SEPTEMBER 2012 ■ ISSUE 14
For today’s discerning financial and investment professional
CROWD FUNDING RISE OF THE ARMCHAIR DRAGONS
GUIDED SALES
A HYBRID SOLUTION FOR ADVISERS?
RED CARD
PUTIN RUINS A PROMISING OPPORTUNITY
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 14.indd 1
18/09/2012 10:14
Best Structured Products Provider 2010 & 2011
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Cover 14.indd 2 C31022.002_SP_Geared Returns_IFA mag_Sep12_297x420_v6.indd 1
18/09/2012 31/08/2012 10:14 16:17
We don’t believe so The aim of the FTSE 100 Geared Returns Plan is to offer equity-linked returns after 5 years given any increase in the FTSE 100. Up to 12.28% p.a compound return in a flat market offers significant growth potential.
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Contents.indd 3 C31022.002_SP_Geared Returns_IFA mag_Sep12_297x420_v6.indd 2
18/09/201216:17 10:11 31/08/2012
Nick Sudbury is a financial journalist and investor who has also worked as a fund manager. Kam Patel a former deputy editor at Hemscott. He is a qualified investment adviser. Monica Woodley is a senior editor at the Economist Intelligence Unit.
Lee Werrell is the Managing Director of leading UK consultancy, CEI Compliance.
Brian Tora a Communications Associate with investment managers JM Finn & Co. Richard Harvey a distinguished independent PR and media consultant. Gillian Cardy managing director of The IFA Centre.
Stephen Spurdon has more than 18 years’ experience with the national, consumer and trade press.
09.12
Editorial advisory board: Richard Butler, Michael Holder, Ian McIver and Mark Pullinger
THE FRONTLINE: Putin’s Russia is authoritarian, politically rigged, and highly profitable. But is it worth all the hassle?
Editor: Michael Wilson
editor@ifamagazine.com
Art Director: Tony Merlini
tony.merlini@ifamagazine.com
Publishing Director: Alex Sullivan
alex.sullivan@ifamagazine.com
17
8
News
All the big stories that affect what we say, do and think
Editor’s Soapbox
34
Brush up on your general knowledge, says Michael Wilson. And your Google skills too
A Spring in the Market’s Step
44
The autumn season seems to have started early. Brian Tora thinks he knows why
Non-Contributory Pensions Don’t splutter, now. Steve Bee says they may be due for a comeback
54
49
Pick of the Funds
The rich really are different. Nick Sudbury explains how
FSA Publications
Our monthly listing of FSA publications, consultations, deadlines and updates
59
The Compliance Doctor
Lee Werrell of CEI Compliance looks at the top current issues of interest to IFAs
Thinkers: The History Man John Stuart Mill, a political scientist whose economic thoughts weren’t bad either
66
56 65
The IFA Calendar
Conferences, economic summits, race meetings... All the dates you daren’t miss
The Other Side
Richard Harvey wishes the taxman would just do what we’re paying him for
IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2012. All rights reserved. ‘IFA Magazine’ is a trademark of The Wow Factory Publications Ltd. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.
features
This month’s contributors
regulars
C O N T R I B U TO R S
magazine... for today ’s discerning financial and investment professional
N E W S R E V I E W C O M M E N T A N A LY S I SN Contents.indd 4
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CONTENTS
features 22
COVER STORY
Red Card
Vladimir Putin has chosen a bad moment to show the world his authoritarian side, warns Monica Woodley. It may cost his country dearly
28
RDR Preparations: Part 1
36
The RDR timetable is going better than expected, says Stephen Spurdon, but not everyone has got all the bases covered yet
What happens when the oil price slumps? Nobody has the faintest idea. But it might not be good unless the president can lightenup
Guided Sales
Keith Aylwin of Distinct Business Consulting explains why this hybrid form of advice might yet save the day
INSIDE TRACK
40
Pharmaceuticals
John Bennett from Henderson Global Investors think’s there’s rarely been a better time to buy
46
Crowd Funding
A new form of equity investing that’s making armchair dragons out of ordinary people. Kam Patel explains
IFA Magazine is for professional advisers only. Full subscription details and eligibility criteria are available at: www.ifamagazine.com
I SN E W S R E V I E W C O M M E N T A N A LY S I S Contents.indd 5
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Issued by Octopus Investments Ltd, 20 Old Bailey, London, EC4M 7AN. Octopus Investments Ltd is authorised and regulated by the Financial Services Authority. 01.09.2012_IFA_297x210mm.indd 1
Ed's Welcome.indd 6
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28/08/2012 11:23
WORDS OF WILSON
SWINGS AND ROUNDABOUTS THE GREAT BEN GRAHAM PROPOSED AN ASSET ALLOCATION METHOD WHEREBY AN INVESTOR WOULD PUT 50% OF HIS MONEY INTO STOCKS AND 50% INTO BONDS... ...and then tweak the ratios as far as 75%-25% in either direction depending on his perception of the market at the time. How would that principle work out today? As a way of dealing with the eternal conflict between emotion and logic, the variable 50-50% arrangement proved to be a valuable storm-anchor. But Graham’s argument assumed that, as the value of stocks fell, the investor would receive a higher level of interest income from the bond component of his portfolio which would help to keep the boat stable. And, crucially, when they rose the converse would apply. Does that part of the idea still work today? It isn’t clear. Between May and mid-August, the Footsie gained an impressive 11% while the Eurofirst 300 and the Dax soared by 17%. But alas, if investors had been expecting bond yields to fall correspondingly they’d have been mistaken – for the pretty obvious reason that they seem to have nowhere lower to go. 10 year gilts are still at 1.5% and bunds are at 1.35%, with even US treasuries stuck at 1.7%. Bonds remain in high demand, it seems, because the outbound pressure from southern Europe is piling this unnatural inbound demand onto safety markets like London and Frankfurt. But look at what happens when we turn to southern Europe. Spain’s benchmark yields are still up there dicing dangerously with 7%, Italy’s with 6%, and Greece’s with 25%. But the weird thing is that Madrid shares put on 21% during the same period and the Milan borsa gained 17%. Mediterranean investors are still having it both ways. What does that suggest? Possibly that a change in the general economic perception has created a rising tide that has lifted all boats? Or that the perceived risk of sovereign default is still serious enough to be persuading Mediterranean investors to dump bonds for stocks, and that this exodus alone is driving markets up? Either way, the swings and the roundabouts are out of balance wherever you look. And until the euro mess is sorted, it’ll probably stay that way. The 50-50% rule seems to be in abeyance.
M ik e
Michael Wilson, Editor IFA magazine
www.IFAmagazine.com
Ed's Welcome.indd 7
Write to Michael at editor@ifamagazine.com
September 2012
7 28/08/2012 11:23
shorts
magazine
Relief for George Osborne, as
revised figures for the second quarter showed a 0.5% shrinkage in GDP against an earlier estimate of 0.7%. The Bank of England still reckons that the additional Jubilee bank holiday could have reduced growth by 0.5% during the quarter, which might suggest that underlying performance is merely flat level. These days it seems you have to take your good news where you can find it.
FOOL’S GOLD? Sell in May and go away? Not this year, as it turned out. The FTSE Eurofirst 300 index put on 17% from a low of 950 in early June, making 1,110 in late August before pausing for breath.
That puts it back within reach of last summer’s 1,120 level – and although it’s still pitifully short of the 1,600plus levels we saw in 2007, it seems to indicate a return to confidence. Or at least, the hope that we might be getting toward the beginning of the end? It was the same story in America, where the S&P 500 index cruised through its mid2008 highs to challenge the assumptions that 2007’s 1,560 peaks would remain unattainable. And the Footsie made it from 5,250 in early June to 5,850 in mid-August – a rise of 11% - before dropping back on fears that the market might have overheated. Even so, it was still below the 6,000 levels of last summer – one of the very few major markets not to have recouped all its 15-month losses. One other particularly major exception has been Japan, where the Nikkei’s 8% growth since May still leaves it tragically short of the 10,850 levels of 18 months ago.
And Tokyo’s nasty 500 point dive during July – from which it has only just recovered – tells us that faith in the political process is even weaker than we’re accustomed to over here in Europe. (Is such a thing possible?) But enough of such scepticism. Gold and precious metals remained subdued, with bullion seemingly pegged to the $1,600 level – a sign which would seem to indicate that the markets aren’t scared of Washington’s upcoming election, and that quantitative easing on both sides of the Atlantic remains a distant prospect. Or, at least, a manageable one. There was no particularly good news from China, where the Shanghai SE Composite dropped to an all-year of just 2,090 on weakening growth data, or in India or Brazil. But Mexico’s main index continued to soar on hopes that the US resurgence will soon be rubbing off on the country’s export industries to the north.
N E W S R E V I E W C O M M E N T A N A LY S I SN News.indd 8
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HEADING FOR A FALL
In America an inconclusive November election might leave the newly-elected president with no mandate to resolve the deficit conflict. With the unhappily inevitable result that the automatic budget-chopping measures agreed in August 2011 will kick in.
One Swallow Doesn’t Make a Summer
A final word of caution, however. The sharpish late downturn in most western markets during the second half of August might simply be a welcome pause for breath, or it might be a lurking awareness that neither Washington nor Brussels has banished the possibility of a major upset.
NEWS
But UK households
Asil Nadir (pictured left), the former
are still refusing to spend, according to the new figures. Household consumption by 0.4% in the second quarter – which, according to Deutsche Bank, leaves UK consumption levels 6.3% below their 2008 peak. Every other G7 country except Italy, it says, is running above its pre-recession level. Ouch.
boss of Polly Peck International, was jailed for 10 years after being convicted on 10 out of 13 counts of theft. The Turkish Cypriot had skipped bail and fled to his homeland in 1993 while still awaiting trial after the 1990 collapse of PPI, but had returned voluntarily in 2010. The convictions involved thefts of £29 million. Mr Nadir’s wife says he will appeal.
For Brussels, of course, that worry would be that the Eurozone might run into further difficulty. For America, that an inconclusive November election might leave the newlyelected president with no mandate to resolve the deficit conflict. With the unhappily inevitable result that the automatic budget-chopping measures agreed in August 2011 will kick in, and that nobody will be able to stop an indiscriminate $500 billion of defence and welfare cuts that might slash a million jobs in the defence and procurement sector alone. This is why a p/e of 11 on the Footsie, and just 16 on the S&P, doesn’t necessarily add up to an attractive proposition at the moment. Unless you’re a particularly casehardened bargain hunter, that is. But there are such people, apparently... For more comment and related articles visit...
www.IFAmagazine.com
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News.indd 9
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NEWS
Apple
Facebook can’t claim
is now the world’s most valuable company, having overtaken Microsoft with a market capitalisation of $623 billion. Its late-August share price of $665 compares with just $85 at the end of 2008.
much of the credit for the shine on the Apple, however. The social networking corporation, whose shares hit $40 after its July IPO on Wall Street, was forced to watch them plummet to $19 after a deadline expired which had prevented founder subscribers from selling.
Drinking in the Last Chance Saloon “Greece not written off, says Merkel.” As front page headlines go, the Financial Times’ opener on 25th August seemed to sum up the mood with a blast of very fresh air indeed. Air of the kind that freezes your very bones when somebody finally opens the windows the morning after a long and alcoholic party. The German chancellor had just listened politely to a request from Athens’s Prime Minister Antonis Samaras for more time to get his country’s economy into shape. “We need more breathing space,” the embattled leader had insisted – adding that any talk of Greece being forced to leave the euro club was “toxic”. But her response was cool.
Germany had not abandoned all hope of getting Greece back on track, she said, and it would remain “as helpful as possible” on the strict condition that Athens stuck to its programme of intensive political and budgetary change. That fulfilment, as others have made abundantly clear, is the unbreakable condition for the delivery of €130 billion of aid, as romised last February. But to get the money, Greece needs to reduce its budget overshoot to just 3% of GDP by 2014, from a projected 8.0% in 2012. That 3% deficit figure will probably ring a bell. It was, of course, the threshold that all Eurozone member governments were required to achieve back in the late 1990s as a condition for being allowed to join the single currency in the first place. And, with hindsight, we now know that Greece’s success in meeting this target had been down to some hefty jiggling of the statistics that doesn’t stand up to close scrutiny now. But other countries aren’t exactly finding it easy to make 3% either. The average projected deficit for 2012 among Eurozone countries is closer to 3.4% of GDP, with Spain looking at 6.6% and the Netherlands at 5.5%. And what about Britain, which has chosen to take the fiscal blow on the chin this year rather than in the future? Well, The Economist magazine is forecasting a deficit somewhere to the north of 8%, and it says even America is looking at 7.6%. A growing sentiment among traders is that the market has partially priced in the likelihood of a Greek exit. Here’s hoping that they’re wrong.
For more comment and related articles visit...
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N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 10
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IS News.indd 11
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NEWS
Japan’s trade
deficit hit ¥517 ($6.5 billion) in July, as exports of technology and motor vehicles were hit by declining sales in Europe. Not even a 3.5% growth in GDP during the second quarter was enough to lift the Tokyo stock exchange, which also struggled badly.
Mortgage approvals
recorded by the British Bankers’ Association rose by 10% in July, to 28,441 compared with 25,940 in June. The figure is 17% down on June 2011, and the BBA says consumers are still avoiding new commitments. Although completed house sales to July were 9% higher than in 2011, July’s completion figures were sharply down.
Is this goodbye? We can’t say we weren’t warned. The FSA has been complaining for more than a year now... ...about how Unregulated Collective Investment Schemes (UCIS) and similar products are being sold to unsuitable clients in the retail market. But its announcement on 22nd August about the proposal (CP 12/19) for a virtual ban on most retail advisory has come as a bit of a shock, because the restrictions are set to run wider than previously expected. At present, UCIS can be promoted to ordinary retail investors on the strict condition that an adviser first assesses the product’s suitability for their needs. In effect, however, the consultation paper will prevent firms from marketing UCIS to ordinary retail customers under any circumstances. Thus, as the agency says, “promotions will generally be restricted to sophisticated investors and high net worth individuals for whom the products are more likely to be suitable.” The FSA’s decision will come as a particular disappointment to organisations such as Future Capital Partners, which have been running UCIS roadshows around the country to draw advisers’ attention to the sector. But the FSA says its own research, conducted in 2011, found that three out of every four advised sales of UCIS to retail customers were unsuitable in terms of the customer’s needs and requirements. But the shocker, perhaps, is that the move will also restrict the sale of other products with
similar risk characteristics. In particular, the regulator has special purpose vehicles (SPV), qualified investor schemes (QIS) and certain types of structured products in its sights. (Although it seems clear that the former category will exclude covered bonds and investment trusts.) “We estimate that the UCIS retail market is worth around £2.5 billion in the UK”, said Gavin Stewart, acting director of policy, risk and research at the FSA. “A total of 85,000 ordinary retail investors have direct holdings in these investments, which can hold assets like traded life policy investments, fine wines, crops and timber. Another £1.5 billion is invested in products, such as securities issued by special purpose vehicles, which can carry similar risks for investors. Under our proposals, firms should only promote these products to people for whom a UCIS or similar product is more likely to be right. How will an adviser know in advance whether his client can safely be classified as ‘sophisticated’ enough to be offered a UCIS? Will the assessment rely entirely on his high net worth – defined as an annual income of more than £100,000 or investable net assets of over £250,000 - or on some combination of the two? We can only wait and see. 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 N News.indd 12
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Loan Sweet Home Equity release has come a long way since the dark days... ...when poorly drawn-up and badly explained home reversion policies aroused so many concerns about its suitability for clients. The Equity Release Council has released figures for the second quarter of 2012 which show a healthy 22% year-on-year growth in advances £224.8 million of advances were recorded during the quarter, the Council says – compared with £184.8 million in the year-earlier period and £199.0 million in the first quarter. This is also the highest amount of equity released in a single quarter since Q4 2009 (£231.7m) – which, according to the Council, bodes well for the recovery of the industry post-credit crunch. Meanwhile the number of plans sold grew to 4,302, a 6% increase on the first quarter’s 4,057 and 16% up on Q2 2011 (3,710).
Aviva
is to cut up to 800 jobs in its general and life insurance arms, the corporation announced in late August. The cuts, which are due for implementation by December, form part of the £400 million global costcutting drive that was announced in July by the incoming John McFarlane (pictured left). Some of the cuts will be through natural wastage.
NEWS
Selling packaged
bank accounts will be tightened up from next March, when new FSA rules will require banks and building societies to check in advance that any insurance policies sold within the packages are suitable for the client. The rules appear to imply that an annual suitability review will be required.
Drawdown plans were selected by an overwhelming 68% of the market, measured by value. Lump sum mortgages accounted for 32%, with just a handful of home reversions (1%). What’s interesting here is that three years ago the proportion of drawdown plans was just 49%. The Council says that at the height of the property boom, consumers would have chosen to take out large lump sums; but since the credit crunch they have been increasingly cautious and now prefer to take the benefits in smaller lumps so as to augment their incomes, or to pay for one-off expenses. The proportion of direct sales has remained static at just 10%, whereas 90% are still sold through intermediaries. Director General Andrea Rozario stresses that “obviously, we are not out of the woods yet,” and that much work still needs to be done to improve consumer understanding. But the volume trends, and the sectoral shift as well, point toward more and more consumers using their home equity to improve their standard of living and to pay for costs in retirement. Few advisers will need much reminding of the reasons why consumers are augmenting their incomes with drawdowns – rising costs, sharply falling pension annuity levels and so forth – but, as Ms Rozario says, it does also seem to reflect greater faith in the housing equity situation. For more comment and related articles visit...
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I SN N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 13
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NEWS
British consumers spend
150 working days a year on their state commitments, according to research from Bright Grey, and another 55 days on their housing. 28 days goes on paying bills, and just 4 days on insurance. Which means that they’re through to October before they start to earn anything for fun. Of which 10 days’ worth goes on entertainment and eating out.
Royal London’s pre-tax
profit dropped by 38% per cent in the first half to just £86 million, from £138 in the year-earlier period, as assets under management rose to £44.9 billion. Meanwhile, assets under administration on its Ascentric platform exceeded £4 billion for the first time, reaching £4.3 billion.
Saga Bashes the Bank The Bank of England has received a thorough ear-bashing from Saga’s Director-General Ros Altmann about the implications of its £375 billion Quantitative Easing programme on Britain’s 21 million over-50s - and especially its pensioners. The Bank’s initial analysis, released in late August, concluded that QE has positively benefited the economy, and that because QE has pushed up gilt prices it must be having a positive effect on the economy. But Dr Altmann insists that QE has “permanently impoverished” pensioners in three ways that the Bank has simply not taken into account. “It is asserted, but not proven, that pension savers are no worse off due to QE gilt-buying, because the value of their pension savings has gone up to offset the fall in the annuity income they will receive when converting their pension fund into a pension income,” Altmann begins. And she goes on: “The Bank has also failed to factor in the damage done by the inflation created by QE to pensioner incomes” Because QE has pushed up inflation significantly, real incomes have been eroded and the spending power of Britain’s retirees has been damaged. This wouldn’t be so bad, but “more than 90%” of annuity buyers are purchasing level incomes with no protection against inflation at all.Which means, in effect, that even those who bought their annuities before QE are watching their incomes disappearing into insignificance. This, of course, shouldn’t come as a surprise, because it was ever thus. Inflation has always been the enemy of a fixed cash income. But Altmann seems to be on firmer ground when she rubbishes the Bank’s palpably dodgy assertion that equity investments have risen sharply in recent years. And the disastrous trend in gilt yields has had the double whammy effect of hitting portfolios while also driving down annuity rates. “The fall in annuity rates since mid-2008 is over 24%,” she says. “Cumulative inflation for older
age groups has risen by over 20%. The FTSE is relatively unchanged, and the average balanced pension fund has performed poorly, so that for people with defined contribution pensions, the impact of QE in reality has not been as the Bank of England is assuming.” That’s putting it mildly. And at the same time, she says, employers are going bust because they can’t afford to maintain their defined benefit pension contributions at the required levels – and that banks for their part are refusing to lend to businesses with DB pensions because of fears about the deficits. So who exactly do we blame for that mess? The Bank? Surely not?
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N E W S R E V I E W C O M M E N T A N A LY S I S News.indd 14
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This base net 31 J orig is pe 201 201
IS
Shanghai, China; a booming international city, representing the dynamism of Emerging Markets.
An emerging yield of 5.6% p.a. The UBS Emerging Markets Equity Income Fund. Despite the current environment of low interest rates, the UBS Emerging Markets Equity Income Fund has still managed to deliver a historic yield of 5.6%¹. How has this been achieved? Leveraging off a fundamental research based, bottom up, investment process, all stocks within the portfolio pay income and are selected on both their current and forecast dividend yields. To date, the Fund has not only delivered a significant yield but, as can be seen in the table below, it has also consistently outperformed its sector.²
6 months 1 year Since launch3
Fund performance
Sector average
Outperformance
Quartile
4.3%
2.1%
+2.2%
1
-4.9%
-14.0%
+9.1%
1
0.0%
-12.4%
+12.4%
1
We believe this investment process has the potential to continue to reward clients and provide them with the opportunity to diversify their sources of income and exposure to emerging markets. To find out further information on this emerging source of income, please visit www.ubs.com/emei or call us on 0800 587 2111.
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ab
This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances. ¹Source: UBS Global Asset Management, 30 June 2012. Historic yield is based on distributions declared over the last year as a percentage of the share price. It does not include the effect of any initial charge paid. ²Source: Lipper. Performance is based on NAV prices with income reinvested net of basic rate tax and in Sterling terms to 30 June 2012. Sector is (IMA) Global Emerging Markets. Quoted yield and performance figures shown are both representative of the A income share class. ³Fund launched 31 January 2011. 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. Investments in less developed markets may be more volatile than investments in more established markets. The Fund is permitted to, and may, on occasion, hold a limited number of investments. As the annual management fee of the Fund is charged to capital, the potential capital growth of the Fund will be reduced. Issued in July 2012 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 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
News.indd 15
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News.indd 16
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ED ’S SOAPBOX
The Bigger Picture MICHAEL WILSON CASTS HIS MIND BACK AND CATCHES A GLIMPSE OF THE FUTURE
Bear with me, just this once, while I go off topic with a little personal reminiscence about how knowledge used to be acquired - and, more importantly, stored - in the bad old days. I’ll get to the point in a minute, I promise. Normal service will be resumed as soon as possible.
Life Down In The Archives My first foray into professional writing for a living was at something called Keesings Contemporary Archives – a venerable British institution which used to be found in every public library and every cabinet office, but which would nowadays make anybody under 40 gawp at its sheer antique inefficiency. Our task at Keesings was to sit every morning in an elegant but tatty Regency
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building in Bath, and to cut up 150 newspapers from around the world, most of them in foreign languages. Then we’d file the paper cuttings in a wooden pigeonhole system, after which we’d pick up fistfuls of carefully indexed offcuts and turn them into immaculately balanced and totally impartial write-ups on political events that would hopefully stand the test of time as full-blown historical records. It was all a bit like the last gasp of Empire. We’d type up our reports on ancient upright Remingtons, we’d get them edited, and then we’d send them all away to be printed every month. We were immensely highly regarded by academia, and our wise words were quoted in court cases, parliamentary disputes and learned debates the world over. (We had our share of death threats, too, from foreign governments that didn’t see things our way, but we generally regarded their earnestness as a kind of backhanded flattery.) But the thing was, each of us writers was expected to produce just 1200 finely-honed words a week.
The Google Challenge
Nowadays an averagely hard-working journalist probably writes 1200 words a day, and often much more. If I want the low-down on a topic, I’ve got Google on hand to save me from riffling through
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magazine... for today ’s discerning financial and investment professional endless carefully indexed scraps of newspaper. And if I want to publish something I’ve got Microsoft Word to do the keyboarding for me. Easy. The catch, of course, is that if it’s easy for me to do this, it’s also easy for anybody else who perhaps isn’t quite so professional – a blogger with a distorting agenda, a person with a grudge, or just somebody who doesn’t research his stuff very carefully. So the downside to all this easy instant Google-knowledge is that we have to become expert at sifting through it to spot the bias, the distortions and the careless inaccuracies. And to know the difference between them. Either we have the personal capacity to do that, or we don’t.
Knowledge Itself Is Changing
Young people, on the whole, are better than us oldies at online sifting and sorting - which is a good thing because we have to do so much of it. It’s partly a matter of experience and partly getting into the habit of cross-checking and corroborating anything that sounds iffy. And without that habit we’re lost. Fall for an unreliable blogger who writes financial stuff about an oil strike, and you’re losing money. Fall for a straight political fib, and you lose credibility. Now let me say that I sincerely believe what I’m about to say. This profusion of online information is changing the very nature of knowledge itself. My job at Keesings involved knowing a heck of a lot about the countries I was writing about, in the same way as my maths lessons at school had involved spending time with log tables and slide rules. Nowadays I can get along quite nicely without knowing all that stuff, because it’s always there at the touch of a button. The real life skill is not knowing stuff any more – it’s knowing where to find it. And then, of course, knowing how to weigh up whether it’s likely to be true or not.
What’s All This Got To Do With IFAs?
The biggest challenge that all advisers will face in the New Year is that their clients will be in no doubt whatsoever about what they’re being charged. And the second biggest challenge is that they’ll be reading many of the same news and research sources as you and me. Take a look at what’s out there on the Motley Fool and Bloomberg and FT.com, and even the BBC news website, and you’ve got the same sort of information that they’re already getting. Now, put those two things together and you’ve got what the Chinese would call a problemopportunity and we’d call a crisis. Part of your job from now on will be to look your clients firmly in the eye and convince them that you know exactly what they’re on about when they talk about current affairs. Or, at the very least, that you know where to get the information you’ll need in order to get them precisely where they want to be. And, ideally, to do it in such a way that your own experienced eye can see the whole picture more clearly than they can. Those IFAs who can convey this calm and competent assurance will be the ones who not only survive but thrive in the new regulatory environment.
New Opportunities
Consider this. If there’s one area of IFA activity that’s expanding very rapidly at the moment, it’s the financial planning side of the package. Keep your customers’ confidence, and they’ll come to you for new products which you can crosssell on the back of your other relationships. Their employers will come to you for autoenrolment pension packages, an absolutely vast and lucrative field which is wide open for business. But if you forfeit that faith, you risk losing them to execution-only platforms and do-it-yourself ISAs which they may well be ill-equipped to manage without your assistance.
Okay, I said I’d get to the point eventually, and here it is. If you’ve never been the sort of person who goes in for pub quizzes, and if you don’t know your plutonium from your Pussy Riot then you have some catching up to do. 2013 will be the year when a little bit of general knowledge will go a long way.
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ED ’S SOAPBOX
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ED ’S SOAPBOX
magazine... for today ’s discerning financial and investment professional
“A person who won’t read has no advantage over one who can’t read” Mark Twain
The Political Imperative
But most of all, it’s the need to keep up with the changing political and macro environment that will tax us and reward us. Your clients are already aware, although probably only dimly, of the growing influence of Brussels on Britain’s investment environment – if only because they’ve seen the news footage of George Osborne mouthing off at Germany and France about plans for European banking union. The better-read among them will be nursing anxieties about whether MiFiD 2 means the end of execution-only trading in Britain, or tight restrictions on synthetic products or leveraged ETFs. The ones who’ve been encouraged to step out into the brave new worlds of emerging markets and mining companies will be ready to bombard you with intelligent questions about the way things are going. Those who may be nearing retirement will be worrying themselves sick about falling annuity rates, and at least some of them have read in the Daily Mail that this is connected, in some strange way, with the euro crisis and the fact that sterling bonds are embarrassingly popular.
Where To Start?
These are all opportunities to be grasped. But how can it be done while you’re grappling with organisational change, regulatory change, platform innovation, Level 4, staffing change, new fee structures and all the rest of it? There simply aren’t enough hours in the day. What you need, of course, are some shortcuts, and thankfully they do exist. Take time to read the FT’s excellently structured front page every morning, and you won’t get caught out when Mrs Arbuthnot asks for your views on the situation in Kazakhstan where her mining companies operate.
Make it a high priority to scan a magazine such as The Economist, which will give you enough of a political analysis to keep you on top of what you need to know. Don’t scorn the social media sites, even though you probably know as much already as their most prolific posters. And of course, check the IFA Magazine website regularly for news and analysis. None of this will be enough to give you all the answers you require. But what it will do is to ensure that you’ve got a roadmap in your mind that will enable you to drill down into the online details. If you’re not confident with your Google search skills, there’ll never be a better time to mug up on the subject.
A Proper Charlie One of the greatest reads I’ve ever had wasn’t about values or fundamentals or even politics. Instead, it was the Herb Kay Undergraduate Lecture that was given in 2003 to the University of California by the unique Charlie Munger (pictured above), Warren Buffett’s first lieutenant. Munger has been described by Bill Gates as “truly the broadest thinker I have ever encountered”. And I urge everybody with a love of commonsense thinking to read it, if only for the love of the language Mr Munger uses. One of Munger’s most essential points, and one which he has made his life’s work, is that the only way to develop a proper fingertip feel for the world is to read broadly, hungrily and even indiscriminately about all sorts of subjects. Only when it’s all had a chance to settle in the back of your mind will you start to discern the sorts of patterns that he and Buffett have made their hallmark over the last half-century. You can find the speech at www.tilsonfunds.com/MungerUCSBspeech.pdf Enjoy!
Do you have a good reason for the Editor to jump back onto his soapbox? Not that he needs any encouragement, please send your requests to editor@ifamagazine.com and stand well back!
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05/09/2012 11:45
VLADIMIR PUTIN’S HARSH APPROACH IS DRIVING POTENTIAL INVESTORS AWAY, SAYS MONICA WOODLEY 22 Russia.indd 22
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Two events in August brought the dilemma facing potential investors in Russia into sharp focus. Just days before Russia’s entry into the World Trade Organisation, a Russian court sentenced the three members of Pussy Riot, a punk feminist group, to two years in prison for hooliganism after they staged a protest against president Vladimir Putin in a Russian Orthodox church. One step forward, towards less restrictive trade and submitting to international rules - and one step back, with the government demonstrating it still has no qualms with using a heavy hand to crush political opposition. Russia joined the WTO on August 24 with some promises of reform. And reforms are certainly needed. Russia has increased import tariffs on a number of goods since late 2008. Indeed, according to the European Union, since the start of the global financial crisis in 2008 Russia has implemented more tradedistorting measures than any other trade partner. The hope
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is that WTO membership plus economic recovery - including in particularly sensitive or hard-hit industries - mean there is now less incentive for more restrictive measures.
Showing his political stripes
Putin has shown he is not averse to some change. Many important market-based reforms were implemented during his first presidential term in the early 2000s, such as customs reform, tax reform and reducing the regulatory burden on business. Putin has also endorsed privatisation and pension reform. But there is still suspicion that his commitment to reform is not whole-hearted. His record and the vested interests of his allies and supporters do not suggest he is likely to turn into an ardent reformer over night. High oil prices have reduced his motivation for reform even further. Entry into the WTO was made possible due to improved relations with the US, following the ‘reset’ policy of President Barack Obama. But with Putin’s return to the Russian presidency, the US-Russian
RUSSIA
RED CARD reset is clearly under strain. The arrest and conviction of Pussy Riot - which has attracted worldwide media attention and calls from celebrities from Paul McCartney to Madonna for their release – has demonstrated to the US and the rest of the world that while Russia may be willing to play by some rules with the WTO, it will still throw its weight around at home. Putin has taken charge not just of the political system but also of the economy. Ahead of his return to the presidency in 2012, he had set out a vision based on state capitalism, citing China and South Korea as examples. He also defended the state corporations created during his first spell in office - and, despite pledging that stakes in some state-run corporations will be sold, it is unlikely now that he will give up controlling stakes. In particular, there is little sign that he is willing to give up control of the lucrative oil and gas sector.
A few shafts of light
One area where government has shown greater openness to change is
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magazine... for today ’s discerning financial and investment professional monetary policy. Russia’s framework has been improved with the introduction of greater exchange-rate flexibility, allowing monetary policy to focus on combating inflation. New fiscal rules have also been introduced, one of which limits budgetary spending in line with movements in oil prices and puts any revenue from higher oil prices into reserve funds. But the plan does relatively little to reduce the country’s hefty dependence on oil in the short term. The budget’s breakeven oil price will decline only gradually (to $105.4/barrel in 2015, down from $116.2/b in 2012) and it incorporates pre-election promises by Putin to increase public-sector pay and social benefits, which will require cuts to infrastructure and education. Those are areas that already suffer from underinvestment. The education system is seriously underfunded and
poorly geared toward the changing demands of the job market. While Russia’s low-cost, highly skilled labour force is currently one of the main attractions for foreign investors, and basic skill levels are generally much higher than in other emerging markets, skill shortages are starting to be seen on a sectoral and regional basis. And demographics will not help Russia’s skills shortage either. The population has shrunk since independence (it’s now less than 142 million), and it is expected to decline further. The population is ageing, and the birth rate is low. Bad signs, all of them. Meanwhile Russia’s physical infrastructure continues to deteriorate, thanks largely to inadequate maintenance. The World Bank estimates that the funding gap for road network maintenance alone amounts to about 1.2% of GDP per year. Here, the risk is that Russia’s corrupt and inefficient state bureaucracy will not deliver on the government’s ambitious plans
- leaving businesses shouldering the cost of poor infrastructure.
Effects of global instability
It is not just Russia’s internal issues that give cause for concern. In the second half of 2011, Russia, like other emerging economies, experienced a weakening of its currency in reaction to the volatile global outlook and flight from risk. During September and October alone the Russian Central Bank spent around $10 billion in foreign reserves to prop up the rouble – and, should the currency come under sustained
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RUSSIA
and strong downward pressure again, the authorities will do everything possible to prevent a severe devaluation, since that would trigger large-scale capital flight and destabilise the domestic banking sector. Overall, banking sector liquidity has improved and profitability has rebounded since 2009. Capital adequacy is strong, lending is growing and the volume of non-performing loans has started to decline. However, reforms in regulation and supervision are still needed. A stress test in 2011 by the
RCB found that in a scenario similar to the crisis of 2008, almost half of Russia’s banks would have less than the required capital adequacy levels. Although a banking crisis seems unlikely while the economy continues to recover, a downturn would probably mean major difficulties for many banks. The good news is a severe downturn is not predicted. But growth will slow over the next few years. GDP grew by 4.3% in both 2010 and 2011, but estimates from the Economist Intelligence Unit show that the
rate will slow to 3.8% in 2012 before gradually rising to 3.9% in 2013 and 4.1% in 2014 and 2015. Domestic demand remains the main driver of Russia’s economic growth. Retail sales are increasing, as is investment spending, and business confidence in industry remains relatively high. However, global financial volatility is affecting investment and consumer expectations (as is inflation), and the economy’s high and growing dependence on natural resource sectors is a risk. Although the
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28/08/2012 11:36
RUSSIA
magazine... for today ’s discerning financial and investment professional outlook for oil prices is currently favourable, the uncertain global economic environment means that oil prices, pushed up by speculation and a risk premium from instability in the Middle East, could fall sharply.
Entrepreneurial ambitions
Putin is not just sitting back while counting the money rolling in from the oil and gas sector and jailing dissident feminists. There are plans to turn Moscow into a global financial centre, and to create the next Silicon Valley just outside the capital. Moscow’s two bourses, the MICEX and the Russian Trading System (RTS), completed their merger in December 2011, creating one of the world’s largest 20 exchanges. Russia is also making itself more investor friendly by creating a central depository for securities, which registers ownership of securities and conducts clearing operations, as well as providing international tracking codes to Russian issues and giving information to owners of securities. Regulators also have proposed eliminating the cap on the proportion of shares Russian companies may trade in foreign markets (currently 25%). In Skolkovo, near Moscow, the state is building what will be one of the world’s biggest high-tech cities in a few years, boasting a research university
PUTIN NEEDS TO SORT OUT THE COUNTRY’S INSTITUTIONAL WEAKNESSES. UNTIL THEN, THE RUSSIAN BEAR IS LIKELY TO STAY IN HIBERNATION with 1,800 students, 40 corporate R&D centres and a technopark for up to 1,000 start-ups. Skolkovo will be a special economic zone so companies will receive tax breaks and special treatment with visas and imports. The goal is for Skolkovo to bring together researchers, entrepreneurs and investors in IT, biomedical, energy-efficiency, space and nuclear technologies, in a bid to help Russia modernise. But it will be hard for Russia to build a culture of innovation if it keeps throwing people in jail for speaking their minds. Its arbitrary judicial system does not fill would-be entrepreneurs or investors with confidence that it will protect their rights.
This is just one fact of life that the government - and Putin in particular - needs to recognise. It also needs to invest in itself . Despite show projects like Skolkovo, the share of fixed investment in GDP is much lower than in many emerging markets. Russia also has a high and growing dependence on natural resource sectors, leaving it vulnerable to price shocks. And the picture is not completely rosy even in these favoured sectors. Energy output growth will remain sluggish because oil companies are struggling to increase production as existing fields are depleted and recovery becomes more difficult. But mainly, Putin’s people need to sort out the country’s manifold institutional weaknesses, particularly high levels of corruption. Until then, the Russian bear is likely to stay in hibernation. For more comment and related articles visit...
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31/05/2012 28/08/2012 13:17 11:36
IT’S STARTI magazine... for today ’s discerning financial and investment professional
RDR HAS LESS THAN 120 DAYS TO GO, SAYS STEPHEN SPURDON. HOW’S THE TRANSITION SHAPING UP? Incredibly, it’s been six years since John Tiner, the then chief executive of the Financial Services Authority (FSA), announced the start of a process that his boys had rather clunkily named the Retail Distribution Review (RDR). And we’d be understating the matter if we said that the intervening period has radically altered the entire landscape of the IFA sector – in some instances traumatically, and in others inspirationally. Some people have cast doubt on the wisdom of driving through such a radical reform, especially in the light of the intervening financial crisis, while others believe the change lays foundations for a more secure future for financial advice. Either way, there’s no turning the clock back now. Over the next two issues of IFA Magazine we’ll be looking at some of the bigger challenges that still face the sector – the decisions about independence, the technological issue, and the need to beef up client communications as the unpalatable truth about feecharging puts some customers on the defensive. Next month we’ll be examining some of the communication techniques that IFAs are being encouraged to use – many of them unfamiliar, and not a little frightening.
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The Exodus That Didn’t Happen But first, let’s put some scarce hard numbers onto the page about how many of us are still actually in the business. You won’t have forgotten that the doom-mongers were threatening a rout of advisers in the face of the ‘threat’ posed by RDR – which, they said, would leave independent advice as the sole preserve of the wealthy. Many older advisers, it was claimed, would quit simply because of the ‘humiliating’ demands for a higher level of professional qualification.
A 2009 report undertaken by Oxera for the FSA reckoned that one in ten advisers would retire early rather than take the necessary qualifications, and that the overall wastage from all RDR-related issues would be about one in five. This wastage, it said, would be most pronounced in small independent firms – some of whom would leave the market while others opted to join networks, either independent or tied.
The FSA is still wary of giving out firm numbers as to the exact IFA shrinkage, but it did provide me with the number of individuals with CF30 authorisation - which of course includes those with functions other than consumer advice, such as corporate finance, and covers both independent and tied advisers. This shows an 8.6% reduction in the four years to 1st August 2012, from 116,465 to 106,425. Not as bad as we might have feared, then.
No Worries The CF30 figure also contains accountancy and legal firms with advice authorisation. The Institute of Chartered Accountants in England and Wales stated that currently there are 200 authorised firms with direct FSA authorisation, plus another 200
which have authorised subsidiaries. As for the solicitors, Solicitors for Independent Financial Advice (Sifa) says that there are 63 solicitors’ firms in England and Wales who are authorised by the FSA – of whom fewer than 50 are conducting IFA www.IFAmagazine.com
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RDR PREPARATIONS : PART 1
NG... business. Sifa reckons this is around half of the number five years ago. Not so good. What can we learn about the numbers currently leaving the industry? The trend is harder to define than we might expect. Aviva’s Adviser Barometer of July 2012 suggested an improving trend – indicating that the number of advisers thinking of leaving before 1 January 2013 had declined dramatically from 37% in January 2009 to only 3.4%. But, as intermediary director Andy Beswick points out, that’s because many of the leavers have in fact already upped sticks and gone. Neil Cunningham, director & general manager at Touchstone Financial Analytics, says that during 2011 more than 800 advisers left the industry each quarter. And yet further evidence from George Higginson, ceo of Sesame Bankhall Group – whose adviser network Sesame has 2,350
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RDR Preparations Part 1.indd 29
individual advisers in 1,300 firms – says that the 2011 decline at SBG was “in the tens”. And that since then the organisation has boosted recruitment again, and looks set to exceed its planned intake of 500-600 people. Even the mighty St James’s Place finds that its worries about older partners leaving were groundless. Tony Dunk, marketing director, confirms: “In the first six months of this year our recruitment went so well that we are confident of maintaining the planned growth (5-7%) rate for this year.”
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RDR PREPARATIONS : PART 1
magazine... for today ’s discerning financial and investment professional
A Slow Cultural Change A key element of the change is of course cultural. At its best, the optimal path for the adviser/client relationship is a shift in emphasis from merely identifying a need and selling a product, to basing everything on a client’s life plan and obtaining the means for him or her to achieve it. That in turn suggests an extensive knowledge of a client’s entire situation – not just to be rigidly adhered to, but to be varied according to changing circumstances. And it implies servicing those needs over the long term, rather than just periodic inspections to see if a new product is required. So it was something of a shock to discover just how apparently shallow is the penetration of financial planning amongst advisers. Both the Institute for Financial Planning and the Chartered Insurance Institute’s Personal Finance Society agree that there is still much to be done, and that many opportunites are being missed. Fay Goddard, CEO of the Personal Finance Society, explains: “There are currently 3,077 Chartered Financial Planners. In July 2010 there were 2,020. So that is a rise of 1,000 in just two years. And another 6,500 are currently en route to becoming CFPs.” Sue Whitbread, director of communications at the Institute of Financial Planning, agrees. “We have 2,150 members of the IFP, which includes 960 individuals who are certified financial plannerCM professionals.” But however you measure it, that still means less than 10,000 advisers with financial planning as a core qualification well after 1 January 2013. That’s disappointing when you consider Whitbread’s observation that there are
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some 140,000 certified financial planners in the world, of whom 50,000 are in the USA. But how’s it going with Level 4? Touchstone’s latest survey in July revealed that just under 60% of Ifa firms met the minimum RDR ready requirement of having at least one adviser qualified to QCF level 4. That’s a figure that broadly squares with the FSA’s own estimates, but it’s getting a bit close to the December wire. Fay Goddard of the PFS says she reckons that some 15% will not have the qualifications by the deadline. But she thinks most of these will switch to roles such as practice management, and that many will continue with their studies to qualify after RDR is in place.
Outsourcing The outsourcing phenomenon has probably come as the biggest surprise for the pessimists who were predicting Armageddon for the industry three years ago. On the investment side, DFM outsourcing has proved a blessing for smaller advisers who would never have had the resources for whole-of-market activity. On the technological side, outsourced compliance, platform and back office operations have enabled many of the
www.IFAmagazine.com
28/08/2012 11:40
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more endangered to survive. And in the coming year, outsourced or white-label services will revolutionise the pensions industry in the autoenrolment rollout.
“IT’S NOT UNUSUAL FOR OPERATING COSTS TO RANGE FROM £1-3M A YEAR FOR A BOUTIQUE INVESTMENT MANAGEMENT BUSINESS” 32
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For the time being, however, the main focus is on investment management. And what an event it’ll be. According to Scorpio Partnership’s survey of the UK wealth management industry in January 2012, IFAs accounted for 22,611 out of a total of 83,211 wealth management professionals in the UK, and they were managing £591 billion out of a total of £2.2 trillion. That’s a fine prize for discretionary fund managers looking to provide investment management outsourcing to IFAs. “If you want to run your own asset management business,” says Mark Rockliffe, head of intermediary sales at wealth and investment manager Heartwood, “you need the right resource in terms of people and
tools. It raises the question here of how many can actually afford the regulatory cost or want the additional regulatory risk? It’s not unusual for operating costs to range from £1-3 million a year for a boutique investment management business.”
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28/08/2012 11:40
Pensions But if some providers have expressed fears, no such foreboding stalks the irrepressible pensions guru Steve Bee – formerly of Prudential, Royal London and Scottish Life, and now owner of Paradigm Pensions, which is part of the Paradigm Partnership network of IFA services. Paradigm is now marketing a pensions and benefits package to IFAs which will enable them to sell auto-enrolmentcompliant compliant services to their business clients as the new benefits landscape unrolls. He says that 100 IFA firms have joined up as partners who, over the next five years he will turn into employee benefit consultants (EBC). Why? Well, he sees the small and medium sized enterprise (SME) marketplace as the one to work with. “The EBC market is expensive at present for SMEs,” he says. “And our idea is to tailor the service to the needs of SMEs at a reasonable price. In big companies, employee benefits consultants cannot offer individual advice to employees. But we can offer advice because we are authorised to do so.”
And So To IT... One of the most common anxieties expressed in our survey concerns the readiness of product provider IT departments at the time of RDR. We have the examples of vast, expensive Government IT contracts failing despite having much longer time-scales than those imposed by RDR. www.IFAmagazine.com
RDR Preparations Part 1.indd 33
We’ve also witnessed vast banks floundering for weeks because a new line of code has been introduced into their IT system. (Take a bow, RBS.) But the worst of it is that product providers have had to work to an exacting time-scale as well as having been forced to wait until very late on in the day for certain policy documents. Is this an accident waiting to happen? Touchstone’s Neil Cunningham says it’s a very real challenge for providers just to manage existing business, never mind taking on RDRready products. “In the fund management sector for instance, all fund managers are having to issue new share classes for their entire fund ranges. The resultant IT and administrative burden is significant, because the creation of new share classes also involves the issuing of new product literature and the logistics of communicating the changes to clients.”
And Charging Models Too... But, of course, the main anxiety of most IFAs is whether their charging models will be accepted by provider IT systems. George Higginson of SBG has described the great lengths to which his organisation has gone to in order to be RDR-ready - including sourcing its IT system from faraway Australia. So there was more than a touch of exasperation in his tone when he told me: “There has been a lack of clarity and consistency amongst product providers. In fact we worked together with Deloittes on how to achieve consistency of adviser charging. But most of the product providers ignored our conclusions.” Most of insurance giant Aviva’s UK business goes out through advisers, so they also have anxieties. Andy Beswick, intermediary director, says: “Of course, we are waiting to see how adviser charging will be taken. But we think it is the responsibility of a good
RDR PREPARATIONS : PART 1
Then there’s the attraction of supplying the rigorous and continuing due diligence that the IFAs will need. Trevor Cheal, business development director at discretionary manager Rowan Dartington, confirms that there’s been a noticeable pick-up in new business: “We have signed up eight IFA firms in the past five weeks.” But, he adds “There is also a noticeable increase in interest and requests for due diligence checks”.
provider to give the advisers a range of options. We must not dictate to advisers, but provide flexibility in charging.”
And Insurance... So there’s the IT cost to consider, as well as regulatory cost burdens. But another cost factor may be the iceberg that sinks the IFA Titanic: professional indemnity (PI) cover. Both Andy Beswick and George Higginson raised this matter in their discussions with us. “PI cover is an issue that has not had enough attention,” Higginson warned. “Just recently we have seen Honister pulling out because they could not get PI cover. We as a company cannot afford to take on some liabilities inherent in some products. This is why the PI insurers have made an issue of it. We need to know the liabilities of a product.” That makes a lot of sense. You can do as much due diligence as possible, but it may still prove impossible to determine the potential liabilities of any product in a world in which the derivative-wielding alchemists of finance still hold sway.
NEXT MONTH In the October issue of IFA Magazine we’ll be looking at some of the thornier issues that still face many advisers – the fee charging frameworks, the question of independence, the provision of execution-only services, and the whole question of deepening client relations through financial planning. We’ll also be talking about how IFAs are getting out there with seminars, web sites, video presentations and all manner of frighteningly modern approaches. And about how they can ensure that they capture the first mover advantage, and keep it. For more comment and related articles visit...
IFAmagazine.com
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F E E L G O O D FA C TO R
A SPRING
THE OLYMPICS AREN’T THE ONLY REASON FOR MARKET OPTIMISM, SAYS BRIAN TORA. BUT WHAT WILL FOLLOW NOW? What a difference a month makes! Or a fortnight, even. The undoubted success of the London Olympics seems to have put a spring into most peoples’ steps. And shares have even regained the ground they lost in the second quarter of the year. Suddenly things are looking up. Are our troubles now really over, or are we living in a haze of euphoria generated by the sparkling performance of Team GB at Stratford? There is, of course, no simple answer to this question, but this should all be taken as a positive sign. If it was as easy as saying we had all got carried away by Britain’s impressive medal haul, then there would indeed be no real lessons to be learned. But it wasn’t just the success of the athletes that we should reflect on. The truth was that we British held an impressive event at which all who participated had fun. This has not been lost on business, which is taking note. While it is true that recent statistics have suggested we are in a double-dip recession, the very positive way with which the Olympics have been greeted suggest that life isn’t quite as dire as the numbers would have you believe. This seemed to be borne out by recent unemployment figures, which showed the numbers out of work had continued to fall. And job creation was at its highest in London - almost certainly as a consequence of the Games.
St Leger Day Approaches
But for investors, surely, the most important thing is that it’s not just London that’s making up lost ground. We’ve seen a useful rebound in American markets, too, and even Europe has managed to lift itself off the floor. There appears to be a willingness to
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embrace risk once more. Although I do feel obliged to point out that this is the holiday season, and that trading is very thin indeed. So it’s the question of what’s likely to happen once the bucket and spade brigade return to barracks which needs to concern us now. Rather boringly, Europe retains centre stage, with recent statistics underscoring the parlous state of economic activity. Even Germany could only manage a measly 0.3% growth for the second quarter of 2012 – a better result than the embattled southern European nations, but nothing to get too excited about. In America things seem to be trundling along fairly steadily - although there are plenty who fear a loss of momentum once the Presidential elections are out of the way. But recent statistics on retail sales suggest that consumers are recovering their nerve – no bad thing, incidentally, since around three quarters of US economic activity is based around the domestic consumer. Wall Street traders are clearly banking on the good news continuing.
Inflation – The Bad News, the Good News
Meanwhile, inflation is picking up at home. This came as something of a surprise, most noticeably to the Bank of England. And the timing could hardly have been less propitious, accelerating as it did the extent of the fare increases on the railway system. (Up to 6.2% in England from next January, thanks to a condition that allows the train operators to charge 3% above inflation.) This last bit provoked a few wry smiles – because, while state benefits are calculated using the slower-rising Consumer Price Index, the government uses the higher figure of the Retail Price Index for items that require us to dig into our pockets – such as rail fare increases... www.IFAmagazine.com
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F E E L G O O D FA C TO R
IN THE STEP There is an important point about rising inflation, though. First, these latest figures demonstrate how little control the government and the Bank of England have over the rate at which the cost of living rises. We operate in a global village these days, and the price of items in the shopping basket are more likely to be influenced by what happens in China than over here. But, more important, inflation – providing it does not get out of hand – could provide the way out of our current problems. Inflation flatters financial
assets and devalues debt – something that the leaders of the over borrowed nations of the West must surely welcome. Investors need to watch these cost of living figures closely. A prolonged period of above trend inflation could achieve a lowering of debt ratios and encourage investment. It might also justify recent market optimism.
For more comment and related articles visit...
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magazine... for today ’s discerning financial and investment professional
MANAGING EXPECTATIONS GUIDED SALES OFFER A SOLUTION TO A THORNY CHARGING PROBLEM, SAYS KEITH AYLWIN OF DISTINCT BUSINESS CONSULTING
The RDR deadline is fast approaching and yet, according to the Association of Independent Financial Advisers (AIFA), up to a quarter of advisory firms are still unsure as to whether or not they will be compliant. Now, to my mind the issue of compliance is a very important one, but I
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think there’s actually a bigger issue at stake. Will the RDR business model actually facilitate the type of change it’s designed to deliver? Or will an RDR Mark 2 be on the cards in the very near future? www.IFAmagazine.com
28/08/2012 12:04
Differing Perspectives
There’s no evidence to suggest that the current cost of advice is unfair or inappropriate. However, going forward, consumers will begin to pay for advice directly, rather than it being funded from their premiums. They will become more aware of how much advice is costing them, and advisers will need to explain and break this down more comprehensively. Given the current financial belt tightening and the poor service levels around financial products, it’s likely that consumers will have less appetite to spend, especially if the net benefit is not sufficiently tangible. Research from CoreData and YouGov has revealed the gulf between what consumers expect to pay and what IFAs want to charge. Consumers say they are prepared to pay around £150 for a full financial review - whereas IFAs believe consumers will need to pay around £500 per hour for advice post-RDR, and national IFA firms and high street banks are expected to charge £200 or more per hour. Currently, the charge for existing feebased IFA’s is from a mere £50 to £150 per hour. It’s not unusual, according to advisers, for complex advice to take up to two full meetings or around six or seven hours. As we can see there’s a big difference here and the RDR does not prescribe how to address this challenge. So how will this gap be bridged?
A Chance to Deepen Relationships
I think the answer lies in the guided sales route. Recent estimates show that around a quarter of IFAs are currently anticipating using this model to ensure RDR compliance. The Association of British Insurers (ABI) estimates that this new distribution channel could help to deliver investment products to 14 million people, including annuity products to 10 million and protection policies to 11 million.
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GUIDED SALES
If we recall the original aim of the RDR, it’s about promoting greater choice for consumers, offering greater access to information, so that informed decisions can be made about long and short term financial objectives. Yet all the wit and the wisdom in the run-up to these changes demonstrates a yawning chasm between adviser and consumer expectations. Take the cost of advice for example. Or rather, how transparent is the cost of advice?
The FSA believes that guided sales help to promote greater consumer choice but, as you’d expect, the regulator’s rules are not hard and fast, and this is a possible reason why IFAs may have approached this route rather tentatively.
It’s worth spelling out that there are two routes to guided sales: non-advised and advised. In the first instance, consumers will get access to more information than just ‘execution-only’ sales, so they should be making more informed decisions. In the second, if they get to a point where they feel the information available is insufficient, this will take them back to the traditional advice channel. This model will make it clear to consumers what they are paying for - thus helping them to appreciate the charges for the service. But what’s really important to note about guided sales is that it’s about so much more than a route to a straightforward sale. It’s also a mechanism to provide information, increase choice, deepen the relationship with the customer and ultimately, and build trust. Of the two models for guided sales, non-advised and advised, the latter is the one that has the greatest potential to build a long term, loyal customer base. And with this comes the opportunity to return to a more fulsome approach to financial planning.
The DIY Alternative
Whilst the credit boom of the 80s might have curbed the nation’s savings habits, the financial crisis and the coincidental surge of new media have actually increased consumers’ appetite for financial self-governance. Online forums bear witness to great numbers of consumers swapping tips about a host of financial products, from annuity rates to this year’s best ISA rates. Vast swathes of consumers are already accessing direct channels, whether it’s online or mobile banking, or re-mortgage calculators, to make financial purchasing decisions. Whether these are chat forums regarding financial loans or pensions, many are tuning into the dialogue of their peers for advice about financial products through social media and online services. And it isn’t just the young that are tuning in, it’s everyone. The IABUK reported that 1 million UK residents aged 55 and older went online for the first time in the year to April 2010. A recent Nielsen survey shows that when making personal finance
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GUIDED SALES
magazine... for today ’s discerning financial and investment professional
“Guided sales present a real opportunity for IFAs to re-focus their energies and grow their customer base” or investment decisions, 49% of all global online consumers rely solely on their own judgement, while 20% of respondents seek advice from a financial planner/adviser and another 18% rely on friends, relatives and colleagues for advice.
Higher Earners DIY It Too
While IFAs with high-earning clients might think that their territory is safe with a customer group that’s content to pay higher fees for advice, research reveals there’s also a growing trend for high earners as well to take more direct control of their own wealth. According to YouGov, IFAs serving clients earning over £100,000 a year have more than halved since 2008, while almost 70% of individuals earning less than £60,000 per annum use direct channels to track their finances. What’s more, among those earning between £60,000 and £100,000 there’s been a 20% increase in the use of direct channels. For those targeting high net worth individuals, competition is only going to get tougher. Not only are IFAs pitted against national advisory firms: the banks are also positioning themselves for a share of this market - as are the new kids on the block, the likes of M&S and Tesco. New players will no doubt capitalise on the leverage from their existing brands, and from the fact that consumers will expect them to be more transparent and fair. In fact it’s clear that, for any chance of success with consumers, a track record will play a key role.
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This bodes well for IFAs: a recent Skandia survey highlighted that over a third of the millionaires it polled believe that IFAs are a trustworthy source of advice. However, it’s unlikely that HNW individuals will let their advisers rest on their laurels, because clearly they too will want to invest wisely.
Much-Needed Clarity
In the same way that commoditisation has changed the way that consumers purchase products like travel insurance, guided sales has the potential to open up the market for personal financial products. Guided sales will also take the sting out of the transparency of costs, as it will be clear for consumers to see exactly what they are being charged for. And with such an explosion of the market, there’s surely room to increase revenue streams. Although each customer might not attract the fairly high fee levels that some IFAs anticipate from direct sales, they’ll be tapping into the vast mass affluent market, which is by far the UK’s fastest growing sector. The guided sales route has much to offer the ticking pensions time bomb as well. Around half of the working population – around 13 million individuals - are currently failing to save sufficiently for their retirement, and we think that the guided sales route has the potential to encourage savings - rather than seeing people walk away, due to resentment over ‘high’ fees. In all, guided sales present a real opportunity for IFAs to re-focus their energies and grow their customer base. I think the numbers of IFAs considering this route should (and will) eventually be higher than the estimated 25%. If they choose to ignore guided sales, IFAs will find themselves competing in an increasingly saturated market against stronger and possibly more agile competitors, and serving consumers whose appetites have changed from taking advice to actively seeking and managing their own destinies. If they opt instead to embrace guided sales, they will have not just a chance to ‘hang on in there’ but to grow their businesses for the better. For more comment and related articles visit...
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28/08/2012 12:04
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*Source: Lyxor. As of the 2nd May 2012. Lyxor and Lyxor ETF are names used by Societe Generale to promote the products of Lyxor Asset Management. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). Societe Generale is subject to limited regulation by the Financial Services Authority in the UK. Details of the extent of our regulation by the Financial Services Authority are available from us on request. The products described in this advert are not suitable for everyone. Through Lyxor ETFs, investors are exposed to counterparty risks resulting from the use of an OTC (Over-the-Counter) Swap with Societe Generale. Investors should not deal in these products unless they understand their nature and the extent of their exposure to risk. Prior to any investment, investors should make their own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively on the information provided by us. Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. The funds may not be sold to US persons or in jurisdictions where such offering or sale has not been authorised. Calls to the freephone number may be recorded.
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magazine... for today ’s discerning financial and investment professional
PHARMA – THE FORGOTTEN FAVOURITE JOHN BENNETT, DIRECTOR OF EUROPEAN EQUITIES AT HENDERSON GLOBAL INVESTORS, SAYS THE CYNICS ARE MISSING AN IMPORTANT POINT Pharmaceuticals and their ‘blockbuster drug’ pipelines were once the poster children of growth stock investors. Nowadays, however, they trade at significantly lower valuations compared to their historical
averages – meaning that pharma is now looking more like a value play. In our view, investors are spectacularly missing the point. Growth is returning, and the sector is in the early stages of a stealth bull market.
“JUST BECAUSE THERE HAVE BEEN NO NEW BIG DRUGS IN THE LAST TEN YEARS DOES NOT MEAN THEY WILL NOT BE DISCOVERED IN THE NEAR FUTURE” 40
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A Restructured Industry
Change can be a blessing in disguise. Pharmaceuticals have been forced to adapt and will be all the better for it. Manufacturers are reassessing and redesigning their business models: using their cash-rich balance sheets to diversify into new growth areas via acquisitions, signing new licensing agreements, developing drugs with longer-term potential, looking at ways to increase R&D productivity and reining in costs. Ernst &Young estimates that, patent expirations notwithstanding, global pharmaceutical sales will experience annual compound growth of 3% to 6% between 2011 and 2015.
I N S I D E TR A CK
We shouldn’t deny that the pharmaceutical industry has been going through unprecedented change, and that it still is. The industry’s critics have been singing from the same hymnsheet for a while now: competition is intensifying from generics, they say, and billions will be lost as blockbuster drugs such as Lipitor and Viagra march off the patent cliff with no new potential replacements. Research & development (R&D) productivity is on the decline. And, adding salt to the wound, government austerity measures as well as health insurance companies are adding to pricing pressures. But, if this is the case, what led us at Henderson to make a big contrarian decision and make pharma our biggest sector theme? And why are we standing by that decision eighteen months later?
There are several justifications for growth to return to the pharmaceuticals industry. For many drug companies, the trough in earnings growth caused by the patent cliff will be behind them by the end of the year. This should lead to a re-rating, and returns will be re-based from this point. Indeed, the re-rating has already begun. What gives us the confidence to say this? A decade ago, it was all about the ‘blockbuster drugs’ pipeline. Pharmaceuticals companies have been preparing for the impact of patent expiries: they have been ensuring that sustainable growth can be achieved beyond ‘the cliff’. Companies such as Sanofi and GlaxoSmithKline have already replaced the sales of the majority of drugs affected by this wall of genericisation. French company Sanofi, like many of the big drug players now has a much more diverse business, with a larger dependence on growth platforms.
Emerging Markets
We see long-term potential growth here, with drivers such as changing demographics and greater health care spend, particularly in emerging markets like Brazil where over 60% of health care spend is paid privately. As a region, emerging markets are expected to account for 28% of global pharmaceutical sales, up from 18% in 2010. Cash-rich pharmas have driven a surge in M&A activity in recent years to ‘buy’ growth; among others, Sanofi acquired Genzyme and Roche merged with Genentech.
SANOFI : A Diverse Business with Large Sustainable Growth Potential
Source: Sanofi Annual Review 2011. (1) At constant exchange rates, (2) Lovenox® U.S., Plavix® Western EU, Taxotere® Western EU & U.S., Eloxatin® U.S., Ambien CR® U.S., Allegra® U.S.,Aprovel® Western EU, Xyzal® U.S., Xatral® U.S., Nasacort® U.S. – Eloxatin® U.S. market exclusivity expected through August 9, 2012. (3) Emerging Markets excluding Diabetes, Vaccines, Consumer Healthcare, Animal Health, Innovative Products and Genzyme. In all activities, the sales in emerging countries amounted to €10,133 m. (4) Consolidated since April 1st, 2011.
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I N S I D E TR A CK
magazine... for today ’s discerning financial and investment professional
Will Emerging Markets Save the Global Pharma Industry?
Source: IMS Institute on Healthcare Informatics, “The Global Use of Medicines: Outlook through 2015”, April 2011 Developed markets: USA, Japan, Germany, France, Italy, Spain, Canada, UK and South Korea
Both Sanofi and Glaxo have increased exposure into the emerging markets where health care spend is predicted to exceed that of the developed markets. Meanwhile, declining R&D productivity has led to management changes at most of the major drug houses over the past few years. Even taking into account the impact from the patent cliff, the reality is that the cash flows, balance sheets and dividend yields of these companies remain robust. Sanofi’s net debt at the second half of the year was only €11 billion, a very manageable sum for a company valued at close to €90 billion and operating cash flow of nearly €10 billion. Henderson’s recent meeting with the company management revealed that there are no big acquisitions on the horizon, instead there are plans for share buybacks and uplifts in dividends instead.
Vital Innovators
R&D productivity can be somewhat cyclical. While it may take some time for the next ‘blockbuster drugs’ like Pfizer’s Viagra or Lipitor to emerge, we now have a better understanding of neurology and genomics – meaning that the universe of potential drug finds has just become a lot broader. Just because there have been no new big drugs in the last ten years does not mean they will not be discovered in the near future: the good news for investors is that this isn’t currently reflected in share prices. Commitment to R&D remains strong, but it is much more focused, leaner and efficient than in the past. And we are seeing promising improvements in product pipelines in the early
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stages. Waves of drugs are being developed to treat Alzheimer’s, multiple sclerosis, the global pandemics of diabetes and obesity as well as cancers. Orphan drugs are a major growth area – these are remedies that are custom-made to treat a sub-group of the population, be it widespread diseases like breast cancer, or rarer genetic disorders such as Pompe disease, a degenerative metabolic disorder. Orphan drugs are the very reason for Sanofi’s acquisition of Genzyme. In Europe, Sanofi and Novo Nordisk are at the forefront of treating diabetes. Sanofi’s diabetes drug Lantus has helped the French drug maker offset the impact of the end of exclusivity for its cardiovascular Avapro and cancer drug Taxotere, as well as fend off competition from cheaper copycat drugs. To avert another ‘patent cliff’ scenario, the group aims to reduce dependence on “small molecules which have limited patent lives,” and focus on high barrier to entry areas such as consumer health. Legislation is also on the industry’s (as well as patients’) side. The European Commission centralised drug approval procedures
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A Once-In-A-Generation Opportunity?
So, following a prolonged period of bearishness, we are now turning bullish. To us, the oncein-a-generation opportunity to buy European equities is almost upon us. If we discard for a moment the geopolitical noise in the eurozone and elsewehere, we can observe that selected names like Unilever and Nestlé are hitting all-time highs. More notably, we are seeing this not just among the large caps but also among medium caps. Yet, as committed value-driven investors, we resist the temptation to chase today’s ‘steady growers’. We note that investors happily pay over 15 times earnings for food, beverage and tobacco stocks. If they are worth that, what is pharma worth? The MSCI Europe ex UK Index is currently trading at under 10 times 12-month forward earnings, relative to the 20-year average of 15 times. While the global rotation back into defensives has seen several pharmas start to re-rate, the prolonged de-rating of the industry means that many of these stocks are still currently trading on earnings
I N S I D E TR A CK
in 2005 to keep up with the pace of biotechnological developments. In the US, a new drug is given speedier approval if it meets the criteria of one of the Food & Drug Administration’s (FDA) ‘Fast Track’, ‘Accelerated Approval’ or ‘Priority Review’ approaches.
multiples of only 11 times or less, compared to ten years ago when they traded at more than 20 times4. An additional bonus is that some of these companies are delivering dividend yields of over 4%; above that of the index. All of this before an imminent acceleration in pharma’s earnings growth rate. With western world corporate profit margins at multi-year, if not multi-decade highs, we note the recent tendency to denounce the concept of mean reversion. Yet we remain committed mean reversionists. Over time, stock valuations as well as corporate profitability will revert back toward their mean. If we can identify the right candidates early enough, there can be compelling investment opportunities. As we have said before, bad macroeconomic news is often the harbinger of great opportunity: you need bad macro to get good bargains. By having an obsessive preoccupation with the macro, the politics and the newsworthy; however, investors will potentially miss out on the gains from accelerating earnings growth, compounding cash flows, attractive dividend yields and rock solid balance sheets in an exciting, innovation-led growth industry - we believe the right candidate is pharma. For more comment and related articles visit...
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THE BEE LINE
magazine... for today ’s discerning financial and investment professional
ON THE HOUSE NON-CONTRIBUTORY PENSIONS? STEVE BEE REVISITS A BLAST FROM THE PAST AND FINDS IT MIGHT STILL WORK FOR SOME EMPLOYERS Well, I said it, that was all, and then I thought about it afterwards. It’s the sort of thing we all do, I know, but I said it in a conference in answer to a question, and that’s why I thought I’d better think about it to sort of see if I agreed with what I’d said. It could happen to anyone, it just happened to happen to me. The good news is, I do agree with it so I’ll probably say it again. In fact I’ll probably write this article about it. The question I was asked was whether I thought there was still a place for noncontributory pension schemes. Non-contributory schemes used to be all the rage in the golden age of final-salary pensions, and my questioner was wondering whether I thought they might make some sort of 21st Century comeback in the new defined-contribution times?
Glorious Ancient History
In case you’re not right up with all this stuff, I suppose I should start by saying exactly what a non-contributory pension scheme is. Put it into context; that kind of thing. Well, for a start, it doesn’t mean there are no contributions paid. When people in the pensions olden times spoke of non-contributory schemes, what they
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meant was that the employer paid all the contributions and the employees didn’t have to pay anything in - unless they wanted to add extra contributions to get even more pension for themselves. And in the banking and insurance sectors in the 1960s and 1970s, these kinds of schemes were pretty much standard. Employees were put into the company finalsalary pension scheme and didn’t have to pay a penny in themselves. Most of the people in the schemes probably didn’t even know they were even in them, to be honest; that’s what pensions used to be like, in the days before these modern times when they became such a hot media topic and such a big worry to us all. What I said in answer to the question was that I thought there was still a place for non-contributory schemes today, and that in these www.IFAmagazine.com
28/08/2012 12:17
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times of auto-enrolment there might even be a resurgence of interest in pension schemes where the employer picks up the whole tab. “Not amongst employers,” I can hear you thinking. But I disagree
It’s On the House, People The eventual 8% contribution requirement for auto-enrolment schemes can be made up of contributions from both employers and employees, but it doesn’t have to be. The employers could pay the whole lot if they wanted to. But why would they? Well, the 8% is all coming from the employer’s business anyway, even if they first pay some of it to their employees and then go to the
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trouble and expense of collecting it all back again each month before paying it over to the pension provider. If they pay it directly to the pension provider rather than through their employees, there could be National Insurance savings, so it would not only be less work, it could also be cheaper. And then there’s the kudos thing. What kudos will an employer get from setting a pension scheme up because the government made them do it? But an employer who does that and at the same time picks up the whole tab for it? There’s just got to be kudos in that; and no-one would be likely to opt-out either. 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
September 2012
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magazine... for today ’s discerning financial and investment professional
CROWD DRAGON’S DEN IS SOOOOO LAST YEAR, SAYS KAM PATEL. THESE DAYS, SAVVY INVESTORS ARE DOING IT FOR THEMSELVES. BUT WHAT’S IN IT FOR ADVISERS? With traditional credit markets remaining sclerotic, it’s not so very surprising that individuals, small enterprises and start-ups seeking backing for projects are turning to other means of securing funds. And the latest of these is something called crowdfunding - an internet-based market for connecting entrepreneurs with potential investors who may only want to invest small amounts in start-up equity, often just for the fun of it. The premise of crowdfunding is simple. If a project is deemed good enough, and desired enough – for whatever reason – by enough people, and if each of them is willing to back it with small amounts of money, then it can be realised. The trouble is that there’s no sign yet that the FSA or the Treasury have figured out what level of regulation crowdfunding requires. The Americans seem to have made a much better fist of the matter so far.
Community Spirit
Perhaps oddly, we owe this trend to the rock music scene. Way back in 1997, British rock group Marillion had the entire $60,000 cost of a US tour underwritten by fans via an internet-based funding campaign. And
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E F
since then the increasing sophistication of the internet, coupled with the recent explosion of social media channels, has further revolutionised the general awareness of this extraordinary new trend.
Let’s be clear about one thing. It’s still the community and culture spectrum that tends to dominate the sphere. Local communities are using crowdfunding to achieve goals such as saving a much-loved pub from closure, or to build local healthcare facilities. And the rewards tend to be non-financial. Helping to save a pub might mean that each funder is repaid in beer. Backing the production of a music album might mean getting a copy of the finished product. All very small-scale.
Choose Your Style We’ve also seen crowdfunded “social lending” through
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online agencies such as Zopa, which combine social and financial motivation: there is repayment of loan with interest but some of the loan, being socially motivated, is interest free. But other models are now emerging which have intrigued more sophisticated investors most notably equity crowdfunding, which invites individuals to invest smallish sums of money in an stake in what will probably be a privately-owned start-up or young business venture. If the business does well, there is likely to be a hefty return on investment - plus, potentially, other intangible benefits for the investor. And if it all goes pearshaped, the sums aren’t so large as to be grievous.
Gateways and Regulatory Issues
It is, of course, crucial that the gateways for connecting networks of potential investors with individuals and businesses should be effective and well-
CROWD FUNDING
R E V E F
managed if the task is to succeed. This is where online platforms come into their own - with site operators responsible for vetting, promoting and managing funding of propositions as well as dealing with investor protection issues. But the levels of protection on offer still need careful research in many cases. It’s only been in the last three months that the first online crowdfunder has gained formal FSA authorisation, - making Seedrs, an online platform for investing in startups, the first platform anywhere in the world of its kind to receive regulatory approval. Seedrs was launched with £1 million of investment from venture capitalists DFJ Esprit and Digital Prophets - the latter backed by entrepreneur Luke Johnson. It allows investors – friends, families and crowds - to invest a combined total of up to £150,000 in startups that they choose through a simple online process. Jeff Lynn, co-founder and chief executive of Seedrs, says the £150,000 equity limit is based on the
If a project is deemed good enough by enough people, and if each of them is willing to back it with small amounts of money, then it can be realised www.IFAmagazine.com
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CROWD FUNDING
magazine... for today ’s discerning financial and investment professional management’s observation that the overwhelming majority of entrepreneurs need this amount, or less, to take their first step before launching or seeking later-stage capital. But if the capital amounts are small, so are the individual investments. Seedrs says that many people would like to invest small amounts of money in startups – some of them building a portfolio in order to get exposure to a highgrowth, high-risk asset class, and others simply wanting to support friends, family and community members while also getting the benefit of upside if they succeed. Still others, of course, hanker for the excitement of being an “armchair dragon”. The small investment sums involved also favour the platform approach. Due diligence costs mean that normally it’s extremely difficult to invest less than £10,000 in a startup. At Seedrs, however, people can invest as little as £10.
Sweeteners and Safety Checks
There are also tax breaks available to investors who back new and small businesses. The Seed Enterprise Investment Scheme, announced last year by Chancellor George Osborne, offers 50% income tax relief on qualifying investments of up to £100,000, with a potential further 28% from an exemption of capital gains tax. In practice, investors keen on backing a Seedrs business must first pass a short online test to prove they understand the risks involved in investing in start-ups. Following the completion of an investment, Seedrs holds and manages the shares on the investors’ behalf, which helps protect investors’ interests and minimises the administrative burden for the start-ups. Seedrs’s fees comprise two separate charges. First, the entrepreneur pays a 7.5% fee on any amount raised through the platform. There is no ‘pay to pitch’, and if the start-up does not succeed in raising the money then everyone walks away with no fees paid by anyone. The second charge is a 7.5% fee levied on any returns that investors receive above
their original investment - whether through the proceeds of a sale, dividends or other payments from the startup to the investors. Any returns paid to the investor up to the amount of their original investment are paid free of any charge. Lynn is confident Seedrs can deliver both for its businesses and investors: “As people in Britain look for more tangible and ‘real’ places to invest their money, beyond the conventional and poorly performing products they have been sold in the past by institutions that have let them down, the launch of Seedrs is particularly timely.”
An International Phenomenon
Of the six major equity crowdfunding platforms in Europe, three (Seedrs, BankToTheFuture and Crowdcube) are based in the UK, with the Netherlands, Germany, Belgium and France accounting for one each. Another UK-based site, CrowdMission, is due to launch later this year. There is currently talk that the US crowdfunding phenomenon Kickstarter may be planning to open for business in the UK later this year. Since launching in 2009, Kickstarter has funded tens of thousands of projects, including film, photography, and video game projects. Several of its offerings have topped the $1m mark in pledges, including Pebble, an electronic paper watch, which secured nearly £2m in less than a week of being promoted on the Kickstarter site. A new report by researcher Nesta, The Venture Crowd (http://tinyurl.com/c4t7ywk) claims that the number of active crowdfunding sites globally grew by 54% in 2011 to 453. Between them they raised $1.5 billion in project and business financing over the year. Nesta expects further strong growth this year, with Kickstarter, the global marketleader, alone expected to raise $150m. As so often, our American cousins are ahead of us. Crowdfunding has received the combined support of both Republicans and Democrats - with the Obama administration pass new legislation specifically designed to encourage ordinary citizens to pool their money behind an
“They wanted $100k - they got $10.2m” The designers of the Pebble watch (pictured left) raised more than £6.4m to develop the product simply by explaining its concept online – and the joke is they were only looking for £64,000 to fund their ambition! This is one of the most successful results for Kickstarter, the crowdfunding website launched three years ago in New York.
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Get Your Act Together, Regulators
Fair enough. But the FSA’s warning sidesteps the fact that UK regulators have yet to get fully to grips with the emerging crowdfunding market. As Nesta noted in its July report, “the process for allowing platforms to gain accreditation needs to be improved”. And it adds: “Once regulators have developed a clearer view on how the model works, guidelines on what the requirements are to gain accreditation should be made public and efforts made to speed up the process.” Nesta adds that all platform operators consulted for its report, including Crowdcube and the FSA-authorised Seedrs, agree that that “clear and defined supervision of activities in the area will go a long way to improving investor confidence... and increasing the number of businesses willing to raise this type of finance.” But it warns: “As this is quite a new model of finance, it is important that those providing oversight are sufficiently knowledgeable of the nuances of the model and the protections that are required for investors.”
The Charity Angle
Faced with an uncomfortably urgent wall of demands for clarity, the government has been calling for input from outside agencies. One of the most important contributors to date has been the law firm Bates Wells & Braithwate (BWB), which recently outlined ten reforms needed to transform the social investment market in the UK. BWB’s proposals focus on charitable activities in particular, but they also have implications for the broader crowdfunding sector. BWB’s suggestions include a social investment duty being placed on the Financial Conduct Authority and the Prudential Regulation Authority to ensure sensitive regulation of the sector, and a reform of rules governing financial promotions to take account of investors who invest with social motives and engage with
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CROWD FUNDING
entrepreneur or a business. But developments over here have been rather less oxygenated. Business Secretary Vince Cable has been making positive noises about innovations like crowdfunding, and their potential to become important alternatives to bank lending, but the FSA still advises caution. In mid-August the agency posted a note on its website warning that: “Most crowdfunding should be targeted at sophisticated investors who know how to value a startup business [and] understand the risks involved….We want it to be clear that investors in a crowdfund have little or no protection if the business or project fails, and that they will probably lose all their investment if it does.”
crowdfunding and peer-to-peer lending. The firm also calls for a specific authorisation regime to be introduced by the Financial Conduct Authority to facilitate crowdfunding, peer-to-peer lending and other online direct investment facilities. Luke Fletcher, senior associate at BWB, believes the UK could learn from America’s enlightened approach. The US, he says, has recognised that a “one-size-fits-all” approach to regulation does not work, and that if crowdfunded investments are capped, as they are under the US JOBS Act, a lighter touch can be applied. “It’s an example of how financial services law needs to be reformed to recognise that new ways need to be found to help businesses to raise capital in difficult times,” says Fletcher. He adds: “The JOBS Act is a recognition that technology is going to play an increasingly important role in investor behaviour and in disintermediating and disrupting traditional financial institutions.” But Fletcher doesn’t see much sign of flexibility in HM Treasury, which he says is in “reactive” mode. Unless the crowdfunding and peer-to-peer market gets to a size where it cannot be ignored, or unless something goes wrong, he says, there is no sign of the Treasury bringing forward proposals for a new regulatory framework.
The Way Ahead
However, he believes it is only a matter of time before this changes. The very rapid volume growth in social lending platforms like Zopa, and the emergence of a whole variety of new websites and platforms in the marketplace, are creating “an opportunity for the UK to lead the way in crowdfunding and to develop a whole new market.” But,” he adds, “this can only be done safely with sensitively tailored regulation.” It does leave an open question for IFAs – namely, how are they to make a fee if the typical investment amounts are so small and the investment process is entirely online? We’ll have to see how this shapes up in the coming years. Will it be seen as inimical to IFAs’ activities, or can it be handled through a paid-for advice channel?
For more comment and related articles visit...
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THE RICH ARE DIFFERENT
NICK SUDBURY GOES SHOPPING FOR THE WORLD’S TOP BRANDS AND FINDS A GOLD MINE Because They’re Worth It
Julius Baer Luxury Brands Fund The austerity measures brought in to help struggling European economies get their finances back in shape have produced an unwelcome round of belt tightening as far as most consumer stocks are concerned. But one way to avoid this pressure on the squeezed middle is to use a thematic fund that targets the more relaxed world of the comfortably affluent. One such fund is Julius Baer Luxury Brands, which invests in a concentrated portfolio of global companies operating in the luxury goods sector. This is an area with a strong growth outlook, driven largely by the significant wealth creation in emerging markets. These are now home to a burgeoning middle class with enough desire and disposable income to acquire the best that money can buy. The fund managers believe that the companies that provide these high end goods are trading at attractive valuations, but even so they are playing it safe by sticking to the strongest brands, which ought to gain additional market share as a result of the tough economic conditions. Baer’s portfolio is based on bottom-up stock selection with the focus on well managed
and financially sound companies with strong growth prospects. At the end of June the largest country exposures were: USA 25.8%, France 23%, Switzerland 16.3%, Italy 11% and UK 8.7%. The fund is quite concentrated, consisting of only 30 to 40 individual holdings, and with the top 5 accounting for almost 30% of the assets. These comprise: the Swatch Group 7.06%, LVMH Moet Hennessy 6.59%, Cie Financiere Richemont 5.74%, Burberry Group 5.26% and Coach Inc 5.19%. Other well known names include Nike, Ralph Lauren, Tiffany and Hugo Boss. Luxury Brands is an open ended investment company that is incorporated in Luxembourg (SICAV) and, it’s UCITS compliant. It’s quite small at £131 million, which is an advantage for such a specialist investment because it keeps the portfolio nice and nimble. The base currency is the euro, but there are other classes FUND FACTS of (non-hedged) shares Name: Julius Baer that are denominated Luxury Brands Fund in sterling, US dollars and Swiss francs. Type: SICAV A concentrated Luxembourg thematic fund like this Sector: Specialist must be considered high Fund Size: £131m risk, especially as it uses securities lending Launch: Jul 2011 to generate additional Portfolio Yeild: n/a income. It is currently down around 7% in its TER: 2.19% first year, but if the Manager: wealth creation in the Swiss & Global Asset emerging markets Management continues there is every chance it will achieve Website: a decent long-term swissglobal-am.com performance record.
A fund which invests in a concentrated portfolio of global companies operating in the luxury goods sector 50
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PRODUCT REVIEWS
To the Manor Born Amundi Equity Global Luxury and Lifestyle Most of the funds that target the luxury sector focus on the products traditionally associated with this area - such as haute couture, watches, jewellery, leather goods and cosmetics. But Amundi Equity Global Luxury and Lifestyle has a slightly broader perspective which allows it to diversify into the realms of five star hotels and top end car producers. The fund measures its performance against the MSCI World Consumer Discretionary index, but holds a concentrated portfolio of 25 to 50 shares based on bottom up stock selection with each of the holdings assessed by a six-strong management team. The investment process is based on in-depth fundamental analysis and this includes regular meetings with the company directors to get an understanding of how the business is likely to develop. It then becomes a collective decision as to whether to go ahead and buy with the weighting reflecting the overall degree of conviction, as well as the underlying volatility and liquidity. At the end of June the main sector weighting was in Personal Goods, with a massive 73.7% allocation. This was followed by Consumer Staples at 9.7%. The largest individual stock holdings were: LVMH Moet Hennessy 7.98%, The Swatch Group 7.85% and Coach Inc FUND FACTS 6.88%. Taken together, the top ten holdings Name: Amundi accounted for a massive Equity Global Luxury 51.4% of the fund. and Lifestyle
The largest geographic weighting was a 41% exposure to the eurozone, with a further 24.5% in the other parts of Europe that remain outside the Economic Monetary Union. (Britain, Switzerland, Sweden and so forth.) The other main investment area was the 21.6% invested in the US. And yes, this hefty European weighting is a key risk, but it should always be remembered that most of these companies rely to a large extent on exports outside the continent. There are several different share classes, some of which have been around much longer than others. These have a reasonably good track record with a 5 year return of 33.2% compared to the 18.2% achieved by the benchmark. The main drawback is that performance has been incredibly volatile with a loss of more than 40% in 2008, followed by two years of gains of a similar magnitude. Rising prosperity in the emerging markets coupled with the strong pricing power of luxury brands make a compelling investment story, but in the short-term it could easily be derailed by the eurozone crisis or a hard landing in China. As a result, this sort of thematic fund would only be suitable for clients with a long-term perspective and high appetite for risk.
Type: SICAV Luxembourg Sector: Specialist Fund Size: €63.8m Launch: J un 2011 Portfolio Yeild: n/a Ongoing Charges: 2.21% Manager: Amundi Luxembourg SA Website: amundi.com
This sort of thematic fund would only be suitable for clients with a long-term perspective and high appetite for risk www.IFAmagazine.com
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PRODUCT REVIEWS
magazine...
Life’s Little Luxuries Nordea Emerging Consumer Fund Luxury funds can provide a highly targeted way of benefiting from the massively growing middle-class and aspirational markets in emerging countries, but they are by no means the only way of profiting from the developing situation. Nordea Emerging Consumer focuses on the much wider trend of urbanisation and changing consumer behaviour. In particular, it aims to invest in the leading brands of cheaper everyday products - such as toiletries and soft drinks. The fund’s managers estimate that there are more than 2 billion consumers in the emerging markets who are now able to buy the sort of brands we take for granted in the West, compared with only 50 million in the very top bracket. So, for instance, there’s money to be made by buying the likes of Coca-Cola which would be completely out of place in a pure luxury fund. Emerging Consumer is largely weighted in favour of consumer discretionary and consumer staples, which between them make up 77% of the overall portfolio. There are just 35 individual holdings, but they are well spread: the 6.9% exposure to Unilever is the fund’s biggest holding, followed by L’Oreal at 4.7% and Colgate-Palmolive at 4.4%. Nordea has close to €91bn in AUM and is the leading investment manager in the Nordic region. The company is organised into specialist boutiques that
FUND FACTS Name: Nordea Emerging Consumer Fund Type: SICAV Luxembourg Sector: Offshore Fund Size: €239m Launch: Nov 2008 target different areas of the markets with each individual manager having a significant financial interest in the success of their fund. Emerging Consumer has risen by a creditable 54% since its launch in 2008. Most of these gains came during the equity market rally of 2009 and 2010, but since then it has held its value reasonably well and is up 1.45% in the last year. The World Bank is expecting GDP growth in the emerging markets of 5.3% to 6% between 2012 and 2014, compared to just 1.4% to 2.3% in the OECD. If their forecasts are right the Nordea Emerging Consumer Fund should offer a fairly resilient exposure and a good chance of some decent long-term capital growth.
Portfolio Yeild: n/a Charges: Initial: 5%, Annual: 1.5% Manager: Nordea Investment Management Website: nordea.co.uk
The Nordea Emerging Consumer Fund is largely weighted in favour of consumer discretionary and consumer staples 52
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PRODUCT REVIEWS
Digging Gold Golden P rospect P recious Metals If you think that the news out of Europe will keep getting worse, and that central banks might have to resort to a lot more quantitative easing, then one of the obvious beneficiaries would seem to be the price of gold. But, rather than invest in the precious metal itself, you might want to look at a fund of gold mining shares. The Golden Prospect fund is one that ought to be on the adventurous investor’s radar. The fund has soared by almost 80% in the last three years – thanks largely to the efforts of New City Investment Managers, who took over the running of the fund in September 2008 and have completely transformed it – outperforming the Philadelphia Gold and Silver index of mining companies by a considerable margin. Even so, there’s no getting away from the fact that gold is a volatile market. The fund has experienced a near-40% decline in the last 12 months, and at the time of writing it was trading at a discount to NAV of 1%. But actually this looks like an acceptable buy point to many longer-term investors who can tolerate a high degree of risk while they wait for the increase in the value of gold to filter through to the bottom line of its various holdings. Golden Prospect targets mid-cap growth companies in the precious metals sector, with the largest FUND FACTS exposure being a Name: Golden 72% weighting in Prospect Precious producers. Explorers Metals (GPM) make up a further Type: Investment Co. 11%, and developers in Guernsey 8%, with the balance in gold bullion. The Sector: Commodities effective underlying andN aturalR esources allocation is 70% gold Market Cap: £41m and 30% silver. Launch: O ct 2006 This is a concentrated portfolio Portfolio Yeild: 0% of only 51 stocks, TER: 2% (estimate) with the largest holdings being: Silver Manager: New City Wheaton 10.9%, Regis Investment M anagers Resources 9.1%, the Website: ncim.co.uk SPDR Gold Trust 6.3% and Fresnillo 6.2%.
Since April 2011 the price of gold has outperformed the Philadelphia Gold and Silver index by 30%. This is very unusual, as in the past these sorts of divergences have been smaller and shorter in duration. The manager believes that the underperformance is due to concerns about the ability of smaller producers to fund their operations. If he is right, then the de-rating is largely undeserved and offers an excellent opportunity for those who can tolerate the high risk.
Since the end of April 2011 the price of gold has outperformed the Philadelphia Gold and Silver index by more than 30% www.IFAmagazine.com
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magazine... for today ’s discerning financial and investment professional
FSA Publications OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA These listings exclude the FSA’s routine monthly handbook updates.
Data Collection on Remuneration Practices Consultation Paper Ref: CP12/18 1st August 2012 62 pages Of relevance to all FSA-authorised banks, building societies and Capital Adequacy Directive (CAD) investment firms. Although not to exempt CAD firms such as credit unions. The FSA proposes to consult on remuneration data reporting requirements for BIPRU firms and third country BIPRU firms, in the light of amendments to the Capital Requirements Directive (CRD3). Member States are responsible for drawing up data on remuneration practices, and for transmitting it to the European Banking Authority (EBA), which produced its own guidelines in July 2012. In particular, this consultation looks at the Remuneration Benchmarking Information Report and the High Earners Report. Consultation period ends 30th September
Sale and Rent Back Review 2011 Finalised Guidance Ref: FG12/18 31st July 2012 12 pages The guidance follows on from the March review after complaints of poor practice among SRB firms, and it lists the main findings: • Appropriateness and affordability were not assessed correctly. • Disclosure was insufficient, inadequate and was not given at the right time. • Record keeping was inadequate. • SRB agreements contained incorrect information and did not meet requirements for tenancy agreements.
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• Financial promotions were not compliant with the rules. • Sales processes did not follow the structure set out in the rules, or allow firms to gather enough information from customers to assess appropriateness. Customers were not given enough time. • Training and competence and compliance monitoring were inadequate.
Financial Resources Requirements For Recognised Bodies Policy Statement Ref: PS 12/13 27th July 2012 36 pages Of interest to Recognised Investment Exchanges and Recognised Clearing Houses. The Statement summarises the responses received in relation to Consultation Paper CP11/19 (Financial Resources Requirements For Recognised Bodies), and provides final guidance.
Mortality Assumptions for Pension KFIs Policy Statement Ref: PS 12/14 27th July 2012 21 pages Of interest to life insurers and other providers of personal pensions and also to firms that advise on personal pensions. Also to consumers. The FSA aims to help consumers to consider the wide range of possible outcomes involved in Key Features Illustrations when buying packaged products that do not come within the scope of the Markets in Financial Instruments Directive at the point of sale. Also to help them compare the charges of different products.
Packaged Bank Accounts Consultation Paper Ref: CP12/17 27th July 2012 44 pages Of essential interest to all firms selling insurance as part of a packaged bank account, but also generally to insurers and retail intermediary firms selling general insurance products. This paper provides feedback on the responses the FSA received to CP11/20 in October 2011, concerning proposals for new rules for the sale of non-investment insurance policies as part of a packaged bank account. The general aim is to ensure parity of protection between consumers buying insurance as part of a packaged bank account and those who buy it on a standalone basis. Consultation period ends 29th October
Proposed Review of ‘General Guidance on Proportionality’ for Remuneration Guidance Consultation Ref: GC12/10 26th July 2012 20 pages Of interest to firms within the scope of the Remuneration Code (SYSC19A) - all BIPRU firms and third-country BIPRU firms. The FSA proposes to amend the ‘General Guidance on Proportionality’, which sets out its proportionate approach to implementing the Remuneration Code and the Pillar 3 remuneration disclosure rules. This, it says, will further clarify how firms may comply with the Code and disclosure rules in a manner that takes account of their size, internal organisation and the nature, scope and complexity of their activities Consultation period ends 6th September
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Guidance Consultation Ref: GC12/9 26th July 2012 9 pages Of primary interest to credit institutions that issue regulated covered bonds or consider applying for RCB status; third party advisers (law firms and auditors); potential investors; and trade bodies. The proposal relates to the role of the Asset Pool Monitor (RCB Regulations 17A). Its key areas include the scope of the APM inspection (including tests and respective tolerance levels) and the content of the APM report. Consultation period ends 14th September
Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules Consultation Paper Ref: CP12/15 25th July 2012 64 pages The Paper consults on two areas of client assets policy - CASS oversight and reporting, and the mandate rules (CASS 8). Its purpose is:
The Paper consults on changes to how the Financial Services Compensation Scheme is funded, and sets out proposals for change, notably to the rules on crosssubsidy and annual thresholds. Consultation period ends 25th October
Tracing Employers’ Liability Insurers - Historical Policies
Finalised Guidance Ref: FG 12/17 13th July 2012 26 pages
Regulating Bidding for Emission Allowances Under Phase Three of the EU Emissions Trading Scheme: Feedback to CP12/6
• to make minor amendments to the language and presentation of some questions contained within the CMAR and the CMAR guidance notes, based on industry feedback;
This Statement summarises the responses received to the previous consultation (12/6) on authorising and supervising firms that intend to bid for emissions auction products across the EU on auction platforms, and it sets out changes to the Handbook following these responses.
Consultation period ends 30th September
FSCS Funding Model Review Consultation Paper Ref: CP12/16 25h July 2012 20 pages Of relevance to all firms regulated by the FSA, whether current or potential contributors to compensation scheme funding.
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Consultation period ended 14th August
Of interest to both consumers and intermediaries. The FSA aims to help people who find themselves unable to trace their insurers, mainly in relation to insurance policies in recent periods. The FSA’s proposals require all firms who may have actual or potential EL insurance claims to conduct effective searches of their records when they receive a request from claimants or other third parties regardless of the period they relate to.
Policy Statement Ref: PS 12/12 19th July 2012 117 pages
• to clarify the scope of the mandate rules (CASS 8).
Initially, the published articles were assembled in the Technical Notes and Procedural Notes of 2010, but they have not been updated or revised since then. The FSA has now resumed the exercise of revising and updating these Notes.
Payment Protection Insurance Customer Contact Letters (PPI CCLs)
• to clarify existing CASS firm classification, operational oversight and reporting requirements;
Rules, the Prospectus Rules and the Disclosures and Transparency Rules.
Consultation Paper Ref: CP12/14 25th July 2012 30 pages
Consultation period ends 17th October
Primary Market Bulletin No. 2 Guidance Consultation Ref: GC12/8 13th July 2012 5 pages The FSA intends to return to the theme of a discontinued publication called List! in which it published articles outlining the UKLA’s views and experiences in respect of the Listing
FS A P U B L I C AT I O N S
Thematic Overview on the Regulated Covered Bond Regime
This guidance sets out sample PPI customer contact letters (CCL), as well as the FA’s view of how our rules on complaint handling and the time limits on a consumer making a complaint are relevant to PPI CCLs. It also covers some other relevant obligations such as record keeping.
Solvency II and Linked Long Term Insurance Business Discussion Paper Ref: DP 12/2 29th June 2012 26 pages Of interest to life insurance firms and friendly societies that write unit-linked business or have existing books of unit-linked and index-linked business. Also to financial advisers and consumers with long-term polices and consumer groups The Paper sets out the responses that the FSA received to Consultation Paper (CP) 11/23 in 2011, and it sets out the regulator’s proposals for changes to both the rules and the guidance on the operation of unit-linked and index-linked insurance policies, to ensure that they comply with the requirements of Solvency II. Specific areas tackled included: • Removing redundant and overlapping prudential requirements covered in Solvency II; • maintaining rules specifically related to conduct regulation; • Replacing the current list of assets in COBS 21.3 with SOLPRU 7 and a revised COBS 21.2 for institutional policyholders
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magazine... for today ’s discerning financial and investment professional
Lee Werrell, Managing Director of CEI Compliance Ltd, gives his personal round-up of the key issues that are currently shaping the compliance agenda. There has been a lot of activity in the regulatory space recently, as the FSA entered into the competitive Olympic spirit by Intervening Faster, Regulating Further and Fining Higher than anybody else.
The fine on Barclays for its part in the LIBOR scandal brings a new meaning to the phrase “Best Fixed Rates”. (Editor: Those of a scurrilous disposition may find the picture link at http://ow.ly/i/KnE1 amusing.)
The promises of the FCA regarding early intervention and regulating across product construction through to delivery and beyond shows a commitment to the credible deterrence for those who flout the rules purposely or even accidentally, and fail to learn from it.
Now, with RDR approaching rapidly, IFAs have to make sure they have got all aspects of risk, governance and controls under strong management. But it would appear that the FSA still holds concerns about this.
More Regulatory Changes? Recent speeches by the FSA have confirmed that the Financial Conduct Authority (FCA) and its ‘credible deterrence’ approach and willingness to intervene early to mitigate loss and harm will be maintained as part of their ethos. Indeed, the FSA has also given an overview of its intended vision on enforcement once the new UK framework is in place. Highlighting the recent global and other regulatory events and their impacts on consumer trust and confidence of the UK financial services industry, the FSA outlined the seemingly compounding challenges faced during impending times of change in addressing the adverse and widespread perceptions of abuse and poor practices across both the retail and wholesale markets. The new UK framework will bring new powers and culture, with significant changes to the way agencies regulate and supervise in the future and intervene to minimise harm and detriment. Martin Wheatley, CEO Designate of the FCA, made the following promise on 2nd July, at the FSA’s Enforcement Conference:
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“Our supervision model will enable us to make forward-looking judgements about the problems that drive poor consumer outcomes. In the past, often by necessity, we focused on dealing with problems as they arose, or once consumer detriment had occurred. As the FCA, we will take a proactive approach so we can better identify future risks before they occur. But we will, for some time to come, also have to deal with the ‘back book’ of past problems.” “The FCA will look at firms individually as well as across sectors to ensure that everything a firm does – from the way it develops products to the way they are sold – is done with good consumer outcomes in mind. Our new approach will feel very different for some firms, but our expectations will become more normal and predictable for the firms we regulate as it becomes the norm.” Mr Wheatley also declared that he wanted to highlight three important points. “Firstly, I’ve already given you my commitment to continuing our credible deterrence strategy, which has proven very successful over the last few years.”
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C O M P L I A N C E D O C TO R
This would seem to indicate that the new regime will have a lower tolerance for repeat offenders as well as those who consistently demonstrate a reaction to problems and fail to resolve the underlying causes, or who fail to show how their business model provides good customer outcomes.
“Secondly, we will continue to use the full range of our existing enforcement tools, which include pursuing criminal prosecutions where appropriate. Where we see examples of bad practices we will continue to look across a range of firms and sectors to identify and deal with problems, as we have done in recent years with incidents of mortgage fraud, for example.”
Publications later this year will provide further details on the plans and ethos behind the new UK regulatory bodies.
“There will, however, be some changes to the way we will deliver our activities as the FCA. So the third point I’d like to highlight is that we will be more prepared to use formal tools including enforcement actions to support the FCA’s emphasis on intervening earlier to stop problems from occurring. Members of our Enforcement Division will get involved in supervisory decisions at an earlier stage, and provide specialist support and expertise to our supervisors. We will take action earlier to tackle root causes – like poor remuneration arrangements – rather than waiting for the risks to crystallise.”
Impact:
There could be major issues for firms if they haven’t considered whether: • Their systems and controls are fit for purpose? • They would be adequately prepared for a visit? • Their risk management practices are effective? • Their processes and practices are adequately documented and known? • They have correctly implemented all the rules over recent years (complaints, MiFID etc.)?
IFAs Not Stress Testing Adequately Following the Business Risk Awareness Workshops that the FSA have been running regionally, firms should be more aware of what risks they need to consider, however, without some form of analysis and risk management system, providing a clear audit trail and justification of decisions made, they will be wasting their time.
The FSA is concerned that that adviser firms are not stress testing the new propositions they will launch in line with the retail distribution review (RDR). They advise that firms need to examine the risks their firms and clients were subjected to because of business changes, such as switches to a different platform, using a discretionary fund manager and changes to their charging structure, both initial and ongoing.
Impact:
Linda Woodall, FSA head of investment intermediaries, said: ‘Every good business needs to test their propositions and advisory firms are no exception. We are concerned firms are leaving the testing too late or not doing it at all.” “To ensure a sustainable business model in a post-RDR world, firms must focus on stress testing and contingency planning. This is a key area of our ongoing supervisory work.” A spokeswoman for the FSA cited an example of a firm moving to an adviser charging model that did not cover its business costs as a risk to be avoided. Bearing in mind the recent speeches, and the promises of the FCA to be more proactive and interventionist, this means that firms who do not have a credible risk management program that clearly demonstrates their identification, evaluation, testing and reporting of risks and controls within their firm will have exceptionally difficult questions to answer to the regulator.
If the new client proposition offered by a firm are shown to be flawed, there could be huge ramifications. IFAs must ensure that they have not just selected their proposition on the basis that providers have suggested three models. Segmentation of the client bank, asking the clients what they want as a service and considering the limitations of the back office support that is available in each firm have important parts to play in the formulation of a credible and robust proposition. Business and Operational risks have to be managed correctly and to the greatest effect to help any firm keep down the costs and waste that is often inherent in legacy systems and processes.
Remember: If you have any concerns regarding these issues, please contact your compliance department or an independent consultant who is a member of the Association of Professional Compliance Consultants (APCC), recognised as a trade body by the FSA. See also the listings of FSA publications on Page 54 of this issue
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THINKERS
THE HISTORY MAN “Over himself, and over his own body and mind, the individual is sovereign.” John Stuart Mill Born March 1806 in London Died 1873 in Avignon, France Oh no, not another liberal sociologist? Hold your horses. Yes, it’s true that the formidable Mr Mill has been required reading on every sociology course since the invention of the subject. And that his vaguely leftie convictions on subjects like freedom of speech and labour relations have bestowed a pinkish tinge of hindsight on everything he did. But let’s remember, please, that Mill was born 12 years before Karl Marx, and that like Mr Marx he was trying to fathom out the ground rules of an industrial-revolution society that nobody had ever studied before. Industry had torn up all the traditional rural labour relations, and it took real genius and selfdiscipline to work out for the first time which way economic relations were heading. Mill was an economic trailblazer in that sense at least. Not your average socialist liberal Nor is it fair to call Mill a complete economic leftie. He believed in property rights, taxation, contract law and a high level of trade protectionism that would have made Ronald Reagan proud. As for his own choice of career, he spent much of it working for the East India Company, which was hard at work subjugating the imperial Asian masses at the time. Not exactly right-on, was it? Mill subsequently became a Whig MP and spent his parliamentary years campaigning for women’s voting rights, proportional representation, and a generally softer line on the Irish occupation. What seems to have annoyed the right wing, however, was that Mill favoured a mandatory education system for the poor that was still half a century away. And he thought that better-educated voters should have more votes than the rest of us. Which was a bit hard on the working classes, wasn’t it?
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A bit of a loner Mill was brought up by a highly-academic philosopher father who was afraid that other people might pollute his infant son’s mind. Rather than read the Beano of the day, young John had mastered classical Greek at the age of three, and by eight he had read all the classical theoreticians and had started in on Euclid and algebra. This may have explained why he spent his life fighting depression, and also why he found it so hard to commit to a partner. (He married his wife after a 21 year courtship.) A libertarian view of the world Still, Mill was obsessed by a vision of democracy that would have spoken directly to George W Bush. It was essential to keep government small, he said, and to ensure that individuals had the power to influence and determine policy. The individual should be free to do whatever he wanted, as long as he didn’t harm other people, and the only time government should interfere was when society in general needed protecting from itself. Even if the individual was self-harming, the state should not stand in the way. And society’s utility would be maximised, he said, if every person was free to make his (or her) own choices. Hang on, isn’t that a bit anarchist? Well, maybe it is a little naïve to hope that a natural balance can evolve between political government and the human spirit. But Mill was firmly on-message about tax evasion (a harmful act of omission, he said), and he didn’t hold with namby-pamby cushioning for the easily deceived. If you openly offered them a dangerous job, and if they willingly accepted it, that was their risk and not yours. Take that, Unison.
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ALLERGIC REACTION
magazine... for today ’s discerning financial and investment professional
CATS HAVE MORE FUN IFA CENTRE’S GILLIAN CARDY INDULGES IN A SPOT OF BLATANT SPECIES-ISM I do not like cats. They seek attention or ignore it, but on their own terms. They return home to be fed, and perhaps to catch up on sleep in the warm. They do not come when called. They come and go at all times of day and night, and just when it pleases them. And they make me sneeze. The cat, as one writer observed, is domestic only as far as it suits its own ends. I was told that setting up a trade association exclusively for independent advisers would be a nightmare. “Like herding cats.” they said. Which set me thinking. Perhaps the best known saying is that “dogs have masters while cats have staff”. Searching for other pertinent quotes, I came across the observation that “you can’t own a cat; the best you can do is be partners.” Yet the more I thought about it, the more I had to agree that independent advisers are indeed cats. Moreover this is a positive attribute to be celebrated, not regretted. If IFA Centre is to be an effective trade association, I will need to be a successful cat herder, however difficult my detractors said this would be.
Roll Over, Rover
Product providers would much rather we were dogs: trained to use their products, dependent on them to be fed with money, sitting nicely to ask for free training. Large firms would much rather we were dogs. Obedient when using their inhouse funds. Unquestioningly loyal to the masters’ instructions. Drooling gently at the thought of sales-related bonus schemes. But the vast majority of advisers I have met over the years set up their own firms because they actually want to be independent, in the broadest sense of the word.
Free Spirits
They want greater autonomy over their work, making more time for the things that matter most to them. They want to choose the clients they work with, and how they work with them.
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They want to deliver more personal and tailored services than larger firms typically provide. And yes, these advisers also want to be independent, in the regulatory sense of the word. They want to be free to recommend the products and services that they believe are most suited to the need of each individual client, instead of using best buy lists and panels distributed from head office. They want to be free to think their own thoughts, to develop their own ideas about the best way for their own clients to manage their finances. Being a cat can be an adviser’s curse, because individual IFAs lose bargaining power and collective voice. But the very fact that we do not have masters, that we can’t be owned, is a blessing for advisers, and for our clients too. This is why independent advisers are worth defending, supporting and speaking up for, giving them the collective voice and power that they lack as individuals. Anyway, as another writer wisely observed “women and cats will do as they please, and men and dogs should relax and get used to the idea.” Incidentally, for a study in cat-herding : www.youtube.com/watch?v=m_MaJDK3VNE For more comment and related articles visit...
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8 Years of Excellence for our Agents and more importantly their Clients! Our expansion now demands more Business Development Agents For more details contact Email info@ipponline.co.uk Call +44 (0) 1276 857500 www.ipponline.co.uk
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" and Cheshire, IPP now welcomes further Agents and Managing Agents for our " # the ultimate reward, as well as exceptional remuneration for treating Clients fairly.
Why you should work with us: ! ! ! ! !
Quality products that have been subject to a rigorous Due-Diligence process # An opportunity to build an Agency should you wish Full training and the on-going support of the whole team at IPP A suitable solution for IFAs that will not affect their standing
Visit our website at
www.bwd-search.co.uk Senior Financial Planner - Investment Management firm, The City
Senior Financial Planner - Gloucestershire
Basic to ÂŁ80,000 plus benefits and bonuses
Basic to ÂŁ70,000 plus benefits and bonuses
Our client, a highly respected Investment Manager with a very established wealth planning division are currently looking to appoint a new Financial Planner to their London office. Working closely with the discretionary team, you will be responsible for offering independent, holistic advice to the firms existing client base, mainly consisting of private clients with between ÂŁ2-5 million. The ideal candidate will have exceptional interpersonal skills, HNW client exposure and be qualified to Chartered Status.
This is a fantastic opportunity for a highly skilled and experienced Financial Planner to work within a vastly reputable wealth management firm. No requirement for a transferrable client bank as you will be capitalizing on internal business sources as well as developing a presence in the local area. This opportunity would suit a proactive and dynamic individual; preferably at Chartered status. You must feel comfortable dealing with wealthy individuals and have experience in meeting their exacting demands.
Please contact James at: james.woods@bwd-search.co.uk or on 01727 884 662
Please contact Danielle at: danielle@bwd-search.co.uk or on 01727 884 662
Sales Proposition Trainer - London Based/UK Travel
Head of Corporate - Midlands
Highly competitive package
Excellent package including bonus
Are you an experienced Financial Services Sales Trainer? BWD Search & Selection are working with one of the UK’s leading Platform providers to recruit a ‘Sales Proposition Trainer’ in the South East. Candidates must be in easy reach of Central London and be able to demonstrate significant experience in delivering training to support the Proposition and Sales Development team. A highly competitive package is on offer, along with the opportunity to join a market -leading Financial Services organisation.
An employee benefit consultancy is seeking an experienced hire to grow the Midlands. You must have an EBC background with knowledge across Trust and Contract based pensions (DB and DC) and ideally Risk and Flexible benefits and be accustomed to working on a fee basis. Your technical knowledge must be strong. You must also have experience of building, managing and coaching a team of corporate consultants and exceeding revenue targets for both new business and retaining existing clients. Level 4 is expected as a minimum whether APMI/ACII/DipPFS/FIA qualifications.
Please contact Adam at: adam@bwd-search.co.uk or on 0113 274 3000
Please contact Zoe at: zoe@bwd-search.co.uk or on 0113 274 3000
Employed Financial Planner - North West
Regional Admin Manager - Accountancy Practice, East Midlands
Basic to ÂŁ50,000 plus car allowance, flexi benefits and bonus
Basic to ÂŁ35,000 plus benefits and bonus
This well established, reputable and profitable IFA firm is looking to recruit a QCF level 4 financial planner as it looks to continue expansion plans into 2012. The business model is RDR ready and also provides full support in terms of admin and paraplanning. There will be additional client allocation and leads provided as and when, as well as the opportunity to link in with other areas of the business and account manage and take and develop lead provision from them. A great opportunity to develop yourself, your client base and consequently your earnings further.
Our Client is a top tier accountancy practice with a widely respected Wealth Management arm who seeks to appoint a Regional Administration Manager. The role is to provide management and leadership to the local Administration Managers & support teams within each region whilst achieving the Group’s wider business targets and service standards. Knowledge of managing support teams and experience within financial services is essential as well as exceptional communication and leadership qualities. This is a key hire and you will be expected to travel to the Group’s regional network. A rare opportunity not to be missed.
Please contact James at: james.rhodes@bwd-search.co.uk or on 0113 274 3000
Please contact Gary at: gary@bwd-search.co.uk or on 0113 274 3000
Ground Floor, Mayesbrook House, Lawnswood Business Park, Redvers Close, Leeds LS16 6QY Telephone: 0113 274 3000 Fax: 0113 274 3031
Suite 4, Ground Floor, Breakspear Park, Hemel Hempstead, HP2 4TZ Telephone: 01727 884 662 Fax: 0113 274 3031
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Thinkers.indd 61
September 2012
61 05/09/2012 11:51
magazine... for today ’s discerning financial and investment professional
WEALTH MANAGEMENT ADVISERS
PREMIER INDEPENDENT FINANCIAL ADVISER
Our client needs a number of experienced Wealth Advisers to offer a comprehensive service to a portfolio of HNW clients in the South East of England. The job role forms part of the wider Wealth Management Sales Team therefore working in close partnership with the introducers and peers in this team will be part of any successful applicants’ day-to-day activity.
Our Client a leading Bancassurer need a number of Premier Independent Financial Advisor’s to provide professional independent financial planning services to both new and existing high value customers. This means identifying and meeting customer needs with particular emphasis on protection, pension, investment and insurance products available through the bank’s UK branch network, whilst consistently treating customers fairly. The role requires the candidates to be qualified to a minimum of Diploma level.
London, Essex, Home Counties & South East £45,000 plus excellent bonus and benefits O.T.E c£75,000
You will be responsible for achieving targets in meeting the demands of the business by converting introductions into new business, conduct interviews with new and existing clients to review and meet their immediate and on-going financial needs; actively selling and/or introducing appropriate products and services and referring to other product specialists where required.
You will be responsible for working with a sophisticated customer base, providing specialist advice on relevant financial products and services including full financial planning reviews and portfolio management.
Successful applicants will be fully diploma qualified. Ref: 2016
Optimising appointments with customers to identify needs and opportunities and provide solutions in order to achieve personal and team sales targets. Ref: 2076
FEE BASED FINANCIAL PLANNING DIRECTOR
TRAINEE EMPLOYEE BENEFITS ADVISER
Our Client a well respected firm of Chartered Accountants and Business advisers based in the South East. They now require an experienced Chartered Financial Planning Director for its specialist Wealth Management division.
Our Client is an independent firm of actuaries and consultants who offer a full range of services to trustees, employers, insurance companies and individuals. They are now looking to recruit a trainee adviser for their Liverpool office. The ideal candidate will be responsible for supporting employee benefit consultants advising clients and will require excellent written and oral communication skills to be effective in this role.
South Coast £70,000 plus bonus and benefits
Successful applicants will be required to give advice on all aspects of financial planning from pensions, Investments and annuities to inheritance tax planning and trusts to a portfolio of clients Qualified to Chartered status you will be given your own portfolio of clients ranging from private individuals to Charities and trusts and professional connections
Merseyside c£30,000 plus benefits
Some previous pensions experience is essential and attention to detail, coupled with the ability to work well in a team environment.
The successful applicant will have experience of working within a Fee based environment on a time/cost basis with HNW Clients. In return you will receive a competitive remuneration package and a defined career path. Ref: 1999
In return on offer a competitive remuneration and study package. Study towards professional qualifications (Diploma in Financial Planning) is an essential requirement and is necessary to progress to the role of an experienced Adviser. Ref: 2079
EMPLOYEE BENEFITS CONSULTANT
WEALTH MANAGER
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Employee Benefits Consultancy service with the appointment of an experienced Employee Benefits / Corporate Pensions Consultant to their offices in the London office. Primarily based in London, working alongside the existing teams you will be responsible for developing the business throughout other regions, you will be servicing clients of the organisation as well as developing new business with large corporate clients.
Our Client a well respected firm of Asset Managers with a National network of Offices who manage in excess of £10 billion of funds on behalf of Clients
London & South £70,000 basic plus benefits
You must be Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing and managing group pension schemes with c200 – 2000+ employees. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 1396
WEALTH MANAGERS
London, South Coast, Norwich, Leeds £75,000 plus benefits Our Client a National firm of Wealth Managers and Investment Advisers who give Fee based Independent financial advice to private clients need a number of exceptional individuals to service and further develop their Client proposition, based out of one of their UK offices. Ideally, you will be an experienced diploma qualified IFA already with a minimum of five years financial planning experience, covering all areas of Pensions & Investments and be familiar with operating a Wrap service. The successful applicant will be given on-going support and development to ensure they are giving their Clients the best advice.
Birmingham £40,000 plus bonus and benefits They now require an experienced Financial Planner for its specialist Wealth Management division. Successful applicants will be required to service a Wealthy portfolio of clients ranging from private individuals to Charities and trusts and professional connections You will be responsible for working with a sophisticated customer base, providing specialist advice on relevant financial products and services including full financial planning reviews and portfolio management. The successful applicant will have first hand knowledge of working within a Fee based environment on a time/cost basis with HNW Clients. In return you will receive a competitive remuneration package and a defined career path. Ref: 2077
FINANCIAL PLANNING MANAGER Reading £50,000 basic plus benefits
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Wealth Management service with the appointment of an experienced Financial Planning Manager to their offices in Reading. You will be office based; working alongside the existing teams responsible for developing the business throughout each specialist area and you will be servicing clients of the organisation as well as developing new business with clients.
In return the successful applicants will be given an excellent opportunity to develop their career within this organization Ref: 1885
You must be a minimum Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing Time Cost; Fee based business with High Net Worth Clients. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 2078
EMPLOYEE BENEFITS CONSULTANT
COMPLIANCE OFFICER
Our client is a successful and respected firm of Chartered Accountants and Business Advisors, with over 25 offices across the UK and worldwide. They are looking to expand their UK Employee Benefits Consultancy service with the appointment of an experienced Employee Benefits / Corporate Pensions Consultant to their offices in their Manchester/Leeds office. Primarily based in the North West, working alongside the existing teams you will be responsible for developing the business throughout the North East regions, you will be servicing clients of the organisation as well as developing new business with large corporate clients.
Our client who provide a truly independent range of financial services from investment and portfolio management, through to trust and estate planning are urgently seeking a compliance officer, to carry out compliance reviews in accordance with the risk based business quality monitoring programme.
North West/North East £50,000 basic plus benefits
Manchester c£30,000
Assess the quality of advice and adherence to business standards and regulatory FSA requirements and identify material risks to clients and the company Occasional file review required to determine whether the suitability of advice against business standards and regulatory requirements and identify material risks.
You must be Diploma Level 4 qualified, with specialist pension’s qualifications, and be experienced of developing and managing group pension schemes with c200 – 2000+ employees. Typically you should be generating a minimum of £250,000 in Fee revenue per annum. Ref: 2020
To provide effective feedback and direction of the remedial action required to manage or mitigate the material risks identified.
CASE OFFICERS
EMPLOYEE BENEFITS ADMINISTRATOR
Our Client a well respected Financial Services group, require experienced individuals to research and resolve customer complaints within agreed compensation limits and negotiate solutions to the satisfaction of all parties concerned ensuring requirements of external regulators and internal standards are met.
A London based IFA is looking for a corporate administrator to work within the Employee Benefits administration Support Team, responding to customer enquiries and carrying out administration tasks in support of the sales process.
Investigate customer records produced by the sales forces to ensure that the advice given is in line with standards laid down by the Group and Regulator.
Identification of possible new business leads from the existing client bank and liaison with the client and/or Employee Benefit adviser to maximise the opportunity.
Bristol & Huddersfield c£32,000 plus benefits
Examine standards of remedial action undertaken as a result of reviews, when appropriate, to ensure that customers have not been disadvantaged or the Group put at risk. To effectively identity, control and escalate any perceived risks which may impact customers or the group Produce effective communications to internal and external customers in a clear and concise format, ensuring that any corrective action undertaken is appropriate. Ref: 2023
For further vacancies please visit: www.shortlistme.co.uk
Thinkers.indd 62
Manchester, Bristol & London c£45-£50,000 plus bonus and benefits
Minimum 2 years experience of working in a regulated financial services environment CF1-4 or equivalent Ref: 2053
London c£32,000 plus benefits
Processing of group life & group pensions schemes, including checks to ensure that documentation is correct.
Obtaining new business illustrations and policy valuations for advisers where required. Typing of letters and reports, where required. Ensure all administration is completed in an effective manner to meet the firm’s record keeping and file quality requirements. CF1-4 or equivalent Knowledge of 1st Software Exchange is preferred Ref: 1397
and
ASPECT COURT, 47 PARK SQUARE EAST, LEEDS, LS1 2NL T: 0844 248 5292 E: info@shortlistme.co.uk
28/08/2012 12:43
Private Client IFA £60-80,000 + Bonus + Benefits Ref: 09393 International insurance brokerage with a large UK presence has recently set up a wealth management offering to advise personal and corporate clients. They now require a senior individual to work in the City office and develop referrals internally and advise wealthy individuals of SMEs/FTSE firms that they have relationships with. You must have experience of internal business development and a proven record of producing both high quality and high levels of fee business.
Wealth Manager To £60-80,000 + Bonus + Benefits Ref: 3244 Our client is one of the UK’s leading Investment Management firms with c£10bn under management combined with a fantastic offering in the wealth management arena. As part of a continued expansion plan they now require a senior wealth manager in London to work with the IMs and advise wealthy individuals on all areas on a fee basis. You must have experience of working with professional introducers and a record of success in a similar arena.
Associate Director, Private Clients £70-90,000 + Bonus + Benefits Ref: 1303 An excellent opportunity now exists for an accomplished Private Client IFA to work within this wealth management boutique and inherit a substantial client base comprising HNW/UHNW Private Clients. You should be a Chartered Financial Planner (or progression towards) and be able to offer a background of providing fee advice to a wealthy client audience. Since you are servicing an existing portfolio you are not required to transfer any clients or funds to this role.
Professional Practice IFA £80-100,000 + Bonus + Benefits Ref: 2000 An exceptional opportunity now exists within this medium sized Accountancy practice for a senior individual to work closely with the partners of the practice. You will ensure that a level of trust is maintained in order to refer business to you and provide high quality advice to the wealthy clients that are referred. You must have a strong sales record and ideally have experience of working with professional introducers. London based.
Wealth IFA Up to £60-85,000 + Bonus + Benefits Ref: 210104 This small National IFA has an excellent opportunity for 3 IFA’s to join their existing team of specialist consultants in London, Herts and Surrey. The firm offers holistic and niche financial planning advice to HNWIs and you will advise a captive client base currently being dealt with by specialist divisions but seeking wider generalist financial planning advice. This is an exceptional opportunity with no need to bring any client bank. Chartered status preferred.
Executive Consultant Salary: to £75,000 + Bonus + Benefits Ref: 5323 Private Bank with a hugely successful fee based financial services operation now requires an experienced consultant to work with retained clients and advise on all areas of employee counselling. Ideally, you should be currently carrying out a similar role at present and be familiar with pre/post retirement/redundancy counselling, mid-career financial planning and director/senior management advice. Experience of fee based work would be a distinct advantage. London based.
For further information please contact Simon Charlton, Matthew Tatnell or Gareth Blades 60 Lombard Street, London EC3V 9EA 0207 464 8429 fs@rolanddowell.com
www.IFAmagazine.com
Thinkers.indd 63
www.rolanddowell.com
September 2012
63 28/08/2012 12:43
Institute of Financial Planning THE PROFESSIONAL BODY FOR FINANCIAL PLANNERS AND PARAPLANNERS Post RDR, it will become even more important for advisers in the UK to align themselves with a relevant professional body or accredited body. Membership of the IFP offers you support and guidance whether you are a Financial Planner or Paraplanner. With a huge range of benefits, why not have a look at some of the ways in which we can help you? Support you through regulatory change Engage with a community of professionals Follow a structured career path Increase your personal and business potential Harmonise your goals with those of your clients Keep up to date with relevant issues and news
To find out more or join visit www.financialplanning.org.uk or contact us on 0117 9452470
IFA Calendar.indd 64
28/08/2012 12:49
I FA C A L E N D A R
e n zi
Dates for your diary a m a g
SEP - NOV 2012
SEPTEMBER 3
6
Democratic National Convention confirming Barack Obama as the official candidate Charlotte, North Carolina, USA Consultation period ends on Guidance Consultation GC 12/10 (Proposed Review of ‘General Guidance on Proportionality’ for Remuneration)
World Economic Forum – Annual 1113 Meeting of the New Champions Tianjin, China
12 14
15
15 27
30
30
Consultation period ends on Guidance Consultation GC 12/9 (Thematic Overview on the Regulated Covered Bond Regime) St Leger’s Day race Doncaster. Unofficial start of the autumn stock market season. Fourth anniversary of Lehman Brothers bankruptcy Consultation period ends on Consultation Paper CP 12/12 (Payments to Platform Service Providers and Cash Rebates from Providers to Consumers)
1
World Economic Forum Meeting
17
Consultation period ends on Consultation Paper CP 12/14 (Tracing Employers’ Liability Insurers - Historical Policies) European Council Meeting
1214 Brussels, Belgium 25
Consultation period ends on Consultation Paper CP 12/16 (FSCS Funding Model Review)
29
Consultation period ends on Consultation Paper CP 12/17 (Packaged Bank Accounts)
31
Deadline for self-assessment tax returns 2010/2011 (paper only)
NOVEMBER 1
Solvency II – new regime takes effect
Consultation period ends on Consultation Paper CP 12/18 (Data Collection on Remuneration Practices)
6
Presidential and Congressional Election Day USA
Consultation period ends on Consultation Paper CP 12/15 (Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules)
6
Money Management Financial Planning Awards
Institute of Financial Planning annual conference Newport, South Wales Changes to the UK Corporate Governance Code and the UK Stewardship Code come into effect.
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IFA Calendar.indd 65
New Conduct of Business Rules come into operation on pensions
1214 Moscow, Russia
General elections Netherlands
OCTOBER 1 3
1
World Economic Forum Summit
1214 on the Global Agenda
Dubai, United Arab Emirates
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.
September 2012
65 28/08/2012 12:50
T H E OT H E R S I D E. . .
magazine... for today ’s discerning financial and investment professional
NICE LITTLE EARNER SELF-ASSESSMENT HAS JUST TIGHTENED BY ANOTHER NOTCH, SAYS RICHARD HARVEY. The Inland Revenue – don’t you just love ‘em? As an indolent soul, I have spent much of my career trying to find a job where the client does all the work and I simply send in a bill. All play and no work makes Jack a very happy chap indeed. And why not? After all, Her Majesty’s tax collectors seem increasingly adept at making us to do their work for them, and are gathering ever-bigger sticks to hit us with if we get the sums wrong. Their latest wheeze is to make it your responsibility to ensure you have the correct tax code, which for non-accountants is like
compelling you to understand that Higgs Boson thingy which so excites the boffins. Like most people who have had several jobs during their career, I’ve gathered a clutch of pension pots, most of which pay out tiddly sums each month. As soon as I started drawing them, I began receiving a deluge of different coding notices from HMRC, with such regularity that my postman wondered if I might have a bit of thing going with someone in the tax office. I didn’t have a clue what the codes meant, so simply redirected them to my accountant. Fine for me, but what about all those people who don’t have an accountant? While it’s understandable that HMRC needs to do all it can to bolster the tax take while the nation’s finances are in such a parlous state, the latest initiative has a particularly nasty sting. Because if they issue you with the wrong tax code, then it’s up to you to spot the error. That particularly rankles, given that they issue thousands of incorrect coding notices each year. Heads they win, tails you lose.
66
September 2012
The Other Side.indd 66
*
As the Office for National Statistics wheeled out a particularly gloomy set of quarterly GDP figures, financial folk were entitled to feel an even stronger urge last month to get away from it all and head to the beach. However, the more optimistic frame of mind, stimulated by a tipple or three, also set many of them wondering why, if things are quite so bad... • Shareholders are enjoying a record 21% increase in dividends compared to a year ago, according to the people at St James’s Place; • Employment in the UK rose by 181,000 between March and May, the biggest increase for two years, while unemployment fell by 65,000; • HMRC have announced that completed property sales are up 11% on last year; • And inflation is now running at 2.4 percent, compared to 5.2 percent a year ago. As the economics editor of the Sunday Times, David Smith, observed, these figures are simply inconsistent with even a mild recession. Another Vera and Phil* please, Dave....
Rhyming slang for Gin and Tonic; shortened fromVera Lynn and Philharmonic.
Fond Thoughts of Home
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28/08/2012 12:51
Very good in its make up and content. Sets itself aside from other publications in the marketplace. Excellent. Thank you. Really refreshing. High quality e production i nwith some good thought provoking articles z and useful LOgOa information. Good useful content. Up-todateainfoK useable, very good and easily read. Very good m articles, relevant to my work. Very interesting, extremely useful. Very impressive read and lots of useful Sarticles nice to see it in “magazine” style format A N D SINN TS usual rather ANthan newspaper. A comprehensive ERS read. Very good layout and informative. Good content, appealing to the female reader as many publicationscrisiare very male driven and focused. s Thank you. AUquality magazine for IFA IFA’s. ’s. Good paper S A with good content which is plain talking. Good layout and easy to read. Not seen anything like this for IFA market. Really AZIL Worth reading. Interesting BRgood. content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutely fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the monthsBRto please. A very readable AF TE R ITA INcome TS O RI E publication. It looksTHlike an interesting and enjoyable read that I would be happy to have delivered THE ERS V I C KKabout to the office - not something I could say ING BAN PORT E magazine manyThe financial publications! Great - look Rforward to subsequent editions. Brilliant! Very impressive the top IFAs CAL T and all interesting publication. Looked and felt SIS E T H IE S T M E N L Y like A N INV NTA Echeaper M a proper magazine rather than other M O are talking about... IEWC V E R looking publications. Breath ofN fresh air and topical EWS get your free subscriptionI’m going get it instead of the in biteTosimply size chunks. fill out the form online at: professional adviser papers and financial adviser www.ifamagazine.com/ content/subscribe papers. Enjoyed the read. Keep up the good work! MA
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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 14.indd 3
18/09/2012 10:14
Sparkling investments || JULIUS BAER LUXURY BRANDS FUND Swiss & Global Asset Management (Luxembourg) S.A. UK Branch 12 St James’s Place, London T +44 (0) 20 7166 8176 funds@swissglobal-am.com www.swissglobal-am.com The exclusive manager of Julius Baer Funds. A member of the GAM group.
Important legal information: The information in this document constitutes neither an offer nor investment advice. It is given for information purposes only. Julius Baer Multistock - Luxury Brands Fund is a sub-fund of Julius Baer Multistock (SICAV according to Luxembourg law) and it is admitted for public offering and distribution in the UK. Copies of the respective prospectus and financial statements can be obtained in English from Swiss & Global Asset Management (Luxembourg) S.A., UK Branch, UK Establishment No. BR014702, 12 St James’s Place, London, SW1A 1NX, as a distributor of the aforementioned fund (authorised and regulated by the Financial Services Authority) or by the Facilities Agent: GAM Sterling Management Limited, 12 St. James’s Place, London, SW1A 1NX, United Kingdom. Swiss & Global Asset Management is not a member of the Julius Baer Group.
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