries are, in City parlance, still short of even emerging market status, you can understand why frontiers are a step too far for most investors.

And yet all the evidence is that frontier markets are not just gaining ground on their better-known neighbours, they’re actually growing faster. Last year, Morningstar reported that frontiers had put on 20% while the BRICs stagnated or fell. By May 2014, the MSCI Frontier Market Index was showing a massive 30% year-on-year growth. Although, as we’ll see, you do need to take the rough with the smooth. www.IFAmagazine.com

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Coping with the Risk But surely, you protest, the rosy picture stops short when you look at the underlying macro fundamentals of places like Nigeria or Vietnam or Egypt? How is an investor to cope with the political instabilities, the liquidity shortages, or the heavy national dependences on single industries that tend to afflict these faraway locations?

Just try asking Michael Levy, the Lead Manager of Baring Frontier Markets Fund - one of the earliest frontier adventurers, which has been around so long that it was already an experienced player when the Berlin Wall came down in 1989.

In time, of course, the primitive East European scene went on to achieve true Emerging Market

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FRONTIER MARKETS

magazine... for today ’s discerning financial and investment professional status, but by that time Barings was away into Latin America and then Asia. Its $635 million Baring ASEAN Frontiers Fund and its strongly performing Baring MENA Fund are now taking clients into new areas of Asia, the Middle East and North Africa.

Danger? Levy won’t have a bit of it.

Contrary to what you might believe, he suggests, frontier markets funds are not in fact an edgeof-the-seat ride - and indeed, they are in many ways more conservative and slower moving than emerging and developed markets funds. For these funds it’s the long game that matters - to see how history, culture and current affairs combine to produce a viable investment opportunity.

Gordon Fraser, one of the emerging market specialists at global investment manager BlackRock, agrees. “Although the underlying countries may appear volatile, if you’re just watching the BBC news, the actual aggregate of the index is not that volatile. Frontier markets volatility is running only at about 7-8%, which is less than emerging markets.”

other way, from Emerging into Frontier. And BlackRock’s Frontier Trust currently includes Saudi Arabia, which is not in the MSCI index.

George Birch-Reynardson, manager of the Somerset Capital Frontier Markets Fund which launched last December, insists that the distinction between the frontier and emerging is becoming increasingly blurred.

“We do include some of the smaller emerging markets that perhaps don’t get the attention they deserve,” he says. “Like Peru and the Philippines, for example. They do share many of the characteristics you would say are classic frontier markets, in that they have very strong demographics and quite high growth.”

Which countries do our panel particularly favour? Nigeria, Bangladesh, Pakistan, Saudi Arabia and Sri Lanka were all frequently mentioned. Slightly lower down the list were the UAE, Sub-Saharan Africa and Dubai.

Liquidity can be a problem though: many of these countries suffer from shortages of stock issues which periodically create cyclical demand surges and even bubbles.

What’s a Frontier Market Anyway?

So how do you define the frontier markets sector? Definitions vary, but most funds measure themselves against the aforementioned MSCI Frontier Markets Index, which classifies some 31 countries as ‘frontier.’ Of which 25 are formally included within the MSCI Frontier Markets Index. In terms of assets, the index has just over 142 constituents with a combined free float-adjusted market capitalisation of around $140 billion.

As with the UK football leagues, countries can be ‘promoted’ out of frontier and into emerging, and vice versa. Just last month, in what’s known as the SemiAnnual Index Review, Qatar and the United Arab Emirates (UAE) were lifted from frontier into emerging. Whereas Morocco has gone the

MSCI Frontier Market Constituents Full Members

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n Argentina

n Kazakhstan

n Nigeria

n Bahrain

n Kenya

n Oman

n Bangladesh

n Kuwait

n Pakistan

n Bulgaria

n Lebanon

n Romania

n Croatia

n Lithuania

n Serbia

n Estonia

n Mauritius

n Slovenia

n Jordan

n Morocco

n Sri Lanka

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Candidates n Trinidad and Tobago

n Bosnia and Herzegovina

n Tunisia

n Botswana

n Ukraine

n Ghana

n Vietnam

n Jamaica n Saudi Arabia n Cambodia

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Closed Or Open-Ended?

As for performance, frontier markets funds have had a wonderful run over the last 18 to 20 months, but this year has proved tougher. Which leaves Reynardson at Somerset feeling slightly rueful. “In general I’d say that during the last 18 to 24 months the valuation gap [for frontiers] was quite attractive, so they traded at quite a good discount to the emerging markets. But now, if anything, they are slightly more expensive.”

That’s a view which gets support from Fraser at the BlackRock Frontier Trust team.

“It’s time for a bit more of a differentiated approach to frontiers,” he says. “When we launched the investment trust more than three years ago now, we were very bullish on frontier markets because we found them at a discount to emerging markets for far superior fundamentals.

“That discount has now closed. Frontier markets now actually trade at a small premium in terms of emerging markets. But we still believe in general that the fundamentals are far superior - lower debt levels, high dividend yield, better growth, less correlated markets and less institutionalized markets.”

Frontier markets have low levels of correlation with both developed and emerging markets, as well as low intra-country correlations, and we believe that a degree of exposure to the asset class warrants serious consideration by investors prepared to take a long-term view.

Ironically, the Somerset team is having to deal with its success. “We’re looking for relatively small investors,”says Reynardson, “but the interest we’re getting is often from larger investors. We’re actually capping our fund at around $300 million dollars, so some of the larger investors are saying well, we’ll take the whole lot, which is not ideal, because you want to have a diversified client mix.”

Typically, ‘proper’ frontier funds have tended to be closed-ended, because that gives the managers the freedom to ‘lock into’ a portfolio and stick with it through thick and thin. Unlike open-ended funds, which are constantly having to buy and sell assets in line with fluctuating fundholder demand, the closed-ended manager can commit to a multi-year position without fear.

Reynardson’s fund, for example, is an LLC based in the US, mainly because of its large US client base. But he adds: “I think an investment trust is actually an attractive vehicle for this sort of frontier markets fund because you’ve got the flexibility to access some of the less liquid stocks, which is often where the best opportunities are. We’re contemplating doing an investment trust further down the line, which would be run identically to the LLC.”

FRONTIER MARKETS

What About Performance?

The Five Factor Approach Michael Levy at Barings takes a different approach.

His fund is an Irish Authorised UCITS launched in April 2013, which aims to achieve long-term capital growth through frontier market investment. The management team, he says, looks for companies that have very strong growth prospects; ones that haven’t been recognised by the market; and ones that trade at a reasonable valuation.

So far, so normal. But Barings’ stock picking process is unusual. As you’d expect, Levy says, the managers “build financial models and forecasts, and we do detailed valuation work.” But there’s more.

“The way we do our research is on a five factor model. We look at factors on what we call the GLCMV framework. G is for

“The world’s frontier markets will grow by an annualised 5.8% through to 2050. This compares to growth of 4.4% for emerging markets, while the developed world is set to grow by just 2.1% over the same timeframe.” www.IFAmagazine.com

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FRONTIER MARKETS

magazine... for today ’s discerning financial and investment professional Growth, L is for liquidity, C is for Currency, M is for management and V is for valuation. One of these factors, or a combination of several, can be the spark for an investment idea.”

“It’s worth also stressing,” he continues, “that within frontier markets we pay a lot of attention to corporate governance. That’s the ‘M’ part of our research framework. We try to invest in companies in which management really are managing the business on behalf of minority shareholder interests. We try and identify companies that have got a sustainable competitive advantage period in the medium term, and companies that allocate capital effectively and efficiently.”

Political Stability Issues But as an outsider looking in, you still can’t help but ask the nagging question about the stability of some of those countries.

Maybe you can accept that volatility across the board is lower than in emerging markets; but seemingly every night you see one of the countries in the news for the wrong reasons.

Our specialists were pretty united on this one. To a man, they explained that it’s a long term play, and that worrying about particular news events is the wrong approach.

“Let’s take Nigeria as an example,” says Levy. “Where Boko Haram are operating is often in the north and north east of the country; but most of the big companies are in the south, and many of them don’t have a presence in the north.”

Reynardson reiterates that it’s a long term play. “You aren’t ever going to avoid political upheavals,” he says, “and the way we look at it, we’re not going to be able to predict the political developments. But what we can do is to try to monitor the macro risk – and, where we see deterioration in a country’s balance sheet and inflation ticking up significantly, limit our exposure there.

Profiting from the Moment “With a political crisis, you can have a very short term decline in the underlying stock market, you can often get a reasonable short recovery if and when there is a solution found. Whereas with a macro deterioration, you can have a long term decline in asset prices, and that is often manifested in a blowout in the currency. So that’s our main worry.”

Interestingly, there are differences betweBlackrock’s Fraser adds that unrest in a frontier markets can actually work in an investor’s favour. “Ukraine this year has suffered tremendously on the back of the confrontation with Russia,” he says. “But from this political instability we’ve actually added to our exposure. We took advantage of the sell-off and the currency devaluation there to add exposure. So typically, we find that when others are fearful, it’s a good time to invest.”

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What Of the Future?

“Frontier markets is an asset class that is increasingly being recognised as something that’s compelling and can’t be ignored,” says Baring’s Levy.

“These markets offer an investor the opportunity for very strong growth - and growth often at a premium to both emerging and developed markets.

“These are very young economies which are just starting to develop, and as a result they are some of the most dynamic economies of the world. I ask you to turn the clock back 20 years to China, when this was still an unknown economy that was growing rapidly.

Many of the frontier

Corporate Governance One aspect of frontier markets which you don’t immediately think about is the traditional company visit. Company management in Europe and the US, and in most emerging markets, are nowadays fully au fait with the ritual of the company visit, when a ‘dog and pony’ show has to be put on for investors, analysts, or the media.

But, as Reynardson points out, it can be a less polished affair in the frontier markets sector.

Like most fund managers, they personally visit every company they invest in. He recalls that in Bangladesh, many of the company management “…genuinely don’t know what you’re doing there.

Meetings are often trickier because they are so unused to them. And it can get frustrating.”

markets economies we’re investing in currently have many of the characteristics that made China and other emerging market economies a success story.”

“The long term story is fantastic,” agrees Reynardson, “because of that higher return profile that you can get. I also think with a lot of these markets they are genuinely under covered and under-appreciated.”

Fraser at Blackrock is also bullish, but he adds some caveats. “You got to have a long term view and you have to be careful as well. There are lots of pitfalls, and you’ve got to be careful to lock in returns.

“As these countries develop and the capital markets develop, this will be a much larger asset class, and therefore there is a good opportunity for people to invest their money on a long term time horizon with an active manager. But agreed, there are short term challenges.”

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11/06/2014 23:31

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

No Mystery NEIL MARTIN FINDS PHILIP EHRMANN, MANAGER OF THE JUPITER CHINA FUND, IN CONFIDENT MOOD Coping with negative press comments about China has become almost the norm for Philip Ehrmann, Manager of the Jupiter China Fund.

He’s become rather used to the sniping about the world’s second largest economy,

“For emerging markets investment, you need to have something of a contrarian approach to life.”

so he bears one of my first questions about the country with a sense of fortitude and patience. This is especially admirable since he’s just stepped off a plane at 5am that morning, returning from one of the many trips

that he and his team make throughout the year to China and Hong Kong.

I’ve decided to warm up by asking him if he has experienced the notorious pollution in Beijing first hand?

Actually, he replies, he has usually been lucky: although there was one time in Shanghai last year when you could literally taste the dirt in the air, he has sent many pictures back to his colleagues in London of blue and sunny skies.

In fact, he says, the pollution problem is just one issue where Ehrmann believes that the Chinese Government, far from sitting on high and ignoring the issue, is taking active steps to make things better. He believes it is critical to China’s future and that the leadership “…does get

Phillip Ehrmann, Manager of the Jupiter China Fund

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Talking to the Experts

Ehrmann believes in casting his information net wide, and he takes particular care on his travels to speak to not only company management, but others who have influential opinions about how the country is progressing. He recently discussed pollution with a representative of Greenpeace in Beijing and other interested parties who agreed that the authorities were making progress in their attempts to clean up the air.

Yet, typically, the fact that these moves in the right direction do not get picked up in the UK media disappoints Ehrmann. “If you read the press in the UK, you wouldn’t believe that. We’re still getting re-runs of stories about excesses and problems, going back over the last number of years. Okay, there are clearly issues which need to be worked through.

China is not a perfect, fully baked economy by any means.

It’s changing very rapidly which is both good and bad, but it means you can actually move things quite fast to a more optimum situation.”

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Beijing Undersells Itself

“For the last ten years, they were running with an 8% GDP target and if you look at that period, I think compound growth was over 10%. Everyone knew that eight, which in China is a lucky number, meant very little in relation to what the growth was going to be, which in some cases was closer to 12 or 13. In other periods it may have flirted with being just below eight, but it was just a number.

“Now as we look at what’s being going on this year, the fact the Government has set a target of 7.5% GDP growth, and that it might come in at 7.3%, is deemed a crisis for goodness sakes!

What is much more important to me is not the quantity of growth, it’s the quality.”

Identifying the Right Fundamentals

Ehrmann says you have to be wary about high levels of GDP: “We try to identify where there are reasonably unique opportunities in terms of management, companies that harness the resources a country might have, or take advantage of a change in pace, a change in gear. That’s really what we look for.

“In the past, China was driven by export-led growth, based on very low cost labour.

I did not find this to be of

GUEST INSIGHT

it….” Pollution has become politically unacceptable, he says, and so key performance indicators for local Government employees now include strict environmental measures.

great investment merit. To be honest, low cost labour wasn’t a great selling point because it was going to become higher cost, just as we’ve seen. And you then end up arbitraging away your opportunity to places like Pakistan, or Vietnam, or Cambodia, Bangladesh, which has even lower cost labour.

“So that’s never been something that we’ve focused on too much, rather it’s trying to identify those companies that can either implement and effect change, or capture some of the important imperatives whether it be environment protection, great fuel efficiency, or benefiting from investment in oil and gas, particularly gas exploration. China has a massive job on its hands to reduce its dependence on coal and shift to cleaner fuel sources, and so these thematics begin to build, and you begin to identify blocks of companies and stocks that should have a good chance of capturing those trends.”

Which is Ehrmann’s investment philosophy in a nutshell. It’s all about spotting the themes and pulling it together from there.

Communism and Consumer Power

This leads me onto to one of the great questions about China. Just how will this communist, one-party state

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GUEST INSIGHT

magazine... for today ’s discerning financial and investment professional cope with the future?

Ehrmann believes that there is massive pressure for the Chinese Government to keep their people on side. The common assumption, he says, is that in a one-party state it this isn’t a problem; but actually it is a major issue. “There are 90 million communist cardcarrying members,” he says, “and 1.3 billion people, so you are sitting on top of a powder keg, if you lose control of it, then you’ll ultimately be in trouble.”

The leadership’s big fear is that the people will wake up after 20 years and realise that they are far worse off, and that having no democracy has not served them well. Which is why the Chinese leadership are making it clear that they are listening to people’s aspirations and have set themselves a target of doubling average incomes by 2020. As Ehrmann points out, this is more than just playing to the gallery. It’s telling people what they want to hear, and then having to deliver on it over the coming years.

But there is something more fundamental keeping the Chinese Government alert to the pressures it faces. China has 500 million smartphone users, he says, and just one Chinese company that the fund invests in (the Hong Kong Tencent) has over 400 million active users of its instant messaging service. Which means that pictures, thoughts

and reactions can be instantly sent around a huge number of people before the censors can even wake up to the fact that something is wrong. There is indeed censorship in China, he agrees – but “five million people will [still] see something before the censors realise that something is going on.”

Banking and Finance

The banking system continues to need to be refreshed and improved, he agrees, but this is now happening with a recognition of where the old problems lay. “It won’t happen overnight,” he says, “but it’s happening from my perspective, from an investment perspective, over a reasonable time frame.”

The big challenge, he says, is for China to do something to break what he describes as the log-jam of non-performing “zombie loans” made to local governments.

Central Government is determined to resolve this issue as part of the extensive reform program announced late last year. It certainly has the headroom to do this, because the combined burden of central and local government debt is estimated to stand at a relatively low 58% of GDP. In the last few weeks municipal bonds have been launched for local authorities

wishing to fund local infrastructure projects such as railways, roads and airports.

Previously, the money for such projects had come from banks’ lending on one to three year money, which he says was very inefficient for such large and long term schemes. And the change shows that the central Government is waking up to a new era of sensible financial management and is trying to put the house in order.

Low Valuations

As for whether you should have China in a portfolio at the moment, Ehrmann is very frank: “The market is trading at historically low valuations, and all the pessimism that I see and hear, both here and rather frighteningly the shortterm-ism out in the region, I think is creating a very good opportunity. Right now it feels very lonely, but I have to say, in an emerging market context that’s always been the way.”

Asked how he markets the fund, Ehrmann agrees that it’s a challenge. “The nature of our industry, particularly at the more retail end of it, is that people tend to wait for direction to be established and performance to be coming through, before they get excited.

“The China story is one that’s just as valid, in fact if anything, I’ve more confidence in what I’m seeing from the bottom up in terms of the

The Jupiter China Fund A Luxembourg-registered Unit Trust that aims to achieve longterm capital growth by investing in companies that are based in China and Hong Kong, but also those companies which do significant amounts of business in the region. Launched in 2006, it is currently valued at £164 million, with almost 60 holdings. Main sectors include financials (around 25%), consumer services (16%), industrials (10%), oil and gas (10%) and technology (10%).

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Too Much Information

Like many of the senior fund managers we come across, Ehrmann and his team like to kick the tyres, to regularly visit the companies that they invest in. He and his team spend a great deal of time travelling through the region, picking up first-hand knowledge on how industry and the state itself is performing. Ironically, he finds that the fund’s London base is no handicap to this, as in his experience, when he’s had analysts sat in Hong Kong, they got caught up in the daily grind and did no more leg work than the home team sat thousands of miles away.

GUEST INSIGHT

quality of companies, some of which are truly becoming world class. We’re not talking about hundreds, we’re talking about a handful of very well run businesses, which are trading at a third, or half of [valuations for] similar companies in the developed world, and exhibiting much more growth potential. I find that a very compelling combination.”

The task of getting that message out there will be aided no doubt by the fact that even though it has not been a great year for investing in China, the fund has performed strongly and relative to its peer group, it grew in size which, as Ehrmann sees it, is quite an achievement.

The major problem he has when picking stocks and deciding on strategy is that nowadays there is too much information.

“There is so much noise and information,” he says, “that it’s actually at least as difficult - and arguably maybe more difficult - to make clear and sensible decisions than it was when there was very little information… so in some respects there is a significant information gap with a lot of noise around the edges, so the only way to cut through the noise, is to get out there and do the leg work.”

Ehrmann finishes our talk with a frank comment about investing in emerging markets. It goes like this: “For emerging markets investment, you need to have something of a contrarian approach to life. You do not want to be buying these markets when everyone thinks they are wonderful and they are trading at historic highs. You want to be buying them when nobody wants to be your friend.”

So remember those wise words when you’re thinking of putting emerging markets situations into the portfolio.

“There is so much noise and information, that it’s arguably more difficult to make clear and sensible decisions than it was when there was very little information...”

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

ETFs – WHAT’S NEW? OUR NEW BURNING ISSUE FEATURE KICKS OFF WITH A ROUND-UP OF OPINIONS ABOUT WHERE EXCHANGE TRADED FUNDS ARE CURRENTLY HEADING

These days, British advisers are becoming much more aware of the advantages that exchange traded products can offer over many traditional fund products. Their openended structures, combined with wafer-thin charges, real-time pricing and exemption from stamp duty have caught the public’s eye too. ETFs are a convenient way of backing an entire sector in a single transaction.

But there are still many uncertainties still out there in the public’s mind. Are synthetics really more risky than asset-backed funds? And just how passive is a higher-beta fund anyway, since it targets a particular outcome?

How does the British view compare with America or continental Europe?

We asked Michael John Lytle, Chief Development Officer, Source ETF; Andrew Walsh, Head of ETF Sales UK

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at UBS Global Asset Management; Ben Thompson, Director of Marketing for ETPs, UK at Société Générale; and Saima Parviez, Head of Marketing, Boost ETP for their feelings about how things are going on three major topics.

“One of the most powerful aspects of ETFs is their pricing” Pricing Saima Parviez, Boost Agreed, one of the most powerful aspects of ETFs is their pricing.

Pricing takes several forms of advantage, firstly low-cost TCO (total cost of ownership). This includes low expense ratios often as low as 0.1% and no entry or exit costs.

This compares very favourably to mutual funds, especially active funds.

Secondy, there is real time exchange trading and pricing. As ETFs trade in real time, you dont have to wait until the end of the day or the next day to discover the price. With ETFs, you can trade as soon as you wish to.

Michael John Lytle, Source Transparency is a key benefit of UCITScompliant ETFs, but there is still some confusion in the market when it comes to comparing costs with other mutual funds.

Once you sift through the differences in charging structures and terminology, you should find that ETFs are cheaper overall than comparative mutual funds.

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11/06/2014 23:36

THE BURNING ISSUES

Ben Thompson, Société Générale With multiple market participants around the world simultaneously pricing ETFs on the secondary market, advisers can take comfort in knowing that they can typically trade in or out of their ETF at its fair value.

Andrew Walsh, UBS About seven months ago UBS ETFs slashed the prices of its ETFS across the board. As our assets under management have grown, we have been able to make efficiencies and therefore deliver price reductions. On a broader level, the ETF AuM in Europe has grown on average by 40% per annum for the past 10 years which in turn therefore, one would naturally expect to lead to greater efficiencies across the industry and further reductions in pricing.

Smart Beta Michael John Lytle, Source This is arguably the most exciting area for investors who recognise the shortcomings of traditional market-cap weighted indices and want an alternative to the funds that follow them. Innovative strategies that focus instead on the various underlying factors that determine performance provide a smarter way to diversify risk and, in turn, improve risk-adjusted performance.

Ben Thompson, Société Générale Smart Beta ETFs enable advisers to gain market exposure with a specific objective like risk reduction, diversification or index enhancement. Or they can model their portfolio around specific factors such as volatility, size, value, momentum or quality income, all in an easily accessible, low cost and transparent vehicle.

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Burning Issues.indd 37

“Smart Beta is arguably the most exciting area for investors who recognise the shortcomings of traditional marketcap weighted indices” Andrew Walsh, UBS UBS ETFs have a number of Smart Beta strategies in the pipeline due to come to market later this year.

We have seen a lot of client interest in Alternative Beta strategies as they look beyond traditional indices for various market exposures.

Saima Parviez, Boost Smart beta really should be termed ‘alternative beta’. ‘Smart’ implies that market cap weighted is ‘dumb’ which it clearly isn’t.

However, some great strategies that fall into the smart beta bucket are resonating with investors. Wisdomtree [the asset manager which owns Boost] has been issuing smart beta ETFs since 2006; first dividendweighted then earnings-weighted, to name a few. The history seems to suggest you can capture ‘alpha’ overtime while employing these strategies.

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THE BURNING ISSUES

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

Synthetic Versus Physical Andrew Walsh, UBS At UBS, we are agnostic with regard to the question of synthetic versus physical ETFs. Although 75% of our ETFs are physically replicating there are some very good reasons for using synthetic (swap-based) strategies.

For example, under UCITS rules the only way to get exposure to broad commodities ETFs is via synthetic replication. It is also about having the product range to match the demands of our clients. For example, we offer both a Physical and Synthetic MSCI World ETF and while some prefer the comfort of the physically replicating version, other investors feel a swapbased product better suits their needs.

Michael John Lytle, Source We find that for many of our products, synthetic replication leads to more consistent tracking of the benchmark; however, we also use physical investing where the performance is clearly better. For us, the decision of which replication method to use generally comes down to which one offers the most effective and efficient way to achieve the product’s objectives.

Ben Thompson, Société Générale There is no right or wrong answer to the question “physical or synthetic?”.

Both structures have their own specific risks and benefits, and it is often the Index that will determine the best structure to use. Not everyone realises that Synthetic ETFs do typically own physical assets too, and in many cases they are consistent with those of the Index. They simply use them for security rather than directly for performance.

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“I believe this was one of the most disruptive and needless debates to be had in the short history of ETFs” Saima Parviez, Boost I believe this was one of the most disruptive and needless debates to be had in the short history of ETFs. Both replication techniques are common in the wider asset management world and were not widely understood by investors.

It was almost an emotive debate as well, as ‘synthetic’ sounds bad and ‘physical’ sounds safe and good. In my opinion, both have their place. Synthetic can often be more efficient and open more exposures and markets, such as emerging markets, commodities, short and leverage and so on, than physical can do.

I think for plain vanilla products, physical has won the battle for hearts but not necessarily minds. My view is the real issue is conflicts of interest inherent in the ‘synthetic model’, where the issuer is the same as the swap provider. This is typically the structure employed by European banks such as Lyxor and DB. In the US, that structure is not allowed by regulators. Europe will follow.

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11/06/2014 23:36

LYxoR ETF ALL ETFS ARE noT ALIKE COMMITTED TO ETF EFFICIENCY

ETFs have attracted a growing number of providers to the market, leaving investors with a difficult question: which is the most efficient? In theory, all ETFs tracking the same index should provide very similar returns as they are simply designed to replicate the performance of that index. In practice however, the return provided by an ETF can vary significantly. When it comes to ETFs, true efficiency is built on three things:

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THIS COMMUNICATION IS FOR FINANCIAL ADVISERS AND SOPHISTICATED RETAIL CLIENTS IN THE UK.

Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. This advert is issued in the U.K. by the London Branch of Societe Generale. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel et de Résolution (the French Prudential Control Authority) and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority.

Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.

Burning Issues.indd 39

11/06/2014 23:36

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

Upon the Importance of Not Eating Cat Food CITY EDITOR NEIL MARTIN TALKS TO “JOFFY” WILLCOCKS, GLOBAL HEAD OF RETAIL SALES AT M&G, ABOUT RETIREMENT PLANNING, THE INDUSTRY’S FUTURE, SOCIAL MEDIA AND MUCH MORE “If people don’t plan for their retirement properly, they’ll be eating cat food off the floor by the time they’re 75.” Say what you like about Jonathan Willcocks, Managing Director, Global Head of Retail Sales at M&G, but he’s got a way with words. And when it comes to helping an IFA to convince a client about the benefits of proper retirement planning, he knows how to grab your attention.

So, for the purposes of this article, I would like to take a much more neutral view, and just take a snapshot of where the UK retail structured product market currently sits in relation to five years ago. And also to think about how those products that have matured in the first quarter of this year (that is, were launched as far back as 2008) have performed.

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11/06/2014 23:37

Bonds and Shackles

Jonathan, or “Joffy” as he’s known to his colleagues and friends, has been in the City since 1986, and believe me, he’s seen a lot since then. He says that the changes in today’s financial markets have been determined by three major factors: n The global financial crisis; n The regulatory environment; and n Demographics.

It’s these three factors, he says, that are affecting how people currently respond on the advisor and private client levels.

Demographics also plays a major part here, because, as Willcocks points out, more than 70% of the investable wealth in the western world for private individuals is owned by those aged 54 and above. The baby boom generation have spent the last 20 to 30 years looking to grow their capital, accumulated so as to reach their retirement point.

It was this growth strategy, he says, that helped fuel the various booms seen between 2003 to 2008. But we’re now at a point where many of these people are starting to retire and they are going to retire in a very different world today than existed 25 years ago.

Willcocks explains: “If you retired 25 years ago, bond yields and cash yields were much higher than today - and consequently, the old adage which everyone used in those days (“I’ll put my age in bonds”) isn’t appropriate in today’s world.

Because if you retire at 65 today, looking at current demographics and mortality rates, there is a very good chance you’re going to live until your late 80s.”

“So it would take a brave person to take a 20 to 25 year view on their investment portfolio and put the bulk of it into bonds.”

The Global Crisis Before the 2008 financial crisis, he says, investors were always chasing the upside, always looking out for assets or investments which would give them the best return. And not surprisingly so, given the bull run. But the economic crisis of 2008-9 brought an abrupt realisation that people couldn’t cope with the uncertainty that meant for their portfolios, which often meant a drawdown of up to 30%.

Suddenly, investors were forced to refocus their attention away from the pot of money that they saw as the prize. Instead, he says, “Investors are now more concerned with the journey they take to get to the end point.” And accordingly, there is now an emphasis on managing risk and also managing volatility that wasn’t so strong previously.

But Willcocks warns that people should not confuse volatility and risk. The only risk is, of course, that there will be a permanent loss of capital - but that is not the same thing as volatility. “You can capitalise on volatility because you can buy certain asset classes and the market at key points in time, along the long term directional trend.”

Back to Multi-Assets The trend, as Willcocks sees it now, is a march towards multi-asset and flexible solution products which allow in effect a smoother ride: “The fund manager, by having a much greater flexible mandate, a much broader pallet on which to paint, has a greater chance of minimizing, or reducing that volatility along that journey.”

So, as you’d expect, one of the main impacts of the financial crisis has been a large increase in multi-asset funds, managed products and the greater use of flexible bond funds.

Regulation Willcocks believes that RDR has changed how many advisors operate and has brought about a greater use of out-sourced solutions: “An IFA now has a lot of things to do for his clients - not just their investments, but also their tax, their insurance and their long term pension planning.”

“We tend to find that many IFAs realise that actually that this part of their business drives a lot of revenue, and so what they want to do is minimize the risk of recommending the wrong fund and therefore damaging that client relationship.”

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INSIDE TRACK

The Journey, Not the Destination

Down With Accumulation!

This takes us on to one of Willcocks’s greatest wishes, to have the word accumulation removed from the English language: “…because if you go into the so-called accumulation phase, you’ll be eating into your capital over the next 20 years.”

Which is where Willcocks makes the cat food reference - a graphic way of trying to make it clear to investors that if they start eating into their capital at 65 to fund their retirement, then they are not going to have enough money to live a comfortable retirement until they are 85 or 90.

And it’s this realisation that is driving product change, Willcocks says. “What we’re seeing today is that, when you plan to retire, you need a high yield because deposit rates are basically zero. So people still need to have money in corporate bonds, but there is also a need to grow that income stream; you still need to grow your capital over time.”

Which is why there has been such a high growth in equity income products, as well as income multi-assets. This has driven the success of a number of M&G’s own products says Willcocks, including the M&G Global Dividend Fund.

Managing the Stream So investors need to manage the all-important income stream - actually growing it over the next 20 years, while managing their liabilities on a dayto-day basis, and doing that by corporate bonds.

Willcocks adds: “So you are seeing this continued support for corporate bonds in a way you probably haven’t seen in previous cycles, but we also see a much greater interest in equity income and growth in multi-assets.”

He points out that the M&G UK Inflation Linked Corporate

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INSIDE TRACK

magazine...

Bond Fund has already raised nearly a billion pounds, and that there will be a steady rise in interest over the next few years for other inflation protected type products.

A Golden Age? I then ask Willcocks if what we are seeing is a Golden Age? And will it last?

Suddenly, investors were forced to refocuHe thinks carefully about his answer, then points to the view that the industry is at a “great” stage. He believes that the Golden Age for asset management has some time to run yet: “I still think there are incredible opportunities, because at the end of the day more and more people have to save for retirement; the burden of saving is increasingly moving from the state to the individual - you’ve got to look after yourself, so I think that means people have to save more and more, and invest more and more.”

At the end of the day, whatever product you have, and however it is packaged and marketed, the money has to flow into the asset managers. Given tha,t in his vie,w the banking system is still not totally working, it is the asset industry, pooling their own investors’ money, to which companies now look, via the capital markets, for funds to drive their growth.

Back To The Budget The recent budget changes have created “phenomenal” growth opportunities for advisers, he thinks. It’s given us the ability “to engage with and provide on-going products that the retirement generation can buy - rather than before, when they were forced to buy an annuity. So I think there is tremendous opportunity for the asset management industry, and things like income multi-asset funds are almost a perfect product, for this world.”

When I ask him what in his view is the biggest challenge he thinks his industry faces, he comes back with a quick reply: communication.

He has no doubt that one of the biggest challenges that the asset industry faces is communicating effectively with its everdemanding client base.

He admits that everyone in the industry has to up their game: “One of the things we will have to get better at, and that applies to everybody now, is communicating. If you’re not actually getting tucked into an annuity, you’re going to continue to be investing actively for the next 25 years after you’ve retired. And so I think that all of us have to get better as an industry in communicating in simple language to the end investor so that they understand what to do.”

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“If people don’t plan for their retirement properly, they’ll be eating cat food off the floor by the time they’re 75.”

Jonathan Willcocks, Global Head of Retail Sales at M&G

But it’s the younger generation which provides the biggest challenge: “How do we engage with the younger generation investor, who doesn’t have that much money? Who’s paying off huge university fees in the way he didn’t have to do before? Who doesn’t go to financial advisers necessarily for financial advice, but gets all his feeds from social media. So how do you engage with those clients?”

The challenge is so much greater, Willcocks says, because the industry is bound by regulatory rules and cannot directly promote its products through social media channels. So the big question is, how to bring the younger generation to the world of savings?

Parting Thoughts Asked for one message he’d like to impart to the readers of IFA Magazine, he’s clear that the announcement regarding annuities in the recent budget represents the most profound change for generations.

He states: “You now have an opportunity to continue to engage with your client and provide investment advice and solutions for 25 years beyond retirement, you don’t necessarily ‘lose your client’ to an annuity product.

“So therefore you keep on with them, right through, whereas before you couldn’t because the regulations would not allow you to. What a wonderful opportunity. We’ve all sat through the dramatic changes of RDR, and that caused a lot of people to remodel their businesses, and focus on retraining, and taking exams.

It has taken a lot of time over the years to become RDR compliant and RDR ready, but wow, what an opportunity from here if you can engage with your client for the next 25 years after they retire and provide long term investment solutions. That’s wonderful.”

For more comment and related articles visit...

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11/06/2014 23:37

ADVERTORIAL

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

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

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

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

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

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

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

With thanks to Kirstie of WarroomInc.com

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

Halo Films.indd 1

12/06/2014 16:40

M A D D OGS

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

CHILLING IT TAKES MORE THAN A COLD BEER TO WORRY STEVE BEE. A REPORT ON BUSINESSES’ PREPAREDNESS FOR AUTO-ENROLMENT MIGHT JUST DO THE TRICK

I’ll admit I was sitting by the pool drinking another cold beer when the editor’s e-mail pinged into my so-called smart device. What the e-mail said was “How’s the article coming along?”

I’m also prepared to admit that up until that very point it wasn’t. I’d forgotten all about it last week in my long-eveninged run-up to clearing the desk in time for my holiday.

I’m reasonably honest – well, as honest as the next person anyway - so I immediately e-mailed back and explained the situation. The editor’s a decent chap too and he said “Don’t worry, have another beer; Friday morning will be fine.”

He’s just e-mailed me back to tell me that it’s Friday morning already, so I’m writing this frantically in the airport lounge on this dopey ‘smart device’ and hoping I can knock out 500 words before our flight home is called. (I forgot all about it again in the chaotic packing frenzy as we wrapped the holiday up.)

Fortunately I’ve got something to write about as I’ve been sitting in the airport here since the crack of dawn (the cheap flights always get the God-awful time slots) reading a report on how payroll companies are struggling with autoenrolment (something, by the way, that led to another of my wife’s classic comments. This time a reprise of the “Don’t you ever take a day off?” one that seems to be becoming a particular favourite).

What You Don’t Know You Don’t Know

The report is fascinating.

Apparently a survey of 108 firms that have passed their staging dates has thrown up the fact that the 43% of the employers who

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responded said that their HR/payroll systems were unable to cope with auto-enrolment.

The same survey found that 77% of firms that have yet to reach their staging dates think their payroll systems will cope with the autoenrolment rules. If that hasn’t got “Ooh-err!” written all over it I don’t know what has.

It appears that a secondary market is already springing up, with employers looking to bite the bullet and change payroll providers as a consequence of their own poor experience with auto-enrolment. That’s pretty much what I’ve been predicting for some time now, as many readers of IFA Magazine will know, but it’s happening a lot earlier than even I thought it would.

Now, changing payroll companies is a big step. Most firms have their regular pay-period frenzies geared up around the quirks and nuances of particular payroll systems that might not be ideal - but at least their staff have grown used to them, and they know all the ins and outs that get payslips out on time and money in the bank.

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11/06/2014 23:37

A N D EN GLI S H M EN

STATISTICS Steve Bee is CEO and founder of Jargonfree Benefits, which supplies auto-enrolment and workplace benefits solutions for smaller businesses.

Hang Onto Your Payroll System

I know what frenzies are like; we all do.

Everything else gets put on hold while they rage. For payroll people this happens every month, and for some of them every week.

Changing horses in mid-stream is not an easy thing to do.

www.IFAmagazine.com

Steve Bee.indd 45

Using a middleware system to take autoenrolment out of the payroll system makes a lot of sense, and it’s probably a better alternative to switching payroll systems.

The report I’ve just read makes that point well. But it also highlights the fact that middleware systems don’t come cheap.

At the risk of repeating myself (I think I made this very point in this very magazine nearly two years ago), the trick is to get middleware out to ordinary firms at a commoditised price before the smaller firms start hitting their staging dates.

I think that will happen. I also think IFAs will be instrumental in making it happen.

I also think my wife just said “I’m getting on the plane” when she went off just now. So, back to the frenzy...

For more comment and related articles visit...

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June 2014

45 11/06/2014 23:37

PLAY I N G

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

FALLING IN LOVE AGAIN THOSE INTOXICATING HIGHS OF YESTERYEAR HAVE NEVER LOOKED SO TANTALISING, SAYS BRIAN TORA Back on the last business day of the last millennium, the FTSE 100 Share Index climbed tantalisingly close to the magic 7000 hurdle. Not that I feel one should become too concerned over whether what is, after all, an artificial barrier is breached. But there is something about a nice round number like 7000 that represents a challenge.

We seem to be made that way.

And then there was Japan. Who can forget the rush upwards in the Japanese stock market that brought the Nikkei Dow index to within a whisker of 40,000 at the end of the 1980s? It never got there, of course, and even after producing one of the best performances of a major equity market last year, it still languishes at less than 15,000 today. It was only half that figure not so very long ago.

Here We Go Again

The rationale behind revisiting those magic numbers from yesteryear is that we are nearly there again. (Indeed, we may have sailed through by the time you read this.)

The end of May was not the only time the Footsie had flirted with 7,000. On two or three occasions the Index had approached to within 2% of that all-time high. And 2% was not a great deal anyway. While market rises of this magnitude are not that common, they are not unknown either.

But, to put our benchmark FTSE 100 large-cap index into context, the FTSE 250 Share Index surpassed its old millennium peak some time ago. Even the All Share Index has seen new high ground since the 1990s – and remember, it is the

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100 Share Index that carries the greatest weight in this particular measure.

Meanwhile, of course, dear old America trashed its previous highs long ago, with the S&P 500 reaching a new peak very recently.

In theory, new highs should be readily attainable now. Inflation drives up the nominal value of financial assets, and economic growth and greater efficiencies also enhance company profitability. And the problem lies in the valuation criteria that we apply to shares.

P/E Multiples in the Stratosphere

Back at the end of the 1980s, the economic miracle that was Japan had seen a massive expansion in the country’s GDP and a breakneck rise in the stock market as investors took the view that both would continue indefinitely.

At the peak, it was not unusual to see Japanese shares trading on a price/ earnings multiple of a hundred times. But when deflation set in and the economy stalled, shares had nowhere to go but down.

So did property in Japan. The 1990s and the noughties were a painful period for investors over there. So it was little wonder that the recovery which started at the end of 2012 was treated with suspicion by many.

Nor was the Japanese experience unique. At the end of the last millennium, the so-called TMT boom (Technology, Media and Telecoms) saw valuation levels rocket for those companies that were considered to be in the vanguard of the revolution. Crazy prices were being paid for businesses that had not even turned in a profit, and the end of 1999

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11/06/2014 23:38

J

FOOTS I E

More Hopeful This Time?

This time, however, valuations do not look overstretched. So perhaps there is some reason to believe that more new high ground can be achieved. The problem for the FTSE 100, though, is its composition.

Once, banks ruled the roost – and we know what happened to them! And now it is resource stocks that dominate. With the outlook for the global economy uncertain, these remain out of favour. But we can always hope.

and 2000 saw more changes in the composition of the FTSE 100 Index than ever before.

It all ended in tears, of course. And so many of those transformational companies that became part of Britain’s corporate elite by joining the Footsie were consigned to the also-rans. The principle was OK in some measure. After all, many of the largest global companies are technology giants. But valuations became overblown again, and the inevitable correction saw stock market values halve – helped by a war in the Middle East too.

Brian Tora is an associate with investment managers JM Finn & Co For more comment and related articles visit...

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

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

www.jmfinn.com LONDON BRISTOL

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

Brian Tora.indd 47 JMF185_IFA Magazine_Half page ad_AW.indd 1

11/06/2014 23:38 27/02/2014 12:44

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

THE GLOBAL ECONOMIC RECOVERY HAS ENABLED PROPERTY FUNDS TO HAUL THEIR WAY OUT OF THE FINANCIAL CRISIS, SAYS NICK SUDBURY. BUT WHAT ARE THE PROSPECTS FROM HERE?

Back from the Brink Bricks and Mortar

Standard Life Investments Property Income The last five years have been a 12% in Central London offices. Its key holdings good time to be invested in UK include the Tesco distribution warehouse in Bolton, property funds, with the sector the offices at White Bear Yard in Clerkenwell generally rebounding strongly after and the Ocean Trade Centre in Aberdeen. the financial crisis. And one of the The fund aims to provide an attractive best performers over this period level of dividends with the prospect of capital and has been the Guernsey registered income growth. At 6.3% it has one of the highest investment company, Standard Life yields in the sector with the distributions paid Investments Property Income (SLI), every quarter. This could improve even further with a return of just under 135%. if it converts to a UK based REIT, as is expected SLI provides exposure to a later in the year. After conversion it would have to diversified portfolio of UK commercial distribute 90% of its rental income to shareholders properties, combining all the three main and would not have to pay corporation tax on types of premises - office, rental profits or capital gains. retail (including leisure), and In the last few years industrial. Its mandate also the improvements in the UK Standard Life allows it to invest up to 10% economy have resulted in Investments Property in other types of commercial higher property values and a Income (SLI) properties, as well as a stronger rental market. The TYPE: Investment Company similar amount in property fund manager, Jason Baggaley, development and a further expects this trend to continue SECTOR: Property – Direct UK 10% in related securities. and thinks that investors will MARKET CAP: £118m At the end of March make reasonable total returns the total market value of its on a 3-year holding period.

LAUNCH: December 2003 portfolio was just under £189 The main downside is that the YIELD: 6.3% million, of which 39.1% was shares are currently trading financed by debt. (Total assets on a 10% premium to NAV NET GEARING: 149% in late May were just over and the ongoing charges are Ongoing Charges: 3.42% £200 million, including current relatively high at 3.42%. We assets.) The largest exposures should add, though, that this MANAGER: are in industrial 25%, retail 19%, Standard Life Investments is mostly due to the nature South East offices 19%, offices of the underlying holdings WEB: elsewhere in the UK 15%, plus as the AMC is just 0.75%. standardlifeinvestments.co.uk

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Product Reviews.indd 48

www.IFAmagazine.com

11/06/2014 23:39

PRODUCT REVIEWS

Companies, Not Buildings Aberdeen Property Share The cheapest way to gain Aberdeen include the likes of Unibailexposure to the sector is to Property Share Rodamco, Land Securities buy a fund that invests in a Group, Derwent London, and portfolio of listed property TYPE: OEIC Great Portland Estates. companies rather than in the SECTOR: IMA Property The great benefit of actual bricks and mortar. investing in property securities One of the top performers FUND SIZE: £299m rather than the actual buildings in this area of the market LAUNCH: October 1990 is that you can achieve much has been Aberdeen greater diversification - and Property Share, with a YIELD: 1.50% that it is far easier to change five year return of 119%. It Ongoing Charges: 1.61% the individual holdings. In is managed by the firm’s fact, with a remit like this, pan-European equity team, MANAGER: Aberdeen the managers can target who aim to achieve both Asset Management anything from industrial income and capital growth, WEB: aberdeen-asset.co.uk facilities in Europe to house with the distributions builders in the UK, and even paid twice a year. retailers like Tesco that own Property stocks – large property portfolios. It is also reasonably and the market in general – have benefited cheap, with ongoing charges of 1.61%. strongly from the government’s loose monetary The main downside with this sort of fund policies, with the economic recovery leading to is that the underlying share prices tend to be a a significant pickup in demand from corporate lot more volatile than the values of individual tenants. The biggest driver of returns has properties. This is especially the case given been low interest rates, which have provided the fact that most of these companies have a massive boost by reducing the cost of debt relatively high levels of debt, which leverages while at the same time increasing investors’ their exposure to the market. A significant appetites for high yielding assets. economic setback or an increase in the likelihood Aberdeen Property Share mainly invests of higher interest rates is likely to have an in the UK, although it currently has around 17% immediate detrimental impact on the value of allocated to various countries in continental the fund. Investors should also be Europe. Its £299 million portfolio is divided aware of the relatively low yield, as between 26 different holdings, with the largest most of the income is not distributed. weightings in the range of 6% to 7%. These

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PRODUCT REVIEWS

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

Go West, Young Man Morgan Stanley Investment Funds US Property Fund If your clients are looking to diversify their property exposure internationally, they might be interested in the Morgan Stanley Investment Funds US Property Fund. It is structured as a Luxembourg SICAV, although the shares can be distributed in this country.

The fund aims to provide long-term growth by investing in a portfolio of publiclytraded American REITs and other similar property companies. All the underlying holdings are denominated in dollars, so the returns will be affected by variations in the sterlingdollar exchange rate. This is currently trading at a multi-year high, so if you are expecting a reversal this would be one way to benefit.

The last five years have brought a strong recovery in both the US economy and the housing market, and this has enabled the fund to generate an impressive return of 166% in dollar terms.

At the end of March the $540 million portfolio was allocated between 44 holdings, with the top 10 accounting for almost 63% of the value.

These include companies that focus on regional shopping malls like the Simon Property Group, and businesses that provide apartments such as Equity Residential. The fund also provides exposure to hotels, industrial properties, offices, self-storage facilities and specialist health care premises.

The managers take an active approach that is based on the firm’s value-orientated, bottom-up investment strategy. This uses internal proprietary research to identify those property companies that offer the best value relative to their underlying assets and growth prospects. It is a detailed process that takes into account factors such as values per square foot, yields, lease expiration and the quality of the management team.

As mentioned, the fund has made an impressive annualised return of 27% Morgan Stanley during the last half decade.

Investment Funds But, perhaps more realistically, US Property Fund the equivalent figure for TYPE: Luxembourg SICAV the whole decade was an equally creditable 7.39%.

SECTOR: Property – Indirect North America It remains to be seen whether the US recovery will FUND SIZE: $540m run out of steam once the LAUNCH: January 1996 asset purchasing programme is wound down, and how much YIELD: 3.45% of a headwind there will be TER: 1.70% when interest rates start to pick up to more normal MANAGER: Morgan Stanley Investment Funds levels. But there is genuine reason for optimism here.

WEB: msim.com

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mo kn www.IFAmagazine.com

11/06/2014 23:39

TYPE: Investment Company

PRODUCT REVIEWS

Tamar European Industrial (TEIF)

Taking a Chance on Europe

Tamar European Industrial If your clients expect the economic recovery in Europe to gather pace, they may MARKET CAP: £49m be interested in the Tamar LAUNCH: September 2006 European Industrial fund (TEIF). This closed-ended, YIELD: 4.29% Guernsey registered investment NET GEARING: 177% company is tiny, with a market NEW AMC: 1.35% value of just £49 million, but it is one of the few high MANAGER: Patrizia Capital yielding funds to be trading at Partners Limited a near 40% discount to NAV. WEB: tamareif.com TEIF aims to provide an attractive level of income and the potential for capital growth by investing in a portfolio of industrial premises in Western Europe.

Over the last five years the shares have risen 113% - yet throughout that period they have consistently traded well below their NAV, with the discount occasionally touching 50%.

Most of the company’s portfolio of 39 properties is located in France, Benelux and Germany. At the end of 2013 these had a combined market value of £139.1 million.

The total debt stood at £75.3 million, giving a gearing ratio of 54.1%, which is often expressed as 154.1%. This sort of high leverage will multiply the impact of positive or negative asset returns on the fund’s NAV. In the latest accounts the Chairman says that there have been gradual signs of improvement in their markets with the momentum building towards the end of 2013.

This has enabled the management to dispose of most of its Nordic properties at a premium to book value, and to extend the debt facility to July 2015.

At the end of December, 62% of the portfolio was located in France with a further 16% in Belgium and another 12% in Germany.

The average length of lease remaining or until the next break clause was 2.9 years, and the overall running yield was 7.24%, which is well above the historic dividend yield of 4.29%.

Another positive piece of news is that the AMC has recently been reduced and from 1st July will be 1.35% per annum of the mid-price NAV. The European industrial property market has had a rough time of it, but there are signs that it has finally turned the corner. This is reflected in the gradual opening up of the debt markets and the improvement in investment volumes. If this continues it seems unlikely that the shares will remain at such a wide discount, although the significant level of debt means that the fund would only be suitable for clients looking for a high risk exposure.

SECTOR: Property – Direct Europe

rf kcaB irB eht www.IFAmagazine.com

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June 2014

51 11/06/2014 23:39

UK’s Number 1 IFA database Register for FREE unlimited access - Join this rapidly growing community today!

Visit www.MyTouchstone.co.uk to register or call 01236 794 120 “I wish to express my appreciation to MyTouchstone for data on hourly fee rates for IFAs in my area of SE England.

The fact that I had permission to quote the data in my client communication allowed me to justify and amend my hourly rate from £125 to the average for my area of £160”, said Mike Grant of Montgo Consulting Ltd, East Sussex.

How can MyTouchstone help your firm?

1) Investigate ‘Hotspots’ of investor activity on Google maps.

2) Discover your firm’s ranking and market share in our IFA League Table: Per location/per specific area of advice.

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

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

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

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

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

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Aviva Investment Doctor.indd 52

11/06/2014 23:42

I N V E S T M E N T D O C TO R

VOLATILITY IS A CRUCIAL CONSIDERATION WHEN PICKING SUITABLE FUNDS FOR CLIENTS, SAYS GAVIN COUNSELL, MULTI-ASSET MANAGER AT AVIVA INVESTORS There are many measures of investment risk, but the most commonly used measure is volatility. Unfortunately, though, while common, it can also be open to different interpretations.

As fund providers generally measure fund risk by reference to volatility, understanding volatility can be vital to creating suitable client portfolios.

What is Volatility?

Volatility illustrates how much an investment’s price fluctuates, and it can also measure the extent to which actual investment returns differ from expected returns. Typically, volatility is measured in percentage terms - the higher the figure, the higher the investment risk. For example, long-term volatility levels for equities are typically 15-20 per cent a year, while levels for bonds tend to be 5-7 per cent a year. In other words, equities are around three-times more volatile than bonds.

In general, the higher the volatility, the higher the expected returns over the long term. So, while equities are generally more volatile than bonds, they should also outperform bonds over the long term. The question is whether a client can cope with roller-coaster returns or prefers smooth returns on the way to their ultimate goal.

One point to note is that volatility captures both potential gains and losses over a period. All too often, when discussing volatility with clients, they focus far more on possible losses than gains.

Why Volatility is Important

It is crucial that clients are aware of potential risk exposures before investing.

Different clients’ attitude to how much risk www.IFAmagazine.com

Aviva Investment Doctor.indd 53

they will accept varies. So, some clients may tolerate annual investment losses of up to 2 per cent of fund value, while others will stomach annual losses of 10 per cent or more. Similarly, some clients may want annual returns within a narrow range of say 5-9 per cent over a given period while others may accept a far wider range.

Understanding the drivers of volatility for asset classes, and funds, and the potential impact volatility that has on returns can allow you to think about a portfolio’s overall risk more holistically. In turn, this can help you construct portfolios for clients targeting returns that are as smooth or volatile as they want.

Fund Suitability

It is imperative that you choose funds that are suitable for clients’ risk and return investment goals, or you risk falling foul of regulatory requirements under the Retail Distribution Review. Comparing different funds’ volatilities, and understanding what this means to the risk exposure, is an important step in investing in the appropriate fund.

Any fund chosen for a client must meet their risk tolerance at the point of investment and must remain so while they hold the fund. This can be done by monitoring the levels of risk within the fund or alternatively choosing a fund that is expected to maintain a managed level of risk.

Conclusion

It is crucial that clients choose funds that are expected to produce risk levels matching their attitude to risk. Understanding volatility and how this could affect a fund’s performance can be very useful in doing so, helping ensure the most appropriate funds are picked for clients.

June 2014

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

Watch Your Back, says Lee Werrell.

The Regulator is Toughening Up on Affirmations by Directors and SIFs Last year the FCA declared that attestations are key elements to the new ARROW replacement of the Firm Systematic Framework (FSF). Now, I’ll agree that this important shift of emphasis might have gone unnoticed by many of us; nevertheless, the aim looks like a change of assessing how firms manage the risks they generate. That in turn means that we need to focus on the root factors behind what leads to these risks.

Make no mistake, by placing enhanced significance on personal conduct in financial services, the regulator is currently laying the ground for pursuing far more cases against executives individually as well as collectively - possibly leading to obtaining fines and criminal prosecutions.

This means a far greater concentration on personal accountability resulting from legal affirmations - and it’s something that needs to be treated seriously by all senior executives who are being required to sign on the dotted line - and thereby, to stake their professional reputations and their personal authority on the quality of their firm’s compliance processes.

won’t find any legal instrument defining the term employed either - but make no mistake, attestations are becoming required by the conduct regulator with ever increasing frequency. It seems that this term has so far been lost on the Prudential Regulation Authority (PRA), but there is no reason why it will not also be adopted by them in the future.

So What Does Giving An Attestation Mean?

An attestation is a written confirmation, much like a personal undertaking or guarantee, that specific supervisory actions or aspects of regulatory focus specified by the regulator are being met by the firm. The responsibility often falls to the CEO, but other SIFs and in some cases boards of directors can also be required to provide them.

There are currently two principal types of scenarios through which attestations are being used: 1.

Individual firms: Attestations are generally required as a consequence of a specific problem having been identified - whether that was through an agreed Risk Mitigation Programme (RMP), supervision, or through enforcement, such as a follow-up to a Skilled Persons’ Report under section 166 FSMA. The attestation is likely to be framed to reflect confirmation that the remedial actions agreed have been (or are about to be) implemented and finalised within a particular time frame.

2.

Thematically: Attestations are required from multiple businesses operating in a particular market, in which a particular issue has been identified across a number of firms as a result of thematic work undertaken by the FCA. The aim here is to make certain that Significant Influence Function holders within each firm are made aware of the issues and that they can, therefore, be held personally accountable, should those problems arise in the future. One example of such an attestation was in 2012 when Asset Management firms were expected to attest that their conflict of interest processes were compliant with the expectations of the regulator.

A Shifting Emphasis The FSF assessment modules will usually consist of a series of interviews between supervisors and the firm, to look at the various processes in relevant areas. The FCA has clarified that detailed testing will not be used unless it is the only way to assess a particular risk.

The new regime has subtly moved the regulatory emphasis by shifting of responsibility away from the FCA, and onto firms instead, who are required to do their own monitoring on some of the less important points and to self-attest that these points have been addressed. The process by which these will be monitored and assessed will be by the use of Section 166 skilled persons’ reports, internal audit review, and non-executive director reports.

Like “Conduct Risk”, the concept of “Attestations” is not defined in the regulator’s Handbook – you’ll find no alphabetical entry in the glossary between “Attached Shares” or “Auction Platform”. You

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If firms find themselves in attestation territory, they might be advised to follow regulatory instructions and to acquire an independent holistic report on their compliance function, to help demonstrate a wholehearted commitment to improvement. But it’s better still to make sure that everything is in place before any regulatory involvement is needed.

So What Are the Risks to You? An attestation that is not honoured provides the FCA with clear proof of non-compliance against an individual or firm, and makes it simpler for enforcement action against them.

There are a variety of ways in which the attestation could be used, and it tends to make sense that, the more senior the attestor, the more likely it is that action will be taken against them personally: 1.

Ignoring the agreement would provide evidence that an approved person was made personally aware of the issue and failed to carry out a particular function, or did not act appropriately could amount to a breach of the Principles for Business (potentially any, but often principles 3,6 or 9) or Statements of Principle for Approved Persons (potentially 1 or 4, but also 5,6 or 7 if they are senior management);

2.

If the agreed actions in the attestation are not carried out, the individual can be criminally prosecuted for providing false or misleading information to the regulator, this would be regardless of whether it was done knowingly or recklessly;

3.

Any enforcement action against the firm will be most certainly be aggravated by the fact of the failed commitment to the attestation; and

4.

If shown to be dishonest in the making of the attestation and that the intention was to expose another to the risk of loss, the individual could also be liable to a criminal prosecution for fraud by false representation (up to 10 years imprisonment and/or an unlimited fine).

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

This approach is unquestionably a response to the public’s calls for senior management accountability in the wake of the financial crisis. But the situation has also been compounded by the mis-selling and LIBOR scandals. Previous attempts at obtaining evidence of personal awareness and culpability were a huge issue, and attestations are now being seen as a key pre-emptive method of overcoming this problem.

What Can You Do To Mitigate The Risks?

To deliver an attestation, you might want to treat it like a project. n Ensure you comprehend the precise requirements and possess the authority to make an attestation, seek external guidance if possible. n Is your authority, and the decision to elect you as attestor, clearly recorded in your governance records? n Identify precisely what may be required, and ensure that any obligations are clearly achievable; and make sure that any timescales can be accomplished. n Make certain that you implement adequate policies, procedures and processes to make sure all involved understand their obligations. This helps provide evidence that due care and diligence has been applied. n Confirm what supporting information and evidence is to be provided to the FCA, and make sure that you understand the requirements. We often find errors in interpretation that can magnify the issues. n Make sure that you have adequate access to all the documentation and material (including anything confidential) required to discharge your duties. You can still be liable even if you leave the firm. n Ensure that everyone involved in the attestations is aware of the regulatory process and the definite necessity for accurate, reliable information.

Remember: To validate your compliance function, seek independent advice and review.

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

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

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

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

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

Consumer Credit Interim Permission Fees for Local Authorities

Insurers’ Management of Claims – Household and Retail Travel

Consultation Paper Ref: CP14/7 29 May 2014 14 pages

Thematic Review Ref: TR14/8 22 May 2014 34 pages

The FCA is amending its fees rules to facilitate the charging of interim permission (IP) fees to local authorities under proposed Government legislation, extending the IP period for local authorities.

This report summarises the findings of the FCA’s thematic review into claims handing in household and retail travel insurance, which assessed the extent to which consumers as claimants are at the heart of insurers’ businesses.

Consultation period ends 12 June 2014.

Commercial Insurance Intermediaries - Conflicts of Interest and Intermediary Remuneration Thematic Review Ref: TR14/9 27 May 2014 22 pages The report summarises the findings of the FCA’s thematic review, which looked into whether insurance intermediaries serving small to medium-sized enterprises (SMEs) are able to effectively identify and mitigate conflicts of interest arising from their remuneration structures.

The review had found a number of issues and unmitigated conflicts that could result in intermediaries prioritising their own interests over those of their SME customers. These included: n Significant conflicts of interest resulting from the structure of some intermediaries’ businesses and sources of revenue created, particularly where firms or groups fulfilled multiple roles in the distribution chain and acted as agent for both the customer and insurer in the same transaction. n In some intermediaries the control framework and management information had not developed in line with changes in the business model, and were therefore no longer suitable for the size and complexity of the business. n Many intermediaries relied on disclosure as the main way to address conflicts of interest rather than having effective control frameworks that prevent conflicts of interest working against customers’ interests

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The report found that, 64% of the policyholders surveyed were either ‘satisfied’ or ‘very satisfied’ with their experience, which is seen as broadly positive. But the regulator identified a series of areas where insurers could further increase consumer satisfaction. These included: n Communication and ownership throughout the claim. n Insurance in relation to medical conditions (travel). n Consumer outcomes in long chains of delegation. n The clarity of product documentation.

Advertising Standards for Consumer Credit Firms Press Release Ref: FCA/PN/59/2014 16 May 2014 Financial Conduct Authority (FCA) statistics show that one in five (108) of the 500 adverts studied from consumer credit firms, for products including payday loans, are falling short of the FCA’s financial promotion expectations.

Particularly concerning were examples where consumers were encouraged to hit the ‘apply’ button before having a chance to access important information. Others concerned: n The unsuitable targeting of young audiences with promotions for products that consumers must be over the age of 18 to use. n Claims that loan products would help repair credit ratings. n Claims that loans will clear a customer’s debt, instead of actually substituting one debt for another.

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Policy Statement Ref: PS 14/8 16 May 2014 73 Pages

The statement contains the FCA’s responses to feedback to Consultation Paper 13/5 and sets out the rules on enhancing the effectiveness of the Listing Regime.

The new rules came into effect on 16 May 2014.

Handbook Release 149 Handbook Update Ref: HR 149 14 May 2014 Summary 10 pages (Full Text 908 pages)

Dates for your diary JUNE 2014 4-5

G8 Summit (rescheduled from Sochi, Russia) Brussels, Belgium

FCA Reviews of How Fund Charges Are Set Out

12

Press Release Ref: PN/55/2014 13th May 2014

Fifa World Cup begins Brazil

12

The Financial Conduct Authority (FCA) publishes the findings from its review of how fund charges are presented. The recommendation follows a review of the marketing information made available to UK retail consumers by 11 firms.

The FCA found examples of firms who provided their customers a consistent, combined charge figure across all relevant documents and platforms, but said that there were still examples of firms referring to different charge figures across multiple documents, making effective comparisons difficult. In particular:

Consultation period ends for CP 14/7 (Consumer Credit Interim Permission Fees for Local Authorities)

14

Afghanistan Presidential Election

This Release contains pages to be inserted into the paper versions of the Handbook to bring it up to date.

n Some firms did not provide investors with a clear, combined figure for charges in their marketing material or on websites. n There were poor descriptions of administration charges that did not accurately reflect the operation of the charge.

Consultation on Version 3.1 of the Transaction Reporting User Pack Guidance Consultation Ref: GC 14/2 8 May 2014 53 Pages The proposed amendment is to SUP17 of the FCA Handbook (Transaction Reporting), and it comes two years after the issue of TRUP 3 in March 2012.

Clarification includes:

17-21 Royal Ascot Week Berkshire, UK 21

n How to report the venue for a transaction. n Transaction reporting arrangements within firms – making it clearer what steps a firm should take to comply with its SYSC obligations.

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European Council meeting Brussels, Belgium

22-23 G20 Finance and Central Bank Summit Melbourne, Australia 23

Wimbledon Tennis Championship begins London, UK

25

Elections to Libya National Congress

26

Competition Commission due to have completed its investigation into the payday lending sector

n The transaction reports a firm sends for its transactions, which must accurately reflect the change in position for the firm and its clients n How the unit price should be reported for different instruments

I FA C A L E N D A R

Response to CP13/15 – Enhancing the Effectiveness of the Listing Regime

JULY 2014 1

Italy assumes the EU Presidency until 31 December

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I FA C A L E N D A R

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

1

Derivatives transactions must be made directly to ESMA

2-6

Royal Henley Regatta Henley-on-Thames, UK

5-27

Tour de France France

17-20 British Open Royal Liverpool Golf Club, UK 13

Fifa World Cup ends Brazil

19

G20 Finance and Central Bank Summit Melbourne, Australia

22

End of the AIFMD transitional period. Date by which firms already managing or marketing AIFs must have applied for authorisation

AUGUST 2014 1

7-8

Single Euro Payments Area (SEPA) Migration Regulation comes into full force Forum on Industrial Organization and Marketing 2014 Munich, Germany

10 & 24 Presidential elections in Turkey

SEPTEMBER 2014 1-4

Red Bull America’s Cup San Francisco, USA

4-5

NATO summit, Newport, South Wales

9

Parliamentary elections in New Zealand

10-13 St Leger Festival Week Doncaster, Yorkshire, UK 15

Sixth anniversary of Lehman Brothers bankruptcy

18 Scotland: Independence referendum

Changes to the Use of Dealing Commission Rules: Feedback to CP13/17 and Final Rules Policy Statement Ref: PS14/7 8 May 2014 37 Pages This Policy Statement reports on the main issues arising from Consultation Paper 13/17, and publishes the final rules. The FCA says that the final changes will help ensure investment managers control the costs from the use of dealing commission appropriately in the best interests of their customers.

The new rules took effect on 2 June 2014.

Changing Customers to PostRDR Unit Classes Finalised Guidance Ref: FG 14/4 6 May 2014 5 Pages The regulator sets out its approach following queries from stakeholders and some evidence of uncertainty about how to convert investors to the new unit classes.

Issues covered include: n Whether a conversion to a clean unit class should be treated in the same way as a switch of units n Whether conversions can happen in bulk rather than individually n If conversions can happen without express consent of the relevant unitholder(s) n Whether advice is needed n The role of advisers in the conversion process, and n Whether a new disclosure document (e.g. a KIID for a UCITS scheme) needs to be issued to each relevant unitholder before conversion.

Budget 2014 – Pension Reforms: Guidance to Firms in the Interim Period

DA

Finalised Guidance Ref: FG14/3 9 April 2014 10 pages The Chancellor’s announcement of substantial changes to the pension legislation in the 19th March 2014 Budget has given rise to uncertainties about the correct procedure in the interim period before the final provisions come into effect in April 2015.

Some of these changes are still in the consultation process.

The FCA therefore sets out its expectations of firms, with regard to making changes to their operational processes and procedures. They will also need to consider how to treat customers who are making a decision about their retirement income in the coming year, or who are not well informed about the changed environment.

The FCA acknowledges that it would normally engage in formal consultation on this matter, but says that it considers that any delay in issuing final guidance would be prejudicial to the interests of customers. Accordingly, it requests feedback on this subject. No deadline has been set for responses.

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

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11/06/2014 23:44

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

INCLUSIVELY YOURS CARING, SHARING COMPANIES ARE GREAT, SAYS GILL CARDY. BUT WHERE SHOULD WE DRAW THE LINE?

Following on from Martin Wheatley’s speeches on ethics in financial services, I was interested to hear the theme of ‘inclusive capitalism’ being discussed by some very high-flying people at a recent Mansion House conference.

Some people have wondered what exactly this phrase means? Well, I can tell you that, based on some of the speeches, it’s still not clear to me. Given that the generally accepted purpose of a business is to make a profit and thus to generate a return for investors, as a reward for the application of capital to that business, how can that be ‘inclusive’?

The first irony was that the conference chairman was a member of the Rothschild family, a name not perhaps synonymous with inclusion. The second irony was that this conference follows hot on the heels of the difficulties facing the Co-operative Group.

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Good Deeds, Good Companies

Over the years a wide range of financial services and other businesses have attempted to take an ‘inclusive’ approach. Mutuals and credit unions seek to apply capital for the benefit of their businesses and return profit to their stakeholders.

Companies like Cadbury and Pilkington have a strong history of ensuring that wealth generated in the business was shared

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Local Limits Speaking at the conference, former US Treasury Secretary Larry Summers suggested that businesses have traditionally felt a responsibility to their geographical locations, because they had a stake in the success of the areas where they were headquartered and where their workers lived. But in a globally integrated world, the challenge now is for business to continue to feel that same stake in places and communities.

The associated temptation for world leaders and policymakers is to avoid the pressure “to pit jurisdiction against jurisdiction seeking the best deal, the least restriction and the least call for responsibility”.

INDEPENDENCE

with employees and their families, years before unions and the welfare state took on similar functions. Companies’ charitable foundations return vast sums to society.

Both Marx and Jesus observed that it was not capitalism or money that were problematic, but rather the love of money and the excesses of capitalism that were destructive.

But herein lies the conflict: rational businesses need to find the lowest tax environment, the most favourable employment regulations, and the cheapest yet most qualified labour. And yes, there will always be cross-border differences which firms will exploit to advantage their shareholders.

We might berate Amazon or Starbucks for choosing a low-tax jurisdiction - but how does this decision differ from choosing where you locate your manufacturing facilities, or where you source your raw materials?

Ask the Investors So if we really want ‘inclusive capitalism’, accepting that making money is a good thing as long as we avoid the excesses which do harm, then perhaps we have to rely on consumers and investors to demand that the businesses we own make the right choices?

The problem here is that only 11% of the UK stockmarket is owned by UK individuals.

So, unless other non-UK, public sector, pension, life, church, charity, investment and unit trust investors influence management to make these ‘inclusively capitalist’ decisions, nothing will change. And if those businesses do not practise inclusive capitalism themselves, then I can’t see them wielding their shareholder power to spread it wider.

For more comment and related articles visit...

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Financial Services Recruitment Specialists

Employed IFA

Wealth Manager

Employed IFA / Branch Manager

Leeds and London

Belfast, Bristol and Bracknell

Reading

£40k basic plus benefits

Up to £75k with generous OTE

Up to £65k with high earning potential

Recruit UK are currently working on a mandate to find a successful IFA to join a leading Chartered IFA firm in London and Leeds. On offer is a basic salary circa £40k with good bonus, Real Leads and an active client bank.

My client is a fast growing and leading wealth advice and investment management business who have been identified through awards and reputation.

Recruit UK are currently working on a mandate for a long established financial planning practice who due to growth and acquisition are seeking to expand their reputable team with an employed IFA/Branch Manager.

Our client pride themselves on their streamlined services and over the past 2 decades they have acquired a very secure returning income and a desired book of HNW professional clients around both locations. They continue to expand and consequently have a warm book of business for the successful applicants to pick up. Beyond this however, they are seeking an IFA who can confidently build their own business and has a minimum of 2 years experience as an IFA. Existing transferable clients will be taken on board however is not essential.

This is an employed role that offers a competitive basic of circa £40k. There is a 3.25% validation with circa 40% bonus on validation being achieved.

They offer a supportive and structured environment for their IFA’s including all in house support and paraplanners, as well as attractive offices in appealing city locations.

This opportunity would suit individuals who are committed to maintaining and improving their knowledge through professional qualifications and training.

This is a highly sought after role and there is a level of integrity that comes from working for the firm. If you would like to discuss this opportunity in further detail, please contact Andrew Nicholson at Recruit UK.

.

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They are currently looking for experienced level 4 accredited financial service professionals across the UK to provide fee based independent financial advice to private clients with investable assets in excess of £100,000.

My client has exceptional relationships in place within the industry and each IFA working at the firm is ensured a steady stream of leads through leading accountants, Lawyers and Stockbrokers who introduce HNW and UHNW clients. Our client offers a small level of leads but it is essential that you have strong business development.

Individuals who have clients that can be brought with them without breaching any restrictive covenants will be advantageous.

To be considered by my client, you will have a sound knowledge and background in financial advice and be conversant in providing pensions and investment advice to HNW clients. You will hold SPS and be educated to level 4.

My client is acclaimed for the strong training and support they offer their advisers towards becoming chartered, and they seek professionals who have the hunger and audacity to develop and succeed.

In return, you will receive an award winning total reward package, including a professional basic salary, a companywide bonus scheme and shareholding, along with the support by a central team of advice, investment management and client support experts.

My client has achieved phenomenal success so far in their journey and they are well placed to continue expanding.

This is a truly dynamic and visionary organisation that believes their employees and clients lie at the heart of the business.

As part of their continuing growth they are seeking to recruit IFA’s with experience, knowledge and drive to open and grow a new office in Reading. They are happy to look at individuals and teams who might wish to transplant their business or have a similar agreement over the long term.

This is an employed role with long term incentives for the right person. They have a robust infrastructure with a high level of admin, paraplanning and business support.

Salary is negotiable, they recognise to attract high calibre advisors salary need to be competitive, and this is also recognised by offering long term incentives.

It is likely the ideal candidate will be earning from £100-200k per annum.

To be considered for this role, it is essential that you have at least 3 years similar experience and have qualifications equivalent to level 4 diploma with the desire to work towards chartered. You will have a highly professional manner with the gravitas to deal with HNW clients and have a background in management of a team/ Office. It will be an advantage is you have a book of existing clients to bring with you however this is by no means essential.

Contact John Anderson at Recruit UK to discuss this proposition in confidence.

11/06/2014 23:47

Contact us to discuss our latest opportunities:

T 0844 371 4031

Investment Manager Birmingham £50k-£65k with generous bonus scheme

Employed IFA Newcastle, Sheffield, Glasgow, Aberdeen and Liverpool

E HR@ifamagazine.com

Employed IFA South West, Midlands and North West £30k-£45k with realistic OTE

Circa £50k My client is a reputable private client investment/IFA firm who specialise in offering a tailored investment service to over 20,000 private clients with a total of £1,8bn of funds under management and advice. They are seeking high calibre professional IFA’s who have a sufficient transferable client bank to join their expanding organisation on an Employed basis and join them in creating a new team in the Birmingham office.

The applicants will be a strong relationship developer with a track record in generating quality business. You will deliver a bespoke service to HNW private clients. Although a small amount of leads will be provided, the majority of own business will come through current clients and own leads. Ideally the applicants will have a sufficient amount of AUM to bring with them circa £10million.

The successful applicants will be diploma qualified or above, with a proven record of success as an IFA with experience in educating U/HNW clients and in management of others.

In return for expertise, my client are offering a competitive salary between £50k – £65k, with a generous split on all business written, a modern and professional office environment and a dedicated administration team that will allow more time to be spent on clients and less on paperwork.

Contact John Anderson at Recruit UK in confidence to discuss this exciting proposition!

Recruit UK are working alongside an award winning national company who provide impartial financial advice to a wide range of private and corporate clients and as a result of continued expansion they are seeking Independent Financial Advisers to join their team across the UK. This is an excellent opportunity to join a large Corporate IFA with offices nationwide.

This is an employed position paying a basic salary c£50k depending on experience.

They offer the ability to earn high with bonus based on 3.2%validation and to earn 33% of all business written above that level, as well as a highly attractive benefits package that includes generous holiday allowance, company pension and Private Health Scheme.

Our client will consider energetic and experienced financial advisers who possess a desire to succeed from the outset who want to secure their earnings and work for a large company that will support them. Advisers need to be Level 4 Diploma qualified, a holder of CAS and have a proven plan in place to demonstrate how you will generate your business.

This highly respected company has long standing relationships in place with professional connections including Solicitor and Accountancy firms. They provide their advisers with full professional support including paraplanning and administration and first class systems that generates fantastic levels of business.

My client is a leading Financial Services Group who has a heritage dating back almost a century. They have been attracting assets through acquisition for 10 years and are now on a push to grow their numbers by recruiting experienced IFA’s/Wealth Managers across the UK. My client offers restricted whole of market advice. Their proposition gives the successful applicant the opportunity to work from home or a modern and professional office if there is one in the area. They can offer a good level of support in generating leads from their extensive and loyal client base and BDM team. Advisers will have the opportunity for buy out after some time at the company with no covenants surrounding clients that are brought with you.

To be considered by my client, you will be an experienced Adviser who has the full level 4 diploma, currently or has previously held CAS and who is confident to bring with you circa £3-£5million of assets.

Salary is dependent on what you can bring to the table, but will be between £30-£45k with realistic OTE. Plus the opportunity to grow a team and play a leading figure within a respected business.

There is very much a ‘team ethic’ to their business and Advisers will have access to clients, marketing and In house business development and will be working within modern offices that encourage motivation and self development.

To discuss this opportunity in more detail, please contact Recruit UK.

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Heat Financial Services is a dedicated, specialist division of Heat Recruitment – one of the fastest growing independent specialist UK Recruiters.

Our consultants provide specialist recruitment advice to clients and candidates, with particular focus on Financial Planning and Wealth Management markets.

We can provide bespoke recruitment solutions to a host of businesses, ranging from regional independent IFA firms to large multi-nation investment companies.

Employed Mortgage Advisor

Financial Adviser (Employed)

Employed Financial Consultant

Location: Cambridge

Location: London

Location: National

Salary:

Salary: £30,000 - £70,000

(attractive bonus structure)

Salary:

£21,000 - £32,000 DOE

An established whole of market mortgage brokerage based in Cambridge is seeking a Mortgage Advisor to join their expanding and ambitious team. Mortgage leads are provided as the company has their own client base. This is a great opportunity to join a growing team where full back office support is provided.

Senior Paraplanner Location: Berkhamsted Salary: £30,000 - £40,000 (negotiable) Our client is a highly reputable IFA practice and seeks a Senior Paraplanner to join the business. The successful candidate will ideally be working towards level 6 Chartered Status, and will be responsible for carrying out whole of market research, writing suitability reports and producing quotations.

Compliance Advisor Location: Bromsgrove Salary:

£25,000 - £30,000 (dependent on experience)

This is a superb opportunity to join a fast growing Financial Planning Firm, assisting their compliance Director reviewing Financial Services advice files (especially investment orientated). You will be operating in a busy sales environment providing compliance support for the company and 40 home based financial advisers. The company is at the forefront of Financial Planning in the Midlands area with large acquisition plans.

£30,000 - £40,000

Our client is a highly successful boutique firm of Independent Financial Advisers, who provide tailored investment advice to High Net worth individuals. The firm boasts an enviable reputation and provides advice to some very high profile individuals. Through continued growth our client actively seeking established Financial Advisers with transferable funds to join their business.

Our client is looking for an experienced financial consultant to join them as they continue to build on their reputation of delivering a first class financial planning service to its clients on a nationwide scale. You will be allowed to offer your client’s advice on a broad variety of products based on their best interests, finding the best methods to help them reach their goals purely on their lifestyle, financial goals and aspirations.

Paraplanner

Paraplanner

Location: Henley-on-Thames

Location: Rayleigh

Salary:

Salary:

£30,000 - £40,000

We are currently recruiting for an experienced Paraplanner on behalf of a firm of Independent Financial Advisors based in Henley-on-Thames.

You will be Diploma qualified Paraplanner and ideally working towards Chartered Status and will be responsible for assisting a team of experienced IFA’s within the company.

£25,000 - £35,000

A fantastic opportunity has arisen for an experienced Paraplanner to join a long establish and expanding Investment Company based in South Essex. As the Paraplanner you will be responsible for supporting the IFA’s within the business to service and maintain their client portfolios. Our client is seeking a number of experienced Paraplanners.

IFA Location: High Wycombe Salary:

£self employed

This is an excellent opportunity to join a growing Financial Planning Business. This company is at the forefront of the industry in terms of the investment they have made in technology and various Financial Planning tools. The right candidate will be Diploma qualified with experience of advising public sector clients.

The attractiveness of this role is that there is an orphan client bank available to the IFA

For a confidential consultation about potential opportunities in your area, or alternatively if you seek assistance in attracting top talent to your organisation please contact one of our Specialist Financial Services Consultants on 0845 375 1747.

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THINKERS

Rock Star “If two-thirds of economic growth is going to the top, that’s not a good deal for the middle class.”

Thomas Piketty Born 1971 in Clichy, Paris Currently lecturing at the Paris School of Economics This Year’s Hot Economic Property Rarely has anyone burst onto the economic scene with quite as much fanfare and panache as the author of this year’s unlikely business bestseller, Capital in the Twenty First Century. Piketty’s scholarly tome topped the US charts in May 2014, despite weighing in at 577 pages and tackling a relatively obscure and badly-documented topic. Namely, the history of wealth distribution across developed-market economies, and its relationship to taxes and the business cycle.

But that’s the point. As even Piketty’s enemies concede, his singular achievement has been to collate a vast quantity of statistical and tax data, much of it supposedly incompatible, so as to generate what amounts to a vast database of information on the trends and timelines of wealth creation over the last 200 years. His findings tend to rest on empirical evidence rather than penetrating theory. But that, after all, is a valid scientific approach, as long as you call your findings a hypothesis, not a principle.

Where Marx Went Wrong Piketty makes no bones about his leftleaning politics, which have defined his career path to date. His political associations and his newspaper columns for Libération and his op-eds for Le Monde have left little room for doubt on that score.

But Piketty, the first head of the Paris School of Economics (2006), had always been puzzled by Karl Marx’s complete failure to anticipate the long survival of class divisions.

According to Marx, capitalism was packed with internal contradictions that would soon set the proletariat against the rich, and the rich against each other. The puzzle, then, was that they did not in fact destroy each other, and that wealth inequality would continue to grow for centuries.

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Wealth, More Wealth, and Taxes Piketty’s new historical database appears to show that the widening wealth gap, and the general pattern of inequality, has grown consistently over the last 200 years except during those periods when graduated taxes were deliberately set so high as to hurt the rich. By no particular coincidence, those periods of growing wealth inequality have been when the rate of capital accumulation has grown faster than the underlying economy.

And conversely, differences in earnings tended to shrink during certain periods, such as the decades following the Second World War, when taxes on the wealthy were highly progressive. Piketty discusses the roles of estate taxes, income taxes and other factors – but, he says, the defining trend of the last two decades is that inequality of wealth distribution has been growing again.

How to fix it? Piketty proposes a new Wealth Tax to restore the balance. That’s gone down rather better in socialist France than it’s likely to in Britain or the USA. But Barack Obama’s advisers have consulted him, and he’s a celebrity on the international economics circuit. A Nobel economics prize would seem to be on the cards.

The FT Finds Fault A major row erupted in May 2014, after the Financial Times identified what it claimed were faults in both Piketty’s number-crunching and his use of UK tax tables. The FT went so far as to claim that these failings, which Piketty admits, might invalidate his whole hypothesis about growing inequality since 1980. Piketty’s response has been, shall we say, ‘vigorous’?

June 2014

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

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

SORRY SAGA

GETTING THERE STARTS WITH A LITTLE APPLICATION, SAYS RICHARD HARVEY. ALL HE EVER HAD TO DO WAS FIND IT It’s one of those ‘Tell Sid’ moments that comes along every few years. A share offer which leads even the most cautious investor to ignore the advice of their IFA,, and just splurge the cash.

We’ve all done it. The flotations of iconic national companies such as British Gas (marketed with the memorable ‘Tell Sid’ campaign), BT, Royal Mail, Railtrack and British Airways all attracted a stampede of individual punters and, by and large, they paid off (well, maybe not the latter two).

Last month, Saga announced its Stock Exchange aspirations, and at the time of writing, I’m hovering like a spotty teenager on the edge of the disco dancefloor, unsure whether to have a go.

When I made a casual enquiry to Nigel, my IFA mate, as to the wisdom of investing in Saga – over a pint of Skullbuster and a packet of Quavers in the pub, which I felt was adequate recompense for his advice – he said “I haven’t a clue”. Which I suppose served me right.

But bolstered by the faint recollection that my British Gas shares had done pretty well, I proceeded to plough my way through the Saga prospectus.

And that’s when you need an IFA, or at least one a little more clued-up than Nigel. I mean, what on earth is your average investor to make of stuff such as lock-up arrangements, EBITDA, joint bookrunners (are they just bookies in pinstripes?), Rule 144A and all the rest of the guff which might be legally required, but is also wholly baffling to those not overly familiar with the Stock Market.

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So I turned for guidance to the financial pages of the national press, which gave an Olympic-standard demonstration of fence-sitting.

On the downside, they advised that the funds being raised were partly being used to pay down Saga’s debts, which I found as disenchanting as the knowledge that Andrew Goodsell, the company’s chief executive, would personally trouser £80 million (that’ll buy him a fair few over-50s river cruises).

On the upside, and as a chap of mature vintage, I appreciated that Saga had pretty much cornered the ‘grey’ market, and that thanks to modern medical advances, we wrinklies were living longer and spending more. Indeed, I recently attended the funeral of a lady who lived a life distinguished by her daily intake of 50 fags and half a bottle of Scotch, not to mention a spectacularly athletic love life. She made it to 101.

Editor’s spoiler alert: No, Richard didn’t go for the shares in the end. By the time he found his specs, the application form had vanished...

Even for multi-millionaires, life can be tough Gary Barlow is an example. His media profile as a singer and songwriter is stratospheric, and he entered into national treasuredom by organising the Queen’s Diamond Jubilee concert.

However, now that he’s been clobbered for millions by the Inland Revenue for investing in a suspect tax avoidance scheme (I bet the letter they sent him was headed ‘Take That!’) the battalions of the morally righteous have been on the march, some suggesting that he should forfeit his OBE. But any sense of outrage which has as its chief spokesperson Margaret Hodge MP has to be queried. I’m not suggesting for one moment that she was caught up in the Westminster expenses scandal, but lots of her fellow MPs were, and I don’t recall too many gongs being posted back to the Palace or even constituency seats being given up. Pots and kettles come to mind.

Isn’t the real villain in this episode the accountant who advised Barlow to invest in the scheme in the first place?

Still, legions of Take That fans are now eagerly anticipating the band going back on the road to pay off the Inland Revenue.

Who would ever have guessed that the taxman would become a teen hero?

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11/06/2014 23:48

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