IFAJune11

J U N 2 0 11 ■ I S S U E 2

For today’s discerning financial and investment professional

SANTS AND SINNERS

THE FSA HAS FINALLY HAD ITS PRAYERS ANSWERED OVER PPI MIS-SELLING

A SIM P L E R TA X COD E ?

DON’T HOLD YOUR BREATH

STRUCTURED THINKING INVESTEC - NEW THINKING ON STRUCTURED PRODUCTS

DAY OF T H E MIFID

COMING SOON TO A SCREEN NEAR YOU

A FT E R TH E G R E AT WAV E

JAPAN - IT ISN’T OVER YET

N E W S R E V I E W C O M M E N T A N A LY S I S Cover 02.indd 1

3/6/11 11:46:16

A brand apart

This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.

Cover 02.indd 2

3/6/11 11:46:20

Clear, transparent and client-focused, we are leaders in our field.

We appreciate that no client’s needs are the same, so we offer consistently available equity-linked deposits and equity-linked investments covering a variety of risk and return profiles.

Voted Best Structured Products Provider six times by four different industry bodies since our launch in 2008, our levels of service go far beyond just the range of products we offer.

To complement our valuations page we've created an innovative comparison tool for advisers that analyses the structured products market to help you make easier, informed decisions.

We offer a due diligence support pack, technical helpline and full administration service making the investing process smoother for you and your client.

Plan on getting in touch with us soon.

To order client literature

08000 890 305 For technical enquiries

020 7597 4065 www.investecstructuredproducts.com

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1/6/11 13:15:47

C O N T R I B U TO R S

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

Neil Crossley writes for The Guardian,The Independent, The Financial Times and The Daily Telegraph, mainly on technology, business, media affairs and TV. David Nicholson writes on business, technical, scientific and financial for The Financial Times, The Wall Street Journal, The Sunday Times, The Guardian, The Observer and GQ. Emma-Lou Montgomery, the former editor of Moneywise, has an impressive record of print and broadcast journalism including editor-in-chief at Interactive Investor. She is a qualified investment adviser.

Nick Sudbury is an experienced financial journalist and investor who has worked both as a fund manager and as a consultant.

He is also a chartered accountant.

Paul Clutton, Director of Professional Recruitment Ltd, specialises in financial services recruitment and is a regular contributor to many publications on emerging HR legislation.

Monica Woodley, senior editor at the Economist Intelligence Unit. She has previously worked on Money Management, Investment Adviser and Investment Week.

Huw Thomas, has many years of experience in business journalism and has edited Financial Services Technology, Business Management Middle East and Human Resources Management.

Justin Sutcliffe, is an awardwinning photographer whose work is published worldwide.

He is a regular contributor to The Independent on Sunday and his work has been included many international galleries’ permanent collections.

Editorial Advisory board: Paul Wilson, Mark Pullinger and Nicola Mould

Cover Picture: Justin Sutcliffe

06.11

Editor: Michael Wilson

editor@ifamagazine.com

Art Director: Tony Merlini

tony.merlini@ifamagazine.com

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

13

8

News

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

Editor’s Soapbox

Time for the Revenue to play it straight, says Michael Wilson.

44

Leaving the Industry

Life after an IFA career may seem bleak, says Paul Clutton, but treat it as a challenge.

Day of the Mifid

Don’t look behind you, it’s probably too late, says Emma-Lou Montgomery.

48

32 47

The IFA Calendar

Conferences, economic summits, race meetings... All the dates you daren’t miss.

Pick of the Funds

Nick Sudbury’s monthly review of what’s hot and what’s not.

52

Newly Published Research

60

Huw Thomas on three of the latest commercial business reports.

The Compliance Doctor Lee Werrell of CEI Compliance discusses some of today’s most pressing issues.

65

Thinkers

63

FSA Publications

Our monthly listing of FSA publications, consultations, deadlines and updates.

Everything you really need to know about Benjamin Graham’s value investing theories.

66

And Finally...

More ramblings from Frederick Smythe-Allinson, who just can’t seem to can the spam.

features

regulars

This month’s contributors

IFA Magazine is for professional advisers only.

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

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1/6/11 13:15:54

CONTENTS

features 18

COVER STORY

PPI: The Battle is Over But what’s it going to cost the IFAs? Nick Sudbury isn’t optimistic.

24

The MMR Disaster

New mortgage lending guidelines are killing the property market, says David Nicholson. And he’s mad as hell.

28

After the Great Wave

It’s too soon to declare the emergency is over in Japan, says Monica Woodley.

Pensions activist Steve Bee is astounded by how far Britain’s pensions have come. And in the right direction too.

37

Featured Provider:

Investec Structured Products Britain’s prize-winning structured products provider explains to Michael Wilson why things need to change in the industry.

40

Joined Up Thinking Putting your CRM onto your platform isn’t as outrageous as it sounds, says Neil Crossley.

The banks have finally conceded after losing a legal challenge to new rules imposed in April by Hector Sants’s FSA.

IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2011. All rights reserved.

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

Picture: Justin Sutcliffe

A Transformation to be Proud Of

➹

35

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1/6/11 13:16:09

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

Drive T r u s T e d

h e r i Ta g e

a d v a n c e d

T h i n k i n g

low interest rates out of sight

Current low interest rates mean many clients are looking at actively managed equity investment for income. Schroders’ Income Maximiser range has been developed specifically to deliver the higher income that clients demand.

Schroder Income Maximiser has exceeded its 7% p.a. target yield each year since launch in November 2005 and has had 1st quartile performance over 3 and 5 years.

Now, it has been joined by two new funds, managed with the aim of repeating its success across new markets. Asian Income Maximiser invests in equity and equity related securities of Asian companies, (excluding Japan).

Global Property Income Maximiser offers access to a portfolio of higher-yielding global property securities and REITs. Like Schroder Income Maximiser, both new funds use a proven investment strategy to aim at 7% income every year. So, if you’re looking for Income Maximiser funds for your clients, Schroders now has not one answer, but three.

Schroder Income Maximiser range

* 0800 718 777 www.schroders.co.uk/imax For professional advisers only. This material is not suitable for retail clients. Source for annualised yield: Schroders as at 08/12/06, 7.4%; 30/11/07, 7.3%; 30/11/08, 8.7%; 30/11/09, 7.3% and 31/12/10, 7.3%. Source for performance, Lipper Hindsight, bid to bid, net income reinvested to 31/03/11. Fund launch date 04/11/05. Data taken from 07/11/05, nearest available date. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. The target yield quoted is an estimate and is not guaranteed and could change according to market conditions. The manager will notify registered unit holders if the target yield changes. It is quoted net of basic rate tax, however higher rate tax payers should note that they may be liable for further deductions. The yield is the sum of the four quarterly distributions that comprise the fund year, each calculated by dividing the quarterly distribution amount by the unit price at the start of that quarter. The funds use derivatives to achieve their investment objective. Funds that focus on specific regions or sectors can carry more risk than funds that are more diversified. Funds that hold investments not denominated in sterling will be effected by exchange rate fluctuations which will result in the value of the investments, and the income from them, to rise or fall. Fees will reduce capital rather than income. Schroders has expressed its own views and these may change. Issued in May 2011 by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 2015527 England. Authorised and regulated by the Financial Services Authority. UK00933

6

June 2011

w36279 Trade Ad_IFA Ed's Welcome.indd 6 Magazine_IMAX Full Page (210x297) v1.indd 1

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25/05/2011 11:53 27/5/11 11:53:14

WORDS OF WILSON

1 11:53

SO DID YOU...

...SELL IN MAY AND GO AWAY? NO, OF COURSE YOU DIDN’T. YOUR CLIENTS WOULDN’T THANK YOU FOR PLAYING SHORT-TERM TIMING GAMES WITH THEIR LONG-TERM MONEY. Well, not if it meant extra expense, anyway. So, for many of us, the summer months are a time to simply sit and wait. Or maybe to recommend a few bargains that are worth stashing away for the longer term.

There’s no special reason why St Leger Day (Saturday 10th September) should ever have sparked the market’s annual return to normal autumn trading conditions - unless you count the fact that it does help if everybody can agree on exactly when the new term is to start. But alas, all that is passing quaintly into history now. Whether we like it or not, the Doncaster horse-racing calendar has become a growing irrelevance to the bigger picture. And for good reason.

First, there’s the fact that your clients’ portfolios are simply getting more international, and that the foreign news flow doesn’t ever stop.

Shanghai’s trading volumes don’t dip at all during the summer months, and indeed Tokyo’s or Frankfurt’s don’t waver much either. Then there’s the growing client interest in commodities, which have their own inimitable rhythms. Passively managed bullion ETFs don’t need brains, minds or sentiment - but alas, that doesn’t mean they don’t need your year-round attention...

But the most important reason of all is that the markets are currently being driven by something that’s got nothing whatsoever to do with the good old growth and profit fundamentals that have served us so well for the last three decades. As the bull market staggers aimlessly, attention is turning increasingly to politics. And fiscal economics, commodity news, and all that front-page talk of sovereign debt.

And suddenly it’s all about short-term riskon, risk-off trades. You think you know where the dollar is headed? Quick, take a short-term position on bullion. You don’t like Beijing’s tone on rising house prices? Horrors, that might mean a credit choke-off and a collapse in Chinese growth. You’re bothered about Barack Obama’s re-election chances in 2012? Help, that might mean eighteen months in limbo for Wall Street. And so on.

Is all that kerfuffle healthy? No. Is it logical or easily predictable? No. Can you use it to advise your clients? Also no. But is it the situation we have to deal with right now? Sadly, yes it seems so. Roll on September.

M ik e

Michael Wilson, Editor ifa magazine

www.ifamagazine.com

Ed's Welcome.indd 7

Write to Michael at editor@ifamagazine.com

June 2011

7 27/5/11 11:53:17

shorts

magazine

Inflation rose to 4.5% in April,

according to new information from the the Office of National Statistics.The Consumer Prices Index compared with 4.0% in March. But it’s still well short of the Retail Prices Index, which includes mortgage costs, and which hit 5.3% in March before subsiding to 5.2% in April.

Petrol, clothing and telecommunications costs have all been moderatng factors.

Bigger, Scarier... ...The Commodity Rollercoaster rolls on.

The commodities boom came of the rails in May, as a growing level of economic worry prompted investors to dump risky investments and repatriate cash from exchange traded funds that had been driving up the going rate for many months.

Oil prices tumbled from $127 per barrel (Brent crude) in early April to barely $110, as reducing fears of an armed showdown in the Middle East coincided with renewed rumours that China was about to resume the tightening of its own economy. To put this into perspective, Brent had hit

$145 in mid-2008 - but it had ended that year at just $38 and was only $70 at the start of 2010.

Gold retreated rapidly from its $1,565 peak to just $1,495 by mid-May – dampening hopes that it might breach the $1,600 threshold. But silver was a particular casualty of the rout, falling from a London fix of $49 in late April to just $32 in midMay. Not for the first time, there was talk of a bubble that had sucked in gullible private investors.

One beneficiary of the disturbances was the dollar, which scrabbled back to 62p against sterling, having dropped as low as 59p in late April. The long-term slide from December’s 65p had been prompted by fears that the Federal Reserve Bank’s quantitative easing programme would dilute and weaken the dollar – and the most recent upturn may have reflected a Fed decision that QE2 would indeed end in the summer.

Where does it all leave the commodity super-cycle believers? Unconcerned, it would seem. Internet chatrooms are full of optimism that today’s prices are a long-term opportunity.

Although the mood among precious metals investors is swinging back toward physical (assetbacked) rather than virtual ETFs. Some of them have had their fingers too badly burned.

For more comment and related articles visit...

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N E W S R E V I E W C O M M E N T A N A LY S I SN S News.indd 8

27/5/11 12:09:07

US Federal Deficit

has breached the $14 trillion statutory limit beyond which it isn’t legally allowed to go, Treasury Secretary Timothy Geithner told Congress in May. The last time it happened, in April, Congress agreed a fix that would allow the government to carry on paying its workers; this time, Congress has until 2nd August to negotiate a higher threshold.

Growth’ was still causing rumbles as we went to press. The failure to reintroduce taper relief on capital gains has caused dismay among many advisers. But the consultation on state pension reforms and the merging of NI and Income Tax is expected to start shortly.

NEWS

Osborne’s ‘Budget for

The Axeman Cometh Auditors: you have been warned.

Britain’s auditors have received a sharp rap across the knuckles from the Financial Services Authority, which has issued a Policy Statement requiring them to clean up their acts on client assets or face the gory consequences.

With effect from 1st June, companies and their auditors will be required to provide much more clarity in the way they present auditor’s reports, so as to make sure that accountability is absolutely clear. They are also being required to improve the the quality and consistency of information provided in the report about client assets, so that the FSA can be better placed to check up on them..

And finally, the companies themselves need to improve their own governance and oversight of their own auditors, and to tighten their compliance with the client assets rules. The FSA is making it clear that the final responsibility for most of this

rests with the clients, not the auditors, but that auditors will be getting the big stick if they fail to expose misdeclarations by their clients.

The FSA says that its investigations into asset reports have revealed situations where auditors have provided ‘clean’ reports despite firms committing serious breaches of client asset rules, and auditors’ reports that have covered the wrong chapters of the client asset sourcebook altogether. As a result, it says, a number of auditors have been referred to their relevant auditing bodies under allegations of misconduct, and a number of other suspects are currently under consideration..

Auditors and their clients will be getting a four-month period of grace in which to tighten up their practices. The axe will only fall on those who haven’t got their new practices into place by 29th September.

For more comment and related articles visit...

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“Auditors will be getting the big stick if they fail to expose misdeclarations by their clients.”

I SN S E W S R E V I E W C O M M E N T A N A LY S I S News.indd 9

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NEWS

Greece, only twelve

Fast-growing platform provider

months after its €110bn bail-out by the European Union, is reportedly seeking another €70bn of new funds.

Chancellor George Osborne has declared that Britain has no intention of joining a second bail-out for “Greece, Portugal or anyone else”.

Nucleus announced a 113% rise in its first-quarter revenues, reaching £2.2 million of sales compared with the £1.04 million a year earlier.

Nucleus increased its assets under administration to £2.6 billion, up from £1.4 billion. Total flows were up 36% to £366 million, compared to £270 million in March 2010.

Plumping Up The NEST At last, some more detailed information about the investment objectives for the government’s new auto-enrolment pension scheme.

The Trustees have issued their first Statement of Investment Principles (SIP), which declares that the baseline funds, also known as the Retirement Date Funds, will aim to beat the Consumer Price Index by 3% a year after management costs.

These “growth phase funds”, NEST says, will be where the majority of NEST members will spend most of their savings careers.

Some investors, however, will be better suited by alternative plans at different times of their lives.

Older members will want to ensure that their money is invested in a way that takes account of their plans on when and how they intend to take their retirement benefits.

But the very youngest investors will also be anxious to contain their risks and will need to be protected from extreme investment shocks.

Accordingly, NEST is setting out the following alternatives to the Retirement Date Funds: ■

A Higher Risk Fund which will target higher returns.

■

A Lower Growth Fund, which will take very little investment risk but might not protect against inflation over the long term.

■

An Ethical Fund, which will share the Retirement Date Funds’ objectives, but which will invest in companies that meet widelyshared ethical criteria on matters such as the environment, tobacco, bio-engineering or the weapons industry. In order to manage risk successfully in what might otherwise be a volatile sector, the funds will also include ‘safe’ investments such as gilts.

■

A Shari’a Fund, which will only invest in companies that are compliant with Shari’a principles.

■

A Pre-Retirement Fund, which will enable some members to aim for a retirement income with their pot, rather than targeting a cash lump sum.

Is 3% growth above the CPI an achievable ideal?

Historically, yes: the annual Barclays Capital Equity Gilt Study suggests that shares have achieved real long-term returns of perhaps 5%.

But in practice it might be harder than it looks.

During the last ten years the FTSE-100 has achieved zero growth – which, if you add in the benefit of dividends and then subtract the cost of management, still looks to be in the 0% range.

For more comment and related articles visit...

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N E W S R E V I E W C O M M E N T A N A LY S I SN S News.indd 10

27/5/11 12:09:59

Meanwhile

at the Treasury, a crackdown on offshore trusts is causing waves. The Chartered Institute of Taxation said that the new rules were badly thought-out and remained so widely drafted that they risked creating new loopholes as well as catching innocent commercial transactions.

The Finance Bill on the Budget’s implementation is now under discussion.

NEWS

UBS

is now the sixth largest ETF provider in Europe, according to new research from Blackrock. The Swiss bank increased its ETF assets by 64.3% ($4.2 billion) during the the first four months of 2011 – substantially outstripping the average European asset growth.

Are Baby-Boomers Doomed?

One in Seven Baby-Boomers Expects to Die in Debt.

More grim news on the personal front. Although consumers are working hard to reduce their overall indebtedness, almost one in seven of the post-war “babyboomers” believes it will never shake off the burden of long-term debt acquired in the last twenty years, according to an industry survey. Aviva’s fifth Real Retirement Report (covering the first quarter of 2011) shows that many of Britain’s over-55s have little hope of clearing their debts before they eventually retire even though that will also be later than expected.

23% of those questioned said that they don’t expect to be debt-free until they are at least 75, and 15% say they expect never to repay it all.

Aviva says that 30% of over-55s have at least one form of unsecured debt that they are unable to clear currently – of which rolled-over credit card debt is the most prevalent, with another 13% holding personal loans and 10% overdrafts. The most sizeable debts are personal loans (where the average amount owed is £5,983), and credit card debts (which average £3,311).

21% of the over-55 sample are still making mortgage repayments, according to Aviva, and the average amount owed has risen £10,540 in the last 12 months from £54,567 (February 2010) to £65,107 (February 2011).

The most frequently cited reason for the rise in debt was the increased cost of living, with 29% of respondents saying that they’d borrowed to fund an essential purchase, and 18% saying that unemployment or inability to work was a contributing factor. Around one in five blamed family obligations, with 5% saying they had borrowed money to help their children financially, and 4% taking on debt to fund a major family event such as university fees or a wedding.

But 13% were more willing to blame themselves, saying they’d overspent on non-essential items such as holidays and 10% saying that poor money management was a cause. No change there, then.

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I SN S E W S R E V I E W C O M M E N T A N A LY S I S News.indd 11

27/5/11 12:10:18

N EPTU N E RUSSI A & GR E ATER RUSSI A F U N D

With over 15 years’ experience investing in Russia, we know it inside out.

Russia’s economy is undergoing continued growth.

Its middle class is becoming larger and wealthier by the day. Its vast natural resources are becoming more accessible. And its government investment programme means new industries are thriving.

Russian market is undervalued compared to its emerging market peers. So if you have clients who are looking for an investment with long-term growth potential, find out more about the Neptune Russia & Greater Russia Fund.

Having visited the region for nearly 30 years, and invested there for more than 15 years, our Fund Manager Robin Geffen has built up an extensive knowledge of the Russian market. His expertise and experience on the ground, combined with our global sector research, has helped the Neptune Russia & Greater Russia Fund return +288.1% since launch in 2004, outperforming its index by +105.8%.

% GROWTH

Despite this staggering growth, we still believe the

1 YEAR

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SINCE LAUNCH

NEPTUNE RUSSIA & GREATER RUSSIA FUND

13.1

16.2

78.0

288.1

MSCI RUSSIA LARGE CAP

21.4

-3.2

6.8

182.3

Performance data supplied by Lipper. A Accumulation share class performance as at 29.04.2011, in sterling with net income reinvested and no initial charges. The performance of other share classes may differ. Fund launch date: 31.12.2004.

This advertisement is for investment professionals only and should not be relied on by private investors.

Inv t in depth Inves

Call us on 0800 587 5051 or visit www.neptunefunds.com

Lines are open 9am – 5pm Monday to Friday. Calls may be recorded for monitoring and training purposes and for your protection.

Past performance is not a guide to future performance. The value of investment can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the amount originally invested. Investments in emerging markets are higher risk and potentially more volatile than those in more established markets. Issued by Neptune Investment Management Limited, 3 Shortlands, London, W6 8DA. Authorised and regulated by the Financial Services Authority (www.fsa.gov.uk), 25 The North Colonnade, Canary Wharf, London, E14 5HS. FSA registration number 416015.

RUT2

10NEP10763_Russia_297x210_RUT2.indd 1 Eds Soapbox.indd 12

27/05/2011 17:36 31/5/11 16:24:56

ED ’s soaPbox

1 17:36

TAX AND WE NEED IT NOW, PLEASE. MiCHaEL WiLSON BEATS HIS CHEST ONCE AGAIN. So the Chancellor has finally come good on his promise to simplify the British tax system. Well, sort of. This year’s Budget speech was long on a lot of things, and hot air was one of them. But Mr Osborne did say that he’d set the wheels in motion for a multi-year review of the system.

(Don’t hold your breath.) And that he’d accepted 43 of the obsolete allowances recommended for abolition by the Office for Tax Simplification. Things like tax breaks for the free coal distributed to miners, or the tax-efficient status of angostura bitters and black beer. But as for the other 999 allowances (honestly) that the OTS had studied – well, he was going to start another consultation...

First Blood to the House of Commons If Mr Osborne seemed to be silently crossing his fingers behind his back as he uttered these notvery-fateful words, it may be because he’d received a sharp rap across the knuckles, about a week beforehand, from the Commons Treasury Committee which had warned him, in effect, that the taxman’s powers are not limitless and that there’ll be trouble if he allows HMRC to act as though the opinion of the courts doesn’t matter. And although the Committee didn’t name and shame the most contentious aspect of this contentious

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Eds Soapbox.indd 13

business, it wwas pretty clear that it was talking, among many other things, about the increasingly tenuous distinction which the Treasury is making between tax evasion and tax avoidance.

Now, the “Principles of Tax Policy” document, released on 15th March, is a sprawling and often windy set of recommendations whose 86 subsections cover everything from writedowns on agricultural buildings to the rival attractions of overseas tax regimes and the very authority of the legal basis underlying UK tax decisions. But it makes it abundantly clear that neither consumers nor businesses can prosper in a tax environment where legal requirements are being constantly tinkered with. Every change risks engendering mistrust, apathy and a reluctance to take entrepreneurial risk, it says.

The TSC document is too comprehensive in its scope to discuss here. (We suggest instead that you download it from http:// tinyurl.com/69rtgrq ).

But I want to start by measuring its general drift against a tenet of English tax law that is older than most of us, and which had served us superbly well until fairly recently.

“Mr Osborne has been warned that he’ll be in serious trouble if he allows the taxman to ignore the opinion of the courts.”

June 2011

13 31/5/11 16:24:58

ED ’s soaPbox

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

The Sacred Right to Minimise Tax Burdens I am, of course, talking about the landmark court ruling handed down in 1936 in the case of Duke of Westminster v CIR 19 TC 490, which found that “every man is entitled to arrange his affairs so that the tax attaching under the appropriate act is less than it otherwise would be”.

Now that’s a long time ago, as even the TSC would admit. But those judicial words have formed the sacred basis of the profession’s thinking ever since. If a client acted within the laws of the time to reduce his taxes, then he was employing tax avoidance measures; if he broke those laws, then it was tax evasion and it might well be criminal.

It’s fair to say that this time-honoured principle first came properly under the cosh in 2006, when the then Chancellor Gordon Brown took retroactive action against many hundreds of thousands of people who had previously placed their houses into trusts so as to shelter them from inheritance tax. Home-owners who had placed such assets in trust, outside of a will, would face an immediate tax charge of 20%, Brown said, followed by a periodic tax charge of 6% every 10 years. Plus a final exit charge of up to 6% when the assets were eventually taken out of trust.

It would have been one thing if Mr Brown had slapped the taxes on all such trust transactions with forward effect; instead, however, he backdated the regulation all the way back to 1986, telling the existing trust holders that they had about 18 months in which to dismantle the trusts. Or else...

Note, please, that the Chancellor wasn’t making anything illegal here. There’s a difference between a fine and a tax charge - not that your cheque book would notice it.

But Brown’s declaration was completely overturning the previous assumption

“Every man is entitled to arrange his affairs so that the tax attaching under the appropriate act is less than it otherwise would be.”

14

June 2011

Eds Soapbox.indd 14

that financial arrangements that had been legally set up in the past would continue to be respected in the future. It seemed that the certainty of Duke of Westminster v CIR had been replaced by fudging, evasiveness and a tendency for the Treasury to say “I wish I’d said that”, and then go on to act as if it had.

Other examples of this new hard line followed quickly, and the pace is still quickening now. Among the hardest hit have been small business owners who have been penalised sporadically for trying to save taxes by incorporating their businesses, so that they could take their earnings as dividend payments instead of as salaries. We haven’t got room for all the details of that business here, and they aren’t strictly relevant to IFAs anyway; but if you Google for the story of a company called Arctic Systems you’ll find a sobering account of how bizarre a tax decision can become.

Accessories to the Crime I suspect that we’re going to be seeing a lot more of these policy reversals in the next few years. And I’d say that trust law is going to be right in the firing line. I had a particularly unhappy conversation at a recent party with a tax inspector who told me directly that, as far as she was concerned, trusts of all kinds were only for the criminally minded, and that those people who persisted in setting them up would only have themselves to blame for the unwelcome attention that they would undoubtedly attract. I beat a hasty retreat back to the canapé table, grateful that this was still a minority view. At least, I hope it is...

Because the fact is that there are (still) perfectly valid reasons for entering into trust arrangements. Parents and grandparents use bare trusts to manage their offspring’s finances until they reach the age of majority.

Expatriates and foreign nationals are often perfectly within their rights to run offshore trusts and bank accounts – and indeed, so can some UK nationals, providing that there is a genuine reason. But the welter of supplementary charges on non-UK taxpayers is mounting fast.

The big problem that nobody seems to be acknowledging is that, by cracking down

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31/5/11 16:24:58

ed ’ s s o a p b o x

on legal avoidance with these additional taxes, the Chancellor is treating diligent professional advisers as if they’d been accessories to some sort of backdated crime. That’s an unwarranted slur on a profession that surely deserves better.

The Foul-Ups Continue Meanwhile the pile-up of foul-ups is getting harder to ignore. The last Labour Government’s abolition of taper relief on most capital gains was a clumsy piece of work, because it penalised people who held capital assets for many decades while also rewarding fly-bynight speculators who aimed to buy, hold for just a couple of years and then move on. But Mr Osborne hasn’t done anything to soften the CGT blow either: indeed, by maintaining the differential rate of capital gains tax in the Budget (18% for basic rate taxpayers, 28% for everybody else), he has if anything sharpened the sense of injustice that some people feel.

But let’s return to one tax change that the Chancellor really does intend to make.

The amalgamation of National Insurance with Income Tax looks certain to happen in the next few years. NI is an obsolete tax because it doesn’t do what it says on the label anyway. It’s a long time since NI paid for social security – instead, it’s just another income tax. Combine the two, and you’ll save a fortune on collection costs.

Easy. Except that NI doesn’t apply to pensioners, so they’ll need to be charged a different rate of income tax from everybody else. And then there are the low-paid employees who currently escape NI but will suffer unless they also get special rules.

And the ones with two jobs. And so forth.

Whatever else this tax simplification does, it won’t make the tax code simpler.

Of course, there are still some loopholes (for want of a better word) that do work. The law still allows bed-and-spousing, whereby couples can transfer their assets to one another for a few days at the end of the tax year so as to optimise their use of their capital gains tax allowances. And the Potentially Exempt Transfer scheme is still a perfectly respectable way of reducing inheritance tax liability. (Although the allowable amounts haven’t been increased in absolute terms for decades, meaning effectively that they’re being eroded away to nothing.)

The Treasury Committee doesn’t duck the fact that some of the Government’s U-turns on tax are necessary. The quickening pace of change, and the globalisation of the investment scene, are creating scope for arbitrage that the 1936 court could never have imagined, and the tempting availability of foreign bank accounts (and pseudo-banking nominee accounts) would certainly have dismayed that judge.

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Eds Soapbox.indd 15

“By cracking down on legal avoidance the Chancellor is treating advisers as if they’d been accessories to some sort of backdated crime.”

So okay, the rules do need to shift. The question is, how can they be amended without damaging fundamental parts of what we take to be our traditional legal rights? And can it be achieved without making good businesses simply give up and emigrate?

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!

June 2011

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

they think

The banks may have finally knocked over their king, but IFAs won’t be unaffected either, warns grandmaster Nick Sudbury It was a good night for the television newscasters, and better one for many thousands of borrowers, and a thoroughly forgettable one for the banks. But most of all, it was a thoroughly excellent night for FSA chief executive Hector Sants, who could finally afford to crack open the bubbly after a long, bitter and hardfought battle which had finally worn down the City’s most obstinately inventive brains - the banks.

Yes, the 9th May was the day when the British Bankers’ Association finally threw in the towel and abandoned its six-year battle against the regulators over payment protection insurance (PPI). In so doing, it was publicly opening up its members to maybe £9 billion of backdated claims from consumers

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infuriated by the suspicion that they may have been mis-sold policies in the past.

It’s a long and tortuous story, involving not just the FSA but also the Office of Fair Trading, the Competition Commission and many, many other bodies. Suffice it to say that over the last half-decade successive rulings on PPI mis-selling have been passed, appealed, ignored, appealed again and overridden, over and over and over again. But last month’s climbdown marked the final retreat, as the banks decided not to press a further appeal after losing a legal challenge to new rules that were imposed in April by Hector Sants’s FSA. So now the banks are being required to go back over all their past sales, to identify whether their customers might have a valid claim for mis-selling. That’s bad enough for them, but it’s also not so great for those IFAs who’ve been generating modest but significant income out of PPI sales during these last ten years or so. If they’ve sold PPI alongside loans and mortgages of any sort, they’ll

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1/6/11 08:56:07

be required to check that they didn’t fall into the same practices as the banks. Like everyone else in this position, they’ll come under close scrutiny from the regulators - and they might even end up facing hefty compensation bills of their own.

Of course, not every IFA was into PPI. Far from it. But the requirement to back-check is going to place an enormous administrative burden on many of them. And even firms that had no involvement with PPI policies at all might still have to dip into their pockets in other ways.

Advisers are having to pay higher levies to fund the extra cost of the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS), whose fees have just gone up 50%. That’s bad enough for a start.

Sants and sensibility That’s not all, however. Having won the battle over PPI, Mr Sants says his next ambition is to widen out the scope of the investigation into insurance mis-selling in general. Sants is now widely tipped to head up the the new Prudential Regulatory Authority, which is due to go before Parliament in June and which is set to turn the spotlight more intensively on insurers, bankers and anyone else who might need bringing into

P P I M I S -S E L L I N G

it’s All Over! line – not just on matters of conduct but of general openness. That won’t sound good at all to Lloyds, Barclays and RBS, who have all come under fire for consistently fudging and fending off demands for clarity on their PPI records. And Sants also says he supports Europe-wide intervention to stop the PPI scandal happening anywhere else.

An accident waiting to happen PPIs were of course originally sold alongside unsecured loans, mortgages, credit cards and other products. The insurance was intended to cover the monthly repayments if the borrower became too ill to work, had an accident or lost their job. The snag, however, was that the lucrative commissions on these policies encouraged many of the banks and other loan advisers to push them to all and sundry.

In some cases, the premiums were packaged in with the loans so that people weren’t even aware that they were taking out the cover at all.

Some applicants, meanwhile, were flatly told that the insurance was a condition of getting the loan. And there have been many instances of sales to the self-employed, or those with pre-existing health conditions, who wouldn’t have been able to claim on them anyway.

Picture: Justin Sutcliffe

watch out for the replay. sants is tipped to lead the new PrA. Hector Sants (right) is widely tipped to head up the the new Prudential Regulatory Authority, which is set to turn the spotlight more intensively on insurers, bankers and anyone else who might need bringing into line.

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P P I M I S -S E L L I N G

It’s estimated that 16 million of these policies have been taken out since 2005, although nobody is quite sure how many were mis-sold or how many complainants will now come forward for compensation. What’s also interesting is that what the consumers’ association Which? has called an “industrial scale” of mis-selling was actually largely consistent with the FSA’s detailed guidance at the time.

It was just that the letter of the law didn’t alter their overriding obligation to pay due regard to the interests of customers and to treat them fairly. That’s where it all came unstuck.

The largest seller of PPI was the Lloyds Banking Group, which has already made a jaw-dropping £3.2bn provision for possible claims.

Barclays has set aside £1bn, with RBS estimating its own liabilities at £850m and HSBC a much more modest £269m. There are also many smaller firms that will be affected. The one thing they all agree on is that there is considerable uncertainty over what the final bill will be

Hit them where it hurts It would be wrong to give Mr Sants all the credit for the FSA’s victory, because he’s only been in the job for the last four years. And anyway, he isn’t particularly given to speaking directly on the PPI issue, preferring modestly to stick to broader issues of governance.

But it was his personal drive that led to the creation of the new FSA rules that were upheld by the High Court in April 2011, and which finally opened the floodgates to a potential tide of compensation.

Refunding billions of pounds to thousands of different claimants is a huge undertaking. The regulator will be keeping a close eye on proceedings and has a team of supervisors working with each major institution and a separate group looking at the PPI problem as a whole. And yes, IFAs will have to do their share of checking up as well. And writing to their clients if there’s a chance of anything wrong.

“it’s become uneconomic to continue to offer these products in their current form.”

Some providers realised long ago that the game was finally up. Lloyds, the market leader, stopped pushing PPI sales to new customers last July

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P P I M I S -S E L L I N G

magazine... for today ’s discerning financial and investment professional Not all customers will be contacted directly, of course, because not all policies were mis-sold. But the advice to clients who might be concerned is to take the initiative and make a complaint to the firm that sold them the cover.

If they are unsure what to do, they are being encouraged to contact the FOS. That’s about as close to an incitement as you’re likely to get...

The Writing was on the Wall As you’d expect, the Competition Commission hasn’t left it there.

From 6th April 6th next year, selling the PPI at the point of sale will be banned altogether.

And from 1st October, advisers will be required to provide full details of the cover along with a clear declaration that the insurance is an optional extra.

In practice, however, few advisers will want to risk a sale from now on unless it’s been specifically requested by the client.

As for the banks, the ruling will have a huge effect. Because they’ll no longer be able to package these policies in with the loans in the usual way, but must wait instead for a fixed period of 7 days or more before making their pitch, they’ll be missing the heat of the moment - and in most cases they’ll lose the sale.

Growing regulatory burden As we’ve said, the PPI investigation since 2005 has involved, at various times, the Office of Fair Trading, the FSA, the Competition Commission and innumerable high courts. The pity of it is that it’s all taken so long to sort out. Because, inevitably, the lengthy delay has simply added to the cost.

In its 2009/10 Annual Report and Accounts published last July, the FSCS announced that it had paid out more than £12m in compensation in respect of general insurance intermediation - most of these payments relating to PPI. The body said at the time that PPI claims had already soared to more than 2,400, and that they expected the number to continue to grow in 2010/11. They weren’t wrong...

the fOs dealt with more than 100,000 claims in 2010, with three out of every four being upheld.

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£

Some providers realised long ago that the game was finally up. Lloyds, the market leader, stopped pushing PPI sales to new customers last July, because, as it said, further changes in regulation “will make it uneconomic to continue to offer these products in their current form.”

The FOS alone says that its workload has risen from fewer than a thousand cases in 2005 to more than 100,000 in 2010, with three out of every four claims being upheld. The ombudsman says that PPI cases represented more than half of its total caseload. The the FSA has appointed three more non-executive directors to the strategic board of the FOS, simply to help deal with all the extra claims and further possible investment company failures.

And yes, In April the FOS shocked the IFA community by announcing a £25m levy to help cover the cost of dealing with the deluge of PPI claims. All firms authorised or registered by the FSA were affected including those which have not had any cases referred to the ombudsman service. That’s bad. And although the ombudsman has confirmed that any of the reserve that isn’t needed it will be used to reduce calls on the industry next year, nobody seems to be reckoning on lower FOS fees for advisers just yet. Hooray. Just what we need.

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26/5/11 13:52:07 1/6/11 08:56:18

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

AN IDEAL O P FOR RENOV A Is the Mortgage Market Review (MMR) the answer? Well, for those of an argumentative persuasion, the reply could probably be: “It depends what the question is.” So let’s start with some possible questions...

■ Number one: “What should we do about a mortgage market which helped to contribute to the global financial crisis?”

■ Number two: “How can we prevent an even worse financial crisis in the future, if interest rates should rise and borrowers lose their jobs?”

■ Number three: “The UK mortgage market is fine, but deposit levels demanded are too high and lenders’ restrictions are too severe.

What should be done?”

The first question presumes that the UK mortgage market did indeed play a significant part in the financial crisis.

And, looking at the failure of Northern Rock and the government bail-outs of Lloyds and RBS, that seems true. But lenders have already tightened their lending criteria to such an extent that the terms of the new MMR proposed by the Financial Services Authority (FSA) seem too little and

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too late. The stable door is now firmly shut, but the horse is in the next county.

Question number two supposes that, yes, the banks have indeed tightened their conditions, as they always do after a crisis. But that that situation only lasts for a couple of years (especially under low interest rate conditions where their margins are limited anyway), and that as soon as the economy starts to motor again, it’ll be back to business as normal

with 110 per cent mortgages for youths with no education, no job and a propensity for telling great big fibs.

In which case the FSA’s proposed new regulations would help to achieve a ‘sustainable’ (that word again!) market ‘that works well for consumers’, as the Authority’s Director of Conduct Policy Division Sheila Nicholl puts it Question three?

Patience. All in good time!

www.IFAmagazine.com

27/5/11 12:44:44

MORTGAGE REVIEW

O PPORTUNITY V ATION THE MORTGAGE FAMINE BRINGS OUT THE MILITANT IN DAVID NICHOLSON

Reinforcing the Economic Divide Well, speaking as a consumer I can tell Ms Nicholl that the market is not working well for me. As a self-employed person, I’m finding it harder and harder to get the mortgage I want.

And it took my wife an entire year to sell her own property, because four prospective buyers pulled out for lack of mortgage finance - whereas a couple of years ago there wouldn’t have been any problem.

Ah yes, Ms Nicholl would say, but we have to be wary of rising interest rates in the future. “Even a modest rise in interest rates could lead to a significant increase in the number of families suffering financial distress and could increase the risk of more families losing their homes.”

Accordingly, the FSA wants to set out a series of

‘responsible lending criteria’, which means looking not only at a borrower’s income and expenditure, but how this might change over time in the light of interest rate rises, periods of unemployment or reduced income, and how the borrower will meet their repayments if the term goes past their retirement age.

And interest-only mortgages should be limited (although not abolished completely).

All of which, says the Council of Mortgage Lenders (CML) would “result in some larger lenders not wishing to consider applications from borrowers with complex incomes.”

Complex? What kind of a euphemism is that?

Surely what it means is that borrowing opportunities will become focused on wealthier individuals, to the detriment of others who also need homes?

The CML, it says, “strongly believes that the approach in the MMR’s responsible lending proposals is likely to negatively impact on a broad range of creditworthy borrowers. [It will] have significant impacts for all housing tenures, and it is now a political as well as a regulatory issue.”

Political? Well, it’s certainly political that the asking rents for property in major UK cities have risen sharply since the coalition took office - possibly fuelled by the lack of mortgage finance for poorer borrowers. And Prime Minister David Cameron’s announcement that housing benefit would be capped has effectively cleared away poorer occupants from large areas of high-value property – thus pushing up rents elsewhere. That’s political all right.

“We are very conscious of the need not to make things worse for those who want to remortgage or get on the housing ladder.”

Sheila Nicoll, FSA director of conduct policy, speaking at the Building Societies Association conference in May.

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MORTGAGE REVIEWS

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

Why the Lenders aren’t Happy But we should stress that lenders are not, by and large, political animals themselves.

You wouldn’t find them arguing against ‘responsible lending criteria’ on the grounds that it’s disproportionately damaging to lower-income borrowers.

Instead, their beef is with the administrative complexity, the financial cost and – most of all – the higher risk burden that their members will have to carry from now on.

“In the MMR,” states the CML, “the FSA’s judgements on detriment are based on a view that consumers in the mortgage market have not generally acted rationally or in their best interests, and that regulatory controls are necessary to ensure that irrational consumers are protected from themselves by placing additional requirements on lenders.”

That view seems to imply that lenders should accept responsibility when things go awry, rather than the borrowers themselves. And what the CML is saying in response is: ‘If we have to take all the risk and responsibility, then we’ll only lend to the wealthy, who have stacks of equity and collateral’.

And the government will say: ‘Okay, that suits us just fine’.

Let’s put some numbers on this. The CML looked at the proposed new regulations at the end of 2010 and concluded

that, if the MMR proposals had been in place between 2005 and 2009, 51% of mortgage transactions would not have been granted. Then they looked at the current borrowers and what the proposals could mean for them. They found that only 5% of borrowers are struggling to make mortgage payments and most of these unfortunates had suffered unemployment or a reduction in income. Whereas, according to a further recent report by Policis, fully 19% of current borrowers would fail the new affordability test while an additional 30% would only be able to afford reduced mortgages.

Praise from an Unexpected Quarter Clearly, if the combined mortgage lenders of the United Kingdom can only lend half as much as they have been used to lending, it will have a major impact on all kinds of things. The lenders and the intermediaries, for one thing, will see a severe reduction in headcount. The property market will slow to a snail’s pace and with it, the consumer economy, which for much of the past 20 years has been fuelled by mortgage debt.

Some would say that this is purely common sense - and about time too. The charity Shelter recently looked at the FSA recommendations and burst into spontaneous applause.

“Reckless lending over the last few years...helped fuel the rise in arrears and repossessions, not to

“Reckless lending helped fuel the rise in repossessions. Yet the banking industry still refuses to support the FSA’s proposals.”

Shelter’s chief executive Campbell Robb.

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mention an unsustainable house price bubble,” says Shelter’s chief executive Campbell Robb.

Shelter estimates that 17,000 repossessions could have been avoided if the MMR proposals had been in force between 2005 and 2010, “as borrowers would not have been able to access loans they could not afford.”

Nanny Knows Best All well and good. But it seems odd that a Conservative Party which spent its opposition years constantly complaining about ‘red tape’ and the ‘nanny state’ should now be allowing Sheila Nicholls to claim that her organisation is there ‘to protect consumers from taking on mortgages that they cannot afford’? And what could be more red tape-ish than the swathes of bureaucracy that lenders will now have to complete before they can offer a mortgage?

Question Three So finally we come to the last of our original questions, which poses the scenario of a system which doesn’t need fixing, but could do with some lubrication to get it rolling along nicely again.

The irony here is that, with the government repeatedly saying that ‘banks must lend more’ and ‘let market forces decide’, surely applying a whole new layer of complexity and restriction onto mortgage lenders is going in the opposite direction?

It makes no sense. Unless the government is happy to admit that the MMR is not so much the answer to a question, but rather an opportunity to enrich its own traditional supporters at the expense of the wider public. Coming on top of public service cutbacks in poorer areas, reductions of the National Health Service and the general axing of other planks of social welfare, it looks politically rather blatant.

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26/05/2011 12:12 27/5/11 12:44:55

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

after the great wave The earthquake and tsunami have left more long-term damage than many investors think, says Monica Woodley Another month, another assessment of the fall-out from a series of earth-shaking events. Last month it was demonstrations across the Middle East, which led to governments in Tunisia and Egypt falling like dominoes and leaving others like Libya wobbling severely. This month we look at the effect of more literally groundbreaking events - the Japanese earthquake and tsunami.

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27/5/11 12:55:35

When the exchange reopened the following week, Japanese equities experienced their biggest two-day fall since the 1987 crash, dropping 16%.

The magnitude 9.0 earthquake that rocked Japan on Friday March 11 hit just before the market close in Tokyo, leaving traders little time to assess the impact. The Nikkei closed down just 1.7% on the day – but it plummeted by 16% when the exchange reopened the following week, as the scale of the disaster become clearer. That was the biggest two-day fall since the 1987 crash.

It was the same story from the equity markets, which initially reacted calmly to the quake, but which turned predictably panicky as the situation at the Fukushima nuclear power plant turned serious. In the first three days of the week following the disaster, the VIX volatility index spiked at 46.6% and, the FTSE Asia Pacific index saw its worst one-day collapse for 29 months.

Mid-term effects So where are we now? Well, the Nikkei has recovered slightly but it has still lost more than 8% since the disaster, compared with gains of about 5% in other parts of Asia.

JAPAN COMMENT

The earthquake that rocked Japan hit just before the market close in Tokyo.

the cost of the damage. Lloyd’s of London has said the disaster will cost it $1.95bn (£1.2bn) in claims, making it the fourth most expensive natural catastrophe in its history. Construction and related sectors have risen on the assumption they will benefit from reconstruction efforts.

Beyond these predictable movements, it is the manufacturers who are the most likely to feel the impact long term. Foreign manufacturing companies with significant dependence on Japanese plants have been hit not just by damage to their own plants but also to the country’s infrastructure –most notably electricity. Japan’s enduring importance to the world economy as a major supplier of key parts to the automotive, consumer electronic and data processing industries has meant that supply chains for companies like General Motors, Nokia, Texas Instruments or Toyota have all been hit.

Yet other companies have benefited from Japan’s woes. For example, South Korean carmaker Hyundai Motor said its net profit rose by 46.5% in the first quarter year-on-year earlier.

Some food exporters also did well, benefiting from a shortage of seafood in Japan caused by damage to the national fishing fleet and radiation leaks

Longer-term economic effects It says something for the global economic recovery that it has generally been able to absorb the shock of even a disaster on this scale in the world’s third largest economy. But the impact is still worse than initially expected.

At first, it seemed that the disaster would have a limited effect on Japan’s, because the three worst-hit prefectures accounted for just 4% of Japanese GDP. Japan’s government initially estimated that the disaster would cost less than the Kobe earthquake of 1995, and the IMF also said that it believed Japan’s economy was strong enough to afford that cost, because if the high levels of domestic savings.

Accordingly, the Economist Intelligence Unit revised its 2011 GDP prediction down just slightly, from a pre-quake 1.6% to 1.4%.

But there are still some clear winners and losers from the Japanese quake. Insurers have certainly suffered as Japan attempts to quantify

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japan COMMENT

magazine... for today ’s discerning financial and investment professional But estimates of the cost of the damage have since been revised upwards to $300bn, and more recent economic data has shown that industrial activity and exports have decreased significantly. Industrial production fell by 15.3% month-on-month from February to March, according to the industry ministry. But the real shock came in mid-May, when firstquarter GDP figures showed an unexpected 0.9% annual fall – the point being that the earthquake had only affected the last three weeks of that period. The EIU has now revised its 2011 GDP prediction downward to just 1%.

The continuing bad news has put a damper on business sentiment, according to the Bank of Japan’s latest quarterly Tankan survey, which has now been re-released with contrasting responses from before and after the quake. Responses given

before the quake had shown that manufacturers were still optimistic about economic growth; however, those given afterwards showed a sharp deterioration in sentiment. Household confidence also fell heavily - adding to businesses’ fears that consumers would cutback on spending.

Even those polls are now considered too optimistic, as the extent of damage to the manufacturing sector and power grid has become more evident, and electricity rationing is now on the cards. (The government has called for a voluntary 15% cut in general power consumption, but that might not be enough.)

Yet it is not all gloom and doom. Most natural disasters actually have a positive effect on GDP growth in the long-term, as the impact of reconstruction efforts offset early drops in output.

For this reason, the EIU initially revised its 2012 GDP estimate upwards to 1.5% from 1.4%, and has in recent weeks raised it again to 2.1%.

What about the debt?

The reconstruction costs have put the spotlight on the country’s public debt situation – at over 200% of GDP it is already the highest in the developed world. Japan is not Greece, it is not in danger of defaulting (mainly

The sense of unity seen shortly after the disaster has disintegrated.

Japan’s prime minister Naoto Kan (right) is seeing open revolt from within his ruling Democratic party, calls to resign from his opponents and public opinion damning his leadership qualities since the tragedy struck.

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The hope is that the disaster not only helps kick start economic growth but also focuses the Japanese government on its fiscal situation, forcing it into decisive action. The government must look to fiscal consolidation including tax increases to tackle it debt. While a default may seem very far in the future, the government needs to at least begin to act now, especially as the cost of reconstruction is likely to add to its The worry is that the window of opportunity may be closing. The political consensus and sense of unity seen shortly after the natural disaster has disintegrated, with prime minister Naoto Kan seeing increasingly open revolt from within his ruling Democratic Party, as well as calls to resign from his opponents. The public also has been less than impressed with his handling of the disaster. The Kyodo news agency recently published an opinion poll finding that only 1.3% thought Mr Kan was exercising sufficient leadership, 46% thought he was “not exercising much leadership” and 30%

that he did “not exercise leadership at all”.

The Diet has passed one supplementary budget to fund $50bn for disaster recovery and the provision of temporary housing. But this is just a down-payment on the reconstruction costs estimated as at least $300bn, and a second supplementary budget is in the works. To pay for the first budget, the government did not issue any new debt and instead will divert funds from initial outlays for fiscal 2011. A‘reconstruction tax’ has been mooted to pay for part of the cost but additional government debt issuance is inevitable, as has been indicated by prime minister Kan.

JAPAN COMMENT

because 95% of Japanese government bonds are held domestically) but Standard & Poor’s did downgrade its long-term debt rating even before the quake, in January. Standard & Poor’s then downgraded Japan again about six weeks after the quake, from “stable” to “negative”.

Despite its likelihood of adding to Japan’s debt, ironically, the disaster may have actually postponed a debt crisis. There has been a post-quake building up of savings by both households and corporates, which, until spent on reconstruction, stays in the banking system and therefore most likely in government bonds. But a postponement is not a solution. Japan’s government may have a lot on its plate right now, but it still cannot afford to ignore its precarious debt situation.

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

DON’T JUST DISAPPE A WITH THOUSANDS PLANNING TO LEAVE THE INDUSTRY, THE SQUEEZE IS ON FOR LOYAL IFAS. BUT DON’T PANIC. PAUL CLUTTON TELLS US THERE’S LIFE AFTER A CORPORATE CAREER. WHY, YOU MIGHT EVEN PREFER IT.

Yes, a lot of us are worried about our jobs these days.

Whether it’s the rigours of the RDR process or the simple harder economics of life under the fee-based system, more and more of us are having to face the possibility that life might be about to change rather radically. For some IFAs, it’ll

be a thankful farewell to an industry that’s been good to us. For others, however, it’s the dreaded P45 - with all that that entails. So who’s next? Might it be you or me?

Either way, psychologists’ chairs and outplacement specialists’ offices are currently filled to bursting with people who are having difficulty coping.

And no wonder. With longestablished financial institutions in turmoil, and with so much enforced regulatory change and legislative pressures challenging all the traditional business models, we rightly start to question the very fabric of our lives. What was once seen as a constant is now a variable. And no, that’s not an exaggeration.

It’s Life, Jim, But Not as We Know It Well, yes, on the one hand we all know that change is good, evolution is necessary, and those who embrace it will be the winners. After all, no prizes were awarded to King Canute for foresight and an open mind. But look, you’ve given the best years of your life to an organisation that never failed to provide a salary cheque at the end of the month, a new car every three years, and free access to photocopiers and printer in a large and air conditioned office.

You have become used to your name sitting proudly alongside that of a large corporation on your business card. All of this has provided your identity. An easy answer to polite questions about what you do.

“Surely, it can’t happen to me?” That’s the cry we’re hearing across the land.

But it can. With a predicted 3 million unemployed by the end of 2011, and with one in four people fearing they are at risk of redundancy, it’s all very real.

Redundancy challenges everything that seemed a constant. Now there is no “what I do”. Instead it’s “what I used to do”.

With the corporate expense account becoming a distant memory, the once perfectly sensible mortgage appears colossal. Paying school fees and maintaining social club membership subscriptions are now keeping you awake at night, as that redundancy cheque fast disappears.

No wonder 6,600 financial problems are handled by Citizens Advice staff daily.

Without the many watercooler exchanges with colleagues keen to share common woes, perspective becomes blurred.

Some people can really go off the rails. Disillusioned with a fallen social status, they’re also fighting the fact that, only 20 years ago, they were bright, fresh-eyed young things straight out of university full of ideals clutching a newly awarded degree.

Where did it all go wrong, they ask? Where have all those years gone? And are CEOs getting younger?

Paul Clutton is a qualified Management Accountant and Director of Professional Recruitment Ltd; specialists in middle/senior management financial services appointments. www.professionalrecruitment.co.uk He is also a Director of TOMORROW, a business realising value for retiring IFAs or those looking to leave the industry www.ifafum.com

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THE HUMAN RESOURCE

E AR INTO THE SUNSET Well, the reality is you have just put your head above the parapet and swallowed a large dose of reality. But don’t lose hope.

Believe in Yourself Corporate life doesn’t last for ever. but there is something better afterwards. You have to believe that - and have confidence in yourself.

If you’ve been made redundant, completed your gardening leave – a euphemism for “watching the world go by while annoying your wife and doing no gardening” – now is the time to pick up the pieces, re-build your life and find a new direction.

That’s positive and exciting – isn’t it?

Evaluate whether you really want to return to the corporate ladder. Or have you actually been handed a golden opportunity to do something else with your life?

You can do this - after all, if you were a valued senior executive for so many years you can’t be totally useless.

Think of all the accumulated experience, knowledge and generic skills under your belt. All those corporate training courses you attended. All those glittering career highlights that you had good reason to be proud of...

compliance are daily headlines, that’s precisely the time to set out your stall. The downturn won’t last forever, and there will be a recovery. When that recovery comes you can be ahead of the curve, with your business model well defined, launched and ready to take full advantage of the spoils.

Very soon wearing a different hat, free of corporate bureaucracy, management meetings and all that stuff you’ll look back and wish you’d made the break years ago.

That positive shot in the arm will benefit all aspects of your life, not just the time spent in the office.

So to quote a phrase from a Latin poem by Horace; Carpe diem, quam minimum credula postero – “Seize the Day, putting as little trust as possible in the future”. That fellow seemed to know what he was talking about.

Good luck!

LIFE AFTER THE CHOP A SURVIVAL GUIDE: ■ Don’t panic – work out what to say when people ask what you do. Be proud.

■ Don’t mention what you used to do – that’s in the past now.

■ Plan your finances – try and live on cash. Make sure you have at least three months’ living costs to hand.

■ Get financial advice – seek the advice of an accountant, and don’t forget to tell the taxman of your changed status.

■ Be pragmatic – work out what you want to do and stick to your strategy.

■ Build up your network – attend business social events.

■ Take care of yourself – make sure you don’t allow yourself into a cycle of physical decline.

■ Be proactive – if you don’t know what to do next, be proactive in finding out what you want to do.

Look back at the most positive aspects of your life, listing which jobs you liked the most - and why.

■ Take heart – one fifth of UK business entrepreneurs began their enterprises after redundancy.

The past was prologue; the present is panic and the future... an opportunity.

Whilst these may be straightened times, where cuts and increasing legislative

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June 2011

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N E W S R E V I E W C O M M E N T A N A LY S I S Steve Bee.indd 34

27/5/11 13:11:15

THE BEE LINE

A VAST TRANSFORMATION STEVE BEE IS IMPRESSED BY THE SPEED OF THE CHANGE IN PENSION PROVISION. LONG MAY IT CONTINUE. I was reading through some new stats from the Office for National Statistics (the ONS) recently and I came across a piece of information that literally jumped off the screen at me. It was an update to the section on pension scheme funding and investment and included new data from 2009, the latest year for which complete records are now available.

The fact that hit me right between the eyes was that the value of assets held in UK funded pensions was £1,924 billion in 2009. That, by the way, equates to 138% of GDP, and it really is a big pile of money. It’s nearly two trillion pounds in fact. To put that in perspective, two trillion seconds ago it was about 62,000 B.C. That was really a long time ago, almost 60,000 years before the oldest pyramids were built in Egypt; long, long before what we call human history ever started. If you had a one-pound coin for every second that has ticked by since then (yes, you heard right – every second!) you’d have two trillion pound coins. Two trillion pounds is a lot of money, and it’s great news that we’ve managed to put almost that much aside in our pension pots in just this one relatively small country. Employers and employees in the UK have done a great job.

But it wasn’t just the fact that we have almost two trillion pounds in our funded pensions in the UK that surprised me. The most staggering new piece of information that the ONS update contains is that £1,054 billion of the total (about 55% of it) is in defined benefit schemes. That, of course, indicates that the other 45% is in defined contribution schemes - and it’s that fact that completely gob-smacked me, if I’m being honest.

Thirty years ago, and even twenty years ago, the vast majority of the funded pension

IS

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assets in the UK were backing defined benefit schemes. Defined contribution schemes didn’t have much money in them back then. But quietly in the background it appears that something of a revolution has been happening in the UK pensions world; bit by bit the steady decline of defined benefit schemes has been matched by a steady increase in defined contribution schemes.

So much so that we are probably already at the point in 2011 when the amount held in defined contribution schemes may for the first time exceed the amount held in defined benefit schemes – we will find out in a couple of years when the 2011 figures finally become available. When that point is reached it will be a historic event, I think - and it would be good if it could happen before defined contribution schemes are given a massive boost by the auto-enrolment laws starting in 2012.

The future of UK pensions is clearly going to be a defined contribution rather than defined benefit one. That will have a profound effect both on the nature of schemes, and on the investments that back them...

Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the co-founder of www.jargonfree pensions.co.uk

June 2011

35 27/5/11 13:11:17

What exactly is it about flying Upper Class?

Is it the complimentary limo service that takes you from door to door? Is it the business class seat that transforms itself into one of the longest fully flat beds in the sky to give you a proper night’s sleep? Maybe it’s being able to mingle and unwind at our onboard bar. Or is it simply that you get all of this for a business class fare? It may be impossible to pin ‘it’ down, but we certainly think you’ll know it when you see it. Discover more at virginatlantic.com/experience Your airline’s either got it or it hasn’t.

It. You can’t bottle it.

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But weirdly, you can fly it.

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Investec Portrait.indd 36

1/6/11 09:02:59

C O M PA N Y P O R T R A I T

INVESTEC STRUCTURED PRODUCTS THERE’S MORE TO BEST ADVICE THAN MERE REGULATION, SAYS MICHAEL WILSON. IT TAKES INNOVATIVE PRODUCT DESIGN TOO. Maybe it isn’t such a coincidence that structured products are among the most innovative, fastgrowing investment products on the market, but also the most widely misunderstood? The sector has been under a very public cloud for much of this year, as the FSA has stepped up its campaign against providers who don’t tell it like it is to their clients. In one sense, the recent series of record fines against Barclays and the like, for misrepresenting the downsides of a supposedly ‘safe’ structured investments, is a reflection of a regulatory failure as much as it is of irresponsible practitioners. But it doesn’t alter the fact that investors aren’t hearing enough good things about structured products – only the bad news, which makes for better headlines.

And that’s a pity, because the structured products industry is working hard to deliver a safe and sensibly-judged solution whose benefits and safeguards are actually much more substantial than the common perception.

Investec Structured Products has only been in the business since 2007 - with its first products going on sale in early 2008 - but its campaign for more clarity and a more predictable range of outcomes has already scooped it six structured product awards from four different industry bodies. But clarity is only part of the task, it says. It’s also been about rethinking the product range so as to give IFAs a clearer image of the divergences between various investment categories – most notably, the crucial differences between structured deposits and structured investments. Only then, says Gary Dale, Head of Intermediary Sales, will they be in a position to guide their clients to product portfolioss that precisely match their needs and their risk profiles.

A Booming Market But first, let’s put some numbers on the industry.

Demand for structured products is certainly on the upand-up, with sales broadly trebling from £7.2bn in 2007 to £12.2bn in 2010 and a projected £20bn in 2011. But,

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although assets under management now total more than £52bn, that’s really just a drop in the ocean compared with UK unit trusts and OEICs, which account for £555 bn of assets under management. Or even with the £94bn in investment trusts. Investors are still wary.

Investec says it aims to reach three separate types of user with its structured products – the wealth managers, the UK life companies, and most importantly the retail investors who it reaches through either IFAs or other intermediaries. Some of these products are “white-label” packages designed for offshore life assurance companies – but ultimately, it says, it’s always the IFA which is the primary link to the end-user.

Investec’s search for predictability is reflected in the distinctive way that its products are released. Rather than issuing funds at irregular intervals, the company supplies an almost continuous series of offerings to IFAs, each of which will be typically open for a period of six to eight weeks before another one follows, normally within days. What this means, says Dale, is that IFAs don’t need to feel under pressure to catch any particular bus, because they know there’ll be another one right along behind it. The current offering is the 25th in the series.

Investec’s range of products has developed over the last three years from just one set of products to a two-track design consisting of structured deposits and structured investments. By continually adjusting the balance between these two classes of products, ISP says, it’s able to fine-tune the performance to the

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

“It’s essential to strike the right balance between structured deposits and structured investments.”

Gary Dale, Head of Intermediary Sales at Investec Structured Products investment situation of the moment.

And the pay-off profiles are further tweaked to achieve the maximum consistency. “We don’t believe in multi-index pay-offs, or in changing the risk profiles of our plans to artificially inflate any given profile,” Dale insists. “It’s all about simplicity. We think that sort of distortion was where some of the early bad publicity for structured products originated”.

Simple Structures Technically, there isn’t anything particularly nonstandard about ISP’s funds. As with most other structured products, perhaps 75% of the invested cash goes into bank CDs or other utterly-safe deposits, and the remainder is sent back to the specialist desk to be invested in a balanced set of derivative contracts whose contingent outcomes will reflect a very specific movement in the underlying market whatever it happens to be. The overall effect is that the performance of the whole product should always replicate the overall outcome of the index in question.

Isn’t it rather a misnomer to call some of these products passive investments, given that they spend their whole time juggling derivatives contracts? Dale laughs. “There’s a lot of hype that gets talked about this, but it’s actually a lot less active than it sounds. After each issue goes out, and after the two-week cooling-off period is over, we simply ‘strike’ the product – that’s to say, we buy the assets, and that’s it. The contracts are then held and managed by the derivatives desk. And what the client has bought is a contract with the bank, which says that upon maturity – maybe between three and six years - the bank will return the principal plus a variable rate based on factors X, Y or Z.”

which are riskier by nature and which are better served by structured investments.

Structured investments can be designed with varying levels of capital protection – full, ‘soft’ or (more unusually) products that are completely without protection but which offer significantly better gearing on the upside. For instance, Investec’s (unprotected) Accelerated Growth Plan doesn’t shield the client from any downturns, but it comes with a proviso that, upon maturity, it will double the upside. Which would make products like these an attractive alternative to a typical tracker.

The IFA’s task is always to tailor the structured product to the client’s own safety requirements, and also to his own expectations.

A cautious investor might request ‘soft’ protection against downturns, whereas a more confident investor – perhaps with a longer investing career in view – would be happy to cope with less protection for the chance of higher returns. Viewed like this, you see that structured investments are not designed to outperform, but rather to provide definition on the upside and the downside, to be shaped by the client in collaboration with his IFA. But Dale is forthright about why the industry needs to take the FSA’s recent criticisms seriously. “The current cloud over the structured products industry will not blow over quickly,” he says. “And most of it dates from the 2007 Lehmans debacle in the US. But the difference between the Fed and the FSA is that the UK regulator has taken a much keener interest not just in the products themselves, but in how they’re marketed and distributed, with special regard to due diligence.”

(And that, we might add, is the main drift of RDR.) “I don’t agree with everything that’s come out of the FSA,” he says. “But there’s a lot of common sense in those decisions, and they’ve made the right start.”

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Matching the Product to the Client So where do structured products really belong in a private investor’s portfolio? Well, says Dale, it’s essential to strike the right balance between structured deposits and structured investments for each client.

Structured deposits (or ‘equity-linked deposits’) are suitable as alternatives to cash investments, but they can never be proxies for equity market investments,

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

JOINED-UP

THIN the integration of CRM and fund platforms will be pivotal for IFAs in the post-commission world.

THE INTEGRATION OF CUSTOMER RELATIONSHIP MANGAGEMENT (CRM) SYSTEMS WITH ONLINE PLATFORMS As the roll-out of technology gathers pace in the run-up COULD BE to the Retail Distribution (RDR) you could be AN ESSENTIAL Review forgiven for thinking that fund platforms will singleFACTOR IN handedly dominate IFA business models. The FSA THE POSThas certainly made much of importance of platforms COMMISSION the after 1 January, 2013. But there is one technology WORLD, AS that will remain equally in the years ahead NEIL CROSSLEY integral – the customer relationship management system (CRM).

EXPLAINS… Many now believe that 40

June 2011

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CRMs, of course, have been the mainstay of advisor’s back office businesses for years, coping with functions such as tracking clients, making policy changes and displaying valuations. Such packages include Intelligent Office from IntelliFlo and Advisor Office from 1st Software.

But, in the postcommission world, CRM systems need to justify the fee that advisors will be required to charge - by offering client profiling, modelling and reporting, all presented in a cohesive and clear format. CRM systems must also be capable of providing of a clear audit trail around the decision-making process in the case of products within a client’s portfolio. The aim is high value services with low cost product delivery.

“If you’re thinking about CRM in terms of how you

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IT REVIEW

KING manage and maximise the value of your customer relationships, and optimise the cost of delivery over time, I think it’s a very interesting area,” says Jeremy Forty. senior consultant with Towers Perrin, who specialises in distribution sales effectiveness, strategy and market entry work for financial services companies.

recently spent £300 million on a Swiss banking platform called Avaloq that will form the basis for a global banking platform for Coutts and its various brands. According to Simon Thyer, head of wealth solutions at Coutts, this initiative will form the bedrock of the bank’s financial advice offering.

Getting All Your Ducks in a Row

“We have integrated back office systems with all the CRM, trading and reporting benefits. So from our financial planning perspective, we shall be leveraging some tools on the front end of that to provide us with advice capabilities. We’re in the fortunate position that we will have a superstrong in-house industrial-strength, integrated platform with both banking and investments and financial planning capability,” he says.

“We certainly see the potential for much greater integration of platforms with CRM adviser support tools and business management tools. So, in a way, the platform will almost being a module of a wider range of support tools for services that are made available or even provided by the IFA firm itself.

“This integration of CRM systems and fund platforms will involve the convergence of back-office suppliers, point-of-sale advice systems and fund platform providers. IFAs will have to adapt their underlying technology to support multiple service models in a drive to be truly scaleable. The key intention is to demonstrate to the client that the IFA’s advice is adding value.

Such an objective is being actively pursued by Coutts, which is investing heavily in CRM and fund platform integration. Coutts

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IT Review.indd 41

From the client’s point of view, the end result of integrations should be seamless. As one industry insider put it: “They don’t want to see the engine, just the gleaming car bonnet”.

Extending the Reach of Existing Platforms Integration should also offer clients a comprehensive choice of investment products, which platforms alone do not, because no one platform currently

offers a full range of financial products – just a large selection.

Consequently, an IFA might need several platforms in order to offer a truly comprehensive product range and satisfy the FSA’s demand for true impartiality.

Another disadvantage of platforms at present is that none of them really offer life cover as part of their propositions, whereas CRM can do this. And when it comes to viewing the assets that clients have historically accrued, CRM is essential.

“The enormous weakness of most platforms is that they only look at the business the advisor has currently got on his own platform,” says Ian McKenna, director of the Finance and Technology Research centre. “They don’t take into account other investments that people may have taken out in the past. People are far more concerned amount what investments they currently have, and have spent their money on, than they are about investments that they might have in the future. And that’s where the platform proposition [on its own] is weakest.”

According to McKenna, CRM systems will be the “dashboard” from which the

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IT REVIEW

magazine... for today ’s discerning financial and investment professional advisor drives their business.

He believes that detailed, “deep” integration between CRM and fund platforms offers a good solution for IFAs and their clients.

But he also believes there may be a more pragmatic solution – to remove the fund platforms from the process entirely. He says this could be achieved by layering a transactional capability on top of a CRM system, such as Microsoft Dynamics, and running the system via a trading hub, such as Pershing. That way, he says, IFAs could deliver a

towards a recurring revenue stream. Integrating CRM and platforms should also improve consistency, reduce business management cost and manage risk. And for the clients, there should be noticeable benefits in terms of improved experience.

Bringing IFA Opinion Onside As former director of distribution for Aviva, Stephen Gay is all too aware of the challenges facing IFAs in the months and years ahead. The new boss of the Association of Independent Financial Advisors (AIFA), who

“IFAs now need to get a much better handle on their existing client base.”

Stephen Gay, Director General of the AIFA, believes the integration of CRM and platforms is an inevitable evolution of our market. platform capability at a fraction of the cost of a traditional platform.

“One of the permanent debates in the Wrap platform space has been, ‘Can a Wrap platform take the place of a CRM system?’”, says McKenna.

“And virtually everyone in the IFA space would say it can’t.

But if you turn that question around and ask: ‘Can CRMs take out the platforms?’, the answer is ‘Yes’. The reality is that a CRM does a whole lot more than a platform can do and could also deliver major savings. It’s not inconsequential, for example, that Standard Life bought Focus, one of the best CRM systems on the market.”

Yet, despite such developments, it seems likely that CRM and platform integration will be the prevailing model - not least, because platforms provide a way for IFAs to hold a client’s portfolio online while also moving

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took up his post in January, says there is a clear connection between the current RDR reform and the spread of the emerging technologies.

“Because we are moving to a remuneration environment, IFAs will need to look their customers in the eye and say very clearly to them, ‘This is what I’m going to do for you and this is what you’re going to pay me to do it’,” he says.

“And I think we will continue to see a blurring of platforms into other technologies.”

Such developments are already underway. On 25 March 2011, an innovative new platform from Newcastle-based product provider True Potential was launched, which offers full integration with the company’s leading edge CRM system. Hailed

by Ian McKenna as a “game changer”, it offers IFAs and consumers an aggregated real-

time view of investment plans and pensions, all in one place, via mobile phone, PC or PDA devices such as iPad. This product is one of the most advanced in the market. And it heralds the advent of mobile devices and apps becoming integrated into the IFA and client offering.

But as technology moves ever onward, it’s worth noting how many IFAs are actually embracing such progress.

According to Stephen Gay, only 15% of AIFA’s members say they are actively enthusiastic about FSA compliance, with another another 58% are willing, “with varying degrees of enthusiasm”, to go along with it.

That leaves 15% who say they are reluctant to comply, and another 12% who are intending to quit the market altogether.

Yet Gay stresses that the AIFA members, in general, are not apprehensive about the new technology as such. He says the membership, which mirrors the broader population of IFAs in the UK, recognises that the technology is a tool to address the issue of business changes that the profession now faces.

“We are about to go through the most profound period of change in financial services for a generation and IFAs are coming to terms with what that means to them at a different pace. Some of them got their heads around what it means for them years ago, others are only just starting to think about it and some have decided not to make the journey at all.”

“IFAs now need to get a much better handle on their existing client base. I don’t think integration of CRM and platforms is essential in this process.

But I think it’s an inevitable evolution of our market that will become the norm.”

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This advertisement is for professional advisers only. © Ascentric/Investment Funds Direct Limited 2004 - 2011. Ascentric is a trading division of Investment Funds Direct Limited, part of the Royal London Group.

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ASC IFA Advert 43 AW.indd 1 IT Review.indd

21/2/11 14:07:45 09:52:53 27/5/11

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

RUN! IT’S THE DAY OF THE MIFID!

COMING SOON TO A TRADING SCREEN NEAR YOU. BUT EMMA-LOU MONTGOMERY ISN’T SCARED. WELL, NOT VERY. You know how it is when Europe starts tinkering with the way we do things. It’s always a cause for concern. Sometimes it’s just another bout of Euro silliness, like when EC bureaucrats tell us how bendy our bananas can be. But it’s a different matter when it comes to the financial markets. Darn it, our livelihoods are at stake. So it’s no surprise that the European Commission’s review of the Markets in Financial Instruments Directive (Mifid) has got the industry fairly jumping with concern and speculation.

Obviously, the traditional eurosceptics have been having a field day. The EC has sounded the death knell for execution-only trading, they say. Complex, non-EU- friendly products face a stiff clamp-down - and, while we British might think we’re savvy enough to know what we’re doing with these products, the powers that be in Brussels think they know otherwise.

All very lurid. But how much of all this stuff is actually true? Well, separating fact from fiction isn’t easy at the best of times, and as financial advisers we’re already up to our eyeballs in myriad other reforms and reviews. Keeping tabs on what

will apply, what might change, and what will be the inevitable outcome, is all a bit of a strain.

I mean, just look at the rule changes we’ve already got to contend with. There’s Ucits IV (to be followed swiftly by Ucits V of course). Then there’s the packaged retail products (Prips) rukes, the investor compensation directive, the alternative investment fund managers directive, the Foreign Account Tax Compliance Act, and the securities law directive, then Solvency II - not to mention a load of UK pension reforms and the Dodd-Frank Act to contend with. Phew.

But frankly, that’s all just background noise compared to the two big reviews – the much-debated Retail Distribution Review (RDR) and now Mifid. And not just in terms of what they both mean for advisers and investors alike, but also how they will affect one another.

The Mifid review is proving to be quite an exercise. Originally it just set out to make a few tweaks here and there to the investment code, but since then it’s turned into a wholesale reassessment of the euro-rules. Rules, let’s remember, that are not much more than three years old – and which, you might argue, haven’t really yet had the time to bed down.

“A framework which leads to greater market transparency and efficiency, as well as more protection for investors.”

Internal Market and Services Commissioner Michel Barnier outlines the Mifid review’s main objective

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June 2011

www.IFAmagazine.com

27/5/11 14:09:27

MIFID REVIEW

“The executiononly regime works well for millions of consumers; there’s no evidence to justify a major regulatory intervention.”

Mark Hoban, Financial Secretary to the Treasury The big fear in Britain is that the FSA’s existing RDR plans are going to be seriously compromised by Brussels. There are numerous areas of conflict between the RDR and the proposed changes to Mifid, and concerns are being expressed that any euro-changes driven through might undermine the FSA’s plans or even sabotage them altogether.

Who’s for a Quick Execution?

There’s been plenty of chatter in the financial services community about what many see as the key piece of EC meddling - the question mark that the commissioners have left hanging over execution-only trading.

The question the Commission poses in its discussion document is clear aenough: “Do you consider that, in light of the intrinsic complexity of investment services, the execution-only regime should be abolished?” The thinking behind this outrageous idea is that retail investors already struggle with the inherent complexity of investments, and that what we therefore need are measures to prevent consumers from undertaking their own investments. That would be bad news, of course, for discount brokers and direct-toconsumer platforms, such as Sipps - but might it actually be good news for financial advisers?

Well yes, in theory it would. But there are many who argue that it’s not just unnecessary but will also lead to extra expense for investors. John Barrass, deputy chief executive of the Assocation of Private Client Investment Managers, has laid his cards on the table: “Some investors are more sophisticated and do not want advice,” he says.

“These investors should not be forced to pay for something they do not want.” And clearly, that’s right. But we do need to wait first to see whether it’s actually likely to come about.

The EC actually has laid out two proposals.

The first is to limit execution-only services to what it

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Mifid.indd 45

calls ‘non-complex’ products. That means that things like Ucits funds, exchange traded funds, convertible bonds and Aim shares would no longer be eligible for execution-only trading. The second proposal the one everyone is up in arms about - would be to put an end to execution-only services altogether.

Opposition to an outright ban is fierce and surprisingly united. Mark Hoban, the outspoken Financial Secretary to the Treasury (and who hasn’t always been exactly the IFAs’ favourite person), has acknowledged investors’ reluctance at having the pitch queered to such an extent. “The execution-only regime works well for millions of consumers; there’s no evidence to justify a major regulatory intervention,” he barked recently.

Gavin Oldham, chief executive of The Share Centre, is more outspoken. The ‘deeply patronising’ proposals, he says, “suggest that people are incapable of making up their own minds on what to buy and sell.”

“What [the Commission] are essentially saying is that investors would have to seek investment guidance before being allowed to deal - involving an “appropriateness” test that could include details about a person’s wealth and income. What business is it of ours to know how much an investor earns, unless they want advice on building a suitable investment portfolio?”

“There’s a further proposal to ban the style of ad hoc advice on shares. In essence, they’re trying to push all personal investors into portfolio management services, which are only accessible to the wealthy, and seeking to outlaw do-it-yourself investment. This undermines people’s human rights to choose their own investments and challenges the very fabric of democratic capitalism.”

A Blanket Ban on Inducements?

One further concern to financial advisers is that provider inducements could be banned outright. Under the new Mifid regime, bank and

June 2011

45 27/5/11 14:09:35

MIFID REVIEW

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

“Rules for non-equity markets should be specific to each instrument and should not necessarily be modelled on equity markets.”

Guy Sears, director of wholesale at the Investment Management Association calls for consistent regulation across the retail market in Europe bancassurance sales staff would be allowed to receive commission but independent advisers would be banned from receiving any payment from providers. It’s this that Andrew Strange, policy director at the AIFA, says is ‘potentially unworkable’, because, as he points out “the definitions of inducement are very wide.”

Another proposal is to amend the rules surrounding the disclosure of commission before and after advice, and prevent firms from providing clients with only a summary of the inducements received. Under the re-worked Mifid rules, advisers would find themselves obliged to provide ‘longer-term assistance’ to clients, with the legislation specifying annual reviews and six-monthly performance reports.

Whoopee, more paperwork. Just what we need.

The International Capital Market Association nailed its colours to the mast in early March when it wrote to Commissioner Michel Barnier to press the case for more investor choice, not less.

“Regulatory intervention in a market should tend to support a widening of choice for investors– whether financial investors or corporate firms seeking to hedge risk – rather than the reverse... We believe that preserving investors’ freedom to choose where to execute trades is entirely compatible with the goals of ensuring transparency, strong risk management and operational efficiency.”

Dark and Murky Pools Ah yes, transparency. That’s another theme of this review, and another area where the Commission is reaching for the night vision goggles.

So-called ‘dark pools’ have been in the Commission’s sights recently. These specialist trading platforms, which allow large blocks of shares to be traded without prices being revealed until afterwards, have always been rather controversial.

The fact that these systems allow traders to buy or sell large orders without running the risk that other traders will work out what is going on (and mark prices up or down accordingly) has long been acknowledged as a problem - and the

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June 2011

critics say that it leads to less efficient pricing in the traditional open stock exchanges as well.

Yet the defenders of the dark pools insist that the practice creates necessary liquidity and that, in reality, less than 2% of all equities trading is conducted entirely in the dark. Damian Carolan, regulatory partner at law practice Allen and Overy, insists that the Commission’s intention to savage these platforms is down to ignorance.

Like broker crossing networks (BCNs), he says, they perform a crucial off-exchange function.

“There is a move towards greater transparency across the whole market,” he concedes, “and in the case of BCNs it is important that the market knows trades have been executed in a certain type of venue. Some form of aggregated post-trade transparency is a good thing for BCNs. But if this is too aggressive, and combined with the trigger events for reclassification, the viability of BCNs will be compromised.”

Guy Sears, director of wholesale at the Investment Management Association, says the EC needs to look at the specifics and not try to make wholesale changes which could ultimately have an adverse effect. He says: “We understand why the Commission wishes to draw up a comprehensive framework within which trading in all financial markets may operate.

However, detailed rules which fail to take account of the specificities of different instruments and trading conventions will not achieve this aim.”

For now, though, all we can do is wait. And some wait it could be. The consultation period is now closed, and a formal proposal is expected this Spring. However, because of the summer European parliamentary recess, which runs from 25 July until 26 August, the first reading of the draft consultation document by the European Parliament might not take place until October. And this would mean that Mifid II probably wouldn’t go live until 2013. Even that would be too soon for some.

For more comment and related articles visit...

www.IFAmagazine.com

www.IFAmagazine.com

27/5/11 14:09:44

I FA C A L E N D A R

a g

e n zi

a Dates for your diary m JUN - DEC 2011

JUNE Royal assent expected for the FSA restructuring process.

1

New declaration rules for auditors with regard to Client Assets (Policy Statement PS 11/05). An optional transitional period is available until 29th September.

JULY Entry into force of some rules under FSA Policy Statement PS 11/01 (Distribution of Retail Investments: Delivering the RDR - Professionalism).

Firms are now obliged to notify the FSA if any adviser falls below the required standards of competence or ethical behaviour.

-

AUGUST 9

Fourth anniversary of the US banking collapse.

SEPTEMBER IBC’s investigation into the UK banking structure due for publication.

-

1

29

Martin Wheatley becomes chief executive designate of the newly-formed Consumer Protection & Markets Agency, and managing director of the Consumer & Markets Business Unit.

End of transitional period for auditors with regard to declaring Client Assets (Policy Statement PS 11/05).

www.IFAmagazine.com

IFA Calendar.indd 47

OCTOBER 6

Money Management Financial Planning Awards

27

25th anniversary of the ‘Big Bang’ deregulation in London.

31

Deadline for self-assessment tax returns 2010/2011 (paper only).

NOVEMBER 3 4 17 21

G20 Summit in Cannes, France.

FT Advisor Service Awards.

IFA annual dinner.

Date to be confirmed.

Financial Planning Week

2027 (Institute of Financial Planning/NS&I) Date to be confirmed.

DECEMBER -

FSA restructuring process (CPMA, PRA etc) scheduled for implementation.

Have we forgotten anything? Let us know about any forthcoming events you think ought to be in our listings.

(Sorry, press and official events only.) Email us at: editor@ifamagazine.com, and we’ll do the rest.

June 2011

47 27/5/11 14:17:39

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Full Steam Ahead Lindsell Train Global Equity The name Lindsell Train is probably not as familiar to investors as it ought to be, but a new fund launched in March might just give it the higher profile it deserves.

Lindsell Train is an investment boutique that was set up back in the year 2000 by the experienced pairing of Michael Lindsell and Nick Train. The two were star performers at GT - now part of Invesco back in the 80’s and 90’s, and they have built quite a following since setting up on their own.

You won’t find Lindsell Train tracking indices or going in for structured approaches. It’s all about hands-on stock-picking, with the managers backing their own judgement and investing in their best ideas, but always keeping the macro scene in view.

Does it work? Well, you be the judge. The Lindsell Train investment trust heads the global growth sector with a return of 65.6% over the last 5 years – a massive 20% clear of its nearest rival.

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The new fund has a slightly different mandate, but the underlying philosophy is exactly the same.

The new Global Equity product is an offshore fund that will invest in a concentrated portfolio of global equities, mainly from the developed markets.

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The fund aims to achieve capital and income growth. It is best viewed as a core holding, although it is not suitable for cautious investors on account of the concentrated nature of the underlying portfolio.

June 2011

49 27/5/11 14:22:03

product reviews

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

Not dissimilar to...

Artemis Strategic Assets Fund

Equity Strategies Hedge Fund

You don’t need telling that the credit crisis and the various international policy responses have produced turbulent conditions in every major asset class, without exception. That’s been a problem for most funds, because their mandate limits their response by restricting them to just one kind of asset class and stops them from diversifying their way out of trouble.

This new ETF from Deutsche Bank really is based on hedge funds! Aimed at more sophisticated investors, it aims to benefit from the performance of a portfolio of leading equity long-short and equity market-neutral hedge fund managers.

It lacks the defensive character of the Artemis fund - but the calculated long-term trend of the underlying securities has been outstanding.

Step forward Artemis Strategic Assets, an OEIC fund which was launched back in May 2009 with a less restrictive brief. The fund invests in a wide-ranging portfolio of UK and international assets including equities, bonds, commodities and currencies. It can also sell short to profit from price falls, with the overall objective of outperforming both cash and equities over rolling three-year periods. Not unlike a hedge fund, in fact...

The DB fund is linked to the performance of 17 hedge funds, but it is sold as an ETF - thus making them accessible to private investors as a fully regulated, liquid and tradable security.

For instance, manager William Littlewood, is currently building short positions in Japanese, UK and US government bonds, because he thinks the sovereign debt issues in the developed economies will be resolved by stronger inflation. But he is also 93% long in equities, especially in large cap UK and US stocks. He is short in the dollar, euro and Japanese yen, but favours certain other Asian currencies.

Having the flexibility to go long and short in different asset classes gives Littlewood the scope to make decent gains when FuNd FActS conditions are Name: favourable and Artemis strategic to protect capital Assets Fund when they are poor.

And it works - he Type: uK oeic has successfully Sector: Active captured returns Managed from a variety of different asset Fund Size: £873m classes with a Launch Date: much lower level of 5 May 2009 volatility than the stock market. If only Portfolio Yield: 0.7% real hedge funds Manager: Artemis were this good.

Fund Managers TER: 1.59% Website: www.artemisonline.co.uk

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Equity long-short managers are people who hold long positions in shares they believe will go up, while short-selling companies they think will fall. Market-neutral managers do the same thing, except that they balance the two sides out so that they have a net exposure to the market of less than 20%.

The benefit of this approach can be seen from the performance of the underlying index, which has been calculated back to March 2003.

Over the intervening 8 years it has almost doubled in value - and even when global stock markets collapsed in 2008 it only dropped around 13% from peak to trough. (The FTSE100, by comparison, plummeted FuNd FActS by 48%.)

Name: db x-trackers db But it’s equity strategies Hedge important to Fund index etF understand that Type: etF Sector: Alternative Fund Size: £15m Launch Date: 27 January 2011 Portfolio Yield: n/a Manager: db platinum advisors TER: 0.9% Website: www.etf.db.com

the underlying hedge funds are themselves generally lacking in transparency.

And that the ETF’s modest management fee of just 0.9% does not take into account the rather higher management and performance fees at the underlying fund level.

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27/5/11 14:22:05

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27/5/11 14:22:07

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

OUR MONTHLY REVIEW OF THE KEY RESEARCH REPORTS FOR IFAs.

UK ifas 2010: Opportunities and Challenges in the Post-RDR Landscape

Platforum D2C: Private investors are Back on the Radar

Publisher: Datamonitor Price: $4,495 (single user), $11,238 (multi-user) Available from: http://tinyurl.com/6dfjcl2

Publisher: The Platforum Cost: £6,000 + VAT Available from: http://tinyurl.com/6fsjy2h

Datamonitor’s report provides an exhaustive analysis of the IFA space, compiling data on key product, pricing, regulation and competitor trends.

Among its most significant findings is the fact that, far from being a burden, the RDR might even present an opportunity for IFAs to regain the trust of consumers - many of whom have become wary of seeking professional advice in the wake of the financial crisis and subsequent recession.

In its first survey of the direct to consumer (D2C) platform market, The Platforum has unearthed a good deal of startling information - not least, that the 45 to 64 age bracket dominates the direct platform scene and that the average user is 57 years old.

Datamonitor takes the growing consensus view that the reforms represent a chance for IFAs that embrace them to better connect with their customers - chiefly by making a clear differentiation between advice and sales roles.

The independence and higher professional standards requirements of the RDR, it says, should increase consumer confidence and strengthen the reputation of the advice business. The research demonstrates that significant commercial opportunities exist for entrepreneurial IFAs who can successfully demonstrate their value to clients.

The D2C market in the UK was worth £65 billion, as of 30 September 2010 and it can be broken down into three principal categories; IFAbrand platforms, fund manager owned platforms and execution-only stockbrokers. Hargreaves Lansdown is the dominant force in the D2C space at present, with 28.5% of the market, but Barclays and Fidelity are also major players.

However, the report identifies a number of challenges to the IFA business model. Notably that traditional advice channels are becoming outdated in the eyes of consumers, whereas aggregator sites are competing ever more aggressively with IFAs - particularly in the protection market.

However, Datamonitor’s research shows that IFAs do still occupy the dominant position in the life and pensions space. Forecasts indicate that this dominance is set to continue: many IFAs have seen their post-financial crisis fortunes improving during 2010.

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The report reveals that there are some six million private direct investors in the UK defined, that is, as people holding risk-based investments who are significantly self-directed.

Another notable detail thrown up by the research is that the distribution channel is no longer an either/or proposition. Perhaps surprisingly, many direct customers also engage the services of professional advisers - and the correlation between investors who describe themselves as ‘active’ and ‘interested’ and the ones who take a DIY approach is not as significant as might be expected.

Perhaps even more eyebrow-raising, however, is the discovery that a sizeable proportion of those investors who describe themselves as ‘not interested’ in the subject nonetheless take action without seeking any advice! It seems that plenty of D2C customers who have no desire for a ‘mini-IFA’ proposition still don’t want to spend time agonising over the details of portfolio construction.

www.ifamagazine.com

27/5/11 17:39:38

RESEARCH REVIEW

independent financial advisors industry Report Publisher: Plimsoll Cost: £350 + VAT Available from: http://tinyurl.com/6dtrjqx Whatever business you’re in, it pays to know what your competitors are up to. Plimsoll’s report provides an up to date analysis of the top 1,000 IFA companies operating in the market. It is a valuable tool for benchmarking, identifying acquisitions or selecting potential partners.

It’s also a useful snapshot of the current state of the industry. Plimsoll’s own analysis of performance among the xxx companies surveyed classifies 509 IFAs as strong and 133 as good to average - but 81 receive a caution rating and fully 277 are considered to be in danger territory.

Anticipating a growing trend for weaker firms to be snapped up by their stronger rivals, the report undertakes a detailed breakdown of potential takeover targets, using a series of nine criteria that grade each company in terms of its desirability as an acquisition. This information, which is broken down by region, reveals that an alarming 339 IFA companies are considered to be at significant risk of takeover.

Plimsoll does not shy away from looking at profitability. It is perhaps a sign of the intense competition in the market that 133 companies are reported to be trading at a loss for the second year running. The report argues that these lossmakers companies are a drag on the whole market, unsustainably undercutting their competitors and driving down profits across the board.

Finally, the report contains a comprehensive breakdown of the 1,000 companies, including assessments of what they are worth, how they compare to their closest competitors and how they have performed over the last 12 months.

www.ifamagazine.com

Research Review.indd 53

financial Services Trust index: Q2 2010 Publisher: Financial Services Research Forum Cost: £1,000 + VAT Available from: http://tinyurl.com/5rcecvj It’s fair to say that, in this post-economic-crisis period of banker bashing, public trust in the financial industry has taken a severe hit. The Financial Services Research Forum’s latest investigation into consumer attitudes to financial service providers doesn’t actually turn this idea on its head - but it does at least offer some positives for IFAs. The Index was compiled from a YouGov online survey of 2,000 consumers, collected in three rounds to track changing attitudes. Respondents were asked to rate financial institutions and advisers out of 100, based on how much they were trusted - with scores above 50 indicating a higher degree of trust and scores below 50 the reverse.

The report’s headline finding is that brokers and advisers are the most trusted operators in a financial space that also includes banks, building societies, general insurers, life insurers, investment companies and credit card companies. The good news is that this has generally been the case since the Index was first compiled in 2003 - perhaps reflecting that consumers recognise advisers have a greater responsibility to work in their clients’ best interests than some others in the financial sector. The bad news, however, is that IFAs saw their ratings falling from 75 in the final quarter of 2009 to less than 65 in Q3 2010.

The study seems to confirm that respondents hold their own financial providers in rather higher esteem that the financial industry in general: their own providers scored 61, against 48 for the industry.

Equally impressive is that this trust level for the respondents’ own financial service providers outstrips even that of comparator institutions such as the BBC and the NHS. A comforting thought in difficult times!

June 2011

53 27/5/11 17:39:48

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

Client Relationship Manager Reference code: Salary: Location: Job Type: CV’s to:

CRM1435 £30,000 - £45,000 OTE Wiltshire Full Time colettes@aisa.co.uk

Company: We are a successful well established company; already RDR compliant, winners of many financial awards currently applying for ‘Charter Status’ we are looking to expand our team. Our business model is strongly based around TCF, ensuring our high net worth clients are our priority. We have a strong client bank which needs taking forward. We pride ourselves in offering our clients the best service possible.

The Role: As a client relationship manager your priorities would be: • Proactively creating relationships with existing clients • Proactively network with high net worth individuals increasing our client database • Prepare company fact finds • Provide support to our directors and IFA’s • Maintain company standards and FSA regulations.

• Measure client satisfaction • Deliver a bespoke customer experience We would like a dynamic individual to assist with hands on networking with our current and new clients. Full administrative support would be offered.

The Candidate: We are looking for a self-motivated driven individual with over 2 years experience in the financial industry, who wants to continue operating with a directly authorised firm not seeking regulation as an individual. You must be confident on the telephone with the flexibility to handle social settings. Organisational skills are essential and you must be able to prioritise daily tasks. You must hold the minimum qualification FPC1 or CeFA.

Aisa Direct Ltd Unit 4, Fordbrook Business Centre Marlborough Road, Pewsey, Wiltshire SN9 5NU Phone: 01672 569 111

www.aisapro.co.uk

Advanced Independent Specialist Advice

54

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www.ifamagazine.com

27/5/11 17:39:48

Business owner / entrepreneur THE COMPANY

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Top quality advisors required to join the team for Private Clients and Corporate.

Absolutely superb market beating package offering full support services, superb dedicated unique research team saving you a lot of time sourcing the most competitive products; less time worrying about administrative and compliance issues!

Email/Call: Robert@coastsr.co.uk

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Research Review.indd 55

Independent Financial Advisors

London, Norwich, Bristol, Leeds, Newcastle & Manchester £40,000- £90,000 bonus and benefits Fee based Quality Advice

Absolutely superb opportunity to take your career to the highest level. You will have 2 -3 years minimum experience. Some clients are provided so you should be able and happy to develop these existing relationships, alongside this you will have focused sales ability in order to develop new business.

Email/Call: Robert@coastsr.co.uk

Senior Paraplanner Preston, Lancashire

Basic circa £30,000 - £35,000

Required for an established Practice. The company deals with UHNW clients in holistic financial planning/wealth management. Progressing towards Chartered/Advanced Diploma with experience within the IFA sector of the financial services industry. Good knowledge of all investment, life and pensions products and legislation; high quality report writing experience essential.

Email/Call: Robert@coastsr.co.uk

IFAs x 20 Nationwide

Salary- £30K+ basic+ commission

£30,000

Fast growing name with kudos now require at least 20 IFAs, on a nationwide basis.

Our Client has been assigned £100m spend to establish a new branch network. They are considering IFAs who have embraced the ‘new world’ and understand providing fee-based advice. You can either work from home or from one of their many nationwide practices. Typical basic salaries start at £30k basic, bonus above 3x base salary of 35% on new business and 25% on new recurring.

Email/Call: Kerry@coastsr.co.uk

June 2011

55 27/5/11 17:39:49

magazine... for today ’s Tenet discerning financial investment T10268 Tenet Recruitment Ad 24/05/11_T10145 Recruitment ad 24-08-10 and 24/05/2011 09:28 Pageprofessional 1

I want to be part of a

winning team

The Tenet Group are the largest independently owned adviser group supporting over 5,500 advisers nationwide.

We’re looking for Independent Financial Advisers to join our winning team.

IFA’s Scotland – Negotiable remuneration deals available.

Employed IFA Positions x 4. Midlands, North West, Middlesex, South Yorkshire.

IFA – Midlands. Renowned Business with excellent support/lead gen sources.

Employed IFA – Hove Brighton.

CAS or Trainee

We are an established IFA firm with offices in Edinburgh, Aberdeen and Dundee. Due to our unique lead generation model we are looking for advisers to cover all areas of Scotland to service introduced business along with self generated referrals. Along with leads we are able to offer Paraplanner support, admin support, office space if required, back office systems and mentoring support. You must be CAS and working towards diploma.

We are a well renowned IFA business based in Leicestershire and have been serving the needs of our clients since 1982. Our business benefits from working closely with 3 substantial solicitor firms along with a number of accountancy practices acting as introducers. A further lead generation source are the seminars we run regularly to new introducers, affinity groups and IHT clients. Having recently established ourselves with the UK’s leading independent network we are now looking for additional advisers to join our business on a self employed basis.

All firms are supported by a leading financial support provider, leads are provided from existing client banks, in-house accountants, retirement seminars to professional groups and estate agent introducers. All salaries are negotiable, car or car allowance, DIS and medical care benefits provided. Office or home based with full office support provided for all positions. You must be CAS and diploma (or working towards)

We are looking for a customer focused individual to join our established IFA firm. You may be newly qualified or have been working in a tied or multi tied environment and want to make take the step into the IFA arena. You will be given access to 1500 clients, receive support from in house administration, paraplanner, compliance and sales support. Diploma study program is also available.

We are also looking for advisers on a self employed basis who are looking to alleviate the business burden of trading on their own. Commission splits are fully negotiable.

Please contact Mark Ford on 0113 239 5312 to discuss any of these positions or email your cv to mark.ford@tenetgroup.co.uk MM_19.05.11_JamesAsssociates_app

16/5/11

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Page 1

Consultant Support/Administrator London - £18-26,000 One of the UK's leading investment and wealth managers is seeking an administrator to support the financial advisers providing a pensions advisory service. You will ensure new business applications are reviewed and recorded as well as maintaining client relationships through telephone communication and written correspondence. The role will involve the management of client information using 1st Software so experience of this is essential and applicants should possess relevant experience with the financial services sector, preferably with pensions SIPP/SSAS knowledge. This is a brilliant opportunity for an enthusiastic individual to join a developing team which has significant growth prospects. Ref: 1374

Assistant Financial Planner West London - £negotiable + bonus A leading IFA based in London have the opportunity for a paraplanner or consultant support to join their team. You will work in a client facing team providing an excellent service to clients. Candidates will hold CFP and be working towards Diploma level with experience of using 1st Software with a relevant degree. Applicants should have a strong technical knowledge as well as an understanding of recent pension legislation. This is a brilliant opportunity to work in an IFA which provide study support, progression opportunities and a bonus/benefits package. Ref: 1384

Client Operations Associate London - £33,000-£40,000 An international investment advisory business are seeking an experienced professional for a new role in Client Operations. The role is in a new team tasked with managing the operational challenges of some of the company’s larger and more complex clients. Duties will include the coordination of executing investment decisions, performance analysis and producing portfolio exposure reports. The ideal candidate will have a sharp operational brain and will have worked in a discretionary/advisory fund. Experience in dealing with custodians is essential. A top class academic background and relevant industry qualifications are highly regarded. This is a chance to make a mark in a newly developing team, therefore candidates should be versatile, creative and able to work independently. Ref: 1358

James Associates operates as an Employment Agency.

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Advisory Services Associate London - £40,000 The wealth management division of an accountancy practice are seeking a confident and approachable graduate who is wishing to pursue a career in financial services compliance. You will prepare and submit periodic reports and documentation to the FSA for reviewing. The role will include advice to wealth managers on new clients and anti money laundering matters. Responsibilities include monitoring reviews and delivering training to teams on regulatory matters. Candidates will ideally have some FSA regulation experience and must have IFA experience with a desire to learn quickly. This is a brilliant opportunity to gain experience in an IFA environment with room to progress in a compliance position. Ref: 984

Group Pension Scheme Administrator Surrey - £27-35,000 A leading employee benefits consultancy are looking to strengthen their support team with a knowledgeable and experienced pensions administrator. You will be competent and confident dealing with HNW clients and be able to deal with a variety of enquiries. Applicants should hold some CF papers and be comfortable operating 1st Software. You will be the first point of contact for clients and consultants managing the GPP schemes. Applicants should have a minimum of 3 years experience in a corporate IFA or EB environment and salary will be dependent on the experience and qualifications. Ref: 1375

Client Relationship Manager London - £30-40,000 An upcoming IFA firm are seeking a Client Relationship Manager to ensure excellent communication with clients and that they are fully prepared for meetings. You will deal with day to day queries on behalf of the advisers, oversee the timely delivery of financial plans and manage prospective client contact. You will provide assistance in the preparation of suitability letters, prepare client reviews and ensure all client data is accurately recorded and entered onto planning software. Candidates will be educated to degree level and have relevant experience in the financial services industry. You should be committed and have a flexible approach to work, with progress to the Diploma. For the right candidate this is an excellent opportunity to progress into Advising. Ref: 1329

T: 0844 561 7815 E: mail@jamesassociates.co.uk W: www.jamesassociates.co.uk

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27/5/11 17:39:50

CLARK JAMES Regional Financial Planning Manager

T&C Officer

IFA Sales Support

£50,000 + Car, bens and bonus

London - To £40,000 + Benefits

London - To £26,000 + Benefits

We are currently recruiting for a well regarded banking organisation who are looking for a regional manager to look after a team of Financial Advisers in South London. The role will encompass man management, attain and grow clients and ensure that targets are met. There is currently an existing team of experienced and trainee advisers and they need an experienced manager who has a track record of growth and development of their sales team in the past.

As a large, progressive employer, they provide good opportunities for development and also further career roles in the future.

Excellent package on offer for the right candidate.

Due to their constant drive to maintain and add to their already superlative levels of financial regulatory standards this Wealth Management IFA is now seeking to employ an equally professional and experienced T&C officer for their flagship London office. Responsible for a wide range of regulatory T&C duties including monitoring, file review work and implementation of all relevant FSA rules and regulations this is a wide ranging, challenging but professionally rewarding role. In order to be considered for this role you must be fully CFP 1-5 qualified and have current or very recent experience of working as a T&C Advisor within a Life and Pensions new business environment.

Leading and progressive investment related National Wealth Manger is now seeking an experienced and confident client support administrator to provide support to their existing IFA's. To be considered for this role you should ideally be fully or part CFP qualified and ideally have previous or current experience within an IFA Support environment. Candidates with 1st Software experience would be ideally preferred as would those with a background in SIPP administration. In return for your hard work and committed you will be rewarded with an excellent basic and bonus package.

Apply to: des.menewe@clarkjames.co.uk

Apply to: Richard.Cowan@clarkjames.co.uk

Apply to: Richard.Cowan@clarkjames.co.uk

Senior Financial Planner

Compliance Officer

Senior Paraplanner

To £70,000 + Benefits and bonus

London - To £60,000 + Benefits

To £40,000 + Benefits

We are currently recruiting for a highly regarded wealth management group who work exclusively on an hourly charge basis. They are looking to bring in an adviser with experience of working with HNW individuals to help take over the dealings of a ready-made client bank. They want a fully or nearly diploma qualified adviser with experience of working with complex financial issues. The company will provide a competitive basic salary, market-leading benefits and the opportunity to earn significant bonuses based in targets being achieved. This role would suit a dynamic consultant who is looking to challenge themselves in a forward-thinking organisation. Career/promotion prospects also available for the right candidate.

Due to their constant drive to maintain and add to their already superlative levels of financial regulatory standards the Wealth Management arm of a national Chartered Accountancy Practice is now seeking to employ an equally professional and experienced compliance officer for their flagship London office. Responsible for a wide range of regulatory duties including monitoring, file review work and implementation of all relevant FSA rules and regulations this is a wide ranging, challenging but professionally rewarding role. In order to be considered for this role you must be fully CFP 1-5 qualified and have current or very recent experience of working as a Compliance Advisor within a Life and Pensions new business environment. On offer is a very competitive salary and an outstanding benefits package.

Due to a continual drive to reach ever higher levels of technical excellence within the Life, Pensions and Investments market, this highly prestigious City-Based Wealth Management Firm is now seeking to employ an equally technically competent experienced Paraplanner. The role is to help establish the processes and procedures in conjunction with the head of practice. To be considered for this role you should ideally be Diploma qualified and have previous or current extensive experience within a high-net worth Paraplanner role, ideally within an investment orientated IFA environment. There are excellent career development opportunities on offer for the successful candidate as well as a generous and realistically achievable bonus.

Apply to: des.menewe@clarkjames.co.uk

Apply to: Richard.Cowan@clarkjames.co.uk

Apply to Ash.patel@ash.patel@clarkjames.co.uk

LONDON OFFICE

HEAD OFFICE

2 London Wall Buildings, London Wall, London EC2M 5UU T: 0207 448 5348 londonoffice@clarkjames.co.uk

The Old Magistrates Court, South Street, Caistor, Market Rasen, Lincolnshire LN7 6UB T: 01472 859 999 paul@clarkjames.co.uk

CJ

www.Clarkjames.co.uk

Specialist Wealth Managers Salary £50,000 to £70,000

plus commensurate benefits, OTE £90,000+ Premier UK Regional Wealth Manager requires specialist Wealth Advisers with specific experience of advising on settlements arising from Personal Injury and Medical Negligence claims. We are also looking to place Advisers who are Resolution accredited to advise on pension and divorce cases. You will be familiar with Offsetting, Attachment and Pension Sharing. Your specialist knowledge and ideally, contacts with professional introducers such as solicitors, will be rewarded by a first class salary, commensurate benefits and full paraplanning and compliance support.

You will be able to adopt an holistic approach in managing long-term relationships with these clients to deliver suitable, independent and beneficial ongoing financial planning and wealth solutions to meet their short and long-term objectives. To develop and deliver the agreed business targets whilst remaining compliant and meeting clients needs. n n n

n n

To deliver fee income against agreed plan.

To achieve and maintain competence as defined within the Company’s Training and Competence Scheme.

To demonstrate and ensure all compliance file checks are neatly and comprehensively completed within the Company’s Training and Competence Scheme.

Manage billing work in progress to create efficiency and service to clients.

Manage with clients the level and different type of fee income to find the best solution in the interests of the client.

A minimum of Diploma level, ideally studying for Chartered status and familiar with working on a fee basis, although this is not essential.

Specialist in Investment and Wealth Management 32 Threadneedle Street, London EC2R 8EY colinchalker@nelson-scott.com www.nelson-scott.com Tel: 020 7763 6030

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Research Review.indd 57

INDEPENDENT FINANCIAL ADVISER Bournemouth, Carlisle, York, Bury St Edmunds, Central London, Sheffield, Southampton, Cambridge To £40,000 Basic, £60,000+ OTE, DIS This stable and forward thinking firm has 1,000 active clients with £50 million in funds under management. This organisation deals with prominent individuals, on average with £50,000 invested with their biggest producer currently writing £200,000 of business pa. You will benefit from looking after one client bank that has been generating £70,000 per year, with one or two particularly good clients. As well as this with an exciting new project looming it may well be that another client bank may be available, which was also generating £70,000 per year, with a small number of clients but with some potential opportunities that have not been uncovered as yet. They have a big presence in the Bournemouth area and are in the process of taking over other IFA firms meaning that there is a big opportunity to take a lot of clients on and they are completely ready for the retail distribution review when it comes up in January 2013. They are looking for well-qualified, motivated individuals that are keen to push their career on. This is a rare opportunity to progress, one not to miss, apply before it goes! Call now quoting: Ref 8236.

PARAPLANNER / OFFICE MANAGER Newport, Newcastle, Central London, Leeds To £25,000 Basic, OTE £30,000 This is a fantastic opportunity for anyone wanting to further their career within the Financial Services Sector, working for a well-established firm who currently have £20,000,000 of funds under management with around £60,000 renewals! You will be assisting the Managing Director with his daily reports as well as attending meetings with him. You will also have the opportunity to earn bonus through helping to generate business opportunities for the MD. If you wish to become an IFA in the future this would be an exceptional opportunity for you to train as the Managing Director is currently in the process of becoming a Certified Financial Planner and will be a fantastic source for you! The successful candidate will be fully FPC qualified and be highly motivated with excellent organisation skills. The firm is looking to interview in the coming week so apply now! Call now quoting reference: 8357.

June 2011

57 27/5/11 17:39:50

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

“Winner of Best Small Recruiter award 2007”

Visit our website at

www.bwd-search.co.uk Senior Investment Consultant - Surrey or London

Fund Manager - Chartered Accountancy Practice - Central London

Basic to £70,000 plus benefits and bonuses

Basic c£50,000 plus benefits and bonuses

The investment division of a leading accountancy, investment management and financial planning group are looking to appoint a pro-active investment consultant in either their Surrey or London offices to focus on client origination and advice. This is a small but highly successful part of the business, offering bespoke, fee based investment advice to wealthy individuals. You will be responsible for advising existing clients of the firm as well as developing new business from both internal referral sources and external introducers.

An opportunity for an experienced Fund Manager has arisen within the discretionary investment management division of an accountancy firm in central London. This is a fantastic opportunity for a technically strong Fund Manager to work within a boutique professional practice environment. This individual will play a pivotal role in the management of their investment management service and will sit on the relevant internal committees.

Candidates must be CF30 status, hold CFA level 1 (or equivalent) and preferably be degree educated.

Please contact James at: james.woods@bwd-search.co.uk or on 01727 884 662

Corporate Consultant - London, South West & South East

Please contact Danielle at: danielle@bwd-search.co.uk or on 01727 884 662

Financial Planner/Business Development Manager - Birmingham

£Open, car allowance, 20% pension, 10 x Life, PMI, uncapped bonus

Up to £60,000 plus full benefits and bonus

A leading global financial services organisation seeks Corporate Advisers to focus on bespoke solutions to clients who will typically be FTSE 100, FTSE 250 companies and entrepreneurs.

The approach is to be very much advice lead as opposed to product lead. Top individuals are sought and as such they must be able to demonstrate a proactive approach and sales strategy, revenue generation from the corporate market and a commercial edge. Diploma level qualification is expected as a minimum. This opportunity to join a major brand offers a highly competitive reward package.

Our client, a highly reputable Investment Management company situated in Birmingham is looking for an experienced industry qualified professional to work in a hybrid Financial Planner and Business Development Management role. You will be required to provide a full IFA service to HNW Private Clients with investment case sizes into the millions.

The appointment would suit a highly qualified IFA adept at generating new business from professional introducers with excellent business development skills.

Chartered status preferred.

Please contact Zoe at: zoe@bwd-search.co.uk or on 0113 274 3000

Please contact Neil at: neil.horbury@bwd-search.co.uk or on 0113 274 3000

Financial Planner - Aberdeen

Relationship Manager - Private Banks & Wealth Managers

Extremely competitive basic salary plus market leading benefits and bonus

Up to £45,000 basic, £100,000 OTE

Our client, a top private bank, is looking for a financial planner in the newly established Aberdeen office. You will provide holistic fee based advice to HNW individuals and be tasked with developing professional connections as well as client relationships. You must have a proven record of success working in a similar environment and be minimum Diploma qualified, preferably chartered. You must also demonstrate that you are a highly motivated and professional individual with the ability to maintain and develop client relationships to the highest standard. This is an excellent opportunity to join a forward thinking company who is looking to grow its already strong Private Client offering.

An exciting opportunity has arisen within one of the largest Insurance providers in the world.

The incoming candidate will join the Private Banking & Wealth Management channel of this well known firm, which following its incorporation over 5 years ago the team has successfully achieved year-on-year growth and has consistently hit every target during that period of time.

The ideal candidate for this role would be able to demonstrate a first class track record in sales, experience of dealing with top-tier wealth managers and the large private banks and demonstrate the ability to provide a more tactical/strategic service as opposed to the more traditional, transactional approach.

Please contact Charlotte at: charlotte@bwd-search.co.uk or on 0113 274 3000

Please contact Adam at: adam@bwd-search.co.uk or on 0113 274 3000

Mayesbrook House, Lawnswood Business Park, Redvers Close, Leeds, LS16 6QY Telephone: 0113 274 3000 Fax: 0113 278 2933

Suite 4, Ground Floor, Breakspear Park, Hemel Hempstead, HP2 4TZ Telephone: 01727 884 662 Fax: 0113 278 2933

Paraplanners & Private Client Support Leeds Highly competitive salary, annual bonus, plus additional benefits...

The Private Office (TPO) enjoys the backing and support of Europe’s leading financial services group but maintains complete market independence. TPO was formed in 2008 by a first-class team of financial experts with a shared vision: to provide trusted counsel and to support people from all walks of life.

As a paraplanner you will work closely with the partners, providing the full range of technical research, analysis and compiling bespoke client reports showing complex investment data.

You will also review and maintain our clients’ portfolios in terms of performance, risk analysis and asset allocation and provide information as requested.

We operate just as a traditional family office would; combining our skills and experience to offer independent, service focused financial counsel that until now has been missing from the market.

Operating a fully robust RDR ready model we pride ourselves not only on our exceptional client satisfaction, but on the personal professional development of our team.

Our support staff are a key component and are responsible for providing efficient, professional support. The role is to develop professional relationships with colleagues, clients and product providers to ensure the streamlined and smooth running of the applications from processing to completion.

Due to our continued growth and success we are now looking to expand our support division operating from our prestigious Leeds City Centre office. We have a requirement for both career paraplanners and support staff who share in our beliefs and wish to build a long term career within our progressive business.

In all cases we seek applications from industry professionals who hold excellent numerical, literacy and inter-personal skills.

A willingness to learn and a desire to contribute to a vibrant and entrepreneurial office is a pre-requisite. A diploma qualification is preferred for paraplanners.

BWD Search & Selection has been retained on an exclusive basis to recruit for these positions.

For further information, or a confidential discussion please contact Gary Raine or James Walker on 0113 274 3000 or email gary@bwd-search.co.uk, james@bwd-search.co.uk. CV’s sent directly to TPO will be forwarded to BWD for evaluation.

Mayesbrook House, Lawnswood Business Park, Redvers Close, Leeds, LS16 6QY Telephone: 0113 274 3000 Fax: 0113 278 2933

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www.ifamagazine.com

27/5/11 17:39:50

Professional Recruitment is a specialist consultancy providing comprehensive recruitment solutions within the Financial Services sector from offices in the South West of England and South Wales.

Current Vacancies Senior Financial Planner

IFA

Wealth Adviser

Wealth Manager

Employed Position - Devon Up to £40,000 plus excellent benefits and bonus potential

Employed Position Cheltenham £35,000 plus benefits and commission

Employed Position - Bristol £Six figure earnings achievable

South West £60,000 and comprehensive benefits package

Award winning Financial Planning firm based in South West seek Diploma qualified Financial Planner to service existing clients and develop local market potential.

Market leading financial services firm seek an experienced motivated IFA to service lucrative HNW client bank based locally.

Nationwide Chartered IFA firm looking to profitably grow & capture market share. Minimum Diploma progressing to Chartered status.

Lead the financial planning division of a long established regional Accountancy Practice.

Tied or independent background.

Suit a motivated, target driven individual with drive and ambition.

Excellent administrative and compliance support. Suit an individual with existing portable client portfolio.

Provide bespoke advice to HNW clients. Work in a professional environment of technical excellence.

For more information please call 0117 344 5115, apply directly on careers@professionalrecruitment.co.uk or visit our website www.professionalrecruitment.co.uk

Research Review.indd 59

27/5/11 17:39:51

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

compliance Lee Werrell, managing director of CEI Compliance, looks at the key issues shaping the compliance agenda.

The Retail Conduct Risk Outlook (RCRO) The RCRO is part of a suite of publications from the FSA, including the Prudential Risk Outlook (PRO) (www.fsa.gov.uk/pages/library/ corporate/pro/index.shtml) and the Business Plan (www.fsa.gov.uk/pubs/plan/pb2011_12.pdf) recently released. The RCRO and PRO together replace the Financial Risk Outlook (FRO).

The RCRO is designed to consider in-depth the financial environment in which the FSA, together with authorised firms and consumers, interact and includes issues relating to the changing regulatory landscape and developments in firms and markets, together with issues which have yet to develop but have the potential to cause consumer harm in the future.

Current issues n Unfair terms in mortgage contracts; n Treatment of mortgage customers in arrears; n Sale and marketing of structured investments and deposits; Payment protection insurance. n Emerging risks The implementation of the Banking Conduct of n Business Sourcebook/Payment Services Directive; Strategies in the run up to the n introduction of the RDR; Weaknesses identified in the n network model for advisers; Using platforms; n n Firms’ reward policies and practices; n Client Assets handling n Traded Life Policy Investments; n

Self-Invested Personal Pensions (SIPPs);

n

Unregulated Collective Investment Schemes.

Potential concerns Risks associated with bundling products; n n Risks associated with cross-selling; n New business models that may emerge as a result of the RDR.

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In the FSA 2011/2012 Business Plan FSMA Section 166 Skilled Persons Reports (SPR). The FSA confirm their commitment to engaging more effectively with firms’ external auditors including increased use of their powers under Section 166 of the Financial Services Act to require companies to hire outside experts to look into particular areas.

The total number of reports for 2010/11, across all firms, was 140, up from the 88 reports required during 2009/10. Only 17 were ordered in the year 2005/06 and 18 in the 2006/2007 year.

In a feedback statement published in March (FS11/1), the FSA stated its intention to “increase the effectiveness of s166 SPRs as a supervisory tool”.

Under section 166 of the Financial Services and Markets Act, the FSA has the power to force a firm to appoint a skilled person to produce a report. That person must be independent to the firm and reports directly to the FSA. The regulator uses this tool to assist the supervision of firms and it can be used for diagnostic, monitoring, preventative or remedial purposes.

Impact: To most IFA firms is mainly concerning the development into a post RDR environment and the key areas of advice that require review and amendment.

Sales process and delivery may have to be bolstered or enhanced to ensure that all aspects of the service and recommendations are clearly understood. Terms & Conditions appraisals need to provide comfort that the desired culture is embedded.

Past business reviews may be needed to provide satisfaction that these areas have already been suitably addressed and any remedial work started.

Strategy setting in the run up to RDR combined with resource allocation and budgetary needs will have to be planned for adviser development and level 4 compliance.

www.fsa.gov.uk/pubs/handbook/hb_notice108.pdf

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27/5/11 15:33:42

Changes to Controlled Functions In PS10/15 the FSA had planned changes effective from 1st May 2011 but due to electronic programming issues with the Online Notifications and Applications (ONA) system this is now postponed. There will be changes in SYSC regarding non-executive directors as well as FIT changes and SUP changes already outlined in the policy statement.

Impact: To most IFA firms is minimal for details see Section 2.48 www.fsa.gov.uk/pubs/handbook/hb_notice108.pdf

Client Assets In CP10/20 the FSA set out proposals to address the material failings and weaknesses found in client asset audited reports. For firms that hold client money and assets (‘client assets’), typically investment businesses (such as brokers, fund managers, custodians) and some general insurance intermediaries, the FSA partly relies on external independent assurance to gain comfort that its client asset regime has been implemented appropriately. This is achieved by the firms’ auditors reporting to the FSA periodically on whether the firm has maintained systems adequate to enable it to comply with the relevant client assets rules. Because of the nature and number of issues identified, they concluded that the

c o m p l i a n c e d o c to r

Handbook Changes

failings were not limited to a small number of auditors, but rather indicated a general failure on the part of auditors to comply with our requirements effectively.

Impact: As most IFA firms are not permitted to hold client money there is minimal impact. For those with investment or GI divisions there will be a number of changes required. See Section 2.56 www.fsa.gov.uk/pubs/handbook/hb_notice108.pdf

FSA Changes You will recall the government plans to transfer prudential supervision of banking and insurance to a subsidiary of the Bank of England, the Prudential Regulation Authority, and rename the Financial Services Authority (FSA) the Financial Conduct Authority (FCA), which will focus on consumer protection and market regulation.

The FSA have now reached their first milestone, with internal reorganisation helping them to evolve into the proposed new structure. This sees them replacing the Supervision and Risk business units with a Prudential Business Unit (PBU) and a Conduct Business Unit (CBU).

Impact: To most IFA firms is minimal for details see Dear CEO Letter 4th April 2011 www.fsa.gov.uk/pubs/ceo/reg_reform.pdf

Indexing (From the people who introduced it)

In 1976, The Vanguard Group introduced the first index mutual fund for individual investors and soon gained a reputation for a focus on exceptional value. Today in the UK, our index-tracking fund charges range from 0.15% to 0.55% – some of the lowest in their class.

We’ve always been fair with costs – and always will be.

Just another way we put your clients first.

Indexing. It’s the Vanguard Way.™ 0800 917 5508 vanguard.co.uk/costs

This advertisement is directed at investment professionals in the UK only and should not be distributed to, or relied upon by retail investors. It is designed only for use by, and is directed only at persons resident in the UK. Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Charges exclude purchase and redemption fees where applicable. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2011 Vanguard Asset Management, Limited. All rights reserved.

UK11/0698/0811

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

OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA. These listings exclude the FSA’s routine monthly handbook updates.

Strengthening Capital Standards 3 - Further Consultation on CRD3

Forbearance and Impairment Provisions ‘Mortgages’

Consultation Paper

Guidance Consultation

Ref: CP 11/09

11th May 2011 164 pages Intended mainly for banks, building societies and certain investment firms caught by the Capital Requirements Directive. The CRD charges do not, on the whole, apply to smaller businesses.

The paper discusses the implications of the Basel Committee on Banking Supervision’s decision to increase the risk capture and level of capital requirements in the trading book, and also credit risk and illiquidity in the trading book. The CRD changes implement these requirements in Europe and will result in higher market risk capital under both the internal models methods and standardised rules.

The ongoing CRD4 discussions will implement Basel III amendments, and will include liquidity standards; definition of capital; leverage ratios; capital buffers; counterparty credit risk; and a single rule book for banking.

Most of the proposed changes will come into effect on 31 December 2011 and firms within the scope of the CRD will need to be compliant at that date. Firms falling under the scope of the CRD it will need to ensure that their systems and finances are ready in advance of the changes.

Consultation period ends 11th June.

Data Collection: Retail Mediation Activities Return and Complaints Data Consultation Paper

Ref: CP 11/08

10th May 2011 69 pages Relevant to both advisers and providers active in the retail investment and corporate pensions markets, and relating to the proposed changes to the Retail Mediation Activities Return (RMAR) and complaints data.

The paper explores the data storage and usage implications of RDR, which will require IFAs to conduct much more intensive data collection in the context of mitigating the risk of poor consumer outcomes.

Consultation period ends 8th July.

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3rd May 2011

Ref: GC 11/10

38 pages

Mainly for residential mortgage lenders or mortgage administrators. Issues include: • Provision of forbearance support for customers undergoing financial stress; • Recognition of impairment within the book through management committees and Board reporting; • Disclosure of impairment, and its recognition through loss provisions in external reporting.

Remuneration Code (SYSC 19A) Guidance Consultation

Ref: GC 11/09

20th April 2011 Mainly for banks, building societies, capital adequacy directive investment firms.

The Remuneration Code (the Code) was revised to implement the requirements of the third Capital Requirements Directive (CRD3) and came into force on 1 January 2011. The revised Code covers a wide variety of firms, including investment banks, retail banks, building societies, asset management firms, stockbrokers, corporate finance firms and multi-lateral trading facilities.

Consultation period ended 18th May.

Use of Non-EEA Rules in Calculating Group Capital Requirements Consultation Paper

Ref: CP 11/056

31st March 2011 29 pages Sets out proposals for removing the rules permitting the use of non-EEA regulators’ rules in calculating the group capital requirements of a UK banking/ investment firm group on a standardised approach.

The principle under discussion is that, now that all EEA competent authorities have implemented similar standards with regard to the Capital Requirements Directive (CRD), there is no longer a case for using

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Consultation period ends 30th June

Consumer Complaints (Emerging Risks and Mass Claims): Feedback on DP10/1 Discussion Paper

Ref: FS 11/02

28th March 2011 24 pages Summary of the feedback on DP10/1 (January 2010), relating to proposals for improving the handling of consumer complaints. With specific reference to the Treasury’s July 2009 White Paper, Reforming Financial Markets, following which the FSA proposed a new Coordination Committee of the FSA, OFT and the ombudsman service that would meet regularly and draw together members of their executive teams.

To be followed by a tightening of the liaison with the Claims Management Regulator (CMR), including the enhanced sharing of intelligence.

Auditor’s Client Assets Report Policy Statement 25th March 2011

Ref: PS 11/05

50 pages

Conclusion and final rules resulting from Consultation Paper 10/20: Tracing employers’ liability insurers. Primarily intended for auditors and their client companies. Primarily concerning the need for tighter controls on auditors’ reporting of client companies’ asset declarations, and the need to clarify accountability.

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

non-EEA equivalence rules when calculating the standardised requirements of a non-EEA subsidiary.

The proposal would involve revoking the equivalence rules in BIPRU 8, by deleting BIPRU 8.7.35R, 8.7.36G and 8.7.38R from the FSA Handbook.

Key areas of interest include: • Promoting dialogue and information sharing between auditors and supervisors; • The application of professional scepticism by auditors; • The nature and extent of disclosures about management’s key judgements; • FSA and FRC powers; and • The scope of auditor reporting.

Assessing Suitability: Establishing the Risk a Customer is Willing and Able to Take, and Making a Suitable Investment Selection Finalised Guidance March 2011

Ref: FG 11/05

31 pages

Consolidation of guidance following Guidance Consultation 11/01 (13th January 2011). Intended for IFAs, discretionary management services (retail clients only), providers of risk-profiling and asset-allocation tools.

Governance in Retail Firms – Feedback from Winter 2010 seminars Finalised Guidance

March 2011

Ref: FG 11/04

3 pages

Topics include: • Board effectiveness; • Non-executive directors; • Risk appetite; • Information sharing.

New rules come into force on 1st June 2011, although a transition period until 29th September is allowed for.

Enhancing the Auditor’s Contribution to Prudential Regulation: Feedback on DP10/3 Discussion Paper 10th March 2011

Ref: FS 11/01

55 pages

Tracing Employers’ Liability Insurers Policy Statement 25th February 2011

Ref: PS 11/04

68 pages

Conclusion and final rules resulting from Consultation Paper 10/13: Tracing employers’ liability insurers.

Primarily for insurance industry professionals.

New rules came into force on 6th March 2011.

Summary of the feedback on DP10/3 (June 2010), relating to the contribution that auditors make to prudential regulation.

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June 2011

63 27/5/11 16:26:57

No one has more out-performing UK Equity Funds over 3, 4 and 5 years Out-performance is our best ideas at work.

Over 3, 4 and 5 years, nine of our UK Equity Funds have consistently out-performed their respective IMA sector averages.

All of the major sectors are represented in our extensive range of UK Equity Funds.

Visit our website or speak to your Threadneedle contact for more information.

Threadneedle UK Equity Funds

Quartile Rank 3yr

4yr

5yr

Threadneedle UK Fund

2

1

1

Threadneedle UK Growth & Income Fund

2

2

2

Threadneedle UK Institutional Fund

2

1

2

Threadneedle UK Mid 250 Fund

1

1

1

Threadneedle UK Overseas Earnings Fund

2

2

2

Threadneedle Managed Income Fund

1

1

1

Threadneedle Monthly Extra Income Fund

1

1

1

Threadneedle UK Equity Income Fund

2

1

1

Threadneedle UK Monthly Income Fund

2

2

2

Please remember that past performance is not a guide to future returns.

Important information Information for investment professionals only. All data as at 31.03.2011 unless otherwise shown. Past performance is not a guide to future performance.

The value of investments and the income from them may go down as well as up, and an investor may not get back the amount invested. The UK, UK Growth & Income, UK Institutional, UK Overseas Earnings and UK Mid 250 Funds are in the IMA UK All Companies Sector, the UK Equity Income and UK Monthly Income Funds are in the IMA UK Equity Income Sector and the Monthly Extra Income and Managed Income Funds are in the IMA UK Equity & Bond Sector. Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus and the latest annual or interim reports, which can be obtained free of charge on request. This material is for information purposes only and does not constitute an offer or solicitation to an order to buy or sell any securities or other financial instruments, or to provide investment advice or services.

Threadneedle Investment Funds ICVC (“TIF”) and Threadneedle Specialist Investment Funds (“TSIF”) are open-ended investment companies, each structured as an umbrella company; incorporated in England and Wales, authorised and regulated in the UK by the Financial Services Authority (FSA) as UCITS schemes. Investors should note the “Risk Factors” section of the Prospectus in terms of the risk applicable to investing in any fund and specifically the funds shown above. The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. In some instances the information contained in this publication, other than statements of fact, was obtained from external sources believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice. Threadneedle Investment Services Limited. 60 St Mary Axe, London EC3A 8JQ. Registered No. 3701768. Authorised and regulated in the UK by the Financial Services Authority. Threadneedle is a brand name, and both the Threadneedle name and logo are trademarks or registered trademarks of the Threadneedle group of companies. threadneedle.com

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AD0035

Out-think. Out-perform.

0500 600 555 visit threadneedle.co.uk or scan the QR code

20/05/2011 16:48 27/5/11 16:26:57

THINKERS

MISTER MARKET

THERE’S NO NEED TO BE EMBARRASSED EVER AGAIN. YOU CAN NOW BLUFF IT WITH THE BEST OF THEM, THANKS TO IFA MAGAZINE’S MONTHLY CRIB-SHEET ON ALL THE GREAT ECONOMIC THEORISTS.

“In the short run, the market is a voting machine. In the long run, it’s a weighing machine.”

Benjamin Graham Born 1894 in London, died 1976 in Aix-en-Provence, France Big idea? Best known as the inventor of an investment style known as value investing, Graham became famous with his Security Analysis (1934), in which he and his co-author David Dodd declared that the price of a security would always follow its dividends, its earnings and its book value in the long term. And that relying instead on conventional fundamental market analysis was likely to produce disappointment.

Graham believed that any investor could pick up bargains for the long term if he only had the self-discipline to wait until quality high-dividend stocks became irrationally cheap.

Using these disarmingly simple principles, Graham became a multi-millionaire during the Great Depression. But even these achievements were later to be eclipsed by his most illustrious pupil, Warren Buffett, whose wildly profitable purchase of Coca-Cola at its unfashionable nadir ‘wrote the book’ on value investing.

Career path? Although born in Britain, Graham emigrated as a child to New York where he stayed for most of his life. Oddly, his first degree at the age of only 20 was in philosophy, Greek and mathematics. (He dropped economics.)

But, refusing offers of academic jobs in the arts, Graham started an investment fund with Jerome Newman, which he was to run until the late 1950s. But it was his books, most notably Security Analysis and The Intelligent Investor (1949), which were eventually to bring him fame.

Analysis is for Losers Graham was convinced that clever market analysis was unlikely to bring long-term gain, because it was nearly impossible to beat the market. Instead, he said, an investor should build a long-term portfolio of solid dividend performers. He hated fashionable stocks, preferring branded goods with long pedigrees.

You should choose stocks “the way you would buy

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Thinkers.indd 65

groceries, not the way you would buy perfume.”

Introducing Mr Market Graham illustrated his point by creating a fictional character called Mr Market, who would knock at his door every day offering stocks at largely random prices. The wise investor, he said, would turn Mr Market away every day until the price was cheap enough. But he would never waste his time wondering how Mr Market arrived at those prices. Mr Market, for his part, would never take a refusal personally, but would just walk away.

This rather silly parable conceals a much harder truth. Graham was fundamentally rejecting the popular idea that markets are efficient. It’s a myth, he said, that the market has always ‘priced in’ every likely factor when weighing up a stock. If you wait long enough, the market’s folly will make you rich.

So who disagrees? The Mr Market principle has recently been challenged by analysts who assert that better technology, shorting and derivatives trading have all combined to reduce the market’s scope for pricing errors. The proponents of so-called ‘Modern Portfolio Theory’ also claim that Graham was more right than he knew when he said the market was nearly impossible to beat. Not even a value investor can beat the maths reliably, they say.

What do you think?

With the global markets apparently looking for direction, do you think the markets are ready for a return to value investing? Or has more refined investment technology made it impossible to find real value at low risk? A bottle of Moet for the best answer, emailed to editor@ifamagazine.com by 30th June, and entitled “Think Competition June”.

See www.IFAmagazine.com for terms and conditions.

June 2011

65 27/5/11 16:47:00

a n d f i n a l l y. . .

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

sweet fsa Frederick Smythe-Allinson continues his monthly odyssey through the weird, the oddball and the downright disturbing.

New ‘Outside the Box’ Tax-Raising Initiative

What’s the German for Frankfurter?

Allinson can shed exclusive light on why none of that promised wave of bank lending has found its way to the country’s beleaguered small businesses. Well, probably.

Much agitation in the US press, as Nasdaq mounts its rearguard action to thwart Frankfurt’s dastardly scheme for buying up the New York Stock Exchange in a $10 billion deal that would supposedly see 57% of the diluted shareholdings ending up with Deutsche Börse. The German deal won’t be happening anyway unless it gets competition clearance from Brussels - but the mood among many observers is that a true all-American monopoly would be a better thing than any semi-monopoly that involved Europeans.

“Dear Most Esteemed Sir or Madame, “I am Mr Henry Michael Reginald Clarke, an aide to Mr George Osborne, the Chancellor of the British Exchequer, and I trust that you may be able to assist me in A CONFIDENTIAL MATTER OF CONSIDERABLE FINANCIAL ADVANTAGE, with regard to a quantity of government assets which I am required to distribute.

“During the recent political upheavals in our country, a LARGE QUANTITY OF LOAN MONIES were promised by our nationalised lending banks to smaller businesses, as a condition for the advantageous terms on which the bankers were permitted to reward themselves. Unfortunately, much of this money has UNACCOUNTABLY FAILED to be distributed to its recipients, although it has already been booked out as a goodwill item. It has therefore become UNTRACEABLE, a matter which is causing much embarrassment to his Excellency. I have been instructed to secure a confidential partner for the disposal of these monies.

“I am writing, Sir, in the hope that you may assist me in this endeavour. If you will kindly forward a modest arrangement fee of only £25,000, made out to me (“HMRC”), together with full details of your bank account, I will immediately arrange a transfer of EIGHTY FOUR MILLION POUNDS to a location of your choice. The money will be personally guaranteed by the GOVERNOR OF THE BANK OF ENGLAND, and it will be paid to you in new and previously unissued currency.

“I trust, Sir, that my proposal will find your kind favour, and that you will contact me confidentially so that we may quickly resolve this embarrassment to our mutual advantage.

“Thanking You “Your Friend, HMRC”

66

June 2011

And Finally.indd 66

Imagine, then, the shock of discovering that there hasn’t actually been such a thing as the NYSE for years. Instead, since 2007 it’s been called NYSE Euronext – meaning, effectively, that the exchange has been in quiet cahoots with the cheese-eating surrender monkeys of Paris, Brussels, Amsterdam and Lisbon all along….

Cold hostility meets NYSE Euronext’s promises about tighter efficiency after the Frankfurt merger. Even the most sober media pundits insist that, because America’s competition laws are stricter than Europe’s, it follows that US markets must make less money - and hence that the cost of European efficiency would be a wholesale attack on ethical behavior.

Meanwhile the properly paranoid are muttering that it’s all a wicked plot to take New York out of the SEC’s regulation and into Europe. The laws of geography being what they are, however, Allinson suspects this would properly mean loading the whole NYSE operation physically onto a boat and sailing it out onto the high seas. In the meantime, relax boys. If Nasdaq, BATS, EDGX and the CBOE can’t escape the SEC’s regulatory tentacles, then nor can the NYSE, wherever it happens to be.

Next shock: Frankfurt proposes that all of NYSE’s number-crunching after the merger should be undertaken in Paris, where they don’t even have the word computer.

How much worse can it get?

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27/5/11 16:48:12

Income.

Now we’ve two ways to find it.

The Alliance Trust Monthly Income Bond Fund.

The Alliance Trust UK Equity Income Fund.

However hard income is to pin down, we offer two ways to find it.

by the resources of our independent Research Centre.

Providing a monthly return, the Alliance Trust Monthly Income Bond

Our parent company, Alliance Trust Plc, was established in

Fund has a current distribution yield of over 6%*. A new and liquid

1888 and it’s our tradition of investing for generations that

fund (launched in June 2010), it has the agility to pick through bond

helps us excel in the pursuit of today’s income generation.

markets, seeking income opportunities in all market environments.

Find out more about both funds at alliancetrust.co.uk/ assetmanagement or call 0808 234 1888.

Or for clients with an appetite for equities, the Alliance Trust UK Equity Income Fund takes a flexible approach to the markets.

This information is for professional advisers only. It should

Because unlike bigger, older funds it is nimble and has the capacity

not be distributed to or relied upon by retail clients.

to turn on a pinhead in volatile conditions.

* The

distribution yield is not guaranteed and may fall below

Each fund is managed by experienced investment professionals,

this figure. Income can fall as well as rise as a result of market

focusing all their efforts on just one investment strategy. Both

and currency fluctuations. Capital growth may be constrained

teams have the freedom to work autonomously within the strong culture of Alliance Trust. And both are ably supported

or eroded with annual charges and any performance fee chargeable being deducted from capital.

Available on these platforms:

Investing for Generations Alliance Trust Asset Management Limited is registered in Scotland No. SC330862, with its registered office at 8 West Marketgait, Dundee DD1 1QN. It is authorised and regulated by the Financial Services Authority whose address is 25 The North Colonnade, Canary Wharf, London E14 5HS, firm reference number 479764.

Alliance Trust Asset Management does not give financial or investment advice.

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3/6/11 11:50:01

The new land of opportunity is the land of opportunity.

It’s no wonder that in today’s uncertain financial environment, many investors are looking towards the US once more as a land of opportunity.

Since its launch, in November 2008, the UBS US Growth Fund has continually outperformed its sector, being consistently ranked top quartile1.

Fund performance % 3 months 3.9 1 year 9.3 2 years 48.1 Since launch² 61.2

Sector average % 1.9 4.1 40.6 45.8

Quartile

1 1 1 1

How have we delivered such impressive performance?

Through a combination of strategy and expertise.

Using their established research process, our experienced team identifies companies that are attractively priced and have strong growth potential but which possess different characteristics.

The portfolio manager then looks to diversify risk, whilst creating a portfolio focused on delivering performance.

To find out more about this opportunity to invest in the land of opportunity, please call us on 0800 587 2111 or visit www.ubs.com/usgrowthfund

We will not rest

This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances. 1 Source: Lipper. Performance is based on NAV prices with income reinvested net of basic rate tax and in Sterling terms to 30 April 2011. Sector is IMA North America. 2 Fund launched 10 November 2008. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and are not guaranteed. Investors may not get back the amount originally invested. Changes in rates of exchange may cause the value of this investment to fluctuate. The Fund is managed in a concentrated manner with the aim to optimise long-term capital appreciation. Issued in May 2011 by UBS Global Asset Management (UK) Ltd, a subsidiary of UBS AG, 21 Lombard Street, London EC3V 9AH. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded. © UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Cover 02.indd 4

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