of ti rs da te n or ou pp n F su e d Lar ou c Pr ll M Bi
the newsletter from carbon financial partners limited
issue #04 Image © Colorsport
Welcome to the Spring 2012 Carbon newsletter Rewarding times There is a fairly obvious need for companies of all sizes to align successful business performance with employee reward. What is less obvious for many of us, however, are the many variations of measurement of corporate success and the balance of participation in that between employee and customer. At Carbon we pride ourselves in the quality of our employees and their desire and passion to excel. How they are rewarded is unique in our industry. Bonuses are not related to any form of ‘sales target’, which is commonplace in our industry, but instead on retention of clients, on quality of advice and service to you and on going ‘the extra mile’. Unlike Britain’s much publicised banks, bonuses make up only a small part of our remuneration packages. We welcome your feedback at all times on the advice and service you receive from any of the team.
Rise and fall 2011 proved to be a negative year for equity markets. 2012 has already seen double digit rises in the major indices. The Carbon investment philosophy does not alter whether markets are rising or falling.
Typical investment reaction is based on emotion. Many investors tend to join in the excitement of rising markets and invest when prices are at high levels. When nervousness exists and prices drop the same investors tend to sell. This leads to many investors having a poor experience of stock market investing. Wrong decisions are made at the wrong time as a result of trying to time when to enter and when to leave markets.
inside this issue: Investing with Carbon p02
Long-term investment should be about just that the long-term Meet John Bell p04
Retail Distribution Review For many Financial Advisory firms like Carbon, 2012 is a watershed year. The requirements of the Retail Distribution Review (RDR) launched by the Financial Services Authority (FSA) in 2006 must be adopted by 1st January 2013. The review affects the quality standard and type of advice that is available to you as a customer seeking solutions for your financial needs. The result of the review will likely lead to a significant number of the 14,000 firms and 47,500 Advisers in Britain no longer being able to advise. Carbon has been operating under a model that the FSA wants in place since our founding. Transparency, a drive for quality and a focus on first class customer service are the founding principles of the Carbon business. This will never change.
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Retail Distribution Review p02 Rewarding times p03 Houston Calling p03 The Bill McLaren Foundation p03
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The Retail Distribution Review acting in your interests
Quantitative Easing Quantitative Easing (QE) may not mean much to many of us, and whilst it may be the shot in the arm the economy needs, it is potentially devastating for anyone in retirement and drawing benefits from a pension scheme or anyone about to retire. QE began with the Bank of England (BoE) injecting £75bn into the economy in March 2009, followed by another £125bn in the same year. October 2011 saw the introduction of another £75bn and, in February, another £50bn saw the total to date rise to a staggering £325bn. In effect, the BoE prints money, although in practical terms it is done electronically. It uses the new found cash to buy government and corporate bonds held by banks and financial institutions, which puts money in their coffers, which should in turn mean that they find lending money easier. When this money reaches our pockets, we spend it and the economy gets a lift. The effect is to put more money into the system. An unintended consequence of this is that the purchase of all these government bonds increases their price, which in turn depresses the yield (the interest rates) that these financial instruments pay. The yield is a key determinant in the calculation of the income you derive from a pension, be it from an annuity (where you exchange your pension fund for a guaranteed income for life) or income withdrawal from a fund that remains invested. If the yield is low, and some would argue it has been artificially depressed, then the income you can get from a pension fund will be similarly low. Since QE was introduced in 2009, it is estimated that annuity rates have fallen by around 25%, affecting over one million pensioners. It has never been more important to consider carefully your pension options at retirement as the landscape has changed dramatically. It is imperative that anyone currently drawing an income from their pension fund looks at this very closely.
What will never change is our commitment to listen to you, to act at all times with integrity and to work together with our clients to make informed decisions with confidence.
The Retail Distribution Review (RDR) has been heralded as one of the biggest shake-ups in the financial services industry for many generations. The Financial Services Authority (FSA) decided back in 2006 that customers of financial services providers - whether they be banks, building societies, insurers or companies like Carbon needed greater confidence in the advice that they are given and that the products they are subsequently sold match their investment needs. It comes into effect at the very end of this year and has required many companies to reshape radically their business structures, their technology and conduct.
Investing with Carbon Risk and reward are inextricably linked when investing money. Decades of financial research provides insight into this. A scientific model developed by world-renowned financial economists Eugene Fama and Ken French shows that some risks are worth taking, while others are not. How well your investment portfolio performs is largely down to three risk factors: how much you have in stock markets, and how much of that you have in two classes of shares – ‘small’ (the bottom 10% of the market) and ‘value’ (where the price that would be attached to all of a company’s parts if it were to be sold is less than its stock market valuation). Fama and French’s ‘Three Factor Model’ proved that these shares do better than the market overall over the long-term, so Carbon’s portfolios have a bias to these stocks to capture the additional returns, which small and value companies normally produce.
It is thought that many companies - particularly in the advisory sector - will cease to exist as a result of the demands of RDR. The RDR aims to ensure that: • you as a customer are offered a transparent and fair charging system for the advice you receive • you are clear about the service you receive or can opt for • you receive advice from highly respected and professionally qualified individuals and businesses • these businesses will be financially secure in line with the FSA’s capital adequacy requirements and will be around to support you in years to come Carbon has been operating in the way that the FSA desires since our inception and is fully supportive of its introduction. What will never change is our commitment to listen to you, to act at all times with integrity and to work together with our clients to make informed decisions with confidence. If you would like further detail on any aspect of the Retail Distribution Review, please do get in touch.
It is important to understand that the additional expected return from these risk factors is not present every year. In fact, there can be periods of several years when returns from “small” and “value” are below that of the broad market. Long-term investment should be about just that - the long-term.
Long-term investment should be about just that - the long-term
The alternative approach is to indulge in stock-picking and market timing. These can introduce significant extra costs and can account for a very small proportion of returns. It’s very simple. If you don’t need the highest return on your investment year after year, you should not be investing the majority of your money in risky assets. It could also lead, as history proves, to the highest loss.
The Bill McLaren Foundation The Bill McLaren Foundation is an ideal fit for the Carbon business. Bill was known to all inside and outside of the rugby world as having integrity at his core. This was true throughout his lifetime and in his teaching and commentary days. He was not only a famous Scot known throughout the world, but someone who created an ethos of respect and fair play. He was, and will forever be remembered as, a truly outstanding individual. So when we were approached by the rugby charity to get involved, it was an easy answer to give them. Carbon was the event sponsor for The Voice of Rugby Dinner at Prestonfield House Hotel,
Global Reach Houston calling In May, Carbon Directors Gordon Wilson and Barry O’Neill will be visiting Houston, Texas, as part of a business mission to examine in more detail newer investment opportunities and thinking. Time will also be spent analysing how well served the public is by Financial Planners in the United States with a view to bringing any examples of good practice back to the UK. Gordon and Barry are both Certified Financial Planners - an internationally recognised qualification which a very small number of UK Advisers have. Many more US based Advisers hold this qualification than they do in the UK. Gordon and Barry also hold the status of Chartered Financial Planners - in the UK fewer than 200 of over 40,000 advisers are both Certified and Chartered. It is hoped that some relationships may be developed which
Edinburgh on the weekend of the Scotland-France Six Nations international. The Dinner was highly successful, selling all five hundred tickets and raising around £60,000 for the charity. The foundation has been set up in Bill’s name and seeks to: • develop and promote the sport of rugby union and its values • encourage and promote sporting opportunities for young people • create an educative centre which will include the Bill McLaren archive We hope that this will be a successful partnership in the years to come.
will allow oil executives moving between Aberdeen and Houston, to enjoy a coordinated and high quality advice service on both sides of the Atlantic. The visit will also involve time with the Chief Investment Officer of Dimensional, a US based firm currently managing over $200 billion dollars for clients throughout the world. Its growth over the last 30 years or so has been driven by pushing the frontiers of innovation and translating in depth financial research into real world investment opportunities. Dimensional research is used as a source for much of the activity of leading fund management groups throughout the UK. Gordon and Barry will also be meeting up with David Booth - one of the top philanthropists in the US who has amassed a fortune investing passively. David gifted the value of 300 million dollars to Chicago University business school in 2008 - the largest gift to any business school in the world.
Carbon Staff - rewarding times Planning for and achieving your financial goals is a complex business. Our job is to make your experience as straightforward as possible, to make the most of your financial position and to allow you to achieve all your personal goals. The quality and passion of our people are core to how we deliver this to you. Carbon is part of a select group of Financial Advisory firms that qualifies for ‘Chartered’ status. This is an accolade that is afforded to less than 3% of the 14,000 firms operating in the UK today.
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It is more than just a badge. It is evidence of a commitment to technical and service excellence. A desire as a team to collectively set new company and industry standards. To continue to do this, we must retain and recruit the best individuals. We are delighted to welcome Lyn Robinson and Paul Gibson to Carbon. Lyn joins us from Investec Wealth & Investment Limited, where she was a Senior Paraplanner. She has
Gordon Wilson, Managing Director Global qualities We are extremely proud of our Scottish roots but it is key to our business and for our ongoing service to you that we reach out as far as we can to learn about developments throughout the world. To that end, we have set up key meetings in Houston, Texas, to analyse services and investment techniques from some of the world’s most successful companies and individuals. On a lighter note - and it has to be lighter if you are a Scottish Rugby Union fan - the Six Nations championship again proved a great time to reminisce and for old friends to reunite. We are delighted to support the Bill McLaren Foundation, a great man who epitomized much of what we have to celebrate as a nation, had his own global reach and was constantly driven to produce the highest standards of excellence in everything he did. I hope you have found this update useful. Please let us know any feedback or any issues that you would like included in future issues. Email us at enquiries@ carbonfinancial.co.uk
an Advanced Diploma in Financial Planning (APFS). Paul joins us from CBW Financial Planning, a firm of London accountants based in the City. Paul, who is originally from Aberdeen, is one of the most well qualified advisers in the UK, being a Chartered Financial Planner, a Certified Financial Planner and a Fellow of the Personal Finance Society. Paul will lead the expansion of the Carbon business in Aberdeen, a key step in our plans to build on our growing presence in Aberdeen and the North East. We are also delighted to announce professional exam successes for James Pickles, Alan Ogilvie, Darren Lees and Claire Scott.
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Scottish Game Fair: Sadly, we are bringing to an end our long association with the Scottish Game Fair. After 8 very enjoyable years of hosting clients and friends at Scone Palace, we have decided not to attend this year. Last year was such a huge success, with 400 guests over three days of glorious sunshine. If you are attending this year we hope you have a very similar experience!
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Meet John Bell firms to update. Most fulfilling business experience? Probably seeing the first pension commercial property purchase through to completion. The challenge was keeping all the parties (surveyors, pension administrators, investment managers, solicitors and banks etc) talking to each other. In this edition we meet John Bell, Financial Planner, in our Edinburgh office. We are proud to announce that John has recently attained Certified Financial Planner and Chartered Financial Planner status; a feat achieved by less than 1% of the adviser population in the UK. Experience: 6 years in Financial Services, 4 at Carbon. I used to work in investment operations for HSBC Securities Services. Location: Our Edinburgh office but I hail from Hawick in the Scottish Borders (Bill McLaren’s home). Why join Carbon? At my last job, only my boss’ boss would see our clients and this would only happen maybe once or twice a year. Now I can speak to the people I work for. Best/worst parts of the job? The best part is that none of the clients we work for are identical. This often demands a fair measure of inventiveness and requires us to work alongside solicitors, accountants and other professionals. The industry has come through a heavy-duty transformation over the past few years, shifting the focus from arranging policies towards recognised financial planning. The worst part is waiting for some of the archaic rules and
If you could change one thing about yourself what would it be? I’d like to be fitter. I’m put to shame by some of my colleagues e.g. Lewis who is twice my age but cycled from London to Paris over 4 days in 2010. I have signed up for the Caledonian Challenge this year to make a start. Favourite location/meal: Grimaldi’s Pizzeria in New York, under the Brooklyn Bridge. They don’t let you book, the interior is like an abandoned 70s Café but the food and atmosphere are truly special. Most days there is a queue outside stretching for 1-1 ½ hours. Desert Island disc - one go what would it be? Any of the Black Keys’ albums. Tell us a funny experience about yourself: As a student, I was recruited on to a summer programme for a US sales company. Although I was earning a living, at 80 hours a week my hourly rate was below minimum wage. When I left, I was down to $200 which I spent on a bus ticket to travel over 2,000 miles on a 3 day non-stop journey through 10 states to my new job. I lost my bag on the way and ended up 100 miles short having to book a taxi. I had no money for it. It all worked out in the end.
Carbon takes on the Caledonian Challenge Four fearless Carbon trailblazers have enlisted for the 2012 Caledonian Challenge, taking place on 16th June. In a nutshell, the challenge is to walk 54 miles through the Scottish Highlands in under 24 hours. The organisers point out that it is the physical equivalent of completing the London Marathon twice, plus, in terms of the total amount of ups and downs, two ascents of Ben Nevis – all without sleep. Reassuringly, they add ‘It is tough – but it is achievable’. The Scottish Community Foundation (SCF) is a super charity which champions hundreds of local community based projects throughout Scotland. The reach of the organisation is staggering; the ‘grant map’ on SCF’s website gives some idea of the charity’s coverage – from the Shetland Isles to the Scottish Borders. Carbon crew of Stephen Rowntree, Claire Scott, Darren Lees and John Bell join Sue Bird and Jennifer Smith from Springfords Chartered Accountants to form the ‘Carbonated Springwalkers’. Take a deep breath before trying to say the name! The team is hitting the fundraising trail hard over the coming weeks. Donations are gratefully received at www.caledonianchallenge.com/donate/ CarbonatedSpringWalkers
The newsletter from Carbon Financial Partners